Today is Thursday, May 17, 2012

Economy

Forecasts, reports, earnings.

2007 immigration bill was a bad joke; can Congress get it right this time?

In 2007, Presidents George W. Bush and Barack Obama supported Senators John McCain, Ted Kennedy and many Democrats in a failed effort to foist a so called immigration reform bill that was loaded with pork, written to give illegals amnesty and otherwise a disgraceful attempt to fool Americans.

Now, most of the same characters are making another attempt to change the immigration and border security laws. But, of course, the focus is on helping the illegals, not American citizens whose lives and incomes are put at risk by the shameful border security enforcement polices of the Obama administration.

Here are links to some stories about immigration reform. I’ll add more as I find them.

Arizona’s immigration frustration. Editorial. http://www.opinionjournal.com. 4.26.10.

“Nobody Wins” on immigration reform. By Nathan Martin & Kasie Hunt. 4.26.10.

Law profs on Arizona immigration bill: It’s unconstitutional. wsj.com. 

New Arizona immigration law makes sense. The Heritage Foundation.

Immigration reform’s big moment. WaPo.

Arizona’s immigration law may spur a showdown. By Nicholas Riccardi. LA Times.

Will Democrats err in immigration reforms? By Daniel Griswold. Cato Institute.

Jane Norton on immigration.

Ken Buck on immigration.

Ken Buck talks illegal immigration, hate crime laws, government spending. The Business Word, 2.16.10.

Tom Wiens on immigration.

Bennet urges Senate leadership to move on immigration reform. Sen. Bennet’s web site.

Dan Maes on immigration.

Scott McInnis and John Hickenlooper don’t address the issue specifically on their web sites.

67% say illegal immigrants are major strain on U.S. budget. Rasmussen Reports. March 23, 2010.

Obama wants to give community banks $30 billion and turn them into Fannie Maes

President Obama tonight in his State of the Union speech said that he wants to dump $30 billion on community banks and force them to loan money to small employers regardless of their credit ratings or business prospects. In short, he wants to create 3,000 or more small Fannie Maes. Since the mid 1990s, Barney Frank, Chuck Schumer, George Bush and Obama have forced Fannie Mae to make the subprime loans to unqualified home builders. This policy has been a major contributor to the three-year-old financial crisis that persists. Obama’s long and boring and highly partisan campaign speech was a disgrace. He still doesn’t get it.

Mitt Romney’s 10-point plan to create jobs, restore the economy

Mitt Romney’s 10-point plan for getting people back to work looks like it can be supported by most independents, many Democrats and almost all Republicans. All GOP Congressional candidates should endorse the Romney plan and post it on their campaign web sites.

Gallup: Well-Being index creeps higher for fourth straight month

The Healthways-Gallup Well-Being index edged sllightly higher for the fourth consecutive month, which is an important indicator that consumers may be feeling better about themselves and their prospects.

The survey is sponsored by Healthways (HWAY), which provides wellness and preventive care services to employers.

Because the survey is only about 18 months old, it’s too early to see whether it is a leading or lagging economic indicator.

Congressional Budget Office warns that soaring budget deficit will hurt economic growth

President Obama’s proposed health care spending and reform and his cap and trade climate bills would boost the federal budget deficit dangerously, and the Congressional Budget Office warns that the budget deficit is growing so fast that it’s putting long-term economic growth at risk.

Link.

Impact graphs:

Measured relative to GDP, almost all of the projected growth in federal spending other than interest payments on the debt stems from the three largest entitlement programs—Medicare, Medicaid, and Social Security. For decades, spending on Medicare and Medicaid has been growing faster than the economy. CBO projects that if current laws do not change, federal spending on Medicare and Medicaid combined will grow from roughly 5 percent of GDP today to almost 10 percent by 2035. By 2080, the government would be spending almost as much, as a share of the economy, on just its two major health care programs as it has spent on all of its programs and services in recent years.

In CBO’s estimates, the increase in spending for Medicare and Medicaid will account for 80 percent of spending increases for the three entitlement programs between now and 2035 and 90 percent of spending growth between now and 2080. Thus, reducing overall government spending relative to what would occur under current fiscal policy would require fundamental changes in the trajectory of federal health spending. Slowing the growth rate of outlays for Medicare and Medicaid is the central long-term challenge for fiscal policy.

A few days ago the CBO stunned Obama and Congress with the warning that the health insurance legislation being debated in Congress would increase health care costs, not reduce them.

Now this warning about the budget deficit will make it even harder for Congress to agree on both health care and the cap and trade legislation.

I hope.

Mort Zuckerman’s bearish economic forecast is a warning to everyone

President Obama’s economic forecasts last winter and today were and are way too optimistic.

Mort Zuckerman, a billionaire real estate investor and publisher of U.S. News & World Report and the New York Daily News, chose to publish his dire economic forecasts and criticisms of Congress and the Obama administration in today’s edition of The Wall Street Journal.

