Economics chat?

[cabmandone]

Originally Posted by Paul T

Sure, there have been incremental improvement here and there depending on which YoY period you look at, but for the past 50 years there has been a sharp trajectory in one direction only. The top 1% keeps getting a larger share of the pie, and of course, mathematically that just makes sense, but I don't ultimately think it's good for society. I don't know what the answers are either, though I'd probably start with estate taxes. I'm not a believer in transferring massive wealth to the next generation. If you start with nothing and become a billionaire, that's awesome, but if you are born a billionaire, not so awesome, IMO - and historically those that inherit don't do jack ****.

As for financial literacy, you are 100% correct, we are so lacking in financial education in this country, it's embarrassing. That would indeed go a long way to helping.

The only thing in related to estate tax that needs changed is the step up in basis. Outside of that, virtually everything in an estate has been taxed as least once. I think that's more than enough.

[jyl]

What I see going on with US economy, in no particular order:
1. Job market getting weaker and weaker. Hiring is soft, very so for some groups some who until recently were doing (coders, etc). Large companies are increasingly pulling the layoff lever (Big Tech in the lead). Smaller companies cutting hours rather than laying off, for now. Labor supply somewhat held down by less immigration (absent immigration, US population growth is very low) so unemployment remains moderately low even if it has moved up from the very low levels of a couple years ago. Labor market data getting harder to collect timely (establishment survey response rate has fallen from 60% to barely 30%, so takes longer to have accurate numbers i.e. more revisions). The numbers after more data collection and revisions are not looking great - job growth is slowing way down and outside of government (state and local) and healthcare, job growth has been very weak for months. Household survey data has its own issues but generally looks “worse” than establishment data; possible reason is the increasing percent of Americans in the “gig” and freelance economy. Overall I think we are still in the “full employment” ballpark but moving on a trajectory that will take us out of it, in the wrong direction, over the next couple-few quarters.
2. Inflation is reversing the declining trend of 2022-2024. Core PCE never got to desired 2% and is starting to work higher. CPI also rising, so far in fits and starts rather than rapidly. Services excluding shelter is driving the increasing inflation; shelter inflation is still slowly declining from a high level; and goods inflation is all over the place. It seems like weak consumer demand and price resistance after multiple years of companies raising prices aggressively is driving disinflation in some areas (cars, other large-ticket, and highly discretionary goods) while prices continue to climb in others (food, medical care, etc). Latest PPI data - unless revised much lower - is a preview for accelerating inflation in coming months . . . or profit pressures on final demand companies. Overall I think we are still in “too high inflation” territory and no longer seem to be on a path back down to “okay inflation” territory.
3. Business investment seems to be weaker, outside of the AI stampede which is huge but concentrated. 100% bonus depreciation could boost business investment near term, for smaller projects - things a company was going to invest in over the next couple years anyway. Big and longterm projects are getting slowed by uncertainty (tax, regulatory, etc). There is no significant “manufacturing renaissance” underway, judging from both jobs and investment, but maybe we should add “yet?” since it’s early days - it will take years to know if that is or isn’t happening.
4. Housing investment is in a major slump. Both single family and multifamily. House sales are very weak. Prices are declining in about half the major metros, especially in Southeast, South, and West. The national average is still just positive.
5. GDP is getting thrown around by big swings in net exports (tariff-related, obviously) so if you look just at consumer spending and private investment parts of GDP, we’re in a weak growth environment (maybe 1% real growth trend).
6. Consumer spending is hanging in there - not great, slowing, but still okay-ish in the aggregate. Significant differences between high income and low-income consumer. Since the high-income represent the very large majority of consumer spending, it kind of doesn’t much matter how the poor and barely-getting-by are doing (in a business sense that is - they are never your core customer); it does matter what the lower-middle and middle class do, and I think their belt-tightening is at a fairly early stage; it really matters what the high-income do, and for the most part they will do fine as long as their investment portfolios are rising. That said, we are clearly no longer in a “rising tide lifts all boats” consumer economy and company after company are reporting softer demand.
7. Federal deficit is going up with OBBB, with tariff revenue only a small offset. Maybe export fees will add some more offset (referring to the 15% tax on AI chip exports to China; the federal govt is talking about extending this pay to play scheme to other industries and exports). But at the end of the day, if we’re going to keep cutting taxes on large (in dollars) parts of the taxpayer base, the deficit will stay high or grow . . . you need both revenue growth and expense reduction to square this circle. Most direct impact is on federal borrowing cost i.e. Treasury yields - tends to apply upward pressure. Since interest rates circles back around to affect the broader economy, that is something to watch.

Is this a promising picture? I don’t think so.

