On May 29 we posted "Lessons to be Learned from the Facebook Stock Price Fiasco" and warned about the stock's future price action as well. The stock had gone public at $38, rose to $43 and then cratered the same day.
For the purpose of clarity, I have owned no Facebook shares, own none currently and don't intend to own any. May 29 the shares closed at a price of ~$29. They're selling for less than ~$24 per share today. Catching a falling knife is never easy.
In simple language, the company's share price is getting hammered again and there may be more bloodletting to come down the road.
My purpose is posting about this now is informational only. Sometimes we forget that risk goes along with reward, just as reward goes along with risk. And that emotions aren't good indicators of what to buy or sell, when to buy or sell, or whether to buy or sell, for that matter.
It's certainly not what Warren Buffett would tell us to do. (See post immediately below this one.)
Facebook Shares Hit New Lows as Mobile, Growth Concerns Linger has the details:
"Facebook Inc. shares on Friday traded at their lowest levels ever as the company
continues its struggle to convince investors that it can leverage its
immense popularity, especially on mobile devices, into revenue and
profits.
In its first quarterly report, Facebook reported its
slowest revenue growth in at least a year, a tripling of its costs and
expenses, and a decline in some levels of user activity. Also, the
company offered few specifics on future results and how it plans to
profit from users spending more time on mobile devices, a trend that is
less profitable for the social network. . . .
"Mobile is a huge opportunity for Facebook," Chief Executive Mark Zuckerberg
said on the company's earnings call Thursday. "Over the next five
years, we expect 4 billion or 5 billion people to have smartphones. That
is more than twice as many people that have computers today."
Facebook ended the quarter with 543 million active mobile users, up
67% from a year earlier. Revenue from those devices has failed to keep
pace, as the company only started selling significant amounts of
advertising on the smaller screens. Still, the company said about half
of its $1 million daily run-rate from ads on its Newsfeed came from
mobile devices.
"We're investing very heavily in improving
our mobile apps," Mr. Zuckerberg said, adding the company is just
"beginning to demonstrate that we can advertise effectively within the
mobile experience."
Investors are less certain. Facebook shares, which hit a low Friday
of $22.28, recently fell 14% to $23.06, valuing the whole company at
$63.2 billion. Both are now well-below the $38 stock price and $104.1
billion valuation from Facebook's initial public offering.
"Facebook's messy IPO and poorly-received quarterly debut as a public
company," Wedbush Securities analyst Michael Pachter said, "will likely
keep some investors away from the stock for the time being." . . .
"While we ultimately believe Facebook's business model should support
attractive operating margins, at this early stage of our growth,
investment is a top priority as opposed to managing for a target
margin," Chief Financial Officer David Ebersman said. "Therefore, you
can expect us to continue an aggressive pace of investment in [research
and development] and infrastructure in particular."
My Take
I have no idea what Facebook's stock will be valued at in future years. It's a new company on a rapid growth trajectory.
My guess is it will do quite well over the years, but that's just a guess.
New companies are not ones in which I would tend to invest, other than if I happened to know the people involved personally. Too much uncertainty for me.
I'll stick with a diversified portfolio of companies like McDonald's, Pepsi, Wal-Mart, Microsoft, Intel, IBM, Caterpillar, Boeing, GE, Honeywell, Wells Fargo, JP Morgan, US Bank, Merck, Pfizer, Abbott Labs, Exxon, Nucor, Whirlpool and other solid performers with a good dividend track record.
It's better sleeping that way.
Thanks. Bob.
Friday, July 27, 2012
Warren Buffett's Timely and Timeless Advice on Investing from 50 Years Ago
The stock market is rallying again today, and the Dow has passed the 13,000 mark.
Of course, that doesn't mean anything about what the market will do the remainder of today, on Monday, all next week, next month, next year or even several years from now. As one person said when asked about the near term direction of interest rates, "They'll fluctuate."
That said, I believe the stock market is the absolute best long term way to preserve, protect and enhance one's inflation adjusted money over time. And the best investor for us "amateurs" to have listened to over the years has been Warren Buffett. So when he speaks, it's worth taking our time to listen to what he has to say. Let's do that now.
Warren Buffett's winning ways, 50 years on is subtitled 'Famed Investor's 'Ground Rules' from early 1960s hold true:'
"Warren Buffett doesn’t usually make market predictions, but in an early July letter to shareholders, the legendary investor offered insights to help them through a treacherous stretch for stocks.
“I think you can be quite sure that over the next ten years there are
going to be a few years when the general market is plus 20% or 25%, a
few when it is minus on the same order, and a majority when it is in
between,” Buffett wrote. “I haven’t any notion as to the sequence in
which these will occur, nor do I think it is of any great importance for
the long-term investor.”
This letter hasn’t received much attention lately, for good reason: It’s dated July 6, 1962.
Half a century on, Buffett’s advice to ignore market gyrations still resonates. Yet many investors have trouble looking ahead 10 days, let alone 10 years. Of course, investors nowadays have justifiable fears about their money and who’s minding it. The safe return of capital is paramount, while the idea of losing your shirt in a bid for a meaningful return is paralyzing.
So what’s new? Risk aversion is hard-wired in human nature. A greedy
market feeds on fear.
Otherwise Buffett wouldn’t have needed to remind investors to keep a lengthy time horizon.
Otherwise Buffett wouldn’t have needed to remind investors to keep a lengthy time horizon.
Investors in 1962 had something to be scared about. The Cuban Missile Crisis wouldn’t take the world to the nuclear brink until October, but the Cold War between the U.S. and the former Soviet Union was heating up. The Dow Jones Industrial Average tumbled 23% in the first six months of 1962, erasing its 22% gain of the year before. That May 29 a “flash crash” shaved almost 6% off the Dow in a single day.
Cool under pressure
Through it all Buffett stayed cool. Stock buyers need a long lens, he counseled. “Six months’ or even one-year’s results are not to be taken too seriously,” Buffett said in that July letter to his Buffett Partnership Ltd. investors. He added that “investment performance must be judged over a period of time, with such a period including both advancing and declining markets.”
The 1962 letter is online along with other Buffett shareholder communications from the late 1950s and 1960s . . . . Read more: Buffett's shareholder letters since 1957.
Seen with the benefit of 50-year hindsight, Buffett’s 1962 letter and another written in January 1963 are relevant for today’s investors, who face a global economy on the brink, if not of disaster, then certainly of profound change. . . .
The early 1960s correspondence shows that Buffett at 82 hasn’t lost the essence of his younger self.
Then, as now, he stressed preserving
capital in down markets, not chasing the market in runaway years, and
focusing on long-term challenges and results.
But what many investors fail to grasp is that the long-term according to
Buffett has never been about passive buy-and-hold; it’s
buy-on-the-cheap, hold and monitor. That goes for the undervalued common
stock, opportunistic workout situations, and wholly or majority-owned
“control” businesses that are Buffett’s hallmarks.
“Never count on making a good sale. Have the purchase price be so
attractive that even a mediocre sale gives good results,” Buffett wrote
in a January 1963 shareholder letter. . . .
‘The Ground Rules’
In the 1963 letter, Buffett also laid out seven requirements for his
partners, which he called “The Ground Rules.” Two are
housekeeping-related; five bear repeating:
— “In no sense is any rate of return guaranteed to partners. Partners
who withdraw one-half of 1% monthly are doing just that — withdrawing.”
— “Whether we do a good job or a poor job is not to be measured by
whether we are plus or minus for the year,” Buffett wrote. Although
Buffett’s portfolio differed greatly from the Dow and his investing
style hardly matched that of mutual funds, the Dow and several big U.S.
funds nonetheless were Buffett’s ultimate measures. He noted: “If our
record is better than that of these yardsticks, we consider it a good
year whether we are plus or minus. If we do poorer, we deserve the
tomatoes.”
— “While I much prefer a five-year test, I feel three years is an
absolute minimum for judging performance. It is a certainty that we will
have years when the partnership performance is poorer, perhaps
substantially so, than the Dow. If any three-year or longer period
produces poor results, we all should start looking around for other
places to put our money.”
— “I am not in the business of predicting general stock market or
business fluctuations. If you think I can do this, or think it is
essential to an investment program, you should not be in the
partnership.”
— “I cannot promise results to partners,” Buffett stated. “What I can
and do promise is that our investments will be chosen on the basis of
value, not popularity; that we will attempt to bring risk of permanent
capital loss…to an absolute minimum by obtaining a wide margin of safety
in each commitment and a diversity of commitments, and my wife,
children and I will have virtually our entire net worth invested in the
partnership.”
Decades from now, what will still be most striking about Buffett’s
letters from the early 1960s is their openness. Not in terms of
portfolio holdings — Buffett didn’t divulge that — but in the honest
reveal of an investment philosophy. Investors today, accustomed to
marketing materials that rarely divulge a manager’s decision-making
process, can only marvel at Buffett’s bluntness. He treats partners like
the adults they are.
That’s one reason why Berkshire Hathaway’s shareholder letters are
required reading among informed investors, and why so many others with
fear-and-greed products to peddle want to portray Uncle Warren as
doddering and out of touch.
Don’t believe it. People will follow Buffett’s advice long after today’s doom-sellers are forgotten.
As Buffett told partners in his January 1962 letter. “You will not be right simply because a large number of people momentarily agree with you. You will not be right simply because important people agree with you.
“You will be right,” he wrote, “over the course of many transactions, if
your hypotheses are correct, your facts are correct, and your reasoning
is correct.”
Buffett early on recognized the secret of successful investing: Any kid can make a buck; grown-ups know how to keep it."
