Totally Growth’d Out

With the American economy (gross domestic product) contracting at an annual rate of 6.1% according to our first quarter reports from the Department of Commerce, and Europe tracking an annualized GDP contraction of 10% according to the European Union’s statistical bureau, Eurostat, it seems that the big missing ingredient from the “greater economic plan” is consumers.

The U.S. depends on consumer-level activity for 70% of its economic activity, and while bear markets gyrate and commodities brokers bet against the dollar, the basic underpinning of any reversal in economic flow, consumer spending, is still falling, along with employment numbers. Western consumers (at least the ones who are still working) seem to be increasing their savings rates and “postponing what you may want to buy today to sometime in the distant future.” We’re beginning to sound more Asian than Asia.

It hasn’t been this bad since The Great Depression. But as I’ve pointed out before, the “great economic driver” – China – is also the great provider of rapidly accelerating consumer buying power. Strange that this fearsome net exporter of gigantic proportions, this accumulator of global resources and buyer of global technology, is also the most like supplier of at least the first significant reversal in consumer demand. More importantly, despite claims that American companies can never survive and prosper in a xenophobic market that only protects itself, the numbers strongly suggest otherwise.

The May 14^th Wall Street Journal stated that while financial giant Citigroup’s failures in the United States – based on the stress test analysis – mandated $10 billion of additional capital, her China operations did very well, noting that Citi’s “net income in China jumped 95 percent in 2008 to the equivalent of $191 million, helped by a 20 percent rise in commercial foreign-exchange transactions.”

Newsweek’s Daniel Gross, in a May 14^th article entitled Kentucky Fried China, provides a litany of American success in the Peoples Republic:

1. “Wal-Mart, for example, had 246 stores in China as of March 31, serving just 7 million Chinese customers weekly…”

2. “In April, GM sold 173,007 vehicles in the U.S., down 34 percent from April 2008. The same month, GM's China sales jumped 25 percent to a record 151,084.”

3. “YUM Brands, the parent of Pizza Hut, KFC, Taco Bell and Long John Silver's. Last year, YUM's restaurant count in the U.S. was basically unchanged. But its China unit, which comprises mainland China, Thailand and KFC Taiwan, opened 500 new restaurants and tallied operating profits of $469 million. With 2,980 restaurants and a new outlet opening almost every day, Yum Brands says KFC is the ‘largest and fastest growing restaurant chain in mainland China today.’”

Our exports to China are still relatively meager compared to China’s exports to us: we only hit $5.5 billion in March, but the first quarter of 2009 showed a 25% increase in American sales there. As China transitions from a nation of savers and exporters into an economy of consumers (in 2007 they saved 50% of their income), in significant part to make up for the decline in their exports (down 22.6% in April, and her sales to the U.S. measured from the first quarter of 2008 to the first quarter of 2009 were down 10.8%), that pent-up buying potential represents a ray of hope … salvation if you will… to Western nations mired in economic muck.

Hard to picture the great isolated China of the 1960s and 70s, the sworn enemy of the United States, now being one of the most critical ingredients to our survival and future economic growth. The symbiotic relationship, which will most definitely have its ups and downs, is the cornerstone of global economic recovery. Who woulda thunk?

I’m Peter Dekom, and I approve this message.

260 Degrees of Separation

As the economy contracts the tax base and puts pressure on social services, suggestions that Medicare is on a track to run out of money in eight years and that Social Security will not be able to handle the load after 2037 (2020 for disabled Americans), spending more money than it takes in by 2016, seem to produce two completely different responses. For Republicans in Congress, the Medicare failure simply points out that the government cannot administer a healthcare plan that works. Democrats respond that this is a problem that will be subsumed under the eventual imposition of universal healthcare, a government-administered healthcare plan that is essential.

As healthcare providers at all levels pledge voluntarily to reduce medical costs by over $2 trillion over the next few years, that promise… or the hope that medical costs will voluntarily reduce at all after decades of cost increases that have uniformly exceed general annual cost-of-living statistics… is generally met with skepticism on both sides of the aisle. According to the May 13^th Washington Post: “Administration officials said that if Congress were to act immediately, the impending gap could be filled three ways: by raising workers’ Social Security payroll taxes by 2 percentage points, from 12.4 percent to 14.4 percent; by reducing benefits by 13 percent; or a combination of the two approaches. The officials briefed reporters on the condition of anonymity on the technical aspects of the trustees’ findings.”

