The Honeymoon Is Over And I Want A Divorce - Obama’s Interest Rate Quagmire

He lives in Fairy Land and The White House has become His Magic Kingdom.

My last article talked about the quagmire that our economy will be in if Obama's uncontrolled deficit spending, in His attempt to reshape America, is not brought under control. Two days ago He made a speech where He stated the same thing. Bloomberg published this article: Obama Says U.S. Long-Term Debt Load ‘Unsustainable’.

Yes, higher interest rates would devastate the budget causing astronomical deficits – beyond the enormous ones already in the pipeline. But the problem is NOT HIGHER INTEREST RATES, it’s that He will not stop spending money He does not have. It’s the spending that is causing us to borrow in the first place. He will not give up his dreams to reshape the American economy. Here is another campaign speech (oops, Presidential Address) He made a couple of days ago. He recognizes the danger of increased borrowing but places His vision for health care, energy and the environment at a higher level of importance than mere monetary concerns.

The implication is that we will have to raise our level of commitment to society, lowering the level of our bank accounts.

If He will not stop deficit spending then the only way to reduce the governments’ need to float Treasury Notes is to find different ways of raising taxes. He loves hidden taxes; a dime on a coke or candy bar, a quarter on a gallon of gas, a buck a six-pack, 10% on anything plastic. He’ll nickel-dime-quarter us to death but will not raise our taxes.

His carbon tax could devastate the lower income portion of our society, severely curb the spending habits of the middle class and we already know what He plans for the upper class. His health plan would eventually dictate everything that impacts our health. People that are considered over-weight will have restrictions put on them because they are now a burden to the health care system. We will be told what foods we’re allowed to eat, what doctors we will see and our health care will be monitored for our own welfare. The majority of a person’s medical expenses come in the last few years of life, euthanasia would be the single biggest money saver.

He said today that people should pursue fulfilling careers such as volunteering their time or working for a non-profit. That the American People should aspire to higher level of commitment to the society. That leaves government work out, their all about the money. If He thinks He can dictate salaries in the private sector then the next logical step is to dictate salaries of Physicians, Nurses, procedures, medicines and hospital costs. All would benefit society. Doctors should aspire to a higher level and donate their time.

He lives in Fairy Land and The White House has become the Magic Kingdom.

Cavuto and Limbaugh Agree That Retirees Should Save The Auto Industry

In today’s shows both Neil Cavuto and Rush Limbaugh made articulate recitations on the need for retirees to take it on the chin to allow the auto companies the opportunity to get themselves out of their current predicament. There are some issues that I’d like to argue.

First would be Cavuto's reference to the steel industry. Unlike the current situation that the retirement funds of the auto workers are in, the steel workers retirement funds were massively overfunded. Wall Street came up with the scheme that would allow them to purchase these companies using the employee pension funds as their preferred funding source. After a few take-over’s any weakening in the economy was enough to tank them, forcing the fed to assume their pension responsibilities.

You can argue that it was the cheap Japanese imports that caused the steel industries failure, but the pension funds were fully funded prior to the long series take over’s that raided their pension funds.

Next would be the assumption that the retirees have to accept reduced benefits so that the companies can be saved. That may be the case today but if these companies were forced to adequately fund their commitments instead of filling the funds with promises; we would not be in this position today.

Today everyone is falling all-over themselves to save companies where managements have taken their companies to the brink of failure because of some past decision that were made to obtain some short term gain. At some point we have to make companies live up to the agreements made to their staff or it will be open season on retirees forever.

Obama's Plan On Autos - Take Over The Pension Funds

The unions AND the auto companies want Obama to land the big one; the retiree’s pension responsibilities. Neither one wants that on their plate.

I believe that Obama has a deal with the unions that trade major concessions by the auto unions in return for Card Check and government guarantees on the pension funds.

The one issue that is never discussed are the workers that have put in their forty years and are demonized for having a retirement plan that is inferior to the average politician. The unions knew that this would happen when they made the deal, and the autos were more than happy to squeeze their way out of negotiations with just a promise of future payment.

How Is Your 401/Retirement Plan Doing? Because It Is Still The Largest Pool of $$ Left to Raid

The American dream is under attack; better paying jobs are being shipped overseas, our larger companies and universities are contracting out jobs to companies that import H-1B Visa holders that receive lower wages and fewer benefits, the cost of sending our children to university often requires taking out a second mortgage, a major illness can wipe out 40 years of work and saving and now our retirement funds are disappearing.

