Capital Commerce
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Do Wall Street's Woes Help McCain or Obama?
Continue reading… 10 CommentsI have no doubt that if President Bush were on the ballot in November, he would probably suffer a crushing defeat. Like Jimmy Carter bad. A weak economy, or the perception that the economy is weak, is what leads to incumbent presidents getting thrashed. Yet poll after poll shows John McCain in the lead, despite the best efforts of Barack Obama to paint a McCain first term as Bush's de facto third term. Will the big shakeup on Wall Street do anything to change that? I don't think so, a belief I had even before checking the Intrade betting odds that have McCain leading Obama, 53 to47, though he's down a smidgen today. Anyway, here is my reasoning:
1) McCain has done about as good a job as possible, both through his convention speech and his veep choice of Sarah Palin, of making himself the nominee of the McCain Party rather than the Republican Party.
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Who's Better for Stocks, McCain or Obama?
Continue reading… 14 CommentsWho would be better for the stock market, President Barack Obama or President John McCain? One way to look at this issue is to see how stocks have done under past Democratic and Republican presidents. My pal Donald Luskin, chief investment strategist at Trend Macrolytics, slices and dices the data in today's Wall Street Journal. Among his financial and economic findings:
1) Investors seemingly like donkeys. Since 1948, the total return of the S&P 500 has averaged 15.6 percent with a Democrat in the White House and 11.1 percent with a Republican occupying the Oval Office.
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Economic Game Changers
Continue reading… 3 CommentsWise words on the economy from my friend Larry Kudlow of CNBC:
The commodity drop signals the death of inflation expectations. And of course, the oil plunge itself is a big tax cut for consumers. Not only will real wages start rising again, but folks will be able to service their mortgages. That's good for banks. There's a lot of volatility and cross currents in the stock market right now. But this consumer/banking theme should hold the test. The trick here is to look through the front view of the windshield, rather than the rearview mirror of yesterday's credit crunch like Lehman Brothers, Washington Mutual, and other cases. The game changer is oil's drop and the dollar's rise. The collapse of gold adds more icing to the cake.
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Assigning Blame for the Fannie and Freddie Fiasco
Continue reading… 1 CommentRussell Roberts over at Café Hayek provides as a good an explanation as any about what went wrong and who is to blame in the Fannie Mae-Freddie Mac mess. Here is a bit, but you should read the whole, whimsical thing:
I actually think this is an emergent mess that evolved out of no one's design. An alliance of bootleggers and baptists that created something that was no one's intention but that served many people well until it fell apart. It's a study in flawed incentives and institutional design. The lesson is that government agencies work best when we know what they're doing and there is some measure of accountability, even if it's only political.
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Al Qaeda's Failed War on the U.S. Economy
Continue reading… 23 CommentsIn the seven years since the terrorist attacks of Sept. 11, 2001, Osama bin Laden and al Qaeda have shown themselves quite capable of releasing amateurish videotapes, slaughtering innocent Iraqi civilians, and getting al Qaeda members killed in mass numbers by America's valiant and lethal warriors.
But what about the goal of bringing down the U.S. economy? Remember what bin Laden himself said about his goals back in December 2001: "If their economy is destroyed, they will be busy with their own affairs rather than enslaving the weak peoples. It is very important to concentrate on hitting the U.S. economy through all possible means." This was echoed by al Qaeda second-in-command Ayman al-Zawahiri in September 2002: "We will also aim to continue, by the permission of Allah, the destruction of the American economy."
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Let Fannie and Freddie Fail?
Continue reading… 4 CommentsNot everybody thinks the government needed to step in and essentially take over Fannie Mae and Freddie Mac. Banking guru Martin Weiss thinks the financial situation at the two mortgage giants is far worse than many realize. That, combined with a worsening economy, will doom Uncle Sam's efforts, he says. "Just to keep Fannie and Freddie solvent will take so much capital, there will be no funds available to pursue the primary mission of this bailout—to pump money into the mortgage market and save it from collapse," Weiss says. "That mission will ultimately end in failure."
