4th Quarter 2008 GDP Results

The U.S. Dept. of Commerce's Bureau of Economic Analysis (BEA) has reported 4th Quarter Gross Domestic Product (GDP) results representing a surprisingly small decrease in GDP for the quarter. Economic consensus expected GDP declines of 5.5% to 6.0%, but the BEA report reflects a 4th Quarter GDP decline of only 3.8%. On the surface, one might suppose that this figure, substantially better than what had been feared, would be welcome news amid all of the other difficult economic data we’ve seen in recent months, but just the opposite is true and the US markets closed sharply lower in light of the data.

Accompanying the GDP figure was the manufacturing inventory report which showed much higher inventory figures for the year end than were expected. This represented goods produced, but not consumed, and the production output currently residing in inventory understates our economic slowdown for the quarter. Accordingly, some portion of the GDP for the quarter went to manufacturing products that are simply sitting in manufacturer’s inventories, which artificially increases output. As the economy consumes this excess inventory in the coming quarters, we will then see a clearer picture of the recession’s impact on GDP.

We anticipated a 5.5% decline in GDP for the 4th quarter, in line with that of most economists. Likewise, we previously forecast 3.5% and 1.5% declines for the 1st and 2nd quarters of 2009. However, the 3.8% decline, coupled with unexpected inventory builds now cause us to adjust 1st and 2nd quarter 2009 GDP expectations to -4.5% and -2%. Where we had anticipated economic expansion to resume in the 3rd quarter, we now expect the 3rd quarter to be between 0% and .5% and anticipate that expansion will resume at roughly 2% in the 4th quarter. Real expansion is not likely to resume until 2010 as we expect real GDP increases of 5%, year over year.

Not only may the better-than-expected GDP figure cast a longer shadow over the recession, but it may be exaggerated by higher-than-expected unemployment increases for the 1st and 2nd quarters. Assuming the manufacturing output increased inventories at the end of 2008 reflects the product of workers ‘on the job’, then we can assume that many of these same workers were not laid off before the end of 2008. If this is true, and we see greater than expected declines in GDP for early 2009, we may also see higher than expected employment displacement for the same periods. Recent unemployment analysis has suggested that we’d seen the worst of the jobs cuts we’re likely to experience. However, if 1st quarter 2009 GDP declines are worse than 4th quarter 2008, then we may yet see more job losses than expected, and it is unlikely that the Obama economic stimulus proposals will have any beneficial impact before 2nd or 3rd quarters.

Just as increased real estate inventory has prolonged the housing crisis, increased manufacturer inventories have the ability to lengthen our economic slowdown. However, there are two very likely scenarios that may play out, either of which could provide a far more positive outcome.

The first, and more likely, beneficial scenario is already underway, though the outcome is far from certain. The Federal Reserve and Treasury have increased the domestic money supply through their multi-trillion dollar efforts to shore up our banking and credit complex. The natural byproduct of the expansion in the primary monetary supply (M1) is an increase in inflation, which we have yet to experience, and a weakening of the US dollar, which we’ve certainly noticed in recent weeks. A weaker dollar makes US exports more attractive to foreign markets, and this may aide in reducing the excess manufacturer inventory, thus easing pressure on the US markets.

Certainly, increased US export activity will not be rampant, due to the economic slowdowns in other economies, but the effect is just as certain; though perhaps not as exaggerated. We’ve yet to experience near term inflation because of the deflationary cycle our economy has flirted with caused by decreasing commodity pricing. This deflationary trend has helped offset inflationary pressures, just as the inflationary effects of the increased money supply has helped dampen the effects of deflation.

The second possible scenario depends on the effectiveness of Obama’s $820 billion stimulus package and the release of the remaining $325 billion in TARP funds. Combined, these programs, along with a few smaller initiatives, will release another $1.25 trillion into the US economy. Not only will this exaggerate the possibilities of the previously discussed scenario, but these dollars could well improve both the housing and labor markets. Prior to the Obama administration’s release of various stimulus plan details this last week, we had been optimistic that this effort would quickly benefit our economy. But, given the plan the US House of Representatives passed earlier this week, which will certainly be passed by the Democrat controlled Senate, the likelihood of real economic improvement resulting from this ‘stimulus’ package is limited.

