Capital Commerce
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Betting Markets: McCain Closes Gap on Obama
Continue reading… 5 CommentsSomething is afoot over at the Intrade online betting market. The odds of Barack Obama being elected have tumbled from near 70 percent earlier this month to just below 60 percent right now, while John McCain's odds have risen from just below 30 percent to around 37 percent. That's a huge move for such a widely traded contract this far from Election Day. Maybe it's because if you combine the most recent Gallup and Rasmussen polls—with a combined survey group of close to 6,000—Obama has only a slim 1.5 percentage-point lead despite Obama's tour of Europe. I'm telling you, this is going to be 2000 all over again, with the winner of the popular vote losing the electoral vote. Oh, by the way, the Intrade odds of a recession this year remain at a lowly 20 percent.
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America's Politically Correct Recession
Continue reading… 9 CommentsIs America in a recession? Sure we are. After all, the media say we are. Political candidates say we are. Our friends who are underwater on their homes say we are.
But the actual economic numbers? Well, not so much. The Commerce Department said today that the economy grew at a 1.9 percent annual rate in the second quarter. (A number that may well be revised higher.) What's more, revised first-quarter growth came in at 0.9 percent. Yes, the fourth quarter of 2007 was revised downward to a negative 0.2 percent, but the third quarter was revised way upward to 4.8 percent from 3.8 percent.
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Obama and the Socialist 'Thing'
Continue reading… 29 Comments"Is Barack Obama a socialist?" is the question asked once again, this time by the liberal New Republic magazine. (Reporters asked John McCain that same question recently, and he cheekily replied, "I don't know.") It is a question I addressed some time back:
Such campaign season silliness aside, it is certainly true that Obama has chosen to pursue government solutions rather than market solutions to problems such as possible climate change, healthcare, Social Security solvency, income inequality, the trade deficit, and education. Compare those views with those of Bill Clinton, who cut capital gains taxes, pushed free trade, and floated the idea of having the government invest Social Security dough in the stock market.
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McCainomics and Obamanomics: DOA?
Continue reading… 1 CommentYou can pretty much forget about all these campaign promises, according to my guy Dan Clifton over at the Strategas Group. His two cents:
Yesterday the Bush administration released their updated forecast for the FY'09 budget deficit—$483bn. This forecast does NOT include the assumption of a recession or a material increase in unemployment. If either or both of these two scenarios develop, which is likely, the new president will have to scuttle campaign promised tax cuts and infrastructure spending and look to tax increases to raise revenue. The first group which could see their campaign promises evaporate is the middle class—but we note, the bottom 50% of taxpayers paid just 3% of all income taxes in 2006, leaving little room to cut their taxes further. Knowing this, both campaigns are increasingly looking to entitlement "reform" as a vehicle to increase taxes, much in the same way as President Reagan and Speaker O'Neill did in the early '80s.
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Is Obamanomics Really Recessionomics?
Continue reading… 6 CommentsLet's say Barack Obama is elected our 44th president. And let's further assume that when he takes office, he faces an economy that is, at best, sluggish. Finally, let's assume he and an overwhelmingly Democratic Congress pass a tax-and-spending package similar to the one Obama is campaigning on. Will that help or hurt the economy? In today's Wall Street Journal, former Bush I economist Michael Boskin thinks it's the latter: "If the proposals espoused by candidate Obama ever became law, the American economy would suffer a serious setback." The key data paragraph is this:
The top 35% marginal income tax rate rises to 39.6%; adding the state income tax, the Medicare tax, the effect of the deduction phase-out and Mr. Obama's new Social Security tax (of up to 12.4%) increases the total combined marginal tax rate on additional labor earnings (or small business income) from 44.6% to a whopping 62.8%. People respond to what they get to keep after tax, which the Obama plan reduces from 55.4 cents on the dollar to 37.2 cents—a reduction of one-third in the after-tax wage!
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Can America Go Bankrupt?
Continue reading… 13 CommentsLet's see here: $500 billion budget deficits, the possibility of a $500 billion bank bailout in 2009, and exploding entitlement costs. Surely, this can't be good. My pal Arnold Kling doesn't think so:
Think of the U.S. government as the world's biggest hedge fund. One thing a hedge fund does is engage in credit arbitrage. When you can borrow risk-free, you can make a profit holding risky assets. That is what Congress is hoping will happen with the Freddie-Fannie bailout. We have grown accustomed to the assumption that the risk of default of U.S. government liabilities is zero. That in turn allows Congress to act like the biggest hedge fund on the block. Consider the long-term obligations of the U.S. government: Social Security, Medicare, the Pension Benefit Guaranty Corporation, public employee pension plans. Add to those the risks of the securities that the government is effectively choosing to guarantee in the Bear Stearns merger, the Freddie-Fannie prop-up, and other steps that are being taken or will be taken in the mortgage and financial market. It seems to me that in order to achieve short-term stability we are piling on long-term fragility.... If people do not have confidence in the long-term financial stability of the U.S. government, the chances are that they will not have much confidence in the long-term stability of U.S. corporations, and so you would see a collapse of long-term investment altogether.
