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

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.

2/7/04 Let’s Talk

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2/6/04 The Risk Factor

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2/4/04 MV= PT

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

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

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

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

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

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

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

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

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

2/3/04 Ricin And The Bush Budget

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

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

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

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

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

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

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

2/2/04 The Uninsured

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

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

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

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

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

2/1/04 Doing The Supplemental

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

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

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

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

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

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

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

1/31/04 A Day To Remember

The day started off poorly. Western Washington had strong winds and heavy rains. There were many crashes on the roadways and one early morning fatality. At 7am heavy winds threw a tractor trailer almost off of the Deception Pass Bridge, a very high span between Oak Harbor and Anacortes. The bridge was closed for six hours. In the afternoon, just north of McChord Air Force Base, there was a 55-vehicle pileup on southbound Interstate 5. In the Eastern portion of the country, thirty miles north of Syracuse, New York, almost six feet of snow had accumulated over a several day period. I’m not a wimp, but I decided indoors would be a better place.

I should have braved the weather outside. There was Bush stating “the economy is strong and getting stronger.” In the third quarter the economy grew at an 8.2% rate. In the fourth quarter the GDP growth rate was 4%, and weaker than the 4.8% pace anticipated by economists and other financial pundits. The main reason for the growth in the latest quarter was the acceleration in our exports. They rose 19% in the fourth quarter, and that was almost double the rate of the third quarter increase. In other words, the weaker dollar enhanced our ability to ship our products overseas. Rep. Pete Stark, D-California, remarked “people are saying, ‘show me the jobs.’” I can show you the loss of jobs. Ford announced the layoff of 1,000 workers at their Hazelwood plant near St. Louis. The company makes Ford Explorers, Mercury Mountaineers, and Lincoln Aviators there. Pharmaceutical services company AmerisourceBergen will close its Louisville distribution center as part of a consolidation. About 90 people will be out of their jobs. Washington Mutual will layoff Jacksonville employees as a result of organizational changes. Because of a “national downshift” in the home refinancing market, the company will layoff a total of 3,000 employees nationwide. Maybe there was something in the water in Jacksonville. Winn-Dixie Stores is headquartered there. The company is going through some very difficult times, and intends to make $100 million in annual cost cuts. The CEO stated “there will be headcount reductions involved, and the specific details of that plan are still being assembled as we speak.” Winn-Dixie had once claimed a New York Stock Exchange record by increasing its dividend every year for 54 years, before holding the dividend steady in 198. It then cut the dividend sharply in 2001, and yesterday omitted the dividend. The company will not say when it will resume dividends. The company ranks 149 on the Fortune 500 list. The Tulalip Tribes laid off 240 Tulalip Casino employees, mostly card dealers and food-service workers. The casino, located in Washington’s Snohomish County, cost $78 million and was opened in June 2003. About 1,400 employees remain in the casino’s workforce. Ishoni Networks, a start-up with offices in the Silicon Valley and Bangalore, India filed for bankruptcy. The company was formed in 1998, and they raised $65 million in three rounds of funding from Draper Fisher, Bessemer, Infinity, Credit Suisse First Boston, and others. In early 2002, Philips Electronics acquired a 51% stake in Ishoni for $25 million. At one time the company employed 150 engineers in Bangalore. Ishoni was building a single chip product that combined voice, data, and security services to help customer premises equipment (CPE) makers quickly build integrated access devices and broadband communication gateway products.

