Trump Tariffs Tag the Market… President Trump tweeted that he intends to raise tariffs on $200 billion worth of Chinese goods and put tariffs on $325 billion in additional goods. He made good on the threat early Friday morning, increasing the existing tariffs.
What it means – Given all the things the president has said during his tenure; the markets didn’t react too much… at first. Then one of his trade officials noted that the Chinese had reneged on a major point in the agreement, and the Chinese officials made noises about quitting the talks. That’s when things took a serious turn, and the equity markets tanked. By day’s end, some optimism seemed to return. However, the uptick may have been professionals covering their short sale positions. Time will tell.
The fallout from the trade war with China is spilling into other markets. The energy sector can’t figure out if it should worry about lack of supply with the new sanctions on Iran and troubles in Venezuela, or worry about demand, with the trade spats dampening trade around the world. The only clear winner is volatility, with the VIX index shooting higher.
The latest twist in the trade war should give the markets even more of a boost when the U.S. finally reaches an agreement with China, but the question is when. A week ago, a deal looked imminent. Now it looks to be far in the distance. Without resolution, markets remain under pressure. https://www.reuters.com/article/us-usa-trade-china-backtracking-exclusiv/exclusive-china-backtracked-on-nearly-all-aspects-of-u-s-trade-deal-sources-idUSKCN1SE0WJ?il=0
Consumer Prices Rose Modestly in April, Up 0.3%… The increase was a little less than expected, but the annual rate ticked up 0.1% to 2.0%, matching the Fed’s target. Core inflation, excluding food and energy rose to 2.1%
What it means – The slow increase in consumer prices plays into the Fed’s do-nothing policy. With prices hovering right around the central bank’s 2% target, there’s no reason for the bankers to make a move one way or another.
Trump Administration Recommends Adjusting Poverty Rate by Chained CPI… The move would make the poverty rate increase more slowly than it does today, which would mean fewer people would qualify for government benefits.
What it means – Chained CPI recognizes that when goods get expensive, consumers switch to cheaper products. Under this measure, if consumers still spend the same amount but happen to purchase substitute goods, then they suffered no inflation. The flaw is that it ignores the fact that consumers had to switch exactly because of inflation. Chained CPI doesn’t measure rising prices, it tracks the ability of consumers to find cheaper stuff. Along the way, our standard of living continually falls.
The Obama administration tried to link Social Security cost of living adjustments to chained CPI and was widely criticized for it. They dropped the initiative, and so should the Trump administration.
The U.S. Has Two Million Solar Installations… That’s enough to power 12 million homes, double the number from 2016.
What it means – State mandates for renewable energy and falling solar panel prices are driving growth in solar power installations and won’t slow down anytime soon. The Solar Energy Industries Association and energy research firm Wood Mackenzie expect the number to double again by 2023. California, home to 43% of solar installations, will supercharge the push when it requires solar power for most new homes beginning in 2020.
Still, renewable energy is just 11% of the U.S. power portfolio, and solar power is just one piece of that. The industry has a long way to go to make renewables a large part of the power grid. Lucky for those pushing the industry, the federal government offers a 30% subsidy for solar installations.
Illinois Receives Unexpected Tax Windfall, Pledges to Make Full Pension Payment for Fiscal 2020… The state had planned to sell bonds and make other financial adjustments to get the money necessary to fund its pensions, but the new revenue gave the state a reprieve.
What it means – The state of Illinois is bankrupt. It owes $133 billion to its pensions. The $9.1 billion due in fiscal year 2020 is the amount necessary to keep it from going backward and provide a bit more funding, but it’s the proverbial drop in the bucket.
The unexpected revenue comes on the back of the tax reform, which pushed up state tax income in states with high property values. It’s questionable that the revenue stream will continue, and whether taxpayers in the Land of Lincoln will stand for it.
Burger King Introduces Meal Boxes that Match Moods… In a slap to McDonald’s Happy Meals, Burger King introduced a series of boxes for its Whopper Meal, and only one of them are positive. The boxes are different colors, and include sad, pissed, salty, and DGAF (don’t give a f#$k). The lone happy box is the purple YAAAS, meaning strong excitement or agreement. The initiative was developed with the Mental Health Association and was unveiled with a video that’s not exactly uplifting.
The entire project sounds like something from a satirical website but appears to be real. Nowhere in the materials did Burger King talk about why anyone would want to announce to a restaurant full of people that they are sad, salty, or wildly indifferent to the world.
Data supplied by Dent Research/Delray Beach Publishing
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