2/28/04 Our Saturday Field Trip

You will notice that we have an addition to today’s group. I invited Allan Greenspan to join us. After listening to his address yesterday at the Stanford Institute for Economic Policy Research, I thought a trip to Main Street would do him some good. His optimism was reflected in this statement. “I would say that we could get a pop in employment almost any time…job creation occurs when you no longer can dip into the system of potential productivity advances to substitute for labor…my own judgment is that at some point that is almost certainly going to happen, indeed it is conceivable it may be happening now.” We will be visiting Connecticut, Mississippi, Michigan, Wisconsin, Oregon, and Hawaii. When our field trip is completed, I am confident that Alan will have a different take on the employment landscape.

Watch your step getting off the plane. There’s Steve Finger. He runs Connecticut-based Sikorsky Aircraft. He does not look very happy. Steve tells us he wrote a letter to workers. The Pentagon’s cancellation of the Comanche helicopter program will affect more than 400 jobs at their Bridgeport plant and about 200 at their Stratford, Conn. facility. In addition, another 100 or so workers will lose their jobs in Florida and Alabama. The Army announced that it was dropping the $39 billion program after spending nearly $7 billion and 21 years in development. The money will be spent instead on additional Black Hawk helicopters. This loss is certainly a big blow to Sikorsky, its employees, and particularly, Bridgeport and Stratford.

We’re on our way to Jackson and Carthage, Mississippi. Tyson Foods operates chicken processing plants in those locations. The Jackson plant was built in 1961, and the Carthage facility in 1995. There’s Bill Lovette, the Tyson Group Vice President of Food Service. He tells us that the Jackson plant processes 850,000 birds weekly and Carthage does 1.45 million weekly. The two plants combined employ 2,700 workers. They plan on combining production at Carthage and reducing employment to 1,800. Bill observed “we are also faced with a compelling need to install newer, more automated processing equipment, and it simply makes more business sense to invest that capital in the more modern facility. In the long run, this decision will help us improve the return on invested capital for the chicken segment of our business.” It will be difficult for those 900 workers to find other jobs. This is a tough hiring environment.

We are on our way for a short visit with Jennifer Granholm, Michigan’s Governor. When she heard Alan would be on our field trip, she made herself available. She told us that, on April 27, the governors of Wisconsin and Pennsylvania will join her on a visit to Washington, DC in an effort to seek federal help in reversing the loss of manufacturing jobs. Governor Granholm informs us that manufacturing accounted for 23% of Michigan’s gross state product in 2001. Since January 2001, the state’s manufacturing employment has fallen by 15% or 127,000 jobs. This decline has ravaged Michigan’s economy. She does not mention a pop in employment.

I see Jim Doyle, Wisconsin’s Governor. I appreciate his making himself available this Saturday. We no sooner get off the plane and he mentions that this week has been a bad one for Wisconsin workers. It seems that Dean Foods is closing its Madison plant and cutting 89 workers. Believe it or not, Bayside Senior Housing in Bayside is closing and 64 employees will lose their jobs. Trek Bicycle in Waterloo is dropping 80 workers from its payroll. Briggs and Stratton will cut 44 workers from it facility in Milwaukee. To make matters even worse, Perry-Judd’s in Waterloo will close its plant and 650 workers will be affected. It was a bad week for Wisconsin’s Main Street and its workers.

The pilot informs us that sunny skies are expected in Oregon. Amy Vander Vliet, a regional economist for the Oregon Employment Department, is meeting us at the Portland airport. Amy is a straight shooter, and greets us with “I think we’re still seeing a trend of tentative growth. It’s going to be extremely difficult to find a job.” She informs us that January was not a good month for Oregon. The state lost 3,600 jobs and employment dropped to 1,564,800 and the jobless rate climbed to 7.7%. Since June 2003, only 10,000 jobs have been created. Amy informed us that Paul Allen’s (Microsoft co-founder) Oregon Arena Corp., which operates the Rose Garden Arena, home of the Portland Trail Blazers, filed for Chapter 11 bankruptcy on Friday. The company had been scheduled to make a $3.2 million interest payment on Monday. Amy provided an example of the tough hiring environment in Oregon. She mentioned that Leticia Estrada has been looking for a job in the accounting field for six months, and that her search has produced nothing but discouragement. There are meager postings at the Oregon employment office in Portland.

We have a long flight to O’ahu and there is some time to discuss Alan’s remarks made yesterday on the Chinese yuan. He stated “the one thing I’m reasonably sure of, however, is that if the value of the Chinese currency does rise, which I think is a fairly reasonable expectation… it is not going to shut down exports from China to the United States, which will then be replaced by U.S. production.” Guo Shuqing, head of China’s State Administration of Foreign Exchange, stated “ the inflation rate is rising and the asset bubble is starting to get worrying.” In January his country’s foreign currency reserves increased by $13 billion to $416 billion. Guo observed “the ways to reduce the balance of payments surplus include increasing imports, expanding capital outflows, reducing capital inflows and enhancing the elasticity of the exchange rate.” In sum, the effort will be to enhance the demand for the U.S. dollar and reduce demand for the yuan. That doesn’t mean the peg will be changed today. The wider band will be effectuated some months from now.

Here we are. Marcus Gillespie, the owner and president of Sunrise Construction, is over there. He builds home frames for Shuler Homes Hawaii and others. Marcus informs us that he has 160 union carpenters but is laying off another 20 workers today. He stated “we’ve already laid off 10, and we’re expecting to probably let go another 30 to 40 guys next Friday.” Ron Taketa, financial secretary and business representative for the Hawaii Carpenters Union, the largest of the Islands’ trade unions, is with Marcus. Ron and Marcus tell us about the 22-day-old concrete strike that began on Feb. 6. The issues focus on sick leave and employee contributions to healthcare plans. By the end of next week there won’t be any concrete. Bruce Coppa, president of Pacific Resource Partnership, joins us. He stated “this strike is having a lot of repercussions across the community. At the end of this week, you’re going to start to see some real telltale signs. Morale is an issue, and people’s mortgages and car payments are in jeopardy.” As the strike drags on, the number of layoffs will only increase.

It’s been a busy day. I know that today’s field trip is of no interest to investors on Wall Street. It’s business as usual there. The Investment Company Institute reported yesterday that stock mutual funds received $43.7 billion in new cash last month, and this pushed total fund industry assets to a record $7.5 trillion. The previous record was $7.47 trillion in August 2000. In addition, hybrid funds that own stocks and bonds took in $5.5 billion in January. It must be wonderful to shut out the noise from the millions of unemployed, under employed, and discouraged workers on Main Street. For individuals like Alan Greenspan it has been out of sight and out of mind. Maybe today’s field trip expanded Alan’s vision.

Peter Thiel: “Everyone is asking when the Fed will have to start raising rates. But the real question is: When does the Fed throw in the towel and cut rates all the way to zero? They have one more point to go.”

2/27/04 Employee Healthcare Benefits

United Food and Commercial Workers International: “If the supermarket giants—profitable, growing Fortune 50 mega-corporations—can launch an attack on health care benefits, then every employer is sure to follow….in one year, over 2 million lost health insurance. That’s over 6,000 workers a day…no worker should ever again be forced to choose between a paycheck and health care benefits. No worker should ever be forced into the streets for five months to protect health care for their families.” The 70,000 UFCW members will vote on the proposed agreement with Ralph’s, Vons, Albertson’s, Kroger, and Safeway tomorrow and Sunday. The strike is estimated to have cost the companies $1 billion in lost sales. About 900 stores were affected. The major beneficiaries have been Costco, Whole Foods, and Wal-Mart. Before anyone gets too excited about the ratification of this agreement, another problem is looming in the coming months, and it’s much bigger. There are upcoming negotiations from Sacramento to Washington, DC with respect to United Food and Commercial Worker union contracts affecting 250,000 employees. These contracts expire in coming months. Similar issues are at stake—proposed deep cuts to healthcare benefits and a proposed two-tier wage system that would pay new hires less. Ron Lind, spokesman for the coalition of eight unions, stated “we are willing to engage in health care cost containment. But it is one thing to make changes with a scalpel. It’s another to use a chainsaw.” The fireworks have not ended.

The Conference Board’s Help-wanted Advertising Index rose one percentage point in January to 38; however, the Index stood at 41 one year ago. The job market is tight. Yesterday, the new $200 million Hard Rock Hotel & Casino in Hollywood, Florida began a three-day job fair. The Seminoles are hoping to find 1,800 employees in time for a late-April opening. Some applicants waited in line for five hours. The lines snaked around the parking lot. About 2,500 people showed up early in the morning for these jobs. One applicant stated “I would work right now just for the benefits. Health insurance is out of control.”

The Bureau of Labor Statistics was created 120 years ago. Its first commissioner, Carroll Wright, stated “the incumbent has soon realized the sacredness of his office and he has learned to tell a statistical lie is the most harmful thing a man can do.” We sure could use Wright’s appreciation for right and wrong today. We have an Administration grounded in statistical “revisions.” I said that so nicely. It’s still early.

Yesterday Morningstar Foods announced that it will cease operations at its plant in Madison, Wisconsin. The closure will affect approximately 100 employees.

According to a new study by Bain & Co. and released yesterday, nearly 40% of companies in California are planning to move jobs out of state. All of the senior executives interviewed see the business climate in California unfavorably. These companies employ nearly 500,000 workers in California. Dick Kovacevich, chairman and CEO of Wells Fargo, stated “business as usual is not working in California. The state must…improve the competitiveness and keep high-value jobs in the state. If nothing changes, things are likely to get worse.” I guess we can expect a lot of homes to go up for sale. The tight housing market should change dramatically as businesses move jobs out of California.

GE and Honda formed an alliance to enter the microjet market. Building jet engines for small, low-cost jet aircraft makes a good deal of sense. With lower operating costs and more flexibility in landing at smaller airports, there should be a growing demand for such aircraft.

The Sept. 11 Commission is scheduled to finish work on May 27, but its members are seeking at least a two-month extension. They have cited repeated delays because of disputes with the Bush administration over access to witnesses and documents. House Speaker Dennis Hastert, R-Ill, remains opposed to providing the extension and does not intend to bring any legislation to the floor. Maybe House members should consider growing a set of cojones and standing up to the Speaker. Hastert will end up looking like another Aristede because a compromise shall be reached and a new July 26 deadline set.

