Friday :: May 7, 2004

What A Difference Decay Makes

by pessimist

Recent remarks by Federal Reserve Chairman Alan Greenspan concerning the increase in inflation have set the money men a-twitter. It wasn't so long ago that the future looked so bright, you had to wear shades! Since then, however, the old inflation monster has arise from its zombie grave, ready to deal destruction to those heady profit plans of yesteryear.

What changed so quickly? Let me put it this way - be careful what you ask for - you might get it!

Set your way-back machine to the year 2003:

Bush's inflation-free boom - December 18, 2003

The latest batch of government economic data reveals a new theme: inflation-free boom. It's a business-led scenario this country hasn't seen in many years, and it could mean another 8-to-10-year prosperity cycle is on the way. The S&P industrials sub-index has gained nearly 10 percent just since September. The November industrial-production report published by the Federal Reserve Board surged spectacularly above expectations, while production figures for the prior two months were revised upward. Since August, industrial production has grown at an outsized 7.8 percent annual rate. But here's a critical revelation within the new data. Computer and office equipment has surged 32.6 percent, and the high-tech index of computers, communications equipment and semiconductors has exploded at a 50.7 percent annual pace. Did someone say capital expenditures? Yes. Capex is back. So is tech. Tanned, rested and ready.

So inflation remains nonexistent. The consumer price index actually fell slightly in November, and over the past 12 months the core CPI has increased only 1.1 percent, the smallest gain in 38 years. The chain-weighted core CPI, a more accurate measure, as it frequently adjusts a basket of prices to reflect shifting consumer preferences, has increased only 0.6 percent over the past year -- a trifle. In effect, America's businesses are producing at a torrid 8 percent rate without generating any inflation.

As profits and production continue to rise, more jobs and higher worker incomes will spur a new round of consumer spending this winter and spring. Supply creates its own demand.

Bush administration supply-siders who argued in favor of permanent tax incentives to grow the investment side of the economy are being proven exactly right. Former top Bush economist Glen Hubbard -- one of the principal authors of last May's growth bill that lowered Uncle Sam's tax bite on investment by roughly 40 percent -- deserves loud kudos. Liberal columnist Paul Krugman, who opposes supply-side tax cuts at every turn, deserves a resounding Bronx cheer.

The Bush combination of lower tax rates to ignite economic recovery at home and a determined policy to inflict punishment on our enemies abroad is almost exactly the same as Ronald Reagan's program two decades ago. In each case, peace and prosperity were achieved. And once again, they'll be sustained.

The potential for a major expansion of tax-free savings accounts, privately invested Social Security choices, across-the-board corporate tax reform, an end to frivolous anti-business lawsuits, and free-trade agreements in Central and South America will all be possible in a second Bush term. And the Iraqi beachhead for representative government, human rights and market economics will transform Middle Eastern politics and spread to other dark corners of the world.

Good policies always lead to good politics at home and abroad. While this is not a new thought, once again events are proving it to be a timeless and universal one. Keynesian demand-siders who believe that growth causes inflation should take their models out behind the barn and shoot them.

There's that conservative tendency toward violence again! But then, such exuberance is to be expected when things go one's way after two years of failed prognistication. Celebration certainly would be called for if it were real, but then no one expects the Fiscal Imposition!

No inflation? The Fed says it can't find much inflation anywhere. Consumers might argue otherwise. - November 14, 2003

NEW YORK (CNN/Money) - The Federal Reserve sees so little inflation in the economy that it's more worried about an "unwelcome fall" in inflation than an unwelcome rise. Take a look at what's going on with prices, and you might wonder where the Fed is getting its information.

To start with, commodity prices from have been running higher this year -- a factor in Friday's surprising rise in the producer price index, which measures inflation at the wholesale level. The Commodity Research Board's index of commodity prices touched a new 6-1/2 year high Thursday. The industrial materials index administered by the Journal of Commerce and the Economic Cycle Research Institute is rising at a 33.7 percent annual clip.

"The basic message is unambiguous -- you've got inflation," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute.

Nor is it just wholesale prices that are moving higher. Take a look in the guts of the nation's key reading on inflation -- the consumer price index -- and you'll find that many of a typical household's big expenditures have risen markedly over the past year. From September of last year to September this year the cost of education, according to the CPI data, has risen 7 percent. Medical costs are up 4 percent, utilities are up 8.6 percent. All of these much higher than the overall CPI which grew at just a 2.3 percent rate, and the "core" CPI [The one bragged about above - ed], which excludes food and energy prices because they're so volatile, grew just 1.2 percent.

"The things that make up the bulk of consumer expenditures for most U.S. households -- all of them seem to be moving up significantly," said Carlos Asilis, portfolio manager with the hedge fund Vega Asset Management.

So what's keeping the reading on inflation low? Asilis thinks one big piece of the picture is housing. In computing the CPI, the Bureau of Labor Statistics assigns a 22.2 percent weighting -- the most of any item -- to something called "owners' equivalent rent of primary residence." Basically, it's an estimate of what homeowners might pay in rent if they rented their homes instead of owning them. To calculate this, the BLS looks at actual rents, compares them to owned residences and then uses that to calculate housing costs. The problem? The low-interest rate environment has meant that many people who might otherwise rent now own -- in fact, home ownership rates are at record highs. As a result, rents have come under pressure, and "owners' equivalent rent" has grown at just 2.1 percent over the past year -- less than the overall CPI and far lower than the costs for education, health care and so on.

You can catch the circularity here. Because the inflation reading is low, rates are low, which has upped home ownership, which has pressured rents, which has put a cap on "owners' equivalent rent," which has helped keep the inflation reading low. Etc.

Another big chunk -- 8.2 percent -- of the CPI is new and used motor vehicles. Over the past year vehicle prices have fallen 3.6 percent, thanks to tough competition. Part of that is due, again, to a kind interest-rate environment. Although zero-percent financing doesn't factor directly into the box score the way the BLS calculates inflation, it has brought the cost of buying down, prompting many consumers to trade in their almost-new car for a brand new one. "What you're seeing is a glut of gently used vehicles, and that's putting pressure on all vehicle prices," Lehman Brothers economist Joe Abate said.

