Just as a Parti Quebecois candidate was forced to resign for an anti-Islam Facebook post, a Jewish group is accusing another PQ candidate of spreading an “anti-Semitic conspiracy theory” created by the KKK. 283 more words
Just as a Parti Quebecois candidate was forced to resign for an anti-Islam Facebook post, a Jewish group is accusing another PQ candidate of spreading an “anti-Semitic conspiracy theory” created by the KKK. 283 more words
Posted by Jack A. Bass on March 14, 2014
The crux of the matter is that the House GOP is not inclined to pass a budget that doesn’t include some kind of delay or defunding to Obamacare. And obviously Democrats won’t agree to that. So, impasse.
Markets are already falling, it would seem, on the news.
But there are reasons to think this would be good.
Goldman explained why this could be helpful in a note to clients last Friday:
It would be a mistake to interpret a shutdown as implying a greater risk of a debt limit crisis, in our view. It would not be surprising to see a more negative market reaction to a shutdown than would be warranted by the modest macroeconomic effect it would have. We suspect that many market participants would interpret a shutdown as implying a greater risk of problems in raising the debt limit. This is not unreasonable, but we would see it differently. If a shutdown is avoided, it is likely to be because congressional Republicans have opted to wait and push for policy concessions on the debt limit instead. By contrast, if a shutdown occurs, we would be surprised if congressional Republicans would want to risk another difficult situation only a couple of weeks later. The upshot is that while a shutdown would be unnecessarily disruptive, it might actually ease passage of a debt limit increase.
This seems kind of vague, but there are three distinct reasons it could be a
Not everyone shares this view. Molly Ball writes persuasively in The Atlantic that there’s no reason to think a shutdown could “cool the fever,” so to speak. And indeed people have predicted many times (incorrectly) that the GOP fever had finally broken.
Posted by Jack A. Bass on September 30, 2013
The U.S. and its allies are under increasing pressure to take some action other than humanitarian aid ever since the chemical attack took place. However, overthrowing Syrian President Bashar al-Assad could create a vacuum that Al-Qaeda or some other hard line Islamist group would be happy to fill. Any military action could be a show of force to punish, rather than remove al-Assad. Nobody in the West wants the Syrian civil war to spill over into other countries, which could lead to a much larger conflict and cause oil prices to spike. This in turn would be a negative for the market and for corporate earnings.
Equity Returns Following Wars
I don’t mean to sound callous about any of this but my job is to look at it from an economic perspective. The historical performance of the market following the outbreak of both major and minor wars seems to indicate that, regardless of the actions taken by the U.S. or UN forces, there will likely not be a lasting effect on global equity markets.
For the moment, assume these recent developments drag the U.S. into the middle of another civil war in the region and ground forces are brought in to stop the killing of Syrian civilians. History teaches us that wars are not harbingers of bear markets. Certainly in the short run conflicts can cause the market to drop as people fear the worst and investors’ risk aversion tends to increase.
However, when you look at historical equity returns following the outbreak of a war, you’ll find the wars seem to have a slightly positive impact on the equity markets. There are many examples of this throughout history. One year after the start of WWI in 1914, the Dow Jones Industrial Average (the Dow) dropped 0.98%. Five years after the start of the war to end all wars, the Dow was up 25.54%. From the start of WWII on September 1, 1939, the Dow increased 11.95% after the first month and five years after the outbreak of WWII the Dow was up 8.81%.
These were the two biggest wars of the century and the market shrugged them off and continued higher, although at an annualized rate of appreciation that was lower than the historical average. If you look at some of the smaller wars, the return of the market following the start of fighting is more positive.
In a small conflict the increase in government spending likely helps push GDP growth and corporate earnings higher and is generally positive for the market.
After the start of the Korean War, which like the Vietnam War, was a proxy conflict between the United States and the U.S.S.R, the Dow was up 4.17% after 3 months, 7.36% after 6 months, 15.13% after one year and 110.30% after 5 years. The time period following the start of the Vietnam War in 1962 was not a particularly good time for stocks but not terrible either. Six months after it began, the Dow decreased by 17.56%, but after one year the market was down only 5.15%. Five years after the conflict began the Dow was up 20.11%.