Summing Up
Advice from 50 years ago still worth heeding.
Very much so.
50 years from now, too.
Thanks. Bob.
Summing Up
Advice from 50 years ago still worth heeding.
Very much so.
50 years from now, too.
Thanks. Bob.
The Public and Private Sectors ... Only One "Horse" Can Lead Us Out of This Mess
Public sector versus private sector.
Economic security versus economic opportunity.
Which horse will we choose to ride?
But wait, it's a false choice to even ask that question. Only one of the two horses can be ridden.
You see, government (domestic affairs only are being considered herein--- not foreign matters or national security) can't provide us with economic security. Or with economic growth. No matter what anyone says to the contrary. It has nothing of its own. It only can take from others, and especially its citizen taxpayers.
Simply stated, the public sector is nothing more than an intermediary between its various citizens. It performs other roles as well, such as an umpire and policeman, but it adds exactly zero to real economic growth and financial security. To perform its functions, it needs money which it gets from taxpayers.
To the extent that government takes more than is required to perform its legitimate limited functions effectively and efficiently, it harms the overall output of the nation's economy. Taking MOM to convert into OPM should always be minimized by government officials, although it hardly ever is.
America's Two Economies is subtitled 'With Barack Obama, the competition between the private economy and the public economy is clear.' I would add that America is resembling Europe more and more in recent years as government grows and the emphasis on individualism wanes.
Here's the story and the political context behind it:
"For a long time, the United States had one economy. Now we have two economies that compete for America's wealth: A private economy and a public economy. The 2012 election will decide which will be subordinate to the other. One economy will lead. The other will follow.
How the U.S. arrived at the need to choose between two competing economies reveals a lot about the political polarization in the country. Any history of the Democratic Party in the 20th century will recognize its roots in the American labor movement. The party was defined by the names of those unions. The United Mine Workers. The United Auto Workers. The Brotherhoods of Teamsters and Railroad Workers. Consider what those names represented: Both Democrats and Republicans were rooted in the private economy. Unionized workers knew then that this private economy was where they made their living. The arguments were over dividing the productive fruits of that economy. That was your father's Democratic Party.
From the 1960s onward, the professional Democratic Party began to lose its relationship with the private economy. Democratic politicians drew closer to a rising public-sector union movement and its campaign financing, while the private unions declined. This meant the party itself was slowly disconnecting from the machinery of the private economy and becoming part of a rising parallel economy, the public economy of government. . . .
Today the private and public economies are in head-to-head competition for the nation's wealth—with the private economy calling that wealth capital or income, and the public economy calling it tax revenue and making moral claims for spending tax revenue.
Until recently and except for the Reagan years, the Republican Party has largely been a confused onlooker, uncertain how to embrace the private economy. In the 1990s, the party embraced the private sector mainly as a source of contributions via K Street lobbyists. In short, crony capitalism.
With the Obama administration, the tensions between the country's two economies clarified. The $831 billion spending bill in 2009 was intended to stimulate hiring of public-sector workforces but also among the satellite businesses that are subsidiaries of the public economy. Barack Obama's routine use of the traditional private-economy term "investment"—in energy, education and such—is the public economy claiming capital for its needs.
President Obama is telling the private economy it must subordinate itself to the public economy's moral efficacy. The passage in 2010 of the Affordable Care Act, with no Republican support, was justified as a 1960s-type act of moral necessity. The private economy, in his view, can't compete on that basis.
In the November 2010 elections, the private economy pushed back. Two years into the financial crisis and amid tea-party insurgencies, Democrats were swept out of office at every level of government.
These are not small events. Powerful belief systems are in motion today, and they are slamming into each other. Rep. Paul Ryan in the first sentence of his now-famous Roadmap budget said, "Rarely before have the alternatives facing America been so starkly defined." President Obama, announcing his ideas on taxes on July 9, said, "What's holding us back . . . is a stalemate in this town, in Washington, between two very different views about which direction we should go in as a country" (emphasis added).
Those are the two poles in an historic battle over who runs the American economy.
For about 40 years before 2008, spending as a percentage of GDP was around 20%. In 2009, it rose to 25% and has remained at 24% of GDP. This isn't just spending data. These numbers are a proxy for the standoff between the public economy and the private economy.
Some in the Democratic Party argue that this higher, "normal" spending level (the White House projects 22+% of GDP going forward) is necessary to fulfill the commitments our politics have made to retiring baby boomers and others. The role of the private economy in the U.S. will be to support the long-term wants and needs in the public economy.
President Obama is right: This is a choice between two paths into the American future, the clearest choice since the end of World War II. It is a mandate election.
Barack Obama is explicitly seeking a mandate to make the public economy pre-eminent. That is the unmistakable meaning of "You didn't build that." His opponent so far is talking about, but not seeking a mandate for, the other economy. One expects that in time Mitt Romney will seek a mandate equal to Mr. Obama's."
My Take
The U.S. Democratic party today is a minor variation of the socialistic parties so prevalent in the European welfare states. Neither has a clue --- or at least won't publicly admit that it's strictly up to the private sector --- as to how to grow an economy, create employment and stabilize a nation's debt and deficits.
The Democrats and most Europeans continue to take economic growth for granted, having been able to do so for many decades after the end of World War II. They apparently don't realize that times have changed and things are permanently different from the long gone "good old days."
In truth, globalization and excessive national debt loads have ended those "good old days" for good, even though the Democratic party still is unable or unwilling, as the case may be, to recognize this simple truism. Either way, what's done is done and what's gone is gone. The goose that laid the golden egg for so long is in serious need of attention and economic health care.
Meanwhile, today's public sector unions are influential and powerful. All we need do is to look at the state of the public school system in our country's largest cities for confirmation. Meanwhile, underfunded middle class welfare entitlement programs are threatening our nation's economic health and security as medical care and retirement benefits become increasingly more expensive and government mandated.
Since the 1960s, America has progressively tilted toward bigger and bigger government, accompanied by bigger and bigger debts and deficits. And lest we forget, stronger and more global competition has appeared on the other side of the argument.
As a result of all this, the collectivist European welfare state is in the process of falling apart right before our eyes. Of course, our own economy continues to struggle as we follow Europe's lead, even though we're a ways behind them currently. It's not too late for us.
Summing Up
Most importantly, there's a healthy and growing recognition among more and more of We the People that more unfunded and underfunded government mandates won't solve our widespread and burdensome economic problems. And that we're on the wrong financial track.
Accordingly, it's just a matter of time -- -although just how much time I don't know --- before enough of us come to understand and share this simple reality. A simple U-turn is needed.
You see, there can be no contest between the public and private sectors, because the public sector as an economic entity and participant is a mere illusion. It's nothing more than a wealth confiscating and costly intermediary between different groups of citizens.
In the end, the private sector is the only one that can "save the middle class" and lead We the People out of this ugly mess we've created over the decades. So let's stop beating each other up in the name of "fairness."
Thanks. Bob.
Economic security versus economic opportunity.
Which horse will we choose to ride?
But wait, it's a false choice to even ask that question. Only one of the two horses can be ridden.
You see, government (domestic affairs only are being considered herein--- not foreign matters or national security) can't provide us with economic security. Or with economic growth. No matter what anyone says to the contrary. It has nothing of its own. It only can take from others, and especially its citizen taxpayers.
Simply stated, the public sector is nothing more than an intermediary between its various citizens. It performs other roles as well, such as an umpire and policeman, but it adds exactly zero to real economic growth and financial security. To perform its functions, it needs money which it gets from taxpayers.
To the extent that government takes more than is required to perform its legitimate limited functions effectively and efficiently, it harms the overall output of the nation's economy. Taking MOM to convert into OPM should always be minimized by government officials, although it hardly ever is.
America's Two Economies is subtitled 'With Barack Obama, the competition between the private economy and the public economy is clear.' I would add that America is resembling Europe more and more in recent years as government grows and the emphasis on individualism wanes.
Here's the story and the political context behind it:
"For a long time, the United States had one economy. Now we have two economies that compete for America's wealth: A private economy and a public economy. The 2012 election will decide which will be subordinate to the other. One economy will lead. The other will follow.
How the U.S. arrived at the need to choose between two competing economies reveals a lot about the political polarization in the country. Any history of the Democratic Party in the 20th century will recognize its roots in the American labor movement. The party was defined by the names of those unions. The United Mine Workers. The United Auto Workers. The Brotherhoods of Teamsters and Railroad Workers. Consider what those names represented: Both Democrats and Republicans were rooted in the private economy. Unionized workers knew then that this private economy was where they made their living. The arguments were over dividing the productive fruits of that economy. That was your father's Democratic Party.
From the 1960s onward, the professional Democratic Party began to lose its relationship with the private economy. Democratic politicians drew closer to a rising public-sector union movement and its campaign financing, while the private unions declined. This meant the party itself was slowly disconnecting from the machinery of the private economy and becoming part of a rising parallel economy, the public economy of government. . . .
Today the private and public economies are in head-to-head competition for the nation's wealth—with the private economy calling that wealth capital or income, and the public economy calling it tax revenue and making moral claims for spending tax revenue.
Until recently and except for the Reagan years, the Republican Party has largely been a confused onlooker, uncertain how to embrace the private economy. In the 1990s, the party embraced the private sector mainly as a source of contributions via K Street lobbyists. In short, crony capitalism.
With the Obama administration, the tensions between the country's two economies clarified. The $831 billion spending bill in 2009 was intended to stimulate hiring of public-sector workforces but also among the satellite businesses that are subsidiaries of the public economy. Barack Obama's routine use of the traditional private-economy term "investment"—in energy, education and such—is the public economy claiming capital for its needs.
