Sunday, November 30, 2008

The Unchanged

With over 35 announced appointments for the new, incoming President's administration, things are looking a little more like a redux of the Clinton Presidency and not hardly like the real change that Barack Obama promised. Certainly, the political right is not real happy with seeing four more (new) years of a Clinton Administration. Even more so, the political left is wondering what they're getting with their votes for Mr. Obama. The icing on that cake will be the appointment of Hillary as the Secretary of State. With that, you will almost have the complete replay of the "Clinton" Administration because, as you can expect, you get Bill as part of the Hillary package. Worse yet for the political left, Bob Gates (from the current Bush Administration) will remain as Secretary of Defense. Between Hillary and Gates, you've got one nice package of pro-Iraq War pols. I suspect the Daily KOS, & Code Pink are all hitting the bathrooms as they loose their lunches over all the political centrists that Obama will be nominating.

I think Mr. Obama has decided that staying warm and cozy with the Democratic past and the Clintonistas is better, politically, than taking risks with any new people. It just proves that he really isn't the risk taker that people thought they were getting when they elected this guy. It just echoes why, on so many occasions, he voted "present" in the Illinois Senate; rather than take any real stand by voting a decisive yes or no. We got a hint of that when Russia invaded Georgia. Obama's immediate decision was not to condemn Russia; but, instead, to urge restraint on the part of both countries.

I may be wrong, but, given what I am now seeing from Mr. Obama, you can expect an even longer list of reneged-on promises. Don't expect your tax cuts any time soon. Also, don't expect him to rescind the tax cuts for the rich. In one of last week's news conferences he was already dancing around that issue of taxes for the rich on the basis of the current economic crisis. However, those that voted for him thought otherwise. But that was really a lie. Obama knew that the economy was going to be in a heap of trouble all the time he was on the campaign trail; but, then he refused to back off his position on taxes. I'll bet he even stays in Iraq longer than 16 months. The only way we'll leave on time or earlier is because the solid left of the Congress will force him to do it. Also, don't even think he will try to impose a new healthcare system on business because of the economy.

Bill Clinton promised tax cuts, too, when he first ran for the Presidency. But, those cuts were never to be seen because his economic team was against them. Now, Obama's got much of the same team standing behind him, and the economic conditions are even worse. Obama may claim that he is the "vision of change" and that his same-old, same-old cabinet will get their direction from him. Maybe. Maybe not. I suspect that the input he gets will be the same input Bill Clinton got when he was in Office. With such filtered input, Barack will wind up making the changes that his team recommends. Not the other way around.

Thursday, November 27, 2008

A Cornucopia For Some

For many years, the holiday of Thanksgiving was symbolized by the Cornucopia , a.k.a., the Horn of Plenty. It was a wicker basket in the shape of a horn that was filled with the fruits and bounty of the annual harvest. It was particularly symbolic, because the first celebration of Thanksgiving in 1621 was in gratitude for all the bounty of food that God had bestowed on one of our first settlers to this country: the Pilgrims.

Today, the Cornucopia has been pretty much replaced by the turkey. Some would actually say that Thanksgiving is more represented by football and a rest-up before Christmas shopping on Black Friday. But, neither of those things are in the original spirit of the holiday.

While there are many of us who may have lost our jobs, their homes, or both, we are still a lot better off than the many of this world who will die starving on this day. A day when we will typically eat our fill. As bad as it may seem in America on this particular Thanksgiving Day, it is a whole lot worse in many other parts of the world. For that, we should be thankful. But also, for that, we should always be mindful that those, like us, who are better off in this world, should pledge to help those who are in dire need. Then, too, someday, the whole world could celebrate their own day of thanks; and, not just us.

Enjoy this holiday. And, please help others whenever you can.

Wednesday, November 26, 2008

The Tax Man Cometh

While Mr. Obama campaigned on cutting middle class taxes, the reality of our economy just won't let that happen. Already, Congress is talking about raising Federal gasoline tax from the current 18 cents a gallon to 40 cents. Not a big number, but it will effect the bottom lines of people who have to drive a lot for their jobs. Also, it will be reflected in the cost of almost everything we buy because trucking and shipping costs will be affected and increased across the board. Granted, we are better off than we were when oil was at $147 a barrel but, given the tough economic times, every dollar of savings may help save jobs.

I would expect that Congress and our new President will raise taxes across the board. We already had a deficit and all this "bailout money" is just making that hole in the governments wallet a whole lot bigger. The only way to close that hole is to reduce spending and/or to raise taxes. For those guys in Congress (and the White House), it has always been much easier to raise taxes than make the hard decision to cut spending.

The biggest taxes to come will be on the state and local level. At least 40 states are now projected to be in deficit trouble next year. We've already heard from California with Arnold's request for a few billion dollars in a Federal loan. However, the biggest states are all in trouble like New York, Illinois, Pennsylvania, and New Jersey. This is where the wrath of the tax man will be seen the most. States that have income taxes will all probably raise them. States that don't have income taxes will probably look at starting them. Sales taxes will go up because, in a recession, tax revenues on sales will be falling. Expect real estate and "sin" taxes on tobacco and liquor sales to increase. I would also bet that many heavily traveled roads will start "toll collections" to help pay for repair and other infrastructure rebuilding.

The problem with all these taxes is that they will ultimately be inflationary at a time when our economy can least afford higher prices. In many ways, the recovery of the economy could be stalled by a lot of new taxation. By the way, don't expect any of those new taxes to be rolled back when the economy gets better.

Tuesday, November 25, 2008

Obama's Job Creation Con

At yesterday's news conference, Barack Obama announced his economic team. At the same time, he promised he would create or save 2.5 million jobs by 2011 (See Full Story). Now, to those who are just totally in love with Mr. Obama, this is music to their ears. But, here's the real life facts.

As a country, we have a population of 300 million. That population grows at about 2 percent per annum; compounded. That means that roughly 6 million new workers enter the job market every year. The economy typically adjusts to that growth by adding new jobs for the majority of them. On a theoretical basis, even if we were in a recession/depression and unemployment zoomed to 10 percent, that means that 90% or 5.4 million of those newbie's in the job market would wind up getting a job.

Last year, 2-1/2 million people were added to the unemployment rolls. However, our population grew by 6 million. So, even in what most people would consider a bad labor year, 4-1/2 million people got some newly created jobs in order to have only had an increase of 2-1/2 million unemployed. If that didn't happen, the unemployment rate would be sitting at another percent to one-and-a-half percent higher; at 7.5 or 8 percent rather than the current 6.5 percent. It's just simple math. And, my math doesn't even take into consideration all the legal and illegal immigrants that are also absorbed by our job market each year.

The problem with Mr. Obama's pledge is that it is probably doable under almost any circumstance; unless, of course, we suddenly have unemployment numbers that rise to, and/or substantially above, 10 percent in a full-fledged depression. Even if we lose 3 million more jobs to unemployment next year, and the unemployment rate zooms to 7.5 ore 8 percent, there will be at least 3 million new jobs that have to be created for that number to be contained. If not, the unemployment rate will rise to 8.5 or even 9 percent. Mr. Obama's pledge is just silly political pablum that our less-and-less educated population seems to happily slurp up. Our economy grows somewhat proportionately to handle all those new babies that are born here. Remember, if the unemployment rate remains the same from year to year, at least 5 million "new" jobs are created ever year; year after year. Lastly, is anyone ever really going to remember that Mister President-elect promised 2-1/2 million new jobs in 2008 when the year 2011 rolls around? Most people can't remember what happened last month; let alone, remember what happened 3 years ago.

Monday, November 24, 2008

The Auto Show of Shows

Last week and all weekend, a lot has been made of the auto industry execs flying in on separate jets to meet with Congress. However, that's just a lot of media "fog" and the real story has to do with their actual testimonies. The Congress sent them home without the cash because they went to Washington without any facts or plans to support their need for billions of taxpayer dollars. As a consequence, they were sent home and were told to come up with a "business plan" that would say how the money would be used and how they would change their businesses to become profitable. There isn't a "dah" big enough for this one!

Basically, the auto execs thought they had this one in the bag because of the millions in lobbying money and campaign contributions they had given. Further, the relationship of the United Auto Workers union (UAW) and the Democrats, and all the get-out-the-vote work that was done by the union membership in this last election, made the cash handout a done-deal in their minds. There was no humility on their part. There was no shame at being unable to keep their businesses afloat. After all, these are extremely well-paid people (that's an understatement!) who are supposed to have their fingers on the pulse of the company. However, the only real business argument that they could come up with for getting the cash was: If you don't give the money, thousands would be left unemployed. No facts to even support that claim.

If they were really concerned about the results of their trip to Washington, they would have huddled beforehand and continued to discuss their tactics before Congress while flying "together" on a single private jet. But, they just treated this whole trip as an "necessary" waste of time.

The performance by the auto execs (if you could even call it that) is a perfect example of the symbiotic relationships that some businesses have and will continue to have in Congress. This "business plan" thing is just a ruse. Nancy Pelosi has already implied that she will give the money when the auto companies return to Washington in December. We know that, because she said that "bankruptcy" was off the table. That means the cash is the only direction. The business plan thing is merely being done for marketing purposes to make the Congress look tough (Right!) and to wash away the embarrassment of those execs flying in on private jets. The only thing that the auto companies really lost on their trip to D.C. was two weeks and any positive P.R.

