February 23rd, 2010
On October 16 I wrote a post titled “Tax Increases And Our Economic Situation.” That post can be found at this link.
Some may wonder what tax increases I am referring to, as at least headline tax rates have yet to increase in many areas. Tax increases have been deferred for many reasons. Among these reasons is the negative political ramifications of raising taxes before the upcoming November elections.
However, if we are to at least partially curtail our current deficit levels, an increase in taxes is likely certain. Everyone should know this, at least intuitively; and I believe there is widespread recognition of these impending tax increases.
Thus, our current economic situation is such: economic weakness that is met with stimulus / deficit spending – that then leads to tax increases. These tax increases – during a time of economic weakness – will likely weigh (very) heavily against any lasting economic recovery.
This situation may not be inherently problematical if the stimulus / deficit spending was indeed highly economically stimulative. However, if it is not (and there is little if any evidence that recent stimulus programs have been), a “vicious circle” may form – with large stimulus / deficit spending driving ever-higher taxes – with the net result a weaker – and more highly-indebted economy. This weaker economy in turn drives higher stimulus / deficit spending – and ever-higher taxes.
There are a lot of complexities and other factors at work in this relationship; however, such an in-depth discussion would be too prohibitively lengthy and complex for a blog post.
However, as one can envision, this “vicious circle” can become very pernicious on many fronts.
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SPX at 1107.93 as this post is written
Tags: additional stimulus, tax increases
Posted in Intervention, Uncategorized | Comments Off
February 22nd, 2010
Here is poll (in PDF format) on economic conditions that I believe is highly notable. It is from CNN and was conducted February 12-15, 2010.
The question presented was “How would you rate the economic conditions in the country today — as very good, somewhat good, somewhat poor, or very poor?”
A total of 83% replied economic conditions were “somewhat poor” or “very poor.” 44% of respondents said conditions were “very poor.”
Of further note, when one looks at the trend of the responses, there hasn’t been much of an improvement from year-ago levels.
Although this is only one survey, I think it is notable in that it seems to belie many other economic statistics that have been used to support the widely-held theory that we are in an economic recovery.
This survey seems to support other statistics that indicate that many people believe current economic conditions to be poor – if not very much so. However, at the same time, some economic conditions surveys (and various economic indicators) show expectations for a strong economy in the future. One example of this was noted in my January 4 post, which is found here:
http://www.economicgreenfield.com/2010/01/04/consumer-confidence-disparities/
In my opinion, this large dichotomy can not, and will not, last.
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SPX at 1108 as this post is written
Tags: economic recovery
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February 22nd, 2010
The February Wall Street Journal Economic Forecast Survey can be found at this link.
There wasn’t much change in the survey results from last month. Also, as seen in the detail, there hasn’t been much change for many of the parameters for the last few months.
As I have previously commented, I find it highly notable that there is such a “tight” consensus among the forecasters – especially for the major forecasting categories such as GDP and unemployment.
This is supported by the following from the survey:
“The White House released its economic forecast Thursday, projecting payrolls will increase by an average of just 95,000 a month this year with the unemployment rate averaging 10%. The Council of Economic Advisors expects GDP growth to be about 3% in 2010, in line with the surveyed economists.”
This survey also asked respondents to rate the economic performance of Ben Bernanke, Treasury Secretary Geithner and President Obama. On a 1-100 scale, President Obama got an average score of 57, Treasury Secretary Geithner got an average score of 60, and Ben Bernanke got an average score of 78.
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I post various economic forecasts because I believe they should be carefully monitored. However, as regular readers of this blog are aware, I do not agree with the consensus estimates or much of the accompanying commentary.
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SPX at 1105.38 as this post is written
Tags: Economic Forecasts
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February 19th, 2010
In the Wall Street Journal on Saturday, February 13 there was an editorial titled “High-Speed Spending.” This discussed the dubious financial dynamics of a long-proposed “high speed” Orlando-to-Tampa rail project.
I also heard of a proposal to do a similar project between St. Louis and Chicago.
I have lived in the Chicago area for most of my life and have never heard anyone expressing a desire to have faster transportation (or such a “high speed” rail option) between St. Louis and Chicago. Yet, in this case, as in the Orlando-to-Tampa case, the proposed “high-speed” rail project would cost billions of dollars.
If we are looking to spend money on infrastructure, perhaps it would be wiser to spend on our existing infrastructure, which is literally crumbling. Estimates to fix our existing infrastructure range into the trillions of dollars. These estimated figures are rapidly growing.
Examples of wasteful deficit spending are innumerable, unfortunately. In my opinion, we, as a nation, are not in a position to waste any money at this point.
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SPX at 1102.12 as this post is written
Tags: deficits, stimulus
Posted in Intervention, Uncategorized | 1 Comment »
February 18th, 2010
On February 10th an editorial by Scott S. Powell appeared in Investor’s Business Daily titled “Greece’s Crisis: A Warning To Profligate U.S.?” The link can be found here.
I am highlighting this editorial as it discusses many important issues, most of which I have previously mentioned on this blog. As well, it compares our current financial situation to that of Greece’s.
