The only problem for Obama and Romney: Ron Paul already is that champion.
It is the middle class that casts the votes but it is the special interests that finance the increasingly expensive election process. Who has more influence, the voters or the narrow agenda driven special interests who finance elections?
In 1970, the average congressional campaign cost about $52,000. In 2010, it was more than 25 times that, $1.3 million. The approval rating of congress is at an all time low just as they are getting ready to spend more money than ever. Is this just going to go on this way or is something about to change?
Ron Paul is now ahead in the polls in Iowa. Ignored by the media and having little money, Paul is about to rewrite the story of the 2012 presidential election. What is that story?
I think it has everything to do with a rebellion against the pay for access politics that has been looting the middle class for years now. Whether it is commercial or ideological, well financed interest groups come first when policy is being made and result of this is evident in the deeply entrenched problems facing America today. Paul's antagonism against the Federal Reserve is also relevant to the crisis we are in now. It was the Fed's policy of backing the financial leverage that created the capital to finance both the internet and housing bubbles which define the historic mistakes made over past 13 years.
At the core of our deficits are out of control basic costs. K-12 education costs a lot more in the US than any other developed country except for Switzerland. Top ranked in spending on education, America is bottom to middle ranked in achievement, American students rank 24th in literacy and below average in math and science. We have a very unproductive education system and a highly politicized one that has been taken over by special interests and is a product of our political system.
Our health care system is also a product of the politicians. It cost about twice as much per person to run as other developed countries and has below average health outcomes. Ballooning health care costs are at the center of our national, state and local budget crises and a big reason that unemployment is so high because employers, small businesses mostly, can't afford it.
Military spending, infrastructure and administration are not run on a shoe string. It costs much much more in America to get things done because interest groups bend every policy to their benefit.
So here we are. Just maybe the guy who is going to be elected in 2012 will be the guy who the middle class believes will put us right. Enabling the middle class means lowering the cost of government and health care. It means expecting a better educated student at a lower cost. It means an America that can be the best once again. It will also mean the end of outsourcing, a rollback in executive compensation at publicly held corporations and a more energy efficient America.
It also means middle class entrepreneurs can proper and employ people. Not many people know that the jobs problem we have this year has much to do with outsourcing. It is small and medium sized business who are creating jobs. Big companies have added very few jobs to the economy. They are still shipping jobs overseas.
At the end of the day, America is about a middle class that is succeeding. The rich will take care of themselves so we shouldn't worry about them. Rather than institutionalized poverty, the poor need a growing middle class they can aspire to become a part of. If the middle class is advantaged, the poor can rise up to it and the productive capacity and spirit of the nation will increase.
Really, what is good for America's middle class is what is good for America. Politicians who adopt that slogan will do well in the next election cycle.
One can hope that Obama and or Romney figure out this message, but in the meantime we have Ron Paul, the spoiler, to shake things up and he is going to do just that. Watch the media deny and discredit Paul until the votes in Iowa and then New Hampshire come in. Then the issues in this election will come closer to addressing what is really bugging Americans.
(This article's intent is to point out how the core issue of the election is enabling the middle class, remove structural impediments like unfair trade with China and cost overruns like health and education, and finally using America's productive capacity to turn things around. I agree with Paul that government needs to downsize if the country is to proper in the future. I am not endorsing any candidate, however.)
Wednesday, December 21, 2011
Saturday, October 15, 2011
Politicians and Vested Interests Block Economic Recovery
Can we fix this broken economy? What needs fixing and what is the prognosis.
In the economic crisis of the 1930's, FDR could put people to work building public infrastructure within just a few months of making the decision. Out of work men were employed at low labor rates building roads, bridges and public spaces. Today, you can't build infrastructure like that. Mandatory high union wages, permitting delays, lawsuits and bloated government stand in the way. Stimulating the economy by financing construction programs have yielded little for the investment. It is the vested interests that pay for political campaigns that are put before the public interest and the economy suffers.
You can't export your way out of this mess because trade negotiators have caved to China's strategy of conquering global markets systematically. Whether it is their willingness to exploit their people, ruin their environment or steal patents and designs or subsidize industries to enable them to overwhelm foreign competition. China also won't trade fair. Foreign companies are not allowed free access to Chinese markets. China is dead set to take markets from developed countries. Washington is impotent in the face of such a determined effort to take our hard earned advantages away.
You can't increase employment if large companies in the US continue to replace workers here with workers in Asia. There has been virtually zero increase in hiring by large companies this year. The entire gain in jobs can be attributed to mid and small size companies. Washington will say nothing about this. Big companies are their sponsors.
An economy that pays too much for health care is going to go bankrupt and isn't globally competitive. The US pays twice as much as other developed countries and has worse health statistics. You can't change that when politicians obfuscate the issues in favor of the interests that finance their election campaigns. The trial attorneys, the for profit practitioners, the drug companies that get their highest profit margins in the US and the unions get first consideration in policy making and are among the biggest campaign contributors in America. Health care costs are sapping government budgets and hurting employment. This is probably the most under appreciated economic issue in the country.
The Democratic Party's largest contributors are the Teachers' unions. With the policy makers on the hook to the teachers, is it any wonder we have the most expensive public education system in the world and the one that provides the very worst performance for dollars spent? Employers are complaining, graduates are not well prepared to work and don't have the necessary skills. Despite spending vast sums, drop out rates are outrageous. Outcomes don't matter to policy makers or the unions, but the market place does care and the US is suffering as a result.
The US can't isolate itself from the political problems of the world. So when you consider that foreign military ventures are "Diplomacy by other means", you realize that we are blowing an awful lot of money. We should ask ourselves, can't we be achieving more by improving our spies on the ground, our diplomatic skills and capabilities and cheap soft dollar endeavors economic development projects like health and education assistance abroad. One single F-16 squadron on operations for 2 -3 months will cost more than a whole year of soft diplomacy for an entire developing country. Which is smarter? Which creates the most good will? Which can we afford? Our military entanglements have been mismanaged by the politicians. The goals have been off the mark and the stories peddled to the American public have been disingenuous about the real costs of war.
In the economic crisis of the 1930's, FDR could put people to work building public infrastructure within just a few months of making the decision. Out of work men were employed at low labor rates building roads, bridges and public spaces. Today, you can't build infrastructure like that. Mandatory high union wages, permitting delays, lawsuits and bloated government stand in the way. Stimulating the economy by financing construction programs have yielded little for the investment. It is the vested interests that pay for political campaigns that are put before the public interest and the economy suffers.
You can't export your way out of this mess because trade negotiators have caved to China's strategy of conquering global markets systematically. Whether it is their willingness to exploit their people, ruin their environment or steal patents and designs or subsidize industries to enable them to overwhelm foreign competition. China also won't trade fair. Foreign companies are not allowed free access to Chinese markets. China is dead set to take markets from developed countries. Washington is impotent in the face of such a determined effort to take our hard earned advantages away.
You can't increase employment if large companies in the US continue to replace workers here with workers in Asia. There has been virtually zero increase in hiring by large companies this year. The entire gain in jobs can be attributed to mid and small size companies. Washington will say nothing about this. Big companies are their sponsors.
An economy that pays too much for health care is going to go bankrupt and isn't globally competitive. The US pays twice as much as other developed countries and has worse health statistics. You can't change that when politicians obfuscate the issues in favor of the interests that finance their election campaigns. The trial attorneys, the for profit practitioners, the drug companies that get their highest profit margins in the US and the unions get first consideration in policy making and are among the biggest campaign contributors in America. Health care costs are sapping government budgets and hurting employment. This is probably the most under appreciated economic issue in the country.
The Democratic Party's largest contributors are the Teachers' unions. With the policy makers on the hook to the teachers, is it any wonder we have the most expensive public education system in the world and the one that provides the very worst performance for dollars spent? Employers are complaining, graduates are not well prepared to work and don't have the necessary skills. Despite spending vast sums, drop out rates are outrageous. Outcomes don't matter to policy makers or the unions, but the market place does care and the US is suffering as a result.
The US can't isolate itself from the political problems of the world. So when you consider that foreign military ventures are "Diplomacy by other means", you realize that we are blowing an awful lot of money. We should ask ourselves, can't we be achieving more by improving our spies on the ground, our diplomatic skills and capabilities and cheap soft dollar endeavors economic development projects like health and education assistance abroad. One single F-16 squadron on operations for 2 -3 months will cost more than a whole year of soft diplomacy for an entire developing country. Which is smarter? Which creates the most good will? Which can we afford? Our military entanglements have been mismanaged by the politicians. The goals have been off the mark and the stories peddled to the American public have been disingenuous about the real costs of war.
