Capital Commerce
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Wall Street Is Unprepared for a Dem Sweep
Continue reading… 13 CommentsI spent a good chunk of yesterday calling all over Wall Street getting people's take on the election. One thing I think learned is that many financial pros are pretty blasé over the prospect of getting a Democratic president.
Take a potential Hillary Clinton presidency, for instance. As Alec Phillips, political analyst at Goldman Sachs, told me, "There is still the assumption that her administration would be similar to the Clinton administration" in the 1990s.
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McCain on the Bush Tax Cuts
Continue reading… 1 CommentHere is what John McCain thought of the 2001 Bush tax cuts—the ones he was against but now wants to keep—during the 2000 South Carolina debate (I think it displays his underlying economic philosophy quite well):
I want a balanced approach. A working families tax cut—Governor Bush has 38 percent of his tax cut go to the wealthiest one percent of Americans—pay down the debt, Social Security and Medicare. If we're going to save Social Security, we've got to take a bunch of the non-Social Security surplus, pump it into the Social Security system, because we all know that it's going broke. If we do that, then people can then invest part of their own payroll taxes in investments of their choice. The difference between Governor Bush's proposal and mine is that I put a whole lot of money into Social Security, Medicare and paying down the debt. He puts a whole lot of money into tax cuts.... Because we'd lay this obligation on another generation of young Americans—$3.6 trillion. At town hall meeting after town hall meeting, I have average Americans stand up to me and say to me, Senator McCain, all these years of running deficits, we've accumulated this debt. We're paying more interest—as much interest, almost, on it as we are in spending on national defense. We ought to pay down that debt, and not saddle the next generation of young Americans with it.... Look, Alan Greenspan just recently said we shouldn't have these massive tax cuts like Governor Bush is proposing. We should pay down the debt. But working families need the tax cut.
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Wall Street’s Take on the 2008 Candidates
Continue reading… 1 CommentGreg Valliere of the Stanford Group, an institutional research firm, weighs in on the markets and the 2008 race:
Hillary Clinton: If markets hate uncertainty, there's one big advantage that Clinton brings—what you see is what you get. We doubt that there will be many surprises: higher taxes and a tougher regulatory policy, but with a clear move toward the center on issues such as trade once she wins the nomination.... Clinton's chief economic adviser, Gene Sperling, is a moderate and pragmatic Democrat.
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Obama and Volcker
Continue reading… 0 CommentsFormer Federal Reserve Chairman Paul Volcker has endorsed Barack Obama. Larry Kudlow is shocked (the boldface is ours in both examples):
This is an unbelievable story. Former Fed Chairman Paul Volcker—Mr. Hard Money, anti-deficit, sound financial himself—has endorsed Senator Obama for President.... Once upon a time, many years ago, I was a Volcker speechwriter at the New York Fed. He's a great American. He's a classic conservative. He's a man of fiscal and monetary rectitude. While he was originally appointed Fed Chair by Jimmy Carter, Volcker ultimately teamed up with Ronald Reagan to put the kibosh on runaway inflation. He would not have made this endorsement on a whim. Believe me. He never gets involved in these kinds of political decisions. Is Paul Volcker the new Robert Rubin? Is it possible that Mr. Volcker is somehow tutoring Obama? Is it possible that Obama is more financially conservative than originally believed?
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The Fear Economy, Take 2
Continue reading… 0 CommentsA survey conducted by insurance giant MetLife found that 85 percent of respondents believe the U.S. economy is headed in the wrong direction today vs. 64 percent a year ago, with roughly half predicting the economy will be worse this year than last year. Most economists would agree with that assessment. But here is the weird part: Eighty-five percent think their own financial situation will stay the same or improve.
What explains this phenomenon? Is it the unconquerable optimism of the American people? Perhaps. But maybe it's also the fact that unemployment remains at historically low levels, and despite the housing recession, most people are still sitting on big paper gains from the run-up. At the same time, much of the press continues to miss important pieces of positive economic news.
