Coronavirus Outbreak – It's a Somber Day in Brazil as it Reaches Two Unfortunate Milestones

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Today, Brazil hits two somber milestones simultaneously: 1M cases and 50K death toll. It's a very sad day for Brazil, indeed.

Brazil has been the epicenter of the outbreak since May, occupying the number two position behind the US but far surpassing the hardest-hit European countries including Russia. 

The outbreak in Brazil was quite delayed relative to the outbreak in Europe and the USA. On 3/15, Brazil had only 200 cases and no deaths, while the US already had 160,686 cases and 2,985 deaths. In Europe, Italy had 24,747 cases and 1,809 deaths, while the cases in Spain and France were on the rise. 

Highlights...

1. The total number of cases already doubled in June, skyrocketing from 526,447 (6/1) to 1,085,038 (6/21), with an incredible daily average of nearly 28,000 cases, which is twice the daily average of May and ten times that of April.  

2. The death toll also jumped almost 70% in June, growing from 29,937 to 50,659, with a daily average death toll of over 1,000, far exceeding the averages of prior months.

3. Both graphs are showing essentially the same (positive) linear trendlines and are solidly confirmed by the 7-day moving averages, proving that Brazil has yet to flatten the curve. 

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4. Though Brazil has a much lower death rate relative to some of the worst-hit European countries, it has one of the highest positivity rates, as well as some of the worst testing credentials in South America. This woeful combination has prevented the curve from flattening.

5. By virtue of being in Southern Hemisphere, Brazil is entering the winter season, meaning it is also in the midst of the conventional allergy and flu season, thus adding to and accentuating the havoc. 

Unfortunately, many local experts believe the reported numbers do not reflect the reality on the ground. "That number of 1 million is much less than the real number of people who have been infected, because there is under-reporting of a magnitude of five to 10 times," said Alexandre Naime Barbosa, a medical professor at the São Paulo State University. "The true number is probably at least 3 million and could even be as high as 10 million people." 

Stay safe!

Data Sources:
https://www.worldometers.info/coronavirus/
https://en.wikipedia.org/wiki/COVID-19_pandemic_in_Brazil

-Sid Som
homequant@gmail.com

Post Pandemic, Congress should Replace Income Tax with Middle-class Friendly Progressive Consumption Tax

Under the existing income tax system, the top 1% pays 40% of all federal taxes. According to the Tax Policy Center, 44% of Americans will not pay any income taxes this year. On the other hand, Warren Buffett claims he has a lower tax rate than his secretary does. While much buzz was created about the carried interest, nothing has been done yet, and as a result, hedge fund billionaires continue to enjoy one of the lowest tax rates. According to Fortune, "Amazon will pay a whopping $0 in federal taxes on $11.2 billion profits." 

These different scenarios demonstrate how irrational the US Income Tax system has become. Therefore, it's high time that we (phase out and) replace the personal income taxes with a set of middle-class friendly progressive consumption taxes.

Of course, the one-size-fits-all consumption tax – which was proposed before and was justly unsuccessful – is inherently regressive, as poor and middle-class folks tend to spend a much higher percentage of their incomes than the rich people. 

Yet, the consumption tax could be an ideal replacement for the current income tax, as long as it is progressive. How? Quite simple – all non-food goods and services must be broken down into three progressive tax categories: Basic, Luxury, and Ultra-luxury. While the basic type will have the lowest tax rates, luxury and ultra-luxury will carry progressively higher rates. For example, the national sales tax rate (atop the state and local sales taxes as it replaces the federal income tax) for basic, durable goods (e.g., appliance) could be 2 to 3%. In contrast, luxury and ultra-luxury could carry 5% and 10% rates, respectively. 

The lower rates for the basic category will advantage the middle class. Simultaneously, the rich will be happier to pay higher national sales taxes in place of their disproportionately higher share of the federal income taxes (case in point: the top 1% pays 40% of all federal taxes). 

