Politics and Your Money

2012-01-17T15:23:00.000-05:00

Hi All,

Well we just past mid-January and the markets have been soquiet people are getting nervous. After all the volatility last year it seems eerieto have stability. Is this the clear sky after the storm or the eye of thehurricane. No one seems sure if we are out of the woods or if there is an ACT 2to come.

Most of what I see on the economic side appears to suggestneither good news nor bad. We seem to be adjusting to a new normal.

I listened to a talk given by Woody Hall a PhD Economistfrom UNC-W today and he confirmed my idea that unemployment isn’t going to getbetter for several years.

On the political front, the President is building an enormouswar chest for his re-election campaign. It is making the conservative talk showhosts uncomfortable. On one hand itseems ridiculous to spend hundreds of millions of dollars on a campaign, even aPresidential one. On the other hand it is truly effective at putting money intothe hands of staffers, hotels, restaurants, print shops and a myriad of otherbusinesses around the country. In the meantime the various Republicancandidates are busy crisscrossing the country trying to win their primary. Pumpingsome money into local economies everywhere they go and that spending will leap100 fold when the eventual nominee hits the trail in earnest.

Who will win is anybody’s guess. Will it matter? Will eithercandidate, Democrat or Republican lead the country? Will they be a Harry Trumanwith the idea that the “buck stops here”. Or will they just be more of thesame? I heard a local political candidate say “does anyone here think thatpoliticians make too few promises they can’t keep?” His point is well taken. It doesn’t matterwhat they promise, we need to elect someone who is more interested in doing thejob well than making friends or getting re-elected.

Picking the right candidate is our job-1. We need to “hire”the right person who will lead from the front. Who will take the flack. Whowill not waiver once committed to a course of direction.

In the Great Depression we introduced Social Security andmake work programs but we didn’t recover economically until we spooled upthe military for WW II. That put everyone to work. We drafted able bodied mento the Army and stay at home mom’s went to the factory to build planes andships and all the material needed. Everyone had work BUT we also added a lot tothe national debt. The cost of resolving the economic crisis of the 1930’s wasenormous not only in financial terms but in loss of life. We forget that whilethe loss of one life is regrettable, we lost more on one day at Normandy thatwe have lost in Iraq, Afghanistan and any other small actions around the world.We, you and me, have not done without anything during this recession and thetwo wars. We are building new cars everyday (no cars were made from 1941-1946). Tires, gasoline and food stuffs were rationed during WW II. Have you hadany problem getting what you need?

So far this recession has been, in large part, aninconvenience for most Americans and a real hardship for a relatively few. Nowdon’t get me wrong, it has been hard for some and we should all do what we canto assist them. At 9% unemployment, about 5 million more people are looking fora job than in 2007, before it all began.

Who is to blame? George Bush? Barrack Obama? Nancy Pelosi? Harry Reid? Barney Frank? Chris Dodd? The Bankers? The heads of Fannie Mae or Freddie Mac? Probably dealers choice but I don’t really care who is toblame. I care about what we do next to fix it without leaving the bill to thegrandkids. We, the people of the United States, elected each of those I named (and theirappointees) and WE are responsible. We need to clean it up. We need to fix it.

We need to limit our borrowing, we need to live within ourmeans. We need to move forward as one nation; black, white, yellow, brown andred. We need to assure that Grandma isn’t denied health care and that ourgrandkids aren’t denied opportunity. It is a tall order but it is ourresponsibility. We need to make it happen.

That is what Americans have always excelled at. We find away to make it happen, to achieve the goal and to do it without complaint. We have one year to send the word that this has gone on too long and that we expect it to be fixed by November 2012. In November we take charge by electing those we believe can and will make a difference. It is up to us; "We, the People".

2012-01-05T19:06:00.001-05:00

Happy New Year folks,

Wow, it is 2012. By some accounts the world as we knew itwas supposed to end when the clock stroke midnight December 31/January 1 2000.All the computers were going to stop working. Cars weren’t going to startelevators would stop etc. etc. etc., Well, a dozen years later and were allstill here. Sept. 11, 2001 not withstanding, the world didn’t end. We’ve foughtto major wars, spent a great deal of money that we borrowed (see below from Wikipedia).

The last time debt was this high ( as a percentage of GDP) wasright after WW II when the government was paying for GI education, hospitalcare for the wounded and generally trying to get the peacetime economy movingagain. Remember that auto factories were shuttered to divert steel and othermaterials to the war effort. We actually reduced the debt (as a percentage ofGDP) during Viet Nam. It wasn’t until the Jimmy Carter presidency that debtbegan to climb and has continued to climb ever since. Yes, there was a hiatusin the late 1990’s but it was minor and short lived. From 2000 forward (theBush 43 and Obama 44 years) it has been allowed to climb at ever increasingrates. Both parties were in control during those years so it doesn’t seem tobelong to one party or the other. It belongs to the current members of bothhouses of Congress. Hold them accountable in the next election.

In February of 2011 I wrote in this blog about the comingissues in Europe. They are still unwinding a year later. They will continue tobe a drag on our economic recovery for the next year or two.

Despite all the talk about recovery, I’m not seeing ithappening anytime soon. For the economy to recover someone has to shipsomething from someplace. The IXTR (transportation index) is 15% below where itwas a year ago, suggesting that there has been no marked pick up in bookingsfor trucks, planes, trains etc.. Even the Dow Jones US Marine TransportationIndex is only up maybe 1% for the year. Not hardly stellar growth.

Housing remains in a funk, with continued high foreclosure ratesdespite the lowest interest rates in my lifetime, and that is a very long time.In fact the last time Mortgage rates were in the 3% range was in the 1940’s. Homesare selling for a fraction of their cost just three years ago and a fraction ofwhat it would cost to replace them today. This is a huge loss of capital forthe American public, all of whom were encouraged to buy homes by thegovernment. Great investment advice don’t you think? We can blame it on thebanks but two guys who are to blame are former Senator Dodd of CT and soon tobe former Congressman Barney Frank of MA. Staunch defenders of Freddie Mac and FannieMae until they went belly up. These two knew or, as they say in legal circles,should have known what was going on. If they didn’t we should charge them withgross negligence and if they did… then they are in the same class as Ken Lay ofEnron.

Ask yourself this. Why is it that where you live is stillstruggling while high end apartment buildings are under construction all overWashington DC and housing prices there didn’t take anywhere near the hit theydid in your neighborhood?

So what does 2012 hold? Too soon to tell I suppose, butthere is an old stock market saw that says as goes the first 5 trading days ofJanuary, so goes the year. This is true more often than not and 2especially inpresidential election years, of which this is one. Three trading days in and I seea light. Just don’t know if it is the end of the tunnel or a damn train.

If you love where the country is headed or if you hate it,get out and vote in November. It is the only thing you can do to make yourselfheard clearly.

Your one vote can make a difference. Getting your neighborsout on election day can compound that difference. The United States is aRepublic not a democracy. We don’t vote on much, we vote for representativeswho vote on a lot. If we do a poor job selecting our representatives or if wechose to not participate, then we get the government we deserve.

Politics, Europe and your money

2011-11-26T18:14:00.003-05:00

Hi Gang,

It’s the Saturday after Thanksgiving and most of the shopping insanity has happened. Largely the situation is rapidly approaching normal as the pre-Christmas season gets.

Everyone is busy with being busy.

Mostly no one is watching what is going on in the world, but it is getting ugly out there. I can’t believe that no one is paying attention. I am beginning to understand how Hitler began to consolidate power.

Europe is in big trouble. The southern countries are heavily socialist and have been quietly using the strength and productivity of the northern countries to sell debt at favorable rates and with the cover of a strong common currency. This may not stand. Remember, the Euro (currency) has only existed since January 1, 1999, only a dozen years. It was envisioned as a stepping to stone to a United Europe, similar to the USA and USSR. The latter, I remind you collapsed in 1991, only 20 years ago. The Political Union of Europe didn’t come to pass and the financial Union is under severe strain. It, too, may collapse. Why we think our Union will survive without care and attention is beyond me.

Currently we are a leaderless country, not in appearance but in reality. Barrack Obama has failed to lead the country, or more importantly the Congress toward improving the American experience. Most people ask themselves the same question every four years before they vote. “Am I better off now than I was four years ago”? Based on what I hear and see, yes including the ‘Occupy’ movement, I would venture that most people would say NO. Is it President Obama’s fault? Yes… and no. He made some rookie miss-steps. He trusted Nancy Pelosi too much and she was the leader of a part of Congress with an approval rating in the single digits. Really not the place to build upon. She pushed a liberal agenda and forced it through creating a lot of the hate and discontent now evident in Congress.

Since then, and even since the midterm election, she remains, along with Harry Reid, committed to protecting the well-intentioned but poorly written health care program. Rather than to admit that the plan is severely flawed, they have granted waivers to a large number of corporations and special interest groups, including themselves. Really if it’s that good, why is everyone (except Joe lunchbox) trying like crazy to get a waiver? And if it’s so good, why are they getting those sought after waivers?

Occupy should change its chant to throw the bums out. Maybe if we elect an entirely new Congress and Administrative leader in the White House, we get started making some real progress. We need a real pay-go rule. If you want it, you must fund it. No hanky-panky. If it applies to American citizens it must apply to members of Congress exactly the same. Social Security, Medicare, all of it.

Before you declare me ill informed, I know that not everyone is up for election at the same time. But in a four year cycle, we could have the opportunity to make meaningful changes in the makeup of Congress and its sense of mission.

The people I talk to around Washington have a smug, nothing is going to change attitude. They are in control and they will not permit real change. That is the attitude and perhaps they are right.

Military budget cuts may come, but watch where they hit. It won’t be the big military vendor machine. It won’t be the power brokers; it will be cuts that hurt the soldier. Less support for their families, retirement, health care. All the things we, regular Americans, think these people who sacrifice so much for us should get. These are the things that will quietly be taken away. Not one big military supplier will get damaged. Just watch, see if I’m wrong. I hope I am, but I’m betting I’m not.

Oh, and one other consideration, when the soldiers support programs are cut, what happens to the concept of an all-volunteer military? And what happens if the manpower volunteering isn’t sufficient to maintain critical size? Well, I believe we’ll be back to my childhood days of every man (today in the interest of equality perhaps everyone) over age 18 will be eligible for the draft. Forced to serve two to four years. Failure to report punishable by prison... military prison.

Moneywise, if Europe has a major default, and the odds are arguable but substantial, the fallout in the banking system there and here will be as bad, maybe worse, than 2008-2009. Are you ready for that again? It may well be time to be putting money, gold or other valuables away to tide you over. It could crush the housing market if you can believe that. If no lending is available the economic rebound we have seen in car sales and other big ticket items could stop. Unemployment could jump up again. This time well over 10%.

It is said that those who fail to learn from history are doomed to repeat it. Did you learn anything from 2008-2009? Will you be prepared if it happens again? Do you believe the government has any cards left to play if it does?

IF we have to borrow more, will the oil rich Russians, the expanding economy of China and the cash of the Arab world force us into a beggar nation? President Reagan spent a lot of money on Space and expensive weaponry and basically won the Cold War by forcing the USSR into economic disaster trying to keep up. That was in 1988. By 1991 the USSR collapsed. Today the shoe may well be on the other foot. We no longer have a significant space program, the Russians do, as do the Chinese. We are borrowing Trillions of dollars from others to pay our bills. How hard would it be for the Russians and Chinese to bury us making us try to keep up?

Mr. Putin is a smart man. He knows exactly what he is doing. He has control of the political situation in Russia and can lead from power both at home and in the world at large. The Chinese, on the other hand, are about to go through a government in transition and like much of the changes in the Arab world, we have no idea where that will end up.

On that same note, how chaotic was Europe in the 1930's when Adolf Hitler rose to power? What shape was the USA in? Oh, right we were in the Great Depression. Eerily familiar?

We need a leader who will tell the truth, who can lead people, who is willing to be held accountable and who will hold others accountable for results. Unfortunately I don’t see that person on either side of the aisle today. Maybe by the next election cycle someone will rise to the top like cream, but by then it may be too late if the American voter doesn’t get serious and get involved, informed and active.

I won’t bet against the United States but I’m not a lemming either. I am concerned, you should be too.

October 25, 2011

2011-10-26T15:44:00.000-04:00

Politics and your money

For years I've been railing about the lack of attention to fixing the housing market as the key foundation block to the economic recovery. Now after TARP, Stimulous, Cash for Clunkers, First time Homebuyers incentives and heaven only knows what other monies have been spent as attachments to this or that bill the administration is trying to address the home owner issues and stabilize home values as a result. A little slow to the party but at least they are beginning to get an understanding of the real problem. Sorry Barney Frank but Fannie and Freddie weren't "doing a great job". The Occupy Wall Street Crowd should be staging sit ins at the offices of Fanny, Freddie and Mr. Frank. They caused the problems. The banks weren't without guilt, but in a free country you play the hand your dealt. They just got dealt a hand that let them win really big. You don't suppose that it was intentional, like dealing off the bottom of the deck or something?

Investors are starting to really split. Some have capitulated and are turning to cash and fixed annuities while others can’t/won’t believe that America is done for and continue to seek the upside that capitalism provides. Which camp are you in?

The facts are:

1. Transportation Indexes are well off their highs a few months ago suggesting that investors don’t see freight bookings growing for trucks, trains, planes and ships. That means they believe the economic activity is flat or maybe even slipping a little. Increased risk of a second dip into recession.
2. Leading economic indicators are trending downward over the past 9 months. Not the type of trend that foretells a recovery.
3. 2011 average capacity utilization is 3% above last year’s average and is above the 2011 average in September. That bodes well for employment.
4. Yet employment remains stubbornly weak. Tomorrow’s report is expected to show 405,000 new claims for unemployment insurance. This would be on trend with the year to date. Same old same old.
5. Consumer Confidence, probably a lagging indicator, has reached a low for the year. This could suggest that we are already in a modest recovery, especially when taken in concert with the slight uptrend in capacity utilization.
6. I’ve been tracking the Philadelphia Fed and the Empire State Index which are both surveys of local business expectations. For the first time since June the two are reporting essentially the same level of expectation. They are positive but scoring only an 8 when 0 is neutral. The last time they matched they predicted a minus 7.7. That is nearly a 100% turn around in three months. The accuracy is anybody’s guess but the trend in intriguing.
7. The employment picture as demonstrated by Monster.com jobs ad activity has been strong and slightly up-trending. This suggests that companies are looking to upgrade and even maybe expand their work force. The persistent unemployment problem points to the systemic problem of the workers available not having the correct skill sets to match the jobs available. That will take years to resolve and won’t be affected by any sort of stimulus other than educational/retraining support.
8. To say that unemployment remains a problem is an understatement. The 2011 average monthly announced corporate layoffs were, to date, 53,000 per month. This is a heck of a lot better than the 116,000 in 2008 or 107,000 in 2009 but it is upsettingly 20.5% higher than 2010. Whether this is due to the chatter we hear about China being more business friendly and the over regulation making it harder to do business here I don’t know. But it seems like businesses may be clearing the decks in the face of “Occupy Wall Street” and “Obama Care” and other regulations that they consider onerous. Since this is a free country, they are free to leave and sell us their products from abroad (open market agreements).

So do I know what is likely to happen? My answer is a resounding NO. Do I know what I hope happens, sure. But like many, I don’t have absolute confidence that my hopes will come true. And like many I’m afraid that the opposite may happen.

I guess I’m playing the odds here. I bet 70% that my hopes will materialize, 30% chance they won’t. I suspect that the economy will continue to struggle until a true leader comes forward and demands that we the people and our elected Congress face up to our responsibility and fix what is broken. I hope Congress can actually do that. We all need for them to do that because continuing on the path we are on now leads us to catastrophe. Without courage and strength we could end up like the United Soviet Socialist Republic, once a world power equal to or at least a close second to the USA in world influence and in military might. It tried to fix Afghanistan too, and failed. Today the USSR no longer exists. No tears in my eyes but could we be next? The European Monetary Union seems to be in dire straights. If it fails, business trade in Europe will take a giant step backward. Banks in the USA could be again in trouble if Europe can’t fix their problems. That will make more problems for us the US taxpayers and cause more negative pressure on our economy. It could be the trigger to a second dip into recession. So are we next to circle the drain? That is the question we must all be asking as the next election cycle approaches. Whatever your leanings, whatever your political bent, exercise your duty to learn about the candidates and vote. Vote as though your life depends upon it. Your way of life really does.

Live , Love and be Happy

September is here!

2011-09-03T15:56:00.000-04:00

Hi folks,

Well September is here and the Republican and Democrat Party are going to start in earnest. The Republican Party must choose a standard barer to run against Mr. Obama. Party politics suggests that to beat Mr. Obama they will need a good quality candidate and must get there without giving the competition too much free ammunition in the process. In other words, they must campaign for the nomination based on why they are the best not why the others are flawed. If only they do that it will be so refreshing that the American public of all stripes may find the candidate appealing.

That said, it is unlikely that they will and it is likely that they may shoot themselves in the foot. Unseating an incumbent President is never easy but the tide is running in the right direction right now.

The economy is stalled and may slip back into recession. Never good for the ruling party. Unemployment remains stubbornly above 9%. Never good for the ruling party. Housing and construction still in a major funk. Never good for the ruling party. Lots of other headline news makers not looking so good. Never good for the ruling party. If the Republicans blow this, they may not get a better opportunity in my lifetime.

Expect talk but no real action from either party on taxes. As much as we hate it, we will need to generate more revenues (temporary tax increases across the board) in the short term to help bridge the gap as we continue to trim fat and waste from the bloated budget. Much of the reduction will come in the future, some of the softening of the economic decent is needed in the present tense to keep the economy from regressing into recession. But nothing meaningful is likely to happen until 2013, after the election so expect that the second half of 2011 is likely to be at near zero growth…or worse.

AT&T’s attempt to take over T-mobile was nixed by the FTC. I don’t think that is a done deal just yet but I do think that it was a good sign.

Hewlett-Packard (HP) is abandoning its interest in PC’s much like IBM did a few years ago. They have recognized that PC’s are a commodity like gasoline. The public really doesn’t care whose name is on it. They care about what it can do and price. As a result gross margins have been squeezed to the point that it has become very difficult to justify remaining in that business. HP management saw it and thought about how much more profitable they could be without the PC albatross. Then they took the obvious decision.

2012 may just be more of the same. Europe will either get its act together or fall apart. Either one would create a degree of certainty where none exists. We will continue to be directionless while campaigning for the November 2012 election. Leadership is needed but I fear none will be forth coming. This will add yet another year to the economic malaise that has gripped us since December 1999 when the Dow Jones Industrial Average was $11452.86. The Dow closed Friday 9/2/2011 at $11240.26. That is 10 years and 8 months to gain nothing. Glad I wasn’t invested in a DOW tracking fund all these years. Are we in for another extended period of this malaise? Has USA world leadership really begun its decent into the annals of history. As Lincoln said at Gettysburg, “our fathers brought forth, upon this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.

Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived, and so dedicated, can long endure.” “It is for us, the living, rather to be dedicated here to the unfinished work which they have, thus far, so nobly carried on. It is rather for us to be here dedicated to the great task remaining before us - that from these honored dead we take increased devotion to that cause for which they here gave the last full measure of devotion - that we here highly resolve that these dead shall not have died in vain; that this nation shall have a new birth of freedom; and that this government of the people, by the people, for the people, shall not perish from the earth.”

As Mr. Lincoln said, we are still engaged in a civil war, a struggle to define what this country stands for and what it will be in the future. Fortunately, we no longer use guns and waste young lives as the tools of struggle. We use words and laws and regulations to achieve the goals of each side in the struggle (and there are many more than two sides now).

Each time we go to the polls to vote (or fail to), we are engaging in our own battle in this great civil experiment and we are helping to determine whether this nation, so conceived, and so dedicated, can long endure.

Remember that no other country has ever come to be as this one has and no other country has achieved the greatness that this one has without the subrogation of others. Rome, Greece, the Ottoman Empire all invaded other countries, enslaved their peoples and pillaged their natural resources for their own betterment. Even our allies the French, British and Spanish along with others of Europe, conquered and pillaged foreign lands creating empires. The results are seen close by in Haiti where the French raped the country of its natural resources and then gave them their “freedom” to avoid cleaning up the social mess they created. The citizens of Haiti are still struggling in poverty.

We are unique and we need to understand that our survival is not a given. We must regain our world leadership position by leading the world economy out of this recession. We can do it but all parties must use sound business judgment and work together without letting rigid ideology stop the progress. On the other hand, the stupidity of the past pushing costs off onto future generations has to stop. We must live within our means as a country just as we must as citizens. Debt is fine when it is used to support growth and gets paid back some day…soon. Part of each dollar of surplus (and we have had them as recently as the 1990’s) should be used to assure future growth just as businesses do. Part should be used to pay down old debt and part saved. When that policy is followed, we have sustainable growth that provides the dollars needed to provide for increased services. We can then pay for the health care we want all citizens to have. We can then pay for a strong national defense. But until then, we must get the spending down to the level that income supports and the income up to where spending needs to be to fulfill our societies requirements.

Politics and Your Money: 8/26/2011

2011-08-26T13:12:00.000-04:00

Politics and Your Money: 8/26/2011

8/26/2011

2011-08-26T13:10:00.000-04:00

Hi all,

Today is Friday 8/26/2011, the day hurricane Irene makes its approach to USA mainland. It is expected to come ashore in North Carolina, about 50 -75 miles north of this writer and be a real problem for the Washington to Boston areas. The track as I understand it is reminiscent of Hurricane Hazel in 1954 and Donna in 1960. That was the last significant hurricane to hit the Northeast. Most may not remember it. That will be a problem.

Politically one has to wonder. An earth quake, a hurricane, all focused on Washington. The earth quake cracked the Washington Monument and shook some plaster out of the ceiling in the Capital. Maybe the hurricane will wash away some of the dirt in Washington. I guess we can only hope. Someone once wrote about the audacity of hope. Not sure he was taking about the same hope I have.

In the meantime the economy will take a short term hit if the storm really screws up the works in the northeast but a 10 billion dollar disaster could mean work for a few people. In fact, the winds may cause enough damage to create a mini employment boom for the housing industry.

Looking at the statistics the economy reportedly grew only 1% in the second quarter, with car sales being a bright spot. I, personally think that may wane this next month or two. Consumer debt jumped up more than $15 Billion this past month. What is that about? Did we so soon forget that debt is a real problem? Are we moving back to the habits of the past?

Corporate earnings for the second quarter compared to last year grew 0.0%. That is correct. It has grown 0.0%. Didn’t shrink but didn’t grow either. Of course this time last year they were growing around 50% over the prior year so there isn’t any immanent danger of massive corporate collapse. But there also isn’t any pressure to hire either.

Unemployment first time claims has been stubbornly around 400,000 per week. We get a little below that for a week then we pop back up above. The year to date average of about 411,000 is about 33% higher than the average prior to the financial crisis and subsequent recession. It takes about 100,000 new jobs created each month to absorb the new members of the work force like returning military, kids growing up and others re-entering the work force. To reduce the unemployment rate we need to create additional jobs beyond the 100,000 each and every month. Each .1% decline in the unemployment number requires a about 140,000 new jobs. Remember that is in addition to the 100,000 that we need to absorb the growing workforce. To just reach what President Obama told us would be the cap of 8%, we need to create 1million 600 thousand jobs in addition to the 100,000 per month each month that it takes up to get there. That will require an economic growth of around 8% per year. A very long way from our 1% current rate.

Congress does indeed have a tough job ahead. But it is of their own making. They refused to address problems when they were small now they are stuck with the mess. I liken their position to having failed to stop at a gas station because the price was too high and now we have run out of gas on a cold and snowy night without cell phone service. Not a pleasant situation. Unfortunately it is you and I who will have to walk in the cold dark and wet night until we reach help and I imagine that is going to be a very unpleasant journey.

Isolationists would say close off imports with taxation and duties and open up manufacturing at home. While that could work I suppose, the path is ugly. First you raise tariffs and trading partners do the same. Then your exports drop right now and unemployment rises in those sectors. Spooling up manufacturing in the USA isn’t easy. It will take a while to equip factories long shuttered, hire and train people and then actually produce and ship goods. This also takes an enormous amount of money. So the practical approach is to look at imports and exports and work at making our people/businesses more competitive so that this can happen without the intervention of tariffs and the subsequent dislocation that would bring. Oil being the major import, we need to address energy but going green is going to take decades. Drilling and pipelines are much faster. Not that we shouldn’t be working hard on green alternatives it is just that we have to avoid being bitten by the alligators while we work to drain the swamp. Once the swamp is drained the alligators will leave, we just have to prevail.

More competitive may mean lower business taxes and even corporate welfare where it is justified. Tax incentives for job creation. I remember when utilities were tightly regulated. They were allowed to earn a specified rate of return. The rate setting agencies would look at rate requests, look at costs and investment in infrastructure and calculate the rate that would yield the desired return. While consumer advocates argued that there was no incentive for the companies to be more efficient, I remember that they employed a lot more people and didn’t have to drag them across the country every time mother nature through a fit.

Not sure deregulation has worked to advantage. Not sure that the old method was fault free. Maybe we need to look at a hybrid approach of some sort.

Well, stay safe and dry this weekend. We’ll be back with you next week; the good Lord willing and the creek don’t rise more than usual.

August 18, 2011

2011-08-18T18:33:00.001-04:00

Ok, so the world markets are in a tizzy. Congress is on vacation, the President is heading to Martha’s Vineyard with Michelle and the girls. I guess I shouldn’t be too concerned. If there was a real problem they’d all be at work…right?

The market is at it again. Greed is being defeated by Fear. What if Europe has a recession? What if the European Monetary Union collapses? What if our growth slips again and we have a double dip recession? Gold is trading over $1800 per share and the bubble, if there is one, is getting bigger and the bigger bubbles get the more likely they are to burst.

When the government stops trying to “fix” the economy and simply allows the market to wring out it excesses we will get to where we are going anyway, we will just get there faster. If the government wants to help, stop trying to bolster the auto industry with special incentives (cash for clunkers) and the real estate/housing industry (tax incentives for home purchases). They all simply postponed the inevitable. The pricing of these assets has to reach a sustainable point.

A better approach, in this writers mind, would be to assist families that need help (Unemployment insurance, support for COBRA costs and extend the COBRA benefits time window). These things allow the market to work but help protect families. Those whose greed resulted in pain, well that is the risk they knowingly took. I can’t feel sorry for them. Those who went to work every day and did what was asked of them deserve the help of their neighbors. If it takes government to accomplish that due to the scale of it, then so be it.

Just remember “We the People” as the Constitution describes us, is all there is. There is only us. Every dollar spent to assist one family must come from some other family. Those who are fortunate, smart, willing to work hard and are richly rewarded do have a responsibility to help their less fortunate neighbors. That is the way our tax system is designed. The question we face today is how much of the income the richly rewarded get should be taken from them and given to their neighbor.

When it comes to Europe, they are not the United Countries of Europe. They are independent countries which are trying to improve international trade efficiency (between themselves and others) by having a common currency and multilateral trade agreements. Remember, the Euro was only created in 1999. It is barely a dozen years old and this is its first real test. Whether it can endure is open for speculation. If it fails, each country will be impacted, as will the rest of the world as what new currencies will be introduced by each country and what the individual exchange rates might be. That could affect our investments (personal, business and government) that are denominated in the Euro but are placed in various countries.

We can’t avoid the fallout. Some investors want to cut to cash. US dollars are shrinking in purchasing power nearly every day, eaten by inflation domestically and by government monetization of the growing debt. Congressional inability to accomplish anything is making foreigners uncomfortable when it comes to buying our bonds and sooner of later the interest rate demanded for additional debt will rise.

Housing is still in the toilet, jobs remain scarce, the Mall seems to be less busy when I stop in yet retail sales are reportedly 3% + above the prior year. The US is a consumer driven economy with 65 – 70% of our GDP from consumer spending so a 3% up tick should result in about a 2% growth in the GDP. All that has to happen to achieve that is that none of the other aspects of the GDP are negative compared to last year.

2%, anemic by almost everyone’s measure, is still positive and we need 2 quarters of negative growth in a row to be technically in a recession. 2% growth does nothing for unemployment so although it is not a recession, it will feel like one.

I hate to be the voice of doom and gloom so I’ll say it like this. Unemployment is here to stay until 2014 or later. I’m still thinking 2017 which I said in 2008 or 2009. Won’t matter who is elected President in 2012. It could be sooner or later depending on who gets elected to congress in 2012. The more congress members that get returned, who have been there more than one term and are part of the problem rather than part of the solution, the longer it will take for the economy to recover.

We need new blood but it must be quality. Ideologues probably won’t help reach an appropriate consensus. We have a lot of long term ideologues whose my way or the highway attitude got us where we are. We have to find a leader who can set a course to sustainable growth and to lead congress and the country to progress. It will take time. It will cause a lot of change in the way we do things. States will have to stand up and be responsible for the quality of life in their region. The federal government shouldn’t mandate rules to the states…period. The need for “Federal Law” should be minimized and used only where uniformity between the states is really needed. All other law should be State specific reflecting the values of the people who live there and who pay taxes there.

Have a great weekend. The markets are closed so while you may not get richer, you won’t get poorer either. Congress and the White house will be on vacation so your life may not get any better but it likely won’t get any worse either.

August 8-09-11

2011-08-09T16:02:00.001-04:00

So what happened today and what does it mean?

The Federal Reserve had an announcement after their regularly scheduled policy meeting today.

First let’s revisit the Federal Reserve. It is not part of the government. It is not owned by the government and it is not run by the government (directly, anyway). Huh?

The Federal Reserve Bank was created by Congress to issue the currency and to manage the banking system free from political influence. The Fed, as it is called, is owned by the member banks that it charters and over sees. There are 12 Federal Reserve Bank Areas or Regions each headed by a President elected by the member banks of the Region. They, along with a Chairman, appointed by the President and confirmed by the Senate make up the management of the “Fed”. The oversight of the “Fed” is the seven members of the Board of Governors, The Chairman, previously mentioned and six others appointed by the President and confirmed by the Senate. Today there are two open positions. The FOMC (Federal Open Market Committee) which meets regularly to determine appropriate strategy for the achievement of the objectives of the “Fed”; that is to keep inflation under control and then to assist the economic growth. The FOMC is made up of the seven members of the Board of Governors and 5 of the 12 Presidents of the Regional Federal Reserve Banks.

That said, the FOMC today said that it anticipated keeping the effective interest rates low for an extended period of time, perhaps until 2013. That is to say the economy is weak and we don’t see any significant growth out there that might be inflationary in nature.

What that means is that mortgage rates are going to stay low for a while, credit card interest rates are going to remain at current levels. HELOC’s typically based on 10 year Treasuries are going to remain at current rates. If you are in the market to refinance, now may be the time to lock in low rates. It also means if you are living off interest on your CD’s, you are not going to have much income.

The bond market liked that statement and bond yields declined as prices rose. The stock market wasn’t certain about it in the hour immediately following the statement, but seemed to decide that it was OK and retraced its declines today returning to substantially positive territory at the end of the day.

For those looking for a job, it is a mixed condition. Businesses now know that the “Fed” understands what we have known for some time. Growth is going to be slow and hard to come by. Competition is going to remain fierce. That isn’t good for job growth. On the other hand, low interest rates mean that additional plant and equipment will be affordable and loans may even be accessible. That could create jobs in other businesses.

The economy is like a bunch of dominoes. If one falls it pushes another and if that one falls it pushes another etc. etc. etc. We need to get the Dominoes to fall. To do that we may have to change our political precepts of taxing businesses on money earned overseas. If US corporations could bring home the money they make overseas without being taxed again (already been taxed where it was earned) then maybe they would spend it here and start the dominoes falling. Wouldn’t that be grand?

Sunday 8-7-2011

2011-08-07T16:58:00.002-04:00

Well last week wasn’t fun. The Congress agreed on a debt ceiling bill which was hailed as a victory by politicians yet the stock market crashed, dropping 700 points in a week. Apparently they weren’t impressed. Neither were the analysts at S&P which downgraded the USA credit rating from Stellar (AAA) to Very Good (AA+). While that move was well telegraphed to the markets and to the Congress, it is a clear signal, that using the same criteria as is used for other governments, we aren’t doing as well as we did in the past at managing our financial affairs.

Politically it gives others like Russia and China the opportunity to chastise us for our profligate ways and rebuke our holier than thou attitude.

What all this means remains to be seen as we have never been there before. What I am sure of is that there will be over reaction and the markets; both equity and credit are going to be volatile and a little chaotic for the next quarter. No one is sure if the 1.3% GDP growth in the second quarter is accurate or if it might be revised downward as was the first quarter. More uncertainty comes when such a modest growth could easily be revised to a negative growth, the first of the requisite two quarters to indicate a new recession.

What do you do when you are uncertain? I stop spending for a while. Until I have reason to feel more confident. That means I don’t hire, I don’t build and I don’t spend on anything I don’t need, I cut debt. None of that is positive for the economy. I am considering buying a car; mostly because both of ours are getting older and I don’t want to need two at the same time. Apparently there is a KIA dealer in town near home that doesn’t believe in economic stimulus as he has window stickers with a $2000+ dealer markup over sticker? You’ve got to wonder if the showroom is a front for a different business. How can you sell cars in these times asking for more than sticker when your competition VW, Toyota, Nissan and even Honda are selling for a discount? Maybe they know something the rest of us don’t.

As for me, I’m playing watch and see but if Monday opens badly I am likely to reduce my exposure to equities and cut to cash. But that is just me. I’m afraid of the herd mentality.

Congress is on summer break and that is good. They can’t make mischief when they are home. If you should happen to see yours, or if you’d care to write to him/her, let them know that cutting spending is important but so is keeping key programs healthy and, as much as I hate it, may take a tax increase (no not a rate increase so much as an increase in what you can deduct). Second home mortgage interest (also applies to boats and RV’s) may have to go away and there are many other base broadening measures that may have to happen. I’m not thrilled but I can live with them if they are tied to a balanced budget law that could only be repealed by a super majority of both houses. That way they can’t spend what they aren’t willing to fund without borrowing. I’m sure we could manage a super majority if there were another Pearl Harbor or 9-11 to allow borrowing when it is a bona-fide crisis and not just to fund operating expenses when Congress members didn’t have the cahones to admit the real cost to their constituents or their incompetence at calculating the real cost.

Until we do that, S&P is not going to reconsider. Moody’s and others are likely to give little time before following suit and downgrading the USA debt in much the same way as S&P.

When your own internal debt rating agencies aren’t supporting your approach, isn’t it time to consider change, real change? In the business world changing corporate culture is one of the most difficult things to do. Often we have to fire the entire top echelon and replace them with new folks who get where we need to go and are willing to do what it takes to get us there. Perhaps we need to do that in Washington. Perhaps every incumbent who has been there more than a few years (one term) should be tossed out and replaced. That makes a level footing for all interests and allows an entirely new culture to be born.

It is a thought. Perhaps you might consider it when voting next year.

July 25, 2011

2011-07-25T22:39:00.002-04:00

Hi Gang

Well the 535 folks who we sent to represent us in Washington DC once again have put partisan politics ahead of the people’s business.

Yes, I understand that they have fundamental differences in the way they see America and the role of government they believe best serves the people. But I also understand that like the parent who never says no, they now have to deal with a child (us) that thinks because its shiny and they want it, they should have it. That, is just not sustainable.

We need to have additional revenue, at least temporarily, but we also must fix what is broken, pork barrel spending, fraud and waste in many programs, and a better budgeting mechanism. Many have called for zero based budgeting and have been told, rightly, that it is not practical because it is so voluminous. Computers have come along and now, maybe it is time to rethink that. Perhaps we don’t have to zero base every year, but every five might work. Take 20% of the agencies or other budget segments and zero base them every five years. That way we could at least be assured that every line item is looked at and justified every five years. Pretty sure that would make trend line analysis a useful tool. We could spot any segment of the budget that was out pacing inflation and challenge it. This would allow us to fix the problems a lot sooner.

Default. Is it unthinkable that the USA could be unable to pay its bills? Was it unthinkable for a lot of US citizens to be unable to pay their bills in 2007. Yet look at the foreclosures, the bankruptcies and the pain on Main St. USA. No it is not unthinkable, but it is avoidable. They say there are two competing emotions in human kind. Fear and Greed. We need to back off the greed a notch or two and cut the pandering to fear. There is a reasonable solution out there and we will find it. It is just like elephants mating. It happens at a high level and amid a lot of noise. Congress will work it out and do it in time. But if they don’t, the world as we know it won’t end. Just as CARmageddon in CA was much ado about nothing, this will pass quietly into the night also.

What will happen? The treasury will not be able to redeem some bonds that are due to the Federal Reserve Bank. Woo Woo. They should have enough cash flow to handle the everyday things like payroll and Social Security. They may be a day or two late with the bloated payment to a defense contractor or they may have to force government workers to take a few days vacation. But Armageddon, I think not.

But what leverage is there is you can’t scare people? If this “default” happens and Social Security checks go out, the average American is going to lose interest. Then it becomes a political liability for both sides. Where does that lead?

So relax, read a good book and don’t worry, be happy.