The results are similar for more recent wars. One year following the start of the first Gulf War on August 2, 1990, the Dow was up 4.95% and five years after the start it had increased 63.73%. One year after the start of the war in Afghanistan on October 8, 2001 the Dow had decreased 17.27%, but that had more to do with the tech-led bear market than the war. Five years after the start, it was up 30.77%. The start of the Iraq War in March, 2003 didn’t rattle the market at all as we were in the early stages of a five-year bull market. One year after the start, the Dow was up 23.24% and five years after the start it was up 43.46%.
Since a ground assault at this point seems unlikely, the most similar situation we can compare it to is the Yugoslavian Civil War. When I say similar, I am referring to the military action taken by the U.S., not the reason for the initial conflict. The Civil War started in 1991 but didn’t end until NATO forces ended the war with an air campaign designed to destroy the Yugoslav military infrastructure in 1999. If you’ll recall, 1999 was a great year to be invested in stocks with the Dow rising 25.22%. As I stated earlier, any military action taken against Syria will most likely be a targeted bombing campaign, and based on the historical data it appears that even when the conflict has the potential to drive oil prices higher as was the case in the Gulf Wars, the market does not necessarily perform poorly in the five years following the start of the conflict.
Putting it All Together
It is still unknown how world governments will respond to the tragedy happening in Syria. There is always the possibility that the conflict could lead to a large scale confrontation, with Russia and China intervening on behalf of their commercial ally Syria. Such an event would be a worst-case scenario and would cause the market to sell-off. I feel though that such a scenario is highly unlikely to occur as it is in no country’s best interest for the conflict to escalate. In the current globally interconnected world, no country benefits from the higher oil prices that result from instability in the Mid-East.
I do believe some form of military action will almost assuredly be taken against al-Assad’s regime. If the goal of such action is to punish Assad or just take out his chemical weapons facilities, it will most likely be a non-event as far as the stock market is concerned. I remain far more concerned about the lack of robust corporate earnings growth than the fallout from increased military actions in Syria.
Posted by Jack A. Bass on September 1, 2013
In it he notes that the rejection of the trillion dollar coin idea to avert the debt ceiling is not alone a market moving event, but that the hard language taken by the White House that the choices boil down to clean lift or default raises the odds of a debt ceiling breach.
So it is possible that we will get a technical default for a few days, but more likely that Congress will give in, vote the debt ceiling up temporarily, and let the automatic sequesters kick in. Mounting risk of a technical default was USD positive in 2011 because it led to cutting of long-risk positions and the USD/Treasury market remained safe havens. However, it also occurred in an environment of slowing EM growth and intensifying euro zone sovereign risk pressure, so the USD support came from external forces as well. Given that investors are now somewhat long risk again, the position cutting is again likely to be USD positive, however, unattractive US assets were. As was the case in 2011, it is very unlikely that the Treasury will not pay its bills, although even a technical default could have very unforeseen consequences, given the multiple functions that Treasuries play in global financial markets. The more likely scenario of sequester plus grudging debt ceiling rise is USD negative.
That seems reasonable. A debt ceiling hike + a full sequester, which would equal a weaker economy and more pumping.
Posted by Jack A. Bass on January 13, 2013
Three prominent bears — David Rosenberg, chief economist at Gluskin Sheff & Associates, Mohamed El-Erian, chief executive officer at Pacific Investment Management Co., and David Levy, chairman of the Jerome Levy Forecasting Center — separately see some hopeful signs. These include a housing market that is healing, a more competitive manufacturing industry and technological breakthroughs that could boost productivity.
“More so than at any time in the past three years, I’m doing whatever I can to identify silver linings in the clouds,” Rosenberg said.
None of the three is ready to declare the all-clear. While the chances the economy could perform better than expected are “somewhat” higher than before, the downside risks are bigger, said El-Erian, who oversees $1.9 trillion at Pimco in Newport Beach, California. These include the so-called fiscal cliff, which all three agree would trigger a recession if nothing is done to avert its spending cuts and tax increases.
