Morning Report 11/19/12

Vital Statistics:

 

Last

Change

Percent

S&P Futures 

1368.0

8.2

0.60%

Eurostoxx Index

2461.2

33.8

1.39%

Oil (WTI)

88

1.1

1.24%

LIBOR

0.312

0.000

0.00%

US Dollar Index (DXY)

81.06

-0.193

-0.24%

10 Year Govt Bond Yield

1.61%

0.03%

 

RPX Composite Real Estate Index

191.4

-0.4

 

 

Stocks are higher this morning on optimism the fiscal cliff can be averted.  The new buzzword in Washington is “constructive” The pattern lately has been a strong opening, and then a late-day sell-off. This is a holiday-shortened week, so you can expect lower volumes and not much activity.  We have a sparse economic calendar as well.  Bonds and MBS are down.

Even if we reach a deal with the fiscal cliff, taxes are going up next year.  Hurricane Sandy has been expected to lop a point or so off of 4Q GDP.  Between the two, we are probably looking at a flat-to slight GDP growth in Q113.  To add insult to injury, businesses are halting capital expenditures. While “constructive” is the operative word for Washington, “Uncertainty’ is the buzzword for business. While it is certainly possible that a deal in Washington will remove the uncertainty, it feels like the business will simply find something else to fret about. The stock market is telling you that as well.  FWIW, Elmer Fudd is sanguine about the whole thing, saying a recession is a small price to pay to get our fiscal house in order.

HUD has announced some changes to help FHA get through its rough patch – the punch line is that FHA loans are about to get more expensive.  Fun fact:  FHA loans were about 2% of the market pre-boom.  Now they are 40%. The biggest changes involving borrowers will be an increase in the insurance premium, and removing the insurance cancellation program.

Redwood sold another $300 million of high quality jumbos last week, their sixth this year.  Two Harbors apparently is close to a securitization as well.  In the past two years, Redwood has securitized $900 million of jumbo mortgages.  To put that in perspective, in 2005 and 2006, private label issuance was $1.2 trillion. That said, the private label securitization market is coming back, slowly but surely.

Leave it to Paul Krugman to link Twinkies and marginal tax rates.

Bites & Pieces: Open Thanksgiving Thread

Today has been all about cranberries for me.  I’ve made and canned both cranberry chutney and cranberry salsa.  The chutney is a great condiment with Thanksgiving turkey, or for that matter with almost any other meat.  The salsa is an unusual treat if your tastebuds  like tart.

I’m way pumped about Thanksgiving (I’ve posted before that Thanksgiving is THE holiday in my family), but I really can’t do my other food assignments this far in advance.  My big flurry of activity will be next week.  Sigh, still experimenting with baked apple recipes.  Does anybody recommend a particularly good cinnamon?  I’m planning to visit the spice store on Monday.

What are everybody’s plans for the holiday?  And who has some good recipes to share?

Cranberry Chutney*

 Ingredients

  • 6 cups fresh or frozen cranberries, (1 1/2 pounds)
  • 2 cups raspberries and/or chopped apples
  • 2 shallots, minced
  • 2 jalapeno peppers, seeded and minced
  • 2 cloves garlic, minced
  • 1 1/2 cups packed light brown sugar
  • 1 1/2 cups granulated sugar
  • 1 1/2 cups red-wine vinegar
  • 2 tablespoons minced fresh ginger
  • 2 tablespoons whole mustard seeds
  • 1 tablespoon freshly grated orange zest
  • 1 tablespoon freshly grated lemon zest
  • 2 teaspoons salt

Preparation

Combine all ingredients except tender fruits or berries, e.g., raspberries, in a large saucepan; bring to a boil over high heat. Reduce heat and simmer, uncovered, stirring often, until the cranberries have broken down and the mixture has thickened somewhat, 10 to 15 minutes.  When reduced to a simmer, add tender fruits or berries.  Let cool completely. Ladle the chutney into clean jars and refrigerate.

