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Biden Finally Admits Dems Don’t Have The Votes To Raise Corporate Taxes For ‘Build Back Better’ Agenda

Biden Finally Admits Dems Don’t Have The Votes To Raise Corporate Taxes For ‘Build Back Better’ Agenda

After weeks of negotiations at the…

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This article was originally published by Zero Hedge

Biden Finally Admits Dems Don’t Have The Votes To Raise Corporate Taxes For ‘Build Back Better’ Agenda

After weeks of negotiations at the White House and on Capitol Hill, it appears the Democrats are hardly any closer to passing President Biden’s “Build Back Better” agenda (which, remember, has been split into two bills, a “bipartisan” infrastructure bill and another to finance a massive expansion of the social safety net).

To make matters worse (for America, not the Democrats), the Washington Press Corp reported last night that Democratic moderate Kyrsten Sinema, who has helped to plunge Biden’s agenda deeper into chaos, won’t support tax increases on corporations, wealthy individuals or capitol gains.

Remember, President Biden and the Democratic leadership promised that their multi-trillion plan for what is effectively a state-managed redistribution of wealth in the economy is supposed to be paid for (for the most part, at least) with tax hikes. Republicans have unanimously opposed this.

We have long suspected that this “commitment” to offset increased spending with tax hikes would ultimately ring hollow, and the other day, Biden seemed to imply that they had abandoned plans to raise taxes on corporations and wealthy individuals. When asked about a corporate tax hike, Sen. Joe Manchin said this week that “they’re going to pay their fair share’. Goldman’s top political analyst shared his latest thoughts on how the plan might be funded – or not – in a note to clients yesterday.

But for the first time, President Biden faced the American public and effectively admitted as much, saying during a CNN town hall meeting in Baltimore that he doesn’t think there are enough Democratic votes to raise tax rates as part of his deal – whether those tax hikes be on wealthy individuals, or corporations.

As Axios put it, Biden’s comment that the Dems are effectively jettisoning their hopes to hike corporate taxes was “the most important headline” of the night.

Does that mean the Dems will simply give up, or try for a much more modest plan that might win some GOP support? Of course not: Biden said last night that he believes they’ll reach a deal on the overall legislative package anyway – they’ll just need to also commit to trillions of dollars in additional spending, debt and money printing.

“I don’t think we’re going to be able to get the vote,” Biden said in response to a question about individual and corporate rates. “Look, when you’re in the United States Senate and you’re president of the United States and you have 50 Democrats, everyone is the president.”

Many have scoffed that Sen. Joe Manchin, due to his status as a key swing vote, is effectively as powerful as the president. Now, Biden is admitting it in a joke. And you know what they say about jokes.

A White House official later told Bloomberg that Biden was only referring to corporate tax-rate increases, not potential hikes on the wealthy, or financial transactions, or whatever else.

At this point, there have been reports that Sen. Sinema has committed to a broad tax hike outline, but what exactly these tax hikes look like is unclear. As BBG put it, “the specifics of what she would support weren’t immediately clear.”

Despite progressives’ attempts to push back, the headline number for the Dems’ social safety net expansion bill has reportedly shrunk to $2 trillion, from $3.5 trillion.

Biden also acknowledged that two provisions of his agenda have been vastly curtailed or eliminated: one is an initiative to provide paid family leave, which would be slashed to just four weeks from 12, and a proposal to make community college free. Biden said he would push for increasing Pell grants for lower-income college students instead.

Thanks to the trillions in post-COVID spending, inflation in the US is already accelerating at its fastest rate in decades, and it’s not just the US: prices are rising around the world.

But what’s the danger of the Dems’ passing another massive spending package without enough tax hikes to offset it? Well, as Paul Tudor Jones said the other day, inflation is already “the single biggest threat to our society”.

In all likelihood, the Dems already understand this: but if they don’t pass some kind of spending package, what will they have to campaign on ahead of next November’s midterms?

