Capital Commerce
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Obama, GM and Chrysler
Continue reading… 8 CommentsWhy are people worried about government involvement in the auto industry? It's because they fear that we'll get the car version of these things.
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Biden, Swine Flu and the Economy
Continue reading… 2 CommentsLet's says the Biden Scenario is acccurate. Let's say we should be avoiding public places because of the swine flu. What is the economic impact of a pandemic that requires such measures? IHS Global Insight has run the numbers on Captain Trips:
Scenario One. "In an epidemic (roughly 75 million infected in the United States and 100,000 fatalities), the supply and demand effects cut less than 0.5% off the growth rate of real GDP and last less than a year. The impact in emerging markets would likely be two to three times as big."
Scenario Two: "In a more serious epidemic – or pandemic – with fatalities four to five times higher, the impact on real GDP growth in developed economies would be more like -2% to -3%. In the case of the United States, this could mean a growth rate of -4% to -5% in 2009 and an even bigger rise in the unemployment rate. For poorer countries, which are less able to cope with such an outbreak, the impact would be devastating, and produce downturns of depression-like proportions."
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Fun Housing Factoid of the Day
Continue reading… 2 CommentsThis from First Trust Advisers:
However, the stage is now set for a major turnaround in home building that will begin late this year and contribute substantially to the economy in 2010-11. Once the excess inventory is worked off completely, population growth and knock-downs will require about 1.6 million starts per year, which is more than triple the current rate. In other words, starts must climb 200% in the next few years just to get back to normal!
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Geithner and More Money for the Banks
Continue reading… 3 CommentsEven though most Americans may not have attended a Tax Day tea party yesterday, most of them are probably none too pleased about the bank bailout.That displeasure is reflected in the current unwillingness of Congress, even plenty of Democrats, to send any more dough their way. Yet the White House believes more taxpayer capital will likely be needed beyond whatever TARP money is still left. So what are Treasury Secretary TimGeithner's options. I think this about covers it:
1) Devote less money to the PPIP and TALF programs.
2) Free up money by using non-TARP money for the auto and housing bailouts.
3) Use the FDIC, which is attempting to expand it credit line to $500 billion, as a source of bailout funds.
4) Encourage, at some point, banks to repay their TARP injections so the money can be recycled.Bottom line: Unless the economy explodes upward, the White House will ask for more funds. Should be a fun battle to watch.
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Obama's Tax Cuts and Tax Hikes
Continue reading… 4 CommentsPresident Obama was talking up his record as a tax cutter earlier today. Hard to believe, then, that the Washington consensus is that taxes are going up for everybody in the future. I mean, take your pick -- income taxes, business taxes, investment taxes, energy taxes and healthcare taxes. Tax wonks are salivating over different ways they can raise revenue to pay for Obamacare. A value-added tax? A carbon tax. Not hearing much about that today.
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Bernanke: Blame China, Not Greenspan
Continue reading… 5 CommentsWhile not letting U.S. mortgage markets off the hook for the credit crisis, Federal Reserve Chairman Ben today Bernanke highlighted the role of excess savings from emerging Asia flowing:
In the past 10 to 15 years, the United States and some other industrial countries have been the recipients of a great deal of foreign saving. Much of this foreign saving came from fast-growing emerging market countries in Asia and other places where consumption has lagged behind rising incomes, as well as from oil-exporting nations that could not profitably invest all their revenue at home and thus looked abroad for investment opportunities. ... Saving inflows from abroad can be beneficial if the country that receives those inflows invests them well. Unfortunately, that was not always the case in the United States and some other countries. Financial institutions reacted to the surplus of available funds by competing aggressively for borrowers, and, in the years leading up to the crisis, credit to both households and businesses became relatively cheap and easy to obtain. One important consequence was a housing boom in the United States, a boom that was fueled in large part by a rapid expansion of mortgage lending. Unfortunately, much of this lending was poorly done, involving, for example, little or no down payment by the borrower or insufficient consideration by the lender of the borrower's ability to make the monthly payments.
