The November 14, 2008 issue of Signature Update discussed the likelihood that the cost of federal intervention in the US economy would escalate into the trillions of dollars as the Obama administration tackles bailout, rescue and recovery efforts. Though the price tag hasn’t been identified as yet, Obama’s economic plans have begun to circulate even as he announced the leadership of his economic team and the structure for a wide-ranging stimulus package. The announcement of Tim Geithner as Treasury Secretary, and Larry Summers as the Director of the National Economic Counsel came as no surprise, but the news brought a 500 + point gain to the DOW on Friday afternoon, none-the-less. Geithner and Summers’ credentials are impressive, but do they represent the much heralded ‘change’ the Obama candidacy promised? It’s hard to tell. More importantly, the economy may be an area in which some ‘consistency amidst change’ may be more valuable than change itself.
As the President of the Federal Reserve Board of New York, Geithner has acted as a trusted ally of Fed Chairman Ben Bernanke. He is one of the key architects of the federal government’s handling of the Bear Sterns, Fannie Mae, Freddie Mac, AIG, Lehman Brothers, Wachovia and Citigroup difficulties, and he has certainly weighed in on the automobile manufacturers quest for another $25 billion. Geithner is relatively young, and has been virtually unknown outside of hardcore economic circles.
The appointment of Larry Summers as Obama’s chief economic advisor reflects the president-elect’s confidence of the job Summers, the former president of Harvard University, performed as Bill Clinton’s Treasury Secretary. Some expect that it may also signal Obama’s intent to replace Bernanke when his term is over; which term purposely does not correspond with a presidential term, so as to give the fed chairman a sense of autonomy from the current administration. Like Geithner, Summers has been a key observer and sometimes participant of the current administration’s handling of the economic crisis. Both are respected by their peers, corporate leadership, and domestic and foreign public policy makers.
Whether or not the appointment of Geithner and Summers represents change seems to be irrelevant in today’s market. Critical to the economy is whether or not the appointments offer a level of confidence to the markets, and if Friday and Monday’s stock market rallies can be taken as evidence, they can also be seen as a vote of confidence. We’re going to need it. Obama’s economic recovery plan seeks to add some 2.5 million jobs, offer lower income and middle class tax cuts, provide substantial investments in public infrastructure, and pump billions into alternative energy development. Though the cost of Obama’s plan hasn’t been announced, and most likely hasn’t even been calculated, it is clear that his administration will proceed regardless. Obama and his closest economic advisors appear to have thrown out any consideration of fiscal constraint as it relates to supporting the economy. While there is some evidence that monetary policy is more important than fiscal conservatism in striving to ‘right’ our economy, we can’t ignore the long term effects of budget deficits and easy money policies. If Obama has the political strength to champion the economy and keep the Democrat controlled house and senate from over-spending on other projects and causes, then we might be able to see a return towards balanced budgets sometime during his administration. Otherwise, we’ll simply be forwarding today’s problems on to future administrations and generations.
Aid to Citigroup
The Federal Reserve and US Treasury’s decision to offer $20 billion in aide to Citigroup over the weekend came as no surprise, but it does raise some interesting questions. Was the federal government’s involvement in Citigroup’s acquisition of Wachovia party to Citigroup’s problems today? And, how is it that we can step in and bailout Citigroup, with seemingly little scrutiny, when we can’t offer funds to the ailing US auto manufacturers without endless hearings and congressional approval? The answers may be more connected than one might suppose.
Treasury Secretary Paulson may recognize the federal government’s role in Citigroup’s current melt down and believe that TARP funds were specifically authorized for a Citigroup-like problem. Not only did the federal government encourage Citigroup to acquire the failing Wachovia, the government also has meaningful culpability in the credit market problems that have brought so many financial behemoths to their knees. At the same time, Paulson hasn’t felt that TARP authority extends to automakers, and is almost certainly supported by the recognition that while the current economic situation has great impact on these manufacturers, the roots of their problems lie in poorly negotiated labor contracts, resulting in extraordinary labor and legacy costs. Not to mention bloated dealer networks and excessive production capacity.
