A collection of today’s economic, market, political, geo-political, and human-interest news, thoughts, and analysis.

  •  In This Month’s edition:
  • Looking Toward the Second Half
  • The Trump Agenda
  • The Budget Dilemma
  • The Economic Assassination of the Land of Lincoln
  • How Maine Tamed the Medicare Beast
  • The Philadelphia Experiment
  • A Quick Look at Immigration
  • Random Thoughts

 Looking Toward the Second Half

July picked up where the first half left off as markets continue to squeeze out record highs…29 so far this year. We closed out the first half of the year with an uncommonly smooth ride in the equity and fixed income markets as investors remain optimistic. History suggests that years that start off like 2017 generally end without a major surprise or disappointment. In fact, we saw the second smallest peak to trough first half decline in the S&P 500 on record. The S&P 500 is up close to 10% this year including dividends and just under 20% in the trailing 12 months.

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When you see cartoons like the one above, it may be time to question the market’s sustainability

The maximum drawdown over the last 6 months never exceeded 2.8% which was the second smallest first-half drawdown in 89 years. This compares to an average first-half drawdown of 11.2% (source: Bespoke Investment Group / Barron’s).

The smooth ride into record territory has created heightened complacency. Consumer confidence is at uncomfortably high levels. Stocks and bonds are moving up together, corporate earnings are rising, inflation remains in check, and the Fed is still accommodative. Bob Doll sees this combination pushing the markets higher. Is this ‘Goldilocks’ economy that is creating a high return, low volatility ride too good to be true? Maybe yes and maybe no. How’s that for taking a stand?

Investors are now entering a period where they seem to have a false sense of security. Experts don’t want to spoil the party but more and more are warning that, at best, future gains have been front-loaded and that future growth will be muted. At the same time, we are staring into a Fed that desires to become less accommodative, the increasing risk that the economic cycle introduces a recession if for no other reason that it must at some point, and policy struggles in Washington are beginning to weigh on investor optimism.

Inflation expectations are diminishing even as the Fed raised rates again in June. The yield curve is flattening which tends to signal weaker growth. An outright inversion is a recession indicator. Volatility has disappeared. Recent economic data reports have been disappointing. These combinations are out of sync with current monetary policy. All this suggests additional market growth might be tough to come by.

However, Piper Jaffray’s chief market technician, Craig Johnson, is still bullish on the domestic markets recently raising his year-end target for the S&P 500 to 2,575 or up another 5% from current record levels. Morgan Stanley’s Chief Equity Strategist Michael Wilson…the most bullish among 20 strategists interviewed by Bloomberg News…predicts earnings growth will push the S&P up another 10% to 2,700 by yearend. Tony Dwyer of Canaccord Genuity sees the market roaring ahead. He says the market will correct but is a “terrific buy” at current levels and has a S&P 500 target of 2,720 by the end of 2018. The only concern he has is the risk of recession but says, “We are so not close to a recession.”

When all is well, is it time to sell? There is building consensus that troubling times lie ahead. Let’s visit a few with thoughts along these lines.

Boris Schlossberg of BK Asset Management can’t seem to find the economic data to support the continuous upward trend the market has created. “This market reminds me very much of the summer of 1987, when it was just a Teflon market, nothing could bring it down, and then ‘swoosh,’ it dropped in one fell swoop. I don’t think we’re going to have a crash, but I do think it’s flashing a lot of warning signs.”

Gluskin Sheff’s David Rosenberg is troubled by the divergence between falling bond yields and rising stock prices. “We all have to make up our minds as to which of these two asset classes has the right story.” Rosenberg follows the smart money which tends to bet on bonds. He sees the stock market as “the odd man out.” He went on to say, “…reminds me of the period in the fall of 2007 when the stock market was putting in a classic double top, and everybody thought that we were going to have the longest cycle on record.” At the time, we didn’t know why it would end, but it soon did end with explosive results.

To Rosenberg’s point, stocks, bonds, gold, and bitcoin have all surged this spring in the face of unimpressive economic growth. These asset classes are typically not highly correlated suggesting the existence of a significant disconnect. Higher valuations leave markets vulnerable to potential shocks while the Fed attempts to normalize interest rates without spooking the market…a delicate balancing act at best and one where the Fed rarely gets it right.