Government funding is a pretty sensitive topic these days, coupled with exchanges over the failure of regulation. Funds spent under the Bush-era TARP program have created mixed results (I’m being kind) under any analysis, and the harsh reality is that under Obama’s American Recovery and Reinvestment Act (the big stimulus package), despite a pledge to roll out $500 million of the total expenditure level in the first two years and the very obvious struggle of states and cities to tackle budget deficits with lots of cutbacks, to date, albeit between 80-90 days of the bill’s passage, only 6% of that sum has actually been released.

For Republicans not currently holding office, including former House Speaker Newt Gingrich, there is a greater willingness to accept the mistakes of the past. The May 13^th thDeal.com says this about some of Mr. Gingrich’s opinions expressed at recent business conference in Las Vegas: “[E]liminating Glass-Steagall, the Depression-era law that sundered [separated] investment and commercial banking, may have been a mistake… Asked what he thought of legislation sponsored in 2000 by [Republican] Sen. Phil Gramm to bar regulation of derivatives, Gingrich said simply, ‘I don’t.’”

For Republicans holding office, seemingly bereft of a clear identity of what they stand for, the current practice of opposing any major economic policies (and many foreign policies) proposed by the Obama administration has become a boring mantra, more an example of former Republican Vice President (under Nixon) Spiro Agnew’s “nattering nabobs of negativism” than anything else. Without a genuine voice to create constructive criticism from a position of being the “loyal opposition,” the GOP seems to be hell-bent on marginalizing itself as the party of the extreme and the privileged few.

The disharmony between expectations and reality, what is possible and what is actually done, the prognostications of our near term “bottoming out” versus the slow reset we are witnessing, the hope of government “fixes” versus the battles over every single suggestion, the need to change versus the desire to retain old practices, proposals for solutions consistently greeted by Republican knee-jerk rejection without implementable alternatives and the efficiency of common sense versus the reality of bureaucratic implementation have all combined to drag out a seemingly interminable process toward find economic stability.

The true test of leadership, from all of our elected officials, is whether they can, notwithstanding those barriers, generate a truth path that will “get us outta here” sooner rather than later. We Americans are less enthralled with the flash of peacock feathers than we are with the way we are going to survive and thrive in our new and scary future.

I’m Peter Dekom, and I approve this message.

War is Heck!

The leaders of the 20 most powerful economic nations on earth – the G-20 – met in early April to reassure the world that they were committed to quashing the ugly specter of “protectionism” demanded by the constituents of these economically beleaguered states. In attendance, President Obama dutifully echoed the chorus of keeping our borders opens to normal trade. The economic powers continued to support the World Trade Organization and its numerous international treaties and restrictions against trade barriers, unfair internal governmental subsidies and protectionist tariffs. Simply “we” weren’t going “there.”

But chants of “buy American!” echoed across the land, finding particular resonance in our rust belt, slammed with unemployment. Even our President suggested that “buying American” was somehow patriotic. But the government also knew that if this “patriotic” move were interpreted as “protectionism,” a pretty natural interpretation of some provisions of the American Reinvestment and Recovery Act (the “stimulus” bill), American businesses trying to operate overseas would face some stiff retaliation if not outright exclusion; our exports could be toast and international branches of American business could find themselves marginalized if not boycotted. The net cost to the U.S. of such trade wars could in effect hurt us far more than any seeming benefits from buying American.

Local populism continued to rise. Companies were threatening to fire employees who drove “foreign” cars to work, even if those cars were actually made by American works in U.S. plants. While foreign policy matters and international economic policies are relegated to the federal government, corporate practices and the policies and procedures of states and municipalities are harder to regulate through the arbitration proceedings under the WTO. And Americans are finding ways to get around those restrictions, but they are also seeing “retaliation” and outrageous at an intensely personal level.

The May 15^th Washington Post provides this stunning example: “Ordered by Congress to ‘buy American’ when spending money from the $787 billion stimulus package, the town of Peru, Ind., stunned its Canadian supplier by rejecting sewage pumps made outside of Toronto. After a Navy official spotted Canadian pipe fittings in a construction project at Camp Pendleton, Calif., they were hauled out of the ground and replaced with American versions. In recent weeks, other Canadian manufacturers doing business with U.S. state and local governments say they have been besieged with requests to sign affidavits pledging that they will only supply materials made in the USA.

“Outrage spread in Canada, with the Toronto Star last week bemoaning ‘a plague of protectionist measures in the U.S.’ and Canadian companies openly fretting about having to shift jobs to the United States to meet made-in-the-USA requirements. This week, the Canadians fired back. A number of Ontario towns, with a collective population of nearly 500,000, retaliated with measures effectively barring U.S. companies from their municipal contracts -- the first shot in a larger campaign that could shut U.S. companies out of billions of dollars worth of Canadian projects.”

