Doug,
     Taxes are desirable to the extent that they permit a government to provide benefits to the citizenry that would not be affordable otherwise. I favor taxes of that kind except when those benefits include unneeded luxuries. Tax revenues should be the limit of what the government is allowed to spend; expanding deficits should be forbidden.
     I consider the Laffer curve to be a valid concept, but it is not the people's friend. It purports to show the level of taxation that will gain the most money for the government. What we need is another kind of curve that tells the government the minimum tax revenue it needs to run the country properly.
Seán

New weekly claims for unemployment fell. The four week average fell as well. New home sales up inventories down. Existing home sales up. Durable goods spending was up last month. Other spending was up too.

What's not to like?

quote:

Doug,
Taxes are desirable to the extent that they permit a government to provide benefits to the citizenry that would not be affordable otherwise. I favor taxes of that kind except when those benefits include unneeded luxuries. Tax revenues should be the limit of what the government is allowed to spend; expanding deficits should be forbidden.

Sean,
- I didn't address spending exactly, only the debt. What the government spends on or how much is almost a different argument. Or should be.

I fully agree with a balanced budget amendment with the exception for wars or recession of which we are suffering both.

quote:

I consider the Laffer curve to be a valid concept, but it is not the people's friend. It purports to show the level of taxation that will gain the most money for the government.

It is a friend if used to address debt. I agree it becomes more questionable when used to increase government spending.

I think there is the assumptions in there that barring certain functions all taxation is bad. The Libertarians take that to the extreme. You are willing to acquiesce to things that benefit the common good. But what qualifies is part of that other debate.

What if that assumption and premise is not always correct? Certainly Keynesian economics give a different take proving government spending is stimulative when economic activity is low. Without going in to detail I will simply say it "greases the wheels". And it is critical when preventing the destruction of the economic system itself that we faced recently. The loss of businesses reduces income and wealth generally. It destroys some economic activity.

Wiki notes that the Laffer curve came as an extention of Keynes' work.

The proper interpretation of the Laffer curve shoots down the blanket assumption, a favorite myth of the Republicans, that cutting taxes always results in greater revenues and greater business activity. That is simply not true.

But I question if there is a point and conditions where taxation and spending, not just deficit spending results in positive against going exactly contrary to the Republican myth.

The simplest look says spending by government or by private sector is both spending and a wash. Further damaging the Republican view. There is one flaw. Government also consumes some of that revenue in a way that is not productive.

But the executives and upper management of the corporations are consuming as much or more of the profits of business. I was noting almost a decade ago the claims this would eventually damage the economy. It has.

Where much of the conflict comes and the case for taxation is in the other Republican myth of Supply Side economics that is known to stimulate poorly, more slowly, make only the rich richers, never trickles down, and is damaging to the financial health of the majority in favor of the richest minority.

There is point where supply can be warranted, at times of supply side restrictions. Over demand, factory capacity maxed out, and interest rates at very high levels restricting ability to borrow to meet demand.

But we haven't seen that since Reagan's time. Currently we have a demand problem and have had since 2000 and to some lesser extent, before then.

So I would make the case that taxation used to reverse the current damage of the Republicans applying supply side economics to an oversupply demand side problem could make taxation beneficial and stimulative.

Unemployment Rate Falls to 10%

Orders to U.S. Factories Increased 0.6% in October

Job market shows big improvement

Luxury makes a comeback

Stocks jump as employers cut fewer jobs

Unexpected drop in jobless rate sparks optimism

November U.S. jobs data boosts recovery hopes

Incomes up, consumer debt falling, hours worked up, spending up, orders up, Dollar up, Stocks up,...

What is not to like?

Economic Report
Dec. 11, 2009, 9:47 a.m. EST ·

Retail sales sparkle in November

WASHINGTON (MarketWatch) -- U.S. retail sales rose an encouraging 1.3% in November, marking the third increase in the past four months, according to Commerce Department data released Friday.

Excluding the 1.6% rise in auto sales, sales rose 1.2%, the fastest since January.

