Nvidia’s Jensen Huang Dissects the AI Revolution

Economic

Summary:

Superfast chips are in high demand — not just by the artificial intelligence industry, but also by companies that work in computer graphics, robotics, autonomous vehicles, or drug discovery. “It’s fun to see all these amazing applications being created,” says Jensen Huang, the CEO of Nvidia.

Speaking to David Solomon, the CEO of Goldman Sachs, at the Communacopia + Technology conference in San Francisco, Huang explained how computer graphics, for example, rely heavily on AI infrastructure. “We compute one pixel, and we infer the other 32,” he says in an edition of Goldman Sachs Talks. “Computing one pixel takes a lot of energy. Inferring the other 32 takes very little energy, and you can do it very fast. And the image quality is incredible.”

Given this speed and flexibility, this infrastructure more than pays for itself, Huang says, responding to a question from Solomon about returns on investment for customers. By spending on such equipment, “the computing cost goes up a little bit — maybe it doubles,” Huang says. “But you reduce the computing time by a factor of about 20. You get 10x savings.”

How Huang sees the data center market

Chips that accelerate computing are everywhere, but there is no such thing as a universal accelerator, Huang says. Instead, every time a chip company enters a new market, it must learn new algorithms. They differ according to purpose; the algorithm for image processing would be different from the algorithm to model fluid dynamics.

“Usually, some 5-10% of the code represents 99.999% of the run time,” Huang says. “So if you take that 5% of the code and offloaded it onto an accelerator, then technically you should be able to speed up the application a hundred times.”

The promise of this kind of accelerated computing has led to keen investor interest in the data center market, Huang says. He thinks this infrastructure can yet be improved. For one thing, the average data center is “super-inefficient, because it’s filled with air, and air is a lousy conductor of electricity.” Making data centers denser — eliminating the air, in other words — will make them cheaper and more energy efficient.

Another revolution lies in how data centers now understand not just how to process data but the meaning of the data itself, and how to translate one form of data to another, Huang says: “English to images, images to English, English to proteins, proteins to chemicals.”

The chip supply chain needs to be resilient

The ecosystem of manufacturers and suppliers to the chip industry is sprawling and complex, and particularly concentrated in Asia. As a result, Nvidia tries to design diversity and redundancy into every aspect of its supply chain.

Companies need to have “enough intellectual property” to be able to shift their manufacturing from one “fab” — or chip-making facility — to another if they have to, Huang says. “Maybe the process technology won’t be as great, or you won’t get the same level of performance or cost, but you will still be able to provide the supply.”

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Pepperstone

Economic

In US equity market volatility, the VIX index has averaged 15.4% throughout 2024, well below the 5-year average of 21.3%. In 2024 the S&P500 saw a max drawdown of 9.7%, lasting just 14 days (in early August), with a max drawdown of just 3% in Q4.

Remarkably, we’ve seen just three occurrences in 2024 where the S&P500 fell by 2% on the day.

Reviewing cross-asset volatility through 2024 we can see that the 40-day realised volatility across key markets has been universally lower than the 5-year average.

Q1 2025 Market Volatility Outlook: What Traders Need to Know_1

Another way to conceptualize movement in a market is by measuring a market’s average daily high-low trading range. In the table, we highlight the YTD average high-low trading ranges (in these same key markets) and work that figure as a percentage of the prior day’s closing level. Again, we see that the daily percentage high-low ranges are well below the 5-year average.

We can review the macro environment through 2024 and consider the possible reasons for the lower cross-market volatility. Here are some that immediately come to mind:

A strong commitment from the Fed to cut rates on any signs of fragility in the labour market – the ‘Fed Put’ has been alive and well.

With an absence of any major shocks to the system, traders have been happy to sell volatility and reduce portfolio hedges with risky assets finding buyers on minimal drawdown, with the S&P500 printing new all-time highs time and time again.

It's not just the Fed who have cut rates, but the majority of G10 central banks have universally taken their policy setting out of a highly restrictive stance.

US economic data has not only been resilient but for most of 2024, it has been impressive, with periodic calls for an impending recession quickly silenced.

The right-tail (inflation) risk has largely moved as central banks would have hoped. Granted, service-side inflation has been frustratingly sticky in many developed economies, but the reduced pace of price pressures throughout 2024 has been a factor in reducing market volatility.

Geopolitical concerns have been short lived with the market rarely seeing any risk of an energy supply shock.

