Investing Contrarian

ZERO HEDGE reports

Easily the most feared technical pattern in all of chartism (for the bullishly inclined) is the dreaded Hindenburg Omen. Those who know what it is, tend to have an atavistic reaction to its mere mention. Those who do not, can catch up on its implications courtesy of Wikipedia, but in a nutshell: “The Hindenburg Omen is a technical analysis that attempts to predict a forthcoming stock market crash. It is named after the Hindenburg disaster of May 6th 1937, during which the German zeppelin was destroyed in a sudden conflagration.” Granted, the Hindenburg Omen is not a guarantee of a crash, and the five criteria that must be met for a Hindenburg trigger typically need to reoccur within 36 days for reconfirmation. Yet the statistics are startling: “Looking back at historical data, the probability of a move greater than 5% to the downside after a confirmed Hindenburg Omen was 77%, and
usually takes place within the next forty-days.” The last Hindenburg Omen occurred during the lows of 2009. Today, we just had another (unconfirmed) Hindenburg Omen. It is time to batten down the hatches ” something big is coming.
As a reminder, the 5 criteria of the Omen are as follows:
Today, all five conditions were satisfied. June 2008 was another such reconfirmed event, and as Barron’s pointed out then, “there’s a 25% probability of a full-blown stock-market crash in the next 120 days. Caveat emptor.” Boy was the emptor caveating within 120 days (especially if said emptor was named Dick Fuld). Which brings us to the present: should the Omen be reconfirmed within 36 days, all bets are off.
h/t Teddy KGB

INVESTING CONTRARIAN
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The Hindenburg Omen Has Arrived
Tagged with: france, reminibi, reserve, YUAN

Huffington Post
A strange milestone was marked this week in the history of student loans. The total balance of all outstanding US student loans (given as $730 billion in DIY U, based on OMB estimates) is now estimated by Mark Kantrowitz of Finaid.org at more like $830 billion ” $605.6 billion in federally guaranteed student loans, which have interest rates fixed and in some cases interest subsidized by the government, and a further $167.8 billion in private student loans, with interest rates that hover around 18-20%. Furthermore, Kantrowitz says, $300 billion in federal student loan debts have been incurred in the last four years.
This means the total balance of student loans has just surpassed the total balance of credit card debt for the first time in history. Each makes up roughly a third of the money Americans owe, mortgages excluded.
The good news here is that at least since the credit crisis in 2008, credit card debt has been going down slightly. Americans are saving more and spending less.
The bad news, of course, is that student loan debt is much more severe than credit card debt, because it can’t be discharged in bankruptcy. That means your only “recourse” if you can’t manage your loans is default, and in the case of federal loans, that means being pursued until you die. The federal government can and will seize your tax refunds, Social Security and disability payments until your dying day.
From where I’m sitting, the buildup of the national student loan balance looks like a massive betrayal of trust. People have been told for decades that this is “good” debt. In fact it’s really, really bad debt. Increasingly, high unmanageable debt burdens are falling on those least prepared to deal with the stresses and costs of college: the so called “nontraditional” adult, working-class student who is more and more likely to attend for-profit colleges that cost an average of around $14,000. And 40% and higher of these students are defaulting. (The same students default on their loans at higher rates when they attend for-profits, even controlling for demographics.)
This is starting to look more and more like the mortgage bubble. What was first depicted as an exapansion of opportunity now starts to look like a massive scam perpetrated on the socially disadvantaged. The difference is that while the mortgage bubble was happening, homeownership in the US actually rose to an all-time high. Whereas while we were adding $300 billion to our national student loan tab, college attainment among young people actually fell.
Someone with experience in the for-profit college marketing business told me that the same online sales geniuses who used to work for mortgage brokers are now employed by for-profit colleges. Their business is the same: fill out the forms, get the money, consequences be damned. Will we stop them this time?
If you are moved to action, check out the good folks at Student Loan Justice , who advocate restoring bankruptcy protection for all student loans.
INVESTING CONTRARIAN
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Anya Kamenetz: $830 Billion in Student Loans: The New Mortgage Bubble
Tagged with: eur/dollar, unemployment

