With three massive stimulus packages already passed, GOP and Democratic lawmakers are starting to discuss what would be included in a potential, pro-growth fourth and even fifth round of stimulus.
There is some hesitancy on behalf of GOP lawmakers to continue spending money on relief measures. It exists with the tab already hitting $3 trillion and the federal deficit ballooning to record levels.
Many hope that as states slowly reopen, the boost in economic activity will reduce the need for additional relief.
“I just don’t think we need to act quite as urgently,” Texas Republican Senator John Cornyn, whose state started reopening this week, said. Meanwhile, other Republican Senators, including Missouri’s Josh Howley believe that we should do whatever is needed to avoid a recession. This would make any debate on spending seem trivial.
“If we enter a long-term recession or depression, the concerns we have about deficit spending now are going to look like a walk in the park,” Howley also said.
One idea that is gaining traction amongst Republicans is changing the focus of the aid packages away from simply spending money and instead look at “pro-growth” policies, although not every growth project will get the green light.
President Trump has mentioned infrastructure projects on numerous occasions. However, even those should get the axe, says Stephen Moore, a member of President Trump’s economic task force. Moore also recently disagreed with the president, saying there should be “no more spending,” even on much-needed infrastructure repairs.
On a Fox Business appearance, Moore said “There is a real movement among Republicans and conservatives around the country, especially taxpayer groups, no more spending. We’ve done almost $3 trillion of spending through the first couple of months of this, that’s enough. We don’t need more spending… government spending does not stimulate growth.”
Here are some other “pro-growth” tax measures that have been suggested to help boost our economic recovery without additional spending:
A Cut to Payroll Taxes
Moore said that Republicans are “rallying around” the idea of suspending payroll taxes as opposed to continued government spending.
“I think that’s going to be the big battle in the weeks ahead,” he also mentioned. “Do we do the payroll tax cut or do we have more government spending?” Moore then asked.
Suspending payroll tax would help incentivize employers to do more hiring by reducing their payroll costs. It will also give their employees a boost in their paychecks.
Full, Immediate Expensing
White House economic adviser Larry Kudlow recently said that one pro-growth policy he would like to see is an expansion of 100 percent immediate expensing.
“One-hundred percent immediate expensing across the board – plant, equipment, intellectual property, structures, renovations – in other words, if we had 100 percent immediate expensing we would literally pay the moving costs of American companies from China back to the U.S.,” Kudlow said.
Kudlow’s proposal would expand the type of deductible items beyond those allowed by the 2017 Tax Cuts and Jobs Act.
Deduction for Corporate Business Meals and Entertainment
President Trump has been in favor of bringing back the deduction for business meals and entertainment. It’s a way to help the restaurant industry. The deduction was eliminated as part of the Tax Cuts and Jobs Act.
Under the Tax Cuts and Jobs Act, Congress repealed the entertainment deduction. That caused confusion as to whether business meals were still deductible.
Limit Corporate Liability
Businesses start to reopen and bring back their employees. However, many owners expressed worry about what happens if their employees catch coronavirus while at work.
Providing a “blanket shield” to employers as they start to rehire workers is “essential to the recovery,” Moore told Fox Business. They want to have this in place so that they can avoid being sued every time a worker falls ill.
As Airlines Suffer, American Most Likely To File Bankruptcy
A few weeks ago, Boeing CEO Dave Calhoun startled the airline sector when he said a major airline would go bankrupt by Halloween.
“I don’t want to get too predictive on that subject. But yes, most likely,” Calhoun said. “Something will happen when September comes around.”
Airline stocks plunged as investors and analysts scrambled to determine which airline became most vulnerable.
RapidRatings, a risk assessment firm, recently completed a comprehensive stress test on the major U.S. airlines. They used dozens of variables including debt loads, cash flow analysis, and a loss of at least 15% of revenue.
American Airlines To Suffer The Most?
We may never know which airline that Calhoun was alluding to. Although, RapidRatings’ analysis says that American Airlines is the most likely to go bankrupt in the coming months.
The company also looked at Delta, United and Southwest, but none of them are in such dire circumstances as American.
In an interview with Yahoo Finance, RapidRatings CEO James Gellert said, “American is the most at risk and that’s it in every way you look at it. American stands out as the weakest of this cohort.”
The stress tests run by RapidRatings produce both a short term financial health rating (FHR) and long term core health score (CHS). According to RapidRatings, the FHR measures a company’s short-term resiliency and default risk. Meanwhile the CHS analyzes risk and company efficiency over a three year period. A score lower than 40 means a company is at risk of failing.
Gellert says the analysis has more than a decade of proven results. Also, “over 90% of companies that failed have been rated 40 and below on our scales.”
The stress tests found that American was the weakest U.S. airline going into the recent pandemic. It has a financial health rating of 59 and core health score of 66.
As the pandemic unfolded and air travel plunged 90%, American’s FHR score plunged to 29. Meanwhile, its CHS score fell to 27.
Gellert added that “I would be quite certain that is the airline in the crosshairs of the Boeing comment.”
The Future Of American
American, in response to the sub-40 stress test scores, said in a statement that it was “focused on rightsizing the airline for the current environment, and plan to reduce our 2020 operating and capital expenditures by more than $12 billion.”
Analysts, however, are starting to smell blood in the water. Cowen equity research analyst Helane Becker recently told Yahoo Finance, “American’s liquidity position is dependent on government aid, bucking the trends we’ve seen from other airlines. The company is receiving a total of $10.6 billion … [and] we expect another capital raise” in the 3rd quarter.”