Many have sited high executive compensation, lack of innovation, and a neglect of fuel efficient product offerings for the automaker’s problems, but these issues have little bearing on the situation. The ‘Big Three’ offer a full slate of fuel efficient models ranging from tiny commute-mobiles to SUV hybrids. They employ innovative design and manufacturing elements well beyond their ability to afford; as can be seen by their multi-billion dollar losses. And while their executive compensation programs are beyond belief for most consumers, they aren’t out of line relative to other large corporate compensation and incentive plans.
Many in the media and House of Representative reveled in the CEO’s of Ford, GM, and Chrysler’s responses to questions about private jets, compensation, and executive treatment, but their time would have been better spent in dealing with the effects of labor contracts and integrating dealer networks. Congressional representatives repeatedly asked questions regarding the movement of thousands of jobs to global markets, but completely absent was the understanding that these manufacturers needed to relocate various manufacturing and assembly processes in an effort to work around excessive domestic labor contracts in an effort to decrease costs. The likes of Honda, Toyota, and Nissan have done the same thing as they’ve developed assembly plants in the US, which plants principally employ younger, lower cost workers not subject to the labor contracts of the 1970’s and 1980’s, nor the government regulations of the countries from which these manufacturers arose.
House Speaker Nancy Pelosi, on Sunday morning’s Face the Nation, stated that a bailout would certainly be provided the automakers, but appropriately required them to come back to the table with a recovery plan. Such a plan will have to address the issue of labor costs and seek federal support in renegotiating contracts in order to have any chance for success. The CEO’s tasked with offering these plans may also have to agree on a plan to consolidate product offerings and distribution systems in an attempt to ‘right size’ the domestic automobile industry. Regardless of the dollar amount offered through any form of federal intervention, the US auto industry must restructure itself in order to survive and be competitive on the domestic and global stage.
A Deflationary Trend
The prospects of deflation have hung over the market since late summer, as fuel and other commodities prices began to fall. With the steep decline in the price of basic metals (copper, nickel, aluminum, etc.) and agricultural commodities there is a very real concern that the benefit of falling prices for the consumer could give way to lower corporate earnings and fewer jobs. Most recognize the inherent problems of excessive inflation, but few consider what happens when the cost of goods and services declines beyond reasonable levels; the economic impact can be just as problematic. The massive job losses of the Great Depression were brought about largely as a result of tightening monetary policies and price deflation. Fortunately, today’s economic policy makers are striving to address these issues head on.
Corporations, and their stock values, live and die based on earnings. When earnings decline and profits disappear, eventually jobs are lost, which decreases demand and can create an entirely different downward spiral from that which our economy has faced in recent months. While decreasing energy costs can be likened to a tax cut, or rebate, for consumers, and perhaps save the all-important Christmas buying season, weakening demand can spell trouble for the much needed recovery. It is a difficult balance and one that must be attended to as the Obama administration offers a recovery plan. The 2.5 million jobs offered under Obama’s plan, in addition to those created through the proposed tax cuts and alternative energy development, may promote sufficient demand to stabilize core commodities prices and help the US economy avoid a deflationary cycle.
Signature Update is offered by Richard Haskell, Sr. - Signature Wealth Management
Monday, November 24, 2008
Friday, November 14, 2008
US Markets and the World Stage 11-14-2008
A FREE MARKET ECONOMY FUELED BY… FEDERAL CAPITAL?
Modern economic theory, though much evolved in the last 50 years, doesn’t even have a term to describe the sort of economy we’re faced with today. Traditionally the most outwardly free-market economy in the world, the US economy has succumbed to federal intervention in recent months that has quickly moved our nation from capitalism to some modified form of free- market nationalism. If that term isn’t familiar to you, you needn’t be concerned – it isn’t familiar to anyone. It isn’t socialism, it isn’t capitalism, but even the renown economists Adam Smith, John Maynard Keynes, and Milton Friedman didn’t offer any descriptive term to identify this form of economic intervention. Someone will soon come up with a better label that more appropriately describes the sort of economy our nation is evolving towards, until then we will all wonder where this will take us.
