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2012 election

Article Index

GOP Candidates 2012: An Investor's Guide

By , Global Investing Specialist, Money Morning -

This year the Republican field is as competitive as I've ever seen. You can make a case for multiple candidates winning the caucuses, and any candidate could be boosted into the thick of the race by a strong finish.

For investors, there are two criteria when looking at presidential candidates: First, how well will a candidate's ideas and personality play in the market and in the U.S. economy? And second, how likely is the candidate to beat President Obama in November?



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The Mitt Romney Tax Plan: Trying to Please Everyone

By , Associate Editor, Money Morning -

The Mitt Romney tax plan, released by the candidate yesterday (Wednesday), aims to give everyone a little something by cutting taxes across the board - but without dramatic reform.

Romney's tax plan shows a series of mild tax cuts for all income earners and corporations. The GOP hopeful's plan isn't as aggressive as his rivals, but also adds less to the federal deficit than their plans do.

Basically, there's no one standout winner - except maybe Mitt Romney.

While this middle ground could prove too timid, it could also dodge heavier criticism directed toward other candidates - and push Romney a step closer to the White House.

The Mitt Romney Tax Plan

Romney attacked President Obama's increases in taxes and spending when he released his tax plan Wednesday. He promoted his as more balanced and fair than the president's.

"The right way forward is a flatter, fairer, simpler tax system that generates the revenue we need to fund a smaller government that is restrained to its historical size," said Romney.

Here's what Romney has proposed for individual and corporate tax rates:

  • Make an across-the-board 20% cut in marginal rates, including:
    • Reduce the top income rate from 35% to 28%.
    • Cut the lowest tax bracket rate from 10% to 8%.
    • Reduce middle-bracket tax rate from 25% to 20%.
  • Maintain the current 15% rate on income from qualified dividends and capital gains, except eliminate taxes on interest, dividends and capital gains for taxpayers who pay less than $200,000.
  • Repeal the alternative minimum tax (AMT) for both individuals and corporations.
  • Eliminate the estate tax.
  • Cut corporate tax rate from 35% to 25%.
  • Employ a territorial corporate tax structure.
  • Enforce the R&D tax credit.

"My plan sends signals of stability to business leaders and investors around the world, conveys a process for accomplishing these goals, and draws on my leadership skills and real-world experience to integrate and implement a comprehensive economic policy," said Romney.

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Iran is Now a Full-Blown Crisis, Stage Set for $200 Oil

By , Global Energy Strategist, Oil & Energy Investor • @KentMoors_OEI -

Just when it looked like we could take a breather from the Strait of Hormuz, all attention is back on Iran.

There are three reasons for this - all happening within the last week:

  1. First was Tehran's successful launch of a satellite, viewed by all in the region as being for military intelligence.
  2. Second, in his toughest talk to date, Iranian Supreme Leader Ayatollah Ali Khamenei voiced defiance to Western sanctions and pledged open retaliation if they are instituted.
  3. Finally, last Thursday, U.S. Secretary of Defense Leon Panetta expressed concern that, if matters continue, Israel could attempt an air-strike takeout of Iranian nuclear facilities within a month. Iran has been frantically moving essential components of its nuclear program underground to withstand such an attack.
All of this is, once again, leading to a rise in crude oil prices.

What's more, the EU decision to stop importing Iranian crude starting July 1 will cripple any chance Tehran has to combat escalating economic and political turmoil at home.

Yet Khamenei's defiant tone during his Friday prayer meeting speech indicates that Iran's religious leadership will not wait for the system to unravel.

And that is what makes this both a full-blown and an intensifying crisis.

Brinksmanship in the Straits of Hormuz

So what's being done?

Washington has little - leverage, save its ability to temper an immediate escalation by Israel (leverage the U.S. can still apply, at least for the moment). It also has some indirect influence on what the E.U. does.

