One Stop Market

It’s pretty well accepted that capitalism is the most functional economic idea man has ever had and enacted upon, so we don’t have to go back and question capitalism on the whole as an economic system as our newest president elect would desire.  However, there are aspects of it’s ways that (as in any economic system) cripple the poor and make a few people extremely rich — the people that devote their time to figuring out how the system works and then putting all they have into manipulating it for their own gain.

Sometimes this involves stealing, but it never has to involve stealing.  Like Warren Buffet you can just study hard, read up on the right economic thinkers, and move to Omaha, Nebraska — the financial hub of the world (not).  But there is the possibility that you can “figure it out.”  That’s a very capitalistic idea.  In any other system you can easily label that “selfish” and even “illegal” to manipulate the system.  Here in the good old U.S. of A. it’s known as being really smart and savvy but that’s because there aren’t that many rules that can hold you back from “figuring it out.”  But there could be, and that’s what the regulators and those in power for regulation are working at this very moment. 

In a way, regulation takes all the fun and hope out of capitalism and makes democracy seem less cool.  Eventually, with enough regulation you end up with socialism (which would be the new Senate and Obama’s dream come true) and socialism is not capitalism.  In that case, I’m heading to Canada.  I don’t want to be rich but I am an entrepreneur and I do think capitalism is the only place where the term “entrepreneur” makes any sense. 

But let’s point out some ironies before we continue loving on capitalism.  First, the essence of capitalism lies in a big, fat gamble on yourself, the future, and your ability to adapt to whatever the future throws your way (such as an economic crisis).  The bank signs a few papers and you have a house that you’ll need to work and produce and profit year in and year out for the next 30 years to pay for, but you’ll pay for it twice over since the bank charges interest and the system supports itself from there.  However, gambling is illegal in Massachusetts.  Yet, I did take a trip to Suffolk Downs last weekend where you can bet (gamble) on a horse race or two. 

I gambled by going college.  I threw $100K on the table (that’s what it cost for a 4-year educated back in those days believe it or not) hoping that when I came out in four years the economy would be in a place that would value my education and therefore I could get a job that would earn enough money to pay back the loan and more! 

I will gamble when I purchase a home.  This is more obvious but if the market tanks, I can lose more money than my house is worth and my loan becomes stupid and I easily fall into negative equity (which is why people in this situation have no problem foreclosing).  I literally walk out of my house every day and bet that I’m not going to get fired or hit someone while driving or lose my wallet or be taken advantage of by the government.  

Shall we keep placing our bets?  I guess so unless you have any better ideas. 

WASHINGTON (AP) — Barack Obama isn’t president yet, but his must-do list just got longer.

The newest addition to the lengthy list of tasks after taking office: helping oversee the overhaul of the world’s financial regulatory system. That is one of the assignments to the president-elect from current global leaders after their weekend summit, where they pledged action to avoid a repeat of the financial mess that has caused worldwide economic chaos.

“Obama has a tall order,” said Morris Goldstein, a senior fellow at the Peterson Institute for International Economics who spent years working at the International Monetary Fund, the world’s financial firefighter.

“He has a lot of things he has to do quickly in a number of areas and doesn’t have a lot of time to think about them,” Goldstein said in an interview Sunday.

That will put a lot of pressure on Obama. He did not participate in the emergency two-day summit that concluded Saturday, instead sending representatives to meet with leaders on the sidelines.

After taking the oath of office Jan. 20, Obama will have to figure out in short order how far his administration is willing to go in revamping oversight of financial companies and products, in the United States and abroad, and nailing down the crucial details.

“Obama has an incredible mountain to climb in the way of the economic and financial situation,” said Richard Yamarone, economist at Argus Research.

President George W. Bush hosted the summit, where nearly two dozen foreign leaders endorsed broad goals to fend off any future calamities and to revive the global economy.

It will be up to finance ministers to flesh out the details to put such changes in place by the end of March. Leaders plan to hold the next summit by April 30 — just months into Obama’s term.

“I think this puts Obama and a new administration in a very difficult position,” said Steven Schrage, a former Bush administration trade official now at the Center for Strategic and International Studies.

