Weekly Tracker: What to Watch for in Trust-Busting, Taxes & Tapering

Thankful Thursday June 10, 2021

Every Thursday we are tracking the three T’s - Trust-Busting, Taxes, and Tapering; biggest risks to the economy and capital markets. The goal is not to be a surprised turkey on Thanksgiving. These are not Black Swans. We know that Federal regulators are investigating big technology companies; we know that the new US administration may raise corporate and personal tax rates; and we know that the Fed is thinking about removing stimulus at some point in the future. And we can surmise that these are risks, because when this “news” has been publicized in the past on certain days, the stock market has fallen. If there is a news headline this year that stocks have fallen, corrected, or crashed; what are the odds that one of the three T’s will be mentioned? 

"On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief." – Nassim Taleb

Anti-Trust

Lina Khan appointed chair of FTC (6/15/21)

Why it matters: Lina reportedly believes that consumer welfare tests are not enough of a tool to measure antitrust violations, and that business size alone may be an indicator.

What’s next: Lina as chair will turn-off some Republicans from expanding antitrust powers for fear they will be misused.


Bipartisan group introduces package of antitrust bills  (6/11/21)

Why it matters: Stocks shrugged this off as it stops short of forcing divestitures that could introduce risk and uncertainty into some businesses.

What’s next: Expect regulatory pressure to keep building until the stock market suffers.



Tapering 

“Imma shake my money-maker; it’s time for the twerkulator,” - City Girls

The debate raged on this week about whether inflation is transitory or sticky. It doesn’t help that people have a hard time agreeing on what even causes inflation. 

According to Milton Friedman’s theory of inflation, inflation is a “monetary phenomenon,” i.e., caused by oversupply by the money-maker. Under the closely related twerkulator theory of inflation, all economies operate at certain vibrational frequencies which is a key determinant of the rate of money creation and inflation. 

The velocity of money began an inexorable decline when the tech bubble burst in 2000 and the recent pandemic shutdowns have managed to unleash the sharpest drop in history. The government restrictions being lifted to date have stalled the decline but not driven a meaningful rebound in M2 velocity. Twerklulator theory suggests that confirmation from this indicator is needed if one is to be concerned about rising inflation.  


Powell says Fed talked about talking about tapering at latest meeting (6/16/21)

Why it matters: Stocks tanked in response to the hawkishly revised interest rate projections, and staged a rebound when Powell suggested not to read too much into them.

What’s next: This sets up the next meeting as one at which the Fed will officially discuss timing of tapering.


US COVID-19 total cases increased 0.6% in the past 2 week period. 

The trend in 7 day new cases decreased -4.7% vs. the prior 7 day period.  India case growth continued its decline by -30.2% in the past week, suggesting the # new cases may have peaked weeks ago; the 14 day case growth of +4.5% is now lower than Brazil’s and only slightly higher than Japan and UK.  (6/16/21)



Why it matters: The Fed is carefully watching COVID-19 trends because potential shutdowns and travel restrictions are a risk to economic growth.  

What’s next: If India cannot reign in the virus spread, global economic growth projections may be revised down and high levels of central bank stimulus will persist.


Google workplace mobility was -10% compared to baseline (6/13/21)



Why it matters: The longer remote work continues, the more disruptive it is to certain sectors of the economy that cater to office workers.

What’s next: The biggest test will come starting in September when major tech employers like Google and Facebook expect a majority of workers to return to the office.  


Anti-Trust

Google settles French antitrust  charges for $270 million (6/7/21)

Why it matters: Google did not admit to wrongdoing in the settlement, but the case may show how the company might appease regulators elsewhere. Google agreed to make more data available to rivals and make it easier for them to use its online advertising services.

What’s next: Expect more government scrutiny of large tech company practices.


Democrats are circulating a draft antitrust bill against Amazon, Apple, Facebook, Google (6/9/21)

Why it matters: Stocks shrugged this off as it stops short of forcing divestitures that could introduce risk and uncertainty into some businesses.

What’s next: Expect regulatory pressure to keep building until the stock market suffers.


Tapering 

“People in the city see the movement occurring and say, "My God, I wanna be in that scene"” - Jack Harlowe

Jack is a close observer of the meme-stock craze; he believes it is human nature that these speculative fervors will occur from time to time, and they are not a product of easy money or a reflection of Fed policy, but rather a byproduct of the technology advancements in retail trading platforms and social media.

“Can’t touch me, I got instincts,” says Jack, because memories of 1998 - 2000 when retail trading and frothy valuations similarly mixed have left an indelible mark on his trading psyche that prevents him from getting caught up in the madness.  