Huffington Post
After working in executive management for over ten years with a steadily increasing salary, Rick Stephens, 51, was laid off from his job in June 2008. Two years of steady unemployment later, he has sold his car, moved in with his 75-year-old father and blown through all his retirement savings to stay afloat.
“I pay my bills with what is left of the savings I accumulated by being frugal all my life, but I’m going through that pretty fast,” he said. “I have tapped my IRA, and the result of that is I will be heavily taxed on it next April. I honestly believe that there will be no recovery from this. If there is a recovery, it will be too late for me, as I will have exhausted my savings and my retirement that I had socked away by not living the high life.”
Stephens’ predicament is an increasingly common one. Aside from stagnant wages, soaring unemployment and plummeting home values, the major tragedy of this recession is the havoc it has wreaked on the retirement incomes of millions of Americans who have planned and saved their entire lives, only to watch that money drain out of their accounts much sooner than they anticipated.
Retirement statistics are grim. The percentage of American workers who said they have less than $10,000 in savings grew to 43 percent in 2010, according to a recent survey by the Employee Benefit Research Institute. Nearly a quarter of the workforce said they have postponed their planned retirement in the past year and a CareerBuilder.com survey reports that 61 percent of workers say they are now living paycheck to paycheck, as compared to 43 percent in 2007.
With rapidly dwindling savings and fewer opportunities for jobs than their younger counterparts, many older Americans are facing a very uncertain economic future.
“This is the undiscussed explosive bomb in all this, is all the pension benefits, all the 401(k) money that’s been drained out by workers trying to stay afloat until they find a job,” Rep. Jim McDermott (D-Wash.) told HuffPost. “There are a lot of people who, when this is over, are going to have nothing. They will have lost their house, they will have used all their pension money.”
Many Americans seem to be losing hope. Only 16 percent of respondents to the EBRI survey expressed confidence in their ability to retire comfortably, the second lowest point in the 20-year history of the survey.
Marguerite DiGaetano, 58, says she is confident that after two years of solid unemployment, despite having worked her whole life, she will never be able to retire.
“I think the person who invents the cubicle where you can discreetly hang your walker where it doesn’t trip anybody, that person will be very popular with the baby boomers,” she said. “Who’s gonna be able to retire at 65? That’s only seven years away. Not me. I’ll be working until I die.”
Arthur Delaney contributed to this report
INVESTING CONTRARIAN
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Dwindling Retirement Savings “˜Undiscussed Explosive Bomb’ Of Recession

