Outside the Arena

For a read on the economy - watch oil prices

For the past couple of years, I have been watching oil prices and the exchange rate of the dollar vs the Euro. Some interesting stuff is happening as President Obama tries to get his spending / stimulus bill through Congress and into law. I view oil as a great leading indicator - as the US economy heats up, oil prices will rise - with the opposite true as well. Oil has been hovering at around $40 per barrel for the last quarter or so after hitting about $150 when the prices at the pump went crazy early last year.

Anyway, oil rose after the GDP number was announced this morning. The dollar is now below 1.30 with the Euro as well.

Could it be that the economy isn't quite as dreadful as we believed?

US GDP for the year 2008 was actually up over 1% for the year, despite the dreadful last quarter. Contrast that with the 2001 recession and the mess we had in the late 1970's. While this is certainly a deep recession, you could almost net out the banking mess and say that this was a cyclical recession, not great depression part deux. So, if we could solve the banking / credit situation, we'd likely begin an upward trend...

That is why listening to that comedy team of Frank & Dodd - the team that brought you mortgage collapse through Fannie and Freddie talk about stimulating first time home buyers, it scares me - and should scare you. Why don't these guys just leave this alone? If someone is credit-worthy, they should be able to buy a house. If they aren't, they need to rent until they are credit-worthy. This is the way the US functioned from the 1700's through the 1970's when Fannnie and Freddie were hatched... If you look at the only banking "star", Hudson City Savings Bank of NJ - why are they a star? Because they never changed the lending policy when other banks were funding speculation. Therefore their foreclosures are still quite low despite the lousy housing market.

The other side of my point on oil is - as soon as the US economy begins to track up - get ready to buy that hybrid! It will not take long for prices at the pump to re-approach $4 per gallon - at warp speed.

Brian

Sen Dodd vows to get Wall Street bonuses back!

Sen Christopher Dodd vows to get Wall Street Bonuses back - http://thehill.com/leading-the-news/senate-banking-chairman-wants-wall-street-bonuses-confiscated-2009-01-29.html

We know he has some great connections at Fannie and Freddie, so he can start there. Wonder if he will be asking the bank which gave him his preferential mortgage for their bonuses... I sort of remember reading somewhere about that - but it has strangely been missing from the headlines for a long time.

Senator Dodd and Congressman Frank are leading the charge on the stimulus. Great...

CNN - No Bias, No Bull

I was scrolling the FIOS program guide last night and noticed that CNN refers to the Campbell Brown nightly show as "No Bias, No Bull."

Are you kidding me? Only someone who is truly biased, would say that there is no bias here.

I watched the entire election cycle last year as Brown openly rooted for (first) Hillary, then Obama. She paraded "objective" commentators like VandenHeuvel, Huffington, Carville, and on and on through there.

I have no problem at all with the content of the show, but no bias? Please...

Unabashed Obama Supporter Eugene Robinson chimes in...

http://www.realclearpolitics.com/articles/2009/01/obamas_mandate_could_sweep_awa.html

Eugene Robinson in today's Washington Post talks about the end of the GOP era - and the idea that the country knows we must try something new...

Now - the election last November wasn't close. However, I don't think you could say that there is some kind of overwhelming mandate for this kind of spending. Fact is - Obama won. Additional fact is - he carried just short of 52% of the vote - and this included huge turnouts among Democrat constituencies - while running against one of the most unpopular Presidents ever - certainly since Jimmy Carter.

When Reagan was President, I don't recall the Washington Post chiding Tip O'Neill for offering dissent or, for that matter, voting against tax cuts or anything else the President offered. That was a bit different - for despite the Reagan landslide (over 500 electoral votes...), Congress was still controlled in both houses by Democrats.

Robinson is right on one thing - it is difficult to see Republicans standing up for fiscal conservative principles after the 8 year spending fest that just left Washington. However, our government is built on checks and balances - and yes, honest, scholarly dissent. BiPartisanship means cooperation on some level, not caving to everything one side wants. Congressional Republicans must represent their constituencies, not just cave to anything. Clearly there will be a bill - this vote was designed to modify it - to compromise. And that's bad?

Before we call Obama's win a mandate for liberalism, let's forecast how effective some of these policies would be. Frankly, in the week since he's taken office - I don't see too much change. This feels alot like 1977 or 1993. The stimulus plan, when actually read by people, doesn't seem to bring much short-term stimulus value for an incredibly high cost. If you really want to stimulate the economy, do it. If, on the other hand, you want to have an omnibus spending program, call it that, bring it before the people (as Reagan used to) and see how strong that mandate was...

I am reasonably sure that is the kind of change people thought they voted for - honesty and transparency.

Nice Analysis of Stimulus Bill by Jim Manzi

http://corner.nationalreview.com/post/?q=NDBiYjY3OWJjOWMyMWFjYmZjMjU2MTAwNDg1OGExNTA=

By way of introduction, Jim Manzi is former CEO of Lotus Development Corp (Lotus 1-2-3, Notes, etc.). Manzi took over that company when founder Mitch Kapor relinquished control. If my memory serves me, I think Manzi came out of McKinsey (or one of its competitors, sorry about that).

