It’s been a rough few years for the US economy. After the financial crisis the structural reforms and government intervention started comparisons between the US and slow-growth, socialist-leaning countries like France. Perish the thought!

But years after stimulus and “recovery” the overall US economy has not added many jobs and just doesn’t feel very robust. Some look abroad to China and feel that their sheer size, growth rate and seeming invincibility will make them the global economic power in the fullness of time.

Big corporations are the problem, not the solution. When it comes to job growth it turns out that small and medium sized businesses create about 120-140% of the new jobs in the US. That tells you something about what big corporations are up to. They are reducing payrolls and moving jobs to “more efficient” providers abroad.

The burdens on small businesses though have made it harder to hire. Healthcare costs are substantial and the economy isn’t strong enough to support speculative hiring. Today thousands of college graduates bemoan the lack of $85K annual jobs that will train them to do something useful and wait around for “things to improve.”

Mayor Bloomberg has hit on a perfect opportunity for the US to get back some of the mojo that built the country and made it great. Immigrants have been the key to growth since the US came into being. Our policies are stupid and self-defeating. He lays out a set of proposals that offer the greatest bang for the buck than anything else we have seen in recent memory.

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Changing our policies would allow the best and brightest to come and remain in the US to get a college education and start new companies that will provide the new products and services, jobs, taxes, and investment opportunities that we need. More companies, more jobs, more demand for housing, more prosperity – all for little to no cost for the country.

There’s lots of attention on QE3, near-term job growth, health care, inflation and quarterly numbers. But the real long term growth engine for the US, the thing that makes it different than every other country in the world, is the strength that comes from immigrants that come to build a better life and in turn our economy and country.

Every day the news is filled with the equivalent of whining over entitlements. Meanwhile so many smart, talented and hardworking people in the world have neither freedom nor opportunity. Their attitudes, efforts and impact is sorely needed in this economy right now.

It’s worth taking the time to read or listen to the entire Bloomberg message and also see lots of the information that backs up the merits of the proposal.

[Disclosure: None. I'm not a particular fan of Bloomberg and a registered independent. I like fact-based legislation that still remembers the positive traditions, honor and character of the country. What Bloomberg is talking about here is a great example.]

Related articles

• Hell Yes, Mayor Bloomberg. I’m With You. (techcrunch.com)

A few weeks ago, an inspired email exchange between ourselves and some research partners made it too hard to resist posting Why not just eject Greece?. After that the matter seemed to pass and markets quickly forgot about the problem.

But, given recent events and our little downdraft yesterday, we find ourselves returning to the topic. The other solution we discussed was that Greece should simply sell off some of its islands. Greece has about 6000 islands, most of which are uninhabited but potentially quite valuable.

They are beautiful and a very popular vacation destination for the population of richer countries like German and France. Also, just think about how much Nordic countries might like a warm oasis down south!

Since many of the islands are uninhabited and have no infrastructure, Greece would also stand to gain valuable short and long-term economic growth from the additional infrastructure investments and nearby population growth.

In short, selling off a hundred islands or so would be a huge win-win, and such a number is still a very small fraction of what Greece owns – so they wouldn’t even really need to enact radical reforms since they could finance  future expenses with more island sales.

This strategy would get them through approximately the next 100 years, depending on their economy and the ultimate prices realized from the sales. Of course, I’m sure they would want to draw the line at inhabited islands or, in the very worst case, Crete.

Some have pointed out that this “can never happen” because it’s somehow “wrong” for rich countries to “take advantage” of poor ones. All I can say to that is “WHAT?!” This is a country of adults who can well decide for themselves how to run their country, and they are hardly poor. Add to that the fact that the government engaged in what most agree was fraud in overstating revenue and understating expenses to avoid harsher punishments earlier in the process – so why not?

As we wrote earlier this month, if you want a union of equals then the countries have to take responsibility for their own actions. This is a “crisis” that was brought about by a simple lack of caring, honesty and attention. If there was a natural disaster, of course help should be forthcoming, but I fail to see any compelling reason for there to be in this case.

My business partner is fond of calling Europe “a beautiful museum,” and so it seems fitting that if money needs to be raised, a country like Greece might call on Sotheby’s to showcase and hold a fine auction of a hundred or so of its islands. That way rich individuals, corporations, and countries can bail Greece out cheerfully in exchange for a small piece of waterfront property. (Didn’t America do this once in the 1980′s with Japan?)

