plus 4, After 1 Year, Obama vs. Reagan - Yahoo Finance

After 1 Year, Obama vs. Reagan - Yahoo Finance
Report: GM offering deep discounts on discontinued Pontiac, Saturn ... - Dallas Morning News
Ford to Begin Production in Windsor - Yahoo Finance
Palmen to close Racine GM dealership, open in Kenosha - Milwaukee Journal Sentinel
1 firefighter killed, 4 injured in Calumet County blast - Milwaukee Journal Sentinel

After 1 Year, Obama vs. Reagan - Yahoo Finance

Posted: 30 Dec 2009 08:20 AM PST

As we approach the end of the year, we are also approaching the end of President Obama's first year in office. You might be wondering how he is doing, based on actual numbers (rather than political spin).

Obama clearly inherited a difficult situation economically. Only two others in the modern era came even remotely close. One, of course, was FDR, but unfortunately the data from then is rather sparse, and mostly available on just an annual basis, or at best quarterly (good economic data was one of the by-products of the New Deal).

The other who inherited a difficult economic situation was President Reagan. Granted, the type of difficulty was very different under Reagan, and presidents -- like quarterbacks -- get too much of both the praise for a good economy and the blame for a bad economy.

Still, I think comparing the numbers for the two during their first "year in office could be instructive. The data I used for the comparison are all available monthly (at least, and if more frequently, I used the monthly data). The source of all data is the St. Louis Fed (except for the S&P 500).

The two presidents offered very different prescriptions for the economy. Reagan was all about cutting taxes and less government involvement in the economy. While most of the really big moves of government into the economy in response to the recent economic crisis actually took place under President George W. Bush, Candidate Obama saw them as needed. The Bush Administration was the one that bought the stakes in American International Group (NYSE: AIG - News), Fannie Mae (NYSE: FNM - News), Freddie Mac (NYSE: FRE - News) and the banks, while Obama's support for a prepackaged bankruptcy resulted in large government stakes in the Auto industry.

There were no comparable big investments by the government into the private sector late in the Carter Administration, and certainly Reagan did not initiate any. Reagan did not have to deal with a financial meltdown when he took office, but on the other hand, Obama did not have to deal with runaway inflation. Both are serious diseases, but think of it this way: both cancer and heart disease can kill you, but you would not want to give chemotherapy drugs to a heart attack patient. Thus, perhaps it is appropriate that the prescriptions be different.

If one only looks at the unemployment rate (U-3), both did a poor job in their first year, and Obama was significantly worse. The unemployment rate in January 2009 was 7.6% and by November it had climbed to 10.0%. In January 1981, when Reagan took office, the unemployment rate was almost identical at 7.5%, and by November of 1981 it had climbed to "only 8.3%.

Private employment actually rose during the first 11 months of 1981 by 0.55%, from 74.671 million to 75.084 million. Under Obama's tenure so far, private payrolls have dropped by 2.95% to 108.495 million from 111.793 million.

So on the employment front, Reagan is the clear winner so far. However, over the course of 1982 and 1983 the employment situation deteriorated significantly. We do not know what unemployment will do in 2010 and 2011, and thus can only judge based on what we have seen so far and in the comparable period under Reagan.

Advantage: Reagan

Reagan also wins when it comes to real disposable personal income, which expanded by 2.3% in the first 11 months Reagan was in office, while it has only increased by 1.0% so far under Obama.

Advantage: Reagan

The dollar was also much stronger during the first 11 months of Reagan, although I am not sure if that is a positive or a negative. During the first 11 months of Reagan, the dollar relative to an index of major currencies gained 9.88%, while under Obama, the dollar has lost 9.70% relative to the same index.

Given that we are running chronic trade deficits now, but really were not back then, I would argue that today a weak dollar is good for the economy today since it will help out on the net export side of things. Inflation is not a big problem today, but was the number one problem with the economy when Reagan took office. The downside of a weak dollar is that it contributes to inflation, so back then having the dollar strengthening was a good thing.

No Advantage to Either

On the inflation front, however, things are far better under Obama. On a headline basis, prices have gone up by 2.39% so far under Obama, while they rose 7.57% during the first 11 months that Reagan was in office. On a core basis (ex-food and energy) the difference is even more stark, rising 8.31% under Reagan and up just 1.51% under Obama so far. Later in the Reagan Administration, inflation fell much more, but even when he left office in 1989 inflation was far higher than it is today.

