Wednesday, September 1, 2010
Smoothing out the bumps in the road.
The economic news these days continues to be depressing. It’s hard to write about it week after week without starting to lose hope. I recently read a report in USA Today (on line) and it started off on an upbeat note, “…consumer confidence index stands at 53.5 up from 51 in July. The increase comes after two months of decline”. And I was thinking wow, a piece of good news about the economy. Then I read further and apparently a figure of 90 or more indicates a healthy economy, a level not seen since December 2007. I should have known it was too good to be true.
Then more good news, the home price index rose in June for a third straight month. Then the bad news, the new home buyer credit has expired, demand is down and home prices are expected to fall for the remainder of the year. Then the good news, “expectations about future business and labor market conditions have brightened”. Then the bad news, “overall consumers remain apprehensive about the future”.
After opening on a high note the article rolls up and down like bumps on a road and it finished on a low note. I guess this is appropriate because that’s the way the economy has been for the past two and half years. The comments at the end were rather bleak, “the economy is weaker than expected, non-farm payrolls to decline by 100,000 jobs in August and unemployment is expected to increase from 9.5% to 9.6%”. This is a very depressing, but probably a realistic outlook for the balance of the year.
If you recall from a prior blog of mine, 70% of our economy is based on consumer spending and when consumers lose confidence because their banks begin to fail and their neighbor is unemployed we all suffer. So, how do we smooth out the bumps in the road, let’s get the neighbor a job. Who hires first coming out of a recession? Historically, it’s been small business. So, now that banks are a lot healthier let’s get them lending to small business again, let’s have the regulators loosen up a little, let’s not let tax incentives expire, let’s not increase taxes, let’s focus on jobs, jobs and jobs. Health care, immigration, Mosque building and hurricane’s are all important topics and if we let them they will distract us from 10% unemployment and a 1.6% GDP growth. Stay focused and don’t forget to vote this November.
Then more good news, the home price index rose in June for a third straight month. Then the bad news, the new home buyer credit has expired, demand is down and home prices are expected to fall for the remainder of the year. Then the good news, “expectations about future business and labor market conditions have brightened”. Then the bad news, “overall consumers remain apprehensive about the future”.
After opening on a high note the article rolls up and down like bumps on a road and it finished on a low note. I guess this is appropriate because that’s the way the economy has been for the past two and half years. The comments at the end were rather bleak, “the economy is weaker than expected, non-farm payrolls to decline by 100,000 jobs in August and unemployment is expected to increase from 9.5% to 9.6%”. This is a very depressing, but probably a realistic outlook for the balance of the year.
If you recall from a prior blog of mine, 70% of our economy is based on consumer spending and when consumers lose confidence because their banks begin to fail and their neighbor is unemployed we all suffer. So, how do we smooth out the bumps in the road, let’s get the neighbor a job. Who hires first coming out of a recession? Historically, it’s been small business. So, now that banks are a lot healthier let’s get them lending to small business again, let’s have the regulators loosen up a little, let’s not let tax incentives expire, let’s not increase taxes, let’s focus on jobs, jobs and jobs. Health care, immigration, Mosque building and hurricane’s are all important topics and if we let them they will distract us from 10% unemployment and a 1.6% GDP growth. Stay focused and don’t forget to vote this November.
Friday, August 27, 2010
Ben today...us in November.
Ben Bernanke had the country’s ear today, but in November we will. Today everyone wanted to hear what Ben had to say about potential actions from the fed if the economic slide continues. Home sales have now sunk to record lows--they are down 27% from June. New jobless claims increased this past week to 484,000, the highest level in six months and 10.1 million Americans are now receiving unemployment benefits. The second quarter growth is down from an estimated 2.4% to a 1.6% and the Dow Jones dropped below 10,000 on Thursday, August 26th for the first time since July 6th to close at 9985.
