July was kind to bonds, REITs and commodities, but it was a rough month for stocks, particularly in mature countries. That’s only fitting, considering that the mature markets have been suffering from a toxic blend of cyclical and self-inflicted troubles. The ongoing bailout challenges in Europe a la Greece, et al. roll on, although it’s apparently in remission for the moment. In the U.S., debate about debt ceilings and default roiled the equity market, although here too there seems to be some light at the end of the political tunnel if only temporarily, thanks to last night’s compromise.
Book Bits For Saturday: 7.30.2011
● Saving Capitalism From Short-Termism: How to Build Long-Term Value and Take Back Our Financial Future
By Alfred Rappaport
Summary via publisher, McGraw-Hill
Business leaders today obsess over quarterly earnings and the current stock price—and for good reason. Corporate incentives typically focus on short-term profits rather than long-term value creation. Nothing is more harmful to businesses—and to the broader economy. Few business thinkers in recent decades have contributed more to this subject than Alfred Rappaport. As an author and educator, Rappaport is a pioneer in developing the principles of values-based management and is an acknowledged authority on how to make long-term shareholder value the essential driver of corporate strategy. His latest work, Saving Capitalism from Short-Termism, is a clarion call for conquering the addiction to short-term profit—and getting on the path to building long-term value.
Boehner vs. Moody’s?
The House finally passed budget legislation this evening that’s designed to keep the country from defaulting on its debt. But even if the bill survives the Senate and the President signs it into law (both rather doubtful at this point), there’s the question of whether it would save the country’s AAA credit rating? Not likely, according to Moody’s.
Q2 GDP Rises By A Weak 1.3%
Economic growth remained sluggish in the second quarter, the government reports. Real GDP rose at a 1.3% annualized pace during April through June, the slowest pace since the recession ended. That’s up from the anemic 0.4% rate in Q1, but no one will confuse the latest number as anything other than a weak performance. The best you can say is that the growth rate is once again moving in the right direction. The trick is whether it’ll continue moving higher.
A Closer Look At The Drop In Jobless Claims
Yesterday’s news that new jobless claims dropped sharply—to under 400,000 for the first time in three months—raises the question of whether the good news will continue? “That’s partly up to Congress,” opines Mark Thoma, professor of economics at the University of Oregon. “If they keep bickering until the time to raise the ceiling passes, or if the deal they agree to imposes substantial cuts to spending too soon, that could put an end to any good news on the recovery for awhile.”
Kauffman Foundation: Bloggers Are Gloomy On The Economic Outlook
The Kauffman Foundation’s latest quarterly survey of “leading economics bloggers,” which generously includes yours truly, reports that “optimism is out; pessimism is in,” according to the press release. Tim Kane, the survey’s director and a scholar at the foundation, says: “This quarter’s survey provides an unprecedented level of pessimism about the state of the U.S. economy among top bloggers.”
Is The Rough Patch Over? Lower Jobless Claims Inspire Fresh Hope
Ah, a breath of fresh statistical air. Just when you thought the economic gods had cast us into cyclical hell, today’s update on initial jobless claims delivers a counterpunch. Last week’s tally of new filings for jobless benefits dropped by a hefty 24,000 to a seasonally adjusted 398,000—the first dip below the 400,000 mark since early April. It may or may not last, but let’s bask in the glow, if only for a moment.
Durable Goods Orders Fall In June, But The Trend Is Still Positive
Today’s durable goods report is disappointing because everyone’s looking for unassailable confirmation that the economy has sufficient wherewithal to forge ahead. The latest numbers out of Washington fall well short of delivering a macro knock-out blow by that standard. The good news is that a close look at the durable goods stats doesn’t look fatal either.
Do Gasoline Prices Still Threaten Retail Sales?
Two months ago, I wondered if rising gasoline prices threatened retail sales. At the time, energy costs were rising, taking an increasing bite out of consumer purchases. It looked like a train wreck. Consumer purchases, after all, represent roughly 70% of GDP. But gasoline prices hit a ceiling in early May and have been flat to moderately lower ever since. There’s no assurance that prices won’t resume taking flight, but for the moment there’s been a slight reprieve on the energy-based assault on retail sales.
Strategic Briefing | 7.26.2011 | Taxes & The Budget
Our Real Deficit Problem Has Nothing to Do With Traditional Government
The Atlantic | July 25
In 1960, the last full year of the Eisenhower administration, taxes were 17.8 percent of GDP and primary spending (excluding interest) was 16.4 percent. Social Security took in and paid out 2.2 percent. Medicare didn’t exist. So Everything Else had a primary surplus, with taxes at 15.6 percent and spending at 14.2 percent.
In 2010, in the supposed age of “big government,” spending on Everything Else was only 14.7 percent of GDP, and that was swollen by the recession and stimulus spending. By 2021, according to the CBO’s alternative fiscal scenario (the pessimistic one), spending on Everything Else will be 13.0 percent–less than in 1960. Everything Else tax revenues–that is, everything except the Social Security and Medicare payroll taxes–will be 12.5 percent of GDP, for a primary deficit of only 0.5 percent. And that’s assuming that all of the 2001, 2003, and 2009 tax cuts are extended indefinitely.