In recent months the Federal Reserve has increased its balance sheet to over $2 trillion in assets and the Treasury has stepped in to shore up the financial system with hundreds of billions of dollars, only some of which fall under the $700 billion Treasury authority extended through the TARP (Troubled Assets Relief Program). By some estimates, federal intervention has now committed more than $1 trillion to the ailing US credit markets, and the Bush administration appears poised to ‘draw the line’ and offer no more. But there almost certainly will be more; likely much more.
Several states teeter on the brink of bankruptcy. The US automotive industry, and the 2.3 million jobs it reportedly represents, may very well not survive without tens of billions in additional capital relief. Our healthcare system is in dire need of reformation. Our education system, transportation and energy infrastructures, tax codes, and social security program will require enormous resources to meet the needs of future generations. President-elect Obama has an extraordinary undertaking in front of him as he becomes tasked with the responsibility to lead our people and government through this difficult time. He may very well end up being grouped with George Washington, Abraham Lincoln, and Franklin Roosevelt as being responsible for the transformation of the nation’s economy, the confidence of our citizenry, and re-establishing America’s prestige on the world stage. Like those before him, he will succeed, though more out of the sheer will and ingenuity of the American people, than of any great attribute of his own.
One might suppose that McCain is nearly as giddy at the prospect of avoiding this task as he is disappointed at having lost a hard-fought election. Likewise, Obama may well be questioning the value in having gotten what he asked for.
Obama has stated that we should prioritize and take our challenges one at a time, but in all likelihood he’ll be forced to into a position similar to that which Roosevelt found himself in when he championed the ‘New Deal’. His administration will likely succumb to pressures to offer an enormous relief package that addresses most of the major issues, while at the same time providing sufficient authority to deal with issues of lesser import and the need arises. The National Debt, already over $10 trillion, will almost certainly balloon to nearly $15 trillion as the various areas of economic crises are addressed, and as interest continues to accrue. Were it not for the reality that virtually every one of the world’s developed economies is in the same situation, such an increase in the federal debt would be devastating to the US currency. Regardless, it will make inflation more difficult to control, and interest rates and taxes will rise to levels that will require future generations to adjust their lifestyle expectations. There appears to be little choice in this.
The generation that experienced the economic transformation of Roosevelt’s ‘New Deal’, and the generations that followed, even to our time, have realized the benefits and the necessity of the actions taken at the time. Likewise, our generation, and those of our children and their children, will come to the same realization. In truth, Obama will either be praised for his leadership and handling of the economy, or he will be vilified – only time will tell.
Addressing New York’s Manhattan Institute on Thursday afternoon, President Bush heralded the strength, entrepreneurialism, and vibrancy of the American public. He boldly predicted the ongoing pre-eminence of the American economy, just as President-elect Obama has done. Bush received a standing ovation for his comments from a multi-national audience of business and economic leaders, gathered in advance of the G20 summit to be held this weekend. His comments reflected, and the audience’s reaction evidenced, the relative strength and leadership of the US economy, and our government and business leaders on the world stage.
US EQUITY MARKETS BENEFITED BY BUSH COMMENTS IN ADVANCE OF G20 SUMMIT
The US markets offered ‘more-of-the-same’ volatility on Thursday as the DOW opened sharply higher in the face of declining employment figures. The early move, counter-intuitive to the economic data released, appeared to have been more of a response to the market sell-off of previous sessions, as gains gave way to 300+ point losses by mid-day. Two hours before the market close, President Bush addressed New York’s Manhattan Institute, preparatory to the G20 Summit in Washington this weekend, and the market rallied to close at a gain of more than 550 points on the DOW.
