February 11, 2010

Are disingenuous “republicants” trying to undermine confidence in government?

Posted in economic recovery, GOP, health care, media coverage, mortgage reform, taxes, U.S. Economy tagged , , , , , , , , at 2:29 pm by realitytax

Now more than ever Americans question that Congress is ready, willing, or able to effectively govern. We trusted them with billions of dollars in handouts to Wall Street in late 2008, but still needed a separate stimulus bill to create jobs after a new administration took office, a process which has yet to make much headway as reverberations of the economic crash continue.

Some debate the value of Cash for Clunkers, too – mostly they’re elected to Congress as Republicans, and none of them work in the auto industry. But it’s fashionable to bash the opposition, after all. The media drinks it up, and it keeps their pundits off the foreclosure stories.

The “Credit Card Bill of Rights” was so hamstrung that banks used the interval to increase fees and interest rates on consumers. The American people fear Washington has gone wrong, and the media coverage of Republican leaders steadfastly refusing to compromise on anything has come to epitomize Washington’s gridlock.

Health Care Reform was one of the keys to President Obama’s litany when he was still just Senator Obama, a candidate for our nation’s highest office. It united a broad coalition of voters who believed he understood the unfairness of a system where insurance companies treated health care differently than any other form of insurance, picking and choosing the most profitable customers while denying those who most needed health care access to what is nominally a payment system. In fact, 55 Republican members of Congress who oppose a public option, calling it a “government takeover of health care” nonetheless rely on just such a system themselves. If “government run” health care payment administration is good enough for a member of the U.S. Congress, it’s probably good enough for you and me.

Meanwhile, medical bankruptcies will continue to occur despite the skyrocketing cost of premiums. Over half the personal bankruptcy filings in the U.S. are triggered by medical costs, but Congress spent billions to prop up rich bankers who didn’t even suffer a cut in pay, let alone lose their jobs or benefit packages. Set aside the uninsured a moment, the average medical debt that causes insured families to become bankrupt is $18,000 – compare that to the bonuses paid on Wall Street.

Corporations jiggle their accounting to avoid paying taxes, and the richest Americans pay a smaller fraction that the less well-to-do in personal taxes. It’s no wonder the Tea Party concept holds appeal – we seem to have returned to taxation without representation, and if there’s one things Americans agree on it’s the concept of “fair play.” Well, Americans outside the Republican Caucus in the U.S. Capitol, anyway.

Since it’s politics, we know we have to follow the money. We’ve recently cut dozens of taxes; Congress has left income tax laws alone which would normally put the GOP in a mood to smile. In this case, with one party childishly digging in their heels much like children who won’t eat their vegetables, we have to ask: “What more does the minority hope to gain?”

October 2, 2009

Can the market create prosperity?

Posted in economic recovery, foreclosure crisis, mortgage reform, taxes, U.S. Economy tagged , , , , , , at 8:32 pm by realitytax

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?

July 30, 2009

Why is Federal-Mogul Corp in the ERRI?

Posted in economic indicator, economic recovery, ERRI, mortgage reform, Obama administration, U.S. Economy tagged , , , , , , at 2:41 pm by realitytax

Founded in Detroit in 1899, Federal-Mogul Corporation (FDML) supplies a range of components, accessories and systems to the automotive, small engine, off-road, heavy-duty, marine, railroad, agricultural, aerospace, energy and transport markets world-wide, including both original equipment manufacturers (OEM) and aftermarkets. It deals in power-trains, vehicle Safety and Protection, Global aftermarkets, and Automotive Products.

In February 2008, the company acquired Federal-Mogul Bearings India Limited. In August 2008, the company acquired a 51% interest in another Indian company, Perfect Circle. The company’s strong second quarter earnings and reports on July 30, 2009 that they had reduced headcount By 22% as compared with a year ago fueled an equity rally which had started earlier in the month.

FDML was trading under $3/share when much of the market struggled in early March, considerably down from the over $17 price the stock commanded in late August of 2008 before the reality of the credit and mortgage crisis had spread to the broad markets. FDML reacted vigorously in the intervening year, as evidenced by the 22% headcount reduction, and 2nd quarter sales are up. Stock price trends reflect “collective opinion” within the investment community. Investor sentiment is typically positive when the 50-day moving average is rising, especially if it’s also above the 200-day moving average. With that in mind, the 200-day numbers had just begun an upswing prior to the earnings report, while the 50-day average “crossed above” during May. 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 recovery of the automotive sector domestically and abroad – the 22% workforce cut is indicative of why the mortgage and banking sectors have such broad influence on the economy.

With $1.4 billion in market capitalization, FDML, a Mid-Cap stock, represents the global reverberations of what started out as a problem in the U.S mortgage lending industry, particularly auto and truck parts which wanted distancing from the extraordinary efforts with regard to GM & Chrysler within the ERRI. FDML is the ERRI bellwether for cyclical consumer goods in the ERRI fund, with cyclical goods comprising 10.11% of the entire fund. Sometimes likened to Honeywell, which is also in the fund, and to similarly capitalized TRW which is having a banner year by investor’s reckonings, FDML responds to the consumer side of the economic equation (consideration was given to balancing it with Hanes Brands in that regard.) Federal-Mogul reflects the broad, overall automotive industry, not just the “big 3” automakers in the U.S.

