Finance

Essential financial news & intel to start your day.
April 30, 2021
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  • Jeff Courtney, a former JPMorgan Chase & Co. executive, wrote a report, later reviewed by a media outlet, that outlined how over three decades, Congress and other Washington institutions had made the student loan program appear to be profitable even as defaults became a more real possibility, and estimated that only 51 percent to 63 percent of the defaulted amount will be recovered by the U.S. government, representing hundreds of billions of dollars. The Education Department, which ended Courtney’s project in late February, said the report was based on incomplete data. (The Wall Street Journal
  • Duke University and Vanderbilt University are among the largest shareholders in a company that owns only a delicatessen in Paulsboro, N.J., called Hometown International, which was recently called out by hedge fund manager David Einhorn for its inflated valuation. Einhorn described in a letter to investors how Hometown’s nine-figure valuation is an example of the negligence of financial regulators, and according to one law school professor, Hometown is a “self-parody of a SPAC” and is “what I would expect at the end of a bubble.” (Financial Times
  • The Securities and Exchange Commission delayed a decision on a proposal regarding a Bitcoin exchange-traded fund from investment manager VanEck, extending the deadline for a decision to mid-June. The agency, now led by Gary Gensler, who taught a course on blockchain technology at MIT, didn’t offer any explanation for the delay, other than it needed more time. (The New York Times
  • Social Finance Inc. is allowing clients to apply their 2 percent cash-back rewards on the company’s credit cards to bitcoin or Ethereum, according to SoFi Chief Executive Anthony Noto. The fintech is extending its offering to 15 more cryptocurrencies in the following week. (Bloomberg
 

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What Else You Need to Know

General
 

Labor secretary says gig workers should be classified as employees in ‘a lot of cases’

Eli Rosenberg, The Washington Post

Labor Secretary Marty Walsh said that a lot of gig workers are misclassified as contractors on Thursday, sending stocks of tech companies such as Uber, Lyft and DoorDash falling amid speculation about the future of the fraught business model in the Biden administration. “We are looking at it, but in a lot of cases gig workers should be classified as employees,” Walsh told Reuters. 

 

Stocks Are Off to Best Start to a Presidential Term Since Great Depression

Karen Langley, The Wall Street Journal

The stock market closed out President Biden’s first 100 days in office on Thursday with its best start to a presidential term since the days of Franklin D. Roosevelt. The S&P 500 has risen 11% since Mr. Biden’s Jan. 20 inauguration. 

 
Fiscal Policy
 

Biden’s Capital-Gains Tax Plan Would Upend Estate Planning by the Wealthy

Richard Rubin and Rachel Louise Ensign, The Wall Street Journal

President Biden’s American Families Plan would raise capital-gains taxes and end a rule that has been a cornerstone of estate planning for generations of wealthy Americans. The change—increasing the top capital-gains rate to 43.4% from 23.8% and taxing assets as if sold when someone dies—would upend the tax strategies of the very richest households.

 

Biden’s Economic Plan Would Redistribute Trillions and Expand Government

Jacob M. Schlesinger, The Wall Street Journal

Franklin D. Roosevelt created the modern government-funded social safety net in the 1930s to aid lower and middle-income families—paid for in part by raising taxes on the richest Americans. Dwight Eisenhower built the interstate highway system in the 1950s. John F. Kennedy defined federal industrial policy in the 1960s by pledging to put a man on the moon by decade’s end.

 

Biden’s top tax rate would hit earners over $450K

Bernie Becker, Politico 

President Joe Biden’s proposed top individual income tax rate of 39.6 percent would hit income above around $452,700 a year for individuals, according to a White House official. For married couples, the 39.6 percent rate would start at $509,300 in income, and could hit some individuals who make less than the $400,000 Biden has repeatedly cited for triggering a tax hike.

 

What Financial Advisers Are Telling Rich Clients About Biden’s Tax Hike

Laura Davison and Ben Steverman, Bloomberg

President Joe Biden’s proposal to roughly double the capital-gains tax for the rich has put financial advisers in the unusual position of acting as part therapist and part fortune teller. Frantic calls are coming in from clients surprised to see that what they’d dismissed as rhetoric from the 2020 election campaign has come out this week as concrete White House proposals. Advisers are telling them to keep calm, but they’re also counseling to prepare for action—bringing forward planned asset sales, shedding stock, reallocating investments, and even restructuring income. 

