Morning Report: Inflation comes in hotter than expected

Vital Statistics:

S&P futures4,2232.8
Oil (WTI)70.370.34
10 year government bond yield 1.52%
30 year fixed rate mortgage 3.14%

Stocks are flattish this morning after inflation came in higher than expected. Bonds and MBS are down.

Inflation at the consumer level rose 0.6% MOM and 5% YOY. Given the lockdowns of a year ago, the annual numbers will have a lot of noise in them. Used vehicles accounted for a third of the increase. Ex-food and energy, the index rose 0.7% MOM and 3.8% YOY.

Housing is poised to push up the inflation numbers going forward, according to research from Fannie Mae. The inflation metrices attempt to capture home price appreciation via a concept called owners equivalent rent. Owners equivalent rent is a pretty lagged variable, which means that it probably won’t filter into the inflation numbers until 2022.

Initial Jobless Claims rose to 376,000 last week. Given the tightness of the labor market, it is surprising to see initial claims so elevated. Pre-COVID, they were in the low 200ks on average.

Home equity rose 19%, or about $1.9 trillion in the first quarter, according to CoreLogic. Negative equity fell about 24% to 1.8 million homes. This rise in equity will make cash-out refis a much bigger chunk of business going forward. “Homeowner equity has more than doubled over the past decade and become a crucial buffer for many weathering the challenges of the pandemic,” said Frank Martell, president and CEO of CoreLogic. “These gains have become an important financial tool and boosted consumer confidence in the U.S. housing market, especially for older homeowners and baby boomers who’ve experienced years of price appreciation.”

A bipartisan group of Senators are trying to craft an infrastructure plan that avoids tax hikes. This will be a tug-of-war between the left which wants to hike taxes and Republicans who are dead-set against raising them. While the Democrats nominally control the Senate, they will need 10 Republicans to go along to get a plan through.

40 Responses

  1. Click to access 19-5410_8nj9.pdf

    In this appeal of a sentence, a roughly 20% break on sentencing was approved by a majority of Kagan, Gorsuch, Thomas [concurring in J on one of two grounds for it] and Breyer and Sotomayor. Very textual opinions.

    To get a good grip on the reasoning of the opinions, read in this order, Kavanaugh fn3, then Thomas fn3, and then Kagan fn3.

    For those of you who want a preview the pevious cases held that negligent crimes did not qualify for enhanced sentencing the way intentional crimes do. This is the case that considers whether reckless crimes should be treated as intentional or not, for sentencing.

    There is a lot of good lawyering in the three opinions, on a non political issue.


    • The current “liberal” ideas for taking a wrecking ball to the Internal Revenue Code are pretty much counter to anything we ever learned in economics classes on public finance and taxation. I do not understand that there is any there there except in terms of class warfare. These ideas are not simply about raising rates or closing known and widely agreed loopholes. All of that would be acceptable tax policy in theoretical terms but the left wing agenda that appears in JB’s proposals includes much that no one but a Marxist could consider as rational. Taxing unrealized gain? Is there offsetting refunding for unrealized loss? No. all ridiculous. No step up basis on date of death? Who the hell would serve as an independent executor in that case, charged with finding the cost of every capital improvement made to an asset over its life? And that one hits the middle class right in the neck, of course.

      I assume the AICPA and the Tax Section of the ABA are trying to educate various Senators and Congresspersons on the D side. I don’t think the Ds listen very much to R lobbies any more.


      • Yes, it’s crazy. The ProPublica report didn’t help either.


        • The ProPublica Report is very misleading, in too many ways to recount here.

          At Volokh, Prof. Blackburn praised Thomas’s concurrence in Borden and dded this interesting note:

          Finally, Justice Kagan offers a favorable citation to Heller. And she calls Justice Scalia one of the Court’s “great wordsmiths.”

          As in those examples, ACCA’s”against” phrase modifies volitional conduct (i.e., the use of force). So that phrase, too, refers to the conduct’s conscious object. Indeed, the Court has made a similar point before, in an opinion by one of its great wordsmiths. When citizens “bear [a]rms against” some entity, Justice Scalia wrote, what follows the word “against” is “the target of the hostilities.” District of Columbia v. Heller, 554 U. S. 570, 586 (2008) (internal quotation marks omitted). That is just as true when someone, as in the elements clause, actively employs physical force.