President Obama is telling the private economy it must subordinate itself to the public economy's moral efficacy. The passage in 2010 of the Affordable Care Act, with no Republican support, was justified as a 1960s-type act of moral necessity. The private economy, in his view, can't compete on that basis.
In the November 2010 elections, the private economy pushed back. Two years into the financial crisis and amid tea-party insurgencies, Democrats were swept out of office at every level of government.
These are not small events. Powerful belief systems are in motion today, and they are slamming into each other. Rep. Paul Ryan in the first sentence of his now-famous Roadmap budget said, "Rarely before have the alternatives facing America been so starkly defined." President Obama, announcing his ideas on taxes on July 9, said, "What's holding us back . . . is a stalemate in this town, in Washington, between two very different views about which direction we should go in as a country" (emphasis added).
Those are the two poles in an historic battle over who runs the American economy.
For about 40 years before 2008, spending as a percentage of GDP was around 20%. In 2009, it rose to 25% and has remained at 24% of GDP. This isn't just spending data. These numbers are a proxy for the standoff between the public economy and the private economy.
Some in the Democratic Party argue that this higher, "normal" spending level (the White House projects 22+% of GDP going forward) is necessary to fulfill the commitments our politics have made to retiring baby boomers and others. The role of the private economy in the U.S. will be to support the long-term wants and needs in the public economy.
President Obama is right: This is a choice between two paths into the American future, the clearest choice since the end of World War II. It is a mandate election.
Barack Obama is explicitly seeking a mandate to make the public economy pre-eminent. That is the unmistakable meaning of "You didn't build that." His opponent so far is talking about, but not seeking a mandate for, the other economy. One expects that in time Mitt Romney will seek a mandate equal to Mr. Obama's."
My Take
The U.S. Democratic party today is a minor variation of the socialistic parties so prevalent in the European welfare states. Neither has a clue --- or at least won't publicly admit that it's strictly up to the private sector --- as to how to grow an economy, create employment and stabilize a nation's debt and deficits.
The Democrats and most Europeans continue to take economic growth for granted, having been able to do so for many decades after the end of World War II. They apparently don't realize that times have changed and things are permanently different from the long gone "good old days."
In truth, globalization and excessive national debt loads have ended those "good old days" for good, even though the Democratic party still is unable or unwilling, as the case may be, to recognize this simple truism. Either way, what's done is done and what's gone is gone. The goose that laid the golden egg for so long is in serious need of attention and economic health care.
Meanwhile, today's public sector unions are influential and powerful. All we need do is to look at the state of the public school system in our country's largest cities for confirmation. Meanwhile, underfunded middle class welfare entitlement programs are threatening our nation's economic health and security as medical care and retirement benefits become increasingly more expensive and government mandated.
Since the 1960s, America has progressively tilted toward bigger and bigger government, accompanied by bigger and bigger debts and deficits. And lest we forget, stronger and more global competition has appeared on the other side of the argument.
As a result of all this, the collectivist European welfare state is in the process of falling apart right before our eyes. Of course, our own economy continues to struggle as we follow Europe's lead, even though we're a ways behind them currently. It's not too late for us.
Summing Up
Most importantly, there's a healthy and growing recognition among more and more of We the People that more unfunded and underfunded government mandates won't solve our widespread and burdensome economic problems. And that we're on the wrong financial track.
Accordingly, it's just a matter of time -- -although just how much time I don't know --- before enough of us come to understand and share this simple reality. A simple U-turn is needed.
You see, there can be no contest between the public and private sectors, because the public sector as an economic entity and participant is a mere illusion. It's nothing more than a wealth confiscating and costly intermediary between different groups of citizens.
In the end, the private sector is the only one that can "save the middle class" and lead We the People out of this ugly mess we've created over the decades. So let's stop beating each other up in the name of "fairness."
Thanks. Bob.
ATTENTION HOOPSTERS ... Chad's Hoops Broadcast Has #1 Highlight on ESPN Sportscenter .. Check It Out
Chad's broadcast team showcased the best high school players in the nation last week at the Nike Peach Jam. (See Hoops Update: Nike Peach Jam post of July 20.)
Last night the team covered the SC Pro Am league in live action from Columbia, South Carolina.
One big time dunk was selected as the #1 play of the day by the national Sportscenter program on ESPN and aired last evening.
If you're an "in your face" dunk fan, check out the original footage and commentary at Chad's site by going to www.augustabasketball.com.
He'll be in Atlanta with wall-to-wall AAU coverage of top notch high school players again this weekend.
Chad's a busy man who's doing a great job.
Thanks. Bob.
Last night the team covered the SC Pro Am league in live action from Columbia, South Carolina.
One big time dunk was selected as the #1 play of the day by the national Sportscenter program on ESPN and aired last evening.
If you're an "in your face" dunk fan, check out the original footage and commentary at Chad's site by going to www.augustabasketball.com.
He'll be in Atlanta with wall-to-wall AAU coverage of top notch high school players again this weekend.
Chad's a busy man who's doing a great job.
Thanks. Bob.
GDP and Employment
Today's release about second quarter GDP growth of 1.5%, while unsurprising, is another indication of how bad this so-called recovery is for Americans.
We need 3%-4% growth to reduce unemployment. That's due to the simple math of 2%-3% productivity gains over time and 1% population growth. We need that much growth just to keep the employment situation from becoming even more difficult for U. S. households.
Current Recovery Second Slowest Postwar Rebound puts the report in a proper historical context for us:
"The current economic recovery is less robust than initially thought and — through its first two-and-half years — the second-weakest rebound of the post World War II era, according to data the Commerce Department released Friday.
From the second quarter of 2009, when the recession ended, through 2011, the economy grew a total of 5.8%, a downward revision from a 6.2% gain, the recasting of the past three years’ gross domestic product figures found. Only the brief 4-quarter recovery in 1980 and 1981, when the economy grew a total of 4.4%, was weaker in the past 60 years.
Growth in the early part of 2010 wasn’t nearly as strong as previously thought, with GDP advancing 2.3% and 2.2% in the first and second quarter, respectively. That’s down from prior readings of near 4.0% annualized growth. Business investments in the first half of 2010 are now seen as being much weaker.
Conversely, the data showed the most recent recession was milder than prior readings – though still the largest downturn since the Great Depression. During the recession, which began in the fourth quarter of 2007, GDP declined 4.7%, compared to a previous reading of down 5.1%. The next worse recession since World War II came in parts of 1957 and 1958, when the economy contracted by 3.7%."
U.S. Growth Slows in 2nd Quarter has more details about the lousy economic conditions:
"Growth slowed from the prior quarter as the pace of consumer spending eased and state and local governments continued to cut.
Personal consumption expenditures rose only 1.5% during the quarter, the smallest gain in a year and down from a 2.4% increase in the first quarter. Spending on durable goods--items such as cars and home appliances meant to last at least three years--fell 1.0% in the second quarter.
Government spending subtracted 0.28 of a percentage point from overall growth. State and local spending fell 2.1% during the quarter while federal outlays declined a more mild 0.4%.
Those declines, however, come ahead of planned federal spending cuts and tax hikes set to take place early next year.
Nonresidential fixed investment, a category that includes business spending on structures and equipment, grew 5.3% during the second quarter, a more mild gain than the 7.5% increase in the prior period.
Changes to private inventory, which was a drag on the economy in the first quarter, contributed a positive 0.32 percentage point to overall growth in the most recently ended quarter.
Real final sales--GDP less changes in private inventories--increased just 1.2% in the second quarter, down from a 2.4% gain in the prior period.
In a positive sign, exports grew for the third consecutive quarter, posting a 5.3% gain from April through June, suggesting that the sovereign-debt crisis in Europe isn't hurting exports as much as some feared.
But overall trade was still a drag on the economy as imports, which subtract from GDP, grew faster, at a 6.0% rate during the quarter.
Spending on home building and other residential investment slowed to a 9.7% gain in the second quarter, but it was the fifth straight improvement after a long downturn during the housing crisis."
Summary
The economy continues to struggle. Government knows best policies continue to disappoint us.
We'll have more to say on all this later. Just wanted to share the breaking news now, bad as it is.
Thanks. Bob.
We need 3%-4% growth to reduce unemployment. That's due to the simple math of 2%-3% productivity gains over time and 1% population growth. We need that much growth just to keep the employment situation from becoming even more difficult for U. S. households.
Current Recovery Second Slowest Postwar Rebound puts the report in a proper historical context for us:
"The current economic recovery is less robust than initially thought and — through its first two-and-half years — the second-weakest rebound of the post World War II era, according to data the Commerce Department released Friday.
From the second quarter of 2009, when the recession ended, through 2011, the economy grew a total of 5.8%, a downward revision from a 6.2% gain, the recasting of the past three years’ gross domestic product figures found. Only the brief 4-quarter recovery in 1980 and 1981, when the economy grew a total of 4.4%, was weaker in the past 60 years.
Growth in the early part of 2010 wasn’t nearly as strong as previously thought, with GDP advancing 2.3% and 2.2% in the first and second quarter, respectively. That’s down from prior readings of near 4.0% annualized growth. Business investments in the first half of 2010 are now seen as being much weaker.
Conversely, the data showed the most recent recession was milder than prior readings – though still the largest downturn since the Great Depression. During the recession, which began in the fourth quarter of 2007, GDP declined 4.7%, compared to a previous reading of down 5.1%. The next worse recession since World War II came in parts of 1957 and 1958, when the economy contracted by 3.7%."
