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Bitcoin & The Dollar Soar, Squeeze Saves Stocks As Yield Curve Re-Inverts

Bitcoin & The Dollar Soar, Squeeze Saves Stocks As Yield Curve Re-Inverts

PMI beats caught the headlines but most missed the big tumbles…

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Bitcoin & The Dollar Soar, Squeeze Saves Stocks As Yield Curve Re-Inverts

PMI beats caught the headlines but most missed the big tumbles in the regional Fed surveys which is starting to drag 'soft' survey data lower...

Source: Bloomberg

But, crypto was the story du jour with Bitcoin soaring over $2500 to top $35,000 for the first time since May 2022...

Source: Bloomberg

We discussed catalysts for the move in detail here, but note on the day, BTC did come back a little after tagging $35,000...

Source: Bloomberg

Ethereum also rallied early on but gave a lot of its gains back, as ETH relative to BTC plunged back near Jun 2022 spike lows...

Source: Bloomberg

Stocks were stronger overnight - because WW3 hadn't started - then ramped on better than expected PMIs (see here for that malarkey) but that stalled into the European close sending stocks all the way to unchanged and to the lows of the day. From there they bounced with Nasdaq leading the charge ahead of tonight's GOOGL, MSFT earnings...

The S&P broke back below its 200DMA, but found support...

Thanks in large part to a giant short squeeze at the open...

VIX was clubbed a baby seal once again, back down to almost an 18 handle from above 23 at Monday's open....

As Nomura's Charlie McElligott notes: "The Vol selling in Equities Options space has continued at an unrelenting pace these past 2 sessions, as funds look to exploit the recently “rich” VRP off the back of 1) the shock FCI tightening risking a “cycle-turn,” 2) geopol stress “fat tails” and 3) the legacy VIX Dealer “short upside convexity” problem which has made Index iVol so suddenly “squeezy,” evidenced by recent “extreme VIX Beta to SPX” and Vol of Vol."

Bonds were mixed on the day with the long-end outperforming (30Y -5bps, 2Y +5bps), which leaves the 2Y yield alone higher on the week...

Source: Bloomberg

The 30Y yield closed back below 5.00%...

Source: Bloomberg

Which, obviously, flattened the yield curve dramatically with 2s30s now inverted again...

Source: Bloomberg

The dollar bounced hard off its pre-CPI lows, erasing all of yesterday's tumble...

Source: Bloomberg

Gold was basically flat on the day (in USD) but not in JPY where it reached a new record high...

Source: Bloomberg

Oil was pummeled ahead of tonight's API data, because WW3 never erupted?

As Bloomberg's Eddie Spence notes, gold’s explosive rally since Hamas’s attack on Israel has moved in tandem with oil prices, a sign some traders are hedging against stagflation.

The 15-day correlation between spot bullion and Brent crude is now at the highest in over a year. The relationship between the two commodities typically strengthens when oil begins to spike.

Finally, are stocks starting to catch down to central bank balance sheet realities?

Source: Bloomberg

...or will The Fed (et al.) pivot to QE before that gaping spread compresses from above?

Tyler Durden Tue, 10/24/2023 - 16:00

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Macro Briefing: 19 February 2024

* ‘Soft landing’ debate for US economy in focus again after latest reports * New signs emerge that America’s shale-oil boom is peaking * US says…

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* ‘Soft landing’ debate for US economy in focus again after latest reports
* New signs emerge that America’s shale-oil boom is peaking
* US says it will react if China dumps goods on global markets
* China reports record upsurge in travel, which may presage stronger growth
* China’s central bank leaves key policy rate unchanged
* Regional banks are vulnerable to risk tied to commercial real estate lending
* US natural gas prices plunge amid warm winter weather
* US producer price inflation rose more than expected in January:

Younger adults grew their wealth at a sharply faster pace than older Americans in the wake of the pandemic, due primarily to holdings in stocks, according to a new study published by the New York Fed. “We examine wealth dynamics from 2019:Q1 through 2023:Q3 for three age groups: 18-39, 40-54, and 55 and over,” the report explains. “eal wealth has increased for all three age groups since 2019, but the change has been most dramatic for younger adults (see chart below). For individuals 39 and younger, wealth increased by 80 percent. In contrast, it grew by only 10 percent for those aged 40-54 and by 30 percent for those 55 and over.”

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Taxing Billionaires Won’t Reduce Taxes For The Middle Class

Taxing Billionaires Won’t Reduce Taxes For The Middle Class

Authored by Daniel Lacalle,

In a world of populist policies, the notion of taxing…

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on

Taxing Billionaires Won't Reduce Taxes For The Middle Class

Authored by Daniel Lacalle,

In a world of populist policies, the notion of taxing billionaires to alleviate the financial burdens of the middle class stands as a tempting narrative. Advocates tout it as the quintessential solution to income inequality, promising a redistribution of wealth that lifts the masses from their fiscal woes. However, this narrative, so alluring in its simplicity, crumbles upon closer examination, revealing a multitude of complexities and pitfalls that belie its benefits.

