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The largest developer in Dubai has notified creditors that he will not be able to make his payments when due. The economic crunch has even hit the seriously rich.
You may be wondering when the stimulus package will really start to shake things up here at home. That is a mixed response question. The stimulus spending is just starting to trickle out and its impact won’t really be felt for a few more months. Despite the Administrations claims of jobs saved (a tough number to substantiate) the stimulus bill hasn’t yet kicked in. Cash for Clunkers revved up the auto industry a bit but it may have been too little, too late. The housing credit program did the same for housing (re-sales mostly) but again it wasn’t targeted as broadly as it could have been. The extension that Congress passed will be broader and may be more helpful.
I wish that the politicians would stop the partisan nonsense and focus on what is really important to resolve the economic issues. Health care isn’t one of them. Housing, that is foreclosures and value stabilization, is the foundation on which the American sense of security are built. Until those are stabilized, the American consumer will stay frightened and consumer spending will stay depressed. Forecast for economic growth suggest that we could slip back into recession in the first quarter of 2010. That is not good news if you are looking for a job. On that note, now is a good time to go back to school to update your skills whether you are working or unemployed, so that you are better prepared for the future.
Unemployment predictions are that it will remain over 10% through June of 2010. The last time unemployment was this high was in September of 1982. It stayed there for 10 months then took until June 1984 to decline to the low 7% range. That was a period of nearly two years. Looking forward we can expect that we won’t see significant job growth for a similar time frame. That would put us somewhere around June of 2012. Remember 7% isn’t where we were before the financial crisis hit. We were below 5%. It took until March of 1989 for us to get down to 5%. Based on that, it may well be 2017 before we get there again.
The US dollar is falling in value against many currencies around the world. The most common comparison is the Euro, where the dollar has sunk from parity (one for one) to US$1.50 per Euro. That is a 50% decline in purchasing power. Looked at the other way, it makes US produced goods and services much cheaper on the world market. That should be a good thing for the export community and the balance of trade (fewer dollars flowing out and more of the other currencies flowing in).
The stimulus bill that was passed last year was tail end loaded, meaning that a lot of the spending won’t occur until 2011 and 2012. That, coupled with the normal recovery of a free market may accelerate the job growth. If it accelerates too much we will have either runaway inflation or we will have a credit crunch that will rival the one we are currently clawing our way out of (remember the 1970’s wage and price freezes and the 1980’s 16% mortgage rates?).
So my message is the same as it has been. Hang on were in for a bumpy ride. Save your money, invest wisely and remember the old adage, “waste not, want not”.
Monday, November 30, 2009
Thursday, November 12, 2009
November 2009
November 12, 2009
Economics and Politics are both a game of mass psychology. They have to do with the perception of the masses rather than reality.
For example, the Masses as represented by the Consumer Sentiment and Consumer Confidence indexes are flailing. The indexes show that the consumer is scared and isn’t spending.
The confidence in Government is low as well so there is no help in the near term. Congress isn’t helping by trying to push through health care reform. No matter which side of the fence you're on with that issue, it makes no sense for Congress to be doing things that causes the public to be insecure and divided at a time when they are already insecure. We need a rallying point to bring us together.
Afghanistan and the radical Muslim issue is also making people feel insecure. The recent shootings at Ft Hood in Texas suggest that even the military is experiencing a breakdown in loyalty and discipline. Something that doesn’t spark confidence in most of us. The fact that the Administration won’t make a decision, one way or the other, on the requested troop reinforcements isn’t helpful either.
The stock market is jumpy as well. The volatility index remains in the mid 20’s. Certainly well below the 80’s of last year but well above where I’d like it in the teens. The market has rallied on earnings reports but those earnings were achieved through job cutting. Hardly a repeatable process. I don’t believe you can shrink your way to greatness. So look for earnings to stagnate if the consumer doesn’t return. The market could take a serious tumble at that point. I’m watching for signs of another major correction. There is a school of thought that says it will happen. Remember, after the great depression the market didn’t come fully back for 20 years. Part of that was, we are told, bad policy on the part of government. Are we doomed to repeat the past?
Everything I look at suggests that this recovery has begun, but it is going to be a slow, slow process. It will be a step ahead and a step back for a long time. Overall the trend will be upward but at a snails pace. We, who have no patience and want everything to happen instantly, are going to be incredibly frustrated. Politically that means next year will be the year of “It’s the economy stupid” regardless of what happens with Health Care.
I believe the smart politician stays away from forcing Health Care reform, especially with any polarizing issues, and beats the economic drum, hawking jobs creation. They will keep or win seats. All others are vulnerable and should be. They are not doing the right thing for the country at this time.
Health Care needs reform, but the reform should be focused on cost cutting not reformatting. Reformating at this time is like rearranging the deck chairs on the Titanic. Go after fraud, go after frivolous law suits, go after the unnecessary tests and procedures that are part of defensive medicine (defensive from a law suit stand point). Many of these things will cut a few percent here and there. Not huge in and of themselves but forward motion toward reform without the political fallout and the divisiveness that reduces consumer confidence so desperately needed for recovery.
Let’s move forward while we still can. The Soviet Union, the second most powerful country in the world collapsed. Could we?
China is moving forward. It spent heavily on its economic stimulus and has recovered. In the next few years China will be the largest market for automobiles in the world. The first time the USA will not be number one. Car makers the world over are ramping up operations designed to meet this growing demand, while here at home the number of car makes and models are continuing to dwindle with only Ford still standing as a non-government owned producer. They are profitable, but mostly because they are profitable around the world. They make money everywhere including the USA.
Government Motors (GM) and the now Italian run Chrysler are still struggling. Chrysler will chop models from the Chrysler, Dodge and Jeep brands, adding some Italian designs to try to reposition itself. I wish them good luck with that.
Economics and Politics are both a game of mass psychology. They have to do with the perception of the masses rather than reality.
For example, the Masses as represented by the Consumer Sentiment and Consumer Confidence indexes are flailing. The indexes show that the consumer is scared and isn’t spending.
The confidence in Government is low as well so there is no help in the near term. Congress isn’t helping by trying to push through health care reform. No matter which side of the fence you're on with that issue, it makes no sense for Congress to be doing things that causes the public to be insecure and divided at a time when they are already insecure. We need a rallying point to bring us together.
Afghanistan and the radical Muslim issue is also making people feel insecure. The recent shootings at Ft Hood in Texas suggest that even the military is experiencing a breakdown in loyalty and discipline. Something that doesn’t spark confidence in most of us. The fact that the Administration won’t make a decision, one way or the other, on the requested troop reinforcements isn’t helpful either.
The stock market is jumpy as well. The volatility index remains in the mid 20’s. Certainly well below the 80’s of last year but well above where I’d like it in the teens. The market has rallied on earnings reports but those earnings were achieved through job cutting. Hardly a repeatable process. I don’t believe you can shrink your way to greatness. So look for earnings to stagnate if the consumer doesn’t return. The market could take a serious tumble at that point. I’m watching for signs of another major correction. There is a school of thought that says it will happen. Remember, after the great depression the market didn’t come fully back for 20 years. Part of that was, we are told, bad policy on the part of government. Are we doomed to repeat the past?
Everything I look at suggests that this recovery has begun, but it is going to be a slow, slow process. It will be a step ahead and a step back for a long time. Overall the trend will be upward but at a snails pace. We, who have no patience and want everything to happen instantly, are going to be incredibly frustrated. Politically that means next year will be the year of “It’s the economy stupid” regardless of what happens with Health Care.
I believe the smart politician stays away from forcing Health Care reform, especially with any polarizing issues, and beats the economic drum, hawking jobs creation. They will keep or win seats. All others are vulnerable and should be. They are not doing the right thing for the country at this time.
Health Care needs reform, but the reform should be focused on cost cutting not reformatting. Reformating at this time is like rearranging the deck chairs on the Titanic. Go after fraud, go after frivolous law suits, go after the unnecessary tests and procedures that are part of defensive medicine (defensive from a law suit stand point). Many of these things will cut a few percent here and there. Not huge in and of themselves but forward motion toward reform without the political fallout and the divisiveness that reduces consumer confidence so desperately needed for recovery.
Let’s move forward while we still can. The Soviet Union, the second most powerful country in the world collapsed. Could we?
China is moving forward. It spent heavily on its economic stimulus and has recovered. In the next few years China will be the largest market for automobiles in the world. The first time the USA will not be number one. Car makers the world over are ramping up operations designed to meet this growing demand, while here at home the number of car makes and models are continuing to dwindle with only Ford still standing as a non-government owned producer. They are profitable, but mostly because they are profitable around the world. They make money everywhere including the USA.
Government Motors (GM) and the now Italian run Chrysler are still struggling. Chrysler will chop models from the Chrysler, Dodge and Jeep brands, adding some Italian designs to try to reposition itself. I wish them good luck with that.
Friday, October 16, 2009
October 16, 2009
Well it has been an interesting week in the economy. Not a lot has happened but the release of some key indicators are showing a little rebound. Nothing really strong but trends are positive and overall to a slow recovery. The market is all about earnings and earnings have been good. Many key companies are exceeding expectations because management was very fast to cut payrolls, protecting the bottom line. Kudos to management. They did what they are paid to do.
The stock market – Investors/traders - don’t recognize that you can’t shrink your way to greatness. I think that there could be a second round to this recession. It will happen if cities, states and the federal continue to tax businesses and individuals rather than trimming spending. Consumers will come back to the checkout when housing prices stabilize and the unemployment shows even the slightest decline. That will be a while.
In the meantime, Automobiles continue to come forth sporting better and better gas mileage. Good thing since gasoline prices are about to rise yet again, maybe reaching $3 per gallon by winter. Probably more like $2,80 but $3 is a possibility.
The rising energy costs and the weak consumer sales will hurt the earnings and the stock market may well decline again as a result. It is a shaky time and we are in unchartered waters.
Stay tuned, its going to be a ride. Mostly good with moments of absolute fear and terror. But in the long run, the economy will recover. It just will take a lot longer than anyone wants.
The stock market – Investors/traders - don’t recognize that you can’t shrink your way to greatness. I think that there could be a second round to this recession. It will happen if cities, states and the federal continue to tax businesses and individuals rather than trimming spending. Consumers will come back to the checkout when housing prices stabilize and the unemployment shows even the slightest decline. That will be a while.
In the meantime, Automobiles continue to come forth sporting better and better gas mileage. Good thing since gasoline prices are about to rise yet again, maybe reaching $3 per gallon by winter. Probably more like $2,80 but $3 is a possibility.
The rising energy costs and the weak consumer sales will hurt the earnings and the stock market may well decline again as a result. It is a shaky time and we are in unchartered waters.
Stay tuned, its going to be a ride. Mostly good with moments of absolute fear and terror. But in the long run, the economy will recover. It just will take a lot longer than anyone wants.
Monday, October 5, 2009
October 5, 2009
Dear Readers,
This past week may have borne out what I have written before. The numbers just don’t support the rhetoric. We all want the economy to rebound and we want to stay positive but the numbers just don’t support it. The stock market is a leading indicator. When the very smart people who run Billions of dollars are feeling bullish the market rises. They feel bullish when ever they can convince themselves that there is a reason, any reason. They are the eternal optimists.
This week the numbers suggest that there isn’t any reason whatsoever. Employment is dragging, oil consumption is dragging, and the Federal Reserve is nearly out of options to stimulate the economy. Pelosi and company screwed up the stimulus package by tail end weighting it with pork like projects that couldn’t be implemented for a year or more. What they should have done was focused on the housing market and stabilized it. That is where consumer confidence comes from and this economy is 70% consumer products driven. Without the consumer we are in very serious trouble. The consumer has lost confidence. The cultural icon of wealth, real estate, is under siege. Jobs seem precarious at best. Is it any wonder why reasonable and rational people aren’t spending unnecessarily?
The Fed can print more money to extend social programs like unemployment. But a quick glimpse of the exchange rates tell us that approach has already dropped the buying power of the dollar by nearly 20% over the past three years or so. Continuing to print money will continue to reduce its real value. When the Euro was introduced as a currency the exchange rate was $1 US dollar per Euro. Today it takes $1.46 US dollars to purchase one Euro. That is a decline in the US Dollar of 46% since the Euro’s introduction in 1995. Perhaps more obvious is the Brazilian Real. In June of 2006 it took 2.249 BRL to purchase $1 US dollar. Today it costs only 1.7742 BRL to purchase $1 US Dollar. That represents a 21% decline in the dollar’s value since June 2006. And Gold, the price per Troy ounce has risen from $530 in January of 2006 to $1004.70 today. Nearly double.
This recession is going to be with us for a long time. I don’t see a major recovery in employment before 2011. In the interim, we all need to hunker down and preserve and add to our assets. Assets that can be reasonably expected to increase in value once the economy recovers. Instant gratification just isn’t in the mix for the foreseeable future.
This past week may have borne out what I have written before. The numbers just don’t support the rhetoric. We all want the economy to rebound and we want to stay positive but the numbers just don’t support it. The stock market is a leading indicator. When the very smart people who run Billions of dollars are feeling bullish the market rises. They feel bullish when ever they can convince themselves that there is a reason, any reason. They are the eternal optimists.
This week the numbers suggest that there isn’t any reason whatsoever. Employment is dragging, oil consumption is dragging, and the Federal Reserve is nearly out of options to stimulate the economy. Pelosi and company screwed up the stimulus package by tail end weighting it with pork like projects that couldn’t be implemented for a year or more. What they should have done was focused on the housing market and stabilized it. That is where consumer confidence comes from and this economy is 70% consumer products driven. Without the consumer we are in very serious trouble. The consumer has lost confidence. The cultural icon of wealth, real estate, is under siege. Jobs seem precarious at best. Is it any wonder why reasonable and rational people aren’t spending unnecessarily?
The Fed can print more money to extend social programs like unemployment. But a quick glimpse of the exchange rates tell us that approach has already dropped the buying power of the dollar by nearly 20% over the past three years or so. Continuing to print money will continue to reduce its real value. When the Euro was introduced as a currency the exchange rate was $1 US dollar per Euro. Today it takes $1.46 US dollars to purchase one Euro. That is a decline in the US Dollar of 46% since the Euro’s introduction in 1995. Perhaps more obvious is the Brazilian Real. In June of 2006 it took 2.249 BRL to purchase $1 US dollar. Today it costs only 1.7742 BRL to purchase $1 US Dollar. That represents a 21% decline in the dollar’s value since June 2006. And Gold, the price per Troy ounce has risen from $530 in January of 2006 to $1004.70 today. Nearly double.
This recession is going to be with us for a long time. I don’t see a major recovery in employment before 2011. In the interim, we all need to hunker down and preserve and add to our assets. Assets that can be reasonably expected to increase in value once the economy recovers. Instant gratification just isn’t in the mix for the foreseeable future.
Friday, September 25, 2009
September 25, 2009
Well friends, when it comes to the consumer who is, after all, nearly 70% of the economy it is and has always been about housing. Our culture prizes home ownership. Has since WWII and continues to do so. Tax policy promotes it. So when the value of our home is unstable, when it is under attack, we tend to circle the wagons. When we do that and stop spending 70% of the economy shrinks. This can happen literally overnight. When we don’t buy there is no need to manufacture, import whatever. Jobs are thusly lost. When jobs are lost the lowest rung of the economic ladder is the first to get hurt. They are the “sub-prime” borrowers. That caused the mortgage derivatives fiasco and the ensuing financial meltdown. Was Wall Street to blame? Sure, the derivatives idea was a bit fast and lose but it was based on the American Ideal that housing is very stable. It was actually Congress, who is now railing at Wall Street that actually encouraged the weird and risky packaging of mortgages as a method to make financing available to the lowest income, least credit worthy amongst us.
The good news after all these billions down the rat hole of big banks and uncompetitive car companies is that housing sales (or rather re-sales) are picking up a bit. They have been above last years numbers for two months in a row. This may be because of the $8,000 tax credit for first time buyers or it may be because the owners of re-sale houses have less invested by dint of long term ownership and can be more aggressive in setting selling prices that the market recognizes as appropriate. New construction has not had the same uptick likely due to the higher costs involved in new land development, materials and labor. Home builders are struggling to price as aggressively because they can’t afford such large mark downs. For example, the 20 year old home that the owner paid $240,000 for may be properly priced today at $499,000 while a similar sized home may cost the builder $550,000 to construct and should sell for $689,000 in order for him to make a normal profit. Aggressive builders may be willing to mark it down to $600,000 if it is already build and in inventory. That is still $100,000 more than the re-sale for essentially the same house. Makes it tough on builders, carpenters, plumbers, electricians, etc. It is a real drag on the economy. I started by saying the good news is that re-sale homes are above last year and that is good. It shows that there are people who are willing to take some risk. There are people who can be motivated by low prices and low interest rates. Had the government actually accomplished the repair of the housing fiasco in a timely manner maybe we wouldn’t have had the bank and auto debacle in the first place. Maybe instead of $8,000 for first time home buyers we should have a % of the purchase price of new homes to level the playing field and put those hard working trades people back to work. Then they can buy new trucks and their families can spend at the mall and pretty soon things will get back to normal without anymore government interference.
Afghanistan isn’t going well. Iraq is still a quagmire. The Russians are smiling not because they are in favor of the Taliban, but they tried to control Afghanistan for years and years and couldn’t succeed. They are chuckling at our temerity and wondering how will we get out of this one. We keep starting things we can’t and won’t finish. We keep sending young people into hostilities without the resolve to win and without the willingness to support them with unquestioning support. We want them to play by the rules when they face an enemy who doesn’t have any rules. Soon they we will repeat the chants of the 1960’s, “Hell no, we won’t go”. And then we will have a real problem.
Speaking of a problem, the Healthcare plan, love it or hate it, isn’t going to do one thing for the economy in the short term. I think the long term effects remain to be seen. I’m not optimistic but time will tell if I am right or wrong. I wish Congress would stick to the knitting and fix what is broken before getting all worked up about something new.
