Friday Morning Links

Detroit on the verge of insolvency, again, WSJ.

Some data points:

• The city's meager revenues aren't enough to support services for its 713,000 residents living across 139 square miles.
• Detroit's operating deficit in the current fiscal year is projected at more than $100 million. If the city doesn't receive a promised $30 million in state aid by the third week in December, it would run out of cash. 
• Will start furloughing 11,000 workers.
• For fiscal year 2013, Detroit is expected to have $1.603 billion in revenue and $1.680 billion in expenses, leaving the city another $76 million in the red. The city's total debt is $8.2 billion, according to which includes bonds for general operations as well as the city's water and sewerage department. But that doesn't include other obligations such as pensions and retiree health care.

Some comments:

• the mayor says the population density is one problem: 5,000 people/square mile (compare to North Dakota: 10 people/square mile
• $8.2 billion/713,000 --> $11,500/person and that doesn't include "other obligations such as pensions and retiree health care"

One option is for the city to be absorbed by Wayne County. Okay.

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Obama's real fiscal problem, WSJ 

For each of the last three two-term Presidents, the economy went a long way to determining success or failure. George W. Bush's eight years ended in an economic panic that ruined his legacy. But note in the nearby table the tales of the Reagan and Clinton second terms. In the Gipper's last four years, GDP growth averaged 3.73% a year. In Bill Clinton's last four years, the economy averaged 4.45% growth.

Now look at Mr. Obama's first term. His average annual growth rate so far over his four years is 0.8%. Take out the negative growth of 2009, and it is still only 2.1% a year. Mr. Obama's great challenge for the next four years is leaving behind this Japan-like stagnation and getting the economy back to the growth of the Reagan and Clinton eras.

Costco's dividend tax epiphany, WSJ

When President Obama needed a business executive to come to his campaign defense, Jim Sinegal was there. The Costco co-founder, director and former CEO even made a prime-time speech at the Democratic Party convention in Charlotte. So what a surprise this week to see that Mr. Sinegal and the rest of the Costco board voted to give themselves a special dividend to avoid Mr. Obama's looming tax increase. Is this what the President means by "tax fairness"?

Specifically, the giant retailer announced Wednesday that the company will pay a special dividend of $7 a share this month. That's a $3 billion Christmas gift for shareholders that will let them be taxed at the current dividend rate of 15%, rather than next year's rate of up to 43.4%—an increase to 39.6% as the Bush-era rates expire plus another 3.8% from the new ObamaCare surcharge.

A constant theme at MDW: the gap between the "haves" and the "have-nots" is widening. These special dividends will widen the gap. The stock market is pulling back, providing great buying opportunities for folks like Warren Buffett.

Disclaimer: the MDW is not an investment site. Do not make investment decisions based on what you read at the MDW. Good luck to all.