New York Post\America’s
Debt Rage Boils Over/ Angry Calls and Emails Wallop DC
Americans are fed up, and
they're letting Congress have it. Furious over the
bipartisan foot-dragging on the nation's debt crisis, the US
public yesterday unleashed a massive barrage of phone calls,
e-mails and even a nasty Twitter campaign to vent their fury
over DC's dithering over the debt ceiling.
Mike's Take...
“Short Takes” has been inactive for the
past several months. That is because there has been
virtually nothing to talk about.
In January, I said “The long term health of our economy
and the capital markets depends on the government lowering
its overall spending. For the next several months I will be
highlighting political issues as they relate to government
spending.”
So far this year spending cuts are more a talking point than
an action item. This changes nothing. We still must cut
spending, and we must do it now.
But right now, Congress must approve a routine increase in
our debt level, and many of the new conservative Republican
Congressmen elected last November will not vote for a debt
increase unless it is tied to spending cuts.
This has the liberals and Obama up in arms. This past Monday
Obama made a national speech calling for more taxes on the
group who already pays almost all the taxes.
He also talked in vague terms about spending cuts. Judging
from some of the deficit reduction plans proposed by
Democrats so far, the cuts, if any, come many years from now
and the tax increases come now.
Over the past 60 years, Congress has voted tax increases
many times. And every time we increase tax rates, tax
revenues fall. Raising tax rates lowers tax revenues.
Obama and other liberals are proposing higher taxes on “rich
people”. We already know this will result in lower tax
revenues.
Why would anyone in their right mind propose a policy known
to always fail?
The answer is simple, because it has an emotional appeal to
many people.
Obama’s proposal is doomed to irrelevance. Apparently,
Congress had already excluded him from continuing
participation.
Our deficit is dangerous. Last year it was $1.5 trillion.
This year it is still $1.5 trillion. Clearly, we have made
no progress. States like Wisconsin and Ohio have made
progress, but there has been NO PROGRESS on reducing
Federal government spending.
Many in Congress understand the absolute necessity of
absolute cuts. No phony accounting or other tricks, but
absolute year over year cuts in expenditures.
We must, must address the three largest spending accounts,
defense, Medicare and social security. We need to withdraw
from Afghanistan, not because we should, but because we
cannot afford it. We need to increase the eligible age to
receive social security by about 10 years. This is not to be
mean spirited. It is because we cannot afford the past
promises we made to ourselves. The promise must be modified.
Increase the eligible age. The eligible age for Medicare
also needs to be increased and beneficiaries need to pay
more of their healthcare bill.
The Congressional game of chicken currently in progress
needs to end with higher debt and lower spending… much lower
spending.
For the past several months, there have been innumerable
trial balloons. Initial talk of budget cuts cumulated to
less than $100 million. Any Congressman that wants to be
taken seriously needs to propose cuts of $1,500 billion.
That is what it will take to balance our budget.
For the first time since last
November’s election, we may be at the point of starting to
cut spending. Let’s hope it is not business as usual in
Washington. Let’s hope it is not like Congressman Phil
Gingrey, R-Ga. says, “I’ve been here nine years and all the
promises we make to cut spending never seem to occur. I've
never seen it happen yet."
Let’s hope it is different this time.
Voters are angry with the lack of leadership, but it still
remains to be seen if they understand the financial peril we
have put ourselves in.
March 26, 2011
Short Takes...
Investor’s Business
Daily/ True Employment Picture Remains Grim/ Joblessness Far
Higher Than 8.9% Rate Reported by Government
IBD survey: 19.4% or 30 million Americans are currently
seeking a job. Since November 2010, the unemployment rate
has tumbled from 9.8% to 8.9% in February. That seems to
signal a return to healthy job growth. But the unemployment
rate excludes those Americans so discouraged that they have
stopped looking for a job. The real unemployment rate,
commonly called the underemployment rate, is rising.
According to Gallup, this broader unemployment measure
(underemployment) combines the unemployed with part-time
workers seeking full time work. Underemployment rose to an
alarming 19.9% in March from 17.2% in December.
The labor force participation rate, now 62.2% is at a 27
year low. If you are not in the workforce you can not be
“unemployed”.
Jobs will be he Number 1 issue in the next presidential
election.
Mike's Take...
Jobs,
Jobs and More Jobs. This is the real issue. This article
authored by Terry Jones is right on.
Ask yourself if the
political actions you have seen this year after the
Republican victories in the House of Representatives and at
many states are helping or hurting job creation. Is Congress
busy creating an environment where job growth is encouraged?
Not on your life!
They are busy
congratulating themselves about insignificant cuts in just
10% of the budget, the discretionary portion. What a joke!!
This is analogous to rearranging the deck chairs on the
Titanic.
In stark contrast, we have
seen significant progress in states such as Wisconsin and
Ohio.
America desperately needs
an environment where job creation is encouraged. That means
less regulations, lower taxes, and stable and prudent
government budgets. That means a federal government that can
balance its budget, just like every household in America.
Everything that is being
done, such as the suspension of employee payroll taxes, is
temporary. What we need is reasonable stability and
certainty, so businesses can plan.
The federal budget is out
of control; EPA regulations are out of control; the demands
of labor unions are out of control; and the pay and benefits
of federal workers is out of control. The tax code continues
to grow more complicated and opaque.
Congress fails to address
the entitlement issue and the defense budget, the only real
sources to balance our ridiculous and dangerous deficit.
All of these uncertainties
would give any businessperson pause. Certainty and
incentives just do not exist right now. There will be no
meaningful job growth until we put our house in better
order!
February 21, 2011
Short Takes...
Wall Street Journal/ Protests Fail
to Sway Wisconsin Governor. For six days now as many as
70,000 protestors have gathering at the statehouse in
Madison, Wisconsin.
Union supporters are protesting
Governor Scott Walker’s demand for higher worker payments
for healthcare and pensions, and modifications in union work
rules that the Governor maintains will prevent massive
layoffs.
Tea party members and other supporters
numbering in the thousands are rallying in support of the
Governor’s position.
Wisconsin has a $3.6 billion budget
shortfall. The Governor’s proposed bill to increase public
employee contributions to pensions and healthcare has been
agreed to by the unions, but not the change in work rules.
Rather than see the bill pass, 14
Democratic state senators, whose presence is required for a
voting quorum, has fled the state and are in hiding.
Mike's Take...
Finally, some good news.