Wednesday, September 21, 2011
Fed Adds More Stimulus. Why This Matters to You
QE1 and QE2 may have been great ships, but it will be written of this economic crisis that those terms referred to Federal Reserve policies that created cheap money in unprecedented ways. QE2 ended this past June with mixed reviews, but now headlines abroad and confidence eroding measures mostly created by politicians here have contributed to a softening in the economy. The Fed has observed that no other branch of government seems able to make a positive contribution to the economy's dilemma at this time, and felt they had to follow on with a new program.
The Fed announced today a program to push down long term interest rates even further than the near record lows they are today. Look forward to a chance to refinance your mortgage and maybe other debts once again in the future.
Reason I it is important to you:
Are 2.5% 15 year mortgages a possibility? In this era of amazing events and unheard of numbers, probably.
Reason II:
America and Its Political Leaders Have to Fix the Economy From Here
This really marks about the limit of the Fed's abilities to substantially help the economy. The President and Congress control spending, taxes and policies that govern the economy. It is time to expect them to understand the problem and fix it.
Unfortunately, partisan slogans don't add up to substance and that is what is needed. This is going to take a while and in the meantime the USA is going to be held hostage, so to speak, by the political class who have shown themselves adept at only one thing. Getting Elected.
The Political Debate about Spending or Not Spending is Wasting Time.
Six Issues Only Congress and the President Can Fix.
-Health Care Costs in the US are about $1 Trillion higher than they should be killing job growth and public sector budgets.
-China has conspired and largely succeeded in stealing our industrial base and accumulating our wealth through unfair trade. Thanks for the incompetence Federal trade regulators and Congress.
- Tax policies have to be simplified and streamlined, closing loopholes, while tax breaks for the very wealthy have to be justified in terms of the national interest or closed now.
-Stock and Capital market activities have to be regulated so they benefit the small investor first the formation of capital for productive investment. Amazing how influence money has warped this issue.
- Public education in the US is the most highly funded in the world. The outcomes for that investment is pretty miserable with kids leaving high school with inadequate skills to find a job outside of retail services. Trade schools, discipline, expectations, behavior contracts, school uniforms, teacher merit evaluations and most of all parent accountability are going to have to be put in place.
- A new energy infrastructure will lower our fuel consumption, increase domestic production, create jobs and lower imports. Extremists and political cronies of the left and right, should be shown the door from policy making.
The US can do these things and would thrive if it did. Bernanke can't do it for us though, we have to demand it of our political leadership.
The Fed announced today a program to push down long term interest rates even further than the near record lows they are today. Look forward to a chance to refinance your mortgage and maybe other debts once again in the future.
Reason I it is important to you:
Are 2.5% 15 year mortgages a possibility? In this era of amazing events and unheard of numbers, probably.
Reason II:
America and Its Political Leaders Have to Fix the Economy From Here
This really marks about the limit of the Fed's abilities to substantially help the economy. The President and Congress control spending, taxes and policies that govern the economy. It is time to expect them to understand the problem and fix it.
Unfortunately, partisan slogans don't add up to substance and that is what is needed. This is going to take a while and in the meantime the USA is going to be held hostage, so to speak, by the political class who have shown themselves adept at only one thing. Getting Elected.
The Political Debate about Spending or Not Spending is Wasting Time.
Six Issues Only Congress and the President Can Fix.
-Health Care Costs in the US are about $1 Trillion higher than they should be killing job growth and public sector budgets.
-China has conspired and largely succeeded in stealing our industrial base and accumulating our wealth through unfair trade. Thanks for the incompetence Federal trade regulators and Congress.
- Tax policies have to be simplified and streamlined, closing loopholes, while tax breaks for the very wealthy have to be justified in terms of the national interest or closed now.
-Stock and Capital market activities have to be regulated so they benefit the small investor first the formation of capital for productive investment. Amazing how influence money has warped this issue.
- Public education in the US is the most highly funded in the world. The outcomes for that investment is pretty miserable with kids leaving high school with inadequate skills to find a job outside of retail services. Trade schools, discipline, expectations, behavior contracts, school uniforms, teacher merit evaluations and most of all parent accountability are going to have to be put in place.
- A new energy infrastructure will lower our fuel consumption, increase domestic production, create jobs and lower imports. Extremists and political cronies of the left and right, should be shown the door from policy making.
The US can do these things and would thrive if it did. Bernanke can't do it for us though, we have to demand it of our political leadership.
Wednesday, August 31, 2011
What's Making Money This Year and Why
Since May, it is has come to feel like the stock market is a bad place to be, yet it is only down about 3 percent for 2011 as of this writing.
In this environment of malaise and weak confidence, what has made quite a bit of money are investments that benefit from fear and discouragement. Gold is up over 26% this year and long term bonds are up a lot too, as much as 18% or more. Cash levels are also very very high amongst investors and companies as they stand aside waiting and watching.
It feels worse for two reasons. It was down almost 20% at one point from the spring high. That's a big correction and makes it feel worse than it is. The second reason is, you like many other people who are concerned about business, probably feel a little bad. You don't feel as confident about the economy and suspect our leadership doesn't have a handle on it. Even worse, it is reasonable to suspect some might be happy for things to go bad just to gain a political advantage.
There's also a third reason it seems worse than it is. The market isn't trading well. The price moves are very exaggerated and for that we can thank the computer driven trading models that make up more than half the daily turn in stocks and serve to increase the disorder in the market on down days. Yes they are manipulating the markets for their own benefits. I wonder why the regulator, the SEC, has permitted it?
In this environment of malaise and weak confidence, what has made quite a bit of money are investments that benefit from fear and discouragement. Gold is up over 26% this year and long term bonds are up a lot too, as much as 18% or more. Cash levels are also very very high amongst investors and companies as they stand aside waiting and watching.
Real problems, real bad leaders and market manipulators are stalking our portfolios this year. That is the truth of it, but some types of investments have worked and in a properly diversified portfolio have added return.
Thursday, July 28, 2011
Washington's Assault on Confidence Worsens the Economy
Don't Get Too Bearish Though - Everybody Else Already Is
When gas prices hit $4 this spring, it was predictable the economy's rate of growth would soften, but when politicians needlessly pushed our financial system towards the brink of a crash just to get their disfunctional club to the negotiating table, the first casualty is confidence.
There is so much money in this country on the sidelines. Financing is cheap. There is alot of demand building for home upgrades, goods, autos etc. But investment is deferred because it isn't easy to take a risk now. The responsibility for this is our out of touch leadership in Washington; those who know how to win elections, but dont' know how to govern.
We all feel this fading outlook, but the loss of confidence is also showing up in the economic statistics. Consumer confidence took a huge dip 2 weeks ago. Orders for durable goods took a dip this week and business owners I work with, are not seeing the business they would like to see lately. The timing for this Washington contrived crisis is needless and badly timed. If Obama and Boehner would instill confidence and progress towards solving our problems, this economy would be doing well.
What do they know, these politicians? They know how to get elected to and serve the money interests that get them into office. Whether it is an ideological interest or an economic interest group, these Republicans and Democrats will sell out their country's interest to take care of their sponsors first.
What don't they know? They dont' know that America is great when the average person can work hard to better themselves. America isnt' great because of entitlements, or the rich or those who hold elected office and think this is a golden goose.
These politicians don't know that they are responsible to solve problems that are theirs to solve. They have abdicated their responsibility time and time again in the interest of being reelected. Witness our debts, our costly and broken health and education systems, our decaying, expensive and energy intensive infrastructure. Our unfocused unbelievably expensive foreign wars. Idiot, unqualified politicians are behind all of it and they do nothing about it.
When will we take the influence of money out of our elections and policy making and get able and qualified people to govern in the public interest?
In the meantime, this story has been on the radar screen for months and alot of caution is built in. If the politicos get anything positive done, we can recover.
When gas prices hit $4 this spring, it was predictable the economy's rate of growth would soften, but when politicians needlessly pushed our financial system towards the brink of a crash just to get their disfunctional club to the negotiating table, the first casualty is confidence.
There is so much money in this country on the sidelines. Financing is cheap. There is alot of demand building for home upgrades, goods, autos etc. But investment is deferred because it isn't easy to take a risk now. The responsibility for this is our out of touch leadership in Washington; those who know how to win elections, but dont' know how to govern.
