Category Archives: joe the plumber

Economy: Are we there yet? Yes, we are. The Jim Cramer $25,000 Challenge

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Update:  Thursday saw a big DOW drop of about 300 where Friday was up a bit so I continue to think we are near the bottom unless we see some strong indications that the stimulus will fail.    I think traders are basically waiting for new details on the stimulus and economic plans and trading quickly as that information filters in.   I suppose the coming challenges with consumer debt may not be fully factored in yet but one would think they probably are and the new news will be along the lines of whether the stimulus is stimulating or not.     I understand consumer debt sits at 4.5 trillion as people lose their jobs and home values and thus ability to repay.   I am concerned that the stimulus is directed at bureaucracy rather than powerfully targeting lower and middle classes with massive jobs and debt relief and the upper class with innovation incentives, but I ain’t no economist.    Of course the economists don’t have much of a track record…either!

With the DOW up about 150 points today [Wed] at the close, and optimism flowing about how China’s Government will pump up their economy soon, it is very tempting to think the worst is now behind us. Tempting because it’s probably true, at least for the next several years. My view (as usual with the caveat that you are as likely to gain trading insights from me as from the worthless punditry on CNBC (Yes, I’m talking to YOU Jim Cramer and I’m happy to bet you $25,000 you can’t outperform me in stock picking over any future period you choose). Don’t get me wrong Jim – you are very *entertaining* and I’m sure a fun guy and I enjoy your ….BOOYA! Silly TV show.

I’m just saying that you just have no more insight into picking stocks than a deranged chimpanzee picking stocks by urinating on a copy of the Wall Street Journal. * * *

Pessimists and doomsayers are pointing to the great depression where the initial 1929 market dive was followed a few years later with the DOW all time low = 41, some 80% lower than the *day after the 1929 crash*. This model of market behavior suggests we are in for a lot more trouble, but I think conditions now are so different that we cannot use that history as much indication of what lies ahead. The most important difference in my view is that the Government now is much more prominent and economically powerful than it was in 1930s, and even more importantly our Government is about to inject more money into the system than at any time in human history – more money than anybody can reasonably imagine.

Despite the inane and irrelevant rantings of the Four buffoons of the Republican Apocalypse – Rush Limbaugh, Sarah Palin, Sean Hannity, and Joe the Plumber – the stimulus is very likely to at least have something of a positive short term effect on the economy, and the new role of Government as more of an economic babysitter than before is hardly sending us down some slippery socialistic slope from which we’ll never recover. In fact look for China to recover *first* from the recession for the very reason that when the going gets tough, China’s CapitalCommunist style economic system allows much faster and simpler implementation of the kinds of intervention that the Obama administration is struggling with now.

Thoughtful conservatives are suggesting there are likely better ways to stimulate the economy than pour hundreds of billions into state and federal government infrastructure projects and that’s certainly true, but we’re hearing very little about constructive alternatives to the contruction projects that will form the backbone of this initial stimulus.  Rather, Republicans are now so busy trying to tear down the stimulus and (absolutely moronically) blame Obama for the crisis as if his 40 days in power somehow trumps the past 8 years of fiscal mismanagement and massive government spending which itself was only a part of the current problems.    As I’ve noted before there is far too little attention on the single biggest group of culprits in the whole fiasco – everybody with a mortgage on their house who borrowed money, responsibly or not.   It was this flush of paper wealth and the lure of more that provided the fuel for the derivatives and banking excesses.     Many of us did not act irresponsibly or irrationally when we took advantage of the massive consumer lending boom with cheap and easy loans, but we also can’t claim that we have nothing to do with the problem just because we are not defaulting on the mortgages.    Sure I’m for punishing irresponsible people and businesses – that’s a major part of what keeps our system better than others –  but I also understand that I’m going to have to foot some of the bill for this mess even though I didn’t do anything wrong.

So, have we hit the bottom on the indexes?   I say *yes*.   We hit it yesterday and we now have more reasonable values for our fine American companies.    Will things soon bounce back to their former glory?    No way.  The recovery will be slow and I think slower than the optimistic numbers we heard from Obama’s team yesterday.    I’d guess it will take a decade or more before we see a DOW at 14000 again, with the caveat that we may see some spectacular, game changing innovation  (e.g. conscious computing, near-zero cost energy) that would change everything very fast, leaving our entire global economic infrastructure in the dust.   However I doubt we’ll see anything like that for many years.

*** Yes this is a real offer of a $25,000 wager subject to any legal restrictions that would restrict it. Money would be held by an escrow service of Jim Cramer’s choosing. Period would be picked by Jim Cramer. “Better performance” would be defined as a greater total return on the portfolio over the period without regard to fees or expenses.