He warns that deficits larger than Obama is projecting loom. This means, as many have been saying all along, that the president’s costly health care and cap and tax climate bills are unaffordable.

Will the Democrats in Congress take heed? Few will. We can only hope that enough will to block the multi-trillion dollar health spending bill and the cap and tax bill, but I’m not counting on it.

But speculators are beginning to get a grip after a burst of unfounded optimism, which helped cause the bear market rally that began in March and seems to be coming to an end.

Links:

The economy is even worse than you think. wsj.com.

Some economists warn Barack Obama’s predictions too optimistic. Politico.

Health insurance stocks plunge on 9.5% unemployment, health insurance reform news

Health insurers fell sharply last week on news that during June, unemployment rose to 9.5%. The stocks also may be reflecting growing pessimism among investors that the Democrats’ public option heath plan may still get a weak new lease on life.

It’s hard to sell health insurance when unemployment is rising, and when insurance markets weaken, price wars among insurers often break out, although they don’t seem to be a big problem yet.

More important, if the public option, or Government HMO, makes it through Congress, no matter how much it’s watered down, it will hurt the health insurers. Last week the GHMO looked dead on arrival. Democrats are talking tough, but only time will tell.

Polls are showing a lot of concerns about the public option, and there are reports that it only has 38 votes in the Senate.

Finally, with most charts for the major indexes looking weak for the near term, health insurers may just be under pressure from profit taking after staging strong rallies since early March.

Here are the daily charts with prices as of July 3 for AET, CI, CVH, HS, HUM, UNH, WLP, XLV, VHT.

I don’t have positions in any of these stocks or ETFs.

The feds’ distortions of the housing market caused crash and financial crisis; markets did not fail

John H. Makin of the American Enterprise Institute writes in the Wall Street Journal that bad government policy caused the crashes in the housing and financial markets.

The markets didn’t fail, he correctly asserts.

His impact graph:

The housing collapse and its painful aftermath, including that $15 trillion wealth loss for U.S. households (so far), do not, therefore, represent a market failure. Rather, they represent the dangerous confluence of three policy errors: government policy aimed at providing access to home ownership for American households irrespective of their ability to afford it; the Fed’s claim that it could not identify bubbles as they were inflating but could fix the problem afterward; and a policy of granting monopoly power to rating agencies like Standard & Poor’s, Moody’s, and Fitch’s to determine the eligibility of derivative securities for what are supposed to be low-risk portfolios, such as pension funds.

Amazingly, the same politicians who messed up the housing and financial markets are claiming that they can fix the health insurance markets.

 

Read the 7 myths about green jobs

Scholars show the seven myths about how going green would create new jobs.

The 7 myths:

Myth 1: Everyone understands what a “green job” is.

Myth 2: Creating green jobs will boost productive employment.

Myth 3: Green jobs forecasts are reliable.

Myth 4: Green jobs promote employment growth.

Myth 5: The world economy can be remade by reducing trade and relying on local production
and reduced consumption without dramatically decreasing our standard of living.

Myth 6: Government mandates are a substitute for free markets.

Myth 7: Wishing for technological progress is sufficient.

Download the report to see why these are myths. Answers are on the first four pages of the 21-page study.

 

Bernanke’s warning to Congress about deficits causes selling of gold

Is adult supervision coming to Washington?

Today’s markets acted like they were worried that Congress would listen to Fed Chair Ben Bernanke’s warning that budget deficits were going too high.

In effect, Bernanke was trying to reassure the markets that a surge in inflation is not around the corner because the Fed won’t let it happen, and he’s warning Congress to watch that spending.

His warning could be bad news for health care reformers, who want to add a budget-busting health insurance reform bill to the economic mix.

So gold prices, which have been on a tear recently, dropped to $964. The next support levels are at about $950, $920 and below $800, if speculators really think they’ve over hedged against inflation. Traders buy gold as protection against inflation.

At the same time, the dollar, which has been sinking in the face of inflationary expectations, rose Wednesday. The charts say the buck could drop another 10%, but it may be due for an upward correction after recent declines.

These things are so hard to predict in these still relatively volatile markets and uncertain geopolitical times.

How will GM and Chrysler do in a much slower economy over the next five years?

Even as the economy seems to be showing signs of at least temporarily bottoming out, economists continue to warn that we must get used to 7% to 8% unemployment and a growth rate of 1% to 2%.

And that is the big problem that will slow the recoveries of GM, Ford (F) Chrysler, Toyta (TM), Honda, Nissan and the rest of the world’s some 30 automakers.

Almost all of the commentary on the GM and Chrysler bankruptcies has centered around changing the management teams and restructuring the companies.