Speaking of something new, it comes apparently as a big surprise that Iran has been less than truthful about its nuclear program. A second enrichment operation deep underground presumably keep a secret to keep it safe from the Israeli’s. Former President Jimmie Carter and his former security advisor Zbigniew Brzezinski have stated that the Israeli’s have to have our permission to cross Iraqi no fly air space to reach Iran and that we should deny it. Brzezinski even went so far as to say if they enter it without permission we should stop them. Politically, the US firing on an Israeli air force mission is as unlikely as the US not defending Israel by selling them weapons systems. Practically, it might be a smart thing just to prevent complete destabilization of the region. This question could be moot IF the Russians and Chinese were to agree to enforce the anti proliferation treaty to which they, the USA and Iran are signatories. Sanctions of real significance could bring down the current regime in Iran. A new regime, supported by Russia, USA and China could be a very productive player in the region regardless of its religious ideology. The USA may have to learn the lesson that different doesn’t mean wrong. Of course Jimmie Carter allowed the Iranian revolutionaries overthrow the Shah
And capture our Embassy, holding 53 Americans hostage for 444 days causing the death of 8 American Servicemen in a failed rescue mission (and one unfortunate Iranian civilian). The hostages were released just minutes before Ronald Reagan was sworn in as President.
We missed the golden opportunity then, when we had justification to attack, the overrunning of an Embassy is considered an attack, an act of War. Now we lack moral authority. We cannot attack them without seeming the aggressor who will attack anyone who isn’t living our way. It worries our neighbors and our allies. Rightly so.
I think the president and congress should focus their attention on the economy so that we are again a strong nation prepared for whatever may come our way.
The good news after all these billions down the rat hole of big banks and uncompetitive car companies is that housing sales (or rather re-sales) are picking up a bit. They have been above last years numbers for two months in a row. This may be because of the $8,000 tax credit for first time buyers or it may be because the owners of re-sale houses have less invested by dint of long term ownership and can be more aggressive in setting selling prices that the market recognizes as appropriate. New construction has not had the same uptick likely due to the higher costs involved in new land development, materials and labor. Home builders are struggling to price as aggressively because they can’t afford such large mark downs. For example, the 20 year old home that the owner paid $240,000 for may be properly priced today at $499,000 while a similar sized home may cost the builder $550,000 to construct and should sell for $689,000 in order for him to make a normal profit. Aggressive builders may be willing to mark it down to $600,000 if it is already build and in inventory. That is still $100,000 more than the re-sale for essentially the same house. Makes it tough on builders, carpenters, plumbers, electricians, etc. It is a real drag on the economy. I started by saying the good news is that re-sale homes are above last year and that is good. It shows that there are people who are willing to take some risk. There are people who can be motivated by low prices and low interest rates. Had the government actually accomplished the repair of the housing fiasco in a timely manner maybe we wouldn’t have had the bank and auto debacle in the first place. Maybe instead of $8,000 for first time home buyers we should have a % of the purchase price of new homes to level the playing field and put those hard working trades people back to work. Then they can buy new trucks and their families can spend at the mall and pretty soon things will get back to normal without anymore government interference.
Afghanistan isn’t going well. Iraq is still a quagmire. The Russians are smiling not because they are in favor of the Taliban, but they tried to control Afghanistan for years and years and couldn’t succeed. They are chuckling at our temerity and wondering how will we get out of this one. We keep starting things we can’t and won’t finish. We keep sending young people into hostilities without the resolve to win and without the willingness to support them with unquestioning support. We want them to play by the rules when they face an enemy who doesn’t have any rules. Soon they we will repeat the chants of the 1960’s, “Hell no, we won’t go”. And then we will have a real problem.
Speaking of a problem, the Healthcare plan, love it or hate it, isn’t going to do one thing for the economy in the short term. I think the long term effects remain to be seen. I’m not optimistic but time will tell if I am right or wrong. I wish Congress would stick to the knitting and fix what is broken before getting all worked up about something new.
Speaking of something new, it comes apparently as a big surprise that Iran has been less than truthful about its nuclear program. A second enrichment operation deep underground presumably keep a secret to keep it safe from the Israeli’s. Former President Jimmie Carter and his former security advisor Zbigniew Brzezinski have stated that the Israeli’s have to have our permission to cross Iraqi no fly air space to reach Iran and that we should deny it. Brzezinski even went so far as to say if they enter it without permission we should stop them. Politically, the US firing on an Israeli air force mission is as unlikely as the US not defending Israel by selling them weapons systems. Practically, it might be a smart thing just to prevent complete destabilization of the region. This question could be moot IF the Russians and Chinese were to agree to enforce the anti proliferation treaty to which they, the USA and Iran are signatories. Sanctions of real significance could bring down the current regime in Iran. A new regime, supported by Russia, USA and China could be a very productive player in the region regardless of its religious ideology. The USA may have to learn the lesson that different doesn’t mean wrong. Of course Jimmie Carter allowed the Iranian revolutionaries overthrow the Shah
And capture our Embassy, holding 53 Americans hostage for 444 days causing the death of 8 American Servicemen in a failed rescue mission (and one unfortunate Iranian civilian). The hostages were released just minutes before Ronald Reagan was sworn in as President.
We missed the golden opportunity then, when we had justification to attack, the overrunning of an Embassy is considered an attack, an act of War. Now we lack moral authority. We cannot attack them without seeming the aggressor who will attack anyone who isn’t living our way. It worries our neighbors and our allies. Rightly so.
I think the president and congress should focus their attention on the economy so that we are again a strong nation prepared for whatever may come our way.
Tuesday, September 22, 2009
September 22, 2009
OK Blog Followers, here we go. It is September 22, 2009 and the economic outlook is cloudy. The clouds come from the mixed signals that I see out there.
First of all, the prices of houses is creeping up ever so little each month since June. The FHFA price index is still down more than 10% from the peak of April 2007 but it is slowly improving. A good sign pointing to recovery. There are still an enormous number of homes in foreclosure that have to been cleared so any price increase is amazing.
On the other side of the equation is the continuing rise in unemployment. This is so obvious and so daunting that Congress is being to work on a bill to extend unemployment benefits an additional 13 weeks in states where unemployment exceeds 8.5% which is probably all of them so support will be broad. Since the economy is nearly 70% consumer driven, the economic recovery will be very slow and halting. Up a little, down a little, then up a little more. Unemployment won’t decline until demand for products rise. Demand won’t rise until people with jobs feel more secure and people looking for jobs actually find them. It is a bit of the chicken/egg question. Then there is the credit (or lack of) question. The Government provided a lot of liquidity to the banking industry in hopes that it would spur lending. It did not. Banks are holding too much questionable paper on their balance sheets and are hording the money as insurance in case they have to face more defaults.
To add to the fog in my crystal ball there is the question of Afghanistan. The Military knows that it will take a massive surge to win and that doing nothing will bring defeat. The President isn’t sure that he wants to support a surge for fear of burdening the country with yet another costly and protracted military conflict. The Democrats are afraid they will be unable to move the domestic agenda forward if the have to fund a broader war, the very thing they railed at G.W. Bush about. Yet if they cut and run, they will be seen as soft on National defense which could cost them dearly in the next two elections. The democrats are learning what the republicans learned over the past administration. It is far easier to criticize and lament what could/should be than to govern.
China isn’t thrilled that the administration caved into special interest pressure and passed a tariff on tires to raise the cost of imported tires. Few, if any US jobs will be saved, you and I will end up paying more for tires and our biggest creditor, the Chinese, are irritated. It also sends a bad signal to the wider market that we talk free trade but, when times get a little tough, it’s every man for himself.
So where does all that leave us? We have an inexperienced President, surrounded by bright but young and largely inexperienced advisors. We have the biggest world wide financial crisis since the 1930’s taking place in an environment of technologically enhanced communications putting more information at out fingertips than ever before. Maybe we know too much, too soon for our own good.
All in all it seems that we are in uncharted waters and that we need to be extra vigilant as we move forward. We may not be able to control the speed of events so we have work extra hard at the vigilance part.
First of all, the prices of houses is creeping up ever so little each month since June. The FHFA price index is still down more than 10% from the peak of April 2007 but it is slowly improving. A good sign pointing to recovery. There are still an enormous number of homes in foreclosure that have to been cleared so any price increase is amazing.
On the other side of the equation is the continuing rise in unemployment. This is so obvious and so daunting that Congress is being to work on a bill to extend unemployment benefits an additional 13 weeks in states where unemployment exceeds 8.5% which is probably all of them so support will be broad. Since the economy is nearly 70% consumer driven, the economic recovery will be very slow and halting. Up a little, down a little, then up a little more. Unemployment won’t decline until demand for products rise. Demand won’t rise until people with jobs feel more secure and people looking for jobs actually find them. It is a bit of the chicken/egg question. Then there is the credit (or lack of) question. The Government provided a lot of liquidity to the banking industry in hopes that it would spur lending. It did not. Banks are holding too much questionable paper on their balance sheets and are hording the money as insurance in case they have to face more defaults.
To add to the fog in my crystal ball there is the question of Afghanistan. The Military knows that it will take a massive surge to win and that doing nothing will bring defeat. The President isn’t sure that he wants to support a surge for fear of burdening the country with yet another costly and protracted military conflict. The Democrats are afraid they will be unable to move the domestic agenda forward if the have to fund a broader war, the very thing they railed at G.W. Bush about. Yet if they cut and run, they will be seen as soft on National defense which could cost them dearly in the next two elections. The democrats are learning what the republicans learned over the past administration. It is far easier to criticize and lament what could/should be than to govern.
China isn’t thrilled that the administration caved into special interest pressure and passed a tariff on tires to raise the cost of imported tires. Few, if any US jobs will be saved, you and I will end up paying more for tires and our biggest creditor, the Chinese, are irritated. It also sends a bad signal to the wider market that we talk free trade but, when times get a little tough, it’s every man for himself.
So where does all that leave us? We have an inexperienced President, surrounded by bright but young and largely inexperienced advisors. We have the biggest world wide financial crisis since the 1930’s taking place in an environment of technologically enhanced communications putting more information at out fingertips than ever before. Maybe we know too much, too soon for our own good.
All in all it seems that we are in uncharted waters and that we need to be extra vigilant as we move forward. We may not be able to control the speed of events so we have work extra hard at the vigilance part.
Tuesday, September 8, 2009
Labor Day
Sep 4th
September is a usually bearish month in the stock market and the news on the economy isn’t helping turn that around.
First time unemployment claims have remained essentially unchanged for 9 weeks, running at 560,000 plus new claims each week. Actually the current 4 week average is up about 1% from the prior four weeks. The layoff announcements for the month were better than the previous month but on par with the month prior to that. Many companies are still trimming, but are doing so now at levels that don’t require disclosure.
Retail sales are holding their own but then Labor Day was quite late this year.
Sep 8th
Consumer credit numbers came out three times the most conservative estimates and double the prior month, indicating that the consumer is taking the idea of saving to heart. This does not bode well for retail sales numbers and could be in anticipation of Christmas. They may be reducing debt now so they can spend at Christmas or they may be establishing a savings pattern that will mean a bleak Christmas for retailers. It could impact on our Chinese supplier friends as well.
We can blame lots of people for the predicament we are in, there is plenty of blame to go around. But, you ask, what can we do about it? Unfortunately not a lot. We are paying the bill for the excesses of the past decade. Much like the buy now pay later philosophy that got us where we are today, the pay later has arrived. Times will be lean and money a little harder to come by for several years.
On the plus side, we will all be well served to get on a pay/go plan personally. Then we can insist that the government do the same.
Keep watching, times change rapidly.
September is a usually bearish month in the stock market and the news on the economy isn’t helping turn that around.
First time unemployment claims have remained essentially unchanged for 9 weeks, running at 560,000 plus new claims each week. Actually the current 4 week average is up about 1% from the prior four weeks. The layoff announcements for the month were better than the previous month but on par with the month prior to that. Many companies are still trimming, but are doing so now at levels that don’t require disclosure.
Retail sales are holding their own but then Labor Day was quite late this year.
Sep 8th
Consumer credit numbers came out three times the most conservative estimates and double the prior month, indicating that the consumer is taking the idea of saving to heart. This does not bode well for retail sales numbers and could be in anticipation of Christmas. They may be reducing debt now so they can spend at Christmas or they may be establishing a savings pattern that will mean a bleak Christmas for retailers. It could impact on our Chinese supplier friends as well.
We can blame lots of people for the predicament we are in, there is plenty of blame to go around. But, you ask, what can we do about it? Unfortunately not a lot. We are paying the bill for the excesses of the past decade. Much like the buy now pay later philosophy that got us where we are today, the pay later has arrived. Times will be lean and money a little harder to come by for several years.
On the plus side, we will all be well served to get on a pay/go plan personally. Then we can insist that the government do the same.
Keep watching, times change rapidly.
Wednesday, September 2, 2009
September 2, 2009
OK, so now its September, typically a down month in the market. The first day appears to be trying to live up to its historical performance. Is it a time to bailout again or is this the pull back you’ve been waiting for?
What do the economic signs say? Jeez, this is like reading tea leaves or tarot cards.
Housing is starting to stabilize. Automobile sales jumped up for the month propelled by the cash for clunkers program but is probably not sustainable. Unemployment is unlikely to show any signs of real progress. This will dampen spirits and cause the consumer to pull back even more. For me this remains a time to continue to play, defensively and keeping a sharp eye out for the opportunity for a great play.
I think the third quarter will be an anomaly showing some positive GDP growth but won’t be sustained because it was contrived or manufactured by the Cash for Clunkers program and the $8,000 first time home buyers tax credit. Absent these stimuli I think we are in for a lackluster fourth quarter. That said, I think we may see some real improvement develop slowly over the first and second quarter next year, with sustainable improvements leading to GDP growth in the 2-4% range. This will help unemployment some and will begin to change the attitude of consumers. As it builds on itself, GDP will grow at a 4-5% rate. If it begins to surpass this level the Fed will begin to remove liquidity to keep it at a sustainable rate. The unemployment rate will not likely return to the 5% level until 2012.
In the interim, housing prices will stabilize but not grow. New housing will remain at a disadvantage pricewise to re-sales. Once pricing makes new houses seem more affordable, commodities will again head skyward. New credit regulations will slow the growth of land development at least until existing lots in inventory are absorbed. My guess is 2013- 2014.
What do the economic signs say? Jeez, this is like reading tea leaves or tarot cards.
Housing is starting to stabilize. Automobile sales jumped up for the month propelled by the cash for clunkers program but is probably not sustainable. Unemployment is unlikely to show any signs of real progress. This will dampen spirits and cause the consumer to pull back even more. For me this remains a time to continue to play, defensively and keeping a sharp eye out for the opportunity for a great play.
I think the third quarter will be an anomaly showing some positive GDP growth but won’t be sustained because it was contrived or manufactured by the Cash for Clunkers program and the $8,000 first time home buyers tax credit. Absent these stimuli I think we are in for a lackluster fourth quarter. That said, I think we may see some real improvement develop slowly over the first and second quarter next year, with sustainable improvements leading to GDP growth in the 2-4% range. This will help unemployment some and will begin to change the attitude of consumers. As it builds on itself, GDP will grow at a 4-5% rate. If it begins to surpass this level the Fed will begin to remove liquidity to keep it at a sustainable rate. The unemployment rate will not likely return to the 5% level until 2012.
In the interim, housing prices will stabilize but not grow. New housing will remain at a disadvantage pricewise to re-sales. Once pricing makes new houses seem more affordable, commodities will again head skyward. New credit regulations will slow the growth of land development at least until existing lots in inventory are absorbed. My guess is 2013- 2014.
Tuesday, August 25, 2009
August 25, 2009
When it comes to the economy EVERYBODY has an opinion and this writer is no different. That said it is my opinion that we have hit the bottom and that the fundamentals are pointing toward recovery. The nature of the recovery is the unknown. Some think it will come right along, with the beginning of recovery in housing and that will add employment resulting in more consumer spending which will lead to increased production and more employment. The other camp seems to think that employment will languish as businesses are cautious about increasing inventory too quickly and housing starts haven’t lagged permits for more than a year so there is no production waiting in housing. Permits will be slow and housing starts for inventory (Speculation) will be very slow. In part because of the economic concerns and partly because banks still aren’t willing to lend.
From the very beginning I wrote:
10/27/08
Housing:
This is the core problem according to Bernanke and others. This month (September) was the best performance this year and has shown a real stability in units sold throughout the year averaging 5.5 million units. Well down from 2005 but showing real resistance to falling below the 5.5 million annual range.
Since then housing bottomed out at 4.799 million units in March 2009 reflecting another nearly 13% decline in the annualized rate of home sales (new and resale).
Housing, not health care, not unemployment, not anything else but housing is the cause of this recession and it’s recovery is essential to the economic recovery. Until we stop wasting energy on these other issues (GM, Chrysler, Finance, health care reform - granted all are important) and fix the housing problem we will not have the footing for a strong recovery. It will take political will from the leadership of both houses of Congress as well as the White House to put aside the other populist issues and do what is needed. It is the only way to create a vibrant tax base to fund those other important issues without massive increases in the debt.We have the equivolent of an elephant to eat. The only way to do it wothout choking is one bite at a time.and the first bite must be housing.
The stimulus did not work very well, (less than 25% has actually been spent) while housing languishes. Confidence in this country has always been based on the theory, “buy land, they ain’t making any more of it” – anonymous quotation. When land (housing) values are stable, we Americans have confidence. We take it for granted and when something that much a part of our lives is suddenly challenged it makes us very wary. Europeans have seen war, many parts of Asia have seen war. We haven’t seen war on the US mainland since the 1860’s. For most of us, it is a given like gravity. Housing value has always been there.
Housing will stabilize with or without interference by the government. How long that takes and how much it hurts ‘Main Street’ before it reaches stability is the factor. The government efforts should have been to help it reach stability more quickly and less painfully than the natural movement of the market would. It has, to date, not done that very well.
Once pricing stability is achieved in housing, people will begin to spend on other things. Since our economy is 66 – 70% consumer driven that will spur recovery. Businesses then can begin to hire and unemployment will at least stop rising. That, too, will add to the consumer confidence and increase the pace of recovery. Here in Wilmington, NC that is even more critical because housing and its related employment are such a big part of our local economy.
On the bright side, we will be looking back in 2013 and see how it all worked out. Kids starting college this year will be graduating into better economic times. It will be up to them to take us to new economic highs and assure our position in the world economy.
From the very beginning I wrote:
10/27/08
Housing:
This is the core problem according to Bernanke and others. This month (September) was the best performance this year and has shown a real stability in units sold throughout the year averaging 5.5 million units. Well down from 2005 but showing real resistance to falling below the 5.5 million annual range.
Since then housing bottomed out at 4.799 million units in March 2009 reflecting another nearly 13% decline in the annualized rate of home sales (new and resale).
