California: Not Entirely Hopeless

Gov. Newsom and Pres. Trump on 1/24/25 (Politico)

California is still doing some things right.

SF Chronicle: California is now 4th largest economy in world, surpassing Japan

The International Monetary Fund’s World Economic Outlook data for 2024 found that California had a nominal gross domestic product of $4.1 trillion, behind only the United States, China and Germany when compared with nations worldwide...

[Gov. Gavin] Newsom said, while announcing the lawsuit [against Trump tariffs], that more than 36,000 manufacturing companies in California employ more than 1.1 million people and are “disproportionately going to be hurt by this.”

The recent data also found that California had an economic growth rate of 6%, higher than the 5.3% rate for the United States, 2.6% rate for China or 2.9% rate for Germany.

India, which currently has a gross domestic product of $3.9 trillion, is projected to overtake California’s standing as fourth by 2026, according to preliminary data, Newsom’s office said.

We've posted how large companies like Oracle, Hewlett Packard, Tesla, and most recently Chevron have fled because California's taxes, regulations, and housing costs are inimical to the welfare of businesses and their employees.

For the time being the growth in businesses that have remained. e.g., Apple, Google, Facebook, Nvidia, Netflix, plus the formation of startups, have offset the losses. But once it goes negative--like the downtowns of San Francisco and Los Angeles--the turnaround will be extremely difficult.

The U.S. and China Come to the Table

40 years after the "walk in the woods", Presidents Xi and
Biden walk around the Filoli Gardens in Woodside, CA (ABC)

When China adopted a hybrid version of capitalism, it was nearly a foregone conclusion that China would eventually become the world's dominant power. Although its per-capita GDP was "only" USD $13,000--a fraction of the United States' $75,000--China's GDP of $17.7 trillion was rapidly approaching the U.S.' $23.3 trillion in 2021. China was marching inexorably toward number one.

Not so fast. As Presidents Xi and Biden met today at nearby Filoli Gardens, China is struggling with a number of worrisome economic issues. [bold added]

China’s economy is beset by multiple challenges, from a deflating property bubble and unmanageable local government debts to slumping confidence and deflation. The U.S., meanwhile, has just recorded its strongest quarter in nearly two years while inflation subsides. China’s gross domestic product, which was 75% the size of the U.S.’s in 2021, had slipped to 64% in the third quarter, roughly where it was in 2017...

China’s growth, which averaged 10% a year from 1980 to 2012, was always bound to slow around now because of an aging population, less rural-to-urban migration and diminishing opportunities to catch up to wealthier countries.

But the slowdown has been sharper than expected. The World Bank now expects China’s annual growth in the next two years to average 4.5%, roughly a percentage point slower than it projected a decade ago. The International Monetary Fund sees growth averaging just 3.9% over the next five years...

During the global financial crisis of 2007-09 China launched a massive stimulus program aimed at infrastructure, housing and later, technology. Local governments and developers financed this investment by borrowing from banks and the Chinese public, using new financing vehicles to get around borrowing restrictions imposed by Beijing...

Whereas the U.S. has too few houses and infrastructure, China now has too much of both. Millions of apartments are vacant. Guizhou, a relatively poor province, is home to 23 of the world’s 100 highest bridges. High-speed railway track is growing more than twice as quickly as passengers, according to Rogoff and Yang.

Much of the debt to finance that investment, issued by developers and local governments to ordinary Chinese or Chinese banks, is in danger of default. The IMF estimates 30% of local government debt is nonviable. Collapsing revenue from land sales and business taxes have saddled local governments with yawning deficits. An August Rhodium report co-authored by Wright concluded that China has much less fiscal space than widely believed to finance industrial policy, defense and its Belt and Road Initiative of foreign infrastructure loans...

China’s declining population is a slow-moving problem that suddenly accelerated in the past two years. In 2017 the fertility rate, the number of children a woman could expect to bear over her lifetime, was around 1.6, below the 2.1 needed to maintain a stable population...

