Breaking News ... Update On French Negotiations with ArcelorMittal Steel

A compromise has been reached between France and ArcelorMittal whereby the company will shutter its furnace operations but agree to maintain its current level of employment by shifting work to another part of the total facility.

While I guess that's progress, my bet would be that saving six hundred jobs in France will come at a heavy cost to the country and its workers. Companies deciding where to invest in the future will almost certainly decide against France more times than not after all the nationalization talk by French President Hollande this week.

ArcelorMittal Negotiates Closure of Furnaces in France has the story:

"PARIS—The French government and ArcelorMittal were in discussion on Friday to see how the steel giant could close part of a plant it owns in the country while escaping the threat of nationalization leveled by Socialist President François Hollande.

Under a proposed compromise solution, ArcelorMittal would close the two blast furnaces at its Florange plant in eastern France, government and company officials familiar with the matter said. But instead of simply eliminating the 600 jobs attached to the furnaces, the company would commit to creating the same number of jobs elsewhere in the complex, these people said.

The French government and ArcelorMittal have been at odds for months over the fate of the Florange plant, which employs about 2,600 workers. The dispute reached fever pitch on Tuesday when Mr. Hollande summoned ArcelorMittal Chief Executive Lakshmi Mittal to the Elysée palace and said his government would consider temporarily nationalizing the plant if the company didn't retreat from its decision to close the blast furnaces or refused to sell the entire facility to a competitor.

ArcelorMittal, the world's biggest steelmaker by volume, said it wanted to close the furnaces because they are too small and far from raw-material sources. Yet, the company said it didn't want to sell the rest of its Florange plant, especially a factory which refines and finishes steel, mostly for the auto industry.

Union officials, who were briefed on Friday's discussions by the French government, said they feared it will be hard to create new jobs in other parts of the plant because demand for its products across Europe is weak.

"We know the demand for cars will be low next year," said Frederic Souillot a worker representative affiliated with the Force Ouvrière union. "If there is no market for the increased output, there is no guarantee for the jobs."

A nationalization of the Florange plant could fuel concerns about France's treatment of foreign investors.

"Even if the nationalization is avoided, the whole mess was very bad publicity for the government," said Elie Cohen, an economist at the Sciences Po university in Paris. "Investors have no clear vision about what are the government's policies toward business in general."

A nationalization would also be a headache for ArcelorMittal.

The company, which employs 20,000 people in France, would need to restructure its regional supply chain."

Summing Up

Well, it looks like ArcelorMittal will dodge a French nationalization bullet this time.

Now let's see what the French government does about the shipyard unions wanting to nationalize the Korean company's operations. {NOTE: For that story, please see the post immediately preceding this one.}

Only in France is stuff like this the subject of serious discussion.

And as a result, France and its citizens will suffer economically for a very long time to come as companies will certainly choose to invest elsewhere in the future. Who can blame them?

Thanks. Bob.

Now There's Talk in France About Nationalizing the French Shipping Industry

When it rains, it pours.

And it's raining all over the concept of private property rights in France these days. The 'rain' began began earlier this week with President Francois Hollande threatening to nationalize some steel making facilities owned by ArcelorMittal. That was all the encouragement needed for French labor unions representing shipyard workers to call for the French government to expropriate the  property of a South Korean company. So now the 'downpour' has come to France.

To begin with, let me confess my clear bias. The French are crazy. At least that's my long held view. Now let's continue.

Earlier we reported on loose talk by Socialist French President Francois Hollande about perhaps nationalizing some of Arcelor's steel making facilities.

Now it's shipping that gets the nod. Seems like the "good" old days of nationalizing businesses may be returning to France as efforts to kill any hopes of economic growth and the future well being of French citizens are underway by influential French union leaders in support of the recently elected Socialist French President.

Talk of Nationalization Gets New Life in France tells about the union movement to nationalize shipping:

 

Workers demonstrating in May for the STX shipyard in St.-Nazaire in France to stay open despite a lack of orders.

"PARIS — Has President François Hollande let the nationalization genie out of the bottle?

After Mr. Hollande and his industry minister raised this week the possibility that the French state would take over an ArcelorMittal steel factory in a dispute over the foreign company’s plans to close two blast furnaces, union workers in another industry — shipbuilding — are calling for the government to seize their foreign employer’s property.

 

The French corporate establishment is bracing for a global backlash, if the nationalization impulse takes hold.

 

On Thursday, unions representing workers at the STX shipyard in Saint-Nazaire, on the Atlantic coast, issued a joint statement demanding that the French government “do everything possible to keep the shipyard open, even, if necessary, breaking European Union rules.”

 

The shipyard is already partially owned by the French government, but is controlled by STX, a South Korean business group. With business slow in the yard’s mainstay cruise ship building industry, about half of the shipyard’s labor force of 2,100 is now idled. The unions are betting that the current Socialist government, if it controlled the shipyard, would put everyone back to work.

 

“The door is open, and we want to open it as wide as possible,” Jean-Marc Pérez, the representative of the Force Ouvrière union at the STX shipyard, told the media. The nationalization of the shipyard, where almost half of the 2,000 workers are furloughed on partial pay, “is essential,” he said.

 

An STX spokeswoman in Saint-Nazaire and a spokesman in Seoul both declined to comment on the unions’ demands. . . .  

 

Unions have long called for government intervention at the shipyard, given the labor lull. But the dispute with ArcelorMittal, the world’s largest steel company, and based in Luxembourg, is giving new life to their demands. . . .  

 

Talk of nationalization is being applauded by some in a country where the jobless rate is over 10 percent, and where intervention is not a dirty word. In the early 1980s, the last Socialist president, François Mitterrand, nationalized much of the economy, before later reversing course.

 

Jean-Luc Gironde, a Force Ouvrière spokesman in Paris, said the union did not advocate nationalization as a general policy. But “in a case like ArcelorMittal, where the enterprise has been the beneficiary of public funds, why not?”

 

But there has also been a sharp reaction from business leaders.

 

“If the point is to add pressure and blackmail in the negotiations, it is inadmissible,” Laurence Parisot, president of the Medef employers’ lobby, told RTL television on Thursday. “Our society is built on the basis of property rights,” she added. “To undermine that principle is scandalous, and it’s expensive.”

 

Summing Up

 

Socialism, the collective ownership of property, means that property is owned by the sovereign and not by private indiviudals or companies.

 

The difference between property that is owned publicly, aka collectively, and property owned privately, aka individually, is very simple. Unlike private property ownership, when property is owned by the public, nobody can sell what everybody purportedly owns.

 

And it's the same way with jobs and the payroll. Nobody's in control when everybody's in control.

Who pays the employees who occupy the jobs that the nation supplies? All of the nation's taxpayers.

At least that's what happens when the "government business" isn't profitable.

And if the private sector company owners can't make a profit, you can be dead certain that the government won't be able to do so.

 

Which brings us to the whole problem with government spending. It's money spent on behalf of everybody, so the money spent is controlled by nobody.