Housing, not health care, not unemployment, not anything else but housing is the cause of this recession and it’s recovery is essential to the economic recovery. Until we stop wasting energy on these other issues (GM, Chrysler, Finance, health care reform - granted all are important) and fix the housing problem we will not have the footing for a strong recovery. It will take political will from the leadership of both houses of Congress as well as the White House to put aside the other populist issues and do what is needed. It is the only way to create a vibrant tax base to fund those other important issues without massive increases in the debt.We have the equivolent of an elephant to eat. The only way to do it wothout choking is one bite at a time.and the first bite must be housing.
The stimulus did not work very well, (less than 25% has actually been spent) while housing languishes. Confidence in this country has always been based on the theory, “buy land, they ain’t making any more of it” – anonymous quotation. When land (housing) values are stable, we Americans have confidence. We take it for granted and when something that much a part of our lives is suddenly challenged it makes us very wary. Europeans have seen war, many parts of Asia have seen war. We haven’t seen war on the US mainland since the 1860’s. For most of us, it is a given like gravity. Housing value has always been there.
Housing will stabilize with or without interference by the government. How long that takes and how much it hurts ‘Main Street’ before it reaches stability is the factor. The government efforts should have been to help it reach stability more quickly and less painfully than the natural movement of the market would. It has, to date, not done that very well.
Once pricing stability is achieved in housing, people will begin to spend on other things. Since our economy is 66 – 70% consumer driven that will spur recovery. Businesses then can begin to hire and unemployment will at least stop rising. That, too, will add to the consumer confidence and increase the pace of recovery. Here in Wilmington, NC that is even more critical because housing and its related employment are such a big part of our local economy.
On the bright side, we will be looking back in 2013 and see how it all worked out. Kids starting college this year will be graduating into better economic times. It will be up to them to take us to new economic highs and assure our position in the world economy.
Saturday, August 22, 2009
August 22,2009 Health Care Reform
Today is August 22, 2009 and the Republicans are opposing the Health Care reform on the grounds that a public option will create a situation where private insurance will no longer be available with in a few years. I don’t know, that maybe true but it will take awhile for the private sector to go away.
The Democrats don’t want reform without a public option (read Government run ala Medicare) but that will not control cost. Medicare is effectively bankrupt. Cost control and Government to my mind are an oxymoron. Princess Nancy (Pelosi) has said that the House WILL NOT pass anything that doesn’t include the public option while the President seems willing to accept half a loaf just to move this ahead.
Neither party is talking about TORT reform to basically put a muzzle on the law suits that have driven malpractice insurance to the point that some Doctors are leaving the profession, making it hard to get health care at any price. For example there is only one Cardiologist listed in Jacksonville (a city of 76,000) and eight in Wilmington (a city of 95000).
Wilmington is a better place to live, I believe. But what about Minot, North Dakota or Missoula Montana? How many cardiologists are there in those places? (Three and Seven if you really want to know and the population is 36600 and 107,000 respectively).
If Doctors already have concluded that lifestyle is important to them and their families, then trying to mandate cost structures will simply reduce the number of Doctors. As the current Doctors reach the point of retirement, will there be replacements in the ready? How many of our Doctors today are not American by birth? In no way am I suggesting that they are not as great as American born, but they represent a brain drain on their country of origin. As those countries (mostly third world emerging countries) begin to offer a similar lifestyle to the USA then the young Doctors may decide to return to their homeland after training leaving us short handed at best.
It is simple economics. If I were smart enough to make it through med school I’m probably smart enough to do almost anything for a career. If the Government is going to dictate what I can and can’t do for a patient, what I can and can’t charge for services I may seriously question spending several hundred thousand dollars on the education to become a doctor. Maybe I’d become an engineer or an electronics wiz kid and develop some new high tech gizmo instead. These could be the “unintended consequences” of the public option. Of course, Nancy and her crew could care less. They have the Congressional Health Care Plan which assures them of the best of everything, AND it is there for them after retirement too. So voting them out of office doesn’t hurt them one bit from the health care perspective.
The economy is showing signs of bottoming. Housing re-sales finally went plus to last year in July selling at an annualized rate of 5.24 million units. This is the highest rate since August 2007. However it was in part due to the sale of many foreclosed properties at ridiculous prices. It is nonetheless a significant positive move and it makes a dot above the “0” line. If we can string a couple more dots together above the line then we will have a trend, regardless how humble. The Philadelphia Fed Index and the Empire State Index have both been trending upward all year but only crossed the “0” line into positive territory in July. Again one dot doesn’t a trend make but both indexes have established solid upward trends just finally going positive.
Some of the headwinds to a robust recovery are the continuously skyrocketing debt, the continuous impending layoff announcements numbering between 75,000 and 100,000 per month. This is shown to be just the tip of the iceberg as first time unemployment applications continue in the 560,000 range each week. This is improving, it had hit a peak of 669,000 the fourth week of March.
The progress is fragile and could be halted by any number of things. Confidence in this country’s economy is weak, Consumer Confidence is well below 50% sort of the “0” point between contraction and expansion. Consumer sentiment, which is highly correlated to spending continues to trend downward. People are afraid. They are afraid of losing their jobs, afraid that their home values will continue to plunge, afraid that their retirement nest egg will continue to be eviscerated. They are saving their money to help them through any tough times that come their way. Smart, yet self defeating. Since our economy is 66-70% consumer goods driven, the increase in savings has a negative impact on the largest single sector in the economy, slowing recovery and endangering their jobs.
As I tell my economics students, check out the opening line of the Constitution. It says “ We the People” . That is all there is, just us. You can tax business all you want, they raise prices and we pay (the tax. You can tax the rich, but they will find ways to earn that money in the lowest tax environment, even if that is the Cayman Islands or Bermuda or wherever. We the people live in a dynamic environment. Nothing is locked in forever. This is a free country. We are free to leave or free to stay. Most of us descended from ancestors who came here from some place. They came because they saw opportunity. Let us not have our smartest, most productive citizens searching for that opportunity elsewhere.
The top wage earners, the often maligned top 1% of Americans, pay more than 40% of all the taxes collected. The next 24% (making up the top 25% of wage earners) pay 46%. So that the top 25% together pay more than 86% of all the taxes collected to run government. The rest of the citizenry, (75%) pay the remaining 14% of all the taxes collected with the bottom 50% paying less than 3% of the dollars collected. So for every dollar the government spends (on health care for example) the lowest 50% of the wage earners (all those who earn $32,000 or less per year) as a group contribute 3 cents. The top 1% already pays 40 cents (in taxes in addition to their own health insurance costs). If that seems a little Robinhood-esk to you, you understand the problem. If the top 1% gets smaller who will pay their share? You, me and our kids and grandkids maybe for generations to come. We dare not cause the rich and famous to seek their opportunity else where. Remember the story of the Golden Goose. Let us not be the generation whose greed killed the goose.
The Democrats don’t want reform without a public option (read Government run ala Medicare) but that will not control cost. Medicare is effectively bankrupt. Cost control and Government to my mind are an oxymoron. Princess Nancy (Pelosi) has said that the House WILL NOT pass anything that doesn’t include the public option while the President seems willing to accept half a loaf just to move this ahead.
Neither party is talking about TORT reform to basically put a muzzle on the law suits that have driven malpractice insurance to the point that some Doctors are leaving the profession, making it hard to get health care at any price. For example there is only one Cardiologist listed in Jacksonville (a city of 76,000) and eight in Wilmington (a city of 95000).
Wilmington is a better place to live, I believe. But what about Minot, North Dakota or Missoula Montana? How many cardiologists are there in those places? (Three and Seven if you really want to know and the population is 36600 and 107,000 respectively).
If Doctors already have concluded that lifestyle is important to them and their families, then trying to mandate cost structures will simply reduce the number of Doctors. As the current Doctors reach the point of retirement, will there be replacements in the ready? How many of our Doctors today are not American by birth? In no way am I suggesting that they are not as great as American born, but they represent a brain drain on their country of origin. As those countries (mostly third world emerging countries) begin to offer a similar lifestyle to the USA then the young Doctors may decide to return to their homeland after training leaving us short handed at best.
It is simple economics. If I were smart enough to make it through med school I’m probably smart enough to do almost anything for a career. If the Government is going to dictate what I can and can’t do for a patient, what I can and can’t charge for services I may seriously question spending several hundred thousand dollars on the education to become a doctor. Maybe I’d become an engineer or an electronics wiz kid and develop some new high tech gizmo instead. These could be the “unintended consequences” of the public option. Of course, Nancy and her crew could care less. They have the Congressional Health Care Plan which assures them of the best of everything, AND it is there for them after retirement too. So voting them out of office doesn’t hurt them one bit from the health care perspective.
The economy is showing signs of bottoming. Housing re-sales finally went plus to last year in July selling at an annualized rate of 5.24 million units. This is the highest rate since August 2007. However it was in part due to the sale of many foreclosed properties at ridiculous prices. It is nonetheless a significant positive move and it makes a dot above the “0” line. If we can string a couple more dots together above the line then we will have a trend, regardless how humble. The Philadelphia Fed Index and the Empire State Index have both been trending upward all year but only crossed the “0” line into positive territory in July. Again one dot doesn’t a trend make but both indexes have established solid upward trends just finally going positive.
Some of the headwinds to a robust recovery are the continuously skyrocketing debt, the continuous impending layoff announcements numbering between 75,000 and 100,000 per month. This is shown to be just the tip of the iceberg as first time unemployment applications continue in the 560,000 range each week. This is improving, it had hit a peak of 669,000 the fourth week of March.
The progress is fragile and could be halted by any number of things. Confidence in this country’s economy is weak, Consumer Confidence is well below 50% sort of the “0” point between contraction and expansion. Consumer sentiment, which is highly correlated to spending continues to trend downward. People are afraid. They are afraid of losing their jobs, afraid that their home values will continue to plunge, afraid that their retirement nest egg will continue to be eviscerated. They are saving their money to help them through any tough times that come their way. Smart, yet self defeating. Since our economy is 66-70% consumer goods driven, the increase in savings has a negative impact on the largest single sector in the economy, slowing recovery and endangering their jobs.
As I tell my economics students, check out the opening line of the Constitution. It says “ We the People” . That is all there is, just us. You can tax business all you want, they raise prices and we pay (the tax. You can tax the rich, but they will find ways to earn that money in the lowest tax environment, even if that is the Cayman Islands or Bermuda or wherever. We the people live in a dynamic environment. Nothing is locked in forever. This is a free country. We are free to leave or free to stay. Most of us descended from ancestors who came here from some place. They came because they saw opportunity. Let us not have our smartest, most productive citizens searching for that opportunity elsewhere.
The top wage earners, the often maligned top 1% of Americans, pay more than 40% of all the taxes collected. The next 24% (making up the top 25% of wage earners) pay 46%. So that the top 25% together pay more than 86% of all the taxes collected to run government. The rest of the citizenry, (75%) pay the remaining 14% of all the taxes collected with the bottom 50% paying less than 3% of the dollars collected. So for every dollar the government spends (on health care for example) the lowest 50% of the wage earners (all those who earn $32,000 or less per year) as a group contribute 3 cents. The top 1% already pays 40 cents (in taxes in addition to their own health insurance costs). If that seems a little Robinhood-esk to you, you understand the problem. If the top 1% gets smaller who will pay their share? You, me and our kids and grandkids maybe for generations to come. We dare not cause the rich and famous to seek their opportunity else where. Remember the story of the Golden Goose. Let us not be the generation whose greed killed the goose.
Sunday, August 9, 2009
July 9, 2009
Can you believe this discourse between Rep. Tom Price MD and the chair of his Congressional Committee?
http://www.youtube.com/watch?v=SD_YOlUBoIk
Talk about serious enemy making. Rep. Price is either the most courageous or most foolish person in Congress. He does, however state his position without doubt and, as a Doctor one would have to give his view point some credibility. Makes you wonder and it makes me concerned about why the hurry, who benefits from moving fast? What key elements get overlooked and what unintended consequences will there be?
This morning on Meet the Press there was a great segment with the Mayor of NYC (Mike Bloomberg (R)) and the Mayor of Newark, NJ (Cory Booker (D)) about several issues including Health Care Reform. They both stated clearly that cost control requires TORT reform, which is not in the current bill. Without this there is no way to provide Health Care and reduce costs. It is a key element in the formula. It would be like trying to bake a cake w/o flour.
It was incredible to sit and listen to two articulate, intelligent and thoughtful people with incredibly difficult jobs explain the issues. Even more impressive, they did it from the opposite side of the aisle, one Democrat, one Republican, one Black, one White most likely of different Religious backgrounds and never did they point any fingers nor deride any person while making the point. More over the points were understandable and even embraceable by most of us.
Can we elect these two to Congress??? Maybe they could get something done that we would all benefit from.
http://www.youtube.com/watch?v=SD_YOlUBoIk
Talk about serious enemy making. Rep. Price is either the most courageous or most foolish person in Congress. He does, however state his position without doubt and, as a Doctor one would have to give his view point some credibility. Makes you wonder and it makes me concerned about why the hurry, who benefits from moving fast? What key elements get overlooked and what unintended consequences will there be?
This morning on Meet the Press there was a great segment with the Mayor of NYC (Mike Bloomberg (R)) and the Mayor of Newark, NJ (Cory Booker (D)) about several issues including Health Care Reform. They both stated clearly that cost control requires TORT reform, which is not in the current bill. Without this there is no way to provide Health Care and reduce costs. It is a key element in the formula. It would be like trying to bake a cake w/o flour.
It was incredible to sit and listen to two articulate, intelligent and thoughtful people with incredibly difficult jobs explain the issues. Even more impressive, they did it from the opposite side of the aisle, one Democrat, one Republican, one Black, one White most likely of different Religious backgrounds and never did they point any fingers nor deride any person while making the point. More over the points were understandable and even embraceable by most of us.
Can we elect these two to Congress??? Maybe they could get something done that we would all benefit from.
Friday, August 7, 2009
July 8, 2009
Its been a little more than a week since I was able to update this blog. For those who follow regularly I apologize.
It has been an interesting week. It would appear that Cash for Clunkers is a huge success. Chrysler, who at one point had something like 180 days of inventory on the lots, is now running overtime to refill the pipe lines. Ford actually sold more cars this month (July 09) than they did in July ’08. That’s a stimulus package. If we’d done this six months ago maybe we wouldn’t have added a Trillion dollars to the debt. Germany did it late winter or early spring. But wait, what do they know.
The stock market has jumped up shouting the economy “ITS ALIVE” and the President is telling us that the stimulus is working. Let me put it into context for you. Unemployment is still rising, albeit more slowly than it was. The economy MAY actually grow in the third quarter. Anything less than 1% growth means it contracted were it not for Cash for Clunkers. $3 Billion in car sales equal at least 1% on the GDP. Since the definition of recession is at least two consecutive quarters of negative growth then lets not be fooled by one quarter of artificially contrived positive growth. We have a fundamental problem. It is unemployment. The work force grows at 1% a year fueled by kids that insist on growing up and pesky immigration (legal). America is the home of innovation and productivity is our middle name. Technology and innovation generally improve productivity by about 2% per year. Great stuff. Keep costs down.
That said however, it means that the economy (GDP) must grow by 3% just to keep the unemployment rate steady. At a robust 5% annual growth rate we could get unemployment down to 5% in 2 ½ to three years. If we could generate a 5% growth in each of the next 3 years, in would be very hard to control runaway inflation. Suddenly it would be a sellers market in employment so salaries would skyrocket, costs would spiral as more money chased the goods available and interest rates would explode. Do any of you remember Mr. Carter’s days as President? When mortgages were 16% and a fixed rate mortgage was NOT available. C’mon if you really don’t remember ask your parents, it was only 25 years ago.
So do we solve the problem in three years creating a new problem while doing so or do we live with higher unemployment for 5 or six years. Neither choice is much fun to think about. It may just be the only two options.
On the brighter side, housing is slowly, very slowly, starting to crawl out of the shadows all around the country. This is particularly good news for us here on the Carolina Coast. We are a destination. When people in other places can once again sell their homes they will flock here again. Like the water pressure at the narrow end of the funnel, every little increase in pressure at the wide end increases the pressure in the narrow end geometrically, and we are the narrow end. Things here are getting brighter and will continue to improve more quickly than the country as a whole. We have this time, this respite, to do the things that will make the next surge profitable for our businesses and for our communities. While costs are low, we need to look at schools and other infrastructure opportunities and get them built. It is my belief that if we build it now we can stay ahead of development for the next decade. If not, we will be playing expensive catch up.
Oh, don’t be surprised if some of the information you’ve been hearing turns a bit less optimistic. This was the worst recession since the 1930’s and this time we can’t rely on exports to help us out. It will take a couple more years if all goes well. Longer if it doesn’t. Economics is color blind. It doesn’t care what your skin color, ethnic origin or socio economic classification might be. Every group has been hurt and hurt badly. It will take the co-operation of everyone to help our communities not only survive but prosper over the next five years.
It has been an interesting week. It would appear that Cash for Clunkers is a huge success. Chrysler, who at one point had something like 180 days of inventory on the lots, is now running overtime to refill the pipe lines. Ford actually sold more cars this month (July 09) than they did in July ’08. That’s a stimulus package. If we’d done this six months ago maybe we wouldn’t have added a Trillion dollars to the debt. Germany did it late winter or early spring. But wait, what do they know.
The stock market has jumped up shouting the economy “ITS ALIVE” and the President is telling us that the stimulus is working. Let me put it into context for you. Unemployment is still rising, albeit more slowly than it was. The economy MAY actually grow in the third quarter. Anything less than 1% growth means it contracted were it not for Cash for Clunkers. $3 Billion in car sales equal at least 1% on the GDP. Since the definition of recession is at least two consecutive quarters of negative growth then lets not be fooled by one quarter of artificially contrived positive growth. We have a fundamental problem. It is unemployment. The work force grows at 1% a year fueled by kids that insist on growing up and pesky immigration (legal). America is the home of innovation and productivity is our middle name. Technology and innovation generally improve productivity by about 2% per year. Great stuff. Keep costs down.
That said however, it means that the economy (GDP) must grow by 3% just to keep the unemployment rate steady. At a robust 5% annual growth rate we could get unemployment down to 5% in 2 ½ to three years. If we could generate a 5% growth in each of the next 3 years, in would be very hard to control runaway inflation. Suddenly it would be a sellers market in employment so salaries would skyrocket, costs would spiral as more money chased the goods available and interest rates would explode. Do any of you remember Mr. Carter’s days as President? When mortgages were 16% and a fixed rate mortgage was NOT available. C’mon if you really don’t remember ask your parents, it was only 25 years ago.
So do we solve the problem in three years creating a new problem while doing so or do we live with higher unemployment for 5 or six years. Neither choice is much fun to think about. It may just be the only two options.
