Connelly on Commerce

Terry Connelly is dean emeritus of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

With Obama’s Stimulus 2.0 speech and the Dirty Dozen debt cut deliberations due to take center stage next month in Washington, it is clear that the heaviest lobbying artillery is being positioned and rolled out on the political talk shows and cable TV money coverage.

Bored as the media folks  are now becoming the second coming of the recession-to-be   hyping the short-sellers gloom-and -doom propaganda with their coverage of every chicken little economist, they seem to be shifting attention to the coming fight over “repatriation” of the $1-2 trillion dollars in offshore profits of US multinationals “trapped” overseas by the very tax loophole the same corporations lobbied for themselves — the one that lets them escape US corporate tax (at the relatively high rate of 35% compared with other capitalist nations, few of whom tax offshore earnings at all, but reduced by overseas taxes paid).

US multinations with substantial offshore profits are pushing hard for a tax holiday to bring those funds back to the US at little or no tax liability in order to put them to work in the US economy — allegedly to promote domestic job growth, although the last time this happened the proceeds were used largely to fund dividends, executive salaries, stock buybacks and M&A (which is usually a job killer. Despite that fact, there are good arguments, particularly in terms of the international competitiveness of US exporters, in favor of a repatriation tax holiday, and some even hope the President  will include a nod to such proposals in his coming speech as an olive branch , if not to the tea Party, at least to his natural constituency among liberal Silicon Valley CEO”s, even if it offends the Huffington Post crowd and certain liberal New York Times columnists, who will accuse him of (again) giving in to extortion by the moneyed interests.

So the lobbyists rounded up all the usual pro-business suspects and even had John McCain on TV pumping the repatriation case, which has a certain symmetry  given his previous liberal views on the matter of letting illegal immigrants remain “patriated” in the US after paying a small fine. None dare call a “Tax holiday” amnesty! But what took the cake was the pro golfer Phil Mickelson appearing on CNBC to report the latest buzz from the corporate sponsors in the locker room at his most recent tournament as being all about the crying need for the repatriation tax break, which of course he endorsed with all the fervor he brings to his patented chip shots.

But one thing about pro-golfers — they wear their corporate sponsorship on their sleeve, quite literally, and on their hats, shirts, clubhead covers,  golf balls, shoes, gloves and ball markers — this at least creates complete transparency of who is funding their presence on the course. What is we mandated a similar system for our politicians as they engage in the great autumn debate about how to get control of the deficit in the famous ‘long run” while they consider a Stimulus 2.0 for the “short run’ to prevent the Recession 2.0 that CNBC has told us is coming like Christmas.

So Senator Dick Shelby could wear the JP Morgan hat while he argues for repeal of Dodd/Frank as part of the bargain; Tom Coburn could were the Hospital Corporation of America polo shirt while he argues for more Medicaid cuts; Bob Corker would have  Toyota driving glove in full view while he argues to pull the plug on the GM bailout or the Chamber of Commerce pullover while he argues to cut the employment mandate from the Federal Reserve charter; McCain, of course, would have the Cisco shoes in full view while he pushes the offshore earning tax holiday. And it goes for the other side too, as Nancy Pelosi dons the AARP windbreaker for her fight to thwart any momentum for Social Security cost-of-living formula changes, and Harry Reid can wear a Nevada regional airlines logo on his sleeve as he battles to keep the rural airport ticket subsidy.

We would all be better off if we could see right on the TV screen, just like we see on the final eighteen hole showdowns on Sunday, just what corporate and other institutional  interests are keeping our Congressional representatives “in the game”. And then maybe when Howard Schultz of Starbucks suggests that they all get together and pull their sponsorships in an effort to force bi-partisan agreement for a change, we can really see it happen real-time. Sure made a difference when it happened to Tiger!

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Terry Connelly is dean emeritus of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

Ben Bernanke is at heart an academic; and like a good dean who knows he must lead a divided faculty, he did not get out front of his colleagues in his Jackson Hole speeach this morning. But while he did not announce any specifics as to any form of potential QE3 to help the sputtering economy, he did not take it off the table, either. Indeed, he even opened the door a bit by extending the time of the upcoming September Fed meeting to two days from one — this is a dean who knows his faculty needs a good debate as the data comes in during the next three weeks. So these are the salient points:

1) Bernanke was NOT intimidated by Rick Perry’s “treason” charge against QE3 into taking any forms of “money printing” off the table, although some like Paul Krugman in todays New York Times, have suggested that. They are mis-reading “dean” Bernake’s deferecne to his colleagues need to debate, but his is not foregoing his rrole to DECIDE.

2) Bernanke is not panicked into thinking we are headed into a recession “double-dip” — the fear in the market exceeds the reality of the data, and Bernanke knows this and is trying to calm the waters a bit away from the hysterical commentators on CNBC and Bloomberg: it seems that cable networks’ rush to cover “Armageddon: you heard it here first” creates an atmosphere where every Chicken Little suddenly turns pro.

3) The real problem of economic sustainability remains Europe, which in the end makes US stocks a good investment — yet we over-blow that too as we in America simply don’t appreciate how the European political system “works” — at times the unwieldy emergent structure of the European community makes the US look positively functional!

4) In this light, Trichet’s speech to the Jakcoson Hole conference this weekend will be the important speech: will he foretell a pause at least in the European Central Bank’s mindless headlong rush to raise interest rates — hopefully yes.

5) Bernanke didn’t kick the can but more accurately passed the ball to Congress to act on some forms of fiscal and jobs stimulus ASAP, while maintaining a long-term plan to seriously reduce the projected deficit. This is a benefit to Obama and a rejection of the Tea Party agenda. Tis makes extension of payroll tax holiday a little more probable.

5) The market reaction, especially in the face of the oncoming hurricane, suggests that some traders at least are beginning to consider the “unthinkable” –namely, that Bernanke may have it right.

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Terry Connelly is dean emeritus of the Ageno School of Business at Golden Gate University and is frequently quoted on business, financial, and economic issues by Bay Area local, as well as national, news media.

1) The trade Monday AM will probably be “risk off” at first (which means stock market down big) until it is clear how the longer-dated Treasury market is acting — ie, does it confirm rampant  fear in the market of higher US interest rates because of the downgrade at precisely the wrong time in our fragile “recovery’. It would help if the European Central Bank begins buying italian and Spanish government bonds directly by US opening. Some hope for a counterintuitive stable open because the notion of a downgrade was already in the rumor market during the day Friday.

2) There has never been a US Federal Reserve Meeting with the US long term debt rated less than AAA by any agency; will they take note? Will they directly address the risk to long-term interest rates by at least indicating they are considering adjusting the maturity of their balance sheet treasury holdings to longer-dated paper (a form of “QE III”? Will they announce any other form of modified easing like extending the period they will hold their current balance sheet to the same “extended period’ they have foretold for low short term rates? Any of these moves would tend to stabilize the markets for the moment.

3) Congress is out of town so can do no harm this week, but we will possibly get the first announced appointment to the “Super Congress’ now charged with dealing with the deficit in a way that will appease S&P– three from each party in the House and Senate, appointed by the respective party leaders. Soon to be known as the “Dirty Dozen”. It will need at least one Profile in Courage to elicit a 7-5 vote for something like a $4 trillion deal. The market will pay attention to these appointments to scope the odds on a real deal.

4) The markets will recognize in due course that the Italian problem in paying its debts (third largest borrowing country in the world, behind only US and Japan) is worse than any risk with the US.

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