Text 12664, 136 rader
Skriven 2005-05-16 19:47:00 av Jeff Binkley (1:226/600)
Ärende: Economy
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Fact and Comment
Steve Forbes, 05.23.05
Uncle Sam's Junk Numbers
Is the consumer running out of gas? Is corporate America pulling in its
(already short) horns? After all, retail sales and corporate capital spending
are allegedly slowing down, hence the "disappointing" number for first-quarter
GDP growth. Put aside for a moment the flakiness of that GDP
report--Washington, in effect, takes the net imports figure and subtracts it
from GDP.Forget that our ability to buy products from abroad means we're
prosperous. The economy was actually much stronger, growing well in excess of
that reported 3.1% in real terms. The fact is, both companies and consumers
have the financial capacity to fuel an even more vigorous economic expansion.
If the Federal Reserve were ever to get its act together, that's exactly what
would take place.
The idea that Americans are overspenders and undersavers and addicted to debt
is all myth. Household balance sheets have never been more robust. Last year
Americans increased their financial assets--checking accounts, money market
funds, mutual funds, IRAs, etc.--by an impressive $590 billion. Credit card
debt in-creased a paltry 4%. Take our financial household assets (not counting
houses and other tangible assets such as automobiles and jewelry) and subtract
liabilities such as mortgages and credit card debt, and the American consumers'
total financial net worth comes to an eye-popping $26.1 trillion. Consumers
today have more than $4 trillion in savings accounts, more than $1 trillion in
checking accounts and directly hold another $10 trillion in equities and mutual
funds. Their life insurance and pension assets are in excess of $10 trillion.
To put it in perspective, Americans' total debts, including mortgages, are
dwarfed by their liquid assets. Our per capita liquidity exceeds that of Japan,
a nation noted for its high savings rate. As Bear Stearns' brilliant economist
David Malpass notes, "The U.S. household sector is the world's biggest net
creditor." Contrary to the conventional wisdom on rising interest rates,
Malpass observes, "[This sector] stands to benefit from higher interest rates
due to the generally short maturity of its assets versus the long maturity of
its debts."
Why the bum rap for America's savings rate? Because of the crazy way our
government computes that number. Washington leaves out of the household income
number such items as realized capital gains and payments from pension plans and
401(k)s. As for consumption, long-lived assets such as autosand furniture are
treated as if they were disposable pens. As Malpass puts it, "Consumption
includes education. The absurd result: Spending less on education would raise
the personal savings rate,' even though it would reduce future U.S. growth."
This is why, in reality, consumers added $590 billion to their savings last
year, while the government reported total consumer savings to be a paltry $100
billion.
Corporate America is also in excellent financial shape, with cash and liquid
assets exceeding short-term debt by nearly$2 trillion. So why aren't stocks
doing better? Why isn't the economy doing better? The chief villain is the
Federal Reserve. Its inadvertent relighting of inflation fires has spooked
consumers faced with gasoline prices in excess of $2 a gallon and has given
already skittish corporate chieftains and their financial officers another
reason to clutch their cash tightly as they see the prices of raw materials
such as lumber, copper and steel rising, along with the rates for shipping.
Oil became expensive because the Fed has been printing too much money. Don't
blame India, China or, even, misbegotten environmentalists. China has been on a
tear since 1978, each year buying significantly more oil than it did the year
before. Like the U.S., China now imports at least half of its needed oil. Why
has this nearly three-decades-old trend suddenly sent oil prices hurtling
upward in the past 15 months? This just doesn't compute.
If the Fed truly wants to tighten, there's an easy, time-tested way to do it:
sell bonds from its portfolio to mop up the excess money it's mistakenly
spilled onto the financial markets for the past 18 months. Greenspan & Co.
should continue to sell these bonds until gold, the best gauge of monetary
policy, dips below $400 an ounce. Then the Fed should stop the tightening.
One would think that after 17 years on the job Alan Greenspan would have
mastered the art of central banking. Instead, the Fed picks an interest rate
and gears its monetary operations to maintain that rate. This kind of pricing
comes straight out of the old Soviet Union. Let the markets set the level of
short-term interest rates.
The fundamentals are here for a robust advance in stocks and economic activity.
If only Alan and his colleagues would let this come to pass.
Don't Dump Detroit
The woes of the U.S. automotive industry have been well covered by the media.
The problems are all too real, but the negativity has been overdone.
Chrysler's turnaround in the U.S., under the enormously able Dieter
Zetsche--who may some day head up all of DaimlerChrysler--is no flash in the
pan and is unlike past comebacks that were inevitably followed by
company-threatening crashes. The Chrysler 300 sedan is a runaway success, and
other new and revamped models are doing well. Chrysler's strength demonstrates
that even a North American legacy auto company can achieve durable success by
coming up with a continual stream of new or improved vehicles--the Jeep
division has great new products on line and in the pipeline--and by paying
painstaking attention to costs.
Ford Motor Co.'s common stock and its income securities have been way
overhammered by the fallout from General Motors' well-publicized woes. If Ford
is an example of a large, sick company, may there be more of them. Ford will
make money this year. More important, its cash flow is positive. That is
something to emphasize: Ford will take in more cash than it spends--this in a
year that'll be pretty tough for auto manufacturers. The company already sits
atop more than $23 billion in cash--that's more than $12 a share. Debt? The
obligations of Ford's financial arm are well covered by the stream of payments
from auto buyers. The automotive part of the company has debt of $17 billion,
and maturities are prudently stretched out for years to come.
Make no mistake, under Bill Ford's leadership future designs of Ford vehicles
will be exciting, cutting-edge, la the brisk-selling Mustang and the GT sports
car. Yes, the company's North American market share is down, but that was
deliberate--Ford's CEO decided not to aggressively pursue virtually profitless
sales to the rental-car and government-fleet vehicle markets.
General Motors? If management does for the rest of GM what it did for
once-tired Cadillac, then GM is in for sunnier days.
What about Detroit's onerous health care and pension obligations? The answer is
for unionized workers to switch over to Health Savings Accounts (HSAs). They'd
still enjoy catastroph-ic coverage, and muchof their high deductibles would be
covered by cash payments to their indi-vidual tax-free accounts.Auto
manufacturers wouldsave a bundle on healthcare premiums, and most workers would
see HSAs as a positive step up from their current plans: If a worker is blessed
with good health, he would build up a nice pile of cash that belonged to him. A
variation on HSAs could be offered to retired workers.
The United Auto Workers will fiercely resist such a change--initially. There
may even be labor strife before the union accedes. But leaders and members know
in their gut that the current situation is untenable. With an HSA-type solution
they'd get as much of a win/win situation as is possible under the
circumstances.
As for pensions, a bit of improvement in the financial markets will provide
enormous relief. Longer term--after the introduction of HSAs--the next battle
will be to get 401(k)-like plans for new unionized factory workers.
--- PCBoard (R) v15.3/M 10
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