As we enter a new year, it seems like things want to go one direction………

Interest rates ………..…. UP!
Stock prices …………… UP!
Food prices …………… UP!
Energy prices …………… UP!
Economic Activity …………… UP!
Employment …………… UP!
Consumer Confidence …………… UP!
Corporate Profits …………… UP!
Merger Activity …………… UP!
Lending Activity …………… UP!

Question:


I frequently use my car for business. What is the mileage rate permitted for business use in 2011?

Answer:
The IRS recently released this information – it is $.51 per mile.

“Do not go where the path may lead, go instead where there is no path and leave a trail.”

–Ralph Waldo Emerson

My New Year’s RESOLUTIONS:



1. Make all my telephone call backs by the end of the day.
2. Respond to all my emails within 24 hours.
3. Lose the weight I recently “found” when my wife Jo Anne lost it.
4. Get in shape to play 60 holes of golf in one day on my 60th birthday on August 7, 2011.

“At the beginning of the season, if you would have said the Steelers would finish first in their division with a 12 – 4 record, the only people who would have believed you would have been the guys in this locker room.”


-Troy Polamalu, All PRO

It is difficult to understand how stock prices can rise rapidly while the U.S. economy continues to only slowly improve. One far-reaching reason is the global shift that is occurring – what is good for American corporations may not necessarily be good for the American economy.

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Some of the top economists say that America has suffered a permanent loss of jobs:

JPMorgan Chase’s Chief Economist Bruce Kasman told Bloomberg:

[We’ve had a] permanent destruction of hundreds of thousands of jobs in industries from housing to finance.








The chief economists for Wells Fargo Securities, John Silvia, says:
 
Companies “really have diminished their willingness to hire labor for any production level,” Silvia said. “It’s really a strategic change,” where companies will be keeping fewer employees for any particular level of sales, in good times and bad, he said.






Former Merrill Lynch chief economist David Rosenberg writes:

The number of people not on temporary layoff surged 220,000 in August and the level continues to reach new highs, now at 8.1 million. This accounts for 53.9% of the unemployed — again a record high — and this is a proxy for permanent job loss, in other words, these jobs are not coming back. Against that backdrop, the number of people who have been looking for a job for at least six months with no success rose a further half-percent in August, to stand at 5 million — the long-term unemployed now represent a record 33% of the total pool of joblessness.

Nobel Prize winner Edmund Phelps and Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian say the fallout from the deepest recession in more than five decades is driving the so-called natural rate higher, perhaps to 7 percent. 
  






And Former Labor Secretary Robert Reich wrote yesterday: 

The basic assumption that jobs will eventually return when the economy recovers is probably wrong. Some jobs will come back, of course. But the reality that no one wants to talk about is a structural change in the economy that’s been going on for years but which the Great Recession has dramatically accelerated.







Under the pressure of this awful recession, many companies have found ways to cut their payrolls for good. They’ve discovered that new software and computer
technologies have made workers in Asia and Latin America just about as productive as Americans, and that the Internet allows far more work to be efficiently outsourced abroad….

In addition, as AP reported last year:
“I think the unemployment rate will be permanently higher, or at least higher for the foreseeable future,” said Mark Zandi, chief economist and co-founder of Moody’s Economy.com.

“The linkage between growth in the economy and growth in jobs is not what it was. I don’t know if it’s permanently broken or temporarily broken. But clearly we are not seeing the sort of increase in employment that one would normally expect,” said [Bruce Bartlett, a former Treasury Department economist].

AP noted yesterday:
Corporate profits are up. Stock prices are up. So why isn’t anyone hiring?
Actually, many American companies are — just maybe not in your town. They’re hiring overseas, where sales are surging and the pipeline of orders is fat.

The trend helps explain why unemployment remains high in the United States, edging up to 9.8% last month, even though companies are performing well: All but 4% of the top 500 U.S. corporations reported profits this year, and the stock market is close to its highest point since the 2008 financial meltdown.

But the jobs are going elsewhere. The Economic Policy Institute, a Washington think tank, says American companies have created 1.4 million jobs overseas this year, compared with less than 1 million in the U.S. The additional 1.4 million jobs would have lowered the U.S. unemployment rate to 8.9%, says Robert Scott, the institute’s senior international economist.

“There’s a huge difference between what is good for American companies versus what is good for the American economy,” says Scott.

Many of the products being made overseas aren’t coming back to the United States. Demand has grown dramatically this year in emerging markets like India, China and Brazil.

And President Obama pointed out in October that tax laws are a large part of the reason that so many jobs are being shipped abroad: For years, our tax code has actually given billions of dollars in tax breaks that encourage companies to create jobs and profits in other countries.

[Some] in Washington have consistently fought to keep these corporate loopholes open. Over the last four years alone, [some congress members] in the House voted 11 times to continue rewarding corporations that create jobs and profits overseas — a policy that costs taxpayers billions of dollars every year. That doesn’t make a lot sense. It doesn’t make sense for American workers, American businesses, or America’s economy. A lot of companies that do business internationally make an important contribution to our economy here at home. That’s a good thing. But there is no reason why our tax code should actively reward them for creating jobs overseas. Instead, we should be using our tax dollars to reward companies that create jobs and businesses within our borders.

What’s Good for the Big Companies Isn’t So Good for America. We’ve all been taught “What’s good for [the big company] is good for America“. But as Jim Quinn writes:
As a percentage of national income, corporate profits are 9.5%. They have only topped 9% twice in history – in 2006 and 1929. When you see the paid Wall Street shills parade on CNBC every day proclaiming the huge corporate profit growth ahead, keep these data points in mind. Do profits generally rise dramatically from all time peaks?

