News What is wrong with the US economy?

[russ_watters]

Transportation costs effect everything, however in America labor is the most significant cost of most projects.

That's true, but labor costs have not risen anywhere near as fast as fuel and construction costs over the past 2-3 years.

 

[turbo]

That's true, but labor costs have not risen anywhere near as fast as fuel and construction costs over the past 2-3 years.

No, they haven't. Labor costs have been stagnant for years, as US companies outsource as much labor as they can to places where labor is cheap, plentiful, and entails no benefits. Executive compensation has exploded while the wages of production workers have stagnated or declined, or their jobs have been eliminated. We can do better in the USA, but it might require a bit of honesty and corporate responsibility. Anybody want to bet on corporate responsibility being a driving force here??

 

[Astronuc]

Study: Men in Their 30s Make Less Than Their Dads
http://www.npr.org/templates/story/story.php?storyId=10438943

Day to Day, May 25, 2007 · Young men in their 30s in the United States are not doing as well financially as their fathers' generation did. A study released today on economic mobility shows that, on average, 30-something males make about 12 percent less than they would have 30 years ago.

The report appears to challenge the conventional wisdom that each generation will do better than the one before.

I'd like to see the study and details. Personally, I have made much more than my dad did at the same age.

Nation
Teacher Weighs In on '30-something' Study
http://www.npr.org/templates/story/story.php?storyId=10438946

Day to Day, May 25, 2007 · Tim Churchill, a social studies teacher at Wakefield High School in Arlington, Virginia, is 30 years old and has something to say about the news in the 30-something study released Friday.

 

[Astronuc]

Young house hunters turn to parents
http://news.yahoo.com/s/ft/20070606/bs_ft/fto060620071647119122

Cash-strapped offspring are turning to their parents for help, with almost half of first-time buyers reliant on their families to help fund their first property, according to the Council of Mortgage Lenders.

The council's latest research shows that 46 per cent of people under 30 are getting financial help from relatives to raise a deposit, up from 10 per cent in 1995.

Northern Ireland has the biggest proportion of first-time buyers dependent on their families for help, followed by London. Buyers receiving help put down a deposit of £57,000 in London last year - more than twice the amount in any other region, underlining the high barriers to home ownership in the capital.

This is a troubling trend, and I suspect it is unsustainable.

This is more along the lines of what is wrong with the global economy.

 

[russ_watters]

Study: Men in Their 30s Make Less Than Their Dads
http://www.npr.org/templates/story/story.php?storyId=10438943

I'd like to see the study and details. Personally, I have made much more than my dad did at the same age.

I probably make a little less, but I got started later and he has 3 degrees...

Anyway, my guess would be that the phenomena is real and is caused by competition with women, which largely didn't exist 30 years ago. My dad married a secretary without a degree and I'm not likely to marry someone with less than a degree and a professional job (assuming I ever find her...). So combined, my family will be better off than my dad's was.

 

[russ_watters]

Young house hunters turn to parents
http://news.yahoo.com/s/ft/20070606/bs_ft/fto060620071647119122


This is a troubling trend, and I suspect it is unsustainable.

This is more along the lines of what is wrong with the global economy.

I'm not sure how I feel about this. 46% seems like a lot, but if parents can help responsibly, I don't see a problem. My parents got help from their parents in the form of a loan. I didn't, but then I only put down 5% and as a result have to pay PMI. Parents are often in a position to give substantial help to their children, with little actual input.

I do have another friend (age 28), however, who I'm pretty sure got a gift for the down payment and was even given her parents old car after her car lease expired. They are simply subsidizing her lifestyle, which I don't agree with.

 

[Astronuc]

Well it certainly seems that the economy is working for these guys.

