Monday, March 8, 2010

Spread update

Spreads hit a 2-year low on January 8th of this year, and equity prices peaked shortly thereafter. From January 8th through February 8th of this year, spreads rose and equity prices fell. This means that the market suddenly began to worry about the durability and breadth of the recover which began last year. In recent weeks, those worries have been assuaged, and equity prices have risen and credit spreads have come back down, and that process started on Feburary 8th. Reasons? There has been further progress on the jobs front, commodity prices continue to be strong, a catastrophic default on Greek government debt seems to have been averted, industrial production continues to rise, housing seems to have stabilized, the productivity of labor has increased sharply (which further suggests that corporate profitability is very healthy), and manufacturing and service sector activity has picked up, to name just a few. On the political front (sometimes just as important as economics, if not more so, since politics can influence the economy for years to come), the Obama agenda has run into serious obstacles, and the key concern of the electorate is now the size of government and the burdens this places on future prosperity. It is not unreasonable to think that the political tide is turning in favor of smaller government, and it is not unreasonable to think that this is a very big deal.

It continues to pay to be optimistic.


W.E. Heasley said...

Mr. Grannis:

“It is not unreasonable to think that the political tide is turning in favor of smaller government, and it is not unreasonable to think that this is a very big deal.”

The class warfare argument put forth by Obama and his progressive soldiers (a tired and worn out argument) is to tax those with higher incomes and tax those that have generated and accumulated wealth. To tax and redistribute income and wealth. The whole argument is based on the notion of “fairness” which Thomas Sowell has more than aptly explained does not exist.

However, with the size and scope of government having gotten completely out of hand, the public sector average income has become much greater than the private sector average income. The public sector average benefits are much, much greater than private sector average benefits.

Add to this predicament that government does not exist without transfers payments from the private sector to the public sector. Hence the lower paid private sector is making transfer payments to produce the higher paid public sector.

Then the class warfare argument, if one cares to use a worn out argument, would mean that the public sector workers need a separate higher tax rate as they are the “haves” and the private sector workers are the “have not’s” and hence need a lower tax rate. Not only a higher tax rate for public sector workers, but a “benefits surcharge tax” applied and a transfer payment made to the private sector workers to enhance their benefits.

Brian said...

Mr. Heasley - Great idea!

ronrasch said...

Scott, from a commonsense perspective based on freedom and equal opportunity, Obama is the emperor with not clothes. I hope that a majority of American are observing with this vision based in our founding.
W.E. I really like the way you apply the class warfare argument.

Scott Grannis said...

ronrasch: I agree. Thanks Mr. Heasley.

Skeptical Investor said...

Mr. Grannis:

to quote one of your mentors (Jude Wanniski), "If politicians repeatedly fail to discern the interests of the electorate, winning office only because their political competitors have even less discernment, the society will ultimately resort to either war or revolution to bring about correction."

We have hopefully not reached that violent limit, but Mr. Heasley has pointed out the result of politicians' ignorance of people's interests, namely a bloated, overpaid government administration. This is true not only of the Federal government but certainly in our own California.

All is not well and the improved economics may end up being destroyed by the plunging politics.

Scott Grannis said...

Skeptical: Jude also said that successful politicians are the ones who lead the people in the direction they want to go. Obama has not done that, and so the people are going to throw him and his kin out as soon as possible. The Tea Parties are pointing in the right direction I believe, but there is no apparent leader to replace Obama at this point.

The rising anger at Big Government and trillion-dollar deficits is almost sure to ignite a revolution of sorts. All we are missing is a leader.