When it's all about OPM, MOM isn't even in the game.

 

The French are crazy, and the French are also broke. The French have a double digit unemployment rate, and their nation's finances are in shambles.

If they now embark on even a semi-serious discussion to create jobs by nationalizing unprofitable private businesses, they really will be up that famous creek and without a paddle.

 

People often do crazy things, but the French people, and their leaders, take craziness to a whole new level.

 

We'll stay tuned but in the meantime, let's hope our U.S. politicians are paying attention to all this French nonsense and where continuous and ill advised business bashing can lead a nation's people.

Nowhere good, that's for sure.

 

Thanks. Bob.

 

 

Caterpillar's China Strategy ... Best Defense is a Good Offense

In sports like basketball, the really good teams find a way to win on the road.

These teams frequently employ the "best defense is a good offense" strategy by taking aggressive offensive actions, making their opponents concentrate on stopping them from scoring at will. And when that happens, the other teams often find their own offensive game plans faltering.

Since the objective is to win the game, that means simply outscoring your opponent through the 1-2-3 approach -- (1) playing smart, (2) together and (3) hard.

Put more points on the board and your team will win. It's that simple.

That 1-2-3 aggressive approach has been used successfully by Caterpillar with its Japanese competitor Komatsu, and it's being employed again in China. Cat management is smart to do so.

Caterpillar Strategy in China: Go Low discusses Cat's low cost and no frills approach to competing with the Chinese in their own back yard:

"When Komatsu pledged to "strangle" Caterpillar in the U.S. three decades ago, executives at the Peoria, Ill., company countered by taking on the Japanese construction-equipment maker in its home market.

Now as Chinese companies emerge as global players, Caterpillar is hoping to take a similar tack.

Many of China's top construction equipment makers, such as Sany Heavy Industry and Zoomlion Heavy Industry Science and Technology are becoming more active internationally, building production facilities and distribution networks. Chinese companies can be expected to win "in the international competition," Sany Group Chairman Liang Wengen told reporters this month.

Caterpillar is pushing back. "We're bringing our game to China," Group President Ed Rapp said. "The best way to beat Chinese outside of China is to compete and win with them inside of China."

Shandong Engineering Machinery Co. is at the core of Caterpillar's strategy. Since SEM became a wholly owned unit in 2008, Caterpillar has expanded the Chinese company's product line beyond wheel loaders, adding motor graders, bulldozers and paving machinery. The aim: Manufacture no-frills, inexpensive equipment for the price-conscious Chinese market. SEM products sell at 30% to 50% less than their Caterpillar-branded counterparts. . . .

That low-price segment increasingly is critical for Caterpillar as its core business is pressured in China. The construction-equipment market took a nose dive in the second quarter of last year from which it has yet to recover. Analysts say sales in some categories have plummeted while inventories have skyrocketed and that recovery seems far off.

Other foreign makers of construction equipment in China also are stepping up the fight against domestic competitors by producing more lower-price models, typically under separate brand names.

"Sales of new machinery may pick up next year but not that much," said Shi Yang, of Off-Highway Research, a construction-management consulting firm. . . .

Caterpillar says it will reduce the pace of investment in China by re-evaluating its expansion plans. The company has pushed back plans to add a building at its facility at Xuzhou, about 500 kilometers northwest of Shanghai. . . .

For Caterpillar's Mr. Rapp, success in China is crucial. "If you are going to be a good baseball team, you have to win on the road," he said. "Winning in China is us winning on the road."

Summing Up

China is not only going to be a big market for Cat, but Chinese companies are emerging as much bigger and forceful global competitors.

Accordingly, Caterpillar is well advised to develop a meaningful competitive presence and winning Chinese game plan, if only to make it more difficult for Chinese competitors to target the U.S. market.

SEM, Cat's wholly owned Chinese subsidiary, is able to sell its no-frills products for much lower prices than Caterpillar branded products, thereby enabling it to compete on equal terms with its Chinese competition.

While it won't be easy taking on the Chinese in the Chinese market, it's essential if Cat wants to win globally and also successfully defend its North American home turf.

Thinking globally while acting locally is an absolute imperative in global competition.

So who will win the global competition? My bet is that Caterpillar will do just fine.

They've long had an aggressive, smart and hard working competitive approach to business, and that's the winning way.

Thanks. Bob.

Putting Powerball and Politics in Perspective ... $550 Million is a Pittance

Powerball Politics puts the fiscal cliff budget negotiations and our national debt in proper perspective:

"Powerball tickets were sold at a rate of roughly 130,000 tickets per minute yesterday. That's because the highly ballyhooed jackpot was worth an estimated $550 million. Big, right?

But when you compare it to some of the dollar figures Washington is fighting over these days, it doesn't add up to much. To start, just to avoid falling off the fiscal cliff, lawmakers need to come up with 2,131 winning tickets before the end of the year—a total of $1.2 trillion. To fully pay off the national debt, Uncle Sam needs to win the $550 million jackpot once a day for the next 81 years.

The odds of either of those scenarios happening are, well, impossible. More feasible is the chance that lawmakers will arrive at some sort of solution before January 1—but only slightly according to some.

Still, Republican and Democratic leaders seem confident that a deal will be reached before the end of the year. "I am optimistic that we can continue to work together to avert this crisis sooner rather than later," Republican speaker John Boehner told reporters yesterday. President Obama said that we might see a resolution before Christmas.

Optimism is good. But—like in the lottery—it can only get you so far. Much work still needs to be done to bring the two sides to an agreement. Mr. Boehner also noted in his statement that, "In order to try to come to an agreement Republicans are willing to put revenue on the table, but it's time for the president and Democrats to get serious about the spending problem that our country has."

It's true that spending will likely be the next part of the fiscal cliff puzzle to be addressed. But time is running out. There's just over 30 days left to cut the equivalent of yesterday's big jackpot from the budget—2,131 times."

SUMMING UP

One single sentence from the above helps put things in perspective -- "TO FULLY PAY OFF THE NATIONAL DEBT, UNCLE SAM NEEDS TO WIN THE $550 MILLION JACKPOT ONCE A DAY FOR THE NEXT 81 YEARS.

Those numbers are mind boggling, of course.

Yet the politicians continue their free-spending ways with our money.

And in the meantime, they play unserious intramural games pretending to arrive at an agreement about how to bring revenues better in line with spending --- not to eliminate the trillion dollar annual deficits, mind you, but just to stop them from deteriorating further.

Here's my simple minded take.

If solid economic growth (at least 3% in annual real inflation adjusted terms) led by the private sector doesn't resume soon and if entitlements (Medicare, Medicaid and Social Security) aren't soon restructured in a long term serious way, it won't make any difference how many fiscal cliffs we avoid or go over in the interim.

Neither will it make any difference how many "powerball" games the politicians continue to play with our nation's future economic health and our citizens' potential prosperity.

Thanks. Bob.