Weiss, in the analysis I link to above, outlines what he thinks Treasury Secretary Henry Paulson should be saying to Bush right about now:
Let's say I'm a foreign investor and I own U.S. Treasury bonds. This implies that I trust the U.S. government; that I loaned you my money for the purpose of running your government. Now you take my money and pass it on to a third party, a private company. So I say to you, "What did you go and do that for? If I wanted to loan the money to that company, I would have done so myself—directly—in the first place. But I didn't. I didn't do it because I don't trust the company. I trusted you. But now I can't trust you anymore either. Now you're just one of them." So the investor stops buying our bonds or, worse, dumps the government bonds he's holding, and then we are in trouble. Then we can't sell our government bonds anymore to pay off the old ones coming due. Then we, the United States government, default.
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Some Good Economic News
Continue reading… 3 CommentsHere are a couple of rays of sunshine, via Reuters. First, the suits seem to be getting a bit more chipper:
NEW YORK—Chief financial officers are more optimistic about the direction of the U.S. economy, but remain concerned about consumer demand and weak credit markets, according to a quarterly survey. Those saying they are less optimistic fell to 41.5 percent, from more than half in the previous survey and more than 72 percent in March.
And the folks at Disney aren't seeing a global recession:
LONDON—Walt Disney Co.'s business is proving resilient in the face of tough economic conditions although the crisis is not over yet, Chief Executive Robert Iger said on Wednesday."Our business has been quite resilient," Iger told journalists at a meeting ahead of the London premiere of "Camp Rock." "Global theme parks have held up extremely well."
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Pop! Why the Obama Bubble Has Collapsed
Continue reading… 200 CommentsThe Obama campaign seems to have experienced a "Minsky Moment." That, as any financial bubblologist worth his weight in tulips knows, is the particular point in time when no more "greater fools" can be found to support a bubble and a Great Deflation finally begins. Sssssss. (The financial phenomenon is named after economist Hyman Minksy.)
Now Obama's Minsky Moment is morphing into the McCain Moment. The evidence? Here goes: 1) The final 10 national polls in June had Barack Obama up by an average of 7 percentage points. The past eight polls this month have John McCain up by a bit more than 2 points, according to RealClearPolitics. 2) Right around the same time that Obama's polling lead was entering landslide territory in June, his odds of victory over at the Intrade betting markets were hovering at a sky-high 70 percent. Today, Obama's chances are right around 50-50 vs. McCain. 3) And now, according to a New York Times story yesterday, the deluge of donations has started drying up: "Pushing a fundraiser later this month, a finance staff member sent a sharply worded note last week to Illinois members of its national finance committee, calling their recent efforts 'extremely anemic.'"
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Money Men to McCain: Focus on the Economy
Continue reading… 1 CommentJohn McCain raised $5 million yesterday at a campaign fundraiser in Chicago. Clearly, his postconvention bounce in the polls has raised the spirits of contributors. This from the local CBS station:
"Everybody in the room said 'wow.' This was even beyond what many expected. He is wonderfully self-confident but not cocky," said McCain contributor Craig Duchossois. "The senator is clearly ecstatic about the polls," said Ronald Gidwitz. "He's very comfortable right now in his own skin. He sees the momentum going in his favor. He is the man who looks like a winner."
Yet away from the cameras, some McCain contributors think that unless he more effectively puts forward an economic message, he will come up short on Election Day. Said one to me, "He's doing great right now, but he's got to talk more about the economy and what he wants to do. He should have done more of that at the convention. If he doesn't, forget about it."
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The Deficit and the Growth Imperative
Continue reading… 5 CommentsThe budget deficit will be $407 billion this year and $407 billion next year, according to a new forecast from the Congressional Budget Office. (Keep in mind that these numbers included about $180 billion in Social Security surplus funds.) Now my budget guys tell me that the actual number could be anywhere from $500 billion to $700 billion depending on the economy, Fannie and Freddie, and any additional government stimulus spending.
But what really strikes me is the CBO's anemic growth forecast: Just 1.8 percent next year, 3.3 percent from 2010-2013 and 2.3 percent from 2014-2018. This economy should be growing more like 3.5-4.0 percent year after year. And it could with the right economic policies.
One other interesting factoid: Freezing discretionary spending to the nominal growth rate of the economy (not counting inflation) would save $1.3 trillion over the next decade. Our budget problem is nothing that better economic growth and spending restraint can't solve.
