Given the current, tough political environment, Obama has every incentive to go overboard in punishing BP and holding BP financially responsible for as much “damage” caused by this spill as possible. The environmental cleanup (in and of itself) is going to be extremely costly. But in the end, that “cost” will be minimal compared to what Washington will charge is BP’s “overall liability”.What about the fishing industry? Tourist industry? Local merchants? Beach front real estate developers? What’s stopping any/every Gulf of Mexico state from blaming all their economic troubles on the BP oil spill?! Nothing.The reason BP has hired Goldman Sachs and other Wall Street banks is that BP knows that Obama will (and politically needs to) go after BP in the most aggressive way possible.Every American apparently agrees that we should hold BP accountable. However, what is lost on Obama is the following - every other company doing business in the US is watching Obama’s actions and is painful aware of the current hostile business environment in Washington.The Washington message is clear: ”I need to get re-elected, and my poll numbers are way down. If I can gain votes by bashing your company (or industry), watch out. I will take you out.”So…just how is Obama encouraging business creation? Does he realize that we need business creation to save our economy? Or is that too long-term focused.
Here’s a great market summary by Bill Gross of PIMCO: ”A deleveraging process based upon too much debt and too little growth to service it.” ”…4-6% annualized returns for a diversified portfolio of stocks and bonds is the likely outcome.” In other words, buckle up. It’s going to be a long road back to recovery. We need to get through the deleveraging process and see growth BEFORE we start to recover.
In the last month or two, I have read several articles stating the case for the US economic recovery.I just don’t buy that. Previously, I had based my simple economic outlook on the following fact: ”You can’t have stability or growth in the US housing market without growth or stability in the employment market.” However, I just stumbled on this great 25 questions for all those that think we are out of the (recessionary) woods - courtesy of http://theeconomiccollapseblog.com. (Don’t get depressed.)
#1) In what universe is an economy with 39.68 million Americans on food stamps considered to be a healthy, recovering economy? In fact, the U.S. Department of Agriculture forecasts that enrollment in the food stamp program will exceed 43 million Americans in 2011. Is a rapidly increasing number of Americans on food stamps a good sign or a bad sign for the economy?
#2) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in the month of March. This was an increase of almost 19 percent from February, and it was the highest monthly total since RealtyTrac began issuing its report back in January 2005. So can you please explain again how the U.S. real estate market is getting better?
#3) The Mortgage Bankers Association just announced that more than 10 percent of U.S. homeowners with a mortgage had missed at least one payment in the January-March period. That was a record high and up from 9.1 percent a year ago. Do you think that is an indication that the U.S. housing market is recovering?
#4) How can the U.S. real estate market be considered healthy when, for the first time in modern history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together?
#5) With the U.S. Congress planning to quadruple oil taxes, what do you think that is going to do to the price of gasoline in the United States and how do you think that will affect the U.S. economy?
#6) Do you think that it is a good sign that Arnold Schwarzenegger, the governor of the state of California, says that “terrible cuts” are urgently needed in order to avoid a complete financial disaster in his state?
#7) But it just isn’t California that is in trouble. Dozens of U.S. states are in such bad financial shape that they are getting ready for their biggest budget cuts in decades. What do you think all of those budget cuts will do to the economy?
#8) In March, the U.S. trade deficit widened to its highest level since December 2008. Month after month after month we buy much more from the rest of the world than they buy from us. Wealth is draining out of the United States at an unprecedented rate. So is the fact that the gigantic U.S. trade deficit is actually getting bigger a good sign or a bad sign for the U.S. economy?
#9) Considering the fact that the U.S. government is projected to have a 1.6 trillion dollar deficit in 2010, and considering the fact that if you went out and spent one dollar every single second it would take you more than 31,000 years to spend a trillion dollars, how can anyone in their right mind claim that the U.S. economy is getting healthier when we are getting into so much debt?
#10) The U.S. Treasury Department recently announced that the U.S. government suffered a wider-than-expected budget deficit of 82.69 billion dollars in April. So is the fact that the red ink of the U.S. government is actually worse than projected a good sign or a bad sign?
#11) According to one new report, the U.S. national debt will reach 100 percent of GDP by the year 2015. So is that a sign of economic recovery or of economic disaster?
#12) Monstrous amounts of oil continue to gush freely into the Gulf of Mexico, and analysts are already projecting that the seafood and tourism industries along the Gulf coast will be devastated for decades by this unprecedented environmental disaster. In light of those facts, how in the world can anyone project that the U.S. economy will soon be stronger than ever?