Socialism vs. Capitalism ... French Steel Production ... Public Property or Private Property? ... French President in Action

Succincty put, individual private property ownership is a hallmark of free societies. In socialist countries, however, public property ownership is the norm.

Thus, free people in free market based economies possess ownership rights to use and dispose of their property as they choose. That's freedom and those property rights are protected and enforced by government and the rule of law.

In socialist countries, "everybody" owns the property. That means nobody owns it. Think government.

And then there's a social-democracy like France. The French are different. We all know that -- more socialist than free market but basically a hybrid of sorts, always leaning to the socialistic welfare based collectivist ownership side of the street.

To take a few examples of what make the French different than a free market economy, there are the legislated 35 hour work week, retirement age of 60, the frequent national strikes, the deplorable record of government spending in relation to revenues (sound familiar?), the ~11% unemployment rate and the nation's historically weak economic performance. France is not Germany.

And now recently elected President Francois Hollande of the Socialist Party is proving himself to be a true French "leader" as well. It seems like he has no clue about the respective roles of privately owned businesses and public sector government. Or the property ownership rights of private sector businesses. He's proposing to nationalize some steel making capacity owned by ArcelorMittal (a steel company that intends to shutter some of its loss making facilities) unless the company agrees to keep operating them at a loss. Now that's a new one, even for France.

Thus, President Hollande is poised to do even greater long term harm to an already heavily damaged French economy in the name of helping the French people keep their jobs. If he carries out his threat, how many companies will choose to invest in France in the future? Not many, I would argue.

Compared to Francois Hollande, our U.S. politicians look like free market libertarians.

To repeat, the Socialist French President's latest anti-business idea is to nationalize Arcelor Mittal's private property. Hollande has stated that if Arcelor proceeds with its plans to close some of its loss making operations, the government may nationalize them and strip ArcelorMittal of its property ownership rights.

Which begs the question of what exactly would the government of France intend to do with those facilities? In fact, the government would proceed to lose even more of the French taxpayers' money, all in the name of saving jobs for the short term. And for the longer term, these nationalized operations would prove to be an absolute disaster of an "investment" for the French people.

Hollande Should Steel Himself for a Reversal tells the story of who may end up owning what:

"Decisions taken under pressure can be revealing. Both France and steelmaker ArcelorMittal have had their credit ratings downgraded this month; the former amid questions over its economic model and the latter as it struggles to reduce debt and cut costs. ArcelorMittal's rational response, which includes the closure of blast furnaces in northern France, has generated an irrational response from French President François Hollande: a threat to nationalize the Florange plant to preserve jobs.

True, jobs are a hot topic in France. Unemployment stands at 10.8%, the highest since early 1999 and could rise to 11.3% in 2014, according to the Organization for Economic Cooperation and Development.

But Paris's response to ArcelorMittal's plans ignores the reality facing European steelmakers. There is at least 20% overcapacity in the European steel industry, Wolfgang Eder, president of industry association Eurofer, has said. European steel consumption is forecast in 2012 at 144 million metric tons, down 28% from the precrisis peak, rising only marginally in 2013, Eurofer says. The steelmaker, which employs 20,000 people in France, wants to cut 600 jobs at the furnaces but intends to preserve the rest of the site's 2,000 jobs. Yet French ministers say they want to keep Florange operating as it is.

Mr. Hollande's threat of nationalization underlines the difficulties French industrial companies face in restructuring their businesses, particularly if they are involved in a politically sensitive industry. Only last month, Paris intervened to prevent job losses at auto maker Peugeot. It also sits oddly with recent efforts to boost French competitiveness by cutting labor costs. Indeed, France's labor-market rigidity was one of the key factors in the loss last week of its triple-A rating from Moody's .

 

France's problem is that corporate investment is one of the few potential sources of growth at a time when consumers and the government are reining in spending. Mr. Hollande's threats risk encouraging companies to look elsewhere to invest. No doubt rating firms will watching to see how this spat plays out. What's clear is that France has more to lose than ArcelorMittal."

Summing Up

The French President's actions would be funny if they weren't so stupid.

He's going to run off the very businesses that France desperately need to invest in the French economy and provide jobs and future economic growth for its citizens, including government taxes to clean up its runaway financial debacle.

If he stays on his current path to threaten nationalizing the private property of businesses, he will ensure (1) an unwillingness by businesses to invest in France, (2) the failure of France's future business competitiveness and (3) forfeiture of the future prosperity and economic well being of the French people as well.

Stay tuned. This is all very interesting to watch. Very interesting indeed.

{NOTE: We'll have more to say on the worldwide steel capacity glut and how government interference in free markets generally makes things worse. And in the specific case of the steel industry, much worse.}

Thanks. Bob.

Teachers Unions vs. Good Teachers, Good Children, Their Parents and Free Choice

First, let's be clear about one thing. I'm not against good teachers.

And most teachers are just that -- good. Some are great, some are not-so-great and most are good.

Teachers unions are an entirely different matter, however. I'm against the very idea of teachers unions. Too much collectivisim for me. And lack of differentiation between the great, not-so-great and the good.

So while most teachers are good to great, teachers union leaders are not good for teachers, education, taxpayers and certainly not good for most urban children and their parents.

Louisiana Voucher Test is subtitled 'Meet 11-year-old Gabriel Evans, teachers union enemy No. 1:'

"Here's the bizarre world in which we live: In 2007 Gabriel Evans attended a public school in New Orleans graded "F" by the Louisiana Department of Education. Thanks to a New Orleans voucher program, Gabriel moved in 2008 to a Catholic school. His mother, Valerie Evans, calls the voucher a "lifesaver," allowing him to get "out of a public school system that is filled with fear, confusion and violence."

So what is the response of the teachers union? Sue the state to force 11-year-old Gabriel back to the failing school.

This week a state court in Baton Rouge is hearing the union challenge to Louisiana's Act 2, which expanded the New Orleans program statewide and allows families with a household income less than 250% of the federal poverty line to get a voucher to escape schools ranked C or worse by the state. Gabriel's voucher covers $4,315 in annual tuition.

The tragedy is how many students qualify for the program. According to the state, 953 of the state's 1,373 public schools (K-12) were ranked C, D or F. Under the new program, more than 4,900 students have received scholarships allowing them to attend non-public schools.

Enter the teachers unions, which sued this summer to stop the incursion into their rotting enterprise. According to the Louisiana Federation of Teachers and the Louisiana Association of Educators, the voucher program steals money from public schools.

But teachers who do their homework know that the state constitution has no prohibition on where money may be allocated, as long as it is going to educate Louisiana children. Louisiana school funding is determined by a designated Board of Elementary and Secondary Education, instead of directly by lawmakers. According to the state's constitution, the Board must set a "minimum foundation" for funding and ensure that it is fairly distributed among school districts, locally known as parishes. In poorer neighborhoods, the state chips in to make up for any shortfall in local funding....

The real squeeze isn't to public education but to the publicly employed educators, whose union interests have long since taken primacy over providing kids with a decent education. The Louisiana unions know that putting their dismal classrooms into competition with private schools could eventually have students and parents trampling each other in a rush to the exits.

