Even a stopped clock is right twice a day.
By Marc L. Flaster
NEW YORK, New York (Texas Insider Report) — Predictions are the common thread of any new year. They fill the airwaves almost nonstop and most are not worth the commercial that separates them. One thing is uniform. No one remembers them!
The new tax bill provided by Congress is a so outlandish that it is totally impossible to predict how the minds of man will re-interpret their activities to find a path of least resistance. For sure the creators of tax and spend economies in the 6 states that were most affected by the loss of the SALT (State and Local Taxes) deductions will be hard at work to find a way to continue to withdraw from the well.
There is no doubt that the Blue State liberal coalition suffered badly at the hands of the Republican-lead Congress. Some might interpret this as a vendetta. This was truly a ‘gottcha’ moment. Whatever happens at the election this fall will not be enough to reverse the damage.
So let’s talk about things that we know something about; Like the Federal Reserve Bank’s Open Market Committee (FOMC).
Just-departed Fed Chairwoman Janet Yellen (left,) I cannot hear you when I’m Yellen, is out as of Feb 6th and Mr. Jerome Powell is in. Of the seven members of the FOMC, the Trumpster will have the opportunity to replace 4 of them. As this is a place where academia has a lot of influence, don’t look for a marketing rep to take a post, or an artificial intelligence engineer.
Here is one place where more of the same is the likely course. The FOMC has remained out of sync with the world’s economic clock for years. There has been no connectivity between the Bernanke experiment with quantitative easing and the economies of the U.S., Europe and Japan. These three Central Banks followed the same philosophy with different results. Therefore, no confirmation that this exercise worked in practice although well supported at the luncheon counter.
The answer, or course, is and has been very clear. In our economy the resource of money is in-exhaustible and so is the product that can be liquefied with it. The market just has a limit to how much it can absorb at any one time. Remember, real estate is driven by supply: the supply of money. That converts into houses and buildings. NYC luxury apartment sales were off the tops this past year and prices, when offerings were reasonable, were still at a discount. New buildings are coming online faster than inventory can be marketed. Care to chance a guess where prices are headed.
Denver is so over-built that the City has made an arrangement with upscale housing owners to subsidize low to moderate families to occupy up to 40% of the apartments. A new approach to social diversity?
Our aging population is confounding the eco-communists on another front. Instead of seeking a life-style of activity and travel, they are staying put. Worse, there is movement back to ground zero where the kids still live. No one wants to be alone when experiencing the last sunset. This has reduced the inventory of homes for sale creating a false bias for there is a field of buyers regularly entering the market.
The Federal Reserve Bank Governors Salute the Phillips Curve every morning
Uncle Miltie Friedman took issue with the concept more than 40 years ago to no avail. All through this recession and recovery the employment rolls appeared to be growing while the price index barely moved. Janet (Yellen) and Company have been sticking to their guns throughout.
A stopped clock may be right twice a day. The Fed, however, has yet to be. Innovation, technology in experiment and practice, and a new labor quadrant that contracts its employees rather than records them on the company payroll has a lot to do with the errant math. It is a brave new world and those in academia remain cloistered and thereby sheltered from it.
The U.S. is now the largest producer of oil in the world, yet prices have rebounded up from recent lows. $100 /bbl fell to $20, and is now at $63. OPEC’s decision to constrict supply plays right into the hands of American interests. Development and discovery continues, profitably I might add.
The difference is that here the resource once uncovered does not have to be marketed; whereas there the resource is mature and is needed to meet budget requirements. The Saudi budget deficits continue to grow. This is a fool’s errand.
Increase supply and the price withers, reduce supply and the price stiffens. Not quite. The U.S. industry does not have a country to run. It does have a problem with natural gas, a free byproduct of this fossil fuel. Natural gas is fast replacing nuclear and coal fired utilities.
Unfortunately, life is not so simple. Renewables in the form of solar and wind are competing with energy generated from NG fired plants.
Why do I bring this up? Well, Solar is reversing the energy delivery equation. Instead of a big power plant sending electricity out over a network of transmission lines, we are fast creating an individual network of energy conversion right at the user on his rooftop. Solar, more than wind, has lots more promise as the price of the panels fall and conversion efficiency improves. Don’t look now, but the current political landscape of the Middle East is becoming more unstable and not from political rivalry or unpopular reform, but from a change in the economic fortunes of the players. OPEC is a one note song.
This is why the myopic focus on the Consumer Price Index as a gauge of price pressures in our economy is like recording the temperature in the refrigerator and using that to predict climate change. Our world economies are much more diverse than they were 10, 20 or 50 years ago, yet the economic sensors that are monitored have not changed. Care to compare Sears with Walmart? How about We-Work and its open office architecture with the traditional office of glass closets.
Inflation is not the by-product of an advancing economy. In fact, as a price measure it is and has been under attack. The resetting of a minimum wage by 18 states above the Federal standard of $7.15 per hour will not answer Janet’s prayers. Employers are resourceful and cost conscious to a fault. A net result in each of these 18 States is a higher pay check for fewer people remaining in the employ.
Since days of the first Kentucky Derby the U.S. auto industry has not only been a world leader in sales but also in innovation. For 2017, U.S. nameplates fell second to a combined assault from abroad. Of the 17 million automobiles sold, Detroit only represented 48%. China is the largest world auto marketplace, and they are over here as well with nameplates that are familiar.
At the U.S. Auto show they announced that manufacturing in the U.S. may start by year end. Driverless, or autonomous transportation may seem like a bit of Star Trek talk, but the application is already in warehousing, farming and military maneuvers. Detroit has heard the siren and is focused on profit per sale rather than units sold. Trucks and SUV’s dominate the sales blotter. Mileage p/gallon is no longer a selling point. More power, more weight, and more options. Some hands-off options are already here. Push a button and my car will maintain a set distance from the car ahead while at a speed up to 30 mph.
Now let me answer my e-mails!!
Marc L. Flaster has advised financial institutions across Texas in balance sheet management for over 35 years. The views expressed in this article do not necessarily reflect the opinions of any client or organization with which Marc L. Flaster might be affiliated. Readers are advised to complete their own due diligence and analysis prior to taking any actions based upon my economic and political views.
Source: Texas Politics