Savanthi Syth, an equity analyst at Raymond James, also agrees American will need more capital to weather the storm. “I mean, if you look at the cash on hand that’s definitely the case,” Syth said. American has six months of cash on hand, United has 10 months, Delta has 12, and Southwest has almost 19 months, according to Raymond James.
Syth added, “I don’t think bankruptcy is a foregone conclusion… it’s just going to take longer for American to kind of dig themselves out of this kind of debt burden, and therefore equity could be challenged in the near term.”
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Sorry AOC, Billionaires Haven’t Made $434B During Pandemic
Nation’s Billionaire’s See Net Worth Jump $434B in First Two Months of Pandemic
It was an eye-opening headline, and fairly drew the frustrations of a lot of us. This is especially true for the 38+ million Americans who have lost their jobs since the coronavirus pandemic shut down. Our country has been at it a little more than two months ago.
How dare they get richer while we suffer?
Chuck Collins, director of the Institute for Policy Studies Program on Inequality, the co-author of the report, expressed his piece. He said, “The surge in billionaire wealth during a global pandemic underscores the grotesque nature of unequal sacrifice.”
Meanwhile, Frank Clemente, the executive director of Americans for Tax Fairness which co-authored the study, also shared his opinion. He said, “The pandemic has revealed the deadly consequences of America’s yawning wealth gap, and billionaires are the glaring symbol of that economic inequality.”
Democrat Alexandria Ocasio-Cortez didn’t want to miss the opportunity to inject her brand of socialism into the public discourse. “Really great system we got here. Can’t imagine why anyone would question how beneficial or sustainable it is for the working class,” she tweeted. This is in response to CNBC running the headline.
The Study’s Flaws
The top five US billionaires explicitly mentioned in the article are all Democrats. These include Warren Buffett, Bill Gates, Jeff Bezos, Mark Zuckerberg, and Larry Ellison. But setting that irony aside, the problem is that the article is simply dishonest, points out MarketWatch columnist Steve Goldstein.
“The study… examines billionaires’ wealth between March 18 — the rough start date of the pandemic shutdown, when most federal and state economic restrictions were in place — and May 19. It relied on the Forbes’ billionaire list, which itself is built around stock-market performance.”
The flaw, as Goldstein points out, is that the beginning and end dates used for the study are incorrect.
“Think about that in the market context. The pandemic did not start March 18 (nor, of course, had it ended on May 19), and certainly market concerns about the pandemic did not start March 18. Far from it.”
He says that to see a true picture of how much money the billionaires made – or lost – during the pandemic, they need to expand the date range.
“A more logical way to think about whether billionaires got richer, or not, is to think about the performance from the Feb. 19 peak in the market, after which more investors began to get concerned by the novel virus. You then get to see who got richer even in the face of the crippling economic blow.”
If you use this revised date range, Goldstein says the truth is that billionaires have actually lost money since the market peaked and the pandemic began
“Cumulatively, the top 50 billionaires lost $232 billion between the market’s peak and this Tuesday. If the remaining billionaires on the Forbes list lost wealth at the same roughly 12.5% rate that the top 50 experienced, that’s another $200 billion–plus wiped out.”
So while it’s easy to run a headline that bashes billionaires, the truth lies somewhere in the middle.
Battle for 3000: Bulls and Bears Ready for “Dogfight”
After climbing 33% since the late-March lows, the S&P 500 index closed at 2955 on Friday, putting the psychologically important 3000 level within reach.
In addition to the psychological importance of the 3000 level, that also happens to be where a key long-term technical indicator sits that is widely used to determine if we are in a bull or bear market.
The two most commonly used indicators are the 50-day and 200-day moving average. The 50-day is used by investors as a gauge of the short-term market trend, while the 200-day moving average indicates the long-term market trend.
“The fact that the S&P 500 is coming off a 35% rally and that this 200-day moving average lines up with a nice even 3,000 number seemingly makes this area especially important,” said Renaissance Macro Research analyst Kevin Dempter in a note on Friday. “A breakout is not likely to come easily and we expect a dogfight here around the 200-day.”
For 21-straight trading sessions, the S&P 500 index has bounced between the 50-day and 200-day moving averages. Jason Goepfert, head of SentimenTrader and founder of independent investment research firm Sundial Capital Research, stocks are “trapped between time frames.”
While bulls anticipate the S&P breaking above 3000 – and simultaneously the 200-day moving average – will signify a new bull market and push stocks to record highs, history indicates that may not be the case.
Dempter says that since 1928, there have been 29 instances where the market traded between the 50-day and 200-day moving average for at least 20 days. In 21 of those 29 instances, the S&P 500 ended up falling below the 50-day average, while only eight ended with a push above the 200-day, he noted, making for a roughly 72% probability the index will break down.
Mark Arbeter, president of Arbeter Investments, said in a note to clients last week that as we approach the key 200-day indicator, “One would think that after a big correction or bear market, and then a retaking of this key average, the bulls would go wild, the bears would capitulate, and the stock market would go into outer space.”
He points back to previous times the S&P tried to climb above the 200-day, and says it won’t be easy.
“When the S&P first cleared the 200-day in June 2009 as we were coming out of that major bear market and the financial crises, the index stalled and then pulled back about 7%, riding on the top of the declining 200-day for about a month. The index retook the 200-day in June 2010, after a swift decline, paused, and then fell to new corrective lows.
The 200-day was overtaken in August 2010, and rolled over again. After the major correction in 2011, the “500” rose back above the 200-day for 2 days and then fell 9.8%. We saw similar price action in 2015 and 2016 as the late rally over the 200-day in October 2015 failed miserably.”
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