Tuesday’s gone with the wind -redux

Please hum one of my favorite Lynyrd Skynyrd songs, “Tuesday’s Gone,” as you read a few miscellaneous thoughts this Tuesday. In no particular order:

– Most news agencies are purposefully not mentioning rhe killer’s name in Virginia Beach. I did hear the killer was a pleasant fellow by all accounts. This rebuts the comment about the good guy with a gun stoppng the bad guy – how do you know?

– Why must every issue or small thing be contentious? This president wears me out and has increased stress levels around the country. Please Mr. Trump stop commenting on so many topics. Please stop picking fights when they are not needed.

– And, the press needs to focus less on the many pedestrian faux pas of the president and more on the bigger issues like tariffs and trade, retrenching from our global position, climate change, environmental degradation, ignoring debt, and ongoing obstruction of justice and diminishing our democratic institutions. Coverage of the small stuff dilutes the impact of the large stuff.

– The middle part of our country is hurting with the flooding from these frequent behemoth storms that slowly move across the country. Plus, it is impacting farmers at the very time they must decide what to plant, which is influenced by the tariff issues.

– Finally, speaking of tariffs, political comedian Bill Maher noted on his show on Friday that Democrats should start calling tariffs what they are – a tax. He said they should be referred to as a “Trump Tax,”

That is all I have for this Tuesday. “Tuesday’s gone with the the wind. My baby’s gone with the wind.”

Trade war and sagging prices push U.S. family farmers to leave the field

Recently, I wrote of the significant increase in farmer bankruptcies in several states. Already in a fragile state, the trade wars have pushed an increasing number of family farmers into bankruptcy.

In a Reuters article entitled “Trade war and sagging prices push U.S. family farmers to leave the field,” bankruptcy is not the only path forward for these farmers.

The article begins “Shuffing across his frozen fields, farmer Jim Taphorn hunched his shoulders against the wind and squinted at the auctioneer standing next to his tractors. After a fifth harvest with low grain prices, made worse last fall by the U.S.-China trade war, the 68-year-old and his family were calling it quits. Farming also was taking a physical toll on him, he said; he’d suffered a heart attack 15 months before.

Across the Midwest, growing numbers of grain farmers are choosing to shed their machinery and find renters for their land, all to stem the financial strain on their families, a dozen leading farm-equipment auction houses told Reuters. As these older grain farmers are retiring, fewer younger people are lining up to replace them.”

This a key reason tariffs and trade wars need to be well thought out and avoided whenever possible. Tariffs usually cast a wider net on the lives of people and business, harming far more than those intended for them to help. These farmers are one audience that is harmed.

The additional troubling aspect is the slow and lengthy impact tariffs and trade wars have on sales and supply chains. These chains are built on relationships. I often quote a CFO who echoes what I observed in 30 plus years of business that CFOs like predictable costs maybe even more than lower costs. Tariffs and trade wars upset that paradigm.

We must help our farmers, especially the family farmers. We also must make more thoughtful decisions with input from people in the know. Why? People are impacted, so we need to make sure we understand the scatter-fire of pulling the trigger on a change.

Friday follies

I hope you have had a great week. Since there are several issues bouncing around inside my head, here is a summary review of the follies for the week.

The Brexit clock keeps ticking while the British parliament keeps placing their collective thumbs in their more southern orifices. A second Brexit vote would likely end with a different conclusion, but it would take more time than they have and would involve another decision by an uninformed public. Let me give Parliament its out, but it will take more courage than they have. They should either accept May’s terms or vote to remain. I would urge the Brits to remain, as I would hate to see Northern Ireland and Scotland leave the UK.