U.S. Growth Slows in 2nd Quarter has more details about the lousy economic conditions:
"Growth slowed from the prior quarter as the pace of consumer spending eased and state and local governments continued to cut.
Personal consumption expenditures rose only 1.5% during the quarter, the smallest gain in a year and down from a 2.4% increase in the first quarter. Spending on durable goods--items such as cars and home appliances meant to last at least three years--fell 1.0% in the second quarter.
Government spending subtracted 0.28 of a percentage point from overall growth. State and local spending fell 2.1% during the quarter while federal outlays declined a more mild 0.4%.
Those declines, however, come ahead of planned federal spending cuts and tax hikes set to take place early next year.
Nonresidential fixed investment, a category that includes business spending on structures and equipment, grew 5.3% during the second quarter, a more mild gain than the 7.5% increase in the prior period.
Changes to private inventory, which was a drag on the economy in the first quarter, contributed a positive 0.32 percentage point to overall growth in the most recently ended quarter.
Real final sales--GDP less changes in private inventories--increased just 1.2% in the second quarter, down from a 2.4% gain in the prior period.
In a positive sign, exports grew for the third consecutive quarter, posting a 5.3% gain from April through June, suggesting that the sovereign-debt crisis in Europe isn't hurting exports as much as some feared.
But overall trade was still a drag on the economy as imports, which subtract from GDP, grew faster, at a 6.0% rate during the quarter.
Spending on home building and other residential investment slowed to a 9.7% gain in the second quarter, but it was the fifth straight improvement after a long downturn during the housing crisis."
Summary
The economy continues to struggle. Government knows best policies continue to disappoint us.
We'll have more to say on all this later. Just wanted to share the breaking news now, bad as it is.
Thanks. Bob.
The Meaning of Capitalism ... And Education
If The Election Is About Capitalism, What Does That Mean? contains the dictionary's definition of capitalism.
Although acehieving a working understanding of capitalism should be required for all Americans, my guess is that the vast majority of We the People are generally not really familiar with the concept and that it's rarely, if ever, discussed objectively, if at all, in our classrooms:
""There are three in 10 Americans who don't have the fundamental sense of the liberal-conservative dimension in American politics," said Michael Dimock of Pew. "Then you take that to the abstract notion of capitalism, and people probably have an understanding that's slimmer.
Two experts on public sentiment, pollsters Peter Hart, a Democrat, and Bill McInturff, a Republican, see the current debate very differently.
Mr. McInturff said it's a momentary rhetorical rumble, not a secular shift in opinion. "It fits the convenient interest of President Obama who at a time of economic stress is running against a candidate who epitomizes the financial-services industry," he said.
Mr. Hart said President Obama's message cuts across the political spectrum because distrust of institutions "particularly at the pinnacle of capitalism" is so broad and deep.
In the WSJ/NBC poll released this week, Messrs Hart and McInturff synthesized the candidates' economic messages and, without saying who said what, asked people "would you be more or less likely to vote for the candidate" after hearing this pitch.
Obama's message—"Will fight for balance and fairness and encourage the investments needed to grow our economy and strengthen the middle class"—got 80% saying "more likely." Mr. Romney's message—"Wants to restore the values of economic freedom, opportunity and small government"—got 68%.
Mr. Hart said Mr. Obama's edge reflects current public concern over business and capitalism, however that's defined.
We still have months before the election, and definitions do matter. So, in case you're concerned about your own grasp of the term capitalism, here's a crib from Merriam-Webster:
"An economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market."
Earlier, the article said this about the situation:
"Let's talk about capitalism, because everyone else certainly wants to.
The presidential campaign has become a virtual referendum on capitalism and business. President Barack Obama's ads call Mitt Romney a "vampire" capitalist. Mr. Romney says Mr. Obama is anticapitalist.
Actually, capitalism has long been a problematic idea for many Americans. Public understanding of the term is so vague that the current debate is probably less about the economic system and more a reflection of how people feel at the moment about their own well-being.
The Pew Research Center says just 50% of Americans view capitalism positively. That isn't lost on companies.
"The American public sees business and capitalism as inextricably linked" and has "definitely" become more critical of both, says Mark Bertolini, the CEO of Aetna. He blames today's "political rhetoric" but also the "flagrant abuses by some sectors."
His prescription: "American business needs to reestablish in the public's mind that we are a significant force to provide jobs and careers to millions of Americans through capitalism."
But there is also a lot of confusion at work. In the 1980s researchers Robert Peterson, George Kozmetsky and Gerald Albaum found that just 35% of Americans could correctly define capitalism.
In other words, it isn't clear we're all talking about the same thing.
What's more, in good times the public may be happier with capitalism and business. In bad times, not so."
My Take
If we're going to choose more government or less government, more MOM or more OPM, more false security or more individual opportunity, to continue down the road to financial ruin or make a U-turn toward general prosperity, and increased or diminished national security as a result of our country's financial strength, we all need to know more about capitalism versus collectivism and the choices we're making.
Self governance isn't easy. And it's an ongoing responsibility for the citizens fortunate enough to be living in a free society.
Such a free society will become an even better and more stable, prosperous and secure society to the extent that it consists of a highly informed citizenry.
The election is not for the politicians or the pollsters to decide. That's We the People's job.
Education matters at all ages and will always be our most important "product."
Thanks. Bob.
Although acehieving a working understanding of capitalism should be required for all Americans, my guess is that the vast majority of We the People are generally not really familiar with the concept and that it's rarely, if ever, discussed objectively, if at all, in our classrooms:
""There are three in 10 Americans who don't have the fundamental sense of the liberal-conservative dimension in American politics," said Michael Dimock of Pew. "Then you take that to the abstract notion of capitalism, and people probably have an understanding that's slimmer.
Two experts on public sentiment, pollsters Peter Hart, a Democrat, and Bill McInturff, a Republican, see the current debate very differently.
Mr. McInturff said it's a momentary rhetorical rumble, not a secular shift in opinion. "It fits the convenient interest of President Obama who at a time of economic stress is running against a candidate who epitomizes the financial-services industry," he said.
Mr. Hart said President Obama's message cuts across the political spectrum because distrust of institutions "particularly at the pinnacle of capitalism" is so broad and deep.
In the WSJ/NBC poll released this week, Messrs Hart and McInturff synthesized the candidates' economic messages and, without saying who said what, asked people "would you be more or less likely to vote for the candidate" after hearing this pitch.
Obama's message—"Will fight for balance and fairness and encourage the investments needed to grow our economy and strengthen the middle class"—got 80% saying "more likely." Mr. Romney's message—"Wants to restore the values of economic freedom, opportunity and small government"—got 68%.
Mr. Hart said Mr. Obama's edge reflects current public concern over business and capitalism, however that's defined.
We still have months before the election, and definitions do matter. So, in case you're concerned about your own grasp of the term capitalism, here's a crib from Merriam-Webster:
"An economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market."
Earlier, the article said this about the situation:
"Let's talk about capitalism, because everyone else certainly wants to.
The presidential campaign has become a virtual referendum on capitalism and business. President Barack Obama's ads call Mitt Romney a "vampire" capitalist. Mr. Romney says Mr. Obama is anticapitalist.
Actually, capitalism has long been a problematic idea for many Americans. Public understanding of the term is so vague that the current debate is probably less about the economic system and more a reflection of how people feel at the moment about their own well-being.
The Pew Research Center says just 50% of Americans view capitalism positively. That isn't lost on companies.
"The American public sees business and capitalism as inextricably linked" and has "definitely" become more critical of both, says Mark Bertolini, the CEO of Aetna. He blames today's "political rhetoric" but also the "flagrant abuses by some sectors."
His prescription: "American business needs to reestablish in the public's mind that we are a significant force to provide jobs and careers to millions of Americans through capitalism."
But there is also a lot of confusion at work. In the 1980s researchers Robert Peterson, George Kozmetsky and Gerald Albaum found that just 35% of Americans could correctly define capitalism.
In other words, it isn't clear we're all talking about the same thing.
What's more, in good times the public may be happier with capitalism and business. In bad times, not so."
My Take
If we're going to choose more government or less government, more MOM or more OPM, more false security or more individual opportunity, to continue down the road to financial ruin or make a U-turn toward general prosperity, and increased or diminished national security as a result of our country's financial strength, we all need to know more about capitalism versus collectivism and the choices we're making.
Self governance isn't easy. And it's an ongoing responsibility for the citizens fortunate enough to be living in a free society.
Such a free society will become an even better and more stable, prosperous and secure society to the extent that it consists of a highly informed citizenry.
The election is not for the politicians or the pollsters to decide. That's We the People's job.
Education matters at all ages and will always be our most important "product."
Thanks. Bob.
Thursday, July 26, 2012
Yet Another J.C. Penney Update ... Another New Pricing Move
This post will further update our June 19 post (J.C. Penney Update ... More Turmoil) which updated our earlier May 16 post (J.C. Penney's Woes and the Need for a Cost Competitive America).
It's an interesting ongoing story and provides a clear contrast with the lack of a sense of urgency at government monopolistic entities that don't have to compete to survive. Change is ever present these days at J.C. Penney as newly installed management tries to turn a loser into a winner. The battle isn't over, and it's an uphill struggle for sure.
Penney Tweaks Price Strategy Yet Again says this about the latest maneuver at the company:
"J.C. Penney Co. is preparing to make deep price cuts across much of its merchandise, people familiar with the matter said, a significant shift in tactics for Chief Executive Ron Johnson as he tries to draw shoppers back into his stores.
Under the new policy, which kicks off in August, Penney will get rid of monthlong specials that cut prices of select items by 20% to 29% and instead will permanently mark down a large amount of merchandise in stores by similar amounts, the people said.