Anyway, I think his analysis is dead on. This is not a stimulus bill - as I posted here yesterday - this is an omnibus spending bill - the spoils of the 2008 election, if you will.

President Obama talks a good game of change and bipartisanship - but this is right out of the liberal playbook... Can we really afford to borrow over $800B like this now?

One more comment on education spending ($100B additional in this bill). Why don't we just cut to the chase? If we follow simple logic, there should be an amount that, if spent, would result in genius IQs for everyone. What is that amount? And, why don't we just borrow that and get it over with instead of the "thousand cuts" treatment?

Perhaps Randi Weingarten knows the answer?

The Rush Limbaugh Obama Stimulus...

I guess I am a little surprised that The Wall Street Journal printed this...

http://online.wsj.com/article/SB123318906638926749.html

Here is talk-show host Rush Limbaugh proposing a stimulus compromise to President Obama... Well, if you read this, I am not sure you can really call this "proposal" a compromise. It reads more like a side-by-side experiment using the American economy. Somehow Rush elevates himself to equal status with the newly elected President of the US... I remember Gingrich trying this after the 1994 elections with no success against Clinton.

Anyway, so Rush determines to test stimulus philosophies on a prorated basis, conforming to the vote tallies from last November's election. Liberals get 54% (of $900B) and Conservatives get the rest.

Then Rush goes on to explain that of his hypothetical  $414B, he proposes to cut US Corporate Tax rates in half (to 17.5%) and suspend capital gains taxes for at least a year. I have no idea whether these two things would tally to $414B, but let's leave that for a second.

The fact is that (in the aggregate) almost all US jobs created in the last decade are new hires by small business. The majority of small business would not be helped by either of Rush's proposals. Many are organized as Subchapter S corps or LLC's (Limited Liability Corps) - and the really small are simple proprietatorships. None of these would be helped directly by cutting the corporate tax rates as they are taxed at the individual rates. Now - for those who sell to large corporations - they would be helped by this indirectly by increased buying activity. As for cutting capital gains tax rates - this would directly help small businesspeople who are selling, not hiring!

The Reagan Revolution taught us that the important number in government is not necessarily tax rates, but receipts. Of course, the media promotes class warfare by reporting the rates. But the fact is that every dollar not claimed by a government ends up as disposable in this economy. President Reagan cut individual tax rates, accelerated depreciation (capital spending by corporations) and helped small businesspeople by insitituting the IRA / and SEP programs to allow them to save for retirements in a tax deferred program in the fashion enjoyed then only by corporate and government employees.

While I would love to see these tried and true methods employed now, the fact is that Obama is correct - he won and therefore in our country we assume people voted for him and his program. Therefore, just as Reagan and FDR - he gets to try his - and his friendly Congress and media will sell it. I wish he'd do a bit more study and true consideration before making this law, but this is a country where majority rules. And the majority voted for Obama - or at least against McCain and the Republicans.

Personally, I would think things might get better if the government stayed out of it rather than borrow $900 billion to spend on more pork, but hey, that's me.

Rush should continue to be an entertainer and a hugely successful talk show host. He should be a dissenter, but also respect Obama and his win.

Health Care debate

This blog (and me in particular) is critical of the Washington media, especially for conflicts of interest. So, for full disclosure - I have a generic pharmaceutical company as a client.

So, here, in a Keene, NH paper is an article by a journalist (professor) with help from a student about generic drugs...

One incredible claim from this article is:

"The number of pills Americans take is staggering. More than 200 million Americans are on a prescription drug of some kind. The typical American takes a dozen prescriptions. And we didn’t get here overnight. Instead, we arrived through the boom of generics."

Read the whole article at http://sentinelsource.com/articles/2009/01/28/opinion/columnists/free/id_341069.txt

I am not sure where these statistics came from - but I have a hard time believing that "the typical American takes a dozen prescriptions..." Whether true or not, to blame this on the availability of generic drugs is a strange bit of logic. Considering a majority of Americans has health insurance which covers doctor visits and prescribed drugs - is the lower cost of generics even a consideration for many Americans? I know the answer to this is that insurance companies try to steer subscribers to generally lower-cost generics. But this is a very recent strategy.

But is this to blame for the over-medication of America? An observation would be that prescription drugs now treat more conditions than they ever did. I have no idea how many E.D., Anti-depressants and sleep medications are among those prescribed, but I suspect this number is huge based on the consumer advertising we see. Try turning on the Super Bowl this weekend and counting the Viagra, Cialis and Levitra ads! None of these drugs, by the way, is generic...

A case could be made that generics make necessary medications for heart conditions, COPD, etc. available to those who could otherwise not afford them... and additionally actually lower health care costs in the aggregate...

One statistic that is commonly thrown around is that 65% of all drugs prescribed are generic. This is a little misleading in a way unless you consider that the average generic drug is priced at 1/8th to 1/10th of the branded drug in the same category - of course there would be more on a unit basis. If we looked at this on a cost basis, the story is far different.