In the week ended Feb. 21, the number of people applying for unemployment benefits for the first time rose 6,000 to 350,000. The four-week average rose 2,750 to 354,750, the fourth consecutive increase and the highest level since December of last year. Bob Mellman, J.P. Morgan economist, stated “I think hiring is slow, but all signs are that hiring is coming.” Howard Stern could probably have an appropriate comment on “coming.” Maybe Mellman should have stood on that five-hour line in Florida hoping to get a job at the new casino. The applicants came, the line moved slowly, and the pace of hiring didn’t set the world on fire. As an alternative, Mellman could stand on the picket lines the next time the UFCW workers go on strike. Better yet, Mellman can join the BLS and revise the employment numbers. One better, J.P. Morgan could consider replacing him with someone who reports on the facts. As a reminder, this is a no bullshit zone.

Lastly, we can look forward to today’s revisions on the fourth quarter GDP growth. It will be lowered. The trade gap was worse than expected, construction was worse than expected, inventories were worse than expected, etc. etc. But, economists will be excited about the prospects for growth in 2004. It won’t be slow. It will come quickly. Where is Carroll Wright?

2/26/04 Mass Layoffs, Rollbacks, Growth Warnings

Starbucks Chairman Howard Schultz: “The current high level of revenue performance is not sustainable.”

Microsoft CFO John Connors: “We won’t have the growth we’ve had in the past years in revenue and profit, but we should be able to deliver a decent year in terms of growth.”

Wal-Mart’s new strategy: “Rollbacks- to save you even more.” Before you enter a Wal-Mart store, you will notice that sign all over the windows. When you enter the store and see the aisles, you will see signs for rollbacks all over the store. An item that sold for $12 might now be $7. Wal-Mart is on a roll. They have their corporate heel on the windpipe of their competitors. We’re entering a new round of competition. Consumers will pay lower prices than ever before at Wal-Mart. Suppliers will receive lower prices for their products; however, as Wal-Mart grows, their volume will grow as a supplier and their profit margins will improve as their factory throughput increases and their efficiency is enhanced. Many of the less efficient will fall by the wayside. That will be true of suppliers and competitors. The rollback strategy will help in placing a lid on the CPI. Soon, Wal-Mart will account for 10% of retail sales in the U.S. (excluding auto parts and supplies).

In January, U.S. sales of previously owned houses fell 5.2% to an annual pace of approximately 6 million homes. However, in California, the median price of an existing home increased 20.7% and sales increased 5.3% compared to the same period a year ago. In January, in California there was only a two months supply of houses for sale.

According to a study by the Keystone Group of Los Angeles, over 261,000 manufacturing jobs and $98 billion in gross sales of California-manufactured products disappeared in the three-year period between 1999 and 2002. Manufacturing jobs in California pay almost 50% more than the average of all jobs in the state. The study indicated that manufacturing jobs have a pronounced “multiplier effect” in that they create jobs in other sectors of the economy, at a rate at least twice that of the trickle-down from the retail industry. I mention this study in light of the January mass layoff numbers released yesterday by the U.S. Department of Labor’s Bureau of Labor Statistics. In January 2004 there were 2,428 mass layoffs by U.S. employers (each action must involve the layoff of at least 50 people from a single establishment). The number of workers involved totaled 239,454 compared with the year ago period of 2,315 mass layoffs affecting 225,430 people. This is but one more indication that hiring improvement, when it does take place, has been limited in scope.

Tomorrow there will be a mass layoff at Maytag’s washer and dryer manufacturing plant in Newton, Iowa. A total of 170 production workers will be affected. Management stated that the layoffs are coincidental to the Samsung agreement announced Tuesday. Maytag and Samsung reached an agreement to build a new line of high-efficiency, front-load laundry products in South Korea under the Maytag and Amana brand names. Maytag maintains tomorrow’s layoffs are not a result of the agreement with Samsung. The company will close its refrigerator factory in Galesburg, Illinois later this year and move some of that production to Mexico. Already about 400 Maytag employees have lost their jobs in cuts over the past year. Maytag’s contract with the UAW expires in June and with the International Association of Machinists Local 1526 in September.

Some time today there should be an agreement reached between the unions covering the 70,000 supermarket workers and their Southern California employers. The strike has been going on for about 5 months.

Richwood Meat Co. of Merced, California is recalling 90,000 pounds of beef distributed to military bases in Asia and retail stores in western states because of fears the meat could be contaminated with a deadly bacteria. A Japanese laboratory found E.coli bacteria on some of the meat. When a foreign country finds your product contaminated, it’s a lousy reflection on the safety inspections in our country. However, this is nothing new. Business is usual under our USDA.

Alan Greenspan: “Progress in creating jobs has been limited.”

Alan Greenspan: “The degree of uncertainty about whether future resources will be adequate to meet our current statutory obligations o the coming generations of retirees is daunting.”

According to Reis Inc. of New York, the apartment vacancy rate of 6.9% is the highest in 15 years.

2/25/04 Consumer Confidence And Jobs

Edward Gramlich: U.S. Federal Reserve Governor talking about the February’s drop in U.S. consumer confidence: “This is a modest drop. There’s always some volatility. It’s a fluctuation and confidence has come back from last year.”

Gramlich is correct in stating that confidence has come back from last year. Last February 25 was less than a month before we invaded Iraq. At that time consumer confidence had plummeted to 64, a drop of almost 15 points from the prior month. It was the lowest reading since October 1993. A year later the index has risen to 87. Although there was a drop of 9 points from the previous month, over the past year considerable improvement in the overall consumer confidence index has taken place.
Can a Fed Governor be half correct? The answer is yes in the case of Gramlich. Both he and Wall Street missed the most important point. In order to have a proper assessment of consumer confidence, today it is necessary to step back in time to one year ago. The answer can be found in confidence concerning jobs. This is very important. Despite the improvement in the overall index from 64 to 87 over the past 12 months, the percentage who saw jobs as hard to get had actually increased from roughly 31 percent to 32 percent, a ten year high. The proportion who saw jobs as plentiful remained the same at just over 11 percent. There was a pickup in those who thought more jobs would become available. It rose from the meager base of about 13 percent to 18 percent. Interestingly, 18 percent also expect fewer jobs to become available today. Only 16 percent of those surveyed anticipate an increase in their incomes. In other words, Gramlich missed the crux of yesterday’s report. That should come as no surprise. He is a government worker.

Lynn Franco, Director of the Conference Board’s Consumer Research Center: “Consumers remain disheartened with current economic conditions, and at the core of their disenchantment is the labor market. While the current expansion has generated jobs over the past several months, the pace of creation remains too tepid to generate a sustainable turnaround in consumers’ confidence. And with consumers anticipating economic conditions to remain about the same in the months ahead, their short-term outlook turned less optimistic.”

With the report on mass layoffs due today, there is little reason to expect consumers will feel more buoyant in their level of confidence. It is important to be keenly aware of the crosscurrents in the consumer landscape. Wal-Mart and Target may be more optimistic and refund checks and lower tax payments will provide boosts to the pockets of consumers. At the same time, appliance makers are finding it more difficult, for example, to sell their products. It’s a mixed bag.

In 2002, the West Nile virus infected 4,156 people in the U.S. and 284 subsequently died. In 2003, 9,000 contracted the virus and 230 died. Only Alaska, Hawaii, Oregon, and Washington State reported no human cases last year. More than 1,000 blood donors have tested positive for the virus in the United States.

Yesterday the EU decided to ban imports of chicks and eggs from the U.S. for one month after the discovery of bird flu in Texas. Hundreds of U.S. exporters will face $200 million in EU tariffs unless the U.S ends an export-tax credit by Monday.

This morning the Tata group, comprising 91 companies and India’s second-biggest business conglomerate, announced that Jeffrey Sage, a global automotive solutions executive with IBM in Detroit, will join Tata Motors, India’s biggest vehicle maker.

On Sunday, the British newspaper, The Sunday Express, reported that Osama bin Laden had been found and was surrounded by U.S. special forces. The Washington Times reported on Monday that a top-secret U.S. commando team, Task Force 121, the one that had helped capture Hussein, was heading for Afghanistan. Yesterday CNN reported that Pakistan reportedly moved between 8,000 and 10,000 soldiers into the area, and that Pakistan forces had arrested 20 people so far in this operation. All we do know is that the hunt for bin Laden continues. The rest is speculation.

2/24/04 In Good Shape

Some pretty savvy bond managers bought 10-year Treasury Inflation Protection Securities (TIPS) two years ago. During this time period the yield on TIPS has dropped from 3.5% to about 1.8%. How could smart people be so wrong? TIPS are linked to the CPI, and the latter has been gaining at a rate approximating 1.8%. Therefore, the threat of inflation has been low and that is bad news for the performance of TIPS. There are exceptions, but it is fair to state that supply continues to overwhelm demand. Until that phenomenon changes, inflation should remain muted. Rather, one might consider the alternative. If demand does not pick up during an economic recovery, when will it?

Greenspan: “Overall, the household sector seems to be in good shape…over the past two years, significant increases in the value of real-estate assets have, for some households, mitigated stock market losses and supported consumption.” Why should I worry? Greenspan explained that U.S. households own more than $14 trillion in real estate assets, and that’s almost twice the amount they own in mutual funds and directly hold in stocks. As such, even though consumer debt hit a record $2 trillion in December, and even though a record 1.6 million people filed for personal bankruptcy in fiscal year 2003, I do not need to worry because Greenspan proclaimed that “bankruptcy rates are not a reliable measure of the overall health of the household sector because they do not tend to forecast general economic conditions.” We had better root hard for home prices to keep rising. That appears to be our safety net. If the bankruptcy rates were declining, I have a feeling Greenspan would state they do indeed reflect the overall health of the household sector. Put simply, I think his statement is bullshit. If individuals file for bankruptcy, what happens to their debts? Not all the money owed is to large credit card companies that simply write it off as a bad debt. There are plenty of small businesses that are hurt, and that hurt ripples through communities. Bankruptcy filings are not a sign of fun and games. They reflect real hurt. You cannot have 45 million people without health insurance and millions of Americans either out of work, without a full-time job, or too discouraged to find a job and state the household sector is in good shape. If Greenspan believes those words, he should retire immediately before he ends his career on a worse than down note.