Central to the fallacy of taxing billionaires lies a fundamental misunderstanding of the dynamics of government spending and deficits. Proponents of this approach often overlook the inconvenient truth that as most governments increase spending even when tax receipts rise, deficits soar to unprecedented heights, burdening future generations with a mountain of debt and always increasing taxes for the middle class.

Taxing the rich is the door that leads to more taxes for all of us. The case of the United States is evident. No tax revenue measure is going to wipe out an annual two trillion dollar deficit. Therefore, the government announces a large tax hike for the wealthy and disguises it with more taxes for everybody and higher inflation, which is a hidden tax.

The notion that taxing billionaires will miraculously alleviate this fiscal strain is akin to applying plaster to a gaping wound—it does not even provide temporary relief, and it fails to address the underlying malaise.

A seminal paper by Alesina, Favero, and Giavazzi (2015) delves into the implications of government deficits on economic growth. The authors argue that persistent deficits not only crowd out private investment but also lead to higher interest rates, reduced confidence, and ultimately diminished economic growth. This underscores the importance of fiscal prudence in addressing long-term fiscal challenges and the evidence that tax hikes are not neutral.

Billionaires mostly hold their wealth in shares of their own companies. This is what is called “paper wealth.” However, they cannot sell those shares and if they lost them, their value would decline immediately.

The redistribution fallacy comes from three false ideas:

  • The first is the notion that billionaires do not pay taxes to begin with. The top one percent of income earners in the United States earned 22 percent of all income and paid 42 percent of all federal income.

  • The second error is believing that wealth is static—like a pie—and can be redistributed at will. Wealth is either created or destroyed. Confiscating the wealth of billionaires does not make the middle class or the poor richer. We should have learned that lesson from the numerous examples in history, from the French Revolution to the Soviet Union.

  • The third mistake is to believe that the economy is a sum-zero game where the wealth of one person is the loss of another. That is simply false because wealth is not “there.” It must be created through an exercise where all parties win in exchange for cooperation.

The world must strive to create more wealth, not limit those who generate it.

Consider the recent clamour for increased government intervention and spending, particularly in the wake of global crises. For instance, the COVID-19 pandemic prompted governments all over the world to enact a flurry of fiscal stimuli, ostensibly intended to soften the blow of the economic fallout. Yet, as the dust settles, we find ourselves grappling not only with the immediate ramifications of increased government spending but also with the long-term consequences of ballooning deficits as well as persistent inflation.

Who came out as the loser of the redistribution and stimulus frenzy of the past decade? The middle class. It has been destroyed by persistent inflation created by printing money without control, rising debt and deficits and constantly bloating government size in the economy, which in turn creates two taxes for the middle class and the poor: inflation and rising indirect taxes.

Critics of this approach have long warned of the dangers of irresponsible government spending. Taxing billionaires will not stop this trend of excessive bureaucracy and irresponsible administration of public services; in fact, it may accelerate it, as we have seen in so many countries, and certainly will not reduce the tax wedge on ordinary citizens.

History is replete with cautionary tales of nations brought to their knees by unchecked fiscal excesses. From hyperinflation to sovereign debt crises, the ramifications of fiscal irresponsibility are manifold and far-reaching. And yet, in the face of mounting pressure to “tax the rich,” policymakers seem intent on repeating the mistakes of the past, heedless of the inevitable consequences.

But the fallacy of taxing billionaires extends beyond the realm of fiscal policy—it strikes at the very heart of economic prosperity. At its core, capitalism depends on investment, entrepreneurship, and innovation—all of which are at risk from excessive taxation. The narrative that vilifies billionaires as greedy hoarders of wealth overlooks their crucial role in driving economic growth and prosperity.

By focusing solely on redistributive measures, policymakers risk undermining the very foundations of prosperity upon which our economic system rests.

Moreover, the notion that taxing billionaires will somehow level the playing field and uplift the middle class is predicated on a flawed understanding of economic reality. In truth, the global mobility of capital renders such measures largely ineffective, as the ultra-wealthy can easily relocate to jurisdictions with more favourable tax regimes. This not only undermines the efficacy of taxing billionaires as a revenue-generating mechanism but also exacerbates the very inequalities it seeks to redress.

Indeed, the unintended consequences of excessively taxing the rich are manifold and far-reaching. From reduced investment and job creation to economic stagnation and decline, the repercussions of such policies are felt across society. And while the rhetoric of wealth redistribution may sound appealing in theory, the reality is far more sobering—a stagnant economy, diminished opportunities, and a dwindling standard of living for all.

