EDGE AND ODDS’ Almost DaiLY Chat (a totally AI generated podcast on the day’s post courtesy of Google’s NotebookLM): November 25, 2024

U.S. Flash PMI

Output growth accelerates as business mood brightens and inflation cools

The headline S&P Global Flash US PMI Composite Output Index rose to 55.3 in November, up from 54.1 in October, signalling the fastest expansion of business activity since April 2022. Higher activity reflected rising demand, with new orders picking up sharply to register the strongest upturn in business inflows since May 2022. Growth remained very uneven across the economy, however, with a surge in service sector activity contrasting with a further downturn in manufacturing. While service sector output rose in November at the fastest rate since March 2022, manufacturing output fell at a rate not seen since December 2022. The resulting divergence in output was the widest recorded since data were first available in 2009 barring only May 2021, amid the re-opening of the economy from pandemic restrictions. Similarly, while new orders for services rose at a rate not witnessed since April 2022, new orders placed at factories fell for a fifth straight month, albeit registering the smallest decline seen over this period to hint at the production downturn potentially moderating in December. Looking further ahead, having slumped to a 23-month low in September, optimism about output in the coming year recovered for a second successive month in November, reaching the highest since May 2022. The improvement in sentiment was broad based, but was especially notable in the manufacturing sector, where optimism struck a 31-month high, adding to suggestions that the economic expansion may become more even in the coming months. Improved prospects reflected the clearing of political uncertainty following the US Presidential Election, according to anecdotal evidence provided by survey respondents, accompanied by expectations of lower interest rates, lower inflation and improved economic conditions. Respondents also often cited a more business friendly incoming administration as beneficial to the outlook, notably in terms of looser regulation and protection measures, the latter helping boost sentiment particularly in manufacturing. Despite the upturn in business confidence about the year ahead, companies reduced employment for a fourth straight month in November, with job losses hitting a three-month high. A steepening rate of payroll reduction in the services economy was partly offset, however, by a rise in manufacturing jobs for the first time in four months. Average prices charged for goods and services meanwhile rose only very modestly in November, the rate of inflation cooling to the lowest since prices began rising in June 2020. The latest easing pushed the rate of inflation further below the pre-pandemic long-run average, with an especially marked moderation of inflation seen in the services economy, where charges rose only marginally and at the slowest rate since May 2020. Manufacturing selling prices rose at a slightly increased rate. Input cost inflation also slowed, though remained somewhat elevated by historical standards, notably in the service sector amid higher wage pressures. However, the overall rate of input cost inflation was the lowest since June. The S&P Global Flash US Manufacturing PMI rose from 48.5 in October to 48.8 in November, signaling a deterioration in business conditions within the goods-producing sector for a fifth successive month but with the rate of deterioration moderating to the slowest since July. Although production fell at a sharply increased rate, all other PMI components moved higher. The rate of loss of new orders eased and employment rose – albeit modestly – for the first time in four months. Inventories meanwhile fell at a reduced rate and suppliers’ delivery times lengthened to the greatest extent for 25 months, which acted as an additional boost to the headline PMI. Longer delivery times were often linked to increased purchasing of inputs ahead of potential tariffs on imported inputs. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: (…) “The rise in the headline flash PMI indicates that economic growth is accelerating in the fourth quarter, while at the same time inflationary pressures are cooling. The survey’s price gauge covering goods and services signalled only a marginal increase in prices in November, pointing to consumer inflation running well below the Fed’s 2% target. (…) “Factories are meanwhile stepping up their purchases of imported inputs as they seek to front-run tariffs, putting pressure on supply chains to a degree not seen for over two years. Any further stretching of these supply lines could see prices move higher as demand outstrips supply.”

Remarkably, the mainstream media did not carry this important flash PMI release with data collected November 12-21, after the U.S. elections.

