Under the Microscope: Job Creation

Since I called out Obama for not knowing how to create jobs, I guess I should tackle this issue.

My main beef with Obama is that he's using fiscal stimulus to try and create jobs. The way he's spending just isn't working. The economy continues to suffer even as he's spending billions of dollars "creating jobs:"

What’s clear, however, is that the Obama Administration badly needs a re-start after a(nother) disastrous August that saw the president’s numbers drop to record lows and the country descend deeper into economic pessimism.

Assuming that the jobs report shows in the neighborhood of 60,000 jobs created, it would provide fodder to Obama’s Republican critics who have long argued that not only are his policies not working but that the administration has little idea what else to do to make things better.

Despite this, it seems that President Obama wants to do more of the same:

President Barack Obama signaled Monday he'll propose a major infrastructure program and an extension of a payroll tax break in the jobs speech he planned to deliver Thursday before a joint session of Congress.

While the state of this country's infrastructure is a topic for another day, at what point will Obama realize that "creating" construction jobs is creating work not jobs. Once these projects are completed, there's nothing left to do unless you spend more money on improving infrastructure. It's just a spending spiral that he's creating. You can't do that.

The GOP has not made job growth a priority:

But issuing a call for jobs isn't as simple as it may seem. While the new jobs numbers present the GOP with an obvious issue with which to hammer the president, Republicans in Congress and out on the campaign trail have spent much of the year focused on a different economic area: fiscal austerity and proposals to pare the big federal budget deficit.

However, it seems that it will become a more contested issue. Mitt Romney outlined his plan today:

Standing in front of a large banner that read “Day One, Job One,” Mr. Romney detailed the 10 actions he would take the first day of his presidency. Five of them are executive orders, and the other five are pieces of legislation that he would send to Congress and request action on within 30 days.

“The right course for America is to believe in growth,” Mr. Romney, a former Massachusetts governor, said at McCandless International Trucks. “Growing our economy is the way to get people to work and to balance our national budget.”

The way I see it, in terms of the difference to approaches, Romney is putting the money back into the households and to the businesses, while Obama is using that money to spend on creating jobs. Clearly it's more efficient Romney's way. I'm not convinced that how great an effect it will have.

Jon Huntsman had an op-ed in the Wall Street Journal this morning:

Our entrepreneurs are harmed as much by overregulation as by overtaxation.

I believe that this is more the way to go.

Henry R Nothhaft had this to say yesterday:

We know, for starters, that 100% of net job growth in the U.S. comes from entrepreneurial start-ups, as a Kauffman Foundation report documented in 2010. If you took start-ups out of the picture and looked only at large or incumbent businesses, job growth over the last 35 years would actually be negative. In the words of Kauffman's Tim Kane, "When it comes to U.S. job growth, start-up companies aren't everything. They're the only thing."

While big companies may have to hire or fire people from time to time, they're, for the most part, mature companies. They're not going to continue to grow. The new technologies that are born and the new jobs are spurred by small businesses:

As I noted in an article last year with retired chief judge Paul Michel of the U.S. Court of Appeals for the Federal Circuit, which handles patent appeals, simply clearing the patent backlog could create up to 2.25 million jobs by 2014. And it wouldn't cost the taxpayer a dime, since the patent office is the only self-supporting agency of the federal government.

The problem with the current government is that they're not spending money right. I don't trust a government that is going to take tax payer money and misappropriate it in misguided band-aid programs.

While I'm not satisfied with the Republicans' plans thus far, I feel their plans will better alleviate the troubled economy because it will allow households and firms to choose where to spend that money. Deregulation has been mentioned by several candidates, but there hasn't been a specific plan laid out. Hopefully, as the election trail heats up, the candidates will be pushed to come up with specific ways to fix the economy and to create jobs.

Vigilance At A Premium

It seems like vigilance is at a premium. If you're a long term investor, you're probably raising an eye brow and wondering what you should do with your money. People have been selling frantically the last couple weeks and the market has taken a sharp drop. The money has come out of equities and been shoved into fiat currencies like gold and to a lesser extent silver. At the same time, oil and copper prices have fallen, while the US dollar has gained on the Euro as greater concerns arise in Europe.

So what do we make out of all of this? Do we follow the experts and take our money out as well?

I don't think you can panic sell. Cutting your losses seems like a mistake when you can hold and accumulate higher dividend yields and reinvest them into more stock, which will increase in value as the stock recovers. If you sell, you're letting your losses stand.

You're probably also worried about this credit downgrade. I don't think it's necessarily a bad thing. Here's the bottom line:

Neither side can easily claim the high ground. The downgrade laid bare a distrust of both the Washington political system and the independent firms tasked with standing in judgment of it. Ultimately, investors are likely to be responsible for deciding who has more credibility.

The downgrade was down to one thing: democracy. Because of the quibbling between the two parties and the time it took for the deal to get done, S&P felt compelled to downgrade.

The Obama administration say it's down to an accounting error, and while that may be the case, I still don't think this is a bad thing. At the very least, it will make them work that much harder to address the debt situation, so we can get back the AAA rating. In the meantime, do you really believe that the US will default on their credit now? You think not having that rating means we're less likely to pay off our debts? We came close, but we got the deal done. Are we going to not do that next time? In the end, these people know the importance of paying off our debt. They're not complete idiots, though they may seem like ones at times. I'm not saying that the rating downgrade is meaningless, but it doesn't mean as much as it is made out to be.

You can remain calm about it.

Burton Malkiel had this to say in this morning's journal:

Investors who have sold out their stocks at times when there have been very large declines in the market have invariably been wrong. We have abundant evidence that the average investor tends to put money into the market at or near the top and tends to sell out during periods of extreme decline and volatility. Over long periods of time, the U.S. equity market has provided generous average annual returns. But the average investor has earned substantially less than the market return, in part from bad timing decisions.

My advice for investors is to stay the course. No one has ever become rich by being a long-term bear on the fortunes of the United States, and I doubt that anyone will do so in the future. This is still the most flexible and innovative economy in the world. Indeed, it is in times like this that investors should consider rebalancing their portfolios. If increases in bond prices and declines in equities have produced an asset allocation that is heavier in fixed income than is appropriate, given your time horizon and tolerance for risk, then sell some bonds and buy stocks. Years from now you will be glad you did.

The US market has grown over time. To not be in the market is to miss out. To cut your losses is to miss out.

I think we're getting into the time where it's time to buy. Listen, over the past couple weeks, some of the best stocks have declined with the markets, coming off highs as a result of solid earnings reports. I see this as more of an opportunity to get these stocks on the cheap than an opportunity to sit on your hands. Fundamentally, these companies are still doing well and there's a reason that they were as high as they were. Now the shares are more affordable. You've seen the upside they have when things are normal. The last couple weeks, everything has fallen save for gold mining companies. Find a company you like and think has a lot of upside and dig in.

I'm a soon to be buyer, not a too late seller in this current market. I'm vigilant. I don't think this is going to get much worse. To think that this decline is the end of the world is short term thinking. You can't let volatility and declines get to you in the short term. You need to let it ride in the long-term. I am still a bull on America, as hard as that might be to be right now.