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It's the economy, stupid: Obama vs. Romney has already begun

Discussion in 'Tilted Philosophy, Politics, and Economics' started by Baraka_Guru, Apr 19, 2012.

  1. redux

    redux Very Tilted

    Location:
    Foggy Bottom
    One can make a stronger case that the uncertainty is caused the Republicans in Congress, particularly Tea Party members, unwilling to work with the Obama and the Democrats on any bu-partisan jobs legislation (like the current highway/infrastructure bills) that might even marginally benefit Obama.....bills that have had bipartisan support for the last 20+ years whenever re-authorization was needed.

    Much like the temporary uncertainty that was caused during the debt debacle last year and the intransigence of the most extreme members of the Republican party.
     
    Last edited: May 14, 2012
  2. Baraka_Guru

    Baraka_Guru Möderätor Staff Member

    Location:
    Toronto
    C'mon, man, it was not that at all. It was you providing a weak example and confusing us by not being clear on what you're talking about. My last several posts outline this. I wasn't taking shots at you, I was criticizing your points by providing facts and then asking questions for clarification.

    If you call that "taking shots," I'd hate to see your response to my actually taking shots at you.

    If you can't handle facts, then just walk away. Don't play a false victim.

    Double or triple the current benchmark interest rate is only 0.75% So what would banks do otherwise to increase rates? Why? Loan demand?

    What are you basing this inflation risk on besides the debt load? The money supply?

    M-3, one of the broadest measures of money available in the U.S. economy, grew at a 5.8 per cent rate during the 12 months ending in March, a pace Capital Economics termed "still very healthy" even though it was a slight drop from the previous month's figure of 6.1 per cent. M-1 and M-2, more restrictive measures of the amount of money in circulation, are growing at 17.4 per cent and 9.8 per cent, respectively.​

    Even more encouraging to the firm was that U.S. bank loans are increasing, at last count growing by 4.5 per cent, due to more loans being made to businesses and homeowners seeking residential mortgages. Last July, by contrast, bank loans were declining at a 1.2 per cent rate. The figures are far more robust than in the euro zone, where loan growth is decelerating, and in the U.K., where it has flat lined, suggesting the U.S. is one of the world's engines of economic strength at the moment.​

    U.S. money supply growth offers bullish signal - The Globe and Mail

    Despite your concerns about debt, there needs to be a balancing act. Sensible deficit reduction is the way to go if anyone wants to avoid problems with inflation.

    If Obama doesn't do enough, deficits will remain, which may lead to high inflation.

    If Romney gets in and goes the route of tax cuts and austerity, deficits will remain and may lead to high inflation or a deflationary spiral depending on the circumstances.

    I think the greater risk lies in Romney than in Obama. The radical Republican plans for the economy are a recipe for volatility.
     
    Last edited: May 14, 2012
  3. rogue49

    rogue49 Tech Kung Fu Artist Staff Member

    Location:
    Baltimore/DC
    You want certainty, then you should not be in business.
    You have a plan, a model, some goals...then you constantly flex with everything thrown at you.
    I know, I've had a business or two...I also know that Federal laws are some of the most consistent...it's State, County & City that are a pain.
    But we're talking Federal level here in this discussion.

    Plans are out there in detail and even more so than previous administrations.
    Look it up. And are dozens of other government site built during the administrations time which are giving details at all levels.
    And I know from working there, that most policy memos are release publically. And it's not just words, they are followed-thru on.
    I realize that it's from the White House site directly, so you can't "believe" it, but it's posted.

    And in the meantime, here's the Obamameter from Politifact, a fact checking site.
    it will give you everything he's done, not done...stalled, compromised, still working on, etc...

    But hey, if you want to move to Canada, that's your right, man.
    You'll be a bit colder, some more fresh air...but I don't think you're going to see all the "business" related policy you're specifically espousing.
    They're nice people, man...enjoy.
     
  4. rogue49

    rogue49 Tech Kung Fu Artist Staff Member

    Location:
    Baltimore/DC
    BTW...here's an excellent article on advice for reviewing polls throughout the season
    It's from the founder of FiveThirtyEight, a great statistics analysis blog.

