|By Christo Barker, 03/28/2014|
It seems the IRS is going global, a development that has some pundits up in arms about potential stock market impact. The Foreign Account Tax Compliance Act (FATCA) is what I’m referring to. Under FATCA, the IRS is moving toward taxing US citizens’ offshore financial activity, including money held in banks abroad—effectively eliminating “tax havens” for US citizens. US expatriates and foreign banks are up in arms. The law conflicts with local banking laws in other countries, and banks have responded by simply slashing access to banking services for Americans living abroad. But while it creates hassles, barring a big international regulatory blowback, the law doesn’t seem poised to create many ripples for stocks.
FATCA, now four years old, was conjured following a 2009 scandal, which revealed a major Swiss bank was helping well-to-do Americans dodge taxes. The backlash against the scandal peaked in 2010, when Congress passed FATCA as a provision of HR 2847, the Hiring Incentives to Restore Employment Act. An effort to boost US government tax revenue by broadening the base, FATCA also has some grassroots appeal as it carries the label of reducing tax dodging. FATCA was supposedly a means to get fatcats to pay their fair share. (My apologies for the pun.) Foreign banks were also not the most popular group in the immediate aftermath of the Global Financial Crisis.
Initially, FATCA seeks to provide the IRS information about US citizens’ and green card holders’ taxable accounts exceeding $50,000 in market value held at foreign financial institutions. International banks (Foreign Financial Institutions or FFIs) are required to ink a special deal with the IRS, under which they report all US taxpayers’ qualifying accounts and holdings. Account disclosure began January 1, 2014. After June 30, 2014, foreign banks will have to provide details regarding investment account holdings, and by January 1, 2015, FATCA’s full implementation will install a 30% withholding on US sourced income (salary/capital gains/interest/dividends).
|By Fisher Investments Research Staff, 12/10/2013|
In its second release, Q3 US GDP was revised up to a seasonally adjusted annual rate of 3.6%—the fastest growth in more than a year and among the quickest rates in the current expansion to date. However, most economists and pundits greeted the acceleration with a resounding thud. Under the hood, they claim, the data were not so hot. Reason being, the most notable contributor to growth was increasing inventories, adding 1.7 percentage points to the headline number. Some posit this means growth is hollow—after all, inventory change is open to interpretation. It could be due to slowing sales, a potential negative for profits and growth ahead. Or due to inventory build ahead of an expected pick-up in sales this holiday season. If the pessimists are right, one would expect wholesale inventory growth to sharply slow as we enter Q4. Yet Tuesday, the first inventory report of the quarter suggested no such thing: US wholesale inventories grew at their fastest clip in two years.
In October, wholesale inventories grew 1.4% m/m (3.3% y/y) vs. estimates of 0.3%. Both durables and non-durables stockpiles grew (0.4% m/m and 3.0% m/m, respectively.) So what gives?
While inventory growth undoubtedly contributed strongly to GDP in Q3, that never meant inventories were at historically high levels. As Exhibit 1 shows, the inventory-to-sales ratio isn’t overall elevated. Total goods and non-durable goods are at relatively low levels compared to history, and while durable goods inventories are somewhat higher relative to sales, they are not alarmingly high. In short, there is nothing suggesting inventory growth is unsustainable overall relative to the pace of sales. Of course, maybe inventory growth does slow in the period ahead, but it wouldn’t seem to be related to overall overstocked shelves. This is yet another factor illustrating the fact reality may be considerably better than skeptics presume.
Five years ago, on Black Friday 2008, quantitative easing (QE) was born. In its quest to battle the deflationary effects of the financial panic, the Fed launched the “extraordinary” policy of buying long-term assets from banks. In exchange, the Fed credited banks’ reserve accounts, believing the banks would lend off these reserves many times over—a big money supply increase to boost growth.
To date, through multiple rounds of (now infinite) QE, the monetary base (M0) has swelled by nearly $3 trillion. Yet this economic expansion has been the slowest in post-war history.
Exhibit 1: Cumulative GDP Growth
Is the UK housing market overheating, or is it merely the latest example of froth fears that are detached from reality?
Recent home price data and the UK’s Help to Buy scheme’s early expansion already have some UK politicians and business leaders wondering—some going as far as calling for the Bank of England to cap rising home prices. Taking a deeper look, however, I see a different story: Rapid housing price gains have been concentrated in London. Restricting overall UK housing with more legislation likely won’t fix that, and it probably won’t help spread London’s gains to UK housing elsewhere. More importantly, the fact UK housing gains aren’t widespread tells me a nationwide bubble neither exists nor is particularly probable—even with an expanded Help to Buy program.
