Capital Commerce
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5 Cool Predictions About China
Continue reading… 0 CommentsThese forecasts from mangabot, a new blog on Asia, are worth reading:
1. The dystopic Communist regime will continue.
2. A giant amount of wind power will up the nation's hip-and-cool factor.
3. Joe Chen will be the next Steve Jobs .
4. Beijing will go head-to-head with Dubai in an architectural prestige contest.
5. As China's global market share grows, so will our likelihood of becoming robotic drummers.
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U.S. Corporate Taxes: Still Second-Highest on Planet Earth
Continue reading… 7 CommentsI feel like doing my best John McEnroe impression here: "You cannot be serious!" Anyone who dismisses the new corporate tax numbers is not serious about competing with the EU and Rising Asia. Here are some key results of two new OECD studies on corporate taxes (as interpreted by the Tax Foundation and slightly paraphrased by me):
1) For the 17th consecutive year, the average rate of corporate taxes in non-U.S. countries fell while the U.S. corporate tax rate stayed the same. As a result, the overall U.S. corporate tax rate is now 50 percent higher than the OECD average.
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Recession Vs. Inflation: Must There Be a Winner?
Continue reading… 3 CommentsNow I know how Ben Bernanke feels. I was asked to be on CNBC's Street Signs yesterday to talk about which was the bigger problem facing the economy: Rising inflation or the threat of recession. I had to pass because I couldn't come to a quick decision. My pals over at First Trust Advisers, Brian Wesbury and Bob Stein, are pretty sure they have the answer:
Inflation is the leading menace to the US economy.... The CPI is now up 5.6% versus last year, the most since 1991. Excluding the 1990-91 period—when oil prices soared in part due to Iraq's invasion of Kuwait—CPI inflation is the highest since 1982. Meanwhile, the "core" CPI is speeding up, increasing 0.3% in July and up at a 3.5% annual rate in the past three months. We expect further acceleration in the core CPI in the year ahead as the drop in oil prices gives consumers more money to spend on other goods and services.
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Using the Economic Weapon Against Russia
Continue reading… 2 CommentsAs parents know, every new gizmo a kid gets provides useful leverage over their behavior. A bit too much sass mouth? The iPod goes on sabbatical. Same works for nations as they connect more to the global economy. As geopolitics guru Tom Barnett writes:
You want the connectivity, and then you let the market express its displeasure. So yes, by all means, remove your money from Russian companies and make them feel some pain. Without the nerve pathways, the signal isn't sent.
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With Polls Close, Obama Blinks on Taxes
Continue reading… 59 CommentsThis is a pretty big change for Obamanomics. Economic advisers Austan Goolsbee and Jason Furman, in today's Wall Street Journal, now say that Barack Obama's tax plan will do the following:
1) It will increase capital gains and dividend tax rates, to 20 percent, only for families making over $250,000. Before, Obama was hinting at rates as high as 28 percent for everyone.
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U.S. Nixes Reaganomics, Japan Embraces It
Continue reading… 1 CommentWhile we're all focused on the supposed coming of Chinese economic hegemony, we might want to take a glance at Japan. They may have just discovered our secret sauce (via Bloomberg, bold is mine):
Much of the focus in Asia's biggest economy has been on raising sales taxes from 5 percent to help the government pay for swelling welfare costs. That may be eclipsed by an increasingly vocal movement favoring lower corporate taxes. Foreigners have long decried Japan's tax system as ambivalent toward their investments. And the tax structure favors established corporate behemoths at the expense of start-ups. Some tax-policy tweaking could be just the thing to catalyze economic growth, investment and job creation.... "Even if tax revenue falls in the near term, a tax cut may help revitalize business activity and eventually lead to a rebound in tax receipts,'' Shoichi Nakagawa, a lower house legislator who until August 2007 was policy chief for the ruling Liberal Democratic Party, said last week. Nakagawa recommends lowering the level to about 30 percent from 40.7 percent, the highest among Organization for Economic Cooperation and Development nations.
