The recent scandal involving the IRS’s surveillance of political organizations has prompted the acting commissioner to resign. If this alarming event does not lead to a serious reconsideration of the IRS’s role, including restructuring the agency and considering a flat tax, then the possibility for change seems bleak. While such reforms may not happen soon, they are desperately needed. We must recognize that there are far simpler and more effective ways to manage tax collection, rather than allowing an extensive bureaucracy to operate with significantly unchecked power. If there is still doubt about the IRS being excessively large, overly authoritative, and governing a labyrinth of intricate tax regulations, then our likelihood of initiating substantial reforms to the US tax system—one that is in urgent need of attention—appears troublingly low.
Industrial production saw a sharper decline than anticipated last month, with a decrease of 0.5% in April. This drop exceeded economists’ forecasts and was notably greater than the modest growth projected by my econometric models. April turned out to be a challenging month for the industrial sector, marking the worst performance since last August. The manufacturing segment also struggled, contracting by 0.4%. This marks a second consecutive monthly decline for manufacturing, the first such occurrence since 2009.
Tomorrow’s housing starts report is expected to indicate a total of 1.013 million for April, based on The Capital Spectator’s average econometric forecast (seasonally adjusted annual rate). This reflects a slight decline from the previously reported figure of 1.036 million for March. Conversely, The Capital Spectator’s projection surpasses the estimates from several consensus forecasts based on economist surveys.
In Monday’s article, I discussed how passive investment strategies tend to yield average to above-average results when compared to a broader set of asset classes. This stirred some criticism, with detractors accusing me of selective data handling; one even suggested I was deliberately skewing numbers to create a favorable comparison between passive asset allocation and its actively managed counterpart. They questioned how a passive approach that encompasses a diverse range of assets could consistently perform so well. In reality, if the results were anything different, it would be surprising and almost impossible.
The upcoming report on April’s industrial production is anticipated to show a 0.2% increase, according to The Capital Spectator’s average econometric forecast (seasonally adjusted). This projected gain indicates a slight slowdown compared to the 0.4% rise seen in March. Furthermore, the Capital Spectator’s average estimate diverges from the consensus predictions of economists, which forecast a decline in industrial output.
When key economic indicators reflect weakness, anxiety tends to escalate. In the current climate, today’s retail sales report for April will likely incite fresh apprehensions from the usual critics. While they may prove correct this time, it remains premature to declare that the growth trend has derailed simply on the basis of a single data point.
Many investors grapple with high fees while receiving disappointing returns. There may be no guaranteed solutions for this challenge, but adopting a defensive approach through a broadly diversified portfolio across major asset classes, preferably via low-cost index funds, is a strong starting point. Though this strategy is not foolproof, historical data indicates it can yield reasonable results over time, especially when supplemented with periodic rebalancing. While gains may not be immediate, the odds often favor those employing this method over the long haul. This straightforward advice often frustrates the financial industry, as it sounds deceptively simple and incurs minimal costs. It’s challenging to monetize a strategy that requires little expertise or forecasting skills. Nevertheless, the outcomes speak volumes.
● Political Bubbles: Financial Crises and the Failure of American Democracy
By Nolan McCarty, Keith T. Poole & Howard Rosenthal
Excerpt via publisher, Princeton University Press
The term “political bubble” refers to a collection of policy biases that amplify market behaviors leading to financial crises. These bubbles tend to be procyclical—they exacerbate rather than counter risky actions. During financial upswings, when regulations ought to be tightened, the political bubble tends to relax them instead. Similarly, when investors should maintain higher capital reserves and minimize leverage, these bubbles foster the opposite behavior. They promote loose credit conditions even when monetary policy should be tightening.
A market-based analysis of US economic conditions indicates that the risk associated with the business cycle remains relatively low. The Macro-Markets Risk Index (MMRI) closed at 16.3% as of May 9—significantly above the danger threshold of 0% and comfortably nestled within the 10%-to-16% range observed thus far in 2013. When the MMRI dips below 0%, the risk of recession increases; conversely, readings above 0% signify economic growth.
The upcoming report on US retail sales for April is expected to indicate no change compared to the previous month, based on The Capital Spectator’s average econometric forecast. This aligns with a 0.4% decrease reported by the Census Bureau for March. Simultaneously, the Capital Spectator’s projection for April slightly exceeds the average consensus forecast derived from a recent survey of economists.
