Wednesday, January 16, 2008


Reports say that DAL and UAUA are in "serious merger talks". DAL has said they are talking to both NWA and UAUA. They are saying to the one that we will merge with the other unless you offer the better deal. A merger of UAUA and DAL would reduce AMR to an also ran. AMR and UAUA are still fighting labor unions that hope to recapture the kind of wages that were available in the old days, the days of regulated oligopoly. In a free market, wages must approach their economic value. The airline market is not a totally free market but it is no where near the regulated oligopoly of days gone by. CAL has the best relationship with employees. This is a major advantage in the current environment.


This mornings CPI report shows that in the past year, energy went up by 17.1%, food went up by 4.9% and core inflation went up by 2.4%. Looking back tells us some things but it does not tell us the future. If the recent decline in the price of oil should hold or continue, then the price of energy will be down in 2008. Farmers who sold products at very high prices in 2007 will plant extra in 2008 so food prices will not increase in 2008 and could easily fall. Food and energy are often excluded from inflation reports because food and energy prices that go up one year are likely to fall the next. Even the core rate of 2.4% is likely to fall in the months ahead. Inflation is a lagging indicator. By the time inflation is extra high, the economy is likely to be slowing. That is where we are today, a slowing economy will bring down interest rates and inflation rates as the two trade together. Commodities such as oil also tends to trade with interest rates. Furthermore, even the core CPI does not capture the substitution effects that are bringing down cost. The cost of a cell phone call that saves a trip to a store is a tiny fraction of the cost to the trip to the store. The volume of cell phone calls, mouse clicks and other electronic communications that are replacing physical activities is growing by leaps and bounds and is expected to continue to grow in the months and years ahead. The INFORMATION REVOLUTION we are living through is increasing the wealth of the people just like what happened during the INDUSTRIAL REVOLUTION. INVEST, INVEST, INVEST in order to make millions off this wave of growth!


Romney was able to win in his home state of Michigan. This means that the three republican primaries have been won by three different candidates. History says that the republican that wins in Iowa and South Carolina will win the nomination. During the 2000 cycle, Bush won Iowa, McCain won New Hampshire and Michigan but when Bush won South Carolina the contest was over. Despite being tarred and feathered with misleading ads from the "old money crowd", Huckabee is in good shape to win in South Carolina. After McCain fought a tough fight with Romney in Michigan, it remains to be seen what resources he has to devote to South Carolina. According to Huckabee, he was outspent in Michigan by 50 to 1. In the meantime, Huck has been working the state of South Carolina hard. He has had to fend off misleading attacks by Thompson, which has hurt him by at least 4 poll points but South Carolina is still the brier patch for this Southern Baptist Preacher. Both former governors Beasley and Campbell are pulling for Huck. The Campbell family has been a part of the core of South Carolina politics for decades. They have a history of backing winners. The primary is this coming Saturday and unlike the last two contest, it is open only to registered republicans. McCain has a natural military base in South Carolina and Thompson is from the southern state of Tennessee but Thompson is likely to be an also ran at the end of this race. He must win or virtually tie to have reason and money to go forward. South Carolina is not a good state for Romney of Massachusetts so he is likely to devote his resources to winning Nevada.


The cat fight on the democratic side was starting to hurt Hillary and Obama. Obama now wins 66% of blacks in the polls versus 16% by Hillary and Hillary wins by a 2 to 1 margin among white voters. This split has the potential to be a deal breaker. It remains difficult to believe that republicans could win the support of a large number of blacks but it is possible that a lot of blacks could stay home. If Obama were to win, it is likely that some white democrats would switch their vote to republican while denying that the switch had anything to do with race.

Race will hopefully not be a big factor in the election but Huckabee's economic policies could certainly win the support of a lot of lower and lower middle class voters. The FairTax gives those willing to buy used cars and other used goods a huge tax savings. Pundits claim that populism never works out well but when was the last time that a politician actually had a plan to take government off the backs or the people as opposed to how many times they have said they would do the same. NO MORE IRS are welcome words to many a person who has paid dearly to have income tax forms filed. Did you know that 20% of the people who are eligible to itemize deductions do not do so because it is simply not worth the effort? Is there anyone alive who believes the current tax system is fair?


Passage of the FairTax would result in an huge economic boom for America. It is a fundamental law of economics that the more you tax something the less of you get. In the case of America, we tax the heck out of investments. We even double and triple tax investments. We force people into non productive pursuits and bureaucratic quagmires and we reduce the incentive to innovate. At the same time, we subsidize the multi-millionaires purchase of million dollar homes. What an upside down system? It is no wonder that the American people dislike congress so much!

The turn is here! Take advantage!