Capital Commerce
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Traders Give Up on Hillary
Continue reading… 0 CommentsIt's pretty much total capitulation time over at the Intrade betting markets. Traders now give Barack Obama an 80 percent chance of being the 2008 Dem nominee, Hillary Clinton 20 percent. In other words, they give the junior U.S. senator from New York a puncher's chance but not much more. Let the final Hillary haymakers begin.
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McCain's Iffy Tax Pledge
Continue reading… 0 CommentsJohn McCain is now on record as being against tax increases (via CNSNews):
"So on taxes, are you a 'read my lips' candidate, no new taxes, no matter what?" host George Stephanopoulos asked the Arizona Republican on ABC's This Week. "No new taxes," McCain affirmed, before making an argument that taxes ought to be cut if the economy deteriorates. "But under circumstances would you increase taxes?" Stephanopoulos asked in a follow-up question. "No," said McCain.
I only wish my fellow Greek journalist had asked McCain whether he is talking just about income taxes or also about Social Security taxes. McCain has spoken favorably in the past about the 1983 Greenspan commission, which endorsed higher payroll taxes. Plus, his idea to cap and trade emissions is tantamount to a tax increase.
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Iraq Is Turning Into a Budget Issue
Continue reading… 1 CommentMy pal Dan Clifton over at the Strategas Group anticipates the Iraq war turning from a foreign policy issue to a budgetary issue:
The key theme for Obama will be to bring the troops home.... Obama will make this case and claim he can use the money from troop withdrawal to fund domestic programs. However, this strategy will ultimately be determined by current events. If security related developments occur, McCain can fire back that Obama is cutting and running (i.e. soft on defense and security related issues).... The next president will determine the direction of the Iraq war and thus the future growth of defense spending moving forward. Since '01 the federal government has spent a total of $752 bn on the war, and war costs now represent 30 pct of the defense budget.
My take: A big part of the balanced-budget story in the 1990s was the big cut in defense spending. Will the Democrats play that card again despite the ongoing global war on terrorism?
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Stock Investors Bet on Growth
Continue reading… 0 CommentsJPMorgan economist Jim Glassman thinks the stock market is betting on a return to the global boom:
So why, in the presence of an unprecedented financial shock and rampant worries about recession, is the stock market weathering the storm so well? Yes, it's down. But please, down only 13½% from last fall's record high, and setting an all time record amid the financial storm?.... Yes, the economy is growing too slowly—it has been for more than a year, based on labor market trends—but it's not imploding. Some sectors are down but many are up. Some regions are paying for self-inflicted real estate excesses and some are not. The national economy didn't overheat and the Fed didn't have to slam on the brakes, two common precursors to recession. At the same time, the global economy is enjoying its best economic performance since the time of the dinosaurs, thanks to the forces that have contributed to the US trade deficit. Why else would equity investors hold high ground amid a once-a-century financial crisis and recession worries?
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Quick Hits for February 15
Continue reading… 0 Comments1) This one will leave a mark. Larry Kudlow, an official friend of the CapCom blog, paints Barack Obama as a "big-government bureaucrat who would take us down the wrong economic road."
2) Right on! Fund guru Kurt Brouwer at the Fundmastery blog has a great post on all the assets our kids will inherit, such as highways and parks and natural resources. This is something those "national debt calculators" ignore.
3) Over at the fine Carpe Diem blog, econ Prof. Mark Perry updates the famous Julian Simon bet on falling commodity prices.
4) A new search tool over at the Cato Institute site allows users to easily track the trade records of members of Congress. Open trade is the foundation of global growth, folks.
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Sovereign Wealth Funds in the Cross Hairs
Continue reading… 0 CommentsLast year's protectionist backlash against China on Capitol Hill—where there was a spate of bills attempting to force that country to let its currency appreciate vs. the dollar—has morphed into a "get tough" campaign on sovereign wealth funds. Earlier this week, Sen. Charles Schumer said that SWFs need to increase transparency—perhaps, at minimum, accepting an International Monetary Fund code of practices—or face congressional action. (Expect a flurry of bills from both the House and Senate.)
