Saturday, March 06, 2004

3/6/04 Gasping And Spinning

In December 2001, Martha Stewart sold 3,928 shares of ImClone. Yesterday A New York City jury found her guilty on four counts. Chappell Hartridge, a 47 year-old juror in the case, stated “maybe it’s a victory for the little guy who loses money in the markets because of these types of transactions, the people who lose money in 401(K) plans.” Chappell, I hope you are not suggesting that ImClone stock is suitable for such an investment plan. I have a problem with a juror reading about this case during the trial. He stated “you see it on the front pages. You see it on the subway.” I am not condoning insider trading; however, unless I missed it, the government did not file criminal charges against Stewart for insider trading. She faces civil insider-trading charges brought by the SEC. After the verdict was announced, there were gasps, and not just in the courthouse. On the floor of the New York Stock Exchange, those who had speculated on a positive verdict got crushed financially. Beware of the “beyond a reasonable doubt” standard. It may have a different meaning for many people.

John Snow: “The administration is not satisfied with today’s job creation numbers.” John, there weren’t any jobs created without the 20,000 state government workers added to payrolls. I have often wondered how one can add a worker when their state has a budget deficit.

Elaine Chao; “As the president has said many times, we’re not going to rest until every American who wants a job can find one.” Chao gloated that the unemployment rate had not risen. She stated “the unemployment rate of 5.6% continues to be below the averages of the 1970s, 1980s, and 1990s.” Chao, the reason might be that the labor participation rate fell below 66% for the first time in 16 years. When Bush came into office, the labor participation rate was 67.1%. Had the rate been the same 67.1% yesterday, the unemployment rate would be 7.3%. Martha Stewart may go to jail for lying about a stock tip. How many Americans have you harmed by your misleading unemployment statements in our country? Chao, you should be held accountable. A total of 392,000 workers left the labor force in February.

Yesterday, when the February employment numbers were released, many gasps were heard. What do you think it’s like for the 484,000 discouraged workers who dropped out of the labor force? That number increased by 52,000 from the prior month. January’s employment estimate was revised downward by 23,000 jobs. The December numbers were reduced from 112,000 to 97,000 and November’s from 16,000 to 8,000. Are you aware that 22.1% of all the unemployed were idle for 6 months or more in 2003? According to the Economic Policy Institute, this is the worst annual rate in 20 years. We should not forget that Congress allowed the federal extension of state unemployment benefits to expire on December 21. Since that time, approximately 800,000 people have lost their benefits. The EPI study shows that college graduates make up a disproportionate share of the long-term unemployed. While college grads contributed 15.3% of the unemployed, they represented 19.1% of the long-term unemployed. The study stated that, in 48 out of the 50 states, jobs in higher-paying industries are shrinking. From the end of 2001 to the end of 2003, the industries losing jobs paid wages of $16.92 on average, while the industries gaining jobs paid an average of $14.65. The average working week has been reduced to 33.8 hours. According to the Labor Department’s Current Population Survey, Hispanics garnered 64% of the new jobs created in 2003. A Pew Hispanic Center study stated new Hispanic immigrants worked on many home building sites. These jobs put downward pressure on their wages. It should be noted that employment in construction dropped by 24,000 in February.

February marked the 43rd consecutive decline in factory employment. Even the service sector was weak with only a net gain of 46,000 workers. Overall, total employment in February declined to 138.3 million. O. If you read that employment increased in February or over the past six months, write down their name, address, and phone number. We’ll hold them accountable along with Chao and other members of the administration. Please do not forget that 1.7 million people were not counted as unemployed. They had not actively searched for the four weeks preceding yesterday’s report. This number is about the same as the one reported a year earlier. Just as a reminder, a year earlier was a few weeks before we invaded Iraq. Business stunk the house out and businesses were not hiring. We need to remember history. Mark Zandi of Economy.com adds history states that the jobs will appear “but history has not been a very reliable guide through this period.”

House Democrat Whip Deny Hoyer: “George W. Bush ought to be pleased that he doesn’t have to face the American people in Donald Trump’s board room today to defend this anemic employment report because the two words he surely would hear are – ‘You’re fired.’”

