10.02.09
Can the market create prosperity?
Some of our elected representatives in Washington say our big government can’t do anything well. Ironically, while it’s true the federal government obviously did a slip-shod job of regulating the mortgage and banking industry, those elected officials are in charge of everything from what the government spends to how it runs, and many of them have been there for well over a decade, doing whatever it is they do to make it “better.”
We’ve tried less regulation; we’ve tried lowering taxes; we’ve outsourced to save money including using private contractors instead of the military to fight a war that obviously hasn’t stimulated the economy; we’ve tried everything the politicians could think of except privatizing our social security accounts – and most of us are glad that didn’t fly.
Where have they led us?
The economy will need years to recover from the steep plunge in 2008, unemployment is still rising, mortgage foreclosure rates are problematic while home prices tumble, banks are being closed at a record pace, and institutions “too big to fail” are on the verge of filing bankruptcy despite the former administrations attempts to rescue them by propping up their finances with billions of tax dollars.
On the other hand, gas is back down under $3 a gallon – who would have imagined that was a good price 5 years ago? Still, that’s what the middle class is cheering about today (it sure isn’t the price of education or health insurance.)
When was the last time you say “Made in America” on the label of something you bought? Plants sit idle while manufacturing jobs continue to dwindle. Where have we been investing? In derivatives – financial products so complex that the people who buy and sell them can’t really tell you how they work. Once upon a time we heard about the huge growth of jobs in the service sector, but if you call for service you’re as likely to get a machine answering the call as a person, and when it’s a person they’re often overseas – who knew we could outsource service sector jobs?
The President’s got a real rat’s nest on his hands with the economy. Depending who you listen to he’s either put the foxes in charge of the chicken coop or hired the people who made the mess in the financial markets to clean it up. The former would be a disaster, obviously, but even the latter is rather daunting (and yes, I know, banks hire former bank robbers, computer security firms hire former hackers, but that doesn’t make me comfortable.) Granted, Obama’s shown a desire to invest in America, to get people back to work, but he’s still a relative newcomer and the entrenched powers that be in both major parties were there – in charge – as all these problems brewed up this ugly mess in the first place. There’s enough blame to go ’round on Capitol Hill when it comes to the economy. One man by himself cannot create – or recapture – our American Dream.
It’s not enough to “stimulate” the private sector and create green jobs; our leaders have to insure that the sorts of abuses which led to this crisis won’t recur. The abuses of the public trust are not confined to Wall Street, they’re also there on K Street, First Street, and South Capitol Street… and consumers are justified in being dubious that the people who left this series of overlapping errors unattended are the proper ones to lead us out of the resulting crisis. The denizens of the Capitol have shown a propensity for bickering and posturing, but little in the way of solutions has emerged – to the point that the executive branch is now authoring legislative proposals since the two parties can’t agree on how to move forward together.
It’s time to invest in us and our future – in infrastructure and education, and in making sure that anybody who works for a living can afford to stay healthy and enjoy the retirement they’ve earned. I’m not advocating isolationism, mind you, but multi-national corporations aren’t helping anybody but themselves. Small businesses that put local people to work and keep the profits within our communities are the engine that can power economic recovery. Tax breaks for mega-corporations end up being bonuses for already-rich CEOs – what trickles down is being funneled through lobbyists right back to Congress, apparently.
We pay our taxes so the government can do what is necessary for the common good. Seems to me all the government’s done for most of the past 10 or more years is grow larger. What have our Senators and Representatives done but watch as the entire system melted down? OK, granted, they did just boost their own budget, and sure, CEOs and lobbyists are still pulling down a good paycheck, with full benefits – but what about the rest of us?
07.21.09
Why is Caterpillar in the ERRI?
