As I predicted, the papers love a good horse race and have been dying to start the Romney rebound story. It is now well under way, with “Romney dominates glum president” on page 2 of the Financial Times (FT), “Romney Presses Edge After Obama Stumbles” on the front page of the Wall Street Journal, and “Campaign Gains a New Intensity in Debate’s Wake” on the front page of the New York Times (NYT). The consensus is that we now have a competitive race again, and reporters could not be happier.

I read the debate transcript again last night and realized something I didn’t mention enough yesterday—–Governor Romney of Massachusetts was back! The severe conservative of the Republican primaries did not show up; instead, we had a moderate, center-right, successful governor who embraced his own health-care reform plan, bragged of working with Democrats, stated categorically there would be no effective tax cut for the wealthy, and said that regulation was necessary and government had a role to play. One wonders what Paul Ryan thought of all that, not to mention all of the Republican primary voters.

Up the wall of worry

http://www.youtube.com/watch?v=IZJ7VG30tsw 

I admit that I rarely watch speeches or debates live. I prefer to focus on the content, and reading the transcript allows me to do that without being affected by the atmospherics. But the real reason is that I usually end up yelling at the TV when either or both sides make misstatements.

A couple of good things to talk about today for the U.S. economy. The first relates to the generally improving demand environment. I have talked before about the fact that the housing market is getting better; the trend continues today with mortgage applications increasing by 16.6 percent, which is a lot. Cheaper mortgages continue fuel the housing recovery, and the story is not over yet.

We have some more good charts from Pete Essele, data maven in our Asset Management and Research groups, this time about household debt and how we are paying (or writing) it off.

We certainly are not free of the fiscal cliff, but it is at least comforting to know that our representatives are taking up the matter when they have a free minute. The New York Times (NYT) reports today on the front page, with “Senate Leaders See Path to Avert Mandatory Cuts,” that the Senate, the less irresponsible body, is “closing in on a path” to deal with the problem.

As well they should be. In addition to the 160 million people to be affected by the fiscal cliff mentioned in an article yesterday (“Payroll Tax Rise for 160 million is Likely in 2013,” NYT, p. A1), today the Financial Times (FT) has “Washington’s fiscal cliff to hit 90% of families, claims think tank” on page 3. That’s a lot of voters.

I have written many times about Europe and its problems, but always with a provision: because the European Union is ultimately a political project, rather than an economic one, politics will trump the many economic problems and the eurozone will survive because of that.

Oh, yes—spending cuts! The papers this morning are all about both. The key article, and the one most people (160 million of them) will be talking about shortly is on the front page of the New York Times (NYT), “Payroll Tax Rise for 160 million Is Likely in 2013.” The expiration of the 2-percent payroll tax on earnings will hit everyone immediately in the new year, and it’s not likely to be reinstated.

This is just a part of the fiscal cliff, which is becoming clearer and clearer as the election approaches. Taxes will be going up, and spending will be cut—the question is how. “Way round the fiscal cliff still unclear” on page 2 of the Financial Times (FT) is pretty self-explanatory and leads with the conclusion that Congress is unlikely to resolve the issues in 2012, leaving another potential pending crisis in 2013. Patriotic citizens are glad to contribute more, led, of course, by private equity managers. According to “Private equity managers fear tax hit” in the FT (p. 17), they are attempting to rewrite existing agreements to specify that they will make more money to compensate if their taxes go up. Clients, unsurprisingly, do not seem to be in favor. No doubt, the managers want to make sure they can continue to spend and stimulate the economy, which will then trickle down.

Progress in Europe