While a host of progressive consumption taxes could be thought of and implemented, here are some basic ones:

1. National Sales Tax on Basic and Luxury Durable Goods – To save, say $5K to $5M on annual income taxes, taxpayers would be amenable to an additional national sales tax – obviously atop the current state and municipal sales taxes – on durable goods. Unlike income taxes, consumption taxes are more humane, meaning families can budget or plan for these expenditures. Since the basic, durable goods impact the poor and middle class, the rate must be lower, say 2% to 3%, followed by progressively higher rates on luxury durable and ultra-luxury durable goods generally demanded by the rich. For instance, all appliances under $10K could be the basic, $10K to $20K being the luxury while over $20K being the ultra-luxury category, with progressively higher rates. 

2. National Sales Taxes on Million dollar-plus Home Sales – Since the rich and ultra-rich owning the upscale and expensive homes will be big beneficiaries of the phase-out (followed by no income taxes), the million-dollar-plus home sales must be subjected to the additional progressive national sales taxes. It must not be a one-size-fits-all blanket rate. Instead, it must be progressive, for example, sale price $1M to $2M @5.00%, $2M to $3M @5.25%, $3M to $5M @5.75%, $5M to $10M @6.00% and $10M+ @6.25%, etc. At the individual level, unlike the income taxes, these sales will impact them once in a while, thus a far preferable option than the high annual income taxes they have been paying. 

3. National Sales Tax on Luxury Hotels (4 and 5-Star) – These hotels are primarily for the corporate executives and rich folks, so an additional 5-6% national sales tax will not harm the hotel industry. These hotels might even use this sales tax as a promo ("We Will Pay Your National Sales Tax") to compete for the traffic during off-peak seasons. A vast majority of these hotels have medium-to-large convention centers – seasonal to round-the-year – so convention center sales surtax could be an ancillary surtax. The hotels that are run as resorts must be subjected to an additional resort sales surtax. Similarly, all private golf courses must have additional surtaxes. 

4. National Sales Tax on all Luxury Air Travels, Amtrak, Vacation Cruises, and Car Rentals – Business and first-class air travel, both domestic and international, is primarily for the corporate executives and rich folks, so an additional 5-6% national sales tax will not harm the airline industry. Similarly, those who spend thousands more on luxury and ultra-luxury vacation cruise suites can afford an additional 5-6% national sales tax, and it won't harm the cruise industry either. International cruises coming to the US shores may be subjected to additional port charges. Luxury cars, charter flights, and private jet rentals must carry sizable luxury and ultra-luxury national sales taxes. 

5. National Sales Tax on Unhealthy (processed) Foods and Beverages – It's about time that the health-conscious folks are not forced to subsidize those who live off junk foods and high-calorie beverages. This is a (preventive) health issue, and, hopefully, this national sales tax will save citizens billions in health insurance premiums down the road. The parallel case is equally compelling: Today, smokers pay a hefty price for their lifestyle (significantly higher taxes on their lifestyle products and higher premiums on life and health insurance, etc.). While we must not take smokers' choices away, the rest of us must not finance their lifestyles either. 

While progressive consumption tax is poor and middle-class friendly, the rich would also welcome the idea of considering the trade-off. Of course, well-studied tax rates will be needed to make the switch revenue-neutral, even revenue positive.

It's about time we return control to taxpayers!

-Sid Som

homequant@gmail.com

Post Pandemic, Congress should Introduce "Medicare at 62"

There is no denying that the pandemic will bring about significant changes in many aspects of our lifestyle, including the decision to opt for early retirement.

Unfortunately, while the first qualification age to trigger Social Security benefits is 62, the qualifying age for Medicare is 65 (with certain exceptions), thus forcing millions of willing retirees to wait until the Medicare kicks in at 65 to avoid having to walk into the expensive COBRA/health insurance trap. 

Therefore, Congress should seriously consider lowering the Medicare age to 62 for all Social Security-eligible employees to allow and incentivize early retirement. So, what are the potential advantages? Let's consider these:

1. The Simultaneous Trigger of Social Security and Medicare at 62 will allow Willing Employees to Retire from "Full-time" Workforce at 62 – This will free up millions of jobs. Again, to qualify for the proposed "Medicare at 62," one must simultaneously trigger the Social Security benefits at 62, thereby ensuring permanent retirement from the "full-time" workforce. Of course, if one decides to return to the full-time workforce later, one must return all of the benefits earned (in line with the current Social Security law). Should the new retirees, from time to time, need to supplement social security incomes, they will have access to many of the part-time jobs the recent graduates would leave behind, leading to a very healthy and complementary continuum. 

