The Big Picture | March 2004

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Outsourcing May Create U.S. Jobs

Wednesday, March 31, 2004 | 02:56 PM

From today's WSJ:

"U.S. companies sending computer-systems work abroad yielded higher productivity that actually boosted domestic employment by 90,000 across the economy last year, according to an industry-sponsored study.

The analysis, one of the few that attaches detailed dollar values to offshore outsourcing's costs and benefits, was conducted for a coalition of business groups working to combat a growing backlash on Capitol Hill and in statehouses against the loss of U.S. jobs.

Expected to be released today, the study's premise is that U.S. companies' use of foreign workers lowers costs, increases labor productivity and produces income that companies can use to expand both in the U.S. and abroad. It was commissioned by the Information Technology Association of America, an industry membership and lobbying group, which hired the economics consulting firm Global Insight Inc. of Lexington, Mass."

I believe it is both economically incorrect -- as well as a losing argument -- to focus on outsourcing as the primary culprit for the lack of job creation. Either you believe in global trade (as I do), or you don't.

On the other hand, there's nothing wrong with removing the incentives that encourage additional outsourcing. From a tax and regulatory perspective, it should be a level playing field without additional hurdles to creating jobs in the U.S.

When you see that actual numbers involved, they are relatively small. There are other, more significant issues impacting job creation; We will address them shortly.

MORE JOBS

Estimated new U.S. jobs created from outsourcing abroad, according to an industry study

	2003	2008
Natural Resources & Mining	1,046	1,182
Construction	19,815	75,757
Manufacturing	3,078	25,010
Wholesale Trade	20,456	43,359
Retail Trade	12,552	30,931
Transportation & Utilities	18,895	63,513
Publishing, Software & Communications	–24,860	–50,043
Financial Services	5,604	32,066
Professional & Business Services	14,667	31,623
Education & Health Services	18,015	47,260
Leisure, Hospitality & Other Services	4,389	12,506
Government	–3,393	4,203
Total Employment	90,264	317,367

Source: Global Insight and North American Industry Classification System

Source:
Outsourcing May Create U.S. Jobs
Higher Productivity Allows For Investment in Staffing, Expansion, a Study Finds
MICHAEL SCHROEDER
WALL STREET JOURNAL, March 30, 2004; Page A2
http://online.wsj.com/article/0,,SB108060509775368478,00.html

Outsourcing creates jobs, study says
Industry report says offshore outsourcing will boost economic growth, lower inflation, create jobs
March 30, 2004: 3:53 PM EST
http://money.cnn.com/2004/03/30/news/economy/outsourcing/index.htm

Nader's contributors are GOP members

Wednesday, March 31, 2004 | 11:30 AM

in Politics

On several occasions, we've noted that Nader will have a significant, perhaps decisive impact on the 2004 elections.

Apparently, we were not alone in this assessment. The Dallas Morning News reports that "Nearly 10 percent of the Nader contributors who have given him at least $250 each have a history of supporting the Republican president, national GOP candidates or the party, according to computer-assisted review of financial records by The Dallas Morning News."

Let me add that this is their right -- anyone can contribute to more than one candidate. What this actually confirms, however, is that other people share our analysis regarding Nader's impact. And, they are voting with their dollars, in a way that benefits the incumbent, not the challenger.

Amusingly, Nader has "won Ben Stein's money." Stein is a television personality and outspoken advocate for the Republican Party, who has "contributed $500 to Nader and $1,000 to Mr. Bush this year. Records indicate that over the last decade, Mr. Stein has given exclusively to the GOP." Stein made TV ads for Mr. Bush in the 2000 election, but they never aired.

via Joe Hills Dispatch

Source:
GOP donors double dipping with Nader
Contributors deny that financial support is designed to hurt Kerry
Wayne Slater
The Dallas Morning News, March 26, 2004
http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/032704dnpolnader.11e3e.html

Resolving the Controversy between Payroll and Household Surveys

Tuesday, March 30, 2004 | 09:29 AM

in Finance

The Bureau of Labor Statistics weighs in on what should be a thoroughly resolved debate: Which is the more accurate and reliable measure of Job creations, the Payroll or Household Survey?

Economists Arnold Kling and Steve Antler both referenced a recent Bureau of Labor Statistics analysis (BLS) on the divergence between the payroll survey and the household survey of employment. The BLS observed:

"As part of its annual review of inter-censal population estimates, the U.S. Census Bureau determined that a downward adjustment should be made to the household survey population controls. This adjustment stemmed from revised estimates of net international migration for 2000 through 2003. In keeping with usual practice, the new controls were used in the survey starting with data for January 2004. Estimates for December 2003 and earlier months were not revised to reflect the new (lower) population controls.