Congressman Chaka Fattah (D-PA): “Job growth is the definition of a good economy. Congressional leaders are called to repair the breach since the president has proven himself unwilling or unable… a job summit by congressional leaders would provide confidence that the president’s failure to create jobs is not the final word on real help for real people.” Representing Pennsylvania, Fattah has reason for concern. February was the ninth consecutive monthly decline for nonfarm jobs in his state.

Bush is spending the weekend in Texas, his home state. If I were Bush, I’d be plenty concerned. Yesterday, the Texas Workforce Commission revised unemployment data. In Houston, for example, Houston lost 16,2000 jobs last year instead of the 8,700 job loss originally reported. It gets worse. It gets a lot worse. Between December 2002 and December 2003, the commission had reported a net gain of 45,611 jobs. I guess the adding machine was out of whack. In fact, Texas actually lost 38,889 jobs, a swing of 84,500 jobs. How many other states have made similar mistakes? You know Texas has plenty of company. We are talking about government workers who specialize in data revisions. When all the data has been revised, you can bet there will have been net job losses throughout the U.S. over the past six months. Paul Murphy is CEO of Southwest Bank of Texas. He stated “I think Houston is already doing better than most.” Paul, that statement gives me comfort. Houston has racked up 24 consecutive months of year-over-year monthly job losses.

Under Secretary of the Treasury Roseboro stated the nation’s debt limit may be reached by June. It could have been worse. It might have been May. We should be thankful for little things. George W. gets an A+ for spending. He does it up Texas big time. Kathleen Bostjanic, a senior economist at Merrill Lynch, stated “until the job market improves, spending is at risk.” Kathleen, that’s not the case for George W. He is spending your money.

According to the Consumer Credit Index, over four out of ten Americans are making just minimum payments or no payments on their credit card balances.

According to the Yale School of Management’s opinion poll, currently 95% of individuals and close to 92% of financial institutions believe that the U.S. stock market will rise over the next 12 months. Didn’t George W. go to Yale?

Jack Guynn, president and CEO of the Federal Reserve Bank of Atlanta: “But just as a doctor shouldn’t overmedicate the patient, one should always be sensitive to the potential unintended side effects of maintaining an accommodative policy for too long. Put differently, if my forecast for robust economic growth materializes, then, at some point, a fed funds rate of 1 percent will no longer be the best policy…my own view is that job growth will pick up in coming months, and the unemployment rate will continue to drop.” I agree it will continue to drop as more Americans leave the labor force. Guynn stated “there’s evidence that businesses are feeling more pressure to expand payrolls.” Hospitals are not feeling the pressure. Hospitals lost 5,000 jobs in February.

Friday, March 05, 2004

3/5/04 Consuming And Borrowing

It has been proven that peak spending occurs between the ages of 35 and 54. As our population ages, and it is, the level of spending should begin to lessen. That would be good news. Consumer spending as a percentage of GDP currently stands at 70%+. Only the UK is close at 68%. Italy and Spain are at 60% with Japan and France at 55%.

Yesterday, the Federal Reserve reported that households expanded their debt by 10.4% in 2003 to $9.5 trillion. Not to be outdone, the Federal government borrowing expanded by 10.9% to $4.1 trillion, the fastest pace in 21 years. You might check to see whether your boxers or panties have been mortgaged. Of course, there is no reason to be concerned. Bush and Kerry are both fiscal conservatives. The nation’s debt now stands close to $23 trillion. The pundits on Wall Street are hanging on the February jobs report. Most don’t even have an awareness of the individual state employment problems. They are willing to rely on government figures to dictate the direction of their investment dollars. Schmucks could never be barred from Wall Street. Broad and Wall would become a ghost town.

Talking about the employment report, let’s say that 140,000 net new jobs were created in February. They weren’t, but let’s say they were. If the nation’s workforce expands by 140,000+ per month, then creating 140,000 jobs does not produce a change in the workforce. In fact, if those discouraged workers smell that hiring has picked up, they could come out of the woodwork and begin to apply for jobs, thus making the unemployment rate shoot up. Therefore, Bush is in a bad spot. If hiring does not improve, he’s in duck soup. If it does pick up, so will the unemployment rate. All the money in his re-election coffers won’t change that problem.

