The Capital Spectator

A TAXING EXPERIMENT

Fri, 12 Mar 2010 14:07:32 -0500

Supply side economics guru Arthur Laffer co-authored a book recently whose title is anything but subtle: The End of Prosperity: How Higher Taxes Will Doom the Economy--If We Let It Happen. This provocative title came to mind after perusing some freshly minted numbers from the Tax Foundation, which estimates what it would take to close the U.S. government’s fiscal 2010 budget deficit by adjusting federal income tax rates for individuals. That's not going to happen, of course. Not even close. But it's an interesting way to consider what we owe and what it would take to pay off the debt solely on the backs of individual tax payers--in one year. In this make-believe world, the adjustment, of course, would be an increase in tax rates, and by more than a trifling amount. So it goes when liabilities exceed revenue by something approaching biblical proportions.

A BIT MORE CONSUMPTION IN FEBRUARY

Fri, 12 Mar 2010 09:48:06 -0500

Retails sales last month rose 0.3%, the Census Bureau reported this morning. That’s an upside surprise compared to the consensus outlook, which predicted a 0.3% fall. So much for the idea that snow can keep consumers away from the malls, even if the weather was blamed for pinching the labor market last month.

OBAMA WILL NOMINATE JANET YELLEN AS FED VICE CHAIRMAN

Fri, 12 Mar 2010 05:46:32 -0500

The Wall Street Journal this morning is reporting that Janet Yellen is on the fast track to become the central bank's second-in-command replacement for the retiring Don Kohn.

NO, WE'RE NOT MAKING THIS UP...

Thu, 11 Mar 2010 20:38:14 -0500

Greece has economic troubles, and the extent and breadth of those troubles only seems to worsen the more the outside world learns of what makes this country tick.

WAITING (HOPING) FOR THE FLOOR TO GIVE WAY

Thu, 11 Mar 2010 09:26:51 -0500

The jury’s still out on the path of least resistance in the trend for initial jobless claims. Today’s weekly update is certainly a step in the right direction, although last week’s meager drop in new filings for jobless benefits falls far short of stellar, or convincing. The sluggish behavior of late in this series has kept us anxious for more than a month, and the number du jour doesn't change much.

A BROADER ARRAY OF RISKS & OPPORTUNITIES IN GLOBAL EQUITIES

Wed, 10 Mar 2010 10:48:49 -0500

The global equity market has cast a long influence on regional stock markets in recent years. Whether it was a bull market on steroids or the opposite effect, the gravitational pull of a broad-minded definition of the world’s equity market has been a major force in moving narrower slices of stocks. Is the long shadow of equity beta now in the process of transition? It’s a little easier to answer “yes” if we consider year-to-date total returns for the primary equity regions around the world.

A FED HEAD'S SOBERING ANALYSIS OF THE LABOR MARKET

Tue, 09 Mar 2010 13:45:03 -0500

We've heard this before but we need to hear it again. Today the message comes from Charles Evans, president of the Chicago Federal Reserve Bank. "A number of labor market issues… lead me to think this accommodation will likely be appropriate for some time," he said in prepared remarks delivered at a speech in Washington. In other words, the central bank will keep interest rates low for the foreseeable future. The lack of job growth is the main catalyst. How long will the easy money last? "I think six months is a good time period to say I think we'll have accommodative policy like we have today."

COMBINATION FORECASTS

Tue, 09 Mar 2010 10:22:25 -0500

There is a long history in financial economics of documenting some degree of predictability in asset returns. So why aren't investors doing a better job of earning a risk premium? Is it because the prediction variables aren't so useful after all? Or maybe the evidence showing support of earning higher risk premiums requires looking at longer periods than is the norm. Another possibility is that investors overall are incapable of mustering the emotional discipline required for exploiting forecasting opportunities.

A DEEPER SHADE OF RED FROM THE CBO

Mon, 08 Mar 2010 09:59:14 -0500

It's all about deficits these days. The challenge is figuring out what it all means for the markets, the economy, the man on the street and for politics in Washington. What's crystal clear at the moment is that there's a bull market in red ink. That's hardly a surprise, although the debt estimates continue to creep higher. That latest example comes from the Congressional Budget Office, which published a new analysis on Friday of President Obama's budget outlook. The CBO concludes that the projected deficit for the decade ahead will be $1.2 trillion more than the White House predicts.

IS A NEW ERA DAWNING FOR CHINA'S CURRENCY POLICY?

Sun, 07 Mar 2010 10:11:07 -0500

Is China's undervalued currency set to rise? That depends on how you interpret yesterday's comments from the governor of China's central bank.

FAMA, MARKET EFFICIENCY, AND THE LATEST RECAP

Fri, 05 Mar 2010 12:46:40 -0500

Debate about market efficiency is forever. That includes the ocassional commentary from the man who started it all, or at least played a pivotal role in bringing the idea to the financial fore, starting in the 1960s. What's it all about? You could spend the better part of a year reviewing the academic literature, and the remainder of the decade catching up on the various threads of discussion--pro, con and everything in between. For the short, short, short recap, a line from Peter Bernstein's classic Capital Ideas sums up Eugene Fama's research as well as anyone, particularly the early work: "Fama's point is that, on the average, information moves so fast that the market as a whole knows more than any individual investor can know."

INCLEMENT WEATHER FOR JOBS

Fri, 05 Mar 2010 10:16:26 -0500

It’s the weather, they say. The loss of 36,000 jobs in last month’s nonfarm payroll count may have been a victim of the snow, the Labor Department advises with this morning’s release of the February employment report. The unemployment rate, at least, was unchanged last month, albeit at a high 9.7%.

THE CHINA SYNDROME

Thu, 04 Mar 2010 15:53:50 -0500

Big deficits and rising mountains of public debt. Is it a nightmare? No, it’s the fiscal profile du jour of these United States. Or is it both? In any case, assuming Congress keeps current laws and policies intact, the federal budget deficit, as a share of the economy, is on track for fiscal 2010 to be the second highest since World War Two, the CBO projects.

THE PLOT THICKENS IN THE LABOR MARKET

Thu, 04 Mar 2010 10:21:25 -0500

Today’s weekly update on new jobless claims offers a reprieve on the darker visions conjured on these pages in recent weeks, including here. New filings for unemployment benefits dropped last week to by 29,000 to 469,000. Whew, that was a close one! But the risk for this series that we’ve been discussing lately is still with us, even if the latest report offers some breathing room for thinking positively.

MORE OF THE SAME: A SLOWDOWN IN JOB LOSSES

Wed, 03 Mar 2010 09:44:23 -0500

Two new private-sector reviews of last month’s labor market show that the economy is still shedding jobs. The only good news is that the rate of loss continues to slow. But a loss is still a loss at this late date in the economic cycle, and today’s numbers suggest that Friday’s monthly update on jobs from the government may suffer another round of red ink, albeit in relatively mild form.