Category: Markets, Business, and the Economy

Today, some experts are predicting that gas prices in the United States will hit $4 per gallon by the end of the year. Needless to say, other experts dispute this possibility. As much as I would love to say that this is an obvious panic marking a top in prices, it is worth considering what would happen if they are right.

Gas prices at $4 per gallon would represent a doubling of price over the course of two years. It would be over 30% inflation from right now. This is inflation all by itself, even before you consider that just about every object you could possibly have in your home needed fuel to get there, either in the manufacturing process or the delivery process. Expect general inflation to come on the heels of such an increase in fuel costs.

Increased inflation means Agent Greenspan must swing into action, raising interest rates. This means interest rates will go up for loans, credit cards, and mortgages. For goodness sakes, if you have ignored my warnings to lock in your adjustable rate mortgage, this may be your last chance! One benefit to Joe and Jane Average is that the interest paid on bonds will also go up, and there is a slim chance that interest paid on their savings may go up ever so slightly. Of course, this also means that the national debt will grow even faster.

Consumer and employee confidence are already down. And no wonder! Planned layoffs are continuing to outpace planned new hires. Expect a continued decline in confidence if gas hits $4 per gallon. Wal-Mart was concerned about gas prices a year ago, estimating it was costing their customers an additional $7 per week; one can only imagine what the internally circulated numbers look like now. Gas prices are now bad enough that Wendy’s is willing to blame poor sales on high gas prices.

As CNN reported yesterday (see previous post for link), people are already changing their habits due to high gas prices. That will continue. Unnecessary trips will not happen. That means less shopping, less eating out, fewer after-school activities. The malls will be trying to come up with interesting ways to get people into the building. The guys who downgraded the company which owns Olive Garden and Red Lobster will look like geniuses. People will be bringing brown bags to work with them, partly to save money and partly to save gas. If $4 per gallon gas persists, private school enrollment might also suffer, as such institutions often draw students from several miles away.

However, internet and mail order businesses will see increased orders. Whether they will profit from this depends on whether they can keep shipping costs reasonable. eBay will continue to see decent traffic as the intersection of people trying to turn unneeded objects into cash and people looking for online bargains.

Truck and SUV sales are already plunging. Expect a continued shift away from low fuel efficiency vehicles. Light truck prices, particularly in the used vehicle market, will plunge. Detroit will not be able to prop up truck sales with incentives in the long run. Many people will reevaluate whether or not they really need a large vehicle; some will sell, while others will get a small high efficiency “around town” vehicle for everyday use. Some insurance fraud is possible as truck owners decide it is easier to have the truck stolen than to sell it.

Mass transit will be all the rage. Well managed systems will benefit; poorly managed systems will collapse under their own ridership. Being near train and bus stops will be a plus rather than a minus for homes. People will — perhaps for a limited time — be willing to support taxes and mass transit initiatives.

There used to be a bit of buzz about people moving to “exurbia,” that place a little farther out than the suburbs, where there is still a slightly country feel, yards are big, and houses cost less. People who went for that bigger cheaper house further out are feeling the pinch of gas prices, and it will only get worse. Double that if they over-extended themselves to buy it. Property on the edges of metropolitan areas will decline in value as these exurban areas will no longer be seen as commutable. Some families will even reevaluate whether it is cost effective for both parents to drive to work every day.

Finally, people will walk away from debts. Between rising day-to-day expenses and tougher bankruptcy laws going into effect this month, there will be people who just decide to stop sending a check to Chase Manhattan or GMAC every month. “Go ahead, cancel my credit card,” and “Please, take back the truck I can’t afford to gas up anyway.”

I hope I am overreacting. Better yet, I hope the experts are wrong.

Or, “Japanese Economics Class”

Agent Greenspan has spent most of the week talking out of both sides of his mouth. For example: homeowners are in fine shape except for the risky mortgage products, speculative activity, and cashing out of equity. If you want to take a shot at deciphering Greenspeak for yourself, here’s what he actually said today. Currently, Greenspan appears to be telegraphing that there will be a continued rise in interest rates, because there is a continuing risk of inflation. This is of course assuming that the trend of foreign owners of American bonds depressing interest rates does not continue.