Nutrition

Per tablespoon : 35 Calories; 0 g Fat; 0 g Sat; 0 g Mono; 0 mg Cholesterol; 9 g Carbohydrates; 0 g Protein; 1 g Fiber; 58 mg Sodium; 15 mg Potassium

Exchanges: 1/2 other carbohydrate

 Makes about 5 C.  Refrigerate chutney in an airtight container for up to 1 month.

* Source:  Modified from www.eatingwell.com

Vickie’s Cranberry Salsa**

Ingredients

1 pkg fresh cranberries, chopped (use food processor)

1 8-oz can crushed pineapple, drained

2/3 cup sugar

2 T finely chopped onion

1 jalapeno pepper, seeded and chopped

¼ t salt

¼ t fresh cilantro, chopped (optional)

Preparation

Combine all ingredients in large bowl.  Cover and chill for 2 hours to let flavors blend.  Store in refrigerator in jars.

**Source:  Physical therapist clinician in Oklahoma.

___________________________________________________________________________________________________

Brent’s Turkey on the Grill

Turkey in the Weber Kettle: While this will not work with stuffing inside the bird, and you won’t get gravy from it, the turkey comes out juicy and there is a great smoky flavor.  The best part is that it frees up the kitchen for other stuff.

Here is how we do it.  Basically the recipe from Weber.

Turkey preparation is easy – take out the neck and giblets ad.  Rub the outside with olive oil and then sprinkle with kosher salt and coarse black pepper.

Put a foil pan from the supermarket in the center of the grill. Put around 20 briquettes of charcoal on each side and light.  Be sure to place the grate such that the spaces on each side are over the charcoal.  Take a paper towel and pour some olive oil on it and oil the grate.  Once the coals are gray, put the turkey on the grate and place the cover over the grill.  Open the vents.  Add 8 briquettes per side every 45 minutes until the turkey is done (180 degrees in the thigh).  You should have a nice crispy skin, with a tender, smoky inside.


Spiced Cranberry Sauce with Zinfandel

I once had an open-minded Mormon ask me for this recipe when I assured him that most of the alcohol cooks off.  You’ve inspired me to make if for our Thanksgiving feast this year, okie!

  • 1 3/4 cups Zinfandel
  • 1 cup sugar
  • 1 cup (packed) golden brown sugar
  • 6 whole cloves
  • 6 whole allspice
  • 2 cinnamon sticks
  • 1 3X1-inch strip orange peel
  • 1 12-oz bag cranberries

Combine all ingredients except cranberries in medium saucepan.  Bring to a boil over medium high heat, stirring until sugar dissolves.  Reduce heat and simmer until reduced to 1 3/4 cups, about 10 minutes.  Strain syrup into large saucepan.  Add cranberries to syrup and cook over medium heat until berries burst, about 6 minutes.  Cool.  Transfer sauce to medium bowl.  Cover and refrigerate until cold.  Can be made up to 1 week ahead.  Keep refrigerated.  Makes about 3 cups.

–Michigoose


Betty Crocker’s Very Basic Stuffing

You remember that cookbook I told you about?  This is the stuffing recipe from it, and it’s still my favorite.  I add more sage than the recipe calls for, but other than that haven’t changed a thing.

  • 2 loaves of bread, cubed
  • 1 cup butter
  • 3/4 cup finely minced onion
  • 1 1/2 cups chopped celery (leaves and stalks)
  • 2 tbl salt
  • 1 tsp pepper
  • 1 tbl sage

Use 2  – 4 day old bread and cut off the crusts.  Melt the butter in a large heavy skillet, then add the onion and cook until yellow, stirring occasionally.  Stir in some of the bread to soak up the butter, then turn into a bowl and mix with the rest of the ingredients.  Add turkey broth to desired moistness; at this point you can either stuff the turkey or cover and cook in a 350 degree oven.

