The Muslim center planned near the site of the World Trade Center attack could qualify for tax-free financing, a spokesman for City Comptroller John Liu said on Friday, and Liu is willing to consider approving the public subsidy.
There’s some weasel wording in there, so let’s unpack it.
The issue isn’t “tax-exempt financing” per se. All financing (and everything else!) should be tax-exempt.
Nor is “tax-exempt financing” by definition a “subsidy.” Not taking money from someone isn’t the same thing as giving money to someone.
But this actually is a subsidy — it’s one of those “public-private partnership” things, where a quasi-governmental organization (a “local development corporation”) is allowed to issue bonds (the interest on which is tax-exempt to the bondholder, hence the “tax-exempt financing” language) to complete the project. If the project goes under, the taxpayer takes the hit for payment on the bonds.
Note to Park51/Cordoba House’s principals: You shouldn’t even be thinking about trying this.
A majority of the populace appears to have already swallowed the “Ground Zero Mosque” demagoguery hook, line and sinker and are hell-bent on stopping you from building your cultural center.
Of the minority standing up for your property rights and religious freedoms, a significant portion of us are civil (or uncivil, as the case may be) libertarians who are standing up only for your property rights and religious freedom.
Most of us aren’t Muslims or particularly enamored of Islam.
Most of us don’t really give a tinker’s damn whether the thing gets built or not — we’re just standing up for your right to build it, if you choose to, on your own property and with your own money.
It’s a fragile coalition centered around rights versus might, freedom versus compulsion, tolerance versus suppression.
As soon as you start claiming a “right” to stick your hand in taxpayers’ wallets for a bailout if your project goes south on you, that coalition disintegrates.
So don’t do it.
At 7:45 AM EDT, the weekly ICSC-Goldman Store Sales report will be released, giving an update on the health of the consumer through this analysis of retail sales.
At 8:55 AM EDT, the weekly Redbook report will be released, giving us more information about consumer spending.
At 9:00 AM EDT, the monthly S&P/Case-Shiller home price index report will be released. Given that most economists don’t expect the overall U.S. economy to improve until housing prices end their decline, the market will be watching this number closely.
At 9:45 AM EDT, the Chicago PMI Index for August will be announced. The consensus index value is 56, which is 6.3 points lower than June, but is still well above the break-even level at 50.
At 10:00 AM EDT, the monthly report on Consumer Confidence for August will be released. The consensus index level is 50.3, which would be a 0.6 point increase over July.
Also at 10:00 AM EDT, the State Street Investor Confidence Index will be released, which looks at changes in the amount of equities held in the portfolios of institutional investors.
At 2:00 PM EDT, the Federal Open Market Committee will release its minutes for the meeting held on August 10, 2010. This report contains quarterly economic forecasts from the Federal Reserve and policy changes that were discussed.
At 3:00 PM EDT, the Farm Prices report for August will be released, giving investors and economists an indication of the direction of food prices in the coming months.
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Gary Becker has recently written an interesting article on the Becker-Posner blog about polls suggesting that the majority of parents in the United States are not confident that their children will be better off economically than they are. He suggests that the best way to counter such pessimism is to promote faster economic growth.
The article made me feel slightly uneasy because I wrote something a few months ago suggesting that the poll results actually conflict with the view that Americans are pessimistic about the future for their children. Have I mis-read the poll results? How much have the poll results changed over the last year or so?
Scott Winship has recently considered the evidence of a variety of polls on his blog: here and here. In brief, the polls indicate that the proportion of Americans who think that their children will have better standards of living than themselves consistently exceeds the proportion who think their children will have worse standards of living. The margin tends to narrow during recessions but, even this year, the polls suggest that optimism is no lower than in the mid-1990s (see Pew Research Center poll results here).
Rather than trying to explain why Americans have become more pessimistic perhaps researchers should be trying to explain why Americans are still so optimistic.
On Friday, the Commerce Department confirmed that Q2 GDP growth was 1.6%. Many of the details pointed to good news for the U.S. Economy. With inflation almost non-existent the report also shows that year over year the economy is up 3.0% Reading surprised almost all analysts to on the upside.
Many stock traders focused on the U.S. final sales number of the report. Real final sales to domestic purchasers was revised up to 4.3% from the initial estimate of 4.1%
So even though overall economic growth slowed from the first quarter’s 3.7% pace, domestic demand was actually stronger-4.3% compared to 1.3% in the first quarter.