Consider:

• The Composite Index jumped 1.2 points to reach 55.3, a 31-month high and its highest reading since July 2018 when the manufacturing PMI was very strong.
• This without a positive contribution from manufacturing (48.8).
• Total new orders rose “sharply to register the strongest upturn in business inflows since May 2022” even though manufacturing new orders declined again but at a much slower rate.
• Manufacturers’ “optimism struck a 31-month high”, leading them to increase employment for the first time in four months.
• Service employment declined amid booming demand. Productivity must be rising strongly.
• “The overall rate of input cost inflation was the lowest since June.”
• Selling prices “rose only very modestly in November. (…) The latest easing pushed the rate of inflation further below the pre-pandemic long-run average, with an especially marked moderation of inflation seen in the services economy, where charges rose only marginally.”

What’s the opposite of stagflation?

Total business output has risen to well above pre-pandemic levels even though manufacturing output has gone nowhere:

On November 18, I wrote this WHAT IF section:

What if this buoyant consumer, nearly 70% of GDP, coupled with recent and coming policies, triggers a U.S. manufacturing revival boosting its contribution above its current 10-11% of GDP?

Manufacturing employment is down 0.5% since the end of 2022 while total employment is up 3.2%. Had manufacturing employment kept pace, the U.S. would have more than 450k additional workers earning good salaries.

According to the Alliance for Automotive Innovation, the automotive ecosystem drives $1 trillion into the U.S. economy each year, about 3.7% of GDP. “Every direct job in vehicle manufacturing supports 10.5 additional American jobs and every $1 spent in vehicle manufacturing creates additional $3.45 in economic value.”

Manufacturing production (black) has been flat since 2012 and is 7.5% lower than in 2007. That’s almost than 2 lost decades.

What if vehicle demand and production start to contribute to growth?

• The average age of light weight vehicles in the U.S. is now 12.6 years. It accelerated sharply during the pandemic as availability declined and prices skyrocketed.

• New vehicle affordability is improving. U.S. households needed 37.4 weeks of income to purchase the average new car in June. Still, vehicle affordability remains markedly down compared to 2019, with prices and interest rates much higher than they were before the pandemic. The typical monthly payment is peaking at $743.

COX AUTOMOTIVE/MOODY’S ANALYTICS VEHICLE AFFORDABILITY INDEX
JUNE 2024

Weeks of Income Needed to Purchase a New Light Vehicle

• Car prices have stalled while labor income keeps rising thanks to steady employment and solid real wage gains. Interest rates are also declining. Affordability could improve meaningfully in 2025.

• Since the pandemic, manufacturers managed their margins installing scarce parts on the more profitable SUVs and light trucks. Sales of less expensive sedans declined to the point where the average age of regular cars shot up to 14 years.
• According to Hedges & Company, about 23% of all light vehicles on the road today are 20 years old or older. That’s 66M vehicles! Another 57M are 15-19 years old. Total: 123M cars are more than 15 years old. Hedges and Co. informs us that “the nation with the oldest average age of vehicles in the world is Bolivia, where vehicles are an average of 18.8 years old. The nation in the European Union with the oldest passenger cars is Greece, at 17.3 years.”
• Production seems to be accelerating as supply issues are now largely behind us. Wards Intelligence: “In a reversal of recent trends there was an increase in North America production to the current-quarter outlook in the Wards Intelligence North America Production Tracker, and output in the most recent month [September] finished above expectations.”
• Sales have not increased much yet but rising available inventories will draw more buyers off the sidelines.
• Actually, retail sales of motor vehicle and parts dealers jumped 1.6% MoM in October while prices declined 0.2%. Wards says that “Demand in the retail sector accelerated more than expected at the end of the month, putting October’s final raw volume roughly 15,000 units above the forecast.”

The stage seems set for stronger light vehicle sales and production in 2025, fueling the one third of the U.S. manufacturing industry that’s been essentially idle since 2019.

WHAT IF #2:

What if housing also begins to contribute to GDP growth?

Total housing starts averaged about 1.56M units annually between 1983 and 2007. Following the Great Financial Crisis, only 1.15M units per year were built on average for a total of 17.25M units while the number of households grew 18% or 20.3M.

Estimates of the actual U.S. housing shortage vary but shortage there is. Freddy Mac says 2.5M units are needed to make up the shortage.

