Saturday, February 07, 2004

2/7/04 Let’s Talk

I cannot please everyone. I don’t try. My hope is to possibly provide a wide-angle look at the American landscape. The lens will focus on the truth, and the truth is a montage of facts. I do not cherry pick. If I’m wrong or make a mistake, I’ll tell you. I do not shade the truth and I do not omit facts to substantiate my viewpoint. In other words, I have no hidden agenda.

We need to talk about your neighborhood. You might have noticed the problem. It’s the local budget. I am not referring to the Bush deficits. This is your backyard. I’ll get to Bush a bit later. Michael Pagano, the lead researcher for the National League of Cities (NLC), stated “health care and pension systems are fairly prominent around the country. We are now entering a phase in the economic cycle that is having an increasingly visible effect on cities, such as laying people off and cutting into the core of city services.” Let’s visit with Mayor Bill White of Houston. His predecessor, Lee Brown, had projected a $74 million shortfall for fiscal 2005. Which begins July 1. White expects the gap to be more than $150 million. He stated “the magnitude of the problem is greater than many people may appreciate.” Houston is faced with a $40 million increase in the cost of health care benefits, a $50 million police pay raise that takes effect in April, and a $60 million increase in the city’s total contribution to the municipal, police, and fire pension systems. The increase in the cost of employee health care benefits represents a 24% increase to $210 million in the coming fiscal year. Pension benefits are the single biggest problem Houston faces. The municipal pension fund alone represents a nearly $1 billion unfunded liability. The mayor is considering laying off underskilled employees and reducing the number of supervisors or possibly middle managers. In all likelihood, capital expenditures on big-ticket projects will need to be reduced. City controller Parker stated “next year will be an incredibly tight budget.” I am certain that your community faces some of Houston’s problems. Solutions may vary. In Baltimore the teachers will not accept a 6 to 7 percent pay cut or an unpaid eight-day furlough. They won’t accept either one. Those were the two choices offered to avoid layoffs of 1,000 to 1,200 school employees, and most of them will be teachers. The school board meets on Tuesday. One teacher remarked “we’re fed up. They’re not conceding anything right now. We’re going to hold our ground.” The school system’s financial crisis is the result of a cumulative $58 million deficit. Baltimore Schools Chief Executive Officer Superintendent Bonnie Copeland stated she needs to reduce spending by $16 million by the end of June to stay on target with her budgetary goals, and meeting these goals will aid in possibly receiving more funding from Annapolis. Many of the same problems facing your community are present in the corporate arena. There is constant pressure to deal with rising pension contributions, unfunded pension liabilities, rising health care costs, and the increasing cost of benefits. The partial solution has been for businesses and municipalities to cut employees from the payroll, to limit capital expenditures, to keep a lid on repairs and maintenance of equipment, and if possible, reduce the cost of services provided. This agenda does not provide for price increases or, in the case of local governments, tax increases. Over all, it is a defensive strategy. As such, on the domestic landscape there is limited visible growth. The expansion has taken place on foreign soil.

Before I discuss the employment report, I would like to touch on the situation confronting United Airlines flight attendants and retirees. They claim the airline plans to renege on its agreement to provide affordable healthcare for retirees who left the company prior to July 2003. It should be noted that this airline, in times of need, has received significant amounts of taxpayer dollars. United Airlines management signed a letter of agreement in May 2003 to ensure that flight attendants retiring before July 1,2003 would have access to health care benefits that were less costly and more comprehensive than those that would be in place for workers who retire after that date. Based on that agreement, almost 2,500 flight attendants retired before the Jul1 deadline, only to find out just six months later that United intends to cut their benefits and raise their costs. Under the airline’s plan, retirees will have to pay up to $650 per month for less health care, and this is more than ten times what they pay now for better health benefits, and there is no cap on contributions as health care costs climb each year. The average income for retirees is about $1,200 per month. In my view, if United violates the agreement with their retirees, they cannot be trusted with the well being of passengers. The airline should be required to find a buyer or multiple buyers and the current management banned permanently from becoming an officer of any other public company.

The Bureau of Labor Statistics announced that the state of Maryland lost 8,000 jobs in December. Only Michigan, Ohio, and California had larger job losses in December. However, those employment numbers may need some fine-tuning. The Labor Department did some re-figuring of the nation’s numbers. In October and November 2003 they revised the unemployed upward by a total of 50,000. In December, they really went to town. Remember how only 1,000 jobs were created in December? I told you that was bullshit. The Labor Department developed a conscience. They revised the December nonfarm employment number downward by 77,000 (81,000) on a seasonally adjusted basis. In sum, the number of employed workers was overstated by about 130,000 between October and December. Of course, it is not surprising that I am the only one to make this observation. No one else appears to feel compelled to spell out the real employment picture.

