• Blog

    Daily Digest – May 21

    by Davos

    Thursday, May 21, 2009, 3:26 PM

  • More on tax revenues
  • The business logic of sustainability: Ray Anderson on TED.com (Video, Repost)
  • Peter Schiff The Schiff Report Video Blog May 18 2009 (H/T iDoctor, Video)
  • Brazil and China eye plan to axe dollar
  • Russia Sheds Dollars for Euros
  • Brazil Turns to China to Help Finance Oil Projects
  • He’s just not that into you
  • One-day-only “lifestyle-liquidation” auctions (Video)
  • Credit Card Changes: Make the Prudent Pay
  • Milton Friedman on Self-Interest and the Profit Motive (Video)
  • Washington Post Raises Doubts About Geithner Management Style, Status of PPIP
  • Visualizing the Stress Test (Chart, Interactive Map)
  • Housing Starts (Chart)
  • A few A(H1N1) Links Dr. Henry Niman’s Map 7,151 U.S. Cases as of this wrtitng, A(H1N1) Current Timeline, CDC Cases


More on tax revenues

Here’s what’s going on:

In 2007 and 2008, government tax revenues averaged about $633.15 billion per quarter. For the first quarter of 2009, however, the numbers just in tell us that tax receipts totaled only about $442.39 billion — a decline of 30%.

Looking to confirm the trend, we compared the data for April – the big kahuna of tax collection months – to the 2007-2008 average, and found that individual income taxes this year were down more than 40%. The situation is even worse for corporate income taxes, which were down a stunning 67%! [emphasis mine]

When you add in all revenue from all sources (including Social Security revenue, government fees, etc.), the fiscal year-to-date – October through April – revenue shortfall comes to 19%, vs. the 14.6% projected in Obama’s budget. If, however, the accelerating shortfall apparent year-to-date, and in April in particular, continues, the spread between projected and actual tax receipts will widen considerably.

What are the implications of this tanking tax revenue?

For starters, it means the federal government deficit is going be as bad or worse than the $2.5 trillion Bud Conrad, chief economist of Casey Research, projected it to be last year.

If the shortfall in individual and corporate tax revenue persists — and we expect it will — then the deep hole the government is already digging for itself will be that much deeper. …

Yet, the real fly in the ointment is that the actual borrowing by the Treasury is likely to be at least half a trillion dollars more than the deficit.


The business logic of sustainability: Ray Anderson on TED.com (Video, Repost)

Peter Schiff -The Schiff Report Video Blog May 18 2009 (H/T iDoctor, Video, 5:50 minute point, explains Congressman Alan Grayson’s econmic views – he invested with Schiff)


Brazil and China eye plan to axe dollar

Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.

The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.

Mr Lula da Silva, who is visiting Beijing this week, and Hu Jintao, China’s president, first discussed the idea of replacing the dollar with the renminbi and the real as trade currencies when they met at the G20 summit in London last month.

An official at Brazil’s central bank stressed that talks were at an early stage. He also said that what was under discussion was not a currency swap of the kind China recently agreed with Argentina and which the US had agreed with several countries, including Brazil.

“Currency swaps are not necessarily trade related,” the official said. “The funds can be drawn down for any use. What we are talking about now is Brazil paying for Chinese goods with reals and China paying for Brazilian goods with renminbi.”

Henrique Meirelles and Zhou Xiaochuan, governors of the two countries’ central banks, were expected to meet soon to discuss the matter, the official said.

Mr Zhou recently proposed replacing the US dollar as the world’s leading currency with a new international reserve currency, possibly in the form of special drawing rights (SDRs), a unit of account used by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Mr Zhou said the goal would be to create a reserve currency “that is disconnected from individual nations”.


Russia Sheds Dollars for Euros (Chart on page) 

The euro’s share in Russia’s forex reserves, the world’s third-largest, overtook that of the dollar last year as the country pressed on with a gradual diversification, the Central Bank’s annual report showed.

The euro’s share increased to 47.5 percent as of Jan. 1 from 42.4 percent a year ago, according to the report, which was submitted to the State Duma on Monday.

The dollar’s share fell to 41.5 percent from 47 percent at the start of 2008 and 49 percent at the start of 2007.

As Brad points out:

It is often asserted that the dollar is the global reserve currency. It would be more accurate to say the dollar is the globe’s leading reserve currency.* The dollar is the dominant reserve currency in Northeast Asia. And the two big economies of Northeast Asia both happen to both hold far more reserves than either really needs. The dollar is also the reserve currency of the Gulf. And Latin America.**

But the dollar isn’t the dominant reserve currency along the periphery of the eurozone. Most European countries that aren’t part of the euro area now keep most of their reserves in euros. That makes sense. Most trade far more with Europe than the US – and some, especially in Eastern Europe, ultimately want to join the eurozone.

Brazil Turns to China to Help Finance Oil Projects

SÃO PAULO — Brazil’s oil industry is turning to China for cash in the latest sign of how Beijing’s clout is growing amid the global economic downturn.

Brazilian President Luiz Inácio Lula da Silva was set to arrive in Beijing Monday to meet with Chinese President Hu Jintao, who is expected to unleash billions of dollars of credit to help Brazil exploit its massive oil reserves. Brazil will return the favor by guaranteeing oil shipments to Chinese companies.

The nations are being thrust together by the global financial crisis. Brazil’s state-controlled oil giant, Petroleo Brasileiro SA, wants to spend $174 billion over the next five years to elevate Brazil into the major leagues of oil-producing nations. With international capital markets on life support, China is among the few remaining sources of cash.

Petrobras, as the company is known, is turning to China at a time when China’s appetite for raw materials has lifted economies across commodity-rich Latin America, blunting the impact of the global downturn. In March, China passed the U.S. as Brazil’s biggest trade partner.

