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Detroit in Bankruptcy After Years of Neglect and Lack of Leadership

Back in the last quarter of 2010, as the big three Auto manufacturers lobbied for bail outs, and later filed for bankruptcy, Detroit's fate was all but sealed. Well, the fat lady is singing, and this is a political and public relations mess. There are hints of mismanagement or misappropriation of funds and a fair share of finger pointing - but at the core of the municipality's fiscal crisis are the Pension funds. How will the courts handle retiree payouts: will they remain at par or will they be reduced? The residents of Detroit are in for an interesting turn of events. This is a serious wake up call, to say the least.
How did this filing come about? Well, from what I can tell, Snyder seemed to have been trying to quietly handle the crisis. Seeing the writing on the wall, Governor Snyder wanted to avoid a possible downgrade of Michigan’s credit rating, which is likely following a messy "unmanaged" bankruptcy. The crisis management strategy was to get ahead of the problem, so that the worst case scenario is a "Structured" bankruptcy - thereby minimizing the negative impact on the State's overall credit rating. The Wall St. Journal reported that Snyder brought in Kevyn Orr as an Emergency Money Manager to work aggressively to get Detroit’s fiscal house in order. Snyder's secret weapon, Orr, was apparently granted “dictatorship” style authority, essentially rendering the city’s finance department and controller powerless. Kevyn Orr was the lead attorney handling the Chrysler structured bankruptcy, so it could be construed as a sound decision. However, from another perspective, one might say that hiring a bankruptcy attorney is like appointing a wolf to watch over a hen house.
How serious is it when a city files for Bankruptcy? .

California has probably seen the most cases of bankruptcy than any other state - with city after city filing for bankruptcy protection as a result of the housing crisis and pour money management. The jury is still out as to whether California's troubled counties will recover gracefully. Whatever the case, the road back to solvency is a long and arduous one. As for Detroit, it was clearly heading in the wrong direction prior to the start of Great Recession. In fact, long before the Recession rocked the nation, and later Europe, Detroit was already showing obvious signs of fiscal discord. Their key source of jobs and tax revenue stemmed from the auto industry and ancillary products and services. Although many local businesses and retailers benefited from the economic "trickled down".
In all fairness, we can't place Detroit's troubles entirely on the shoulders of the auto industry. There are multiple factors playing into the city's demise. For example: tax revenues over the past 25 years have been on a steady decline as the population and businesses fled to greener pastures. The City of Detroit, at its peak (1950s), had a population of 1.8 million, but the most recent Census Bureau records illustrate a more than 65% decline. The disturbing reality is that Detroit presently has a population of merely 700 thousand - particularly considering the demographics and socio-economic landscape. Adding insult to injury, over the past 5 to 6 decades the population exodus happen to be primarily the middle class, leaving the city with a disproportionate number of low-income residents. What this boils down to is a dwindling tax revenue base, and increased spending for public assistance, healthcare and other subsidy programs. The economic cycle can only spirals downward from there, unless a drastic changes are made.
The “Economics-101” explanation would be as follows: When you have a predominately low-income or impoverished population, this translates to a largely unskilled and uneducated labor force – which means local-area businesses can’t fill higher paying jobs that require specialized skills or education. This distressed socio –economic environment drives business out. In turn, joblessness decreases consumer spending, which ultimately cause retailers to close down.
High unemployment was not Detroit’s biggest problem. Job creation doesn't help in this scenario unless there’s a strategy implemented to attract businesses and manufacturers with jobs that match the skills of the population. Sheer job creation (in a vacuum)is nothing unless there is also a comprehensive plan to educate or provide training to upgrade the skills of the local workforce.

Years of neglect and misguided development spending has come to a head. There's been ample time (we are talking decades) for anyone from the parade of politicians to step up and show real leadership. It’s hard to believe that none of the government agencies or organizations could have developed a long-term urban renewal strategy to transform Detroit into a thriving economic force. As far back as I can remember, Detroit was known for its high crime, and unemployment, but the combined burden of high unemployment, crime, foreclosures and abandon properties - against the backdrop of diminishing revenues, and $18 billion in debt obligations – you’re looking at a time bomb.
Political fallout is eminent, and everyone will be watching to see if Obama will extend an “bail out” to Detroit, since he was vehemently supportive of the big-3 auto makers in their time of need. With any luck, the people, politicians, unions, educators and activists will be open minded enough to work together and find a common ground for rebuilding Detroit. This may turn out to be for the best in the long run

K. Reilly
The Cohn-Reilly Report
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Employment Not As Rosy As You May Think

Although the unemployment rate has been below 8% since October, there seems to be a disconnect between what the government and media are telling us about how good things are with jobs and what is real.

There are job openings at a level not seen in years. However, the time it takes to fill a job has increased to 23 business days compared to 15 in mid-2009. Although the economy is improving, the reality is companies are reluctant to hire, holding up the process by making candidates interview over weeks or months, before a decision is made, if one is made at all.

“There’s a fear that the economy is going to go down again, so the message you get from C.F.O.’s is to be careful about hiring someone,” said John Sullivan, a management professor at San Francisco State University who runs a human resources consulting business. “There’s this great fear of making a mistake, of wasting money in a tight economy.” The result is an unreported hiring freeze that seems to be in place, especially for higher skilled workers.

“If you have an opening and are not sure about the economy, it’s pretty cheap to wait for a month or two,” said Nicholas Bloom, an economics professor at Stanford University. But in the aggregate, those little delays are stretching out the recovery process. “It’s like one of those horror movies, an economic Friday the 13th, where this recession never seems to die.”

