1/31/04 A Day To Remember

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

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

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

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

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

1/30/04 Truth Or Consequences

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

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

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

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

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

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

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

1/29/04 Be Patient

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

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

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

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

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

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

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

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

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

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

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

1/28/04 A Familiar Refrain

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

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

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

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

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

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

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

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

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

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

1/27/04 Eventually

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

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

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

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

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

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

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

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

1/26/04 Changes Are In The Air

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

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

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

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

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

1/25/04 Seasonal Adjustments

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

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

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

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

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

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

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

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

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

1/24/04 Another Look

Yesterday I “visited” with some good folks in Michigan. December, I learned, was the seventh consecutive month that Michigan’s unemployment rate was at or above 7%. In December, the unemployment rate edged up to 7.2% from November’s 7.1%. The number of jobless Michigan residents rose by 4,000 to 365,000, about twice what it was three years ago. The number of employed people dropped by 31,000 in December. Michigan’s 2003 average unemployment rate was 7%, the highest since 1993. In addition, 2003 was the third consecutive year that the state’s annual average unemployment rate increased. Prior to 2001, Michigan’s annual average unemployment rate declined nine years in a row. Some pundits state the reason the unemployment data is so dismal for Michigan is the fact it is heavily dependent on manufacturing. The fact is total manufacturing job losses amounted to 30,000 during 2003. The job losses extend into transportation, utilities, trade, professional and business services, and even education and health services.

It was raining hard here on Friday. I had some extra time on my hands so I “visited” with some good folks in Houston. The Texas Workforce Commission was upbeat. They stated the Houston area only lost 8,700 jobs in 2003. They stated the trend is turning because 500 jobs were added in November and 4,000 more jobs were added in December. Then I got the real selling story. They stated the National Association of Purchasing Management indicated employers added jobs in December for the first time in 27 months. My gut told me these folks were not telling me something. I told them, which of course they already knew, that I check in with them monthly and today they sounded too upbeat. I politely told them to stop with the bullshit and to tell me the whole story. I soon learned that December’s employment gain included 7,700 new state and local government jobs. Without those, Houston would have had a month of 3,700 less jobs. What this country does not require is larger government. I wished them all a successful Super Bowl.

I have tried very hard to avoid writing about Oracle’s bid for PeopleSoft. About eight months ago I wanted to puke from covering their daily war of words. Unfortunately, I am back at it again thanks to Oracle launching a proxy fight to gain control of PeopleSoft. Most people read about such fights. Having waged the most successful proxy fight in corporate history, I know a bit about the subject. Oracle plans to nominate five nominees for directors to PeopleSoft’s board. Only four board members are up for re-election. Oracle argues that PeopleSoft’s newest board member, Michael Maples, was never elected by the stockholders and therefore should stand for re-election. If PeopleSoft refuses to place Maples for re-election, Oracle will submit a proposal to amend PeopleSoft’s bylaws to expand the board to nine members. Maples was added to the board after completion of PeopleSoft’s acquisition of J.D. Edwards last year. Are you still with me? The PeopleSoft shareholder meeting will take place in May. There are a couple of sticking points to this situation. One is price. Oracle is offering $19.50 to PeopleSoft shareholders, and the latter’s stock is now three points higher than Oracle’s offer. Unfortunately, for Oracle, in the tech rally PeopleSoft stock has risen about 60% since Oracle’s initial bid. Secondly, there is a potential antitrust problem. The Justice Department needs to approve this acquisition, and this government agency will not provide their take on this matter for another month or two. In addition, in June the state of Connecticut filed a lawsuit to block the proposed merger. California, Texas, Colorado, and other states are also probing the merger. Finally, there is the matter of foreign regulators approving this merger. Hopefully, I will not find another reason to write on this subject for another month or two.

A month or so ago I wrote that David Kay would resign his post, and that he would announce there were no WMD in Iraq. Yesterday the resignation became official. Kay stated “I don’t think they (WMD) existed. What everyone was talking about is stockpiles produced after the end of the last Gulf War, and I don’t think there was a large-scale production program in the ‘90s.” Kay waited to resign until after Bush’s State of the Union address. Kay went on to state “you could not find any physical evidence that supported a larger program. I think there were stockpiles at the end of the first Gulf War… a combination of UN inspectors and unilateral Iraq action got rid of them.” It should be noted that Kay’s Iraq Survey Group, working for the CIA since June, employed at least 1,000 inspectors, and they searched daily for the WMD. The question remains whether there was a “massive intelligence failure” or lies about the existence of WMD or a combination of both. Any way you cut the cheese, in my book the matter has a huge smell and a toxic cloud hovers over the decision to invade Iraq.

According to Global Insight, Inc. and its Agriculture Group, the overall impact from the recent mad cow occurrence will be a 10% decline in net farm income in 2004 from the prior year’s level. The drop is primarily due to its impact on cattle prices and beef exports. According to Global Sight’s managing director Harry Baumes, “the U.S. consumer is what drives the beef sector, and although the export market is important and reopening those markets to U.S. beef is a priority with the USDA, it is more important for the Department of Agriculture to maintain the confidence of U.S. consumers.”

Preliminary sales data released yesterday by Toyota showed the Japanese company became the world’s No. 2 automaker behind GM by outselling Ford in 2003. Unit sales for Toyota rose 9.9% last year while Ford’s decreased 3.6%. It was Toyota’s best performance in its 46-year history. For the second year in a row and the sixth time in the past seven years, Toyota’s Camry was America’s best-selling car. In their latest fiscal year, group profits at Toyota amounted to $8.83 billion, and that makes Toyota the world’s most profitable auto company.

According to Ward’s Automotive Reports, to date in calendar 2004, vehicle output in North America is down 14.4% from the like period in 2003. Car production has declined 24.2% while light, medium, and heavy-duty truck output is down 6.6%.