Of the nearly $820 billion to be distributed through this plan, over $250 billion represents transfer payments, entitlement spending, and welfare, with another $134 billion targeted to consumer economic relief, including consumer tax cuts. We saw virtually no economic benefit from the consumer relief incentives offered consumers through the $110 billion in Bush’s 2008 stimulus program, and there’s no reason to expect that another $134 billion will offer a different outcome. While the consumer relief portion may possibly belong in a stimulus package, the other social spending measures do not, as they provide no economic stimulation whatsoever.

Unlike some, I’m not arguing that these social expenditures are unnecessary, that argument is well above my pay grade; though I will admit that we seem to receive too little societal impact for the vast sums we routinely pour into social programs. I do contend that such expenditures should be considered on their own merit and not included in a piece of economic legislation deemed so immediately important. Had the House and Senate not been dominated by the same party as that of the Administration, the inclusion of social spending in this bill may have put the bill’s passage in jeopardy, and that would have been irresponsible at best.

The remaining $250 billion in Obama’s economic recovery plan is targeted to infrastructure, job creation, and business tax relief, each of which provide real, measureable economic growth. The US Office of Management and Budget estimates that this $250 billion will create some 3 million new jobs throughout the public and private sectors, which should go a long way towards beating back the effects of high unemployment rates, and may decrease the ranks of the nations unemployed by over 3%. If we do the math, we quickly see that each job will cost the US taxpayer approximately $83,000 ($250 billion divided by 3 million jobs); a relatively high sum, but not unrealistic in terms of overall costs. However, if we apply the entire $820 billion cost of the recovery package against the jobs created, we see that each of the 3 million jobs will come at a cost of over $273,000 - an outrageous sum. This simply illustrates why the transfer payments, entitlement programs and social spending bulked into the ‘economic recovery package’ simply doesn’t belong there. It may be that such expenditures are meaningful to our society and perhaps even warranted in these difficult times, but if Obama and his team are sincere about affecting change and increasing ‘transparency’, this certainly doesn’t appear to be the way to go about doing so.


Many who did not vote for Obama have been hopeful, even optimistic, that his efforts will yield a better tomorrow. Though we realize that he may put on a blue suit and red tie each day, rather than blue tights and a red cape, many have granted him super-hero status well in advance of having the opportunity to observe his leadership at work. We’ve listened to bi-partisan rhetoric and mused over what might be accomplished by insightful, integrous leadership, and while we’re still audacious enough to hope, I must admit that we’re disappointed in how quickly our elected officials have reverted to type, as was recently evidenced by the strict party-line voting the House offered on the stimulus plan. Just as I’m certain that there are many excellent, resourceful Democratic Party representatives who voted for this legislation who certainly saw many of its flaws, I’m equally as certain that there were numerous representatives of the Republican Party who saw the plan’s obvious benefits, and chose not to vote for it. Such clearly split voting patterns aren’t likely due to coincidence, rather, they are far more likely due to skilled, partisan leaders doing what they simply seem incapable of not doing, being politicians. We deserve better.



JOB OPENINGS

We recently saw the following and thought you might find it interesting, if not amusing:

Following the resignation of Federal Reserve member Randall Kroszner on Jan. 21, 2009, the seven-member Board of Governors now has three vacancies. The positions of Mark Olson (retired in June 2006) and Frederic Mishkin (retired in August 2008) have yet to be filled. Source: Federal Reserve, BTN Research

Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management

Optimism... of a sort 1-26-2009

Despite continued reports of job losses nationwide, lowered earnings reports from major corporations as widely divergent as Caterpillar and McDonalds, and increases in both oil and gold prices, the US stock markets opened to the upside on Monday morning. Reports of a 6.5% increase in existing home sales and Pfizer’s announced offer to acquire Wyeth (giant pharmaceutical manufacturers) for $69 billion brought out the bulls in early trading to drive the DOW up by well over 100 points in the first hour of trading.

