Happy Face Romer Out
Research for Online Investors

by John Dalt

8/06/10

"Happy face" Christina Romer announced she will leave the White House and return to teaching at California’s U.C. Berkley as an economics professor.  Romer was Oh! Bama’s head of the White House Council of Economic Advisors.

Romer was rumored to be at odds with Larry Summers.  She was an odd choice for an administration that wanted to follow Keynesian principals of spending money by the government.  She had written that a “tax increase of one percent of GDP lowers real GDP by roughly three percent.”  Her research came to the conclusion there was "no support for the hypothesis that tax cuts restrain government spending; indeed ... tax cuts may increase spending.”

Editors note:  Christina…spending by Washington has nothing to do with taxes or receipts!

Rolling Stone has a great article out this week about the behind the scenes maneuvers to enact the Dodd-Frank Financial Regulation Bill.  Author Matt Taibbi tells the inside tale of how financial regulation was played by the White House, Dodd and Frank to give the appearance of reform, but leave plenty of crumbs for their buddies in the big banks.  One of the great lines in the article concerns Chris Dodd and his relationship with the Chairman of Goldman Sachs (GS).  “The person (Dodd) in whose hands America had placed its hopes for finance reform was someone who once sang furniture jingles onstage with Lloyd Blankfein.”  The article is a bit long, but written well and gives insight to the backroom deals.  Looks can be deceiving!

The author believes the fin-reg bill is a big win for Wall Street.  This view is true if you believe the only good business in America is one that does the government’s bidding.   A different view than your editors.

The excess risk big banks take can simply be cured by letting them fail.  Failures litter the landscape of a Free Market.  Their stories warn other businesses to apply caution to their activities; else they suffer the same fate.  What lesson has our government taught financial institutions in the last two years?

This morning, the Labor Department reported that the unemployment rate held steady at 9.5%.  Here is a chart that shows employment and the resulting unemployment rate since July 2007.

Assuming that the recession ended in June 2009, the current unemployment rate is exactly where it was at the end of the recession (9.5%). The chart below illustrates the amount of time it took for the unemployment rate to dip and stay below its recession-end level for each recession since the late 1940s.

For example, at the end of the recession that ended in November 1982, the unemployment rate stood at 10.8%. We can see it took two months for the unemployment rate to drop below (and stay below) the recession-end level of 10.8%.

Over the past two decades, it has taken significantly longer for the unemployment rate to drop below its recession-end level. The reasons for this increased time for the unemployment rate to turn around may vary with each recession. However, it is interesting to note the advent of higher minimum wages and unemployment insurance coincide with longer and longer periods of high unemployment. The relatively recent practice of extending unemployment benefits allows workers to stay unemployed longer. We no longer allow the free market to adjust wages.

To the mailbag:
Why would you go USO instead of a DIG?---paid up subscriber S.H.

John’s reply: USO is based off futures for the price of oil, DIG is an ULTRA etf based on the price of exploration and production oil companies.  It is heavily weighted to Exxon (XOM).  I like DIG, just a different way to play it.  But be careful, crude is over $80 a barrel, and inventory is 2.5% higher than last year.  If the perception of economic growth takes a negative hit, or the Israelis and Palestinians start singing Kum-Ba-Ya crude oil could drop.

I would like to see that chart (crude oil days of supply) superimposed on multiple years data.---paid up subscriber M.T.

John’s reply:   I can’t do it in a chart but here are the raw days of supply for the last ten years for the last week of July.  You can see the data by week for the last 29 years here.

2000  18.1                 2006  21.2
2001  20.2                 2007  21.5
2002  19.9                 2008  19.5
2003  18.1                 2009  24.2
2004  18.4                 2010  23.1
2005  20.3

Today's Quote:
"Winning is not a sometime thing; it's an all time thing. You don't win once in a while, you don't do things right once in a while, you do them right all the time. Winning is habit. Unfortunately, so is losing." - Vince Lombardi

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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