Could higher rates force car prices higher? It could certainly raise the cost of buying a car, since those generous financing deals would go away, and that might make used vehicles more attractive, lifting their prices. But competing with this, auto companies are intensely interested in selling everybody a new set of wheels, and the industry remains awash in excess capacity. Maybe more important, buying a new car simply doesn't constitute a regular expense like tuition, paying for electricity or putting gasoline into that car. (And some expenses don't even factor into the CPI -- like the trend of companies shifting a portion of benefit costs to employees.)

"The CPI is correct in measuring consumer prices," said Miller Tabak bond market strategist Tony Crescenzi. "But it's not correct in measuring the cost of living."

Some economists believe that prices for services, like health care, won't increase over the coming months as fast as they have over the past year, and this will put downward pressure on the CPI. Bond investors aren't so sure. They have been steadily buying Treasury inflation-protected securities, or TIPS, the returns on which rise and fall with inflation. As a result, the spread on the yield between 10-year TIPs and 10-year Treasurys has grown to 2.38 percent -- the widest difference since 2000.

Putting it another way, even though 10-year Treasury yields haven't risen as much as some analysts might expect, it's been three years since the bond market has been so worried about the prospect of inflation.

And this was a month before the previous article came out. Who was correct? The rest of this post should illustrate the answer to that question.

How 'stealth inflation' sneaks up on your wallet

It's not your imagination: In an era of near-zero inflation, you have less to spend. Every surcharge, every fee, every futile hour on the phone is eating away at your spending power.

If your bills lately have included one too many unpleasant surprises, you’re not alone. Companies and governments are trying to sneak an astonishing variety of fees past us, hoping we won’t notice.

Unable, or unwilling, to raise revenue the old-fashioned way -- by increasing prices or boosting taxes -- businesses and lawmakers have gotten creative in bleeding us by a thousand cuts. This so-called “stealth” inflation takes a number of forms. For example:

Phones: Surcharges and fees add 10% to 20% to the typical phone bill, but most aren’t mandated. They’re costs the carriers don’t want to absorb and instead pass on to their customers. . Hotels: Many are charging for what used to be free. Rooms at the Golden Nugget in Las Vegas, for example, can be as little as $45 a night. But using the exercise room means you’ll pay an extra $15. If you’re a couple with a baby, you’ll pay an added $20 a night for the "extra guest." Some hotels now charge for maid service or the in-room coffee maker.

Banks and credit card companies: About half of the banking industry’s earnings now comes from fees -- late fees, over-limit fees, ATM fees, even fees to get a paper statement or have your checks returned.

Retailers: "Restocking fees" for returning merchandise are becoming more common -- even if the product was defective.

User fees: Strapped governments are piling on fees as a way to avoid raising taxes. The institution of $5 daily "activity fees" to park, hike or bike in national forests has prompted widespread backlash.

Bad customer service: This one’s more subtle but just as annoying as the others. Companies make mistakes and then make it all but impossible to fix the problem, leading many consumers to just give up rather than get what’s coming to them.

This latter phenomenon was pointed out by David Pogue, technology writer for The New York Times, who encountered the problem with a cell-phone plan that repeatedly gave him fewer minutes than promised. Every month, the carrier pledged to fix the problem, and every month Pogue had to get back on hold with customer service when the same error was made again. He conjectured "that all this might be part of a pattern of passive-aggressive robbery perpetrated on the premise that a certain percentage of customers won't notice, or won't bother to protest." Companies insist no such conspiracy is afoot, but after Pogue’s article appeared, his e-mail box filled with hundreds of readers offering similar examples of their own.

So what’s wrong with all this back-door revenue raising? Besides being irritating as heck, it’s bad policy. Here’s why:

* Stealth fees distort the market. Capitalism works best when consumers have complete and accurate information about costs. How can you make an informed decision about which hotel, cell-phone plan or retailer to use if you don’t know the true price until after you’ve committed? Stealth fees not only steal your money, they reward the market’s inefficient competitors.

* Stealth taxes are regressive. Lawmakers often prefer imposing fees to raising taxes, but tax increases are generally progressive: Those who have more, pay more. Fees, on the other hand, hit everybody regardless of their ability to pay.

These are just some of the industries where stealth inflation is getting out of hand:

Travel: Big declines in travel, combined with overbuilding, have really squeezed the hotel, airline and rental car industries. Most don’t feel like they can boost rates, so they find a bunch of surreptitious ways to increase their take. In Rental car rip-offs: a survival guide, I discussed how airport and rental car company fees can boost the advertised price of a vehicle by 50%. Airlines increasingly charge for meals and snacks on domestic flights. But it’s hotels that are pulling out all the surreptitious stops. Here’s a list from PriceWaterhouseCoopers, which tracks these trends and says hotels will rake in $100 million in new fees this year, such as:

New or stiffer cancellation charges: Some hotels now require up to five days’ notice or they’ll dock your credit card for a night’s stay. Leaving early might cost you $50.

"Resort" or gym fees: Whether or not you actually heft a pair of barbells, you pay an extra $10 to $20 a night.

Mandatory service charges: It used to be up to you how much to tip the room service waiter or the maid. Now many hotels add a mandatory gratuity of 15% to 20%, plus a delivery fee averaging $2.50. Maid service may be an additional $2 to $3 a day.

Freebies that aren’t: In-room coffee. A newspaper automatically delivered to your door. Overnight packages brought to you by the bell staff. Any of these could generate a charge on your bill.

Even more telephone surcharges: Everybody knows hotel phone rates are a scandal, but now there’s a new twist -- surcharges for calls over 20 minutes, along with connection fees for guests who use toll-free numbers or credit cards to circumvent the hideous direct-dial rates.

Most hotels try to head off complaints by disclosing the fees before check-out time -- with placards by the phone, notes in the room service menu or a list by the mini-bar. But that doesn’t help consumers who haven’t checked in yet and who are hunting for the best deal. The consumer’s best defense: Call the hotel before you book and ask what extra fees will appear on your bill. Sites like Expedia or Quikbook will reveal the basic room rate and applicable taxes, but you’ll often need to do a little more footwork if you truly want to compare costs.

