Saturday, February 14, 2004

2/14/04 Roses And Thorns

It’s wonderful growing roses. The different colors and their graceful buds can provide much pleasure. However, picking those roses is an entirely different story. The thorns on those rose bushes require some careful handling, and can be a bitch.

King Solomon writing in Proverbs: “The Borrower is servant to the lender.”

Ross Perot and Sen. Paul Simon: “A weak currency is the sign of a weak economy, and a weak economy leads to a weak nation.”

In 2003, almost $7 trillion was issued I the U.S. fixed income markets, up 28% from 2002. The U.S. trade deficit ballooned to record levels in 2003, and rose 17% from the record set in 2002. We had a $124 billion trade gap with China, and that was a record. Our trade deficit with Japan declined to $66 billion, the lowest level since 1998. Canada was in third place with a trade gap of $54 billion, then Mexico with $40 billion, and Germany close behind with $39 billion. With our weaker dollar, our exports rose 4.6% to $1 trillion, the highest mark since 2000. However, despite the dollar’s fall by 3.3% on a trade-weighted basis in the fourth quarter and by close to 2% in January, last month our trade deficit with the rest of the world rose to over $42 billion. Greenspan stated yesterday that it will take time for the dollar’s decline to begin narrowing the deficit. I think Greenspan is out to lunch. The dollar has been declining for close to two years against the major currencies. He should spend more time watching over his own decline. We are importing close to 320 million barrels of oil a month. Forget about China, Japan, and others for a moment. Greenspan might consider that the exports of our capital goods and consumer goods have begun to decline. Look at the economies of our export markets. We visit different states. Let’s leave the U.S. and travel to the eurozone. In the fourth quarter their economy grew but 0.3%, down from the feeble 0.4% in the third quarter. Growth for all of 2003 was 0.4%. Germany’s economy declined by 0.1% in 2003. In other words, the eurozone cannot be counted on to be a big importer of our goods and services in 2004. In sum, the weaker dollar has not narrowed the current account deficit. Rather, the trade deficit has mushroomed to record levels. The markets listen to Greenspan because they lack, as a generalization, the inability to think for themselves. They are deserving of the losses that have come their way and that will mount in the months and years ahead. Sheep can be seen wandering the financial streets at all times of the day and night. Unfortunately, for them, Greenspan’s words of patience have an air of sweetness, but they carry with them thorns aplenty. Chauncey Gardner was a real gardener. Greenspan misplaced his pruning shears.

Bruce Heitshusen, a South Amana, Iowa row crop farmer and livestock producer: “The market seems to be hanging in there pretty good. Everybody’s just holding their breath and hoping nothing else comes along.” He’s not referring to stocks and bonds but rather to Mad Cow disease. Japan accounted for $1 billion in beef export sales in 2003. It was our number one market for beef exports. With Mad Cow, there goes the $1 billion out the window. A billion here and a billion there, and before you know it, it can add up to some real money.

The University of Michigan preliminary sentiment index for February dropped 10 points from January’s level, which was the highest since November 2000. The preliminary reading is based on 250 households, and the final reading of 500 households is released on Feb. 27. The expectations index and the current conditions index also experienced large drops in February. I wouldn’t be concerned because the optimists will tell you they are lagging indicators. When the readings are promising, the same folks state they are leading indicators.

Greenspan to Congress: “In all likelihood, employment will begin to grow more quickly before long as output continues to expand.”

Home Depot continues to open new stores. On Thursday, the company announced cutting 100 jobs in its finance division at its Atlanta headquarters as apart of a streamlining plan. Being a government employee, Greenspan could not be expected to grasp the meaning of streamlining.