Wall Street traders and commentators again were engaged in discussions about the tendency markets have in leading the economy by 6-9 months, suggesting that today’s early rally may be the precursor to an expanding economy by year-end 2009. Though most would agree that such speculation is premature, we can’t ignore that the US markets continue to be grossly oversold and that a meaningful equities rally for 2009 is likely. Unfortunately, what is at least as likely is an increase in the jobless rate by as much as another 2-3 percent, continued declines in GDP for the 1st and 2nd quarters, and a housing market that will continue to put pressure on consumers, bankers, and credit markets.

Expectations of an economic recovery/stimulus package remain high and as resources make their way through the economy we will certainly see some relief. But economists look for results that can be described using terms such as ‘efficiency’ and ‘optimization’, and the various proposals making their way through the executive and legislative branches appear less and less efficient each time we see them. Though these efforts will undoubtedly help strengthen our ailing economy in the near term, what they will ultimately optimize may simply be various re-election campaigns.

Regardless, most investors shy away from discounted markets for fear of further downside risk, though it is just these types of markets that eventually create wealth for those prepared to strategically position their assets in diversified portfolios. Many believe that profits are made when assets are sold, but most often the truth is just the opposite; profits are generated as assets are purchased at discounted prices for those willing to hold them until the market once again recognizes the full value of the asset.


The Market’s ‘Gift’ to President Obama

Wall Street offered newly-inaugurated President Barak Obama a gift, of sorts, on Tuesday by providing a 317 point drop in the DOW on the day of his inauguration. Gift may not be the correct term, perhaps it was a message, or maybe it wasn’t even intentionally offered, regardless, it was too loud to be ignored. The question is, what does it mean and why did it happen?

The range of possibilities is too broad to completely explore, but the following are a few of the more likely explanations:

Though many Wall Street decision makers have reflected the same optimism and hope for Obama’s administration as that of many Americans, the decline and the resulting market volatility may have been telling the administration that there is more to be done than can be accomplished with populist phrases and declarations of hope and change.

Many in the market have suggested that Tuesday’s decline reflected a realization that regardless of how optimistic we are for the success of Obama’s policies of change, the challenges at hand are too great to expect any near-term solution or recovery.

The investment markets may have been firing a shot across Obama’s decks to let him know that while there may be tolerance, or even support, for his recovery policies, there will be little acceptance for the ‘share the wealth’ doctrine offered during the election.

It may simply be that Obama’s election ‘shine’ has already worn off for the markets and the decline was more of a response to earnings declarations and this week’s economic reports than to his inauguration and the attending celebrations.

Here’s my favorite (if for only comedic value and without foundational merit): The market may have been expressing fear of the legal repercussions of Chief Justice Roberts bungling of Obama’s oath of office and the possibility that Joe Biden may have quickly become the ‘legal’ president without a constitutional remedy to the situation.

My favorite aside, the reality is that each of these various sentiments was expressed this week by decision makers and investors alike. In truth, closer inspection of the inaugural-day sell off reveals that it was more of an indictment of our banking complex and the employment markets than it was a message for the incoming administration or Obama himself.

Wall Street decision makers offered mixed support for Obama in the presidential elections, and there were virtually as many proponents for his agenda of change as there were detractors. However, most agree that his broad-based popularity extends across most segments of our economy, and whether they voted for the Obama/Biden ticket or not, business leaders around the country have voiced optimism and respect for the new presidential team and their administration.


The Current Refinance Boom

With mortgage interest rates on conforming loans having dipped to the 5% range, in some cases as low as 4.75%, the US mortgage industry is experiencing another refinance boom, though far different from the refi booms of recent years. For today’s homeowners to succeed in their refinance efforts, most must have credit scores in excess of 700 points, loan to value ratios of no more than 80%, primary debt-to-income ratios of 28% or lower, and have little expectation of walking away from the closing table with extra cash. There are exceptions, of course, but without question, we’ve entered a very different era of mortgage financing from that of the last 10 years - one that closely resembles the more responsible lending environment of much of the late 20th century.

