Monday, November 06, 2006

Get yer head out of the sand

From the comments:

Well, Francase, since I implied your asking, I'd suggest that perhaps this economy that you and others praise as being so strong isn't as robust as y'all think. Yeah, I know, the Dow's at 12,000 and Cheney and Bush can't stop talking about it. That's great. But when you realize that the Dow was about 11,000 at the start of Bush's tenure, we haven't really gained that much in 6 years. Didn't we see the Dow go from like 2,000 in 1990 to 10,000 by the end of the decade? So in comparison this isn't much.

Let's see......this is an easy one, since I was at SSB when everything popped in 2000 (wait, who was president then?)

Stocks had soaring P/Es in the 30's and 40's, thanks to unreal speculation on many wild stocks. It wasn't based on earnings, but expectations of future earnings. Potential growth, not actual growth. Pure speculation. The Dow dropped from 11600 in April 2000 to under 10000 soon after, and then dropped tremendously after September 10, 2001, though I can't really think of anything that may have happened that week. The NASDAQ was even worse, dropping from 5000 to less than half its lofty levels, as it housed most of the speculative stocks.

Stocks tightened up, and then started falling again from May through November 2002, from around 10,000 to 8600. Strangely, after Nov. 2002, they started rising again, from 8600. Again, I can't think of what happened in Nov. 2002.

Translation: the bubble popped in 2000, and the market dropped 12%. It stayed steady, but with fears of a democratic takeover, folks sold off. Once it didn't happen, everyone came back in. Since Nov. 2002, the DJIA has risen from 8600 to 12100, a cumulative gain of 41% for just the index. As many portfolio aren't solely consisting of index funds, a lot of people did much better.

Now, we're a few hundred above the previous high of 2000. But instead of P/E's around 40, we have P/E's around 16. This is not a bubble. This is a much firmer foundation.

And then there's all the talk about the CPI and low inflation. True, that's what the numbers say. But the numbers don't tell it all. Health care (now a BIG part of our economy -- just ask the folks at Chevy and Ford) doesn't count towards those numbers. If you factor in the HUGE increases over the past 6 years in the cost of health care, suddenly it's not as rosy of a picture. Then do the same with prescription drugs, which the government now subsidizes. The argument gets even stronger.

Chevy and Ford are doing terribly because of poor management models. Multiple, repetitive production lines, refusing to phase out non-competitive models or adapt to consumer wants despite getting lapped by foreign competitors such as Toyota.

As for the healthcare aspect, considering how much is available in terms of medical needs and how many old people there are now compared to ten, fifteen, twenty years ago, OF COURSE costs will go up! Larger customer base needing drugs, and more input costs to develop new medicines. Yes, people paid less for drugs twenty years ago. They also died sooner.

I don't like 9% annual increases in health care costs, but with the number of old people, ill people, and "ill" people (i.e. obesity or self-induced health problems) combined with ongoing R & D for new drugs, treatments, and preventive measures, it's due to happen, and the costs have to come somewhere.

I don't like Part D too much either. Any expansion of entitlement programs isn't going to thrill me. But if you want to talk savings for the average consumer, it actually has been saving quite a bit. Does a few hundred dollars makes a difference, or a thousand? Yes, any way you look at it, whether it's you saving the thousand or the budget analyst looking at that thousands multiplied by millions of people.

Unemployment is low? True. But consider how many people in this new economy have dropped out of the job market, were never included in the figures to begin with, or are under-employed. With this shift to a service based economy and the outsourcing of our traditional jobs, I'd argue that a good part of the work force is under-employed. Another good chuck is forced to work 2 jobs merely to get by at the standard of living that used to exit based on 1 income. Again, all that isn't reflected in those figures.

Yes, because the SEVEN MILLION jobs that have been created in the last six years are all burger-flippers at McDonald's. Getting the talking point from CNN doesn't help. Adding 100,00 jobs each month for a year-plus doesn't amount to much, I guess.

Wages have risen 4-5% a year for the last few years as well, compared 2-2.5% inflation.

Full employment is generally regarded as 5%. Has been for years, until the last few. It's sat at 4.2-4.7% for a very long time. Only 13 states are currently above 5% - IN, MA, AR, NJ, KY, OH, WA, OR, WV, SC, AK, MI, MS.

