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"Those skilled in war subdue the enemy's army without battle"                                   
~ Sun Tzu

Welcome to the Blue Money Report

Today's Commentary: 02.27.03
Hobson's Choice

Back in 16th century, Thomas Hobson who made his residence in Cambridge England came upon a unique way of doing business. Mr. Hobson kept a livery stable. Each customer had the choice of the horse nearest the door or none at all. Henry Ford borrowed from Hobson with his Model T Ford. The soup Nazi from Seinfeld offered his customers a Hobson's choice. This take it or leave it proposition is the latest tactic by the Bush administration. Who would have thought that the President who was offering choices would be offering only two?

The White House decided to take up the battle on yet another front, setting the cross hairs on an expensive but highly successful program. Medicare was first suggested in 1965 as part of Lyndon Johnson's State of the Union address. The Great Society as he called it, would address the needs of the impoverished American with some basic ideas. One was through education. One through the revival of the American city. One through the focus on the nation's impoverished.

For those of you unfamiliar with these programs, or happen to be in a conservative camp, those ideals proposed by President Johnson did more than handout federal tax dollars to those that needed it the most. What it did was offer a hand up to Americans who had become a drag on society. The idea that government intervention into the lives of millions of Americans would better the society as a whole flies in the face of what many of us believe. What we suffered from in those days was a "pull yourself up by your boot straps" mentality.

The effects of those programs enacted as a result have rippled across the economy over the last thirty years. They have providing in some instances, the very consumer base that the current administration is claiming to help.

Mr. Johnson, who also offered a tax cut in 1964, believed that many Americans were not able to pull themselves up by themselves. Many of the choices and benefits provided by the parents of many of us, primarily health and education, were not readily available to all Americans.

His commitment to helping the education system through federal loans to students for college turned America into a population of literate citizens. In 1965, only 41% of all Americans had completed high school. In his state of the union address, Mr. Johnson pointed out that only 5 million people had completed the fifth grade, an amount similar to the entire state population of Michigan at the time. Thirty years later, 81% of those same American families had graduated children from high school and 24% had completed college.

Gary Trudeau, a popular political cartoonist and author of Doonesbury, took the cause of the Portland Public School District to the nation. The underfunding, or as my wife who follows these developments more passionately suggests, misappropriation, has left the school district with possibility of cancelation of the final 24 days of the school year. All this because of a $9.5 million shortfall. In yesterday's strip, he suggested that the President's $50 billion commitment to the war on Iraq and the fact that Oregon was a "blue state", have left the promise of education and the ideals of the Great Society in tatters.

One of the other driving forces of poverty in this nation during Johnson's time was the impoverished health of many of the elderly. Unless the situation was critical, the poor were left without while those with means were able to get the care they needed in the few places that provided care, the big city.

Medicare, the predominant plan to emerge from that speech and enacted by Congress, has served over 200 million Americans. Currently, there are 40 million enrolled in the program. The flaws in this current attempt to dismantle this workable and expensive program rely on the same problem that faced the poor in the 60's. Mr. Bush wants to make Medicare available to Americans through private insurers. These private insurers do not generally service rural Americans, where the majority of Medicare recipients live.

The nation's governors, meeting in Washington, have become wary of the administration's offer. In many states, the program is funded on a percentage basis. The general federal contribution to these programs is 55% with the state picking up the remaining costs. Some states are on a 50-50 pay scale.

What the President has proposed would cap spending after a $12 billion grant upfront, which it turns out, isn't a grant at all. It seems that the federal government wants this money repaid and when it is, the cap on what is available will take effect. Once again, states are faced with mandates from the White House without the means to enact them.

This Hobson's choice offered to the elderly in this nation comes in the form of a carrot. Tying the cost of prescription drugs to the enrollment in managed care will set the notion of a Great Society on it's ear. Private health care failed the elderly before and there is no evidence that it can do a better job now.

The shortfall in many of the states has become critical. The administration, looking at deficit spending, a prolonged military campaign, a tax plan whose time has passed, should leave the reform of Medicare and Medicaid alone. The enormous amount of money these programs will cost over the next several decades cannot be successfully shifted to the states without problems. Unable to run with deficits, states are forced to take the money proposed by the President's proposals and tax their constituency instead.

This piece by piece dismantling of Johnson's Great Society will not create the atmosphere of growth that Mr. Bush contends. It will not further enable the globalization of commercialism as our nationalism suffers. It will not strengthen the aging consumer, protect the at risk population, or even level the playing field for business. The Great Society took FDR's New Deal (the government as a regulatory power) and offered a view of the government as an energetic force in the lives of Americans. Mr. Bush's "choice" so far looks as if it will do little but shift the blame.

Today's Commentary: 02.23.03
When Multiples Add Up

In Equities...
Are war jitters worthy of our attention? Do they make a valid case for the current economic climate and the lackluster market?

No and no. There are two kinds of investors in the market. The professionals and individuals. The individuals are paying close attention to every detail that is being trotted out on the popular news programs that report regular market happenings. The price of war, as yet uncalculated and growing by the minute, plays heavy on their collective minds. They still believe that a quick resolution will mean a return to those thrilling days of yesteryear when markets moved higher. Unfortunately, that just isn't going to happen. Not as long as the sidelined investor continues to move money out of mutual funds.

The other investor, the professional one, is playing this all so conservatively. With good reason. They are not carrying all that much in the way of sidelined cash. What cash they do have is covering their skittish individual investors who seem to think they will be able to pick a bottom. The pros know better and are betting that the war has only minor ramifications in the long term (rest of '03).

If the pros aren't buying and have little in the way of cash to do so, then why are so many of the belief that once the stories of war are told after the fact, the market will surge? perhaps it is the majority of economist who are suggesting just such a scenario.

When Greenspan mentions geopolitical concerns, he is not speaking of just one foray into the Middle East. he is looking at the whole picture, a feat that is hardly ever attempted by the individual. these imbalances in the overall global economy and closer to home, will have many of us questioning our own forward plans.

Tax time brings us up close and personal with many of those portfolios that have gone unopened throughout the year. The dreary picture they present could be very sobering for many people. Money lost is more meaningful when you are face to face with cold hard numbers.

Too many people think that we are over the scandals that have shaken the markets over the last year or two. Many of these things are still working their way through the legal and financial system. This new found conservatism among execs is welcome and long overdue, but that doesn't mean that they are back shopping for more equipment. On the contrary, they are looking to use what they own first.

These execs also are realizing that the newly coined catch phrase, "circularity" will play heavily on any decision they make. What this new word suggests is that stability in the financial markets is the only thing that will lead to recovery.

The problems facing that stability are the following: Under funded pensions which put pressure on any available cash a company might have which put pressure on consumers when they are laid off to protect the profit picture which cut off credit to both businesses and consumers.

The Dow gained almost 109 points to end the week in positive territory but still down for the year. The NASDAQ on the other hand has found some legs recently and has been able to sustain a positive place in the year-to-date standings.

Looking ahead in equities is still difficult. There was an oil refinery fire that rocked lower Manhattan on Friday. In 15 minutes, the S&P 500 dropped 1%.

The "relief rally" that has been suggested with a quick Iraqi resolution would add at best 10%. That would get us back to about even for the year. Hardly worth getting excited about. Staying invested for the long term, dollar cost averaging, and turning off your televison might be the best medicine for the first half of the year.

In Fixed Income...