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Archive for the ‘Economy’ Category

Looks like even Wal-Mart sees that democrats controlling both branches of Govt is a bad idea.
They too see Obama’s socialist tendencies. Couple that with those of Pelosi and Reid and you have a situation that could very well bury this economy for good.

Sounds great right?

News Link

Wal-Mart Stores Inc. is mobilizing its store managers and department supervisors around the country to warn that if Democrats win power in November, they’ll likely change federal law to make it easier for workers to unionize companies — including Wal-Mart.

In recent weeks, thousands of Wal-Mart store managers and department heads have been summoned to mandatory meetings at which the retailer stresses the downside for workers if stores were to be unionized.

According to about a dozen Wal-Mart employees who attended such meetings in seven states, Wal-Mart executives claim that employees at unionized stores would have to pay hefty union dues while getting nothing in return, and may have to go on strike without compensation. Also, unionization could mean fewer jobs as labor costs rise.

The actions by Wal-Mart — the nation’s largest private employer — reflect a growing concern among big business that a reinvigorated labor movement could reverse years of declining union membership. That could lead to higher payroll and health costs for companies already being hurt by rising fuel and commodities costs and the tough economic climate.

The Wal-Mart human-resources managers who run the meetings don’t specifically tell attendees how to vote in November’s election, but make it clear that voting for Democratic presidential hopeful Sen. Barack Obama would be tantamount to inviting unions in, according to Wal-Mart employees who attended gatherings in Maryland, Missouri and other states.

“The meeting leader said, ‘I am not telling you how to vote, but if the Democrats win, this bill will pass and you won’t have a vote on whether you want a union,'” said a Wal-Mart customer-service supervisor from Missouri. “I am not a stupid person. They were telling me how to vote,” she said.

“If anyone representing Wal-Mart gave the impression we were telling associates how to vote, they were wrong and acting without approval,” said David Tovar, Wal-Mart spokesman. Mr. Tovar acknowledged that the meetings were taking place for store managers and supervisors nationwide.

Wal-Mart’s worries center on a piece of legislation known as the Employee Free Choice Act, which companies say would enable unions to quickly add millions of new members. “We believe EFCA is a bad bill and we have been on record as opposing it for some time,” Mr. Tovar said. “We feel educating our associates about the bill is the right thing to do.”

People really don’t see how damaging Unions have been do they?
Look no further than the Big 3 automakers. Whom are all swimming in pension debt that they are all too eager to get rid of as soon as possible. Its no wonder Detroit is in Shambles and the governor nor the Mayor for that matter have any sort of response other than increase taxes. Like that is the solution?

The bill was crafted by labor as a response to more aggressive opposition by companies to union-organizing activity. The AFL-CIO and individual unions such as the United Food and Commercial Workers have promised to make passage of the new labor law their No. 1 mission after the November election.

First introduced in 2003, the bill came to a vote last year and sailed through the Democratic-controlled House of Representatives, but was blocked by a filibuster in the Senate and faced a veto threat by the White House. The bill was taken off the floor, and its backers pledged to reintroduce it when they could get more support.

The November election could bring that extra support in Congress, as well as the White House if Sen. Obama is elected and Democrats extend their control in the Senate. Sen. Obama co-sponsored the legislation, which also is known as “card check,” and has said several times he would sign it into law if elected president. Sen. John McCain, the likely Republican presidential nominee, opposes the Employee Free Choice Act and voted against it last year.

Wal-Mart’s labor-relations meetings are led by human-resources managers who received training from Wal-Mart on the implications of the Employee Free Choice Act.

This bill is almost CERTAIN to pass with Obama in the white house.
I said it before and I will go on record saying it again.
Obama’s ‘economic’ and ‘social’ plans will destroy the US economy for SURE.
People think things are bad now, wait till the big O gets in there.

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Tax Oil companies.

News Link

Sen. Barack Obama (D-Ill.) on Friday announced an “Emergency Economic Plan” that would give families a stimulus check of $1,000 each, funded in part by what his presidential campaign calls “windfall profits from Big Oil.”

Details are in this six-page policy paper.

The first part of Obama’s plan is an emergency energy rebate ($500 to individual workers, $1,000 to families) as soon as this fall.

“This rebate will be enough to offset the increased cost of gas for a working family over the next four months,” Obama said. “Or, if you live in a state where it gets very cold in the winter, it will be enough to cover the entire increase in your heating bills. Or you could use the rebate for any of your other bills or even to pay down debt

Separately, Obama’s plan includes a $50 billion stimulus package that his campaign claims would save more than 1 million jobs.

Half of the money would go to state governments, which are facing big budget shortfalls, and half would be used for national infrastructure, including replenishing the Highway Trust Fund, rebuilding roads and bridges, and repairing schools.

Obama announced his plan 27 minutes after a Labor Department report showed unemployment hit a four-year high of 5.7 percent in July — the highest rate since March 2004, when it was 5.8 percent.

