Startup America -- Real Tools and Resources to Help Your Business Thrive

Nobody will argue too hard with the commonly held belief that small businesses make up the lifeblood of our economy. Or that government should either encourage their growth or at least eliminate the annoying obstacles that tend to stifle it. But the sticky question is how can government make itself most effective in seeing to it that fledgling startups are able to make that crucial leap to becoming successful companies---or that small businesses can transform themselves into thriving businesses? Traditional thinking might go something like this: target certain entrepreneurs and then use taxpayer dollars to provide direct assistance in the form of subsidies, grants, benefits, or the like. But this approach very often proves as ineffective as it is costly. The Startup America Partnership, sponsored by the Small Business Administration (SBA), is taking a different approach, and the early results look promising. Instead of targeting the entrepreneurs themselves, the program is identifying the resources these entrepreneurs will need and the obstacles they will face. And then instead of solving the problem with taxpayer dollars, the program brings together an alliance of the country's most successful private corporations, universities, and other entities, which can contribute many of these resources and/or reduce many of the obstacles.

So what are some of the details of this program and how can an everyman business owner take advantage of it? Well, first let's see if you qualify. If your company has at least two founders or employees and has been around since 2006, you qualify. Or if your company has been around since 2001 and has at least six founders or employees, you also qualify. So the first thing you will want to do is use this link to apply for your free membership. Once you become a registered member, you get free advertising right away. Your company name, description, logo, and website will immediately be displayed in the organization website's Startup Directory. Your company name and contact information will then be sent to Startup Region leaders in your state, so that they can get in contact with you about local assistance available in your area.

But the most significant benefit you will see is your immediate access to thousands of resources that suddenly become available right at your fingertips. And the list keeps growing all the time. These resources can provide help to your business in any of several areas. And you can discover them and categorize them simply by searching and sorting on the organization website's Resources Section. Here are just a few examples of the types of free or discounted resources you will find available to you:

• Talent recruiting: Need to find the best and the brightest to work for your company? If so, you can get:
  
  
  • Free or discounted recruiting software;
  • Free training seminars, either online or on-site;
  • On-demand access to advisors or library resources
• Planning and accounting: Every business, no matter how small, needs good business planning and accurate accounting. Among the offering in this area are:
  
  
  • Free business planning advice and consultation from experts;
  • Free or discounted payroll management software;
  • Free analytics tools
• Materials:
  
  
  • Big discounts on computers and peripherals;
  • Free computer office software;
  • Free online web conferencing/meeting software;
  • Big discounts on office furniture
• Legal assistance:
  
  
  • Discounted legal counsel services;
  • Free incorporation packages;
  • Free patent or trademark consultation

And this is only the tip of the iceberg. Would you like more free publicity for your company? The Partnership will promote guest blog posts and will provide materials for your website and give you help in managing and promoting your social media accounts. It can also get you free or discounted advertising for your company's website. Do you want to tap the experience and knowledge base of people in your business area? The Partnership's community of high-growth startups will connect you with other entrepreneurs so that you can share experiences and collaborate with them. In addition, the Partnership is continually working with top experts to provide free webinars and training sessions. The schedule of these sessions is continuously being updated. The Partnership also provides a continually-updated list of contests, events, and conferences aimed at helping small companies like yours scale their businesses successfully.

The Startup America Partnership is still fairly young. It was launched in January of 2011 and is still growing. New corporate partners are being added all the time. Is it succeeding? In terms of interest and enthusiasm, the answer is a resounding yes. But in terms of success as measured by how robustly startup companies are growing and how many jobs they are creating, it's still too early to tell. The impact of the program will be more easily measured as the SBA tracks member companies over longer periods of time.  As they do this, they are also tracking which tools and resources are being used the most and which are working the best. In this way, the program itself will continuously improve and so will the member companies.

But to a qualified small or startup business owner, the decision to join seems like a no-brainer. When you consider the cost (zero), the effort to sign up (negligible), and the resources you will gain access to (plenty), it's not hard to see why joining the Startup America Partnership can be the boost that gives your young business the vital growth injection it needs.

Christopher Wallace, Vice President of Sales and Marketing for Amsterdam Printing, has more than 20 years experience in sales and marketing. At Amsterdam Printing, a leading provider of custom pens and other promotional items such as imprinted apparel and customized calendars. Christopher is focused on providing quality marketing materials to small, mid-size and large businesses. He regularly contributes to Promo Marketing Wall blog.

Election Year Spurs Small Business Giveaways

The struggling U.S. economy during an election year means many politicians are crafting policy aimed at small businesses in the hopes of scoring points with voters; however, statistics from the Joint Committee on Taxation and the Tax Policy Center reveal these measures really don’t help. The estimated cost to government for the Small Business Tax Cut proposal is $46 billion, and experts say most benefits will go to those earning $1 million or more and will not help create any jobs. Economist Bruce Bartlett argues that money would be better spent on infrastructure, and politicians can spin it by saying infrastructure helps small businesses, too. For more on this continue reading the following article from Economist’s View.

Bruce Bartlett:

Do Small Businesses Create Jobs?, by Bruce Bartlett, Commentary, NY Times: ... Congress is, of course, always keen to find ways of aiding small businesses, which are akin to mom and apple pie in its eyes. Just recently, it approved the JOBS Act, which is intended to ease access to credit by “emerging growth” companies. Congressional Republicans are anxious to enact a new tax cut for small businesses, as well. The Small Business Tax Cut Act, which was reported out by the House Ways and Means Committee on April 10, would give a one-year, 20 percent tax cut to every business with 500 or fewer employees.

The Joint Committee on Taxation estimates that it will reduce federal revenues by $46 billion. The committee report offered virtually no rationale for the legislation other than that small businesses are good and deserve a tax cut, period. The linkage between a small business’s tax burden and job creation, however, is tenuous at best. ...

The Tax Policy Center estimates that the benefits would accrue overwhelming to the wealthy, with 49 percent of the total tax cut going to those making more than $1 million.

There may be policies that would increase the number of business start-ups and aid employment this way. But an across-the-board tax cut for every small business, defined only in terms of employment, is nothing but an election-year giveaway unlikely to create any jobs whatsoever.

Instead, let's use the $46 billion this would cost (and mostly waste in terms of job creation) to build infrastructure. If it helps to sell it, make it infrastructure that would be useful to small businesses -- it can probably be argued that most infrastructure projects would help small businesses in one way or the other. This way, even apart from the better prospects for job creation from infrastructure spending, at least we'll have something to show for the money when all is said and done.

This blog post was republished with permission from Economist's View.