Phone companies: Phone companies have a lot of leeway in the fees they charge you, but you’d never know it from your bill. Carriers love to use words like federal, national or mandate to convey the idea that it’s the bad old government forcing them to pass their costs along to you. In many cases, that’s hooey. Some stuff, like taxes and municipal charges, is beyond the carriers’ control. But phone companies have the flexibility to absorb or pass along a lot of other costs. Here’s a sample, compiled from comparison shopping site, of frequently used names for charges the carrier chooses to foist on you:

SLC: Subscriber Line Charge or Federal Subscriber Line Charge

LNP: Local Number Portability or Number Portability Service Charge

PICC: Presubscribed Interexchange Carrier Charge, National Access Fee or Carrier Line Charge

USF: Universal Service Fund or Universal Service Charge

Again, your best defense is to research before you commit. If your friends use the carrier, ask to take a peek at their bills, or, from the carrier, get a list of the fees and surcharges that will appear on your bill. If they resist, insist.

Lenders: Fees used to account for about one-third of bank earnings and 18% of credit card companies’ income. Today, fees comprise more than half of bank profits -- 51% -- and 35% for credit cards, according to bank card consultant R. K. Hammer. Credit card companies rake in $11 billion in late fees alone. Lenders help keep the money coming by inventing new fees, or making the older ones tougher to avoid. As I wrote in Don’t fall for these stupid credit card tricks, shorter grace periods mean more people miss payment deadlines and pay late fees. Many lenders have imposed cut-off times as well: If your payment doesn’t reach them by 1 p.m. on the due date, for example, you’ll pay a late fee. Some card companies lower your credit limit as you pay down a balance, making it likely that any new charges trigger over-limit fees.

All these fees will be outlined in those fine-print brochures your credit card companies send you. Your best strategy as a consumer is to read those disclosures, and institute the kind of credit card habits that will boost your credit score, as well as reduce the chances you’ll pay fees. Such as:

Pay on time. Pay your credit card bill as soon as it comes in -- in full if at all possible.

Watch your limit. Don’t charge more than 30% to 50% of a card’s limit.

Dispute fees. If charged a fee, call and ask the lender to waive it. You may not succeed, but many credit card companies will drop a fee rather than lose a good customer.

User fees

The federal government may be looking at a $1 trillion deficit over the next few years, but Uncle Sam isn’t the only one struggling to make ends meet. The recession and the stock market bust also blew big holes in many state and local governments. All together, state governments faced an $80 billion deficit this year and a total $200 billion cumulative budget gap since fiscal year 2001, according to the National Conference of State Legislatures.

Fees were the most popular way to bridge the gap. The states levied nearly $2.6 billion through more than 200 different fee increases, according to a conference survey. That compares to $1.8 billion raised through increased personal income taxes and $456 million through corporate tax increases. The most popular fee increases focused on:

* Health care: One example is increased fees for clinics.

* Motor vehicles: The tripling of the car tax in California helped lead to the recall of Gray Davis as governor.

* The courts: Revenue is generated through higher filing fees and other tolls.

Other targets include higher permit fees for hunting, camping, hiking and hazardous waste disposal.

User fees can be tough to avoid, so if you don’t like them, call your lawmakers and complain. Stealth inflation is harder to pull off when people notice and make their opinions known.

By the way, most of the price increases I’ve outlined are, in fact, stealthy only in the sense that consumers might not anticipate them. Most actually are reflected in the official measure of inflation: the Consumer Price Index maintained by the U.S. Bureau of Labor Statistics.

The exceptions:

Credit card late payments: The bureau has decided these are a form of interest payment, and the CPI doesn’t include interest.

Bad customer service: This one would be pretty hard to quantify -- how do you value a consumer’s time spent on hold, the cost of aggravation or the value of mistakes that rarely seem to be in the consumer's favor?

The bureau tracks the rest, from phone fees to hotel surcharges, by looking at a mix of what urban consumers actually spend. "We’re better than (critics) give us credit for," said Steve Reed, BLS economist. "People criticize us, and sometimes rightly so, but it’s not as if we haven’t at least thought about these issues."

I don't know about you, but I rarely travel - too expensive. so these costs listed above will mostly affect the business traveller, who can write off thises costs, or those who benefitted greatly from the Bush economic 'policy'. What about something that affects everyone?

Oil remains close to $40 a barrel - May 7 2004

Oil prices on Friday remained near their highest levels since the lead up to the Gulf war in 1990 on the fears of possible supply disruptions in the Middle East and the tight US gasoline market. June Nymex WTI gained 30 cents to $39.67 a barrel in electronic trade, after falling 20 cents in the previous session, having reached an intra-day peak of $39.97 a barrel - its highest level since touching $39.99 on February 27 last year in the lead up to the Iraq war.

John Snow, the US treasury secretary, said on Thursday that high oil prices were "not helpful" for US and global economic growth, and that the Bush administration would be concerned if Opec cut back on oil production. Mr Snow's comments echo similar comments made on Thursday by central bankers in Europe and Britain, who raised concerns about the inflationary impact of higher oil prices.

The Bush administration wants Opec to agree to produce more crude oil when the cartel assembles for its next meeting on June 3 in Beirut. Chakib Khelil, Algerian oil minister, said Spencer Abraham, the US energy secretary, expressed the US position in an hour-long meeting between the two that Opec should boost oil output. "We will convey that (US message) to the meeting of Opec and we will see how OPEC responds," Khelil told reporters after his meeting in Washington.

Maybe letting Rummy explore his torture fetish wasn't such a cool idea there, Dumbya. but then, you're so busy performing your own acts of torture that you wouldn't notice.

The wrong prescription - Medicare drug cards boost drug-makers' profits at seniors' expense - May 6, 2004

How long will it take for seniors to know they've been worked over? The Bush administration apparently hopes it won't be until after the election. But plenty of seniors are likely to find out before then that they've been fooled by the Medicare drug cards they could sign up for starting Monday. And they're likely to be more than disappointed when they discover the card plan is full of holes, and that taxpayers are paying $22 million for mailers and television ads touting the flimsy program.

An investigation by the General Accounting Office has already shown the first series of advertisements about the Medicare card to be incomplete and misleading. Now, the GAO is investigating newer TV ads to see if the government is guilty of "covert propaganda."

