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October 09, 2014


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Economy or Fear? It was a nice run with 40% up over the 12 month's before September. As with all the political tricks using percentages, the market has dropped 20% in 6 weeks. So we're still ahead 20% ,right? Oops. Not so fast. Mathematical magic: up 40% then down 20% leaves us up 12% not 20%. This trick is used all the time in elections and political arguments with economic growth, unemployment, retail sales, etc.

My point is that the lack of hiring, the lack of big increases in GDP, the financial engineering to raise EPS, etc have all been used by a lot of people to hype our progress. That being said we have recovered some from the "big fall" 6 years ago. But, we have to remember that 6 years ago there were 800 Billion dollars in circulation. Today there are nearly $5 Trillion. An argument can be made about where the hell those dollars are--they certainly are not in the hands of consumers. Most are likely on the balance sheets of US banks still struggling to meet Government regulations. Many Trillions are stored overseas on the balance sheets of US corporations frozen in fear of a corporate tax. So, those dollars were an inefficient way to get economic stimulus. Food stamps were actually better--at least for Walmart. Now that food stamps are being reduced Walmart is lowering it's profit targets.

Fear is likely adding to the risk perception of the big money investors as they run to bonds in fear of the end of the money presses shutting down at the FED. That is adding to the fear of international investors who are also running to US Treasury bonds. The result is rapidly declining interest rates. Combine this with the oil price decrease likely caused mostly by the projection of a lower growth rate in China and Europe by the IMF as well as moderate temperatures this summer. Then add Ebola and the prediction that air travel will be deterred. Give us a cold winter and oil will be back up. The world demand for oil is still around 92 Million barrels a day--not changed. And, then we have the effect of the election which promises the potential of a change in the US approach to major issues. Unfortunately, unless the President changes the result, if Republicans win, will only take the blocking strategy away from Senator Reid and give it to the veto power of the President.

Then there is the fear associated with Ebola. Will it effect the economy? Maybe, as consumer confidence and manger confidence are the major factors in building a growing economy. Confidence in this President is rapidly declining. His failure to anticipate problems and get out front of them are creating great Fear in public safety and in our ability to deal with Russia and ISIS. You notice that he has no ability to let the leadership in his administration explain Ebola and what we are doing. Or, his Generals in addressing our strategy against ISIS. And, his leadership is now showing the results throughout the world. Do you fell safer now than you did in 2008?

DEFLATION or more attacks on America? The world has finally reflected the lack of earnings and top line growth of American businesses. Financial engineering is a necessary process to survive a recession. But, when the recession goes on too long financial engineering can contribute to deflation. America is the world's biggest market and for way too long the government has milked corporations and middle class Americans for social engineering goals--now referred to as "leveling the playing field". Between the high corporate and individual taxes, higher social program costs, higher healthcare costs, intense regulations, and the private sector's financial engineering the US economy has gone into the slow growth mode. The retirement of 10,000 baby boomers a day has not helped. It has taken away the appreciation of homes and taken the spotlight off the financial engineering by minimizing layoffs and simply not replacing the baby boomers in corporate offices. Meanwhile the internet and machines have eliminated thousands of jobs. Now comes oil expansion. Yesterday the Saudi's said they can live with $77 oil. These are the same guys who consistently lead OPEC to cut production to control the price of oil. They were friends of GWB and helped keep it in the $80-90 range during the Gulf War but more often they have balanced price with the US economy performance. $77 oil will take down a lot of smaller US production. It will slow the electric car, the solar industries and the expansion of exploration. This morning Chevron announced the suspension of a huge development project in the Pacific. So, are the Saudi's simply making the supply of oil available and cheap to try and deflate it to help the world's economy or is it a war on US production? The reference to $77 is likely a shot across our bow. World oil suppliers seem to be responding. Perhaps the large oil producers are even cooperating. After all it makes sense that they are not exactly ecstatic with falling prices and the rise of Continental, Apache, etc. So we have the falling oil prices. We have declining wages in America as our jobs spread throughout the globe. We have pressure on the government to return to the police role of the world and a build up in defense forces. We have a healthcare program being implemented. We have pressure to stop Ebola. All put more pressure on costs. We have kids moving from houses to apartments. We have significant drops in raw materials. India has inflation of 7% as they elected a new business friendly PM. In the meantime we have interest rates at 2.2%. And they have been that way for nearly 6 years. Unfortunately, instead of being led by a President and cooperating Congressional leaders for the past 6 years we have been led by the Doves at the FED. This period of deflation simply proves that the FED as they have continuously pointed out cannot do it alone. By now we should be achieving 4% growth. Inflation should be on the rise. The US economy should be stimulating world growth. US companies should be investing at home and not so much out in the 3rd world. The next two years if the Republicans do take the Senate will be as Bill points out a contest between Republicans passing legislation and Obama vetoing it. And, then we will see if the public changes the White House in 2016.

NICE LIST: It is a nice list of Republican ideals. Unfortunately, no matter how much we like the idea of family values, balanced budgets, Defense build ups, Obamacare repealed and education for everyone they just won't happen no matter who is in office. What the country needs is leadership that addresses the main issues of the future for our kids. Unfortunately, the future I long feared for our kids is coming faster than I imagined: Terror, lower wages, lower job opportunities, invasion across the globe by immigration, decimated infrastructure and public apathy for the solutions necessary to fix it. It is likely that the period of 2015 and 2016 are going to be scary. ISIS war will rage. Ebola will require much more security than ever imagined. The world economy will likely respond negatively to the spread of "quantitative easing". Cyber security attacks will intensify from China, Russia and the Muslim world. The President who is openly disdained by his party will be hard pressed to keep his administration from falling apart and will continue to struggle to look competent in dealing with world wide issues. It is likely to be a very big mess. Republicans had better not pursue political gain over solutions because they are next and the world handed to them after this 8 years will be nothing to wish for.

IF we get a leader to emerge by 2016 and elect them he/she will need to address the problems that should be on the Republicans list and they better be ready:

The Terrorist war that GWB told us we will fight for generations. Forget no boots on the ground. It is going to be a war that will require every capability we have.

Immigration over 30 years has produced a labor set that has taken the jobs of the black and white middleclass male workers. Wave after wave of amnesty with little regard for the law has simply encouraged more and more illegals to arrive.

Crumbling infrastructure will accelerate and make economic growth slower unless it is addressed.

Modernizing education to get the high schools--not the colleges--to produce students who are ready to go to work in high tech supported jobs and services leaving the college system to educate the specialty careers truly requiring 4-6 years of more training. Unless this is done we will graduate more and more indebted under skilled graduates who find no jobs.

CDC needs to be strengthened to deal with the potential of biological attacks, and evolution. Terrorists will not leave this area unexploited. It is not enough to leave it to the states and cities to deal with these outbreaks.

Like it or not universal healthcare is coming. A real leader will recognize it and find a way to improve the systems we have to make it work. healthcare is the number one problem of American businesses. It is the one cost that has continued to climb at double digit rates for decade after decade. Passing the cost along to the public is simply killing consumer spending and confidence.

Getting US overseas profits back home is important. No matter where the dollars go. Trillions of dollars held overseas cannot help Americans.

I could go on but no need. Republicans better get off the "apple Pie" and get onto the real issues because the Democrats are not going to do it. They are focused on leveling the playing field.

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