Suitably Flip

A Fiscal Mystery: UK Raises Tax Rate to 50%, Tax Revenues Fall $11B

Go figure.

It is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes.
...
Far from raising funds, it actually cost the UK £7 billion in lost tax revenue.

Via Doug Powers.

Q3 GDP Revised Upward, Q2 GDI Turns Red.

The second look at third quarter GDP growth clocked in just below expectations (and below long-term potential) at 2.7%, but still meaningfully better than the advance estimate of 2.0%.

But economist Justin Wolfers notes that the GDI (gross domestic income) data, which in theory should equal GDP, tells a different, darker tale.

Real gross domestic income (GDI), which measures the output of the economy as the costs incurred and the incomes earned in the production of GDP, increased 1.7 percent in the third quarter, in contrast to a decrease of 0.7 (revised) percent in the second.  For a given quarter, the estimates of GDP and GDI may differ for a variety of reasons, including the incorporation of largely independent source data.  However, over longer time spans, the estimates of GDP and GDI tend to follow similar patterns of change.

That negative print in the second quarter was revised down from the previous estimate of +0.2%.

Wolfers:

For sure, we can now be more confident the US economy slowed (sharply!) in Q2. And we're puzzled why jobs growth was so strong in Q3.

— Justin Wolfers (@justinwolfers) November 29, 2012

Is there a case that the US economy fell into recession in Q2?GDI fell 0.7%;Payrolls growth averaged only +67k;Unemployment was rising.

— Justin Wolfers (@justinwolfers) November 29, 2012

I'm not arguing that the US economy did fall into a (brief) recession in Q2, but it is a real enough possibility that it's worth considering

— Justin Wolfers (@justinwolfers) November 29, 2012

Update:  Ugh.  Even if you focus on the 2.7% GDP number and ignore the 1.7% GDI, the components of that growth are unsettling.  Government spending and invesntory accumulation spiked, while personal consumption (the real growth driver) slowed.

Note these are all pre-Sandy numbers.

 

CFTC Cracks Down On Intrade

WaPo:

Intrade, the online prediction market that gained popularity as an informal oddsmaker for the presidential election, shut itself to U.S. customers Monday after regulators charged it with illegally facilitating bets on future economic data, the price of gold and even acts of war.

Hours after the Commodity Futures Trading Commission filed a complaint in federal court, Intrade posted in its user forum and on its news page that it could no longer allow U.S. residents to trade “due to legal and regulatory pressures.”
...
“Today’s action should make it clear that we will intervene in the ‘prediction’ markets, wherever they may be based, when their U.S. activities violate” laws and rules enforced by the agency, CFTC enforcement director David Meister said in a statement.

By requiring that options be traded on approved exchanges, Meister said, regulators can “police market activity and protect market integrity.”

The First Hundred Billion Is the Hardest

An economist at the World Bank compares 007 villains' diabolical schemes over the decades for economic viability.  Verdict: they mainly stink.

Casino Royale seems to win the award for plausibility, thanks mainly to its simplicity (1. short airline stocks, 2. blow up commercial airplanes, 3. profit), not typically a Bond villain's forte.

Surprisingly, Goldfinger does better than most, though he's hardly air tight.

Goldfinger Plot: Gold tycoon Auric Goldfinger’s (Gert Frobe) plan is quite simple: He wants to attack the U.S. Bullion Depository in Fort Knox and detonate an atomic bomb, thus irradiating the gold stored there, rendering it worthless for decades. This will in turn increase the value of Goldfinger’s own gold and cause economic chaos in the Western world.

Plausibility: “This looks plausible to me,” says Dethier…

I must disagree. First, it requires an upward-sloping marginal cost curve for gold production, including the flow out of commodity uses.  That’s actually plausible, but should death-risking criminal schemes rely on that?  Second, if you are going to blow up some gold, don’t blow up the gold held as an endowment, blow up some gold which might go on the market.  Third, couldn’t governments in response simply increase the capital gains rate on gold sales?  In any case just setting off a dirty bomb probably would spike the gold price more than blowing up some gold.  Or how about this criminal strategy?: hold on to the gold and perhaps in due time it will go up from $35 to the unthinkable level of $200 or $300 an ounce.