Although job creation has improved over the last two years, it has little impact on the backlog of unemployed workers. Uncertainty, regarding the effect of fiscal policies in Washington adds to employer indecisiveness. In addition, employers want to make sure that workers who have been out of a job for months or years are up to date with current skills, said Robert Shimer, an economics professor at the University of Chicago, before they agree to on board a candidate.

Employers are under no pressure to hire – one reason as indicated in government labor reports, is high productivity. What this means is employees are working double and triple duty because employers are reluctant to hire additional staff. If they do, to lower labor costs, some companies have imported talent from abroad, especially in the technical fields, at much lower rates than their counterparts in the USA would normally command. In addition, outsourcing continues overseas, further reducing opportunities.

Until the psychological barriers are lifted regarding the fate of the economy and changes are made to reward companies who hire American workers, frustration may continue for quite some time, for domestically unemployed workers.

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A MARKET ON FIRE

Market hits record levels, finally settling above 2007 levels. Happy Days are here again! The better than expected Unemployment report for February boosted trading to yield a triple digit bump on the DOW index. With 236,000 jobs created in last month, the unemployment rate slips to 7.7%, making it the lowest rate since December 2008. February’s impressive turnout nearly doubled January’s total - making it the second best payroll growth in 12 months. Last month’s triumph may be second to November’s payroll growth - but it’s clearly a more significant milestone, given the political gridlock and sequestration anxiety.

There is no denying, the market is on fire. This begs the question: ”Does this mean we’re officially out of the woods with respect to our struggling economy?” Remarkably, of the trillions of dollars in investment capital that was either lost in declines or fled the market four years ago, it appears to have made its way back into the stock market. As for today, we have sufficiently surpassed the highs of 2007, but we’re looking at levels that bely the overall economic picture - particularly from the standpoint of government debt and anticipated spending cuts.

Market for 2013 is already yielding 10% growth, just in the first two months. We have seen 10% market growth for an entire year.

Is this a repeat of “irrational exuberance”? (a now famous phrase coined by former Federal Reserve Chairman Alan Greenspan). Perhaps you recall - not long after Greenspan warned that the over priced tech stocks was caused by irrational exuberance, the Dot Com bubble burst. This historic occurrence resulted in massive losses that sent investors running for cover. Billions of dollars in losses, rendered many of Silicon Valley’s young millionaires nearly broke. The state of the country’s economy was significantly more stable at that time, thus the Dot Com bust was not nearly as devastating as it could have been. Since the US economy (as it stands today) is still in a rather delicate state, regardless of the zealous market – it wouldn’t easily recover without collateral damage, and a possible slip back into a recession.

The economic indicators are mixed, but there ARE clear signs of stabilization. For example, Manufacturing industry is showing signs of growth, the Housing market is rebounding, and employers are finally feeling confident enough to hire. Nevertheless, the Stock Market is out pacing all indicators, and seemingly ignorant to political issues that threaten fiscal mayhem. Warren Buffet was quoted last week as saying “Markets are Stronger than Government”, and this has proven to be true. Hopefully, we’ve learned from our mistakes, and current market prices are based upon substantiated valuations. My optimism is tempered by reflection.

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Romney’s Victory Website: And The Ugly Truth About Politics

It appears that Mitt Romney and his GOP “posse” had a Vision that the Election was going to yield a landslide victory! Although they could not have been more wrong, their arrogance was palpable. I am sure by now you’ve heard reports about Mitt Romney admitting that he only wrote a Victory speech. That is more than positive thinking, that is sheer arrogance (and not the most attractive trait in a candidate). Fox news, and other conservative media outlets had pre-election panels, and Election-day panel discussions, that harshly laid out reasons why Democrats, and Obama, will be shown the door. During the early afternoon on November 6th, the conservative news anchors and pundits entertained themselves by predicting what the Romney Cabinet would resemble. Who are the likely candidates for the Romney Administration, and who would be passed over for one reason or another. It was not unlike pre-Super Bowl chatter, only this game will impact the entire country, and the world. As the day progressed, the conservative political analysts were confident and excited.

There seem to be such utter certainty, that I was startled by it. It was like being in an alternate world, chiefly because I couldn't see how one-plus-one could equal four. It appeared that Fox News, and conservative Talk Radio, converted simple math (adding likely Romney votes) into an algebraic equation....and it all made sense to THEM. Looking at the issues influencing voters, which bore out to be true, I took note of the following issues:

 Women in America want the right to choose what goes on with their bodies, and don’t appreciate being referred to as “Binders of women”
 Latinos are concerned about immigration laws that impact their children and families.
 FEMA should be left alone; States and local governments, and citizens need financial help after Natural Disasters .
 A sizable portion of the “47%”, Romney wrote off, were retired, or veterans who have paid a lifetime of taxes, or risks their lives fighting for this Country. They’ve earned the right to Social Security, and other government programs
 Auto Makers, their 181,000 auto workers and their families were happy that Obama didn’t take Romney’s advice to “let them go bankrupt”
 Gays are passionate about having heir marriage legally recognized, giving them the same rights as heterosexual married couples.
 Youth votes are more likely to vote for Democrat, given the “Occupy Wall Street” movement, which blames the wealthiest 1 %, and the Bush Administration for the economic and fiscal crisis

The above political and social issues can be translated to a simple addition problem. Accordingly, the 7 bullet points could be treated as an aggregate of votes away from the republican candidate, Mitt Romney. Although the slow economy and high unemployment were working against Obama, as long as the turnout were as strong, or better than 2008, he had a good chance of winning re-election.

