Wednesday, August 25, 2010

Don't tell me that's warm rain

Yesterday’s report on existing home sales showed the worst numbers in forty years that they have been tracking them, today’s Commerce Department figures for new home sales were the worst in the fifty years that they have been tracked. For July new home sales fell nearly 33% from last year and 2009 was not a stellar year. The drop from the previous month was 12% and again this compared to the previous bad month. This is even worse than yesterday’s news because new home sales are linked to far more jobs in construction, building materials and durable goods like appliances.

A disturbing point on this is that the poll Reuters did of economists had predicted there would be no change. These are the guys that are influencing the policy makers in government and business and it seems that every news piece mentions how wrong they were.

Durable goods showed 0.3% growth but those whacky economists had predicted a 2.8% gain. Remember these economists’ predictions that are quoted are poll number averages, some predictions were even further off. If you exclude aircraft and automobiles the numbers were all very bad, off almost 4% on average with machine orders off 8%. Machine orders, as in manufacturing jobs.

Whirlpool that became the world’s largest appliance maker after absorbing Maytag and then closing its union plants is exporting 400 more jobs to Mexico in October. Whirlpool shares are trading higher today with futures contracts particularly active creating the rumor that the price will spike still higher. Don’t mind that the stock market could head south anytime.

Some pundits are predicting a DOW at 5000 and wild fluctuations for many years to come. The likely bottom based on past market swings during even minor recessions since the last Depression has been 25% of the asset replacement value. This theory is also known as Tobin’s Q ratio (Tobin won a Nobel prize). The real value of the DOW is around 6000 points based on a Q ratio of 1 to 1. So the real bottom, if the theory holds is 1500 but that’s based on past numbers and we don’t live in that world anymore.
In the last century, the American Century, American factories made things, Americans built houses and sent their kids to college. Eggs came from farms and not from factories. Americans shopped at the stores on main street where they sold things that Americans made. That was the century Professor Tobin lived in.

The neo-cons say we are living in the New American Century and if we just cut taxes for the rich some more they’ll show us what that is really like. After all the rich will spend that money, it will then trickle down to the rest of us and we’ll all be rich. The first thing the rich will buy is some new Whirlpool appliances from Mexico. Do you feel a warm trickle running down your back too?


SanMigMike said...

Wall Street runs on rumors and fairy tales. The "value" of a stock has nothing to do with the real value of a company or indeed how it might do in the future.

I can recall several years ago a guy running a container company (making bottles and cans) complaining about how the stock market viewed his company. Years and years of profit. Management working to prepare for the future. A company that had a big chunk of the container market and had worked hard to make it reasonable to think that it would continue to do well. But the stock price stunk. The "made" things and not sexy things. Much better to invest in AIRLINES! Take a look at the long term track record of airlines...

So what Wall Street wants is sexy companies that somehow make fantastic price swings in a positive direction in stock prices...the real value of a company means nothing anymore. Making a "profit"? Not really required. Providing a needed service or good? How silly and old fashioned. Treating the workers fairly and sharing the success if there is any. Bad new for the Wall Street boys. Treating workers like s---- means your stock has a good chance of going up... Treating workers good and sharing the wealth is a great way to have your stock go down.

Simple. Good for Wall Street is BAD for 99% of Americans.

The Neo-Cons are wrong. The American Century started about 1914 to about 1918. We have no more than eight years to go and I am not sure we are going to make that (since we don't make all that much any more why should it be any surprise that we don't "make" a full American Century?).

Both parties are going to be telling us something wet and yellow is rain but we will get more than a few more buckets of it as we keep doing Republican policies. I'd like to believe in the "basic and fundamental strengths" of the American economy but I think we started dumping those about the year Reagan got into office and nothing has been done to stop or even slow that dumping of those qualities that made America special.