Simple ideas for getting America back on track

I was recently asked by a former client, what I might do to solve America's unemployment problem. I told them that I had several ideas which have not been tried. The first solution is a unique one based upon the fact that Republicans don't want to continue paying for Unemployment benefits ($$$) for the unemployed, especially the people on unemployment benefits for 99 weeks or more. And Democrats want to just help them by giving them extended benefits.

My solution is to require work from the unemployed to receive benefits. For example, many schools need painting, windows repaired or replaced, security improvements like video cams around the grounds, Teachers helpers, installing air conditioners, etc., etc., etc. I believe this would help those unemployed for so long start to feel better about themselves, have some resources to pay their bills and prevent foreclosure of their homes. We could even pay them more than the benefits might provide and we would still be ahead of the game, as this would increase some consumer spending and raise taxes somewhat in local communities that have a Sales tax.

Getting something back from giving extended benefits would help take the sting out of giving perceived handouts.

The next idea I had was to change our Educational system, by having school go year round. I would provide students a week or two vacation, but not the whole summer off. I would have them get air conditioning for schools and installed by those working above. I would then change teachers salary to reflect a full time job. We could have all teachers making $100,000 and above a year but we would be attracting more teachers with this salary level from many different backgrounds.

We need to think outside the box in tackling our issues. But it starts with a willingness to put some ideas out there and see if anyone picks them up and improves on them. I have, so where's your's?

Market comments for Sept. 28th

I was waiting to post this morning for the Consumer Confidence number to be released. Well it was and it did definitely disappoint with a reading of 48.5 with expectations set for a number of 54.0 so that this is the first number below 50.0 in a very long time and not good for the market. The number for August was 53.5. The number is often a good predictor of Consumer Spending. This is another one of those rare numbers which the government can't manipulate. These are quite grim numbers according to analysts on CNBC this morning.

One other note on the market. Both the S&P 500 and the Dow had Hammer Candlestick patterns yesterday at the close and I did expect a down day in spite of the early market rise. See both charts below and the 2nd last candlestick, as this is today's chart so far through this morning. I know, easy to say after the fact, but it was true. I have been very consistent about this indicator which often marks a reversal in trend is about to happen.


That's all the data to be released today. Earlier the Case Shilling 20-city Index was released and it came in at 3.18% vs an expected number of 3.1% and June's reading of a revised downward number form 4.23 to 4.21%. Originally the expectations were for the number to be 3.3% but it was revised earlier.

The Economy and Discretionary Spending

Since the Q2 GDP numbers are to be announced tomorrow, I thought it would be appropriate to write something on the economy. Many are wondering when the economy will be coming back to pre recession levels. I gave this some thought and when you look at the math, it looks dismal. Let’s take an analytical look at it.

First, let’s begin with the Consumer. The Consumer has been responsible for 70% of the spending in the country. The other 30% comes from the Business community buying from each other. Since nominal GDP (Gross Domestic Product) of the United States was $14.2 Trillion dollars in 2009. Assuming the Consumer contribution, of 70%, that comes to $9.94 Trillion dollars. Ok, now let’s assume that even though the numbers I presented are for 2009, let’s assume there was no recession that year. (The reason I say that was because the nominal GDP for 2007 was $13.8 Trillion dollars, not far off from 2009.)

The Unemployment rate in 2007 was only 4.6%, while today it is 9.5-9.7%, and was as high as nearly 20%, if one counts those not collecting benefits and have given up looking for work. There are about 237 Million people in the Civilian non-institutional population and the Civilian Labor Force has about 153 Million people. The officially unemployed total about 15 million people.

In 2006, total discretionary income totaled $1.7 Trillion dollars in 2006. Nearly 78% of all discretionary income is held by households earning more than $100,000. “While the percentage of households with discretionary income has risen over the past several years, purchasing power remains concentrated in the wallets of the affluent,” said Lynn Franco, director of The Conference Board Consumer Research Center.

So if you take approximately $10 Trillion spent by Consumers, and then figure in the unemployment rate of approximately 10%, you have about $1Trillion less dollars for Consumers to spend. Add in the fact that 78% of all discretionary spending is from households earning more than $100,000, and it is even a higher number than $1 Trillion. That doesn’t include the businesses that don’t have money to spend buying other’s equipment, which represents the 30% of spending done by business. There could be another $1 Trillion less spending by business. That’s a huge hit on the economy.