“It’s really going to be up to the next administration to figure, do they breathe life into this? Does this go forward? Do they take it in a different direction?”

All the while, the new president will be under immense pressure to bring relief to millions of Americans who have watched jobs disappear, nest eggs shrink, home values plunge, foreclosures zoom upward and banks — along with storied Wall Street firms — laid low by the financial and economic crises.

“Make no mistake: This is the greatest economic challenge of our times,” Obama said Saturday in the weekly Democratic radio address. “And while the road ahead will be long and the work will be hard, I know that we can steer ourselves out of this crisis.”

The president-elect himself did not weigh in after the summit about whether he agreed with the thrust of the leaders’ broad goals. But he indicated the global gathering was a good idea because “our global economic crisis requires a coordinated global response,” he said Saturday.

Translating the leaders’ sweeping principles into specific actions will be difficult. “That’s the rub. That’s where you really see the differences across countries in what you want to do,” Goldstein said. “In the coming months, we’ll see to what extent Obama’s agenda will conflict with the Europeans.”

Leaders pledged to make the global financial system more accountable to investors and less vulnerable to risky investing. But there are sure to be differences of opinion on exactly how to accomplish that, which could impede progress at the next summit in the spring.

To provide relief from the current woes, the leaders supported the benefits of enacting government spending plans to stimulate their economies. But they stopped short of a commitment for all to act at the same time, as some Europeans had favored.

The Bush administration has reacted coolly to the idea of a second U.S. stimulus plan.

For Wall Street, the leaders’ talk about ways to provide relief probably will be of more importance than efforts to prevent another financial fiasco, experts said. Even without new concrete commitments for government spending, tax cuts or interest rate reductions, the fact that leaders came together to address the crisis and did not let it become a blame game should help bolster some confidence on Wall Street, according to Goldstein, Yamarone and others.

Commerce Secretary Carlos Gutierrez, appearing on CNN’s “Late Edition” on Sunday, warned against the making any new financial rules of the road too restrictive.

“There is an inclination, when you get into problems like this to go to an extreme, to over regulate, to think that we’re going to have a worldwide compensation system. How is that going to be done? I think we have to be careful, we have to find a balance and we can’t over regulate so that five years from now we’re trying to claw our way back because we overdid it,” he said.

Nov. 7 (Bloomberg) — The U.S. unemployment rate rose to the highest level since 1994 as companies slashed payrolls, setting the stage for the steepest economic decline in decades and a tough start for Barack Obama’s presidency.

The jobless rate rose to 6.5 percent in October from 6.1 percent the previous month, the Labor Department reported today in Washington. Employers fired 240,000 workers after a loss of 284,000 in September. Revisions to the previous month added 25,000 more to the jobless lines than previously reported.

The surge in unemployment, coupled with other signs the economy nosedived last month, puts pressure on Obama to quickly name his economic team and spell out his planned remedies. It may also spur congressional Democrats to enact in coming weeks a second fiscal stimulus package.

“The economy has entered the very deep portion of the recession and should remain there over the coming six to nine months,” said John Herrmann, president of Herrmann Forecasting LLC in Summit, New Jersey. “These numbers imply a stimulus package of closer to $500 billion, ranging over the remainder of this year and through 2009.”

Obama may address today’s report after meeting with his transition economic advisers, including billionaire investor Warren Buffett and former Federal Reserve Chairman Paul Volcker. The incoming president holds his first post-election press conference at 1:30 p.m. in Chicago.

25-Year High

The total number of unemployed Americans jumped to 10.08 million last month, the highest level in a quarter-century, today’s report showed.

Economists had anticipated a 200,000 drop in payrolls after a previously estimated 159,000 decline in September, according to the median of 78 estimates in a Bloomberg News survey. The median forecast for the unemployment rate was 6.3 percent.

“We’re heading for a deep recession,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. “Banish the word mild from your vocabulary. It’s big, it’s bad and it’s broad-based.”

Stocks today recouped some of their losses from the past two days, when benchmark indexes plunged the most since 1987. The Standard & Poor’s 500 Stock Index was up 1.2 percent at 915.85 at 11:37 a.m. in New York. Ten-year Treasury note yields rose to 3.76 percent from 3.69 percent late yesterday.