–Michigoose


MiA’s annual TG contribution – I think I posted here last year – but here it is:

Mark’s Apple Cranberry Currant Pie

PREP AND COOK TIME: About 1 1/2 hours, plus at least 1 hour to cool
MAKES: 8 [adult male or teenager] servings

1/4 cup Gran Marnier [or brandy, if you are short on the good stuff]
1/4 cup currants [look like tiny raisins – you could use raisins in a pinch but they are not the same]
1 cup fresh [or thawed frozen] cranberries [I find fresh make a tarter pie – I am OK with tart]
About 3/4 cup granulated FRUCTOSE [a lot of apple pie recipes call for a cup or more of sugar – fructose is sweeter and way lower on the glycemic index]
1/2 cup tapioca flour [I never use cornstarch in a fruit pie]
1/2 teaspoon ground nutmeg
1/2 teaspoon ground cinnamon
1/4 teaspoon salt
2 oz 1/2+1/2
6 cups sliced/chopped Granny Smith apples [about 2 1/4 lb]. I like the skin on for this pie – it’s more “rustic”.
2×9-inch pie pastry shells – I either make my own or buy really great shells at Central Market. When I make my own it is in no way unusual.

1. In a small bowl, combine Gran Marnier and currants. Cover and let stand until currants are plump, at least 1 hour. [Sometimes I cheat and do not soak this long. No biggie. The plumpness of currants is mainly a texture deal]

2. Chop/slice apples, skin on, using a mix of techniques for slices and chunks. If there will be a delay between prep and oven, put the 6 cups of apples in a big bowl and add a little OJ to keep them from browning. LATER YOU MUST THOROUGHLY DRAIN AND PAT DRY THE APPLES! My grandmother taught me the OJ instead of lemon juice trick about 52 years ago.

3. Sort cranberries and discard any that are bruised or decayed. Rinse and drain berries.

4. In a large bowl, mix fructose, tapioca flour, nutmeg, and salt. With a slotted spoon, lift currants from Gran Marnier ; reserve Gran Marnier. Add currants, cranberries, and chopped apples to fructose mixture and mix well. Taste and add more fructose if desired. Pour filling into unbaked pie pastry in pan. Cut hole pattern in top crust. Mix 1/2+1/2 with reserved Gran Marnier and cinnamon and brush liberally on pie crust. Carefully braid foil around pie’s edge to keep pie from from crisping-burning on crust edge that overlaps the pan during baking. [Later, pass off the tiny pieces of foil that some guest finds in the crust edge as “healthy mineral”. :-)]

5. Bake on the bottom rack of a 375° oven until juices bubble around edges and through top holes, 55 to 65 minutes. If pie browns too quickly – check after 30 minutes – cover loosely with foil.

6. Set pie, uncovered, on a rack until cool to touch, at least 1 hour.

Two Contributions by the Fairlington Blade

Mushroom Thyme Gravy

Note: this came from the Food52 website. Good enough that I didn’t bother bringing out the regular gravy. That’s all for me. Muahahahaha

1/3 cup dried mushrooms
2 cups vegetable stock
3 tablespoons butter
1 ½ tablespoon minced shallot
3 tablespoons flour
3 tablespoons soy sauce
½ cup light cream
1 tablespoon sherry
1 tablespoon minced fresh thyme
salt & pepper

1. Bring vegetable stock to a boil. In a small bowl pour stock over mushrooms. Let soak for 20 minutes.
2. Remove mushrooms from bowl, setting the stock aside for later. Mince or thinly slice the mushrooms.
3. In a medium saucepan melt the butter. Add the minced shallot and saute for 5 minutes over medium heat until softened.
4. Add the flour to the butter/shallot mixture stirring constantly. Cook for a 2 minutes.
5. Gradually add the reserved vegetable stock, atirring well to incorporate. Cook over medium heat until thickened.
6. Add the reserved mushrooms, soy sauce, cream, sherry & thyme. Cook for a few more minutes until heated through and thickened to desired consistency. Season to taste with salt & pepper.

Roasted Beets with Grapefruit Glaze

The glaze is sourced from Mollie Katzen’s Vegetable Dishes I Can’t Live Without. I prefer using bunches of beets with the greens still attached. This is a particularly colorful dish if you use a few different colors.