Tagged with: china, YUAN

Huffington Post
A lot can turn on an active verb. Hamlet said, “To be or not to be ” that is the question.” The same applies to the new Dodd-Frank financial reform bill’s whistleblower provisions, signed by President Obama last week, which requires that any whistleblower providing “original information” leading to a penalty over $1 million “shall” receive between 10 and 30% of that collection.
For many companies, a world of hurt will soon turn on that single word, “shall,” unleashing a whirlwind of decentralized private enforcement for a public issue that’s taken even greater importance in the Obama administration and the Department of Justice’s Criminal Division ” the nexus of corruption, bribery, and terrorism.
The Foreign Corrupt Practices Act of 1977 (“FCPA”) was enacted to make it unlawful for certain classes of persons and entities to offer or provide money or anything of value to officials of foreign governments or foreign political parties with the intent to obtain or retain business.
This criminal statute, which permits jail time for its (often white collar) offenders, applies to all U.S. persons and certain foreign issuers of securities, as well as foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States. The new bill will empower the SEC to reward FCPA whistleblowers financially.
For anyone who remembers the movie Syrianawith George Clooney and Matt Damon, the FCPA is often associated with shady dealings and government contracts in far-away places. With the new financial reform law, however, acts in distant countries will haunt businessmen here at home. These new whistleblower “bounty” provisions mean that well-meaning employees (or even disgruntled employees with a bone to pick), are now incentivized to do well by doing good ” collecting monetary rewards from Uncle Sam, while helping put U.S. executives in prison for violations of the FCPA.
This is partly about foreign policy. President Obama’s foreign policy sees the roots of bellicosity in civil society, meaning that lawlessness abroad can become lawlessness exported. With the stroke of a pen, President Obama not only democratized the global fight against corruption, he created a new weapon against the sorts of cultures that breed violent extremism, whether in Afghanistan or Pakistan, India or Russia.
But foreign policy will be far from the minds of the most immediate beneficiaries of the new law. To be blunt, the word “shall” will open up a world of financial security for hundreds of potential new whistleblowers, rewarded for their candor and courage with potentially enormous payments. This is especially the case when you consider the penalties paid by companies for FCPA-related offenses. In 2010, BAE paid $400 million, and in 2008 Siemens settled a FCPA mater for a staggering $800 million. With settlements ” now mandatory ” likely to run the hundreds of millions, you don’t need to be a mathematician to know a 10 to 30% cut will provide a prove powerful incentive to cooperate with the government.
For these new bounty-hunters, just as much turns on the word “shall,” much will also turn on how the statute is translated into practice. Two major inflexion points will be: (1) the discretion exercised by the officials at the Securities & Exchange Commission, and (2) how whistleblowers can avoid the potentially adverse consequences of disclosing corruption.
Let’s take those in turn. As the Securities Docket blog reports, “It will be interesting to see how the SEC exercises its discretion here.”
We’ll say. The legislation gives the SEC complete discretion to determine the amount of the award. They’ll be considering factors such as the significance of the whistleblower’s information and the degree of assistance provided. In other words, the decision to blow the whistle is only the beginning.
This all means that whistleblowers will need to ensure that they are as helpful (substantively and process-wise) to the SEC as possible in order to receive the maximum award.
The second question is even more pressing for the whistleblower, considering the hundreds of millions of dollars in penalties that firms have paid for FCPA violations.
With these stakes, the most vulnerable actors in the new system will be ” no surprise here ” the whistleblowers themselves. To cite another movie, anyone who saw The Insider (where Russell Crowe plays a whistleblower employed by a tobacco company) remembers the world of fear that can envelop someone exposing corrupt practices.
Experience shows that whistleblowers can be put through challenging and even dangerous experiences as a result of their actions. A recent study by professors at the University of Chicago and University of Toronto found that 82% of named whistleblowers experienced harassment or altered responsibilities. Many said, “If I had to do it again, I wouldn’t.”
True, the new law requires protections against retaliation. A wrongfully discharged individual will be entitled to reinstatement, twice back pay, litigation costs, and reasonable attorneys’ fees.
With these stakes, however, it’s likely that whistleblowers will decide that the greatest insurance is anonymity. The law provides that whistleblowers can submit information anonymously, as long as they are represented by counsel (and, of course, disclose their identity prior to receiving the award).
In the manure of corruption, let a thousand flowers bloom. By allowing counsel to represent such whistleblowers, Obama’s financial reform bill will also empower a new generation of lawyers to do well by doing good ” helping fight corruption by helping whistleblowers bring these cases to light.
Michael Signer, a 2010 candidate for the Democratic nomination for Lieutenant Governor of Virginia, is managing principal of Madison Law & Policy Group PLLC, where he works on financial regulation matters. Mark Vlasic, a former prosecutor and head of operations of the World Bank’s Stolen Asset Recovery Initiative, works on international and anti-corruption matters as a partner at Ward & Ward PLLC.
INVESTING CONTRARIAN
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Mark V. Vlasic: The Next Financial Reform Floodgate

GERMAN biotechnology firm Qiagen hopes its revenue in China will nearly double this year with increasing demand for molecular testing.
The company, which provides sample and assay technologies for research institutions and pharmaceutical firms, has seen revenue increase more than 90 percent in China in the past year while that of the Asian Pacific region jumped about 40 percent.
Asia Pacific now contributes 15 percent of its global revenue, according to Victor Shi, president of Qiagen Asia Pacific.
The company has production bases in Shenzhen and Beijing.

