Thursday, April 28, 2011

NFL Labor Issues

The owners have lost.

The lockout is finished because a judge ruled against the owners. Teams will start working with players at their facilities tomorrow.

The end of the lockout combined with the ruling that the owners could not use TV contract money during the lockout virtually assures that a deal will be struck.

The owners have no real leverage. They would be wise to just go with the current system ASAP so that there is certainty in how to handle NFL league issues.

They were wrong from the beginning to end the labor deal 2 years early. They were wrong to lockout the players. And they have thrown away all of their leverage so they can no longer negotiate from a position of strength. The only thing left to resolve is how quickly they will recognize that they need to just move on.

Wednesday, April 27, 2011

Birthers (and Trump) are Dolts

President Obama released his birth certificate, but I guarantee you that won't satisfy those who don't believe he was born in the U.S.

You have to be an absolute idiot to think that there was some sort of cover-up. To believe that, you would have to think that the newspaper in Hawaii that published a birth announcement based on hospital records decades ago when Obama was a born, was complicit in some master scheme to trick the American people into electing a foreign national.

Trump is claiming it is his doing - his ego knows no bounds.

It really doesn't make much difference. Serious people didn't go for this crap anyway - but the crazies will still be out there. Not much will change, except maybe Trump will move on to more important things. Like trying to get to the bottom of Obama's high school grades. What a dope.

Even more dopey are the people who are actually serious about wanting Trump as President.

Tuesday, April 26, 2011

Plan For a Major Stock Drop

If there is no increase in the debt ceiling by the end of next week (May 6), I would recommend that any stock holdings you have be cashed out by Monday, May 9. The U.S. will run out of cash by mid-month and investors are starting to get nervous about what may happen.

If the ceiling is not raised, and the U.S. government defaults on any obligations it will create an unprecedented uncertainty which will send the markets tumbling. We are back to Dow 12,500. Obama came to office with a tumbling Dow. It had fallen from about 13,000 to 8,000 in the year leading up to his inauguration and fell to about 6600 very early in his presidency before making a steady climb. If we don't have an increase in the debt ceiling, we will fall back to Dow 6000 within a matter of 2 weeks. It will be a blood bath.

So cash out while you can - if the situation worsens - then sit back and let the bloodbath occur. Once it looks like it has hit bottom, and there is some resolution, then you may want to buy back.

Thank the Republicans for creating a situation that could result in the worst Recession - and probably a longer term Depression - because of their political games. At least you have been warned so you can try to protect some of your assets.

Monday, April 25, 2011

Raising the Debt Ceiling

By mid-May, the U.S. will default on its obligations if the debt ceiling is not raised from the current $14.3 trillion. Congress should not play politics with the ceiling. No question there needs to be better fiscal discipline (on both spending and revenue side), but that is a separate issue from the debt ceiling.

It would be totally irresponsible to destroy the goodwill and confidence in U.S. treasury notes because of politics.

Republicans raised the ceiling numerous times under President Bush, but all of a sudden they have gotten religion about deficits and want to use the credibility of the United States as a bargaining chip. Unfortunate.

If the ceiling is not raised, we will see a global depression unlike anything we have ever experienced. That is not an idle musing, but a fiscal reality. Hopefully it won't come to that.

Friday, April 22, 2011

Presidential Election Outlook

It is still a year and a half away, but right now it is shaping up fairly well for the President to be re-elected.

That doesn't mean that I am totally satisfied with my President - there is much to complain about - but right now there is no legitimate Republican in the field or that seems to be on the verge of jumping into the field.

There is no question that the Stimulus plan worked and really turned around the economy. It brought stability and order to the markets (which have really recovered). This has created the private capital that has driven the significant job creation that we are now seeing. Job growth is likely to continue over the next few quarters.

The big issue right now is how to tackle the debt/deficit. Here is where I strongly differ with the President. The tax cut "deal" he cut with Republicans was atrocious - but he is on the right side of the discussion and he has set himself up politically to isolate Republicans into arguing against tax increases for the wealthy. It will likely be a strong point for the President to defend.

The weird part for the Republicans is that it isn't clear what they are going to fight for. It will be hard to argue against the economy when things are improving. You still have vocal "birther" crazies who have vaulted Trump (what a joke!) into the early lead for the Republican nomination. The Republican nomination race will be a very interesting one to watch. I just hope Sister Sarah jumps in. Man, if Glenn Beck decided to run then we'd really have some entertainment. Imagine Trump, Palin, and Beck all on the same stage. That would be something.

Wednesday, April 13, 2011

Shut Down Was Averted - Now What?

The government did not shut down. It looked bad last Friday, but sense prevailed.

Job creation is now picking up steam and the economy is growing - these were just what was expected by the stimulus. The country is now heading in the right direction economically. Anyone who says the stimulus program did not work has no idea what they are talking about.

