Category: Markets, Business, and the Economy

A lot has been said today over the fact that the United States economy lost over half a million jobs in November, the job “creation” numbers since 1974.  This brings the 2008 job loss figures to 1,900,000 and counting, almost 2/3 of that in the last 3 months. As alarming as these figures are, they don’t tell the whole story. First, as Dave Johnson points out, all those people who were classified as “contractors” didn’t count when the work went away.  A couple more very sobering figures are pointed out by Robert Reich:  the typical workweek has shrunk to 33.5 hours, the shortest since all those baby boomers got part time after school jobs; and the economy still needs 125,000 new jobs every month just to keep up with newcomers. Economists disagree on this exact figure — some say 150,000 and some even insist it’s more like 200,000. 

So the actual unemployment number is a lot worse than will be reported. Not only are more people working fewer hours than since the Johnson Administration, more people are [not] working as “independent contractors”, and people who didn’t have a job won’t be getting one.

When you add the people who never were employed (125,000 x 11 = 1,375,000, I’ll use Mr. Reich’s conservative number) to the people whose jobs evaporated (1,900,000), our economy is short a minimum of 3.27 million jobs.  This year alone.  Not including December.  Not counting the contractors. Not accounting for the people who are working part time who would like to be working full time. 

No wonder 10% of homeowners are behind on the mortgage.  

Here’s some bonus automotive items:  the unions will give up the 85% pay they currently get while laid off (wouldn’t that be nice); Firedoglake on subsidies; maybe they can fix too big to fail by merging and being even bigger (aw gee, 3 failing companies made into one big failing company? How can it lose?); Carrie on modern electric cars; BradBlog asks about the EV-1; and I really wish I could find online yesterday’s interview of Mr. Nardelli by Maria Bartiromo. She verbally eviscerates him and his company. 

In closing: maybe it’s a good idea to find out what real people want out of health care [insurance] reform; and In-laws in the [White] House!

At this time, today’s range on the DJIA has been 7882.51 – 8687.11 according to Yahoo Finance. If you panicked last night and put in a market sell order, that order executed at or near the bottom.  On the other hand, if your order didn’t go in until after 10 AM Eastern, that order executed much closer to the top of today’s range.

If you are going to pick stocks, I have an ironclad rule for you.  Never ever place a market order for a stock that is not currently open for trading. Why?  Because you have no idea what that stock will be trading for when it opens, and you have no control over what price you will pay/receive.  If your schedule dictates that you must place your orders outside of trading hours, learn to use stop and limit orders, and use them every time you trade. You may pay a slightly higher transaction fee, but you might save your transaction!

Seriously.

In closing: some thoughts to get you through a tough day; the TSA proposes killing business travel altogether screening private plane passengers too (how do they think they are going to pull that off at the kind of airports such flights generally use?); and fix the credit problem, let the pesky symptoms take care of themselves.

A couple weeks ago, I (privately) said that if the Dow punched through 10,000, there was absolutely nothing stopping it from going down to about 8600. And we’ve now dropped below 8600.  I was thinking of more-or-less a 20 year chart.  If we go higher from here, I think it will head right back to the mid 10k range.  If it goes lower, something around 7500.  In the extremely unlikely possibility that the Dow should break below about 7300, there is absolutely nothing stopping it before 4000. However, that would require financial carnage including complete collapse of Dow components — without Dow Jones changing the rules by subbing a more viable player.

By way of disclaimer, this is not financial advice.  My ideas are little more than the office football pool of the stock market.

In closing: why did it take two months to arrest this drunken nutcase?; if you are still somehow confused about the candidate’s issues, MahaBarbara has links for you; support your local animal shelter; the Treasury Department is considering taking an “ownership stake” in banks, and the thing that bothers me is that they even want to own a peice of healthy banks (um yeah, which party are the “socialists” again?); and a couple things about illegal immigration. Now on one hand, I don’t know what to make of these big public raids.  Can you prove you are a citizen with stuff you normally keep in your pockets?  More to the point, they never seem to arrest any company officials who hire these illegal workers.  And it is true that legal immigration is a broken system that needs fixing — and temporarily doubling the INS staff to work backlog if necessary. But what we will find if we are able to get that done is that the employers who are currently “forced” to hire illegal workers will continue to find cheap, easily exploited sources of labor until such time as they are held accountable to laws already on the books.

Goodnight!