Friday, February 13, 2004

2/13/04 Deals Are Back

I'm not referring to Oracle and PeopleSoft. That is a figment of Ellison's imagination. Today we'll see Cingular and Vodaphone squaring off for AT&T Wireless. The media is buzzing about all the potential buyers for Disney. The latter hired Goldman Sachs and Bear Stearns to review Comcast's offer. They would be well served to add Allen & Company to their list of advisors. Many potential buyers wil be mentioned. The parts of Disney are worth more than the whole. A buyer like Comcast can take the cream, like ESPN, and sell the non-essentials. That's what I'd do. Take your time selling the pieces. Foreign buyers are looking at a cheap U.S. dollar. They can buy on the cheap. That reminds me. With the pound at an 11 year high vs. the dollar, Unilever should be prowling for deals. That goes for other foreign buyers in the pharmaceutical business. All the newly discovered experts will have opinions on each announced deal. Remember that most are still in diapers. They have never done a deal and don't grasp the difficulties involved in buying another concern. Most large mergers don't work out well. The exception is the Pepsi acquisition of Frito Lay. Much of the success or failure depends on management and melding people and organizations. As such, most are doomed before the ink is dry on the deal. A word of caution might be in order. Investing in risk arbitrage requires filtering out all the noise. If you can't do that, forget it. Don't listen to rumors, and don't invest based on the rumors. Invest on the facts. Put yourself in the shoes of the buyer. What is ESPN worth to Comcast? What's the mouse library worth to Comcast? What's it worth to another company? These are the questions which will determine the ultimate value of Disney, and not what an expert predicts.

One additional word about deals. You'll read that the market must be cheap because deals are getting announced. Each deal has its own story. It has nothing to do with the market as a whole. When you're talking $50 billion+, you're talking an amount which exceeds the GDP for most countries. This is significant jack. There aren't that many companies that can play in that arena. A company like GE can, but then you must look at their position in media and compare it to the fast growing medical business. Media doesn't look great next to it. Talking about medical. The latter now accounts for 15% of our GDP and in a few years is projected to grow to 18%. I have discussed this fact for the last several years. The number one trend in the U.S. is the aging of the population. Japan has had a similar situation for years. There is one bit of better news. Healthcare spending in 2003 grew at a 7.8% rate, down from 9.3% in 2002.

People keep emailing stating that unemployment is a lagging indicator. They are quite correct. It lags and lags and lags. It's been lagging for over two years or in the case of manufacturing close to 3 1/2 years. Yesterday it lagged some more, to a two-month high. With the cost of benefits continuing to rise and the hours worked per week hovering near a multi-year low, the prospect for hiring isn't bright. The people who argue otherwise are also not bright. Hope springs eternal but it doesn't pay the bills.

Wednesday, February 11, 2004

2/12/04 The Real Deal And Government Testimony

Integrated content and distribution would be the hallmark of a combined Disney and Comcast. The latter, in an unsolicited proposal, offered a tax-free stock for stock merger in which Comcast would issue 0.78 of a share of Class A voting common stock for each share of Disney. The latter shareholders would own approximately 42% of the combined company. Comcast has 21 million cable subscribers and over 5 million high speed Internet subscribers. Disney’s CEO stated he was “unwilling” to enter merger talks. Disney owns ABC television, ESPN, Disney and Miramax movie studios, theme parks , and most importantly, one of the most recognizable global brand names. Utilizing the currency of Comcast stock, it will be much more likely that this bid at some point will be increased. The Roberts family is known as good managers, and they should bring additional financial acumen to Disney. The government approvals should not present a problem. Comcast has Rohaytn, Rattner, Morgan Stanley, and J.P. Morgan Chase as advisors. They are serious about acquiring Disney, and are patient acquirers. It took them over one year to buy AT&T broadband. A combination of the two companies would make this the largest media company. There will be many investment bankers scurrying the financial landscape looking to represent a buyer for Disney. There will be lots of rumors; however, few have the financial capacity or the willingness to undertake a $60 to $70 billion acquisition. It will take time for this deal to develop; however, in my opinion, it is the real deal.