Looking ahead: The potential volatility catalysts for higher volatility in Q125 and beyond

No one knows how our trading environment will evolve in Q125, and the level of volatility, range expansion or trending conditions that will be placed in front of us. However, the backdrop is certainly in place to believe that there is a high probability of increased volatility ahead in markets. With the potential catalysts laid out below, traders should prepare to react should we move into a sustainable higher vol regime, and to effectively manage the risk that comes with higher vol and look to capitalize on the opportunities should it play out.

Catalysts for higher volatility in Q125:

Seasonals, Positioning and Valuation;

The Implementation of Trade Tariffs;

US Economic Data Trends;

Fed Rate Cuts: Moving closer to the End;

China may not be ‘investible’ but it’s certainly tradeable.

Seasonals, Positioning and Valuation

Over the past 15 years, the VIX index has historically seen a strong rise in Q1, with the period between 12 January and 15 March the most prosperous period to be long the VIX index and equity vol.

15 years of blended VIX returns

Q1 2025 Market Volatility Outlook: What Traders Need to Know_2

This seasonal form is also true of gold, with Gold 1-week (options) implied vol rising on average (over the past 10 years) by 6.1 volatilities between 13 January to 18 March. In FX markets, 1-week and 1-month G10 FX implied vol has also typically risen through Q1.

10 years of blended moves in Gold 1-week implied volatility

Q1 2025 Market Volatility Outlook: What Traders Need to Know_3

While history doesn’t repeat, from a historical and seasonal perspective, we’re moving into a sweet spot for higher volatility.

We should also consider the incredible performance of the US and many other DM equity markets in 2024. The extent of the YTD gains has lifted valuations to multi-year highs and reduced the equity risk premium to the lowest levels since 2002, while net long positioning in S&P500 and NAS100 futures is also incredibly rich.

There isn’t much of a cushion to absorb bad news, and with active managers turning the page on the new calendar year, there may well be some unwanted positions that could be quickly cut.

The Implementation of Trade Tariffs

Tariff risk is arguably one of the big impending market themes for all market players to navigate from Q125, and the media headlines may soon appear to get quite ugly.

Traders will need to decipher the headlines and consider what is signal and what is noise and that will be a challenge. Trump will want to send a message to US voters of strong leadership and that his team is fighting for the best outcome for the US. Of course, so will the Chinese, Mexican, Canadian and European negotiating teams – what is portrayed in the headlines and what plays out behind closed doors may be two very different affairs.

We also need to consider that the level of tariffs that have been proposed may not eventuate and the final tariff rate could ultimately be lower than what has been threatened.

Still, the prospect of spicy negotiations – at least superficially – could well lead to higher volatility in markets through Q1, with increased tariff noise resulting in a more challenging environment for traders to price risk.

US Economic Data Trends

We roll into 2025 with US GDP tracking at a healthy 3.3% run rate, the labour market in fairly good shape, with a widely held view that core inflation should reach the Fed’s target in 2025. The Fed remain open-minded to further cuts, but this is conditional on the incoming data flow.

The probability that the US growth and labour data continues to offer a low degree of recession risk seems high – for now - but we should consider the possibility of a further cooling in employment, where a higher unemployment rate would impact market sentiment and lead to de-risking.

Conversely, should we see higher inflation expectations that lifts US 10-year Treasury yields above 4.5% and towards 5%, then higher yields could also lead to traders taking down risk and buying equity and USD volatility. Subsequently, the US Treasury market could be highly influential on cross-market vol in Q1 and beyond.

Fed Rate Cuts: Moving closer to the end

Perhaps a theme for Q2, but there is a camp that strongly believes we may not see any further rate cuts from the Fed in 2025. One could argue that risky assets would still perform favourably even without the Fed cutting rates, as long its driven by strong consumption and labour market data.

However, if the growth data eases off, while higher inflation is the reason for reduced rate cut expectations, then any ‘stagflation’ dynamic would result in high volatility, USD strength and risky assets facing the prospect of drawdown.

China may not be ‘investible’ but it’s certainly tradeable

Traders have seen several false starts and failed attempts from the buyers to push Chinese/HK equity markets sustainably higher. In recent policy meetings, we’ve heard a strong commitment from policymakers to put in measures in 2025 to reflate the economy and to drive increased demand and animal spirits, but we’re yet to hear a defined plan of implementation.

Q1 2025 Market Volatility Outlook: What Traders Need to Know_4

With the threat of trade tariffs still a big unknown, many feel China is currently ‘uninvestible’. However, as we look to China’s NPC meeting (due in early March), the market will likely ratchet up expectations for a plan that offers the definition and the substance to kick-start its economy.

As we head through February cast your eyes towards China’s equity markets and the CNH (yuan) as the prospect of increased vol is elevated. I sense that returns in 2025 for China/HK50 equity markets could either be greater than 40%, or down by 20%+ - but either way, volatility in returns seems high and I sit in the camp that China could really surprise the bears in 2025.