So why then, were the Republicans and Carl Rove so vehemently certain that Romney would be elected the 45th President of the United States? To the extent that he had his Victory Website rolled out early Thursday morning?

Perhaps this tidbit of information will provide a clue: Shortly after Obama’s stunning victory, I read a disturbing article that attempted to explain a complicated web of investment companies and venture capital that involved Mitt Romney’s son, Tagg Romney. In a nutshell, Tagg Romney owns the company that invested in the company that bought a controlling interest in a Voting Machine Vendor. What? I was so shocked, that it took the wind out of me. What this amounts to is so incredibly unethical, I can’t help but to think of Watergate. So, that explains the why the Romney camp felt so sure they would be moving into the White House. This is unfathomable and beyond a mere “conflict of interest” issue. This also explains why several concerned voters released video tapes the rigged voting machines they encountered, and posted it on YouTube. One male Caucasian Voter illustrated that when he chose Obama for President, a check would appear next to Mitt Romney’s name. He tried it multiple times, and eventually left that booth. He did not indicate who he ultimately voted for, but stated that he just wanted to report a “strange” occurrence.

Provided below is just one of the "Rigged Voting Booth" videos.

The combination of the Tagg Romney’s secret ownership of a voting machine company, and the YouTube videos of rigged voting machines is too much of a coincidence. I also believe that if this Article was misstating the facts, there would have been a lot of noise and defamation claims coming from the GOP or the Romney camp. Instead there is silence - as if the planned strategy was not to respond, so that the issue would quickly go away. I am almost certain that the Obama Administration is too busy to pursue the matter, especially since the stolen votes did not help them achieve their goal. The outcome of the this election, begs the questions: If Nixon hadn't won the election, would the Watergate break-in become the scandal that rocked Capital Hill - to destroy Nixon's political career? Given the lack of attention drawn to the Rigged Voting Machines connected to Tagg's Venure Capital Company, I can't help but wonder if Watergate would have become one of the biggest scandals in America's political history, if Nixon did not get Elected? Whatever the case, politics is left with a black eye, as democracy stumles on.

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Industry Outlook: Technology Driven Jobs Growth

The Department of Labor names the Service Sector as one of the top five industries that will drive the economy over the next 6 years, out pacing all other industries According to a recent Bureau of Statistics Report, the service sector employs approximately 112.8 million people. Given the continuous advancements of technology, technology related occupations are expected to grow 25.9%, while the service sector (including project management and consulting) will be the driving force in the economic growth through 2018. It is no surprise that the demand for IT consulting and system upgrades will foster increased business, driven solely by the face-paced changes in technology.

This is really good news for a wide range of career paths particularly; project managers, IT consultants, and risk analysts, network security specialists, developers, corporate trainers and recruiters. The Industry Outlook page indicates the Department of Labor anticipates 18 percent growth in the IT management and consulting services through 2020, out pacing all other occupations by 4 percent.

The Department of Labor Industry Outlook page indicates that the service sector will be accountable for employing as many as 131 million people between now and 2018. In their Industry Outlook Report issued the second quarter of this year, the Department of Labor points out that technological consulting services will be among the fastest growing sectors for professional and technical workers. To further support the positive outlook for IT and related Management and Service sectors, a Plunkett Research Report issued earlier this year, reiterated the projected 18 percent growth for the aforementioned industries. Like a super heroe, Technology will impact the overall business community as it continues to drive change, demand and thus economic recovery.

Small and mid-size organizations struggle to keep up with advancements that influence their ability to remain competitive as the market place transforms. For this reason globalization and express technology advancements foster new opportunities for IT consultant firms (Deloitte, 2012). Industry and Occupational Outlook data can be found at US Department of Labor website

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Silver Lining for Seniors:Outpacing National Unemployment

Great news for seniors comes as the economy crawls to recovery. At the depths of the recession unemployment was as high as 10%. By the 3rd quarter of this 2012, the national unemployment rate dipped below 8%, to settle at 7.9.
Although, this is a welcome turn of events, there are still millions of people unemployed or under employed. Nevertheless, it’s a positive indication that the long awaited recovery process is at work. Fortunately, seniors are the age group benefiting the most from the jobs surge. A Daily News article by Elizabeth Lazarowitz reported that 70% of the jobs filled since 2010, were fill by candidates over 50. In the past two years nearly 3 million jobs were filled by seniors, which has driven the national unemployment rate for down to 6.7% for people over 50.

We’ve always heard that employers have little use for their senior employees, and instead chase them out for younger, “cheaper” talent. Well…finally, the tables have turned. It took a while, but it appears that wisdom, experience and stability has become much more attractive to companies for the obvious reasons. In the aforementioned Daily News article, Kate Wendleton, president of Five O’Clock Club is quoted as saying “When employers have a choice, they say, ‘I need someone who’s seasoned and who will be up and running” What seemed to be common sense, took decades for HR executives to ascertain: Training, learning curves, and mistakes are eminently more expensive than the higher salaries required for, shall we say, "seasoned " professionals. This is exhilarating news for anyone over 50 seeking to find a job, change jobs or careers. My only question is; Why has it taken so long for companies to appreciate the immense value an experienced, older employee brings to the table?