Unfortunately, I cannot say the same for Greenspan’s testimony to the U.S. House Committee. After reading the President’s Economic Report, one would think there is a division on the economy. They are in agreement on a few issues. The stock market is the star performer as rising equity prices have reduced financing costs, and just as importantly, increased household wealth. Bush and Greenspan figure on low inflation continuing along with low interest rates for the remainder of the year. They agree that reduced tax rates and tax credits boosted real disposable income. Greenspan believes productivity gains will slow but not to the extent that Bush does. Both believe productivity growth has lessened the need to hire. Both believe hiring will hasten in 2004 but Greenspan is concerned with the federal budget deficit and the risk it entails to sustaining growth. He doesn’t believe the Bush has offered a convincing road map for lowering deficits. Greenspan is concerned about the impact of a spike in energy prices, and Bush has not addressed that in his economic report. Greenspan stated progress in creating jobs has been limited but Bush gushes about the jobs being created.

Last year, venture capital investment decreased to its lowest level since 1997. Nationally, $18.2 billion was invested in 2003, down 15% from the prior year. The life sciences industry captured 27% of all financing I 2003. The software industry accounted for 20%.
2/11/04 Unfinished Business

Yesterday I kept thinking about the Economic Report of the President. The employment forecast was so unattainable that I thought some phone calls were in order. After all, there is no point to set yourself up to look stupid. Unfortunately, after the calls, I needed to go for a walk. I’ve made this statement over the past several months. The real WMD are in Washington DC. What did I learn? I learned that an additional 700,000 jobs were assumed to have been created by the time the report was completed. However, the administration knew that addition had not materialized when the report was released on Monday. Secondly, the report factored in that annual productivity growth would decline from 4.3% in 2003 to only 1.4% in 2004. I state only because the long term annual productivity growth is 2.1%, and the last time it was as low as 1.4% or lower was in 1995. The president’s economic team stated that, with unusually depressed productivity growth, employers would need to hire more workers. However, that assumption is negated by another assumption behind the report. The economic team projected that hours per worker are not expected to grow in calendar 2004. No business manager or owner would want to hire an additional worker and spend money on training and benefits before adding weekly working hours for existing employees. In sum, this report was released on Monday with the administration knowing that the assumptions behind the conclusions reached were false. I cannot imagine anyone voting for people who pull such falsehoods on the American people.

I don’t know why I was so surprised. Maybe I’m just hopeful that Americans will receive the best from their leaders. Then I recall the two versions of the report on Iraq’s weapons.
The classified version: “The activities we have detected do not, however, add up to a compelling case that Iraq is currently pursuing what INR would consider to be an integrated and comprehensive approach to acquire nuclear weapons. Iraq may be doing so, but INR considers the available evidence inadequate to support such a judgment. Lacking persuasive evidence that Baghdad has launched a coherent effort to reconstitute its nuclear weapons programs, INR is unwilling to… project a timeline for the completion of activities it does not now see happening.” This was written in October 2002. The public version of this report: “…most analysts assess Iraq is reconstituting its nuclear weapons program.”

Over the past 12 years consumer spending by Americans increased each and every quarter. With muted job creation, wage growth merely equating to the rate of inflation, hours worked declining, and with almost 5 million part-time workers who are unable to find full-time employment, consumer spending has come to the crossroads. In 2003, Americans received tax reductions and credits, mortgage equity withdrawals via refinancing, and many shall have refunds coming their way from the IRS in early 2004. Even with those extra dollars, the savings rate has declined to about 1.5%. To make matters worse, a recent study stated the new jobs created pay about 21% less than the jobs they replace. The new jobs pay about $35,410 a year compared with $44,570 at the old jobs. Greenspan and Bush are out of tricks. Slight of hand will not put money in the pockets of Americans. Where do we go from here? It will, in my view, require new leadership based on policies that can stick to your ribs, and grounded in the truth. You can print money, you can spend taxpayer money, you can make false promises and issue false prospects, but eventually there is a stiff price for twin tower deficit policies that undermine the well being of 285 million Americans. We are at that point.

We are fast approaching Feb. 16. Many businesses will be closed for the President’s holiday. It won’t be a time for celebration at AT&T Wireless in Bothell, Washington. In all probability, at least 1,000 employees will receive termination notices.

