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August 06, 2009


    ∙ Ford’s July sales are expected to be up 2.3% YoY. Its US sales analyst said that “Cash for clunkers (that blew through the US$1BN earmarked for it in a matter of days) put us over the top” & GM’s executive director of global market and industry analysis that it “could boost third-quarter GDP by 0.5%”. While all auto makers experienced  MoM sales increases, both GM & Chrysler still had YOY sales declines of 19.4% & 9.4% respectively. Among the ten most often turned-in vehicles were all Ford Explorer 1994 to 1999 models and Jeep Cherokees & Grand Cherokees. Manufacturers that benefited most from the replacement sales were Ford (Focus ranked #1 & Escape # 5), Honda (Civic #2 & Fit #9), Toyota (Corolla #3, Prius #4 & Camry #6), with the Dodge Caliber (#7), Hyundai Electra (#8) & Chevrolet Cobalt (#10) rounding out the Top Ten list. 

The 200,000+ vehicle exchanges involve < 0.1% of the US vehicle fleet. 


    ∙ In July same store sales of stores open at least a year at the 50+ retailers monitored by the International Council of Shopping Centers were down 5.0% YoY. This was the 11th consecutive monthly drop. Retailers are now starting to worry that consumers’ worries about job security, retirement incomes & home values will affect sales in the critical back-to-school & Christmas shopping seasons, and that consumers’ newly-found frugality & greater spending discipline will linger on long after the economy returns to health. 

The Cash to Clunkers program on the one hand likely stole sales away from other consumer goods & on the other boosted retail sales numbers.  


    ∙ In July US private sector employers cut 371,000 jobs, vs. 463,000 in June. 

While down significantly, this was nevertheless more than the 345,000 expected, while employers were planning increased lay-offs for August.      


    ∙ Kenneth Feinberg must approve bonuses for the 25 best-paid executive at the seven  big banks still having TARP funding, as well as the remuneration of their top 100 bankers. He will face a challenge when on August 13th Citigroup & the Bank of America will seek approval to pay bonuses to their top execs. For New York’s Attorney-General found that in 2008 Citigroup paid US$5.33BN in bonuses while losing US$27.7BN & taking US$45BN in TARP funding, Bank of America paid US$3.3BN in bonuses while also getting US$45BN in TARP funding, and 738 Citi- & 172 Bank of America employees got bonuses exceeding US$1MM. And according to the Wall Street Journal Citi paid its head of energy-trading US$98.9MM last year (& already ‘owes’ him US$100MM for this year).

    ∙ He must resist such payouts by banks that, but for taxpayers’ largesse, would have gone bankrupt & reject arguments that if they don’t pay lavishly, they will lose superstars (who were responsible for causing the problem in the first place). While in principle employers should be free to pay their staff as they see fit, bankers are different. For they play with other people’s money in ways that can be destructive. And their remuneration helped cause the recent meltdown; for it encouraged them to make bets that created huge short-term personal gains but damaged their institutions & the economy. 

It’s unfair to lay blame solely at the banks’ doors. For like every publicly-listed company they are under intense ongoing pressure to generate ever-growing quarterly profits, regardless of the impact on the economy’s & their companies’ long-term well-being. We prefer scapegoating others over accepting our own complicity.  


    ∙ After crashing the economy & fleecing the tax payer, Wall Street is again trying to enrich itself at the expense of the rest of us with economically worthless, if not outright destructive, activities : Goldman & others are now using super-fast computers for ‘high-speed trading’, to beat others by nano seconds in trading securities (one reason for its recent record profits & plans to pay record bonuses)

    ∙ Speculation serves a purpose when it makes the economy run more smoothly. But in 1971 already UCLA economist Jack Hirshleifer found it can combine private profitability with social uselessness. And there may be no better example thereof than high speed trading. For it is hard to see how traders who can place their orders a fraction of a second anyone else enhance in any way the economically constructive capital allocation function of the stock market. While once one might have dismissed this as a minor issue, in the past 30 years the share of GDP from trading activities, as opposed to run-of-the-mill banking, has grown six-fold & soaring incomes in the financial industry have contributed in a big way to our sharply-rising income inequality. Unfortunately neither the administration nor our political system has faced up to the fact that in our society we are now lavishly awarding  those who make us poorer. 

Krugman cheapens himself by crapping all over the financial industry like everyone else. For the problem is rooted in North Americans’ all-pervasive sense of entitlement & focus on rights, and inclination to ignore that the flip side of rights is called responsibilities.  


(LAT, Michael Hiltzik) 

    ∙ In the fight in Congress among those with better government-provided healthcare than the rest of us over a “public option” in health insurance, the question has never been answered why some are so keen to protecting the private option.