In summary, the latest GDP revisions report is quite supportive of continued recovery for the U.S. economy for the foreseeable future.
At 8:30 AM EDT, the monthly Personal Income and Outlays report for July will be released. The consensus for Personal Income is an increase of 0.3% over the previous month and the consensus Core PCE price index change is an increase of 0.1%.
How low can they go?
Mortgage rates managed to reach yet another low this week, with the 30-year fixed rate now costing borrowers less than 4.4% for the first time in history.
Freddie Mac (FMCC) said on Thursday that the average rate for traditional 30-year fixed mortgages fell to an average of 4.36%, the ninth decline over the past 10 weeks.
Fixed mortgages with a 15-year duration also fell to a historic low of 3.86% and adjustable-rate mortgages, which have shorter terms of one or five years continue hovering near 3.5%.
The sharp decline is a reflection of three factors: Ongoing stress in the housing market, regulatory policies aimed at spurring demand and an increasing belief on Wall Street that deflation (and inflation) is basically non-existent.
“…long-term bond yields fell to the lowest levels since January 2009, allowing fixed mortgage rates to ease to new record lows this week,” said Amy Crew Cutts, Freddie’s deputy chief economist.
In response to the low rate that Mortgage Bankers Association reported on Wednesday that in its Weekly Mortgage Applications Survey for the week ending August 20, 2010 the Market Composite Index, a measure of mortgage loan application volume, increased 4.9% on a seasonally adjusted basis from one week earlier.
“The volume of refi applications last week was up 26% over their level four weeks ago. Mortgage rates dropped to their lowest level in the survey, going back to 1990,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “We are at a new 15 month high for the Refinance index. With rates this low, many borrowers who refinanced in the past two years may well have an incentive to refinance again, and this is likely increasing refi application activity.”
Below is a chart Nick of Sharelynx has been working on to show how much of a bubble gold and silver are in (or not).
Note that the x-axis does not have time on it because each bubble had a different timelength (some of the bubbles are 20 years, others 5 years). This does skew/stretch the time, but Nick’s emphasis with this chart is more on the percentage growth factor rather than how long it took to get to those bubbles.
At 8:30 AM EDT, the preliminary GDP report for the second quarter of 2010 will be announced. The consensus is an increase of 1.3% in real GDP and an increase of 1.8% in the GDP price index. The real GDP estimate is 1.1% lower than the advance estimate for this quarter, and the GDP price index estimate is rising due to increasing import prices.
Also at 8:30 AM EDT, the Corporate Profits report from the Bureau of Economic Analysis will be released.
At 9:55 AM EDT, Consumer Sentiment for the second half of August will be announced. The consensus is that the index will be at 69.6, which is the same value reported in the first half of the month.
At 10:00 AM EDT, Ben Bernanke will give a speech at the Kansas City Fed’s annual Jackson Hole conference on the economic outlook in the United States.
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Jacob Lyles at The Distributed Republic:
Open border libertarians like to pretend that the supply of immigrant laborers has no effect on the welfare of existing United States workers. But this is not the case.
Broadly speaking, the welfare of an average Joe who trades his labor for a living depends on two factors. The first is labor productivity which determines how much employers are willing to bid for workers. The second is the supply of labor of similar quality. Increasing the supply of labor with a particular skill set will bid down the wages of workers with substitutable skills. …
There is no a priori reason to think that labor markets are immune to economic incentives.
I’ve never, ever, ever heard a libertarian claim that “the supply of immigrant laborers has no effect on the welfare of existing United States workers.”
On the contrary, an unconstrained ability of workers to move back and forth across imaginary lines drawn on the ground by politicians (”borders”) almost certainly has a great many effects — some of them putatively negative (increased local labor supplies where labor is needed, driving down wages), some of them putatively positive (decreased labor costs driving down prices for everyone), many of them unnoticed, all of them certainly subject to what Mises referred to as the “calculation problem” when it comes to regulation.
The real question is not whether or not Worker A will have less leverage in seeking higher wages if Workers B and C are “allowed” to cross one of those imaginary lines.
The real question is whether or not the state has a legitimate power to distort the market for the alleged benefit of Worker A at the expense of Workers B and C who are forbidden to rent their labor, at the expense of the employer seeking to rent labor, at the expense of those called upon to involuntarily “undo” the distortions with still further distortions, and at the expense of the customer who has to pay more for the product or service because Worker A got the monopoly he wanted.