On the brighter side, housing is slowly, very slowly, starting to crawl out of the shadows all around the country. This is particularly good news for us here on the Carolina Coast. We are a destination. When people in other places can once again sell their homes they will flock here again. Like the water pressure at the narrow end of the funnel, every little increase in pressure at the wide end increases the pressure in the narrow end geometrically, and we are the narrow end. Things here are getting brighter and will continue to improve more quickly than the country as a whole. We have this time, this respite, to do the things that will make the next surge profitable for our businesses and for our communities. While costs are low, we need to look at schools and other infrastructure opportunities and get them built. It is my belief that if we build it now we can stay ahead of development for the next decade. If not, we will be playing expensive catch up.
Oh, don’t be surprised if some of the information you’ve been hearing turns a bit less optimistic. This was the worst recession since the 1930’s and this time we can’t rely on exports to help us out. It will take a couple more years if all goes well. Longer if it doesn’t. Economics is color blind. It doesn’t care what your skin color, ethnic origin or socio economic classification might be. Every group has been hurt and hurt badly. It will take the co-operation of everyone to help our communities not only survive but prosper over the next five years.
Monday, July 27, 2009
July 27, 2009
The market has been showing some sign of strength this past week, with the DOW finally closing above 9000. Surely this is a green shoot.
Housing, a number near and dear to many around coastal NC, showed signs of stability. Empirical data suggests that there is some activity. I see homes under construction in neighborhoods where I live. The housing numbers nationally are showing stability although stability at a level 40% below the peak of 2005 in terms of unit sales. New housing sales have been another green shoot, up a lot on a month to month basis. Only a green shoot because they are still trailing last year by more than 25%.
At least one pundit has declared that the recession is over. Technically, maybe it is. Surviving the recovery will be challenging at best and overwhelming at worst.
Unemployment will stay high and go even higher during the second half of 2009 It will remain high through 2010. This recovery will be slow and arduous, especially for small businesses. Again, there is empirical evidence that the small business community, the engine of growth in the USA, is struggling. In my neighborhood and across Wilmington, NC I see more and more empty store fronts.
Credit remains an issue and may never return to where it was. The days of the no documentation loan is probably gone forever and low credit scores aren’t likely to qualify either. Fixing your bad credit rating will be more important than ever but difficult to do if you don’t have a job.
As we are seeing, people still need to buy housing. They may be a lot more hesitant to speculate on housing. After the Depression of the 1930’s, people were reluctant to invest in the stock market. Banks had failed (without FDIC insurance) so there must have been a lot of lumpy mattresses.
How well you fair in today’s economy will be determined by where you are in the food chain. As Peter Drucker, the famous management guru said more than 40 years ago, “The workers of the future will be knowledge workers”. He was right then and remains right today. The future of our way of life depends upon how knowledgeable we are. Education and innovation will be the future. If we provide quality education and encourage innovation (95% of radical new product ideas come from small businesses)we will be able to continue life as we would like it to be. Absent these, we will become a poor nation working for others. We will trade places with China and India.
If you have a profession or are a knowledge worker, you will be among the first to enjoy the coming recovery. If you are not a professional or knowledge worker and you don’t have a job (or even if you do) now is the time to get the education you need to qualify. Get those knowledge skills up to speed. Check out Community Colleges as a low cost source for your educational needs.
Housing, a number near and dear to many around coastal NC, showed signs of stability. Empirical data suggests that there is some activity. I see homes under construction in neighborhoods where I live. The housing numbers nationally are showing stability although stability at a level 40% below the peak of 2005 in terms of unit sales. New housing sales have been another green shoot, up a lot on a month to month basis. Only a green shoot because they are still trailing last year by more than 25%.
At least one pundit has declared that the recession is over. Technically, maybe it is. Surviving the recovery will be challenging at best and overwhelming at worst.
Unemployment will stay high and go even higher during the second half of 2009 It will remain high through 2010. This recovery will be slow and arduous, especially for small businesses. Again, there is empirical evidence that the small business community, the engine of growth in the USA, is struggling. In my neighborhood and across Wilmington, NC I see more and more empty store fronts.
Credit remains an issue and may never return to where it was. The days of the no documentation loan is probably gone forever and low credit scores aren’t likely to qualify either. Fixing your bad credit rating will be more important than ever but difficult to do if you don’t have a job.
As we are seeing, people still need to buy housing. They may be a lot more hesitant to speculate on housing. After the Depression of the 1930’s, people were reluctant to invest in the stock market. Banks had failed (without FDIC insurance) so there must have been a lot of lumpy mattresses.
How well you fair in today’s economy will be determined by where you are in the food chain. As Peter Drucker, the famous management guru said more than 40 years ago, “The workers of the future will be knowledge workers”. He was right then and remains right today. The future of our way of life depends upon how knowledgeable we are. Education and innovation will be the future. If we provide quality education and encourage innovation (95% of radical new product ideas come from small businesses)we will be able to continue life as we would like it to be. Absent these, we will become a poor nation working for others. We will trade places with China and India.
If you have a profession or are a knowledge worker, you will be among the first to enjoy the coming recovery. If you are not a professional or knowledge worker and you don’t have a job (or even if you do) now is the time to get the education you need to qualify. Get those knowledge skills up to speed. Check out Community Colleges as a low cost source for your educational needs.
Monday, July 20, 2009
July 21, 2009
Give me a week of quiet to think and my brain overflows. Getting all this down on paper seems therapeutic.
Health care reform is again in jeopardy. The economy is in a very fragile early stage recovery. Anything that impacts income negatively could derail the recovery. Increases in taxes by local, state or federal governments are a real show stopper.
Foreign demand for US Bonds, a principle source of funding for spending not covered by taxes, is in a decided decline. Foreigners are afraid of an inflationary devaluation of the US Dollar. Do they have good reason to suspect that it will become our only option if we continue to spend on new programs?
Perhaps health care reform, real and meaningful reform, which I personally favor, may have to wait until we get the economy back on track. The glory days of the 1950’s and 1960’s were a function of pent up demand from the great depression and WWI & WWII. Europe and Japan were largely destroyed so global competition wasn’t a real factor. In the 1950’s “made in Japan” meant use it once and throw it away. Here at home we were implementing technologies that were developed in war time and productivity growth was enormous.
Today is a very different story. Japan, China and Europe are rebuilt providing modern production options with quality and reliability equal to or better than our own. Today there is no pent up demand around the world anxious to replace things destroyed by war or made unavailable by the war effort. Remember, no cars were produced in the United States in 1942 – 1945. All the factories were producing tanks and military vehicles. There were no imports available at that time either.
We have used strings, mirrors and smoke to stretch our seeming prosperity since the 1970’s. Tricky Dicky Nixon was in charge when we went off the gold standard (one troy ounce of gold = $37USD). Today gold is trading at $952 per ounce. That is some serious inflation in just 30 years. What the future will bring is anyone’s guess. Those people who sell Gold based investments keep saying things like $2000 or $2500 per ounce. They have a self interest motivation for such speculative statements. Still, I wonder. The growth in gold since we dropped the gold standard has been about 12% per year compounded (not in a straight line, of course). But what if that continues into the future? Where will gold be in 2039 (thirty years from now)?
Taxing the rich is an interesting and time honored tradition. What is interesting is that, since women joined the work force in large numbers, the gap between rich and poor has widened. The expression “birds of a feather” comes into play here. Women with education tend to marry men with education. Education has a high correlation with income. Therefore it can be stated that women with high earning potential marry men with high earning potential and conversely women with low earning potential tend to marry men of similar potential. (I believe the gay community mirrors the straight community in this regard). Thus the gap in income is magnified. Large gaps tend to create a "them and us" society which can be a volatile problem. Remember the race riots of the 1960’s?
The moral and political question is how to shrink the gap. Do you tax the wealthy and give to the poor "the Robin Hood syndrome", or do you tax the wealthy and spend more on education programs and incentives to reduce the income gap forever? One is a more politically expedient method and the other longer term but more lasting and sustainable. To date we have been working, it seems, with a foot in each camp. Low income earners pay no taxes and get money (EIC credit etc) from the government (which it collected from the richer of our citizenry). School spending per student is amongst the highest in the world yet the results are abysmal. Perhaps it is not how much we spend but how we spend it. Again, politically charged decision making. Which programs are working and which are not. No child left behind was a well intentioned program. Are its results supportive of continuing or should we admit error and move on to a new idea? Should charter schools be continued and even helped to grow? Are they more effective at educating people? What percentage of our resources should be spent helping children with learning disabilities and what percentage should be spent on the brightest, most gifted children? Should schools be allowed to discriminate based on ability? How can we judge in a fair and unbiased way?
I don’t have answers, just questions. Questions I hope you have and are concerned about too. I want to hear the answers proposed by our elected officials in clear and unambiguous terms so that we can judge their motives...and their results in the voting booth.
Health care reform is again in jeopardy. The economy is in a very fragile early stage recovery. Anything that impacts income negatively could derail the recovery. Increases in taxes by local, state or federal governments are a real show stopper.
Foreign demand for US Bonds, a principle source of funding for spending not covered by taxes, is in a decided decline. Foreigners are afraid of an inflationary devaluation of the US Dollar. Do they have good reason to suspect that it will become our only option if we continue to spend on new programs?
Perhaps health care reform, real and meaningful reform, which I personally favor, may have to wait until we get the economy back on track. The glory days of the 1950’s and 1960’s were a function of pent up demand from the great depression and WWI & WWII. Europe and Japan were largely destroyed so global competition wasn’t a real factor. In the 1950’s “made in Japan” meant use it once and throw it away. Here at home we were implementing technologies that were developed in war time and productivity growth was enormous.
Today is a very different story. Japan, China and Europe are rebuilt providing modern production options with quality and reliability equal to or better than our own. Today there is no pent up demand around the world anxious to replace things destroyed by war or made unavailable by the war effort. Remember, no cars were produced in the United States in 1942 – 1945. All the factories were producing tanks and military vehicles. There were no imports available at that time either.
We have used strings, mirrors and smoke to stretch our seeming prosperity since the 1970’s. Tricky Dicky Nixon was in charge when we went off the gold standard (one troy ounce of gold = $37USD). Today gold is trading at $952 per ounce. That is some serious inflation in just 30 years. What the future will bring is anyone’s guess. Those people who sell Gold based investments keep saying things like $2000 or $2500 per ounce. They have a self interest motivation for such speculative statements. Still, I wonder. The growth in gold since we dropped the gold standard has been about 12% per year compounded (not in a straight line, of course). But what if that continues into the future? Where will gold be in 2039 (thirty years from now)?
Taxing the rich is an interesting and time honored tradition. What is interesting is that, since women joined the work force in large numbers, the gap between rich and poor has widened. The expression “birds of a feather” comes into play here. Women with education tend to marry men with education. Education has a high correlation with income. Therefore it can be stated that women with high earning potential marry men with high earning potential and conversely women with low earning potential tend to marry men of similar potential. (I believe the gay community mirrors the straight community in this regard). Thus the gap in income is magnified. Large gaps tend to create a "them and us" society which can be a volatile problem. Remember the race riots of the 1960’s?
The moral and political question is how to shrink the gap. Do you tax the wealthy and give to the poor "the Robin Hood syndrome", or do you tax the wealthy and spend more on education programs and incentives to reduce the income gap forever? One is a more politically expedient method and the other longer term but more lasting and sustainable. To date we have been working, it seems, with a foot in each camp. Low income earners pay no taxes and get money (EIC credit etc) from the government (which it collected from the richer of our citizenry). School spending per student is amongst the highest in the world yet the results are abysmal. Perhaps it is not how much we spend but how we spend it. Again, politically charged decision making. Which programs are working and which are not. No child left behind was a well intentioned program. Are its results supportive of continuing or should we admit error and move on to a new idea? Should charter schools be continued and even helped to grow? Are they more effective at educating people? What percentage of our resources should be spent helping children with learning disabilities and what percentage should be spent on the brightest, most gifted children? Should schools be allowed to discriminate based on ability? How can we judge in a fair and unbiased way?
I don’t have answers, just questions. Questions I hope you have and are concerned about too. I want to hear the answers proposed by our elected officials in clear and unambiguous terms so that we can judge their motives...and their results in the voting booth.
Sunday, July 19, 2009
July 20,2009
July 20, 2009
I took last week off and went to the beach without my laptop, blackberry or anything other than a basic cell phone. I wanted to see if I could go a whole week without any outside contact. It was amazingly liberating…after the first few panic attacks.
It was really refreshing to be able to think without having my thoughts interrupted by tweets, face book, text messages, etc. Thinking is a good mental exercise. The mind, like other body parts requires exercise to stay healthy and at the top of its game. The Ocean and the weather really cooperated making it a wonderfully relaxing week.
Now I’m back with a clearer head on what the economy is doing and how panic struck the administration and congress is. It is going to be a challenge for us and for them. Now is the time to make your feelings known to your representatives on the key topics of national debt, taxes and health care. Just remember you can’t have programs without the funding for them. Tough choices are going to be made. Get your voice heard.
Democrats, minus Sen’s Byrd and Kennedy (both ill), don’t have the magical 60 votes in the senate and there are some more conservative Democratic Senators who are uncomfortable with the size of the Debt. The once Messianic President is seeing the ratings drop as debt and unemployment climb and the economy fails to respond to his brand of stimulus. Check out the stock markets of Asia and even Europe and compare them to ours. Not pretty.
On the brighter side, The Philadelphia Fed Index and the Empire State Index are running a parallel and very positive trend although neither has passed the “0” point yet which is the transition from contraction to expansion. First time unemployment claims have slowed, meaning unemployment continues to grow, just at a slower rate. Not great news but positive. The State Street Investors Index is showing the highest results in more than a year in both the last two months. Other leading economic indicators are showing positive signs as well. The overall unemployment rate will continue to rise, since companies don’t hire people back until they are sure that there will be a need. Overtime is a nice expansion valve and an easy economic indicator. When it is cheaper to hire a new employee than it is to pay overtime, unemployment will start to decline. That will be awhile.
In the interim, if you have cash available, you can get some great deals on just about anything you need. Note that cash is king. Financing is still difficult to arrange for all but the very best borrowers and then only for the best of deals. A year or 18 months from now these deals will be gone, so keep that in mind. Mortgage money is starting to get more expensive and housing prices have begun to stabilize. If you are a potential first time buyer the government will give you major bucks to help you get that first home. That deal may disappear in the not too distant future so remember the phrase- He who hesitates is lost.
In summary, Congress is afraid of the cost (read that tax increases) of the reforms Mr. Obama is pushing and at the same time afraid that doing nothing (their favorite approach to dicey issues) is no longer an option. The economy is still contracting and the national debt is skyrocketing. No easy fix this time. Just hard facts and tough medicine. What will they do and will you remember at the polls in 2010?
I took last week off and went to the beach without my laptop, blackberry or anything other than a basic cell phone. I wanted to see if I could go a whole week without any outside contact. It was amazingly liberating…after the first few panic attacks.
It was really refreshing to be able to think without having my thoughts interrupted by tweets, face book, text messages, etc. Thinking is a good mental exercise. The mind, like other body parts requires exercise to stay healthy and at the top of its game. The Ocean and the weather really cooperated making it a wonderfully relaxing week.
Now I’m back with a clearer head on what the economy is doing and how panic struck the administration and congress is. It is going to be a challenge for us and for them. Now is the time to make your feelings known to your representatives on the key topics of national debt, taxes and health care. Just remember you can’t have programs without the funding for them. Tough choices are going to be made. Get your voice heard.
Democrats, minus Sen’s Byrd and Kennedy (both ill), don’t have the magical 60 votes in the senate and there are some more conservative Democratic Senators who are uncomfortable with the size of the Debt. The once Messianic President is seeing the ratings drop as debt and unemployment climb and the economy fails to respond to his brand of stimulus. Check out the stock markets of Asia and even Europe and compare them to ours. Not pretty.
On the brighter side, The Philadelphia Fed Index and the Empire State Index are running a parallel and very positive trend although neither has passed the “0” point yet which is the transition from contraction to expansion. First time unemployment claims have slowed, meaning unemployment continues to grow, just at a slower rate. Not great news but positive. The State Street Investors Index is showing the highest results in more than a year in both the last two months. Other leading economic indicators are showing positive signs as well. The overall unemployment rate will continue to rise, since companies don’t hire people back until they are sure that there will be a need. Overtime is a nice expansion valve and an easy economic indicator. When it is cheaper to hire a new employee than it is to pay overtime, unemployment will start to decline. That will be awhile.
In the interim, if you have cash available, you can get some great deals on just about anything you need. Note that cash is king. Financing is still difficult to arrange for all but the very best borrowers and then only for the best of deals. A year or 18 months from now these deals will be gone, so keep that in mind. Mortgage money is starting to get more expensive and housing prices have begun to stabilize. If you are a potential first time buyer the government will give you major bucks to help you get that first home. That deal may disappear in the not too distant future so remember the phrase- He who hesitates is lost.
In summary, Congress is afraid of the cost (read that tax increases) of the reforms Mr. Obama is pushing and at the same time afraid that doing nothing (their favorite approach to dicey issues) is no longer an option. The economy is still contracting and the national debt is skyrocketing. No easy fix this time. Just hard facts and tough medicine. What will they do and will you remember at the polls in 2010?
Friday, July 10, 2009
July 10, 2009
This week started out where last week left off. The economic news, frankly, stinks and the markets are reflecting it. Billions pledged for a stimulus and less than 20% spent so far. Talk about to little to late. Of course there is talk of “green shoots”. The number of people filing for unemployment benefits came down under 600,000 for the first time since the beginning of February. That means that the employment picture is getting worse, but at a slower pace. Mr. Obama said the stimulus bill would keep unemployment at 8%. We will likely hit 10% nationally and much higher in some regions.
The National debt is running wild, wild even compared to Bush. That is a frightful thing and will mean billions of new taxes. Obama may have made the George Bush 41 error. Bush 41 said “watch my lips, no new taxes” and then raised taxes. Probably cost him a second term. Bush 43 figured he’d cut taxes and borrow whatever Congress over spent. He got a second term. Can you see where this is leading. Obama 44 is borrowing and raising taxes.