“We need to do more,” Obama said in a statement. “That’s why today I’m announcing a two-part emergency plan to help struggling families make ends meet and get our economy back on track.

McCain reacted to the surprisingly dour jobs report with a two-paragraph statement: “Across this country, Americans are hurting and today’s job numbers are just the latest reminder of the economic challenges we face. … Unlike Sen. Obama, I do not believe that raising taxes is the answer to our economic problems. There is no surer way to force jobs overseas than to raise taxes on businesses.”

Obama announced his plan for a windfall profits tax on oil companies on June 9 in Raleigh, N.C., as he launched a two-week economic tour after clinching the Democratic nomination.

Friday’s proposal says Obama “is proposing to offset the cost of his emergency energy rebates over the next five years by enacting a windfall profits tax on big oil companies.”

“Obama simply asks that big oil companies contribute a reasonable share of the windfall profits they receive from high oil prices over the next five years to pay for emergency assistance for families right now,” the campaign says.

That is Obama’s plan? To tax Oil companies to then give that money to Oil Consumers who will then buy more oil based products? HUH?

What is this Windfall profit that Obama keeps talking about?
Is there a margin rate that meets this requirement?

This is so ridiculous, I cannot believe that this man is really running for president.

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These last couple weeks has been filled with more economic woes.

IndyMac has failed, mostly fueled by speculation of its demise which forced a run on the bank. Always a dangerous thing. Part of it, if not most of it was fueled by a letter written by Senator Chuck Shumer of NY on June 26th. Midday trading Friday (usually a light day) showed IndyMac up 75 cents. News of the run hadn’t trickled down yet.

News Link

The U.S. Senator who leads the Senate subcommittee that oversees the Federal Reserve and economic policy has written letters to federal bank regulators questioning the condition of IndyMac Bancorp Inc. of Pasadena, news services reported Friday.

Sen. Charles Schumer, a Democrat from New York, sent the letters to the Federal Deposit Insurance Corp., the Office of Thrift Supervision, the Federal Housing Finance Board and the Federal Home Loan Bank of San Francisco. The letters reportedly said Schumer is concerned IndyMac “may have serious problems with its current loan holdings, and could face a failure if prescriptive measures are not taken quickly.”

Schumer, who serves on the Senate Committee on Banking, Housing and Urban Affairs and is chairman of its Economic Policy Subcommittee, cited concerns that the bank’s condition is a risk to taxpayers and borrowers.

Moody’s Investors Service Inc. on Tuesday downgraded IndyMac.

Fast forward 2 days later and we begin to see lots of people making large withdraws from IndyMac, causing a run on the bank.

News Link

Battling rumors that it may collapse, Pasadena-based IndyMac Bancorp acknowledged Monday that its financial position had deteriorated but described the fears as overblown and said it was working with regulators to improve its “safety and soundness.”

IndyMac, a national home lender burned by the mortgage meltdown, went public after depositors lined up at San Gabriel Valley branches starting Friday to pull out their money. Striving to reassure them, the thrift said nearly all their deposits were insured by the Federal Deposit Insurance Corp.

Nonetheless, Elizabeth Brown closed four accounts totaling $200,000 Monday at an Arcadia branch where about 20 customers were lined up at noon, saying: “The only reason I’m panicking is if anything happens, my money is tied up.

“I don’t want to take the chance,” said Brown, 62, of Temple City. “I’m going to put my money somewhere else, and if they come back, I’ll come back.”

Rick McPherson, 64, said he grew worried after hearing news reports that IndyMac was struggling, and withdrew $1,000 he had at IndyMac.

“I’m not certain what happens when a bank fails,” said McPherson, a printer from Arcadia. “I don’t trust the economy right now.”

The concerns were triggered by Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee, who said in public letters to the FDIC and other bank regulators Thursday that IndyMac “could face a failure if prescriptive measures are not taken quickly.” IndyMac said Monday that Schumer had created the “wrong impression” about the savings and loan’s risks.

IndyMac, which operates 31 offices and also takes deposits over the Internet, said the outflow of money increased on Saturday after continuing news coverage of Schumer’s remarks. The outflow Friday and Saturday totaled about $100 million, or about 0.5% of its total deposits of $19 billion, the company said.

That all happened over the weekend just 24-48 hours AFTER Schumers remarks.

Schumer in turn fired back days later that the run was not his fault but the Bush Administrations fault.

News Link

“The administration is doing what they always do, blaming the fire on the person who called 911,” Schumer said, according to the Associated Press’ story from the news conference in New York.

Remember folks, Politics and Finance – they are are all connected.

Schumer basically put his foot out too far on a bank that was already in a bit of distress and with his lone comments caused a major run on the bank in not only hours after, but days after as well. In the 11 days that followed, depositors withdrew more than $1.3 billion from IndyMac, leaving the bank unable to function. Via Fox Today cops were dispatched to calm the crowds as the news made its way to more people of the failure of the bank.