Caterpillar Inc. (CAT) is more than just machinery (and engines) essential to building projects familiar to anybody who drives past a highway under construction. They also have a financial products segment (which consists primarily of Caterpillar Financial Services Corporation, Caterpillar Insurance Holdings, Caterpillar Power Ventures Corporation and subsidiaries.) As such, this iconic company deals with the design, manufacture, marketing and sales of construction, mining and forestry machinery and engines. In April 2008 Caterpillar let go of market research and customer analytics operations and acquired Lovat Inc., a global manufacturer of tunnel boring machines (think railway, road, sewer, water main, mine access, high voltage cable, and telecomm tunnels.)
As the economy begins turning around, construction starts either with demolition or heavy equipment digging in and moving dirt. Long before electricians, roofers, and plumbers are called in we start making the ground ready. Smaller enterprises, such as Deere and/or Cummins have weathered the past year more easily in the estimation of market analysts and traders.
CAT was trading under $22/share when much of the market struggled in early March, considerably down from the nearly $76 the stock commanded in July 2008 before the reality of the credit and mortgage crisis took hold of both the public interest and the traders sentiments.
The company laid off 2200 workers later that month, mostly in Illinois. Stock price trends reflect “collective opinion” within the investment community, and somewhat surprisingly the news didn’t drive CAT shares even lower. The 50 day Moving Average and the 200 day Moving Average are trending “bearishly” lower, but a lot hinges on earnings reports due out later today. Other technical indicators, such as the Chart pattern, complete a “mixed” outlook – as is true for much of the economy. Here, then, is an equity tied to the most fundamental aspects of recovery – putting American workers back on the job.
With $22.1 billion in market capitalization, CAT, a Mid-Cap stock, represents the challenges facing the Construction and Agricultural Machinery industry. CAT comprises half of the Capital Goods sector of the ERRI fund, and 4.87% of the entire fund.; it’s arguably more key to the public perception of ecomonic recovery than almost any other non-banking stock. (While the other capital goods stock, Honeywell, is also a household name and has been looking relatively solid compared to much of the Defense/Aerospace industry over the past 12-18 months, CAT has been hurting. Even the President sees Caterpillar as something of a bellwether.)
Disclaimer: Readers are advised that the ideas, materials, and opinions contained herein should be used solely for informational purposes. The author does not purport to tell or suggest investment securities that should be bought or sold. Investors should always conduct their own research and due diligence and obtain professional advice before making any investment decision.Neither the author nor realitytax shall be be liable for any loss or damage caused by a reader’s reliance on information obtained in any posts, newsletters, special reports, email correspondence, or comments on the web site. The author is not a registered investment advisor or broker/dealer. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase (or sale) of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty is made as to their accuracy or completeness, and we are not liable for errors or omissions. All such information should be independently verified with the companies mentioned. The author(s) receives no compensation of any kind from any companies that may be mentioned on this web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed; the intent is neither to suggest investment choices/strategies nor to influence market conditions, but rather to divulge methodology for inclusion of equities and sectors in the Economic Recovery Reality Index [ERRI]
07.20.09
Why is Fifth Third Bancorp in the ERRI?
Fifth Third Bancorp (FITB) is a diversified financial services company in two U.S. regions affected differently by the economic crisis reverberating through the country on the heels of the credit/mortgage crisis of 2008. As of the end of 2008, 5/3 Bancorp operated 1,307 full-service banking centers, including 92 Bank Mart locations through 18 affiliates in the midwest and southeastern regions of the United States. The Bancorp operates through five business segments: Commercial Banking, Branch Banking, Consumer Lending, Fifth Third Processing Solutions (FTPS) and Investment Advisors. (On June 6, 2008, Fifth Third Bancorp completed the acquisition of First Charter Corporation.)
In indexing banking sector recovery on the heels of major intervention in the largest U.S. banks by the government it is difficult to ignore that Large-Cap institutions are influenced by TARP processes – it’s impossible to measure what’s happening without considering these large institutions. Considered against its peers, such as Regions Financial, Huntington, or Marshal & Ilsley, FITB seems solidly positioned.