Wilsons Leather decided to liquidate its El Portal and Bentley’s Luggage Stores in late 2002 after finding no buyers. Prior to yesterday, Wilsons had planned to close 28 stores in January and as many as 50 during their fiscal year. On Thursday the company laid off 70 corporate workers, including 60 people at its Brooklyn Park headquarters and distribution center. Brooklyn Park is in Minnesota and not a borough of New York City. Wilsons posted double-digit sales decreases at stores open at least a year in both October and November and a 6.8% decline in December. Yesterday the company announced the closing of about 100 stores, nearly 20% of its total, and the elimination of more than 1,000 jobs after a dismal holiday season.

The Group of Seven (G7) summit will take place on February 6 and 7 in Florida. There is some speculation that European officials will push for the ECB to lower interest rates, and thereby stem the rise in the euro as it is hurting exports. The ECB has maintained its rate at 2%, twice the Fed’s level. In September the G7 called for “more flexible exchange rates,” and since then the dollar has declined sharply against the euro, yen, and other major currencies. Should the ECB lower rates, the dollar should begin to stabilize. Last week ECB President Trichet stated he was concerned with “brutal moves” in the currency exchange rate. Meanwhile, the Fed announced yesterday last week’s holdings of U.S. treasuries on behalf of foreign central banks was the biggest weekly increase since May. Foreign central bank Treasury holdings exceed $1.1 trillion, with Japan the largest owner of our U.S. government debt.

Swedish Medical Center is the largest hospital in the Northwest and has 7,000 employees. Yesterday they announced the lay off of 160 employees in March, and the shifting of lab work performed at its Providence campus to an outside vendor. The lab employees earn about $18 per hour.

There is more troubling mad cow news, and it indicates how lacking the testing procedures truly are. Dave Louthan remembers the Holstein with the mad cow disease. He stated it was a “fluke” the animal was tested. Had the animal been deemed a downer, it would have been sent to a rendering plant, and tests are not performed. Louthan worked at Vern’s Moses Lake Meat Co. (and since has been laid off.) The Holstein was walking. He noticed blood on the tail. He should have herded the cow into a holding pen with other ambulatory animals. It was late in the day, and Louthan stated “I was cutting corners.” As such, he put the animal down, and a piece of the brain was sent for testing. Had a vet simply examined the Holstein, mad cow would not have been discovered. The diseased particles are not visible to the vet’s eyes. Louthan stated, under ordinary circumstances, the cow would not have been tested. The testing is totally voluntary, and the industry chooses the animals to be tested. Under new procedures, downer animals are banned and sent directly to rendering plants. In many states no testing is performed there. Without a birthing injury, the Holstein would still be out and about with BSE.

1/23/04 Sanofi And Aventis

There is speculation that Sanofi-Synthelabo, the French pharmaceutical company, is preparing a hostile bid for Aventis Pharmaceuticals, the large French-German manufacturer of prescription drugs, human vaccines, and animal health products. The price mentioned is at least $60 billion, or 30 times the yearly profit generated by Aventis. Igor Landau, Aventis chairman, was quoted as stating Aventis was not in merger talks with Sanofi, and that he believed Sanofi would not make a takeover bid. L’Oreal owns 19.5% of Sanofi, and Nestle controls 26.3% of L’Oreal. Total, the large oil entity, owns 24.4% of Sanofi. A combination of Sanofi and Aventis would create one of the world’s largest pharmaceutical companies. Sanofi has been looking to make an acquisition. Aventis would prove attractive to many others, and that could include Merck. The difficulty is structuring a transaction not too dilutive to the acquiring company.

I don’t see why analysts have such difficulty in understanding the results for Microsoft. Here’s a company that just announced quarterly revenues exceeding $10 billion. They raised their revenue forecast for the year ending June 30. They increased their earnings per share projections for the fiscal year. The company’s CFO stated he expects Microsoft to end its fiscal year with about the same amount of unearned revenue it has now, and that unearned revenue should stabilize in the future. Windows operating systems rose to over $3 billion in the latest quarter. Revenues for Microsoft Office and other business software increased 27% in the quarter to just under $3 billion. Revenue for the MSN division was up 19%. The company generates more cash than any other technology company in the world. I suggest Wall Street analysts take a refresher course in scrutinizing financial operating results.

Yesterday I received an email from a bright guy questioning my views on unemployment, and commenting that possibly I should become more upbeat on the subject. Just as many analysts don’t grasp Microsoft’s operations, many money managers don’t get the unemployment picture. It’s not that difficult. Let me give a few more helping hands. Citibank will close a former Sears, Roebuck credit-card processing center in Neshaminy, Pennsylvania, and 930 workers will lose their jobs. Last year Citigroup paid $3 billion for Sears’ credit card portfolio. The pending acquisitions of FleetBoston and Bank One are expected to result in additional job losses in the area. The caususes are over in Des Moines, and now we can get back to the business of layoffs. Iowa Packing has been a significant employer in Des Moines for decades, and the history of meatpacking on the plant site at 1801 Maury St. dates back more than 100 years. The Ochylski has operated the plant for decades. Unfortunately, they are in financial trouble and owe $22 million to secured creditors. A sale of the business is expected to close Monday. The business employs 520 workers. The city of Des Moines received notice that all of the plant’s workers would be laid off, with “some portion” rehired after the sale closed. At least one-half of the workers will lose their jobs. In sum, I do not exaggerate the severity of the job loss problem in our country, and I do not exaggerate the difficulty in finding a job. The facts are there for all to see. It’s the same with Microsoft. Just open your eyes and your mind.

Yesterday the government reported first-time applications for unemployment had declined. For the past six plus months they stated the jobless rolls had fallen by 637,000. The Labor Department also reported that 45 states and territories had reported an increase in new claims and eight had reported a decrease. The Labor Department’s figures did not include some 788,000 workers who were receiving extended federal unemployment benefits until December 21, 2003, the date the program was not extended. Therefore, unemployment figures actually rose and are sitting at higher levels than late June, 2003.

Prior to the U.S. invasion of Iraq, Bush and Cheney both claimed “there is no doubt that Saddam Hussein has weapons of mass destruction… to use against our friends, against our allies, and against us.” Without the discovery of WMD, Bush has changed the rhetoric to “weapons of mass destruction-related program activities.” When asked about the wording change, Bush replied "What’s the difference." Yesterday the Bush administration issued a new federal rule that limits pollution testing. I wonder whether that covers monitoring and oversight of the art of “misspeaking.”