Nice...AIG Is Paying $165 Million To The People That Ruined The Company

What is going on over at AIG? The latest fiasco coming from AIG is the news that $165 million in bonuses are scheduled to be paid out to the financial products unit. Oh, one other thing, that is the unit that basically bankrupted the company. How on earth are these people still even working for the company, let alone getting bonuses? Typically when someone screws up that much they get fired, not rewarded. Meanwhile the American public is left completely baffled at the situation. So far we have given AIG about $170 billion, — which kept the company in business — and now AIG is telling us that we have to allocate $165 million of this tax payer money to give to the people who caused us to have to pony up the $170 billion to begin with? I know they have some contract things in place and all, but as Laura Wilson from Information Security Resources points out in her blog post below, I'm sure there is a way for us to get around that contract considering the situation. Oh yeah, here is a thought too: how about we FIRE some of these people! There are a lot of good financial people looking for jobs right now, and a little shake up over there might not be such a bad thing.

The plaint that credit default swap-promulgating AIG (AIG) is contractually obligated to pay out millions in bonuses to the same pitted brass that led the company, the industry, and the entire economy off a cliff is a bunch of horse hooey.

If you are on the management team of a company that lays off workers, can’t pay its bills, leaves shareholders holding nothing, and has to take public bailouts, it’s your damn job to make a deal to restructure that company, or wind it down responsibly.

Your bonus is getting to keep porking up to the paycheck trough while other workers are losing salary, severance, and health care.

New York Times: The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government’s efforts to prop up Wall Street. Past bonuses already have prompted President Obama and Congress to impose tough rules on corporate executive compensation at firms bailed out with taxpayer money.

A.I.G., nearly 80 percent of which is now owned by the government, defended its bonuses, arguing that they were promised last year before the crisis and cannot be legally canceled. In a letter to Mr. Geithner, Edward M. Liddy, the government-appointed chairman of A.I.G., said at least some bonuses were needed to keep the most skilled executives.

I sure would like to see those AIG contracts - I’ll bet I can poke a hole in the specious supposition that the company really, really wants to do the right thing, but its little hands are tied. Since the public bailout of AIG, we all have an ownership interest in where the money is going, and are entitled to ask probing questions.

New York Times: “We cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he wrote Mr. Geithner on Saturday.

Still, Mr. Liddy seemed stung by his talk with Mr. Geithner, calling their conversation last Wednesday “a difficult one for me,” and noting that he receives no bonus himself.

“Needless to say, in the current circumstances,” Mr. Liddy wrote, “I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them.”

I know contracts inside and out, at the real-world, down and dirty level, not the black-box, ivory tower, theoretical stratum that gets adjusted as the tectonic plates of business deals crash into each other.

Although I have chosen not to practice law anymore, I am really good at understanding the terms of these agreements, and evaluating when it would appropriate to reward corporate players for their performance.

And, when it is not.

New York Times: Of all the financial institutions that have been propped up by taxpayer dollars, none has received more money than AIG, and none has infuriated lawmakers (and Ben Bernanke per 60 Minutes) more, with practices that policy makers have called “reckless”

The bonuses will be paid to executives at A.I.G.’s financial products division, the unit that wrote trillions of dollars’ worth of credit-default swaps that protected investors from defaults on bonds which were backed in many cases by subprime mortgages.

The bonus plan covers 400 employees, and the bonuses range from as little as $1,000 to as much as $6.5 million. Seven executives at the financial products unit were entitled to receive more than $3 million in bonuses.

Any attorney who advises that these bonuses are appropriate ought to have his or her head checked.

Base salary, maybe, if not outrageous. No bonus. No severance unless everybody else also received proportionate assistance. Don’t care what the contract says - attack it in bankruptcy or wind down - I saw it many times in the Silicon Valley meltdown.

But the official also said the administration will force A.I.G. to eventually repay the cost of the bonuses to the taxpayers as part of the agreement with the firm, which is being restructured.

AIG’s main business is insurance, but the financial products unit sold hundreds of billions of dollars’ worth of derivatives, the notorious credit-default swaps that nearly toppled the entire company last fall. AIG had set up a special bonus pool for the financial products unit early in 2008, before the company’s near collapse, and when problems stemming from the mortgage crisis were just becoming clear.

There were concerns that some of the best-informed derivatives specialists might leave.the company. AIG then locked in $450 million for the financial products unit, and prepared to pay it in a series of installments to encourage people to stay.

This poignant issue is near and dear to me, as I have shut down management bonuses before, even when I would have received some of that money, and even when I really needed it.

I also have been lucky enough to work with one of the premier corporate governance experts in the country and with a bankruptcy and wind down expert whom I hope will end up on the federal bench.

In the past, I have known both of these gentlemen to express support for my assertion that it is appalling for a destitute company to pay out management and deal bonuses to the team that took the company under.

New York Times: A.I.G.’s main business is insurance, but the financial products unit sold hundreds of billions of dollars’ worth of derivatives, the notorious credit-default swaps that nearly toppled the entire company last fall.

Under a deal reached last week, A.I.G. agreed that the top 50 executives would get half of the $9.6 million they were supposed to get by March 15. The second half of their bonuses would be paid out in two installments in July and in September. To get those payments, Treasury officials said, A.I.G. would have to show that it had made progress toward its goal of selling off business units and repaying the government.

Nice. You just keep holding that moral compass you got there, guys.

Laura is a business consultant and an advocate for information security, consumer protection, long-term shareholder value, and better management decisions. Her specialty is finding and fixing risks and threats to sensitive data. Her experience includes international banking, credit card, and mortgage companies, venture capital portfolio companies, and software and technology providers. She practiced law in Silicon Valley during the tech boom and meltdown, handling corporate governance and information protection.

This post can also be viewed on yourmortgageoryourlife.wordpress.com.

Some Good Economic News!

Finally we have some good economic news to talk about. This good news comes from the retail sector in which higher than expected sales were reported. For more on this, read Tim Iacono's blog post below:

The Commerce Department reported a big upward revision to retail sales in January and a modest decline of just 0.1 percent in February as tumbling automobile sales were offset by higher spending at gasoline stations and clothing stores.

After a virtual free-fall since last September, retail sales in January were revised from a 1.0 percent gain to a 1.8 percent rise, the largest increase in three years, in what is more likely a bounce off of very depressed levels rather than a change in the underlying direction.

Consumer spending is expected to remain very weak as job losses continue to mount.

During February, automobile sales plunged 4.9 percent, the biggest monthly decline since last October, and they are now 26.0 percent below the level of a year ago.