    ∙ Wendell Potter was a top executive in the industry for two decades. He told a Senate committee in June that, while the industry promised Congress in 1993 to work to secure universal coverage & end the denial of coverage to people with pre-existing conditions, it had ever since done everything possible to stifle reform &, through mergers & acquisitions, had become better able to do so. For the two largest insurers each acquired 11 other insurers between 2000 & 2007 & now control 67MM “covered lives”. And according to the AMA in 76% of the country one insurer has > 50% of the conventional insurance market.

    ∙ While many people are said to be satisfied with their health insurance that’s due to 20% of the people consuming 80% of the health care services. So most people’s experience with the system is rather superficial. According to the National Small Business Association in 2008 only 38% of small- & medium-sized businesses offered health insurance coverage to their employees vs 67% in 1995.  And if you have any pre-existing medical condition you are virtually uninsurable at an affordable cost in the private health insurance market.

    ∙ The PAC (Political Action Committee) of the Blue Dog Democrats of mostly rural conservatives that blocked a summertime vote on health reform legislation got US$1.2MM from the healthcare industry during the 2009/09 election cycle. And the Campaign for an American Solution advocacy group that calls itself “a grassroots effort to build support for workable healthcare reform” is an “initiative” of America’s Health Insurance Plans (AHIP), the industry’s chief lobbying arm.  

With the vote postponed till fall, the industry will have more time to strong-arm politicians 


    ∙ In the 1960's the US opted for public healthcare coverage for just the elderly & very poor, and Canada for a universal program. As a result :

      ∙ In Canada there is full coverage, no deductibles or co-pays while in the US 46MM people have no health insurance coverage at all, millions more are underinsured & healthcare bills bankrupt over 1MM Americans a year; 

      ∙  Canada spends 10% of its GDP on healthcare & the US 16%. The 6% gap amounts to over US$800BN/year, much of it due to the US’ higher overhead; even US Medicare has lower admin. costs than private plans;

      ∙  Canadians see their doctor more often, have more lung transplants, less heart surgery, live three years longer & have a 20% lower infant mortality.

    ∙ The Canadian system is not problem-free. Thus while, except in a few headline-grabbing cases, Canadians needing urgent care get it promptly, there are too many delays in elective care & chronic disease cases are poorly managed. But in this it is not alone : thus a recent GAO report said emergency room wait times in the US had been increasing & raised concerns about long waits for mammograms despite there being an adequate mammography capacity.

    ∙ US policy makers seem less interested than ever in Canada’s experience. For the US system runs on money and, while analysts see hundreds of billions of premium income wasted on useless overhead rather than health care, the industry & its shareholders only see bonuses & dividends. And the usual American ignorance of what goes on North of its border makes it easy to mislead people with flawed boiler plate anti-government rhetoric; thus claims that Canada’s “socialized” system doesn’t let people choose their own doctors are patently false; the reality is that every Canadian has free choice of his/her physician(s) while it’s the insured Americans who are limited to “in-plan” doctors. 

As the article’s sub-heading puts it, “The caricature of ‘socialized medicine’ is used by corporate interests to confuse Americans and maintain their bottom lines instead of patients’ health.” 


    ∙ If the various healthcare reform bills now in Congress can be successfully synthesized into one coherent & substantial law, Obama will have achieved something that has eluded US presidents since Harry Truman & will have a green light to push through the rest of his ambitious legislative agenda. But inter- & intra-party wrangling have wreaked havoc with his time line (& given the industry more time to try & affect the outcome) and thw process may yet fail.  

If there is no substantive health care reform, he may go “from Superman to Clark Kent.” 


    ∙ Israel & America are in a marital spat-like phase. As a member of both families, I am uniquely positioned to offer marriage counseling to both.

    ∙ The Israelis must accept that Obama’s call for a freeze on settlements heralds  an attitudinal change in America that has been long in the making & that he isn’t the kind of US President they have been successfully manipulating for 40 years while the settlers became more & more entrenched in the West Bank & became an ever-growing moral-, security- & economic burden to Israel (one Haaretz columnist recently estimated the settlement movement has cost Israel US$100BN over the years - most, if not all, of it funded indirectly by the ongoing US subsidization of Israel?) through inexpensive housing &  highly subsidized social services. And American Jewish leaders have used their influence to mindlessly protect Israel from US pressure, sickening many Americans who genuinely care about Israel. And no one better personified the resultant ‘we-are-untouchable’ settler attitude than Rabbi Yigael Shandorfi, the leader of a religious academy in the Nahiel settlement, when in a recent speech he referred to President Obama as “that Arab they call a president.”

    ∙ And while Obama is correct in seeking to get the Israelis to impose a moratorium on settlement-building, the Palestinians to root out the terrorists & the Arabs to normalize their relationship with Israel, he must steer clear of apportioning historical blame (as he did in his Cairo speech). And he must connect with the Israelis, and the threats they feel they face, on a gut level. For if he doesn’t he won’t get anywhere with them.