Goldman Sachs, the world's most-profitable investment bank, reported earnings of $2.33 billion in the second quarter ended May 25, up slightly from last year's second-quarter earnings of $2.31 billion. Revenue from investment banking rose 13 percent to $1.72 billion, a record for the firm. But revenue from Goldman's fixed income, currencies and commodities business fell 24 percent to $3.37 billion, hurt in part by a weak mortgage market.

http://www.nytimes.com/reuters/business/reuters-goldman.html

Goldman Sachs already has the highest-paid chief executive on Wall Street. Now, even his lieutenants make more than nearly all other C.E.O.'s on the Street. The investment bank paid its two co-presidents, Gary D. Cohn and Jon Winkelried, bonuses of about $52.5 million each for the 2006 fiscal year, the firm said in a regulatory filing yesterday. Added to their $600,000 salaries, Mr. Cohn and Mr. Winkelried made nearly $53 million.

http://dealbook.blogs.nytimes.com/2007/02/21/goldmans-co-presidents-take-home-52-million-bonuses/


http://www.bloomberg.com/apps/news?pid=20601087&sid=a4m20ZAt89rw

In a potential blow to Blackstone Group's highly anticipated initial public offering, two United States senators have introduced legislation that could significantly increase taxes on publicly traded private equity firms and hedge funds. The bill, presented late Thursday, would tax as corporations all publicly traded partnerships that derive most of their income by managing other people's assets, like Blackstone and the Fortress Investment Group, which went public earlier this year.

If the bill succeeds, Blackstone and Fortress would have a five-year grace period to comply with the law. Still, The New York Times said that investors could shave off 15 percent to 20 percent of Blackstone's $40 billion valuation (and, by extension, the $7.7 billion stake that Blackstone chief executive Stephen Schwarzman will own).

Schwarzman's bonus last year was ~$400 million.

 

[Astronuc]

Something to watch -

Bill Cuts Tax Break for Private-to-Public Equity Firms
http://www.npr.org/templates/story/story.php?storyId=11118159
by Jack Speer

All Things Considered, June 15, 2007 · Private equity firms planning to go public may not be able to take their favorable tax status with them.

A bill introduced in the Senate would require private equity firms to pay the regular corporate tax rate rather than the much lower "capital gains" rate they currently pay.

The sponsors – Sens. Charles Grassley (R-IA) and Max Baucus (D-MT) — say they are motivated by The Blackstone Group's plan to go public later this month.

Blackstone Capital is planning to go public with an IPO that will net BC execs $billions.

http://www.npr.org/templates/story/story.php?storyId=10991516

All Things Considered, June 12, 2007 · One of the most powerful private equity firms is selling shares to the public — about 10 percent of Blackstone Group will be made available to investors in an initial public offering later this month. Blackstone's IPO is expected to yield a huge bonanza to key executives.

CEO Steve Schwarzman's shares are likely to be valued at $7.5 billion, and company co-founder Pete Peterson will reap more than $1 billion.

 

[Astronuc]

Penny Stock Scams Still Cheating Millions
http://www.npr.org/templates/story/story.php?storyId=11103528

Morning Edition, June 15, 2007 · Penny stock scams are still relieving investors of hundreds of millions of dollars each year. Why are some firms so good at targeting Americans looking to make a quick buck on the market? Rob Frick, senior editor at Kiplinger magazine, discusses the issue with Steve Inskeep.

If someone calls with an amazing stock tip, just decline the offer and ask to be taken off the calling list. If the same person/company calls again, report it to the state attorney general's office.

Also, if one receives an 'unsolicited' email pushing a stock - one can also report it or place it in junk or spam folder.

Always do research when investing. The research should involve not only the company, but the business sector of the company, in order to understand the competition and potential for growth or decline.

 

[Plastic Photon]

The powers of inflation are beginning to take root, and before the decade is out, ethanol, alternative fuels and the likes will only appear as having been a revival of late green-t(a)inted sixties minds. You can't solve a fuel crisis by throwing money at it but you have got to spend money to make money.

 

[Astronuc]

Hold the Bus!

Too much debt - maybe?

