August 9, 2004
PROBLEM? IT'S A MIRACLE:
Admit We Have a Problem: While the president sings from his economic hymnbook,
American workers are hurting. (BOB HERBERT, 8/09/04, NY Times)
It's the strangest thing, in July 1996 the unemployment rate--in a nation enjoying a massive Peace Dividend--was 5.4% and it was cause for celebration and re-election of the president. But here we are in 2004 and--despite the uncertainty bred of terror, war, and financial scandal--the unemployment rate stands at 5.5% and that's supposed to be a crisis?
MORE:
Economy, Wall Street out of synch (TAMMY CHASE, 8/09/04, Chicago Sun-Times)
Banker Michael Allen has endured the tumultuous stock market of recent years by not dramatically changing his investments. He figures that at 38 years old, he's young enough to ride it out.Posted by Orrin Judd at August 9, 2004 11:03 AMBrian Farrell just quit a job at a mortgage banking firm because he was unhappy, and feels good that his accounting and finance background will land him work elsewhere.
And Josh Newman, a third-year family practice resident at Advocate Illinois Masonic Hospital, skips investing for now and has developed a successful side business of developing medical software that he says will make his life more financially and intellectually enjoyable.
These three Chicagoans are adapting to an economy that is starting to improve, although last week's economic reports of anemic job creation and retail sales in July suggest that recovery is coming in fits and spurts. Overall, however, the economy is improving: There have been 1.2 million new jobs created so far this year, after more than 2 million were lost in the previous three years. The unemployment rate fell to 5.5 percent in July, after hitting a recent peak of 6.3 percent in June 2003. Manufacturing has expanded, and growth in the nation's gross domestic product has picked up.
When will their investment portfolios, and those of other Americans, wake up and take notice of the economy's progress?
"I just looked at a statement today, and I was very [angry]," Farrell said with a laugh.
The stock market seems oblivious to the economic recovery.
There was an interesting piece on Hannity/Colmes on Friday night - they ran a quote by Gene Sperling (Clinton economic advisor) who said the figures in July 1996 merited Clinton's re-election. Those figures included (-)8000 jobs in July, a 5.6% unemp. rate, and economic growth of 4.5%. The Bush figures are (+)32,000 jobs, a 5.5% unemp. rate, and a 4.8% growth rate. One of the commenters called Sperling a hypocrite for attacking Bush now when Clinton's numbers were slightly worse. I thought it was a strong word to use, even on cable TV.
I think if the jobs number on Sept. 3 is close to or over 100,000 new jobs, the Democrats won't even want to be on TV that night.
Posted by: jim hamlen at August 9, 2004 1:56 PM"The stock market seems oblivious to the economic recovery"
Here we have ANOTHER farce. The stock market is influenced less by analytical logic than by emotion-influenced impressions("things are great ... or .... criminy, it's in a heap of trouble!")
There are still plenty of fools who think that 1998 and 1999 were great years for our economy. Here's how to put The Bubble into terms that individuals can relate to:
The Bubble was akin to a mistake that some college graduates make. A just-graduated person starts his first "real" fulltime job with one or two credit cards. If the job is typical for a college graduate, he's able to line up a few additional credit cards in the first year, and by the end of year two can have half-a-dozen or more, plus the initial cards by then have significant credit lines. By year four, life is great: new furniture, vacations to impress one's peers - by accumulating debt - and great plans are afoot for an even grander vacation and greater purchases in the years ahead. But late in the fifth year some credit cards "max-out" at their limit; year six is HELL as more and more credit availability is gone.
Now, was life great up until year six, then it became hell? No, things were a mess in years 4 and 5 when the person foolishly took on an unreasonable lifestyle. He foolishly believed that the short-term appearance of a great life did not have predictable consequences.
Similarly, the changes in the economy in 2000-2001 were only INDICATIVE of the mess of 1998-1999. Stories only occasionally appeared in 1998 and later: stories of how couples who had diligently managed their investments, became convinced by well-meaning friends that stock investment offered a killing(and the friends had PAPER reports of their portfolios as evidence.) When the couples ignored the long-held guidelines on portfolio profiles, their concern was not about the safety of such a porfolio profile - - no, the concern was that they had waited too long to get into the stock market in a big way - - instead of a 300% return on investment, they would see ONLY a 200% return!
This is why things were a mess long before purchases declined and stock prices fell. The stock market mistake was MORE predictable than the college graduates' mistake - - stock prices take a drop repeatedly in a person's lifetime; the college graduate hasn't seen this situation before.
Back in 1998 I drove 100 miles to a specialty woodworking store in Louisville, KY. When they heard where I lived they readily said that they would have another store in Lexington, Ky - - quite closer to my home. At the time I considered this a totally unreasonable business plan, because this type of specialized business ought to have stores in, say, Lousville, St Louis, Chicago(maybe 2 stores) Indianapolis, Cincinnati, Nashville ... that widely dispersed, not 90 miles apart as Louisville & Lexington. The late 1990s Bubble led to a host of similarly unreasonable 5-year business plans.
Today's pessimistic market stems at least in part upon an aversion, which is grounded in unreasonable caution. This is consistent with the unreasonableness(in the other direction) of The Bubble. The stock market is influenced less by analytical logic than by emotion-influenced impressions.
Posted by: LarryH at August 9, 2004 7:21 PM