Finance

Essential financial news & intel to start your day.
May 7, 2021
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Top Stories

  • The Federal Reserve in its semiannual Financial Stability Report said that the coronavirus pandemic is one of the most significant near-term risks to the financial system, and that asset prices could be vulnerable to “large and sudden declines” if the appetite for risk were to “decline from elevated levels.” The report also flagged pockets of high leverage among hedge funds and related entities. (The Wall Street Journal)
  • Appearing before the House Financial Services Committee, Securities and Exchange Commission Chairman Gary Gensler signaled tougher oversight of financial markets at the agency, saying that he would address the issues in the stock market that led to the GameStop Corp. trading frenzy earlier this year and concerns that retail investors aren’t getting a fair deal from popular trading apps. Gensler also said he would look at new cryptocurrency rules, corporate disclosures related to climate risk and the derivatives that caused Archegos Capital Management to unwind. (Bloomberg)
  • Citigroup Inc. is considering offering cryptocurrency services, according to Itay Tuchman, the bank’s global head of foreign exchange, after an increase in interest from clients. Tuchman said that Citigroup hasn’t come to a final decision on the issue, but that it wouldn’t jump in until the bank can build something that’s helpful to clients and “that regulators can support.” (Financial Times)
 

Chart Review

Ripping Off Workers Without Consequences

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Events Calendar (All Times Local)

 

What Else You Need to Know

General
 

Millions Are Unemployed. Why Can’t Companies Find Workers?

Eric Morath, The Wall Street Journal

In a red-hot economy coming out of a pandemic and lockdowns, with unemployment still far higher than it was pre-Covid, the country is in a striking predicament. Businesses can’t find enough people to hire. Rising vaccination rates, easing lockdowns and enormous amounts of federal stimulus aid are boosting consumer spending on goods and services.

 

McConnell, White House clash on potential worker shortage as labor pressures intensify

Tony Romm, The Washington Post

Senate Minority Leader Mitch McConnell (Ky.) on Thursday alleged that the Biden administration’s stimulus law, which included $1,400 checks and new unemployment assistance for millions of Americans, had created a massive labor shortage that threatens to hold back the country’s economic recovery. “We have flooded the zone with checks that I’m sure everybody loves to get, and also enhanced unemployment,” McConnell said.

 

Millions head back to work amid employer confusion over masks, vaccines

Rebecca Rainey, Politico 

Millions of people are flooding back to work as the coronavirus ebbs, but businesses say the federal government’s failure to answer pressing questions over masks and vaccinations are complicating their reopening efforts. Despite President Joe Biden’s new goal of getting 70 percent of Americans vaccinated by July 4, and his call for every employer to offer paid time off for workers to recover from the shot, the government has yet to answer whether it’s legal for businesses to offer vaccine incentives to their staff.

 

Hill Democrats Slow-Walk Axing Trump Rules They Proposed Killing

Courtney Rozen, Bloomberg Law

Democratic lawmakers are largely passing on opportunities within their control to swiftly overturn Trump administration regulations they loathe, even as the easiest path to do so is about to expire. Democrats have acted on just one of six resolutions they’ve introduced using the Congressional Review Act, a law that allows legislators to strike the previous administration’s last-minute regulations if both chambers approve it.

 

Fewer Babies and Higher Price-Earnings Ratios Go Hand in Hand

Peter Coy, Bloomberg Businessweek

It’s no paradox that stock prices are exceptionally high at a time when the U.S. is experiencing near-record-low population growth. Fewer babies and higher price-earnings ratios go hand in hand, JPMorgan Chase & Co. economist Jesse Edgerton wrote in a client note on May 5.

 
Fiscal Policy
 

Biden Tax Plan Takes Aim at Trump-Era Investment Incentive

Richard Rubin, The Wall Street Journal

The Biden administration says it’s trying to spur investment in America—while proposing to remove a four-year-old tax break that was intended to do exactly that. The break—a deduction for foreign-derived intangible income—has an odd name, but it works in some ways like an export subsidy for companies.

 

McConnell Decries Biden Proposals to Tax Capital Gains at Death

Steven T. Dennis, Bloomberg

Senate Republican leader Mitch McConnell ripped President Joe Biden’s plan to end a tax break that lets the richest Americans transfer much of their wealth tax-free at death, calling it “a second estate tax.” Biden’s proposal to boost taxes on capital gains in excess of $1 million is among the tax code changes he wants to make as part of an expansive package of spending on social programs. 