Yellen says higher interest rates from infrastructure spending would be a positive for the US (6/7/21)

Why it matters: Bond investors will take this as evidence that US officials are determined to create a higher inflation rate

What’s next: Yellen’s arguments are unlikely to persuade fiscal conservatives, including many Republicans


Fed’s Mester says more jobs progress is needed (6/4/21)

Why it matters: These are strong jobs gains numbers by historic standards, so Fed speakers need to be clear that they are analyzing these numbers in the context of the cumulative job loss from the Pandemic that still persists.

What’s next: Most analysts expect the Fed to hold off any policy changes until Jackson Hole in August.


Taxes

G7 finance chiefs announce deal on minimum tax rates (6/7/21)

Why it matters: Global cooperation on corporate taxes could make it easier for the US to reign in its corporate behemoths

What’s next: Smaller countries like Ireland remain opposed to this and there is no sign they will change their mind


US COVID-19 total cases increased 0.6% in the past 2 week period. 

The trend in 7 day new cases decreased -15.0% vs. the prior 7 day period.  India case growth continued its decline by -30.9% in the past week, suggesting the # new cases may have peaked weeks ago; however, the 14 day case growth of +6.7% is still moderately elevated (6/9/21).


Covid cases chart worldwide


Why it matters: The Fed is carefully watching COVID-19 trends because potential shutdowns and travel restrictions are a risk to economic growth.  

What’s next: If India cannot reign in the virus spread, global economic growth projections may be revised down and high levels of central bank stimulus will persist.


Google workplace mobility was -10% compared to baseline (6/6/21)


Google workplace mobility chart


Why it matters: The longer remote work continues, the more disruptive it is to certain sectors of the economy that cater to office workers.

What’s next: The biggest test will come starting in September when major tech employers like Google and Facebook expect a majority of workers to return to the office.

Tapering 

“If ain't no ring on my finger than you ain't going on my 'gram” - Cardi B

According to Ms. B, if you are just a transitory inflation spike, then nobody will be paying any attention to you. Put a ring on it, inflation, if you want some of that "good, good" policy response.  


Fed’s Harker says it may be time to think about thinking about tapering (6/2/21)


Why it matters: Stocks shrugged this off as this is in-line with current market expectations. 

What’s next: Most analysts remain focused on Jackson Hole in August and whether that will be a time when a policy shift is signalled.  


The Fed will begin selling corporate bonds acquired during the pandemic (6/2/21)

Why it matters: Stocks shrugged this off as this is in-line with current market expectations. 

What’s next: Actions speak louder than words, so this is a clear signal that the Fed doesn’t believe this will be disruptive to market liquidity; expect the Fed to continue floating tightening signals rather than loosening signals.


Taxes

Yellen will push for a global minimum tax rate at British summit this week  (6/2/21)

Why it matters: This is critical if the US intends to make an increased corporate tax rate of 28% enforceable.

What’s next: Smaller countries like Ireland remain opposed to this and there is no sign they will change their mind.


US COVID-19 total cases increased 0.8% in the past 2 week period. 

The trend in 7 day new cases decreased -31.0% vs. the prior 7 day period.  India case growth decelerated to -32.8% in the past week, a positive signal suggesting the # new cases may have peaked weeks ago; however, the 14 day case growth of +10.5% remains very elevated.  (6/2/21)



Why it matters: The Fed is carefully watching COVID-19 trends because potential shutdowns and travel restrictions are a risk to economic growth.  

What’s next: If India cannot reign in the virus spread, global economic growth projections may be revised down and high levels of central bank stimulus will persist.


Google workplace mobility was -15% compared to baseline (5/30/21)



Why it matters: The longer remote work continues, the more disruptive it is to certain sectors of the economy that cater to office workers.

What’s next: The biggest test will come starting in September when major tech employers like Google and Facebook expect a majority of workers to return to the office.  


Anti-Trust:

Epic vs. Apple trial ends, now in judge’s hands (5/24/21)

Why it matters: A loss for Apple represents a threat to their profit margins and other tech giants with similar business practices.

What’s next: With this portion concluded, it could takes weeks or months for the judge to decide. Most analysts still believe Apple will “win”, but the judge’s questions imply she is at least thinking about some pro-competitive changes to their business practices.   


Washington DC AG files antitrust lawsuit against Amazon (5/25/21)

Why it matters: This is specifically about Washington DC antitrust law, but it could have far reaching implications for tech business practices. 

What’s next: It doesn’t appear as though this or other investigations will slow down their acquisition spree or growth, as they just announced the MGM acquisition.  