In these difficult times, companies are forced to go into stealth mode to sustain their profit margins and growth objectives. That entails staff trimming, budget cutting, and closely analyzing the performance data for a more vivid perspective on their bottom line. What do you think that ultimately revealed? New recruits - fresh out of college, usurp far more costs and waste than the tried-and-true “senior” employees. That said, those candidates over fifty, or pushing sixty should carry their experience and grey hairs with pride and confidence – as the short-sighted HR executives have finally seen the light.

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Doin' the Twist: The Federal Reserve Steps in to Spur the Economy

In the beginning of the year, the Federal Reserve indicated their plan was to let the economy stand on its own. By the end of last month, however, the Feds broke down and reduced long-term interest rates in a program they refer to as Operation Twist. In this program, the Feds would drive down interest rates to encourage business activities, such as borrowing and hiring. According to a Wall Street Journal article by Peterson and Hilsenrath, the Federal Reserve officials announced that Operation Twist will be extended through the end of the year, but they’re “poised to do more”.

At the end of the 1st Quarter, the Feds indicated that there was no need for their help. The economic picture appeared brighter following a strong 4^th Quarter, and encouraging jobs report.

By the time the we turned the corner into the 2^nd Quarter, the economic storyline began to change amid heightened pressures from overseas. The market, which had anticipated S&P downgrades for Spain and France, could no longer withstand the push-back stemming from the European Union’s fiscal and political upheaval. Globalization has its rewards, but this isn’t one of them. When the EU sneezes, we are going to get the sniffles, as if the distance were non-existent.

As the Euro fiscal storm brewed, the dismal jobs report and Facebook IPO did its part to shrivel up any confidence Investors might have had left. The market uncertainty lingers, regardless of good economic news. This  depicts the profile of weary investors - possibly suffering from Post-Traumatic Stress Disorder.  Being the eternal optimist, I’m hoping Operation Twist will have us all dancing in the isles by the end of the year.

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To Be or Not To Be: EU Shows signs of cracking

Twenty years ago, when the idea was circulating about a unified currency in Europe, it seemed like such a brilliant concept, based upon sound economic and political arguments. Today, it almost seems like an impossible dream. Landon Thomas of the New York Times asks in his article "Can they muster the will and resources to keep the euro zone from breaking apart?

As the world looks on, and markets take defensive positions, the Euro crisis unfolds like the climax of a mystery novel. Greece's dramatic elections - where the people ousted Sarkozy, opting for an unlikely candidate, François Holland. The outcome of the election was a clear sign that the people were not ready for the strict austerity measures needed to turn their economy around. Bailout alone was not going to save Greece, it was only expected to buy them time to pull their policies, and fiscal plan together. The political and civil unrest in Greece, gave little hope for a turnaround. Instead the notion of Greece leaving the European Union resurfaced with somber overtones of reality.

By the end of May, Spain had decided to pump 19 billion Euros into its struggling Lender, Bankia, SA, as a strategy to illustrate stability, and quell any notion that the crisis continues for its financial sector, in light of Greece's downward slide. This is a prop-up strategy that is effective in influencing perception, which is crucial in the realm of investors and financial markets. The US equivalent of $24 billion, was a rich injection that is twice the amount Spain spent in the recent past to straighten out the banking sector during US housing market collapse - causing a global rippling affect. Spain is swiftly reacting to mitigate a repeat of the fiscal mayhem stemming from billions of dollars lost in toxic mortgage-backed securities.

Meanwhile, two weeks ago, S&P downgraded Bankia, and several other Spanish Banks, causing worldwide concern. The rating agency made matters worse by painting a gloomy near-term forecast for the region, citing their belief that Spain is heading toward a double dip recession. S&P also noted that there was a reasonable expectation of an increase in troubled assets. On the heels of Frances downgrade, and Spain’s fiscal concerns, the question becomes, was this unified currency such a sound economic and political move in the first place. Friday, the DOW closed 300 points lower, illustrating investor sensitivity to the Euro Crisis - although, it should be noted that market anxiety was further stimulated by the soft jobs report.

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Economic Stability: Still in Question in the U.S. & EU

The mixed economic indicators have been a source of much debate among analysts. The softer than expected Jobs Report, along with the spiking gas prices have turned the optimistic economic forecast on its head. An article in the Wall Street journal indicated the industries that were previously driving the economic recovery in the past year have slowed, noting that others economic indicators have stepped up their place. I'd say that's as accurate observation and interesting fodder for economists. For example: the housing market appears to be gaining a good deal of traction, and consumer spending has been consistently growing, and gaining momentum. Experts say that the up-beat consumer spending data is linked more to the unusual warm Winter, and thus not so much a real indication of a positive consumer outlook. The market has fluctuated in the last quarter of 2011, but it cannot be disputed that the DOW has flourished in spite of the slow economy to its highest levels above 13, 000. It also appears that the market seems to be a lot less sensitive to the news across the Atlantic than last year. The Ratings agency, S&P downgraded Spain's debt in January and again in March, but the market barely responded to the news. This is somewhat surprising considering the impact the Euro crisis would have on our economy if things were to spiral out of control. Perhaps the market had already compensated for the news in the last quarter of 2011, since the downgrade for France and Spain had been anticipated.

