When President Obama was running for election four years ago, part of his campaign theme had to do with the unification of America. You know, bring everyone together as patriotic Americans against common enemies and for common causes. Ironically, his attempts to increase taxes on “the wealthy” have not resembled anything remotely similar to unification and have basically amounted to class warfare. I don’t recall any president being as critical about the financially successful as Obama has.
As we head into 2012, it is time to start handicapping the election. Three years ago, when Barack and Michelle hopped out of the limousine and started walking down Pennsylvania Avenue, I thought there was absolutely no way he could avoid being a two-term president. The excited crowd lined both sides of the street and cheered for a new president like we haven’t seen in a long time. The economy was absolutely in the tank and there was no way he could be blamed for the economic crisis… it occurred before he took office and would almost certainly be better four years later. America was clearly looking for someone to unite us… it was looking for a “leader”.
Three years later, it appears he will be a two-term president but not for the reasons I expected. He virtually ignored the economy the first year of his term as he pushed for his vision of health care reform. Whether Obamacare is right or wrong is a separate blog… ignoring the economy while Americans were being laid off was a presidential blunder. He spent the next two years crucifying corporate jet owners, a move which did not unify Americans nearly as much as he thought it might.
Meanwhile, the GOP has been staging its own production of Beavis and Butthead, all but ensuring that Obama will not be changing addresses next year. The Republicans seem to be a few stocks shy of an index. However, as they have demonstrated, when the campaign gets down to debates, anything can happen (how is it that Romney’s campaign advisors hadn’t coached him how to answer the question, “are you going to reveal your tax return?” They HAD to know that question was coming. They HAD to have developed a response and rehearsed it, right? How could he be stumped for a response? What other debate questions will stump him?). Say what you will about the Republican debates (the word “embarrassing” comes to my mind), the seemingly weekly GOP version of “Survivor” should make the Republican nominee well prepared to debate Obama. Meanwhile, President Obama is not getting to practice his debating skills on anyone. If Romney ultimately becomes the nominee, debating President Obama might seem like child’s play after tangling with Newt Gingrich.
Obama’s efforts to polarize Americans have not worked in his favor as much as he might have hoped. Other than Occupy Wall Street’s protests against greedy and overpaid bankers, there has not been a groundswell against wealthy Americans. Maybe because a lot of people still aspire to be one of them. I think Obama is getting bad advice from his entourage. However, I still think Obama could get America behind him to increase taxes on the wealthy… to increase taxes on dividends and capital gains and to increase the marginal tax rate. After bashing greedy corporate jet owners for a couple of years, it may be too late but… I have the speech that Obama should have given… the one that would have made him a shoe-in for a second term… the one that unites Americans AND results in the tax increase he desires. Here is the condensed version of that speech:
My fellow Americans. As you know, America, as well as many developed nations around the world, has undergone and continues to undergo the most serious financial crisis in over 80 years. It is a crisis that didn’t develop quickly and it won’t be solved quickly nor will it be solved easily. We will all need to work hard and we will all need to make sacrifices before we can get back to a healthy economy headed in the right direction… an economy that creates jobs… an economy that takes care of the needy and the less fortunate… and an economy driven by the private sector, not government. But we are faced with a serious problem today… drastically reducing government spending just as the economy is crawling out of the economic abyss in which it finds itself may send the economy tumbling back down, throwing our country into another recession.
Until we can be sure this recovery has some legs, the government needs to spend what is necessary to keep the engine going until it can run on its own. Because our nation is already running a deficit, this is a difficult task. This would be an easier task if we were running a surplus instead of a deficit… but we aren’t, so that point is moot. Until we see the light at the end of this tunnel, we are going to need additional revenues… and the only place to get additional revenue is by raising taxes on the wealthiest Americans… at least temporarily.
Now make no mistake about it, the wealthiest people in this country already pay a lot of taxes. As a matter of fact, the top 10% of all taxpayers are responsible for the majority of taxes collected. They CLEARLY are paying their “fair share.” THEY are the reason the rest of us can get by with paying as little as we do. Oh sure, there are some millionaires and corporations who, through loopholes which need to be eliminated, manage to avoid paying the taxes they were meant to pay. But most wealthy people have worked very hard to achieve what they have achieved and have paid an impressive amount of taxes. Many of them have already paid more taxes than most people will pay in a lifetime. Most of them do it without complaining. And, contrary to what you may have heard, most of them pay a lot more taxes than their secretaries.
It might even be appropriate that, occasionally, we, as a country, said “thank you” to the wealthiest taxpayers. Instead of castigating them for being successful… instead of berating them for flying in corporate jets… instead of making them out to be evil and un-American, we should all remember that America is the country where you can innovate like Steve Jobs and be rewarded for it. We should be grateful that, not only are they paying hundreds of thousands, if not millions, of dollars in taxes but that we live in a country where the opportunity exists for almost anyone to be in that position someday.
Even though wealthy taxpayers are paying a lot of taxes… even though they are paying their “fair share,” America desperately needs to call on them once again. Today, America needs their help in the worst way. Unfortunately America doesn’t have anyone else to call on in this time of need. A tax increase on anyone but the wealthy carries with it two problems… 1. it doesn’t raise very much revenue and, 2. increasing taxes on the middle and lower classes as the country is trying to climb out of a recession could have a detrimental effect on consumer spending, something we have precious little of already.
