9/5/04 Herbert Hoover Is Bush's Ghost Speech WriterAugust 11, 1928 in Hoover's speech accepting the Republican nomination: "Unemployment in the sense of distress is widely disappearing...We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing among us."October 28, 1928 Herbert Hoover's Campaign Address in Madison Square Garden: "Prosperity is no idle expression. It is a job for every worker, it is the safety and safeguard of every business and every home. A continuation of the Republican party is fundamentally necessary to the future advancement of this progress and to the further building of this prosperity."During Hoover's prseidency, there were productivity gains but these were not accompanied by proportionate gains in purchasing power. Wage gains did not keep up with gains in profits. Income inequality grew wider. As the rich got richer, speculation followed. Many paycheck-to-paycheck workers purchased goods on the installment plan, and their buying exceeded their ability to pay in many cases. A downturn developed in the auto industry, durable goods, and construction. The bubble finally burst.If you lived in Ohio, and your state had lost 230,000 jobs since Bush was elected, would you vote for him?If the population is growing at the rate of 220,000 per month, and 144,000 jobs supposedly are created in August, by definition the labor participation rate will fall.It would be wise for investors to consider the circumstances at Intel, and to go to school, as it were, on other sectors in the economy. My main point is focusing on the ability of companies to manage excess production capacity with the knowledge that profit margins could be hurt. In the case of Intel we're talking a couple of percentage points. We should take a closer look, for example, at the domestic auto industry. Production cutbacks have been announced by GM and Ford. Are more to follow? What will the impact of less production combined with average vehicle incentives of $4,200 mean to profit margins? What other industries are dependent on auto production? How will their margins be impacted? If back-to-school sales are disappointing, and wages and benefits continue to trail inflation, will upcoming holiday sales also be below expectations? We are an economy dependent on the consumer. Where will the money come from to buy large ticket items, such as, laptop computers?Instead of driving 60mph on the investor highway, one might consider downshifting in order to be more in synch with the economic slowdown. Jamming on the brakes is quite unnecessary. Anticipate the caution lights ahead. Plenty of companies will be providing warnings on quarterly revenues and earnings. If the great ones like Intel and Wal-Mart are running into headwinds, how about the also-rans? There will always be plenty of money managers who will tell you that this time it is different. They will tell you the poorhouse is a thing of the past. As long as the spectre of margin calls exists, nothing has changed. We only need to fear complacency and the words of the politicians born with silver spoons in their mouths and their heads up their butts.Linda Davies: "The job of a derivatives trader is like that of a bookie once removed, taking bets on people making bets."Walter Dolde: "A common misconception about risk management in some quarters is that the use of derivative securities constitutes speculation- that is, the addition of financial risk to the business risk of a firm's operations. Some think that condom use increases risk."Since 1994, federal law has required government departments to make financial audits...the Defense Department has never complied with this requirement. Its records are in such disarray that they cannot be audited. If government officials are violating federal law, then bring a court action against them.Henry Hazlitt: "The 'private sector' of the economy is, in fact, the voluntary sector, and... the 'public sector' is, in fact, the coercive sector."September 4, 2004 Bush speaking at the Erie Veterans Memorial Stadium: "Over the next four years we'll continue to work hard to reform systems that need to be changed so that American people can realize their dreams. We'll spread ownership and opportunity to every corner of this country." Herbert Hoover could not have said it better.Alexander Hamilton: "The violent destruction of life and prosperity incident to war, the continual effort and alarm attendant on a state of continual danger, will compel nations the most attached to liberty to resort for repose and security to institutions which have a tendency to destroy their civil and political rights. To be more safe, they at length become willing to run the risk of being less free. " That is a risk I am not willing to take, and certainly not for another four years.