We all feel this fading outlook, but the loss of confidence is also showing up in the economic statistics. Consumer confidence took a huge dip 2 weeks ago. Orders for durable goods took a dip this week and business owners I work with, are not seeing the business they would like to see lately. The timing for this Washington contrived crisis is needless and badly timed. If Obama and Boehner would instill confidence and progress towards solving our problems, this economy would be doing well.
What do they know, these politicians? They know how to get elected to and serve the money interests that get them into office. Whether it is an ideological interest or an economic interest group, these Republicans and Democrats will sell out their country's interest to take care of their sponsors first.
What don't they know? They dont' know that America is great when the average person can work hard to better themselves. America isnt' great because of entitlements, or the rich or those who hold elected office and think this is a golden goose.
These politicians don't know that they are responsible to solve problems that are theirs to solve. They have abdicated their responsibility time and time again in the interest of being reelected. Witness our debts, our costly and broken health and education systems, our decaying, expensive and energy intensive infrastructure. Our unfocused unbelievably expensive foreign wars. Idiot, unqualified politicians are behind all of it and they do nothing about it.
When will we take the influence of money out of our elections and policy making and get able and qualified people to govern in the public interest?
In the meantime, this story has been on the radar screen for months and alot of caution is built in. If the politicos get anything positive done, we can recover.
Friday, July 22, 2011
Questions on Record Corporate Profits - Bad Reasons for Good Earnings
We are on track this year to see the most profitable year ever collectively for the largest companies in America.
If that is because they are selling more than ever across the globe, winning market share across the globe or innovating great. That is less thae case than we would like.
Unfortunately there are other reasons at play in this succes story that are not so healthy for them or for us and are going to experience a blowback at some point.
Lowest Tax Rates Ever: This is the result of playing loopholes, pitting one taxing nation against another and just benefiting from the widespread belief that if taxed less, companies will invest and hire more.
Outsourcing US Jobs: If big corporate America is making more and more money by lowering their costs by sending still more jobs overseas, I have to object at this point. Well that is the case. A recent report said small and medium sized companies added 700,000 jobs this year. The biggest, most profitable companies have added only 20,000 jobs. I feel betrayed by this. Do you?
Henry Ford back in the day, paid his men a big wage at the time, $5 a day. He did so because he believed that a mass market for Model T's required a class of people who could afford them.
Today's corporate leaders are less pragmatic or interested in the welfare of their nation.
If that is because they are selling more than ever across the globe, winning market share across the globe or innovating great. That is less thae case than we would like.
Unfortunately there are other reasons at play in this succes story that are not so healthy for them or for us and are going to experience a blowback at some point.
Lowest Tax Rates Ever: This is the result of playing loopholes, pitting one taxing nation against another and just benefiting from the widespread belief that if taxed less, companies will invest and hire more.
Outsourcing US Jobs: If big corporate America is making more and more money by lowering their costs by sending still more jobs overseas, I have to object at this point. Well that is the case. A recent report said small and medium sized companies added 700,000 jobs this year. The biggest, most profitable companies have added only 20,000 jobs. I feel betrayed by this. Do you?
Henry Ford back in the day, paid his men a big wage at the time, $5 a day. He did so because he believed that a mass market for Model T's required a class of people who could afford them.
Today's corporate leaders are less pragmatic or interested in the welfare of their nation.
Thursday, July 14, 2011
US Policy Makers: Incompetent, Partisan and Compromised by Self Interest; Mishandle the Economy
1- Politicians serve the interests of the economic or ideological groups that finance their election campaigns before the interest or our nation. The result is bad policy, partisan sound bites and unqualified elected leaders. The solution for the economic crisis is at the mercy of this compromised body of leaders.
2-The economy is uncompetitive and mismanaged. The persistent joblessness points to how out of touch policy makers are with the deep problems in our country starting with we don't make stuff anymore.
3- Post WWII economic theories aren't showing us how to get out of this. After trillions dollars in stimulus and 3 years into a recovery interest rates, jobs and tax receipts should be rising and deficits falling. This is not in the range of normal and indicates how dire the situation really is.
4-Big business has every advantage in today's economy but they only created a net of 20,000 jobs this year. They are still outsourcing jobs overseas. Policy makers turn a blind eye. Not acceptable.
5-Health care costs in the US are $1 trillion too high. For profit health businesses milk Medicare and insured patients, trial attorneys exploit the system adding costs in malpractice insurance and forcing MD's to defend their own liability by prescribing excessive diagnostic procedures. Drug companies don't charge any country what they charge us for drugs.
6-Too many regulations or not enough regulation. Bureaucratic class have failed our economy but saved their careers. The mortgage/housing bubble is the showcase for this issue.
7-Short term business leaders. Short term policy makers.
8-China trade has been a disaster. Ross Perot thought Mexico would be the cause of a great big sucking sound as jobs left America. He was wrong. Trade with Mexico is two way. China is the jobs predator and our smug policy makers have turned a blind eye to their theft of our patents, refusal to buy our goods, pricing below cost to put our manufacturers out of business.
9- US big business is China's best ally. They have outsourced jobs and continue to do so to lower costs boost profit margins to record levels even as the real per capita of US households continue its 10 year long decline. Today's big business leader put themselves ahead of their shareholders and even their country. They are under taxed and overpaid.
10-Education spending in the US per student is almost the highest in the world. What a terrible return on our investment we have received. Is it our culture, self serving education professionals or our families that are at fault? It needs to be addressed or expect our future generation to suffer stagnation under the weight of unproductive, unskilled people mired in real poverty.
2-The economy is uncompetitive and mismanaged. The persistent joblessness points to how out of touch policy makers are with the deep problems in our country starting with we don't make stuff anymore.
3- Post WWII economic theories aren't showing us how to get out of this. After trillions dollars in stimulus and 3 years into a recovery interest rates, jobs and tax receipts should be rising and deficits falling. This is not in the range of normal and indicates how dire the situation really is.
4-Big business has every advantage in today's economy but they only created a net of 20,000 jobs this year. They are still outsourcing jobs overseas. Policy makers turn a blind eye. Not acceptable.
5-Health care costs in the US are $1 trillion too high. For profit health businesses milk Medicare and insured patients, trial attorneys exploit the system adding costs in malpractice insurance and forcing MD's to defend their own liability by prescribing excessive diagnostic procedures. Drug companies don't charge any country what they charge us for drugs.
6-Too many regulations or not enough regulation. Bureaucratic class have failed our economy but saved their careers. The mortgage/housing bubble is the showcase for this issue.
7-Short term business leaders. Short term policy makers.
8-China trade has been a disaster. Ross Perot thought Mexico would be the cause of a great big sucking sound as jobs left America. He was wrong. Trade with Mexico is two way. China is the jobs predator and our smug policy makers have turned a blind eye to their theft of our patents, refusal to buy our goods, pricing below cost to put our manufacturers out of business.
9- US big business is China's best ally. They have outsourced jobs and continue to do so to lower costs boost profit margins to record levels even as the real per capita of US households continue its 10 year long decline. Today's big business leader put themselves ahead of their shareholders and even their country. They are under taxed and overpaid.
10-Education spending in the US per student is almost the highest in the world. What a terrible return on our investment we have received. Is it our culture, self serving education professionals or our families that are at fault? It needs to be addressed or expect our future generation to suffer stagnation under the weight of unproductive, unskilled people mired in real poverty.
Friday, April 8, 2011
US Excess Health Care Costs Are $1 Trillion. Could Savings Fill the Budget Gap?
You go to the store and if the price is too high, you try another store. You shop for the best value for your money. On the other hand, if your child gets sick you go to the quickest and best health care provider you can. You don't ever ask what the price will be and shop around and if you did, probably no one could tell you what it really would be and even if they did, you wouldn't have any idea if that was a good deal. Heck it doesn't matter if it is a good deal. Your child is ill and you need to see a reliable doctor now. Besides that, the price probably doesn't matter to you if you have health insurance, medicare, a military health plan or medicaid.
The Republicans who advocate a market structure for health care services that will lead to competition on price and quality are either dreaming or spinning a yarn to cover up the agenda of special interests that financially support them. The evidence shows our health care system IS NOT competitive or a good value for amount of money spent on it by any measure. No, actually it is arguably the most expensive and overpriced system in the world. On top of that, we rank low in terms of health outcomes vs. other developed countries. We are below average in health and yet spend almost twice as much on it as pretty much the other developed counrtries.
Spending Per Capita Health Care in Dollars
Germany $3100
Japan $2900
Canada $3300
USA $6900
Democrats, you are next. You want to extend coverage? Do you consider for one moment that we can't afford the entitlements we already have? Have you considered the effects of your polciies on hiring? Furthermore, do you think it is in the nation's interest or our health care system to block tort reform at every opportunity. We know it is in your interest, trial attorneys are among your biggest financial backers. Why don't you admit to the public your conflict of interest and stop enabling trial attorneys' pillaging of the medical liability insurance golden goose?
