To Err is Human, But Damn to Capitalism if Machines Make Mistakes
By Charles Payne, CEO & Principal Analyst
“3 billion human lives ended on August 29th 1997.
The survivors of the nuclear fire called the war Judgment Day.
They live only to face a new nightmare,
The war against the Machines…”
I guess that it’s hard to declare war on prosperity without declaring war on automation and other contributors to productivity. Last week, we learned that unit labor costs continued its downward march, reflecting the large pool of workers and the natural advantages it gives employers. However, it also underscores how computers, robots, and other machines are doing the work.
Over the next week we will see two industries come under immense pressure for failures of their machines or mechanical systems. In many ways, hearings on the BP incident and stock market meltdown will provide high ground to take shots at capitalism’s role in the evolution of non-human systems. The idea that accidents are a natural part of effort means nothing to those eager to advance an agenda.
Speaking of agendas, EU finance ministers worked all weekend on a game plan to save the Euro. The urgency with respect to the Euro suggests that the contagion can’t be halted just at Greece. If Portugal and Spain falter there will be funds to shore up the Euro, although I’m not sure where funds come from to shore up those two nations which must be looking at the Greek drama with equal portions of dread and optimism. If Greece is bailed out then somehow they will be also. In the meantime, public opposition in Germany to these bailouts has dealt a serious blow to Angela Merkel. Election returns from North Rhine-Westphalia has her Christian Democrat Union on the outside looking in, and it will have nationwide implications. The bigger election story is in the United Kingdom, where the Conservative Party came up short of a clear victory and could still find them shut out of leadership.
Then there was the GOP Convention on Saturday, which can be seen not only as a significant shift for the Republican Party but also as a shot across the bow of all incumbents. Three term incumbent Robert Bennett (R – Utah) was unceremoniously kicked to the curb in what is being described as a shocking outcome. The Left is terrified, and offended, by the results which is further proof that Tea Parties matter and voters in general are just fed up. Last week, I put up a list of political contributions from Fannie Mae.
As it turns out, no Republican has received as much money from Fannie and Freddie as Robert Bennett at $107,999 (Chris Dodd (D-CT) at $165,400 and Barack Obama (D-Il) at $126,349 are the only politicians to receive more since 1989).
Bennett was viewed by many as a moderate that could get things done across the aisle, but the fact is that Republicans have had no voice in government as even their most commonsense suggestions are dismissed. These days, compromise means that you agree with the President…period. Still, Bennett had plenty of conservative support, and was endorsed by the NRA and Mitt Romney. Mitt Romney should really be worried about this latest development. Bennett seems to have made unforgivable mistakes that included:
* Voting for TARP
* Bringing home too much bacon…huge earmarks
* Co-sponsored healthcare insurance bill
I’m no engineer but that BP dome looked corny from the start, and as it turns out needs more work. The company is working hard, and may actually be missing smarter ways to fix this problem because of the unrelenting political pressure. Does anyone think that the company wanted this to happen or doesn’t have a sense of urgency to get it fixed? As it stands now images we’ll see over the next few days will seal the deal on new offshore drilling projects, and I think that’s a pity because we will need the energy to move our world and keep us competitive. There have been deadly mining accidents in China, the United States, and over the weekend Russia, but we aren’t going to stop using coal. There will be talk of more regulations, and we’ve already heard “profit” put forth as the nefarious force that created the environment for these accidents.
* Over the weekend, a Staten Island ferryboat misjudged the pier, hurting 37 passengers. The Andrew J. Barberi is the same ferry that crashed in 2003, killing 11 people. Officials are saying that this weekend’s crash was the result of mechanical error. In New York, accidents are part of development and movement of the city.
* New York Water Tunnel No. 3 is a prime example. Construction on the tunnel began in 1970, and is scheduled to be finished by 2020. To date, 23 workers have died during construction and one 12 year old boy playing in the construction zone.
* The George Washington Bridge was completed in 1931 at a cost of $59.0 million and 12 deaths.
I hope that BP figures out how to fix the leak, and I hope we have the will not to abandon the use of our own natural resources to bridge the move to alternatives. I’m not even sure that there are enough alternatives or technology that we could use to exploit for fulfilling our needs.
The EU has hammered together a $968.0 billion bailout of the Euro. In addition, the ECB has already begun buying bonds to stabilize that market. Funding for the package;
* €440.0 billion in Euro zone loans
* €60.0 billion in EU Emergency Fund
* €250.0 billion from IMF
The Euro is soaring, and equities are poised to do the same this morning. I’m a little shocked at how high equity futures are, but it points to the notion that bailouts are good, near-term, and that’s all the stock market cares about. This issue isn’t going away, but for today the can has been kicked far enough down the road for celebration. This package will cost America another $54.9 billion via the IMF (another $180 per American), which is in addition to the funds assigned for the bailout of Greece. But, the next few weeks and months promise to be challenging. So-called PIIGS nations have $215.0 billion in debt due over the next three months (Italy $126.0 billion).
There are more details to come.
In the meantime, it’s more than likely a coalition government will be hammered together between UK’s Conservative and Liberal Democrat with a focus on reducing the deficit. This deal could be hastened by the large tab hoisted upon British taxpayers to bailout the Euro. Despite not being a Euro nation, reports overnight say EU rescue efforts will cost the UK £43.0 billion. So David Cameron and Nick Clegg have to move swiftly before its left with an even larger financial headache. But political damage is clear throughout the western world which continues to beg, borrow and steal (from future generations) to maintain lifestyles they can no longer afford.
The more I think about the jobs report the more disappointing it becomes. Of the 290,000 job gains in April, 188,000 came courtesy of the Labor Department’s infamous birth/death model. True unemployment climbed to 17.1% from 16.9%, and 6.7 million people are unemployed for more that 27 weeks. I don’t think that the market was reacting to those statistics on Friday. In fact, when President Obama spoke about the jobs data the market staged an impressive intra-day rally but it faded away on other concerns. Investors have been able to squeeze good elements from more dubious “economic reports and trends” so look for the jobs report to be a positive driver in May.
The S&P 500 is off more than 8% from its April high, but the NASDAQ composite is off more than 10% as investors have been rotating into quality names for weeks. Initial resistance for the index comes at 2,316, and then the bigger hurdle is 2,400.
Charles Payne is the CEO and Principal Analyst of Wall Street Strategies . This post was republished, with permission, from his company’s column, WStreet Market Commentary.