Since the pandemic, “plans to buy a home” stand at an all-time high, significantly above all measures since the 1980s. Affordability is the perceived problem as Ed Yardeni illustrates:

But affordability is no worse than during the 1980s when starts averaged 1.65M units. Between 1983 and 1989, 30-year mortgage rates averaged 11.5% and rarely dipped below 10%.

This time around, mortgage rates are below 6.7% potentially en route to the 6% range if inflation retreats to 2%. The real problem is house prices 20% above rents and wages.

Freddie Mac shows the spread between the median rent and mortgage payments since 2000 when starts were still in the 1.6M range:

The main takeaway is that while the current percentage difference is high, it is down from when mortgage rates peaked last October and well below the peak in 2006 of 50%. It is also not much higher now than during the early 2000s. We find that even though now is a relatively expensive time to buy compared to renting, it has been far worse. (…)

It is also possible that the perceived advantage of homeownership may be higher than in the past due to rapid rent increases in recent years. After all, a fixed-rate mortgage is a great inflation hedge in that only the taxes and insurance costs increase over time while the principal and interest components of the mortgage payment don’t increase over the life of the loan.

In other words, some components of your mortgage payment can remain constant in the future (or decline if you refinance at a lower rate) as your income (hopefully) increases and inflation pushes up rents. (…)

Given the size of the home is an important variable in a homebuyers decision as it relates to affordability, we investigate the percentage of applicants who intend to buy a larger home. We do that by comparing the size of the rental to the size of the intended purchase in square feet. Exhibit 4 presents the percentage of applicants living in single-family rentals that applied to buy larger home.

The percentage of loan applications to purchase homes with more square footage than their rental house trended down from a high of 71% in 2013, when home prices had overcorrected to the downside during the [2005-07] housing crash, to 64% in September 2024. The chart shows a slight temporary reversal in the downward trend in 2020 as working from home became more common, before falling again as mortgage rates increased.

We suspect the downward trend was driven by worsening affordability, which has forced more prospective homebuyers to settle for smaller homes as compared to in the past. (…)

The above analysis focuses on people planning to move from a single-family rental to their own home. There is also a similar decline in the share of applicants from existing homeowners applying for larger homes in recent years from 69% near the start of the pandemic to 65% now.

• John Burns Research:

Intergenerational wealth transfer is enabling more young adults to enter the housing market. The generations born in the 1940s through the 1960s have a remarkable net worth and are giving their kids and grandkids some much-needed help.

In fact, our survey shows that 42% of Gen Z homeowners and 40% of renters receive financial help from family, covering expenses from utilities to mortgages.

One developer client told us that they had to expand their offering of single-family detached homes to meet demand from millennials—not because they can afford homes on their own, but because many are receiving financial support from parents and grandparents.

But this relationship isn’t one-sided. While the kids may benefit financially, the parents benefit socially by being closer to family. This trend also reflects the growing social desire of the newest crop of the 55+ population (those born in the 1960s) to live closer to family, showing how societal values can shape housing demand.

BTW: What 50+ years of history reveals about housing when the Fed lowers rates

We found that history does, in fact, rhyme for housing. In most cases, the single-family industry expanded 12 months after the first Fed rate cut—even in “hard landings,” when a recession coincided with falling rates. The chart below shows the change in single-family housing starts 12 months after the start of each Fed rate-cut cycle since 1970:

• Excluding the global financial crisis starting in 2007, single-family housing starts grew by an average of 12% one year after the first interest rate cut.
• In the two examples of “soft landings” (1984 and 1995), when the Fed began lowering interest rates without a recession, single-family housing starts fell a modest 1% and grew by 9%, respectively, within 12 months of the first rate cut. 

So, what if younger YOLO-minded Americans, helped by their parents, decide to quit their high and ever inflating rental and bite the house price bullet, locking in 5-6% mortgage rates for 30 years knowing their rising income will eventually erase the current house/rent gap while building some housing wealth themselves.

Strong dollar set to hit emerging market bonds, warn investors EM debt funds suffer outflows as hopes of rate cuts by developing nations fade

• Strong economy
• Stable to higher interest rates
• Tax cuts
• Tariffs

Higher US rates would make investing in riskier markets abroad relatively less attractive compared with the US, pushing their central banks to increase their own rates to draw in capital.