Bush, an unpopular, lame-duck president, wasn’t expected to generate meaningful market enthusiasm with his comments. He took the liberty of labeling the global economic crisis as a ‘global meltdown’, but went on to make the case for America’s economic leadership in the global markets. His call for optimism, though rarely stimulating before the recent presidential election, appeared to buoy the markets and foster a late-day buying frenzy. His comments laid the tone for coordinated economic planning and regulation among the G20 nations, and he effectively drew a line in the sand as it pertains to governmental involvement in what has been the world’s most assertive free market economy.
It is likely that the surge in equity pricing accompanying Bush’s comments also reflected an over-sold market that has priced in continued economic weakness beyond any rational point. Though the surge drove market ‘bulls’ into a buying spree, it will likely be followed by a sell-off in the days ahead; a reflection of the increasingly volatile, and emotional, market conditions.
CHINESE STIMULUS PLAN – ENORMOUS, BUT INEFFECTIVE
China’s Ministry of Finance announced a $586 billion stimulus package Sunday; prior to the opening of the US financial markets. At first glance, the plan appeared to be a bold move on the part of China’s leadership, causing foreign and domestic equities markets to surge on the headlines. Upon closer inspection, the newly announced plan was more of a public relations move and principally offers a restatement of social and public works initiatives previously announced by the Beijing government; many of which are already underway.
The plan is comprised of an array of national infrastructure and social welfare projects, including constructing new railways, subways, airports and rebuilding communities devastated by an earthquake in southwest China in May, and is expected to be phased in over a 24-month period to aid China’s slowing economy. While the plan may improve the employment market in China’s urban areas, it is expected to offer little relief for China’s struggling rural economies.
Of China’s roughly 1.4 billion citizens, nearly 800 million live in impoverished conditions. While that may leave an upper and middle class comprising more than 400 million people, larger than the entire US population, it also leaves enormous hurdles for Chinese leadership. Economic growth in excess of 10% per year, coupled with a successful 2008 Summer Olympic effort, may have been enough to bring hope to China’s rural poor, but with a slowing economy presenting growth in the 4-6% range, and a weakened Chinese currency, it is likely that Beijing will need to marshal substantially greater resources to stimulate their economy in any meaningful way.
On a comparative basis (based on population), the $586 billion package would equate to a stimulus package of less than $90 billion in the US markets, or slightly more than the stimulus package the Bush administration offered US citizens earlier this year. That effort, though controversial at the time, did little to calm the US markets and provide anything more than a temporary surge in retail purchases.
Signature Update is offered by Richard Haskell, Sr., Managing Director of Signature Wealth Management
Modern economic theory, though much evolved in the last 50 years, doesn’t even have a term to describe the sort of economy we’re faced with today. Traditionally the most outwardly free-market economy in the world, the US economy has succumbed to federal intervention in recent months that has quickly moved our nation from capitalism to some modified form of free- market nationalism. If that term isn’t familiar to you, you needn’t be concerned – it isn’t familiar to anyone. It isn’t socialism, it isn’t capitalism, but even the renown economists Adam Smith, John Maynard Keynes, and Milton Friedman didn’t offer any descriptive term to identify this form of economic intervention. Someone will soon come up with a better label that more appropriately describes the sort of economy our nation is evolving towards, until then we will all wonder where this will take us.
In recent months the Federal Reserve has increased its balance sheet to over $2 trillion in assets and the Treasury has stepped in to shore up the financial system with hundreds of billions of dollars, only some of which fall under the $700 billion Treasury authority extended through the TARP (Troubled Assets Relief Program). By some estimates, federal intervention has now committed more than $1 trillion to the ailing US credit markets, and the Bush administration appears poised to ‘draw the line’ and offer no more. But there almost certainly will be more; likely much more.