July 16, 2011

2011-07-25T22:19:00.002-04:00

Hi friends,

The headlines are filled with chatter about deficit reduction and tax increases matched with spending cuts. The news is filled with dire prediction about what bills won’t get paid if we can’t borrow more money. Think about that. This country, allegedly the richest country in the world won’t be able to pay its bills if it can’t borrow. Maybe we should send Rep. Boehner, Sen. Reid and President Obama down to the docks to see if they can get a payday loan to tide us over. Maybe we could call one of the many pawn brokers and see if we can get some cash for stuff we may no longer need.

OK, so none of those ideas would fly, we need too much money, but it points out the seriousness of the problem. We can’t pay our bills without borrowing more money. This is crazy. The Congress, both houses and the executive branch as well are responsible for this situation. This has been going on for decades. It is the system that needs to be overhauled.

Enough of that rant. What does it mean to you?

We need to recognize that, scare tactics aside, we really do need to pay our bills so there is no option but to borrow more. However, we need to spend less so that borrowing to pay the bills month in and month out is not necessary. In truth wasteful spending can be cut, over reaching expenses trimmed and we can get control of our finances. But it is unlikely that we can do that without additional borrowing and additional tax income. Republicans and Democrats both have had a hand in creating the problem and now must have a hand in fixing it.

The President, Mr. Boehner and Mr. Reid must come together and work out a solution that puts the USA back on a sustainable course. To be effective it will have to contain new tax revenue, reduced wasteful spending and long term entitlement program reform. Yes, I said that long term entitlements (which we just expanded in terms of Obama-Care) need to be reformed. Social Security eligibility will have to change. People born after 1955 or so will have to wait longer to retire (early retirement - today 62 - will need to move to 65 or 66 and full retirement will need to move to 70). This can be phased in over time, one year longer for each year past 1955 until we reach birth dates of 1959. Top income earners will also need to contribute more. Income is income, so capital gains and ordinary income rates need to be the same. Warren Buffett is the leader on this and his income is mostly capital gains. Those of us who are living on our capital gains can afford to pay more in taxes. We won’t like it and a few politicians may have their careers shortened but it is a necessary step to regaining our financial footing.

The key going forward will be our ability to not repeat the mistakes of the past. We can no longer be the policeman of the world. We can no longer promise more than we are willing to be taxed. We can no longer put off or, in the presidents words, kick the can down the road. Obama-Care costs will kick in down the road in 2013. We need to be on a pay as you go basis by then and that is not long from now. If we fail to do this our borrowing costs (yes we will still have the existing debt to pay interest on) will rise, inflation will rear its ugly head and we will be far worse off that we are today. I don’t even want to think about that, do you?

Take notes during the next weeks and figure out who you think is a leader and leading in the right direction and more importantly those who are not. When you have an opportunity to vote again in November of 2012 be sure to vote based on their performance not their appearance, propaganda or sound bites, either pro or con.

In the meantime, check your retirement savings plan and take charge because at the end of the day you are responsible for you, now and in the future. Yeah, I know being a grown up isn’t easy nor fun. Get over it.

Car sales are improving, slowly but surely. Retail sales are up year over year by about 3% and manufacturing is actually doing quite well. It is manufacturing that employs technology rather than people, unfortunately. The economy is creeping forward and will continue to grow very slowly. Job creation won’t likely speed up to where it needs to go for a longtime. We need to add 100,000 jobs each month just to absorb the natural growth of the work force, forget bring down unemployment. Unemployment at 9.2% is likely under reported but it is surely not equally felt in all demographic sectors. When young people are affected to a great degree, you have the fuel for civil unrest. Remember the Newark and Watts race riots. I do and I don’t want to see them again.

Housing prices and sales will not recover for probably a decade and maybe longer. Housing is a world class example of unintended consequences of a well meaning government policy trying to make home ownership easier to achieve. We made it easier and easier until it was too easy and the bubble burst. Now young people will have to do what their grandparents or great grandparents did - work hard, postpone marriage and live with parents until they have saved enough to put a down payment on a home, a down payment of 20%. Seems wild but that will be the future. It is sustainable and it will take a long time to absorb the houses on the market today.

Education will be of greater importance than ever because even small business people (plumbers, electricians etc.) will need to know how to run a business as well as just be experts in their trade. New home construction will not recover nationally for a very long time, if ever. However, as immigrants came to the USA for work in years past, we may be going to other places to find work. IBM, I’m told is hiring in India and other locations outside the USA. Maybe going to work for them or other major employer in India will result in a good job in the USA in 10 or 20 years. Young people are going to need to rethink their career plans and adjust. Sorry, kids but our life style is no longer available to all. The smart, the talented and those willing to do what they have to, will do well. The rest will be stuck scraping along until they can’t work any longer. Doesn’t sound like the America we were taught about but it is the America of the next 35 years.

If you are young, think long and hard about your future. If you’re in your 30’s, 40’s, and 50’s start saving every dollar you can. You are going to need every one of them. If you are already in your 60’s be thankful that you have the benefits you have and talk with your financial advisor about making it last for the next 30 years.

Sorry to be so negative but I think I’m right and you need to know.

July 2, 2011

2011-07-02T12:58:00.002-04:00

Happy Independence Day!!!

Today we celebrate all that is good about the United States. Tomorrow we must go about fixing what is wrong with the United States.

I believe it was Bill Clinton who said “It’s the economy, stupid”. And ours is in the worst shape it has been in since the Great Depression. It may actually be worse.

In 2009 I said recession is psychological. In a consumer driven economy such as ours, how safe and how rich the consumer feels determines how much the consumer spends, thus the direction and speed of the economy. Stable housing prices make consumers feel safe and rising housing prices make us feel rich. That translates into freer spending and a growing economy. “Until the housing problem is fixed we will not grow”. That was in 2009 repeated every so often in 2010 and now we are deep into 2011 and it is still a disaster. It could have been solved in 2010 and we could be leading the world into recovery but the government (House and Senate) was busy worrying about the wrong things and I’m not sure they get it yet.

If we’d have taken some of the $Trillions that we spent on ‘stimulus’ and bought up defaulted mortgages, took title to those homes and tore them down we would have stable housing values today. There would be no glut of distresses sales gutting the prices of nearby houses. Stable housing values would give a psychological boost to consumers who would have spent more freely, creating jobs and more demand for housing, resulting in rising values and still more consumer confidence.

We’re like the Army that wasted its ammunition shooting at mirages then when they had the opportunity to engage the enemy they were out of bullets. Our inept handling of the economy has left us with very few bullets. We now must use them carefully or risk being captured by the enemy.

We have spent $trillions to stimulate the economy trying for a quick fix. ‘Shovel ready projects’ were funded to create construction jobs. Unfortunately in this country even ‘shovel ready’ means months if not years away. A lot of money committed, not a lot of bang. Hence first time jobless claims are hovering around 425,000 each week. Better than 2009, but much higher (30% or so) from the levels of 2006.

G.W. Bush takes a lot of blame for two wars which cost us a fortune in money and lives but the current administration has done little to reduce that spending and has added Trillions in a misguided attempt to improve health care (which needs/needed improvement) while not focusing its energy on the economy until it had degenerated to the crisis level. The Obama administration owns that one. The real culprit was Speaker Pelosi and the real mistake by the current administration was letting her run loose. She led the health care charge on a partisan basis either not understanding the economic situation or, worse, not caring.

The American voter seems to have dealt with her, but the administration must lead us out of the crisis. At this point President Obama and his administration does not seem to have the skill or the credibility to do that. In retrospect, Hilary is looking good. Who will replace her as Secretary of State when she leaves in 2012? Who will be willing to risk taking over what could be a six month job if the Republicans unseat Barrack Obama in November 2012.

This is a real issue for all of us to consider. What will we do interms of paying down the deficit? How will we raise the money? Will we be brave enough to slowly raise taxes (to avoid dumping the economy back into recession) while recognizing that we must reduce spending, even when it hurts.

I’m no longer young and I look at Social Security differently than when I was younger, but we cannot afford to payout benefits for 20, 30 or 40 years. Retirement benefits must be tied to life expectancy. Retirement age has to rise. The government is talking about 67. Realistically, they probably need to be talking about 70 or even higher for people who are just being born today. They will live into their 80’s and 90’s. Benefits for 10 or 15 years is affordable, while 30 or 40 years is not. Ask your financial planner how much money you will need to equal Social Security payments (and its cost of living increases) based on retirement at age 65 and your life expectancy. My best guess is he’ll tell you that you need about $1 million. You may need more. On that basis, with a large portion of our population in the ‘boomer’ group, think about the government having to provide each one of us with a $1million. A Billion is 1000 million. A Trillion is 1000 Billion. So about $1Trillion for each 1 Million baby boomers. And there are 39 million people already over 65 and more coming each day. How much money do we need to support Social Security? I don’t know, but it seems like a lot. Medicare is another issue. Older folks, I am learning first hand, require more and more medical attention. Just like an old car requires more and more maintenance. As we live longer, we cost more to maintain. So Medicare expenses are going to rise as those in the system age and as the boomers enter the system in large numbers the base cost grows and the future cost grows exponentially.

So enjoy the Holiday and then get to work next week looking carefully at all candidate, local, state and nationally to find those who you believe have the best plan. But be sure to look for specifics. Generalizations and platitudes aren’t going to get it done. Neither is great skill as a speaker. For all our sakes, look at the substance, not just the package. Skin color, hair color, age, gender nor any of those sorts of things are important. Skill, intelligence and experience coupled with honesty and integrity are important.

Taxes are likely to increase in 2013, they have to. Spending cuts will be with us for the next decade, they have to as well. Accept that and evaluate candidates based on what they are saying relative to the reality you know. If they don’t recognize that both must happen, then they lack integrity and either honesty or knowledge, in which case I hope that you would disregard them and try to find a better candidate to support.

New economic stats are out next week and I’ll bring them to you with the usual attempt to explain what they mean.

Happy Independence Day!!!

June 11, 2011

2011-06-11T16:40:00.001-04:00

Hi Readers,

So what is going on in the world of economics, politics and your money?

The market had a nice run in the first quarter of 2011 with the DJI rising from 11577 to 12810 on April 30. This represented a gain of 10.65%. Then the news started to turn sour.

So what is ahead? Don’t know but my cloudy crystal ball and Lipton tea leaves tell me that the transportation indexes are down which says that big money is pulling back from transportation stocks expecting that they will not have as much upside as they have enjoyed over the past year. Transportation is, to my mind, the key barometer of what the economy is doing. Whether goods are manufactured here of imported from anywhere, the transportation industry is involved. They are the first signs of spring. They are also the canary in the mine. When they fall, lookout below. Right now they are not falling but they are not blooming either.

First time jobless claims that had been slowly coming down (whether due to real job growth or folks just dropping out of the labor market by retiring). In the last six weeks we have seen the number of first time unemployment claims rising, back up to levels about 25% above where they were before the recession. That is not a good sign. A speed bump? Maybe, but it needs to end real soon. If it continues for two, three or more weeks then it is likely structural and we are in for a double dip.

Housing prices continue to be a thorn in everyone’s side. As prices fall, business people who have relied on home equity loans to finance their businesses, are finding it harder to do so. This could force more businesses to collapse and more homeowners to default, driving home values still lower. On that fear, pending home sales dropped big time last month while actual sales closing trailed 2010 by 14.4%

Auto sales dropped to their lowest levels since September 2010 after improving steadily for 6 months. Part of that could be the Japanese Tsunami effects. Whether that will persist or is just a ‘speed bump’ only time will tell.

On the plus side, job postings on the Monster job site are up 6.7% year over year. Whether that represents new jobs or employers seeking to upgrade employees buy attracting a better quality employee only to fire the current staff once the new staff members are on board is yet to be seen. The juxtaposition of the expanding job postings and rising first time unemployment claims suggests it might be the latter.

Personal Income and Personal expenditures average a flat relationship. We are not saving anything that we earn greater than the previous month. Part of that is likely rising fuel costs. Consumer credit jumped up in April. Credit card balances expanded, perhaps again due to fuel prices.

For those who believe lower taxes will help and those who believe that higher government spending is needed I have bad news. We are at the beginning of an election cycle and I suspect that neither party will want to do much of anything except spin the data. So it will be another year of doldrums. After the election, regardless of who wins, we will see action because we have no choice. We will see tax changes, spending changes both of which will affect Medicare and Social Security. It may affect Obama care as well in one form or fashion. The government will not be able to afford added costs without offsetting taxes. My opinion, it isn’t going to be pretty. By 2013, the hole will be much deeper, the job more difficult and the legacy much longer than it is now. And, like the Greeks, we aren’t going to like it.

Its the economy, its always about the economy

2011-05-30T18:34:00.000-04:00

Happy Memorial Day!

A great big thanks to the veterans who have fought and died to give us the great country we have. From the Revolution, Civil War (War of Northern Aggression to some), WWI, WWII, Korea, Viet Nam, and all the Middle Eastern wars since, and continuing as we speak. It is easy to forget their sacrifice since we have never experienced war, real war for years on end, in our own back yards. The closest we have ever come to knowing the horror of war up close and personal was Pearl Harbor and the attack on the Twin Towers and Pentagon. Our service men and women have given us that great gift. As Mr. Lincoln said, “the world will little note nor long remember what we say here, but it can never forget what they did here”.

Memorial Day traditionally marks the start of the summer season in the USA. Yes, summer is upon us and we are left thinking about what is happening and what will happen during the hot months ahead.

The way too long election season is beginning. President Obama has the advantage of being guaranteed his party nomination to run for a second term while the opposition hasn’t a clue who to run against him. It gives him a head start.

It will take a really top notch candidate to make this a credible horse race. If the Republicans can find one, they do have the economy on their side (although I don’t think they have a lock on the vault of knowledge when it comes to fixing the economy). Jimmy Carter (D),and George H. W. Bush (#41) (R) both lost re-election because the economy was in the tank.

So what will the sitting President try to do? He will certainly try to create a plausible argument that the worst is behind us and that we are on the road to recovery. You will hear things like, I inherited this mess and while it was grim, my policies have helped us stop the free fall and get on track toward recovery. We have a lot of hard work ahead but I can see a light at the end of the tunnel. Four years from now we will be in a much better position than we are today because of the policies and practices I have installed and will continue to implement when I am re-elected.

The question we all have to decide for ourselves would be “Is he correct?” Or are we really no better off that we were in 2008. “Did he inherit a train wreck or did the Congressional focus on Health Care allow the train to wreck before they reacted to it?” Could the disaster been better and more timely handled? Is the USA in a better position in the world than we were in 2008?

Those are questions for voters to decide. What I think I know is this:

1. Housing sales continue to be flat with new housing being well below 2009 and down from even 2010 despite record low interest rates for mortgages.

2. On the consumer front (roughly 70% of the economy) we are seeing steady growth year over year of about 3%, so some growth in the economy is happening. Unfortunately imports are growing faster than exports so we are creating jobs but they are not here. Here, we are seeing more than 400,000 people apply for unemployment each week. That is fully 100,000 more than before the financial crisis began. That could translate into an unemployment rate climbing to 9.3% by year end. Friday, June 3rd, the next department of labor announcement is due. That will confirm my expectations … or be a pleasant surprise. Capacity utilization, that is the percentage of production that factories are currently running has remained at about 76%. Lack of growth in utilization signifies no job growth. Inventories are flat and there is no sign that anyone is confident in the future, at least confident enough to invest money in building more inventory. Perhaps we need to re-run the movie “Field of Dreams”. You know, build it and they will come.

3. Remaining on the consumer front, we have modest growth even in the face of continuing unemployment. We are seeing consumer debt rising again, albeit at a much slower pace than pre-crisis rates. That cannot be sustained without income growth and high unemployment dampens wage growth. So we have another concerning pattern developing.

So what to do?

Well, we can tax the rich and those corporations that are making so much money, some say. We can do that but taxing the rich, even a lot, isn’t going to be more than bucket full of money in the ocean of red ink. Corporations are legal constructs. They don’t really exist anywhere but on a piece of paper. If we tax them, they raise prices. So we basically tax ourselves more. But they don’t vote so they make an easy scapegoat. It amounts to the political equivalent of the shell game. Where is the pea?

Corporation profits, while quite healthy, are growing at a much slower rate than they did in 2009 and 2010. This means the stock market could see them as fully valued, and the stock market (and your 401(k) retirement money) may not see much growth going forward.

Cut spending some say. Also a good idea but the budget has relatively little discretionary spending in it. Most of the budget is entitlement programs (Social Security/Medicare) and military. Since we are still involved in wars in Iraq, Afghanistan and now Libya, there doesn’t seem to be much chance of cutting that either.

So what is the solution? I was once told that when you find yourself in a hole, the first step is to stop digging. We need to simply freeze spending at current levels or if you favor spending reductions let’s freeze spending at 2009 levels, for everything, for two years, longer if necessary. Then let’s raise taxes in a way that is fair and equitable. Then let’s start leveling the playing field by taxing imports to allow local US companies to increase their market share (and employment). The resulting increase in employment will result in an increase in tax revenue and pretty soon, who knows, we may once again have a budget surplus like we did not so long ago.

As the campaign season progresses, think about these issues and listen carefully to the candidates. Test their promises and slogans against logic. Sound bites can sound good but don’t take them at face value. Do your homework. If you don’t you will live under the government you deserve.

The Economy: Good or Bad?

2011-01-10T17:37:00.000-05:00

Well Friends, it looks like the venerable American economy is starting to recover. Transportation companies are reporting more activity which means someone is shipping something someplace. Consumer debt, yeah credit cards and mortgage debt is once again growing. It grew each of the last three months which suggests either a lot of people are starting to feel more secure OR they were bound and determined to have a great holiday and when the bills come in January, Katie bar the doors…bankruptcy. I don’t know which it is but the next 6 to 8 weeks should help make that clear.

In the interim, Gold is down $37.50 for the first 7 days of the new year. Does that mean that Gold’s great run up is done? I don’t think so. I think there is some profit taking after a 25% plus run up in 2010. I think that there is some real concern about the worlds FIAT currencies, The British Pound, The Euro and the US Dollar as well as lesser known currencies. The concern about those currencies is inflation. Will the printers of these currencies reduce their debt and become fiscally responsible or will they simply print more currency to pay their bills. Until that doubt is removed I believe that Gold remains the inflation hedge of choice.

Oil is another issue. Black gold. As the recession abates worldwide and jobs appear, no matter how slowly, consumer confidence will grow and consumption will increase. This increased consumption will require energy to produce and ship to market. That will increase the demand for oil. As demand increases more quickly than the ability to produce and distribute that oil, we will see prices rise and rise rapidly as countries stockpile to assure their needs are met in the event of any interruption in the marketplace from political unrest or simply Mother Nature. As oil prices rise, gasoline, kerosene (Jet Fuel) heating oil (Diesel) and all the other petrochemicals will rise as well. We are beginning to see evidence of that at the pump. Locally the spike will come with the beginning of driving season (Vacation) in the late spring. Gasoline could easily reach $4 per gallon over the summer.