 

Death and Taxes: Biden Wants to Step Down the ‘Step-Up’ on Investment Gains

Laura Saunders, The Wall Street Journal

A landmark proposal in President Biden’s newly announced American Families Plan would end the longstanding tax exemption for investment appreciation when a taxpayer dies. This break is known as the “step-up in basis,” and changing it could raise taxes at death significantly for affluent Americans. 

 
Economy and Monetary Policy
 

U.S. Economy Grew Robustly in First Quarter

Josh Mitchell, The Wall Street Journal

A burst of growth put the U.S. economy just a shave below its pre-pandemic size in the first quarter, extending what is shaping up to be a rapid, consumer-driven recovery this year. Gross domestic product, the broadest measure of goods and services made in the U.S., grew at a 6.4% seasonally adjusted annual rate in January through March, the Commerce Department said Thursday.

 

The Economy Is (Almost) Back. It Is Looking Different Than It Used To.

Neil Irwin, The New York Times

There have been a lot of strange economic numbers over the last 14 months, as the world has been whipsawed by the pandemic. But one particular line of the first-quarter G.D.P. numbers released Thursday stands out even so. Americans’ spending on durable goods — cars and furniture and other goods meant to last a long time — rose at a stunning 41.4 percent annual rate in the first three months of the year. 

 

U.S. Unemployment Claims Fell to 553,000 in Latest Week

Eric Morath, The Wall Street Journal

Jobless claims fell again to the lowest level since the pandemic took hold more than a year ago, another sign the labor market is rebounding this spring. Initial unemployment claims, a proxy for layoffs, fell by 13,000 last week to a seasonally adjusted 553,000, the Labor Department said on Thursday. The previous week’s figure was revised up to 566,000. 

 

Covid-19 Stimulus Checks Likely Drove Record Rise in Household Income

Sarah Chaney Cambon, The Wall Street Journal

Household income likely rose at a record pace in March as federal-stimulus checks helped fuel an economic revival that is poised to endure with an easing pandemic. Economists expect household income—the amount Americans received from wages, investments and government programs—rose 20% in March from the previous month. 

 
Banking
 

Biden Tax Plan Leans on Banks to Help Find Unreported Income

Orla McCaffrey and Richard Rubin, The Wall Street Journal

Part of the funding for President Biden’s $1.8 trillion American Families Plan hinges on a beefed-up reporting requirement for banks designed to identify unreported income. The proposal would require banks to report annual account inflows and outflows to the Internal Revenue Service.

 

Credit Suisse Risk Chief Won’t Stand for Re-Election After Archegos Implosion

Margot Patrick, The Wall Street Journal

Credit Suisse Group AG withdrew from re-election the head of its board’s risk committee after a protest vote by investors over the bank’s $5.5 billion loss from Archegos Capital Management. Hours before the bank’s annual meeting Friday, it said Andreas Gottschling wouldn’t stand for reappointment. 

 

HSBC to Raise Pay for Junior Bankers as Industry Battles Burnout

Denise Wee and Jan-Henrik Foerster, Bloomberg

HSBC Holdings Plc’s global banking unit will raise fixed pay for junior investment bankers in key hubs and hire more of them to share the workload, becoming the latest global firm to take steps to address burnout among staff. The lender will also shorten a four year associate program for certain groups in hub locations, including Hong Kong, London and the U.S., according to an internal memo seen by Bloomberg News. 

 

Credit Suisse CEO Gottstein Vows to Restore Calm After Archegos

Patrick Winters and Marion Halftermeyer, Bloomberg

Credit Suisse Group AG Chief Executive Officer Thomas Gottstein pledged to restore calm at the Swiss bank after the Archegos Capital Management scandal caused a $5.5 billion hit and further damaged its reputation. Speaking at the virtual annual general meeting on Friday, Gottstein said that the recent developments had “left their mark” on him, and that with the new chairman and board, he would seek “to steer Credit Suisse back into calmer waters.”

 

Barclays Profit Surges on Strong Equities Trading

Simon Clark, The Wall Street Journal

Barclays PLC profit soared on stock market trading revenue but an unexpected rise in costs clouded the bank’s performance. The London-based lender, which operates a trans-Atlantic investment bank and a large U.S. credit card business, earned £1.7 billion in the first three months of the year, the equivalent of $2.37 billion, up from £605 million in the same period last year.