AI CORNER

U.S. natural gas producers chase AI-driven surge in power demand to weather low prices

Shale gas producers in the U.S. Permian Basin are sounding out data-center operators building up capacity to power a boom in AI applications, aiming to ease the pressure from a nearly two-year slump in the prices of the commodity.

Devon Energy, Expand Energy, Diamondback Energy, and Permian Resources have highlighted the potential for AI and data centres to drive gas demand and said they were in initial discussions with many operators.

U.S. data centres’ energy needs could boost gas demand by between 3 billion and 6 billion cubic feet per day (bcfd), according to S&P Global Ratings estimates. The agency expects U.S. data centre power demand to increase 12 per cent annually until the end of 2030. (…)

Constraints on data centre expansion in Texas due to the electricity grid’s limitations may pave the way for tripartite agreements involving operators, utilities, and data centre developers, analysts told Reuters.

“That is the most likely path that we (will) travel down … I don’t think a lot of the operators are willing to put the capital down to build power plants,” said Carson Kearl of energy researcher Enverus.

Operators willing to develop any kind of carbon capture and storage (CCS) operation around the gas-fired power plants, specifically in Louisiana and Texas, may gain an edge with publicly traded hyperscalers, Kearl noted.

“The combination of natural gas and carbon capture provides a winning formula that will help fuel the continued growth in AI, data centre build-outs,” said BKV Corp Chief Operating Officer Eric Jacobsen.

Many hyperscalers, including tech giants Amazon, Microsoft, and Alphabet’s Google unit have pledged to achieve net-zero carbon emissions and are thus keen to reduce their data centres’ carbon footprints. (…)

• Need to Add Three NYCs to the US Power Grid by 2030 

The power need for the largest hyperscale data centers is currently 1 GW, and estimates show that 18 GW of additional power capacity will be needed to service US data centers by 2030. For comparison, the total power demand for New York City is currently around 6 GW. In other words, there is a need to add three NYCs to the US power grid by 2030.

Apollo

See also Power Play.

EARNINGS WATCH

From LSEG IBES:

475 companies in the S&P 500 Index have reported earnings for Q3 2024. Of these companies, 76.4% reported earnings above analyst expectations and 18.9% reported earnings below analyst expectations. In a typical quarter (since 1994), 67% of companies beat estimates and 20% miss estimates. Over the past four quarters, 79% of  ompanies beat the estimates and 16% missed estimates.

In aggregate, companies are reporting earnings that are 7.6% above estimates, which compares to a long-term (since 1994) average surprise factor of 4.2% and the average surprise factor over the prior four quarters of 6.5%.

Of these companies, 60.6% reported revenue above analyst expectations and 39.4% reported revenue below analyst expectations. In a typical quarter (since 2002), 62% of companies beat estimates and 38% miss estimates. Over the past four quarters, 62% of companies beat the estimates and 39% missed estimates.

In aggregate, companies are reporting revenues that are 1.5% above estimates, which compares to a long-term (since 2002) average surprise factor of 1.3% and the average surprise factor over the prior four quarters of 1.1%.

The estimated earnings growth rate for the S&P 500 for 24Q3 is 8.9%. If the energy sector is excluded, the growth rate improves to 11.7%.

The estimated revenue growth rate for the S&P 500 for 24Q3 is 5.3%. If the energy sector is excluded, the growth rate improves to 6.4%.

The estimated earnings growth rate for the S&P 500 for 24Q4 is 9.9%. If the energy sector is excluded, the growth rate improves to 12.6%.

With 95% of the S&P 500 companies in:

• S&P 500 earnings ex-Energy:  +11.7%. Q4e: +12.6%
• IT + Communication Services: +21.0%. Q4e: +17.4%
• S&P 500 ex-IT/CS/E:                   +7.2%.  Q4e:  +9.8%

Trailing EPS are now $237.37 (+8.4% YoY). Full year 2024: $243.81 (+10.1%). Forward EPS: $263.38 (+11.7%). Full year 2025: $274.79 (+12.7%).

Guidance for Q4 is not great:

But analysts don’t mind, do they?