My rundown is over at my business site.

Month-end retrospective for September 2003-2007: Why Johnny Can’t Make Ends Meet; Renters Need Not Apply; Black Hearts, Blackwater;  Last Call to register to vote — it’s getting to be that time again; Moneyectomy is unfortunately both timely and dated (will we ever see $2/gal unleaded again?); another everything old is new again post, Japanese Economics Lesson; and How To Keep A Job.

Ok.  I have read a whole lot of commentary on the Big Bailout Bill of 2008.  I have been hearing a lot for the last day or so that “the root problem is that real estate prices are going down.”

That is bogus. Since we can legitimately add “because” to the end of that theory and have things to put there, it cannot be the root cause.  Root causes by definition are not results of something else.

“Real estate prices” (by which I am meaning “housing prices”) are going down for two main reasons:  first, prices went up too fast earlier in the decade and we are “reverting to the old trendline” — going down to where things would be if prices had appreciated at normal levels instead of silly bubble levels; second, a combination of stagnant wages and effectively non-existent job growth means that Joe and Jane Average can no longer afford to purchase real estate, and in certain cases can no longer afford payments on real estate they purchased in happier times.  More on the economic pressures faced by Joe and Jane from a little place just outside Hooterville.  More on unemployment rates on a state-by-state from the Economic Policy Institute, and remember these are official government figures that do leave out certain classes of the jobless.

The only reason Joe and Jane were able to buy through most of the decade is inovative mortgage products designed to make them think it was affordable when it was not.  The reasons Joe and Jane wanted to play were that they feared being priced out of the market, they thought it was an investment that would only rise in value, they thought surely their financial situation would improve, they didn’t understand the implications of their creative mortgage product, they kept being told how many benefits there were to owning their own home. See also:  Fannie Mae Wants You to Own a House.

I don’t see anything in any of the various financial disaster averting proposals that does a darn thing to fix those causes of the “root cause”.

In closing: Stonehenge is older that we thought; State of the Blogosphere; speaking of functional (or non-functional) financial markets, Expert Ezra on the Insurance Markets; MahaBarbara on abortion in the world; they’ve been singing professionally for 50 years, The Peanuts are perhaps better known in the West as the Mothra Twins; and the problem with optimism.  I hope to have something posted on BridgetMagnus.com about the state of the housing market in general later today. In the meantime, my top post is about an old solution to high housing prices.

Maybe you didn’t notice, but this weekend’s bank failure is Ameribank.  Usual caveats: if you have any business with them whatsoever you’ll need to make a bunch of phone calls in the morning.

So then the $700,000,000,000 bailout plan. Yesterday a lot of people spent most of the day trying to figure out what it meant.  It seems that these are the points to remember:

That $700 thousand million is a minimum number.  Some people say the minimum this plan will take is more like a trillion — a Million Million Dollars.

It will set up an entire government agency.  I suppose that will at least create some jobs, and maybe some of them won’t be given on the basis of party loyalty.

The dealings of that agency will not be transparent, and the agency will only answer to the Secretary of the Treasury. He’s from the government.  Trust him.  Right.

It still won’t help all the lending institutuions — without whom Joe and Jane Average can’t get mortgages or other credit, at all. Yes, hold your nose, but we can’t fix Joe and Jane’s problems without fixing Megabankcorp’s problems.

It is theoretically modeled on the RTC, which did its job and disbanded.  This agency has an initial budget almost 12 times the initial budget of the RTC.

The agency will NOT be limited to purchasing AMERICAN assets, and helping AMERICAN taxpayers.

Nor will the agency be limited to residential properties;  it will also bail out commercial developments.  As a proud Las Vegas resident, I should probably consider it a good thing that they are willing to buy out some of our temporary overdevelopment!

Some smart economists can’t figure out why this is supposed to work, and have already started trying to figure out who is going to profit out of the deal.

The whole darn thing is only 3 pages long — how can you create an entire government agency and fix the economy in 3 pages? —  but it includes raising the ceiling on the national debt to $11.3 million million.

Even with everything that is known, there are still huge, huge questions left to be answered.

So there you go.

In closing: Other ways to enjoy The Wizard of Oz; on Young Adult Literature; we’ll miss Amy (don’t let the new show suck!); the free markets worked so well in banking, let’s do the same thing to health insurance; and somebody doing something about the furry victims of foreclosure. Holy cow, I realize that times are tough, but abandoning a family member, just because they can?  I can only imagine the horrible things running through the kids’ minds.