INVESTING CONTRARIAN
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Qiagen optimistic

Tagged with: yields

ZERO HEDGE reports

The Rally Is EndingJuly 29, 2010By John R. Taylor, Jr., Chief Investment Officer
For FX Concepts, this is a big day and a very scary one as well. Because our market view is now very precise, but at odds with the accepted wisdom, we are putting ourselves out on a limb. The euro is going to be hit again and commodity currencies will come under increasing pressure. Our cyclical analysis argues that the currency markets are making a major reversal right now, today, and that this will be at least a medium term reversal in equities and credit as well. Although it is more likely that the equity and credit markets will not begin their major decline until the last week of August, the odds favor an unimpressive month ahead which means that we are at the end of the exciting part of the rally of the past two months. By the end of next month, equities will be headed lower, credit spreads will widen sharply, and government bonds will begin a rally to new all time highs. Our completely technical cyclical work implies that there will be a return to dark times in September and October, with a sharp decline driven by liquidity and solvency issues likely to set the world back on a recessionary course.
Although the cyclical picture gets more uncertain the farther out we go, we believe that there will be a major cyclical low in risk during January and another one, possibly more aggressive in the third quarter of 2011.
Using this cyclical analysis as our base, we can work backward to generate a set of fundamental conditions that would allow a cyclical picture like this to occur. If the S&P 500 is going to challenge its March 2009 lows in the next year, and interest rates are going to drop sharply while credit spreads widen dramatically, what would the US economy have to do and what would the world look like? Clearly the widespread conviction that the 2008 recession is in the rear view mirror and that growth will slowly improve in the years ahead is wrong. All the forecasts of the G-20 governments are completely off base, which means that the politicians are not prepared for another downturn. We wonder what the downturn will do to the Eurozone, the US, China, and Japan, as each one is vulnerable in a different way.

The financial underpinnings of the Eurozone do not look as though they can tolerate a recession in the coming year. The recent stress test has shown that an economic decline would be disastrous for the banks. Even though the test was easy, only marking down the small fraction of sovereign debt held in the trading accounts, among other things, many of the banks still had low tier one capital ratios. If even one Eurozone government finds itself unable to roll over their debt, the whole system will come tumbling down. Our cyclical picture means that we must be negative on the outlook for the euro, and the odds favor some significant euro restructuring during this next year. A recession in the US might imply a collapse in the municipal market as many states and lesser jurisdictions will find themselves forced into bankruptcy, but the banks and the major corporations are more liquid, and therefore stronger, than their counterparts in Europe. The more aggressive write-offs in the US and the coming municipal bankruptcies are accelerating the deleveraging of the US in comparison with that in Europe.
So, it is possible that the US will come out much stronger in the next few years. A slowdown in global trade similar to that in 2008 will hit the Far East countries, especially Japan and China. As the cyclical picture is projecting a decline similar to that of 2008, it is reasonable for us to assume that the credit markets will seize up as they did then and that the economies will follow roughly the same course. We will be carefully turning our positions in the direction of a stronger dollar and a stronger yen just like we did in 2008. We are bullish on government debt as well.
h/t Teddy KGB

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John Taylor Calls The Top: “The Rally Is Ending”