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Housing May Be Making a Bottom
Continue reading… 2 CommentsA bit of cheer from the econ team at Action Economics:
In total, the sales statistics for the U.S. real estate market may be forming a bottom as we digest the most recent bout of financial market stress in July, which would be a welcome relief for the beleaguered housing market. We are hardly out of the woods, however, and rising mortgage rates and recent turmoil may still disrupt this recent flattening pattern. The price data will inevitably lag the volume figures, though the rate of price decline for all but the S&P Case Shiller figures seems to have stabilized for now as well, in the 3%-6% [year-over-year] area. The construction figures are also exhibiting some early signs of stabilization.
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McCain Veep Nominee: Pawlenty or Romney, Romney or Pawlenty
Continue reading… 17 CommentsVice presidential speculation intensifies! The common wisdom—and the betting markets—seem to be congealing around Tim Pawlenty and Mitt Romney as the two likely picks to be John McCain's running mate. Like many others today, I have heard the pick will be made much sooner rather than later. Pawlenty has the momentum in the Speculation Sweepstakes, but my sources still think it will be Romney.
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McCain and Social Security Taxes
Continue reading… 4 CommentsRamesh Ponnuru has a post over at the Corner about McCain's seeming willingness—per his ABC News interview—to raise Social Security taxes.
My take: I know of no political analyst who thinks a President McCain could fix Social Security with a Democratic Congress without agreeing to higher taxes as part of the deal. Even McCain points to the tax-hiking Greenspan Commission of the 1980s as a model of bipartisanship. And McCain has in the past gone on the record in favor of just such a compromise. Maybe because a McCain win would be such an upset, he would come into office with amazing momentum and impose his will on stunned Democrats. Maybe.
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Obamanomics and Trillion-Dollar Deficits
Continue reading… 2 CommentsSo we're looking at a $500 billion federal budget deficit, at least, in 2009, according to White House sources in published reports. None of this will be news to regular Capital Commerce readers. A few thoughts on this:
1) Neither presidential campaign anticipated this back in early 2007 when they were cooking up their economic agendas.
2) This huge deficit number does not include the cost of any further housing bailouts, such as a $500 million-to-$1 trillion buyout of bad mortgage debt. (It may well be coming, folks.)
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A Chat With McCain's Economic Brain, Douglas Holtz-Eakin
Continue reading… 2 CommentsI recently interviewed Douglas Holtz-Eakin, John McCain's economic guru, over at McCain HQ. Here is some of what he had to say about the weak economy, high gas prices, and the plunging housing market, with the best bits in boldface:
Me: Is the economy a "shambles" like Senator McCain's campaign commercials say it is?
Douglas Holtz-Eakin: It's fair to say that segments of the economy are in shambles. I think the economy has this sort of very interesting character right now. If you make something in America—except a house—you're hanging in there, and exports in particular are helping you tremendously. But if you finance something in America, you are in a world of hurt, and that's what's happening. So we have some regional distress because of the housing market, some sector distress, and we do have a lack of momentum that we would like to turn around.
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Are Americans Really Getting Poorer?
Continue reading… 5 CommentsSome fine research from the Tax Foundation provides a nice reality check on the claim that Americans are poorer now than in 2000. Depending on how you measure income, the median household income fell by 3.8 percent from 2000 to 2006...or it rose by 3.1 percent ...or it did something in between.
Then there is this: Is it fair to use the year 2000 as a baseline year when incomes were inflated by a stock market bubble? My pal Jared Bernstein, an economist over at the Economic Policy Institute and author of a book on the so-called middle-class squeeze, said the following in front of a congressional panel this week:
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Poll: Americans Don’t Want a New New Deal
Continue reading… 3 CommentsPresidential candidates, please focus on this: A Gallup Poll found that Americans overwhelmingly—by 84 percent to 13 percent—prefer that the "government focus on improving overall economic conditions and the jobs situation in the United States as opposed to taking steps to distribute wealth more evenly among Americans."
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Dude, Where’s My Recession? The Series
Continue reading… 1 CommentFrom the brainiacs at Action Economics:
Today's U.S. economic reports provide a solid round of upside surprises, with 1) a robust June orders figure for durables ex-transportation that defied ongoing recession fears, 2) upward revisions to the new home sales data through Q2 that took the edge off the steep sales down-trend and raised hope of a potential bottoming in the sector, and 3) a sizable upward revision in the July Michigan sentiment figures that generally leaves what may be a June bottom in place for most measures of consumer confidence.
Me: While some folks may see America as beaten-down and rancid Gotham City, I see it as Metropolis, the City of Tomorrow. And right now the economic numbers continue to say "no recession."
