Ways We Bring in the New Year

While 2011 was not as bad as some recent years, it is fair to say that most will happily bid it farewell hoping for a better one in its place. And to help the ‘fates’ along many will be extra vigilant in observing some traditions and superstitions.  

Here in the South, the surest way to improve the year ahead is a hearty course of black-eyed peas. They have been a staple in this region for over 300 years. In the early days they provided feed for livestock (cowpeas) and food for the slaves. Peas were also used to replenish nitrogen in the soil. But the black-eyed pea would gain substantially more stature during the ‘War of Northern Aggression.’ One story of its rise from humility centers around the 40-day siege of Vicksburg. As supplies ran out in town, people suffered on the brink of starvation. Out of desperation they turned to black-eyed peas for sustenance.

Another story features the pea’s prominence as the only food crop left standing after General Sherman’s infamous “March to the Sea.” Burning his way through the Southern states, Sherman destroyed all cash and food crops in his path to bring the war to a faster conclusion. Not wanting to add more misery to the plight of the slaves or the livestock, he spared their feed crops. Thus, the lowly black-eyed pea became a valuable source of nutrition during the difficult times that would follow and southerners considered themselves fortunate to have them.

Through the years the peas have come to symbolize coins for prosperity. Some add a dime to the peas for an extra boost of luck. Collard greens were added to the menu as a symbol of folding money. Toss in a little cornbread for the gold and you have the ingredients for bringin’ in a daggoned prosperous New Year! An old saying goes, “Eat peas on New Year's Day to have plenty of everything the rest of the year.”

Food plays an important role in bringing in the New Year around the world. Cabbage is associated with wealth and prosperity. The word "cabbage" is also slang for money. In Germany, eating sauerkraut at New Year's is considered good luck. In China, long noodles represent long life and good health. Don't cut them, though. You need to have those noodles make it into your mouth in one piece if you want good luck. Spring rolls, too, are considered good luck.

In Italy, lentils are supposed to bring you good luck if eaten on New Year's. In some other parts of that country, eating risotto is considered to bring good fortune. In some countries, the circle is considered a symbol of good fortune. A circle always comes back to the beginning. In Holland, they eat doughnuts to bring good luck. In Spain (and other Latin countries), good luck is sure to come when you eat 12 grapes at the stroke of midnight on Dec. 31^st. That tradition dates back to 1909, when grape growers in the Alicante region of Spain initiated the practice to take care of a grape surplus. In Germany and Austria, eating pork is good luck. According to the theory, pigs root forward, symbolizing forward movement in the New Year.

If forward movement is good, then backing up is bad. Epicurious.com reminds us that lobster is a bad food choice to start the new year because they move backwards and could therefore lead to setbacks. Chicken is also discouraged because the bird scratches backwards, which could cause regret or dwelling on the past. Another theory warns against eating any winged fowl because good luck could fly away.

In Greece, New Year's Day coincides with the Festival of St. Basil, one of the founders of the Greek Orthodox Church. One of the traditional foods served is Vassilopitta, or St Basil's cake. A silver or gold coin is baked inside the cake. Whoever finds the coin in their piece of cake will be especially lucky during the coming year.

Many traditions go beyond food. In Japan, according to infoplease.com The New Year is the most important holiday. It is a symbol of renewal. In December, various Bonenkai or “forget-the-year parties” are held to bid farewell to the problems and concerns of the past year and prepare for a new beginning. Misunderstandings and grudges are forgiven and houses are scrubbed. At midnight on Dec. 31^st, Buddhist temples strike their gongs 108 times, in an effort to expel 108 types of human weakness. New Year's Day itself is a day of joy and no work is to be done. Children receive otoshidamas, small gifts with money inside. Sending New Year's cards is a popular tradition—if postmarked by a certain date, the Japanese post office guarantees delivery of all New Year's cards on Jan. 1^st.

Hogmanay (hog-mah-NAY) Scotland, the birthplace of “Auld Lang Syne,” is also the home of Hogmanay, the rousing Scottish New Year's celebration. One of the traditions is “first-footing.” Shortly after midnight on New Year's eve, neighbors pay visits to each other and impart New Year's wishes. Traditionally, First foots used to bring along a gift of coal for the fire, or shortbread. It is considered especially lucky if a tall, dark, and handsome man is the first to enter your house after the New Year is rung in. The Edinburgh Hogmanay celebration is the largest in the country, and consists of an all-night street party. infoplease.com

The most beloved song sung at the stroke of midnight is “Auld Lang Syne.” It was first published by poet Robert Burns in 1796. The name literally translates as “old long since” meaning times gone by. Should we forget old friends and times, we’ll ‘take a cup o' kindness’ still and drink them goodwill though we be separated by time or distance.

If Robert Burns penned, it, Guy Lombardo made it famous. As noted in infoplease.com, Lombardo first heard "Auld Lang Syne" in his hometown of London, Ontario, where it was sung by Scottish immigrants. When he and his brothers formed the famous dance band, Guy Lombardo and His Royal Canadians, the song became one of their standards. Lombardo played the song at midnight at a New Year's Eve party at the Roosevelt Hotel in New York City in 1929, and a tradition was born.

After that, Lombardo's version of the song was played every New Year's eve from the 1930s until 1976 at the Waldorf Astoria. In the first years it was broadcast on radio, and then on television. The song became such a New Year's tradition that “Life magazine wrote that if Lombardo failed to play ‘Auld Lang Syne,’ the American public would not believe that the New Year had really arrived.”

Should old acquaintance be forgot,
and never brought to mind ?
Should old acquaintance be forgot,
and old lang syne ?
CHORUS:
For auld lang syne, my dear,
for auld lang syne,
we'll take a cup of kindness yet,
for auld lang syne.
CHORUS

And surely you’ll buy your pint cup !
and surely I’ll buy mine !
And we'll take a cup o’ kindness yet,
for auld lang syne.
CHORUS

We two have run about the slopes,
and picked the daisies fine ;
But we’ve wandered many a weary foot,
since auld lang syne.