According to a recent survey by Habif, Arogeti, and Wynne, 20% of Georgia manufacturers have lost sales in excess of $1 million to offshore competitors in the past five years. Sixty-two percent of Georgia’s most profitable manufacturers reported losing sales to offshore competitors in the last five years. Manufacturers that sell more products outside the U.S. experience higher profit rates. Just 5.7% of Georgia manufacturers have moved activities overseas in the past five years, but 30% of publicly owned Georgia companies are “somewhat likely” or “very likely” to do so in the next five years.

The Commerce Department reported that e-commerce sales rose by almost 30% in the last quarter of 2003 compared with the previous three-month period. They now represent close to 2% of total retail sales.

Clariant, the Swiss chemical company, will cut 4,000 jobs over the next two years.

Yamanouchi Pharmaceutical and Fujisawa Pharmaceutical are merging and will become Japan’s largest pharmaceutical company. We can look forward to more global combinations in the healthcare industry.

Gonzales County is one of Texas’ top poultry-producing counties with more than 85 million birds with a value of $100 million, according to Agriculture Department data. On Monday the avian influenza virus discovered last week in Gonzales County was reclassified by the USDA as a highly potent strain based on DNA testing. The CDC has no evidence of any human health implications. Nevertheless, the Philippines and South Korea promptly banned imports of chicken and other poultry products from Texas. It is not the same strain that killed 22 people in Asia. However, it is the first time since 1983-84 that high-pathogenic avian flu has been found in the U.S. Philip Tiereno, director of microbiology at the New York University Medical Center, stated the real fear is that, in the process of jumping between chickens and humans, there could be an exchange of genetic matter or mutation, and this could make this strain more deadly.

Foreigners own 42% of the $3.6 trillion of U.S. treasury securities outstanding. If we do not reduce our deficits and cut government expenditures, waste, and pork programs, the majority of our nation’s outstanding indebtedness will be owned by non-Americans. This is a WMD soon to explode in our neighborhoods.

2/23/04 The American Way

If Ralph Nader can garner 1.5 million signatures, then it is his right to run for the presidency. In the last election he received 2.7% of the votes cast. He did not lose the election for Gore and the Democrats. Gore lost the election. He stunk the house out. It should have been a slam dunk. All he needed to do was to hammer away on the economic gains of the Clinton years. Gore was an inept campaigner and deserved to lose. I agree with a statement Nader made on Meet The Press. He stated that, if Bush cannot trust the American people with the truth, then the American people should not trust Bush with the presidency. That statement alone, in my opinion, makes his run for the White House an effort worth appreciating. Nader is out-spoken and bright. He is tough and, at the same time, understanding of the underdog’s plight. The race is better for Nader being in it. If anyone is afraid of him, it should be Bush. Nader will hone in on his weaknesses and exploit them for all of America to see. Maybe the various factions that support Bush will open their eyes. When you’re surrounded by hand guns and rifles in one’s home, I know one can be a bit preoccupied and oblivious to the truth. Nader couldn’t break the preoccupation of those in 2000. Maybe he’ll have better luck in 2004.

It’s the American dream to afford to own a home. Is an interest-only mortgage an example of owning a home? You don’t pay the principal. You don’t build up equity. As long as home prices continue to escalate, no one gets hurt. There is nothing to prevent individuals from making principal payments in addition to the interest-only payments. Today’s most popular product is the 5/1 ARM, which fixes the interest rate for the first five years and then converts to a one-year adjustable rate. In the third quarter of 2003, the Mortgage Bankers Association stated that ARMs ended up in foreclosure at a 0.55% rate versus fixed-rate mortgages at a 0.27% rate. Fannie Mae reported that ARMs are about 40% of the dollar volume of today’s mortgage market. With interest rates at 40-year lows, it is difficult to understand why more home buyers don’t lock in fixed rates at present levels. The answer may be that adjustable rate mortgages are lower than fixed rates and that the average borrower keeps a mortgage five to seven years. Tom Smith, senior product manager at Fannie Mae, stated “the biggest appeal is the increase in purchasing power the consumer has by being qualified at only the interest payments on the loan.” Doug Duncan, chief economist of the Mortgage Bankers Association, stated “they don’t intend to build up equity in that property but to free up cash to solve other issues they may have financially. Then they move in three or four years anyway.” There is one additional advantage. With lower payments than if the homeowner were actually paying off the mortgage loan, the individual can still take the tax deductions for that interest. Everyone comes out a winner. Of course, interest rates need to stay low and home prices need to rise in value. It’s been a picnic for the last several years. If that formula for success should change, as with derivatives discussed yesterday, there could be a heap of trouble. American ingenuity is always at work. We can extend this winning formula to interest-only home-equity loans. It doesn’t get much better than that. Of course, with no equity, there cannot be true ownership. Am I the only one bothered by that concept?

There are 161,000 people in New York City’s securities industry. The New York State comptroller’s office stated that those in the industry received an average bonus of $66,800 in 2003. I hope investors believe they got their money’s worth in service and advice. Rising equity prices can mask inefficiencies, and that I am stating gently.

The British Medical Journal study reported that a major downsizing (cutting the workforce by more than 18%) helped to create an increase of 18% in the sickness rate of employees following the downsizing. It’s a lose-lose situation. Either you lose your job through downsizing or you stand an increased risk of sickness. It’s better to work in NY in the securities industry and receive a bonus of $66,800. There’s less chance to be downsized and less risk to get sick. Without a conscience and without a sense of wrongdoing, each day has blue skies. Just as interest-only mortgages and interest-only home equity loans are the rage, so is program trading, a mechanism that comprises over 50% of each day’s trading volume. The inherent worth and cash flow of a business take a weak second place to trading indices and scalping 1/64s of a point. Is this the mark of investing and building capital for over 50% of Americans who are owners of stocks? I don’t believe so. Those are folks left behind. This new game was not meant for them.

EBay has reported that about 430,000 individuals and small businesses make their livings off this portal, nearly three times the number in late 2002. Today the company will begin offering small business credit lines up to $50,000 and financing options for industrial and high-tech equipment that costs more than $2,000 in addition to shipping and tracking services.

The tax preparation business is changing. In 2002, only about 1,000 U.S. taxpayers had their income tax returns prepared by accountants in India. This number rose to 20,000 in 2003; however, this year the number is anticipated to jump to between 150,000 and 200,000 returns. The average accountant in India makes one tenth of the salary made by those in the U.S. India graduates about 50,000 accountants per year. They can comfortably handle 5 million U.S. returns or more.

2/22/04 Double Taxation And Worse

Charles Munger, Warren Buffett’s partner: “We tried to sell Gen Re’s derivatives operation and couldn’t, so we started liquidating it. We had to take big markdowns. I would confidently predict that most of the derivative books of (this country’s) major banks cannot be liquidated for anything like what they’re carried on the books at. When the denouement will happen and how severe it will be, I don’t know. But I fear the consequences could be fearsome. I think there are major problems, worse than in the energy field, and look at the destruction there.” Let’s suppose Munger is partially correct. There are estimated to be $41 trillion of derivatives floating through the atmosphere of the financial world. The value of all the stocks owned in the public domain are but a small fraction of that number. The value of the U.S. debt is $7 trillion. Our GDP is approximately $10 trillion. Derivatives overwhelm all of the aforementioned. Munger is one of the smartest guys managing money. If you doubt that statement, look at the yearly returns for Wesco Financial, the company he runs. Berkshire Hathaway owns 80% of Wesco Financial. Derivatives never sleep. No matter what happens around the globe, derivatives are alive and well. They go tick tick tick 24 hours a day.

Bill Ford, Ford Motor’s CEO: “If U.S. manufacturers have the health care burden, and if you don’t elsewhere, it starts to look more attractive to put your dollars elsewhere. That’s a real drag on the economy in terms of job creation.”

Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc.: “There is a huge reluctance on the part of business to hire unless they absolutely, absolutely have to. The cost of hiring someone can also be an expensive proposition, especially in health care.”

Firing is starting to stabilize and diminish; however, it takes some time for net employment to show marked improvement. For example, Bay Area and East Bay tech employment in December 2003 was only slightly below the total for December 2002. The Bay Area’s nearly 303,000 jobs at the end of 2003 were down 6% from the year before level. In the East Bay it was down 3.1% over the 12 months. Nevertheless, the 303,000 figure was 34% below the employment height of 462,000 jobs reached in December 2000, and it is the lowest level in nearly eight years. In talking with CEOs and hiring professionals, the bottom line is that it’s easier to get a contract job than a full-time job. Bay Area employers increasingly rely on contract workers as a way of cutting benefit costs, particularly health benefits. The main engine to getting hired is the ability to add revenue or cut costs. Secondarily is the need to fill a technical void, such as, computer security systems or web service skills.

Douglas Conant, Campbell Soup CEO: “Our customers are really slugging it out for retail space, and as long as Wal-Mart and some of the other customers are putting pressure on our customer base, it’s going to be a challenging environment for all manufacturers.” Wal-Mart’s Supercenters can buy and sell goods cheaper than their competitors. Their dedication to buying “right” is saving billions of dollars for American consumers. When you see the price of diapers or peanut butter or some other item lower at Wal-Mart, you can thank them with your repeat business. They are making ends meet a bit easier for our nation’s citizens. At the same time, they are squeezing the profit margins at many American companies. Those companies are forced to become more efficient, a lost art for many overpaid CEOs.

We have a growing WMD in our society. Bush may be searching for bin Laden but he has not set his sights on the American worker who receives social security. Supposedly, Bush has cut the taxes for Americans. For some he has. On the other hand, older workers have been screwed badly. Let’s look at this forgotten landscape. It’s bad enough to grow old. Our society is aging. Those on fixed incomes have been screwed by Alan Greenspan and the Fed. Greenspan is 76 and he has a job that pays a good income. He is not dependent on interest earned on money market accounts or on various types of government bonds. If he earns one-half percent or one percent or two percent on his savings, so what. There’s plenty of a difference for millions of older people, such as, those born around 1937. They can no longer afford to retire. The fixed income returns are too meager. If you get social security, your ability to bring in additional money from a job are limited. There is a ceiling. Let’s say that limit is $12,000. That means you can only earn $250 per week. Taxes will be taken out of that $250.Those taxes include allowances for social security taxes you will never live to see and get back. But if you earn more than $250 per week, for example, then you are taxed on a certain amount of the social security income presently received by you, an amount the government arbitrarily views as too much to receive should you still be working. This is your money. You have earned it. You have paid taxes on it. Who gives the government the right to limit your earning capacity? So when you see Bush proudly proclaim how he has helped American families and lowered their taxes, remember those still working and receiving social security. There are millions of Americans who are doubled taxed and screwed.

