Morning Download from Invincible Money 

Personal finance + economics + markets

5 minutes a day for better money decisions.

Good morning investors! In today’s issue:

1. Home prices fall

2. The U.S. Supreme Court to decide on wealth taxes

3. A.I.-developed drug enters human trials

4. Is the VIX pointing to a market reversal?

5. FTX recovers $7 billion, while Robinhood lays off more staff

📊 Economy 

Home prices fall

In April U.S. home prices posted their first annual decline since 2012, as higher mortgage rates made home purchases more expensive for buyers.

The S&P CoreLogic Case-Shiller National Home Price Index fell 0.2% in April from a year earlier, after rising 20.4% in April 2022.

Why? The decline was driven by a slowdown in price growth in the West and South, where home prices have been the most inflated. However, prices haven’t declined as much as expected because homeowners aren’t eager to sell in this market.

What’s next? The housing market is expected to cool further in the coming months, as mortgage rates continue to rise, but the housing market is still expected to remain strong in 2023, but the pace of price growth is expected to moderate.

📰 News

Is a wealth tax constitutional?

The Supreme Court has agreed to hear a case this fall that could determine whether Congress has the power to tax wealth and unrealized gains. The case, Moore v. United States, was brought by a couple who challenged a provision of the Tax Cuts and Jobs Act of 2017 that required them to pay taxes on their unrealized capital gains on foreign stock even though they had not sold the stock.

The couple argued that the provision violated the 16th Amendment to the Constitution, which gives Congress the power to tax "income." They argued that unrealized gains are not income because they have not been realized through a sale.

The government argued that the provision is a valid exercise of Congress's power to tax income because it is based on the fair market value of the stock, which is a measure of the couple's current economic benefit from owning the stock.

• A ruling is expected in the spring of 2024.

• The case could have a major impact on the future of wealth taxation in the United States.

• If the Supreme Court rules in favor of the couple, it would make it much more difficult for Congress to pass a wealth tax.

• However, if the Court rules in favor of the government, it would open the door to Congress taxing wealth in a variety of ways.

First A.I. drug starts human trials

An artificial intelligence (AI)-designed drug has begun its first human trials in the United States. The trials will involve 200 patients and last about a year.

What? The drug, called enavogliflozin, was designed by AI startup Insilico Medicine and is being developed by pharmaceutical company Novartis.

For? The drug is being tested to treat chronic kidney disease (CKD) and heart failure.

📈 Stocks

S&P 500 4,378.41 (+1.15%)
DJIA 33,926.74 (+0.63%)
NASDAQ 13,555.67 (+1,65%)
VIX 13.74 (-3.58%)

Traders believe volatility to return soon

The stock market has been relatively calm in recent weeks, in fact, it’s been more than 3 months since the S&P 500 has pulled back more than 3%.

Now traders are scooping up bets on volatility surging at a record clip, thinking the recent calm may not last.

What’s the indicator? The CBOE Volatility Index, known as the VIX, is up more than 50% in the past month, reaching its highest level since March 2020.

Translation: The increase in volatility bets suggests that traders are expecting more turbulence in the stock market in the coming weeks and months and the recent increase in the VIX suggests that investors are becoming more concerned about the possibility of a market sell-off.

However, as stocks have risen recently, instead of dropping, the VIX has stayed well below its long-term average of 20, so the VIX isn’t a magic ball.

Correlation is low

The correlation between stocks in the S&P 500 is the lowest since early 2018, indicating that stocks are not moving together, but different sectors are going in different directions. For example, tech stocks have outpaced the rest of the market. This tends to support the theory I wrote about yesterday of a rolling recession leading to a rolling expansion.

🔐 Crypto

Bitcoin $30,651.42 (+1.6%)
Ethereum $1,892.21 (+2.2%)
Total market cap $1.23 T (+1.6%)

FTX has recovered $7 billion

The company still needs to recover about $2 billion to cover misappropriations.

How big is the hole? The former FTX leadership misappropriated about $8.7 billion in customer assets, most of which was in fiat and stablecoins.

Why is it so hard? The extensive commingling of funds complicates the recovery efforts, as it is difficult to trace the assets to their original source.

What’s next? The FTX debtors are continuing to search for additional assets, and hope to recover the full amount of misappropriated funds.

Robinhood lays off 7% of workforce (again)

Robinhood Markets [HOOD +3.22%] is laying off about 7% of its full-time employees, or about 150 people. This is the 3rd round of layoffs in about a year.

Why? The company has been struggling with a slowdown in trading activity and increased regulatory scrutiny, as well as increasing competition from other online brokerages, such as Charles Schwab and Fidelity.

💵 Personal Finance

Emergency savings helps keep you out of debt

A BankRate survey revealed that 57% of people want to have more in their emergency savings account.

An emergency savings account is a bank account that you use to save money for unexpected expenses. It's a good idea to have at least 3-6 months of living expenses saved in an emergency savings account.

Here are some examples of unexpected expenses that an emergency fund can help cover:

• Car repairs

• Medical bills

• Job loss

• Home repairs

• Natural disasters

• Pet emergencies

When you have an emergency savings account, you don't have to worry about going into debt or using credit cards to cover unexpected expenses. This can help you stay financially stable and avoid stress during difficult times.

Here are some tips for building an emergency savings account:

• Start small. Even if you can only save $50 a month, it's a start.

• Set a goal. Decide how much money you want to have in your emergency fund and make a plan to reach your goal.

• Automate your savings. Set up an automatic transfer from your checking account to your savings account each month.

• Don't touch your emergency fund unless it's an emergency. Only use your emergency fund for unexpected expenses.

💰 Be a Better Investor

👩🏽‍⚖️ Legal Stuff
Nothing in this newsletter is financial advice. Always do your own research and think for yourself.