Kent Engelke

Obama's August Surprise: Forgiving Mortgage Payments?

Sinking in the polls and facing the largest wave election since 1946 (a GOP gain of 55 House and 12 Senate seats, see Ashbrook.org), the Obama administration reportedly isn't waiting for October. Instead, as several sources report, the president is planning an August surprise and deal a "fairness card" (again, turning the language on its head); a Main Street bailout rather than a Wall Street bailout (which he engineered, though he blames it on Republicans). The reported plan is that Barack Obama will instruct Fannie Mae and Freddie Mac, which he the federal government now owns, to forgive up to 20 percent of underwater mortgage balances (see Liz Peek wowOwow's sheconomics blog). Forget redistribution of wealth and spreading the wealth around. Just outright order it to be given away. 

As usual with this misguided regime, there's a better idea. Writes Capitol Securities Management Chief Economic Strategist and Managing Director Kent Engelke in his daily Early Morning Commentary today:    

There are rumors that on or about August 17 the Administration will propose up to a 20% deduction of any Freddie Mac, Fannie Mae or FHA mortgages balances that are underwater. In my view this would cause a political firestorm on both sides of the political aisle.

Instead of taking this radical step, I propose the doubling or tripling of the mortgage interest deduction for all home owners for the next two years. Yes this change would create a revenue shortfall but it will increase the monies in consumer’s pockets which should in turn increase housing prices and stimulate economic demand.

Engelke notes that such tax credits have worked in stemming, or even turning around, previous bubble-caused crises. For example, about eight years ago, the Congress and president approved an "accelerated depreciation schedule for many capital expenditure items purchased between 2001 and 2003," which accelerated the recovery in the aftermath of the dotcom bubble. 

Something needs to be done — and fast. Families are hurting. Weekly unemployment claims jumped again today, even above an upward revision of last week's increase (CNNMoney.com)! Yet, the only answers — all devastatingly wrong — from Washington's liberal, left-wing leadership are more taxes, more borrowing and blowing it all on redistributionist themes. Remember when Nancy Pelosi said unemployment benefits create jobs? (See Neil Braithwaite at American Thinker.)  This new plan exceeds that.

Forget those who struggle and play by the rules and make their payments. Those who don't apparently will just get it for free, except that nothing is free. Instead, homeowners, already struggling, will have to pay twice.

Stat Of The Day: America's New Growth Industry

Time for our every-now-and-then-peek into the world of finance, fiscal policy and macroeconomics — and their affect on the body politic. The widely quoted Kent Engelke (see Wall Street Journal, CNBC, Dow Jones, etc.), the chief economics strategist and managing director of Richmond-based Capitol Securities Management, today wrote this in his daily morning commentary, regarding one of the causes of out-of-control government spending at all levels:

About twenty years ago government workers gained incredible power by being allowed to unionize demanding private sector pay while maintaining generous government benefits under the guise that such were required to attract top talent. Twenty years later I believe the pendulum has swung too far. As per the Bureau of Labor Statistics total employer compensation costs are $27.73 per hour in business and $39.81 in state and local government. Wow! Great pay, great benefits and a small probability of losing one’s job. Something is amiss.

Amiss, indeed. In fact, while the private sector is losing jobs, the public sector is adding jobs. Thank you, "stimulus" bill.) The only thing it is stimulating is the growth of government. Six of the wealthiest localities in the country now are those on the outskirts of Washington, D.C., including: Fairfax, Arlington, Stafford and Prince William counties, as well as the city of Alexandria (see Forbes). Not that this has gone unnoticed by the public at large. As Engelke writes, there is a political consequence to the Left's promiscuous unionization of what once was known as public service:

As all polls suggest, most have little regard for Congress reflected by 15% approval ratings. The President’s approval ratings are the lowest of any President at this time in any administration. The major reasons — (lack of)  jobs and out of control fiscal spending.

Lack of jobs, that is, except for those in government, America's new growth industry.

Looking For The Truth? Look At The Statistics: 1% Tax Increase Lowers GDP 2-3%

One of the most insightful and oft-quoted stock market analysts in the country is Virginia's very own Kent Engelke, chief economic strategist and managing director of Capitol Securities Management. His April 22 Early Morning Commentary quoted a profound statistic:

As per Bloomberg, next week the Treasury may sell an unprecedented $128 billion in notes which some believe might be the peak in issuance as the economy strengthens. At this juncture, primary dealers are estimating the Treasury will sell a record $2.4 trillion in debt in 2010 as compared to $2.11 trillion in 2009.