Several states teeter on the brink of bankruptcy. The US automotive industry, and the 2.3 million jobs it reportedly represents, may very well not survive without tens of billions in additional capital relief. Our healthcare system is in dire need of reformation. Our education system, transportation and energy infrastructures, tax codes, and social security program will require enormous resources to meet the needs of future generations. President-elect Obama has an extraordinary undertaking in front of him as he becomes tasked with the responsibility to lead our people and government through this difficult time. He may very well end up being grouped with George Washington, Abraham Lincoln, and Franklin Roosevelt as being responsible for the transformation of the nation’s economy, the confidence of our citizenry, and re-establishing America’s prestige on the world stage. Like those before him, he will succeed, though more out of the sheer will and ingenuity of the American people, than of any great attribute of his own.
One might suppose that McCain is nearly as giddy at the prospect of avoiding this task as he is disappointed at having lost a hard-fought election. Likewise, Obama may well be questioning the value in having gotten what he asked for.
Obama has stated that we should prioritize and take our challenges one at a time, but in all likelihood he’ll be forced to into a position similar to that which Roosevelt found himself in when he championed the ‘New Deal’. His administration will likely succumb to pressures to offer an enormous relief package that addresses most of the major issues, while at the same time providing sufficient authority to deal with issues of lesser import and the need arises. The National Debt, already over $10 trillion, will almost certainly balloon to nearly $15 trillion as the various areas of economic crises are addressed, and as interest continues to accrue. Were it not for the reality that virtually every one of the world’s developed economies is in the same situation, such an increase in the federal debt would be devastating to the US currency. Regardless, it will make inflation more difficult to control, and interest rates and taxes will rise to levels that will require future generations to adjust their lifestyle expectations. There appears to be little choice in this.
The generation that experienced the economic transformation of Roosevelt’s ‘New Deal’, and the generations that followed, even to our time, have realized the benefits and the necessity of the actions taken at the time. Likewise, our generation, and those of our children and their children, will come to the same realization. In truth, Obama will either be praised for his leadership and handling of the economy, or he will be vilified – only time will tell.
Addressing New York’s Manhattan Institute on Thursday afternoon, President Bush heralded the strength, entrepreneurialism, and vibrancy of the American public. He boldly predicted the ongoing pre-eminence of the American economy, just as President-elect Obama has done. Bush received a standing ovation for his comments from a multi-national audience of business and economic leaders, gathered in advance of the G20 summit to be held this weekend. His comments reflected, and the audience’s reaction evidenced, the relative strength and leadership of the US economy, and our government and business leaders on the world stage.
US EQUITY MARKETS BENEFITED BY BUSH COMMENTS IN ADVANCE OF G20 SUMMIT
The US markets offered ‘more-of-the-same’ volatility on Thursday as the DOW opened sharply higher in the face of declining employment figures. The early move, counter-intuitive to the economic data released, appeared to have been more of a response to the market sell-off of previous sessions, as gains gave way to 300+ point losses by mid-day. Two hours before the market close, President Bush addressed New York’s Manhattan Institute, preparatory to the G20 Summit in Washington this weekend, and the market rallied to close at a gain of more than 550 points on the DOW.
Bush, an unpopular, lame-duck president, wasn’t expected to generate meaningful market enthusiasm with his comments. He took the liberty of labeling the global economic crisis as a ‘global meltdown’, but went on to make the case for America’s economic leadership in the global markets. His call for optimism, though rarely stimulating before the recent presidential election, appeared to buoy the markets and foster a late-day buying frenzy. His comments laid the tone for coordinated economic planning and regulation among the G20 nations, and he effectively drew a line in the sand as it pertains to governmental involvement in what has been the world’s most assertive free market economy.
It is likely that the surge in equity pricing accompanying Bush’s comments also reflected an over-sold market that has priced in continued economic weakness beyond any rational point. Though the surge drove market ‘bulls’ into a buying spree, it will likely be followed by a sell-off in the days ahead; a reflection of the increasingly volatile, and emotional, market conditions.