“The evidence is more than compelling” that a recession is under way, Robert Hall, who heads the National Bureau of Economic Research’s panel that dates economic cycles, said in an interview following the jobs report. “It’s conclusive, in my personal opinion.” Hall is an economics professor at Stanford University.

Goldman’s Forecast

Goldman Sachs Group Inc. analysts downgraded their projections for the economy after today’s report, foreseeing the biggest contraction since 1982 in the fourth quarter. Goldman also projects that the unemployment rate will soar to 8.5 percent by the end of next year.

Job losses for August and September were revised up by 179,000. The economy has lost 1.18 million jobs so far this year.

The rise in jobless rolls was just the latest statistic suggesting that the economy gave way in October. U.S. auto sales plunged 32 percent, manufacturing contracted at its fastest pace in 26 years and consumer confidence fell by the most on record during the month.

The gathering gloom may prompt Federal Reserve Chairman Ben S. Bernanke and his central bank colleagues to reduce interest rates further at their next meeting on December 16. The Fed cut its benchmark rate a half percentage point last week to 1 percent, matching a half-century low.

Another Fed Move

“We will see another easing of 25 or 50 basis points in December,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, adding, “We may go for a very long time before the Fed is in a position to be raising rates again.”

Central banks throughout Europe slashed rates this week as the economic slump that began in the U.S. spread overseas, crimping consumer and corporate confidence. The International Monetary Fund this week projected the first simultaneous economic contractions in the U.S., Europe and Japan in the postwar era.

U.S. factory payrolls fell 90,000, the biggest monthly loss since July 2003, after decreasing 56,000 in September. A strike by 27,000 machinists at Boeing Co., which was resolved earlier this month, contributed to the drop, the Labor Department said.

Economists had forecast a drop of 65,000 manufacturing jobs. The decrease included a loss of 9,100 jobs in auto manufacturing and parts industries.

Today’s report also reflected the housing slump and credit crunch. Payrolls at builders dropped 49,000 after decreasing 35,000. Financial firms reduced payrolls by 24,000, after a 16,000 decline the prior month.

Loss at Retailers

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 108,000 workers after dropping 201,000 in the previous month. Retail payrolls decreased by 38,100, led by a loss of 20,300 jobs at auto dealerships, after a decline of 44,800.

Government payrolls increased by 23,000 after a loss of 41,000.

American Express Co., the largest U.S. credit-card company by purchases, said Oct. 30 it would eliminate 10 percent of its workforce, or about 7,000 people, to cut costs amid rising defaults as consumers fail to repay their debts.

The job cuts “will help us to manage through one of the most challenging economic environments we’ve seen in many decades,” Chief Executive Officer Kenneth Chenault said in a statement.

Workers’ average hourly wages rose 4 cents from the prior month, or 0.2 percent, to $18.21, the jobs report also showed. Hourly earnings were 3.5 percent higher than in October 2007.

The loss of jobs, plunging home prices, and a record tightening of bank lending may cause consumers and businesses to keep retrenching.

Gross domestic product shrank at a 0.3 percent annual pace in the third quartet and consumer spending fell at a 3.1 percent pace, the most since 1980.

President-elect Barack Obama will soon inherit twin national security crises: two stubborn wars.

Whomever Obama taps to run the Pentagon will be burdened with finding a way out of Iraq and crafting a way to ease the fighting in Afghanistan. There’s much speculation on who will lead the Pentagon next year and carry out those policies.

Iraq

Obama forged his campaign around his opposition to the Iraq war and turning over security to Iraqi forces.

“Sen. Obama has been emphasizing consistently that the challenge for us is to incentivize the Iraqis to take on more responsibility,” Richard Danzig, one of Obama’s top advisers, recently told NPR.

That incentive is a sort of tough love, says the Obama camp.

Sen. Jack Reed (D-RI), who also has been advising Obama, has also talked of drawing down U.S. forces in Iraq.

“Barack Obama will work with our military commanders to begin the phased withdrawal of our troops out of Iraq in the first 16 months,” Reed told delegates at the Democratic National Convention in August.