Here in the US, Trump’s campaign manager, Paul Manafort, was sentenced to 47 months in prison. While a much lighter sentence than many felt, he does have another sentence coming in another court. If Trump is as innocent as he proclaims, with the guilt of Manafort and other Trump associates, Trump is not very good at judging friends and associates. Yet, as I have witnessed time and again as a consultant, an organization takes on the personality of its leader. So, if subordinates are guilty of lying, cheating, and criminal behavior…

China’s slowing economy is impacting orher countries as expected. It was reported yesterday that China is buying less from abroad and using those dollars internally. The US trade deficit with China has grown not lessened the past year. And, the EU banks have softened economic projections as a result. What continues to surprise me is how little the US President understands how trade deficits and tariffs work. This may be the best metaphor of his Presidency as economics were supposed to be his strength.

Finally, populists are popping up in more countries in greater numbers. To me, a name that implies a broader appeal should not give greater license to spread hate and bigotry. In spite of all of our many faults here in the US and some leaders who need to find a conscious, we have benefitted greatly from being a melting pot. Diversity is a strength. I fully understand the need to govern the numbers of people immigrating in, yet painting all newcomers as evil, is not appropriate. What frustrates me is issues over immigration should be fact-based and reflective of the country’s mores and ideals and not sold on fear.

That is all for now. I know I have overlooked a great deal. Have a great weekend.

 

 

The sugar high is beginning to wane

The volatile and recent downward trend in the stock market is an indicator.The slowing of global growth, uncertainty over trade, increasing business costs due to tariffs and increasing interest rates are causing a dampening effect.

While the US economy had 3.5% annualized growth in the 3Q2018 following 4.2% in 2Q2018 (it was 2.2% in 1Q2018), imbedded therein are two numbers that should give pause. Business investment was much higher in 2Q2018 at 8.7%, partly due to getting stuff in the hopper before the tariffs started. Yet, business investment fell to 0.8% in 3Q2018. That is an ominous sign. This concern is also apparent in several third quarter earnings announcements by major corporations.

While we should finish 2018 with annual growth north of 3%, economists have predicted that 2019 will have 2.4% annual growth, falling to 2.0% growth in 2020. I should add they feel the impact of the tax cut for corporations is waning (which is sad because it is an imbedded profit margin increase). In other words, the companies view this tax reduction as a “sugar high” that won’t last.

When the tax bill was passed, the White House and Congress touted that it would take GDP growth to 4% and pay for itself. Tax cuts have never paid for themselves and the best they have done is abet the economy enough to save maybe 20% to 30% of the foregone tax revenue. But, the tax bill was estimated by the Congressional Budget Office to increase the already $21 trillion in debt by $1.5 trillion over ten years. And, the tax bill did nothing to address the projection the debt would increase by $10 trillion by 2027. Absent any change, we are looking at debt of $33 trillion by 2027.

It should be noted the annual deficit increased in the government fiscal year just ended to $779 billion from $665 billion, partly due to foregone $166 billion in tax revenue. The deficit is budgeted to be $985 billion in the 2018-19 fiscal year, on projected expenses of $4.407 trillion and revenue of $3.422 trillion. The deficit is expected to grow past $1 trillion in fiscal year 2019-20.

The US President has tended to be a short-term thinker. He is too focused on doing things that look good now. This is one reason he has had six bankruptcies. The problem is the sugar high is going to end. And, we spent $1.5 trillion to add more sugar to a pretty good economy. We are now beyond 9 years in economic growth (the second longest in US history) and 8 years in job growth, with a bull stock market dating back to March, 2009. Plus, we took one of our levers off the table with an unneeded tax cut. I was all for lower corporate tax rates, but we went well beyond deficit neutral.

This is not a new concern of mine, as I have been actively writing about our debt and deficit for several years, well before the current President took his oath. One of my concerns over Obama was his not doing anything with the Simpson-Bowles Deficit Reduction plan. Both he and Congress just put a very good working draft on the shelf. Our building debt is a ticking time bomb that will cause a huge day of reckoning. And, one things politicians don’t talk about it, is it will take tax increases and spending cuts to get there. The math will not otherwise work. That is the conclusion of the Committee for a Responsible Federal Budget and the Simpson-Bowles effort.