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By Bilal Hafeez 19-10-2019
In: post | Newsletter

Bilal’s Top Picks: New Taxes For Rich / Stock Picking Winners / China’s Slam Dunk

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(total reading time: 6 mins)

Tax the rich. That seems to be the new mantra for many politicians, including Democrat Presidential nominee, Elizabeth Warren. She’s calling for a wealth tax, but widely-followed economist Tyler Cowen doesn’t like the idea. He dismantles the case for one. Meanwhile, “Conversable Economist” Timothy Taylor shows that the top 50% US earners pay almost all US tax.

We found an excellent Morningstar note that describes a seemingly unbeatable model to predict fund performance. There are a few insightful pieces on the fall-out from the NBA controversy in China. Then, with Extinction Rebellion protests continuing, we feature work on how economics can address climate change.

Finally, check out my latest personal blog on the timeless question: ‘When Do You Become A Grown-Up?’



Holding a good old diversified equity and bond portfolio won’t make the cut any longer – at least according to BAML. ETFs are hotter than ever and sweeping away active investing; but watch out for gig economy companies. They are ignoring the law.

A Eulogy for the 60/40 Portfolio (A Wealth of Common Sense) A tongue-in-cheek “obituary” piece to celebrate the life and recent death of the long-standing 60/40 investment strategy, declared obsolete by BAML recently. Despite it’s ever-healthy performance and simplicity, it’s now largely replaced by ETF trackers and rebalancing.

Corporate America’s Second War With the Rule of Law (Wired) In-depth historical perspective on whymore and more gig economy (and other) firms are opting to disobey the rule of law. Think Uber refusing the order to start formerly employing its drivers and Facebook misusing data. Predicts a looming “techlash” by public servants.

Optimists and Pessimists in the Housing Market (New York Fed) Extrapolation of beliefs or i.e. assuming that a rising asset price will continue rising can be a source of market bubbles. Analysis shows that optimists on future house prices extrapolate twice as much as the median household and artificially influence prices.

Negative interest rates might be actually a good thing after all. Recent work by San Fran Fed shows they have stimulated economies.

The Cash Hoarding Puzzle and the Rising Global Demand for Cash (VOX) Demand for cash has been rising, despite the increased access to cashless payments.Finds monetary easing and aging population as main incentives for cash hoarding.

The Ownership of Central Banks (Bank Underground) Looks at the impact of public vs private ownership of Central Banks globally and finds that it makes little difference if the overarching aims are clear. Most, such as the BoE are wholly owned by the public sector, but in the US, Japan and Switzerland, there is a private shareholding.

Yield Curve Responses to Introducing Negative Policy Rates (San Francisco Fed) Studies the experience of five countries that introduced negative interest rates to see their impact on the economy. Finds that negative rates are effective in lowering yields of all maturities and effectively shifts the whole yield curve downwards, offering effective stimulus.

Elizabeth Warren is gaining popularity in the polls. She’s  floating the of a wealth tax. But they could have massive negative implications.  Equally, tax data suggests taxing the rich more won’t fix the budget deficit.

Some Income Tax Data on the Top Incomes (Conversable Economist) Finds the top 50% pays almost all the federal income tax whereas the very top income brackets get away with proportionately less. However, simple math shows that taxing the rich more won’t be enough to balance out the $800bn yearly budget deficit.

MMT Heaven and MMT Hell for Chinese Investment and U.S. Fiscal Spending (Carnegie) Argues thatthere aren’t inherently unacceptable levels of government debt If the government can spend the additional funds in ways that make GDP grow faster than debt. That way, there wouldn’t be runaway inflation or the piling up of debt.

How to Argue for a Wealth Tax (Marginal Revolution) Estimates that a seemingly benign 2% increase in the wealth tax in the US ends up stacking up to a 50-70% net capital gains tax, which can’t be sustained. Proposes a higher consumption tax instead.

The new IMF Managing Director, Kristalina Georgieva, started her mandate on a gloomy warning of a global slowdown. We look at what weak growth might mean for monetary policy and why ageing populations are even more of a threat than previously thought.

The World Economy: Synchronized Slowdown, Precarious Outlook (IMF Blog) IMF downgrades growth for 2019 to 3%, the slowest pace since the 2008 crisis. Also flags bubble risks of monetary policy and need for macro-prudential policies.

Sailing into Unchartered Demographic Waters (VOX EU) David Blooms discusses the implications of the global population ageing. He proposes reforms in healthcare policies, human capital management and social securities to take on these challenges.

Reviving Innovation in Europe (McKinsey) A highly fragmented market and a lack of scale are what hinder Europe’s edges on technology innovation, causing it to fall behind the US and China. McKinsey suggests five approaches that Europe plays to its strengths including building on its industrial strength.

Trump is likely to get away with it this time. At least, according to a great piece comparing his impeachment process to that of Nixon’s . Meanwhile, with Extinction Rebellion protests globally, we re-cap the negative externalities of climate change and how to tackle them.

Trump and Nixon: Three Key Differences Between 2019 and 1974 (The Conversation) Differences include Nixon’s impeachment process started in the Senate not the House, Republicans and Trump loyalists dominate today’s Senate unlike Nixon’s time and the media is more fragmented than earlier.

Anti-globalisation Bias and Public Policy (Project Syndicate) Argues that a number of anti-globalisation negative biases, most commonly nationalism, self-interest, and lack of economic understanding, result in misguided public policies.

The Necessity of Climate Economics (Project Syndicate) Re-visits the main economic concepts of negative externalities as ways to tackle climate change.

It might be hard to trade Trump’s erratic decisions –but a bunch of investors have made a fortune from his tweets. The question is whether they have used insider information. Plus, there could be an unbeatable model to predict fund performance and no one has taken much notice.

The Best Predictor of Stock-Fund Performance (Morningstar) Turns out buying stocks held by successful funds is a reliable trading strategy for success.

“There Is Definite Hanky-Panky Going On”: The Fantastically Profitable Mystery of the Trump Chaos Trades (Vanity Fair) Investigates a number of large e-mini trades on the S&P500, often made right before the market closes and strangely right before a big geopolitical market shaker. Argues that this could be a case of insider trading and calls for heavier regulatory watch.Gulp.

The Banking View of Bond Risk Premia (Haddad, Sraer) Shows that the net exposure of the banking sector to interest rate risk, as measured through banks’ average income gap, strongly forecasts future bond excess returns.

They say bad things come in bundles – in the case of China it rings true. Their economic growth sank to a 26-year low in the latest quarter amid pressure from a trade war with Washington and weaker consumer demand. We feature two pieces looking at the recent NBA controversy which is now grabbing attention.

China Has Begun to Shape and Manage the US, Not the Other Way Around (The Atlantic) US thought it could change China, but recent NBA controversy suggests China could be changing the US. I’ve been thinking that Western countries are more and more trying to copy the China political model.

Corporate Subservience to China Exposes the Hypocrisy of Woke Capitalism (Quillette) Lists other cases, apart from the NBA, where companies espouse liberal values but caved with China.

For more information: The Countries Most in Debt to China