     
  5. Aceventura

    Aceventura Slightly Tilted

    Location:
    North Carolina
    Do you stand by the notion that a high net worth investor can not get a consistent 10% return in muni's? I am not clear on your position.

    The Prime Rate is currently 3.25. Double or triple that then we have 7.5 to 9.75% Only the best risks qualify for the Prime Rate, most in the US economy would pay more. The US may face a return of "stagflation".

    When Obama took office $.815 US would get $1 CAD (Canadian dollar), today it is about one to one. That is about a 20% swing in 3 years. You being a Canadian can buy US goods and services at basically a 20% discount. If I were Canadian I would want more of what Obama is doing. The only thing saving the US dollar and the US economy from severe inflation is the problems in Europe and slowing growth in China, which won't last much longer. Your credibility on commentary of the US economy is in question. Canada is taking care of its business and a Canadian being vocal about US economic policy that is harmful to US economic strength illustrates a conflict of interests that needs explanation.
    --- merged: May 15, 2012 4:04 PM ---
    No one expects absolute certainty, but there are variables that are controllable. The capital gains tax rate is one of those variables. Another is a Federal Budget. Another is what are the rules/regs of Obamacare going to be, are the problems going to be fixed, is it Constitutional. Most employers want to know now what their benefit plans and costs are expected to be next year - as of today no one can know. Then there is the $2,000 tax or penalty if certain employers don't offer a healthcare plan. think about that, if existing employers subsidize by more that $2,000, now we have incentive for them to go down or under that amount! This will dramatically alter what employers do over time. Is the US ready for this? I doubt it.
    --- merged: May 15, 2012 4:09 PM ---
    Republicans passed a budget in the House, why not work with that? Or, present a credible alternative? Tea Party member of Congress are willing to modify the tax code, why not work with that? If a few Tea Party members of Congress can shut down Obama from doing anything what is the point of re-electing him? Why didn't he do more when he had control of both the House and Senate? Blaming the Tea Party was weak last year and weak today. Face it, Obama is in over his head and can not work with others to build consensus to get anything done - any obstacle is too big for him in this regard.
     
    Last edited by a moderator: May 22, 2012
  6. Baraka_Guru

    Baraka_Guru Möderätor Staff Member

    Location:
    Toronto
    I don't think anyone can get a consistent 10% return from a muni fund, but that's beside the point. We were talking about a real estate developer, weren't we?

    You still haven't explained why the interest rate will rise and why that much.

    You misunderstand the makeup of the Canadian economy. Overall, we export just about as much as we import. However, three quarters of what we export goes to the U.S., which is where half of what we import comes from.

    That said, being close to parity rather than having a stronger American dollar is detrimental to the Canadian economy as far as exports are concerned. Exporting to the U.S. is a $294 billion dollar business, or roughly 17% of GDP. In your comparison, having our dollars at parity makes it 20% more expensive for Americans to import Canadian goods. This affects me directly. I work in an industry where labour, raw materials, manufacturing, and distribution are virtually done completely domestically. This makes it difficult to export to markets like the U.S., where the relative dollar value has decreased, making our goods that much more expensive. In other words, I'm waiting for the American dollar to recover and for the Canadian dollar to cool off (both of which are important factors to their relative values).

    Also, a suppressed American dollar has been a boon to American manufacturing seeking to export goods. The lower dollar makes American goods more affordable overseas (and even Canada). That's why the manufacturing industry has been performing well compared to other industries despite a slow recovery following a severe recession. (Just one example.)

    The American economy has, unfortunately, become too weighted towards a consumer economy. In the mature stages of globalization, this is a dangerous position, and perhaps what's going on in the fallout of this recession is a bit of a correction towards a more balanced economy. Live and learn. Or, at least, one would hope.

    Canada simply seemed to be more proactive. We didn't become stagnant with our reputation as "hewers of wood and drawers of water," and now the majority of our economy is services, rather than products.

    America will likely need to reevaluate the balance of its industries as it figures out the best way to replace lost jobs with new ones. It can't, for example, remain a manufacturing powerhouse when much of Asia is too competitive for America to keep up.

