Stock Market grows with Unemployment Numbers

The United States have seen monthly increases in unemployment of hundreds of thousands of people each month for several months in 2009. In fact, the US has experienced the largest increase in unemployment in a quarter of a century. What was Wall Street's response? A remarkable increase in the growth of the stock market numbers. In fact, in March of this year the market had plummeted to just above 6,000 and has gained approximately 80 percent of that since that time.

There is a clear divide between the short term interests of the public and business in general and an even bigger gap between the average person and Wall Street. The latter is all about profits and bottom lines. They could not be happier about the Draconian steps being taken by businesses these past months for several reasons:

• When economic environments get to this point, there is nothing that Wall Street desires more than action. Often "retreat" (cutting costs and employees) is one of the most attractive actions in the eyes of investors.



• There is no quicker way to cut costs than to cut employees. Employees are one of the most expensive aspects of doing business and so Wall Street is particularly excited by such cuts. The more harsh, the better.



• Wall Street has been waiting for the market to capitulate. They have been waiting to see investors hit bottom (the DJA is now roughly half of what it was a year ago) and another indicator that the decline has plateaued is when you start to see massive layoffs. Such job losses are horrific for the recipient of the pink slip, but is great news for those who are investing in those businesses.

I don't believe the job cutting is over. Virtually every publicly owned company is going to seek ways to increase investor confidence in their companies. There is no quicker way to achieve that following a decline in profits than through layoffs. Those who have not cut yet are watching the Market's response favorably and you can expect many more to jump on board. Furthermore, many of the companies that have had layoffs also have vendor relationships that are dependent on them. As we see these companies lay people off, expect many more businesses that are dependent on them to do the same thing.

Unfortunately this ugly trend will continue, in my opinion, until there is a decidedly different approach to policy. Cutting taxes on job creators (AKA, the affluent and business owners), restoring moral hazard (e.g., allowing businesses to fail), and resisting the temptation of regulating our businesses out of existence are just a few of the steps that are needed to restore fiscal responsibility and to encourage a stable economy.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. His articles often appear in Chicago Sun Times, Reuters, USA Today, and other national media. Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

Why the Market and Unemployment Jump at the Same Time

On Monday of this week over 70,000 jobs disappeared from some of America's largest businesses. Today, Boeing announced they were laying off 10,000 more. What was Wall Street's response? The first upward trend for the Market since Barack Obama came to office.

There is a clear divide between the short term interests of the public and business in general and an even bigger gap between the average person and Wall Street. The latter is all about profits and bottom lines. They could not be happier about the Draconian steps being taken by businesses this week for several reasons:

• When economic environments get to this point, there is nothing that Wall Street desires more than action. Often "retreat" (cutting costs and employees) is one of the most attractive actions in the eyes of investors.


• There is no quicker way to cut costs than to cut employees. Employees are one of the most expensive aspects of doing business and so Wall Street is particularly excited by such cuts. The more harsh, the better.


• Wall Street has been waiting for the market to capitulate. They have been waiting to see investors hit bottom (the DJA is now roughly half of what it was a year ago) and another indicator that the decline has plateaued is when you start to see massive layoffs. Such job losses are horrific for the recipient of the pink slip, but is great news for those who are investing in those businesses.

The job cutting is far from over. Virtually every publicly owned company is going to seek ways to increase investor confidence in their companies. There is no quicker way to achieve that following a decline in profits than through layoffs. Those who have not cut yet are watching the Market's response favorably and you can expect many more to jump on board. In fact, even as I write this, Fox News is reporting that Best Buy and Target are adding to the jobless numbers. Furthermore, many of the companies that have had layoffs also have vendor relationships that are dependent on them. As we see these companies lay people off, expect many more businesses that are dependent on them to do the same thing.

I know it looks a little dark, but these layoffs could very well be the beginning of the "light at the end of the tunnel." This hope becoming a reality depends heavily on the policy choices of Barack Obama.

Kevin Price is a syndicated columnist whose articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media. Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Could Democrats Reverse Capital Gains Increase?

Although the Stock Market closed today with a dramatic high in single day totals, the market itself is in a continued state of decline. This decline can be attributed to several factors, I'm sure, but one that has been largely neglected in the business banter of today is the looming capital gains tax that will go from zero to 20 percent in January 2009. Ask people on Wall Street and they will be the first to point this out to you. That increase provides enormous downward pressure on the Dow.

We are less than three months away from a significant cut in profits, thanks to the capital gains increase. In the mind of investors, the value of stock is declining on virtually a daily basis. As each day goes by people are reminded that the stock they own is going to see a twenty percent drop overnight. This increase is one of the single biggest jumps in history. It is happening because the capital gains portion of the Bush tax cuts that contributed to historic prosperity will come to a screeching halt on New Year's 2009 and the level will retroactively return to those earlier highs.