The move is an acknowledgment that the
department store chain needs deeper price cuts to stem a dive in sales
caused by the company ending its ceaseless sales and coupons. The
strategy caused revenue in the company's fiscal first quarter to fall by
one fifth. Penney executives expect second-quarter figures to be
equally grim, according to people familiar with the matter.
It is also an attempt to clarify for consumers what Penney executives acknowledge has been a confusing pricing strategy. After the change, Penney will offer just two options: everyday low prices and clearance sales on certain items.
The company has repeatedly said it would take years to turn around the chain, but investors aren't showing much patience. Despite a small uptick on Wednesday, the stock is down nearly 40% since the start of the calendar year.
Penney's suppliers, meanwhile, are complaining that the new strategy has crushed their sales....
Mr. Johnson's plan for the 1,100-store chain was hailed when he laid out the details in January. The former Apple Inc. retail chief said Penney would eliminate the sales that had caused nearly three-quarters of its products to be sold at discounts of 50% or more, and laid out a vision of a department store full of vendor-branded and themed boutiques.
The first of those boutiques debuted on Monday, when Levi's, Arizona and iJeans by Buffalo showed off their wares at Penney's Manhattan store. Expanding on that idea, Penney on Wednesday announced a partnership with Canadian retailer Joe Fresh to put that brand of boutique in 700 of its department stores. . . .
Vendors were hopeful the redesigned stores would boost their business. But Penney's customer traffic slowed and sales sank after the promotions dried up, leading to some caution among vendors considering opening boutiques. . . .
The new, deeper price cuts reflect the first major adjustment of Mr. Johnson's new pricing policy since it was rolled out in February. That policy set three tiers for pricing: Everyday low prices that were 40% lower than Penney's starting prices last year, "monthlong values" where certain items were put on an even deeper discount for an entire month, and "Best Price Fridays" that were clearance days starting on two Fridays a month.
The cuts that will take place in August will affect up to 20% of the goods in Penney's stores and will leave their prices as much as a third lower than the current everyday low prices, the people said.
In an interview last month, Mr. Johnson conceded that customers were confused about terms it used for its new pricing, but said the company was adamant about not moving back to coupons or sales."
My Take
Everyday low prices work when customers frequent the stores regularly and are confident that they will get low prices. That's the Wal-Mart "brand" strategy and accompanying low cost business model, of course. They save advertising money and put the savings in their prices. They also attract customers by offering groceries, now accounting for roughly 50% of their sales. At Wal-Mart there are lots of everyday visitors for everyday prices, in other words.
However, J.C. Penney does not enjoy the reputation for low prices that have worked so successfully for Wal-Mart. And its customers don't come as often as Wal-Mart's. Penney customers are used to shopping when heavily advertised items are on sale.
Further, Wal-Mart has a low cost mentality throughout its organization. Whether Penney will be able to fit into that "low cost and proud of it" mold is very much an open question.
Adopting an everyday price strategy is one thing; the ability to execute that strategy successfully across the company and each and every day is quite another thing. In the end, it's up to the customers. They'll decide the outcome at Penney's, as customers always do wherever free markets rule.
I've long been of the view that a poor strategy well executed will defeat a good strategy poorly executed. So is Penney's strategy in fact executable? Will it be well executed? Will the customers buy into it? All interesting questions.
In time we'll be provided the answers to those questions. For now, let's just watch from the distant sidelines.
That said, J.C. Penney is an interesting case study that we can watch as it unfolds in real time.
In the end, it's all about the customers and what they decide to do.
Stay tuned. Bob.
It's an interesting ongoing story and provides a clear contrast with the lack of a sense of urgency at government monopolistic entities that don't have to compete to survive. Change is ever present these days at J.C. Penney as newly installed management tries to turn a loser into a winner. The battle isn't over, and it's an uphill struggle for sure.
Penney Tweaks Price Strategy Yet Again says this about the latest maneuver at the company:
"J.C. Penney Co. is preparing to make deep price cuts across much of its merchandise, people familiar with the matter said, a significant shift in tactics for Chief Executive Ron Johnson as he tries to draw shoppers back into his stores.
Under the new policy, which kicks off in August, Penney will get rid of monthlong specials that cut prices of select items by 20% to 29% and instead will permanently mark down a large amount of merchandise in stores by similar amounts, the people said.
It is also an attempt to clarify for consumers what Penney executives acknowledge has been a confusing pricing strategy. After the change, Penney will offer just two options: everyday low prices and clearance sales on certain items.
The company has repeatedly said it would take years to turn around the chain, but investors aren't showing much patience. Despite a small uptick on Wednesday, the stock is down nearly 40% since the start of the calendar year.
Penney's suppliers, meanwhile, are complaining that the new strategy has crushed their sales....
Mr. Johnson's plan for the 1,100-store chain was hailed when he laid out the details in January. The former Apple Inc. retail chief said Penney would eliminate the sales that had caused nearly three-quarters of its products to be sold at discounts of 50% or more, and laid out a vision of a department store full of vendor-branded and themed boutiques.
The first of those boutiques debuted on Monday, when Levi's, Arizona and iJeans by Buffalo showed off their wares at Penney's Manhattan store. Expanding on that idea, Penney on Wednesday announced a partnership with Canadian retailer Joe Fresh to put that brand of boutique in 700 of its department stores. . . .
Vendors were hopeful the redesigned stores would boost their business. But Penney's customer traffic slowed and sales sank after the promotions dried up, leading to some caution among vendors considering opening boutiques. . . .
The new, deeper price cuts reflect the first major adjustment of Mr. Johnson's new pricing policy since it was rolled out in February. That policy set three tiers for pricing: Everyday low prices that were 40% lower than Penney's starting prices last year, "monthlong values" where certain items were put on an even deeper discount for an entire month, and "Best Price Fridays" that were clearance days starting on two Fridays a month.
The cuts that will take place in August will affect up to 20% of the goods in Penney's stores and will leave their prices as much as a third lower than the current everyday low prices, the people said.
In an interview last month, Mr. Johnson conceded that customers were confused about terms it used for its new pricing, but said the company was adamant about not moving back to coupons or sales."
My Take
Everyday low prices work when customers frequent the stores regularly and are confident that they will get low prices. That's the Wal-Mart "brand" strategy and accompanying low cost business model, of course. They save advertising money and put the savings in their prices. They also attract customers by offering groceries, now accounting for roughly 50% of their sales. At Wal-Mart there are lots of everyday visitors for everyday prices, in other words.
However, J.C. Penney does not enjoy the reputation for low prices that have worked so successfully for Wal-Mart. And its customers don't come as often as Wal-Mart's. Penney customers are used to shopping when heavily advertised items are on sale.
Further, Wal-Mart has a low cost mentality throughout its organization. Whether Penney will be able to fit into that "low cost and proud of it" mold is very much an open question.
Adopting an everyday price strategy is one thing; the ability to execute that strategy successfully across the company and each and every day is quite another thing. In the end, it's up to the customers. They'll decide the outcome at Penney's, as customers always do wherever free markets rule.
I've long been of the view that a poor strategy well executed will defeat a good strategy poorly executed. So is Penney's strategy in fact executable? Will it be well executed? Will the customers buy into it? All interesting questions.
In time we'll be provided the answers to those questions. For now, let's just watch from the distant sidelines.
That said, J.C. Penney is an interesting case study that we can watch as it unfolds in real time.
In the end, it's all about the customers and what they decide to do.
Stay tuned. Bob.
PART 2 ... Steel Industry ... Europe's Real Problems ... Competitiveness (Updates the Prior Post on "The Future of Unions in the Face of Global Competition ...")
We looked at Europe's auto situation in PART 1. Now it's the steel industry's turn in the barrel.
Like autos, steel presents another huge competitiveness and economic problem for the Europeans.
With their sovereign fiscal affairs already in shambles, global competition, especially from China, factory overcapacity and labor costs have created an untenable situation for many countries, companies, unions and employees. The problem needs a solution.
A Global Steel Giant Scales Back summarizes steel's dilemma nicely. It's not fun reading, but it tells a story that needs telling if the needed changes to ensure survival, if not success, are going to be implemented in Europe, America and elsewhere:
In Europe, where the company faces its deepest problems, it says it
wants to keep its best plants — like those in Ghent, Belgium and
Dunkirk, France — running at high rates while sidelining the poor
performers. But ArcelorMittal probably needs to close some plants
permanently, analysts say. And as the automakers know too well, closing
plants in Europe requires months, if not years, of talks.
Like autos, steel presents another huge competitiveness and economic problem for the Europeans.
With their sovereign fiscal affairs already in shambles, global competition, especially from China, factory overcapacity and labor costs have created an untenable situation for many countries, companies, unions and employees. The problem needs a solution.
A Global Steel Giant Scales Back summarizes steel's dilemma nicely. It's not fun reading, but it tells a story that needs telling if the needed changes to ensure survival, if not success, are going to be implemented in Europe, America and elsewhere:
"Steel is a notoriously volatile industry. . . . With a fast-growing world economy hungry for steel, ArcelorMittal (world's largest steel company) reported
operating income of nearly $12 billion for 2008.
Things are different now, with Europe in a deep economic funk and
once-roaring construction markets like India and China also slowing.
Last year, the company had operating income of $4.9 billion. And on
Wednesday, it reported
second-quarter operating income of $1.1 billion, on sales of $22.48
billion. While the sales were down 10 percent from a year earlier,
income was down more than 50 percent as the cost of the industry’s raw
material, iron ore, rose even as steel prices slumped.