2/21/04 It’s Only A Matter Of Time

On the surface, the big story yesterday was the surging dollar. It had it’s biggest single day rise against the yen in about a year and a half. In addition, it moved sharply higher against the euro and approximately a dozen other major currencies. The Japanese government stated they may continue to sell the yen, and this comes as no surprise since they sold a record 7.15 trillion yen in January, a monthly record. Japan now holds over $550 billion of U.S. Treasury securities. We also heard from Klaus Liebscher, an ECB council member, who stated it’s “always possible” the bank will sell the euro to stem its two-year advance against the dollar. Contributing to this currency unrest was the Japanese Prime Minister raising that nation’s terrorism alert to the highest level. In addition, there are large short positions in the dollar, and many traders rushed in to cover their shorts as the dollar moved higher. Bear markets don’t trade down in a straight line. There can be sharp rallies within bear markets, and the dollar has been in a downturn for close to two years. With rising trade and budget deficits and interest rates much lower than the rest of the world’s economies, this trend will not change with a short-term rally. However, there is change in the currency wind. He Fan of the Chinese Academy of Social Sciences in Beijing stated “we are seeing a gradual shift in the world economy to this area. Some economists predict that in 2050 China will be the No. 1, the largest economy in the world as a result of both economic growth and an increase in the value of RMB.” (RMB stands for the Chinese currency, the renminbi, which is counted in yuan, and the yuan is now fixed at a value of about 12 U.S. cents or 8.28 to the dollar.) It should be noted that, in 1987, the official rate was 3.7 yuan to the dollar, but the black market rate was 10 yuan to the dollar. It is estimated that Chinese households have $100 billion in savings in U.S. dollars. As the confidence in the stability and viability of the Chinese economy increases, a gradual shift is taking place. Every day more Chinese citizens are converting their dollars into yuan. Chinese officials are well aware of this shift. There may be another reason for this sudden change of heart. Many believe it is only a matter of time until the yuan increases in value due to a change in the exchange rate. As the yuan takes on a greater life of its own as initially a regional currency, a modest revaluation is likely. It may not be tomorrow. But tomorrow more dollars will be converted into yuan, and the day after, and the day after that.

The country watched the indictment of Enron’s Skilling. Some wondered about Ken Lay’s future. Kenny Boy and his wife, Linda, are long-time friends of Bush and Cheney. This is an election year. An indictment of Lay would be most embarrassing for the president and vice president. I am not a lawyer; however, I have been reading 8-K reports filed with the SEC for several decades. Since 1985, Lay ran Enron. In 1987 in an 8-K filing the Enron Oil trading operation lost $85 million. The trading didn’t begin with Skilling and his cronies. Jan Avery worked in the Enron tax department in 1987. She stated “the pattern began very early, much earlier than anyone has reported. It started in the gray area of what was acceptable accounting principles and, in my opinion, later turned into a clean case of fraud.” She asked “where are the books for Enron Oil? How am I suppose to justify a $142 million loss for state tax purposes?” She refused to sign off on that figure. In the 1987 8-K filing that $142 million became $85 million. Avery stated “that was the clear beginning for me, when I realized that they were trying to hide all the losses. There was a huge discrepancy.” Under the law, once a party agrees to an illicit agreement, willful blindness will not save co-conspirators from being responsible for other conspirators’ acts. Looking the other way will not cut the mustard. It has been reported that Lay sold $100 million of Enron stock to pay debts. Did he know about the discrepancy in the 1987 8-K or any future discrepancies? Willful blindness may help in an election year, but it’s only a matter of time until that help disappears.

Boeing ran into a small hurdle yesterday. Let me have Boeing’s CEO tell you all about it. In a message to employees, Harry Stonecipher provided the following update on the U.S. Air Force 767 Tanker program: “Secretary of Defense Rumsfeld has implemented a pause in discussions between the U.S. Air Force and Boeing on the Air Force tanker program while a series of reviews is undertaken… consequently, starting on February 23, Boeing will slow the development efforts on the Air Force 767 tanker… through the end of 2003 Boeing had spent $270 million of company money on the Air Force 767 tanker program and has been spending approximately one million per day since then…we do not believe that continuing development work at the current level of effort is prudent for either the Air Force or Boeing. The slowdown will result in the releasing of approximately 100 contract employees in Wichita and could result in layoffs of up to 50 employees in Puget Sound as well as redeployment of approximately 600 Boeing employees across both sites.”

Phone company Alltel announced a company-wide restructuring. A total of 600 jobs will be eliminated. Company-wide, Alltel’s workers are split 60% to 40% between wireline and wireless divisions.

The global hedge fund industry had record inflows exceeding $60 billion in 2003. Overall, last year’s returns were estimated at 15.44%. Total hedge fund assets are said to approximate $750 billion.

The Texas Animal Health Commission has indicated that an isolated case of avian influenza has been identified on a non-commercial farm outside of Gonzales, Texas. Preliminary indications are that the virus is a low-pathogenic strain, significantly less serious than the high-pathogenic strain recently found in Asia. There is no connection between this isolated case and that found in recent weeks in the Northeastern U.S. or the virus found in Asia.

2/20/04 A Field Trip

Is everyone on the plane? We have six stops to make. We’ll be in Maryland, Virginia, Florida, Arkansas, Pennsylvania and California. Paul Pinkney invited us to the 3.1 million square foot GM plant on Broening Highway where the company makes the GMC Safari and Chevrolet Astro. There’s Paul. He’s the burly 6 foot 2 inch guy in his 60s. Paul has been at this Maryland plant for 39 years. His starting pay was $2.54 per hour. Today he makes $26 per hour. When he first started at the plant, more than 7,000 workers were employed. The number has shrunk to 1,100. In 1965, when Paul joined GM, one out of every four adults in the U.S. worked in manufacturing. Now, it’s about one in ten. In their new contract with the United Auto Workers, GM has targeted this southeast Baltimore plant for possible closure next year. Paul observed that “these younger people, they’re going to have to move or get other trades or something because, at the rate things are going, they can bring in two pieces of equipment and eliminate 10 jobs.” Paul stated “I am General Motors. General Motors is what made me. Some people went in that plant, worked the same job ‘til they retired. No more of that.”

We need to hurry over to Virginia. It’s just a short trip. They have a $1 billion hole in the two-year, $59 billion state budget. Last night the state Senate took a voice vote on a plan that will have Virginians pay $2 billion a year in new taxes on sales, salaries, smokes, and motor fuel. The plan was tentatively approved. There’s Sen. H. Russell Potts Jr. He is a Republican from Winchester, and a true Virginian. He remarked “I hate taxes, but I love Virginia more.” Potts informed us that, adding a penny to the sales tax, now 4.5 cents on the dollar; pushing gasoline and diesel fuel taxes to 20.5 cents per gallon; and boosting the income tax for high-dollar Virginians, the Senate plan closes several loopholes in the corporate tax law and raises the cigarette tax from 2.5 cents a pack to 35 cents over two years. Sen. Charles Colgan is the senior member of the chamber. He observed “the next election shouldn’t mean a thing. What happens over the next generation is what matters.”

Our next stop is in the Orlando area but we will not be seeing Mickey Mouse. Unfortunately, there won’t be smiles at the Department of Children & Families (DCF). Their operations include the Family Safety Program Office, which oversees contracts with agencies that run group homes. In addition, they find adoptive parents and counsel members for abusive families. This Florida child-protection agency is beginning a major restructuring. They will eliminate 400 positions statewide and require 10% of its local work force to reapply for their jobs. The agency hopes to eliminate redundancies and standardize DCF management across regions.

The next stop will be a short visit with the CEO of Wal-Mart in Bentonville, Arkansas. I thought it might be interesting to inquire about their success. Lee Scott, their CEO, remarked “we are not raising prices and have no intention of doing so.” In fact, he claims Wal-Mart made $12 billion of rollbacks or price cuts last year. That’s more than the yearly revenue of many companies on the New York Stock Exchange. Target, their main competitor, stated rival Wal-Mart “are very, very competitive as they always have been and we have seen no change in their pricing strategy in the fourth quarter, and so far in the first quarter.”

On our way back to California we’ll be making a short stop in Philadelphia. Before the mad cow incident, we had planned for a Philly steak lunch. Now it will be a turkey sandwich. Rather be safe than sorry. It will be interesting to see why the folks over at the Philadelphia Reserve Bank of Philadelphia believe manufacturers remain optimistic. I did read where there is a slight improvement in the expectation of firms in the area about future plant employment. At the same time, expectations for capital spending did decline slightly. It would appear that the Philly Fed has opened an optical business. They are wearing rose-colored glasses. Upon further analysis, the diffusion index of current general activity has experienced a sharp decline of 7 points this month. The new orders index fell about 9 points. The shipments index fell almost 14 points. Not surprisingly, the current employment index fell. We need to leave. Otherwise, our group could get depressed. There’s plenty of time for that in sunny California.

Now that I have you captive on the long plane ride I thought I would go over the information provided in your welcome aboard packet. Twenty nine states are projecting budget shortfalls totaling up to $41 billion for fiscal 2005, which starts this July 1 for all but four states, according to this month’s report from the Center on Budget and Policy Priorities. Congress doled out $20 billion to help states patch gaps in fiscal 2003 and 2004. The “fiscal relief” package will run out this June 30. Many states used temporary or one-time fixes, such as depleting state rainy day reserves or drawing on tobacco settlement money, to balance the books in 2003 and 2004. The gaps will reappear in 2005. Most state budgets rely heavily on income taxes and earnings from employment. The national economic recovery did not create jobs over the past 12 months. In fact, there were net job losses and this means less revenue for the states. According to a December report from the National Governors Association, last year states collected almost $24 billion less in personal income, corporate income and sales tax revenue than they had originally budgeted. Scott Pattison, executive director of the National Association of State Budget Officers (NASBO) stated “if projections aren’t being met, that’s a definite sign that states are in real trouble and that there might be some structural problems.”