If that doesn’t floor you, try this further example from the Post, and ask yourself how the Americans who thought their jobs were being rescued by a foreign investor have to feel: “Duferco Farrell Corp., a Swiss-Russian partnership that took over a previously bankrupt U.S. steel plant near Pittsburgh in the 1990s and employed 600 people there… The new buy American provisions, the company said, are being so broadly interpreted that Duferco Farrell is on the verge of shutting down. Part of an increasingly global supply chain that seeks efficiencies by spreading production among multiple nations, it manufactures coils at its Pennsylvania plant using imported steel slabs that are generally not sold commercially in the United States. The partially foreign production process means the company's coils do not fit the current definition of made in the USA -- a designation that the stimulus law requires for thousands of public works projects across the nation.

“In recent weeks, its largest client -- a steel pipemaker located one mile down the road -- notified Duferco Farrell that it would be canceling orders. Instead, the client is buying from companies with 100 percent U.S. production to meet the new stimulus regulations. Duferco has had to furlough 80 percent of its workforce.”

In all of this, there is a huge missing component: common sense. Maybe tinged with a failure to understand the immediate consequences of such actions coupled with a complete misunderstanding of the long-term realities that such trade wars inevitably spawn. Individual companies and sets of workers often cannot visualize how their “micro” action could actually have devastating “macro” consequences for the entire country.

Our government leaders, bound by international treaty, equally must be cognizant of both their obligations under law and their need to show leadership, explain consequences and create laws and regulations consistent with that mandate. And we need this effort NOW, before the retaliation creates massive blowback against our workers and businesses. Knee jerk reaction to populist sentiments will allow circumstances that future populist sentiments will rail against – a threat of ever escalating trade wars. Leadership means exactly that – lead, explain and generate followers. It doesn’t mean “follow the follower.”

I’m Peter Dekom, and I approve this message.

If You Pollute, Will They Prosecute?

There has always been a battle between environmental purists and big business over the “cost” of environmental pollution. What’s a life worth, or the quality of living versus shutting down a big industrial polluter and killing jobs or imposing expensive emissions restrictions that make a U.S. company totally uncompetitive in a global market?

Federal air quality statutes date back to the 1960s with tons of new laws and amendments ever since. Odd that the statutory roots of what we call “cap and trade” pollution policies (which allow companies either to meet legal pollution limits or pay for the right to pollute by buying and selling so-called “carbon credits” – pollution “permits,” if you will – on the open market) were developed during the George H.W. Bush Presidency to deal with the battle between smoke stack industries and the decimating impact of acid rain (resulting from sulfur emissions). The President’s compromise, a 1990 amendment that literally implemented our first cap and trade policy, passed easily: 401 to 25 in the House and 89 to 10 in the Senate. Its main strength: it was the easiest bill to sell to the Congress.

A little more than a decade later, George’s son… W… backtracked, pretty much stopped the Environmental Protection Agency dead in its tracks… and simply refused to enforce most of our environmental laws, until the U.S. Supreme Court ruled, in April of 2007, that the EPA’s failure to regulate greenhouse gasses as required by the Clean Air Act was simply unlawful. But H.W.’s earlier act made a huge difference on acid rain, despite the fears of environmentalists that it was just too easy for big business to buy the right to pollute. It worked.

The May 16^th NY Times: “[T]he sulfur dioxide cap, a roughly 50 percent reduction in emissions over the next decade, held. The Environmental Protection Agency estimates that compliance with the program is close to 100 percent… ‘Our proposal was at first ridiculed by environmentalists as little more than a license to pollute,’ said Representative Jim Cooper, a moderate Democrat from Tennessee and an early supporter of tradable permits. ‘But today, few dispute it is one of the government’s most successful regulatory programs ever.’”

But today, we have a new administration, and change is in the air. Congressmen Henry Waxman (D-Cal) and Ed Markey (D-Mass) are working on using that same fundamental cap and trade concept in legislation to create a new greenhouse emissions statute to bring the U.S. into compliance with international treaties and standards. Gone is the rhetoric of “voluntary compliance” or generally working towards reducing such carbon emissions, but will this new cap and trade bill find the kind of support that a Republican President generated with his efforts almost two decades ago?