Meanwhile, Saudi Arabia also is a wild card. It will not tolerate a nuclear Iran.

And yes, there are ample indications that American and Israeli intelligence have concluded Iran will achieve the ability to develop nuclear weapons in the next 18 to 24 months.

Some elements of that process will be available earlier, but remember: A weapon is of little value unless it can be controlled and delivered. The logistical and infrastructure considerations need to be in place first.

Yet with such an inevitable conclusion staring them in the face, the West has decided to embark on a risky path...

The target here is not the nuclear project at all (over which there is less and less outside control). Instead, it has become about creating massive domestic instability to bring down a regime.

Now, this is not about ending the theocracy. With or without Mahmoud Ahmadinejad as president or Ali Khamenei as supreme leader, Iran will remain a Shiite-dominated country. Religion decisively controls politics, and the clergy oversees the society.

The West is seeking a more moderate application of what will remain the Iranian cultural reality.

However, as the brinksmanship intensifies, so will the price of crude oil. Tehran, in this dangerous game of international chicken, really only has one card to play - the Strait of Hormuz.

There has been much misinformation circulated about the strait. Here are the facts.

On any given day, 18% to 20% of the world's crude oil passes through it.

According to the Energy Information Administration, the Strait's narrowest point is 21 miles wide; however, the width of the shipping lane in either direction is just two miles, cushioned by another two-mile buffer zone.

Of greater significance, though, is the fact that most of the world's current excess capacity is Saudi. (This is the oil that can be brought to market quickly to offset unusual demand spikes or cuts in supply elsewhere.) And, unfortunately, Saudi volume must find its way through the same little strait.

If we're unable to access the Saudi excess, that loss guarantees the global market will be out of balance. That will intensify the price upsurge - an upsurge that is already happening.

Now for the question I'm being asked several times a day in media interviews...

Just how bad can it get?



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GDP Is a Lie – It’s Time for a New Measure of Economic Growth

By , Global Investing Specialist, Money Morning -

Gross domestic product (GDP) is the most commonly used measure of economic growth. But GDP isn't just inaccurate and misleading - it's the contrivance of Keynesian economists seeking to push their own, big-government agenda.

That's right. GDP is a financial ruse - the biggest of the past half-century. And it's time to move past it to another, more accurate measure of economic growth.

Keynesian economist Simon Kuznets designed GDP at the height of the New Deal era. Kuznets first revealed the measure in a report to Congress in 1934. GDP takes into account consumption, investment and government expenditure to create a measure of economic growth.

But the Keynesians employed some chicanery, or sleight-of-hand, to generate this statistic. A close look reveals the dirty little secret about GDP: It intentionally overplays the importance of government spending - and in doing so inflates the role that Washington plays in each of our lives.

And it's been doing this for 77 years ...

The Biggest Lie of the 20th Century

Gross domestic product is supposed to be a measure of all the goods and services produced here at home.

But there's a discrepancy.

You see, private-sector output is measured by the price people are prepared to pay for it. But government output is fudged: It's measured by its cost.

That means GDP increases any time the government spends money. It doesn't matter if that money is actually put to productive use or not - GDP rises nonetheless.

The bureaucrat devising regulations that damage business? His salary increases GDP. The $300 million Alaskan "bridge to nowhere" of a few years back? That was $300 million added to GDP. The jet-fighter project that costs billions, and is plagued by huge overruns that lead to its cancellation? Those billions add to GDP.

Even public-spending "stimulus" programs, however foolish, are always effective according to the GDP definition, because their cost is simply added to output.

It's obvious why big-government Keynesians would like this calculation: It substantiates their claim that government spending stimulates economic growth.

In the real world, however, this makes no sense. Indeed, none of the examples above actually add to economic welfare.

Don't misunderstand - some government output is very valuable. We could not exist in a free society without a court system that protects our property rights and a national defense that protects our borders. In most other cases, however, if government output were truly cost effective, the private sector would've already taken the initiative (and probably done so at lower cost and greater impact).