CHORUS

We two have paddled in the stream,
from morning sun till dine^† ;
But seas between us broad have roared
since auld lang syne.

CHORUS

And there’s a hand my trusty friend !
And give us a hand o’ thine !
And we’ll take a right good-will draught,
for auld lang syne.

CHORUS

The official beverage for celebrating New Year’s is of course Champagne. Ryan Newhouse tells us it was first discovered in 1531 by the Benedictine Monks in the Abbey of Saint Hilaire. The wine gets its sparking qualities by infusing sugars after primary fermentation in order to stimulate dormant yeast and create the wine’s carbonation. Forty years after its initial discovery, a monk name Dom Perignon was claimed to be the true inventor of Champagne, though that remains a myth. To be labeled Champagne, it must come from the Champagne region of France, adhere to certain aspects of viticulture and contain specific blends of grapes.

Ryan adds that “by 1850, demand for Champagne reached international markets and production grew to 20 million bottles a year. Around this time, a less-sweet Champagne was invented by Perrier-Jouët, who decided not to sweeten his 1846 vintage before transporting it to London. By 1876, Brut Champagne was created primarily for the British, who preferred the not-so-sweet version of Champagne.

If you want to get the most fizz from your ‘bubbly’ scientists say you should hold your glass at an angle rather than pouring it straight down. Livescience.com tells us that “the secret is in the bubbles, or more precisely, the dissolved carbon dioxide that creates them once the bottle is uncorked and poured into a glass. Unfortunately for champagne drinkers, much of the carbon dioxide escapes without creating bubbles. That study, published in 2010 in the Journal of Agricultural and Food Chemistry, showed that a beer-like pour creates less turbulence (when the drink hits the glass), and hence, allows less carbon dioxide to escape into the air.” Another study, at the expense of your tax dollars reported in the fall of 2009 in the journal Proceedings of the National Academy of Sciences, revealed that the 10 million or so bubbles that pop from a glass of the sparkling wine carry loads of aromatic molecules that ultimately spray into the air right under your nose.

If Guy Lombardo officially kicks-off the New Year then football is officially how the day should be enjoyed, according to most American males anyway. The traditional Rose Bowl football game was first played as a part of the Tournament of Roses in 1902. After a brief interruption with some Roman chariot races, the game returned in 1916 to remain the sports centerpiece of the festival.

But for all of our celebrations and superstitions, we all sense a yearning to refocus our energies and our talents on the opportunities the year ahead promises. We consider the day, perhaps more than any other, a day for looking ahead at what might be, for considering dreams and goals.

Dave Kohl, professor emeritus at Virginia Tech, has found that people who regularly write down their goals earn nine times as much over their lifetimes as people who don’t, and yet 80% of Americans say they don’t have goals. Sixteen percent do have goals, but they don’t write them down. Less than four percent write down their goals, and fewer than one percent actually review them regularly. We couldn’t agree more with Dr. Kohl. In fact our business is devoted to helping the 1% turn their dreams into goals, and goals confidently into reality.

No matter how you celebrate your New Year, we wish you a safe and happy one. When we next meet, we look forward to hearing what is it you can’t wait to do?

Happy New Year!

Interesting Facts about Christmas

Christmas is celebrated on the 25th of December and commemorates the birth of Jesus Christ.

The word Christmas is derived from the Old English word “Cristes maesse” which literally translates to Christ's Mass.

Many consider it disrespectful to replace Christ’s name with an ‘X’ considering it shorthand at best and at worst removes Christ from Christmas. However, Xmas is almost as old as the feast to which it refers – the ‘X’ is the Greek letter chi which is the first letter of Christ’s name in Greek (Χριστός). Listverse.com

In the early Church, Christmas was not celebrated as a major feast. The first evidence of the Church attempting to put a date on the day of Christ’s birth comes from 200 AD, when theologians in Alexandria decided it was the 20th of May. By the 380s, the Church in Rome was attempting to unite the various regions in using December 25th as the universal feast day, and eventually that is the day that stuck. As so often was the case in the early Church, the influence of the pagan feasts of Rome is seen, because December 25 was the festival for the birth of the sun, the Saturnalia festival. St Cyprian makes mention of this: “O, how wonderfully acted Providence that on that day on which that Sun was born . . . Christ should be born.” Listverse.com

During the reformation of the 19th century Church leaders grew concerned with Christmas’ association with paganism and some protestants distanced themselves from the tradition. Puritan British Prime Minister Oliver Cromwell outlawed Christmas celebrations and carols in England from 1649-1660. The only celebrations allowed were sermons and prayers. The 20th century brought a general acceptance of the tradition despite the criticisms that were originally set against it. ChristmasFacts.net

The tradition of gift-giving is strongly associated with Paganism. The Roman festival of Saturnalia featured periods of gift-giving and the practice was later incorporated into the traditional Christmas celebrations. The gifts started out very modest and evolved to include more elaborate expressions of love. This was not met with full acceptance by some Christians who disliked the Pagan connection. However, supporters of gift-giving, likened the activity to that of the Magi, who gave gifts to baby Jesus, in this regard it became symbolic and necessary to the grand tradition of Christmas. ChristmasFacts.net

“Santa Claus became a part of the Christmas tradition around the Middle Ages, however, his part in Christmas was not popularized until after he was depicted as a jolly stout old man wearing a red and white suit in the 19th century. This figure of Santa was immediately captured by celebrants all over. The character of Santa Claus is said to be inspired by Saint Nicholas of Myra, a bishop, who went around giving the poor children of his village gifts. The legend of Santa centers in the North Pole and his magical workshop of elves. Every year he makes presents for those children who were nice. Those who were naughty received nothing but a lump of coal. The figure of Santa has become inseparable from the tradition of Christmas on a whole.” ChristmasFacts.net

If you counted all the gifts given in the “Twelve Days of Christmas” you would reach a total of 364, thus a gift for each day of the year. ChristmasFacts.net

The “true love” mentioned in the song “Twelve Days of Christmas” does not refer to a romantic couple, but the Catholic Church’s code for God. The person who receives the gifts represents someone who has accepted that code. For example, the “partridge in a pear tree” represents Christ. The “two turtledoves” represent the Old and New Testaments. Stories Behind the Great Traditions of Christmas

Christmas By The Numbers – History.com

95% of Americans say they celebrate Christmas

93% of Americans exchange gifts

74% of Americans attend parties

88% of Americans put up trees

65% of Americans attend religious services

Americans buy 25-30 million real Christmas trees every year.