Maybe they are reacting to the shocking +7.6% surprise factor in Q3. But three months ago, guidance for Q3 was much more positive:

Goldman Sachs’ tally of consensus bottom up estimates shows little change in total S&P 500 earnings estimates but a reshuffling among sectors. The faster growers of 2024 are generally seeing rising estimates for 2025. Note the rather sharp drops in estimates for Industrials.

SENTIMENT WATCH

The economic outlook is seen improving:

Higher interest rates never really hurt:

• US Households Have Never Been More Bullish on Equities The Conference Board asks US households about their outlook for the stock market, and a record high of 51.4% say that stock prices will move higher, see chart below.

Getting too sentimental?

Via Callum Thomas:

• Single Stock Leveraged ETFs:  Yes, this is a thing. At first I thought: “man, this is a weird and dumb thing”. But then I got to thinking, if the index is dominated by big tech, and if big tech is dominated by a handful of names, then some might argue why bother buying the index if you can just buy the top stock(s)? And this is apparently what some people are doing, and with extra leverage… and by the way, yes: you can buy options on these leveraged ETFs, so you can get leverage on your leverage (and if you used debt to buy those options well, you’d be leveraging your leverage on your leverage… *not financial advice!!!!*).

Source:  @Todd_Sohn

• Demand and *Supply*:  In the long-run, what drives stock prices is earnings. In the short-run it’s demand and supply. And interestingly, equity market supply has been much lower than usual (one pillar of support to the cyclical bull).

Source:  @neilksethi

• How much cash is really on the sidelines?

Since 2019, cash levels have risen by a notable 38%, but household stock holdings have surged by 50%, causing the share of cash in portfolios to decline slightly. This means that while cash has grown, households have shifted even more aggressively into equities, underscoring their appetite for risk. As a result, cash allocations are below long-term average levels while stock allocations are at all-time highs.

This indicates that households are not, in fact, retreating into cash but are actively participating in equity markets with historically high exposures. And it’s not just individual investors. According to Bank of America’s global fund manager survey (Oct. 15, 2024), the cash levels of institutional money managers fell to such a low level (below 4%) that it triggered the firm’s contrarian equity market “sell” signal as recently as October.

The cash-on-the-sidelines narrative also doesn’t consider that, in recent years, cash has been an attractive alternative to bonds. For over two years, the inversion of the yield curve has meant that investors can earn more sitting in cash than they can going farther out on the curve in bonds (Chart 5). Meanwhile, after the 46% drawdown in long-term Treasuries that occurred between 2020-2023, coupled with ongoing concerns regarding government deficits and inflation, investors may be content to hold more cash (and cash equivalents) than traditional bonds for some time.

• Mutually Assured Exposure:  The trend and the cycle is interesting in this chart — Mutual Funds in aggregate are holding much lower cash allocations than usual; both from a cyclical standpoint (lower than previous lows, lower than trend —as well as on a trend basis (clear downtrend, big shift from the 1950’s-90’s). This reflects a combination of market movements, FOMO/peer-risk/client-demand, and lower interest rates.

Source:  @elliottwaveintl

• Here’s one with more cash than usual. For Mr. Buffett, cash is not an asset class, it simply builds up because sales are not replaced by new buying ideas, the mark of a value investor.

Unemployment claims decline

The labor market remains in good shape. Initial jobless claims fell 4,000 to 213,000 (sa) in the week ended November 16, the lowest since April (chart). While continuing claims increased 35,000 to 1.908 million, the Veterans Day holiday likely affected both measures. Not seasonally adjusted data showed a larger decrease in initial claims and a smaller increase in continuing claims. (Ed Yardeni)

The unemployment rate peaked at 4.3% in July and dropped to 4.1% in October…and maybe even lower in November/December.

FLASH PMIs

Renewed fall in Eurozone business activity as services joins manufacturing in contraction

The seasonally adjusted HCOB Flash Eurozone Composite PMI Output Index, based on approximately 85% of usual survey responses and compiled by S&P Global, dropped to 48.1 in November, after having registered at the no-change mark of 50.0 in October. Output has now decreased in two of the past three months. Although modest, the rate of contraction in November was the most marked since January.