As I said in my blog of last week, they'll be back when this money runs out. Probably in just a year. Mark my words.

Sunday, November 23, 2008

Not Hardly Hollywood's Version Of Piracy

The days of the Hollywood-created images of three-pointed black hats with a skull and crossbones are long over. No longer are two ships locked together at sea while wailing on each other with cannon balls. Instead, today's pirates have a large mother ship that releases a small armada of fast and highly maneuverable inflatable boats and rigid-inflatable gun ships. They are armed with automatic rifles and grenade launchers and they can rule the sea because almost all commercial shipping is unarmed. On the open seas, where there is only international law, they could carry weapons. However, whenever they enter a country's port, they are subject to the laws of the country or local jurisdictions; and, that's the kicker. Most ports, especially in Africa, prohibit armed vessels from entering and docking at their ports.

Today's pirates, mostly from Liberia and Somali, are protected by the ruling Islamic radicals/terrorists who control the pirate's home ports. Their protection is guaranteed because those radicals/terrorists get a piece of the action. This symbiotic relationship is as old as the history of piracy.

This issue of piracy at sea is getting to be a serious one and no one government or collective groups of governments is capable of defending all the ships floating around the world's seas. The pirates are having a field day. Over the last two weeks, they have seized ships for ransom at a rate of almost one ship per day. The cargo of one of these behemoths can be worth millions of dollars. The annual losses due to piracy are now estimated at a staggering $16 billion and is growing by the year. A recently seized oil tanker had a load that was worth $100 million dollars; and, that's with prices at only a third of what they were just 6 months ago. Fortunately, that ship was rescued (See Full Story). Besides the value of the cargo, if this had been blown up by the pirates in some failed attempt to secure a ransom, it could have been an Eco-nightmare.

The boom days of pirate activities, from the 1600's to the 1800's, were killed off by the relentless pursuit by the British Navy and other countries. But, the boom might come back unless the international community takes action. We know that much of the pirates are Somalis. The international community needs to get tough with that country. Also, I believe that non-passenger cargo ships should be allowed to arm themselves. However, this would take a lot of treaty negotiations with numerous countries. Sounds like something the United Nations could do.

Beyond lethal weaponry, there are a number of non-lethal, but effective, defensive weapons that any ship-at-sea could use to fend off pirates. The cheapest is the water cannon, but it is slow and limited in range; and, the operator takes the risk of being shot. Another defense is to slather the sides of the ship with a very slippery foam to prevent boarding. But, under the duress of the ship being sunk, this might only aggravate the situation. Another method is to drag entanglement nets from the sides and aft of the ship. With these nets, approaching pirate boats would be fouled and become inoperable. The downside of this is that the nets cause drag on the ship. Thus making it slower and less fuel efficient. There are also some high intensity audio devices, called Long Range Audio Devices or LRAD's, that can be used chase the pirates away. These devices focus piercing sound waves at the intruders. The downsides of this defense are both the cost and the exposure of the operator to gunfire by other boats within firing range and that are not under attack by the LRAD (See Full Story). In addition, modified sound-deadening headgear might be able to defeat these systems.

Lastly, and also the most expensive non-lethal weapon, is the ADT or Active Denial System that emits a focused high-energy wave that produces intense heat and pain on the body of the intruder. It is sort of like the outside of your body being selectively bombarded by the waves of a microwave oven. The retreat is almost immediate (See Full Story).

Unless something is done and the world gets tough with these pirates and their protectors at their home ports, this problem will only get worse. At some point in time, a cruise ship will be taken and thousands of lives could be in jeopardy. If that happens and a ransom is paid, expect things to really get out of control with piracy entering a whole, new level of terror. Is this what we really want?

Saturday, November 22, 2008

The Geithner Rally?

In yesterday morning's blog, I mentioned that Obama's nomination of a Treasury chief would go a long way to ease the stock market and help slow or even reverse the 22 percent slide that we have seen over the last 12 days since the election. Late yesterday, amid another lackluster trading session, the name of New York Federal Reserve President, Timothy Geithner. was leaked. Shortly thereafter, the stock market rallied with Dow Jones Industrial Average ("Dow") reflecting a gain of 494 points. Even so, the Dow was still down 5.3 percent for the week; thus making the 3rd straight losing week since the election.

Did the Geithner leaked appointment cause the markets to rally? I don't know. Certainly, the market was ripe for a comeback; with or without the Geithner leak. Yesterday might just have been the result of the monthly expiration of stock market options and futures. These expiration days are always responsible for a lot of volatility. Normally, following a big run up in prices (as was the case on Friday), the next trading (or two) will see profit taking and the market could lose as much as a half to 2/3 of the prior day's gains. The investment community will have a whole weekend to mull over the Geithner appointment. If Monday's anticipated losses due to profit taking are tepid, or the market is even up, then I guess you could say that Obama got an all thumbs up with Geithner. Even if the markets do have sharp profit taking on Monday, any positive weekly gain for the Dow would also mean that they are a little more comfortable going forward. That, too, would prove that Friday's rally was a signal of hope and not some technical reaction to three down weeks.

I only have a limited knowledge of Geithner, but I feel that he is a "free-trader" at heart. I believe that he was on record as being against the the Lehman Brothers bailout. However, being a member of the Federal Reserve's highest echelon, he has a problem, in my mind, of being a little too academic. His views, as with Bernanke and Greenspan, are a little too top-down and hypothetical and inflation-centric for my taste. I have always blamed Greenspan's nearly two-years of unrelenting hikes of interest rates to fight some non-existent inflation, to be one of the reasons we are in the credit mess that we are in today. In many ways, Geithner's selection says that the money policy of the Obama Administration will be siding with the government's banking system; whereas, Hank Paulson, of the Bush Administration, had more of a business community leaning. Whether or not that is good or bad, I really don't know. I personally believe in having a more business oriented Treasury head.

I am still waiting for the day when Mr. Obama announces a delay, or a scrapping of his tax plans. That's the day the market will "really" rally. Until then, with Obama and the Democrats at the helm, I believe we will experience a long and a cold business environment, and the markets will keep responding with a continual downward movement.

Friday, November 21, 2008

Down 22 Percent Since The Election

While this morning, the stock market may seem to be having a positive day, it is the last hour of trading that will actually determine the final fate of the market. For days now, the market has literally imploded in the last hour of trading from its day-long upside activity.

Since the day following the election, the stock market has dropped like a rock. As of yesterday, the Dow Jones Industrial Average was down just shy of 22 percent in only 12 days. Prior to the election, the stock market had somewhat found a floor and was moving sideways. In fact, the six days prior to the election results, including trading of the election day, there was a 17% rise in the Dow Jones Industrial Average.

Nothing says more than facts and the stock market is screaming facts. The fact that the market reversed itself after Barack Obama won, speaks volumes. Also, the fact that the market has fallen so much, since that time, says even more. This market is not happy with Obama or the Democrats being in control.

Some might say that its all about the credit bailout and has nothing to do with Obama being elected. If that were true, the floor (as shown on the chart); then, the upward movement through election day; followed by a consistent downtrend since Obama won; isn't saying that at all. This bailout was probably one of the reasons the non-business savvy voters elected Obama. There was certainly a lot of voting for Obama in the punishment of the Republicans. However, the stock market is another form of an ongoing election. Trillions of dollars are being yanked from the market for it to fall like this. It is falling because their is no buying. What that says is that there is no foreseeable turnaround in the economy with the new Obama Administration. Many people around the world invest in our market and they, too, are saying that they have no faith in our economy going forward. There is nothing in the bailout plan or in the current sets of economic numbers to give them cause to put money in any company. That just shows fear that they will ultimately lose money if they invest in America. Even the traditional safe bets, like gas and electric utilities, are off the table because of the severe environmental legislation that could be imposed by the Democrats and their just-elected leader.

Only 6 weeks ago, I thought I had seen a stock formation that showed the stock market finding a bottom. I was wrong. That's why investing is an art and not even close to being a science. Obviously, my projection was wiped out by the investment community's reconsideration and reassessment of the bailout plans and the business conditions going forward. Right now, I can only say that the market looks to be in a free-fall. Where it lands is absolutely undecipherable at this juncture. Currently, the stock market is at trading levels that it weren't seen since 1999 and just a gnats-butt away from 1998 trading levels. Given everything that is going on, there is no reason to assume that we won't reach 1998 trading level. When that happens, ten years of stock trading will have been wiped out in just a little over one year.

This bull market really started in 1982; during the second full year of the Reagan Administration. It followed four horrible years under Jimmy Carter. In 1982, the low point of the market was a Dow of 770. From there, it rose to 14,198 in 2007; a near 18 fold increase in value. Now, we have nearly lost 1/2 that value from the 2007 high with the Dow currently sitting at 7500. I don't think, now, that it is unreasonable for this market to get back down into the 4000's. That is another loss of 3000 points. As horrible at that may seem, a fall to that level over the next few months would be no greater than the 3000 point loss that we saw last month.