...As a convenience to its data users, BLS created a research series that smoothes the level shifts in employment resulting from the January 2000, 2003, and 2004 population control adjustments."

-Bureau of Labor Statistics

It is somewhat perplexing to see controversy still dogging this statistical oddity.

Federal Reserve Chairman Alan Greenspan has noted that the Payroll survey is much more reliable than the household survey:

"I wish I could say the household survey were the more accurate,'' Alan Greenspan, the Fed chairman, said in his testimony at a House hearing on Feb. 11. "Everything we've looked at suggests that it's the payroll data which are the series which you have to follow.''

That hasn't stopped several economists – arguably with political agendas from claiming the divergence between the two surveys is understating the strength of the economy.

As if Fed Chair Greenspan didn't resolve the issue in his recent statements, the BLS itself has now weighed in. As these following charts make clear, when the household survey is "modified to make it more ‘similar in concept and definition’ to the payroll survey," the divergement all but disappears.

The BLS did this by subtracting from the Household Survey:

1) Total agriculture and related employment;
2) Self-employed, unpaid family and private household workers;
3) Workers absent without pay from their jobs.

BLS then added back in non-agriculture wage and salary multiple job holders.

The use of the broader standard (including farm and unpaid family workers) is what apparently created the divergement, as shown by the Green lines.

Using data "similar in concept and definition" to the Payroll Survey eliminates the phantom missing jobs, as seen in the 10-year chart below:

Household and Payroll Survey employment,
Seasonally Adjusted, 1994-2004

Source: Bureau of Labor Statistics, March 5, 2004

Note the shift moving the Green line (Household Survey, unadjusted) to its new position – the red line (Household Survey, adjusted).

The BLS notes (in 10 year chart above, and 3 year chart below):

“The household series presented here has been smoothed for population control revisions. The "adjusted" household series has been smoothed for population control revisions and adjusted to an employment concept more similar to the payroll survey. Shaded area indicates recession.”

When the same statistical approach is applied to a more recent chart, the discrepancy between the two surveys again disappears:

Household and Payroll Survey employment,
Seasonally Adjusted, March 2001 - February 2004

Source: Bureau of Labor Statistics, March 5, 2004

Conclusion:
We believe the comments of the Federal Reserve Chairman Alan Greenspan, when combined with the March 5, 2004 Bureau of Labor Statistics release, has now once and for all, turned the Household/Payroll Survey discrepancy into a “non-issue.”

The argument that the Household Survey more accurately reflects Job creation has been thoroughly discredited. Employ it at your own risk.

SOURCES

Bureau of Labor Statistics
http://bls.gov/

The Two Employment Surveys
Arnold Kling
The Library of Economics and Liberty, March 14, 2004
http://econlog.econlib.org/archives/000420.html

Reconciliation of household and payroll employment surveys
March 13, 2004
http://www.econopundit.com/archive/2004_03_01_econopundit_archive.html#107920944640841377

Explaining the Recent Divergence in Payroll and Household Employment Growth
Chinhui Juhn and Simon Potter
Federal Reserve Bank of New York, December 1999
http://www.newyorkfed.org/research/current_issues/ci5-16.pdf

Two Tales of American Jobs
Edmund L. Andrews
New York Times, February 22, 2004
http://www.nytimes.com/2004/02/22/business/yourmoney/22view.html?ex=1392786000&en=aa5435f109953342&ei=5007&partner=USERLAND

Bureau of Labor Statistics report, March 5, 2004
http://www.bls.gov/cps/ces_cps_trends.pdf

BLS report, March 5, 2004
http://bls.gov/news.release/empsit.tn.htm

Employment Situation Explanatory Note
http://bls.gov/news.release/empsit.tn.htm

DVD rentals: $1

Tuesday, March 30, 2004 | 07:10 AM

in Music

We've previously made the argument that DVDs are a much better value for consumers; that 2 hours of audio and video, plus a wealth of special features offers more entertainment bang for the buck than 45 minutes of audio only. Its been our view that DVDs have been cannabilizing CD sales.

Now comes another economic assault on high priced CDs: $1 DVD rentals. A company called DVD Station has set up kiosks in retailers such as Altitunes (located in a few dozen airports) offering DVD rentals for the low low price of one dollar a day.

That's right, $1 per day. This is their ordinary price, and not a promotion or special.

It makes a whole lotta sense once they reach a critical mass in airports: Pick up a DVD at your departing airport, watch it on your laptop while you fly, return it when you land at the next airport. For a buck. Maybe Jet Blue or some other airline will buy them.

As far as CDs are concerned, this is a bad thing. Any discretionary entertainment offering which competes with CD sales at a lower price point ultimately pressures the music sales, while indirectly referencing the artificially inflated prices of CDs. This is yet another example of the music industry getting outflanked in the battle for the consumer's entertainment time and money.