Now there is a real debate about how to attack the enormous deficit that exists. Most of the deficit is a structural issue that was caused by the aging baby boomers who are putting more pressure on Medicare and Social Security, the Bush tax cuts, Bush's totally unfunded Medicare Part D, and the unfunded wars we continue to fight in Iraq and Afghanistan.

Frankly, the solution is fairly simple. As the economy grows and job creation takes place there will be natural growth in tax revenues. That said, we need to bring an end to operations in Iraq and Afghanistan (and not escalate efforts in Libya or elsewhere). This will save at least $150 billion/year. The Defense budget needs to be slashed by $200 billion/year (the war funding is done through supplementals, not the normal budget process so the Defense budget is different from the war budgets). Then, Obama has to fight for an increase on the marginal tax rates of those making over $250,000/year. Allowing the Bush tax cuts to finally expire on this group of Americans and pushing their tax rates from 36% to 39% will add at least another $250 billion/year to the Treasury. This will bring the deficit back under $1 trillion - easily.

After these major items we can look at other items in the budget, but we have to start big to make a dent in the deficits and national debt accumulation. People who talk about slashing the salaries of Congressmen or eliminating the Department of Education or Energy don't have any clue about how large the deficit is. We could eliminate all salaries and these two departments and it still would be nowhere close to shaving $200 billion from the Defense budget.

Friday, April 08, 2011

Looks Like Shutdown Will Happen

I am utterly shocked by the failure of Congress to agree on a budget. It is basically a matter of some Tea Party Republicans demanding the shutdown. If this was a serious effort on the part of Republicans to try to bring the government finances in order they would't take tax increases and defense spending off the table.

In addition, Boehner wanted $32 billion in cuts for this year and Dems came up with $33 billion. The Tea Party folks wanted more than $60 billion so when Boehner got his number he still couldn't get it through his caucus and then said Dems needed to cut more. Basically, he was not dealing in good faith.

I believe spending needs to be cut, but that won't come anywhere close to addressing the deficit. What I do know is that if there is a shutdown, we will run a very serious risk of falling back into a recession. That is unacceptable, but it is what Republicans apparently are willing to accept.

Wednesday, April 06, 2011

Government Shutdown/Economy

If something doesn't happen with the budget, the federal government will shut down after this Friday. I do not expect that to happen. Except for some Tea Party Republicans, no one wants to see that happen. I expect a deal to be struck soon and for business to continue.

That said, there are some major changes that are needed to try to bring some fiscal sanity to the federal budget. People who want to be serious will have to recognize that this will include tax increases, budget cuts, and changes to both the tax codes and government programs. The structural issues that plague our national budget cannot be solved with just minor changes - it requires a major overhaul. Some tax increases or a couple of program cuts won't do it.

So the question we have to ask ourselves as a nation is what are our priorities? My own view is that we need to maintain the safety nets of Social Security and Medicare, and that we need strong regulation to prevent the runaway excesses of capitalism to again destroy our economy like it did at the end of 2008. Having a more simplified tax code that eliminates most of the tax shelters, credits, and breaks that many special interests receive is critical, as is keeping it progressive (higher brackets for higher earners). I view it as appropriate and healthy and overall it results in better fiscal health for the nation.

The national debt stands at over $14 trillion and the deficit for this year will come in around $1.5 trillion. As I have said in the past, these are unsustainable. The goal for the next fiscal year should be to drop the deficit down to $1 trillion. This can easily be achieved by several simple steps.

1. Eliminate the Bush tax cuts for those making over $250,000/year. Increasing the marginal rate by 3-4% for these folks won't have a severe effect on them. For someone making a million dollars they will have to pay an additional $40,000 in tax - very doable. This will generate about $250-$300 billion.

2. Do not extend the 2% cut on Social Security tax (it never should have been put in place anyway), and eliminate the cap on income taxed for Social Security. Right now, Americans pay 4.2% of their salary into the Social Security program. It was 6.2% before President Obama pushed and received the 2% tax cut for this year. The strange thing about it is that income above $106,800 is exempt from the tax. So someone making $50,000 pays 6.2% of their salary, but someone making $1 million only pays 6.2% on the first $106,800 - the rest is not taxed. This results in an effective tax rate of .662%. Just eliminating the cap would ensure solvency for the Program for decades and grow the Social Security surplus by at least $150 billion.

3. End the wars in Afghanistan, Iraq, and now Libya. This would easily save $100 billion/year - even with technical advisors and some non-combat troops.

4. Cut another $100 billion from the defense budget. There is waste, fraud, and abuse within military contracting and it could be rooted out without any risk to the nation.

These four changes, along with the continued growth of the economy, would allow us to cut the budget by at least $500 billion.