Retail sales reports are showing that retail sales are significantly depressed but they don’t appear to be getting worse. With unemployment stats where they are, that is actually a positive sign. Remember that our economy is 70% consumer driven. Even a small move, positive or negative, has a meaningful impact on the overall economic picture. Housing it seems will have another round of problems. No real surprise, many 3 year and 5 year arms are now about to reset and while they may be affordable, they may be far enough underwater not to be worth paying. Walk away and rent for a couple of years then buy another house for a lot less. Might even be able to find a rent to own deal at less per month than the mortgage on the old house and be building positive equity in the process. Not that I’m recommending anything here. I’m just suggesting that some people might see that as an option. Others might stay, paying way more for a house than it is now worth rather than dislocate the family and upset schools, church/synagogue/mosque and other family support institutions while hoping that in 10 years the house will have regained its value and they will have substantial equity. Profit, it seems is made on the sale, not on the purchase.
Based on oil at $60 per barrel, the fall price of gasoline will be around $2.25 - $2.35 per gallon. Oil at $60 per barrel indicates no fear of rising demand. This translates into no expectation of economic recovery world wide in the near term. Rising insurance rates and rising taxes will suppress recovery. This is going to be a long drawn out process.
Congress needs a wake up call. Perhaps we should replace a number of them in the up coming 2010 election. There are numskulls on both sides of the aisle who would be excellent candidates for recycling.
If Mr. Obama wants to reach across the aisle and get the best candidate to work on health care reform he should call Mitt Romney. Why? Because Massachusetts has healthcare available to everyone and it was shepherded in under Mr. Romney as Governor. He understands how it works, why it works, what it costs and how to pay for it. He has been a businessman, he has demonstrated managerial expertise and he did it as a Republican Governor with a Democratic legislature (in the home state of Senator John Kerry and Senator Ted Kennedy). Clearly he is adroit at negotiating the important issues across partisan lines.
To sum up this past week, there is no good news except that the news is less bad. As slowing down as you approach a red light signals your intention to stop, the economy may be signaling that it is going to stop declining before much longer. As the stop at a red light is followed by restarting when the light changes to green, we can assume that the economy may soon begin to reverse course. How soon is anybody’s guess, but mine is mid 2010. And when it does it will be slow and tentative, with some false starts.
This week started out where last week left off. The economic news, frankly, stinks and the markets are reflecting it. Billions pledged for a stimulus and less than 20% spent so far. Talk about to little to late. Of course there is talk of “green shoots”. The number of people filing for unemployment benefits came down under 600,000 for the first time since the beginning of February. That means that the employment picture is getting worse, but at a slower pace. Mr. Obama said the stimulus bill would keep unemployment at 8%. We will likely hit 10% nationally and much higher in some regions.
The National debt is running wild, wild even compared to Bush. That is a frightful thing and will mean billions of new taxes. Obama may have made the George Bush 41 error. Bush 41 said “watch my lips, no new taxes” and then raised taxes. Probably cost him a second term. Bush 43 figured he’d cut taxes and borrow whatever Congress over spent. He got a second term. Can you see where this is leading. Obama 44 is borrowing and raising taxes.
Retail sales reports are showing that retail sales are significantly depressed but they don’t appear to be getting worse. With unemployment stats where they are, that is actually a positive sign. Remember that our economy is 70% consumer driven. Even a small move, positive or negative, has a meaningful impact on the overall economic picture. Housing it seems will have another round of problems. No real surprise, many 3 year and 5 year arms are now about to reset and while they may be affordable, they may be far enough underwater not to be worth paying. Walk away and rent for a couple of years then buy another house for a lot less. Might even be able to find a rent to own deal at less per month than the mortgage on the old house and be building positive equity in the process. Not that I’m recommending anything here. I’m just suggesting that some people might see that as an option. Others might stay, paying way more for a house than it is now worth rather than dislocate the family and upset schools, church/synagogue/mosque and other family support institutions while hoping that in 10 years the house will have regained its value and they will have substantial equity. Profit, it seems is made on the sale, not on the purchase.
Based on oil at $60 per barrel, the fall price of gasoline will be around $2.25 - $2.35 per gallon. Oil at $60 per barrel indicates no fear of rising demand. This translates into no expectation of economic recovery world wide in the near term. Rising insurance rates and rising taxes will suppress recovery. This is going to be a long drawn out process.
Congress needs a wake up call. Perhaps we should replace a number of them in the up coming 2010 election. There are numskulls on both sides of the aisle who would be excellent candidates for recycling.
If Mr. Obama wants to reach across the aisle and get the best candidate to work on health care reform he should call Mitt Romney. Why? Because Massachusetts has healthcare available to everyone and it was shepherded in under Mr. Romney as Governor. He understands how it works, why it works, what it costs and how to pay for it. He has been a businessman, he has demonstrated managerial expertise and he did it as a Republican Governor with a Democratic legislature (in the home state of Senator John Kerry and Senator Ted Kennedy). Clearly he is adroit at negotiating the important issues across partisan lines.
To sum up this past week, there is no good news except that the news is less bad. As slowing down as you approach a red light signals your intention to stop, the economy may be signaling that it is going to stop declining before much longer. As the stop at a red light is followed by restarting when the light changes to green, we can assume that the economy may soon begin to reverse course. How soon is anybody’s guess, but mine is mid 2010. And when it does it will be slow and tentative, with some false starts.
Saturday, July 4, 2009
Happy 4th of July
July 6, 2009
To say that this week has not been one of positives would be an understatement. On Thursday we heard, to some surprise it seems, that unemployment is continuing to rise at a steady rate. It is not slowing as had been predicted by the government distributors of Cool Aid. The “Porkulus” package promulgated by Queen Nancy has only been 15% implemented so far and it is no wonder it has not yet accomplished its alleged mission of stimulus. Billions poured into the car industry has done little, especially when you recognize that of the top 10 selling cars made in America, only one is built in Detroit. The other nine are built in states other than Michigan and most of them are built by Toyota, Honda and Ford.
“Payrolls in U.S. Decline More Than Forecast; Unemployment Climbs to 9.5% Employers in the U.S. cut more jobs than forecast in June and the unemployment rate rose to the highest in almost 26 years, offering little evidence the Obama administration’s stimulus package is putting Americans back to work.” (1)
The market is virtually ALWAYS in a funk in the summer. Investors sell and go away for the summer for vacation. New cars are hot in the fall when new models are traditionally introduced, not in the summer. The real indication of how things are perceived to be going will come when investors return in the fall. If the markets fail to rally it will be a long, cold and difficult winter. With nearly 1 worker in 10 (16,000,000) unable to find work – the most workers in the history of the Untied States – we could be facing a really bleak winter.
State and local budgets are in deep trouble nationwide and without income tax revenues they, too, will see the crisis deepen. Perhaps it is time for all of us to respond to the 1961 inaugural command of John F. Kennedy “Ask not what your country can do for you. Ask what you can do for your country”. Volunteerism maybe the only solution. If critical services (Fire/Police/Teachers) must be cut due to budget issues, perhaps each of us could volunteer to pick up the slack until things improve. Parents can be teachers or teacher’s aids. Can’t get a job anyway, might as well help out. Fire fighters and Police need extensive training but dispatchers, and other support tasks aren’t as complicated. We might even find that we like it. Perhaps it could be the start of a major cultural shift back to the value of being good neighbors that made this country great. A mind shift to what can I do for you rather than what can you do for me.
On the International scene, "India Joins Russia, China in Questioning Dominance of U.S. Dollar Reserves Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars." (2)
This suggests that the dollar will be allowed to fall in value making exports cheaper and imports (cars and other goods including oil) more expensive. That means the dollars you have saved will buy less than they did when you saved them. And when the government gets done raising your taxes you’ll have fewer of those dollars left. It also means that interest rates will rise. This is not a good sign for the coming years for the average American unless we can recover our manufacturing base and begin buying goods made in America, thereby putting Americans back to work. Then we will still have a dollar worth less than it was but at least we will be able to earn more of them. Buy cars made in America. It helps American workers and doesn’t hurt you. Most of the cars we want are already made in America, Honda Civic and Accord, Nissan Altima, Toyota Camry and many more.
Let’s remember that we need to support one another not just ourselves. Times are tough, are you part of the solution or part of the problem? It is time to stand up and be counted. Which column will you be in?
Does that sound protectionist? I’m not suggesting that we revert to official protectionism, I just intend to increase our awareness of the consequences of our actions. Buying things made in America may cost a bit more today but will put someone back to work sooner and that will cost us all less tomorrow.
Happy July 4th. I hope your Holiday is safe and great fun. Just remember the long range thinking that was behind the fight for independence that we celebrate and personally take on the mantle of that responsibility as we go forward each day in each decision we take.
(1) Bloomberg News Online 7/2/2009
(2) Bloomberg News Online 7/4/2009
To say that this week has not been one of positives would be an understatement. On Thursday we heard, to some surprise it seems, that unemployment is continuing to rise at a steady rate. It is not slowing as had been predicted by the government distributors of Cool Aid. The “Porkulus” package promulgated by Queen Nancy has only been 15% implemented so far and it is no wonder it has not yet accomplished its alleged mission of stimulus. Billions poured into the car industry has done little, especially when you recognize that of the top 10 selling cars made in America, only one is built in Detroit. The other nine are built in states other than Michigan and most of them are built by Toyota, Honda and Ford.
“Payrolls in U.S. Decline More Than Forecast; Unemployment Climbs to 9.5% Employers in the U.S. cut more jobs than forecast in June and the unemployment rate rose to the highest in almost 26 years, offering little evidence the Obama administration’s stimulus package is putting Americans back to work.” (1)
The market is virtually ALWAYS in a funk in the summer. Investors sell and go away for the summer for vacation. New cars are hot in the fall when new models are traditionally introduced, not in the summer. The real indication of how things are perceived to be going will come when investors return in the fall. If the markets fail to rally it will be a long, cold and difficult winter. With nearly 1 worker in 10 (16,000,000) unable to find work – the most workers in the history of the Untied States – we could be facing a really bleak winter.
State and local budgets are in deep trouble nationwide and without income tax revenues they, too, will see the crisis deepen. Perhaps it is time for all of us to respond to the 1961 inaugural command of John F. Kennedy “Ask not what your country can do for you. Ask what you can do for your country”. Volunteerism maybe the only solution. If critical services (Fire/Police/Teachers) must be cut due to budget issues, perhaps each of us could volunteer to pick up the slack until things improve. Parents can be teachers or teacher’s aids. Can’t get a job anyway, might as well help out. Fire fighters and Police need extensive training but dispatchers, and other support tasks aren’t as complicated. We might even find that we like it. Perhaps it could be the start of a major cultural shift back to the value of being good neighbors that made this country great. A mind shift to what can I do for you rather than what can you do for me.
On the International scene, "India Joins Russia, China in Questioning Dominance of U.S. Dollar Reserves Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars." (2)
This suggests that the dollar will be allowed to fall in value making exports cheaper and imports (cars and other goods including oil) more expensive. That means the dollars you have saved will buy less than they did when you saved them. And when the government gets done raising your taxes you’ll have fewer of those dollars left. It also means that interest rates will rise. This is not a good sign for the coming years for the average American unless we can recover our manufacturing base and begin buying goods made in America, thereby putting Americans back to work. Then we will still have a dollar worth less than it was but at least we will be able to earn more of them. Buy cars made in America. It helps American workers and doesn’t hurt you. Most of the cars we want are already made in America, Honda Civic and Accord, Nissan Altima, Toyota Camry and many more.
Let’s remember that we need to support one another not just ourselves. Times are tough, are you part of the solution or part of the problem? It is time to stand up and be counted. Which column will you be in?
Does that sound protectionist? I’m not suggesting that we revert to official protectionism, I just intend to increase our awareness of the consequences of our actions. Buying things made in America may cost a bit more today but will put someone back to work sooner and that will cost us all less tomorrow.
Happy July 4th. I hope your Holiday is safe and great fun. Just remember the long range thinking that was behind the fight for independence that we celebrate and personally take on the mantle of that responsibility as we go forward each day in each decision we take.
(1) Bloomberg News Online 7/2/2009
(2) Bloomberg News Online 7/4/2009
Wednesday, July 1, 2009
Recovery???
June 30, 2009
6 months into the year and a little over 5 months in to the new administration and the economy is still floundering. We can point to the Bush administration as the cause but the current administration hasn’t made major in-roads into its solution despite committing billions upon billions of your future taxes. Today the troops moved out of major cities in Iraq turning the security for those areas over to the Iraqi government. Pray for the people of Iraq as the next weeks and months could be really tough. Hopefully we can start saving some of the money we were spending there. We can use it for the overhaul of health care.
Afghanistan continues to consume enormous amounts of money and material not to mention American lives. When do we follow suit and leave the Afghani people to protect themselves.
The economy continues to disappoint. Unemployment continues to rise. People are losing their retirement savings and politicians seem to have no idea how to cut a budget. It is time to admit we can’t do everything we want to do for everyone who needs help. We are no longer the richest country in the world (actually #10 in GDP per Capita according to the CIA World Book). We are deeply in debt and we must tighten our collective and individual belts. Of course that hurts votes and might risk political jobs. Can’t help the people if I’m not in office to do it, they argue. Won’t help the people if I want to stay in office is how that translates. We need political leaders who are willing to make the right call whether we like it or not. Washington, Lincoln and other greats did. They deserve our support when they do the right thing even when it doesn’t fell so good personally. They deserve informed and educated voters who can see past their personal self interest and put the best interest of the country first.
Gasoline will top out below the $3.00 number this month and begin to decline back toward $2.40 maybe even $2.25 per gallon by fall. Watch for it to skyrocket at the first real sign of economic recovery.
Energy will be a huge tax problem if cap and tax carbon tax program is passed. Everything you and I buy is made with energy and carbon based fuels. This will drive up the cost of…everything. While you and I may not get a tax bill directly like we do on April 15th, it will be included in everything you and I purchase, including food which is planted and harvested, processed and transported using carbon based fuels.
We just put Billions into two failed car makers and I was passed on the highway (I-140) here in Wilmington North Carolina by a Tesla Roadster. For you who don’t follow the car scene, Tesla Motors (California) produces a high performance ALL ELECTRIC sports car capable of Corvette and Ferrari performance completely electrically and gets lots of miles (220 according to the web site)between recharging. So where is Ford, GM and Chrysler? Where did those Billions go? Why aren’t we supporting Tesla and others engaged in creating the next generation automobile instead of trying to save the old generation? That would be like trying to save an old computer company who still produced main frame technology instead of I-Pods and I-phones. Why support one G technology when we could be support 4 G and 5 G technologies? Hmmm... Does campaign contributions come to mind?
Mr. Obama promised change but has yet to fix any of the real problems. He is just attacking symptoms. Rising health care costs could be contained if we limited Doctors liability (Tort Reform). Gitmo is still open (and should remain so), Unemployment is still growing, Mortgage rates are starting to climb and even the first time buyer credit is only minimally effective. The Speaker of the House, Nancy Pelosi – 3rd in line to the Presidency – represents California where the biggest problem has been and continues to be their inability to balance their budget under Governor's from both parties. They are more than 20 billion away from the constitutionally mandated balanced budget because they won’t raise taxes and won’t be fiscally responsible. So they will have to cut costs with a fire axe to bridge the enormous gap between revenue and spending. Police, Fire and other essential services are going to get cut. Some say decimated. I wonder if there will soon be billions more spent helping out state and local governments who won’t help themselves.
On the plus side, I am beginning to sense that the economy is finally nearing a bottom, maybe even slightly, I repeat, slightly past the bottom headed upward. The decline was severe and sharp. The recovery will be very, very slow and strong growth isn’t likely until 2012 and maybe even later than that. Unemployment will remain high until the economy is well into recovery, so I’m thinking maybe 2011 before we see any real signs of improvement on that important front.
This recovery is frail and even the slightest problem, Iran, Iraq, etc. and the whole thing could come apart.
6 months into the year and a little over 5 months in to the new administration and the economy is still floundering. We can point to the Bush administration as the cause but the current administration hasn’t made major in-roads into its solution despite committing billions upon billions of your future taxes. Today the troops moved out of major cities in Iraq turning the security for those areas over to the Iraqi government. Pray for the people of Iraq as the next weeks and months could be really tough. Hopefully we can start saving some of the money we were spending there. We can use it for the overhaul of health care.
Afghanistan continues to consume enormous amounts of money and material not to mention American lives. When do we follow suit and leave the Afghani people to protect themselves.
The economy continues to disappoint. Unemployment continues to rise. People are losing their retirement savings and politicians seem to have no idea how to cut a budget. It is time to admit we can’t do everything we want to do for everyone who needs help. We are no longer the richest country in the world (actually #10 in GDP per Capita according to the CIA World Book). We are deeply in debt and we must tighten our collective and individual belts. Of course that hurts votes and might risk political jobs. Can’t help the people if I’m not in office to do it, they argue. Won’t help the people if I want to stay in office is how that translates. We need political leaders who are willing to make the right call whether we like it or not. Washington, Lincoln and other greats did. They deserve our support when they do the right thing even when it doesn’t fell so good personally. They deserve informed and educated voters who can see past their personal self interest and put the best interest of the country first.
Gasoline will top out below the $3.00 number this month and begin to decline back toward $2.40 maybe even $2.25 per gallon by fall. Watch for it to skyrocket at the first real sign of economic recovery.
Energy will be a huge tax problem if cap and tax carbon tax program is passed. Everything you and I buy is made with energy and carbon based fuels. This will drive up the cost of…everything. While you and I may not get a tax bill directly like we do on April 15th, it will be included in everything you and I purchase, including food which is planted and harvested, processed and transported using carbon based fuels.
We just put Billions into two failed car makers and I was passed on the highway (I-140) here in Wilmington North Carolina by a Tesla Roadster. For you who don’t follow the car scene, Tesla Motors (California) produces a high performance ALL ELECTRIC sports car capable of Corvette and Ferrari performance completely electrically and gets lots of miles (220 according to the web site)between recharging. So where is Ford, GM and Chrysler? Where did those Billions go? Why aren’t we supporting Tesla and others engaged in creating the next generation automobile instead of trying to save the old generation? That would be like trying to save an old computer company who still produced main frame technology instead of I-Pods and I-phones. Why support one G technology when we could be support 4 G and 5 G technologies? Hmmm... Does campaign contributions come to mind?
Mr. Obama promised change but has yet to fix any of the real problems. He is just attacking symptoms. Rising health care costs could be contained if we limited Doctors liability (Tort Reform). Gitmo is still open (and should remain so), Unemployment is still growing, Mortgage rates are starting to climb and even the first time buyer credit is only minimally effective. The Speaker of the House, Nancy Pelosi – 3rd in line to the Presidency – represents California where the biggest problem has been and continues to be their inability to balance their budget under Governor's from both parties. They are more than 20 billion away from the constitutionally mandated balanced budget because they won’t raise taxes and won’t be fiscally responsible. So they will have to cut costs with a fire axe to bridge the enormous gap between revenue and spending. Police, Fire and other essential services are going to get cut. Some say decimated. I wonder if there will soon be billions more spent helping out state and local governments who won’t help themselves.