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SPX at 1099.51 as this post is written
Tags: asset bubbles, deficits, national debt
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February 17th, 2010
Over the last few years, there has been an inverse correlation between price movements of the US Dollar and many asset classes. This inverse correlation appears to be strengthening over time.
This inverse correlation can be seen in the chart below. For the sake of simplicity, I am only comparing the USD to the S&P500 – but as aforementioned this inverse correlation can be seen among a diverse group of assets.
Here is the 10-year daily chart. As one can see, the inverse correlation appears to have started roughly during 2003, and has persisted to the present:
chart courtesy of StockCharts.com
While this inverse correlation has been frequently commented upon in the media, there are two aspects of this relationship that I have not heard discussed. First, what is causing this inverse correlation? Second, shouldn’t the existence of this relationship cause some unease?
The answer to both of these questions is likely complex. However, I do believe they are very important issues.
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SPX at 1094.87 as this post is written
Tags: assets, US Dollar
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February 16th, 2010
On Saturday The Wall Street Journal had an editorial titled “Escape from Taxation.” The link is here.
In the editorial, it is mentioned that higher-income people are moving out of New Jersey as the tax rate is increased.
In my article “America’s Trojan Horse” found at this link, I discussed the widely-held fallacy that debt and deficits are almost inconsequential because governments can always increase taxation to service and repay debt.
What is happening in New Jersey is an important example of how this “increasing debt / increasing taxation” dynamic plays out in the “real world” – especially during times of prolonged economic stress and high indebtedness.
The implications are very far-reaching with regard to the resolve of heightened levels of indebtedness.
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SPX at 1083.50 as this post is written
Tags: New Jersey, state budget deficits, tax increases
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February 15th, 2010
As a follow-up to yesterday’s post, here is a passage from Larry Summers’ March 13, 2009 speech that speaks of the importance of economic strength in achieving broader societal goals:
“Our single most important priority is bringing about economic recovery and ensuring that the next economic expansion, unlike it’s predecessors, is fundamentally sound and not driven by financial excess.
This is essential. Without robust and sustained economic expansion, we will not achieve any other national goal. We will not be able to project strength globally or reduce poverty locally. We will not be able to expand access to higher education or affordable health care. We will not be able to raise incomes for middle class families or create opportunities for new small businesses to thrive.”
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Our national goal to achieve a sustainable recovery (or what I frequently refer to as “Sustainable Prosperity”) has been and will continue to be a challenge, given various underlying fundamentals.
In order to achieve “Sustainable Prosperity” we will need to have a solid focus on planning our economic future and its dynamics. Toward this end, I wrote an article in May of last year titled “America’s Economic Future – ‘Greenfield’ or ‘Brownfield’?” which can be found listed along the right-hand side of the home page. That article, as well as others I have written, explores some of what I believe are pivotal issues that lack recognition with regard to our economic future.
All of my articles are also listed and summarized at this link:
http://www.economicgreenfield.com/prosperitybypencom-directory/
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SPX at 1075.51 as this post is written
Tags: America's Economic Future, Larry Summers, Sustainable Prosperity
Posted in "Economic Brownfield", "Economic Greenfield", America's Economic Future, Sustainable Prosperity, You | Comments Off
February 14th, 2010
One aspect of our current period of economic weakness that lacks broad recognition is the impact on society.
There are many different aspects of this societal impact, some of which I have already discussed on this blog.
Yesterday’s Wall Street Journal, page A3 had stories that serve as examples of this societal impact of economic weakness. One story was titled “Police, Fire Departments Face Budget Axe.” Another was “Fiscal Woes Push Up (School) Class Size.”
While it is difficult to quantify these societal impacts, they are nonetheless important.
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SPX at 1075.51 as this post is written
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February 12th, 2010
I have made various comments about Gold over the last few months.
One aspect during Gold’s price increase that I have noted as disconcerting is the relative lagging performance of the Gold stocks. I use the HUI index as a proxy for Gold stocks.
As one can see on the daily chart below, the Gold price is reflected in the top of the chart, followed by the HUI:Gold ratio and then HUI in green:
chart courtesy of StockCharts.com
The HUI index has lagged since approximately the beginning of 2008. Perhaps the main question is if/when might it start performing better? One potentially bullish sign is a potential Cup and Handle formation with the two peaks above 500 and current upswing serving as the “lid” and “handle” of the Cup and Handle formation, respectively.
Of course, this Cup and Handle formation is very tentative at this time. It is simply something to monitor. However, should this C&H formation “play out” with the HUI strongly advancing above the prior peaks above 500, one could reasonably expect the gold price to react positively if not very much so. Should it not play out, i.e. the HUI price falters or declines from here, would likely be a bearish omen for Gold.
As I have pointed out in previous posts, Gold’s price can have very important implications from many financial and economic perspectives. However, due to the complexity of the factors that determine Gold’s price, it can be very difficult to predict its price movements.
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SPX at 1066.43 as this post is written
Tags: gold, HUI:Gold
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