11/5/03 Tough Decisions And Productivity
You don’t read too often about a company that is growing, making good money, and is out of space for expansion at its present site. I thought we’d take a little visit to the heartland. Let’s visit a company that is on the move, no pun intended. Have you been to Le Mars, Iowa? Have you heard of Le Mars, Iowa? Have you eaten Blue Bunny ice cream? Have you heard of Wells Dairy? Enough with the questions! The company employs 2400 workers (over 90% of their workforce) spread among seven buildings in Le Mars, a city of 9200 people. The company is family owned, was started close to 100 years ago, sells 550 Blue Bunny products in all 50 states and in 20 other countries, and has sales of $800 million a year. It’s my kind of company. Over the next five years they plan on adding 100 employees, but they don’t have a place to put them at their present location. Iowa’s corporate tax rate is fairly reasonable in that the state taxes only profits made from sales in the state. Next door, so to speak, is South Dakota. That state does not have a state income tax, and that fact is a big carrot for relocation. Wells Dairy will decide by next summer where to build its new headquarters building, which is estimated to cost $30 million. Le Mars recognizes the importance of Wells Dairy, the city’s largest employer. Wells contributes to many community projects, and that includes helping to buy new fire equipment. Wells is a company on the move, but residents of Le Mars will do everything possible to keep this company in their town. It’s been there for over 90 years.
The nation’s productivity numbers will be released today. They should be record figures. Over the past three years it has reflected job cuts and overall cost reductions. Productivity does not necessarily equate with efficiency. That correlation is not always accurate. Let me explain. GM, for example, has over the past five or six years, been reducing the man hours needed to produce a vehicle. That’s a positive. At the same time, plants have been closed and workers have been eliminated. These workers were earning , on average, at least $60,000 a year. A good many of these former employees went on unemployment for a period of time. Some found work at substantially lower salaries. There are costs associated with unemployment, and they exist in the individual company with the layoff, the local communities, and the state in which the company is located. Some employees could not find a job. (A columnist wrote yesterday that “throw in a couple of percentage points for frictional employment(joblessness that results from people looking for a new job, changing jobs or relocating), and the U.S. economy isn’t far away from full employment.” Maybe she has that opinion because she has a job. In my opinion, she is severely employment reality challenged.)
Many former employees stop looking for a job after 20 months. The search becomes debilitating. Some require relocation, and move in with other family members. Meanwhile, GM has tried their best to become competitive in the marketplace. Companies like Toyota can manufacture their autos using less hours of labor. In order to “sell” their autos, GM provides an average incentive of $4200 per vehicle. Essentially, they make their corporate money through GMAC and their mortgage division. Did they become more productive? In labor per auto produced they did. Are they more efficient? No. If they were more efficient, prices for the vehicles would drop. An example of efficiency would be the price for PCs. They drop in price every year. Demand for the product has risen as the price has dropped.
Challenger, Gray and Christmas announced that layoffs from U.S. companies more than doubled in October to 171,874, the highest in a year. In October, the auto industry cut 28,363 workers. So far in 2003, over 1 million job cuts have been announced by U.S. companies. Those job cuts are not moving us in the direction of full employment.
Registered professional nurses comprise the largest segment of all health professionals. Phyllis Hansell, dean of Seton Hall University’s College of Nursing, stated that “currently, there are 2.6 million nurses in the U.S. and it is forecast that by 2010 an additional 1 million will be needed. Nurses will be required in all health care settings.” Where might we get these nurses? No problem. In the Philippines, government hospitals are the country’s largest health care employer. The government typically has only 1,000 new positions available each year for the 10,000 nurses that graduate. Nurses earn an average of $108 a month. Thousands of Filipino nurses are recruited every year to offset the shortage of nurses in the U.S. They apply for a U.S. immigrant visa that allows them to live permanently in the U.S. Alternatively, they come to the U.S. on a 3-year labor contract and then try to change their visa status after coming here. In sum, this is in-sourcing.
Tuesday, November 04, 2003
11/4/03 GDP Growth And More Job Losses
By now, everyone has told you that the GDP grew at an annual rate of 7.2% in the third quarter. Did those same people tell you that the average monthly payroll employment in the third quarter was 146,000 less than in the second quarter or that employment measured by the government’s household survey was down 79,000? Beginning with 1947, there have been 38 quarters when economic growth was 7.2% or more. In all of those 38 quarters except one, the number of payrolls rose. For one million dollars, when was the lone exception? You are right! The lone exception was the third quarter of 2003. Norbert Ore, head of the ISM manufacturing business survey committee, said “this is not a typical recovery by any means.” The latest ISM employment index was 47.7, the 37th consecutive month the index has remained below 50%. As Kevin Logan, a senior economist at Dresdner Kleinwort Wasserstein in New York stated, “the fact that the employment component is still below 50 means that the rise in orders hasn’t yet translated into jobs.” After four straight months of manufacturing expansion, factory jobs normally would be created. Mr. Ore made a very important observation. He said the ISM factory index reading of 57 is consistent with GDP growth of 5.7% and not the 7.2% that was reported. The rate of liquidation of manufacturers’ inventories decelerated slightly in October as the Inventories Index registered 44.5%, and it has been under 50% for 45 consecutive months. Please note that the Customers’ Inventories Index is at 39%, a decrease of 5.5% from September’s level. This is the 29th consecutive month that this index has registered below 50%. The October reading was at the lowest level since this index was initiated in December 1996; however, it did equal the level reached in May 2002. There was one more trouble spot. The ISM Price Index indicated that manufacturers continued to pay higher prices in October. It was the 20th consecutive month the index has registered higher prices. It would be one thing if the manufacturers were successful in passing along these increased prices; however, with little pricing power, they have not be able to accomplish this task. As such, a major focus has been on cost cutting, and jobs are the first item on the agenda to be reduced. If one really cares enough to dig, the answers are available. It’s a matter of dedication. With an increased knowledge base, one is able to better assess the true economic landscape, and to make rational investment decisions.
Jim O’Conn, group vice president, North American Marketing, Sales and Service for Ford, remarked sales year-date were down 4%, and then stated “the economy is sprinting and consumer fundamentals remain favorable, and we believe auto sales will be strong in 2003 and we look for another good year in 2004.” If sprinting means car sales for Ford in October being down 9%, then sprinting is taking place. GM’s October U.S. sales fell 7% from a year ago, and truck sales declined 8%. Chrysler Group’s October sales rose 11% but that was only because of the 17% increased truck sales. Their car sales declined by 11%. A spokesperson for Cap Gemini Ernst &Young said of the auto industry that “in the past you could just build more and you would sell more. Those days are gone.” It’s only a matter of time until capacity reductions occur except possibly in China where GM is upping capacity by 50%.
With the rising federal budget deficit, the Treasury announced it would need to borrow a record $117 billion this quarter. Borrowing estimates for the next quarter are a whopping $160 billion.
It was about 2 ½ years ago that Kellogg purchased Keebler Foods for $4 billion. Many analysts thought it was an excellent acquisition. Of course, most analysts have never run a business. Since the purchase, cookies have proven to be among Kellogg’s lowest-margin products. Kellogg CEO Carlos Gutierrez said he was disappointed with the sales decline in cookies at Keebler, and that plant closings might be necessary in the fourth quarter and in 2004 to further reduce the cookie-production capacity.
South Florida has received some closure and layoff news. Elizabeth Arden is closing its Miami Lakes distribution center , moving its corporate offices, and laying off 190 people. Appliance maker Applica has 158,000 square feet of space in Miami Lakes. They will move to smaller offices for headquarters in Broward County, and 50 of the 300 jobs will be lost. In addition, Applica is laying off about 4,000, nearly all at its factory in China! Cordis Corp., the Johnson & Johnson stent maker, will terminate 200 people.
The Federal Reserve Bank of San Francisco stated the Bay Area’s employment level now languishes at its early 1998 level after 350,000 jobs, or nearly one in ten, were lost since the employment peak in 2000.
The U.S. Department of Labor calculates that about 500,000 jobs have been lost to Canada or Mexico since the enactment of NAFTA on Jan. 1, 1994. Robert Scott at the Economic Policy Institute in Washington figures it at 766,000. Russell Roberts, a professor of economics at George Mason University in Fairfax, Va, remarked “the bottom line is this: NAFTA has caused hardships for some Americans in certain sectors, but it’s made for a more stable and integrated Mexican political system, and that’s a good thing.” I can hear President Bush using similar phrases in describing the war in Iraq and the ensuing occupation period.
By now, everyone has told you that the GDP grew at an annual rate of 7.2% in the third quarter. Did those same people tell you that the average monthly payroll employment in the third quarter was 146,000 less than in the second quarter or that employment measured by the government’s household survey was down 79,000? Beginning with 1947, there have been 38 quarters when economic growth was 7.2% or more. In all of those 38 quarters except one, the number of payrolls rose. For one million dollars, when was the lone exception? You are right! The lone exception was the third quarter of 2003. Norbert Ore, head of the ISM manufacturing business survey committee, said “this is not a typical recovery by any means.” The latest ISM employment index was 47.7, the 37th consecutive month the index has remained below 50%. As Kevin Logan, a senior economist at Dresdner Kleinwort Wasserstein in New York stated, “the fact that the employment component is still below 50 means that the rise in orders hasn’t yet translated into jobs.” After four straight months of manufacturing expansion, factory jobs normally would be created. Mr. Ore made a very important observation. He said the ISM factory index reading of 57 is consistent with GDP growth of 5.7% and not the 7.2% that was reported. The rate of liquidation of manufacturers’ inventories decelerated slightly in October as the Inventories Index registered 44.5%, and it has been under 50% for 45 consecutive months. Please note that the Customers’ Inventories Index is at 39%, a decrease of 5.5% from September’s level. This is the 29th consecutive month that this index has registered below 50%. The October reading was at the lowest level since this index was initiated in December 1996; however, it did equal the level reached in May 2002. There was one more trouble spot. The ISM Price Index indicated that manufacturers continued to pay higher prices in October. It was the 20th consecutive month the index has registered higher prices. It would be one thing if the manufacturers were successful in passing along these increased prices; however, with little pricing power, they have not be able to accomplish this task. As such, a major focus has been on cost cutting, and jobs are the first item on the agenda to be reduced. If one really cares enough to dig, the answers are available. It’s a matter of dedication. With an increased knowledge base, one is able to better assess the true economic landscape, and to make rational investment decisions.
Jim O’Conn, group vice president, North American Marketing, Sales and Service for Ford, remarked sales year-date were down 4%, and then stated “the economy is sprinting and consumer fundamentals remain favorable, and we believe auto sales will be strong in 2003 and we look for another good year in 2004.” If sprinting means car sales for Ford in October being down 9%, then sprinting is taking place. GM’s October U.S. sales fell 7% from a year ago, and truck sales declined 8%. Chrysler Group’s October sales rose 11% but that was only because of the 17% increased truck sales. Their car sales declined by 11%. A spokesperson for Cap Gemini Ernst &Young said of the auto industry that “in the past you could just build more and you would sell more. Those days are gone.” It’s only a matter of time until capacity reductions occur except possibly in China where GM is upping capacity by 50%.
With the rising federal budget deficit, the Treasury announced it would need to borrow a record $117 billion this quarter. Borrowing estimates for the next quarter are a whopping $160 billion.
It was about 2 ½ years ago that Kellogg purchased Keebler Foods for $4 billion. Many analysts thought it was an excellent acquisition. Of course, most analysts have never run a business. Since the purchase, cookies have proven to be among Kellogg’s lowest-margin products. Kellogg CEO Carlos Gutierrez said he was disappointed with the sales decline in cookies at Keebler, and that plant closings might be necessary in the fourth quarter and in 2004 to further reduce the cookie-production capacity.
South Florida has received some closure and layoff news. Elizabeth Arden is closing its Miami Lakes distribution center , moving its corporate offices, and laying off 190 people. Appliance maker Applica has 158,000 square feet of space in Miami Lakes. They will move to smaller offices for headquarters in Broward County, and 50 of the 300 jobs will be lost. In addition, Applica is laying off about 4,000, nearly all at its factory in China! Cordis Corp., the Johnson & Johnson stent maker, will terminate 200 people.
The Federal Reserve Bank of San Francisco stated the Bay Area’s employment level now languishes at its early 1998 level after 350,000 jobs, or nearly one in ten, were lost since the employment peak in 2000.
The U.S. Department of Labor calculates that about 500,000 jobs have been lost to Canada or Mexico since the enactment of NAFTA on Jan. 1, 1994. Robert Scott at the Economic Policy Institute in Washington figures it at 766,000. Russell Roberts, a professor of economics at George Mason University in Fairfax, Va, remarked “the bottom line is this: NAFTA has caused hardships for some Americans in certain sectors, but it’s made for a more stable and integrated Mexican political system, and that’s a good thing.” I can hear President Bush using similar phrases in describing the war in Iraq and the ensuing occupation period.
Monday, November 03, 2003
11/3/03 Just In Time Employment
The biggest issue facing Americans is the job market. I will do my best to cover all the bases. Since becoming President in 1999, Bush has just received the lowest mark, only 40% approve of how “he understands the problems of people like you.” Let’s get to work on this subject- you and me.
Let’s get some housekeeping out of the way. Tomorrow, Challenger, Gray, and Christmas will release their employment numbers for October. Later in the week the government will release October job numbers. The two reports will not mesh. They never have in the past, and my analysis indicates a small rise in the number of unemployed workers. That too will not jibe with the government numbers. Please keep in mind that, sometime in December, the government will issue a report that they have been underestimating the unemployment number. I am certain that this report will be issued, and the underestimation will be in the range of 200,000 or more out of work Americans.
The workplace situation is simple to explain. Employers have embraced just in time inventory as well as just in time employment. If business picks up, companies will add a temporary worker, a part-time worker, or provide overtime to existing staff rather than hire a full-time worker. Sometimes the employer might hire the temp, part-time, and add overtime to staff- all at the same time. Companies pay less in wages and benefits through this employment practice. In addition, they avoid a layoff and do not have to pay additional unemployment expenses. There are about 130 million people in the workforce. Over the past 30 years temporary employment has risen from 0.3% of total employment to more than 3 million jobs or 800%. Yet, the chairman and CEO of Manpower has stated that, over the past four years, the number of their temporary workers has declined from 1.1 million to 650,000. Over the past 35 years the number of people working part-time jobs has grown from 14% of the workforce to 18%, and this is understated because the category does not include people working more than one job for a total of more than 35 hours.
When business is slow, employers might cut the workweek to 4 days, cut a half-day from the workweek, or even have employees take vacation days.
Overtime has also contributed to less job creation. Among production workers, overtime is up from 2.4 hours a week in 1960 to 4.1 hours, a 71% increase. The occasional overtime pay can provide a needed and welcome boost to income. On the other hand, overtime can generate additional stress in the workplace. Many employees are making a conscious decision to reduce hours worked, and that means less pay. October 24 was celebrated by many as “Take Back Your Time Day.” Many workers express that “they’re so stressed they’re not pausing at all, and you have to pause if you want to define who you want to be.” Many have turned to visiting the Web site, www.newdream.org, which offers tips on lowering consumption and exploring non-material ways for enjoyment. More Americans are seeking leisure over luxuries. Less pay also means focusing on obligatory expenses and cutting down on discretionary items. Lifestyles are changing. The workplace is changing. Main Street is taking on a different look. New saving methods are evolving, and with them, changes in Americans’ long-term investment programs.
James B. Cichanski, Flex HR Inc.’s president and CEO, remarked “every dollar costs, and you think about it in the economic climate today.”
The biggest issue facing Americans is the job market. I will do my best to cover all the bases. Since becoming President in 1999, Bush has just received the lowest mark, only 40% approve of how “he understands the problems of people like you.” Let’s get to work on this subject- you and me.
Let’s get some housekeeping out of the way. Tomorrow, Challenger, Gray, and Christmas will release their employment numbers for October. Later in the week the government will release October job numbers. The two reports will not mesh. They never have in the past, and my analysis indicates a small rise in the number of unemployed workers. That too will not jibe with the government numbers. Please keep in mind that, sometime in December, the government will issue a report that they have been underestimating the unemployment number. I am certain that this report will be issued, and the underestimation will be in the range of 200,000 or more out of work Americans.
The workplace situation is simple to explain. Employers have embraced just in time inventory as well as just in time employment. If business picks up, companies will add a temporary worker, a part-time worker, or provide overtime to existing staff rather than hire a full-time worker. Sometimes the employer might hire the temp, part-time, and add overtime to staff- all at the same time. Companies pay less in wages and benefits through this employment practice. In addition, they avoid a layoff and do not have to pay additional unemployment expenses. There are about 130 million people in the workforce. Over the past 30 years temporary employment has risen from 0.3% of total employment to more than 3 million jobs or 800%. Yet, the chairman and CEO of Manpower has stated that, over the past four years, the number of their temporary workers has declined from 1.1 million to 650,000. Over the past 35 years the number of people working part-time jobs has grown from 14% of the workforce to 18%, and this is understated because the category does not include people working more than one job for a total of more than 35 hours.
When business is slow, employers might cut the workweek to 4 days, cut a half-day from the workweek, or even have employees take vacation days.
Overtime has also contributed to less job creation. Among production workers, overtime is up from 2.4 hours a week in 1960 to 4.1 hours, a 71% increase. The occasional overtime pay can provide a needed and welcome boost to income. On the other hand, overtime can generate additional stress in the workplace. Many employees are making a conscious decision to reduce hours worked, and that means less pay. October 24 was celebrated by many as “Take Back Your Time Day.” Many workers express that “they’re so stressed they’re not pausing at all, and you have to pause if you want to define who you want to be.” Many have turned to visiting the Web site, www.newdream.org, which offers tips on lowering consumption and exploring non-material ways for enjoyment. More Americans are seeking leisure over luxuries. Less pay also means focusing on obligatory expenses and cutting down on discretionary items. Lifestyles are changing. The workplace is changing. Main Street is taking on a different look. New saving methods are evolving, and with them, changes in Americans’ long-term investment programs.
James B. Cichanski, Flex HR Inc.’s president and CEO, remarked “every dollar costs, and you think about it in the economic climate today.”
Sunday, November 02, 2003
11/2/03 Don’t Worry! Be Happy!!
The terror card is not working in Illinois. The Illinois Voter Worry Index is a yearly measure of how worried the citizens in that state are about everything. The index started 14 years ago, and this is the highest level of worry since the index began. Less than 1% of those polled chose terrorism as the biggest worry. In fact, in looking at the results of the poll, terrorism was a non-event. The two biggest jumps in the index were for losing health insurance (17.9%) and ability to pay taxes (14.4%). The results of this poll reflect the daily worries on Main Street: “A lot of people out there feel they are in a dire financial situation, or could be very soon. It should be a wake-up call for lawmakers who think quick cosmetic solutions are enough. Every night the cosmetics come off, and one has to look in the mirror. The voters seem to know this. And they are watching…the intensification seems to be clustering around financial insecurity. Economic worries really seem to be troubling people- and not just for the lower incomes or younger people, not just for certain groups, but for everyone.” These findings are consistent with what I have been saying for the last several years- it’s living paycheck to paycheck, worrying about losing your job, and worries about health insurance and having a bigger co-payment, having less coverage, and/or no coverage. When you have trouble paying bills, the worry is not Osama bin Laden or Saddam Hussein. Bush and his Administration still don’t get it. They’ve never walked the streets of Main Street. They participate in photo shoots while giving fund raising speeches and stumping for Republican candidates.