A harder look at private-equity deals
http://marketplace.publicradio.org/shows/2007/06/27/PM200706271.html

A lot of the recent private-equity acquisitions have been paid for with borrowed money. But some of the people loaning the money for those kinds of deals are now saying there's too much debt involved. Amy Scott reports.

Hedge fund boom bound for bustville
http://marketplace.publicradio.org/shows/2007/06/27/AM200706272.html

As hedge funds become more accessible to everyday investors, commentator David Frum offers this friendly warning: It's not possible for thousands of funds to beat the market, year in and year out. And there will be losers when the ride is over.

. . . .

David Frum: The troubles at Bear Stearns are not a storm, not even a shower. But they are the first drops of rain from an overcast sky.

Not so long ago, the hedge fund was an exotic investment vehicle for the very sophisticated and the very wealthy. Often based outside the United States, exempt from U.S. securities regulations, hedge funds could pursue above-market returns by accepting abnormal risks.

In return for these huge rewards, hedge-fund investors paid huge fees — typically 2 percent of all the funds invested, plus 20 percent of the gains earned with their personal contribution.

It must have been worth it, because hedge funds proliferated. Today it's estimated that there are 8,000 of them.

Not much is known about these funds. They do not have to report the way a mutual fund does. But here's a safe prediction: It is not possible for 8,000 funds to beat the market, year in, year out.

And Britain is in possible trouble.

Brown takes reins as U.K. prime minister
http://marketplace.publicradio.org/shows/2007/06/27/PM200706273.html

Will the trouble spread.

 

[Astronuc]

But on the bright side -

The rich keep getting richer
http://marketplace.publicradio.org/shows/2007/06/27/PM200706277.html

A report out today says that about a third of the world's 9.5 million millionaires live in the U.S. Robert Frank, who writes the Wealth Report column for the Wall Street Journal, discusses the report with Scott Jagow.

 

[russ_watters]

The rich keep getting richer.

I should hope so!

 

[Astronuc]

U.S. Deal-Making Topped $1 Trillion in First Half
http://dealbook.blogs.nytimes.com/2...reaches-1-trillion-but-is-a-slowdown-looming/

Slowdown? What slowdown?

If the global deal machine is running out of gas, you wouldn’t know it from these numbers. The volume of mergers and acquisitions in the United States topped $1 trillion in the first half of 2007, a record for the first six months of any year, according to Dealogic. Deal activity was even stronger in Europe, where the combined value of mergers so far this year surpassed U.S totals for the first time in four years.

Goldman Sachs has been riding the deal wave. The investment bank was ranked the top M&A adviser across the world, in the U.S. and in Europe during the first six months of the year, Dealogic said. Goldman, which advised on 223 deals worth $788 billion, was followed by Morgan Stanley and Citigroup in the global M&A ranking.

The first-half figures suggest that, even if fears of a slowdown come true, 2007 is likely to break deal-making records. Dag Skattum, J.P. Morgan Chase’s global co-head of mergers and acquisitions, told Reuters that “it’s undoubtedly going to be the biggest M&A market ever.”

There are some ominous signs, however. April was the busiest month for deals so far this year, while June was the slowest. Volatile debt markets and concerns about interest rates have sparked concerns that the recent run of big deals, which has been driven in large part by debt-financed leveraged buyouts, could hit a wall.

The biggest concern may be debt service if the economy slows down.

 

[drankin]

So is it generally accepted that the US economy is just fine?

 

[Astronuc]

So is it generally accepted that the US economy is just fine?

Well - for some it's great, and many it's not. It all depends on whether one is heavily leveraged or not.

As an aggregrate, the economy seems doing well. But much of it apparently based on debt - e.g. deficit spending and debt accumulation of the federal government.

There are signs of weakness, e.g. sub-prime mortgage market, and in fact I just noticed a property in foreclosure, which was built only two years ago.

In conjunction with the Bank of International Settlements, there is concern about the accumulation of debt world-wide.