So, where does this leave us? If taxing billionaires is not the panacea it purports to be, what alternatives exist to address income inequality and alleviate the burdens of the middle class? The answer lies not in punitive taxation but in prudent fiscal policy, targeted policies, and a renewed focus on fostering economic growth and prosperity for all.

Primarily, we must recognize that fiscal responsibility is not a luxury but a necessity. Governments must exercise restraint in their spending, prioritize efficiency and accountability, and resist the temptation to paper over fiscal deficits with ill-conceived tax hikes and money printing. Only through disciplined fiscal management can we hope to secure a prosperous future for generations to come.

Second, we must recognize the vital role that entrepreneurship and investment play in driving economic growth and prosperity. Rather than demonizing billionaires as the root of all evil, we should celebrate their contributions to society and create an environment that fosters innovation, entrepreneurship, and wealth creation. This means reducing regulatory barriers, incentivizing investment, and empowering individuals to pursue their entrepreneurial ambitions.

Finally, we must understand that opportunities provided to citizens, not the size of the government, are what define true progress. Rather than relying on the state to solve all our problems, we should empower individuals and communities to chart their own course to prosperity. This means investing in education, healthcare, and infrastructure, providing a safety net for those in need, and fostering a culture of self-reliance and personal responsibility.

In conclusion, the fallacy of taxing billionaires lies not in its intentions but in its execution. While the notion of redistributing wealth may sound appealing in theory, the reality is far more complex. By succumbing to the allure of punitive taxation, we risk stifling economic growth, undermining prosperity, and perpetuating the very inequalities we seek to redress. Only through prudent fiscal management, targeted interventions, and a renewed focus on fostering economic growth can we hope to build a future that is truly prosperous for all.

Socialism does not redistribute from the rich to the poor, but from the middle class to politicians.

The fallacy of massively taxing billionaires is another trick to promote socialism, which has never been about the redistribution of wealth from the rich to the poor, but the redistribution of wealth from the middle class to politicians.

Tyler Durden Sun, 02/18/2024 - 17:30

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Taxing Billionaires Won’t Reduce Taxes For The Middle Class

Taxing Billionaires Won’t Reduce Taxes For The Middle Class

Authored by Daniel Lacalle,

In a world of populist policies, the notion of taxing…

Published

on

Taxing Billionaires Won't Reduce Taxes For The Middle Class

Authored by Daniel Lacalle,

In a world of populist policies, the notion of taxing billionaires to alleviate the financial burdens of the middle class stands as a tempting narrative. Advocates tout it as the quintessential solution to income inequality, promising a redistribution of wealth that lifts the masses from their fiscal woes. However, this narrative, so alluring in its simplicity, crumbles upon closer examination, revealing a multitude of complexities and pitfalls that belie its benefits.

Central to the fallacy of taxing billionaires lies a fundamental misunderstanding of the dynamics of government spending and deficits. Proponents of this approach often overlook the inconvenient truth that as most governments increase spending even when tax receipts rise, deficits soar to unprecedented heights, burdening future generations with a mountain of debt and always increasing taxes for the middle class.

Taxing the rich is the door that leads to more taxes for all of us. The case of the United States is evident. No tax revenue measure is going to wipe out an annual two trillion dollar deficit. Therefore, the government announces a large tax hike for the wealthy and disguises it with more taxes for everybody and higher inflation, which is a hidden tax.

The notion that taxing billionaires will miraculously alleviate this fiscal strain is akin to applying plaster to a gaping wound—it does not even provide temporary relief, and it fails to address the underlying malaise.

A seminal paper by Alesina, Favero, and Giavazzi (2015) delves into the implications of government deficits on economic growth. The authors argue that persistent deficits not only crowd out private investment but also lead to higher interest rates, reduced confidence, and ultimately diminished economic growth. This underscores the importance of fiscal prudence in addressing long-term fiscal challenges and the evidence that tax hikes are not neutral.

Billionaires mostly hold their wealth in shares of their own companies. This is what is called “paper wealth.” However, they cannot sell those shares and if they lost them, their value would decline immediately.

The redistribution fallacy comes from three false ideas:

  • The first is the notion that billionaires do not pay taxes to begin with. The top one percent of income earners in the United States earned 22 percent of all income and paid 42 percent of all federal income.

  • The second error is believing that wealth is static—like a pie—and can be redistributed at will. Wealth is either created or destroyed. Confiscating the wealth of billionaires does not make the middle class or the poor richer. We should have learned that lesson from the numerous examples in history, from the French Revolution to the Soviet Union.