While UK housing started slowly improving after Help to Buy began in April, the program has only been lightly used in the early going—suggesting the housing recovery is coming from strengthening underlying fundamentals and isn’t purely scheme-driven. In Help to Buy’s first phase, the government promised to lend up to 20% of a home’s value at rock bottom rates (interest free for five years, 1.75% interest after) to buyers with a 5% down payment—providing up to £3.5 billion in total loans. Only first-home buyers (of any income strata) seeking newly built houses valued at £600k or less could participate. The Treasury began a second (earlier-than-expected) iteration in October, in which it guarantees 20% of the total loan to lenders, instead of lending directly to the buyer. The program was also expanded another £12 billion for buyers purchasing any home (new or not).
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|By Victoria Stilwell, Bloomberg, 11/24/2015|
MarketMinder's View: Inventory gains are always open to interpretation. On the positive side, they could mean businesses stocked up in anticipation of higher demand. Or, not so good, they could indicate a supply overhang. What do they mean this time? Considering consumer spending is strong and disposable incomes are up, a supply overhang would be very odd indeed. Seems more likely firms built stockpiles for the holiday shopping frenzy. That could mean inventory drawdowns detract from growth later on, but that is a statistical quirk more than anything.
|By Jeff Cox, CNBC, 11/24/2015|
MarketMinder's View: Nah, they really aren’t. Corporate insiders’ trades aren’t a leading indicator for stocks. Execs trade for a host of reasons, not at all limited to their outlook for their own company. Diversification is a biggie—a lot of these guys and gals get paid in company stock, and if left unchecked, it can build up over-concentrations. Diversifying is always wise, whether or not a big position happens to be in the company you work for. Execs will also cash in to buy real estate, send the kids to college, pay for weddings, and any other big life-event expense. They’re people too, you know. This is a big reason why there is no set relationship between execs’ trading habits and future stock prices. As for the rest of this, which discusses the alleged evils and risks of stock buybacks, a couple counterarguments. One, business investment is rising, not falling, and presently sits at all-time highs. There is no conflict between buybacks and investment. It is a media construct, pure and simple. Two, many of those buybacks serve to offset the stock-based compensation mentioned above. When companies issue new shares or options to employees, they often buy the equivalent amount on the open market to prevent the dilution of existing shares. That is overall positive financial management and basically how you want the system to work.
|By Staff, EUbusiness, 11/24/2015|
MarketMinder's View: Take this poll, which showed 52% of respondents favored leaving the EU, with many grains of salt. One, it had no “undecided” option—a competing poll, which did, had results of 43% for leave, 40% for stay, and 17% undecided. Two, it’s early. The referendum might not happen for two years, and with the government’s negotiations with Brussels on reform just beginning, voters have no idea what their eventual choice will look like. Three, as early polling in Scotland’s and Quebec’s independence campaigns showed, folks usually overstate their tendency to vote for change this far ahead of a vote, when it’s a hypothetical idea and they aren’t confronted with real-world implications. On voting day, when forced to weigh the consequences of a change, the status quo often seems much more enticing. So we wouldn’t read much of anything into any polls on the “Brexit” referendum until the vote is much, much closer. (And even then, pre-election polls have a dismal recent history.)
|By Ivana Kottasova, CNNMoney, 11/24/2015|
MarketMinder's View: And then they rose a bit, underscoring localized conflicts’ long-running inability to sink stocks for long. Of course, this is all making way too much of intra-day volatility, so consider these charts instead.
Market Wrap-Up, Monday, November 23, 2015
Below is a market summary as of market close Monday, 11/23/2015:
- Global Equities: MSCI World (-0.3%)
- US Equities: S&P 500 (-0.1%)
- UK Equities: MSCI UK (-1.1%)
- Best Country: Austria (+0.8%)
- Worst Country: Switzerland (-1.2%)
- Best Sector: Consumer Staples (+0.2%)
- Worst Sector: Utilities (-1.0%)
Bond Yields: 10-year US Treasury yields fell 0.02 percentage point to 2.24%.
Editors' Note: Tracking Stock and Bond Indexes
Source: Factset. Unless otherwise specified, all country returns are based on the MSCI index in US dollars for the country or region and include net dividends. Sector returns are the MSCI World constituent sectors in USD including net dividends.