There are 350 million Christmas trees growing in the US

The top Christmas-tree producing states are North Carolina, Washington, Oregon, Pennsylvania, Michigan, and Wisconsin. Trees are grown in all 50 states.

Americans send 1.5 billion Christmas cards a year.

This day, the eve of Christmas eve, over one third of the Americans are traveling. Bloomberg News

America produces 1.76 billion candy canes each year. Laid end to end would get you almost three quarters to the moon. 

The world’s largest Christmas present was the Statue of Liberty. The French gave it to the US in 1886. It is 46.5 meters high and weighs 225 tons.

It is estimated that “White Christmas” written by Irving Berlin and performed by Bing Crosby is the best-selling single of all time, with over 100 million sales worldwide. Encyclopedia of Christmas

Visa Cards are used 5,340 times a minute during Christmas time.

December 26^th was traditionally known as St Stephen's Day, but is more commonly known as Boxing Day. This expression came about because money was collected in alms-boxes placed in churches during the festive season. This money was then distributed during to the poor and needy after Christmas.

Christmas purchases account for 1/6 of all retail sales in the US.

Christmas stockings allegedly evolved from three sisters who were too poor to afford a marriage dowry and were, therefore, doomed to a life of prostitution. They were saved, however, when the wealthy Bishop Saint Nicholas of Smyrna (the precursor to Santa Claus) crept down their chimney and generously filled their stockings with gold coins.

Merry Christmas and "God bless us, every one!" Tiny Tim (Charles Dickens)

Thomas Jefferson on 'Ineptocracy'

Ineptocracy (in-ep-toc-ra-cy) - a system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.  Anonymous via the Internet

When President John F. Kennedy welcomed forty-nine Nobel Prize winners to the White House in 1962 he said, “I think this is the most extraordinary collection of talent and of human knowledge that has ever been gathered together at the White House - with the possible exception of when Thomas Jefferson dined alone.” 

“The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.”  Thomas Jefferson 

“It is incumbent on every generation to pay its own debts as it goes.  A principle which if acted on would save one-half the wars of the world.”  Thomas Jefferson 

“I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”  Thomas Jefferson 

“My reading of history convinces me that most bad government results from too much government.”     Thomas Jefferson 

“To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical.”  Thomas Jefferson

“I believe that banking institutions are more dangerous to our liberties than standing armies.  If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered.”  Thomas Jefferson 

“When we get piled upon one another in large cities, as in Europe, we shall become as corrupt as Europe.” Thomas Jefferson 

How could we, the stewards of a government so carefully crafted by Mr. Jefferson and his founding brothers, have wandered so far from the principles they carefully laid out to guide us in only 10 generations? The answer is not really a long and complicated one, it can pretty much be summed up by Mr. John Corzine and MF Global, in a word “corruption.” And the fault is yours and mine.  

Corruption is not new to the 21^st century, but we have allowed it to escalate to unprecedented levels in far too many American institutions including business, education, labor, and most importantly, Washington. Thomas Jefferson, John Adams and the Founding Fathers under the tyranny of King George, knew very well that power corrupts and they designed our government accordingly, allowing the people to replace it frequently. What they didn’t envision was professional politics made possible by an apathetic and uneducated electorate.  

The problem with the modern version of Mr. Jefferson’s government is that professional politicians like _________, _________, and __________ are very good at getting elected and, for the same reason, very poor at leading and governing. Their corrupt short-term self and party interests blind them to the more substantive and far reaching issues facing our nation and future generations. Very few of them understand how the engine of this country works. They seem content to drive it into the ground without regard for its basic maintenance, much less, respect. 

Congress is bogged down pointing fingers with pipelines and taxes, while the debts we ‘pass on to future generations’ mounts by the billions. Our President steers us toward Socialism, despite the lessons history teaches of its many failings and despite the glaring example of Europe.  

A country is made strong by is its people and economy they create. The most effective leaders understand that they are in position to serve the people by organizing and challenging them to achieve common goals and to thrive. Mr. President and Congress, “stop wasting the labors of the people under the pretense of taking care of [us].” Lead as one serves.

A Silver Lining?

It’s been a busy week in the world of finance. As you have no doubt heard, no thanks is due to the Congressional ‘super-committee’ in their failure to agree on cuts to the nation’s swelling deficit. Fitch, the last of the big three credit-rating agencies lowered the US credit outlook to negative making the probability of a downgrade from AAA greater than 50%. Retailers and investors popped Champaign corks on the news of Black Friday’s $11.4 billion record sales. US unemployment fell to 8.6% on the strength of 278,000 new hires and 315,000 Americans leaving the workforce. Manufacturing, housing, and construction data show improvement while American and European political leaders do not.

The dysfunction that pervades Congress was this week formally recognized by Fitch when the credit rating agency finally recognized that “declining confidence that timely fiscal measures necessary to place US public finances on a sustainable path will be forthcoming.” Fitch has not lowered its AAA rating on US debt, but placing them on negative credit watch suggests better than a 50% chance it will happen in the coming two years. In its own comments earlier, S&P which has already lowered its rating on US debt from AAA to AA+ said that a further downgrade was not necessary at this time because the committee’s inaction will trigger $1.2 trillion in automatic spending cuts. President Obama has promised to veto any bills from Congress that would undo the automatic cuts.

In response to the missed opportunity by the super-committee, David Riley, Fitch’s head of sovereign ratings in London, said yesterday in a telephone interview with the WSJ “the scale of any subsequent budget cuts are probably going to have to be larger than they otherwise would have been and certainly implemented in faster manner.” U.S. federal debt held by the public will exceed 90% of gross domestic product by the end of the decade, while interest on the debt will require more than 20% of tax revenue, Fitch said. Gross debt, including local and state governments, will climb to 110% of GDP during that span, a level that “would no longer be consistent with the U.S. retaining its ‘AAA’ status,” the firm said.