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Fannie and Freddie: Lessons Not Learned
Continue reading… 4 CommentsEconomists Don Straszheim of Roth Capital and Ed Yardeni nail the F&F Fiasco. First Straszheim:
This is not the end—even of the beginning. It will take years for Washington to scuttle these ill-conceived, broken, conflicted entities and to create something coherent. January 20, 2009, Inauguration Day, will likely usher in a new era of market intervention and subsidy (hidden or out-in-the-open).
Now Yardeni:
Ideally, Fannie and Freddie will now be fixed by the government and privatized in a few years. The lesson of this very messy situation is that the government shouldn't have meddled in the mortgage market in the first place by implicitly guaranteeing these mortgage institutions and allowing them to become behemoth monopolies. The reality is that the government now is involved in every aspect of the real estate and mortgage markets. Congressional Democrats, who are likely to have even more power after November's election, are unlikely to let go of the government's unprecedented power in the mortgage market, in particular, and the capital markets, in general.
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The Politics of Fannie and Freddie
Continue reading… 6 CommentsAt first glance, the government takeover of Fannie Mae and Freddie Mac should be great for Barack Obama. It puts government in the role of the guarantor of American economic security, the ultimate backstop when markets fail. And at the heart of Obamanomics is the belief that a more activist government is needed. But John McCain has a powerful counterargument: The failure of Fannie and Freddie is the failure of a pair of de facto government institutions and the failure of government housing policy. With the government-housing intermingling such a miserable failure, McCain could say, do we really want more government meddling in healthcare? And the potential financial cost of the bailout plays into McCain's budget hawk reputation. Plus, as economist Robert Brusca says at his blog:
This is a case of policy gone amok. Instead of helping some marginal potential homeowners with finances Fannie and Freddie grew to be the bulk of the US mortgage market. This became a program that took on a life of its own. Banks have long opposed the poaching of business by Fannie and Freddie due to their lower cost structure courtesy of the government backstop. But politics intervened. No party reined them in. As a result the subsidy to the whole of the mortgage market grew. Many taxpayer-homeowners benefited, one reason why having 'them' (us) bear the cost makes some sense.
Me: Someone asked me, "Is this the end of privatization?" Rather, doesn't this make the case for privatization, and powerfully at that? Don't forget that we are also sitting here with Social Security and Medicare leaving taxpayers on the hook for more than $50 trillion in liabilities. I also just have to toss in this quote from investor Jimmy Rogers: "America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich...it's just bailing out financial institutions."
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Betting Markets: Obama Lead Collapses
Continue reading… 4 CommentsSuperblogger Jeff Lehner points out that Barack Obama's lead over John McCain over at Intrade has almost disappeared. At last check, Obama leads, 51 to 48. He has consistently led by 20 points or more for months. As Lehner says, "Palin is truly a game-changer. I continue to be amazed that so many in the media cannot grasp this." Tell me about it.
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Obama: My Tax Hikes Would Hurt the Economy
Continue reading… 6 CommentsOver and over, Barack Obama's economic advisers have said that tax rates don't affect economic growth unless they get stratospherically high. But here is what Obama said yesterday on ABC in response to a question about whether he would postpone his tax hikes given the state of the economy: "I think we've got to take a look and see where the economy is. I mean, the economy is weak right now." Exactamundo! Raising taxes in the name of equity is a luxury we can't afford in a hypercompetitive global economy. This is also another sign that McCain's tax attacks are working, I would think.
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McCain Speech His Biggest Gamble Yet
Continue reading… 7 CommentsHere's the nine-word version of John McCain's speech last night: Vote for the Man not the the Economic Plan. By my count, McCain spent just under one fifth of his acceptance speech—about 18 percent—last night talking about the economy, easily the No. 1 issue with voters today. The vast majority of the address was devoted to a mix of biography, foreign policy, political reform, and what I guess you could describe as a call to national duty. This speech was really a personal statement more than a policy statement.
Now compare that to Bill Clinton's 1992 nomination acceptance speech to the Democratic National Convention. The economy, though far stronger than the one today, was the No. 1 issue back then, too. (This was the "It's the economy stupid" election.) Still, Clinton spent closer to a third of his speech, 30 percent, talking about the struggles of the middle class and how he and Uncle Sam were going to help. And Barack Obama? Well, he devoted roughly 45 percent of a slightly longer speech last week to the economy.