What could stop a lot of this bleeding is some reassurances by our incoming President. I guarantee you that if he would declare, based on current economic conditions, to put off his proposed tax increases and tax cuts and just maintain the status quo, the markets might stabilize. The fact that he hasn't, implying that he won't, has the investment community running in fear. The stock market declines are also unsettling the general population. These declines and the proposals for more and more bailouts are dominating the news every night. This fact just feeds on the fears of the consumer. Any recession is generally ruled by and continued on until the psychological fears of losing a job are only abated when people's confidence is reestablished and they start buying once again. Mr. Obama needs to understand this. He needs to put a floor back on the stock market by backing off his plans. It would also help if he would announce a great choice, not just a good choice, for the Secretary of the Treasury job. Above all, his waiting on this decision is just causing more unease. Being a lame-duck with less two months left, there is not a lot that Bush can say or do right now. Mr. Obama needs to take the leadership role, now, and get out of the campaign mode. He needs to put the best interest of the country ahead of his unrealistic and, quite frankly, business killing campaign pledges. This is no time to just vote "present" as he did for so many years in the Illinois Senate.

Note: A larger view of the stock chart (above) can be viewed by clicking on it.

Thursday, November 20, 2008

Chavez' Big Test

On Sunday, it's election day in Venezuela. All indications are that President Hugo Chavez and the political party that he founded, the United Socialist Party or PSUV (Partido Socialista Unido de Venezuela), might lose key strength around the country. Chavez himself is not on the ballot.

While Hugo Chavez, himself, has regained popularity from a low 48 percent to the current 58 percent, things aren't very pretty in Venezuela and that could result in many PSUV losses in this Sunday's election. First, the nation's capital, Caracas, is the most crime-ridden city in the world as measured by the United Nations. Trash litters many of that city's streets. Food shortages, especially f0r staples like bread, milk and eggs, are constant and widespread throughout the country. Unemployment is still high and inflation is out of control and, as we all know, Venezuela's only real export, oil, has tumbled in price by 65 percent.

Oil, especially, has hurt the Chavez government. He had used it as his "socialist" goodwill tool. He either gave it away or sold it below market prices to show what a good friend Venezuela was. When oil prices were high against his low cost of extracting it, it was an easy thing for him to do. Now, with oil prices in collapse, his commitments are draining the Federal coffers. Further, when oil was high, Hugo went shopping. Like a kid in a candy shop, he bought tanks, planes, and guns from Russia and even more weaponry from other countries like Korea and China. That wasn't very long ago. Now, deliveries on his shopping sprees will be coming due soon and the money for his weapons fling will also be due. All those previous profits from oil will be going out the door and nothing will be replacing it since prices have fallen so dramatically.

Economically, Venezuela is a one-trick pony. Their entire strength is built on oil. Domestically, you can buy gasoline for 15 cents a gallon because the price is artificially controlled. My guess is that won't last long and the Chavez government will have to raise prices to stop the bleeding. That will just add more fuel to Chavez's out-of-control inflation.

Sunday's elections might be the beginning of the end of socialism in South America and, if the world does go into recession, it will be his form of government that will probably get hurt the worst. Friendly, socialists like Bolivia (who has no oil) won't be far behind. It will all depend on how many political seats Chavez and the PSUV loses on Sunday. Any significant number of losses could signal his end. On the other hand, if he maintains or increases his strength, that could easily signal an end to Venezuela's fragile democracy.

One last comment. Chavez might not go down without swinging. He may try to use the military to gain control of any lost areas of the country. However, the military has, in the past, been split in it's support of Chavez. In fact, parts of the military were instrumental in toppling Chavez during a very short-lived coup in 2002. Whether or not there are more or fewer Chavez loyalists in the military, today, remains to be seen. But, for Chavez and, for that matter, any other socialist dictator, the military option is always on the table. Whether Chavez wins or loses, this should be an interesting election and one that sets the tone for all of South America from this point forward. Just mark my words.

Wednesday, November 19, 2008

Future Shock: Construction Jobs

Our government started keeping records on housing activity right after World War II. Never since that time has this country seen a fall in new home construction as we have seen in this morning's report (See Full Story). Home construction fell by 4.5 percent nationally in one month, and nearly 8 percent in the last two months. In the Northeast, there was a phenomenal drop in construction of 31 percent! Normally, a slowdown in housing construction might be measured anywhere from tenths of a percent to one or two percent. To have two extreme back-to-back losses with the numbers widening from last month's report is very disconcerting. What next? A 5 percent drop nationally! Will home construction in the Northeast just come to a complete standstill?

Housing, more than autos, is a key labor and material industry in this country. It effects more workers from framers, to finish carpenters, to plumbers, painters, and so on. It effects the plumbing, roofing, flooring, electrical, lumber, concrete, drywall, paint, and a variety of other industries. And, unlike the automobile industry, it is local to you. In fact, depending on where you live, you might have a few people on your own street that could easily lose their jobs in a home construction meltdown. And, you've got to know, that with home construction falling, commercial construction has to be falling just as fast. In Las Vegas, where I live, it is at a near standstill.

The severe drop in home construction is due to too much inventory and extremely tight credit. This is coupled with the consumer's fear to commit to a new home in a recession. Something I have talked about in this blog before, however these numbers are almost frightening because of their magnitude. Certainly, it is normal to see a slowing in construction as we move into the winter months, but this is much worse and reveals the compounding effect of the slowing economy coupled with normal seasonal inactivity.

I think the jobs numbers going forward will be just terrible and accelerating. Everyday, we hear of major companies laying people off. Those kinds of job-loss announcements are measurable and out in the open, but the construction industry is made up of hundreds of thousands of independent contractors. There won't be some big announcement to say "X" number of jobs are being cut. Instead, the national unemployment number will just jump rather unexpectedly. Maybe to as high as a 7 or 8 percent unemployment rate. My guess is that we will see that happen in one of the months of the first quarter of next year. It will be a shock and expect our stock market to have a very bad day when that news is announced. Our lawmakers will be scrambling, again, to add even more stimulus to the economy but, as usual, it will be in all the wrong places. Just mark my words.

Tuesday, November 18, 2008

GM: A $25 Billion Bandaid on a Fatal Wound

General Motors (GM) and, for that matter, all three of the American auto companies are at a point, now, where they have to come to grips with the realities of going bankrupt. Any Federal bailout money will just delay the inevitable. It doesn't matter if they retool for more fuel efficient cars or not. Actually, retooling will just increase their expenses and their losses. The real problem with our Detroit-based auto industry is a structural one. GM is losing over $1800 a car and they will continue to lose $1800 a car after the bailout. It doesn't matter if they are selling hybrid's or electric cars or one of their highly fuel-inefficient Humvee's. Even if GM was able to sell twice as many cars as it does right now, the loss per car would still be $900 a car. Quite frankly, with oil prices falling as fast as they are, having a fleet of fuel efficient vehicles isn't as important as it was just a few months ago. The conditions for the loss will remain; with or without the bailout monies. The real problem is not the loss of sales.

GM's biggest problem is that it has enough retired pensioners and their surviving spouses to replace the entire population of the City of Detroit. That's more than quadruple the number of active, world-wide employees. Similarly, the number of retirees at Ford and Chrysler, combined, would also replace the population of the "Motor City." Taken all together, those 2 million pension holders at GM, Ford, and Chrysler are equal to the entire population of this nation's 4th largest city: Houston, Texas. Much of Michigan's auto industry revenues are being eaten up in the funding of pensions. In effect, every employee at GM, Ford, and Chrysler is literally working to support 4 retirees. Further, more than half of those pensioners are getting paid health care for life. All those retirees are living longer and, because of that, they will need more company-paid heath care services in the years to come.

GM apparently didn't learn from their own past. When the railroads in America converted to the diesel engines, mostly made by GM, the efficiency of those new locomotives was lost because the railroad worker's unions demanded and obtained contracts which maintained obsolete coal tenders on board each new diesel locomotive. They already had obsolete brakemen on board as a result of past contracts. Like the union auto contracts of today, the railroads were burdened with higher and higher costs for pensions. Taking advantage of this cost inefficiency, GM (for both trucks and engines), White, and other truck builders in America converted their trucks from gasoline to the more efficient diesel fuel. This fact also allowed them to increase the gross weight that each truck could carry; making the cost of transporting cargo more economical than rail. Then, lobbying our government, the highway weight restrictions for trucks was upped on all the roads of the then-new interstate highway system. Ultimately, the trucking industry was able to kill hundreds of inefficient and labor-burdened railroad companies with excess pension by moving freight more efficiently and at lower cost by truck. GM did, then, what Toyota and the other domestically-based foreign companies are doing to GM, now.

The lesson is one of both productivity and mechanical efficiency versus labor inefficiency. Toyota, Nissan, Honda, BMW, Mercedes, and Hyundai all have plants in America that are efficiently and cost effectively pumping out cars. They, too, have been hit with slowing sales due to the credit crunch and recession but, unlike GM, they are not in any serious trouble. They have no labor unions or massive group of pensioners and are not saddled with contracts covering work rules, vacations, retirement age, etc. and those that limit the use of manufacturing robots. Their plants are highly efficient and that is one of many reasons (along with the cost for active and retired labor) why GM, Ford and Chrysler have been unable to raise prices to cover their losses. Quite frankly, the U.S. based Asian auto manufacturers' management were smart to be more consistent with fuel efficiency in their vehicles than the Americans were with their emphasis on gas-guzzling SUV's. The market, which had already been strong for the Asian auto builders in America, only got stronger as the price for fuel went up. In contrast, GM, Ford, and Chrysler all lost sales for their gas-guzzlers as prices for oil hit record highs.