On Monday, Equity investors were able to turn their attention away from US and European debt crises toward the more pleasant Black Friday and Thanksgiving weekend sales records. US shoppers spent a record $52.4 billion during Thanksgiving weekend in stores and online, representing a 16% increase over last year. Consumer confidence also surged this month with improvement centered in employment. The Conference Board's confidence measure jumped more than 15 points to 56.0 from 40.9 in October. Econoday says the November reading is the best reading since the debt-ceiling debacle and cut of the US credit rating in August.

In that consumer represent 70% of the US economy, that’s great news. But hold on a minute. Bloomberg’s Caroline Baum points out the emptiness in the hope that the consumer alone will revive our economy. She says “the wealth of nations comes not from what we spend but from what we sow: what we set aside to be invested in productive capacity.” If we don’t invest in tomorrow, there will be no money to spend tomorrow. Merriam-Webster defines consumption as “the utilization of economic goods in the satisfaction of wants ... resulting chiefly in their destruction, deterioration, or transformation.” “’Destruction’ should be a tip-off that whatever it is, it isn’t wealth.” This writer thoroughly agrees.

Baum includes the Federal Reserve as complicit in the problem. By holding its benchmark interest rate so close to zero and pledging to keep it there at least through mid-2013, consumers are not getting paid to save. In fact, when inflation is factored in, they are getting a negative rate. So they spend. High real rates (interest less inflation) induce consumers to forgo current spending and save. She says that “households have been deleveraging for three years in an attempt to repair their balance sheets. Yet many economists and policy makers advocate more borrowing and spending as a cure for what ails the economy, and cheer as mall rats infest stores in the middle of the night.” She adds that “it should be obvious that the US suffers from an extreme case of short-term thinking, and it underpins decisions on everything from tax-and-spend policy to monetary policy.”

A lot of economic data was released this week and the vast majority of it was indicative of recovery, albeit modest. The number that will get the most press and make the Administration the happiest is that headline unemployment declined from 95 to 8.6%. Unfortunately, it does not indicate a robust job creating economy. Non-farm payrolls increased by 120,000 in November, 80,000 in October, 158,000 in September and 104,000 in August. The results are anemic by historical recovery standards and much of the improvement in unemployment is due to a smaller denominator; 315,000 people left the job market discouraged.

Manufacturing in the US continues relatively strong and shows signs of improving. The Chicago Purchasing Managers’ Index jumped to 62.6, far above 50 which indicates monthly growth and well above October's 58.4. The ISM Manufacturing index also shows orders trending higher. The new orders index was up a very strong 4.3 points to 56.7 indicating strong growth in November. This index was stuck at levels slightly below 50 for several months.

The Fed’s Beige Book released this week largely confirmed the view of most economists that the economy is improving, but gradually. The report said “Overall economic activity increased at a slow to moderate pace since the previous report across all Federal Reserve Districts except St. Louis, which reported a decline in economic activity. District reports indicated that consumer spending rose modestly during the reporting period. Motor vehicle sales increased in a number of Districts, and tourism showed signs of strength. Business service activity was flat to higher since the previous report. Manufacturing activity expanded at a steady pace across most of the country. Overall bank lending increased slightly since the previous report, and home refinancing grew at a more rapid pace.”

There was some welcome improvement in the housing sector this week as well. New home sales rose a solid 1.3% in October. Price pressures continue but are less severe than prior months, according to Econoday. The median price slipped 0.5% in the month to $212,300 but the year-on-year rate turned positive, at plus 4.0% vs. a revised minus 6.5% in the prior month. Supply on the market fell slightly to 6.3 months at the current sales rate vs. September's revised 6.4 months. The pending home index, which is a measure of contract signings for sales of existing homes, jumped 10.4% in October to 93.3. The gain points to strength in final sales of existing homes for November and December though cancellations, tied to low appraisals that keep buyers from selling their own homes and to restrictions to credit access, have been cutting into the proportion of contracts that make it to closing, says Econoday.

In Europe, political leaders, the ECB and the region’s largest banks are busy putting forth proposals aimed at saving the euro. Tony Blair said in an interview with the Wall Street Journal that the single currency project was politically driven from the beginning, but it is an economic program, and the economics of the project must catch up and meet the politics for it to survive.  A break-up of the euro in any form would be economically “devastating” for the region, Mr. Blair said. The political fallout from a break-up would be harder than the difficult politics needed to reach a deal to save the currency, he added.

Germany vehemently opposes using the European Central Bank as Europe's lender of last resort, saying that politicians need to establish clear political rules for monetary union and robust, automatic sanctions for violators of the restrictions on debt and deficits. Ms. Merkel and Mr. Sarkozy of France have said that euro-zone countries should allow European review of national budgets, and introduce “more automatic and more severe sanctions” on budget sinners. “There cannot be a single currency without economic convergence,” Mr. Sarkozy said in his one-hour address yesterday, “Or the euro zone will explode.”

Just as in Europe, US politicians are relying on ‘automatic’ measures to replace cohesive and responsible government which look more and more like a thing of the past. It appears now that automatic spending cuts of $1.2 trillion will go into effect because the elected government of the US cannot effectively budget in the case of Congress or execute in the case of the Administration. Not automatic are several issues the Congress must tackle by year-end. President Obama’s payroll-tax cut and unemployment benefits are both set to expire by 12/31. Additionally, payment adjustments to doctors by Medicare also expire year-end. And there’s that seemingly incessant need to fund the government, which runs out of money on December 16^th.