As a side issue on quality that was raised in this article, there was legislation proposed this week to mandate international FDA plant inspections - paid for by manufacturers fees - as part of an effort to better ensure quality control.

There is no question that American's are over-medicated and that there are side effects from drug interactions. To blame this on the rise of generic drugs is very simplistic.

Brian

Stimulus - "Take the time and get it right..."

The voice of reason - The Washington Post???

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/28/AR2009012802938.html?hpid=opinionsbox1

This is correct. Another $800B of borrowed funds. Let's be sure that this one has the desired effect. As more details come out about this plan, it appears to simply be an omnibus spending bill as opposed to anything that is designed to kick-start private sector economic activity.

Didn't we learn our lesson last Fall with the banking bailout? Let's go more slowly with this and figure out what will really work. Since the Democrats are in power, if (at that time) they want to do this spending, that is evidently the will of the electorate. But don't pass the omnibus spending bill at a bad economic time - and do it under the guise of stimulus.

If we really want to simulate hiring private sector jobs, then we have to really understand what specifically will do that. We simply can't afford to borrow another $800B unless it is truly on target.

Sarah Palin forms PAC (for 2012)

http://www.nydailynews.com/news/politics/2009/01/28/2009-01-28_shes_back_alaska_gov_sarah_palin_launche.html

Obviously, as Governor of Alaska, she is entitled to do anything she wants to politically. And if she can raise money, more power to her. But, after the recent campaign cycle, can anyone really take her seriously as a candidate for President?

I am not referring to that unfunny Tina Fey thing, or even the harsh critiques of parenting that liberals throw at her (a little incongruous, no?), I am referring to her performance as a candidate. The fact is that she was very, very short on facts and the kind of depth of thinking it takes to be on a national stage. Now, would she improve in 4 years - you betcha. She is a smart woman - let's remember she went from small town mayor to VP candidate in 6 years... However, what I saw in her TV appearances was someone who clearly was not ready for prime time.

Without Monday morning quarterbacking, I suspect October would have been a far different political month had McCain gone "chalk" and selected Romney - who at that time would have been the only candidate with economic chops... I would have hated a President McCain, but I think Romney would have made this alot closer than it was.

Good luck to Palin. She's right, the Republican party has to rebrand. But it surely needs a different standard-bearer. True the media was unfair to her, but she certainly gave them plenty of fodder.

Defining "Middle Class" - Here is who saves in the stimulus bill.

Nice analysis by CNN Money. Sounds like the upper end of "middle class" is $75K per year ($150K for couples filing jointly). People who don't pay any income taxes will also receive the "credit" - I guess the net effect is no payroll (FICA) taxes for them either... Love the last paragraph about the "family of five making $16,000 per year..." Without being critical of these folks who are in a very tough spot, I sincerely doubt whether an extra $3,000 in this case would "stimulate the economy." Let's call this what it is.

Here is the article.

Your tax savings - stimulus bill

_{Congress is still debating the economic stimulus package, and the tax provisions may still be changed. But here's an early look at what they could mean for you.}

Tax savings under stimulus Lower and middle-income tax filers will get the biggest breaks under the economic recovery package. Here's what the savings could add up to based on the bills before Congress. All provisions could still change. Status Income Tax savings Single, no kids $30K $500 Married, 2 kids $30K $1,390 Single, no kids $50K $500 Married, 2 kids $50K $1,000 Single, no kids $76K $500 Married, 2 kids $76K $1,000 Single, no kids $100K None Married, 2 kids $100K $2,700* Single, no kids $500K None Married, 2 kids $500K None *Savings under House version $1,000 Source:Deloitte Tax

NEW YORK (CNNMoney.com) -- What kinds of tax savings will the stimulus plan offer Americans?

Deloitte Tax crunched some numbers to come up with an initial answer.

To be sure, the data is preliminary. Congress is still hashing out the final terms of President Obama's economic recovery package and a full picture won't emerge until the tax lady sings.

Most of the savings are accounted for by the Make Work Pay Credit, which was a centerpiece of Obama's election campaign. It would be worth up to $500 a year for individuals and up to $1,000 for couples.

The full credit would be available for 2009 and 2010, but is limited to those making $75,000 or less ($150,000 or less for workers filing joint returns).

The Make Work Pay Credit also would be refundable, meaning that even tax filers without any income tax liability -- typically very low-income workers -- would receive one.

An amendment to the Senate bill this week would protect middle- and upper middle-income taxpayers from the Alternative Minimum Tax. The AMT was intended primarily for high-income taxpayers but has in recent years threatened to engulf those lower down the income scale. That provision is not in the current House bill, but may make its way to the final bill.

The amount of savings an individual or family receives from the stimulus bill will depend in part on how many children they have. Changes to the Earned Income Tax Credit and the child tax credit will offer big tax savings to very low-income families with three kids or more.

Between those changes and the addition of the Make Work Pay credit, the Tax Policy Center calculates that a family of five making $16,200 a year (assuming each spouse makes $8,100) would get an additional $3,511 as a result of the stimulus bill. That same family would get an extra $1,651 if they made $32,000 a year.