One cannot help but be amazed at the mismanagement the industry has inflicted upon itself.

DVD Station's background can be found here.

CDs or DVDs: 2 for $25

Tuesday, March 30, 2004 | 06:45 AM

in Film | Finance | Music

Altitunes is a Music retailer located almost exclusively in airports. Not exactly the most competitve of retail spaces -- captive audience and all that.

The one non-airport location is Grand Central Station -- right across from my office. I walk by it a few times aweek. Their latest promotion is 2 CDs or DVDs for $25.

This may not be the best pure sale prices -- Target regularly runs $7.99 CD and $9.99 DVD sales, and this week, Best Buy is advertising a "3 DVDs for $20 sale."

But it points out an interesting conundrum facing the music industry: The competitve pressures they have been facing from the Film industry are actually increasing.

If DVDs -- with 2+ hours audio/video, plus many extra features, interviews, fan items -- can be sold at the price point of 3 for $20, then why can't CDs? Even if the BestBuy promotion is a loss leader (I'm not sure it is) -- there is something unequivocally broken about the CD pricing model.

Rally Follow Up

Monday, March 29, 2004 | 02:25 PM

in Finance

In our view, the internals of Thursday’s rally were noteworthy: Nasdaq was up 3%, the largest percentage gain since July 7, 2003. Volume also rose 7%, to 1.97 billion shares, which was the first substantial gain on higher volume since January. Even more impressive, in our opinion: the advance/decline stats (2.78 : 1) and up/down volume (13 : 1) indicate a substantial amount of buying, following last Monday’s substantial amount of selling. That is indicative to us of a change in sentiment from extreme fear to a more Bullish levels.

The rally was followed by a low volume pullback Friday. This was not at all unexpected, and indeed, suggests a healthy bit of fear. Today’s follow through, while nice, may not be what is often called a Reversal Confirmation Day. It is widely ascribed to IBD publisher William O’Neill, who has tracked reversal rallies for over 30 years. In O'Neill’s opinion, a reversal that sticks will be followed by a confirmation day: a 1-2% increase in the major indexes on greater than average volume.

But here’s the rub: O'Neill states these confirmation rallies must occur on the 4th thru 10th day after the initial up session. I have no idea why this is, but it is hard to argue with O'Neill’s 30-year history of correlated statistical evidence. Days 4 thru 10 start Wednesday, March 31st and run to Thursday, April 8th.

To reconfirm our Bullish leanings, we will be watching several specific factors over the next few weeks:

1) Confirmation day mentioned above;

2) Internals, which have weakened during the sell off of the past 10 weeks. We want to see the internals re-assert themselves as the markets move back towards their January highs;

3) Resistance in the form of overhead supply; How resilient markets are as they approach these levels will provide insight into how renewed buyer’s appetites are for accumulating equities;

4) Market reaction to news is also worth watching. This includes both geopolitical news (i.e., terrorism), pre-announcements, and earnings releases;

5) Equity Fund Inflows were dramatically lower in March than January. It would bode well if these revved up again.

These factors should provide insight into how the market will behave as it approaches recent highs. We will be watching for divergences, and will keep investors abreast as things progress over the next four weeks.

Chart of the Week: % of NYSE Stocks at 30 Day Highs

Monday, March 29, 2004 | 11:11 AM

in Finance

Looking at the issues on the NYSE (stock only) at 30 day highs, we find similar readings to the 2002 and 2003 lows. This confirms our previous oversold/bullish readings of last week. As the markets build on their bounce off the 200-day moving averages, we expect more movement back up before down.

% of NYSE Stocks at 30 Day Highs

Source: Technimentals

Technimental’s Kevin Lane notes: “We would expect the market to try and retest recent highs given these oversold readings. We will see if internals re-assert themselves or stay weakened, relative to their recent high readings. Lower readings on a test would set up for a classic breadth divergence and lead to a bigger correction than what we recently witnessed.” We agree.

Random Items:
S&P to float-adjust its indexes
Shifting Opinions On Iraq
WHY ARE GAS PRICES HIGH AND RISING?
The ripple effect of prices at the pump
Is Condi The Problem?
Graphical History of Baseball

Quote of the Day:
“Little minds are tamed and subdued by misfortune; great minds rise above them.”
-Washington Irving

*Programming note

Monday, March 29, 2004 | 06:24 AM

in Weblogs

I believe we've beaten Geopolitics to death for now. I'd like to give it a rest --at least for a while.

With your kind indulgence, I'd like to focus this week on two relevant issues: 1) the Labor and Jobs market; and 2) the wholly unrelated but fascinating issue of the Music/Film industry's economic claims.