You might ask yourself, if corporations are doing so well how come real unemployment exceeds 20%? The answer lies in who is generating the profits and how they are doing it. It seems that the fantastic profits are not being generated by domestic non-financial companies employing middle class Americans producing goods. Pre-tax domestic nonfinancial corporate profits are not close to record levels as a share of national income. They exceeded 15% of national income once in the late 1940s, and repeatedly topped 12% in the 1950s and 1960s; in the third quarter of this year, they were 7.03% of national income. I wonder who is making the profits.

According to BEA data, financial industry profits and “rest of world” profits — that is, the money U.S.-based corporations make overseas — are relatively much higher now than they were in the 1950s or 1960s. And the taxes paid by corporations are much lower now than they were then, as a share of national income. The reason that corporate
profits are near their all-time highs is that Wall Street corporations and mega multinational corporations are making gobs of loot and paying less of it out in taxes.

Companies that do business internationally do not make nearly as much of a contribution to our economy here at home as they should:
Daniel Gross points out that part of the reason that the American stock markets are going up even though unemployment is rising and the real economy suffering is because multinational corporations headquartered in the U.S. are experiencing strong sales abroad ….

The fact that companies based in America are raking in profits from sales abroad is good for American workers, right?

No. Gross points out that American workers don’t benefit because a lot of the goods sold abroad by American multinationals are made abroad. If companies participated in foreign markets primarily by exporting U.S.-made goods, this shift would be good news for the U.S. economy and workers. But that’s not how it works. In fact, in the months after the global credit meltdown, U.S. exports plummeted. They bottomed in April, at $120.6 billion, and though they have been rising, the August 2009 total is still 20 percent below the August 2008 total. Globalization is changing the way we do business. It’s not a matter of U.S. companies exporting goods—burgers, soda, cars, software—made in the United States to Beijing but rather, making goods overseas and selling them overseas…(Source: The Big Picture).

Nostalgia is understandable as yet another year draws to a close, but why are buyout firms and acquisitive companies once again stalking their old prey?

Just before Christmas, the crafts retailer Jo-Ann Stores (ticker: JAS) agreed to be sold for $1.6 billion to Leonard Green & Partners. The Los Angeles buyout firm had looked at Jo-Ann in 2007, before the credit crunch put the kibosh on any union. The same Leonard Green also just teamed up with TPG Capital in November to offer $3 billion for J. Crew Group (JCG), which TPG had already bought and taken private once before, back in 1997. They must really like each other.

Rekindling some old dalliances can be all too easy. There is history and familiarity, and you already know which buttons to push. You get to recycle any old homework or due diligence that was done. The stock market has just repaired to levels it held right before Lehman Brothers collapsed, but now much of the debt and risk have been transferred from the private sector to the government (thank you, Uncle Sam!). Your customers are regaining some of their old pep (just try making restaurant reservations in New York these days), and tight-fisted lenders are beginning to loosen their grip, with commercial and industrial loans ticking up 0.2% in the fourth quarter, the first thaw in two years.

Some things have changed, of course. Financing is far more conservative and buyout firms are inking deals with less debt and more equity. This squeezes potential returns, but prices are more reasonable than in 2007. Buyout firms and companies also have cash earning no interest at the bank that they’re anxious to deploy. And the urgency is exacerbated by the grudging acceptance that this sub-par economic recovery may nonetheless prove sustainable, and price tags can still get pricier.

Takeover speculation grew more rampant in the last days of 2010, or maybe it just seemed that way with news flow thin and trading traffic scant. BJ’s Wholesale Club (BJ) gained 8% last week amid reports that–here it comes—Leonard Green is keen on buying more of the discount club after it had already amassed a 9.5% stake in July.

It wasn’t all just the Leonard Green show. Anadarko Petroleum (APC) jumped 7% Thursday amid chatter that the Australian mining giant BHP Billiton (BHP), which had failed in its lunge at Potash Corp. of Saskatchewan (POT), is now on the prowl for resource outfits. Some analysts quickly hailed the good fit between Anadarko’s exploration results and BHP’s ambitious reach. Shares trading near 46 times projected profits also have returned to levels before the BP (BP) oil spill, which suggests investors have grown more comfortable with Anadarko’s liability as a part-owner of the doomed rig.

Lest acquisitive companies stalk only their exes, UBS’ special-situations sales desk screened recently for mergers announced between 2004 and ’08 that were called off for one reason or another. Weeding out very large targets and financial companies, they narrowed the list of more than 60 onetime targets down to a shorter roster that includes Republic Services (RSG), Mylan (MYL), Atmel (ATML), Herbalife (HLF), Huntsman (HUN), Alliance Data Systems (ADS), Corn Products (CPO), Harman (HAR) and Penn National Gaming (PENN) (Source: Barrons Online).

In an unusual occurrence, all three indexes, U.S. Stocks and Foreign Stocks and Bonds advanced last week – for the second week in a row. During the last 12 months, U.S. STOCKS outperformed BONDS.

Returns through 12-31-2010	1-week	Y-T-D	1-Year	3-Years	5-Years	10-Years
Bonds- BarCap  Aggregate Index	.6	6.5	6.5	5.9	5.8	5.8
US Stocks-Standard & Poor’s 500	.1	15.1	15.1	– 2.9	2.3	1.4
Foreign Stocks- MS EAFE Developed Countries	.7	4.9	4.9	– 9.7	-.3	1.1

Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized. Assumes dividends are not reinvested.