Chinese authorities are ideologically opposed to boosting consumption, such as through more generous healthcare and retirement benefits, which would reduce the need to save. Meanwhile, Xi has worsened confidence through “a series of profound policy choices…that are now coming back to hobble the Chinese economy and its recovery,” said Barry Naughton, an expert on Chinese industrial policy at the University of California San Diego.

Starting in 2020, the Communist Party unleashed a regulatory crackdown on private businesses in online commerce, online education and gaming, ostensibly to clamp down on privacy and anticompetitive abuses but mostly to cement its control over the private sector.

Despite these recently surfaced weaknesses, China still has immense power, particularly in manufacturing. It can easily disrupt supply chains of major industries around the world if it so chooses. And China's quest to expand territory, most notably to annex Taiwan, will threaten political and economic stability for decades.

The interesting aspect of this civilizational contest between China and the West is that, for the first time in memory, time is not on China's side. Its aging, shrinking population will force China to turn inward, while immigration and open markets are likely to continue growth for the U.S. and its allies.

Of course, President Xi is aware of these demographic realities. The near-term danger is that he may be tempted to accelerate his expansionist plans before the West gets stronger and China gets weaker.

Let's hope that President Biden can offer him deals that will help the Chinese people and their economy while at the same time defusing the prospect of military conflict.

A Lot Further to Fall

The Bay Area economic outlook is gloomy as tech companies, including some big names, announce thousands of job cuts:

Tech companies are eyeing layoffs that will eliminate jobs for thousands more workers in the Bay Area, a brutal new round of terminations poised to jolt the owner of the Facebook app, Amazon and Juul Labs.

All told, tech companies have decided to chop 2,564 more Bay Area jobs, according to official notices that the firms sent to the state labor agency.

The tech and biotech job cuts in the Bay Area: well over 10,000 in October, November and December, according to this news organization’s review of numerous WARN letters to the state Employment Development Department.

Are 10,000 jobs a lot? Numerically speaking, 10,000 is "only" 0.4% of total employment in the SF-Oakland-Hayward triangle of 2.5 million. But the impact is much greater than the direct numbers indicate.

Loss of higher-income tech jobs affects the economy more than the loss of lower-paid ones.

Companies cut back on other expenses, e.g., travel, conferences, restaurants, supplies, before turning to layoffs. Lowering these other expenses affects thousands of supporting companies and their employees in the region.

The real estate market, already slowed by higher interest rates, continues to spiral down as more residents have difficulty making rent or loan payments.

Elon Musk has shown that Twitter could lay off more than half its 7,500 employees and still function. If that's indicative of the bloat in other tech companies, employment has a lot further to fall.

Bay Area Employment: the Gathering Gloom

This guy lost billions but is happy today.

The national labor statistics are strong--the unemployment rate "fell to 3.5% in September" and initial jobless claims are a low 217,000--but in the Bay Area we're unsettled, and not just because of Tuesday's 5.1 earthquake in San Jose.

Two years ago the "real" economy--manufacturing, retail, energy--shrunk due to the pandemic. Now the dominant Silicon Valley tech sector, which prospered during work-from-home, has shown signs of weakness. Once-plentiful job postings are being pulled back, and the market for high-flying stocks that provide the Bay Area with much of its juice has cratered.

Recent news reports display the change in mood.

200 Oracle layoffs add to Bay Area’s job cuts

Biotech and tech job cuts widen in Bay Area as companies chop workers

Seagate to cut 3,000 jobs in restructuring as demand slows

There are 2.5 million jobs in the Bay Area, and the announcement of a few thousand layoffs is just anecdotal. Nevertheless, they add to the gloom.

I also look at the efforts to have companies focus on goals other than profits, market share, growth, and shareholder returns.