Why? These shameful versions pretend to be real news reports, complete with a fake reporter at a fake news desk who claims to be reporting "from Washington." The "reporter" puffs the so-called benefits of the plan, but hides the whole truth.

For instance: The 10 percent to 25 percent savings promised on brand-name drugs mean nothing, because there's no base price to measure the discount against. Drug companies -- the nation's most profitable industry -- have boosted prices far faster than inflation in a game of mark-it-up to mark-it-down. And the Bush plan prohibits any effort to make drug companies negotiate prices.

Seniors who choose a card plan based on prices and coverage are locked in for a year. But providers can change the prices and the list of drugs offered every week, leaving seniors stuck for the rest of the year. Many prices offered on the cards can be beaten at local discount stores, or through buying illegally from Canada -- if you dare.

Need more evidence of this drug-industry boondoggle?

Drug suppliers can secretly arrange and keep almost all the rebates on expensive drugs, making it more profitable for them to offer seniors the most pricey versions. That will boost -- not cut -- seniors' costs.

As for low-income Medicare users, getting certified as low income can be so cumbersome it's expected to eliminate more than half the 7 million who should qualify. Those who do make it will get the typically $30 card free. And they'll get $600 worth of drugs a year. But most don't know they'll still have to make co-payments on every purchase. And that $600 won't go far. While the average senior takes four long-term prescriptions, the card will pay for, say, less than 10 months worth of Lipitor, a cholesterol pill needed by millions.

On Wednesday, Republican governors of North Dakota, Minnesota and Vermont, along with the head of the CVS drug chain, asked the Bush administration to reverse that policy. But don't hold your breath. Since Congress began to consider Medicare changes 13 years ago, the drug lobby has kicked in $500 million dollars in political contributions to make sure any new legislation went their way. From the looks of the Medicare plan, they got their money's worth. And the nation's seniors are paying the bill.

So who are these high-rolling donors?

Discounts for Whom? When Bush donors win, senior citizens lose. - May 6, 2004

The Bush Medicare plan, passed by Congress and signed by the President at the end of 2003, hands "$46 insurance companies to keep them from leaving Medicare." [Campaign for Americas Future report] For their part, employees and political action committees of the 28 companies granted drug discount cards provided almost $275,000 to Bush’s campaign this election cycle. [Center for Responsible Politics Capital Eye, March 26, 2004.] These HMOs and insurance companies began competing to sign up seniors this week. [Medicare-Approved Drug Discount Card Savings Now Available, U.S. Department of Health and Human Services press release, May 3, 2004.] But the discount cards will not guarantee savings for seniors and have been widely criticized as inadequate., a website that tracks Canadian and American drug prices reported that "comparisons on five drugs showed Canadian drugs were still 44 to 78 percent cheaper than medicine available through the discount cards." [Thompson shifts on drug imports, Boston Globe, May 5, 2004.]

The following Bush fundraisers represent HMOs, insurance companies, or other corporations who will really benefit from the drug discount cards under the Bush Medicare plan [HHS Gives Seal of Approval to Medicare Drug Discount Cards, U.S. Department of Health and Human Services press release, March 25, 2004.]:

Bush Ranger Michael Hightower, the chief lobbyist for Blue Cross Blue Shield of Florida, has personally raised more than $200,000 for the 2004 campaign, [] and helped raise $1.4 million at a Tampa fundraiser last June. []

Service area for discount cards: Florida Bush Pioneer William McGuire, the CEO of UnitedHealth Group, has personally raised more than $100,000 for President Bush’s campaign. []

Service area for discount cards: National Bush Pioneers Todd S. Farha and David Hart are both executives at WellCare, and have both personally raised $100,000 for the campaign. [,]

Service area for discount cards: Florida and New York Bush Pioneer L. Ben Lytle is the presiding director of Anthem, which is scheduled to merge with WellPoint Pharmacy. Lytle raised more than $100,000 for Bush. [Center for Responsible Politics Capital Eye, March 26, 2004.]

Service area for discount cards: National It also should be noted that longtime Bush friend, David Halbert, is credited with drafting provisions of the Medicare plan. In addition to being a Bush donor dating back to the days of Bush’s Texas gubernatorial races, Halbert is the CEO of Advance PCS, which also received a discount card contract. He also was involved in the bailout of Harken Energy, Bush’s failed oil venture. [Center for American Progress, Progress Report, December 11, 2003. ]

Makes you wonder: With no mandate to pass along discounts to consumers, perhaps these cards should be called Drug Profits Cards.

So just how big an issue is this? Take a look at those not quite ready to retire - at any age:

Study: 20 million workers without health coverage - May 5, 2004

WASHINGTON (AP) - More than one in five working adults in Texas and five other Southern and Southwestern states don't have health insurance, a new study says. The study to be released Wednesday says nearly 20 million working Americans, many with families, are uninsured. More than a quarter of working Texans, 2.5 million people, have no insurance. Other states in which more than a fifth of the work force is uninsured are: Louisiana, Mississippi, Nevada, New Mexico and Oklahoma. In another 37 states and the District of Columbia, at least one in every 10 working adults is uninsured, according to the Robert Wood Johnson Foundation, which is leading a campaign to build support for expanding health coverage.

The study was led by researchers at the University of Minnesota's School of Public Health that analyzed data from the federal Centers for Disease Control and Prevention. Some other organizations involved are the U.S. Chamber of Commerce, the AFL-CIO and America's Health Insurance Plans.

The coalition sponsoring next week's activities, which includes health fairs and seminars, brings together groups often at odds with each other. They have pledged to set aside their differences to push for action on the issue. Organizers of the effort hope to alter public perception of health insurance as an issue that mainly affects the poor by emphasizing that the problem affects working families. "I think this puts a different face on the uninsured. When people have a sense that it is someone like my neighbor - or it could be me - it does give you a different political face to work from," said Mary Grealy, president of the Healthcare Leadership Council, an association of health care executives. Ron Pollack, president of Families USA, a liberal consumer group, said the focus is now on "self-interest as well as altruism." Many studies have found that people without insurance are less likely to see doctors, more likely to be diagnosed with illnesses late and report being in poor or fair health more often than those with insurance.