The libertarian answer to that question, in case you were wondering, is “no.”
Perhaps it would be a good time for investors and analysts alike to lean back and have a good bottle of Pinot Noir and let markets be markets. Surely, with the likes of Hindenburg Omens still getting its share of the tape and with the macro backdrop turning decidedly sour, it seems a prudent momen to kick back and just accept risk-off as it is.
And indeed, the macro backdrop had been awful lately. Both real economic and housing activity in the US have resumed their downward path, in Europe Ireland got a knock by the S&P, and in general hitherto positive voices have either retreated into the rabbit hole or turned very cautious. Basically, after leafing through a lot of independent as well as buy/sell side research I am pretty convinced that analysts and investors are in brace yourselves mode since they are all frontloading the recession/double dip theme; “You know, it MIGHT happen but we still don’t think it will and even if it does happen, it is still a low probability event”. This is called covering your a” and the fact that many research houses who were formerly sure that the US would see no douple dip are now backtracking. Of course, this is understandable given the underlying change in the flow of economic data as well as of course markets have been in obvious risk-off mode lately.
The only real straw which we are pinning our hopes on at the moment is that the Fed will step up and pull another trick out of QE-hat or that somehow Germany is going to save the world (and here). On the former, Tracy Alloway poured some cold water on that idea today and on the latter, someone forgot to tell these people that Germany actually depends on others to get their growth. We can always look to emerging markets someone would say, but the problem here is that momentum in H02-10 is almost certain to falter. I am not talking about recession of a slump but in relative terms and as the OECD still struggles to find even a positive rate of trend growth a slowdown in the emerging world will make itself felt.
For investors then, it seems that short of staying nimble and trying to scoop up some value as the market corrects lower, there is always the US bond bonanza to dig into. Now, I know that bonds look overbought and that yields are at all time low, but just understand that bonds may very rally even more and yields slump further. The suggestion made recently by David Rosenberg that the US yield curve might actually flatten from the long end is very important in my opinion as it indicates how the Fed is likely to continue intervening in this market. I recently asked a friend of mine what he thought of all this and he returned the following quote form a director of a fixed income strategy outfit;
Suppose the Congress controlled the production of all the lemons in US. Then assume the Federal Reserve decided that it was going to use its balance sheet to buy lemons as a means of adding liquidity into the market when times were tough. While the government ramped up lemon production during tough times, the Fed not only bought most of those lemons, but sent out a clear message that it stands ready to buy a whole bunch more lemons if the economy falters. Finally, suppose that the government started changing the rules and regulations forcing financial institutions to hold more lemons rather than limes – as lemons were deemed the only safe fruit. What happens to the price of lemons? The answer is a 2.50% 10 year note!
These are not “market prices”. The Congress, Fed and Treasury are controlling the supply, demand and the rules of the game in the US government bond market. And make no mistake – lemon production is ripping higher. Eventually people will realize there are not enough Corona bottles to stuff those lemons into and there will be lemonade all over the streets. Until then, please remember that this will go down as one of the greatest examples government price control and manipulation in history. Maybe soon we will be lining up at 15th and Constitution in DC – at the doors of the Treasury on odd and even days depending on our birthdays – in order to buy limited supplies of those precious lemons!! There is a great book by two gentlemen from the Hoover institution. The stories span 10,000 years but they all have one thing in common – when governments distort asset prices, bad things happen. It is an easy and fun read. I encourage you to grab a copy.
Finally, it has been a humbling summer watching 10 year rates move to these levels. I remain steadfast in the view that we are at least 75 to 100bps expensive in long term rates. But with the supply, demand and rules fixed by the Fed/Treasury/Congress Troika, I probably should have been more prepared for this – mea culpa. In any case, I’ll fall back on one of the better calls we have had and that is in MBS space where price manipulation is just as rampant. In fact, we can see that as the Fed has decided not to treat MBS like lemons anymore, they were quickly turned to lemonade. Once again my market screens are all red in MBS – days with 5yr futures down 5 tics and FBCL6.5s down 11 tics are amazing to watch. The 5.5/4.5 swap which peaked at 5-15 has fallen to 2 points since April. There is a lot of pain in the MBS world and it may be a good preview to what happens when government price manipulation schemes unravel. Good luck trading!
On this note, the only thing risk lovers can reasonably hope for on the back of the current macro picture is that markets move Sideways from here.