Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries (and sometimes longer ones) of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.
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Topics today include:
New Research Confirms Supernova Ability to Measure Age of Universe
Mortgage Insurance Premiums on FHA-backed Loans will be Lower
Cadillac Launches Vehicle "Subscriptions" at $1,500 a Month
U.S. Auto Sales Reach New Record in 2016
Car Plants Furloughed as Swing to SUVs and Light Trucks Continues
New Business Risk - Being Labeled "Un-American" by Trump
The IRS Annual Report Card is Encyclopedic
DOL Fiduciary-Friendly Funds Do Not Pass the GEI Smell Test
Obamacare Enrollments Keep Growing
Partisan Divide has Grown in the Century Regarding Guns and Immigration
VW about to Accept $4.3 Billion U.S. Criminal Settlement
Iraq is Boosting Oil Exports
India Suffers 16-year Low in Auto Sales
NYT: India's Demonetisation was 'Atrociously Planned an Executed'
The Big Problem for Canada's Tar Sands is Lack of Demand
Mexican Peso is Down More Than 40% vs. U.S. Dollar in Two Years
Mexico Spent 3.4% of Foreign Reserves in Two Days Trying to Protect the Peso
Today the Peso Fell 1.6%
Articles about events, conflicts and disease around the world
U.S. companies have new business risk - being labeled 'anti-American' by Trump (Reuters) Some U.S. companies are reviewing potential mergers while others are rethinking job cuts or looking at their manufacturing operations in China for fear of being cast as "anti-American" by President-elect Donald Trump, according to Wall Street bankers, company executives and crisis management consultants. Having seen some of America's largest companies, including General Motors Co (GM.N), Lockheed Martin Corp (LMT.N) and United Technologies Corp (UTX.N), bluntly and publicly rebuked by Trump on Twitter, many others are worried they may be his next target - especially if they have significant overseas manufacturing, have had U.S. job cuts or price increases for consumers.
The IRS’s Annual Report Card Is In, and It Isn’t Pretty (Bloomberg) Most Americans could give you an earful about what’s wrong with the Internal Revenue Service. But could they produce a critique so vast and deep that the executive summary alone is 106 pages? That feat is performed annually by Nina Olson and her team at the Taxpayer Advocate’s office, an independent body within the IRS. Every year, it must produce a report for Congress that includes 20 or more of the most serious problems taxpayers face when dealing with the agency. This year, the usual two-volume report grew to three, with the addition of “literature reviews” in areas ranging from taxpayer service in other countries to behavioral science lessons for taxpayer compliance.
At the top of the list of IRS shortcomings this year: The agency doesn’t make enough use of behavioral research insights to encourage voluntary compliance with the tax code. (Right, not your top complaint.) Other “needs improvement” areas include taxpayer service (there ya go), the IRS’s debt collection program, and the way the agency evaluates the living expenses of taxpayers on the installment program.
The report gives the IRS credit for better detection of fraud and identity theft but says a lack of flexibility in the IRS’s fraud detection system leads to high false positives in flagging tax returns. That delays refunds.
Brace for thousands of new DOL fiduciary-friendly mutual fund share classes (Investment News) Expect a barrage of new, DOL fiduciary-friendly T share classes from the mutual fund industry this year, according to Morningstar. The Chicago-based investment tracker says that as many as 3,800 new share classes — about as many as there are A shares — could make their debut in response to the new Department of Labor fiduciary rule. The T shares would feature a uniform 2.5% front-end load and a 0.25% trailing 12-b(1) fee. The front-end load would decline for larger purchases, and no dealer reallowances would be allowed, according to Morningstar columnist John Rekenthaler. (Econintersect: We don't see how these fees satisfy a fiduciary standard when index mutual funds and ETFs consistently outperform managed funds, have no front-end load and no 12-b(1) fees. In addition, many managed mutual funds have annual expenses from 0.5% to more than 1% while the index products have expenses as low as 0.1% and even lower.)