David Kay had an interview with the Guardian and stated it was time for Bush “to come clean with the American people” about WMD. He observed “when you don’t say you got it wrong, it leads to the general belief that you manipulated the intelligence and so you did it for some other purpose.” Kay stated he now believes any weapons Iraq did possess were destroyed by 1998. In addition, Resolution 1441 was the UN resolution used by the U.S. and the UK to justify the war in Iraq. Attorney General Lord Goldsmith’s advice conceded 1441 did not automatically authorize war.

Vincente Fox will visit President Bush’s Crawford ranch this weekend. They will announce Mexicans with visas will be allowed briefly to visit border areas without the checks that are part of a new border security program. Mexicans with routine border crossing cards would use them for visits that last no longer than 72 hours and require travel of no more than 25 miles into the U.S. In return, Mexico has lifted its ban on U.S. deboned meat from cows under 30 months of age into that country. Next to Japan, Mexico is our largest export market for beef. It’s almost as good a deal as getting a second round draft choice for Terrell Owens.

Antioch is one of the fastest growing areas in California’s Contra Costa County. The Antioch school district is sending notices to 13 elementary school vice principals, 13 computer teachers, 9 music teachers, and 14 physical education instructors that they may be laid off prior to the 2004-2005 school year. Without across-the-board pay cuts and other employee concessions, the Antioch school district will become financially insolvent by the end of next school year. They have a $7 million budget deficit. This year, the district’s general fund budget is about $132 million.

Chinese Premier Wen Jiabao gave his annual state of the nation address today. He took a cue from Bush and intends to cut taxes and also increase subsidies in rural areas. He stated “solving the problems of agriculture, villages and farmers is one of the most crucial parts of our entire work.” In 2003 China’s GDP grew by 9.1% and he intends to reduce this year’s growth rate to 7%. What impact will that have on Intel and GM? China is presently the world’s sixth largest economy. Wen grasps the significance of the wealth gap between rich and poor and observed “rural incomes have grown too slowly; the task of increasing employment and social security is arduous; development in different regions of the country is not balanced; the income gap is too wide among some members of society; and pressure on resources and the environment is mounting.”

For the first time since the start of the Iraq war, New York crude oil rose above $37 a barrel. In the next few days, record gasoline prices will be found at our nation’s gas stations. Venezuela is one of our four biggest crude oil suppliers. With growing unrest in Venezuela, it is hoped their crude shipments to our shores will not be interrupted.

According to Cutting Edge Information, in the past five years the generic drug industry has grown from $21 billion to $40 billion.

On Sunday, SK Williams plans to permanently close its metal finishing and plating plant in Wauwatosa, Wisconsin and eliminate 38 jobs. This may not qualify for a mass layoff, but it will impact this community and the workers losing their jobs.

Revisiting today’s job report, we should not overlook the revision to January’s increase to 112,000. That number was fictitious, and the revision will simply compound the lunacy. It’s another WMD. They haven’t existed for years.

GM announced a few years back that 2004 would be the last model year for Oldsmobiles. They have already stopped making the Intrigue, Aurora, and Bravada SUV. That only leaves the Alero passenger car and the Silhouette minivan.

Justice Brandeis on privacy: “The right to be left alone. The most comprehensive of rights and the right most valued by civilian men.” Without credible evidence, it would be irrational to play the terror card with every American’s right to privacy.

Intel and GM have one thing in common-- an inventory buildup.

Thursday, March 04, 2004

3/4/04 Nanotubes

President Bush: “We’ve achieved great things over the past three years…a positive vision for creating jobs and promoting opportunity.”

Federal Reserve Beige Book: “Employment has been growing slowly in most Federal Reserve districts.”

New York City’s January unemployment rate rose to 8.4% from December’s 8.1%. Trump must have fired many workers.

The ISM February employment index slipped to 52.7 from 53.4 in January. The index of new orders for non-manufacturing companies fell to 60.3 in February from 64.9 in January. Order backlogs fell to 53 from 53.5. The inventory index fell to 49 from the prior month’s 49.5. The index of prices paid fell to 57.3 from January’s 59.7. It should be noted that the ISM index surveys U.S. service industries and this sector comprises approximately 85% of our GDP.

