NEW$ & VIEW$ (15 NOVEMBER 2012)

THE “GRAND BARGAIN”: POSITIONNING

Obama Presses For Higher Taxes, Adds Caveats

The president said he will push for raising tax rates on upper-income Americans, while leaving enough wiggle room to suggest to Republicans that the two sides could still compromise to resolve the fiscal crisis.

(…) Finding common ground could prove difficult. Mr. Obama sent signals to Democrats at his news conference that any deal needs to include allowing the Bush-era tax cuts for the top 2% of income earners to expire at the end of the year. He said while he remains open to other ideas, it would be difficult to raise the same amount of revenue by closing loopholes and eliminating deductions that benefit higher-income Americans.

“I think he’s absolutely clear that you have to get revenue from high-income earners through a balanced approach,” said Rep. Chris Van Hollen (D., Md.). “He’s clear the only way he sees the math working is to allow that top rate to go up.”

Mr. Obama’s postelection strategy has been aimed at keeping both parties from running from the negotiating table. His rhetoric, veering at times between hard and soft lines, is intended to set the tone for a potential deal, White House officials said. He left the door open, for example, for raising top rates but not all the way back to Clinton-era levels.

Mr. Boehner has shown openness to changes that would raise fresh tax revenue but has drawn a line on raising rates. Mr. Obama has demanded tax-rate increases, while suggesting he would look at other options for making top earners pay more. His opening bid in Friday’s talks will be to raise $1.56 trillion of revenue over 10 years, with roughly $1.43 trillion of that coming from higher taxes on the wealthy. Senate Minority Leader Mitch McConnell (R., Ky.) said the president must accept cuts in programs such as Medicare as concessions for GOP openness to more revenue in a deal.

At President’s Meeting With Executives, Some Push, Pull and Give

He also communicated to the chief executives, in a tone several described as persuasive, that he was committed to substantive changes in Medicare and other entitlement programs, which make up a large portion of federal spending and are projected to grow quickly in the next few decades as more Americans retire.

Obama ‘Grand Bargain’ More Gimmick Than Grand

The wide gap between GOP lawmakers and President Obama over what constitutes serious deficit reduction may be too much to overcome in time to avert the year-end fiscal cliff. (…)

The deal laid out by the White House leading up to and since Obama’s re-election has involved about $4 trillion in claimed deficit cuts over 10 years.

Yet Republicans have kicked the tires before — the deal has been on the table since September 2011 — and come away finding it’s smaller and far more tilted toward tax hikes than advertised.

The reality is that Obama’s new spending program cut proposals appear relatively modest: less than $600 billion over 10 years.

Of those, about $250 billion come from Medicare, mostly via reduced payments to providers. That would come on top of deep ObamaCare cuts that may be hard to achieve.

The White House’s $4-trillion-plus in savings also includes $1.1 trillion from drawing down troops in Iraq and Afghanistan; $1.2 trillion in savings from Budget Control Act spending cuts passed into law in August 2011; and related reductions in debt service.

At the same time, the White House wants $1.6 trillion in new revenue, of which nearly $1 trillion would come from letting the Bush tax cuts expire for the top 2% of earners.

In a September 2011 analysis, the nonpartisan Center for a Responsible Federal Budget called the trillion-plus savings from the troop drawdown “a true budget gimmick.”

The group also judged that Obama’s approach “is unlikely to sufficiently control long-term deficits and debt.” (…)

Just not there yet!

Sandy Dents Retail Sales

U.S. retail sales fell 0.3% in October to $411.59 billion as superstorm Sandy hit the East Coast, while wholesale prices unexpectedly fell 0.2%, the first decline in five months.

Retail and food-service sales fell 0.3% last month to a seasonally adjusted $411.59 billion, the Commerce Department said Wednesday.

For October, purchases dropped by 1.9% at building material and garden equipment stores and 1.5% at auto and parts dealers, the biggest drop in more than a year, the report said. But sales rose 1.4% at gas stations and 0.8% at food and beverage stores.

Minor setback in October. Less autos and gasoline retail sales fell 0.3% (+2.7% y/y). (Table and chart from Haver Analytics)

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Wal-Mart Forecast Trails Estimates as Sales Gains Slow

Third-quarter sales at U.S. Wal-Mart stores open at least a year and excluding fuel increased 1.5 percent, trailing the 2 percent average estimate of analysts surveyed by Bloomberg and slowing from the unit’s 2.2 percent gain in the second quarter.

US Fed looks at further easing
New QE programme could replace Operation Twist

“A number of participants indicated that additional asset purchases would likely be appropriate next year . . . in order to achieve a substantial improvement in the labour market,” said the minutes of the rate committee’s October meeting.