2. The Simultaneous Trigger will Open up Millions of Jobs for New Graduates – Since most people retire from "long-held" jobs, those jobs tend to be "career" jobs. Most companies try to fill the long-term career jobs with new graduates, via their 1-to-3 year training programs (e.g., engineer trainee, management trainee, analyst, and research trainee, marketing trainee, etc.). Also, in today's fast-changing technological environment (as AI and Robotics have already taken over), the new engineering graduates are far more critical for the labor force than their senior counterparts, most of whom need extensive retraining. Therefore, the simultaneous trigger will allow senior employees, unwilling to be retrained, to take the early retirement and move on.

3. The Lower Replacement Wage will help Hire More New Graduates – By sheer longevity, the retirees usually command some of the industry's highest salaries. Since the new graduates would be hired at significantly lower wage levels, the replacement ratio might be higher, perhaps three new hires for every two persons retiring. Even if a small percentage of this group, say 20%, is enticed to retire at 62 every year, an unprecedented job boom would be in the offing. Now, add the higher replacement ratio to it, and it's an unparalleled boom plus!

4. The New Generation of Early Retirees will significantly Boost Leisure, and Recreational (Adult Lifestyle) Industries – The creation of this new generation of early retirees with significant disposable income will provide a big boost to the leisure/travel and recreation industries as a whole. From vacation homes to new cars to hospitality to airlines to Amtrak to cruise-lines to recreation vehicles (RVs), etc. will all benefit from this new-found economic class. The arrival of early retirees might help smooth out off-peaks leading to year-long consistent and predictable traffic patterns.

5. The Job Boom among Millennial and early-Gen Y will provide a Gigantic Boost to their Lifestyle Industries – While the early retirees will bolster spending in Leisure, the counter-story could be as exciting as well. Considering the millennial generation and early-Gen Y (born between 1995 and 1999) will fill in the vacancies to be left behind by their senior counterparts, their enhanced spending power will be a big boon to the (trendy) lifestyle industries like techs and gadgets, fashion and professional garments, alternative health and beauty, etc. The housing industry will see the beginning of a new replacement cycle.

Fast-growing mid-range companies do not necessarily compete for the top talents as they are generally competed away by the large-cap companies. This new job boom, resulting from the departure of early retirees, will see massive growth in high-paying career jobs, potentially trickling down to mid-to-smaller companies over time, making them more competitive in the global marketplace. 

The higher replacement ratio -- three new entrants for every two retirees -- will most probably make the program revenue-neutral, if not revenue positive, but cost-sharing could help manage any temporary shortfall. Early retirees would be responsible for part of the additional Medicare costs as cost-sharing; for example, 15% pass-through at 62, 10% at 63 and 5% at 64, etc.. Even if it comes down to some cost-sharing, it would still be a far better option than the COBRA or individual insurances. On the positive side, in a cost-sharing event, the participating HMOs (most likely) might offer to pick up the tab to shore up their enrollments. 

Again, since the pandemic is expected to reshape our lifestyle, especially the 60+ population in this country, Congress should seriously consider lowering the Medicare Age to 62. It's a no-brainer!

#MedicareAt62

- Sid Som, MBA, MIM

homequant@gmail.com

Post Pandemic, Congress should Introduce Universal Basic Income (UBI)

Under a Universal Basic Income (UBI) plan, the federal government will pay a monthly stipend to each adult citizen irrespective of their needs or circumstances. The growth of Artificial Intelligence and Robotics has prompted many Silicon Valley leaders and other celebrities to raise UBI's issue as a countermeasure to this emerging threat to the American labor force. Former presidential candidate Andrew Yang even made the UBI the centerpiece of his campaign, labeling it a 'Freedom Dividend.' Here are some of the apparent reasons why Congress should seriously look into it:

1. The UBI plan will incentivize early Retirement – Though the eligible people can activate Social Security at age 62 and retire, the vast majority of them are unwilling to do so due to the reduced qualifying income. Since the UBI plan will not interfere with the social security income, those willing-to-retire-early folks would welcome this supplemental income and seriously consider the move. 