Advantage: Obama

Industrial production fell slightly more during the first 11 months of Reagan (1.07%) than it has under the first 11 months of Obama (0.68%). Capacity Utilization started out at a much lower level when Obama took the oath than the Reagan did, at 71.1% (an all-time record low at the time) vs. 80.7% when Reagan took office. However, by November of 1981, the total capacity utilization rate had fallen to 77.9%. Under Obama, capacity utilization has actually risen to 71.3%, although it remains at a historically low level.

Advantage: Obama

Interest rates can tell a lot about the state of the economy. For example, the spread between the rate that guilt-edged companies have to pay on their bonds and what normal companies have to pay on their bonds tells a lot about how much bond investors fear companies going belly up. The former is measured by the Moody's (NYSE: MCO - News) Aaa rate and the later by the Baa rate (not to be confused with "junk bond" rates; Baa is still investment grade).

In January of 1981, the best credits in America had to pay 12.81% on their bonds, while normal companies had to pay 15.03%, for a spread of 2.22% (or as a ratio, normal companies had to pay 17.3% more than the guilt-edged ones). By November of 1981, both the best and the ordinary had to pay more -- the Aaa rate had surged to 14.22% while the Baa rate had risen to 16.39%, so the spread had fallen ever-so-slightly to 2.17. The ratio had come down a bit more, and the ordinary firms were paying 15.3% more than the best firms.

When Obama took office, the Baa rate was 8.14% while the Aaa rate was 5.05%, for a spread of 3.09. In other words, ordinary firms had to pay 61.2% more for money than the best firms did. Investors were very afraid that companies would go bankrupt, and so demanded a higher rate from normal companies than from firms that seemed to have very little risk of writing a new chapter (the eleventh) in their corporate histories.

Since then, the rate the highest-rated firms have to pay has actually increased slightly to 5.19% while the rate that normal firms have to pay has plunged to 6.32%, bringing the spread down to 1.13% and the ratio down to the point where normal companies are paying 21.8% more for their money than the Aaa firms.

(Given the huge difference in the overall level of interest rates between the two eras, it is important to look at both the spreads and the ratios. Clearly a spread of 2% has a very different meaning and significance if it is between 1% and 3% than if it is between 13% and 15%).

Advantage: Obama

Another important signal that comes from interest rates is the yield curve, or the difference between long-term and short-term interest rates. The curve is measured using Treasury notes or bills, since you only want to be looking at the differences due to maturity, not due to quality (the opposite of the Aaa-Baa spread, which is only looking at quality differences, not maturity differences).

While there are many different measures of the curve, the one that is used the most is the difference between the 2-year note and the 10-year note. Generally speaking, the steeper the yield curve, the better. An inverted yield curve is very bad news, and is probably the best single indicator that the economy is about to go into a recession.

When Reagan entered office, the 10-2 curve was inverted, with the yield on a 2-year note at 13.26% and the yield on the 10-year at 12.57%, for a spread of -0.69. On a ratio basis, the 10-year was providing only 0.95 of the 2-year. By the time November of 1981 rolled around, the curve had returned to normal but was still pretty flat. The yield on the 2-year had fallen to 12.88%, while the yield on the 10-year had increased to 13.39, resulting in a positive curve of 0.51. On a ratio basis, the 10-year was 1.08 of the 2-year.

When Obama entered office, the 2-year was at a very low 0.81% while the 10-year was 2.52%, for a positive spread of 1.71%. On a ratio basis, the 10-year was yielding over three times as much as the 2-year (3.11x to be exact). By the end of November, the curve had expanded even further, with the 2-year virtually unchanged at 0.80%, while the yield on the 10-year had risen to 3.40%, for a spread of 2.60% and a ratio of 4.25x. Again, given the vastly different overall levels of rates, it is important to consider both the spreads and the ratios when making the comparisons.

Advantage: Obama

Mortgage rates were both far higher and moving in the wrong direction early in the Reagan presidency. When he took office they were at 14.90%, and by November they had risen to 17.83%. When Obama took office, the rate on a 30-year fixed mortgage was 5.06% and has since fallen to 4.88%.