Here we are in Sacramento. Elizabeth Hill has been a nonpartisan analyst who has advised lawmakers on the budget for 18 years. The other day she stated the state of California is facing a $17 billion budget, which is $3 billion more than Governor Arnold projected in his January budget proposal. The problem has grown, Hill stated, in part because of weaker than expected wages, which will lead to less in personal income tax receipts. Hill observed that, even if the $15 billion deficit bond measure passes, the state’s budget gap the following year will be $7 billion. In addition, the state maintains a deficit of at least $5 billion through 2008-2009 because of a consistent imbalance between revenues and expenditures. Hill remarked “the economy will not solve this problem for us. Even with the type of revenue growth that we are estimating, which is moderate economic growth and no recession, we cannot grow our way out of this problem.” She went on to relate that a report released last week showed that sales tax revenue dropped sharply in January, the second month in a row that tax receipts dropped. Hill criticized several of Arnold’s proposals, and suggested the Legislature look at alternative plans. They would be well served to do so.

Before our day ends, I have two pieces of good news. Mortgage rates have tumbled to seven-month lows. Anyone in need of a refinancing fix might consider it at this time. Secondly, that smiling person in the front will be handing out a box of Krispy Kreme donuts for you to take home. We wouldn’t want you to leave without a smile on your face. The company estimates that system wide sales will increase approximately 25% in their new fiscal year, and I wanted to do my part to help them achieve that goal.

2/19/04 Making Change Your Friend

A new survey by the Business Council revealed that 54% of its members stated their own companies had shifted employment from our shores to abroad over the past twelve months. Bank of America announced yesterday that it will set up an Indian subsidiary in Hyderabad for back-office operations with 1000 employees. You can expect other major financial institutions to make similar announcements.

The weather in January was 6.5 degrees Fahrenheit cooler than average. In fact, it got so cold that U.S. single-family housing starts fell 8% in January. Starts of townhouses, apartments, and other multifamily homes fell 7.8%. This decline will impact the final numbers for January’s economic growth. Residential construction accounts for 5% of the value of all goods and services produced in the U.S., and this does not include furniture, appliances, and other items for the home market.

The cold weather was a blessing for Wal-Mart. The company sold a lot of winter clothing. Overall, Wal-mart reported record earnings and sales for the quarter ended January 31, 2004. Total U.S. comparable sales for the quarter increased 4.8% and for the 12- month period they rose 4.1%. The largest percentage gainer was Sam’s Club. However, the star performer is the International Division. It’s comp sales for the year rose 17.3% and its yearly operating profit rose 18.6% to $2.370 billion. Income from continuing operations after minority interest and taxes for the whole year for the company was $8.9 billion. Wal-Mart now operates 1,355 locations in foreign countries in contrast to 3,551 locations in the United States. In ten years, I would not be surprised to see about the same number of locations inside and outside the United States. Wal-Mart continues to benefit from its television network providing product information. According to Nielsen ratings, 99 million consumers turn to Wal-Mart Television Network for product information each month.

According to the AARP, a fifth of Americans aged 50 and older cut back on vacations last year. Thirteen percent of retirees stated they were considering returning to work. Twenty one percent of working respondents stated they decided in the past year to retire later than previously planned.

A report released by Demos, a nonprofit public policy group, stated that senior households, most are on fixed incomes, owe an average of $4,041 on their credit cards. The report revealed that credit card debt of Americans aged 65 or older has jumped 89% in the past ten years.

For the first time, the U.S. government’s national debt amounted to more than $7 trillion. The government debt ceiling stands at $7.384. Prior to the November election, the Treasury will need to go back to the Congress for approval to raise the debt ceiling. This could become an issue in the upcoming election. Two years ago the debt reached $6 trillion. A trillion here and a trillion there, and before you know it, this becomes mounting and piling debt.

The U.S. government is not accepting any more H1-B applications. This year’s quota of 65,000 has been filled.

George Bush: “I’m not a statistician. I’m not a predictor.” Actually, he predicts all the time. There is good news though. Even a busted clock is right twice a day.

Voltage Security Inc. of Palo Alto has created an Instant Messaging –encryption product that’s designed to protect message exchanges from intercepting hackers.

The number of unemployed still on the benefit rolls after claiming an initial week of aid rose by 106,000 to 3.19 million in the Feb. 7 week, the latest for which figures are available.

2/18/04 Reverse Auctions

According to a recent survey by the state of Massachusetts Division of Health Care Finance and Policy, companies with fewer than 50 employees paid more for family coverage. The average premium was $818 per worker per month for a family plan, up 13.6% from 2002 and 37% higher than paid in 2000. For family coverage it was $857 per month, up 17.4% from 2002 and 42% since 2000.

The second annual investor survey on inflation sponsored by the Hartford Financial Services Group indicated that 72% of investors are concerned their investments will not keep pace with inflation, an increase of 14% from the prior year’s survey. The concern increases with age. Of those respondents age 65 and older, 86% believed that inflation would be higher during the next five years.

The British pound rose to $1.90, a 12-year high versus the dollar. The euro rose to an all-time high of $1.29 versus the dollar. While our currency has been declining in value, the Treasury has been experiencing strong net inflows into the U.S. Over the whole year, the inflows have averaged $59 billion per month, up sharply from $48 billion averaged monthly in 2002. With rising deficits, the U.S will need to import even greater monthly inflows this year.

Cingular is paying about $41 billion for AT&T Wireless. That’s a lot of money for advanced digital networks that allow high data transfer speeds as well as significant amount of spectrum that carry cell phone signals. By combining operations, Cingular states they can achieve savings in distribution, billing, marketing, and advertising. AT&T Wireless employs 31,000 people. To achieve significant cost savings it is safe to believe large layoffs can be expected after the merger becomes finalized.

Yesterday the Federal Reserve reported that factory output gained in January, and the main reason was cold weather. Utility output climbed 5.2% while natural gas production increased by 7%. Unfortunately, for some, it doesn’t get very cold in Houston in January. Yesterday Reliant Resources, a company that wholesales and retails electricity, put out a 2004 forecast that was lower than some on Wall Street expected. They initiated a cost-cutting program, and since the start of the year, about 150 jobs have been eliminated. They have 5,300 employees, and management stated total job cuts will end up being a significantly higher number than 150. For this year, Reliant stated it expected to make less money in its wholesale business because of additional plant capacity having come on line in its market last year, and with more expected to begin operating this year. It’s just another example of too much capacity and too little demand.

Fortunately for the Houston community they can fall back on the growth of Wal-Mart, this nation’s largest employer in the private sector. A new two million square-foot distribution center is being built in Baytown in order to expedite shipments from the Port of Houston and rail lines. The company can offload containers from ships and truck them to the distribution center for storage before shipment by truck or rail to other Wal-Mart stores. The facility should be operating by summer 2005. The center is expected to bring between 300 and 400 jobs to the area.

PPD, Inc. of Wilmington, NC announced the opening of a new office in Mumbai, India. This new drug development site will provide patient recruitment and clinical monitoring for Phase II-IV studies in key therapeutic areas. The company’s CEO stated it “allows us to assist clients in offering cost-effective clinical research opportunities to treatment-naïve patients for a number of therapies, including oncology and metabolic disease, such as diabetes.” According to a report in CenterWatch, patients can sometimes be recruited in India three to four times faster than in the West, including heightened acceleration for oncology studies due to the unmet needs in the therapeutic area.

The maker of AstroTurf has filed for Chapter 11 bankruptcy reorganization in Georgia. The parent company, American Sports Products Group, has as some of its largest creditors GE Capital and Blackstone.

Reverse auctions work like eBay only backward. Bidders push the price down rather than up. Reverse auctions enable competitors to see what the going price is and respond accordingly. Auctions are set for a given time, and normally bidders get two minutes to act each time a new low bid is made. Since 2001, Minnesota’s Department of Administration has started using reverse auctions to pit companies against each other to reduce the money the state pays each year for goods and services. Kent Allin, the state’s materials management director, stated that, in 14 of the 20 completed auctions, the online bid undercut the lowest sealed price. Minesota was the fist state to buy software and conduct auctions rather than contract the job out. The range of purchases Minnesota puts up for electronic bidding is wider than those of most states. Bills have been introduced to permit cities within Minnesota to hold reverse auctions. Allin observed “the Internet has revolutionized the way state government can buy and sell goods and services.” GE’s CIO claims the company saves hundreds of millions dollars per year utilizing reverse auctions. FreeMarkets claims it can save its customers at least 20% on purchases using reverse auctions. There are some who claim buyer and supplier relationships will deteriorate with these auctions beating up suppliers on price, and that the buyer’s savings is the seller’s loss of revenue. My belief is the process needs to be good for both the buyer and the seller. Both need to make money or this procurement mechanism will have a limited future. If handled properly, total costs can be reduced along with a reduction in the purchasing cycle.

2/17/04 Reality Can Prove Illusory

Bush: “A lot of economic growth depends on psychology of the people making decisions all throughout our economy… people are pretty upbeat all over the country.” These remarks were made yesterday during Bush’s visit to NuAir Manufacturing in Tampa, Florida. He stated this company hopes to hire 40 more workers this year, and remarked “forty workers here, five workers there, begin to add up.” Bush states that the facts bear out his optimism. Here’s a dose of reality. About 24 million people are not counted in the monthly government unemployment rate until they seek employment. Maybe Bush’s optimism will become contagious. Maybe he jolts some of those 24 million into once again seeking employment. Bush is a good salesman. He sold the country on going to war. He certainly can sell some people on seeking employment. He had better not be too good at this selling job. If some of these folks become job seekers, then their entry will elevate the unemployment rate. The government states that there are 4.7 million people who want jobs but did not seek work during the prior four weeks. They are listed in the discouraged category. In January, the government stated the number of job market re-entrants rose by 6% or 143,000. With more entrants, the time required for job search has increased by 16% for managers and executives over the last nine months of 2003. John Challenger of Challenger, Gray & Christmas observed “the hidden network of potential job seekers is below the radar of those who are actively searching for employment, not to mention the economists and others who monitor the economy for significant signs. Imagine the impact nationwide if the unemployment rate suddenly shot up to 7.9%.”

The Georgia Department of Labor has reported 70,271 laid-off workers filed a first-time claim for unemployment insurance benefits in January, an increase of 19% from December when 59,206 claims were filed. Just recently, such companies as Panasonic, Washington Mutual, Hoover Hanes, Fleetwood, Volt Services, and Columbia Forest Products have announced even more job cuts. State Labor Commissioner Michael Thurmond stated “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.”