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Lt. Commander John McCain Reporting for Duty
Continue reading… 4 CommentsJimmy P. at the RNC—Tonight, John McCain has to pretend he's walking into an aircraft carrier "ready room" full of concerned aviators waiting to hear what exactly the mission is and how they can accomplish it. America needs to hear The Prosperity Plan and how it will lead to economic victory:
From the campaign's perspective, the key points McCain needs to hit hard tonight:
1) Energy - lowering gas prices through more supply.
2) Energy - achieving independence and security.
3) Energy - transitioning to the post-hydrocarbon economy.
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McCain and Lieberman Take the Stage
Continue reading… 1 CommentJimmy P. at the RNC—John McCain just walked out into the arena to practice using the teleprompter and get used to the new stage that extends into the crowd. Interestingly, he was accompanied by Joe Lieberman rather than Sarah Palin. A piece of the speech rolling by concerns Russia's invasion of Georgia. The "Soviet Union" and "cold war" get a mention.
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McCainonomics vs. Obamanomics
Continue reading… 1 CommentJimmy P. at the RNC— Democrats continue to rip John McCain for saying last month that he still believes "the fundamentals of our economy are strong." Of course, at the Democratic convention, speaker after speaker said the economy was on the verge of a depression. And 60 percent of the DNC delegates I polled think we are already in a depression. Yes, oil prices are too high. And there is a credit crunch. And home prices continue to sink. But the economy probably grew at close to 4 percent in the second quarter. And then there is this boffo piece of news out this morning: Business productivity was revised up sharply to 4.3 percent in the second quarter (up from the previously reported 2.2 percent). That represents "a substantial acceleration" from a solid 2.6 percent gain in the first quarter, according to Global Insight. And as economist Brian Wesbury puts it: "The productivity boom continues, keeping the economy growing at a healthy pace even as businesses trim payrolls. As a result, the long-term prospects for U.S. economic growth remain strong. Non-farm productivity is up 3.4 percent versus last year." Productivity, economists on the left and right agree, represents the single best variable for judging the intrinsic strength of an economy. If our workers are trained, our technology advanced and our business models smart, that will show up in the productivity numbers. This is really good news. What's more, high productivity and low wage inflation—the case right now—often presages higher job growth. 2009 might be a pretty good year for the economy. But McCain would be wise not to dwell on that angle in his speech tonight and instead focus on returning America to prosperity with rising incomes and high job growth.
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Is Sarah Palin a Cubbie Fan?
Continue reading… 5 CommentsJimmy P. at the RNC— The GOP ran out of time last night and never got to show its Sarah Palin video. I assume it will soon be posted at the RNC's convention website. But I just saw a clip on Fox News. In it, Todd Palin is shown wearing a Cub's hat. Might Sarah Palin be a Cub's fan as well? And if so, will she be able to handle the duties of running for veep despite the distraction of a probable Cub's playoff run?
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Palin Speech: Sarah America vs. Sarah Barracuda
Continue reading… 10 CommentsJimmy P. at the RNC—My take on Sarah Palin's speech last night? A bit too much Sarah Barracuda, not enough Sarah America. Now don't get me wrong. I certainly agree with just about every other pundit out there that it was a smash performance. But she could have cut out some of the snark and included more on how McCain-Palin are going to get the economy to work better for the middle class folks she knows so well. I know that will be mainly her boss's job this week, but she could have done more on that front. The more energy talk the better for the McCain campaign. I think my pal Larry Kudlow nails it with an astute piece of political analysis:
But I do not think she connected with folks on the economic slump, nor did she present an economic growth recovery plan. Rudy Giuliani made the first foray into that area in his speech when he talked about restoring economic growth through tax cuts and drilling. But he did not get to gas pump prices and the oil shock-driven consumer shortfall in real purchasing power, or the threat of more job losses and higher unemployment which casts a shadow over public confidence and the investor class stock market. Palin, however, can expand her oil and gas drill, drill drill to get to gas prices and the economy. She laid the groundwork tonight. It's only a short stone's throw from tonight's speech to an effectively fleshed out message.... Wouldn't it be great if she and McCain adopted a strong pro-growth tax reform plan to reduce tax-rates across the board, get rid of the corrupt loopholes and tax earmarks defended by the old order in Washington, and combine their ethical corruption cause with prosperity tax cuts? Even a currency reform to restore King Dollar? Along with America First energy reform, where Palin made such a good start this evening?
