Category: Finance

Sticking it to the Unemployed

The Republicans should be ashamed of themselves for denying extension of jobless benefits.  They believe extending Bush tax cuts to millionaires is appropriate but too bad for the unemployed.  Their idea of let them figure it out for themselves reminds me of that famous queen who said, “Let them eat cake.”  Is this the “second amendment moment” Sharron Angle was talking about?

Unemployment insurance runs out on Nov. 30 for 2 million jobless Americans.  There is no argument that this program is expensive but the consequence of this action will mean thousands of people with no place to turn except food pantries.   Yes, the extended benefits are costly – another year’s worth would cost about $65 Billion.  However, when it comes to helping the economy, unemployment benefits deliver far more bang for the buck than holding down the top marginal tax rates.

Buying Gold – Think Again

This excellent page was scanned from Businessweek October 18-October 24, 2010.  The key point by Mr. Ritholtz is that “gold shouldn’t account for more than 5% of your portfolio.”  The gold hawkers on talk radio will not be happy with that advise.  One click to enlarge the page.  It’s worth your time.

Consumers Cut Back Credit Card Borrowing

Associated Press report dated October 8, 2010

Consumer borrowing fell again in August as consumers cut back on credit card use for the 24th consecutive month, the Federal Reserve said Thursday.

Borrowing by consumers declined by $3.3 billion that month. It was the 18th drop for overall consumer borrowing in the past 19 months.

Americans are borrowing and spend­ing less as they face widespread unem­ployment and uncertainty about their financial futures. The reduced use of credit by consumers is a drag on the recovery, which has yet to show a sus­tained rebound.

Another cause of the decline in credit is banks’ slow recognition that many debts will not be repaid. Banks gave up on $42.5 billion in credit card debt in the first half of 2010, according an analy­sis by the website CardHub.com. The annual rate is more than twice what it was in 2007.

Households are expected to continue cutting back on borrowing as long as incomes stay flat and jobs remain scarce.

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My prediction: No matter what the politicians, economic gurus, and other so-called experts say or do, America is in for a period of slow growth.  Unemployment has been stuck in the 9% plus range since May 2009.  There is nothing on the horizon that indicates a change.  We will just have to learn to live with this reality for the next few years.

The Stock Market is Not a Good Bet Now

The stock market has been a disaster this year.  Something I predicted at the end of January.  My prediction was based upon the theory that as January goes, so goes the entire year.  It is an old theory that has been recited annually.  This past January brought on another batch of magazines and newspapers that retold that theory.  Even Eric Tyson, who writes all those Dummies books on finance, disagrees with the theory.

Perhaps the theory won’t be valid for 2010 but it certainly appears to be following the path that January predicted.  The S&P 500 graph supports my prediction.  Click the graph for an enlargement.

From Morningstar on August 20, 2010: “U.S. stocks declined Friday on light summer trading volumes, sending the Dow Jones Industrial Average to its second consecutive week of losses as concerns about economic growth weighed on investor sentiment.”

From the New York Times on August 21, 2010: “Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.”

Quotation of the day from the New York Times on their emailed Today’s Headlines dated August 22, 2010: “For a lot of ordinary people, the economic recovery does not feel real.” LOREN FOX, an analyst at a New York research firm, describing investors who are pulling out of the stock market at a striking rate.

“It’s the economy, Stupid”

The words of James Carville, campaign advisor to when Bill Clinton in 1992.  It has always been about the economy.  President Obama decided to focus on health care rather than the most pressing issue in the past two years.  I want to be an optimist but the numbers are not promising.  There is nothing on the horizon to indicate that this recession will be ending soon. 

Maybe this is a good thing because everyone in America has been coming to grips with their credit card and car payment debt.  Listen to Dave Ramsey on any morning and you realize how utterly foolish Americans have been about managing their money.  Visa, Master Card and the rest of them may be hurting but perhaps Americans are starting to grow up.  I include myself.

