Data Points from Nantucket Island

Much churn but no progress in US stocks until the budget impasse is settled. The gist of the conflict is that Obama administration wants tax increases AND spending cuts to accomplish deficit reductions. The Republican controlled House of Representatives wants no tax increase AND dramatically larger spending cuts. In essence, Democrats want the pain of deficit reduction to fall on the wealthy, while Republicans want the pain of deficit reduction to fall on the young, the elderly, the jobless and the uninsured. We don't generally think of ourselves as "socialists," but right now we're rooting for the Democratic package. Historically there's little evidence that reducing the tax burden on the wealthy increases employment, so we'd take a risk that increasing taxes on the wealthy (obviously our own clients) would have little negative impact on economic growth. Our bigger concern is the societal impact of not taking care of our own citizens.  

Theoretically, the 2008-9 recession ended two years ago. US GDP is at an all-time high of $13.44 trillion through Q1 2011, which exceeds the previous record of $13.340 trillion through Q4 2007. This output was achieved with 7 million fewer workers than 4 years ago, as businesses substitute automation and job outsourcing for employing Americans. Corporate profits are nearing the record high seen Q3 2006. If we as a society cannot figure how to get 8 million (the extra 1 million includes population growth) unemployed back to work, we risk permanent injury to our status as a world power.

Data points from Nantucket Island

Successful investment analysis requires examining thousands of data points/month from the macro (the US unemployment rate) to the micro (the operating margin of a specific company) to the anecdotal (personal observations of economic activity.) One our favorite anecdotal laboratories is Nantucket Island, 30 miles southeast of the Massachusetts coastline.

Read the entire commentary here.