Craig M. Douglas and Tim McLaughlin penned an article about Boston’s mutual fund companies with major stakes in Citi Group. The largest holder of Citi stock, which have fallen 68% just this year, is Fidelity Investments which purchased an additional 100 million shares in the last quarter of 2008. As I read this article I thought of my previous employer that had their 401k through Fidelity and my son who also has his 401k with Fidelity. At the end of 2008 his fund had lost more than 50%.

It’s more than plausible that a majority of Americans have lost as much as 75% of their retirement. Already we have seen our steel workers retirement being taken over by the government. The auto workers who have worked 40 years building for their retirement are watching as Congress and the media demonizes them for bringing down the auto industry. Wasn’t this accomplished by an auto industry that made promises to workers then failed to provide the funding needed to fulfill those commitments?

The private sector isn’t the only part of our economy that is reeling from the obligations made to future retirees. Many communities offered lavish retirement programs to their leadership only to find themselves under a burden that they are no longer able to fund. Communities have a severe need to raise capital for human services, infrastructure repairs, police and fire services only to find that any increase in revenues are being eaten up by retirement liabilities.

Every week we pay 14% of our gross income to Social Security and Medicare; our esteemed politicians and economists have told us that both will be bankrupt in twenty years. That is if the Federal Government pays back what it has borrowed from it. There has been numerous papers written stating that the retirement age has to be moved up while benefits have to be cut if the Social Security Administration is to survive.

Even the last bastion of retirement security is being taken away from us. With property values dropping in most areas of the country, the equity that many had planned on using for their retirement has disappeared. The family home is the single largest retirement saving investment that Americans have used, that investment has also taken a 25% haircut.

All of this is happening while the government is the only part of the economy that is growing. The future demands for our tax dollars also has to grow which means that we will have less to work with. Even as our weekly checks will grow by a massive $13, the government seems to be on a consumption tax spree. Proposed increases in our taxes are in the pipeline for everything from a 50% increase in the fuel tax, a 150% increase in cigarette taxes, a massive carbine emissions tax will cause our electricity costs to increase (again), water and sewer fees will have to increase as new mandates come on line and the continuing need for school and education funding will affect our property tax.

The only answer I have is counter to the advice of our government; not to consume, not to spend and become even more conservative than I already am.

Sprint - Boomers Under Attack Again

From a DAVID TWIDDY article on Breitbart.com Sprint Nextel settled an age discrimination suit for $57 million. From the article:

“The suit, filed in 2003, claims then-Sprint Corp. illegally moved employees 40 and over to positions that were then eliminated as part of the company's downsizing efforts.”

“"We elected to settle this case so that we can continue to focus on the business," said company spokesman Matt Sullivan.”

As if a single law suit is going to distract Sprint.

Companies’ targeting their highest paid (and most experienced) staffers is nothing new, like UPS or IBM, the difference is the way they go about it. To deliberately transfer older workers to positions that they know would be eliminated is outright discrimination.

But Sprint Nextel is not the only ones trying to gain financial advantage of the Boomers. From the Twiddy article each of the 11 lead plaintiffs received and average of $155,000 and the remaining 1,686 averaged $20,332. Meanwhile the attorneys have to squeeze by on $21.4 million.

But this isn’t the companies’ first age discrimination suit, last May they paid $5.5 million to 462 former employees in a lawsuit filed in federal court in Atlanta.

Do You Have A 403(b)

If so this article by Neil Weinberg on Forbes.com is a must read. From the article:

“Lies, kickbacks, union corruption and tens of millions of dollars in ill-gotten gains are among the accusations laid out in a lawsuit that's likely to strike fear in the hearts of labor leaders and financial executives across the country.”

“The union received as much as $3 million annually for its endorsement and told its members "we've done all the background work so you don't have to!" In total, 53,000 union members invested over $2 billion in the plan. Expenses ran several times those of lower-cost alternatives.”

Layoffs No Longer Just Manufacturing

Kansas City Light & Power

In a press release from Kansas City Power & Light, they are purchasing Aquila Inc’s Missouri’s properties and plan to cut about 350 white collar jobs at Aquilas Kansas City operations.

From an article in the Kansas City Business Journal, by Jason Shaad:

“The majority of the job cuts will happen at the corporate level, in areas such as human resources, accounting, legal and communications, Aquila spokesman Al Butkus said.”

United Parcel Service

From an Atlanta Business Chronicle article:

“The Atlanta-based package shipper (NYSE: UPS) said 194 took the deal, which was offered in December to employees who were age 50 or older with at least 10 years of service. Normal retirement age at UPS is 65.”

“The buyout offer is part of UPS' attempts to consolidate corporate support functions in areas such as network planning, procurement, human resources, finance and sales.