Tapering 

“You know you really something, yeah,

How'd we get here so damn fast?” - Ariana Grande

Ariana wants to know, how we went so quickly from not talking about thinking about tapering, to talking about thinking about tapering? 


Multiple Fed speakers this week spoke about tapering (5/26/21)

Why it matters: Stocks stalled most of the week after rallying over the weekend; fears of withdrawn stimulus can put a lid on further gains. 

What’s next: Most analysts are focusing on Jackson Hole in August and whether that will be a time when a policy shift is signalled. 


Taxes

Biden’s latest plan has a retroactive capital gains tax increase (5/27/21)

Why it matters: Stocks dipped on the news; retroactive taxes in particular bring extra anxiety as they are extremely difficult to plan for effectively.

What’s next: Expect Wall Street lobbyists to organize strong opposition to this.


Yellen asks for $13bn more for IRS budget (5/27/21)

Why it matters: This could force companies and individuals to be more conservative in their tax approaches

What’s next: This will get negotiated as part of the overall tax and infrastructure plan being debated 


US COVID-19 total cases increased 1.1% in the past 2 week period. 

The trend in 7 day new cases decreased -20.2% vs. the prior 7 day period.  India case growth decelerated to -22.8% in the past week, a positive signal suggesting the # new cases may have peaked weeks ago; however, the 14 day case growth of +15.7% remains extremely elevated.  (5/27/21)



Why it matters: The Fed is carefully watching COVID-19 trends because potential shutdowns and travel restrictions are a risk to economic growth.  

What’s next: If India cannot reign in the virus spread, global economic growth projections may be revised down and high levels of central bank stimulus will persist.


Google workplace mobility was -29% compared to baseline (5/23/21)



Why it matters: The longer remote work continues, the more disruptive it is to certain sectors of the economy that cater to office workers.

What’s next: The biggest test will come starting in September when major tech employers like Google and Facebook expect a majority of workers to return to the office.  


Anti-Trust:

Epic vs. Apple trial completes week two (5/18/21)

Why it matters: A loss for Apple represents a threat to their profit margins and other tech giants with similar business practices.

What’s next: The trial is expected to conclude next week, but a decision by the judge could still take weeks or months after that.  A compromise could be reached, but it still feels like this is overreaching for a judge to decide anything in favor of Epic; after all, even Netflix abides by Apple’s app store rules.  This could be a harbinger of further legal losses for tech giants business practices.  


Germany launches additional antitrust investigation into Amazon (5/18/21)

Why it matters: Europe is a large and influential market for US tech giants; this investigation centers around its ability to intervene even earlier against perceived anti-competitive practices. 

What’s next: This investigation will likely drag on, and new ones will be launched.


Tapering:

“If I was your bartender

I'd mix 'em up strong in a tall blender

If I was your bartender

I'd talk you out of leaving me”, - Morgan Wallen

The Fed is the bartender telling anxious patrons it is not last call yet and they should stick around for awhile; trying to talk asset investors out of leaving them and falling in love with someone new (2019-2020 returns for US Treasuries +15.8%, S&P 500 +52.9%; what’s not to love).

 Investors seem not to be able to make up their mind how heavy a pour they want.  


Fed minutes show Fed is thinking about talking about tapering  (5/19/21)

Why it matters: Stocks actually staged a relief rally on the news, suggesting this isn’t viewed as incremental bad news.

What’s next: Watch for Fed speakers to clarify the latest policy move over the next few weeks. Expect at least some to leave the door open for tapering in 2021.  


Fed’s Bostic say he’s comfortable with loose monetary policy (5/17/21)

Why it matters: Helps establish how some on the Fed may be viewing inflation as a positive at this point given still high unemployment.  

What’s next: Bostic says he’s not expecting answers to key inflation questions until at least the early fall.   

Taxes:

Yellen calls for higher corporate taxes (5/18/21)

Why it matters: Yellen revealed a key measure she uses, which is corporate taxes as a % of GDP.  

What’s next: Yellen’s arguments are unlikely to sway the Republican opposition.   


US COVID-19 total cases increased 1.4% in the past 2 week period. 

The trend in 7 day new cases decreased -20.7% vs. the prior 7 day period.  India case growth decelerated to -21.4% in the past week, a positive signal suggesting the # new cases may have peaked weeks ago; however, the 14 day case growth of +22.7% remains extremely elevated.  (5/19/21)


Why it matters: The Fed is carefully watching COVID-19 trends because potential shutdowns and travel restrictions are a risk to economic growth.  