#13) The FDIC’s list of problem banks recently hit a 17-year high. Do you think that an increasing number of small banks failing is a good sign or a bad sign for the U.S. economy?
#14) The FDIC is backing 8,000 banks that have a total of $13 trillion in assets with a deposit insurance fund that is basically flat broke. So what do you think will happen if a significant number of small banks do start failing?
#15) Existing home sales in the United States jumped 7.6 percent in April. That is the good news. The bad news is that this increase only happened because the deadline to take advantage of the temporary home buyer tax credit (government bribe) was looming. So now that there is no more tax credit for home buyers, what will that do to home sales?
#16) Both Fannie Mae and Freddie Mac recently told the U.S. government that they are going to need even more bailout money. So what does it say about the U.S. economy when the two “pillars” of the U.S. mortgage industry are government-backed financial black holes that the U.S. government has to relentlessly pour money into?
#17) 43 percent of Americans have less than $10,000 saved for retirement. Tens of millions of Americans find themselves just one lawsuit, one really bad traffic accident or one very serious illness away from financial ruin. With so many Americans living on the edge, how can you say that the economy is healthy?
#18) The mayor of Detroit says that the real unemployment rate in his city is somewhere around 50 percent. So can the U.S. really be experiencing an economic recovery when so many are still unemployed in one of America’s biggest cities?
#19) Gallup’s measure of underemployment hit 20.0% on March 15th. That was up from 19.7% two weeks earlier and 19.5% at the start of the year. Do you think that is a good trend or a bad trend?
#20) One new poll shows that 76 percent of Americans believe that the U.S. economy is still in a recession. So are the vast majority of Americans just stupid or could we still actually be in a recession?
#21) The bottom 40 percent of those living in the United States now collectively own less than 1 percent of the nation’s wealth. So is Barack Obama’s mantra that “what is good for Wall Street is good for Main Street” actually true?
#22) Richard Russell, the famous author of the Dow Theory Letters, says that Americans should sell anything they can sell in order to get liquidbecause of the economic trouble that is coming. Do you think that Richard Russell is delusional or could he possibly have a point?
#23) Defaults on apartment building mortgages held by U.S. banks climbedto a record 4.6 percent in the first quarter of 2010. In fact, that was almost twice the level of a year earlier. Does that look like a good trend to you?
#24) In March, the price of fresh and dried vegetables in the United Statessoared 49.3% - the most in 16 years. Is it a sign of a healthy economy when food prices are increasing so dramatically?
#25) 1.41 million Americans filed for personal bankruptcy in 2009 - a 32 percent increase over 2008. Not only that, more Americans filed for bankruptcy in March 2010 than during any month since U.S. bankruptcy law was tightened in October 2005. So shouldn’t we at least wait until the number of Americans filing for bankruptcy is not setting new all-time records before we even dare whisper the words “economic recovery”?
Great debate in today’s NY Times Editorial page regarding China’s economy. On the one hand, you have investor James Chanos saying that China is a screaming short. Chanos states that it could be the next “Dubai times 1,000 – or worse” and boldly states that he is looking for every possible way to short China.
On the other hand, author Thomas L. Friedman states that he would never bet against China. His thesis can be summarized as: “Sure, China has problems and may have bounced back a bit too quickly. However, don’t bet against a centralized Chinese government that is thoughtful attacking problems (inflation) and has the resources (savings) and commitment to do so.”
Could both guys be right?
Short term, few would argue that China’s recovery may be a bit “too fast, too soon”. So the hedge fund manager Chanos may make some money taking a contrarian bet on China’s growth. However, few would argue against (and certainly not bet against) China’s growth engine.
The more interesting angle is the following. Does the US feel threatening by China’s growth prospects and success? Many in Washington DC and (Main Street, USA) are nervous that China’s success is coming from a country that is certainly NOT a democracy. China created the fastest growing economic engine with a mix of a tightly controlled communist regime AND capitalism. This contradicts some very basic, core US values. As Americans, we have been taught that these two (Communism and Capitalism) don’t go together. Does China success prove that our “models” are all wrong?
The US is certainly nervous and threatened by China’s success. I guess it’s OK to be nervous. But no American should be cheering for China to crash and burn. China’s growth may be the only thing that can bail us out of this global recession!
Is “the public option” really we really want (or need) to fix our healthcare system? Think about it. Do we really want the Federal (or state) government running one of the biggest, most important industries in the US. (Healthcare is currently 16% of US GDP.) Show me one example where the government has been able to do that successfully? Medicare is an absolute disaster on all accounts. The US Postal Service? Amtrak? TSA?