Our friends at GaveKal argue that if Greece doesn’t get bailed out, it’s clear that country risk will return to the fore of yesteryear. It’s also been made clear that the Euro will not shelter Europe from any crisis, as it once was thought to be able to do. Given these realities, some major waves of asset pricing will have to roll through the Euro zone before the dust settles.

“Fasten your seatbelts. It’s going to be a bumpy night.” – Margo Channing (Bette Davis) in All About Eve

Okay so we don’t know anything about politics or economics but let’s look at Euro-land like a stock.

There are a bunch of different businesses, from the long-established Germany and France (cash cows) and the up-and-coming countries like the Czech Republic (stars.)

But then you have Greece. In the strategic analysis it is a dog. It’s not providing growth or positive cash flow. They have had many warnings and restructuring programs but there is still no end in sight.

Greece seems to have compounded their problems with fraud and trying to conceal the depths of their issues from Euro HQ and the other divisions.

What’s the right thing to do?

In this case you jettison the division and let it find it’s own way.

How does Europe lose by making an example of Greece? Some say that yields on Euro bonds would have to go up. I say not so. Germany and France will still be Germany and France. If anything they will improve because investors will know that they will not have to pay for chronic problems like Greece.

After all, yields on state and local debt in the US vary from place to place and all differ by instrument type and have a spread over treasuries. Why shouldn’t European country debt have the same dynamic? Just because it’s the same currency doesn’t mean we can’t analyze and price country risk separately.

What will happen to Greece? Nothing. They can go back to their own currency and try to restore confidence in their system, country and economy. Some Greek companies and people might lose some mobility or business preferences but they certainly won’t be fatal. This is Greece after all. The international companies there built themselves up before and during the Euro area. They will continue to do so after.

The Euro makes a statement that they know how to deal with change in both directions. So far it’s been absorb, grow, and expand. Every business has to prove it knows how to deal with problem divisions, markets and management teams.

By the way – by all appearances there are many investors salivating at the chance to buy Greek assets on the cheap. Getting dropped from the EU might be the best thing that ever happened to the country and also a good thing for Europe and the Euro.

There will still be major benefits to being part of the EU, but there are also benefits from not being part of the EU – and they cut both ways.

I say eject Greece and focus on building a strong EU. If you can’t let a chronically weak division fail then you are not going to have a strong company.

We’re listening to the latest economic and market analysis from the smart gents at GaveKal research and during the talk we were reminded of some conditions that existed during the most intense phase of the technology bubble of 1999 and 2000.

It’s obvious that China has been financing US consumption so that they could enjoy the growth that has helped to propel their economy.  Equally true but less obvious is that Germany has been doing the same thing for weaker countries in Europe to the tune of a few percentage points of GDP.

Some may not remember that in 1999 we witnessed some extreme business practices.  A startup company would accept a large investment from a larger company.  At the same time the large company would be come a “marque customer” of the startup.  On top of that cozy mutual reward system the startup would offer the larger company payment terms, basically financing their purchase.

In retrospect it is difficult to imagine that investors tolerated this type of activity.  But tolerate they did and until the dam broke early in 2000 many embraced it with both arms.

Right now this same type of activity is going on with respect to China and the US and Germany and many of the EU countries. Of course the scale of these operations are vastly larger than what happened in the US technology sector back in 1999.  But it has been going on for some time and there is no way to know how long it will continue.  Some have speculated that the Germans tolerate it because the average man on the street doesn’t realize that it is going on and those that do realize it’s a bit like a fatal embrace.  If Germany were to clamp down, their own economy would tank.  The same situation vis a vis China has been discussed ad nauseam.

What should one make of this?  In the short term there doesn’t appear to be much to do about it.  The US and the global economy has stabilized and is recovering.  All economic players are committed to maintain easy money for some time and the current worry is more deflation than inflation.  Nearly all the players have a strong shared interest in maintaining this broadly faith-based system of measures to keep all the plates spinning.

We thought that a piece we published back in April of 2007 “What would Godel do?” was now very much out of date but it may come in handy again.

Our friend Brian Bristol had an op-ed published over at the Orlando Sentinel that points out how powerful capital gains tax relief can be to spur investments and give the equity markets a boost in 2009 after a very rough period last year.

We’re a little surprised that there isn’t more effort being put into encouraging investors in these economic times given how beneficial real investments are for driving economic growth in the U.S.  Some of the relief efforts (like allowing businesses to get retroactive tax relief going back five years based on losses in 2008) as of very limited use.  Instead of handing out money and hoping that something good comes of it why not just provide relief from future tax burdens for those private sources of capital that are looking for places to invest?

