Tag Archives: Barack Obama

Misery Loves Company

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The U.S. Misery Index recently hit a 28 year high, going back to 1983. The misery index is the sum of inflation and the unemployment rates and it hit 13 last month. So, it got me to thinking, where did things stand in 1983 and what did the next few years look like?

First, according to the Bureau of Labor Statistics, the unemployment rate in 1982 was 9.7% and then in 1983 it was 9.6%. This compares to an unemployment rate of 9.3% in 2009, 9.6% in 2010 and currently at 9.1% as we near year end. So, we are now three years into the 9%+ range, with no one predicting a drop by years end.

Just like 2012 will be, 1984 was an election year, and right on cue, the unemployment rate fell to 7.5%. As a result, then president Ronald Reagan got re-elected.

So, what happened to the stock market during and after the early 80′s? If you go back to April, 1984, you will see that the market began a steady rise in a stealth bull market that lasted 16 years.

One of the big differences I see between back then and now is that the elevated unemployment rate has lasted longer this time around. Where there were two 9+ unemployment rate years in the 80′s, we’re deep into our third year now. And, one thing that concerns me is that many of the people who have lost their jobs are now lacking the skills necessary to re-enter the workforce. Add to this the push to streamline and maximize productivity from the current workforce through innovation and increased technology and it starts to look like the unemployment rate could remain elevated for some time.

I do wish that history would consider repeating itself here; that is, let the misery index mark a turning point in both the unemployment rate and stock market performance. The unemployment rate began a descent in 1984 that lasted for 6 years and the S&P doubled.

While we cannot predict where things will stand at this time next year, I do know that politicians have an uncanny way of turning things to their advantage in election years, and as we saw when the misery index hit 13 twenty eight years ago, it sparked some changes that began a substantial turnaround. Maybe the miserable state we’re in right now will get even more miserable, but don’t be shocked if things look a lot different by this time next year.

See the current Misery Index for yourself!

GE’s Immelt – An opportunity to actually make a difference

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I read a story today where GE’s Jeff Immelt was quoted as saying about the nation, “We’re not trying that hard; We haven’t really tried as hard as we can to compete, educate, and sell our products around the world and I think we can do better.”

Now, on the surface, this sounds reasonable; how can we sell more US products abroad, and in the process, create more jobs? But, I remain skeptical about Immelt’s motives, especially considering that GE, under his leadership, and like many other large corporations, have shed thousands of jobs rather than look for creative ways to utilize displaced employees and help address the current unemployment picture.

Immelt tries to assuage the overall feeling of frustration and anger by many US citizens by saying, “It is natural to assume that people are angry and I think we have to be empathetic and understand people are not feeling great.”

OK, great again, but there are probably many former GE employees who would prefer a paycheck over empathy.

Immelt does acknowledge there might be something to the notion that there’s a huge discrepancy between an average worker’s pay and that of CEO’s by saying, “The discrepancy (the gap between the pay of CEO’s and average Americans) is certainly one of the problems today, in terms of why people feel the system is unfair.” But, he then downplays what most feel today by saying, “It is a symptom but it is not the problem.”

It’s also revealed in the article that GE expects to generate more than 60% of its revenue outside the US this year. So, why wouldn’t Immelt want all of us to “try harder” to sell more products across the globe?

Finally, Immelt say, in response to criticism that he (as a republican) is working in concert with President Obama, “People need to try; I’d rather be in the arena trying than not doing what I can to help.”

GE Executive CompensationSo, to all of this I say; how about GE trying harder to put more people back to work? For once, instead of waiting for the economy to try to miraculously recover on its own, how about Immelt and other top level CEO’s around the country stop the lip service and actually do something creative and different that might actually work? For example, I just looked at GE’s profile at the Yahoo Finance site and saw that the top 5 executives listed had combined compensation of $27.5 million for 2010, or an average of $5.5 million each. At the head of the pack? Immelt who brought in roughly $7.7 million, with no stock options showing as exercised during the year.

Let’s say, for example, that the 5 top execs at GE agreed to put 25% of their earnings into a pool so they could bring some employees back to work. At an average of $50,000 per employee, they could rehire 137 people. And, they could do it without spending one more dime. Now, this would mean that each of the top five execs would “only” end up taking home an average of $4.1 million, but come on; they could survive.

Now, imagine if this were to happen at the top 100 companies in the US, and assuming similar figures. Then we would see an additional 13,700 people back on the payroll instead of having to collect unemployment checks and draining the US financial system.

Before anyone gets riled up let me be clear; I’m all for hard work, ample reward and letting the market dictate the value of the work force. I started working when I was 13, I work as hard as any other guy out there and I’m always happy when my hard work pays off. But, this doesn’t mean that there isn’t a place for creativity from those who have blessed to be at the top of the economic food chain to help jump start our moribund economy.

Immelt talks a lot, and maybe he thinks that his words are soothing to those who find themselves on the flip side of the economic equation. But, I can tell you from the perspective of someone who’s much closer to the average man on the street than in the proverbial ivory tower, his words ring rather hollow.