And while acid rain was a terrible consequence of industrial growth, it was relatively containable and not even close to the order of magnitude of regulating global carbon emissions. Many debate whether this is even the correct methodology, a policy which seems to have had a difficult start in Europe. Environmentalist and former Vice President Al Gore is part of a chorus of supporters of a more direct tax on those who burn fossil fuels and emit carbon into the atmosphere: “Tax what you burn, not what you earn,” he chants, although he readily acknowledges that the cap and trade proposal fits in well with the efforts of other countries and is probably an easier political sell to Congress.

Whatever the remedy, it is time for the United States to step up to the plate and begin a process of solving a global problem rather than participating in its expansion. After all, just about every molecule of carbon emitted by mankind since the invention of fire and trapped in the upper atmosphere is still there. It is cumulative, and as I watch the seemingly unending California fire season, I have tangible proof in my own backyard that we need immediately to begin some pretty dramatic actions to curtain global climate change. I am joined by hurricane victims, drought-pressed farmers, flood victims, and a growing list of environmental casualties.

I’m Peter Dekom, and I approve this message.

“Socialism” for Profit

You know how much I rail when politicians and their constituency use single word descriptions of complex socio-economic policies. “He’s pushing the country towards socialism” or “Capitalism has proven it doesn’t work” are prime examples of people searching for simplicity, extinguishing the mildest of hopes that would get them to explore the reality of the mix of structures that reflect any modern national power. We absolutely know that social security, free public education for all children, product/environmental contamination restrictions and financial regulation (as badly as that has worked) are part of our American landscape and have been for many decades. Damn socialism! We really do need to stop educating our children, don’t we? Or have are schools deteriorated so much that we effectively already have?

But some of our mythology, an apparent aversion to certain labels and words, fails at a deeper level if you look at simple criteria measuring our quality of life. Who would hold North Korean communism up as a model for anybody? Did anybody actually think the Soviet model worked that much better? And is China capitalist (even more than we are?) or is it socialist? They have fewer economic and environmental laws than we do… or they enforce a whole lot fewer of such restrictions.

A more interesting examination may be in our own Western world – Norway. This country has been pretty far left of center for decades now. They are actually one of the largest oil-exporting nations on earth ($68 billion worth last year), and despite a microscopic population (4.6 million), they produce a disproportion impact on the global economy. With the second highest per capita income on earth (way above the U.S.), they have all of those “socialist” things – universal health care, cradle-to-grave welfare, long mandatory vacation time and short working hours that would make any American from slight center left to totally right wing grimace.

Their oil money is a state operation. All oil profits go into their sovereign wealth fund, and it is one of the largest such funds on earth - $300 billion. Yes, the economy hit that fund like a ton of bricks (23% decline), but instead of pulling back, its key investment managers took about $60 billion from that fund and bought stock in Norwegian companies. Yes, their real estate market took a 15% nosedive, but, surprise, surprise, Norwegian real estate is back on the rise.

Norway was never a spendthrift nation. They wince at the U.S.’ generating a deficit this year equal to 12.9% of our GDP and incurring a total $11 trillion debt that equals 65% of the value of our entire economy. They actually pride themselves on being modest in their government spending, while maintaining their social programs. The May 14^th NY Times: “Norway’s relative frugality stands in stark contrast to Britain, which spent most of its North Sea oil revenue — and more — during the boom years. Government spending rose to 47 percent of G.D.P., from 42 percent in 2003. By comparison, public spending in Norway fell to 40 percent from 48 percent of G.D.P.”

So the construction cranes that have been stilled all over the world, even in oil-rich sheikdoms, because of this managed depression, are still steadily working to implement large construction projects that began before the meltdown. Public projects roll merrily along as well. With growth (3% of GDP) in the midst of global contraction, a government that is entirely debt-free (it actually has an $11 billion surplus), it’s hard not be jealous of this little Scandinavian nation. Okay, they found surplus oil by the tankerful and made a fortune, but as noted above, Britain had similar riches and is still in deep financial turmoil. The U.S., which was the largest oil-producing nation until the 1960s, spent that oil money (in private hands) decades ago.

With about 2% of the Norwegian economy in banking (which unlike neighbor Iceland, has real regulations over this sector), the financial crisis was a tiny blip on their economic radar. They really don’t understand how a big country like the U.S. could have embraced the subprime derivative market or why we would feel secure in an economy where America made 40% of its total corporate profitability last year from the financial sector. The only freeze in Norway comes in their bitterly cold winters – local credit is flowing well, thank you.