The continued caution of the three economists is reflected in advice they are giving investors. Rosenberg recommends gold- mining stocks and shares of utility companies, the latter as part of a strategy he’s dubbed “Safety and Income at a Reasonable Price.”
“This is a time to be defensive,” said Levy of the Mount Kisco, New York-based economic forecaster. “We are still in a rocky period.” He has been bullish on Treasury bonds for more than five years and eventually sees yields falling even further. The yield on the 30-year bond was 2.78 percent as of 5 p.m. yesterday in New York, according to Bloomberg Bond Trader data.
El-Erian suggests investors look outside the U.S. for economies that are growing faster and put money in companies and nations with strong balance sheets, includingBrazil’s and Mexico’s local bonds. He said investors also should “actively” manage their portfolios to protect against downside risks and take advantage of upside surprises that might materialize through the use of puts, calls and other trading strategies.
El-Erian and Rosenberg recommended a defensive stance on financial markets about a year ago in separate interviews on Bloomberg Television. Toronto-based Rosenberg said investors should look at dividend-paying health-care, utility and consumer-staples stocks, which are least-tied to changes in economic growth.
Drugmakers in the Standard & Poor’s 500 Index are up 16 percent and producers of household goods have risen 9.7 percent in 2012. Utilities have fallen about 2 percent for the worst performance among the 10 major industries in the gauge.
El-Erian said Dec. 19 that the first part of 2012 would be “risk off” as Europe’s sovereign-debt crisis encouraged demand for safety. Yields on 10-year U.S. Treasuries rose to 2.21 percenton March 30 from 1.88 percent at the start of the year, while theStandard & Poor’s 500 Index (SPXL1) jumped 12 percent. For the year to date, the stock index also is up 12 percent.
The U.S. economy will grow 2 percent next year and 2.8 percent in 2014, the Paris-based Organization for Economic Cooperation and Development said last month. That is faster than the average for the OECD’s 34 members of 1.4 percent in 2013 and 2.3 percent in 2014.
Both Rosenberg and Levy foresaw the bursting of the housing bubble in 2007, the former when he was chief economist for North America at Merrill Lynch & Co. in New York. They’ve generally been more pessimistic than the consensus of economists since then, with Levy saying the U.S. is experiencing a “contained depression,” and Rosenberg incorrectly forecasting the U.S. would relapse into recession at the start of this year. The previous slump began in December 2007 and lasted 18 months.
El-Erian and his colleagues at Pimco also have tended to be more downbeat. The 54-year-old former International Monetary Fund economist first used the term “new normal” in May 2009 to describe the probable medium-term path of the global economy. For the U.S., that meant annual growth of about 2 percent.
Since the recovery began in the middle of 2009, GDP has expanded by an average of 2.2 percent, in line with the Pimco forecast and short of repeated projections for faster growth by the Federal Reserve and the White House.
Pimco’s Total Return Fund, the world’s largest mutual fund, is up 10.3 percent this year, beating 95 percent of similarly run mutual funds, according to data compiled by Bloomberg.
It has attracted about $17 billion in net new money in 2012, according to Chicago-based research firm Morningstar Inc., after losing $5 billion to withdrawals in 2011, when it suffered what William Gross, the company’s co-chief investment officer with El-Erian, called “a stinker.” It eliminated U.S. Treasuries early in the year and missed a rally when investors rushed to the safety of government-backed debt.
One reason Rosenberg, 52, is trying to look on the bright side is because many other economists have turned more bearish.
“That’s raised my contrarian antenna,” he said.
GDP probably will grow 2 percent in 2013, down from a projected 2.2 percent this year, according to the median forecast of 74 economists surveyed by Bloomberg last month.
Among the more hopeful signs, Rosenberg said, is the bottoming out of the housing market. New-home construction rose 3.6 percent to a four-year high in October, according to the Commerce Department.
“We’re in a strong phase of the recovery,” Martin Connor, chief financial officer of Toll Brothers Inc. (TOL), a Horsham, Pennsylvania-based luxury homebuilder, said during a conference presentation on Nov. 15. “It’s a function of five years of pent-up demand being released.” Affordability and rising prices also are “spurring people to buy.”
