M Notes: Mon, 8-26

LAST WEEK:

Markets:  Fed news sends Markets higher last week.  

S&P roller coaster last week:  Up a lot, Down, Up, Down a lot, and Up a lot.  

Fed Balance Sheet:  $7.140 Trillion (last week… up -$ 38 Billion).  Reminder: their balance sheet was closer to $4 Trillion before the Pandemic.  

Fed’s Jackson Hole meeting:  At his keynote address Friday morning, Fed Chair Jerome Powell told us what we’ve been waiting for:  it’s time to start reducing their Interest Rate.  What should you expect?  We could see a ½ point drop at their September meeting, followed by more in future meetings.   Or we could see just a ¼ point drop, with that happening at every meeting for a bit (they meet 8 times each year).  We don’t have long to wait… their next FOMC meeting is September 17-18.

Fed Minutes:   While they came out on Wednesday last week, their timeline was about a month ago.  The Jackson Hole symposium (last Friday) clearly outweighed what was said in the Fed Minutes.  So, no need to focus on it.   

Housing:  Existing home sales were up +1.3% in July, but were down -2.5% Y/Y.  New home sales were up +10.6% in July, and were +5.6% Y/Y.  Two weeks ago:  Starts were down -6.8% in July and were -16.0% Y/Y.  

Jobless claims:  The weekly number came in at 232,000.  The four-week average came in at 236,000.

National Debt:  $35.050 Trillion (last week… up +$20 Billion).  

Politics:  Normally, I don’t discuss politics in M Notes.  But it’s a Presidential election year and what is said could impact what happens in the Markets.  So, in the desire for transparency, before I share some thoughts you should know the “glasses” I wear.  I refer to myself as a ConservaTarian.  I’m a Fiscal Conservative, and a Social Libertarian (government only where necessary… just stay out of our lives).  That said, let me give you some thoughts.  

What does Kamala Harris want to do if she’s elected President of the United States?  It’s more of an unknown at this point.  Lots of “vibe” and “joy”, but little substance.  There’s video from 2019, her last run for the Office.  Her positions gave a pretty clear picture:  do away with fracking, open border, fully nationalize health care, etc.  We’ve been told by her campaign that she doesn’t believe those things anymore.  Perhaps.  But we haven’t heard her address those items.  

A week and a half ago (8/16) she did give us her first thoughts on her economic platform.   Housing:  She wants to build 3 million new housing units, and give first time home buyers $25,000/each.  Child tax credit:  $6,000 credit to families with newborns.  Copied the Trump proposal: no taxes on tips.  Inflation:  Harris wants the government to use Price Controls.  She singled out Food (where companies operate on a slim 0-2% margin).   Nixon tried Price Controls in the early 70’s, and it was a disaster.  And this Harris proposal has been soundly criticized by both left and right leaning organizations.  

Last week, the Harris Campaign released further economic platform details.  They believe the Corporate tax should move from 21% up to 28%.  If this is adopted, Corporations will simply, as they have in the past, move their headquarters and operations to other countries with lower tax rates.  

The Long-Term Capital gains tax would move from 20.0% up to 44.6%.  If this was passed, many would sell what they had before the new tax would be effective.  Which could potentially impact Markets in a negative way (lots of supply and little demand).  What would happen to Markets if the Wealthy chose not to participate?  

Maybe the most important one: in an effort to raise taxes by $5 Trillion (over 10 years), create a tax on Unrealized Capital Gains.  This has never been done before.  American Citizens will get taxed on Investments, Property, etc., that have gone up in value but haven’t been sold.  Those worth more than $100 million would pay an annual minimum tax of 25% of their income combined with unrealized capital gains.  The Harris Team is calling it a Wealth Tax.  This is under the view the Wealthy just need to pay their fair share (even though the top 1% pay 70% of all annual income taxes).  We need to see a lot more details on this to understand just how impactful this could be. 

Kamala Harris’ campaign says she’s moved away from her Progressive views.  That she’s really more of a Moderate and focused on “not looking back, but moving forward”.   Perhaps.  In the past, Harris has said she’s not focused on equal Opportunity, but equal Outcomes.  From the little she’s shared thus far, since becoming the Democratic Nominee: if the Government is fully in control of your Health Care, fully in control of the Food Supply, and decides to arbitrarily confiscate money from wealthy individuals… we may no longer have a Representative/Constitutional Republic (we have never been a Democracy).

I’m reminded of the quote from Ronald Reagan in 1986:  “The nine most terrifying words in the English language are: I’m from the Government, and I’m here to help.”

 ------------------------------

THIS WEEK:

Focus of the week:  Inflation (again).  Friday morning, we get the update on the Personal Consumption & Expenditures index (the PCE).   This is the metric the Federal Reserve focuses on for Inflation.  The July number is expected to move from 0.1% up a tick to 0.2%.  The Y/Y number is expected to tick up from 2.5% up to 2.6%.      

Calendar:  Durable goods orders  (Mon); the 2nd read on Q2 GDP, jobless claims (Thu); and the PCE (Fri).