2011Nov28 Like I-5 at rush hour

"Better to have stop and go, than no go at all."  - George Soros

Markets:

 

 From Bloomberg; U.S. stocks rose, snapping a seven- day decline in the Standard & Poor's 500 Index, after Thanksgiving retail sales climbed to a record and euro-area leaders were said to boost efforts to end the debt crisis.

 

Alcoa Inc. and Caterpillar Inc. led gains in all 30 stocks in the Dow Jones Industrial Average. Bank of America Corp. and JPMorgan Chase & Co. advanced more than 2.9 percent, tracking European banking shares. Energy companies in the S&P 500 soared 3.7 percent as oil rallied above $100 a barrel. AT&T Inc. added 1.6 percent after it was said to consider larger asset sales to salvage its takeover of T-Mobile USA. Amazon.com Inc. jumped 6 percent on record Black Friday sales of its Kindle products.

 

The S&P 500 advanced 3.1 percent to 1,193.98 at 1:23 p.m. New York time as all except four stocks in the index rose. The benchmark equity gauge fell 7.9 percent from Nov. 15 through Nov. 25, including the worst Thanksgiving-week decline since 1932. The Dow rose 308.57 points, or 2.8 percent, to 11,540.35.

 

"The market is reflecting that the U.S. retail sales were just colossal and some movement forward in Europe," Tom Mangan, who helps oversee about $2.8 billion at James Investment Research Inc. in Xenia, Ohio, said in a telephone interview. "There's a sense of urgency developing among European leaders as well as a recognition that the stakes are extremely high now," he said. "The volatility is still with us to a major extent, we're not out of the woods."

 

This is the primary news driving the market up Monday. While it does sound like good news we advise some restraint from the cheering section. The current information about Black Friday sales is coming from trade organizations with a vested interest in some good retail news.

 

Most of the shopping came from extreme discounting which is never very profitable for the seller. We need to wait for some numbers from the retailers themselves rather than industry surveys, and whether any money was made.

 

As for Europe, the stakes have always been high. There is a seemingly endless line of rumors about them finally "getting it" over there. Until action is taken to shore up the sovereigns and the banks, talk will continue. As long as it remains just talk, the condition of the European economy will continue to teeter on the brink of collapse.

 

The Fed:

 

While most people know about Congress' $700 billion TARP program, the Fed's secret emergency loans to banks during the financial crisis remains shrouded in mystery. After adding up all the guarantees and loans, the Fed committed $7.77 Trillion to rescuing the financial system as of March 2009. Notably, while the banks were taking these huge loans, they maintained that they were fine.

 

Federal Reserve Chairman Ben Bernanke's excuse for all the secrecy was that revealing the details of those who borrowed money from the Fed would possibly make needy banks reluctant to borrow in the future and investors wary of investing in those institutions. The Fed didn't tell anyone which banks were in trouble so deep they required a combined $1..2 trillion on Dec. 5, 2008, their single neediest day. Bankers didn't mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy. And no one calculated until now that banks reaped an estimated $13 billion of income by taking advantage of the Fed's below-market rates.

 

The amount of money the central bank parceled out was surprising even to Gary H. Stern, president of the Federal Reserve Bank of Minneapolis from 1985 to 2009, who says he "wasn't aware of the magnitude." It dwarfed the Treasury Department's better-known $700 billion Troubled Asset Relief Program, or TARP. Add up guarantees and lending limits, and the Fed had committed $7.77 trillion as of March 2009 to rescuing the financial system, more than half the value of everything produced in the U.S. that year.

 

"TARP at least had some strings attached," says Brad Miller, a North Carolina Democrat on the House Financial Services Committee, referring to the program's executive-pay ceiling. "With the Fed programs, there was nothing."

 

Bankers didn't disclose the extent of their borrowing. On Nov. 26, 2008, then-Bank of America (BAC) Corp. Chief Executive Officer Kenneth D. Lewis wrote to shareholders that he headed "one of the strongest and most stable major banks in the world." He didn't say that his Charlotte, North Carolina-based firm owed the central bank $86 billion that day.

 

Unemployment:

 

DENVER-Ferrie Bailey's job should be easy: hiring workers amid the worst stretch of unemployment since the Depression.

 

A recruiter for Union Pacific Corp., she has openings to fill, the kind that sometimes seem to have all but vanished: secure, well-paying jobs with good benefits that don't require a college degree.

 

But they require specialized skills-expertise in short supply even with the unemployment rate at 9%. Which is why on a recent morning the recruiter found herself in a hiring hall here anxiously awaiting the arrival of just two people she had invited to interviews, winnowed from an initial group of nearly five dozen applicants. With minutes to go, the folding chairs sat empty. "I don't think they're going to show," Ms. Bailey said, pacing in the basement room.

 

Her challenge is a familiar one to recruiters, especially in industries that require workers with trade skills such as welding. Union Pacific struggles to find enough electricians who have worked with diesel engines. Manufacturers in many places can't find enough machinists. Oil companies must fight for a limited supply of drilling-rig workers.

 

"There's a tremendous shortage of skilled workers," said Craig Giffi, a vice chairman of the consulting firm Deloitte. A recent survey it did found that 83% of manufacturers reported a moderate or severe shortage of skilled production workers to hire.

 

The extent and significance of the skills gap is hotly debated in economics circles, in part because of its policy implications. If companies aren't hiring primarily because of limited demand for their products or services, the standard policy prescription offered is some form of stimulus, such as lower interest rates or taxes, or more spending. But to the extent that the problem is companies' inability to find the workers they need, the remedy might instead be training or other efforts to help workers get the skills.

 

Most research suggests the sluggish economy is the biggest reason for the weak labor market. Data show the skills gap doesn't exist in whole industries but in specific jobs, including certain heavy-duty blue-collar ones.

 

Demographics are part of the explanation. Railroads went on their last big hiring spree in the late 1970s. Manufacturing employment peaked in the early 1980s. Many of those hired then are now nearing retirement. Union Pacific expects about 4,000 of its 45,000 employees to retire in 2011.

 

Replacing them has been a challenge for a number of reasons: an erosion of vocational education at the high-school level, a reduction of in-house training through companies and unions, a now-vanished construction boom that once gave people well-paying jobs without the need for much training, among other things.

 

Perhaps most significant is that the well-publicized decline of the country's manufacturing sector has made blue-collar careers appear less stable and attractive. Another Deloitte survey found that although a large majority of the public thinks it is important for the U.S. to have a strong manufacturing sector, barely a third would encourage their children to pursue a manufacturing career.