Wed Feb 24 2010

I call it the New Civil War. It is the battle for business that creates wealth and jobs. This time the South is winning. Right to Work states are those with laws that state a worker cannot be forced to join a union as a condition of employment. This article traces that three more companies have moved from Ohio to Georgia. 

The result of course is less money for already beleaguered Ohio. Yet of course the business model for Ohio is not changing, it will remain a union shop state. 

The migration south, and the term Rust Belt originated with the collapse of New York City in 1976 and the creation of the DFW airport. Now companies could locate in the central time zone and fly anywhere in the world, direct. Bingo, J C Penny left NYC for DFW. No doubt the Atlanta airport figures in moves to the southeast. 

The 17% unemployment number is particularly acute in union shop states. Those states are 'borrowing' money to continue to pay unemployment 'benefits.'  How long will taxpayers in non union states support such a fiasco, inquiring minds want to know. 

Congress is currently conducting a Soviet Style Show trial for Toyota over the gas pedal recall. Of course Toyota is not in union shop states. The DEM victory in Congress is now in payback mode for union support. But Hyundai, VW, Nissan, Toyota, are not moving to Michigan….note that Toyota Tacoma production just moved from California to San Antonio. 

Wed Feb 24 2010

Wall Street lore has it that no one rings a bell at the bottom. Well Warren Buffet's investing buddy, Charlie Munger, has rung one at DOW 10,300. Writing in Slate, Munger titles his article, It's Over. 

He compares America to a giant gambling casino in which 'investment firms' have assumed the role that gambling casinos once did. In the end everyone is betting on stocks and derivatives, who is working?

I wrote a column rather like this several years back, really I did. There are over thirty states with lotteries, including Arizona.  But State Parks are closing anyway, Mish today reports that spending is out of control in Phoenix. Only a few years back, Las Vegas was the fastest growing city in the US. It was also the city that produced little or nothing in terms of tangible output, a true 'swap dollar' economy. Now the thirty story condo developments are empty, and the Mayor of Las Vegas is angry at the President for remarks disparaging the city. Gee how times have changed. The values of the publicly owned casinos have collapsed, big time. 

In a way, the public unions were gambling that the governments could pay astronomic salaries and retirements. That bet is not paying off either. But the Administration continues to reward his union base with items like purchasing a Illinois State Prison for over $200M to house GITMO detainees. California no doubt looks to Washington DC as its final salvation. 

A PEW Study backs me up on this but I do not agree with the Director that this can be solved now with some small steps. The real world use of the word NO is never easy. 

Wed Feb 24 2010

3:11 to Yuma was a movie first release in the late 1950s and re done two years ago. It is on my list of movies with ethical themes for students to review in Ethics class. But cancel that train! The State Parks Board in Arizona has closed 13 State Parks and will leave nine open, to save money. 

Neal Cavuto had a guest discuss possible privatization of the parks, that apparently was not discussed. Better to close the parks than consider alternatives. This kind of thinking will only slow the economy and any real world solution. 

AZ is one of the states along with CA NV and FL hardest hit with a real estate collapse which has lowered property tax revenue. 

By the way did you know that the Fort Worth Zoo is privately operated?

Wed Feb 24 2010

I made the comment in class on Monday that we could expect to see strikes and probably riots as a result of failed promises on the liability side of world city state balance sheets. Well, we did not have to wait long for that. Greek unions are calling for nation wide strikes, and half of Greece, 5 Million, are in unions.

As the article says, such groups believe they are immune to market forces. We have the same thought patterns in many states and cities here. This will not end well.

Monday Feb 22 2010

The one complaint about my classes is that, okay so there is perhaps more than one complaint….., but

the one complaint is that I expect too much. Here is a quick story. In high school I took two years of Latin Classes. At least I sat through two years. We only got to chapter 12 each semester in the books. But there were about 22 chapters in the books. Fast foward to my arrival at UT Austin. As a result of my triumphs in classic studies, two years of diligent study, I was placed in advanced Latin!  I discovered that my knowledge was exhausted after a mere, you guessed it, twelve chapters in that book, and we were covering three chapters a day. The rest of the class, mostly students from Dallas and Houston, had gone as far as translating Julius Caesar. I had,  on the other hand, seen the movie Cleopatra……I made my A but only after countless hours of scrambling to catch up.

I believe that my charge is to make sure you do not find yourself  in a similar situation. Now consiider this prediction  from Steve Kaplan at True Contrarian, this might shape  your expectations upon graduation in a couple of semesters. Quite simply he is suggesting we will see another drop possibly below the March 2009 S & P level of 666, trust me that will have consequences on hiring….

The structural situation of the worldwide economy is quite similar to 1930. By 1930, most worldwide stock markets had regained modestly more than 50% of their 1929 losses. Similarly, the S&P 500 index by January 19, 2010 had regained modestly more than 50% of its total pullback from October 11, 2007 (1576.09) through March 6, 2009 (666.79). I don't expect a collapse of 85% over the next two years, as we experienced from the 1930 high to the 1932 low, but certainly 60% or 65% is a reasonable projection for the total pullback from the recent (or upcoming spring) top to the ultimate bottom. The more that stocks end up declining, the more important it will be to wait patiently until the bear market is nearly over before purchasing your favorite securities.