For Schumer to privately raise concerns within his oversight committee would be totally fine, for him to raise these concerns with a public letter are utterly ridiculous. That it was leaked from his office would should (I think) lead to an investigation. In Schumers supposed efforts to “save depositors” at the Bank, he created a much larger problem that hopefully does not trickle down to many other banks.

Fears at Wachovia have now started, as well as other banks.
Thankfully today Wells Fargo reported better than expected earnings.

On to the next problem.
Fannie Mae and Freddie Mac both seem to be on the path to a bail out from the federal govt.  The fed spelled their plan out on Monday as to what they are going to do with these two quasi public companies.

Yahoo News

Fannie Mae and Freddie Mac were volatile after tumbling last week amid concerns they would succumb to losses in their mortgage portfolios. The Fed said it would lend to the two companies “should such lending prove necessary.” Treasury Secretary Henry Paulson said his department is asking Congress for quick approval of a plan to expand its line of credit to the two companies and to make an equity investment in them if necessary.

Troubling indeed. Mae and Mac both have over 5 Trillion dollars in Mortgage debt that they hold. Taking on this massive amount of “assistance” would double the Nations Debt OVERNIGHT! Quite possibly causing the largest meltdown of History as American Bonds start to plummet over the massive debt incurred. A massive drop in the dollar, Oil doubling and total Chaos really.

Scary thought indeed. Are we to continue down the path that no matter how large you get the govt will bail you out of a crisis? Is that really what we want to create? A system where we say, get as large as possible, take out the most risk possible and then let the govt come in and bail us out.

That is not the free market economy we should be embracing.

Jim Rogers said more on Marketplace yesterday which is spot on:

Jim Rogers: Well, this plan is adding huge amounts of debt to the American government’s burden. Last weekend, we ran up $5 trillion, the same amount of debt that it took 200 years to accumulate. The world knows that’s an unbelievable burden added to any government, especially the one which is already deeply in debt. It’s bad for the economy, it’s bad for interest rates, it’s bad for inflation and it’s bad for the currency.

Jagow: As you say, $5 trillion in debt — that’s what Fannie and Freddie control; about half the U.S. mortgage market. How in the world can we let them fail?

Rogers: Well, it’s better to let them fail now if you ask me than wait two or three years when it’s going to be $10 trillion or who knows how much else because if we keep doing this, the United States government, who’s going to buy American government bonds? If you were a foreigner and you saw that the government added huge amounts of debt annually, would you continue to buy American government bonds? I mean, I wouldn’t and I’m an American.

Jagow: Alright, so if we don’t backstop Fannie and Freddie, what do we doe?

Rogers: Well, my view would be we let them fail and they’ll be reorganized in bankruptcy court. We’ve been having bankruptcies for a couple hundred years and for a few thousand years through the world. Let them go bankrupt, let them be reorganized, we clean out the system, I’d hope we put a few people in jail from Fannie Mae and Freddie Mac and we can start over. I’d rather do that, as painful as it’s going to be, than have to do it in two, three, five, whatever number of years it’s going to be.

Jagow: What do you think it will take to restore the confidence of foreign investors?

Rogers: Well, you’ve got to change the whole government structure of running up gigantic deficits in America and it’s going to cause some very radical changes. You know, most countries throughout history, when they’ve gotten themselves in financial trouble, they’ve never gotten themselves out unless they had a crisis or a semi-crisis. I’m afraid we’re going to be just like every other country and we’re going have to have our crisis or our semi-crisis and then maybe we’ll make some needed changes.

Politics however seem to be trumping sound financial moves. As we are seeing with the Bush Administrations latest moves to pump more liquidity into Mac and Mae. They are too large to let fail.

Letting a company fail, no matter how large they are, will cause some pain, locally, hell even nationally. But in the end after the dust settles the market finds its way back if you let it. We saw the collapse of Enron, Worldcom (sure they are different animals) but in the end, the market corrected itself. Another company came in and took over the gap for Enron and along we went for the last 5 years in economic expansion.

All these things do is cause knee jerk reactions by Congress. Such as the new move to stop short selling. Does that now mean that my shorts on JP are no longer valid? WTF?

What kind of Capitalism are we running here?

News Link

The U.S. Securities and Exchange Commission subpoenaed Wall Street’s biggest firms and hedge-fund advisers in a widening effort to crack down on suspected manipulation of Lehman Brothers Holdings Inc. and Bear Stearns Cos. shares, said three people with knowledge of the matter.

The SEC’s enforcement unit demanded information from investment banks including Goldman Sachs Group Inc., Deutsche Bank AG and Merrill Lynch & Co., according to two of the people, who declined to be identified because the inquiries aren’t public. The Washington-based regulator is seeking trading records and e- mails, one of them said.

The subpoenas mark a new front in the broadest U.S. investigation of Wall Street trading since state and federal regulators targeted mutual-fund abuses in 2003. The SEC issued an emergency order yesterday curtailing short selling in financial stocks, including Lehman and mortgage-finance companies Fannie Mae and Freddie Mac. The agency also is examining whether securities firms have adequate controls to thwart misconduct.