Wisconsin is broke. The Governor has proposed modest and
necessary steps to bring state finances into balance. And he
is not budging. Yes, workers are being asked to pay more of
the cost of their healthcare and pension benefits. This is
not new and is happening just about everywhere. The build up
of cushy work rules that decreases efficiency and
productivity, and increases costs need to be cut back as
well.
As I have been saying for some time
Spending Cuts Are Essential and will come one way or the
other. They can be negotiated as is being attempted in
Wisconsin. The options to inaction and delay are defaults
and bankruptcy.
California, Illinois and New Jersey are
in much worse financial condition and must make much greater
cuts. Wisconsin is on its way, if the Governor holds his
ground, to an improved condition that will allow it to
continue functioning through this very difficult economic
environment.
February 4, 2011
Short Takes...
U.S. Congressman Jeff
Miller’s Newsletter, January 30, 2011
Three weeks ago a new
Congress was sworn in, and, immediately, the new Republican
majority in the House of Representatives began to
fundamentally change the way the House works. We adopted a
House rules package requiring all legislation to cite
Constitutional authority. This rules package also requires
that legislation be publicly available for at least three
days before voting on it. Additionally, we changed budget
enforcement rules to ensure limited government and fiscal
responsibility prevails over wasteful spending.
In the Republican Pledge
to America, we promised to repeal and replace the
job-killing health care package passed in the 111th
Congress. The ObamaCare package was a 2,800 page monstrosity
that imposed unconstitutional mandates on our citizens. This
bill increased economic uncertainty and infringed upon our
individual liberties without effectively reducing the cost
of health care. H.R. 2, one of the first bills introduced
and passed in the 112th Congress, repealed ObamaCare with a
simple two-page bill. By itself, repealing ObamaCare will
save $2.6 trillion over ten years, or $22,643 per household.
We listened to the
American people calling for Washington to focus on spending
cuts and job creation. We immediately cut Congress’s budget
by five percent, banned earmarks, and adopted a resolution
reducing non-defense discretionary spending to Fiscal Year
2008 levels or less, a time before the costly and
ineffective stimulus and bailouts caused our deficit to
skyrocket even further. House Republicans also voted to end
the taxpayer funding of presidential election campaigns and
party conventions, saving the American taxpayers $617
million, as well as ending the wasteful mandatory printing
of bills, saving $35 million. All of this occurred in just a
few short weeks, and this is just the beginning of our
efforts to eliminate wasteful spending.
We represent you, the
American people, and every member of the new Republican
House majority understands that it is our duty to change the
untenable deficit spending we saw in the 110th and 111th
Congress.
Mike's Take...
Jeff Miller is my
Congressman. He is a conservative and one of the good guys.
This is a good start… but only a start. Jeff talks
about saving $617 million here and $35 million there. For a
government that spends $7 million every minute of every day,
this is just not enough. Cutting $35 million represents 5
minutes out of the annual budget of 525,600 minutes. It’s
insignificant and irrelevant.
Jeff, please don’t tell me
about cutting $35 million. It’s insulting. Tell me about
cutting $35 billion. We need to get serious about spending
cuts. I mean billions and billions. The three largest items
in the Federal Government are Defense at around $900 billion
a year, Medicare at $800 billion a year, and Social Security
at around $700 billion a year.
These three items total
$2.4 trillion and exceed the total tax receipts. Cuts will
have to be made in all three of these line items for us to
make significant progress toward a balanced budget.
Jeff, I recommend you and
your Congressional colleagues immediate suspend all new
federal regulations and immediately outlaw all COLA’s (Cost
of Living Adjustments). Now we are talking about billions
and we have not even gotten to the budget yet.
January 28, 2011
Short Takes....
Associated Press/In the State of the Union, Obama Charts a Path Forward.
This is our generation’s sputnik moment, Obama said. The
theme of the address was the way to win the future. Obama
proposed ramping up investment in innovation, education and
infrastructure. He vowed to ratchet up R&D investments,
boost clean energy production, and prioritize and implement
infrastructure projects for high speed rail and internet
access.
Mike's Take...
"WOW!...This guy just doesn’t get it. He’s proposing more
spending, not less. His path forward is a path to
destruction. The government is now spending 50% more
than it takes in. The Congressional Budget Office has just
released a report saying the deficit for next year is
forecast at $1.5 trillion. Another $1.5 trillion dollar
deficit!
Obama is proposing a 5
year freeze on just 12% of the total budget. A freeze on 12%
of anything will not have any impact on the 100%. And he’s
proposing to freeze already bloated salaries of government
employees. This guy clearly demonstrates he has no grasp of
the urgency of our absolute need to cut spending. Absolute
cuts. The annual spending must decline next year.
Even some ousted Democrats
are in closer touch with reality than Obama. Consider the
comments of ex-Congressman and now Chairman of the
Democratic Leadership Council, Harold Ford Jr. published in
last month’s Fortune magazine. Ford proposed:
Permanent tax cuts for
middle income earners
Permanent extension of
the low capital gains and dividend tax rates
Suspend payroll taxes
for both employers and employees for 6 months
Declare a moratorium
on new regulations until further notice
Extend unemployment
benefits another 9 months.
Now, I appreciate most of
this guy’s proposals are to cut taxes, but that is much
better than most of Congress and the President who still
think this situation can be handled with business as usual.
He did make one valuable suggestion; suspend all new
regulations.
Cutting taxes is a new
page for most Democrats, but it is just not enough. It
doesn’t even begin to be enough. We need to cut spending.
The three largest items in the Federal Government are
Defense at around $900 billion a year, Medicare at $800
billion a year, and Social Security at around $700 billion a
year.
These three items total
$2.4 trillion and exceed the total tax receipts. This is
before we get to the rest of government costs. Cuts will
have to be made in all three of these line items for us to
make significant progress toward a balanced budget.
My assessment is right now
there is just not enough political will to make these
changes. So things will have to get worse before they get
better. This is one reason why I have forecast a volatile
investing environment."
November 18, 2010
Short Takes....
Bill Gross, the famous
manager of the world’s largest bond fund, commented earlier
this month on the Federal Reserve Bank’s latest
announcements of its intention to buy $600 billion in
Treasury bonds; “This will likely signify the end of the
great 30 year bull market in bonds.”
Mike's Take...
… I sure do hope he’s
right! But before we get into why I hope he is right
let’s have a look at what Bill’s talking about. The
following charts show the long bull market in bonds. The
first chart shows almost 60 years of the yield on the 10
year US Treasury bond. As you can see, it has come full
circle. The Treasury bond market peaked in August 1982 and
has been in a nearly continuous yield decline since then,
with current yields about 2.5%.