Yesterday Bush campaigned for two Republican gubernatorial candidates in Mississippi and Kentucky. Thirteen soldiers were killed and more than 20 wounded when their U.S. Chinook helicopter was shot down near Fallujah, about 40 miles west of Baghdad. Fallujah is a center of Sunni Muslim resistance to the U.S. occupation. This was the third time guerrillas had brought down a U.S. military helicopter since Bush declared major combat over in Iraq on May 1. A bomb in Baghdad killed two more U.S. soldiers. During the past week, on average there have been thirty- three daily attacks on our troops in Iraq. The death toll in Iraq is mounting. Since May 1, 137 of our troops have been killed in hostile combat.
PA Consulting Group said 66% of companies surveyed were disappointed with their outsourcing contracts. The survey reveals that only 39% of the companies would renew contracts with their existing outsourcing suppliers, and 15% planned to bring services back in-house. Dave Lakhani, president of business consulting firm Bold Approach Inc., stated only 40% of the outsourcing projects are successful, and that most companies “don’t understand the potential problems. They feel whatever problems may arise, they will be easily offset by the savings. That's really not true.” Problems most often mentioned are security, cultural differences, and logistics.
A new Washington Post-ABC News poll showed Sunday that 48% of those surveyed would vote for Bush if the election were held today while 47% said they would vote for the Democratic Party’s nominee. Five per cent said they did not know.
An interesting dichotomy is revealed with two privately owned companies. Cold Stone Creamery recently opened its 500th store. A new Curves opens about every four hours, and has more than 6,000 low-impact exercise clubs with 2 million members.
Japan has been spending money on bridges, roads, dams, and several other public works projects. Since 1991, Japan’s national debt has risen to 685 trillion yen or about 140% of annual GDP. The market capitalization of all the public companies trading in the United States presently exceeds 100% of our annual GDP. Over the last eight decades the average ratio has been about one-half of that.
China’s economy grew over 9% in the third quarter as compared with the prior year’s third quarter. During the first nine months of 2003, China’s imports increased more than 40% from the year earlier period. A good portion of that import growth came from Southeast Asia as well as South Korea.
Jeremy Grantham of Grantham, Mayo, Van Otterloo & Co., was recently interviewed in Barron’s. He stated “ the simple story is the market is overpriced and will go to a trendline P/E, which we now believe is 16 times based on research that shows earnings tend to be overstated over time because assets tend to be underdepreciated during times of technological progress. Currently, the market is around 24 times trailing earnings, on a fairly generous earnings estimate. This is not just a bear market rally but the greatest sucker rally in history." I have never talked with or met Jeremy Grantham. He has had a successful money management record for 35 years. Not too many folks can say that.
The terror card is not working in Illinois. The Illinois Voter Worry Index is a yearly measure of how worried the citizens in that state are about everything. The index started 14 years ago, and this is the highest level of worry since the index began. Less than 1% of those polled chose terrorism as the biggest worry. In fact, in looking at the results of the poll, terrorism was a non-event. The two biggest jumps in the index were for losing health insurance (17.9%) and ability to pay taxes (14.4%). The results of this poll reflect the daily worries on Main Street: “A lot of people out there feel they are in a dire financial situation, or could be very soon. It should be a wake-up call for lawmakers who think quick cosmetic solutions are enough. Every night the cosmetics come off, and one has to look in the mirror. The voters seem to know this. And they are watching…the intensification seems to be clustering around financial insecurity. Economic worries really seem to be troubling people- and not just for the lower incomes or younger people, not just for certain groups, but for everyone.” These findings are consistent with what I have been saying for the last several years- it’s living paycheck to paycheck, worrying about losing your job, and worries about health insurance and having a bigger co-payment, having less coverage, and/or no coverage. When you have trouble paying bills, the worry is not Osama bin Laden or Saddam Hussein. Bush and his Administration still don’t get it. They’ve never walked the streets of Main Street. They participate in photo shoots while giving fund raising speeches and stumping for Republican candidates.
Yesterday Bush campaigned for two Republican gubernatorial candidates in Mississippi and Kentucky. Thirteen soldiers were killed and more than 20 wounded when their U.S. Chinook helicopter was shot down near Fallujah, about 40 miles west of Baghdad. Fallujah is a center of Sunni Muslim resistance to the U.S. occupation. This was the third time guerrillas had brought down a U.S. military helicopter since Bush declared major combat over in Iraq on May 1. A bomb in Baghdad killed two more U.S. soldiers. During the past week, on average there have been thirty- three daily attacks on our troops in Iraq. The death toll in Iraq is mounting. Since May 1, 137 of our troops have been killed in hostile combat.
PA Consulting Group said 66% of companies surveyed were disappointed with their outsourcing contracts. The survey reveals that only 39% of the companies would renew contracts with their existing outsourcing suppliers, and 15% planned to bring services back in-house. Dave Lakhani, president of business consulting firm Bold Approach Inc., stated only 40% of the outsourcing projects are successful, and that most companies “don’t understand the potential problems. They feel whatever problems may arise, they will be easily offset by the savings. That's really not true.” Problems most often mentioned are security, cultural differences, and logistics.
A new Washington Post-ABC News poll showed Sunday that 48% of those surveyed would vote for Bush if the election were held today while 47% said they would vote for the Democratic Party’s nominee. Five per cent said they did not know.
An interesting dichotomy is revealed with two privately owned companies. Cold Stone Creamery recently opened its 500th store. A new Curves opens about every four hours, and has more than 6,000 low-impact exercise clubs with 2 million members.
Japan has been spending money on bridges, roads, dams, and several other public works projects. Since 1991, Japan’s national debt has risen to 685 trillion yen or about 140% of annual GDP. The market capitalization of all the public companies trading in the United States presently exceeds 100% of our annual GDP. Over the last eight decades the average ratio has been about one-half of that.
China’s economy grew over 9% in the third quarter as compared with the prior year’s third quarter. During the first nine months of 2003, China’s imports increased more than 40% from the year earlier period. A good portion of that import growth came from Southeast Asia as well as South Korea.
Jeremy Grantham of Grantham, Mayo, Van Otterloo & Co., was recently interviewed in Barron’s. He stated “ the simple story is the market is overpriced and will go to a trendline P/E, which we now believe is 16 times based on research that shows earnings tend to be overstated over time because assets tend to be underdepreciated during times of technological progress. Currently, the market is around 24 times trailing earnings, on a fairly generous earnings estimate. This is not just a bear market rally but the greatest sucker rally in history." I have never talked with or met Jeremy Grantham. He has had a successful money management record for 35 years. Not too many folks can say that.
Saturday, November 01, 2003
11/1/03 Consumer Spending Slowdown
Washington DC, Wall Street, and the media whooped it up after the third quarter GDP growth of 7.2% was released. We were off to the races. I smiled. I knew the consensus was wrong once again. I knew the consumer spending numbers would be worse than expected. I had done my homework. Analysts had forecast a 0.1% decrease in spending for September. The actual 0.3% decline was the largest since a 0.4% drop in September one year ago. This news is very important in light of the reported 0.3% rise in Americans’ income for September of this year. The consumer is slowly cutting back on expenditures. Spending on cars and appliances were down 5.1% in the month. In August they had risen 3.8% for the same items. Even spending on food and clothing was reduced from the August rise of 1.4% to a mere 0.3% in September. The only area of increased spending was a small bump on services from 0.3% in August to 0.4% in September. October will prove modestly better for discounters like WalMart and Target, but for department stores it should prove disappointing. Halloween will be a bright spot. Last October the same-store sales for WalMart rose 3.7%, and I am thinking a comparable number for this October will be about a 4.3% increase. Last October was the turning point in retail sales. It was then that the consumer began to cut down on expenditures. I believe the same thing happened this year, and that’s why I only look for a modest increase in holiday spending over last year’s results. It’s more than just a feeling. I look at facts. The IBD TIPP Home Computer Purchase Outlook Index fell11% in October to 17.5, just above its all-time low of 17.3 in March. Only 19.7% of respondents said they were very likely or somewhat likely to buy a new PC within the next six months. That compares with 26.1% in July. According to this poll, 78% of U.S. households have at least one PC, and 37% have more than one PC. The IBD TIPP survey data reveals that September consumer confidence “fell off a cliff.” October only inched back. If the consumer continues to cut back on spending, GDP growth will turn to barely positive, and equity prices will also fall off a cliff. I hope no one gets hurt. I’ll be waiting at ground level.
Yesterday, the USDA said 12 million families last year worried they didn’t have enough money to buy food. Thirty two per cent of them actually experienced someone going hungry at one time or another.
Intense geomagnetic storms raging on the sun made the sky shimmer red and green. The storms again disrupted telecommunications, and high radiation levels at 25,000 feet and above will persist through the weekend. The telescope at Kitt Peak, Arizona picked up the largest array of sunspots in a very long time.
ChevronTexaco has 53,000 employees. Yesterday, they announced job cuts of 2000. Commerce One’s stock was a high flying company at the height of the Internet craze. With cash running out, they laid off most of the remaining 116 employees. Earlier in October they had cut 80 people from the payroll. On Monday morning Chairman and CEO Mark Hoffman should be able to hear a pin drop in their Pleasanton, CA office.
A roadside bomb killed at least two U.S. soldiers and wounded two other soldiers in Mosul, Iraq today. In addition, an oil pipeline was on fire about 10 miles north of Tikrit. The two deaths bring to 122 the number of American soldiers killed by hostile fire since Bush declared an end to hostile combat on May 1. A total of 114 U.S. soldiers were killed between the start of the war on March 20 and the end of April. An Islamic clergymen’s association in Mosul issued a statement Friday stating “supporting Americans is apostasy and a betrayal of religion.”
An average WalMart supercenter generates $80 to $100 million a year in annual revenues. Their smaller discount stores produce $60 million a year. People shop at WalMart for their low prices. They sell a 47-inch Panasonic high-definition television for $1,284. The same product sells on Best Buy’s website for $1,499.99. When it comes to price comparison shopping, consumers know their stuff.
Starbucks continues to expand, and plans to open “3 to 4 new stores every day around the world.” Since their IPO in 1992, Starbucks stock has had one of the best performances over this time period. They continue to meet goals of 20% sales growth and 20-25% earnings per share growth. The company expects their 500 stores in Japan to turn profitable in 2004. At present, they have 119 stores throughout China, but their chairman, Howard Schultz, thinks China could prove to be their biggest market outside the United States in future years.
Recently, I mentioned Amazon.com had introduced “Search Inside the Book,” an excellent search technology that allows one to search the contents of a book and preview individual pages and print those of particular interest. Yesterday, Amazon disabled this search and print technology found on the books located on its website. I do not know whether the cancellation is temporary or permanent, but will endeavor to find out.
Washington DC, Wall Street, and the media whooped it up after the third quarter GDP growth of 7.2% was released. We were off to the races. I smiled. I knew the consensus was wrong once again. I knew the consumer spending numbers would be worse than expected. I had done my homework. Analysts had forecast a 0.1% decrease in spending for September. The actual 0.3% decline was the largest since a 0.4% drop in September one year ago. This news is very important in light of the reported 0.3% rise in Americans’ income for September of this year. The consumer is slowly cutting back on expenditures. Spending on cars and appliances were down 5.1% in the month. In August they had risen 3.8% for the same items. Even spending on food and clothing was reduced from the August rise of 1.4% to a mere 0.3% in September. The only area of increased spending was a small bump on services from 0.3% in August to 0.4% in September. October will prove modestly better for discounters like WalMart and Target, but for department stores it should prove disappointing. Halloween will be a bright spot. Last October the same-store sales for WalMart rose 3.7%, and I am thinking a comparable number for this October will be about a 4.3% increase. Last October was the turning point in retail sales. It was then that the consumer began to cut down on expenditures. I believe the same thing happened this year, and that’s why I only look for a modest increase in holiday spending over last year’s results. It’s more than just a feeling. I look at facts. The IBD TIPP Home Computer Purchase Outlook Index fell11% in October to 17.5, just above its all-time low of 17.3 in March. Only 19.7% of respondents said they were very likely or somewhat likely to buy a new PC within the next six months. That compares with 26.1% in July. According to this poll, 78% of U.S. households have at least one PC, and 37% have more than one PC. The IBD TIPP survey data reveals that September consumer confidence “fell off a cliff.” October only inched back. If the consumer continues to cut back on spending, GDP growth will turn to barely positive, and equity prices will also fall off a cliff. I hope no one gets hurt. I’ll be waiting at ground level.
Yesterday, the USDA said 12 million families last year worried they didn’t have enough money to buy food. Thirty two per cent of them actually experienced someone going hungry at one time or another.
Intense geomagnetic storms raging on the sun made the sky shimmer red and green. The storms again disrupted telecommunications, and high radiation levels at 25,000 feet and above will persist through the weekend. The telescope at Kitt Peak, Arizona picked up the largest array of sunspots in a very long time.
ChevronTexaco has 53,000 employees. Yesterday, they announced job cuts of 2000. Commerce One’s stock was a high flying company at the height of the Internet craze. With cash running out, they laid off most of the remaining 116 employees. Earlier in October they had cut 80 people from the payroll. On Monday morning Chairman and CEO Mark Hoffman should be able to hear a pin drop in their Pleasanton, CA office.
A roadside bomb killed at least two U.S. soldiers and wounded two other soldiers in Mosul, Iraq today. In addition, an oil pipeline was on fire about 10 miles north of Tikrit. The two deaths bring to 122 the number of American soldiers killed by hostile fire since Bush declared an end to hostile combat on May 1. A total of 114 U.S. soldiers were killed between the start of the war on March 20 and the end of April. An Islamic clergymen’s association in Mosul issued a statement Friday stating “supporting Americans is apostasy and a betrayal of religion.”
An average WalMart supercenter generates $80 to $100 million a year in annual revenues. Their smaller discount stores produce $60 million a year. People shop at WalMart for their low prices. They sell a 47-inch Panasonic high-definition television for $1,284. The same product sells on Best Buy’s website for $1,499.99. When it comes to price comparison shopping, consumers know their stuff.
Starbucks continues to expand, and plans to open “3 to 4 new stores every day around the world.” Since their IPO in 1992, Starbucks stock has had one of the best performances over this time period. They continue to meet goals of 20% sales growth and 20-25% earnings per share growth. The company expects their 500 stores in Japan to turn profitable in 2004. At present, they have 119 stores throughout China, but their chairman, Howard Schultz, thinks China could prove to be their biggest market outside the United States in future years.
Recently, I mentioned Amazon.com had introduced “Search Inside the Book,” an excellent search technology that allows one to search the contents of a book and preview individual pages and print those of particular interest. Yesterday, Amazon disabled this search and print technology found on the books located on its website. I do not know whether the cancellation is temporary or permanent, but will endeavor to find out.
Friday, October 31, 2003
10/31/03 ABCs: Arrogance, Bubbles, Competition
Lightening can strike twice. Solar storms can strike back-to-back. Never say never. It will happen today. The first geomagnetic storm was ranked X17, and was among the four most powerful in recorded history. It disabled two Japanese satellites, caused air traffic controllers to alter some trans-Atlantic flights, disrupted radio communications, and some power grids were curbed. What are the chances of such a storm occurring again in this decade? What are the chances it could happen today? Until this week, any brilliant physicist would say “no way.” He would be correct. It has not taken place back-to back. Actually, the physicist would be wrong. It’s happening today. In fact, there is a chance the two storms could join forces as the second one catches up with the first. The FAA issued an alert- the first of its kind ever- cautioning passengers about extra radiation they would receive during flights above 25,000 feet north of Albuquerque and similar latitudes. John Kohl, a solar physicist with the Harvard-Smithsonian Center for Astrophysics, stated “the probability of this happening is so low that it is a statistical anomaly…this second blast is moving like a fast freight train that very soon will plow into the back of the slower moving freight train in front of it, just as it pulls into the station. The station, in this case, happens to be the planet earth.” Kohl said the potential effect is not known. The National Oceanic and Atmospheric Administration (NOAA) RUNS THE Space Environment Center. Researchers are not in agreement that airline traffic is safe. The NOAA estimates an airline passenger can experience as much as 10 chest X-rays during a geomagnetic storm. According to the Space Environment Center, the chance of a major(X-class) solar eruption on each of the next three days is 50%.
Country accords can create massive eruptions. G-5 finance ministers gathered at the Plaza Hotel in New York City on September 22, 1985. A consensus was reached that the U.S. dollar was significantly overvalued, and dangerous financial and trade imbalances were in the process of reaching the boiling point. An agreement was formulated that “some further orderly appreciation of the main non-dollar currencies against the dollar is desirable, and they stand ready to cooperate more closely to encourage this when to do so would be helpful.” In the next two and one-half years the dollar melted in half against the yen and the DM. The purpose of the dollar devaluation was to eliminate the enormous U.S. financial and trade deficits with Japan. This was the yen revaluation storm that initiated the downward economic spiral in Japan. Government intervention does not work, and governments rarely learn from their mistakes. In fact, they compound their mistakes. On February 22, 1987 G6 Finance Ministers and Central Bank Governors met in Paris, France for the Louvre Accord, and they agreed to intensify their economic policy coordination efforts in order to promote more balanced global growth and to reduce existing imbalances. Surplus countries committed themselves to follow policies designed to strengthen domestic demand and to reduce their external surpluses while maintaining price stability. Deficit countries committed themselves to follow policies designed to encourage steady, low-inflation growth while reducing their domestic imbalances and external deficits. Furthermore, it was agreed that the substantial exchange rate changes since the Plaza Agreement increasingly contributed to reducing imbalances and brought their currencies within ranges broadly consistent with underlying economic fundamentals and policy commitments. In sum, they agreed to cooperate closely to foster stability of exchange rates around current levels.
IS EVERYONE AWAKE? Does everyone remember the G-7 summit meetings with the IMF and the World Bank in Dubai, United Arab Emirates from September 19 through September 23, 2003? A communique was issued by the G-7 calling for “more flexibility in exchange rates.” It read “in the context of exchange rates, we will strengthen the dialogue with other major economic areas to promote smooth adjustment of international imbalances, based on market mechanisms.” In the next few days, the Japanese yen and the euro rose sharply against the U.S. dollar. As one observer remarked, “I don’t think the dollar going down has to do with the Dubai G-7 communique insisting on flexible exchange rates; there is something else going on. The financial world has latched onto a falling dollar, because of knowledge that has been picked up…that the Administration clearly wants to abandon the strong dollar. It’s fair to say, that they want to drive the dollar down, because of growing desperation about the American economy, as the election year approaches.” China will not make the same mistake Japan made in 1985. A more expensive currency would create widespread job losses for Chinese workers at a time when China needs to create a minimum of 20 million jobs annually. China will not give in to pressure from the United States. Prof. Jiang Ruiping, Chairman of the Department of International Economics of the Foreign Affairs College in Beijing, remarked that the Bush Administration, and some in Japan, want China to submit to the same sort of agreement that took place in 1985 and 1987. He said a “yen revaluation depression” is a bitter pill that China and its yuan will not swallow. China will relax curbs in 14 trial provinces and regions, allowing local foreign exchange capital of overseas investment projects with a limit of $3 million versus a previous ceiling of $1 million. The stability of the yuan will be maintained. The goal is to boost China’s economic growth within a stable financial environment.