If you want an overview, here are most of the posts in each category:

• Politics

• Music

• Film

There's a typepad glitch I'm trying to have fixed -- any post labelled with multiple categories does not show up this way (but should). Hopefully, we will have this fixed soon . . .

4 Year Cycle

Sunday, March 28, 2004 | 07:27 AM

in Finance | Politics

The S&P 500 overlayed against each President's term, 1949 -1996

As this chart makes clear, the beginning of a President's term is often the worst for the markets. That's because all newly elected Presidents want to get the painful economic medicine down, and pray for a full blown expansion, oh, say around re-election time. This is not per se bad or evil, its simply Human nature -- ignore it at your own financial peril.

We've done a lot of commentary on Politics and the market the past few weeks. I'm ready to move that to the backburner for a while -- at least until the next major poll or interesting issue arises.

The election is still 8 months away; Pace yourselves!

This week, I plan on focusing on some interesting Job Creation issues I've been playing with. Also, in light of some absurd new proposed legislation, I'd also like to resurrect our analysis on the Music Industry, and how they are actually killing themselves.

Barron's picks up "Geopolitics Ate My Portfolio"

Saturday, March 27, 2004 | 06:42 AM

in Finance | Politics

Our somewhat snarky comments from Thursday, "Geopolitical Tensions Ate My Portfolio," got picked up by Barron's. Heady company too -- Leuthold Group, Morgan Stanley, Goldman Sachs. (Not too shabby -- I'm humbled).

The analysis, the writing process, is a reward in itself -- no, really, it is -- but its always nice to have the work validated by people who's opinions you respect.

Now if I can only get Kudlow to see the inherent flaws in the Supply Side argument . . .

Source:
Was Thursday's Rally a One-Day Wonder?
Eric J. Savitz
Barron's, MONDAY, MARCH 29, 2004
http://online.wsj.com/barrons/article/0,,SB108034671358166825,00.html

How Governments Manipulates the Economy

Saturday, March 27, 2004 | 01:24 AM

in Finance | Politics

More good stuff from the nonpartisan Stock Trader's Almanac :

Bull markets tend to occur in the third and fourth years of presidential terms while markets tend to decline in the first and second years. The "making of presidents" is accompanied by an unsubtle manipulation of the economy. Incumbent administrations are duty-bound to retain the reins of power. Subsequently, the "piper must be paid," producing what we have coined the "Post-Presidential Year Syndrome." Most big, bad bear markets began in such years-1929, 1937, 1957, 1969, 1973, 1977 and 1981. Our major wars also began in years following elections-Civil War (1861), WWI (1917), WWII (1941) and Vietnam (1965). Post-election 2001 combined with 2002 for the worst back-to-back years since 1973-74 (also first and second years). Plus we had 9/11, the war on terror and the build-up to confrontation with Iraq.

Some cold hard facts to prove economic manipulation appeared in a book by Edward R. Tufte, Political Control of the Economy (Princeton University Press). Stimulative fiscal measures designed to increase per capita disposable income providing a sense of well-being to the voting public included: increases in federal budget deficits, government spending and social security benefits; interest rate reductions on government loans; and speed-ups of projected funding.

Federal Spending: During 1962-1973, the average increase was 29% higher in election years than in non-election years.

Social Security: There were nine increases during the 1952-1974 period. Half of the six election-year increases became effective in September eight weeks before Election Day. The average increase was 100% higher in presidential than in midterm election years.

Real Disposable Income: Accelerated in all but one election year between 1947 and 1973 (excluding the Eisenhower years). Only one of the remaining odd-numbered years (1973) showed a marked acceleration.
These moves were obviously not coincidences and explain why we tend to have a political (four-year) stock market cycle.

Under Reagan we paid the piper in 1981 and 1982 followed by eight straight years of expansion. However, we ran up more deficits than the total deficits of the previous 200 years of our national existence.

Alan Greenspan took over the Fed from Paul Volker August 11, 1987 and was able to keep the economy rolling until an exogenous event in the Persian Gulf pushed us into a real recession in August 1990 which lasted long enough to choke off the Bush re-election effort in 1992. Three other incumbents in this century failed to retain power:
• Taft in 1912 when the Republican Party split in two;
• Hoover in 1932 in the depths of the Great Depression;
• Carter in 1980 during the Iran Hostage Crisis.
Bill Clinton, warts and all, presided for two terms over the incredible economic expansion and market gains of the nineties. Mr. Clinton was keen to have former Goldman Sachs chief, Robert Rubin, run the treasury for a stretch, helping his administration create a smooth and beneficial relationship with Wall Street, Main Street and the Fed.

As we go to press [August 2003] George W. Bush is fresh off success in Iraq and focused intently on stimulating the economy and the stock market. Major tax cuts have already passed including a bone to Wall Street in a dividend tax cut. Pre-election year 2003 is delivering as promised with strong market gains after a recession and war plagued 2001-2002. Though no strong Democrat has come forward yet, Mr. Bush will have to do all he can to avert economic set backs and market declines as the election approaches.

