Economics, Politics, Anticipation

WSJ email alert from the Recession-Now front lines:
NEWS ALERT
from The Wall Street Journal
March 7, 2008

U.S. recession fears mounted as employment fell in February at its fastest rate in five years, suggesting that the housing and credit crunch is gripping the broader economy. U.S. nonfarm payrolls fell by 63,000 in February, after declining 22,000 in January. If not for a rise in government jobs last month, payrolls would have fallen by more than 100,000. However, the unemployment rate dropped to 4.8% from 4.9%.

Ahead of the jobs report the Federal Reserve raised the amounts outstanding in its Term Auction Facility available to banks to $100 billion. The Fed's move lowered the odds of a change in the federal funds rate before the next meeting, but raised the chances of a three-quarter point reduction on March 18.

For more information,

For more analysis of the economy, see: http://blogs.wsj.com/economics


A reason to vote for McCain

Another indication of the affects of politics on business-I am seeing and hearing Investment Bankers and business owners starting to change deal structure and pricing in anticipation of a Democrat take over.

The general line is to lock in M&A terms now before Obama comes with his 28% Capital Gains rate, before the Bush tax cuts expire, before the death tax goes back to 55% over $1M valuation, etc. Lots of talk about shifting assets to trusts and getting creative in ways to avoid the hits.

Business owners are starting to look at ways to deal with increased regulation. Nobody has anything specific yet, but the general tone is that the increased regulation will be more in line with union rules and union organizing attempts. Things that stress business and create a favorful union organizing environment are expected.

Estimates that a full-tilt union America will drive up the cost of everything by 20%... That seems scary, but it was what I heard yesterday... Add to that the tax increases and credit crunch, plus whatever mischief Congress creates to replace the Alternative Minimum Tax... There are gonna be a lot of folks with six figure household income scrambling for tax shelters and new income opportunities...

The markets run ahead of events. Right now there is a bit of panic and a lot of fear. But the tide was already shifting in consideration of higher gasoline prices ($5-$6/gal-?), tighter credit, fewer home starts and less consumer spending...

The Democratic Congress and the Democratic Candidates have succeeded in scaring the marketplace-and the world... It's gonna take some strong medicine to prove them wrong... Cassandra is respected a lot longer than Pollyanna ever was...

Are we talking ourselves into a recession-?

George Anders column in Wednesday's WSJ reflects a lot of the thinking I am hearing and seeing...

Hurry, hurry, hurry to carry out corporate acquisitions before the November elections, some attorneys and investment bankers are telling their clients. That is because they think a Democratic presidential victory could create more roadblocks for takeovers.

Guessing what political-office seekers might do if elected is never a sure thing. Some stances taken on the campaign trail have a way of fading from sight once the election is over. Other positions prove impossible to implement.

Higher capital-gains taxes could also jolt the takeover market, though getting congressional approval for such changes won't be easy. In Senate votes in the past few years, both Sen. Obama and Sen. Clinton have voted for ending the current 15% capital-gains rate and returning to higher levels.

Mr. Obama told the TechCrunch Web site in November that he favored capital-gains tax rates close to 28%, where they were under the Reagan administration, though not quite that high. Mrs. Clinton hasn't been as specific.

For individual shareholders, a higher capital-gains rate would mean keeping less of the proceeds from selling a company. That could be a particular sore point for owners of closely held companies, who may have personally built up the value of such companies over decades. As a result, some private-equity firms are urging potential sellers of companies to act fast, while the 15% capital-gains rate still applies.

Demographics is Destiny

An open question... Please tell me what you see....

I am curious about what you see around you... Arizona is filled with boomers who retired and moved to the warmth, the relatively cheap housing, the golf courses etc... But they also moved away from family, friends and sociel structures. They have money and buy classic cars, hot rods, new go-fastre-mobiles... They spend a lot of time golfing and going to meetings to act like they are still vital. The wives shop, lunch and plan dinner reservations. Both men and women drink a lot. The widowers get busted for hiring hookers. The widows stay out of the newspaper... They have steady income and healthcare for life... all they face is the effort to continue breathing... at age 55 they probably ave 20-30+ years ahead... Daughter calls them "Kids who don't go to class" like she saw at college...

