The UK Says JK | The Daily Peel | 10/4/22


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Market Snapshot

The Truss administration came into power guns a-blazin’, cutting taxes in large swaths in a bold move to shock the British economy to life.

Now, it’s walking back its planned cut on the top income tax rate.

Critics say this will dent her legitimacy as a new leader, but the pound was able to regain some ground after the announcement.

Here in the States, major indices shot up to start Q4.

At the close, the Dow catapulted 2.66%, the Nasdaq gained 2.27%, and the S&P soared 2.59%.

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Let’s get into it.

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Macro Monkey Says

For Tax Cuts, Timing Is Everything — Back in the ‘80s, Reagan and Thatcher aligned policy in America and Britain towards a low-tax, pro-business model that garnered pretty wide support.

Nowadays, tax cuts for the rich aren’t quite as in vogue.

  • The Liz Truss administration tried to kick off its run in the driver’s seat with bold tax cuts intended to spur growth but face planted as markets broadly rejected the policies
  • Just a week later, it’s pulling a U-turn and reversing those policies
  • Market damage may have been undone, but her reputation among citizens and financiers is still up in the air
  • Even if the plan made economic sense (which is questionable), the optics of it are just too flawed
  • Rich people getting richer while the rest of the country struggles is bound to draw broad criticism, even if it results in higher growth

The Trump administration cut taxes in 2017 to spur growth and drew heavy criticism from the Left.

But the reaction was nothing like the universal rejection of the recent Truss tax cuts.

The questions coming out of this fiasco are:

  • Are tax cuts still a viable way to spur growth?
  • Can future leaders learn to time them better so that it doesn’t look like the rich are catching a break while the rest of the country suffers?

Only time will tell, but leaders will surely be wary of causing the kind of financial chaos that Truss has had in the last few weeks.

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What's Ripe

Gas Prices — Falling gas prices starting in June had been a key inflation-fighting weapon, but they’re creeping back up again.

Hurricane Ian is the latest supply shock to hit prices at the pump and could add fuel to inflation in Q4.

Unleaded gasoline futures are up 9.7% in the last week.

Box ($BOX) — Shareholders of the cloud-based collaboration company can thank Morgan Stanley for the price surge Monday.

The bank upgraded its price target, citing macro tailwinds such as a broad shift to the cloud and track record of landing big corporate clients.

Gains in the last week have put $BOX into the elite category of tech stocks in the green for 2022.

$BOX was up 9.3% by the end of the day.

What's Rotten

Tesla ($TSLA) — After a splashy AI Day that included a demo of its Optimus humanoid robot, $TSLA sank Monday after missing delivery numbers.

Investors broadly dumped shares on the news, but several analysts reiterated buy ratings, citing long-term tailwinds as the world shifts to EVs.

Q3 deliveries were a record-high, but headaches at factories in Germany and Texas kept production lower than expected.

$TSLA ended the day down 8.61%.

Rivian ($RIVN) — The mood is dour at EV startups right now, as the industry continues to get slammed by production issues, a macro slowdown, and competition from incumbents.

All of the above weighed on $RIVN shares Monday, along with worries about slowing demand as the U.S. lumbers toward a recession.

If Rivian manages to weather the storm, it could benefit in the long run if several of its competitors go bust.

$RIVN was down 3.1% on the day and is down 31.46% in the past 6 months.

Thought Banana

The Forgotten Saver — Higher interest rates cause pain in all kinds of areas—mortgage, credit card, and car debt gets more expensive, businesses slow investment, and stock markets melt down.

The one area of relief is supposed to be interest paid on savings. Low-risk bonds and zero-risk savings accounts pay more for the privilege of holding your money.

“Supposed to.”

While they cut savings rates seemingly overnight during the C-19 shock, banks have been slower to bring them back up as the Fed changes course.

  • Many think that banks are required to hike the interest they pay on savings in alignment with the Fed
  • Instead, these rates are set by good ole’ fashioned competition between banks
  • Most have plenty of deposits to cover their loans and aren’t in a rush to hike their rates to attract new business
  • High switching costs are a big reason why banks are sitting on their heels

Changing banks can be a hassle, especially if you have to change direct deposit info, realign automatic payments, etc.

If this were easier to do, banks would likely raise the rates they pay quicker than they are now.

For now, savers that take the time to shop around for the highest rate will be rewarded.

Wise Investor Says

“Time is more valuable than money. You can get more money, but you cannot get more time.” — John Rohn

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