In discussing the economy I have a tremendous advantage. I am not an economist. I do not have an MBA. I do not have a doctorate degree. I had to work my way through college. I have not worked for anyone else since my early twenties. In other words, I don’t have to kiss anyone’s ass for a paycheck. Additionally, I don’t have to please anyone and buy their votes. Thanks God, I am not running for elected office. I can tell you that, in the last three months of 2003, the personal consumption expenditures price index (PCE), a measure of inflation, rose at a 0.6% annual pace, down from 1.8% in the third quarter. This is important. In fact, according to the Commerce Department, the core PCE had the smallest rise in 41 years. The Fed will tell you that they are no longer worried about lower rates of inflation or rates trending towards deflation. They are either stupid or not telling the truth or possibly both. I think it’s the last alternative. In fact, I don’t think they have a clue. So you are probably thinking what makes me so sure of myself. The answer is I can read and I can think for myself. I have been stating that consumer spending topped out in September. From October through December, consumer spending, which accounts for over two-thirds of our GDP, grew at a 2.6% annual rate, and that is a full percentage point below the average per quarterly pace in the past two decades and represents a 62% decline from the prior three months. If anyone believes this decline in consumer spending is an aberration, they will be proven wrong. Workers’ wages and benefits grew by 0.7% in the final quarter of 2003, the smallest quarterly increase in a year and weaker than the rise anticipated by economists. In the month that is ending today, about 375,000 people will use up their state unemployment benefits. Most states provide about 26 weeks of benefits. Congress has refused to approve another extension of federal unemployment benefits for people who exhaust their state aid. Another extension would cost the government under $1 billion a month from the unemployment insurance trust fund, which contains about $20 billion. Bush must be on Mars. Using data supplied by the Labor Department, the Center on Budget and Policy Priorities stated “in no other January-June period on record have so many unemployed workers exhausted their regular benefits without qualifying for additional weeks of unemployed assistance.” Nearly 2 million people are expected to exhaust their state unemployment benefits in the first half of the year without access to more government aid or a regular paycheck, according to the Center’s study. Kindly absorb the following very closely. The 375,000 people who lost their unemployment benefits this month will be dropped from the unemployment rolls. The Labor Department will release the employment numbers on Friday, Feb. 6. Without adding one job, the unemployment number automatically gets reduced by 375,000. When reading the Labor Department release, do not be a fool. Think clearly. On most days in January one or more plants were closed. On almost every day there were layoffs. In addition, watch carefully for “adjustments” made by the Labor Department. I have discussed them recently. Those “adjustments” could add another 100,000 or reduce the unemployment numbers by that amount. Countering all of this will be a reduced labor force. Politicians will state less workers are required because of increased productivity. That may be part of the answer. The other part is the last vestige of strength left in this economy is our export side of the equation. Our export growth topped out in December. Demand from the euro countries is weakening as their economies continue to soften, and China’s growth is beginning to taper off.

Missouri is called the Show Me state. Except in the case of Adlai Stevenson, Missouri has voted for the winning candidate in the presidential election in the last 100 years. George O’Connor, a political scientist at Southwest Missouri State University, stated “jobs is the issue that strikes right at the heart.” If this is the number one issue for Missouri voters, and that’s what the polls indicate, then the job loss years of the Bush presidency make him an endangered species.

California Attorney General Bill Lockyear will be filing a lawsuit in federal court on Monday against Safeway, Albertsons and Kroger. It states that those three supermarkets have engaged in an “unlawful combination and conspiracy” because of a mutual aid agreement the supermarkets crafted ahead of the strike, according to a copy of the complaint. Lockyear stated “the grocers’ agreement to share costs and revenue hurts consumers by discouraging competitive pricing.” About 70,000 supermarket workers in Southern California are affected by the labor battle that has taken place since October of last year.

1/30/04 Truth Or Consequences

Last night at a Greenwich, CT fundraiser Bush stated “we are bringing much needed spending discipline to Washington DC.” His new budget projects the Medicare overhaul he just signed will be one-third more costly than estimated, and this year’s federal deficit is projected at $520 billion. The CBO had estimated earlier in the week that the deficit would be $477 billion. The White House estimates the cost of creating prescription drug benefits and revamping the Medicare program at $534 billion for the decade that ends in 2013. That number will appear in the 2005 budget Bush proposes this coming Monday. Last night at the Greenwich dinner Bush stated “this economy in America is strong, and it is getting stronger.” Motorola employed 150,000 people in 2000. At the end of 2003 the company employed 88,000. That number will shrink again. They are closing a plant in Boynton Beach, Florida where cell phones are designed, and 375 workers will lose their jobs. At the Greenwich dinner last night Bush stated “people are more likely to find a job.” Masonite Corp. announced plans to close its Danville, Va. pressboard manufacturing plant, leaving 172 employees without jobs. The company blamed the decision on a steep drop in demand for its products. The plant paid hourly workers an average of $14 per hour. At last evening’s dinner Bush stated “we’ve got a record of accomplishment.” Over 40% of New Hampshire taxpayers will receive less than $100 from the President’s tax cut in 2004. In addition, 48,000 families in New Hampshire were excluded from receiving the child tax credit because it was decided they were not deserving of it. Last night at the dinner Bush stated “we’ve added over a quarter million new jobs.” He failed to mention that close to 3 million jobs have been lost during his stay in the White House, and over 300,000 people gave up looking for a job in the month of December, 2003. This is the same Bush who stated “we found the weapons of mass destruction.” Reality can often emerge from the looking glass.