But unlike past attempts to extend coverage to everyone, getting more people insured has to occur in smaller steps, groups across the political spectrum say. The most likely place to begin is in trying to cover the 8.5 million children without health insurance, they say.

Former Presidents Jimmy Carter and Gerald Ford are serving as co-chairmen for Cover the Uninsured Week. A coalition of diverse groups, including business, labor and several health organizations, has come together to push the issue in 1,500 events next week. The campaign's organizers are pointing to 2005 - without the distraction of a presidential campaign - to press Congress to pass legislation to cover a chunk of the 43.6 million Americans who, according to the Census Bureau, lack insurance.

President Bush has proposed giving people tax credits to help them pay for insurance that they purchase on their own. Democratic presidential candidate John Kerry wants to extend health coverage to most uninsured Americans through a combination of insurance pools, tax credit and subsidies that he would pay for by raising taxes on the top 2 percent of taxpayers.

We can't raise taxes on the top 2%! They're already hurting! Look at what's happening to their investment portfolios!

Big profits fail to translate into market gains - 5/5/4

NEW YORK — Most U.S. companies are raking in big profits this year. Sadly, the same can't be said for most stock investors. Despite an improving economy and stronger-than-expected profit growth in the year's first quarter, the stock market has stalled. Stocks have been trading in a seesaw pattern most of 2004. The result: The market has been trapped in a narrow trading range, unable to add to last year's 26% gain. The gap between first-quarter profit growth posted by companies in the Standard & Poor's 500 index and the performance of the stocks themselves is glaring. Profit is up a robust 26.7%. Yet the index is up less than 1%. "The thing that really bothers me is we have had great-looking earnings, yet stocks are not rallying," says Price Headley, analyst at

Stocks are stuck

Despite stellar profit reports from Corporate America, the stock market is in a rut. Monthly returns of S&P 500-stock index:

Month = Pct. return January = 1.7% February = 1.2% March = -1.6% April = -1.7% YTD = 0.9% Source: USA TODAY research

The trouble is good economic news has been lost amid headlines about the threat of rising interest rates, Middle East unrest and the spike in inflation.

A tug of war is raging between bulls, who think a rebounding economy will trump all other worries, and bears, who believe there are enough negatives to limit upside potential for stocks. If the market is to break out, it must overcome a few key obstacles:

•Rising interest rates. Short-term rates set by the Federal Reserve are at 1%, a 45-year low. But not for long. Tuesday, the Fed hinted that it was getting closer to raising rates, but it stressed that the increases would be gradual. Rising rates create headwinds for stocks because higher borrowing costs crimp economic growth. Wednesday, the yield on the 10-year Treasury note ended at a 2004 high of 4.59% — up from 3.69% in March.

•Decelerating profit growth. Sure, profits jumped sharply in the first quarter, but bears stress that growth is slowing. The estimated 26.7% profit growth the first quarter is below the 28.3% growth in the fourth quarter of 2003, says Thomson First Call. Analysts expect the pace of growth to slow further. Profits are expected to grow 17.4% in the second quarter and 12.4% in the third quarter.

•Instability in the Middle East. Investors are closely watching Iraq. There is concern that if the situation deteriorates, it will hurt President Bush's re-election bid. Some investors worry that a Bush loss could jeopardize investor-friendly tax policies.

•Signs of a market top. In the past three months, sharp losses in shares of semiconductors, gold producers and interest-rate sensitive companies like mortgage lenders and home builders have masked deeper problems for the market, says Gary Kaltbaum of Kaltbaum & Associates. "This market can cave very easily," he says.

Might this report get the bears to stampeding?

Stocks retreat as politically charged job-growth report looms - May 7, 2004

Stocks closed broadly lower Thursday, as traders braced for Friday's scheduled report on job growth in April. Treasury securities eased in advance of the payroll report.

Economists on average say about 150,000 jobs were created last month, half the level reported a month ago for March, according to wire service surveys. Options trading on the number, sponsored by Goldman Sachs and Deutsche Bank, predicted 191,000 new jobs. The politically charged number will almost certainly move the stock and bond markets Friday if it strays too far from the consensus forecast in either direction. A number much less than 150,000 would fuel speculation that President Bush will not win a second term. A number much above 200,000 will stoke fears of inflation and higher interest rates.

And like a good neighbor, Greenspan is there.

Fed prepares the way for three more central banks to slowly raise rates - May 6, 2004

Washington - The US Federal Reserve held its benchmark interest rate at a 45-year low on Tuesday, but sent its strongest signal yet that a series of modest increases was all but certain to start within a month or two. The decision was the first in a crucial week for monetary policy, during which three other central banks - for the UK, the euro zone and Australia - will set rates amid a growing consensus that rates will have to rise across the world to counter inflationary pressures.

At its latest scheduled meeting, the US central bank's policy making Federal Open Market Committee left its target for the overnight federal funds rate at 1 percent, where it has stood since last June. But in an accompanying statement, the Fed indicated that the risk of deflation had virtually disappeared. Inflation was not yet a threat, but the stronger economy meant that "existing policy accommodation can be removed at a pace that is likely to be measured", the Fed said in typically convoluted style.

The decision had been keenly awaited after repeated hints that the Fed was limbering up to alter its stance on monetary policy.

Last week the International Monetary Fund revised its global growth forecasts up sharply and warned that interest rates must rise in "almost all countries". It specifically urged central banks to communicate their intentions to the markets as clearly as possible to avoid delivering a sudden shock, particularly to countries such as the US and UK with high levels of public and private debt.

The Fed's message to the markets was clear: rates will be rising, but in a gradual fashion. "This means an increase is coming relatively soon, sooner rather than later," said Alan Blinder, a former vice-chairman of the Fed.

"They've got to go a lot past 2 percent, maybe to 4 percent. But of course there's an election on the way."

And what do the investors feel about THIS move by the Fed?

U.S. 10-Year Treasuries Fall as Fed Sparks Inflation Concern - May 4

The 10-year U.S. Treasury note fell in New York after the Federal Reserve signaled it can raise interest rates at a ``measured'' clip, suggesting to some investors that the policy may lead to faster inflation. Fed policy makers dropped a pledge to be "patient," saying the economy is expanding at a "solid rate" and "hiring appears to have picked up."

