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- THE FRIDAY LETTER -
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for friends and subscribers)
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| http://www.gilder.com/ | Issue 332.0/March 14,
2008
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HEADLINES:
- The Week / Ken Fisher: Crunch Mythology
- Friday Feature / Steve Forbes: Phony Problem
- Friday
Blogger Bonus / George Gilder: Cut Marginal Tax Rates
- Readings /
|
THE
12TH ANNUAL GILDER/FORBES |
The Week / Crunch Mythology
Ken
Fisher, Forbes.com (3/14/08): If you believe the popular economic myths
of the day, you think there's a credit squeeze--less total credit available.
This is nonsense. There's indeed less credit available to poor risks,
individual and corporate. But that just means there's more for the good
borrowers. Blue-chip companies are flush with capital and borrowing power. This
is bullish, both for the economy and for stocks, especially stocks of big
companies.
Fact: The largest
firms have much more credit access in all forms than they did 12 months ago.
These are the very firms that can spend it the most and the fastest.
Fact: Total corporate
borrowing--that is, total U.S. corporate debt issuance--was higher in 2007 than
in 2006. In January 2008 U.S. corporate borrowing was $101 billion, up slightly
from the same month a year ago. The majority of this debt was of investment
grade, meaning that it was rated BBB or better; within this segment the
borrowings were up 12% from a year ago. Some credit crunch!
If there were a squeeze,
interest rates would be shooting up. They aren't. Over the past year the yield
on investment grade corporate bonds has gone down. At the superprime end, debt
rated AAA, the yield is down from 5.18% to 4.63%. Globally, there are only 14
corporate borrowers with that rating (among them ExxonMobil (XOM) and Novartis
(NVS)). But there are more than 350 A-rated or higher. Recently rates are down,
a little, on AA, A and BBB bonds, too.
A parallel myth is that
corporations have stopped doing takeovers and stock buybacks. Tell that to Microsoft
(MSFT). It's just that we've changed from a lot of small deals to fewer bigger
ones. By the fourth quarter "credit crunch" headlines were
ubiquitous, yet fourth-quarter 2007 announced takeovers were $478 billion, the
fourth-largest quarter ever. The volume was a $116 billion gain from the third
quarter. Share repurchase announcements in January totaled $59 billion, up 16%
from a year ago. That's a $700 billion annual rate. The prior four months were
also up--collectively, by 63.5%, to $276 billion ($828 billion annualized).
Where do we get all these
myths about crises and collapses? From pontificators. The sort of folks who
frequent Davos….
Read the complete column:
http://www.forbes.com/columnists/forbes/2008/0324/168.html
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DON’T MISS THE “PHOTONIC INTEGRATION”
PROGRAM ON MAY 29, AT TELECOSM 2008,
featuring George Gilder, EZchip CEO Eli Fruchter and NetLogic CEO Ron Jankov,
Cavium CEO Syed Ali, and to be determined members of the Sigma and RMI
executive teams.
Register
online today: www.TelecosmConference.com
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Friday Feature / Phony Problem
Steve
Forbes, Forbes.com (3/14/08): One reason the Fed is feeding inflation is
that it thinks it's grappling with a conundrum: Inflation is rising, and the
economy is weakening. How can our central bank stimulate the economy without
risking even more inflation? Rotten ideas never seem to die. The Fed's notion
that it must choose between economic growth and inflation is absolutely false.
Experience has repeatedly shown that there is no tradeoff between inflation and
a vigorous economy. We can have both excellent growth and a stable currency.
A couple of examples among many: The U.S. in the 1980s had the second-largest
economic expansion in its history, yet inflation plummeted from 13% to 3%. The
1990s had the largest, with a long, energetic period of growth and little
inflation. Switzerland repeatedly demonstrates that you can have the best of
both worlds.
The Fed finds itself with an
inflation crisis because of its own blunders, namely printing too much money in
2004--05 and again now. The Fed should mop up the excess liquidity--success
with this would see gold, the best measure of monetary excess, drop from
$900-plus an ounce to less than $500.
As for the credit crisis, the
problem is not a lack of liquidity but fear. And that fear is deepened by the
plunging dollar.
And instead of doling out
useless rebates, Congress should make the 2003 tax cuts permanent and slash the
business profits tax from 35% to 25% or less. That would get this economy
roaring ahead.
Alas, both the Fed and
Congress aren't capable, at least for now, of doing things so sensibly.
Read the complete COMMENTARY:
http://www.forbes.com/columnists/forbes/2008/0324/027.html
__________________________________________
Friday Blogger Bonus / Cut Marginal Tax Rates
Gilder Telecosm Member (3/4/08):
Cut the spending and the deficits will go away.
George Gilder, Gilder Telecosm Forum (3/4/08): No, cut the marginal tax rates more and the deficits
will go away.
Raise the rates enough and the deficit will grow even if spending is cut. Then
spending will have to be further retrenched, ultimately reaching the point
where the country will not be able to defend itself.
In general, around the world, the countries with low or declining tax rates
increase their government spending more than countries with high or rising tax
rates. That's because the low tax countries grow six times faster than the high
tax countries do.
What matters is not the deficit, but the rate of economic growth, which depends
on low tax rates, secure property rights, open trade, and stable money.
To read more of George Gilder’s posts
and those of the Gilder Telecosm Forum members, visit http://www.gildertech.com/ and become a Forum member today.
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The Gilder Telecosm Forum To learn how to join this powerful network of
talented, tech-savvy investors and thinkers online daily to debate, discuss,
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Readings /
Microsoft-Yahoo Merger Is About More Than
Just Battling Google
http://spectrum.ieee.org/mar08/6034
Markets Shake as Credit Fears Grow
http://online.wsj.com/article/SB120549061042736367.html?mod=hpp_us_whats_news
Nanovalves for Drug Delivery
http://www.technologyreview.com/Biotech/20406/
Google Acquires DoubleClick
http://www.technologyreview.com/blog/editors/22034/
The Best Tools for Virtualization
http://www.readwriteweb.com/archives/the_best_tools_for_visualization.php
__________________________________________
Friday Letter Editor: Mary Collins George / mcollins@gilder.com
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