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Analysis: Obama Georgetown Speech
Continue reading… 2 CommentsPresident Obama gave an economic pep talk today. Invoking some biblical imagery, the White House billed it as the "House Upon a Rock" speech. If all I knew about the U.S. economy came from listening to the president, I would think that we were a low-productivity country with an inefficient private sector dominated by Wall Street. Actually, we are a high productivity country with an extremely competitive private sector. Indeed, we have the most competitive economy in the world, according to the World Economic Forum. The U.S. economy is already built on a rock. We just need to rehab a few rooms, maybe replace some old wiring. This thing isn't a tear-down candidate. If we don't understand our strengths, we can't build upon them.
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Spencer Bachus and the '17 Socialists' in Congress
Continue reading… 9 CommentsOK, so Rep. Spencer Bachus, an Alabama Republican, told a Birmingham paper that there were 17 socialists in Congress. Of course, Newsweek has proclaimed "We're All Socialists Now." And a new Rasmussen poll found that just 53 percent of Americans thought "capitalism" was better than "socialism." I dunno, maybe the s-word isn't so negative an epithet anymore here in America. Liberal blogger Matthew Yglesias thanks Obama for that:
I think it reflects the fact that on a basic level “socialism” is good branding. The whole idea is that we should put society first rather than capital, or money. That sounds good! But in the United States we never had a Socialist Party so “socialism” was primarily associated with the Union of Soviet Socialist Republics which was not at all good. But to people under 30, there’s less of that old resonance. And saying that Obama, who’s popular, is a “socialist” may simply tend to make people have warmer feelings toward the word “socialism.”
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Unemployment, Democrats and the 2010 Election
Continue reading… 6 CommentsThe WSJ just caught up to something I have been writing about for months:
Just 12% of the economists expect the unemployment rate to fall some time this year. More than a third of respondents expect the jobless rate to peak in the first half of 2010, while about half don't see unemployment declining until the second half of 2010. ... The economists' forecasts indicate that the peak in the unemployment rate is likely to coincide with the midterm elections -- possibly bad news for Democrats. Even if the economy is growing, Americans still will be feeling the effects of the recession and could blame the incumbent. For example, when George H.W. Bush lost the presidency in 1992, the economy had been out of a recession for more than a year, but the unemployment rate didn't peak until June, and there was slow growth through the election.
Me: Obama has a deep reservoir of goodwill with voters. But do congressional Democrats? By all rights, 2010 should be at least another 198 when the Republicans lost 27 seats in the House in the midterm elections. High-tech gerrymandering will help the Dems hold seats, but it just be a tough year nonetheless.
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America's Uninsured
Continue reading… 17 CommentsFormer Bush White House economist Keith Hennesey walks his blog's readers through those "46 million American without health insurance."
1) There were 45.7 million uninsured people in the U.S. in 2007.
Of that amount, 6.4 million are the Medicaid undercount. These are people who are on one of two government health insurance programs, Medicaid or S-CHIP, but mistakenly (intentionally or not) tell the Census taker that they are uninsured. There is disagreement about the size of the Medicaid undercount. This figure is based on a 2005 analysis from the Department of Health and Human Services.2) Another 4.3 million are eligible for free or heavily subsidized government health insurance (again, either Medcaid or SCHIP), but have not yet signed up. While these people are not pre-enrolled in a health insurance program and are therefore counted as uninsured, if they were to go to an emergency room (or a free clinic), they would be automatically enrolled in that program by the provider after receiving medical care. There’s an interesting philosophical question that I will skip about whether they are, in fact, uninsured, if technically they are protected from risk.
3) Another 9.3 million are non-citizens. I cannot break that down into documented vs. undocumented citizens.
4) Another 10.1 million do not fit into any of the above categories, and they have incomes more than 3X the poverty level. For a single person that means their income exceeded $30,600 in 2007, when the median income for a single male was $33,200 and for a female, $21,000. For a family of four, if your income was more than 3X the poverty level in 2007, you had $62,000 of income or more, and you were above the national median.
