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February 09, 2015

February 09, 2015

1.  Taxes, growth, and jobs.  The Federal government and the states are pulling in opposite directions on taxes.  President Obama’s 2016 budget seeks to help middle-class workers in the U.S. with higher taxes on many upper-income earners; but some states are moving to abolish income taxes altogether, and more are set to start down that path.  Their governors say straightforwardly that they are doing it to encourage more job-creators to locate themselves in their states.  We are watching both Federal and state tax policies carefully to see how they may incentivize or hinder capital formation and new business startups.  We are also watching to see if the U.S. learns the lessons that are playing out in Europe, where reform-minded economies like Germany are pulling ahead of Europe’s unreformed social democracies such as France and Italy.  Strengthing the economy with higher taxes is a losing proposition. France, Italy, and other high tax states have had difficulty creating growth.

2.  India to challenge China in Asia.  India’s Prime Minister, Narendra Modi, has made explicit his closer ties to the United States — not just in economic policy, but in geopolitics.  In a new memorandum on security, the U.S. and India pledged their desire to work together to ensure maritime security in the South China Sea — a region where an aggressive Chinese presence has become significant and potentially destabilizing over the past several years.  We welcome India’s participation in the U.S. “Asian pivot” and it is a good data point in evaluating the risk of future regional conflicts.
3.  QE is underway in Europe, and if history is a guide, European stocks will benefit as the Euro declines.  There are two factors still an overhang for Europe.
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