Germany has a good health care system and people have confidence in it. They spend 10% of their annual economic output (GDP) on it. Our health care system may be known for the most amazing cures and procedures, but for the masses of people, the outcomes are at best average. Americans don't believe we have a good health care system. People sense it is too expensive but actually it is extraordinarily expensive. Health care spending takes up 17% of our annual GDP. What if we copied Germany and spent 10% of our GDP? What if we saved 7% of our economy's spending for other purposes?
I am simplifying to get to the point. If we spent 10% instead of 17%, we would save 7% or $980 billion dollars a year. Our national deficit this year is at about $1400 billion. Wow! If we saved $980 million wouldn't that help fund our deficit? How could that much wasteful spending have got by us?
A Little Story
This waste of money is also killing our job market and businesses. Big companies send jobs to Asia to lower their costs including health care costs. A friend of mine has a cheaper health insurance plan at his small firm. He employs six people and is still going even though many of his competitors have been driven out of business over the last three years. He is doing whatever it takes to stay in business and take care of his people.
He became ill recently for about a month. There was a pill he could take once a day that would give him relief so he could live and keep on working. The cheapest price he could find for that pill was $175 each and after five days his insurance company cut him off. $175 a day was more than he could pay but he found some relief. A Canadian online pharmacist offered the very same pill in quantities of 10 for only $27 a day. My friend was saved by Canada's health care system. Our own country's health system failed him in favor of apparent profiteering.
From these examples, we can see how the the cost of health care is out of all proportion in America. It is wrong. We also can see that a small businesses, that have to struggle mightily to stay in business, are having a hard time employing people and providing health insurance. How many more people would be working today if health care was affordable?. How much would they be paying in taxes or at least not drawing in support from the government and how much better would our deficit problem be?
At some point we will confront this issue. Employment, deficits and our health are all at risk. The profiteering of special interests (those MD's who seek riches, pharmas, trial attorneys, medicare cheats and scammers) and who are protected by their sponsored politicians are at the heart of the problem. It is time to make our system over. Germany and several other countries have decades experience sorting this out. We can learn from them.
Investment Implication: Health care business models generally are going to feel increasing pressure on profit margins as the US has hit a ceiling on what it is able to pay. Generally, it seems health care will become a stagnant industry in the US, even as demand grows ever stronger.
The Republicans who advocate a market structure for health care services that will lead to competition on price and quality are either dreaming or spinning a yarn to cover up the agenda of special interests that financially support them. The evidence shows our health care system IS NOT competitive or a good value for amount of money spent on it by any measure. No, actually it is arguably the most expensive and overpriced system in the world. On top of that, we rank low in terms of health outcomes vs. other developed countries. We are below average in health and yet spend almost twice as much on it as pretty much the other developed counrtries.
Spending Per Capita Health Care in Dollars
Germany $3100
Japan $2900
Canada $3300
USA $6900
Democrats, you are next. You want to extend coverage? Do you consider for one moment that we can't afford the entitlements we already have? Have you considered the effects of your polciies on hiring? Furthermore, do you think it is in the nation's interest or our health care system to block tort reform at every opportunity. We know it is in your interest, trial attorneys are among your biggest financial backers. Why don't you admit to the public your conflict of interest and stop enabling trial attorneys' pillaging of the medical liability insurance golden goose?
Germany has a good health care system and people have confidence in it. They spend 10% of their annual economic output (GDP) on it. Our health care system may be known for the most amazing cures and procedures, but for the masses of people, the outcomes are at best average. Americans don't believe we have a good health care system. People sense it is too expensive but actually it is extraordinarily expensive. Health care spending takes up 17% of our annual GDP. What if we copied Germany and spent 10% of our GDP? What if we saved 7% of our economy's spending for other purposes?
I am simplifying to get to the point. If we spent 10% instead of 17%, we would save 7% or $980 billion dollars a year. Our national deficit this year is at about $1400 billion. Wow! If we saved $980 million wouldn't that help fund our deficit? How could that much wasteful spending have got by us?
A Little Story
This waste of money is also killing our job market and businesses. Big companies send jobs to Asia to lower their costs including health care costs. A friend of mine has a cheaper health insurance plan at his small firm. He employs six people and is still going even though many of his competitors have been driven out of business over the last three years. He is doing whatever it takes to stay in business and take care of his people.
He became ill recently for about a month. There was a pill he could take once a day that would give him relief so he could live and keep on working. The cheapest price he could find for that pill was $175 each and after five days his insurance company cut him off. $175 a day was more than he could pay but he found some relief. A Canadian online pharmacist offered the very same pill in quantities of 10 for only $27 a day. My friend was saved by Canada's health care system. Our own country's health system failed him in favor of apparent profiteering.
From these examples, we can see how the the cost of health care is out of all proportion in America. It is wrong. We also can see that a small businesses, that have to struggle mightily to stay in business, are having a hard time employing people and providing health insurance. How many more people would be working today if health care was affordable?. How much would they be paying in taxes or at least not drawing in support from the government and how much better would our deficit problem be?
At some point we will confront this issue. Employment, deficits and our health are all at risk. The profiteering of special interests (those MD's who seek riches, pharmas, trial attorneys, medicare cheats and scammers) and who are protected by their sponsored politicians are at the heart of the problem. It is time to make our system over. Germany and several other countries have decades experience sorting this out. We can learn from them.
Investment Implication: Health care business models generally are going to feel increasing pressure on profit margins as the US has hit a ceiling on what it is able to pay. Generally, it seems health care will become a stagnant industry in the US, even as demand grows ever stronger.
Sunday, March 13, 2011
Japan's Disaster Will Have Repercussions
Disaster Feeds Back into Global Financial and Energy Crises
Few people realize that before this human and economic disaster occurred, Japan was just facing up to the fact that it is facing a terrible fiscal and demographic crisis.
Only last month an official of the International Monetary Fund repeated a warning that Japan had to turn around its deficits which are now the highest in the world excepting Zimbabwe. In addition, the country's debt rating was lowered a notch by Standard & Poors as the risk is increasing that Japan may someday default.
This is the fiscal backdrop for Japan when its government embarks on a massive new spending response to the disaster this week. Whether the country really does have the option to do even more deficit spending remains to be seen, but it is likely the apparent desperation of Japan's stimulus spending will add to the perception that the world financial system is on an even weaker footing.
Japan is also an old country. It now has a median age of 45 years old, the oldest in the world. With the effect of a decreasing population (1/4 fewer people by 2055), falling tax revenues, lowered productive capacity and ever increasing demands on savings and entitlements, it will be extremely difficult for aging Japan to turn around its deficit problem. Becoming even less productive as the median age gets even older, Japan will likely be drawing on its foreign reserves to meet savers redemptions and most of those lie in the United States. In this way, Japan's fiscal crisis will someday limit the US's ability to finance its own deficits. A someday that may be beginning today. An ugly circle indeed.
Japan was perhaps the most prepared of any country to deal with problems at its nuclear power plants but not to this extent. Most countries don't have to build nuclear power plants in an active earthquake zone like Japan does, but they clearly didn't allow for the twin disasters of an 9.0 earthquake followed by a tsunami that wiped out the power plants generators and thus its cooling system. This was a highly unlikely event, but it happened as the unlikely often eventually does.
Hopefully the nuclear reactions will be contained but it is a sure thing that the reaction of the nuclear power naysayers will be shrill and vocal like they did in the aftermath of Three Mile Island. The evidence shows that not one person died as a result of that accident back in 1979 and there haven't been any other accidents since, even though 20% of our electricity comes from nuclear power and no other power source has been as clean and reliable either. Despite those facts, no nuclear power plants have been built since Three Mile Island. On the other hand, since 1979 no one knows how many lakes have died from acid rain, mountains denuded by strip mining or people's health harmed by the sulphur emissions from coal fired plants that could have been replaced with nuclear power
The US and the world are entering an energy crisis. It is obvious at the gas pumps. In the near future, electrification of our transport system will be increasingly important as a real substitute for oil powered motor vehicles. But solar panels won't recharge your electric car at night. How is the switch to electric going to be possible without nuclear power? That will be the question to ask the naysayers as they have their day this week. Which lessons the world takes from Japan's nuclear crisis will have huge repercussions in the future, probably even bigger than the carnage from the disaster itself.
