THURSDAY JANUARY 26, 2012
If you want less of something, tax it!
If you want less of something, tax it! That is the economic theory that gives us "sin" taxes on all of the vices: booze, cigarettes, cigars, etc. As a society, we have collectively deemed boozing and smoking to be bad, for one's health and the nation's healthcare finances. So, we place rather large taxes on a six pack of beer, a bottle of wine and a pack of cigarettes to create an incentive to quit the expensive, unhealthy habit. In fact, in places like NYC, the taxes on cigarettes are so high that a black market has developed!
Apparently, there are politicians in Washington that have deem capital to be a vice of "the rich" and are seeking to increase taxes on capital, i.e. capital gains and dividends. Interesting. It seems an inopportune time to be raising taxes on capital. With a struggling economy, a European debt crisis and 8.5% unemployment, why would anyone want less capital in the economy? If you tax it, you get less of it! And that fact doesn't change if the motivation to increasing the taxes on capital is "fairness."
As as late Jack Kemp said, "you can't have capitalism without capital
POSTED AT 05:27 PM
THURSDAY JANUARY 19, 2012
The EPA
The EPA...the Employment Protection Agency...protecting Americans from employment across the fruited plains!
POSTED AT 09:02 AM
THURSDAY JANUARY 12, 2012
Blinding glimpse of the obvious
European Central bank President Mario Draghi stated today that there are "tentative signs" of economic stabilization in Europe. He also said that "substantial downside risks" remain.
Whew, thank goodness he cleared that up! That is just the kind of brilliant insight into the debt crisis the market has been looking for! As my business school professor would say: "What a blinding glimpse of the obvious!"
POSTED AT 03:43 PM
WEDNESDAY JANUARY 11, 2012
Hypothetical PE
A Private Equity firm buys out a troubled company with 1000 employees. The PE firm provides desperately needed capital and new and experienced management team. As part of the rescue effort, the PE firm lays off 200 of the employees. Soon, the new efforts begin to work and the company's long term viability is restored.
Here is the question: did the PE firm kill 200 jobs or save 800 jobs?
Everyone understands that political campaigning is a full contact sport. Mitt Romney, the front running Republican Presidential candidate, is coming under attack for his career at Bain Capital, a private equity firm. While this experience is certainly fair game, it is stunning to see our politician's ignorance of our capitalist system at work. The whole idea of private equity is to rescue the troubled company and earn a return for the shareholders of the firm. It is rare, and usually a sign of failure, that a PE firm liquidates the assets of the firm and fires all of the employees. It means the company is no longer viable. The whole idea is to rescue the company, and in the process, save as many jobs as possible.
Here is an interesting thought. If the politicians are correct in their accusation that Private Equity is anti-worker, then why do so many government and labor union pension funds invest in private equity funds? It appears that even "workers" are capitalists!
POSTED AT 10:15 PM
MONDAY JANUARY 9, 2012
Skepticism rules
The economy continues to muddle through. The employment market appears to be improving, with the unemployment rate now down to 8.5%. Yet, the markets have not reacted well, scratching out a 1.9% increase year to date. Why the skepticism?
The market remains skeptical about the employment numbers. Yes, private sector jobs have increased for many months. The rate has declined from 9.4% to 8.5%. But the details of the employment statistics continue to indicate a difficult environment. Did our increased use of the internet for holiday shopping influence the numbers? Even though the numbers are "seasonally adjusted", increased "courier" hiring by the UPS, FedEx and others to handle the surge in internet shopping may be distorting the numbers. It is possible that these "hires" will be reversed in the next reading.
More importantly, most of the gains in the unemployment rate has come from the size of the workforce calculation. As the number of people in the workforce decline, even if no new jobs are added, the rate declines. While a lower rate is certainly desirable, it is potentially a misleading view of the economy. As the analyst claim, many of the long-term unemployed are dropping out of the workforce, choosing to "retire" in frustration instead. Is this really a good thing? Probably not. These folks have not earned much in the last few years and their ability to retire, with depleted retirement accounts and historically low interest rates, is impaired. I doubt these folks are throwing retirement parties!
So, it appears the market is taking the recently strong economic numbers with a some skepticism. It seems to be waiting for the unemployment rate to drop because lots of jobs were created instead of the workforce reduction calculation.
POSTED AT 04:14 PM
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KEN ENTENMANN, CFA
SENIOR VICE PRESIDENT AND
THE DIRECTOR OF INVESTMENT MANAGEMENT SERVICES
Ken is a Senior Vice President and the Director of Investment Management Services at Alliance Bank, N.A. He has more than 25 years of investment experience and oversees the management of assets totaling $1 billion. He holds a B.S. in Applied Economics and Business Management from Cornell University and an M.B.A. from the William E. Simon Graduate School of Business Administration at the University of Rochester. He has also earned his Chartered Financial Analyst designation. He is a member of the Executive Committee of the Trust Division of the New York Banker's Association. He is also a director of the Central New York Community Foundation.
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