Bring on the volatility

There are obviously many other factors that could lead to higher volatility or even reduce vol further. But after a year of low cross-asset volatility, the risk in my mind is for higher volatility to play out.

As always, should we move into a higher vol environment traders need to adapt and manage the risk that comes with higher volatility and assess their position sizing.

Good luck to all.

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Glendon

Economic

Crypto trading has garnered widespread attention for its potential to offer high returns, but navigating the volatility of digital assets can be challenging. While many traders rely on technical analysis, there’s another powerful approach: fundamental analysis. This method helps traders evaluate the intrinsic value of cryptocurrencies, guiding decisions based on real-world factors rather than just price patterns.

In this article, we’ll break down how you can use fundamental analysis to trade crypto effectively and make informed decisions that go beyond market trends and charts.

What is Fundamental Analysis in Crypto Trading?

Fundamental analysis in crypto trading involves studying the underlying factors that can influence the long-term value of a cryptocurrency. While technical analysis focuses on historical price and volume data, fundamental analysis looks at the "big picture," including the technology behind a cryptocurrency, its use case, market demand, and the broader economic factors affecting its ecosystem.

In traditional markets, fundamental analysis examines financial statements, earnings, and market conditions. In the world of crypto, however, these factors differ and focus more on:

The underlying technology: What blockchain does the cryptocurrency operate on? How secure and scalable is it?

Adoption and use cases: Is the cryptocurrency widely used, or does it solve a specific problem that could drive its future value?

Team and development: Who is behind the project? Are they reputable and do they have a history of success in the industry?

Market sentiment and regulations: How is the market perceiving the cryptocurrency? What are the regulatory landscapes in key regions?

Key Factors to Consider in Fundamental Analysis for Crypto

When applying fundamental analysis to crypto, there are several factors that every trader should consider:

1. Technology and Blockchain Fundamentals

One of the most critical aspects of any cryptocurrency is its underlying technology. For example, Bitcoin operates on a secure, decentralized network called blockchain, which ensures transparency and immutability of transactions. Ethereum, on the other hand, provides a decentralized platform for building smart contracts and decentralized applications (DApps).

When evaluating a cryptocurrency, consider the following:

Security: Is the cryptocurrency resistant to attacks? For instance, does it employ secure consensus mechanisms like Proof of Work (PoW) or Proof of Stake (PoS)?

Scalability: Can the network handle increased demand as adoption grows? Cryptos like Ethereum have struggled with scalability, leading to the rise of Layer 2 solutions and other altcoins with better scaling potential.

Innovation: Are there any groundbreaking features that differentiate the cryptocurrency from others in the market? Innovations like smart contracts, DeFi, and privacy features can make a coin stand out.

2. Adoption and Use Case

A cryptocurrency's value often depends on how widely it is adopted and how useful its underlying technology is. For example, Bitcoin is primarily seen as a store of value or digital gold, while Ethereum is used for creating smart contracts and decentralized applications.

Questions to ask include:

Is the cryptocurrency solving a real-world problem?Does it have a strong, growing user base?Is it being adopted by businesses, governments, or other institutions?

Adoption can drive long-term value and stability. For example, Chainlink (LINK) gained widespread adoption by providing reliable oracle services for smart contracts.

3. Development Team and Community Support

The team behind a cryptocurrency plays a pivotal role in its success. A reputable team with a proven track record can often be a good indicator of the project’s future potential.

Who are the developers and founders?

Check their background and whether they’ve worked on successful blockchain projects in the past.

Is the project open-source?

A strong open-source community is often an indication of a cryptocurrency that is developing and evolving.

Is the community active and supportive?

A large and engaged community can drive adoption, assist in development, and help solve problems.

4. Market Sentiment and News

Crypto markets are highly sensitive to news, rumors, and sentiment shifts. Major announcements like new partnerships, regulatory developments, or technological upgrades can significantly impact the price of a cryptocurrency.

When using fundamental analysis, consider the following:

Media and Social Media Impact: How is the cryptocurrency perceived in the media and by social influencers? Are there positive or negative sentiments surrounding it?

Regulatory Environment: The legal landscape for cryptocurrencies is constantly evolving. Are regulators in major markets like the U.S., Europe, or Asia taking a favorable stance toward the cryptocurrency, or are they imposing restrictions?

5. Market Metrics and Tokenomics

In addition to technical and adoption factors, understanding the tokenomics of a cryptocurrency is essential. Tokenomics refers to the economic model behind the coin, including:

Supply and Demand: What is the total supply of the cryptocurrency? How is it distributed?