Some analysts think this is just awful news. Doesn’t Greenspan know about the lousy consumer confidence numbers? Isn’t he worried about the people who are overextended on mortgages and credit cards? Doesn’t he want to keep interest rates low to stimulate the economy? Has he not noticed the flat stock market? Doesn’t he know that the Administration expects the hurricane damage in the Gulf Coast to sharply impact the economy? Has the old man lost his freaking mind?

Oh yeah, and what does Japan have to do with this?

WARNING! Severe Oversimplification Follows! Modern economic theory says that lowering interest rates stimulates the economy: it makes it cheaper to borrow money, and therefore easier for companies to buy manufacturing equipment — to say nothing of making it easier for Joe and Jane Average to buy things like houses and appliances and cars on credit. Raising interest rates, however, stifles inflation — and with energy prices being what they are, who can blame Greenspan for thinking inflation is a bigger potential problem than slow economic growth.

For some years, Japan has had economic problems. A huge stock bubble in the 80s was followed by a colossal bust in the 90s, and the economy suffered. More accurately, the economy suffered despite slashing interest rates to very low levels, even to zero! If you believe that low interest rates stimulate the economy, you must now be saying something along the lines of “HUH?”

The Japanese economy, while not where it was in the 80s, is now recovering. However, mucking about with the interest rates did not bring this about. It took dealing with underlying problems, in Japan’s case banking/credit reform and consolidation.

It is my theory that beneath certain levels, low interest rates do not stimulate the economy. There are several factors which combine to this result: First, when rates are very low, there is no incentive for lenders to extend credit to individuals and companies. Since the available rate of return is so low, they would rather take the sure thing on government bonds. Housing lending has continued partly because there is a real asset involved, and partly because such loans can be sold to aggregators such as Fannie Mae.

Second, when interest rates are very low, corporate borrowers — who are supposed to be goaded into action by super low rates — are mindful that the Powers That Be feel the economy is lousy. It is a bad idea to incur debts and invest in infrastructure when the economy is lousy. What will the stockholders say? What cash they do have they will sit on until the moment is right. After all, if the economy is lousy, they may well need the cash cushion. As for loans, they will wait for some kind of signal that things are improving — an increase in interest rates, maybe — before calling for cash.

Finally, the third leg of the economic table, Joe and Jane Average do not experience added liquidity. While the banks are more than happy to lend them money for concrete things like houses and cars, the banks won’t lend them cash for things that have a lasting impact on the economy. They can’t get cash to start a business (or to help along their existing business) because it’s too risky — for the bank, that is.

So, Alan? You just keep raising that interest rate, mmkay?

This week there was some economic news: Consumer Sentiment numbers as reported by the University of Michigan dropped sharply, to levels far below what “the experts” anticipated (coincidentally, the Bloomberg version of the story points out a similar drop in President Bush’s approval rating); and retail sales are weak, dragged down by lousy car sales numbers. About the only bright spot on the car sales front is that hybrids are hot, hot, hot. Consumers are caught between light trucks whose values have collapsed and new cars that only sell because of silly incentives. It is no secret why both these things are true, but let me give you the expert take: “Toyota Motor Corp.’s president said he’s ‘worried’ that fuel prices, which surged to records after Hurricane Katrina disrupted supplies in the U.S., may curb worldwide demand for new autos.” It is no coincidence that Toyota offers hybrid cars and trucks.

If the American auto industry really wants to keep selling cars, they are going to have to stop offering the crazy CRAZY crazy deal of the week, and start offering vehicles that people are willing to buy at full price. And unless gas prices fall below $2/gallon (ha, yeah right) that means they need to be both safe and fuel efficient.

They tell you that the popularity of the SUV is evidence that people want these land yachts. If that is so, then drop the incentives! They tell you that bigger vehicles are safer vehicles. The truth is that safe vehicles exist at all size levels; it is a function of good design, not pure mass. Size = safety is one of those over-generalizations, like “All old people like prunes.”

The technology exists to make fuel efficient cars. Thirty years ago, there were efficient cars. They might not have been pretty, and they might not have been peppy, but they were affordable; now we have 30 years of technological advances that can and should be used to make them better. Here’s one fellow whose gadget makes cars both more efficient and less polluting. Somebody, find me a downside to this!

