Bush – using the classic FUD

FUD = Fear, Uncertainty, and Doubt.

George Bush has some clever people working for him while he himself does not display much intelligence.
Earlier this week, he and Hank Paulson kept repeating that they were considering an “orderly” bankruptcy for the auto industry. The idea being that Chapter 7 would essentially dismantle the companies, while an orderly process would keep these firms as going concerns. However, one effect of bankruptcy would be that the unions would lose their contracts and benefits, and possibly their shirts. After spreading this fear, Bush announced that he would give $13 billion right away to GM & Chrysler, with the promise of more if they come back with a “plan” and also reduce costs to that of the foreign automakers. Just a signal that the auto unions are going to be attacked, bankruptcy or not.

Bush, Obama, and others do not see the obvious issue- autos are capital assets, and the volume of automobiles that are going to be purchased in the future, per year, do not appear to support many auto manufacturers. Further, the U.S. makers do not have the product mix to support what customers want.
Everyone wants to play the Casino with someone else’s money,

Not Music to My Students’ Ears…

This fall, some of my students mentioned the name ‘LimeWire‘ when discussing copyrights and music downloads. I had certainly heard of BitTorrent, but not LimeWire….

Today, the WSJ, in an article titled “Music Industry to Abandon Mass Suits,” reports that “after years of suing thousands of people for allegedly stealing music via the Internet, the recording industry is set to drop its legal assault as it searches for more effective ways to combat online music piracy. The decision represents an abrupt shift of strategy for the industry, which has opened legal proceedings against about 35,000 people since 2003. Critics say the legal offensive ultimately did little to stem the tide of illegally downloaded music. And it created a public-relations disaster for the industry, whose lawsuits targeted, among others, several single mothers, a dead person and a 13-year-old girl.
Instead, the Recording Industry Association of America said it plans to try an approach that relies on the cooperation of Internet-service providers. The trade group said it has hashed out preliminary agreements with major ISPs under which it will send an email to the provider when it finds a provider’s customers making music available online for others to take. Depending on the agreement, the ISP will either forward the note to customers, or alert customers that they appear to be uploading music illegally, and ask them to stop. If the customers continue the file-sharing, they will get one or two more emails, perhaps accompanied by slower service from the provider. Finally, the ISP may cut off their access altogether.”
Wow! Losing Internet access as the punishment for illegal downloads! With only a handful of ISPs in a metro area (AT&T, Comcast, WideOpenWest, and perhaps Verizon in my area) one can be blacklisted across service providers. I personally respect and obey copyright laws, but the music industry has to realize that it has to look at a different business model. People are willing pay, as iTunes proves.

While talking about music, I wanted to take a trip back in time and look at the “English Rock/Pop” music of my youth…

Pre-1978 (the year when I entered the Indian Instittute of Technology, Madras)
Catch me if you can (on Mohammed Ali)
Osibisa
Jim Reeves
Billy Vaughn- Come September and Berlin Melody

1978-1983 (the year I graduated from IIT and joined Northwestern)
Pink Floyd- Dark Side of the Moon
Simon and Garfunkel- Greatest Hits
Best of Bread
Lobo
AC/DC – Back in Black
Deep Purple/Machine Head- Smoke on the Water
La Bionda
Saturday Night Fever
Bee Gees
Moody Blues

1983-1990 (year I lost my father)
10,000 Maniacs -In my Tribe (one of the greatest albums ever)
Cat Stevens
Jackson Browne – Lives in the Balance (one of the most powerful albums ever)
Los Lobos – By the Light of the Moon (a fabulous album)
Bruce – Born to Run, Born in the USA
U2 – The Joshua Tree – one of the best
Moody Blues – In your wildest dreams
Tom Petty – Free Falling and I won’t back down
Dire Straits – Brothers in Arms
George Harrison – Got my mind set on you
Madonna – Like a Virgin
Bonnie Tyler – Total Eclipse of the Heart, Betty Davis’ Eyes
Cindy Lauper – Girls Just Want to have Fun
Men At Work
Simply Red
Eurythmics
Traveling Wilburys I – a fabulous album

1990-2000 (the last decade of the previous century)

Cranberries – No Need to Argue – a wonderful album
Sarah McLachlan – Fumbling Towards Ecstasy
U2
10,000 Maniacs – Our Time in Eden, with the song – These are days
Natalie Merchant – Tigerlilly

Stumped!