2. The UBI plan will Create a new generation of young Entrepreneurs – Millions of young people, especially college students, have forward-looking business ideas. Still, they generally go nowhere with their brilliant ideas as they lack the start-up capital. The UBI plan will empower them to move forward with their ideas, knowing that this is not a one-off stimulus. The perennial monthly UBI (could be higher over time with adjustments for CLI) would allow them to allocate a portion of their business income while taking on fewer student loans, reducing the usual mental and financial stress. 

3. The UBI plan will turn Stay-at-home moms into a new generation of Home-based Entrepreneurs – Stay-at-home moms would be one of the program's big beneficiaries. Most of them have the time but not the capital to invest in bringing their entrepreneurial dreams to reality. Now, with the new-found capital, their lives would be financially lifted to the next level. Since women tend to be better money managers, they would better allocate the money between family and business, adding a whole new dimension to the economy.   

4. The UBI plan will do yeoman's service to Inner City Youths – The inner-city youths in America are severely deprived of essential economic opportunities, resulting in higher drop-outs from high schools. The UBI plan would entice them to stay in schools, opt for college education, and compete more effectively. Minority youths, especially African-American youths, would see the leveling of the playing field. In no time, the enterprising youths would pool their resources together and take the entrepreneurial plunge, pulling their neighborhoods and communities out of poverty. 

5. The UBI plan will immensely help seniors currently living off Social Security incomes only – Today, millions of seniors live off social security incomes only, which sometimes are below the national poverty level, despite having worked and paid taxes all their working lives. It would be the saving grace for those seniors living month-to-month off the social security incomes. Using a typical proposal of $1,000/mo., the additional $2,000/mo. (for two seniors) would lift them out of the poverty threshold. 

The new $10K SALT cap has been hurting the rich folks in high tax states. Therefore, the government should offer a deal whereby those rich folks would give up the monthly UBI in exchange for a correspondingly higher SALT cap. Right now, the cap has been severely impacting specific housing markets, making them very illiquid. The higher SALT cap could make those housing markets a bit more liquid.

Again, the UBI is a plan to fend off poverty and unprecedented calamities. The merits are numerous and multi-faceted. It helps the poor. It helps the middle class. It even helps the rich in specific scenarios. Last but not least, it would be growth-financed without having to tax and spend.

Stay safe!

-Sid Som

homequant@gmail.com

Coronavirus Outbreak – How Smart Program Trading has Saved the Stock Market during Pandemic

Today, trading and investing are almost mutually exclusive. Trading has taken over the day-to-day market, leading to the extreme volatility (wild swings, sky-high volumes, etc.) that we have been seeing since the closing stages of the last recession.

When it comes to the lion’s share of today’s trading, it’s largely controlled by the “smart” program trading, driven by sophisticated algorithms (Math/AI models). Generally, 30 to 50 major financial services companies (hedge fund, brokerage, private equity, etc.) heavily depend on smart program trading. These models decide the daily swings of the market.

In its infancy, program trading was essentially just high-speed trading. Today, with the integration of AI, etc., it is much smarter and more predictive. Of course, the tremendous volatility it adds to the market may make small investors extremely confused, often forcing them back to good ole’ Mutual Funds as their preferred investment vehicle.

When the models are in tandem, the market generally stays up all day long; when they are in conflict, some wild swings come into play. Obviously, the news and events of great economic or political consequence (e.g., the announcement of lockdowns, stimulus payments to consumers and businesses, May employment report indicating the reversal of job trend, etc.) heavily influence those models. Of course, while the other professional day traders play along with the trend, they hardly influence the direction of the market anymore, contrary to the conventional wisdom or belief.

What the media won’t tell you is that today's smart program trading also helps create meaningful floors to the market. Without the smart program trading in place, a once-in-a-century pandemic would have pushed the Dow average down to 5,000 – instead, it bottomed out at 18,000 in March.

When the averages temporarily hit top or bottom (due to overbought or oversold condition), smart program trading offer better signals, thus allowing savvy traders renewed entry and exit opportunities periodically (of course, they do not necessarily exit the market; they simply overweight on the short side when the exit signals start to flash). 