American citizens have paid a stiff price for the mistakes made by its political and economic leadership. The United States is the greatest country on the globe. We are in grave danger. We have endured civil war, world wars, the depression, 9/11, and hopefully, the Iraq war. We are facing a different war. It’s the assault on our populace and our standard of living and our freedoms by the global economy. China is not the culprit. Japan is not the culprit. India is not the culprit. YOU believe what you read and you believe what you hear. YOU DO NOT THINK FOR YOURSELF. That is you God given right. You have abused the privilege. I do think for myself. I do not know all the answers, but I know the following. Unless you make changes, there will be an economic upheaval in this country, and there will be bread lines- unless bread-making is outsourced. You, the American consumer, account for about 70% of our GDP. You run the show. You are in charge. You pay the salaries and the services. You account for 20% of the world economic activity. Without you, imports are history. You get the picture? The government is not your friend. They are destroying the value of the dollar. In so doing, they are wrecking your purchasing power. Stop the train. Get off the train. Stop buying foreign goods. We can compete with any country. Our workers are smarter and they need to have a better sense of accomplishment. Management personnel need to cut their salaries and benefits. Members of Congress need to cut their salaries and benefits. You have been given the means to pile up debt with low interest rates. You have received tax reductions and tax credits. You buy cars with zero down and zero interest rates. You spend. The government spends. You live paycheck to paycheck. The government lives debt ceiling increase to debt ceiling increase. The average American indebtedness represents 115% of disposable income. You have negative cash flow. Many public companies have negative cash flow. We have a national debt bubble of mammoth proportions accompanied by negative cash flow that prevents the paying down of debt. The only solution is to cut down on spending- both at the consumer and the government level. It will cause a recession. It will not cause a depression. If you don’t buy foreign goods, you won’t need to worry about the yuan, the yen, and the euro. The market forces will work in your favor. Your purchasing power will be restored. You will have done away with G-5, G-6, and G-7 accords. They only create stock market crashes and economic upheaval.
When WalMart first began, they proudly advertised their product offerings as “all American.” WalMart now purchases about $12 billion in goods from China. If you demand American goods and leave the foreign goods on the shelf, WalMart will supply you with the goods you desire. You must be willing to pay, in the short run, a premium for the American goods. The American worker receives a higher wage. You must support that wage or that wage will be outsourced. It’s your choice. The answer is not by re-arranging foreign currencies. It creates disastrous results.
This week someone emailed me to say that our plants were only at 75% capacity because the unused capacity was not competitive. He is correct; however, some companies are doing something about it. Anadarko Petroleum did lay off 400 workers to trim $100 million a year in costs. There will not be more layoffs. In addition to the $100 million, they reduced drilling costs by 15%. Companies need to find ways to reduce costs other than by cutting workers and outsourcing to foreign nations. The future is here. The present is here. The troubles are here. Imbalances are dangerous. Governments can’t fix them. You must demand they get fixed. They begin with you, your lifestyle, and your vote. The American citizen is the fall guy. China is not. Japan is not. India is not. We have clear choices. They are buy American, spend less, demand less spending in Washington, and make our businesses and our lifestyles more cost efficient. We must pay down debt and still save. We cannot have countries like Japan and China sustain large trade account surpluses with our country. It undermines our economic well being by depending on daily foreign capital inflows of $1.6 billion. Do you want to go begging every day from Japan and China. The global economy is dependent you for its export growth and your rising indebtedness and the nation’s indebtedness. The insatiable spending habits have generated deflation. The credit and indebtedness bubbles have generated global over-capacity, and the latter cannot be met with present demand.
I waited to write this piece until after the third quarter GDP numbers were released. I figured some months back that the quarter would be strong- over 5% and maybe even 6%. The 7+% did not surprise me. The public thinks we’re off to the races. Bush tells you we’re off to the races. There were 41,000 jobs lost in the quarter. Yesterday Duke Energy announced a plan to cut 2,000 employees. The help wanted index remains at the lowest point of 2003. The growth in job benefit costs is double the rate of wage increases, which remain muted. Companies cannot pass along increased costs. There are rising costs besides those in the benefit area. Many industrial commodities have risen sharply, and not just gold. Some agricultural commodities have risen sharply, such as, soybeans. These rising costs put a damper on business profit margins and consumer pocketbooks. You can see that at the gas pump or in your home heating bills. The CRB index is at its highest point in about six years. What happens when budget deficits occur? The city of San Jose is facing a huge budget deficit for the second consecutive year. The $85 million shortfall is more than 10% of the total operating budget. It will mean layoffs, deeper service cuts, and higher fees. The budget shortfall will be felt throughout the entire community. It’s a serious problem. Two economists at UC Berkeley’s Fisher Center for Real Estate and Urban Economics present another problem- up to 14 million jobs, and many of them in the Bay Area, are at risk of being shipped overseas. They range from computer programmers to clerks who input data, from medical transcriptionists to paralegals, and “the bottom line is, if there is a job that can be done equally well, equally efficient, at a much lower cost in a different part of the world, then that job is at risk in today’s globalizing world.” It is our job to make sure we do that job better and more efficiently so that increased productivity overwhelms the wage differences. We must give businesses good reasons to hire American workers and to keep American workers on the payrolls. The solution is not to place a cap on outsourcing. The solution is to do a better job and to reduce overhead.
Globalization in the workplace is a present danger that has created the loss of 3 million jobs over the past three years. You hold the key. You can compete. You also hold the key to trade deficits, and therefore, you can engineer a rebound in your purchasing power. You can spend less and pay down debt. You can save. Bush has looked to rising stock prices to create consumer optimism and for you to spend more so more jobs will be created. You have spent more. You spend more every day. Our hourly trade deficit mounts at an historic and an alarming rate. Our budget deficits mount hourly at the federal, state, and local levels. The debt levels of the American people rise hourly. The problem is the nation’s cash flow and that of its citizens continues to diminish. There is a daily shortfall. When making bread, there is a resting period. Without it, the bread will be a flop. We need a pause. We need a spending respite. We need to buy and employ American. It will mean lower earnings in the short run. It will mean lower stock prices. It will also ensure our future economic revival and vitality for future generations.
Lightening can strike twice. Solar storms can strike back-to-back. Never say never. It will happen today. The first geomagnetic storm was ranked X17, and was among the four most powerful in recorded history. It disabled two Japanese satellites, caused air traffic controllers to alter some trans-Atlantic flights, disrupted radio communications, and some power grids were curbed. What are the chances of such a storm occurring again in this decade? What are the chances it could happen today? Until this week, any brilliant physicist would say “no way.” He would be correct. It has not taken place back-to back. Actually, the physicist would be wrong. It’s happening today. In fact, there is a chance the two storms could join forces as the second one catches up with the first. The FAA issued an alert- the first of its kind ever- cautioning passengers about extra radiation they would receive during flights above 25,000 feet north of Albuquerque and similar latitudes. John Kohl, a solar physicist with the Harvard-Smithsonian Center for Astrophysics, stated “the probability of this happening is so low that it is a statistical anomaly…this second blast is moving like a fast freight train that very soon will plow into the back of the slower moving freight train in front of it, just as it pulls into the station. The station, in this case, happens to be the planet earth.” Kohl said the potential effect is not known. The National Oceanic and Atmospheric Administration (NOAA) RUNS THE Space Environment Center. Researchers are not in agreement that airline traffic is safe. The NOAA estimates an airline passenger can experience as much as 10 chest X-rays during a geomagnetic storm. According to the Space Environment Center, the chance of a major(X-class) solar eruption on each of the next three days is 50%.
Country accords can create massive eruptions. G-5 finance ministers gathered at the Plaza Hotel in New York City on September 22, 1985. A consensus was reached that the U.S. dollar was significantly overvalued, and dangerous financial and trade imbalances were in the process of reaching the boiling point. An agreement was formulated that “some further orderly appreciation of the main non-dollar currencies against the dollar is desirable, and they stand ready to cooperate more closely to encourage this when to do so would be helpful.” In the next two and one-half years the dollar melted in half against the yen and the DM. The purpose of the dollar devaluation was to eliminate the enormous U.S. financial and trade deficits with Japan. This was the yen revaluation storm that initiated the downward economic spiral in Japan. Government intervention does not work, and governments rarely learn from their mistakes. In fact, they compound their mistakes. On February 22, 1987 G6 Finance Ministers and Central Bank Governors met in Paris, France for the Louvre Accord, and they agreed to intensify their economic policy coordination efforts in order to promote more balanced global growth and to reduce existing imbalances. Surplus countries committed themselves to follow policies designed to strengthen domestic demand and to reduce their external surpluses while maintaining price stability. Deficit countries committed themselves to follow policies designed to encourage steady, low-inflation growth while reducing their domestic imbalances and external deficits. Furthermore, it was agreed that the substantial exchange rate changes since the Plaza Agreement increasingly contributed to reducing imbalances and brought their currencies within ranges broadly consistent with underlying economic fundamentals and policy commitments. In sum, they agreed to cooperate closely to foster stability of exchange rates around current levels.
IS EVERYONE AWAKE? Does everyone remember the G-7 summit meetings with the IMF and the World Bank in Dubai, United Arab Emirates from September 19 through September 23, 2003? A communique was issued by the G-7 calling for “more flexibility in exchange rates.” It read “in the context of exchange rates, we will strengthen the dialogue with other major economic areas to promote smooth adjustment of international imbalances, based on market mechanisms.” In the next few days, the Japanese yen and the euro rose sharply against the U.S. dollar. As one observer remarked, “I don’t think the dollar going down has to do with the Dubai G-7 communique insisting on flexible exchange rates; there is something else going on. The financial world has latched onto a falling dollar, because of knowledge that has been picked up…that the Administration clearly wants to abandon the strong dollar. It’s fair to say, that they want to drive the dollar down, because of growing desperation about the American economy, as the election year approaches.” China will not make the same mistake Japan made in 1985. A more expensive currency would create widespread job losses for Chinese workers at a time when China needs to create a minimum of 20 million jobs annually. China will not give in to pressure from the United States. Prof. Jiang Ruiping, Chairman of the Department of International Economics of the Foreign Affairs College in Beijing, remarked that the Bush Administration, and some in Japan, want China to submit to the same sort of agreement that took place in 1985 and 1987. He said a “yen revaluation depression” is a bitter pill that China and its yuan will not swallow. China will relax curbs in 14 trial provinces and regions, allowing local foreign exchange capital of overseas investment projects with a limit of $3 million versus a previous ceiling of $1 million. The stability of the yuan will be maintained. The goal is to boost China’s economic growth within a stable financial environment.
American citizens have paid a stiff price for the mistakes made by its political and economic leadership. The United States is the greatest country on the globe. We are in grave danger. We have endured civil war, world wars, the depression, 9/11, and hopefully, the Iraq war. We are facing a different war. It’s the assault on our populace and our standard of living and our freedoms by the global economy. China is not the culprit. Japan is not the culprit. India is not the culprit. YOU believe what you read and you believe what you hear. YOU DO NOT THINK FOR YOURSELF. That is you God given right. You have abused the privilege. I do think for myself. I do not know all the answers, but I know the following. Unless you make changes, there will be an economic upheaval in this country, and there will be bread lines- unless bread-making is outsourced. You, the American consumer, account for about 70% of our GDP. You run the show. You are in charge. You pay the salaries and the services. You account for 20% of the world economic activity. Without you, imports are history. You get the picture? The government is not your friend. They are destroying the value of the dollar. In so doing, they are wrecking your purchasing power. Stop the train. Get off the train. Stop buying foreign goods. We can compete with any country. Our workers are smarter and they need to have a better sense of accomplishment. Management personnel need to cut their salaries and benefits. Members of Congress need to cut their salaries and benefits. You have been given the means to pile up debt with low interest rates. You have received tax reductions and tax credits. You buy cars with zero down and zero interest rates. You spend. The government spends. You live paycheck to paycheck. The government lives debt ceiling increase to debt ceiling increase. The average American indebtedness represents 115% of disposable income. You have negative cash flow. Many public companies have negative cash flow. We have a national debt bubble of mammoth proportions accompanied by negative cash flow that prevents the paying down of debt. The only solution is to cut down on spending- both at the consumer and the government level. It will cause a recession. It will not cause a depression. If you don’t buy foreign goods, you won’t need to worry about the yuan, the yen, and the euro. The market forces will work in your favor. Your purchasing power will be restored. You will have done away with G-5, G-6, and G-7 accords. They only create stock market crashes and economic upheaval.
When WalMart first began, they proudly advertised their product offerings as “all American.” WalMart now purchases about $12 billion in goods from China. If you demand American goods and leave the foreign goods on the shelf, WalMart will supply you with the goods you desire. You must be willing to pay, in the short run, a premium for the American goods. The American worker receives a higher wage. You must support that wage or that wage will be outsourced. It’s your choice. The answer is not by re-arranging foreign currencies. It creates disastrous results.
This week someone emailed me to say that our plants were only at 75% capacity because the unused capacity was not competitive. He is correct; however, some companies are doing something about it. Anadarko Petroleum did lay off 400 workers to trim $100 million a year in costs. There will not be more layoffs. In addition to the $100 million, they reduced drilling costs by 15%. Companies need to find ways to reduce costs other than by cutting workers and outsourcing to foreign nations. The future is here. The present is here. The troubles are here. Imbalances are dangerous. Governments can’t fix them. You must demand they get fixed. They begin with you, your lifestyle, and your vote. The American citizen is the fall guy. China is not. Japan is not. India is not. We have clear choices. They are buy American, spend less, demand less spending in Washington, and make our businesses and our lifestyles more cost efficient. We must pay down debt and still save. We cannot have countries like Japan and China sustain large trade account surpluses with our country. It undermines our economic well being by depending on daily foreign capital inflows of $1.6 billion. Do you want to go begging every day from Japan and China. The global economy is dependent you for its export growth and your rising indebtedness and the nation’s indebtedness. The insatiable spending habits have generated deflation. The credit and indebtedness bubbles have generated global over-capacity, and the latter cannot be met with present demand.
I waited to write this piece until after the third quarter GDP numbers were released. I figured some months back that the quarter would be strong- over 5% and maybe even 6%. The 7+% did not surprise me. The public thinks we’re off to the races. Bush tells you we’re off to the races. There were 41,000 jobs lost in the quarter. Yesterday Duke Energy announced a plan to cut 2,000 employees. The help wanted index remains at the lowest point of 2003. The growth in job benefit costs is double the rate of wage increases, which remain muted. Companies cannot pass along increased costs. There are rising costs besides those in the benefit area. Many industrial commodities have risen sharply, and not just gold. Some agricultural commodities have risen sharply, such as, soybeans. These rising costs put a damper on business profit margins and consumer pocketbooks. You can see that at the gas pump or in your home heating bills. The CRB index is at its highest point in about six years. What happens when budget deficits occur? The city of San Jose is facing a huge budget deficit for the second consecutive year. The $85 million shortfall is more than 10% of the total operating budget. It will mean layoffs, deeper service cuts, and higher fees. The budget shortfall will be felt throughout the entire community. It’s a serious problem. Two economists at UC Berkeley’s Fisher Center for Real Estate and Urban Economics present another problem- up to 14 million jobs, and many of them in the Bay Area, are at risk of being shipped overseas. They range from computer programmers to clerks who input data, from medical transcriptionists to paralegals, and “the bottom line is, if there is a job that can be done equally well, equally efficient, at a much lower cost in a different part of the world, then that job is at risk in today’s globalizing world.” It is our job to make sure we do that job better and more efficiently so that increased productivity overwhelms the wage differences. We must give businesses good reasons to hire American workers and to keep American workers on the payrolls. The solution is not to place a cap on outsourcing. The solution is to do a better job and to reduce overhead.
Globalization in the workplace is a present danger that has created the loss of 3 million jobs over the past three years. You hold the key. You can compete. You also hold the key to trade deficits, and therefore, you can engineer a rebound in your purchasing power. You can spend less and pay down debt. You can save. Bush has looked to rising stock prices to create consumer optimism and for you to spend more so more jobs will be created. You have spent more. You spend more every day. Our hourly trade deficit mounts at an historic and an alarming rate. Our budget deficits mount hourly at the federal, state, and local levels. The debt levels of the American people rise hourly. The problem is the nation’s cash flow and that of its citizens continues to diminish. There is a daily shortfall. When making bread, there is a resting period. Without it, the bread will be a flop. We need a pause. We need a spending respite. We need to buy and employ American. It will mean lower earnings in the short run. It will mean lower stock prices. It will also ensure our future economic revival and vitality for future generations.
Thursday, October 30, 2003
10/30/03 “It Ain’t Fair. It Ain’t Right.”
Since getting elected, President Bush will make his 13th visit to Ohio today. I wonder whether he will be discussing medical care for our wounded soldiers. Yesterday, he discussed a Medicare bill that would omit co-pay for home health care. Cpl. Waymond Boyd has served the military for 15 years, and was recently in Iraq with the National Guard. He said “I joined to serve my country. It doesn’t make sense to go over there and risk your life and come back to this. It ain’t fair and it ain’t right. I used to be patriotic.” Boyd’s knee and wrist injuries were severe enough that he was evacuated and sent to Fort Knox. It took him about two months to get a cast for his wrist. He walks with a cane. More than 400 sick and injured soldiers are stuck at Fort Knox waiting weeks and sometimes months for medical treatment. The conditions at Fort Stewart were not an isolated situation. I will repeat what I previously stated. A commander-in-chief should care for his soldiers and should not let them endure inadequate medical treatment. To consider any financial aid for Iraq before proper assistance is provided to those serving our country is unspeakable. Our own come first.
It was reported in the Washington Times that, on June 25, the FBI’s regional office in Denver had sent a memo to state and local law enforcement agencies warning them of a plot to start forest fires in the western United States using timed incendiary devices. The fires in southern California have produced 20 deaths, charred about 700,000 acres, and destroyed 2600 homes. With increased smoke and ash producing hundreds of natural chemicals as well as numerous gases, airborne particulate levels have become highly unhealthy, and, in some cases, dangerous for breathing.
Peaking of Fort Knox, as the new colorful $20 bills circulate around the country, more consumers are finding that the bills do not work on ATM machines found in self-service check-out counters at many grocery stores. Customers can pay a store cashier with the new bills. Sprint also can’t accept the new bill at payment machines in their 600 stores nationwide. This is another example of inadequate government planning. They can’t blame this on terrorism.