9/4/04 Failed Policies Of The Present

Before proceeding with an analysis describing where I went wrong with my payrolls projection, I would like to indulge readers of this blog with some observations. The Labor Dept states, that since January, industries in the lowest 20% for annual salaries have created 477,000 jobs and industries in the top 20% for pay have exhibited zero job growth. In addition, those laid off and then finding another job, report that 57% are earning less than before. Between 2002 and 2012, the Labor Dept expects the economy to create more than 7.5 million jobs; however, almost 6 million of those new jobs will be low-wage jobs. Just 38% of low-wage workers receive health insurance from their employer compared to 69% of higher-wage workers. Bush promised that his economic plan would create 5.5 million new jobs by the end of 2004. He will wind up 4 million jobs short of that figure. Voters in November need to hold this country’s chief executive accountable. Bush offers promises but his execution is a miserable failure. An example of the job market and employment figures is the Bank of America. They laid off 1,365 former FleetBoston workers in New England and hired 600 part-time workers. The result is a reported net loss of 765 jobs. It’s important to distinguish between full-time and part-time as well as low-paying and higher-paying jobs. Yesterday I mentioned Intel and their lowered forecast for this quarter. Under the radar screen, Microsoft cut 93 positions in their windows server area. The jobs are not being outsourced and are not being replaced on their campus in India. In addition, the company is not hiring contractors but rather only individuals for project positions which last a month to six weeks. Cypress Semiconductor lowered its third quarter guidance due to ongoing softness in customer orders and the specific slowdown in the networking and wireless infrastructure business. I should mention that Florida is the second largest market behind California for new cars. Starting in January, for 39 million Americans, Medicare premiums will increase over 17%.

The Arizona Republic’s Robert Robb: “The Medicare prescription drug plan he signed made its long-term finances less secure, not more. And Medicare reform didn’t make it into Bush’s second-term agenda... Bush says his reforms move towards empowering people and giving them more choices... but will Bush truly fight for these reforms... on this front there’s reason to doubt his resolve.”

Roger Altman: “Over the past three months, the percentage of Americans who are working has fallen.” On that note, the Household Survey, which Bush heralded after the July jobs report, indicated a drop of 152,000 in the labor force in August.

The ISM Non-Mfg index in August fell to 58.2% from 64.8% in July. New orders fell to 58.6% from 66.4%, the lowest since June 2003.

The Census Bureau estimates that the U.S. population is growing this year by a rate of about 220,000 per month.

American Greetings management stated they would either close their Plus Mark plant in Franklin, Tenn. or in Greeneville. Plus Mark is a major manufacturer of gift wrap and specialty printing products. The Greeneville plant employs 850 and Franklin 450. Anthem Blue Cross & Blue Shield of Maine is eliminating 70 positions. Philips Medical is cutting 150 jobs at its Bothell, WA site.

How did I underestimate 95,000 jobs being created in August? It was part carelessness. I forgot that 28,000 auto workers returned from annual retooling shutdowns in July. In other manufacturing areas there was little change, as I had previously mentioned, and factory hours and overtime were flat. I had mistakenly thought about 12,000 jobs would be lost due to Hurricane Charley. That was a foolish mistake. The hurricane hit late in the reporting period for most of the survey's respondents. For the storm to have affected payroll employment, people would have had to have been off work for an entire pay period and not paid for the time missed. That leaves 55,000 unexplained jobs. I did not expect 20,000 additions in social assistance. That area had not been growing recently. I ignored rental and leasing and that was 7,000. I underestimated the financial positions by 12,000 hires, and figured that there would not be gains in temp work but 10,000 jobs were created there. I had figured on a pick up of 36,000 healthcare positions and the final count was 42,000.
Importantly, as I had thought, the average work week remained unchanged at 33.8 hours, average hourly earnings only rose by 5 cents, and the labor force participation edged down over the month and the rate has been at or near 66% since late 2003. Finally, there were 534,000 discouraged workers.

Since Bush gave the order to invade Iraq, 976 U.S. troops have been killed in that country while another 6,916 have been wounded, according to the Pentagon.

Thomas Sowell: "Many of the 'abuses' of today were the 'reforms' of yesterday."