Tagged with: france

Huffington Post
Jørgen Vig Knudstorp is not a household name in America. And those few who may know him probably can’t pronounce his name. Or remember how to spell it. But there are millions of American children and parents who know the company he runs and use his products every day. Mr. Vig Knudstorp is the CEO of the Danish-based children’s company we know as LEGO.
As an educational “toy,” the value of the LEGO building blocks has been phenomenal. What the company, now more than 80-years-old, calls the LEGO system of play ” “learning through LEGO” ” considers young children as role models for our future and as creative problem-solvers. Their CEO is quite sincere when he says that what the company really cares about is inspiring the young people who will build our tomorrow.
Is this just more corporate happy talk? Hardly. The founding CEO of Google, Larry Page, has called LEGO the most important technology he has encountered: those little blocks taught him literally how to think digitally and algorithmically. LEGO is a company that is all about play ” about exploring the connections between creative play and learning, about approaching play as a catalyst for learning. The company is focused on the future ” not short-term, but long-term.
Over the last two years, I have had the pleasure of spending time with Mr. Vig Knudstorp on three continents: Europe, North America, and, last month, South America ” at an early education forum in Sao Paulo, Brazil. With support from the Bernard Van Leer Foundation in The Hague, the Committee for Economic Development, along with LEGO Education, United Way Brasil, Conselho Empresarial da America Latina, Todos Pela Educação, and Instituto para o Desenvolvimento do Investimento Social, co-sponsored a day-long forum for Brazilian business leaders about the important economic returns associated with public and private investments in early education. Our goal was to increase the number of Brazilian business leaders who support expanded investments in early childhood education.
After the conference ended, I spent part of the next day with Vig Knudstorp and a LEGO team visiting a school supported by the company in one of the more than 1,500 slums (“favelas”) found throughout Sao Paulo, a city with more than 19 million residents. LEGO Education has an approach called “Brick by Brick: The Brazil We Want” that is working with dozens of schools throughout the country to improve education. The school we visited is in “Heliopolis,” Sao Paulo’s second largest favela and home to some 120,000 people.
This trip was Vig Knudstorp’s first visit to Brazil ” but certainly not his last. LEGO’s commitment is tangible ” not just because of the LEGO blocks we saw the children playing with but also in the impact LEGO is having among these very poor children and their families. One could see hope, excitement, pride ” and, yes, creativity.
In one classroom, the students showed us an award they had won last year for a creative LEGO design. The award itself was a trophy made from LEGOs, and it rested on a LEGO stand. Two of the young children proudly presented it to the LEGO CEO. Vig Knudstorp reached into his pocket and took out his business card ” something unique among global CEOs, I suspect: his business card is a little LEGO figure of himself. (You can change his hair, if you like, and move his arms and legs. His name is on the front; his personal e-mail address is on the back. If you write to him, he’ll write you back.) He adjusted the arms on his “card” so that they were raised up, to the sky, and then he gently placed the little figure on the stand so that it was facing the award ” arms raised in celebration and joy at the children’s success. It was a moment with these children that was unforgettable.
In his remarks the previous day at the forum, Vig Knudstorp reflected on what his company’s efforts might mean to a broader, international business community. He made three points.
Are there lessons from this Dane and his extraordinary company for American business and its CEOs? There are many: about long-term investments in education and the workforce, about the values that animate a corporate environment, about encouraging creativity instead of “groupthink,” about building self-correcting mechanisms inside companies that don’t wait for the regulator to step in once the bubble has burst, and about creating a sense of purpose that goes beyond quarterly earnings reports and compensation. Corporate America right now has a terrible perception among the American public at large. The building blocks for turning around this situation are right there, before our eyes.
______________________________________________________________
Charles Kolb served in the first Bush White House from 1990-1992 and as General Counsel of United Way of America from 1992-1997. He is now President of the Committee for Economic Development in Washington, D.C. The views in this article are solely the author’s.
INVESTING CONTRARIAN
The rest is here:
Charles Kolb: The Building Blocks of Corporate Statesmanship
Tagged with: PIIGS, reminibi