Both Danzig and Reed are now among the top contenders to run the Pentagon under President Obama.

But can the incoming administration remove U.S. troops from Iraq that quickly?

Anthony Cordesman, a defense analyst with the Center for Strategic and International Studies, says that although violence is down in Iraq, Obama may find it hard to withdraw American troops in large numbers given that the security situation is still so uncertain.

“And no one can predict at this point in time exactly what’s going to happen with internal civil conflict in Iraq or that al-Qaida will be fully defeated or reduced to such a low level of operations that Iraq can operate on its own,” says Cordesman.

He says Obama can withdraw American forces but maybe not as many as he promised his supporters.

Obama could find himself in political peril by removing too many U.S. troops, says Michael O’Hanlon of the Brookings Institution.

“Should he make the mistake of withdrawing so fast that he creates a worse security situation environment, you can bet that will be Exhibit A in future Republican criticism of him starting with the midterm elections in 2010,” O’Hanlon says.

Afghanistan

But the real test for Obama may not be in Iraq, but on that other battlefield, says O’Hanlon.

“I think Obama’s biggest challenge so far is to try to turn around the failing effort in Afghanistan,” he says.

While on the campaign trail, Obama had said this failure centered on President Bush not having sent enough troops to Afghanistan. And at campaign rallies, he constantly pledged to stop the war in Iraq and turn to the other.

“We will bring this war to an end. We will focus our attention on Afghanistan,” Obama said.

O’Hanlon says Obama’s campaign focused mostly on sending more U.S. troops to Afghanistan. Occasionally, Obama raised the problem of fighters coming across the border from Pakistan.

“But that’s at best only two of five key parts of this problem,” O’Hanlon says.

He points to three other key factors rarely discussed by Obama or his advisers: building up Afghan forces, increasing economic development for the Afghan government and negotiating with some of the Taliban insurgents.

To help him tackle Afghanistan and Iraq, Obama will need experienced hands — like Danzig and Reed — at the Pentagon. Danzig served as Navy secretary under President Clinton and is a respected voice on national security. Reed is a West Point graduate and a senior member of the Senate Armed Services Committee.

Obama may reach out to Republicans on national security in an effort to tap into experience and to find political cover. Among them: Sen. Dick Lugar of Indiana, a longtime member of the Foreign Relations Committee, and Defense Secretary Robert Gates.

Obama advisers say one option is to keep Gates at the Pentagon for a few months or up to a year.

But Gates has brushed aside the idea of staying on in an Obama administration.

“Let me just say, I’m getting a lot of career advice and counseling than I might have anticipated,” Gates said. “And I think I’ll leave it at that.”

An Obama presidency will mean different things to different kinds of U.S. industries. Based on campaign rhetoric and conventional wisdom, alternative energy companies could benefit. Oil companies and nuclear power producers could be in for a hard time.Hope was a theme of Barack Obama’s campaign for the White House. Now, plenty of industries — even those that don’t seem to be obvious winners — hope an Obama administration will help them succeed.

One is the nuclear power industry. While Obama was “less enthusiastic” than his Republican rival, John McCain, about expanding nuclear energy production, “there clearly was a recognition on both sides that nuclear energy must be part of our energy program going forward,” says Scott Peterson, a vice president at the Nuclear Energy Institute, a policy organization in Washington. He says Obama “noted that it’s unlikely that we can meet our aggressive climate goals if we eliminate nuclear power as an option.”

Obama, however, has expressed concerns about the safety of plants and about storing nuclear waste.

A Green Light For Alternative Fuel Sources?

Nuclear may not be at the top of his list, but president-elect Obama has indicated that energy issues will be a priority for him.

Tom Konrad, a financial analyst with AltEnergyStocks.com, points out that in his acceptance speech, Obama talked about harnessing new energy and creating new jobs.

“That’s clearly not good news for old energy, and the energy establishment is old energy,” Konrad says.

The petroleum industry apparently didn’t get that memo.

Dan Naatz, a lobbyist for the Independent Petroleum Association of America, says an Obama administration will pose some challenges for the oil and natural gas drillers he represents. But he points out that as a candidate, Obama talked about energy independence, shifting from speaking out against offshore oil drilling to saying he would consider it.