Oh, and by the way; I just realized that I forgot to mention that GE got billions of dollars in taxpayer backed TARP funds..Sorry about that!

Stuck in neutral

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President Obama laid out his jobs plan last week and now the Republicans are coming back with some thoughts of their own. Right now it looks like the parties agree on extending and reducing the payroll tax component of the plan and will come up with some compromise on extending jobless benefits. The Republicans are vehemently opposed to raising taxes to cover the cost of Obama’s jobs plan so they will be offering alternatives that are likely going to be rejected by the Democratically controlled Senate.

While all of this goes on, the US is now teaming up with the Europeans and others to try to help them get through their economic mess. At the same time, freshly released data continues to show how weak our own economy is, with weekly jobless claims and inflation climbing while retail sales and manufacturing declines. Not very good combos.

When I look at everything going on it leads me to the conclusion that leaders around the world are truly stumped; they really don’t know what to do. Yes, the Fed is doing what it thinks is necessary to prevent a complete economic meltdown, but the “new world economy” is presenting challenges that no one knows how to deal with, and thus, the US market is stuck in neutral.

Of course, in the long run, it would seem like everyone around the world would benefit if there was full cooperation among the various nations. But, is it realistic to think that most countries would go out of their way to help other countries if it would hurt their own economy? I doubt it. And this is where it gets so tricky; trying to figure out how to help another country so your economy won’t collapse is one thing. But, helping another country weather a financial crisis to your detriment is another thing all together.

Let’s face it; the country with the most financial power calls the shots. And, for many years now, that has been the US. All of the sudden, our economic superiority is being called into question. And, we’re now being called on to cooperate with and assist other countries when we’ve got our own gargantuan fiscal mess to deal with. That’s just too much for most humans to comprehend.

As a nation, we look to our leaders to guide us through difficult times. They are the glue that is needed in times of crisis. Instead, we see a great division, with most of our elected leaders worried more about next year’s election rather than the well being of our country. It’s short sighted and could actually lead to the demise of our economic superiority. One thing that I am certain of is we will never get out of neutral unless there is a complete shift in thinking.

Warren Buffet’s Big Bet on BAC

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Warren Buffet is one of the greatest investors in the history of the world. So, far be it for me to question anything he does on the investment front. Still, I’m puzzled by his recent $5 billion investment (loan) to Bank of America.

In case you hadn’t noticed, BAC has fallen off a cliff lately. BAC was over $15 per share earlier in the year and got at low as 6.01 just the other day, a level it hadn’t approached since March, 2009, the last time the market bottomed.

Buffet did something similar with Goldman Sachs when it was falling apart along with the rest of the financial sector in 2008/09, and his Berkshire Hathaway group was handsomely rewarded. But, what puzzles me is why BAC needs the money in the first place and why they couldn’t have gotten a better deal than the 6% interest they will need to pay for getting access to the $5 billion.

To me, the whole deal is just another red flag; BAC is in big trouble. Rumors started floating around yesterday that JP Morgan would be buying BAC, and that’s why the stock price rose yesterday. But, as we can see, it wasn’t JPM, but Warren Buffet who has come in as a White Knight.

It is possible that the $5 billion cash infusion is just a stop gap. Maybe President Obama called on his friend to pony up the money to make BAC look in better shape that it is in. Buffet apparently said the idea came to him when he was taking a bath earlier in the week. Whatever the case, I’m going to keep a close eye on BAC in the near future to see if the initial boost to its share price will hold. If not, they might have more to worry about.

Obama’s State of the Union Address

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President Obama will be in the spotlight tonight as he delivers his State of the Union Address to the nation. This particular speech is important, as it provides an opportunity for Obama to build on recent momentum by combining his oratory skills with practical solutions.

In order for the nation and the market to be receptive to his speech, Obama really has one thing to prove; that he can actually help spur the economy by getting more people back to work. If I were him, I would title my speech, “Getting people back to work”, and I would spend the entire hour talking specifically about how this can happen. Yes, we want to know that banks are going to lend to small businesses, that the housing problem will be dealt with swiftly and that we will continue to have a strong defense, but all of those things become irrelevant unless more people are working.

Since Obama doesn’t really have control over how many people are hired by corporate America, it will be his job to convince everyone listening, including the nation’s top CEO’s, that they would also be much better off if they take some of the cash they have stockpiled and used it to create jobs, as that could help accelerate consumer spending. Call it a domino affect. He’s certainly shown that he’s been willing to move more to the center of the political spectrum to help spur the economy, so now he needs to communicate to corporate leaders that it’s their turn to return the favor.

One thing I’ve learned is the market has a way of telegraphing whether or not they believe something is going to happen, so it won’t take long to get an idea of Obama’s effectiveness. And, his ability to turn lip service into reality, will go a long way towards getting us out of the worst economic slump since the Great Depression. I’m pulling for him, and you should too.