"Inflationary pressures build as long as we have this emergency less-than-zero percent real interest rate," said Bill Gross, who runs the world's largest bond fund for Pacific Investment Management Co. in Newport Beach, California. The consumer price index rose 1.6 percent from a year ago in March.

Fed policy makers have cited sluggish job growth and slow inflation as the main reasons for keeping rates unchanged. Last week, the Commerce Department said a measure of inflation, the so-called price deflator, rose at a 2.5 percent annual rate, up from 1.5 percent in the fourth quarter and the fastest since mid-2001. "The problem is that if you pull up a variety of inflation-related charts, we really have a wall of price increases in front of us and somehow the markets need to sort of deal with that, "said John Poole, who manages $12 billion in bonds at Mellon Private Asset Management in Boston. "The fear is the longer they wait to take these measured steps the more they are going to have do and the faster they are going to have to do it."

Behind Curve

The Fed should already have raised overnight lending rates to nip inflation before it gets out of hand, said investors including Warren Buffett, the world's second-richest man, and Gross. The Fed last year cited concerns about deflation, or a general drop in prices, for lowering its target rate to a four-decade low of 1 percent. "They never should have lowered it to this emergency/deflation-prevention level," Gross said in an e-mail to Bloomberg News before the statement. The Fed should lift its benchmark rate to 2.5 percent and "should get there quick and not with baby steps."

Interest-Rate Futures

The prospect of higher rates makes yields on current debt securities less attractive. The yield on the 10-year note is up from 3.65 percent on March 17.

`Two Bugaboos'

The prospect of higher interest rates comes as the government is borrowing more money to finance a budget deficit that the Bush administration estimates will reach $521 billion this fiscal year, versus $374 billion last year. `The market is facing two bugaboos,' said Mellon's Poole. "Fiscal policy is still very loose and monetary policy is very accommodative. The Treasury market is going to continue to be under pressure."

Remember those old movies which showed two steam locomotives racing toward each other on the same track? Stay tuned!

COLLISION COURSE - Either the economy or federal deficits must giveMay 5, 2004

The signs of economic improvement remain strong. Federal Reserve Board Chairman Alan Greenspan said recently that the U.S. economy had entered a period of vigorous growth. The U.S. gross domestic product rose during the first quarter of this year at an annual rate of 4.1 percent, slightly lower than predicted but still strong for the world's largest economy. Second-quarter growth is likely to be 4.5 percent to 5 percent, with steady growth in the second half of the year. Stock markets are up. Factory orders in March were unexpectedly high. Productivity surges, helping to keep the price of U.S.-made products down, making them more affordable at home and competitive abroad.

The interest rate the Federal Reserve Board charges banks is 1 percent, the lowest since 1958. According to Greenspan, fears of deflation have dissipated, while the threat of long-term inflation remains low.

So what's not to like? Plenty, particularly in the out years following the November election.

Oil and natural gas prices hover near record highs. According to Greenspan and other analysts, high fuel prices could be a long-term or permanent condition, adding to the cost of most goods and services. With the rising demand for gasoline here and around the world (the average personal vehicle in America weighs two tons), refineries are running at full capacity. The summer driving season hasn't begun, so prices will rise further. One analyst predicted $3-a-gallon gasoline in some regional markets that require special blends. The prospect of continued high prices might make Houston's energy-related companies happy. Sustained high prices motivate more exploration and drilling, which would increase supply, tend to stabilize prices and slightly reduce U.S. reliance on foreign supplies. However, no matter what the price of crude, gasoline refinery margins are slender and profits too risky to encourage investment. If fuel prices rise too high, they could cause an economic downturn, harming both energy producers and energy consumers.

Among Greenspan's warnings is the one in which he frets that uncontrolled federal budget deficits will dampen U.S. economic growth. This year's federal deficit could top $500 billion. President Bush promises to cut the deficit in half over five years. Even if he makes his goal, a $250 billion annual deficit for one year followed by exploding deficits in succeeding years is not a prospect to inspire confidence. Bush might not succeed. The White House says Bush will ask $25 billion more for Iraq this year, and Bush has asked Congress to make the last round of tax cuts permanent. The United States' latest economic growth benefits from large tax cuts, deficit spending and real interest rates at zero percent. However, the Federal Reserve Board stated this week that "measured" interest hikes are coming. Rates for mortgages and consumer loans are rising in anticipation.

The U.S. trade deficit for 2003 was almost half a trillion dollars. Combined with the budget deficits, the imbalance could deter foreign investors from buying U.S. bonds, raising interest rates further and adding to the budget deficit in a vicious circle.

Fear has been known to do more damage to markets than any financial indicator. Unchanged, the United States' fiscal policy will provide plenty of reasons to worry.

There's no need to fear! EMMMMMperor George is Here!

Dubya's Installment Plan War - May 7, 2004

In a tacit admission that it had seriously underestimated the costs, the Bush administration has asked Congress for $25 billion to continue operations in Iraq and Afghanistan. And many in Congress believe that amount itself is a low-ball guess at the expense of funding the wars through the fall.

Originally, the White House had said the $87.5 billion Congress approved last November was enough so that it wouldn't have to ask for more money until at least after the presidential election this November. The urgency of the need for additional money was evident in the White House's willingness to ask for it at a politically awkward time, following allegations of the abuse of Iraqi prisoners, the high death toll among troops in April and the admission that it had also underestimated the number of troops it would need and how long it would need them.

The administration had hoped to be winding down past the 115,000 mark in Iraq at this point; instead, it announced it would be keeping over 135,000 there at least through the end of 2005.

If the timing was politically awkward, so was the White House handling of the request. The Democrats were left out of the closed-door meeting at which budget director Joshua Bolten and Deputy Defense Secretary Paul Wolfowitz presented the plan to congressional leaders. The president will get his money, but now the simmering Democrats will make him sweat for it.

Inevitably, congressional passage of the funding request will turn into a debate over Bush's handling of the war. And there are signs that lawmakers, while willing to give the White House the benefit of the doubt, will no longer simply rubber-stamp the president's requests for war funding. Indeed, the House Armed Services Committee is already drawing up its own plan for how the $25 billion should be spent.