The VIX is in…well sort of. Usually, the markets do not respond well following periods when the VIX, Wall Street’s Fear Gauge that measures market volatility, remains at sustained lower levels. Investor confidence remains high with cash relative to stock market value at levels below either 2000 or 2007 (source: Ned Davis Research). So confident are investors that NYSE margin debt is double its 2000 peak when the Dot.Com Bubble burst. Think of it as the calm before the storm if you will. A similar tranquility is setting in around the world where volatility is near historic lows in both developed and emerging markets while debt is at record levels.

There has been a noticeable absence of significant daily declines for the last 18 months and not too many see an end to this complacency period. For only the 3rd time since the mid-1960s. we have gone over a year since the last 5% decline…18 months since the last 10% decline. Investing is about probabilities, and the higher we go, the probabilities continue to increase that we will see a significant decline.

We’re eight years into the 2nd longest bull market on record with late cycle red flags everywhere. Valuations are elevated, balance sheets are highly levered, household debt is back to 2008 levels, and the Fed is becoming increasingly less accommodative. Shiller’s P/E Ratio is at the third highest level in history. It was only higher in the late 1920s and 1999 and we know how those stories ended. Some might say that equities are priced for perfection.

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JPM Chase Chairman Jamie Dimon is afraid that the unwinding of the Fed balance sheet could be surprisingly disruptive saying, “We’ve never had QE like this before. We’ve never had unwinding like this before.” The Fed’s balance sheet holds $4.5 TRILLION…globally the Fed, European Central Banks, and the Bank of Japan hold a total of $14 TRILLION on their balance sheets. As central banks bought debt to shore up teetering economies they were effectively injecting newly created cash into the system. The unwinding process will effectively be pulling that cash back out of the system. He fears that we do not understand the risk associated with a policy shift of this magnitude, but “the tide is going out.” The era of low rates and stimulus-like liquidity is coming to an end.

Marc Faber “Dr. Doom” is considered a perennial bear and believes stocks could go higher before plummeting 40% or more. His often-dire predictions don’t enjoy an all-star-like batting average, but when he has been right, he has been really right. Renowned financial expert John Mauldin is convinced “that we will soon be in deep trouble. I now feel certain we will face a major financial crisis, if not this year, then by the end of 2018 at the latest.”  I guess he’s not afraid of taking a stand.

Former director of the OMB under Reagan, David Stockman, appears to be in Faber’s camp. He believes that the soap opera currently playing out inside the beltway is a huge distraction from the problems facing the economy. He sees the obsession surrounding Russia and Comey’s firing rendering the government dysfunctional and believes tax reform and infrastructure spending will be impossible in this environment. He says the S&P 500 could fall to 1600 or about 35% saying, “There is nothing rational about this market. It’s just a machine-trading-driven bubble that’s nearing some kind of all-time craziness, mania.”

Fixed income isn’t expected to perform at historic levels going forward either. Dennis Gartman is very cautious on Treasury debt, especially on the long end of the curve. In general, he believes we will continue to be in a modestly rising interest rate environment for the next couple of years which will keep bond prices in check. Short-term will be less impacted than long-term. He says, “…I honestly believe that the more-than-30-year decline in long-term rates has ended, and that it probably ended some time last year. I think we’re in for a long-term decline in bond prices and a long-term increase in rates.”

On equities, Gartman said, “…there will be a bear market in equities sometime in the next several years; I don’t know when it’s going to happen, but it will come.” On passive investments, he went on to say, “…history will repeat itself. It always does. The rush to passive has now become bubblelike in material. And bubbles almost always burst. And when they do, they burst quickly and they burst violently.” Asked what keeps him up at night, he replied, “The fact that we have taken equity prices to, I think, rather extreme price-to-earnings multiples, and we’ve taken margin numbers to historically high numbers.” He thinks investors should have 25%-33% of their portfolio in cash. “Cash will be king sometime in the not too distant future. I think the proper mix is 25-30% cash, 5-10% commodities, 5-10% gold, and the rest…an exposure to the equities market.” Or, as in our case, low risk equity surrogates.