Economists surveyed by MarketWatch expected total sales to rise 0.5% and sales excluding autos to rise 0.4%.

This was a surprisingly strong report, and suggests that U.S. consumers are slowly regaining their spending mojo," said Millan Mulraine, an economics strategist at TD Securities, in a note to clients.

Source

Economic Report
Dec. 11, 2009, 10:30 a.m. EST

Consumers cheer up in early December

By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) -- Consumer sentiment improved markedly in December, according to reports on the University of Michigan/Reuters index released Friday.

The consumer-sentiment index jumped to 73.4 in early December from 67.4 in November, hitting its highest level since September.

Economists surveyed by MarketWatch were expecting the index to inch up to 69.0. See forecasts for all major indicators.

Consumers' judgment on the current economy rose to 79.1 from 68.8, reaching its highest level since April 2008.

Consumers' expectations about the near-term economy improved to 69.7 from 66.5.

Source

     For the first time this year, on Friday almost every stock I own traded at more than average volume. Some were up, some were down, but the average change was slightly positive. Normally I only buy if a stock's price is down, but ING—last sold at $9.72—issued rights (1:1) to buy at $6.27, so I took the bait up to the sinker. Unless recovery is really on the way, I'm sure I'll wish I hadn't.
Seán

US online spending up 4 pct in Nov-Dec - comScore

* Jewelry and watches fastest growing category, up 20 pct

* Sales strongest on Black Friday and week up to Christmas

* Total online spending $29.1 billion in Nov-Dec

NEW YORK, Jan 6 (Reuters) - U.S. online spending in November and December rose 4 percent from a year earlier to $29.1 billion, with sales showing particular vigor over the Black Friday weekend and the week leading up to Christmas, according to data released on Wednesday by comScore (SCOR.O).

The performance beat comScore expectations and was fueled in part by guaranteed shipping, discounting and poor weather that forced shoppers online, comScore Chairman Gian Fulgoni said in a statement.

Fulgoni said the results were encouraging but warned that high unemployment and consumer debt levels could curb consumer spending.

Sales were up 11 percent on Black Friday and rose 13 percent on the weekend immediately preceding Christmas, when a major snowstorm slammed the East Coast.

http://www.reuters.com/article...106?type=marketsNews

Doug,
     Those indications are encouraging, but what I hope to see is an improving employment picture. Until people start earning, recovery won't occur. This is what troubles me.
Seán

     Mr. Obama thinks jobs are important, too. He said "I'll never stop fighting to bring jobs back to Elyria. I'll never stop fighting for an economy where hard work is rewarded, where responsibility is honored, where accountability is upheld, where we're creating the jobs of tomorrow. That's why I'm calling on Congress to pass a jobs bill to put more Americans to work rebuilding roads and railways, to provide tax breaks to small businesses for hiring people, and to offer families an incentive to make their homes energy efficient, saving them money while creating jobs."
Seán

     Apparently investors weren't pleased with yesterday's State of the Union address, since the averages moved sharply down today. I wonder why the bad reaction? Anyway, XOM fell below the March '09 price, so I loaded up on it on the chance that oil won't go out of style for a year or two.
Seán

DOW reported all good news today—Better than expected earnings and good prospects for the year ahead. So naturally it sold down more than a dollar. Sell on good news, the experts say. I'm keeping all the shares I own.
Seán

Unemployment rate is down.

Job losses for last month down to 20,000.

Factory hiring up in December.

Factory production up 1% last month.

Retail sales still heading up.

Consumer debt fell for the 11th month in a row, mainly from credit cards.

Sounds like all good news to me.

quote:

Until people start earning, recovery won't occur.

I can't disagree with that on the face of it. But I will draw a distinction between the recovery for the whole economy and that for businesses in general.

I will say though there is a place where the stock market disassociates in a direct manner with the economy. It isn't always a direct correlation. Yes, it operates under the big umbrella of the general economy and health of the country, the business environment, but it doesn't have to track directly.

