When the staff at a company lose confidence I top management, they do not perform as well as they could, and profits lag. When the staff feels that the CEO and other top managers lie about many issues and they do not know what is reality or what to expect next, the staff tends to just muddle along and not step out taking risks for the business. When the CEO always takes credit for whatever happens, and does not share the credit with those who really put themselves on the line for the company, then the staff loses its interest to take the initiative, When company politics and making the CEO look good become the main goal of the company, and being in the right group and saying the right thing is paramount, then staff tends to shelter and not risk saying or doing much of anything. When covering up mistakes and lying become the expected norm, than the staff tend to do little to avoid having to institute another cover up. This is the same when the president and the White House act this way. In this case the staff is the business community.
Many wonder why this recovery is so weak and muddling along. While there was surely a deep and lasting impact from the crash, and massive crashes such as this have long lasting tails, the recovery should not have been so slow. The Participation rate remains terrible, the percentage of full time workers to the population of working age is as bad as it has been in decades. Long term unemployment remains very bad. The real unemployment rate as measured by U6 is still over 12%. All of this despite the Fed doing three rounds of QE and rates being historically low year after year. Deficit spending continues so fiscal policy is not the restraint. It is an unwillingness of business to use the trillions of stashed capital to invest in capital assets. The result is productivity has lagged badly ad equipment is not updated. More modern factories are not built. Labor is stretched to the limit. Part time labor is at a near high due to Obamacare meaning staff are not as efficient as they would be were they full time. And now we get a push to raise the minimum wage, Mayors like DeBlasio and the mayor of Seattle trying to implement long failed socialist agendas, and in Seattle pushing through a $15 minimum wage. Why would any sane businessman hire or invest under these conditions.
On top of all of this, we watch a very weak and confused foreign policy for the past 5 years where the world we need is now to the point they do not trust we will be there for them. They find they need to make new alliances to survive. Putin plays Obama like a puppet. Ukraine may seem to not be all that important, but it is simply stage one in a long term strategy by Putin to gain strong influence over Eastern Europe. This problem is not going away. It is going to worsen.
So now we have companies and consumers sitting on hordes of cash in unprecedented amounts, but refusing to spend it on productive things. So we see stock buybacks which accomplish little to nothing for the economy, increased dividends,, which are nice for share prices and retirees, but again, they do nothing for increasing productivity in offices and factories. Stupid tax policy leaves $2 trillion or more locked away offshore doing nothing at all for America. We get a personal vendetta against Jamie Dimon for speaking up and the result is absurd fines which force major budget cutbacks at JP Morgan, and loss of jobs and less lending. We get Obamacare Medicare payment cutbacks and rules that force several thousand layoffs in low income home health care workers to free up funds for other parts of Obamacare, like the Oregon website. Add on the EPA and the war on coal, Keystone and now the attempt to force utilities to spend huge sums to accomplish almost no discernible added clean air. Subsidies for wind power that Buffet said two weeks ago makes no economic sense without tax payer subsidies. Why would companies want to invest under these conditions.
As far back as James Madison, he said, more elegantly that I paraphrase: weakness in foreign policy leads to bad deeds by the bad people. Even the French foreign minister this week said, maybe if the US had acted firmly in Syria two years ago, things might be very different.
In short, there is no leadership in the White House. None. The scandals proliferate weekly. People die as a result. First a border agent in Fast & Furious, and then we have the Holder found in contempt for lying to Congress. The first cabinet secretary to ever be in contempt. Then we have Benghazi and Hillary failed to protect the consulate for political reasons-4 more died needlessly and again they lied to cover it up. Now we have the VA and 40 or more died needlessly despite a 2009 speech in Phoenix by Obama committing to end the delays. Kind of ironic the speech was in Phoenix to the VFW. . At this rate this administration will have killed more Americans than died in Afghanistan in 2013.
So why would any CEO invest all that idle cash. Uncertainty and the threat of the government coming after your company for some misperceived EPA rule violation, some imaginary racial insult, or some trumped up charge that you did not let some union organize your staff. If a small group of misinformed Muslim kids can keep Condelezza Rice and the chairwoman of the IMF and a brave Muslim woman s[peaking up for women's rights, from speaking on campus, and the media make a circus of Don Sterling saying something in the privacy of his own bedroom, then which CEO is going to take a risk.
No CEO in his right mind is going to take a risk. He is not going to hire a lot of fulltime people. He is not investing for the long term. He is not going to borrow a lot. The country has become so uncertain, and political correctness has so completely taken over any hope of expressing differing points of view, that the country has become a giant holding pattern. There are very few like me who simply do not have to be beholden to anyone any longer, and can say what so many others think, but can't say. Until this tyranny of the politically correct ends, and there is a real leader in the White house of either party, we are condemned to stagnation. So get used to it and invest with this in mind. It is not going to change for a few years.
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Joel Ross
Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.