Let’s examine why the unemployment rate declined. It’s so simple. The Labor Department tells us “the adjustments decreased the estimated size of the civilian noninstitutional population by 560,000, of the civilian labor force, and by employment by 409,000.” There are fewer workers in the labor force. Jan Hatzius, a Goldman Sachs economist, stated “population growth should be driving the labor force up, but instead, fewer people are looking for work.” In January, there were 432,000 discouraged workers. They are not counted as unemployed. The number of unemployed in January, according to the BLS, was 8.3 million. There were 1.7 million persons marginally attached to the labor force, and they are not counted as unemployed. In the latest January report, the Labor Department reported that retail trade employment increased by 76,000 over the month, after seasonal adjustment. Without the seasonal adjustment, this sector lost 623,000 jobs. The BLS stated that there was a gain of 24,000 construction workers, after seasonal adjustment. Without the seasonal adjustment, there was a loss of 300,000 jobs in the construction sector. Rationally, in the middle of winter, with January’s snows and freezing temperatures, do you think there are more or less construction workers? You don’t need an advanced degree to arrive at the correct answer. I’ve made the rounds of each state in our nation. I defy anyone to document a rise of employment in the month of January. Forget the seasonal adjustment crap. I’m talking net job increases. They don’t need to waste their time. January was another month of job losses. The real unemployment rate in the U.S. is closer to that in the eurozone countries or about 10%.

John Connally, Treasury secretary under Nixon, told Europeans in 1971 that “the dollar may be our currency, but it is your problem.” The G-7 reached that conclusion in Dubai, and I don’t see a reason for a different conclusion in Boca Raton.

Edward F. McKelvy, Goldman Sachs economist, remarked “the labor market is like wet wood in a bonfire. It’s working, but it’s not working very well.”

Sung Won Sohn, chief economic officer at Wells Fargo, stated “I am surprised and disappointed that the relationship between economic growth and employment has broken down…businesses are still very, very cautious about hiring.”

Robert Reich, secretary of labor under Clinton, stated “employers can very easily delay hiring because they can outsource and bring on new technology.”

French Finance Minister Francis Mer stated “we are all interdependent. Nobody can even temporarily think that the way of solving their problems won’t affect others, and in turn them again.”

Jean-Claude Trichet, president of the ECB, observed “ inflationary risks should be contained by more favorable import price developments.” He stated that the ECB is concerned “about excessive exchange rate moves.”

John Chambers, Cisco’s CEO: “After three years of being second-guessed and often missing, many CEOs are going to be unusually cautious in terms of both their capital spending and their hiring.”

Bush’s proposed budget for fiscal 2005 indicates “a major slowdown” in federal spending on information technology. According to a recent analysis, there will be an increase of less than 1% over the request for fiscal 2004. Between fiscal year 1999 and fiscal year 2003, federal IT spending grew an average of 11 percent each year.

AT&T Wireless is based in Redmond, Washington. They employ 5,000 workers in the Puget Sound area. The company is in merger negotiations. If Cingular, for example, were to purchase the company, overlapping operations are likely to result in some large job cuts. Some cuts would probably take place in customer service, administration, and network infrastructure.

DigitalNet went public in October. They will be cutting 10% of its local workforce in Northern Virginia by the end of March. There will be about 55 employees laid off.

Home Depot plans to open 175 stores this year and hire 35,000 workers. The company has engaged AARP in a partnership to attract, motivate, and retain older workers.

According to the Cambridge Consumer Credit Index, over eight out of ten Americans who have outstanding medical debt say that these debts are either a major or minor burden, preventing them from making purchases of large ticket items. As the number of uninsured Americans (now 44 million) grows, the burden of medical debt is going to become even more crushing for many Americans, according to the study. In addition, the results of the survey indicate “that consumers are tightening their purse strings and using far less credit for the second consecutive month after the holidays. Credit usage is now at the lowest level since October 2002, when the economy was much weaker.”

Friday, February 06, 2004

2/6/04 The Risk Factor

Risk management is currently in vogue. I suggest it might prove helpful to first acknowledge the existence or non-existence of risk. What is the extent of the risk? One must make that determination prior to managing the risk. Too often that step is not accomplished.

Pimco’s Paul McCulley: “Take out insurance: cut risks and be willing to marginally underperform benchmarks (via yield give up), so as to avoid colossally underperforming them… pleasure should be about avoiding them.”

George Tenet: “The CIA never said Iraq was an imminent threat”

Donald Rumsfeld on Sept. 18, 2002 before the House Armed Services Committee: “We do know that Saddam has been actively and persistently pursuing nuclear weapons for more than 20 years. But we should be just as concerned about the immediate threat from biological weapons.”