According to the monthly Sypherion Employment Report, 48% of respondents believe that fewer jobs are available and 37% believe the economy is getting weaker.

A monthly survey of business leaders by the Santa Clara University Business Index found a sharp drop in business confidence in the Silicon Valley in August and observed "their pessimism about the future casts doubt in the idea that the slowdown is necessarily temporary."

9/3/04 Down For The Count

This is being written prior to the release of the non-farm payrolls report. Few know that I have owned a recruiting company, and that experience might give me a small leg up when analyzing employment numbers and projections. Early Thursday morning the Monster August Employment Index was posted on the Monster website. Traders jumped on that number and stocks were off to the races while bond prices tanked. Their August index rose to 145 from July's 134. In July there had been a slight dip. This index does not have a long history, but that doesn't prevent hedge funds from making a straight line between the index and non-farm payroll gains. In other words, the index cemented the forecast for job gains of at least 150,000 in August. Unfortunately, many have short memories. This same index increased from May's 128 to June's 136, and non-farm payrolls were quite disappointing in June. I know a lot of folks hope my projection is way wrong. I don't believe the number will be negative, but I do believe the gains will be less than 50,000.

Yesterday there was a great deal of interesting information. Target's same-store sales for August rose 1.8%. Wal-Mart reduced their estimate for Sept. comp sales to a range of 2 to 4%. With Frances on the way that estimate could be suspect. Intel reduced its revenue projections for the quarter as well as their profit margins and the stock dropped to a 15-month low.

Initial first-time jobless claims in the week ending August 28 rose 19,000 to 362,000. Hurricane Charley accounted for a "little less than half" of the increase, according to the Labor Dept.

According to the BLS, real hourly compensation fell 1% in the second quarter of 2004, after falling 0.8% in the first quarter of this year. The second quarter decline was the largest since hourly compensation fell 1.6% in the second quarter of 2000. I don't envision improvement for this third quarter. In my view, real hourly compensation declines will determine this election.

U.S. second quarter productivity was revised downward from 2.9% to 2.5%.

PaylessShoeSource will sell as well as close some stores and that will cause layoffs. Continental Air will cut about 425 management and clerical jobs. Ford may close or mothball production at its Land Rover plant and 8,000 wrkers will be impacted.

According to the Census Bureau, property taxes have had a 5.7% annual increase for each of the last five years.

Ex civilian aircraft, July factory orders fell 0.4%

Unit labor costs were revised downward to 1.8% from 1.9%.

In sum, except for special cases, I see no reason for companies to hire permanent workers. Top line growth is suspect and clearly grinding to a halt. Productivity gains are on the decline. Benefit costs are rising and create caution in the hiring process. The Fed talks a good growth game but the picture I see has a far different look. With the plant closings on the rise, I see a very poor employment number for September- worse than August's. Hurricane Frances will only add to the misery index. I pray for the well-being of those in the area, and that includes my Dad. I hope this holiday weekend is an enjoyable one for all and a safe one.

9/1/04 The Bench

Haeger Industries is closing its Illinois pottery plant and laying off 60 workers. That qualifies for a mass layoff (the definition is 50 or more workers losing their jobs by a single event.) If you are a daily reader of this blog, then you know that plant closings have increased significantly over the last 60 days. According to the BLS, in July 2004 employers took 2,094 mass layoff actions and the number involved totaled 253,929 worker Both the number of events and the initial claims were higher than a year ago and also higher than any July since July 2001. This is not a misprint.

Since Bush took office, the S&P 500 is down about 18% and the Nasdaq about 33%. We have gone from gov't surpluses to twin tower deficits looming over our economy. Real incomes, adjusted for inflation, for Americans as a whole have declined. Consumer debt is climbing. Bankruptcies have risen. There has been a significant number of job losses over the last four years. No sitting president can make that statement other than Hoover. Most new jobs have been low-paying. There are several million discouraged workers. There are millions of part-time workers who cannot find full-time employment. If you consider this mission accomplished, then your thinking processes are 180 degrees from accomplished.