“The SEC is trying to determine whether there was illegal manipulation of market prices, and that is far easier to do if you have a broad sweep,” said Tamar Frankel, a law professor at Boston University.

Bull!
Lehman has been known for taking out loans on B and C Paper. Those are the most riskiest loans. That is why they are being shorted. Their books tell the story of a company that will not post profits and in fact will post losses for probably the next 2 years.

I’ll end this with some failed logic by Paulson:

Mr. Paulson walked lawmakers through his logic. By giving him the authority to spend an unlimited amount of money, he said, the markets would accept that the government’s commitment is solid, and that would increase confidence.

Quite the opposite Mr. Paulson. Bonds tells the tale of that failed logic as well as the drop of the dollar yesterday.

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Over the years I have found out that I tend to be fiscally conservative and socially moderate. That means, of course, that neither party has much use for me. Not socially conservative enough for the Republicans and definitely not liberal enough for the Democrats. Heck, I have absolutely no reason to vote for Obama and I suspect he has absolutely no intention of doing anything for me other than making me, my income, and my success into one of the bigger problems in America requiring “change”. I’ve learned to live with it and over time, the country tends to plow a middle of the road course which suits me just fine. So why wouldn’t I be for drilling in ANWAR and shooting every ecoweeny on sight? It’s not difficult to understand but it does take a little bandwidth.

I do run a business and I am a physicist by training which means I prefer to view reality for what it is, and not delude myself into believing there is alternate reality just around the corner. So here is reality one, we aren’t going to pay the deft off. Without up to the nanosecond calculation, let’s say the debt is four trillion dollars. Let’s also say that the Democrats and the Republicans arrive at a new view of life and become fast friends. Let’s say that they trim spending and generate a $400 million surplus. They would have to keep things that way for maybe twelve years to pay the debt off, with interest. And the voting taxpayers would have to make the agreement that they will be happy paying their tax burden with no expansion of any programs to pay the debt off. My view – it will never happen. I don’t think we will ever have a government that could consistently generate a $400 million surplus and even if they did, we’d kick them all out of office if they didn’t either expand programs people want or cut taxes.

Social Security is in about the same boat. I don’t want to get into the debates of the SS funds going into the general fund and one part of the gov writing another part of the gov an IOU or the fact that the program pays out more than it takes in. I have my own ideas about how we could make some progress on it but, in truth, I doubt anything will change. For elected officials, SS is a third rail. Propose cuts and you’re not long for office. Obama wants to increase the level of contribution, almost certainly without proportionate return for those who will be required to make the contribution, but I doubt that his increase will do anything other than play accounting sleight of hand and make things appear better for a longer period of time. But he won’t fix anything.

So why do I bring those issues up when I say I am against drilling in ANWAR? The other part of reality is that some of you reading this are going to pay for my retirement just like I have paid for your parents and grandparents retirement by my payments to SS and taxes for civil servant retirement. And your children are going to pay for yours, and so on. At the same time, the gov will keep increasing the debt and the borrowing will get more expensive – those developing countries are going to find that they can buy their own bonds to build their own roads instead of buying ours so our costs will go up. I view the US oil reserves, whether you talk about ANWAR or shale or any other resource that, with technology development, will be available to those children and grandchildren that pay off the bills they accrue as well as the ones we leave to them. I don’t mean to diminish the suffering that people are suffering today with the increase gas prices but we are handling it. There are people that are seeing 15% of their income go to just gasoline and that is a tragedy in the making. For all the squealing of the conservatives playing “I told you so” about not opening up ANWAR they don’t seem to have any interest in anything other than today’s balance sheet. We are feeling the pain with oil at $130/barrel. What happens when it gets to $230 or $330/barrel? Regardless of whether you think today’s prices are driven solely by speculation or not, I can guarantee we will get to those prices for oil eventually. So, as long as anyone is willing to sell us oil and we can somehow make it work, let’s make it work. Transportation costs are going to go up and maybe not come down. After years of everyone telling me how stupid I was for keeping a manufacturing facility in the continental US, some of the brightest guys in the room are starting to bring their manufacturing, and the jobs, back here to the US because of transportation costs. WSJ had an article just yesterday on that. Fortunately, the company hadn’t held the auction and sold their manufacturing equipment off at 10 cents on the dollar so they have one leg up bringing their manufacturing back home from China. But eventually we may get to the point where people won’t sell oil, at any price, but keep it for their own uses. And that is a much different situation. I don’t have a problem with sitting on significant oil reserves at that time. Hopefully, at that time, the ecoweenies will not be able to make much of a case for using our reserves. Maybe we can remind them of what they did to food prices with  their perfect solution of ethanol. No, let’s debate and wrangle and get whatever sound bites there are to get but let’s leave those oil reserves to future Americans. It’s little enough for having them pay off our bills.

