Overall, this has been a quiet week. The failure of the Trump administration to pass healthcare reform initially disappointed the markets, but they rebounded with the hopes of tax reform on the horizon. Stocks rebounded to near record highs while Treasury bonds fell and yields moved higher, reported Lance Gaitlan, Dent Research on Friday, March 31, 2017.
Thanks to Dent Research, provided here is our weekly information roundup ending the week of March 31, 2017. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news.
S&P CoreLogic Case-Shiller 20-City Home Price Index Up 5.7% in January over Last Year… That’s the fastest pace in almost four years.
What it means – The data is from January, so it’s dated. But just as with existing homes, which are 90% of the market, the Case-Shiller is showing the resilience of the real estate market. Every time it looks like prices are about to roll over, as new home sale prices did last week, we get another piece of data that shows prices remain firm. Seattle is out front, where prices climbed more than 11%, with Denver and Portland both booking over 9% gains. As usual, the question of “How long?” remains.
Prices are climbing at more than 5%, but incomes are inching up at barely half that rate. Homes are becoming less affordable, not more so. At the same time, the worry of rising interest rates looms in the background. Home builders must be burning the midnight oil trying to figure out where this industry goes next. I still think it’s time for a much-needed pullback, and wouldn’t be surprised to see the market to go soft this summer.
Republicans Fail to Pass Affordable Care Rewrite… House Republicans couldn’t convince members of the Freedom Caucus to vote for the bill, effectively ending healthcare reform for the moment and handing President Trump a legislative failure.
What it means – The inability to corral their members is a blow to Republicans, but passing any reform of healthcare carried its own risk. From that point forward, everyone who lost coverage or experienced a price hike would have blamed them. As it stands, responsibility for the state of healthcare remains with the Democrats.
As insurers gear up for 2018 premium hikes and more of them leave small markets, this could get ugly. The current path of healthcare is unsustainable. It might be better for Republicans to let it fail under its own weight before trying to tackle it again.
U.S. Fourth-Quarter GDP Increased 2.1%... The latest revision to fourth-quarter GDP growth pushed it slightly higher, driven by more consumer spending and higher inventory growth.
What it means – Few people care about revisions to GDP. It’s all about the first estimate that comes out the month after the end of the quarter, so this report won’t raise any eyebrows. But there was something troubling in the numbers.
Higher inventory figures suggest that GDP growth in later quarters will lag as businesses work off the excess. The Atlanta Fed’s GDPNow model, which is the most accurate GDP forecasting tool I’ve seen, puts first-quarter growth at a mere 1%. Remember, this number is annualized. If the Atlanta Fed is correct, the economy increased by a tiny 0.25% over the past 90 days, at a time when consumers brimmed with confidence and the markets marched higher because of the Trump presidency.
This highlights what we’ve harped on for years. Consumers can feel good, bad, or indifferent. Their spending is much more dependent on where they are in their age and stage of life than how they feel.
With the massive generation of boomers either preparing for or entering retirement, now is not the time to splurge. The millennials can’t take control of the economy fast enough. We’ve got a few more years of mediocrity before things get appreciably better.
British Prime Minister May Invoked Article 50, Triggering the Country’s Exit from the European Union… On March 29, Prime Minister May delivered the fateful letter, starting a two-year window in which Britain must negotiate its withdrawal.
What it means – Calling it quits is the easy part. Defining the terms of the Brexit divorce will be brutal. Britain wants free trade and capital flows, while putting limits on migration. The EU wants the borders to be as open as the trade and capital markets. Britain can’t be seen getting all the good without the bad, and the EU can’t be viewed as giving in. That would lead other countries to run for the exit.
And then there’s the little matter of money. The EU wants Britain to prepay for all the commitments the economic bloc made but hasn’t yet funded, like aid to certain countries, pensions, etc. The tab is anywhere from $25 billion to $75 billion, depending on how you count. Given that part of the reason Brits voted to leave the EU was to stop sending cash to the continent, there’s no doubt this will be a huge sticking point in the negotiations.
The IRS Issues John Doe Warrant for Coinbase… The IRS wants Coinbase, a major Bitcoin exchange, to hand over all data on clients so it can scan for tax evasion.
What it means – Coinbase is pushing back, but will probably lose. The IRS notes that, given the incredible growth of Bitcoin use, there has been a notable lack of tax filings regarding the digital currency. The big difference gives the service the ability to identify a loosely defined class of people (those using Coinbase) as likely to include tax cheats.
And they are right.
We might talk about Bitcoin as a “currency,” but the IRS defines it as an asset. Every time it is bought, sold, or traded for something (as in used to purchase stuff), it’s a taxable event and should be noted to the IRS. I’d imagine no one does that. The time of reckoning for Bitcoin is near.
Starting April 1, Amazon Will Collect Sales Tax in All States… Even though not required, the e'commerce giant will collect sales tax in states where it has no physical presence.
What it means – Sales tax is the responsibility of the buyer, not the seller. Retailers collect it as a matter of convenience. But this has left states, cities, and other tax authorities in a tough place when it comes to Internet sales. For items bought from retailers without a physical presence in the state, consumers must pay the tax by using a form issued by their state.
But no one does this. As in, no one.
States, cities, and others missed out on billions in tax revenue every year. Amazon’s move will change that, but it still leaves the issue of every other retailer, large and small, who sell online across state lines.
The problem is that compliance is very difficult. Keeping up with the tax rates in every jurisdiction is a monumental task. It’s not just state sales tax, it’s also local taxes. This looks like a good opportunity for an enterprising techie to create an app. Maybe one of the states losing tens of millions in revenue could spend a few bucks to create a compliance app. In the meantime, consumers who aren’t subject to sales tax on Amazon should buy what they can today.
Uber Self-Driving Car Involved in Crash… An Uber self-driving car legally entered an intersection under a yellow light and was hit by a driver turning left.
What it means – This is distressing, but not for the reason you think. There are so many sensors on these cars that we have an exact record of everything that happened and can recreate the circumstances to the smallest detail. There were three lanes of traffic. There was a line of cars blocking the view of the self-driving car as well as that of the driver attempting the left turn. By the time the turning car saw the Uber vehicle, she could not stop and the Uber car could not avert the incident. It sounds like a straightforward case of a left-turning driver not verifying she could safely execute the maneuver. But this is where it gets scary.
An eyewitness claimed the Uber car “hit the gas hard” to make it through the yellow light, causing the accident. The multiple sensors on the vehicle prove that accusation to be false. The car was traveling 38 mph, just under the 40 mph speed limit, and didn’t accelerate to make the light. If a person were driving the car and had none of the sensors to prove the timing of the light and speed of travel, who would be blamed for the accident? This is just another example of how unreliable eyewitnesses can be.
Next Week – The first week of April includes a report on factory orders and minutes of the last Fed meeting, but everyone will focus on the Employment Situation report on Friday.
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