Should you go to North Beach at Point Reyes National Seashore about an hour and fifteen minutes outside of San Francisco, you would notice plenty nof warning signs. This is not a safe place to swim. The undertow and the currents are not for mere mortals. The Fed might take notice. They have ignored the warning signs and are knee-deep in potential danger. They have ignored the slowing economy mixed with muted inflation signals. Rather, they are smitten with the on-going effort of raising short-term interest rates. Only the Fed believes they know how to equate the "natural" rate of interest with the money rate. Meanwhile, the market goes about reading the data, and consequently, 10-year treasuries have recently declined 50 basis points to a 4.13% yield, a five month low. When a dozen economists think they know more than the market, then it's time to bring in a fresh bunch off the bench. Greenspan and his cronies are spent and need a long rest. The August payrolls report will push them over the cliff- only to hang by their useless rhetoric.

The Conference Board's Delos Smith: "If you're insecure in your job, you're not going to think things are good."

Lynn Franco, director of the Conference Board's Consumer Research Center: "Until the job market and pace of hiring picks up, the cautious attitude will prevail. The slowdown in job growth has curbed consumers' confidence."

The Chicago Purchasing Management Index fell to 57.3 in August from 64.7 in July. New orders fell to 58 from 68.7. Supplier delivery times index stood at 55.2% compared with July's 64%.

U.S. mutual fund assets fell 2% to $7.4 trillion in July.

The war on terror and the invasion of Iraq are not cut from the same cloth.

On Monday, on the NBC Today show, Bush stated about the war on terror "I don't think we can win it." On Tuesday, speaking to the American Legion, Bush stated about the war on terror " one that we will win." What a difference a day makes.

Effective October 1, State Farm will lower California auto insurance rates an average of 7.6%.

Coal consumption still accounts for 67% of China's current energy mix. They plan on importing 880 million barrels of oil this year. Oil prices account for less than 2% of their CPI, which mainly is driven by food prices.

California's July construction employment was down 3,400 from June. Statewide construction was down 26.2% from June, according to the Construction Industry Research Board.

Edward Langley: "What this country needs is more unemployed politicians."

Slappy White: "The trouble with unemployment is that the minute you wake up in the morning you're on the job."

According to the Financial Times, United Airlines is looking to cut 6,000 jobs.

8/31/04 No Relation To Ricky Ricardo

Over the weekend we visited with Wicksell's theories. Today,we go back even further in time to around 1800 to David Ricardo. Most folks think of Warren Buffett as an example of a superb investor, and that he has been for 40 years. Long before Buffett came Ricardo. At the age of 14, his father employed him full-time at the London Stock Exchange. At the age of 21 he went out on his own. In 20 years he made great sums in bonds, currencies, commodities, and arbitrage. He retired at 41, and only then did he become an economist. One of his theories should be kept in mind- he showed that a rise in wages did not lead to higher prices. Rather, higher wages lowered profits. In another theory, he argued that relative "natural" prices of commodities are determined by the relative hours of labor expended in their production. Ricardo believed that value was independent of distribution, and he adhered to his "labor-embodied" theory. He envisioned the introduction of labor-saving machinery, and considered that there could be a resulting pool of unemployed workers accompanied by downward pressure on wages- all leading to the general misery of the working classes. In addition, in foreign trade, if goods are imported at a lower price than they cost domestically, the result could lead to the lowering of the real wage and a rise in profits.

Global oil consumption is 82 million barrels a day and growing quickly in China, India, and other regions. According to the Bureau of Economic Analysis, oil-related costs shaved three-tenths of a percentage point off GDP growth in the second quarter. So far in July and August, oil prices have reached higher levels than in the second quarter.

Mitsubishi Motors America is looking at more layoffs in the U.S. in early September as sales have plunged.

