Monday, April 23, 2007

Signs of the Economic Apocalypse, 4-23-07

From Signs of the TimesSigns of the Times:

Gold closed at 695.80 dollars an ounce Friday, up 0.9% from $689.90 at the close of the previous Friday. The dollar closed at 0.7359 euros Friday, down 0.4% from 0.7390 at the previous week’s close. That put the euro at 1.3589 dollars compared to 1.3532 the Friday before. Gold in euros would be 512.03 euros an ounce, up 0.4% from 509.83 for the week. Oil closed at 64.11 dollars a barrel Friday, up 1.1% from $63.41 at the close of the Friday before. Oil in euros would be 47.18 euros a barrel, up 0.7% from 46.86 for the week. The gold/oil ratio closed at 10.85 Friday, down 0.3% from 10.88 at the close of the previous Friday. In U.S. stocks, the Dow Jones Industrial Average closed at a record-high 12,961.98 Friday, up 2.8% from 12,612.13 for the week. The NASDAQ closed at 2,526.39 Friday, up 1.4% from 2,491.94 at the end of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.67% down nine basis points from 4.76 for the week.

The mainstream media was excited last week about U.S. stocks hitting record highs. But what does that tell us? Only that U.S. corporations are getting more efficient at exploiting people. Their stocks go up when they lay people off; it’s that simple. The media presents it as increased profits, but the cause is the same. Note in the following article that higher oil prices caused by political instability in oil-rich Nigeria also boosted stocks. That’s not good news in the real world but it was good news for Exxon-Mobil:

Dow nears 13,000 on strong earnings

Caroline Valetkevitch

Fri Apr 20, 9:46 PM ET

NEW YORK (Reuters) - U.S. stocks jumped on Friday, with the Dow closing at a record high after coming within 35 points of 13,000, as Google Inc. and Caterpillar Inc. joined the list of companies reporting stronger-than-expected quarterly results.

The Dow closed up more than 150 points, while the broader Standard & Poor's 500 index closed at its highest level since September 2000. April was shaping up to be the best month for the Dow and the S&P in just over four years.

Higher oil prices aided the rally, lifting shares of Exxon Mobil Corp. to an all-time high and boosting shares of other energy companies.

Google shares gained 2.3 percent at $482.48, which helped the Nasdaq, after reporting on Thursday after the market close a rise in quarterly profit that easily beat expectations.

"Momentum is clearly in the bull favor," said Joseph Battipaglia, chief investment officer at Ryan Beck & Co, in Philadelphia. "We're in the midst of earnings season. By and large it has come in as expected, and recent economic data keeps suggesting an economy that is slow but not slowing further."

The Dow Jones industrial average rose 153.35 points, or 1.20 percent, to end at 12,961.98, its third straight record close.

The Standard & Poor's 500 Index was up 13.62 points, or 0.93 percent, at 1,484.35. The Nasdaq Composite Index was up 21.04 points, or 0.84 percent, at 2,526.39.

The Dow hit an intraday record high at 12,966.29, and had its best daily percentage gain in a month. The average, which rose 2.8 percent for the week, has closed higher in all but one session so far this month.

On Wednesday, the blue-chip Dow hit its first record since February 20, a week before the global equities sell-off.

For the week, the S&P 500 gained 2.2 percent and Nasdaq rose 1.4 percent. It was the third straight week of gains for all three indexes.

In what analysts say is another bullish sign for the market, the Dow Jones transportation average rose 0.8 percent and hit a lifetime high during the session.

Shares of Caterpillar, a manufacturer of heavy construction and mining equipment, led advances on the Dow, ending up 4.7 percent at $71.82. Caterpillar also raised its outlook and said growth outside of North America would offset weakness in its U.S. housing and truck engine markets.

Crude oil rose on concerns that weekend elections in Nigeria, the world's eighth-largest exporter, could spark turmoil and lead to supply disruptions. Crude for May delivery gained $1.55 to settle at $63.38 a barrel.

Exxon shares rose 3 percent to $79.76, and reached an all-time high of $79.80.
More strong results came from Honeywell International Inc., whose stock rose 4.8 percent to $51.40. The diversified manufacturer reported earnings that beat analysts' estimates.

Among other companies reporting strong results this week were Merrill Lynch & Co. Inc., the world's largest brokerage, and drug maker Schering-Plough Corp.
The Dow Jones utility average hit a record after rising nearly 1 percent, helped by a 2.6 percent gain in shares of Williams Cos. Inc. The index is up 14 percent year-to-date.

Trading was heavy on the New York Stock Exchange, with about 1.94 billion shares changing hands, above last year's estimated daily average of 1.84 billion. On Nasdaq, about 2.14 billion shares traded, above last year's daily average of 2.02 billion. The market had seen below-average volume most of this week.

