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Summer of Healthy Capital Flows Into U.S. Markets

Last week’s price action for the stock market smacked of a rally that had run out of good news to justify rising share prices. All the heavy-hitting stocks that pack the top quartile of the S&P 500 had posted great numbers, except the house that…

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Last week’s price action for the stock market smacked of a rally that had run out of good news to justify rising share prices.

All the heavy-hitting stocks that pack the top quartile of the S&P 500 had posted great numbers, except the house that Bezos built: Amazon.com, Inc. (NASDAQ:AMZN). The Fed beat the drum of quantitative easing (QE) but gave a wink and a nod that, somewhere down the road, a taper here and a taper there might be in order. The Fed’s balance sheet currently stands at $8.2 trillion and is climbing.

Lastly, Congress lined up more than 60 votes that were needed to pass a $550 billion bipartisan infrastructure bill. It tees up President Biden’s $3.5 trillion economic plan. The infrastructure package should pass the Senate by the end of this week, assuming everyone wants to break for the traditional summer August recess that was established in the Senate’s earliest years to allow senators to escape the heat, spend time with family, meet constituents in their home states and catch up on personal affairs.

Going home without an infrastructure package following decades of delay is a political lemon at a time when the country is facing further challenges with the COVID-19 variants. The proposed infrastructure plan includes $110 billion in new spending for roads and bridges, $73 billion of electric grid upgrades, $66 billion for rail and Amtrak and $65 billion for broadband expansion. It also provides $55 billion for clean drinking water and $39 billion for transit.

Spending will commence just as federal unemployment benefits are set to expire on Sept. 6, but the fresh outbreak of COVID-19’s Delta variant might serve as a reason to extend the benefits. Most of the companies that occupy the top tier of each sector of the economy are making vaccinations mandatory. For the business of business, “the show must go on,” regardless of COVID-19. Momentum for vaccine mandates has been building, with President Joe Biden stating last week that all federal employees and on-site contractors must be vaccinated or submit to regular testing and mitigation requirements.

To date, the notion of returning to lockdowns and shut-ins is off the table because the vaccines work, which is the current position of the Biden administration. But according to Reuters, during the last week, the U.S. averaged about 610,020 doses administered each day. At that rate, it will take a further 108 days to administer enough doses for another 10% of the population. This raises some questions about the speed of a highly contagious Delta variant infecting the population versus the time needed to vaccinate those who are willing to receive the needed doses.

Source: Reuters

And then there is the rising flight of capital from Hong Kong and China amid the growing crackdowns on businesses and free society. Tensions are increasing in reaction to the new set of security laws. If spurred to action, the United States could respond by invoking sanctions through the Hong Kong Human Rights & Democracy Act that allows America to revoke Hong Kong’s special economic and trading status.

The United States can impose tariffs on China’s products that flow through Hong Kong, and the U.S. Treasury could restrict portfolio flows to and from Hong Kong. Such actions could trigger widespread capital flight as there are no capital restrictions. The increasingly fraying relationship between China and the United States has been largely ignored by the U.S. equity market.

The reason Hong Kong is so vital is that it represents the keyhole to western financial markets. Investors, venture capitalists and businesses that want western dollars have to usually go through Hong Kong to access capital via the western banking connections in Hong Kong. There is a sense that these relationships are at risk, fueling a steep 28% correction in China’s market and a 16% drop in Hong Kong’s market.

Hong Kong is unique in that it has an open capital account structure without any capital controls. Money can move in and out very quickly and is a fuel for capital flight if triggered by a material decline in real estate values and intervention by Chinese government authorities. The fear arising from the regulatory rampage on Chinese internet platform companies is that it will spread to other industries.

Major global financial firms with a big presence in Hong Kong, such as BlackRock and UBS Wealth Management, are on high alert to protect client assets against future policy changes that could further downside risk to asset valuations. Hong Kong residents are fleeing to the United Kingdom following China’s crackdown in which protestors exercising freedom of expression can face life imprisonment.

Hong Kong is a city that operates under a real estate-based economy and is seeing the highest number of vacant homes hit the market in 18 years. The exodus of people has rental rates sliding by 10%, according to a recent Bloomberg report. The point here is that there are plenty of new reasons for capital to leave China and Hong Kong and find a new home in the U.S. bond and equity markets.

There might be some further back-and-filling following a stellar earnings season and Fed policy meeting. But with so many leading companies raising third-quarter and full-year guidance, the firehose of liquidity from the Fed, Congress and global investors into U.S. stocks should keep any and all corrections short and shallow.