How strange. While you could make the argument that the strong yuan is hurting the American economy, SWF money has been a huge boost so far, propping up beleaguered U.S. financial institutions like Citigroup. But I guess it's the idea of accepting "foreign handouts" that rankles some people, especially when they come from nondemocratic governments. Plus, whenever the economy sours, the country has a tendency to turn inward.
But Judge Richard Posner, in his blog with Nobel laureate economist Gary Becker, makes a couple of good points about SWFs: 1) SWF investments create long-term wealth in this country by placing money in the hands of U.S. asset owners here that they can then invest for a higher return. 2) SWF investments in nondefense companies don't undermine our national security because they in effect create financial hostages. "It's as if to guarantee China's good behavior the president of China sent his family to live in the United States," Posner writes.
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Now This Is Worrisome...
Continue reading… 2 CommentsEconomist Michael Darda over at MKM Partners attempts to ruin my weekend with this observation:
Swap spreads (simple version: the difference between interest rate on private and government debt) officially re-entered "crisis territory" today (which we view as 75-80 [basis points] or more). This indicator has tended to lead other areas of credit over time, including during the summer and fall of 2007. Our bullish view of stocks had been built around the previous narrowing in swap spreads (and the parallel improvement in the commercial paper market), attractive relative valuations, and very bearish investor sentiment (a contrary indicator). While we remain constructive on stocks long-term, the recent aggressive widening in swap spreads—and the renewed weakness in the commercial paper market—are a significant setback that may signal more near-term equity market weakness to come.
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A New Name in the McCain Veepstakes
Continue reading… 1 CommentHere's a new name you can add to the list of possible John McCain running mates, a Republican source tells me: Rep. Paul Ryan of Wisconsin, a member of the Ways and Means Committee. Although he's only 38, Ryan was elected to Congress back in 1998. So he has more national political experience than Barack Obama. What's more, he's a rock-solid, supply-side conservative who recently coauthored a bill that would create a simplified tax system. Under the plan, there would be two rates, 10 and 25 percent, a huge standard deduction of $25,000 for married filers (half that for singles), and a $3,500 personal exemption. It would eliminate all other deductions and credits that litter the current tax code. The dividend and capital-gains-tax rates would be made permanent at the current 15 percent. Other Ryan pluses: 1) he's from a swing state; 2) he's a family guy (three kids) who could help McCain appeal to suburbanites wanting to hear about more than just the war on terrorism; 3) he's a sharp-looking fellow.
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Obama's Trillion-Dollar Spending Plan
Continue reading… 74 CommentsWhat does "change" cost? About a quarter of a trillion bucks a year, according to Barack Obama. But first, this: "I wish Obama would go further than that, but it's a start," was the reaction of one DailyKos poster to Barack Obama's economic plan unveiled yesterday in a campaign appearance in Janesville, Wis. Some hard-core liberals may be underwhelmed by the scope of Obama's agenda—after all, there's no single-payer healthcare plan or Scandinavian-style "flexicurity" worker benefits program in the mix—but my guess is that the average person would find it all pretty aggressive. Here are the priciest parts:
- A $65 billion-a-year health plan
- $15 billion in green energy spending
- $85 billion in tax cuts and credits
- A $25 billion-a-year increase in foreign aid
- $18 billion a year in education spending
- $3.5 billion for a national service plan
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Barack Hussein Reagan? Ronald Wilson Obama?
Continue reading… 11 CommentsIs Barack Obama the Democratic version of Ronald Reagan? That blog post yesterday got plenty of reader responses. Different people answered that question in different ways. Let me sum up:
Liberals: Yes, Obama is the next Reagan, the Great Communicator of the Left. More accurately, he's the anti-Reagan who, along with an overwhelmingly Democratic Congress, will begin to undo the so-called Reagan Revolution, smash the Republican rump minority, and transform America by raising taxes on the rich and actively using the federal government to help average people. ¡Viva la Revolución!
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Is Obama Really the Liberal Reagan?
Continue reading… 107 CommentsIs Barack Obama, the "change" candidate, really a pragmatist, albeit a liberal one? Is he a guy who, if elected as our 44th president, might compromise with Republicans on key issues as he begins to "heal the nation"? Here is the case I've tried to make, though I'm not fully convinced myself:
1) Obama has surrounded himself with centrist economic advisers, like the frustratingly reasonable Austan Goolsbee of the University of Chicago. Former Fed chief Paul Volcker is also a supporter.
