Category: US & Canada

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Obama’s ‘Fairness’ Tax is Political, Not Fiscal

Eward Morrissey of the Fiscal Times points out the way toward resolving the fiscal cliff impasse:

Both parties want to reform the corporate and personal tax systems to eliminate complexity and provide stability and predictability. Rather than aim specifically at revenue, start by realizing the bipartisan goal of tax reform, which will boost investor confidence, and then address the spending that drives the deficits. That will be the only way to have a truly balanced long-term solution and a reliable increase in revenue, one that will keep America on a firm path to solvency…..

via Obama’s ‘Fairness’ Tax is Political, Not Fiscal.

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Back to Basics: A Better Alternative to Basel Capital Rules | Thomas M. Hoenig

FDIC Director Thomas Hoenig calls for a simple capital ratio of Tangible Equity/Tangible Assets instead of the complex measures proposed by Basel III. Using Tier 1 capital measured according to Basel III standards overstates tangible equity capital by about 40 percent and using risk-weighted assets makes capital adequacy ratios even more subjective.

Prior to the founding of the Federal Reserve System in 1913 and the Federal Deposit Insurance Corporation in 1933, bank equity levels were primarily market driven. In this period the U.S. banking industry’s ratio of tangible equity to assets ranged between 13 and 16 percent, regardless of bank size……..

[Basel capital standards] led to a systematic decline in bank capital levels. Between 1999 and 2007, for example, the industry’s tangible equity to tangible asset ratio declined from 5.2 percent to 3.8 percent, and for the 10 largest banking firms it was only 2.8 percent in 2007. More incredible still is the fact that these 10 largest firms’ total risk-based capital ratio remained relatively high at around 11 percent, achieved by shrinking assets using ever more favorable risk weights to adjust the regulatory balance sheet.

via FDIC: Speeches & Testimony – 9/14/2012.

Hat tip to Barry Ritholz.

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The Most Compelling Argument for Equities | Pragmatic Capitalism

Cullen Roche quotes David Rosenberg:

The Fed has also completely altered the relationship between stocks and bonds by nurturing an environment of ever deeper negative real interest rates. Therein lies the rub. The economy and earnings are weak, and getting weaker, but the interest rate used to discount the future earnings stream keeps getting more and more negative, and that in turn raises future profit expectations.

Cullen also refers to the spread between the S&P 500 dividend yield and the 5-year Treasury Note yield which has widened to 170 basis points (1.70%). What he has not considered is the upsurge in share buybacks over the last decade as a tax efficient alternative to dividends — which means the dividend yield is understated. The spread should be even wider.

via PRAGMATIC CAPITALISM – David Rosenberg: The Most Compelling Argument for Equities.

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Larry Elder | Is the US becoming a food stamp nation?

Larry Kudlow interviews Larry Elder: Is there a future for free markets?

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“We are at the point where almost 50 percent of voters can go into that voting booth and pull the lever to vote themselves a raise….”

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Richard Fisher | Politicians need to get their act together

Texas Fed President, Richard Fisher believes fiscal authorities need to get their act together. “There is a limit to what we can do. We can’t have a Buzz Lightyear monetary policy: to infinity and beyond.”

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Fisher’s frustration with Washington is hard to miss:

“We have to completely reboot tax policy. We need to completely reboot spending policy……..This is all about job creation…..We have to build confidence in the business community, who are the job creators. And until we give them some clarity, they are just going to hold back. If we have temporary fixes to the fiscal cliff this just pushes out the envelope of indecision…… Just get the job done. Give the business community and those who employ people — the private sector — a sense of direction and confidence. Right now they know nothing. They don’t know what their taxes are going to be. They don’t know what spending patterns are going to be. They don’t know what the costs of these massive regulatory initiatives are going to be…. No business can plan right now…..”

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President Obama Has Drawn A Dangerous Line In The Sand – Business Insider

Bruce Krating’s analysis of the fiscal cliff stoush:

The headlines make it seem like B&O are ready to work together, and achieve the necessary compromises to avoid falling off a cliff. I think the press has it wrong. We’re headed into a bitter fight; in part, because the President has drawn a very dangerous line in the sand…..

via President Obama's Has Drawn A Dangerous Line In The Sand – Business Insider.

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Jan Hatzius Connects All the Dots | Business Insider

Important insight from Jan Hatzius at Goldman Sachs, reported by Cullen Roche:

The US private sector continues to run a large financial surplus of 5.5% of GDP, more than 3 percentage points above the historical average. This is the flip side of the deleveraging of private sector balance sheet. We expect a normalization in this surplus over the next few years to provide a boost to real GDP growth. This is the key reason why we see US economic growth picking up gradually in the course of 2013 and into 2014, despite the near-term downside risks from the increase in fiscal restraint……..

via Jan Hatzius Connects All the Dots – Business Insider.

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Stopping the Runaway Train: The Case for Privatizing Amtrak | Randal O'Toole | Cato Institute

Interesting analysis by Randal O’Toole on the future of Amtrak:

When Congress created Amtrak in 1970, passenger-rail advocates hoped that it would become an efficient and attractive mode of travel. More than 40 years of Amtrak operations have disappointed them, as Amtrak has become the highest-cost mode of intercity travel and remains an insignificant player in the nation’s transportation system. Nationally, average Amtrak fares are more than twice as much, per passenger mile, as airfares. Despite these high fares, per-passenger-mile subsidies to Amtrak are nearly nine times as much as subsidies to airlines, and more than 20 times as much as subsidies to driving. When fares and subsidies are combined, Amtrak’s costs per passenger mile are nearly four times as great as airline costs…….

via Stopping the Runaway Train: The Case for Privatizing Amtrak | Randal O’Toole | Cato Institute: Policy Analysis.

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Canada: TSX Composite ranging

The TSX Composite monthly chart shows the market ranging between 11000 and 12800. Oscillation of 13-week Twiggs Money Flow above zero reflects buying support at 11000.  Downward breakout is unlikely, while recovery above 12800 would offer a target of 14000*.

TSX Composite Index

* Target calculation: 12500 + ( 12500 – 11000 ) = 14000

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US losing momentum

The S&P 500 found short-term support at 1370 after penetrating the rising trendline on a weekly chart. Loss of momentum warns that a top is forming. Reversal of 63-day Twiggs Momentum below zero would strengthen the signal. Breach of support would test the primary level at 1270.

S&P 500 Index

Note how the S&P 500 lately moves in increments of fifty: 1270, 1320, 1370, 1420, 1470…….

The Nasdaq 100 similarly penetrated its rising trendline — shown here on a monthly chart — warning that a top is forming. 63-Day Twiggs Momentum (not shown) is below zero, strengthening the signal. Breach of primary support at 2450 would confirm the primary down-trend signaled by bearish divergence on 13-week Twiggs Money Flow. Respect of primary support is unlikely, but would indicate another advance.

Nasdaq 100 Index

* Target calculation: 2400 – ( 2800 – 2400 ) = 2000

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