The SEC has temporarily banned short selling of 799 financial stocks.

Maybe you don’t know what short selling is.  Here’s the funny explanation first:

Now here’s the not so funny explanation.

Essentially, buying a stock is betting the price will go up.  Short selling is selling shares you don’t actually have, betting the price will go down, and you can “buy to cover” later. One thing to remember:  when you buy, you can only lose as much as you spent but your gains are theoretically limitless;  when you sell short, you can lose a theoretically infinite amount of money, but your gains are limited.  This is not a strategy for Joe and Jane Average.

It remains to be seen whether this will actually help the financial stocks in question.  Some people do think it’s a bad idea and there were other ways to solve the problem.

As I write, the bell is sounding at the New York Stock Exchange, officially ending the trading day on the floor.  Electronic trading continues, and other trading floors in other time zones remain open.

What’s gonna blow up next?

Bear Stearns.  IndyMac.  A score of small and medium sized banks.  Fannie and Freddie.  Lehman Brothers.  All gone.

The latest financial disaster was just yesterday:  AIG was saved by a huge government loan that will leave the company almost 4/5 owned by the Feds. Elrod did a great job of outlining it, so I won’t linger too long. Remember, as an insurance company, AIG is obligated by state laws to have reserves to cover claims.  This being the case, I actually have great confidence that the loans will be repaid.  Oh, and the New Boss — Uncle Sam — is insisting that a bunch of things be sold off to make sure of it!

And that brings me to an interesting point:  this is the second time in 2 weeks that we have heard a financial institution described as “too big to fail” — so big that allowing them to go out of business would have too big a negative impact on too many innocent people.  The phrase was used in the Fannie/Freddie mess, and it’s back like bad lunchmeat.

Too big to fail should be the same thing as too big to exist. I mean it.

Once you discount people who have had far too much Kool-Aid, it is clear to just about everyone sane that our current economy sucks. Oil and gold are jumping again, stocks are plummeting.  As a bit of a side-note, funny how fast oil slid back under $100 per barrel as Lehman collapsed!  And frankly, as I read the chart, I would not be surprised by a slide under 10,000 points, perhaps to 8600.  Add to that the fact that there are more than twice as many job-seekers as jobs for them, even assuming the jobs available matched the skills and needs of the people who need work.

In spite of all this, the Fed did not cut rates yesterday. They can’t! When the Fed looks at the prices we see at the pump and in the grocery store, they can’t pretend there is no inflation. And there may also be some realization that super-low rates, rates below some magic level nobody knows, only theoretically stimulate the economy.  But they can’t say either of those things in public yet.  Right now, they have to fall back on the idea that “if the problem with America’s financial institutions islack of liquidity, then making lending into a money-loser is not the answer.”

The deathwatch for WaMu is already underway.  Remember, I expect Wells Fargo to be toast as well.  I wonder if either of them is “too big to fail.”

In closing: Nihon no neko!  Cute kittens, no translation required;  pie chart of contributors to the budget deficit;  it’s even expensive to apply to medical school;  a really good item on the current state of political thinking; pro-choice is pro-life; vintage photos of geisha and maiko (apprentice geisha); someone else gives Howard Dean some love; for an American company, GM isn’t acting like it (granted, you can see Canada from their headquarters… Does that make them foriegn policy experts?); McCain blames his computer illiteracy on — wait for it! — he was a POW! If he can’t even comb his own hair, can he really run the country?; focus on the critical issues; and Happy Constitution Day.

Let’s get all these economic stories out in one place so we can look at them as a whole.

Economist’s View has charts showing that even as the economy has grown, the American worker has gotten very little out of it.

CNN tells us that there is “no jobs turnaround on [the] horizon“, and that was before Friday’s abysmal numbers. At that point, the Department of Labor had admitted that our economy has lost 463,000 this year through July. Then the August numbers came in and “deflate[d] Wall Street“.  It has officially gotten to the point where the official statistics can no longer hide unemployment:  August’s loss of 84,000 brings our unemployment rate to a 5 year high of 6.1%, and once you include “marginally attached workers”, real unemployment is over 10%. That’s a huge jump, and makes many economists think this has to be a recession. Some economists are making fun of other economists who say it’s not here yet.