IMO, if current trends continue, the US and much of the world could see an economic downturn like the Great Depression about 70 years ago.

 

[edward]

The Comptroller General laid it on the line again tonight on 60 minutes.

Too much deficit spending for the government, too much credit spending by the people and the incredible cost of medical care, are the real enemies.

Video in link.

http://www.cbsnews.com/stories/2007/03/01/60minutes/main2528226.shtml

 

[Astronuc]

Increasing Rate of Foreclosures Upsets Atlanta
http://www.nytimes.com/2007/07/09/business/09auctions.html

ATLANTA — Despite a vibrant local economy, Atlanta homeowners are falling behind on mortgage payments and losing their homes at one of the highest rates in the nation, offering a troubling glimpse of what experts fear may be in store for other parts of the country.

The real estate slump here and elsewhere is likely to worsen, given that most of the adjustable rate mortgages written in the last three years will be reset with higher interest rates, said Christopher F. Thornberg, an economist with Beacon Economics in Los Angeles. As a result, borrowers of an estimated $800 billion in loans will be forced in the next 12 months to 18 months to make bigger monthly payments, refinance or sell their homes.

A big reason the fallout is occurring faster here is a Georgia law that permits lenders to foreclose on properties more quickly than in other states. The problems include not just people losing their homes, but also sharp declines in property values, particularly in lower-income and working-class neighborhoods.

For example, a three-bedroom house near Turner Field, where the Atlanta Braves baseball team plays, fetched a high bid late last month of $134,000 at an auction by the bank that took possession of it. Almost three years ago, the new home was bought for $330,000.

While the surge in foreclosures in other big cities like Cleveland, New Orleans and Detroit can be attributed to local economic challenges, Atlanta more closely reflects the nation. Its unemployment rate, 4.9 percent in May, is low and close to the national average of 4.5 percent. And businesses here are adding jobs, albeit at a slower pace than they were last year.

. . . .

Or how about ripping off the elderly?

For Elderly Investors, Instant Experts Abound
http://www.nytimes.com/2007/07/08/business/08advisor.html

Elderly clients thought they had every reason to trust Michael DelMonico as a financial counselor. After all, the Massachusetts insurance agent had become a certified senior adviser in 2002, a credential he made sure to advertise on fliers sent to retirees.

He did not mention how easy it had been to get that title.

He had paid $1,095 for a correspondence course, then took a multiple-choice exam with questions like, “Marketing can best be described as:” (The answer: “The process or technique of promoting the sale or distribution of a product or service.”) Like more than 18,700 other applicants since 1997, he passed.

Insurance companies, eager for sales representatives, embraced Mr. DelMonico, as they have thousands of other newly credentialed advisers.

The following year, insurers paid him commissions worth $720,000 as his business with retirees soared.

But many of those sales came from steering older Americans into unwise investments, Massachusetts regulators contend in a lawsuit.

Mr. DelMonico denies all wrongdoing, but one of his clients — a 73-year-old widow caring for a son with Down syndrome — said he tricked her into buying complicated insurance contracts that left her unable to pay dental and home-repair bills.

. . . .

It would seem those 'credentials' are worthless. Some people really get my hackles rising.

 

[ShawnD]

Increasing Rate of Foreclosures Upsets Atlanta

This is probably a good thing. Housing is supposed to follow the business cycle just like everything else, but lately (in terms of years) banks have been giving out bigger loans with small down payments, and it causes the prices to go way up. Having a huge amount of foreclosures is a "correction" to the market. Fewer people can afford home, the prices drop, and houses are $300,000 instead of $700,000.
Right now in my city the real estate prices are insane; think $500,000 for a house when there is literally no lack of space (suburbia could stretch for hundreds of miles in all directions). If a bunch of people need to file bankruptcy, it would only bring sanity to the market.

