U.S. corporate profits remain a bright spot in the economy. P/E multiples are low.
But, the plop you heard on the stock market last week was the end of any hope for a market recovery before the election. The GDP forecasts for Q2 and the rest of 2010 are worse than they were before last week. There is a slowdown in spending, labor, housing, manufacturing, confidence, small business sentiment and exports all of this began in June.
Here’s what’s coming down the road. Removal of the tax cuts on the wealthy. (higher rates and lower deductions). This runs counter to history. Obama knows this won’t reduce the deficit. He is considering changes in corporate tax rates. (we have one of the highest now). Tax increases are underway at the state and local level. Our per capita GDP relative to the world ex-U.S. has gone from 6 times in 1950 to 5.8 times in 1999 to 4.8times today.
Here’s a comparison of our unfunded entitlement obligations compared to other countries. Ours is $60 trillion dollars. France is $9 trillion, Germany is close to $10 trillion, the UK is $8 trillion, Italy is $6 trillion, the Netherlands is $3 trillion, and Spain is $2 trillion.
By 2020 the average EU country would need to raise its tax rate to 5.5% of national income to pay promised benefits. The U.S. could fund its shortfall by doubling the 15.3% payroll tax on employers and employees(forever).
Lights out for your kids and grand kids.