Washington Mutual officials related that the company is consolidating much of its back office operations to eliminate redundancies in its corporate structure and to counter the slowdown in the mortgage market. They plan to cut 98 jobs in Cobb County, Georgia.

Canada’s largest steel company, Stelco Inc., filed for bankruptcy yesterday and stated layoffs can be expected. They have a high cost structure and a dwindling cash position. They have 8,400 active workers at their two main steelmaking divisions, and may have to cut 1,500 workers from the payroll. In addition, they have 12,200 retirees and have a $1.3 billion pension obligation deficit.

The U.S. Citizenship and Immigration Services (USCIS) has announced that this year’s cap of 65,000 H1-B guest-worker visas is nearly two-thirds filled within the first quarter of the fiscal year, which began on October 1, 2003. Some 43,500 visas have either been approved or are ‘pending in the queue for adjudication.’ This means that U.S. embassies and consulates around the globe will not be able to issue H1-B visas after February or March, by which time the full quota would have been reached, until the new fiscal year 2005 begins in October 2004.

Yesterday Sears, Roebuck and Co. forecast weaker-than expected profit for 2004. At the same time, the company forecast 2004 same-store sales to show an increase in the low-single digits. Clearly, lowered profit projections and higher sales estimates do not jibe. When the year is over, I suspect the sales numbers will prove disappointing. Take away the significant stock repurchase plan, and an investor has little reason to smile. Even though the stock has dropped 12 points or so from its recent high, it is still double the price where I believed it represented a good risk reward. The company’s CEO reminded analysts yesterday that the company still must pay pension benefits to 115,000 retirees. That is a big hunk of change. Having sold its credit card operation to Citigroup in November, Sears will be totally dependent on customers walking into their stores and making purchases on a repeated basis. They have their work cut out for them. Wal-Mart has about 138 million customers walking through their stores each week. I would not want to be in Sears’ shoes nor would I want to be a stockholder at this price level.

The latest monthly report from the Conference Board showed an index measuring help-wanted advertising in U.S. newspapers fell slightly to 38 in December from 39 in November. In addition, the Federal Reserve Bank of Chicago stated its National Activity index declined in December, and the main reasons were a lack of hiring and slow manufacturing activity. The index in December dropped to +0.13 from November’s 0.68.

The Labor Department reported that the Employment Cost Index, which reflects what employers pay in wages, salaries, and benefits, rose 0.7% in the last quarter of 2003. It was the smallest cost increase in benefits and wages in a year and was less than expected. The bulk of the increase was tied to healthcare costs. Even though cost pressures for employees are modest, employers remain cautious about adding permanent staff members to their workforce. Meanwhile, the number of Americans collecting state unemployment benefits rose by 11,000 to 3.13 million in the week ending January 17.

1/29/04 Be Patient

Lao Tzu: “Trying to understand is like straining through muddy water. Be still and allow the mud to settle.”

Michael Prell, former chief of research at the Federal Reserve: “Chairman Greenspan does not make changes until he thinks there is good reason to do so.”

David Kay: “Reality turned out different from expectations.”

Let’s be patient. Let’s be still. Let’s look for a good reason for the Fed changing their statement on rates from “considerable period” to “be patient.” Is this simply a nuance? Is this nothing more than an attempt to improve on communications with the investing public? Does the difference in wording represent a change? The bond and stock markets believe it is a change. That fact does not impress me. Financial pundits, analysts, economists, and the like are wrong more than they are right. The financial futures now indicate a possibility that interest rates will increase from May onward, and specifically, that the rise will probably take place around August or September. Prior to yesterday’s Fed meeting, many believed rates would not be raised for a considerable period of time. However, the change to being patient has made the pundits less patient. They have gotten antsy. I suggest they drink some warm milk and get some rest. Maybe they should simply be still. We need to look for a reason that the Fed changed their wording. What hasn’t changed? The Fed committee continues to believe in an accommodative stance, that productivity is robust, that output is brisk, that hiring is subdued, that core consumer prices are muted, that inflation is expected to remain low, and that resource use is slack. Thus, “the committee believes it can be patient in removing its policy accommodation.” Be still. Don’t muddy the water. After a considerable period of time, the mud will settle. It could be worse. Hopefully, you have your health. Have some apple pie. The carbs won’t kill you. In sum, the reason for the change was simple. The Fed wanted to gain some breathing room. They were uncomfortable with an open-ended forecast on keeping interest rates unchanged. Let's get real. Interest rates are presently artificially low. The financial risks warrant much higher rates. In sum, I am boring myself writing about this Fed meeting. I could care less what they say or do. I’m going to be still and think about something positive.

