It was a difficult session for the market, but one group stood out in the middle of the session-railroads.
Midday, shares of Norfolk Southern (NSC) spiked along with all its rivals, including Canadian Pacific (CP), which is said to be considering making a bid for its American counterpart. This kind of scuttlebutt isn’t new, as the CEO of Canadian Pacific has made it clear that he’s on the prowl. Most recently, it was reported that CSX Corporation (CSX) rebuffed his offers.
“A railroad industry merger eventually has to happen for the benefit of the economy, but for now there are no takers.” -Canadian Pacific Chief Operation Officer Keith Creel, May 20 of this year.
Interestingly, this would be seen as an economic issue rather than a merger that could see cost savings and other synergistic benefits. One thing is for sure, the rails have been shellacked from Obama’s war on coal. There is another side to the energy equation with the transportation of fossil fuels via rail, but it doesn’t completely offset the destruction in coal.
Political Favor?
Of course, this is an industry that’s seen its share of merger mania; the last monster deal was Warren Buffett, grabbing Burlington Northern Santa Fe (BNSF) for $44.0 billion in 2010. Cynics (me included) think that Buffett is one of the reasons the Obama administration finally made it official in declining the Keystone pipeline.
A merger would bring together the east coast footprint of Norfolk Southern and the west coast footprint of Canadian Pacific, which happens to be backed by Bill Ackman. Overall, such a deal would send a positive message about the future of the economy.
Here’s a look at the Dow Jones Transportation Index, which began the day in free fall, only to recover after the news broke.
The transportation names have been a precise harbinger of things to come, stalling into the start of the year, and heading south before the broad market began to get hit.
However, it remains to be seen what kind of premium would be offered…all I read was a $26 billion merger, which would mean no premium. In the last year, NSC has changed hands as high as $117.
Race for the White House
Key Questions for GOP Candidates:
Today, the Fox Business Network is hosting the GOP Presidential Debate live from Milwaukee, and most people are hoping to get answers. This week, I will shares key concerns for voters, beginning with the economy. Presidential elections are always important; this is critical, as the nation must decide whether to stay on this European path, or get back to the basics of what made America great.
Economy
The tax plans outlined in detail thus far, all have the same theme of lower brackets, and simpler approaches, but even the supply-side have to draw the line on taxes being too low.
According to the Tax Foundation, only Rand Paul’s plan could positively impact U.S. debt levels while generating more than four million jobs. I find it interesting that most candidates say their plans are revenue neutral, but that’s not the case. Rand Paul says revenue neutral isn’t important; I like that angle and I would like to see him flesh that out more.
Tax Policy |
Deficit |
Deficit |
Jobs |
GDP (10-year) |
Trump |
-$11.98 T |
-$10.14 T |
5.2m |
12.0% |
Rubio |
-$6.05 T |
-$2.4 T |
2.7m |
15.0% |
Jeb |
-$3.66 T |
-$1.6 T |
2.7m |
10.0% |
Paul |
-$1.79 T |
+$737 B |
4.3 m |
12.9% |
Tax Foundation
On the subject of jobs, it’s one thing to talk about creating them or bringing them back from China and other places. However, do we want a million call center jobs or sweatshops sewing together sneakers?
America will have an $18 trillion economy if there was a way to tax it across the board at 30%, it would generate $5.4 trillion in revenue and no deficits. But that would mean a value-added tax (VAT) to capture that 2/3 of economy that is consumer spending. On that note, why is no one focused on that approach? I know Democrats talk up the VAT, in addition to current taxes. If there was a flat rate across the board, we could junk the rest of the tax code.
What tax loopholes are going to be closed, and what’s going to be done to curb ticking disasters-that’s Social Security and Medicare?
Government doesn’t create jobs, government creates the backdrop for jobs creation. The candidates haven’t made the link to the mass departure, from the labor market and illegal immigration issues, to the fact that Americans are paid not to work.
When it is added up, too many programs pay more than the minimum wage. This has always been a challenge. The working poor kick themselves, wondering why they’re working when their neighbors are chilling; yet their neighbor’s children are wearing the same clothes.
This issue becomes social when one considers the rapid decline of men in the workforce. Considering the record low birth rates and the historically low household formation, the role of men in the workforce is an issue no one will discuss, and yet the ramifications are essential to the overall economy.
Tax policy is just the beginning. Of course, we want people to spend their money in the economy and to invest- this is an area that I think the next president could have a major impact.
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