As always, there are pros and cons to mortgage refinancing, and the mortgage markets is filled with creative and hungry brokers whose business revenues have been drastically reduced in the wake of the housing and credit crisis. I had an opportunity to help a client assess the value of a refinance this week that looked like an excellent opportunity on the surface, but in fact represented a mixed bag of costs and benefits once looked at in the light of full disclosure. We thought an exploration of its details might prove useful to others.

The client has a 7.15%, 30-year, fixed rate loan on a home that was purchased only 6 months ago. An offer had been extended for a 5.5% fixed rate, 30-year FHA loan. The qualification and underwriting process had progressed swiftly towards a scheduled closing date without a detailed Good Faith Estimate (GFE) or Truth In Lending Statement (TIL). In most markets the law requires that these be provided at or close to the filing of an application, but in truth, those that are made available are often based on limited information and are subject to substantive changes as the underwriting process proceeds. However, based on the information at hand, the client surmised that 5.5% is better than 7.15%, and was enticed by the mortgage broker’s reports of $35,000 - $40,000 in savings over the life of the loan – who wouldn’t like these numbers? The answer lies in the details.

The GFE and TIL provided just one day before the scheduled closing revealed that the combined cost of the refinance was in excess of $7,200, which cost, in addition to approximately $2,800 cash out at closing, would be added to the existing loan balance of $122,000. Paying off the existing loan, paying for the loan origination fee, FHA fee, title insurance, and so on, resulted in a new loan balance of $132,000. The client’s monthly payment would decrease by just over $20 per month for the first five years and then would decline by another $53 per month thereafter as an FHA mortgage insurance fee is scheduled to drop off. Though the client would receive $2,800 in cash at closing, and would realize a total savings of some $23,000 over the life of the new loan, there would be 360 payments due under the new loan as opposed to 354 under the existing loan, bringing the adjusted benefit to just under $20,000. Again, who wouldn’t want to close on this new loan?

What happens if the client chooses to move or refinance in 5-7 years as most Americans do? Would the combination of the cash offered at closing and the cost savings still provide a benefit? No. The economic benefit of the new loan can’t be realized for almost 12 years as the client’s new loan balance would begin at $132,000 versus the existing balance of $122,000. What if the client chose not to accept the $2,800 offered at closing and continued to make their current payment instead of the new, lower payment? The benefit of the new loan would be accelerated by a few years, but the client would still be disadvantaged for more than the 5-7 year time frame. And, if one takes into account the effect of inflation on the dollars saved in the future, their net present value, and the effect of having fewer tax-deductable dollars in home mortgage interest expense, the real savings is yet less.

In this case, the client chose the new loan. In part out of his certainty that he will buck the national trend towards refinance or relocation in less than 8 years, in part because 5.5% just feels better than 7.15%, and in large part because when facing a possible refinance, most people are simply ill-equipped to accurately calculate the long-term effect of some cash offered today and a little bit of savings provided tomorrow versus the impact of a larger debt to pay off and several more payments to be made some 29 years from now.


Treasury Secretary Nominee Timothy Geithner’s Income Tax Disclosure

The news media and the US House and Senate have made much over the last few weeks regarding Treasury Secretary Nominee Tim Geithner’s disclosure that he only recently paid some $43,000 in past-due federal taxes. Even pragmatic economist, turned news commentator Lawrence Kudlow (CNBC) stated that Geithner’s actions reflected a lack of character. But what are the real issues here and how should we look at a senior policy maker’s handling of their own finances? Most of the Senators responsible for Geithner’s confirmation asserted that the revelation was disconcerting, but not sufficient to derail his confirmation as Obama’s Treasury Secretary. Many media representatives have decried his actions as ‘deplorable’ or indicative of a level of corruption and abuse prevalent in today’s society. Geithner and his supporters have feigned innocence and offered apologies for a simple mistake.

