My View: on current events
September 11, 2001: A Time to Reflect and Honor the Memory and the Heroes
September 11, 2001 is a day all Americans and most of the world citizenry will always remember. It was a day when the world as we knew it changed. It was the day when international terrorism breached our shores. We had been through homegrown terrorism with theOklahoma City bombing in 1995. And, in 1993 the same brand of terrorism that leveled the Twin Towers touched America when a van packed with explosives was detonated in the underground parking garage of the Twin Towers.
The horrific events of that day – the use of airplanes as suicide/murder weapons – physically touched us at the Pentagon, the Twin Towers in New York, and, due to true American heroes, in a field in Pennsylvania. However, the pain was shared by all Americans, and all world citizens who believe in civil society with laws and established, non-violent, ways to express one’s disagreement with decisions.
We were reminded just a few months ago of the inability to function by civil laws when Congresswoman Gifford’s was the target of an attacker, an American, and a number of bystanders were murdered including a nine year old girl who came to hear the Congresswoman speak because she had a child’s curiosity for how our political system of representative government- by the people and for the people- worked.
The changes that have occurred are worldwide, fraught with an unsettling sense- a true sense- that we are never going back to the “good old days”. Just think of flying in 2000 verse your airport experience today. The changes have been unbelievably costly in terms of dollars. The actual cost of the wars in Afghanistan and Iraq are in excess of one trillion dollars. The ongoing health care costs for the First Responders, the new security measures in place in America, have been costed out at $3.3 trillion dollars. (N.Y. Times) Imagine how else those funds may have been put to work, or not been spent at all.
However, that train of thought is off the tracks.
Today is a day to remember; those who were killed by the terrorist attacks; those who died trying to help those under attack, like the fire and police personnel in New York; those who are physically and psychologically suffering from the attacks. It is time to honor their memory, their heroism and to do so by American traditions of being charitable, of observances of many types, and of respect for our Democracy and our system of laws and non-violent ways to make known our grievances and seek redress for them.
Required Disclaimer: The opinions expressed are those of Brian S. Orol and not necessarily those of Raymond James or RJFS
My View: The Credit Rating Agencies, Arithmetic and the Media
As everyone knows on August 2, 2011 Standard & Poors, one of the three most recognizable credit rating agencies, (their are eight the U.S. Gov’t has given “official” status to), downgraded the US Gov’t Debt from AAA to AA+ “On political risks and rising debt burdens”. (The quotations are directly from the S&P Website) Let’s take a step back and analyze this by way of the facts: 1. This was the first time ever that the US lost our AAA credit rating 2. When S&P notified the US Treasury one day prior to the public announcement and Treasury reviewed the debt numbers employed by S&P they caught a 2 Trillion dollar error. (My second grade teacher taught me to “always check your homework and test questions before handing them in”; It appears S&P was absent on that day.) 3. When the Treasury pointed out this “minor error” S&P did what comes naturally to most people - they looked for another reason to justify their conclusion- never mind the facts, the arithmetical error, or admitting they goofed and would have to revisit their analysis prior to issuing their announcement - with all of its ramifications. 4. No, S&P is not a candidate for political office nor a talk show host- although their logic of making the facts agree with their conclusion would make them excel at either of those occupations 5. Wait- isn’t this the same S&P that rated baskets of mortgages that were comprised of a slice of Treasuries and a non-conforming (High Risk) mortgages AAA? These mortgages proceeded to default in record numbers. As a follow-up S&P and other rating agencies have been found not liable in numerous law suits dealing with the AAA mortgage issue. The Courts have ruled that S&P offers advice and guidance but is not accountable for actual performance (default) of these mortgages. Final thoughts: OK, I think I get this. S&P issued questionable ratings in 2007 and 2008 of AAA on investment baskets mixed with US Treasuries and High Risk Mortgages. When these imploded S&P was found not accountable financially by the Courts based on the logic that they ONLY issued an opinion. ( Isn’t this their job and what they get paid to do ?) Fast forward to August 2, 2011 when S&P downgrades those same US Treasuries to AA+. The Markets globally lose value. The two questions that need rational pondering: Does S&P lose any credibility ? How much are we able to relay on their opinions ? Required Disclaimer: The information contained in this report does not purport to be a complete descriptions of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Brian S. Orol and not necessarily those of RJFS or Raymond James. Good evening. Today stocks continued their downward streak and the indexes *(an index such as the S&P 500 cannot be directly invested