2 – 3 pounds of beets
2 large pink grapefruit
3 tablespoons maple syrup
1 tablespoon rice wine vinegar
1 tablespoon cornstarch or arrowroot

1. Spray small roasting pan or bread pan with vegetable oil (or toss beets with vegetable oil). Rinse beets, cut off leaves (but leave stem on), and put in pan. Cover with aluminum foil and put in 350 degree oven for about an hour. The cooking time depends upon the size.
2. Take out the beets and let them cool. Remove skins with your hands. Cut into 1 inch chunks. Set aside.
3. Juice grapefruit and strain to get one cup of juice.
4. Add maple syrup and vinegar to juice
5. Put cornstarch in a small saucepan over medium heat. Gradually add juice mixture and cook until thickened.
6. Combine beets with glaze. If using multicolored beets, keep them separate and then add everything together when serving.

Saturday Football Open Thread (Week 12)

By now most teams are in survival mode–keep enough key players healthy to finish out the season where you are and make it into a bowl game, or get key players experience so that next year is better than this one was.  Just four weeks to go after this. . . although there will be some grudge matches coming up.

Early games this week: UNC beat Virginia on Thursday 37 – 13, while yesterday Florida International beat Florida Atlantic 34 – 24 (what’s up with Florida, Mike, are you guys trying to rival Texas and California for number of schools with football teams?) and Air Force beat Hawaii 21 – 7.  Today’s games:

Northwestern is at MSU as we try to become bowl-eligible (and avoid a losing season) (line: Northwestern, spread 6.5)  I hope they’re wrong, but I’d have to go with the betting line on this one, dang it.

Iowa gets its turn in The Big House this weekend (line: UM, spread 17).  Let’s Go Blue!

Indiana plays Penn State (line: PSU, spread 14).  Comeback time for the Nittany Lions.

Virginia Tech is at Boston College (line: VT, spread 8.5).  That doesn’t seem very realistic to me.

USF is at Miami (line: Miami, spread 7).  Mike?  Could they do it?

Dook is playing Georgia Tech (line: Duke, spread 11.5).  Really?  Duke is turning into a football school, too?  Really??

Wake Forest goes up against Notre Dame (line: WF spread 22).  How?  What????  Wake Forest over ND in South Bend by 22?  Methinks my betting line website has been hacked on this one.

Minnesota is playing Nebraska in a Big Ten battle (line: Nebraska spread 19).  Brian and Paul get to duke it out this weekend!

osu is at Wisconsin (line: osu, spread 2.5).  Go Badgers, Go Badgers, Go Badgers!!!!

Syracuse is playing Mizzo (line: Missouri, spread 6.5).  A question here: how did this game get scheduled?  Shouldn’t both of these teams be in the hunt in their conferences?

Oklahoma is at West Virginia (line: OU, spread 10.5).  Boomer Sooner!

And Arizona is here in Utah (line: Arizona, spread 3).  We’ll freeze them, it’s only 48 degrees here right now.  Go Utes!

Texas gets to rest this week.  So what are you doing with your weekend, Mark?  May the right teams win, and the floor is open for commentary!

Being a Muslim in America

I thought that this piece by Rany Jazayerli was amazing. I usually balk at web pieces that make me click through five pages to read it (just put it all on one page, dammit, or do what Salon does and give me the option of seeing it on multiple pages or scrolling down one), but his writing is excellent and I think his point resonates.

It was with some reservation that I voted for Obama last Tuesday. I have found his presidency to be a disappointment in many ways. He wasn’t nearly aggressive enough about addressing the financial crisis he inherited, nor did he press for a public airing of what caused the crisis in the first place. His sustained use of drones to fight the war on terror has been both utterly immoral – an inordinate number of innocent victims, including children, have been killed – and completely counterproductive, because the obvious immorality of these attacks has ignited more terrorists than it has killed. Obama’s weak and unfocused response to the horrors being committed every day by the Syrian government is appalling.

But — third parties aside — the alternative was Mitt Romney, and I could not vote for Romney. There was simply no way that I could justify voting for a party that denies the very legitimacy of my identity as an American. And there was no way that I could justify voting for any member of that party that does not, in the strongest possible terms, denounce that view. Nor could most other members of the American Muslim community, who just happen to be clustered in swing states like Ohio, Virginia and Florida.