Excluding autos, retail sales rose 0.7 percent last month, following an increase of 1.6 percent in January. The improvement was paced by gains of 2.8 percent and 3.4 percent in gasoline station sales in January and February, respectively, largely as a result of higher prices.

Recall that for much of last year, soaring gasoline prices had helped to mask the overall weakness in retail sales and, as the price at the pump fell last fall, the combination of lower prices and fewer miles driven exacerbated the overall decline.

Other areas with higher sales last month were clothing stores (up 2.8 percent), general merchandise stores (up 1.3 percent) and furniture stores (up 0.7 percent).

This post can also be viewed on themessthatgreenspanmade.blogspot.com.

3 Straight Months Of 600,000 Plus Job Losses: When Will The Nightmare End?

We have seen 14 straight months of job declines and 3 months in a row now where the declines have exceeded 600,000. So when will the unemployment tailspin end? James Picerno from The Capital Spectator addresses that question, and looks closer at the latest employment numbers in his blog post below.

Another monthly employment update, another dismal report. So it goes in a vicious recession. The only question: When will it end?

We take a stab at some perspective below, but first let's recap this morning's ugly numbers. Last month suffered another sharp fall in nonfarm payrolls, the U.S. Bureau of Labor Statistics reports. The economy lost 651,000 jobs in February—the 14th consecutive month of payroll declines and the third month of losses above the 600,000 mark. In this year's first two months alone the economy has already shed nearly 1% of total nonfarm payrolls. Unfortunately, the outlook for March doesn’t look good either.

That brings us to the burning question: When will this nightmare end? We don't have the answer, nor does anyone else. That said, a fair reading of the economic data, including a review of past recessions through history, suggests that the bleeding will go on for some time. That's just a guess, of course. Can we do better than simply guessing?

Perhaps. One small effort on that front comes by considering the trend in initial jobless claims, which is a leading indicator of sorts in that it previews the state of the economy in the immediate future. If more workers file for jobless benefits today, the ranks of the unemployed next month will reflect the fact in official jobless tallies.

Looking to the trend in initial jobless claims offers some perspective on how the cycle is unfolding and where we are in the current cycle. Let's start by looking at the four-week moving average of weekly jobless claims from 1967 through yesterday's update, which shows that weekly claims fell substantially to 631,000 for the week ended February 28, 2009. That's a step in the right direction, but anything over 600,000 clearly suggests the recession fires are still burning hot.

But looking at jobless claims numbers alone can be misleading because the size of the labor pool changes through time. Generally, nonfarm payrolls expand, even if recent experience tells us otherwise. Nonetheless, over the long haul, the labor force increases, at least it has over the long stretch of history in the U.S. As such, we need to look at jobless claims in context with current nonfarm payrolls through time, as we do in the next chart.

Putting jobless into perspective with the overall level of nonfarm payrolls suggests that initial jobless claims will peak before the recession end, or at least peak as the recession ends. That's potentially valuable information if you consider that the official notice that the recession has ended won't coming for many months after the fact. That leaves us to look for other indicators in real time, and initial jobless claims are on the short list.

In the past six recessions, the four-week moving average of weekly jobless claims as a percentage of current nonfarm payrolls peaked either in the month the recession formally ended (as per NBER) or the month directly ahead of the recession's formal end. By this measure, in just one case since 1969 did the jobless claims peak arrive much earlier: the 1969-70 recession ended in November 1970; the jobless claims peak came in May 1970.

Where does that leave us currently? The latest bar in the far right-hand side in the chart above is simply the latest batch of numbers. The four week moving average of initial jobless claims through February 28, 2009 represents 0.48% of last month's total nonfarm payrolls. History suggests that we have a ways to go before the employment pain ends. That forecast is based on the following: The high point for the past 40 years is 0.75% in 1982—well above the current 0.48%. Adjusting for the fact that this is likely to be the worst recession since the Great Depression implies that we might go to well above 0.75% this time.

In short, there's more pain to come, or so we expect. We're probably beyond the halfway point in this process, although there's still too much uncertainty to say for sure. Perhaps we'll see some concrete evidence, one way or the other, in the coming months. But for the moment, the economy continues to bleed and there's not much reason to expect an imminent end to the pain. The recession, in short, roars on.

This post can also be viewed on capitalspectator.com.

We Are Giving AIG More Money? Say It Ain’t So...

After insurance giant AIG reported the biggest quarterly loss in history — $61.7 billion to be exact — the government is ready to give them another $30 billion to help maintain their operations. In addition the government is restructuring past bailout deals to ease the burden on AIG. This new $30 billion will bring the total bailout tab to around $180 billion. That is, and should be, a difficult number to swallow. We will have invested $180 billion in ONE company. There are only two U.S. companies that even have market caps above $180 billion (Exxon and Walmart). AIG’s market cap is about $1.2 billion, in case you were wondering.

I’d like to say I thought this would be the last bailout for AIG, but if I did I’d be lying. Right now we are simply plugging holes in AIG with taxpayer dollars, and once the $30 billion gets used up they are going to come crawling back for more. The worst part is after we have already invested $180 billion, how are we going to say no to a few billion more? What will the final tally be when all is said and done? Your guess is as good as mine.

Matthew Karnitschnig from the Wall Street Journal wrote a good blog post that goes over some of the restructuring pieces included as part of the latest bailout. If you want to become more depressed about this whole situation then you are right now, I’d encourage you to read it. Here is the link: http://blogs.wsj.com/deals/2009/03/02/aig-the-rest-of-the-story/

Just How Crazy Is The Stock Market Today?

So just how upside down is the stock market today? Kathy Lien pulled some interesting figures that will make you think a little bit about that question. Everyone knows that the market is down, but this really puts it into perspective. Check out Kathy Lien's blog post below:

Here is some interesting food for thought

It’s a sign of the times when …

The Sunday paper costs more than NYT stock
The Citi ATM fee costs more than C stock
The paper that a mortgage is written on costs more than FRE stock
A subscription to Sirius Satellite radio would cost more than SIRI stock
A gallon of gas costs more than F stock
One ride costs more than SIX (Six Flags) stock
A bottle of soda costs more than JSDA (Jones Soda) stock
A 5 minute long distance phone call costs more than VG (Vonage) stock
A 5 stick pack of gum costs more than RAD (Rite-Aid) stock
The strawberries in a smoothie cost more than JMBA (Jamba Juice) stock

This post can also be viewed on kathylien.com.