Huffington Post
The world economy is entering a new phase after the failure of fiscal stimulus to create a sustained recovery in either the US or Europe. In the US, consumers have retrenched, housing starts have crashed and a double-dip recession is possible. In Europe, fiscal retrenchment is under way after intense market pressures. A new approach to recovery is needed.
The striking feature in the current debate about austerity and stimulus has been the lack of attention to investment. Consumers will not provide the engine of recovery, nor should they after overspending for a decade. Instead, the US and Europe should be using the recent corrective boost in saving rates to promote long-term investments in physical and human capital as the proper way back to sustained growth.
Despite the evident need for a rise in national saving after 2008, President Barack Obama tried to prolong the consumption binge by aggressively promoting home and car sales to already exhausted consumers, and by cutting taxes despite an unsustainable budget deficit. The approach has been hyper short term, driven by America’s two-year election cycle. It has stalled because US consumers are taking a longer-term view than the politicians.
By contrast, the administration’s interest in boosting investment has been haphazard. Mr Obama has shown a strange inability to articulate an operational and forward-looking policy framework in signature areas such as healthcare, energy, climate change, and long-term fiscal policy. At a time when China is building hundreds of miles of subway lines, tens of thousands of miles of highways, a couple of dozen nuclear power plants, and a network of tens of thousands of miles of high-speed intercity rail lines, the US struggles to launch a single substantial project. China saves and invests; the US talks, consumes, borrows, and talks some more.
It is wrong in this context to believe that the only choice is further fiscal stimulus versus a repeat of the Great Depression. Further short-term tax cuts or transfers on top of America’s $1,500bn budget deficit are unlikely to do much to boost demand, while they would greatly increase anxieties over future fiscal retrenchment. Households are hunkering down, and many will regard an added transfer payment as a temporary windfall that is best used to pay down debt, not boost spending.
Businesses, for their part, are distressed by the lack of direction. The US Chamber of Commerce was not simply lobbying when its director of government affairs recently declared to the Financial Times that: “When businesses try to plan out what their tax liabilities will be next year, or game out credit availability or the investment climate, they just don’t know what it will look like. Uncertainty is a real killer.”
A proper US investment recovery plan has five parts. The first is a significant boost in investments in clean energy and an upgraded national power grid. These should be promoted through guaranteed price subsidies to clean energy to be financed by gradually rising carbon taxes, as the clean energy capacity comes on line during the coming decade. The alternative cap and trade system is cumbersome, unnecessary and politically dead.
The second is a decade-long program of infrastructure renovation, with projects such as high-speed inter-city rail, water and waste treatment facilities and highway upgrading, co-financed by the federal government, local governments and private capital. Such projects are complex, requiring government leadership in land management, project design, public-private co-operation and partial subsidy or credit guarantees. New tools can help, such as a national infrastructure bank ” championed last year before plans were strangely downplayed.
The third component is more education spending at secondary, vocation and bachelor-degree levels, to recognize the reality that tens of millions of American workers lack the advanced skills needed to achieve full employment at the salaries that the workers expect. The unemployment crisis is largely a structural crisis of job skills. It is hitting young workers ” many of whom should still be learning ” and older workers who lack a degree.
The penultimate part of the plan is boosting infrastructure exports to Africa and other low-income countries. China is running circles around the US and Europe in promoting such exports of infrastructure. The costs are modest ” essentially just credit guarantees ” but the benefits are huge, in increased exports, support for African development and a boost in geopolitical goodwill and stability.
The fifth and final element should be a medium-term fiscal framework that will credibly reduce the federal budget deficit to sustainable levels within five years. This can be achieved partly by cutting defense spending by two percentage points of gross domestic product, meaning ending the Iraq and Afghanistan occupations and cutting wasteful weapons systems. Other measures should include gradually phasing out the tax subsidy on high-end health insurance, taxing Wall Street bank profits and bonuses, raising high-end marginal tax rates and, if necessary, introducing a small value added tax. Public investment costs could be financed mainly by public tolls, gradually rising carbon taxes and by repayments of international loans to finance the export of infrastructure.
The Obama administration and Republican opposition are both guilty of irresponsible short-termism and lack of forward-thinking. Both would dangerously prolong the budget deficit, the first through a combination of increased fiscal transfers and tax cuts, and the latter through even larger and more unsustainable tax cuts. Neither would do what America needs and China is doing better: investing for the future through serious attention to sustainable energy, cutting-edge infrastructure, enhanced labor-force skills and the promotion of international development through the export of infrastructure.
The author is director of The Earth Institute at Columbia University.
This article originally appeared in The Financial Times.
INVESTING CONTRARIAN
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Jeffrey Sachs: Sow the Seeds of Long-term Growth
Tagged with: precious metals, reserve, YUAN