The banking industry also is on the mend, Rosenberg said. “The banks are certainly in better position and more willing to lend money than they have been for years,” after buttressing their balance sheets.
JPMorgan Chase & Co., the biggest U.S. bank by assets, provided $15 billion of credit for small businesses in the third quarter, up 21 percent from a year earlier, Chief Executive Officer Jamie Dimon said in an Oct. 12 press release.
Rosenberg also is encouraged by what he calls a “secular renaissance” of the U.S. manufacturing industry — with output rising 16 percent during the recovery, according to the Fed — and a surge in American energy production.
U.S. oil output is poised to surpass Saudi Arabia’s in the next decade, making the world’s largest fuel consumer almost self-reliant and putting it on track to become a net exporter, the International Energy Agency said last month.
Even so, problems remain. Rosenberg said he is particularly worried about continued high unemployment — 7.9 percent in October, up from 4.7 percent five years ago — and its impact on worker earnings.
“This will go down as a wageless recovery,” the Canadian economist said.
Average hourly earnings for production workers rose 1.1 percent in the 12 months to October, the weakest since Labor Department records began in 1965.
The bottom line for Rosenberg: The economy still is “stuck in the mud.”
Pimco’s El-Erian predicts GDP probably will grow 1.5 percent to 2 percent during the next year as President Barack Obama and Congress strike a “mini-bargain” to avoid the fiscal cliff and moderately reduce the budget deficit.
The economy could do better if policy makers can pull off what El-Erian calls a “Sputnik moment” — a critical mass of reforms that restores corporate confidence and unleashes pent-up investment, hiring and demand. Such steps might include measures to tackle youth and long-term unemployment, as well as cutting the deficit.
“There’s tremendous cash on the sidelines,” he said.
David Cote, chief executive officer of Morris Township, New Jersey-based Honeywell International Inc. (HON), says a budget deal alone could do wonders for the U.S.
“There is a prospect for a robust recovery, something bigger than I think most economists are forecasting,” if the White House and Congress can reach a credible agreement to reduce the deficit by $4 trillion over 10 years, he told Bloomberg Television on Nov. 28.
El-Erian, who re-joined Pimco in 2007 after being in charge of managing Harvard University’s endowment, also sees a chance that technological breakthroughs could give the U.S. a productivity-driven boost. At the top of the list is digitalization: the conversion of pictures, sound and other information into a form computers can process.
“The whole trend is having an impact on very many sectors of the economy,” he said.
The trouble is that while the potential for such pleasant surprises is bigger than before, it isn’t “meaningfully” bigger, according to El-Erian. And the downside dangers are greater, he said. Besides the fiscal cliff, they include the debt crisis in Europe, China’s challenge in overhauling its export-driven economy and the risk of continued instability in the Middle East.
Levy said the U.S. private sector is in the middle of a prolonged period of cleaning up its balance sheet after decades in which debt grew faster than income.
“We’ve been at this for five years,” he said. “If we’re lucky, it might take a tiny bit less than a decade.” He added he’d be surprised if the U.S. is able to avoid a recession in the next few years.
America, though, has made more progress than Europe and Japan in dealing with its debts, Levy said.
“The U.S. will do generally better in this rocky period than much of the rest of the world, because the risks are higher and the problems are bigger in many places overseas,” the 57- year-old economist said. That includes China, where new leaders face decisions on how — and whether — to curb state enterprises, boost access to credit for private companies and raise consumption.
Levy, who served on the board of the Levy Economics Institute of Bard College in Annandale-on-Hudson, New York, from 1986 to 2001, said America also will benefit from a “secular improvement” in its trade balance. Driving that improvement: the manufacturing revival, boom in domestic energy output and increased demand for U.S. agricultural exports as developing nations grow richer.
“By the end of this decade, we might be looking at trade surpluses,” he said. The U.S. ran a$415.5 billion trade deficit through the first nine months of this year.