Indications That support Optimism

Consumer spending has been a great influence on the economy, having a direct impact on the retail industry revenues. It should be noted that two thirds of national GDP is made up revenues from consumer spending. Consumer spending is indeed an important aspect of analyzing the economic forecast. The Housing market is showing signs of life, as housing purchases in the first quarter increased 19%. More dramatic statistics have been coming out of Miami and New York, but it’s still too soon to exhale

Indications That support Pessimism

The rising oil prices have become an unavoidable threat to the recovery, but for some inexplicable reason consumers are taking advantage of the prices and low financing interest rates. The jobs report came in at 120,000 new jobs, which is the lowest number in several months. This could indicate that employers are not completely convinced that the economy is on the road to solid footing. Let's face it the perception of the economy is the most important aspect of the forecast. Economists and analyst can talk endlessly, but if the investors' perceptions do not concur, they stay out of the market, or get out.

The fact is there are both positive and negative influences at work, making it more challenging to decipher the indicators. If I had to take a stab at analyzing the economic indicators, I'd be likely to lean toward an optimistic forecast because of the sheer impact that consumer spending has on the GDP, and the deep discounts in the housing values which have spurred buying. Also, the earning reports illustrated that banks are thriving amid restrictive finance reforms, and retailers are reporting positive earnings that beat analysts' expectations. Tourism in the country reached an all-time high amounting to billions in added revenues in New York alone. We will just have to wait ad see, it could really go either direction in the coming months.

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Stimulus-Interuptus: Feds Take Away the Punch Bowl

The economic indicators are all signaling a stabilizing, recovering economy. However, the disappointing jobs report may indicate that we’re not quite ready to pop the Champaign. In a March meeting held by the Federal Reserve, the published minutes show the feds believe that the economy is strong enough to stand on its own. No need to intervene to help it along. In the meantime, the markets reacted in a bag way.

The market sell off last week, was a response to the Federal Reserve taking the position that the economy no longer needs their assistance, which means no “stimulus”. A Chief Market Analyst, Doug Cote, was quoted as saying that the Feds were “taking away the punch bowl, the markets don’t like these punch bowls being taken away”. You can glean from this statement that the economic punch bowls were heavily spiked over the past 4 years to get up to this point. In fact, since the beginning of the U.S. Deep Recession, the government worked feverishly to steer the economy away from the cliff it was headed for. This meant the Federal Reserve and the White House actively propping up the financial market and the economy by implementing a cocktail of fiscal and monetary policies, which included numerous rounds of stimulus packages for various faltering industries.

The Bush Administration, followed by the Obama Administration pulled out all the stops to get the Country back on solid footing with programs which included; the bailout of Banks and the big three auto makers, tax payers stimulus refund, the homeowners’ assistance and first home buyer programs, and even forgiveness of old student loans - the list goes on. Now, the market has to go “Cold turkey”, and function without a safety net. This was obviously an unpleasant reality when the news send trimmers throughout the investment community, sending the DOW and other major indices in a mild tailspin.

The next quarter will be a critical benchmark for forecasting where the economy actually is, and what that means for Main Street, and the rest of the world

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Crimes & Misdemeanors: FBI Closes in on Large Wall St. Funds

The FBI has arrested key members of a ring woking out of several states, including New York. Similar to the Galleon Group, these guys traded information concerning publicly traded companies in an apparent conspiracy to commit insider trading fraud. This ring was so productive, they were able to generate financial gains that rival the Galleon Hedge fund, who's founder recently received an 11 year sentence for insider trading. One of the hedge funds involved, Level Global Investors, raked in over $50 million in gains alone. The court documents state that a ring of traders and analysts, who formed an insider trading club, swapped information that resulted in over $60 millions in illegal profits.

As the voices of "Occupy Wall Street" draw attention to the stark imbalances of the privileged 1%, the fraud saga continues. According to the , Wall Street Journal the government has already prosecuted 63 people on charges of insider trading, yielding 56 guilty pleas or convictions. This marks an unprecedented number of cases procsecuted concerning insider trading in a three year period. Judging by this unrelenting onslought of crimes and Misdemeanors, it would appear that the Finance Reform Act is about as valuable as wall paper. That is not to demean the efforts of law makers or the Obama Administration, its merely a commentary on the industry's commitment to an "any means necessary" approach to capitalism. The only consolation is that the Feds and the SEC seem to be paying closer attention to the activities and trade patterns of hedge funds and other financial institutions that engage in trading. There's fresh optimism about the economic forecast, as job reports and other market indicators send a strong message of recovery. Neverthless, with the reluctance traders, money managers and banks to change their habits to avoid a repeat of a financial collapse, sends another message altogether: They still don't get it, and its likely that they never will.

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K. Reilly
The Cohn-Reilly Report
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U.S. Manufacturing: Myth Dismanteled

I, like many others, was convinced that America's manufacturing output was minuscule in comparison to other countries like China, India and Mexico. It certainly appeared what was left of the manufacturing industry was hanging on a thread. As it turns out, nothing could be further from the truth.
We've all heard economists, politicians and professors mouthing off about the vast declines in U.S. manufacturing, and the erosion of jobs in that sector. Over the years, I have read countless articles complaining about America's short sided move away from manufacturing in place of innovations such as technology, and service related jobs.
The voices of dismay grew louder and evermore judgmental during the height of the recession, as unemployment climbed to 10%. After reading Friedman's "the World is Flat" I was now convinced that the US had really bet the future on technology and white collar service industries, having recklessly turned its back on the Manufacturing industry. During the industrial revolution, America excelled in manufacturing, which made us the number one economy - and the envy of the world at one point. The perception was further ingrained ten years after the passing of NAFTA, which precipitated an outsourcing frenzy. It was now “coming home to roost” as my grandmother used to say. Senator Joseph Lieberman submitted a report concerning this very issue in 2004, entitled “Offshore Outsourcing and America’s Competitive Edge: Losing Out in the High Technology R&D and Services”. It was an obituary of statistics that indicated that we were all but buried.