CHINESE STIMULUS PLAN – ENORMOUS, BUT INEFFECTIVE
China’s Ministry of Finance announced a $586 billion stimulus package Sunday; prior to the opening of the US financial markets. At first glance, the plan appeared to be a bold move on the part of China’s leadership, causing foreign and domestic equities markets to surge on the headlines. Upon closer inspection, the newly announced plan was more of a public relations move and principally offers a restatement of social and public works initiatives previously announced by the Beijing government; many of which are already underway.
The plan is comprised of an array of national infrastructure and social welfare projects, including constructing new railways, subways, airports and rebuilding communities devastated by an earthquake in southwest China in May, and is expected to be phased in over a 24-month period to aid China’s slowing economy. While the plan may improve the employment market in China’s urban areas, it is expected to offer little relief for China’s struggling rural economies.
Of China’s roughly 1.4 billion citizens, nearly 800 million live in impoverished conditions. While that may leave an upper and middle class comprising more than 400 million people, larger than the entire US population, it also leaves enormous hurdles for Chinese leadership. Economic growth in excess of 10% per year, coupled with a successful 2008 Summer Olympic effort, may have been enough to bring hope to China’s rural poor, but with a slowing economy presenting growth in the 4-6% range, and a weakened Chinese currency, it is likely that Beijing will need to marshal substantially greater resources to stimulate their economy in any meaningful way.
On a comparative basis (based on population), the $586 billion package would equate to a stimulus package of less than $90 billion in the US markets, or slightly more than the stimulus package the Bush administration offered US citizens earlier this year. That effort, though controversial at the time, did little to calm the US markets and provide anything more than a temporary surge in retail purchases.
Signature Update is offered by Richard Haskell, Sr., Managing Director of Signature Wealth Management
Friday, November 7, 2008
TURNING POINTS 11-7-2008
A Watershed Period in US History
The 1960’s will long be remembered as a critical period in American history, and 1967 will likely be heralded as the pivotal year during a decade that ushered in tremendous changes. It was the climax of a period during which we entered into a costly military conflict, were shocked by political assassinations and mourned those whose lives were lost, saw major shifts in civil rights legislation, and began a period of ‘personal freedom’ that many recall as lacking in accountability or purpose. Our nation had recovered from World War II and the Korean conflict, the economy had rebounded from two back-to-back recessions in 1953-1954 and 1957-1958, and though we felt prosperous, there was an obvious separation of classes that added to our nation’s growing unrest. Many political and economic pundits proclaimed the end of American prosperity and predicted decades of decline.
That was now over forty years ago and the world has changed in amazing ways. We’ve rejoiced over moments of peace and prosperity, and mourned the loss of too many lives. We’ve seen our economy rise and fall more than once, and we’ve witnessed the transition from an industrial economy to one driven by technology and service. Our political landscape has evolved but stayed within the framework the founding fathers established more than 230 years ago, and we continue to enjoy the benefits of the freedoms for which so many fought and continue to fight.
Similar to the 1960’s, the early 2000’s will likely be seen as a watershed period in US history, with 2008 being the pivotal year during another decade of change. A retrospective of this period will be highlighted by the 9/11 terrorist attacks on our citizens, government and economy, the awful cost of waging two wars, continued questioning of critical leadership decisions, the most worrisome economic period in some sixty years, and the dream-fulfilling election of the first African-American to the Whitehouse. With hope, we will also clearly see the extraordinary efforts of millions of Americans who struggled, sacrificed, and prevailed.
Each of the leading candidates in the recent US Presidential election proclaimed themselves to be arbiters of change; and with the election of Barak Obama, the US citizenry expects sweeping economic, political and social reforms. The benefits of such ‘change’ remain to be seen, but what is clear is that we are at a turning point in our society. We are poised for decades of technological development that may make the tech wave of the 1990’s and early 2000’s seem insignificant. Corporate America will assemble enormous resources focused on reducing our dependency on fossil fuels, aligning our information systems to maximize our ‘collective intelligence’, supporting innovations in bio-technologies and medicine, and continuing the transformation of how we communicate.