Future business investment also is being stored up as companies put off capital expenditures because of depressed demand for their products, he said. Eventually, such spending will surge, boosting productivity and profits.
“While the U.S. is going through a long-term, rough adjustment period,” Levy told Bloomberg Radio Nov. 13, “we are weathering it.
‘‘We are going to come out the other side,’’ he added. ‘‘And there is a very bright long-term.’
Posted by Jack A. Bass on December 8, 2012
Business owners and investors are rapidly maneuvering to shield themselves from the prospect of higher taxes next year, a strategy that is sending ripples across Wall Street and broad areas of the economy.
Take Steve Wynn, the casino magnate, who has been a vocal critic of higher tax rates. He and his fellow shareholders in Wynn Resorts, the company announced, will collect a special dividend of $750 million on Tuesday, a payout timed to take advantage of current rates. Experts estimated that taking the payout this year instead of next could save Mr. Wynn, who owns a sizable stake in the company, more than $20 million.
For the wealthy like Mr. Wynn, the overriding goal is to record as much of their future income this year as they can. This includes moves as diverse as sales of businesses, one-time dividends and the sale of stocks that have been big winners.
“In my 30 years in practice, I’ve never seen such a flood of desire and action to transfer a business and cash out,” said Kenneth K. Bezozo, a partner in New York with the law firm Haynes and Boone. “We’re seeing a watershed event.”
Whether small business owners or individuals saving for retirement, investors are being urged by their advisers to reconsider their holdings. Along the way, many are shedding the very investments that have been the most popular over the last year, contributing to recent sell-offs in formerly high-flying shares like Apple and Amazon.
Investors typically take profits in their own portfolio at year-end, but the selling appears to be more targeted this year. Stocks with large dividends, for instance, are seen as less attractive because of the perceived likelihood of a sharp increase in the tax rate on dividends.
Dyke Messinger is holding back on hiring for his business. (Chris Keane/The New York Times)All this is weighing on the broader financial markets, as worries mount about the economic drag from the combination of higher tax rates and reduced government spending set for January if President Obama and Senate Republicans cannot reach a budget compromise before then.
Fears about the fiscal impasse in Washington, along with anxiety about fading corporate profits and weakening economies abroad, have pushed the benchmark Standard & Poor’s 500-stock index down about 5 percent since the election. On Friday, major stock indexes had their best showing of the week after President Obama and Republican leaders signaled that a compromise was possible.
Even if many of the tax breaks scheduled to expire survive a new budget deal, some business owners and investors are bracing for substantial increases in specific areas of the tax code.
The top rate on dividends, for example, could climb to 39.6 percent from 15 percent if no action is taken. Capital gains taxes, which now top out at 15 percent, could rise above 20 percent, many financial advisers say. Most investment income will also be subject to a 3.8 percent charge to help pay for President Obama’s health care law.
Stocks that pay big dividends have been popular in recent years among investors eager for an alternative to the meager returns on bank savings accounts and Treasury securities. Since October, though, the two sectors that provide the most generous dividend payments — utilities and telecommunication stocks — have been among the worst performers, hurt also in part by the devastation of Hurricane Sandy on the East Coast. Utility companies in the S.& P. 500 have fallen 9.4 percent from their highs in October. Telecommunication stocks in the index have dropped 11.3 percent from theirs, compared with the broader index’s 6.8 percent decline from its recent high.
John Moorin, the founder of a medical equipment company near Indianapolis, said he sold about $650,000 in dividend-paying stocks like McDonald’s and Coca-Cola a few days after the election, worried about the potential increase in taxes.
“I love these companies, but I’m so scared that now all of the sudden I’m going to get taxed at such a rate with them that they won’t be worth anything,” Mr. Moorin said.
Although Mr. Wynn has declared special dividends at the end of the year before — most recently in 2011 — in a call with analysts last month, he hinted that higher taxes would cause him and other chief executives to rethink big payouts in future years.
In the meantime, he added, it was “very difficult to do long-range planning with a government that moves as much as this does on so many issues.”
Leggett & Platt, a diversified manufacturer based in Carthage, Mo., decided to move up payment of its fourth-quarter dividend to December from January so shareholders could take advantage of the lower rate.