So we don’t have the luxury of a small homogeneous population with a massive revenue source from heaven. We have to generate our revenues from diverse segments of our commercial endeavors. But our “stupid financial dog tricks” – the hubris of “unregulated capital markets” always doing what’s best for the country by acting in their own self-interests – is and has been profoundly delusional. If we think that adding labels and moving towards “socialism” or “away from capitalism” or “towards overregulation” or applying the failed doctrine of “trickle-down economics” or moving “towards greater capitalism” or embracing “freer markets” will solve our problems or denigrate the choices our leaders make, we are sad “under-thinkers.”

Our leaders will continue to make mistakes, perhaps generate an overall triumph or not. The one “true thing” is that applying simplistic labels to complex issues is part of the problem and most definitely not a part of the solution, left, right or center.

I’m Peter Dekom, and I approve this message.

The Proposed Visa Fraud & Abuse Prevention Act of 2009

Seems pretty cool to make sure that American workers are given the first shot at the jobs that are available and that we don’t let companies import cheap labor at the expense of U.S. workers. We have a bad enough unemployment rate as it is. The Obama administration is taking the focus away from busting undocumented workers and prioritizing taking on the employers instead. After all, without job offers, undocumented workers simply have nowhere to go.

Senators Chuck Grassley (R-Iowa) and Dick Durbin (D-Ill.) have been battling for new restrictions in our immigration laws for the last three years. Their new proposed legislation, which drills down on the H-1B and L-1 visa programs that allow people who have special skills a quicker pass to enter the United States and work for local companies, puts the onus on companies. Under this proposed legislation, companies (not just the heavy importers of talent) have to swear that they have made a “good faith” effort to find an American worker first. The Department of Labor gets to spot check these efforts as well.

It all looks wonderful on paper, and when it comes to large segment of the economy, this effort seems to make a lot of sense. But here is the fly… make that a huge, slimy, dirt-encrusted cockroach… in the ointment: if growing new technology is the single biggest driver of U.S. job growth in the future (it is), then pick one: (i) hire an American who is sufficiently qualified and might help move this along or (ii) hire the best person on earth that you can who is likely to create vastly more value in creating that job-growing technology. And exactly how do you prove that you have in fact made that choice in a way that might stop a job-discrimination lawsuit or a government probe? What about letting the best person you can hire bring his/her spouse and kids or do we make workers sacrifice their families to work in the U.S. ?

To make matters worse, if the immigrant is so well-qualified that another U.S. company wants to hire him or her after they get here (to create even more value), or if the immigrant is ready for promotion to a new level (and a different job description based on excellence), the proposed law suggests that the process has to start all over again. And what happens when one of these tech geniuses opts to quit working for an established company and start something new and exciting that could create even more American jobs?

Most of our most successful immigrant tech entrepreneurs worked for U.S. companies for a few years before taking the big step. What’s more, it isn’t the “kids” who are/were doing most of this, but middle-aged and educated workers. Facing all of these deterrents, an immigrant may well prefer to bestow his or her competency on another company, in another country, that truly will take U.S. jobs away… or never even give America a chance to grow them at all.

The May 11^th BusinessWeek (Vivek Wadhwa) makes the case ever-so-clearly as to why we need tech specialists as fast as we can bring them in (and as I have blogged repeatedly): “Immigrant workers are significantly more likely to launch new companies. Immigrant workers are also far more likely to launch technology companies. Technology companies have accounted for a disproportionate percentage of economic growth in the U.S. in the past four decades. And new companies hire far more new employees than old companies. In fact, companies less than five years old accounted for nearly all of the net jobs growth in the U.S. over the past two decades. Add those four facts together and it's easy to conclude that what the U.S. needs are more immigrant technology workers rather than fewer.”

Wadhwa wrote (BusinessWeek, November 25, 2008) earlier: “I published a research report back in 2006 showing that over 50 percent of Silicon Valley engineering and technology startups were founded by immigrants (as were 25 percent of such startups nationwide), I concluded that immigrants were more likely to be entrepreneurs.” If there were a single common component to where our immigration laws need to create wide and rapid tracks to U.S. residency (if not citizenship), it has to be among the educated and the experienced (and their families). Our engineering shortfall is catastrophic. Job growth in this country is stalled in so many sectors because hi-tech companies, from Microsoft and Google, from to H-P and IBM, simply cannot hire enough designing and implementing engineers.

Other proposals being considered by other legislators embrace immigrants who buy houses, or bring a minimum dollar investment and hire U.S. workers, or create new companies when they leave their visa’d jobs and create enough new jobs. The underlying bias in the marketplace gets nastier when you recognize that the bulk of these immigrants are not white people with European ethnicity, an unfortunate resonance with those favoring immigration reform as an effective method of reinforcing radial prejudice.