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Tipping Points

If you haven’t read it, Malcolm Gladwell’s book “The Tipping Point” sort of set the stage for a new view of economic events and if you have some free time, it’s worth a read. I have been mulling over this post for some time but this week just has to be analyzed, especially in its relation to the larger picture. And especially what it means for the individual. I have said that I put about half my cash back to work some time ago and I have. Now, there have been times in the last few weeks that I was sorry that I didn’t spend more time looking at my investments but as I work for a living, my day job has just gotten too busy. And then this week happens. Let’s see, two days ago, more or less, we had oil at $122/bbl and the market had gotten up to 12,600. The talking heads were tripping over themselves to predict that if oil broke through 120, it would be in free fall and the market would rocket. Recession? What recession as Kudlow would say? Well, just because we haven’t had the classical definition met doesn’t mean it’s safe to go back in the water. Oil finished the week at roughly $139/bbl and the market fell to around 12,200. OK, so that’s the facts.

Earlier in the week, people might have been convinced that we were at a tipping point for the economy to head higher. Oil in a nice steady decline, markets in a nice steady uptick, and, maybe most important, lack of bad news. Yesterday everybody with the attention span of a gerbil probably thought the big news for this weekend was Hillary taking the “Kick Me” sign off her pants suit and dropping out of the event. Gerbils unite, it’s a non event and should be treated as such. But that’s off the track. Were we at a tipping point? I don’t think so. Wall Street hates uncertainty because it means they aren’t the brightest guys in the room. As long as every future event replays as a past event, they can look like geniuses. With apologies to Peter Bernstein (Against the Gods, the story of risk – a much better book than The Tipping Point) events don’t replay out in exact detail. And the fact that they don’t has been named risk. My posts on Risk of Recovery are a spin on that. But the biggest factor you could point to earlier this week was that everyone felt the bad news was pretty much all out there. Could that make a tipping point? Not much of one IMO. Most people have learned not to chase the market but it is hard to resist when you watch it going up and the smartest guys in the room are saying “Buy now”. About the only real tipping point you have is the age old one between fear and greed.

There are enough questionable factors going on to make me believe we were not at a tipping point for the upside. OK, I know this is hindsight and that it is 20/20 but I felt that earlier in the week as well, take my word for it. I couldn’t quite understand the US consumer being back at it. Good numbers from Wal Mart and Costco just aren’t enough for me. I don’t see much job growth going on. I am hiring now but we are in an unusual circumstance and I am not going overboard as a business owner. And I see a lot of people out of work or underemployed. What’s the difference between underemployed and employed? Expectations. I am afraid that a lot of the resumes we have for engineers are from people who simply won’t be able to make a living as an engineer and will inevitably have to change careers to live. That’s just the state of business in the US. I don’t get the sense that the consumer is also going to bounce back because of the stimulus checks. I know we don’t have the numbers yet but at least in April, consumer debt took a nice pop. That’s not the sign that people have lowered their standard of living and can only consume based on what they earn. They still have plastic. Maybe they are counting on the gov bailing them out from their credit card bills and their mortgages? That is not good enough for a tipping point to expansion. I bought some Apple a while back when it was in the 130s and I was looking to increase the position but it got away from me. Now, I don’t consider Apple a tech stock. It’s a retail stock as far as I am concerned. So is there enough demand for iPods and iPhones to keep it going up from the 180s? I think it would be healthy if it retreated from here as the retail demand is going to soften going forward for a few months. It is really getting close to what I consider priced for perfection given the current economy.

Energy is not under control. I was convinced that we would see $5/gal here in NoCal this summer and I think I was wrong. The question is going to be how much over $5/gal we are going to see. The consumer isn’t through feeling this pain yet. And in my informal survey, especially as gas price stabilizes at all, the SUVs and mega trucks are still out there. Of course all of them are people who need them for work and they suffer terribly. Funny thing is, the majority of the pickup beds I see are empty, just like the front seat except for the driver. And having lunch on Wednesday I was able to watch three women pull up to the parking space outside the window of the restaurant and disembark from their GMC Denali behemoth after successfully docking it. I am sure these are three very nice ladies. Driving that Denali to lunch was ridiculous just as the notion that somebody needed a vehicle that size because they have a kid that plays soccer. Energy may not impact any industry more than the airlines. Unfortunately for the leisure traveler, they have finally figured out how to raise fares. No, not by charging you for pillows or fresh air but by “retiring” aircraft. I believe United started it, sorry if that is wrong, and now everybody is sliding right along. They ditch the planes, especially the less fuel efficient ones and they can naturally cut routes. Live in a small city that has commercial airline service? I wouldn’t count on it for too long. My contacts say that the airlines think this strategy is working and are hoping to have airfares a year from now up 25 to 30% from todays. Those doe eyed people who say “How am I going to go see Grandma in Orlando” are in for a big surprise. The surprise is you aren’t entitled to see granny. If you’ve got the bucks, and the best thing you can think to do with them is see granny, you get to go. Otherwise, move closer if you want to see her. Oh, and the real layoffs for the airlines haven’t started yet. They have done some reduction in salaried workers but my guess is the union workers are in for a very nasty, and big shock coming up.