We’d go much further than having a declaring a long-term capital gains holiday for investments made this year.  We’d certainly be happy to see it but it would be more of a short-term boost than a long-term engine.

Part of the problem is that for many Americans "investments" have increasingly looked more like financial engineering and restructuring antics rather than that which builds productive capacity, creates durable economic value and adds to job growth and quality of life.

We’re involved in a number of private financing projects right now and they all have very strong merit.  Many stand to get done or at least get enough financing to keep developing.  But what would really excited investors is not only relief from any long-term gains taxes but also a credit for investments that create jobs and/or productive capacity in the U.S. 

Tax credits like these are not a new idea at all which is why we’re surprised not to see them more featured as part of the rumored $300B stimulus package.   They could also be used to offset interest payments on debt which would further enhance the attractiveness of building economic growth. 

Although we are not fiscal or economic experts we KNOW that this will lead to much more real growth than sending out $300 checks to consumers or handing businesses tax refunds to spend as they wish.   

Providing incentives to invest in new capacity, fund companies that are ready to hire staff to ramp up operations are the best ways to use tax payer funds to fuel growth.  Why aren’t we doing more of it?

Bill did Charlie Rose which gives one a 55 minute view into what he thinks about where MSFT is now and where they are going.   Given the size and importance of the company we thought we should review it.

Bill’s outside MSFT now but he clearly still cares about the company as well as some "special projects" like search. 

The odd disconnect between what Bill believes and what the reality is in software today.  The visions are fairly mainstream including thoughts about mobile computing, reading devices, video, screen technologies and so on.  (Strangely enough Bill didn’t have much to say about what we see as the medium-term future of visual computing and RealVR.)

There’s clearly big opportunity in having Bill and his resources figure out some solutions to normal world problems like how to keep vaccines viable without refrigeration and many other areas.

Having the energy and intellectual interest, combined with the financial resources of a Gates/Buffett+ is a pretty big deal.  The world isn’t rational because of dysfunctional incentive systems and it needs organizations like the Bill and Melinda Gates Foundation to address obvious problems.

Technology will play a big roll in delivering the best education effectively.  Also technology will help with problems like water and cooling in emerging economies. At the same time technology plays a generally positive role in figuring out ways to spur development. 

Go after some core problems like AIDS and Malaria are a major focus.  Gates focuses mostly on developing new solutions and then relies on governments and other organizations to fund large-scale implementations. 

On the surface having these guys go after solutions for the 10M children who die every year is obviously pretty awesome stuff. 

Lots of the major cycles are 15 years in duration when it comes to new vaccines and crops which is a major factor in limiting advances. 

The idea of taking 4-5% of the "innovation power" of large companies and directing it towards special needs of the world and the poor is a good one.  [The fact is that taking 1c out of every dollar and focusing the right way will go a along way to solving these problems.]

Bureaucrats don’t get a wake up call from customers or markets.  Same can be said in many ways about some non-profits.  The ability to prioritize and understand real business scale issues are the core of what needs to be in place to solve some of these problems.

Overall a fairly grounded and noble presentation from Bill on what he is doing and how he still feels technology will play a major role.  At the same time he hasn’t totally let go of technology projects at Microsoft but much remains to be seen about how they will do in software, search and so on.

 

There are plenty of good posts out there arguing for weakness in real estate.  The listings we get every week tell the same story.  At least in the Boston area we see numerous price reductions and most sales below offering prices. 

Lately however a number of new listings and price reductions made us realize that at least in the North East we might see additional pressure to unload properties that are especially old and inefficient when it comes to energy use.  We’ve seen some listings we might have jumped at two years ago but now won’t even look at them because they would cost a small fortune to heat and power.

For those around during the NYC real estate crunch in the late-80′s it was the high monthly maintenance charges on some apartments that made them almost impossible to sell.

Energy prices are already high and if you believe forecasts from people like Goldman Sachs they will go higher this winter (oil at $95 according to them.)

Bulls might say that this would also increase demand for newer, more efficient properties which is a valid point.  However the overall impact is likely to be driven more by the increase in supply and the greater incentive for sellers to reduce prices and unload these properties.

We don’t think anyone can really forecast the economy or the real estate market but having lived through the NYC experience we think time is on the side of the buyer these days and should remain the case for another year or so. Unless super-low interest rates reappear soon the scenario should play out as many expect.

Tags: Real Estate, Energy