Today, one of the local news channels reported that police forces around the country are dealing with an increasing number of incidents involving stolen Christmas trees. CNN’s Fortune website also has the story.

President-Elect Obama’s picks for his cabinet are proving to be quite discouraging to those who hoped that he would usher in a significantly different era. The nominations of Senator Ken Salazar of Colorado, Mr. Arne Duncan, and Gov. Bill Richardson to head the Departments of Interior, Education, and Commerce, and the nomination of former Dallas Mayor Ron Kirk, a longtime free trader, as U.S. trade representative, all raise questions regarding Obama’s pledges during the campaign and his intent to fulfill them. Perhaps the selection of Mr. Salazar is the most disturbing, as it suggests that Obama is not serious about taking an aggressive approach to tackling global warming and protecting our natural environment.

It is hoped that these cabinet members act in accordance with the commitments laid out during the campaign.

Where’s the Beef? In the Dead Zone in Gulf of Mexico…

A few years ago, one of the students in my Global Business course was discussing global warming and said that cutting down on beef would directly contribute to a significant reduction in carbon emissions. In her view that was the simplest change a person could make in his/her lifestyle and contribute positively towards the environment.

Today, Michael Reilly, in his Discovery News article, America’s Meat Habit Feeds Gulf Dead Zone, reports that “America’s taste for meat is a well-known enemy of the environment; growing feed for livestock guzzles far more oil and water, and pumps out far more nitrogen-laced runoff, than if we were all vegetarians. Now new research shows how the leftover fertilizer is contributing to an oxygen-starved dead zone where the Mississippi River drains into the Gulf of Mexico. Last summer, the zone was nearly the size of Massachusetts.” Gidon Eshel of Bard College at Simon’s Rock in Massachusetts and Pamela Martin of the University of Chicago calculate that if Americans kicked their meat habit, it would prevent seven million tons of nitrogen from spilling into the gulf — a reduction of nearly 90 percent. “When we did the calculations, it was astonishing,” Eshel said. “The main reason is we’re feeding so much corn to livestock. It takes 4.5 times more cropland to do that than if you feed people a plant diet, and corn is so nitrogen-intensive.”

Stop(s) Making Sense

Stop Making Sense…a great movie and great songs by Talking Heads.

One would expect that oil prices are negatively correlated with auto sales. Oil prices at the pump have gone from $4.30 a few months ago (in Chicago suburbs) to $1.57, down 63%. Such a massive drop within the space of nine months should result in massive increases in auto sales…….

But, this is the new reality, or the new paradigm per Alan G. and Ben B.

Chrysler will close all 30 of its manufacturing plants for a month, starting Friday, to conserve cash and match production to slowing demand, the Detroit automaker announced on Wednesday.
Ford announced it will shut down 10 of its North American assembly plants for an extra week in January due to the slumping U.S. auto market. Spokeswoman Angie Kozleski said the normal two-week holiday shutdown will be extended to Jan. 12 at all operating assembly plants except those in Claycomo, Mo., near Kansas City and the Dearborn, Mich., truck plant.