In closing, Senator seeks Wealthy Corpse. Object, poster child for estate tax cuts. Also, CNN takes time to say “if you need a non-standard mortgage to afford that house, maybe you should reconsider.” And finally, two former Governors — one Democrat, one Republican — say our health care system is broken.

If Paul Krugman is too wordy for you, David Horsey put it into cartoon form: there is a radical disconnect between what “the numbers” say about the economy and what the experience of you and almost everyone you know says about the economy.

Although consumer confidence rose slightly in August, the fact remains that almost as many people think jobs are hard to get as think jobs are plentiful. Gas prices are at record highs and poised to soar higher, yet incomes remain unchanged. This might signal a potential problem even if you don’t think the national debt, deficit spending, the potential housing bubble, consumer debt levels, and the trade imbalance with China are problems.

If, somehow, you can ignore all this, you cannot ignore the fact that poverty has risen again for the 4th straight year. In fact, 1.1 million people are living in poverty this year who weren’t last year. If you’d prefer to think of it this way, 1 out of every 8 Americans live in poverty. It is no longer a third world issue. It is here and now.

A side effect of this poverty level is that more Americans are doing without health insurance. In fact, there are 8 million more uninsured people than there are poor people. Since many poor people are covered by Medicaid, it is clear that we are talking about an even larger pool of people who are either poor or uninsured. This is a problem not only because of lost productivity as people put off small problems or preventative medicine. It is not just a problem because high medical debt often leads to bankruptcy. It also means that doctors and hospitals lose about $45 thousand million in bad debts. Most industries can’t afford to write off billions of dollars; medicine can’t either.

The ostrich economists, however, think that everything is fine. The official unemployment number is low, inflation is under control as long as we don’t pay attention to petrol, and corporate profits are great. The economy really is great if you are close enough to the top.

Everything will be wonderful as long as they can keep the serfs under control. And the serfs are quite nicely controlled by high debt levels, anxiety over health care, fuel costs that limit their movements, and jobs that take up a great deal of their time while barely covering expenses.

In closing: Ten Items Inspired by Science Fiction includes the flip-type cell phone. What a shame they aren’t as cool as in Star Trek. Sorry, you shouldn’t need 2 hands to answer your phone. Also, Could you pass 8th grade math? I got 9 out of 10 because I misread a question. I used only my brain and a small bit of scribbling paper. Of particular note is that the explanation to one answer makes it clear that I should have used a calculator! A calculator? On a math test?

Today, President Bush announced good news for the Federal Budget. It looks as though the budget deficit will be almost $100 thousand million less than expected, because the government is taking in more tax money than expected. Now, keep in mind, they are still going to spend $333 thousand million more than they intend to take in, and add that $333 thousand million to the national debt, which currently stands at $7,843,596,586,237.71. With a population of 296,608,542, that brings your personal share to $29,092.54. If it helps, think of the national debt as representing a nice mid-sized sedan for each and every man, woman, and child in the country. With the magic of compound interest, if we wait much longer to get serious about paying down the debt we will be talking about large luxury sedans.

Mr. Bush cautions that we are on track to reduce the deficit — not the national debt — by half before 2009 but only “so long as Congress holds the line on spending.”

There’s a little problem with that.

No, it isn’t the “Tax and Spend Liberals” in Congress, who to their credit understand that you really ought to have money before you go spending it. Nor, really, is the problem the side order of pork that gets stuffed into the federal budget. Pork costs us a lot of money, but it still accounts for less than a third of the budget, and grumble it does at least get spent in local communities stimulating local economies. I am not saying we shouldn’t demand Congress moderate the pork, but I’m saying there’s a bigger budget buster to consider.

The problem is unfunded mandates, unpaid commitments, and upcoming expenses.