Tuesday, February 10, 2004

2/10/04 The 2004 Economic Report Of The President

The White House Council of Economic Advisors signed off on this report and released it yesterday. I know Wall Street is not concerned about our $7 trillion national debt. China and Japan will fund the debt year in and year out. Interest rates will remain significantly below those found in other industrialized nations, and will not rise as long as inflation remains muted. Just the other day Bush released his $520 billion budget deficit plan. He failed to mention his Social Security privatization plan. It was revealed in yesterday’s 2004 Economic Report of the President and it contains adding another $1 trillion to the national debt for the privatization plan. The report stated “since the budget surpluses forecasted a few years ago have not materialized, critics argue that personal retirement accounts to Social Security is impossible or impractical. In reality, the need to add resources to the Social Security system is no less pressing now that surpluses have disappeared; indeed, it may be even more so.” The report goes on to forecast 4% GDP growth for 2004 and that the economy will generate 2.6 million jobs in 2004. Last year at this time, Bush and his advisors forecast adding 1.7 million jobs in 2003. In fact, over the past year there was a loss of jobs. That’s why it is referred to as a job loss recovery. With January having passed, in order to meet the 2.6 million addition to the payrolls, over 450,000 new jobs would need to be created between February and December. One should note that, taking into account all the benchmarking and revisions of the payroll numbers, total employment in January was but 33,000 more than in October. We’ve seen promises in the past from this administration. They knew where the WMD were located. Precisely 11 months ago, General Meyers pointed to their location on a map. Now they are pointing to tax cuts and other tax incentives to produce 2.6 million jobs in 2004. That tax plan existed in 2003, and the result produced was a loss of jobs.

The IBD/TIPP Economic Optimism Index produced some interesting findings. The nation’s optimism had its biggest one-month drop since July 2002. The Six-Month Economic Outlook had its biggest one-month fall since Bush took office. The survey indicated that “respondents fearing they or someone in their household will lose a job in the next year rose from 16% in January to 20% this month.”

Japan’s Parliament made another $200 billion available to the Ministry of Finance for sales of the yen in order to keep the yen/dollar relationship from falling much further. This amount equates to a quarter of Japan’s foreign currency reserves. Last year they also sold over 20 trillion yen. In the first four weeks of 2004 they sold over 7 trillion yen. Continuing to sell its currency at the current rate can only undermine the economic stability of Japan in the long term. The rate of sales is clearly unsustainable.

In the recent Mortgage Credit News it is reported that “although the office market has begun to bottom, absorption of office space has fallen in nine of the last eleven quarters, and office rents have fallen in all eleven. High-wage jobs are in offices.”

Ford has about 5,600 hourly employees working on two assembly lines that produce the Ford Escape SUV and the F-series pickup at its Claycomo plant . Motor Trend magazine selected the new F-150 as its 2004 Truck of the Year. In December, Ford executives praised the Claycomo workforce for its efforts in launching the new pickup and remarked how the F-150 sales had spiked with the introduction of the new vehicle last fall. It is no wonder how surprised Claycomo employees were to find that layoffs would occur at their plant, the star of the Ford factory locations. One hundred hourly workers were laid off on Friday, Feb. 6, and another 100 employees will be cut on Feb. 13. Maybe the Claycomo employees should have seen the cuts coming. In December, Ford’s CFO stated the cost of producing the new F-150 would drop by about $1,000 per truck by the end of 2004, compared with when its production began last June. I wonder what other cost-cutting measures will occur at plants that produce slower-selling vehicles.

One Price Clothing Stores currently operates 494 stores in 30 states, Washington DC, Puerto Rico, and the U.S. Virgin Islands. Yesterday they filed for voluntary Chapter 11 protection. Tower Records operates 93 stores. Yesterday they filed for Chapter 11. CSX operates a rail network of more than 23,000 route miles in 23 states. In December, they terminated 25 senior executives. Yesterday, they cut about 120 high-level managers. It is part of their ongoing process to reduce the number of layers of supervision in its organization from 11 to 8. Can you imagine the number of managerial layoffs yet to come? How about reducing the layers of supervision to a couple?