As it turned out, with the Muslim community voting overwhelmingly against him, Romney lost Ohio, Virginia and Florida by narrow margins, and lost the election. Joe Walsh lost his bid for reelection in Illinois’ 8th district, which frees up his schedule to start looking for the terrorists in Elk Grove and Addison. Also losing his bid for reelection was Florida congressman Allen West, who claims that “Islam is a totalitarian theocratic political ideology, it is not a religion.” Well, that’s one way to get around that pesky 1st amendment.

It doesn’t have to be this way. The Muslim community still shares many core values with Republicans, the same core issues that attracted most Muslims to the Republican Party in the first place. Muslims haven’t changed their views on limited government, or the superiority of the traditional nuclear family, or the importance of encouraging entrepreneurship. A Republican Party that focused on its core principles rather than on demonizing a minority as a way to score cheap political points would find support among the American Muslim community again.

Look, I don’t want to be a party-line voter. It does Muslims no good to be identified with a single political party – we run the risk of being taken advantage of by the Democratic Party, while having our needs completely ignored by the Republicans. And I look forward to the day, hopefully in the near future, when I once again vote for a Republican candidate. If Chris Christie — who unlike Romney has forcefully denounced “the crazies” (his term, not mine) — runs for president, I’ll give him full consideration.

But first, the Republicans have to stop insinuating that I’m alien to this nation. They have to stop implying that I support terrorists. They have to stop accusing me of being anti-American. And they need to denounce anyone in their ranks who does those things. That, I’m afraid, is not negotiable.

Morning Report

(posted for Brent)

Vital Statistics:

Last Change Percent
S&P Futures 1354.8 3.5 0.26%
Eurostoxx Index 2457.6 -4.1 -0.17%
Oil (WTI) 86.49 1.0 1.22%
LIBOR 0.312 0.001 0.16%
US Dollar Index (DXY) 81.19 0.114 0.14%
10 Year Govt Bond Yield 1.59% 0.00%
RPX Composite Real Estate Index 191.4 -0.4

Markets are slightly higher this morning on no real news. The Gap and Foot Locker reported better than expected earnings. Industrial Production and Capacity Utilization both fell and were below expectations. Those are warning flags. Bonds are down a few points and MBS are up.

The WSJ is reporting that the White House is in talks to replace the sequester with a smaller package of spending cuts and tax increases. They are looking at cutting spending by $100 billion next year. This would take the pressure off and allow a more comprehensive deal in mid 2013.

FHA is almost broke. They are hoping that an improving housing market and pending changes in its reserve fund will help it weather the storm without needing additional taxpayer funds. I wouldn’t rule out an increase in the G-fee at some point.

Bye-bye Twinkies, Ding Dongs and Ho Ho’s. Hostess has decided to liquidate instead of re-organize after a strike crippled operations. 18,500 workers will be let go.

The banking system continues to hemmorage jobs. Over 160,000 in the last two years, and the fire / hire ratio is around 2.0. I keep thinking that Wall Street tends to over-hire and over-fire, but they have been over-firing for years now. As we have noted, there are capacity constraints. Anecdotally, I have heard of one large bank that is refusing to take new customers on the trading side.

Last Call for Twinkies

“Hostess Brands Says It Will Liquidate”

By MICHAEL J. DE LA MERCED
 

THE TRASH NOVEL WE SHOULD BE WORKING ON

Characters: 1] The evil but seductive twin sisters.

Imagine that they are sleeper agents for Hizbollah. One marries an Irish-American MD who is a sympathizer with the IRA and took a quickie course in intel gathering from Hizbollah. One marries the chief trader for American interests in Iraq, but sheds him when the Iraq War has no more useful intel.

2] The well meaning, but over-sexed former HS athlete and valedictorian, WP grad, reserve Major, and scholar/author, who we imagine learns of the evil twins through her time embedded with the CIA chief, who is too blind to have seen through them.