Enter the royal forum of economic and market forecasters in the form of Barron’s Mid-Year Roundtable consisting of nine industry Grand Poohbahs of prognostication. The panel was asked to comment on stock’s continued march higher as bond yields drift lower and volatility has virtually disappeared. “Can this placid period last?” It turns out “most think the markets will soon get more interesting, and not in a pleasant way.” With markets continuing to stamp out all-time highs, “stocks have made their big move for the year, according to our nine investment experts, who see a bumpier road and modest advance, at best, through the end of 2017. After all, U.S. stocks are expensive, the economy is dullsville, and interest rates are about to rise.”

Let’s look at a few quotes from this elite panel:

Brian Rogers – Chairman T. Rowe Price

“…I was expecting stocks to post a mid-single-digit return for the full year, simply because valuations are stretched. We’ve had a really good year in five months. I’m a little surprised that corporate performance has been so good, given sluggish economic growth. (The Federal Reserve) is a little behind the curve, and the equity market is a little ahead of itself. To me that means we’ll see some moderation in the second half. Complacency is high and volatility is low, so we are set up for a more rugged market in the second half.”

William Priest – CEO & Co-CIO Epoch Investment Partners

“We expect the markets to struggle. P/E multiples are at the upper limits of what reason might suggest is merited, mainly because interest rates are more likely to be flat to rising in coming years. Flat or rising rates will limit multiple expansion, which accounted for two-thirds of the S&P 500’s 98% return in the last five years. We are looking for the market to post low-single-digit gains from here…”

Jeffrey Gundlach – CEO & CIO DoubleLine Capital

“Real GDP growth could stay around 2%. A recessionary move is more likely than a boom. In January, I predicted stocks would rise in the first half of the year, supported by a moderate drop in bond yields. That has happened. But the market is entering a seasonally weak period around now, and bond yields could have another leg up in the next few months. I don’t expect stocks globally to end the year higher than they are now. It is hard to keep this going without fundamental improvement. The U.S. isn’t cheap. Also, the rally has been narrow. Six or eight stocks account for much of the market’s advance. I favor non-U.S. stocks over U.S. stocks. Peel off part of your U.S. index fund and put the money into overseas markets. Don’t worry about week-to-week moves. Look ahead two years.” In a 6/13 CNBC piece, Gundlach said, “If you’re a trader or a speculator I think you should be raising cash today, literally today. If you’re an investor you can easily sit through a seasonally weak period.” He fully expects a summer correction.

Meryl Witmer – General Partner Eagle Capital Partners

“… (the stock market) could be flat or down for the rest of the year. I’m not big on macro calls, but this is a tough environment for finding undervalued securities. Interestingly, there is a lot less ETF ownership of international stocks, so we see value overseas.”

Scott Black – Founder & President Delphi Management

“The market is expensive at 18.8 times earnings. The historical norm is 16 times. The good news is that if this earnings forecast is right, earnings will rise by 21%, year over year. Corporations are doing better. According to FactSet, earnings rose 14% in the first quarter, the fastest growth rate in five or six years. Some earnings estimates for next year are around $146, which puts the market multiple at a more reasonable 16.6. But there are some underlying assumptions tied to President Donald Trump’s campaign talk that have stoked euphoria: Corporate and personal tax rates will fall. Onerous regulations will be reduced. U.S. companies will be able to repatriate $1.3 trillion of cash held overseas at favorable tax rates. We might finally have a domestic infrastructure program. A lot of the Trump agenda has been priced into the market. Corporate tax rates should be lowered, and it probably would be favorable to get a tax holiday on money overseas. But Trump could have a hard time getting his legislative agenda through Congress. The economy grew by an anemic 1.2% in the first quarter. Personal consumption was up 6/10ths of 1%, and federal spending was down 2%. The consensus puts gross domestic product growth at 3% for the current quarter, but full-year growth is stuck around 2%. That’s the new normal, which isn’t great.”

Oscar Schafer – Chairman Rivulet Capital

“Things look promising. The credit cycle is at a point that should support stock prices. Whether Trump’s plans to lower corporate tax rates or spur infrastructure spending get off the ground isn’t so important. The economy is doing well, and the market will continue to do well, although it will continue to be a stock picker’s market.”

