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HomeWhat Do CA, AZ, FL, IL, MI, NV, NJ, OR, RI, and WI Have in Common?
Posted by Larry Doyle on November 12th, 2009 2:25 PM |
No, these states are not holding a Powerball Lottery . . . although the states themselves could use the winnings.
These states, amongst others, are barreling toward economic disaster. Don’t take my word for it. None other than the Pew Center on the States produced a report entitled Beyond California: States in Fiscal Peril:
(High five to MC for bringing this to our attention)
California’s financial problems are in a league of their own. But the same pressures that drove the Golden State toward fiscal disaster are wreaking havoc in a number of states, with potentially damaging consequences for the entire country. (more…)
Bill Gross Making Sense on Cents
Posted by Larry Doyle on October 14th, 2009 12:56 PM |
Looking beyond the liquidity provided by the Treasury and Federal Reserve to refloat our equity markets, what will be the drivers of our economy and markets going forward? While Uncle Sam may think he can leave rates at 0-.25% for an extended period, at some point even ‘extended’ runs out. Will the Uncle Sam economy have adapted and implemented the structural changes necessary to move on to a new phase of growth and prosperity?
I am very concerned and reiterate that our markets are masking significant embedded issues in our economy and overall fiscal health.
As much as I found Pimco to be challenging when trading with them, and question their integrity in handling their outstanding Auction-Rate Securities issuance, I respect their views on the markets and economy. In fact, I think Bill Gross and Mohamed El-Erian consistently provide a lot of “sense on cents.” What does Mr. Gross have to say about our economic landscape lately? He writes:
What is critical to recognize is that both California and the U.S., as well as numerous global lookalikes such as the U.K., Spain, and Eastern European invalids, are in a poor position to compete in a global economy where capitalism is morphing from its decades-long emphasis on finance and levered risk taking to a more conservative, regulated, production-oriented system advantaged by countries focusing on thrift and deferred gratification. The term “capitalism” itself speaks to “capital” – the accumulation of it and the eventual efficient employment of it – for growth in profits and real wages alike.
Regrettably, more and more capital here at home is being directed toward the servicing of our massive deficit. Additionally, taxes will surely increase to do the same. Over and above those two definites, I believe strongly that capital will increasingly look for opportunities outside our nation given the pressure on our greenback.
Gross touches upon an issue which I strongly believe is a MASSIVE drag on our current economy and our future well being, that is our secondary schools which rank 18th overall in the developed world. Gross writes:
What California once had and is losing rapidly is its “capital”: unquestionably in its ongoing double-digit billion dollar deficits, but also in its crown jewel educational system that led to Silicon Valley miracles such as Hewlett Packard, Apple, Google, and countless other new age innovators. In addition, its human capital is beginning to exit as more people move out of the state than in. While the United States as a whole has yet to suffer that emigration indignity, the same cannot be said for foreign-born and U.S.-educated scientists and engineers who now choose to return to their homelands to seek opportunity. Lady Liberty’s extended hand offering sanctuary to other nations’ “tired, poor and huddled masses” may be limited to just that. The invigorated wind up elsewhere.
Do the powers that be in Washington and in the state houses possess the necessary discipline to right our ship and set sail on smoother seas? If so, they will have to display a set of values and practices which are entirely inconsistent with how our government operates. While I remain bullish on those who want to educate themselves, practice discipline, and save for better days, I am bearish on people who think Washington or other entities can provide those necessary values. Gross is also cautious in concluding:
Now that our financial system has been stabilized, one wonders whether California’s “Governator” and indeed the Obama Administration has the capital, the vision, and indeed the discipline of its citizenry to turn things around. Our future doggie bags can hold steak bones or doo-doo of an increasingly familiar smell. For now investors should be holding their noses, their risk orientation, as well as their blue bags, until proven otherwise. Specifically that continues to dictate a focus on high quality bonds and steady dividend paying stocks that can survive, if not thrive, in our journey to a “new normal” economy of slower growth, muted profit gains, and potential capital destruction via default, abrogation of property rights, and dollar devaluation.