Me: So we might just end up with the highest corporate tax rate in the world, with 70 percent of the burden falling on workers by means of lower wages. That's really great. I can see we're serious about competing with Rising Asia. Maybe we'll all escape into our giant flat-screens that we can buy with another round of fiscal stimulus paid for by a windfall tax on corporations.
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Uncle Sam, Your Mortgage Banker
Continue reading… 0 CommentsHere's Alan Greenspan's plan to deal with Fannie and Freddie (courtesy of the WSJ):
- Nationalize them.
- "Reconstitute them" with taxpayer dough.
- Split them into five or 10 individual units.
- Auction them off.
- Shovel the affordable housing programs into GNMA.
Greenspan's bottom line: "By the time we have the next mortgage crisis, the five or 10 individual companies would have diversified into other areas of finance, and maybe one or two of them would fail. But having been significantly downsized, systemic risk would be avoided."
My bottom line: I certainly can imagine an Obama White House and a Pelosi Congress nationalizing the GSEs but then keeping them. They want us to depend on Uncle Sam for our education, retirement income, and healthcare. Why not our mortgages?
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Government Work Really Pays Big
Continue reading… 2 CommentsThis stunner from the Cato-at-Liberty is yet another reason why free-market folks called the Bush years the Lost Decade:
Federal compensation rose quickly during the 1990s, but even faster during the 2000s. I call this the "Bush Bounce" because it appears that the Bush administration has caved into federal union demands for expanded pay year after year. Between 2000 and 2007, average federal compensation increased at an annual average rate of 6.3 percent, which compares to the private sector increase of 3.5 percent. During the 1990s, average federal worker compensation increased at an average rate of 5.1 percent.
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Putin and GOP Politics
Continue reading… 0 CommentsLarry Kudlow's political analysis is spot on:
This is where the Tsar Putin warning should take us this political season. It's another huge Republican opportunity, led by McCain, to merge Obama's naïveté and inexperience on national security with his nutty reliance on the enviromaniacs of the left who still control the Democrats. I notice the Intrade prediction market, which downgraded the end-the-drilling-ban contract to 40 percent yesterday, has popped up the probability of that contract to 50 percent today.... All that's necessary is 41 votes to stop a budget spending bill that is likely to contain another one-year extension of the drilling moratorium. That would mean the moratorium is dead on Oct. 1; it expires Sept. 30. This will be the closest thing to an up-or-down vote on drilling. Do we really want OPEC, Hugo Chavez, and Tsar Putin to control our energy prices? Or will we be brave enough to seize energy independence?
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Will Lower Gas Prices Change Our Behavior?
Continue reading… 2 CommentsJames Hamilton expects gasoline demand destruction to continue despite lower prices:
Although the price of gasoline today is less than it was a few weeks ago, it's still much higher than it had been at the time you purchased your last car. As consumers replace older models, they're invariably going to continue to substitute into more fuel-efficient vehicles even if oil prices continue to decline. In addition, there was a mentality in 2005 that what looked like high gasoline prices at the time ($3 a gallon) were only temporary. I expect an opposite perception could have set in today—even if gasoline prices go lower for a few months, consumers know they could go back up and nobody wants to be permanently stuck owing the big gasoline bills they remember from this summer.
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Economics Ain't Gymnastics: Why China Won't Overtake America
Continue reading… 8 CommentsNew York Times columnist David Brooks has written one of the most depressing columns I've read in a long time. As he sees it, the 21st century is the Chinese century. Sorry, America, your time is up.
But first a bit of history: Back in the 1980s, liberals were desperately looking for a Big Economic Idea to combat Reaganomics. Instead of looking inward to the core American value of individualism and entrepreneurialism, they looked eastward to Japan and saw a high-tech, economic superpower where big government was dominant. Rather than relying on uncertain and uncontrollable market forces, Japan's elites apparently possessed the wisdom to choose which industries looked the most promising. They then harnessed and directed state resources and favor in their direction.