  • The third mistake is to believe that the economy is a sum-zero game where the wealth of one person is the loss of another. That is simply false because wealth is not “there.” It must be created through an exercise where all parties win in exchange for cooperation.

The world must strive to create more wealth, not limit those who generate it.

Consider the recent clamour for increased government intervention and spending, particularly in the wake of global crises. For instance, the COVID-19 pandemic prompted governments all over the world to enact a flurry of fiscal stimuli, ostensibly intended to soften the blow of the economic fallout. Yet, as the dust settles, we find ourselves grappling not only with the immediate ramifications of increased government spending but also with the long-term consequences of ballooning deficits as well as persistent inflation.

Who came out as the loser of the redistribution and stimulus frenzy of the past decade? The middle class. It has been destroyed by persistent inflation created by printing money without control, rising debt and deficits and constantly bloating government size in the economy, which in turn creates two taxes for the middle class and the poor: inflation and rising indirect taxes.

Critics of this approach have long warned of the dangers of irresponsible government spending. Taxing billionaires will not stop this trend of excessive bureaucracy and irresponsible administration of public services; in fact, it may accelerate it, as we have seen in so many countries, and certainly will not reduce the tax wedge on ordinary citizens.

History is replete with cautionary tales of nations brought to their knees by unchecked fiscal excesses. From hyperinflation to sovereign debt crises, the ramifications of fiscal irresponsibility are manifold and far-reaching. And yet, in the face of mounting pressure to “tax the rich,” policymakers seem intent on repeating the mistakes of the past, heedless of the inevitable consequences.

But the fallacy of taxing billionaires extends beyond the realm of fiscal policy—it strikes at the very heart of economic prosperity. At its core, capitalism depends on investment, entrepreneurship, and innovation—all of which are at risk from excessive taxation. The narrative that vilifies billionaires as greedy hoarders of wealth overlooks their crucial role in driving economic growth and prosperity.

By focusing solely on redistributive measures, policymakers risk undermining the very foundations of prosperity upon which our economic system rests.

Moreover, the notion that taxing billionaires will somehow level the playing field and uplift the middle class is predicated on a flawed understanding of economic reality. In truth, the global mobility of capital renders such measures largely ineffective, as the ultra-wealthy can easily relocate to jurisdictions with more favourable tax regimes. This not only undermines the efficacy of taxing billionaires as a revenue-generating mechanism but also exacerbates the very inequalities it seeks to redress.

Indeed, the unintended consequences of excessively taxing the rich are manifold and far-reaching. From reduced investment and job creation to economic stagnation and decline, the repercussions of such policies are felt across society. And while the rhetoric of wealth redistribution may sound appealing in theory, the reality is far more sobering—a stagnant economy, diminished opportunities, and a dwindling standard of living for all.

So, where does this leave us? If taxing billionaires is not the panacea it purports to be, what alternatives exist to address income inequality and alleviate the burdens of the middle class? The answer lies not in punitive taxation but in prudent fiscal policy, targeted policies, and a renewed focus on fostering economic growth and prosperity for all.

Primarily, we must recognize that fiscal responsibility is not a luxury but a necessity. Governments must exercise restraint in their spending, prioritize efficiency and accountability, and resist the temptation to paper over fiscal deficits with ill-conceived tax hikes and money printing. Only through disciplined fiscal management can we hope to secure a prosperous future for generations to come.

Second, we must recognize the vital role that entrepreneurship and investment play in driving economic growth and prosperity. Rather than demonizing billionaires as the root of all evil, we should celebrate their contributions to society and create an environment that fosters innovation, entrepreneurship, and wealth creation. This means reducing regulatory barriers, incentivizing investment, and empowering individuals to pursue their entrepreneurial ambitions.

Finally, we must understand that opportunities provided to citizens, not the size of the government, are what define true progress. Rather than relying on the state to solve all our problems, we should empower individuals and communities to chart their own course to prosperity. This means investing in education, healthcare, and infrastructure, providing a safety net for those in need, and fostering a culture of self-reliance and personal responsibility.

In conclusion, the fallacy of taxing billionaires lies not in its intentions but in its execution. While the notion of redistributing wealth may sound appealing in theory, the reality is far more complex. By succumbing to the allure of punitive taxation, we risk stifling economic growth, undermining prosperity, and perpetuating the very inequalities we seek to redress. Only through prudent fiscal management, targeted interventions, and a renewed focus on fostering economic growth can we hope to build a future that is truly prosperous for all.

Socialism does not redistribute from the rich to the poor, but from the middle class to politicians.

The fallacy of massively taxing billionaires is another trick to promote socialism, which has never been about the redistribution of wealth from the rich to the poor, but the redistribution of wealth from the middle class to politicians.

Tyler Durden Sun, 02/18/2024 - 17:30

Read More

Continue Reading

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