Georgia is 4.5%. New York is 4.4%. Heck, Florida's near the top, at a 3.2% rate!

As for folks not being counted, that statistic has not changed. It is still unemployed workers/total workers. The denominator's risen, but the statistic has fallen. The numerator, in all likelihood, has not changed or changed by only a fraction.

Courtesy of the Bureau of Labor Statistics, unemployed person fell from 7.4 MM a year ago to 6.7 MM now. The number of people unemployed for more than 27 weeks fell by 189,000 in the last month alone. But again, they're not being counted.

More people working, making on average more money, and more in real wages compared to inflation. But remember, it's a jobless recovery...if you discount the seven million jobs created.

Housing market? Been strong. But that began in the mid 1990s. Reflection of interest rates and very cyclical. All signs point towards a correction beginning now.

The correction has been under way for several months, and should continue through winter. I wouldn't want to continue to see a red-hot housing market. Again, OF COURSE less people are buying houses with rates higher. Folks don't want to throw money away if they don't have to. That's called common sense. I wouldn't even call it "housing woes". Yes, it's cyclical. Is it something to worry about? No.

And, it actually began in 2001 when Greenspan slashed interest rates WAY too low, all the way to 1%. If I could have bought a house at a 1% overnight rate, I would have. Of course it seems slower compared to one, two three years ago. Most people don't want to pay a higher rate, and a lot of potential buyers bought when rates were lower. When rates begin to drop again next year, it will pick up, as will re-financing of first mortgages at lower rates. I'll guarantee it's underway by Summer 2007.

Then look at all the major industry consolidation over the past decade. Banking, utilities, communications, and travel come to mind. Sure - those things all help Wall St in the short term. But they're gonna hurt Main St in the long term. We haven't taken the hit there that's sure to come. I'll remind you of this in a few years when AT&T is once again the national phone company.

There will never be another Bank of the United States. If there were, we would be it. It won't happen. Utilities? No. Travel? Darn, the overpriced, poor-quality airlines are going under. Boo hoo. I'm not going to feel bad because Delta's model isn't working but Continental's is. That's business. Well-run companies thrive, and poorly run companies find themselves in Chapter 11.

As for AT&T/Bellsouth - well, it was broken up in an interesting example of judicial activism 22 years ago. Besides, with technological development (VoIP, for one) and other localized services, cellular services, bundled carriers, there is still a LOT more competition than 25 years ago.

Next consider the high cost of fuel. You told us not that long ago it would continue to drop and drop based on all these new findings and supplies. It hasn't. Like I said earlier, a new floor was found during Bush's tenure and that floor is now being well reflected by the traders. I'm paying $2.20 here in Florida. That's about the national average. And it's also about what we were paying this time last year. That means during the Bush years, our fuel cost (adjusted for rises/falls due to seasonal conditions) rose about $1 per gallon. Some non-existent inflation.

I filled up Saturday for $1.86/gallon. I've long thought the value should be between $1.50 and $2 locally, based on state taxes, government policy and foreign issues. If you look at the price of oil over the last forty years in current dollars, you'll see two spikes. One is the late 1970's. The other was 2005. Both times, it returned to the normal range. It's done so this time.

As for supply - I'll just link to this article again. Technological developments are leading to quite a few more sources of oil that won't keep us as reliant on foreign sources. I'm pretty sure that as much as FIFTEEN BILLION BARRELS OF OIL is pretty significant.

Factor in continued development of alternative energy (LNG, coal, even ethanol) and that's progress. The internal combustion engine was not invented overnight. Neither was a hybrid's fuel cell.

I suppose we could return to government price controls. After all, it worked quite well under Carter, right?

Finally, getting back to the original point, retailers are not doing balls-to-the-wall business anymore. Sure, they're still doing ok. But the White House would have you believe things are a lot better than "ok." Wal-Mart's numbers were just down. If they're down, you know others are feeling it too. So these businesses must rely on Christmas shopping and the extended Christmas season to make the sales they need. And that's why you see Santa at the mall on November 5th. It's no accident.