We can thus add to the mix that one must be forthright about the potential of risk- both with oneself and with others. You can’t distinguish risk from non-risk in the absence of honesty and/or the omission of the most recent information.

At times, to minimize risk, companies will do an about face and change their course of action. Cigna did that today. They will eliminate 3,000 jobs and reduce its quarterly dividend to 2.5 cents from 33 cents. They shall utilize their husbanded funds for stock buybacks.

Sometimes the risks are so great that creditors will be at your door, and severe action will be required. That is the case for Tower Records. A company started in 1960 with a single store. Debts have mounted and it is likely that next week it will file for Chapter 11 bankruptcy. Hopefully, Tower can find a buyer for the business.

In a few minutes the Labor Department will provide the employment numbers for January. Before analyzing the numbers, one might consider their accuracy. Secretary John Snow has stated “there is some question about the accuracy of these statistics.” That could be a significant understatement. However, investment managers will make decisions based on the accuracy of the numbers released. After all, they are government numbers. It is wise to assess the competency of the origin of the supposed facts. The Investors Business Daily raises the point that, because of the rise in the immigrant work force, there has been a increase in “off-the-books work through which workers get paid in cash.” I don’t know where the editors have been for 100 years. This practice has been art form for a very long time. It is suggested that the “government sees 1099 reporting only at year-end.” This is hardly a new event. When employment was tight in the Silicon Valley at the height of the dotcom boom, hundreds of thousands of 1099 workers could be found. No one complained. There wasn’t a problem getting employed. No one cared about off-the books or 1099.

Amid growing resentment in the U.S. against outsourcing, labor organizations in Washington, DC have accused Indian IT majors, Wipro, Tata, and Infosys of “abusing” the L-1 visa program to bring in cheap manpower to take over American jobs. America’s largest labor federation, AFL-CIO, maintained yesterday that these companies were acting as “bodyshops” bringing in foreign workers through the L-1 system and then subcontracting them out to other businesses. The L-1 visa program is designed to bring management executives and experts to companies owned by their employers with operations in the U.S.

On Wednesday a delegation of leading U.S. venture capital firms visited Bangalore. Their purpose is to familiarize themselves with the capabilities of software services exporters in India. The delegation potentially could influence more than 500 portfolio companies that are seeking cross-border business opportunities. When assessing risk, one must realize the totality of the landscape. The risk is not L-1 or HB-1 visas. The opportunity is the growing working relationship on a cross-border playing field. Depending on one’s strength or weakness, that can be an opportunity or a risk to survival.

I would appreciate your patience. We can discuss this more tomorrow. You need to trust what I’m writing. I really do understand this subject. U.S. non-farm payrolls grew 112,000 in January. The reason given was the growth in retail jobs and also in construction. This means jobs actually declined. How do I know this? Before you assess risk, you must know the facts. The clue is the employment rate. I am the only person who said it would decline in January. That is the road map to the truth. Remember December 21? That was the day unemployment benefits were not extended. From that day forward tens of thousands of Americans began to drop off the unemployment rolls. Thus, the labor force declined. Therefore, with a smaller labor force, those working would make the unemployment rate decline. It happened in January. It happened in December. Now for the retail workers. I have explained this already. The retail industry hired less than expected temporary holiday workers this year. I gave as an example a similar experience in December 2002. Therefore, the Labor Department is stating less than a normal amount of retail workers had to be laid off in January. I estimated that number to be 100,000. That represents almost all of the 112,000 nonfarm workers supposedly added in January. That is a fictitious number! That leaves 12,000. I can tell you for certainty that at least 130,000 workers lost their jobs in January. I keep daily records and make checks with the states themselves. I will analyze the full release, but I am sure of my facts. As for the hours worked and the pay for those hours, as I anticipated, they are essentially unchanged. Bernanke stated yesterday that the U.S. economy will see “big numbers of new jobs fairly soon.” Maybe he was including his job in that forecast. He’s never been to Main Street. We should not ignore that last week first-time claims for unemployment benefits rose by 17,000. It’s difficult to assess the risks when the latest information is dismissed.

Thursday, February 05, 2004

2/5/04 The U.S. And The Eurozone

Yesterday the ISM’s monthly services poll indicated that the U.S. services sector expanded at its fastest rate on record in January. The survey also showed that their employment index declined to 53.4 from 54. We should remember that the Conference Board’s latest employment index had declined too. It was reported yesterday that, in January, the eurozone’s services sector expanded for the seventh consecutive month. At the same time, employment in the region contracted for the second consecutive month. The unemployment rate has risen to 8.8% in the eurozone. In the face of economic uncertainty, consumer spending and investment have remained muted, and households have begun to increase their savings. Other than the latter, this description could fit the U.S. landscape. Despite the similarities, the euro has risen about 20% against the dollar over the last year.