The yield decline has been
spectacular and sustained. This has driven Treasury bond
prices to record highs, and is generating prognosticator
comments of an imminent “bond bubble”.
Now let’s add the long
term record of inflation (red line) to the Treasury bond
yield (blue line). As you can see in the 60 year chart
below, the 10 year Treasury bond yield tends to follow, with
a lag, the rate of inflation.
Since 1971, the US economy
has had an inflationary bias. This means it does not take
much to get inflation higher, and it takes a lot to get it
lower. But inflation has been at a low level and been
trending lower now for 20 years.
There are many factors
that caused inflation to fall over the past two decades, but
I believe the principal reason is the long term stagnation
of personal income. Through social policy and political
action, we have transferred more and more of our productive
resources to non-productive people. The economy is hobbled
with too many taxes and too many regulations. It cannot
perform at its full potential until we restore reasonable
incentives for risk taking.
Many commentators are
expecting the Fed’s quantitative easing actions to increase
inflation. And more money in the financial system is a
necessary but insufficient condition for inflation to
increase. As the chart above illustrates, long term bond
yields respond to long term inflation expectations.
There must also be a
demand for more money for inflation to experience a
sustained increase. Since the economic downturn in 2008 and
continuing today, our economy has massive idle resources. We
have an 18% underemployment rate, industrial utilization
rates in the low 70’s, and millions of unoccupied houses.
Consumer credit, C&I loans, and mortgages loans are all
declining.
I don’t quite see how the
Fed easing will result in inflation with the current paltry
demand for credit. The Federal Reserve and the US government
have been trying to stimulate the economy now for 2 years.
It has all been a dismal failure. And the inflation rate,
now 1.2%, has actually declined.
The Treasury yields can
have three outcomes. They can continue their decline, stay
unchanged or go up. As we have seen in the charts above,
inflation must continue declining for the 10 year Treasury
yield to decline, and the long bull market to continue.
I think the likelihood of
the yield declining to say 1% is nil. I think that because
of the inflationary bias in our economy and that we are
probably as low as we are going to get on inflation for now.
My outlook is related to inflation not the Fed’s
quantitative easing.
Bill Gross is saying it is
unlikely for yields to decline further. I suspect he will
eventually be right. But he may be right years from now. I
think investors should focus on what is going to happen in
2011 and 2012?
The talking heads have
been calling this a “bond bubble” since the beginning of
this year. If Treasury yields have a sustained rise, then we
will indeed be in a bear market, and the talking heads will
finally be right. But what will make yields rise, say to 5%,
about double the yield of today?
The answer is there must
be a dramatic increase in investor’s inflation expectations
from current levels. The current inflation rate is 1.2%.
Investors normally require about 2% real rate of return.
Adding this long term average to inflation results in a 10
year Treasury yield of 3.2%, a bit higher than it is now. In
order for Treasury yield to double inflation must triple
from its current level. It must rise from its current 1% to
2% range to 3% to 5% range. In my view, this is impossible
without a significant and sustained increase in economic
activity.
The Republican election
victory in November at both the state and national level
should give us some hope for a redress in our over regulated
and overtaxed economy. Unfortunately, I am not so sure there
is any real difference between the two political parties.
Neither has grasped the simple truth that all growth comes
from savings, both corporate savings (we call profit) and
individual savings. If we do not incentivize savings, we
limit our growth potential. Our economy is severely hobbled
and no amount of quantitative easing is going to solve this
structural problem.
My outlook for the 10 year
Treasury yield is to stay in a trading range between 2.5%
and 3.5% for 2011. The bull market may be over but there is
no bear market in sight yet.
The outlook is a murky
as always, but I believe investors can rely on several
realities for 2011.
-Monetary policy has not
and will not product economic growth. The economy will
continue to muddle along at a 1% to 2% real rate of growth.
-Inflation will stay low
in a range of 1% to 2% a year.
- The most likely
political outcome for 2011 is stalemate. There is not a
sense of urgency for an immediate reduction in taxes and
regulations, and no understanding that we must downsize our
government in order to boost the long term growth rate of
our economy.
-The liquidity in the
financial system will likely result in much higher levels of
mergers and acquisitions.
-Safety will be less of an
investor driver in 2011, but uncertainty will still be very
much a factor. The stock and bond markets will spend 2011 in
a trading range characterized by bouts of high volatility.
The stock market will end the year at about where it
started. Corporate bonds should return their coupon.
I sure do hope he’s
right! If the 30 year bull market in bonds is over, then
America is very likely in a period of economic expansion.
This means more jobs, more income, more risk taking…and
eventually, higher inflation. As you can see from my
forecasts above, I don’t believe this is possibility for
2011.
September 23, 2010
Short Takes....
Reuters/Data Hints Economic Soft Patch May Be Easing.
Sales of previously owned homes climbed in August from a 13
year low, more evidence the economy was stabilizing after a
sharp summer slowdown, even though new claims for
unemployment benefits rose last week.
Fears that the slowdown
could tip the economy back into a new recession were also
assuaged by a report showing a likely increase in future
economic activity.
Mike's Take...
"Have
you noticed the talking heads really don’t know what to say
these days? They get paid for saying something, so the
result is we get these kinds of quibbles; these non-report
reports. The simple fact is there is “churn” in the economy.
This indicator goes up this week; that one goes down. And
next week it is reversed.
The basic driver of the US economy,
consumption, is recovering but from a low level. The
recovery will be muted as long as we have so much
uncertainty. Companies and individuals are both holding
large cash balances.
Consumers are delaying making any
new commitments, and companies are delaying making new
investments. Both are because of the lack of predictability
in the economy and in the political environment. That means,
for the most part, companies are not hiring workers and
won’t until the outlook is clearer.
Reporting that housing is recovering
is stupid. It’s not. Reporting unemployment is increasing is
also stupid. There are many one-off events that change the
direction of economic data and performance from month to
month, such as the expiration of the housing tax credit, or
the end of the Census and its related discharge of 200,000
plus part time workers. These short term modest changes in
economic data are totally meaningless in assessing the
sustainability of the recovery.
Folks, I think we need to keep our
eye on the ball here. Watching every little blip either up
of down is a complete waste of time.
We are the masters of change.
America can adapt and incorporate to any change, and we do
it faster and more positively than any culture or country in
the world. We can this time as well.
What we really have is a
reallocation of the huge misallocations of capital made over
the past decade in housing, construction, and financing.
This part of the economy is shrinking as liar’s loans
disappear and unsustainable house prices decline. Massive
losses are always involved with reallocation of capital.