in and is only used for an example) are now slightly below their opening values on January 1, 2011. Please be assured I am monitoring this situation closely and am always available to talk to either in phone or in person about your concerns and questions. Now here is my in depth - and lengthy - view of how we got here and what may be on our horizon: This downtrend may indeed continue in this direction for a ways as the following challenging conditions exist in many economies around the world: Slow growth In the US our economy has historically been led out of recessions- both mild and severe- by low interest rates coupled with either a housing boom or a war. Today we are trying to disengage from two wars- of which neither were counted as part of our spending/budget for their first eight years- (in other words the billions we as taxpayers have spent funding the wars in Afghanistan and Iraq were simply not counted as part of our national budget from 2002-2009); and housing is looking akin to Rip Van Winkle (asleep for a number of years). This has caused unemployment to stay high. During the Great Recession 2007-2009 the US lost millions of jobs that are not potentially coming back. To add detail we have lost manufacturing jobs since 1990, and although there has been a recent resurgence due to rising wages in China which now make it competitive to manufacture certain products here verses overseas, we have a smaller manufacturing job base today than years ago. Slow GDP growth: this is quite logical to understand. From 1967-2007 America witnessed a sea change in our buying vs. savings habits. We became a nation whose growth was funded by credit. Millions of Americans grasped at the Golden Ring of buying today and paying later, much later. A record number of Americans declared bankruptcy but the credit culture did not abate. During the housing boom in the 1980's home equity lines were extended by banks for anything and everything, but only rarely used toward one's home. Fast forward to 2007-2008. The housing market experienced its faster rise in values ever seen and mortgages were given to many individuals who had no chance of repaying them. This house of cards collapsed, the economy went into reverse, foreclosures were - and still are- on a record annual pace and- maybe the change felt the most- the spiked credit punchbowl was taken away. This- in the long run- is a very positive change. However, its immediate impact was a huge slowdown in purchases of everything except essentials. Even the essentials- like grocery shopping- saw a shift to store brands and away from pricier brands. This is somewhat analogous to a car going from zero-to sixty in just a few seconds. Again, a positive development for us as a country, but a painful transition to get there. Our GDP is comprised of about 70% consumer spending and 30% business spending. So, the path to our current slow GDP is easy. The only surprise is that analysts and economists are surprised. Here are the easy steps to follow: High unemployment makes consumers wary to spend on any "wants" verses "needs" The spiked credit bowl (spiked for those extended credit who had not shown they were good credit worthy risks) has been taken away Housing values are lower than 2007, often by 20-30%- so home equity lines are smaller, if even available Savings rate at 5% is the highest in our country in years So, if the consumer makes up 70% of GDP and the consumer is spending less for all of the reasons detailed above- the result is a significantly slower GDP. Perhaps in the range of 1-2% annually. This rate of GDP growth does not, historically, create jobs so unemployment will potentially stay high, perhaps 8%. And then the budget deficit or better put our national debt: Facts: in the late 1990's the US ran a budget surplus. The last year of surplus was 2000. There is a clear non-political line that shows an annual budget deficit kicking back in when the tax cuts started in 2001. The deficits - and our national debt- grew dramatically when we responded correctly after The Twin Towers were destroyed on September 11, 2001 and went to war in Afghanistan. However, the tax cuts on their own continued to increase our deficit- and national debt. When we went to war in Iraq our deficits-and national debt- started to spiral out of control. In 2008 - in the early stages of the Great Recession and the worldwide panic- we added additional spending- to help slow the recession without any consummate increase in revenue. In 2009 we added another large swath of spending without additional revenue- which added to our annual budget deficit and national debt. Lastly, ineffective leadership: most political leaders are well intentioned when they start down their economic policy path. However, they are almost uniformly ineffective and seem to lose the ability to consider clearly foreseeable long term consequences of their actions. Expediency rules the day. President Reagan - inherited an economy in a coma. He reinvigorated it with a combination of tax cuts and gov't spending. However, when the gov't spending continued to increase he did not either slow spending or increase taxes, and a deficit budget was the result. President Clinton - oversaw a robust economy and produced budget surpluses. However, he greatly expanded the scope and mandate of Fannie Mae and Freddie Mac and thus began the early stages of the unsustainable housing boom and the increasing issuing of gov't backed mortgages and the