There’s a lot of chatter about how much, in what manner, and why the official stats are manipulated and whether that’s actually a good thing.

I am not the only one trying to put everything in one place.  Here’s Citizen Carrie and Cogitamus’s Sir Charles (Cogitamus is Latin… should that be Cogitami?).  Robert Reich falls back on an old line to describe the big picture:  It’s the economy, stupid.

I haven’t even gotten to the ballooning of the FDIC watchlist, nor the expected Federal takeover of Fannie and Freddie (more on that over at BridgetMagnus.com).

In closing: hurricane tracking website; on private contractors in Iraq; crashing a motorcycle going 239 MPH is certain death, but what a way to go; what were you wearing in 1977; Happy Birthday Little Prince.

A lot has been made of the latest GAO study showing that more than 2 out of every 3 businesses in the United States pay no business Income Tax.  Heck, my kneejerk reaction was that they created AMT over 155 high-income individuals who managed to pay no taxes, yet 2/3 of businesses got away tax-free?

Well, then I got to looking at the story.

First, let me review a couple of accounting and tax terms.  Gross Income, Revenue, and Sales are terms that describe all the money coming in, before expenses.  Deductions are things the IRS lets all of us — individuals and businesses alike — take out of our income.  Expenses are the cost of doing business;  individuals can’t deduct their expenses, but businesses can deduct a lot of expenses (including money paid to employees, rent, cost of goods for sale, etc.). Net income or profit equals Revenue Minus Deductions. If you want to know way too much about the kinds of things businesses can deduct, the IRS publications 334 and 535 are just the beginning.  For now, Revenue – Deductions = Income is all we need to remember.

Just like us, and many people forget this basic fact, corporations and individuals only pay income taxes on income. You have deductions, even if it’s just the standard deduction and your allowed exemptions;  so do businesses. Just because somebody sold a lot of product doesn’t mean they made a lot of money.  There’s the cost of making or buying the product.  There’s the cost of the employees.  There’s insurance premiums. There’s shipping. Advertising. Accountants and Lawyers. Permits and licenses.  Some of these, you can take advantage of too — if you have enough deductions to make itemizing a good idea.  You can even deduct the cost of TurboTax on your taxes!

But I digress.  Just because these businesses took in money doesn’t mean they made money.  They might have lost money!

Another factor in play is that the majority of American businesses are in fact small businesses. The CNN article referenced above points out “Generally, many small firms, because they do not have shareholders, are able to shift corporate income to individual income.”  So instead of paying a corporate income tax, they file a Schedule C with their regular 1040.   They aren’t getting out of paying taxes, they’re just using a different form.

And the last thing I want to say about this is that just because a company (or individual) isn’t paying income tax doesn’t mean they aren’t paying any taxes. They still have business licenses and regulatory fees;  they still may pay sales tax on many items; they still pay property taxes;  if they have employees, they pay withholding taxes and Social Security taxes and Unemployment Insurance taxes; in some states they have taxes on gross revenue to pay.  All those taxes, by the way, are tax deductible for Federal purposes.

As an aside, I would like to address the idea of a windfall profits tax on oil companies. Critics say that this would result in oil companies deliberately bringing less petroleum to market, making oil and gasoline prices worse, since paying taxes is far worse than making money.  I disagree.  The title says it all:  windfall profits tax.  Oil companies can get out of paying it by simply making less money, spending more money on things like exploration and building refineries — activities that would incidentally help the economy and bring down fuel prices. In fact, the actual Senate bill defeated earlier this summer “would create a 25 percent windfall profits tax on companies that don’t invest in renewable fuels or electricity production.”

In closing: disaster tourism (of course you could see Pripyat much cheaper and more safely by playing Call of Duty 4;  Yes, we are having a recession; awwww, it’s a problem to untangle air traffic across the freaking nation by having planes fly over a really swank neighborhood at 6000 feet; parental consent for abortion laws don’t work and destroy lives; the last word on the Teen Mom Pact (if only!);  it turns out that the “OMG teh complications!” argument against Gardisil doesn’t work, because Gardasil has half the complication rate of most of the vaccines we line our kids up to take (what part of “would I rather give my daughter a shot or possibly watch her die of cancer?” is hard?); good thing NPR is radio, because the photo undermines the message; how the heck did Rachel Ray get to be a top earning chef?; Yes, Social Security will be paying out for years to come; and no surprise, Americans are driving less.