1/22/04 “Some People Could Conceivably Be—Are Being Left Behind”

This statement was made yesterday by Bush at the Owens Community College in Toledo, Ohio. He stated “Americans should be able to trust that what the president tells them is true.” I’m all for that. Bush was highlighting his $250 million proposal for new job-training grants channeled through community colleges. Bush recently proposed to cut almost $700 million in the same job training and education programs, such as, $225 in funding youth job training grants, $230 million in vocational community college education, and reducing the Pell Education Grant that will impact 84,000 students and reduce grants for “an additional one million students,” as observed the U.S. Government Education Department.

In the State of the Union Address Bush stated “in two weeks, I will send you a budget that funds the war, protects the homeland, and meets important domestic needs, while limiting the growth in discretionary spending to less than 4%.” He did not tell the American public that, according to the Defense News and the Center for Strategic and Budgetary Assessments, a $50 billion request would be made by the president after the November election for additional spending in Iraq. It should be noted that, prior to the start of the war, House Budget Director Daniels stated the cost of the Iraq war would “be in the range of $50 billion. It should also be noted federal spending for the year ending September 30, 2004 was estimated by the president to be 3.34% above the 2003 level. In actuality, the increase will approach 6%.

Yesterday was a bit different in New York City. More than 150 corporate executives, many paying $1,400 per person, participated in an “offshore outsourcing “ conference. The executives chose to close the conference to the press. Outside the Times Square hotel where the meeting took place a programmer held a sign “will code for food.”

Bush is absolutely correct. There are people who are being left behind, and not necessarily all in Ohio. Eastman Kodak, in its efforts to convert to digital photography, will cut 21% of its workforce or about 15,000 jobs. These will be manufacturing, support, and corporate staff positions. I envision future layoffs. The company will close photo- finishing labs serving the retail trade. PalmOne is firing 100 workers or 12% of its entire workforce. Ahold, Giant Food’s Dutch parent company, will shut down its U.S. corporate headquarters in Chantilly, Virginia where it employs 100 people. Haworth Inc, a Michigan-based furniture manufacturer, will close a plant and layoff 161 workers. They stated another plant would likely be closed this year.

Interestingly, starts of single-family homes fell 0.6% in December to a level just shy of the monthly record set in November. However, starts of townhouses, apartments, and other multifamily homes rose 11.6% to a 424,000 annual rate in December. Much of the strength in the economy in 2002 and 2003 has been in home building and residential construction and remodeling.

In 2000 four people in three New Jersey counties died from CJD (Creutzfeldt-Jakob disease) and for the four-year period from 2000 to 2003 a total of eight people in those southern New Jersey counties died from the disease. This is a very large number considering the disease occurs in about one in a million people. Humans can contract variant CJD from eating infected meat; however, it is believed none of the aforementioned deaths is tied to mad cow disease. At the same time, the CDC has only investigated three of these cases. All of the cases involved people who ate at or lived near the Garden State Race Track in Cherry Hill, NJ.

Lewis Gossett, president of the South Carolina Manufacturers Alliance, stated “it’s almost like the reports from Iraq, where you hear about a soldier or two being killed each day. You pick up a newspaper and you read about a facility closing… the problem with these textile mill closings in particular is that oftentimes they are the mainstay of that community’s economy… when you take that tax base out of the community, a number of other things die with it.” The community is frequently left behind. Gossett remarked “something has to support service industry. Something has to form the foundation that provides those people with an opportunity to make a living and prosper. Somebody at some point needs to be making something.”

1/21/04 Testifying But Not Debating

Yesterday truly exemplified Bush’s state of the union. It would prove disastrous for millions of workers. Labor Secretary Chao told a Senate appropriations subcommittee on labor that her department intends to move forward with the new overtime regulations by March 31. She mentioned that employers are spending $2 billion a year on “needless litigation” by workers seeking overtime pay. Chao testified but was unwilling to hear opposing views, and replied “enough time has been spent on delays and studies of all sorts.” I want to reiterate that initially both the House and the Senate voted to omit the changes in the overtime laws requested by Bush. Unfortunately, they succumbed to ongoing White House lobbying. That should tell you about the backbone of many in the House and the Senate. The Department of Labor will make changes in the Fair Labor Standards Act of 1938. Anyone earning less than $22,100 automatically becomes eligible for overtime pay, up from the present $8,060. Anyone “in a position of responsibility” or earning more than $65,000 a year would be exempt from mandatory overtime pay. Employers can change a worker’s job description, and place them in a position of responsibility. It requires only a stroke of a pen. Similarly, said Sen. Patty Murray, D-Wash., “without any hearings, with the stroke of a pen, the secretary of labor is about to adversely affect the lives of millions of Americans.” Under Bush, the average American worker has seen weekly work hours decline and wages remain unchanged when compared with an inflation rate which is the lowest in years. The American worker is under siege. Millions of jobs have been lost since he took office in January 2001. Now millions of workers will lose millions of dollars in overtime pay. The American worker is not safer in the workplace. In my view, this should not be the state of the union.

Kerry Killinger, Washington Mutual’s CEO, stated “rising interest rates for mortgages in the second half of the year placed pressure on our business results. Total home-loan volume fell 42% during the last quarter from the year earlier period. The bank will cut 2,900 jobs this quarter after eliminating 4,500 employees in its home-loan business in the fourth quarter. Real estate closings in the state of Washington were 1.2% below the year-ago levels statewide, and represented the first decline in 15 months. The Office of Forecast Council stated “the decline in activity was a little sooner and more abrupt than expected.”