“If we can help our shareholders avoid taxes and keep more of their dividends, we’ll do it,” said David M. DeSonier, senior vice president for corporate strategy and investor relations.
While negotiators are trying to find ways to raise more revenue for the long term, some experts expect a substantial bump in tax collections in the short term as investors take a multitude of steps now that they would have taken in future years. After the top tax rate on capital gains rose to 28 percent from 20 percent at the end of 1986, federal receipts from such gains doubled to $52.9 billion in 1987, as sales surged at the end of the previous tax year.
The potential jump in tax rates has been telegraphed for months, but many investors say they did not respond sooner because they were waiting to see if Mitt Romney would defeat the president and move forward with his commitment to keep rates at current levels. President Obama, since defeating Mr. Romney, has continued his call for an increase in marginal tax rates on the wealthy. A growing number of Republican leaders have conceded that some increase is now likely.
Kristina Collins, a chiropractor in McLean, Va., said she and her husband planned to closely monitor the business income from their joint practice to avoid crossing the income threshold for higher taxes outlined by President Obama on earnings above $200,000 for individuals and $250,000 for couples.
Ms. Collins said she felt torn by being near the cutoff line and disappointed that federal tax policy was providing a disincentive to keep expanding a business she founded in 1998.
“If we’re really close and it’s near the end-year, maybe we’ll just close down for a while and go on vacation,” she said.
Of the potential changes in the tax code set to take place on Jan. 1, the scheduled increase in the tax rate on capital gains would hit a particularly broad range of investments.
Business owners, for instance, can lock in the current top rate of 15 percent on capital gains if they sell their company before the end of the year. The capital gains tax also applies to increases in the value of stocks and other securities, encouraging some investors to sell holdings that have done well. This is one of several factors cited in the recent plunge in the price of Apple shares. They have dropped 26 percent since mid-September after rising 73 percent earlier in the year.
The coming changes have not hurt all assets. Municipal bonds have become more attractive because they are exempt from most federal taxes, including the new surcharge related to President Obama’s health care law. Frank Fantozzi, a financial planner in Cleveland, is recommending that his wealthy clients increase their allocation to municipal bonds from around 30 percent to about 40 percent.
But the potential effect of the scheduled tax increases and government spending cuts has been mostly negative. Many market strategists have suggested trimming overall holdings of risky assets like stocks, and business executives are proceeding very cautiously.
Some business owners say they are holding off on hiring plans because they expect tax rates to rise. Dyke Messinger, chief executive of Power Curbers in Salisbury, N.C., said he would like to fill four slots at his construction equipment company but would only hire three people because he anticipated that his tax bill would rise by $100,000.
“It’s not a huge amount of money,” Mr. Messinger said. “But it’s enough money that you don’t want to make a misstep.”
Posted by Jack A. Bass on November 19, 2012
The CBO has issued a report that says the U.S. would go back into a recessionif it were to go over the fiscal cliff – over $600 billion in tax and spending provisions set to change on January 1, 2013.
“We need $1.6 trillion. We need to get our revenue up to about 19 percent of GDP, and we need to get our expenses down to 21 or 21.5 percent of GDP. Everyone knows that. So it’s going to take significant action on both sides. And $1.6 trillion happens to be 1 percent of GDP, we’ll need that much revenue, and we’ll need to cut expenditures significantly too.
…”If we go past January 1st, I don’t now if it will be January 10th, or February 1st, but we’re not going to permanently cripple ourselves because 535 people can’t get along.
…We had Hurricane Sandy which disrupted the economy for a period, we had Katrina many years ago, we have things that will disrupt the economy, I mean 9/11 was an extraordinary case but we have a very resilient economy. We’ve had one for hundreds of years and the fact that they can’t get along for a month of January is not something that’s going to torpedo the economy.”
“It really depends very much on the Republicans in Congress. It doesn’t take the whole group in Congress to avoid that. I mean if 25 Republicans decide that they’ll put country above party and sign up for something that makes sense then we don’t need to go over the fiscal cliff.”