    You will need to explain what policies you are talking about. You still haven't explained the rhyme and reason for your comments. I can't read your mind. Before you question my credibility or demand an explanation, you might want to try to support your questionable statements. Before you question my credibility, it might help if you actually had something relevant to say about what I post.

    As it is now, you seem to be questioning my credibility in asking questions and posting facts. This is odd. Is there something about what I've posted that you don't understand?
     
    Last edited: May 15, 2012
  7. Bodkin van Horn

    Bodkin van Horn One of the Four Horsewomyn of the Fempocalypse

    Which segment. You sometimes use words that make it seem like you know what you're talking about, but then you say things like this. Which benchmark? How has the benchmark done over the last 5 years? 10 years?

    Lies, damn lies, statistics, etc. You can make up whatever numbers you want here to prove your point. Your bond math is wrong. If someone had a YTM of 5% paying 0.9, their YTM would go down, all other things being equal, if the price went up to 0.925. If you pay more for something, your return will be smaller because you paid more. You are wrong here.

    But just because you buy a bond with a large spread doesn't mean you're going to see actual returns commensurate with that spread. Treasuries are shit right now, a large spread to shit is probably still shit. High yield investments are also high risk, which also means success depends more on luck. Easy 10% returns don't exist. If they did, why wouldn't more people take advantage of them?

    Spread to what? Treasuries? Swaps? You need to invest thousands of dollars monthly in a Bloomberg terminal. Those things are sweet.
     
  8. Aceventura

    Aceventura Slightly Tilted

    Location:
    North Carolina
    I anticipate a significant increase in consumer price inflation.

    I anticipate the demand for public sector debt service with increase interest rates. Local, state and Federal governments competing for increasing amounts of money to service debt.

    I anticipate the Fed will miss the mark and over stimulate the economy through their open market activities.

    I anticipate a weakening US dollar relative to Asian, South American, and other North American currencies.

    I anticipate a shift from a US dollar standard to a Chinese Yuan - the US dollar not being the international standard haven for economic or currency stability.

    I anticipate commodity inflation to resume its past trending - currently we are in a retrenchment period.

    I anticipate less gains in productivity.

    I anticipate severe health-care price increases.

    I anticipate slow US economic growth with continued high unemployment in real terms.

    To name a few.

    You misunderstand the makeup of the Canadian economy. Overall, we export just about as much as we import. However, three quarters of what we export goes to the U.S., which is where half of what we import comes from.

    A fair response to my challenge regarding a potential conflict of interest.

    However, a point I have been sprinkling into these discussions is that Canada is better situated than the US is. Canadian economic policies are working, while those in the US are not. Do you agree or disagree? If you agree why do you seemingly support government policy that contradicts those policies that are working in Canada? If you disagree, please explain or tell me what I am missing?

    If true why do you support demand type stimulus rather than supply side stimulus? Seems you make a supply side argument here.

    What about natural resources? Is that a third in your mind or a product? What services are you talking about that trumps natural resources, or are you including the services that bring those resources to market?

    The US began a shift away from manufacturing almost 40 to 50 years ago. Just like the US shifted from a primarily agricultural economy about 100 years ago. Not saying either is not important, just in terms of relative shifts.

    At the core, we differ on supply side economics relative to demand side economics (most notable Kaynsianism). It all flows from that.
    --- merged: May 15, 2012 at 3:42 PM ---
    The context was municipal bonds.


    If you think my math is wrong, then I will pay a price for being wrong. If there was a typo and we ignore the point, I have nothing to add. If your description is what you think I wrote - here is clarification. If a person pays less than face value for a bond, i.e. $9,000 on a $10,000 face - they earn the interest and they get a $1,000 gain at maturity. That nets to a greater YTM than the coupon yield. If the spread makes you gain at maturity less, so then would be your YTM. My point was that an investor with lower costs will get better returns stands. All things being equal a small retail investor will pay full retail - on a relative basis any large net worth investor will get better than average retail returns - even if it is 100 basis points or less it makes a difference.



    We have not been talking about Treasuries. For example on my brokers website I saw some California bonds with YTM close to 7%, I saw some with 8% coupons - BBB and higher rated. I saw a AA New York City bond with a 6.5 coupon and a 5.4% YTM. These are rates available during a period with the lowest rates in modern times. My broker doesn't list anything below BBB- (S&P).