Had such a disclosure taken place prior to the Clinton administration, it is almost certain that the nominee would have withdrawn. But in an age in which many have determined that one’s private values have little bearing on public judgment. Much can be forgiven, or at least overlooked.

Geithner is already a senior Federal Reserve official and is under constant scrutiny. In truth, his error in not properly filing his 2001-2004 tax returns may reflect a lack of judgment, depending on whether or not one believes that the error was made in innocence or was deliberate. Regardless, a choice to delay payment of taxes is a legitimate, albeit expensive, option offered by the IRS. Geithner is a businessman and economist, and hopefully makes financial decisions in a pragmatic, deliberate manner. When faced with the decision to put off paying an obligation, an informed business person weighs the costs and benefits of the situation. Delaying payment increases the expense by the imposition of interest and penalties, while making the payment in a timely manner may strain current resources or require costly borrowing. Depending on the situation and the attending costs and benefits, delaying payment may be the most efficient economic choice. What Geithner may not have considered was the political fall out, but even then, most of the members of the Senate committee charged with confirming him to one of the most powerful posts in the country, one that will likely include disbursing trillions of dollars over the course of his likely tenure, have offered him their support and suggested the issue only represents a small distraction in the confirmation process.

Signature Update is offered by Richard Haskell, Managing Director of Signature Wealth Management

What Benefit From The First $350 Billion in TARP Funds?

On Thursday afternoon the US Senate voted to release the remaining $350 Billion in TARP funds to the US Treasury, but only after lawmakers took their opportunity to offer commentary regarding the Bush administration and how Treasury Secretary Paulson has handled the first $350 Billion released last year. There were repeated requests for greater accountability and the mandate that ‘this time, we need to know where the money is going’, as though the distribution of TARP funds had taken place without absolute transparency. In reality, the House and Senate, like the Treasury, know precisely to which institutions TARP funds were released, in what amounts, and what those institutions have done with 100% of their resources in the mean time. We’re talking about publically held banking institutions which are required to abide by strict reporting requirements and are subject to constant regulatory examination. In virtually every case, TARP funds were provided in exchange for dividend yielding, preferred stock in the organization to which the funds were distributed. This has amounted to a recapitalization of the US banking system and has been accompanied by an extraordinary loss of shareholder value as taxpayer funds have been used to strengthen publically held financial institution balance sheets.

What these lawmakers are attempting to communicate is that they don’t approve of how the funds have been handled – which is their right. What they’re actually representing is that they’re limited knowledge of finance and economics makes it difficult for them to comprehend the benefits our economy has received from the distribution of TARP funds. Much of our population is in the same position, though perhaps without the forum from which to cast opinion.

In September and October of last year Dr. Ben Bernanke effectively warned that the credit complex in our country had virtually collapsed, and that we were on the brink of a financial malaise that would rival that of the depression of the 1930’s. That was now four months ago, and our banking system, though still under tremendous pressure, has improved substantially. Banks are once again lending to each other, credit is being extended to businesses and consumers at levels below those observed pre-2008, but well beyond what was experienced in the nearly frozen markets of July-November 2008. The ‘yield curve’ has reversed its inverted posture and become steep enough to foretell possible stock market improvements in 2009 and the TED Spread (an indication of banking industry confidence) has improved dramatically.

It is likely that the leadership of both the Treasury and Federal Reserve underestimated the difficulties we faced until we were on the verge of disaster. Likewise, it is clear that they’ve made adjustments to operating plans as their vision of the financial market’s stresses became ever clearer.

A recession is not a disaster, a depression is. For our lawmakers, and perhaps many of the rest of us, to understand what benefit we’ve received from the TARP funds already disbursed, we may be well served to remind ourselves of what the Depression was like for tens of millions of Americans. Timothy Egan’s The Worst Hard Times, and Amity Shales’ The Forgotten Man offer sobering reminders of what we may well have experienced had Paulson and Bernanke not acted with prudence and foresight – they may not have been perfect in their assessment or executions, but they have been relentless in their pursuit of solutions to extraordinary problems. Though the pressures of unemployment, home foreclosures, and loss of investment capital wear heavily on our citizenry, the current level of stress is insignificant compared that experienced by residents of the mid-south who survived the ‘dust bowl’ period, or those living in many of the US’s industrial cities where entire industries collapsed.