It appears that his purpose was to sounding the alarm, and stimulate discussion toward finding solutions during the Bush Administration. Although he touched upon the outsourcing concerns, ultimately his paper dealt with a broader issue, which I believe to be a compelling argument for the need for America to refocus its attention toward developing a brain trust of highly skilled talent in Engineering, Biotechnology and Science Technology to ensure that this country will better compete with the brain trust emerging from India, Russia and China in the future.
NAFTA, which was thought to be a trailblazing trade agreement when it was first past by Bill Clinton (in the 90s), in hindsight, it was the catalyst for the loss of millions of manufacturing jobs. This trade agreement, meant that China was no longer the only country corporations could get cheap labor without heavy tariffs or taxes. There was now Mexico, as an outsourcing option that was more accessible. This would enable companies to save money, shipping time and reducing time zone issues. It's no surprise that corporations would want to take advantage of the reduced cost of goods in search of higher profit margins. Between 1990 and 2004 the US workforce has lost over 7.5 million manufacturing jobs. Although 4.5 million manufacturing jobs have been added back, making the net loss approximately 3 million in lost manufacturing jobs (Source: U.S. Dept. of Labor). By the end of millennium, Imports had far exceeded our exports creating a widening trade deficit economists and analyst had voiced concerns about for decades. The US trade deficit with China alone has increased 44% between 2001 and 2010, amounting to over $190 billion from $114 billion. The increased trade deficit with China can be linked to the loss of 2.9 million jobs during the same period. Although the statistics are not easy to swallow, they were the building block of the Myth that America had abandoned the Manufacturing industry. In all fairness, economic indicators such as manufacturing, exports, job creation and jobs lost are the foundation for formulating forecasts for near-term economic status and provide a glimpse of potential long term ramifications. GDP and import/ export trade ratios are also utilized as a compus for growth and global growth comparisons. One morning, as I cleaning up and sifting through old article clippings (Im old school, what can I say) I stumbled upon a Wall Street Journal article by Mark Perry, which touted the flourishing manufacturing output in the U.S. What? I thought. I was quick to abandon my cleaning project (this was as good an excuse as any), to get to the bottom of this piece. The article prompted me to conduct a little research to substantiate this myth busting claim. There is no denying that there have been a continuous loss of jobs in the manufacturing sector.

The Auto industry is just one of the industries that suffered a loss of nearly 1.5 manufacturing jobs, as the Big Three auto makers sought bailouts and closed factories in an attempt to save their faltering operations. Statistics covering the period from 1990 through 2009 indicate a loss of nearly 5 million manufacturing jobs, which meant a displacement of factory workers and managers who were forced to rebuild their skill-set by training in new industries, or returning to school, or both. The displaced workers that did not, either remained out of work, or ended up taking unskilled positions at lower pay. This is an unfortunate side effect of changing times and  advancing technology. Nevertheless, the manufacturing industry has been rebuilding itself while no one was looking.  Although many factury jobs are gone forever, as they have been replaced with computers, we have increased our productivity 3-fold. According to the Federal Reserve, the value of  our manufacturing output in of 2009 was $2.72 trillion (in 2000 dollars). Today’s factory worker is so productive that their average output "value" is estimated at $234,220. This means that the output per worker is three times as high as it was 30 years ago, and twice the productivity of 1990.  An article written by Dr. Walter E. Williams for WND.com in 2010 stated the following "the Federal Reserve estimated  the value of U.S. manufacturing output  in 2008 was about $3.7 trillion". He went on to say,  "if the U.S. manufacturing sector were a separate economy, with its own GDP, it would be tied with Germany as the world’s fourth-richest economy".  We're still struggling to climb out of the economic recession, but it should be clear that we're making our way back to being a stong economy, that's decidedly back in the manufactuing business.

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K. Reilly
The Cohn-Reilly Report

The Economy and Politics

If the positive momentum of the US economy continues throughout the year, and that’s a big IF, the presumptive GOP nominee Mitt Romney could have a tough time in November.

Let’s look at the current stats: the unemployment rate dropped to a near three-year low of 8.5 percent, with payrolls increasing by 200,000 in December - the biggest rise in three months. The economy added 1.6 million jobs last year, the most since 2006, and the jobless rate, which peaked at 10 percent in October 2009, has dropped 0.6 percentage point in the last four months. Commercial investment is up by 10% and inflation is relatively low.

Could Barack Obama be happier? I don’t think so. He welcomed the news and urged Congress to extend a two-month payroll tax cut through 2012 to help sustain the recovery. "We're moving in the right direction. When Congress returns they should extend the middle-class tax cut for all of this year, to make sure we keep this recovery going," he said.

Still, all is far from perfect: Employment remains about 6.1 million below its pre-recession level and at December's pace of job growth, it would take about 2-1/2 years to win those jobs back. There are roughly 4.3 unemployed people for every job opening.Although construction and Courier jobs increased due to the mild weather and the holidays respectively, those jobs could be lost in January and the unemployment rate might rise as Americans who had abandoned the hunt for work are lured back into the labor market. Still, 23.7 million Americans are either out of work or underemployed.