The economy may be getting better, but it’s becoming increasingly difficult to ignore the big gray cloud on top of the silver lining. Ms. Merkel of Germany emphases that her strategy has always been to use the crisis as an opportunity to achieve long-term change in the European Union. In Europe and in the US long-term solutions will not soon stem the crises we face, but they are vital if we are to escape the crushing weight of the gray cloud of debt. Automatic fixes will not get the job done either. As we consider our votes for Congress and President next year, we would all do well to listen for candidates who champion long-term remedies for our problems, not worthless tonics that leave nothing but the bitter aftertaste of more permanent debt.

Comedy or Tragedy?

Global investors and credit rating agencies alike are closely watching dramas on two world stages. The first is playing a very small stage with no audience and a limited run. The final curtain call for the Congressional Super-committee to reach their plan for cutting $1.2 Trillion from the federal deficit is just four days away, if you count the 48 hours required by the Congressional Budget Office to score it. The actors are evenly divided between protagonists and antagonists (depending upon your political point of view of course) working from the same economic script. In stark contrast, the second stage spans an area roughly the size of the southern and eastern United States, the actors are all protagonists, but in this drama each actor must work both from his own economic script while crafting a common script to save their European Union, their banking system, and their respective economies.

Prospects for the super-committee, a microcosm of Congress, delivering an effective deficit-cutting plan to its parent bodies are dimming as the deadline draws near. Comments from aids indicate that ideology continues to trump innovation and courage. In the event of failure, automatic spending cuts kick in starting January 2013. About half of the cuts will be imposed upon the Defense Department. While all of government could stand some additional belt-tightening, the idea of forcing 50% of the cuts on a department that accounts for only 20% of the federal budget seems truly moronic, particularly during a time of war and escalating global tensions. It’s also the part of the budget that directly creates productive jobs. Job creators in communities that house small and mid-sized military bases will feel the impact early, as will private military contractors and manufacturers. So in short, automatic cuts translate into an near-immediate direct and indirect jobs killer.

Some say that what Congress does, Congress can undo. But the theory ignores the potential for significant, even catastrophic political and economic backlash such actions will have. In part due to these threats, House Speaker Boehner has said that he feels “bound” to go along with the automatic cuts. Senate Majority Leader Harry Reid this week also ruled out any change to the cuts. More importantly, the credit rating agencies are watching Congress like hawks. They have already warned that failure to make significant cuts in the deficit will almost certainly result in further downgrade to US debt. The first one had no negative impact on markets. Lawmakers may not get another mulligan.

There is another and far better possible outcome that should the committee fail in its charge, Congress could take up the $4 trillion deficit-cutting package presented months ago by former Senator Alan Simpson (R., Wyo.) and former White House Chief of Staff Erskine Bowles. Many in Congress have publically heralded the panel’s work already, so it might be just the right port in the storm. However, passage would require not 51 votes as with the super-committee’s plan, but 60 – potentially too high a bar.

As politicians weigh the consequences of failure against the almost certain political backlash of being booted by voters, they will be compelled to get the job done. Unfortunately, what seems just as likely is that ‘the job’ will look and feel pretty much like the status quo that put us in this mess. As a country we are more fundamentally divided than at any time since the 1860’s. There is a clear division between Republicans and Democrats of Big vs. Small Government. But more fundamentally, those who produce in this country and shoulder the debt have had enough of the status quo two-party system and they have revolted bringing us as a nation to a decision next November. The ability to compromise is very nearly gone.

Truth is Congress really hasn’t compromised for years. The two parties have largely passed on the sum of their two budgets (billions in excess of receipts) to future Congresses and generations to pay with political and human capital. Next November as a nation we will decide whether we will continue in the direction of European-style Socialism or return (painfully at first) to our roots of private initiative and free-market capitalism.

On a stage across the Atlantic plays a more complicated drama, but with equal significance to our global future. The European Union consists of 27 independent member states, each with its own economic problems brought on by years of recession. The primary purpose of the Union is to promote policies aimed at ensuring the free movement of people, goods, services, and capital among the member-states, much like that which exists here in the United States. Unlike the US’ powerful Central Bank, able to exert extreme monetary influence over the entire country, the European Central Bank is anemic by comparison. In the EU there is only loose central governance, taxation (for healthcare) and policy direction. Whereas in the US policymakers have complete control over the states and banking system, EU officials must answer first to their own nation’s voters and agendas.

European Banks within the member states own huge amounts of each other’s sovereign debt. Investors currently fear that if one of the member states (such as Greece) defaults the capital required of banks might be jeopardized. If for instance Italy’s largest bank became undercapitalized due to a Greek default, it could imperil the already weak economy causing investors to lose confidence in Italian bonds, driving their prices down. Italian bonds, which comprise even larger amounts of European bank capital in their declines might hazard a Spanish bank’s capital, and the dominos begin to fall.

The two largest member-states Germany and France are publically arguing over the role of the European Central Bank ECB while delays are causing investors to lose confidence in the ability of the bank and policy makers to fend off a crisis. At issue is the structuring a 50% write-off of Greek debt which is the cornerstone the latest plan. Investors seem to have no more confidence in the latest plans then they do the three that have preceded it.

According to Bloomberg, since last month’s agreement, the euro has lost 2.3% against the dollar and borrowing costs on two-year Italian government debt have jumped 1.35%. The cost of insuring against a default on five-year Italian debt using credit default swaps has jumped 23% in the period. Near term the Euro problem is one of confidence, in both the imperiled member states and the Union’s ability to ward off future problems. But the long term issues are the same as the US faces, only more difficult to fix.

The dramas are coming to a climax. Politicians unashamedly use government largess to advance their own purposes creating huge national debts that are becoming irreversible. They threaten the very sovereignty of nations both without and within. Thomas Sowell once wrote that “Socialism, in general, has a record of failure so blatant that only an intellectual could ignore or evade it.” If politicians in this country and Europe continue their use of it to their own advantages, with the full support of a blithe intelligentsia and media, and with the unconditional support of voters forced into dependence, then this drama and the one in Europe will be written into history as the world’s greatest tragedy.

Back in the 80’s Bonnie Tyler asked “Where have all the good men gone? … Where's the streetwise Hercules to fight the rising odds? Isn't there a white knight upon a fiery steed? We need a hero.”

