This is not the typical new year annual forecast. Richard Bernstein is smart and savvy. He also does good historical work to support his thesis. And he has been right in 2017. You will not waste your time reading this 7-pager. And don’t miss the bitcon (sic) part.
The index of small-business optimism from the National Federation of Independent Business rose 3.7 points to 107.5 in November, the second-highest reading in the 44-year history of the index. (…)
In November, eight of the 10 components of the index increased, led by what NFIB called a “stunning and rare 16-point gain in expected better business conditions” and a 13-point increase in the measure of sales expectations. (…)
Nice to be upbeat about the future, even more so when the present is not that great…(full NFIB pdf)
In the latest Manufacturers’ Outlook Survey from the National Association of Manufacturers (NAM), manufacturers’ optimism has risen to unprecedented heights, driven by their belief that the progress the White House and Congress have made on enacting bold, comprehensive tax reform shows that leaders in Washington are finally embracing policies to help manufacturers in the United States successfully compete in the global marketplace. With 94.6 percent of respondents saying they are positive about their own company’s outlook, this quarter’s optimism level is the highest in the survey’s 20-year history. Optimism has been at historically high levels throughout the year, averaging 91.8 percent in the four quarters of 2017, up from a 64.3 percent average in 2016. (…)
Manufacturers have reported a robust turnaround in activity over the past 12 months, and they are very upbeat in their assessment of demand and output moving forward. (…)
Manufacturers’ three highest business challenges remain the same: attracting and retaining a quality workforce, rising health care and insurance costs and an unfavorable business climate (e.g., taxes and regulations). What has changed is that in all of the surveys up to this year, an unfavorable business climate often appeared near the top of the list; now it is a distant third. (…)
The Bureau of Labor Statistics reported that the total job openings rate in October eased from the record high of 4.0% to 3.9%. The hiring rate rose, however, to 3.8% and equaled the expansion high. (…)
The total number of job openings declined 2.9% (+7.3% y/y) reflecting a 3.3% drop (+7.0% y/y) in the private sector total. The job openings decline included manufacturing, trade, transportation & utilities and professional & business services. The number of job openings rose sharply in leisure & hospitality and the construction sector. (…)
The overall number of hires strengthened [+6.8% YoY], with sharp increases in the health care, leisure & hospitality and manufacturing sectors. Hiring weakened in construction, retail trade and government. (…)
- The latest reports show that we now have one job opening for every unemployed American. This ratio is at the highest level in decades. (The Daily Shot)
U.S. Tax Plan Draws Attacks Abroad, Prompts Calls for Cuts in Response European finance ministers warn U.S. counterpart that overhaul could violate double-taxation treaties
(…) Two provisions in particular have prompted pushback from foreign executives, overseas trade bodies and politicians. One, contained in the House version, proposes a 20% excise tax on U.S.-based affiliates of foreign firms. Another provision, in the Senate version, attempts to shore up “base erosion”—or the decrease in a country’s tax base when firms shift profits to jurisdictions with lower taxes. Critics say a proposal to raise taxes on many cross-border financial transactions would hit foreign firms hardest.
All those provisions could have an impact on a host of foreign manufacturers that sell their wares in the U.S., such as Japanese auto makers or German pharmaceuticals companies.
The excise-tax and base-erosion-tax provisions “appear to have the greatest impact on certain sectors, particularly those with heavy sales in the U.S. but relying on integrated supply chains,” said Albert Liguori, a tax expert at New York-based tax advisory firm Alvarez & Marsal Taxand LLC.
Last week, the BDI Federation of German Industry, Germany’s most influential business lobby, said some provisions of the bills had “clearly a protectionist character.”
“Companies in Germany and Europe face massive damage,” Joachim Lang, BDI managing director, warned last week. (…)
Beijing Develops Plan to Counter Trump Tax Overhaul Chinese officials’ contingency plan includes higher interest rates and tighter capital controls
(…) What they fear is a double whammy sapping money out of China by making the U.S. a more attractive place to invest.
Under the plan, the people say, the People’s Bank of China stands ready to deploy a combination of tools—higher interest rates, tighter capital controls and more-frequent currency intervention—to keep money at home and support the yuan.
An official involved in Beijing’s deliberations called Washington’s tax plan a “gray rhino,” an obvious danger in China’s economy that shouldn’t be ignored. “We’ll likely have some tough battles in the first quarter,” the official said. (…)
In practice, tax experts say, Chinese companies typically pay taxes on about 40% to 50% of their profits after various deductions. Tax experts say the average U.S. rate after deductions is lower than that. (…)
While U.S. companies pay a higher national income-tax rate—35% versus 25% in China—Chinese companies face a welter of other taxes and fees their U.S. counterparts don’t, including a 17% value-added tax. And while Chinese firms don’t pay state taxes, as U.S. companies do, Chinese employers pay far-higher payroll taxes. Welfare and social insurance taxes cost between 40% and 100% of a paycheck in China.