“Clearly, this performance is not acceptable at all,” Mr. Mittal said by
telephone on Wednesday, while noting that the severity of the various
downturns had been unexpected.
The company has already started curtailing production in Europe to match
reduced demand. And it is bracing for resistance from unions and
governments to other planned cost cuts. Those include the major wage and
benefit concessions it is seeking from workers in the United States,
where it employs thousands of workers at 12 major facilities in states
including Indiana and Pennsylvania.
Back in the boom times, Mr. Mittal’s strategy was to consolidate a
fragmenting industry. Putting production into fewer hands would make it
easier to adjust output to cushion the cyclical downturns that have
always played havoc with steel makers. Among the American companies he
bought were Inland Steel and the International Steel Group, which owned
plants once operated by companies like LTV and Weirton Steel.
Beginning with the global recession in 2009, though, ArcelorMittal has faced one setback after another.
The latest and perhaps the most serious hazard is the protracted euro
zone financial turmoil that has all but killed demand for steel in
Western Europe. ArcelorMittal, with headquarters in Luxembourg, produced
more than a third of its worldwide crude steel in Europe last year.
Nearly 100,000 of the company’s 260,000 employees work in Europe.
ArcelorMittal’s share price has fallen steeply since 2008, reducing the
value of the Mittal family’s controlling stake of 40 percent to $9
billion from an estimated $55 billion in 2008.
The benchmark price of European steel in 2008 was about 850 euros
($1,030 at today’s exchange rates) a metric ton. By last month, that
price was 573 euros, according to Meps, a consulting firm in Sheffield,
England.
And the lower the price drops, the more reluctant buyers are to commit,
“because the material they have in stock is worth less as each week
passes,” said Peter Fish, the chairman of Meps.
Inexpensive Chinese steel, heavily subsidized by its government, has
also been a big drag on global prices. Even as steel production in
Western Europe and the United States has declined over the last five
years, China’s output has grown about 60 percent, and China now makes 46
percent of the world’s steel.
Mr. Mittal said almost all Chinese companies lost money in the first
half of the year. “That is good news in the sense that they will have to
work on restructuring the steel industry,” eventually putting profit
ahead of volume, he said.
But largely because of China’s ravenous appetite for iron ore, the
industry’s main raw material, its price has quadrupled since 2006, to
about $134 a metric ton.
“The steel makers like ArcelorMittal are caught in the middle,” said
Jeff Largey, an analyst at Macquarie in London. “On the one hand, the
end markets are weak and they don’t have any pricing power. On the other
hand, they can’t do anything about high raw materials prices driven by
demand from China.”
Mr. Mittal started out in the 1970s building and operating a minimill in
Indonesia. He built his fortune in the next three decades by buying and
fixing a network of gigantic but poorly performing plants in places
like Kazakhstan, Romania and Mexico.
But now Mr. Mittal finds himself in a tough fight just to control costs
and reduce the company’s $22 billion in debt. In Europe, he has idled
nine of his 25 blast furnaces, the huge machines that turn iron ore into
liquid metal. . . .
Labor problems are also looming in the United States. The company and
the United Steelworkers union are now in intensive talks in Pittsburgh,
trying to reach a new agreement before the current contract covering
12,500 workers expires at the end of August." (See our recent post "The Future of Unions in the Face of Global Competition ...." dated July 22.)
My Take
China makes close to 50% of the world's steel today, and global prices for steel have declined by one third since 2008.
Overcapacity is a huge issue for steel makers, and raw material costs are increasing at the same time.
Taken as a whole, these are huge and perhaps insurmountable problems.
And if all that's not enough to cause despair, let's not forget the role of recalcitrant and uncooperative European unions and governments.
Summing Up
When economies are expanding, almost everybody's a winner. Even the eventual losers.
It's a whole lot easier for companies, countries, governments, unions and individual workers to be successful when economic times are good. A constantly increasing volume of sales will cover up a lot of problems. But eventually shipments slow and a new competitive scenario emerges.
When recessions hit, the downside is no fun whatsoever.
Losses often replace profits, layoffs replace hirings, plant closures replace plant openings and so on.
2008 forward has been a downward ride for the steel industry.
It's time for everyone in Europe to come to grips with this simple fact lest many businesses and governments go broke. Americans, too.
It's time for a new competitive playbook. The old one's obsolete.
That's my view.
Thanks. Bob.
PART 1 ... Auto Industry ... Europe's Real Problems ... Competitiveness
This morning the world's financial markets have been rallying after ECB head Mario Draghi said the European central bank would do whatever it takes to save the euro currency. Now let's address the bigger issue of whether European companies can become globally competitive without totally trashing the value of the euro currency.
We'll first take the auto industry and then follow through with a look at the steel industry as well as the enormous role that unions and governments play in preventing European firms and factories from making much needed progress in their financial condition and competitive product offerings.
Europe's Auto Industry Has Reached Day of Reckoning says this in part:
"For European carmakers, the day of reckoning may finally be at hand.
The most dreadful year in car sales in more than a decade may require the industry to deal with the overstaffed, underused factories that have been undermining earnings for years.
As the region’s weak economies keep many European car buyers away from
showrooms, analysts say the unprofitable automakers have no choice but
to start closing production lines and cutting payrolls. For the weakest,
like General Motors’ Opel unit and PSA Peugeot Citroën, their survival may depend on it.
The question is whether any of the companies can do it fast enough — or at all — in the face of restrictive European labor laws and stubborn political resistance to cutbacks.
“I’ve never seen it this bad,” Sergio Marchionne, chief executive of both Chrysler and the Italian automaker Fiat, said during an interview. “All the unresolved issues that have been plaguing the industry for a number of years have all come forward.”
Fresh evidence came Wednesday in quarterly earnings from Ford and Peugeot, which both reported huge losses and are each on track to lose more than $1 billion in Europe this year. Later in the day, the ratings agencies Fitch and Standard & Poor’s both lowered Peugeot’s debt by a notch, placing it deeper into “junk” territory.
Huge overcapacity, some auto executives say, has spawned a crisis similar to the one the U.S. industry barely survived just a few years ago. In fact, the downturn in Europe threatens the remarkably rapid recoveries that Ford and General Motors were able to make after Detroit’s moment of truth in 2009.
Underused plants are ruinous for car companies, which must continue to pay upkeep costs and make payroll even as revenue plunges. By some estimates, the European industry as a whole is operating at only about 60 percent to 65 percent of capacity. As a general rule, plants must operate at about 75 percent or 80 percent to be profitable, analysts say.
The figures may be much worse for some factories, including Fiat plants in Italy, analysts said. At the same time, German luxury carmakers like BMW and Mercedes continue to thrive and are operating at or near capacity.
Few business undertakings are more tortuous than closing a European car factory. Peugeot braved howls from unions and the new Socialist government of François Hollande this month when it said that it would close a plant in Aulnay, outside Paris, in hopes of stemming losses that reached €819 million, or $993 million, in the first half of this year.
Closing a plant typically requires a long and costly battle with unions, which have more legal rights than in the United States. German law, for example, requires companies to negotiate job cuts with worker representatives, who can demand large severance payments or pensions.
In an effort to avoid a confrontation with labor, Peugeot has promised to convert its plant in Aulnay, which employs 3,000 people, to other, unspecified manufacturing. The company also promised to help employees find new jobs after car production ends in 2014.
But such measures add to the cost at a time when Peugeot is hemorrhaging money. And the compromises have not prevented political leaders from pushing the company to scale back plans to cut a total of 8,000 jobs in France, or dissuaded workers from protesting outside the company’s Paris headquarters on Wednesday.
Even after four years of catastrophic sales, only a few of Europe’s 100 or so auto plants have shut down. The closures include an Opel factory in Antwerp and a Fiat plant in Sicily.
“It’s a question of who has the stomach for the fight,” said Tim Urquhart, an analyst at IHS Automotive.
But with the European car industry on track to suffer its worst year since 1996, more closings seem unavoidable. About 12.4 million vehicles will be sold in the European Union this year, according to industry estimates. That is 3 million less than in 2007.
The car industry provides one of the most vivid examples of how the euro zone debt crisis is infecting companies outside the financial industry.
There are some disturbing parallels. In both cases, the pain falls disproportionately on Southern Europe, while Germany seems immune. Car sales actually rose slightly in Germany during the first six months of the year. They plunged more than 14 percent in France and almost 20 percent in Italy, which is in recession.
In Portugal and Greece, which have both required European bailouts and are enduring severe economic downturns, car sales fell more than 40 percent through June, according to the European Automobile Manufacturers’ Association."
Summing Up
European car making capacity is heavily underutilized as a result of uncompetitive operations, sovereign financial problems, recessions and the unwillingness of many European unions and governments to face reality.
To have any chance at viability, those manufacturers able to survive today's financial losses must be free in the future to take the necessary steps to provide a globally cost competitive product offering. Otherwise it's game over.
But the auto industry is not the only huge problem for European countries and workers. Next we'll look at the steel companies, who face very similar issues.
Governments can't protect people or companies from global competition, but that doesn't mean they don't pretend that they can as long as they can.
Sooner or later, however, government knows best "protection," can kicking and pretending will be replaced by ugly reality. That's happening throughout Europe now.
And when reality finally sets in, it's neither a pretty picture nor an easy problem to solve.
Stay tuned. Steel's next.
Thanks. Bob.
We'll first take the auto industry and then follow through with a look at the steel industry as well as the enormous role that unions and governments play in preventing European firms and factories from making much needed progress in their financial condition and competitive product offerings.
Europe's Auto Industry Has Reached Day of Reckoning says this in part:
"For European carmakers, the day of reckoning may finally be at hand.