FITB, which has traded as high as $21 within the last year, was in disfavor with traders before much of the market in early March, bottoming out near $1/share a couple weeks sooner. Stock price trends reflect “collective opinion” within the investment community. The 50 day Moving Average is rising; the 200 day Moving Average is falling which is Bearish. Other indicators are mixed – as is true for much of the sector.
With $4.1 billion in market capitalization, FITB, a Mid-Cap stock, is initially weighted as 3.37% of the whole (the financial sector comprises just slightly over 10% of the ERRI fund, arguably the key component in the index itself) the rest of the sector is represented in the equity compenent of the ERRI by Allied Irish Banks (AIB) and Comerica (CMA).
Disclaimer: Readers are advised that the ideas, materials, and opinions contained herein should be used solely for informational purposes. The author does not purport to tell or suggest investment securities that should be bought or sold. Investors should always conduct their own research and due diligence and obtain professional advice before making any investment decision.Neither the author nor realitytax shall be be liable for any loss or damage caused by a reader’s reliance on information obtained in any posts, newsletters, special reports, email correspondence, or comments on the web site. The author is not a registered investment advisor or broker/dealer.
The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase (or sale) of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty is made as to their accuracy or completeness, and we are not liable for errors or omissions. All such information should be independently verified with the companies mentioned.
The author(s) receives no compensation of any kind from any companies that may be mentioned on this web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed; the intent is neither to suggest investment choices/strategies nor to influence market conditions, but rather to divulge methodology for inclusion of equities and sectors in the Economic Recovery Reality Index [ERRI]
03.24.09
Information in the open changes the way business was done in DC.
President Obama told the National Conference of State Legislatures last week that, “Decisions about how Recovery Act dollars are spent will be based on the merit…” and stressed that maximizing job creation, making health care affordable, rebuilding crumbling infrastructure, and other projects that manifest “enduring benefits” to taxpayers must take priority.
Under the recently issued guidance from the Obama administration (which some were hoping wouldn’t appear) lobbyists seeking an administration member’s time to discuss a “Recovery Act” project must submit their requests in writing so that correspondence can be posted online, just as with the topics of meetings between administration officials and lobbyists on stimulus efforts. This is not business as usual for DC lobbyists; this is a refreshing degree of openness at a time when voters are very curious about how their money is parceled out, and echoes his warnings to mayors last month that the President would “will call them out” on wasteful uses of stimulus dollars.
As history shows us, when we let Wall Street and lobbyists handle their own affairs in smoke-filled back rooms and over martinis at the country club, jobs and sustainable wealth fall by the wayside while cash flows to the wealthiest investors. Curiously enough, income disparities shrink while job creation and government revenues increase if, and when, the wealthy are taxed – it causes them to invest rather than hoard their capital.
Economic viability will come only through repudiating the unfounded faith many Republicans have exhibited in trickle-down voodoo and unregulated capitalism, paired with self-serving definitions of sound-bite terms such as educational choice. We need a return to an ethic of service, work, and strong family values such as the first family demonstrates.
We need to restore confidence – both here and abroad – that the United States is a leading force on economic and moral issues, not a duplicitous, arrogant bully guilty of not practicing what we preach. Obama’s walking the walk.
03.04.09
We need to invest in our country
As an entrepreneur who has run several small businesses, I think it’s time to return to fundamentals on the economy, starting with investing in America again. It’s small businesses that will put people back to work; that’s how we’re going to get this country back on its feet. It’s entrepreneurs and small business owners who respond with enthusiasm instead of being bound in their decision-making by CFOs and slow-moving Boards of Directors focused on short-term bottom line numbers, (the kind of decision-making that led to the foreclosure and credit crisis, and ultimately the big business bailout using taxpayer dollars.)
To be sure, we need public education, technical schools, and affordable college tuition so young Americans are ready for these new jobs. It’s a global economy, but most of us work in the same city we live in. When we see bulldozers
and excavators moving dirt, and trucks hauling instead of sitting idle at auction sites, then we’ll know things are turning around.