Honda Motor Co. now expects 185 billion yen ($2.06 billion) in group net profit for the fiscal year ending March 31, 2009 — less than a third of the 600 billion yen it earned last fiscal year. Honda’s worldwide vehicle sales in 2008 are expected to reach 3.77 million units, almost unchanged from 2007. Sales are plunging in the U.S. and other regions, with even previously healthy emerging markets getting battered in recent months, according to Honda. Underlining the tough times ahead, Honda President Fukui refused to set a vehicles sales target for 2009 — an unusual move for Honda. To take responsibility for the faltering results, Honda directors will take a 10 percent pay cut and further bonus reductions are likely, he said. Earlier this month, Honda said it was pulling out of the glamorous but expensive Formula One racing to save costs and focus on its core car business. Fukui said Honda will focus on green technology, especially hybrid vehicles and small cars, to prepare for recovery in the long run. The company also trimmed annual investment spending by 60 billion yen ($674 million) to about 650 billion yen ($7.3 billion) to cut costs during hard times, including scrapping plans to introduce the Acura luxury line in Japan by 2010. Plans to develop a successor to the NSX sportscar were also canceled.Honda had already said it was cutting 760 temporary workers in Japan, or nearly 18 percent of its Japan temporary work force of 4,300. On Wednesday, Honda said another 450 temporary workers in Japan will be reduced through February.The plunging dollar, meanwhile, spells more trouble for Japan’s automakers. For every yen the dollar declines, Honda loses about 18 billion yen ($200 million) in operating profit. In trading Wednesday, the dollar fell as low as 88.15 yen.To cope with sluggish sales worldwide, Fukui said Honda will halt expansion in Japan as well as abroad, including Turkey and India. With its plans to cut 78,000 vehicles, Nissan Motor Co. has now production by 225,000 vehicles over the last year, 16 percent of its initial production forecast for 1.398 million vehicles for the fiscal year.Toyota is also reducing production. In a key setback, Toyota said earlier this week that it’s delaying indefinitely the start of production at its plant in Blue Springs, Mississippi. The plant had been scheduled to begin in 2010, marking the first time the gas-electric Prius hybrid would be built outside of Japan and China.
(All reports culled from AP releases)

FIVE BEN-EFICIAL IDEAS FOR BEN (BERNANKE)

Ben has been leading an all-out attack on his invisible enemies in this “financial World War III” (according to Erin Burnett of CNBC) but the situation appears to be worsening daily. Putting interest rates at 0%, and buying up all types of “worthless” mortgages and other financial assets has just made the situation worse, eroding confidence.
As long as Ben is running the printing press 24/7, here are some ideas, which, if implemented, will make our economy sky-rocket with a turbo-charged booster.

1. The Fed provides anyone who is laid-off the same annual salary as Ben.
2. The Fed pays everyone’s health insurance premiums, and all co-pays. This includes people who are currently without any health insurance.
3. The Fed contributes the “match” (instead of the employer) to everyone’s retirement plans- 401K, etc.
4. The Fed pays a new mother’s salary for six months while she cares for the new-born baby.
5. The Fed pays the tuition of every College student.

Money spent on these initiatives will probably provide greater return than throwing it at crooked banks or at other lemons.

Hanging up on benefits…As the Economy Spirals

Companies of all ilk are hacking away at employees and benefits.

Motorola announced today that “Effective March 1, the company said, it will freeze its U.S. pension plans, which are the older-style plans that pay employees a fixed amount monthly for life after they retire. Such plans, which once were the dominant retirement package for major American corporations, have been shut down at many companies in favor of less-costly plans in which corporate workers receive annual contributions into a personal retirement fund, but don’t receive lifetime benefits. Motorola emphasized that employees who have vested pension plans will receive them upon retirement; the company is simply no longer accruing future contributions to those plans.
Motorola also said that as of Jan. 1, it will stop making matching contributions to its workers’ 401(k) plans. Until now, workers have made tax-protected contributions into their retirement plan and the company has provided a matching contribution, effectively doubling the workers’ annual retirement set-aside. Now, however, the company is ending that match in order to save cash. “The sustained downturn in the global economy requires that we take these difficult but necessary steps,” the company said.”