That will pinch the economic recovery reducing its vigor. Still, the recovery will continue slowly, jobs will appear slowly and energy will settle at its new level.

Politically it is a game of trying to claim credit for the small gains and cast blame for the slowness of the recovery. Neither party has the inside track here. They are both equally culpable for gains and the slowness of them. It took decades to get where we are. G.W. Bush didn’t do this alone. Barack Obama didn’t do this alone. Even Nancy Pelosi didn’t do this alone. Every administration back to Nixon had a hand in this mess. We have been education our young people for jobs that no longer exist. Kind of like planning and building a highway that is always too small for the traffic that wants to use it the day it is completed. We have been trying to preach a lifestyle that is not in step with the largest population groups. We will find it difficult to do business successfully with these people. We have created an entitlement mentality (here and in Europe) that we can’t sustain. Now we have come to the point where we are asked to fix this in two, four or even eight years. Not going to happen. It will take a long time, maybe 20 or 30 years to adjust our thinking and produce young people who have the right skills for the new world we have created through technology and social advancement. But first we have to determine what skills are needed. That is hard to do. Envisioning 4G phones just 10 years ago was not possible for most of us. How can we teach what we can’t envision? A fair and valid question I think. Business leaders like Bill Gates, Steven Jobs, and all the others who have invented hardware and software that has dramatically changed our lives need to take a little time to sit down with educators and say here is where the world is going and these are the skills that will be needed. Then it is up to our local and state governments to adjust quickly so that the academic offerings are in step with what is likely to be needed when the child completes his/her education. Our social entities have to help kids understand that while grandparents and even parents career paths worked fine for them, they may not be workable in the future. In my grandparents day a good job was a secretary or a switch board operator for the phone company. Both jobs, which have for intents and purposes, disappeared from the scene today. Great jobs then, non-existent today. How many more jobs can we name that were considered good jobs in the 1970’s and 1980’s no longer exist? Yet our schools still offer a similar curriculum. Those that still offer foreign languages are still offering languages that are no longer relevant in the global business world. English and Chinese are the two languages spoken by most of the people living on this planet (sorry France). Spanish may be popular but it is not one of the most important business languages of the world.

My prediction has been that job recovery, defined as an unemployment level of 5% will not be reached before 2017, if ever. The new jobs number this month was stronger than expected but didn’t absorb the growth in the workforce let alone reduce unemployment. The official number for unemployment went down but even the government admits that it is probably due to people who simply quit looking for jobs. They are still unemployed, we just can’t find them to count them. They have dropped of the radar so to speak. The real unemployment rate (which no one knows but some estimate is probably around 17%) is still rising, albeit much more slowly than it was a year ago. To make a real reduction in unemployment no matter which number you choose to believe is about 125,000 per month net of layoffs of private and/or public workers. If we could achieve and sustain this level of job growth, we could reach 5% unemployment in 4.5 years or by 2015. Each month we fail to create 125,000 jobs is one month longer to reach “full employment”. Of course that is based on national averages etc. Locally those numbers are either higher or lower and full employment is nearer or farther away.

Housing, my last item for the day, is still bumping along. Values have not yet stopped falling and an upturn in mortgage rates has caused the refinance market to slow a bit. Perhaps that refi-flurry during the month of October and continuing into November may have been what increased consumer debt and supported the holiday retail sales. Until housing values stabilize and the inventory of unsold new and existing homes is reduced, no one is going to be launching large developments. That employment engine is down for the foreseeable future. Maybe 2012 or 2013 we may see some spool up in the “destination” areas but the country as a whole will be trailing with some hard hit areas like Detroit taking a really long time to recover.

Keep watch, it is an interesting time in which we live.

2011-01-02T17:06:00.000-05:00

Happy New Year!!

The old year is gone and 2011 is on the job. His will be a tough life. The world is in distress. Europe is struggling to keep its common currency afloat and old nationalistic feelings are creeping up. Germany is the strongest economy and the social fabric is the most pragmatic. Greece, Spain, Ireland are already in trouble, having borrowed way more than they can sustain. Portugal, Italy and others are also at risk. Germany once dominated much of Europe militarily and now it is becoming dominant economically. Perhaps there is something in the genes.

The United States, too, has borrowed much more than it can sustain in the long term. We can support the debt for awhile but ultimately we must get our house in order. We are no longer completely impervious to the concerns of the world. We are rapidly losing the distance between ourselves as the giant killers and the rest of the world. China is rapidly closing the gap. Russia is trying as well. The quiet one, India, is growing economically and is about as large as China when it comes to population. It too is growing at an annual rate well above the ‘developed world’ and is closing the economic gap.

These growth rates in Chindia, the new buzz word, will propel the demand for goods and services for the next decade. Together China and India (Chindia) contain about 33% of the world’s population, where the USA is only about 4.5%. As they grow and more want cars, refrigerators, washing machines and all the rest of life’s good things (not to mention the energy it takes to make them work) the demand for these goods and services will grow at an unprecedented rate.

Opportunity will continue to knock in these places. The USA will recover but by the time it does, the level of caring in the business world may have diminished significantly. The need for strong exports to the USA will be replaced by domestic demand in Chindia. This will make us less important to them and us ever more dependent on them. The net result is higher prices for imports in the USA. To many of us, that will feel like inflation unless the dollars strengthens sufficiently to offset the change. Unless we get spending under control, we will become less vital and critical to the world and more marginalized in world politics. Europe could find itself again dominated by Germany through its own decisions. Remember a United EuroZone is similar to the USA in population. Even together, we only one fourth as large as Chindia. By the way, Indonesia is only a little behind the USA and the EuroZone in population. If you look to all of Asia, we are out numbered by more than five to one.

Guess where business opportunity will lie between now and 2050? Where will the demand for Infrastructure, housing and all that goes with it, cars, clothes and more be?

It is time for us to be teaching our children Chinese; language, customs and traditions, so that they better understand the wants and needs of the largest customer segment in the world. Oh, India speaks English as an official language already which makes them easier. But we need to learn traditions and customs so that we better understand the other largest customer segment.

At home the new year means a new congress that must take the deficit seriously. They need to take a hard look at Obama Care and prune the parts that over reach to make the overall program healthy and sustainable. It may take more than one year for some challenges to work their way through the court system. Legislative modification could remove the premise for the challenge if it is handled properly. I’m not holding my breath.

We are two years out from another presidential election. Obama and the Dem’s will be posturing for that, while the Republicans are looking for a viable candidate. I just hope that doesn’t stop us from moving forward on issues that are important to the nation and our future.

Year End

2010-12-31T16:46:00.000-05:00

Well, it’s New Year’s Eve. And it has been a heck of a ride this year. The Major indexes gained more than 10% while the economy remained soft, unemployment high, and inflation low. Home sales continue to remain soft despite the quickening pace in December as potential buyers reacted to the increased availability of foreclosures at cheap prices and an unexpected spike in mortgage rates. Car sales have reached a more stable sales rate of around 9 million per year, up from the lows of 2008 and 2009 but still well behind the giddy pre-recession levels of 12 million plus.

Corporate profits are up, although the rate of increase is slowing considerably compared to 2009. No one seems to expect profitability to surge ahead until consumer demand picks up. It is hard to grow the bottom line unless the top line grows as well. With a stagnant top line, expenses have a way of rising and gnawing away profits. So top line growth is essential, which means employment growth is essential.

Crude oil prices have been jumping around like crazy and I’m not certain I know why. Part of the reason is that it is priced in dollars and each time the dollar looses value the price of oil reflects that value change. Part of the reason is political, not just at home but all over the world, since we are a nation that imports most of the oil we consume. A strong dollar means cheap gasoline while a weaker dollar makes our products more competitive overseas. It is a tightrope to be sure. The more products we sell overseas the more jobs we create at home. The more gasoline costs the less available to buy other consumers goods weakening the job market. It is a real conundrum.

For those who are counting on their 401(k) for retirement, 10% growth should feel pretty good. For most people, they are probably back to where they were in 2008. 2011 they will need to make up for lost growth in 2009 and 2010, or about 24% to fully recover from the recession. That may prove quite difficult to do.

With the mid-term elections behind us, we need to remain vigilant as the new Congress is seated. The next two years must show a real commitment to reducing the deficit. New spending must be paid for with new taxes. This will by necessity mean severe limits on new spending or significant increases in taxes. Both sides of the aisle need to get onboard with this. Yes there are different priorities and approaches, but both sides need to be willing to do a little horse trading to give the American people what they need IN THE LONG TERM. WE need a few good men and women who are willing to put their jobs on the line to do the right thing. They will be the true patriots. The others will be the career Politian’s who care only about themselves.

While I am not opposed to unemployment benefits, 99 weeks is not a safety net, it becomes a way of life. I have a friend in the retail business who reports that the people that respond to her job offers come in simply to get their card signed saying that they applied, but don’t really want the $8.00/hour clerks job. She is searching for employees who want to work and is having trouble finding them.

I’ll post more on Monday, with my predictions for the new year.

Party hardy, but stay safe. If you’re going out, have a designated driver.

Happy New Year!!

December 2010

2010-12-14T15:17:00.002-05:00

Biggest risks today are the deficit and the potential for the dollar to be dethroned as the world reserve currency.

The deficit can be reduced, but it will take political will. We need to reduce the size of government AND likely increase tax revenue. The latter will happen automatically as we create jobs and people return to paying taxes and stop collecting government subsidies.

Government subsidies should be redirected toward creating jobs through tax reductions on business and tax incentives toward job creation. These will be self liquidating as the jobs create tax revenue. By reducing the products produced off-shore in favor of products produced here, we will expand employment so we need to subsidize our business community, helping them to reduce the disadvantage of producing here through reduced taxes and regulatory burden. That is not to say caveat emptor but the burden of government reporting needs to be minimized.

We also must create a work force that is commensurate with the tasks required in today’s world of production. We need students with a strong work ethic and strong math and science knowledge. We need to subsidize education for these specific items, especially in the adult population via retraining.

These two items can reduce the deficit and go a long way toward remedying the housing problem as well. People with jobs will buy and PAY for their homes. We need to look at making bankruptcy more difficult going forward. There must be consequences for bad behavior with consumers as well as business and government.

Dethroning the American Dollar from its position as the reserve currency for the world is not something the US alone can prevent. The dollar has been the reserve currency since the fall of the British Pound. Political strife between developed countries has taken on a new battle field, that of economics rather than guns and blood. As a result there is pressure to remove the USA as the 800 pound gorilla by creating a basket of currencies or even a “World Currency” based on a basket of currencies or on Gold. If this were to happen then commodities like oil, gold, even wheat could be priced in this currency which would make pricing very stable and each country (or Union of countries) would be responsible for the value of its own currency in relationship to the “World Currency”. This would mimic the behavior of the global market place after WW II when the US Dollar was pegged to gold at $37 per ounce. It wasn’t until the late 1970’s that Congress allowed the dollar to float. This has resulted in inflation in the current reserve currency (The US dollar) to its present level of $1350 per ounce for Gold.

The danger of a new Global Currency is that the USA could no longer run deficits and borrow like a drunken sailor without creating inflation like we had in the 1980’s, when interest rates were 22% and mortgages were 16% (variable) and fixed rate mortgages were not available. For many of you, that was before your time but it was only 30 years ago. It could easily happen again.

We need to get deficits under control to prepare for a New World Currency. If we do this, a new world currency is less likely AND if it does happen the effects will be blunted. If we don’t get the deficit down then the likelihood of a Chinese / Russian / Middle Eastern coalition could bring about a push in this direction. Remember, the Middle-East and Russia are large oil producers while we are large oil importers. Since China already has too many US dollars, they really would prefer export in a fixed Global Currency than collect still more dollars that are going down in value. They all get hurt by weaker dollars. They’d like us to have the pain instead.

Well that is it for 2010. I wish us all a smarter, wiser Congress in 2011 and I wish each of you a Merry Christmas and a Happy, Healthy and Prosperous New Year.

November 29, 2010

2010-11-29T15:33:00.000-05:00

HI Friends,

It is yet another week of political posturing both here and around the world. At home, the President has taken steps to appear as though he understands the American voters and has announced a pay freeze for government workers (assuming congress will approve – it is required). It is the first of his steps to stop blaming past administrations and to position the incoming congress as obstructionist if they hold out for more draconian measures. It put the Tea Party/Republicans in the same spot President Obama was in. It is easy to campaign and much more difficult to govern. Still the pay freeze, though largely symbolic, is a step in the right direction when one in 10 has no pay to freeze. It is tricky for the Democrats because labor is a major constituency of theirs and an easy target for the Tea Party activists.

Economically speaking, it is likely to result in nothing. The slight pinch that government workers will feel if they don’t get another 3-5% to spend over the next two years isn’t big money. It isn’t going to stop them from purchasing anything they really want. A tax increase, which is what will happen if the current tax rates are allowed to expire, will bite into them and everyone more.

Then there is WIKILEAK. 250,000 pages of classified documents were somehow given out from the State Department. Makes the Obama administration look as inexperienced as it is. Really going to upset some people we count on. It’s kind of like telling your friend something unflattering about your Mother-in-law only to find out she is standing behind you. It will take a while to re-establish harmony and trust. Not a good thing especially in the Middle East where we have few friends to begin with.

And North Korea. What is up with that? Mr. Kim (the elder –Jong IL) is setting up a power transfer to his youngest son Mr. Kim (Jong Un). It is the youngest son that has to establish his power base, especially with the military and in the past bad behavior has been rewarded by the world nations. So he throws a hissy fit and expects that the homies will think him brave and maybe ruthless and the world community, lead by the Chinese, will give him rewards to behave. Maybe not this time. China needs the USA and Europe to buy its goods. The USA needs China to help finance the USA debt structure.

Economically speaking, the more dependent China is on the rest of the world the better. It serves their self interest to keep the brothers Kim (I couldn’t resist the easy play on words), under control. If China was to ally itself with South Korea the North would be toast in days.

All in all with Ireland getting an EU bailout, and Spain and Portugal closely watched, the giant USA economy still sputtering we may find that no one wants to hold currency...of any denomination. If this happens, if international confidence craters then watch gold, silver and other hard assets rise. That would probably not be a good time to be holding lots of cash of any denomination. But, if we somehow manage to keep things from coming apart, then I’d bet on the US dollar before the Euro as the world reserve currency.

A war in the Far East would really complicate matters and even China doesn’t want this. It would like the world to behave as it assumed in its most current 5 year plan. I expect they will do whatever they can to make that a reality.

At home, the unemployment rate is slowly becoming the new norm. The spread between the haves and have not’s is widening and expect that to be the case for the foreseeable future. The jobless benefits are running out and we will be an under performing economy for the next 5 years.

Novemebr 19 More of same

2010-11-19T16:51:00.000-05:00

Hi All,

For those who are still wondering where are the jobs and when will they be here I have news. The jobs are here already, you, on the other hand, may not have the skill sets required to get them. If you’re looking for your old job back you are in trouble. It just isn’t likely to happen.

Those construction related jobs? Gone for the foreseeable future. Likely not back in the old way for a long time, if ever. New construction jobs using green technologies and methods will replace the old jobs and require new skills and new thought processes. If you aren’t on top of that shift, you could be hurting for a long, long time.

What we have in this country is a fundamental mismatch between skill sets and job needs. We have jobs going wanting and people without jobs in large numbers. Ife as you knew it has changed and party in power will have no bearing. The jobs are created by the market place and if they can’t be filled here they will move to wherever the talent pool to fill them is available. It isn’t only price that is driving jobs off shore.

Companies are folding because they can’t compete. This is partly because they don’t have the right products (which are created by employees with the right skills) and partly because they can’t get financing. Money is available but it is looking for projects that have a high probability of success. Expansion of the most profitable buggy whip makers just isn’t what the smart money is looking for. Expansion or additional R&D in battery companies that will support electric cars is getting funded. If you car trying to reinvent the wheel, it will be hard. If you are producing a more efficient wheel you can probably get the capital you need.

Housing was (and remains) a major issue. And it will take years for it to play out. Yet it would be faster if jobs recovered. Since that isn’t a cyclical problem but rather a structural problem. Only education of the work force, inactive and those still in school into the areas that have jobs waiting for them will solve the jobless structural issues and ultimately spur a recovery. Throwing money at the “problem” won’t help solve it. Funding fundamental change in the educational and job training offerings will help but it will take time. If we do the right things the problem will be solved in less than 10 years time. If we do the wrong things this problem could be around for decades and it could become so severe as to endanger this country’s position as a world leader. China will replace the USA as the largest economy on this planet by 2030. When that happens, what will be the likelihood of our being able to fund our deficit/debt? Will we become the next Greece?

Can it happen, really? Britain was the largest, most powerful empire on earth at one time with interests reaching to the tip of Africa and into New Zealand and Australia as well as North America. Today it is enacting draconian budget cuts just to remain viable at home. Most of Europe is in the same boat. Italy (Roman Empire) once ruled the world. Now where do they stand? France, Spain and even Germany, once powerful leaders of the world, today are struggling to keep their economies afloat. What makes the United States different? It what way are we immune?

Education had always been our strong suit. People from around the globe sent their brightest and best to University in The United States. In the interest of diversity we made space for them in our classrooms and they studied and worked very hard to learn all they could. Then they took what they had learned and returned home. Now they are using that education to help their people climb up the economic ladder.

It isn’t about fairness or anything of the sort. It is about hard work. The United States in unique in all the history of the world. Mr. Lincoln asked if a nation so conceived and so dedicated could long endure. We need to buckle down and really start working hard if we are not to become a footnote in history as the first nation so conceived and so dedicated… to fail to endure.

The economy is what it is. You can participate in the worst of it or the best. The choice is yours. The outcome is your fault either way.

I think we're still in Kansas Toto

2010-11-03T15:14:00.000-04:00

Well hi there. I’ll be you thought I died or something. I haven’t put anything up for awhile because there was just so much noise out there and I didn’t want to contribute to it.

Now that the election is over I’ll start blogging again.

The election sent a message that people are unhappy. Why exactly we are unhappy varies. Some don’t feel that the administration has done enough and some feel that it has done too much and still others feel that it hasn’t given attention to the right things. It doesn’t seem like anyone thinks it was Goldilocks, just right.

The economy is turning around, albeit ever so slowly. The moves that the government has made has kept it from being as deep a recession as it might have been, but likely prolonged the pain. So instead of going through acute pain for a short time, we will live with chronic pain for yet another five or six years.

Unemployment will remain stubbornly high with few jobs created over the next two years. The US currency must be devalued to improve our balance of trade but that will make everything you and I purchase more expensive. Hence the chronic pain.

If the Fed does inject $500 billion into the money stream then lending MIGHT get easier. It might also kick start inflation. It almost surely will cause the price of oil and other commodities to rise. I predict $3.00 or higher gasoline by late spring. That said, I’ve been wrong before. It could be that I’m wrong again.