Abby Joseph Cohen – Senior Investment Strategist Goldman Sachs

“The U.S. economy continues to perform well. It could grow by 2% or a little more this year. The unemployment rate has fallen to 4.3%. Corporate profit growth has been strong. Wages are starting to increase, which will help to sustain the economic expansion. Consumer spending is picking up, not just for staples but discretionary items, which is good news. The other thing that looks good is the picture outside the United States. Europe had been an area of underperformance, but European GDP growth is looking pretty solid this year at an estimated 1.5%, and some individual countries are doing better. There is no sign of recessionary pressure in Europe. The U.S. stock market is stuck in a trading range between 2300 and 2400 or so [on the Standard & Poor’s 500] that could persist for a while. The move up since the November election seems appropriate, given the strength of the economy and corporate profits. Mispricing is more prevalent in the fixed-income market than the equity market. The U.S. equity market seems valued about where it should be, based on fundamentals. However, the risks are asymmetrical, and mainly to the downside, chiefly because of concerns over domestic policy. One question is, what will investors be willing to pay for 2018 results? Normally when the economy is doing OK, that happens by early autumn. But now we have uncertainty related to government policy, which is creating an overhang.”

Felix Zulauf – President Zulauf Asset Management

“Although I am often labeled a bear, I predicted that the market would climb 10% into mid-year, and that is looking about right. Markets were helped by the political backdrop. The world economy is growing at a slow pace. There is hoopla about accelerating growth here and there, but I don’t believe it. The European economy will grow by 1% to 2%, and 2% is probably the trend in the United States. Technically, markets exhibit the signs we usually see going into a peak. My trend and momentum indicators are still bullish, but excesses are building up as stocks and sectors move too far above their moving averages. Investor-sentiment readings are getting excessive. July or August could bring an important peak in stocks. Today seems like late 1999. We haven’t seen the peak yet…there is a window of vulnerability in the markets. I’m not talking about a 5% setback. It could be 20% from August to November.”

Mario Gabelli – CIO Gabelli Funds

“…business isn’t being impaled any more by Washington. It is being praised. CEOs are coming to the table…Capitalism is back. The consumer is 70% of the U.S. economy. We are concerned about auto loans, which have climbed to about $1.2 trillion from $820 billion in ’07, and student loans, which are now $1.3 trillion, up from $410 billion. But I see the consumer improving at an accelerating rate. Jobs are being added, wages are going to rise, taxes are likely to fall, and a higher earned income tax credit could help. We’re looking for gross domestic product to grow by a little over 2.5% this year, and as much as 3% in 2018. One concern is that the money flowing into U.S. equities is being invested heavily in exchange-traded funds, and helping a narrow group of stocks that lead the market indexes. Also, many trading strategies are computer-driven. If stocks start selling off, there no longer are specialists to make a market. In addition, there is no uptick rule. Today’s market structure hasn’t been stress-tested.”

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Is it just me, or does it seem like Trump has been president for years. It’s only been about 7 months, but he has certainly received a full term’s worth of questionable distraction and opposition. The irrational behavior of many Republicans, the opposition party, and especially the media has only served to steel his supporters. Replacing Obamacare and real tax reform seems tentatively within reach but hopes are fading fast. The Republican controlled Congress appears unable to legislate and the president seems unable to lead the legislative process. The market continues to set records while teetering on a dangerously narrow ledge supported by the pillars of the Trump agenda:

  1. Healthcare Reform
  2. Tax Reform
  3. Deregulation
  4. Infrastructure Spending
  5. Enforcing Illegal Immigration Laws
  6. The Budget

The partisan divide making up government today coupled with a self-serving, me first approach exhibited by our elected leaders craftily camouflaged by rhetoric suggesting that they have our best interests in mind continues to blow my mind. The agenda driven media is a discredit to the term ‘Journalism’. Worse yet, the vast majority of the citizenry stands by compliant and disinterested. Rome is burning and EVERYONE is fiddling.

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A well-known conservative talk show personality recently put it well suggesting that Democrats have a killer instinct while the Republicans operate with a survivalist mentality. The Republicans have not held this much elective power at all levels since the 1920s, and yet they act as if they are paralyzed in fear of the media and are still the party out of power. They are not using their rare power advantage to advance their agenda. To borrow an oft use but slightly off color phrase in a world of political correctness, the GOP needs to grow a pair and stop rowing in opposite directions.

The markets could very well continue to venture higher if investors perceive progress on these political fronts. Take away any one, and the unyielding optimism will begin to wane. Take away three or four, and the market will likely throw a wealth destroying tantrum.