Costco will open 18 more stores in this fiscal year, down from a previous target of 25 stores.

Chick-fil-A, the Atlanta-based food chain, has begun the most aggressive expansion in company history. They plan on building more than 70 free-standing restaurants in 2004. Currently, the chain operates more than 1,130 restaurants in 37 states and Washington, DC. The company reported 2003 system-wide sales of more than $1.53 billion, an 11.8% rise over its 2002 figures.

The Georgia Department of Labor reported that, in January, the state experienced a loss of 62,800 jobs. Much of the rise in unemployment was due to cutbacks in the retail trade and other service-related industries. As we go from state to state, it is hard to see how the BLS reported an increase of 117,000 jobs in the U.S. in January. Adding up the numbers, I come out with a net loss of jobs. Then again, I count the actual numbers. I’ve made my rounds for February. I’ve gone from state to state. There are about 60 economists projecting an employment gain of 150,000+ jobs for our nation in February. If they count the jobs added by U.S. companies in China, then maybe the number can be reached. The last time I checked China had not merged with the U.S. Only their currency is pegged to ours.

The Business Roundtable’s March 2004 CEO Economic Outlook Survey shows that, on average, CEOs expect real GDP growth to be 3.7% in 2004. A total of 33% of CEOs are projecting their companies will add jobs this year. Forty five percent anticipate no change and twenty two percent foresee a decrease. In other words, a net ten percent are looking to hire more employees in 2004. That doesn’t bode well for those expecting big gains in employment.

The unemployment rate in the euro nations remained at 8.8% in January, the highest since January 2000.

Houston-based Carbon Nanotechnologies Inc. built its first pilot plant three years ago. The plant could produce one pound of nanotubes a year. Six pilot plants later, they are close to making 20 pounds a day. Later this year they will complete a unit capable of continuous operation, making 100 pounds a day. In late 2005, they hope to begin manufacturing at least 1,000 or more pounds per day. The company’s President and CEO stated “this isn’t going to be a $1 million-a-year business. It’s going to be a giant business.” Yesterday, they announced a patent license with NEC and signed a deal with Sumitomo to market its nanotubes in Japan. A carbon nanotube is 100 times stronger than steel, at a fraction of the weight, and has high heat resistance. Near-term applications would be for fuel cells and flat-panel displays. Longer-term applications include ultra-high-speed computing and high-performance materials. I am looking forward to a nanotube powering my laptop and my cell phone continuously for weeks at a time. Many challenges remain. Many scientists believe major advances in this field are at least five years away. I do not share that view. I would be more than pleased to step up to the plate and risk my capital by investing in Carbon Nanotechnologies Inc. The quality and quantity of nanotubes will change the polymer world. That’s good enough for me.

The Consumers Union auto testing center bought approximately 50 new vehicles for testing last year. They reported most of the vehicles were recalled.




Wednesday, March 03, 2004

3/3/04 The Winner Is. The Loser Is.

Toyoto is the landslide victor. They had the best-ever U.S. February sales of 146,783 vehicles, an increase of 17.7% over the year ago month. Their executive vice president and COO issued a word of caution, and stated “rising fuel prices may begin to impact the market if they continue their climb.” Their Lexus division also had record results for the month of February, and recorded sales up 34.1%. Meanwhile, inventories of unsold vehicles for GM, Ford, and Chrysler continue to mount. It should be noted that, according to Edmunds.com, the average difference between MSRP and net price for vehicles sold in January 2004 was $624 less than in July 2003. Incentives for GM, Ford, and Chrysler range from $4,200 to $4,400 per vehicle. The difference in management abilities between Toyota and the U.S. big three is wide, and getting larger all the time.

Warner Music Group announced it will lay off 20% of its workforce or 1,000 jobs. Unifi announced facility closures and downsizing, and reductions of salaried workforce at its headquarters in Greensboro, North Carolina. The company faces excess capacity in the U.S. textile market, rising material costs, and continued pressure from imports, stated its President and CEO. They plan on cutting the company workforce from 4,100 to 3,700. Included will be the closing of the Latamahaw, North Carolina location, which produces air-jet textured polyester products. There is some good news on the hiring front. Applied Materials intends to add 500 workers in 2004.