"We Are All Greeks" (Updated)

The Federal Reserve Open Market Committee met this week and held to the major tenets of its monetary policy. Rates will remain unchanged at near zero; Operation Twist will continue to extend purchases of longer-term Treasuries; language that rates will remain exceptionally low through mid-2013; and principal payments from its holdings of agency debt will be reinvested in agency mortgage-backed securities. The Committee anticipates “a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually.” The statement also said that the FOMC “anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate (inflation and employment) as the effects of past energy and other commodity price increases dissipate further.”

At the margins, the economy is clawing its way back. But the modest gains reported this week regrettably do not portend an end to the malaise this great economy suffers.  Regardless of what the administration and the Federal Reserve say, there is no way this economy resumes its potential until debt and deficit spending are addressed both here and abroad. We must endure the painful consequences of reversing decades of excess. There is NO magic medicine.

Erskin Bowles, co-leader of President Obama’s fiscal commission told the congressional supercommittee seeking a $1.5 trillion debt-reduction package, “I’m worried you’re going to fail.” The 12-member panel is just three weeks away from its deadline with no agreement in sight.

Former Senator Pete Domenici of New Mexico, a Republican, criticized Democrats who oppose changes to Medicare and Republicans who refuse to accept tax increases. “They are both complicit in letting America destroy itself, in letting this great democracy destroy itself because we don’t want to make tough decisions,” Domenici told the supercommittee. “I hope you heard that.”

Chuck Bently of Crown Financial Ministries notes that Veronique Riches-Flores of France’s largest bank, Societe Generale, recently entitled her analysis of the crisis, “We are all Greeks.” According to Bently, “she was bluntly pointing out that the member nations of the Organization for Economic Cooperation and Development (OECD) all have unsustainable levels of debt. Essentially she made the case that both the US and European nations are facing tough choices ahead and that she foresees the need for austerity plans in most of the Western world.”

The hour has come, for this country and Europe, which are rushing headlong into the abyss, to deal with, not only debt and deficit spending, but more importantly, the pathalogical spending beyond means. It is an attitude particularly ingrained in our political system. Democrats and Republicans stand diametrically opposed on the role of government. Each year as they debate the so-called budget, they undertake an impossible mission; to reconcile small government and large government. When they fail, as they inevitably always will, they simply spend amounts they must on each side to re-gain election and pass the self-serving spending excesses onto the next Congress and the mounting debt to future generations.

We are all Greeks and our future is unfolding before our very eyes in Europe. We united as a country to save ourselves from a $5.00 fee banks were going to charge us for using our debit cards to spend our own money. The quesiton in the coming year is; will Americans unite to save ours and future generations from a growing and crippling dependence on government? Will we allow ourselves to be distracted by the political sideshow that is "Occupy Wall Street" while the largest and most corrosive corporate monopoly in the land - Washington DC - grows ever more powerful? Next November we will know whether this country will remian on the smooth downhill road to Greece, or the difficult road less traveled. The Greeks have given us Democracy and a warning. Here's praying we use the first to heed the second.

We Are All Greeks

The Federal Reserve Open Market Committee met this week and held to the major tenets of its monetary policy. Rates will remain unchanged at near zero; Operation Twist will continue to extend purchases of longer-term Treasuries; language that rates will remain exceptionally low through mid-2013; and principal payments from its holdings of agency debt will be reinvested in agency mortgage-backed securities. The Committee anticipates “a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually.” The statement also said that the FOMC “anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate (inflation and employment) as the effects of past energy and other commodity price increases dissipate further.” 

In a very good sign for the economy, productivity rebounded and annualized 3.1% in the third quarter after dropping 0.1% in the previous quarter. Also good from an inflation standpoint, unit labor costs fell an annualized 2.4% reversing a 2.8% increase in the second quarter. However, compensation growth rose only 0.6% compared to a 2.7% rise in Q2.

The ISM gave further support to the thesis of improvement in manufacturing. The ISM new orders index moved into positive territory to 52.4 in October after three months of contraction. Many elements of the report including employment and production were little changed. But particularly noteworthy was that prices paid were down 15 points to 41.0, the lowest reading in 2-1/2 years.

On a regional basis, the Chicago Fed reports healthy business activity as indicated by very strong rates of monthly expansion in purchasing rates of 58.4 (anything above 50 indicates expansion). Orders, the most important component, point to improving production and employment in the coming months as businesses expand.

Also on the positive side of growth was Construction Spending, inching forward at 0.2% in September following a 1.6% rise in August. Residential construction led the way and was followed by private non-residential construction. Public outlays declined 0.6% in September following a 3.5% jump the prior month.

Factory orders rose 0.3% in September on strength of petroleum and coal on the non-durable side, which are sensitive to price drops, and transportation on the durable side. The report also revealed a healthy increase for core capital goods, indicating that businesses continue to invest in their equipment, if not in their workforces.

Jobs are coming back, but painfully slowly. The government announced today that unemployment fell from 9.1% to 9.0% in September. The survey reported a 277,000 increase in household employment which has posted significant increases for three months in a row.

 At the margins, the economy is clawing its way back. But the modest gains noted this week regrettably do not portend an end to the malaise this great economy suffers.  Regardless of what the administration and the Federal Reserve say, there is no way this economy resumes its potential until debt and deficit spending are addressed both here and abroad. We must actually endure the painful consequences of the necessary remedies. There is NO magic medicine.

Erskin Bowles, co-leader of President Obama’s fiscal commission told the congressional supercommittee seeking a $1.5 trillion debt-reduction package, “I’m worried you’re going to fail.” The 12-member panel is just three weeks away from its deadline with no agreement in sight.

Former Senator Pete Domenici of New Mexico, a Republican, criticized Democrats who oppose changes to Medicare and Republicans who refuse to accept tax increases. “They are both complicit in letting America destroy itself, in letting this great democracy destroy itself because we don’t want to make tough decisions,” Domenici told the supercommittee. “I hope you heard that.”