If anybody thinks that the economy is going to rebound or the deficit is going to stop growing as a result of last night’s election, WAKE UP. No one wants higher taxes and no one wants cuts in key programs which make up the Lion’s share of the budget. You know which ones those are…Social Security, Medicare and the Department of Defense (Military). So if you don’t raise taxes and won’t cut spending how exactly will you lower the deficit?

Expect to see both sides of the aisle touting spending cuts. They will be inconsequential programs which are small costs so the savings will sound good but be insignificant. Kind of like slashing your kids $5 a week allowance by 20%. Saves you a whole dollar. Sounds big, amounts to little. Add to that the definition of spending cuts ala Washington and what you would really do is cut the growth rate of the allowance. Next year, instead of doubling the allowance to $10 you will only increase it to $7.50. That, in government speak, is a 50% cut.

So don’t expect much. Times will not feel much different tomorrow than they did yesterday. I just wonder what we will do two years from now if there is no real change and no real improvement. How long will it be until the people really understand that the definition of insanity is doing things the same way over and over and over and expecting a different result? It may not be the players that need to be changed, it may be the game that needs to be changed. Maybe it is time for a third, fourth and even fifth party to force coalition governments like they have in Europe. It requires that they play well with others and it adds a measure of civility to the campaign since you might find yourself working in a partnership with that other candidate.

Politics: It is now or ...

2010-08-25T10:53:00.000-04:00

Hi All,

Sorry I’ve been silent for awhile. I’ve been very busy with work and with getting additional training to keep up to date on this fast paced world. So clients had to come first and the blog second.

Politics and the Economy! The economy is still stumbling and may fall again BECAUSE housing prices still aren’t stable. While most people agree that health care needed reform (they disagree about the form it should take) it just isn’t as important as jobs. And unemployment won’t get any better until housing prices stabilize. I think I said that more than a year ago and it remains true.

The politicians at all levels just don’t get it. But come November members of Congress from both sides of the aisle are going to get a rude wake-up call. Perhaps we need term limits, perhaps we just need to be a little less parochial and a little more involved in what is good for the entire country. Perhaps we just need to get a little more involved…period.

Raising taxes at this point is unwise, but it may be necessary. How we do it and what when we do it is more important right now than what we do. Stimulus packages full of special interests (PORK) really didn’t help turn the economy around. You can blame the Bush administration for the economic conditions and trends in January 2009. However the economy is the purview of Congress and most of the same players are still there. Now it is nearly September 2010 and the economy is worse off that it was then. Clearly the House of Representatives (responsible for all appropriations measures) didn’t get the job done (since they were the folks who screwed it up in the first place). Whether it was a lack of experienced leadership or just wrongheaded ideas in the White House can be argued, but at the end of the day it was the house, lead by Nancy Pelosi, that has failed to turn the economy around. It is not the Fed (Ben Bernanke) or Treasury or any of the other agencies. It was the House of Representatives. They passed bills appropriating Billions upon Billions of dollars to “help the economy” yet the economy is not on the road to recovery. It is their fault. As Harry Truman said “the buck stops here” so, yes the Obama administration gets the blame as well.

What all this means to you is that we need to do a significant House cleaning (Senate too) to wake everyone up in Washington. It may take more than just the upcoming election in November. We may have to keep the pressure on through the elections in 2012 and beyond to get things back on track. In one of my columns I predicted that unemployment would not get back to 2005 levels until 2017. I hoped that I would be wrong and that we’d recover sooner. Now I worry that it may take longer, that we may duplicate the Japanese experience and lose not just one decade but several.

Charlie Rangle of New York, Maxine Waters of California are both being investigated by the House ethics committee. They may or may not be guilty, but that suggests that they are not squeaky clean. It just so happens that they are Democrats. There have been a fair share of Republicans investigated too. Part of the problem is that the ethics committee is made up of four Republicans and four Democrats (all also members of the House of Representatives) so it is a bit like letting the Fox watch over the Hen House. You wonder, after seeing the deals that were made with individual Congressmen to pass the Health Care bill what kind of deals are being offered to the members of the Ethics Committee. Oh, but that would be unethical, wouldn’t it?

Remember, the longer it takes to retrain Congress to work for all the citizens of this country and not the special interests, domestic and otherwise, the longer the economic malaise will continue. Draw your own conclusions about what that means to you and your family.

The economy today, tomorrow

2010-07-17T18:18:00.000-04:00

Hi all, I was thinking about what tomorrow holds and where the economy might be going so I thought I'd share my musings.

What do we know or think we know about the economy.

1. Consumer growth in USA is positive but meager at 2.5 -3.0%. Fine is normal situation but weak against 2009 numbers.

2. Without consumer spending growth the US economy teeters on the edge of slipping back into recession following the pattern of the 1930’s.

3. Consumer spending is influenced by consumer confidence. Consumer confidence is rooted in the fundamental belief that home ownership is a store of wealth.

4. The housing market is continuing to contract and values are continuing to slide, albeit more slowly than 2008/2009.

5. Retail store margins and auto industry margins are being squeezed.

6. National Debt is higher (as a % of GDP) than it has been since the end of WWII. It peaked at 120% of GDP in 1947. Today, according to the CBO (Congressional Budget Office), it will reach 102%.

7. The debt fell sharply following the war for all the reasons you might imagine once the returning soldiers had education and support until the private sector could absorb them (1947 -1950).

8. Housing was a tremendous employer as returning soldiers married and needed a place to live, raise children, etc. They needed cars to get to work. Car plants had been turned into truck and tank plants. No new cars were produced during the period of 1941 until 1946. Car sales and home sales became the economic engine. These times created confidence and the idea that home ownership was the American dream.

9. Europe is a house divided. The southern countries of Spain, Portugal, Italy and Greece are very socialistic. France is quite socialistic as well. The attitude is that the government owes us a safety net that is quite rich by American standards. Germany, Austria, Switzerland really are much less socialistic by their culture. They are more inclined to be self reliant.

10. Eastern European countries were communist and they aren’t ready to go back. They are very capitalistic and anxious to increase their standard of living.

11. Asia, China, India, Thailand, Viet Nam, Indonesia and the rest are busy improving their own living standards. They are spending on education the way we once did, focusing mainly on the hard sciences, rocketry, electrical engineering (Computers) and medicine, less so on rounded educational issues. They are breeding and educating winners. Losers are on their own.

12. Africa, as a continent, is lagging behind on almost every front. Rich beyond measure in terms of natural resources and such yet leading the world only in subjects in which no one wishes to be a leader such as infant mortality and short life spans.

What don’t we know?

1. Apparently we don’t know how to create economic growth.

2. We did a stimulus package that hasn’t really gotten much bang for the buck.

3. Politicians are running scared and trying to create buzz that keeps the focus off the lack of progress. How the fall elections will turn out?

4. What the fall election results will bring – more fiscal conservatism or more socialistic programs.

What might we consider?

1. Significant tax breaks for purchasing hybrids or all electric cars, provided they are manufactured in the United States, don’t care who the company is owned by, just care about creating jobs and reducing oil dependence.

2. Offset the cost with a carbon tax on vehicles that are intended for passengers that don’t get 30 mpg or more for now. That means ALL registered vehicles, regardless of year (some exception for limited use antique vehicles). Future MPG requirements can be legislated as the industry catches up. The tax would be based on the EPA estimated MPG vs the 30 MPG standard. Thus an SUV getting 17 MPG would be at 56.7% and would be taxed more than a small car that gets 26MPG (86.7% of the base line 30 MPG). Cars that already exceed 30 MPG would get a tax credit on the same basis. Let the consumer buy and drive whatever they choose but tax those who pollute and reward those who do not.

3. Double the mortgage deduction on first homes(primary residence)on any home that is purchased out of foreclosure or short sale. The caveat would be that the home must remain the primary residence for 5 years (shorter = recapture of the bonus deduction) and the bonus deduction goes away if the property is refinanced. This will help the banks get troubled loans off their books and qualified buyers into homes and reduce the use of home equity for frivolous purchases. (Exceptions could be granted for money used for educational expenses and/or medical care).

4. States could refund to employers all state income taxes collected from “new” employees hired over a 12 month period to begin on the day the legislation becomes law. If the employee is terminated for any reason (Including cause) and not replaced immediately by another at equal pay rate, recapture of the taxes with interest is the penalty. If the employee is retained for a period of at least one year (could require 6 months past the end of the tax rebate program) then the tax money is considered a job stimulus. If the job is terminated for any reason during the stimulus period, any taxes refunded to the employer under this program will be recaptured with interest.

5. Communities could also consider a tax abatement that is directly tied to new hires with the same proviso’s regarding linkage and recapture detailed above.

These are proactive, job creating programs that could work. Here in the Cape Fear region, the faster we absorb the foreclosure inventory the faster housing prices return to normal and the sooner the home builders will be able to begin hiring. Until that happens our economy is at risk of a double dip and there isn’t an economist out there that thinks that would be anything but downright ugly.

Politics and the Economy

2010-06-21T17:25:00.001-04:00

Well readers I’ve been quiet for a while, reassessing and recalculating. I’m not done but current events make me believe that we are headed for a bit of trouble.

On the political front, we were promised change but not much positive change has happened. Blame whoever you want. The bottom line is unemployment is still high, the economy is still weak, improving yes, but still weak. Unemployment may not be totally the result of bad governmental policy over the last 10 years. Productivity has increased (partly due to technology) so that it now takes 30.5 hours to produce what took 40 hours 10 years ago.

Congress is about to legislate new minimum down payment criteria for home purchases which won’t speed the real estate recovery any. On the plus side interest rates remain low. Probably because we still look like the safest bet for storing wealth in the world.

Wealth is still very divided. Of the 51 Million households in the country that own a home, 27 million are mortgaged (average $220,000) while 24 million are paid for.

The political landscape is reflective of the people’s recognition that times are tough. Overly generous pensions owed to Federal, State and Municipal employees are choking governments who are struggling to keep up current services. Their only choice to date has been to raise taxes. Raising taxes in a recession is a bad idea… so now what? The political choice is cut services or start cutting pensions. Many states are cutting retirement benefits for future employees. This will help over time but their crisis is now. Future cuts won’t help today. Colorado has taken the bold step of reducing pension growth by reducing the annual cost of living raise from 3.5% to 2%. This will save them a considerable amount of money THIS year. Are they the only state with political courage to deal with the problem? What about Uncle Sam? Some states are selling the rights to collect tolls on bridges and highways to private investors just to raise capital today. What will they do when they’ve effectively pawned all their valuables?

This year’s election cycle should prove interesting. It will be a vote of confidence (or no confidence) in the current administration AND current Congress. The latter has had continuously lower ratings than George Bush had, and he managed to set the bar for limbo not high jump.

The economy is getting stronger but it is doing so VERY slowly. It will take another 6 or 7 years to fully recover. At least to get unemployment back down to 5.5%. In the past I have said its housing, housing, housing. It is still not fixed and neither is the economy. The debt we have incurred and are continuing to incur (The government is spending $1Billion every 2 hours and 20 minutes) is going to have to be repaid. There will be no federal short sales or credit forgiveness. There is only pay or default, the latter is the worst nightmare you can image times 10. Look at Greece and what is happening there. To avoid default, debt Interest payment on 11 Trillion dollars at 4% would be about $3,666,666,000 per month. That includes no principal repayment. We’d still owe $11 Trillion. Add that to the costs of Social Security and Federal Pensions yet to be claimed, future military needs and ever growing social programs and our children and their children unto many generations will be saddled with these payments. Their taxes are going to be outrageous.

Now the Federal government is suing Arizona over there state legislation regarding illegal aliens. The Governor of Arizona is a strong woman who is ready for a fight. It will be a very exciting battle to watch unfold because it will establish new ground rules regarding states rights. My guess is it is decided by the Supreme court sometime between the 2010 elections and the 2012 elections unless either side flinches in the mean time.

We fought the bloodiest war in our history in the late 1800’s over states rights and established that secession was not permissible. I wonder how this challenge will be answered and decided.

Politics and the economy. The two things many Americans hate to think about are becoming dinner table discussion (argument) material. Hopefully it will make the country better. They say, ” that which doesn’t kill you makes you stronger”. Let’s hope that goes for countries as well.

European Economic Turmoil

2010-05-25T11:41:00.000-04:00

Hi Gang,

If you’re confused by what is going on in the world, welcome aboard. We are all confused. Europe is having a major financial issue. Greece, long the leader in ‘gimmie. gimmie, gimmie’, the cry of a population that wants to be cared for from cradle to grave with little or no personal responsibility, has finally reached a point where the government can no longer borrow sufficiently to give the people what they have been promised. Not hard to understand. It is always a bad idea to borrow money for 20 years just to meet this year’s expenses. What they have been doing is effectively borrowing to pay this year’s interest costs on the loan they took out in previous years to cover day to day living costs. In addition they have borrowed more each year in between whose interest charges they are now borrowing more to pay. It is said that when you find yourself in a deep whole the best thing to do is stop digging. That is what they have finally tried to do. Perhaps too little, too late. Like many Americans, they have maxed out their credit cards and now can’t borrow any more to pay next month’s bills.

Not to bad mouth the Greek’s. They are not alone. They are just the smallest, so their house of cards collapsed first. There are a group of countries in the same boat. They have been assigned the unfortunate moniker of the PIIGS countries: Portugal, Ireland, Italy, Greece and Spain. They are all in debt up to their eyeballs using borrowed money to give citizens the programs they want without taxing them to pay for them. Certainly other countries in Europe (and elsewhere around the world) have done some of the same things, just to a lesser degree. But some, including the USA are rapidly catching up.

What will this mean to you and me? I’m not sure anyone knows but our recovery is by no means assured and this could derail it. In the past, countries would have inflated their currency (by printing more) to pay for these things. It is how the Italian Lire became worth so little. When the Euro replaced the Lira, the ratio was 1 million Lira was equal to 513 Euro’s in 2002. Being a millionaire in Italy was truly no big deal. Countries in the Euro-Zone (PIIGS) can’t do that. They are independent sovereign nations that have a treaty that adopts a common currency controlled by a central bank which operates under a charter. To print additional Euro’s would require agreement by the member countries. Since they all have their own political agendas you can imagine how difficult it is to gain agreement on something as important and whose effects will impact all the members, raising the cost of everything for all their citizens. This could imperil the Euro going forward. Will countries like Greece withdraw from the Euro and reintroduce their own currency? Will the Euro collapse and all bonds denominated in Euro’s suddenly become the subject of currency arbitrage? No one knows for sure. Generally it is believed that the Euro is here to stay. Whether all the members are here to stay is less certain.

What will all this mean to us here in America? It will mean slower growth in Europe will slow our exports. It means that companies that have significant assets and business in Europe may be less profitable affecting employment worldwide. This could mean slower job growth here and a continuing increase in unemployment. We could see unemployment rise to well above 10% in 2011. No one knows for certain but I’m betting that the recovery will take until 2017 for the USA to fully recover economically to where we were in 2006. It could take longer. Certainly pockets will enjoy better growth. We, here in the Wilmington area, are likely to see slow returns in the building industry and slow but perhaps more robust than average growth compared to the nation as a whole.

Of course this is just one man’s thoughts. Time will tell if I’m right.

Hang on, Change is coming!

4-21-2010

2010-04-23T15:15:00.000-04:00

Well gang it looks as if the bottom has been reached in housing transactions. Whether it is because people need to house families or whether foreclosures and short sales have reached their stride or whether sellers have adjusted to their market price reality I don’t know. But based on the number of home sale closings for resale properties and new construction properties it would appear that the numbers are moving up and with a bit of conviction. The test of that conviction will be this summer when all tax program incentives have expired and the market is operating in a “normal” environment.

Mortgage originations are still low, suggesting that the rebound in home prices, especially after the incentive disappear, will be slow just as job growth will be. This sub-par condition will be with us for quite awhile. If your business is struggling you need to re-examine your business plan and strategy. This economic malaise will be with us for the foreseeable future and you will need to embrace it. You don’t have to like it but you do have to acknowledge it if you are to be successful. If yopu need help with this there are a number of firms in the Cape Fear Region that can help. Check the Wilmington Chamber and the North Brunswick Chamber membership lists for people to contact.

On the energy front, gasoline is destined to hit $3.00 per gallon shortly. Likely well before the driving season peak in July. I’m not prepared to guess where the top will be but I do expect that it will back off again in the fall.

All in all things are beginning to stabilize but won’t be good for a very long time unless Congress makes the necessary cuts in spending to allow us to reduce the debt over the next decade. It will be up to the voters to see that it happens.

April 15, 2010

2010-04-15T10:50:00.001-04:00

Happy Tax Day Y’All,

The economy seems to be responding to the “jaw boning” about a recovery. It appears to be strengthening a little bit. As Mr. Bernanke indicated yesterday, the recovery still faces some very strong headwinds, mostly the rising national debt which today, at 10 AM is estimated at $12,832,608,522,000.00 or $42,775 for each man, woman and child in the USA. If we were to raise taxes enough to stop adding to the debt, we’d have to add another $3,387 on top of that for every man woman and child to pay off the current debt in 20 years. For a family of four that would be additional taxes of $13,550 per year for the next 20 years. Does your family have an extra $1,129 per month to give Uncle Sam to reduce the existing debt? Put political rhetoric aside, it doesn’t matter who or which party got us where we are. What matters is where we are and where we go from here. If we won’t step up to pay this down, then our kids are going to be left facing a much larger problem. If it continues we will become like Greece, a country that lenders are afraid to lend money to. That means austerity the likes of which few alive in the USA remember. Is that the legacy we want for our children and grandchildren?

I was at the Wilmington NC Airport this week when the Honor Flight returned from its trip to Washington DC taking veterans of WW II to see their monument. The place was packed with flag waving Americans welcoming home the hero’s of the Greatest Generation. I wonder what will the future generations call us in our twilight years?

On the recovery, it appears that the recovery is getting legs. Car sales are up on average about 8% year over year. While this is substantially below the 2007 and 2008 levels, it is showing the consumer willing to buy when the price is right. Housing is still struggling nationally and I’ve seen a taste of reality in asking prices even here in the Wilmington NC area. The Empire State Manufacturing Survey index jumped a lot in the April report. This indicates that the manufacturing sector is spooling up. The Philadelphia index also was higher, but not nearly as much as the Empire State index. Was the Empire State index jump an outlier? Maybe, but both are pointing toward growth and that is a consistent message.

The retail sector which demonstrates the consumer portion of our economy (approximately 70% of the overall economy) has been signaling strength for the last five weeks, indicating year over year gains well above recent averages.

