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Daschle Withdraws from Obama HHS Secretary Nomination
Tweet Share on Facebook February 3, 2009 Comment (5)Looks like Tom Daschle has withdrawn his nomination to be Health and Human Services secretary because of tax issues. President Obama has accepted the withdrawl with "sadness and regret." And it's a twofer since Nancy Killefer, Obama's pick to be chief performance officer, also withdrew herself due to employment tax problems with household help.
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Ron Paul: Cut Taxes. Cut Taxes Now
Tweet Share on Facebook February 2, 2009 Comment (16)From Rep. Ron Paul's web site:
When [the fedeal government uses] the tax code, bureaucratic departments and their manipulative rules and regulations to dictate social and economic behavior, we end up with distortions and malinvestments.ailing out banks, continuing failed Fed policies and strapping the taxpayer with toxic debt will worsen the pain, and punish the innocent.If Congress really wanted to do something helpful, it would cut taxes.> Ideally, we would repeal the income tax altogether and get the IRS off the economy’s back, which would be a huge boon.
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Jim Cramer: Obama is Like Lenin
Tweet Share on Facebook February 2, 2009 Comment (6)CNBC's Jim Cramer had this to say today about President Obama today on MSNBC (via the Business and Media Institute):
"Let me tell you something, we heard Lenin,” Cramer said. “There was a little snippet last week that was, ‘Now is not the time for profits.’ Look - in Lenin’s book, ‘What Is to Be Done?’ is simple text of what I always though was for the communists, it was remarkable to hear very similar language from ‘What Is to Be Done?’ which is we have no place for profits. ... It’s the time for nationalization, and I’ll say this, either the new economic policy Lenin, or it’s the initial storm-the-winter palace Lenin. I’m not quite sure yet. It’s a mid-’20s situation. It could go either way.”
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Some Green Shoots
Tweet Share on Facebook February 2, 2009 Comment (1)As much as I like the idea of economic "mustard seeds," I may actually prefer "green shoots" coming from the frozen winter earth. It is a metaphor tossed around at Davos. Here are some green shoots from Wesbury & Stein over at First Trust Advisers:
Despite continued problems in financial markets, sensitive commodity and transportation prices – the seismic indicators of economic geology – suggest that the economy may be “catching gear.” For certain, these are very early rumblings. But they are rumblings nonetheless. The price of gold has increased about $200 per ounce in the past 10 weeks.
Some argue that this represents a flight to safety, but Treasury bill, note and bond yields are up recently, suggesting this may not be the case. Meanwhile, oil prices bottomed in the mid-$30s and appear range-bound just above the $40 per barrel price. Another positive sign is that the Baltic Freight Index, a measure of international shipping prices, appears to have bottomed two months ago in early December and is up about 60% since then. This is a small rebound from the massive 94% drop from June to December, but it represents a notable turning point in direction.
Other key commodity prices, such as copper, nickel and aluminum have stabilized after bottoming in November. If “Great Depression II” were truly upon us, these commodities would not have found a bottom. During recessions, it is typical for investors to reach a point where they start to think that “this time around” monetary policy will not work. The long lags while we wait for the Fed’s bullets to hit the target cause many to lose faith. We doubt things are really different this time. Monetary policy is extremely loose and the seismic drums are scratching away. Some early warning signals suggest that despite real GDP weakness, an economic recovery should start taking hold by mid-year.
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2012 GOP Contenders and the Stimulus Plan
Tweet Share on Facebook February 2, 2009 Comment (12)The skinny from the Cato Institute:
In the “give me my pork” camp are governors Sarah Palin, Charlie Crist, and Tim Pawlenty. Palin, darling of many “movement” conservatives came all the way to Washington to lobby for the bill. Crist worked the phones, unsuccessfully trying to convince Republican House members from Florida to support the bill. Pawlenty admits some concern over the bill’s impact on the federal deficit, but says, governors “are entitled to ask for our share of the money.”
On the other side, former Massachusetts governor Mitt Romney says that he opposes the bill. Louisiana governor Bobby Jindal also opposes the stimulus bill, though he admits he may accept the money if it passes. Taking the strongest stand against the bill is South Carolina governor Mark Sanford, who not only opposes the bill but says he probably would not accept any funds for his state. “It’s incumbent on me as one of the nation’s governors to speak out against what I believe is ultimately incredibly harmful to the economy, to taxpayers and to the worth of the U.S. dollar,” Sanford said.
It’s a long way to 2012, of course, but it looks like Republican voters will have some clear choices.