Strictly speaking, an unfunded mandate is when Congress says that state/local governments or private businesses must do something, and then does not put enough/any money in the budget for it. The net effect is that in order to do what must be done, your state or local government must put it in their own budget and raise your taxes accordingly — most states don’t have the option of deficit spending. The deed is done, Congress pats itself on the back for keeping expenses low, and you have a cow when your state income tax, sales tax, and property taxes go up. In the case of a private business, they have no choice but to suck up the costs of compliance and pass the expense on to their customers, resulting in inflation. Wikipedia cites No Child Left Behind, the Emergency Medical Treatment and Active Labor Act, and the Americans with Disabilities Act as examples.

Needless to say, nobody outside Congress likes unfunded mandates. In some cases, such as NCLB, there are lawsuits over the unfunded mandate. Opponents reply that it isn’t an unfunded mandate, just a condition of receiving money and if you don’t like it you can leave your federal education dollars on the table and go. Bottom line on that one is that Ted Kennedy was promised full funding for NCLB, and I don’t know of any Congressman who wants to run for re-election in 2006 on the platform of “less money for public schools.” There’s $40 thousand million that might be tacked onto the budget, a bit less than half the reduction of the budget shortfall that Mr. Bush announced today, in one line-item.

On to unpaid commitments, by which I mean money that has been promised that has not made it into the budget. Sure, we could probably continue to blow off these expenses, but we shouldn’t. Things like the $15 thousand million President Bush promised to send as aid to Africa. Or the $1300 million the United States owes the United Nations. Or worse yet, those War on Terror expenses that seem to be shunted off into “supplemental spending” measures.” The last of these measures was $82 thousand billion and a side order of unfunded mandate Real ID, demonstrating that Mr. Bush’s estimate of reducing the budget deficit at all is predicated on no more military spending. It isn’t that Congress isn’t aware that we are “at war,” but rather that funding the war is like having a teenager who asks you for spending money at every opportunity.

And I didn’t even have to mention that the Veteran’s Administration could sure use another $975 million, minimum.

The final problem with “congress holding the line on spending” is the future. We know that there will be certain expenses in the future. We know we will need to spend more on Social Security benefits, and Medicare benefits. This issue is still thrashing around Capitol Hill, but the bottom line is that if the problem is Social Security not having enough money, they will have to cut benefits, increase taxes, or reduce the number of eligible people.

We also know that we will need to spend money upgrading and repairing highways; this is a vital issue to the American economy, since as one friend puts it, “If you’ve got it, a trucker brought it.” You should be aware that highway spending has remained unchanged since 2003, because Congress and the President cannot come to any kind of middle ground. This is despite the fact that our roads are getting older, our highway expenses are getting higher, our population is getting bigger and more dense. The day will come, soon, when we can no longer put off a real highway bill.

Let’s not forget the money that will be needed to overhaul this nation’s newest executive branch department, the Department of Homeland Security. We need better border security, and that will cost money. If an illegal immigrant can find work cleaning highrise office buildings and processing this nation’s food, then so can Al Qaida operatives. Yeah, I’m willing to pay a bit more to know my food has been processed by legal American workers earning a decent wage. We also need better port surveillance, and to do that right will cost millions if not thousands of millions of dollars.

And just think, that’s only the money we know we need to plan on spending. It does not account for disasters, emergencies, future economic difficulties, or any other thing that might come up.

Let’s not count our reduced budget deficit for the year 2009 just yet.

In closing, I bring you Why Costco is Better than Wal-Mart, the fight to renew the Patriot Act, and Molly Ivins points out that regulations were imposed because they were needed.

Once more, the rhetoric has turned to the Estate Tax. When we last checked in on the Estate Tax, opponents were calling it the “Death Tax,” a way of framing the issue which erroneously gives the impression that average Americans are taxed for the act of dying. Back at the beginning of the Bush Administration, a phase-out of the Estate Tax was put into the Tax Cuts For The Wealthy That We Hope Will Trickle Down Act of 2001. The Estate Tax itself will be gone in the year 2010, but because the tax break was “only temporary,” the Estate Tax will be with us again at year 2000 levels unless Congress can pass a bill (and get it signed) to make the tax cut permanent.

This brings us to the present day, when some Senators are being pressured to vote “the Right way” on permanent repeal of Federal Estate Taxes.