For reference, among the FDML brands are:
ANCO® wipers, iconic Champion® spark plugs and wipers, Wagner® lighting and brake products, Fel-Pro® gaskets, Nural® pistons, Goetze® piston rings, Ferodo® brake pads, National® wheel-end components, Glyco® bearings, Payen® gaskets and Moog® chassis products.


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]

July 17, 2009

U.S. July 2009 ERRI at 11.27

Posted in economic indicator, economic recovery, mortgage reform, Obama administration, U.S. Economy tagged , , , at 6:19 am by realitytax

Using a proprietary “realitytax” calculation that incorporates stock market valuations drawn from 10 major sectors central to economic recovery in the U.S. (as detailed in the ERRI equity table below) and wage and employment data released by the Bureau of Labor Statistics, the Economic Recovery Reality Index [ERRI] value is calculated as 11.27 for July 2009. The August ERRI will be released following the BLS assessment, scheduled for August 7.

The index reacts somewhat sluggishly to changes in the stock markets; it is considerably more sensitive to the employment data.  For the sake of comparison had the ERRI been calculated and published at various times  during the summer of 2008 prior to the ripple effects of the credit/mortgage crisis, etc., values would have been roughly 6 to 10 times greater. While generally the absolute number is less relevant than the trend, single-digit values correlate strongly with recession.

The number of unemployed persons (14.7 million) and the 9.5% unemployment
rate, and the 65.7% civilian labor force participation rate in the U.S. were little changed in June. The employment/population ratio, at 59.5%, trended down during the same month, with roughly 30% of the unemployed having been out of work for half a year or longer.

The figures in the columns “shares” and “values” in the table below are included to further illuminate the weighting of the entirely hypothetical equity component of the new ERRI formula. Neither this formula nor the “fund” should be construed as investment advice or an endorsement of any particular equity, sector, or strategy. I am a student of the economy trying to figure out if/when the recovery is underway, not a broker, trader, economist, banker, investment adviser, or even a mathematician.

The sectors and specific stock choices, explained in greater detail by following links from each symbol, are a complex balance intended to measure broadly the market activity in areas reflective of key domestic sectors and global inter-dependencies while carefully excluding certain traditional index components (such as the big three U.S. automakers) that are reacting to such unusual conditions that they might distort the calculation. As such, they are included because they are expected to track various sectors, not out-perform the broader U.S. equity markets. They are included publicly for the sake of veracity, transparency, and verification only.

symbol 07/15
benchmark
shares value Sector Industry
EMN $ 36.85 27 994.95 Basic Materials Chemicals – Plastic & Rubber
HON $ 31.18 16 498.88 Capital Goods Aerospace & Defense
CAT $ 31.93 15 478.95 Capital Goods Constr. & Agric Machinery
FDML $ 9.67 103 996.01 Consumer Cyclical Auto & Truck Parts
HQS $ 8.37 119 996.03 Consumer NonCyclical Fish / Livestock
BBEP $ 7.32 68 497.76 Energy Oil & Gas (Integrated)
PZE $ 5.98 83 496.34 Energy Oil & Gas (Integrated)
AIB $ 4.58 72 329.76 Financial Money Center Banking
CMA $ 21.84 15 327.60 Financial Regional Bank
FITB $ 7.06 47 331.82 Financial Regional Bank
CCI $ 24.26 20 485.20 Services Communications Srvcs
JWN $ 20.11 24 482.64 Services Retail (Apparel)
FSLR $141.54 7 990.78 Solar Technology Semiconductors
RIMM $ 66.18 7 463.26 Technology Comm. Equipment
PLXS $ 21.59 23 496.57 Technology Electronic Instr & Controls
POM $ 13.54 73 988.42 Utilities Electric

March 4, 2009

We need to invest in our country

Posted in foreclosure crisis, health care, mortgage reform, Obama administration, President Barack H. Obama, taxes, U.S. Economy tagged , , , , , , , , , , at 5:18 am by realitytax

USA flagAs 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 bulldozersCaterpillar tractor 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, Job Growth Aheadno 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.

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February 22, 2009

Economic Recovery: Facts for D.C. to factor in

Posted in foreclosure crisis, health care, mortgage reform, taxes, U.S. Economy tagged , , , , , , , , , , , , , , at 5:24 pm by realitytax

MinnesotaWhen 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. Tim PawlentyNow 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,)double digit tuition increases at MN colleges as Governor slashes education spending 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 LA Governor JindalPawlenty 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.

our economy has only grown when taxes are high - corporations always find ways to hide their revenue from the tax man.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.

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February 8, 2009

600,000 additional jobs lost in January.

Posted in foreclosure crisis, mortgage reform, taxes, U.S. Economy tagged , at 12:46 am by realitytax

U.S. Capitol buildingThe 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 ignoredderegulation 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.

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.

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