Footnote Monday March 14: The anti Cramer would disregard the real Cramer's rant today that nuclear power is finished in the US. How you can replace that electrical output with volatile natural gas isn't fathomable never mind the vast number of new plants being built overseas. The hysteria has created some nice opportunities in the nuclear industry sector of the market the past two days.
Few people realize that before this human and economic disaster occurred, Japan was just facing up to the fact that it is facing a terrible fiscal and demographic crisis.
Only last month an official of the International Monetary Fund repeated a warning that Japan had to turn around its deficits which are now the highest in the world excepting Zimbabwe. In addition, the country's debt rating was lowered a notch by Standard & Poors as the risk is increasing that Japan may someday default.
This is the fiscal backdrop for Japan when its government embarks on a massive new spending response to the disaster this week. Whether the country really does have the option to do even more deficit spending remains to be seen, but it is likely the apparent desperation of Japan's stimulus spending will add to the perception that the world financial system is on an even weaker footing.
Japan is also an old country. It now has a median age of 45 years old, the oldest in the world. With the effect of a decreasing population (1/4 fewer people by 2055), falling tax revenues, lowered productive capacity and ever increasing demands on savings and entitlements, it will be extremely difficult for aging Japan to turn around its deficit problem. Becoming even less productive as the median age gets even older, Japan will likely be drawing on its foreign reserves to meet savers redemptions and most of those lie in the United States. In this way, Japan's fiscal crisis will someday limit the US's ability to finance its own deficits. A someday that may be beginning today. An ugly circle indeed.
Japan was perhaps the most prepared of any country to deal with problems at its nuclear power plants but not to this extent. Most countries don't have to build nuclear power plants in an active earthquake zone like Japan does, but they clearly didn't allow for the twin disasters of an 9.0 earthquake followed by a tsunami that wiped out the power plants generators and thus its cooling system. This was a highly unlikely event, but it happened as the unlikely often eventually does.
Hopefully the nuclear reactions will be contained but it is a sure thing that the reaction of the nuclear power naysayers will be shrill and vocal like they did in the aftermath of Three Mile Island. The evidence shows that not one person died as a result of that accident back in 1979 and there haven't been any other accidents since, even though 20% of our electricity comes from nuclear power and no other power source has been as clean and reliable either. Despite those facts, no nuclear power plants have been built since Three Mile Island. On the other hand, since 1979 no one knows how many lakes have died from acid rain, mountains denuded by strip mining or people's health harmed by the sulphur emissions from coal fired plants that could have been replaced with nuclear power
The US and the world are entering an energy crisis. It is obvious at the gas pumps. In the near future, electrification of our transport system will be increasingly important as a real substitute for oil powered motor vehicles. But solar panels won't recharge your electric car at night. How is the switch to electric going to be possible without nuclear power? That will be the question to ask the naysayers as they have their day this week. Which lessons the world takes from Japan's nuclear crisis will have huge repercussions in the future, probably even bigger than the carnage from the disaster itself.
Footnote Monday March 14: The anti Cramer would disregard the real Cramer's rant today that nuclear power is finished in the US. How you can replace that electrical output with volatile natural gas isn't fathomable never mind the vast number of new plants being built overseas. The hysteria has created some nice opportunities in the nuclear industry sector of the market the past two days.
Monday, February 21, 2011
Protests and Social Revolution: Score Card, Mubarak, Gaddafi, Obama
Egypt's hopeful turn towards reform this past week shows that sometimes a leader sees their position and makes the right move. While Egypt's Mubarak is a real bad actor in the eyes of media elites in the US, he is due credit for adjusting his position several times and finally just leaving office. Frankly, we should be surprised that he left office with minimal bloodshed. Both the Egyptian people and Mubarak have achieved, if nothing else, the hope that a more open and productive society will be attained.
Protests are spreading and other leaders aren't doing so well. Iran is starting to kill their people again and George Soros predicts the regime won't last the year. Yemen, Sudan and Bahrain have also joined the list of countries where change is coming. In Libya, the worst despot of all, and he has always been that, is Colonel Gadaffi. Calling in jet fighters and Russian mercenaries to attack your own people on the streets of your capital city as he did Monday will be remembered in the annals of despotism forever. The bright side of that is any other despot thinking of doing it probably won't after they see the backlash Gaddaffi is to about receive.
Madison Wisconsin is experiencing its' days of rage once again (oh if it were 1970 again). Enraged or not, the city is one of the most fortunate and best endowed in the United States with an extremely stable economy due to the fact that nearly half the jobs are in the public sector. (state and local government and UW). In addition, Madison may be the most educated city in the United States with over 70% of adults having a bachelors degree or higher.
Having just returned from there, I can report first hand that it is now cool in Madison to blame recently elected Governor Walker for a bad economy, the return of fascism and the destruction of Wisconsin's families. The governor may or may not have erred in his attempt to limit the collective bargaining rights of Wisconsin's vast army of public employees, but the state has been running billion dollar deficits for about 10 years and he came into office with a clear mandate to solve the problem.
President Obama, notably hesitant to jump into the fray in support of Egyptian reformers earlier this month, was surprisingly quick to throw his weight behind Wisconsin's public sector unions in their struggle against their Governor's attempt to repair his state's deficit. Obama's intrusion was arguably unwise for several reasons.
First, a sitting US president has no authority in the governance of individual states except in the case where federal law is being violated. In this instance, he had no business interfering.
In addition, the proper deportment of a president requires a certain reserve when it comes to purely partisan matters that don't concern him. It is part of being presidential. A sort of royal detachment is required of our chief executive and from that a special authority comes from people believing their president has only the interests of the nation at heart. Wading into a spat like this so quickly made Obama look more like a Chicago union boss than our nation's leader.
More telling, Obama who faces the worst fiscal crisis ever faced by a sitting president, has taken sides against another state's chief executive who is facing the same issue head on and still worse he has done it for money. You see Obama's largest campaign contributors in 2008 were the public employees unions and his loyalty to them had to come first. Well it did if he is a president who doesn't appreciate the gravity of the issues facing America or his duty to his country.
How is President Obama going to confront the same fiscal issues that Wisconsin faces if he can't commit to dealing with the federal government's unions and employment costs? Since he has now shown he is easily compromised by his ties to public sector unions, how can we trust him to get our government on a firm footing? In trying to curry favor with Wisconsin public employee unions, Obama just may have shown the country he isn't the right guy for the job after all.
Score Card:
Mubarak gets a passing grade. In the end, he did the right thing and avoided the worst for his people. Mubarak exceeded our expectations for him.
Obama gets an unsatisfactory grade. His budget released last week was again fiscally irresponsible and he continues to show no inclination to confront the hard issues behind our deficits. Also, his actions with respect to the state of Wisconsin have an appearance of pursuing political interest while exceeding his portfolio by interfering in the affairs of a state government. Since that state is facing the very same issue he should be facing, he has earned poor marks. Bad job Mr. President. You have just 12-18 months left really to prove you are willing and able to lead us out of the fiscal crisis or you will not be reelected.
Gaddafi gets a worse grade than Obama. Well of course he does. He is one of the worst leaders on the face of the earth so good for Obama, he finishes ahead of Gaddafi.
Investment Implication:
President Obama won't address the fiscal crisis so longer term skepticism remains about the quality of the finances or our country.
Arab and Iranian social revolutions are now proceeding and will for years to come. Probably a good thing but oil supplies will be more at risk now and if oil prices soar, the economy will suffer.
There is a danger our economy is too dependent on stable oil supplies from unstable countries.
Plan on economizing ever more on your energy needs. Environment favors energy and resource producers in stable countries.
Protests are spreading and other leaders aren't doing so well. Iran is starting to kill their people again and George Soros predicts the regime won't last the year. Yemen, Sudan and Bahrain have also joined the list of countries where change is coming. In Libya, the worst despot of all, and he has always been that, is Colonel Gadaffi. Calling in jet fighters and Russian mercenaries to attack your own people on the streets of your capital city as he did Monday will be remembered in the annals of despotism forever. The bright side of that is any other despot thinking of doing it probably won't after they see the backlash Gaddaffi is to about receive.
Madison Wisconsin is experiencing its' days of rage once again (oh if it were 1970 again). Enraged or not, the city is one of the most fortunate and best endowed in the United States with an extremely stable economy due to the fact that nearly half the jobs are in the public sector. (state and local government and UW). In addition, Madison may be the most educated city in the United States with over 70% of adults having a bachelors degree or higher.