Yesterday a large explosion killed 13 workers and injured at least 74 in a terrible explosion at Algeria’s largest refinery in the Mediterranean port city of Skikda about 300 miles east of Algiers. Skikda is the country’s largest port and handles most of Algeria’s exports of crude, refined, and petrochemical products. About 12,000 people work at the oil and gas facilities. The port of Skikda exports 335,000 barrels per day of oil as well as 60 billion cubic meters per year of liquefied natural gas. In 2002 Algeria was the world’s second largest exporter of LNG. U.S. fuel inventories have fallen to the lowest levels in about 30 years. OPEC’s next meeting is on February 10 in Algiers. Yesterday, after the explosion, U.S. light crude oil futures for February delivery rose to a new 10-month high at $35.90 a barrel. We can expect gas at the pumps to keep rising. During winters one does not often witness higher gas prices at the pump.

Gene Jolley, founder of Kingdom Financial Principals LLC, stated “I’m already seeing more families choosing to buckle down and learn how to eliminate their debt without gimmicks. Now we just need to get the message out on a large scale. Imagine the effect it will have on our economy when more people are living completely debt-free, including mortgages, after just five to ten years.”

1/20/04 The State Of The Union

Tonight Bush will ask the nation to stay the course on terrorism. Last year at this time, according to a White House transcript, he claimed Hussein had enough anthrax to “kill several million people,” enough botulinum toxin to “subject millions of people to death by respiratory failure,” and enough chemical agents to “kill untold thousands.” In addition, Bush proclaimed Hussein “has given no evidence that he has destroyed” any of the chemical weapons. It is fair to say that tonight no mention will be made of WMD, the 500+ U.S. soldiers killed in Iraq, or the 100+ U.S. soldiers killed in Afghanistan. There is an explanation for why Dr. Kay and his 1000+ searchers for WMD have not discovered them. Cheney has the answer. He maintains they are “perishable.” That’s right. They don’t keep. They spoil, as in lies spoil the truth.

In an effort to “continue to confront the challenges of our time,” Bush stated in his radio address on Saturday, he will ask the Congress to make his tax cuts permanent. He will ask for federal funding for job training. He will ask for tax breaks for health care costs, including making health care expenses tax deductible for low and medium income families, the group that can least benefit from tax breaks. He will suggest initiating IRAs for younger workers. He will push for specific family values, including same sex marriages. Bush will increase Medicare payments to HMOs by 10.6% in an effort to persuade them to join the Medicare market, and he will increase benefits for the elderly. The new Medicare law gave private health plans a larger role in the program. The CBO estimates that the extra payments to private plans will exceed $500 million this year and will total $14 billion from 2004 to 2013. I don’t believe Bush will be discussing our twin budget and trade deficits or his excessive discretionary government spending. Bush must decide whether he wants to be a compassionate conservative, a strong leader with good intentions, or simply a president with a mandate to “make America a more secure, more prosperous and more hopeful place.”

I am certain that Bush will discuss jobs for all Americans. He won’t discuss the millions who have lost jobs during his term as president. He won’t discuss a growing trend in India with “overseas professionals from countries as far as the U.S., Britain, and South Africa who started to call us to inquire about job opportunities here. This has now become a trend,” stated Anil Mahajan, executive director of Talent Hunt Private Ltd. in New Delhi. He mentioned “with many new leading global technology companies now moving high-profile jobs to India, the country has become an attractive job destination. Earlier only call center jobs were coming to India. But now as companies start to ship high-end research and senior managerial jobs too to India, foreign workers see huge opportunity for themselves here.” Maybe, with Bush’s job training program, more U.S. workers will be able to get a job in India. There are fewer opportunities in the U.S. and the job search often takes 20 months or more. Do you think Bush will discuss the failure to extend unemployment benefits or the effort to do away with overtime in the workplace for 8 million workers? That probably won’t make it into tonight’s speech.

Coming from Texas, Bush has a preference for eating beef. I do not believe he will include a discussion of mad cow disease or the mention made yesterday by Japan’s Ministry of Agriculture, Forestry and Fisheries that “there is no assurances that no further cases of mad cow disease will be found in the United States. Compared with the measures Japan is taking, the U.S. measures are fairly weak and inadequate in terms of safety.”

In discussing the current economic conditions in the United States, I don’t believe Bush will second the words proclaimed by Wal-Mart yesterday that “the mid-month paycheck cycle continues to be pronounced.” He probably will leave out a section on millions of American workers living paycheck to paycheck and rather shall focus on the need for continued tax cuts.

I doubt whether Bush will discuss White House forecasts for the budget deficit expanding to $475 billion this year. I question whether Bush will discuss our $500 billion trade or current account deficit. As long as consumers continue to have an appetite for imported goods, we shall run trade deficits with China and Japan. Meanwhile, Bush may discuss on-going tax incentives to promote business investment, but companies, such as, Motorola will “keep on investing in China to benefit from the strong growth.” China’s economy grew just under 10% in the fourth quarter. That country’s industrial production rose a record 18% in December. Retail sales grew 11%. By comparison, the U.S. economy is standing still. It is not a surprise that Motorola had invested $3.4 billion in China by the start of last year. With the growth in investment and production, China created 8.5 million jobs last year. I don’t believe Bush will discussion this job growth. By comparison, it makes our job losses look even worse.

I don’t believe Bush will discuss the economies of other countries. He will not mention the Bank of Japan’s assessment that the world’s second largest economy is “recovering gradually. Exports are increasing and business fixed investment continues a gradual recovery. As for the outlook, Japan’s economy is anticipated to continue recovering, albeit at a moderate pace.” Bush will avoid discussing the weak dollar and the downward risks the latter poses to the Japanese economy from a strong yen. With Japan’s aging population and its need for social welfare spending, the country’s debt levels are rising to unwieldy heights. That could spell big trouble for the United States. It may not prove viable for Japan to continue its massive purchases of U.S. treasuries in its efforts to stem the rising tide of the yen versus the dollar. Bush will not touch on this subject. The Bank of Japan will buy asset-backed securities to help boost the recovery of small and mid-sized companies. I wonder if our Federal Reserve will find a similar need.

I know that Bush can speak some Spanish. Will he close tonight’s speech with Donas Calientitas al Instante! That’s “hot donuts now” in Spanish. That might give everyone a pick me up. He can close by stating that Krispy Kreme opened its doors to its first store in Mexico, located in Interlomas, a suburb in Mexico City, this morning. Donuts, immigration, and NAFTA. What a finish to a speech!