World Bank figures for 2016 show that total tax burden on Chinese businesses are among the highest of major economies: 68% of profits, compared with 44% in the U.S. and 40.6% on average world-wide. The figures include national and local income taxes, value-added or sales taxes and any mandatory employer contributions for welfare and social security. (…)
Under the contingency plan now being prepared, one course of action China’s central bank could take involves gradually guiding up costs for bank-to-bank borrowing, which has significantly added to financial risks in recent years, while leaving unchanged benchmark interest rates so as not to make it too difficult for companies to borrow or pay back debt, both of which could hurt growth. (…)
2017 could be one of the least volatile years ever for equities, along with being a solid year for the bulls. In addition, we could also be looking at the first year in U.S. stock market history to see every month of the calendar year close higher.
DO NOT EXTRAPOLATE
Contrarian investors might be prone to think that the market is likely to fall after a big up year, while momentum investors like to trade on strength one year turning into strength the next year. But if we look at the correlation between returns one year to the next, we find that there is none. (…) (Bespoke Investment)
Industry analysts in aggregate predict the S&P 500 will see a 7.7% increase in price over the next 12 months. This percentage is based on the difference between the bottom-up target price and the closing price for the index as of yesterday. The bottom-up target price is calculated by aggregating the median target price estimates (based on company-level estimates submitted by industry analysts) for all the companies in the index. On December 7, the bottom-up target price for the S&P 500 was 2839.12, which was 7.7% above the closing price of 2636.98.
Over the previous 15 years (2002-2016), the average difference between the bottom-up target price estimate at the beginning of the year (December 31) and the final price for the index for that same year has been 13.0%. In other words, industry analysts on average have overestimated the final price of the index by about 13.0% one year in advance during the previous 15 years. Analysts overestimated the final value (i.e., the final value finished below the estimate) in 12 of the 15 years and underestimated the final value (i.e., the final value finished above the estimate) in the other three years.
However, this 13.0% average includes two years in which there were substantial differences between the bottom-up target price estimate at the start of the year and the closing price for the index for that same year: 2002 (+61%) and 2008 (+93%). If these two years were excluded, the average difference between the bottom-up target price estimate one year prior to the end of that year and the closing price of the index for that same year would have been 3.1%.
If we apply the average overestimation of 3.1% (excluding 2002 and 2008) to the current 2018 bottom-up target price estimate, the expected closing value for 2018 would be 2750.58.
The Force Behind Bitcoin’s Meteoric Rise: Millions of Asian Investors Unlike past financial frenzies such as the dot-com bubble of the late 1990s, individual investors have been first to the party, fueling bitcoin’s 1,600% rise this year.
(…) China last year made up the bulk of trading volume before regulators clamped down. But by the end of November, Japan, South Korea and Vietnam accounted for nearly 80% of bitcoin trading activity globally, according to research firm CryptoCompare, while U.S. trading was about one-fifth of the volume. In the past few weeks, the U.S. share of the overall total has increased. (…)
“Before bitcoin, I’d be at my shop from morning to evening. Now, I close shop when I have an appointment or leave early,” said Mr. Lee. He has hired two people at his shop since he started investing in bitcoin, and bought his wife an expensive Chanel handbag for their wedding anniversary.
“My goal is to accumulate as many bitcoin as I can,” Mr. Lee said, adding that he expects the virtual currency to replace standard currencies in the future. (…)
“It’s the first ever bankerless bubble,” Joshua Brown, chief executive of New York investment-advisory firm Ritholtz Wealth Management, wrote on his blog this month. “There’s never been a phenomenon like this where the general public beats the ‘big money’…We have a full-blown mania on our hands and Wall Street is still at the drawing board.” (…)
Earlier this month, Pan Gongsheng, deputy governor of China’s central bank, warned investors about bitcoin at an event in Shanghai. “There’s only one thing we can do—watch it from the bank of a river,” he said. “One day you’ll see bitcoin’s dead body float away in front of you.”
South Korean Prime Minister Lee Nak-yon has also sounded the alarm. “If we let things continue, I feel that it will lead to some serious distorted or pathological phenomenon,” he said in a speech last month. (…)
- Jim Grant (Grant’s Interest Rate Observer) notes that “shares in over-the-counter name The Crypto Company, which listed in May and traded below $20 as recently as Dec. 1, have gone on a parabolic run in the last ten days, currently fetching $642 a share. That gives the Malibu, Calif.-based business a market capitalization of $12.6 billion. Valuing the Crypto Co. is somewhat difficult, as the only public filing on Edgar [the SEC website] is its securities offering document, in which it ticks the box “decline to disclose” under revenue range. The company’s website does note that it’s in the business of providing “institutions and individuals direct exposure to the growth of global blockchain developments.” “
The Future Of Retail In The Age Of Amazon As Jeff Bezos’s juggernaut continues to grow, forward-thinking competitors are finding creative ways to succeed—and be what Amazon can never be.