Most retailers are doing quite well, thank you very much. They don't need an extended Christmas season. Black Friday is still Black Friday. Did Walmart have a knockout 3Q? No, but they still had growth even if it was only 0.5%. But competitors did pretty well. Target? 3.9%. Apparel? If ANF and LTD are an indication, red-hot. Costco? 4%. JC Penney? 8%. Walmart is getting punished for poor service and value added and consumers are going to competitors, so WMT doesn't see growth, it competitors get the growth. That's not a problem. That's how business works.

I think you need to spend a few more nights at the Holiday Inn Express. Try the CinnaBons. They're quite good.

In the meantime, if you made it to the end, you may have noticed that the Dow topped 12100 again, and, doggone it, almost every indicator looks very strong.

But again, nothing good has happened. I guess numbers really don't mean anything.

4 comments:

Big Daddy Jeff said...

Someone broke out all the figures and facts from the Larry Kudlow playbook. Everything is great. Yee haw! Seriously though, good comeback. I'll give you that and I respect your position. I just think you're looking at all these individual trees and missing the entirety of the forest they compose.

By that, I mean, there are a lot of good indicators about this economy. And you did a good job citing them. But this past 1/2 decade has seen a cyclical economic boom. We know these things go in cycles regardless of our government leadership. Reagan's tenure saw a boom, Clinton's years saw a big boom, and so too has Bush's.

The problem is the macro-factors affecting our economy have been greatly damaged in my opinion. This isn't hurting the micro-numbers you cite, but it will make the next recession a much harder hit. Not having national energy or health care policies or at least planning when both are the sick men of our economy is a big problem.

The problems with our rax, trade, immigration/work force, Social Security, industry consolidation and job outsourcing, and budget debt/deficit have all been ignored by the administration. That's where Bush is a failure economically. These are more than political issues. They will also prove to be hurtful economic issues in time, especially when things aren't as rosy to cover them up as they are now.

And no, Bush isn't entirely to blame. The reality is on each one of these issues he has continued the poor policies of the Clinton administration. That's his sad legacy. In domestic issue after issue, Bush has done nothing. This is very true economically where his sole contribution was to temporarily slash taxes without cutting spending or having a plan to make it permanent. Big whoop!

Thank you. I am enjoying my CinnaBun. Can I get you one too?

paul zummo said...

Mike:

All I can say is: Pwned.

Well done.

Jeff's response was a little like Heather Wilson's opponent in a recent debate.

Again, I say pwned.

Francase said...

I think i've watched Kudlow once in my entire life, so I don't know where you keep pulling that reference from.

Jobs have been outsourced, but have been replaced and exceeded by other jobs, which for the most part pay higher - otherwise, the average wage would not have increased and the net increase would be a lot less than SEVEN MILLION jobs. There has been a shift from manufacturing jobs. Forgive me if I don't pine for the days of strong unions and their socialist tendencies.

Tax cuts have driven a lot of the other success. Frankly, if I had to choose between a lower tax bill now, to be able to utilize/spend/save/invest my money, and a Social Security payment in the future which won't be enough or may not even exist, I'd prefer the tax cut every time.

Besides, it's not like Bush tried on SSA and got stonewalled by Dems. Oh, wait......

I won't disagree on illegal immigration. That's been a big problem. I think there needed to be a lot more done, but I also think that this was one of those issue where the base (i.e. folk not in DC) helped to drive change when no one wanted to do anything. So, they pass a bill for a fence, just lise they listen to the base on judges like Miers. Do you think that will happen with a Pelosi in charge?

Will DHS follow up on it? I don't know, and this is another point where I do agree with you, is on growth of gov't and its spending in the last few years. I do not enjoy the current deficit spending. However, I've been complaining a lot less as the annual deficit has dropped from $521 billion two years ago to $250 billion now. That is progress. Are we still spending too much? Yes, with two wars and natural disasters and Medicare Part D, it's increased a lot. I'll agree there.

As for energy - see previous posts because I'm tired of repeating.

Francase said...

Paul:

Nice clip. Hadn't heard about it. Wow.

I'll give Jeff credit, his response was a lot better than that video clip.