Eric Janszen Interview: CNBC Jan. 25, 2008

[BiscayneSunrise]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

GRG, I hear you. Many say that dollar devaluation is making the US the exporter of choice, hence you hear many stock gurus recommend those US companies with heavy global and/or export exposure.

We had a discussion on a thread here many months ago about this and the general consensus was that the labor cost advantage in emerging economies would far outweigh any currency advantage. Steve Forbes has been recently pounding Bush for his weak dollar policy. Forbes says a weak dollar does not translate into a strong economy.

As for exec. compensation, airline pilots are usually immune to cost pressures until their respective companies exercise bankruptcy. Recently pilots for the big US carriers have gotten whacked with 50%+ pay cuts. Their excess bargaining power simply disappeared. Now don't get me wrong, I am no socialist and I know how emotionally straining it is to be an exec at a publicly traded corporation especially post Sarbanes-Oxley but it seems to me the executive foxes on the compensation committees are guarding the henhouse justifying excessive compensation packages.

To your point, compared to other internal costs executive compensation is minimal, execs have freedom to move to other companies and since they do have excess bargaining power, even the most ardent shareholder rights advocates figure its not worth the fight.

PS: Sorry for the thread drift.

[BiscayneSunrise]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

PS: Here is the Forbes editorial on the weak dollar:

http://www.forbes.com/columnists/for.../0211/019.html

t's the Dollar, Stupid (and Taxes, Too)
Steve Forbes 02.11.08, 12:00 AM ET


More From Steve Forbes
Audio: Steve Forbes on Sky Radio


On the Run
Stagpanic
Experience
Suspended Animation
Complete Contents



Uh-oh. Washington wants a stimulus package to rejuvenate our slowing economy. Usually such programs are full of nice-sounding but wasteful spending initiatives, as well as tax breaks that have a weak, one-shot impact on the economy. President Bush should therefore offer a deal: strong, pro-growth measures as the price for signing off on the usual unproductive stuff. But the White House has panicked and will go for things that won't solve the problems plaguing us. The President should recover his nerve and verve. Otherwise, he will blast away a positive economic legacy.

The most potent, constructive medicine would be for the Bush Administration to stop its Jimmy Carter-like weakening of the dollar. A feeble dollar means inflation--witness what's happened to commodity prices over the last four years, the most prominent being oil, which has almost quadrupled in price. This ain't a case of supply and demand. Four years ago an ounce of gold would buy you roughly 12 barrels of oil; an ounce today would get you roughly 10 barrels--that's hardly a 300% real price increase. A weak dollar also brings about economic distortions, such as the (now disastrous) subprime mortgage orgy. President Bush should announce that we will defend the dollar and make it stronger. The Fed should announce that it will let the federal funds interest rate float, at the same time removing some of the excess money it created in 2004--05.

The bottom line: No strong economy has a weak currency.

An additional and powerful shot in the arm would be to make permanent--and, indeed, deepen--the tax cuts on dividends and interest that expire in 2010. Reduce the levy on dividends and capital gains from 15% to 10% and you'd see a sharp boost in equity markets, as well as in consumer and business confidence. Business capital outlays would boom, as would entrepreneurial startups.

Former Bush economic adviser Larry Lindsey recently came up with a good idea in the Wall Street Journal to unclog the tightening credit arteries: Allow manufacturers and retailers to open up their own in-house banks or financial institutions that could borrow and lend money. These entities could make loans to customers that now frightened banks are increasingly loath to make. Unfortunately, approval for this type of entity has been paralyzed by the fight over Wal-Mart (nyse: WMT - news - people )'s attempt to open such a bank. Unions and banks opposed it, and the proposal has languished.

Congressional Democrats instinctively oppose things that actually facilitate progress. They'll howl that all of these proposals are a giveaway to the rich. So in exchange for the good stuff, give them some of their pet projects in return; for example, one-time rebates of the kind George Bush issued in 2001 and Gerald Ford in 1975.

The Donkey Party will want some other programs, such as temporary aid to states for housing assistance. These things are well worth the price for the short- and long-term power of tax-rate reduction, sound currency and unclogged credit arteries.

Pernicious Pretension

Why is there an almost universal dogma that governments can play significantly positive roles in economic activity, that they can fine-tune economic activity and prevent excesses and cushion downturns?

It's a colossal conceit, and one that does immeasurable harm. Economies are not like engines that can be mechanically manipulated to run better. To hear all the chatter about tax rebates, for example, you'd think they were the equivalent of recharging your car's dead battery.

In fact, it's usually government actions that cause destructive economic troubles and excesses. The Great Depression, for instance, is always cited as prima facie proof as to why we need active government involvement. To the contrary, government blundering brought on the disaster, starting with the Smoot-Hawley Tariff of 1929--30, which began a devastating trade war that, in turn, dried up international trade and flows of global capital. That horrible error was compounded in the U.S. by Herbert Hoover's massive tax increase to balance the budget in 1932. Hoover thought a balanced budget would revive confidence. Instead, the deficit ballooned, as the high taxes deepened the slump. Compounding Hoover's errors, Franklin Roosevelt retarded recovery through major tax increases and destructive regulatory meddling. For the first and only time in our history a recovery didn't surpass the peak of the previous economic expansion.

The horrific inflation that racked the U.S. and most of the world in the 1970s and early 1980s was clearly the result of excess money creation by the Federal Reserve, abetted by other central banks. President Richard Nixon cut the U.S. dollar from gold in 1971, and central banks floundered.

Today the weak dollar is roiling financial markets and hurting our economy.

As for the cures for economic contractions, government spending isn't one of them. Franklin Roosevelt repeatedly "primed the pump" with government spending and job-creation programs in the 1930s--to little avail.