1/18/04 IRS Form 6251 And Form 8801

Over the past year I have discussed the alternative minimum tax (AMT) several times. I have referred to it as a WMD. Yesterday a friend called and asked whether I had read the article in Barron?s on the AMT. I had not, and did not get an opportunity to state I would not be reading it. Before I had the chance, he mentioned that he?d be emailing it to me, and asked that I give my opinion. Politely, I remarked that I don?t critique the work by others. I did state I would mention AMTagain this morning. The AMT is an important matter. It is not to be taken likely. It is a cancer. The growth is exploding within our society. I highly recommend speaking to a tax accountant, and a good one. This is not a malady for an HMO. It is essential to plan wisely. In 1970, 19,000 taxpayers were impacted by the AMT. In 2003, the figure could be over 4 million. The Urban-Brookings Tax Policy Center study indicated the number will jump to 35.6 million by 2010. Do I have your attention? Let?s examine the AMT. It is not indexed to inflation. It is a separate tax system. A good many filing with incomes approximating $75,000 or higher will be hit by the AMT. The bloodshed is not pretty. You begin by adding back your personal and dependent exemption deductions. You lose personal exemptions under AMT. Deductions for state and local taxes are disallowed. That home-equity loan interest deduction becomes a problem. Deductions on rental properties, partnership interests, S corporations, exercised incentive stock options, large capital gains, foreign-income write-offs, property tax write-offs, some itemized deductions for investment expenses, employee business expenses, and interest deductions on second mortgages become problems with AMT. Dental and medical expenses must exceed 10% of adjusted gross income to be allowable as deductions. In addition, real property taxes cannot be deducted until they are actually paid to the taxing authority. I have attempted to highlight some of the more striking elements under AMT. I have not mentioned all of them.

The Federal Reserve estimates about 13.5 percent of disposable monthly income for all Americans goes towards monthly credit card payments. The average credit card holder carries about $8500 in such debt and pays about $1,000 a year in interest charges. Consumer credit totals about $2 trillion. Paul Kasriel, chief economist at Northern Trust, remarked "I think we?ve got a what?s-my-monthly-payment kind of society." Susan Boas, president of Consumer Credit Counseling Services of Greater Atlanta, stated "people think that, if they can make the minimum payment, they are OK. There is a significant proportion of the American population that lives one paycheck away from disaster- when they lose a job, it is a very serious problem." According to the ABA, credit card delinquencies climbed to a record 4.09 percent of all accounts during the third quarter of 2003, and in the year ending September 30, 2003, 1.66 million personal bankruptcies were filed, a 7.4 percent rise from the prior year. CardWeb, a research firm tracking the payment card industry, observed the average household pays interest charges of $1,000 a year; however, add in fees of various kinds for those who carry a balance, and companies are making an average of $1,700 a year per household, stated Robert Manning, professor at the Rochester Institute of Technology and author of "Credit Card Nation." Dimitri Papadimitriou, president of Bard College?s Levy Economics Institute, stated "if the economy isn?t growing and doesn?t produce jobs, then the time of reckoning comes nearer."

By an overwhelming majority (83.6%), employees of Dow Jones, publisher of the Wall Street Journal and Barron?s, have rejected a proposal for a new three-year contract that would have slashed health benefits. The proposed contract also included a wage increase that failed to keep pace even with the small current state of inflation. The vote marked the first time in the history of the Independent Association of Publishers? Employees, Dow Jones?s primary union, members voted to repudiate a contract proposal on which they were asked to vote.

In 1965 The U.S. deployed 184,300 troops in Vietnam. In that year, after a cumulative four-year period, a total of 500 U.S. troops were killed. Since the start of the war in Iraq in March 2003, our military has employed about 130,000 troops and the death toll of 500 was reached this weekend. Over the 14-year U.S. engagement in Vietnam more than 58,000 troops were killed.

University of Michigan professor Juan Cole: "The press has concentrated on the significance passing the 500 mark (346 from hostile fire) with regard to deaths. But in this war, the injuries that have been survived have been horrific. Thousands of U.S. soldiers are coming home with their faces blown off, or missing limbs, facing a lifetime in a wheel chair. The military medicine is good, and swift, and saves more lives. But the result is large numbers of permanently maimed vets. These have largely been hidden away from the public view, and they haven?t even always been treated very well on their return by the military. The other complaint I have is the fetish about daily number of attacks (down to 18, the military says, from a high of 50 a few months ago). But the rise to 15 attacks a day had once seemed intolerable, in the aftermath of the military victory. And the "reduction" to 18 a day appears to have been achieved over and over again. The important statistic is the number of our guys getting killed or wounded. That isn?t down appreciably in the past month, so fewer attacks that are more deadly seem to me to be just as bad as more attacks that are less effective."

1/18/04 IRS Form 6251 And Form 8801

Over the past year I have discussed the alternative minimum tax (AMT) several times. I have referred to it as a WMD. Yesterday a friend called and asked whether I had read the article in Barron’s on the AMT. I had not, and did not get an opportunity to state I would not be reading it. Before I had the chance, he mentioned that he’d be emailing it to me, and asked that I give my opinion. Politely, I remarked that I don’t critique the work by others. I did state I would mention AMTagain this morning. The AMT is an important matter. It is not to be taken likely. It is a cancer. The growth is exploding within our society. I highly recommend speaking to a tax accountant, and a good one. This is not a malady for an HMO. It is essential to plan wisely. In 1970, 19,000 taxpayers were impacted by the AMT. In 2003, the figure could be over 4 million. The Urban-Brookings Tax Policy Center study indicated the number will jump to 35.6 million by 2010. Do I have your attention? Let’s examine the AMT. It is not indexed to inflation. It is a separate tax system. A good many filing with incomes approximating $75,000 or higher will be hit by the AMT. The bloodshed is not pretty. You begin by adding back your personal and dependent exemption deductions. You lose personal exemptions under AMT. Deductions for state and local taxes are disallowed. That home-equity loan interest deduction becomes a problem. Deductions on rental properties, partnership interests, S corporations, exercised incentive stock options, large capital gains, foreign-income write-offs, property tax write-offs, some itemized deductions for investment expenses, employee business expenses, and interest deductions on second mortgages become problems with AMT. Dental and medical expenses must exceed 10% of adjusted gross income to be allowable as deductions. In addition, real property taxes cannot be deducted until they are actually paid to the taxing authority. I have attempted to highlight some of the more striking elements under AMT. I have not mentioned all of them.