It’s time for America to pull out all the stops, hire the best and the brightest to create the next generations of job-creating technologies, and to stop dealing with “voter-optically-friendly, economy-destroying” policies. We need brains and invention! We need educated specialists! It’s time for our leaders to lead, not just follow those segments of our society willing to self-destruct in the name of “racial purity” or based on a fear that whites are a dwindling minority in this country. This effort is not about restaurant workers, drywall installers, cab drivers or ditch-diggers; this about technology advancements that put America back on top. This is about our future and the quality of our jobs and living environment. Somebody make the bad man stop!!! And let the smart woman fix this stupid policy, once and for all!

I’m Peter Dekom, and I approve this message.

Squeaky Clean Coal?

While there are a few expensive technologies that can extract the carbon waste from burning coal for power generation and use it for manufacturing processes, “clean” coal technologies have generally fallen into one of two categories: compress the carbon dioxide, greenhouse gas, that results from burning such coal and shove it into the ground (like in abandoned oil wells) to be dealt with in the future or reduce the amount of greenhouse emissions (but keep on burning coal to generate electricity, and release C02 into the air).

With China literally building a new coal-fired electrical plant virtually every week and with strong lobbies in the U.S. to allow our massive coal reserves to continue as the backstop of American power generation, this issue becomes incredibly important in assessing both employment as well as environmental issues. Older coal stations in China have efficiency (the ratio of extraction of the energy in the coal to the amount of electricity generated) of between 27 and 36 percent according to the May 11^th NY Times. American “higher efficiency” plants can average around 40%, but there are a lot of clunkers still on line in the U.S.

Half of China’s plants don’t even have “sulfur scrubbers” that remove compounds that generate highly destructive acid rain. Ostensibly, China’s policies have attempted to rid the country of one inefficient plant for each modern coal generation station they build, but it is still estimated that 60% of their coal burning generation facilities are of the older inefficient kind.

China is beginning to build new plants – those capable of a higher-than-U.S.-efficiency with a 44% rating – based on a process that has yet to take hold in this country, primarily because of increased costs. Simply, exceptionally hot steam is used to convert coal into a gas before it is burned to generate power. U.S. Energy Secretary Steven Chu may force this technology to a higher priority here, because coal is such a major factor in American power generation.

While China gets 80% of its electrical energy from coal and is a major air polluter as a result, she is once again the technology leader in improving this process, which process I most certainly hope becomes obsolete in the future (unless 100% of the pollutants can be eliminated). As China grows, clearly she needs more electricity, a fact which means an increase in pollutants no matter which process is used. But at least China is trying to reduce the rate of emissions growth pending a replacement of coal-fired electrical power generation altogether.

What still amazes me is that most Americans actually hear the words “clean coal” and assume that such a beast exists on a genuinely practical level and that America is the leader in this “new technology.” Clean coal still remains primarily a mythical creature, and the United States is not even the leader in creating more efficient coal-fired electrical plants. As we watch oil prices creep slowly upward (this pushes the cost of all fossil fuels upward too), which many believe is an irreversible trend (at least the in the longer term), maybe alternative energy will become more of the “American experience” that merely adding a new meaningless phrase to the American lexicon. We need this change to save our environment and to add millions of truly skilled American jobs.

I’m Peter Dekom, and I approve this message.

“The United States is not and will never be at war with Islam"

The words of President Barack Obama in an April 6^th speech in secular (but Muslim) Turkey before their legislature. The President will follow that address with a message to the Muslim world to be delivered in Egypt on June 4^th. A notoriously repressive nation, Egypt is hardly a platform for democracy, but it is a large Arab country – not blessed with oil – that has for decades been a hotbed for fundamentalist recruitment. Obama walks a tightrope between our solid relationship with our most consistent ally in the region, Israel, and the Islamic world that seems torn between anti-American militancy and being left alone to live their lives in peace. Scarce resources in a melted world don’t help matters.

We have been committed to a separate Palestinian state for some time, but with a new hardliner coalition in Israel, the road to a peaceful partition is anything but clear and obvious. Recent overtures from radical Hamas leaders provide a ray of hope for the region (including backing off of their completely unacceptable use of rockets to bombard Israeli targets), but with escalations between radical Islamists and incumbent governments on the increase – look at the devastation in Pakistan’s Swat region as government forces pound Taliban troops resulting in heavy civilian casualties – regional peace is a fragile sapling that is not finding solid roots. Hamas has always been committed to the destruction of Israel (even though that position may be moderating), and the new Likud coalition seems equally dedicated to rejecting any recognition of any Palestinian government that would include Hamas.