Chuck Bently of Crown Financial Ministries notes that Veronique Riches-Flores of France’s largest bank, Societe Generale, recently entitled her analysis of the crisis, “We are all Greeks.” According to Bently, “she was bluntly pointing out that the member nations of the Organization for Economic Cooperation and Development (OECD) all have unsustainable levels of debt. Essentially she made the case that both the US and European nations are facing tough choices ahead and that she foresees the need for austerity plans in most of the Western world.”

The hour has come for Europe and this country, which is rushing headlong into the same mess, to deal with, not only our debt and deficit spending, but more importantly with the sick mentality of spending more than comes in. It is an attitude ingrained in our political system. The two political parties stand diametrically opposed on the issue of the role of government. Each year when they debate the so-called budget, they undertake an impossible mission; the reconciliation of small government and large government. When they fail as they inevitably always will, they simply spend what they must on each side to gain re-election and pass the certain spending excesses onto the next Congress and the resulting debt to the future generations.

We are all Greeks and our future is unfolding before our eyes in Europe. We were able as a country to save ourselves from the $5.00 fee that banks were going to charge customers for using their debit cards to spend their own money. Are we capable of electing political leaders who will take us off the road to Greece?

The Road to Greece

Global equity markets popped yesterday, intensifying their October rally to 15% for the MSCI US Broad Market Index and 21% for the FTSE All World Index (ex-US). The enthusiasm was sparked by two events that equity investors broadly took as good news. European Union leaders agreed on a deal to theoretically end the two-year financial crisis with Greece at its center. And in the US, Gross Domestic Product grew in the third quarter 2.5%, more than was expected and following a 1.3% rate in the second quarter. But while conditions may be improving ever so slightly, the disease remains without serious work for cure.

The road to recovery mapped by Europe’s finance ministers comes in overdue, over-budget and strewn with potholes. Instead of cutting straight through the obstacles of massive debt, they’ve snaked around it, taking the short view by employing excessive financial engineering and leverage. After criticizing US remedies these past two years, European leaders are doing the same and worse.

Similar to the 2008 crisis, Greece will undergo a controlled default whereby banks who own their debt agree to shoulder a 50% write-off of their value. This arrangement is designed to prevent the triggering and payment of credit default swaps on Greek debt. At least two groups of speculators are bailed out by the new road to recovery; credit default writers and banks owning Greek debt. Now European taxpayers will get a taste of what happens when the natural selection process of markets are interrupted by socialist bureaucrats. If that sounds a bit strong, hear the arrogance of Nicolas Sarkozy’s boast of a year ago. “By ensuring that capitalism and the market economy do not become caricatures of themselves, we will save the market economy and capitalism.”

Francesco Guerrera of the Wall Street Journal warns of the longer range issues. He says that by undermining the value of Greek credit default swaps CDSs, “European leaders have created a precedent that will weigh heavily on the market in future crises. While CDSs attract speculators, a lot of banks and fund managers buy them as protection against catastrophe. Paradoxically, the second key element of the Greek plan is a CDS-like instrument for Italian and Spanish debt.”

Yesterday, we got good news at home that the US economy grew more than expected in the third quarter. We also learned that the value of goods and services produced in this country surpassed the pre-recession highs. But it took 15 quarters to do so, which is three times longer than the average for the 10 previous recoveries since World War II according to the Wall Street Journal. Neal Soss, chief economist of Credit Suisse said “the American economy finally has accomplished the recovery and has now entered the expansion, but the growth is clearly too slow to solve the most significant problems the economy faces: jobs and getting the public budgets under control.”

Companies increased purchases of equipment and software. The consumer also stepped up purchases significantly. Unfortunately spending came from savings and perhaps new debt as consumers suffered the biggest drop in incomes they have seen in two years. Declining incomes combined with weak confidence and high unemployment bring into question the sustainability of their part in economic growth.

Consumer confidence reported this week is at its lowest point since December, while expectations are at their lowest point since the recession. The consumer confidence index fell 6.6 points in October to 39.8 with the current conditions component down a sharp seven points to 26.3 and the expectations component down 6.4 points to 48.7.

The declining value of homes has not been constructive for consumer confidence. The best hope is that the declines are slowing. Case-Shiller data released earlier in the week show no change in the adjusted composite-20 index for August. The unadjusted reading, at a very weak 0.2% compared to 0.9% and 1.1% in the two prior months, indicates prices are still declining somewhat because the monthly readings are three-month averages.

Because of lower prices, new home sales jumped 5.7% in September. The median price of $204,400 fell 3.1% in the month for the third time. The annualized rate of 10.4% is the steepest since the recession in early 2009. The average price of $243,900 is down 3.9%, also for the third month. Annualized contraction is 9.9% and is also the steepest since the recession. The South and the West accounted for the bulk of the sales.

Don’t look to the special congressional deficit-reduction committee for any near-term good news either, specifically in the area of revamping the massively complicated and growth-inhibiting US tax code. According to the WSJ, as the Thanksgiving deadline approaches, some lawmakers from both sides of the aisle have started to view tackling a full rewrite of the country's myriad tax laws as too challenging, especially coupled with the larger mandate of trimming at least $1.2 trillion from the federal budget deficit over 10 years.

On that front it appears the same tired divisions exist. According to the WSJ, Democrats offered a $3 trillion deficit-reduction proposal that included $1.3 trillion in increased taxes, which was dismissed by Republicans. The GOP's plan to cut about $2 trillion from the deficit over 10 years was rejected by Democrats because it raises far less in revenue, taxes and fees.

If these guys don’t credibly deal with the outrageously large US debt and US deficit, another downgrade of Treasuries is not only possible, but likely. There is no way to prepare for that likelihood, just as there was no way in August. There are no alternatives to US debt at the present time. Perhaps that fact is what perpetuates the arrogance and stubbornness in Washington. Unless we address the core problems in this country of debt and entitlement, we will become more like Greece with every passing year, and the developing world led by China will eventually become our reluctant and demanding rescuers. If there is still a silent majority, it’s time to wake up and elect leaders who have the guts, statesmanship and complete lack of political ambition to deliver the cure.