What are we thinking? The public option is a bad idea.
Last week Dr. Otis Brawley, Chief Medical Officer of the American Cancer Society (ACS), said that the benefits of cancer screens, especially breast and prostate, have been overstated. His message is complex. However, the gist of Dr. Brawley’s message goes something like this: According to the ACS, PSA tests and mammograms can be a bad thing for two reasons: 1) PSA tests and mammograms are not very good screens for prostate and breast cancer, respectively. (Note, however, they are the only screens commercially available today.) 2) Wide spread cancer screening leads to overdiagnosis and overtreatment of patients who would be better off “watchful waiting” and not doing anything with their “benign” cancer.In the case of breast cancer, for every 100 women told they have breast cancer, 30 have cancers that are slow growing and unlikely to be life threatening. Thus, treating these patients would actually increase their risk rather than lower it. Similarly, 70 out of 100 men diagnosed with prostate cancer would be better off not undergoing treatment.I have two problems with Dr. Brawley’s message. 1) As a quantitative person, I believe that more knowledge/data is better than less. I do not subscribe to the “I am better off not knowing” philosophy. If I were the patient, I’d like to have as much information as possible about my illness. Thus, the idea that “screening is bad” is (in my book) offensive. I say this even if we safely assume that today’s screens are not ideal and will (hopefully get better) in the future. 2) Dr. Brawley’s timing is suspect. This smells like the beginning of Obamacare were services and screens will be rationed. I could scarily see insurance companies reading Dr. Brawley’s remarks and concluding that they will no longer pay for PSA tests and mammograms going forward. That would be a disaster for the US healthcare system and a huge step backwards.
Re-engineering car designs is the easy part. (All we need to do is copy what Toyota has done.) The restructuring I am talking about requires significant layoffs and union busting. But let’s be realistic…Obama is no miracle man. He is human and a politician. No matter how well-intentioned, he is definitely not willing to commit political suicide by confronting the unions. There is no way Obama can (or will) stand idly while thousands of production workers get pink slips in Detroit.
So we are stuck with Washington ineffectively writing checks to Detroit which essentially amount to inefficient welfare.
The latest group coming to Washington looking for a bailout is the Detroit automakers. GM, Chrysler and Ford are all losing money at record pace and (some say) at risk of bankruptcy. The Obama administration has a huge dilemma on its hands – what to do about one of the most uncompetitive industries in America? (And if they save Detroit, when will the bailout madness end? What about the airlines? They need help too.)
The reality is that GM, Ford and Chrysler may be “too big to fail”, and Washington may have no choice but to step in and save the autos. Not doing so would be politically, economically, and strategically unimaginable. However, I would challenge Washington only to use taxpayer money to bail out the industry if it demands that real, strategic change is made to get the US auto manufacturers competitive again. The biggest mistake we can make is to give the auto industry what they (and the unions) are looking for – a blank check. There’s no way we should do that!
Any government led bailout needs to demand real, apolitical change. These companies need new leadership willing and able to make dramatic changes. Close plants that are inefficient and producing cars that no one no longer wants. Demand stringent requirements on fuel efficiency on all new vehicles. Get rid of the unions and their uncompetitive demands. And, yes, downsize the companies so they can operate more efficiently.
The obvious downside to all these changes is layoffs, major layoffs. This will not be easy. (And sadly the reason Washington may not have the guts to do the right thing.) But if significant change is not made, we will waste a lot of taxpayer money and find ourselves dealing with this mess again – very shortly.
One final point…let’s make sure we bail out the creditors of the automakers and not the equity holders. It would be a crime if our bailout funds helped get the Ford family and the big shots at Cerberus out of the mess they got themselves (and all of us) in to.
1) Tonight’s VP debate has to be the most anticipated VP debate in history. I actually think Palin won’t come across as a complete moron. She might do OK. I am worried about Biden. He might shoot himself in the foot several times tonight. The man is smart and impressive, but he can’t shut up.
2) McCain is losing steam. There’s no way he can effectively market himself as the “anti-Bush”. Obama’s “we can’t afford four more years” message is being heard. Look for Obama to pull away. Look for McCain to get nasty as it becomes evident that he is losing in the polls. Obama will win handily. Nice try McCain.
3) And to all you Republicans out there: don’t be too depressed when Obama wins. The best part of an Obama/Biden campaign is that at least Hillary won’t be able to for president in 2012. And let’s face it…by 2016 she’ll be too old to run.