1. The effects of Hurricane Harvey continue to be felt in the energy sector. It’s taking a while to ramp up the Gulf Coast refinery activity back to the pre-hurricane levels. As a result, US refinery inputs remain at multi-year lows.
Gasoline production is still declining, keeping prices elevated.
2. On the other hand, US crude oil production has recovered.
As a result, US oil inventories are still relatively high, especially when measured in terms of days of supply (slower refinery activity means longer time to work off the stockpiles).
By the way, US oil output is expected to continue climbing rapidly over the next few years. Here is a long-term forecast.
6. Finally, when investors look at the float of a particular stock, they should be adjusting for the shares “trapped” inside passive funds/ETFs. The trapped amount is less likely to follow the company’s fundamentals as it “blows in the wind” of index trading.
1. US initial jobless claims still show the impact of hurricanes Harvey and Irma. This will play havoc with the jobs report next week.
2. Business inventories rose more than expected last month.
3. There has been further good news from the manufacturing sector. One more regional Fed report beat expectations.
4. Here is another chart comparing consumer confidence (expectations) and real consumer spending.
Source: Deutsche Bank, @joshdigga
5. Finally, we have some updates on the proposed tax reform.
• Goldman sees a modest corporate tax cut and a small reduction in the top pass-through rate (for S-coprs, partnerships, etc.). Also, the bank’s team is predicting a boost in the standard deduction, with all the personal income rates remaining the same.
Source: Goldman Sachs, @joshdigga
• Some analysts and politicians are very focused on the deficit increases associated with this tax reform proposal. However, a number of countries that cut their tax rates (especially corporate taxes) saw their tax revenue remain the same or even increase. For example, this analysis doesn’t account for more businesses moving to the US because of a friendlier tax regime.
Nothing personal, Lev, but analysis like raising the standard deduction will be bad for the mortgage deduction is like saying that more effective police patrolling of my neighborhood is bad for the value of my guns and ammo cache. At some point, I have to figure out that a tax efficient, more economically productive milieu is better for me than whatever current deduction or credit I lose.
Raising the standard deduction is a case in point: it allows us to increase economic activity and presumably income without caring how it is done. Thus millions of inventive Americans seeking to maximize personal net worth in the myriad ways limited only by imagination will improve the economy far more than politically targeted, usually short-sighted, favored activity.
Raising the standard deduction is the simplest, easiest way to simplify taxes that I know and should be always supported. A crucial benefit of it is that we then spend our political time on the only important aspect of tax policy: tax rates as a driver of tax revenue. Deductions effectively cause whole classes of citizens to not care about the tax system, and therefore the overall rate, because they are less affected. Bad for policy debate and ultimately bad for democracy.
I believe this tax plan is aimed at getting all of those dollars held abroad repatriated coupled with a healthy dose of trickle-down economics. For me, the admittedly more emotional issue is on the estate tax. Estate tax can be a method to ensure that there is no permanent hyper-wealthy aristocracy in America. I freely admit my bias about this group since throughout history, from my perspective, the inherited money class has tended to act by any means to retain their wealth and power thus limiting economic mobility. We saw that 120 years ago in the gilded age and now we are entering a new gilded age. Question: Is there economic data about this which shows that (a) estate taxes are an effective means of disrupting inherited wealth and (b) is my bias against this group warranted from an economic perspective?
Have a great weekend!
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