The Federal Funds Rate is one of the main tools for effecting change in the economy and it is down to near zero. The Fed has also agreed to reinvest in new Treasury Securities using the proceeds from the Mortgage Backed Securities that it currently owns. However, is this enough? Bernanke has said we are on a long road back to good economic health even though some progress has been made and the worst of the financial crisis is behind us.
With the crisis continuing, Washington should be careful regarding talk about new taxes or increasing taxes. Getting American’s back to work should be the number one priority. That will entail keeping interest rates low for an extended period, working with bank regulators to loosen up on small business lending, encouraging the banks that have built up cash reserves to lend again. I fully understand that border security and what gets built at the site of 911 are important issues, but so is the creation of jobs, jobs and jobs. This is an election year, let them hear you.
The Federal Funds Rate is one of the main tools for effecting change in the economy and it is down to near zero. The Fed has also agreed to reinvest in new Treasury Securities using the proceeds from the Mortgage Backed Securities that it currently owns. However, is this enough? Bernanke has said we are on a long road back to good economic health even though some progress has been made and the worst of the financial crisis is behind us.
With the crisis continuing, Washington should be careful regarding talk about new taxes or increasing taxes. Getting American’s back to work should be the number one priority. That will entail keeping interest rates low for an extended period, working with bank regulators to loosen up on small business lending, encouraging the banks that have built up cash reserves to lend again. I fully understand that border security and what gets built at the site of 911 are important issues, but so is the creation of jobs, jobs and jobs. This is an election year, let them hear you.
Saturday, August 14, 2010
Dunkin Donuts and Cadillac...?
The U.S. government (you and I) invested over $50 billion dollars in General Motors to keep it alive, we currently own 61% of the automaker. Over the past year, under our ownership, GM has made some major strides to becoming healthier. It has shed a number of divisions including Hummer, Pontiac, SAAB and Saturn. It has paid back the $6.7 billion loan that we lent it and it is preparing for an IPO.
Will the IPO be a success, what is success? Will the tax payers get all their money back plus a risk adjusted rate of return or will we get a portion of it back? It is hard to predict given the economic climate. GM’s pension plan is underfunded by $26.4 billion and its U.S. market share has fallen in the first six months to 18.9% from 20.5%. However, it’s operating at 93% capacity up from 39% a year ago. The company’s profits are $2.2 billion for the first six months compared with an $18.9 billion loss for the first half of last year. It looks promising, but there are some hurdles.
The head of GM, Ed Whitacre, Jr. will be stepping down on September 1st to be replaced by Dan Akerson. Mr. Akerson is a Managing Partner with the Carlyle Group, a private equity firm and he will need to convince Wall Street that he has the skill necessary to run this company. He will also need to lead the largest IPO this year--larger than all 86 IPO’s this year combined and it could be the largest in history. The man who bought Dunkin Donuts and AMC movie theatres (I love both those brands) has a large hill to climb, let’s hope he can make us a believer in Cadillac again.
Will the IPO be a success, what is success? Will the tax payers get all their money back plus a risk adjusted rate of return or will we get a portion of it back? It is hard to predict given the economic climate. GM’s pension plan is underfunded by $26.4 billion and its U.S. market share has fallen in the first six months to 18.9% from 20.5%. However, it’s operating at 93% capacity up from 39% a year ago. The company’s profits are $2.2 billion for the first six months compared with an $18.9 billion loss for the first half of last year. It looks promising, but there are some hurdles.
The head of GM, Ed Whitacre, Jr. will be stepping down on September 1st to be replaced by Dan Akerson. Mr. Akerson is a Managing Partner with the Carlyle Group, a private equity firm and he will need to convince Wall Street that he has the skill necessary to run this company. He will also need to lead the largest IPO this year--larger than all 86 IPO’s this year combined and it could be the largest in history. The man who bought Dunkin Donuts and AMC movie theatres (I love both those brands) has a large hill to climb, let’s hope he can make us a believer in Cadillac again.
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