Recent economic events have reminded us that the US economy, though weakened by real estate, credit and energy crises, continues to be the leader in the global marketplace. The ‘de-coupling’ concept, promulgated by many as a byproduct of America’s diminishing relevance in the international financial markets has now been relegated to ‘fairy tale’ status. Burgeoning foreign economies such as Brazil, Russia, India and China (BRIC), though far stronger than in decades past, continue to evidence their reliance on western economic leadership, and other highly developed and relatively mature foreign markets continue to support the theory that when the US sneezes the rest of the world catches a cold. Similarly, though, the moral authority of the United Stated may have been challenged due to various leadership decisions made and carried out, the west, and the US in particular, continue to be looked towards for leadership in wide-ranging areas.
President George Bush #41 called for a kinder, gentler nation and hoped to see a thousand beams of light emanating from the collective efforts of our citizens. President-elect Obama will certainly raise a similar challenge, and with our nation having endured financial, military, and social trauma, perhaps we will be more able to fulfill the dream. It may become Obama’s legacy; it certainly will be ours.
Obama’s Financial Team and the Big Three Automakers
Very soon, perhaps even today, President-elect Obama will formalize his economic team and will likely announce his choice for Treasury Secretary. Among the leading contenders are names with which we are already familiar, including former Treasury Secretaries Larry Summers and Robert Rubin, former Fed Chairman Paul Volker, and current J.P. Morgan CEO Jamie Dimon - each of whom offer impressive credentials and reassuring experience.
Current Treasury Secretary Henry Paulson has evidenced his professional resolve as he has opened the door for the department’s new leadership. Such welcome of a new leadership team is unusual in typically territorial political environments, but it is more than necessary – it is vital. Paulson and others are willing, perhaps gratefully, to turn over the reigns of the Treasury’s massive economic authority to the new administration, while at the same time continue the daunting efforts required to implement TARP provisions and restore health to our economy. History may well remember Paulson as one of the most admirable talents of the Bush #43 administration.
One of the decisions that the newly-announced Treasury Secretary will be asked to influence will be that of just how much support should be given to struggling US automakers. To some, this is a non-issue; to others it is seen as another turning point in the direction of what is still considered to be a free-market economy. There are highly respected and eminently qualified economic minds that are already weighing in on both sides of this issue. What is clear is that Ford, GM, Chrysler, and the 2.5 million US employees whose livelihoods depend on the domestic auto industry are in trouble; and not only are most of the products they manufacture and support less than competitive in the US and global markets, they represent a business model that may be outdated. Regardless of the amount of support that will certainly be provided the US auto industry, there are sweeping changes that must be made in terms of product development, energy efficiency, union influence, and worker compensation – each of which will require sacrifice and may well challenge the electorate’s resolve for the ‘change’ so recently clamored for and sought after.
Signature Update is offered by Richard Haskell Sr., Managing Director of Signature Wealth Management
The 1960’s will long be remembered as a critical period in American history, and 1967 will likely be heralded as the pivotal year during a decade that ushered in tremendous changes. It was the climax of a period during which we entered into a costly military conflict, were shocked by political assassinations and mourned those whose lives were lost, saw major shifts in civil rights legislation, and began a period of ‘personal freedom’ that many recall as lacking in accountability or purpose. Our nation had recovered from World War II and the Korean conflict, the economy had rebounded from two back-to-back recessions in 1953-1954 and 1957-1958, and though we felt prosperous, there was an obvious separation of classes that added to our nation’s growing unrest. Many political and economic pundits proclaimed the end of American prosperity and predicted decades of decline.
That was now over forty years ago and the world has changed in amazing ways. We’ve rejoiced over moments of peace and prosperity, and mourned the loss of too many lives. We’ve seen our economy rise and fall more than once, and we’ve witnessed the transition from an industrial economy to one driven by technology and service. Our political landscape has evolved but stayed within the framework the founding fathers established more than 230 years ago, and we continue to enjoy the benefits of the freedoms for which so many fought and continue to fight.
