You’re going to love this. I came across a
recent story from The Wall Street Journal about how Uncle Sam
is now paying Americans to buy, of all things, golf carts. Yes, you too
can own that great necessity of modern life thanks to the federal tax
credit to buy high-mileage cars that was part of President Obama’s
stimulus plan.
Here’s an excerpt from the article:
The federal credit provides from $4,200 to
$5,500 for the purchase of an electric vehicle, and when it is
combined with similar incentive plans in many states the tax credits
can pay for nearly the entire cost of a golf cart. Even in states that
don't have their own tax rebate plans, the federal credit is generous
enough to pay for half or even two-thirds of the average sticker price
of a cart, which is typically in the range of $8,000 to $10,000. "The
purchase of some models could be absolutely free," Roger Gaddis of Ada
Electric Cars in Oklahoma said earlier this year. "Is that about the
coolest thing you've ever heard?"
The golf-cart boom has followed an IRS
ruling that golf carts qualify for the electric-car credit as long as
they are also road worthy. These qualifying golf carts are essentially
the same as normal golf carts save for adding some safety features,
such as side and rearview mirrors and three-point seat belts. They
typically can go 15 to 25 miles per hour.
In South Carolina, sales of these carts have
been soaring as dealerships alert customers to Uncle Sam's giveaway.
"The Golf Cart Man" in the Villages of Lady Lake, Florida is running a
banner online ad that declares: "GET A FREE GOLF CART. Or make $2,000
doing absolutely nothing!"
Golf Cart Man is referring to his offer in
which you can buy the cart for $8,000, get a $5,300 tax credit off
your 2009 income tax, lease it back for $100 a month for 27 months, at
which point Golf Cart Man will buy back the cart for $2,000. "This
means you own a free Golf Cart or made $2,000 cash doing absolutely
nothing!!!" You can't blame a guy for exploiting loopholes that
Congress offers.
The IRS has also ruled that there's no limit
to how many electric cars an individual can buy, so some enterprising
profiteers are stocking up on multiple carts while the federal credit
lasts, in order to resell them at a profit later. We should note that
some states, such as Oklahoma, have caught on to the giveaway and are
debating whether to cancel or limit their state credits. But in
Congress they're still on the driving range.
Remember, there’s no such thing as a free
lunch. When politicians dole out tax credits and other subsidies for
their pet projects (green or otherwise), you end up paying for them in
the form of higher taxes on other things -- like work and investment --
and a loss of purchasing power of your currency.
Now, let’s kick it over to our own Kevin
Brekke for a look behind the new GDP figures.
A Look Behind GDP
By Kevin Brekke
Yesterday the Bureau of Economic Analysis
(BEA) released the advance GDP numbers for 3Q09, and they showed the
economy grew at an estimated annual rate of 3.5%. But, like the saying
goes about drowning in a lake with an average depth of three feet, it’s
what lies beneath the surface that requires our attention. And so it is
with GDP announcements. I took a look at the full report and charts, and
here’s what they reveal:
-
Motor vehicle output added 1.66 percentage
points to the Q3 change in real GDP. The report concedes that the jump
in output is the result of the Cash for Clunkers program. For the
previous quarter, motor vehicle output added just 0.19 percentage
points to the second-quarter GDP change.
-
The change in non-farm inventories added
0.91 percentage points to the third-quarter change in real GDP, the
largest amount since 4Q05. This figure is way above the historical Q3
trend for inventory change, and reflects inventory replenishing after
the last three consecutive quarters saw hefty declines.
-
Personal consumption expenditures added 2.36
percentage points to the Q3 change in real GDP.
-
Personal consumption expenditures increased
3.4% from the prior quarter.
-
Personal income (wages and salaries)
declined slightly from the prior quarter.
The first two items above are one-offs and
will not likely be repeated next quarter. Just for fun, let’s see what
the number would have been without these extraordinary events. Reducing
the 3.5% advance GDP number by the approximately 1.47% artificial boost
from the Clunkers scheme (1.66% - 0.19%), and 0.66% for inventory
build-up (third-quarter trend is roughly 0.25%), gives us a rounded
figure of 1.4%.
But wait, the BEA shows in another impressive
chart that the average revision from the advance GDP (what was just
reported) to the final (what will be reported in two months) is ±1.3%.
So the “un-juiced” number we just calculated is almost within the margin
for error. One guess not subject to error is that 4Q09 GDP, unless
Washington rolls out some other spending-inducing programs, is almost
certain to be far lower.
The personal consumption figure indicates that
consumer spending accounted for 67% of GDP – down from the bubble years’
high of 70%, but still lofty nonetheless.