refinancing splurge were both underway to our long term detriment. President Bush- oversaw large tax cuts, a decrease in the number of jobs from 2000-2008, a reduced inflation- adjusted wage for millions of Americans, and the largest deficits in America's history. Let me be clear that tax cuts are often an effective way to grow an economy. However, they need to be paired with an equivalent amount of real decrease in gov't spending. If you bring in less money you need to spend less. President Obama- inherited a worse economy than Reagan, added the largest gov't spending programs in our history to jump start the economy (and he achieved success at stopping the panic both in the US and the world); added a new health care cost (although this hits the US taxpayer in 2013, which will be after his run for re-election) and has not increased gov't revenue. This has produced even larger deficits and a higher national debt than his predecessor. The recent antics of our "representatives" in DC also have short and long term fallout. The world is less comfortable that we will always pay the interest on Treasuries; our credit rating will most likely be downgraded in 2012, or 2013- which will increase our cost of borrowing and add to our national debt. The economy will potentially continue its slow growth; unemployment will most likely stay high. It is fortunate for the US that the economy and debt issues in the EU are in much worse shape than ours, so there is no other likely currency that is viewed as strong or stable as our dollar. Positives to consider: The Tea Party- love 'em or hate 'em- have put forward one undeniable fact: We cannot spend more than we bring in from tax revenue. They do seem to be quite selective with what history of the national debt they seem to remember, but their point is accurate: Going forward, regardless of how we got into this debt mess- we need to only spend what we earn from taxes. The voters next year can decide if they endorse this approach, or not. Manufacturing in the US is becoming more competitive due to wage increases in China. The Tsunami in Japan is causing some industries to consider bringing manufacturing jobs back home to avoid serious disruptions with part supplies. Interest rates appear to be in a medium term holding pattern at historical lows. It is a great time to consider refinancing your mortgage (not increase the amount that you owe) and lock in 15 year rates of less than 4% and 30 year rates under 5%. Car loans are hovering around 3%, so it may be a good time to consider a newer vehicle. Technology is adding jobs in many facets. Idea to consider: the US infrastructure needs repairs. We have many unemployed manufacturing workers. How about a program that puts those able to do physical labor and engineering to work rebuilding our infrastructure? This does not have to cost us taxpayer’s money. Workers could, on a temporary (six months) basis have their wages at private employers in road construction include their unemployment benefits. After six months the employer either covers the full wage or lets the employee go. Not a perfect solution, but it would possibly provide a shot in the arm to our economy, put more people back to work, increase spending and result in some permanent jobs being created. And, although hard to categorize I have faith in American ingenuity to create advances that help our economy and country. Consider Microsoft, Google and Facebook as three game changers - and all of them were- to quote Bruce Springsteen- "born in the USA". If you have read all of this please share your ideas. It is through discourse that we get smarter and move forward as a people and as a country. Thank you, Required Disclosure: The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Brian S. Orol and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Raymond James does make a market in MSFT ($25.68) and GOOG ($579.04). Brian S. Orol, Raymond James Financial Services, Inc., its affiliates, officers, directors or branch managers may in the normal course of business have a position in any securities mentioned in this report. All stock prices are quoted as of 08/05/2011. This information is not intended as a solicitation or an offer to buy or sell any securities referred to herein. Investments mentioned may not be suitable for all investors. Please note that international investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Specific sector investments, where companies engage in business related to a particular industry, technology, are subject to fierce competition, the possibility of their products and services being subject to rapid obsolesce and limited diversification. Past performance may not be indicative of future results. Today, November 11, 2008, is Veterans Day. We, as Americans and any citizens of the free world, should be especially grateful to our military veterans. Whether they saw combat, served as medics, in the PX or the mess hall, or in other less-heralded functions, they deserve our utmost appreciation and a loud public THANK YOU! Think about this for a moment: How vastly different would our lives be today if not for the service and sacrifice of our veterans and their families? One could easily argue, as I do, that citizens of democracies have the most to lose and, therefore, should be the most appreciative of our veterans. Period. The great thing about a democracy is that we can loudly criticize our leaders for the choices they have made, past and