Utility: Does the cryptocurrency have a real-world use case that creates demand for its token? For instance,

Binance Coin (BNB)

is used to pay for transaction fees on the Binance exchange.

Inflationary vs. Deflationary: Some cryptocurrencies have fixed supplies, while others may experience inflation due to continuous mining. Deflationary models can create scarcity, potentially increasing value over time.

How to Use Fundamental Analysis in Your Trading Strategy

Now that we understand the key factors involved in fundamental analysis, let's discuss how to implement them into your trading strategy:

Research Before You Invest: Always start with thorough research. Look into the technology, team, market sentiment, and tokenomics. Don’t base your decision on hype or short-term news alone.

Focus on Long-Term Potential: Fundamental analysis is about long-term value. Look for projects that are solving real problems and have sustainable growth potential.

Combine with Technical Analysis: While fundamental analysis is crucial, it’s also important to combine it with technical analysis to assess entry and exit points. This holistic approach will improve your decision-making.

Conclusion

Fundamental analysis is a powerful tool for crypto traders who want to look beyond short-term fluctuations and focus on long-term value. By understanding the technology, adoption, team, market sentiment, and tokenomics of a cryptocurrency, you can make informed trading decisions that have a higher chance of success.

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Brookings Institution

Economic

Introduction

Private transfers of resources across generations are as old as society itself. Controversies about such transfers are equally ubiquitous, featuring prominently in biblical stories and Shakespearean plots alike. In modern times, transfers of wealth raise issues as intimate as the nature of family relations and as public as the ability of the economy to generate fair outcomes. The size and distribution of intergenerational transfers have raised concerns about creating family dynasties, exacerbating trends in inequality, and limiting economic opportunity and mobility. At the same time, there are concerns that taxing transfers reduces efficiency and capital accumulation and violates the principle of horizontal equity.

These issues will likely rise in importance over the next several decades, as the U.S. comes to grips with the largest set of intergenerational wealth transfers in its history. Taxing these flows judiciously could raise revenue and improve the tax system, but transfer taxes have been eviscerated in recent years.

In this policy brief (which is based on a more extensive research project), we develop an innovative methodology that matches bequests and inheritances. We use the results to investigate the revenue and distributional effects of three options for wealth transfer taxes: reforming the estate tax; taxing capital gains at death; and converting the estate tax to an inheritance tax (paid by recipients). We conclude that inheritance taxes can raise more revenue and be more progressive than the existing estate tax. Moreover, taxing inheritances and unrealized capital gains at death would close two of the largest loopholes in the income tax.

The Great Wealth Transfer

Coverage of the impending “Great Wealth Transfer”has already entered the public discussion. Households aged 55 and older held 71% of aggregate bequeathable wealth in 2021, up from 54% in 1997, according to Survey of Consumer Finances data. Figure 1 shows wealth trajectories by age group. Households with heads aged 55-64, 65-74, and 75 and older have seen strong wealth growth relative to GDP. Households with heads aged under 40 or 40-54 had the same or less wealth in 2021 relative to GDP than they did in 1997. Much of the increase has accrued to just the wealthiest 10% of households aged 55 and older.

If the experience of earlier generations is a guide, a substantial share of the wealth held by households aged 55 or older will be held until death—especially among the very wealthiest households. It will be bequeathed to future generations in a manner that maintains family dynasties and makes the distribution of resources among the recipient generation more unequal. In 2021, the top 10% of earners received 55% of aggregate inheritances, whereas the bottom two quintiles received less than 10%.

The need for transfer tax reform

Despite the very unequal distribution of inheritance wealth, the wealth transfer tax system—consisting of the estate, gift, and generation-skipping taxes—has been all but eviscerated over the past 50 years, including the cuts to the estate tax enacted in 2017. The share of decedents whose estate faced estate taxes has fallen from 6.5% in 1972, to 2.1% in 1997. By 2021, only one out of every 1300 people who died faced any federal estate tax, less than 0.1%. Estate tax revenues have fallen commensurately, both as a share of all revenues and as a share of GDP.

The U.S. is an outlier in the OECD, where many more countries have inheritance taxes than estate taxes. Of the 36 OECD countries, only four (Denmark, South Korea, the United States, and the United Kingdom) tax estates. Another 20 tax inheritances, all according to some combination of the relationship to the decedent and the size of inheritance received (OECD 2021). There is significant heterogeneity across countries in the wealth level that is exempt from transfer taxation, but even the highest exemption level, $1.1 million in Italy in 2007-2018, is far below the estate tax exemption in the United States. Wealth transfer taxation makes up a very small proportion of aggregate tax revenues in all countries.