On the plus side, I am beginning to sense that the economy is finally nearing a bottom, maybe even slightly, I repeat, slightly past the bottom headed upward. The decline was severe and sharp. The recovery will be very, very slow and strong growth isn’t likely until 2012 and maybe even later than that. Unemployment will remain high until the economy is well into recovery, so I’m thinking maybe 2011 before we see any real signs of improvement on that important front.
This recovery is frail and even the slightest problem, Iran, Iraq, etc. and the whole thing could come apart.
Tuesday, June 30, 2009
June 23, 2009
OK Gang, here we go again. This past week started off to be a downer. The stock market crumbled, its rally collapsed. Slowly but surely the world is beginning to recognize the American consumer as the most narcissistic bores in the world. We over indulge at every turn. We have more stuff than anyone in the world, we eat more, we are fatter, we conspicuously consume.
Our economy was 70% consumer products. When the consumer gets hurt, the economy tanks. Simple. Yet the government is doing everything it canto make it worse. Don’t think so? Consumers need more money to keep up their conspicuous consumption. I’m placing no moral value on this mind you but our economy is built on it. Every time government at some level raises taxes, you take money out of the consumer’s pocket and you depress the economy. As Mr. Clinton said in his first campaign, “It’s the Economy, stupid”. Raleigh, Washington and elsewhere these guys still don’t get it. Clinton was right. Ooh, it is hard to believe that I said that. I didn’t often agree with Mr. Clinton, but he was right then and he’d be right today.
Not only should we not add new taxes, we should continue to cut taxes. Not forever, I’m a prudent person. We need schools, better ones than we have. We need to pursue a reasonable and responsible health care system that is accessible to all LEGAL residents of the USA. We need a path by which currently illegal residents who have a clean police record here AND at home can become legalized residents. Yeah, I know. They are illegals and we should just kick them out. But that just isn’t going to happen so let’s resolve this issue and move on. We need to spend wisely and as we can afford too. If we do that, we end up with more for everyone and sooner rather than later.
That said, Mr. Obama has said that the economy is showing signs of turning around, yet in the same speech he said that the unemployment rate will continue to climb exceeding 10%. There are 8 million more people unemployed this May 2009 than there were in May of 2007 and 6 Million more unemployed in May 2009 than in May of 2008. It doesn’t seem like whatever we are doing is working, now does it? I know, shut up and drink my cool aid.
Gasoline, here in Leland NC, has eclipsed $2.60 per gallon working its way up as we move closer to the traditional price peak in July. I still think we might see $3.00.
The number of mortgage applications are still at record lows nationally, running 28% below last year for the Month of May. Housing Starts and Permits are evenly matched, suggesting that no one in the building industry is optimistic, pulling permits ahead of time for spec homes.
Consumer credit remains tight and rates are rising. Both of these constrain consumer spending which in turn slows recovery.
Mr. Obama see’s the economy as turning the corner. With rising taxes, continued unemployment growth and tight credit I fail to see how the economy will recover. The “porkulus bill” has yet to be actually spent in any meaningful way. According to the New York Times, only 6% has been spent to date. That is $46 billion of $800 billion. A very small amount considering it was to stimulate an $11 Trillion economy… NOW! Tax cuts would have been more effective in getting money into the hands of consumers right now, perhaps saving people from foreclosure. Instead we are preparing to build or refurbish bridges in the hinterlands and other projects that were not critical to recovery, just to someone’s re-election.
England see’s its unemployment picture starting to brighten. China’s economy has continued to grow (albeit from a smaller base and at a reduced rate from prior years). Where, Oh Where has our stimulus gone? I may be showing my age here, but perhaps it is "Blowing in the Wind".
Remember to keep our little corner of the world from being decimated we need to keep the fine people in Raleigh from killing the movie industry in Wilmington. It is a great little industry, one of our few. And it is clean and ecologically pretty friendly. Hard to find these days so lets keep the ones we have.
The future isn’t all bleak but it isn’t bright and beautiful either. We will be dealing with this economic problem well after Mr. Obama’s first term is over. Whether he will make things better or worse, history will judge. It will judge without any color bias. It may have a Latina woman’s experience bias or certainly a socio-cultural bias. Remember that history of battle is always written by the victor. It will just be interesting to read that judgment when it comes.
Our economy was 70% consumer products. When the consumer gets hurt, the economy tanks. Simple. Yet the government is doing everything it canto make it worse. Don’t think so? Consumers need more money to keep up their conspicuous consumption. I’m placing no moral value on this mind you but our economy is built on it. Every time government at some level raises taxes, you take money out of the consumer’s pocket and you depress the economy. As Mr. Clinton said in his first campaign, “It’s the Economy, stupid”. Raleigh, Washington and elsewhere these guys still don’t get it. Clinton was right. Ooh, it is hard to believe that I said that. I didn’t often agree with Mr. Clinton, but he was right then and he’d be right today.
Not only should we not add new taxes, we should continue to cut taxes. Not forever, I’m a prudent person. We need schools, better ones than we have. We need to pursue a reasonable and responsible health care system that is accessible to all LEGAL residents of the USA. We need a path by which currently illegal residents who have a clean police record here AND at home can become legalized residents. Yeah, I know. They are illegals and we should just kick them out. But that just isn’t going to happen so let’s resolve this issue and move on. We need to spend wisely and as we can afford too. If we do that, we end up with more for everyone and sooner rather than later.
That said, Mr. Obama has said that the economy is showing signs of turning around, yet in the same speech he said that the unemployment rate will continue to climb exceeding 10%. There are 8 million more people unemployed this May 2009 than there were in May of 2007 and 6 Million more unemployed in May 2009 than in May of 2008. It doesn’t seem like whatever we are doing is working, now does it? I know, shut up and drink my cool aid.
Gasoline, here in Leland NC, has eclipsed $2.60 per gallon working its way up as we move closer to the traditional price peak in July. I still think we might see $3.00.
The number of mortgage applications are still at record lows nationally, running 28% below last year for the Month of May. Housing Starts and Permits are evenly matched, suggesting that no one in the building industry is optimistic, pulling permits ahead of time for spec homes.
Consumer credit remains tight and rates are rising. Both of these constrain consumer spending which in turn slows recovery.
Mr. Obama see’s the economy as turning the corner. With rising taxes, continued unemployment growth and tight credit I fail to see how the economy will recover. The “porkulus bill” has yet to be actually spent in any meaningful way. According to the New York Times, only 6% has been spent to date. That is $46 billion of $800 billion. A very small amount considering it was to stimulate an $11 Trillion economy… NOW! Tax cuts would have been more effective in getting money into the hands of consumers right now, perhaps saving people from foreclosure. Instead we are preparing to build or refurbish bridges in the hinterlands and other projects that were not critical to recovery, just to someone’s re-election.
England see’s its unemployment picture starting to brighten. China’s economy has continued to grow (albeit from a smaller base and at a reduced rate from prior years). Where, Oh Where has our stimulus gone? I may be showing my age here, but perhaps it is "Blowing in the Wind".
Remember to keep our little corner of the world from being decimated we need to keep the fine people in Raleigh from killing the movie industry in Wilmington. It is a great little industry, one of our few. And it is clean and ecologically pretty friendly. Hard to find these days so lets keep the ones we have.
The future isn’t all bleak but it isn’t bright and beautiful either. We will be dealing with this economic problem well after Mr. Obama’s first term is over. Whether he will make things better or worse, history will judge. It will judge without any color bias. It may have a Latina woman’s experience bias or certainly a socio-cultural bias. Remember that history of battle is always written by the victor. It will just be interesting to read that judgment when it comes.
Tuesday, June 9, 2009
June 9 Political/Economic update
End of the first week in June. So what have our elected official’s been up to and how will that affect you?
Let’s see, the President has been traveling a lot trying to live up to campaign promises and to try to mend some fences in Europe and in the Middle East. I’ve not left the country in over a year, but friends who have traveled recently indicate that the world blames the USA for the financial melt down. I’m not sure what Hilary has been doing, unusually quiet. Joe Biden has been kept away from microphones. They are trying to teach him to think before speaking but that isn’t going to work. Old dog, New tricks problem. He delivered a critical state in the election and he is a valuable source of knowledge for the young administration. Just need to keep him in the attic with the crazy relative.
Ms. Pelosi is the target of some sort of CIA conspiracy and was told lies. Was the CIA forth coming? No, not in their job description. Did they lie, no they keep incredible documentation and transcripts. Ms. Pelosi would be looking for their heads on a platter if she were telling the truth. So draw your own conclusion. Oh, if a State goes bankrupt, and the Federal Government has to take over does that mean California could terminate her contract? Best thing the Dem’s could do. Biden is occasionally embarrassing but Pelosi is a *itch. She is mainly responsible for the writing of the stimulus bill which is apparently not working while China’s stimulus has their stock market back, people are working and their economy is growing. We have a porkulus bill (of which only a small portion has actually been distributed) rather than a stimulus bill. It is the same governing mentality that is about to bankrupt California. Bring back Pay-Go!
Barney Frank, now there is a probably the worst thing to happen to the gay community in a long time. I’m not bashing him because he’s gay, I’m bashing him because his is either inept or a crooked Politian. Either he was clueless or he was taking so much money from Fannie Mae and Freddie Mac that he lied about their condition when the inept Mr. Bush was concerned enough to ask about them. For those who liked to bash Mr. Bush, let’s remember that even he was sharper than Mr. Frank.
Government bonds are going to have to start yielding higher interest to attract buyers. The last round of bonds was bought by the Fed. That means there was no free market pricing. That is, in the current lexicon, not sustainable. Thus rates will begin to rise. Check with your mortgage broker. See if prices are rising, and be suspicious if he denies it. Prices aren’t rising for the very best borrowers, but the requirements to get a certain rate are rising. Same effect as admitting that rates are rising, just more politically palatable. I think the government will try to set up a program that will provide 5-6% mortgage rates for the foreseeable future. Once that legislation is in place the Fed will begin to tighten monetary policy, raising the discount rates and generally make borrowing cost even more. Good news for net savers, bad news for borrowers.
Gold continues to climb and the dollar will continue to inflate especially if the Fed doesn’t begin to tighten monetary policy by the beginning of 2010. My gasoline price prediction has been pretty accurate and I think we will continue to see rising prices until mid July. Probably $3.00 for regular. Venezuela, Brazil, Nigeria, Iran and other third world countries really need $85 oil to continue to fund their social programs and keep their governments in power. $85 oil equates to $3.50 gasoline for you and me. Get used to it because it is coming unless we can cut consumption more than China and India increase theirs. Fat chance of that. Even with the 2016 fuel efficiencies that Mr. Obama outlined, the consumption decline will be small. There are 46.5 million cars including pick ups, SUV’s and so forth, and at current level s we are adding only 5 million new cars to the fleet each year. So we will not have effectively completely purged the fleet of gas guzzlers until 2025 at the earliest. That is 17 years from now. If the dollar’s value continues to decline in purchasing power at the current rate (June 6, 2009 Gold= $962 / Jan 3, 2006 Gold = $530) how much will a gallon of gasoline cost? At the current rate you will be looking at $4.75 by 2012. We’ve seen $4.00 before, only last year in fact. Does $4.75 seem so hard to believe? Higher mileage cars are smaller and more expensive so begin to think ahead for your next choice in a car.
What are Ms. Pelosi and Mr. Frank going to do about that? Perhaps the CIA will have lied to them about that too? Mr. Obama has started to do something. Do I think it is enough, No. Do I think he is the first to try to do something since President Ford (1974-1977)? Yes, not one other President, including my personal favorite Ronald Regan, really seemed to understand what our dependence on foreign oil really meant.
Do I think the recession is ending? In a word… No. I think we are in for a bottoming out of the economy in 2009 but signs of recovery like declining unemployment will take quite a bit longer. In fact we will continue to see unemployment grow over the next couple of months. That means more mortgage and credit card defaults. I don’t think we will see any sustainable economic growth for at least another year. 2011 may be when we feel the effects of recovery but those effects are likely to be mild. The shifting of economic and military power from west to east has begun. Their recovery will be faster and more robust than ours. We are a debtor nation. They are our bankers. Who is likely to come out on top? The bankers or the borrowers? We have lived well beyond our means because “we deserved it”. Life will be different in the future than it has been in the past 30 years for all Americans. How different remains to be seen. Tempted as I am to predict what will be different I’ll limit myself to the following. Borrowing will be more difficult. No more using the house as an ATM machine and much greater limitations on “buy now / pay later”. Buying a house will be considerably more difficult as well. You might actually have to bring money to the deal, money that you have saved, not borrowed. Real money that you earned and didn’t spend buying all those things “you deserve”. Cars, pedicures, the things your great grand-ma used to call luxuries.
Let’s see, the President has been traveling a lot trying to live up to campaign promises and to try to mend some fences in Europe and in the Middle East. I’ve not left the country in over a year, but friends who have traveled recently indicate that the world blames the USA for the financial melt down. I’m not sure what Hilary has been doing, unusually quiet. Joe Biden has been kept away from microphones. They are trying to teach him to think before speaking but that isn’t going to work. Old dog, New tricks problem. He delivered a critical state in the election and he is a valuable source of knowledge for the young administration. Just need to keep him in the attic with the crazy relative.
Ms. Pelosi is the target of some sort of CIA conspiracy and was told lies. Was the CIA forth coming? No, not in their job description. Did they lie, no they keep incredible documentation and transcripts. Ms. Pelosi would be looking for their heads on a platter if she were telling the truth. So draw your own conclusion. Oh, if a State goes bankrupt, and the Federal Government has to take over does that mean California could terminate her contract? Best thing the Dem’s could do. Biden is occasionally embarrassing but Pelosi is a *itch. She is mainly responsible for the writing of the stimulus bill which is apparently not working while China’s stimulus has their stock market back, people are working and their economy is growing. We have a porkulus bill (of which only a small portion has actually been distributed) rather than a stimulus bill. It is the same governing mentality that is about to bankrupt California. Bring back Pay-Go!
Barney Frank, now there is a probably the worst thing to happen to the gay community in a long time. I’m not bashing him because he’s gay, I’m bashing him because his is either inept or a crooked Politian. Either he was clueless or he was taking so much money from Fannie Mae and Freddie Mac that he lied about their condition when the inept Mr. Bush was concerned enough to ask about them. For those who liked to bash Mr. Bush, let’s remember that even he was sharper than Mr. Frank.
Government bonds are going to have to start yielding higher interest to attract buyers. The last round of bonds was bought by the Fed. That means there was no free market pricing. That is, in the current lexicon, not sustainable. Thus rates will begin to rise. Check with your mortgage broker. See if prices are rising, and be suspicious if he denies it. Prices aren’t rising for the very best borrowers, but the requirements to get a certain rate are rising. Same effect as admitting that rates are rising, just more politically palatable. I think the government will try to set up a program that will provide 5-6% mortgage rates for the foreseeable future. Once that legislation is in place the Fed will begin to tighten monetary policy, raising the discount rates and generally make borrowing cost even more. Good news for net savers, bad news for borrowers.
Gold continues to climb and the dollar will continue to inflate especially if the Fed doesn’t begin to tighten monetary policy by the beginning of 2010. My gasoline price prediction has been pretty accurate and I think we will continue to see rising prices until mid July. Probably $3.00 for regular. Venezuela, Brazil, Nigeria, Iran and other third world countries really need $85 oil to continue to fund their social programs and keep their governments in power. $85 oil equates to $3.50 gasoline for you and me. Get used to it because it is coming unless we can cut consumption more than China and India increase theirs. Fat chance of that. Even with the 2016 fuel efficiencies that Mr. Obama outlined, the consumption decline will be small. There are 46.5 million cars including pick ups, SUV’s and so forth, and at current level s we are adding only 5 million new cars to the fleet each year. So we will not have effectively completely purged the fleet of gas guzzlers until 2025 at the earliest. That is 17 years from now. If the dollar’s value continues to decline in purchasing power at the current rate (June 6, 2009 Gold= $962 / Jan 3, 2006 Gold = $530) how much will a gallon of gasoline cost? At the current rate you will be looking at $4.75 by 2012. We’ve seen $4.00 before, only last year in fact. Does $4.75 seem so hard to believe? Higher mileage cars are smaller and more expensive so begin to think ahead for your next choice in a car.
What are Ms. Pelosi and Mr. Frank going to do about that? Perhaps the CIA will have lied to them about that too? Mr. Obama has started to do something. Do I think it is enough, No. Do I think he is the first to try to do something since President Ford (1974-1977)? Yes, not one other President, including my personal favorite Ronald Regan, really seemed to understand what our dependence on foreign oil really meant.
Do I think the recession is ending? In a word… No. I think we are in for a bottoming out of the economy in 2009 but signs of recovery like declining unemployment will take quite a bit longer. In fact we will continue to see unemployment grow over the next couple of months. That means more mortgage and credit card defaults. I don’t think we will see any sustainable economic growth for at least another year. 2011 may be when we feel the effects of recovery but those effects are likely to be mild. The shifting of economic and military power from west to east has begun. Their recovery will be faster and more robust than ours. We are a debtor nation. They are our bankers. Who is likely to come out on top? The bankers or the borrowers? We have lived well beyond our means because “we deserved it”. Life will be different in the future than it has been in the past 30 years for all Americans. How different remains to be seen. Tempted as I am to predict what will be different I’ll limit myself to the following. Borrowing will be more difficult. No more using the house as an ATM machine and much greater limitations on “buy now / pay later”. Buying a house will be considerably more difficult as well. You might actually have to bring money to the deal, money that you have saved, not borrowed. Real money that you earned and didn’t spend buying all those things “you deserve”. Cars, pedicures, the things your great grand-ma used to call luxuries.
Friday, May 29, 2009
June 1, 2009
As they say down here in the south, y’all best hang on cause it’s gonna be a bumpy ride! This economy of our isn’t responding like some text book case the administration studied in Harvard or any of the other fine universities that helped shape their thinking. This may be your Great Grandfathers recession.