Time also plays a significant role and while we are still early into the Trump presidency, his time is limited. Like all presidents, he stands to be most productive during the first year of his term. The major agenda items need to be complete before the end of the year or legislative initiatives will go dormant as the nation turns to the mid-term election cycle. Not looking too good as this point.

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Trump was elected to be a change agent. His ability to do so will have a profound potential impact on the economy and financial markets not to mention his perceived effectiveness as a leader. Watching the sausage being made has thus far reminded me of the saying, “don’t let perfect be the enemy of good.” While the jury is still out, the Republicans risk being ineffective legislative change agents as they continue to fight amongst themselves on the major policy reform issues.

Outside of a record number of business friendly, regulatory cleansing executive orders and a wave of judicial appointments, Trump’s signature policies have been mired in the political swamp he promised to drain. While it is still far too soon to declare Trump’s first year a disappointment, the small but effective resistance movement fueled by a powerfully biased and oft unhinged media has successfully derailed, or at least delayed, policy making efforts through debilitating distraction. His detractors don’t care a wit about the merits of their claims but only whether they successfully create roadblocks to Trump’s attempt to fulfill the campaign promises that fueled his election.

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Trump has accomplished quite a bit if you’ve been paying attention. However, to understand this, your source of information must be something other than the mainstream media. His accomplishments are heavily overshadowed by his failure to gain much ground on two of his signature issues…healthcare and tax reform. Let’s look at what progress he has made.

  • He has signed over 40 bills passed in Congress…more than most presidents at this point in their first year. The majority have rolled back unfriendly business regulations imposed by previous administrations.
  • Through executive action, he has eliminated many job-killing regulations.
  • Has established a rule that for every new regulation going forward, two must be eliminated.
  • Successfully nominated and seated a Supreme Court justice.
  • The House has passed Healthcare reform as well as gutted the paralyzing Dodd-Frank financial reform law. Both now sit in the Senate awaiting its response.
  • He has re-established the U.S. as a force to be reckoned with around the world.

One of the biggest regulatory reversing promises Trump made, his campaign promise to repeal the 2010 Dodd-Frank Act appears to be losing traction. It seems doubtful that any reform or repeal will be voted on in the Senate as higher priority items like healthcare reform, tax reform, and the budget are mired in a legislative traffic jam.

The Act was supposed to reform the financial world coming out of the 2008 credit collapse to prevent any future similar event. It has been a monumental failure on all fronts. It has not achieved its stated objectives and only served to impose enormous costs on banks and the economy and create procedures that are impossible to meet for many institutions. Thousands of banks have closed, and no new banks have started.

From a market perspective, so far so good. However, the foundation of market values at these levels remain tenuous at best. No matter where you turn, one finds risks lurking in the shadows. Whether they be political, economic, or geo-political risks, it is hard to see significant continued uninterrupted growth. If your investment timeline is 30 years, don’t worry. However, if focus is ten years or less, pay attention.

 The Budget Dilemma – One Person’s Opinion

 As previously stated, the Democrats have less legislative power at all levels across the country than at any time since the 1920s, but you wouldn’t know it. Why do you think that is? I have a theory. As I see things, it all centers on the Media and the courts. The media gives the declining political party a powerful voice. Media’s foundation is far more expansive than only the news media. It also encompasses all forms of entertainment from cable/TV, theater, movies, music, and print media. Whatever cover the mainstream media can’t provide, the courts have stepped in offering a way for progressives to force through their agenda.

That’s a powerful triumvirate that keeps the growing Republican party pinned down and the center-right leaning country largely corralled.

The most recent CR (Continuing Resolution) that raises the debt ceiling with no limits in the current budget only shows us that it is still business as usual in Washington. Democrats should be elated. Anyone who is fiscally conservative, including yours truly, should be angry, frustrated, and very disappointed. As a nation, we must stop spending beyond our means. Without a foundation of fiscal and personal responsibility, our future as a nation is cloudy at best.

Fiscally conservative politicians run for cover every time the opposition starts accusing the mean spirited right of wanting to make draconian cuts in spending. For once and for all, everyone needs to understand that the Republican budget does not cut current spending in the most hyped areas. It merely reduces the rate of future spending growth and attempts to set forth policy measures that have a high probability of being able to pay for those increases without worsening the debt burden that will menace many generations into the future.

