Friday, March 04, 2005



Freedom is in a worldwide break-out. Productivity continues to confound the prognosticators. Economic growth just keeps on rolling along. Interest rates are very attractive to home-buyers, businesses and other consumers. Employment is strong but not too strong. Inflation is tame.

I absolutely loved the Pat Olipant, Universal Press Syndicate, political cartoon this morning. My guess is that 9 times of 10 Pat attacks conservatives or conservative positions. His two favorite targets are George Bush and Condoleezza Rice. This morning was a picture of one tiny little flower blooming in the desert with Arabs in traditional dress backing off, drawing swords and suggesting to "Stand Back-We don't know how big this thing's going to get!" It was even nice for his little side bar to be "Not very, given your track record".

The negative little comment shows that Bush may go down in history for doing the impossible. Freedom is breaking out in the Middle East. The Lebanese people crave democracy. The Palestinians want a home state. The Iraqi people demonstrated by the thousands against terrorism last week.


Nervous Nellies jumped on the lower productivity numbers a week or two ago. The word was that inflation is now roaring back or that the economy is really not as good as reported. The recent revision shows that productivity continues at a strong pace. Not as strong as the unprecedented levels of recent years, but better than 2%. At a 2% productivity rate, the average worker produces twice as much as his father. Think of the options; should our nation desire, we could produce the same goods while reducing the work week to 20 hours. This will not happen but it is a good way to appreciate the benefits of productivity. Americans will likely decide to continue to work about the same hours while enjoying a higher standard of living.


February jobs as reported this morning were up 262,000. Of the increase, 20,000 were manufacturing jobs. The report shows the beginning of the end of the hysteria about our current account deficit. Those Billions of dollars accumulating in foreigners hands are being spent on capital goods manufactured in the good old USA.

Better still no signs of over-heating in the job market. The surveys "jobs hard to get" or "jobs are plentiful" show there is plenty of room for more job growth.


The most serious inflation we are seeing is inflation of asset values. Real estate, stocks, bonds and commodities have all gone up in value. I am not going to cry because my families biggest asset, real estate, is moving up in value at a steady clip. Stocks are selling at high price to earnings ratios but I see average earnings growth of 15% this year!

Commodity prices are simply a reflection of the strong demand created by a strong economy. The economy is strong because manufacturing resources are plentiful, inflation is low and projected to be low and interest rates are low.

For anyone to suggest that inflation is high, the person must be the equivalent of the blind man who felt the elephants truck and declared that an elephant is like a snake. Sure the price of oil is up, while the price of long distance phone calls are dropping to zero. Sure the CRB is near long term highs, while electronic gadgets are getting cheaper by the minute. If a corporate executive were to awake from a 20 year nap, he would have a hard time believing that individuals have Million Dollar computers sitting on their desks.

The three components of inflation are resources, labor and capital. A few of our resources are currently in tight supply demand squeezes, there is little inflation anywhere else and indeed the Personal Consumption Deflator reads 1.6%.

The bond market has confirmed the reports again today. The ten year treasury yield traded down to 4.33% after the jobs report today.

Superb Poker Player?

I do not know if George Bush is a poker player or not. If not, he would do well. As Commander-In-Chief he has played several strong hands well and he has bluffed a number of hands. As President, he is playing the congress like a fiddle. The senate was not willing to pass an energy policy last year and has lined up to use energy as a negotiating tool. Bush has called the bluff again and again. Bush is angling for the big fish. He hopes to pass a social security reform that will be of great benefit to future generations of Americans. If representatives and senators want to play a game of chicken with energy Bush is willing. I believe in the prediction of republican senate leaders that a nuclear permit will be issued in the US within the next five years. The game being played is a very tough game. Bush has a whole extra deck of aces up his sleeves. I would not bet against him in regard to energy, tort reform, social security reform or even democratic freedom for large portions of the Middle East. What's not to like?