But, to me, it’s clear that unless demand for autos in the U.S. exceeds 10 million light vehicles a year, all bets are off.

GM is talking 11.5 million in industry sales for next year. It says the total replacement market in a normal economy is about 13 million new cars and light trucks.

But if Washington continues to force smaller, less safe, uncomfortable and less flexible (no SUVs, pickups?) on consumers, drivers will emulate the Cubans and drive their old junkers for 50 years. Demand for new vehicles could fall well below the 10 million targeted sales.

Bonds out perform stocks over long-term, but rising interest rates make them risky

Over the last 200 years, bonds have outperformed stocks for long periods and even over the last two centuries, according Robert Arnott’s article, Bonds: Why Bother?.

However, since we’re facing the risks of a soaring budget deficit and the hyper inflation that that might produce, interest rates are rising, causing bond prices to drop. So this isn’t a good time to buy bonds, and I’m considering bailing on my bond funds.

Be sure to read the skeptical comments that follow the article.

I think the history presented in the article, which appears on http://www.indexuniverse.com is so important that I’ve sent a link to it to family and friends.

From the conclusion:

Many cherished myths drive our industry’s equity-centric worldview. The events of 2008 are shining a spotlight, for professionals and retail investors alike, on the folly of relying on false dogma.

For the long-term investor, stocks are supposed to add 5 percent per year over bonds. They don’t. Indeed, for 10 years, 20 years, even 40 years, ordinary long-term Treasury bonds have outpaced the broad stock market.
For the long-term investor, stock markets are supposed to give us steady gains, interrupted by periodic bear markets and occasional jolts like 1987 or 2008. The opposite—long periods of disappointment, interrupted by some wonderful gains—appears to be more accurate.
For the long-term investor, mainstream bonds are supposed to reduce our risk and provide useful diversification, which can improve our long-term risk-adjusted returns. While they clearly reduce our risk, there are far more powerful ways to achieve true diversification—and many of them are out-of-mainstream segments of the bond market.
Capitalization weighting is supposed to be the best way to construct a portfolio, whether for stocks or for bonds. The historical evidence is pretty solidly to the contrary.

As investors become increasingly aware that the conventional wisdom of modern investing is largely myth and urban legend, there will be growing demand for new ideas, and for more choices.

Why are there so many equity market mutual funds, diving into the smallest niche of the world’s stock markets, and so few specialty bond products, commodity products or other alternative market products? Today, investors are still reeling from the devastation of 2008, and the bleak equity results of this entire decade. They have already begun to notice that there were opportunities to earn gains, sometimes handsome gains, in a whole panoply of markets in the past decade—most of which are still difficult for the retail investor to access.

Gary Shilling’s still a bear and expects long-term growth to be a slow 2% annually

If you’re thinking about buying stocks on the current minor correction, give this report on Gary Shilling’s view of the world a careful read.

Obama’s protectionist stimulus bill starts bitter trade war with Canada

President Obama’s stimulus act includes a provision intended to keep trade between the U.S. and Canada flowing, but states, municipalities and companies dealing with them are interpreting the law as a mandate to only buy American, putting Canadians and even American workers on the street.

Protectionism is destroying export opportunities for American companies and, if history is any guide, very likely will cause the recession to deepen and last longer than hoped.

Now, investors have to start figuring out which stocks will be helped and hurt by the new trade wars with Canada and other countries. The big exporters and multinationals look most vulnerable, but their suppliers will be among the losers.

Do you believe the Treasury secretary?

Do you believe Secretary of Treasury Tim Geithner’s explanation of what the Obama administration is trying to do with its stress tests of the nation’s 19 largest banks?

He explains his attempts to save the financial system in this NY Times op-ed.

Questions:

1. Is it a good assumption that businesses and consumers will want to borrow if the recession worsens?

2. Is it a good assumption that if the recession worsens, businesses and consumers will be credit worthy and the kind of borrowers banks would want to lend to under any economic conditions?

3. Why should we believe that Obama is trying to ensure the ability of banks to lend rather than that he is trying to ensure that he will have the power to tell banks how and when to lend and to which of his political favorites they should lend to?

4. How can the dozens of supervisors who analyzed the banks’ stress tests be expected to uniformly evaluate the banks?

5. Why should investors, bankers or anyone else think that the stress test results haven’t been skewed to punish bankers who have been outspoken about the problems they have with TARP, Paulson, Geithner and Obama?

6. Given Obama’s glee in demonizing bankers and Wall Street, why should we think that the administration is being fair and objective in evaluating banks and their stress tests?

7. How good are the economic assumptions, scenarios and forecasts that the regulators are using, given that most economists and market analysts say they have little idea about how the economy or markets will perform over the next three, six and 24 months?

Call me disbelieving. I don’t have much confidence in either the bankers or regulators, and I’m very concerned about Obama’s assumption of the role of banking CEO.