And there is yet another complication.  At that time the U.S. was (sort of) on a gold standard!  Admittedly ability to redeem was quite limited and held by foreigners who were themselves having their arms twisted not to redeem.  Still, what if the price of gold doesn’t go up (denominated in terms of what?  most of the major currencies are then fixed not floating) but the U.S. price level goes down?  Why use bombs to try to manipulate the price which is about the hardest to budge in the direction which is hardest to get it to budge in?  What if only quantities adjust?  And so on.  Wouldn’t an inflationary scheme have been easier to implement?

Sometimes it's easier just to hijack some nuclear weapons and hold the world hostage.

 

Election Over, Jobless Claims Skyrocket

Kaboom.

In the week ending November 10, the advance figure for seasonally adjusted initial claims was 439,000, an increase of 78,000 from the previous week's revised figure of 361,000. The 4-week moving average was 383,750, an increase of 11,750 from the previous week's revised average of 372,000.

The market expected a less horrific 388,000.  Claims had taken a bit of a dip last week, in the wake of Sandy, but people waiting a week to get their paperwork in doesn't fully account for the leap (between the two weeks, the average is 397,000, still significantly above the recent trend).

Looks to me like this is the highest level since April 2011.

If this is a harbinger of more unmassaged DOL data yet to be unveiled, now that there's no election to worry about, I'm going back to bed.

UVA Investing Conference

My startup, the American Civics Exchange (ACE), is once again sponsoring the University of Virginia Investing Conference this Thursday and Friday and I have the ill-deserved honor of delivering an address Friday morning on understanding and quantifying the risks that public policy decisions pose to businesses and investors, with a focus on what's changed since the election and the key financial risks we face as we careen toward the fiscal abyss.

The University of Virginia Investing Conference (UVIC) will take place 15-16 November 2012 at the Darden School of Business. UVIC assembles the investing public, professional investors, scholars and students to address key issues in the field of asset management.

This year's theme is After the Election: Realities, Opportunities, and Challenges for Investors. The timing of this year's conference presents investors with the opportunity to assess how the U.S. presidential election will impact investing, with a special focus on health care and energy.

If you aren't with us in Charlottesville, fear not.  You can catch exclusive conference coverage on Bloomberg TV.

More details here.

Sandy Relief Progressing Smoothly, As NY Considers Storing Displaced Victims In Prison

Now, let's not over-dramatize.  It's not an active prison; it's an abandoned, non-functional prison.

Officials in New York are reportedly eyeing a recently-closed prison as temporary housing for people displaced by superstorm Sandy and this week's nor'easter.

The New York Post reports that state officials are considering the Arthur Kill Correctional Facility on Staten Island to feed and house as many as 900 victims with nowhere else to turn.

"Our facilities staff have to go through it to determine what it would take to get it up and running for such a purpose," Peter Cutler, a spokesman for the state Department of Corrections, told the newspaper. "Of course, the challenge is the fact that it was closed a year ago and all of the major infrastructure components, such as boilers and wastewater system, were deactivated."

Financial Markets React

Stocks are down sharply pre-open on the morning after the election, though that's partly due to a fresh batch of gloomy comments from Mario Draghi.

Some links of potential interest:

• Market Analysts React to Obama’s Election Win
• Obama Win Cheers Euro Markets
• Post-Election ‘Risk On’ Might Be Short Lived
• 'Now What?’ Wall Street and Washington’s Cliffdivers

Update:  Worst one-day sell-off in a year, led by defense, financial, industrials, and other sectors particularly sensitive to the fiscal cliff.

Election Prediction

After a week in the dark, the power finally came back on last night, just in time to soak in the election coverage.

For posterity, below is my official shot in the dark.

In short, we get to go to bed early.

Yes, the Keystone Temptress might once again prove elusive, but any Romney supporters worried about make-or-break Ohio should take a look at this accidental sneak preview.

Update:  Looks like that was dummy data.  Bound to be lots of head fakes like that today.  In the mean time, here's another (not yet debunked) glimpse at Ohio early voting trends that tell a similar story.

Update:  Good Lord.