 

Farm-District Democrats Raise Caution Flag on Capital-Gains Tax Plan

Richard Rubin, The Wall Street Journal

Rural Democrats issued a warning Thursday about the Biden administration’s plan to tax unrealized capital gains at death, saying they are worried about the potential impact on family farms. In a letter to House leaders, 13 members said they appreciated the administration’s proposal so far to let family-owned farms and businesses defer the taxes if they stay in family control and operation.

 

Biden Aides Quietly Say His Tax Increases Would Help Charities

Jim Tankersley, The New York Times

President Biden’s plan to raise taxes on high earners and the wealthy is likely to entice more rich Americans to give property or other assets to charity before they die in order to avoid large tax bills, a top administration official told nonprofit leaders last week in a private conference call. On the call, a deputy director of Mr. Biden’s National Economic Council, David Kamin, was asked how the president’s tax plans would affect charitable giving — in particular, his proposals to change the tax treatment of the capital gains income that high earners receive from selling assets that have gained value, like businesses or stocks.

 

‘Where Is My Tax Refund?’ Millions of Americans Are Waiting for the IRS to Pay Up

Laura Saunders, The Wall Street Journal

It’s May. Do you know where your tax refund is?

 

Brokers Raise Billions for Green Land Deals IRS Calls Tax Scams

Neil Weinberg and David Voreacos, Bloomberg

New York fund manager Andrew Beer got an unsolicited email offer a few months ago that sounded too good to be true — join other investors to buy 276 acres of land in Mississippi, promise never to develop it, and get whopping tax deductions of as much as five times the amount invested. The pitch was for what’s known as a syndicated conservation easement, a land deal that the Internal Revenue Service says is often an abusive tax shelter. 

 
Economy and Monetary Policy
 

Strong Expected Job Growth in April Set to Propel Economy

Sarah Chaney Cambon and Gwynn Guilford, The Wall Street Journal

Employers likely added jobs at a robust pace for the second straight month in April, signaling a speedy economic recovery from last year’s historic downturn. Economists expect payrolls grew by one million in April after rising by 916,000 in March. 

 

Traders Ramp Up Bets on a Hawkish Fed Surprise at Jackson Hole

Stephen Spratt and Edward Bollingbroke, Bloomberg

A large option bet on quicker rate-hikes by the Federal Reserve got bigger this week, even as officials pushed back against hawkish expectations. The wager — carrying a notional value of $40 billion — is focused on a possible surprise at the annual August symposium in Jackson Hole, which has been used in the past by central bankers to signal changes in monetary policy.

 

Biden hopes to revive long march of women back into US workforce

James Politi and Taylor Nicole Rogers, Financial Times

Female labour force participation rate reached its height 21 years ago.

 

Fed’s Bostic Says Economic Inclusion is Key Mission for the Fed

Steve Matthews, Bloomberg

Creating a more inclusive economy that provides better jobs for low income workers and minorities is part of the U.S. central bank’s key mission of pursuing maximum employment, Federal Reserve Bank of Atlanta President Raphael Bostic said. “Economic inclusion, I firmly believe, is among the defining economic issues of our time,” Bostic said Thursday in prepared remarks to the Consumer Financial Protection Bureau’s research conference. 

 

Don’t Blame Central Banks for Inequality, BIS Chief Says

Carolynn Look, Bloomberg

Economic inequality isn’t caused by central banks, and government officials must play their part in tackling the fundamental reasons for the gap in income and wealth, according to the Bank for International Settlements. “Inequality is not a monetary phenomenon over the long run,” BIS General Manager Agustin Carstens said in a speech at Princeton University on Thursday.

 
Banking
 

Wells Fargo says U.S. consumer watchdog has opened new probe on mishandling of accounts

Katanga Johnson, Reuters

Wells Fargo and Co. is facing a new probe from the U.S. consumer watchdog over how it disclosed and assessed monthly fees on certain consumer bank accounts in 2016, the bank disclosed in a regulatory filing on Thursday. The Consumer Financial Protection Bureau (CFPB) is “investigating certain of the Company’s past disclosures to customers regarding the minimum qualifying debit card usage required for customers to receive a waiver of monthly service fees on certain consumer deposit accounts,” the bank said.

 

JPMorgan Memo Warned $875 Million Payment Was Graft Risk

Jonathan Browning, Bloomberg

JPMorgan Chase & Co. was warned by its compliance team over the “great risk” of corruption just days before it made the last of three transfers that totaled $875 million to a former Nigerian oil minister. The internal memo is set to be scrutinized in a London lawsuit brought by the West African nation. 