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Baseline budgeting is a sure recipe for economic disaster. Under baseline budget, once a spending initiative or level is established through the legislative process, an automatic annual increase to this budget item is inexorably attached ensuring that all the inevitable inefficiencies, fraud, and waste that comes with government spending continues to be magnified over time. Amazingly, far too many budgetary line items continue to grow long after the underlying need has gone away. Like they say, nothing is more permanent than a temporary government program. This type of fiscal insanity will end badly…very badly…and almost no one will be spared. Look no further than the state of Illinois to find an example of where we might be headed as a nation.

 The Economic Assassination of The Land of Lincoln

The beauty of our nation’s governmental structure can be found in the foundation consisting of individual states combining to frame the backbone of our federal republic. Like our federal governmental structure, each state has three branches of government consisting of the executive, legislative, and judicial branches.

Each state effectively serves as an individual think tank as they attempt to frame the optimal combination of laws and services to best serve the needs and demands of their population. The best of the best of those ideas eventually find themselves weaving into the structure of many other states while failing initiatives are rarely duplicated. These laboratories of legislative democracy are often ingenious as they attack problems and opportunities alike.

The power of 50 different incubation centers provides an endless source of ideas and policy options that the federal government can learn from while shaping federal policies that will impact the entire nation. This speaks loudly to allowing, as originally intended, most policy decisions to remain under the umbrella of state’s rights. This will place the evolutionary probabilities of achieving efficient legislation on the side of the people and not on career bureaucrats within a centralized governmental framework.

Not only can other states benefit from successful policy implementations found from state to state, but they also can learn from failures. This is where Illinois comes into this story. The fiscal as well as political health, or lack thereof, for the state of Illinois should serve as a dire warning to the other 49 as well as at the federal level.

Neither time or ink supplies allow for a full analysis of the state of this state, but were bankruptcy an option, it would be under serious consideration. By almost any measure, Illinois is effectively bankrupt. Illinois has essentially been run into the ground and will likely become the first state to ever have its credit rating downgraded to junk status. Only a recently imposed tax hike temporarily kept the ratings agencies at bay. Junk status would have a major impact making it more expensive to borrow money thus deepening the downward death spiral. The more Illinois pays in interest, the less funding there will be to pay overdue bills as well as for schools, roads, and social services…all of which they can’t pay for as it is.

Illinois is functionally bankrupt. Since states cannot go bankrupt, their only option is to default. That is exactly where Illinois finds itself. It is paying its bills with IOUs. Each time they do, the state is defaulting on a debt. The eventual final step in the death spiral finds the patient dying. All capital outlays seize up. Pensions stop being paid, salaries stop, and infrastructure projects fall dormant. That’s when things really start to get ugly. Illinois is running out of time, but they can make some painful choices that can eventually right the ship. I fear they won’t…history suggests they won’t…at least not on their own volition. Precedent suggests that they will raise taxes as a short-term fix, but that will eventually speed up the spiral down. They will continue to kick the can down the road until it falls into the abyss.

Illinois has a $15.1 billion-dollar backlog of unpaid bills which represents half of its entire annual operating budget and faces $130 billion in unfunded pension liabilities. If they can’t afford to pay their future bills and find it difficult and too expensive to float additional debt, how will they pay the past due IOUs. There is little doubt that to survive taxes will continue to go up, services will decline, and people will continue to leave. Oh my!

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Businesses are leaving and tax payers are exiting in droves reducing revenues and leaving the rest of us to shoulder the burden.

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After campaigning to reduce the state tax rate to 3%, Rauner accepted a four-year increase of the state income tax rate to 4.95% from the current 3.75%. In exchange, he wants a freeze on the second highest real estate taxes in the nation. Rauner is shouldering the burden of incompetent leadership of former Governors Blagojevich (in prison) and Quinn (inept). The real culprit has been the spending free for all that has occurred under the leadership of Illinois Speaker of the House Michael Madigan who has held that position for all but two of the last 34 years.

