'Tis Only My Opinion!

People that are laid off don't buy as much.

It is simply amazing to me that the truth of that statement is not self-evident to our politicians, financial engineers and the Wall Street crowd!

Since March 2000 and especially since October 2001, the number of people that have been laid off from high-paying jobs is simply astounding. While some of them have found work, often the jobs are for significantly less money than their previous jobs.

The Help Wanted Index of the Conference Board fell to its lowest level since 1983 in August. Judging by the thickness of the classified sections of the newspapers to which we subscribe, September will be worse. That does not bode well for the unemployment rate and the economy in the fourth quarter.

In the near future, the damage to our country done by NAFTA and sending jobs overseas in search of profits will become clear.

It will become an almost impossible task to return many of those factory jobs back to the U.S. as whole plants were shipped overseas.

Retail sales are faltering!

For all retailers including the discounters, sales during the past four weeks have been disappointing as consumers throttle back. Wal-Mart is the largest retailer and it acknowledges that sales are not meeting targets.

Take a look at any of the middle-tier and high-end retailers and their sales projections are way under water.

The consumer has carried this market for the last two and one-half years and finally, it would appear that the consumer confidence numbers which have been deteriorating are also affecting retail sales.

Back to school sales for many retailers were shaky. Estimates for Halloween and Christmas sales are being reduced by many retailers. The July bookings at the retail trade shows were nothing to bet a recovery on. Retail forecasts for the fourth quarter indicate the lowest level of sales growth in the last 20 years.

Zero interest for 60 months or rebates!
	The automobile and furniture industries have been using sales incentives and no down payments to entice customers to purchase. These incentives only move ultimate demand forward and create a problem in future months. Also, the cost of those incentives further reduces corporate profits. In the case of the auto industry, it is cheaper to sell a car at no profit than to lay off union workers as the current contract requires the union worker to be paid their full pay irrespective of whether they work or not. You can bet that when the auto contract is up for renewal in the fall of 2003 that a lot of plants will find themselves closed.
Housing and refinancing is stalling!
	The Fed's lowering of interest rates has enabled many home-owners to refinance their homes. The result has been that a substantial amount of funds have flowed into the economy. Unfortunately, the amount of equity which is left in the residential real estate market has also shrunk. This removes the margin for error if the economy does not pick up. New Home sales are beginning to slow down as credit delinquencies have caused Fannie Mae and others to begin to tighten credit standards. Existing home sales fell 1.7 percent in August, reversing part of July's 5.3 percent spurt. In sharp contrast to the strong year-on-year gain in new home sales, existing home sales were 3.8 percent below last Augusts' level. Older homes are staying on the market longer before they are being sold. Since the first of the year, the average length of time has increased by one month throughout the U.S. and in some areas, two months. Are we seeing the cracking of the housing bubble? Perhaps.

The long-term unemployed . . .
	The unemployment statistics are a farce. During the past year, over 2,000,000 unemployed have been dropped from the rolls because they are "no longer actively looking for work." Maybe, they are just discouraged . . . but they are definitely unemployed. Some of those are telecom and network software engineers in the DFW area who are still trying to find work and will soon be joined by another 10,000 from EDS, Ericcson, Alcatel, and Fujitsu. Some of their jobs are now in India where the multi-national corporation is paying $14,000 per year rather than $75,000 a year for the same expertise. Well, there is always flipping burgers . . . but who will be buying their houses which are in the process of being foreclosed!
A great time for a port strike!
	The West Coast port operators have locked out the longshoreman unions after a failure to get an extension on the current contract while a new one is being negotiated. With the "Just in Time" inventory process adopted by many retailers and manufacturer's, this lockout could deal a major blow to the economy. The initial impact of the lockout is a negative $1 billion per day to the U.S. economy. If the lockout lasts two-three weeks, the impact could be as much as $20 billion or more. It seems to me that the operators could not have picked a worse time to lockout their workers. This economy does not need any additional self-induced obstacles to overcome. Better trim those fourth quarter estimates of GDP growth and corporate profits again. If the fourth quarter grows at 2%, it will be a miracle.

The World Series is just around the corner!

But does anyone care about the great American pastime? It is expected that the post-game series and the World Series will be the lowest rated programming of the last 25 years. Wonder how many advertising spots will be given away or sold at reduced prices?

In many major pro sports markets, the newspapers carry several ads each week for sky box rentals. Guess that the big spenders are even cutting back. Wonder when the club owners finally decide that the player salaries are out of control. The Texas Rangers were one of the highest paid teams in baseball and ended up in the bottom of the league. Perhaps, club owners would be wise to initiate a pay strategy that was based upon future performance instead of past performance.

Might get a little more effort out of these grossly overpaid prima donnas.

Likewise, when owners decide that professional athletes must adhere to the letter of the law and they don't just wink at substance abuse, perhaps, some of their former fans will return.

