We are
THE BLUE MONEY REPORT.
If you are interested in providing your readers with our syndicated column, you can request it here
The Blue Money Report
"The knowledge of an effect depends on and involves the knowledge of a cause."
~ Spinoza
Welcome to the Blue Money Report
Today's Commentary: 05.12.03 Last week, the House of Representatives, a Republican controlled wing of the Congress, sitting in the driver's seats has waved us through the intersection. We have stepped between the lines. Our goal is the other side of the street. More than just the destination of the comedic chicken, it is, in fact, the sunny side of the street. More than just a brief but challenging confrontation between a pedestrian and a car, it is instead the ominous bearing down of a huge tractor trailer rig and a small defenseless animal. We stand, gazing at the headlights while the Congress (the truck driver) and the strong urging of the White House (their companion), encourages acceleration, right of way or not, through the very intersection that we are crossing.
There was a time when the shareholder understood that there were certain risks involved in buying into a company. They understood that their liabilities were limited. But recently a challenge to the White House way of thinking has brought a new idea for change whose time has come.
Pointed out eloquently by Dalton Conley, director of New York University's Center for Advanced Social Science Research, was his belief that true free market activity would come with a chamge n the way we look at commpanies. They would change from companies who are being analyzed by Wall Street researchers to corporations being underwritten by insurers. This radical thinking comes at a time when the only risk a shareholder takes in owning a company is in the purchase and possible complete loss of share value.
Mr. Conley believes that the insurance industry should be allowed to estimate the possible liability, added to the already present risk, to come with a true price for the shareholder. Why should creditors be left holding worthless paper from a defaulted business when the other owners, the common and preferred shareholders are the true owners. Why should they be free of the problems of ownership?
The idea, a far better one that the theory that eliminating double taxation of dividends would be an economic stimulus, would allow us to enter into a new era of corporate governance overseen by those actuarial folks in the insurance industry.
Now Mr. Conley isn't advocating that the administration drop the plan to eliminate double taxation of dividends, just simply take it the necessary one step further.
The problem with the tax cut continues to be it's incredible bent towards the well-to-do and its apparent obliviousness to the fact that it will not provide anything for the group that needs it most. Each negative number that points to a dragging economy is taken as a sign that the tax cut is needed now more than ever. April retail sales will come in far below what they were a month ago. Fingers will point. The Producer Price Index (PPI) is also estimated to come in as a negative number over last month's 1.5%. Along with declining numbers in the April CPI, Industrial Production, and housing starts, the sentiment for May is predicted to be up slightly.
"... the probability of an unwelcome substantial fall in inflation, though minor, exceed that of a pickup in inflation from its already low level."
The tax plan moves forward for two reasons: The belief that we will be swayed by a $400 check because of the change in the tax credit for children. That four hundred dollar refund based on the increase in per child deductions and it is hoped that it will go to great lengths at swaying the common folk to believe in the plan. Last time we received a check, the economy popped for one quarter and then retreated. The one quarter of problem solving will cost us $1.4 trillion over the next ten years. If the PR staff that Mr. Bush has employed has anything to do with it, this bill will be law by the time the re-election campaign is announced. That event is planned for the closest possible opportunity directly after the anniversary of 9/11, a moment that will be choreographed, probably with Fox News, at a time when our nation is still wondering exactly how this could have ever happened. Taking this golden moment in hand, the President is sure to tell you will hear about his payment to the masses.
The second reason lies in the aftermath of the passage. No matter which plan passes, before the ink is dry, the rest of the economically crippling bill, dividend tax relief and all, will be passed. And the markets know this.
The Week Ahead in Equities
When the push to Iraq began, markets were unsure how to factor this unknown into their equation. After a while, when inevitability began to shore up these guestimations, the market settle into a nice range, not too high, and not too low... by comparison. When the war ended and the anticipated euphoria predicted by the media failed to materialized, we understood that the markets had known that no post war rally happen.
Post war had us looking at numbers again. So concerned were they that the numbers wouldn't meet lowered expectations, the markets decided in a unified fashion to price the tax cut in. No matter the size, the Bush plan, the Senate plan or the House offering, which not surprisingly passed on Friday, the markets seemed to understand that the future is now. This is denial thinking.
It would be too easy to trot out comparisons of life in the midwest in spring and investing in the markets during the same period. But living in the path of a natural disaster may just offer us something for us to learn about living in the path of economic disaster (or the distinct possibility of it). I am sure that building in home in tornado alley leaves a whole series of questions without adequate answers. Simply asking why should be enough. The risks are weighed and the outcome is defiantly challenged every spring.
So with a huge problem pushed to the back of the investor's collective minds, as pointed out by some estimated sentiment numbers, is it any wonder why we are seeing some movement in the ranks. For those comfortable with a long term outlook, your days of buying regularly at the bottom are far from over. Ignoring technology based companies, the applause given the first quarter is not based on growing businesses but trimmed labor forces. How much more of the systematic cost cutting of employees and the acceptance of lowered expectations will make this market move much higher.
But that too, is priced into the markets.
The Week Ahead in Bonds
Statler: What's the name of that famous song Tony Bennett sings?
Statler: What's the big idea bringing up deflation?
Statler: Seriously, what gives?
Waldorf: I never expected to keep rates this low this long. And now, I am looking at the possibility of running into trouble.
Statler: My boss has all the right answers.
But the bond market rallied, oddly enough, in tandem with a better than expected showing in equities. With the risk that inflation could fall further, the F.O.M.C. suggested that this was a risk they were going to take a long hard look at in the coming months. Inflation's core reading was at 1.5%. This is always at the exclusion of energy, which is been on a sort of free fall since the speculative days of the war, and food, whose businesses, already operating on razor thin margins, are not about to lower prices that wholesalers and producers are trying to raise.
If the Fed's move helps stocks, and it probably will, the yield prices on ten year bonds will have to take the beating. The 3.68% yield of the ten year at weeks end was down from last week's 3.93%.
COLUMN REQUEST
| ARCHIVE
|
WHO WE ARE
| CONTACT US | LEARNING
CENTER |