According to the WSJ article, Jobs, Benefits: Grim Outlook By Dana Mattioli -”Employers eliminated nearly two million jobs this year, and no relief is in sight. Even for employees who keep their jobs, companies say they will take other steps to cut costs. Motorola Inc. announced Wednesday that it will suspend its 401(k) matching program and pension plan. General Motors Corp., Ford Motor Co. and Cushman & Wakefield already have suspended 401(k) matching programs. According to a survey to be released Thursday by consulting firm Watson Wyatt Worldwide Inc., 7% of 117 respondents plan to reduce matching employee 401(k) and 403(b) contributions, and 3% already have done so. In addition, 17% of respondents plan to raise employee contributions to health-care premiums, and 20% already have raised them. “When benefits are cut back or contributions are decreased, people look at it as if you cut their pay,” says Jeanne Hand, senior account executive of United Benefit Consulting Inc., a benefit consulting firm that is a division of HUB International. What’s more, layoff projections are looking grim. A survey conducted by the Society for Human Resource Management of 633 employers found that 25% are very likely to lay off employees in the next 12 months and 35% are somewhat likely to lay off workers. The survey, conducted at the end of October, could take into account layoffs that occurred in November and December. Similarly, the Watson Wyatt report found that 23% of surveyed companies — representing 1.6 million workers — plan layoffs over the next 12 months, with 39% already reducing their work force or having layoff plans in place. According to the SHRM survey, 53% of respondents plan to dismiss employees from various levels. The other respondents indicated that executives are safest from being let go, with only 1% of planned layoffs coming at the executive level. Sales positions will account for 3% of layoffs, middle management for 6%, and the majority of layoffs will hit technical and professional positions or unskilled labor positions, each accounting for 13%. Administrative positions account for another 11%. These new 2009 layoffs will overwhelm an already crowded jobs-wanted marketplace. In October, there were 3.3 unemployed people for every job opening, according to the Economic Policy Institute, a nonprofit that analyzes labor statistics. Heidi Shierholz, an economist with the institute, says this ratio could “easily increase to over six unemployed workers for every available job” if job-opening trends continue and unemployment hits 9%, as is projected by many economists. According to Challenger, Gray & Christmas, the average job search in the third quarter took nearly 4.4 months. John Challenger, chief executive of Challenger, expects this trend to worsen. In some sectors, search time is already longer. “Many people I’ve spoken to are celebrating their one-year anniversary of unemployment,” says Robert Olman, president of Alpha Search Advisory Partners, a search firm in Roslyn, N.Y., that focuses on hedge funds and investment banks. While the auto, banking and housing industries will remain prone to job cuts, Mr. Challenger says the retail, technology and manufacturing sectors will be ripe for dismissals next year. A recent report from consulting firm Mercer LLC found that 48% of survey respondents from manufacturing and technology firms will likely reduce their work forces by significant levels; 28% of respondents from retail and wholesale firms reported layoff plans. Jo Prabhu, chief executive officer of International Services Group, a placement and consulting firm in Long Beach, Calif., is getting about 300 résumés a day, up from 100 at this time last year. “Normally a lot of people who file for unemployment are people who expect to be recalled to their jobs. That’s not what’s going on right now,” says Lawrence Katz, an economic professor at Harvard University and a former chief economist for the Labor Department.”

The pressures increase..

Making a "FED"eral Case for Free Money…

Today, the Ben’s Den let out the big roar and applied the big bite….the question is whether they have bitten off more than they could chew.

From the FOMC minutes:

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent. Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further……The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity…..In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco. The Board also established interest rates on required and excess reserve balances of 1/4 percent.”

This is basically the Japanese style of flooding the market with money to reflate the market. The lesson learnt is that even with such low interest rates for many years, it has done very little to grow the economy, and had the really bad effect of spawning the “Yen-XYZ” carry trade- borrowing in Yen and lending in higher yielding currencies. Now the Japanese, who lent the money to American banks who then lent to U.S. residents, are losing “interest.” It is also hurting their exports, as the unwinding of the carry trade means demand for local currency.