Interesting stuff. Its amazing how ALL Presidents, regardless of party affiliation, go therough the same process. From day one, they are all thinking about the same thing: re-election. It gets reflected in the stock market's reactions to their policies . . .

Source:
Stock Trader's Almanac 2004

INCUMBENT VICTORIES VS. INCUMBENT DEFEATS

Friday, March 26, 2004 | 02:22 PM

in Finance | Politics

After yesterday's rant about idiotic single issue analysis re: elections, I did a little more digging into the issue. I came across an interesting take on elections and the market from the nonpartisan Stock Trader's Almanac .

Their annual diary should be on every trader's desk. (Disclosure: I've contributed several pieces to Almanac, and know Jeff Hirsch, who runs the shop with his dad, Yale.)

In the past, I've shown charts overlaying the Market's performance versus the Presidential cycle. Its pretty reliable. Here's the Stock Trader's Almanac take on the issue:

Since 1944 stocks tend to move up earlier when White House occupants are popular but do even better in November and December when unpopular administrations are ousted.

click for larger chart

Actual percent changes reveal that March, June, October and December are best when incumbents stay in power and February, July and September are the worst when they are removed. Ironically, November is best when incumbents are ousted and second worst when they win.

Other interesting tidbits: there were no major losses in October (1984 off fractionally) and only one in March, June and December when incumbent parties retained the White House; Republican wins in November resulted in total gains of 19.7% (excluding no-decision 2000); Democratic victories produced total gains of 2.7%; however, Democrats “gained” 15.6% in December, the Republicans 4.7%.

Fascinating stuff . . .

UPDATE: I've gotten several emails on this, and a few readers misconstrued my meaning. A brief clarification on the causality of incumbency losses and the markets:

Whe an incumbent loses, for the most part, its nearly always a reflection of a weak economy. For Bush I, it was a recession (which in actuality had ended 6 months before the election); For Carter, it was runaway inflation (though Americans held hostage in Iran didn't help); Hoover, it was the Great Depression.

The economy often starts doing better after an incumbent with a lousy record of managing the economy because of a rise for a variety of reasons. After a dud President gets booted, there are immediate benefits. A fresh start is often a good thing; Some optimism about a change for the better starts creeping in.

But very often, merely anticipating a reversal of bad policies generates a good market.

UPDATE: April 17, 2004: 7:26am
Here's an interesting quote on the subject from Ned Davis Research (Barron's Interview)

Q:If we have a Democratic president elected this fall, what should we expect from the market? A: "The stock market has actually done better under Democrats than it has under Republicans. Even better than a Democratic president has been gridlock. The explanation for that is neither party can do too much damage and it's just checks and balances. I'm not sure that a Kerry victory is really going to shock the market, especially because the polls now show he has got a chance. And it is still going to be a Republican Congress. In 1960, we had a bouncy first part of the year and then the market rallied in the middle of the year. When it looked as if Kennedy had a chance, the market went straight down until the election and then headed straight up for the next 12 months. It had totally discounted that a guy with the initials JFK from Massachusetts would win. That could be a pretty good pattern for what might happen if Kerry wins. Election years are normally bouncy early in the year and then the market takes off. From August to November there is a very dramatic difference if the incumbent wins or the incumbent loses. If the incumbent wins, it goes straight up. When the incumbent loses, the market goes down. In August, after the conventions, you can make a pretty good bet on the stock market. If it looks like Kerry is going to win, the market is going to go down after August."

Source:
Stock Trader's Almanac 2004

Geopolitical Tensions Ate My Portfolio

Thursday, March 25, 2004 | 12:50 PM

in Finance | Politics

With apologies to Dave Callaway of CBS Marketwatch, whose title I have shamelessly stolen

It’s never the news, but the reaction to those headlines which is so telling as to the present health of the Markets. Since Monday’s drop, when the up down volume on the NYSE was as much as 12 to 1 negative, the markets have been acting much better - despite the negative headlines.

Shaking off the discovery of a terrorist bomb planted under train tracks outside of Paris, the Nasdaq managed to close positively (the Dow seesawed all day, ending up in the red). Today, the markets shrugged off an FBI warning to petrochemical plants along the Gulf of Mexico via the Texas Coastal Regional Advisory System.

Indeed, the ongoing tendency to grossly oversimplify the ups and downs of the markets has been in full view. Terrorism is the headline story, but over the years, we’ve borne witness to far too many artifices in the employ of elucidating why markets may be up or down at any instant. Feeble attempts to explain every jag and twist earns our derision - deservedly so - on a regular basis.