What’s next: If India cannot reign in the virus spread, global economic growth projections may be revised down and high levels of central bank stimulus will persist.

Google workplace mobility was -13% compared to baseline(5/16/21)

Why it matters: The longer remote work continues, the more disruptive it is to certain sectors of the economy that cater to office workers.

What’s next: The biggest test will come starting in September when major tech employers like Google and Facebook expect a majority of workers to return to the office.

PREVIOUS WEEK 5/13/21

Anti-Trust:

It’s still too early in the Epic vs. Apple trial to declare a winner (5/10/21)

Why it matters: A loss for Apple represents a threat to their profit margins and other tech giants with similar business practices.

What’s next: A decision is expected next week.  A compromise could be reached, but it still feels like this is overreaching for a judge to decide anything in favor of Epic; after all, even Netflix abides by Apple’s app store rules.  This could be a harbinger of further legal losses for tech giants business practices.  


Meituan finally breaks streak of 10 straight down days on regulatory fears (5/12/21)

https://www.cnbc.com/2021/05/12/meituan-china-tech-crackdown-turns-to-the-food-delivery-giant.html

Why it matters: Weakness in Chinese tech shares spreads easily to US markets. 

What’s next: Many tech companies business models invite significant consumer and worker complaints; expect continued pressure on these companies to fix their business practices, allowing more competition and improving conditions for workers. 

Tapering 

“Mr. "Perfect face"

Mr. "Here to stay"

Mr. "Looked me in the eye and told me you would never go away"” - Taylor Swift

Fed speakers this week are looking Ms. Swift in the eye and telling her easy money is here to stay; but will trusting investors end up asking Fed officials, “How’s your heart after breaking mine, Mr. Perfectly Fine?”


6 Federal Reserve officials urge patience on tapering talk (St. Louis Fed Bullard, Fed Governor Lael Brainard, Cleveland Fed President Loretta Mester, Atlanta Fed President Raphael Bostic, Minneapolis Fed President Neel Kashkari, and San Francisco Fed President Mary Daly)  (5/11/21)

Why it matters: Keeping count of hawkish Fed members until a tipping point is reached.

What’s next: Watch for more Fed speakers to clarify the latest policy move over the next few weeks. Expect at least some to leave the door open for tapering in 2021.  


April CPI reading comes in much hotter than expected (5/12/21)

Why it matters: Stocks had their worst day in months after the news; steepest 3 day decline for the S&P in 7 months.

What’s next: What will it take for Fed officials to declare that inflation isn’t “transitory”? They are already looking ahead to 2022 and saying inflation in 2022 is set to come down; we can’t even forecast inflation 1 month in advance, how are we supposed to forecast 12 months in advance? 

Taxes

Top Republicans tell Biden that tax increases are a non-starter; open to discussing infrastructure spending not funded by tax increases (5/12/21)

Why it matters: No surprises here; Biden intends to push forward with tax increases without Republican support.

What’s next: Look for signs that Biden is losing needed Democrat support to pass tax increases without Republicans; otherwise, tax increases look increasingly likely and will cause volatility in markets.  


US COVID-19 total cases increased 1.8% in the past 2 week period. 

The trend in 7 day new cases decreased -21.1% vs. the prior 7 day period.  India case growth decelerated to -2.6% in the past week, potentially a positive signal suggesting the # new cases may have peaked in the preceding week; however, the 14 day case growth of +29.7% remains extremely elevated.  (5/12/21)



Why it matters: The Fed is carefully watching COVID-19 trends because potential shutdowns and travel restrictions are a risk to economic growth.  

What’s next: If India cannot reign in the virus spread, global economic growth projections may be revised down and high levels of central bank stimulus will persist.


Google workplace mobility was -14% compared to baseline (5/9/21)



Why it matters: The longer remote work continues, the more disruptive it is to certain sectors of the economy that cater to office workers.

What’s next: The biggest test will come starting in September when major tech employers like Google and Facebook expect a majority of workers to return to the office.  

PREVIOUS WEEK 5/6/21

Anti-Trust:

China’s central bank and four other regulatory agencies told some of the country’s biggest financial technology firms, including WeChat operator Tencent Holdings Ltd., ride-hailing company Didi Chuxing Technology Co. and e-commerce firm JD.com Inc. , that their apps should no longer provide financial services beyond payments.  (4/30/21)

https://www.wsj.com/articles/china-orders-tech-giants-to-unbundle-financial-services-11619780759

Why it matters: Less powerful foreign behemoths makes it less risky for the US to exert regulatory pressure on domestic tech giants.