We Should Be Looking Out For American Jobs, Not Just American Companies

The protectionist movement has been growing in America, and with every new layoff announcement it only gets stronger. Only adding fuel to the fire is the billions upon billions of taxpayer money that the government is handing out to American companies. Naturally there would have been mass outrage if the U.S. government gave this money to foreign corporations. However, as Robert Reich explains in a recent article the country just might be better off if some of these foreign corporations received funds instead of some of the American companies. After all what good is it to unemployed American workers if these American companies take the bailout money and use it to expand operations in some foreign country? Reich's point is that we should be focusing on what will create the most American jobs, rather than just focusing on supporting American companies. Mark Thoma presents the article by Reich in his blog post below:

Robert Reich:

The Perils of Confusing American Companies With American Jobs, by Robert Reich: Do not confuse American companies with American jobs. The new stimulus bill, for example, requires that the money be used for production in the United States. Foreign governments, along with large U.S. multinationals concerned about possible foreign retaliation, charge this favors American-based companies. That's not quite true. Foreign companies are eligible to receive stimulus money for things they make here... For example, Alstom, the French engineering company, is eligible to receive stimulus funds for the power turbines it produces in Tennessee... On the other hand, U.S. Steel may not be eligible for stimulus money for the steel slabs it casts in Ontario, Canada.

I'm not defending the "buy American" provisions... I'm just saying they're not the same as "buy from American companies." And although these provisions skate close to protectionism and risk foreign retaliation, at least a case can be made that if American taxpayers are footing the bill..., the jobs should be created, well, here in America.

The same confusion haunts the debate over the auto bailout. Advocates of bailing out GM and Chrysler, and most likely Ford, say America can’t afford to lose "its" auto industry. But ... foreign-owned automakers, already producing cars here in the United States, employ – directly or indirectly – hundreds of thousands of Americans. ...

Meanwhile, the Big Three themselves are global. A Pontiac G8 shipped by GM from Australia has less American content than a BMW X5 assembled in the United States. ...

I’m not arguing against an auto bailout. But it ought to be focused on helping American auto workers rather than helping global auto companies headquartered in America. Why pay the Big Three billions of taxpayer dollars ... when, even after being bailed out, they cut tens of thousands of American jobs, slash wages, and shrink their American operations...?

That’s backwards. The auto bailout should help American autoworkers keep their jobs or get new ones that pay almost as well.

Whether it’s stimulus or bailout, policy makers must remember that American companies aren’t the same as American workers – and our first responsibility is to the latter.

"I'm not defending the 'buy American' provisions..." Neither am I.

This post can also be viewed on economistsview.typepad.com.

Stimulus Bill Now Being Debated In Senate

A new $819 billion stimulus bill was passed by the House earlier this week, and the debate has moved on to the Senate, despite major opposition from House Republicans. Not a single Republican voted in favor of the bill according to the Wall Street Journal, but to get the 60 votes necessary to clear the Senate, the bill’s supporters will need to garner at least some Republican votes without losing any of the 58 Democrat senators. To secure those necessary Republican votes, some concessions will likely need to be made. One way or another, it is expected that this bill will be passed, but it remains to be seen how much political capital Obama will have to spend to make it happen.

The major divide between the two parties on the bill basically boils down to the allocation of the funds. Both parties support a stimulus bill in principle, but Republicans want to see the funds going toward things such as tax-cuts where as Democrats prefer government spending. In reality, this debate isn’t new, and considering the heavy numbers advantage that the Democrats enjoy in the House, Senate and now White House, the bill should lean toward their ideology. However, it is likely that Republicans will get a bone or two thrown their way in the process. Obama has stated time and time again that he wants broad, bi-partisan support for this bill, but it is unlikely that Democrats will be willing to give up too much considering their steep numbers advantage.

As a side note, the Wall Street Journal reported the formation of a coalition which backs the stimulus bill and which includes labor and environmental groups. The purpose of the group is to raise pressure on senators—specifically Republican senators—to support the bill. They announced Thursday that they will air ads around the country to encourage Republicans, "to support the Obama plan for jobs, not the failed policies of the past." The ads will run in Maine, New Hampshire, Iowa and Alaska according to the Journal. You can be certain that Democrats will remind Republicans and their supporters that their policies have been nothing but failures of late. The public is largely on board with this sentiment, evidenced by numerous polls. If nothing else we should get a chance to see how these new policies actually work in today’s economic climate.

All States Are Suffering From Job Losses

A report issued by the Labor Department yesterday indicated that unemployment rose in every single state in December. When oil was still near record highs a few months ago, at least the big energy-producing areas were doing well, but now they are suffering like everyone else. This goes to show you that no area is being spared from economic turmoil. The states that lead the housing boom—such as California, Nevada and Florida—were the first ones to really feel the pain from the downturn. One would think that because they led the downturn they might also lead the rebound, but if that is the case then we still have more pain coming because things are still going from bad to worse in those states. According to the Wall Street Journal, California saw an increase in unemployment of 0.9 percent in November and December, while Florida and Nevada saw increases of 0.7 percent and 1.0 percent respectively.

The last 4 months of 2008 were especially bad. Around 2 million jobs were eliminated from September 2008 to the end of the year. Then on Monday this week—now dubbed “Black Monday”—over 70,000 jobs were cut on a single day. So when is the carnage going to end?

Certainly the new stimulus package won’t hurt the employment outlook, with early projections estimating that the bill will create or save around 4 million jobs, according to the Associated Press. The bill is being reviewed by the House and it is expected to be passed later in the day according to the Wall Street Journal. After passing the House, the bill will then make its way to the Senate. There is still some lobbying to change parts of the bill, but it is widely expected that it will pass in one form or another and arrive on the President’s desk within the next few weeks.

It remains questionable at best whether the bill will work as planned. This current economic environment is different than anything we have ever seen before, and we are really just guessing on the true impact of these initiatives. Will $825 billion be enough? Is the money being allocated to the appropriate places? Will borrowing the money to finance the programs cause problems in the debt markets? These are just a few of the many questions that lawmakers are trying to answer. The truth is, though, that no one knows the answer. They can make educated guesses at best. Let’s just hope that Obama knows what he is doing...and wishing for a little luck won’t hurt either.

An Increasingly Popular Alternative To Layoffs

Companies in the U.S. laid off over 2 million jobs in 2008, but another expense cutting measure which is less often utilized also saw a major increase. A growing number of companies are choosing to cut pay rather than cutting jobs. Layoffs are typically preferred over pay cuts because among other things firms are afraid it might lead to an exodus of top workers. However, in this job market that isn’t a big worry. The last time there were nominal pay cuts was back in the Great Depression according to Price Fishback, an economic historian at the University of Arizona, as stated in the Wall Street Journal.

