Groundhog day in the markets. We popped just over the 200 day moving average, took a look around, and decided it's still economic winter out there. The markets promptly dropped a couple percent, then had a flat Friday, buoyed by month end orders to improve investment houses books. Last week I was mildly bullish, expecting that the markets would trend upwards after flailing around a bit. Today I'm not so sure. Trucking is off, sales are down, confidence is very low, leading indicators are dropping, and Obama is about to let the Bush tax cuts expire, raising taxes on the only group in our economy that's spending money. I think the markets will resume their drop on Monday.
Corporate profits have been very good, just as I predicted a couple weeks ago, but the profits have been good on falling revenue. Uncertainty in the value of the Euro makes exports uncertain, and low confidence and the specter of raising taxes makes domestic sales uncertain. Businessmen and investors hate uncertainty.
Spain's unemployment has passed 20% and is still raising. Germany's unemployment has hit 3% and is still falling. These are two very different numbers with very different stories. Spain is falling to pieces, economically. Germany is doing relatively well, a bit better than the US, but their decline is because they quit having babies some years ago, and people continue to get old and retire. The talk in Germany now is where they will find skilled immigrant workers to keep their industry going and the pension checks flowing.
Consumer sentiment, poking its head up from last year's lows, dropped like a rock these past two months. No one knows why for certain, but talks of a double dip, volatility in the stock market, increasing foreclosures, and the expiration of the Bush tax cuts likely all contributed. It seems to me that everyone feels right now like this is the calm before a huge thunder storm. No one can tell you what's coming, but everyone feels nervous and edgy. If there is serious trouble coming, I think it will most likely prove to be the collapse of city and state government finances.
Unemployment claims have leveled off, they're neither getting worse nor better this year. This is the new normal, 9%+ unemployment.
The Greek city of Piraeus announced they were stopping payment on $275 million of debt. I consider this the first in a long line of European and American cities and states buckling under their debt load.
China performs a bit more than half of all the executions in the world. Remove China, and Iran performs a bit more than half of all the executions in the world. Remove Iran, and Saudi Arabia + Iraq perform a bit more than half of all the executions in the world. If you look at the countries in the list, it's a bit embarrassing to see the US in this company. The Asian countries have a couple thousand year history of overpopulation and intolerance for criminals. The muslim countries like the old testament "eye for an eye" form of justice. The US executes people as a legacy of slavery.
The liberal Center on Budget and Policy Priorities has released a graph, shown below, explaining that it's all Bush's fault. Absent his tax cuts, his wars, his depression, we would not have a deficit. This is in preparation for the coming election where democrats are going to get punched in the nose by the electorate, it's just a question of how hard; and for next year when the Bush tax cuts will be significantly allowed to expire. There is great debate over the Bush tax cuts: many say it's only the top 15% of the earners in the US holding the economy together, this is not the time to tax them. Doesn't matter, the tax cuts are history.
I personally have no clue why we're spending all this money in Iraq and Afghanistan. It would have been a lot cheaper to just buy off their rulers and rent land for military bases there for the coming war with Iran. I have no idea why we're hell-bent on killing Afghanis. Maybe it's because they make their women wear tents? Or the women aren't allowed to get educated, where Afghani education means memorizing the Koran? Under the Taliban rule there was zero opium production in Afghanistan, now they lead the world. This is an improvement? (In fairness, the Taliban in exile has turned into major drug dealers.) I find the idea that if we shoot enough Iraqis then they will become active informed voters in a healthy democracy simply surreal.
The final result has not changed: it's medical costs that are going to bankrupt this nation, not tax policy, not wars, not social security. It's time to recognize that hospitals and drug companies need to be treated as regulated monopolies performing a public service, just like electric and water utilities. We need serious reform of tort law, drug companies, hospitals, medical insurance. We need to cut spending on wars and entitlements. We probably do need to raise some taxes. We don't need a debate on who's fault it is.