The most important thing to remember when we are talking about the Estate Tax is that, at year 2000 levels, the first million dollars is exempt. Your estate consists of a $250,000 house and a five-digit bank account balance? Your estate owes no taxes! None! Be honest, do you have a net worth of over a million dollars? The fact is that 98% of Americans are never effected by this tax.

And as for those of you that do in fact have a million dollar plus estate, there are plenty of ways to see to it that the taxes are paid without undue stress on your widow. If you are worth a million bucks and can’t afford a couple grand for estate planning, you have much bigger problems than what happens after you are dead.

Opponents of the Estate Tax — the sort of people who insist on calling it the Death Tax — say that the real problem with it is that there are “many” small businesses, farms, and ranches that have big assets on paper, but on the death of the owner will have to be sold to pay the taxes. I have three things to say about that. First, a few hundred bucks thrown at a company like The Company Corporation solves that problem by making the company a separate entity. Likewise, an estate planner can put together an insurance package designed to pay the taxes on your estate upon your death — there are two types of people, people who can’t afford an estate planner and people who can’t afford to not have an estate planner.

Second, some of the Senators in question support a bill that would exempt $100 million on the estate of “small” businesses and farms. Sheesh, that’s $100,000,000. I’d like to be that sort of small business owner!

And lastly, if there are so many family businesses, farms, and ranches being put out of business, how come President Bush can’t find one to put in the balcony of the House and talk about in the State of the Union when he talks about “why we need to repeal the Death Tax permanently”? Because they are very, very rare. They would have better luck trying to find a Unicorn breeder to put in the balcony.

The other “argument” against the “death tax” is that it is “double taxation.” The reasoning is that Granddad paid income tax on that money when he earned it, and that makes it wrong to tax it again when he dies and Junior gets the money. If we applied this standard broadly enough, no taxes would ever be paid on anything. The nice folks at Tom the Dancing Bug drew a nice picture to explain how many times the same dollar gets taxed. His point was regarding dividends, but the same logic applies here. You earn money and pay taxes. You buy something and pay more taxes with already taxed money. The store owner pays taxes on his profits from selling you stuff. The guy that wholesaled the stuff pays taxes on his profits. The employees of the store, the wholesaler, the manufacturer, the shipping company all get paid and all pay taxes on their income. Rinse, repeat. This whole double taxation thing makes a good soundbite, but is empty noise.

So why exactly should your Senator support repealing a tax that few people pay, and that there are many ways to get around paying it anyway?

In closing, I bring you some light reading for the weekend: “Who’s Watching the Watch List,” How exactly does one lose track of $8800 million dollars and — literal light reading — Congress is talking about making it legal for electricity to be controlled by a small group of companies. It’s as if they forgot Standard Oil and why trustbusting happened.

How many horror flicks have you sat through where some problem started out small, but by the middle of the film grew to terrifying proportions?

A little business news story from the Associated Press was released this morning — a Saturday morning on a holiday weekend — letting us know that profit growth at America’s largest companies is just not going to be as big as expected. Guess what, there’s only so many quarters that a company let alone a group of companies can deliver 12-20% year-over-year increases in earnings. That’s only about three to five times the growth of our entire Gross Domestic Product. Now please keep in mind, nobody is talking about these huge companies losing money, nobody’s even talking about them making less money than last year. We are talking about the fact that they maybe only grow profits by 7-8% over last year. That’s a little less than twice GDP growth.

Now, how can these companies grow so much faster than the economy in general for so long? Accounting regulations have firmed up enough that we can — crossing our fingers of course — assume no Enronian fraud in the numbers. And these are not tiny startups that have relatively small, easily increased profits. These are huge corporations, 500 of the largest businesses and employers in the nation. The money certainly isn’t coming from overseas trade, since we yet again have a record trade deficit: more American money is being spent on foreign goods than foreign money is being spent on American goods. I believe CAFTA will not improve this situation.

But wait a minute, maybe the profits of these companies are bringing the GDP up. Maybe the high-lfying profits are the only thing keeping “Supertanker America” afloat. If that is the case, the rest of the economy really stinks.

Where is the money coming from and where is it going?

The short answer that it is coming from us and going to them.