At the same time we are reaping the
consequences of bad social and economic policies that, over
the past 40 years, have slowly hobbled our economy. More and
more resources are being transferred from productive
participants in our economy to unproductive participants.
The answers to this are simple,
available, and right in front of us.
Our current hobbled economy is the
result of social and cultural influences. To un-hobble our
economy and allow it to grow at its full capability will
create improved standards of living for everyone. The
solution is to reverse these bad social policies. We must
rebalance the risk reward equation so that risk takers can
be adequately compensated. We have too many regulations and
too many taxes. Both need to be cut.
Here is a short but important list
of what we need to do.
1.Cut the size of the federal government in half.
2.Balance all government budgets.
3.Convert all government sponsored defined benefit
pension plans to defined contribution plans immediately.
4.Suspend all COLA’s indefinitely.
Any movement toward accomplishing
any of these objectives will have an immediate and
sustainable impact on the capital markets. The elections
this November will likely tell us a lot about the mindset of
the American voter and American worker, and how they view
the need for a change in social policies.
This is the big picture context in
which investors should be reading and watching news items.
Ignore the never ending blips."
August 23, 2010
Short Takes...
Associated Press- New
York/
Bond Bubble Fears Return as Investors Flee Stocks...
Bad economic news sent investors out of stocks and into
US Treasuries this past week, extending a rally that has
defied some of Wall Street’s best minds. Treasury bonds
maturing in 20 years or more have returned 2% this year
while stocks have lost 2%.
Mike's Take...
..."This
is worst kind of reporting and should be totally ignored.
Investors are not “fleeing” stocks and there is not a
bond bubble. So, I am mystified what this reporter thinks
there is to fear. What total nonsense!
Let’s review the scene. Banks are
paying a paltry 1% to 2% on certificates of deposit. The
stock market is returning a similarly paltry 2% in
dividends. There are 14,599,000 unemployed and nearly 30
million underemployed. Not enough income from banks; not
enough income from stocks; and no income for the unemployed.
It should not surprise anyone that
individuals and investors are looking for more income. One
of the few places they can find more income is in the
corporate bond market. Not the US Treasury market. The
result has been $500 billion plus has gone into bonds in the
past 18 months.
Does this means there is a “bubble”. No; not at all. It
simply means individuals and investors are seeking more
income. As long as America has surplus assets in abundance
(unemployed workers, idle factories and empty houses) and a
government that hobbles our economy, there will be slow
economic growth, low inflation, and limited sources of
income. These are the forces that will continue driving the
bond market higher."
August 13, 2010
Short Takes...
Marcus & Millichap
Research/
Government Job Cuts Stall Employment Growth.
Facing substantial budget shortfalls, state and local
governments eliminated 48,000 positions in July. These
losses combined with an 11,000 worker reduction at the
federal level and the release of 143,000 temporary census
positions generated a total downsizing of 202,000 positions
in July. These cuts overwhelmed the 71,000 private sectors
jobs added. And another 180,000 temporary census worker jobs
will be eliminated in the next several months.
Mike's Take...
…"This
is pretty grim news. America needs to add about
350,000 more employees to our workforce EVERY MONTH in order
for unemployment to start decreasing. Don’t forget, we also
have over 100,000 new entrants into the job market we need
to find jobs for every month.
If you look at the graph above
showing the additions (blue) and terminations (red) of the
monthly employment trends over the past five years, you will
see we need the blue line to be much higher than it’s been
in any month for the last five years. Since early 2008 it
has been negative or only slightly positive.
I have said in this column many
times we need SALES, SALES, and more SALES to get our
economy going again. That is not possible without more JOBS,
JOBS, and JOBS!
The sad part is that potential
employers, especially small businesses, the real engine of
employment, see no reason to add employees. The
disincentives significantly out weight any incentives. Taxes
are too high, regulations are too pervasive and profit
prospects are too dim.
So far, all government action, both
monetary and fiscal stimulus has failed. Any government
action taken that does not redress this imbalance will fail.
WAKE UP AMERICA! We need LESS
government and more incentives to take risk."
WTOP
Radio/Washington. Are Federal Workers Overpaid? When
it comes to pay, federal workers received salary and benefits
totaling $123,049 in 2009. And according to the Commerce
Department’s Bureau of Economic Analysis, private sector workers
received salary and benefits of $61,051 for 2009.
Mike's Take...
..."Does
a building have to fall on your head for you to understand
gravity? What, are you kidding me! Our so-called “public
servants” make MORE THAN TWICE what the private sector
workers make!
The only source of growth in an economy
is savings…individuals and corporations. That means profit
activity. Federal workers produce no profit and therefore are
responsible for none of our economy’s growth. Please, somebody
explain to me how paying our public servants more than twice
what the rest of us make is a growth strategy, or at a more
basic level, fair.
The building has already fallen on your
head. The real question is what are you going to do about it?
This situation harms our economy, and rewards the non-productive
members of our country through government mandates and
entitlements that borders on criminal.
There is a bill in Congress to freeze
federal pay. That is absolute nonsense. It fixes nothing.
Federal worker pay needs to be cut in half, or private sector
pay needs to more than double.
Keep going America and you will kill our
economy."
August 3, 2010
Short Takes...
Associated Press/ "Economic Reports Give Stocks Big Start
for August"... Strong reports on manufacturing
activity in Europe, China and the United States reassured
investors about slowing global growth. The Institute of
Supply Management’s index of US manufacturing was better
than expected in July. The Dow Jones Industrial Index rose
208 points Monday to its highest level in three months.
Mike's Take...
..."These
headlines are another “head fake”. A week ago, we had a
flood of bad economic news; a slowing economy, anemic
consumer spending, and debt trouble in Europe, just to name
a few. What’s REALLY going on?
Well, as I pointed out
at the beginning of this year, there are really two
economies. One is shrinking, and the other, even though
severely hobbled, is muddling through. There has been and
will continue to be a differentiation of company
performance. We saw that in July as many of America’s
largest multinationals reported strong earnings and their
stock prices were strong.
We will continue to
avoid all housing (shrinking economy) and US construction
stocks, and any stocks in the financial sector (shrinking
economy). Our investments are concentrated in
infrastructure, energy, and healthcare. These sectors are
healthy and our investments are generating high and
sustainable income.
America’s second
quarter GDP performance of 2.4% real growth was severely
depressed by the massive import of goods. We have, for the
most part, stopped putting stuff back on the shelves and are
making significant investments in equipment and software.
But these strong investments were overcome by imports,
significantly reducing our growth.