Bunge North America announced it will temporarily idle production at its soybean processing facility in Destrehan, La., in the early part of March. Its President and CEO stated “unfortunately, the smaller than anticipated U.S. soybean crop in 2003 coupled with rapid U.S. soybean exports have significantly decreased our margins at Destrehan.”

A study by Global Insight found that equipment investment expanded by $229 billion throughout the economy, creating 3-5 million jobs, and producing as much as $300 billion additional GDP annually between 1997 and 2002.

Since the discovery of mad cow disease in Washington in late December, 65 countries have shut their borders to our meat export sales. Gary Smith, a meat scientist from Colorado State University, reports that the USDA’s lead veterinarian compared testing every animal slaughtered to testing every man, woman, and child in the United States for prostate cancer. You can’t expect greater intelligence from a government worker. Most are walking around with a severe case of mental castration.

Speaking in New York yesterday, Greenspan tried to calm the currency markets about the dangers of a broad dollar decline. Someone might have mentioned to him that the euro has recently dropped to an 11-week low and that the yen is trading at a four-month low versus the dollar. When the head of the Fed is so far behind the curve, it gives the impression that he is a mental midget or saying it more gently, a loser. He didn’t help his cause by keeping rates at 1% for so long because, he argued, “this is a very special case that we are dealing with…clearly, we have kept the federal funds rate where it is because we have good reasons.” The markets were concerned with his remark that the 1% rates will eventually have to rise. Any idiot could arrive at that conclusion. Their real concern should be with the words “with good reasons.” The Fed is scared stiff. They have tried everything to stimulate the economy so that employment would rise. In 2002, there were 1,466,823 job-cut announcements. In 2003, the number declined 16% to 1,236,426. However, in December 2003, the number of job-cut announcements slightly exceeded those in the prior year period. Even though the number declined to 77,250 in February 2004, the monthly average remains above 100,000 over the last six months. Something is wrong with the economy when workers are left behind month after month. For those in manufacturing, it's four months away from four years. John Challenger pointed out yesterday that “we’ll see an occasional month here and there with strong jobs growth, but consistent job creation is unlikely.” Ford’s senior economist, Jarlath Costello, stated “the sluggish labor market undermined (consumer) sentiment somewhat in February.” It is well to remember that, the percentage of people in the Conference Board’s monthly consumer confidence survey who state jobs are “hard to get”, has remained near the highest level in a decade. The average monthly growth of our nation’s labor force is about 140,000. It’s no wonder that it is taking longer to find a job, any job.

Tuesday, March 02, 2004

3/2/04 There Are Still Troubled Times In Ohio

State officials recently released January’s unemployment rate for Ohio. It was the same 6.2% rate as in December. For three months before that, the jobless rate had dipped below the 6% mark. The Ohio Department of Job & Family Services indicated some Ohioans dropped out of the job market. Individuals who aren’t looking for work aren’t factored into the government’s unemployment calculations. As James Newton, chief economist advisor for the Commerce National Bank in Columbus, pointed out, “the discouraged worker effect can make the jobless rate look better than it is. It makes you feel kind of warm and fuzzy for about half a second, then you notice things aren’t that great.” In Ohio, the unemployment rate increased in December largely because there were more holiday job seekers than available jobs, stated Tom Hayes, director of Job & Family Services I Ohio. Some economists in Ohio suggest that, in 2004, businesses will buy equipment with an eye toward efficiency, allowing them to get more work from the same number of workers. Continuing productivity gains can offset the need to hire more workers.

President Bush: “All the signs in our economy…are very strong. And that’s positive for somebody who might be wondering about whether he or she is going to find a job.” Yesterday, Gateway Computer stated it will reduce its workforce to “mid-5,000” from the present 7,400.

North Carolina’s annual unemployment rate was 6.5%, down from 6.7% in 2002, according to the BLS. Only nine states and the District of Columbia had higher unemployment rates. It has been suggested that North Carolina has many discouraged workers.