California’s Controller, Steve Westley, urged Arnold to push for spending cuts. Westley anticipates that the state will have at least an $8 billion budget shortfall, and remarked “do not rely on putting our problems off to the future by extended borrowing.” Talking about California, the East Bay section of the San Francisco Bay Area had a severe venture capital slump in the third quarter, the weakest quarter since the beginning of 1997, and 39% below the financing levels of the third quarter of 2002. Steve Bengston, managing director of emerging company services with PricewaterhouseCoopers, stated “the good news is we are at or near the bottom. The bad news is the market will not head up any time soon.”
The EU slashed its growth forecasts for 2003 to “a mere 0.4%” and stated that next year growth should return to average growth of 1.8%. They warned “the need for firms to focus on cost reductions…together with the prospects for a mild recovery” as drags on job creation. The unemployment rate in the euro-zone approximates 9%. Yesterday brought more bad news for our own loss of jobs. EDS, the number two computer services company, said it will cut 2,500 more jobs. They had originally announced layoffs for 2,700 employees. General Cable announced they would be closing a 131,000 square foot manufacturing plant in Taunton, Mass due to what its CEO calls the “unprecedented decline in North American industrial activity.” The plant employed 77 workers. In addition, the company is conducting feasibility studies of facilities in South Hadley, Mass. and Marion, Ind. to determine whether to continue operations at the plants or transfer or outsource the production. Do not be concerned. The GDP growth rate for the third quarter will be announced and it will be a buoyant 6% or so, and everything will be fine and dandy.
The Urban Land Institute had its fall meeting in San Francisco. The leading concern is the jobless recovery. Without more jobs, offices will remain empty and rents will not increase. Said one participant worried about outsourcing, “it was one thing to move a back office to Sioux Falls in the nineties. It is quite another to move an accounting operation to Banglahor…it’s hard to have much near-term conviction.”
Yesterday’s geomagnetic storm did a number on Japan. The storm shut down two experimental communications satellites. They could be permanently damaged. The brunt of the storm is known as a coronal mass ejection. I have to get me one of those!
In his 1/29/03 State of the Union address, Bush said “Medicare is the binding commitment of a caring society.” Then, in a 6/6/03 speech, Bush stated “we must protect seniors from high medical costs that can rob them of their savings.” There are several studies that show the proposed Medicare plan will, in fact, increase costs for seniors, such as, eliminating co-payments for home health care. A July 2003 stdy by the U.S. Action Education Fund shows that drug prices could be negotiated at 40% savings below retail if Medicare were able to offer a prescription drug benefit directly. The proposed plan will increase the level of deductible costs.
The Iraq Survey Group is comprised of 1,400 people working under David Kay. Having not found the WMD, there are thoughts to shift some of these “intelligence personnel” to the battle against insurgent forces with their attacks on our troops.
Since getting elected, President Bush will make his 13th visit to Ohio today. I wonder whether he will be discussing medical care for our wounded soldiers. Yesterday, he discussed a Medicare bill that would omit co-pay for home health care. Cpl. Waymond Boyd has served the military for 15 years, and was recently in Iraq with the National Guard. He said “I joined to serve my country. It doesn’t make sense to go over there and risk your life and come back to this. It ain’t fair and it ain’t right. I used to be patriotic.” Boyd’s knee and wrist injuries were severe enough that he was evacuated and sent to Fort Knox. It took him about two months to get a cast for his wrist. He walks with a cane. More than 400 sick and injured soldiers are stuck at Fort Knox waiting weeks and sometimes months for medical treatment. The conditions at Fort Stewart were not an isolated situation. I will repeat what I previously stated. A commander-in-chief should care for his soldiers and should not let them endure inadequate medical treatment. To consider any financial aid for Iraq before proper assistance is provided to those serving our country is unspeakable. Our own come first.
It was reported in the Washington Times that, on June 25, the FBI’s regional office in Denver had sent a memo to state and local law enforcement agencies warning them of a plot to start forest fires in the western United States using timed incendiary devices. The fires in southern California have produced 20 deaths, charred about 700,000 acres, and destroyed 2600 homes. With increased smoke and ash producing hundreds of natural chemicals as well as numerous gases, airborne particulate levels have become highly unhealthy, and, in some cases, dangerous for breathing.
Peaking of Fort Knox, as the new colorful $20 bills circulate around the country, more consumers are finding that the bills do not work on ATM machines found in self-service check-out counters at many grocery stores. Customers can pay a store cashier with the new bills. Sprint also can’t accept the new bill at payment machines in their 600 stores nationwide. This is another example of inadequate government planning. They can’t blame this on terrorism.
California’s Controller, Steve Westley, urged Arnold to push for spending cuts. Westley anticipates that the state will have at least an $8 billion budget shortfall, and remarked “do not rely on putting our problems off to the future by extended borrowing.” Talking about California, the East Bay section of the San Francisco Bay Area had a severe venture capital slump in the third quarter, the weakest quarter since the beginning of 1997, and 39% below the financing levels of the third quarter of 2002. Steve Bengston, managing director of emerging company services with PricewaterhouseCoopers, stated “the good news is we are at or near the bottom. The bad news is the market will not head up any time soon.”
The EU slashed its growth forecasts for 2003 to “a mere 0.4%” and stated that next year growth should return to average growth of 1.8%. They warned “the need for firms to focus on cost reductions…together with the prospects for a mild recovery” as drags on job creation. The unemployment rate in the euro-zone approximates 9%. Yesterday brought more bad news for our own loss of jobs. EDS, the number two computer services company, said it will cut 2,500 more jobs. They had originally announced layoffs for 2,700 employees. General Cable announced they would be closing a 131,000 square foot manufacturing plant in Taunton, Mass due to what its CEO calls the “unprecedented decline in North American industrial activity.” The plant employed 77 workers. In addition, the company is conducting feasibility studies of facilities in South Hadley, Mass. and Marion, Ind. to determine whether to continue operations at the plants or transfer or outsource the production. Do not be concerned. The GDP growth rate for the third quarter will be announced and it will be a buoyant 6% or so, and everything will be fine and dandy.
The Urban Land Institute had its fall meeting in San Francisco. The leading concern is the jobless recovery. Without more jobs, offices will remain empty and rents will not increase. Said one participant worried about outsourcing, “it was one thing to move a back office to Sioux Falls in the nineties. It is quite another to move an accounting operation to Banglahor…it’s hard to have much near-term conviction.”
Yesterday’s geomagnetic storm did a number on Japan. The storm shut down two experimental communications satellites. They could be permanently damaged. The brunt of the storm is known as a coronal mass ejection. I have to get me one of those!
In his 1/29/03 State of the Union address, Bush said “Medicare is the binding commitment of a caring society.” Then, in a 6/6/03 speech, Bush stated “we must protect seniors from high medical costs that can rob them of their savings.” There are several studies that show the proposed Medicare plan will, in fact, increase costs for seniors, such as, eliminating co-payments for home health care. A July 2003 stdy by the U.S. Action Education Fund shows that drug prices could be negotiated at 40% savings below retail if Medicare were able to offer a prescription drug benefit directly. The proposed plan will increase the level of deductible costs.
The Iraq Survey Group is comprised of 1,400 people working under David Kay. Having not found the WMD, there are thoughts to shift some of these “intelligence personnel” to the battle against insurgent forces with their attacks on our troops.
Wednesday, October 29, 2003
10/29/03 The World Is Not The Rose Garden
For 48 minutes yesterday President Bush gave a news conference out in the Rose Garden. It was a chilly fall morning but he made us feel so much better as he declared “the world is more peaceful and more free under my leadership and America is more secure.” He announced the United States will change tactics and stiffen defenses. It’s too late for the 116 U.S. troops killed in hostile action since Washington declared major combat operations over on May 1. That number exceeds the 115 U.S. combat deaths during the U.S.-led war. Would the president consider this a trick question? How is the world more peaceful if there are on average 26 daily attacks on our troops in Iraq and about 1,675 of our troops wounded since May 1? Attacks have been on the rise since early September. That’s a fact. Britain’s special representative in Iraq, Sir Jeremy Greenstock, predicted the violence would continue and stated “it is going to go on through the winter, probably.”
A little before noon EST today our planet will be buffeted (not Warren) by a major geomagnetic storm, one that has the potential to disrupt satellites, communications, and power. It will be a significant geomagnetic storm. “The flare as measured by X-ray flux is the largest we’ve ever seen,” said John Kohl, a solar astrophysicist at the Harvard-Smithsonian Center for Astrophysics. One of Kohl’s associates, Leon Golub, remarked “this is the strongest flare we’ve seen in the past 30 years… the Earth is essentially right on the axis of this material.” It has already produced enhanced radiation 100,000 times the background levels at the geostationary satellite orbits. It should be noted that these solar storms do not threaten the health or welfare of humans on Earth; however, they do have the potential of producing elongated noses on those in Congress and in the Administration. I should warn you though. This is a category 5 geomagnetic storm, the top of the scale. It has the potential of creating an unusual flow within the power system but it is not powerful enough to disrupt the BS emanating from Washington.
There have been 16 fatalities resulting from the blazing fires in Southern California. About 2000 homes have been destroyed, and up to 100,000 have endured evacuation. The fires have stormed over about 600,000 acres and 900 square miles, about the size of Rhode Island. At the moment, the fires are fiercest in the bone-dry mountain areas. The firefighters are fatigued. More than 11,000 firefighters are on the lines struggling to contain at least 17 separate fires. More than 50 people have been injured, and that does not include the firefighters. Andrea Tuttle, director of California department of Forestry, stated “ we haven’t seen this intensity of fire and number of residents being affected ever before. This is an extraordinary 100-year event…this is Mother Nature’s natural fire cycle and when you get winds like this it will overwhelm, for awhile, our ability to deal with them.”
According to a report in yesterday’s San Francisco Chronicle, California’s unemployment insurance fund may be bankrupt by January unless benefits are slashed, taxes on businesses are raised, or the state gets a loan from the federal government. The state would have to borrow $1.17 billion to keep benefits flowing to California’s jobless in 2004. It would be unprecedented for California but not nationally. In the most recent past, Texas, New York, Illinois and several smaller states have had to borrow federal funds to keep their unemployment funds solvent. The number of unemployed in California exceeds 1.1 million people.
If the merger of R.J. Reynolds and the tobacco operations of BAT in the United States does take place, then one of the world’s largest cigarette factories will close. The Brown and Williamson factory in Macon, Georgia has 2,100 employees. The average hourly worker makes $26 an hour, and the typical before-tax annual pay is $50,000 to $70,000. It is estimated the Macon plant will close in 18 to 20 months. The plant’s output, about one-half of its cigarettes is shipped to Japan and other countries overseas, accounts for one-tenth of the value of all exports from Georgia. The plant has been in Macon for 27 years.
There was more bad news for Georgia. Coca Cola announced they would be increasing layoffs from the previously announced 1900 to 2800. New York was not spared as JP Morgan Chase announced employee cuts of 1,000. Trapeze Networks of Pleasanton, CA has raised more than $50 million in venture capital funding. The company designs wireless networking equipment for the Wi-FI INDUSTRY. Yesterday Trapeze announced cutting 40 of their 120 employees from the payroll. The company’s vice president of marketing stated “we built for an extremely aggressive ramp-up. We thought we’d see meteoric rise in Wi-Fi demand. Overall, the market is still good. We really just needed to resize the company for what the real growth in the market is.”
Delos Smith, a Conference Board economist, said the expectations index remains low considering the economy likely grew at a 6% rate in the third quarter. He remarked “this economy is on steroids, so it’s going to look very beautiful for the third quarter. But you still have the underlying problem of terrorism, you have the underlying problem of employment. Where will the jobs be.” If the Republicans on the House tax-writing committee have their way, more jobs will be exported. Overcoming Democratic opposition, these Republicans voted yesterday to give multinational corporations tax cuts totaling $128 billion over 10 years. The legislation would make it easier for multinational firms to claim tax deductions for interest and taxes paid to foreign governments. It would also cut the top tax rate for most U.S. businesses from 35% to 32% by 2012. However, small businesses would have their cut phased in depending upon a firm’s taxable income. Writing in a letter signed by 10 other Republicans, Rep. Donald Manzullo, R-ILL, stated the legislation would lower “ the cost of doing business overseas for American companies. This will necessarily encourage American companies to move American jobs offshore to China and other locations.”
According to Nielsen Media Research, advertisers spent an estimated $10 billion in China last year, making it the world’s fifth-largest advertising market. It is widely expected to grow by billions of dollars this year, and in 10 years, China is expected to overtake Japan as the second-largest market. Making ads in China is not cheaper than elsewhere.
For 48 minutes yesterday President Bush gave a news conference out in the Rose Garden. It was a chilly fall morning but he made us feel so much better as he declared “the world is more peaceful and more free under my leadership and America is more secure.” He announced the United States will change tactics and stiffen defenses. It’s too late for the 116 U.S. troops killed in hostile action since Washington declared major combat operations over on May 1. That number exceeds the 115 U.S. combat deaths during the U.S.-led war. Would the president consider this a trick question? How is the world more peaceful if there are on average 26 daily attacks on our troops in Iraq and about 1,675 of our troops wounded since May 1? Attacks have been on the rise since early September. That’s a fact. Britain’s special representative in Iraq, Sir Jeremy Greenstock, predicted the violence would continue and stated “it is going to go on through the winter, probably.”
A little before noon EST today our planet will be buffeted (not Warren) by a major geomagnetic storm, one that has the potential to disrupt satellites, communications, and power. It will be a significant geomagnetic storm. “The flare as measured by X-ray flux is the largest we’ve ever seen,” said John Kohl, a solar astrophysicist at the Harvard-Smithsonian Center for Astrophysics. One of Kohl’s associates, Leon Golub, remarked “this is the strongest flare we’ve seen in the past 30 years… the Earth is essentially right on the axis of this material.” It has already produced enhanced radiation 100,000 times the background levels at the geostationary satellite orbits. It should be noted that these solar storms do not threaten the health or welfare of humans on Earth; however, they do have the potential of producing elongated noses on those in Congress and in the Administration. I should warn you though. This is a category 5 geomagnetic storm, the top of the scale. It has the potential of creating an unusual flow within the power system but it is not powerful enough to disrupt the BS emanating from Washington.
There have been 16 fatalities resulting from the blazing fires in Southern California. About 2000 homes have been destroyed, and up to 100,000 have endured evacuation. The fires have stormed over about 600,000 acres and 900 square miles, about the size of Rhode Island. At the moment, the fires are fiercest in the bone-dry mountain areas. The firefighters are fatigued. More than 11,000 firefighters are on the lines struggling to contain at least 17 separate fires. More than 50 people have been injured, and that does not include the firefighters. Andrea Tuttle, director of California department of Forestry, stated “ we haven’t seen this intensity of fire and number of residents being affected ever before. This is an extraordinary 100-year event…this is Mother Nature’s natural fire cycle and when you get winds like this it will overwhelm, for awhile, our ability to deal with them.”
According to a report in yesterday’s San Francisco Chronicle, California’s unemployment insurance fund may be bankrupt by January unless benefits are slashed, taxes on businesses are raised, or the state gets a loan from the federal government. The state would have to borrow $1.17 billion to keep benefits flowing to California’s jobless in 2004. It would be unprecedented for California but not nationally. In the most recent past, Texas, New York, Illinois and several smaller states have had to borrow federal funds to keep their unemployment funds solvent. The number of unemployed in California exceeds 1.1 million people.
If the merger of R.J. Reynolds and the tobacco operations of BAT in the United States does take place, then one of the world’s largest cigarette factories will close. The Brown and Williamson factory in Macon, Georgia has 2,100 employees. The average hourly worker makes $26 an hour, and the typical before-tax annual pay is $50,000 to $70,000. It is estimated the Macon plant will close in 18 to 20 months. The plant’s output, about one-half of its cigarettes is shipped to Japan and other countries overseas, accounts for one-tenth of the value of all exports from Georgia. The plant has been in Macon for 27 years.
There was more bad news for Georgia. Coca Cola announced they would be increasing layoffs from the previously announced 1900 to 2800. New York was not spared as JP Morgan Chase announced employee cuts of 1,000. Trapeze Networks of Pleasanton, CA has raised more than $50 million in venture capital funding. The company designs wireless networking equipment for the Wi-FI INDUSTRY. Yesterday Trapeze announced cutting 40 of their 120 employees from the payroll. The company’s vice president of marketing stated “we built for an extremely aggressive ramp-up. We thought we’d see meteoric rise in Wi-Fi demand. Overall, the market is still good. We really just needed to resize the company for what the real growth in the market is.”
Delos Smith, a Conference Board economist, said the expectations index remains low considering the economy likely grew at a 6% rate in the third quarter. He remarked “this economy is on steroids, so it’s going to look very beautiful for the third quarter. But you still have the underlying problem of terrorism, you have the underlying problem of employment. Where will the jobs be.” If the Republicans on the House tax-writing committee have their way, more jobs will be exported. Overcoming Democratic opposition, these Republicans voted yesterday to give multinational corporations tax cuts totaling $128 billion over 10 years. The legislation would make it easier for multinational firms to claim tax deductions for interest and taxes paid to foreign governments. It would also cut the top tax rate for most U.S. businesses from 35% to 32% by 2012. However, small businesses would have their cut phased in depending upon a firm’s taxable income. Writing in a letter signed by 10 other Republicans, Rep. Donald Manzullo, R-ILL, stated the legislation would lower “ the cost of doing business overseas for American companies. This will necessarily encourage American companies to move American jobs offshore to China and other locations.”
According to Nielsen Media Research, advertisers spent an estimated $10 billion in China last year, making it the world’s fifth-largest advertising market. It is widely expected to grow by billions of dollars this year, and in 10 years, China is expected to overtake Japan as the second-largest market. Making ads in China is not cheaper than elsewhere.
Tuesday, October 28, 2003
10/28/03 Staying The Course
Sometimes it gets pretty scary staying the course. Sometimes it means staying inside your living quarters and placing wet towels around the doors and windows to the outside world. The soot and grime find a way through the cracks. You can see the bright flames on the hills not far from where you are. The highways are closed. The local roads are bumper to bumper. Transmission lines are damaged. People are urged to stay indoors. Schools are closed. The airports cancel flights. Some panic and attempt to drive through the flames. It’s tough to breathe. At least fifteen are known dead. At least 1,500 homes have been destroyed, and another 30,000+ homes are threatened with raging flames. Already 500,000 acres have been consumed from the border of Mexico to the northeast suburbs of LA. Supposedly, cooler and less windy weather is on the way. That forecast could raise the hopes of the overworked fire personnel and the endangered residents, and one of those is my son.
There are times when one decides against staying the course. Warren Buffett made that decision over the past year and a half. For the first time in his seventy-plus years, he made significant purchases in foreign currencies. He remarked that “our trade deficit has greatly worsened, to the point that our country’s ‘net worth,’ so to speak, is now being transferred abroad at an alarming rate.”
In the past two days Cadbury and Sony have announced they will cut thousands of employees over the next few years. Sony will cut 7,000 just in Japan. These two companies could reduce their employment by almost 30,000 people.
The state of Illinois claims that importing cheaper prescription drugs from Canada could save their residents up to $90 million a year without compromising safety. The Illinois report said there is an additional guarantee of safety because Canadian pharmacies fill prescriptions in amounts supplied by the manufacturer in sealed containers only. They do not open manufacturer supplied containers, count, and repackage to fill the prescription as done in the United States.