Similar to the 1960’s, the early 2000’s will likely be seen as a watershed period in US history, with 2008 being the pivotal year during another decade of change. A retrospective of this period will be highlighted by the 9/11 terrorist attacks on our citizens, government and economy, the awful cost of waging two wars, continued questioning of critical leadership decisions, the most worrisome economic period in some sixty years, and the dream-fulfilling election of the first African-American to the Whitehouse. With hope, we will also clearly see the extraordinary efforts of millions of Americans who struggled, sacrificed, and prevailed.
Each of the leading candidates in the recent US Presidential election proclaimed themselves to be arbiters of change; and with the election of Barak Obama, the US citizenry expects sweeping economic, political and social reforms. The benefits of such ‘change’ remain to be seen, but what is clear is that we are at a turning point in our society. We are poised for decades of technological development that may make the tech wave of the 1990’s and early 2000’s seem insignificant. Corporate America will assemble enormous resources focused on reducing our dependency on fossil fuels, aligning our information systems to maximize our ‘collective intelligence’, supporting innovations in bio-technologies and medicine, and continuing the transformation of how we communicate.
Recent economic events have reminded us that the US economy, though weakened by real estate, credit and energy crises, continues to be the leader in the global marketplace. The ‘de-coupling’ concept, promulgated by many as a byproduct of America’s diminishing relevance in the international financial markets has now been relegated to ‘fairy tale’ status. Burgeoning foreign economies such as Brazil, Russia, India and China (BRIC), though far stronger than in decades past, continue to evidence their reliance on western economic leadership, and other highly developed and relatively mature foreign markets continue to support the theory that when the US sneezes the rest of the world catches a cold. Similarly, though, the moral authority of the United Stated may have been challenged due to various leadership decisions made and carried out, the west, and the US in particular, continue to be looked towards for leadership in wide-ranging areas.
President George Bush #41 called for a kinder, gentler nation and hoped to see a thousand beams of light emanating from the collective efforts of our citizens. President-elect Obama will certainly raise a similar challenge, and with our nation having endured financial, military, and social trauma, perhaps we will be more able to fulfill the dream. It may become Obama’s legacy; it certainly will be ours.
Obama’s Financial Team and the Big Three Automakers
Very soon, perhaps even today, President-elect Obama will formalize his economic team and will likely announce his choice for Treasury Secretary. Among the leading contenders are names with which we are already familiar, including former Treasury Secretaries Larry Summers and Robert Rubin, former Fed Chairman Paul Volker, and current J.P. Morgan CEO Jamie Dimon - each of whom offer impressive credentials and reassuring experience.
Current Treasury Secretary Henry Paulson has evidenced his professional resolve as he has opened the door for the department’s new leadership. Such welcome of a new leadership team is unusual in typically territorial political environments, but it is more than necessary – it is vital. Paulson and others are willing, perhaps gratefully, to turn over the reigns of the Treasury’s massive economic authority to the new administration, while at the same time continue the daunting efforts required to implement TARP provisions and restore health to our economy. History may well remember Paulson as one of the most admirable talents of the Bush #43 administration.
One of the decisions that the newly-announced Treasury Secretary will be asked to influence will be that of just how much support should be given to struggling US automakers. To some, this is a non-issue; to others it is seen as another turning point in the direction of what is still considered to be a free-market economy. There are highly respected and eminently qualified economic minds that are already weighing in on both sides of this issue. What is clear is that Ford, GM, Chrysler, and the 2.5 million US employees whose livelihoods depend on the domestic auto industry are in trouble; and not only are most of the products they manufacture and support less than competitive in the US and global markets, they represent a business model that may be outdated. Regardless of the amount of support that will certainly be provided the US auto industry, there are sweeping changes that must be made in terms of product development, energy efficiency, union influence, and worker compensation – each of which will require sacrifice and may well challenge the electorate’s resolve for the ‘change’ so recently clamored for and sought after.
Signature Update is offered by Richard Haskell Sr., Managing Director of Signature Wealth Management
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