3] The we imagine honorable but manipulable CIA chief and generals who protect our land.

4] Jack Reacher [tm], who brings everyone to their senses, probably by slaying the evil twins, turning the Irish doctor, bedding the oversexed scholar, and redeeming the reputations of the honorable men, in some way I can’t figure out yet.

5] The Real Housewives [tm] of Tampa.

Some possible connections and plot turns:

Hizbollah was floating the couple in Tampa to lavish living in order to gain access to Central Command, but cut them off because of the War in Syria, or because they were not getting enough good stuff from the couple, who were having too good of a time.

Evil twin got so many wheels involved in her custody battle that Hizbollah shifted its financing to her.

Reacher [tm] first met the oversexed athlete/scholar/author when he was guarding a missile base in ND and she was a curious HS valedictorian. Didn’t have sex with her then but did have to remove her from the missile base.

Reacher [tm] is not Tom Cruise.

All twists and turns and perversions are welcome.

Morning Report 11/15/12

Vital Statistics:

  Last Change Percent
S&P Futures  1352.6 -0.4 -0.03%
Eurostoxx Index 2456.5 -16.3 -0.66%
Oil (WTI) 86.54 0.2 0.25%
LIBOR 0.311 0.001 0.32%
US Dollar Index (DXY) 81.17 0.118 0.15%
10 Year Govt Bond Yield 1.61% 0.02%  
RPX Composite Real Estate Index 192 -0.4  

Markets are flat this morning after yesterday’s bloodbath in the S&P and Wal Mart’s miss, which is a negative sign for the economy. Inflation at the consumer level remained in the Fed’s comfort range, while initial jobless claims jumped to 439k.  This is heavily influenced by Sandy, so don’t read too much into it. The NY Fed’s Empire Manufacturing Survey was negative, but better than expected and higher than the previous month.s  The Eurozone officially entered a recession.  Bonds are down small while MBS are flat.

The Bernank is speaking on Housing and Financial Markets at 1:20 est today.

Freddie Mac discusses housing starts in its November 2012 US Economic and Housing Market Outlook.  

The FOMC minutes released yesterday showed the Fed is moving in the direction of providing explicit economic guideposts for monetary policy.  In other words, once unemployment drops to X%, we end QE. While they also expressed concern that the scheduled completion of Operation Twist may impact the economy, they did not announce a Treasury buying program.  The market does expect one, though. 

House report on MF Global basically characterizes Jon Corzine as the “de facto chief trader” and blames his trades for the firm’s collapse.  The Democrats on the panel refused to endorse the report, basically proving (yet again) that the financial is political. 

The Washington Post has a good backgrounder on the shale gas revolution.  This has the potential to be a real long-term elixir for the economy.

Taxing the Job Creators

Or, I suppose I could title it “Crafting Tax Policy Around Creating Economic Growth”, but that seems a little presumptuous, give it’s just a small mish-mash of half-formed musings.

Michael Arrington Spreads The Wealth

Michael Arrington believes in “trickle up” theory. “Wealth rises,” he says. “In the form of smoke, from the $100 bills I use to light my cigars!”

It occurs to me that the job creators are those that start and run small to mid-size businesses, mostly. If that’s the issue, why isn’t there more discussion of tax cuts or advantageous changes in tax policy for small businesses? Small businesses in the process of expanding or hiring are always strapped for cash, and tax bills (both federal and local) obligate hard decisions as regards to capital expenditures and labor expansion. Almost always, money that goes to pay the tax man, if kept, would go towards expanding the business or employing more people.

Wealthy individuals with high incomes are less likely to act as job creators, so it seems less likely, to me, that increased taxation on the wealthy would be a significant drag on the economy. They may invest their cash, but it’s unclear how much that investment does in terms of funding new hiring or innovation in new businesses, versus providing already solvent companies with a solid market capitalization, from which they produce pleasing dividends.