If we think a return to business as usual is the proper path, we will merely go in circles and end up right back in this same spot….if not worse.
I welcome comments from those who share or differ with these assessments.
LD
The Taxman Cometh
Posted by Larry Doyle on June 17th, 2009 7:07 AM |
How often during the campaign did we hear President Obama highlight that taxes would only increase for those earning incomes within the top 5%? You didn’t actually believe him, did you?
Yesterday, Obama played pure politics in backtracking from that “promise.” In an interview with Bloomberg, Obama Sees 10% Unemployment Rate, Chides Wall Street Critics:
He left open the possibility he would have to raise taxes on most Americans to decrease the deficit if growth were too weak. He also indicated he might tax the most-expensive employer-provided benefits to help pay for his health-care revamp. Both would reverse pledges he made during the campaign.
“If we are growing at a robust rate, then we can pay for the government that we need without having to raise taxes,” Obama said. “If we’ve got anemic growth, if we don’t have a strategy for recovery without bubbles, which is essentially what we’ve had over the last couple of recovery cycles, then we’re going to continue to have problems.”
What are Obama’s projections for unemployment and GDP?
Unemployment: 8.1% average in 2009, 7.9% average in 2010
GDP: -1.2% in 2009, 3.2% in 2010, 4% in 2011, 4.6% in 2012
No respected economist or analyst believes these numbers are credible. If anything, projections are only getting worse on both fronts. Obama, in a face saving move yesterday, admitted we will see 10% unemployment this year.
In regard to GDP, perhaps Obama should speak with Mohamed El-Erian at Pimco about the “New Normal” growth rate of 1% to 2% in the Brave New World of the Uncle Sam Economy.
What does it all mean?
The Taxman Cometh!!
LD
Ceteris Paribus
Posted by Larry Doyle on February 26th, 2009 2:01 PM |
Economic and budgetary analysis by their very nature often employ a “ceteris paribus” approach or similarly base line assumptions. Ceteris paribus, translated as “all other things being equal,” or base line assumptions are necessary given the fact that economic analysis has so many variables. Well, let me share with you that ceteris are NEVER paribus and base line assumptions are almost always skewed to bias the results in a desired direction.
***UPDATE: I was not aware at the time of my writing but it is reported that the Obama administration is projecting the economy will grow at a 3.2% GDP in 2010. That assumption is wildly optimistic. No respected economist would project that figure. Consensus has it in the 1.5-2% range. What does this mean? Well, lower growth means lower revenues, means higher deficits, means greater funding needs, means more borrowing, means higher government interest rates, means more “crowding out”, means slower growth for the economy going forward!!
There was little doubt about President Obama’s social agenda and economic platform during his campaign. While markets will somewhat discount campaign rhetoric, they do not discount economic reality. The markets are sending a strong signal that Obama’s economic proposals and proposed budget are anything but pro-growth. Obama Delivers $3.6 Trillion Budget Blueprint runs the risk of raising taxes at a time of economic distress. Raising taxes was a prime factor that increased the economic malaise in the 1930s. Obama is willing to take that risk as he sticks to his campaign plan and is pressured by the liberal wing of the Democratic Party. (more…)
Going “All In”
Posted by Larry Doyle on February 26th, 2009 10:59 AM |
The government yesterday released the specifics of the Bank Stress Test to be undertaken by the 19 major banking institutions in our country. Those details in conjunction with the testimony provided this week by Treasury Secretary Geithner and Fed chair Bernanke provide a very clear signal as to the government’s approach to our economic problems. In my estimation they are clearly indicating they are going “all in!”
Before we get to the market reactions, allow me to share insights from a highly regarded bank analyst and then comment myself.
Most analysts and economists view the government’s worst case scenarios under the bank test as not much more severe than what many already expect. I’m an optimist by nature but live by the mantra of hope for the best, prepare for the worst. The market will discount the government’s worst case. (more…)