This problem with GM didn't just happened. Over the last 40 years they have gone from 53 percent of the domestic market to below 20 percent. Now, they are nearly in a tie with Toyota for total domestic sales. They have too many car lines with too many duplicate classes of vehicles. In comparison Toyota only has three lines in America (Toyota, Lexus, & Scion). In the year 2000, GM stock was selling at an all time high of $94 dollars a share. Since then, the decline in the stock price has been a near-perfect straight line to last week's low of $2.75. Ford has moved from a high of $38 per share in 1999 to last week's low of $1.72. Obviously, the traders in the stock market had seen the writing on the wall as early as 9 years ago; starting with Ford.

In my mind, GM and the others should be allowed to take the shock of bankruptcy. The billions of dollars in proposed Federal funding should be used to fund GM's underfunded remainder of their pension responsibilities under a Congressional Act of 2006. The Congress should, then, mandate the Federal government's Pension Benefits Guarantee Corporation (PBGC) to assume the pension responsibilities of the company. The same would be true for both Ford and Chrysler. All existing active labor contracts should considered to be negotiable; with those negotiations aimed at more reasonable health and retirement benefits and age of retirement. The plant robotics and work rules issues should also be revisited. GM, more than Ford or Chrysler, should look to slimming the number of makes and models. This will focus engineering, parts, and production on just a few lines of cars and would eliminate the redundant overlap of lines that they have today. Some workers will definitely lose their jobs. Some dealers will have to shut their doors. But, the union should look at this as a semi-blessing because the consequences of GM completely going out of business would be much more detrimental to their overall membership.

With the pension burden gone, the auto industry should be able to remake themselves and be more competitive. In the years forward, they should be able to regain market share and even hire more union labor. Our government should also spur auto sales by initiating the rebate program that I talked about in by blog entry the subject of creating jobs (See Full Story). If this is not done and the Federal money is just handed to the industry, GM will be back addressing the same "going out of business" problem of today in just a year or two from now when this money runs out and the losses are even bigger. Just mark my words.

Monday, November 17, 2008


People want Spam. They are searching for Spam. They are willing to pay for it. Spam is hot. Actually, there isn't enough Spam to go around.

Of course, the Spam I'm talking about is the lowly pig product that is sold by Hormel Foods; and, not the email crap that you and I get everyday.

Pound for pound, Spam is the most economical and the longest "shelf-lifed" meat product you can buy. When I was a kid, the standing joke was that SPAM really stood for: the "Scary Parts of Any Mammal". In reality, it is solely a pork product. It kept many a U.S. soldier alive during World War II. In many ways, it fell out of favor because of that. Returning soldiers, who lived off the stuff from breakfast to dinner, day after day, couldn't stand seeing another Spam meal. During the Great Depression, it was the poor's only affordable meat at dinner. Even then, maybe only once a week.

That brings us to today. Spam, once again, is in favor because of the recession that is now upon us. The demand is zooming (See Full Story).

Obviously, there is a direct correlation to the economic situation and the demand for Spam. In good times Spam is the forgotten meat product. In bad times, it is all Spam. Maybe the Federal Reserve should add Spam to it's list of Economic Indicators. The New York Mercantile Exchange (the "NYMEX") might consider selling Spam futures along with their current basket of futures for gold, gas, and oil. With all this demand, we could easily see a Spam bubble develop; and, ultimately, another crash at a time when our economy is already in a fragile state. It could be the Great Spam Crash of 20??. Certainly, the stock and housing markets aren't the places to park your money right now. Spam just might be that place. Large hedge funds and commodities firms could be snatching up Spam on a bet of future huge profits. Who knows? It just seems we never learn from the past. Also, there might be a more sinister reason for all the demand for this meat. Countries who might not have America's best interest at heart might be buying up Spam to further hurt our economy. Yes. That's right. It could even be Al Qaeda who is behind this shortage of Spam. We should have Congressional hearings.

Lastly. Don't forget. At times like this, Spam is the perfect Holiday gift. Think about it. At less than $2.40 for a seven ounce tin, it's cheaper than most Hallmark cards.

Sunday, November 16, 2008

A Housing Market In Crisis

I think, by now, everyone understands the problem with subprime, Adjustable Rate Mortgages and how millions have lost their homes because they can't afford the higher and higher adjustments on their mortgage payments. But, that's not the whole story.

Almost every house in this country has lost some value since the end of 2006. Depending on the locale, how inflated the market was, and when you bought your home, it is quite possible that the value of your house can be down by as much as 50 percent from its previous high. For most people, their home values have been set back to the prices that they were selling for in the beginning of 2004. Some might actually have had their home values reset to 2003, or even 2002 levels. And, this is the problem.

There are a lot of people who don't have subprime mortgages and have no problem paying off their mortgages; but they are tied to a mortgage that was based on a home that had a lot greater value. Almost automatically, these people are not frozen out of the housing market because, if they sold their home at these levels, they would have to satisfy the total amount of their loan. That means they would have to pony up, worst case, an amount equal to what they sold their house for; assuming the mortgage was set on a house that is now 50 percent less in value. Even if they paid cash for their homes, if the value of their house is less than what they paid, they are going to sell their house at a loss. Of course, those awash with money probably don't care.

The other problem with the housing industry is credit. Even if you could sell your house for a profit and could satisfy your previous loan amount, you probably won't be able to get another mortgage unless you can put big bucks down on your next home. That's because mortgage lenders are afraid in this market. They are not sure how low housing prices will fall. To give a loan, they have to make sure that they aren't going to get stuck with another distressed or undervalued property. After all, the home is the only collateral they have to cover your loan. Too many people, who left their homes in foreclosure, trashed the place in anger. This resulted in substantial losses in value. As a result, they want only the best qualified borrowers who can ante up at least 20 percent as a down payment. Further, their mortgage, along with utilities, can't exceed 25 percent of their income. Not too many people are in that category.

The other problem facing the housing market is inventory. There are just too many unsold newly-constructed homes and just too many foreclosed-on homes that have to be sold before the demand outstrips the supply. Only then will home prices start to rise again. Any buyer in today's market might be taking the risk that home prices will continue to fall even farther. That scares people away from buying a new home.

The bottom line is that the housing market is literally frozen. People who could buy aren't buying because either they can't get credit or they are afraid of buying. Many others can't buy another home because they have an upside down and inflated mortgage where they owe more than their house is worth. And, as more and more subprimes and Adjustable Rate Mortgages are reset to higher monthly payments, the amount of foreclosures will continue. Also, foreclosures will continue to rise as people lose their jobs in this recession. All this will do is flood the market with additional inventory and cause home values to fall even further. This is truly a spiraling economic downturn.

Any way you look at it, it will take years for the housing market to right itself. Probably, the least attractive job in America, right now, is the real estate agent. I am definitely concerned about the overall loss of wealth that has hit this country. It is being lost in the stock market and, for sure, in the housing market, and the virus is being spread around the world. All this because people who weren't logically qualified for a home loan were able to get them. This is really sad.

Saturday, November 15, 2008


The first Black President, Bill Clinton, was all White. The next Black President will be Barack Obama and he's half White. Someday...

Bodies Doubled

There's an old saying: "There are as many people living today as have lived and died before us." Or, in other words, there are, today, as many people who have died and are buried as there are walking this earth.

Once the human race decided to formalize the death of someone by having funerals and dedicated burial spots, it set into motion the potential that more real estate will be owned and occupied by the dead than is available for the living. We're aren't hardly there yet but, the United Kingdom has got themselves in a sticky-wicket when it comes to burying their dead. In some places, like London, they're literally out of room.

To resolve this sort-of "standing room only" problem, they're looking to "stack" their dead in a kind of "re-organization" process. For the dead person that has been chilling for more than 75 years below ground and has no known living relatives and is just taking up space, so-to-speak, it means they are eligible for new dead-in partner. It's sort of a grave-for-let system. It starts by digging up the old remains and that original hole is then deepened. Following that, the original occupant is re-buried at the new lower depth. Finally, a new stiff is slapped on top of the original occupier and the hole is all tidied back up. Hopefully, they'll both get along. Wherever they might be.

The news article that covered this (See Full Story), never really got into how the new grave will be marked. I suppose the new occupant will get top billing since either he or she is the only one left with visiting family members.

If any one has ever seen the ancient catacombs in Italy or France, they would have seen the bones of thousands of dead stacked neatly in the many cubby holes of those extensive underground labyrinths. The catacombs were a result of the poor not having the money to buy the land they needed to bury their dead; so, the wealthy of that time donated this space on their own lands (tax deductible, I'm sure.). Today, we rely on land that was previously purchased by the deceased, or by his/her family and dedicated for their burials. Those that can't afford the literal thousands that it costs to die, wind up in unmarked, publicly-funded potter's graves.