Candidate Obama and his Democrat cohorts could easily argue against the horrors of Wall Street and make their case against wealth creation when they were in the opposition, but now they are about to control the White House and both Houses of Congress. Their commitment to wealth distribution and opposition to capitalism will now under go a serious test.

Don't be surprised if Obama and company blinks. I could see him quietly ask the Congress to suspend the capital gains tax increase or (at least) reduce the increase even before he takes power. I wouldn't be surprised if Congress complies and Bush passes it into law. It would make sense for it to happen now, under Bush and the timing of some level of improvement could be linked to Obama's Inauguration (the media would certainly help maintain the Messiah persona through such an association). Meanwhile, if Obama waits until he becomes President and pushes a suspension of the capital gains taxes, he would be exposed as a very serious hypocrite. Bottom line, Obama's philosophy is facing a very serious dose of reality. He might very well find it useful to test the power of free markets and the use of incentives in tax policies.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at PriceofBusiness.com. Visit the archive of past shows here.

Sizing Up the Vote Against the Wall Street Bailout

I was trying to have a business lunch while watching the US House of Representatives vote regarding the Wall Street bailout on TV. It wasn't easy. On the one hand, I wanted it to pass. I grew up with two parents who were raised during the Great Depression and the life they lived has had an impression on how I look at things. Generally speaking, I have denounced the philosophy of fear and scarcity that I grew up with, but when they spoke about the problems with banks and the fears of the Stock Market, I had to take notice. On the other hand, passage of this bill would be the abandonment of moral hazard on Wall Street and further promote a financial system growing out of control.

I was a little surprised that the bill didn't make it. I actually expected it to do more than squeak by, let alone crash and burn. It demonstrated how deep the angst of the American voters is and how great the fear is among members of Congress towards those voters. We have an election that is less than six weeks and the more vulnerable a member of Congress, the less likely he or she was going to vote for it. Clearly, many members rightly feel like they are in the cross hair of angry voters.

Most Republicans were making more than a "protest vote." Some felt that $700 billion being voted on in such a short time frame didn't make sense. What could be hidden in a bill that virtually no one had enough time to thoroughly understand it? Most feared there could be plenty and it gave Secretary of the Treasury Henry Paulson carte blanche authority for bailing out other financial institutions (including some outside of this country). Most Republicans wanted a proposal that didn't have taxpayers bearing the lion's share of the proposal. They wanted a system more like the Federal Deposit Insurance Corporation, where the banks have to pay a premium to protect their accounts. They offered a list of other reforms that would have dramatically reduce the final costs of the multibillion dollar bailout by hundreds of billions of dollars.

The Republican proposals didn't even receive serious consideration because they didn't offer quick or simple solutions, would require more pain on Wall Street (and also Main Street) in order to achieve long term reform, and simply didn't have the "panacea effect" that investors are looking for. The bottom line is that Wall Street and Washington wants average Americans to do the hard work that our politicians and financial institutions should be responsible for.

In the end, I'm glad that the House Republicans put the breaks on this proposal. Certainly, we need some type of bill to get us out of this situation, but it should be done with deliberation and not at the expense of future generations.

Kevin Price articles frequently appear at ChicagoSunTimes.com, Reuters.com, USAToday.com, and other national media.

Kevin Price is Host of the Price of Business (M-F at 11 AM on CNN 650) and Publisher of the Houston Business Review. Hear the show live and online at HoustonBusinessShow.com. Visit the archive of past shows here.

Stock Market Breaks 13,000 -- In the Wrong Direction

It doesn't seem that long ago when we celebrated the Stock Market breaking 13,000. We are doing it again, but it doesn't seem the word "celebrate" is appropriate. The market appears to be heading in the wrong direction.

We have been constantly told that the economy is in decline. Now we have the price of oil pushing $100 a barrel and mortgages in a crises mode for many. True reasons to be concerned. Now the Conference Board is likely to project a decline in consumer confidence -- an indicator of demand which largely drives the economy (or, at least, the Stock Market's view of the economy).

I believe the market may be due a time of adjustment, sub-prime loan corrections and the tightening of credit were necessary and bound to have an impact on the economy. It is time to think in terms of real stimuli to keep the economy growing. With the extremely low interest rates and a dollar that is considered "weak" internationally, cutting interest rates may not be a viable option. Instead, we should seriously look at making the tax cuts, which played a major role in our economy's growth, permanent. Most people don't seem to realize that, since permanence wasn't passed, we are operating with tax increases pending, and that will have a negative affect on the economy. With the current dominance of Democrats in Congress, such a reform will not likely happen without effort. The one driving that effort should be the President and he should take that message to the American people.