They may hire cooks and maids and gardeners, but it seems such hires are likely very low impact on the economy, and perhaps not the first things to go when a wealthy fellow pays an additional 3%-5% in taxes. Finally, it has been demonstrated that taxes on luxury items radically curtail the purchase of luxury goods, so it could be speculated that additional taxes on the wealthy would negatively impact those companies that produce luxury items. This is a negative, as those employed producing luxury items are better employed in such production than unemployed, but it seems to me that the overall impact on the economy is probably insignificant.

Thus, if the interest is in growing the economy through tax policy, a compromise position that raises taxes on the individual income of those making $250k+ per year, while offering significant tax advantages to small businesses making under $1 million per year, or offering a permanent per-employee tax break that allows small companies that employee a large number of people to pay virtually no federal taxes, would be a better way to stimulate economic growth.

Myself, I don’t care for the rhetoric of class envy. Complaining that the rich “didn’t build it themselves”, or that the wealthy aren’t “doing their fair share” has no resonance with me. I have no moral objection to the rich getting richer, and getting to keep more of their money. The top 2% pay half of all taxes, and that’s a lot. Those folks, as super-rich as they are, are doing their part. Even if Warren Buffet pays less as a percentage rate than his secretary.

However, it seems that we will need to raise revenue in addition to cutting spending (which seems, at best, a pipe dream, and I suspect we will eventually follow the Greek model), and there are probably worse places to raise revenue than increasing taxes on the wealthy, either in terms of income taxes or increases in capital gains taxes over a certain amount (and excluding the sale of primary residences), or even a minor wealth tax for folks who have assets in their name over some arbitrary sum. It seems to me raising taxes on the middle class, or on small businesses, would be more likely to put a drag on the economy.

The reverse of that last sentiment also seems to be true to me: that tax cuts on small businesses, and the middle class, would be more likely to spur economic growth. Although many factors, of course, contribute to economic growth, and tax policy doesn’t make or break the economy, one way or the other, in a vacuum. Until top marginal rates start approach 90%, but then, of course, you suffer another problem as regards revenue: compliance.

It just seems to me that most of the arguments seem to be about abstract things. That is: “The rich can afford it!” – “The rich already pay 80% of all taxes!” – “People with seven homes don’t need another tax break!” – “It’s their money! They earned it!”- “Rich people are greedy and only want more money!” – “You’re just jealous! And a taker! And lazy! What ever happened to self-reliance?” Etc. There doesn’t seem to be much objective discussion of what is meant by taxing the “job creators”, who creates the most jobs (small businesses, or sole proprietorships?), which tax cuts on which groups increases money flowing into the economy, or even who benefits and how much when the economy prospers.

Reaganomics has always been (IMO) unfairly vilified by many on the left (don’t get me started on the constant mischaracterization of the Laffer Curve), when the fact is the fundamental precept of “trickle down” economics makes good sense: cutting taxes at every level puts more money into the economy, and that rising tide lifts all boats. It just lifts the richer boats higher, but if the alternative is that we all sink, I don’t think that’s such a bad deal.

At some level, the tide will have risen as much as it can: that is, if the wealthy pay an effective 18% rate on their income and their taxes are cut to an effective 10%, it has ceased to trickle down in a meaningful way (this is not an assertion, just a theoretical example, real numbers would likely be different, but I think the principle would prove true). There seems to be ample evidence for this, in that the richer are richer than ever, and their wealth has been increasing on a steady curve, with no demonstrable benefit to the overall economy. While I’m not sympathetic to complaints that 1% of Americans control 34.5% of America’s wealth, such wealth concentration indicates a solid increase, over the past few decades, of the fortunes of the very wealthy in this country. I.e., the wealthier are much richer, they have much more money with which to create jobs, and they just aren’t doing it. Not because they are bad people or are evil or greedy, it’s just that tax cuts for the rich don’t produce jobs or economic growth in any meaningful sense. At least, not past a certain level. And we are well past that level.

To repeat myself, it seems to me there is an obvious reason those tax cuts don’t produce jobs or significant economic growth. Those very wealthy individuals don’t have any additional businesses they wish to create, people they need to higher, or local investments they are wanting to make or expand with that additional money. At least, not to the degree that impacts the economy.