In order to increase
economic growth, and our standard of living, we need to do
more than restocking and investing. The key is consumption.
As I have said several times in this column, we need SALES,
SALES and more SALES!
While consumption has
recovered a bit, it is stillspotty. Unemployment
remains extremely high. And the likelihood of higher
unemployment in coming months is assured as state and local
governments start laying off employees, as many as 500,000.
Until employment picks
up substantially, consumption will remain anemic and highly
variable. Interest rates and inflation will stay low.
Government actions will continue to fail.
Investors need to key
their eye on the essential factors that will stimulate
growth; lower taxes, less regulation, and incentives to take
business risk. None are in place. I expect this rally to
fade."
July 23,2010
Short Takes...
Smart Money/ August 2010 Issue/ "The Case for
Going Global. Five Reasons to Ignore the Chaos and Invest
Abroad"
Mike's Take...
…"I
guess this magazine ran out of useful stories. This cover
story is total nonsense. There is no inherent reason to
believe international investments are better than domestic
investments.
Consultants point out
the performance in overseas markets but it is time specific
and implies market weightings. If you pick the right time
periods you can make the numbers tell any story you want.
Unless you are willing to invest in mutual funds, and I am
not, this is just ridiculous.
Individual investors
can buy foreign stocks through ADRs, but it can be a costly
mistake to assume US standards apply overseas. They don’t.
This is true for legal systems, accounting practice, labor
contracts and relationships, and general business acumen.
The article points out,
for instance, the benefit of investing in foreign real
estate. This is just absolutely false. The yields on CBD
properties from Paris to Tokyo are well below the yields
achievable on any office REIT in the United States.
Many American
multinationals are experienced experts at international
business. You want foreign exposure? Invest in the US.
For example, Coca-Cola is probably the world’s foremost
expert in the management of blocked currencies. They know
much more about this than say the US Federal Reserve or the
Bank for International Settlements. You don’t need to leave
the United States to harness the power of fast growing
emerging countries. Many US companies already have. Stay
Home! Your portfolio will thank you."
July 20, 2010
Short Takes...
FINRA/ Investor Alert!
- "High Yield Investment Programs are Hazardous to Your
Investment Portfolio"...High-yield investment programs (HYIPs)
are unregistered investments created and touted by
unlicensed individuals. Typically offered through slick (and
sometimes not-so-slick) websites, HYIPs promise safety and
high rates of return. But according to recent law
enforcement cases, many HYIPs operate as Ponzi schemes,
using payments from today's recruits to pay "interest
payments" to yesterday's investors or "referral" fees to
those who recruit new members.
..."It
is really important for you to pay attention to this. FINRA
stands for Financial Industry Regulation Authority, and is
an independent regulator of securities firms doing business
in the United States. You should visit their website on a
regular basis. I use it every day.
The reason I have
posted their alert is because it sounds a lot like Panhandle
Portfolios. We offer high income investments and an
unregistered high income fund. But that is where the
similarity ends. We can prove our claims. You can easily
check all the information I give with independent, outside
sources. Please follow the advice from FINRA when examining
high income claims. I recommend you follow President
Reagan’s advise concerning diplomacy “Trust, but verify.”
July 17, 2010
Short Takes...
New York
Times/ July 2, 2010/ "Illinois Stops Paying Its Bills, But
Can’t Stop Digging Hole"...Illinois’s
dysfunctional political class refuses to pay the state’s
bills, now at $5 billion, and refuses to take the painful
steps to close a deficit of at least $12 billion, equal to
half the state’s budget. The governor proposes to borrow
$3.5 billion to pay for this year’s worth of pension
payments. According to Fitch Rating, the Illinois State
Pension System is the most underfunded in the nation.
New York Times/ May 21, 2010/ "Padded
Pensions Add to New York Fiscal Woes"...About
3,700 retired public workers in New York are now getting
pensions of more than $100,000 a year, exempt from state and
local taxes. Recently, 9 New York City policemen retired
with pension over $100,000 a year. All were in their
thirties. Thirteen New York City police officers recently
retired at age 40 with pension above $100,000.
Mike's Take...
"…Are
you starting to get the drift here? The long term combination of
politicians and public employee unions has created an
unsustainable looting of taxpayers. These massive and unearned
wealth transfers were never approved by the taxpayer and must be
stopped. Given the spineless nature of politicians, the most
likely resolution of this will be bankruptcy. This, of course,
tosses the whole thing into the courts. And an unintended
consequence will be a tsunami of municipal bond defaults. I
can’t wait for the investment opportunity this will represent.
We will be ready."
July 15, 2010
Short Takes...
Associated Press/ "Fed Paints Weaker Picture of Growth and
Employment"... Fed officials now say gross
domestic product (GDP) will grow 3.0% to 3.5% this year.
This is a downward revision from the last forecast of 3.2%
to 3.7%.
Associated Press/ "Fed Eyes Steps to Bolster Sputtering
Economy"... Fed officials consider reviving
programs to buy mortgage securities and government debt, or
lower interest rates to banks.
Mike's Take...
"...There must be something in
the water inside the Beltway in Washington. These guys are
dreaming. First, all the economic growth so far this year is due
to inventory restocking and government spending. How do these
two things create sustainable economic growth? The answer is
they don’t.
Retail sales are off; consumer confidence is down; industrial
capacity utilization rates are still very low; unemployment is
still very high; C&I loans are down; consumer lending is down;
mortgages debt is down. There are no incentives to take risk.
The Fed lowering their expectation of growth by .2 percentage
points is a real joke. There is NO WAYour hobbled and
overburdened economy will produce 3.5% growth this year, or any
year. I am sticking with my forecast of 1% to 2% growth this
year.
And as for the Fed taking more action. They have already taken
action and it has not worked. Interest rates are already near
zero. Are they going to lower rates to less than zero? Nobody
but the hedge funds are borrowing anyway, so lowering rates
changes nothing. And Congress is just as screwed up. The
stimulus plan spent $780 billion that stimulated nothing except
frustration. Most of these funds went to states and cities so
they could continue government employment at unsustainable
levels for one more year. These funds have now run out, and more
than 20,000 state and city workers were laid off last month. So,
really what did this massive stimulus plan accomplish except
delay the inevitable, and put more debt on the books?
As I have said many times here, the real problem is government
employee’s systematic looting of taxpayers. Raising taxes and
borrowing more just make it worse. The Fed’s answer is to borrow
more. What a shame."
June 17, 2010
Short Takes...
U.S.