Since the 1930’s we lost a bunch of car companies and no one seemed to care. DeSoto, Plymouth, Imperial, Oldsmobile (Ransom E. Olds (REO Trucks)) and we will lose Pontiac and Hummer and GM is desperately trying to sell Saturn and SAAB and OPEL (it’s foreign brands). Saturn was originally started from scratch by GM to be the new business model for the future. It was exactly the right thing to do. What happened? The power of the Status Quo in GM eventually crushed it until it just became a Chevy with different trim. We lost entire companies like Tucker, Studebaker, Packard, Willys and American Motors which was formed through the merger of Nash-Kelvinator and Hudson in 1954. Nash pioneered unitary construction (1941), also a heating and ventilation system whose operating principles are now universally utilized (1938), seat belts (1950) and the manufacture of cars in the compact (1950), subcompact (1970) and muscle car (1957) categories.[1]. Why? One mans opinion is that they wanted to do what needs to be done in the automotive world, innovate. The powers of Status Quo crushed them. Tucker had innovation galore. Headlights that swiveled in the direction you were turning, for example. Just now coming on stream in high end imports. The Tucker was introduced in 1949. The demise is attributed to negative publicity put out by the big three (Chrysler, GM and Ford). Studebaker began in 1902 in the auto industry and lasted until 1966. They collapsed because they offered smaller, more economical cars of advanced design. In 1954 the Studebaker line had small V8’s available with an electric overdrive, making them much more fuel efficient than their competitors. They had rear seat heating when no one in the industry was offering such a system. They went away in 1966 just a couple of years before the first oil crisis, which would have made them the hero’s of the auto industry just as the Prius did for Toyota recently. Timing, they say, is everything. Packard was around from 1899 until 1958 when it succumbed after introducing the first Ultramatic transmission with locking torque converter, the forerunner of today’s automatic transmissions. The Hudson which was around from 1909 until 1955 and was retired after being a racing champion for years due to its light weight construction techniques and powerful, reliable motors. Kaiser-Frazer was born in 1945 and reorganized in 1953 as the Kaiser Motors Corp. shortly before it acquired the assets of the Willys-Overland Corporation the makers of Willy’s cars and, pay attention here, Jeep products. So Jeep stated out as a Willys, got bought by Kaiser, got bought by American Motors, got bought by Chrysler who in turn got bought by Daimler Benz who spit them out like bad wine, got bought by a private investors group who went broke and will now be run by Fiat of Italy.
The pattern I’m trying to establish is that (except for the big two GM and Ford) car companies come and go. They have since the invention of cars. Ford is still OK, not needing Government intervention. Let it be the survivor. Let GM survive if it can and die if it can’t. Chrysler now belongs to the Government and the Italians (FIAT). I sincerely wish them all the best of luck. That is going to be one interesting marriage. GM is in negotiations with FIAT to off load OPEL. FIAT wants OPEL because, with Chrysler, they will be large enough to be a world player (6.5 million cars per year).
This country has been the birth place of businesses and product innovation simply because we allowed people to try. Ebay, Skype, Google, Sightspeed, Twitter, Tesla Motors and so many more. Whether they fail or succeed, they had the opportunity to try. There are several that are trying right now. Tesla, www.teslamotors.com has a great all electric sports car. It is developing a sedan. Why aren’t we helping them? Daimler (maker of Mercedes Benz and Smart) has begun to work with them on an electric version of the Smart Car and bought a 10% interest in Tesla Motors. We’re throwing Billions of tax payer dollars at companies with failed business models. Zap is another all electric car company. Why aren’t we helping them? Didn’t these guys and gals in the administration learn anything at Harvard, the school that invented case studies, or any of the other fine institutions of higher learning attended by various members of the administration?
The debt the Obama administration has already piled up has the dollar down to $1.41 to the Euro (5/29/09) a drop of 6% in a month. You can measure inflation any way you choose. But when a dollar buys 6% less oil, gold, or imported car than it did a month ago it is time to get very worried. And the stimulus package crafted by Congress (not the administration) doesn’t seem to be stimulating much of anything. Maybe its because it was full of “re-elect me” pork instead of true stimulus programs.
GM will file bankruptcy and when it does the dominoes of company failures in the auto parts industry will be dramatic and far reaching. It will leave the administration at way less than ground zero after a mere six months in office. Government debt is now massive, having something like doubled since they took over and unemployment is still rising with 631,000 more people filing for unemployment this week. Bringing the total new unemployment claims to over 12,968,000 people. If and how many of them have found new jobs I don’t know. How many started up little businesses of their own or simply filed for Social Security and gave up I can’t tell. The economy is continuing to shrink. No wonder, our economy is 70% consumer driven. When the consumer is out of work or afraid they may soon be, they don’t spend. Even a small decline in 70% of the economy translates to big numbers.
By way of an update, have you noticed gasoline prices? Current wholesale markets, (real or manipulated) are now at $1.93 per gallon. Add between $.80 and $.90 per gallon for transportation, retailer margin and state and local taxes and you can see what the price of regular will be in a week or so. Average price here locally I think is about $2.339. So look for another 25 – 30 cents in the next week or three.
As I said in my opening commentary, y’all best hang on cause it’s gonna be a bumpy ride!
Since the 1930’s we lost a bunch of car companies and no one seemed to care. DeSoto, Plymouth, Imperial, Oldsmobile (Ransom E. Olds (REO Trucks)) and we will lose Pontiac and Hummer and GM is desperately trying to sell Saturn and SAAB and OPEL (it’s foreign brands). Saturn was originally started from scratch by GM to be the new business model for the future. It was exactly the right thing to do. What happened? The power of the Status Quo in GM eventually crushed it until it just became a Chevy with different trim. We lost entire companies like Tucker, Studebaker, Packard, Willys and American Motors which was formed through the merger of Nash-Kelvinator and Hudson in 1954. Nash pioneered unitary construction (1941), also a heating and ventilation system whose operating principles are now universally utilized (1938), seat belts (1950) and the manufacture of cars in the compact (1950), subcompact (1970) and muscle car (1957) categories.[1]. Why? One mans opinion is that they wanted to do what needs to be done in the automotive world, innovate. The powers of Status Quo crushed them. Tucker had innovation galore. Headlights that swiveled in the direction you were turning, for example. Just now coming on stream in high end imports. The Tucker was introduced in 1949. The demise is attributed to negative publicity put out by the big three (Chrysler, GM and Ford). Studebaker began in 1902 in the auto industry and lasted until 1966. They collapsed because they offered smaller, more economical cars of advanced design. In 1954 the Studebaker line had small V8’s available with an electric overdrive, making them much more fuel efficient than their competitors. They had rear seat heating when no one in the industry was offering such a system. They went away in 1966 just a couple of years before the first oil crisis, which would have made them the hero’s of the auto industry just as the Prius did for Toyota recently. Timing, they say, is everything. Packard was around from 1899 until 1958 when it succumbed after introducing the first Ultramatic transmission with locking torque converter, the forerunner of today’s automatic transmissions. The Hudson which was around from 1909 until 1955 and was retired after being a racing champion for years due to its light weight construction techniques and powerful, reliable motors. Kaiser-Frazer was born in 1945 and reorganized in 1953 as the Kaiser Motors Corp. shortly before it acquired the assets of the Willys-Overland Corporation the makers of Willy’s cars and, pay attention here, Jeep products. So Jeep stated out as a Willys, got bought by Kaiser, got bought by American Motors, got bought by Chrysler who in turn got bought by Daimler Benz who spit them out like bad wine, got bought by a private investors group who went broke and will now be run by Fiat of Italy.
The pattern I’m trying to establish is that (except for the big two GM and Ford) car companies come and go. They have since the invention of cars. Ford is still OK, not needing Government intervention. Let it be the survivor. Let GM survive if it can and die if it can’t. Chrysler now belongs to the Government and the Italians (FIAT). I sincerely wish them all the best of luck. That is going to be one interesting marriage. GM is in negotiations with FIAT to off load OPEL. FIAT wants OPEL because, with Chrysler, they will be large enough to be a world player (6.5 million cars per year).
This country has been the birth place of businesses and product innovation simply because we allowed people to try. Ebay, Skype, Google, Sightspeed, Twitter, Tesla Motors and so many more. Whether they fail or succeed, they had the opportunity to try. There are several that are trying right now. Tesla, www.teslamotors.com has a great all electric sports car. It is developing a sedan. Why aren’t we helping them? Daimler (maker of Mercedes Benz and Smart) has begun to work with them on an electric version of the Smart Car and bought a 10% interest in Tesla Motors. We’re throwing Billions of tax payer dollars at companies with failed business models. Zap is another all electric car company. Why aren’t we helping them? Didn’t these guys and gals in the administration learn anything at Harvard, the school that invented case studies, or any of the other fine institutions of higher learning attended by various members of the administration?
The debt the Obama administration has already piled up has the dollar down to $1.41 to the Euro (5/29/09) a drop of 6% in a month. You can measure inflation any way you choose. But when a dollar buys 6% less oil, gold, or imported car than it did a month ago it is time to get very worried. And the stimulus package crafted by Congress (not the administration) doesn’t seem to be stimulating much of anything. Maybe its because it was full of “re-elect me” pork instead of true stimulus programs.
GM will file bankruptcy and when it does the dominoes of company failures in the auto parts industry will be dramatic and far reaching. It will leave the administration at way less than ground zero after a mere six months in office. Government debt is now massive, having something like doubled since they took over and unemployment is still rising with 631,000 more people filing for unemployment this week. Bringing the total new unemployment claims to over 12,968,000 people. If and how many of them have found new jobs I don’t know. How many started up little businesses of their own or simply filed for Social Security and gave up I can’t tell. The economy is continuing to shrink. No wonder, our economy is 70% consumer driven. When the consumer is out of work or afraid they may soon be, they don’t spend. Even a small decline in 70% of the economy translates to big numbers.
By way of an update, have you noticed gasoline prices? Current wholesale markets, (real or manipulated) are now at $1.93 per gallon. Add between $.80 and $.90 per gallon for transportation, retailer margin and state and local taxes and you can see what the price of regular will be in a week or so. Average price here locally I think is about $2.339. So look for another 25 – 30 cents in the next week or three.
As I said in my opening commentary, y’all best hang on cause it’s gonna be a bumpy ride!
Wednesday, May 20, 2009
Is the recovery here?
Today is the 20th day of the 5th month. I just came back from Las Vegas and the idea of what happens in Vegas stays in Vegas aside, it was not very busy. There were people visiting but it was not crowded. They are feeling the effects of the recession up close and personally. There is some good news! We are less than halfway through the year and we are beginning to see some small positive signs that the market is trying to bottom out and return to prosperity, pushed largely by the desire we all share to return to the “good old days” of growth. Unfortunately, the small signs also show that the bottom is tenuous. It is at risk. The Obama administration has made some aggressive moves that, if Congress approves, will see some real progress on energy. The cost will be in marked price increases in new cars and trucks by 2016. The price of gasoline is vindicating my previous predictions that we would be at $2.50 in May. We may yet see $3 per gallon by August. The good news is that it will likely retrace in the fall and winter months. How far back gasoline will retrench depends on the strength of the recovery. The stronger the recovery the less prices will fall. Worldwide consumption is rising. Available oil is fixed for the next two years at least. As always, Supply and Demand will dictate price.
Based on this we can sense how fragile any recovery may be. This says to me that the recovery will be very unsmooth. Up a little, down a little. Jobs will be VERY slow to return and the outlook for real estate value is for very slow growth once the existing inventories are absorbed.
Also of concern is the leading edge of the baby boomers who are filing for social security early, many forced into it by job losses caused by the recession. For those who were highly compensated, even recovery generated jobs won’t give the government dollar for dollar income back, as newer employees will be paid less. Simple math, 15%of less is less. Lifting the top amount of income subject to payroll taxes is the only way to recover some of the lost revenue and that is politically unpopular (those folks are where the big campaign contributions come from), as are higher payroll taxes on everyone. That means that the decline in revenue and added claims will force the government to dip into the social security trust fund. Oh, wait, the “trust fund” is IOU’s from the government who has already used that money for other things. To make cash available to the social security system it will have to generate more revenue (higher taxes), borrow more (increasing interest rates and cost) or cutting benefits to older Americans.
The rest of the western world and Japan has the same problem. We have spent and now the bill has come when we are least able to pay it. Increased taxes will restrain the recovery. Increased government spending (health care, etc.) must be funded.
So the recovery is likely to take quite a while (years) but at least early signs suggest that the recession is coming to a close and that is, indeed, good news.
Based on this we can sense how fragile any recovery may be. This says to me that the recovery will be very unsmooth. Up a little, down a little. Jobs will be VERY slow to return and the outlook for real estate value is for very slow growth once the existing inventories are absorbed.
Also of concern is the leading edge of the baby boomers who are filing for social security early, many forced into it by job losses caused by the recession. For those who were highly compensated, even recovery generated jobs won’t give the government dollar for dollar income back, as newer employees will be paid less. Simple math, 15%of less is less. Lifting the top amount of income subject to payroll taxes is the only way to recover some of the lost revenue and that is politically unpopular (those folks are where the big campaign contributions come from), as are higher payroll taxes on everyone. That means that the decline in revenue and added claims will force the government to dip into the social security trust fund. Oh, wait, the “trust fund” is IOU’s from the government who has already used that money for other things. To make cash available to the social security system it will have to generate more revenue (higher taxes), borrow more (increasing interest rates and cost) or cutting benefits to older Americans.
The rest of the western world and Japan has the same problem. We have spent and now the bill has come when we are least able to pay it. Increased taxes will restrain the recovery. Increased government spending (health care, etc.) must be funded.
So the recovery is likely to take quite a while (years) but at least early signs suggest that the recession is coming to a close and that is, indeed, good news.
Friday, May 8, 2009
May 10th
OK, so the market has been up for two weeks and there are some glimmers of hope that the market is beginning to see a little stability. Specifically, pending housing contracts are up two months in a row. Two dots make the meager beginnings of a trend line. We need more you say. Well despite the bad news we hear everywhere the housing market, new and existing together, is beginning to stabilize although the trend is still slightly down and this is typically the best time of year. Auto sales, although still in the basement, have been stable at approximately a 6.9 million unit annual rate. So the indicators are beginning to suggest a bottom is forming. Retail, although erratic, have been in positive territory for the past four consecutive weeks in the weekly Red Book(1) report.
There has been a bit of a run up in transportation stocks, typically a leader in recovery. Still, there is talk about the next banking crisis being credit card defaults and commercial real estate. It’s hard to imagine that we have too many Malls and Strip Centers…isn’t it? And then there is the government stress test that points out potential banking problems if the economy continues to worsen. They used 10.5% unemployment among the factors. Current unemployment is reportedly 8.9%(2) . The most current statistics suggest that the rate of job losses is slowing, so 10.5% may be a worst case scenario, but we aren’t out of the woods yet on that. Employment is a lagging indicator of recovery. Technically the recovery will be well underway before employment begins to pick up.
With Oil holding stubbornly around $50 and gasoline about to soar as driving season arrives we can expect to pay more. Let me be up front here. I predicted $2.50 a gallon by early May. The highest we have locally is $2.07 so I was premature. We’ll just wait, the $2.50 is coming. We may see a little pull back in the consumer spending and a delay in germination of any recovery seeds that are being spread right now when it does. That 20% more on the monthly gasoline bill has to come from somewhere. Once recovery does get started, watch out. Pent up demand and recovering credit availability will team up to send prices of everything skyward. I predict that this won’t happen until 2011 or maybe even 2012. The consumer will not readily forget and regain their confidence even after they get another job. But history suggests that Americans believe in their very soul that they are entitled to have their wants. Spending will regain its previous levels unless regulations prevent it.
President Obama is still campaigning. Unfortunately the anti-freedom forces in Pakistan and Afghanistan and even Iraq are not. They are doing what they do best. They are busy creating havoc and mayhem. The Pakistani government has just learned the lesson that appeasement doesn’t work as the Taliban broke its cease fire with the government and took the Swat Valley by force. And we continue to spend Billions in these places instead of at home where it is needed. Iran continues to send money to governments across the middle east to assure that they stay “friendly” to the Iranians and will help dissuade the Israeli’s from attaching their nuclear factories. The Israeli’s won’t allow Iran to have nuclear capability and I’m not sure that we can afford to support them with troops and armament if they decide they must act. We are stretched too thin.
Locally, the city of Wilmington has found a way to bridge it’s budget gap. Annexation. Need more loot? Just annex unincorporated county areas and charge them city taxes. That increases the size of the pie without increasing costs commensurately. A budget gap filler for sure. I suppose that sustainability of that approach isn’t unlimited but it will work for quite awhile. In Ohio the city of Columbus actually annexed property in surrounding counties. Eventually the city encompassed more land mass than Franklin County in which it was located. Seemed odd to me then and still does. Seems like annexation should be approved by both sides of the transaction. Maybe not one man, one vote. Maybe based on the quantity of land involved or some other basis. But somehow both sides should have to agree. In eminent domain actions some compensation is paid and litigation is available to assure fair and equitable prices. Shouldn’t there be some quid pro quo when taking money from people especially without their consent? Consent suggests that both sides agree that the action is desirable. With consent the market place has determined that there is value adequate exchanged.
(1) Red Book Tuesday May 5, 2009
(2) Bloomberg May 8, 2009
There has been a bit of a run up in transportation stocks, typically a leader in recovery. Still, there is talk about the next banking crisis being credit card defaults and commercial real estate. It’s hard to imagine that we have too many Malls and Strip Centers…isn’t it? And then there is the government stress test that points out potential banking problems if the economy continues to worsen. They used 10.5% unemployment among the factors. Current unemployment is reportedly 8.9%(2) . The most current statistics suggest that the rate of job losses is slowing, so 10.5% may be a worst case scenario, but we aren’t out of the woods yet on that. Employment is a lagging indicator of recovery. Technically the recovery will be well underway before employment begins to pick up.
With Oil holding stubbornly around $50 and gasoline about to soar as driving season arrives we can expect to pay more. Let me be up front here. I predicted $2.50 a gallon by early May. The highest we have locally is $2.07 so I was premature. We’ll just wait, the $2.50 is coming. We may see a little pull back in the consumer spending and a delay in germination of any recovery seeds that are being spread right now when it does. That 20% more on the monthly gasoline bill has to come from somewhere. Once recovery does get started, watch out. Pent up demand and recovering credit availability will team up to send prices of everything skyward. I predict that this won’t happen until 2011 or maybe even 2012. The consumer will not readily forget and regain their confidence even after they get another job. But history suggests that Americans believe in their very soul that they are entitled to have their wants. Spending will regain its previous levels unless regulations prevent it.