This graph tells the story of the on going unemployment picture.  New claims for unemployment finally dropped below 500,000 in the week ending November 21, 2009.  The weekly new claims has swayed between 427,000 and 496,000 since then.  Last week claims climbed for four weeks in row to 484,000.  I doubt that the Republicans can do any better than the Democrats in ending this disaster.

Click on the graph to get a better view. 

Forced to Retire, Some Take Social Security Early

In an AP article “Paul Skidmore’s office is shuttered, his job gone, his 18-month job search fruitless and his unemployment benefits exhausted. So at 63, he plans to file this week for Social Security benefits, three years earlier than planned.” “Like Skidmore, 63-year-old Jan Gissel of Tustin, Calif., also was forced into retirement early. She turned to unemployment benefits when her technical support business failed and filed for Social Security last September. Together, the checks are keeping her afloat.”

I can relate to their situations.  It was three months until my 65th birthday when my employer sold out to a competitor.  I received a very modest severance package and they extended my health insurance, employer paid, until my birthday.  I applied for unemployment insurance.  The official date for my social security would not occur until age 65 years and four months.  You are allowed to apply for Social Security up to four months prior to your first benefit check.  So I applied for that option.  However I continued to search for a job.  After all, living on Social Security alone would be a shock to most people.

Congressman John Boehner, appearing on Meet the Press, hinted about extending eligibility for Social Security to age 70.  If you find yourself unemployed at age 60 or later you will not easily find employment except as a greeter at Wal-Mart.

MR. GREGORY:  And so you favor raising the retirement age?

REP. BOEHNER:  David, there are a lot of options about how you solve this, but I don’t want to get the cart before the horse.  I think it’s important to have this conversation.  It’s going to be a difficult conversation, but it’s time to have it and it’s time to come up with some solutions that are done in a bipartisan way to help address these problems.

How the Rich Stay Rich

HP CEO forced to resign amid harassment claims

Mark Hurd has been the CEO of Hewlett-Packard Company since Carly Fiorina left that job in 2005.  He was asked to resign as a consequence of either sexual harassment charges or some other internal misbehavior.

It has been reported that Mr. Hurd  will get a $12.2 million severance payment, and nearly 350,000 shares of HP stock worth about $16 million at Friday’s closing price, plus an extension of options to buy up to 775,000 HP shares. Clearly he will never have to work another day in his life.  Even at 4% interest the $12.2 million will provide him with an income of $488,000 per year.  At a 39% income tax rate and allowing for no deductions he will have a net $200,000 per year for living expenses.

 

Under current law he could also sell those $16 million in shares as needed and everything above the current price would be taxed as capital gains.  That is a rate of 15%.  The rest of us who earn a living by working would pay our taxes at a higher rate.

 

This is what the GOP wants to perpetuate.  I am sure members of the GOP can justify this situation.  I just do not know how they will do it.

Middle Class Slow-roasted Homicide

“the middle class will continue to be an accomplice in its own slow-roasted homicide”

Today’s unemployment initial claims for last week are 479,000.  Those claims have been in the 400,000 plus range since November 21, 2009.  That continuing issue might be the real reason that the GOP will be successful in November.

This explanation provided by a friend, Burt Feinstein

We’re only three months away from the midterm election when a shockingly large number of American voters will inexplicably vote for Republican candidates. I have no idea if this will mean a Republican takeover of the House or Senate or both, but there will definitely be enough voter support for Republicans to significantly reduce the Democratic majorities in the House and Senate.

Why? Because too many voters tend to be low-information, knee-jerk Springfield-from-The-Simpsons types, and the Republicans have lashed their crazy trains to this new wave of inchoate road-rage to help sweep them into more congressional seats.

Here are a few of the ongoing economic conditions facing a vast majority of Americans, many of whom are all revved up to vote Republican in November. According to Michael Snyder of the Business Insider:

• 61 percent of Americans “always or usually” live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007.

• 66 percent of the income growth between 2001 and 2007 went to the top 1 percent of all Americans.

• Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008.

• The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.