So you could imagine our derisive snickers at the embarrassing tendency to blame ascending or falling Presidential candidates as an underlying cause of market moves. It is with bated breath that I await someone’s - anyone’s - tortured explanation of the market’s move off of the lows this week.

Richard Clarke - a 30-year career bureaucrat and anti-terrorist czar who had worked under four Presidents - made devastating accusations in a 60 Minutes interview Sunday night. It’s the most damning indictment of the incumbent in an already bare-knuckled political race, and has dented the President’s re-election campaign.

If you follow the analytical absurdity, the market should be sinking ever lower, as the incumbent got (unfairly?) knee capped by a formerly trusted employee. Yet the markets powered higher, as the 9/11 panel drew front page coverage and was the lead story on the evening news .

Won’t one of these armchair political analysts please explain this to me?

The reality is that markets do what they do regardless of these externalities. When they are technically weak, when sentiment is too extreme, they are vulnerable to dislocations, be it terrorist attacks or nattering nabobs; When sentiment is moderate and funds enjoy positive cash inflows, markets shrug off bad news. It’s just that simple.

Chart of the Week: NYSE Specialist / Total Short Ratio

Thursday, March 25, 2004 | 11:35 AM

in Finance

Another sentiment indicator turns Bullish: the Specialist to Public Short Ratio (60 year chart), is at a levels which in the past have been associated with intermediate lows.

Ratio: NYSE Specialist / Total Short Ratio

Source: Investech Research

Specialists themselves may not be bearish, but often turn out later to be right because the public or the "crowd” was wrong. In declining markets, it’s the public who is doing the selling (and shorting) and the specialists who must buy to maintain an orderly market - even if they are not bullish at all.

Random Items:
The myth about risky cyclical stocks
A Year After Iraq War
The Outsourcing Bogeyman
American vs. European Welfare
Geopolitical tensions ate my portfolio
Easy Al's 1% Wonder

Quote of the Day:
“The CROWD is always wrong at market turning points but often times right once a trend sets in. The reason many market fighters go broke is they believe the CROWD is always wrong. There is nothing further from the truth. Unless volatility is extremely low or very high one should think twice before betting against the CROWD.”
-Shawn Andrew, Ricercar Fund

More on Gas Prices

Thursday, March 25, 2004 | 09:33 AM

in Finance

Source:
Bush concerned about high gas prices
12:49 PM PST on Wednesday, March 24, 2004
Associated Press
http://www.king5.com/business/stories/NW_032404BUBbush_gas_pricesJM.b89487fb.html

Budget Deficits and a Weak Job Market

Thursday, March 25, 2004 | 06:57 AM

in Finance

The latest National Association for Business Economics (NABE) survey came out last night. Not surprisingly, the major concerns are deficits and lack of job creation:

"Soaring budget deficits and a sluggish job market are the main threats to the economy this year, while possible terrorist attacks are a continuing worry, according to a survey of business economists released Thursday.
Most of the 203 members of the National Association for Business Economics, responding to the March 1-5 poll, said global competition was not hurting the economy, despite attention to "outsourcing" jobs abroad. More than 60% said free trade was having no impact on jobs, 31% called the effect small and 9% said it was a significant problem.

Seventy percent in the business economists' poll said Fed policy was about right. But those worried it is too stimulative rose to 28% from 9% last March. About half said rates should rise in the next six months, and 77% wanted tighter federal budget policy."

Note that the poll was conducted prior to the Madrid bombings. That may have impacted terrorism sliding from the number one concern in 2003 to #3 this year.

Source
Economic poll points to deficits, job woes
Sue Kirchhoff
USA TODAY, Posted 3/25/2004 12:15 AM
http://www.usatoday.com/money/economy/2004-03-25-econ_x.htm

Additional Poll on Florida's Cuban voters:

Wednesday, March 24, 2004 | 09:06 PM

in Politics

Yet another Poll on Florida's Cuban voters:

The President's approval rating amongst Hispanics in Florida is somewhat higher than it is nationally -- but not by much, according to a recent survey by tv channel Univision. This demographic, in this crucial swing state, is yet another element in a race that appears far closer than anyone had expected but a few short months ago.

"The survey shows that more than one-third of South Florida Hispanic voters -- a group consisting primarily of GOP-leaning Cuban Americans -- disapproves of the job the president has done ''promoting democracy and regime change'' in Fidel Castro's Cuba."

Source: Univision-Channel23, via Miami Herald

I hasten to add that the survey data on these polls -- performed by television channels as opposed to professional opinion takers -- my have a lower degree of reliability than say a Zogny or a Pew poll. Regardless, it raises some fascinating questions.