The 1930 US Census records our population at over 123 million persons, of which the Depression forced unemployment on some 12 million adult men and women, or roughly 10% of the entire population (over 25% of the adult population at the time). In 2000 there were some 291 million people living in the United States, 11.1 million of whom are unemployed today, representing an adult unemployment rate of 7.2% and an overall level of unemployment of over 3%. Though current forecasts suggest that adult unemployment levels in 2009 will almost certainly increase to upwards of eight or nine percent, the economic impact would be incomparable to that of the 1930’s.

The Obama economic team’s plan for the use of the next $350 Billion in TARP resources and perhaps an additional $800 Billion or more in stimulus funds includes restoring millions of jobs in private enterprise, creating millions more in the public sector, and propping up the housing market, and thereby, credit markets. None of which would be able to executed had the banking industry not been given the lifeline extended through the initial TARP disbursals.

With the US Government now having standing as both regulator and shareholder in the largest financial institutions in the country, we have all but nationalized our financial system – something Karl Marx foretold in the mid-1800’s. Marx and Engals asserted that Humanism (a term used to describe pre-capitalistic economies) would naturally give way to Capitalism, which would ultimately fail under the weight of an over-leveraged banking system and ultimately evolve into Communism. Though we may entirely dismiss many of Marx’s theories and motivations, it is uncomfortable to see an eerily similar progression of what has been a free-market-capital oriented banking system and economy.

I was reminded yesterday that I tend to be an optimist when looking at our economic future. Very true. Who would want to be anything but? Likewise, I am confident in the strength of our free market society and our resolve to dismiss central planning systems for democracy and freedom. With the inauguration of Obama as the 44th President of the United States in several days, the Executive and Legislative branches of our government must focus on reversing the recent ‘free market nationalism’ direction of our economy and restore the economic health and balance only available through Democracy and Capitalism.



Consumer and Producer Price Index, Retail Sales, and Personal Income Considerations

The Consumer and Producer Price Indexes (CPI and PPI respectively) were released overnight and both evidence retreating wholesale and retail price levels. The CPI declined by 1.3% in suburban markets and .7% in urban markets in December, while the PPI fell nationally by 1.9%.

Earlier this week, recently released December retail sales figures were labeled grim, and undoubtedly reflected the economic pressure felt by consumers. However, when adjusted for price decreases made sharper by early and heavy retail discounting and decreases in energy costs, the actual level of consumer purchasing will likely represent a more robust year-end than previously expected.

Inflation-adjusted personal incomes actually rose 2.9% in 2008, contrary to many published reports, despite the huge income and portfolio value declines experienced by more affluent investors.


Signature Update is offered by Richard Haskell, Managing Director, Signature Wealth Management

Employment Markets and Recovery Plans 1-8-2009

IT’S ALL ABOUT JOBS

Today’s announcement that the economy lost 524,000 jobs in December was significantly better than expected, but still enough to push the unemployment rate to 7.2%. The ADP report suggested that December job losses could exceed 700,000. Even with a better-than-expected December figure, 2008 still ends up as the worst year since 1945 for the US employment market. Forecasts suggest that January will likely represent another massive employment decline, but that February and beyond will see significantly smaller jobs reductions as most of the blood-letting may then be behind us. Economic consensus now suggests that the US labor market will bottom early in the 3rd Quarter 2009 with a national unemployment rate of over 8%, perhaps even as high as 9% to 9.2%. As recessions go, these figures, though painful for those out of a job and looking for work, are mild and we need only look back to the early 1980’s to see higher overall unemployment, which period exceeded 10%.

We are in the early stages of a major shift in our economy, from a nation of net spenders to a nation of net savers. We have seen four major economic bubbles in the last ten years: the dot com bubble of the later 1990’s; the housing bubble of the early to mid 2000’s; the commodities and energy bubble of 2007-2008; and though less obvious to most, a consumer spending bubble which spanned the majority of the last decade, perhaps longer. It is expected that we will move from being net spenders, spending 2-4% more than we make, to a national savings rate of almost 3%.