The jobs data could be overshadowed by Europe's debt crisis. With the labor market far from healthy, the debt crisis in Europe unresolved and tensions over Iran threatening to drive up oil prices, re-election for the current administration is by no means guaranteed.

C. Cohn
Cohn-Reilly Report

_______________COMMENT


K. Reilly Said.....
I couldn't agree with you more. Although it looks good for the current administration, there are so many variables (mentioned in your article) that could reshape the country's direction and self perception. This will impact voter concerns, and who they believe will make it all better. Welcome back Charlie!

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K. Reilly /Jan 18, 2012 10:46 PM

France's nightmare realized:Is there life after downgrade for the EU

It is likely the one thing that kept France’s Prime Minister up at night. Protecting France’s credit rating was to become Sarkozy’s greatest challenge of the past 4 months, nevertheless, Sarkozy saw it coming. France and the other EU leaders were hoping to slide under the radar for a bit longer, before S&P focused its attention on the financially stressed members.

I’m sure that the historic downgrade of the US’s debt last year, made it all the more realistic for France. Well, last Friday was the day of reckoning for the Euro-zone, as members suffered downgrades on their debt. This was inevitable given the unresolved financial crisis which has consumed the EU in the past 18 months. Standard & Poor’s swooped down and left France and Austria stripped of their pristine Triple-A rating. It did not stop there, seven others EU members were downgraded including Italy, Portugal. Germany is the EU’s # 1 economy, and it was able to retain its triple-A rating. The anticipated, but dreaded downgrade of France’s debt, being EU’s #2 economy, will undoubtedly create a huge dilemma for the EU’s bailout plan.

As the downgrade of the European Union's #2 economy sinks in in the next couple of days, global perception of the European Union’s ability to bail itself out, leaves potential investors concerned. This of course translates to higher cost of borrowing. The entire bailout plan is in hinging on the EU’s ability to bounce back from this downgrade and swiftly move toward executing the bailout plan. The sooner the wheels begin turning toward resolving the issues, the better.

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K. Reilly
The Cohn-Reilly Report
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Blue Chips in the Red: Kodak

In the digital world of imaging, the hardest hit in this sector, which should come as no surprise, was Kodak. The Wall Street Journal reported that Kodak may be filing for bankruptcy protection in the months to come. In the past three years, Kodak has incurred losses in 9 out of 12 quarters. For the 3rd quarter of 2011, Kodak's losses were estimated at $222 million, which had investors running for cover. Needless to say, their stock fell sharply last year. Although the company stock began the year trading at $3.00, Kodak's shares are presently fluctuating below .50 cents. Consequently, the New York Stock Exchange warned that they will move to delist Kodak if their stock price remains below $1 for over 6 months. Kodak is not quite in the "red" yet, but if the company continues operating at the same rate of quarterly losses they experienced in the third quarter of 2011, it is only a matter of time.

I remember purchasing stock in the company when I was about 18 years old, and I must have paid over $40 a share. I sold my Kodak shares when the price dipped to $23.00. That's when I realized that I really didn't have the stomach for the trading the market.

The Iconic Blue Chip, which had been a in the forefront of the imaging products and supplies for over 130 years, has lost its grip on the cutting edge. The once stellar company is struggling to reinvent itself in the new age of camera phones, desktop publishing, , and the digital transport, upload and storage of images. Let's face it, when was the last time you bought film, or dropped off film to be developed? The impact of the ever-changing technical environment couldn't be more evident, as Kodak's valuation has suffered an 80 percent loss in the past 52 weeks. Clearly, digital advancements, and steep foreign competition has taken its toll on Kodak, making them look more like a dinosaur than a ever. By June of 2011, the company's year-end target of $1.6 -to- $1.7 billion was revised to $1.3 - to- $1.4 billion, as a reflection of their reduced expectations. The third quarter earnings report was a dismal account of continued losses, shrinking their cash reserves to $862 million, from $957 million in the 2nd quarter. As it stands, Kodak is sitting on only 10% reserves, well below standard practice.

To tell the whole story, or at least put the current events in perspective, the eminent day of reckoning began nearly 12 years ago, as the tides started to shift away of processing, printing and "developing" photo images. Resisting the digital revolution, or buying time, Kodak began giving away Free Film with every film development pick-up. This was a good, albeit temporary strategy to insure repeat business. The disposable cameras was a wonderful product with a short life span,(no pun intended) but it did help to sustain revenues, and as reasonable amount of cash flow while the CEO and the his think-tank tried to come up with new "relevant" products and services. Alas, this is going to be a fight for survival with much at stake, and Kodak was seemingly not up to the challenge - or is it? Whatever the case, in the past decade, Kodak lost 95% of its value to the industry competition which bought new age, digital savvy products to the market.
Part 1 of 2

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K. Reilly
The Cohn-Reilly Report
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Europe's Deficit Deal Takes Shape: Uncertainty Lingers

The highly anticipated Euro-zone deal, which we thought would positively impact the market failed to do so. There was a knee-jerk reaction to the news with a slight up-tick in the DOW, which indicates bolstered confidence - but this was short lived. As it turned out, before the end of the trading day the Euro had fallen, along with a tripple digit drop in stocks. Uncertainty rippled through the markets creating a domino effect, that finally resulted in a rise in borrowing costs for Italy and Spain alike. Ultimately, it appears that investors were decidedly unimpressed with the Summit deal to control the Europe's fiscal crisis. Economists believe the market rally was deflated due a resurgence of uncertainty surrounding the bailout pact, as it did not include unlimited backstop for the Euro currency.