Employment was not down as much as expected but the unemployment rate is higher than expected. Now, I believe that Benny and the Feds are on hold until they see the effect of the stimulus checks and that isn’t until third quarter at the earliest. Well, third quarter starts in July so they get to see. If the economy is softening, and the feeling is there might be an interest rate cut or two left in the Fed, the dollar weakens more, and oil goes up. Speculators might have made a lot of money this week. I have a feeling they also lost a lot of money this week. Funny how those who are just convinced that speculators are responsible for the price of gas simply cannot come to terms with the fact that you can lose big time playing commodities in just 24 hours. Why hasn’t oil stabilized? I mean come on, we know now Obama is the heir apparent and his “change” means things will have to get better? It is interesting that the knock on McCain is he doesn’t understand the economy. A relative novice who is a lawyer by trade just has to understand economics better because he doesn’t have anything to do with Bush? Not so quick. Few people here know me, other than some of the CL guys, but believe me, I am an equal opportunity critic of both parties. Last night, an official of the Israeli government does what Israelis often do and said that this UN nonsense is doing nothing to handle the nuclear threat from Iran and that if something more concrete doesn’t happen, they will take care of it. And they will use US support. Think you’re paying too much for gas now? Wait and see what an attack on Iran does. If I were the Israelis I would sure do it with the current administration. Duh. So that means this summer. If, and I hope that is a big if, an attack does come to curtail Iran’s nuclear ambitions, the prices for gasoline are going to shock a whole lot of people. You could easily see $7 or $8, maybe more, for a gallon of gas. It shouldn’t last for long but it will definitely rock the economy.

And then there is the election. I try to slant more econ in my posts and leave cp free to address the pol issues but then there is a reason why this is polyfispectrum. Joined at birth is a good analogy. If you believe Obama is going to win, without having to get into details, then you believe taxes will rise. With control of Congress and him in the WH there is nothing to stop their plans. Whether I feel tax increases are needed or not (I have to look at the proposed increases and what their revenue is intended for to decide) one thing I can tell you is that they are a galaxy class moronic idea with a fragile economy. No matter how many balloons you drop or how sure you are that you know what is better for everyone. There is an exquisite torture in this as well. The Dems really want a poor economy going into the election. Parties in power lose elections when the economy is in the toilet. But with a fragile economy, the last thing we will need is tax increases, even if only on who Obama, Nancy the P., and Barney Frank determine are the “rich”. Government policy on taxation in a poor economy is just like skippering a sailboat in light winds. You need to have a gentle touch on the tiller with no sudden moves. In a perverse turn, I could say that the government that does least does best in a poor economy. That would justify a vote for McCain and a sincere hope that it is enough to induce gridlock for at least a year or two. But is the election a reason to believe that we are near a tipping point for an economic recovery? Not in my book.

Whether you think we have set a double bottom now and oil is heading back up or not doesn’t make much difference. I believe the risks of downside on oil (increased oil prices) are greater than the risks of economic recovery and upside. And the Feds are probably going to become much less meaningful going forward. I wouldn’t think that there is unanimous support for Benny Bs power grab and Bear Stearns bailout. Politicians are always on the side of the guy that is perceived to have made the right policy decision. But they will also turn like a pack of wild dogs when they smell votes to be made by throwing the Fed, or at least Benny, under the train. And even within the Fed there are disagreements over the expanded role they have assumed. An interesting note is that the gov who presents inflation rates also determines how they are calculated. And they have changed. If you calculate inflation using the math used during Regan’s administration, inflation is running about 11% right now. I don’t have the reference for that but it was from a source I respect so I didn’t feel the need to research it much other than to know he was right on the changes. And that inflation is going to outstrip any other government cooked numbers on productivity gains to make everyone feel better. As for the rest of that cash I have, well I am not convinced that the better opportunity to put the rest back to work in equities is now. I think I can wait for a better opportunity or at least better indicators.

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Recession? What Recession?

WASHINGTON (AP) — The economy plodded ahead at a 0.9 percent pace in the first quarter — slightly better than first estimated — but still underscoring caution on the part of consumers and businesses walloped by housing, credit and financial problems.

The new reading on gross domestic product, released by the Commerce Department on Thursday, was an improvement from the government’s initial growth estimate for the January-to-March quarter as well as the economy’s performance in the final quarter of last year. Both periods were pegged at a 0.6 percent growth rate.

Gross domestic product, or GDP, measures the value of all goods and services produced within the United States.

The first-quarter performance matched analysts’ forecasts and offered a somewhat encouraging sign because it showed the economy was still growing at that time. The figure didn’t meet a definition of recession, which under a rough rule is two straight quarters of shrinking GDP, and might raise hopes the country can dodge a full-blown downturn.

Fallout from the housing crisis continued to be a big drag on overall economic growth.

Builders slashed spending on housing projects by 25.5 percent, on an annualized basis, in the first quarter. That was the most in 27 years.

Consumers — whose spending is the economy’s lifeblood — are feeling the pressure from the economy’s problems.

