by Louis Navellier

May 25, 2021

Back on April 5, Treasury Secretary Janet Yellen called on all nations to set a “minimum corporate tax” level, so that the U.S. could more easily raise corporate tax rates here at home without U.S. corporations running overseas to take advantage of offshore tax breaks. That fight over corporate tax reform hit a “glitch” recently when Britain rejected Secretary Yellen’s proposal. Specifically, Britain’s Chancellor of the Exchequer, Riski Sunak, believes that the proposed minimum global tax rate on corporations is too high, even though Britain is currently in the midst of raising its corporate taxes to 25% by 2023 in order to repair public finances after the effects of the pandemic. Britain is pointing to “evasion and sophistry” by the U.S. in calling for others to sacrifice, so when one of America’s strongest allies rejects Secretary Yellen’s call for a global minimum corporate tax, you can assume the idea is essentially dead on arrival.

After Britain rejected Yellen’s call for a 21% minimum tax rate, the Treasury Department on Thursday officially proposed a radically lower global minimum corporate tax of 15%. Essentially, Yellen is trying to get our allies to agree on any corporate tax rate, which she could then increase in subsequent years. It is odd for the U.S. to negotiate taxes with our allies, but since the European Union was challenging U.S. companies headquartered in Ireland, there should be some sort of agreement on taxes among our allies.

In the meantime, I continue to stick by my previous statement that Senator Joe Manchin remains the most powerful person in Washington DC, since he represents the swing vote in the Senate regarding taxes.

Meanwhile, China continues to grow at a frantic pace, but a bit slower than in previous months. For example, China’s National Bureau of Statistics reported that industrial production surged 9.8% in April compared with a year ago, but that’s a bit down from March’s 14.1% annual pace. Chinese retail sales soared 17.7% in April vs. a year ago, down from March’s 34.2% annual pace. China’s GDP soared at an 18.3% annual pace in the first quarter but is expected to decelerate in the second quarter, while the U.S. GDP growth is forecasted to accelerate to a 10.1% annual pace, according to the Atlanta Fed. These dramatic year-over-year comparisons are due largely to Covid-19’s toll on economic growth a year ago.

Speaking of China, on Wednesday, China banned financial institutions and payment companies from providing any services related to cryptocurrencies. Additionally, China warned investors about trading in cryptocurrencies. Since cryptocurrencies have their roots in Asia, this ban is devastating for the future of cryptocurrencies. The main reason that financial institutions like PayPal were facilitating cryptocurrency transactions is that they were collecting lucrative transaction fees. Tesla’s recent refusal to allow its vehicles to be bought via cryptocurrencies (due to Bitcoin’s mining practices) also contributed to the cryptocurrency crash last week. Long-term, the extreme volatility associated with cryptocurrencies could drive investors to safer shores, which would be good news for gold and mainstream financial markets.

The U.S. Housing Market is Becoming Incredibly Tight

Last week was a big week for housing statistics. Availability is tight, so the volume of sales is declining. Also, the rapidly rising prices of lumber and other components have reduced the number of housing starts.

First, the Commerce Department reported on Tuesday that housing starts in the U.S. declined 9.5% in April to an annual pace of 1.569 million, down from a revised annual pace of 1.733 million in March. Single family home starts declined 13.4% in April to an annual pace of 1.087 million. The rising cost of copper, lumber, and steel are part of the problem. An acute labor shortage may also be impacting housing starts. However, building permits rose 0.9% in April to an annual pace of 1.76 million, so housing starts should improve in the upcoming months. Compared to a year ago, building permits have risen 60.9% and have helped to create much of the “demand push” inflation that is now impacting the housing market.

On Friday, the National Association of Realtors announced that existing home sales declined 2.7% in April to an annual pace of 5.85 million. This represents the third straight monthly decline in existing home sales. According to the National Association of Realtors’ chief economist, Lawrence Yun, “For every listing, there are 5.1 offers. Half the homes are being sold above the list price.”

The supply of existing homes for sale declined 20% to 1.16 million, which represents an ultra-tight 2.4-month supply. One result is that in the past 12 months, the median home price has increased a whopping 19.1% to $341,600, which is the strongest annual appreciation ever recorded since the data began in 1999.

Clearly, “demand push” inflation is alive and well. In other markets, the prices of cobalt, copper, and lithium have all soared this year, so the price of electric vehicles (EVs) may rise in the upcoming months. In April, Tesla sold 25,846 EVs in China compared to 35,478 in March, so its sales declined 27.1%. Even worse, in the top 10 European countries, Tesla fell out of the top 10 in EV sales in April. Sales were led by Volkswagen, followed by Renault, Peugeot, Hyundai, Kia, Smart, Audi, Skoda, Opel, and BMW.

Finally, the Labor Department reported on Thursday that new weekly unemployment claims declined to 444,000, compared with a revised 478,000 the previous week. Weekly unemployment claims are now at a pandemic low but continuing weekly unemployment claims rose to 3.751 million vs. 3.655 million in the previous week. Economists were expecting weekly and continuing unemployment claims at 450,000 and 3.62 million, so weekly claims were slightly better than expected, while continuing claims were worse.

Since the Fed’s primary focus remains on unemployment, I expect that higher continuing unemployment claims may cause the Fed to remain accommodative. I should also add that 21 states have opted out of the $300 supplemental unemployment benefit due to growing labor shortages, especially for service workers, so continuing unemployment claims should drop as unemployment benefits expire in several states.

Navellier & Associates does own Tesla (TSLA), for one client, per client request, and PayPal Holdings Inc. (PYPL), in managed accounts.  We do not own VW Group (VWAGY), Stellantis (STLA). Louis Navellier does not own Tesla (TSLA), VW Group (VWAGY), Stellantis (STLA), or PayPal Holdings Inc. (PYPL) personally.

All content above represents the opinion of Louis Navellier of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Chances for Yellen’s “World Corporate Tax” Diminish

Income Mail by Bryan Perry
The Search for Green Energy-Related Income

Growth Mail by Gary Alexander
Some D.C. Economists are in Denial

Global Mail by Ivan Martchev
Sun Tzu Strikes Again, Blockchain-Style

Sector Spotlight by Jason Bodner
He Profits Most Who Learns How to Wisely Wait

View Full Archive
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Louis Navellier

Louis Navellier is Founder, Chairman of the Board, Chief Investment Officer and Chief Compliance Officer of Navellier & Associates, Inc., located in Reno, Nevada. With decades of experience translating what had been purely academic techniques into real market applications, he believes that disciplined, quantitative analysis can select stocks that will significantly outperform the overall market. All content in this “A Look Ahead” section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.

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