What I am trying to say, is that businesses can return to profitability and even some growth without the general economy needing to doing as well, including employment.

Earnings were driven so low because losses taken in downsizing to match the lower demand. Lots of write offs for things as partially completed expansion projects, not to mention the banks which now comprise a smaller percentage of the S&P 500 than they did. We could see a big uptick in earnings when the losses slow or stop and that is becoming true for most sectors barring construction, banks, and autos. Autos are almost achieving balance again.

And there is market share increases coming with some businesses gone bankrupt. The remaining ones should do better as things improve.

Last, I am still watching the influence of the stimulus. Last I heard was that 30% had been spent. That 30% I do not think needs to be actually "spent" as much as appropriated for projects. I doubt those dollars have actually been translated in to wages yet. For instance money spent on materials for future infrastructure work, or money for planning projects, or sent to the states for same.

Since it is winter much of that work is on hold. I expect a ramping up in the near future and for the rest of the year as the two year plan extends in to 2012 with the lion's share translating in to jobs this year.

I think this year will be a better year than many expect and I am playing it that way.

Don't forget that something like 50% of the earnings of the S&P 500 come from overseas so we have to pay attention to global environment these days. But there have been some recent glitches overseas. Still, many countries have faired better than we have with our financial problem kicking us in the pants.

Doug,
     If I had $1.3678 to spare right now, I could buy a Euro with it. This plunge from $1.49+ is caused by financial woes in Greece, I'm told. Considering Greece' small contribution to the European economy, I wonder if some other factor is in play, as well. All I know for sure is the dollar's strength will discourage our customers in Europe. Won't that slow down recovery a bit?
Seán

quote:

Originally posted by Sean:
Doug,
     If I had $1.3678 to spare right now, I could buy a Euro with it. This plunge from $1.49+ is caused by financial woes in Greece, I'm told. Considering Greece' small contribution to the European economy, I wonder if some other factor is in play, as well. All I know for sure is the dollar's strength will discourage our customers in Europe. Won't that slow down recovery a bit?
Seán

I'm not big on Forex but I tend to think the dollar has been undervalued and euro overvalued. It can be justified with our recession and debt but I suspect both to be temporary, up to a point.

The problem with the Greece and maybe Italy issue is that for the Euro to work all the governments using it must conform to the financial restrictions on debt and Greece blew it.

While a small percentage of the whole euro economy it hits to the basic precepts on which the euro is based.

There was a whole lot of doubt that all the countries involved could maintain their fiscal responsibility and lower debt levels. This has given the naysayers some validation and put the euro in to question. We might see a bailout, of a whole country, and that won't help their credibility going forward much.

I agree in percentages it is likely not a big deal.

Economics operates with balances between factors. Those countries export to us so a stronger dollar will mean more money for them that they can use to buy from us. So it is hard to say. There is always the "On the other hand".

For the S&P 500 with the weaker dollar and our recession the overseas contribution to S&P 500 earnings has risen from 40% to 50%. So if it falls back to 45% I don't see it as a big problem for the economy. I expect better domestic earnings to cut that down as well.

Doug,
     On Friday, Feb. '05 my small universe of stocks traded heavily, mostly with modest gains in price. Even XOM, my last acquisition was a 2-cent winner although it is still down more than a dollar from the price I paid for it. The index futures were grimly negative at week's end. Now the S&P 500 change has risen up to zero and may turn positive as the night advances.
     January was a losing month for stocks withal, but only XOM fell low enough to make me want to buy it. I would buy more at $60 but don't expect to get the opportunity. More likely the trend will turn up again and last month's losses will be recouped this spring.
     In general, first-quarter earnings have been positive, which good news I found surprising. Admittedly the gains were smaller than investors were expecting: I think the sell-off was more from disappointment than for profit-taking. As expectations moderate, stocks should rise slowly to reflect the economic recovery now in progress.
Seán

     When something startles a flock of chickens each bird squawks and flutters off in whatever direction it happens to be pointing. The only plan or pattern is to leave a large vacant area around whatever frightened them. That is how investors usually behave.
     Sometimes it's possible to find some tasty tidbits in the place they've left abandoned.
Seán

quote:

On Friday, Feb. '05 my small universe of stocks traded heavily, mostly with modest gains in price.