If you put the $2+ Trillion out of the economy and then add in the Governments $0.8 Trillion Stimulus package, you can see we still are a long way off to making up the difference. As long as we continue to have 9-10% Unemployment rate and higher real Unemployment, we will not come out of this mess anytime soon. This implies to me not to believe the stock market will continue to rise. As a matter of fact, when these inferences become more recognized as truth, the markets will sell off. We will know by September/October this year whether that plays out. Oh, and by the way, conveniently, this is just before the November mid term election, where the Republican Party hopes to make much gains and take over the Congress. It will be the time when Democrats are most vulnerable.

Also, I found this link to the Great Depression from a Historical perspective. Check it out and learn what a Depression is really like. Not many living today have any experiences living in Depression times. David Rosenberg, formerly Chief Economist at Merrill Lynch, said this week that we are not in a recession, we are now in a Depression!

I also have a book I enjoy reading about the Great Depression. It is titled, “Only Yesterday and Since Today”. It was written by Frederick Lewis Allen originally in 1931 for Volume 1 and then 1940 for Volume 2, as there are two Volumes in the one book. They did an update of the book in 1986.

The other book I read is titled “The Worst Hard Times” by Timothy Eagan, a NY Times national enterprise reporter. The book was on the NY Times Notable Book list. The author is a Pulitzer Prize winner and has written 4 books. This book is about those who survived the Great American Dust Bowl. It shows the determination of Americans in the worst hard times imaginable. We were once a tough, proud people who were civil to one another even in desperate times. Look at us today.

Retail sales down another month!

Latest data for July Retail Sales shows it down 0.6%, ex Autos. Overall Retail Sales were down 0.1% for July.The reason to take out the auto numbers is they were pumped up by gov't action from the "Cash for Clunkers" program. This is not good news going into the Back to School season. Import prices are down over 19.3% year over year and once again it shows us in a deflationary environment.The number of U.S. households on the verge of losing their homes rose 7 percent from June to July, as the escalating foreclosure crisis continued to outpace government efforts to limit the damage. Nevada led the nation in foreclosures for July. Foreclosure filings were up 32 percent from the same month last year, RealtyTrac Inc. said Thursday. More than 360,000 households, or one in every 355 homes, received a foreclosure-related notice.

Banks repossessed more than 87,000 homes in July, up from about 79,000 homes a month earlier.

Unemployment unexpectedly increased for the week. The 4 week moving average is up to 558,000 lost jobs.

The Consumer is not returning to the marketplace according to these numbers and unless they do, more are going to lose jobs and more foreclosures are on the horizon. You feeling optimistic now? It's back to school soon and the reality of the world as people return from vacation. Take a deep breath!

Don't forget to take my Mini Poll on the right margin as to how long you believe the recession will last.

Savings Rate vs. Consumer Spending: What will the future bring?

Below, I have a chart of the U.S. Savings rate going all the way back to 1970 and comparing year over year growth, which I read in an article titled, "Global Growth Likely to Stagnate Through Summer". The economy has been built upon Consumer Spending contributing to 70% of our economy for at least the last 20 to 25 years. But now that trend seems to be in reverse, as is shown on the chart. If this is true for our economy, the big question is whether our exports can increase sufficiently to fuel our economic growth and take the place of our Consumer. We find ourselves in the very same place as the Japanese did in the early 1970's, which ultimately led to their lost decade of the 1990's.



No one knows what will ultimately happen here in the U.S. But we need countries like China and India to help fuel our economy and we had better get used to it. We need to build a closer economic relationship with China and that is in our national interest, or we could have our lost decade as well. It isn't going to be easy, as we are not as aligned with China because of their Human Rights record, but we need not to meddle in China's internal affairs as the way of showing our displeasure. We have learned much from the latest trouble in Iran and how technology has given them a chance to raise their collective voices in opposition to what they deem as an injustice by the Supreme Leader and government they trusted. We must let technology do its magic in China and learn to be more patient as a people. Otherwise, we and our children have a dark economic future. We can't keep spending like we have for the past 25 years. It is time to save and it looks like we may have finally learned that lesson.