Ben is assuming and deploying immense powers- of printing paper and throwing it around, but he cannot create fundamental demand. Nor can he change the cultural shift happening in the country. Adults and children are becoming more “conservation” conscious, and more thoughtful. This game will be played out for many years to come…

Duncan…No Slam Dunk as Head Ed Guy

In perhaps the most important cabinet selection so far, PEO has chosen Arne Duncan as his Secretary of Education. I get seriously concerned when Duncan gets a ringing endorsement from the current U.S. Education Secretary Margaret Spellings, who said she believed the Chicago Public Schools chief had the necessary skills to take her place(Tribune).

In an exam I gave last week, only 1 out of 16 students could do a simple math problem that involved computing x% of y, for a set of (x,y) values. Even that one student could not complete the next question, that involved understanding these percentages.

Putting an Education “CEO” to run Education in the country, in light of the scandals and bailouts in the corporate world, is not the proper signal to send. Obama would have been wiser to choose a person like Andy Grove, the former top dog of Intel, or a person who is an Educator first and an administrator last.

Students need to be culture-shifted to focus more on acquiring solid fundamental skills and less on other stuff, like sports or even working part-time to make minimum wage money. Otherwise they will be toast….or toasted by people in other countries.

Does Capitalism Bring Out the "Crookedness" in Every One?

The spectacular actions of the Fed, the Treasury, and their equivalents around the world, clearly drive home the point that Free Market Capitalism, broadly, has failed the public. Many, including managers, are calling for more regulations and oversight.
Mr. Bernard Madoff has provided another stellar example of capitalism driven crookedness. As BBC reports, “Some of the world’s biggest banks have revealed they are victims of an alleged fraud which has lost $50bn (£33bn). Bernard Madoff, who was arrested on Thursday, has been charged with fraud in what is being described as one of the biggest-ever such cases. Among the banks that have been hit are Britain’s HSBC and RBS, Spain’s Santander and France’s BNP Paribas. Other victims include film director Stephen Spielberg’s Wunderkinder Foundation charity. One of the City’s best-known fund managers has criticised US regulators for not detecting the alleged fraud. Nicola Horlick, boss of Bramdean investments, told the BBC: “I think now it is very difficult for people to invest in things that are meant to be regulated in America, because they have fallen down on the job.” “This is the biggest financial scandal, probably in the history of the markets – $50bn is a huge amount of money,” she said. Counting the cost Banks and financial institutions across the world had investments with Bernard Madoff, but not all have yet confirmed what their potential losses might be. Among the potential losers is Spain’s largest bank, Santander, which owns the UK High Street banks Abbey, Alliance & Leicester and Bradford & Bingley. The bank had a direct exposure of 17m euros ($23m; £15m), but clients of its Optimal fund management unit have another 2.3bn euros invested in the firm run by Bernard Madoff Britain’s HSBC said it had investments of about $1bn, which could be affected. Royal Bank of Scotland said it could potentially lose about £400m ($601m) if all its investments had to be written off. The French bank, Natixis, a subsidiary of Caisse d’Epargne and Banque Populaire, said it could potentially lose up to 450m euros (£402m; $605m). One of the world’s biggest investment groups, Man, said it had invested about $360m through its RMF institutional fund of funds business, representing 0.5% of its total funds. Banking shares fell around the world, with Royal Bank of Scotland dropping 3.7%, HSBC losing 1.2% and banks making up the top four losers on New York’s Dow Jones Industrial Average. ‘Systemic failure’ Meanwhile, some of the biggest private losers seem to have been members of the Palm Beach country club, where many of Mr Madoff’s wealthy clients were recruited. According to some reports, the list of prominent victims include a New Jersey Senator, the owners of the New York Mets and the charities run by film director Stephen Spielberg and Nobel Prize winning writer Elie Wiesel.”