The grand experiment - a house for everyone - is over. Home ownership is expected to decline from a peak of 69% of households to a more historically normal level of 64%. The number of renters will increase. Mortgage rates are at a multi-decade low of 4.55% on a 30-year fixed, you have to go back to the mid-60s to see rates lower than this. Of course no one actually qualifies for a mortgage anymore, but if someone did they would pay historically low rates.
For-profit universities, e.g. the University of Phoenix, are coming under increasing scrutiny. U.Phoenix, for example, has a graduation rate of 16% for its 476,500 students. Some of their programs do far worse: 6% at their S.Cal campus, 4% for on-line students. Normal colleges and universities have a graduation rate of 55%; the graduation rate is significantly higher if you eliminate Jr.Colleges with their 70% drop out rate.
With an average tuition of $14,000 per year, for-profit universities leave nearly 85% of their students with tens of thousands of dollars in student loans to pay off but no degree. For-profit universities have just under 8% of the nation's college students, but suck up about 24% of all Pell grants and federally guaranteed student loans. Intel has recently stopped reimbursing for U.Phoenix classes, saying they lacked top-notch accreditation. Typical U.Phoenix classes involve 20 to 24 hours total classroom time, compared with 40 hours at a traditional university; 95% of their instructors are part time, compared with less than half at traditional universities.
Why do they exist at all? State employees get automatic increases in their pay grades if they get a degree, teachers are especially highly rewarded for master's degrees. No private business of which I am aware would even consider hiring an engineer or computer programmer from U.Phoenix, and their MBA program is widely considered a joke. Obama's push for "having the world's highest share of college graduates by 2020" coupled with severe funding cutbacks at nearly all state schools seem to imply that this disastrous segment of our educational system will only grow, sucking up more federal money and disappointing and near-bankrupting more students. At least The Great and Powerful Oz didn't charge for the Tin Man's bogus diploma.
Obama's Birth Certificate: (I consider this situation entertaining) There have been dozens of lawsuits claiming that Obama is not a natural born citizen and not eligible to be president. Every one has been dismissed for lack of standing. What does this mean? Suppose I were to sue you because I claimed that the upholstery on your living room sofa was deeply offensive to me. This suit would most likely be dismissed for lack of standing, as I cannot show how I am damaged by your bad taste, expressed in the privacy of your own home. The merits of the case, that is the question of how hideous your fabric actually is, would never be considered. Similarly every lawsuit on Obama's birth certificate has been dismissed for lack of standing, that is the judges have ruled that the plaintiffs could not show how they were harmed by this issue. In no case have the merits been argued or evidence presented.
The latest development started when Judge Dolores Sloviter of the 3rd U.S. Circuit Court of Appeals ruled that not only was Kerchner vs. Obama dismissed for lack of standing, but that Kerchner's attorney must show cause why damages should not be assessed for bringing a frivolous lawsuit. Kerchner's attorney Mario Apuzzo immediately responded that in the US defendants have a responsibility to minimize their damages, and he had the right to argue the merits of their claims of costs and damages. On this basis, Apuzzo said he would immediately subpoena Obama's birth certificate, as the existence of this was central to the issue of Obama's damages. Apuzzo said had Obama simply produced a birth certificate, the suit would have been dropped instantly. Judge Sloviter's response was to dismiss the "Order to Show Cause" immediately.
I find it curious that the constitution is clear that only a natural born citizen with no foreign citizenship may be president, but Obama apparently has no duty demonstrate his citizenship, none of us have the right to ask if he actually is a citizen, no part of the government is charged to validate the presidential candidates, and no court will touch it. Recent court decisions have indicated that the press is somehow expected to perform this constitutional duty. I consider this a real constitutional issue, and believe it will eventually wind up before the Supreme Court. Will Obama be impeached? The republicans may well bring charges - they still want their revenge for Nixon - but there's no way on earth the constitutionally required 2/3 of the senate will vote to convict. In the end this birth certificate thing is just a distraction. Unless congress passes a law requiring presidential candidates to summit birth certificates to the Federal Election Commission. If they do this before 2012, I predict Obama will not run for reelection, opting instead to "pursue other opportunities and spend more time with his family."