In today’s Jolt, I wrote:
When it comes to investing in economic pessimism, I’m buying like Jim Cramer on a double espresso. I suspect employers are seeing low demand to begin with and are terrified of Congress enacting new health care fees, new energy costs from cap and trade, and/or tax hikes. Even if the GOP takes back the House, there’s still the chance of horrific profit-devouring, competitiveness-crushing policy changes coming through the regulatory process. I don’t see anything resembling good hiring months until 2011, and I suspect businesses won’t start breathing easy about the cost of new hires until one particular American loses his job on January 20, 2013.
That prompted a reader to write in:
I attended a luncheon at the Federal Reserve Branch in Houston where one of the speakers was the economist for the Federal Reserve – El Paso branch.
His presentation mainly concerned Houston and how the city was positioned given the current economic doldrums (thankfully he was optimistic that the city would emerge from recession earlier than the rest of the country); however a main portion of the presentation involved his expectations for a very depressed hiring market for the next 2-3 years, meaning unemployment would remain stubbornly high in the rest of the country.
During the Q&A session, I felt compelled to ask the obvious question: Did he believe that the healthcare reform and related tax proposals, the proposed cap and trade legislation and the consequent increase in energy costs, the expiration of the Bush tax cuts, the agitation for higher taxes on the wealthy, the proposal to increase corporate tax rates, the proposal to increase capital gains taxes, the trial floating of ideas such as a national VAT and removal of the earnings cap on FICA, the more robust regulatory bureaucracy . . . did he believe any of these uncertainties were depressing hiring?
He stated yes, without a doubt and proceeded to relay a conversation he had with a local chemical company regarding their 2010 capital expenditure budget. When asked what the company intended to invest in 2010, the response was ‘nothing,’ not due to a paucity of good opportunities, but because it was impossible for the company to calculate a rate of return given all the uncertainty over cost of labor, energy prices, regulatory mandates and the like.
It’s obvious to me that the Obama administration has no grasp on what their ‘flavor of the day’ tax and regulatory proposals do to business decision making, but perhaps I can summarize for them:
“No investment means no hiring and no new tax revenues. It’s the uncertainty, stupid.”