Louisiana's story is the latest study in how far the education bureaucracy will go to protect its money and power and resist the competition that comes from school choice, even when it means forcing kids to return to schools that steal their futures. The scholarships are only available to students in failing schools. If teachers unions want to stop their students from leaving, they don't need a lawsuit. They need to start serving 11-year-olds like Gabriel Evans instead of themselves."

SUMMING UP

Gabriel should be able to attend the school of his and his mother's choice. So should all children.

In that regard, individual freedom of choice and competition are allies and as American as apple pie.

But the fear of competition is exactly why teachers unions oppose freedom of choice for children and their parents, including school choice initiatives and vouchers.

The teachers union leaders enjoy their current monopoly status and don't want competition from anybody.

..........................................................................

But that's not the American way. Here's what is.

Freedom to choose and competition represent the real American way.

So why should students and their parents even have to attend 'failing' schools before exercising freedom to choose? Why can't they just choose where they want to attend school and then enroll there? Why does it have to be a failing school that they choose not to attend?

Of course, the teachers union doesn't even want Gabriel Evans to have the right to stop attending a failing school.

What gives the union that right to prevent people from doing what they believe is right for themselves and their children?

In other words, who annointed teachers unions as rulers of the planet?

The Democratic Party?

Thanks. Bob.

Crystal Ball Gazing ... 2013 Stock Market Returns ....Looks Good

When it comes to investing, I'm in it for the long haul. Thus, predictions about any specific market gains or losses to come in the next months, quarters or even several years should always be viewed with a healthy dose of skepticism.

So let's remember that as we peer into the Goldman Sachs crystal ball and learn what they are projecting for stock market returns in 2013.

Goldman's five strategies for 2013 and S&P 500 targets says the following:

"Goldman Sachs rolled out its crystal ball on Thursday, laying out its stock market targets, investment ideas and top market themes for 2013.

 

Among their big predictions, Goldman is targeting a 12-month target of 1,575 for the Standard & Poor’s 500 index, which they say implies a 12% potential return on stocks – corporate fundamentals will support continued profit-cycle expansion.

Revenues for the S&P are expected to rise by more than 4% in 2013 and 2014, with margins hovering around the current 8.8% to 9%, earnings climbing by more than 6% and the price/earning multiple getting a modest bump — from 13.2 times to 13.8 times by the end of 2013.

And that pesky “turbulent political environment that curtailed corporate risk-taking in 2012,” is, whew, going away, says Goldman. The fiscal cliff will be avoided, but taxes will go up and federal spending is coming down.

And the U.S. economy will gain strength as the new year progresses, says Goldman, growing 1.9% in 2013 and 2.9% in 2014.

Other targets from Goldman: S&P 500 at 1,450 in three months and 1,500 in six months.

They also lay out five growth-capturing strategies for the new year.

1) Stocks will outperform treasuries

2) Equities will beat credit returns, though not on a risk-adjusted basis

3) Cyclical sectors will beat defensive sectors — materials, industrials, information technology over consumer staples, telecom and healthcare

4) Double Sharpe Ratio stocks offer high risk-adjusted earnings growth and prospective returns. Here’s an explainer for the Sharpe Ratio explanation and the Double Sharpe Ratio, which includes estimation risk. Rocket science, for sure. {NOTE: Feel free to ignore this highly technical and mathematically based method of attempting to weigh the risk versus reward characteristics of alternative investment choices.}

5) Stocks with high sales exposure to Brazil, Russia, India and China will beat domestic-facing firms."

Summing Up

As does Goldman, I see a slow but steady pace of economic growth for 2013 and beyond.

Sales growth of ~4% should translate into a much bigger earnings increase and an improved price/earnings market multiple as well. That's how they get to a 12% market gain for 2013. Makes sense to me.

As interest rates and inflation are expected to stay low and unemployment will remain high, it seems like more of the same is what's in store.

While that's not necessarily great news for the economy, it's not bad news for investors. The theme is that we'll just keep getting our act together and look to better days ahead in a few more years.

Meanwhile, we'll anticipate no negative shocks, although surprises by definition are not foreseen.

Thus, while there's clearly risk ahead, as there always is, there is also the opportunity for substantial rewards for patient stock investors.

I like our chances over the next year or so, and over the next several years, I like them even more.

Thanks. Bob.

In a Free Society, Financial Literacy is Imperative

Americans are free to do as we choose with our money. It's a MOM thing.

Accordingly, that means we can buy, borrow, spend or invest as we wish and however we may choose to do so.

Unlike socialism, individual ownership of private property is an essential attribute of a freedom based capitalistic society. And investments connote private property ownership, pure and simple.

Over the long haul, how we choose to save and invest our money will have huge implications for our standard of living and later peace of mind.

So when an article like Financial Literacy 101: Where to Begin comes along, I feel it's important to share it. It's subtitled 'We asked the experts to recommend the best books for an investing novice. Here are five of them:'

"U.S. savers have some $10 trillion sitting in IRAs, 401(k)s and similar retirement plans. But how much do they really know about investing? When Americans are tested on their financial literacy, the results are troubling, at best.

Educational standards are starting to improve, with more states requiring personal-finance and economics courses for K-12 students. But if you graduated from high school a decade or three ago, where can you go for Investing 101?

We spoke to financial advisers, mutual-fund experts and academics to get their take on the best books and other resources for people who want to learn the investing basics. Many worthy resources aren't included here; consider this a starting point.

A Random Walk Down Wall Street | Burton Malkiel

Talk to 10 money experts and you're likely to hear 10 recommendations for Burton Malkiel's classic investing book, now in its 10th edition.

Mr. Malkiel, an investment manager and Princeton University economist, offers an easy-to-read yet comprehensive guide to markets and investing, including topics like why bubbles form and how to think about life-cycle investing.

This book is "a good introduction to the way markets and investing work," says Russel Kinnel, director of fund research at investment researcher Morningstar Inc. Plus, it "provides a little healthy skepticism, which can serve investors well.". . .

The Little Book of Common Sense Investing | John Bogle

The best books for new investors tend to be those that advocate index investing—it's simple to dive in, and costs generally are low. Who better to read on that topic than the man who created index funds for mass consumption, John Bogle, founder of Vanguard Group?

This short but thorough introduction offers advice that is "simple and straight to the point,"....

Seeking insights into active investing? Morningstar's Mr. Kinnel suggests Warren Buffett's annual letters to shareholders, at BerkshireHathaway.com.

The Investment Answer | Daniel Goldie and Gordon Murray

Gordon Murray was a former Wall Street veteran who, after a diagnosis of brain cancer, teamed up with his financial adviser, Daniel Goldie, to write a simple guide to investing, detailing five key decisions for investors to make. Mr. Murray died in 2011.

"I don't think you can get a better unbiased approach. The guy has nothing to gain other than to give his last and best advice," says Steve Lockshin, founder and chairman of Convergent Wealth Advisors.