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Romney: McCain Won't Pick Me as Veep
Continue reading… 56 CommentsHigh gas prices, rising unemployment, and tumbling home values may be lousy news for most Americans, but more and more our troubled economy looks like just the ticket for getting veep short-lister Mitt Romney on the bill with John McCain. Romney, my sources tell me, is insisting to top politicos in Boston and Washington that he does not think McCain will pick him. Problem is, few of these folks are buying the humble act. Here is what one conservative insider with Romney ties just told me in an E-mail:
My gut tells me he is going to choose Romney. He's vetted, he is credible on economic issues, he is acceptable to all three wings of the GOP conservative base (economic conservatives, social conservatives—except for strain of anti-mormonism in some southern states, national security conservatives), he is a proven vote getter in Michigan (also the Romney name is good in Wisconsin, where his dad opened up auto plants), there are a lot of mormons in CO, NM, NV—all key swing states, and he can provide a big boost to McCain's fundraising.
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Obama Vs. the Bond Market
Continue reading… 0 CommentsBarack Obama has no intention of trying to balance the budget anytime soon. Here is what he will try to do (and this is straight from Team Obama): "Obama's plan pays for all proposals and cuts the deficit from its 2008 level and relative to what would happen if current policies were continued. He would like to balance the budget but with the tremendous economic and global uncertainty cannot make a specific promise about when that will happen."
In other words, 1) Obama's projections assume the Bush tax cuts don't expire even though they do at the end of 2010; 2) Obama isn't going to pull a Clinton and sacrifice his "investment agenda" to please budget hawks and the bond market. (And let me add a third point: I think Obama believes getting entitlements under control is more important than annual budget deficits. Just a guess.)
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4 Reasons (Yes, Just 4!) to Worry More About the Economy
Continue reading… 0 CommentsMy guy Mike "Hate the economy, love the stock market" Darda, chief economist at MKM Partners, gives yet another sobering analysis (boldface mine) of the state of the world's largest and most productive economy:
1) Despite a multipronged monetary and fiscal effort to stop the hemorrhaging in housing and break the crisis of confidence in credit, the situation remains shaky.
2) Credit markets have not participated in the recent rally the financials have enjoyed—a red flag in our view. Mortgage spreads, swap spreads and lending standards are two standard deviations or more above historical norms. This will serve as a stiff headwind until or unless it reverses.
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Maybe We All Should Vote on the Housing Bill
Continue reading… 3 CommentsThe great Arnold Kling provides some insight into the megagigantic housing bill, the bad boy that the New York Times describes as "a landmark shift in the government's role in the housing market, extending a helping hand to both Wall Street and Main Street...[ranking] in importance with the creation of the Home Owners' Loan Corporation to prevent foreclosures in the 1930s as part of the New Deal, and legislation in 1989 responding to the savings and loan crisis."
Mr. Kling:
Basically, the housing bill rewards everyone who participated in the excesses of the housing market and punishes the rest of us. Lately, I've been reading a lot about Switzerland. There, just about any legislation is subject to veto by a popular referendum. This is an instance in which I wish we had a referendum in this country. I doubt that this housing bill would win more than 20 percent of the vote.
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How We Turned the American Dream Into a Nightmare
Continue reading… 6 CommentsJust as I was getting my noodle around the idea—suggested by some economists and Wall Street guys—that the government should flat out buy $500 billion in mortgage-backed securities from banks to end the credit crisis, economist Nouriel Roubini goes and ups the ante.
Roubini, the Official Doomsayer of the 21st-Century Housing Crisis, thinks Uncle Sam is going to de facto nationalize U.S. housing via a $1 trillion housing-mortgage bailout. That would be in addition to, I would guess, a complete takeover of Fannie Mae and Freddie Mac. (If he's right, the government had better be careful, or there won't be enough dough left over to bail out GM and Ford, as well as pay for Al Gore's $5 trillion energy plan.)
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Economic Model Predicts an Obama Landslide
Continue reading… 9 CommentsThis from Macroeconomic Advisers, the well-known economic consulting firm, using the forecasting model of Yale University political scientist Ray Fair:
The Macroeconomic Advisers, LLC (MA) Presidential election model predicts that Democratic presidential candidate Senator Barack Obama will win 54.8 percent of the two-party popular vote and Republican presidential candidate Senator John McCain will receive 45.2 percent in the November election, given economic conditions expected through the fall.... The Presidential election model relies upon four political factors—candidate of the incumbent party, approval rating of the incumbent candidate (if running), party, and incumbent party's term in office—and three economic factors—real income growth, the unemployment rate, and the change in energy prices. Together, these seven factors predict the share of the two-party popular vote garnered by the incumbent party. This model has correctly predicted the winning party 12 out of 14 times in our sample, and predicted the popular vote better than the original model developed by Ray Fair.... According to this model, an expected 47% increase in the price of oil (WTI) in the three quarters leading up to the election would reduce Senator McCain's vote tally by 2.9 percentage points, while weak real disposable personal income growth over the same period would reduce it by 3.3 percentage points.