Not surprisingly, then, the housing market was far worse under Reagan than it has been under Obama (at least if measured by direction, not levels). In January of 1981, housing starts were running at a seasonally adjusted annual rate of 1.547 million, and by November of that year they had plunged to 837,000, a decline of 45.9%. Since January of 2009, housing starts have risen from an annualized rate of 488,000 to a rate of 574,000 in November, an increase of 17.6%.

Advantage: Obama

Similarly, single family new home sales plunged by 25.2% early in the Reagan years to a rate of 382,000. Since Obama came into office, new single family home sales have risen by 22.2% to an annualized rate of 402,000. Existing home sales are not particularly important to the economy (just like used car sales are not very important).

Auto sales also fared worse under the early part of the Reagan Administration than they have so far under Obama (at least as measured point-to-point). When Reagan took office, auto and light truck sales were running at an annualized rate of 11.03 million and had fallen to 9.21 million, a decline of 16.5%. Under Obama, auto and light truck sales have risen from an annualized rate of 9.59 million in January to a rate of 10.89 million in November, an increase of 13.6%.

Advantage: Obama

Finally, while people sometimes make too much of the day-to-day fluctuations in the stock market, it is a good reflection of the overall health of the economy when you look at longer time periods -- and almost a year is long enough to qualify there. On that metric, there is simply no contest. Between inauguration day and Christmas Eve in 1981, the S&P 500 lost 7.65%. Since Obama took office, the S&P 500 has gained 39.9%.

Advantage: Obama

Weighting these different economic indicators is inherently subjective, and thus I am not sure that one can come to a clear-cut case that one has done a better job than the other -- at least so far. This is also far from a complete list of economic indicators and I focused on only those that were available at least monthly, and many of the most important economic numbers come out quarterly.

Arguably, the economic mess that Obama inherited was worse than the one that Reagan inherited, although both were pretty nasty -- yet very different. The U.S. economy is more of an oil tanker than a speedboat, and does not turn around on a dime, so it really is too early to tell how Obama is doing.

However, the indicators that are most forward-looking and leading for the economy (stock market, yield curve and quality spreads, housing starts) are the ones that favor Obama over Reagan. Overall, 11 months in, one must conclude that Obama is doing at least as good a job on the economy as Reagan did in his first 11 months.

FEDERAL HOME LN MTG CORP (FRE): Read the Full Research Report

MOODYS CORP (MCO): Read the Full Research Report

Zacks Investment Research

Five Filters featured article: Chilcot Inquiry. Available tools: PDF Newspaper, Full Text RSS, Term Extraction.

Report: GM offering deep discounts on discontinued Pontiac, Saturn ... - Dallas Morning News

Posted: 30 Dec 2009 08:41 AM PST

NEW YORK – General Motors Co. is offering deep discounts on its remaining Saturn and Pontiac vehicles as it looks to move the leftover inventory of the soon-to-be-dead brands, according to a published report.

The automaker will pay dealers $7,000 for every new Saturn or Pontiac left on their lot if the vehicle is moved to dealer-operated rental or service fleets, according to The Wall Street Journal, which cited a letter mailed to dealers. This allows the dealers to sell the cars and trucks to consumers at a discount, although the vehicles would be labeled as used because the dealer would technically be the first owner.

The offer expires Jan. 4, according to the newspaper. GM spokesman Tom Henderson confirmed the details of the incentive plan Tuesday.

"That was the purpose of the programs - to help dealers reduce those inventories," he said.

The decision to discount Saturns and Pontiacs comes as GM closes down both brands under the Detroit automaker's restructuring plan. The shutdown of Pontiac was announced earlier in the year. GM announced this fall it would discontinue Saturn after a deal collapsed to sell the brand to Penske Automotive Group Inc.

Besides Pontiac and Saturn, GM is selling Hummer to a Chinese heavy equipment maker and is likely shuttering Swedish brand Saab. That will leave the automaker with four core brands: Buick, Chevrolet, GMC and Cadillac.

Sales of Saturn and Pontiac have declined sharply this year. Saturn sales have plunged 61.5 percent through November, according to Autodata Corp. Pontiac sales have slid 32.3 percent. GM's companywide decline is 31.8 percent.