The Torricelli Caper

Have the Democrats finally destroyed the concept of the rule of law?

In my opinion, if the New Jersey Democratic party is able to change the rules governing elections and get another Democratic candidate on the New Jersey ballot instead of Torricelli this November, the electorate in not only that state but throughout the U.S. has been disenfranchised.

For in the final analysis, this is what is being said . . . If a candidate is behind and it looks as if that candidate will be defeated in the election, a political party can select without regard to the will of the primary voters to offer another candidate who might have a better chance of winning prior to the election.

Moreover, the political party can use the legal process to circumvent the laws of the state which were passed by the legislature of that state.

So much for the power of the voter . . . it is nothing but machine politics from here on!

The absolute is simply this . . . Power corrupts and absolute power corrupts absolutely.

And some in the New Jersey Democratic party are suggesting that Bill Clinton, the impeached President of the U.S., might become a resident of the state of New Jersey and run for Torricelli's Senate seat.

For the truth of the matter is that as long as the Democratic Party controls the Senate, the Bush agenda and his judicial appointments are in jeopardy. And a Torricelli loss could cause that loss.

Of course, there are a few more wrinkles to this saga that the Democratic party can wiggle: a) Torricelli could resign with less than 30 days before the election and the Democratic governor of New Jersey could appoint a new Senator and postpone the election for two years, b) Torricelli's performance might get his poll numbers back up and he could win the election, and c) the New Jersey courts could rule in the Democratic Party's favor and then it would be appealed to the U.S. Supreme Court.

What a mess . . . all in the guise of retaining control of the Senate of the U.S.

Where's the Economy going?

Many economists are now talking about the possibility of a double-dip recession. Well, allow me to disagree with those guru's who have been predicting a recovery every six months for the past 2 and 1/2 years.

When the revisions are finished in two years or so, we will see that we never got out of this recession.

Until people are put back to work, and consumer confidence starts building, there is little hope for a recovery. Consumer spending has made this a relatively mild recession but with manufacturing capacity at the 75% rate, high consumer debt, and low capital spending, what is going to provide impetus to this economy.

Muddling through is just about as good as it gets. And that is iffy. There are many obstacles such as the dollar weakness, the derivative mess, war in the Middle East, etc., that could create further chaos in this market.

Until the Conference Board's Help Wanted Index starts up or at least holds steady, this economy is not going to make any significant headway.

Historically, October is not a good month for the market.

History tells us that October has seen more down months than up months. Coupled with a third quarter where stock values fell by about 17% for the major indices, that would suggest that investors should be wary.

However, I would be remiss to point out that it is also true that people who purchased stocks in October often had profits by the following March of the next year.

However, most of those years were not in secular bear markets like now.

The next 36 days will be dictated by political considerations.

The airwaves and the public will find themselves focused on the mid-term elections, possible war with Iraq, and continued revelations of corporate excesses.

When individuals receive their quarterly brokerage statements this month, I would expect to see further sales of mutual funds.

Whether President Bush gets a resolution on Iraq is problematical and the government budget will continue to be held hostage by the Senate majority. As a result, a series of continuing resolutions will be used to finance governmental operations. One of the major obstacles will become the need to increase the debt limit again prior to the election.

In an election year, things could get very interesting as the spirit of togetherness that was exhibited following 9-11 has given way to partisan bickering.

The Republicans Big Mistake . . .

When Bush and the Republican majorities in the House and Senate did not move decisively against corruption and malfeasance during the first year of this administration, the die was cast. Failure to point out the problems which were inherited from the Clinton Administration and continuance of many of those same economic and foreign policies have allowed the Democratic party to shift the blame for the current economic mess onto the current Bush administration.

Today, even with the Torricelli caper, I would hesitate to bet that the Republican party will control either house of Congress after this election.

Conclusion

The economy is in danger of spiraling into a depression. With the West Coast dock strike, the odds of that happening have just increased.

As factories begin to shut down because of the lack of parts and stores are unable to stock their shelves, the hope for a better fourth quarter will disappear.

Corporate earnings for the third quarter are dismal but may look pretty good when viewed from the fourth quarter's perspective.

The stock market is often considered to be a forward pricing market. If so, just how far out do we have to look to see things improving. One year, two years, five years . . .

So far, the investors have lost about $8 trillion from the market's peak. How much more pain can they endure before this generation of investors decide that enough is enough?

But then - 'Tis Only My Opinion!

Fred Richards
October 2002

Corruptisima republica plurimae leges. [The more corrupt a republic, the more laws.] -- Tacitus, Annals III 27

This issue of 'Tis Only My Opinion was copyrighted by Adrich Corporation in 2002.
All rights reserved. Quotation with attribution is encouraged.
'Tis Only My Opinion is intended to provoke thinking, then dialogue among our readers.