The post Summer of Healthy Capital Flows Into U.S. Markets appeared first on Stock Investor.

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Angry Shouting Aside, Here’s What Biden Is Running On

Angry Shouting Aside, Here’s What Biden Is Running On

Last night, Joe Biden gave an extremely dark, threatening, angry State of the Union…

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4 hours ago

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March 8, 2024

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Angry Shouting Aside, Here's What Biden Is Running On

Last night, Joe Biden gave an extremely dark, threatening, angry State of the Union address - in which he insisted that the American economy is doing better than ever, blamed inflation on 'corporate greed,' and warned that Donald Trump poses an existential threat to the republic.

But in between the angry rhetoric, he also laid out his 2024 election platform - for which additional details will be released on March 11, when the White House sends its proposed budget to Congress.

To that end, Goldman Sachs' Alec Phillips and Tim Krupa have summarized the key points:

Taxes

While railing against billionaires (nothing new there), Biden repeated the claim that anyone making under $400,000 per year won't see an increase in their taxes.  He also proposed a 21% corporate minimum tax, up from 15% on book income outlined in the Inflation Reduction Act (IRA), as well as raising the corporate tax rate from 21% to 28% (which would promptly be passed along to consumers in the form of more inflation). Goldman notes that "Congress is unlikely to consider any of these proposals this year, they would only come into play in a second Biden term, if Democrats also won House and Senate majorities."

Biden also called on Congress to restore the pandemic-era child tax credit.

Immigration

Instead of simply passing a slew of border security Executive Orders like the Trump ones he shredded on day one, Biden repeated the lie that Congress 'needs to act' before he can (translation: send money to Ukraine or the US border will continue to be a sieve).

As immigration comes into even greater focus heading into the election, we continue to expect the Administration to tighten policy (e.g., immigration has surged 20pp the last 7 months to first place with 28% in Gallup’s “most important problem” survey). As such, we estimate the foreign-born contribution to monthly labor force growth will moderate from 110k/month in 2023 to around 70-90k/month in 2024. -GS

Ukraine

Biden, with House Speaker Mike Johnson doing his best impression of a bobble-head, urged Congress to pass additional assistance for Ukraine based entirely on the premise that Russia 'won't stop' there (and would what, trigger article 5 and WW3 no matter what?), despite the fact that Putin explicitly told Tucker Carlson he has no further ambitions, and in fact seeks a settlement.

As Goldman estimates, "While there is still a clear chance that such a deal could come together, for now there is no clear path forward for Ukraine aid in Congress."

China

Biden, forgetting about all the aggressive tariffs, suggested that Trump had been soft on China, and that he will stand up "against China's unfair economic practices" and "for peace and stability across the Taiwan Strait."

Healthcare

Lastly, Biden proposed to expand drug price negotiations to 50 additional drugs each year (an increase from 20 outlined in the IRA), which Goldman said would likely require bipartisan support "even if Democrats controlled Congress and the White House," as such policies would likely be ineligible for the budget "reconciliation" process which has been used in previous years to pass the IRA and other major fiscal party when Congressional margins are just too thin.

So there you have it. With no actual accomplishments to speak of, Biden can only attack Trump, lie, and make empty promises.

Tyler Durden Fri, 03/08/2024 - 18:00

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United Airlines adds new flights to faraway destinations

The airline said that it has been working hard to "find hidden gem destinations."

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11 hours ago

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March 8, 2024

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Since countries started opening up after the pandemic in 2021 and 2022, airlines have been seeing demand soar not just for major global cities and popular routes but also for farther-away destinations.

Numerous reports, including a recent TripAdvisor survey of trending destinations, showed that there has been a rise in U.S. traveler interest in Asian countries such as Japan, South Korea and Vietnam as well as growing tourism traction in off-the-beaten-path European countries such as Slovenia, Estonia and Montenegro.

Related: 'No more flying for you': Travel agency sounds alarm over risk of 'carbon passports'

As a result, airlines have been looking at their networks to include more faraway destinations as well as smaller cities that are growing increasingly popular with tourists and may not be served by their competitors.

The Philippines has been popular among tourists in recent years.

Shutterstock

United brings back more routes, says it is committed to 'finding hidden gems'

This week, United Airlines  (UAL)  announced that it will be launching a new route from Newark Liberty International Airport (EWR) to Morocco's Marrakesh. While it is only the country's fourth-largest city, Marrakesh is a particularly popular place for tourists to seek out the sights and experiences that many associate with the country — colorful souks, gardens with ornate architecture and mosques from the Moorish period.