The most dreadful year in car sales in more than a decade may require the industry to deal with the overstaffed, underused factories that have been undermining earnings for years.
The question is whether any of the companies can do it fast enough — or at all — in the face of restrictive European labor laws and stubborn political resistance to cutbacks.
“I’ve never seen it this bad,” Sergio Marchionne, chief executive of both Chrysler and the Italian automaker Fiat, said during an interview. “All the unresolved issues that have been plaguing the industry for a number of years have all come forward.”
Fresh evidence came Wednesday in quarterly earnings from Ford and Peugeot, which both reported huge losses and are each on track to lose more than $1 billion in Europe this year. Later in the day, the ratings agencies Fitch and Standard & Poor’s both lowered Peugeot’s debt by a notch, placing it deeper into “junk” territory.
Huge overcapacity, some auto executives say, has spawned a crisis similar to the one the U.S. industry barely survived just a few years ago. In fact, the downturn in Europe threatens the remarkably rapid recoveries that Ford and General Motors were able to make after Detroit’s moment of truth in 2009.
Underused plants are ruinous for car companies, which must continue to pay upkeep costs and make payroll even as revenue plunges. By some estimates, the European industry as a whole is operating at only about 60 percent to 65 percent of capacity. As a general rule, plants must operate at about 75 percent or 80 percent to be profitable, analysts say.
The figures may be much worse for some factories, including Fiat plants in Italy, analysts said. At the same time, German luxury carmakers like BMW and Mercedes continue to thrive and are operating at or near capacity.
Few business undertakings are more tortuous than closing a European car factory. Peugeot braved howls from unions and the new Socialist government of François Hollande this month when it said that it would close a plant in Aulnay, outside Paris, in hopes of stemming losses that reached €819 million, or $993 million, in the first half of this year.
Closing a plant typically requires a long and costly battle with unions, which have more legal rights than in the United States. German law, for example, requires companies to negotiate job cuts with worker representatives, who can demand large severance payments or pensions.
In an effort to avoid a confrontation with labor, Peugeot has promised to convert its plant in Aulnay, which employs 3,000 people, to other, unspecified manufacturing. The company also promised to help employees find new jobs after car production ends in 2014.
But such measures add to the cost at a time when Peugeot is hemorrhaging money. And the compromises have not prevented political leaders from pushing the company to scale back plans to cut a total of 8,000 jobs in France, or dissuaded workers from protesting outside the company’s Paris headquarters on Wednesday.
Even after four years of catastrophic sales, only a few of Europe’s 100 or so auto plants have shut down. The closures include an Opel factory in Antwerp and a Fiat plant in Sicily.
“It’s a question of who has the stomach for the fight,” said Tim Urquhart, an analyst at IHS Automotive.
But with the European car industry on track to suffer its worst year since 1996, more closings seem unavoidable. About 12.4 million vehicles will be sold in the European Union this year, according to industry estimates. That is 3 million less than in 2007.
The car industry provides one of the most vivid examples of how the euro zone debt crisis is infecting companies outside the financial industry.
There are some disturbing parallels. In both cases, the pain falls disproportionately on Southern Europe, while Germany seems immune. Car sales actually rose slightly in Germany during the first six months of the year. They plunged more than 14 percent in France and almost 20 percent in Italy, which is in recession.
In Portugal and Greece, which have both required European bailouts and are enduring severe economic downturns, car sales fell more than 40 percent through June, according to the European Automobile Manufacturers’ Association."
Summing Up
European car making capacity is heavily underutilized as a result of uncompetitive operations, sovereign financial problems, recessions and the unwillingness of many European unions and governments to face reality.
To have any chance at viability, those manufacturers able to survive today's financial losses must be free in the future to take the necessary steps to provide a globally cost competitive product offering. Otherwise it's game over.
But the auto industry is not the only huge problem for European countries and workers. Next we'll look at the steel companies, who face very similar issues.
Governments can't protect people or companies from global competition, but that doesn't mean they don't pretend that they can as long as they can.
Sooner or later, however, government knows best "protection," can kicking and pretending will be replaced by ugly reality. That's happening throughout Europe now.
And when reality finally sets in, it's neither a pretty picture nor an easy problem to solve.
Stay tuned. Steel's next.
Thanks. Bob.
Update On Europe ... Central Bank Will Defend Euro
The European Central Bank head today announced the ECB will defend the euro currency to the hilt and that it won't break up anytime soon.
While that's a good thing, it won't solve any competitiveness issues or growth needs for the various European economies.
What it will do, however, is limit interest rate increases and give countries a chance to do something meaningful about their debt and economic growth problems. That's only an interim and temporary band-aid solution. It won't change the cultures or financial condition of welfare states such as Spain, Italy and Greece, among others.
ECB's Draghi Reiterates Euro Support says this:
"European Central Bank President Mario Draghi on Thursday delivered a pointed reminder that the central bank stands ready to protect the euro if required, providing an indication that the ECB is concerned about elevated borrowing costs in Spain and Italy.
"We think the euro is irreversible. And it is not empty words now. The actions we are making would make it irreversible," Mr. Draghi said at a conference of businessmen and politicians in London.
Financial markets took his remarks as a sign that the central bank may be ready to buy government bonds or embark on other measures to drive sovereign borrowing costs down as long as its actions remain within its mandate, but that it won't embark on another long-term refinancing operation or quantitative easing despite market pressure.
The ECB is concerned that rising risk premia—the extra money investors demand for being willing to finance financially weak governments such as Spain and Italy—are becoming an obstacle for the bank's record low interest rates to reach the wider economy, the central bank governor noted.
"To the extent the size of this sovereign premia hamper the functioning of the monetary policy transmission channels, they come within our remit. So we have to cope with this financial fragmentation by addressing these issues," Mr. Draghi said. . . .
Mr. Draghi's comments may indicate the ECB's willingness to restart bond purchases as Spanish government bond yields have hit all-time highs recently and Italy is facing contagion from that. Or he could be indicating that some other measures are in the pipeline.
The ECB is ready to do whatever it takes to preserve the euro but will remain within its mandate and not substitute government action with its steps, Mr. Draghi added, speaking a week before the central bank's policy-setting governing council meets.
Mr. Draghi stressed that the ECB isn't willing to abandon its mandate of guarding price stability, which it defines as an inflation rate of less than but close to 2%.
"Within our mandate, the ECB is willing to do whatever it takes to preserve the euro and, believe me, it will be enough," Mr. Draghi said.
"The problem is we want to do it within our mandate, that is what makes the thing both effective and right. We don't want to supplement actions that have to be taken by governments, we can't supplement actions that need to be taken at the euro level—that is not our job. Our job is to maintain price stability and to handle the fragmentation of the markets," Mr. Draghi said."
My Take
This breaking news is a good adder to our previous post today about Europe's financial woes.
It may buy some time for governments to address their existential financial issues, but it by no means will solve them.
While monetary policy is helpful, a country's fiscal policy is even more important, and the economic growth of a country's private sector is the most important factor.
That said, this morning's ECB announcement is an assist, albeit not a solution of any kind.
We'll get into the competitiveness and private sector growth issues later.
Thanks. Bob.
While that's a good thing, it won't solve any competitiveness issues or growth needs for the various European economies.
What it will do, however, is limit interest rate increases and give countries a chance to do something meaningful about their debt and economic growth problems. That's only an interim and temporary band-aid solution. It won't change the cultures or financial condition of welfare states such as Spain, Italy and Greece, among others.
ECB's Draghi Reiterates Euro Support says this:
"European Central Bank President Mario Draghi on Thursday delivered a pointed reminder that the central bank stands ready to protect the euro if required, providing an indication that the ECB is concerned about elevated borrowing costs in Spain and Italy.
"We think the euro is irreversible. And it is not empty words now. The actions we are making would make it irreversible," Mr. Draghi said at a conference of businessmen and politicians in London.
Financial markets took his remarks as a sign that the central bank may be ready to buy government bonds or embark on other measures to drive sovereign borrowing costs down as long as its actions remain within its mandate, but that it won't embark on another long-term refinancing operation or quantitative easing despite market pressure.
The ECB is concerned that rising risk premia—the extra money investors demand for being willing to finance financially weak governments such as Spain and Italy—are becoming an obstacle for the bank's record low interest rates to reach the wider economy, the central bank governor noted.
"To the extent the size of this sovereign premia hamper the functioning of the monetary policy transmission channels, they come within our remit. So we have to cope with this financial fragmentation by addressing these issues," Mr. Draghi said. . . .
Mr. Draghi's comments may indicate the ECB's willingness to restart bond purchases as Spanish government bond yields have hit all-time highs recently and Italy is facing contagion from that. Or he could be indicating that some other measures are in the pipeline.
The ECB is ready to do whatever it takes to preserve the euro but will remain within its mandate and not substitute government action with its steps, Mr. Draghi added, speaking a week before the central bank's policy-setting governing council meets.
Mr. Draghi stressed that the ECB isn't willing to abandon its mandate of guarding price stability, which it defines as an inflation rate of less than but close to 2%.
"Within our mandate, the ECB is willing to do whatever it takes to preserve the euro and, believe me, it will be enough," Mr. Draghi said.
"The problem is we want to do it within our mandate, that is what makes the thing both effective and right. We don't want to supplement actions that have to be taken by governments, we can't supplement actions that need to be taken at the euro level—that is not our job. Our job is to maintain price stability and to handle the fragmentation of the markets," Mr. Draghi said."
My Take
This breaking news is a good adder to our previous post today about Europe's financial woes.