Faced with a liquidity crisis and in Chapter 11, One Price Clothing Stores was forced to lay off about 200 people at its home office and distribution center in Duncan, South Carolina. Further layoffs will follow as the company proceeds to liquidate. They employ 3,000 associates in 30 states, Washington DC, Puerto Rico, and the U.S. Virgin Islands.

Friday the 13th proved an unlucky day for a number of employees of the Union Institute and University on McMillan Street in Avondale located in the Cincinnati area. With declining enrollment, 51 of the university’s 485 positions were cut.

Since becoming president, yesterday marked Bush’s 19th visit to the state of Florida. When giving his talk in Tampa, he failed to mention an automatic $133 million increase in the state’s unemployment tax was being activated in April because of high jobless claims. When the fund dropped to just under $1.5 billion in November, that automatic increase was triggered for the 426,000 Florida employers covered by the program. The jobless benefits fund had grown each year for nearly a decade before Bush was elected. According to a state report released yesterday, the jobless benefits fund has dropped steadily since 1999. After 9/11, a large portion of the federal aid Florida received was used to help prop up the fund.

Seventy-five of 130 Ground Round restaurants nationwide that are owned by American Hospitality Concepts Inc. of Braintree, Massachusetts closed suddenly on Friday. Local franchise owners stated about 5,000 workers lost jobs nationwide. There was no advanced notice whatsoever. The Ground Round was launched as a division of the Howard Johnson restaurant chain in 1969.

While evaluating competing takeover offers from Cingular and Vodafone, the AT&T Wireless management still found the time to lay off 220 information technology workers. There are more layoffs to be announced. Employees were told that more IT cuts could be expected in the near term. About an additional 1,000 jobs will be eliminated. That is without the acquisition by Cingular. The latter is paying about $40 billion for the company, and cost savings will need to be accomplished in order to enhance operating cash flow.

Siemens announced that it will move most of the company’s 15,000 software programming jobs from its offices in the U.S. and Western Europe to India, China, and Eastern Europe. Siemens already has 3,000 IT workers located in Bangalore.

In the past week, Tower Automotive announced it would move 500 jobs from a plant that makes frames for the Dodge Ram pickup in Milwaukee to Mexico. Other auto suppliers will be shifting production and jobs overseas to tap cheap labor, according to a recent study by Roland Berger Strategy Consultants. Jim Gillette, director of supplier analysis at CSM Worldwide, stated “ the attitude is spreading that if you’re not ready to do business in these markets, you’re not going to be around in five years.”

Bush may be looking at 40 new jobs in Tampa, Florida. The United States is a big country. He might take a heavy dose of reality. His salesmanship won’t pay the bills for the unemployed. His optimism won’t bring back those soldiers who have lost their lives in Iraq.

According to the India Department of Commerce, the United Kingdom, India’s second largest trading partner, has no plans to restrict the flow of jobs to India. On the other hand, the Indian government pointed to proposed outsourcing restrictions in the U.S. and stated opening the domestic agriculture market to U.S. exports would become very difficult if the U.S. stopped or curtailed the exporting of jobs to India. It should be noted that, unlike in the United States, agriculture is not subsidized in India

With customers purchasing more coats, food, Valentine’s Day items and pharmaceuticals, Wal-Mart stated February sales at U.S. stores are rising at the high end of its forecast, which would be close to 5%. The Southern California supermarket strike has certainly helped their sales growth. One cannot underestimate their continued dedication to providing customers with everyday low prices. Another successful high volume, low cost concept can be found at SRI Shoe Warehouse. They have three locations in Raleigh, Baltimore, and Greensboro. To keep costs down, SRI has the Raleigh store open Thursday through Sunday and Wednesday through Sunday at the two other locations. Each store stocks 45,000 pairs of women’s, men’s, and children’s shoes right on the display floor. The selection is larger than that found at competitors and the prices are lower by 35 to 50%. The three stores generate more than $10 million in sales annually.

In 2003, Freddie Mac financed homes for more than 5.5 million families. The company purchased more than $106 billion of mortgages made to minority families.

San Mateo-based Six Apart Ltd. announced and demonstrated new features in its Typepad personal weblogging software that lets people easily add pictures, audio, and text to their weblogs directly from their mobile phones or PDAs.

Using a biometric fingerprint scan, Philadelphia-based AllenPort has created a system based upon a paradigm that uses bank ATM networks as a model. It centralizes, protects, and provides each individual’s “digital assets”, such as, applications, user settings, and data, at a central personal computer service hosting facility.

Insurers want a law that forces hospitals to make their pricing public. The problem occurs when a hospital is “out-of-network.” This means the insurer has no contract for discounts. When that occurs, and if the insurer and the hospital can’t agree on the charges, then the hospital can charge what’s “usual and customary.” The latter most often means list prices without any discounts, and many insurers believe they represent three to five times Medicare prices.

In turning down the Comcast merger proposal, the Disney board stated “we are committed to creating shareholder value now and in the future and will carefully consider any legitimate proposal that would accomplish that objective.” At the same time, they stated there would not be a search for a white knight. Over time, a proposal most likely will be brought forth that will contain a collar or some protection against a further decline in the price of Comcast shares. This deal will take months to complete. There are several regulatory hurdles, and then there is a final agreement on price.

2/16/04 There Is Plenty Of News

In an attempt to avoid merging with Sanofi, Aventis has been searching for a white knight. Novartis is kicking the tires, and may come to the rescue.

Cingular and Vodafone continue to up their offers for AT&T Wireless. Their bidding has reached the frenzy stage as it approaches $14 per share. I hope each has a good plan as to how to create value for their own shareholders.

Yesterday, Japan’s agriculture minister called a U.S. probe into the outbreak of mad cow disease incomplete and stated his country would not reconsider a six-week ban on American beef until it receives new proposals from Washington for tighter safeguards. This would include testing all cattle for the disease before slaughter. Kamei remarked “it’s unclear where the other 50 cows ended up, and that’s not adequate. I don’t think they made enough of an effort.” I certainly agree with that observation.

A week from today, the Knoxville-based Tennessee Valley Authority will finish cost-cutting reviews. The TVA stated they will cut its workforce with a combination of layoffs and early retirements. The federal utility stated it’s part of an effort to compete under deregulation. Layoffs will be announced on April 22. TVA Chairman Glenn McCullough remarked “forty percent of our workforce is eligible for retirement in the next 16 months. So by looking at some areas where we may be over-staffed, it may be just a matter of some early retirements that sort of thing, as opposed to widespread RIFs. We’re looking at head count. We’re looking at programs. We’re looking at capital expenditures, everything. The TVA needs to pay down debt and become more efficient. That’s true of most areas of the federal government.

It is anticipated that car sales in India will approach 700,000 units in the fiscal year ending March 31, a growth of nearly 30% over the previous year. New Delhi-based National Council of Applied Economic Research predicted in September that car sales would rise to one million vehicles a year by 2012. That estimate now appears much too conservative.

According to Automotive News, Ford is imposing new contract terms on its global suppliers, including a clause that lets the company deduct money from suppliers’ accounts without prior notice. Parts makers state they have been told they could lose future business if they don’t comply. The Automotive News also reports on what is termed “upside-down deals.” They state that more trade-ins these days are worth less than the amount buyers still owe. The result is a growing debt load that many in the industry believe see as an industry time bomb. It is estimated that about 30% of all customers walk into showrooms upside down. In essence, auto sales are being propped up increasingly by longer loans and bulging consumer debt. U.S. supplies of cars and light trucks stood at 90 days on Feb. 1, up from 69 days on Jan.1. The ideal level is 60 to 65 days. Automotive stocks have also been selling at multi-year highs. What’s the incentive to make them go higher? Short covering? The Ford F-150 is so hot that the company started a Fast Cash incentive on Jan. 16 that runs through March 1. I bet it will be extended.

Auto sales in Canada fell 11.6% in January to their lowest total for any month in six years. On the other hand, Japanese new-vehicle sales rose 6.3% in January.

Carrier Corp. is closing its manufacturing facility in McMinnville, Tenn. A total of 1,300 jobs will be eliminated.

Steelcase Inc. is closing its wood-furniture plant in Fletcher, NC. A total of 480 jobs will be eliminated. The company is also closing its wood-furniture plant in New Paris, Indiana and 160 jobs will be eliminated.

Biocon Ltd. Will become India’s first biotechnology IPO. Biocon is India’s largest biotech company. They aim to have $1 billion in revenue within a decade. The CEO “would definitely put growth at 30% per annum.” They employ 1,200 people. Almost all of their revenue comes from enzymes or biopharmaceuticals.

According to the AAA Texas Weekend Gas Watch, prices at the gas pump rose by an average 15.5 cents a gallon in January. According to the Department of Energy, 43% of the price at the pump is accounted for by the amount that goes towards buying crude oil. The remainder is comprised of distribution and marketing costs, refining costs, and taxes.

One place that doesn’t run out of gas is on East 7th Street in the East Village section of New York City. Tomorrow McSorley’s Old Ale House celebrates its 150th birthday. John McSorley opened the place in 1854. The only change was in 1970, the year women were permitted into this establishment. It is still going strong. Matty Maher owns the place now. He stated "the years have been easy. It’s the days that get tough.” This pub is the real deal.

New York City is in for a gastronomic treat. Thomas Keller brings his bag of cooking tricks to his new restaurant, Per Se. It opens this evening. The renovation on his Yountville, California French Laundry restaurant will be completed in May. I would recommend getting on Per Se’s reservation list. You should be seated in about three months. Keller is arguably the most talented chef our nation has today.

Joseph Stiglitz, Nobel laureate in economics: “the U.S.’ economic program for reconstructing Iraq is laying the foundations for poverty and chaos…blinded by ideology, however, the Bush administration seems determined to continue its record of dismal failures by ignoring past experience.”

2/15/04 Forces Impacting Our Present And Future

According to the National Association of State Budget Offices, thirty six states enacted tax and fee increases for fiscal 2004. In addition, tax amnesty programs and accelerating payment of sales taxes are raising additional billions in order to balance budgets.