At some point in our, I hope, distant future, some kind of return to the days of the catacombs will have to occur. Albeit, not as dank. In a way, the columbaria of today are a step in that direction. Don't be surprised that at some point in the future, the cremation of the dead and the columbarium-type of storage will have to be mandated by the governments of the world's most developed cities because there will simply be no more space for dedicated burials. When that happens, rich and poor, alike, will finally achieve equality on this earth. Just mark my words. That is, if we live that long.

Image by watchsmart's photostream on Flickr with Creative Commons Licensing. All rights retained. (Click to View Other Works).

Friday, November 14, 2008

The Post Office…The Lemonade Stand…and The Paperboy

A little over 3 years ago, in a different blog, I wrote a essay that was titled the same as this one. I wrote it because the US Post Office (USPS) was then $ 2 Billion in the red and had announced a rate increase from 37 cents to 39 cents. My problem, then as now, is that the USPS has become a "cheap advertisement service" that forces it's letter carriers to visit and deliver to every single address in America; making it the most labor intensive operation in the world. This nonsense is why they're in trouble.

Despite raising rates by 14% since 2005's 37 cents to today's 42 cents, the USPS now finds itself in even deeper debt. Yesterday, it was announced that their deficit is now nearly 50% higher than it was in 2005 with the current debt being $2.8 billion dollars (See Full Story). Obviously, rate increases aren't working. In fact, as rates go up, the volume of first class mail keeps going down as people find other ways such as fax, internet, email, phone calls, etc. to accomplish their business at a lower rate. Never in the history of the USPS did they ever lay people off. Now, surprisingly, with mail volumes dropping for years, staff reductions are being considered (See Full Story). However, the union personnel will escape the real axe. Instead, they will be offered cushy retirement packages. This means the Post Office will still be paying salaries in the form of retirement pay for those pseudo-let-go employee; albeit at a somewhat lower rate.

With this in mind, I would like to reprise that essay. It has as much bearing, today, as it did then:

In January of next year, the United States Postal Service (the United States Post Office before 1970) will raise the cost of a first class stamp from 37 cents to 39 cents. In doing so, they have already announced that they will still be $2 Billion in the red.

In 1970, the Postal Service became an independent agency of the Executive Branch of the Government. This was done with the intention that they would become financially self-sufficient. Prior to this, the Post Office was a cabinet position that reported to the President, and its operations were totally funded by the United States Government.

When you were a kid, you might have had a lemonade stand. You might have sold each glass of lemonade for, say, 25 cents or whatever seemed fair at the time. However, daddy and mommy covered the cost of the stand (the table, the chairs, the tablecloth, the umbrella, the signs, the balloons, and the crepe paper decorations). They also covered the cost of the lemonade and the glasses. If you took into account all the “mommy and daddy” costs, you would hardly be able to sell lemonade at 25 cents a glass and still make a profit! In many ways, the government was the “mommy and daddy” for the Post Office when it was spun off independently in 1970.

Since 1970, the new Postal Service found itself continually operating in the red. It has been bloated with labor and equipment. While it has tried to automate, it has always come back to “rate increases” as the means to try and get itself profitable. In 1970, the first class stamp sold for 6 cents. From then until the next postage increase in January, postal rates have gone up nearly 700%. With average inflation over the same period, they should have only raised rates by 350%. So, postal rates are growing at a rate double that of inflation.

In December of 2003, the President formed a Commission to try and figure out what is “so” wrong with the Postal Service and why they can’t become profitable. I don’t think you need a commission. Just use “this” example of a paperboy.

A paperboy delivers papers to the houses that bought subscriptions for the newspapers that he delivers. The paperboy’s salary is based on how many papers that he (or she) can deliver in a set amount of time; say, two hours before school. Included in this time is how many times he has to go back and refill the saddlebags of his bike. And, chances are, he is only delivering to one out of every four houses. Anyway, he is making money.

Now, the owner of the newspaper comes to the paperboy and says that he would like him to deliver to every house on his paper route. For the houses that don’t have subscriptions, he wants the paperboy to deliver just the inserts (the advertisements) from our normal newspaper. For those non-subscription houses, the paperboy would get one-fifth what he would normally get for delivering just a newspaper. At the same time, the paperboy finds out that some of his customers are canceling their papers because costs have gone up.

What the paperboy will find out fast is that he can’t deliver newspapers to some houses and all those inserts to every other house on his old route without help. Because of the increased amount of paper he needs more trips back to fill his saddlebags. In order to cover his old route with his new responsibilities, he would need the help of six or more people because his efficiency has been drastically reduced. In short, after paying all those additional people and after losing some full-fare customers, he would find out that he is making a lot less money than he did before.

In many ways, this is what is happening to the Postal Service. They keep raising rates on first class letters while trying to keep “junk mail” rates low. People and companies are finding the cost of first class just too high. As a result, these customers find alternatives like using Electronic Bill Payment and Receipt, email, or even just a phone call to accomplish what they used to do by mail. Meanwhile, the Postal Service has built a very costly system of people, trucks, buildings and equipment that has become increasingly dedicated to delivering cheap advertisements to every single house and business in the United States! You don’t need a commission to find out what is wrong with the Postal Service. Just ask the paperboy!

Thursday, November 13, 2008

Our Sun is the Elephant in the Room

When humans get sick, they generally run a fever. From this well know reality, we, as patients under any kind of medical care, will always have our temperature taken. We know that fever is a clear symptom of illness. No one, scientifically, would ever believe that a fever is the actual cause of someone being sick.

What if the high amounts of carbon dioxide are a lot like that fever. Scientists drilling core samples all over the world are finding high levels of carbon dioxide at the times when the earth was warm. At the same time, they have found the lowest levels of carbon dioxide at times when the earth was cooler; especially at the times of the many ice ages that have gripped this earth. So, the simplistic conclusion has always been that carbon dioxide causes earth's warming and it is responsible for our Global Warming trend of today. This has been hypothesized by the concept of the "Greenhouse Effect" of high levels of carbon dioxide in the earth's atmosphere.

But, think about this. The earth emerges out of every Ice Age when carbon dioxide levels are extremely low. Similarly, the earth begins to cool at times when carbon dioxide levels are often very high. Historically, all of this cooling and heating activity occurred ages before man ever started polluting the earth. So this begs the question: Is carbon dioxide a cause or a measurable symptom? Is it like a fever?

Many dissenters against the theory that Global Warming is man made, believe that our sun is the elephant in the room that most every scientist seems to ignore. That's because they are incapable of plugging the sun's behavior into any Global Warming computer models. We just don't have any correlated historical data suggesting what the sun's lack of solar activity will do over time. However, we do know that the lack of solar activity occurred at a time of a sudden and relatively recent ice age called the Little Ice Age. That mini ice age gripped Europe and North America from 1400 to 1800 A.D. During that time, the sun entered what is called a "Maunder minimum" which is a time when there is little or no sunspot activity. In fact, we have had a similar lack of solar activity over the last two years (See Full Story). This fact, alone, has led some to predict that we are actually entering a period of earth cooling and not a period of global warming.

There are just too many contradictions to the concept of man-made global warming. Take, for example, this recent story about the decline of 90 degree plus days in Chicago (See Full Story). If there was truly a trend towards global warming, Chicago should be seeing higher highs in temperature. But it isn't. Also, other planets, not inhabited by man, are currently suffering from their own global warming (See Full Story). Since the hurricanes Rita and Katrina, the overall hurricane seasons have been relatively calm in direct contradiction to the hypothesized predictions of some global warmists. I have covered this contradictory evidence of Global Warming in a prior blog entry titled: "The Cooling Realites of Global Warming".

As I have said before, I don't deny that we "have been" in a period of global warming. The issue is whether or not we, as mere humans are (or even could be) the most important factor in that process. All of outer space is a damned cold place. If it weren't for our sun and our relative proximity to it, this earth would be one, big ice-ball. Just look at the effects of our earth's rotation. From Winter to Summer, we can have changes in our temperature as wide as 120 degrees in a year's time. So, to me, it would be illogical to assume that a less sun active won't have some major effect on this blue planet we call home. Just my opinion.

Wednesday, November 12, 2008

The Great Corporate Depression

Those who lived through theyears of the Great Depression of the 1930's remember them well. They were the soup lines. Millions of Americans were out of work, poor, and without food. The historical photographs showed the anguish and suffering as people just tried to survive.

Today, we have something akin to those soup lines. Now those lines are made up of major financial institutions and corporations of America. All standing in line before the U.S. Treasury Department with their tin cups in hand looking for a mere few billion dollars to tide their businesses over during times of trouble. The shock waves that were sent out from the sub-prime mortgage mess are bringing some of corporate America to its knees.

In many cases, the corporations that looking for the handouts are in trouble because of bad business decisions and practices and weak management. Many, like the auto industry, have been in trouble for years. The auto industry, from Chrysler to Ford and to General Motors, is now teetering on the brink of non-existence. Circuit City may never recover as competition from the likes of Best Buy and even Wal-Mart may have finally sealed its coffin. American Express, just this morning, wants their share of keep-me-afloat money from the American taxpayers. Freddie Mac and Fannie May have their heads in their hands. Then, there's the bailout of all bailouts, the insurer, AIG.