Posted by Jack A. Bass on November 16, 2012
According to a Reuters article, Kenya is seeking a 25% stake in the production activities of oil & gas companies operating in the east African nation. The proposal, announced by Kenya’s energy minister, i s one of several the government has put forward in the past month to increase the state’s take from oil and gas resources, including new capital gains tax rules, a more competitive licensing process and higher fees for petroleum explorers.
Currently, most of Kenya’s contracts with oil explorers give state-owned National Oil Corporation of Kenya (NOCK) a 10% stake in the production business once commercial quantities of oil or gas are found. Under the current structure, this means that NOCK contributes 10% of production costs and receives 10% of profit. However, according to the article, Energy Minister Kiraitu Murungi told reporters that the government now wants companies to give NOCK an initial 10% stake, increasing to 25% once production has started.
An oil & gas expert at PricewaterhouseCoopers, commented that it is unclear whether the rule would scare off potential producers because contracts are based on one-on-one negotiations with companies and the Ministry of Energy. He believes that “It depends on how it’s structured and how it’s sorted out” and that he thinks “people will get wary if it’s getting something for nothing. If there’s a fair share of whatever somebody has spent…I think people will be pragmatic and see it as something reasonable. Kenya’s oil and exploration boom has been fuelled by gas discoveries in Tanzania and Mozambique and oil discoveries in Uganda. Notably Tullow Oil and Africa Oil discovered oil in the Ngamia-1 well in Kenya in March. The Ngamia-1 exploration well in Kenya encountered an initial 20 metres of net oil pay, followed by another 80 meters in deeper zones.
Canaccord believes successful flow testing on Ngamia-1 may open up a “string of pearls” of look-a-like geological anomalies that could exceed the 2.5 billion barrels discovered in Uganda.
In October, Tullow and Africa Oil encountered oil in a wildcat well known as Twiga-1 on onshore Block 13T, about 30km west of the Ngamia-1 well. The commercial viability of both finds has yet to be ascertained. Also in Kenya, Tullow and Pancontinental Oil & Gas announced in September that their license consortium’s operator Apache (APC) had found gas in the shallow offshore well Mbawa-1.
Posted by Jack A. Bass on November 15, 2012
Oct 23 John Mauldin
Massive deficits are projected for a very long time, unless we make major changes.
The problem is that taking away that deficit spending is going to have the reverse effect of the stimulus – a negative stimulus, if you will. Why? Because the economy is not growing fast enough to overcome the loss of that stimulus. We will notice it. It is the “G” component of the above equation, which was first developed by Irving Fisher during the Great Depression. The negative stimulus should be a short-term effect –most economists agree it will last 4-5 quarters – and then the economy may be better, with lower deficits and smaller government.
In order to get the deficit under control, we are talking about reducing the deficit on the order of 1% of GDP every year for 5-6 years. That is a very large headwind on growth, especially in a 2% Muddle Through economy. GDP for the US is now on an anemic 2% growth trend, with very weak final demand. Think what it would be if the full anticipated 2% of spending cuts and tax increases were put into force. It would be very hard to attain positive growth in 2013.
Furthermore, tax increases reduce GDP by anywhere from 1 to 3 times the size of the increase, depending on which academic study you favor. Large tax increases will inevitably reduce GDP and potential GDP. That may be the price we want to pay as a country, but we need to recognize that there will be a cost to growth and employment. Those who argue that taking away the Bush tax cuts will have no effect on the economy are simply not dealing with the facts, based on well-established research. Now, that is different from the argument that says we should allow the cuts to expire anyway.
Those who argue that reducing spending will also have an effect are equally correct. Government has been a large contributor to consumer income and therefore personal consumption, part of the “C” in the above equation (along with business consumption). The chart below, produced by Bridgewater last April, shows the additional effect of government spending on disposable income for the US consumer. Notice that without government support, disposable income would now be significantly lower. Letting the “one-time” Social Security stimulus (which has already been extended for two years) go away, along with extended unemployment benefits, will result in a decline in GDP of almost 1% and the loss of a significant contribution to disposable income.