The unemployment tax averages about 2% of payroll or taxable wages. A growing number of companies have budgeted for a 20% or higher increase in their unemployment burden. As the number of unemployed rises, there is a corresponding requirement to boost the funds necessary to replenish the unemployment trust funds. This is but one more way to check on the unemployment numbers released by the Labor Department. If the unemployment levels were declining, there would not be the need for additional funding into the unemployment trust fund. It doesn’t take a rocket scientist to catch politicians in lies.

The administration will be providing information to voters on insourcing, a term referring to American jobs supported by U.S. subsidiaries of foreign companies. You will read that there are 6.4 million insourced jobs with an annual payroll of $350 billion. Examples provided will be Honda increasing their U.S. manufacturing employment by 15% last year. Novartis moved its world-wide R&D facility from Switzerland to Massachusetts. Samsung is investing $500 million in its Texas semiconductor plant where it will employ 1200 people. U.S. subsidiaries account for over 22% of total U.S. exports. That is a significant number.

I think it’s time that we pay a bit more attention to Americans age 50 and over. I know I’m in that grouping. That’s not the point. According to Ken Dychtwald, president of the Age Wave think tank in San Francisco, the 50 and over group control $7 trillion, or 70% of the U.S. wealth, and they bring in $2 trillion in annual income and account for 50% of all discretionary spending. Not surprisingly, only 5% of the yearly advertising dollars are directed at this group. Between 1990 and 2000 this age group’s numbers rose by 12 million while the 18-to-34 year olds declined in number by 9 million. According to the AARP, there will be 54 million people between the ages of 50 and 64 by 2010, and 50 and over will total 90 million Americans or over 30% of the U.S. population. Manufacturers had better get used to the growing changes in the lifestyle habits of this age group. I suggest that the investing field will be impacted too. Lower risk levels will be accepted, and the volatility factor in the marketplace will diminish. Trading will be less in vogue, and investing for long-term appreciation will gain greater acceptance.

The Bureau of Labor Statistics has projected employment growth between 2002 and 2012. I don’t know why I mention this. I think government statistics are sorely lacking in their accuracy. The BLS projected employment growth will be greatest in the service sector, particularly in education and health services as well as business and professional services. There will be growing needs to home health assistants, medical assistants, and network systems and data communications analysts. Interestingly, the BLS projects that, between 2002 and 2012, the number of workers 55 and older will increase by about 50% and account for over 19% of the total workforce. These projections will be available at the end of February in the BLS Occupational Outlook Handbook.

U.S. Energy Secretary Spencer Abraham: “With respect to oil, we already import over half the oil we use, and the projection is that in 20 or 25 years that percentage will be up in the 70 percent range. That’s a much greater dependency level than we’re talking about with gas, where it’s possible we would be up into the range of 25% in 20 years.”

Yesterday was Valentine’s Day. Rather than send a Valentine’s message to all Americans, Bush chose to play the fear card and send the following message on his Saturday radio address: “the possibility of secret and sudden attack with weapons of mass destruction is the greatest threat before humanity today… America faces the possibility of catastrophic attack from ballistic missiles armed with weapons of mass destruction. So we are developing and deploying missile defenses to guard our people.” Hundreds of our troops died in Iraq because of a preemptive strike based on a foundation of the above-mentioned WPM that have proven illusory in nature. They were never found. Thosands of our troops were injured and maimed for the same unfounded reason to go to war. I suggest the WPM do exist. They exist in Washington DC, and I have stated this for well over a year’s time. Bush is correct in stating that we must strengthen laws that fight proliferation. I suggest additional changes need to be made in the decision-making process that sends our troops into harm’s way. Timely facts based on recently acquired evidence must be incorporated into congressional approvals to declare or enter war. The evidence cannot be based on 10 year-old material with subjective interpretations.

2/14/04 Roses And Thorns

It’s wonderful growing roses. The different colors and their graceful buds can provide much pleasure. However, picking those roses is an entirely different story. The thorns on those rose bushes require some careful handling, and can be a bitch.

King Solomon writing in Proverbs: “The Borrower is servant to the lender.”

Ross Perot and Sen. Paul Simon: “A weak currency is the sign of a weak economy, and a weak economy leads to a weak nation.”

In 2003, almost $7 trillion was issued I the U.S. fixed income markets, up 28% from 2002. The U.S. trade deficit ballooned to record levels in 2003, and rose 17% from the record set in 2002. We had a $124 billion trade gap with China, and that was a record. Our trade deficit with Japan declined to $66 billion, the lowest level since 1998. Canada was in third place with a trade gap of $54 billion, then Mexico with $40 billion, and Germany close behind with $39 billion. With our weaker dollar, our exports rose 4.6% to $1 trillion, the highest mark since 2000. However, despite the dollar’s fall by 3.3% on a trade-weighted basis in the fourth quarter and by close to 2% in January, last month our trade deficit with the rest of the world rose to over $42 billion. Greenspan stated yesterday that it will take time for the dollar’s decline to begin narrowing the deficit. I think Greenspan is out to lunch. The dollar has been declining for close to two years against the major currencies. He should spend more time watching over his own decline. We are importing close to 320 million barrels of oil a month. Forget about China, Japan, and others for a moment. Greenspan might consider that the exports of our capital goods and consumer goods have begun to decline. Look at the economies of our export markets. We visit different states. Let’s leave the U.S. and travel to the eurozone. In the fourth quarter their economy grew but 0.3%, down from the feeble 0.4% in the third quarter. Growth for all of 2003 was 0.4%. Germany’s economy declined by 0.1% in 2003. In other words, the eurozone cannot be counted on to be a big importer of our goods and services in 2004. In sum, the weaker dollar has not narrowed the current account deficit. Rather, the trade deficit has mushroomed to record levels. The markets listen to Greenspan because they lack, as a generalization, the inability to think for themselves. They are deserving of the losses that have come their way and that will mount in the months and years ahead. Sheep can be seen wandering the financial streets at all times of the day and night. Unfortunately, for them, Greenspan’s words of patience have an air of sweetness, but they carry with them thorns aplenty. Chauncey Gardner was a real gardener. Greenspan misplaced his pruning shears.

Bruce Heitshusen, a South Amana, Iowa row crop farmer and livestock producer: “The market seems to be hanging in there pretty good. Everybody’s just holding their breath and hoping nothing else comes along.” He’s not referring to stocks and bonds but rather to Mad Cow disease. Japan accounted for $1 billion in beef export sales in 2003. It was our number one market for beef exports. With Mad Cow, there goes the $1 billion out the window. A billion here and a billion there, and before you know it, it can add up to some real money.

The University of Michigan preliminary sentiment index for February dropped 10 points from January’s level, which was the highest since November 2000. The preliminary reading is based on 250 households, and the final reading of 500 households is released on Feb. 27. The expectations index and the current conditions index also experienced large drops in February. I wouldn’t be concerned because the optimists will tell you they are lagging indicators. When the readings are promising, the same folks state they are leading indicators.

Greenspan to Congress: “In all likelihood, employment will begin to grow more quickly before long as output continues to expand.”

Home Depot continues to open new stores. On Thursday, the company announced cutting 100 jobs in its finance division at its Atlanta headquarters as apart of a streamlining plan. Being a government employee, Greenspan could not be expected to grasp the meaning of streamlining.

2/13/04 Deals Are Back

I'm not referring to Oracle and PeopleSoft. That is a figment of Ellison's imagination. Today we'll see Cingular and Vodaphone squaring off for AT&T Wireless. The media is buzzing about all the potential buyers for Disney. The latter hired Goldman Sachs and Bear Stearns to review Comcast's offer. They would be well served to add Allen & Company to their list of advisors. Many potential buyers wil be mentioned. The parts of Disney are worth more than the whole. A buyer like Comcast can take the cream, like ESPN, and sell the non-essentials. That's what I'd do. Take your time selling the pieces. Foreign buyers are looking at a cheap U.S. dollar. They can buy on the cheap. That reminds me. With the pound at an 11 year high vs. the dollar, Unilever should be prowling for deals. That goes for other foreign buyers in the pharmaceutical business. All the newly discovered experts will have opinions on each announced deal. Remember that most are still in diapers. They have never done a deal and don't grasp the difficulties involved in buying another concern. Most large mergers don't work out well. The exception is the Pepsi acquisition of Frito Lay. Much of the success or failure depends on management and melding people and organizations. As such, most are doomed before the ink is dry on the deal. A word of caution might be in order. Investing in risk arbitrage requires filtering out all the noise. If you can't do that, forget it. Don't listen to rumors, and don't invest based on the rumors. Invest on the facts. Put yourself in the shoes of the buyer. What is ESPN worth to Comcast? What's the mouse library worth to Comcast? What's it worth to another company? These are the questions which will determine the ultimate value of Disney, and not what an expert predicts.

One additional word about deals. You'll read that the market must be cheap because deals are getting announced. Each deal has its own story. It has nothing to do with the market as a whole. When you're talking $50 billion+, you're talking an amount which exceeds the GDP for most countries. This is significant jack. There aren't that many companies that can play in that arena. A company like GE can, but then you must look at their position in media and compare it to the fast growing medical business. Media doesn't look great next to it. Talking about medical. The latter now accounts for 15% of our GDP and in a few years is projected to grow to 18%. I have discussed this fact for the last several years. The number one trend in the U.S. is the aging of the population. Japan has had a similar situation for years. There is one bit of better news. Healthcare spending in 2003 grew at a 7.8% rate, down from 9.3% in 2002.

People keep emailing stating that unemployment is a lagging indicator. They are quite correct. It lags and lags and lags. It's been lagging for over two years or in the case of manufacturing close to 3 1/2 years. Yesterday it lagged some more, to a two-month high. With the cost of benefits continuing to rise and the hours worked per week hovering near a multi-year low, the prospect for hiring isn't bright. The people who argue otherwise are also not bright. Hope springs eternal but it doesn't pay the bills.