So how can you get an accurate measure of economic growth?

Arithmetically, there's a simple solution: You take Line 1, "Gross Domestic Product," in the Bureau of Economic Analysis' GDP Table and subtract from it Line 21, "Government Consumption Expenditures andGrossInvestment. "

That gives you a net number, which we can call "gross private product," or GPP. It's a measure of all the output produced by the private sector. In general, it will underestimate national "welfare" unless government is really bad. But it will give you a much better idea of the output the market economy is producing.

Indeed, looking at GPP's past performance helps to explain some things that GDP doesn't.

Keynesians like to proclaim that World War II got America out of the Great Depression: Thus, if you make stimulus big enough, it will solve economic problems.

This is the biggest lie of the 20th century.

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The Debt Ceiling Debate: Will the Democrats' Gambit Lead to a Victory in the 2012 Election?

By , Global Investing Specialist, Money Morning -

We talked yesterday (Thursday) about the debt ceiling debate, and how the GOP is making the most of its opportunity to affect the economy in the run up to the 2012 election.

Well, the Democrats are doing the same thing - except whereas the Republicans are looking to make long-term fixes at the expense of short-term growth, Democrats are doing the opposite.

I'll show you what I mean.

As I said in my previous piece on GOP economic strategy, I'm a firm believer in Public Choice Theory.

And in this battle the Democrats would like to see rapid growth between now and November 2012. More than anything, they want to see unemployment come down sharply.

They don't care so much about whether inflation is ticking up a bit, or whether an over-large budget deficit may cause trouble in the future. If they get elected in November 2012, they can try to sort out problems then - particularly if they can recapture the House of Representatives.



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The 2012 Election and the Truth Behind the Debt Ceiling Debate

By , Global Investing Specialist, Money Morning -

At this point, there can't be anyone left who truly believes that the debt ceiling debate taking place in Washington is really about what's good for America.

The truth is it's about the 2012 election - and the party that wins the debt ceiling debate will be the party that comes out on top next year.

It's politics - pure and simple.

Republicans and Democrats have their own respective agendas heading into the 2012 election. And with 16 months to go, there's just enough time for actions taken now to work their way through the system and swing the economy in one direction or the other.

Now, I'm not a believer in conspiracy theories, but I am a firm believer in Public Choice Theory. That means I believe we can make clear statements about what economic conditions each party would like to see 16 months from now - considering their own selfish political points of view.

The Democrats would like to see rapid growth, with unemployment coming down sharply. They don't care so much about whether inflation is ticking up a bit, or whether an over-large budget deficit may cause trouble in the future. If they get elected in November 2012 they figure they will sort out any problems after the fact - particularly if they can recapture the House.

Conversely, the Republicans would like growth to be sluggish, with unemployment stubbornly high. They also would like to make the painful decisions that bring long-term growth now, so that they can benefit from the growth and not suffer the political cost of the pain if they capture the Presidency and ideally both Houses of Congress in November 2012.

Both parties, of course, have strong beliefs about what policies work better, about what policies are better for the interest groups that support them, and about what policies are best suited to their ideology. But at this stage of the electoral cycle, they're pragmatists.

Here's how the election cycle breaks down:

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The Debt-Ceiling Debate: Three Federal Tax Increases That Could Save the U.S. Economy

By , Global Investing Specialist, Money Morning -

As the debt-ceiling debate escalates, U.S President Barack Obama says federal tax increases are necessary to close the U.S. budget deficit.

Although Republicans then said that tax hikes were "off the table," this statement is reminiscent of a toddler who threatens to hold his breath until he turns blue if you make him eat spinach.

Given that our elected leaders in Congress just can't seem to curb their spending addiction, the unpleasant reality is that some types of tax hikes are essentially inevitable.

Truth be told, I can show you three tax increases that should be enacted.