So, yes the economy is getting better and the pace of recovery will accelerate with time. That is not to say the economy is out of the woods yet. The number of people filing for first time unemployment benefits were 464,000, indicating that the number of jobs continues to contract. We still have tax increases coming and we have higher interest rates coming. These two things alone, if timed poorly, can derail the recovery and send us back into recession. Some economist think that a second dip will happen before a meaningful and sustainable recovery can occur. I’m not betting against Ben Bernanke, but I’m not willing to bet the ranch with the current cast of characters in Washington either. I’m waiting for the November election to see which way the political winds are blowing before I decide where the economy is headed. If the November election slows down the spending, then I believe the economy will rebound. If the outcome in November signals continued growth in the debt, then I think the economy could be in real trouble for awhile.

In either case, until housing problems are resolved, foreclosures and the like are under control at down to normal levels the job market will remain tight. If you don’t have a job now, your prospects of getting one in the near future aren’t very good. If your skills aren’t top notch and you haven’t done much to acquire new skills that are relevant to today’s job market you are in trouble. If you want things to be the way they used to be you are delusional. Change happens. Gramdpa’s way of life is gone forever. If you can, get back to one of the Community Colleges and get the skills you need to secure a job in the near future. As bad as things are, some sectors are growing. Health care and related fields are growing. Some service industries are growing but they require a lot of specialized skills. To be competitive in those areas you must have those skills. Get out and get what you need. Take charge of your life. As a some wise person once said, this is your real life. There are no dress rehearsals. This is it, live from where you are…

Public policy, which includes taxes and the economy.

2010-03-31T19:59:00.001-04:00

Yes Virginia, the stock market has played Santa Claus, albeit a poor Santa Claus (bad economy you know), since the health care issue has been resolved. Love it or hate it, Wall Street hates the unknown/uncertain far more. Since this unknown is now moved into the arena for us to try to make sense of and react to it, the market can move forward.

For you and I the market really doesn’t matter. ADP (private) payroll base report has been disappointing. Jobs are very difficult to find and interest rates have begun to rise. Gasoline prices aren’t getting any cheaper either so for you and me life is tough and getting no better. In fact, on the subject of gasoline, it is surprising low in my neighborhood at $2.689. It should be about $2.799 based on the wholesale price. It seems like local merchants are holding back on increases, probably until after Easter. Unfortunately Congress is on Spring Break so no progress can be made on anything until they return.

As taxes begin to rise, and they surely will at all level of Government, the amount of money you have to spend on fun things like clothes and furniture, will continue to shrink. It is hard to imagine how this recession will be over anytime soon at this rate.

Primary elections are upon us and it is time for you to get involved. If you are happy with the ruling party in Washington, then vote for more of the same. If you’re unhappy with the direction Washington is taking us, vote to change things. Just vote in the primary to get the candidate that best represents your wishes and then be sure to support him/her in every way you can. Donate money to their campaign. They won’t send it back even if it is only $1.00 as long as it is a legal donation.

Remember, for a free country to survive and prosper, the electorate must be informed and involved. You don’t need to be in the military to support our way of life but you must be involved.

Health Care

2010-03-23T21:41:00.002-04:00

Well Gang the aye's have it and we have a new monumental piece of legislation. The stock market yawned. Investors hate the uncertain. They are happier dealing with the certainty of this new program than with the uncertainty of will it or won't it. Now they have the opportunity to begin to figure out exactly what is in this bill and how it will affect our economy. They will invest accordingly.

The bill passed on Sunday and the market was up Monday and today (Tuesday). Certainty, atleast as the health care bill is concerned, has led investors to be a bit more confident or at least less fearful. As the details get processed the market could decide differently, but for now it appears happy that its over.

The economy is still in the dumpster. There are small signs of hope but there is no jobs turn around in sight. Housing prices are still declining nationally and sales, although better than 2009 are still anemic. There is little up lifting to be found in the various economic data that comes forth daily. On Thursday the impotant data will be the number of people filling for unemployment for the first time. The newly unemployed. The consensus opinion is that fewer claims were made last week than in previous weeks on average. Retail sales are showing some life with year over year gains of 3% or more. Of course 2009 is a low base for a benchmark but at least it is moving in the right direction.

Gasoline has been up lately, with the national average for regular at $2.82 per gal. Locally we have been paying $2.75 per gal. Locally that is about $.78 more than last year. This has to have a negative affect on other retail spending. It is an extra $20 a week or so for most of us. Maybe Congress should reinstate the tax deduction for federal gasoline tax like we had in the 1960's. At least then we could get a portion of it back instead of paying taxes with money leftover from income tax. But I dream.

Gasoline will likely continue to rise through July 4th and then begin to retrench, probably to $2.25 or so during the fall. Long term outlook, however, is that gasoline will continue to rise baring a huge oil field find. Remember the USA alone consumes 19 million barrels (798 million gallons) of oil per day, of which will pump only 40% domestically. A major import problem.

National debt is rising by the minute and sooner or later the interest rate will begin to climb. At the point that interest begins to rise we will see the country squeezed and taxes will have to be increased further. Raising taxes is contraindicated when trying to reboot the economy.

Housing prices are reported to have declined 3.3% year over year. This is the core problem and progress on this issue has been slow to come about. Until it is fixed, I remain convinced, the economy will progress at the pace of a loggerhead turtle on the beach.

Economic recovery

2010-03-17T11:18:00.003-04:00

Happy St. Patrick’s Day to you,

The US economy is beginning to recover maybe even a little better than I thought. We still have major issues, too much government debt, partisanship, and too much of the private sector owned or heavily influenced by the government. That said, there are some positive signs of the recovery getting legs.

Producer Price Index shows a 4.6% increase over last year. This suggests that raw materials costs are rising, and that says that worldwide demand for those items is growing. Mostly the gains are in the area of Food and Energy, the former may be a result of the crazy weather that we have had limiting crops and the dominoes fall throughout the food chain. Energy is, however a better gauge of growth. Everything made uses energy to produce and transport. Even online services use energy. So rising energy costs are a sure sign that the world economy is in recovery.

The bad news is the US dollar is losing value by the bucket load against other currencies. Import prices are up 11.2% year over year. IF PPI is up 4.6% mostly due to energy and food (both of which are large imports) and import prices are up 11.2% we can infer that the dollar has lost considerable purchasing power on the world stage. The Euro has had its own problems of late but the dollar has dropped from $1.29 per Euro to $1.37 per Euro since this time last year. That is a 6.2% decline in relative value. That is a big decline in one year. Measured against the Swiss Franc the dollar has declined 12.8 % in the same time frame. As I said earlier the Euro has had its own issues. As for the dollar vs. gold, the comparison is even more stark, with gold rising 22.3% in the same time frame. People around the world are looking to gold as a store of value rather than any countries currency. The dollar is still regarded as the best currency overall, but its continued weakness is making investors seek alternatives.

The US will not likely lead the recovery since we have such strong headwinds. When you and I have a reduction in income we cut spending. We may even get draconian about it, cutting spending on everything except bare necessities. Governments don’t do that and a case can be made that they shouldn’t. Their spending actually increases in bad economic times. Unemployment costs skyrocket. Other social programs increase and money is spent to make work (Stimulus and jobs bills). These help to spur recovery. Unfortunately we add to this spending on Iraq and Afghanistan (the latter the longest War effort in 100 years, surpassing even Viet Nam at 8.5 years). We then add a long history of deficit spending all adding up to a massive debt of $12.6 Trillion, an unemployment level of 9.7% (official – some argue it is much higher) declining tax revenues resulting from the economic downturn and the outlook isn’t rosy.

What will it take to get the economy moving in the right direction? Time and fiscal restraint. Like you and me, the government will have to accept that it can’t do everything and certainly not all at once. We need to rein in spending where we can, slow the growth of spending virtually everywhere and bide our time. It is said that time heals all wounds and in this case it may be the very best salve. We can’t borrow our way to recovery. We can do this and have a bright future, but we need to start now. We can’t afford to wait because the problem is growing by the minute. Democrat and Republican, Independent and whatever, we must all stop doing what we are doing and take stock of ourselves and of our situation and decide if we care what kind of life we are leaving to our children. Or have we become so self centered that it is only about us and we don’t care about future generations. I sincerely hope that is not the case.

While it is convenient to blame the other political party for current ills, remember that this country has run a continuous deficit since the Revolutionary War. It has never been paid off, just refunded. Both Parties have had opportunity to add and detract from the deficit. Neither has ever accomplished a significant reduction in the overall debt and now it is so large that it will take generations to accomplish. Remember also that Congress has been there virtually the whole time. And while members of Congress come and go the Congress as an institution has failed to address this issue successfully. And those who have been there the longest bear the most blame.

Where is the economy headed?

2010-03-02T12:16:00.001-05:00

March 1 2010

Hi All,

Today we are wondering, where is the economy going? It appears to be trending upward but almost as fitfully as the Wright brothers early attempts at flight. I have written before and I will continue to write that the secret to restarting the economy is to clean up the housing mess. When real estate prices become stable then the consumer will return to the market place and jobs will reappear.

One thing to consider, especially as we look forward to midterm elections, is that the longer instability remains in housing the more pent up demand grows for just about everything that we held off buying because we were uncertain. That pent up demand may be the next bubble.

What if the government waits for the market place to finally sort it all out, and it eventually will, and the pent up demand continues to expand for an extended period? When it is unleashed it will create a round of inflation not seen since the days of Jimmy Carter. Remember those days of 16% mortgages and double digit inflation? Remember how government responded to that with wage and price controls? Now I’m a free market guy, but we have not let the free market work on its own so we have prolonged the agony. We are letting the bubble build just as sure as we did when we encouraged lenders to find creative ways to raise capital to lend to high risk individuals who bought homes they couldn’t afford. Consumer demand is always there in the United States. We are a nation of spenders, not of savers like Japan. We can and we will spend our way out of this recession…as soon as we have confidence in our circumstances.

15 million plus workers are looking for jobs today. Many more have quit looking and filed for early Social Security. Many others have taken jobs well below their ability and training just to feed their family. If this situation continues for a long period of time, we may once again become a nation of savers like those who lived through the great depression. That would resolve the inflation worry but if you believe that you can’t shrink your way to greatness then where does that leave us? Worldwide economic expansion is the surest weapon we have against another World War. The have-nots have always risen up against the haves and the haves have always tried to dominate the have-nots. The Romans expanded by conquering weaker peoples who didn’t have the economic power to resist. Germany in WWII conquered peoples of weaker economic power, building an empire built on economic control. It was a strong economy that provided the funding to expand armies and weapons systems. The USA was able to assist in that great struggle because we were a large landmass filled with natural resources and manufacturing might and were such a large economic power that we could push back. If we fail to engineer this recovery properly and soon, our ability to push back will become suspect. And countries, like sharks, getting very aggressive when they smell blood.

Think about your representatives this midterm election. Is he /she representing your best interests and the best interests of this state/nation or are they protecting their own position and furthering the agenda of a single political party? Once you decide that for yourself, then you can cast your ballot intelligently. Ballots, cast by informed voters, are the one thing that has always made this country great.

February 23, 2010

2010-02-23T20:06:00.002-05:00

February 23, 2010
Ok readers, remember that I said this. Despite all the popular rhetoric, the big problem is still HOUSING!
Consumers need jobs but jobs are created by an expanding economy. The economy expands when you and I are willing to part with our money. When we feel safe. For most of us, wealth has always been in our homes. When home values are certain we generally don’t feel threatened. Are home values certain and stable? NO. No one is sure what their home is worth so they aren’t spending. They feel insecure. So the jobs market remains bleak.
Congress and the Executive branch has frittered while Rome burned, worrying about landmark legislation for health care reform and even now as they turn their attention to jobs bills which both sides appear to support, they are really not accomplishing the goal of putting Americans to work. HOUSING.
When they get serious about resolving the foreclosure problem (not all of which is the Banks fault, Congress had its hands in the pot trying to make homeownership possible for those who aren’t yet ready) then and only then will the economy rebound robustly enough to create jobs. The market place will eventually resolve the foreclosure problem but the longer that takes the longer small businesses will have trouble getting financing. Financing is critical to growth. Growth is critical to job creation. Job creation is critical to consumer spending. Consumer spending is critical to growth and growth is critical to the ability to obtain financing. You see it is a circle. The bridge that closes the circle and makes it all work, today, is HOUSING.
Until you see Congress start working on the foreclosure problem and making credit more easily accessible to small business, we will remain in the doldrums. My prediction is that we will remain in a depressed economic state for several years and that unemployment will not decline to the 6% range for another six or seven years. That is not to say it won’t get better. It will. Every year it will get a little better. But we will not be back to the heady days of 2005 until 2017.
The government has a conundrum. To help Main Street they are pumping money into the economy. Money we don’t have, so they are borrowing it. Some they are getting from our own citizens and some from the citizens of other countries who still believe that this is the most credit worthy of all governments. At some point as the balance financed rises the interest due will become a problem. To deal with the problem we will either have to spend less or get more income. Kind of like you and me. The problem, as I see it, is that more income for the government (Federal, State or local) comes from higher taxes. That hurts you and me and makes us look for additional forms of income. For those without a job, that is a problem that may not have a solution, since one way for small business owners to increase their revenue is to not hire or lay off someone.
We are in a pickle. Mr. Obama will be the whipping boy since he is in office today. It would have been Mrs. Clinton if she had been victorious. And it may have been Mr. McCain had he been the successful candidate. How fast we recover is the province of the Executive Branch and the Congress. If this recovery is taking to long in your judgment, then study up and vote accordingly.
The Executive Branch and the Congress need to get a grip on what is important and address it now. Waiting until next year of after the November election is politically comfortable but that just pushes recovery out further. If you’re one of the jobless, how does that make you feel? You, American citizen, are less valuable and less important than political comfort for the fat cats in Congress, from both sides of the aisle. Just doesn’t seem right.

Feb 14, 2010

2010-02-13T16:14:00.000-05:00

Happy Valentine’s Day to everyone.
The political front has been kind of quiet, hushed perhaps by all the snow in Washington. Perhaps Congress is taking the time to actually read the bills they may be voting on in the next few weeks. One can only hope.
The economy has had a couple of uneasy moments watching the Greek government try to manage its economy within the restrictions of the Euro common currency agreement. Before the Euro, the individual countries could just print more money to solve the conflict between demanded social programs and revenue collected in taxes. Under the Euro agreement they must maintain a certain fiscal discipline. That makes it hard to win re-election, especially when what must be done is painful to the voters. Greece is likely to find borrowing more difficult and more expensive.
Who cares? Greece is a mini-version of the problem that is playing out all across Europe at different levels. Spain and Portugal have similar issues to Greece. It seems one of our bankers, Goldman Sachs I believe, assisted Greece in borrowing money in a way that was not visible to the powers that be in the EU central bank. My intel says it did similar things for Spain and Portugal. The EU central bank doesn’t want any member to fail, but pulling together a rescue package requires the 27 countries that make up the Euro economic area to agree. Can you imagine? I’ll bet that is like herding mice.
What it means to all of us here in the USA is that these countries are going to be fiscally constrained. That could mean less of a market for our exports, and less tourism which will hurt our GDP growth and therefore slow growth in employment.
Of course we here in the USA have issues as well. Sooner or later the Chinese are going to begin to exercise their financial influence by either reduced willingness to buy US bonds or by demanding higher interest rates. Either one is a problem for you and me. The latter means higher interest costs across the board for all of us. The former means that the Treasury will have to find other buyers for the debt. The easiest target is you and me. But where will we get the money? 401(k)’s, IRA’s and Roth IRA’s contain an enormous amount of money. If even a portion of that was required to be in US Bonds (the safest investment available) that would help absorb the bonds and help keep the interest rate artificially low. I don’t know how you feel about that but I hate being mandated to do anything. I have Treasuries in my personal portfolio because I am diversified. But I like choosing to do that and balk at being told.
That aside, the Chinese present a growing problem, not because they are bad guys but because we are a nation of borrowers. My father had a saying, “It’s the Golden Rule son, he who has the Gold makes the rules”.

所有暂时，有一个了不起的星期。

February Economic outlook

2010-02-03T15:42:00.000-05:00

Blog Feb 3, 2010
Hi all,
I hope you didn’t worry when I fell silent for a short while. I was trying to catch up on my reading so that I could make heads or tails of the political/financial arena. Arena may be a good choice of words because it has been somewhere between a 3 ring circus and the Roman Arena. I’m still not sure who the lions are.
The loss by the Democrats in Massachusetts was a big deal politically. What, exactly, it means is the subject of many but no one really knows, other than it made the US Senate a two party debate once more. How that will change things will be seen over the coming months.
The stock market has rebounded nicely over the last year, although January has not been positive. As goes January goes the year is the old saying. It is right about 75% of the time. So where do we go from here?

The economy is recovering, however it is doing so slowly. Very slowly. Housing sales are starting to show signs of improvement over last year ( a truly horrible year) as are auto sales. Inventories are still being reduced but at a slower rate as they approach equilibrium with sales. This doesn’t mean that we will see a sudden jump in hiring, but at least the layoffs should stop That makes it a jobless recovery at least for the near term. I’m not at all certain a jobless recovery can last. The current statistics show that the jobless number is 10% or about 15 million people. The soft number which includes people whose benefits have expired and those who have given up looking for work and those who are working part-time is reported at 17% or 25,500,000 people. That is a lot of jobs. Add to that the fact that the work force is growing at 1% per year or another 1,500,000 people (kids do keep growing up and legal immigration continues). That means that if we could begin creating jobs, we need about 7.5 million jobs plus an additional 125,000 jobs each month that it takes us to create those 7.5 million jobs. Expanding the economy at a sustainable 4 or 5% per year it will take at least 5 years for us to get back to the unemployment levels of 2006. So we are looking at 2015 before we are “recovered” If the government, in its wisdom, decides to try to expand the economy faster than 5% we risk inflation in the neighborhood that we experienced in President Carters day with home loan interest rates of 16%. That will again kill the housing market and drive us back into recession.
Politically 5 years is a long time. So politically the best course of action is to throw money at the problem and try to create jobs at any cost. If that is the course of action taken and which may feel good in November 2012, the price we pay in the following years will be very, very high. Be prepared.
My prediction is that the Federal Government is going to incur ever larger debt, it will begin reducing aide to States and States in turn to counties and municipalities as it “cuts costs”. This will result in either a larger debt burden at the local levels or substantial increases in taxes. Could NC be looking at 9% sales taxes or 10% income taxes? Will there be a mass exodus from NC by retirees to lower tax states like Florida or Texas?
What is the proper balance between spending and taxation? I do believe that Pay/go is the right answer. Borrowing to fund current expenses is a sure prescription for financial ruin. Maybe we need a state constitutional amendment to require any increase in debt by the state, in any form or fashion, to be ratified by referendum. Let the people decide. Decide what they want and are willing to pay for and for those who disagree there are choices. Stay and fight or move. The latter option is one which poses risks for those who stay but this is a free country.
My advice is save your money. There are going to be some really good deals on just about everything for the next 6 months, and cash will be king.