These may seem like small movements, but they can represent GDP declines of 5-7% as the economy adjusts. Such GDP figures can equate to lower earnings ratios for US corporations, depressed stock values, and can put pressure on both the commodities markets as well as the US dollar.

As the media uses terms such as ‘deleveraging’, what they really mean is a shift towards greater fiscal conservancy. During which time, money that had previously floated across the economy via spending begins to find its way into savings and investment and debt reduction. Given our massive consumer and collateralized debt, we need to make this shift, but it is painful. It is the same type of shift that helped prolong the depression of the 1930’s and 1940’s; the difference being that the federal government became more confiscatory at the beginning of the depression, as opposed to flooding the capital markets as the Federal Reserve and US Treasury have done over the last several months. Such action should counteract some of the pain of a deleveraging marketplace, but can have its own long-term difficulties.

Arguably, the Fed and Treasury’s actions may fuel inflation over the next 1-3 years, but given the deflation trend we are now experiencing, it is hard to tell if this will simply offset otherwise decreasing price levels, or usher in 1980’s like inflation rates. Either effect is good for job creation and can help bring stability to the housing market, but long-term inflation is not to be taken lightly.

Surprising to most, President Jimmy Carter ranks #2 in average annual job creation, having presided over our economy during a time of high inflation, but average annual jobs growth of 2.6 million. Only Bill Clinton exceeds Carter’s jobs record with average annual jobs increases of 2.8 million, but Clinton did so with low inflation. In terms of economic activity, Clinton is often heralded as ‘Reagan II’, a label that undoubtedly makes liberals and conservatives alike shudder. Though Reagan still reigns in terms of inflation-adjusted increases in personal incomes, Clinton’s record trails by only small margins.

The Obama administration may rival that of Carter, Reagan, and Clinton on the jobs and personal income front as Obama will take the helm after massive jobs losses and nearly unprecedented declines in investment and real estate markets. Almost regardless of the coming administration’s economic expertise, the next four to eight years are likely to be seen as progressive and stimulating in terms of energy, monetary, and employment policies and outcomes.


OERSP

The Obama Economic Recovery and Stimulus Plan continues to be vetted through the press, even before the House and Senate are able to convene and actually do anything about it. This represents very smart politicking on the part of Obama’s economic team. Get the plan out there, allow it to build great support, and then put it the legislature’s hands – house and senate members will then be hard pressed to do anything other than smile and say ‘aye’. For those who have followed its evolution, it is evident that its architects are listening, responding, and listening some more. It even appears to be counter-acting House Speaker Pelosi’s anti-tax cut rhetoric, and that is no small victory.

Though still weeks away from being voted on, the plan is gathering broad support and appears to be well founded, expertly structured, and inclusive of some of the most important elements needed to help our economy – it also horrendously expensive – now estimated at over $800 billion. It may be the best example of progressive consensus decision strategy in recent memory; it clearly represents deft political prowess.

When economic theorists as widely disparate as Larry Kudlow, Ben Bernanke, and Tom Friedman each offer supportive commentary regarding a piece of economic and fiscal legislation, it is important; it means something. It may be that the need for the legislation is extraordinary, or it might represent that the articles and statutes are well designed, or, as in this case, it likely means both.

At present, the plan calls for a mix of tax cuts and capital investments, designed to provide relief for consumers as well as motivation for businesses to create jobs – critical elements in our road to economic recovery. In addition, Obama’s advisors, including David Axelrod, are now suggesting that the Bush tax cuts will remain in place well beyond 2010 and that the majority of the remaining $350 billion available TARP funds will be used to stem foreclosures in the housing markets. This is a tall order, and largely contrary to Obama’s campaign rhetoric, but it is reflective of a pragmatic politician who is willing to listen and learn. One can only hope.

Signature Update is offered by Richard Haskell, Managing Director, Signature Wealth Management