For the first time since the opening month of the year, both monitored sectors saw output decrease in November as services joined manufacturing in contraction. The reduction in services activity was only slight, however, and much weaker than that seen in manufacturing, where the pace of decline quickened from October. Manufacturing production has now decreased in each of the past 20 months.

Falling business activity reflected a waning demand environment. New orders decreased for the sixth month running in November, and at the fastest pace in 2024 so far. Sharper reductions in new business were seen across both manufacturing and services.

In line with the picture for total new orders, new business from abroad (which includes intra-Eurozone trade) also declined to the largest extent since the end of last year. New export orders were down sharply, and to a greater degree than seen for total new business.

The renewed reduction in business activity in November was accompanied by waning confidence in the year-ahead outlook. Business sentiment dropped sharply and was the lowest since September 2023. The overall loss of confidence was centred on the service sector, where optimism fell to a two-year low.

Pessimism was seen in France for the first time in four-and-a-half years, while German companies were slightly more confident than in October. Meanwhile, the rest of the euro area remained strongly optimistic in the 12-month outlook for output, albeit slightly less so than in the previous month.

Companies in the Eurozone lowered employment for the fourth consecutive month in November, although the rate of job cuts was only marginal and softer than seen in October. There were divergent trends between the two monitored sectors, however.

Manufacturing workforce numbers decreased markedly, and to the largest degree since August 2020. Meanwhile, services employment continued to increase, with the latest rise the fastest in four months. Staffing levels fell in Germany, but rose in France and in the rest of the Eurozone.

There remained evidence of spare capacity in the private sector as backlogs of work decreased again. Moreover, the latest depletion in outstanding business was the greatest since January.

The rate of input cost inflation quickened to a three-month high in November, but was still slower than the average over 2024 so far. A sharp increase in services input prices was mitigated to some extent by falling input costs in the manufacturing sector.

Output prices also rose at a pace that was faster than in October but softer than on average across the opening 11 months of the year. In line with the picture for input costs, higher charges for services contrasted with falling selling prices in manufacturing. At the composite level, output prices increased in Germany, France and across the rest of the Eurozone. (…)

“The environment in November is stagflationary. On one hand, activity is declining across the board, while on the other, input and output prices are rising more quickly. This surge is driven by services costs, which ties in with the sharp rise in wages in the eurozone in the third quarter. Service sector selling price inflation is a major headache for the ECB. Given this backdrop, some ECB members might even argue for a rate pause in December, but most will probably stick with a 25-basis point rate cut.

“In November, manufacturing purchase prices didn’t drop as much as the previous month. If the euro keeps weakening, purchase prices might even rise in the coming months, especially if the EU Commission imposes counter-tariffs in response to potential US tariff hikes.”

  

• Sharp fall in Eurozone activity raises odds of half-point ECB rate cut

Japan: Business activity falls further in November Manufacturing output and new orders fell.

  

The U.S. flash PMI is out later today.

Japan Approves $141 Billion Stimulus to Boost Economy, Offset Living Costs The government estimates the impact could be as much as 39 trillion yen

Ishiba has said his government will focus on getting the economy to completely exit deflation and create growth driven by higher wages and investments. But he faces a bumpy road ahead in steering policy after the ruling coalition lost its majority in the lower house of parliament following a general election in late October.

Under the new economic package, the government will give cash handouts of ¥30,000 to low-income households as an inflation-relief measure, with an extra ¥20,000 per child to be given for families with children.

The government is also planning to resume subsidies for gas and electricity bills from January to March next year. The cabinet estimates that the energy subsidies will reduce consumer prices by a monthly average of 0.3 percentage point from February to April.

The government has intermittently provided energy subsidies since January 2023, which has been a major factor affecting consumer inflation trends. Underlying inflation, which excludes fresh food and energy prices, rose 2.3% in October from a year earlier, government data released Friday showed.

In an attempt to reinforce chip supply chains and promote innovation in artificial intelligence, the government will also provide 10 trillion yen in subsidies and other financial support to businesses in relevant fields until fiscal 2030.

Officials will discuss the possibility of raising the ceiling for tax-free income, which is currently set at ¥1.03 million. Lifting the threshold is one of the main campaign promises made by the opposition Democratic Party for the People.

