Whitney Tilson writes an email, where he writes a brief commentary on his favorite articles of the week (usually). I do not agree with all of Tilson’s political views but he always has interesting things to say. This week he had some very interesting points so I am posting


Tilson’s point about Japan is spot on.

I agree with him about taxes on poor. The pundits never point out that the poor do pay FICA tax (~6.5%). It is totally untrue that 47% of Americans pay no taxes. The only people who pay no taxes are the ones who do not work at all or completely cheat the system.

No matter how poor someone is, if they are a 1099 they pay double, and pay a ~13% rate (no deductions allowed). I think people making minimum wage would have a really tough time paying federal and state taxes as well.  I think the medicaid,  and WIC systems are absolutely insane , and to a lesser extent section 8 and food stamps as well (at least in New York). I have ideas to reform these systems but that is not the focus here . I am pointing this out because I  have been accused by some readers of being a right-winger. This is totally false: I examine each issue extensively  before  reaching any conclusion. I could not care less what the Red or Blue team (as I like to call them) think about the issue. On some issues I am far to the left of President Obama, on other issues I am far to the right. Just a clarification for those readers who think I am an ideologue.

One last thing: A lot of people do not like Tilson because he is a very good marketer. They state that he is not a good investor. Tilson’s hedge fund is up 260% since 1999, versus 26% for the S&P….

But without further to do, below is Whitney’s email.


The best overview I’ve read about the current state of the world economy, which concludes:

Where does this leave us? The snapshot of data taken in August suggests that the leading economies are not yet in recession, but are clearly still weakening, especially in terms of consumer sentiment. It has become commonplace to hear economic forecasters talking of a 40 per cent risk of a double dip recession in the developed world. Econometric models of recession risk broadly agree with this assessment, and it is probably as good a judgment as any.

There are now clear signs that the tightening in both fiscal and monetary policy which was planned earlier in the year will be hurriedly reconsidered. Policy makers probably still have time to act. Whether they will act with sufficient force to restore growth to an acceptable level is another matter entirely.

2) Doug Kass also presents good data on why it’s not clear cut whether we’re in (or heading into) a recession – simply put: “The typical conditions that precede a recession are not in place.”

The Big Disconnect
11:08 a.m. EDT

  • ·         Here is the problem that is perplexing investors today.

The typical conditions that precede a recession are not in place:

  • ·         large private payroll drops in excess of 175k a month (adjusting for nonrecurrings, they are still averaging about 100k growth over last four months);
  • ·         an inverted yield curve (it is not inverted);
  • ·         acceleration in inflation (inflation is contained and so are expectations);
  • ·         an increase in real interest rates (anything but!);
  • ·         bloated inventories (low inventories to sales in place now);
  • ·         retreating retail sales (they are expanding;
  • ·         negative year-over-year leading economic indicators (advancing now);
  • ·         a drop in factory orders (also advancing) and;
  • ·         outsized durable spending relative to GDP (housing and autos remain in the crapper).

As it relates to job growth, initial jobs claims, corporate profit growth and capital spending all point to improving and better payroll growth than we saw today.

But what is happening is that the negative feedback loop that I have been writing about is taking a turn for the worse, and we don’t yet know its impact on business and consumer spending.

When we figure out the disconnect between data and sentiment, we’ll have a lot more clarity on what the markets will do.

3) A good article on the troubles facing Japan.  I am really puzzled the investors are freaking out about Italy and Spain, when Japan is much bigger ($5.5 trillion GDP, 58% larger than Italy ($2.1T) and Spain ($1.4T) combined), far more indebted, is running massively bigger deficits, has a more stagnant economy, and there’s no possibility of a bigger country like Germany to help it out.

As Japan’s fiscally conservative finance minister, Yoshihiko Noda long sounded the alarm on the nation’s ballooning government debt. It is more than twice the size of its $5 trillion economy — and rated more risky than that of Italy and Spain.

Now, after Mr. Noda was elected Japan’s prime minister this week in response to the nation’s natural and nuclear disasters, the question is whether he can administer his prescription: raise taxes while reining in spending.

“We will no longer spend wastefully as if we are pouring buckets of water into a sieve,” Mr. Noda declared in a speech on Monday just before Japan’s ruling Democratic Party elevated him to the top job.

But that political resolve could prove hard to sustain — and not simply because of the systemic weaknesses that have resulted in six prime ministers in the last five years.

This is a country that was already addicted to its public spending, even before the huge needs of the postquake reconstruction. The last time the Japanese government ran a budget surplus was in 1992, almost two decades ago. Tax income now covers less than half of Japan’s annual budget.

Mr. Noda’s call for fiscal restraint is timely, given the global context. Last month, the ratings agency Standard & Poor’s stripped the United States of its top credit ranking, saying political paralysis in Washington was making the country less creditworthy. In Europe, bond investors make daily sport of handicapping the relative risks of the debt loads shouldered by members of the euro monetary union.

“Sovereign risk is spreading to, and starting to engulf, large economies that were previously unaffected,” Hideo Kumao, chief economist at the Dai-ichi Life Research Institute, said in a recent research note.

For years, Japan has managed its gargantuan debt load, and bond buyers have been willing to lend the government money at some of the world’s lowest interest rates. But for various reasons — including that low tax rate and Japan’s aging, shrinking population — the borrowing binge is looking unsustainable.

On July 23, Moody’s Investors Service lowered Japan’s credit rating by one notch, to a level two grades below the top rating, saying weak prospects for economic growth, as well as its recent disasters, made it difficult for the government to tackle its debt.

In the near term, though, Mr. Noda’s government has little choice but to spend on postquake reconstruction. The government estimates that losses could reach as much as 20 trillion yen ($260 billion) just for the natural disasters, excluding costs from the continuing nuclear crisis at Fukushima.

That means spending on a scale unprecedented even for Japan, whose decades of public works projects are a big reason that

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