U.S. manufacturers have experienced 44 straight months of layoffs. The sector has shed almost 3 million jobs since mid-2000. Job cuts are not confined to manufacturing. Guardian Life Insurance, for example, began outsourcing IT to India in March 2001, and now sees annual savings of $12.5 million. According to E-Business Strategies, in general, a company can save at least 50% in operational expenses by moving call-center functions to countries where wages and turnover are lower. Even start-up and venture-capital backed companies are looking at offshore alternatives. John Challenger believes “the cost savings and efficiency gains achieved through outsourcing will in fact free up resources that can be used for innovation and to expand other areas of business, thus creating new opportunities and jobs in America.”

Bush administration officials have projected that the economy would produce 2.6 million jobs this year. The Philadelphia Fed’s survey indicated that private sector economists have a more modest prediction of about 1.1 million new payroll jobs this year. More to the point, however, might be a breakdown of what those new jobs are like. Are they minimum wage, are they full-time, are they hourly, and what will the average income level be from these new jobs? I study investment in capacity expansion and not just investment in new equipment to boost productivity. With capacity utilization remaining around 76%, there is little need to expand or build new plants. When Wal-Mart opens a new store, they hire more people. They open more stores than any other company in the U.S., and that’s why they are the largest private sector employer by a wide margin. When plants are built in China, employees are hired overseas. I don’t see new plants being constructed in Ohio.

The ISM’s latest new orders index declined to 66.4 from 71.1 in January. The production index fell to 63.9 from 71.1. The prices paid index jumped to 81.5 from the prior month’s 75.5.

In the San Francisco Bay Area unleaded gasoline is $2.26 per gallon at the local stations. Do you think that price will cut into consumer spending in other areas, such as, dining out? After adjusting for inflation, the rise in the nation’s consumer spending was 0.1% in January.

Yesterday, Houston’s Mayor White stated his city’s pension funding shortfall may be closer to $1.5 billion over 18 years and not $1 billion as earlier estimated. The city of Houston may have to issue bonds just to cover the rapidly escalating pension costs.

Government subsidized health insurance for the poor covered 42.4 million people in 2003. Medicaid enrollment rose by 1.6 million people or 3.9% last year, according to the Centers for Medicare and Medicaid Services. States pay 39% of Medicaid costs and the federal government 61%.

The savings rate increased to 1.8% in January from the prior month’s 1.4%. This gain is modest and the present savings rate is modest by historical standards; however, one cannot expect the trend of consumption to turn to savings on a dime. It takes time for a trend change. The same is true for hiring. After 44 months of job losses, it’s unrealistic to assume significant improvement would occur in a matter of a few months.

Monday, March 01, 2004

3/1/04 A Position Of Responsibility

Today, for the first time, the EU imposed sanctions on the U.S. There will be an extra 5% duty on selected U.S. goods. There will be a 1% increase in the duties each month through 2005, or until the U.S. replaces the tax breaks ruled illegal by the WTO in 2002. It’s hard to imagine that differences could not have been settled within the last two years. In addition to the problems surrounding the foreign sales corporation provision, there are possible sanctions looming with respect to U.S. antidumping legislation, particularly the Byrd amendment that permits the retention of antidumping proceeds generated from foreign competitors. The overall trade disputes could be easily settled by removing double taxation on U.S. corporations. Companies pay taxes to foreign governments on earnings made in overseas countries through a foreign subsidiary, and the same corporations pay taxes to the U.S. government on earnings made in this nation. In addition, lowering the tax rate of 35% would alleviate the problem and lessen the need to look for tax loopholes. In the end the electorate is at fault. We have placed a do-nothing Congress in a position of power.

While we have trade sanctions imposed, Wal-Mart goes about its business. Today, they paid $300 million to Ahold and purchased Bompreco, a retail chain in northeastern Brazil with 118 units comprised of hypermarkets, supermarkets, and mini markets. This acquisition will meld nicely with the 13 Wal-Mart supercenters, 10 SAM’S CLUBS, and two Wal-Mart Todo Dias currently in Brazil. It gives Wal-Mart Brazil its first stores in the Northeast market. The company started operations in Brazil in May 1995, and they employ 7,000 in that country.