          I am grateful for the Heller cite. Very few majority opinions have cited that landmark case. Alas, Scalia’s argument about “bear arms against” is one of the weakest parts of his opinion. He made up that argument. It did not appear in any of the briefs. And my research suggests his “bear arms against” argument was incorrect. But a great wordsmith, he was.


      • I think the best strategy is to counter the D’s with even higher rates on the wealthy. They are the Democrat voters, let them reap the whirlwind much as Trump’s base, the white working class, reaped his? What is the argument against giving the rich what they want?


        • George, my point is not that rates are going to be too high. Raising and lowering rates is to be expected and sometimes it is pragmatic as well as political. The problem is changing the whole structure of the tax from realized gain on transactions – whether income or capital or sales or track winnings – to unrealized paper gains on net worth. These geniuses think that taxing the increase in your stock portfolio’s worth is administratively easy and surely fair, but years of unrealized loss must go unrewarded. To even try to introduce a semblace of fairness to it would require administrative mightmares for the nation and the individual. So there won’t be any semblance of fairness to it. It is basically a remaking of tax policy, not an increase in tax rates [although that will happen as well] that I find so completely out of left field that it is in another ballpark altogether.


        • And my point is that this is the policy that Americans, particularly those Americans with large portfolios, want so Republicans should give it to them, but at a level higher than the Democrats have suggested. This isn’t their constituency anymore and getting to the Democrats left on sticking it to the elites is good politics.

          If there squeamish about it at least say they wont’ filibuster a package that essentially taxes wealth above, say, $10 million. What is the downside, politically for them?


        • I don’t see it going anywhere in this Congress.


        • That’s why it’s perfect for the Republicans to get on the populist side of it. It’s a missed opportunity for them.

          Liked by 1 person

        • That’s why it’s perfect for the Republicans to get on the populist side of it. It’s a missed opportunity for them.

          They are all more committed to preserving their social circle and having cushy board appointments or consulting gigs lined up after they are ejected from office. They do not care about their constituents, most of them, or anyone in the social and economic class of their constituents. Most of them. They can foam at the mouth but they’d rather please Elon Musk and Jeff Bezos and the CEOs of various large banks than anyone in their districts.

          Most of them are also rich–or soon to be so–and not as interested in punishing the rich as one might think, based on who votes for them.


        • And my point is that this is the policy that Americans, particularly those Americans with large portfolios, want so Republicans should give it to them

          With the exception of those who live in such tiny bubbles and are so incapable of rational thought that this is actually true–and I think that number is more than it should be, but not a majority–I don’t believe that’s true at all.

          The Very Large Portfolio liberals want everybody taxed in ways that barely impact them but do serious damaging to the purchasing power and social mobility of the peasants.

          Just the same as they want to defund your police and my police, the folks who protect our neighborhoods. They can afford private security. Some of them could field a private army. The policies they want are primarily for the hoipoloi and lower classes, who they view more as a sociological or science experiment than real “important, actual” people such as themselves.

          They’d only want this if–again–they were in some way immune. Which, if it ever came to pass, I expect they would be. A loophole would allow some holding company to hold investments and take dividends which are put in an annuity that is tax free and then they’ll end up better than our 401ks.

          A real wealth tax would be to stop subsidizing the purchases of high-end Teslas. Once they do that we can assume they are serious.


        • If I was Trump, DeSantis and Cotton I’d go apeshit on this, triangulate against establishment Dems and Repubs and side more with the Bernie bros. It’s how they’ll get power.


        • exactly.
          there’s no downside for the warrens of the world to talk about taxes wealth because she knows it will never come to the floor.

          call her bluff.


      • Seems to me a more rational approach to taxing the rich would be making capital gains taxes progressive–so that the first $50k of capital gains you realize is taxed at 3% and the next $50k 7% and the next $50k 12% and so on. Until people cashing in a few million are paying 40% on that last million. Calculated over the fiscal year, so people realizing $100k in gains are paying little while those cashing in $10m are paying a lot.

        With a continue loophole of $600k or something immunity for capital gains in real estate transactions, or just 100% immunity across the board for selling of a primary residence.