First quarter blah's

2010-01-11T18:44:00.000-05:00

January 11, 2010
Is it just me or does the stock market seem to be hanging on? Rumors are that earnings, thanks to all our neighbors who were terminated, are going to surprise to the upside. That means a short term quick buck for those who are in the market. If you’re one of the lucky ones, it may be time to up your contribution to your favorite charity.
Fundamentally the market seems to be disregarding the continued increase in unemployed and underemployed ranks. Sooner or later that has to come home to roost. When it does the market could “adjust” about 10% or more is what I’m hearing.
That’s a lot less of a drop than what we had in 2008 and but it could still hurt and hurt badly if you haven’t fully recovered from the last decline that turned 401(k)’s in to 104(k)’s. Especially if you are older. On that note, any youngsters (50 and under) reading this should have that conversation with Mom and/or Dad. How are they doing? Are they OK? Are they worried? If they are worried, (or you are) take them to see a Financial Advisor you trust and have him(her) figure it out for them. Most will do it free. If yours won’t, contact me for a list of those who will.
So where is Congress on the reconciliation of the Health Care Reform bill? It will be interesting to see what happens with two Democratic Senators officially on the lame duck list and Senate Leadership making racially charged comments about the President (albeit before he was elected).
The dollar began to slip again after gaining some ground against the Euro for the past few weeks.
Government policy is going to hit you in the wallet starting this month. The temporary reduction in withholding of income taxes started last year to give you a bit more of your money to spend expired on 12/31/09. The tax rates weren’t changed so don’t be surprised if you have to write a check come April 15. Wait till next year when the check may be even bigger.
Speaking of income taxes, don’t be in too much of a hurry. The IRS graciously gave financial houses until the 16th of February to send out your 1099’s. That means you can’t file until you are sure you have them all or likely March 1st. For the few that might actually get a refund, it gives the government another two weeks to hold onto your money interest free.

By the way, China just became the largest car market in the world, buying more new cars last year than the USA. It is the first time in the history of automobiles that the USA wasn't number one. I wonder if that is a harbinger of things to come.

First quarter is a dark time for me emotionally. It’s cold the day light hours are still short, the grass is brown, no flowers are blooming and preparing my tax return brings me face to face with the reality of how much I contribute to the running of government. The second quarter is better, days are longer weather is warmer and summer is coming. I hope that optimism will carry over into the economy.

2010, what will you be?

2010-01-05T09:22:00.003-05:00

HAPPY NEW YEAR!
I believe it will be a year filled with opportunity. I believe it will be a year of recovery. I believe it will be a year of backlash. I don’t believe it will be a smooth year by any means. It will be bumpy.
Many of the positive events of the 4th quarter could be overshadowed in the first and second quarters. The housing market is still a major issue. Banking is still an issue. Lending will remain soft (the most recent Treasury sales were covered fourfold suggesting that banks are still risk averse). With risk comes reward. So bank earnings are likely to lag as they continue to eat toxic assets. One day, the survivors will have potentially explosive earnings. Who they will be and when that will happen is still questionable.
Unemployment will remain high for the foreseeable future. That will keep consumer spending from being a powerful tool for recovery as has happened previously. That will cause the recovery to lag as well.
Jobs, as they return will require better education. The bulk of the jobs will be in growth areas, no surprise there, but the growth areas almost unanimously require education beyond high school. This, for many people AND employers, is a large problem. Although the predictions are that the slow decline in unemployment will keep any pressure on wage growth to a minimum, I submit that there will be a lot of wage growth in the areas most under served. A bidding war for talented qualified people could easily develop and while probably not large enough o affect the overall numbers by much, it could be geographically significant AND significant to you if you are in those fields.
I expect that 2010 will post some gains by year end, but the road from here to there will be anything but direct, straight and smooth. The interim elections in November could have a significant affect in the performance of 2011. Congress must begin to rein in the deficits. The November election could be a “It’s the economy, stupid” replay. Once the single party supermajority is broken, little will happen as each side struggles to prevent the other from achieving anything meaningful. Think of the mid-term election as a mid-term grade report on both Congress and the Whitehouse. So far, they seem to be scoring poorly, but November is a long time away.

As the Year Ends

2010-01-05T09:01:00.002-05:00

December 24, 2009
As the year is ending, what do we know about politics and your money. Politics is very much business as usual. The left is enjoying a super-majority in both houses. As a result we will have a new health care program, but we don’t yet know what it will look like. The two bills, House and Senate are vastly different and reconciling them will be a major challenge. How that will happen and what will survive the process is unknown. I think it will be a bad bill, including little real progress but it is a first step toward moving the responsibility for health care from the business world to the government. Whether that will ultimately be good or bad remains to be seen.
Financially we remain in a quagmire. The housing market is showing some signs of stability but it is very fragile. January and February could see some serious problems.

Its the economy, stupid

2009-11-30T10:03:00.002-05:00

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”.

November 2009

2009-11-12T10:15:00.001-05:00

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.

October 16, 2009

2009-10-16T21:11:00.000-04:00

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.

October 5, 2009

2009-10-05T09:23:00.001-04:00

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.

September 25, 2009

2009-09-25T14:40:00.000-04:00

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.

September 22, 2009

2009-09-22T17:16:00.000-04:00

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.

Labor Day

2009-09-08T17:26:00.001-04:00

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 2, 2009

2009-09-02T07:46:00.000-04:00

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.

August 25, 2009

2009-08-25T11:52:00.001-04:00

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.

August 22,2009 Health Care Reform

2009-08-22T18:25:00.002-04:00

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.

July 9, 2009

2009-08-09T12:51:00.004-04:00

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.

July 8, 2009

2009-08-07T20:02:00.003-04:00

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.

July 27, 2009

2009-07-27T13:24:00.003-04:00

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.

July 21, 2009

2009-07-20T16:40:00.003-04:00

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.

July 20,2009

2009-07-19T15:45:00.001-04:00

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?

2009-07-10T13:38:00.000-04:00

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.

Happy 4th of July

2009-07-04T10:32:00.002-04:00

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

Recovery???

2009-07-01T15:04:00.002-04:00

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.

June 23, 2009

2009-06-30T14:46:00.001-04:00

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.

June 9 Political/Economic update

2009-06-09T13:50:00.001-04:00

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.

June 1, 2009

2009-05-29T15:50:00.001-04:00

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!

Is the recovery here?

2009-05-20T13:14:00.003-04:00

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.

May 10th

2009-05-08T15:15:00.002-04:00

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

May 1, 2009

2009-04-29T17:11:00.001-04:00

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.

April 15th TAX DAY

2009-04-15T18:01:00.005-04:00

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.

Spring is here; are politics and money due to bloom?

2009-04-02T14:07:00.002-04:00

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.

What is happening in the market???

2009-03-18T16:00:00.002-04:00

Today, March 18, saw the market advance again, marking a rally. Whether this is a bear market rally, just a tease only to turn down markedly in the near term or if it indeed marks the bottom of an ugly market I don’t have a clue. Talking heads seem split and no one seems to know.

What I do know is that the stimulus package is going to put an unbearable burden on our kids and grand kids, and we should be ashamed of ourselves for being so selfish. Buy now, pay later is a phenomenon of the 1960’s and especially the 1980’s. After the economy came off the gold standard the money supply has exploded while savings declined dramatically. This problem took about 25 years to create and will not go away in just a year or two. This problem is going to change the way we live in very fundamental ways. We are already forgetting what $4 gasoline felt like evidenced by increased driving. It is unfortunate but we will soon be reminded. Maybe not $4 gasoline but $2.50 is a very real likelihood by the beginning of May. If summer driving does pick up and if the economy begins at least stop going down, we may see oil prices and gasoline rise considerably higher.

Income tax declines from both tax reductions and smaller payrolls due to unemployment will affect all levels of government revenue. Here in the Wilmington area we are seeing the layoff of a number of county employees. Cuts to the budgets of colleges and universities jeopardize our ability to train the future leaders of America and the free world. Communities will see declines in the handouts from State government which will put pressure on property taxes which will reduce the discretionary income available to spend on stuff. Consumer stuff is a huge piece of our economy, so when we can buy less the economy suffers. It is a downward spiral that is very hard to stop. The stimulus packages passed really aren’t high efficiency packages. This bill was too small and full of pork which, while perhaps worthwhile on their own, aren’t the kinds of projects that will generate jobs and economic impact in the very short term. Unemployment insurance increases, not so much in term but in getting the unemployed close to their full income, would allow them to continue purchasing stuff and help their neighbors keep jobs. This would assure that the economic downturn was less severe and shorter lived and that cities and states would not see the huge hits in sales tax revenue. This would, in turn, allow them to maintain their cadre of employees. Get the idea that the ripple effect would have been much larger and more immediate? I believe it would have been so.

What’s the future hold? Well one school of thought says the country is in really big trouble and that the Government has been cooking the books with inflation and unemployment figures being massaged using techniques that “adjust” the price of new goods downward if they are some how “improved” over the goods that were counted in the prior year which reduces the reported increase in prices and (In my judgment) underestimating the rate of inflation.

The government also “adjusts” the number of people unemployed by taking out those people who are no longer looking for a job and not counting those who are self employed and not eligible for unemployment compensation. Again, reporting rosier numbers than reality. Government does this to show voters that they are doing a good job. Maybe we should cap their salaries and pay for performance. Oh yeah, I forgot, they make the rules.

The other school of thought is that life has always been OK in the USA and this time will be no different. Sooner or later this too shall pass and we should just be patient. The government will do whatever is needed to fix what ails us and no amount of debt is a big deal. After all, the GDP will continue to grow and our debt is lower than many countries as a percentage of GDP. We will continue to be the economic engine of the world and all the world will need to help us with cheap energy and raw materials so that we can grow and support them.

Pick the scenario you most believe in and run with it. It maybe years before any of us know which was right or wrong.

Have a great rest of the month. I'll post again in early April.

It is March

2009-03-03T20:49:00.001-05:00

Well gang its March and the clocks change next week. Our new president has been in office for 40 days and the stock market has gone from bad to worse, down 18.8 % as of today, 3/3/09. At this rate he’d better start doing something to stop the slide or there won’t be any wealth left to redistribute. That decline in the market represents the destruction of $478 Billion dollars of wealth. That’s $12 Billion a day, and you thought the war in Iraq was expensive?

What can he do? Stop throwing good money after bad. Detroit needs to go into bankruptcy and emerge lean and mean and competitive. The Treasury and the Fed need to simply buy up all the loans that were not prime and the derivatives still on bank books and create a resolution trust like group to resolve this just as they did the Savings and Loan crisis in the 1980’s. Congress needs to pass legislation to assure that banks don’t repeat the stupid mistakes of the past (Liars loans, etc.) under penalty of incarceration for the CEO and let banks get back to doing what they do. Once the toxic assets are off everybody’s books lending will return to a more normal (read that normal for the 1970’s or maybe even the 1960’s). Qualified people will be able to get credit cards and mortgages. Unqualified people will rent or live with family until they save enough to put down a reasonable amount (20%). Nothing less is going to work because as Warren Buffet put it “it was the “web of mutual dependence” they create among financial institutions. Derivatives contracts keep various parties entangled for years, which, as he vividly explained, can create real hazards once those assets start deteriorating.”
“Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease,” he wrote. “It’s not just whom you sleep with, but also whom they are sleeping with.”
Hence, no one trusts anyone, absent a blood test. Until the Treasury and Fed provide such assurances that each bank is not diseased no one will risk sleeping (lending) with anyone, no matter how attractive.
The auto industry is uncompetitive. It has been for years and modern marketing, which I teach convinces us that we have a need for something that is neither necessary nor good for us. Large SUV and Pick up trucks ARE NOT necessary to commute to work. They are likely unnecessary and uneconomical for the average owner of them. U-Haul, Pensky and others have been around providing trucks of all sizes when the need arises. Farmers, workmen and a few others actually need large and powerful vehicles. The rest of us drive them because we WANT to. It is time for all of us to get over it. We are not the most important thing in the world. We are simply a blip on the radar screen of a life continuum that started Millions of years ago and will likely continue millions of years after us. Our role is to make this place no worse than we found it, better if possible and to provide a link between those who came before us and those yet to come. We are NOT the center of the universe, we are not the reason the sun rises and sets and we are not the most important thing in the world today. Buy a small car or smaller van if you truly need that many seats. Place function over style.

A Fiat 500 will go over 110 miles an hour, carry 2 people in reasonable comfort with room in the back for an occasional two more and get 30-40 miles per gallon. (Rumor is that it will be available in the USA as a 2011 model).
What more do most of us need? Why can’t Detroit produce something reliable, fun and smart? Maybe GM needs to be sold to or merged with someone who knows how. The last time Detroit tried it on their own they dumped Chevy Chevette’s and Ford Pinto’s on us. Clearly they need assistance.
Change is always difficult but it is necessary and as I tell my students, change is going to happen. You have three choices, embrace it, lead it or get run over by it. The choice is ours. We can lead it, embrace it or get run over by it. The latter may include a national language other than English… or Spanish for that matter.
Speaking of Spanish, what is the President going to do to seal the boarder not from poor Mexicans coming here to work and build a better life but from the Mexican drug czars that are crossing the boarder to do “business”. Mexico is rapidly becoming an ungovernable country and it shares a common boarder with the United States. We have had a relatively peaceful relationship with the Mexican people since the Spanish American War. Perhaps that is about to change. Forget Iraq and Iran, Palestine and Israel. We may soon need all our troops at home just to protect Arizona, California, Texas and New Mexico.
Times are gloomy and things are not going to get better anytime soon. So make the most of it. Money can be made in the recession just as it can in boom times. You just have to think it through and lead. The lead dog has an ever changing view while the other dogs on the team have the same ugly view of his behind all the time.

Feb 11, 2009 Politics and the economy

2009-02-11T11:18:00.000-05:00

Well January is over and it was a disaster. Now it is February and the congress has, in its wisdom-less vision, passed a bill full of pork and some worthwhile projects under the disguise of a stimulus package. It does not contain much that will actually help us reduce the severity of the recession nor will it create a robust economy in the long term.

As usual (no change here) the Democratic House of Representatives passed a feel good, get votes at home bill that your kids and grand kids will be paying for into the next century. The Republicans in the Senate fought to reduce some of the pork and move it into tax reductions but it still increases the debt dramatically and, in my judgment, will not be effective in the long run. I’m not even sure it will have much of an effect in the short run beyond the positive jaw boning it may engender. “My advice would be next time the administration should write the bill, and not leave it to all the disparate odds and ends of the Congress,” said Sen. Dianne Feinstein (D-Calif.). “It’s kind of an institutional problem because everybody has worked for years and has certain things that they really want to get in a bill.” Perhaps Ms. Feinstein has unintentionally sent a signal to the voters; the only way to effect change is to change out all the long term members of Congress and replace them with new blood. Hummm.

At the end of the day, the difficult choices have been largely avoided and the band aid applied. Soon the hemorrhage will either overpower the band aid or infection will enter the wound. If the bleeding continues we can look forward to larger band aids. If we get an infection we will see a leadership shift in the mid term elections which will continue the lack of a cohesive and effective plan until we are near terminal. This is what happened in Germany in the 1930’s and finally a populist politician named Adolf Hitler rose to prominence and we know the rest. Economic dislocation is a powerful condition and it shifts the cultural center. In doubt that it could happen here? Just look back at the human behavior in New Orleans during the days following Katrina. That was not man’s finest hour. The rule of order degenerated into everyone for themselves virtually overnight.

Since this problem isn’t limited to the USA but has roots in every country in the world, we can anticipate a resurgence of Nationalism and the partisan approach to everything. Globalization will be viewed as the root of all evil and, while in reality it is a more efficient distribution of resources and more efficient producer of good and services, it will be viewed in the narrow scope of ‘What’s in it for Me’ by each country. This will cause finger pointing and the crushing of the third world economies. When the third world is crushed and the developed economies are no longer working in harmony we have the potential for a very bad situation, the likes of which we haven’t seen since the 1930’s. You know, that time period that brought us the Great Depression, Adolph Hitler and world wide strife. Are we in for an instant replay?

Are the CEO’s of major companies that have outsourced our standard of living along with our jobs the real enemy? Are they domestic terrorists? Or was it us, in our quest for a higher standard of living for ourselves; neighbors and relatives be damned. Was it our “who cares where it was made as long as I can have it cheaper” attitudes that made us effective domestic terrorists? Was it a populist legislature, so focused on giving us whatever we asked for (to assure re-election) that is to blame? Should they have been more far sighted and cautious about allowing too much globalization to occur too quickly?

These are questions that are starting to emerge. The continued arrogance shown by some (Corporate Jets, Million Dollar Office Remodels, and Exorbitant Bonuses etc.) are causing the general population to become agitated. So much so, that the President has made it a political point to place some constraints on those receiving assistance from the Government. Taking food stamps and welfare to support your Island hopping vacation would land you in jail. How, exactly, is spending government bailout money any different, one has to wonder?

Perhaps the Russians were right when they thought, “the Americans will self destruct, we don’t need to worry about them”.

The only sure answer is for every single one of us to get involved, to become students of the times and be aware what is going on around us. Only when we watch with eye open wide and brain engaged, will we begin to select the right people to represent our interest. Just as we select a physician for their training and experience we should use the same criteria for our representatives at all levels of government, local, state and national.

If you hate politics, get over it. It affects you and everyone you care about. Do it for your own good, do it for theirs, just do it. Get involved, learn, study and elect smart, good quality people. Then and only then will we truly have a government of the people, by the people and a government that will provide for the people. One last thought, "A government big enough to give you everything you want is a government big enough to take from you everything you have.” (Gerald Ford,38th President in his Presidential address to a joint session of Congress 12 August 1974).

We do live in interesting times.

Politics and the Economy

2009-01-14T10:40:00.000-05:00

Politics and the Economy

Well it is six days until George W. Bush ends his 8 years as President and Barack Obama begins his first term. Is it my imagination or is the youthful Barak beginning to age already.

Full of hope and wanting to change everything he seems to be quickly learning that Congress hasn’t changed one bit. Oh, the partisan shift has come to pass but the ways and practices of the body politic hasn’t changed one bit. Each member is struggling for his/her “rightful” place and share of the power.

The economy is still on an accelerating decline, 401(k)’s are going to be further crushed as the markets continue to fall. There is a school of thought that says as goes January goes the year in the stock market. Fourteen days into January and things aren’t looking so hot. The Dow Jones Industrial Index closed 2008 at 8801.64 and is trading this morning (1/14/2009 @ 10:48AM) at 8160.00 or off 7.29% already this year. The Volatility Index which is derived from the options market tells us when the traders are running scared. The index hit the 80’s in the latter part of 2008 then was quieted to the high 30’s in early January. Today the index is crowding 50, indicating further nervousness and uncertainty amongst the traders on what is left of Wall St.

