One Trick Pony: the Great Give Back

Kenneth Safian offered some data on the US Treasury’s heavy dependence on speculative excess. The follow-on effect, should markets decline or Bubbles burst, will be an amplified decline in US Treasury tax receipts. Safian points to the line labeled “individual income taxes other than withheld taxes” (see table 2) which is largely a measure of of levies on dividends and capital gains. They’ve soared with the stock and real estate markets from $250 billion in 2004 to $400 billion today. Corporate taxes rose from under $200 billion to $400 billion today.

Much of this was racked up by investment bankers (Pig Men) and real-estate firms. Safian argues that if you back out these firms from GDP data, the rest of the economy would be flat or down. That of course has been one of my primary points all along. And reverse asset prices and the US’ one trick pony gives it back, with the potential for skyrocketing deficits and interest rates.

Echoing the trends noted Wednesday regarding retail in the US, Nike chimed in with a mediocre US sales report.

Analysts noted Nike sales in the United States — where footwear rose 2 percent and apparel rose a mere 1 percent — appeared low. McAdams, Wright, Ragen analyst Sara Hasan said Nike’s U.S. results fell far below the 8.1 percent rise she had expected. “I was surprised performance in the U.S. wasn’t stronger,” Hasan said, a view echoed by Shanley.

Shoppertrak reported a third week straight of bombed out and declining US retail sales. First in the week ending March 3, retail sales dropped a whopping 10.6%, largely explained away by bad weather, except March 10th wasn√¢‚Ǩ‚Ñ¢t much better at down 4.5%. Now perhaps it’s the dog ate the homework?

CHICAGO – March 20, 2007 – ShopperTrak RCT Corporation’s National Retail Sales Estimate√¢‚Äû¬¢ (NRSE) today reported that retail sales for the week ending March 17 declined by 7.4 percent from the same period in 2006. This was the third consecutive week that retail performance has been weak compared to the previous year, with shopping activity adversely affected by tight budgets and gas prices that are dramatically higher than last spring’s.

Nautrally if housing and retail activity is swooning then the movement of goods (hit railfax carloading report) is sure to follow, and that is exactly what is happening. Looks like a recession, walks like a recession, and talks like a recession, probably is a recession.

Unlike the mainstream media, I have been very focused on California. California heads into the cooling season with greatly reduced water supplies and a snow pack 40% of normal. This has the potential to bring on another round of shortages and higher costs for electricity. Already California lost a one billion dollar citrus crop to recent freezes, and dairy and beef producers there (as elsewhere) are being squeezed by corn and feed inflation. Even before this, and the ongoing rounds of real estate, mortgage and construction related job reductions, California’s non job payroll growth had turned distinctly down relative to the US. Also like the US at large, California has been very dependent on one trick pony Bubble gains, and outfits like Google for their largess. Adding to the woes is the marked tendency for California pension funds to gamble their assets with Riskloves and hedge funds. Not too difficult to imagine where this ends up.

After cashing in more than 9 million shares valued at $3.7 billion last year, 16 Google insiders will owe the Golden State as much as $380 million in taxes — enough to cover the salaries of more than 3,000 state workers.

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