The Bank of England raised its benchmark interest rate to 4% from 3.75%. It last raised the rate in November. The Bank stated “household spending and borrowing have been resilient and the housing market remains strong. The Committee judged that an increase of 0.25% in the repo rate to 4% was necessary to keep CPI inflation on track to meet the new target in the medium term.” The CPI inflation currently is below the 2% target rate. The bank has taken preemptive action to keep inflation in check. The increased rates have created a stronger pound versus the dollar. As the interest rate differential continues to widen, one can expect the pound to strengthen further against the greenback.

A panel of international experts stated yesterday there was a “high probability” other cases of mad cow disease exist in American cattle. They recommended the U.S. government ban cattle brains and spinal material in all livestock feed and pet food as a safeguard. It doesn’t take a great brain to make such a decision; however, no one accused the government workers of having great brains. Panel chairman Ulrich Kihm, who addressed a special meeting of U.S. Agriculture Department officials, stated the U.S. “could have a case a month” of mad cow disease.

Roughly 85 corporate employees in the home-furnishings department at Bon-Macy’s stand to lose their jobs in a reorganization announced yesterday by parent company Federated Department Stores. There will be a new centralized Macy’s Home Store buying effort. Home sales represented roughly 19% of total sales for the combined Macy’s divisions, or $2.6 billion.

Donald Rumsfeld told a Congressional panel yesterday “the theory that weapons of mass destruction may not have existed at the start of the war—that’s possible but not likely.” It’s unlikely that WMD existed before the start of the war. It’s possible Rumsfeld knew that.

Today Wal-Mart reported stronger than expected same-store sales for January. The 5.7% increase brought the monthly revenue level to $18.4 billion. Earnings per share will approximate 63 cents. The company stated that “fourth quarter results would likely be hurt by a German tax change that became effective in January 2004, which prompted a revaluation of how much it could recover of deferred tax assets related to its money-losing German operations.” Even Wal-Mart has experienced tough going in the epicenter of the eurozone.

A new survey by Towers Perrin indicate workers expect employers to cut more of their retirement benefits, and three quarters of companies have either done so or plan to. More than 40% of the employers have reduced medical benefits for workers who will retire in the future and thirty five percent are likely to do so. The survey indicates that 78% of the respondents expect to continue working in some capacity during retirement. About thirty five percent stated they would do so for financial reasons. About sixty percent want to see Medicare replaced with a national health care system.




Wednesday, February 04, 2004

2/4/04 MV= PT

This is not another Einstein equation. Simply put, it means the money supply times the velocity of transactions equals the price level times the volume of transactions. You might be asking what that means. Actually, it might have a different meaning to many economists. There is a reason for this. Not everyone believes the money supply data is particularly relevant as it pertains to the movement of equities and to its impact on inflation. I believe it does have some meaning. Over the past six months, M2 and M3, two measures of money supply, have declined and this has been accompanied by shrinking bank lending. A big reason has been the decrease in mortgage refinancing. A second explanation has been the money flow into stocks. As stock prices have risen, it has attracted increased investor funds. In sum, the overall growth of the money supply over the past six months has been on the downside while the velocity of that money supply has been on the rise. Charles Dumas of Lombard Research cautions that “confidence may well drive velocity but if, for whatever reason, confidence then falters, the lack of liquidity causes a problem.”

Boeing has kept their streak of monthly layoffs alive. Yesterday they announced cutting 300 jobs at its aircraft-maintenance facility in San Antonio. The layoffs include managers, administrative workers, mechanics, and shop laborers. About 1,600 employees remain at this location. Boeing does maintenance and systems-upgrade work in San Antonio on the C-17 cargo transports and the KC-10 and KC-135 aerial-refueling planes.

January revenue passenger miles for Southwest Airlines declined 0.5% from the year ago period, and their load factor dropped to 56.2% from last January’s 58%. When the best begin to run into a head wind, it is time to take notice.

According to the Department of Labor, since its peak in 1999, Michigan has lost 185,000 manufacturing jobs. That’s about the same number of hourly plant workers GM and Chrysler together employ worldwide. Since January 2001, the United States overall has lost 2.6 million jobs. Mike Baroody, executive vice president of the National Association of Manufacturers, stated “there is a great deal of apprehension out there among manufacturers, especially smaller manufacturers. Manufacturers are on the front line of the most intense global competition we’ve ever seen. That, along with high structural costs like health care and environmental regulations, are the raw materials for fear.”