Since June 2002, Norway’s central bank has cut interest rates nine times. They have gone from 7% to 2%, a record low. It’s possible the interest rates could be cut again. Their currency is near an all-time low against the euro. Inflation was down to 0.4% in December. I am not an expert on Norway but I do know they are rich in oil and in telecommunications (Nokia). Their currency is called the krone. I think I might investigate the potential in Norway. It’s a beautiful country. The fjords are here to stay.

Despite the big snowfall in Omaha, not much of that moisture found its way to western Nebraska. That region has received less than an inch of moisture since October 1. Long-term forecasts don’t provide clear precipitation trends for the Midwest. Al Dutcher, the University of Nebraska climatologist, stated “it took us several years to get into a drought, and it will take several years to undo these problems… water supplies will be limited.” The Harlan County Reservoir, near Alma, Nebraska, is 36% full. Dutcher observed “you’re looking at 26,000 acres of farmland without water if Harlan shuts down. That means yield losses could potentially total 4 million bushels if corn isn’t irrigated and dryland crops fail.”

U.S. orders for durable goods were unchanged in December. Excluding transportation equipment, the orders dropped 0.7%, and were expected to increase 2.5%. Sales of new single-family homes dropped 5.1% in December. The inventory of unsold homes on the market rose in December to 374,000, the highest level since June 1989. At the present sales pace, that represented a 4.2 months’ supply, the largest in February. Yesterday’s Fed meeting will only exacerbate the inventory of unsold homes. Mortgage rates are moving higher.

McKinsey Global Institute estimates that, of every $1 that is “offshored,” the company gains 58 cents in net cost reduction “even as they gain a better (or identical) level of service.” Since 2000, India’s business process outsourcing sector has grown by 60% but it only employs 250,000 people. India’s has a population of 1.05 billion people.

I have never hidden my dislike for Boeing’s top management. Under the revised labor law changes, an individual who receives military training is classified as a “learned expert” and could lose access to overtime pay. Cheryl Russell, Boeing’s director of federal affairs, wrote “Boeing observes that many of its most skilled technical workers received a significant portion of their knowledge and training outside the university classroom, typically in a branch of the military service, where through a combination of classroom training and field experience they become ‘learned experts’ on very sophisticated aerospace products or services.” With learned professionals being exempt from overtime pay, Boeing will have the legal right to take away overtime pay from all employees with prior military experience. I truly feel for these employees. Of course, each week there are fewer employees at Boeing. That’s the good news.

Yesterday, bankrupt toy retailer KB Toys stated they would close at least 375 stores, and beginning today will conduct store-closing inventory sales. By February 11, KB will choose 19 to 115 more stores for closing, and ultimately will operate 750 stores, a reduction of at least 30%. About an equal percentage of workers will lose their jobs or about 3,500 of its present 12,000 employees. Hexcel Corp. reported yesterday that it would close its Livermore, California manufacturing facility that employs 105. The plant manufactures prepeg and adhesive products for commercial aerospace, defense, and industrial markets.

Rusty Williams was the founder of Cor Therapeutics, the company purchased by Millenium Pharmaceuticals for $1.8 billion in 2002. Thereafter, he founded Five Prime Therapeutics. Located in South San Francisco, its drug-screening system looks very promising. The company’s CEO stated the system can create new drug leads “on a scale and in a time frame that’s unprecedented.” That wording seems definitive, and the good news is I won’t need to be patient.

1/28/04 A Familiar Refrain

I apologize for commenting on today’s Fed meeting. For the last two days I have received way too many emails asking for my opinion on the outcome of today’s Fed meeting. So many times I have written that the Fed is a follower and not a trend setter. To be polite, I shall expound on that statement. First, I think it is pompous as hell for Greenspan to remark that “there is, for the moment, little evidence of stress in funding U.S. current account deficits.” The man is in a responsible position. How about the difficulty in funding the budget deficit? The deficits are about equal in size and total close to $1 trillion. Sung Won Sohn, chief economist of Wells Fargo Bank, observed the U.S. economy now borrows $1.5 billion a day from foreign investors, and that this level could reach $3 billion a day in the near future. That sounds like a stressful situation to me. The Fed sets monetary policy. They have tried to maintain low interest rates, they have tried pumping liquidity into the economy, and they may have even prayed in order to jump start the U.S. economy. Only a sharply lower dollar has spurred economic activity, and that has been export activity. In the U.S. we still have too many goods chasing too few buyers and too much unused plant capacity. Productivity has improved, foreign profits have improved, but workers are employed for fewer weekly hours and their pay barely keeps pace with an inflation rate of 1.1%. In other words, domestically we have a very stressful situation. I could care less whether the Fed’s “policy accommodation can be maintained for a considerable period.” Their policy has helped the housing, construction, remodeling, and mortgage industries and it has created cheap debt for corporations and the government. Otherwise, it has not change the domestic demand side of the equation.