Winning the Loser's Game | Charles Ellis

When you buy and sell stocks, you're competing against institutional investors who not only control the market, they "are the market," writes Charles Ellis in his book, "Winning the Loser's Game," which grew out of an influential article he wrote for the Financial Analysts Journal in 1975, "The Loser's Game."

Mr. Ellis is another fan of indexing. After reading his account of how difficult it is to beat the markets, you may agree. "It's just a really good overview of the reality of the investment world," says Harold Evensky, president of money-management firm Evensky & Katz in Miami."

Summing Up

 

The two above referenced books written by Burton Malkiel and John Bogle are absolutely worth taking the time to read for anyone interested in learning the basics of investing.

 

I also highly recommend Jeremy Siegel's "Stocks for the Long Run."

 

Of course, there are countless others worth reading as well.

 

Taking the time to read one or two of the above will undoubtedly help anyone interested in pursuing the DIY approach to investing.

 

Achieving a higher than basic level of investing knowledge is not that hard to do, and it has the potential to be a somewhat enjoyable exercise at the same time.

 

Most important, however, it will be great for your personal financial health and peace of mind in our free market society.

 

Thanks. Bob.

 

 

"How To" Be an "Einstein" Investor ... Invest in Stocks for the Long Haul and Realize Strong Average Annual Returns

I once heard that the 8th wonder of the world was compound interest. I think that just about gets the following story about individuals investing successfully right.

Invest like Einstein tells a very simple story about the benefits of owning a heavy concentration of, if not all, stocks as investments in our individual investment and retirement accounts.

Included are several examples of the simple math that confirms the inherent "wisdom" of taking the long term view when investing. Combined with adopting a largely DIY approach, it's the safe and winning way to satisfying an individual's long term investing needs.

I use an "Einstein like" methodology of regularly investing in blue chip, dividend paying and growing stocks, and then sitting back and watching the magic of compound interest work its simple magic.

Here's what the above referenced article has to say:

"Albert Einstein once described compound interest as the greatest invention of mankind. Smart investors put Einstein's insight to work for them.

These days, many unsophisticated investors seem to thumb their noses at Einstein as they engage in a mad quest for safety above all else. Ironically, they may wind up later with less security instead of more.

Yes, you can choose safe, "guaranteed" investments for your 401(k). But you'll most likely be stuck with returns of only 3% to 4% — just enough to keep you ahead of the long-term historical rate of inflation. To have a comfortable retirement at that rate, you'll have to save much more money while you're working.

Einstein's work revolved around numbers, and I'm going to throw out a few. Over a lifetime, an increase of just two percentage points of return is stunningly dramatic, as I pointed out in several tables that are part of my 2012 book First Time Investor. Here's a sample.

Many young investors can save $5,000 a year, the current maximum for funding an IRA. To illustrate Einstein's genius, I calculated the hypothetical results of doing that for 40 years, for instance from age 25 to 64, at various rates of return.

An investor who gets a low-risk return of 4% could wind up with $475,128 after 40 years. But if his long-term return were 6% instead, he could have $773,810.

Think about the difference between those two numbers: $298,682. Over the years, this investor made 40 investments of $5,000, for a total of $200,000. Boosting his return by two percentage points — which should not be particularly difficult or risky — adds nearly 1.5 times the investor's entire lifetime contributions to his retirement nest egg.

As Einstein would instantly notice, one small change has a huge cumulative effect. And that's only the start.

Financial planners teach that it's possible to safely withdraw 4% of a portfolio's value annually in retirement. Applying this rule of thumb, the investor who achieved 4% could take out $19,005 in his first year of retirement. The one who earned 6% could take out $30,952. That makes a huge change in the investor's retirement lifestyle.

There's more: If you assume the same investment return continues for 30 years of retirement, the portfolio can grow even while it's paying out retirement income. With a 4% return every year for 30 years, you can take out a total of $557,121; at 6%, your lifetime withdrawals become $1,209,551.

It's even better than that. After 40 years of savings and 30 years of retirement, the investor who got a 4% return would have $452,843 to leave to his heirs. The investor who got 6% would have more than three times that much: $1,306,012.

To recap: At 4%, your $200,000 of lifetime savings gives you $557,121 in retirement plus $452,843 after 30 years. At 6%, the same $200,000 contributions give you $1,209,551 in retirement plus $1,306,012 after 30 years.

The totals: At 4%, $200,000 of savings produces a little more than $1 million in total benefits. At 6%, the total benefits are about $2.5 million. It doesn't take an Einstein to see why this is worth thinking about.

An obvious question is how to obtain the higher return. While nothing - and I really mean nothing - is guaranteed, the long-term history of investment returns shows that you don't have to take much additional risk to boost your expected returns from 4% to 6%. Going from all-fixed-income to a 20% or 30% equity position is likely to do the job - with very little extra risk.

You can increase your returns in other ways as well. Keep your expenses low, ideally by using index funds or exchange-traded funds. . . .

 

Finally, if you're interested in notching up the returns even more, consider the results of achieving a long-term return of 8%. At that rate, the same $5,000 a year of savings would grow to $1,295,282 after 40 years, producing a first-year retirement income of $51,811, total retirement distributions of $2,755,274 and leaving $3,830,134 after 30 years.

If you can achieve that, your family and your heirs might think you were as smart as Einstein."

Summing Up 

On average an investment in stocks is highly likely to earn 8% annually and perhaps more over a long period of time.

A mixture of stocks and bonds will dilute those returns, but for those having trouble sleeping at night with an all stock portfolio, perhaps it's best to start at 60/40 or so and then gradually work up to 90/10 or even 100%.

For a long time, I've pretty much been a 100/0 investor and remain so today. And I usually sleep just fine, old age issues excluded.

And as for timing, stock valuations today are not excessive. Not even close.

So while I don't pretend to be Einstein, the investment math is easy, and I internalized the rule of 72 years ago. 

In the long run, stocks have always easily outperformed other forms of investment.

So now all that's needed is our individual decision to embrace a DIY approach to investing in blue chip stocks (such as an S&P 500 Index Fund) for the long haul. 

We don't have to settle for 4% to 6% average annual returns in our retirement accounts.

In fact, the all stock route to average annual returns of 8% or higher is a simple and effective approach to achieving a comfortable and secure financial future.

At least that's my view.

Thanks. Bob. 

Sales, Income and the FUD Factor ... Brighter Days Ahead? ... I'm Betting YES

Our nation's future prosperity depends on solid economic growth, and attaining that solid growth will in turn result in increased sales. Of course, this happy outcome will very much require increased consumer confidence to drive the necessary sales growth.

And therein lies both the reason for hope and the cause to worry about our American economy's future prospects.

With all the negativity in the world today, what will the U.S. consumer do? Sit back and watch or feel confident and start spending again? I'm betting on the confident consumer returning to the fold sooner rather than later. And if not confident, at least not running away from buying like a scared rabbit.