David Juhnke used to teach government and coach track before going into business with his wife. They have owned J&J Machine Products of Redford, Michigan for 31 years, and make small screws and pins for the auto industry, mostly for Ford. With business slowing, their employees have been reduced from 40 to 27. He stated “I get faxes from Chinese companies to build what I make here. I could outsource to them and just be a distributor and I’d make more money. It’s all about survival and hanging on. I worry all of these politicians are getting to this too late. The damage is done… I guess I think it’s too late.”

Cisco’s John Chambers stated “it’s clear the economy is improving… CEOs are still more cautious on their capital spending…CFOs say they are more optimistic but they are a little cautious towards hiring.” Cisco’s sales growth remains modest. Their sequential sales growth will be, he stated, 1% to 3% in the March quarter. He urged investors “to not let expectations get ahead of our ability to deliver.” It’s too late for that.

Yesterday Gadzooks, Inc. filed for bankruptcy protection in the Northern District of Texas. They are a Dallas-based specialty retailer of casual clothing, accessories, and shoes for 16 to 22 year-old females. Currently, they operate 410 stores in 41 states. They are in the process of liquidating 31 stores, and in coming weeks, will liquidate an additional 125 stores. In addition to the store closings and the employees at those stores, about 65 corporate and field overhead positions will be eliminated.

Challenger, Gray & Christmas stated post-holiday job cuts reached 117,556 in January. This represents a 26% increase from December’s announced layoffs. It was the first time since last October that the monthly number had surpassed 100,000.

A total of 47 U.S. soldiers died in Iraq in January. That was seven more than December’s toll. All told, 530 U.S. troops have died in the war. Yesterday Paul Bremer stated “I think the situation has improved importantly since the capture of Saddam Hussein.” He should tell that to the families of the troops who have been killed.

Tuesday, February 03, 2004

2/3/04 Ricin And The Bush Budget

It is fair to state that the vast majority of the increases in the Bush budget are for defense and the continuing effort to combat terror. Bush, however, did not include in his budget an estimated cost for the ongoing military effort in Iraq and Afghanistan. The formal request for those funds will take place after the November election.

Yesterday a white powder was found in a U.S. Senate office building where Senate Majority Leader Bill Frist has his office. A postal worker in the Dirksen office building notified U.S. Capitol Police Chief Terence Gainer about a suspicious white powder in a mailroom around 3p.m. The most recent similar circumstance took place at a postal distribution center in Greenville, S.C. on October 15. Dirksen and the two other main Senate office buildings will be closed today. Mail will be checked in these buildings. There were at least 16 people in the area when the white powder was discovered. All of them were decontaminated.

Ricin is a protein product of castor bean, a plant cultivated worldwide for its oil. The protein is readily extracted from beans using low-tech methods. Thus, it is readily available. Ricin is one of the most toxic substances known and is lethal in microgram quantities. At this time there are no effective antibodies. Ricin is toxic whether delivered as an aerosol, by injection, or through ingestion. It should be noted that certain locations around the country, for example government and U.S. Postal Service offices, use sensors to test for traces of threatening agents, such as, ricin. If a sample is suspected to contain ricin, it is referred to a specialized laboratory for further testing. These specialized laboratories are part of a network created by the CDC and called Laboratory Response Network (LRN). When testing for ricin, the LRN at CDC provide test reagents that react in specific ways to help determine whether an agent, such as, ricin, is present. Obviously, I was not present at the time ricin was suspected; however, there are precise procedures to follow for testing. Officials state that eight tests were performed and that only six tested positive for ricin. A final determination as to the presence of ricin will not be made until tests at the Fort Detrick Laboratory have been completed. This is unsatisfactory. It is no wonder our intelligence capability is in question. There are two specific tests recommended for the detection of ricin. One is time-resolved fluorescence immunoassay where an antibody binds to ricin to enable the technician to detect its presence. The other is polymerase chain reaction (PCR) and it involves locating parts of the DNA contained in the castor bean plant and looking for the DNA of the gene that produces the ricin protein. The CDC performs this test. In my opinion, the aforementioned tests would have confirmed the existence of ricin, and it could have been confirmed yesterday. Some readers will believe my observations are unreasonable. I won’t settle for six out of eight when eight out of eight can be achieved without an unusual effort.

The Bush budget weighs 11 pounds. It is clearly not worth its weight in gold. The blasted thing uses green bars to depict red ink. David Walker, the Comptroller General and head of Congress’s nonpartisan General Accounting Office, stated “our fiscal gap is too great to grow our way out of this problem. Tough choices are going to be required.” He is suggesting that Congress look at Social Security, discretionary spending, and tax policies. At the same time, a document prepared by the House Appropriations Committee stated “solely targeting non-defense discretionary spending will not have a significant impact on the deficit.” If Bush’s budget is enacted, defense spending would rise 7% and homeland security 10%. It would mean that total defense spending under Bush would have risen almost 50%. It should be noted the budget estimates 4.4% growth for GDP in 2004 and a 3.5% increase in 2005.