Advancing stocks outnumbered declining ones by a ratio of about 13 to 4 on the NYSE and by about 2 to 1 on Nasdaq.

The two-tiered, third-world economy continues to emerge in the developed world. That is what high stock prices tell us, because the high stock prices were achieved by cutting high-paying jobs:
Factory Losses Severe for U.S. Workers -- 3.2 Million Jobs Gone Since 2000

Martin Crutsinger

Friday April 20, 3:02 pm ET

WASHINGTON (AP) -- Three weeks ago, Dawn Zimmer became a statistic. Laid off from her job assembling trucks at Freightliner's plant in Portland, Ore., she and 800 of her colleagues joined a long line of U.S. manufacturing workers who have lost jobs in recent years. A total of 3.2 million -- one in six factory jobs -- have disappeared since the start of 2000.

Many people believe those jobs will never come back.

"They are building a multimillion-dollar plant in Mexico and they are going to build the Freightliners down there. They came in and videotaped us at work so they could train the Mexican workers," said Zimmer, 55, who had worked at Freightliner since 1994.

That's the issue for American workers. Many of their jobs are moving overseas, to Mexico and China and elsewhere.

Just ask Tom Riegel.

He worked for 27 years making Pennsylvania House furniture at a factory in Lewisburg, Pa., until the plant shut down in December 2004. The production was moved to a plant in China, which kept making the furniture under the Pennsylvania House label for shipment back to the United States.

Rigel, 48, who has had health problems, hasn't worked since he lost his job running a molding machine. He says his prospects aren't good given the number of other furniture plants in the area that have suffered layoffs.

"It started with just a few pieces of furniture made in China. Then it snowballed," he said. "Manufacturing was built on the back of the American worker and then boom -- one day your job is gone."

Even though manufacturing jobs have been declining, the country is enjoying the lowest average unemployment rates of the past four decades. The reason: the growth in the service industries -- everything from hotel chambermaids to skilled heart surgeons.

Eighty-four percent of Americans in the labor force are employed in service jobs, up from 81 percent in 2000. The sector has added 8.78 million jobs since the beginning of 2000.

Although these workers have been largely sheltered from the global forces that have hit manufacturing, that could change as satellites and fiber optic cable drive down the cost of long-distance communication. Today it is call centers in India and the Philippines but tomorrow many more U.S. jobs could move off shore.

Some economists say the United States is experiencing a normal economic evolution from farms to factories and now to service jobs.

"Every advanced economy has seen its employment in agriculture and manufacturing decline relative to services and America is no exception," said Daniel Griswold, an economist at the Cato Institute, a Washington think tank.

But others note that the loss in manufacturing jobs has been accelerating in recent years as the trade deficit has grown and America imports more and more products that used to be made here.

"It is pretty crystal clear to our members that when their plant closes down, they know where their jobs are going," said Thea Lee, policy director at the AFL-CIO.

Princeton economist Alan Blinder, who was vice chairman of the Federal Reserve during the Clinton administration, says the number of jobs at risk of being shipped out of the country could reach 40 million over the next 10 to 20 years. That would be one out of every three service sector jobs that could be at risk.

Those lost manufacturing jobs are fueling an intense debate over globalization -- the increasing connection of the United States and other economies.

That debate will play out in Congress over the coming months as the Bush administration tries to muster the votes needed to pursue its free-trade policies.

Opponents will seek increased protections for American workers against unfair trade practices and push such proposals as wage insurance and better job training for the victims of globalization.

Democrats, who took control of both the House and Senate in last year's elections, believe up to one-third of those lost manufacturing jobs are the direct result of America's soaring trade deficits, which have hit new records for five straight years.

Last year's deficit was $765.3 billion -- that is, the U.S. imported $765.3 billion more in goods and services than it exported. The imbalance with China hit an all-time high for a single country at $232.5 billion.

In 1943 and 1944, with factories working overtime to build the ships, tanks and planes needed to fight World War II, manufacturing accounted for four out of 10 jobs in the U.S. That was the peak; manufacturing has been declining ever since. Manufacturing now accounts for one job in 10 in the nonfarm work force.

Over the past 16 years, manufacturing has declined as a percentage of the work force in 48 of the 50 states. Nevada's percentage stayed the same and only North Dakota saw an increase.

The declines have been particularly painful in the industrial Midwest and rural South, which have been battered by competition from China.

"China has just exploded on the global scene since 2002. Every economy on the planet has lost jobs to China," says Mark Zandi, chief economist at Moody's, an economic forecasting company.

A Moody's analysis found 16 percent of the nation's 379 metropolitan areas are in recession, reflecting primarily the troubles in manufacturing. There have been heavy job losses in a variety of industries from textiles and apparel to paper and furniture.

