Now that we got Bernanke and the uneventful Jackson Hole speech out of the way, what is next for these markets to hype up and respond to? Well, we know that Europe and its hoopla will be an ongoing fiasco, and we know that weird and unexplainable events like Buffett dropping $5B on Bank of America will happen, but the one thing we can nail down in the near term is the Obama Jobs speech after the Labor Day holiday.
So lets break it down as to what we can expect…
- Don’t expect a stimulus package – it simply isn’t going to happen. He doesn’t have the firepower any more to pull off such a move. Not after what we saw earlier this month with the Debt Ceiling Crisis. So a massive stimulus program that claims to create 2 million “Ready-Made” jobs just “ain’t happening”.
- What ever President Obama and his advisors come up with, has to have broad based support of Congress, particularly members of the Tea-Party. The last thing Obama wants at this point is another “debt-ceiling-like” debate that would drive his ratings lower, and make him look less in control of DC. So basically, he can’t stuff it with Pelosi’s pet-projects.
- Therefore it is going to take some of that dreaded “Compromise”. He can’t afford to have his jobs speech produce a bill that dies in the House this close to an election year and he knows that.
So what can he do….
- Tax breaks – not for corporate jet owners (as they call it) or tax breaks for the top 50% (sarcasm implied). Instead, he will announce corporate tax breaks…but with a caveat.
- I don’t know what kind of percentage tax break he’d be looking for, but I do know that whatever form it takes, he would tie it with companies making moves to create more jobs and within the US borders.
- This will help with the ‘revenue’ problem that Washington supposedly has (more like a spending problem in my opinion) by getting the huge sums of cash the large corporations have off of the sidelines and into individual paychecks. By granting the tax breaks, you make up the money on the back end through payroll taxes and more and fewer entitlement claims.
- He could also use the argument that the United States has the highest corporate tax rate in the world, and in order to keep companies like Oracle (ORCL), Cisco (CSCO), among others, from taking their show across the ocean, he’ll make it more affordable for them to do business in the United States.
- But he is also going to have to throw a bone to his base as well, and what you will see there is a closing of many corporate tax loop holes, that keep companies like GE from paying hardly any taxes at all. So that means we’ll see hedgefund managers no longer benefit from their plush 15% tax rate on their yearly gains, and companies will likely lose tax breaks like Inventory Property Sales, Breaks on interest earned from state and local bonds, deferred taxes for financial firms on income earned overseas, and the list goes on and on…
So if Obama can do something like I just outlined, he can greatly improve his chances of winning re-election (because they are pretty much non-existent at this point), move more towards the middle, and provide enough incentive to both parties to actually get this bill passed, all the while lowering the uemployment rate and increasing revenue into the U.S. Treasury.
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