Yet, it seems to me there are areas where an increase in money would find it’s way into new paychecks and new capital investments: small businesses and, to a lesser extent, the middle class. These are the folks without a surplus of money, but with people they would hire, if they could, and equipment or appliances that need to be replaced, or businesses they would start, if only they had the money. Yet an excellent opportunity for one side or the other to argue for making the middle class tax cuts permanent, or introducing a new generous small business tax cut, has passed again and again, as the two sides take their largely inflexible position on the Bush tax cuts. It’s all about either increasing taxes on the rich to raise revenue, or preserving existing tax cuts so that the rich can stimulate the economy with the extra money (although there seems to be little evidence of this, and certainly no compelling reason to think that it’s the best stimulation tax policy can make possible).

Put in the bluntest terms, I think Republicans would do well to cave on the Bush tax cuts for those making over $250k+, and build a coalition around making middle class tax cuts permanent, and coming up with some fresh tax cuts for small businesses with more than 3 non-contract employees and less than $1 million (or $3 million, perhaps) in total revenues.

Just letting the Bush tax cuts lapse may increase revenues to the federal treasury, but it’s not going to grow the economy.

Morning Report 11/14/12

Vital Statistics:

  Last Change Percent
S&P Futures  1375.3 4.4 0.32%
Eurostoxx Index 2484.9 -8.2 -0.33%
Oil (WTI) 85.16 -0.2 -0.26%
LIBOR 0.31 0.000 0.00%
US Dollar Index (DXY) 81.07 -0.017 -0.02%
10 Year Govt Bond Yield 1.62% 0.02%  
RPX Composite Real Estate Index 192.4 -0.5  

Markets are higher this morning after a good earnings report out of Cisco and a benign reading on wholesale-level inflation.  Shades of the late 90s. Retail sales disappointed, but they were affected by Sandy so the market is dismissing the numbers. Later today, we will get the minutes of the FOMC meeting. 

Speaking of Sandy, she may become the excuse du jour for companies that miss their quarter.  Be advised.

Obama has put out his plan for the fiscal cliff.  It raises double the amount of revenue that was proposed during the deal with Boehner two years ago and involves more than simply letting rates go up for those making over $250k – it includes limitations on deductions and a surtax for incomes over $1 million.  Geithner has dismissed the Republican plan to leave rates the same and cap deductions.  So that is the bid / ask spread at the moment.  

I have heard recent estimates that if we go over the fiscal cliff completely, the economy will contract 1% in Q1.  If we raise taxes on the rich, we will have GDP around 1%, but that number was based on the going back to the old rates, not the additional stuff.  So it would probably be lower. Sounds like flat GDP in early 2013 is a possibility. The FOMC today may provide further guidance re Treasury purchases.  I would not want to be leaning short Treasuries at the moment.

Blackstone sees a two year window to buy foreclosed properties at a discount. They forecast the median existing home price to increase 6% this year, 5% in 2013 and similar gains in 2014.  If homebuilding does not accelerate, they forecast even bigger gains. I keep coming back to the idea that the remaining shadow inventory is largely picked over, and some of it (foreclosures in Harrisburg, Detroit and Stockton) simply aren’t going to sell. Meanwhile, Buffet continues to be positive on housing and has been increasing his exposure. Ara Hovnanian isn’t as sanguine.

Freddie Mac reported that 29% of refis in 3Q involved a term shortening as people refi from a 30 year fixed to a 15 year fixed. During the quarter, the 30 year fixed rate averaged 3.55%, while the 15 year averaged 2.84%.

Will investors do the heavy lifting of ending TBTF? (too big to fail)  Trillium and AFSCME have sent a proposal to Citi encouraging them to split up.  While it is easy to dismiss this as based on politics (Trillium is representing the Benedictine Sisters and has a .01% stake, and AFSCME is a union), it is true that Citi (and others) are trading at a discount to their peers and are exhibiting the classic holding company discount. Could we see Citi spin off Salomon Brothers?  Bank of America spin off Merrill?  JPM spin off Chase?