So let's begin our hopeful discussion with the negatives affecting consumer spending and end with the positives.

THE NEGATIVES ... THE FUD FACTOR

A climate of fear, uncertainty and doubt is pervasive among consumers. We'll call it the FUD factor.

If we're fearful, uncertain and doubtful about the future, that's a recipe for pulling in our horns and hoarding our assets. That belt-and-suspenders behavior will then result in lower sales.

And since our economy is two thirds dependent on consumer spending, FUD induced spending behavior will translate into fewer jobs and less income. Which in turn will lead to increased FUD and the vicious cycle continuing on its not-so-merry way.

Throw in a huge amount of outstanding consumer debt that needs servicing, including underwater mortgages on our homes, and that consumer wealth depletion results in even more consumer FUD.

Sounds pretty bleak. Right?

THE POSITIVES ... PRICES COMING DOWN and VOLUMES GOING UP?

But fear not, my fellow American. Brighter days are ahead, even though reported sales have been pretty weak for several years now.

Weak Revenue Is New Worry for Investors relates the headline bad news on sales growth confronting  us:

"While corporate executives obsessively watch the bottom line, practitioners of the dismal science prefer to focus on the big picture. Lately some have found reason for concern in the part of companies' public reports that is up top: sales. . . .

That is significant because while margins fluctuate, revenue generally tracks nominal gross domestic product. Third-quarter economic growth of 2% beat forecasts, and that is likely to be revised higher when updated figures are released later this week. Meanwhile, estimates for fourth-quarter growth have slipped to 1.8%, according to a survey by The Wall Street Journal. Even that may be too high if sales keep slipping.

The composition of S&P 500 revenue provides reason for guarded optimism. The sectors with the least growth were materials, energy and utilities. Lower commodity and energy costs can aid the rest of the economy.

Another reason to relax—about the U.S. economy—was that disappointing revenue correlated with international exposure. Slowing growth abroad and a strong dollar pinched revenue.

McDonald's Corp. saw flat sales in the third quarter compared with a year earlier, but revenue would have risen by 4% without currency impacts.

On the other hand, McDonald's also gave a worrying preview for the fourth quarter: October saw its first monthly sales decline in nine years. And the U.S., rather than foreign markets, led the drop.

Instead of exchange rates and commodity prices, the explanations for another round of weak corporate revenue may be homegrown woes such as the fiscal cliff. With economic growth already so close to stall speed, corporations' top lines need to get into a higher gear."

Summing Up

Without sales growth, there will be no economic growth. So the current situation is definitely worth watching closely as sales either exceed or fall short of expectations these next several weeks, months and quarters.

I'm betting on better than expected sales and encouraging news on the fiscal cliff negotiations, too.

One other positive sign is that sales declines are occurring primarily in the materials and energy sectors. This means lower costs, which in turn means better prices for consumers down the road.

Price deflation in energy and commodities would be a welcome sign for consumer spending in 2013 and beyond.

Thus, we could have a happy combination of higher selling volumes, flattish dollar sales and lower consumer costs.

If that occurs, real sales would show gains, and jobs would begin to reappear as businesses increased output to satisfy the increased consumer demand.

My optimistic assessment is admittedly perhaps a bit of a stretch and certainly nothing we've seen for a long, long time. But consumer price deflation need not be a negative.

We certainly need something to eliminate all the FUD surrounding us today, and lower prices for consumers may just do the trick.

Thanks. Bob.

MY VIEW ... Wal-Mart Beats Amazon for the Title of Retail "Store of The Future" ... The "BRICKS and CLICKS" Model

Wal-Mart has long been the world's biggest retailer of general merchandise. Along the way, it also became the world's biggest seller of groceries. Seems to qualify it as one nimble retailer always looking for ways to better serve its customers as the perennial company of the future, doesn't it? At least I think it does.

Well, perhaps not if it's unable to transition itself into a company with an Amazon type e-commerce retailing capability. But my guess is that Wal-Mart will do just that and perhaps even 'out-Amazon-Amazon' in the process of doing so.

So let's have a little theoretical thought experiment describing a head-to-head retail battle between the future Amazon and Wal-Mart, respectively. And in our hypothetical, or perhaps not, future head-to-head competition, they'll each be using using the same competitive business model, except for one really big difference.

And that difference suggests that Wal-Mart will win the match-up due to its physical store locations. These stores will be used as a competitive advantage as they are in in addition to Wal-Mart's existing status as the lowest cost retailer able to put a broad assoprtment and heavy volume of product offerings through its best-in-class distribution network.

And since it's also the leading retailer at managing real time information among its current retail competition, I believe it will be easily able to match Amazon's dynamic pricing methodology too.

In other words, Wal-Mart will use its physical stores, low cost operating structure and second to none logistics capability, along with its second to none information management capability, to beat Amazon in a close race to establish the store of the future. At least that's my bet.

We'll call this "new" store of the future the bricks and clicks retailing model. Physical stores combined with information driven logistics and customer focused delivery capability which puts the consumer in charge of having it "his way." Sounds like a winner to me.

Big-Box Stores Wrestle E-Commerce Gorilla has the fast developing e-commerce story of this year's holiday shopping season:

"Forget Cyber Monday. This year, it's Cyber Two Weeks.

Major retailers are trying to take on online rivals by extending online sales after Cyber Monday.
 

Major retailers like Wal-Mart, Target and Best Buy are extending online sales in both directions from the Monday after Thanksgiving, the biggest online shopping day of the year in the U.S. by sales, according to comScore. But for many big-box stores, their online tactics during the holidays have the same goal as during the rest of the year: Take market share from Amazon.com.
 

Indeed, Amazon, whose global revenue from retail totaled $46.5 billion in 2011, is the gorilla in the e-commerce room. By comparison, Wal-Mart has said it expects to do over $9 billion in global e-commerce revenue in fiscal 2014, beginning in February.



Amazon sells many of the same products as big-box stores but can undercut them on price due to lower overhead. It also uses computer algorithms to adjust prices in real time. Traditional retailers often can't move as rapidly because online prices must match those in stores.

 

For this holiday season, retailers have tried to take market share by pushing early and extended online sales, hoping discounts in the run-up to Black Friday would lure consumers to their sites and keep them checking back. Wal-Mart and Target are also extending the one-day Cyber Monday sales into a weeklong event.

But Amazon has been matching them, with a pre-Black Friday sale and its own Cyber Week that makes the promotions little more than a discounting arms race.

Of course, bricks-and-mortar retailers also use their websites to draw consumers into their stores where shoppers are more likely to make impulse purchases. Wal-Mart says it is channel-agnostic, and over 50% of its online sales are picked up in stores.

But traditional retailers can't afford to be sanguine. The percentage of total U.S. retail sales going to e-commerce was 5.2% in the third quarter, on a seasonally adjusted basis, and has been steadily rising since late 1999, according to the Commerce Department.

For traditional retailers, this means finding ways to get beyond competing with Amazon on price....