Because they remove spending capital from consumers while fostering additional fear and uncertainty, pay cuts are bad for the economy just as layoffs are. By now, practically everyone knows someone who has been laid off or had a salary cut, and even if one believes that one’s job is secure, the threat of a pay cut is encouragement to spend less. That said, though pay cuts will always be painful—especially if they become more widespread—they are still preferable over layoffs for consumers and the economy. After pay cuts, workers still have a source of income and don’t need to claim unemployment, which saves taxpayer dollars.

The inauguration is tomorrow, and I’ve never before seen this amount of anticipation for a new President. The state of the economy has brought a great deal of excitement, as many Americans believe that Obama is the man to rescue us from this recession. The thinking seems to be that once Bush is out of the White House and Paulson is out of the Treasury, all will be well. It is great to get excited, and Obama just might be the man to bring us out of this economic darkness, but people should remember that these things take time. Obama isn’t a miracle man, and he isn’t going to magically fix the economy. There is a lot wrong with the economy and there is a huge amount of work that needs to be done. We can hope for a quick turn around, but don’t expect it because it is not likely to happen that way.

Why The "Bad Bank" Is A Bad Idea

There is a lot of momentum gaining right now behind the idea to create a so called, "Bad Bank." This bank would be set up by the government and would be used to take toxic debt off of the balance sheet of the banks like Citigroup and Bank of America. Paul Krugman thinks this "Bad bank" is simply a bad idea. Economics Professor Mark Thoma revisits Krugman's article in his blog post below.

Are policymakers about to take another wrong turn?:

Wall Street Voodoo, by Paul Krugman, Commentary, NY Times: Old-fashioned voodoo economics — the belief in tax-cut magic — has been banished from civilized discourse. The supply-side cult has shrunk to the point that it contains only cranks, charlatans, and Republicans.

But recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking.

To explain..., let me describe ... a hypothetical bank that I’ll call Gothamgroup, or Gotham for short.

On paper, Gotham has $2 trillion in assets and $1.9 trillion in liabilities, so that it has a net worth of $100 billion. But a substantial fraction of its assets — say, $400 billion worth — are mortgage-backed securities and other toxic waste. If the bank tried to sell these assets, it would get no more than $200 billion.

So Gotham is a zombie bank: it’s still operating, but the reality is that it has already gone bust. Its stock isn’t totally worthless — it still has a market capitalization of $20 billion — but that value is entirely based on the hope ...[of] a government bailout.

Why would the government bail Gotham out? Because it plays a central role in the financial system. ... Gotham has to be kept functioning. But how can that be done?

Well, the government could simply give Gotham a couple of hundred billion dollars... A better approach would be to do what the government did with zombie savings and loans at the end of the 1980s: it seized the defunct banks, cleaning out the shareholders. Then it transferred their bad assets to ... the Resolution Trust Corporation; paid off enough of the banks’ debts to make them solvent; and sold the fixed-up banks to new owners.

The current buzz suggests ... policy makers aren’t willing to take either of these approaches. Instead, they’re reportedly gravitating toward ... moving toxic waste from private banks’ balance sheets to a publicly owned “bad bank” or “aggregator bank” ... “The aggregator bank would buy the assets at fair value.” But what does “fair value” mean?

In my example, Gothamgroup is insolvent... The only way a government purchase of that toxic waste can make Gotham solvent again is if the government pays much more than private buyers are willing to offer.

Now, maybe private buyers aren’t willing to pay what toxic waste is really worth... But should the government be in the business of declaring that it knows better than the market what assets are worth? And is ... paying “fair value,” whatever that means,... enough to make Gotham solvent again?

What I suspect is that policy makers — possibly without realizing it — are gearing up to attempt a bait-and-switch: a policy that looks like the cleanup of the savings and loans, but in practice amounts to making huge gifts to bank shareholders at taxpayer expense...

Why go through these contortions? The answer seems to be that Washington remains deathly afraid of the N-word — nationalization. ...Gothamgroup and its sister institutions are already ... utterly dependent on taxpayer support; but nobody wants to recognize that fact and implement the obvious solution: an explicit, though temporary, government takeover. Hence the popularity of the new voodoo, which claims, as I said, that elaborate financial rituals can reanimate dead banks.

Unfortunately, the price of this retreat into superstition may be high. I hope I’m wrong, but I suspect that taxpayers are about to get another raw deal — and that we’re about to get another financial rescue plan that fails to do the job.

This post can also be viewed at economistsview.typepad.com.

Unemployment Rate Now 7.2 Percent And Rising

The U.S. Labor Department just released the latest jobs report, and—surprise!—it wasn’t pretty. For the first time in the history of the report, there were back-to-back monthly job losses in excess of 500,000—584,000 jobs lost in November, followed by 524,000 jobs in December—bringing the total for 2008 to 2.6 million—the largest yearly drop (by number) since 1945.

"We have a bigger economy now, but even on a proportional basis, the last months have been the worst since [1945]," said Kurt Karl, head of economic research at Swiss Re, according to CNNMoney . "It's just an enormous acceleration of job losses."

It doesn’t end there: In addition to unemployment, there is an increasing number of under-employed workers. The under-employed rate jumped to 13.5 percent, up from 12.6 percent, which is the highest level on record since measurement began back in 1994, according to CNNMoney.

Experts don’t envision things turning around anytime soon either. Tig Gilliam, chief executive of Adecco Group North America, a unit of the world's largest employment firm and Karl both expect about another 1 million jobs to be lost in January and February before the declines begin to shrink to about a 200,000 level in June. Both said stimulus will help, but they doubt that infrastructure jobs will have as quick of a boost as lawmakers hope, according to CNNMoney.

Obama is attempting to enact an economic stimulus plan that will create or save 3 million jobs. In addition to major tax cuts for businesses and consumers, the plan also calls for huge investments in infrastructure. This could help put to work the legions of unemployed construction workers, although experts think that benefits wouldn’t be heeded until the end of the year. Even if that is the case, "Putting money into highways won't by itself end the recession, but it will put a lot of skilled workers back on job," said Ken Simonson, chief economist for The Associated General Contractors of America in a CNNMoney article.

It is difficult not be pessimistic about the employment prospects for Americans, "We're seeing a complete unraveling of the labor market and are on track for getting beyond 10 percent unemployment," said Lawrence Mishel, president of the Economic Policy Institute in a CNNMoney article.

