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February 06, 2014

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HOW DOES THIS COUNTRY RUN? This morning the Small business confidence factor was released. During the prerecession years up to 2007 it averaged about 100. Today for the 7th straight year it was 94. Small business owners confidence that they could make a profit dropped again. Remember these small businesses employ 76% of Americans and create virtually 100% of the new jobs in America. At the same time several of the large companies announced that they are having a difficult time making their numbers by cutting expenses and jobs. Heinz even announced they were closing one of their best plants because the transportation costs were too high for product produced there. Now that news came out BEFORE the new Fed Chief Super Dove Janet Yellen testified that she was not sure that the economic data was showing weakness in the US economy's resurgence. Here is one of her statements:

Yellen said the Fed was committed to implementing the 2010 Dodd-Frank Act, which overhauls regulation to try to prevent a future financial crisis. But she agreed in response to questions that bank oversight that's too aggressive can keep banks from making loans that small businesses need to operate.

So, let's just keep squashing the small businesses in this country. Let's not loan them money. Let's give them more taxes. Let's regulate them a little more. Let's watch them try to figure out a healthcare strategy. And, then let's wonder where job growth in America has gone. Yellen is pretty smart, I suspect. And, I have to believe she knows that the unemployment got to 6.6% not based on job growth but rather on shrinking the labor participation through the retirement of baby boomers and people giving up. So, hopefully, she will not be fooled by all this economic voodoo. Unfortunately, her plan is liable to be more printing of money. Spain and Ireland who chose austerity over printing money are coming out of their problems. HOW DOES THIS COUNTRY RUN?

WEATHER? So,now what? Once again a huge miss in JOBS. Today Greenspan commented that the big problem is the long term confidence of managers. they will not deploy their capital until they feel confident that there will be a return on it more than they can get buying their stock back (an easy way to increase your EPS even when you miss your top line. Look at 3M, one of America's most creative manufacturers. This week they announced a $13B stock buy back. Their market cap is only $84B. You can figure based on today's EPS that you will get a 15% return on your investment plus their 2.7% dividend if they just keep their revenues where they are today. How many jobs and new products would that $13B create if it were invested in R&D? This is going on throughout the Fortune 1000. Retail got killed. State governments continued to layoff people. Construction (weather?) increased jobs. So did professional services. When businesses face an administration that wants nothing more than to find a way to get revenue and redistribute it they react by pulling in their horns to protect themselves for a better day. And, that includes the banks. No doubt weather is a factor but I suspect healthcare increases, the new "hidden" taxes now appearing as people get their returns done, the payroll tax increase and the personal tax increases are just grinding the economy into submission.

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