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Traders Flock to Obama
Continue reading… 53 CommentsTake it for what it's worth, but most of the Washington Wise Guys I talk to think the Democratic presidential race is over and Barack Obama will be the nominee. (Also note that the betting markets over at RealClearPolitics now give Obama a 70 percent chance of defeating Hillary Clinton.) The WWGs point to the 3 M's:
1) Money. Can Obama be the first $200 million candidate? Yes, he can.
2) Momentum. Obama is poised to win the Potomac primary today, giving him a seven-state winning streak since Super Tuesday. And while momentum has been a fickle force this primary season, the WWGs expect Obamamania to begin peeling way Hillary's potential voters in critical upcoming states like Ohio, Texas, and Pennsylvania. To quote Patton: "Americans love a winner and will not tolerate a loser."
3) Media. Do the media favor Obama over Hillary? I will just say this: I don't know too many reporters around this town who feel like writing another single word about Monica Lewinsky, the Rose Law Firm, Whitewater, Vince Foster, Travelgate, or cattle futures. Give us brand-new scandals, please! (And not to mention that many of our teenage and 20-something kids are like an Obama fifth column in our families, constantly nudging us to watch that catchy will.i.am Pro-Obama video on YouTube.)
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Spending Inequality Far Less Than Income Inequality
Continue reading… 0 CommentsThe chief economist at the Dallas Fed provides a little intellectual pushback against all the claims of dramatically rising income inequality. If you look at what people are actually spending, Cox argues, you see that society is a whole lot more egalitarian than the income data suggests, thanks in part to open trade bringing down costs of goods. Key points from his recent New York Times op-ed:
1) If you compare the incomes of the top and bottom fifths of all households, you see a ratio of 15 to 1, roughly $150,000 a year to $10,000 a year. But turn to consumption, the gap declines to around 4 to 1. That narrowing takes place throughout all levels of income distribution: "The middle 20 percent of families had incomes more than four times the bottom fifth. Yet their edge in consumption fell to about 2 to 1."
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Crunch Time: Credit Woes Still Threaten Economy
Continue reading… 2 CommentsThere are a few Wall Street pros that I keep a close eye on, and when they get worried about the economy, I tend to get a bit skittish as well. Ed Yardeni of Oak Associates seems very worried this morning. Here is a bit of what the crack strategist is telling his clients today:
I hope the folks at the Fed are keeping on top of the rapidly deteriorating financial news. If they are, then another "emergengy" cut in the federal fund rate of 100bps is likely either at the next FOMC meeting on March 18, or before then. The sooner, the better because the emergency isn't over. The news is getting grimmer by the day....
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Obama the Pragmatist
Continue reading… 4 Comments"Change" and "the economy" were the driving forces in last week's Super-Duper Tuesday primaries, at least according to the exit polls. Since they represent the out-of-power party, what kind of change might Hillary Clinton or Barack Obama bring to the American economy if either was elected the 44th president of the United States? Here is what one successful and high-profile political consultant—one who has worked for both Democrats and Republicans—told me recently: "What most people don't understand is that Hillary is the idealist and Obama is the pragmatist."
It's an assessment that will surely surprise many people. Clinton, after all, is the "experience" candidate with five- and 10-point plans on pretty much every possible policy topic, including housing, healthcare, and technological innovation. And critics will point to her Iraq war vote in 2002 as the ultimate pragmatic political move. Obama, on the other hand, is more noted for soaring speeches about hope and unity than for Washington wonkery. He was also rated the most liberal U.S. senator in 2007 by National Journal. Yet this veteran politico was sure that if elected, Clinton would be the one, for instance, to push hard for a government-run, European-style healthcare system that would go far beyond what either she or Obama has suggested so far.