Regarding 2011, Treasury has stated the obvious that 2011 issuance will be based upon tax receipts and projected budget.

Will revenue and growth projections meet expectations? As written several times and as per the National Bureau of Economic Research, a tax increase of 1% of GDP lowers real GDP roughly 2% to 3%. In other words higher taxes lower GDP. Perhaps the only absolute is that taxes are going up next year.

Will revenue assumptions meet expectations, especially given that as per the IRS a record 47% of society will not pay federal taxes in 2009? Never have so few carried the burden of so many.

The NBER is a non-partisan, highly respected institution (it is the official arbiter of when recessions start and when they end). The highlighted statistic — not to mention the frightening aspect of Treasury debt — is something to heed: Raising taxes decreases economic activity, including job creation, tax generation (to reduce annual state and federal deficits and cumulative national debt), and, it reasons, access to health care.

So, exactly what has the Left done to us (against our collective will)? It has rammed through some of the largest tax increases in history through the health care bill, not to mention the plethora of other faults it encompasses. Is this ignorance? Demagoguery? Or just plain egalitarian socialism, where the playing field is leveled — so that everyone has horrible health care and chronically high unemployment? Maybe all of the above. 

Over the last couple of weeks, the Left has lied, impugned and tried to discredit the Tea Party movement (ironic since in the same breath they say it is an inconsequential and contrived flash in the pan). One of the lies is that the movement should "thank" President Obama for lowering taxes for 95 percent of Americans, which is Orwellian. Be that as it may, there is no disputing what is scheduled to happen in several months as the Bush tax cuts sunset as well as the onset of the new health care law taxes.

So, who's actually telling the truth and what will be the actual outcome for the economy? Hint: Statistics don't lie.  

Sure, He's Serious About Federal Spending

Per Friday's unemployment report, via Richmonder Kent Engelke, chief economic strategist and managing director of Capitol Securities Management, and one of the country's leading stock market commentators:

Regarding the establishment or nonfarm payroll survey, I believe a major reason why jobs declined by 20,000 instead of rising by the expected 15,000 were that state and local governments eliminated 41,000 workers. The federal government added 33,000 for a net loss of 8,000 jobs.

So, President Obama is serious about reducing federal spending? Can he pronounce "corpsman"?

Follow The Smart Money: Falling Obama Popularity And Political Rebuff Reflected In Stock Market Rise?

Kent Engelke is the chief economic strategist and managing director at Virginia-based Capitol Securities Management, and is one of the most quoted market experts in the country. His forecasts largely get it right. I get his daily Early Morning Commentary and today's had some compelling statistics that should alarm everyone. People, take heed. Using the stock market as the predictor it is, he asks why equities have experienced a rally of late. He posits a theory that investors think socialized medicine will not occur. He cites President Obama's own economic team's warnings of financial disaster if the deficit is not reduced substantially. (Of course, they always say that and spend and tax and print money anyway.)

But take this with more than a grain of salt:

The 2009 fiscal deficit was an astounding $1.4 trillion as spending increased from $3 trillion to $3.5 trillion while tax revenue fell from $2.5 trillion to $2.1 trillion. The debt is now at $12 trillion and is expected to grow by another $9 trillion over the next decade. [Dow Jones]

CBO is estimating spending on Medicaid and Medicare will grow over $700 billion over the next 10 years while health care legislation is conservatively estimated to add another $900 billion to the deficit. [Dow Jones]

But most alarming is this:

Incidentally and as per the Organization of Economic Corporation and Development today 42% of U.S. GDP is comprised of federal, state and local spending. Wow! We all know the efficiency of the government.

Mr. Engelke doesn't pontificate political often in his writings, so a letter devoted almost exclusively to our current situation is remarkable. He also notes that since the Obama administration, by general agreement (and even Saturday Night Live) "is steep in hype but low in accomplishments" and asks rhetorically whether the stock  market rally suggests "a backlash in government spending, perhaps even a reduction, because the President’s approval ratings are plummeting?"

According to the Rasmussen Report:

40% strongly disapprove of the president’s job performance. 27% strongly approve. Overall 47% approve of his actions while 53% disapprove, the second lowest ratings for this President. Fifty four percent oppose health care legislation while 42% approve it.

When a normally non-plussed and widely respected market strategist and economist goes to this length, something is up. The stock market often is an indicator of things not only financial, but societal, technological and political, among other trends. Looking at it strictly from a personal stock-holdings point of view doesn't paint the entire picture. You know what they say: Follow the money. Especially if it's smart money. Expect political changes shortly.