It may buy some time for governments to address their existential financial issues, but it by no means will solve them.
While monetary policy is helpful, a country's fiscal policy is even more important, and the economic growth of a country's private sector is the most important factor.
That said, this morning's ECB announcement is an assist, albeit not a solution of any kind.
We'll get into the competitiveness and private sector growth issues later.
Thanks. Bob.
Europe's Woes Seriously Threaten Global Stability
Europe is a financial mess. Maybe even beyond hope, at least as far as the Euro is concerned.
Many southern euro zone countries have already entered a recession and others are teetering on the brink of one. None of that is news.
What is news, however, and needs to be clearly understood is the impact of increasing interest rates on a highly indebted country's ability to service its debts.
And there are lessons from Europe for us to learn here in the U.S. as well.
In fact, in due course we may be facing a similar issue to the one confronting Europe if we don't take appropriate remedial action soon. Accordingly, it's both helpful and necessary for We the People to know what we need to avoid and why. We'll take a shot at that debt to growth to interest rates conundrum herein.
In Euro Zone, Debt Pressure Tightens Grip the debt to GDP to interest rate level story is described:
"With August fast approaching, Europe’s summer just got a lot less relaxing.
Following is a short explanation as to why this happens when debt approaches annual GDP and interest rates exceed nominal annual GDP growth. Since it could happen here as well, it's not simply a European problem. And most assuredly it's not an academic issue---it's all too real. Excessive debt is dangerous for lots of reasons. Rising interest rates end up being the economic killer.
Now let's assume the bond vigilantes raise the interest rates country A must pay on new borrowings from 2% to 7%, similar to what's happening in Greece, Spain and Italy now. And let's further assume that each of these countries enters a recession. Paying $7 in interest will necessitate that that country borrows at least an additional $7 just to pay the interest tab. In that event, the country's financial death spiral has begun. It won't be able to grow at 7% or greater and probably not at 2% or greater either. Game over.
It doesn't have to play out that way in the U.S. but it's definitely headed that way.
We need to change direction NOW.
Thanks. Bob.
Many southern euro zone countries have already entered a recession and others are teetering on the brink of one. None of that is news.
What is news, however, and needs to be clearly understood is the impact of increasing interest rates on a highly indebted country's ability to service its debts.
And there are lessons from Europe for us to learn here in the U.S. as well.
In fact, in due course we may be facing a similar issue to the one confronting Europe if we don't take appropriate remedial action soon. Accordingly, it's both helpful and necessary for We the People to know what we need to avoid and why. We'll take a shot at that debt to growth to interest rates conundrum herein.
In Euro Zone, Debt Pressure Tightens Grip the debt to GDP to interest rate level story is described:
"With August fast approaching, Europe’s summer just got a lot less relaxing.
Signs that cracks in the euro zone are widening sent markets on the
Continent down sharply on Monday, as doubts grew about Greece’s ability
to make good on its debt payments and Spain’s economy — the region’s
fourth largest — was straining under the pressure of the government’s
austerity measures.
Additionally, in a blow to the euro zone’s most stable countries,
Moody’s Investors Service late Monday cut the outlook for its AAA credit
ratings for Germany, the Netherlands and Luxembourg to “negative” from
“stable.” The agency cited the fallout from an increased likelihood of a
Greek exit from the euro and possible greater costs for supporting countries like Spain and Italy. . . .
“Europe has become incapacitated,” said Alessandro Leipold, a former deputy director at the International Monetary Fund.
The immediate concern is that if Greece does not present an acceptable
budget-cutting plan — as it has promised to do as a condition of its
bailout — Europe will not give it the money it needs to make interest
payments. That in turn could lead to a default on its debt, causing
financial contagion as investors worry about what will happen to bigger
economies like Spain’s and Italy’s.
European leaders have pulled the region back from the brink of collapse
time and again. But many investors, economists, government officials and
international monetary officials are worried that finding a solution
keeps getting tougher now that Europe’s debt crisis is in its third year.
“Everyone is looking for an easy way out, but there isn’t one,” said
Stephen Jen, a former economist at the monetary fund who runs a
London-based hedge fund.
German officials on Monday continued to sow doubt about Greece’s future
in the euro monetary union. . . .
Spain’s interest rate on 10-year government debt spiked to 7.51 percent,
its highest level since the euro currency was established in 1999,
before ending Monday at 7.43 — still well above the 7 percent level that
many analysts fear could eventually shut Spain out of public markets
and force it to seek a bailout.
Italy’s 10-year bond yield climbed to a six-month high Monday, to 6.35,
as it wrestled with its own debt problems and the risk of an economic
collapse in its autonomous region of Sicily. . . .
Greece has survived for nearly three years on money doled out by
European taxpayers. But among the Greek people, the new prime minister,
Antonis Samaras, is under pressure to make good on election pledges to
soften some of the harshest austerity terms linked to Greece’s loans.
The country is burdened by debt that is 165 percent of overall economic
output and an economy set to shrink by 7 percent this year. Now the new
government is proposing to cut 11 billion euros in spending without
laying off any of its 150,000 or so public sector workers — a trick that
most economists see as impossible. . . .
Officials from the troika overseeing the Greek bailout — the
International Monetary Fund, the European Central Bank and the European
Commission in Brussels — say privately that they doubt the country will
be able to meet its official target of bringing its debt down to 120
percent of economic output by 2020. . . .
While analysts believe that Europe will figure out a way to get Greece
the cash to make good on this obligation, they are not so sure about
what will happen after that. . . .
The escalation of the crisis has renewed calls, including from Spanish
government authorities, for the European Central Bank to offer its own
support via a program that would aggressively buy Spanish and Italian
bonds. The thinking is that would drive down yields and make the debt
attractive to investors again.
However, some analysts believe that holding out for such an intervention
is futile. Germany, these people say, will not budge from its core
belief that all the weak European nations — from those that have been
bailed out like Greece to those on the verge of a bailout like Spain —
must bring down their deficits and debts to manageable levels if they
intend to stay in the zone.
“In the end, I believe the euro zone will break up, it is just a
question of how many more crises we will live through before that
happens,” said Douglas McWilliams, the chief executive of CEBR, a
London-based economic forecaster.
Mr. McWilliams believes that a Greek exit, if it comes, would prompt
investors to question the membership of other countries with
competitiveness problems like Spain and Italy. And he disputes the view,
said to be held by a growing number of German public figures, that
Europe can afford to let Greece leave the zone, as its new 500 billion
euro rescue facility can serve as a firewall to halt the spread of
contagion.
“Once Greece goes, then you start to look at the other troubled countries,” he said."
My Take
When countries have debt equal to or greater than their annual GDP, there is a great likelihood that they will default on their debt. This is especially the case when nominal growth is less than the interest rates they pay for borrowed funds. Thus, creditors become the ones who make the decisions and they tend to stop loaning additional money to overly indebted borrowers, sovereigns included.
Following is a short explanation as to why this happens when debt approaches annual GDP and interest rates exceed nominal annual GDP growth. Since it could happen here as well, it's not simply a European problem. And most assuredly it's not an academic issue---it's all too real. Excessive debt is dangerous for lots of reasons. Rising interest rates end up being the economic killer.
Country A's GDP is $100 and its debt is $100 as well. If it is in recession and its interest rate for new borrowings is 2%, its debt will grow by at least 2% in year #1. That's because it will have to borrow at least an additional $2 to pay its increased interest tab.
Now let's assume the bond vigilantes raise the interest rates country A must pay on new borrowings from 2% to 7%, similar to what's happening in Greece, Spain and Italy now. And let's further assume that each of these countries enters a recession. Paying $7 in interest will necessitate that that country borrows at least an additional $7 just to pay the interest tab. In that event, the country's financial death spiral has begun. It won't be able to grow at 7% or greater and probably not at 2% or greater either. Game over.
And that's exactly what 's happening in Europe today. Economies aren't growing and countries' debts are already equal to or greater than their annual GDP. Potential lenders are worried about getting paid back, so they either don't loan or dramatically increase the interest rates they charge on renewed or new borrowings.
As a point of reference, Germany pays slightly more than 1% for ten year borrowings and the U.S. now pays less than 1.5% for its ten year government loans.
As a point of reference, Germany pays slightly more than 1% for ten year borrowings and the U.S. now pays less than 1.5% for its ten year government loans.
Meanwhile, Greece, Spain, Italy and others are paying ~7% and their economies are in recession.
They apparently have no way out unless some other country, such as Germany, writes a check and bails them out by loaning them even more money, which for obvious reasons Germany is extremely reluctant to do. They have limited resources, too. As do we all.
They apparently have no way out unless some other country, such as Germany, writes a check and bails them out by loaning them even more money, which for obvious reasons Germany is extremely reluctant to do. They have limited resources, too. As do we all.
Summing Up
We can't be sure what will happen to Greece, Spain, Italy or many other countries in Europe. Not even in France and Germany.
Will they effectively address their problems or is it already too late to do so?
Will they effectively address their problems or is it already too late to do so?
In any case, the European entitlement welfare state is entering the end game stage.
To avoid disaster, a sovereign's economic growth must be sufficient to service a country's debt load.
Otherwise that country will fall off the proverbial financial cliff.
Many European countries may already be over that cliff and simply experiencing a Wile e Coyote moment right now.
To avoid disaster, a sovereign's economic growth must be sufficient to service a country's debt load.
Otherwise that country will fall off the proverbial financial cliff.
Many European countries may already be over that cliff and simply experiencing a Wile e Coyote moment right now.
It doesn't have to play out that way in the U.S. but it's definitely headed that way.
We need to change direction NOW.
Thanks. Bob.
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