Market news and outlook April 29th

Major data was released this morning on GDP. For the first Quarter GDP was down 6.1% and this is the 3rd consecutive quarter of negative GDP. Exports for Q1 were down 30%, the lowest since 1969, while Imports were down 34%. Consumer Spending increased 2.2%. Inventories declined 2.7%. Home Investments showed a 38% decline and Business Investment in Structures was down 44.2%.

In Pre-market the news seems to be shrugged off, as Futures are still positive with the Dow up 71. Watch the market carefully today, as we may have the breakout many of us have expected. I happen to think it has a higher probability of dropping than going up, but I am right only about 67% of the time. To me the news is very bad and I don't see why the market is still up. It was significantly less than the -4% GDP expected.

I asked myself if I have changed my spending patterns recently since the scary market decline and I would have to admit only slightly. I still go out to local restaurants, but since I don't need any new equipment or appliances, I am not really spending much.

The Swine Flu seems to be growing at a relatively slow pace, which is good. The first U.S. death was reported in Texas today of a 23 month old toddler. Hopefully this scare will dissipate and the concern lessoned. We don't need this crisis on top of all the crisis we still face. The large Banks are still very much in trouble and the release of the Stress Tests on the top 19 Banks will be announced on Monday. So the market seems to be waiting, apparently frozen at current levels. Today is also President Obama's 100th day in office and the general tone from that should be good with him garnishing a 69% approval rating.

BANK OF AMERICA HOLDS THEIR SHAREHOLDERS MEETING TODAY AND THE VOTE TO KEEP THE CEO KEN LEWIS WILL MAKE NEWS EITHER WAY. Many expect him to be outed by angry shareholders. Quite honestly if he is outed as CEO it is difficult to predict the market's reaction on Citi stock but I have bet that Banks share prices will drop going forward so we shall see what this meeting does today, to that end.

I remain pessimistic regarding a market advance. I believe this rally has been a Bear Market Rally and not the beginning of a new Bull Market. There is an emerging Commercial Real Estate crisis added to the home foreclosure problem still front and center, with each additional layoff contributing to more foreclosures in the system. Next week April Unemployment numbers will be released which will heighten the concern. Layoffs are still in the mind of Executive decision makers in many if not all businesses. This is not a good sign. Preserve Capital until the picture of the future shows more promise.

Don't forget to vote in the Mini Poll on how long the recession will last on the right margin. Vote only once per month. data will be summarized next week.

Yes We Can: How You can help turn the economy around.

That's right, "Yes We Can" collectively turn this economy around almost without even President Obama's help or that of the Congress. How can we do that? By having some faith that you truly can make a difference. Look, the economy is driven mostly by Consumer Spending, 70% to be exact. I know that about 10% of our citizens are unemployed, while many are currently worrying about their job security as well. But the 90% of us, who are employed, can help the country and our citizens by deciding not to stop our purchasing all together or eating in instead of going to a restaurant. Look around where you live and ask yourself if you want to see all the businesses close shop or restaurants go away. I don't. We can all turn this economy around, if we believe in our own power and spend again. I'm not saying spend with abandon, but what I am saying is to get back to a more normal and healthy lifestyle, rather than being so afraid.

Here's an example from my own experience. Our 12 year old refrigerator had a problem this past week. We were weighing whether we should get it fixed of buy a new one. We can think of good reasons for choosing either side of the choices. But when we add in the mix that it is good for the economy to buy a new one to help manufacturing jobs, to help a shipping company deliver it and a store that sells it, we have decided to buy a new one. Then the question is what to do with the old one? We have decided to give it away to someone, or charity, who might want it, or need it, or could get it fixed and use it, for another 12 years, as refrigerators have an expected life of 25 years.

Another example is choosing to eat out in some of our favorite restaurants. Every neighborhood has a favorite restaurant they take the family to or go to on a special evening. If those restaurants weren't there anymore, it wouldn't be the same living there any more. So choosing to go out to dinner helps support those restaurants keep surviving and helps those people who work there keep their jobs. Even some of the upscale restaurants, which have Valet parking service, can help a kid have a job.

The American people are a generous people and give freely to charity. We need to also think that charity also begins in our neighborhoods. We collectively can turn this economy around, but it starts with each of us as individuals deciding we are going to help President Obama with his most difficult job. When America is back the world will come back too. Right now they are scared too. Scarcity begets scarcity, but abundance begets abundance. Which mindset do you want to bring forth? Take accountability for getting out of this recession and preventing us from a Depression. Yes We Can!