        Agreed that the “no step up basis” hitting the middle class right in the next–especially folks like me, where my inheritance is likely to be the most money I’ll ever see and would be going to helping the kids get started in life, paying off debt, new cars or a return to school for someone . . . I’m potentially going to inherit a lot of money but 80% of it would be capital gains.

        The problem with even some of it is that I don’t know if I could find the cost basis for the stock. It’s not in the account for some reason and I’d have no idea where to look.

        A problem that just becomes more insane with real estate, especially primary residences. Taxing primary residences for capital gains is (a) double-taxation (all sorts of folks pay based on a formula that includes assessed value already, local taxes) and (b) the most common use of money from a house sale is to go to buy another house, the price of which has been driven up just as much as the price of your house, so there are no real capital gains in terms of purchasing power with the cash.

        Would also notice selling real property as part of an estate can involve taking a loss. Either because of time pressure, property left to multiple people and agreements can’t be reached, or cost to prepare for sale. While done via durable power of attorney rather than as executors, we had to sell my dad’s house for $20k–like $10k less than he paid for it in 1969. Didn’t get to write that off.

        I’m dubious that this is going anywhere. Or that they are serious: like I said, there are ways to do “tax the rich” that actually taxes the rich but I get no sense they are interested in that at all.


        • “Seems to me a more rational approach to taxing the rich would be making capital gains taxes progressive”

          No, a more rational approach is a flat tax on everything with no deductions.


        • The MOST rational system is a tiny % tax on every single transaction of any kind where money ends up in a bank account or a brokerage account or any other place that has reporting capability and computers.

          Short description:

          The Automated Payment Transaction (APT) tax is a small, uniform tax on all economic transactions — it involves simplification, base broadening, very low tax rates, the elimination of tax and information returns and the automatic collection of tax revenues at the payment source. This proposal is to replace all United States taxes with a single tax (using a low rate) on every transaction in the economy. The APT approach would extend the tax base from income, consumption and wealth to all transactions. Proponents regard it as a revenue neutral transactions tax, whose tax base is primarily made up of financial transactions. It is based on the fundamental view of taxation as a “public brokerage fee accessed by the government to pay for the provision of the monetary, legal and political institutions that protect private property rights and facilitate market trade and commerce.”

          Nothing comes close. Total volume of all transactions is so great that a tax of less than 1% replaces all federal taxation.


        • We’ll do what Europe does and institute a VAT along with the current tax code.


    • Text vs context in statutory interpretation.


  2. These geniuses think that taxing the increase in your stock portfolio’s worth is administratively easy and surely fair, but years of unrealized loss must go unrewarded.

    I imagine an actual law, were it ever to pass, would do something–probably nothing great–to address that.

    I don’t see any way they could ever get around not calculating rates on the total portfolio, so both increases and decreases, and that would include years where it was all downside. You would have to be able to write off a portfolio full of unrealized losses against income. Etc.

    But ultimately, you’re right. Such a pain–wrote off all my losses in 2022 so paid almost no tax on my million dollar income. Next year, everything gained and I ended up paying a tax of, say, 22% on the gains–but sold all the stocks (because why the hell not) and put it into a business.

    I can’t see any situation where a wealth tax and a capital gains tax could co-exist. I also see nowhere a wealth tax on real property wouldn’t have to have carve-outs and exceptions as far as they eye can see.

    Would be profitable for tax lawyers, I assume.


  3. And another reason you can’t trust the media.

    “Texas Newspaper Refuses To Give Description Of Suspect In Mass Shooting Because Of ‘Stereotypes”


    • Well, specifically, an “Austin” newspaper refused to give description of a suspect that it would have happily given had the description been “generic white man who looks like Trump supporter”.

      No offense to Mark 😀 …. but I suspect most Texas newspapers that still exist outside of the super-blue cities would probably have included the description.


      • Note what I wrote below – Gannett paper. Nashville has a Gannett paper. I would bet it would do the same thing, despite the Police Report being made public on broadcast media in order to help with the search for the shooter.

        I suspect any non-Gannett paper [Dallas, Houston, and San Antonio are not Gannett] would have published the description on their website, at least, to help the cops.

        Gannett’s idea of news reporting is spelled PABLUM.


    • The APD put out a description while they were looking for the suspect, of course. And the description was widely known.

      The Austin American-Statesman has become a bad newspaper, in general. It has been subsumed by Gannett.


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