It is not unusual for an individual to work for a company because of the insurance benefits and not just for the pay. Many of those companies employee 1,000 or more, and many of those companies are cutting those same benefits. In the 1960s, more than 80% of U.S. workers had health insurance through their employers. With sharply rising premiums, that number is down to 62%. A recent study by the Institute for Labor and Economy at UC Berkeley found that 700,000 uninsured people who were eligible for the state Medicaid program were in families with a wage earner employed by a company of more than 1,000 employees.
How many citizens ask what will $500 million budget deficits and $500 million trade deficits mean to my family? Richard Kogan, a fellow at the Center for Budget and Policy Priorities, explains that “these historically large deficits mean a generation is going to have to pay taxes at higher rates, if we are going to support a decent retirement and healthcare system.” Do not be fooled by the tax cuts and child credit extended to our citizens over the past three years. Tax cuts along with record deficits create catastrophic economic and social derailments. The payments for mismanagement take place over many years. There are rational ways to stay the course and then there are poorly planned strategies. Alan Greenspan was smart enough to realize there was a bubble forming in 1996. He also has warned the Congress of the current out-of-control spending policies. Buffett sees the handwriting on the wall. Do you? When you vote, ask whether that person you want elected gets it.
The McDonald Financial Group Affluent Consumer Index is based on a national survey of randomly selected individuals with investable assets of $500,000 or more, or personal annual incomes of $150,000 or more. Some 60% of respondents classify themselves as business leaders and senior executives, and of them, 73% said they plan to hold their holiday spending steady compared with 2002, while only 13% said they would spend more. The affluent is paying down debt. Only 30% of the respondents actually plan to increase their investments in the next three months and 27% intend to reduce them.
R.J. Reynolds and British American Tobacco will combine the assets and operations of their respective U.S. tobacco businesses into a new publicly traded holding company. RJR shareholders will own 58% and BAT holders 42%. The transaction will be tax-free, and is expected to close in mid-2004. The combination will consolidate the second and third largest U.S. tobacco companies, and generate over 30% of the cigarette sales in the United States.
Sometimes it gets pretty scary staying the course. Sometimes it means staying inside your living quarters and placing wet towels around the doors and windows to the outside world. The soot and grime find a way through the cracks. You can see the bright flames on the hills not far from where you are. The highways are closed. The local roads are bumper to bumper. Transmission lines are damaged. People are urged to stay indoors. Schools are closed. The airports cancel flights. Some panic and attempt to drive through the flames. It’s tough to breathe. At least fifteen are known dead. At least 1,500 homes have been destroyed, and another 30,000+ homes are threatened with raging flames. Already 500,000 acres have been consumed from the border of Mexico to the northeast suburbs of LA. Supposedly, cooler and less windy weather is on the way. That forecast could raise the hopes of the overworked fire personnel and the endangered residents, and one of those is my son.
There are times when one decides against staying the course. Warren Buffett made that decision over the past year and a half. For the first time in his seventy-plus years, he made significant purchases in foreign currencies. He remarked that “our trade deficit has greatly worsened, to the point that our country’s ‘net worth,’ so to speak, is now being transferred abroad at an alarming rate.”
In the past two days Cadbury and Sony have announced they will cut thousands of employees over the next few years. Sony will cut 7,000 just in Japan. These two companies could reduce their employment by almost 30,000 people.
The state of Illinois claims that importing cheaper prescription drugs from Canada could save their residents up to $90 million a year without compromising safety. The Illinois report said there is an additional guarantee of safety because Canadian pharmacies fill prescriptions in amounts supplied by the manufacturer in sealed containers only. They do not open manufacturer supplied containers, count, and repackage to fill the prescription as done in the United States.
It is not unusual for an individual to work for a company because of the insurance benefits and not just for the pay. Many of those companies employee 1,000 or more, and many of those companies are cutting those same benefits. In the 1960s, more than 80% of U.S. workers had health insurance through their employers. With sharply rising premiums, that number is down to 62%. A recent study by the Institute for Labor and Economy at UC Berkeley found that 700,000 uninsured people who were eligible for the state Medicaid program were in families with a wage earner employed by a company of more than 1,000 employees.
How many citizens ask what will $500 million budget deficits and $500 million trade deficits mean to my family? Richard Kogan, a fellow at the Center for Budget and Policy Priorities, explains that “these historically large deficits mean a generation is going to have to pay taxes at higher rates, if we are going to support a decent retirement and healthcare system.” Do not be fooled by the tax cuts and child credit extended to our citizens over the past three years. Tax cuts along with record deficits create catastrophic economic and social derailments. The payments for mismanagement take place over many years. There are rational ways to stay the course and then there are poorly planned strategies. Alan Greenspan was smart enough to realize there was a bubble forming in 1996. He also has warned the Congress of the current out-of-control spending policies. Buffett sees the handwriting on the wall. Do you? When you vote, ask whether that person you want elected gets it.
The McDonald Financial Group Affluent Consumer Index is based on a national survey of randomly selected individuals with investable assets of $500,000 or more, or personal annual incomes of $150,000 or more. Some 60% of respondents classify themselves as business leaders and senior executives, and of them, 73% said they plan to hold their holiday spending steady compared with 2002, while only 13% said they would spend more. The affluent is paying down debt. Only 30% of the respondents actually plan to increase their investments in the next three months and 27% intend to reduce them.
R.J. Reynolds and British American Tobacco will combine the assets and operations of their respective U.S. tobacco businesses into a new publicly traded holding company. RJR shareholders will own 58% and BAT holders 42%. The transaction will be tax-free, and is expected to close in mid-2004. The combination will consolidate the second and third largest U.S. tobacco companies, and generate over 30% of the cigarette sales in the United States.
Monday, October 27, 2003
10/27/03 Can Your Job Be Digitized?
The Institute for International Economics is a Washington, DC think tank. Gary C. Hufbauer is a senior fellow and international economist at the Institute. He has made an excellent point by stating “if your job can be digitized, it can be moved.” In other words, millions of service jobs could be moved outside the United States and remain there. Normally, one immediately mentions IT jobs but included could be life sciences, legal work, finance, business services, etc. John Napier is a 53-year old electrical engineer who was laid off by EMC Corp. in mid-2001. He raises a crucial point that “the people who get forced out of old jobs that go overseas are not the ones who get the new jobs.” If millions follow Napier to the unemployment rolls over the coming years, what new white-collar “mind”jobs will be created in the United States? There aren’t enough service jobs on the horizon to make this an economy of the under-employed.
We started the week off with two major merger announcements. For years, it was rumored that FleetBoston Financial was a takeover candidate. The Boston Globe reported that Bank of America would pay $45 a share in stock and cash for the seventh-biggest U.S. bank by assets. Bank of America is the third-largest U.S. bank. In addition, Anthem, Inc., the fifth-largest U.S. health insurer, announced plans to buy one of its competitors, WellPoint Health Networks, for more than $12 billion in cash and stock. Both companies are two of the biggest providers of Blue Cross and Blue Shield plans.
Prior to the Iraq war, Tony Blair told the British Parliament that Iraq was trying to procure high-strength aluminum tubes with the potential to be used in nuclear centrifuges. Colin Powell cited these tubes in his address to the United Nations in February, and said the tubes were used to enrich uranium. On Sunday senior officials with the Iraq Survey Group concluded that the high-strength aluminum tubes were “innocuous,” and that Iraqi nuclear scientists undertook no significant work after 1991, and that many facilities described before the war as suspicious were benign. In sum, the WMD claim was dismissed.
Today three American soldiers were killed and four wounded in two separate attacks in Iraq. Since Bush announced the end of major combat in Iraq on May 1, 112 U.S. soldiers have been killed in hostile action.
In a new Newsweek poll, it is reported that 58% of Americans say the U.S. is spending too much on operations in postwar Iraq. Forty nine percent of Americans say they don’t think the Bush administration has a well-thought-out plan to establish security and a stable government in Iraq while 39% say it does. 46% would like to see Bush re-elected and 47% would not. John McCain for the first time compares the situation in Iraq to Vietnam, where he survived six years of wartime imprisonment. McCain told Newsweek “this is the first time that I have seen a parallel to Vietnam in terms of information that the administration is putting out versus the actual situation on the ground. I’m not saying the situation is as bad as Vietnam. But we have a problem in the Sunni Triangle and we should face up to it and tell the American people about it.”
The worst firestorm in 33 years or since the Vietnam War is raging from Valley Center to Mexico. The fires have swept through 200 square miles and over 300,000 acres in Southern California. Tens of thousands have been evacuated, 850 homes have been destroyed, and at least 14 are known dead from the blazes. Schools are closed for today, and Monday Night Football has been moved from San Diego to Tempe, Arizona. A state of emergency has been declared in San Diego, San Bernardino, Los Angeles, and Ventura counties. The heat, wind, and low humidity have help to create relentless flames. With the Santa Ana winds gusting up to 70 mph, it is virtually impossible to contain the fires. National Weather Service meteorologist Robert Balfour said “ we’ll have a 24 to 36 hour window where winds will die down, but the vegetation is so dry and the terrain so steep that the fire will probably take off and go into the mountains then.”
The Institute for International Economics is a Washington, DC think tank. Gary C. Hufbauer is a senior fellow and international economist at the Institute. He has made an excellent point by stating “if your job can be digitized, it can be moved.” In other words, millions of service jobs could be moved outside the United States and remain there. Normally, one immediately mentions IT jobs but included could be life sciences, legal work, finance, business services, etc. John Napier is a 53-year old electrical engineer who was laid off by EMC Corp. in mid-2001. He raises a crucial point that “the people who get forced out of old jobs that go overseas are not the ones who get the new jobs.” If millions follow Napier to the unemployment rolls over the coming years, what new white-collar “mind”jobs will be created in the United States? There aren’t enough service jobs on the horizon to make this an economy of the under-employed.
We started the week off with two major merger announcements. For years, it was rumored that FleetBoston Financial was a takeover candidate. The Boston Globe reported that Bank of America would pay $45 a share in stock and cash for the seventh-biggest U.S. bank by assets. Bank of America is the third-largest U.S. bank. In addition, Anthem, Inc., the fifth-largest U.S. health insurer, announced plans to buy one of its competitors, WellPoint Health Networks, for more than $12 billion in cash and stock. Both companies are two of the biggest providers of Blue Cross and Blue Shield plans.
Prior to the Iraq war, Tony Blair told the British Parliament that Iraq was trying to procure high-strength aluminum tubes with the potential to be used in nuclear centrifuges. Colin Powell cited these tubes in his address to the United Nations in February, and said the tubes were used to enrich uranium. On Sunday senior officials with the Iraq Survey Group concluded that the high-strength aluminum tubes were “innocuous,” and that Iraqi nuclear scientists undertook no significant work after 1991, and that many facilities described before the war as suspicious were benign. In sum, the WMD claim was dismissed.
Today three American soldiers were killed and four wounded in two separate attacks in Iraq. Since Bush announced the end of major combat in Iraq on May 1, 112 U.S. soldiers have been killed in hostile action.
In a new Newsweek poll, it is reported that 58% of Americans say the U.S. is spending too much on operations in postwar Iraq. Forty nine percent of Americans say they don’t think the Bush administration has a well-thought-out plan to establish security and a stable government in Iraq while 39% say it does. 46% would like to see Bush re-elected and 47% would not. John McCain for the first time compares the situation in Iraq to Vietnam, where he survived six years of wartime imprisonment. McCain told Newsweek “this is the first time that I have seen a parallel to Vietnam in terms of information that the administration is putting out versus the actual situation on the ground. I’m not saying the situation is as bad as Vietnam. But we have a problem in the Sunni Triangle and we should face up to it and tell the American people about it.”
The worst firestorm in 33 years or since the Vietnam War is raging from Valley Center to Mexico. The fires have swept through 200 square miles and over 300,000 acres in Southern California. Tens of thousands have been evacuated, 850 homes have been destroyed, and at least 14 are known dead from the blazes. Schools are closed for today, and Monday Night Football has been moved from San Diego to Tempe, Arizona. A state of emergency has been declared in San Diego, San Bernardino, Los Angeles, and Ventura counties. The heat, wind, and low humidity have help to create relentless flames. With the Santa Ana winds gusting up to 70 mph, it is virtually impossible to contain the fires. National Weather Service meteorologist Robert Balfour said “ we’ll have a 24 to 36 hour window where winds will die down, but the vegetation is so dry and the terrain so steep that the fire will probably take off and go into the mountains then.”
Sunday, October 26, 2003
10/26/03 Getting The Job Done
The Al Rasheed Hotel is in Baghdad. It was attacked on September 27 with small rockets that caused only minimal damage. At 6:10AM this morning a barrage of rockets hit the hotel. One U.S. soldier was killed and 15 people were wounded. Deputy Defense Secretary Wolfowitz reportedly was staying at the hotel. He has been on a three-day Iraq tour. Putting on his preemption face, Wolfowitz spoke after the attack, and stated “we are taking this fight to the enemy. We are getting the job done.” Lt. Brian Dowd, a 1st Armored Division reconnaissance officer at the scene, had a more rational analysis of the situation and remarked “there is no guarantee we can protect against this kind of thing unless we have soldiers on every block.” The holy fasting month of Ramadan begins in Iraq on Monday.
Yesterday, Senator Patrick Leahy of Vermont gave the Democrats’ weekly radio address. He complained that more than 600 members of the Guard and the Reserve are now in “medical limbo” at Ft. Stewart, Georgia, “living in substandard barracks, without adequate medical care.” I discussed this not so long ago. Leahy said Bush wants $87 billion to rebuild Iraq and keep U.S. troops there but opposes a Senate-passed measure to guarantee health care coverage to all members of the Guard and Reserve. I have discussed this too.
Illinois is a very important election state due to the size of its electoral votes. In a very recent Chicago Tribune/WGN-TV poll, only 38% of Illinois voters want to see Bush re-elected. On TV, for the most part, you hear about approval ratings. The question really is do you want a specific person elected and/or re-elected. That determines the outcome.
This weekend there is a meeting of the Group of 20 nations in Mexico. This group includes the G-7 nations, emerging market nations such as Mexico and Argentina, the EU, the World Bank, and the IMF. Currencies, tariffs, and international trade will be some of the main topics.
Alan Abelson:”We fervently hope Mr. Snow is right about the booming job market. We think not, and we’d be willing to stake our reputation on it, if we could only scare one up.”
Alan Abelson: “The economy in the third quarter was on steroids dished out by Uncle Sam…our sense is that most of the tax cuts have been spent and the vast explosion of mortgage refinancing is over.”
Warren Buffett on the stock market: “We’re not finding anything…we have more cash than ideas. The question is whether that will prevail for an unduly long time…but, occasionally, successful investing requires inactivity.”
In recent weeks I have mentioned that there have been growing layoffs in the textile area and that some companies have closed plants and/or gone out of business. There are three basic problems. The price of cotton has risen almost 40% in 2003 to a 5-year high. The industry has had to absorb those added costs because they have been unable to pass along the cotton price increases. In addition, has been able to offer competitive products at cheaper prices because of their lower cost of labor. China is the world’s largest cotton producer and its largest consumer of cotton. The cotton crop in China has been hurt by poor weather. According to the American Textile Manufacturers Institute, China controls 53% of the U.S. market for apparel products removed from quota control, and by year-end that number will two-thirds, and by the end of 2004 will rise to 75%. In 1998 there were over 600,000 textile jobs in the United States. Today, this number has dropped below 400,000 and continues to decline.
There is one more point I would like to cover, and that is the multiplier effect of employment or unemployment, as the case may be. Boeing, for example, has over the most recent past cut 50,000 from its employment rolls. That is only part of the story. A local think tank has shown that every Boeing job creates 1.8 other indirect jobs in the service economy. Therefore, a loss of 50,000 Boeing jobs means the loss of another 90,000 service jobs. Boeing is not unique. A similar problem occurs in textiles and other industries.
The Al Rasheed Hotel is in Baghdad. It was attacked on September 27 with small rockets that caused only minimal damage. At 6:10AM this morning a barrage of rockets hit the hotel. One U.S. soldier was killed and 15 people were wounded. Deputy Defense Secretary Wolfowitz reportedly was staying at the hotel. He has been on a three-day Iraq tour. Putting on his preemption face, Wolfowitz spoke after the attack, and stated “we are taking this fight to the enemy. We are getting the job done.” Lt. Brian Dowd, a 1st Armored Division reconnaissance officer at the scene, had a more rational analysis of the situation and remarked “there is no guarantee we can protect against this kind of thing unless we have soldiers on every block.” The holy fasting month of Ramadan begins in Iraq on Monday.
Yesterday, Senator Patrick Leahy of Vermont gave the Democrats’ weekly radio address. He complained that more than 600 members of the Guard and the Reserve are now in “medical limbo” at Ft. Stewart, Georgia, “living in substandard barracks, without adequate medical care.” I discussed this not so long ago. Leahy said Bush wants $87 billion to rebuild Iraq and keep U.S. troops there but opposes a Senate-passed measure to guarantee health care coverage to all members of the Guard and Reserve. I have discussed this too.
Illinois is a very important election state due to the size of its electoral votes. In a very recent Chicago Tribune/WGN-TV poll, only 38% of Illinois voters want to see Bush re-elected. On TV, for the most part, you hear about approval ratings. The question really is do you want a specific person elected and/or re-elected. That determines the outcome.
This weekend there is a meeting of the Group of 20 nations in Mexico. This group includes the G-7 nations, emerging market nations such as Mexico and Argentina, the EU, the World Bank, and the IMF. Currencies, tariffs, and international trade will be some of the main topics.
Alan Abelson:”We fervently hope Mr. Snow is right about the booming job market. We think not, and we’d be willing to stake our reputation on it, if we could only scare one up.”
Alan Abelson: “The economy in the third quarter was on steroids dished out by Uncle Sam…our sense is that most of the tax cuts have been spent and the vast explosion of mortgage refinancing is over.”
Warren Buffett on the stock market: “We’re not finding anything…we have more cash than ideas. The question is whether that will prevail for an unduly long time…but, occasionally, successful investing requires inactivity.”
In recent weeks I have mentioned that there have been growing layoffs in the textile area and that some companies have closed plants and/or gone out of business. There are three basic problems. The price of cotton has risen almost 40% in 2003 to a 5-year high. The industry has had to absorb those added costs because they have been unable to pass along the cotton price increases. In addition, has been able to offer competitive products at cheaper prices because of their lower cost of labor. China is the world’s largest cotton producer and its largest consumer of cotton. The cotton crop in China has been hurt by poor weather. According to the American Textile Manufacturers Institute, China controls 53% of the U.S. market for apparel products removed from quota control, and by year-end that number will two-thirds, and by the end of 2004 will rise to 75%. In 1998 there were over 600,000 textile jobs in the United States. Today, this number has dropped below 400,000 and continues to decline.
There is one more point I would like to cover, and that is the multiplier effect of employment or unemployment, as the case may be. Boeing, for example, has over the most recent past cut 50,000 from its employment rolls. That is only part of the story. A local think tank has shown that every Boeing job creates 1.8 other indirect jobs in the service economy. Therefore, a loss of 50,000 Boeing jobs means the loss of another 90,000 service jobs. Boeing is not unique. A similar problem occurs in textiles and other industries.
