U.S. stock index futures were slightly higher on Monday
as the market looks to follow through further after Friday's rally.
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News For Thought
China and U.S. relationship "seriously disrupted," says China Foreign
Minister According to Reuters: "Chinese Foreign Minister Yang Jiechi
said on Sunday that relations with the United States had been "seriously
disrupted," after a rise in friction between the two big powers." The report
added: "Beijing and Washington have recently gone through a rough patch,
with quarrels in January and February over Chinese Internet censorship,
trade disputes, U.S. arms sales to Taiwan, and President Barack Obama's
meeting with the Dalai Lama, the exiled Tibetan leader. The United States "must
respect China's core interests" on Taiwan and Tibet, Yang added. "China
has always attached importance to its relationship with the United States."
France: Help Greece or Euro is "pointless." According to Reuters: France
did not offer financial aid to Greece during high level meetings over the weekend.
But, unlike Germany, France did offer aid if it becomes necessary, as in a "budget
meltdown." Germany offered moral support during its meetings last week. Greece
has been able to sell bonds at significantly higher interest rates than other
Eurozone countries of late and has stated that it won't be able to sustain those
interest rates forever.
Europe to consider creating its own IMF. According to Stratfor.com: "German
Finance Minister Wolfgang Schaeuble said Europe needs an entity similar to the
International Monetary Fund (IMF) to help in situations such as the Greek financial
crisis, AFP reported March 7. Schaeuble said he soon will be making proposals
for such an institution, which he said would help with internal stability in
the eurozone. He also said that the entity would not compete with the IMF but
that eurozone countries would prefer to deal with crises such as the one in Greece
internally, without IMF aid."
"Prodigious" borrowing lies ahead for U.S. Former President Bush may have
the last laugh on the current tax rates. According to The Washington Post, President
Obama's latest budget will add nearly $10 trillion to the national debt. The
effect of this addition to the already growing amount will be "borrowing at prodigious
rates, sending the national debt soaring to 90 percent of the economy by 2020,
the CBO said. Interest payments on the debt would also skyrocket by $800 billion
over the same period."
According to the report: "Obama's tax-cutting agenda is by far the biggest contributor
to those budget gaps, the CBO said. As part of his campaign pledge to protect
families making less than $250,000 a year from new taxes, the president is proposing
to prevent the alternative minimum tax from expanding to ensnare millions of
additional taxpayers. He also wants to make permanent a series of tax cuts enacted
during the Bush administration, which are scheduled to expire at the end of this
year."
O.K., that's news. Reread that last line. "He also wants to make permanent a
series of tax cuts enacted during the Bush administration, which are scheduled
to expire at the end of this year." What tax cuts are those? The current thinking
is interesting. There is no consensus on letting any of the Bush tax cuts expire
on schedule.
Here are the main points. Obama wants to let the tax cuts on those who make more
than $250,000 a year expire but not the tax cuts on those who make less than
$250,000. The problem is that the way the laws are currently written, some parts
of the code are applicable to both subsets of taxpayers.
According to The Hill.com: "No matter what passes the House, it is the Senate
where the fate of tax legislation is usually decided. Senate Finance Committee
Chairman Max Baucus (D-Mont.), a supporter of the 2001 tax cuts, said no decision
has been made on letting the upper brackets expire."
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Houses in Detroit are reportedly selling for as little as one
dollar, yet as we visited a casual restaurant in Mesquite, Texas this weekend,
it was wall to wall people, sitting at tables, sitting at the bar, and waiting
outside to get in. Which is the real American economy? And is it more complicated
than anyone has any idea of this time around?
Looking at the U.S. economy is like sharing the vision of a "girl with kaleidoscope
eyes." It's hard to make out what is real and what isn't. For example, according
to the U.K.'s Guardian: "One in five houses" in Detroit has been left empty "as
foreclosures mount and property prices drop by 80%." Indeed, some are raising
questions about the sanity of those who are paying as much as $100 to buy houses
in otherwise delapidated and nearly deserted neighborhoods in the Motor City.