The explosion of companies adopting Environmental, Social, Governance (ESG) and Diversity, Equity, Inclusion (DEI) goals is a 21st century phenomenon. If they help get companies back on their feet, then they have merit. If ESG and DEI are distractions, they will find out to their detriment soon enough.

Prices Dropping to a Higher Plateau

A regular shopper at Costco, I was taken aback by the sight of Charmin toilet paper on sale.

Palettes and shelves of toilet paper had fluctuated between empty and threadbare since the beginning of the pandemic, and the markdown gave hope that the balance between production, inventory, and demand had somewhat normalized.

However, the sale price of $19.49 was about 10% higher than the comparable sale price at the end of 2019.

The price level of toilet paper, in fact everything, appears to have reached a higher, permanent plateau.

We were pleased to see that gas had dipped below $6 a gallon at the end of June. During our round trip to Seattle at the end of July the cost in California was $5.20, while in Washington it ranged between $4.50 and $4.80. In the Bay Area this week we paid $4.95 (picture).

I like the downward trend, but I doubt we'll ever see the $3.20/gallon we paid at the end of 2019 in a "normal" economy or the $2.80 at the end of 2020 when activity had slowed to a crawl. Like I said, a higher, permanent plateau.

Will the Dip Stick?

For the first time in a month, I paid less than $6 a gallon for gasoline.

This could be one of those good news/bad news moments, the good being that gasoline prices have peaked, and the bad being that a recession is becoming more probable.

Headline: Consumer Sentiment at Record Low Is Another Ominous Sign for Economy

The University of Michigan’s gauge of consumer sentiment reached a final reading of 50 in June. That was the lowest reading on record going back to 1952, and down from both an initial reading earlier in the month and May’s 58.4 reading.

A souring mood for consumers, who face the highest rate of inflation in four decades, is a concerning sign because household spending accounts for about 70% of U.S. economic output. Retail sales fell in May, the first decline this year, and job and wage growth slowed last month. Economists surveyed by The Wall Street Journal have raised the probability of recession.

When consumers think that a recession is on the horizon, many will cut back their spending to build a financial cushion, all but ensuring a recession will occur. We may even see sub-$5 gas, but it won't be because more supplies are coming online but because the economy is slowing.

Interest Rates and Housing Prices

The unit is on the 2nd floor.

In yesterday's post I noted:

We are already seeing early signs of a recession with layoffs in tech and a cooling housing market (mortgage interest rates have risen above 5%).

Saturday's mail included a flyer for a new listing in a nearby development.

A two-bedroom, two-bath condo has been offered at $829,000 (pictures right) when one year ago similar units had sold for over $1 million.

But could a mortgage-rate change by itself explain a $200,000 drop in price? Yes.

The table below compares the monthly payment on a $1.02 million property versus one that costs $800,000. Both are financed with an 80% 30-year loan, the former at 3% and the latter at 5%.

The 20% down payment is $44,000 ($204,000-$160,000) less on the lower-priced example, but the focus of this exercise is the monthly payment.

(Of course, in real life a $44,000 down payment difference can be a huge factor.)

There's less than a $5 difference in the mortgage payments, confirming the effect that interest rates have on the size of mortgage loans and ultimately real estate prices.

The drop in house prices will be felt immediately after existing "loan-lock" commitments expire, and the ripple effects through construction, labor and the building materials supply chain should manifest before year end.

The coming slowdown in real estate is obvious, while the ultimate recessionary effect on the economy is unclear. Let's hope that the battle against inflation succeeds, else the cost will not have been worthwhile.

Note: below is a chart from the St. Louis Fed. It shows that mortgage rates have risen from 3.0% to 5.2% during the past year.

Return of the Greedy Corporation....Excuses

Gerald Ford's pleas to Whip Inflation Now failed,
as did his 1976 election campaign. (Ad Age)

As predictable as the sun rising in the East, Democrats are blaming inflation on corporate greed.