Huffington Post
The world economy is entering a new phase after the failure of fiscal stimulus to create a sustained recovery in either the US or Europe. In the US, consumers have retrenched, housing starts have crashed and a double-dip recession is possible. In Europe, fiscal retrenchment is under way after intense market pressures. A new approach to recovery is needed.
The striking feature in the current debate about austerity and stimulus has been the lack of attention to investment. Consumers will not provide the engine of recovery, nor should they after overspending for a decade. Instead, the US and Europe should be using the recent corrective boost in saving rates to promote long-term investments in physical and human capital as the proper way back to sustained growth.
Despite the evident need for a rise in national saving after 2008, President Barack Obama tried to prolong the consumption binge by aggressively promoting home and car sales to already exhausted consumers, and by cutting taxes despite an unsustainable budget deficit. The approach has been hyper short term, driven by America’s two-year election cycle. It has stalled because US consumers are taking a longer-term view than the politicians.
By contrast, the administration’s interest in boosting investment has been haphazard. Mr Obama has shown a strange inability to articulate an operational and forward-looking policy framework in signature areas such as healthcare, energy, climate change, and long-term fiscal policy. At a time when China is building hundreds of miles of subway lines, tens of thousands of miles of highways, a couple of dozen nuclear power plants, and a network of tens of thousands of miles of high-speed intercity rail lines, the US struggles to launch a single substantial project. China saves and invests; the US talks, consumes, borrows, and talks some more.
It is wrong in this context to believe that the only choice is further fiscal stimulus versus a repeat of the Great Depression. Further short-term tax cuts or transfers on top of America’s $1,500bn budget deficit are unlikely to do much to boost demand, while they would greatly increase anxieties over future fiscal retrenchment. Households are hunkering down, and many will regard an added transfer payment as a temporary windfall that is best used to pay down debt, not boost spending.
Businesses, for their part, are distressed by the lack of direction. The US Chamber of Commerce was not simply lobbying when its director of government affairs recently declared to the Financial Times that: “When businesses try to plan out what their tax liabilities will be next year, or game out credit availability or the investment climate, they just don’t know what it will look like. Uncertainty is a real killer.”
A proper US investment recovery plan has five parts. The first is a significant boost in investments in clean energy and an upgraded national power grid. These should be promoted through guaranteed price subsidies to clean energy to be financed by gradually rising carbon taxes, as the clean energy capacity comes on line during the coming decade. The alternative cap and trade system is cumbersome, unnecessary and politically dead.
The second is a decade-long program of infrastructure renovation, with projects such as high-speed inter-city rail, water and waste treatment facilities and highway upgrading, co-financed by the federal government, local governments and private capital. Such projects are complex, requiring government leadership in land management, project design, public-private co-operation and partial subsidy or credit guarantees. New tools can help, such as a national infrastructure bank ” championed last year before plans were strangely downplayed.
The third component is more education spending at secondary, vocation and bachelor-degree levels, to recognize the reality that tens of millions of American workers lack the advanced skills needed to achieve full employment at the salaries that the workers expect. The unemployment crisis is largely a structural crisis of job skills. It is hitting young workers ” many of whom should still be learning ” and older workers who lack a degree.
The penultimate part of the plan is boosting infrastructure exports to Africa and other low-income countries. China is running circles around the US and Europe in promoting such exports of infrastructure. The costs are modest ” essentially just credit guarantees ” but the benefits are huge, in increased exports, support for African development and a boost in geopolitical goodwill and stability.
The fifth and final element should be a medium-term fiscal framework that will credibly reduce the federal budget deficit to sustainable levels within five years. This can be achieved partly by cutting defense spending by two percentage points of gross domestic product, meaning ending the Iraq and Afghanistan occupations and cutting wasteful weapons systems. Other measures should include gradually phasing out the tax subsidy on high-end health insurance, taxing Wall Street bank profits and bonuses, raising high-end marginal tax rates and, if necessary, introducing a small value added tax. Public investment costs could be financed mainly by public tolls, gradually rising carbon taxes and by repayments of international loans to finance the export of infrastructure.
The Obama administration and Republican opposition are both guilty of irresponsible short-termism and lack of forward-thinking. Both would dangerously prolong the budget deficit, the first through a combination of increased fiscal transfers and tax cuts, and the latter through even larger and more unsustainable tax cuts. Neither would do what America needs and China is doing better: investing for the future through serious attention to sustainable energy, cutting-edge infrastructure, enhanced labor-force skills and the promotion of international development through the export of infrastructure.
The author is director of The Earth Institute at Columbia University.
This article originally appeared in The Financial Times.
INVESTING CONTRARIAN
Read more:
Jeffrey Sachs: Sow the Seeds of Long-term Growth
Tagged with: precious metals, reserve, YUAN