We are spending the money that results in these companies having earnings, and frankly a lot of us are borrowing money to do so. There are signs this may be slowing down. In any event, it’s a dangerous game to keep running up debt in a nation where rules for getting out of debt are tightening and the number of debtors may be shrinking. (For the record, I think that Band of America buying MBNA is a bad idea and shouldn’t be allowed to go through. I also thought this about B of A buying FleetBoston, the Chase/J.P. Morgan deal, and the Citibank/Traveller’s deal. My opinion clearly carries no weight over at the Federal Trade Commission.) This is an even bigger deal if there is anything to yesterday’s news item that 15 states representing 35% of the American economy are vulnerable to a housing “correction.”

This wouldn’t be such a bad thing if the money these companies were earning went on to be paid to employees, or spent with other companies (that have employees) that in turn would stimulate the economy. However, if this were the case, the money in question would be an expense, not part of the profit. Accounting wonks will note that if money is spent on capital expenses — big ticket items like manufacturing equipment that helps a company make money in the future — has to be depreciated; only a portion of the expense can be claimed each year the equipment is in place. That still doesn’t account for the long term profit growth in question.

Since dividends — money a company pays to it’s shareholders — can only be paid from profits, it is reasonable to expect that some of this money will be paid out as dividends. Needless to say, this only benefits people who own shares of companies that pay dividends. Since on the whole, rich people own more stock than middle and lower class people, any dividends paid will mostly benefit rich people, who by the way are getting a tax break on the deal too.

And to top it all off, a lot of these companies are laying people off. Remember, it isn’t that these companies are losing money, it’s that they are not earning as much more money than last year as they thought. Companies that provide “good jobs with benefits” like Ford, GM, Lear HP, IBM and others. Even “new economy” Silicon Valley feels the crunch of businesses getting bigger, but few additional jobs being created.

So now you see why the economy looks great from Wall Street and kind of anemic from Main Street.

In closing, I don’t want to say much about the esteemed Ms. O’Connor’s resignation, but she has been a pretty decent Supreme Court Justice, and I would hate to see her replaced by someone like, oh, Pricilla Owen. I recommend reading and acting upon this list of suggestions from Daily Kos. As Ms. Marcotte at Pandagon points out, “Women are 50% of the population. People who know women are 100% of the population. Women’s rights are not a minority issue.” We need a Supreme Court nominee who will apply the Constitution, the Law, and his/her Conscience, in that order.

Remember 2000? I remember seeing CNBC on the TV at fast food joints, auto mechanics telling me about their stock holdings, and overhearing people discussing the Dow Jones Industrial Average at the next table over dinner. Shortly thereafter, the Dow and Nasdaq began to drop. The Nasdaq is still only at about 40% of the highs hit in 2000.

Here we are five years later. Nobody talks much about their stock portfolio anymore, but we sure do talk about real estate. And no wonder! Broad ownership of real estate is a stated goal of the Bush Administration, and a very successful one at that. It is accepted that home ownership is in general a Good Thing, and I promise to address whether or not it truly is at a later date. However, there is something going on that is not a Good Thing: there are signs that too many people are too heavily leveraged to the housing market.

You may see anecdotal evidence of this in your neighborhood and among people you know. A quarter says you know at least two real estate agents — even if you aren’t in the process of buying a house. Odds are even better that you personally know people who own investment property. And you almost certainly know someone who has either a second mortgage or some kind of special mortgage product that lowers their actual payment to something they can afford to spend every month. At least most of the time.

Now we have people like Paul Krugman telling us that (gulp) it was necessary to create a housing bubble — using the abnormally low interest rates that the Federal Reserve told us would create jobs — to mitigate stock market losses and sustain American spending. Sustaining spending is important because it makes up 2/3 of Gross Domestic Product, the official measure of whether or not the economy is growing and whether or not there is a recession. And there is no question that consumer spending continues to rise. Theoretically, Mr. Krugman points out, this created jobs, or at least meant fewer jobs were lost when the stock bubble burst. Allow me to excerpt a couple of paragraphs, inserting a couple of linked references lest anyone accuse him of misusing statistics:

But although the housing boom has lasted longer than anyone could have imagined, the economy would still be in big trouble if it came to an end. That is, if the hectic pace of home construction were to cool, and consumers were to stop borrowing against their houses, the economy would slow down sharply. If housing prices actually started falling, we’d be looking at a very nasty scene, in which both construction and consumer spending would plunge, pushing the economy right back into recession.