With a $7,000 discount, the manufacturer's suggested price of Pontiac's cheapest vehicle, the G3 hatchback, falls to $7,335. The incentive brings Saturn's cheapest vehicle, the Astra compact car, to $9,495. Henderson, however, cautioned that the final price of the vehicles might be different.

GM's typical offers discounts that are much smaller. According to the auto research Web site Edmunds.com, GM's incentive spending in November totaled $4,270 per vehicle, on average.

Five Filters featured article: Chilcot Inquiry. Available tools: PDF Newspaper, Full Text RSS, Term Extraction.

Ford to Begin Production in Windsor - Yahoo Finance

Posted: 30 Dec 2009 07:16 AM PST

Ford Motor (NYSE: F - News) has decided to begin production of the V-8 engine at its Essex Engine plant in Windsor, Ontario, which was shut down in 2007. The engine will be used in Ford's 2011 Mustang GT.

According to a contract talk with Canadian Auto Workers (CAW) in October, Ford will employ 200 workers in one shift at the plant to make the V-8. However, Ken Lewenza – president of the CAW – is not happy with the decision.

Lewenza has asked Ford to add more shifts to install the engine in other vehicles as well. With this, the union will be able to recall more workers; about 1,000 Ford workers had been laid off at Windsor . Lewenza has revealed that V-8 engine could be used in Ford's F-150 pickup truck, one of the best-selling vehicles in North America.

In October, Ford reached a new agreement with CAW members that expires on Sep 17, 2012 and covers about 7,000 Ford workers. Under the deal, Ford has promised to invest $2 billion in its Oakville plant in Ontario, where it has committed to build two more vehicles, and the Windsor plant in Ontario , where it has promised to produce a new engine. The automaker also vowed to keep 10% of its North American production within the country.

In exchange, the CAW workers have agreed to give up concessions, similar to those made by their counterparts at the bankrupt Chrysler and General Motors (GM), which saw labor costs fall by $19 an hour. The concessions include reductions in time-off, bonus payouts, and other benefits, as well as a commitment that new members will contribute $1 for every hour worked to the employees' pension plan.

The new agreement would also allow Ford to close the St. Thomas assembly plant in Ontario during 2011, eliminating 1,400 jobs. Workers at the plant manufacture the Ford Crown Victoria, Mercury Grand Marquis and Lincoln Town Car.

FORD MTR CO DEL (F): Read the Full Research Report

Zacks Investment Research

Five Filters featured article: Chilcot Inquiry. Available tools: PDF Newspaper, Full Text RSS, Term Extraction.

This posting includes an audio/video/photo media file: Download Now

Palmen to close Racine GM dealership, open in Kenosha - Milwaukee Journal Sentinel

Posted: 30 Dec 2009 08:34 AM PST

Dec. 29, 2009 | Darius Woodley, a drug-addled homeless man who police say was left in charge of 6-month-old Dekia Mattox in a filthy, barely heated Milwaukee cottage, was charged Tuesday with killing the baby and stuffing her body between a couple of mattresses.

Neither the baby's 15-year-old mother, Diamond Mattox, nor Mattox's aunt, who had been responsible for the teen nearly her entire life, were home when the baby was killed early Saturday.

The state-run Bureau of Milwaukee Child Welfare was involved with Dekia's family, which was the subject of an ongoing investigation, said Erika Monroe-Kane, a spokeswoman for the Department of Children and Families. The DCF, which runs the Milwaukee bureau, is preparing a report that will outline the bureau's involvement, she said.

"The death of baby Dekia is a tragic one, and our thoughts are with those that loved her," Monroe-Kane said.

According to the complaint and a medical examiner's report: »Read Full Article

Five Filters featured article: Chilcot Inquiry. Available tools: PDF Newspaper, Full Text RSS, Term Extraction.

1 firefighter killed, 4 injured in Calumet County blast - Milwaukee Journal Sentinel

Posted: 30 Dec 2009 08:27 AM PST

Neither the baby's 15-year-old mother, Diamond Mattox, nor Mattox's aunt, who had been responsible for the teen nearly her entire life, were home when the baby was killed early Saturday.

"The death of baby Dekia is a tragic one, and our thoughts are with those that loved her," Monroe-Kane said.

According to the complaint and a medical examiner's report: »Read Full Article

Five Filters featured article: Chilcot Inquiry. Available tools: PDF Newspaper, Full Text RSS, Term Extraction.