Saturday, October 25, 2003
10/25/03 Seeing And Deciding
Hermes is an asteroid. For real. It was first observed in 1937. Since that time, it had circled the sun 31 times. However, Hermes was not seen again until October 15, 2003. As Mel Allen would have said, “how about that!” In actuality, Hermes was found to comprise two objects, and they orbit one another. Pretty cool. However, never before have the orbiting objects been of the same size. This is a first. Their spin is such that they present the same face to one another on a constant basis. Way cool. Researchers have found that Hermes comes within 378,000 miles of Earth, about 1.6 times the distance from Earth to the moon. The last such approach was in 1942! Astronomers never noticed. So I ask three questions. Do you have to see to believe? Could what you see hide the identical object and make it invisible? On what basis would you make a decision?
There is an art to decision-making. The more decisions you make the greater the chance of making a wrong decision. That’s simple. That’s why so few people make money day trading. I am certain everyone credits oneself with attempting to make good decisions. I know I do. I try to limit my investing decisions. As such, I sit on my hands a great deal. Since I weigh over 200 pounds, that’s a lot of weight on my hands. So, when a decision is made, it had better be a good one. Otherwise, my hands have paid a stiff price for nothing. Last year I did make a good decision. I placed my liquid funds in the New Zealand dollar. That didn’t make me anti-American. It was good business. This week the New Zealand dollar reached its highest level versus our dollar in six years, and is up 16% in 2003 versus the dollar. That’s not chump change. Our Federal Reserve has pegged its short-term rate at a 45-year low of 1%. The comparable rate in New Zealand is 5%. The GDP in New Zealand has risen for 10 consecutive years. Their exports are growing, and they account for 30% of their economy. In sum, I made one decision. I switched my dollars over to New Zealand dollars, and they have remained there. In hindsight, it was a no-brainer; however, it took me some time to arrive at that decision.
Did you know that Australia is the third-biggest gold producer? I didn’t. With gold at $389, Australia’s gold mining companies must be coining it. In addition, yesterday Australia and China signed a free-trade agreement. Over the past six years, Australia’s trade with China has trebled on an annual basis, and now approximates $16 billion a year. Its currency also hit a six-year high versus the dollar this week.
Every week I write about unemployment. I would like to discuss another aspect to hiring and then firing. One of the growing reasons for the reluctance to hire is the increased unemployment tax rates. (I am not ignoring rising costs for benefits.) Let’s look at the state of Washington. Employers in that state will see their taxes rise by about 12% on average in 2004. The state’s unemployment trust fund shrank 34% between September 2002 and September 2003, triggering a law that increases the rate to protect the trust fund in bad times. The state paid $1.62 billion in unemployment benefits to jobless workers between June 2002 and June 2003, a period when the state’s unemployment rate has remained among the highest in the nation. On average, businesses with employees who earn more than $30,200 will see their taxes per employee increase from $741 in 2003 to $863 in 2004, a 14% increase. The unemployment insurance trust fund was at $1 billion as of September 30, 2003, about $216 million less than the balance necessary to keep the 2003 tax rate.
John Challenger: “There’s no business that can constantly be growing. There are always cycles.” Bowling Green Spinning Co. has been a family owned operation in textiles dating to 1902. Citing the rising cost of cotton and competition from low-cost imports, they are closing by year-end and laying off 160 workers. AK Steel is a Middletown, Ohio manufacturer of flat-rolled carbon, stainless, and electrical steel. They announced a big loss and are cutting 475 employees or 20% of the workforce. They cited continuing high prices for raw materials and energy, lower production volumes, a less favorable product mix, and rising pension and retiree health care benefit expenses. Their CEO said “the rules have changed and so must we.”
On Friday two U.S. soldiers were killed in Iraq and four more wounded. The deaths bring to 108 the number of American soldiers killed by hostile fire since Bush declared an end to major combat May 1.
President Bush: “If you are a CEO in corporate America, you’re responsible for telling the truth to your shareholders and your employees.” I agree with that. President Bush is the CEO of this nation, and he is responsible for telling the truth to the citizens of the United States.
Hermes is an asteroid. For real. It was first observed in 1937. Since that time, it had circled the sun 31 times. However, Hermes was not seen again until October 15, 2003. As Mel Allen would have said, “how about that!” In actuality, Hermes was found to comprise two objects, and they orbit one another. Pretty cool. However, never before have the orbiting objects been of the same size. This is a first. Their spin is such that they present the same face to one another on a constant basis. Way cool. Researchers have found that Hermes comes within 378,000 miles of Earth, about 1.6 times the distance from Earth to the moon. The last such approach was in 1942! Astronomers never noticed. So I ask three questions. Do you have to see to believe? Could what you see hide the identical object and make it invisible? On what basis would you make a decision?
There is an art to decision-making. The more decisions you make the greater the chance of making a wrong decision. That’s simple. That’s why so few people make money day trading. I am certain everyone credits oneself with attempting to make good decisions. I know I do. I try to limit my investing decisions. As such, I sit on my hands a great deal. Since I weigh over 200 pounds, that’s a lot of weight on my hands. So, when a decision is made, it had better be a good one. Otherwise, my hands have paid a stiff price for nothing. Last year I did make a good decision. I placed my liquid funds in the New Zealand dollar. That didn’t make me anti-American. It was good business. This week the New Zealand dollar reached its highest level versus our dollar in six years, and is up 16% in 2003 versus the dollar. That’s not chump change. Our Federal Reserve has pegged its short-term rate at a 45-year low of 1%. The comparable rate in New Zealand is 5%. The GDP in New Zealand has risen for 10 consecutive years. Their exports are growing, and they account for 30% of their economy. In sum, I made one decision. I switched my dollars over to New Zealand dollars, and they have remained there. In hindsight, it was a no-brainer; however, it took me some time to arrive at that decision.
Did you know that Australia is the third-biggest gold producer? I didn’t. With gold at $389, Australia’s gold mining companies must be coining it. In addition, yesterday Australia and China signed a free-trade agreement. Over the past six years, Australia’s trade with China has trebled on an annual basis, and now approximates $16 billion a year. Its currency also hit a six-year high versus the dollar this week.
Every week I write about unemployment. I would like to discuss another aspect to hiring and then firing. One of the growing reasons for the reluctance to hire is the increased unemployment tax rates. (I am not ignoring rising costs for benefits.) Let’s look at the state of Washington. Employers in that state will see their taxes rise by about 12% on average in 2004. The state’s unemployment trust fund shrank 34% between September 2002 and September 2003, triggering a law that increases the rate to protect the trust fund in bad times. The state paid $1.62 billion in unemployment benefits to jobless workers between June 2002 and June 2003, a period when the state’s unemployment rate has remained among the highest in the nation. On average, businesses with employees who earn more than $30,200 will see their taxes per employee increase from $741 in 2003 to $863 in 2004, a 14% increase. The unemployment insurance trust fund was at $1 billion as of September 30, 2003, about $216 million less than the balance necessary to keep the 2003 tax rate.
John Challenger: “There’s no business that can constantly be growing. There are always cycles.” Bowling Green Spinning Co. has been a family owned operation in textiles dating to 1902. Citing the rising cost of cotton and competition from low-cost imports, they are closing by year-end and laying off 160 workers. AK Steel is a Middletown, Ohio manufacturer of flat-rolled carbon, stainless, and electrical steel. They announced a big loss and are cutting 475 employees or 20% of the workforce. They cited continuing high prices for raw materials and energy, lower production volumes, a less favorable product mix, and rising pension and retiree health care benefit expenses. Their CEO said “the rules have changed and so must we.”
On Friday two U.S. soldiers were killed in Iraq and four more wounded. The deaths bring to 108 the number of American soldiers killed by hostile fire since Bush declared an end to major combat May 1.
President Bush: “If you are a CEO in corporate America, you’re responsible for telling the truth to your shareholders and your employees.” I agree with that. President Bush is the CEO of this nation, and he is responsible for telling the truth to the citizens of the United States.
Friday, October 24, 2003
10/24/03 Not A Crisis. Only A Concern
How could a stockholder be concerned when a company has $52 billion in cash? How can you be concerned when sales and earnings exceed expectations and forecasts for the fiscal year are raised? I should have such a crisis of confidence! The only area on Wall Street that is priced to perfection would be the salary for the analysts. That’s for another morning. Today is simplifying the Microsoft information. It’s really doesn’t take much. Their PC and server business exceeded expectations; however, and some say it is a big however, Microsoft had expected unearned revenue or long-term licensing revenue to business customers to decline by about $250 million in the latest quarter. The actual decline was $768 million. Microsoft’s CFO said “in hindsight, our forecast for the September quarter was a little too optimistic. Corporate IT spending, especially in the enterprise segment, was not quite what we had forecast. I wouldn’t say we have a crisis. I would say we missed the forecast, so you should have a concern, but we feel pretty good about what the next three quarters look like relative to the market and relative to competition.” While analysts focus on the unexpected larger drop in unearned revenue, I am a bit more concerned on the revenue from Microsoft’s Windows operating system that was flat and the 1% growth in revenue from its Office line of software. The latter two areas are the company’s cash cows.
It’s Friday. It’s layoff day at Boeing. Another 860 leave the company payroll today, and they will also distribute 60-day layoff warning notices to 115 more workers today. You can expect additional layoffs in the future. Marshal Larsen is CEO of Goodrich, the company that supplies landing gear for all Boeing models except the 100-seat 717. Yesterday Larsen said “landing gear is long lead time, and we expect further drop in Boeing next year.” In other words, you can expect Boeing to state they will not meet their goal of building 280 jets in 2004. Consequently, there will be more layoffs at Boeing.
When will the taxpayers in this country stop rewarding mediocrity (and I am being generous)? Do you get a raise every year? The U.S. Senate yesterday voted themselves a pay raise for the fifth year in a row to about $158,000 in 2004. Last month the House of Representatives voted to accept a 2.2% pay increase. Over the last 5 years, members of Congress will have received a raise of $21,000. It should be noted that federal employees received an even greater raise of 4.1%. Medicare recipients received a cost of living adjustment of about 2%. When it comes to Congress, do you think you are getting value for your tax dollars?
Talking about taxes, next week Houstonians will be receiving tax bills, and the increase will be 9% higher than in 2002. They can thank soaring home valuations. The owner of a $132,000 home, the community average, will pay $2,928 in property taxes for 2003. That’s nearly double the tax bill in 1997.
Today a U.S. soldier was killed in northern Iraq and 13 troops were wounded in a mortar attack. The death brings to 106 the number of American soldiers killed by hostile fire since Bush declared an end to major combat operations May 1. Since the war began in March, approximately 2,000 soldiers have been wounded in Iraq, many quite severely. Of that amount, about 1,600 were wounded in hostile fire. These numbers come through U.S. Central Command and the Pentagon.
It’s been some time since I discussed the West Nile virus. According to the latest data from the CDC, at least 155 people in the United States have died from West Nile and more than 7,000 others have been infected this year, and this represents the worst outbreak since the virus first surfaced in this country in 1999.
I could never figure why Nestle’s wanted to become majority owner of Dreyer’s Ice Cream. It’s not exactly Ben and Jerry’s. Yesterday Nestle’s said they would close the Union City plant and eliminate 221 jobs. Dreyer’s had been making ice cream there since 1928. Nestle’s said that Dreyer’s has too many plants in the state of California.
The Administration is attempting to have Congress approve $87 billion for the Iraq reconstruction. Should the taxpayers be informed that Iraq already has a debt load of about $120 billion, and would be over $160 billion when including compensation claims for Hussein’s invasion of Kuwait? It’s one thing to support the troops, and quite another to know other monies are dropping into a deep black hole. I thought the U.S. was the most indebted country per capita. Not true. Iraq is.
The Snowman: “I would stake my reputation on employment growth happening before Christmas.” That statement could present a problem. Richmond Federal Reserve Bank President Albert Broaddus Jr. said “many firms can meet sizable increases in demand without hiring new workers.”
A recent report from the USDA indicates that more than 80% of U.S. soybean fields are planted with genetically modified seeds, and the latter account for nearly 75% of cotton and 40% of corn grown in the U.S. A Food Policy Institute study reveals more than 80% of processed foods contain some genetically modified crops.
How could a stockholder be concerned when a company has $52 billion in cash? How can you be concerned when sales and earnings exceed expectations and forecasts for the fiscal year are raised? I should have such a crisis of confidence! The only area on Wall Street that is priced to perfection would be the salary for the analysts. That’s for another morning. Today is simplifying the Microsoft information. It’s really doesn’t take much. Their PC and server business exceeded expectations; however, and some say it is a big however, Microsoft had expected unearned revenue or long-term licensing revenue to business customers to decline by about $250 million in the latest quarter. The actual decline was $768 million. Microsoft’s CFO said “in hindsight, our forecast for the September quarter was a little too optimistic. Corporate IT spending, especially in the enterprise segment, was not quite what we had forecast. I wouldn’t say we have a crisis. I would say we missed the forecast, so you should have a concern, but we feel pretty good about what the next three quarters look like relative to the market and relative to competition.” While analysts focus on the unexpected larger drop in unearned revenue, I am a bit more concerned on the revenue from Microsoft’s Windows operating system that was flat and the 1% growth in revenue from its Office line of software. The latter two areas are the company’s cash cows.
It’s Friday. It’s layoff day at Boeing. Another 860 leave the company payroll today, and they will also distribute 60-day layoff warning notices to 115 more workers today. You can expect additional layoffs in the future. Marshal Larsen is CEO of Goodrich, the company that supplies landing gear for all Boeing models except the 100-seat 717. Yesterday Larsen said “landing gear is long lead time, and we expect further drop in Boeing next year.” In other words, you can expect Boeing to state they will not meet their goal of building 280 jets in 2004. Consequently, there will be more layoffs at Boeing.
When will the taxpayers in this country stop rewarding mediocrity (and I am being generous)? Do you get a raise every year? The U.S. Senate yesterday voted themselves a pay raise for the fifth year in a row to about $158,000 in 2004. Last month the House of Representatives voted to accept a 2.2% pay increase. Over the last 5 years, members of Congress will have received a raise of $21,000. It should be noted that federal employees received an even greater raise of 4.1%. Medicare recipients received a cost of living adjustment of about 2%. When it comes to Congress, do you think you are getting value for your tax dollars?
Talking about taxes, next week Houstonians will be receiving tax bills, and the increase will be 9% higher than in 2002. They can thank soaring home valuations. The owner of a $132,000 home, the community average, will pay $2,928 in property taxes for 2003. That’s nearly double the tax bill in 1997.
Today a U.S. soldier was killed in northern Iraq and 13 troops were wounded in a mortar attack. The death brings to 106 the number of American soldiers killed by hostile fire since Bush declared an end to major combat operations May 1. Since the war began in March, approximately 2,000 soldiers have been wounded in Iraq, many quite severely. Of that amount, about 1,600 were wounded in hostile fire. These numbers come through U.S. Central Command and the Pentagon.
It’s been some time since I discussed the West Nile virus. According to the latest data from the CDC, at least 155 people in the United States have died from West Nile and more than 7,000 others have been infected this year, and this represents the worst outbreak since the virus first surfaced in this country in 1999.
I could never figure why Nestle’s wanted to become majority owner of Dreyer’s Ice Cream. It’s not exactly Ben and Jerry’s. Yesterday Nestle’s said they would close the Union City plant and eliminate 221 jobs. Dreyer’s had been making ice cream there since 1928. Nestle’s said that Dreyer’s has too many plants in the state of California.
The Administration is attempting to have Congress approve $87 billion for the Iraq reconstruction. Should the taxpayers be informed that Iraq already has a debt load of about $120 billion, and would be over $160 billion when including compensation claims for Hussein’s invasion of Kuwait? It’s one thing to support the troops, and quite another to know other monies are dropping into a deep black hole. I thought the U.S. was the most indebted country per capita. Not true. Iraq is.
The Snowman: “I would stake my reputation on employment growth happening before Christmas.” That statement could present a problem. Richmond Federal Reserve Bank President Albert Broaddus Jr. said “many firms can meet sizable increases in demand without hiring new workers.”
A recent report from the USDA indicates that more than 80% of U.S. soybean fields are planted with genetically modified seeds, and the latter account for nearly 75% of cotton and 40% of corn grown in the U.S. A Food Policy Institute study reveals more than 80% of processed foods contain some genetically modified crops.
Thursday, October 23, 2003
10/23/03 Another Economic Pothole
According to the Mortgage Bankers Association, the value of mortgages will fall from $3.3 trillion in 2003 to $1.6 trillion in 2004. Naturally, such a significant drop does not make headlines. Often, information gets released through other means. Washington Mutual is a highly successful lending institution; however, their mortgage area has created a profit drain in recent quarters. Today, the bank is cutting 4000 jobs in its nationwide home-loan operations. A total of 22,000 employees work in this area. It was only in August that Washington Mutual had announced a job cut of 1500 people. I have a feeling that many other mortgage lenders will be axing employees. It would not surprise me to see the cuts exceed 100,000 in coming months.
Yesterday was also not a very good day for the unemployment rolls. Merck, the second-biggest U.S. drugmaker, announced plans to cut about 4,400 jobs or 7% of the company’s workforce. In addition, GE, in its power systems division, plans to cut 1,000 jobs. This division has been having profitability problems. Surprisingly, nurses did not avoid the layoffs. Grays Harbor Community Hospital operates two hospitals in Aberdeen, Washington. The hospital’s skilled nursing facility has been losing more than $100,000 per month. As such, 60-day layoff notices were given to 80 on staff, and most of the affected employees are nurses.
Chinese President Hu Jintao said keeping the yuan exchange rate stable “serves China’s economic performance and conforms to the requirements of economic development in the Asia-Pacific region and the whole world.”
Donald Rumsfeld: “It is pretty clear that the coalition can win in Afghanistan and Iraq in one way or another, but it will be a long, hard, slog.”
Lt.Gen. Ricardo Sanchez said the average of 20 to 25 attacks daily in Iraq had increased over the last three weeks “to a peak of 35 attacks a day.” After the Gulf War, Dick Cheney, then the U.S. Defense Secretary, said “once you’ve got Baghdad, it is not clear what you would do with it. It’s not clear what kind of government you would put in. How much credibility is that government going to have if it’s set up by the U.S. military?” A year later, General Colin Powell, the Chairman of the Joint Chiefs of Staff, said occupying Baghdad would have come at an “unpardonable expense in terms of money, lives lost, and ruined regional relationships.”
Yesterday the British pound rose to its highest level in almost five years versus the U.S. dollar. Currently, the Bank of England’s key rate is at a 48-year low of 3.5%. However, four of the nine Monetary Policy Committee members voted to raise rates while the majority voted to maintain the current level. It appears that their rates might increase in a few months.
Michael Belkin: “The contrast between bullish equity-market psychology and deteriorating private-sector credit conditions is bizarre. The point of a bear-market rally is to make everyone bullish again just before the market does its next swan dive.”