On Sunday, citing unidentified U.S. officials, the Washington Post stated that Al-Qaeda planned to release chemical or biological agents on a plane or place a radiological device in luggage.

The $2.4 trillion Bush budget projects a $521 billion deficit this year. For the current January-March quarter, the Treasury estimated it will borrow $177 billion, up from a projection of $160 billion made in November. The Treasury stated “the increase in borrowing is due to lower receipts, primarily from an increase in tax refunds, and higher outlays.” The tax cuts are expected to reduce cash flow to the U.S. Treasury by $39.3 billion in the January-March period and $60.5 billion in the April-June quarter.

As deficits soar, the Institute for Supply Management (ISM) stated yesterday that their employment index in January slipped to 52.9 from 53.5 in December. In December, wages and salaries fell 0.3%. It was the first decline in 14 months. Adjusted for inflation, personal income rose only 0.2%. Job cuts continue. Last year Dow Chemical dropped 3,500 workers from their payroll, and this year they announced “significant” job cuts. IBM cut 250 workers at their Global Services unit. Sprint is attempting to cut costs. They will outsource nearly 6,000 customer service workers in their wireless division to IBM. In return, IBM will market Sprint’s wireless and conventional voice and data services to corporations. It will be interesting to see whether IBM retains all of the Sprint employees.


Monday, February 02, 2004

2/2/04 The Uninsured

When I first began writing about the growing problems of the uninsured, rising unemployment was not front page news. Governor Arnold is becoming a fast study on the uninsured. He has no choice. Almost 19% of California’s population had no insurance for all or part of 2003. That percentage has been rising yearly. In the U.S. over 44 million people lack health insurance. In 2003, Medi-Cal and Healthy Families covered more than 7 million low-income Californians who otherwise would have lacked insurance. Due to California’s budget crisis, for the 2004 fiscal year, Arnold has suggested freezing the number of children enrolled in Healthy Families and the number of legal immigrants enrolled in Medi-Cal, as well as possibly raising eligibility requirements for Medi-Cal. Job losses or hires influence coverage. Salary raises may bump low-income workers out of Medi-Cal. Divorces may mean a loss of coverage for spouses without job-based coverage. Within families, it is possible for children to have coverage and the parents to be uninsured. According to a UCLA study, about 60% of the uninsured had family incomes twice the federal poverty level or less. According to a 2003 study published in Health Affairs, spending for an uninsured person amounts to $1,253 per year compared with $2,484 for someone with private coverage. A 16 year study by a professor at UC Davis found that those without insurance face up to a 75% greater mortality risk. In January, the National Academies’ Institute of Medicine recommended that, by 2010, everyone in the United States should have health insurance. Wilhelmine Miller, project director of a comprehensive study by the Institute on the uninsured, stated “if you lack insurance, for whatever reason, you’re less likely to get the appropriate car that’s recommended. Despite knowing what we know, this is a challenge that this country hasn’t stepped up to.”

The two biggest issues concerning voters are jobs and healthcare. I am in no way belittling the importance of our troops in far away places. National security is a front and center issue. In my view, the determining factors in the election will be first jobs and then healthcare. I think it comes down to national responsibility and fairness. Charities and foundations provide benefits to many Americans. Unfortunately, too many are left behind on Main Street. Something has to give. That something is government waste, pork programs, and the inability to manage all levels of government like an efficiently run business. In addition, it is quite amazing to watch public corporations reduce their payrolls, their benefit programs, and their participation in community affairs and still find the ability to increase the salaries and benefits for top management. The most successful businesses continue to hire, provide benefits, and give graciously to communities. You would be hard-pressed to find a better investment than Starbucks over the past 10 years. Their management provides great returns to shareholders, continues to expand and treat employees with dignity, and are active participants in the local communities. Unfortunately, there are not too many companies like Starbucks in this world. The voters are this country’s “stockholders.” You have the right to vote at stockholder meetings. The next one is in November. You might consider the economic well being of your family as well as that of others on Main Street. You might consider the millions without healthcare. Which manager will provide the best leadership for increasing this country’s cash flow and the cash flow of its citizens? Which manager will make the hard budget decisions that will enable us to provide healthcare for all? On Wall Street, successful investors are able to limit their losses and let their profits run. It’s up to you to decide on the losers and the winners. That’s a personal decision. Ignore the promises and the jibes. Focus on the facts. If it doesn’t add up, then you know someone is feeding you a pile of crap. We are talking about the business of the United States. It’s important business. We have an equal vote.