I thought it might be interesting to visit with the Arkansas Workforce Investment Board (AWIB). They should provide a clue as to the tomfoolery at the U.S. Bureau of Labor. The AWIB reported that, overall, Arkansas’ nonfarm payroll employment was down 23,200 between December to January to total 1,130,300. The state saw losses in eleven major employment sectors. However, using the Department of Labor numbers, the director of the AWIB stated the state’s unemployment rate fell from December’s 6.3% to January’s 5.2%. The drop was “caused by larger than normal revisions to the statewide estimates for 2003, and blamed the ‘distortion’ in the job market statistics on “benchmarking procedures” used to control unemployment statistics. Distortion appears to be a centerpiece of the administration’s policies.

Four years ago, 29% of Alaska’s voters considered the state’s fiscal situation serious. The new poll indicates that has now risen to 45%. The annual budget shortfall is projected at $600 million this year. The Constitutional Budget Reserve fund is expected to run dry in 2007.

According to ComPsych Corporation, employees’ financial picture has worsened significantly since last year. Calls for financial help have risen 69% from 2002 to 2003, with the majority of calls related to debt, refinancing, and failed investments.

The $4.3 billion research tax credit is scheduled to expire June 30. The Treasury Department estimates making it permanent would reduce government tax receipts by $78.4 billion over 10 years. The research tax credit amounts to a subsidy of about six cents for every dollar a company spends on research in the U.S., according to the R&D Credit Coalition.

Monday, February 09, 2004

2/9/04 Strike Infested Waters

Last October, 70,000 union workers went out on strike against the big supermarket chains in Southern California. Four months later they are still striking. They may soon have the company of another 100,000 union workers. SBC’s regional contracts with about 100,000 employees nationwide expire in April. Officials at the employees’ union, the Communication Workers of America, have stated that a strike is certain to take place if SBC management tries to change existing medical benefits. SBC is preparing for a strike. The company has informed managers that they must be prepared to take over key operations should a strike materialize. Meanwhile, managers’ vacations for April and beyond have been canceled. Settlement talks will take place this week in Contra Costa County in California. SBC has approximately $2 billion in annual health care costs, and the company wants the employees to share a greater burden of those expenses. A similar issue has been on the table with the 70,000 workers out on strike. In SBC’s case, the union negotiator stated “there is very little wiggle room” as far as health care goes. “Health care is clearly the No. 1 concern of our members. It’s the biggest and most powerful strike issue.” SBC told the unions the company would provide health benefits even during a strike. For its part, the union will give 30 days’ notice before any walkout.

This year, India’s pharmaceutical industry has achieved a 19.6% export growth, which no other product category has realized. Exports of pharma and related products total $5.36 billion.

The Northwest Texas International Trade Center opened in Lubbock in March 1994. In fiscal year 2003, the Center helped generate about $96 million in exports. Over the past 10 years, 95% of the exports have been through small businesses with less than 10 or 15 employees and export business has amounted to $420 million. The Center has about 600 clients, and their office operates with 9 employees and three major departments: marketing research, trade finance, and documentation specialists. If the U.S. had more such centers helping small businesses, our exports would increase dramatically and our trade deficit would decrease, and our need to attract foreign capital would diminish. Private enterprise rooted firmly in capitalism can provide economic independence to local communities and to our nation. This does not involve tax breaks or incentives. It centers on dedication and sweat capital.

This week Greenspan will tell the world that the U.S. economy is doing better and improving monthly and that the job situation is showing signs of stabilizing. He will not discuss why big multinational companies report improved quarterly earnings and accompany the report with additional layoff notices as was the case with Dow Chemical and DuPont. Greenspan might touch on the strength in the housing market; however, he won’t discuss Wells Fargo, a company which reported strong fourth quarter earnings, and has announced a reduction of 7,500 to 10,000 temporary mortgage jobs over the past four months. Greenspan might relate that there were 420 new plant start-ups in 2003. He will omit that there were 443 plant closings in 2003, and that more closings have taken place in the first two months of 2004. However, things are getting better. In 2002, there were over 600 plants shut down. By the time Bush is voted out of office this November, plant closings could be down to 300. The man is on a roll, and Greenspan will accompany him out the door.