Commerce Department/Housing Starts in May Decline 10% from
April... Privately owned housing starts in May
were a seasonally adjusted rate of 593,000. Single family
housing starts declined 17.2% to 468,000 from 565,000 units
in April.
Mike's Take...
"This
is a disaster, but should come as no surprise to Panhandle
Portfolios readers. Recall, last December in a piece
entitled “What Recovery? What Recession?” I wrote about two
economies. One is much larger than the other, and is stable
and growing modestly. The other should never have existed in
the first place and is slowly but surely disappearing. Click
here to read “Two
Economies”.
Housing starts should
and will remain below the rate of household formations
(which is about 1 million a year) until we start to use the
millions of surplus houses we built in the housing bubble.
Contributing to the decline in housing starts is the
expiration of the one time homeowner tax credit that
stimulated demand for a short period."
June 5, 2010
Short Takes...
Bay
Beacon/ Niceville, Fl/"Tax Rolls Plummet a 3rd Year"...
Okaloosa County taxable property values suffered a 10%
decline last year, the largest ever.
Mike’s Take…
"This
is not an isolated headline. The residential housing
disaster is having an effect on most towns and cities in
America. Declining revenues will force hard choices on local
governments. As I have said many times before, the
politicians will cut services first in an attempt to
frighten taxpayers into paying higher taxes. The real
culprit is employee benefits. Existing labor contracts need
a strong dose of reality. They need to be right-sized.
Maybe some services can
and should be cut, but the most important factor is
benefits. Public employee benefits packages need a complete
overhaul, from the benefit payment formula to the retirement
age, to the contribution toward medical expenses.
Currently, about every other day, another municipal bond
defaults. The financial distress is really starting to show
and will develop into a “crisis” with many cities and towns
declaring bankruptcy. This will allow a renegotiation of its
employee contracts and at some point will present an
outstanding investment opportunity in selected municipal
bonds.
As a research-driven, high income investor, Panhandle
Portfolios will be ready when this opportunity presents
itself."
June 1, 2010
Short Takes...
Nashua
Telegraph/ "Work longer, Collect less"... State
budget writers are likely to take yet another stab at trying
to make newly hired police and firefighters work longer
before they can qualify for retirement. A proposal has been
made to increase the time that must be served to qualify for
a pension from 20 to 25 years, and also not allow the
pension to be collected until the retiree reaches 65. Right
now, these public safety employees can start collecting at
45.
This proposal also would
dramatically cut how much public employees could collect as
a pension. It would set a cap of 75 percent of their final
compensation and exclude overtime, sick and unpaid leave
time from being counted. The proposal is a nonstarter in the
Senate, however, particularly in an election year.
Mike’s Take…
"New
Hampshire’s motto is “Live Free or Die”. Residents pride
themselves on their history of self reliance and
independence. But the plundering of the taxpayer by public
service unions goes on even here, and even in a time of
budget crisis, like now. As this article reports, there is
no political will to stop even not yet hired police
and fireman from pilfering the public purse. This is
political cowardice at its finest. The solution is obvious,
and even in one of America’s most independent of states,
there is no political will to fix this."
"Even the headline is a lie. It should read", “Work
normal, Collect more than you earned.”
May 21, 2010
Short Takes...
USA
Today/Wary Investors Trim Stock Holdings,Seek Havens... Rattled
by market turbulence, falling asset prices, flailing
European economies and an inability to clearly see what
economic harm is in front of them, investors are fleeing
risky assets such as stocks, oil and commodities.
Associated Press/ Another Drop:
The Dow Jones Industrial Average fell 67 points Wednesday,
adding to a loss of 115 on Tuesday. Investors remain
concerned that debt problems in Europe will spread and
unravel a global recovery.
Bloomberg/ U.S. Stocks Plunge Most in Year...
A weeklong rout in stocks deepened, with U.S. benchmark
indexes losing the most in more than a year, as reports cast
doubts about the strength of the economic recovery and
European leaders struggled to contain the region’s debt
crisis. Commodities plunged and Treasuries soared.
Mike’s Take…
"Does
anyone really believe the capital markets only go up? Of
course not, and the S&P 500 Stock Index has advanced since
March 2009 without a correction. Including yesterday’s 4%
drop, the S&P Index is now down 12% from its level of just
three weeks ago. I think this is as good a time as any for a
correction, and is healthy.
Panhandle Portfolios is an income investor. We and all other
income investors greet normal corrections as opportunities
rather than risks. The stocks we have bought and are focused
on produce strong and sustainable dividend income. We are
buying in this correction and we thank those panicked
investors willing to sell us valuable investmentsat
lower prices than a month ago.
This correction is healthy because the stock and bond
markets have gotten way ahead of the underlying economy.
Large multinationals are already recovered and growing.
However, the small businesses in America, which have been
the major producer of job growth, are burdened and
stagnating. Expect job growth to be spotty, and consumer
confidence and behavior to be highly variable. Troubles in
the real estate markets are far from over.
In short, we have seen almost no signs of a sustainable
economic recovery. Any upside in the markets is limited
until our economy begins to grow again. The market is
extremely volatile. For income investors this means we will
buy at preselected and acceptable buy prices."
May 11, 2010
Short Takes...
Reuters/
"Employers Ramp Up Hiring in April, Jobless Rate Up"...
The Labor Department reported employers added 290,000 jobs
in April, much more than anticipated. The unemployment rate
rose to 9.9% because discouraged workers started to look for
work again.
Mike’s Take…
"Finally,
a little bit of good news. We added 290,000 jobs and only
66,000 were Census workers. But to me the really good news
is the RISE in the unemployment rate. That may seem odd, but
not when you consider 805,000 people joined the civilian
labor force and many discouraged workers, (who are not
counted in the unemployment #) were encouraged enough by
positive job outlook to start looking for work again. A
higher unemployment rate is good news indeed!"
May 1, 2010
Short Takes...
- Philly Cops No Longer
Responding To Fender Benders.
- Los Angeles Police Detectives Sidelined by City Budget
Crisis
- Harrisburg, Pennsylvania Council Told to Consider
Bankruptcy
- Klamath Falls, Oregon May Try 4-day School Week to Save
Money
- Budget Crisis Puts Los Angeles Court System at Risk
Mike’s Take…
"The headlines above are
just a sampling of the recent accumulating evidence of
severe financial distress at states, cities, and
municipalities across America. As I have said before, in
other Short Takes, the response of our gutless political
leaders is always the same…to create fear. They promise
disaster if taxpayers don’t put up more money. They threaten
service cuts, which are already happening, and predict
wholesale government collapse and chaos.