Source:
Some South Florida Hispanics unhappy with Cuba policy
Peter Wallsten
Miami Herald, March 02, 2004
http://www.ledger-enquirer.com/mld/ledgerenquirer/news/nation/8086253.htm

Cuban Voters in Florida Wavering in Support for President

Wednesday, March 24, 2004 | 09:04 PM

in Politics

We had previously discussed that Arab American voters, supporters of Bush in 2000, were abandoning the President in key swing states.

A parallel situation has been developing amongst Cuban-American voters in Florida, according to a recent survey of 1,807 Cuban-Americans conducted Jan. 30 through March 16 by Florida International University in partnership with the South Florida Sun-Sentinel and NBC 6, and included registered voters and non-voters. It has a margin of error of plus or minus 2.4 percentage points:

"A recent poll of Cuban-Americans in Miami-Dade and Broward counties, only 58.4 percent of registered voters said they would definitely or probably vote for Bush in November. About one-quarter said they were undecided, with the rest saying they probably would not or definitely would not vote to re-elect the president . . .
Several silver linings for the White House are found in the poll results. Bush's support is strongest, between 63.1 and 66.1 percent, among Cuban-Americans who arrived in the United States before 1975. That group includes older exiles who are more likely to vote. Interviews with respondents showed that many still feel Bush is their best alternative."

The situation, from the incumbent's viewpoint, is somewhat worrisome: This time, there is no "Elián factor to draw angry Cuban voters into the GOP fold;'' From little Havana's point of view, this race will be fought on the incumbent's record. And while the President is very likely to win over a majority of Florida's Cuban voters, it may not be an overwhelming majority:

"Democratic Party strategists now believe that if Sen. John Kerry can raise the Cuban exile vote for his party to 25 percent or 30 percent -- a realistic goal, considering that President Bill Clinton got 36 percent of the Cuban exile vote in 1996 -- he could carry Florida, and get a good shot at winning the national election. After all, Bush won Florida by only 537 votes in the past election, they note.

Miami Herald columnist Michael Putney thinks the number scould be even more severe:

"Recent polls say that President Bush is in trouble with Cuban-American voters. The polls are interesting but fairly meaningless: The Cuban vote is Bush's to lose. My gut feeling is that this November, as in 2000, Bush will get most of it. The only question is: Will he get 80 percent, as he did four years ago, or about 60 percent, as a new poll indicates? The difference could swing the election in Florida."

Consider that Florida has over 400,000 Cuban-American voters. If Putney is correct -- if the President takes "only" 60% of the Cuban American vote, versus the 80% four of years ago -- that represents a potential swing of 80,000 votes.

Putney also observes that Bush's problem with Cuban-American voters is "one largely of his own making. He is the victim of rising expectations, which he is responsible for raising. Like every Republican since Ronald Reagan, Bush has come to Miami numerous times and thundered, "Cuba, sí; Castro, no!'' But after four decades of such talk, Cuban Americans want to see some action."

When I tell you this race gets more interesting by the day, I am not fooling around . . .

UPDATE: April 27, 2004 11:58am
Slate has an interesting follow up: Kerry's Cuban Problem
http://slate.msn.com/id/2099513/

Sources:
Cubans’ support for Bush declines, South Florida poll shows
By Rafael Lorente
Sun-Sentinel March 21 2004
http://www.sun-sentinel.com/news/local/southflorida/sfl-acubapoll21mar21,0,2025102.story

Cuban-American vote is Bush's to lose
Michael Putney
Miami Herald, Mar. 24, 2004
http://www.miami.com/mld/miamiherald/news/columnists/michael_putney/8261171.htm

Bush, Kerry will fight for Cuban-American vote
Andres Oppenheimer
Miami Herald, Mar. 11, 2004
http://www.miami.com/mld/miamiherald/news/world/americas/8156676.htm?template=contentModules/printstory.jsp

Elian swings Cuban voters back to GOP
After backing Clinton, Cuban-American voters are ready to punish Democrats for the Gonzalez situation
David Adams
St. Petersburg Times, November 5, 2000
http://www.sptimes.com/News/110500/Worldandnation/Elian_swings_Cuban_vo.shtml

Kerry's Cuban Problem
By Ann Louise Bardach
Slate, April 26, 2004, at 3:32 PM PT
http://slate.msn.com/id/2099513/

Electoral Race still tight

Wednesday, March 24, 2004 | 04:18 PM

in Politics

The race remains extremely tight, with Nader polling greater than the difference between Bush and Kerry' Support remains "fluid;" An AP poll found that "fewer than 30 percent of voters say they are strong supporters of each candidate."

"Both presidential candidates have been working hard to turn the campaign debate to their strongest subjects — national security for the Republican incumbent and jobs for Kerry, a Massachusetts senator. Jobs are the top issue as far as voters are concerned, according to the poll, with national security trailing by about 15 percentage points.
After two weeks and tens of millions of dollars spent on negative advertising by both campaigns, little has changed in the basic landscape of a tight presidential race, the poll found. Bush was backed by 46 percent of voters, Kerry by 43 percent and independent Ralph Nader by 5 percent, according to the poll conducted for the AP by Ipsos-Public Affairs."