EADS, the overseas aerospace and defense company, stated they may cut 670 jobs or about 11% of its workforce. Aviva, Britain’s biggest insurer, has relocated much of its back office work to India. They predicted higher profits this year. Aviva is in the process of outsourcing more than 3,500 back office jobs to India. On Friday, Aviva announced it was closing its Hill House Hammond High Street broking chain. The company claims the move reflected a massive switch by the public to buying house and car insurance over the Internet and on the telephone. Of the 1,600 people employed in the offices about 1,200 face “compulsory redundancies.”

Chinadotcom holds a majority stake in Swedish software maker Industri-Matematik International Corp., and the latter is absorbing Atlanta-based Ross Systems. After completion of the merger, 90 software design jobs will be moved from Atlanta and Sweden to China. Presently, Sun Microsystems does all of its Web browser development work in China. Microsoft and Oracle have development centers there too.

According to the Tax Counseling Project of the Center for Economic Progress, an estimated 21 million workers in the U.S. are eligible for the Earned Income Tax Credit, which provides an average of $1,786 into low-and moderate-income families’ coffers. However, it is estimated that 10 to 15 percent of eligible families nationally still don’t take advantage of the credit.

Furniture Brands is the largest U.S. home-furniture producer. They produce furniture under the Broyhill, Drexel Heritage, Henredon, Lane, Maitland-Smith, Hickory, and Thomasville brands. In a restructuring move, the company will close a plant producing Hickory Chair furniture, cease production of its Highland House line, and reduce the workforce by 11% at plants producing Thomasville Furniture. The company’s CEO stated “while we remain cautious in our outlook, it appears 2004 is beginning on a positive note.” If it gets any more positive, they’ll be closing all their plants.

Steven Wood, chief economist at Insight Economics: “It’s just flat-out disappointing. We’re just not creating many jobs. Unless there is more job creation and faster wage growth, it is difficult to see how real consumer spending (which makes up) 70% of the economy, can continue to sustain strong economic growth.”

Since the beginning of the Iraq war, 530 U.S. soldiers have died. Rumsfeld calls this a “war of necessity.” Could have + intent do not equate to “imminent threat” or even “a grave and gathering threat.” The fact is Bush is his own worst enemy. He could have been a contender, he might have been a contender for re-election but there is no “unique urgency” and he is left with “word contests" and blood on his hands.
2/9/04 Strike Infested Waters

Last October, 70,000 union workers went out on strike against the big supermarket chains in Southern California. Four months later they are still striking. They may soon have the company of another 100,000 union workers. SBC’s regional contracts with about 100,000 employees nationwide expire in April. Officials at the employees’ union, the Communication Workers of America, have stated that a strike is certain to take place if SBC management tries to change existing medical benefits. SBC is preparing for a strike. The company has informed managers that they must be prepared to take over key operations should a strike materialize. Meanwhile, managers’ vacations for April and beyond have been canceled. Settlement talks will take place this week in Contra Costa County in California. SBC has approximately $2 billion in annual health care costs, and the company wants the employees to share a greater burden of those expenses. A similar issue has been on the table with the 70,000 workers out on strike. In SBC’s case, the union negotiator stated “there is very little wiggle room” as far as health care goes. “Health care is clearly the No. 1 concern of our members. It’s the biggest and most powerful strike issue.” SBC told the unions the company would provide health benefits even during a strike. For its part, the union will give 30 days’ notice before any walkout.

This year, India’s pharmaceutical industry has achieved a 19.6% export growth, which no other product category has realized. Exports of pharma and related products total $5.36 billion.

The Northwest Texas International Trade Center opened in Lubbock in March 1994. In fiscal year 2003, the Center helped generate about $96 million in exports. Over the past 10 years, 95% of the exports have been through small businesses with less than 10 or 15 employees and export business has amounted to $420 million. The Center has about 600 clients, and their office operates with 9 employees and three major departments: marketing research, trade finance, and documentation specialists. If the U.S. had more such centers helping small businesses, our exports would increase dramatically and our trade deficit would decrease, and our need to attract foreign capital would diminish. Private enterprise rooted firmly in capitalism can provide economic independence to local communities and to our nation. This does not involve tax breaks or incentives. It centers on dedication and sweat capital.