The Federal Reserve estimates about 13.5 percent of disposable monthly income for all Americans goes towards monthly credit card payments. The average credit card holder carries about $8500 in such debt and pays about $1,000 a year in interest charges. Consumer credit totals about $2 trillion. Paul Kasriel, chief economist at Northern Trust, remarked "I think we’ve got a what’s-my-monthly-payment kind of society." Susan Boas, president of Consumer Credit Counseling Services of Greater Atlanta, stated "people think that, if they can make the minimum payment, they are OK. There is a significant proportion of the American population that lives one paycheck away from disaster- when they lose a job, it is a very serious problem." According to the ABA, credit card delinquencies climbed to a record 4.09 percent of all accounts during the third quarter of 2003, and in the year ending September 30, 2003, 1.66 million personal bankruptcies were filed, a 7.4 percent rise from the prior year. CardWeb, a research firm tracking the payment card industry, observed the average household pays interest charges of $1,000 a year; however, add in fees of various kinds for those who carry a balance, and companies are making an average of $1,700 a year per household, stated Robert Manning, professor at the Rochester Institute of Technology and author of "Credit Card Nation." Dimitri Papadimitriou, president of Bard College’s Levy Economics Institute, stated "if the economy isn’t growing and doesn’t produce jobs, then the time of reckoning comes nearer."

By an overwhelming majority (83.6%), employees of Dow Jones, publisher of the Wall Street Journal and Barron’s, have rejected a proposal for a new three-year contract that would have slashed health benefits. The proposed contract also included a wage increase that failed to keep pace even with the small current state of inflation. The vote marked the first time in the history of the Independent Association of Publishers’ Employees, Dow Jones’s primary union, members voted to repudiate a contract proposal on which they were asked to vote.

In 1965 The U.S. deployed 184,300 troops in Vietnam. In that year, after a cumulative four-year period, a total of 500 U.S. troops were killed. Since the start of the war in Iraq in March 2003, our military has employed about 130,000 troops and the death toll of 500 was reached this weekend. Over the 14-year U.S. engagement in Vietnam more than 58,000 troops were killed.

University of Michigan professor Juan Cole: "The press has concentrated on the significance passing the 500 mark (346 from hostile fire) with regard to deaths. But in this war, the injuries that have been survived have been horrific. Thousands of U.S. soldiers are coming home with their faces blown off, or missing limbs, facing a lifetime in a wheel chair. The military medicine is good, and swift, and saves more lives. But the result is large numbers of permanently maimed vets. These have largely been hidden away from the public view, and they haven’t even always been treated very well on their return by the military. The other complaint I have is the fetish about daily number of attacks (down to 18, the military says, from a high of 50 a few months ago). But the rise to 15 attacks a day had once seemed intolerable, in the aftermath of the military victory. And the "reduction" to 18 a day appears to have been achieved over and over again. The important statistic is the number of our guys getting killed or wounded. That isn’t down appreciably in the past month, so fewer attacks that are more deadly seem to me to be just as bad as more attacks that are less effective."

1/19/04 Preference And Viability

Watching the Iowa political scene has been a great learning experience for me. Focusing on the happenings in the heartland has been an ever-increasing important part of my life. I find it essential to grasp what makes those on Main Street tick. Watching the pre-caucus meetings, my appreciation and understanding of Iowans has been enhanced.

The turnout for the caucuses at 1,993 locations in the 99 Iowa counties should be extraordinary. Young and old will make themselves heard. The process is about preference and viability. If your preferred choice does not get 12 to 15% support of those present, then you must move on to your second choice, and so on. Your choice must be viable. In the last three presidential elections, I cast my vote knowing the Libertarian candidate was not viable. I could not do that in the Iowa caucuses. In the end, your vote must count. That’s a good thing. In other words, it is important for your voice to be heard in our democratic system, but when few are listening, so to speak, your voice counts for little. It may make you feel better to stand up and be counted, but the count needs to have traction. In my view, the voices expressed tonight in the caucuses will not be forgotten. They will carry forward into other states. It is quite possible that, the turning point in this presidential election, took place a few days ago when the Des Moines Register newspaper endorsed John Edwards. Since then, his time has come. He has made the most of this opportunity. No matter the final tally, John Edwards, I believe, will be declared the real winner. Professional politicians will begin to count potential electoral votes, and they will realize he, along with Kerry as a running mate, could truly win in November 2004. Just as our troops are vulnerable in Iraq, so is George W. Bush vulnerable in the election process. When push comes to shove, Bush is unfamiliar with those on Main Street. That’s where the battle is fought. Preference and viability will rule in 2004.

The Iowa caucus process also proved a learning experience as it relates to our economy and Wall Street. I often write about the businesses and the workers in Iowa. Watching their faces over the past few weeks, I learned even more. These people represent the heart, the soul, and the very best in America. They appreciate the core values of honesty, family, community, hard work, and respect for others. Iowans fight for our freedom, pay taxes, and try and make ends meet. Often they go unappreciated. They don’t make the covers of magazines or get idolized by the public. However, they will be heard beginning at 6:30 Iowa time this evening. Frequently, the state’s infrastructure has not been able to accommodate the rush of reporters. Some hotels have run out of hot water during this caucus time. The 1,993 locations will accommodate the participants. When the chips are on the table, you can count on Iowans.

Over the weekend I received an email about IBM hiring more workers this year, especially recent college graduates. The information had come from a company news release. In a reply, I mentioned this didn’t feel right to me because IBM’s revenue growth has been overseas, and particularly in the Asia Pacific region. In this morning’s Wall Street Journal, the paper notes “internal documents from IBM show that it expects to save $168 million annually starting in 2006 by sifting several thousand high-paying jobs overseas… IBM plans to shift the jobs from various U.S. locations to China, India, and Brazil, where wages for skilled programmers are substantially lower.” Including salary and benefits, IBM expects to pay about $12.50 per hour versus $56 per hour for a comparable U.S. employee.

