PODCAST-TRANSCRIPT-WEEKLY-UPDATE-2009-MARCH-27 (FRANCONOMICS.COM)
7 million jobs being lost per year, Government plans to create $3.5 million, what about the other 50%?
In major news, new home sales were down 41.1% year over year for the month of February, and the median price of a purchased new home fell 18.1% to $200,900. Seven states have unemployment rates in double digits as of February, up from four in January. Amongst stock markets, the dow closed up 6.84% or almost 7% week over week, even though from its all time highs, it was still down more than 45%. In tandem, gold fell from 957 to 921 dollars per ounce. Also, Obama invited top bankers to the white house, and his administration had GM’s CEO Rick Wagoner fired.
Let’s take a Franconomic view of the stock markets. Some markets rallied this week, and some did not. Dow Jones shot up almost 7% week over week, and India’s SENSEX shot up 12% week over week. However, China’s Sanghai Sensex was only 4%, and PAri’s CAC 40 was up less than 2%. All these markets are down compared to their peaks: Dow is down 45%, India down 52%, China down 60%. And France’s Franconomy, as represented by the CAC 40 index, is down amost 54% from its peak. So, while the Bear rally continues, stock-market investments are still half their valuations. But if you bought gold or its equivalents when gold was below 921 dollars per ounce, you are still winning on Gold.
Now to Obama and his administration’s effectiveness or lack thereof … It muscled out Rick Wagoner, the Chairman of GM. However, it remains to be seen if Obama & company will be able to muscle anything out of the tough union leaders and the GM workers who enjoy juicy compensation packages compared to their Honda and Toyota counterparts. The problem that GM, and if I may add, Ford and Chrysler have is generational. When the Detroit trio decided to make cars whose parts would last only so long before breaking down, so that they could make more money off the American consumer by selling replacement parts, they made a strategic blunder --- in came the Japanese with cars whose parts don’t break down. And now Americans say: don’t buy that Chevy man? Why, well, Chevrolet. It is a piece of junk. Keeps breaking down. In other words, the United States Treasury can’t keep paying these employees of GM and Chrysler high salaries for producing junk any more. These are tough economic times, and we need tough measures…A major overhaul of the UAW is needed, their multi-million dollar camapaign contribution to the Obama election campaign not withstanding.
Continuing the good news about the government’s actions, it came as a breath of fresh air when Hillary aired views in Mexico that America’s insatiable desire for drugs is to blame for the Mexican drug-gang killings. May be it is time the government considered making Marijuana legal for everyone over forty, for example. After all, you can get it practically anywhere in the US, albeit, illegally. So, why should poor Mexicans die because we want to indulge in pleasures insatiable? Also, What would be really nice is if America could also acknowledge the great contribution of legal and illegal Mexican workers who do the tough jobs that we don’t want to do: cherry pick, toilet clean, baby sit, car wash, furniture lift, etc.
Now, let’s turn the radar on the bad news. Now, seven states out of 50, which amounts to almost 15% of the country, have jobless rates over 10%: Michigan ...12% South Carolina ...11% Oregon ...10.8% North Carolina ...10.7% California ...10.5% &Rhode Island ...10.5 %, and the great Silver State of Nevada is at 10.1%. It is not as if the government is not aware that we are losing 7 million jobs a year. So, when they claim to add 3.5 million jobs through government related programs, they are probably leaving the other 3.5 million for us to create, may be? Now, how do we do that? Something to think about, don’t you think?
Housing also continues to deteriorate. Housing starts declined 41.1% in February, compared to February of last year. If you think the finacial wheelers and dealers and Bernie madoffs were the only ones who defrauded the gullible American, think again. Everywhere we looked, the media put a positive spin to the dismal housing start numbers. New home construction jumped 4.7% in February, to an annualized rate of 337,000; compared to January numbers. This is great news, considering that economists had expected new home sales to decline to a rate of 300,000 annualized units. Now what is wrong when you publicize bad economic data like this. First, the expectation of economists that housing starts for February would be only 300,000 annualized is as self-serving as the mutual fund industry trying to put an industry benchmark which is lower than the stock market return. Now, I bring this simile to prove a point. When I was a student at MIT Sloan School, someone from the mutual funds industry was visiting. I asked him a tough question: why should the average investor put money in a mutual fund when 3/4th or 75% of the funds trailed the market. He said, actually as per our benchmarks, only 2/3rd trailed the benchmark, so 1 in 3 funds is actually beating the benchmark. I had kept quite then, for my friends were trying to get jobs with the company. But you listeners get the point, don’t you. The mutual fund industry deliberately set a benchmark which was lower than the average stock market return. Actually, only 1 in 4 funds was beating the markets, but 1 in 3 was beating the benchmark. Similarly, these economists, who predicted, for whatever reasons, that housing starts would be 300,000 units annualized, predicted wrong. May be they deliberately predicted low. And cheered that wow, the actuals were better than the predicted. After all, I don’t blame these economists, they also need a job like the mutual fund manager.
In last week’s podcast, we have given a somewhat detailed breakdown of who is buying how much of the bad debts, as Obama and Geithener and Summers and Bernanke try to keep the financial ponzi schme, which is respectfully called the capitalistic, but ill-capitalized, banking and finance industry of America, to which everyone seemingly ooks with awe, going… In that podcast, we also pointed to the fact that the likes of John Thains who bought multi-million dollar carpets and who paid multi-million dollars in bonus to the top executives actually got the money to indulge in these excesses from us, the taxpayers. How, for John Thain’s Merrill Lynch got $6.8 billion from AIG, and could not have gotten that had AIG been allowed to fail. And Goldman got $12.9 billion, it is the most prestigious investment bank, and it claims that if AIG would have neen allowed to fail, they would have still managed to get that $12.9 billion from somewhere else. We at Franconomics.com disgree. This needs to be investigated. And these multi-million dollar bonuses need to be pulled back. Folks, the bankers keep looting you and me, in the name of meritocracy and capitalism. We at Franconomics.com think this is robbing of the gullible middle-class American by the elites, and the rich, and the wealthy. Inviting these bankers to the White House, as Obama did, is not the solution. Firing the CEOs of Bank of America, and Goldman, or what have you, who received the bailout money, or the derivatives thereof, could be a solid first step. Just as Rick Wagoner was fired, fire these greedy scoundrels. Only by letting go of these parasites can real people get a chance to run these financial institutions, and by real people, we mean Americans who are better educated, but not as politically savvy may be, to climb the corporate ladder, and who as Ph.D.s are currently drawing unemployment. We need honest people at the top, and not smooth talking, but greedy pigs, whom we call bankers. We at Franconomics.com really feel sorry for America, the land of opportunities. And we promise to bring out in more and more detail how the taxpayer dollars are being gobbled up as the value drain or robbing of the unemployed, foreclosed, and forlorn American in the name of Capitalism and Free Market Finance and Meritocracy and Reform continues.
OK, this brings us to the end of this weekly update. Our next weekly update will be available after end of business Friday. Thank you for listening, and I am Sam Mishra, your Economics podcaster from Franconomics.com.
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