    When the market value is X, and the buyer pays X+, the spread is the difference. Many brokers will only show the X+ price to their customers.
     
    Last edited by a moderator: May 22, 2012
  9. Baraka_Guru

    Baraka_Guru Möderätor Staff Member

    Location:
    Toronto
    You said as much. My question is: What are the pressures that will cause this? Inflation has been low, and there has even been a risk of a deflationary spiral. This latter is a real risk of deficits are cut too quickly. What are your concerns regarding the factors that influence inflation?

    1) What will cause the increase in rates? 2) What will cause an increase in the demand for borrowing? 3) What about a further recovery that may suppress the demand for bonds or the need for government lending on one or more level?

    Market overstimulation is an extremely low risk at the moment. GDP growth has been disappointing for a while now, hasn't it? This is a trough/recovery, overstimulating isn't exactly easy to do.

    Is this tied to the growth in the money supply? The U.S.'s balance of trade? The deficit? The debt? External factors such as the Eurozone? Recovering foreign economies? Gas prices? Weak demand? The continued turmoil in the housing market? A volatile stock market? Double-dip recession? Slowing foreign inflation? What? Please specify what you think are the greatest impacts in this weakening of the dollar. I'd like to discuss this.

    If this ever happens. It probably won't be within the next decade. This is a long-term concern, not an election concern.

    Your overall concerns aren't an Obama/no Obama situation. It's something that needs to be dealt with in a bipartisan fashion. It looks like Obama will likely get a second term. It's up to the Republicans and Democrats to figure out how to work together to deal with the immediate problems in a way that doesn't create more.

    Canada is better situated than the U.S. mostly because of policies you disagree with. The cornerstones of the Canadian economy include a number of things that Canada does well if not better than the U.S., namely, industry regulation (including the banking industry), universal health care (cost vs. access vs. quality), social safety net, education, no military-industrial complex, etc. If a leader came up and started tabling legislation to "convert" the American economy to that of the Canadian economy in principle, they would be shouted down as a big government socialist. Generally, Canada's success is a result of maintaining a balancing act. We don't have a history of "getting government out of the way"; we have a history of good governance (relatively speaking).

    No. I'm suggesting that the makeup of the economy must change, rather than throw good money after bad.

    Natural resources are products, essentially. Services make up nearly 80% of the Canadian economy. The service industries include retail, business services, health care, education, technology, and tourism.

    Although it has decreased, the U.S. still remains the world's largest manufacturer, if I'm not mistaken.
     
  10. Aceventura

    Aceventura Slightly Tilted

    Location:
    North Carolina
    The devaluation of the dollar, being one.

    We briefly reviewed the trend in the Canadian Dollar to the US Dollar exchange rate - from the US perspective Canadian products and services are 20% higher today than before Obama took office. This pattern will repeat relative to other currencies if it has not happened already, I do not routinely look at them all. When China prices reflect an honest relationship between the Yuan and the dollar, it will have an inflationary impact. There is a concept call Purchasing Power Parity (PPP) meaning that the differences in product pricing across boarders should simply reflect exchange rates, many in the US believe that China has been manipulating its currency in a manner that undermines PPP - meaning their products and services are cheaper for US buyers in US dollars for example than they would be in China, for Chinese buyers in Yuans - equalized for the exchange rate. US consumers benefit, Chinese consumers suffer, from this, how long will it last? How much longer will China hunger for US dollars? How much longer will they buy large amounts of US debt? This one area alone can justify extensive discussion.

    I fear, given our record here, it is impossible to get into a detailed discussion of this nature. I might say something like I can get a 10% return trading currencies or something and we spend a week on trivial matters - i.e.you may think a high net worth person can not consistently get 10% in muni's but you have to have a number between 5% and 10% - so what was the real dispute on the issue? 500 basis points is a pretty small range for the best, to the worst, or to the average.
     
  11. Bodkin van Horn

    Bodkin van Horn One of the Four Horsewomyn of the Fempocalypse

    Yes. You know that there's more than one benchmark, right? I'm just going to go ahead and assume that you lied about passing that fancy financial adviser test you were bragging about in the other thread.