White House officials said Mr. Biden would continue publicly calling out industries that he believes are raking in large profits while raising prices for consumers, amid calls from some of Mr. Biden’s outside advisers to respond aggressively to inflation to counter mounting criticism from Republicans.

Sen. Elizabeth Warren adds her two cents:

Wondering why your Thanksgiving groceries cost more this year? It’s because greedy corporations are charging Americans extra just to keep their stock prices high. This is outrageous.

Through the Bush, Obama, and Trump Administrations inflation ranged between negative 0.4% and 3.8%. For the past several months inflation has run above 5%. [bold added]

The Labor Department said the consumer-price index—which measures what consumers pay for goods and services—increased in October by 6.2% from a year ago. That was the fastest 12-month pace since 1990 and the fifth straight month of inflation above 5%.

The core price index, which excludes the often-volatile categories of food and energy, climbed 4.6% in October from a year earlier, higher than September’s 4% rise and the largest increase since 1991.

(GIF from rebloggy)

Not only have "greedy corporations" failed to raise prices significantly for the previous 20 years, boardroom avarice has been dampened by the growing emphasis on "stakeholder capitalism" and Environmental, Social, and Governance goals. In my humble opinion--and I'm no economist--business is not to blame for high prices.

And inflation is not the fault of the government, as those in charge of government have said.

It's truly a puzzlement.

Labor Day, 2021 In Hawaii: Unsettled

I sometimes wish that I was born later to experience all the technological marvels that I won't live to see. This Pollyannaish outlook is based not only on personal experience but also on extrapolating from the past pace of progress; how much better it is to be a middle-class American today than to be John D. Rockefeller, the richest man in the world 100 years ago.

However, not since the financial crisis of 2008-09 has a rosy continuation been so uncertain.

The coronavirus contraction, the optimism resulting from the recovery, and the re-imposition of lockdowns due to the delta, mu, and other Greek-letter variants, are unsettling to say the least.

Significant numbers of workers have lost their jobs permanently, while new jobs have opened up in industries and locations that these workers will have great difficulty moving to.

And nowhere in the United States is the tradeoff between safety and economic recovery as stark as in my home state. Just as the travel and leisure industry was re-opening, it's all being shut down again. [bold added]

A drop in visitor arrivals to Hawaii from the spread of the delta variant and COVID-19 containment measures is creating a new round of tourism sector layoffs, furloughs and reduced hours just as federal unemployment aid is ending.

Hawaii got a small spike in travelers for the Labor Day holiday, but not nearly as many as were expected before Gov. David Ige asked visitors not to come to Hawaii through October. Since that announcement, travel here has plummeted.

And it’s only expected to get worse next week when Honolulu Mayor Rick Blangiardi’s Safe Access O‘ahu kicks in and Maui Mayor Mike Victorino institutes a health pass. Both programs will make it more difficult for unvaccinated visitors who come to Hawaii on a pre-test exemption to patronize certain businesses.

The slowdown is welcome news for residents who are worried that the state’s health care resources aren’t adequate to handle surging COVID-19 cases. However, it couldn’t have come at a worse time for Hawaii’s economy.

Two programs — one that provides jobless aid to self-employed and gig workers, the other to people who’ve been unemployed for more than six months — are expiring today.

Hawaii's re-imposition of controls has occurred because hospitals are running out of ICU beds:

Healthcare Association of Hawaii’s Hilton Raethel told lawmakers every Oahu hospital, except for Tripler Medical Center and Kapiolani Medical Center, is at or near ICU capacity.

The state has 223 licensed adult ICU beds in all of its medical facilities.

Amid hospital crisis, governor pledges strict enforcement of COVID rules over holiday weekend “We’re getting close to not being able to provide ICU care for patients needing it, which means some patients will not get the optimal level of care to maintain health and potentially life,” he said.

During the pandemic’s peak last August, 131 COVID patients were hospitalized. Now there are more than 440 and the forecast isn’t promising.