Japan repeatedly enacted stimulus packages during its 15-year quasi-recession, from the late 1980s to the early part of the new millennium--futilely.

If government spending was the way to wealth, the Soviet Union would have won the Cold War.

[c1ue]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

No argument that executive compensation has become excessive, especially when those that fail are rewarded even more than those that lead corporations to success. However, their compensation is like airline pilot pay - it's a relatively small part of the total cost structure, the enterprise (apparently) can't operate without them, and therefore they have excessive bargaining power compared to other labour.

GRG,

I'm not so sure that executive compensation is a relatively small part of the total cost structure.

In the company I last worked at, the top 10 executives and/or board members were being granted 100K or more shares each, every year. Not options, full shares.

Given that the stock price was in the $17 to $20 range, you're looking at $15M to $30M in cash compensation; and this was on top of their pay and perks.

Given that the company in question was earning less than $1M a year, I posit that the executive compensation was a factor in corporate performance. Note this was on top of the gigantic options packages received for joining the company a mere 4 years ago.

[GRG55]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

GRG, I hear you. Many say that dollar devaluation is making the US the exporter of choice, hence you hear many stock gurus recommend those US companies with heavy global and/or export exposure...

The stock gurus will do what they always do...take the valid underlying factor or trend and overpromote and oversell it until it eventually collapses. There are going to be US corp winners from this trend, its a matter of figuring out which ones - possibly a few the stock gurus overlook?

We had a discussion on a thread here many months ago about this and the general consensus was that the labor cost advantage in emerging economies would far outweigh any currency advantage. Steve Forbes has been recently pounding Bush for his weak dollar policy. Forbes says a weak dollar does not translate into a strong economy...

I am no fan of a currency depreciation strategy, but we know they're going to do it anyway. Wealth holders like Steve Forbes understand how inflation works and will be the prominent objectors. because they will be among the largest losers (they can't all pull a Jim Rogers, sell everything in the USA and move to Asia). Skilled US workers in the right industrial sectors will be the "winners", to the degree there are any so called winners.

Falling housing costs, commercial real estate rents, and the currency will help. Maybe some counterproductive tax policies (as Finster has explained in a number of posts) will also be amended. Regardless, the pendulum is now swinging the other way.

As for exec. compensation, airline pilots are usually immune to cost pressures until their respective companies exercise bankruptcy. Recently pilots for the big US carriers have gotten whacked with 50%+ pay cuts. Their excess bargaining power simply disappeared. Now don't get me wrong, I am no socialist and I know how emotionally straining it is to be an exec at a publicly traded corporation especially post Sarbanes-Oxley but it seems to me the executive foxes on the compensation committees are guarding the henhouse justifying excessive compensation packages.

To your point, compared to other internal costs executive compensation is minimal, execs have freedom to move to other companies and since they do have excess bargaining power, even the most ardent shareholder rights advocates figure its not worth the fight.

PS: Sorry for the thread drift.

Compensation committees are colluding with one another through the compensation consultants. A RICO action is needed . But I suspect that even that will start to swing the other way given the obvious excesses and the increasing number of faltering companies (it already has for airline pilots as you point out). At least I hope that is what happens...

[bill]

Re: Eric Janszen Interviewed on CNBC today January 25, 2008 at 2:20 PM Eastern

The New New Deal

New New Deal name seems to be catching on.
Projects are ready,,,,need $, need http://www.itulip.com/forums/showthr...1416#post31416“real assets”

http://enr.ecnext.com/coms2/article_nefiar081028

Academics Tell Bush Administration

10/28/2008

By Debra K. Rubin

Engineering and business scholars urged Bush administration officials to take a page from FDR’s New Deal and invest in infrastructure. Ninety transportation projects in eight states are ready to go and could generate up to $20 billion in economic activity, according to a letter from 11 professors to Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson. The letter was sent Oct. 24. The letter responds to earlier comments by Bernanke raising concerns that infrastructure investment would take too long to make a meaningful change in employment and the economy. Related Links: Investing in Infrastructure Projects as Conduits for Economic Stimulus "One of the reasons that policy makers are putting forward not to invest in the nation's infrastructure as fiscal stimulus is that shaping, approving, planning, and developing infrastructure projects takes too long and critics say that it does not create new jobs and spending fast enough," say the academics. "While this may have been true during the Great Depression era, it is simply not true today at a time when hundreds of billions of dollars of infrastructure projects across America have already been approved but are sitting 'on the shelf' due to funding shortfalls." The academic group included Raymond E. Levitt, engineering professor at Stanford University and director of the Collaboratory for Research on Global Projects, as well as engineering professors at the University of Illinois, Urbana-Champaign; Columbia University, Virginia Tech University, Clemson University and the University of Wisconsin, Madison. Also among the signatories is Witold Henisz of the University of Pennsylvania's Wharton School. The letter urges government officials to "endorse the idea of a new New Deal" to channel infrastructure spending through state and local governments. They claim it would, among other things, create immediate employment, generate a high multiplier effect, remove growth roadblocks and spur more college graduates and young people to work in the "real" economy rather than in financial services, despite the lure of high salaries. The academics concede that their infrastructure investment jumpstart program still faces challenges, including contracting lead time, the advent of winter conditions in parts of the US and industry capacity constraints. However, the professors also offer suggestions for a phased investment approach. "We have the ability to do something tangible," says Paul Chinowsky, a member of the group, and construction professor in the engineering dept. at the University of Colorado, Boulder. "This is so essential." The academics are affiliated with Leadership and Management in Engineering and the Construction Working Group, which are compiling a list of projects in various infrastructure sectors that are approved, permitted, and waiting for funding and could be "effective" economic stimulants, they say.