Across the nation, state and local governments owe an astounding $1 trillion to public employee pensions. They have consistently masked the problem by using unrealistic growth expectations and investment solutions that were either too risky or that made it impossible to achieve the assumed growth expectations. Illinois should take a lesson from Pennsylvania where Democratic Governor Tom Wolf signed a bill that will have new state employees enroll into a “hybrid” retirement plan that looks like the 401k defined contribution plan used by private businesses. The goal is to eliminate taxpayer risk for new hires. With a pension system as broke as Illinois’, Pennsylvania had to do something and did…unlike Illinois.

How Maine Tamed the Medicaid Beast

During the first decade of this century, Maine’s Medicaid program expanded at an alarming rate. Costs and enrollment doubled to the point that the state was unable to pay its hospital bills and provider reimbursement rates were continually slashed. The state’s finances were in crisis. Left in the ashes, costs for elderly and disabled care and facilities were left unaddressed.

Many other states are faced with a similar problem as Obamacare leaned heavily on opening the doors to Medicaid enrollment for many who previously would not qualify leaving the states on the hook. They have no choice but to reduce services and drastically cut payment rates to providers to balance their budgets.

A change in Maine’s leadership focused on introducing policies that not only restored fiscal discipline but also strengthened the state’s commitment to elderly and disabled care. Over the last five years, Medicare enrollment has been reduced by 24%. At the same time, Maine has reduced the increases in spending to 2% annually versus a 6% annual growth rate.

Nursing facility funding has increased by 40%, home care rates 60%, and added $100 million to support needs for people with intellectual and developmental disabilities. All this AND the uninsured rate has declined.

Governor Paul LePage has also overseen a reduction in taxes and stimulated job growth. Maine sports one of the lowest unemployment rates in the nation at 3.8%.

How was this accomplished you might ask? It all began in 2014 when able bodied adults were required to work, train, or volunteer on at least a part-time basis to continue receiving food stamps. Adults who refused to comply with the new requirements would cycle off after three months of benefits. This approach was expanded to other entitlements and voila.

Maine’s success should be an inspiration to all other states who face similar budgetary problems today.

The Philadelphia Experiment

In 2016, Philadelphia City Council passed a 1.5 cents per ounce tax on all soda including “non-100 percent fruit drinks, sports drinks, sweetened water, energy drinks; pre-sweetened coffee or tea; and nonalcoholic beverages intended to be mixed into an alcoholic drink.” This increased the price of a 12 ounce can of coke by $0.18 while a case jumped $4.32. This increased the total cost for a case of coke by approximately 50% or more depending on the location.

The impact of this tax creep initiative was an epic failure as drink sales are off as much as 45%. Grocery stores are reporting total revenues have declined as much as 15% since this tax was enacted. As reported by Bloomberg, the CEO of Brown’s Super Stores said, “In 30 years of business there’s never been a circumstance in which we have ever had a sales decline of any significant amount, I would describe the impact as nothing less than devastating.”

As a direct result of the beverage tax Pepsi recently announced the elimination of approximately 100 positions from its local workforce. As so with so many other taxes, they cost jobs and force prices higher. Pennsylvania based think tank The Commonwealth Foundation, condemned the tax saying, “Philadelphia’s mistake should serve as a stinging reminder that tax hikes – no matter how seemingly inconsequential or justifiable – can hurt many of the people who can least afford to pay.” Remember the old saying…if you want less of something, tax it.

A Quick Look at Immigration

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No problem or issue facing the new administration is more complex, emotional, and divisive than how to solve the nation’s immigration dilemma. Making matters worse is how the politicians insist on politicizing the issue and redefining it to suit their narrative. We are a nation of immigrants, and maybe it’s best to define reality as most Americans see the issue. Both those on both the left and the right believe in a robust immigration system. However, illegal immigration is a very real problem facing this nation. Despite their public persona, I believe that Democrats also have serious concerns about the problems associated with illegal immigration.

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The primary concerns for conservatives revolve around illegal immigration along with the economic, drug and terror risks associated with an open border philosophy. Progressive thinking would have you believe that conservatives want to end all immigration and deport upwards of 12 million undocumented immigrants. They also would like the rest of America to think that the temporary travel ban from 7 countries that breed terrorism is an attack on a religion. Of course, none of this is true.

Take a minute and look at the issue from a practical, common sense point of view. Economically we are having trouble serving our own. We simply cannot afford to take in the rest of the world and place them on the welfare rolls and have them flood our already overburdened systems not the least of which are our schools.