Your link gives numbers for that too:
"For example, a three-bedroom house near Turner Field, where the Atlanta Braves baseball team plays, fetched a high bid late last month of $134,000 at an auction by the bank that took possession of it. Almost three years ago, the new home was bought for $330,000."

In a few years I might be ready to buy a condo or a house. Would I rather pay $500,000 and take 30 years to pay it off, or would I rather have a bunch of people lose their shirts so the price drops to $200,000 or $300,000 and take only 20 years to pay it?

 

[edward]

ShawnD

It may be a good thing for some people to be able to buy a home at a lower price, but the overall situation could be a disaster.

The latest I have heard is that the mortgage companies don't even bother to repossess and auction many properties. They make a deal with the owner to go ahead and sell the property for the local market value and send them the check.

The mortgage companies claim it is cheaper than a repo and auction, which takes about six months.

I have a felling some big time property investors are getting off the hook this way. But who pays for it? You do when you pay a higher interest rate mortgage on that bargain house you bought.

You also pay for it when the mortgage companies take a tax write off for their loss.

 

[Astronuc]

Tax Break Used by Drug Makers Failed to Add Jobs
http://www.nytimes.com/2007/07/24/business/24drugtax.html
By ALEX BERENSON, NYTimes, July 32, 2007

Two years ago, when companies received a big tax break to bring home their offshore profits, the president and Congress justified it as a one-time tax amnesty that would create American jobs.

Drug makers were the biggest beneficiaries of the amnesty program, repatriating about $100 billion in foreign profits and paying only minimal taxes. But the companies did not create many jobs in return. Instead, since 2005 the American drug industry has laid off tens of thousands of workers in this country.

And now drug companies are once again using complex strategies, many of them demonstrably legal, to shelter billions of dollars in profits in international tax havens, according to their financial statements and independent tax experts.

In one popular accounting move, companies declare their foreign markets as far more profitable than their American businesses — even though drug prices are typically higher in the United States than anywhere else in the world.

. . . .

But hey, all those layoffs mean more profits!

 

[edward]

What is going on with the stock market? It doesn't make sense. We have a record high (above 14,000) a week ago, and now it takes a dive. The drop is attributed to financial problems associated with the housing market. But that problems isn't new. it has been in the news for several months. In the course of one week we have had opposite extremes in the so called "mood" of the market without any apparent change in existing conditions.

The U.S. stock market, which has shown great resilience this year despite mounting fears, is starting to buckle under the weight of the financial fallout caused by the housing bust and mortgage meltdown

http://www.usatoday.com/money/markets/2007-07-26-mart_N.htm

The record gains for the Dow and S&P came despite news of slowing retail sales, a burgeoning trade deficit and a declining housing market. News that Home Depot and Sears were forecasting weaker sales had pushed the stock market down 148 points Tuesday. Though the financial news didn't get substantially better over the next three days, the market still rebounded.

http://www.signonsandiego.com/news/business/20070714-9999-1n14stocks.html

 

[Astronuc]

Well, several leveraged buyouts are being reconsidered.

The aggregate debt is a concern.

According to the latest numbers, the economy is 'still recovering.'

Despite strong GDP, another down day
http://marketplace.publicradio.org/shows/2007/07/27/PM200707271.html

Nothing macro-economic changed between 4 yesterday afternoon in New York and 8:30 this morning in Washington. But the two numbers that were posted at those hours, they give you some pause — 311 points down on the Dow yesterday, gross domestic product up almost 3.5 percent this morning. Yes, the GDP number is what's called a lagging economic indicator. That is, it tells you what's already happened. But still somehow you'd have thought it would drive investors up today instead of down. Instead, the Dow gave up another 200 points.

http://marketplace.publicradio.org/apheadline_detail.php?story_id=D8QL804O0&group=ap.online.headlines.business
By JEANNINE AVERSA - AP Economics Writer

The best barometer of the country's economic fitness _ gross domestic product _ increased at a 3.4 percent annual rate in the second quarter, the Commerce Department reported Friday.