Reforms to the wealth transfer tax system could reduce economic inequality and boost federal revenues. Recent years have seen substantial increases in the dispersion of a variety of economic measures including income, wealth, and life expectancy, raising concerns ranging from equality of opportunity to the future of democracy1 (Bricker et al. 2016; Saez and Zucman 2018; Smith, Zidar, and Zwick 2022; Case and Deaton 2023). Wealth transfers contribute to rising inequality as transfers in the aggregate are large, are given by the most affluent households, and are received by already-wealthy heirs (Feiveson and Sabelhaus 2018). In addition, standard budget projections imply that federal debt will rise steadily and inexorably over the next 30 years, reducing the rate of economic growth (CBO 2024, Auerbach and Gale 2024). While some adjustments will be needed on the spending side, increases in federal revenues can and should be part of the solution as well. In light of high inequality, raising tax burdens on affluent households merits special consideration, especially because the taxation of capital income has declined in recent decades.

Estate and inheritance taxes

Comparisons of the estate tax and an inheritance tax have long been a staple of economic policy analysis (Batchelder 2007). Part of the difference between the two taxes is just that there appears to be less moral outrage against taxing a large gift that someone receives than taxing the accumulated wealth of a donor. A carefully designed, nationally representative survey by economist Stefanie Stantcheva (2021) at Harvard University reports that 61% of respondents believe it is unfair to tax estates of decedents who earned their own wealth. At the same time, only 32% of respondents thought it fair that children of wealthy parents have “access to better amenities.”

An inheritance and an estate tax might also differ due to important behavioral effects. For example, if the goal of wealth transfer taxation is to reduce inequality, an inheritance tax is more effective than an estate tax because it targets large individual transfers rather than large estates, which may be divided up among several family members under an inheritance tax (Becker 2005, Fahri and Werning 2010, Piketty and Saez 2013).

Finally, a key difference between the estate tax and an inheritance tax is that the latter would cover one of the biggest omissions in the income tax: income received by gift or bequest. Taxing all income, rather than allowing different treatment of various forms of household resources, is a desideratum of good tax policy. This cannot be achieved without taxing inheritances as income.

Despite repeated claims to the contrary, there is little evidence that wealth transfer taxes reduce capital accumulation or efficiency, and they certainly can be structured in ways that take account of the special considerations raised by small businesses or family farms.

Taxing capital gains at death

Taxing previously unrealized capital gains at the death of the asset owner is sometimes referred to as treating death as a constructive realization event. How unrealized gains are addressed at death is closely related to the taxation of estates and inheritances. About 27% of all wealth and 41% of the wealth held by the top 1% takes the form of unrealized capital gains (Bricker et al. 2020). Under current law, no income tax is ever paid on the unrealized gains that occur over the owner’s lifetime if the owner holds the asset until death. Dubbed the “Angel of Death loophole,” this provision not only loses billions of dollars in revenue but also distorts behavior—individuals are incentivized to hold capital assets for their entire lifetime to avoid taxation when that capital might be more efficiently allocated elsewhere (Kinsley 1987).

This loophole can be addressed in two ways. First, under carryover basis at death, heirs would receive the asset with the original basis and, when they sold the asset, that they would be taxed on the full capital gain rather than (under current rules) just the appreciation that occurs after they receive the bequest. This approach was created in 1976 but then repealed in 1980 before it ever went into effect. The tax code currently uses this approach for assets transferred inter vivos but not for bequests. CBO (2022) estimates that implementing carryover basis at death starting in 2023 would raise an additional $2 billion in revenue in the first year and $156.4 billion over the subsequent 10 years. Several other countries—including Australia, Austria, Mexico and Norway—use carryover basis.

Alternatively, unrealized gains could be taxed at death. The best example of this in practice is Canada, which has no estate or inheritance tax but treats death as a realization event (Canada Revenue Agency 2024, OECD 2021). To address liquidity issues, Canada exempts capital gains on principal residences and provides a lifetime deduction of 1 million Canadian dollars for qualified farm and fishing property. Relative to carrying over the basis, taxing gains at death simplifies recordkeeping because individuals do not have to keep track of the original purchase price of inherited assets once the tax is paid. This advantage has not been enough to persuade other countries to adopt a tax on unrealized gains at death, however.