Warren Buffett: “Our country’s ‘net worth’ is now being transferred abroad at an alarming rate.”

Stephen Roach, Morgan Stanley chief economist: “the engine of the global economy, the U.S., is running not on gas but on fumes, on little more than tax cuts and borrowing.”

Kraft confirmed the company is planning to eliminate 6,000 positions at all levels of the organization. In addition, they expect to exit or close up to 20 of its production facilities worldwide. The 20 is not a misprint. IBM continues to state they will be hiring. Funny, but I only read about the firing. Yesterday they stated 300 jobs would be trimmed from its computer systems division. The layoffs will impact the division’s development and finance groups and primarily will take place in San Jose, California. An IBM spokesperson stated the cuts are part of an ongoing effort to reevaluate the company’s skill mix. Do you understand that statement? By comparison, we might take a look at Infosys, the Indian consulting company. Last year they added 10,000 jobs, and they received 960,000 applications for those openings.

Iowa Governor Tom Vilsack warned of the potential for massive layoffs of teachers and staff at Iowa’s public schools if lawmakers can’t find a way to boost state aid. He stated that 3,900 teachers and staff members could lose their jobs. In Alameda County, which is on the Oakland side of the Bay Bridge, 95 social services workers will lose their jobs under a budget-balancing plan approved yesterday. Those losing their jobs are clerks, social workers, and employment counselors. The layoffs will take place by February 13.

There are so many roadside bombs and explosions in Iraq that keeping track of the casualties is difficult. Since the U.S.-led invasion of Iraq in March, at least 517 American soldiers have been killed.

The dollar has been slipping against the yen and stands below 106. We know that the Japanese have spent billions buying U.S. dollars. It has slowed the dollar decline versus the yen but it is not a long- term solution. Even though the yen has become more expensive, Japan’s exports rose almost 10% in the fourth quarter, a drop from the prior quarter’s 21.4% rise but still a strong performance.

I have stood aside and not written about the bird flu; however, it is now in 10 Asian countries and killed at least 8 people. This matter needs to be monitored closely. We can remember back to 1918 when million died from this type of influenza strain. The WHO warned about the bird virus combining with a human flu virus which could mutate into a new strain and prove devastating to the human population. In that case, there would not be immunity built up or an available vaccine.

Dr. Arun Netravali, President (Emeritus) of Bell Laboratories, Lucent Technologies Inc, is setting up a $250 million venture capital fund to invest in U.S.-based start-up companies in telecom and technology areas, which would be outsourcing to India. The fund would take minority stakes in these companies.

February 13 is the cutoff date for companies to submit bids to buy AT&T Wireless. A number of potential buyers have been mentioned, including NTT DoCoMo, Cingular Wireless, Nextel Communications, and Vodafone.

1/27/04 Eventually

I was re-reading some of my notes from mid-October 2002. At that time, it appeared great value could be found in every sector of the equity market. It was an unusually attractive risk/reward buying opportunity. Yesterday the Dow traded at a 31-month high and venture funding escalated to an 18-month high. I never thought such a transformation could take place in such a short time. If someone had suggested in October 2002 that, within 15 months, we would initiate a war; face a budget deficit of $500 billion and a trade deficit of $500 deficit; that the dollar would plummet against all major currencies; that the Fed funds rate would decline to 1% and remain there; that inflation would decline to about 1%; that unemployment would worsen over the next 15 months; that productivity would rise over 5%; and that GDP in the September 2003 quarter would rise 8%, would you think that person was ready for a mental institution? Someone might suggest steroids had destroyed mental faculties. The business of prognosis is a crap shoot. There are ways to minimize the crap shoot, but eventually the future is still up for grabs. There are too many variables. If I ever give a prognosis going beyond today, please remind me that I am a schmuck to do so.