Robert Prechter: “After this bear market is finally over, almost no one will remember the Pollyanna psychology that existed in the summer of 2000, the spring of 2002, or the fall of 2003. The S&P and the Nasdaq will look like one big slide with a few rallies along the way, and historians will probably not even imagine that investors could have been stark raving bullish during any one of them.”
By now, everyone is asking where is the good news. It’s on the way. It’s pumpkin time. We are going to use the technique I explained from two days ago in our sausage and spinach dish. Today we will use only one pound of the sweet Italian sausage without the fennel. We will brown on both sides simmering in the water and pricking the sausage after it has been turned. Now it’s cooked. Please set it aside. In a separate, large non-stick skillet that has been heated on medium high, place one teaspoon of olive oil, 5 cloves of chopped garlic and 1 large sweet onion that has been diced. Saute for at least five minutes. Do not burn the garlic. The onions need to be tender. Add a cup of dry white wine. It should be a wine you would drink and not garbage that’s been sitting open for one year. After about four minutes the wine should have been reduced by about one-half. Add to the pan one cup of drained canned pumpkin and one cup of chicken stock and a pinch of red pepper flakes. Stir. When the sauce begins to bubble, turn the heat to low and add ½ cup of heavy whipping cream (do you want it to taste good or not?) and ¼ teaspoon of cinnamon (it shouldn’t be from a can that has been open for 10 years) and ½ teaspoon of fresh ground nutmeg (if not fresh, don’t shoot yourself) and two pinches of sea salt and three full round grinds of pepper. Return the sausage (now cut into bite size chunks)to the skillet. While the sauce is simmering for ten minutes, we will cook a pound of penne. If it’s fresh penne, it will cook in about three minutes. If it’s in a box, the directions will be provided. The idea is to cook the penne al dente. Before draining the pasta, take a a large spoonful of the pasta water and put it in the sauce and stir. Then drain the pasta, return the penne to the pasta pot, pour the sauce over the penne, stir and cook for one minute only at a low flame. Serve with grated pecorino cheese.
According to the Mortgage Bankers Association, the value of mortgages will fall from $3.3 trillion in 2003 to $1.6 trillion in 2004. Naturally, such a significant drop does not make headlines. Often, information gets released through other means. Washington Mutual is a highly successful lending institution; however, their mortgage area has created a profit drain in recent quarters. Today, the bank is cutting 4000 jobs in its nationwide home-loan operations. A total of 22,000 employees work in this area. It was only in August that Washington Mutual had announced a job cut of 1500 people. I have a feeling that many other mortgage lenders will be axing employees. It would not surprise me to see the cuts exceed 100,000 in coming months.
Yesterday was also not a very good day for the unemployment rolls. Merck, the second-biggest U.S. drugmaker, announced plans to cut about 4,400 jobs or 7% of the company’s workforce. In addition, GE, in its power systems division, plans to cut 1,000 jobs. This division has been having profitability problems. Surprisingly, nurses did not avoid the layoffs. Grays Harbor Community Hospital operates two hospitals in Aberdeen, Washington. The hospital’s skilled nursing facility has been losing more than $100,000 per month. As such, 60-day layoff notices were given to 80 on staff, and most of the affected employees are nurses.
Chinese President Hu Jintao said keeping the yuan exchange rate stable “serves China’s economic performance and conforms to the requirements of economic development in the Asia-Pacific region and the whole world.”
Donald Rumsfeld: “It is pretty clear that the coalition can win in Afghanistan and Iraq in one way or another, but it will be a long, hard, slog.”
Lt.Gen. Ricardo Sanchez said the average of 20 to 25 attacks daily in Iraq had increased over the last three weeks “to a peak of 35 attacks a day.” After the Gulf War, Dick Cheney, then the U.S. Defense Secretary, said “once you’ve got Baghdad, it is not clear what you would do with it. It’s not clear what kind of government you would put in. How much credibility is that government going to have if it’s set up by the U.S. military?” A year later, General Colin Powell, the Chairman of the Joint Chiefs of Staff, said occupying Baghdad would have come at an “unpardonable expense in terms of money, lives lost, and ruined regional relationships.”
Yesterday the British pound rose to its highest level in almost five years versus the U.S. dollar. Currently, the Bank of England’s key rate is at a 48-year low of 3.5%. However, four of the nine Monetary Policy Committee members voted to raise rates while the majority voted to maintain the current level. It appears that their rates might increase in a few months.
Michael Belkin: “The contrast between bullish equity-market psychology and deteriorating private-sector credit conditions is bizarre. The point of a bear-market rally is to make everyone bullish again just before the market does its next swan dive.”
Robert Prechter: “After this bear market is finally over, almost no one will remember the Pollyanna psychology that existed in the summer of 2000, the spring of 2002, or the fall of 2003. The S&P and the Nasdaq will look like one big slide with a few rallies along the way, and historians will probably not even imagine that investors could have been stark raving bullish during any one of them.”
By now, everyone is asking where is the good news. It’s on the way. It’s pumpkin time. We are going to use the technique I explained from two days ago in our sausage and spinach dish. Today we will use only one pound of the sweet Italian sausage without the fennel. We will brown on both sides simmering in the water and pricking the sausage after it has been turned. Now it’s cooked. Please set it aside. In a separate, large non-stick skillet that has been heated on medium high, place one teaspoon of olive oil, 5 cloves of chopped garlic and 1 large sweet onion that has been diced. Saute for at least five minutes. Do not burn the garlic. The onions need to be tender. Add a cup of dry white wine. It should be a wine you would drink and not garbage that’s been sitting open for one year. After about four minutes the wine should have been reduced by about one-half. Add to the pan one cup of drained canned pumpkin and one cup of chicken stock and a pinch of red pepper flakes. Stir. When the sauce begins to bubble, turn the heat to low and add ½ cup of heavy whipping cream (do you want it to taste good or not?) and ¼ teaspoon of cinnamon (it shouldn’t be from a can that has been open for 10 years) and ½ teaspoon of fresh ground nutmeg (if not fresh, don’t shoot yourself) and two pinches of sea salt and three full round grinds of pepper. Return the sausage (now cut into bite size chunks)to the skillet. While the sauce is simmering for ten minutes, we will cook a pound of penne. If it’s fresh penne, it will cook in about three minutes. If it’s in a box, the directions will be provided. The idea is to cook the penne al dente. Before draining the pasta, take a a large spoonful of the pasta water and put it in the sauce and stir. Then drain the pasta, return the penne to the pasta pot, pour the sauce over the penne, stir and cook for one minute only at a low flame. Serve with grated pecorino cheese.
Wednesday, October 22, 2003
10/22/03 Louise K. Hanson
Mrs. Hanson, 90, died Sunday night. She and her late husband, John. K. Hanson, lived most of their lives in Forest City, Iowa, the home of Winnebago Industries, the company they founded in 1958. The Hanson estate retains ownership of 23% of the company’s outstanding shares, and that is after the buyback of 1.45 million shares held by the estate at a price of $44.12, a discount of 15% from Friday’s closing price of $51.91. Yesterday, Winnebago shares closed at an all-time high of $56.23. The repurchase reduced the outstanding shares by 8%. This is one of the more favorable buyback of shares I have ever seen.
John Hussman is the manager of the Hussman Strategic Growth Fund and the Hussman Total Retrun Fund. When measured by the Sharpe ratio, a ratio that gauges return according to the risk taken to achieve the return, his strategic growth fund ranks No. 1 in three-year performance out of more than 5,500 diversified domestic funds. About 50% of his strategic growth fund is hedged in case the market declines. He said “stocks are not cheap here and therefore are likely to deliver below-average long-term returns. When stocks have been as richly valued as they are now, there’s always been some period between four and 17 years later when stocks have reached a durably low valuation. During that time, the returns have been dismal.” He says that, despite the market fall since 2000, the market stands at about 20 times peak earnings.
In the November issue of Business 2.0, there is an article entitled “Why This Tech Bubble Is About To Blow.” These are the words expressed: crazy valuations are back with the Nasdaq 100 trading at 97 times expected 2003 earnings; momentum investing is back; day-traders are back; and buying on margin is back. “You hear a lot of managers saying, ‘Yeah, I know the market is crazy, but I have to buy it,’” says Cliff Asness, who runs $6.5 billion AQR Capital. Asness remarked “we’re in this world where mutual funds compete against benchmarks and hedge funds compete against anything that’s going up.” Talking about the most recent bear market and what has been learned, Asness stated “but if all we learned is to be quicker on the trigger, then we are all in very big trouble.”
According to a report released yesterday by the Commonwealth Fund, workers at large companies made up 25% of the uninsured workforce in 1987. Today, they account for 32% of all uninsured workers.
On Jan. 5, 2004 GM plans to eliminate one of four shifts at their Lansing plant, a move which could affect up to 1,400 hourly UAW workers and 150 salaried employees. The Alero and the Oldsmobile lines will be discontinued in 2004.
Since 2000, California’s worker’s compensation insurance rates have risen 89%. They are expected to rise by 12% in 2004.
Number portability will finally arrive on Nov. 24. Please mark your calendar. After 13 years, the FCC will require carriers to let customers keep their mobile-phone numbers even if they switch service providers. I feel confident that many will be changing providers. Too many have expressed dissatisfaction over the years, but did not want to lose their original number.
Yesterday Intel CEO Craig Barrett spoke before a Gartner tech conference. He ruled out any further expansion in the state of California. He mentioned that 70% of Intel’s markets are outside the United States and that “our investments are following our customers.” He further stated that India, China, and Russia together account for more highly educated knowledge workers than in the entire United States.
In 2002, the Investment Company Institute reported that a net $140.4 billion flowed into bond funds, more than half again as much as in any of the previous 12 years. Meanwhile, almost $28 billion flowed out of stock funds during this time. Two years earlier stock funds experienced record inflows of over $309 billion. Over the past six months, money has once again been flowing into stock funds. It’s unfortunate the inflow didn’t occur one year ago in October. Stock prices were much more favorable on a risk/reward basis at that time. Then again, what do I know from momentum buying? Absolutely nothing.
Mrs. Hanson, 90, died Sunday night. She and her late husband, John. K. Hanson, lived most of their lives in Forest City, Iowa, the home of Winnebago Industries, the company they founded in 1958. The Hanson estate retains ownership of 23% of the company’s outstanding shares, and that is after the buyback of 1.45 million shares held by the estate at a price of $44.12, a discount of 15% from Friday’s closing price of $51.91. Yesterday, Winnebago shares closed at an all-time high of $56.23. The repurchase reduced the outstanding shares by 8%. This is one of the more favorable buyback of shares I have ever seen.
John Hussman is the manager of the Hussman Strategic Growth Fund and the Hussman Total Retrun Fund. When measured by the Sharpe ratio, a ratio that gauges return according to the risk taken to achieve the return, his strategic growth fund ranks No. 1 in three-year performance out of more than 5,500 diversified domestic funds. About 50% of his strategic growth fund is hedged in case the market declines. He said “stocks are not cheap here and therefore are likely to deliver below-average long-term returns. When stocks have been as richly valued as they are now, there’s always been some period between four and 17 years later when stocks have reached a durably low valuation. During that time, the returns have been dismal.” He says that, despite the market fall since 2000, the market stands at about 20 times peak earnings.
In the November issue of Business 2.0, there is an article entitled “Why This Tech Bubble Is About To Blow.” These are the words expressed: crazy valuations are back with the Nasdaq 100 trading at 97 times expected 2003 earnings; momentum investing is back; day-traders are back; and buying on margin is back. “You hear a lot of managers saying, ‘Yeah, I know the market is crazy, but I have to buy it,’” says Cliff Asness, who runs $6.5 billion AQR Capital. Asness remarked “we’re in this world where mutual funds compete against benchmarks and hedge funds compete against anything that’s going up.” Talking about the most recent bear market and what has been learned, Asness stated “but if all we learned is to be quicker on the trigger, then we are all in very big trouble.”
According to a report released yesterday by the Commonwealth Fund, workers at large companies made up 25% of the uninsured workforce in 1987. Today, they account for 32% of all uninsured workers.
On Jan. 5, 2004 GM plans to eliminate one of four shifts at their Lansing plant, a move which could affect up to 1,400 hourly UAW workers and 150 salaried employees. The Alero and the Oldsmobile lines will be discontinued in 2004.
Since 2000, California’s worker’s compensation insurance rates have risen 89%. They are expected to rise by 12% in 2004.
Number portability will finally arrive on Nov. 24. Please mark your calendar. After 13 years, the FCC will require carriers to let customers keep their mobile-phone numbers even if they switch service providers. I feel confident that many will be changing providers. Too many have expressed dissatisfaction over the years, but did not want to lose their original number.
Yesterday Intel CEO Craig Barrett spoke before a Gartner tech conference. He ruled out any further expansion in the state of California. He mentioned that 70% of Intel’s markets are outside the United States and that “our investments are following our customers.” He further stated that India, China, and Russia together account for more highly educated knowledge workers than in the entire United States.
In 2002, the Investment Company Institute reported that a net $140.4 billion flowed into bond funds, more than half again as much as in any of the previous 12 years. Meanwhile, almost $28 billion flowed out of stock funds during this time. Two years earlier stock funds experienced record inflows of over $309 billion. Over the past six months, money has once again been flowing into stock funds. It’s unfortunate the inflow didn’t occur one year ago in October. Stock prices were much more favorable on a risk/reward basis at that time. Then again, what do I know from momentum buying? Absolutely nothing.
Tuesday, October 21, 2003
10/21/03 That Dirty Dog
Barbara Bush granted her first solo interview since her son was elected president. This, to me, is more important than any poll. It reveals that the president’s mother senses re-election troubles for her son, and that the negative sentiment is becoming too loud a noise. She wanted to do something about this, and expressed her opinions Monday on NBC’s “Today” show. There was something important to learn, and it wasn’t her telling her son after a run to get his feet off their table in the bedroom. Barbara Bush said the current president frequently declined to do what she said, and remarked “He still doesn’t take my advice, that dirty dog.” She had stated emphatically in advice to her son not to invade Iraq without a strong coalition and commitments from many other countries. He didn’t that his mother’s advice. According to a Pentagon statement, one U.S. soldier was killed and six others were wounded after being ambushed by small-arms fire and a homemade bomb near Fallujah in central Iraq. The soldier’s death brings to 104 the number of U.S. military members killed in action since Bush declared the major combat of the war over on May 1.
Yesterday Towers Perrin reported that the average pension plan in the U.S. was 77.5% underfunded at the end of 2002 versus 120% overfunded at the end of 1999. Corporate executives are increasingly concerned about pension-plan investment returns. Pension plan contributions as a percentage of cash flows more than doubled in 2002 to 7.3%. Such contributions are one more reason for the lack of pick-up in capital expenditures. Towers Perrin said companies increasingly are allowing pension liabilities to build, hoping that a market recovery will boost portfolio returns. Since March 11, 2003, that has been working. However, Towers Perrin observed “at these levels pension expense and contributions represent a looming cloud over many companies’ future financial results, potentially limiting their ability to invest in the business for future growth.”
Navajo Proverb: “You can’t wake a person who is pretending to be asleep.”
Richmond Federal Reserve President Alfred Broaddus said yesterday that many of the U.S. jobs cut in recent years are gone permanently because of economic changes. He described current conditions as a “job-challenged recovery.” He mentioned that some of the recent economic improvements could be the result of the tax cuts, and he said, “there’s some question, I think, in how long that stimulus is going to be there.” I think he doesn’t have to wait until November comes around. For the first time in six months, September’s index of leading U.S. economic indicators declined. The 0.2% fall was larger than what had been anticipated by economists. That’s not surprising. What might prove important was the index of lagging indicators, which includes the duration of unemployment and the ratio of installment credit to consumer income. That index fell 0.5% in September after having no change in August. That change was abrupt and sharp. One more item in the report went mostly unnoticed. Delivery times shortened in the month of September. This suggests that vendors had an easier time keeping up with orders. Since the inventory to sales ratio is at a record low, I find this very interesting.
Residential Services, Inc., a private, non-profit organization providing residential options for individuals with developmental disabilities, opens the first continuing care retirement community for senior citizens on October 25 in Durham, North Carolina. It is the first such facility in the country devoted to seniors with developmental disabilities and the unique needs of an aging population.
The weather will soon be turning wintery, and that means more time inside. Since I’m not doing cartwheels about any stock in particular, let’s try something a bit different. Cooking and investing have some similarities. In order to have pleasing results it’s necessary to start with good ingredients. They don’t have to be the most expensive. You don’t need to buy a $100 stock to make money, and you don’t need to buy a $100 bottle of balsamic vinegar. You need to shop carefully, and be patient for the price level to represent good value, and for the ingredient in question to get the job done without spoiling the broth, so to speak. Let’s start off with a dish that is guaranteed to make you look good in the kitchen. Just follow along. It’s easy. Please pay attention to the details. You cannot cut corners. We are going to visit Sicily. I figure most of you haven’t been there. This is a simple Sicilian dish. It’s pan-fried sausage with fresh spinach and garlic. The Italian sausage will be sweet; it must have at least 20% fat or the sausage will get hard. The casing must be thin. It should come in a coil with the sausages connected. Do not disconnect the sausages. We will be cooking the sausage the Sicilian way- fritta in l’acqua. It requires lengthier cooking, but wou end up with a plumper sausage and it has a crustier skin. Buy 2 pounds of sweet sausage without fennel. Here we go. In a large and deep frying pan, place the coil of sausages in one-third inch of water. Do not prick the sausages. Bring the water to a boil, and then reduce the heat to low, and cover the pan. The water will simmer for about 15-20 minutes until the water has evaporated. Then prick the sausages with a fork. This will release the fat from the sausages. Continue to cook over the same low heat in the covered pan until the sausage bottoms are brown and crusty. Then turn the sausages and prick them again and cook over the low flame in the covered pan for another ten minutes or so. Stir in one cup of water and this is important. Scrape the browned bits in the pan and mix with the water. Add 8 large cloves of garlic which have been cut into large dices. Sprinkle evenly over the sausages. After 1 ½ pounds of fresh spinach has been carefully washed and rinsed and the moisture drained (this is done prior to the start of the dish), spread the spinach evenly over the sausages. Sprinkle with salt and red pepper flakes. Cover and simmer until the spinach has wilted-about 15 to 20 minutes Transfer and disconnect the sausages to a platter and surround with the spinach and spoon the juices over the top. Please note the salt is not optional but the red pepper flakes are.
Barbara Bush granted her first solo interview since her son was elected president. This, to me, is more important than any poll. It reveals that the president’s mother senses re-election troubles for her son, and that the negative sentiment is becoming too loud a noise. She wanted to do something about this, and expressed her opinions Monday on NBC’s “Today” show. There was something important to learn, and it wasn’t her telling her son after a run to get his feet off their table in the bedroom. Barbara Bush said the current president frequently declined to do what she said, and remarked “He still doesn’t take my advice, that dirty dog.” She had stated emphatically in advice to her son not to invade Iraq without a strong coalition and commitments from many other countries. He didn’t that his mother’s advice. According to a Pentagon statement, one U.S. soldier was killed and six others were wounded after being ambushed by small-arms fire and a homemade bomb near Fallujah in central Iraq. The soldier’s death brings to 104 the number of U.S. military members killed in action since Bush declared the major combat of the war over on May 1.