Another strategy is creating an online shopping experience that promotes browsing. That is instead of the highly specific searches most shoppers do on Amazon, according to . . . an e-commerce veteran.

Big-box retailers have begun to dabble in some of these areas by sending out more targeted emails and highlighting one-day-only deals. Target has also developed its own product lines by collaborating with high-end designers. It also forged an alliance with Neiman Marcus to carry a gift collection this holiday season. The hope is this will give it an edge in drawing buyers to its website since those products can't be found elsewhere.

But as long as the vast majority of what the big-box retailers carry can also be found on Amazon, they aren't likely to dent its online dominance."

SUMMING UP

The "bricks and clicks" retailing model is an idea whose time has come. And Wal-Mart is best positioned competitively to make it work.

In the final analysis, Wal-Mart has the advantage over Amazon because its store locations are places where customers can shop and also pick up purchases made online. Or if they prefer in the future, have their purchases delivered directly to their homes. At least that's the future I envision for Wal-Mart.

And its total focus on being the low cost provider will drive it to offset Amazon's current cost advantage resulting from having no retail outlets. Wal-Mart will implement a total cost productivity strategy which will emphasize its unique selling capability as customers can have whatever they want and have it "their way" at an everyday low price equal to Amazon's pricing. Advantage Wal-Mart!

Hence, compared to Amazon's lack of physical stores, Wal-Mart will turn its vast network of physical stores into its competitive advantage. In other words, it will become as efficient as Amazon at delivering from its distribution centers while also maintaining a convenient physical venue for its customer base to shop, pick up merchandise, browse and buy groceries.

So to me it looks like Wal-Mart will emerge the eventual online as well as onsite retail winner.

And down the road, it looks like it's definitely going to be a brand new "bricks and clicks" world of retailing.

Who says Wal-Mart can't be all things to all of its customers? I wouldn't bet against them.

Thanks. Bob.

Some Good U.S. Economic News for a Change ... Cars and Homes Are Selling Briskly ... The Consumer is Deleveraging, Too

Are you tiring of hearing all the bad news about the nation's debts and deficits, the world's economy and the lack of U.S. job creation from the gloom and doomers? Well, so am I.

So let's put on our "rally caps" and take a peak at what news could be pointing to better days ahead for our U.S. economy. Accordingly, for now let's choose to see the glass as half full and project a brighter future than the experts are predicting. OK?

With everybody focused on the drama of the fiscal cliff negotiations underway in Washington and the ongoing European financial fiasco as well, little attention is being paid to some potentially important good news developing in the U.S. economy. In fact, our economy may be healing better and faster than anyone predicted. If so, that would be great news and I wanted to share it with you.

So here goes.

As a starter, it looks like holiday sales are starting off well, and that's a pleasant surprise. In addition, home sales and prices continue to improve and yesterday Ford's top salesman reported that car sales are looking good, too. And to top it off, consumers are no longer as deeply in debt as they were a few years ago either. That means there's more money to spend in our consumer driven economy. And that will keep our nation's unemployment rate declining, albeit at a slower than desired pace.

So maybe we'll be seeing some unforecasted strength in the U.S. economic situation sooner than later. Wouldn't a better than expected 2012 Christmas selling season be nice for a change?

Ford's Sales Chief See Strong U.S. Vehicle Demand has the story on car sales:

"Jim Farley, Ford’s global sales and marketing chief, says company executives are watching for signs that anxiety about the potential for higher taxes–or worse, a dip back into recession–is affecting U.S. consumers. What they see instead is a buying public focused on other priorities.

“The average car is 11 years old,” Mr. Farley said during a conversation Monday with reporters ahead of this week’s Los Angeles Auto Show. “The fleet has never been older.”

Equally important, Mr. Farley says, is that as customers roll aging rattletraps into dealerships, they’re discovering that comparable new vehicles are significantly more fuel efficient. At Ford, for example, a customer driving an 11-year-old, six cylinder Ford Explorer that averages about 15 miles per gallon could replace it with a 2013 Explorer that gets 23 miles per gallon with a four-cylinder, turbo-charged “EcoBoost” engine.

“Customers are more and more doing the math about their vehicles” and putting a high value on fuel economy, Mr. Farley says.

A third factor driving the U.S. auto industry’s recovery is a volley of fresh designs from major manufacturers. . . .

Analysts are forecasting relatively robust November sales and . . . they expect November car and light truck sales will rise 12% compared to a year ago, and hit an annualized run rate of 15 million vehicles, up from a 13.6 million vehicle sales pace in November 2011."

Brighter Housing Picture Dimmed by Past Price Collapse updates the improving housing situation:

"Tuesday’s Case-Shiller home-price report confirms that home prices are up strongly this year. Through September, prices are up 7% from the end of last year.

Some of the gains in home prices are seasonal, of course. Prices typically soften in the last quarter of the year, as there’s less sales activity during the colder months of the year. But those declines probably won’t be large enough to wipe out the gains from the first three quarters of the year. . . .

But the market is still a long way from recovery. . . . In fact, prices are higher than their levels of four years ago in just two of the 20 cities: Denver is up by 2.3% and Washington, D.C., is up by 1.6%. Many markets are still well below their levels of four years ago. Here’s how the cities stack up:

The upshot is that folks who bought a home one year ago have reason to feel good about home prices. But those who bought in 2008—a full two years after home prices began to slide—could be waiting a while before their homes are worth anywhere near what they paid for them."

And Falling Mortgage Balances Offset Rising Student, Auto, Credit-Card Debt says this about the all important improving comsumer debt situation:

"Americans cut their debt further in the summer, with falling mortgage balances more than offsetting increases in other types of borrowing, new data show.

Household debt — the money Americans owe on home, auto and student loans, credit cards and other types of consumer debt — fell by $74 billion in the third quarter to $11.31 trillion as of Sept. 30, the Federal Reserve Bank of New York said Tuesday. The drop reflected a continued decline in mortgage debt, as some households paid down balances while others lost their homes in foreclosure.

Americans have reduced their debts by more than $2 trillion since household debt peaked in summer 2008, a process called deleveraging. Economists say the process will put households on a sounder financial footing in the long term, though it has sapped consumer spending and slowed growth in the short term.

The new Fed figures showed signs that Americans are slowly increasing some types of borrowing. Excluding home loans, household debt rose by 2.3% to $2.7 trillion in the third quarter, reflecting increased borrowing to pay for autos and college.

Student debt, the largest form of consumer debt outside of mortgages, rose by 4.6% during the quarter to $956 billion. Auto-loan debt rose by 2.4% to $768 billion. Credit-card balances increased slightly, by $2 billion.

Also, though mortgage balances fell, mortgage originations rose for the fourth consecutive quarter. That fits with other reports showing that the housing market has picked up in recent months.

“The increase in mortgage originations, auto loans and credit card balances suggests that consumers are slowly gaining confidence in their financial position,” Donghoon Lee, senior economist at the New York Fed, said in a news release. “As consumers feel more comfortable, they may start to make purchases that were previously delayed.”"