As the saying goes; "the devil is in the details". The Euro-zone deficit deal has been structured, but economists, investors and stakeholders know its only the beginning. According to Frances's President, Sarkozy, the legal parameters and compliance for the new accord to reinforce the bailout rules are expected to be worked out before Christmas. The longer it takes to put this put this chapter behind them, the more chance for erosion of confidence, currency, and credit rating.

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K. Reilly
The Cohn-Reilly Report
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Sarkozy's New Challenge: Protecting France's Credit Rating

Given the fact that the European Union's recovery is riding on the full faith and credit of a select few of the strongest union members. Sarkozy ia facing yet another challenge as guardian of France’s credit rating. Particularly in light of fact that France is the primary guarantor for the bailout program.

Hope for an improved fiscal outlook for both Greece and Italy, allowed markets to exhale this month. This was fueled by the progress Greece made toward naming a new president, and the new bail-out plan. Many markets have already made back much of the losses over the past few months, but volatility continues to be a concern. Attention was temporarily transferred away from Greece, and the growing concern about Italy after S&P erroneously issued a warning that they may downgrade France’s rating. In an instant, the overly sensitive market reacted, resulting in higher bond yields for France’s debt, marking a 4 month high.

For the bailout to work, the euro-zone requires other triple -A nations to step up and increase their guarantees. The bailout fund is structured to hold a triple-A-rating, but this is based on the underlying strength of France’s credit rating. France is the second largest economy in the European Union, following German. However, as far as the resolution to the EU fiscal crisis, France is the blue-chip guarantor - representing the Union’s ability to navigate themselves out of the financial hole. Accordingly, a reduced rating France, will undoubtedly have an impact on the firepower of the fund.

Frances President, Sarkozy, has made it his mission to protect France’s credit rating. The Wall Street Journal reported that Sarkozy’s has made guarding their Triple-A credit rating a “battle ground for the coming presidential elections in the spring” Sarkozy unveiled, not one, but two austerity packages since late august in an effort to signal to investors that France can and will meet its deficit targets.

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K. Reilly
The Cohn-Reilly Report
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PM Papandreou: Biting the Hand that Feeds Him

The world collectively let out a sign of relieve when the news broke that an agreement was reached to resolve the faltering Greece economy. The Eurozone Finance Ministers gathered in Brussels to discuss the Greek debt problem, fully aware that the political and economic impact reaches well beyond the Eurozone. The US market responded to the news closing in positive territory after two days of three digit losses. We were barely able to process the news when word began to circulate about the seemingly ungrateful Prime Minister , had decided to conduct a referendum vote for the bailout proposal, and – to add insult-to-injury, the PM George Papandreou was contemplating leaving the Euro zone.

Just days away from defaulting on its debt, at a 160% of its GDP, you can only imagine the what was going through Sarkozy and Merkel’s heads. As was said to be Greece preparing to conduct a vote on the bail-out resolution, the dynamic duo (Sarkozy and Merkel) reacted to the new, and administered intense pressure for PM George Papandreou to make a swift decision as to Greece’s fate with the EU. Political pressure from around the world forced George Papandreou abandon the idea of conducting a bailout vote.

As details concerning the highly anticipated bailout program began to emerge, analysts and economist wasted no time weighing in. To attempt an overly simplified description, In order to dig Greece of its financial hole, the member Banks will also have to take on some of the losses, along with bond holders, who will be contacted as to how deep the losses will be. I will research the detail of the bailout plan what is said to aid Greece to reduce its growth-to-debt ratio from 140% to 120% by 2010.

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K. Reilly
The Cohn-Reilly Report

Job Stability & Economic Recovery May be a Long Way Away

The economic uncertainly is beginning to take root, and override any hope we may have had for a full economic recovery. Consumer confidence is at its lowest levels in two years, while corporations sit on their cash. The global financial discord is helping to fuel the fluctuating uncertainly. For the most part, the fiscal and monetary policies implemented to stimulate the economy have been lack luster. The high priced stimulus packages have fizzled out, amounting to inadequate results. What the average American doesn’t know is that these same programs would have worked famously under different economic circumstances.

The Financial crisis in the US and around the world, is far deeper than first realized. Neither the Bush Administration nor the Obama Administration were prepared for what we are facing today. The republicans can use the market fears and crawling economy for their political gain, but I dare say that NO Chief Executive in the white house, Democrat, or Republican, Black or White, would have gotten the U.S. economy moving any faster. What’s worse is that none of the world leaders appear to be willing to admit to their constituents or the world how bad finances are in their country. If the world leaders are not being completely transparent about the extent of their country’s fiscal troubles, we may never really know the depth of the financial crisis, or the optimal approach to repairing it.

Many of the economic indicators appear to be slightly off kilter, and the market seems disconnected to what's going on - particularly when you consider that corporations are reporting historically high profits for this year. All the while, Capitalism is struggling to save face, with an obscene number of fraud investigations and trading scandals coming out of the woodwork. It makes one wonder if capitalism and greed come as a two-for-one package deal, or if it's actually possible to have the presence of capitalism in a low percentage of fraud. The good news is we're not the only continent on the planet threatened with financial discord. The bad news is, we’re not the only continent on the planet threatened with financial discord. This is a complex, unprecedented situation we’re have here. In essence we have a global recession on steroids, so it’s going to take a combination of high octane, super powered fiscal and monetary programs to get the U.S. economy off life support.

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K. Reilly
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