High unemployment can be fixed today

There is nothing more frustrating to us (and many of you) than to continue to hear pundits say that we will have a sustained high level of unemployment for years to come. There are a number of ways to solve the unemployment problem – one of which is to lower corporate income taxes (we discussed the benefits of a lower corporate income tax extensively in The THOR Plan located at http://thorinvestment.com/thorplan.shtml ). The impact of a lower corporate income tax on unemployment is fast and measurable. One only needs to look at Germany as an example. Germany lowered its corporate income tax rate twice in recent history. Germany first lowered its corporate income tax rate from over 55% to below 40% in 1999-2000. In 2007, it lowered the rate to 30%. By lowering the corporate income tax rate, Germany became more competitive globally and jobs flooded into Germany. The unemployment rate in Germany was 9.05% in 1998 and dropped to 7.61% in 2001 (in the middle of a recession!). In 2006, the German unemployment rate was 9.8% and fell to 7.4% in 2008. At the end of 2009 it stood at 8%. The US unemployment rate stood at 10% at the end of 2009 compared to just 4.4% at the end of 2006.

The US should also consider going the way of Hungary – yes, we said “Hungary.” Hungary is cutting spending (including the salaries of many bureaucrats), slashing the income tax rate for small and medium-sized companies from 19% to 10% and has gone to a flat tax of 16% on personal income. This is a good response to spark economic growth. The US, unfortunately, has and is taking the wrong course of action.

We at THOR believe that there should have been stimulus to help the US economy back at the end of 2008. There is, however, good stimulus and bad stimulus. Good stimulus creates private jobs and encourages investing. Bad stimulus creates more government bureaucracy with higher paying jobs in the public sector than the private sector. The economy in Washington, DC is doing quite well – see http://www.politico.com/news/stories/0710/39851.html – but what about the rest of the country? Government needs to create an environment where individuals and companies are encouraged to make long-term capital investments, which in turn, will create jobs. We are not espousing a political point of view here, but, rather, an economic one. One only needs to listen to JFK’s words back in 1962 espousing his economic policies that helped create an economic boom in the 60’s – http://www.americanrhetoric.com/speeches/jfkeconomicclubaddress.html. In our opinion, JFK’s policies are the same policies that we should use today.

Sincerely,

Your THOR Team

The Tale of Two Cities

What are the two cities? The news of woe – a possible second dip in the economy – and the expected good corporate earnings reports. The media has been replete with negative news about the economy for the last two months. We stopped counting how many articles we had read about the coming “double dip recession”. These news items were part of the reason for the stock market correction in May and June. As to good corporate earnings – we have recently had meaningful conversations with numerous fund managers and continue to see a consistent theme. The information gleaned from these fund managers is that business is not as bad as the media is portraying it to be. In fact, many said that profits and earnings should be very good. In other words, what the media is saying and what is happening within the companies themselves are completely different. The tale of business is now surfacing with the first few companies (State Street Bank, Intel, Alcoa, etc.) releasing earnings well above estimates over the past week. This in turn is why the stock market is up over 6% so far in July.

Survey Results

We want to thank all our clients who responded to our survey earlier this month. The disparity between the news reports and what we are hearing from fund managers is why we wanted to see how the current business conditions are compared to March of 2009 and to two months ago. We wanted to see which “tale” is true. Whenever you sample a cross section of different industries, you do get a wide range of results. What is most important however, is what the majority of people are telling us. The survey results confirmed the good “tale” with no indication that we are falling into another recession (and definitely not like the one we just came through). Business is still reasonably better than it was back in March of 2009 and roughly about the same as it was two months ago. This indicated to us that the economy is not nearly as bad as the media is portraying it to be. This information, along with what we heard at a recent Morningstar conference, gives us more confidence that the downward move in the market in May and June was a simple correction and not the start of another recession.

Request: We know that our survey is just a snapshot that can change at anytime. If you do see a noticeable shift in your company’s business, either positive or negative, please let us know. These early signs can be very beneficial to us, and, in turn, your portfolio. Please email Jim at jgore@thorinvestment.com with any noticeable changes.

Sincerely,

Your THOR Team