Critics contend China uses a variety of unfair trade practices from widespread copyright piracy of American products to keeping its currency undervalued by as much as 40 percent to make Chinese goods cheaper in comparison with U.S. products.

On April 9, the Bush administration, responding to growing political pressure, announced the latest in a string of tough actions against China. It filed trade cases with the World Trade Organization accusing China of erecting unfair barriers to the sale of U.S.-made movies, music and books and rampant copyright piracy.

But Treasury Secretary Henry Paulson and other Bush administration officials argue that despite the yawning U.S.-China trade gap, President Bush's free trade policies are paying off in new markets that have helped U.S. exports boom.
While manufacturing jobs have declined, manufacturing output has been rising. The difference is increased productivity, which means it takes fewer workers to make more goods.

"We are evolving to a point that we are manufacturing things that are not easy to manufacture. That require skills. We believe that is our future. And those are the manufacturing jobs that pay the most," Commerce Secretary Carlos Gutierrez said in an interview.

High-tech industries, where the U.S. is still seen as having the edge, include pharmaceuticals, medical devices and airplanes.

But even high-tech industries are facing pressure from imports. The U.S. Business and Industry Council, which represents small- and medium-sized manufacturing companies, found that between 1997 and 2005, 110 of the 114 U.S. industries it studied had lost ground to imports in the U.S. market. That was the case even in such sectors as computers and telecommunications hardware.

Just the threat of moving high-paying white collar jobs such as computer programmers and graphic designers offshore will likely add to pressures on Congress to erect barriers to global competition, which many economists believe would do more damage than good.

"It is easy to see this turning into some kind of protectionist force which would be harmful," Blinder said in an interview. "We need to turn the debate in a constructive direction -- how do you prepare the work force of the future and compensate the losers?"

The result being:

Super-rich population surges in 2006: survey

Tue Apr 17, 2007 1:53 PM ET

NEW YORK (Reuters) - The number of U.S. households with a net worth of more than $5 million, excluding their primary residence, surged 23 percent to surpass one million for the first time in 2006, according to a survey released on Tuesday.

The survey by Chicago-based Spectrem Group found that the number of U.S. households with more than $5 million rose from 930,000 in 2005. In 1996, there were only 250,000 U.S. households in the "ultra-rich" category, Spectrem said.

"The past few years have been nothing but astounding for wealthy Americans," said Catherine McBreen, managing director of Spectrem, a consulting group that researches the affluent and retirement markets.

McBreen said the surge in household growth is underpinned by economic growth in recent years, which has fueled both stock market gains and also the market for private companies. She also ascribed gains to rising real estate valuations and favorable tax policies.

"The wealthiest households are the business owners," said McBreen. She also said broader ownership of stocks has helped overall household wealth.

The survey found that U.S. households that are merely wealthy, defined as having assets of more than $500,000 excluding primary residence, rose 9 percent to 15.3 million in 2006 from the year before.

The findings are based on U.S. census data, a July 2006 mail and online survey of 526 U.S. households, and 3,000 telephone interviews throughout 2006.

As for the real economy of your average person, that continues to get worse in the U.S. with more evidence of increased mortgage defaults and house foreclosures. Foreclosures rose 400% in Boston compared to a year ago. Mortgate default notices (the stage before foreclosure) are up almost 150% in California from a year ago

Where is all this leading us?
The unstructured 21st Century

Martin Hutchinson

April 16, 2007

The decline of established institutions is supposed to be a liberating process, allowing individuals to express themselves fully and society to reach its potential through temporary structures that express its needs and values at a given time. Yet for those of us who are not 28 year old hedge fund traders, the new unstructured world seems likely to be a pretty grim place. “If you want a friend, get a dog” is in the long run an unpleasant way to live life.

The public sector in this respect is less of a problem than the private. The IMF and the World Bank have lost their useful economic role (to the extent they ever had one) but it appears unlikely that they will ever be abolished. The World Bank in particular is currently going through a bout of questioning because of its president Paul Wolfowitz’s crusade against Third World corruption. This is an entirely worthy if unpopular cause that is marred by the World Bank’s arrogance in tying it to handouts of money and by Wolfowitz’s own activity in arranging an overpaid tax-free job for his mistress.

…The World Bank represents one extreme, that of a public sector bureaucracy that has become hopelessly ossified yet is unable to be put out of its misery (no international bureaucracy of this type has ever been eliminated – at best it has been replaced with another bureaucracy performing many of the same functions.) At the opposite extreme, the private sector is currently eliminating large corporate bureaucracies at the rate of four or five a week. It is the latter problem that appears more urgent.

