Tag Archives: GDP

Are Corporate Tax Cuts Needed?

With President Obama suggesting in his Tuesday’s State of the Union address the possibility of a corporate tax cut I was left wondering; is it needed and will it help.

First, let me state that I believe the federal burden in this county is too high. Serious structural changes need to be made to correct our long-term fiscal trajectory. In general, I believe government spending is too high and taxes as well. This philosophical framework aside, I had to ask myself are corporations the best entities to target for tax cuts.

The data shows that corporate taxes rates have been generally declining for decades. The current rate of 28% Read more of this post

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Contributions to Final Q3 GDP

This morning the BEA released its final Q3 GDP figures. GDP was revised up 0.1% from the preliminary estimate (Nov’ 23rd) to a 2.6% annualized growth rate. The consensus estimate was for 3.0% GDP growth.

Below is a chart I have posted previously that is updated for Q3 final GDP. Personal consumption accounted for 1.7% growth in the quarter with changes in inventory contributing 1.6%. Net exports were down 1.7%. In 2011 look for gains from inventory to diminish and possibly be offset by net exports. Since Q3 2006 quarter-over-quarter change in inventory has contributed, on average, 0.1% to GDP and net exports 0.4%.

Click to Expand

More details via Econoday: Read more of this post

Corporate Profits: What the Current Level Tells Us About S&P 500 Returns Over the Next Five Years

Last week, in his weekly market comment, John Hussman posted an interesting chart (see below) comparing the corporate profit to GDP ratio and the subsequent growth rate in corporate profits. I have previously posted on profit margins (see here and here) and will now further explore what profits margins at current levels imply about the next five years for the S&P 500 index.

But first a question: why is the current level of corporate profit margins so important?

When looking at the market through a P/E (Price divided by earnings) framework it becomes obvious that any price appreciation, by definition, must come from an expansion in the P/E multiple, an increase in earnings or both. Experts disagree on what, exactly cause an expansion or contraction in the P/E multiple but the general consensus is that it is due to the level of inflation, interest rates, investor sentiment or a combination of the three. Read more of this post

Hussman: Bubble, Crash, Bubble, Crash, Bubble…

Hussman’s weekly market comment is a must read. He does not mince words in arguing that QE is utterly misguided and Bernanke’s leadership at the Fed has bordered on criminal. Excerpts below (emphasis mine) but please read the entire comment.

Given that interest rates are already quite depressed, Bernanke seems to be grasping at straws in justifying QE2 on the basis further slight reductions in yields. As for Bernanke’s case for creating wealth effects via the stock market, one might look at this logic and conclude that while it may or may not be valid, the argument is at least the subject of reasonable debate. But that would not be true. Rather, these are undoubtedly among the most ignorant remarks ever made by a central banker.

We will continue this cycle until we catch on. The problem isn’t only that the Fed is treating the symptoms instead of the disease. Rather, by irresponsibly promoting reckless speculation, misallocation of capital, moral hazard (careless lending without repercussions), and illusory “wealth effects,” the Fed has become the disease.

Source: Hussman Funds

Friday’s Economic Data: Green Light for QE2

There was no shortage of economic data released today however there were no major moves in the indices as everyone seems to be waiting for the Fed’s announcement next Wednesday. Released today were GDP, Employment Cost Index, Consumer Sentiment and Chicago PMI. Let’s have a look in that order.

GDP

GDP came in at 2.0% growth quarter over quarter (SAAR) which was in line with expectations. Personal consumption showed surprising strength, contributing 1.8% to growth with change in inventory levels also contributing 1.4%. Inventory restocking continues to be a strong contributor to GDP growth since late 2009 and it remains to be seen how long this will last. GDP growth continues, albeit at a rate slower than typical recoveries. For further reading on what the Consumer Metrics Growth Index says about Q4 GDP, see here.

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