Aug 25, 2017   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

With this week behind us, we’re one step closer to tax reform, normalized monetary policy, and world peace.  Well, maybe not the last part but certainly, we’ve moved past healthcare reform and are moving on to tax reform.  Beginning next week, we expect to hear the President’s plans for reforming and perhaps simplifying our complex tax system.  The markets were buffeted earlier in the week by news that there might be a government shutdown over funding of the President’s border wall initiative and then again later in the week when the President said the U.S. “probably” will terminate the North American Free Trade Agreement (NAFTA).  It’s a wonder the market isn’t a lot more volatile these days.

Let’s start with a bit of good news.  The leaders of both the House and the Senate confirmed that the United States will raise its debt ceiling.  “There is little chance, no chance we won’t raise the debt ceiling,” Senate Majority Leader Mitch McConnell said alongside Treasury Secretary Steven Mnuchin.  The Treasury Department has been employing cash-conservation measures since March when the previous suspension of the debt limit expired and the new ceiling was set at nearly $20 trillion dollars.  House leader Paul Ryan reaffirmed this statement later in the week after President Trump tweeted that Congress could have avoided a “mess” if Ryan and Mitch McConnell had taken his advice to link the debt ceiling and veteran’s funding measure.  Either way, it appears for now that this shouldn’t be an issue.

As for tax reform, we should start hearing about it this coming week.  “Starting next week, the president’s agenda and calendar are going to revolve around tax reform,” National Economic Council Director Gary Cohn said this week.  Early reports suggest significant progress is being made between Trump’s top aides and Republican leaders in shaping the overhaul.  The options on the table include capping the mortgage interest deduction for homeowners, scrapping people’s ability to deduct state and local taxes, eliminating businesses’ ability to deduct interest and allowing for the repatriation of corporate profits from overseas.  Before you get too worked up about what may be cut, note that there is contradictory information coming out as this remains a work in progress.  Despite rumors to the contrary, Mr. Cohn says the administration has no plans to end the charitable donation deduction, nor the tax benefit on retirement savings.

I occasionally mention stories that result from unintended consequences.  This week I came across a story that U.S. hospitals are facing soft admissions and don’t expect this to reverse anytime soon.  Reuters reported that headwinds from weak patient admissions will continue to affect hospital groups through 2018, driven by soaring out-of-pocket costs and uncertainty surrounding Obamacare.  High-deductible plans, which shift upfront costs to patients, have reduced demand for non-emergency surgeries.  Some of the largest hospital companies, including HCA and Tenet Healthcare have cut their outlooks and forward guidance.  Perhaps this is less of a flaw and more a feature since one aim of healthcare reform was to bring costs down.  However, I’m not sure this is exactly what they had in mind.

In other news, Zillow, the popular website homebuyers use to find their perfect home, won an important class-action lawsuit in Chicago that challenged the accuracy of its ‘Zestimate’ tool used for estimating U.S. home values.  Have you ever gone on there to find that your home is worth considerably less than you think?  Homeowners sued Zillow in May, complaining that its computer algorithm often undervalues homes, sometimes by hundreds of thousands of dollars, making them harder to sell and constituted illegal “appraisals.”  The judge, in dismissing the suit, agreed. “Zestimates are not false, misleading, or likely to confuse,” the ruling read. “The word ‘Zestimate — an obvious portmanteau of ‘Zillow’ and “estimate’ — itself indicates that Zestimates are merely an estimate of the market value of a property.”

In closing, I turn to a mystery that was recently uncovered.  Prosecutors in Bavaria have found documents showing thousands of Audi vehicles exported to China, Korea, and Japan may have the same vehicle identification number (VIN).  The discovery was made as investigators searched Audi corporate files for documents related to the dieselgate scandal.  A cars VIN number is supposed to be a unique, 17-digit identifier for every car and truck produced and cannot be reused for at least thirty years.  This allows for owners or potential buyers to track things like the cars ownership history or accident record.  One explanation is that imported Audis are especially prized in the Chinese market but have strict limits on the number that can be imported in any given year.  Some speculate assigning one VIN number to thousands of vehicles is one way to get around this regulation.  Now you know.

August 25, 2017

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