Sideways

Markets yo-yoed this week on news of Europe’s progress and lack of it in addressing their increasing debt concerns. Domestic economic news, both good and bad had little impact indicating that Europe’s problems may ours for months to come.

The New York Fed reported that business conditions contracted for the fifth month in a row. The Empire State index for October showed only slight improvement from minus 8.82 to minus 8.48. Later in the week we heard from the Philly Fed which showed the Mid-Atlantic region’s manufacturing sector stabilizing and improving. The business conditions index ended two months of contraction with a reading of 8.7 compared to minus readings of 17.5 in September and minus 30.7 in August. The Richmond Fed reports next Tuesday on the conditions of the Southeast.

Nationally, industrial production continues to sustain the economy. It improved 0.2% in September following no increase in August. Manufacturing improved 0.4% during the month compared to a 0.3% rise in August. On a seasonally adjusted year-on-year basis, overall industrial production was up 3.2 percent in September, compared to 3.3 percent in August.

The Federal Reserve’s Beige Book is released two weeks before the next Federal Open Market Committee meets. The next one is scheduled for November 1&2. The report indicates that the twelve District Banks found that overall economic activity continued to expand in September, though many tempered their optimism describing growth as “modest” or “slight.” Contacts described their outlooks as weakening due to uncertainty and weak business conditions.

Manufacturing and transportation activity were strongest, with some improvements noted in construction and real estate activity. Little change was reported in labor conditions in September. But it was noted that firms in manufacturing, transportation, and energy were hiring more broadly. Most Districts reported that wage pressures remained subdued.

But the PPI showed that prices at the producer level surged in September by 0.8%. The core rate which removes food and energy was up more than expected as well at 0.2%. ON an annual basis, the overall PPI rose to 7.0%, compared to 6.5% in August (seasonally adjusted). The core rate in September held steady at 2.5%.

Inflation at the consumer lever was also higher than comfortable at 0.3%, but a milder 0.1% when food and energy are removed. Year-on-year the CPI increased from 3.8% in August to 3.9% (seasonally adjusted). The core rate held steady at 2%. On Wednesday, the government announced that Social Security payments will be increased by approximately 3.5% in January.

Homeowners living in our area interested in selling their homes got a bit of good news on Wednesday. The Triangle housing market sales were up 17% over the same period a year ago. A total of 4,471 homes were sold in Durham, Johnston, Orange and Wake counties, according to MLS data. Pending sales for the quarter were up 27%, and showings increased 7%. But at least some of the increases are the result of comparisons to a stalled market same time a year ago when the federal homebuyer tax credits expired.

On a national basis, existing home sales dropped 3% in September. Supply on the market rose a bit to 8.5 months while prices fell by 3.4% at the median to $165,400 and a 3.1% decline for the average to $212,700. Foreclosures continue to weigh on the market adding to supply. But new homes showed refreshingly better in September. Housing starts in September jumped 15% after declining 7% in August. Strength was centered in the multi-family component with a 51.3% surge, while single family homes rose by a more modest 1.7%.

Reasons to expect higher stock markets

• It’s earnings season and analysts’ estimates for corporate earnings have consistently trailed actual results since the recovery began in 2009.
• Since bottoming October 3^rd, the Dow has jumped more than 8%, the S&P 500 is up more than 10%, and the MSCI Total US Market is up more than 11%.
• During the same period investor demand for safe-haven US Treasuries has declined substantially. The Barclay’s 20-year plus US Treasury index is down 7.7% and the Barclay’s 7-10 year US Treasury index is down 2.8%.
• Commodity markets expecting stronger US demand are also up. Crude-oil prices have risen 15% and copper is up more than 8%, and the euro rose almost 4% against the dollar last week.
• Leading Indicators report rose 0.2% primarily by the Fed’s loose money policy. The Fed is pondering further measures to support the struggling economy. DON’T FIGHT THE FED.

Reasons to expect lower stock markets

Tom Lauricella of the Wall Street Journal provides the following reasons to temper exuberance.

• On October 23 European officials are expected to officially advance a proposal to bolster the balance sheets of their battered banks. The plan may once again fall short of investors’ hopes as happened in July and August as they struggled to deal decisively with Greece’s debt problems. Big rallies in the US markets have come on European unity. Lack of unity can have the opposite impact.
• If Europe’s plan leans heavily on government money, it could fuel worries about cash-strapped Italy and Spain and deepen concern that France could lose its triple-A credit rating.
• If European banks are left to fend for themselves, financial market volatility would increase and bank lending might evaporate at a time when Europe is already flirting with recession.
• Remember the secret US Congressional super-committee? Their deadline for finding a mere $1.5 trillion in budget savings is up November 23^rd. If they come up short or are not convincing, the US’ credit rating may be in danger of further downgrade.
• Many of the big market gains have come on days of low trading volume, suggesting little buying from big institutional investors that would reflect greater confidence in the rally.

The inevitable conclusion remains one of continued uncertainty. But taken together the odds of a worsening global economy added to the odds of an improving one are still considerably smaller than the odds of a stagnating global economy. Governments and policymakers of developed nations must abandon their useless, reactionary remedies and offer bold new initiatives aimed at addressing both the staggering debt and the debilitating trend toward government dependence.

The Occupy Wall Street crowd incorrectly focuses their energies on one narrow component of the sub-prime debt crisis. The debt crisis was going to happen eventually anyway; greed and corruption aside. It was a bubble caused by excessively low interest rates at the hand of the Federal Reserve, dangerously relaxed lending policies mandated by Congress 30 years ago, Congressional repeal of the Glass-Steagall Act in 1999 which barred banks from securitizing and selling their assets, rating agency duplicity, and yes, Wall Street greed.

If the OWS group is truly not the creation of Democratic political operatives designed to “deflect attention from Mr. Obama’s failed economic policies” as presidential hopeful Herman Cain claims, they would gain much broader and powerful support from the American public if they would simply aim their protest at the real problems facing them and their futures squarely in the face: BIG GOVERNMENT AND BIG DEBT.