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Wheatland Tube

Wheatland is laying off 85 workers at three of it’s facilities, what makes this note worthy is that the layoffs is in defense of Chinese imports of lower priced pipe. The article in the Coshocton Times says that the layoffs represent 20% of the firms white collar staff. The article didn’t say how many of the layoffs are in the Coshocton area, but the mid Ohio city of Coshocton does not need any more layoffs or lost businesses.

American Axle & Manufacturing Holdings, Inc.

In a Business First of Buffalo article by Thomas Hartley AA & M is laying off 15% or 200 of it’s white collar staff. This follows nearly 1,500 blue collar production workers last year. This follows an undisclosed agreement that allows workers to be hired at rate that is less than half of the current wage. Quoted from the article:

“The company, which is the largest supplier of axles to General Motors Corp., also said it has a labor agreement with the United Auto Workers union that cuts by more than half the compensation for newly-hired production workers.”

(Wall Street applauds) “Shares of American Axle (NYSE: AXL) stock were up 19 cents to a 52-week high of $26.01 Friday afternoon.”

Ford Motor Company

This is just too big of a subject for this post so please see: At Ford Job # 1 Is To Leave Job

Masco Corporation

Masco, maker of Delta & Peerless Faucets along with Bahr Paints announced last week that they would cut 8,000 jobs by the end of the quarter. This is about 15% of their workforce.

If you follow the more contemporary economists the current decline in housing is not having an effect on the economy.

At Ford Job #1 Is To Leave Job

If your interested in what is happening at Ford, Sarah A. Webster a Free Press Business Writer, pens a must read article on freep.com. She paints a dismal picture of employee moral at Ford that is only aggravated after Ford’s proposed buyout offers were withdrawn for some of the anxious white collar staffers. The offer was originally targeted to trim 10,000 “white-collars” from Ford’s payroll, the overwhelming response in some departments, has caused Ford to rethink the program.

From the article:

“Ford began offering salaried workers three buyout packages in September 2006 in an effort to eliminate 10,000 positions. That was on top of 4,000 salaried jobs already slashed”

“Workers who talked to the Free Press said the high take rate on buyouts -- for both hourly and salaried workers -- shows employees have shaken confidence about management and the future of 103-year-old Ford…”

“Last fall,… Ford also targeted 30,000 hourly factory jobs to be eliminated… Ford reported that 38,000 UAW workers signed up for buyouts during a six-week window that opened Oct. 16 and closed Nov. 27.”

“But rescinding buyout offers for workers who want to leave is corrosive to Ford's already-dismal morale, a few of the employees told the Free Press.”

"My manager told me he knows everybody is looking for a new job," the marketing employee said. "I'm just disgusted with the entire company."

After reading the blogs by several of Ford employees, it seems that things aren’t as bad as the article portraits. The attitude from these blogs is that there is a lot of “noise” being made by a very vocal few. Things just aren’t as bad as being hyped in the press.

If 14,000 white collars are being let go, things just can’t be that great either.

PMI Index Lowest Reading In 49 Months

The Purchasing Managers Index came in at 49.3%. It’s only the second time and its lowest reading since November, 2002 when we were emerging from recession. While the reading indicates mild overall economic expansion, the manufacturing sector is contracting. This is consistent with the overall view of the 2007 by most economists.

It’s becoming more important to watch these numbers because there are numerous factors, in the economy, that could kickoff a rapid downturn.

Employees Locked Out At Harley Davidson

As of Thursday morning the 2,700 employees of the York, Pa. Harley Davidson Plant was locked out. According to articles, written by Andrea Maria Cecil in Sunday’s and today’s York Daily Record, 98% of the members of International Association of Machinists and Aerospace Workers Local 175 voted on Wednesday to reject Harley’s latest proposal and initiate a strike at 12:01 am. Friday.

At this time the terms of the proposed contract have not been disclosed, but a reader has commented that the company has requested employees accept a higher share of medical costs and reduced pension benefits. There was no reference to wages other than Harley had requested that new hires may be brought in at about ½ the current wage. As quoted by David J. Lynch, published in the Aug. 17, 2006 issue of USA TODAY:

“The venerable motorcycle maker, battered by Japanese rivals, came within an eyelash of bankruptcy in 1985. Harley slashed payroll, overhauled its factories and engineered a remarkable turnaround. The company has been profitable for 20 years and, in a nice irony, now enjoys the largest market share in Japan.”

This is the same plant that President Bush visited:

“Harley-Davidson's example also is something less than a pure free-trade success. In 1983, the company won special trade protection from the Reagan administration that raised tariffs on imported Japanese bikes to 49% from 4%. That gave Harley critical time to retool.”