They increased spending at just a 1 percent pace in the first quarter. That was the slowest since the last recession in 2001. Consumers are pulling back as high energy and food prices leave them with less money to spend on other things. Falling home values are making many homeowners feel less wealthy and less inclined to spend. And, the credit crunch has made it harder to finance big-ticket purchases.

Businesses also showed some caution, cutting spending on equipment and software. However, investment in commercial construction wasn’t as weak as the government first estimated, contributing to the upward revision to first-quarter GDP.

One of the bright spots keeping the economy afloat in the first quarter was export growth. Exports grew at a 2.8 percent pace. Although that was not nearly as much as first estimated, exports still were a force for GDP growth. The falling value of the U.S. dollar has made U.S. exports less expensive to foreign buyers.

In other economic news, more people signed up for jobless benefits last week, the latest sign of softness in the employment market. The Labor Department said new applications filed for unemployment insurance rose by 4,000 to 372,000 last week. The increase left claims slightly higher than the 370,000 level that economists were expecting.

Looking ahead, top forecasters at the National Association for Business Economics predict the economy will eek along at a 0.4 percent growth rate during the April-to-June period, which is expected to be the weakest quarter of the year. Growth should pick up to a 2.2 percent pace in the third quarter, energized by the Fed’s powerful series of rate reductions and billions of dollars worth of tax rebates flowing into the hands of Americans from Uncle Sam.

The Bush administration and the Federal Reserve also are hoping for economic rebound in the second half of this year. That — along with inflation concerns — is why the Fed has signaled it isn’t inclined to lower rates further.

Even if economic activity strengthens later this year, the unemployment rate — now at 5 percent — is expected to climb to 6 percent or higher early next year. Businesses, which have trimmed their work forces to cope with the economic slowdown, will be reluctant to bulk back up until they feel certain the economy’s recovery will be enduring.

An inflation measure linked to the GDP report showed that prices grew at a rate of 3.5 percent in the first quarter. That was the same as initially estimated and down from a 3.9 percent pace in the fourth quarter.

Excluding food and energy prices, “core” inflation increased at 2.1 percent pace in the first quarter. That was down slightly from the government’s first estimate of a 2.2 percent increase for the period and also marked a moderation from the fourth quarter’s 2.5 percent growth rate. The core inflation figure, however, is still outside the Fed’s comfort zone. The upper level of the Fed’s inflation tolerance is 2 percent.

Looking forward, inflation pressures could get worse given surging food and energy prices. Oil prices, which have racked up a string of record highs, are hovering above $131 a barrel. Gasoline prices have marched higher, too, moving closer to $4 a gallon nationwide.

Those high prices are a double-edged sword for the economy. They can put a damper on growth and also can spread inflation if they force companies to boost their prices.

Like I have said to the nay sayers over the last 6 months to a year, we are NOT in a recession, we are in an ECONOMIC SLOWDOWN.

Most of which lately is now being caused by the HUGE cost of oil and the cost of people filling up their tanks instead of going shopping.

The housing market is cleaning ITSELF up, just like the free market is supposed to do. Its stabilizing prices of homes to REALISTIC LEVELS. Home builders are lowering the prices of their new homes, just as expected. In my area, new homes dropped 15K-25k in just 1 month to attract buyers. I myself am interested. The main problem now however is oil, slowing down the economy further from people needing to spend more money on Fuel then on buying crap.

I am sure the Recession screamers will commence soon enough once this story fades.
The media will undoubtedly not report this because it doesn’t hold true to what they have been screaming for the last year. The impending DOOM of the US economy.

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The gyrations continue and there’s little to do but watch it play out. For what it’s worth it sure likes like we have one heckuva struggle going on. The players are the economy, oil, and the dollar. On any given day, the order will change but we have a strange situation where the three are inextricably bound together and can’t get away from themselves. The categories aren’t simple and there can even be similar components but you get the sense that we are at a tipping point. Where it tips, and for how long, are the billion if not trillion dollar questions.

The Economy: I would put forward indicators like the stock market in here as well as house prices. Corporate profit erosion as well as corporate writedowns of bad debt also show up here. And just to make it even larger, the consumer winds up in here. Normally I would say that the economy is at the whim of the dollar and oil but we have a wonderful situation here where in the US at least, if the economy slows, oil demand could decline further while a more robust economy would increase demand. As oil is no longer dependent on the US for the majority of the demand component, this effect is somewhat less relevant as the gallons that the US consumer passes up don’t sit in the tanks and lower prices, they simply go to China. And the American consumer’s reward for cutting consumption? Just about nothing. Benny and the Feds are in the waiting game now as well as finding themselves between economic growth and inflation. Fortunately for them, the way that inflation is calculated, much like recession determination, undervalued the inflating of the real estate bubble so inflation didn’t get out of hand with skyrocketing house prices. Then again, there isn’t much to reap with falling real estate prices either. And energy has finally gotten to the level where it can exert its impact widely. Food costs are spiking up and there isn’t much that outsourcing is going to do to save it. Credit will remain tight for a while and while the economy, particularly Wall Street, can be a self fulfilling prophecy, there are a couple of things that keep things in check. Greed is still good on Wall Street but withering, prolonged decline is tough to handle. Can the US get through this slowdown and go back to business as usual? Good question. Will the consumer finally get his wings clipped as home equity languishes with salary increases and inflation with energy just keep eating up income? Another good question. Wouldn’t want to bet the farm answering either one.