Having just returned from there, I can report first hand that it is now cool in Madison to blame recently elected Governor Walker for a bad economy, the return of fascism and the destruction of Wisconsin's families. The governor may or may not have erred in his attempt to limit the collective bargaining rights of Wisconsin's vast army of public employees, but the state has been running billion dollar deficits for about 10 years and he came into office with a clear mandate to solve the problem.
President Obama, notably hesitant to jump into the fray in support of Egyptian reformers earlier this month, was surprisingly quick to throw his weight behind Wisconsin's public sector unions in their struggle against their Governor's attempt to repair his state's deficit. Obama's intrusion was arguably unwise for several reasons.
First, a sitting US president has no authority in the governance of individual states except in the case where federal law is being violated. In this instance, he had no business interfering.
In addition, the proper deportment of a president requires a certain reserve when it comes to purely partisan matters that don't concern him. It is part of being presidential. A sort of royal detachment is required of our chief executive and from that a special authority comes from people believing their president has only the interests of the nation at heart. Wading into a spat like this so quickly made Obama look more like a Chicago union boss than our nation's leader.
More telling, Obama who faces the worst fiscal crisis ever faced by a sitting president, has taken sides against another state's chief executive who is facing the same issue head on and still worse he has done it for money. You see Obama's largest campaign contributors in 2008 were the public employees unions and his loyalty to them had to come first. Well it did if he is a president who doesn't appreciate the gravity of the issues facing America or his duty to his country.
How is President Obama going to confront the same fiscal issues that Wisconsin faces if he can't commit to dealing with the federal government's unions and employment costs? Since he has now shown he is easily compromised by his ties to public sector unions, how can we trust him to get our government on a firm footing? In trying to curry favor with Wisconsin public employee unions, Obama just may have shown the country he isn't the right guy for the job after all.
Score Card:
Mubarak gets a passing grade. In the end, he did the right thing and avoided the worst for his people. Mubarak exceeded our expectations for him.
Obama gets an unsatisfactory grade. His budget released last week was again fiscally irresponsible and he continues to show no inclination to confront the hard issues behind our deficits. Also, his actions with respect to the state of Wisconsin have an appearance of pursuing political interest while exceeding his portfolio by interfering in the affairs of a state government. Since that state is facing the very same issue he should be facing, he has earned poor marks. Bad job Mr. President. You have just 12-18 months left really to prove you are willing and able to lead us out of the fiscal crisis or you will not be reelected.
Gaddafi gets a worse grade than Obama. Well of course he does. He is one of the worst leaders on the face of the earth so good for Obama, he finishes ahead of Gaddafi.
Investment Implication:
President Obama won't address the fiscal crisis so longer term skepticism remains about the quality of the finances or our country.
Arab and Iranian social revolutions are now proceeding and will for years to come. Probably a good thing but oil supplies will be more at risk now and if oil prices soar, the economy will suffer.
There is a danger our economy is too dependent on stable oil supplies from unstable countries.
Plan on economizing ever more on your energy needs. Environment favors energy and resource producers in stable countries.
Wednesday, February 2, 2011
Sputnik Moment: Does This America Have What it Takes?
The flourishing rhetoric of politicians these days routinely over promises and under delivers. A business probably can’t be run that way, but evidently it works in politics. When President Obama’s inspiring State of Union address rolled out the powerful Sputnik/space race metaphor, he evoked an achievement that should be remembered, but does he or our country have the right stuff to follow through with that challenge?
In 1958, the US was shocked to learn that a Russian satellite, Sputnik had been launched into orbit and was flying over our country freely and unmolested. It was shocking because the US felt it was the unchallenged super power on the planet. Soviet Russia may have been bigger and unconquerable within its own territory, but it had no reach. The United States was dominant politically, militarily and economically. On top of that, Americans believed we had the moral high ground and we that our technology and know-how was second to none. Yet the Soviets had beat us into space and our national security and prestige were at stake.
America rose up to meet the Soviet challenge in space and in 1961 President Kennedy told the nation our goal was to get on the moon within ten years. Less than ten years later, in July 1969, the first NASA astronauts walked on the moon. In eleven years, the US went from being earth bound to putting men and satellites into earth’s orbit almost routinely, then reaching the moon and landing men on it and safely returning.
The space race should be remembered as an extraordinary achievement for this country. Is Obama right to invoke it?
Obama’s Sputnik moment analogy calls us to pull our education system and economy together and to once again be in the first rank of competiveness and productivity. Here are some reasons the call is hollow and we can’t measure up to it.
- Our education system is the most over funded yet unproductive in the world. Achievement in almost every category ranks below average or at the bottom relative to other developed countries yet almost no other country spends so much to educate people. This is a crippling competitive disadvantage. teachers unions, cultural attitudes, policy makers and too many families don’t care.
- Capital investment and returns on investment are overwhelmingly skewed towards financial investment in our economy. At the highest echelons, business leaders, Wall Street and policy makers are too focused on takeovers, financial products and financing and are not serious about investing in the US.
- Never in the history of the country has such a large share of the population been so disenfranchised. The distribution of wealth in the US resembles no other developed nation. Countries like China and Mexico have the same distribution of wealth characteristics. America’s middle class hegemony and thus their commitment to excel have become gravely compromised. Increasingly, we have a culture of defeat.
Income Disparity Graph
- Free trade policies have benefitted the elites and harmed the country. Despite falling relative employment costs in the US, out sourcing of good jobs continues benefitting corporate profit margins. S&P 500 earnings have outperformed the economy arguably at the expense of the domestic economy as the share of jobs that provide an affluent secure middle class lifestyle decline.
- Policy makers and big businesses like Walmart have opened our domestic markets wide open to foreign competition without expecting the same of other nations. China is the worst case and the failure of the last three administrations to hold them accountable for a whole spectrum of dirty trade practices is a gross failure.
Investment Conclusion:
On the margins the President’s goals will be attended to, but really there is little awareness or conviction about what is at stake. There are also too many powerful interests like financiers, self interested politicians and unions who aren’t going to buy into the solutions.
In the short term, a falling dollar and a weak recovery will support US industry, but the issues causing the continuing loss of market share remain.
There is also the reality that many Americans aren’t interested in competing anymore. They are more interested in consuming. The disincentives for small business ownership have multiplied and corporate culture is to get what you can for yourself just like your boss does. Too many Americans have just given up.
In 1958, the US was shocked to learn that a Russian satellite, Sputnik had been launched into orbit and was flying over our country freely and unmolested. It was shocking because the US felt it was the unchallenged super power on the planet. Soviet Russia may have been bigger and unconquerable within its own territory, but it had no reach. The United States was dominant politically, militarily and economically. On top of that, Americans believed we had the moral high ground and we that our technology and know-how was second to none. Yet the Soviets had beat us into space and our national security and prestige were at stake.
America rose up to meet the Soviet challenge in space and in 1961 President Kennedy told the nation our goal was to get on the moon within ten years. Less than ten years later, in July 1969, the first NASA astronauts walked on the moon. In eleven years, the US went from being earth bound to putting men and satellites into earth’s orbit almost routinely, then reaching the moon and landing men on it and safely returning.
The space race should be remembered as an extraordinary achievement for this country. Is Obama right to invoke it?
Obama’s Sputnik moment analogy calls us to pull our education system and economy together and to once again be in the first rank of competiveness and productivity. Here are some reasons the call is hollow and we can’t measure up to it.
- Our education system is the most over funded yet unproductive in the world. Achievement in almost every category ranks below average or at the bottom relative to other developed countries yet almost no other country spends so much to educate people. This is a crippling competitive disadvantage. teachers unions, cultural attitudes, policy makers and too many families don’t care.
- Capital investment and returns on investment are overwhelmingly skewed towards financial investment in our economy. At the highest echelons, business leaders, Wall Street and policy makers are too focused on takeovers, financial products and financing and are not serious about investing in the US.
- Never in the history of the country has such a large share of the population been so disenfranchised. The distribution of wealth in the US resembles no other developed nation. Countries like China and Mexico have the same distribution of wealth characteristics. America’s middle class hegemony and thus their commitment to excel have become gravely compromised. Increasingly, we have a culture of defeat.
Income Disparity Graph
- Free trade policies have benefitted the elites and harmed the country. Despite falling relative employment costs in the US, out sourcing of good jobs continues benefitting corporate profit margins. S&P 500 earnings have outperformed the economy arguably at the expense of the domestic economy as the share of jobs that provide an affluent secure middle class lifestyle decline.
- Policy makers and big businesses like Walmart have opened our domestic markets wide open to foreign competition without expecting the same of other nations. China is the worst case and the failure of the last three administrations to hold them accountable for a whole spectrum of dirty trade practices is a gross failure.