MCI plans to cut about 1,700 workers in the coming weeks. I expect that future layoffs will greatly exceed that number. MCI does have one distinguished employee. Vinton Cerf is senior vice president of technology strategy at MCI. During his tenure at the U.S. Department of Defense’s Advanced Research Projects Agency in the 1970s, Cerf co-designed the TCP/IP protocol and architecture of the Internet. He is often described as one of the founders of the Internet. When he talks, people listen, or they should. This past week he said “I’m also expecting to see some significant increase in the use of speech understanding as an alternative way of interacting with the Net. It’s been a prospect for some time. Even when I was at the Defense Department, we were doing research in speech understanding in the mid-1970s with some fairly good results. But we couldn’t do it in real time, with continually spoken speech. Now we have enough computer power to make it possible to literally recognize connected speech in real time.” Vinton Cerf is quite correct. Next week I will call him and provide the opportunity to see voice recognition in real time. The day for the melding of voice recognition technology and text messaging is now. After 30 years, it is viable and it shall become the preference for millions who wish to be mobile, hands free, and leave their desktops at home and in the office.

1/17/04 The World’s Largest Refrigerator Factory

On October 21, 2003 Electrolux AB, the Stockholm, Sweden-based company stated it might close the 1.7 million square foot Greenville, Michigan refrigerator factory that employs 2,700 people and move production to Mexico. Electrolux stated the move would save the company $81 million per year. A task force of local, state, and federal officials was assembled to investigate ways to persuade Electrolux to remain in Greenville, a city of 8,000 residents about 30 miles northeast of Grand Rapids. The plant makes 1.6 million refrigerators per year, including the Frigidaire brand, Kenmore, White-Westinghouse, Gibson, and Kelvinator. It is by far the largest employer in Greenville. The task force produced a package that would save the company $80 million over the next 20 years. Yesterday Electrolux issued the following statement: “At this time, the current proposals from the union, the community, and the state fall substantially short of eliminating Electrolux’s $81 million annual cost disadvantage.” The company will build a new plant in Mexico at a cost of $150 million over the coming two years. The Greenville factory will continue to operate into 2005. Refrigerators have been made in Greenville since the late 19th century. At that time they were manufactured from wood and called ice boxes. Labor costs are the main reason for the move. Workers at Electrolux’s vacuum cleaner plant in Juarez, Mexico earn about one-tenth of what their Greenville counterparts make.

Yesterday the state of California Economic Development Department reported the state lost 8,400 jobs outside the farm sector in December. They stated that thousands of people left the labor force in December and were no longer counted as unemployed.

Cathy Rudolph, a Boeing spokeswoman, stated the Boeing Commercial Airplanes unit will continue issuing layoff notices each month through the end of the year. Yesterday the company issued 60-day layoff notices to 80 workers. Though the monthly totals have fluctuated, and have decreased lately, Boeing has given notices to some workers each month since the end of 2001. Including the military, space, and commercial airplane businesses, Boeing has cut about 42,000 positions since 9/11. They still employ 157,000 workers.

Paul Allen is the co-founder of Microsoft. In June 2000, at a cost of $240 million, he founded the 140,000 square foot Experience Music Project, a rock ‘n’ roll museum. Over the past two years 170 workers have been given pink slips. In an effort to control costs, this week another 129 employees lost their jobs, and that means 214 workers remain at this Seattle museum.

Yesterday, Federated Department Stores stated it plans to close five poorly performing stores in Alabama, Georgia, Ohio, and Pennsylvania that in total employ 369 people. Federated operates Macy’s, Bon Macy’s, and Bloomingdale’s.

There is good news to report- in China. Roche, the Basel, Switzerland-based pharmaceutical company, announced yesterday it will be the first global healthcare company to establish an R&D center in Zhangjiang Hi-Tech Park in Shanghai, China. Jonathan Knowles, President of Roche Group Research, stated “China is a country with extra resources and internationally trained biomedical scientists. The creation of our fifth research site in the Roche Pharmaceuticals Division represents a key strategic decision that will allow us to continue to enhance our capabilities in medicinal chemistry on a global level. Looking to the long term, our aim is for the group in Shanghai to discover and optimize new molecules, active ingredients of potential new drugs, which address important unmet medical needs and can be marketed worldwide, including China.” Dr. Franz Humer, Roche Chairman and CEO, remarked “over the next few years China will become an even more important market for Roche. Our financial and intellectual investment is an expression of Roche’s long-term commitment to China. The resulting knowledge transfer will support Shanghai in its efforts to become a leader in innovation.” The facility will be operational by the end of 2004. Roche has been active in China for 10 years, and they are one of the leading suppliers of prescription medicines in China. They employ about 1200 people in Hong Kong and Shanghai.

Since the start of the Iraq war in March 2003, a total of 502 U.S. soldiers have been killed.

Yesterday, the Commerce Department reported that there was a 1.2 percent increase in inventories on car dealers’ lots in December. This was the primary reason for the 0.3% rise in business inventories at U.S. manufacturers, retailers, and wholesalers. However, inventories at manufacturers declined 0.2% while sales were unchanged. The media would lead one to believe that the economy continues to roll along at a brisk pace. The facts indicate quite the opposite. With the absence of pricing power, a continued drop in the money supply, and on-going layoffs, the economy faces challenging times. Industrial production remains essentially stagnant, and capacity utilization continues to combat muted domestic demand. Poll after poll indicates rising confidence. That and a $1.25 will get you on the bus. For all of 2003, factory use fell to 74.9% from 75.6% in 2002, and represents the slowest operating rate since 1983, according to Fed data.