The real problem is the crushing cost of payrolls and
benefits. The contracts that promise these continuing wealth
transfers to our public servants must be modified,
renegotiated, or cancelled. Except for some slight pushback
by the recently elected New Jersey Governor Christie, I have
yet to see one instance of a politician at any level calling
for significant cutbacks in the items that are causing all
the distress.
Here is a first step
toward a solution; Kill all COLAs and require taxpayer
approval of every unfunded benefit for any government
employee.
The abuse of public
employee unions is now the subject of a recent Saturday
Night Live skit at the website below. It would be humorous
if it wasn’t so true."
April 28, 2010
Short Takes...
Daily
Finance/ "Wall Street Predicts the Bull Market May Keep
Charging"... More than 80% of S&P 500 companies
have reported first quarter earnings higher than expected.
The stock prices of Caterpillar, Ford, Eastman Kodak and
Whirlpool all surged as they reported strong earnings.
Mike’s Take…
"Some
companies are reporting strong first quarter profits. Both
Caterpillar and Whirlpool cited strong demand in Asia and
Latin America as the reason for improved operating results.
But the stock prices of some domestic oriented companies
have not fared as well. For example, Office Depot dropped
18% on a report of higher earnings but lower sales."
The following is an excerpt for my outlook for this year
posted on January 20, 2010:
2010
Outlook
"Earnings always matter as
they are what drive stock prices. However, there will be big
divergences this year, with some companies hitting new
earning highs and other companies struggling. Comparisons
will get easier as we come out of the earning trough created
by the massive panic stops in our supply system last fall.
But that is not enough.
We will look for
sustainability of both sales and earnings. Not just
temporary pickups.
The areas of interest
include:
Selected healthcare
companies
Existing
Infrastructure companies
Multinationals serving
BRIC markets
There are others, of
course, that will surface as the year unfolds, but these are
just several that have obvious promise. One of the more
interesting prospects for 2010 is the growth markets in some
of the BRIC (Brazil, Russia, India, and China) countries.
I expect some companies,
especially those with strong demand in the BRIC countries,
to grow earnings faster than most S&P 500 companies. We will
identify and own some of them. We will avoid financial,
transportation and most construction companies as they will
continue to struggle."
"First-quarter earnings
reports are supporting this forecast. I expect these trends
to continue."
April 26, 2010
Short Takes...
Associated Press/"New
Home Sales, orders for most durables rise"... The
Commerce Department reported on Friday that new home sales
skyrocketed 27% in March.
Mike's Take...
"The
Obama Administration is desperate for any good news in this
ugly economy. Yes, new home sales rose in March. But we need
to put this report in context. The March sales are still
low, less than half of March sales in 2007. New home sales
are highly seasonal, and every year, as the weather starts
to improve, sales increase, usually in March.
The first quarter’s sales of 87,000 new homes were only 4.8%
higher than last year’s sales of 84,000. My point here is we
need to see more than one month of improving sales to signal
anything, much less a recovery. These breathlessly reported
improvements disappear when we put them in the proper
context.
The same is true for the reported rise in durable goods
sales. If all durables are included, sales actually fell by
1.3%. For the life of me, I do not see how this constitutes
good news.
We all want to see (and experience) an improving economy.
But as investors, we must be thorough in our review of the
news. We must penetrate the nonsense of the talking heads
and ensure our analysis of the data gives us valuable
investing insights."
April 5, 2010
Short Takes...
USA Today/"Employers
Add Most Jobs in 3 Years in March"... The economy
created jobs at the fastest pace in three years while
unemployment stayed at 9.7%.
Bloomberg/"Payroll Growth Make It Clear
Recession is Over"... The head of the National
Bureau of Economic Research, Robert Hall, said “It’s
pretty clear the recession is over. It’s great news that
employment has finally stopped shrinking.”
Mike's Take...
"As
you can see from the 13 month payroll jobs chart above, the
economy has steadily reduced the monthly job loss numbers.
And now the media is breathlessly reporting 162,000 new jobs
in March, and an end to the recession.
Hang on folks! Before we celebrate, let’s take a closer look
at the numbers. 48,000 of these jobs are Census workers.
When the Census is over the jobs are gone. Another 40,000
are temporary jobs. So the real gain is just 74,000. The
number of long term unemployed (out of work for 27 weeks or
longer) rose 414,000 in March to a record 6.5 million
people. In addition, the average earnings declined.
While the March employment data is a bit of improvement, it
is hardly noteworthy. Things are still bad out there with
14,839,000 workers unemployed and 24,650,000 workers
underemployed. The government’s answer is to hire Census
workers. What a joke!
This is a serious situation and we need to unleash the
private sector to solve it. Lower taxes and decrease
regulatory burdens. The answer is simple and proven, but
continues to elude our government servants. I still hold to
my forecast of 1% growth for the economy this year, a sad
and unnecessary situation."
March 26, 2010
Short Takes...
Wall Street
Journal/ "Personal Income Drops Across the Country"...
The Commerce Department reported personal income in 42
states fell in 2009. Personal income rose in the District of
Columbia.
Politico/ "2,000 Congressional Staffers
Make Six Figures"... 117 staffers earn more than
$165,000. This does not include benefits.
Mike's Take...
"ABSOLUTELY
RIDICULOUS...AVERAGE
salary and benefits of federal workers is now $107,376. This
compares with the average salary and benefit of private
sector workers of $65,382. In addition, the pay of federal
workers is increasing and the pay of private sector workers
is decreasing.
How long do you think America will put up with this? Our
government “servants” make 64% more than the rest of us. Who
is serving who?
This economic downturn we are still in has caused a lot of
pain and suffering, and produced lots of anger among workers
and voters. Government regulations, taxes and never ending
programs are stifling economic activity. I suspect it will
show up in the ballot box in November."
March 24, 2010
Short Takes...
Buffalo News/ "14,800
Teachers Face Loss of Jobs"...
Statewide survey maps budget crisis.
Channel 2 NYC/ "Massive Job Cuts Projected For NYC"...Mayor
says if Albany slices City aid, as many as 19,000 will be
laid off: 3,100 less cops, 1,000 less firefighters.
Mike's Take...
"State budgets are in trouble.
California flirts with bankruptcy. New York withholds tax
refunds to pay its bills. The headlines are designed to
create maximum fear. The simple fact is politicians are
trying to scare taxpayers into paying higher taxes. So they
first fire little Johnny’s teacher or don’t pick up the
garbage. But laying off teachers and garbage collectors is
not the answer. Unfortunately, we will see lots more of
these types of headlines this year.