AIG is the best example of complete management stupidity. First, they took nearly a 1/3 of a trillion dollars in taxpayer money to save their butts against their previously bad business decisions. Further, they got more taxpayer benefits because they were able to benefit from the lower interest rates that had been created when those rates were slashed by our Federal Reserve Bank. Instead of being humbled and greatly embarrassed by their own stupidity in almost losing their company, they decided to look the gift horse, us, in the mouth and laugh by spending hundreds of millions of dollars in junkets to some of the most lavish resorts in the world. I guess sea air, salt water, tanned bodies, and golf are more conducive to clear thinking than the laborious and smog-filled conditions of their home base in New York. Obviously, they must think that, as long as the government is footing the bill, no hard work is necessary.

Then, of course, there's the General Motors' example of corporate governance. They apparently are burning cash at a rate of more than a billion dollars per month. They now say they will be completely out of money by the middle of next year. So, why then, just three weeks ago, were they looking for a handout from you and I so they could buyout either all or part of Chrysler. What are they smoking over at GM? Only a madman would add another failing business to their already substantial repertoire of failing businesses. It would seem to me you would want to shed yourself of unprofitable businesses and not take on more!

I think the taxpayers are owed a better handling of this mess. I think that, if companies need taxpayer funding to survive, they should agree to certain conditions. First and foremost, an interim CEO should be appointed by our Treasury Department. There should be no golden parachutes or fat severance packages for the outgoing CEO. These people are already wealthy enough and totally undeserving of anything else from a company that they helped run into the ground. A new Board of Directors should be immediately elected by a special interim proxy vote by all shareholders. The list of names for the new Board should be twice as large as needed and developed from heads of companies that are currently financially sound. The debt that is incurred from taxpayer loans should have priority of repayment once the company becomes profitable. Further, the government should have repayment priority over all other lenders should the company continue to fail and have to file for bancruptcy.

If there are no severe conditions placed on companies for the welfare they are getting, then the list of companies who need financial help will just get longer and longer. A federal bailout should be a serious situation and a company must weigh the consequences of their actions.

Tuesday, November 11, 2008

A Political Winter for the Republicans

In just two election cycles, 2006 and 2008, the Republicans lost it all. They lost control of the Congress and, now, they lost the Presidency. They had a short run at full control and proved their unworthiness. It was easy for the national news media to take aim and inflict the fatal wounds. The Democrats, too, made it look all too easy.

I now listen to all the retrospective talk about how the GOP is going to regroup and regain control. But, once a bad taste was left in the mouths of the electorate, getting them back to Republican control isn't going to happen quickly. We are truly in a political winter for the Republican party. I really don't know what they could say or do in the short term to regain the confidence of the voters. What has to happen now is what happened to the Democrats in 1994. The voters of America are going to have to get disenchanted with Democratic control before the Republicans are handed another chance. It's just that simple.

Over the next four years, everything that is bad about the Obama Presidency, rightly or wrongly, will be blamed on the prior Republican control and the former policies of the Bush Administration. For the most part, Barack Obama can falter and, short of completely falling on his face, be able to blame the past for any of his then-current problems. It is almost a fail-safe environment that he will find himself in.

I don't think the Republicans can hope to regain control in less than eight years. But, they need to stop the bleeding by thinning out their ranks of those who aren't ethical and committed to conservative causes. Those in the Republican Partly that are the likes of Jack Abramoff, Senator Ted Stevens, Larry Craig, and Duke Cunningham have to be policed-out by the Republicans, themselves, to gain the public's trust. They need to establish their own procedural rules that will show that they are not going to tolerate any appearance of being in bed with lobbyists and special interests. They need to stop their own pork-barreling practices so they get that non-conservative label and practice off their backs. Maybe that means that, to a man and to a woman, they stop putting any Republican pork in any new spending bills. They need to get back to the real philosophies of conservatism. There needs to be a message of reform; just as the message of "change" served the Democrats so well, this year. Lastly, the old leadership and the stigma that went with it has to be shed. They need new, younger leaders in the party so it looks as if they are no longer the Grand Old (and corrupt) Party (GOP) but, instead, the Grand New Party. That also means recruiting more minorities and women into the party, public office and positions of power.

The Republicans won't be able to regain control until America gets disenchanted with the policies and actions of the Democrats. Every political party loses control by overstepping and by being viewed as either inept and/or corrupt. Since 1994, the Republicans and Bush Administration have certainly proved that to be the case on numerous occasions. And, certainly, the left-leaning media in this country has taken every opportunity to exaggerate all of those missteps. Knowing this about the national media means that the Republicans must stay squeaky clean.

I think the Republicans best chance of emerging out of this political winter is in 2014. That will be a term-and-a-half of Barack Obama and at a point when the voters should be fed up with too much liberalism. Up until that point, the voters will give Barack and the Democrats a chance to prove themselves and a chance to take full responsibility for their own management of the country. It will take that long for the blame-Bush tactic to have no more meaning. I think you can count on the fact that the Democrats will over-reach their acceptable boundaries of governance and the voters will, again, decide to "throw the bums out"!

Sadly, during those next 6 years of near-complete Democratic rule, the face of this country may change substantially for the worse. But, the Republicans have only themselves to blame. And, that's just my opinion.

Monday, November 10, 2008

Lower Energy Costs: The True Stimulus Check

While Congress is talking about issuing another Stimulus Package to bail out the auto companies and extended unemployment benefits, in a perverse way, we have gotten a stimulus from the weak world economy. We have literally gone from above $4 a gallon for gasoline to below $2 in just a few months. My guess is that a near $1.50 a gallon is just around the corner.

The average American car is driven a little over 12,000 miles a year and gets about 17 miles per gallon. The average 2-car family drives a combined mileage of about 20,000 miles a year. That means that the every individual car owner is saving about $1,400 a year at $2 a gallon from the previous record high. For a 2-car family, that's a savings of over $2,350. That's just for the automobile travel. Other energy costs are falling just as quickly. That means the cost for home heating oil and natural gas is on the wane, also.

Because energy prices are so integral to almost every product of our economy, more savings could be evident; especially in food costs. More than anything, our the cost of food is driven by the cost of oil-based energy. That's because many of America's farms are so highly mechanized. From the cost to produce and deliver seed and fertilizers; to the cost of working the soil with massive farm equipment; to the cost of harvesting and delivering the product to the final food processor; to the cost of processing that food and finally delivering it to market; petroleum-based energy is a major expense. Depending on the final food product, energy costs could contribute anywhere from 20% to 50% of the price.

The upside of this weak, world economy is the lowering of costs in almost everything that we consume due to the lack of demand. The average family could be seeing as much as $5,000 a year in savings when all prices finally settle out. That's more than our government, with any stimulus check, could do to kick-start our economy. In many ways, it is the law of supply and demand that will help heal this economy. All these buyouts and bailouts are only short-term and stop-gap measures. It's when the consumer buys more products, because they have more excess cash and prices are low, that this country and the world will right itself from recession. The near trillion dollars that our government is currently planning to spend to bail out our economy, pales in comparison to the near $8 trillion in value that has been lost in our own stock market since October of 2007. I use the stock market value because, in a way, it is an expression of value of most major U.S. companies at any one point in time. Over-and-above that, you have several thousand small businesses that have been equally hurt. Homes across America have lost more than 30 percent of their value. Additionally, the average home price has fallen by at least $75,000 on the roughly 100 million American homes. As a result, our overall economy may have lost as much as $16 trillion in measurable value in the last year.

I really think that rising oil prices exacerbated the subprime loan situation in America. If energy prices had been kept low, many of those who were seeing higher annual costs for their Adjustable Rate Mortgages, previously at subprime levels, might have been able to cope and the rate of foreclosure could have been minimized. But the cost of rising gasoline, home energy and food prices, coupled with the higher cost of mortgages, was just too much for the many who lost their homes and defaulted on the credit they were give. I think our politicians should take that fact to heart when laying out any new plans for energy supplies in America. Placing restrictions on oil production, the use of coal and natural gas, and the blind intolerance of new nuclear plants is just delaying the possibility of more and more foreclosures and the substantial return of economic distress in the future.

I realize that, with oil prices down more than half, the immediacy of action by our government on energy supplies has been, once again, shelved. However, now is the time that we should be pushing for more domestic oil production before the reality of the world's oil shortages hits us once again. Just like Katrina and New Orleans, the consequences of not acting before the storm actually hits is just delaying immeasurable human and economic costs. The lower energy prices will help our society to recover from the recession. However, once our economy gets rolling again, consumption without increased supplies will only result in high gasoline, heating, and food prices. And just like this year, those who are only marginally living in their homes, will face the consequences of foreclosures. Just mark my words.

Sunday, November 9, 2008

Waiting to get their share of an Obama Administration

Every President comes to office with a debt owed to the people who got him there. Despite all that Obama campaign talk about a "new kind of Washington," Mr. Obama, more than any other previous President, is up to his eyeballs in payback to support groups; primarily by virtue of all the money that was raised for him. The list is long and all of those supports are going to want their "piece" of the new Obama Administration.

