[Market Madness] Edition 0107
Sunday Recap
Housekeeping
Well folks, another weekend has come and gone. Crazy how the relaxing time flies before the work comes right back. I start tomorrow (Monday), which marks the beginning of my full-time work career. As a result, I will be changing the publication schedule for the time being and will adjust it as we go depending on feedback and how things go. Currently, I plan to publish on Wednesday evening, Friday evening, and on Sunday. I hope that this schedule allows for flexibility on both sides (me writing and you all reading).
Also, technical challenges through Substack are not allowing me to put my logo banner at the top of my emails. Don’t worry - you can find it at the bottom of the email still!
Let’s get into the news.
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Fundamentals
Friday’s Close:
Dow Jones: +0.17%
S&P 500: +0.06%
NASDAQ: -0.87%
U.S. Dollar Index: 93.40
US 10 YR: 0.558%
Crude OIL: $41.52
Spot Gold: $2030.92
Market Madness Portfolio: -0.45%
COVID 19 Global Cases: 19,665,645 (updated Sunday)
Indices Overseas:
Nikkei 225: -0.39%
Hang Seng: -1.60%
FTSE 100: -0.03%
TEDRATE: 0.16
LIBOR (3 month): 0.24325%
Executive this and executive that
‘Ole Donnie is back at it again, and this time trying to swoop in heroically and provide to the people what Congress could not. It all sounds great, but like any business proposition, the devil is in the details.
In this new order, unemployment assistance has been extended to $400/week, but will only be funded 75% by the federal government and the remaining 25% is up to the states to cover. States are left with a challenge because the toll created by the virus has put many states deep into budget deficits, forcing cuts to be made elsewhere, because unlike the federal government, states are unable to print more money when they go over in their spending. The cuts may not affect things right away, but with most things, these cuts will come back to haunt us long after the virus has been dealt with. For states that have reserves in their budgets, covering the extra 25% will not be so bad for the time being.
In response to the decrease from $600 to $400, Donnie argues that the lower number will better incentivize people to return to work. Okay fine, for people who were holding off going back to work because of the fruitful UI benefits that is one thing. But we have had 20-plus weeks of one million or more new jobless claims and many of those have been in the past few weeks as the $600 was nearing closer to expiring. The real problem here is that many people still do not have jobs to go back to. It is nice to think that reducing the UI benefits will magically make those jobs reappear, but I’m sorry to be the one to tell you that it won’t. We have over 10% unemployment, and the economy is stagnating — there should be more incentives to help people in time of need than using the stick approach.
The other mess that Donnie has created that still seems to have bipartisan disapproval is his inclusion of a payroll tax cut.
“Trump said he will establish a payroll tax holiday through the end of the year to Americans earning less than $100,000 per year and instruct the Treasury Department to allow employers to defer payment of the employee portion of certain payroll taxes. However, there’s no guarantee workers will receive that money.” (excerpted from CNBC article)
Payroll taxes are important and go towards helping fund the Social Security pool and Medicare. Workers and employers split the burden equally for these taxes and help keep funding available for these necessary services. There has been so many articles this year talking about the creeping expiry of Social Security funds that it should make retirees or soon-to-be retirees worry if there will be anything left in the pot when it’s their turn.
The other major portion of payroll taxes go toward “federal income” which provides the money necessary to fund all the government programs, and theoretically repay all the government debt incurred through all these stimulus measures. To push fiscal stimulus and pause payroll taxes puts enormous strain on the printing presses at the Fed. That, in turn, will further escalate the risk associated with the debt behind the USD and further lead to an increase in tax rates down the line.
Not to mention the fact that many states are likely going to seek legal action against the administration, just like with executive orders of the past. We’re not moving the needle any bit forward. The reason that passing legislation through Congress is effective is because there is a level of agreement and understanding among a variety of representatives and senators. Donnie’s waving of the pen acts like law, but is easily removed and redacted by the next person in line. When all is said and done, it is likely that most, if not all, of his executive orders will be redacted by the next administration when they come in and we will be sitting right back at square one looking at Capitol Hill to put their differences aside and actually push policy. It is times like these that I am really thankful that I minored in Public Policy because I can understand the way processes are supposed to work, and what is so wrong with how it has been going lately.
Read more here, here, and here.
Quick Takes
Kodak’s pharma move is on hold over questions about the stock market boost. (via CNBC)
Twitter talks TikTok. (via WSJ)
Oil company Saudi Aramco net income dropped by over 50% in H1 2020. (via CNBC)
Netflix to bid for TikTok? (via CNBC)
General Banter
The banter will be back on the next edition, Wednesday, August 12!
Reader’s Corner
The reader’s corner is quiet today - continue as you would.
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Behind the Madness
You’ve made it through the madness. I’ve worked really hard to ensure that you leave this page having learned something, and I hope that benefits you in your daily adventure. Thank you again for checking in.
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