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Two Cheers for Russia's Invasion of Georgia
Continue reading… 37 CommentsThe thoughts of a former expert on the former Soviet Union—that would be me, to crib a line from geopolitical guru Thomas Barnett—about the Russian invasion of Georgia:
1) It would be great if clarity came cheap. Sometimes it does, but often it doesn't. In our liberation of Iraq, for instance, late realization about troop strength and strategy cost us men, money, and the opportunity to more easily advance our foreign policy goals everywhere from North Korea to Iran to Venezuela. Now we all have clarity about the nasty nature of Putin's Russia (though I hope experts like Secretary Rice aren't surprised), just as 9/11 gave us the full matrix about the true reality of the world we live in. It will be democratic Georgia, however, paying the price this time.
2) There's a big long-term positive in all this. We also now have greater clarity on the need to dramatically reduce our dependence on foreign oil. As fast as possible without ruining the economy. It's "all of the above" time, gang—domestic drilling, nukes, concentrated solar, deep geothermal, clean coal, and whatever else Silicon Valley and heroic capitalists everywhere can dream up as we conduct a market-driven transition to a post-hydrocarbon economy. Now the inside-the-beltway types tend to pooh-pooh all this, as if anyone suggesting energy independence is an isolationist, nativist rube who wants to turn America into Juche North Korea. But why they would want to risk the American economy potentially held hostage to, say, a couple of oil pipelines running through Soviet-occupied—I mean, Russian-occupied—Georgia is baffling to me.
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Dude, Where's My Recession? The Series
Continue reading… 1 CommentThanks to today's trade numbers, it now looks as if the economy grew much faster than 1.9 percent in the second quarter. In their preliminary GDP estimate, government bean counters thought the trade deficit would increase. Instead, it narrowed as exports surged 4.0 percent vs. a 1.8 percent rise in imports. As result, the economy probably grew at least 2.9 percent in the second quarter, if not a bit more. How will this play out? The econ team at Global Insight is worried:
The question for the future is how much support trade can continue to provide. Recent signals from Europe and Japan have suggested a growing risk of recession. Of course, a key reason that these economies are suffering is that the U.S. is growing at their expense. But the more severe their slowdown, the greater the likelihood that it will begin to cool down the boom in exports.
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Do Most Companies Really Pay No Taxes?
Continue reading… 7 CommentsAccording to the Associated Press's interpretation of a new Government Accountability Office report, "Two thirds of U.S. corporations paid no federal income taxes between 1998 and 2005." Really, the guys over at the Tax Foundation beg to differ. They note that the actual report tells a different story.
In fact, what the report shows is that only 25% of large U.S. corporations paid no corporate income tax in 2005. In 85% of those cases, the large corporation paid no income tax because it had zero or negative net income for 2005. No income, no income tax. For example, in a "clever tax dodge," American Airlines avoided income tax for 2005 by losing $862 million. General Motors lost $10.5 billion in 2005; I bet those greedy fat cats didn't pay any corporate income tax, either.
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The Bush (Oil) Tax Cut of 2008
Continue reading… 9 CommentsDemocrats are pretty eager to repeal (some) of the 2001 and 2003 Bush tax cuts. But what about the 2008 tax cut? By that, I mean the big drop in oil prices we are seeing right now. I think the president's lifting of the executive order banning offshore drilling was a key moment in reversing oil-market psychology. Since then, we've had McCain push the drilling issue hard, and even Obama has softened his anti-drill stance. For now, the political momentum is behind cheaper energy.