This week Greenspan will tell the world that the U.S. economy is doing better and improving monthly and that the job situation is showing signs of stabilizing. He will not discuss why big multinational companies report improved quarterly earnings and accompany the report with additional layoff notices as was the case with Dow Chemical and DuPont. Greenspan might touch on the strength in the housing market; however, he won’t discuss Wells Fargo, a company which reported strong fourth quarter earnings, and has announced a reduction of 7,500 to 10,000 temporary mortgage jobs over the past four months. Greenspan might relate that there were 420 new plant start-ups in 2003. He will omit that there were 443 plant closings in 2003, and that more closings have taken place in the first two months of 2004. However, things are getting better. In 2002, there were over 600 plants shut down. By the time Bush is voted out of office this November, plant closings could be down to 300. The man is on a roll, and Greenspan will accompany him out the door.

EADS, the overseas aerospace and defense company, stated they may cut 670 jobs or about 11% of its workforce. Aviva, Britain’s biggest insurer, has relocated much of its back office work to India. They predicted higher profits this year. Aviva is in the process of outsourcing more than 3,500 back office jobs to India. On Friday, Aviva announced it was closing its Hill House Hammond High Street broking chain. The company claims the move reflected a massive switch by the public to buying house and car insurance over the Internet and on the telephone. Of the 1,600 people employed in the offices about 1,200 face “compulsory redundancies.”

Chinadotcom holds a majority stake in Swedish software maker Industri-Matematik International Corp., and the latter is absorbing Atlanta-based Ross Systems. After completion of the merger, 90 software design jobs will be moved from Atlanta and Sweden to China. Presently, Sun Microsystems does all of its Web browser development work in China. Microsoft and Oracle have development centers there too.

According to the Tax Counseling Project of the Center for Economic Progress, an estimated 21 million workers in the U.S. are eligible for the Earned Income Tax Credit, which provides an average of $1,786 into low-and moderate-income families’ coffers. However, it is estimated that 10 to 15 percent of eligible families nationally still don’t take advantage of the credit.

Furniture Brands is the largest U.S. home-furniture producer. They produce furniture under the Broyhill, Drexel Heritage, Henredon, Lane, Maitland-Smith, Hickory, and Thomasville brands. In a restructuring move, the company will close a plant producing Hickory Chair furniture, cease production of its Highland House line, and reduce the workforce by 11% at plants producing Thomasville Furniture. The company’s CEO stated “while we remain cautious in our outlook, it appears 2004 is beginning on a positive note.” If it gets any more positive, they’ll be closing all their plants.

Steven Wood, chief economist at Insight Economics: “It’s just flat-out disappointing. We’re just not creating many jobs. Unless there is more job creation and faster wage growth, it is difficult to see how real consumer spending (which makes up) 70% of the economy, can continue to sustain strong economic growth.”

Since the beginning of the Iraq war, 530 U.S. soldiers have died. Rumsfeld calls this a “war of necessity.” Could have + intent do not equate to “imminent threat” or even “a grave and gathering threat.” The fact is Bush is his own worst enemy. He could have been a contender, he might have been a contender for re-election but there is no “unique urgency” and he is left with “word

Sunday, February 08, 2004

2/8/04 February 5 and April 19

National Food Check-Out Day is celebrated February 5. This is the day farmers and ranchers mark in the year when the average American has earned enough income to buy food for the entire year. On average, it takes 36 days. By comparison, we worked until April 19 of last year just to pay our taxes.

Following the discovery of bird flu in Delaware, Japan has banned chicken imports from the United States. On Saturday, 12,000 chickens were killed at a farm in Delaware. Hong Kong stopped imports of chicken from Delaware. Singapore, Malaysia, and South Korea joined Japan in suspending imports of U.S. chicken. Japan’s Agriculture Minister stated “we can’t agree to imports unless the meat (chicken) has been properly heat treated. We would consider restarting imports only when we have sent our own people to thoroughly check facilities in each country.”