Yesterday Towers Perrin reported that the average pension plan in the U.S. was 77.5% underfunded at the end of 2002 versus 120% overfunded at the end of 1999. Corporate executives are increasingly concerned about pension-plan investment returns. Pension plan contributions as a percentage of cash flows more than doubled in 2002 to 7.3%. Such contributions are one more reason for the lack of pick-up in capital expenditures. Towers Perrin said companies increasingly are allowing pension liabilities to build, hoping that a market recovery will boost portfolio returns. Since March 11, 2003, that has been working. However, Towers Perrin observed “at these levels pension expense and contributions represent a looming cloud over many companies’ future financial results, potentially limiting their ability to invest in the business for future growth.”
Navajo Proverb: “You can’t wake a person who is pretending to be asleep.”
Richmond Federal Reserve President Alfred Broaddus said yesterday that many of the U.S. jobs cut in recent years are gone permanently because of economic changes. He described current conditions as a “job-challenged recovery.” He mentioned that some of the recent economic improvements could be the result of the tax cuts, and he said, “there’s some question, I think, in how long that stimulus is going to be there.” I think he doesn’t have to wait until November comes around. For the first time in six months, September’s index of leading U.S. economic indicators declined. The 0.2% fall was larger than what had been anticipated by economists. That’s not surprising. What might prove important was the index of lagging indicators, which includes the duration of unemployment and the ratio of installment credit to consumer income. That index fell 0.5% in September after having no change in August. That change was abrupt and sharp. One more item in the report went mostly unnoticed. Delivery times shortened in the month of September. This suggests that vendors had an easier time keeping up with orders. Since the inventory to sales ratio is at a record low, I find this very interesting.
Residential Services, Inc., a private, non-profit organization providing residential options for individuals with developmental disabilities, opens the first continuing care retirement community for senior citizens on October 25 in Durham, North Carolina. It is the first such facility in the country devoted to seniors with developmental disabilities and the unique needs of an aging population.
The weather will soon be turning wintery, and that means more time inside. Since I’m not doing cartwheels about any stock in particular, let’s try something a bit different. Cooking and investing have some similarities. In order to have pleasing results it’s necessary to start with good ingredients. They don’t have to be the most expensive. You don’t need to buy a $100 stock to make money, and you don’t need to buy a $100 bottle of balsamic vinegar. You need to shop carefully, and be patient for the price level to represent good value, and for the ingredient in question to get the job done without spoiling the broth, so to speak. Let’s start off with a dish that is guaranteed to make you look good in the kitchen. Just follow along. It’s easy. Please pay attention to the details. You cannot cut corners. We are going to visit Sicily. I figure most of you haven’t been there. This is a simple Sicilian dish. It’s pan-fried sausage with fresh spinach and garlic. The Italian sausage will be sweet; it must have at least 20% fat or the sausage will get hard. The casing must be thin. It should come in a coil with the sausages connected. Do not disconnect the sausages. We will be cooking the sausage the Sicilian way- fritta in l’acqua. It requires lengthier cooking, but wou end up with a plumper sausage and it has a crustier skin. Buy 2 pounds of sweet sausage without fennel. Here we go. In a large and deep frying pan, place the coil of sausages in one-third inch of water. Do not prick the sausages. Bring the water to a boil, and then reduce the heat to low, and cover the pan. The water will simmer for about 15-20 minutes until the water has evaporated. Then prick the sausages with a fork. This will release the fat from the sausages. Continue to cook over the same low heat in the covered pan until the sausage bottoms are brown and crusty. Then turn the sausages and prick them again and cook over the low flame in the covered pan for another ten minutes or so. Stir in one cup of water and this is important. Scrape the browned bits in the pan and mix with the water. Add 8 large cloves of garlic which have been cut into large dices. Sprinkle evenly over the sausages. After 1 ½ pounds of fresh spinach has been carefully washed and rinsed and the moisture drained (this is done prior to the start of the dish), spread the spinach evenly over the sausages. Sprinkle with salt and red pepper flakes. Cover and simmer until the spinach has wilted-about 15 to 20 minutes Transfer and disconnect the sausages to a platter and surround with the spinach and spoon the juices over the top. Please note the salt is not optional but the red pepper flakes are.
Monday, October 20, 2003
10/20/03 MicroCHIPS, Inc.
The garage of the Silicon Valley fifty years ago, forty years ago, or possibly even a decade ago is today’s world-wide laboratory. It is the landscape for medical discoveries. The discovery, manufacture, and delivery of pharmaceuticals is changing rapidly. Costs to consumers will be reduced. Revolutionary technology shall be delivered. Let’s take a tour of one of those cutting-edge laboratories.
Have you heard of Dr. John T. Santini, Jr.? He is not make deliveries through Santini Brothers Movers. There is such a company. Bedford, Massachusetts is not exactly known for medical breakthroughs. You will find Dr. Santini there. He is the founder, president, and chief scientific officer of MicroCHIPS. If you think they compete with Intel’s Centrino chip, you would be mistaken. It might prove fruitful for you to remember Dr. Santini and his company. MicroCHIPS has six U.S. patents, 20 pending U.S. applications, and numerous international applications covering their controlled release microchip. This isn’t just any microchip found in a laboratory. This is the real deal. It’s unique, and will, in my view, transform the delivery system of medication. The microfabricated chips contain hundreds of micro-reservoirs. Each reservoir can store and release multiple drugs from a single device. The micro-reservoirs are opened on demand in response to a preprogrammed clock, biosensor feedback, or a wireless signal from a physician or patient. The drug delivery is safe, optimizes drug formulations, and ensures the patient receives the medication in accordance with prescribed drug regimens. The chip is comprised of polymers that are completely absorbed by the body and cleared out of the body. As the polymer cap degrades, an exact amount of drug is released. The release time for each reservoir can be adjusted by changing the composition or thickness of each cap so it deteriorates at a certain rate, releasing drugs at different times without the need for an outside power source to stimulate release. This implantable, degradable delivery system should find many applications. Nature Materials, a scientific journal, will have an article on MicroCHIPS and this new technology for delivering pharmaceutical compounds.
A new study is being released today on women in the workforce in the state of Michigan. It is an eye-opener. Women make up 47% of the Michigan workforce and hold one-third of the managerial and professional positions. Men have 93% of the best-paid executive jobs and more than 90% of the directors’ seats on corporate boards. Seventy five percent of the 100 Michigan index companies have no women among their five highest-paid employees. Thirty three per cent have no women at all among either the top officer group or the board of directors.
Projections indicate that employer-sponsored health plans will cost an average 44% more per employee in 2004 than they did three years in the sate of Washington. This problem is not unique to Washington state. How is this problem solved? Do the businesses absorb the increases? That’s not possible with little or no pricing power for businesses today. Do you pass the increased costs onto the employees? That’s not possible because salary increases on average approximate 3%. Does the business stop subsidizing some coverage entirely? That might create work stoppages. The problem can be resolved but it will require give and take on the part of employers, employees, insurance companies, pharmaceutical companies, doctors, hospitals, and other health providers. There is only one pie. Everyone has to eat from that pie. Pigs will not fare well at the table. They don’t do well on Wall Street either.
The garage of the Silicon Valley fifty years ago, forty years ago, or possibly even a decade ago is today’s world-wide laboratory. It is the landscape for medical discoveries. The discovery, manufacture, and delivery of pharmaceuticals is changing rapidly. Costs to consumers will be reduced. Revolutionary technology shall be delivered. Let’s take a tour of one of those cutting-edge laboratories.
Have you heard of Dr. John T. Santini, Jr.? He is not make deliveries through Santini Brothers Movers. There is such a company. Bedford, Massachusetts is not exactly known for medical breakthroughs. You will find Dr. Santini there. He is the founder, president, and chief scientific officer of MicroCHIPS. If you think they compete with Intel’s Centrino chip, you would be mistaken. It might prove fruitful for you to remember Dr. Santini and his company. MicroCHIPS has six U.S. patents, 20 pending U.S. applications, and numerous international applications covering their controlled release microchip. This isn’t just any microchip found in a laboratory. This is the real deal. It’s unique, and will, in my view, transform the delivery system of medication. The microfabricated chips contain hundreds of micro-reservoirs. Each reservoir can store and release multiple drugs from a single device. The micro-reservoirs are opened on demand in response to a preprogrammed clock, biosensor feedback, or a wireless signal from a physician or patient. The drug delivery is safe, optimizes drug formulations, and ensures the patient receives the medication in accordance with prescribed drug regimens. The chip is comprised of polymers that are completely absorbed by the body and cleared out of the body. As the polymer cap degrades, an exact amount of drug is released. The release time for each reservoir can be adjusted by changing the composition or thickness of each cap so it deteriorates at a certain rate, releasing drugs at different times without the need for an outside power source to stimulate release. This implantable, degradable delivery system should find many applications. Nature Materials, a scientific journal, will have an article on MicroCHIPS and this new technology for delivering pharmaceutical compounds.
A new study is being released today on women in the workforce in the state of Michigan. It is an eye-opener. Women make up 47% of the Michigan workforce and hold one-third of the managerial and professional positions. Men have 93% of the best-paid executive jobs and more than 90% of the directors’ seats on corporate boards. Seventy five percent of the 100 Michigan index companies have no women among their five highest-paid employees. Thirty three per cent have no women at all among either the top officer group or the board of directors.
Projections indicate that employer-sponsored health plans will cost an average 44% more per employee in 2004 than they did three years in the sate of Washington. This problem is not unique to Washington state. How is this problem solved? Do the businesses absorb the increases? That’s not possible with little or no pricing power for businesses today. Do you pass the increased costs onto the employees? That’s not possible because salary increases on average approximate 3%. Does the business stop subsidizing some coverage entirely? That might create work stoppages. The problem can be resolved but it will require give and take on the part of employers, employees, insurance companies, pharmaceutical companies, doctors, hospitals, and other health providers. There is only one pie. Everyone has to eat from that pie. Pigs will not fare well at the table. They don’t do well on Wall Street either.
Sunday, October 19, 2003
10/19/03 Tale Of Two Countries
President Bush stated in his Saturday radio address that “today all 22 universities and 43 technical institutes and colleges are open, as are nearly all primary and secondary schools in the country. Earlier this year we said we would rehabilitate 1,000 schools by the time school started. This month, just days before the first day of class, our coalition and our Iraqi partners have refurbished over 1,500 schools.” This effort has been accomplished on the bodies of hundreds of dead, wounded, and injured soldiers and on the backs of the American taxpayers. Meanwhile, in the U.S., there are 1.7 million Americans invested in prepaid tuition plans that are designed to protect families against spiraling expenses at public colleges. Colorado, Ohio, West Virginia, Kentucky, and Texas have cut off enrollment in this plan. Ohio announced last week it was suspending its program for one year because the state was losing money. Prepaid tuition plans are important for many families. They enable those families to purchase tuition credits, based on current rates, in lump sums or monthly payments. The problem is tuition is rising faster than earnings from the states’ long-term investments covering the tuition plan. Charles Bockway, a spokesman for the West Virginia Prepaid Tuition Plan, stated “typically, when you have had periods of high tuition growth you had periods of high inflation. And during high inflation times you can earn a lot in bonds and the stock market is doing well. Our research shows this has never happened before.” Dallas Martin is the president of the National Association of Student Financial Aid Administrators, and said suspended tuition plans were another signal that the burden of financing colleges is being shifted to families. Martin remarked "it leaves people in a situation where they have to find another mechanism" to pay for college. In sum, Americans pay, in after tax dollars, for Iraq’s education system, and, at the same time, are faced with rising college tuition costs that suspend and/or cancel prepaid tuition plans at the state level. Maybe in next Saturday’s radio address Bush should explain this situation. I’m certain he would state it’s the price of fighting terror. That’s his answer for everything.
Since Bush is reluctant to visit Main Street, let’s take a little Sunday drive across the Bay Bridge to the East Bay in the Bay Area of San Francisco. From 1999 to 2003, the average wages in the East Bay rose almost 4% and costs rose double that rate. State figures show that 300,000 of the 1 million wage earners in the East Bay make less than $15 per hour. They are janitors, retail clerks, food servers, office workers, etc. They live on Main Street where the average rent for a one-bedroom apartment is about $1,050 per month. After taxes, from 52 to 72% of their after-tax monthly income goes to rent or house payments. The results show that an adult raising an infant and a school-age child in the East Bay must earn at least $42,000 a year to meet a basic budget. Over 20% of the Bay Area households don’t earn enough to cover their basic needs, and must depend on food pantries, family assistance, and other subsidies. Maybe in another radio address Bush can discuss the problems of the under-employed that play by the rules but can’t make ends meet.
Rep. Ron Paul of Texas, Republican: “If there is one thing the history of our intervention teaches, it is the best way for a foreign country to become a financial dependent of the United States is to first be attacked by the United States…Conservatives often proclaim that they are opposed to providing American welfare to the rest of the world. I agree. The only way to do that, however, is to stop supporting a policy of military interventionism. You cannot have one without the other…we are heading full-speed toward bankruptcy, yet we continue to spend like there is no tomorrow. There will be a tomorrow, however. The money we are spending today is real. The bill will be paid, whether through raising taxes or printing more money. Either way, the American people will become poorer in pursuit of a policy that cannot and will not work. We cannot re-make the world in our own image.” In my view, Rep. Paul consistently speaks common sense. He is an excellent representative for his district in Texas. Hopefully, some day, his representation will span the nation.
Saturday night two more American soldiers were killed and one was wounded in a guerrilla ambush. It occurred 160 miles north of Baghdad. There was another attack 35 miles west of Baghdad but casualty reports have not been released.
I find it interesting that the inflation numbers are muted. Yet, prices for aluminum, cattle, cotton, and zinc have reached record highs. Looking over history, one could reach the conclusion that this is the first time such a divergence has taken place.
Often, I read comments by others that it is too late to buy, too early to short, the market is ahead of itself, etc. There are observations for every hour of trading. I can’t say what’s right for you. It’s your money. For me, I sell to the sleeping point and back up the truck buying when I see silver dollars going for 50 cent pieces. Unfortunately, the latter does not happen often enough. A good deal of the time is spent sitting on one’s hands. If you cannot sit on your hands, you should not be an investor or a trader. The idea is have fun and make money. If you force it, you’ll lose.
The deficit virus appears to be making the rounds. In England receipts are growing less quickly than forecast while spending is picking up. I now understand why Bush and Blair get along so well. It was predicted in April that England would need to borrow 27 billion pounds. That number has been increased to 36 billion pounds ($61 billion).
President Bush stated in his Saturday radio address that “today all 22 universities and 43 technical institutes and colleges are open, as are nearly all primary and secondary schools in the country. Earlier this year we said we would rehabilitate 1,000 schools by the time school started. This month, just days before the first day of class, our coalition and our Iraqi partners have refurbished over 1,500 schools.” This effort has been accomplished on the bodies of hundreds of dead, wounded, and injured soldiers and on the backs of the American taxpayers. Meanwhile, in the U.S., there are 1.7 million Americans invested in prepaid tuition plans that are designed to protect families against spiraling expenses at public colleges. Colorado, Ohio, West Virginia, Kentucky, and Texas have cut off enrollment in this plan. Ohio announced last week it was suspending its program for one year because the state was losing money. Prepaid tuition plans are important for many families. They enable those families to purchase tuition credits, based on current rates, in lump sums or monthly payments. The problem is tuition is rising faster than earnings from the states’ long-term investments covering the tuition plan. Charles Bockway, a spokesman for the West Virginia Prepaid Tuition Plan, stated “typically, when you have had periods of high tuition growth you had periods of high inflation. And during high inflation times you can earn a lot in bonds and the stock market is doing well. Our research shows this has never happened before.” Dallas Martin is the president of the National Association of Student Financial Aid Administrators, and said suspended tuition plans were another signal that the burden of financing colleges is being shifted to families. Martin remarked "it leaves people in a situation where they have to find another mechanism" to pay for college. In sum, Americans pay, in after tax dollars, for Iraq’s education system, and, at the same time, are faced with rising college tuition costs that suspend and/or cancel prepaid tuition plans at the state level. Maybe in next Saturday’s radio address Bush should explain this situation. I’m certain he would state it’s the price of fighting terror. That’s his answer for everything.
Since Bush is reluctant to visit Main Street, let’s take a little Sunday drive across the Bay Bridge to the East Bay in the Bay Area of San Francisco. From 1999 to 2003, the average wages in the East Bay rose almost 4% and costs rose double that rate. State figures show that 300,000 of the 1 million wage earners in the East Bay make less than $15 per hour. They are janitors, retail clerks, food servers, office workers, etc. They live on Main Street where the average rent for a one-bedroom apartment is about $1,050 per month. After taxes, from 52 to 72% of their after-tax monthly income goes to rent or house payments. The results show that an adult raising an infant and a school-age child in the East Bay must earn at least $42,000 a year to meet a basic budget. Over 20% of the Bay Area households don’t earn enough to cover their basic needs, and must depend on food pantries, family assistance, and other subsidies. Maybe in another radio address Bush can discuss the problems of the under-employed that play by the rules but can’t make ends meet.
Rep. Ron Paul of Texas, Republican: “If there is one thing the history of our intervention teaches, it is the best way for a foreign country to become a financial dependent of the United States is to first be attacked by the United States…Conservatives often proclaim that they are opposed to providing American welfare to the rest of the world. I agree. The only way to do that, however, is to stop supporting a policy of military interventionism. You cannot have one without the other…we are heading full-speed toward bankruptcy, yet we continue to spend like there is no tomorrow. There will be a tomorrow, however. The money we are spending today is real. The bill will be paid, whether through raising taxes or printing more money. Either way, the American people will become poorer in pursuit of a policy that cannot and will not work. We cannot re-make the world in our own image.” In my view, Rep. Paul consistently speaks common sense. He is an excellent representative for his district in Texas. Hopefully, some day, his representation will span the nation.
Saturday night two more American soldiers were killed and one was wounded in a guerrilla ambush. It occurred 160 miles north of Baghdad. There was another attack 35 miles west of Baghdad but casualty reports have not been released.
I find it interesting that the inflation numbers are muted. Yet, prices for aluminum, cattle, cotton, and zinc have reached record highs. Looking over history, one could reach the conclusion that this is the first time such a divergence has taken place.
Often, I read comments by others that it is too late to buy, too early to short, the market is ahead of itself, etc. There are observations for every hour of trading. I can’t say what’s right for you. It’s your money. For me, I sell to the sleeping point and back up the truck buying when I see silver dollars going for 50 cent pieces. Unfortunately, the latter does not happen often enough. A good deal of the time is spent sitting on one’s hands. If you cannot sit on your hands, you should not be an investor or a trader. The idea is have fun and make money. If you force it, you’ll lose.
The deficit virus appears to be making the rounds. In England receipts are growing less quickly than forecast while spending is picking up. I now understand why Bush and Blair get along so well. It was predicted in April that England would need to borrow 27 billion pounds. That number has been increased to 36 billion pounds ($61 billion).
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