    ∙ Bottom line : Israel must come to grips with no longer having the run of the White House & having a real problem with America on the settlements, and Obama with the fact that in Arab-Israeli affairs the less you say & the more you do, the greater are one’s chances of success 

Unfortunately Netanyahu is being held hostage politically by those with no interest in listening to advice from anyone but God himself (and they know what he is telling them). 


    ∙ In 2002 the UN Development Program’s first-ever Arab Human Development Report detailed the deficits of freedom, women’s empowerment & knowledge creation that were holding back the Arab world. It bolstered its case by noting Greece each year translates 5x as many books from English into Greek than the Arab world did into Arabic, that the GDP of Spain exceeds that of all 22 Arab states combined & that 65MM Arabs are illiterate.

    ∙ The UNDP & a hundred or so Arab scholars have now come up with a new Human Development Report that many Arab governments won’t like any better than the first; for it says that too many Arabs lack the  material foundation that secures lives, livelihoods & quality of life needed for human development. And that this is not just a matter of environmental degradation, desertification & water shortages but also of population growth : in 1980 the region’s population was 150MM, today it is 320MM & by 2015 it is expected to reach 395MM. With  60% of that population aged 25 or less, 51MM new jobs must be created by 2020. So one key source of Arab insecurity is unemployment (that averages 14.4%, vs. 6.3% for the rest of the world).  Since 1980 there has been only limited per capita economic growth & little investment in scientific research, development, knowledge-based industries or innovation.

    ∙ On the other hand, on the West Bank the IMF expects the economy to grow by 7% this year. This is due to Fayyadism. Salam Fayyad has an MBA for St. Edwards University & a PhD in Economics from the University of Texas (both located in Austin) and after having been Finance Minister in the Fatah PA government has been Prime Minister since Hamas seized power in Gaza in 2007. He is an Arab leader like no other, famous for being incorruptible & being an ardent Palestinian nationalist. But he believes that the more quality institutions are created on the West Bank in finance, police & social services, the sooner the Palestinian right to their own state will be secured (in contrast to “Arafatism” that focuses on Palestinian rights rather than institutional capacity-building). And with the Israeli-Palestinian conflict being to the Middle East what off-Broadway is to Broadway, i.e. a place where good & bad ideas are tested out, if Fayyadism can be made to work on the West Bank, it could set a trend for the entire Arab region. 

Fayyad has an impressive CV : before becoming Finance Minister & then Prime Minister, he worked at the St. Louis Fed, the World Bank & the IMF  


    ∙ Retail trade in the 16 Eurozone countries fell unexpectedly by 0.2% (& were down 2.4% YoY), while economists had expected a 0.2% increase. 

It is becoming increasingly apparent that the recovery in Europe (& in North America) is unlikely to as vigorous as politicians would like to see. On the other hand, what happens in 15 of these countries will matter less than in Germany where the outlook is a bit better 


    ∙ Four months before the Copenhagen negotiations China’s chief climate change negotiator, Yu Qingtai, confirmed that it, now the world’s leading polluter in total but still a modest one on a per capita basis, expects the developed countries to reduce their emissions by 2020 by 40% from 1990 levels,  since “We have all along believed that due to the historical responsibility of the developed nations, they must continue to take the lead with large reductions beyond 2020.”

    ∙ And India’s climate change envoy, Shyam Saran, said India expects the “hypocritical” Western countries to sacrifice some luxuries before asking developing countries to cut their emissions, that his country will not take any measures that could restrict its growth, that it will act on any further measures demanded by the developed countries only if accompanied by full funding & technological support & that “No one is prepared to touch their living standards ... If Europe or the US increased fuel taxes by $1 a litre, it would make a substantial change in private transport, a major source of emissions.” 

Meanwhile, India’s Health Minister recently made an impassioned plea to bring electricity to every Indian village since “When there is no electricity, there is nothing else to do but produce babies ... (but) if there is electricity ... people will watch TV till late at night and then fall asleep.” (its population is currently growing by 18MM - 1.7% - per annum.  


    ∙ 38 year-old Hu Haifeng is Hu Jintao’s son & thus a “princeling”. He is an official of Tsinghua Holdings, a state-owned holding company that among others controls Nuctech (a company of which he was president until a year ago). Investigators at the Anti-Corruption Commission in Namibia now, after having arrested Nuctech’s African representative, Yang Fan, & two local businessmen, want to talk to him about a US$55MM deal between Nuctech & the Namibian government for security scanners.  Although he is merely ‘a person of interest’, Chinese sensors have been working overtime to keep his name out of the news. 

The effectiveness of spreading & chanelling popular discontent by Twittering in Iran is of concern to all authoritarian regimes.

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