Interstate Bakeries has also run into difficulty. With 58 bakeries, such as, Wonder Bread, Hostess, and Drake's, over 1,000 thrift outlets, and 34,000 employees, you can expect more plant closings and more layoffs.

Ford added new incentives and cut-rate financing.

According to Weiss Ratings, HMOs earned $10.2 billion in 2003 and Blue Shield plans reported a 63% jump in earnings. Michael Moore's next project is on HMOs.

A key advisor to Bush maintains that the election will be won by generating higher turnout from core supporters rather than appealing to the middle. In my view, Bush wouldn't recognize a paycheck-to-paycheck American. A problem with Bush is that he can't be compassionate even with taxpayer money.

8/30/04 Caught In The Middle

Do you know what that means? In August 2001, average weekly earnings were $490.36 and average hourly earnings, seasonally adjusted, were $14.38. When reported this Friday, three years later, average weekly earnings will be about $529.10 and average hourly earnings about $15.46. Naturally, those numbers have not been adjusted for inflation. In other words, under Bush, income-wise the average person's lot has gone backwards. You are worse off than you were in 2001. To put an exclamation on this point, for the first seven months of 2004, real disposable incomes increased just 0.9%. Our twin tower deficits rise daily to new heights while incomes remain behind the eight ball. In sum, the vast majority of Americans have been screwed under Bush. If you vote for him, you are a masochist.

It's comical to read the projections made by economists for August 2004 job growth. August has been a pretty dismal month for jobs under Bush. In August 2001, nonfarm payrolls declined 113,000. In August 2002, they increased by 39,000. Importantly, last August 2003, non-farm payrolls were significantly weaker than expected. They registered the largest decline since March 2003. Instead of the expected gain of 20,000 jobs, there was a decline of 93,000 payrolls. Now, economists estimate that jobs will increase from 150,000 to 185,000 for this August. Keep in mind that the economy has been slowing for the past three months and job generation has been disappointing. Of course, we can count on health care for gains and maybe with declining interest rates construction will surprise on the upside. State education is a possible wild card. Of course, the gov't can always hire even though they are bumping the top of the debt limit. Unfortunately, the important trends will continue. Most new jobs are low paying and overall benefits have been getting reduced. The last time I looked there were a growing number of plants closing. Is there any reason to believe that this August will be different from the prior three Augusts under Bush?

As head of the 1982 presidential commission on "fixing the baby boom," Greenspan made recommendations and they were enacted into law in 1983. A payroll tax increase was to provide solvency to Social Security through 2042. That tax increase has generated about $1.5 trillion over the past 20 years. Unfortunately, over those 20 years, presidents have looted that $1.5 trillion to pay for their own agendas, such as, the most recent tax cuts and tax credits. Baby boomers prepaid for the cost of their "retirement." Now Greenspan wants to cut the benefits which have been prepaid and which he recommended into law in 1983. This is immoral at the least. He should resign.

According to Rep. Earl Pomeroy, 40% of National Guard and Reserve soldiers between the ages of 19 and 35 do not have health insurance.

8/29/04 Beatable

One Bush official: "If Bush hadn't invaded Iraq, he'd be unbeatable." If the Queen had balls, she'd be King.

Britney Spears: "Honestly, I think we should just trust our president in every decision that he makes and we should just support that." This must be a blonde joke. Who would believe anyone who "misspeaks" to his fellow Americans?

I wonder whether the GOP convention will focus on the growing number of plant closings around our country. Rock-Tenn announced they would close their St. Paul, Minn. carton plant and about 170 people will lose their jobs. Circle S Foods will close its turkey processing plant in Wallace, NC and lay off 400 workers. Chelsea Industries will close its Cadiz, Ky plant. Over 50 employees will lose their jobs. They had been making seats for Mitsubishi, and the latter is having tough times.

According to the Energy Information Administration, the average cost for a gallon of heating oil in N.J. is $1.52, up from $1.36 one year earlier. The agency predicts that heating oil will average $1.54 per gallon nationally this coming winter compared with $1.37 last winter.