Businesses regained their appetite to spend and sold more good overseas, contributing to the improved performance. Stronger government spending also helped out.

Individuals, however, took a breather as they coped with high gasoline prices and the ill effects of the housing slump, including spiking foreclosures and late mortgage payments. The sour housing market continued to weigh on the economy but not nearly as much as it had in previous quarters.

Economic growth in the first three months of the year had slowed to a near crawl of just 0.6 percent, the slowest in more than four years.

The economy is mixed. One big problem is the amount of borrowing by the government and consumers. There could come a time when the debt service exceeds the ability to repay.

 

[Gokul43201]

The market had been overvalued for several months now.

 

[russ_watters]

What is going on with the stock market? It doesn't make sense. We have a record high (above 14,000) a week ago, and now it takes a dive.

That should make perfect sense.

The dow, ytd: http://finance.google.com/finance?cid=983582&client=news
S&P: http://finance.google.com/finance?cid=626307&client=news

 

[Math Is Hard]

I don't know what's going on with the housing market in the rest of the U.S., but the 17,000+ foreclosures in California was pretty bad news. All that fairy tale financing, and now it's time to pay the piper.
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-07-24T230626Z_01_N24251199_RTRIDST_0_PROPERTY-CALIFORNIA-FORECLOSURES.XML

 

[Astronuc]

What is going on with the stock market? It doesn't make sense. We have a record high (above 14,000) a week ago, and now it takes a dive. The drop is attributed to financial problems associated with the housing market. But that problems isn't new. it has been in the news for several months. In the course of one week we have had opposite extremes in the so called "mood" of the market without any apparent change in existing conditions.

Well it makes sense if one considers "irrational exhuberance", which still abounds, combined with speculative investing and ignoring the fundamentals.

Many companies have low returns on investment, which does not support the relatively high stock prices in some/many cases.

What one has seen in the last two days are some people getting out quickly. They might come back in next week if the market moves up, or they'll stay out until the market goes down. It all depends on the news this weekend and next week.

 

[edward]

What one has seen in the last two days are some people getting out quickly. They might come back in next week if the market moves up, or they'll stay out until the market goes down. It all depends on the news this weekend and next week.

What I questioned was Why people would get in and out quiclky based on the same information that was available in both the short (1 week) up and the down cycle?

There has to be more to it than that. Computerized trading could be one aspect. As far as profit taking, it appears to be structured to take advantage of the average investor. What kind of a prolonged stable economy could be based on something that fickle, or perhaps corrupted?

Repeated profit taking by the big traders will suck the life out of the average investor and is no basis for long term prosperity of any company with stock traded on the market.

I see the increasingly irrational function of the market itself as a basis for concern. The whole thing has turned into one big casino. If it is true that traders are doing little more than making wagers based on whatever appears in the daily news, we could be in for a permanent decline triggered by a temporary situation.

 

[edward]

That should make perfect sense.

The dow, ytd: http://finance.google.com/finance?cid=983582&client=news
S&P: http://finance.google.com/finance?cid=626307&client=news

Ya sure perfect sense.

From your the link within your link:

During yesterday's stock-market meltdown, a number of pundits observed that markets around the globe were "re-pricing risk." In Wall Street jargon, that's a fancy way of describing a good old-fashioned panic attack.

http://www.forbes.com/finance/2007/07/27/turkcell-sadia-selloff-pf-ii-in_jc_0727soapbox_inl.html

For some reason, perfect sense and panic attack don't add up for me.

 

[turbo]

What I questioned was Why people would get in and out quiclky based on the same information that was available in both the short (1 week) up and the down cycle?

A lot of trading is automated, based on models designed to maximize short-term gains. We may have seen the predictable result of exceeding another "magic" number in the averages. If you're trading in volume, and your trading program sees a potential to lock in profits in what may be an over-valued stock, it may dump that stock, only to place "buy" orders on the same stock when its value plummets.