The Congressional Budget Office (CBO) released their Budget and Economic Outlook: 2014 to 2024 yesterday and it’s, like, really long. There’s a lot of stuff in there about how they expect the deficit to normalize at an average level (~3% of GDP), spending should outpace GDP growth as the population gets older, publicly held federal debt is a concern, the participation rate in the labor market will take a long time to recover (maybe never will) and post-2017 America is gonna be real slow going GDP-wise (~2.5%). And while the deficit should normalize, interest paid on our debt may reach 3.3% of GDP by 2024, coming close to what we will spend on Medicare for that year. The CBO also expects only one third of the people who dropped out of the labor force to come back; thanks in part to Obamacare, since working more and making more money means no subsidy for health insurance and higher marginal taxes. The Manhattan Institute calls this a “major self-inflicted problem.” The Economist says Obamacare creates a supply-side problem and argues “supply-side reforms that encourage the elderly, the poor and the partially disabled to work more should be introduced gradually.” Then again, Financial Times thinks that “a big part of why Obamacare decreases employment is because it allows people to quit jobs they only still have because they are afraid of losing insurance.” Also, taking gender into consideration makes the debate even more fun: labor force participation rates have diverged significantly between the Eurozone and the United States since 2010 and it appears to be attributable to Euro women over the age of 45. And while President Obama may tout the statistic that women make, on average, $0.77 for every $1.00 earned by men in America, it really is closer to $0.81 or even $0.95 when you weight the samples of men and women for similarity (e.g. full-time women and full-time men with same level of education). The Manhattan Institute goes on to say that “Women have won in America” and that “a choice of more time at home rather than more time at the office is not a social problem in need of a government solution.” So is Obamacare killing jobs? Kind of. Maybe it’d be better to say that Obamacare makes the 40 hr workweek less necessary or attractive? And maybe spreading the workweek around would be good for us?
Emerging Markets: Some Cold Cuts Are Just Better Than Others
Capital Markets, a London-based research company, groups Emerging Markets like so: 1) Mismanaged (government policy issues) — Argentina, Ukraine and Venezuela; 2) Living beyond means (unsustainable consumption) — Turkey, South Africa, Thailand, Indonesia, Chile and Peru, 3) Weak banks — Hungary, Romania and Bulgaria; 4) Domestic structural problems — India, China, Brazil and Russia; and 5) Brightening outlook — South Korea, Philippines, Mexico, Poland and the Czech Republic. Meanwhile, here’s 5 takeaways from the Emerging Markets Private Equity Association’s annual report: 1) Investment still declining among BRIC countries, 2) The amount of available capital is also declining, 3) Emerging Asia still attracts the most private capital, 4) Brazil’s star starts to wane in Latin America, as Mexico’s rises, and 5) Emerging markets are still a private equity destination. Meanwhile, Bill Gross says he likes to “call China the mystery meat of emerging-market countries.” “Nobody knows what’s there and there’s a little bit of bologna, so we’re just going to have to wonder going forward through this year as to the potential problems in China and other emerging markets.” Also, Bill Gross Gets Medieval On Your Assets.
Puerto Rico Downgraded To Junk, Italy Sues S&P For Cultural Illiteracy
“S.&P., which lowered its rating to BB+ from BBB-, said it had decided that Puerto Rico was no longer qualified as investment grade because its government was losing its ability to raise cash through the Government Development Bank…A good portion of Puerto Rico’s debt was issued with promises to make cash payments if it fell below investment grade, and ready cash is precisely what Puerto Rico lacks…Puerto Rico has roughly $70 billion of debt outstanding and is — despite a population of fewer than 4 million people — the third-largest issuer of municipal bonds in the United States, after California and New York.” Meanwhile, Italy is trying to pull an Uncle Sam on Standard & Poors by threatening to sue: “S&P never in its rating pointed out Italy’s history, art or landscape which, as universally recognised, are the basis of its economic strength…The latest Italian case may be the first time the powerful ratings agencies have been accused of cultural illiteracy, but they already faced charges of poor maths and dismal economic forecasting.”
“As the investing world headed into January, it was almost universally accepted that 2014 would be a bad year to own bonds and bond funds…Suddenly, bonds are the hot investment, the thing experts are saying to buy.” Also, betting against treasuries may be a fool’s game.
“Pearson explained it as such: Your mouse hovers over an image of a pickup truck a little longer than usual one day. A few days later, you post something about pickups or ‘like’ someone’s photo of their truck. The next thing you know, there’s an ad from Chevy in your feed.”
“Small businesses, defined as having fewer than 50 employees, showed the largest growth by business size, with 75,000 jobs added.” Coming up: Friday’s Employment Situation. Last month, that report indicated 74,000 new jobs added in December. Some analysts are expecting around 155,000 this month…
“The findings contribute to the growing concerns in the telecommunications industry that demand for data will soon far exceed the networks’ capacity, and connection speeds will slow. Though some have argued that technological advancements may prevent the crisis, wireless companies say they need more airwaves to evade the spectrum crunch.”