CBO Director Douglas Holtz-Eakin stated “if you look forward, sustained large deficits in the face of fully operating economy will have economic consequences.” Is he suggesting we should look backwards? The CBO’s annual budget report indicated the government’s $4 trillion debt could more than double if Bush succeeds in making his tax cut proposals permanent. They are set to expire by 2011. The CBO estimates the 2005 will rise to $477 billion from this year’s $375 billion level. I think it is safe to state the budget deficit will be much higher than $477 billion. It should be noted the CBO’s first budget deficit for 2004 was $185 billion. Clearly, the differential was not solely the Iraq war. As Sen. Kent Conrad of North Dakota remarked, “the president wants to go to Mars, and he’s got deficits going to the moon.” If Bush is insists on efforts to go to Mars, I recommend Greenspan for the first flight. Yesterday he told an economic conference in London that he was confident that “eventually” jobs lost during the recession could be replaced. It is possible that he got confused and was stating that he could be replaced. I think Yogi Berra would have a better handle on our economic picture, and Yogi could describe it better.

Over the first three years of the Bush Administration, non-defense discretionary spending increased 27%. When people voted for Bush, were they voting for spending, spending, spending or fiscal conservatism? If Congress is not concerned about the deficit and the state of spending, are the voters? One might take note that federal revenues as a percentage of GDP have fallen to their lowest level since 1950. That is a good thing. Unfortunately, when you combine low federal revenues with record government spending, you have a recipe for fiscal instability.

There are reports in the media that the EU might find Microsoft in violation of antitrust laws. The EU has conducted a three-year investigation. Microsoft and the EU have been in settlement talks. It has been suggested that the EU would require Microsoft to “unbundle” its Windows Media Player software. The company maintains the media player software is an essential piece of Windows. The EU was busy launching reprimands against the U.S. government too. Their complaints centered on zeroing or failing to account for certain amounts of dumped product that eventually will be sold at or above the domestic price. The EU stated “the U.S. zeroing practice is having a significant adverse economic impact on EU exporters in various sectors, including steel, chemicals, and pasta.”

Several times I have written about the tax break for the purchase of a Hummer. It gets better. A federal court decision and the IRS’s recent extended interpretation of company private aircraft use have led to the allowance for business owners and employees to make extensive personal use of company aircraft while the company continues to fully deduct the costs of owning and operating the plane. This interpretation would provide a windfall to Subchapter S corporations and other “pass-through entities.” The case was decided at the U.S. Court of Appeals for the 8th Circuit. In essence, Subchapter S corporations can take full deduction of the plane’s expenses even though the aircraft use might be 95% personal. The value of the travel must be included as income to the shareholder or employee who flew.

Chick-fil-A, Inc. has more than 1,125 restaurants in 37 states and Washington, D.C. This Atlanta-based company just completed its 36th consecutive year of sales gains and reported system-wide revenues of over $1.5 billion. They are credited with introducing the chicken nugget concept. In 2004, they plan on opening 90 restaurants, including, on January 29, their first free-standing restaurant in Southern California. In addition, they will continue their western expansion into Phoenix this year. In the future, you can expect to see one of their restaurants in your neighborhood.

Plaid Clothing makes tailored men’s clothing and sportswear. They are owned by a division of Hartmarx. Two years ago they closed a plant in Somerset, Kentucky. Yesterday they announced the closing of their plant in Erlanger, Kentucky, and they are laying off 70 workers. Raleigh-based PharmaNetics is continuing to lay off workers, and they are reducing its workforce to 38 employees. In November they cut 47 employees and this time 17. On the other hand, Charlotte-based SPX Corp. is developing a state-of-the-art manufacturing facility in Tianjin, China to make cooling products for the energy industry. They plan on employing more than 200 at this location. This new operation is an excellent illustration of the economic realities within the United States and outside our borders. Eventually, there are new jobs. Greenspan failed to mention their location.

Robert McTeer, President of the Federal Reserve Bank of Dallas: “Instead of counting jobs, we should make every job count…we will occasionally hit a soft spot when we have a mismatch of supply and demand in the labor market. But that is temporary. Don’t become a Luddite and destroy the machinery, or become a protectionist and try to grow bananas in New York City.”