Obama will take the reins of a country with an imploding economy, an aging workforce whose retirement funds will be a small percentage of what they had just a year ago, and an expanding life expectancy with increasing health care needs. On top of that the national debt has soared and the recent bail outs approved by the Democratically controlled congress (can’t blame Bush for that one, although he agreed) has added more than a Trillion dollars to the debt in last few months. Yes, winding down the War in Iraq will save a lot of money but cranking up the war in Afghanistan will suck most of that up.

Mr. Obama may be one very smart fellow and he may have the very best of intentions but he is like a wounded salmon trying to swim upstream. Many strong and healthy salmon begin the swim but many of them drown from exhaustion before they arrive at the mating grounds. The odds of his achieving many if any of his goals are stacked against him. Not as a result of a Right Wing conspiracy but just real world conditions as they are.

For all our sakes I hope that four years from now we can talk about Mr. Obama using the Rocky metaphor. I hope he has over come the challenges and really made progress. Right now, however, I’m not inclined to bet the farm. Mr. Obama is too inexperienced to not be extremely vulnerable to making mistakes that could jeopardize his ability to achieve his goals. Congress , which is already showing that they won’t rollover just because he asks, will become more aggressively stubborn on issues that affect them in the midterm elections in two years. Remember, some of them (Republican & Democrat) may need to start campaigning within the year and they will be positioning themselves accordingly from the start.

The rest of the world is in trouble as well. We have been the economic engine for a very long time and what happens to the USA impacts on everyone around the world. So they should jump up to help us right? Right maybe but they have depended on Uncle Sugar for so long that they really can’t do much to help us, they are busy trying to contain the damage caused by the fallout from our troubles. Developing countries have come along way in the last 20 years or so, but those gains are fragile and they could collapse easily, giving rise to political unrest in places like India, China, Thailand, and most of South America. The great emerging economies (BRIC countries – Brazil, Russia, India, China) will see growth slow dramatically. China has a $600 Billion stimulus package of its own. Russia has been funding much of its reforms with money from their export of oil and gas. As demand and prices for those things decline what will happen as the money dries up? Who will be the next great consumer of the worlds products? Will it be China with its cash reserves from all its exporting? Will it be Russia, controlling natural gas across Europe? Will the USA learn a very important lesson and recover to once again provide economic leadership to the world? Some of the future rests with Mr. Obama and his team. Maybe that realization is beginning to weigh on him already.

I’ll bet the first couple of nights after the election he was privately giddy. I won! I’m making history as the first mixed race President of the United States! We are going to work at the White House as the Boss, not the hired help. I don’t know if he felt that way but it sure isn’t hard to imagine that he would and deservedly so. Now as he is briefed on more and more issues, I just wonder if privately in the darkness of the night he wonders just what the Hell have I gotten myself into and why did I want to put my family through it. We were living well, we had the American dream. Now even picking out a puppy for the girls is state event. I do hope somebody appreciates this. I can’t say that I would blame him if he had thoughts like that. I’m not sure why any sane person would want that job. Big corporations pay better.

The Economic Climate

2009-01-05T16:14:00.000-05:00

Happy New Year everyone. I predict it will be a happier year and we should take heart. That said, the near term isn’t going to feel so good. The jaw boning about a stimulus package is causing speculators to push oil prices up a little, trading today in the upper $40 range, and looks poised to reach $50. It is generally thought that a supportable, sustainable level for oil is $50-$60 per barrel. This will cause gasoline to move up a bit to maybe $1.75 during January and February. If the stimulus is passed by Congress and the economy does begin to rebound we could see gasoline around $2.50 or even higher by the summer driving season.

Are stocks cheap or are they positioned to fall still further? The pessimist in me says that there is still more pain to be had in the first half of 2009. I think it is coming to a place where it will be time to buy equities again. But when we do it will be like a sales piece I saw recently that depicted a child sitting in front of a dinner plate with only lima beans left to eat. He is clearly unhappy with the idea of having to finish his plate. The caption read “This is what buying low feels like”. I’ve heard others say “the time to buy is when you’d rather vomit”.

Much of the excesses in the stock market and the commodities market have been purged. The commodities outlook will brighten IF the government stimulus takes hold. The time to buy them is … just before you think that the stimulus is going to take hold. Risk is related to reward, or should we say that reward is a function of risk. If you get in too early, you’ll hate yourself in the morning. If you get in too late and miss the big moves, you’ll hate yourself in the morning.

I think volatility is still quite high, although substantially lower than it was a month ago which means basically no one is comfortable with their positions and they are hedging like crazy. At the end of the day a hedge simply offsets misjudgments. The greater the hedge the less overall risk…and the lower the reward if you were right. Interest rates will remain low to encourage people to purchase homes. Remember, homes are the key to growth in the USA. Until people have faith in the stability of the value of homes the economy will not begin to turn. When that happens, interest rates will begin to rise, probably about 3 months after any serious uptick in housing sales. The Fed is already fearful of inflation. Then short term CD’s are again of interest. Fully insured and earning more. In the long term, interest rates will normalize. 30 year fixed mortgages in the 5.5 – 6.5% range for solid credit scores and 20% down. It will be quite a while before the 5% or no down payment loans will be available and they probably won’t be cheap for a long time to come. I would not expect housing prices to rise substantially for about 3 -5 years. This is good news and bad news depending on where you are in life. The high growth areas of the past (CA, NV, AZ, FL) will take longer to recover than the rest of the real estate market. If you’re young and have a stable income and have saved a few dollars, a lot of money can be made in the next 20 years in real estate by those who can wait to cash out. Now is the time to buy if you are that kind of investor. I’m not making any 20 year bets. I really wish I were 10 years younger.

Let’s think about what the real estate situation means. If future home loans are going to require a significant down payment then young people will need to rent a place OR live with their parents longer. If they need to save to buy a house, they will need to spend less, buying less expensive more economical cars for example. The young home owner of tomorrow will have to shift their life style significantly from the behaviors of that age group of the early 2000’s. This cultural shift will change life as we have known it in almost every industry. Slower sales means fewer jobs. Older workers having to work far longer to make up for the devastation their 401(k) has experienced will mean fewer opportunities for young people to advance. Slower advancement means slower earnings growth and longer savings horizons. The slower pace of business development will impact tax revenues as well. That will bring public employee pensions under scrutiny and result in far less generous retirement conditions going forward. Restricted health care benefits, older minimum retirement ages to reduce the pension cost for the municipal and state budgets are likely. When it comes to cutting pension benefits or sports at the high school, who do you think will win? Just raise taxes you say? Well, that is counter productive to revitalizing the economy. In the short term I’m sure the Obama team will have a program to assist States and through states, municipalities. In areas where there is an option to annex, watch out for the big city grab.

Since there is some reluctance to mess with people already retired, lock in any benefits you can as soon as you can. When the tax problems come, and surely they will, you want to be a part of those already collecting. This may hold true for Social Security as well.

If you are expecting Mr. Obama to waive a magic wand and make everything better, grow up. Four years from now I predict we will be in a better place that we are now. Since most of us don’t realize where we are now, we may not readily recognize that it is a better place we are in 4 years hence. Perhaps we will be disappointed, and want change. Perhaps we will realize that we have a long way to go and re-elect Mr. Obama. Time will tell.

In the mean time be happy 2008 is over. 2009 is full of Hope.

Illinois Politics

2008-12-31T11:55:00.000-05:00

Illinois politics are such fun to watch and if they weren’t real they wouldn’t be terrifying. But they are real and we will see how much spine the Senate has when it comes time to turn aside ANY appointment of the current Governor. Race has no place in this, especially now. We have a true African-American coming to the White House in just a few weeks. He will be heavily burdened with the economy, two unresolved wars and a very full plate of domestic policy expectations which he created during his campaign. He is further burdened with a HUGE national debt. You can blame the present administration or Congress or anyone you choose, it does not change the facts and he will be burdened in dealing with them.

The first 100 days has become the bench mark. I am sure he will try to make progress and will have a level of success IF there are no uncontrollable outside forces at work. Mr. Bush had an agenda that got sidetracked on 9-11-2001 by outside forces. I hope and pray (yes, pray) that Mr. Obama does not have a similar distraction.

What he doesn’t need is for the Senate to get its boxers in a bunch over the appointment by the Illinois Governor to get them off to a bad start, portending gridlock in the future.

If the Governor of Illinois really cared about his state and the nation rather than about his own political fortunes, he would step aside, let the process play out and run again for Governor at the next election if he is found innocent. Apparently he doesn’t see that as an acceptable alternative. Maybe Harry Reid can convince him that if he steps down and the reward for that is the approval of the appointment of Mr. Burris by the Illinois Secretary of State and the Senate. Then, after the process plays out, if he is cleared, what a great platform to run again. “I care about Illinois and its citizens so much that I put their well being ahead of my self interest. I want to resume serving you, the people of Illinois”. Of course, you have to have a high level of confidence in the system and in your innocence to take that approach. It worked for Martha Stewart in a similar way. She was found guilt, didn’t appeal, did time and got her life back. Similarly the former Governor of Connecticut was found guilty of accepting graft, did his time and is now the Business Development Director for his home city of Waterbury’s Chamber of Commerce. He is getting his life back. We all screw up from time to time. It is not what we did but how we handle it that affects the rest of our lives. Those who are religious might see the value in confession and repentance. It seems to have worked for the two examples above.

The Economy is bumbling along. The first time jobless claims have improved a little this week at the lowest level in the past 8 weeks. It is entirely possible that this is a signal that the economy has bottomed out but I suspect it is just a respite in a continuing slide.

Let us all wish for and those so inclined pray for a better year in 2009. I wish you all a Happy, Healthy and Prosperous New Year.

Unemployment rising

2008-12-24T11:47:00.000-05:00

Today is Christmas Eve and for those of us who share the Christian faith it is a time for reflecting on a year gone by and looking forward to the future. It is a time for sharing gifts with each other to celebrate what some consider the second most important day in the Year.

The other evening I went out to a local restaurant and saw a woman wearing the quintessential sign of the times, It was a large "Pink Slip" that read "Merry Christmas, your terminated" pinned to her shirt. She was one of the many at the bar that night that had just worked their last day at the local Yatch builder. "Will it reopen if times get better", I asked. I doubt it she said, "they were moving the equipment out for the last couple of weeks". Where will this equipment go, I wonder?

Unemployment, or at least new claims, rose to the highest level since 1982, and up 86% from January 2008. That can’t bode well for corporate earnings during the first quarter and therefore stock prices likely will slump even more. To me, it is looking more and more like this market is going to remain soft to trending down over the next few months, maybe longer.

President-elect Obama, enjoying what may be his last opportunity to vacation with his family for quite a while, is going to take office in just under one month and will be facing a lot of problems from Iraq, Afghanistan, the economy, to the clamoring for delivery of expectations created during the campaign by his supporters. Each of those issues complicate and make enormously more difficult the other. On the plus side, he is getting unprecedented co-operation from the current administration in terms of the transition process. Unlike the last turnover when childish pranks like removing the “W” from the keyboards was the order of the day.

For the rest of us, hunkering down, spending only what is necessary to preserve capital until the market rebounds, will be the order of the day. This is a self preservation tactic that will ultimately bite us in the butt by making the recession more severe and longer lasting. We will be sharing the pain with our neighbors at home and abroad.

Auto Industry Bailout

2008-12-19T23:08:00.000-05:00

In the waning days of the Bush administration perhaps the opportunity for historians to point to something he got right. Yes I, too , am opposed to a Bailout on many levels but playing Russian Roulette with the fragile economy may not be the wisest course of action. A measured bailout with lots of strings attached is a good alternative. The prearranged bankruptcy would have been a better option in my mind and the idea that no one will buy a car from a bankrupt company really underestimates the markets creativity. Insurers would write a contract to cover needed repairs on cars sold, funded up front by the auto industry. Just like we buy group health insurance, the insurers would calculate the annual losses in the recent past and charge a premium to cover that plus handling and profit. Secondly, the aftermarket parts makers would jump all over the opportunity presented to supply a large market with parts to repair these cars for the foreseeable future, thus boosting employment. It might even provide for independent mechanics who are properly certifed to perform warrantee work, expanding the consumers options and creating a larger opportunity for small businesses.

Beyond that we, the American car buyers, have stopped buying their cars anyway. That is why they are in trouble in the first place. We prefer Asian reliability and German performance to Detroit mediocrity. I have no idea how the bailout will effectively change that. Daimler Benz tried to "fix" Chrysler but couldn't overcome the "Cultural issues" that made the two companies effectively incompatable. Daimler walked away, selling Chrysler to Ceribus Capital for pennies on the dollar they paid for it, a sure sign of capitulation.

That said, we need to strengthen the economy and keeping people gainfully employed is a step in the right direction. In the long term, however I believe that it is money down a rat hole. Ford, doesn't need it and isn't planning to take it at this writing. They saw the problem and dealt with it early. They should reap the rewards of their wisdom while the other two continue struggling to stay afloat. Ford had electric hybrids available first (of the American Manufacturers) because the Moghty GM thought it could dictate the tune and didn't believe as strongly in hybrid technology as other alternative fuels which were further off in the future (or read that as we haven't finished milking the current technology). Hopefully the "bailout" will contain significant language to force GM and Chrysler to adopt these interim technologies.

At the end of the day the financial crisis is about trust (or the lack thereof) and it is still about housing and that problem isn't going away anytime soon. This recession, from which we are trying to protect the auto makers in this latest round of chicken little, is going to continue until housing rebounds. With the second wave of mortgage defaults still coming (some say larger than the first) housing prices will remain depressed. For those with substantial equity left and a solid credit rating, refinancing at favorable rates is possible and they can use the extra cash to capitalize on the falling prices of almost everything.

The Economy

2008-12-16T11:01:00.001-05:00

So you think the worst is over? I’m suspicious that there is yet at least another shoe to drop. There are more mortgages that haven’t yet hit their reset date that will be a wave of much larger homes, bought by people with good incomes that just over reached and/or are losing those good jobs they had.

Earnings for the first quarter are very questionable in my eyes, and I think this recession will deepen and last through most, if not all of 2009. Interest rates will remain low, bad news for those who are savers and those who are living off the interest income of savings. It would be good news for those who need to borrow except for the credit problems that are restricting credit to the most credit worthy borrowers but at unusually high rates. We have gone from a nominal risk premium to a severe risk premium. Together these will create a bad year ahead for most everyone. It will take Congress a while to act on health care and even longer to get any broad based coverage into place, meanwhile as people get pink slips they will be losing their health care so even Doctors (MD’s, Optometrists/Ophthalmologists, Chiropractors, Dentists) and other health care professionals will see a decline in income and/or a rise in uncollectable receivables.

Auto sales will remain soft if the credit crunch stays with us. Those 3 million jobs that were so central to the need for a governmental bailout are not very secure bailout or no. Plant closings, temporary and relatively short term, will likely be prevalent over the next year. If the Gov’t. has any money on the table and the work bank is abolished, then those workers affected will be spending less prolonging and deepening the recession.

New housing construction is already at the lowest level since 1959. The future will surely see this grow but not in the near term. The second wave of mortgage foreclosures is still in the wings and that will increase housing inventory. Housing permits are down, so even when permits go up, houses will take 6 to 9 months to be completed and sales closed, assuming the builders can get money to fund construction costs until closing. The amount of funding available will have a major impact on the speed of the housing recovery when it comes. Don’t look for any major recovery in the housing market for at least another year.

A rate drop by the FED. (anticipated at this writing) will do little to loosen the credit markets. It may improve the profitability of the banks a bit, but their lending levels are such that even more margin on the deal will not make up for the smaller number of deals they are doing and their earnings will likely remain weak.

All of that said, I believe there are opportunities out there for the patient investor. There are always solid well managed companies mixed in with the others in each market category. Finding them and buying them slowly over time even while there maybe a continuing slide will be, I judge, amply rewarding over the next five years.

Gasoline???

2008-12-12T16:39:00.000-05:00

Has anyone noticed the price of gasoline lately? It has been quite reasonable hasn't it. Just when you thought the world had finally returned to "normal" watch out. The wholesale price of gasoline at the New York NYMEX RBOB Gasoline futures market has been creeping up every day to now $1.08 per gallon. Typically you can add $.75 to$1.00 to that price to get the 'usual' price at the pump. How much you add depends on where you live and the state tax. Where I am, in Brunswick County, NC it typically ranges in the $.90 range. This covers the state tax, transportation to the local station and retailers profit and any other incidental expenses I may have left out.

By the first of the year, assuming the price creep continues we could be looking at $2.00 gasoline at the pump. Still a long ways from $4.00+ of last summer but then January isn't driving season. By spring we could be back in the $3.00 range unless consumption drop a lot.

So enjoy it while it lasts friends, the party is almost over. Gas prices will increase just as you start to get those Christmas charge bills. Ho,Ho, Ho.

june 30

2008-12-12T11:08:00.003-05:00

Well Congress has again displayed why it is not ALL George Bush's fault. They can't agree on anything and maybe they should all resign. Lets start over.

The money they did pass was passed for the Financial Industry to buy up toxic paper. That would restore confidence of lenders in each other, one knowing that if the other had crap on their balance sheet it could be underwritten by the Gov. and they wouldn't suffer a liquidity driven failure. Paulsen has not been able to get that done and the housing crisis still looms.

What do we know?
1. Housing is the backbone of wealth for the average American.
2. They have been abusing the golden goose by using their home as a personal ATM machine.
3. It is pay back time. The check for the sumptuous meal has arrived. We may all be doing dishes for a long time.
4. Until the housing problem is resolved, we can't spend freely.
5. The US economy is between 60 -70% driven by the consumer.
6. Consumer restrained, an awful lot of jobs go away.
7. Loss of jobs=higher unemployment (not a tough one to grasp).
8. Higher unemployment =less consumer spending (see where this is going?)
9. Auto industry can't sell cars, running out of money to pay people to sit around doing nothing.
10. Government asked to give them money so they can pay people to sit around doing nothing (isn't that what unemployment does?)
11. Money spent to help automakers isn't available to help the housing issue. It doesn't solve the problem. It is like taking Ibuprofen when you've a broken arm. It helps the pain but does nothing to set the arm and promote healing.
12. Congress couldn't agree on wording. They want to assure that the car companies are going to do the right things for the future. But they can't agree amongst themselves what the right things are.

Results: The market will continue to wind its way down until the temptation is too great for investors to ignore and they begin to buy up companies at what are surely bargain prices in anticipation of the recovery that will come eventually. The point of temptation is different for every investor and every company. Overall I think the market could go as low as 5800 (the approximate book value of the 30 companies in the DOW). I don't think the investment community is patient enough to wait that long, but 7200 is a real possibility in my mind.