Tyler Durden
Fri, 10/22/2021 – 10:20

Author: Tyler Durden

Economics

Major Asset Classes Post Wide Range Of Results For Last Week

US junk bonds and several slices of foreign fixed-income markets led a mixed run of returns for the major asset classes last week, based on a set of ETFs…

US junk bonds and several slices of foreign fixed-income markets led a mixed run of returns for the major asset classes last week, based on a set of ETFs through Friday’s close (Dec. 3).

The top performer: SPDR Bloomberg Barclays High Yield Bond (JNK), which rose 0.9%. The gain marks the first weekly advance for the fund in four weeks.

A variety of foreign-bond buckets posted follow-up performances, starting with investment-grade foreign bonds in non-US markets (PICB). Coming in second and third, respectively: foreign junk bonds (IHY) and government bonds issued by governments in emerging markets (EMLC).

Last week’s biggest loser: American equities. Vanguard Total US Stock Market (VTI) tumbled 2.0% — the ETF’s fourth-straight weekly loss. A widely cited economic release that triggered selling on Friday: sharply weaker-than-expected growth in US payrolls report in November. “A softer payrolls print pulled the rug beneath risk sentiment,” TD Securities advised in a note to clients.

The risk-off sentiment continued to weigh on the Global Market Index (GMI.F) — an unmanaged benchmark (maintained by CapitalSpectator.com) that holds all the major asset classes (except cash) in market-value weights via ETF proxies. GMI.F fell 1.0% — the index’s fourth straight weekly decline.

For the one-year trend, US real estate investment trusts continue to lead the major asset classes by a wide margin. US Real Estate (VNQ) is up 31.1% on a total-return basis.

US stocks (VTI) are in second place for the trailing one-year window, posting a 23.6% return.

There’s more red ink for one-year results lately. The biggest decline is currently in emerging-markets government bonds via VanEck Vectors JP Morgan EM Local Currency Bond (EMLC), which is down 9.1% as of last week’s close vs. the year-earlier level (after factoring in distributions).

Meanwhile, GMI.F is up 13.0% over the past year.

Deeper drawdowns continue to spread across the major asset classes. The smallest peak-to-trough decline as of Friday’s close is currently found in US inflation-indexed Treasuries (TIP), which ended the week at just 0.7% below the previous peak.

Current drawdowns slide rapidly from there, with the majority of ETFs now reporting peak-to-trough declines of roughly -5% or deeper.


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Economics

Oil moves higher, gold drifting

Saudi Arabia/Omicron lifts oil prices in Asia Oil prices eased on Friday on omicron fears, Brent crude falling 0.90% and WTI falling by 1.45%. The falls…

Saudi Arabia/Omicron lifts oil prices in Asia

Oil prices eased on Friday on omicron fears, Brent crude falling 0.90% and WTI falling by 1.45%. The falls were modest though by recent standards where the intraday volatility had threatened to make oil almost untradeable. The commitment of traders’ positioning also shows a massive drawdown in speculative long positioning, making exposure more balanced, also a supportive factor.

Oil prices have rallied sharply in Asia after Saudi Arabia yesterday announced January price increases to Asian and US customers, and weekend reports from South Africa suggested omicron was less harsh than previous variants. Brent crude is 2.10% higher at USD 71.35 a barrel, and WTI is 2.0% higher at USD 67.75 a barrel.

I am struggling to construct a positive narrative out of Saudi Arabia raising prices, especially as it makes competing grades more appealing to their client base. The best I can do is that Saudi Arabia feels confident raising prices despite higher OPEC+ production because it believes omicron is a storm in a test tube and that the global recovery will not be derailed. The South African reports have reinforced that sentiment.

Whether that sentiment lasts or not, the relative strength indexes (RSIs) that I mentioned last week remain near oversold suggesting that any oil sell-offs from here will be shallower and shorter in nature. Brent crude needs to reclaim USD 73.00, and WTI USD 70.00 a barrel to tentatively say the lows are in place. If omicron is proven over the coming days (or weeks) to be less aggressive, even if it is more contagious, then we can say 100% that last week’s lows were the bargain of the quarter, and possibly for H1 2022, for those brave enough to indulge.