The day after his address from Egypt, the President is pointedly making a pilgrimage to visit the ruins of the Buchenwald concentration camp in Dresden, Germany to honor the Jews who were slaughtered there in World War II – a clear “balancing” gesture to Israelis who fear that the United States may lessen their support for the Jewish state in order to relieve some of the military pressure America is experiencing in Iraq, but more importantly, in Pakistan and Afghanistan. They worry that in order to enlist support from countries like Saudi Arabia to help the U.S. back-channel to the Islamist militants, notably the Taliban, America might be selling Israel down the river.

So as President Obama presses for a separate Palestinian state, Israel's Prime Minister Benjamin Netanyahu (Likud’s leader) and its hardline foreign minister Avigdor Lieberman (from the ultra-orthodox Yisrael Beiteinu party) have made it clear that: 1. “Peace will not come without security.” and 2. “Palestinians must recognize Israel as the Jewish state.” Sounds pretty simple and reasonable when you put it that way, but these little phrases might actually put American foreign policy on a collision course with Israel’s most basic requirements.

On May 7^th, Newsweek’s Michael Hirsch explained what those phrases really signify: “Netanyahu … hammered home to Obama during their first visit last July [2008], when the then-senator from Illinois visited as a presidential candidate: without addressing Iran's attempted rise as a nuclear-powered regional hegemon, there can be no security in any other area—especially the Palestinian conflict… [And] reading between the lines[, the 2^nd requirement] almost certainly means that Netanyahu will not recognize any peace agreement that hands over the West Bank to the Palestinians as long as Hamas continues to wield the political power it does in the territories and refuses to recognize Israel (a position that Hamas leaders reiterated this week). It also means that, if talks do begin again, an issue that once was deemed ‘final status’—the right of Palestinians to return to Israel—is off the table.”

In short, the President’s desire to move the American commitment to a Palestinian state forward requires the building of that ultimately seemingly impossible infrastructure project – building a bridge between two completely irreconcilable and inconsistent positions. As Arab positions modify, Israel’s position seems to harden, and vice versa. Obama is open to dialog with Iran, and Israel is beyond suspicious of any such rapprochement.

The flashpoints are obvious, the risks deadly, and the consequences from a misstep threaten us all. I suspect that even with the biggest financial calamity this country has seen since The Great Depression as his main focus, Mr. Obama cannot give such global security issues anything but his best efforts as well. Mrs. Clinton’s dance card seems to be pretty full as well. The June 4^th speech will be seminal.

I’m Peter Dekom, and I approve this message.

Pessimistically Optimistic

“‘Remember this central paradox of financial crisis,’ Lawrence H. Summers, Mr. Obama’s top economic adviser in the White House, said in mid-March, when every arrow was pointing down, ‘that while the problem was caused by excessive complacency and excessive optimism, what we need today is more optimism and more confidence.’” May 9^th NY Times. Simply put, if everyone would spend and react as if there were no managed depression, we wouldn’t be in one.

Since 70% of American business is driven at the consumer level, this pretty obviously means that consumers need to start acting like… well… consumers again. Try doing that when your house is worth 30-50% (or worse) than it was a year and a half ago, you have lost your job or seen your pay drop and you are still worried about losing your job, your retirement investments vaporized (despite the occasional bear rally that few believe will last) and you really cannot borrow money even for normal business activities or to make purchases beyond the daily minimums. Going on a consumer spending spree under these conditions could possibly result in a sustainable medical diagnosis of some advanced form of psychosis.

Inventories are down! Great news, huh? Except companies are dumping merchandise at bargain rates in a desperate attempt to generate enough working capital to stay alive – they certainly cannot borrow that capital anymore, and they’re not exactly going on a hiring splurge to make more stuff they will have to dump at below cost. They can’t even order new stuff from their suppliers if they could sell it at real prices, since the credit markets are frozen, and suppliers are demanding cash in advance.

The big banks passed the stress test… except that a dozen of them need $75 billion more capital on their books, and after that stress test (and public cash infusion), they’re still not likely to be lending again. The other, healthier banks, aren’t exactly lining up to lend money either. When these lenders do begin releasing loans, you can pretty much bet it will be to the biggest of the big corporate players who are, more likely than not, going to get and use that money to pay off more expensive debt and buy attractive “distressed” companies at bargain rates. I doubt that this will create any new jobs and may in fact result in that layoff euphemism – job consolidation. If you really believe that these banks passed the test, I suspect the best overall grade you can give to this banking system is a “D.” Don’t expect a credit “thaw” for the little guy any time soon.