How are consumers maintaining their spending
in the face of high unemployment? Look at the last two items above:
Personal consumption climbed while personal income fell. The only way to
fill that gap is to borrow – more debt. Old habits do indeed seem hard
to kick.
So although the headlines are filled with glee
and government leaders are walking with a little more spring in their
step as they approach the dais to announce the corner has been turned,
we remain unconvinced. One suspect quarterly number does not a trend
make. We’ll continue with our finger on the pulse of all things economic
in
The Casey Report and keep our subscribers armed with
reality-based facts.
Chris again. Thanks Kevin, that’s good stuff.
If you want to read the whole report released by the BEA, please click
here.
Ron Paul vs. Michael Moore
If you missed Larry King’s recent interview of
Ron Paul responding to Michael Moore’s view of capitalism, you should
really take the time to check it out. It’s only 10 minutes long, and you
can watch it by clicking
here.
Investor Confidence Down
State Street Global Markets, the investment
research and trading arm of State Street Corporation (NYSE:STT), just
released its Investor Confidence Index for October 2009. The results
indicate that the big money is starting to turn bearish.
Here’s an excerpt from the release followed by
a chart of the index for the past year:
Global Investor Confidence fell by 10.0
points to 108.4 from a revised September level of 118.4. The most
pronounced decline was evident among North American investors, where
confidence fell 12.8 points from 113.9 to 101.1. European investor
confidence followed suit, declining 9.3 points from 111.1 to 101.8. By
contrast, Asian investors felt somewhat more upbeat about risk, and
there investor confidence rose from 92.9 to 95.3. A reading of 100 in
the Index represents a neutral level where institutions are neither
allocating towards nor away from risky assets.
Developed through State Street Global
Markets’ research partnership, State Street Associates, by Harvard
University professor Ken Froot and State Street Associates Director
Paul O’Connell, the State Street Investor Confidence Index
measures investor confidence on a quantitative basis by
analyzing the actual buying and selling patterns of institutional
investors. It is not a survey, but rather fact-based. The index is
based on a financial theory that assigns precise meaning to changes in
investor risk appetite. The more of their portfolio that institutional
investors are willing to devote to equities, the greater their risk
appetite or confidence.
“This month, institutional investors have
paused to take stock,” commented Froot. “The Global Index reading of
108.4 remains comfortably above the neutral level of 100 for a seventh
consecutive month, but underlying flows have been tempered somewhat
from the very strong levels of July and August. While the US earnings
season has been relatively robust so far, the number of positive
surprises that have been observed in employment, retail sales,
manufacturing and trade figures has diminished considerably, and this
may be influencing investor risk appetite.”
Friday Funnies
Dog Loves Waterslide
This particular pooch can’t get enough of the
waterslide.
http://www.youtube.com/watch?v=7xcD-FYaFxQ
Your Duck is Dead
A woman brought a very limp duck into a
veterinary surgeon.
As she laid her pet on the table, the vet
pulled out his stethoscope and listened to the bird’s chest.
After a moment or two, the vet shook his head
sadly and said, “I’m sorry, your duck, Cuddles, has passed away.”
The distressed woman wailed, “Are you sure?”
“Yes, I am sure. Your duck is dead,” replied
the vet.
“How can you be so sure?” she protested. “I
mean you haven’t done any testing on him or anything. He might just be
in a coma or something.”
The vet rolled his eyes, turned around, and
left the room.
He returned a few minutes later with a black
Labrador Retriever.
As the duck’s owner looked on in amazement,
the dog stood on his hind legs, put his front paws on the examination
table and sniffed the duck from top to bottom. He then looked up at the
vet with sad eyes and shook his head.
The vet patted the dog on the head and took it
out of the room.
A few minutes later he returned with a cat.
The cat jumped on the table and also delicately sniffed the bird from
head to foot. The cat sat back on its haunches, shook its head, meowed
softly, and strolled out of the room.
The vet looked at the woman and said, “I’m
sorry, but as I said, this is most definitely, 100% certifiably, a dead
duck.”
The vet turned to his computer terminal, hit a
few keys, and produced a bill, which he handed to the woman.
The duck’s owner, still in shock, took the
bill. “$150!” she cried, “$150 just to tell me my duck is dead!”
The vet shrugged, “I’m sorry. If you had just
taken my word for it, the bill would have been $20, but with the Lab
Report and the Cat Scan, it’s now $150.”
Happy Halloween
And that, dear reader, is that for today.
Please have a wonderful weekend. See you on Monday!
Chris Wood
Casey Research, LLC
