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 Static	Deficit Dynamic	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.

Today’s Session

The market will begin under a fair amount of pressure once again as economic data out of Germany was a lot softer than expected, and once again, there’s speculation Apple iPhone demand is slipping in the US and China (channel checks by Credit Suisse which continues to rate the stock an “outperform” based on the hunch this is temporary).

Import – Export data isn’t moving the needle so investors are mostly left to their own devices and that means following the herd.  Let’s watch the herd.

Comments

major tax reform/simplification i.e. flat tax of limited brackets and elimination of most deductions will never happen. Tax code is where Congress doles out special favors in return for campaign contributions and they will never give up that source of power and cash cow. not to mention the social engineering that goes on via the tax code. Joe Brown on 11/10/2015 10:21:04 AM

There has always been tension between the stimulative effect of allowing deductions and the revenue effect of forcing capitalization. Tax policy is not just about lobbyists and voters, it has been used to drive the economy in specific directions. Certainly this has been abused. If lawmakers give that up it will be reclaimed during the next crisis. George Hawkins on 11/10/2015 10:57:28 AM

The biggest and most important issue is the economic impact of 59 million abortions, but the success of the politically correct left in preventing serious discussion of this is a tragedy. I've been alone in writing about this for 20 years, and I estimate the loss in terms of cumulative GDP impact at $50 trillion and climbing. This year alone, the impact amounts to 18% of our total economy. Not only that, but there is a second generation impact. Those 59 million aborted babies won't be around to raise another generation . . . or any after that. There is a reason China just stopped its 1-child policy: it has already cost them 400 million people and by 2050, their population will be down by 28% and they have no way of recovering from that. Hey, it took Europe 250 years to recover from the Black Death in 1347. I spent 25 years in marketing and the equation for success was always people x money. We're literally destroying our future, and nobody is willing to talk about it. I hope Fox Business has the courage to at least raise the question. For more, go to http://bit.ly/1fnWG2r Dennis Howard on 11/10/2015 11:04:55 AM

Apologies, I got the link wrong in my previous message. You'll find the correction below: The biggest and most important issue is the economic impact of 59 million abortions, but the success of the politically correct left in preventing serious discussion of this is a tragedy. I've been alone in writing about this for 20 years, and I estimate the loss in terms of cumulative GDP impact at $50 trillion and climbing. This year alone, the impact amounts to 18% of our total economy. Not only that, but there is second generation impact. Those 59 million aborted babies won't be around to raise another generation . . . or any after that. There is a reason China just stopped its 1-child policy: it has already cost them 400 million people and by 2050, their population will be down by 28% and they have no way of recovering from that. Hey, it took Europe 250 years to recover from the Black Death in 1347. I spent 25 years in marketing and the equation for success was always people x money. We're literally destroying our future, and nobody is willing to talk about it. I hope Fox Business has the courage to at least raise the question. For more information read "No Kids No Future" at http://bit.ly/1fnWg2r Dennis Howard on 11/10/2015 11:23:08 AM

Kennedy, Reagan, and Clinton cut tax rates and revenue increased. Dynamic tax scoring should be used, NOT static to count the positive effect. Tax revenue doubled under Reagan but he was opinned as the Reagan deficits when the Democratic House and Senate only agreed to the cuts if Reagan agreed to the increase in social welfare. That quadrupled spending on social programs. Reagan had one month with 30 million less workers that created over 1.7 million jobs! Imagine if we had a month like that now. A VAT is a bad deal because we would never eliminate the other tax structures, just add it and that would slow our economy even more. Cut taxes and regulations like Reagan and our economy will take off. Why is this history lesson so hard to grasp????? Ray Weldon on 11/10/2015 11:45:20 AM

Economically, the 80000 pages of tax code and how few businesses, corps & people actually pay taxes. If you are caught in the middle, you are carrying everyone else on your shoulders. Too many special interests, playing both Dems and Reps as puppets on a string. Term Limits would be a start. Socially, too many people, young and older, not willing to work and suffer if needed to get ahead. They have been brain washed thru school, media and our so called leadership to have "things" given to them in lieu of earning them. Everyone has their hand out. I have very little faith in America's ability to move forward as a great nation. We have been reduced to mediocrity. Very sad bart harrison on 11/10/2015 11:49:30 AM

I think the economy is still the biggest issue. Folks must work to support themselves and pay the governments debts! THe De3ms wilol drive us into further debt but even the Republicans won't do much better so Rand Paul, who is not my first choice, would be the most fiscally conservative. Fred S. on 11/10/2015 12:26:29 PM

Security. Rubio. Patricia Fflynn on 11/10/2015 12:38:26 PM

Our national debt is our biggest issue. Stop all the entitlements. Abolish our current income tax and the IRS and switch to a flat sales tax. d o on 11/10/2015 2:56:01 PM

Unfortunately, I don't see a winning Republican Candidate, (maybe Trump is mean enough). As I see the election here is my feeling: Liberals on the dole, Illegals, Don't Know or Care - Make up 47% of voters for Hillary Votes Managed by ACORN (or their new name) - Make up 5% of voters for Hillary Votes by dead people - Make up 5% of voters for Hillary That totals to 57% for Hillary and 43% left for any Republican - How can the Republicans manage to beat that? Ruby on 11/10/2015 7:25:25 PM

Being from the deep south, SECURITY, we have got to close that border (northern one too). First we need to control the flow, to keep out illegals and terrorists. Then we can address the illegals and terrorists already inside and deal with them. Sealing border will create jobs, removing illegals will create jobs for citizens and free up jobs the illegals are doing for Americans. As we are in this process, start cutting down on welfare, so those folks will actually enter the workforce and take those jobs. diane on 11/11/2015 12:53:32 PM

And my candidates in order of preference: Carson, Cruz, Rubio, Trump diane on 11/11/2015 12:54:43 PM

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