“All the models say the hospitalization numbers will continue to climb into, if not through, most of September,” Raethel said.

Before the pandemic, there were nearly as many Native Hawaiians who live on the Mainland as in the Islands. Expect the exodus to increase, as the high cost of living and the dependence upon COVID-hamstrung tourism have made Hawaii a very tough place to find a job.

Inflation: I Hope They Know What They're Doing

March, 2021: Brisket $3.69/lb

The headline story in Friday's WSJ comes as no surprise. On our weekly shopping trips we've been noticing substantial increases in the price of food, and it's a good thing that we don't drive much any more because Bay Area gas is almost $4 per gallon. As noted in an earlier post, we've been having flashbacks to the 1970's. [bold added]

The Labor Department said last month’s increase in the consumer-price index was the largest since August 2008, when the reading rose 5.4%. The core-price index, which excludes the often-volatile categories of food and energy, jumped 3.8% in May from the year before—the largest increase for that reading since June 1992.

May, 2021: Brisket $4.49/lb

Consumers are seeing higher prices for many of their purchases, particularly big-ticket items such as vehicles. Prices for used cars and trucks leapt 7.3% from the previous month, driving one-third of the rise in the overall index. The indexes for furniture, airline fares and apparel also rose sharply in May.

To be sure, a portion of these price hikes represents a springing back of demand from the lockdown economy of one year ago. A comparison with pre-COVID 2019 is less alarming:

June, 2021: Brisket $5.49/lb

The annual inflation measurements are being boosted by comparisons with figures from last year during pandemic-related lockdowns, when prices plummeted because of collapsing demand for many goods and services. This so-called base effect is expected to push up inflation readings significantly in May and June, dwindling into the fall.

Compared with two years ago, overall prices rose a more muted 2.5% in May.

Policy-makers are currently behaving as if the inflation spike is temporary.

Despite his fears, your humble blogger hasn't seen convincing evidence that they're mistaken. Like last year, when our worries were about a different subject, we're forced to trust that the experts know what they're doing. And it worked so well the last time....

A Spike in Coverage

There's been a spike in coronavirus cases in the United States.

Although the WSJ article was packed with information, your humble blogger has trouble grasping written descriptions of numerical data and can comprehend it more easily in graphs or tables. Below are graphs from the Johns Hopkins COVID-19 website via Google:


U.S. Total Cases = 9,020,000

U.S. Deaths = 229,000

Comments:

1) Yes, infections have spiked, but deaths per day have leveled off.

2) With total U.S. cases of 9.02 million and total deaths of 229,000, the cumulative data showed that one has a 2.5% chance of dying if one contracts the coronavirus.

3) The chances of recovery from COVID-19 are getting better than 2.5%. Whether due to improved treatment, better health among the new cases (for example, younger, fitter patients), earlier detection, or a combination of factors, the graphs show that the chances of dying after diagnosis is now 1% or less.

4) The coronavirus is unquestionably deadlier than the flu. According to the CDC 2018-2019 infections and deaths were 35.5 million and 34,200, respectively, which is a 0.1% chance of dying if one catches the flu. In 2017-2018 infections and deaths were 44.8 million and 61,099, respectively, a 0.14% mortality.

5) A vaccine is not yet available for the coronavirus, while flu infections and deaths are undoubtedly lower because a flu vaccine has been widely distributed and is inexpensive.

6) If I were in charge, I would recommend masks and social distancing indoors with modifications for quality of ventilation. I support universal reopening and would require each establishment (e.g., schools, churches, restaurants) to post its policy so that patrons are fully informed before they make the decision to enter. Then again, it's probably a good thing that I'm not in charge.

Bay Area: "Cascading Catastrophes"

SF on Wednesday: it's not the fog. (Chron)

We alluded to Northern California's perfect storm of problems--wildfires, COVID-19, homelessness, unemployment, crime, etc.--two days ago. The Chronicle describes how State and local governments are overwhelmed:

Firefighters may face increased risk of contracting the coronavirus while living and working in close quarters on the front lines. In hospitals and evacuation shelters across the region, people suffering smoke exposure may have symptoms that could be confused for COVID-19, complicating care and draining resources.