President Obama is still campaigning. Unfortunately the anti-freedom forces in Pakistan and Afghanistan and even Iraq are not. They are doing what they do best. They are busy creating havoc and mayhem. The Pakistani government has just learned the lesson that appeasement doesn’t work as the Taliban broke its cease fire with the government and took the Swat Valley by force. And we continue to spend Billions in these places instead of at home where it is needed. Iran continues to send money to governments across the middle east to assure that they stay “friendly” to the Iranians and will help dissuade the Israeli’s from attaching their nuclear factories. The Israeli’s won’t allow Iran to have nuclear capability and I’m not sure that we can afford to support them with troops and armament if they decide they must act. We are stretched too thin.
Locally, the city of Wilmington has found a way to bridge it’s budget gap. Annexation. Need more loot? Just annex unincorporated county areas and charge them city taxes. That increases the size of the pie without increasing costs commensurately. A budget gap filler for sure. I suppose that sustainability of that approach isn’t unlimited but it will work for quite awhile. In Ohio the city of Columbus actually annexed property in surrounding counties. Eventually the city encompassed more land mass than Franklin County in which it was located. Seemed odd to me then and still does. Seems like annexation should be approved by both sides of the transaction. Maybe not one man, one vote. Maybe based on the quantity of land involved or some other basis. But somehow both sides should have to agree. In eminent domain actions some compensation is paid and litigation is available to assure fair and equitable prices. Shouldn’t there be some quid pro quo when taking money from people especially without their consent? Consent suggests that both sides agree that the action is desirable. With consent the market place has determined that there is value adequate exchanged.
(1) Red Book Tuesday May 5, 2009
(2) Bloomberg May 8, 2009
Wednesday, April 29, 2009
May 1, 2009
The talking heads and pundits are again responding to a single data dot as though it were a serious trend line.
Do they not realize that people are more uplifted in the spring? Consumer confidence is up but it was a single moment in time. Jobs continue to disappear and housing prices continue to decline. Long term confidence may be higher than it was six or eight weeks ago but this thing has a way to go. Stocks rallied (yes even the deepest bear markets have rallies) and mortgage rates dropped. Yes rates are down, that happens when no one wants to buy anything and borrow money because they are fearful of losing their job. Those who do want to borrow, can’t for a variety of reasons. Rates may continue to decline, although there isn’t much lower to go. The auto companies can’t sell cars even when they offer to protect you if you lose your job. Local dealers (new and used) are dropping like fly’s.
I suggest that the next six months will see housing begin to stabilize and the economy bottom out. The recovery however will be slow and shallow until the economic stimulus money begins to get spent in later 2010 – and first quarter 2011. Then the recovery will begin to get legs. Interest rates will rise sharply in 2011 as will taxes to control inflation and keep it in the manageable and sustainable 3% range. With inflation at 3% the interest rates we could expect would be in the 6% range for mortgages. That will raise mortgage payments about 18% compared to today (6% then; 4.5% now). To put that another way, an extra $90 per month for each 100,000 of mortgage (30 yr. fixed). That will slow housing value growth and when coupled with tighter loan underwriting will slow sales. It may be a good thing for landlords, especially those who have their financing in place now.
While I openly admit to being a curmudgeon, it seems that life as the young and restless knew it may be over. Life may more resemble that of my father and grandfather. General Motors may only have four brands. Ford may be a big player with its three brands and fuel economy will remain more important than performance, at least until the economy recovers. We didn’t learn our lesson in the 1970’s or the 1980’s (The last two times we had high gasoline prices and shortages). I’m skeptical that this time will be much different.
What you do now will likely impact your future. Be cautious and spend/invest wisely. You can be a big winner when this is over. And it will end. Just not real soon.
Do they not realize that people are more uplifted in the spring? Consumer confidence is up but it was a single moment in time. Jobs continue to disappear and housing prices continue to decline. Long term confidence may be higher than it was six or eight weeks ago but this thing has a way to go. Stocks rallied (yes even the deepest bear markets have rallies) and mortgage rates dropped. Yes rates are down, that happens when no one wants to buy anything and borrow money because they are fearful of losing their job. Those who do want to borrow, can’t for a variety of reasons. Rates may continue to decline, although there isn’t much lower to go. The auto companies can’t sell cars even when they offer to protect you if you lose your job. Local dealers (new and used) are dropping like fly’s.
I suggest that the next six months will see housing begin to stabilize and the economy bottom out. The recovery however will be slow and shallow until the economic stimulus money begins to get spent in later 2010 – and first quarter 2011. Then the recovery will begin to get legs. Interest rates will rise sharply in 2011 as will taxes to control inflation and keep it in the manageable and sustainable 3% range. With inflation at 3% the interest rates we could expect would be in the 6% range for mortgages. That will raise mortgage payments about 18% compared to today (6% then; 4.5% now). To put that another way, an extra $90 per month for each 100,000 of mortgage (30 yr. fixed). That will slow housing value growth and when coupled with tighter loan underwriting will slow sales. It may be a good thing for landlords, especially those who have their financing in place now.
While I openly admit to being a curmudgeon, it seems that life as the young and restless knew it may be over. Life may more resemble that of my father and grandfather. General Motors may only have four brands. Ford may be a big player with its three brands and fuel economy will remain more important than performance, at least until the economy recovers. We didn’t learn our lesson in the 1970’s or the 1980’s (The last two times we had high gasoline prices and shortages). I’m skeptical that this time will be much different.
What you do now will likely impact your future. Be cautious and spend/invest wisely. You can be a big winner when this is over. And it will end. Just not real soon.
Wednesday, April 15, 2009
April 15th TAX DAY
April 15th.
Is there an Ides of April? Beware the Ides of March but what about April? I don’t know but it is tax day. Today you settle up with Uncle Sam, paying your share of the Military, Social Security, health care for the poor (Medicaid), unemployment for those who are looking but can’t find a job, food stamps and all the other entitlement programs that we, as citizens of a civilized and refined country think we should have. While I am an admitted curmudgeon, I am not opposed to helping the helpless, assisting those who need help to get from where they are to where they need to be to become self supporting. I just wonder how much of the world we should be helping when we are borrowing money to pay for that help.
What is happening? Greedy pirates are taking ships left ands right. Aids is killing an entire generation in parts of Africa. Starvation is an on going problem around the world. There is a rising portion of our own people who are homeless. Greedy bankers and insurance executive have caused many to lose jobs. IBM is moving jobs to foreign countries at the rate of 5000 per quarter, adding to the unemployment ranks in the USA. Greedy politicians are lying their butts off (Dodd) and the lobbyists are running amuck.
Will the well intentioned but inexperienced Mr. Obama drive the USA off the cliff? Can he gain control from the likes of Nancy Pelosi and Chuck Shumer before something horrific happens and like the Soviet Union, the DotCom bubble, the housing bubble and the up coming US Treasury bubble, we implode and collapse. Will the mighty US dollar become like the German Mark after WWII when it took cartons of Marks to buy groceries. Think it can’t happen here? August 14, 1971 Gold was $35/oz. On April 14, 2009 Gold was $887.50/oz. An increase of 25.4 times in 38 years. If the dollar continues to lose value at the same rate going forward in 2047 (when those born in the 1980's are reaching retirement) gold will trade at $22,504/ oz. OK so Gold may be a bit unique. What about housing? In 1987 a house that sold for $650,000 in 2008 (after the peak) would have only cost about 134,400 according to the Case Shiller index. That is a rise of 4.8 times in just 20 years. Cars that cost $2900 in 1969 cost $20,000 today. 6.9 times more in just 40 years. Get the idea? Oh I just read a report that Energy Information Administration just announced that it expects gasoline to be about $2.23 during this summers driving season and peak at $2.30 in late summer. They must have just read my blog from March 18th. I said $2.50 by May. Let’s see who gets closer.
By the way the deficit for this (fiscal) year is nearly 1 Trillion so far which is about double where the deficit stood this time last year. I'm not sure this is the kind of change any of us wanted.
This is still the greatest country in the world however, and if you look at those same statistics for other western countries, it doesn’t look any different. The western world moves largely in lockstep on these things. Even Asia is largely coupled with the west if only because they export so much to the west that negative situations in west have a significant impact on Asia. The solution isn’t bailouts and Trilion dollar ($1,000,000,000,000 or $3 for every human in this country) plus yearly deficits. The solution is unwinding the excesses and getting our collective heads out of our behinds going forward.
Is there an Ides of April? Beware the Ides of March but what about April? I don’t know but it is tax day. Today you settle up with Uncle Sam, paying your share of the Military, Social Security, health care for the poor (Medicaid), unemployment for those who are looking but can’t find a job, food stamps and all the other entitlement programs that we, as citizens of a civilized and refined country think we should have. While I am an admitted curmudgeon, I am not opposed to helping the helpless, assisting those who need help to get from where they are to where they need to be to become self supporting. I just wonder how much of the world we should be helping when we are borrowing money to pay for that help.
What is happening? Greedy pirates are taking ships left ands right. Aids is killing an entire generation in parts of Africa. Starvation is an on going problem around the world. There is a rising portion of our own people who are homeless. Greedy bankers and insurance executive have caused many to lose jobs. IBM is moving jobs to foreign countries at the rate of 5000 per quarter, adding to the unemployment ranks in the USA. Greedy politicians are lying their butts off (Dodd) and the lobbyists are running amuck.
Will the well intentioned but inexperienced Mr. Obama drive the USA off the cliff? Can he gain control from the likes of Nancy Pelosi and Chuck Shumer before something horrific happens and like the Soviet Union, the DotCom bubble, the housing bubble and the up coming US Treasury bubble, we implode and collapse. Will the mighty US dollar become like the German Mark after WWII when it took cartons of Marks to buy groceries. Think it can’t happen here? August 14, 1971 Gold was $35/oz. On April 14, 2009 Gold was $887.50/oz. An increase of 25.4 times in 38 years. If the dollar continues to lose value at the same rate going forward in 2047 (when those born in the 1980's are reaching retirement) gold will trade at $22,504/ oz. OK so Gold may be a bit unique. What about housing? In 1987 a house that sold for $650,000 in 2008 (after the peak) would have only cost about 134,400 according to the Case Shiller index. That is a rise of 4.8 times in just 20 years. Cars that cost $2900 in 1969 cost $20,000 today. 6.9 times more in just 40 years. Get the idea? Oh I just read a report that Energy Information Administration just announced that it expects gasoline to be about $2.23 during this summers driving season and peak at $2.30 in late summer. They must have just read my blog from March 18th. I said $2.50 by May. Let’s see who gets closer.
By the way the deficit for this (fiscal) year is nearly 1 Trillion so far which is about double where the deficit stood this time last year. I'm not sure this is the kind of change any of us wanted.
This is still the greatest country in the world however, and if you look at those same statistics for other western countries, it doesn’t look any different. The western world moves largely in lockstep on these things. Even Asia is largely coupled with the west if only because they export so much to the west that negative situations in west have a significant impact on Asia. The solution isn’t bailouts and Trilion dollar ($1,000,000,000,000 or $3 for every human in this country) plus yearly deficits. The solution is unwinding the excesses and getting our collective heads out of our behinds going forward.
Thursday, April 2, 2009
Spring is here; are politics and money due to bloom?
Well it’s April, and I hope you’ve not been fooled. Perhaps the spring weather and the rhetoric coming from the media have you believing the recession is over. I think not.
Mr. Obama is heading to the G20 meeting unlikely to find a lot of support there for bailout mania. The Europeans did a lot of these things after WW I and the inflation rate got unbelievably bad. They have not forgotten. We have not experienced it because we were on the Gold Standard, where the dollar was pegged to gold at $35 per oz. Mr. Nixon was President when that was abandoned (1971) so it wasn’t all that long ago (38 years). Look at where the price of Gold is now. The difference from $35 and today’s price ($928) is called inflation. Today’s Dollar is worth less than a 1971 nickel) and that occurred in a normal course of business. Can you even begin to imagine where we are headed with all this borrowing and bailing out nonsense?
We can not borrow ourselves to greatness. We must become great, here at home by hunkering down and doing what needs to be done.
Spreading taxpayer IOU’s around to help the information technology industry while it (IBM especially) is moving thousands of jobs out of the USA as we speak is another example of the lunacy. 5,000 announced in January, effective in February. Another 5000 announced in March to be effective in April and May (based on the required notice which is driven by state law). Rumors are strong that there will be another 5,000 in June. This will be effectively 10% of IBM’s entire US work force at the beginning of 2009. Why? Because it is cheaper to use eastern European and Asian labor which is well educated but does not have the inflated expectations of the American worker. As long as we permit companies to do this it will be difficult to recover from any recession. And it will take longer to repay an ever increasing debt. Mr. Reagan basically bankrupted the old Soviet Union in an arms race that they couldn’t afford, causing their collapse. Now we are bankrupting ourselves with programs that we can’t afford.
The taxpayer in the USA needs to revolt again. Not against Mr. Obama (he hasn’t been around long enough to really blame) but the political hacks like Nancy Pelosi and Chris Dodd. We need more independent members of congress who aren’t partisan but actually want to do what is right for ALL the people. We clearly need less lawyers in congress (but why stop there) and more people able to see the larger picture. Doing what is right isn’t rocket science. It is simply a case of reviewing the problem, looking at what others around the world have done when faced with similar problems and understanding the results. There are no new problems. Collapsing financial systems have occurred across the ages. Health care issue has been addressed by countries around the globe. Which solutions work and which ones don’t? Perhaps our culture and time is in need of a slight variation on one of these themes but let us not shoot ourselves in the foot while trying to be an “AMERICAN ORIGINAL” and jockeying for credit as though the plan were an original of one party or the other.
We can not allow the mid term elections to create a filibuster proof senate. If we do, then the minority party which represents a significant number of citizens has no voice. We are effectively governed by only one party with no need to consider the wants or needs of nearly half the population. I don’t think any of the citizens truly want this. No one wants an unbridled left or right running anything. Liberals and conservatives both perform a valuable role in keeping us in the center of the roadway and out of the ditch. If we allow the senate to become filibuster proof we will be in the ditch is mere weeks.
Will Chrysler become Italian? It tried German and that didn’t work. Who will be picked to lead GM and who will pick them? Will there be senate confirmation hearings? Interesting questions when you have the executive branch of government in a position to fire a CEO of a taxpayer bailed out firm. Want to see the TARP money repaid from banks? Every CEO out there is wondering if he’s next and fearing that they will working hard to repay and get the President out of his company. Don’t misunderstand I have no sympathy for anyone making more than a million a year. But, Congress hasn’t demonstrated the ability to run anything yet, so why are we letting them tinker with the biggest and most influential of our companies?
I believe the stock market has more downside risk. I don’t believe that we will be out of this recession until 2011 or 2012. This gives us a lot of time to evaluate anyone running for election in light of the current situation. Barney Frank, Chris Dodd, Nancy Pelosi all need to be run out on a rail. Send your congressman and the Whitehouse a tea bag. Let them know that you’re ready to revolt.
Mr. Obama is heading to the G20 meeting unlikely to find a lot of support there for bailout mania. The Europeans did a lot of these things after WW I and the inflation rate got unbelievably bad. They have not forgotten. We have not experienced it because we were on the Gold Standard, where the dollar was pegged to gold at $35 per oz. Mr. Nixon was President when that was abandoned (1971) so it wasn’t all that long ago (38 years). Look at where the price of Gold is now. The difference from $35 and today’s price ($928) is called inflation. Today’s Dollar is worth less than a 1971 nickel) and that occurred in a normal course of business. Can you even begin to imagine where we are headed with all this borrowing and bailing out nonsense?
We can not borrow ourselves to greatness. We must become great, here at home by hunkering down and doing what needs to be done.
Spreading taxpayer IOU’s around to help the information technology industry while it (IBM especially) is moving thousands of jobs out of the USA as we speak is another example of the lunacy. 5,000 announced in January, effective in February. Another 5000 announced in March to be effective in April and May (based on the required notice which is driven by state law). Rumors are strong that there will be another 5,000 in June. This will be effectively 10% of IBM’s entire US work force at the beginning of 2009. Why? Because it is cheaper to use eastern European and Asian labor which is well educated but does not have the inflated expectations of the American worker. As long as we permit companies to do this it will be difficult to recover from any recession. And it will take longer to repay an ever increasing debt. Mr. Reagan basically bankrupted the old Soviet Union in an arms race that they couldn’t afford, causing their collapse. Now we are bankrupting ourselves with programs that we can’t afford.
The taxpayer in the USA needs to revolt again. Not against Mr. Obama (he hasn’t been around long enough to really blame) but the political hacks like Nancy Pelosi and Chris Dodd. We need more independent members of congress who aren’t partisan but actually want to do what is right for ALL the people. We clearly need less lawyers in congress (but why stop there) and more people able to see the larger picture. Doing what is right isn’t rocket science. It is simply a case of reviewing the problem, looking at what others around the world have done when faced with similar problems and understanding the results. There are no new problems. Collapsing financial systems have occurred across the ages. Health care issue has been addressed by countries around the globe. Which solutions work and which ones don’t? Perhaps our culture and time is in need of a slight variation on one of these themes but let us not shoot ourselves in the foot while trying to be an “AMERICAN ORIGINAL” and jockeying for credit as though the plan were an original of one party or the other.
We can not allow the mid term elections to create a filibuster proof senate. If we do, then the minority party which represents a significant number of citizens has no voice. We are effectively governed by only one party with no need to consider the wants or needs of nearly half the population. I don’t think any of the citizens truly want this. No one wants an unbridled left or right running anything. Liberals and conservatives both perform a valuable role in keeping us in the center of the roadway and out of the ditch. If we allow the senate to become filibuster proof we will be in the ditch is mere weeks.
Will Chrysler become Italian? It tried German and that didn’t work. Who will be picked to lead GM and who will pick them? Will there be senate confirmation hearings? Interesting questions when you have the executive branch of government in a position to fire a CEO of a taxpayer bailed out firm. Want to see the TARP money repaid from banks? Every CEO out there is wondering if he’s next and fearing that they will working hard to repay and get the President out of his company. Don’t misunderstand I have no sympathy for anyone making more than a million a year. But, Congress hasn’t demonstrated the ability to run anything yet, so why are we letting them tinker with the biggest and most influential of our companies?
I believe the stock market has more downside risk. I don’t believe that we will be out of this recession until 2011 or 2012. This gives us a lot of time to evaluate anyone running for election in light of the current situation. Barney Frank, Chris Dodd, Nancy Pelosi all need to be run out on a rail. Send your congressman and the Whitehouse a tea bag. Let them know that you’re ready to revolt.
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