Wednesday, December 21, 2011

Political Acrimony

The legislative debate on extending the payroll tax cut will garner much press today, as the Republicans are excoriated for getting in the way of helping out workers.

Today's WSJ has an interesting op-ed piece by John B. Taylor, arguing otherwise. Among the points he makes is that a temporary tax cut does little to help the economy. When was the last time any of us made an investment decision i.e., buying a new house, based on having an additional couple of months' payroll tax to help with the cash flow?

Uncertainty is the nemesis of investing, and consumers want to know what they will be paying in taxes long term before embarking on any major purchases. We are amazingly adaptable as consumers, so long as we know the rules.

A sluggish economy will be with us, unfortunately, until we have a clear idea of permanent tax and regulatory issues. Businesses are reluctant to hire, citing weak demand and unpredictability. Demand will stay weak until consumers feel more certain about the economy. It's a vicious cycle, and something has to break for things to get better.

Thursday, December 8, 2011

Is the Unthinkable Upon Us?

Today's WSJ's headline on planning for the demise of the Euro is sobering. Or is it? Touted as totally unthinkable just a few weeks ago, that leading institutions, including the august JP Morgan Chase & Co., already are suggesting that investors make contingency plans to protect portfolios says a lot.

Investors are being advised to hedge against "possible adverse moves" (READ: a possible collapse of the common currency), even though the probability of said collapse is only 20%, according to JPM. When "euro zone disintegration" and the "collapse of Lehman Brothers" appear in the same sentence, however, it gives us pause. Or it should.

Across the pond, the subject seems to be centered around how to print sovereign currency in the event of a Euro zone break up.

But on this side of the pond, there may be a silver lining. A serious fall in the value of the euro signals strength in the US dollar. Although, if the global markets are in free fall, that may be scant comfort.