Just a few days ago, said they personally got Mr. Obama $88 million in direct and indirect campaign funding (See Full Story). Besides Barack's campaign, their are a lot of other Democrats in Congress that are also beholding to Then, there is the Funder-In-Chief, the billionaire left-wing progressive, Mr. George Soros, who has given millions to and a bunch of other left-wing organizations that got Mr. Obama into office. Mr. Soros has a lot of pro-socialist ideas that his money might force Mr. Obama to listen to. Also, I am sure the followers of the far left website, the Daily KOS, are going to want their pound of flesh from our new President. Of course, there's ACORN. ACORN probably got Barack and the Democrats over 2 million new voters across America; both legal and otherwise. Let's not forget the labor unions like the AFL-CIO, SEIU, NEA, UAW, and the Firefighters. Their membership gave both money and time to the Obama campaign. For sure, Obama will become the "environmental" President as he tries to satisfy the demands of groups like Greenpeace, the Sierra Club, and a host of others. Lastly, but not hardly the least of the long list of lefty givers who Obama is beholding to, are the Pro-Choice groups like NOW (National Organization of Women), NARAL Pro-Choice America, and Planned Parenthood that gave both time and money as well as TV/radio advertising.

Even Barack's kids are getting some kind of payback. They're getting a dog and, probably, an assigned Secret Service agent who will have the sop-up, pick-up, and clean-up responsibilities; over and above just watching the kids. (As a side note: It will be interesting to see what kind of dog they do wind up with. It, in itself, might be an insight into the Obama psyche. Will it be a complacent Labrador or Golden Retriever? Will they buy an aggressive breed like a Doberman, German Shepherd, or Pit Bull? Or, will they get some passive little fluffy thing that yaps a lot and runs for the hills when threatened. My guess? The latter!)

For sure, MoveOn, Soros, and the Daily KOS are going to want us out of Iraq at a speed that is faster than the Obama-advertised 16 month plan. Expect Pelosi/Reid to push the withdrawal by handing Obama a no-Iraq-funding or immediate withdrawal bill. The test of Mr. Obama's mettle is whether he will back down from those demands.

The labor unions are going to want their share. The card check system that would abandon secret balloting for unionization is top on their list. The shudown of any new free trade agreements will be expected. They would definitely want a rework of NAFTA. The abandonment of "No Child Left Behind" and testing is high on the Obama-to-do for the teachers unions. Also, a push to higher pay for teachers is always the perennial hope of the teachers. A lot of groups want gun control. Some groups, like the Daily KOS, would want a retrospective faux-impeachment of Bush. A lot of those groups would like to see gun-ban legislation. Expect "cap and trade" and carbon offsets as well as a push for green energy policies to please the environmental groups.

There will be a lot of politically left ideas in this President's bag of directions for this country. Almost every one of them will be done to please those who helped him. If he balks or doesn't fullfill their wishes, they will turn on him faster than an uncaged lion. Nancy Pelosi and Harry Reid know this and they will be "all that they can be - left" to get keep the support and money flowing into the Democrats and their party.

Saturday, November 8, 2008

The Double-Talk and All-Talk Obama News Conference

If you watched Mr. Obama's first post-election news conference, you probably heard a lot of words about all of our problems but no real solutions. He called the economic situation a priority for his administration and that we need to act quickly. However, as he continued, he clearly said that we only have one President in this country at a time. Consequently, he implied, without really saying it, that he wouldn't do anything until he gets into office. Where's the priority? Where's the we need to act quickly?

When he said "America is a strong and resilient country" he sort of implied that America can almost fix itself. Apparently, he must feel that the "fundamentals" are strong. Something he slammed John McCain for saying during the campaign trail.

Apparently, Mr. Obama thinks his hands are tied right now. He could have come out and said that he has begun working with the leaders of Congress (both right and left) and the President to try and get something done right now. At the very least, he could have called for a lame-duck session of Congress to convene and have bills written and on his desk the day he parks his you-know-what in the Oval Office. However, that message wasn't in his little I've-really-never-left-the-campaign-trail and don't-try-to-pin-me-down news conference of yesterday. I guess that news conference was another typical example of his voting "present" and not taking a hard stand. He wouldn't even answer a question from a reporter as to whether or not he will still proceed with raising taxes on wage earners above $250,000.

(Click to see full report on his news conference).

The most we got out of his little presser is that one of his daughters is allergic and, so, they will be getting a hypoallergenic dog. Also, he managed to slam the very old and hip-injured Nancy Reagan with a rather cheap seance comment about conferring with "living" Presidents and not dead ones. From giving Hillary the finger, to calling a reporter "sweetie", to his really-wasn't-talking-about-Sarah-Palin comment about lipstick on a pig, to yesterday's remark about Nancy Reagan, you really have to wonder about this guy's problem with women. There's just too many cheap shots coming from him to be a coincidence. The fact that he stomped on Hillary Clinton every time he had a primary win by not allowing her a concession speech before he gave his victory speech was another example. Also, let's not forget throwing his now-dead Grandma under the bus when he called her a "typical white person." Fortunately, this time, he had the sense to call Nancy Reagan and apologize.

Joe Biden recently said that Mr. Obama will be tested and that we will see that this guy has a "spine made of metal". OK. I believe that when I see it. His life has been riddled with not really taking a stand on anything. When things are tough, he has a history of turning into J-E-L-L-O. He's thrown so many people under the bus during this campaign that the buses wheels are now off the ground. That's because he doesn't have the spine to defend his long time relationships (even though they all were truly questionable people and, in theory, indefensible as a future President of the United States).

Besides the economic situation, he made no mention of the brewing problems on the international front. There was a little talk about Iran's Ahmadinejad and the letter of congrats that he sent to Obama. Beyond that, there was no mention of the recent threats by Russia to line up it's European borders with offensive nukes and to electronically jam any installed missile defense systems to be installed in eastern Europe. No mention of Iran's threat to shoot down any aircraft over it's territory. No mention of Pakistan's threats against any further incursions.

I think it will be an interesting 4 years. Of what, I don't know. That's because the true "what" is the Obama we still don't know and may never get to know.

Friday, November 7, 2008

How To Create Jobs

With this morning's newly announced 6.5% unemployment rate, it appears that the economy is accelerating to the downside (See Full Story). Almost a million workers have lost their jobs since January.

One critical statistic in trying to stimulate job growth is that the fact that almost 1 in every 10 jobs in this country is somehow connected to the automobile industry. That says to me we need to do something for the drowning U.S. auto makers before they can't breathe any longer. This is where the real gains are to be made in this economy. Forget about infrastructure and energy spending to stimulate the economy. We need to stimulate the auto industry. To do this, I think a program that gives a Federal rebate check should be established. The check should be in the amount of eight or ten percent of the car's sticker price, the MSRP. It would be issued to anyone buying a new, American-made, high-mileage car. This should not be some kind of tax deduction scheme. You want that rebate check in the hands of the auto buyer as quickly as possible. Additionally, the government could work with credit agencies to provide easier credit for their autoloans. After all, it is the seize up in credit that is really putting a crunch on an already-weak economy and auto industry.

The reason that a rebate check and not a tax deduction is important is because it actually serves four purposes. First, it immediately draws people in to buy a new car. A tax deduction, services to delay their buying intentions until the last tax applicable minute; like late December. Next, because the check is assigned as a percentage of the MSRP and not some flat-rebate amount, it will drive consumers to buy higher and not arbitrarily drive them to buy the cheapest thing on the lot. Then, because it is assigned to fuel efficiency, it will help lower the demand for gasoline and, subsequently, help keep gasoline prices lower. Lastly, that money in the hands of those car buyers will probably come back into the economy in the form of new consumer spending. That spending is essential for industries other than the automakers to survive this recession. The horrible retail sales numbers of yesterday proved that we need more consumer activity and that cash rebate check could do that (See Full Story).

Because of the multiple effects of a rebate check, it could, literally, be a win, win, win, and win situation. Just my opinion.

Wednesday, November 5, 2008

No "Hope" in the Stock Market's Reaction

This morning, following the Obama win, the stock market (the "Dow Jones Industrial Average") is down around 300 points and has all but wiped out nearly all of yesterday's rally. Sure, you can point to some bad economic news this morning in the ADP jobs report (See Full Story) for the fall in the Dow but, the stock market tends to deal in the future direction of our economy. Many who are market savvy will tell you that the market looks ahead by 6 to 9 months.

If the election of Barack Obama was truly a 'hope" for better things to come, then, the stock market sure isn't showing it. Certainly, any "hope" would have trumped that poor jobs report. But, it didn't. The stock market is repeating what it has been saying for the last few weeks and that is that Barack Obama's policies are bad for the economy. There is no way that higher taxes on corporations, small businesses, and venture capitalists is going to be beneficial for business growth in America. For sure, foreign companies (our competition; both here and abroad) won't be taxed by Obama. The business community will have to pay for and pass on the increased costs for those taxes, mandated healthcare, and broader unionization. That will just make their prices higher and make them less competitive. Our tax cuts will be short-lived due to high prices that we will pay. That is, only if we buy American. As I said before, there are no free rides!