VW close to $4.3bn US criminal settlement over emissions scandal (Financial Times) Volkswagen said on Tuesday it was in advanced talks to pay $4.3 billion in penalties and plead guilty to criminal charges to settle with the US Department of Justice over the German carmaker’s diesel emissions scandal. The company would also be subject to supervision by an independent monitor for the next three years. VW said that the settlement could result in the company’s financial obligations stemming from the scandal exceeding its “current provisions”. In October it said it had set aside more than €18.2 ($19 billion). In the US, where the scandal was uncovered by regulators, the affair has already cost VW $15.3 billion in a partial civil settlement involving 475,000 two-litre diesel cars, an additional $1.2 billion to resolve a class-action lawsuit by the company’s dealers, and a further $1bn to recall or buy back 60,000 three-litre vehicles
Iraq plans record Feb Basra oil exports despite OPEC cut in force (Reuters) OPEC cuts are apparently not going to be honored by Iraq. The country plans to raise crude exports from its southern port of Basra to an all-time high in February. The country's State Oil Marketing Company (SOMO) plans to export 3.641 million barrels per day (bpd) of crude in February, according to trade sources and preliminary loading schedules obtained by Thomson Reuters on Tuesday, potentially beating a record of 3.51 million bpd set in December. The February volume includes 2.748 million bpd of Basra Light and 893,000 bpd of Basra Heavy, the documents showed. For January, SOMO had planned to export 2.627 million bpd of Basra Light and 903,000 bpd of Basra Heavy.
Auto sales at 16-year low in December as demonetisation takes toll (The Economic Times) Monthly automobile sales growth rate in India slipped to a 16-year-low in December with total vehicle sales declining by 18.66% as demonetisation hits the industry hard. According to latest SIAM data, most of the major segments, including scooters, motorcycles and cars, witnessed record decline December sales as the automobile sector continued to bear the brunt of negative consumer sentiments in the wake of the ban of Rs 500 and Rs 1,000 banknotes announced in November.
Demonetisation 'atrociously planned and executed': NYT (Business Standard) In a stinging criticism, a leading US daily has said the "atrociously planned and executed" demonetisation in India has made people's life increasingly difficult with "little evidence" that Prime Minister Narendra Modi's move succeeded in combating corruption and black money. The New York Times editorial board's critical piece stated that due to the currency swap, the Indian economy is "suffering".
Mexico peso falls to new low on Trump uncertainty, more weakening feared (Reuters) The peso slumped to a new low against the dollar on Tuesday, fueled by concern about the policies of U.S. President-elect Donald Trump, and a prominent economic think tank says further depreciation is "almost inevitable". The peso was the worst-performing major currency last year, weakening 20% against the dollar as Trump closed in on the U.S. presidency, and it skidded to a low of 21.739 per dollar by early afternoon, dipping more than 1.6%. The depreciation has accelerated in the first few days of 2017 after Trump told major automakers last week to expect high taxes on vehicles made in Mexico that are sold in the United States as he attempts to bring back manufacturing jobs to the north. As long as uncertainty persists about what Trump will do once he takes office on Jan. 20, the peso could face more pressure.
Peso falls as Banxico stands pat (Financial Times) Friday and Monday Mexico’s central bank stepped in with two back to back days of dollar selling (total of $2 billion) to steady the peso, using 3.4% of its Forex reserves. Today they did not intervene and the decline of the peso continued, shedding another 0.5% by noon and much more in the afternoon (see second article above).