The Iowa caucuses have led off the nation’s presidential primary season since the 1970s. Having listened to the concerns of Iowans, I am convinced the major issues are jobs and healthcare. There is, however, one seldom-mentioned fact. This state has a very large number of its citizens working two jobs in order to make ends meet. In other words, the quality of employment and the difficulty to find a job will be on center stage view on Monday night. Just about every day I have hammered home the unemployment problem and the underemployment dilemma facing a growing number of Americans. Each week I receive comments about my downbeat views on employment. Frankly, the complaints are ill founded, and if I should make anyone uncomfortable with my thoughts, please do not hold your breath for an apology. That is not a reflection of arrogance. Anyone reading my words over the years knows I admit my mistakes in a timely fashion, and I am dedicated to ensuring the same mistake is not made twice.

1/16/04 Wall Of Claims

I am not the one in the family with the artistic talent. I am unable to draw a picture of the wall of claims. As such, it will be necessary for me to describe it in words. The Labor Department depicts an unemployment condition that is improving on a national basis. The facts do not support that position. I will simply state some of the companies that have announced layoffs since the beginning of the New Year. This is a partial list: Boise Cascade, Monsanto, Great Atlantic & Pacific, IRS, WestPoint Stevens, Cargill, Tyson, Swift, Disney, SureBeam, Graphic Packaging, InterMet, SmurfitStone, KB Toys, Instinet, Piccadilly Cafeterias, Earthlink, Baltimore Sun, Elder-Beerman, Rayovac, Sun Microsystems, PhotoWorks, U.S. Airways, and MeadWestvaco. Outside the United States we can include Toshiba, Nokia, Cable & Wireless, Boots Group, and Seiyu. I thought we might take a trip to Georgia and see whether that state has had a different experience. The Georgia Department of Labor stated the number of workers filing a first-time unemployment benefit claim surged in December 2003. The department reported 59,206 laid-off workers filed for unemployment insurance benefits in December, an increase of 65% from November. Claims in Atlanta rose 46%. State Labor Commissioner Michael Thurmond stated “since the first of the year, such stalwart companies as Earthlink, WestPoint Stevens, Flint River Textiles, and Lord & Taylor have announced even more job cuts. These new losses not only affect workers whose jobs are being terminated, but make it even harder for Georgians who have been out of work for months to find employment.” When you read government statistics on unemployment, please remember the wall of claims. The government numbers are suspect.

Monique Simmons of Canton, Ohio: “I’ve been looking for a job for two years. It’s always, ‘we’ll get back to you.’ I just hear a lot of excuses.”

Gary Burtless, a labor economist at the Brookings Institution: “If you have investments already, and if you have a job already, the last 12 to 18 months have been very nice to you. The stock market has done well. You can refinance your mortgage. You can finance your new cars at very favorable rates, and prices haven’t been rising. But if you are looking for a new job or had the misfortune of losing a job, for those folks, life is much, much tougher. It’s just so damned hard to get employment.”

Lawrence Shade, the co-commanding officer of the Canton, Ohio Salvation Army: “Everybody’s closing down. Nobody thinks the Hoover plant’s going to be here in five years. Timken’s going down the drain. What’s going to replace a Republic Steel?”

Both the National Association of Manufacturers and the Manufacturers Alliance/MAPI are calling for government action to decrease the tax and regulatory burden on manufacturers. A study by the two groups estimated production costs were 22.4% higher in the United States than overseas because of high corporate taxes and soaring health care, legal, pension, and energy costs.

Lee Price, research director for the Economic Policy Institute: “When people are fired or there’s attrition in the labor force or workplace, employers are saying we’ve got to get the same work done with fewer people… it’s certainly not sustainable.”

Mart Jaffe, manager of InfoPLACE, a career counseling center at the Cuyahoga County Public Library branch in Maple Heights, Ohio: “You wouldn’t know that things are better based on the number of people who are either meeting with us or all the other job groups. It sort of cuts across class and experience and education. Assembly line workers and executives are both in the same boat.”

Legislators are currently on winter recess (like they are overworked!), but a hearing on the overtime rules is planned for Jan. 20. The National Association of Women, the AFL-CIO, the Economic Policy Institute, the International Confederation of Free Trade Unions, the Communications Workers of America, and Senator Tom Harkin of Iowa all oppose changes to the current overtime laws. Last year, both the Senate and the House passed an amendment that preserved overtime pay protection for most workers. The amendment, named after its sponsor, Tom Harkin, was later dropped from a spending bill under intense pressure from the White House. A study last year by the Economic Policy Institute found the new rules would remove overtime pay protection for about 8 million workers by reclassifying them as executives, professionals, and administrators. Workers earning more than $65,000 a year would also be exempt from overtime pay.

Yesterday, the Pension Benefit Guaranty Corp., which protects the retirement plans of more than 44 million workers, stated its deficit hit a record $11.2 billion in 2003. Executive Director Steven Kandarian stated the deficit was more than triple the $3.6 billion in the previous year, and “puts at risk the agency’s ability to continue to protect pensions in the future.”

Yesterday, the Economic Union, joined by nine nations including Japan, China, Brazil, India, and South Korea, asked for the go ahead to slap trade sanctions on the United States. The proposed sanctions focus on the Byrd amendment, which is deemed illegal. The amendment was passed in 2000, and since then, U.S. ball bearing, steel, seafood, pasta, candle, and other firms have received in excess of $700 million from anti-dumping duties on “unfairly traded” imports. Bush is expected to recommend the elimination of this amendment next month.

During the first seven months of 2003, Federal agriculture officials did not test any commercial cattle for mad cow disease in Washington state. For the past two years no animals were tested at Vern’s Moses Lake Meats. For the past two years no mad cow tests were conducted at any of the six federally registered slaughterhouses in Washington state. The test records were obtained under the Freedom of Information Act. It should be noted the USDA delayed releasing the testing results for six months. Only about 1,500 animals combined were tested at the top 10 slaughterhouses, which slaughtered nearly 60 million of the 70 million animals killed in the last two years.

Rep. Bob Beauprez, a Republican from Colorado: “In America, when we bite into a burger, we have a high degree of confidence that it is safe.” Excel is one of the five largest slaughter companies in the United States. Only two cows were tested at Excel’s facilities in Colorado in 2002. Bob, maybe you should think twice before you bite into that burger.