Gold remains forgotten

Gold remains side-lined, trading sideways on a closing basis, despite some decent intraday ranges. On Friday, thanks to a mixed US employment report leading to a flattening yield curve, gold managed to gain 0.88% to USD 1783.90 an ounce. In Asia, gold is barely changed, easing 0.10% lower to USD 1781.70 an ounce.

In the bigger picture, gold looks set to trade in a rough USD 1770.00 to USD 1800.00 an ounce range this week, unable to sustain momentum above or below those levels. The 50,100 and 200-day moving averages (DMAs), clustered between USD 1791.00 and USD 1793.00 provide immediate resistance, followed by USD 1800.00. Support lies at USD 1770.00 and USD 1760.00.

With the omicron outlook looking less bleak, and with longer-dated US yields continuing to fall, gold could well stage a modest recovery this week. However, with the US CPI data on Friday likely to print around 7.0%, gold remains a sell on rallies to USD 1810.00. A 7.0% print will raise the faster taper and rate hike noise ahead of next week’s FOMC meeting, and longer-dated yields could finally shake off their medium-term inflation lethargy. The balance of risks still favours a move lower towards USD 1720.00 an ounce.


Author: Jeffrey Halley

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Economics

China Cuts RRR By 50bps; More Easing Expected

China Cuts RRR By 50bps; More Easing Expected

Just last night we predicted that China would cut its Required Reserve Ratio "Within A Week",…

China Cuts RRR By 50bps; More Easing Expected

Just last night we predicted that China would cut its Required Reserve Ratio “Within A Week”, and not even six hours later, that’s precisely what happened when the PBOC announced that it would cut the amount of cash banks must hold in reserve, acting to counter the economic slowdown in a move that puts the central bank on a different policy path than many of its peers.

Specifically, the PBOC cut the RRR by 50bps effective 15th Dec. The move will release CNY 1.2 trillion in liquidity – some of this new money will be used by banks to repay maturing loans from the PBOC’s medium-term lending facility and some of it will be used to replenish financial institutions’ long-term capital, the central bank said. There are almost 1 trillion yuan worth of the 1-year loans maturing on Dec. 15, the day the cut takes effect.

“The aim of the RRR cut is to strengthen cross-cyclical adjustment, enhance the capital structure of financial institutions, raise financial services capabilities to better support the real economy,” the PBOC said. The cut will effectively increase long-term capital for banks to serve the real economy, and the PBOC will guide banks to step up their support for small businesses, it said.

The cut is a “regular monetary policy action,” the PBOC said, pre-empting expectations that the decision was the start of of an easing cycle, although that’s what the PBOC always says – the fact that it has again capitulated and has eased for the first time since July confirms that Beijing is now looking for excuses to cut, not the opposite, and with Evergrande set to default as soon as today, it will find them. “Prudent monetary policy direction has not changed,” it said, adding that the bank “will continue with a normal monetary policy, maintaining the stability, consistency and sustainability of policy, and won’t flood the economy with stimulus.”

Among other things, the PBOC:

  • Reiterates that liquidity will be kept reasonably ample.
  • Will step up cross cyclical adjustments.
  • Will not resort to flood-like stimulus.
  • Will reduce capital costs for financial institutions by around CNY 15bln per annum.

With the U.S. Federal Reserve and other global central banks looking to tighten policy, the move to add stimulus by the PBOC makes the divergence between China and much of the rest of the world even clearer.

A cut in the reserve ratio doesn’t directly lower borrowing costs, but quickly frees up cheap funds for banks to lend. The reduction will lower the capital cost for financial institutions by about 15 billion yuan each year, which will lower the overall financing cost of the economy, the PBOC said.

As noted last night, the RRR cut was telegraphed last week by Premier Li Keqiang when he said that authorities would cut the RRR at an appropriate time to help smaller companies, and is the second reduction this year. The decision comes after recent data showed the economy and industry stabilizing, although Beijing’s tightening curbs on the property market have led to a slump in construction and worsened a liquidity crisis at developer China Evergrande Group and other real-estate firms.