1/26/04 Changes Are In The Air

Thursday night the Senate passed a bill banning U.S. companies from outsourcing government contracts overseas. The bill was part of an $820 billion spending bill leftover from last year. It awaits Bush’s signature. Assuming Bush approves the bill, and he hasn’t vetoed any proposed legislation since arriving in office, it would become the first federal law prohibiting companies from performing contracted government work outside the U.S. On Saturday, Confederation of Indian Industry president Anand Mahindra stated “this is particularly unfortunate, since studies on the BPO (business process outsourcing) sector have shown that the company that outsources gains much more than the company to which it is outsourcing…. In this particular case, since the Senate ban is on U.S. government contracts, the ultimate loser is the U.S. taxpayer, who will now pay more for government services.”

Sanofi is making a $61 billion hostile offer for Aventis, a company formed from the merger of France’s Rhone Poulenc and Germany’s Hoechst. Sanofi has about half the revenue but almost the same market capitalization as Aventis. Patent risks are a large factor in this deal. Sanofi’s second most profitable drug, Plavix, a blood thinner, is under patent attack from Dr. Reddy, the Indian generic drug manufacturer. Aventis’ second most profitable drug, Lovenox, a thrombosis medication, is under patent attack by two other generic drug manufacturers. Aventis has hired Goldman Sachs, Morgan Stanley, and Rothschild to develop a defensive strategy.

Tomorrow, Kraft will discuss a restructuring. Philip Morris, its parent company, spun off 16% of Kraft in 2001. It is anticipated that about 6,500 jobs, or about 10% of its North American workforce, will be cut.

In the first update of the Reader’s Digest Family Index, the Gallup Organization polled 1000 people and found that 31% of Americans put off medical treatment because it was too expensive. Of that group, 57% stated the medical problem was very or somewhat serious. These results mean that, in the past year, 18% of all U.S. families experienced a serious health problem they could not afford to treat. According to a 2003 U.S. Census Bureau report, almost 44 million people have no health insurance. Fewer employers are offering health coverage. According to the Commonwealth Fund, a health care research foundation, the number of workers at corporations with more than 500 employees who lack health coverage has increased by 50% over the past 16 years. According to Mercer Human Resource Consulting, in 2003, on average, employees paid 58% of the premium for family coverage in PPO plans, up from 53% the year before, and 57% of premiums for HMO plans, compared with 50% in 2002. The medium out-of-pocket maximum for PPO care within the network climbed to $2,000 from $1,500, according to Mercer’s survey. A third of employers required a co-payment of $20 or more for HMO office visits, up from only 22% the year before.

One week from today, the White House prepares to unveil its 2005 budget plan. The administration has claimed it will freeze federal spending on all non-defense and non-homeland security budget items. When the year is over, it is safe to say such a freeze will not take place. It has nothing to do with the fact that it’s a re-election year. Bush excels at spending taxpayer money. Coming from Texas, he probably learned a great deal about LBJ’s presidential spending prowess. The CBO will provide a budget outlook. A deficit of at least $500 billion, up from the year before $380 billion, will be presented to the American people. I have made the following statement over and over. I will repeat it again. This gigantic budget deficit is undermining the economic fabric of the U.S. and the freedom we currently enjoy. It is more than simply irresponsible. That adjective is too kind and too mild. It is a WMD. Do not stand by and permit our country to be taken over. Our fate is in the hands of foreign nations. Foreign countries control the ownership of our U.S. treasury debt. If one controls the debt, one controls the present and future. We must regain control of our destiny. Failure to do so is not an option. Our freedom depends on it.

1/25/04 Seasonal Adjustments

Microsoft stated it is in discussions with the Indian government to share its source code. The company’s Asia Pacific CTO, Peter Moore, told reporters “we have a program for making our source code available to governments around the world so that they can ensure the technology supports the national security interests of the country and we are in open discussions with the Indian government as well… we will compete freely in the market with open source software with the value of our technology.” Microsoft is currently on a recruitment drive in India for its e-governance initiatives, stated Moore. Hiring will be at senior, middle, and entry levels, and domain knowledge in government departments will be an advantage.

Georgia posted the nation’s second largest increase in jobless claims due to large-scale layoffs, according to a Bureau of Labor Statistics report. In 2003, mass layoffs produced 7,121 more claims in Georgia than those caused in 2002 by such large-scale layoffs. Only the state of New York, which had 8,005 more claims from laid-off workers than in 2002, had a larger increase than experienced in Georgia. Mass layoffs are those which involve 50 or more workers. Georgia sustained 402 mass layoffs in 2003, and this compares with 310 in 2002.