Recent work shows the revenue potential for taxing unrealized gains at death. Poterba and Weisbenner (2001) and Avery, Grodzicki, and Moore (2015) estimate that a tax on unrealized gains at death without any exemption level could raise more than the current estate tax system but that the tax burden would fall more on low-wealth households than under the estate tax. Avery, Grodzicki, and Moore (2015) and Gordon, Joulfaian, and Poterba (2016) estimate that if the exemption level were set at the 2010 level, when carry-over basis existed for a year, the revenue effects of taxing gains at death would be far lower than under the current estate tax. CBO (2011) comes to the same conclusion, estimating that, relative to a counterfactual where 2010 law was extended, reinstating the estate tax in 2011 raised an additional $550 billion over 10 years.

Methodology

The comparisons between an estate and inheritance tax and taxation of unrealized gains at death are of current policy interest. In recent policy proposals by seven think tanks to address the long-term fiscal imbalance, all seven proposed some reform to the taxation of wealth transfers. These reforms ranged from a complete repeal of the estate and gift tax to the reversion of estate tax parameters to 2009 levels. Four of the proposals would repeal the step-up in basis of capital gains at death, and one proposal would replace the estate tax with an inheritance tax

Our work features both a new methodology to estimate inheritances and bequests and new results. Inheritances are directly observed in the SCF, and we use a method developed in an earlier paper (Feiveson and Sabelhaus 2019) to include both the inheritances that are reported as well as transfers of real property not captured in the SCF inheritance module. In addition, we construct estimates of bequests, based on estimates of household wealth from the SCF, estimates of differential mortality risk (with respect to income) from both the Social Security Administration and from work by Chetty et al. (2016), estimates of estate tax deductions from Statistics of Income data, and estimates of estate tax liability from our own calculators. There is nothing in the model or methodology that requires that (simulated) bequests closely approximate (respondent-reported) inheritances, but the two series are reasonably close in aggregate and have broadly similar size distribution, which we take as validation of the new methodology. We believe the methodology itself is a significant advance over previous work in that it allows comparisons of bequests with inheritances as a source of validation.

By linking bequests and inheritances we are able to analyze wealth transfer taxes assuming they are borne either by decedents or inheritors, unlike previous work in the literature. Thus, we can calculate the distributional effects assuming that the burden of any of the wealth transfer taxes falls on either decedents or heirs. In this paper, however, we analyze all policy options assuming that heirs bear the burden of the tax (following Batchelder 2007, Entin 2004, and Mankiw 2003). We rank households by Expanded Income (EI), a broad measure of income we have developed elsewhere. EI includes all major forms of cash and non-cash income, including estimates of unrealized capital gains, imputed income from owner-occupied housing, unreported business income, and inheritances received.

Results

With this framework, we examine two stand-alone inheritance tax options—with a flat rate of 37% (the highest income tax rate in 2024) or 15% —and a third option, also stand-alone, to tax unrealized gains at death at a rate of 23.8% (the top rate on realized capital gains in 2024). By adjusting the exempt amounts, these options can raise the same amount of revenue as the estate tax under 2021 parameters. The exemptions are $2.81 million and $940,000 for the inheritance tax options and $2.22 million for the tax on unrealized gains. Figure 2 shows the distribution of tax burden by heir’s EI. As panels A and B show, the 37% inheritance tax is the most progressive of the options and is more progressive than the current estate tax, both because of the high rate and because of the large exemption amount that the high rate allows.

In alternative simulations, we return the estate tax to its 2001 parameters, adjusted for inflation. Remarkably, this version of the estate tax would have raised $145 billion—more than seven times as much revenue in 2021 as the actual estate tax did that year. As panels C and D show, both the estate tax and the 37% inheritance tax (with an exemption of $150,000) are quite progressive under this revenue target. Even when ranking heirs by inheritance-exclusive EI, neither impose an aggregate tax burden of more than 0.5% of EI on the bottom 90%. The 15% inheritance tax and the unrealized gains taxes are not capable of generating the same amount of revenue. We conclude that inheritance taxes can raise more revenue and be more progressive than the existing estate tax and that they have other advantages such as broadening the income tax base.

How Should We Tax the Great Wealth Transfer?_2

Conclusion

Over the next several decades, the U.S. will experience the largest flows of intergenerational transfers of wealth—in absolute and relative terms—in modern history. Taxing these flows appropriately and judiciously represents an opportunity to raise revenue, improve the vertical and horizontal equity of the tax system, bring about more equal opportunity, and reduce the role of family dynasties in the economy. The current transfer tax system, however, has been eviscerated in recent years and is ill-equipped to help society reach these goals. Despite repeated claims to the contrary, rebuilding a functional transfer tax system would not necessarily reduce capital accumulation or efficiency, and it certainly could be structured in a way that takes account of the special considerations raised by small businesses or family farms. These issues are of current interest as Congress looks for ways to close the fiscal gap. Our estimates show that thoughtful reforms to the wealth transfer tax system—including taxing unrealized capital gains at death and converting the estate tax to an inheritance tax—can raise revenue, increase progressivity, and improve the economy in other ways as well. These reforms would help impose an important backstop to collect taxes on accumulated income that is currently escaping tax free. Policymakers should take these estimates into account as they evaluate wealth transfer tax options as well as fiscal consolidation more generally.