I like the Bay Area where there is lots of new businesses popping up. Opportunities to invest, mentor, are talk with people who are living on the edge of either bankruptcy or phenomenal wealth... The cost of living keeps everyone living the Law of the Serengeti (Everyone wakes up running. Either to catch your meal or to avoid being a meal)

North Florida has lots and lots of gated communities, resorts. Similar phenomena as Arizona with rich kids not going to class... They drive down and return to visit families up north more often. But they still wander around lost....

77 million retired boomers by 2012 is a lot of kids not going to class. My kids report that they are seeing boomers hanging on past retirement age. The problem is that 1) they clog up the promotion path for the young and 2) they quit working. They come in and read the paper. Plan lunch. Come back from lunch and doze... Some don't even turn on their computers. Office managers have taken to monitoring whether the machines are powered up. They monitor the work and examine whether it has been done or if stuff has been merely sat on for 1-2-3-4 days and returned...

I foresee problems ahead. Idle minds and idle hands get into mischief. Resentment by the young. Decline in efficiencies of the enterprise. Aged does not equate to wise. That makes them fodder for sharks, weasels, and crooks...

IOW... To me its a potential problem for all of us as a society. The new generation has a very different set of skills and abilities. They are not boomers-but-better... They are different. I find many who are incredibly naive. They are much more innocent than we were at the same age. I also find they go into rage much faster. When they think they have been cheated or had their rights have been trespassed upon they are ready for lawsuits, violence, and have a ard time controlling themselves. Women are as guilty as men. The women are a surprise, but having grown up in a world of single Moms and a steady diet of womens rights it's understandable... They also seem oblivious to effects of the casual sexual flirtation and invitations that they toss off. I know that I'm old. I also accept the world as changing.

It is a different world aborning... What does it look like where you are? Is it just me watching the parade in small towns, big cities and airports I visit-? There is much good coming but danger also lurks unchecked and unchallenged.

The WSJ Economics Blog reports with more details and specifics about the economic changes they see;

The graying of the world’s industrialized countries poses severe challenges to fiscal health, and more needs to be done to address the situation, according to a new Standard & Poor’s report.

The study, titled “What a Change a Year Makes: Standard & Poor’s 2007 Global Graying Progress Report,” says that progress has been made in the last 12 months through structural fiscal consolidation, but cautions that the net debt burden could be overpowering by 2050.

“Almost all [the nations] in the sample will face a very significant deterioration in public finances over the next half-century as a result of demographic change, unless a countervailing fiscal adjustment is put in place or social security and other age-related spending programs are reformed,” S&P credit analyst Moritz Kraemer said.

Proposing overhauls to social security programs may not be popular, but change is essential to achieve long-term stability, Mr. Kraemer said.

“What is needed is to unerringly make the case with a reluctant electorate that the road to the long-term stability of public finances, and therefore social security systems, is still steep, long, and stony,” he said. –Phil Izzo

Please read the comments... scroll down

From the research recap report on the S&P report:

Its initial gentle decline would accelerate by 2015 and continue until the mid-2030s, by which time the vast majority of countries would display fiscal characteristics that today are associated with speculative-grade sovereigns.

All hope is not lost, however. The ongoing reform debate is mildly encouraging., S&P says. Most of the action seems to be focused on reforming pension systems. This focus is politically appealing, as the sacrifices are often in the distant future and are not easily understood by the electorate. Technically, tackling social security is also relatively “easy,” compared with health care reform, which has to address more immediately felt and ethically charged issues. The value of government surpluses for the long-term sustainability of public finances is also becoming increasingly appreciated.

In the past, governments often tended to downplay the relevance of today’s deficits, which, they alleged, were needed to stimulate growth, ignoring the point that high deficits and high growth hardly ever go hand in hand. The economic outturn, however, has led all governments to at least pay lip service to the merits of short-term fiscal consolidation, S&P says.

The full report, 2007 Global Graying Progress Report, can be purchased here

Drop a line and tell me what you think and see in your part of the world.