“Certainly, we hope it was beyond idle campaign rhetoric,” Naatz says.

Observers say higher taxes on major oil companies could ultimately be in the offing. However, there are also clear energy-sector winners. Obama campaigned on plans to drastically cut emissions of global warming gases, promote plug-in hybrid vehicle technologies and expand alternative energy such as solar and wind.

Marc Bachman, who analyzes the solar industry for Pacific Crest Securities, says such steps should help the companies he watches. Related stocks “will get a boost later on as [Obama] starts to bring some of his plans in and the plans actually start to come to fruition,” Bachman predicts.

Wariness In Health Care Sector

Health care is another area of big ideas and possible sweeping changes. In the short term, the new president and Congress could force drug companies to negotiate lower prescription drug prices with Medicare, cutting into their profits. Still, Obama’s broader plan to insure more Americans might not be all bad for the industry, says Les Funtleyder, a health care strategist for the institutional trading firm Miller Tabak & Co.

“He hasn’t appeared that strident in going after health care companies, per se,” Funtleyder says. “You know, I think we should give him a chance. … Now, the market has a tendency to overreact, so I don’t think the market will take any chances.”

Business leaders are concerned that Obama will eventually raise taxes. But Bruce Josten, chief lobbyist for the U.S. Chamber of Commerce, says right now his organization’s top priority is the flagging economy and shaping a new economic stimulus package.

“I think an Obama presidency will share the same interest and concerns of our members and the rest of the American public, and that’s get the engine of growth going, get innovation going again, get job creation growing,” Josten says.

Representatives of a variety of industries, even those widely seen as potential losers, say they see opportunity with an Obama presidency. That’s the thing with a new administration: Cabinet positions haven’t been filled and policy ideas haven’t been committed to legislation. In most cases, disagreements come down to the fine details. At this point, there just aren’t very many.

Barack Obama’s path from underdog candidate to president-elect is among the most unlikely success stories in the history of American politics. The outcome is a tribute to his skills as an orator, an organizer and a politician. But none of it would have happened without a well-organized, well-funded and well-disciplined organization that always seemed to know how to respond to crises.

That’s because a campaign is not a static thing. It’s a process — and an unpredictable one at that. Things don’t go as planned. So the real trick is to adapt.

War, Then Wall Street

Way back when, Obama was an underdog taking on front-runner Hillary Clinton.

It looked like his big issue would be the war.

“Most of you know that I opposed this war from the start. I thought it was a tragic mistake,” Obama said in February 2007 during the very first speech of his campaign.

Discontent over the war did help propel Obama’s early success in the Iowa caucuses and later on Super Tuesday.

But during the general election, the war actually receded as an issue, replaced by a sudden jolt of dire news from Wall Street.

“We are in the middle of the worst economic crisis since the Great Depression,” Obama said.

Just before the economic crisis, the Obama campaign seemed to be slumping. His long-standing lead in the polls had evaporated. His supporters openly worried that potential victory might be slipping away.

In September, Obama called an urgent meeting of his advisers to talk about the need to refocus.

Then came the failure of the giant investment bank Lehman Brothers.

Obama had long talked of the need to help American workers and the middle class. And then the economy became the centerpiece of his campaign.

He blamed the policies of President Bush and his Republican rival, John McCain.

“They said they wanted to let the market run free, but instead they let it run wild,” Obama said.

Fundamental Flub

Obama prepared to go hard after McCain on the economy to highlight McCain’s own past statements about not being an expert on the issue. But then McCain gave them fresh ammunition when he flubbed in reacting to the crisis on Wall Street.

“The fundamentals of our economy are strong,” McCain said. Later in the day, McCain said the fundamentals were at risk.

“This morning, he said that the fundamentals of the economy are still strong,” Obama said. “Sen. McCain, what economy are you talking about?”

Then McCain suspended his campaign and called on Obama to do the same. It was a moment of decision for the Democrat. He chose to keep campaigning and to keep pressing his attacks on the issue.

“It is going to be part of the president’s job to deal with more than one thing at once,” Obama said.

