May 2014


Filed under: Newsletters


Economy

Our economy slowed to a crawl for the first quarter of 2014. Over the last two years, we’ve had our ups and downs, see the growth numbers below, by quarter;

2012 – Q1        3.7%

2012 – Q2        1.2%

2012 – Q3        2.8%

2012 – Q4          .1%

2013 – Q1        1.1%

2013 – Q2        2.5%

2013 – Q3        4.1%

2013 – Q4        2.6%

2014 – Q1          .1%

Considering that we have revamped the method used to calculate the growth of the economy, this is certainly not good news. The new method is called “Chain-weighted method” and is supposedly a more accurate way of evaluating our Gross Domestic Product, (GDP). Without going into all the minutia about how the calculation is done, using this new method, technically speaking, it is a more accurate way of evaluating our GDP. It takes current pricing and uses that as a baseline to evaluate the growth of the economy, instead of the previous “fixed-based” method, which used a previous established baseline to determine growth, like previous years.

The fingers were flying, over the last few days, accusing the economic policies of the administration as the culprit. Others say it’s due to the prolonged winter weather that just recently gave us some much needed spring. Frankly, I’m not on the “weather” bandwagon. Factually speaking, we still have unemployment of 6.7%, and that precludes people that have essentially left the work force. Under the current leadership, since February 2009, the Bureau of Labor Statistics shows that a total of 9,950,000 have left the work force. That is a staggering figure, and if you count those non working individuals in the unemployment figures, our unemployment rate is actually over 12%. Currently, we have 10.5 million people that are unemployed, which puts unemployment at 6.7%. If we add the workers that have left the work force, 9.9 million, the real rate is more like 12%. From an economic point of view, if people are not employed, they are not earning and therefore not spending, which has a negative impact on the economy, hence slow growth and what I have called in the past as, “The New Normal”.

I don’t know how you motivate people who have left the workforce to reenter. Fundamentally, at some point their unemployment benefits will end and they will be forced to either enter the workforce and find a job, or obtain some type of government assistance to put food on the table and pay their respective bills.

There must be a balance between taking care of people that truly want to work, but cannot find a job, i.e. unemployment, and people that simply want to live off the system. Frankly, it’s my personal belief that people want to be productive and contribute to society.

An underlying factor in the economy is also the fed stimulation of buying bonds. It’s likely that will be reduced by another 10 billion later this week. Wall Street does not seem the least bit phased about the event. They are in fact concerned about interest rates and the mere “hint” of a rise would likely send the markets spinning. I don’t think we will see any interest rate changes for some time, which was reiterated during the Fed Chair Yellen’s most recent comments. Like I said, “The New Normal”.

Russia/Ukraine

Events in the Ukraine continue to escalate. Most recently, we’ve seen the takeover of more government’s buildings by what is being called internal forces that are pro Russia. The fact is, if you look at the methods that are being used to take these areas over, there are clear military tactics being used. From sandbags to man made bunkers and sniper stations, all fingers point to the laying of groundwork for more conflict and hostile take more Ukraine territory. The United States, Europe and Canada have deployed additional sanctions against the Russian government and companies that have direct ties. That action will take time and certainly has not slowed the Vladimir Putin machine down, even a little bit. As I stated last month, Russia and in particular, Putin, has his eye on reassembling and expanding the territory of Russia. Sanctions will certainly slow that process, but fundamentally, I highly doubt it will stop it.

China, part of the now G7, which was the G8, and included Russia, opposes any sanctions applied to Russia. As we continue to show weakness in our response, China will seize the opportunity to jump on the Russia bandwagon and make the U.S. look weaker. Additionally, China needs energy, oil and natural gas and Russia has an abundance of these resources. China also has the 2nd largest economy in the world therefore is a good partner for Russia. A deal between the two would also undermine the U.S. sanctions, as the things between Russia and China continue to get “chummy”, Putin will gain confidence and likely continue his march into the Ukraine.

The most recent sanctions have also sparked a rally in the Russian stock market. The reason is simply that sanctions that have most recently been leveled are not as severe as anticipated. Just like the U.S. markets, when the news is “bad” but not as “bad as anticipated”, everyone celebrates. So one  must wonder if the sanctions will have any real long lasting affect on the Russian economy. The Europeans are concerned about economic backlash if sanctions are too severe, as is the United States. It’s quite a mess and I do not anticipate any type of solution in the short term….but stay tuned.

Foreign Policy 

I was reading a Wall Street Journal article about our foreign policy, which is clearly in disarray. Our role in the world, for a very long time, has been to to create stability and order in the absence of any other country being willing or able to do so.

Fundamentally, the United States has had to back off it’s intended goals of intervening in foreign affairs, which makes us look weak. The alternative is to make good on its stated objectives and goals, which would require tremendous investments in blood, treasure and time. The people of the United States have little tolerance for using these resources, which creates a dilemma for policy makers to execute effective strategies.

More Benghazi

This past week, evidence was produced by the Freedom of Information Act that shows, definitively, that the attack on Benghazi and the communication that followed was intentionally misleading. This is very troubling indeed and will probably result in some sort of independent investigative committee formation. Back in my October 2012 Newsletter, I clearly stated that information was not being distributed in an accurate manner. Additionally, the YouTube video continued to be the blame for the attack. So 18 months later, we start seeing what really took place. This is deception at the highest level, though not illegal it creates an environment of distrust and dishonesty and makes you question whether winning the political race in 2012 superseded protecting our citizens from a terrorist attack…

I’m going to “hold” my opinion on this thing and see how it plays out over the next couple of weeks…..

That’s all for this month…

As always, my very best to you and your families.

Kevin


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