The AP-Ipsos poll of was taken between March 19-21 -- before Richard Clarke's 60 Minutes revelations Sunday night.

Sources:
AP/Ipsos Poll: Bush Vulnerable On Jobs, Kerry Weakest On National Security
Public Release Date: March 24, 2004
http://www.ipsos-na.com/news/pressrelease.cfm?id=2093

Chart
http://story.news.yahoo.com/news?tmpl=story&u=/040323/480/nyet26003232138

What's pressuring gas prices?

Wednesday, March 24, 2004 | 05:25 AM

in Finance

Terrific center page pullout in Newsday (which I do not regularly read) looking at what's causing gasoline prices to rise. Prices now average $1.77 a gallon. (Some predictions are for $3+ by this summer).

What's causing the spike in crude prices are a combination of factors, beginning with rising demand and tight supply around the world.

Here's Newsday's look at "potential choke points in the pipeline"

1. WELLS Oil flows from wells in the United States or abroad, through pipelines or via tankers to refineries. Transport takes about a week from Venezuela, two weeks from North Sea or Africa, 45 days from Middle East. The price can change while oil is in transit.
PRESSURE POINTS
Restricted supply. OPEC had planned to cut production by 1 million barrels a day April 1 to keep prices high but officials from two member countries, Quatar and Venezuala were quoted as saying that the cut might be postponed. OPEC also is attempting to crack down on "cheating" by member states but experts expect cheating to continue amid temptation of high prices.

Rising international demand. The United States remains the world's biggest energy consumer, accounting for a quarter of world consumption. But China's usage has nearly doubled since 1990, thanks to its growing economy.

Unstable imports. The United States has become increasingly dependent on imported crude oil and finished products from unstable areas of the world. Imports accounted for just over half of total needs in 2002, and are projected to reach 70 percent in 2025.

Iraq's cutbacks. Although Iraq production has rebounded to its pre-invasion level, it still is well below its peak during the 1990s.

2. REFINERIES
The refining process takes a few hours, then anywhere from several days to more than a month for shipment to storage terminals on the East Coast, depending upon whether the refinery is in the Northeast, Gulf Coast or abroad.

PRESSURE POINTSCapacity shortage. At 16 million barrels per day, U.S. capacity is about two million barrels per day lower than 20 years ago. Many small refineries closed during the 1980s because they couldn't meet new federal and state environmental regulations. That shortage, in turn, has required importing of more finished products such as gasoline, which, because of transit time, makes it more difficult to respond to spot regional shortages. Some offshore refineries cannot produce gasoline that meets the latest U.S. environmental requirements.

3. DISTRIBUTION
From U.S. or offshore refineries, gasoline is shipped to terminals by pipeline for longer distances, taking three to five days; by tanker if coming from offshore; and unloaded at tank farms in New York Harbor or on Long Island.

PRESSURE POINTS
Environmental rules. Increasingly stringent federal and state laws enacted since 1990 require 16 types of gasoline of each octane level. They vary seasonally and regionally, and thus cannot be used to alleviate local shortages. New this year are national requirements for lower sulfur and bans in California, New York and Connecticut of MTBE, a clean air additive now believed polluting groundwater. Ethanol is being substituted for MTBE, but a different type of gasoline using more crude oil is required to accept the ethanol. Summer gasoline is more difficult and expensive to produce with ethanol instead of MTBE.

4. THE PUMP
Despite rising prices, an improving economy and warming weather are increasing consumer demand.

PRESSURE POINTS
Consumer demand. Despite conservation efforts since the first oil shock of the 1970s, U.S. demand for petroleum has risen steadily, by 35 percent since 1975. The main reason is fuel economy of cars and trucks. Average fuel economy of vehicles has been dropping almost every year since topping out at 25.6 miles per gallon in 1991 because of the popularity of sport utility vehicles and other light trucks. Average was 25 mpg last year, a slight increase from 2002 as smaller, more efficient SUVs grew in popularity.

Tax breaks for guzzlers. Under tax relief law signed by President George W. Bush last year, business owners and the self-employed can deduct the purchase of many full-size SUVs, pickups and vans costing up to $100,000. The limit had been $25,000.

Good stuff from Newsday . . .

Source:
The Fold: Rising Gasoline Prices
By Tom Incantaluop
Newsday, March 23, 2004
http://www.newsday.com/mynews/ny-i3719932mar23,0,1347112.story

Gas Pains

Wednesday, March 24, 2004 | 05:24 AM

in Finance