In immediate reaction to this RRR cut, modest upside was seen in the equity space with US futures rising to marginal fresh highs for the session and European counterparts erring higher as well but remaining within ranges. Amidst this the FX space saw some modest choppiness, though USD/CNH is within pre-release levels. Additionally, WTI Jan and Brent Feb futures respectively experienced upside, bringing them back to overnight highs of around USD 2.00/bbl.

While some said the development was neutral and underscores China’s lack of desire to pump the system with excess liquidity, after all the PBOC said  it “will continue with a normal monetary policy, maintaining the stability, consistency and sustainability of policy, and won’t flood the economy with stimulus”, we disagree and believe this is the start of a move that will inject much more liquidity in China’s economy, especially now that coal prices are sliding and oil has plunged from its recent highs, keeping inflation in check.

Indeed, in their kneejerk responses to China’s easing, analysts said that China will need to cut banks’ reserve ratio further to boost risk assets, given its stance of fine-tuning monetary policy has already been somewhat priced in by the domestic financial markets.

Below, courtesy of Bloomberg, is a snapshot of what market participants said.

Shenzhen Flying Tiger Investment & Management (Yu Dingheng, managing director)

  • “We are in the midst of a policy shift. If we consider this cut and the one in July — there should be more to follow as this is not yet enough to counter the downward pressure”
  • “This is all within expectations” and the market had already reacted to it partially in today’s session
  • The firm recently positioned for a move like this by picking up undervalued shares of companies in the property-related cohort

Bocom International (Hao Hong, head of research)

  • “I expect more cuts, because the property situation is still unfolding and cutting interest rate is not practical given high inflation”
  • RRR cut is the easiest and it is within the PBOC’s control, given it doesn’t need to be signed off by the State Council, China’s cabinet
  • A cut at this point in time can boost liquidity just in case, even though the market doesn’t lack liquidity, and can also boost some confidence as the central bank shows “its willingness to support if the bottom falls out”

Standard Chartered (Becky Liu, head of China macro strategy)

  • RRR cut may have been brought forward by concerns about potential China Evergrande contagion risks
  • “This is still faster than the median forecast, as some were still looking for the cut to come in the coming several weeks or even in Q1”
  • Slowdown in economic conditions point to more easing
  • Announcing the cut will allow banks to lend more at the start of next year to boost credit growth and “hopefully start to be reflected in real economic activities by mid-2022”

Shenzhen Frontsea Asset Management (Hou Anyang, fund manager)

  • “Market is still going to focus on the fact that help is needed in the flagging economy, rather than the fact that help has come”
  • Market reflected a lot of the optimistic expectations today, and while this may be a policy shift rather than fine tuning, “we’ve not hit the bottom in terms of fundamentals yet”

Zhuhai Greenbamboo Private Fund Management (Jiang Liangqing, managing director)

  • “It’s too early to call it shifting of gears, though it should be more than a marginal move considering the impending concerns over property”
  • The RRR cut shows “that the higher-ups are paying close attention to the risks of the housing market, and making it a priority”
  • Investors can be “a bit more optimistic” on the policy outlook next year, and the policy bottom for real estate has passed so we need only wait a few more months for fundamentals to bottom out”

Nanjing Securities (Hao Yang, analyst)

  • China’s 10-year bond yields should stay in the 2.8%-2.9% range with limited boosts from the RRR cut as market waits to see whether the easing would be effective in offsetting growth headwinds
  • The timing of the RRR cut is sooner than market expectation, “showing the PBOC’s strong will to ease concerns on property strains due to Evergrande contagion risks”
  • The unleashed funds from RRR cut should help lowering funding costs for banks who are expected by regulators to step up credit supports for the real economy

Bloomberg (David Qu, economist)

  • “We think the reduction would help offset the headwinds facing the economy, particularly in the first quarter of 2022.
  • We maintain our view that an additional 50-100 basis points of RRR cut would come next year.”

Tyler Durden
Mon, 12/06/2021 – 07:24







Author: Tyler Durden

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