Boca Raton is quite lovely at this time of year. I trust the G7 financial leaders had a pleasant two-day visit. As expected, little was accomplished. One cannot expect too much from government employees. Their statement was “we affirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rate markets are undesirable for economic growth.” This proclamation could have been written by an average student not left behind.

This morning Bush will be very busy with a damage control interview on Meet The Press. For some reason the president feels uncomfortable on Main Street. It’s a nice day. Let’s go for a ride. Our first stop will be Room 375 in the Wilkens Building on Pratt Street in Baltimore. Unfortunately, they don’t serve crab cakes or lump crab meat. This is the location for the processing of bankruptcy petitions. David Rodgers, partner in Rodgers and Dickerson, has filed more than 22,000 personal bankruptcies since opening his Towson practice in 1990. He remarked “there is not a lot of disposable income in the middle class anymore. Jobs are being squeezed. Good jobs are being moved. The middle class is being squeezed. Families have slipped into financial bondage.” You might think Rodgers has gotten himself all worked up unnecessarily. According to the Federal Reserve Board, household debt-service payments and financial obligations rose to 18.09% of disposable personal income as of June 30. According to the Bureau of Economic Analysis, personal savings fell 26.6% from ten years ago. Maryland has one of the highest bankruptcy rates in the nation. Over the past ten years, personal bankruptcies have more than doubled, and one of every 63 Maryland households now files for bankruptcy.

Nearby Virginia’s House Finance Committee will disclose its budget on February 22. The legislature rejected the governor’s budget-balancing plan. As such, the proposed budget will need to close a $1 billion shortfall. They will combine cuts with higher user fees, such as, motorists’ services.

The state of Louisiana has a $17 billion budget. The fiscal year begins July 1, and the legislature must confront pension systems with a $1.6 billion account deficit. The Louisiana taxpayers’ tab for covering pensions of retirees in the four state retirement plans will likely go up by nearly $250 million a year. State budget shortfalls in the new fiscal year have been estimated between $300 million and $500 million already. It will be interesting to see how the legislature proposes to fix this mess. Gary Curran is an actuary and actuarial committee member. He observed “we can ignore it, but it’s not going away. It’s not going to get exponentially worse.” Curran appears to have more common sense than many on Wall Street who prefer to focus on program trading and the latter’s impact on pushing the S&P 500 Index and the Dow higher and higher. After all, they are not concerned with Main Street’s job losses, bankruptcies, and budget shortfalls, which, the financial wizards maintain, share nothing in common with the movement of equity prices. Main Street faces a wall of worry every day. It’s real. It means putting food on the table, providing shelter, paying taxes, and hopefully having enough savings for some medical care. Financial engineering on Wall Street creates the world of derivatives, a $41 trillion WMD. You might ask how do I know this. I ran two brokerage firms. Only a few leaders maintained Wall Street’s Chinese walls. Be careful about strolling along Broad and Wall. The fleecing is not as pure as winter’s white snow.

Our last stop this morning brings us to Montana. Council member Betty Lou Kastan remarked that “Medicaid is the budget buster of the Legislature. If it isn’t controlled, there’s no end to the dollars that would be needed.” Montana’s Medicaid costs have doubled in the last 10 years, and now total $550 million annually. State analysts project that costs for Medicaid will increase between 6 and 8 percent each year through 2011. About 9,000 of Montana’s citizens relied on Medicaid in fiscal year 2003, racking up $110 million in costs. Medicaid for the medically needy is an optional service that the state does not have to provide. Kastan stated “if push came to shove, because it’s optional it would be the first to be considered for elimination. Not that I’m advocating it. But when push comes to shove, you have to get to the bottom line.” I wonder when the Congress will get to the bottom line of our nation’s bulging budget deficit problem?

We might not have visited your home state this morning or in past weeks. We will visit each and every Main Street in each and every state. No state will be left behind. We can kick the tires together.