present, in deploying our military (consider Lincoln or Teddy Roosevelt). Yet, we must never cross the line and let our feelings about deploying spill over to a disrespect of our veterans. Let’s hope we have less of a need for deploying our strong military in the upcoming years. By the same token, let us recognize there is much good that flows from our military strength. Most important, I challenge each of you to find a veteran, today or this week, and personally thank him or her for their service to you and our country and the freed world. Thank you, Brian Okay, this will be more opinion/somewhat rant, so only read on knowing so. First, since when does a non-publically held company–Chrysler (Owned by Cerberus Capital) deserve even the opportunity to beg/ask for our tax money? A few years back, Chrysler was bought by Daimler-Benz (Mercedes people). They paid some outrageous amount (I think about $30 billion dollars!). Remember–corp. CEO’s are not always the brightest bulbs in the lighting aisle of Home Depot … (Wait a minute–Home Depot–isn’t that where Nardelli came from? Where the stock dropped during his tenure and he walked away with a huge parting “gift?” And now, Nardelli is testifying before Congress as the CEO of Chrysler). Okay–take a breath–it gets better. Daimler realized its mistake in buying Chrysler and it “sells” it to Cerberus. "Sells" because Daimler had to finance the deal and –in effect–pay Cerberus to take Chrysler off of its hands. Okay, so Chrysler is a private company, like Wal-Mart or IBM, and the U.S. taxpayers are NOT stock or bond holders. In other words, we do not have the opportunity to invest in Chrysler. Way back, last century, when Chrysler was in front of Congress asking/begging for a loan, it was a publicly held company and investors were able to stay the course–at obvious risk–and participate in what proved to be a pretty good upside. (I know–my mind goes back again to Fannie Mae and Freddie Mac and the zeroing out of shareholders. It’s the consistent inconsistency that is very frustrating!) With Chrysler back at the public trough, maybe this is all just a bad rerun. So, from my view, Chrysler gets sent away from the table empty handed. Let the private equity owners figure their way out of this one and not tap our pockets yet again. Ford– this company brought in an outsider from Boeing last year to try and run it like a real business. He has made progress and appears to be on the right path. Maybe Ford gets a lifeline due to the frozen credit markets that have made it downright difficult to get a car financed unless you have an Olympic credit score. GM– oh boy– where do I begin? GM– the car maker has not made a profit in years. When they showed a profit recently, it was from GMAC– their financing arm. (Are you sitting down? In 2007, GM sold about 50% of GMAC to … the envelope please ... Cerberus Capital – see first paragraph.) GMAC is in not-so-good shape and applying to become a bank. They issued many of those “toxic” mortgages. Okay– let me get this straight– the same company that issued $400,000 mortgages to people who earned $40,000; without documentation of their income, and with zero money down are 50% owned by GM. Maybe the management drinks from the same punchbowl? How about a smidgen of fiscal responsibility? So, GM is pleading poverty. They now tell us they need money TODAY (are they going Christmas shopping?). Yet, last week, they said they were fine until at least the spring. How about an honest and accurate answer? Kind of sounds like when my kids will ask me for $20 for a school trip next week and then, twenty minutes later, ask me for more money for a movie that night. Not so clear that GM will change its ways– just may not have the managerial mindset to do so. Let me be clear that I am not unsympathetic to the car dealers parts makers, and even the employees (although the UAW is a 100% willing partner in this fiasco!). It’s that I simply do not believe that all of these jobs will instantly disappear. There will be companies willing to repair and maintain theses cars, quality salespeople can sell other products, and parts makers produce parts for all three of these companies, so if only one or two survive, there will still be a need for parts, albeit less of them. Other car companies have gone the way of the Edsel, Studebaker, Rambler and American Motors Corporation. The ONLY reason to even consider a loan– with a ball of strings attached– to Ford and GM is consumer and American confidence. Times are tough for most all of us. Even with Black Friday being a strong day, most retailers did less business in November 2008 vs. November 2007. We have yet to deal with slowing down the speeding foreclosure train, and unemployment is at a five-year high and still rising. So, the confidence thing. If we see Chrysler and GM go Chapter 11– a bankruptcy with a reorganization plan to rise out of bankruptcy– it may scare us badly. This will greatly slow down spending and our economy- in an official recession for 12 months- may come to grinding halt. Okay– the conclusion– two choices. Offer a loan to GM and Ford with clear objectives they must achieve (clean up your room before you go outside to play) or set up a pre-packaged Chapter 11 (definitely doable) and let them operate as smaller competitive businesses. I guess you could create a hybrid Chapter 11 with a government loan as part of their reorganization. |
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