As a taxpayer, that statement will probably make you wince in anticipated pain.

But once I've made my case, I'm betting that the investor in you will agree that these three federal tax increases could save the U.S. economic recovery.

Let's take a look ...

Federal Tax Increases We Don't Want to See

If we ignore the debt-ceiling debate (and the Aug. 2 deadline for increasing the ceiling) for a minute, and just consider the health and welfare of the U.S. economy, we can see that there are a number of federal tax increases that would be highly counterproductive.

One example: boosting the corporate tax rate above 35%.

Except for Japan, the United States already has the highest corporate tax rate in the Organisation for Economic Co-operation and Development (OECD). Corporations don't pay much tax because they are able to keep profits overseas in tax-free jurisdictions and employ leasing and other tax breaks. It would make much more sense to lower the corporate tax rate - perhaps to 30% - and close many of the loopholes so that the "yield" (what's actually collected) is the same or perhaps even a little higher.

Similarly, it makes no sense to increase the 15% tax on dividend income. Dividends are paid by corporations out of their after-tax income. The levy on dividends - paid by the company's shareholders - means those companies actually suffer from a "double-taxation" rate of about 47%.

This encourages companies to fool around with stock options, repurchase agreements and with overpriced acquisitions, thus ripping off ordinary shareholders and reducing the economy's efficiency.

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How to Fix the U.S. Housing Market

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

If this week's economic reports showed us anything, it's the fact that two years into what's supposed to be an economic recovery, the U.S. housing market remains on life support.

But here's what those reports didn't tell you: If the housing market isn't fixed soon, it's going to drag the rest of the economy down into a hellish bottom that will take years, if not decades, to crawl out of.

The housing market is our single-most important generator of gross domestic product (GDP) and, ultimately, national wealth.

It's time we fixed what's broken and implemented new financing and tax strategies to stabilize prices.

Contrary to the naysayers - and in spite of political pandering and procrastination - we can almost immediately execute a simple two-pronged plan to fix mortgage financing and stabilize U.S. housing prices.

I call it a not-so-modest proposal.

The Worst Since the Great Depression

The facts are frightening: We are in a bad place. The plunge in housing prices we've seen during the current downturn is on par with the horrific freefall the U.S. housing market experienced during the Great Depression.

And without an effective plan to arrest the double-dip in housing, there's no bottom in sight.

Hope Now, an alliance of lenders, investors and non-profits formed at the behest of the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development, counts 3.45 million homes being foreclosed from 2007 through 2010. Current estimates of pending and potential foreclosures range from another 4 million to as many as 14 million.

According to RealtyTrac, a real-estate data provider, the country's biggest banks and mortgage lenders are sitting on 872,000 repossessed homes. If you add in the rest of the nation's banks, lenders and mortgage-servicers, the true number of these REO (real-estate owned) homes is closer to 1.9 million.

These shocking statistics illustrate just how large the current overhang of bank-owned properties actually is (at current sales levels, REO properties would take three years to unload). And they help us to understand how the staggering number of yet to-be-foreclosed, repossessed, and sold homes will depress U.S. housing market prices for years to come.



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Special Report: How the Government is Setting Us Up for a Second Subprime Crisis

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

[Editor's Note: Shah Gilani, a retired hedge fund manager and noted expert on the global credit crisis, predicted this developing FHA debacle in a July 2008 Money Morning essay.] Is the government creating another subprime-mortgage bubble? The first time around, the three-headed federal serpent – the Bush administration, the Treasury Department and the U.S. Federal […]

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The Slow Death of General Motors

By , Global Investing Specialist, Money Morning -

By Martin Hutchinson Contributing Editor Money Morning U.S. President Barack Obama's firing of General Motors Corp. (GM) Chief Executive Officer G. Richard Wagoner Jr. may be the beginning of the final act of a long and sad drama – the slow death of GM. The company nameplate may soldier on in some form, but it […]

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