Energy is the economic issue, gang. What all this is doing is sending a message to the oil market that America will do whatever it takes to meet its energy needs—oil, nukes, renewables. "All of the above," you know? Now a couple of quick outside takes here. First, JPMorgan economist Jim Glassman:
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When the Housing and Credit Crisis Will End
Continue reading… 1 CommentI think this bit of insight from economist Mike Darda of MKM Partners sums things up nicely:
The current credit crisis began after a rise in housing inventories weakened home prices and sent credit markets into a tailspin. It would seem only logical then to expect inventories to turn before house price trends become more favorable. Our model suggests new home inventories will have to fall below 7 months supply (from 10 months currently) before home prices begin to rise again. Unfortunately, this could take longer than anticipated given the current state of credit markets.... We believe improvement in corporate bond and mortgage markets is a crucial prerequisite to breaking the negative feedback loop between housing, the financial system, and the broad economy.
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This Will Surprise Most of You
Continue reading… 1 CommentA revealing factoid and an insightful bit of analysis from market strategist Ed Yardeni:
With forward earnings around $100 currently, why isn't the S&P 500 at 1600 now? Investors clearly remain concerned about the credit crisis and the possibility of a longer and deeper recession. Why aren't they impressed that S&P 500 earnings excluding Financials were up 10.2% y/y during Q1 and 7.7% during Q2? The strength was largely attributable to profits from overseas, and many foreign economies are turning weaker, especially in Europe. The bearish concerns about earnings may continue to offset the bullish developments for valuation over the rest of the year.
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Obama and McCain’s Olympian China Error
Continue reading… 8 CommentsIf you've been absorb-ing the ubiquitous media coverage of the Beijing Summer Olympics, you might be getting a bit China-ed out right about now. But if you're a presidential politics junkie, probably not so much. So far this campaign season, "Rising China" has been the panda in the corner, pretty much ignored despite being the obvious subtext to almost all of America's economic challenges.
Take Barack Obama, for instance. In his campaign's 59-page "Blueprint for Change," China is mentioned but twice, neither time in explicitly economic terms. And in a series of policy speeches this summer, Obama hasn't mentioned China at all. Nor has John McCain been any better. He didn't say a word about China in a showpiece economic speech last month.
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Dynamic Dollar Duo: Obama and Volcker
Continue reading… 1 CommentThe decline of the dollar has been an MIA issue in the presidential campaign, even though the public is aware of it and doesn't like it. So I find this interesting: The Wall Street Journal praises Barack Obama this morning for a bit of gabbing he's been doing about the greenback.
Apparently, Obama—who has taken on former Fed Chairman Paul Volcker as an economic adviser—has acknowledged the obvious fact that a weak dollar is fueling higher oil and gas prices. (Thank you, Mr. Chairman!) He also said that strengthening the economy would boost the dollar. The WSJ thinks it's just the opposite.
I think it works both ways: A stronger dollar would help the economy, and a stronger economy would help the dollar. Now, a strong-dollar president would be great. I wish we had one right now. But I worry that Obama's strong dollar talk is code for "Let's jack up government spending to boost the economy and that will boost the dollar." If that happens, the dollar might have farther to fall. Here is how I would boost the greenback.
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The 2009 Economy
Continue reading… 3 CommentsHave a gander at this bit of economic analysis from Macroeconomic Advisers (bold is mine):
The economic outlook for the second half is weak, at best. We expect domestic final demand to shrink at nearly a 1% pace over the second half and GDP growth to be barely positive, on average, over that period. The weakness in growth will push the unemployment rate up to 6¼% by the first quarter of 2009...Despite the weakness over the second half, we continue to believe that a sustained recovery will emerge next year. In particular, we expect growth to rebound to a 3% pace in the second half of 2009 and to above 3% in 2010...The considerable slack that emerges and the flattening-out of the dollar and energy prices that we anticipate create a very benign environment for inflation, allowing headline and core PCE inflation to fall all the way to 1.5% by the end of the forecast horizon.... The combination of falling headline inflation and weak economic growth should be sufficient to keep the Federal Reserve from tightening policy this year. However, once growth appears to turn the corner, the Committee will be quick to begin raising rates. We continue to expect the first tightening to take place in March 2009 and project the federal funds rate to reach 3½% by the end of that year.
Me: The flaw in this analysis is that it completely ignores possible huge tax hikes and huge budget deficits. Both would be bad for growth.
