So import prices actually increased in the second quarter, which lends credence to the idea that the economy is doing better than folks think. And by the way, the bulk of those imports are being used for capital-goods investment, which is a good thing, not a bad one.
Smoothing out the quarterly ups and downs, the real economy is growing about 3 percent year-on-year, with the domestic economy rising by 3.7 percent. This is a tribute to the resilient and durable free-market system in America.
It’s a pity that Team Obama and the Democratic Congress had to waste nearly $1 trillion on ineffectual spending stimulus, temporary tax rebates, cash for clunkers, and temporary homeowner tax credits -- all of which have probably slowed recovery and prevented equilibrium in key sectors. And that’s not to speak of our huge and burdensome future debt.
Which brings me to the regime change coming in the midterm elections. That’s another bullish factor. As we speed toward November, the Republican party looks set to publish an agenda of limited spending, regulatory restraint, and low taxes, while momentum is gathering to at least temporarily extend the Bush tax cuts of 2003.
And lo and behold, President Obama and his economic team apparently are talking about additional tax cuts of one kind or another. I’m not holding my breath. They are likely to go for temporary and targeted tax relief, the most ineffectual kind there is. They should go Reagan, by reducing marginal tax rates across-the-board for personal, business, and investor incomes. That’s what they ought to do -- strengthen incentives to reignite risk-taking. But the Republican tide is rolling in so strong right now, we just might see Democrats turn to lower taxes.
All this is good for stocks. Using conservative earnings estimates, the S&P 500 looks to be valued at a historically low 11.5 times earnings. That comes to an 8.7 percent yield on shares, compared with only a 2.5 percent rate on 10-year Treasuries.
In other words, profits up, rates down, tax cuts may be coming. In the new political environment, year-end tax-selling by investors may no longer be necessary in 2010 to beat the Obama IRS in 2011.
Let’s have a little optimism for change.