The stock market, therefore, is not necessarily the leading indicator of the economy anymore (that could very well be an old economic theory, but we have to wait a little longer to recognize if trading has dethroned investing).

-Sid Som

homequant@gmail.com

Coronavirus Outbreak – A Powerful Resurgence Hits North Carolina

After having devastated the Northeastern and Mid-Atlantic states, the outbreak has been gradually southbound along the I-95 corridor, currently tormenting (southern Virginia and) North Carolina where new cases are rapidly surging. 

Since each new peak in North Carolina has eclipsed the prior one, the trend has been woefully upsloping. Even today (6/16), it has reported 28 confirmed deaths.

Highlights...

1. Between 4/1 and 6/15, the total cases grew from 1,584 to 45,102 -- a whopping 2,750% escalation. In fact, the monthly averages flesh out the surge even more accurately: While the monthly cases averaged 300 and 583 in April and May, respectively, the average thus far in June has almost doubled to 1,101. If this trend continues, the current average can easily double in July.

2. Though the daily cases in April and May had trended more or less in a linear mode, it has tilted backward to a steeper polynomial trend in June. The slope of the trendline is so fast and furious that it can develop into a solid exponential trend later this month or in early July. Even the smoothed 7-day moving average is confirming the upsloping non-linear trend. 

3. While the daily death toll (bottom graph) tapered off in late May, it has reversed course and started moving up as of early June, causing serious confusions and concerns among public health professionals as they expected a continued taper with the rising temperature, leading to a complete taper in the summer months.

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4. Despite the beginning of the rapid surge, North Carolina has one of the lowest death rates in all of East Coast. The hardest-hit states in the Northeast have endured threefold higher death rates. Likewise, the states like Georgia and Virginia where the surge is still on-going have active case rates of 90% and 84%, respectively, while North Carolina has kept it at a very manageable 34%.

5. North Carolina, like Georgia and Virginia, has fallen far behind the Northeastern states in per capita testing. While those states have been consistently registering above 100K, North Carolina has been struggling in the low 60K range. 

Given a large immigrant and minority population, it needs to significantly improve its testing credentials before a more horrific second wave takes over.

Stay safe!

Data Sources:
https://www.worldometers.info/coronavirus/
https://en.wikipedia.org/wiki/COVID-19_pandemic_in_North_Carolina

-Sid Som
homequant@gmail.com

Coronavirus Outbreak – Second and More Powerful Resurgence in Florida

Florida had a resurgence in May, but it peaked and tapered in late May, under the assumption that the rising heat helped contain the spread. Unfortunately, that assumption has turned out to be false, resulting in a more serious resurgence, if not the beginning of a second wave.

Highlights...

1. In April-May, the daily cases averaged at 810, resurging exponentially in June and spiking the average up to 1,411. In the last five days, the average has further jumped to 1,991.

2. The 7-day moving average trendline in June thus far looks genuinely worrisome. The recent highs far exceed the prior peaks in April and May, raising serious concerns for the public health professionals, considering that most beaches are already open and the theme parks are not far behind.

3. Unfortunately, the daily death tolls have not subsided either. Given that hospitals are much better equipped today to handle serious and critical cases than what it was at the onset of the outbreak, it was widely expected that the death toll would come down fast. But the stats are not confirming that expectation. In fact, the daily tolls averaged at 38 in April-May, while it rose to 43 in the last five days.

4. The 7-day moving average trendline of daily death tolls in June is clearly upsloping, confirming that the death tolls are moving up, rather than going down. Of course, the only silver lining in this resurgence is that the growth angle of the daily cases is still steeper than the growth angle of the daily tolls.   

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5. Though Florida has lower death and positivity rates than most Northeastern states, it lags far behind them in testing. Given its population demographic, it's a serious concern. At 77%, it has one of the highest active rates in the region and significantly above the national average of 54%. 

Politics aside, Florida needs to get its act together before the resurgence turns into a deadly second wave. 

Stay safe!

Data Sources:
https://www.worldometers.info/coronavirus/
https://en.wikipedia.org/wiki/COVID-19_pandemic_in_Florida


-Sid Som
homequant@gmail.com