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Warren Takunda

Economic

The dollar held firm and near recent peaks on Tuesday, on the eve of an expected interest rate cut in the United States, as traders have ratcheted long-term rate assumptions higher.

The friendless euro , which is heading for a calendar-year drop of nearly 5% on the dollar, was not far from recent troughs and traded at $1.0509 in the Asia session with markets in a holding pattern ahead of the Fed decision.

The gap between U.S. and German ten-year yields is 216 basis points and has widened nearly 70 bps in three months .

The yen was steady at 154.06 per dollar, after six straight days of selling as markets have pared chances of a Japanese rate hike this week in favour of a move in January.

The Federal Reserve announces its interest rate decision on Wednesday and interest rate futures imply a 94% chance of a cut, even as services-sector activity leapt to a three-year high according to an S&P Global purchasing managers survey.

The Atlanta Fed's GDPNow indicator is running at 3.3% for the fourth quarter and the strength of the economy has been lifting yields and supporting the dollar as traders figure that the neutral setting for rates may be higher than first thought.

Fed officials' median long-run interest rate projection was 2.9% in September. Market pricing implies almost no chance of rates being that low by December next year and only a 30% of the Fed Funds rate falling below 3.75% by the end of 2025.

The Nasdaq notched a record closing high Monday amid an otherwise mixed day for stocks as investors anticipated another rate cut

"I think the Fed will now be worried about a resurgence of inflation as an unknown policy mix and sticky prices create many paths for inflation to make a comeback in 2025," said Brent Donnelly, president at Spectra Markets.

"And therefore I think they will signal a very cautious approach going forward and lean on language that suggests concerns about inflation and a higher neutral rate."

Besides the Fed, the Bank of Japan, Bank of England and Norges Bank meet this week and are expected to stand pat on Thursday, while the Riksbank is seen cutting rates, perhaps by 50 basis points.

Sterling bounced on Monday as a survey of business activity pointed to price rises in Britain while labour data is due on Tuesday, with upward pressure on wages seen adding to the case for caution from the central bank. Sterling last bought $1.2680.

The Canadian dollar , squeezed by falling interest rates and the risk of U.S. tariffs, sank to a 4-1/2 year low on Monday as the sudden resignation of Finance Minister Chrystia Freeland put an unpopular government under more pressure.

The Australian and New Zealand dollars are pinned near the year's lows, though were spared any further selling on the latest weak Chinese economic indicators on Monday as markets bet that government spending will ride to the rescue.

The Aussie was last down 0.2% to $0.6356 and the kiwi slipped to $0.5769. New Zealand increased its bond issuance forecast for the next few years.

China's yuan was steady at 7.2845 per dollar, as dour expectations for Chinese economic growth pinned 10-year bond yields near record lows.

Chinese leaders agreed last week to raise the budget deficit to a record 4% of gross domestic product next year, while maintaining an economic growth target of around 5%, two people with knowledge of the matter told Reuters.

Source: Reuters

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Cohen

Economic

With a change of power pending, the administration intends to sell about €380 billion ($400 billion) in securities, according to a statement published Tuesday by the federal finance agency. That compares with €438.5 billion this year and a record volume of around €500 billion in 2023.

The agency plans to raise a total of €240 billion on the capital market and €126 billion on the money market, the statement said. The debt-issuance plan includes Green Federal securities of between €13 billion and €15 billion.

German bonds extended gains after the announcement, with the yield on 10-year debt falling three basis points to 2.22%.

With early elections taking place in February after the collapse of Chancellor Olaf Scholz’s three-way coalition, the issuance plan is subject to change after a new administration takes charge and adopts its 2025 budget. In the interim, government spending will be limited to legally necessary expenditures and already agreed projects.

Jörg Kukies took over as finance minster after Christian Lindner was fired by Scholz in November, when the ruling alliance failed to agree on a budget for 2025. Finance ministry officials don’t expect a regular budget until the second half of 2025 as talks to form a new governing coalition could take months.

After struggling to grow for years, the German economy is now 5% smaller than it would have been if the pre-pandemic growth trend had continued, and much of the shortfall is related to structural issues and will be tough to recover, according to an analysis by Bloomberg Economics.