What’s next: These financial services are still in demand by Chinese consumers; will be interesting to see what companies arise to fill in the gaps here.  


China is preparing a substantial fine for Tencent Holdings as part of its sweeping antitrust clampdown on the country's internet giants, but it is likely to be less than the record $2.75 billion penalty imposed on Alibaba earlier this month (4/30/21)

Why it matters: Less powerful foreign behemoths makes it less risky for the US to exert regulatory pressure on domestic tech giants.

What’s next: China seems to be going in size order with its fines; watch for them to work their way down their list to penalize the next largest company.  


Tapering 

“It's like tryna put a Band-Aid on a bullet hole 

Tryna tell a cowboy to slow down” - Morgan Wallen

Fed speakers trying to walk back hawkish comments when inflation jitters abound brings to mind these Morgan Wallen lyrics.  


Dallas Fed’s Kaplan says Fed should start talking about tapering, is concerned about excess and imbalances in financial markets, and is looking to lift rates in 2022 (4/30/21)

Why it matters: Keeping count of hawkish Fed members until a tipping point is reached.

What’s next: Watch for more Fed speakers to clarify the latest policy move over the next few weeks. Expect at least some to leave the door open for tapering in 2021.  


Treasury Secretary Yellen walks back earlier remarks about potential interest rate increases (5/4/21)

Why it matters: The S&P 500 fell immediately following her original remarks, highlighting how sensitive capital markets are to the timing of interest rate increases.  

What’s next: Expect markets to assume the worst about potential interest rate increases without continuing dovish commentary from Fed speakers.   


US COVID-19 total cases increased 2.2% in the past 2 week period. 

The trend in 7 day new cases decreased -14.2% vs. the prior 7 day period.  India case growth decelerated to 10.6% in the past week, but the 14 day case growth of +33.1% remains extremely elevated.  (5/4/21)


Why it matters: The Fed is carefully watching COVID-19 trends because potential shutdowns and travel restrictions are a risk to economic growth.  

What’s next: If India cannot reign in the virus spread, global economic growth projections may be revised down and high levels of central bank stimulus will persist.


Google workplace mobility was -13% compared to baseline (5/2/21)



Why it matters: The longer remote work continues, the more disruptive it is to certain sectors of the economy that cater to office workers.

What’s next: The biggest test will come starting in September when major tech employers like Google and Facebook expect a majority of workers to return to the office.  


PREVIOUS WEEK 4/29/21

Anti-Trust:

China’s anti-trust watchdog announced a probe of Meituan (4/26/21)

Why it matters: Less powerful foreign behemoths makes it less risky for the US to exert regulatory pressure on domestic tech giants.

What’s next: It took just under 4 months for the Alibaba investigation to result in a fine. In early April, Beijing regulators opened discussions with 34 large tech firms about increased oversight; it is likely that more probes will be announced from that list. More probes by China likely means more pressure by US regulators domestically as well.  


Tapering 

Fed announces no change in rates; no formal discussion of tapering yet; most Fed participants expect rates to be on hold through 2023 (4/28/21)

Why it matters: No change in forecast for tapering timing.  The S&P 500 fell for the 2nd day in a row.      

What’s next: Watch for Fed speakers to clarify the latest policy move over the next few weeks. Expect at least some to leave the door open for tapering in 2021.   


US COVID-19 total cases increased 2.8% in the past 2 week period.  The trend in 7 day new cases decreased -16.4% vs. the prior 7 day period.  India cases continue to skyrocket in a troubling trend; total cases up 28.0% in the past 2 weeks, and the 7 day new case trend is +41.9%.  (4/27/21)



Why it matters: The Fed is carefully watching COVID-19 trends because potential shutdowns and travel restrictions are a risk to economic growth.  

What’s next: If India cannot reign in the virus spread, global economic growth projections may be revised down and high levels of central bank stimulus will persist.   


Google workplace mobility was -13% compared to baseline (4/25/21)



Why it matters: The longer remote work continues, the more disruptive it is to certain sectors of the economy that cater to office workers.

What’s next: The biggest test will come starting in September when major tech employers like Google and Facebook expect a majority of workers to return to the office.  


Taxes

Biden’s American Family Plan expected to include 39.6% capital gains tax rate on top tier of earners when announced this week (4/22/21)

Why it matters: The S&P 500 closed down 0.9% on the announcement.  

What’s next: Expect more plans for higher corporate and personal taxes until an economic shock causes the administration to rethink these plans.

READ NEXT: Current Mortgage Rates: US Bankrate Updates | Compare Current Rates

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