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"We have consistently been ahead of the curve in finding hidden gem destinations for our customers to explore and remain committed to providing the most unique slate of travel options for their adventures abroad," United's SVP of Global Network Planning Patrick Quayle, said in a press statement.

The new route will launch on Oct. 24 and take place three times a week on a Boeing 767-300ER  (BA)  plane that is equipped with 46 Polaris business class and 22 Premium Plus seats. The plane choice was a way to reach a luxury customer customer looking to start their holiday in Marrakesh in the plane.

Along with the new Morocco route, United is also launching a flight between Houston (IAH) and Colombia's Medellín on Oct. 27 as well as a route between Tokyo and Cebu in the Philippines on July 31 — the latter is known as a "fifth freedom" flight in which the airline flies to the larger hub from the mainland U.S. and then goes on to smaller Asian city popular with tourists after some travelers get off (and others get on) in Tokyo.

United's network expansion includes new 'fifth freedom' flight

In the fall of 2023, United became the first U.S. airline to fly to the Philippines with a new Manila-San Francisco flight. It has expanded its service to Asia from different U.S. cities earlier last year. Cebu has been on its radar amid growing tourist interest in the region known for marine parks, rainforests and Spanish-style architecture.

With the summer coming up, United also announced that it plans to run its current flights to Hong Kong, Seoul, and Portugal's Porto more frequently at different points of the week and reach four weekly flights between Los Angeles and Shanghai by August 29.

"This is your normal, exciting network planning team back in action," Quayle told travel website The Points Guy of the airline's plans for the new routes.

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Walmart launches clever answer to Target’s new membership program

The retail superstore is adding a new feature to its Walmart+ plan — and customers will be happy.

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11 hours ago

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March 8, 2024

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It's just been a few days since Target  (TGT)  launched its new Target Circle 360 paid membership plan. 

The plan offers free and fast shipping on many products to customers, initially for $49 a year and then $99 after the initial promotional signup period. It promises to be a success, since many Target customers are loyal to the brand and will go out of their way to shop at one instead of at its two larger peers, Walmart and Amazon.

Related: Walmart makes a major price cut that will delight customers

And stop us if this sounds familiar: Target will rely on its more than 2,000 stores to act as fulfillment hubs. 

This model is a proven winner; Walmart also uses its more than 4,600 stores as fulfillment and shipping locations to get orders to customers as soon as possible.

Sometimes, this means shipping goods from the nearest warehouse. But if a desired product is in-store and closer to a customer, it reduces miles on the road and delivery time. It's a kind of logistical magic that makes any efficiency lover's (or retail nerd's) heart go pitter patter. 

Walmart rolls out answer to Target's new membership tier

Walmart has certainly had more time than Target to develop and work out the kinks in Walmart+. It first launched the paid membership in 2020 during the height of the pandemic, when many shoppers sheltered at home but still required many staples they might ordinarily pick up at a Walmart, like cleaning supplies, personal-care products, pantry goods and, of course, toilet paper. 

It also undercut Amazon  (AMZN)  Prime, which costs customers $139 a year for free and fast shipping (plus several other benefits including access to its streaming service, Amazon Prime Video). 

Walmart+ costs $98 a year, which also gets you free and speedy delivery, plus access to a Paramount+ streaming subscription, fuel savings, and more. 

An employee at a Merida, Mexico, Walmart. (Photo by Jeffrey Greenberg/Universal Images Group via Getty Images)

Jeff Greenberg/Getty Images

If that's not enough to tempt you, however, Walmart+ just added a new benefit to its membership program, ostensibly to compete directly with something Target now has: ultrafast delivery. 

Target Circle 360 particularly attracts customers with free same-day delivery for select orders over $35 and as little as one-hour delivery on select items. Target executes this through its Shipt subsidiary.

We've seen this lightning-fast delivery speed only in snippets from Amazon, the king of delivery efficiency. Who better to take on Target, though, than Walmart, which is using a similar store-as-fulfillment-center model? 

"Walmart is stepping up to save our customers even more time with our latest delivery offering: Express On-Demand Early Morning Delivery," Walmart said in a statement, just a day after Target Circle 360 launched. "Starting at 6 a.m., earlier than ever before, customers can enjoy the convenience of On-Demand delivery."

Walmart  (WMT)  clearly sees consumers' desire for near-instant delivery, which obviously saves time and trips to the store. Rather than waiting a day for your order to show up, it might be on your doorstep when you wake up. 

Consumers also tend to spend more money when they shop online, and they remain stickier as paying annual members. So, to a growing number of retail giants, almost instant gratification like this seems like something worth striving for.

Related: Veteran fund manager picks favorite stocks for 2024

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