Oil: Let’s recap. When oil hit 70, the experts said it would retrench possibly back to 20. When it hit 90 the experts once again expected it could slide all the way back to 40. And at 130 they are asking “Is this the top?” While trying to out-shout their competitors for camera time, rarely does one of them ask the economic question of what happens to the price of a natural resource that has a finite supply when you have unlimited demand? Whether 130 is a sustainable level, and we are no where the time where oil traditionally peaks in price, is yet to be seen. But the dour predictions of oil 150 or 200 or 300 will come true in a reasonable time frame while Dow 30,000 ain’t going to happen anytime soon. If the world economy slows, maybe there will be pressure on oil to come back down. But that’s a big if.

Will the consumer really get the word on oil consumption and force auto makers to offer product that gets over 30mpg real world average? If they do, they won’t do it quickly. The auto makers have been caught flat footed. In the US the consumer used his/her power to convince themselves that they not only needed that Hummer to take the kid to soccer practice but that the price of gas was trivial. How will the US consumer adapt to reality? Well, they don’t exactly have a good track record. There is no magic to higher gas mileage cars, they need to be smaller with smaller engines. There is no nanotechnology breakthrough that will rewrite some old rules of getting from A to B. Can the US consumer adapt to life as a European auto consumer where cars come with 2 to 2.5 liter gas and diesel engines instead of sneering at 300hp V6s as just not enough for my commute? My guess is they will finally get it and realize the price they pay for large powerful vehicles. But the product just isn’t here right now. The auto makers bring out new models slower than the ice caps are melting. And the folly of putting humans in the position of equating food with gasoline with moronic ethanol subsidies will be a shame for the politicians and the environmentalists for years to come. There just isn’t a silver bullet, the US doesn’t need to ween itself off of energy consumption but it has to become a lot smarter at making the energy decisions than it has shown itself capable of from historical analysis.

The Dollar: This for me is the new player. Benny and the Feds are in a wait and see mode as far as I am concerned. So the dollar strengthened by not having to deal with anymore rate cuts in the near term. The Fed has backed themselves into their own corner. By waiting so long to lower rates they had to move decisively and still have a fragile economy. They can take solace in the fact that the financial institutions are in a period of rocky stability, for lack of a better term. And inflation is in the 4 to 5% range which isn’t good but it isn’t “end of the world” bad either. At least if it stays in that range. But they have put themselves in the position of having almost a one for one impact with rate cuts on the dollar going forward. By that I mean that if they reduce rates at all, twenty five or fifty basis points, the dollar will weaken, oil will climb and the effect will be quickly measured on inflation. The gov typically declares victory and goes home regardless of the facts and that will likely be the outcome with the George W. Bush and Nancy Pelosi Memorial Tax Rebate Stimulus and Feel Good package of 2008. There are wild projections on the number of jobs that will be created by the checks and the numbers will probably be able to be tortured into appearing that way but the reality is more likely to be that the dollars will be spent, not saved, but that they won’t have any large or lasting effect on the economy. With the Fed on hold, the dollar is seeking a new level and that can vary on a day to day basis. Inflation in China in particular is a problem for the Chinese but they still aren’t the slightest bit interested in revaluing their currency. But according to the Economist, the price of Chinese imports into the US are already up over 4% this year. And many companies are finding that the labor rates in China are no longer an immediate given for low cost fabrication. After Rome and the British empire, the US is about 100 years into its run as the dominant power. Maybe that has already passed but I doubt it. But one thing is sure. The amount of time it takes to have an industrial revolution, create a middle class, have spectacular growth, become a dominant economic/political power, and then start declining is on a shortening cycle. And the Chinese are probably already at least ten years into their climb. The dollar is giving them fits as well. When you are used to running a country with a single party system, it is a bit tough to figure out what to do with outside factors.

So how long will the triangle of prosperity spin? Hard to say. As I said, I think we are at a tipping point. If I were a betting man, and I am getting too old to favor the risk side of the risk/reward equation, I would say that we have two likely scenarios. The first is an economic recovery starting now but going on agonizingly slow for quite a while. The second would be a double dip drop where some factor causes the fragile economy to decline again going into the end of this year and the beginning of next. Of course, with an election coming up, it gets even harder to judge. But DC isn’t on the sidelines anymore because they smell votes to be gotten. And with the Republicans in the disarray they are in, the Dems are surely to consolidate their gains whether or not they take the WH. Then the most feared words in the country may be “Hi, I’m from the government and I’m here to help you.”

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