With country after country announcing ’stimulus’ plans to help supposedly create jobs and jump start the economy, it appears that there is just one leader who is sticking to capitalism. with today being election day in Israel, PM wannabe Benjamin Netanyahu has outlined his economic plan which instead of calling for more spending than the country can afford, he is calling for massive tax cuts and privatization.

With the US plan calling for more than $800 billion in spending in order to create and save jobs, it’s hard to imagine that there isn’t a better approach to try and jump start the economy. After all Prez. Obama says the program will help create/save 4 million jobs. Well at $800 billion, we are talking about spending more than $200,000 to create 1 job. That’s insane. It would be cheaper to just write each company a check for $60,000, and force them to hire 1 person.

If Netanyahu wins today’s election and sticks to his campaign promise of lower taxes, it will be interesting to see how the Israeli economy reacts compared to most other countries that have chose higher spending to try and solve their problem.

After all why after a global economic slowdown we have universally bailed on capitalism is beyond. Netanyahu has an interesting point on this same topic reported in Marketwatch: “Netanyahu therefore harshly opposes the emerging global trend of legislating expensive stimulus plans. “The fact that around the world budgets are being breached doesn’t mean we should become captive to this Keynesian concept,” he told the Marker, the Ha’aretz daily’s business-news division. His recipe is to resist new spending so as to immediately introduce an ambitious tax cut. If we send the cash to the people, he says, they’ll do a better job deciding how to spend that newly available income than the bureaucrats would.”

If he wins it will be an interesting next few years to actually compare how different economic philosophies play out during a  crisis.

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For a country known for exporting Jaffa oranges and technology, a new export industry has joined the big 2…Coffee.

It’s well documented that Israeli’s love drinking coffee, but it has been never been considered a big producer of coffee. According to an article in Globes: “Cafe chain Aroma Israel is continuing its international expansion. This week, it opened its first branches in Ukraine capital Kiev and Cypriot resort of Limassol. The openings come a few days after the chain opened its second cafes in both New York and Toronto. All these branches are operated by franchisees, with Aroma directly owning a small stake. The new cafes bring the number of Aroma’s international branches to seven. It also has a branch in the Romanian port and resort of Constanta. Aroma plans to open more branches in New York and Toronto in the coming months.”

While some may be skeptical about opening cafe’s during a serious global economic slowdown, the Aroma owners may be timing this expansion perfectly. After all sooner rather than later the economy will start to pick up, and then they will be well positioned to take advantage of people with higher levels of disposable income that can be spent on expensive coffee.

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For those who think that the local Israeli economy is immune to a global economic slowdown, today’s economic numbers on consumer confidence, may want you to think again. Globes reports that the index dropped to its lowest leevl in 4 years.

The article says: “The Consumer Confidence Index has been falling since the third quarter of 2007, even before there were signs that the economy was entering a slowdown. The index indicates that the public has sensed the economic trends for a long time, even as official macroeconomic data only now shows declines in private consumption and slower growth.”

With so much of the recent local economic success due to strong consumer spending and optimism, this continued deline in confidence, could spell the end of the current economic cycle. Growth estimates have been sliced, and while official estimates are still over 3% GDP growth for the year, with a slowing consumer and export companies reeling from Shekel strength I think we may be hard pressed to achieve those numbers. Keep in mind that israel has been late to the game concerning an economic downturn. That doesn’t bode well for ‘09 growth, which may continue to sag.

So where is there room to be optimistic? With the USD staging a recent comeback and pushing through the 3.6 barrier, the investment opportunities ahead may lie with export driven industries, especially the much sought after Israeli hi-tech industry. With this industry under performing over the last year or two, it may be time for Israeli hi-tech to make a comeback.

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Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Aaron Katsman
IsraelNewsletter.com

Last week in the tourist city of Eilat, the big-wigs( yours truly was not invited) of the Israeli economy got together to speak about the future of the Israeli economy. Speaking about the global economic slowdown and the ramifications on the Israeli economy, Ministry of Finance director general Yarom Ariav mentioned that he expects a slowdown locally on the heels of the global economic slowdown. Pretty standard analysis.

Then, according to Globes, Ariav said, “The decision to integrate into the global economy has greatly limited options for the Israeli economy. 10% annual growth by emerging markets affects raw materials, oil, and disposable goods.”

What?

Is he saying that that fact Israel is now part of the global economy a bad thing? Would it be better for Israel to be a protectionist and isolationist economy, and just produce goods for our own survival? (Continue »)

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