 
Financial Products and Investments
 

In Opposing Climate and Diversity Proposals, Buffett Risks Looking Out of Step

Michael J. de la Merced, The New York Times

Executives across corporate America, from Silicon Valley to Wall Street, have begun to heed calls from investors to disclose more about their companies’ actions on climate change and work force diversity. Warren E. Buffett isn’t among them. Berkshire Hathaway, the $630 billion conglomerate he runs, is opposing two shareholder proposals that ask its board to publish annual reports on how it is tackling environmental and diversity issues.

 

BlackRock Takes Aggressive Posture on ESG Proxy Votes

Dawn Lim, The Wall Street Journal

The world’s largest asset manager is showing it is more willing to use its heft to influence the policies of the companies it invests in. BlackRock has so far increased its support for shareholder-led environmental, social and governance proposals, and published a slew of criticisms of public companies that haven’t bent to its overall requests.

 

A Brawl Between Billionaire Founders at Apollo Sidelines One of Its Own

Sabrina Willmer et al., Bloomberg 

Three months after Josh Harris made his failed pitch to take Leon Black’s crown atop a $455 billion investing juggernaut, Black’s chosen heir is in charge — and Harris is on the outs. The behind-the-scenes drama between Apollo Global Management Inc.’s billionaire co-founders keeps brewing, with ramifications for investors as the company reconfigures its governance this year. 

 

Affluent Americans Rush to Retire in New ‘Life-Is-Short’ Mindset

Alexandre Tanzi and Michael Sasso, Bloomberg

After a year of early-morning Zoom calls, the specter of a deadly virus and soaring stock and real estate values, working American baby boomers who can afford it plan to get out while the getting’s good. About 2.7 million Americans age 55 or older are contemplating retirement years earlier than they’d imagined because of the pandemic, government data show. They’re more likely to be White, a group that typically has a larger amount of accumulated wealth, and many cite robust retirement accounts and Covid-19 fatigue for their early exit, according to interviews with wealth managers and federal surveys.

 
Housing and GSEs
 

A look at Biden’s first 100 days and his impact on housing

Tim Glaze, HousingWire

With Friday marking 100 days since President Joe Biden took office, HousingWire reviewed the actions he’s taken on housing during that time — including yesterday’s announcement of a $1.8 trillion spending plan that would eliminate a “special real estate tax break” for certain investors. As a candidate, Biden proposed a $600 billion housing plan aimed at improving affordability, ending discrimination, protecting consumers and improving energy efficiency.

 

Why Home Equity Loans Are Still So Hard to Come By

Robyn A. Friedman, The Wall Street Journal

Homeowners in the market for a home-equity line of credit, which is a revolving line of credit secured by a mortgage, might find them difficult to come by these days. Several large banks suspended the origination of these loans last year because of the pandemic and resulting economic uncertainty.

 
Financial Technology
 

Ripple CEO says the U.S. lacks regulatory clarity on cryptocurrency

Sumathi Bala, CNBC

Ripple CEO Brad Garlinghouse said the lack of clarity in U.S. regulation of cryptocurrencies is “frustrating.” Known for the cryptocurrency XRP, the fintech company has been caught in a high-stakes legal tussle with the U.S. Securities and Exchange Commission since last year.

 

Digital currency ether hits a record high, stealing bitcoin’s limelight

Ryan Browne, CNBC

 Ether hit an all-time high Thursday as bitcoin’s dominance of the cryptocurrency market declined. The world’s second-largest digital currency by market value surged to a fresh record of $2,800 on Thursday morning, according to data from Coin Metrics.

 
Opinions, Editorials and Perspectives
 

Nasdaq’s Boardroom Diversity Push Isn’t Evidence-Based

Boyden Gray and Jonathan Berry, The Wall Street Journal

Nasdaq has, in its own words, embraced “the social justice movement.” The actual job of a stock exchange, however, is to ensure that trading is orderly and its listed companies follow standard governance rules. 

 

Should Biden Emphasize Race or Class or Both or None of the Above?

Thomas B. Edsall, The New York Times

Should the Democratic Party focus on race or class when trying to build support for new initiatives and — perhaps equally important — when seeking to achieve a durable Election Day majority? The publication on April 26 of a scholarly paper, “Racial Equality Frames and Public Policy Support,” has stirred up a hornet’s nest among Democratic strategists and analysts.

 






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