He’s just not that into you

Vincent Farrell, Jr. is Chief Investment Officer of Soleil Securities, a New York based investment management company. Over his long career on Wall Street, he has worked for numerous distinguished firms. Mr. Farrell graduated from Princeton University in 1969 and received his M.B.A. from the Iona College Graduate School of Business in 1972.

I have never bought a car in my life. My wife has bought a lot of them. I’m just not that into cars. I have usually referred to the cars we own by their color. I’m taking the blue car or the gray car or whatever. I actually did lease a car once. Back in the heady days of Spears, Benzak, Salomon, and Farrell, we all leased fancy cars and took advantage of the tax code provisions. But I even faded on that one a bit by going to the dealership with one of my partners and leasing the same car he did.

My most recent car was a Ford Escape (I had to ask — I thought of it as the dark gray car) with close to 100,000 miles on it. We swapped it and another we had no more need for since the kids are grown and gone, and I (we) got another SUV. It’s gray and American-made, and that’s as much as I know about it. The neat thing is it came loaded with XM satellite radio so I can now listen addictively to CNBC as well as addictively watch it. But only after Ken Prewitt and Tom Keene on Bloomberg radio. (They are the best.) I’m pretty sure we got XM for a year for free, as the dealer was desperate, or so my wife told me. If I get a bill though, XM is history.

We probably should have waited since my old car, which was fine by me, was a “clunker” and probably would have qualified for the “cash-for-clunkers” program soon to come out of Congress. Germany has registered a significant increase in new-car registrations since their program went into effect. Word from Britain is that, on the verge of their program being enacted, activity in showrooms is up substantially.

The U.S. House of Representatives has passed a plan and the Senate is likely to do the same this week. It looks like the plan would provide a $3500 subsidy to anyone trading in a car getting less than 18 miles per gallon as long as there is at least a 4-mpg improvement. (I think I got yardage on my old car, not mileage.) A 10-mpg improvement would get you another $1000.

So the car industry would be revitalized – at least a bit – and the environment would be aided. Here’s the hitch. Of the 9 or 10 most fuel-efficient vehicles being sold today – and presumably the beneficiaries of such a program – four are built by Toyota, two by Volkswagen, one by Honda, one by Smart (never heard of that? it’s a Swiss-designed, Mercedes-owned, French produced mini-car) and one by a US-based company: Ford. Some of the others might be made on US soil, I don’t know. But is this really what we wanted to do?

One-day-only “lifestyle-liquidation” auctions (Video)

Credit Card Changes: Make the Prudent Pay

From the NY Times: Overhaul Likely for Credit Cards

Banks are expected to look at reviving annual fees, curtailing cash-back and other rewards programs and charging interest immediately on a purchase instead of allowing a grace period of weeks, according to bank officials and trade groups.

“It will be a different business,” said Edward L. Yingling, the chief executive of the American Bankers Association, which has been lobbying Congress for more lenient legislation on behalf of the nation’s biggest banks. “Those that manage their credit well will in some degree subsidize those that have credit problems.”
This seems unlikely (reviving annual fees, charging immediate interest) because of competition. At least I hope it is unlikely!

Milton Friedman on Self-Interest and the Profit Motive (Video)

Washington Post Raises Doubts About Geithner Management Style, Status of PPIP

For those of you who know the Myser-Briggs personality diagnostic, it defines 16 types by establishing four attributes, of which an individual can be either A or B. Some are pretty obvious: extroverted versus introverted, thinking versus feeling. One is called "sensing versus intuitive." Sensing people are literal-minded, while intuitives are imaginative.

The last type is judging versus perceiving. Judging types like making decisions; while perceiving types feel a sense of regret and want to keep options open and collect more information.

when Geithner delivered his first version of a financial services industry plan, which was notable for NOT being a plan and lead to a negative stock market reaction, I suspected Geithner was a perceiving type (and that type is tot a natural fit with an executive role). This WaPo article provides some evidence to corroborate that theory. Perhaps as important, the fact that this story even ran suggests staff are grumbling loudly enough for the WaPo to get wind of it.

The story is noteworthy in other ways. It suggests that Summers has considerable sway (duh!) and the PPIP has been delayed (it was supposed to be running by now) due supposedly to failure to work out certain details, I wonder if they are coming to realize that leverage will still not induce investors to enter into asset purchases with a negative expected net present value.

From the Washington Post (hat tip reader Larry):

While Geithner has taken dramatic steps to address flashpoints in the economy, the work of carrying out those policies has bogged down because critical decisions about how to do so aren’t being made…..

Government officials, inside the Treasury and out, say the unresolved issues are piling up in part because of vacancies in the department’s top ranks. But some of the officials also cite the Treasury’s ad-hoc management, which is dominated by a small band of Geithner’s counselors who coordinate rescue initiatives but lack formal authority to make decisions. Heavy involvement by the White House in Treasury affairs has further muddied the picture of who is responsible for key issues, the officials add.


Visualizing the Stress Test (Chart, Interactive Map)

 Poor Buy and Hold! 

The time-tested buy-and-hold investment mantra has become so unpopular that even those who advocate the strategy don’t refer to it by that name anymore.

Now terms like “buy and harvest” and “buy and trade” have replaced the old “buy and forget” philosophy once so popular among active stock market investors. 

The change reflects a spreading attitude that in an age of 24/7 financial news and information, which can mean tremendous volatility, it no longer makes sense to buy a stock and then check back on its performance five, seven or ten years later.

Housing Starts (Chart)

A few A(H1N1) Links Dr. Henry Niman’s Map 7,151 U.S. Cases as of this wrtitng, A(H1N1) Current TimelineCDC Cases 

Related content
» More

No Comments