5) Of the remaining 15.6 million uninsured, 5 million are adults between ages 18 and 34 and without kids.
6) The remaining 10.6 million do not fit into any of the above categories, so they are: U.S. citizens;with income below 300% of poverty;not on or eligible for a taxpayer-subsidized health insurance program;and not a childless adult between age 18 and 34.
As a policy matter, we care not about the total number of uninsured, but about the subset of that group that we think “deserves” taxpayer-subsidized health insurance. That is a judgment call that involves some value choices.
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Why China Should Buy Citigroup
Continue reading… 6 CommentsShould the Chinese buy beleaguered Citigroup? The perspicacious David Goldman of the Inner Workings blog notes that Citi owns a bit less than 4 percent of Shanghai Pudong Development Bank. It has a market cap of $18 billion. Citi has a market cap of $17 billion. How about a reverse takeover by Pudong? Here is why Goldman thinks it makes sense:
1) Citigroup’s structured portfolio of “toxic” assets is extremely cheap and manageable now that it doesn’t have to be marked to market. You own a bunch of this garbage anyway, and fund managers turn up on your doorstep daily to pitch distressed investing. You can do a whole lot better buying a distressed bank and leveraging a distressed asset play.
2) You can sell off most of Citi’s operations for a modest profit. America doesn’t need another branch bank after Wells Fargo/Wachovia, Chase/Washington Mutual, and Bank of America. Citi should get out of its consumer businesses and devolve into an international wholesale bank. Its main profits should be the runoff on its portfolio, which out to be worth a lot more than $3 a share.
3) By owning a major bank you get a seat at the table of corporate America. You get a peak inside the kimono at every American corporation and the inside track on future mergers and acquisitions. The business intelligence value of owning the franchise has to be worth a few billion dollars. That’s not counting Citi’s international branch network, which would give you the inside track on a dozen countries you don’t know much about.
Me: Of course the political uproar here would be eardrum shattering, though it could mean a profit for Uncle Sam on its Citi investment.
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Unemployment Headed to 10 Percent?
Continue reading… 1 CommentThere's a 61 percent chance of double-digit unemployment by year end, according to betting market Intrade.
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Would China Dump the Dollar?
Continue reading… 24 CommentsI found this to be the most interesting bit from the Pentagon-sponsored war game that simulated a global economic conflict. According to Politico, Yale business professor and war game attendee Paul Bracken said the event "left him questioning one prevailing assumption about economic warfare, that the Chinese would never dump dollars on the global market to attack the US economy because it would harm their own holdings at the same time. Bracken said the Chinese have a middle option between dumping and holding US dollars – they could sell dollars in increments, ratcheting up economic uncertainty in the United States without wiping out their own savings. 'There’s a graduated spectrum of options here,' Bracken said."
Me: And look at it this way, the Chinese may view our return to massive deficit spending as a form of accidental economic warfare on them since it could lead to vastly higher inflation and a plunge in the dollar's value.
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Federal Reserve: Terrible Economic Pain To Come
Continue reading… 5 CommentsHere is what staff economists at the Federal Reserve think about where the economy is heading (via today's release of the FOMC minutes from March):
The staff's projections for real GDP in the second half of 2009 and in 2010 were revised down, with real GDP expected to flatten out gradually over the second half of this year and then to expand slowly next year as the stresses in financial markets ease, the effects of fiscal stimulus take hold, inventory adjustments are worked through, and the correction in housing activity comes to an end. The weaker trajectory of real output resulted in the projected path of the unemployment rate rising more steeply into early next year before flattening out at a high level over the rest of the year.
Me: This is no V-shaped recovery. This is an exteremly gloomy forecast. Should be fun for incumbents on Election Day, 2010. Also expect to hear calls for a second stimulus package and against raising taxes in 2011.
