Monday Oct 09, 2006

Budget defit perspective

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Budget deficit perspective

by J. Christoph Amberger

For people supposedly concerned with the United States’ Twin Deficits, they sure were quick to fast-forward through the latest estimates for the fiscal year of 2006, which just ended 10 days ago.

The Congressional Budget Office estimated that the 2006 U.S. federal budget deficit fell to $250 billion in the fiscal year concluded September 30 -- well below the administration’s estimate of a $296 billion shortfall in July, and well below the CBO’s $260 billion estimate in August.

And substantially below the $400-plus billion deficit the White House sand baggers had projected at the onset of the fiscal year.

-- The usual suspects were quick to point out that the deficit, in absolute terms, “will be one of the largest in history.”

That may be so. Of course, U.S. GDP is also one of the largest in history. And after running up a budget deficit of 2.6% of GDP in 2005 and 3.6% of GDP in 2004, the 2006 budget deficit comes in at 1.9% of GDP.

This calls for some perspective: Japan has thought nothing of running budget deficits of over 7% in past years and considers current levels of just under 6% of GDP a major achievement. Germany, on whose economy the future of the EU and its single currency rests, had been unable to drop below 3% for years... and had to temporarily skew new debt-to-revenues ratios with revenues generated by selling government assets just barely below 3% for the current year.

The 2006 budget deficit also comes in substantially below the U.S. 40-year historical average -- which is 2.3% of GDP.

Projected overall receipts rose by $253 billion or 11.8% -- the second highest increase since 1981.

The largest source of government income, individual income taxes, increased by an estimated $122 billion, or 13.1%.

Unfortunately, Federal spending, too, increased by 9%, the biggest jump since 1990, mostly on education, agriculture as well as for the war on terrorism and homeland security.

-- If today’s spot gold prices were any indication, few investors are paying much attention to North Korea’s nuclear shenanigans. After rising a couple of bucks on Sunday in overseas trading, prices continued a sideways move below $580 an ounce.

If the U.S. markets are perceiving North Korea as a threat, they are not indicating it by converting fear into “traditional crisis Hedges.”

Which can mean two things: Either our Korean Dr. Strangelove is not considered a serious threat (a potentially lethal mistake!) or gold is no loner the crisis asset it used to be.

-- Meanwhile, OPEC is announcing substantial cuts in oil production to prop up high prices by curbing supplies.

But already, the specter of lower oil prices is shifting the tracks of countries whose political weight depends on this one asset. In Venezuela, even neo-com President Hugo Chavez is feeling a touch of headwind as tens of thousands of Venezuelans took to the street to condemn his neo-com checkbook diplomacy.

Chavez, however, still has enough petrodollars on hand to enjoy a clear lead in the polls, thanks to poor and working-class voters.

Earnings Announcements Tuesday, October 10, 2006

Emmis Communications, JB Hunt Transport Services Inc, Supervalu, Alcoa Inc, and Genentech Inc are releasing earnings.

Brought to you by http://www.AmericanCapitalist.net

Unlock Dates for October 2006
Wendy’s will distribute its remaining 82.75% stake in Tim Hortons Inc on September 29, 2006.  When these shares flood the market, look for THI to drop.  THI has a PE of 19 as compared to a company like McDonald’s, which trades with a PE of 16, is much cheaper, and has more growth.

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10/3/06 – Visicu Inc is unlocking 6 million shares.
10/3/06 – Castle Brands Inc is unlocking 3.5 million shares.
10/4/06 – Sealy Corporation is unlocking 28 million shares.
10/23/06 – Corel Corporation is unlocking 6.5 million shares.
10/31/06 – Delek US Holdings is unlocking 10 million shares.

Brought to you by http://www.vixtrader.com

Upgrades and Downgrades

Build-A-Bear Workshop upgraded by Susquehanna Financial from Neutral to Positive.
El Paso upgraded by Citigroup from Hold to Buy.

Macrovision upgraded by Piper Jaffray from Market Perform to Outperform.

Newmont Mining upgraded by Matrix Research from Hold to Buy.

Stamps.com upgraded by Matrix Research from Hold to Buy.

Aeropostale downgraded by Citigroup from Buy to Hold.

Allstate downgraded by Friedman Billings from Outperform to Market Perform.

American Eagle downgraded by Citigroup from Hold to Sell.

Ameritrade downgraded by Banc of America from Buy to Neutral.

Dollar Tree downgraded by Friedman Billings from Outperform to Market Perform.

Nike downgraded by Matrix Research from Strong Buy to Buy.

Brought to you by http://www.gressor.com

Quote of the Day:

“Rather than a winning message of economic growth, a strong defense and optimism for the future, Hastert has given us silence. And where’s his response to the House Democrats, who take every opportunity to speak up?

“House Democrats are weak on defense, frail on national security and opposed to anti-terrorist measures such as warrantless wiretaps, data-mining for al-Qaida phone calls, and the interrogation and detention of the enemy. Meanwhile, House Democrats want to raise taxes, unleash a government takeover of healthcare and de-fund the war on Iraq.

“Where’s the counterpunch from the Republican speaker?”

- Larry Kudlow, October 4, 2006

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