“The president said such temporary protection is sometimes warranted. And Harley's robust workforce of more than 9,000 — roughly double the 1995 figure — underscores the point.”

In a company statement:

"Because of the union's intent to strike at midnight, not knowing how long that would last, we thought it was in the best interests of everyone to suspend badges and eletronic access to the facility, essentially giving employees a second day off with pay."

As quoted from The Auto Channel:

"Harley-Davidson has no business behaving like they're on the brink of bankruptcy," said Tom Buffenbarger, international president of the International Association of Machinists and Aerospace Workers (IAM). "When Harley was flat on its back in the 1980's, it was union members who refused to let it die. Harley went on to become an international success story but they've obviously forgotten how they got this far."

"They don't respect workers as much as their stock options," declared District 98 Directing Business Representative Tom Boger about company leaders who reported record revenue of more than $1.6 billion for the third quarter of last year.

At this point all parties need to take a step back. There are many communities that would pay Harley mucho buckos to move to their community. Google just received $100 million in tax discounts from North Carolina for a 215 employee server farm. We are in a highly competitive era and companies have more options than ever before. Someone has to give and I seriously hope it’s not the 2,700 workers at the York Harley plant. There just aren’t comparable jobs out there.

Will The Senate Change And Listen To Bernanke

Why should they change just when the party is starting.

Last Thursday Ben Bernanke, the Federal Reserves chief, testified before the Senate Budget Committee. He painted a grim picture for our kids and grand kids if the Congress continues to ignore basic financial realities. He said: “We are experiencing what seems likely to be the calm before the storm,”

What he is referring to is the projected increase, the government faces, in the costs associated with the very soon to happen retirement of the baby boomers. He further states: “These rising entitlement programs will put enormous pressure on the federal budget in coming years,”

Currently Social Security, Medicare and Medicaid together totaled about 40% of federal expenditures, or about 8.5% of America's gross domestic product. In nine years that amount is projected to increase to almost 50% and in 24 years to 70% of the total federal budget.

These numbers aren't new and won't take anyone by surprise, our enlightened elected officials have been using them as political fodder for ever. There are just ignoring them as they seem to ignore any other issue that might constrict their ability to spend more of our tax dollars.

The other concern is that while the deficit grows to meet these financial requirements, the government will have to borrow more, by issuing more bonds, thus paying a larger portion of its budget in interest. (We all know that as demand increases, so does it’s cost.)

Bernanke also said: “Thus, a vicious cycle may develop, in which large deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits,”

Rosy 2007 Predictions

In the Cincinnati Business Courier - December 29, 2006 by Keith Wirtz here’s an article that lists 10 of the more popular predictions that are being presented by the MSM recently. These 10 come from Keith Wirtz who is president and chief investment officer of Fifth Third Asset Management. They add an eleventh prediction about baseball.

1. U.S. stocks exceed consensus expectation and rise substantially in 2007.
2. The U.S. economy moderates but doesn't stall -- expect growth of 2.9 percent or better.
3. Companies continue to post strong earnings results in 2007.
4. The Federal Reserve initiates a shift in policy by cutting rates.
5. The housing market does not collapse, but instead goes soft.
6. Middle East tensions rise as the regional conflicts become more sectarian, less national.
7. Corporate mergers and acquisitions continue at a phenomenal pace.
8. The U.S. dollar moves lower on a trade-weighted basis.
9. Americans finally get serious about savings.
10. The Year of the Subpoena.
11. Major League Baseball dominates the sports scene in 2007.

We sincerely hope that Mr. Wirtz is correct. Each one on these deserves further discussion

Another Case For Change In Pennsylvania

Mark Scolforo writes in an Associated Press article and printed in the post-gazette.com that Pennsylvania has 3,129 local-government pension plans. This is one-quarter of the nations total. Some of the locally managed plans have as few as 10 active employees enrolled and cost as much $1,500 per person to manage.

The state also subsidizes these local pension plans to the tune of $200 million per year. As quoted in the article: “About one-third of the municipal funds have "unfunded actuarial accrued liabilities" -- a red flag that indicates potential future financial problems. Those liabilities total more than $5 billion, for which taxpayers could eventually find themselves on the hook.”

Note: actuarial is defined as "theory of probability"

At What Age Are You Going To Retire?

The majority of people answer age 64, but 22% of retirees are forced into early retirement, for various reasons, by age 56. This was reported on by the Business Wire covering a Harris Interactive survey for Sun Life Financial Inc.

This puts a new light on retirement planning. The game has changed and people have to take the task of retirement planning seriously. The majority of people our relying on the equity in their home to carry them through the retirement years, but that may not get people to far any more. Get serious and get prepared.