Wellspring | June 24, 2019

A weekly summary of news, analysis and data shaping the market.
The Escalating Threat of War Means Oil Prices Could Spike Higher

Oil prices were on the way up again on Friday, as the U.S.-Iran confrontation entered precarious new territory. Brent crude was up 0.6% to $65.10 and West Texas crude was up 0.8% to $57.53.

President Donald Trump tweeted on Friday morning that he had ordered a strike on Iran in retaliation for that country shooting down an unmanned U.S. drone, but then called off the strike because a general told him it could kill 150 people. Brent crude futures had spiked 6% on Thursday after the drone was shot down.

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The Federal Reserve Gets Ready to Reverse Course

Everyone makes mistakes. The trick, as America’s central bankers may soon demonstrate, is to fix them before serious harm is done. In 2018, many Federal Reserve officials misinterpreted a temporary growth spurt as a change in the U.S. economy’s underlying trend, which led them to raise interest rates above the level they now think is appropriate. The Fed’s latest policy statement, released on Wednesday, signaled officials’ willingness to reverse course to “sustain the expansion,” perhaps as soon as July.

Should the Fed follow through and lower interest rates, it would be behaving as it did in 1995-96 and in 2010-13. Moreover, it would be emulating central banks in other countries, such as Australia, Canada, South Korea, and New Zealand, all of which have flexibly raised and lowered interest rates in line with changing perceptions of economic conditions.

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Trump’s New EPA Plan Is Unlikely to Revive the Coal Industry, Analysts Say

The Environmental Protection Agency this week raised the possibility of extending the life of some coal-fired plants, but the move isn’t likely to revive the coal industry, analysts say.

The new Affordable Clean Energy Rule replaced an Obama-era plan that pushed for the closure of coal plants and a shift to cleaner power sources, including natural gas, wind, and solar. The new rule instead calls for plant-by-plant regulation. The EPA says the new rules will restore authority to the states and has said it will help reduce power plants’ carbon-dioxide emissions. But many environmentalists and others disagree.

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Wealthy Clients Leaving High-Tax States May Face Strict Residency Audits

In recent years, high-tax states began to suspect a tax-dodging trend as more taxpayers changed residences while still maintaining ties to their former home states. As a result, these states have been more aggressive with their residency audits.

“We see high-income earners and retirees increasingly fleeing high-tax states like New York, California and Illinois for states like Florida, Arizona, Nevada and Texas,” said Anupam Singhal, co-founder of New York-based Monaeo, which offers an app to help defend against residency audits. “Many are saying that if you are wealthy and move out of state, the chance of being targeted for a state-residency audit is 100 percent.”

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Social Security Is Staring at Its First Real Shortfall in Decades

A slow-moving crisis is approaching for Social Security, threatening to undermine a central pillar in the retirement of tens of millions of Americans.

Next year, for the first time since 1982, the program must start drawing down its assets in order to pay retirees all of the benefits they have been promised, according to the latest government projections.

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