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THE BLUE MONEY REPORT.
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The Blue Money Report
"Those who make peaceful revolutions impossible will make violent revolutions inevitable."
~ President John Kennedy
Welcome to the Blue Money Report
Today's Commentary: 02.20.03 Is this the last thing Mr. Bush whispers as he drifts off to sleep at night? It seems to me that no matter what he decides to focus on at the moment, it has a 50/50 chance of success or failure. Of course I am not talking about the war. This is not the place.
What I am talking about is his latest assault on the economy. The upcoming conflict will have an effect without a doubt. It is wrong, I think, to push a policy on the American people that would make the president look good in the short term. At the same time passing laws that would force his successor into the unpopular position of fixing the problem. If the government wants to relieve themselves of our tax dollars, there are better, more sane ways. But don't call it stimulation.
First off, any economy having had to deal with the worst case of the flu for the last three years is expected be a little shaky. Growth of 2.7% isn't that bad. If that pace continues for another year, it would let the stragglers in the downturn have a chance to fall just as the rest begin to rise. The burning question is, how do you get those fallen icons of capitalism to rise again?
Innovation. And in my estimation, innovation comes without tax cuts or capital accumulation. It comes with stability. It comes knowing that the profits that will be generated by this innovation are not going to pay debt, but to pay shareholders.
The folks that would spearhead such innovation are looking at a landscape littered with possible problems. Interest rates are low, but who wants to borrow. Growth is steady, but who wants to really ramp up production. Corporate debt is not worth peddling anymore despite buyers because it continues to drag on the balance sheet. And the government's promise of another tax break, whether corporate or not, will have the effect of too much alcohol. Fun for awhile; hell to pay the next day.
Those very folks who seemed to plow ahead with abandon several years ago have become all grown up and mature. They understand the value of an investor dollar. If you have ever had one and lost it, it can be devastating and incredibly difficult to get back.
So what exactly is wrong with the plan? One of the basic premises of the plan, the one that will give up a short term pop in popularity income comes from the switch to retirement savings accounts. The same ones with increased contribution levels. Is the White House looking at a different America than I see? Ask around work. How many people are saving money for retirement? I am not talking about that absent contribution they make to their 401(k) plans, but to actually saving for retirement. The cross section of folks I have spoken with, many with union pensions, some without, tells me that no matter how high you raise the savings limit, folks won't save more. They don't really save now.
Mr. Greenspan understands this but will do little to act upon it. If Americans started squirreling money away now at a consistent rate, this consumer supported economy would never get off the ground.
But the idea that you can deepen the capital reserves and that would spawn investment is, at best a crap shoot. What the administration assumes would happen, and even the Democrats with their short term stimulus package, is a convenient chain of events. More capital would form which would create increased productivity which would push growth to levels not seen in quite awhile. But suppose for a moment, that growth and productivity are already doing well. Not great, but better. Will the presence of capital lead to increased risk taking by rattled companies? Not likely.
Reducing some dividend taxation is definitely overdue. Raising the cap on the amount of money an individual can write off in losses from $3,000 a year to say $10,000, even $15,000 would get a lot of folks back in the game quicker. And let's give those corporations some quicker equipment relief. The faster they can write off their bad decisions, the quicker the R & D department can get back to work.
Those federal budget deficits, gaining ground on our psyche for the next ten years, will impact how we look at growth. These shortfalls are going to create with the very problem the tax plan is trying to solve. Companies like to have fiscally responsible governments. They don't mind lean and mean, but they like a little bit of meat on the bone. This gives them a cushion to fall back on should their attempts fail. It also gives them something to strive for, something shareholders identify with.
So Mr. Bush, if you are wondering how history will be written about you, I can guarantee this much: whomever follows you into the Oval Office in '04 will have this chapter in your book to rewrite.
Today's Commentary: 02.17.03
But his biggest gamble has been gold. Last week, he ignored his gains and screamed in anguish as gold took a dramatic tumble to $351.90 from last week's close of around $370. He is staying with it though, hoping that hs belief in $400 will eventually pan out.
I only bring Vince up to make a point for investing overall. He is not convinced that things will get better, yet he wants to believe that markets can and will recover. He is John Q. Investor, the optimist, part time history, amateur chartist, and open to anything newsworthy that might support his decisions. I enjoy talking with him. He has a grasp of some basic dynamics and is unafraid of researching something he thinks is important.
At and the same time, his fear is playing tug of war with his hopefulness.
But is it possible that this market, with Mr. Greenspan's observation of geo-political unrest as the only restraint, able to falter for yet another year? Maybe not. While we wait for the new moon over Baghdad (although I don't understand what our air assault needs with the cover of night), there are continued predictions that the aftermath could be long and complicated.
Confidence is still too low to look for optimism. The President's numbers are drifting so far south, his point men are starting to show some strain as they continue to try and sell a bad plan. To a country that is looking for a safe place to hide from a terror they can't see, the economy looks just fine if you are working. If you aren't, you certainly are not alone. Revised numbers that include folks who no longer are looking for work, and those that are new to the workforce and can't find employment (estimated at 100,000 a month) bring the real unemployment number ever closer to the last big pink slip economy of two decades ago.
There may be a glimmer of hope in the very side of the market that has been beaten the worst over the last three years: Growth. What the inside folks are apparently wondering, some of them out loud, is why the American investor is happy with their returns in money market accounts. Sidelined investors have found a patch of tall grass to hide in, but they should be using it as a cover from which to pounce.
Indices and
Economic Indicators Indicator Value The question that loomed over the markets last week, and what is the reason for the dismal confidence numbers from the University of Michigan study all point to to the jagged rift developing between peace and war. Then jack-up the terror alert to orange, suggest that we hunker down with sealed windows and canned food, and we tend to seem vulnerable to it all.
Mr. Greenspan said his piece and he was supported by some very concerned colleagues. There isn't much else he can do. If you took the war with Iraq out of the picture and continued to chase the elusive bin Laden instead, the economy would have had some chance to recover. Then we would be looking at Greenspan the way some folks did just a few short positive returns ago, as a deity.
Add war, even what some folks are refering to as a "good" war, and nothing will change much at all. Bonds aren't likely to show much in the way of upside reward.
The reasons for that continue for one reason alone. Growth, while there is still some to be noted, is much slower than desired. Left with that basic fact, companies, who have trimmed inventories and employes in an effort to have less debt and more balance to the bottom line, are not likely to issue additional debt. It just isn't attractive in a market some perceive as ready to roll.
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