• In America today, the average time needed to find a job has risen to a record 35.2 weeks.

• More than 40 percent of Americans who actually are employed are now working in service jobs, which are often very low paying.

• Despite the financial crisis, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million in 2009.

Oh, and the Center on Budget and Policy Priorities reported that wages for the highest 20 percent of earners rose by nearly 300 percent since 1979, while wages for the bottom and middle 20 percent increased only by 41 percent — combined. Plotted on a graph, middle and working class wages have flat lined for 30 years. Roll all of these tragic figures into a slow growth recovery and here we are. Most of us in the middle class are screwed.

And thanks to an alliance between the Republicans (which includes the tea party), the increasingly dominant far-right media, a traditional “old media” that panders to the far-right, and right-of-center “conservadems” who pander to the Republicans, too many voters have decided that the Republican Party might be better suited to turn all of this around.

The big lie here is that if Congress stops spending, cuts the deficit and makes permanent the Bush tax cuts, especially the tax cuts for the wealthiest Americans, our problems will be solved — even though these concepts are in direct conflict with each other. Not surprising given the ever-lengthening Republican syllabus of contradictions.

Here’s how this new batch of contradictions plays out.

According to Republicans and their conservadem enablers, we have to cut the deficit and pay for every program Congress passes or else we’re all doomed. We’re stealing from our children, they say. This has manifested itself in Republican filibusters of both unemployment benefits ($34 billion) and a new jobs bill ($33 billion over ten years). A Republican filibuster killed the jobs bill, and, after many failed cloture votes, the filibuster of the unemployment benefits was finally defeated and the Senate Democrats passed the extensions. Throughout the past year and a half, it’s been the same story.  Any effort made by the Democrats to stimulate the economy has been filibustered by the Republicans. They say it’s because of the deficit and debt.

And yet they want to make the Bush tax cuts permanent, which would add $678 billion dollars to the deficit — and that’s just the cost of the tax cuts going to the top two percent of earners. In other words, the Republicans want to spend $678 billion in further giveaways for the wealthiest two percent, and they don’t care whether it increases the deficit.

By the way, the Republicans also recently voted against and defeated an amendment to strip Big Oil of its $35 billion in subsidies. Just thought I’d pass that along. Put another way, $678 billion in tax cuts for the wealthy? No problem. Deficit-shmeficit! But $34 billion in unemployment benefits for an out-of-work middle class at a time when companies aren’t hiring (say nothing of the aforementioned bullet-points)? Evil! Instead, the Republicans want to give $35 billion to Big Oil in the form of corporate welfare during the worst oil spill in American history while telling unemployed middle class families to piss off.

Do we have a clear picture in terms of who and what the Republicans care about?

It surely isn’t fiscal discipline or the deficit. And it surely isn’t the middle class. The Bush tax cuts, if extended, would add $2 trillion to debt, so it’s not that either. Throw in another policy started by the Republicans — the war spending (more of which was passed yesterday without any worries about CBO scoring or making sure it’s deficit neutral) — and there’s the vast majority of your deficit and debt for the next ten years. Not the stimulus or the bailouts. The long term budget impact of the wars and the Bush tax cuts literally dwarf the stimulus. Here’s the CBPP evidence in colorful graph form:

That big blue chunk represents the Bush tax cut portion of the deficit. The yellow represents the wars. The light blue is the tax revenue lost to the recession. And those really narrow tan and red strata are TARP and the stimulus. Clearly we need to elect more Republicans so they can make permanent the big thick deficit hogs and kill that thin section for the stimulus.

Now, if you’re a Republican, you might be clinging to the idea that extending the Bush tax cuts would have a stimulative effect on the economy (somehow) even though this hasn’t been the case for the last ten years other than for the wealthiest Americans who have once again disproved the trickle-down theories at the heart of Reaganomics by pocketing their share of the trickle instead of reinvesting in jobs and wages for the middle class.

The Bush tax cuts will not stimulate the economy.