Later this month the Bush administration will put into effect their new overtime laws. This is the fifth time I have posted on this matter. The definition of professionals exempted is expanded to include not only workers with advanced degrees of postgraduate study, but those with special work experience or training, and all employees who “hold a position of responsibility.” Salaried employees who make $65,000 or more would be automatically exempt from overtime pay. Just as the government’s jobless numbers are vastly understated, so is Labor Secretary Chao’s contention that only 644,000 workers nationwide might lose rights to collect overtime for working more than 40 hours a week. It’s wrong for anyone to be deprived of overtime pay. Do you think the nation’s 2.7 million practical nurses, for example, often work more than 40 hours a week? How about fireman and policeman? The Senate and the House voted last year to bar immediate implementation of the new overtime rules, but that language was stripped from a spending bill when the Bush administration objected. I will say it again. Any American worker who votes for Bush’s re-election is undermining his or her own ability to earn overtime pay. When those impacted by the new rules don’t earn time and a half for over 40 hours of weekly work, let’s see how everyone likes it. Bend over pal. You are about to get screwed.

After 75 years of operation, Rockford, Ill.-based Amerock Corp. is closing its factory doors. All of the 450 workers will be cut from the company’s payroll.

Bharat (Barry) Sahgal, director of research at Brean Murray and recently ranked as the number one oil and gas production analyst, stated “demand for oil barrels in Asia is growing at double-digit percentage rates and will exceed that of the developed OECD countries in the near future. Two countries that will emerge in the next twenty five years as major new consumers are India and China whose economies are growing at 7% and 9% respectively.”

Sunday, February 29, 2004

2/29/04 A Leap Year Field Trip

Yesterday was a busy day, and today will be the same. We will visit San Jose, Houston, Chicago, and Kansas, Ohio, and Massachusetts. Since leap year only comes around only once every four years, I thought we should make the most of the time.

We’re heading over to visit with Larry Lisenbee, San Jose’s budget director. The city faces a $85 million deficit. Larry tells us that San Jose taxpayers’ share of retirement costs for police officers and firefighters will increase from $27.8 million annually to $75.6 million over the next three years, largely to compensate for poor performance of public retirement investments. Police and fire unions are demanding the city increase the maximum retirement pay from 85% to 90% of salaries upon retirement, an increase that adds $24 million in costs to San Jose next year. Larry stated “it’s really pretty simple, really. I can’t afford the budget now as it is. If there’s any retirement issues, the questions become what else do we throw overboard to balance it?” Layoffs and cuts to city services are already on the table. Larry goes on to tell us that “retirement costs have become, if you want to look at it this way, the third biggest city department behind police and fire. It is an enormous and growing cost to the city of San Jose.” Police officers and fire fighters eligible to retire after 30 years on the job now collect $77,202 to $125,013 in annual pension payments. With the higher rate the unions seek, officers could retire as early as age 50, with 90% of their pay for the rest of their lives.

Down the road our next visit is with Keitaro Matsuda, a senior economist at the Union Bank of California. He tells us that, from January 2003 to January 2004, Santa Clara County lost more than 25,000 jobs. In the prior 12 months the state’s annual revision of the job data indicated the county lost more than 60,000 jobs. Santa Clara County had 837,700 jobs in January 2004, the fewest since May 1995. Despite losing jobs in the past 12 months, the unemployment rate dropped from a revised 9.1% in January 2003 to 7% a year later, largely the result of workers leaving the labor force. In essence, Keitaro stated “the improvement in the unemployment rate really doesn’t mean anything at all positive.”

I thought it would be productive for us to visit with John Chambers, CEO of Cisco. His company has 18,000 employees in the Silicon Valley, and they make their corporate headquarters in San Jose. The stop is not out of our way. Much has been stated concerning the pickup in hi-tech capital spending and its positive impact on corporate earnings. Analysts have attempted to draw a straight line between increased capital spending, higher revenues, and job creation. Let’s get John’s take on this subject. He stated “I think the jobs will come in waves, based upon the companies returning to profitability and business executives’ comfort level. I think all of us will probably see the majority of job growth over the next decade in smaller to midsize companies in this country. Large companies as well, they’re going to wait until they see their own business do better. And let’s be very, very open. It’s been largely in the last quarter. As business improves I personally think they’ll spend first on productivity and capital and then on hiring. So if you look at it, it’s progressing in the logical sequence. Business is improving, they’re starting to spend on capital although not at the pace we’d like to see, and then after that, hiring should occur. Your danger is this is slower than traditionally has occurred in other economic recoveries, for a combination of reasons.” John tells us Cisco will hire when productivity goals are met. In the downturn, revenue per Cisco employee was $480,000. The goal is for productivity to reach $700,000 per employee. John stated “once we get to 700,000, then we would look to hire.” Cisco is not at that point.