According to the report: "You find these houses among boarded-up, burnt-out and
rotting buildings lining deserted streets, places where the population is shrinking
so fast entire blocks are being demolished to make way for urban farms." In fact,
for the incredulous, the report points out that while "Houses on sale for a few
dollars are something of an urban legend in the US on the back of the mortgage
crisis that drove millions of people from their homes," in the city of Detroit "it
is no myth" as "One in five houses now stand empty in the city that launched
the automobile age, forged America's middle-class and blessed the world with
Motown."
And the details are grizzly as "Detroit has been in decline for decades; its
falling population is now well below a million – half of its 1950 peak. But the
recent mortgage crisis and the fall of the big car makers into bankruptcy has
pushed the town into a realm unique among big cities in America."
And the details are even worse in the homes that are abandoned as a new line
of work has appeared, clearing foreclosed properties. According to one fellow
who now makes his living doing this kind of work, he does at least two of these
jobs per day "dragging clothes, boots and furniture out of the bedrooms and living
room, and dumping them in the front yard until a skip arrives."
To be sure, some desolate neighborhoods are being changed. One example is the
Old Redford part of Detroit where one resident John George has started a group
called Blight Busters. Mr. George and his group are "are pulling down housing
that cannot be saved and creating community gardens with fresh vegetables free
for anyone to pick." According to the Guardian "Blight Busters has torn down
more than 200 houses, including recently an entire block of abandoned housing
in Old Redford."
So that's in Detroit, where it's clear that the end of an era has come and gone
and something new, and yet intangible may be taking its place.
In Texas, things are much different. The recession hasn't quite taken hold in
the same way as it has in other places. That's not to say that pain hasn't been
felt, or that people haven't lost their jobs. Texas has had its share of foreclosures
as well, and it has its own home grown problems with the drug wars in the south
and the west.
But those who have read our "Tales of the road" segments throughout this year
are familiar with the fact that smaller towns with universities as a centerpiece,
such as Waco, and even larger cities, such as Austin, with the University of
Texas, have managed to fare a bit better than other places.
Still, it was a huge surprise when this scribe trucked the family to the Texas
Roadhouse (Nasdaq: TXRH) in Mesquite at 5:30 in the afternoon, and the place
was already packed with about thirty to forty people waiting outside and inside
at any one time to get a table. There isn't a Roadhouse in Dallas, so you have
to travel about 20 miles either north or east from the city proper to get to
one.
Full disclosure is called for here, this analyst (Dr. Duarte) owns shares in
Texas Roadhouse. And yes, he had ulterior motives for going, as he was going
to kick the proverbial tires of the place. But this article isn't so much about
Texas Roadhouse as it is about the difference between two cities in the same
country.
What makes no sense is why the difference between Detroit and Mesquite? Aside
from the fact that Detroit may not have a Texas Roadhouse, the subprime mortgage
crisis was spread throughout the U.S., even if some areas got hit harder than
others. According to the latest data (January) from RealtyTrac, there were 12,225
foreclosures in Texas. Mesquite had somewhere near 80 foreclosures according
to RealtyTrac. The city has a population of some 132,000 and is located on the
east side of the Dallas-Ft. Worth Metroplex.
By contrast, the same data from RealtyTrac for Detroit, a city of some 950,000
inhabitants, shows that in January 2010, there were 17,574 foreclosures. That's
more foreclosures than in the entire state of Texas during the same month. By
our calculation, if Mesquite would have had the same proportion of foreclosures
as Detroit in the month of January, the number of foreclosures would climb to
2402, or thirty-fold.
One source that we spoke to told us that the particular restaurant we visited
is just as busy every Friday and Saturday night, as are other restaurants in
the general vicinity including a couple of entrants from the Dallas Based kingpin
of casual dining Brinker International (NYSE: EAT), which is one of our rated
stocks currently. And while he didn't say it, we could tell he was amused by
the amazement registered by this city slicker when he picked up the phone.
What he also told us is that it's well recognized that in Mesquite, roughly about
one half of those who live it up are doing so because they are employed and can
afford it, while the rest are living off of credit cards that they will likely "max
out and default on."
Thus, the question is what went wrong in Detroit? And can the same sort of things
go wrong in Mesquite and other places where things don't seem to be so bad right
now?