Investment Conclusion:
On the margins the President’s goals will be attended to, but really there is little awareness or conviction about what is at stake. There are also too many powerful interests like financiers, self interested politicians and unions who aren’t going to buy into the solutions.
In the short term, a falling dollar and a weak recovery will support US industry, but the issues causing the continuing loss of market share remain.
There is also the reality that many Americans aren’t interested in competing anymore. They are more interested in consuming. The disincentives for small business ownership have multiplied and corporate culture is to get what you can for yourself just like your boss does. Too many Americans have just given up.
Friday, January 28, 2011
Obama's Address: Gets it Right on the Economy, But Blows It on the Costs
The President's address this week laid out our economic problems pretty clearly. Deficits, loss of global markets we used to own and endemic high unemployment. On top of that, he talked about health care as an economic issue rather than simply an entitlement.
Well after all, 2010 was disappointing in terms of slower than expected economic growth and continuing high unemployment. After the Presidents' party was routed in the November election, it was also for him certainly disappointing politically. A bit bruised, Obama sees the target pretty clearly now, he has to reverse America's economic slide. But can he hit the bulls eye using hand grenades?
His proposals came down to the following. Focused spending on infrastructure, green industry development and education with the idea of increasing employment now and in the future by making America more competitive in the technologies of the future. These grand ideas have been aired and funded already and so far mostly ineffective. Why? Mostly because we waste the money, because no politician expects an outcome for the taxes they spend and because our structural costs are much too high to make these grand proposals a reality.
The President, for instance, has seemingly a good idea in building high speed rail networks (HSR). However, has he or any other politician weighed the cost? California has approved the construction of America's first 400 miles of HSR and now the politicians, construction industry and the parasitical legal profession are busy arguing, suing each other and jockeying for contracts.
The stated cost for the main 400 mile section as sold to California voters was $45 billion but independent estimates are already at $60 billion or $150 million per mile. How can a rail network that costs $150 million per mile be a good idea? The Chinese certainly don't think so and I think they are one of the competitors the President is talking about.
China knows about HSR. They are the worlds' greatest HSR builder. They are well on their way to having built a 16,000 mile HSR network across their country that is due to be finished in 2020. The total cost of this epic venture is $300 billion an amount that will have been spent over about 20 years. Without going into all the benefits China has and will accrue from their investment, I will point out that China's High Speed Rail per mile cost is just under $19 million.
China's $19 million per mile HSR costs 1/8 as much to build as California's $150 million per mile HSR. On top of that, California's High Speed Rail system's technology, design and special equipment will be sourced from abroad. In fact China is now qualified to be a bidder for the project. No bother worrying about creating a US industry building HSR's or about value for money spent.
So here we see once again the waste of money America's political leadership is willing to commit us to. Unfortunately, such is the nature of a cornerstone of the President's proposal. Nice words with no credible execution are not ok or even possible anymore. We just don't have the money.
I think we should be in favor of proposals like High Speed Rail for the efficiencies and freedom from imported oil it promises, but not at these prices. The same issue applies to the Presidents education proposal. His view is that the US doesn't spend enough money on educating its people and if it does, we'll be more competitive. But recent statistics show the US spends 41% more dollars on K-12 eduction than the average developed country.
Since we already spend 41% more than our competitors to educate our kids, why is spending even more going to work? Well the answer isn't at hand because it is worse than that actually. The US ranks 19 out of 20 countries on achievement tests so spending 41% more has only kept us from coming in last. It isn't likely we are going to support spending more money on education with that track record.
Many Americans don't want the government to get bigger (Tea Party's raison d'etre), ie to blow our money and bankrupt us. People don't really believe government can get the job done and this is what President Obama and our whole decision making process have to acknowledge. Public spending has to yield results and if our political leadership won't take responsibility for this, we have to stymie them until the next election. In the meantime, we get broker and broker waiting.
Investment Conclusion: The President's proposals are half measures and avoid reality, adding to long term uncertainty for the economy. Caution warranted
Well after all, 2010 was disappointing in terms of slower than expected economic growth and continuing high unemployment. After the Presidents' party was routed in the November election, it was also for him certainly disappointing politically. A bit bruised, Obama sees the target pretty clearly now, he has to reverse America's economic slide. But can he hit the bulls eye using hand grenades?
His proposals came down to the following. Focused spending on infrastructure, green industry development and education with the idea of increasing employment now and in the future by making America more competitive in the technologies of the future. These grand ideas have been aired and funded already and so far mostly ineffective. Why? Mostly because we waste the money, because no politician expects an outcome for the taxes they spend and because our structural costs are much too high to make these grand proposals a reality.
The President, for instance, has seemingly a good idea in building high speed rail networks (HSR). However, has he or any other politician weighed the cost? California has approved the construction of America's first 400 miles of HSR and now the politicians, construction industry and the parasitical legal profession are busy arguing, suing each other and jockeying for contracts.
The stated cost for the main 400 mile section as sold to California voters was $45 billion but independent estimates are already at $60 billion or $150 million per mile. How can a rail network that costs $150 million per mile be a good idea? The Chinese certainly don't think so and I think they are one of the competitors the President is talking about.
China knows about HSR. They are the worlds' greatest HSR builder. They are well on their way to having built a 16,000 mile HSR network across their country that is due to be finished in 2020. The total cost of this epic venture is $300 billion an amount that will have been spent over about 20 years. Without going into all the benefits China has and will accrue from their investment, I will point out that China's High Speed Rail per mile cost is just under $19 million.
China's $19 million per mile HSR costs 1/8 as much to build as California's $150 million per mile HSR. On top of that, California's High Speed Rail system's technology, design and special equipment will be sourced from abroad. In fact China is now qualified to be a bidder for the project. No bother worrying about creating a US industry building HSR's or about value for money spent.
So here we see once again the waste of money America's political leadership is willing to commit us to. Unfortunately, such is the nature of a cornerstone of the President's proposal. Nice words with no credible execution are not ok or even possible anymore. We just don't have the money.
I think we should be in favor of proposals like High Speed Rail for the efficiencies and freedom from imported oil it promises, but not at these prices. The same issue applies to the Presidents education proposal. His view is that the US doesn't spend enough money on educating its people and if it does, we'll be more competitive. But recent statistics show the US spends 41% more dollars on K-12 eduction than the average developed country.
Since we already spend 41% more than our competitors to educate our kids, why is spending even more going to work? Well the answer isn't at hand because it is worse than that actually. The US ranks 19 out of 20 countries on achievement tests so spending 41% more has only kept us from coming in last. It isn't likely we are going to support spending more money on education with that track record.
Many Americans don't want the government to get bigger (Tea Party's raison d'etre), ie to blow our money and bankrupt us. People don't really believe government can get the job done and this is what President Obama and our whole decision making process have to acknowledge. Public spending has to yield results and if our political leadership won't take responsibility for this, we have to stymie them until the next election. In the meantime, we get broker and broker waiting.
Investment Conclusion: The President's proposals are half measures and avoid reality, adding to long term uncertainty for the economy. Caution warranted
Monday, January 10, 2011
Electric Cars Look Like They are for Real at the Detroit Car Show
The expectant air at this week's Detroit Auto Show bodes of increased sales, innovative products and a resurgent auto industry in the United States. This year the electric car concept is center stage and in the midst of all the excitement, the new electric Chevy Volt has been named Car of the Year. The Volt has been hyped for a few years now and was talked about a lot in the Fall of 2008 in front of Congress as GM execs tried to show why the car would be important for the future and therefore why a bailout was warranted.
Two years later the Volt has finally appeared along with Nissan's electric Leaf. The pair already has plenty of competition right on their heels. At Detroit, the new electric car launch pad has been cranked up by a factor of three or more, and perhaps most notable was Ford as it announced the new electric Focus due later this year. In addition, Ford said it was only the first of a line of autos and vans targeting a full spectrum of uses and different energy efficient power configurations.
The new electric Focus stands out because its marketing and features make electric for the first time look both practical and potentially mainstream. First it has double the range, 100 miles, on batteries as the Volt and won't need a backup gas motor. Ford has hinted it will sell for a lot less than a Volt too. It will be a lot easier to keep running as it will only take 4 hours to recharge it on its special charging unit that is kept in the garage and $3.60 of electricity will move you 100 miles. The charger will be sold at Best Buy for a reasonable price and uses Microsoft software to work at night when rates are lower. Co-branding and appeals to the American suburban lifestyle are at work here as well.
