Friday, November 30, 2012

Arrrghhh! MSM please dig a little deeper









Sunday, November 25, 2012

Was Black Friday a Boom or a Bust?









Friday, November 16, 2012

I swear I had no inside info :)

However, it only took about 12 hours since my last post for many of the guesses that I put forth to start hitting the wires.  Here's the my summary - I believe Wall St. has told the White House and Congress that all of this "fiscal cliff" talk is freaking people out and that is why the market has tumbled for a week.  This is not the case, in my opinion, but then again why let facts get in the way of a good story.  

So, instead of working hard to get a deal struck in the next few weeks, the White House and Congress are in talks to take the easier path and (oh, goodness we'll get tired of hearing this phrase in about 48 hours) "kick the can down the road".

The markets have reacted positively to this rumor so far (remember the markets want the status quo - easy money and no spending cuts or tax hikes - good for their immediate bonus outlook, but bad for the future of the US).

Here's what the WSJ is reporting....


By postponing the sequester cuts, Washington would essentially push off a number of large deficit-reduction decisions into mid-2013. This would include a long-term plan to replace the remaining sequester cuts, a plan to overhaul the tax code, and separate decisions about how to restructure Medicare and Medicaid.

 The plan that has been discussed by White House officials is similar in many ways to what lawmakers have discussed. It would terminate the spending cuts for a period of six to 12 months, and replace the cuts with more targeted reductions and revenue increases. House Republicans have proposed a similar model, though they have called for terminating the cuts to defense programs only and haven't accepted a deal to include tax increases as part of any package."

Remember that this will be sold to you as some sort of grand compromise when all it really is is a deferral of the deadline to make some hard choices.

Thursday, November 15, 2012

What's going on?




Spending cuts (less than 1% of GDP)
* $87 billion in across the board cuts
* $35 billion - expiration of extended unemployment benefits
* $15 billion - reduced Medicare Dr. payments

New taxes (about 3% of GDP)
* $24 billion new taxes
* $87 billion other taxes that expire
* $127 billion payroll tax holidays
* $295 billion tax rates return to 2001 levels and AMT






Monday, November 12, 2012

Fiscal Cliff HYPE coming to a theater near you

Yes, there is a real deadline coming that should force some compromise in Washington.  I'll give you my best guess of how it plays out but first let's separate hype from reality.

What is this cliff the talking heads are all talking about so breathlessly?  Well, the Budget Control act of 2011 instituted a combination of forced spending cuts and the forced expiration of temporary tax cuts which could cut up to $500 billion from our projected deficit in 2013.  That's the good news (I guess) that we'd only have about a $500 billion deficit left to deal with.  The bad news is that these moves (primarily the spending cuts) will likely lead to a contraction in our economy and in all likelihood a slide back into recession. 

The worst case scenario would be no compromise and a complete implementation of the BCA's  cuts.  However, I think this is an unlikely scenario.  The much more likely scenario is that we hit a fiscal "speed bump" and a compromise is reached to maintain the status quo.

Here's my 50,000 foot view of what I think will happen:

* taxes on dividends and capital gains are going up (this raises revenues but allows the Grover Norquist's of the world to say "See he/she didn't raise marginal tax rates) the only question is how high the rates will go.

* The payroll tax cut will probably be extended again.  This is an easy giveaway that is popular on both sides of the aisle.

* Special tax benefits - like accelerated depreciation for companies and the sacred mortgage interest deduction are in the cross hairs.  I never thought Congress would really touch the mortgage interest deduction but if you think about it where would the effect of this be the most pronounced?  Where property values are the highest and guess where property values are the highest?  Those blue coasts on both sides of the US (NY, NJ, MA, CT, CA, WA) and the impact on someone with a $85k home in Montana will be less pronounced.  I hate to see politics driving economic policy but it could play a role here.

* Military spending - this will probably be the most difficult negotiation and I don't know how it will end.  I suspect there will be some cuts in civilian staffing but I do not think we'll come close to cutting $100 billion from defense.  If I were President Obama I'd call up Gov. Romney and ask if he'd like to head up a special project.  The US defense department would be the perfect private equity target - valuable assets, workforce issues, an industry that technology could change - and Mr. Romney would be the perfect person to head a commission on streamlining the military.  I'm only half-joking on this idea.

So hopefully, at this point you can see that the fiscal cliff is likely to be a little more than a road bump.  It is unlike the debt ceiling debate which nearly crippled the economy in 2011 (unfortunately, we'll probably have another one of those debates in the next 3 months).

However, this won't stop the media from reporting on the fiscal cliff like it is the second coming of Superstorm Sandy.  Look at the google search index for the term fiscal cliff in the past 2 weeks.

Every time the market dips expect people to jump to the "It's the uncertainty caused by the fiscal cliff!!!" line.  However, the bigger factors are Asia's slowdown, Europe's slowdown and weakness of our export data.


Wednesday, November 07, 2012

Well, two out of three ain't bad








* Europe's economy
* The war drumbeat with Iran
* Sandy's impact on the Northeast economy

It should be interesting.

Thanks for voting!


Monday, November 05, 2012

Is anything happening tomorrow?

Finally, we get to move beyond the "Local TV Reinvestment and Recovery Act of 2012" aka, the election season, tomorrow.

I won't offer any endorsements or advice because politics remain the third rail of the blogosphere, but I will encourage everyone to vote.  I will, however, give some thoughts on the national campaign and its potential impact on the markets.

The consensus right now is moving toward an ugly, ugly forecast.  Many pundits predict that Romney wins the popular vote by 1 - 1.5 million but loses the electoral college by 15 votes or so.  This is roughly the same scenario as 2000 (when Gore won the popular vote by 500k or so) but the implications in today's increasingly partisan world are scary.  The likelihood of this happening has increased as a result of the East Coast superstorm which will suppress voting in the Northeast.  It doesn't put any of these traditional democratic states in play but it will likely lower the overall vote totals for President Obama.

Scenario 1 - If the electoral victory for Obama is clear I think the initial reaction by the markets would probably be positive, but concerns over the pending fiscal cliff and resistance to compromise from both parties would like dampen any enthusiasm.

Scenario 2 - The same as #1 but what happens if the victory is not clear?  I've heard that the parties have plans in place to demand Florida-style recounts in up to 5 states.  This is a nightmare scenario for the markets as they struggle with the uncertainty this would create.

Scenario 3 - Romney wins both the popular vote and the electoral college.  I think the markets would welcome this news because it would remove uncertainty.  However, the Senate should remain in Democratic hands and that would still cause some concern about Governor Romney's ability to craft a plan to avoid the fiscal cliff.


Last week, I was leaning toward Scenario 1 as being the most likely but I'm uncomfortable being part of the consensus.  When everyone is expecting A, B usually happens.  In this case, the market seems to be focused on a President Obama electoral victory (betting odds are running around 75%-80%) but more and more people are coming around to the idea of a Romney popular vote victory.

I usually like to be a contrarian so I'll switch my leanings toward scenario #4.  I suspect that the trend we've seen in polling in recent years will continue ie; missing the under 25 crowd.  Pollsters are really, really bad at getting in touch with the under 25 crowd despite their best efforts because this group of voters either doesn't have a landline or ignores the pollsters when they call on their cell phones.

This leads to an even bigger question when it comes to the validity of polls.  Recently, a Pew Research paper indicated that for every 100 homes contacted only 9 actually answer their polls.  I wonder what the response rate was like 1952 or 1972?

However, it turns out make sure to have your voice heard and get out and vote!