“These are all cascading catastrophes. We’re looking at the consequences of these overlapping emergencies,” said Dr. Matt Willis, the Marin County health officer. “We had been concerned there might be a fire here or there. And now we’re dealing with fires everywhere. And while we’re still seeing all this viral transmission.”

And on top of it all, everyone’s exhausted...

Adding to the constant chaos [not a hyperbolic description of the way things are, per Democratic VP Nominee Kamala Harris] is the confusion from government officials: [bold added]

In a pandemic, people are told that outdoor activities are better than inside. But with smoke choking the region, everyone’s being told to stay inside now. People evacuated from their homes often are urged to stay with friends or relatives if they can. But that’s not necessarily a wise choice now, either, when the pandemic message is to avoid others.

Don't count on the government to save us or our homes. It's paralyzed by indecision and is spewing conflicting advice in all directions. It also lacks resources; across Northern California Cal Fire is hoping the fires burn themselves out.

When the crises are over, a lot of jobs won't be coming back, and neither will the people who fled "temporarily".

Off the Table

"Off the table" means that something is not a matter for negotiation. In investments it refers to lowering risk, as in "taking money off the table".

The latter is a gambling term used in finance, but to the professionals who insist on distinguishing gambling and investing, give it up already; the public, including myself, will never concede that there is a difference in kind.

This morning the Labor Department reported that the economy added 2.5 million jobs in May, a huge positive surprise given that job losses in the millions had been expected. The stock market took off--as of this writing the Dow Jones Industrial Average is up over 900 points--and it's time for your humble blogger to take some money off the table.

Apple is up 12.34% year-to-date, and the NASDAQ is up 9.49%; it's as if COVID-19 never happened.

I've sold winners and losers into this rally, including the flyer on Winnebago (WGO) in April--because I don't think the enthusiasm is warranted. There are the three "C's" to worry about--China, coronavirus, and civil unrest--and the economy remains heavily damaged by the lockdown.

The second quarter earnings reports are going to be horrible, and the bright future that the stock market is forecasting won't be uniform. Travel and leisure, restaurants, sports, and retail will incur heavy expenses getting traffic back to normal and normalcy will take years.

So I'm taking some profits but still have a majority of holdings in stocks. Pigs don't win.

Homelessness: We Only Say It's Our Top Priority

A recent poll found Californians' top concern to be homelessness, and the Chronicle offers only a perfunctory solution: [bold added]

San Jose homeless encampment (Mercury News)

Their two other top issues — jobs and the economy, followed by housing costs — are closely related to homelessness.

...No city in California can do it alone, in fact. The magnitude of the state’s intertwined problems on housing and homelessness has outstripped the resources of any one local government. Judging from the Public Policy Institute poll results, voters appear to be realizing this. Now they just need their state and local governments to work together on a solution.

For the Bay Area, that means a regional solution, with each city doing its part to increase all housing in general and very low-income housing for the homeless population. Because too many cities have failed to do their fair share, it makes sense for the state to take on a strong enforcement role.

All of our elected leaders need only look at voters’ top concerns to see the wisdom — and the necessity — of this course.

Commuters in stopped traffic trying to get home on the
Hayward-San Mateo Bridge 10 mi away (Mercury News)

The Chronicle editorialists are correct in saying that the problems are "intertwined" but their solution--adding a layer of regional bureaucracy and more power to the State for "enforcement"--is pedestrian, slow, costly and likely to produce reports that would be obsolete as soon as they're printed.

A far more pragmatic approach would be for individual cities to free up housing development on the many thousands of acres of open space in the Bay Area. These lots could be as highly regulated as the cities want to make them and could be developed on a pilot basis. Less bureaucracy, more property tax dollars, less traffic congestion and pollution would be the benefits.