The President is intent on stimulating the private sector, but big businesses with names we all know have abused deregulation and the public trust. Credit card companies raise their rates willy-nilly, and hide extra fees in the small print. How much of his economic stimulus can be paid for simply by ending wasteful government spending, and eliminating tax cuts for the super-rich?
Is it a coincidence that the size of the bailout Bush proposed roughly equals the cost of the war in Iraq?
That war has been a burden on our military, and paying the debt is a drag on our economy that will linger for years. The new President is winding that down, but we’ll be paying for it for years and spending is only half of the equation. The money to do these things has to come from somewhere. Government is here to stay: In some way we need to fund the things that make government work for the people. Our elected leaders, in turn, must stop letting our hard-earned tax dollars simply line the pockets of special interests.
The American Dream isn’t about letting lobbyists control who pays taxes and who gets rich, it’s that any child in this country should have a chance at becoming a productive adult who can support and raise a family comfortably. Working full-time and pulling your weight should mean you don’t have to worry about grocery bills, the price of commuting, or paying to see a good doctor when you or your family needs medical care.
Tax credits for continuing education make it tempting to better yourself. The tax cuts for the middle and lower class earners proposed by the Obama administration make a start at offsetting the skyrocketing costs of groceries, health care, and college, but we need to go further. One great idea is to give tax incentives to companies that cover increases in health care costs while the President tries to reform that out-of-control system.
Public pressure and increased scrutiny are starting to make companies think twice about huge salaries and bigger bonuses for wealthy executives while pleading for bailout funds and cutting paychecks and benefits and pensions of the people who do the real work. Let’s take it a step further and tax those who make money by exploiting cheap labor overseas. Our government needs money to operate, 
no matter if it’s to build roads, insure products made overseas are safe, or to keep our military strong, and if a company doesn’t want to pay American workers they still have an obligation to contribute and support the system that has made their success possible. We need to reverse the trend of layoffs and plant closures; we need to rebuild the foundation of our economy – and the American Dream – by putting Americans back to work.
02.22.09
Economic Recovery: Facts for D.C. to factor in
When Congress and the President are working on the budget, they have a perfect case study for the “no new taxes” approach right here in Minnesota: we elected a rising star of the Republican party to be our Governor in 2002 on that pledge, Timothy J. “Tim” Pawlenty. 
Now in his second term, Governor Pawlenty won the office promising to balance the state budget at a time when Minnesotans were tired of the way politics had played out in the state capitol while Jesse”The Body” Ventura as Governor, and according to Wikipedia, Pawlenty attacked a deficit of roughly “$4.3 billion without raising taxes, primarily by reducing the rate of funding increases for state services, including funding for transportation, social services, and welfare.“
“New fees aren’t taxes”
If not for the fact that the tourism industry in the state took a big hit in 2005 due to a government shutdown and closure of highway rest areas, state parks and so on, we might have been ok with the winking at that pledge and calling some things new “fees” instead of taxes (heck, it was only $300 million or so,)
and major increases in tuition at the state colleges and universities, or cuts in areas such as school spending — until we realized there was no longer a band playing at the high school events. And in places where they value music, such as Fergus Falls, the communities and booster clubs can find local funding to keep band directors such as Scott Kummrow employed, right?
We needed the revenue, clearly, and the Governor didn’t raise taxes – although local jurisdictions had to fill the gaps as the money from the state dried up, but that’s another story. By the way, adding toll lanes to busy commuter routes isn’t a new tax, either. I have some question about how to label the bond bill the governor signed last year, but he vetoed some line items so maybe we can say he somewhat limited tax increases in the future?
But lets not quibble about fees and bonding, let’s talk about the Minnesota economy and budget – that’s the point. Sure, we might have put thousands of Minnesotans to work if the bond bill had included funding for light rail connections between Minneapolis and St. Paul, and that probably would have stimulated business and tourism in those areas, but it would have made the bonding bill even larger and somebody would have had to pay and the delay only adds maybe $40 million to the cost – later, when he’s no longer the Governor. And now our budget deficit in probably only $7-$8 billion.