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Fun With Bank Nationalization
Tweet Share on Facebook February 2, 2009 Comment (2)Superstrategist Andy Bush of BMO Capital Markets is very funny today:
Note To Congress: Go for it! Tell any new bank that's taking additional TARP money that they can't redo their offices, that they can't sponsor a baseball park, that they can't pay their executives bonuses, that they have to lend to people with bad credit, and that they have to break contracts for mortgages to extend terms.
Note To Market: Sell any bank or financial institution that agrees to these terms and takes TARP money. If Congress forces banks to take this deal, sell XLF hard. Zero is an option. Apparently, we have to wait until the stimulus plan gets passed before the Obama administration will bring up their solution to the banking system. I think this sector will remain under pressure due to the uncertainty not only of their toxic assets, but also the possibility that the new plan will close down/merge banks under duress with healthy banks. Watch for the trial balloons... -
Trillions More to Bail Out Banks? Bad Bank is a Bad Idea
Tweet Share on Facebook February 2, 2009 CommentHow much more do you want to spend on the banks? Trillions more to either buy bad debt or to inject capital directly? Not a very appetizing prospect. Adding that total to the $900 billion "stimulus" plan will only result in a push toward economy-crippling taxes in the future. David Goldman of the great Inner Workings blog has a better plan:
Let banks hold the AAA subprimes on their books at par, and write them down only as cash flows are impaired. The writedown should simply be proportional to impairment. Then they can buy new securities if the cash flows seem attractive. ... AAA asset prices were artificially high under the stupid old regime of excessive leverage, and are artificially now after the collapse of levered structures. The market never had anything to do with it. It’s all been an artifact of regulatory policy. ... If the regulators suspend mark-to-market, investors won’t trust the banks. Of course, they don’t trust the banks now, so there’s nothing lost. Suspending mark-to-market would have to be combined with some of the measures already in place, e.g. guarantees against default for a certain percentage of assets on banks’ books, and guarantees for some of their new debt (although Goldman, Sachs managed to issue debt on Friday at around 500 bps above the Treasury curve without a guarantee). If AAA subprime bonds are trading in the $50s and actually are worth in the $60s or $70s, then providing a guarantee at $50 should cost the government nothing.
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Odds of U.S. Debt Default Rise
Tweet Share on Facebook February 2, 2009 Comment (1)This Bloomberg story notes that the cost of protecting $10 million of U.S. five-year bonds from default has increased by nearly 800 percent during the past year. (Thanks to Capital Gains and Games.)
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Obama Stimulus: Less Than 25 Percent is Actually Stimulus
Tweet Share on Facebook February 2, 2009 Comment (22)President Obama used some pretty gloomy language in his radio address over the weekend: "Americans know that our economic recovery will take years -- not months. ... Rarely in history has our country faced economic problems as devastating as this crisis."
Let's say your house is burning down, and you have a water hose in your hand. Do you a) try to put out the fire; b) start filling up your pool; c) sprinkle your lawn; or d) some combo of "a," "b" and "c." To the Obama administration's credit, it didn't choose "b" or "c." Unfortunately, it went with "d." Although there has been a sense of urgency in getting the stimulus bill passed, the bill itself shows little urgency in doing much to help the economy.
Economist Robert Brusca of Fact and Opinion Economics analyzed the House and Senate versions of the stimulus plan and categorized the main elements as either Cushion (they make the downturn feel less painful), Agenda (they are items from a Democratic policy wishlist) or Stimulus (they are actually intended to boost the economy.) Here is his take on the Senate plan:
It is hard to categorize the spending. But I have looked at the Senate plan in more detail and my rough estimate is that its $365bln of spending is roughly 24% stimulus, 36% cushion and 40% agenda.
And here is his take on the House plan:
The CBO has scored the HOUSE plan and has found that of the House plan's $819 bln of spending and tax cuts only 21% will have impact in 2009 and by the end of 2010 only 64% of the plan will have had its impact on the deficit. Almost by definition then, we can say that 36% of the House plan is 'Agenda' since it is going to have its impact beyond the year 2010 and can't be categorized in any reasonable way as a recession buster.
His bottom line:
There are all sorts of clear Democrat agenda items in the spending portion of this bill. Much of it is on social welfare type plans. But the monies being spent in pursuit of Green also look much more agenda-like that stimulus-like. I say that because the markets, left alone, don't do Green. They don't because Green is not economic. So spending in which you spur that which is not economic surely is 'agenda' driven. ... It is no wonder Republicans are angry about how this is being done. You can disagree with my numbers but clearly there is a lot of Democrat policy that is whizzing past us in the sheep's clothing of stimulus.
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