At least there's none of the usual gimmickry about this request for supplemental spending. The money will simply be added to the $402 billion the administration asked for to fund the Pentagon through fiscal 2005, meaning the extra money will add to the budget deficit.

Many in Congress believe that the president will be back sooner rather than later to ask for more money and they are asking, which is only fair, that the president give them his best guess on when and how much. The White House has been notably terse about the cost and duration of operations in Iraq and Afghanistan.

Speaking of cost: The Congressional Research Service estimates that the $160 billion-plus spent to date is enough, even in inflation-adjusted dollars, for us to pay for both sides to refight the Civil War at least twice over.

I can see it now - They Blew and WE Pay!

But then, we can cover this extra expense, right? We'll just put in for over time.


Extra pay for extra work - May. 07, 2004

Handing the White House an unexpected defeat the other day, the Republican Senate voted to block rules that would take away eligibility for overtime pay from some workers now entitled to it. The Republican House should follow that splendid example. Otherwise, the regulations would go into effect, anyway.

Yes, one new rule would expand overtime eligibility among low-income workers. But that overdue change would still stand under an amendment approved by the Senate on Tuesday as a rider to a corporate tax bill. The amendment, sponsored by Sen. Tom Harkin, D-Iowa, would nullify only those rules that take away overtime rights.

The new rules raise the wage ceiling - from $8,060 a year to $23,660 - under which workers are automatically entitled to be paid at the rate of an hour and a half for every hour worked beyond 40 hours a week, no matter the nature of their jobs. That's a big increase, but only because the ceiling has failed to keep up with inflation since 1975, when it was last adjusted. In fact, the Bush administration's proposal falls short by about $4,400 in making up for all the erosion from inflation. Why not just link the ceiling to an inflation index, to keep the ceiling from falling so low again?

These flawed rules are nonetheless an improvement over last year's preliminary proposal, which ran into bipartisan opposition in Congress. Critics charged that the original would have taken away overtime from 8 million people, including police officers and firefighters. The Bush administration has failed to make the case for cutting back on the right to extra pay for extra work. And Labor Department press releases fail to explain why expanding that right to some workers should mean taking it away from others. The revision specifically includes those workers as eligible for overtime. The revision softens another change - the introduction of a salary floor, above which no worker would get a federally backed entitlement to overtime. The floor is now set at $100,000 a year, up from $65,000 in the preliminary version.

Still, enough Republicans balked out of a well-grounded fear that too many workers earning between $23,660 and $100,000 a year would lose their right to overtime. That fear should lead the House to balk, too.

So what do we do now - get a second job?

U.S. job worries over? Tell it to the unemployed - 05.06.04

WASHINGTON, May 6 (Reuters) - To hear U.S. President George W. Bush tell it, the long jobs drought is over. Economists, too, have shifted their focus from unemployment to inflation, convinced America's jobless recovery is ending.

But try telling that to Leonard Bedford, laid off last week after nearly nine years as a maintenance technician at AT&T in Conyers, Georgia. The 34-year-old father of two survived years of rolling lay-offs at the telecommunications giant, only to see his job cut just as analysts hail an economic revival. "They say the economy is doing well, but who's it doing well for? If I had a billion dollars and now I have a billion and a half dollars, oh yeah, it's doing well for me. But for that working American that makes $40,000 a year taking care of his family and being told he's being laid off, it isn't doing so well for him," Bedford said.

"Things are not getting better."

Republicans, bond traders and many economists took March's surprise 308,000 job gain and ran with it, declaring an end to the much-lamented jobs drought that has hobbled the U.S. economy since the 2001 recession. "The economy is strong, and it's getting better," election-bound Bush declared this week on a two-day bus tour to Michigan and Ohio, adding: "The job picture is improving ... Tax relief has made a difference to the economy." April's report, due on Friday, is expected to show another 173,000 jobs were created last month, notching the eighth consecutive month of growth.

But the hiring gains are cold comfort to the 8.4 million unemployed Americans, for whom the celebration is nothing if not premature. From the time Bush took office in January, 2001, through March, 2.4 million Americans joined the jobless ranks and 1.8 million jobs disappeared. The unemployment rate -- which had dipped to a three-decade low of 3.8 percent in 2000 -- steadied around 5.7 percent, down from a 6.3 percent peak last year.


Many factors have been blamed, from the movement of jobs to low-wage countries to higher productivity and the death of outmoded industries, particularly in manufacturing. While jobs are returning, economists say about 150,000 are needed every month just to keep up with labor force growth.

[This is the amount that economists are watching for as I write this - ed]

Bank One economist Diane Swonk said the unemployment rate will drop to about 5.3 percent this year, with 150,000 to 300,000 jobs created monthly. But she expects it to take until 2006 or 2007 before the jobless rate declines to the 4 percent range of the boom years. "We've got a long way to go to catch up on earlier losses. The good news is we are catching up, the trend is in the right direction," she said.

Still, for Americans like Harry Katopodis, laid off in December after 18 years with Northwest Airlines in Detroit, the only jobs that seem to be coming back are the low-wage ones. He was making more than $20 an hour when laid off from the ticket office, and scoffs at the suggestion real jobs are out there. "It's not picking up at our level. The jobs that they're talking about have to be lower-paying jobs because I search for jobs all the time and there's nothing -- not even a chance to go compete for a better-paying job," said Katopodis, a 50-year-old father of three.


On the outskirts of Atlanta, Bedford thinks he'll probably have to leave high-tech work behind, perhaps starting his own barbecue lunch business. "Most of those (new) jobs are at the mall, dealing with retail or sales. But when you start looking at some of the technical jobs, those jobs aren't growing. Those are the jobs they're sending overseas," he said.

What's more, many economists believe it may soon become even harder to find work as thousands of young workers return to the hunt after years on the sidelines waiting for the market to improve. "I think there are a lot of hidden unemployed out there -- they're called college grads," said James Glassman, senior U.S. economist at J.P. Morgan Chase. "They've disappeared because they grew discouraged or went back to school. As the job market improves, we're going to see people coming back in and we may not see the unemployment rate come down much," Glassman said.

