Jottings -Updates- Random Thoughts

Economy

It's been a while. Almost two months since I penned my comments on the Recession. We still have no Recession. Some may argue that a .06 increase to a .08 increase isn't very much. However, it's not a decrease. The classical definition is two quarters of reduced (negative) growth. We haven't had any. We may not

I can see some glimmers of the end of the economic downturn. If our politicians don't screw it up by pouring more money (and tax increases) on special interests that reward the quick and easy while purporting to save the slow and diligent. The credit freeze is starting to un-lax (Unwind and relax, My kids said that. It fits.) Loans are being made and people are buying big ticket items. The 47% Bonus depreciation that was included in the Free Money stimulus package will start to kick in in the Third and Fourth Quarters of the year.

Overall, I think we have a bit of "Stagflation" happening. Gasoline costs are driving up the prices of everything but we haven't had an increase in payroll. We are promised huge tax increases by the Democrats next year. So, people are moving their investments into assets. Inflation will make the assets worth more (really the same in constant dollars) Congress will get more money from bracket creep and the bonus depreciation will make the new items cheaper... The low dollar should be making our exports a great bargain. We should have lots of tourists from abroad spending their bigger money on our bargain destinations... But we cannot depend on these sources of income to help pull us around. I look for higher interest rates in the near and long term. We need to make investments in the US competitive and profitable again. I'd like to see us sell some gold and soak up some of the dollars floating around the world. That won't happen for fear of causing a panic.

Oil is a bubble. Anything above $30/bbl is a function of 1) war premium and 2) speculation by lots of big funds and soveriegn nations. Iran is hoarding their oil offshore in tankers. This removes several million bbls from the market and drives up the prices of transportation. In the meantime, Brazil has discovered an estimated 33 billion bbls in deep water offshore. They have tied up many/most of the deep water rigs for their exploration. China will develop the Cuban oil fields and the US will sit with pristine beaches and pay-pay-pay. Sometimes it seems we have adopted the Malcolm Forbes strategy from the 1970's. He urged America to use up everyone else's oil first and then develop our own resources. What we need is to get busy developing our alternatives...

Global Warming

At $6/gal we will change the way we live. At $4/gal we're starting to cut back. The whole Global Warming scam is designed to force us to live poor. The proposed Cap-and-Trade program for businesses is but the opening for personal carbon rationing. I can easily see a time when each of us will be given a ration card. As we use carbon we will be dinged. When we run out, we will be forced to buy more from our less active or industrious fellow citizens...or from the govt. Every gallon of gas, every kilowatt hour, every airplane flight will be subject to rationing.

This is Free Money for the govt. They will create an artificial shortage. They will sell us access to the carbon gases. They will control the supply and not have to actually produce anything in return. They limit the number of nuclear power plants. They limit refinery development. They limit exploration. They define what types of oil we can develop (No Oil Shale, No Canadian Tar Sands)... Of Course, as our Masters and Superior Beings traveling on Important Govt business, they will be exempt from the same rationing scheme.

Can't happen here-? Why not-?

What do we do when the earth turns cold-? Over the past 100,000 years cold has been the dominant weather pattern. We look at our industrial history and become frightened. We see how we have changed and advanced. Things that killed us by the millions 100 years ago are seldom seen by the modern doctors... We are afraid of our success. We have created a new religion that demands great leaps of faith because the scientific evidence is shallow at best. We now need to force everyone to sacrifice for the noble cause. Of course, being humans we all know that those who advocate the most sacrifices will be among the few suffering the least.

What do you think-?

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.