It is hard to envision the government allowing unemployment numbers to surpass 10 percent, but unless they act quickly it is a definite possibility. I think Obama will do everything he can to prevent unemployment from spiraling out of control, but will it ultimately be enough?

Obama's Stimulus Plan Will Fall Short

Surely the $775 billion stimulus plan being proposed by President-elect Obama involves a huge sum of money, but at least one expert thinks that it won't be nearly enough to fix our troubled economy. Economics professor Mark Thoma looks at a recent article written by Paul Krugman that attempts to answer the question of whether Obama's plan will be enough, in his blog post below.

Is the incoming administration's proposed economic recovery plan large enough to get the job done?:

The Obama Gap, by Paul Krugman, Commentary, NY Times: “I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible. If nothing is done, this recession could linger for years.”

So declared President-elect Barack Obama on Thursday... He’s right. This is the most dangerous economic crisis since the Great Depression, and it could all too easily turn into a prolonged slump.

But Mr. Obama’s prescription doesn’t live up to his diagnosis. The economic plan he’s offering ... falls well short of what’s needed. ...

Earlier this week, the Congressional Budget Office came out with its latest analysis of the budget and economic outlook. The budget office says that in the absence of a stimulus plan, the unemployment rate would rise above 9 percent by early 2010, and stay high for years to come. Grim as this projection is, by the way, it’s actually optimistic compared with some independent forecasts. ...

[T]he C.B.O. says ... that “economic output over the next two years will average 6.8 percent below its potential.” This translates into $2.1 trillion of lost production. “Our economy could fall $1 trillion short of its full capacity,” declared Mr. Obama on Thursday. Well, he was actually understating things.

To close a gap of more than $2 trillion — possibly a lot more... — Mr. Obama offers a $775 billion plan. And that’s not enough.

Now, fiscal stimulus can sometimes have a “multiplier” effect... Standard estimates suggest that a dollar of public spending raises G.D.P. by around $1.50.

But only about 60 percent of the Obama plan consists of public spending. The rest consists of tax cuts — and many economists are skeptical about how much these tax cuts, especially the tax breaks for business, will actually do to boost spending. ... Howard Gleckman of the nonpartisan Tax Policy Center summed it up in the title of a recent blog posting: “lots of buck, not much bang.”

The bottom line is that the Obama plan is unlikely to close more than half of the looming output gap, and could easily end up doing less than a third of the job.

Why isn’t Mr. Obama trying to do more?

Is the plan being limited by fear of debt? There are dangers associated with large-scale government borrowing... But it would be even more dangerous to fall short in rescuing the economy. The president-elect spoke eloquently and accurately ... about the consequences of failing to act — there’s a real risk that we’ll slide into a prolonged, Japanese-style deflationary trap — but the consequences of failing to act adequately aren’t much better.

Is the plan being limited by a lack of spending opportunities? There are only a limited number of “shovel-ready” public investment projects... But there are other forms of public spending, especially on health care, that could do good while aiding the economy in its hour of need.

Or is the plan being limited by political caution? Press reports ... indicated that Obama aides were anxious to keep the final price tag on the plan below the politically sensitive trillion-dollar mark. There also have been suggestions that the plan’s inclusion of large business tax cuts, which ... will do little for the economy, is an attempt to win Republican votes...

Whatever the explanation, the Obama plan just doesn’t look adequate to the economy’s need. To be sure, a third of a loaf is better than none. But right now we seem to be facing two major economic gaps: the gap between the economy’s potential and its likely performance, and the gap between Mr. Obama’s stern economic rhetoric and his somewhat disappointing economic plan.

This post can also be viewed at economistsview.typepad.com.

U.S. Household Debt Declines For The First Time

Yes, that headline is correct. U.S. household debt actually decreased in the third quarter of 2008—the first time it has happened since the measurement started being tracked in 1952, according to The Wall Street Journal. While I knew that Americans have a grand propensity to spend freely, I certainly did not know that we have increased our debt load ever quarter of every year for over 50 years. Depending on one’s perspective, this news could be considered wonderful or a complete disaster. On the one side it is great to see Americans finally taking control over their ridiculous debt burdens, but on the other hand the economy desperately needs people to start spending again. Our economy is built on the willingness of consumers to borrow in order to finance the purchase of goods and services. If Americans keep this new found conservative nature, the economy is going to be in for a rough ride, and a serious adjustment period.

Along with decreasing debt loads, Americans are also saving more. Economists are projecting a savings rate between 3 and 5 percent in 2009 according to The Wall Street Journal, a far cry from the negative savings rates to which we have become accustomed to in the U.S. With people less willing to take on new debt to purchase goods and services—and those with money less willing to spend it—the economy will have difficulty rebounding. A majority of the nation’s GDP is generated from consumer spending, so you can bet that the GDP numbers will suffer whenever that consumer spending drops. Until the consumer regains the desire to spend, we are going to be hard-pressed to exit this recession, barring huge government spending of course.

While this news could be viewed negatively, I prefer to look at it in a positive light. It is simply unsustainable for us to continue increasing our debt loads as a way of growing the economy. This strategy is doomed to failure, because it can only succeed if credit is infinite. At some point, though, consumers have to hit their credit limit and the party will end. That time has come for many people thanks to the credit crisis, but even those who can still borrow are increasingly aware that it may not be the best option. The best way to have a sustainable, consumer-driven economy is to base spending on income and savings, not the use of debt. If we can’t afford something, then we shouldn’t buy it. It’s really that simple. For those visual learners here is a classic clip from Saturday night live that pretty much sums the point up:

Obama Plans To Stimulate Economy With Big Tax Cuts

President-elect Barack Obama’s plan to fix America’s ailing economy has become a little clearer with the latest announcements. It appears that the biggest cog in the plan will be around $300 billion in tax cuts. Last year President Bush offered around $130 billion in tax rebates, which only briefly helped spark spending. Obama hopes that his measure has a bigger impact, and is electing to structure it in the form of a tax cut than a tax rebate. Along with the consumer tax cuts, Obama is also planning to cut taxes for businesses as well in an attempt to ward off the increasing level of layoffs and hopefully once again spur business investment. In addition to the tax cuts, Obama’s plan calls for around $200 billion to go to cash-strapped states, according to Daily News.

In total, this new economic stimulus plan could cost as much as $775 billion according to the Daily News. I’ll refrain this time from talking about the potential impact of this plan on the ballooning debt load we will likely leave for our children, but we should always remember that in the end someone has to pay for all these bailouts/stimulus packages. What I want to address is whether or not this program stands a chance. I would love to say that I believe that Obama’s plan is going to fix everything, but I’m just not feeling too confident. This plan is an improvement over Bush’s because it is meant to be lasting, not temporary. The rebates spurred spending for a few months, but the economy just continued to slide once the money was gone. Taxpayers were left with a huge bill and little to show for it other than a delayed recession. Obama’s plan could spread the goodwill out over a much larger period, but the question is whether it will be enough to really push us up and out of this economic rut.