But of course this approach wouldn't even be considered, since we Peninsula property owners prefer the open spaces that we visit 1-2 times a month over our East Bay neighbors who sit on the bridges, cars idling, for hours every day.

So let's get yet another regional planning board going. At least it will create more government jobs, though that's not what the California poll respondents had in mind.

Even Hans Brinker Won't Be Enough

Back when heroes didn't have super-powers, a favorite children's story was about the little Dutch boy, Hans Brinker, who saved the town by putting his finger in the dike. Nowadays saving the Netherlands from rising seas involves expert engineering and vast expenditure of resources.

Headline: Dutch reinvent critical dike as seas rise, climate changes

The Afsluitdijk is 20 miles
long. (Wikipedia)

Engineers are strengthening the Afsluitdijk, including laying thousands of custom-made concrete blocks and raising parts of it....Engineers built a scale model of a cross section of the Afsluitdijk in the tank and are pounding it with waves that they say should occur only once every 10,000 years. The goal is to make sure the new design can survive the destructive power of such a storm.

The government has earmarked nearly $20 billion to fund such projects for the period from 2020-2033.

$20 billion is the equivalent of $460 billion to the United States, which has an economy 23 times the size of the Netherlands. The Dutch are devoting a huge portion of their resources to defenses against rising seas; one doesn’t need to buy into all the tenets of climate change to take action when one’s survival is at stake.

We're Number One

(Chronicle table)

San Mateo County has the lowest unemployment rate (2.2%) in the State of California. Eight of the ten counties in California with the lowest unemployment rates are in the Bay Area. Given the difficulty in attracting workers to live in an area with an extremely high cost of housing, one could expect employers to expand elsewhere, but such was not the case.

Between May and June, employment in these two counties increased by about 5,000 jobs to 1,188,200. Business and professional services added 4,700 jobs and information grew by 2,200. Most technology-related jobs are in those two sectors. The financial sector grew by 900.

“Job growth in the Bay Area remains well ahead of the national average, with San Francisco, the Peninsula, San Jose, and the North Bay growing faster than the East Bay,” Jed Kolko, chief economist with job site Indeed, said in an email. “It’s striking how strong job growth remains in San Francisco and San Jose despite the high cost of living here, as most of the fastest-growing metros in the U.S. are relatively affordable” places in the Sunbelt and Mountain states.

If your housing is manageable (a big qualifier) and if you are able to work, then you should be able to find a good job.

May Day, 2019: Getting Better

Portland May Day ICE protest.

May Day is a day devoted to worker solidarity and protest. Often the demonstrations and marches spread to include other causes, such as immigration (see photo right) or the environment.

It seems to this humble observer that the original focus on the worker seems to have been lost, for on the jobs front there is less to complain about than ever.

Despite war and recession jobs are at an all-time high (BLS).

The U.S. private sector added 275,000 jobs in April, according to the ADP National Employment Report released Wednesday, a far greater number than analysts expected.

Economists surveyed by The Wall Street Journal expected the private sector to gain 177,000 jobs.

The mighty U.S. economy has created jobs under two Democratic and two Republican Administrations. Neither war, financial collapse, automation, or political rancor has knocked it off its stride.

May Day is marked by complaining about how bad things are. I prefer to celebrate how they're getting better.

The Stock Market and the Fed: We've Been Warned

One of the principal reasons for the stock market rout is the Federal Reserve's higher-interest rate policy. [bold added]

Fed officials have signaled in recent days they plan to proceed with another quarter percentage point increase in their benchmark short-term interest rate when they meet Dec. 19, marking their fourth rate increase this year. The market pullback does underscore however the uncertain outlook for what the Fed will do after that.

Fed officials are divided over how many times the central bank will raise rates next year. Projections released after the Fed’s meeting in September showed officials are roughly equally split over whether the economy will require two, three or four rate rises next year.