2/12/04 The Real Deal And Government Testimony

Integrated content and distribution would be the hallmark of a combined Disney and Comcast. The latter, in an unsolicited proposal, offered a tax-free stock for stock merger in which Comcast would issue 0.78 of a share of Class A voting common stock for each share of Disney. The latter shareholders would own approximately 42% of the combined company. Comcast has 21 million cable subscribers and over 5 million high speed Internet subscribers. Disney’s CEO stated he was “unwilling” to enter merger talks. Disney owns ABC television, ESPN, Disney and Miramax movie studios, theme parks , and most importantly, one of the most recognizable global brand names. Utilizing the currency of Comcast stock, it will be much more likely that this bid at some point will be increased. The Roberts family is known as good managers, and they should bring additional financial acumen to Disney. The government approvals should not present a problem. Comcast has Rohaytn, Rattner, Morgan Stanley, and J.P. Morgan Chase as advisors. They are serious about acquiring Disney, and are patient acquirers. It took them over one year to buy AT&T broadband. A combination of the two companies would make this the largest media company. There will be many investment bankers scurrying the financial landscape looking to represent a buyer for Disney. There will be lots of rumors; however, few have the financial capacity or the willingness to undertake a $60 to $70 billion acquisition. It will take time for this deal to develop; however, in my opinion, it is the real deal.

Unfortunately, I cannot say the same for Greenspan’s testimony to the U.S. House Committee. After reading the President’s Economic Report, one would think there is a division on the economy. They are in agreement on a few issues. The stock market is the star performer as rising equity prices have reduced financing costs, and just as importantly, increased household wealth. Bush and Greenspan figure on low inflation continuing along with low interest rates for the remainder of the year. They agree that reduced tax rates and tax credits boosted real disposable income. Greenspan believes productivity gains will slow but not to the extent that Bush does. Both believe productivity growth has lessened the need to hire. Both believe hiring will hasten in 2004 but Greenspan is concerned with the federal budget deficit and the risk it entails to sustaining growth. He doesn’t believe the Bush has offered a convincing road map for lowering deficits. Greenspan is concerned about the impact of a spike in energy prices, and Bush has not addressed that in his economic report. Greenspan stated progress in creating jobs has been limited but Bush gushes about the jobs being created.

Last year, venture capital investment decreased to its lowest level since 1997. Nationally, $18.2 billion was invested in 2003, down 15% from the prior year. The life sciences industry captured 27% of all financing I 2003. The software industry accounted for 20%.

2/11/04 Unfinished Business

Yesterday I kept thinking about the Economic Report of the President. The employment forecast was so unattainable that I thought some phone calls were in order. After all, there is no point to set yourself up to look stupid. Unfortunately, after the calls, I needed to go for a walk. I’ve made this statement over the past several months. The real WMD are in Washington DC. What did I learn? I learned that an additional 700,000 jobs were assumed to have been created by the time the report was completed. However, the administration knew that addition had not materialized when the report was released on Monday. Secondly, the report factored in that annual productivity growth would decline from 4.3% in 2003 to only 1.4% in 2004. I state only because the long term annual productivity growth is 2.1%, and the last time it was as low as 1.4% or lower was in 1995. The president’s economic team stated that, with unusually depressed productivity growth, employers would need to hire more workers. However, that assumption is negated by another assumption behind the report. The economic team projected that hours per worker are not expected to grow in calendar 2004. No business manager or owner would want to hire an additional worker and spend money on training and benefits before adding weekly working hours for existing employees. In sum, this report was released on Monday with the administration knowing that the assumptions behind the conclusions reached were false. I cannot imagine anyone voting for people who pull such falsehoods on the American people.

I don’t know why I was so surprised. Maybe I’m just hopeful that Americans will receive the best from their leaders. Then I recall the two versions of the report on Iraq’s weapons.
The classified version: “The activities we have detected do not, however, add up to a compelling case that Iraq is currently pursuing what INR would consider to be an integrated and comprehensive approach to acquire nuclear weapons. Iraq may be doing so, but INR considers the available evidence inadequate to support such a judgment. Lacking persuasive evidence that Baghdad has launched a coherent effort to reconstitute its nuclear weapons programs, INR is unwilling to… project a timeline for the completion of activities it does not now see happening.” This was written in October 2002. The public version of this report: “…most analysts assess Iraq is reconstituting its nuclear weapons program.”

Over the past 12 years consumer spending by Americans increased each and every quarter. With muted job creation, wage growth merely equating to the rate of inflation, hours worked declining, and with almost 5 million part-time workers who are unable to find full-time employment, consumer spending has come to the crossroads. In 2003, Americans received tax reductions and credits, mortgage equity withdrawals via refinancing, and many shall have refunds coming their way from the IRS in early 2004. Even with those extra dollars, the savings rate has declined to about 1.5%. To make matters worse, a recent study stated the new jobs created pay about 21% less than the jobs they replace. The new jobs pay about $35,410 a year compared with $44,570 at the old jobs. Greenspan and Bush are out of tricks. Slight of hand will not put money in the pockets of Americans. Where do we go from here? It will, in my view, require new leadership based on policies that can stick to your ribs, and grounded in the truth. You can print money, you can spend taxpayer money, you can make false promises and issue false prospects, but eventually there is a stiff price for twin tower deficit policies that undermine the well being of 285 million Americans. We are at that point.

We are fast approaching Feb. 16. Many businesses will be closed for the President’s holiday. It won’t be a time for celebration at AT&T Wireless in Bothell, Washington. In all probability, at least 1,000 employees will receive termination notices.

2/10/04 The 2004 Economic Report Of The President

The White House Council of Economic Advisors signed off on this report and released it yesterday. I know Wall Street is not concerned about our $7 trillion national debt. China and Japan will fund the debt year in and year out. Interest rates will remain significantly below those found in other industrialized nations, and will not rise as long as inflation remains muted. Just the other day Bush released his $520 billion budget deficit plan. He failed to mention his Social Security privatization plan. It was revealed in yesterday’s 2004 Economic Report of the President and it contains adding another $1 trillion to the national debt for the privatization plan. The report stated “since the budget surpluses forecasted a few years ago have not materialized, critics argue that personal retirement accounts to Social Security is impossible or impractical. In reality, the need to add resources to the Social Security system is no less pressing now that surpluses have disappeared; indeed, it may be even more so.” The report goes on to forecast 4% GDP growth for 2004 and that the economy will generate 2.6 million jobs in 2004. Last year at this time, Bush and his advisors forecast adding 1.7 million jobs in 2003. In fact, over the past year there was a loss of jobs. That’s why it is referred to as a job loss recovery. With January having passed, in order to meet the 2.6 million addition to the payrolls, over 450,000 new jobs would need to be created between February and December. One should note that, taking into account all the benchmarking and revisions of the payroll numbers, total employment in January was but 33,000 more than in October. We’ve seen promises in the past from this administration. They knew where the WMD were located. Precisely 11 months ago, General Meyers pointed to their location on a map. Now they are pointing to tax cuts and other tax incentives to produce 2.6 million jobs in 2004. That tax plan existed in 2003, and the result produced was a loss of jobs.

The IBD/TIPP Economic Optimism Index produced some interesting findings. The nation’s optimism had its biggest one-month drop since July 2002. The Six-Month Economic Outlook had its biggest one-month fall since Bush took office. The survey indicated that “respondents fearing they or someone in their household will lose a job in the next year rose from 16% in January to 20% this month.”

Japan’s Parliament made another $200 billion available to the Ministry of Finance for sales of the yen in order to keep the yen/dollar relationship from falling much further. This amount equates to a quarter of Japan’s foreign currency reserves. Last year they also sold over 20 trillion yen. In the first four weeks of 2004 they sold over 7 trillion yen. Continuing to sell its currency at the current rate can only undermine the economic stability of Japan in the long term. The rate of sales is clearly unsustainable.

In the recent Mortgage Credit News it is reported that “although the office market has begun to bottom, absorption of office space has fallen in nine of the last eleven quarters, and office rents have fallen in all eleven. High-wage jobs are in offices.”

Ford has about 5,600 hourly employees working on two assembly lines that produce the Ford Escape SUV and the F-series pickup at its Claycomo plant . Motor Trend magazine selected the new F-150 as its 2004 Truck of the Year. In December, Ford executives praised the Claycomo workforce for its efforts in launching the new pickup and remarked how the F-150 sales had spiked with the introduction of the new vehicle last fall. It is no wonder how surprised Claycomo employees were to find that layoffs would occur at their plant, the star of the Ford factory locations. One hundred hourly workers were laid off on Friday, Feb. 6, and another 100 employees will be cut on Feb. 13. Maybe the Claycomo employees should have seen the cuts coming. In December, Ford’s CFO stated the cost of producing the new F-150 would drop by about $1,000 per truck by the end of 2004, compared with when its production began last June. I wonder what other cost-cutting measures will occur at plants that produce slower-selling vehicles.

One Price Clothing Stores currently operates 494 stores in 30 states, Washington DC, Puerto Rico, and the U.S. Virgin Islands. Yesterday they filed for voluntary Chapter 11 protection. Tower Records operates 93 stores. Yesterday they filed for Chapter 11. CSX operates a rail network of more than 23,000 route miles in 23 states. In December, they terminated 25 senior executives. Yesterday, they cut about 120 high-level managers. It is part of their ongoing process to reduce the number of layers of supervision in its organization from 11 to 8. Can you imagine the number of managerial layoffs yet to come? How about reducing the layers of supervision to a couple?

I thought it might be interesting to visit with the Arkansas Workforce Investment Board (AWIB). They should provide a clue as to the tomfoolery at the U.S. Bureau of Labor. The AWIB reported that, overall, Arkansas’ nonfarm payroll employment was down 23,200 between December to January to total 1,130,300. The state saw losses in eleven major employment sectors. However, using the Department of Labor numbers, the director of the AWIB stated the state’s unemployment rate fell from December’s 6.3% to January’s 5.2%. The drop was “caused by larger than normal revisions to the statewide estimates for 2003, and blamed the ‘distortion’ in the job market statistics on “benchmarking procedures” used to control unemployment statistics. Distortion appears to be a centerpiece of the administration’s policies.

Four years ago, 29% of Alaska’s voters considered the state’s fiscal situation serious. The new poll indicates that has now risen to 45%. The annual budget shortfall is projected at $600 million this year. The Constitutional Budget Reserve fund is expected to run dry in 2007.

According to ComPsych Corporation, employees’ financial picture has worsened significantly since last year. Calls for financial help have risen 69% from 2002 to 2003, with the majority of calls related to debt, refinancing, and failed investments.

The $4.3 billion research tax credit is scheduled to expire June 30. The Treasury Department estimates making it permanent would reduce government tax receipts by $78.4 billion over 10 years. The research tax credit amounts to a subsidy of about six cents for every dollar a company spends on research in the U.S., according to the R&D Credit Coalition.