Attractive and well marketed, costing only 3.6 cents/ mile to operate vs.more than 10 cents/mile for the gas version, having adequate daily range, it seems the new Focus is at or near the threshold of real sales success in the mass market. If that is the case, electric cars like the Focus cars can pave the way for the United States to finally reclaim its own energy destiny by freeing itself from the use of imported energy.
Electricity has other benefits. Electric cars will be cleaner, quieter and run on domestically produced energy, but by what power plants? The greater electricity demand that electric cars will require will mostly have to come from new, probably nuclear power plants since they are the only mass scale, 24/7 and clean energy option we really have.
Electricity has other benefits. Electric cars will be cleaner, quieter and run on domestically produced energy, but by what power plants? The greater electricity demand that electric cars will require will mostly have to come from new, probably nuclear power plants since they are the only mass scale, 24/7 and clean energy option we really have.
The Investment Themes Here are Powerful but Somewhat Longer Term.
Ford Motor Company's successes since 2007 have brought the stock a long way. But with success now seeming likely in the electric car niche as well, is the market ready for a really new era at Ford? I think we are seeing shows that the company will probably do much more than reclaim its previous market share. It seems to be positioning itself now to become the largest car company in America and maybe the world.
As electric car demand ramps up, the demand for the electrical components, batteries, electronic controllers and minerals required to produce these cars will bring a lot of business to the relevant companies and industries.
Nuclear energy will be ramped up and have to be fast tracked to meet the extra demand over a similar time frame. On top of that, whatever growth in the nuclear power industry that is taking place in the United States is a fraction of the growth that is happening overseas, especially in the emerging economies. This looks like a great industry over at least the next 15 years or more. Look at nuclear construction companies and uranium miners. .
Tuesday, January 4, 2011
What Will Drive Markets in 2011?
The Trends in Place from 2010 are Still Strong
Gold is Money
Reserve Banks Injecting a lot of Money to Help Stocks and Real Estate.
Bubbles Result and Real Estate Still Struggles
Debt Crises Stalking Us
Business Improving Despite Problems. Some Pickup in Jobs.
Big trends don't change course quickly just like big ships and 2011 will see more of the same opportunities and risks as last year.
I think the biggest wind in the sea this year is still the attempt of the reserve banks of the developed countries to reflate the value of assets like real estate and stocks in order to get a recovery going. The amount of money they are injecting is historic in its scale. It is visible in the ultra low interest rates we've seen and really still have.
Meanwhile, debt crises in both the US and Europe are visible in the distance as they form into tempests that will hit us at some point this year. Portugal, Illinois, Spain, California and potential defaults in numerous municipalities across America and perhaps other European countries are all queued up to come ashore, probably sometime in 2011. All that even as last year's storms, Greece and Ireland, have yet to be resolved.
Economists were surprised again (and again and again) when their predictions of some improvement in the job market last year failed to appear. The lack of jobs was probably the biggest reason the number of home borrowers in default is still growing which feeds back to the likelihood that property values will only fall more in 2011, at least in areas that have a large supply of foreclosed homes on the market.
Despite these negatives, the economy is still mending and gaining some traction. It can keep doing that because there is a growing demand for cars, clothes, homes etc that need repairs or replacement. Business will be improved generally like it was this year, and there should be some pickup in hiring unlike last year.
How these trends translate into the investment world:
Deficits and money printing mean alternative money is becoming important. Gold is money today, just like it was for all the rest of human history excepting the past 20 or 30 years. If deficits are reversed and stimulus curtailed, this will be less so. However, the debt crises coming our way in 2011 and the reserve bank stimulus should only further the cause of alternative money so gold will remain desireable.
The policy of reflating investment assets by injecting money and keeping interest rates super low is also going to remain in the cards for 2011. The 9.6% unemployment rate is the number that guarantees it. When or if the injection of money ends, it will cause a change a traumatic change in the markets.
The reserve banks effort to reflate assets will help the stock market and the economy but also have unintended beneficiaries such as commodities or Chinese IPO's. Some of that may be a side show, but if oil prices are one of them, they will hurt the real economy. Values for some of these assets will seem unrealistic at times but they may not be. After all, the money has been put into place by the central bank.
An improving economy will help cure the credit issues in the economy. Banks and others who lend will benefit. Dividend payouts from banks are expected to increase quite a bit this year. Mergers in banking and other business sectors are expected to be very strong this year as well. All these trends create opportunities for investors.
Debt storms, new price levels and the huge share of total assets now managed by short term trading firms, will give us more volatility this year. There will be times when it will be possible to be very pessimistic about the economy and others to be optimistic. The sentiment and the prices will swing wildly at times, particularly in the commodity and gold sector. The arguments there about the right price for things will become very fierce as price levels exceed prior values.
The power of the cross currents at work mean I won't venture a guess what the outcome for the market will be since it could be raining or sunny at year end just like it will be a couple of weeks from now. I also don't hold early January market optimism to be much of a guide either.
It does seem the odds lean more towards a sunny outcome in 2011 as stimulus and imroving business can probably over come all else. I will predict, however, there won't be calm seas getting to year end and that more than anything is what we must be prepared for.
Disclosure: I own gold and at times other investments mentioned in this article.
Gold is Money
Reserve Banks Injecting a lot of Money to Help Stocks and Real Estate.
Bubbles Result and Real Estate Still Struggles
Debt Crises Stalking Us
Business Improving Despite Problems. Some Pickup in Jobs.
Big trends don't change course quickly just like big ships and 2011 will see more of the same opportunities and risks as last year.
I think the biggest wind in the sea this year is still the attempt of the reserve banks of the developed countries to reflate the value of assets like real estate and stocks in order to get a recovery going. The amount of money they are injecting is historic in its scale. It is visible in the ultra low interest rates we've seen and really still have.
Meanwhile, debt crises in both the US and Europe are visible in the distance as they form into tempests that will hit us at some point this year. Portugal, Illinois, Spain, California and potential defaults in numerous municipalities across America and perhaps other European countries are all queued up to come ashore, probably sometime in 2011. All that even as last year's storms, Greece and Ireland, have yet to be resolved.
Economists were surprised again (and again and again) when their predictions of some improvement in the job market last year failed to appear. The lack of jobs was probably the biggest reason the number of home borrowers in default is still growing which feeds back to the likelihood that property values will only fall more in 2011, at least in areas that have a large supply of foreclosed homes on the market.
Despite these negatives, the economy is still mending and gaining some traction. It can keep doing that because there is a growing demand for cars, clothes, homes etc that need repairs or replacement. Business will be improved generally like it was this year, and there should be some pickup in hiring unlike last year.
How these trends translate into the investment world:
Deficits and money printing mean alternative money is becoming important. Gold is money today, just like it was for all the rest of human history excepting the past 20 or 30 years. If deficits are reversed and stimulus curtailed, this will be less so. However, the debt crises coming our way in 2011 and the reserve bank stimulus should only further the cause of alternative money so gold will remain desireable.
The policy of reflating investment assets by injecting money and keeping interest rates super low is also going to remain in the cards for 2011. The 9.6% unemployment rate is the number that guarantees it. When or if the injection of money ends, it will cause a change a traumatic change in the markets.
The reserve banks effort to reflate assets will help the stock market and the economy but also have unintended beneficiaries such as commodities or Chinese IPO's. Some of that may be a side show, but if oil prices are one of them, they will hurt the real economy. Values for some of these assets will seem unrealistic at times but they may not be. After all, the money has been put into place by the central bank.
An improving economy will help cure the credit issues in the economy. Banks and others who lend will benefit. Dividend payouts from banks are expected to increase quite a bit this year. Mergers in banking and other business sectors are expected to be very strong this year as well. All these trends create opportunities for investors.
Debt storms, new price levels and the huge share of total assets now managed by short term trading firms, will give us more volatility this year. There will be times when it will be possible to be very pessimistic about the economy and others to be optimistic. The sentiment and the prices will swing wildly at times, particularly in the commodity and gold sector. The arguments there about the right price for things will become very fierce as price levels exceed prior values.
The power of the cross currents at work mean I won't venture a guess what the outcome for the market will be since it could be raining or sunny at year end just like it will be a couple of weeks from now. I also don't hold early January market optimism to be much of a guide either.
It does seem the odds lean more towards a sunny outcome in 2011 as stimulus and imroving business can probably over come all else. I will predict, however, there won't be calm seas getting to year end and that more than anything is what we must be prepared for.
Disclosure: I own gold and at times other investments mentioned in this article.
Subscribe to:
Posts (Atom)