The higher ceiling would encourage part-timers to work longer hours, possibly helping to ease the nation’s chronic labor shortages and stimulating consumer spending.

On the other hand, it could worsen the Japanese government’s fiscal situation, which is already among the worst in major economies. Japan’s public debt has grown to more than double the size of its economy. With the central bank expected to keep raising interest rates, repaying that debt will likely cost more.

If the income-tax barrier is raised to ¥1.78 million, as sought by the DPFP, that could reduce tax revenue for the central and local governments by up to 8 trillion yen, according to government estimates.

The latest package will require about ¥13.9 trillion in additional government general-account spending.

• “We see few measures in the supplementary budget that would immediately boost the economy, and we believe that the positive impact on GDP will be limited.” (Goldman Sachs)

Trudeau unveils $6.28-billion in new spending on two-month GST break, stimulus cheques

The federal government unveiled its multibillion-dollar plan to alleviate pocketbook pressures for households, dropping the GST on a wide range of products for a two-month period and sending most working Canadians a $250 cheque in April.

The measures will cost the federal government $6.28-billion, according to the Finance Department – $1.6-billion for the sales tax break and $4.68-billion for the cheques. (…)

“Our government can’t set prices at checkout, but we can put more money in people’s pockets,” he added.

The announcement comes just months after the Prime Minister dismissed the idea of sending Canadians money directly, arguing that it would be inflationary. He said Thursday that circumstances have changed because inflation has cooled. (…)

The Liberals had pledged to keep the deficit below $40-billion, but last month the Parliamentary Budget Officer said it was already on track to be higher than that, estimating the government would record a $46.8-billion deficit for the 2023-24 fiscal year. (…)

Christmas trees, kids’ clothing and toys, beer, wine, and restaurant meals are among the items that Canadians will no longer have to pay GST on between Dec. 14 and Feb. 15.

The $250 cheques will be tax-free and be sent to all Canadians who worked in 2023 and earned a net individual income of up to $150,000. (…) The government estimates that 18.7 million people will qualify for the cheques.

Bay Street’s view on Thursday was that the stimulus, especially when combined with the $3-billion worth of cheques that Ontario will also send out next year, will spur economic growth in the short term and kill the chances for a larger interest rate cut from the Bank of Canada next month. (…)

Canadians will get GST relief on the following items:

• Children’s clothing, footwear and diapers
• Children’s car seats
• Real and fake Christmas trees
• Physical newspapers
• Physical books and audiobooks
• Children’s toys and games
• Jigsaw puzzles
• Video-game consoles and physical copies of video games
• Beer, wine, cider, plus coolers up to 7 per cent alcohol by volume
• Snacks such as candy, chips, granola bars, ice cream, pudding
• Baked goods
• Carbonated soft drinks, non-carbonated fruit juice, bottled water, fruit-flavoured beverages
• Prepared foods and food platters
• Food and drinks at restaurants and cafés

Ridiculous and a logistic nightmare for 2 months!

BTW: Black Friday falls on Nov. 29 this year, so items purchased during that time will not qualify for GST relief measures.

Governor Abbott Directs State Agencies To Divest Portfolios From China

Governor Greg Abbott today sent a letter to Texas state agencies directing them to divest from risky investments originating from China. The Governor ordered Texas state agencies to protect Texans from exposure to the Chinese Communist Party (CCP) by fully divesting from China as soon as possible.

“Security of Texas and Texans is of utmost importance,” reads the letter. “That includes the financial security of Texas state investments. Threats to that security can come from foreign adversaries, including the Chinese Communist Party (CCP), whose belligerent actions across the Southeastern Pacific region and the world have increased instability and financial risk to the State holding investments in China.

Therefore, all investments of state funds in China must be evaluated and immediately addressed. To further this goal, I direct Texas investing entities that you are prohibited from making any new investments of state funds in China. To the extent you have any current investments in China, you are required to divest at the first available opportunity. Texas will defend and safeguard itself and our public treasury from any potential threat, including those posed by the CCP.”

SENTIMENT WATCH

Is there any reason to diversify? (Bloomberg)

But why bother with U.S. equities?