Michael Lipper: five topics you can't ignore
The veteran investor delves further into the Fiscal Cliff conundrum and explains why consumers aren't on strike but openly cautious.
by Michael Lipper on Dec 10, 2012 at 10:12
As I have stated numerous times in these posts, it is the job of a good analyst to explore impossible thoughts. Too much of the focus of the media and the politicians is on the immediate future.
Good analysts, particularly those like me who try to divine future secular trends, need to look to the furthest time horizons that are visible and to understand what might be beyond the horizon.
With these thoughts in mind, the following topics are presenting themselves for recognition, interpretation, and investment implications:
- The Bernanke-labeled “fiscal cliff” is an income statement problem not a balance sheet problem. We must all recognize that this is a multigenerational challenge.
- There is no consumer strike, just a lot of caution.
- Multinationals think globally as to where to store up cash and borrow money.
- Problem solving by attempts to change the laws and not behaviors is illogical.
- Two illuminating front page articles in the Sunday New York Times next to each other, “Clinton’s Countless Choices Hinge on One: 2016” and “Tax Arithmetic Shows Top Rate Is Just a Starter.”
Fiscal Cliff: Income statement vs. balance sheet
All of the current focus in Washington on the “fiscal cliff” is focused on changes to current tax rates vs. ten years of budgeted expenditures. This is governmental math.
We have never seen a balance sheet for the federal government and for that matter most governments. The expenditure for payrolls is treated the same as for buildings and equipment that may have some value after the money is spent, as distinct from payroll spending.
If the government was a business there would be charges to depreciation and amortization accounts.
Further the government does not recognize future liabilities, particularly contingent liabilities; e.g., replacement of existing facilities, impacts of changing health expense inflation, technological obsolescence.
To be fair we have not seen even a list, let alone a valuation of governmental buildings, lands, mineral rights, and what intrigues me the most, intellectual property.
Because of these assets I am not now worried that the US government will be forced to default on any of its loans. Nevertheless, I believe that its practice of being a slow payer will continue and accelerate.
Please bear in mind our possible forerunner in terms of debt repayments, Greece, is having difficulty in selling some of its assets, but at the right price the Greek government will trade.
I believe that the US has better quality assets and could raise substantial capital through sale or lease programs.
The rating agencies have threatened another round of credit rating chops if there is not a discernible political willingness to address the spread between US revenues and expenditures.
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