For Katopodis, that means competing with his teenage son and daughter for employment this summer, even as he heads back to school for retraining as a teacher. "It's conceivable that I'll be in college at the same time as my kids ... accumulating student loan debts that I'm going to have to pay off while helping pay for my children's college," Katopodis said.

"I'm at the bottom again. After 18 years I topped out, and now I'm back at the bottom again."

So how is all of this wonderful economic news of George's playing in Peoria?

Bush Approval on Economy at Low Point - May 06, 2004

Economic Approval Rating

Overall, 41% of Americans approve and 56% disapprove of the way Bush is handling the economy -- the worst reading Gallup has measured in this Bush administration. In a late March 2004 poll, Gallup measured approval at 42%, identical to an Oct. 6-8, 2003, rating.

So why does Bush still enjoy so much popularity in the face of so much negative news?

Why Do You Support George?

I have a conservative friend. I pester her with the same nagging question every time we meet: "Do you still like George W. Bush? . . . Still?"

Can I help it? I honestly can’t fathom how a reasonable person could think positively of the man.

She explained to me that, while John Kerry is someone who understands the nuances of a situation, Bush is better suited to be president because he sees the world in black and white (or good and evil, Laverne and Shirley, etc.), and a president needs to be able to make quick decisions and stick to his judgments.

I think of it this way: You can go hunting with John Kerry and you might bring home a duck or two for dinner. On the other hand, Bush will shoot down a few hefty quarter-ton bucks, but after the smoke clears, you find out he also killed your dad. Whoops.

Bush is so skilled with decisions that he can make them in advance. When Tim Russert questioned him on "Meet the Press" about the pre-emptive invasion of Iraq, our decisive leader stressed that Sept. 11 changed the way America had to deal with the world. True, but according to members of his staff, he was preparing to invade Iraq as soon as he stepped into office — well before Sept. 11. Such clairvoyance.

I admit — I was gunning for the guy to trip up and look like his usual foolish self on that Feb. 8 interview. But good grief. I should be careful what I wish for. Bush seemed to have no grasp of any of the vital information that, by now, he ought to know like the back of his monkey. He performed so disgracefully that I felt embarrassed. And sad.

According to Richard Clarke, presidential briefs regularly pass through Vice President Dick Cheney’s hands before they get to the Oval Office. I’m not saying that Dick manhandles Bush’s tighty-whiteys, I’m saying that he’s the one who wears the pants in the relationship. But then when it comes to investigations, Bush and Cheney are like obnoxious bosom buddies in a backyard football draft. You can’t pick just one because they come "as a package."

The New York Times’ columnist David Brooks complained in a piece this week entitled 20 / 20 Hindsight that these backward-looking investigations are needlessly consuming too much of Bush’s vital time. (Don’t fret, Mr. Brooks. NASCAR season is in a lull right now.) Personally, I don’t mind Bush braking for investigations. I mean, he’s already taken more vacation time than anyone in the history of presidents. This fortunate son of sons likes to play cowboy for weeks at a time on his Texan mega-ranch. It’s not that he’s tough like a cowboy (though lying through the teeth is sort of tough); it’s that, like a lone ranger, he doesn’t keep friends. Cases in point: Paul O’Neill, Richard Clarke, Europe, Asia, 50 percent of the United States and that whore Mother Earth. If he can stop the executive clock for playing ranchero in the "Don’t Mess" state, then maybe he can take a breather for more important things.

First, he ought to go sip tea and eat cake with Queen Elizabeth II. The two could chitchat about life as figureheads without clout. Then they can invite an amorphous glob of wealthy energy execs and go splurge at The Cheesecake Factory, while Bush foots the bill with a campaign chest the size of his gall in cubits. After all, he won’t need the money for the election. Bush-lovers are the cheapest voters on the bloc and they come in three styles:

1) Those who ignore the news (like Bush). 2) Those who love the man unconditionally — no matter how far down the drain they ride (also like Bush). 3) Terrorists.

Seriously, why would terrorists want Bush out of office? They know that, in terms of inciting hatred for America, bin Laden is the chafing of the tag on a cotton T-shirt while Bush is the oozy discharge of fiery red hives from an intergalactic STD of the year 2099. And bin Laden doesn’t mind taking a backseat to non-imminent threats like Saddam Hussein.

Another task for Bush’s to-do list should be to buy the book Supporting Our Troops for Dummies.

Pardon my French, but that just ain’t his forte. He doesn’t support troops in post-service: In the heat of political battle, he releases his attack force of GOP loyalists to question the patriotism of honorable veterans like Max Cleland, John McCain, John Kerry and Wesley Clark (perhaps he’s just jealous). He doesn’t support troops during their service: He’s lowered the pay of the troops, extended their stays and still lounges lazily about while he ought to be swallowing his pride and amassing a real international coalition. He doesn’t support troops pre-service: When a commander in chief takes the country to war, he’s got some homework to do — assessing the situation, estimating the cost and devising some kind of optimal strategy to prevent the media from wearing out the word "quagmire."

But, in keeping with the low academic standards of his youth, Bush is satisfied with performance that will be lucky to get a "C" after grade inflation.

However, Bush does express his gratitude for the men and women of the armed forces. He says, "Every person willing to sacrifice for this country deserves our praise." Apparently he’s not on the list of people willing to sacrifice. Instead of doing his part to minimize the number of troops who make the Ultimate Sacrifice, he minimizes the number of troops whose coffins get their pictures in the newspaper.


Bush supports the troops in the same way I supported Alf on Halloween 12 years ago. Wide-eyed with delight, he puts on his fancy dress and rides on a great big aircraft carrier, throws a great big party and flies a great big banner declaring the great big mission "accomplished." A year later, the word "not" is beaten relentlessly into our already bruised brains — a cankerous racket of car bombs, firefights and insurgency ricochets off our foreheads nightly during the 10 o’clock news.

Ironically, if Bush, the guy who questioned the legitimacy of the United Nations for questioning the legitimacy of his intelligence, doesn’t win the presidential election in November, then he will have never won a presidential election.

I’ll vote to give him the time off.

As will I. Will you?

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