Exit polls show that the economy was by far the most significant issue for voters on Tuesday. That gave Obama a big edge. He can credit his message, but also the huge organizational and financial advantages he used to keep McCain on the defensive the rest of the way.

The Wright Test

Over the course of the long campaign, there were other big tests Obama needed to overcome just to make it to the general election. Perhaps the biggest challenge was the emergence of a voice from Chicago’s South Side.

In March, video footage surfaced of Obama’s former pastor, the Rev. Jeremiah Wright, saying “not God bless America. God damn America.”

Suddenly, race became the issue of the campaign. Obama responded with a lengthy speech on race in America. His remarks were widely praised and very personal.

“Rev. Wright’s comments were not only wrong, but divisive — divisive at a time when we need unity, racially charged at a time when we need to come together to solve a set of monumental problems,” Obama said.

Finally, another key part of Obama’s success has been the securing of prominent endorsements along the way. Sen. Edward Kennedy and President Kennedy’s daughter, Caroline Kennedy, helped make the case to traditional Democrats. And very late in the campaign came the backing of an iconic military figure, former Secretary of State Gen. Colin Powell.

“I think he is a transformational figure. He is a new generation coming in to the world stage, onto the American stage, and for that reason I’ll be voting for Sen. Barack Obama,” Powell said.

It was one more piece of reassurance for anyone still wondering about Obama’s readiness. And it provided an unexpected boost that complemented all of the planning, the organizing and the adapting that the president-elect’s team did along the way.

On Wednesday, stocks tumbled 5.3%, ending at session lows in broad-based weakness. The decline was driven by profit taking, and discouraging economic data on employment and the services sector.  Meanwhile, investors digested Barack Obama winning the presidency and other election results.

According to the ADP national employment report, nonfarm private employment declined by 157,000 in October, which is the largest decline since 2002. The result was worse than the expected drop of 100,000. September was revised to a decrease of 26,000 from a decrease of 8,000. The ADP data have had a spotty track record compared to the government’s report, which includes both public and private nonfarm payrolls, and is set for release on Friday.

The services sector contracted by the most since at least 1997 and the sixth time this year, according Institute for Supply Management’s national nonmanufacturing survey, which dates back to 1997. Specifically, the October ISM Services Index registered 44.4 in October, 2.6 worse than expected and 5.8 lower than the 50.2 reading in September. A reading below 50 is intended to imply contraction in the services sector.

In corporate news, Google (GOOG 342.57, -24.37) announced on its blog that it decided to end its advertising agreement with Yahoo! (YHOO 13.93, +0.58) after it became clear that government regulators and some advertisers continued to have concern about the pact. Google traded down on the news, while Yahoo saw a boost as traders speculated this may open the door to another Microsoft (MSFT 22.07, -1.46) offer.

All ten of the economic sectors posted a loss.

Financials (-8.8%) were the main laggard.  A wider-than-expected quarterly losses from bond insurers Ambac (ABK 2.06, -1.34) and MBIA (MBI 8.31, -2.15) along with a disappointing earnings and outlook from REIT General Growth Properties (GGP 2.09, -2.40) added to selling interest.

The energy sector fell 4.6% as crude prices plunged 7.4% to $65.28 per barrel.  The drop in oil prices was fueled by economic concerns and weekly energy inventory data that showed the sixth increase in crude stockpiles and an increase in gasoline levels.

Quarterly earnings results were mixed, with outlooks leaning negative. Some notable companies that reported worse-than-expected earnings include  Arcelor Mittal (MT 25.16, -6.54), Duke Energy (DUK 15.61, -1.31), Marsh McLennan (MMC 26.07, -3.63), MBIA (MBI 8.31, -2.15), Molson Coors (TAP 41.87, +3.29) and Transocean (RIG 80.61, -3.91).

Devon Energy (DVN 79.64, -3.36), Medco Health Solutions (MHS 41.45, +3.45), Polo Ralph Lauren (RL 48.54, -0.97), Sara Lee (SLE 10.22, -1.64), and Time Warner (TWX 10.15, -0.68) beat in their latest quarters.

The S&P 500 is now down 1.7% this week, but is still up 13.5% from its Oct. 10 multi-year low.  It is down 37.5% this year.