Detroit was dependent on the auto industry, a heavily unionized sector of the
economy. Yet, if you're complaining about the amounts that the state of Michigan
received from the feds prior to the crash of 2007, you might be surprised. According
to the Citizens Research Council of Michigan, the state "ranked 44th of the 50
states in the per capita amount of federal funds that flowed to all Michigan
recipients, and 40th in the per capita amount of federal funds that flowed to
Michigan state and localgovernments."
If you break down the data, though, you can see that Michigan was ranked in the
top 30 for three years running in two categories, retirement and disability,
and other direct payments, according to the report (http://www.crcmich.org/PUBLICAT/2000s/2008/note200805.pdf).
Where Michigan fell short was in other categories, including grants, procurement
contracts, and federal salaries and wages. In other words, most of the federal
money that went to Michigan was in the form of social welfare or payments to
retirees, the disabled, and other similar categories.
According to the Legislative Budget Board,(http://www.lbb.state.tx.us/Federal_Funds/Watch_2008/Federal_Funds_051608.pdf)
of the $49.2 billion that Texas got from the federal government in 2008, 95.7% "are
for services provided through the Health and Human Services, Business and Economic
Development, and Education functions." That compares to the $76 billion that
Michigan received in 2006 according to the above report.
The population in Texas in 2007 was 23,904, 380. The population in Michigan in
the same year was 10,071,822. It doesn't take a whole lot to figure out that
Michigan got more money per capita than Texas. And although both of states received
money for social programs, Texas spent
Yet, the statistics remain murky as lots of federal money sloshed around both
states, although it's hard to figure why Michigan, who got more money than Texas
and has one half the total number of people could not make its funding work better.
Conclusion
Deep Throat told Bob Woodward to follow the money. And that's what we've tried
to do here. Unfortunately, all we got was a bit of a jumble, except for two facts
and an interesting story, which we'll bring up in the next few lines.
Michigan has a smaller population than Texas. Yet, Texas received less federal
money than Michigan, despite the fact that the president and the vice-president
of the U.S. were both from Texas during the period of time that we examined.
One thing is clear, federal money, to a great extent seems to be spent on social
programs. The question is whether Texas is better than Michigan at deciding which
programs to fund and how to divide the money.
Other questions include the prevalence of fraud in governments. Detroit's mayor,
Kwame Kilpatrick, was indicted in 2008 and eventually served for months in jail
after a sex scandal. According to The New York Times, there were other controversies
involved, as "Detroiters looked past talk of partying with exotic dancers, cronyism
and a red Lincoln Navigator leased for his family with taxpayers' money."
According to reports that surfaced in late February, Mr. Kilpatrick is now under
investigation by the FBI for allegedly taking hundreds of thousands of dollars
in bribes from Karl-Kado, a city contractor. Mr. Kado has been cooperating with
the FBI for several years and also implicated Mr. Kilpatrick's father in the
allegations, which pertain to Detroit's Cobo center.
To be sure, Mr. Kilpatrick is innocent until proven guilty. And Texas has had
its share of political scandals, although not anything of Detroit's magnitude
in several years, although several city council members in Dallas have had their
own set of fraud related issues come to light lately. Yet, there are some interesting
facts to be considered, as we have layed out in this rather broadly sketched
account.
What is evident, is that Mesquite Texas seems to be doing better than Detroit
in the current economy and that Texas seems to get a fair amount more bang for
its federal dollar than Michigan.
At the same time, it's hard to argue with the fact that while all that is going
on, the number of foreclosures in Detroit is larger than the number of foreclosures
in the whole state of Texas.
Interesting stuff to be sure, especially when the latest data from the Congressional
Budget Office projects that Mr. Obama's most recent budget proposal is likely
to add $9.7 trillion to the national debt. So it would be good to know where
all that money is going and how it's going to be used once it gets there.
The bottom line is that we're not picking on Detroit. That poor city deserves
better. Our point is that with all the money sloshing around, some places seem
to get a lot more of it in gross terms, while others seem to get better bang
for their buck than others.
For businessses and people looking for a place to live, and work, this is must
have information
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