Asking the wealthy to make a financial sacrifice at this time is appropriate. It is appropriate because the middle and lower classes have already made sacrifices as a result of this recession, most of them involuntarily. Layoffs and foreclosures have been the hallmark of this economic crisis and the wealthy taxpayer has not had to experience those events. So today I am asking Congress to create a bill that will increase taxes on the wealthiest Americans… at least until we can get our financial house in order. Today I am asking the wealthiest Americans to share in the sacrifice that less wealthy Americans have already experienced. And today, I encourage all of us to give a collective “thank you” to the wealthy Americans for their sacrifice. We are all Americans. God Bless America.
If you try to pick apart this speech because you disagree with “government spending” or “raising taxes,” or even “God Bless America,” you are missing the point. The point is that President Obama would get a lot more traction with his efforts to raise taxes if his message was one which UNIFIED America instead of DIVIDING America… if his message was one which praised all Americans, regardless of financial status, and spoke to us as if we were one people in one nation. It may be too late for him to try to deliver that message.
The economy is officially (at least temporarily) getting better. How do I know? I was in New York City last week for a Bloomberg Conference on China and stopped by Zucotti Park, the home of Occupy Wall Street. I have previously stated that, if Occupy Wall Street fizzles (as well as its many clones throughout the world… see my November Commentary ¡TOMA LA CALLE!), the economy is not getting worse and may be improving (see December Commentary That Was the DEAL!). As you can see from the picture of Zucotti Park below, Occupy Wall Street has definitely fizzled.
However, the NYPD is not convinced OWS will not be back and are remaining vigilant throughout the night.
The stock market seems to love what is going on, the S&P 500 gaining 4.48% in January and off to a good start in February (don’t forget – the stock market was up the first four months of last year). But what’s not to be excited about?
- Housing starts are up.
- Industrial Production is up.
- Retail sales are up.
- Jobless claims are declining.
- Unemployment is declining (which is why there are fewer protesters in Zuccoti Park), although at 8.3%, is still very high.
On the other hand:
- Global de-leveraging remains a major headwind for all economies, including those who have no need to de-leverage but whose exports will suffer because of the economies which do need to de-leverage.
- Europe, although rather quiet for the past 2 months, will experience days of reckoning this year when the debt of Greece and Portugal come due and must be “rolled over.” Europe will not remain quiet the entire year.
- Home prices remain weak and looming foreclosures will not help.
- Iran and Israel… not a matter of if, just when.
The Bloomberg Conference on China was interesting. China is the 2nd largest economy in the world and will be the largest someday. One statistic thrown out was that there are more than 170 cities in China with a population over 1,000,000.
There was no disputing that China has been an economic juggernaut, growing an average of 10% per year for the past 30 years. The dispute at this conference was how fast China will grow for the next 10 years. Even the optimistic China cheerleaders at the conference conceded that growth will slow this year to below 9% after growing 9.2% in 2011. Some of the gloomier speakers saw much slower growth, one predicting growth to slow to 5% – 7% during this decade. Since the U.S. economy is struggling to grow at 3%, that doesn’t sound too bad.
Is there a Chinese real estate bubble? The consensus was yes, real estate prices are on their way down. However, the major difference between “our” real estate bubble and the Chinese real estate bubble is that our bubble involved more leverage… MUCH, MUCH more leverage. I got the impression that the Chinese real estate market is not going to have to deal with massive foreclosures… just investors who bought at the wrong time.
Investing in Chinese stocks has become easier because some are listed on major exchanges. However, China has its share of “Enrons” so, unless you have a way to verify the credibility of a company, its products and sales, stay away.
The Federal Reserve stated that it will work to keep interest rates low through 2014. The Fed clearly sees very little in the way of credible economic activity and feels it can keep rates low without causing inflation. The Fed apparently sees deflation as a greater risk than inflation… or they don’t care if inflation occurs as a result.
Low interest rates are great if you are a borrower. Re-financing mortgages has put a lot of spending money in the pockets of Americans and will continue to do so. However, low interest rates are not helping the investor/saver. Millions of Baby Boomers are struggling to get even meager returns on their capital without taking excess risk. After being burned by the stock market twice in the past decade, they are now faced with CDs and 10-year Treasury Bonds paying less than 2%. “Reaching for yield” can be very dangerous. Obtaining higher returns doesn’t happen without taking additional risk. Don’t let anyone try to tell you differently… particularly if they are using the words “variable annuity.”
At Boyer & Corporon Wealth Management, we are not getting excited about the economy and expect it to slow down later this year. With the Fed stating its intentions to keep rates low for a couple more years, we are less concerned with bond duration and will use any rise in interest rates as an opportunity to extend duration. We feel global de-leveraging will have a deflating effect so we are not concerned about inflation for a few years. We continue to have a relatively large allocation to municipal bonds. However, municipal bonds experienced a furious rally in January. Although we feel the rally is not over, we may look to liquidate a few positions.
This information is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.