Equity market weak on news...but which news
The equity markets are giving up some of the gains of the last few weeks. Volumes are not high but there seems to be no life out there. News of weakening retail sales and profit taking drive explanations in the media, but there is something else going on that is taking the wind out of the sails --- that's government announcements.
The cumulative impact of what has become almost daily announcements in the last week of new taxation and regulation is wearing folks down. This is less of a yea or nay comment on the rules themselves than one on the extended reach of government that is coming so quickly. The proposal today to regulate the compensation systems of all financial companies through the "safety and soundness" principle is a big government move. The increase in taxes on options traders, commodities traders, hedge fund managers, and insurance companies was announced yesterday. Last week was the proposal to tax all multinational foreign source income at U.S. rates. We have previous proposals to increase capital gains and dividend tax rates, to raise estate taxes, and to raise the maximum tax rate(which would lead to a whopping marginal tax rate increase for the upper middle class). Hanging over all of this is the cap and trade system proposal, a huge boon for government coffers that will come from the private economy's pocket.
Some of this could be constructive and some may be misguided. What the Obama administration seems like at present is that talented guitar player that plays as fast and intensely as possible, plays behind his back, with his teeth, does a split and holds a note for an eternity before a rapid fire crescendo. Alright already you can play, you have immense talent, but do you make music, something that works for the listener. The Obama team is showing us that they know the nooks and crannys of the system, they have big goals, and they are really smart. They are not showing us how many of these proposals will actually be effective for the economy other than to say they are a matter of fairness and they are incenting good behavior.
A post here on May 5, "Obama...team's rhetoric...", addressed this issue tangentially, and specifically related to the corporate foreign source income issue. There are positive aspects and some potentially negative aspects to proposals wrapped in the same package, and the question that seems to be overlooked at times is "what will this do to our overall economy, our competitive standing in world markets, and the motivation for private wealth globally to invest in our markets?". That an end goal like reducing greenhouse gas emissions or creating more jobs in America is a laudable one does not mean that the tax scheme to achieve that goal is good for the economy. They are two completely different issues, or tests, for validation of an idea.
More later on all of this, but for now this stream of annoucements is sapping the energy out of the markets and the near term confidence out of the system --- the administration mandating compensation rules for all banks and financial lending companies? --- congressmen asserting the right to extend management oversight to all private firms that agree to participate in TALF? --- this is too much.
The cumulative impact of what has become almost daily announcements in the last week of new taxation and regulation is wearing folks down. This is less of a yea or nay comment on the rules themselves than one on the extended reach of government that is coming so quickly. The proposal today to regulate the compensation systems of all financial companies through the "safety and soundness" principle is a big government move. The increase in taxes on options traders, commodities traders, hedge fund managers, and insurance companies was announced yesterday. Last week was the proposal to tax all multinational foreign source income at U.S. rates. We have previous proposals to increase capital gains and dividend tax rates, to raise estate taxes, and to raise the maximum tax rate(which would lead to a whopping marginal tax rate increase for the upper middle class). Hanging over all of this is the cap and trade system proposal, a huge boon for government coffers that will come from the private economy's pocket.
Some of this could be constructive and some may be misguided. What the Obama administration seems like at present is that talented guitar player that plays as fast and intensely as possible, plays behind his back, with his teeth, does a split and holds a note for an eternity before a rapid fire crescendo. Alright already you can play, you have immense talent, but do you make music, something that works for the listener. The Obama team is showing us that they know the nooks and crannys of the system, they have big goals, and they are really smart. They are not showing us how many of these proposals will actually be effective for the economy other than to say they are a matter of fairness and they are incenting good behavior.
A post here on May 5, "Obama...team's rhetoric...", addressed this issue tangentially, and specifically related to the corporate foreign source income issue. There are positive aspects and some potentially negative aspects to proposals wrapped in the same package, and the question that seems to be overlooked at times is "what will this do to our overall economy, our competitive standing in world markets, and the motivation for private wealth globally to invest in our markets?". That an end goal like reducing greenhouse gas emissions or creating more jobs in America is a laudable one does not mean that the tax scheme to achieve that goal is good for the economy. They are two completely different issues, or tests, for validation of an idea.
More later on all of this, but for now this stream of annoucements is sapping the energy out of the markets and the near term confidence out of the system --- the administration mandating compensation rules for all banks and financial lending companies? --- congressmen asserting the right to extend management oversight to all private firms that agree to participate in TALF? --- this is too much.
posted by John Borden at 9:56 PM
0 Comments:
Post a Comment
<< Home