Crime statistics are overwhelmingly dominated by illegal aliens relative to their population. We are a nation of laws that are unfortunately selectively enforced, especially when it comes to immigration. Consider the following statistics offered by Congressman Jason Chaffetz who was chairman of the House Oversight and Government Reform Committee.

Over a three-year period (2013-2015), ICE released over 86,000 illegal aliens who had been convicted of crimes ranging from sex offenses, assault, burglary, robbery, DUI, homicide, and murder. They were released back into the general public instead of being deported as current law requires. These 86,000 illegal aliens were convicted of 231,000 crimes. 124 of these criminals were allowed to go free only to later commit a homicide. In 2015, 196 illegal immigrants were convicted of homicide and then released instead of being deported. In 2013, ICE released 36,007 convicted illegals of which 5,700 went to commit new crimes. The following year, 30,500 were released having committed 79,059 crimes, and 1,895 were charged with another crime following their release. The next year an additional 19,723 criminal aliens were released with a combined 64,197 convictions. This is appalling and the media buries the information.

Sanctuary Cities provide cover and tolerance for illegal immigrants…even those committing terrible crimes… in ways that would never be extended to American citizens. I try, but I just don’t get it. The practice defies common sense.

This isn’t the first time immigration became a serious issue for our nation to face. In fact, from 1924 to 1965, immigration to the United States was essentially suspended with few exceptions. Many reasons were cited and assumed, but the overriding reason was to allow the massive number of immigrants who came to this country over the previous three to four decades to properly assimilate into American culture, laws, and lifestyle. Unfortunately, no similar goal seems expected today.

In fact, many cultural and ethnic communities have formed across this country with the desire and expectation that their laws and customs take precedent over the laws and customs of our nation. Conflict is almost a foregone conclusion especially since religious practices and doctrine lie at the root of many of those foreign laws and customs as opposed to our nation where that is forbidden. The United States as survived nicely as a melting pot of ethnicities but will not if we become a melting pot of laws.

Trump is actually attempting to put an end to much of the illegal immigration problem instead of only paying lip service. Statistically, the rate of illegal immigrants flooding into our country has dropped massively. The number of illegals already in the country who commit crimes and are then deported continues to significantly increase. He wants to do more. Let’s see where that goes.

   Random Thoughts

My 15-year-old grandson is interning with us this summer doing simple spreadsheet tasks and other office grunt work. He quickly reminded us how much we take for granted. His only real experience with a communications device to date was using a smartphone. He participated in his first weekly call where all of us discuss the tasks for the week and what needs to be accomplished. He looked at the phone on the desk a strange curiosity. I gave him the call-in number to enter once he heard the dial tone. He quizzically looked up at me and asked, “Wait, what’s a dial tone?” Isn’t it funny how silly little things make you feel old?

Were they known, the extent of government misappropriation of funds would probably stun even the least cynical among us. The latest example was disclosed when Attorney General Jeff Sessions ordered an end to the Obama administration practice where proceeds from legal settlements were used to circumvent Congress’s constitutional spending power. When Republicans took control of the House after Obama’s first mid-term election, they began to cut special spending to liberal interest groups. It was then that the Obama justice department introduced the policy of forcing corporate defendants to allocate large amounts of assessed financial penalties to these same groups. For example, banks were forced to fund left-wing groups like Neighbor Works even though the group had nothing to do with the issue at hand. This practice has now ended.

 Russia, Russia, Russia: The hysteria surrounding the claims of Russia influencing our election results exemplifies why nothing gets done in Congress. Before the election with Hilary looking like she was in the driver’s seat, Obama and the rest of Democratic leadership went out of their way to dispel any concerns about Russian involvement. Once Trump secured his stunning victory, the media and Democrats quickly accused Trump and his people of collaborating with the Russians to sway the election outcome.

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The claims were absurd at the time and have been proven unfounded, yet they persist. The only purpose is to hinder the advancement of the Trump agenda.

Please enjoy the rest of your summer!



Bruce Anderson, Managing Partner: South Georgia Capital, LLC, 2135 City Gate Lane, SUITE 460, Naperville, IL 60563

630-447-2760    bwa@sgcim.com    www.sgcim.com

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