That’s why it’s so ominous to see signs that America’s housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble….

Many home purchases are speculative; the National Association of Realtors estimates that 23 percent of the homes sold last year were bought for investment, not to live in. According to Business Week, 31 percent of new mortgages are interest only, a sign that people are stretching to their financial limits.

Both the New York Times and L.A. Times wonder if maybe — just maybe — there might not be at least regional housing bubbles, regardless of whether they will burst. Although Alan Greenspan says there are signs of regional froth — but no bubble! — he admits that there is “an unsustainable underlying pattern.” This article about how the bubble won’t burst because interest rates aren’t going up points out that the median home price has risen 7% since March.

Remember when 7% was a good annual rate of return?

I am not saying it is time for everyone to sell their houses and find decent apartments. I am saying that you need to seriously reconsider overextending yourself in the name of “owning your own house.”

In closing, a thoughtful piece about healthcare, a not quite as thoughtful study about how our surroundings effect our lives, and Memorial Day: remember our most recently fallen soldiers, battles happening now, and those caught in the crossfire. And don’t forget to remember the women who helped us win the wars of the past, including “Rosie the Riveter.”

Way back when I said that the airport security situation was bad enough that companies were going to increase teleconferencing and corporate jet use. Today, SEC documents confirm it. In fact, “Citigroup and CVS Corp. (Research), which both require their executives to use company transportation at all times — even for personal matters — also cited security concerns as reasons for allowing senior officers to use corporate transportation, the report said.”

These are not small operations. Citigroup is component of 5 different stock indices, including both the DJIA and the S&P 500. CVS is “only” a member of two indices. These are only two companies specifically mentioned as having such a policy. There may be others that were not cited.

There are multiple, large companies that do not want their executives using commercial aircraft for any reason. That’s fascinating.

“For the first time in 14 years, the American workforce has in effect gotten an across-the-board pay cut,” the Los Angeles Times reports, adding that not only are wages rising slower than inflation, but more healthcare costs have been shifted to employees.

Add to this that the tech industry is slashing jobs — you remember, those good paying high tech jobs that we were all told was the future of our economy? Another 60,000 of them went away in the first quarter of 2005 alone. And you can’t blame it all on outsourcing. Part of the problem is “good-enough computing,” a problem (a problem for hardware and software vendors, anyway) where companies simply say “what I have works fine, why do I need more?” Many companies over-bought and over-hired, either in the Y2K buildup or in the Dot-Com boom. They are still working through the hangover capacity. They see no compelling reason to upgrade, no compelling new products that will clearly pay for themselves. They aren’t fixing anything that ain’t broke.

How sad it is that coporate earnings growth is slowing! Why, the S&P 500’s earnings are only expected to rise 9.5% That’s still faster than double the growth of the Gross Domestic Product (GDP) and the Consumer Price Index (CPI, the official inflation rate) combined.

One very big factor contributing to the effective pay cut for the American worker and the “slow” profit growth of American companies and the high price of oil and the record price of gasoline and the record trade deficit is very simply the price of dollars. The United States has allowed the value of dollars to slide sharply over the last 3 years in what I believe to be a giant game of chicken designed to make American goods cheaper overseas, force China to de-link their currency from ours, and (hey as long as we are at it) make a whole lot of money for big oil and oil services companies like Halliburton.

There is the potential for things to get worse. Asian nations have been propping up the dollar, mostly by buying our bonds and financing our debts, because they cannot afford to let their goods get too expensive for Americans to buy. Americans buy a lot of Asian goods, and it would be bad for their economies if we stopped. Imagine if the price of a Honda or Toyota went up 25%. Look around the shelves of any discount store or fashion retailer and imagine if the asian products were 25% more expensive. If Asian products went up 10% in price, you would notice. What happens now — whether the American economy and prospects for the dollar get better or worse — depends on whether or not everybody continues to play the game.

In the end, either they stop the car, we get out of the middle of the road, or everybody gets hurt.