I expect that most of us on PPOT are not much, if at all, affected, given the demographic here- not only income but also stage of life (older, retired, homeowner, DIYer, etc).

[LWJ]

^^^Wow. Thanks John. That is amazing.

[KFC911]

LOL .... I was gonna post the same thing .

Thanks John!

[gregpark]

Not a pretty picture and it's going to get worse unfortunately, much worse. It's called stagflation. The US is not alone in this situation either, it's a worldwide economic pandemic. We're witnessing the beginnings of a global reset in both power and money

[cabmandone]

On Jyl's points;
1)Jobs & Hiring: We've been at what economists consider "full employment" for quite some time. I haven't looked at historical charts, but it seems to me like hiring would slow when we're at or near what is considered full employment.

2) Inflation: The downward trend ended in August 2024 and the upward climb began in September. From August forward it has been a rollercoaster with inflation peaking at 3% in December and then starting to drop again until March. If we average the last 12 months, we're pretty much on par with where we've been since last July. Since April we've only seen a .4% increase in Headline and a .3% increase in Core.

3) Business investment: Businesses have been pledging new investments. Apple, NVIDIA, Taiwan Semiconductor, NIPPON, as part of the US Steel acquisition, J&J and other pharma co's, Hyundai and other auto manufacturers. It's not just AI making or pledging investment.

4) Housing: Isn't the slowing of the housing market and a either reducing the rate of increase or actually lowering prices the desired effect of increased interest rates by the Fed? And if so, is what's taking place now really a bad thing?

5) GDP: While we had that blip in Q1, by inflation adjusted dollars, GDP has been climbing.

6) Consumer spending: Most CC companies are reporting robust consumer spending even with the tariffs being implemented. But going back to the Fed, isn't the desired effect of rate increase to slow consumer spending?

7) Deficits: The deficit trajectory was upward before OBBB. It'll be interesting to see how revenue from tariffs, which is surpassing the annual deficit increase due to OBBB, ultimately offsets deficits along with these new revenue deals.

While hiring is a concern, It appears to me that most of the things that create a negative outlook are things the Fed wanted to slow down and the interest rate increases have finally started to have the desired effect.

[jyl]

On the manufacturing renaissance front. A lot of those “pledges” of business investment in the US are simply political theatre, and/or investments that the companies were going to do anyway (AAPL is good at this). Announce a “billion dollar investment in American jobs”, get a tariff exemption or some other regulatory/political quid pro quo, who’s to say if any jobs ever get created . . . these projects take many years to get off the ground and attention spans are short.

Announce in 2025, buy some land in 2026, spend three years planning, two years permitting, three years constructing . . . you will be in the mid 2030s before you have to actually hire any manufacturing workers and outputting any product made with expensive labor and expensive inputs. That’s forever, while regulatory and suchlike things are changing every month, so get your quid pro quo now (exemption for tariffs for AAPL’s China and India made products, permission to export sensitive AI chips to China for NVDA, etc) and you can always quietly pull the plug in a few years (remember Foxconn ?)

[cabmandone]

Forgive me for being optimistic. I'll try not to do that. It know it's frowned upon both in OT and PARF when it comes to the subject of the economy depending on who resides in the White House.

It's funny how some focus on the negative. Notice Apple, one of the offenders of promising but not delivering is mentioned along with the well know Foxconn deal that disappeared? No mention of any company that actually followed through with investment.... Just negativity. When I have more time, I'll investigate and see if I can post companies that went through with their investments.

[Paul T]

Originally Posted by cabmandone

The only thing in related to estate tax that needs changed is the step up in basis. Outside of that, virtually everything in an estate has been taxed as least once. I think that's more than enough.

I don’t disagree with your logic, I just personally don’t believe in transferring large amounts of wealth to the next generation. Some, sure, but not life changing amounts….I know many think just the opposite, but that’s my opinion.

[Shaun @ Tru6]

Originally Posted by gregpark

Not a pretty picture and it's going to get worse unfortunately, much worse. It's called stagflation. The US is not alone in this situation either, it's a worldwide economic pandemic. We're witnessing the beginnings of a global reset in both power and money

I've been researched stagflation on and off for the last month and agree. But even more on power and money reset though I think it's more U.S. than international unless you are factoring in tariff policy. I think, and I hope I'm wrong, the widening income inequality gap is part of project 2025. In fact I think it's the centerpoint. We will know in 3-5 years.

[cabmandone]

Originally Posted by Paul T

I don’t disagree with your logic, I just personally don’t believe in transferring large amounts of wealth to the next generation. Some, sure, but not life changing amounts….I know many think just the opposite, but that’s my opinion.

