Mid-Life MBA: The Art of Business

‘Tis the season for customary, post-Christmas, stock market gains and today’s figures show a market up-tick on news of increased consumer spending and consumer confidence.

Spending in November increased by 0.5% from 0.3% in the month previous. Analysts see a possibility of interest rate cuts by policy makers in the new year. This is all around, good news to an economy where two thirds of GDP is dependent on consumer spending.

Factory orders for big-ticket items such as appliances rose 1.9% in November after an 8.2% tumble in October.

On the first Friday after thanksgiving 140,000,000 shoppers spent slightly more than $360 each, up by 18.9% from last year. The first Friday after Thanksgiving is known as Black Friday because as the official kick off to the Christmas, shopping season, it marks the point in the year when traditionally, retailers’ balance sheets move into the black.
“Each year, consumers have greater expectations for doorbuster specials, forcing retailers to raise the bar,” said NRF President and CEO Tracy Mullin in a statement. “This year, stores did not disappoint.”

The NRF survey said that one-third of shoppers had hit the stores by 6 a.m. and that more than half had visited at least one store by 9 a.m.

The NRF anticipates holiday sales will grow 5 percent to $457.4 billion, slower than last year’s 6.1 percent increase.

The WSJ reports concerns on the part of economists however, that increased sales may represent only deep discounts instead of fundamental strengths (see WSJ Why the Economy Needs Consumers to shop), particularly in light of consumers’ decreasing wealth in a softening real estate market.

Global Foot Print Network, as featured in an MSNBC news article today, predicts that the consumptive-industrial “overshoot” of the earth’s capacity to produce resources is at a critical point.

“Humanity is living off its ecological credit card,” said Mathis Wackernagel, head of the Global Footprint Network. “While this can be done for a short while, overshoot ultimately leads to liquidation of the planet’s ecological assets, and the depletion of resources, such as the forests, oceans and agricultural land upon which our economy depends.”

“On current projections, humanity will be using two planets’ worth of natural resources by 2050 — if those resources have not run out by then,” they say.  ”People are turning resources into waste faster than nature can turn waste back into resources.”

If this estimate is data-based and more than exageration for the sake of a point, we have a very, forward-leading indicator of coming crisis for our present economic model.  This is to say that capitalism, though not extinguished, will be increasingly pressed into the service of clean and sustainable technologies.  After IT, coul eco-business be the coming boom?

While the running of the bulls in Pamplona occurs in July, the American bulls often begin their state-side run each November. 

With the DOW up .95% at the close of today we may just be in for a terrific end of year rally.  Yahoo finance reports that over 70% of the 150 S & P 500 companies reporting end of quarter earnings have reported in the double digits.  Today’s shining star was WalMart, up 3.7% after its announcement that it will significantly trim back capital expenditures.

“Up and down, without much change,” sums up the market performance for this week.  While not atypical for summer months in terms of its overall stagnancy, the market shows distinct signs of confusion in the wake of Ben Bernanke’s failure to hint at the direction of further interest rate adjustments in his most recent speech and the upward trend in crude prices on speculation over pending summer storms. Perhaps the annual retreat of the world’s central bankers to Jackson Hole this weekend will result in state-side monetary policy clarification though analysts are cynical.

Allen Sinai, chief global economist and president of Decision Economics, said whatever comments might emanate from Fed officials over the weekend, they are likely to stick to a “script” they have already laid out. “I think the members by and large in casual conversations, to the extent they have them, will stick to the script and the script is the consensus view of the economy and inflation, which is a transition to a moderate pace of growth and, very slowly, a winding down of inflation,” he said.

A not so quiet buzz continues over the real estate market.  When the impact will be felt and of what order is speculative but that there is a building “storm” with market-shaking potential is a seeming certainty.  One interesting article from last year attempted to show how the lion’s share of US GDP was driven by the housing boom and cheap credit following the dot com bust. Taking a defensive posture, John Fisher and Saad Quayyum, economists at the Chicago Fed have penned a new Fed study.  “The housing boom has not been driven by unusually loose monetary policy,” they conclude, attributing the boom to increased productivity.

Rich Lowery at National Review Online has published an intriguing analysis of George Bush’s economic accomplishments with tax reductions, increased spending and overall reduction of the deficit as a percentage of GDP.

Lowery points out how according to Brian Riedl of the Heritage Foundation, if annual spending increases in the Bush years had been limited to the rate of the Clinton years, roughly 3.3 percent, there would be a federal surplus now. Instead, spending has been growing at 8 percent a year. That demonstrates that the formula for deficit reduction from the 1990s—moderate-spending restraint coupled with higher-than-expected growth-generated revenues—would work again today, if only someone could manage the moderate-spending restraint.

Can anyone say “Laffer curve?”

A US News article recalls the legendary moment in 1974 when economist Arthur Laffer supposedly traced the Laffer Curve on a napkin at the Two Continents Restaurant in Washington, D.C. at a dinner attended by Donald Rumsfeld and Dick Cheney. Some time later, he sketched it for Ronald Reagan.

“It was a doodle,” said Laffer, in an interview with US News writer Paul Lim. Known to many as the father of supply-side economics, or as former President Bush once called it, voodoo economics. 

“The drawing in question was a graph that illustrated a theory now widely embraced by conservatives: If tax rates are lowered, tax revenues can actually grow as economic activity is spurred. Laffer’s igloo shaped curve illustrated how at either 0 or 100%, tax revenues will be 0 as increasing taxes serve as a disincentive to producivity.

In any case, Laffer and Reagan were eventually proved correct, Bush senior was proved wrong, and Bush junior in the company of Dick Cheney are producing positive results in keeping with their promise of overall deficit reductions.  Now if they could only slow down the spending…

The LA Times ran a story today that once again invoked the dreaded “S” word: stagflation.  Stagflation in the seventies was the double jeopardy of rising prices in the context of a languishing economy, a condition on which monetary policy bears only minor influence (okay, bad pun).

“The economy could be facing a bout with stagflation,” said Peter Morici, a University of Maryland business school professor. “My feeling is we’re headed for a tragedy here.”

Dean Baker, co-director of the Center for Economic and Policy Research, said he also viewed stagflation as a possibility as credit tightening further damps the housing market and puts a crimp on the spending of homeowners.

“The May price data provides grounds for concern on several fronts,” he said.

“I think we’re in for some tough times.”