So if the Obama administration tries to be optimistic and be the cheerleader we all know it needs to be, that optimism flies in the face of the daily existence of most Americans. It just doesn’t ring true as more and more jobs are lost, even if we are losing them at a lower rate. As Fed Chairman Ben Bernanke and President Obama moved from “glimmers of hope” to “the gears of our economic engine do appear to be slowly turning once again,” we also hear the recent statements from Treasury Secretary Tim Geithner telling us not to mistake the slower pace of bad economic numbers for a recovery.

If the government cheers too loudly, their credibility plummets. If they don’t cheer enough or at the right time, consumer and business confidence sinks even more. But what is real? We’re just a few months from the beginning of recovery? From hitting bottom? If anybody gives you a clear answer, the only sane reaction is not to believe them. So much of the market is based on psychology, so if you predict clear events, effectively, you have to be a mind reader. Makes you wonder why they don’t interview Chriss Angel (“Mindfreak”) more often. The one consistency in the prognostication is inconsistency; the only agreement among economic experts is disagreement.

Even if the overall belief is that the cyclical nature of economies will, eventually, create a reversal of fortunes, there is absolute disagreement about when that will occur and what our future will look like – from we will be living in a smaller economic universe with lowered expectations and lifestyles to solid prosperity will return and we will live at the top again. The truth probably lies somewhere in the middle, but for most of us, “recovery” most certainly is not around the corner, and when we do find that elusive “bottom,” we are just as likely to move sideways for a pretty long time and then “enjoy” low end, single digit “growth” when recovery does start. Some companies, skilled workers and regions will begin the process well before others, a pretty normal expectation.

Even if the stock market begins to shudder realistically upwards (being the dutiful leading economic indicator it is), very few of us will see a manifest difference in our daily lives at that precise moment in time. It took years of lying to ourselves about growth and opportunity to create this maelstrom, it will take years to undo that reality and return to any “happy place” of genuine prosperity and well-being. Me? I’m just going to the local mega-mall for some quality alone time.

I’m Peter Dekom, and I wonder the same things that you do.

Too Fast and Too Furious

According to the May 4^th Fortune, the Fortune 500 (top U.S. corporations) had aggregate profits in 2006 of $785 billion, a plump but not as phat $645 billion in 2007. In 2008, the number fell to $98.9 billion, a staggering 87% fall from two years before. And we all know that this rapid fall really accelerated in the final quarter. Effectively for every dollar of profit in 2006, there was 13 cents in 2008. At its current pace, the 2009 profit decline should make that number even worse.

Great, big companies doing stupid dog tricks with idiotic financial structures. Who cares? We know that the biggest money losers fell into two categories: financials (duh) and, here’s the one most folks don’t see in the headlines directly, “consumer cyclicals.” Fortune defines this sector as “anything your normally like to do or buy but can be put off.” This would include cars, trips, appliances, remodeling, clothing, sporting goods, tickets to events, restaurants, etc. The obvious.

And one of the reasons the profits in non-financials also fell so fast and so hard is that with new and improved manufacturing equipment and computer controls, American productivity had soared like an eagle before this meltdown, generating per-worker profit margins that produced exceptional earnings… but when consumers stopping buying, the workers were still there, and the margin per worker fell like a stone off a bridge. In short, corporate America couldn’t lay people off fast enough to keep up with the crash in consumer demand.

When the layoffs began to accelerate (still behind the falling profit curve), a swinging sword of fewer people left with jobs to buy, fear of job loss or wage cuts from those who remained and actual cuts income for almost everybody, began slicing and cutting at the economic cords that hold us together. All this as the credit markets collapsed and the financial sector literally disintegrated beneath our feet. A dust swirl turned into a tornado.

This reality also shows you why hitting bottom, much less recovery, takes so long to “fix.” With 70% of the American economy based on individual consumers, and with unemployment the last part of hitting bottom (the trailing economic indicator), trying to rebuild consumer confidence in their future, restore their willingness to buy delayed “consumer cyclical,” is a Catch 22. Hence the government throws a few stimulus bones (tax credits, etc.) to the consumers, but it really has to fix the structures that provide the jobs first. But the structures that provide the jobs don’t fix until the consumers are ready to participate again. Americans saved with the “equity in my house,” but that value has evaporated. And those who had 401k plans lost value there by the ton.

It’s a long arduous trail back to any semblance of stability. We’ll get there, but we will see a lot of “false starts” – easily spotted in bear market rallies. The fact is that we all need to figure out how to survive in this new “reset” world. There’s a place, but we just have to work hard to find it.

I’m Peter Dekom, and I approve this message.