I have been studying this bird flu. It’s a pretty complicated matter. There are lots of unanswered questions. I am not certain what facts have been omitted. My gut tells me it is more serious than most imagine. There have been millions of chickens and ducks slaughtered in 10 Asian countries. In China, there have been outbreaks in Zhejiang, Hubei, Yunnan, Henan, and Xinjiang. These five provinces are the home to many farmers, and the latter are considered by many as peasants. The Chinese premier, Wen Jiabao, promised compensation to the farmers who have been forced to slaughter poultry. It should be noted that all poultry within two miles of suspected outbreaks have been slaughtered, and that within three miles, poultry is quarantined and vaccinated. About a dozen humans have died from this bird flu. Yesterday the WHO stated two Vietnamese sisters who died of bird flu might have been infected by their brother. This would be the first case of human-to-human transmission of the disease. If the spreading of the bird flu was not enough, it appears that SARS has returned to China. A fourth SARS patient was disclosed in Guangdong province. China wanted to slow down the rate of its economic expansion. The bird flu and SARS should provide the needed assistance to effectuate a diminished growth rate.

According to the National Taxpayer Advocate, 12 million taxpayers may fall under the Alternate Minimum Tax (AMT) when filing their 2005 tax returns in April 2006. On January 26, the Congressional Budget Office stated “with each passing year, the AMT plays a bigger role in revenue projections.”

Last week many overlooked a statement by Manpower, the world’s second largest staffing company. They forecast that its first quarter earnings would be lower than analyst estimates. The reason provided was the reluctance by U.S. employers to hire. If the administration states everything is rosy, then the remarks by Manpower should come as a great surprise. Manpower’s CEO observed “we’ve reached the point where companies are saying ‘I need more people but I’m going to keep my hand very solidly on what’s happening.’ There is a skittishness and hesitation.” He also mentioned that the cost of employee healthcare was limiting hiring. Given the breadth of the stock advance over the past 10 months, Wall Street does not exhibit the skittishness and hesitation on the part of top management to add employees to corporate payrolls. For that matter, corporate insider selling continues at a brisk rate. Maybe they are just coming down with the flu. That can be a downer.


Sunday, February 01, 2004

2/1/04 Doing The Supplemental

Your thoughts could be focused on the Super Bowl. We still have several hours before the pre-game festivities begin. I could use a favor this morning. I’d appreciate your undivided attention. We need to examine a weapon of mass destruction.

The top Army spokesman in Iraq, Brig. Gen. Mark Kimmitt, stated earlier this week that “the overall number of attacks is going down. That is not, sadly, stopping the number of casualties.” Later in the week the same Brig Gen. Mark Kimmitt stated “as we’ve had a corresponding reduction in attacks, there has been a corresponding reduction in action as well.” Kimmitt was told the numbers in January suggest quite the contrary. He responded with “I’m not going to get into a debate about the numbers.” Well, Kimmitt, I’m not going to debate either. The facts indicate that, in January, there were 40 U.S. soldiers killed, and this was second only to November’s total of 69, including the casualties of three downed helicopters. If not for the helicopter tragedies, January would be the deadliest month since May. Col. Bill Darley stated earlier this week “here’s the bottom line. There’s a decrease in attacks, but I think it’s fair to say that the effective potency of the attacks that are going on has been maintained. We have observed the same number of coalition casualties as before.” Kimmitt concluded “they bring a different degree of expertise. And like anything else, it’s a different enemy tactic. We just have to learn what those tactics, techniques, and procedures are, so that we can fight them and beat them.”

I learned from the words of Kimmitt and Darley. I thought long and hard about the tactics, techniques, and procedures. I am trying diffuse a weapon of mass destruction. This is not an exaggeration. Yesterday Bush gave a speech at the Loews Philadelphia Hotel located not surprisingly in Philadelphia. He stated “and one of the things we’ve shown the American people is we understand how the economy works. The economy doesn’t work by growing government; the economy works by growing people’s wallets so that they can spend, save, or invest…we’re going to be wise when it comes to the expenditure of the people’s money. And we submitted a budget which says just that. And we look forward to working with you on it. You spend; I propose. Together we’re responsible…See, we understand the proper relationship between government and the people. It’s the people’s government we represent.” In order for this government to be the people’s government there must be a serious effort to impart the truth and to walk in the light of the truth. If it means honestly debating the numbers, then so be it.