Robert Rubin on Zakaria GPS

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Today on Zakaria GPS we have Robert Rubin, Citibank and Wall Street megamoneymeister and Clinton’s Secretary of the Treasury.

Rubin is always one of the most impressive observers of the economy, and distinguished as one of the few Secty’s of treasury who presided over a Federal balanced budget.  He articulates complexity well and also avoids the partisan nonsense that clouds these debates.  For example he was complimentary of Paulson’s efforts

Main point was that we need to do more to address mortgages at home and bank level to stabilize things and that he wanted a *huge* stimulous package – probably not in the form of tax rebates because they don’t tend to hit economy fast enough and are often saved.

Rubin is Obama’s economic advisor (along with Volker, Buffett, Summers).  Rubin was very complimentary of Obama’s style and intellect, pointing out that at the meetings Obama is always quick to divorce the campaign considerations from the economic solutions, and to listen to those who agree and disagree.

The bad news is that Rubin sounded like he was not willing to go back to Washington and take the position of Secretary of the Treasury again even though many (certainly I) would like to see him there again.

Debate about Joe the Plumber could not get any dumber

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Of Plumbers and Presidents

The inane stupidity of the “Joe the Plumber” discussion tells us a lot about how out of touch the campaigns and media are with America, and frankly how little most Americans seem to understand about small business taxes. After listening to CNN’s Lou Dobbs’ take on the situation and hearing McCain say he’s out to help the Joe the Plumbers (implying his tax plan would do more to help plumbers than Obama’s, which is false and almost certainly a campaign lie) I had to challenge the economically senile statements of these two rich guys and chime in with the truth.

My take is that neither left nor right wing seems to be making sense about all this. Joe the Plumber is relevant to the current debate because he is representative of some middle income Americans who make ballpark of 40-80k per year, would actually benefit in the short term from Obama’s tax plans, but don’t share Obama’s sensibilities about how to run country or the idea that even greater levels of deficit spending than McCain is proposing are a good idea.  It’s OK for Joe to be for McCain, but if he thinks that is to his tax advantage he is mistaken.

Here’s a better authority than me – Nobel economist Paul Krugman in NYT writing about the plumbing income issues.

So, with average plumbers making about 47k clearly he’s *currently* better off under Obama’s plan if taxes are what we are talking about. But what if he buys the business?

Details are not all that clear but it appears the business Joe wants to buy has 2 plumbers. Let’s assume they also employ one office person and one helper. Even assuming they can bill those plumbers at $100 per hour, the helpers at $50 and everybody works a full 2000 hours per year (this is very unrealistically high work hours for this type of biz – half this would be closer to normal). But even optimistically the biz probably pulls in about 500k per year.

Assuming that employee benefits and payroll taxes are about *half* the billed rate to the two plumbers employees we have 250k labor expense for workers. Add 30k for the office staff and another 50k for advertising, building, insurance, and more (it’s probably twice that, but I’m being very generous to McCain supporters here).

Revenues 500k – Expenses 330k = Taxable income 170k

So even if he buys the joint Joe the Plumber won’t be making 250k. Sure a few plumbing businesses with several workers might be making that, but the small business guys McCain claims he represents would likely be better off under Obama’s tax plans. Most are are mom and pops making far less than 250k.

Lou Dobbs and some McCain folks have *idiotically* asserted that a lot of *plumbers* make 250k. If you believe this there is only one word for you: Stupid. Plumbers rarely bill at over 100 per hour and there are 2000 hours in a year – do the math because even if they have zero expenses they don’t make 250k and those who think they do are really math and business savvy challenged (e.g. Lou Dobbs who has NO business talking business).

Average plumbing salaries in Ohio are under 50k per year – similar to what teachers, police, fireman make.

To me it is sort of pitiful how folks who will pay *more* under McCain are defending his tax plan because they just don’t understand business taxes. It’s fine for a plumber to support McCain but it’s misinformed to think Obama’s the big bad tax man for the middle class.

Joe is not a small business – in fact he’s not even a plumber. He was (probably wrongly) thinking that if he bought the plumbing place he worked for he’d have trouble paying Obama’s taxes, and Obama foolishly just assumed that was true.

Joe may want to vote for McCain if if NON TAX issues like abortion and gun rights are paramount to him and there are many other reasons Joe the Plumber might want to vote for McCain.

Taxes, however, are NOT one of those reasons.

Caveat: There are some capital gains tax issues that complicate a really good analysis of all the details here since they’d come into play much later and it’s not clear to me how either plan would treat sale of small businesses even assuming the plan was still in effect when they were sold.

Caveat 2: Taxes and prosperity are tricky. Some think that taxing the rich inhibits economic development to the degree it reduces *everybody’s* prosperity. e.g. if his job is lost Joe the Plumber makes nothing.