There are no easy choices. If we do nothing about the deficit, we will quickly find ourselves close to the black hole of too much debt. Yet, trying to do too much too quickly will bring the economy perilously close to recession, which will mean increased government expenses and decreased revenues, making it hard to balance the budget. Forget Greece and Spain; ask the United Kingdom how well their austerity efforts are doing. This is a country making a serious and credible attempt to reduce their deficits, and sadly, they have fallen back into recession.
No matter what economists with their models and politicians with their agendas will try to tell you, there is no “easy button.” While there may be a correct path to reducing the deficit and keeping us out of recession, that path is not going to be clear from the models. What we will hopefully do is get the direction correct and ease slowly into confronting the deficit-reduction facts. My thought is that if there are going to be tax increases and spending cuts, they should be phased in quarter by quarter. It might be better to simply hold the line on spending on all but essential items, cutting spending where possible to allow for spending growth in areas like health care. The bond market will behave as long as Congress defines a very clear and credible path to a manageable deficit.
Both Republicans and Democrats will have to compromise. This election is primarily about the direction of the compromise. It is my sincere hope that both parties do not waste this crisis. There will be no better time to engage in comprehensive tax reform than the first six months of next year. True tax reform could actually be a significant stimulus to the economy and partially offset the drag of reducing the deficit. Tax reform in combination with a serious energy policy that encourages more rapid expansion of domestic production, plus control of health-care expenditures, will let us reduce the “fiscal multiplier” – especially important, given that monetary policy is severely constrained with interest rates at the zero bound.
Finding the right policy mix will be difficult. There has to be deficit reduction each and every year, to be credible, but not so much as to push the economy into recession. Frankly, we will be lucky to find that right mix, given the nature of the political process.
Posted by Jack A. Bass on October 23, 2012
Apple (AAPL : NASDAQ : US$644.61)
Boy, great question and important question, because you’re absolutely right – maybe.
From Tuesday’s Presidential debate, the candidates were asked the question: The outsourcing of American jobs overseas has taken a toll on our economy. What plans do you have to put back and keep jobs here in the United States?
A follow-up to that was the question: iPad, the Macs, the iPhones, they are all manufactured in China. One of the major reasons is labor is so much cheaper here. How do you convince a great American company to bring that manufacturing back here? Mitt Romney responded by saying, “The answer is very straightforward. We can compete with anyone in the world as long as the playing field is level. China’s been cheating over the years. One by holding down the value of their currency. Number two, by stealing our intellectual property; our designs, our patents, our technology. There’s even an Apple store in China that’s a counterfeit Apple store, selling counterfeit goods. They hack into our computers. We will have to have people play on a fair basis, that’s number one.”
While the counterfeit Apple store to which Romney was referring to was not an authorized reseller of Apple products, it nonetheless sells authentic Apple products. Yes, there are stores around China that sell Apple products smuggled into the country.
With respect to counterfeit Apple products, as The Wall Street Journal put it, “There are certainly counterfeit Apple products floating around China, but for the most part Chinese consumers are savvy enough to know whether they’re buying a real iPhone or a fake one. Those who buy the fake ones often can’t afford the real deal, and are simply trying to broadcast that they belong to the class that own legitimate Apple products.”
Romney has cranked up his anti-China rhetoric of late – but, that happens almost every American election year. Last January, The New York Times published an article, “How the U.S. Lost Out on iPhone Work”, where U.S. President Obama once asked Steve Jobs, “What would it take to make iPhones in the United States? Why can’t that work come home?”
Jobs’ reply was apparently, “Those jobs aren’t coming back.” According to the New York Times, Apple’s executives believed,”The vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that ‘Made in the U.S.A.’ is no longer a viable option for most Apple products.”
Sound like a lame excuse? In 2010, the average manufacturing wage was roughly $2.00 in China and $34.75 in the U.S. If the cost of U.S. labor would only add $50, $75 or $100 to the cost of each iPhone would consumers pay? Sure. Is a generation of American workers, sitting row, upon row, assembling iPhones the country’s future? NO.
Posted by Jack A. Bass on October 18, 2012