Farm bankruptcies on the rise

There have been numerous stories on the rise in farm bankruptcies in 2018. Picking one from December 1, 2018 in the Lincoln Journal Star by Matt Olberdin called “As ag economy continues to struggle, farm bankruptcies rise,” through October, bankruptcies in a seven state region including and around Nebraska are up 45% compared to all of 2017.

Trade issues and low crop prices are two main issues driving down farm incomes. Coupled with rising interest rates and property taxes, and it is a tougher road for farmers. Per PBS Newshour, trade issues means tariffs getting in the way of the farmers’ markets.

These farmers use Chapter 12 bankruptcy that makes it easier to file and reorganize. This approach allows a higher debt limit as well. Per The Wall Street Journal, farm bankruptcy filings are the highest they have been in ten years.

As with the shutdown, real people are impacted by ill-conceived decisions by the President. Loyalty to a President becomes tough when you cannot feed your family and may lose your livelihood. With the tariffs blocking markets for the farmers’ products, the buyers must look elsewhere. These farmers will have to dump product or let it go to waste.

This is a key reason economist say trade wars cannot be won. More people lose than win on targeted tariffs. Yet, this does not seem to bother the man in the White House. That is troubling and sad for our country.

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The unraveling accelerates

The finance ministers of the G7 met in British Columbia last week and gave the US Secretary of the Treasury, Steve Mnuchin, an earful. They told him the US is forsaking its global economic leadership.

Not only are we treating our allies and trading partners poorly, the chaotic style of the US President has worn thin. Depending on which fractious voice is in favor on a given day, the President is routinely changing his mind. This quote from Hua Chunying, the Chinese Foreign Minister, which was reported by The New York Times, is telling:

“In international relations, every time you change your face and turn your back is another loss and squandering of your country’s credibility.”

In the same article, an anonymous European official noted the short-sighted nature of the President and his Commerce Secretary Wilbur Ross, who are looking for “photo opportunities at American steel factories.”

The official noted “European negotiators regard that stance as an unsophisticated, zero-sum view of trade, in which one country that sells more goods to its partner is the winner – an outlook that makes a trade deal difficult to achieve.”

There is a sadness in reading these words. Many have seen this retrenchment tactic as troubling. Conservative pundit David Brooks called the tariffs on allies as “ruinous” on PBS Newshour. On the same show, more liberal pundit Mark Shields called them “reckless.” Shields added that Trump has tended to not respect relationships and views the world as “me and the enemies.”

Zero-sum transactional thinking is a narrow minded view. In global trade, the deal must be fair to stand the test of time. Of course, any deal must be reevaluated over time, but it must be done out of mutual respect. In Trump’s view on anything, he must defeat the other. That is not conducive to building a relationship.

 

 

Thursday thumbnails

Thumbnail sketches is one of those terms that is often used without thinking about its source. Per Wikipedia, it was first used in the 17th century, but was more widely used in the 19th century as a small pictorial of an idea, the size of a thumbnail.  But, it is often used nowadays for a brief synopsis. So here are a few thumbnails of thuggish behavior on this Thursday.

In the Philippines, the iron thumb leader Duterte has released a list of 200 names of people who may be involved with drugs, including their addresses. This thug has just put targets on this people, so do not be surprised if we read of more deaths.

Speaking of thugs, it is not ironic that Vladimir Putin and Basher al Assad have stalled entry by the UN inspectors to the alleged chemical attack site. Why is that? The only rational explanation is they have something to hide.

Speaking of Duterte and Putin, why does the US President speak more highly of them than he does German Chancellor Angela Merkel? It may turn out he is more than beholden to Putin for his election, but why would a leader spend his cache on Duterte? As for Merkel, he may be jealous of her being looked to as a leader of the western world or it may be something superficial. His emulation of thug like behavior such as lying about most issues, condemning the media, attacking people who criticize him or to off-load his errors, squelching civil rights, etc. is not Presidential, but autocratic.

Finally, something that needs even more notoriety is the imposition of tariffs on allies and other trading partners by the US President. Tariffs usually backfire and throw water on global and specific economies. Yet, the bullying of allies is another key part. This President has introduced a huge amount of uncertainty and threats to businesses that must import certain products that are not made here. The uncertainty is showing up in the capital markets and watering down hoped for greater growth from the Tax Law change. His own party leaders have not been too keen on this path.

That is all for now. Have a great rest of your week and keep your eyes open,

 

A couple of tax truths get revealed

Long before the Tax Plan was passed in December, I have shared my concern about our runaway debt problem. So, I am none to thrilled by a Tax Plan that will make it worse. Yet, that is not my only concern. While I was all for some tax relief on corporations to encourage the repatriation of overseas earnings, Congress and the President went much too deep.

Their stated goal was to fuel even more growth in the economy which was already doing pretty well for a long time – over 8+ years of growth – which is now the second longest growth period in our history. In essence, we borrowed from our future to improve on something that was percolating at a pretty good clip.

Yet, while this was a stated goal, I said then and repeat now, that may have been oversold. My fear is by giving money to corporations with no requirement, they would likely use it to benefit their EPS using a fairly expedient approach – they would buy back shares from the open market. Companies that cannot figure out how to grow earnings, can easily reduce the outstanding shares in the denominator through buy backs. I learned many years ago, share buy backs are usually a sign of weakness. Companies do this to meet EPS targets to pay bonuses. Board members do not complain as they may be doing the same thing at their own companies.

But, don’t take my word for this concern. In an article in Reuters this week, “Republican U.S. Senator Marco Rubio, in a move that may undercut his party’s message about the recent tax overhaul ahead of the 2018 midterm elections, told the Economist magazine there is ‘no evidence whatsoever’ the law significantly helped American workers.

‘There is still a lot of thinking on the right that if big corporations are happy, they’re going to take the money they’re saving and reinvest it in American workers,’ Rubio said in the interview published Thursday.

In fact they bought back shares, a few gave out bonuses; there’s no evidence whatsoever that the money’s been massively poured back into the American worker.’”

Per an article in March by CNN Money reporter Matt Egan, “Buy backs have exploded in 2018 thanks to windfall from the Republican tax law. American companies including Wells Fargo (WFC) and Cisco (CSCO) have showered Wall Street with $214 billion of stock buy back announcements so far this year, according to research firm TrimTabs.

But critics argue Corporate America’s fascination with stock buy backs has come at a real cost to American workers. Instead of focusing on short-term rewards for shareholders, they say companies should make long-term investments by retraining workers, ramping up benefits and boosting wages.

Stock buybacks have been a prime mode of both concentrating income among the richest households and eroding middle-class employment opportunities,‘ said William Lazonick, a professor at the University of Massachusetts Lowell who has studied the impact of stock buybacks.”

In my view, it would not be surprising to see some additional growth in our economy, but it is projected to be much less than Congress and the President have touted. What is throwing even more water on projected growth is the President’s announced tariffs. This has thrown global markets in a state of disarray and companies do not like uncertainty. If they don’t know if terms will be favorable, they will choose more cautious roads which lead to less but more predictable profits.

This uncertainty is already showing up in the capital markets. What frightens me is we sold our future with more debt while not even addressing the existing debt. And, for what purpose is to be determined.