 

Banks Seek Biden’s Aid After Trump’s 1,000-Sanctions-a-Year Pace

Saleha Mohsin, Bloomberg

Wall Street firms have urged the Biden administration to ease the industry’s burden in complying with a flood of financial sanctions the U.S. has levied in recent years as a primary tool of foreign policy toward Russia, China, Iran and other adversaries. Financial services industry groups have asked for more transparency and flexibility to target big-money evasion of the restrictions, as the Treasury Department undertakes an exhaustive review of its sprawling sanctions programs, led by Deputy Secretary Wally Adeyemo.

 
Financial Products and Investments
 

Biden Team Likely to Proceed With Trump China Investment Ban

Saleha Mohsin and Jennifer Jacobs, Bloomberg

The Biden administration is likely to maintain pressure on China by preserving limits on U.S. investments in certain Chinese companies imposed under former President Donald Trump, six people familiar with the matter said, bucking entreaties from Wall Street to ease the restrictions. Biden officials are still in preliminary discussions about Trump’s investment bans on companies linked to China’s military, which included three of the country’s biggest telecommunications firms, the people said.

 

BlackRock at Odds With Warren Buffett’s Berkshire Hathaway Over Disclosures

Dawn Lim, The Wall Street Journal

The world’s largest asset manager is in disagreement with the world’s most famous investor. BlackRock Inc. voted for two shareholder proposals that would require Warren Buffett’s Berkshire Hathaway Inc. to publish disclosures on how it manages climate risk and diversity efforts across its many businesses. 

 
Housing and GSEs
 

The Global House Price Boom Could Haunt the Recovery From Covid-19

Mike Bird, The Wall Street Journal

The year of the pandemic saw the largest increase in global house prices since the U.S. housing boom of the mid-2000s. And there is no sign the rally is coming to an end. That provides immediate economic support for the global recovery from Covid-19. But a prolonged house price upswing would mean big new problems for both financial stability. 

 
Financial Technology
 

Cash App Is King at Square

Peter Reudegeair, The Wall Street Journal

Jack Dorsey’s Square Inc. became a tech darling on the back of its signature white credit-card readers aimed at small businesses. Nowadays, its consumer-focused Cash App digital wallet is stealing the limelight.

 

PayPal Wants More Customers to Pay Using Crypto Assets

Nina Trentmann, The Wall Street Journal

PayPal Holdings Inc. is looking to expand its lucrative business of enabling customers to pay merchants with crypto assets, but the digital payments company doesn’t yet plan to invest in these assets, Chief Financial Officer John Rainey said. “It is still a highly volatile asset right now,” Mr. Rainey said, referring in general to fluctuations in price of cryptocurrency assets. 

 

Crypto Exchange FTX Launches Lumber Futures After Just Two Hours of Work

Joe Weisenthal, Bloomberg

Here’s a quintessential markets-in-2021 story. The crypto exchange FTX launched a lumber futures market.

 

Cryptocurrency investors should be prepared to lose all their money, Bank of England governor says

Ryan Browne, CNBC

 Cryptocurrencies “have no intrinsic value” and people who invest in them should be prepared to lose all their money, Bank of England (BOE) Governor Andrew Bailey said Thursday. Digital currencies like bitcoin, ether and even dogecoin have been on a tear this year, reminding some investors of the 2017 crypto bubble in which bitcoin blasted toward $20,000, only to sink as low as $3,122 a year later.

 
Opinions, Editorials and Perspectives
 

Riding the Culture Clash Wave: How California is Looking to Balance Consumer Protection and Responsible, Emerging Fintech Products

Manuel P. Alvarez ( commissioner of the California Department of Financial Protection and Innovation), Morning Consult

Culture Clash, the California-based performance trio with a 90s sketch comedy television show of the same name, nailed a duality common for kids like me. As one of the few Latinos riding waves in Oxnard, my favorite skit involved a surf-off between three fish-out-of-water Chicanos and a rival crew of local beach bums.

 

The Corporate Tax and American Sovereignty

Thomas J. Duestersberg, The Wall Street Journal

Treasury Secretary Janet Yellen has a grand idea: a global tax regime. She envisions a minimum corporate tax standardized across the developed world and expanded authority for nations to tax multinational corporations. Together with the Biden administration’s plan to raise the U.S. corporate tax rate to 28% and eliminate preferences, it would return the U.S. to its pre-2017 status as a high-tax jurisdiction, discouraging domestic capital investment and production.

 






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