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3 Ways McCain Can Still Irk the Right
Continue reading… 9 CommentsClearly not every tax-cut enthusiast was thrilled by John McCain's speech yesterday to CPAC. "The wilderness years" was how one self-described "pro growth" conservative described the next presidential term to me, not differentiating between a McCain, Clinton, or Obama administration. Still, McCain surely did some good in bringing around his skeptics, given other post-speech conversations I had (though Sen. Tom Coburn's introduction of McCain may been a more persuasive sales job than anything McCain himself said). This part seemed go over particularly well:
Often elections in this country are fought within the margins of small differences. This one will not be. We are arguing about hugely consequential things. Whomever the Democrats nominate, they would govern this country in a way that will, in my opinion, take this country backward to the days when government felt empowered to take from us our freedom to decide for ourselves the course and quality of our lives; to substitute the muddled judgment of large and expanding federal bureaucracies for the common sense and values of the American people; to the timidity and wishful thinking of a time when we averted our eyes from terrible threats to our security that were so plainly gathering strength abroad.
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The Scariest Thing I've Read Today
Continue reading… 0 CommentsAt his blog, economics columnist Michael Mandel shares an E-mail he received from Northwestern University's Robert Gordon concerning the recent productivity numbers:
The continuing decline in the productivity growth trend provides further evidence that the productivity growth revival of 1995-2004 was a one-time event. In the late 1990s the primary cause of the productivity growth revival was the dot.com boom and invention of the WWW. During 2001-03 the further good news on productivity growth was due to a combination of the delayed impact of the 1990s technology surge (the "intangible capital" hypothesis) with unusually savage corporate cost cutting that caused the prolonged decline in payroll employment between 2001 and 2003.
My take: I like one-time events that cause a decade or more of higher productivity. We can thank the huge drop in penalties on investment in the 1980s for the economic boom in the 1990s. Could use a few more one-time events like that. A whole bunch of them, in fact. One way to get them is to make sure the economy is as innovative as possible by ensuring the return to financial capital and human capital is as high as possible. Productivity is the whole ball game, folks. And innovation is the key to higher productivity.
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Betting Markets Race Toward Obama
Continue reading… 4 CommentsIn the stock market, they call it "capitulation." It's the moment when the bulls finally throw in the towel. Taking one look at the Intrade betting markets this morning, I certainly sense capitulation in the air when it comes to the Democratic presidential race.
The "Hillary Clinton to be the Democratic Presidential Nominee in 2008" contract is down to 41.5 while the "Barack Obama to be the Democratic Presidential Nominee in 2008" contract is up to 58. They have completely flipped. I think the Hillary bulls are beginning to throw in the towel.
Having closely watched these two contracts over the past year, I know just how stubborn this group has been. Total perma-bulls. And I don't think it was the Super Tuesday results alone that turned the tide. I think it was the report that Clinton is lending money to her campaign at the same time that a deluge of campaign dollars is flooding Obama's coffers.
The other side of the trade: Older female voters and Hispanic voters are so pro-Hillary that all of Obama's money and momentum won't shake them, and she'll win states like Ohio, Pennsylvania, and Texas—and the nomination.
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Job Market Weak, Not Whipped
Continue reading… 0 CommentsA pretty reasonable take (courtesy of Michael Feroli of JPMorgan Chase) on today's initial jobless-claims numbers:
On the heels of some quite weak data, today's jobless claims figure had the potential to provide a knock-out blow to the economic outlook. In the event, the initial jobless claims number of 356,000 was neither here nor there: by no means was this a good number—particularly with continuing claims moving up to 2.785 million claimants—at the same time it did not depict a decisive break for the worse. Instead, today's number was consistent with a soft, but not collapsing, jobs market.
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A McCain-Romney Merger
Continue reading… 0 CommentsJohn McCain is supposedly working up a broad tax reform plan. But he might want to save himself some time and just flat out steal Mitt Romney's tax plan as well as his spending plan. (Maybe make Romney an economic adviser if he ever quits the race.)
Romney's plan to eliminate investment taxes on anyone making $200,000 or less might have great appeal to anyone concerned about saving for retirement or the kids' college education, plus McCain could play up the long-term impact it would have on economic growth.
And while McCain has talked a lot about eliminating earmarks, he hasn't gone further to explain how he will broadly reduce spending. Romney, though, has proposed limiting discretionary spending to inflation minus 1 percent and seemed to embrace a Social Security plan that would return the system to solvency by indexing the payments to wealthier Americans to inflation rather than wages. Just a few interesting ideas for a campaign that is still light on domestic policy.
Update: Romney is suspending his campaign. My idea makes even more sense.