No New Taxes
In Minnesota trying to generalize that taxes were problematic by definition glossed over that the government runs on money: funding for nursing homes, teachers, and education was slashed, for example, and the costs passed on to local communities to “balance the budget.” The state budget deficit is now conservatively projected at double what it was when Pawlenty took office, while sales tax revenues fall and companies slash payrolls driving people onto unemployment rolls (placing their health care coverage at risk and further reducing consumer spending.) At least 
Pawlenty isn’t posturing for the pundits as Louisiana Governor Piyush “Bobby” Jindal and a few others are by suggesting we won’t take “stimulus” money from the federal government – He’s saying Minnesota government needs cash.
We borrow to buy homes, cars, and even smaller items that fit on our credit cards. We continually pay interest to some of the same companies that needed bailing out on Wall Street, while one group of people benefits: the rich. They don’t worry about the price of cheese, cars, or college.
History doesn’t support trickle-down theory.
For the common good it’s time we admit that when you cut taxes for the rich they mostly they stash more money into their nest egg(s) so they can retire early, live comfortably, eat cake, and travel the world. Meanwhile the rest of us watch our food budget, some see the investment in their homes plummet, and if we have put money aside we watch what remains of it shrinking in our privatized retirement accounts.
Digg this story!
02.08.09
600,000 additional jobs lost in January.
The U.S. economy continues to reverberate from the policies (or perhaps lack of policies) that the Bush-Cheney administration championed since taking office 8 years ago, and by most accounts we’ve now lost over 3.5 million jobs during the recession that they bestowed upon the tax-payers and future tax-payers. The layoffs are building momentum, the unemployment rate is soaring, yet certain members of the U.S. Senate and House of Representatives continue to support the trickle-down theories that brought us to this economic precipice. But it’s not their fault.
I don’t mean the state of the economy – that’s the fault of everybody who ever championed, or simply ignored, deregulation of the banking and financial industries. No, it’s not their fault that they’re engaged in partisan theatrics at a time when the country has demonstrated a broad mandate for new approaches, because Nancy Pelosi tricked them. The Speaker of the House got the minority to close ranks, to vote as a bloc to block the first version of the new Stimulus bill even though they had been altogether supportive of Bush’s unfettered spending as the previous administration was winding down, and now the Republican Senators are largely following suit.
Some strategists might suggest that at such a juncture the wise thing would be to give the newly elected President what he asks for, hoping that by the time the mid-term election rolls around they’d have something to point their fingers at if it fails while saying, “we did what he asked.” But these savvy politicos couldn’t pass up the opportunity to close ranks when Pelosi ran a bill through quickly for a vote, and now they’re posturing desperately while the tax payers and voters watch more closely than the D.C. insiders are accustomed to – they’re being downright obstructionist, and that leaves the Democrats in a stronger position.
All the voters are seeing offered as alternatives by the Republicans is “cut taxes.” Cutting taxes sounds pretty good to the people at the top end of the earning scales, but when you’re worried about losing your job and keeping food on the table your concern is not for the Capital Gains tax which is already considerably lower than the Income Tax, your concern is over staunching the flow of jobs before unemployment spirals to the levels of the Great Depression. President Obama’s right to insist on timely action, the same sort of need the prior administration finally woke up to in the waning lame-duck days of their power.
Theatrics are alive and well in the Senate.
What are the Republicans opposed to? Not so much, it turns out: something under 1% of the spending, yet rather than come with proposals for the voters to contemplate their doing what worked in the past, made-for-Fox drama and histrionics, name calling. While the President is visibly reaching out to find common ground, some of the most influential Republicans in the capitol are hoping for sound-bites of their outrage and opposition “you have to start from scratch” – they failed to realize that Nancy Pelosi invited them back into their old, discredited “we-they” postures for the national audience, and failed to understand the urgency and pain of their constituents as the layoffs and foreclosures continue.
