Professor Elam

Friday April 16 2010

A Nation Divided

Abraham
Lincoln observed that a nation divided against itself could not stand. We are
now as close to that same sort of division as we ever were, let’s take a look.

Politicians
in Washington DC (and as the Governator learned in CA) have gerrymandered their
districts to insure re-election. The result is that there are only about 40-60
seats in Congress that are really up for grabs. Thus most of Congress feels no
loyalty nor threat, no matter how they vote. The recent complete division on
the Health Care Vote showed just how deep the schism runs.

The
President has about 47% approval rating. As Neal Boortz observed, that is also
about the percentage of people that pay no income tax; no wonder they are
happy. Members of the other 53% took to the streets in protest this week. Like
most protest movements, this one is still small. It lacks leadership and a real
‘spark’ to motivate serious ballot action.

Allen,
Texas announced construction of a $60 Million high school football stadium. In
Detroit, the City plans to bulldoze one-third of all the houses. Texas barely
feels the recession, in Northern states unemployment has been extended for two
full years. Toyota has moved pick up production from California to Texas,
Hyundai locates in Alabama,. The New Jersey Governor declares the state
bankrupt. This is indeed the New Civil War. How long  before those working just say no to the unemployed?  After all, one purpose of a recession
is to impose draconian changes on failed business models. But thus far the
failures are like Illinois and Michigan are encouraged to just keep on with the
same system that got them into this predicament.

Environmentalists
have shifted from gasoline taxes to carbon taxes, now even subway riders are
fair game. As always the petroleum industry is their enemy, coal fares no
better. While the Administration pays lip service to offshore drilling and
nuclear power, France now produces 78% of its needs with nukes.

Meanwhile,
Wall Street powers ahead. The graph of upward prices is picture perfect, too perfect
for most students of market history.   The stimulus money finds its way to power stock prices
but not jobs.   The
Administration assumes jobs are the center of the economy. No, profits and
creative ideas are the centerpiece, those profits create jobs, not the other
way around.

The
requirement of ever more payroll taxes 
and now health care, continues to move jobs overseas. When someone
pointed out the requirement to report future costs of health insurance, Rep
Waxman quietly cancelled plans to excoriate business in Congressional hearings.
Corporations seek profit centers elsewhere to avoid high US corporate taxes.

Yet
another schism exists in education. Higher education tuition continues to soar;
educators believe demand is inelastic, demand trumps price increases. And so
ever more debt mounts for fewer jobs. While the tuition is up, the job pay is
not. Where does this spiral end”

Oil
prices have risen to $85 per barrel. This means that consumers and business can
afford the oil at these prices. The dollar has pulled back suggesting a final
parabolic run in metals and oil.  
Gold seems destined for $1300 and oil will certainly get over $100. What
then?  Typically energy is the last
to join a bull market, this is why oil prices peaked at $145 just weeks before
the market collapsed in 2008.

Our
point is that the potential is here for a real societal breakdown if this
recovery is not for real. The political parties care nothing for one another,
and national regard for each of them is at historic lows. Republicans were swept
into office on the eve of the Civil War. Such monumental events bring similar
changes. It is possible to imagine similar  tectonic shifts given the divided sentiment in the country.

It
appears markets will top; between June and August this year. After that we will
find out just how real this recovery may or may not be.