Ohio’s state unemployment rate rose to 6% in December, up from 5.7% in November. According to Tom Hayes, director of the Ohio Department of Job and Family Services, “the unemployment rate increased in December largely because there were more holiday job seekers than available jobs. There were fewer people employed in the leisure and hospitality industry.” The number of unemployed workers in Ohio was 351,000 in December, up from 344,000 in November. The number of unemployed increased by 28,000 over the year from 323,000. The unemployment rate in November 2002 was 5.6%.

The Iowa caucuses are over. Unfortunately, there are thousands of Iowans whose jobless pay is set to end. Congress first approved extended federal benefits in March 2002, and these benefits were extended twice before expiring on December 21, 2003. During those extensions, the federal government paid out $141 million to more than 60,000 residents of Iowa. According to Iowa Workforce Development, the average weekly benefit was $239. The unemployment rate in Iowa rose 0.2% in December. Between January and June, 20,000 to 32,000 Iowans will have their state unemployment benefits run out.

Only twice since 1952 has the S&P 500 Index fallen in an election year. In 2000, it dropped 10% with George Bush. In 1960, it declined 3% with John F. Kennedy.

In 1929, Boeing bought Stearman Aircraft, a maker of biplanes, located in Wichita, Kansas. There, the company makes fuselages for Boeing’s 737 and 757 jets, engine casings for the 747,757, 767, and 777, and the nose and cockpit section of every Boeing jet, except the 717 made in California. The Wichita plant employs 12,400 workers. Boeing is in the largest employer in Wichita. A total of 42,000 ancillary jobs are dependent on Boeing in Wichita. Direct and indirect employment accounts for 15% of Wichita jobs and 17% of earnings in the city. Boeing wants to exit the business of making plane parts. The Wichita plant will be closed. In Toronto, Boeing manufactures the wings for the 717. When the 717 program ends, the Toronto plant will be closed. In Long Beach, building of commercial jets will end with the 717 program. The C-17 military will remain at that location. Boeing will sell its facility in Tulsa. That employs 1600 workers. It will sell a small plant in Melbourne, Arkansas. It employs 100 people.

Leonard Pitts Jr., syndicated columnist for the Miami Herald: “Under his (Bush) presidency, we find our soldiers engaged in open-ended conflict begun under misleading – if not false- circumstances, our moral capital diminished, our budget deficit skyrocketing, our civil liberties undermined.”

Over the last 48 hours, nine of our soldiers have been killed in Iraq. Since the start of the Iraq war, a total of 513 U.S. soldiers have been killed.

On February 6, the Labor Department will issue its employment report for January. I would like to take some time to explore the meaning of seasonal adjustments and to re-visit the employment report for January 2003. The employment report is the key to income, and this in turn, is the key to consumption. For the month of January 2003, in a revised report, the Labor Department stated that non-farm payrolls added 185,000 jobs. At the same time, please note that the average workweek in January 2003 was 34.3 hours. Therefore, between January 2003 and December 2003 the hours worked in an average week declined. Why were 185,000 jobs added in January 2003? You need to follow me here. It’s early on Sunday morning. This is important. The increase rose mainly because of a quirk in seasonal adjustment, which is supposed to compensate for the recurring pattern to get a picture of the underlying trend of retailers hiring just before Christmas and laying off afterwards. I can only explain this gibberish through this example. In December 2002 retailers didn’t hire as it was the fourth weakest Christmas season in retail employment since 1939. Therefore, in January 2003, they didn’t lay off as many workers as usual. The seasonal impact, before adjustment, was that, during this holiday season , one million retail jobs were lost. After the holiday, it was determined that the service sector had added 143,000 jobs, mostly retail. In addition, the Labor Department explained “a one-month change in weighting procedures makes data for January 2003 strictly comparable with data for both prior and subsequent months.” The January 2003 report had many inconsistencies. There was a rise in the number of people unemployed for a greater period of time. The unemployment rate fell to 5.7% because of a reduction in the labor force. Average hourly wages remained unchanged, and it was the first time (up to that point) since April 1993 that average hourly wages did not rise. Additionally, in that month of January, households had their biggest fall in consumer credit in 30 years. When we view the report on February 6, it will be important to focus on the seasonal adjustments. This past holiday season was modestly better than what was experienced in the prior year period. In December 2002, about 100,000 retail jobs were lost. In December 2003, the number was sharply reduced. Most of the jobs added in January 2004 were healthcare, education, construction, and some service related jobs. The seasonal adjustment factor will be less in January 2004 than in the prior January. The Labor Department tracks 347 industries. They have a big staff. Each month they make revisions. For me, life is not a do over.