Anxieties over declining living standards has contributed to an increasingly fragmented political landscape in Germany. More than a quarter of voters support fringe parties, and the far-right Alternative for Germany is second in the polls ahead of Scholz’s Social Democrats.

Source: yahoo finance

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ING

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Commodity

Energy

Energy – European gas falls on easing supply concerns

European natural gas prices came under further pressure yesterday. TTF futures declined for a fourth consecutive session and settled almost 2.3% lower on the day, with front-month TTF losing nearly 18% since making a recent peak in early December. Ongoing discussions to keep Russian gas flowing via Ukraine beyond 31 December are weighing on gas prices currently. Recent reports suggest that gas buyers in Slovakia and Hungary are continuing discussions to keep gas flowing. Meanwhile, demand for gas pipeline capacity through Bulgaria and Turkey has also increased for January 2024, hinting that market participants are preparing for alternatives if Russian gas flow via Ukraine stops as scheduled.

Weather forecasts show that temperatures could turn milder across northwest Europe next week, which could provide some relief to the sharp inventory withdrawals. Liquefied natural gas imports have also increased recently, helping the region to secure fuel for heating demand. This should further help ease supply concerns in the market.

European gas storage is 78% full, down from 89% at the same stage last year and also below the five-year average of 81%. Gas prices might remain volatile over the coming weeks as higher competition from Asia for LNG creates an upside risk, while an extension of Russian flows would be bearish for prices.

Oil prices are trading little changed this morning as demand concerns from China continue following the recent release of poor economic data. ICE Brent was seen trading near US$74/bbl while NYMEX WTI was hovering just below US$71/bbl today. Meanwhile, reports that the European Union sanctioned 52 additional tankers largely shipping Russian crude offered some support for prices.

Metals – LME aluminium falls

LME aluminium three-month prices fell to the lowest level seen in a month yesterday on concerns over weak winter demand and rising output in China. The official data released this week showed that Chinese aluminium production reached record highs last month, at a time when demand is expected to experience a seasonal lull as construction activities slow during the winter months. Other base metals traded mixed as market participants await the conclusion of the final Federal Reserve meeting for the year.

Gold is trading steady, with prices holding above US$2,650/oz this morning as investors remain cautious ahead of interest-rate decisions by major central banks globally. The Fed will also disclose its final rate decision for the year tomorrow, along with an updated outlook on economic growth, inflation and unemployment for next year.

The recent official data shows that gold imports in India rose to a record high of $14.8bn (+331% year-on-year) in November as domestic demand picked up after the government reduced the customs duty to 6% from 15% in July. Additionally, geopolitical uncertainties and higher seasonal demand also helped the overall purchases to move higher.

Agriculture – Ukraine grain shipments rise

Recent data from Ukraine’s Agriculture Ministry shows that grain exports for the season so far have risen 22% YoY to 19.5mt as of 16 December, up from 16mt for the same period last year. The increase was driven by wheat, with exports rising by 37% YoY to 9.2mt. Similarly, corn exports stood at 8mt, slightly down compared to last year. However, total grain exports so far this month fell significantly by 60% YoY to 1.1mt, down from 3mt for a similar period a year ago.

The latest estimates from the Brazilian Institute of Geography and Statistics (IBGE) show that the nation’s grain, pulse and oilseed production could rise by 7% YoY to 314.8mt for the 2025 season. The growth will be driven by soybean and first-crop maize, with output seen rising by 12.9% YoY and 9.3% YoY respectively. The rise in production estimates could also be attributed to the increase in harvest area, which is expected to expand by 0.8% YoY to 79.8m hectares for the period mentioned above. Meanwhile, the agency estimates 2024 grain production stood at 294.3mt, down 6.7% YoY.

There are suggestions that the Chinese government has requested domestic traders and processors to reduce overseas grain imports this year, in its effort to support local farmers amid a slowdown in domestic consumption. Along with that, officials are taking longer than usual to do quality checks of imported beans, delaying the cargoes at the border for more than 20 days, compared to about five days under normal circumstances.

Weekly export inspection data from the USDA for the week ending 12 December shows that US corn and wheat inspections rose while soybean export eased over the last week. Export inspections of corn stood at 1,129.8kt, up from 1,058kt in the previous week and 959.9kt reported a year ago. Similarly, US wheat export inspections stood at 298.1kt, above 248kt a week ago, and slightly higher than 284.8kt seen last year. For soybeans, US export inspections stood at 1,676.4kt, down from 1,736.8kt a week ago but higher than the 1,425kt seen for the same period last year.

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