Tuesday, November 4, 2008

Election Day Thoughts

Well, I voted, and I sincerely hope you voted too. Hopefully, just once. The last thing we need is a repeat of The Night of the Living Dead on election day. Of course that may be the case in Barack Obama's hometown of Chicago. In fact, every time I heard him ask his supporters to vote early, that old Chicago saying of "vote early and often" would come to mind. On Chicago election days, "I see dead people" is more than just a tag line from a movie.

It seems like this was the longest campaign ever. Now there will be no more talk and only our votes will determine the winner. All indications are that we will have the first black man as our President. That will be historically significant. But, win or lose, let's not forget that for Barack Obama to even get to this point is, by itself, historically significant. Sarah Palin brings history with her too, in being the first woman V.P. pick for the Republicans. My guess is that Sarah Palin, herself, may have a future shot at the top office.

Whoever wins, that person will be "our" President. It doesn't matter if you agree or don't agree with his policies. Every four years, the policies of the current President are always going to be at least somewhat disagreeable to nearly half of the population. But we should always keep in mind,
that if we don't like what is happening, it is our votes, in two short years, that can address those issues. You can easily send the current President a message by voting out his affiliated Congress members. Then, that President and his political party will understand. It happened when Bush lost Republican control of this last Congress.

If Barack Obama wins, I expect to be a voice of opposition to the policies of his that I disagree with. Everyone can be that voice by telling their elected representatives what they think on specific issues. Even if McCain wins, I expect to be in opposition to some of his policies as well. Some of his past efforts were not worthy of anyone's glowing praise. McCain/Feingold comes to mind as one example.

Regardless of the outcome. I don't see myself writing in this blog as often, but, we'll have to see. Personally, I am glad this process is over. I would hope that campaign funding gets re-addressed so that we don't have this kind of lopsided spending by one candidate over another and over his/her primary opponents. Between McCain and Obama, nearly a billion dollars will have been spent on this endeavor, with nearly two-thirds having been spent by one candidate. That is just too much money. There's got to be a fairer way to run an election.

So today commemorates an ending, and at the same time, a new beginning. Either way it promises to be an interesting next 4 years.

Monday, November 3, 2008

The Obama Inflation Machine

Inflation is the most worrisome disease that can hit any country's economy. It can seriously devalue that nation's currency and literally destroy the purchasing power of the poor, and those on fixed incomes. In the world of active employment, salaries always lag behind any inflated costs for goods and services; especially for essentials such as food and clothing. And, as usual, it is always the poor who are the biggest losers when inflation spirals out of control.

I've said before that I am not an economist. But I did study economics in college. I have seen its practical application in both business and in our economy. One thing I do know is that if you overstimulate demand for a scarce commodity, you will see prices rise. That's part of the basic economic principal behind the Law of Supply And Demand. I also know that businesses and corporations don't have a pile of money that they leave sitting around; waiting for the government to collect it, due to the latest tax plan. Any excess money is generally used to expand the business, which typically means hiring more people. Further, any business gets its income from selling things. Ultimately, they will offset any higher costs, like new taxes, by passing those higher costs on to you and I in the form of higher prices. If, because of overseas competition, they are unable to pass their increased costs along, they will have to reduce expenses, and that usually means that people will get laid off or may lose their jobs completely.

This is why I am concerned about Mr. Obama's tax, regulation, and spending plans. It makes no sense to give each person a $500 tax credit when your policies will cost them one or two thousand dollars more per year for the products and services they need to buy. This is especially true for the poor, and for those of low and fixed incomes. Based on Mr. Obama's expressed policies, I see serious (society affecting) inflation ahead of us. Here are the areas I see being hard hit:

1. Healthcare Costs.

Right now, there are about 46 million uninsured in this country, or about twenty percent of our population. Both John McCain and Barack Obama want to provide full healthcare insurance for Americans. However, the Obama plan is more coercive and government dependent than that of John McCain. The problem with either plan (but more so with the Obama plan, which appears to extend government healthcare coverage to illegal aliens) is that you are going to throw 46 million newly insured at our health system. Assuming that the current system is based on providing primary and secondary care for about 250 million people, that it is a lot of new demand that will be placed on the current providers of healthcare. To complicate the demand scenario, there is a push for preventative care; especially by Barack Obama. This fact, alone, will increase the frequency of doctor's visits and that will place a whole lot of demand on an already overtaxed primary care system. The bottom line? Demand will totally outstrip the supply of healthcare. Prices can only go up, and the lines will only get longer for any and all healthcare services; from doctor's visits to hospital care. You only have to look to the U.K. and Canada to know this to be true.

2. College Education Costs.

Obama wants to make college more affordable. This is because the cost of higher education is spiraling out of control. The reason is that we have too many students (too much demand) for the available education in this country (the supply). As long as colleges and universities can keep turning away students in the first year, costs will continue to go up at a rate that is faster than inflation because the demand is just too high. Now, Obama wants to place even more demand on the system by making college education more affordable through his new, $4000 tax credit. This is insanity. If we want more affordable higher education in this country, the focus should be on broadening the availability of colleges and universities to increase the supply. To address the student as the driver of the problem is simply foolish economics. It is truly the tail wagging the dog.

3. Energy Costs

Like the rest of the Democrats, Barack Obama will exclusively focus on using wind and solar for our future energy needs. Even though he has loosely "implied" that he might drill for oil, don't even expect that to be the case if he gets into office. He plans to spend $150 billion over the next 10 years to implement wind and solar systems. That's $15 billion a year. But, this is a complete ruse. To the uninformed, that sounds like a lot of money. But, to put that number into perspective, our largest of 6 major oil companies, Exxon-Mobil, will expend 30 times that $15 billion in a single year to bring their share of oil products to market. In essence, Barack Obama's plan is like trying to kill a dinosaur with a flyswatter. Further, the only purpose of solar and wind is to replace our current domestic production of electricity. That production, for the most part, is being cheaply and primarily produced from domestic coal and domestic natural gas and some nuclear energy. Oil and gasoline are not even being addressed by Obama's plan. Wind and solar's only purpose is to reduce the effects of global warming and to satisfy his special interest group, the environmentalists/global warmists. It isn't to make energy cheaper for America. If it was, wind and solar would be cropping up all over this country on its own.

While Obama fiddles with solar and wind, the true energy reality of this country is that we have over 200 million vehicles (cars, trucks, buses, boats, and airplanes) that need oil-based fuels to operate. With an "average" age of over 9 years, those vehicles aren't going to go away anytime soon, and new oil-dependent cars are rolling off the assembly line everyday, and will continue to for many years to come. We are losing 2 percent or more of our domestic oil supply every year. It is a scarce commodity, and we need to make it survive. If you put it all together, Mr. Obama will do nothing but dramatically increase our energy costs in the future. The only reason costs have come down now is because of the possible economic downturn. Once that is over, expect prices to skyrocket because the needed supply to meet the demand won't be there.

4. All Other Domestic Product and Service Costs

For most any American business, Mr. Obama's plans for protectionism, increased taxes, mandated healthcare, and the ease of unionization, will, at the very least, just drive prices for goods and services through the roof. To pay for all this, companies will just raise prices and you and I will be the ultimate footers-of-the-bill for Obama's new policies. Worst case, we could see the end of some American businesses. That end could easily come to those who are already struggling against foreign competition, and who are unable to raise prices in the face of the new Obama policies.

Take for example increasing taxes on businesses. When taxes are applied across the board, there is a rollup effect. That's because 99.9 percent of all businesses rely on other businesses to exist. Every business has suppliers and subcontractors that they utilize to conduct their own operations. Those suppliers could be as simple as a pencil manufacture. And, often, those suppliers and those subcontractors have their own suppliers and subcontractors that they depend on. When taxes are applied, and prices increased, those costs have to be passed on. They are compounded all along the supply chain. A business will not only have to raise prices for its own increased tax burden; but it will also have to raise prices to compensate for the increased costs that are being passed on to it by a supplier who is compensating for its own increase in taxes. There ain't no Santa Claus in this process.

The same compounding effect will take place when a small business is now forced to provide healthcare insurance to all of its employees. That new cost could be rather high. Further, unionization could seriously result in higher salaries being paid. Put it all together and many businesses will have no other choice but to raise prices in order to compensate for higher taxes, higher salaries, and high healthcare insurance costs.

Even Mr. Obama's plan to increase income taxes and apply FICA to those making more than $250,000 a year will have an inflationary effect. Someone making that amount of money will see their income reduced by at least $33,000 a year under his plan. That's a lot of money. As a result, you can expect those people to look to replace that lost income by either demanding a higher salary, or by looking for a higher paying job elsewhere. These people are getting a salary above $250,000 because they have a high value to a company, and because they would have a high value to any other interested companies. This could result in high prices being passed on to you and I. If prices cannot be raised, then some "lower salaried" employees could lose their jobs to compensate for the higher salaried personnel getting raises.

There is no free ride. All these promises of 95 percent of Americans paying less tax under an Obama administration are just more smoke and mirrors. You and I will pay, and we will pay heavily for all those who think they're getting a free ride. Mr. Obama has two different sized hands. The small hand is the one you see, and that's the one giving you the hand out of lower taxes, free healthcare, or a government check in the mail. The other hand, the big one that you can't see, will be the one that's in your wallet when inflation exceeds any benefit or payout that you thought you were getting from this guy. Mark my words!