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Surprise! Economy May Help GOP in 2008
Continue reading… 0 CommentsAt his blog, University of Arizona political scientist Lane Kenworthy examines an uncannily accurate political forecasting model that uses the growth rate of per capita real disposable income as its key variable. Its only two misses over the past five decades were in 1952 and 1968. Using the most recent income data available, the model shows the GOP getting a slight majority of the two-party vote. And indeed, there are polls showing GOP front-runner John McCain beating both Hillary Clinton and Barack Obama. But Kenworthy tosses in a few of caveats that should definitely make Republicans worried:
Like in 1952 and 1968, the incumbent party is hurt by American casualties in a war it initiated. As a result, its candidate receives less than 50% of the two-party vote despite relatively rapid income growth.... Income growth slows in 2008. That would reduce the predicted vote share of the incumbent-party (Republican) candidate, especially since growth in recent periods is weighted more heavily in the model. ... Another possibility is that the model no longer works well ... 1996 and 2000 are not predicted very well by income growth, and unlike 1952 and 1968 they cannot be explained by war casualties.... Why might the model no longer work well? One hypothesis is that as a society gets richer, pocketbook issues recede in importance for voters. A second consideration is that growth of per capita personal income is no longer a useful indicator of how voters have fared economically. In recent decades the bulk of income gains have gone to a small slice of the population—those at the top of the distribution.
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Bush Budget Endangers Bush Tax Cuts
Continue reading… 0 CommentsPresident Bush's $3.1 trillion budget predicts $400 billion budget deficits this year and next. Blame the fiscal stimulus package and the slowing economy that will generate less tax revenue.
Big deficits will surely work in favor of Democrats who want to repeal some or all of the Bush tax cuts or at the very least make sure they "sunset" at the end of 2010. Recent history has shown that when deficits are big, taxes tend to get raised, as in 1982 and 1993. But as I wrote last spring, the tax cuts were already in trouble because of Bush's own polices: 1) failure to make the 2001 tax cuts "growthy" enough; 2) failure to control spending; 3) failure to reform entitlements.
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Why Supply-Siders Will Rally to McCain
Continue reading… 34 CommentsAfter talking with loads of economic conservatives in recent days about the prospects of John McCain as the GOP nominee, I have concluded that in the end many will actually support him with a moderate degree of enthusiasm. (Steve Forbes, by the way, already has voiced his support.) Here are the reasons:
1) The Bush tax cuts. The 2001 and 2003 reductions will expire at the end of 2010, and McCain has personally promised several top conservatives that he will go all out to get them extended.
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Betting Markets Are Swinging to Obama
Continue reading… 0 CommentsIt wasn't long after Maria Shriver's surprise appearance at that Obama rally in L.A., the one with Oprah, Caroline Kennedy, and Michelle Obama, that the betting markets made a major swing toward Barack Obama. Before that, the markets had persistently given Hillary Clinton a 60 percent-plus chance of being the Democratic nominee and made her the overwhelming favorite to win the California primary. Obama's South Carolina win and Ted Kennedy's endorsement of him did little to shake the belief that she was still the prohibitive favorite.
But between the endorsement by Shriver (the wife of California Gov. Arnold Schwarzenegger and a Kennedy) and a flurry of polls showing Obama closing fast, the numbers shifted significantly. As of early this morning, Clinton held only a narrow lead, 52 to 46—numbers I haven't seen since right after Iowa—with California dead even.
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The Recession (Maybe) and the 2008 Race
Continue reading… 0 CommentsForget that this morning's payroll report for January showed a loss of 17,000 jobs with the unemployment rate dipping to 4.9 percent. The preliminary jobs number has become so volatile that I think it is pretty much worthless. Focus, rather, on the fact that the December number was bumped up to 82,000 from 18,000. It would not surprise me in the least if the January number got a similar boost. So what does all this mean?
1) Not only is a recession no more likely today than it was yesterday—the betting markets are flat so far on the likelihood of a downturn—it may be less likely. Tim Kane, who is the chief labor economist at the Joint Economic Committee of Congress, just got done running the numbers on his economic forecasting model that uses employment data. It shows the risk of recession is now down to 6 percent. Here is the E-mail he sent me:
