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By William Patalon III
Money Morning/The Money Map Report
The presidential election campaigns could play an interesting role in the near-term fate of the U.S. economy.
During dire economic times, a certain segment of the population touts those "old reliable" tax-cuts as a surefire cure for what ails the country [though others believe "tax and spend" is always the answer].
So, just where do the presidential frontrunners come down on this fiscal issue?
- Sen. John S. McCain III, R-Arizona: "I'm not making a 'read my lips' statement, in that I will not raise taxes…But I'm not saying I can envision a scenario where I would, OK?" [Nice CYA, J-Mac].
- Sen. Barack H. Obama Jr., R-Illinois: "There's no doubt that the tax system has been skewed …and the Bush tax cuts – people didn't need them, and they weren't even asking for them, and that's why they need to be less, so that we can pay for universal health care and other initiatives." [Spoken like a classic "tax-and-spend" guy.]
- Sen. Hillary Rodham Clinton, D-N.Y.: "It's just really important to underscore here that we will go back to the tax rates we had before George Bush became president…And my memory is, people did really well during that time period." [Fond memories of her White House days.]
[Editor's Note: For Money Morning's special investment report on "presidential-election profit plays," please click here.]
Add Thornburg Mortgage Inc. (TMA) and Carlyle Capital to the growing list of subprime mortgage victims as both firms missed significant margin calls that led to mounting defaults on loans backing their portfolios.
Meanwhile, Citigroup Inc. (C) stayed atop the (negative) limelight as Merrill Lynch & Co. Inc. (MER) lowered its earnings estimate on the financial giant and Dubai International Capital LLC expressed concern that more capital infusions will be needed to save the company. Bond insurer Ambac Financial Group Inc. (ABK) disappointed investors [who were hoping for a rescue from a sovereign wealth fund] with its plan to raise capital through both a public and private offering in an attempt to save its credit rating. On the retail front, office supplier Staples Inc. (SPLS) reported lower quarterly profits on sluggish North American sales; Costco Wholesale Corp. (COST) announced a favorable quarter on strong international activity. Same-store sales results in February were mixed as Wal-Mart Stores Inc. (WMT) [and other discounters] benefited from consumers seeking lower prices, while The Gap Inc. (GPS) and Limited Brands Inc. (LTD) were among the worst performers.
For those investors expecting the Organization of the Petroleum Exporting Countries (OPEC) to save the day and help push energy prices down to more "reasonable" levels, there is a bridge [and some swampland] in Brooklyn for sale
Citing U.S. "economic mismanagement that was having a worldwide effect," OPEC announced that it would not be boosting oil production as the ministers anticipate slowing demand in the months to come. Meanwhile, the U.S. Energy Department reported that oil supplies fell for the first time in eight weeks and prices surged well into record territory [even on an inflation-adjusted basis] by jumping past $106 per barrel, a level few would have ever expected it to reach. While, a key cause of the recent spike in crude-oil prices remains basic supply and demand, the plummeting dollar is seen as the main culprit.
Stocks took their [highly negative] cues last week from the sluggish data that continued to emanate from such sectors as housing, manufacturing and labor [For a detailed report on these indicators in this issue of Money Morning, please click here].
Growing concerns about Citi's financials added to the bearish sentiment and the Ambac disappointment poured more fuel on the fire. The major U.S. stock indices fell to their lowest levels in 18 months and investors found few positives on which to focus – even though U.S. Federal Reserve Chief Ben S. Bernanke & Co. stands ready, willing and able to help.
Anyone have a good bipartisan tax plan that merits some consideration?
Dow Jones Industrial
10 yr Treasury (Yield)
Weekly Economic Calendar
Biggest decline in 14 years.
ISM – Manu (02/08)
Depicts sector contraction though better than forecasts.
Factory Orders (01/08)
Decline marks sharp reversal from December's gains.
ISM- Services (02/08)
Contracting sector, though better than expected showing.
Fed Beige Book
Slow growth with inflated price pressures.
Initial Jobless Claims (03/01/08)
Sharp decline in weekly benefits.
Unemployment Rate (02/08)
Fell slightly (4.8%) though many expect to rise in future.
Non-Farm Payroll (02/08)
Biggest jobs decline in 5 years.
Consumer Credit (01/08)
Increase in borrowings in line with expectations.
The Week Ahead
Balance of Trade (01/08)
Budget Statement (02/08)
Initial Jobless Claims (03/08/08)
Retail Sales (02/08)
The economic calendar was rather hectic last week and, day after day, investors found few [if any] reasons to "rejoice" over the data. Housing appears nowhere close to a rebound as construction spending suffered its most substantial decline in 14 years. Furthermore, home foreclosures surged to the highest level on record in the 4th quarter 2007. The ISM index revealed sector contraction in manufacturing, its worst showing in almost five years. Likewise, the services sector depicted continued weakness in February, although the index rebounded from a horrendous January reading. The labor market also continued to experience weakness as employers looked to cut costs during the downturn. In February, the economy lost 63,000 non-farm jobs, its most significant drop in five years; the unemployment rate stood at 4.8% [although it is projected to move higher during 2008].
With Bernanke calling for additional mortgage relief ["This situation calls for a vigorous response"], his team remained hard at work looking for some long-term fix. The Fed is increasing the funds available to banks at its upcoming auctions by a combined $40 billion and adding more liquidity to the financial system through repurchase-agreement transactions.
Though both the Bank of England and European Central Bank held their interest rates unchanged, most watchers expect the Fed to lower rates again at the upcoming meeting, But remember that these rate cuts are one of the key reasons for the greenback's decline.
News and Related Story Links:
- Bloomberg News:
Thornburg Can't Meet Margin Calls, Survival in Doubt
Carlyle faces further margin calls as banks step up pressure to pay
- Money Morning News Analysis:
OPEC Holds Production Steady Driving Oil to a New High
- Money Morning:
Midday Market Update: Fed Sees Weakness Ahead, Sending Stocks Lower
- Money Morning News:
EU Policymakers Wary of an Overvalued Euro.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.