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.
Thursday, July 28, 2011
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.
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