As long as it's taxed at the original cost basis rather than the beneficiaries receiving a step up in basis, why shouldn't a person be able to transfer "life changing amounts" to their family? I don't care how much it transferred at death as long as the basis doesn't change and taxes are paid on the gains.

[Paul T]

Originally Posted by cabmandone

As long as it's taxed at the original cost basis rather than the beneficiaries receiving a step up in basis, why shouldn't a person be able to transfer "life changing amounts" to their family? I don't care how much it transferred at death as long as the basis doesn't change and taxes are paid on the gains.

My argument has nothing to do with taxes or economics, it’s just a principles based argument. I think everyone should start life more or less on the same page. I’m just not a fan of generational wealth, I think more often than not the people who are born into that lead unfulfilling lives both for themselves and for society. I’m leaving probably 95% of my estate to charity. Again, not knocking anyone else, just my personal belief.

[gregpark]

Originally Posted by Shaun @ Tru6

I've been researched stagflation on and off for the last month and agree. But even more on power and money reset though I think it's more U.S. than international unless you are factoring in tariff policy. I think, and I hope I'm wrong, the widening income inequality gap is part of project 2025. In fact I think it's the centerpoint. We will know in 3-5 years.

The beginning of the end was 54 years ago when we and everyone else on the planet went off the gold standard. Money has to be based on something tangible or the currency will eventually fail. We're at the start of that failing point. The tariffs are minor in the big picture. The irreversible debt is major.

And yes the rich will get richer, the poor will get poorer and the middle class is being squeezed out

[jyl]

Originally Posted by cabmandone

Forgive me for being optimistic. I'll try not to do that. It know it's frowned upon both in OT and PARF when it comes to the subject of the economy depending on who resides in the White House.

It's funny how some focus on the negative. Notice Apple, one of the offenders of promising but not delivering is mentioned along with the well know Foxconn deal that disappeared? No mention of any company that actually followed through with investment.... Just negativity. When I have more time, I'll investigate and see if I can post companies that went through with their investments.

I don’t believe in being optimistic or pessimistic. Both get in the way of making money. I just believe in figuring out the motivations, economics, and numbers.

The motivations are straightforward. Announce US investments, get something in return.

The economics are also straightforward. Far more expensive to manufacture in US, even with tariffs the US is still more expensive.

The numbers - manufacturing employment still downward trend, aggregate dollar amount of US manufacturing investment announcements is quite small (“a billion” is not a large number relative to economy).

Hey, I have some investments meant to benefit from a US manufacturing renaissance - my bets are covered.

[Shaun @ Tru6]

Originally Posted by gregpark

The beginning of the end was 54 years ago when we and everyone else on the planet went off the gold standard. Money has to be based on something tangible or the currency will eventually fail. We're at the start of that failing point. The tariffs are minor in the big picture. The irreversible debt is major.

And yes the rich will get richer, the poor will get poorer and the middle class is being squeezed out

Of course the tariffs are minor but they play a critical role in catalyzing the process. That's their role in legitimizing the active transition. The last 30+ years have been passive.

[cabmandone]

Originally Posted by jyl

I don’t believe in being optimistic or pessimistic.

Originally Posted by jyl

Is this a promising picture? I don’t think so.

No comment.... strike that, I'll comment. If you don't believe in being optimistic or pessimistic why did you focus solely on Apple and Foxconn and not mention any of the investments that actually came to fruition?

[cabmandone]

Originally Posted by Paul T

My argument has nothing to do with taxes or economics, it’s just a principles based argument.

So if you have kids, you're not leaving them anything right? Any money or the value of any asset goes to the government when you die... right?

[LWJ]

A side note. The STAGGERING transfer of wealth that is / will occur is going to be a really big deal. I have a friend who is trying to pass on $100,000,000 and avoid lots of tax. He and I discussed this. Have some other people I know who are legit billionaires. Going to a party with a bunch more next Month. They are all OLD. What happens to this $$$ is going to be a big deal. Certainly some gets taxed. Some gets donated. In 15 years whatever happens to this $$$ will be impactful.

[Shaun @ Tru6]

Originally Posted by cabmandone

No comment.

This is a thread about ideas. It's been great so far. Let's keep it that way.

[wdfifteen]

Originally Posted by Paul T

I don’t disagree with your logic, I just personally don’t believe in transferring large amounts of wealth to the next generation. Some, sure, but not life changing amounts….I know many think just the opposite, but that’s my opinion.

I’m with you Paul. I expect to do better than my parents did for us (I was largely supporting my mom for the last 10 years of her life), but the most valuable gift I gave my son was the way I raised him. He’s doing just fine on his own.