Our next stop is with Houston’s Mayor Bill White. He assumed a major problem. The city pension fund faces a $995 million shortfall because projected payments to employees are $995 million higher than projected assets. The number is a moving target depending on changes in the stock market, employee pay, and other factors. Employees who work 25 years and four months will receive 90% of their annual salary in retirement, plus Social Security payments that will put them well over 100% of their salary. After they die, their spouses will continue to receive the full pension until their deaths. Mayor White stated the city could not afford to keep the current pension system and would be forced to make changes. New employees might get a “defined contribution” such as a 401(K) plan rather than a “defined benefit” like a standard pension, White stated.

Before going to Ohio, we’re stopping in Wichita to meet with John Stewart, CEO of Creekstone Farms, a Kansas meatpacker. He tells us that his company exports 25% of its beef products. His Asian customers have provided John with assurances that they will accept Creekstone’s products if the company tests every carcass. Creekstone has told the USDA it will voluntarily perform 100% testing, and asked to establish a laboratory for BSE testing at its plant. The company has been losing about $80,000 a day since the export ban was placed into effect. John stated Creekstone Farms will soon be forced to layoff between 10 and 15% of its workforce at its Arkansas City slaughter plant, where it employs 750 works. Creekstone Farms is the first U.S. meatpacker to agree to 100% voluntary testing of slaughtered animals. The company kills about 1,000 cattle daily and markets the beef under its Creekstone Farms Premium Black Angus beef brand. Stewart stated “ we understand that our competitors are not particularly happy about this. “The testing will add about $20 to the cost of processing each animal, a cost that will be passed on to customers.

On Tuesday, across the 10 states that hold primaries, 900,000 jobs have been cut since 2001. In three of those states, Ohio, New York, and California, the most jobs have been lost. In Ohio, thousands of manufacturing jobs evaporated. The loss of jobs is the central issue in the Ohio primaries and in the November election. No Republican has ever won a presidential election without carrying Ohio. In the last election Bush won by three percentage points over Al Gore. In listening to the folks on Main Street, we hear a refrain. The people are very cautious. Many have friends who have been unemployed for two years, and they still can’t find a job. They see work going overseas. One former manufacturing manager who lost the job in a corporate restructuring stated “if you look at the core of what he (Bush) has done, he’s totally focused on the companies and not the people.”

Our final stop is in Massachusetts. This state lost 53,000 jobs last year, 10,000 more than previously estimated. The state ended the year with an average jobless rate of 5.8%, up from 5.3% in 2002 and the highest since 1994. Originally it was reported that the state had added a net 1,200 jobs in the first six months of 2003. On Friday, the state Division of Unemployment Assistance reported Massachusetts lost more than 33,000 jobs. In January 2004 the state lost 5,500 jobs, the ninth consecutive month that state employers have cut payrolls. At the same time, the state jobless rate declined to 5.6%. Isn’t that a farce? People leave the labor force and the unemployment rate drops. Alan Clayton-Matthews, an economist and professor of public policy at the University of Massachusetts at Boston, remarked “this recovery has been so disappointing and exceptionally bad in terms of jobs, I’m not willing to say that this represents a job turnaround.” One buyer and purchasing agent who was laid off by a local technology company in November stated “companies are still very cautious about hiring, and anyone who is hiring, is hiring temps. I’ve been through a lot of cycles of ups and downs, but this has been a worse down.”

Over this weekend we have crisscrossed our country. In the coming weeks we shall visit other states and other cities. As they say, there are a million stories in the naked city. We will try to cover some of them. I hope you are getting a clearer picture of life on Main Street. I hope a greater understanding will lead to more successful investing and to enhanced appreciation of some of the problems facing our nation. If the politicians running for elected office avoid “misspeaking” and focus on jobs as the number one priority of the voters, they may stand an improved chance of getting elected. If a candidate paints a picture that does not exist, the voters will recognize that this individual is full of shit.