About half of the total stimulus package funds are meant to spur job growth, with a goal of 3 million new jobs. In my mind 3 million seems a little high, and a tad unrealistic for us to obtain, but it sure sounds good. If we can get anywhere close to that number we will be doing extremely well. The plan calls for jobs to be created in infrastructure, energy, education and health care according to ABCNews.com. A major concern here should be how past government job creation movements have panned out: “’Time and again history has proven government-centered job creation doesn't work. Under [President] Carter in the late '70s people had all sorts of plans and ignored larger economic realities,’ former House Speaker Newt Gingrich told ABCNews.com.”

“‘In Japan they spent 13 years building an airport no one [once used]. Under the Socialists the French tried over and over again to create jobs and it didn't work. We know what creates jobs and it isn't putting the Treasury Department at the center of American capitalism. We need an investment strategy that supports the private sector and small entrepreneurial businesses,’ he said.”

Will the plan work or not? If past performance is any indicator it seems likely that this will just end up being another futile—and expensive—attempt to rescue the economy. No one wants to sit idly by and do nothing in the midst of this economic turmoil, but we shouldn’t blindly throwing away money at the problem either. This plan is definitely better than the last one put together by President Bush, but will it be enough? I have my fingers crossed, but if they had odds on this in Vegas I wouldn’t be betting for its success.

The Media Shouldn't Be Blamed For The Financial Crisis

With retirement accounts shrinking across the country, everyone is trying to determine who is to blame for the financial crisis. After all, if we can place blame on somebody we can then burn them at the stake, and it will make us feel so much better, right? Recently the New York Times published a controversial piece that basically blamed the entire financial crisis on President Bush. Several publications have disputed this piece, including Newsbusters, and of course the White House. Surely President Bush had a hand in the economic carnage of 2008, but to say that he was solely responsible for it is pretty ridiculous. There are so many people that have a hand in economic matters of this country, and while the President is the figurehead, he most certainly is not the only one to whom blame is due. So what other names are being thrown out? Greenspan, Bernanke and Paulson are all likely candidates, but according to a recent survey by Opinion Research most Americans think a large portion of the blame falls on the media.

According to the poll 77 percent of Americans believe the media is to blame for stoking the financial crisis by spreading fear among consumers. My first reaction to this was a big, WOW. Yes, the media has spread a bit of fear and panic, and the stories of doom and gloom are certainly helping to sell more papers, but there is another reason why all you see are negative stories: Positive news is next to impossible to come by if you don’t just make it up. If the media had more positive news to cover, you can bet that they would do it.

Americans who wish to bury their heads in the sand can feel free to do so, but personally I want to know what is going on in the financial world and I want the truth, not some lame story meant to make me feel all warm and fuzzy inside. People hoarding their money out of fear fostered by what they have heard from the media may be making matters worse, but it is hard to blame reporters for doing their jobs and reporting the truth. It is falsifying information or misleading readers in some other way that we should scorn. Yet things are getting so bad that in the press release issued by Opinion Research, national expert on corporate liability and white collar crime issues Richard L. Scheff warns that members of the media could potentially be exposed to liability despite apparent constitutional protections.

This is of course absolutely ridiculous. What we are saying is that instead of the hard truth we want our media to report sugar-coated stories to make us feel good about the economy. If you want a bubble, that is one great formula right there: Get the public to buy into a bunch of hype so they can feel confident buying up overpriced assets, ignoring that the bubble will inevitably pop, bankrupting those who believed that everything was coming up roses when the market was really pushing up daisies. The media should be sued were they to feed false hope in this economic environment, but certainly not for reporting the truth. That defeats their entire purpose for existing. For the Americans who can’t handle this hard truth: Good luck to you, as you most certainly are going to need it.

Looking Back At 2008

2008 was a year to be remembered by investors, but certainly not in a good way. While most investors probably lost a substantial amount of money, hopefully they at least learned some powerful lessons. James Picerno from The Capital Spectator looks back at 2008 and some of the things investors should take away from it in his blog post below.

Two-thousand-and-eight is gone—and good riddance. But the blowback will be with us for some time, on a number of fronts. And that starts with reviewing the previous 12 months.

As our first table below shows, red ink was spread far and wide in 2008 in almost everything other than cash and bonds. Otherwise, double-digit losses were the rule last year. But if we look at the monthly tally for December, the view looks decidedly better. REITs, in particular, rebounded sharply last month, surging nearly 18% in December.

Most of the other asset classes followed suit, albeit with lesser although still robust gains for the month. The exceptions are cash and commodities. It's too soon to tell if the worst is over or if the rally is merely a fleeting affair in an ongoing bear market. But given the extent and breadth of the carnage, it's tempting to think that maybe, just maybe, positive returns await in asset classes other than cash.

Speaking of cash, a few words about last month's performance of 3-month Treasury bills (our proxy for cash) is in order. Although our table above lists December's performance for cash as zero, the number's in red because the return is slightly negative for 3-month T-bills if you carry the return out to two digits: -0.02%. In the grand scheme of the universe, no one will lose any sleep over this microscopic loss. But the fact that T-bills—the classic "risk-free" asset—posted a loss of any degree is extraordinary, and so it speaks to the times we live in.

Indeed, monthly losses in T-bills are so rare that it doesn't register in our databases, which admittedly only go back to the 1980s for "cash." That's not to say that it never happens, but you'll have to go back quite a ways to find monthly red ink in this corner of finance.

The source of last month's slight loss is no mystery, at least. The explanation starts by noting that the yield on a 3-month T-bill slipped to just about zero at the end of November—an astonishing state of affairs in and of itself. Then, in December, the T-bill yield rose a bit, albeit to a mere 0.11% by December 31 from roughly zero a month earlier. Slight as that is, it was enough to tip the monthly return to negative in the 3-month T-bill for two reasons. One, for much of December, the 3-month T-bill barely gave investors any yield to speak of, and since yield is the only source of return for these securities the pickings were fated to be slim at the end of November even under the best of circumstances. Add the fact that T-bill yields rose slightly set the stage for an ever-so-slight loss (rising yields translate into lower prices in bondland).