Other Scientific, Health, Political, Economics, and Business Items of Note - plus Miscellanea
New Research Confirms Supernova’s Ability to Measure Age of Universe (R&D) Research published in Monthly Notices of the Royal Astronomical Society demonstrates that Type Ia supernovae can effectively measure the pace at which the universe expands, challenging previous evidence that questioned its accuracy. The theory that the exploding star can be utilized to determine cosmic distance is based on the premise that Type Ia supernovas, unlike other supernovas, explode with about the same brightness every time, likely due to a critical mass limit. The brightness of the light can then be used to determine how far away the star is. However, this method has been challenged in recent years based on findings that the light given off by Type Ia supernovae are more inconsistent than expected. Previous research concluded that the brightness of these supernovae seems to be in two different subclasses, which could lead to problems when trying to measure distances. The new research found no evidence for distinct near ultraviolet sub-classes. This conclusion supports a widely held theory that the expansion of the universe is accelerating and such acceleration is attributable to a force known as dark energy.
HUD Lowers FHA MIP by a Quarter Point (Realtor Mag) Mortgage insurance premiums on FHA-backed loans will be lower by 25 basis points (0.25%) on loans endorsed starting January 27, the federal government announced today. The change reflects four straight years of growth and with sufficient reserves on hand to meet future claims.
The End Of Car Ownership? Cadillac Launches Vehicle ‘Subscriptions’ (vocativ) Car makers are worried right now as young people turn away from traditional car ownership. According to this article U.S. car sales had a big decline last year, but the link is to an article for August sales. For the entire year 2016 auto sales rose to a new record - see next article. People in cities are finding it easier than ever to use ride hailing services like Uber and rental services like Zipcar. Cadillac is hoping it’s found the answer to reinventing car ownership, with its new luxury vehicle subscription service. The brand’s upcoming BOOK service will give members access to popular Cadillac vehicles without the long-term commitment of leasing, financing or buying — they just have to pay a monthly fee of $1,500.
BOOK’s $1,500 monthly fee is definitely more expensive than just leasing a Cadillac, which could cost about $300-$750 a month, depending on the model. However, Cadillac’s pitch is that members only have a month-to-month commitment, can switch cars whenever (up to 18 times a year) and also don’t have a limit on mileage. Members also benefit by not having to worry about registration, taxes, maintenance and insurance — all that is handled by Cadillac. If a member were to get involved in an accident and they were responsible, Cadillac would cover the premium but the member would pay a $750 deductible — similar to claims under typical insurances. Another, less significant, perk is that members are invited to all Cadillac events that are otherwise not open to the public.
US auto sales rose to a new record in 2016 (Business Insider) US auto sales rose for an unprecedented seventh straight year in 2016, topping the record set in 2015. In December, sales rose at a seasonally adjusted annual rate of 18.4 million according to Autodata, smashing economists' forecast for 17.7 million. Here are the year-on-year growth rates:
GM: 10% (4.4% expected)
Ford: 0.1% (-2.1% expected)
Fiat Chrysler: -10% (-14% expected)
Nissan: 9.7% (-2.8% expected)
Volkswagen of America: 20.3%
Toyota: 2% (-2.3% expected)
Honda: 6.4% (-1% expected)
Auto Inventory/Sales Ratio (St. Louis Fed) There has been some concern that inventories at dealerships have been rising overe the past yaer or two, but as a ratio to sales there does not appear to be a problem. See next article.
Just weeks after Ford idled four plants "due to slowing sales", GM and Fiat Chrysler announced today that they will idle seven plants across Canada and US as they work to reduce near-record high inventories amid weakening sales.
With an inventories-to-sales ratio above historical peaks (only beaten by huge spike in 2008 when sales stopped), the pain for automakers has only just begun...
GM to temporarily close 5 factories as car inventory builds (Associated Press) This article, dated 19 December, says that General Motors will temporarily close five factories next month as it tries to reduce a growing inventory of cars on dealer lots. The factories will close anywhere from one to three weeks due to the ongoing U.S. market shift toward trucks and SUVs, spokeswoman Dayna Hart said Monday. Just over 10,000 workers will be idled. The surplus of cars is the result of a shift to trucks and SUVs which constituted 62% of sales in November.
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