    Of course people with lower costs will get a larger return than people with higher upfront costs. You didn't need to bust out numbers to make this point. Your numbers confused your point because your typos made it seem like you didn't know what you were talking about. Are you familiar with the phrase "lies, damn lies, and statistics"? It isn't actually about statistics, it's about people trying to obfuscate ideas with numbers.

    Oh. You mentioned spread, which, for the type you seem to be talking about, implicitly involves yield curves of bonds with similar maturities. The treasury and swaps curves are both pretty commonly used to determine spread for other classes of bonds, like munis. How do you think value of a bond is determined? You know there's a difference between spread and YTM, right?

    How do you think the value of a bond is determined by the market? What type of security is used as a reference?
     
  12. Baraka_Guru

    Baraka_Guru Möderätor Staff Member

    Location:
    Toronto
    The U.S. dollar index hit its record low of 71.58 in April of 2008. The historical average is 98.51. This low occurred just months before Obama was elected and assumed office. Since then, under the Obama administration, the index has fluctuated between a high of 89 and a low of 74. It currently sits at around 81. Much of this can be explained by the typical factors of a recession. The severity of this one is now well known.

    The '70s recession saw the index go from a high of 110 to a low of 90 in a few short months in '73, and it was followed by volatility until '75.

    The '80s recession saw a high of 105 drop to a low of 81 within about a year, but it remained below 90 for another year.

    The brief '90s recession saw a high of 91 drop to a low of 81-82 within half a year.

    The lead up to the 2007/2008 hit started as early as January 2006, when the index dropped from a high of 90 to a record low of 71.58 (mentioned above) within two and a half years. That was all on G. W. Bush's watch. Actually, it's interesting to note that the Bush presidency witnessed the index's gradual erosion. Over both terms it decreased from a 120 high to 71.58. It saw very few gains over that period. This means that the U.S. dollar has fared much worse under Bush than under Obama in terms of changing value.

    So Obama steps in to become a "recession president," and the index is now sitting at above 80 despite this being the worst global recession in recent history. What makes you think it will get worse? External factors? Given this measure alone, it would make more sense to reelect Obama than it did to reelect Bush.

    For further reading, click here: Dollar’s Demise Exaggerated as 13% Gain Since 2008 Proves Currency’s Value - Bloomberg

    This is a whole other discussion. I think the impact will benefit U.S. exporters whose products are in high demand among China's growing middle class. Once American goods become more affordable, it will balance things out. Remember: China isn't the only source for cheap labour/products in Asia. Once (if) the yuan is accurately valued, China will lose much of their manufacturing sector to regional competitors. Why do you think they're suppressing the yuan's value?

    We can get into a detailed discussion so long as the details make sense.
     
    Last edited: May 19, 2012
  13. Derwood

    Derwood Slightly Tilted

    Location:
    Columbus, OH
    Obama has cut small-business taxes several times
     
  14. rogue49

    rogue49 Tech Kung Fu Artist Staff Member

    Location:
    Baltimore/DC
    Interesting that more Entrepreneurs are saying that Obama would be better.
    Although it is close.

     
  15. Yeah... I work in Oil & Gas... I see the development...
    I'm responsible for maintaining an enterprise BI system used by the natural gas industry.
    A part of that BI system, requested by O&G Company Execs was in use for a short period of time.
    The period of time it was in use, all of the companies stock prices dropped on lower earnings.
    I won't say what the system is... at all... but I can describe it as assisting in analysis and reaching market efficiency levels (trading of resources rather than transport).
    They stopped using it.
    Market efficiencies aren't always the way to make money (when you can't add a penny to each intermediary step taken to get it to the customer).
    Natural Gas prices are low, right? For now, right?
    But with the consolidations and sales of interests & properties (in bulk), agreements written w/ land & mineral rights owners that's going on, that I can see happening.... usually before they happen...
    Natural Gas won't be "cheap" forever.
    Someone, or a few companies, are going to make a killing.
    Yes, we have an abundance, and as fracking becomes safer & more refined (we track the data), we'll have more & more reserves.
    But it's not a long-term solution to anything.
    The energy produced by gas is on-par, on a per-dollar basis, as oil.