I might counsel the Speaker to be less successful, but I know there’s no taking the politics out of the process. I just hope the damage she’s done to the opposition doesn’t delay the repair the President’s crafting for the people.
The reality is the situation is urgent; we can’t allow the economy of the nation to falter and stall, we can’t afford it. The decisions have to be made and plans launched by people who can’t remotely follow the calculus that economists such as Paul Krugman or Mark Anson employ. Americans want to get back to work – and we want our elected leaders to do their work swiftly so we can stop laying off teachers and assembly line workers and losing their productive participation in our economy.
Maybe if we enforced layoffs in Congress in proportion to the rest of the country, or the budget, they’d get off their rhetoric and get the bill passed.
10.16.08
Can somebody explain McCain’s goals and priorities?
I don’t understand McCain’s priorities or his rationales. Maybe he’s never heard of insurance companies controlling medical procedures and limiting access to prescriptions – he’s got better coverage than I do, certainly. After watching the final Presidential debate of 2008 I can’t see how most senior citizens in the U.S.A. can afford McCain’s policies; he voted against much needed-increases in Medicare funding, taking away many seniors’ only access to health care. He thinks the health care system is working just fine.
Senator McCain evidently has a different view of Social Security than I do. McCain wants to privatizes Social Security, as Bush had championed, so we’re all dependent on the vagaries of the stock market. We’ve seen the downside of that risky approach. McCain, who championed deregulation in the stock markets, thinks the health care insurance industry should be similarly allowed to regulate itself. He asserts that will improve our health care without getting bureaucrats in the way, but he wants government bureaucrats to ride to the rescue of 11 million homes with bad mortgage deals, armed with $300 billion from the bailout plan. Am I the only one who sees a disconnect?
Turmoil in financial markets threatens – if not undermines – our retirement savings. Coupled to rising costs for everything from health care to energy, senior citizens and others on fixed incomes are looking for a leader who will use the office of the Presidency to improve our financial security via fiscally sound, robust economic policies. Yet McCain wants to deal with health care reform by granting insurance companies the latitude that banks used to crash the stock market?
Obama-Biden spokesman Bill Burton called on McCain to support Obama’s New Small Business Rescue Plan, saying:
Barack Obama supports allowing senior citizens to delay withdrawals from 401(k)s, and believes we don’t have to wait for Congress to act to provide seniors with these protections. He’s calling on the Treasury Secretary to temporarily suspend Treasury regulations and allow seniors to delay these withdrawals. He also hopes that Senator McCain will reconsider his ill-advised support for Social Security privatization, which suffers from the very same problem he is now trying to solve since it would potentially force seniors to retire when the market is down and their retirement accounts have disappeared. Senator Obama also calls on Senator McCain to support his new small business rescue plan that will extend badly-needed credit and tax relief to the men and women who are creating jobs in this troubled economy.
Senator 
Obama has a plan to help America’s senior citizens. Barack Obama and Senator Biden intend to protect Social Security and make sure Americans can afford to retire. The Obama-Biden proposals will expand retirement savings program and create new pension programs. Obama’s plan will eliminate income tax altogether for seniors who make less than $50,000 per year.
The Obama-Biden plan will protect and strengthen Medicare, and allow the federal government to negotiate for cheaper drugs for the Medicare program, so seniors can afford their pills. Obama will also increase funding for LIHEAP, to help seniors pay their winter heating bills. I get that McCain wants to win, that he seeks the prestige of being President after years of service in the U.S. Congress, but I prefer the vision Obama and Biden have expressed – their ambition to use the influence of the White House to make changes that foster financial security and bolster national pride while positioning the U.S.A as a leader on issues ranging from energy and the environment to fundamental human rights.
McCain’s a fine man, and I’m sure he’d be an adequate President for those who are so wealthy that taxes are a theoretical number handled for them by an accountant that never impact their daily spending decisions. The rest of us - the folks on Main Street who are still waiting for Bush’s economic policies to trickle down some personal economic prosperity or to create some jobs – will be better off under the inspired leadership of “that one.”