Bush knows the number one issue with the voters is the subject of jobs and the lack of them. He and his cabinet will attempt to change the landscape. I have seen this coming. I have been waiting for them. The Snowman fired the first shot. After the December payroll numbers were released, he stated “there is a big error factor in those numbers. I think they may well have understated (job growth) and we will see a restatement in the future.” They will “cook” the December figures through an upward revision and then create an exaggerated rising appearance for January. How are they going to accomplish this piece of trickery? These people are so transparent. They will suggest the public look solely at the household survey and the latter shows a rise of 700,000 jobs, not a loss of 2.3 million jobs, since January 2001. We have discussed the household survey. It is based on a small sample and overstates population growth. It focuses on the self-employed. Bush will rely on this survey and state that the number of self-employed Americans has surged 3.9% over the first three years of his presidency. Pat Buchanan has remarked that Bush and his administration cherry-picked intelligence information prior to our invasion of Iraq. An interesting phenomenon has taken place with the household employment survey. I must congratulate Federal Reserve Governor Bernanke for also noticing it. He stated the household survey’s accuracy could suffer from inaccuracy in at least two ways. The survey would register a worker as employed even if he or she works only one hour in the survey week. In addition, the accuracy could suffer if individuals misunderstand the questions “or for one reason or another misreport their own labor market status or that of other members of the household.” You are wondering how that could happen. Let’s speak to one of the 60,000 people interviewed during 2003 for the survey. LeeAundra Temescu is self-employed. She is a speaking coach and considered a consultant. She is one of the 15 million self-employed workers in the United States. The household survey considers her employed. During the household survey, she stated “in terms of speaking and writing and marketing and doing all that sort of stuff—yeah, I was working.” However, she didn’t have any paying clients but remained busy marketing. She added that “it was kind of disconcerting to… have to give answers that I know weren’t accurate because I was constrained by the nature of the questionnaire.” The questionnaire is composed in such a way that it will evoke certain desired responses. It goes beyond cherry picking. It creates the cherries and respondents are forced to pick them. The payroll survey accounts for temporary help, and the latter does include independent contractors. These individuals are often represented by temporary help agencies and employed by the agencies. The agencies bill the employers and then the agencies pay the temporary worker. In fact, the largest increase in employment has been in the area of temporary workers. Bush and the Snowman are attempting to bring the supplemental into your neighborhood. The supplemental are the fictitious employed who are busy “working” but aren’t getting paid for their efforts. They will tell you that there are 15 million such Americans and they live in everyone’s backyard. They could be living on food stamps or some other form of assistance.

There is another type of supplemental Bush knows quite well. While Governor of Texas, he initiated the supplemental pay system after the Texas Ethics Commission issued an opinion stating it is legal for elected officials to use campaign funds to pay staff. The commission decided the extra pay does not fall under a section of the state Penal Code that proclaims a state employee “commits an offense if he solicits, accepts, or agrees to accept any benefit from any person.” For example, Michael Toomey was paid $135,000 last year to run Gov. Perry’s office as chief of staff. The lobbyists and special interests who fund Perry’s political account financed an additional $113,281 in pay for Toomey. The $113,281 is a political stipend and part of the supplemental pay established by then-Governor Bush in 1995. It should be noted that supplemental pay is now a major portion of the earnings for some of the top administrators for Texas’ elected officials. Filings with the Texas Ethics Commission (it’s hard to stop from laughing) indicate that Toomey earned between $600,000 and $1.4 million as a lobbyist in 2002 before selling his practice to become Perry’s chief of staff.

As the start of the big football game approaches, I’d like to focus on an area of our economy that will continue to grow and employ more workers. In my view, our two most exciting frontiers are biotech and nanotechnology. Mark Modzelewski, executive director of the NanoBusiness Alliance, estimates that the number of nanotechnology companies has doubled in three years to about 1,200 start-ups in the United States. This field will have a profound impact on materials, diseases and biomedical detection, and pollution. Some of the new companies will become household names. Some might disappear. We can await the developments from Intematix, Molecular Diamond Technologies, Quantum Dot, Nano-Tex, Nanomix, and Nanochip.

Before you begin to prepare the hot dogs, pizzas, and the like, I thought I’d mention that we still have it pretty darn good in the United States. We have to be vigilant not to blow our freedom ad our economic well being. World War II veterans can describe what it was like fighting overseas. Today, people overseas are still fighting. It is a different fight. One in 10 Germans is unemployed. Germany’s largest industrial union, IG Metall, staged short strikes across the country on Friday, and called on 51,000 workers to leave work early in a mass walkout to pressure employers over pay and working hours. Under negotiating rules, IG Metall is allowed to stage short strikes to pressure employers during talks, provided the union gives the firms affected a clear start and end time. IG Metall this week dismissed as a “provocation” an offer from the employers for two pay raises of 1.2% each over 27 months and a demand for more flexible contracts so companies can vary working hours to match demand. IG Metall spokeswoman MARTINA Helmerich stated the stoppages would spread next week in defiance of claims that the union’s power had waned as a result of falling membership and a failed strike over working hours last year.