Politicians always look in the wrong
place. They should immediately suspend all cost of living
allowances and increase co-pays on retiree medical coverage
to 50% of more. And over time they must enact laws that
require the voters to annually approve all state, city or
town employee and retiree benefits. It is now normal for
long term employees of the City of Miami, Florida to receive
retirement pay in excess of $100,000 a year. This is
ridiculous and this kind of pension and benefit abuse has to
stop."
March 11, 2010
Short Takes...
Los Angeles Times/
"Unemployment Tops 20% In Eight California Counties"...
The state’s jobless rate in January was its worst on
record and fifth highest in the nation.
Mike's Take...
"California has always been proud
of its position of leadership…in fashion, technology,
entertainment, education and economic growth. It is said
what happens in California will soon happen across America.
Let’s hope not.
California is now the leader in home foreclosures,
unemployment, illegal aliens, out migration, and bankruptcy.
The plight of the City of Vallejo, a waterfront city of
120,000 located on San Francisco Bay, gives us a good idea
of where California will end up. Vallejo is bankrupt because
it pays fireman and police an average salary of $70,000 and
fire and police lieutenants more than $300,000 a year. This
is too much, and we all know it.
Just the unfunded obligation for California government
retiree medical care exceeds $118 billion. The solution is
simple. Kill COLAs and abrogate these contracts. This is the
cost side.
California also needs to cut taxes and reduce regulations.
This will stimulate economic activity and increase
employment. It takes 26 separate government approvals to
open a auto repair shop in Los Angeles county. This
regulatory overkill stymies risk taking. Is it any wonder
small businesses are leaving the state?"
March 3, 2010
Short Takes...
NYT / "Fed Survey Finds
Recovery Plods On"... A report by the Federal
Reserve on Wednesday portrayed an economy that was making
hesitant progress but still wrestling with high
unemployment, tepid spending and deterioration in the
commercial real estate market. Talk of a double-dip
recession resurfaced last week after a report showed an
unexpected decline in home sales in January.
Mike's Take...
"Confusing, isn’t it? ...This one up;
that one down. What’s really going on?
Thinking in terms of two economies, not one, may
help. One economy is healthy and doing OK, the other is sick
and dying. Thankfully, the healthy one is far larger than
the sick one.
The economy related to housing and its financing is dying.
From this perspective we should expect to see house prices
declining. They are. Expect to see many banks in trouble.
720 banks are in trouble.
The healthy economy relates to healthcare, education and
service businesses in general. Expect to see record
attendance at football games. We do. Expect the cost of
prescription drugs and doctor visits to increase, because
they are. Expect to see enrollment in colleges reach new
records, because they are. Expect consumer expenditures on
services to increase because it does every year, recession
or not."
February 26, 2010
Short
Takes...
IBD/
"Consumer Confidence Tumbles"/"Stocks
Tumble on Poor Consumer Reading"/"Plunging Confidence Highlights
Fragility of Economic Recovery"
Mike's
Take...
"These
headlines are backwards. We have had and will continue to have
an anemic economic recovery. Consumers and investors have been
ignoring the obvious signs of economic stagnation and penalties
for risk taking. Every now and then, like now, they get it.
There are no jobs and won’t be for months. There are limited
sustainable earnings and stock prices are very extended. These
pullbacks (as in plunging consumer confidence) are the result of
exhausted levitation."
February 26, 2010
Short
Takes...
USA Today/ "GDP: Economic
Growth in Q4 Revised Up To 5.9% Rate"...The economy
rocketed ahead at a 5.9% annual rate in the final quarter of
2009, stronger than initially estimated.
Mike's
Take...
"What
a crock! If you think restocking empty shelves (which accounts
for 3.9% of 5.9% total) is sustainable growth, then I want to
sell you a bridge I own in Brooklyn. The key to economic
recovery is sustainable activity. This means more earnings and
more jobs. The incentives to take risk are just not there now
and the recovery will be very anemic until those incentives are
put back."
February 25, 2010
Short
Takes...
NYT/
"New Home Sales Plunged to Record Low in January"...January’s
11.2 percent drop in new-home sales to a seasonally adjusted
annual rate of 309,000 came as a surprise to analysts.
Mike's
Take...
"Forget a record low of 309,000 houses.
I’m surprised the number isn’t ZERO. Let’s not forget we
built over 13 million houses that were not needed over the
past 8 years (called the housing bubble). To read more about
the bubble click
here. Until these unnecessary houses are sold, new
house starts will remain anemic, probably for years."
February 22, 2010
Short Takes...
IBD/
"Fed Raises Discount Rate"...The Federal Reserve
hikes rates by one quarter of a point to 0.75%.
Mike's
Take...
"This Fed move means absolutely nothing.
Normally raising rates off of a low is positive for the stock
market. Not this time. The Fed has been maintaining
essentially “free money” since the meltdown in late’08. But
nobody borrowed."
"So now that the Fed is raising rates by
.25% to a still “free” rate of .75% this tightening does not
mean much. This rate is still too low. It should be around
2%. So, until we get much higher this rate increase, and
ones sure to follow, should not induce heavy breathing."
NYT/ "Profit
Rises at Wal-Mart, but Outlook Is Clouded"
Mike's
Take...
"Starting with Alcoa in late January,
companies are releasing their results for 2009. The three
referenced above (Wal-Mart, HP and Deere) are typical. All
three reported higher earnings but the only encouraging
report was HP’s.
The most important ingredient we should be looking for is
increases in sales. To measure a recovering economy, we
should focus first on sales, not earnings. Earnings can be
manipulated; sales can’t.
Wal-Mart reported a 22% increase in profit on a 1.6%
decline in US same store sales. When America’s largest
retailer reports declining sales it is difficult to take
this as a sign of our recovering economy.
John Deere, a farm equipment company reported 19%
increase in earnings on a 6% decrease in sales. Someone
please tell me how is this is an indication of growth.
And finally, HP. Hewlett Packard Company reported a
28% increase in earnings on an 8% increase in sales. Sales
were also up 1.2% sequentially. This is a strong and
encouraging report and indicates HP is recovering from its
recession lows.
SALES, SALES AND MORE
SALES are what we need!"
February 15, 2010
Short Takes...
Wall Street Journal /
"EU Wary of Supporting Greece"…European finance ministers balk at helping troubled
Greece.
Mike's
Take...
"This is how the EU started back in 1992.
None of the border countries could join because they
were financial basket cases. They still are. What a
surprise!"
"Investors should avoid Europe at all costs. I have no
idea why an investor would own Greek debt, but if you do
your capital is gone."