CNBC's Jim Cramer has been increasingly vocal about the Fed's actions, openly pleading with Fed Chairman Jerome Powell to pause after the December hike.

On Tuesday he made his strongest pitch yet that 2019 should not have any rate increases at all. He fleshes out his eight reasons (pictured right) at the link---his fundamental argument is that the economy is softening more than the Fed data shows.

Long-term Treasury rates are the most important driver of the stock market, and the short-term rates that the Fed controls drive the long-term rates, albeit not perfectly. If the Fed won't budge from its 2019 rate increases, the financial models tell us the stock market will go down. We've been warned.

The Unappreciated Man

Remembering the tenth anniversary of the financial crisis, WSJ columnist Greg Ip says George W. Bush doesn't deserve the opprobrium heaped upon him:

Mr. Bush’s legacy is overshadowed by many controversies of his own making, such as the U.S. invasion of Iraq, but his responsibility for causing the crisis that would cost his party the White House was at most minor and shared with predecessors.

Greg Ip's main point, however, is that President Bush deserves credit for rescuing the world's financial system during the critical months near the end of his presidency:

The day after Lehman Brothers failed [September 15, 2008], Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke went to President George W. Bush with bad news. Insurer American International Group Inc. needed $85 billion or it, too, would collapse.

Though unhappy and frustrated, Mr. Bush approved the loan, saying, “If we suffer political damage, so be it,” Mr. Paulson later wrote.

Scholars of the crisis rightly focus on the decisions that the three crisis managers—Mr. Paulson, Mr. Bernanke and New York Fed President Tim Geithner—made to rescue the financial system. Though unpopular at the time and still second-guessed, their actions were vital in avoiding a second Great Depression. Yet most would have been impossible without the president’s support, which Mr. Bush gave unreservedly from start to finish.

In 2008 it was far from clear what to do (image from
http://economicsofcontempt.blogspot.com)

President Bush made mistakes, but he also made courageous decisions during his second term. When everyone--Democrats and Republicans--were sickened by Iraq and called for U.S. withdrawal in defeat, he ordered the 2007 surge that rescued the war to such an extent that Joe Biden declared in 2010 that victory in Iraq "could be one of the great achievements of this administration." Mr. Bush's decisions after the Lehman bankruptcy likewise revealed the character of the man.

In 2005 I thought that President Bush would be viewed as a consequential (not the same as great) President. Some of his decisions have been over-ridden by both events and successors, but I have come to appreciate his character. Like George Washington, George Bush has stayed away from politics and declined even to defend his legacy. Long after we are gone, I suspect that historians will treat him more kindly.

Trump Trough?

After nearly a year of incessant media pounding (some merited, to be sure), after his abandonment by prominent business allies, after the firing or resignation of most of his key staff people, Donald J. Trump seems to have reached the nadir of his Presidency. The media megaphone/echo chamber has extrapolated the murder of a woman by a crazed white supremacist into the Holocaust and blamed Republicans by association.

In a sober illustration the Economist cover this week shows the President using a Ku Klux Klan hat as a megaphone. [bold added]

[the] president is politically inept, morally barren and temperamentally unfit for office.

However:

The economy is still perking along, the stock market is at an all-time high, and the U.S. hasn't entered any new wars. In fact the President's "fire and fury" speech, despite the near-universal handwringing, has for the first time in memory caused the North Korean regime to back down without being paid a bribe.

The insider leaks that have damaged the Trump Presidency may decrease or even disappear now that the two reputed leakers-in-chief, Reince Priebus and Steve Bannon, have departed.

Republican governance has rightly taken a hit because it has done nothing in the area of health care, tax reform, or infrastructure spending, but the year isn't over.

Warren Buffett said "Buy when everyone else is selling", in other words sell at the peaks and buy at the troughs.

Were Donald Trump a stock my instincts tell me that now is the time to buy.