Most people do not have the ability to turn on a dime that is required when their job is suddenly eliminated. Instead they must struggle to find further employment that may well not be as well paid or comfortable as the job that disappeared. The alternative of entrepreneurship, so alluring in principle, is in reality for 90% of the people who try it a recipe for anxiety, poverty and remuneration far below what is appropriate for their services.

It is not at present clear whether this is a phenomenon due to excessive cheap money since 1995 – but if it is, it has been remarkably prolonged – or whether the 21st century will see the death of the large corporation and its replacement by rapidly shifting aggregates of capital seeking to maximize returns. It’s worth considering for a moment what in the latter case the world of say 2030 might look like.

In terms of income distribution, there would be a small elite of very rich people, managing hedge funds and private equity funds, whose reach would be worldwide. In theory, these would be the best and brightest of each generation, a true meritocracy. In practice, judging by hedge fund management’s current practices as well as by what appears to be acceptable in a World Bank president, nepotism and favoritism would be rife. The Funds’ resources would be raised from passive investor sources, notably in the pension and insurance sectors, but they would be wholly under the control of the Fund management elite.

As well as the truly rich who ran the Funds two penumbras would exist. One would be the gilded youth, chosen by the Fund elite as their minions and eventual successors, who would be paid superbly, but would have to abandon both their integrity and all semblance of a life outside their Fund in order to qualify for their largesse.

The other would be the managers employed by the Funds to asset-strip the companies they bought. These would be tough operators, probably military-trained, whose job would be to overcome the hostility of the masses whose lives they destroyed. Inevitably bomb threats and assassination attempts would be an accepted part of their existence. Their sole goal would be to extract “value” from the assets they oversaw, rather than to produce any operating improvements. They would be less well paid than the titans of the Funds, and would serve at their pleasure, but would still be hugely richer than everyone else.

There would be completely free migration around the globe, since the Fund titans would have paid off politicians to ensure that all barriers were removed, whatever the wishes of the electorate. In this way, labor would always be available at the lowest possible cost to carry out the Fund managers’ wishes. This free movement of labor and utilization of the near-infinite pool of Third World cheap manpower would be the most important weapon enabling Fund managers to “extract value” from all situations, breaking up or squeezing out any activities whose operating managers and staff appeared to be building a Fund-proof alternative power nexus.

Job security would be something that little people didn’t enjoy. Jobs would be available in most specialties, and career ladders would be dangled before the proletariat to ensure docility and hard work, but jobs would be terminable at a moment’s notice. They would be vulnerable to asset-stripping, when Fund managers wished to loot the operation for which you worked, to outsourcing, when the Funds found a cheaper source of labor for the work you did and to office politics, when the Funds or their tame top corporate managers decided you were subversive or they didn’t like your face. Once you lost your job, you might if lucky be able to find another in the same specialty, albeit probably worse paid, but most probably you would have to retrain expensively for whatever new specialty had become fashionable in the years since your last redundancy.

Naturally the masses would need to be kept in a state of passive discontent rather than outright rebellion, in spite of their modest living standards and lack of prospects. The Fund managers and their political allies would have a number of ways to achieve this.

The government would be large, supported primarily by taxing the labor force (the Fund titans would not pay taxes, like the Russian mafia and foreign bankers in today’s London.) As well as providing innumerable reasonably paid near-sinecures, the government would also provide social security and healthcare, available to all but revocable at the pleasure of the bureaucracy so that control could be maintained. Government economic statistics would be tailored to the Fund managers’ needs, disseminated by the Fund-controlled media so efficiently that any minion who attempted to disbelieve their universally sunny data would be unable to propagate his subversive opinions. Elections would be held, but only candidates acceptable to the Funds would get adequate campaign financing and access to the Fund-controlled media.

Internationally, an immensely powerful World Bank, supported by the West’s taxpayers but controlled by the Funds, would provide handouts for Third World governments to keep them in line with the Funds’ worldview and to ensure that sufficient labor was adequately educated and available for the Funds’ needs. Cooperating governments would find their people’s living standards modestly improving, and their leaders would be directly rewarded in person by Fund-controlled think tanks or the World Bank. If there were governments that refused to cooperate, they would be largely cut off from international trade and investment and World Bank subsidies. Military force would be controlled by the United Nations and other international bureaucracies, which would themselves be controlled by subsidies from the Funds and the World Bank.

Don’t like this future? Recognize aspects of it already appearing? Well then, pray that the present period of easy money and rapid-fire private equity acquisitions ends quickly. In that way a healthy recession will allow normal economic and democratic forces to retake control of the world economy, removing the more egregious capitalist cowboys to the jail cells where they belong.

Otherwise, every month of rising stock prices and negative real interest rates will increase the control of the Fund managers and lock the new dystopia more irremovably into place.

Hmm… a “healthy recession” would prevent this. Maybe that’s why we haven’t had one yet.


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