SUMMING UP

Things are looking up.

And to add to the picture, this year's holiday selling season is off and running and may be stronger than most pundits are currently predicting.

Then if energy and commodity prices continue their recent decline, that will help improve consumer confidence further heading into 2013.

And to really juice up the possibilities, it's a good bet, or at least not a bad one, that our feckless politicians won't snatch defeat from the jaws of victory. So if they somehow manage to not screw up the fiscal cliff negotiations now underway, that would provide another reason to foresee further economic gains next year as consumer confidence improves.

So cars are selling, more houses are selling and at higher prices, the consumer is getting his debt burden under control and energy and commodity prices are perhaps heading down, thereby giving consumers more pocket money to spend.

And a sustainable higher level of consumer spending would lead to more business investment, more jobs and lots of other goodies for our nation's finances and the world's economies.

So while we're not about to get carried away and become irrationally exuberant anytime soon, there are legitimate reasons to forecast that the economic surprises in 2013 may be pleasant ones.

And most of all, let's cheer for higher sales. Because if sales are better than predicted, all else will be better than expected, too.

Stay tuned.

Thanks. Bob.

School Choice ... The Truth About Teachers Unions, Choice and Poor Students

Teachers Unions vs. Black Kids describes the situation with Louisiana's new school choice law and the teachers unions' opposition thereto.

The Louisiana case is just one example of what could happen in virtually any large American city:

"Earlier this year, Republican Gov. Bobby Jindal of Louisiana signed into law an expanded school choice program for underprivileged kids. Naturally, the teachers unions are suing to block it. . . .

The program provides scholarships to poor families with children in failing schools. Last year, 36% of the state's public schools received a D or F ranking, according to the Louisiana Department of Education. Some 5,000 kids are participating in the program and many are black, which is why the Black Alliance for Educational Options (BAEO) is defending the law.

"There is no greater injustice than to tell children that they don't deserve a chance at the best possible education because their family can't afford it," said Kenneth Campbell of BAEO in press release from the Institute for Justice, which represents families using the program. "No one should be treated any less or be prevented from gaining access to high quality educational options based on their income or zip code."

The teachers unions claim to be taking issue with how the program is funded. The reality is that they oppose its existence. The top priority of the unions is their members, not whether children are receiving a quality education. Denying school choice to people who can't afford private schools or to move to a neighborhood with better public schools is a way for unions to ensure that their members have jobs."

Summing Up

And so it goes.

Unions have way too much power and way too little scrutiny and oversight.

They're harmful to our nation's well being and to our children's as well.

And in favor of individualism and maximum opportunity they're not.

That's my take.

Thanks. Bob.

A Slow, Different and Painful Global Economic Road to Recovery Lies Ahead

The recovery time from this recent recession may really be different -- and painfully slow, too.

Even if we're able to escape another recession in 2013, world economic growth is almost certain to remain slow. Even worse, we may not experience substantial growth again until perhaps 2020 or later. And why is that?

Well, my guess is it's primarily related to the European mess and the massive debt accumulation in the U.S. during the past several decades. We didn't get here in a few short years, and it's probable that we won't get anywhere much better anytime soon either. So let's all hope that my guess is wrong (I sure do), but let's also be honest enough with ourselves to not ignore the warning signs that are all around us.

Thus, even if we do manage to avoid another recession in 2013, which my guess is that we will, we'll still by no means be out of the woods globally. Not here in the U.S. either.

The residual effects of too much debt, too much government, too many bad policies, and too little economic growth will team up to make for a difficult job market and an equally difficult situation for the "middle class" we're so intent on saving, no matter how much we may wish it to be otherwise.

OECD Warns on Global Economy says this about the outlook for the world's economies:

"The world economy is at risk of a fresh contraction if euro-zone and U.S. policy makers fail to restore confidence by resolving their fiscal problems, the Organization for Economic Cooperation and Development warned Tuesday. . . . the Paris-based think-tank delivered its most urgent call to action since late 2008, when the global economy was confronting a deepening financial crisis.

"After five years of crisis, the global economy is weakening again," said Pier-Carlo Padoan, the OECD's chief economist. "The risk of a new major contraction can't be ruled out.". . .

"We don't think the euro-zone crisis is over yet," . . . Rising unemployment could trigger reform fatigue and social resistance," Mr. Padoan said.

The other major imminent threat to growth comes from the U.S., where big tax increases and spending cuts are due to come into force next year. . . .

The OECD said uncertainty about developments in the euro zone and the U.S. had further weakened business and consumer confidence at a time when global demand is under pressure from efforts by governments, businesses and consumers to cut their borrowing.

But the failures that have weakened confidence go beyond the euro zone and the U.S., and the OECD had a broader rebuke for policy makers.

"Lack of confidence largely reflects insufficient or ineffective policy responses, both in terms of too little short-term action and a lack of credible long-term strategies," Mr. Padoan said. "Policy challenges, both macroeconomic and structural, are present in emerging market economies as well."

In common with the International Monetary Fund, the OECD said the negative impact of austerity programs on growth has been much larger than had been expected, partly because so many countries are cutting spending at the same time. . . .

Assuming that its worst fears don't come to pass, the think-tank said it now expects the combined GDP of the OECD's members to grow 1.4% next year, unchanged from 2012, and pick up to 2.3% in 2014. In May it forecast growth of 1.6% this year and 2.2% next. Under those circumstances, it said unemployment could continue to rise until the middle of next year and fall only slowly thereafter {NOTE: Unemployment should rise in Europe next year but fall in the U.S.}.

It now expects the euro-zone economy to contract 0.1% in 2013, having previously forecast an expansion of 0.9%. The U.S. economy will grow 2% instead of the 2.6% predicted in May, while growth in Japan will be 0.7%, rather than the 1.5% previously forecast. . . .

The OECD lowered its 2013 growth forecasts for all but three of its 34 members."

.................................................................................
And immediately below the chart, there's a link to the full OECD report.
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Post-recession recovery is taking a lot longer this time, says OECD:

As the global economy lurches forward, it seems history is being made, and not in a good way.

Out of the three major recessions that have hit the global economy since the 1970s, recovery from the current one that landed in the late 2000s has not been up to par, according to the Organization for Economic Cooperation and Development said in its latest Economic Outlook released on Tuesday.

Alongside a gloomy view of the global economy . . . the thinktank said activity this time around is lagging well behind prior recovery periods.

“There is unanticipated weakness in many OECD and non-OECD economies, and generally soft business and consumer confidence, with slowing demand for consumer durables and capital goods depressing business order books,” it said.

The OECD charted out domestic demand, which rebounded strongly in the 1970s and 1980s following recessions in those periods. But then you get to the 2000s and it’s a less pretty picture, almost flatlining."

Summing Up

To be forewarned is to be forearmed.

Let's consider ourselves forewarned.

Message received.

Let's hope our policy makers don't make things even worse than they already are.

Thanks. Bob.