You certainly wouldn’t
think so by listening to the media. Twin deficits, a falling
dollar, continued struggle in Iraq, higher oil prices, interest
rate hikes, a bubble brewing in the housing market and President
Bush re-elected. The media can even twist the positive outlook
for holiday retail sales by speculating that those rosy sales
will head south in January. Makes some want to leave the country.
Where have these people been the last four years? We survived
a vicious attack by terrorists, and we survived a dramatic
stock crash. The recession ended three years ago (November
2001). Someone forgot to tell the media.
In the last four years, real GDP has grown 10% and is fast
approaching $11 trillion. Growth in GDP advanced at a 3.9%
rate in the last quarter. Productivity has surged 15.3%. Corporate
profits have surged 44% to $1.15 trillion. Two million new
household jobs have been added since the end of 2000, and
2.2 million new payroll jobs have been added in the last fifteen
months. More than 70% of families now own their own home,
more than ever before. Yes, oil prices are higher than ever
(but not at the gas pump), but they have dropped dramatically
in the last week. Much of the rise in oil prices has been
the result of speculators. We expect oil prices to trade between
$40-$50 a barrel. OPEC recently stated that they would like
to see a floor on oil at $40 a barrel. However, we are much
more energy efficient than we were during the last oil crunch
(mid 1970s), and new technology is being developed to make
us even less dependent on oil. Yes, Iraq is still a struggle,
but democracy is taking hold and eventually will make the
Middle East a much safer place. We are strangling the terrorists
financially, and their threat will lessen. Yes, health care
costs are rising, and this is a problem that needs to be addressed
and will be addressed in the next four years and beyond. Throughout
all of this, inflation has remained tame. Productivity gains
have resulted in lower costs for other items and continue
to raise the standard of living in America. Hey, the Red Sox
won the World Series. Anything can happen, and the future
is bright. Michael Moore even appeared on the Tonight Show
clean shaven and wearing a suit and tie.
And the French now love us. Clara Gaymard, France’s
ambassador for international investment, stresses the USA
is “our biggest market, our first market.” The
French government states that the USA is the leading investor
in France, and they want to build on that. They hope to upgrade
their anti-business, low tech image. Skeptics such as author
P. J. O’Rourke wonder aloud whether a country that rhymes
with underpants can really persuade US CEOs to open their
pocketbooks.
Here come the Chinese. Lenoro (Chinese PC manufacturer) recently
made a bid to purchase the personal computer business from
IBM. Shades of the late 1970s early 1980s when Japan was buying
up America. Then later they were selling America back to Americans
and at a loss. Deja vue all over again? Most Chinese companies
are operating at a loss already, and with a 1% profit margin
in the PC business it appears that IBM will come out ahead
in this deal.
The Fed meets again on December 14, and it looks like another
twenty five basis point hike in the Fed funds rate. That will
further flatten the yield curve as long rates are not likely
to rise that much if at all. That also means mortgage rates
will stay low. The pessimists are looking for a collapse in
the dollar because of our escalating foreign deficit and domestic
budget deficit. We went through this in the late 1980s early
1990s when many books were written on our impending doom.
We expect a gradual decline in the dollar and an equal gradual
rise in interest rates. This will result in a cooling off
in the housing market but not a collapse. We always seem to
be walking the tightrope between boom and bust, but overall,
the Fed has done a good job keeping our balance. Incidentally
Alan Greenspan will be retiring within a year, and President
Bush will have to recommend a replacement. Sort of like replacing
Lou Gehrig in terms of longevity. Who did replace Gehrig by
the way?
Who’s your daddy? Microsoft shareholders just received
$32.5 billion. Some of this will be reinvested in the economy,
some to pay bills, some for saving and some for holiday shopping
and beyond. All in all, a good stimulus for the economy. Poor
Microsoft. They will only be left with $32 billion in cash
reserves. In the meantime, Trump Casino has filed for bankruptcy.
Who would you rather have as a mentor – Bill Gates or
Donald Trump?
May we extend to you our best wishes for a joyous holiday
season and may the new year be filled with health and happiness.
Random thought for December 2004:
Remember this holiday season that every time you lick a stamp
you are consuming 1/10th of a calorie.
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