The fact that even cash could post a loss is a sign of the times, of course, although investors had bigger problems than worrying about miniature losses in T-bills. Indeed, as our second table below reminds, 2008 was a horrendous year for most asset classes. Horrendous, but not entirely surprising, at least in terms of how 2008 compared with previous years. Yes, the depth of the losses are shocking. But the reversal of fortune was overdue—long overdue in some cases.

click to enlarge

Consider emerging market stocks, which lost more than 50% last year. Shocking as the loss is, the volatility is not out of character for the asset class. Indeed, as the chart shows, emerging market stocks had been posting gains of 20% to 50% for each and every calendar year during 2003-2007. That extraordinary five-year stretch of price increases had to end eventually, of course, and for anyone who expected otherwise, well, they were living in a dream. Surely if an asset class can post a 50% gain in one year—as emerging markets did in 2003—something similar is possible if not likely on the downside.

A similar lesson applies to the formerly high-flying world of REITs, which also enjoyed an extraordinary bull market run that finally started coming apart in 2007 and continued in 2008.

Yet not everything was about losses in 2008, a year that witnessed potent gains for some corners of the bond world, which once again makes the case for owning a globally diversified portfolio. Foreign government bonds denominated in foreign currencies, for example, was an exceptionally bright light last year and so if you didn't own the asset class (via BWX, for instance), your portfolio probably paid a price.

The point is that cycles endure, even if the details aren't always 100% clear. What goes up in price eventually comes down. Meanwhile, lower prices precede higher prices. Although one must be extremely cautious about applying that view to individual securities, it generally works well over time when it comes to asset classes, which have a habit of surviving, which is more than one can say for some individual companies or certain bonds.

Timing, of course, is always debatable, even with broad asset classes, which is an argument for maintaining some mix of the world's capital and commodity markets through thick and thin. The question, as always, is how to structure the mix and manage the betas through time?

As it happens, that's the focus of a new monthly newsletter (The Beta Investment Report) that your editor will launch later this month (details to follow on CapitalSpectator.com). For the moment, though, we're simply gazing backward, in search of some basic perspective. Knowing where you've been and what history looks like is the foundation for looking into the future and assessing risk as well as opportunity. As always, a surplus of both awaits. The critical challenge is fleshing out the details, which is the mandate of our soon-to-be-launched newsletter.

This post can also be viewed on capitalspectator.com.

Home Sales Continue To Fall, But Sentiment Is Up

Home sales are continuing on their downward spiral, but for some reason consumer sentiment is heading up. Maybe it is the holidays inspiring optimizing, or maybe consumers just can't imagine things getting any worse. In light of all the negative news going around about the economy and real estate, it was a little exciting to hear something was heading in the positive direction. The bad news of course is that consumers have been up and down for months, and seem prone to mood swings. For now, though, consumers, possibly high on their cheap gasoline, are feeling better than they did last month. Tim Iacono from The Mess That Greenspan Made looks closer at the latest real estate reports and talks a bit about consumer sentiment in his blog post below.

The bottom that had been forming in the chart of existing home sales over the last year, aided by a growing number of foreclosure sales, developed a rather large hole during the month of November as reported by the National Association of Realtors.
It remains to be seen whether sales return to the 4.9 million rate average of the last year, the 8.6 percent tumble from 4.91 million in October to just 4.49 million in November helping to push the inventory level back up to the high for this cycle at 11.2 months of supply.

More importantly, the median sales price dropped a whopping 13.2 percent in November on a year-over-year basis, from $208,000 to just $181,300, the lowest level since early-2004. The AP reports that this is most likely the biggest annual price decline since the Great Depression (NAR records only go back to 1968).

Sales fell most in the Northeast (down 12.0 percent), followed by the South (down 10.9 percent), the Midwest (down 7.4 percent), and the West (down 4.3 percent). Existing home sales in the West were helped by the continuing high level of distressed home sales, the realtors' trade group estimating that 45 percent of all sales nationwide are either foreclosures or short sales.

Homebuilders aren't finding it any easier to sell real estate as the Commerce Department reported(.pdf) that new home sales also tumbled, falling 2.9 percent from an annualized rate of 419,000 in October to 407,000 in November, the slowest pace since 1991.
Sales have declined 35.3 percent from year-ago levels, the worst decline since April 1980 when new home sales plunged 50.5 percent. Inventory remains at historically high levels, averaging 11 months of supply over the last year, as builders continue to offer incentives and slash prices.

The median price dropped 11.5 percent on a year-over-year basis, from $249,100 to $220,400, however, these figures continue to be deceptively high due to the many financial incentives available to buyers that do not show up in the sales price.

In one of the few pieces of good economic news this week, the mood of the consumer, as measured by the Reuters/University of Michigan Consumer Sentiment Index, improved during the month of December, rising from the 28-year low seen last month.
The index rose to 60.1 from a mid-month reading of 59.1, up from November's historic low of just 55.3 as lower gasoline prices and some stability in financial markets helped to lift spirits.

The inflation expectations associated with this report are now getting very interesting. Survey respondents put the one-year inflation rate at just 1.7 percent, down from 2.9 percent last month, while the five-year rate came in at 2.6 percent as compared to 2.9 percent in November.

More than anything else, inflation expectations are driven by the cost of gasoline since these are the easiest prices for consumers to measure but, with food prices continuing to rise, it bears watching in the period ahead how inflation as reported in the government's consumer price index matches up with consumers' expectations of the same.

This post can also be viewed on themessthatgreenspanmade.blogspot.com.

Strong Dollar: Taking Its Toll On Corporate Earnings

While savers and retirees are excited about the recent strength shown by the U.S. dollar, not everyone is happy about it. Since the dollar has strengthened, corporate earnings have taken a hit, and it is no coincidence. A stronger dollar means that U.S. goods sold overseas all of the sudden become more expensive, and as a result sales suffer. Currency expert Kathy Lien explains this phenomenon in more detail below.

I have spoke often about the consequences of a strong currency. In the case of the US, the weak dollar in the first half of the year has helped to contribute to Q2 and for some Q3 corporate earnings as well. However I strongly believe that Q4 earnings will be very bad. Partly because of the global recession and partly because of the strong US dollar.

There is an article in the Wall Street Journal today titled “Stronger Dollar Cools Sales in Overseas Hot Spots” that talk about this same theme.

But I want to show you their charts on US exports:

Source: WSJ

And now take a look at a chart of the Dollar Index:

Source: Bloomberg

Do you see the correlation?

Also, the strength of the Japanese Yen is a big reason why Toyota is forecasting their first loss in 7 DECADES!!

Source: WSJ

This post can also be viewed on kathylien.com.