According to Moody’s Analytics (hardly a left-wing apparatchik), for every dollar of government money spent on extending the Bush tax cuts, there’s only a 32-cent return on investment in terms of economic stimulus. Not a solid investment. How about cutting the corporate tax rate? Also a 32 cent returns in economic stimulus. Capital gains tax cuts? 37 cents. And, lumped together, there’s your Republican plan for growing the economy. Dumb investments. Goldman Sachs would short these policies. I’m not sure they haven’t, actually.

But what about the Democratic spending? For every dollar spent on unemployment benefits, there’s a $1.61 return in economic stimulus. Good investment! How about infrastructure spending? $1.57 return. Aid to the states? $1.41. Temporary increase in food stamps? $1.74. Even the Obama tax credits for the middle class, $288 billion of the Recovery Act, account for up to $1.30.

Meanwhile, the Obama administration is working with a deficit commission which will focus on trimming the deficit after (we hope) the economy and jobs are back on track. The Republicans, of course, voted against forming a deficit commission.

Given the choice between deficit spending that significantly stimulates economic growth or deficit spending that barely makes a dent, which choice are the Republicans trying to sell? The really stupid deficit spending for the wealthy that barely makes a dent in the recovery. That’s the Republican plan.

Also, contrary to popular far-right myths, it’s worth noting that the Democrats and the White House have no intention of allowing the tax cuts for families earning less than $250,000 to expire. Those tax cuts will be renewed this year. As for the top tax brackets, you find me a multi-millionaire who pays the actual marginal rate every April and I’ll show you a very rich moron. Most of these guys, after deductions and loopholes, pay an effective tax rate that’s much lower than the middle class tax brackets. So don’t tell me that millionaire Glenn Beck and millionaire Paris Hilton will be financially burdened by a 2.6 percent bump in their margin tax rate next year. Sorry, no. They won’t be. And why do middle class Republican voters give a rip about Paris Hilton’s tax rate? Because they believe they’ll be as wealthy as Paris some day. But read those bullet-points again. It’s not happening.

Unless there’s some sort of mass epiphany, or unless the Democrats actually speak up and take the discourse by the horns and fight, middle class American voters in November will augment the number of Republicans (and conservadems) in Congress mostly because they’ve been suckered into endorsing these insane Republican economic policies. Subsequently, the Republicans will balloon the deficit and undermine the economic recovery in order to give more handouts to the super rich. And the middle class will continue to be an accomplice in its own slow-roasted homicide.

What’s Wrong with Free Trade?

 Will those Mama Bears stand up for this issue?

Ross Perot called it “the giant sucking sound.” It was his opinion of the consequences of NAFTA. He told us all that the free trade agreement with Mexico and Canada would result in the loss of thousands of American jobs. He was pooh-poohed by many in the media, in government and many ordinary Americans like myself. A casual acquaintance at work, who looked and dressed like a hippy was giving me the same arguments as Mr. Perot. I told him that the only result of NAFTA would be a better life for Mexicans with no impact on the United States. They were right and I was wrong.

Companies with assembly and manufacturing plants in Mexico include, Chrysler, Technicolor, Panasonic, and Sony. Those jobs are now being fulfilled by Mexicans at salaries that are 1/5 the amount paid to Americans. Is it any wonder so many companies have located their manufacturing facilities there?

Now there are proposals for free trade agreements with other Latin American nations and South Korea. Trade with South Korea totals $68 Billion. Obama is reported to believe that the proposed agreement will result in increased exports of American goods. Some American labor unions and manufacturers are opposed. Every American should be opposed to all new free trade agreements.

Corporations and the wealthy favor those new agreements because they will be the beneficiaries. The reason is simple. Keeping American employee compensation Low is their objective. When Americans have to compete with workers in other countries they will have to reduce their pay demands to be competitive.

If Tea Party participants are looking for a cause that will attract more Americans, then this is it. Everyone understands it is all about jobs. Will those Mama Bears stand up for this issue? This really would be protecting their young!