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Nouriel Roubini and a Defense of Optimism
Continue reading… 5 CommentsMaybe the bears like Roubini and Meredith Whitney are right. Maybe not. But have a look at some great stuff from the great Tom Barnett that may inform your analysis:
I made a decision a long time ago not to make my career a bet on bad things happening. I think that approach simply corrodes your strategic thought capacity. Human history is progress, so if you're constantly having to screen out the good to spot the bad, your vision will unduly narrow. If you bet on progress, you can easily contextualize the bad, because progress is never linear. But if you bet on retreat, you must consistently discount advances as "illusions" and "buying time" and so on, and after a while, you're just this broken clock who's dead-on twice a day.
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Roubini vs. Cramer: Who's Right?
Continue reading… 5 CommentsSo CNBC's Jim Cramer criticized Nouriel "Dr. Doom" Roubini in his blog for being too persistently gloomy in light of the stock market's recent rebound and some bits of positive economic news. Roubini responded by attacking Cramer as a "buffoon." Roubini also thinks the worst is not yet over for the economy. A few thoughts on this financial commentator flare-up:
1) While Roubini has been correctly bearish, let's also not forget that one reason he was so bearish originially was that he thought the dollar would collapse, sending interest rates soaring. So he was kinda right for the wrong reason, at least at first.
2) The economy could strengthen and the market could head higher ... while at the same time unemployment continues to worsen. In fact, that is exactly what is likely to happen at some point. It is a familiar economic dynamic.
3) I would be surprised if the same folks who "correctly" called the recession are also able to call the recovery. Could happen. But I doubt it. Luck is often mistaken for skill. And identifying economic inflection points is tricky business, indeed.
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How Many Trillions for TARP?
Continue reading… 3 CommentsThe always insightful Peter Davis over at Capital Gains and Games puts TARP in perspective:
However, the bigger picture is that there are approximately $3.6 trillion of troubled assets on bank balance sheets, a lot more than can be cleaned up with $700 b. of TARP. ... So will Congress put more taxpayer money into TARP when the need arises? For the next few months, the answer is clearly a resounding NO! Over the past month, in hearing after hearing, members of both parties in both houses of Congress have railed against the bad deal the taxpayers are getting under TARP.
Me: And that, of course, is a big reason why Hank Paulson abandoned his plan to buy toxic assets. He needed a bigger boat and knew Congress would not give him one.
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Stop Apologizing, Obama
Continue reading… 11 CommentsDoes the president know a) that leverage at European banks was far higher than at American banks, b) that Europe also had a property bubble, c) that Europe has terrible long-run financial problems related to its demographics, 4) that Europe has been able to build a massive (though now unsustainable) welfare state, in part, because it skimped on defense spending thanks to the American defense umbrella. I think these things are worth pointing out.
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Why Liberals Hate Larry Summers
Continue reading… 0 CommentsLarry Summers, Team Obama's economic guru, made a ton money working at hedge fund D.E. Shaw. Now this is going to worry some liberals who were already concerned that the Obama economic team looks too much like the old Clinton economic team in its ties to Wall Street. These are same folks who have been grumbling for years that Clinton chucked his investment agenda to instead cut the deficit. They loathed the Bond Market Strategy of Clinton-Rubin-Greenspan. And they have been grumbling anew that concern about budget deficits is preventing the White House from proposing an even bigger economic stimulus/recovery page. And Summers is a powerful voice for budget deficit sanity, so much so that he would like to kill all the Bush tax cuts ASAP if he had his druthers.
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Polls, Obamanomics and Taxes
Continue reading… 5 CommentsThe NYTimes buried this interesting little facoid from their poll on people's current economic attitudes: "Mr. Obama’s push to increase income taxes on people making over $250,000 a year was supported by 74 percent of respondents. When presented with the possibility that taxing those in the higher income bracket might hurt the economy, 39 percent of those polled still backed the plan."
Me: This is why it is important that people understand the complex linkages between taxes and economic growth. Framing tax cuts merely as a way of giving consumers more dough to spend is self-defeating in the long run.