Up on down days? Any chance you are positioning yourself too defensively if the economy recovers? Just asking as I haven't really considered your position too much. AA and DOW may be a recovery play but ED not so much so. But I am not against buying dividends cheap and doing some of that myself.

Buffett has been selling large amounts of XOM. He has taken a rather large loss and called his purchased of that and Conoco a big mistake but he bought it much higher and said he liked the stocks and would want to keep them. He is using the money to fund other purchases.

His selling might be putting pressure on the stock you might not otherwise be seeing due to the size of his sales.

quote:

In general, first-quarter earnings have been positive, which good news I found surprising.

Considering the title of this topic I was not so surprised the economy is recovering.

quote:

Admittedly the gains were smaller than investors were expecting: I think the sell-off was more from disappointment than for profit-taking. As expectations moderate, stocks should rise slowly to reflect the economic recovery now in progress.
Seán

I am very pleased my year end projection made when the market looked so bad ended almost exactly on the mark and I am trying to not be bothered by the noise of daily or monthly moves as long as the bigger picture maintains. We are currently close to even with the start of the year.

I tend to say to other friends, more active traders, I do not try to play a move unless it appears it may be 10% or greater. We almost had that recently but it did fall short and now has recovered most of that dip.

I agree it may be time to go back to buying the dips to pick up those tidbits. That approach does assume a more stable upward bias in the long term which is my current assumption and longer term assessment.

Housing starts up in January and up 21% YOY. Easier year over comparison though since last year was bad, so I consider the quarter to quarter more significant.

Industrial production up in January also and up for the seventh month in a row.

What's not to like?

It's very interesting to see who is posting on this topic. It speaks volumes.

Koka,
That's my middle name.
Seán V. Wugo

     Today Mr. Bernanke raised the discount rate to 0.75%. Stocks should fall tomorrow. There is a real indication of recovery; he would not have dared to do that a month ago.
Seán

     Wrong again. At Friday's close some of my stocks were up a little and some were down. All traded lightly. I took a small net loss, but not enough to make a difference. I think investment sentiment is now cautiously optimistic.
Seán

quote:

Originally posted by Sean:
     Wrong again. At Friday's close some of my stocks were up a little and some were down. All traded lightly. I took a small net loss, but not enough to make a difference. I think investment sentiment is now cautiously optimistic.
Seán

I like the cautiously part. They say the stock market climbs a wall of worry.

Stocks did tumble on the open before recovering so you can't say you were entirely wrong.

I am up over the last couple of days. It is difficult to try to play the short term news. A friend pulled out 50% from his S&P 500 account we use for timing, looking to profit from a downturn of a Bernanke confirmation rejection that didn't happen. He pulled out earlier on then went back in with the confirmation instead. He was totally wrong but picked up 2.5% from the trade.

As I like to say: You can't argue with being lucky.

That is why I say I look for a potential move of 10% and not the smaller ones. It is too easy to be wrong.

Looking at the bigger picture though I was tempted to do the same as my friend because the market just felt a little ahead of itself and toppy in the short term. So with that in mind, trying to catch a move over some news has less to do with the news other than it would be more the trigger than the actual reason for the move. The actual reason being valuations being a touch too high for current conditions.

In this case it seems the market didn't consider the increase in the Discount rate as a signal of tightening that would effect the target rate for Fed Funds. It came across as an adjustment more than a move or change.

Plus tightening is fully expected from these extraordinary low levels. I think the market will surely react to any tightening but on the other hand I think from these levels they can certainly tighten more than a little before the level reaches a point where it is restrictive. If that makes sense.

In other words reducing the levels of extreme liquidity and accomodation, as they like to call it, is not the same as restricting the money supply.