IL&FS To Sell Stake For $400M – Infrastructure Leasing and Financial Services Ltd (IL&FS), the holding company for IL&FS group’s infrastructure investments, is close to signing a share sale agreement with investors to raise around $400 million (Rs1,892 crore) by selling an 8% stake. Some of the shares to be sold will come from employees, who will get more than a 10-fold return on the investment made in 2000. The firm will sell stake to two investors, including US financial services company Bay Capital. (Mint)
Dabur Closing In On Turkish Buy ” Dabur India is in advanced talks to buy Turkish personal care company Hobi Kozmetik in what will be its first overseas acquisition. Dabur may acquire Hobi Kozmetik for around Rs 300 crore. Hobi Kozmetik is a 35 year old company in Turkey and is one of the market leaders in baby and body care products with an estimated sales of around Rs 100 crore. (NDTV Profit)
DLF Brands To Sell Majority Stake – DLF, the country’s largest property developer, today announced plans to dilute majority stake in its wholly-owned retail management subsidiary, DLF Brands, probably to a promoter group company. DBL would issue the equity shares to a promoter group company or any other strategic investor. (Business Standard)
Ruias To Make Ssangyong Bid By Aug 10 ” The Ruia Group, which controls tyre makers Dunlop Ltd and Falcon Tyres, plans to bid for troubled South Korean automobile manufacturer Ssangyong Motor by August 10. Ssangyong Motor, which counts Barclays Bank among its top shareholders, has a market value of $409 million. (Reuters Via DNA)
FIIs Buy Stake In REI Agro – A clutch of leading foreign funds led by private equity fund Blackstone has picked up close to 15% in basmati exporter REI Agro for around Rs 300 crore. These funds bought? company’s rights shares renounced by the existing shareholders unwilling to subscribe. Apart from Blackstone, London-based hedge fund Moore Capital and Boston-headquartered Wellington Management have also invested. (Economic Times)

GE India CEO Joins PE Firm Lumis ” Scott R Bayman, the man who built GE’s business in India as its president and CEO for 14 years, has joined Lumis Capital ” a Delhi-based private equity fund set up by former GE alumni. The open-ended fund is focused on health care, education and supply chain and has invested around $50 million in a handful of companies. (ET)
Thermax Forms Power JVs ” Thermax, the energy and environment solutions major, has formed joint ventures with two global players to enter into the power sector. The first JV has been formed with Babcock & Wilcox (B&W) of the US for making supercritical boilers over 600-800 mw and for subcritical boilers above 300 mw. The second JV is with another US company SPX Energy Technologies to supply equipment and services to the Indian power sector. The company has also planned for a capex of Rs 500 crore for new plants. (Financial Express)
Banks Find Bharti Debt A Hard Sell ” Banks that syndicated a $7.5 billion loan to Bharti Airtel Ltd to fund its acquisition of the African business of the Zain Group are finding it difficult to sell the debt to other banks at a profit. The cost of the loan rose after rating agency Standard and Poor’s (S&P) downgraded Bharti Airtel’s long-term debt rating in June to BB+ from BBB-. (Mint)
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