The minutes suggest that when the Fed’s Operation Twist programme expires at the end of the year, it may be replaced with new quantitative easing, in order to keep its total asset purchases at $85bn a month.

Surprised smile  Surprises Spreading

In a sign the world economy is emerging from its rough patch faster than economists anticipated, Citigroup Inc. gauges of whether incoming data exceeds or undershoots forecasts show U.S. and China indicators are increasingly proving stronger than anticipated. The so-called surprise index for the U.S. is at 57, up from a 2012 low of minus 65.30 in July, while China’s has risen to 27.30 from minus 87.80 in May. (Bloomberg)

Hold on! From FT Alphaville:

Perma-bear Albert Edwards also points to a surging Citigroup economic surprise index, which appears to have lost a lot of correlation with equity markets. It’s happened before — most markedly in the second half of 2008:

 

He adds:

In mid-2008, despite positive economic surprises, the economy had actually entered recession six months earlier and profits were already declining sharply. Yet, in mid-2008 virtually no economist accepted that the US economy had already entered recession! That is exactly what I believe is happening today.

Part of the ‘positive surprises story’ are US corporate profits, which have been holding up well compared to rest of developed world. That has boosted analyst optimism, but it’s the change in analysts’ optimism that Edwards wants us to focus on. It has recently started declining.


Why focus on changes in analyst optimism?

Our analysts’ optimism indicator is a good leading indicator not because analysts have any foresight at all about what is about to happen, but because analysts pick up what is happening to companies on a contemporaneous basis and since the data are available on a weekly basis, it is much more timely than traditional leading indicators

And it’s the change in analyst optimism (rather than the level) that seems to correlate with changes in the equity markets, as this chart suggests:

 

High five  The big difference this time is that equities are not overvalued like in 2008. Quite the opposite.(click on chart to expand)

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Lightning  Euro-Zone Economy Contracts

The euro-zone economy contracted in the third quarter despite modest gains in Germany and France, as rising unemployment and fiscal austerity across much of Europe deepened the Continent’s economic malaise.

GDP in the 17-member euro zone slid 0.1% from the previous quarter, according to the European Union’s statistics agency, which translates into an annualized decline of around 0.4%. GDP fell 0.7% in the second quarter, at an annualized rate. Economic output was down 0.6% from a year earlier.

imageThe July-September decline was limited by Germany and France, the bloc’s largest economies which combine for half of the region’s GDP. Each advanced 0.9% from the previous quarter, at an annualized rate, with gains driven largely by consumer spending and exports. France revised down its second-quarter figure from no growth to a slight contraction.

But the bloc’s next three largest economies—Italy, Spain and the Netherlands—all shrank, with Dutch GDP down at a 4.5% annualized pace.

Cool interactive country by country stats here.

U.K. Retail Sales Slump

The Office for National Statistics said the volume of retail sales fell 0.8% in October compared with September—the largest fall since April. On an annual basis the volume of sales rose 0.6%.

imageThe ONS said the main driver of the monthly fall in retail sales was food stores with volumes dropping 0.6%. Sales from food stores make up 41% of total retail sales.

Sales from nonfood stores also slumped in October, with sales of clothing, footwear and textiles dropping 2.3% on the month.

 
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One thought on “NEW$ & VIEW$ (15 NOVEMBER 2012)

  1. hello .
    your analysis is intristing (allways)
    i wanted to make a simple comment with diffrent way to day .
    i listening J MOULDIN one video about the book ENDGAME .(i don’t have read jet ) i will .

    HE make one very analitice analysis how Capitalism work .. i wainting to see the resolution he can give in basicle to titlo ENDGAME (i did not see) sorry .
    HE was sit one table cyclo ,,in this table he can sit around and (he looks is in the same place) (i am sure you understand what i mean) IF MR MOULDIN was sit in corner table is diffrent SO he try to explanted how one company survive and how one other not ..THIS IS low of capitalisme survive ..
    MY Q TO MR MOULDIN IS
    ARE WE REALLY NEEDED THIS?
    he do very excellent work but why is just HE /OR OTHER 10-100 HE and not ..WE (not for my self) is not personal ..is true inlife doesnt have = but is true too this = to have not big big big ………….diffrences
    i have to say to MR MOULDIN THANK YOU VERY MUCH i will read him book maybe i will understand better (i don’t think so) becouse the esencial i redy have
    your analysis have to do with capitalisme system
    this is our destiny (for me no) or we have to see beyond of the border..
    thank you to you too

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