Kevin Price Hosts the Houston Business Show, Monday-Friday at 11 AM on CNN 650. Get weekly updates of the multimedia business content at that site through the Houston Business Review.

Waiting on the Fed

Everyone from Wall Street to Main Street seems to be holding their collective breath in anticipation of the Fed's decision on interest rates. Will it be a quarter or a half? We know it will be something, but will it be enough?

Theory has it, less than a half will be an absolute disaster and the market will return to its recent dumping ways. Wall Street desires a major impetus to get the market going again and the economy moving in the right direction.

The trouble is, Wall Street doesn't operate in such a black and white manner. In spite of how "big" the Stock Market seems and how "important" Wall Street projects itself, it is really like any small neighborhood where people spend a great deal of time simply talking. Once the euphoria of the half a point settles in, people will start asking questions. "Wow, one-half, does that mean that the economy is in worse shape than we initially thought?" This kind of discussion could put them back on the roller coaster.

Still, the market wants it and, short of one-half, it is likely to go back to its ugly ways we have seen over the last month. But people should not be fooled in thinking that there is a simple panacea to stock market problems.

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The Stock Market Continues to Boom

The Stock Market broke 13,000, breaking a new milestone in its continued growth. That is the 35th record broken since October of 2006. Why the continued growth? New home sales are rebounding, companies are demonstrating record returns, and the unemployment levels are incredibly low.

This happens, in spite of the fact that the media continues to beat its negative drum. In fact, this is the toughest time I have seen for the Republican Party in many respects since the 1970s (post Watergate); in spite of incredible economic performance they are fighting for their political lives and have no clear leader to make sure they maintain the White House after 2008.

The growth of the economy is partially due to divided government. In spite of pledges to bring sweeping policy changes for the President to sign into law, the Democrat led Houses of Congress haven't brought a single piece of legislation down Pennsylvania Avenue for him to sign. "Do-nothing" governments often mean economic environments where businesses can grow. Furthermore, the business community's disregard of the pessimism promoted by the media keeps it humming along. The media has "cried wolf" so often, many no longer consider it a legitimate source of information of how business is performing, meaning businesses will listen to one another and operate on its own instincts. That is an essential part of the "invisible hand" of the free market that makes economies grow.

Is the Economy in Danger or Was Yesterday a Mere Speed Bump?

The Headlines are fairly ominous today at CNN Money. We read about a "Wound Licking Wednesday" because the stock market dropped by over 400 points. Just below that article we see that "Economic Growth Not So Strong," with the actual increase being only 2.2 percent instead of the initial estimates of 3.5 for the fourth quarter of last year. The problems are not merely domestic, with the headline "Asia Stocks Tumble -- Except China" (this news is considered a major factor in our stock market decline yesterday). In fact, the news is so bad today, I suggest you avoid any sharp objects while reviewing it.

Seriously though, there is probably some legitimate cause of concern, but I believe that the economy is still on track towards a positive trajectory for this year. I say this for a few reasons:

* The power of divided government. There is an old saying, when the legislature is in session, no one's wallet is safe. Thanks to the fact that the President is of one party and the majority of the Congress is in the other, the chance of much being done legislatively is very slim in deed. This is a good thing in the eyes of business.

* Unemployment remains at historic lows. Zero unemployment is considered by most economists to be around 4 percent (because of people who are seasonally employed, are in illegal activities, are actually creating a business, etc.). Our unemployment is a mere 4.5 percent, thus near zero. This means the housing bust is probably going to actually be a mere burp (since high unemployment is a typical prerequisite to a housing bust) and should find itself having a strong year over all.

* The long term and consistent growth for so many quarters. This too is historic (even with the small increase from the last quarter) and there is nothing in the fundamentals of the economy to make one think it should change any time soon.

However, if the economy does go south, there are several potential contributing factors. If Congress passes its massive increase in the minimum wage and the President signs off on it, the economy will certainly suffer. Also, if the President signs on to a Democrat tax increase, we could find ourselves in serious trouble. In fact, the Congress failing to keep the current tax cuts in effect (a requirement in the bill that was passed with the tax cuts) will equal a tax increase in the eyes of many.

In the end, though, I expect 2007 to be extremely strong on the economic front, even if it is a little soft compared to last year. I have such optimism, not so much because of the ability of government to prevent a slump, but because of the entrepreneurs that has kept this economy growing. Let's face it, the economy typically thrives in spite of government, not because of it.