Ravengate
Partners - Stock market, economic and political commentary by Patricia Chadwick

It seems that almost everyone likes JetBlue and some people even claim to love the company. As well they should. JetBlue has taken the bad name out of flying and is proof positive that no condition in business is too dire to turn around.

The first sentence of JetBlue’s Customer Bill of Rights (How many companies even have a Customer Bill of Rights?) says it all. “Above all else, JetBlue Airways is dedicated to bringing humanity back to air travel.” What a bold and daring statement for an airline to make.

And to its credit, JetBlue has indeed brought the humanity back to what has become an almost excruciatingly unpleasant experience – the attempt to get from one place to another by air.

Several days ago, as I planned to fly on JetBlue on a short round trip to Florida, I took note of an alert on the company’s website. It was a recommendation that because JetBlue “had just completed transitioning to a new reservation system, wait times and line at the airport might be longer than usual.” They suggested I get to the airport two hours before the flight.

That meant getting to JFK at 6:15am rather than 7:15am. I followed their advice. But I need not have. The system for checking in was efficient and pleasant. It has been designed so that the traveler, increasingly a media/technology savvy individual, can handle everything – from checking in, to putting one’s own luggage on the conveyer, to changing a seat, to deciding if one would like to spend $25 extra to get a bit more leg room. The people who are there to help are friendly and jovial.

Within ten minutes of arriving at the terminal, my luggage was checked and I had completed security clearance. I had plenty of time to get a cup of tea and enjoy the laid-back, almost college campus atmosphere of JetBlue’s giant terminal. Efficient cafeterias offered healthful selections that included organic quinoa and Mediterranean pickles. The choices seemed endless.

Everything about JetBlue is different from all the other airlines, and that’s what makes it so wonderful. The very egalitarianism of its seat configuration makes for an ambience of camaraderie. No cordoned off section called First Class where drinks are free and food is served. On JetBlue’s airplanes, entertainment is the substitute for differentiated classes and differentiated treatment. And everyone loves entertainment.

Yesterday, on my return flight to JFK, I watched curling at the Winter Olympics in Vancouver, Stephen Colbert doing his Vancouverage, Wolf Blitzer on CNN and Bill O’Reilly on Fox. All in the space of two hours and it was live. By the time I landed, I was relaxed and entertained. Admittedly, my book, Game Change, lay unread on my lap.

The flight attendants on JetBlue flights are not only friendly, they are comedians in training or better. Each one of them brings his or her own sense of humor to their communication, from telling jokes to suggesting that someone come and take over their position because they would prefer to stay in Florida and not head into what will be another giant snowstorm in New York.

Okay, there are a few inconveniences. The seats don’t go back very far which makes the normally compulsory nap a bit less enjoyable, but watching Stephen Colbert kept me from getting remotely sleepy.

I am sure that there are plenty of people who have a complaint or two or even more about JetBlue, and yes, I can admit to some long delays when I wanted to speak to an agent because of weather problems. And there are probably many who will never forget the harrowing experience of 2007 when over 1000 JetBlue flights had to be cancelled because of a snowstorm. That event itself would have killed a lesser company. But it didn’t kill JetBlue. The company learned from its mistake and has grown and today a still growing transcontinental success story.

Good companies are not created out of thin air. They are built by individuals – people with a vision and with leadership. The top management at JetBlue has changed since its inception in 2000, but what each new CEO has done is continue to foster through the company’s employees the culture of ‘bringing humanity back to air travel.”

Thank you, JetBlue.

p.s. In the interest of full disclosure, I have never met any one of the management of JetBlue nor have I every owned the stock of the company.

p.p.s. Isn’t this the kind of company that Warren Buffet should love?

President Obama’s support of nuclear power generation in the U.S. should be welcome news not only to the utility industry but to the nation as a whole. Despite its carbon free emissions, nuclear energy has been a dirty term for the last thirty years, since the Three Mile Island accident in 1979.

Hopefully President Obama will be able to break that spell. In his State of the Union message less than a month ago, he spoke of the need to build “a new generation of safe, clean nuclear power plants in this country”.

And the President has backed up that proclamation with the announcement yesterday of $8 billion in federal loan guarantees for Southern Company’s two new nuclear reactors. That action was key because the capital needed up front to build new nuclear power plants in this country has become so prohibitive that without Federal loan guarantees, there would be little incentive for the private sector to take the risk.

Thank you, Mr. Obama for lending credibility to your stated support for clean nuclear power generation.

But ultimately, the nuclear power industry will need to be able to produce and deliver nuclear energy without Government support. That should happen if enough plants are approved to create a viable vendor industry – supplying turbines, reactor parts, pumps, generators and on and on. I believe that can happen.

Let’s remember also that in a nuclear power plant, the upfront capital costs relative to the operating costs are far higher than in a coal fired plant. So once a nuclear plant is up and running, the marginal costs are small and very predictable.

In the interest of full disclosure, I should point out that I sit on the board of a publicly held utility company which does not own any nuclear facilities.

To quote Lewis Carroll (or perhaps the Walrus), “The time has come… To talk of many things.” It appears that finally after a hiatus of more than thirty years, we are able again to talk of nuclear energy.

For those who fear another Three Mile Island or worse, another Chernobyl, it may help to look to France as an example of a country that embraced nuclear power as the solution to the energy crisis way back in 1973 after the first oil crisis. Today nearly 80% of the country’s electricity is generated from its 59 nuclear plants and they continue to build new plants. And rather than being reliant on foreign oil, the country exports nearly 20% of its electric generation.

The French have addressed the issue of nuclear waste by recycling. They create new fuel rods from unused uranium, thus greatly extending the life of the rods and ultimately generating far less waste.

For thirty years, nuclear energy has been the ‘third rail’ of the utility industry – basically untouchable. It was one of those issues that was so fraught with emotion that Washington didn’t want to go near it. Democrats, in particular, railed against it, while Republicans gave it lip service.

Today President Obama has dared to touch that third rail. That is leadership and he is to be congratulated. Years from now, the American public will look back on his leadership in this matter and be grateful.

Yes and No!! That’s the honest truth and that’s the way it’s been throughout history in an innovative and vibrant economy like ours in the U.S. Some jobs constantly disappear while new ones are being created. Unfortunately, the job destruction part often comes harder and faster than the job creation part.

Just a decade ago, we experienced the Dot.com bust in this country. The “new” economic paradigm came crashing down and the “old” economy survived despite its foretold demise. The bloated workforce dedicated to an industry that seemed to go from infancy to adulthood in the span of less than five years, found itself decimated. Those Dot.com jobs have not been restored. But the technology that spurred the meteoric rise of the Dot.com industry did not die. And steadily over this last decade, continued advances in the area of telecommunications have spawned innumerable jobs in our economy.

A decade before that, we experienced the S&L crisis, where a large number of savings and loan organizations met their untimely demise through their own mismanagement. That was just as their future seemed glorious in the aftermath of the industry’s deregulation by Congress. The housing industry came to its knees. But it did not die; slowly and steadily, after the bloated inventory of second and third homes became absorbed into the economy, housing once again became a vibrant industry.

And only ten years before that, we lived through the rise and fall of the energy industry. With oil prices hitting $40 per barrel in 1980, (that was the equivalent of over $100 today) workers in the northern states were leaving “the rust belt” as the manufacturing heartland of this country was dubbed, to head for the “gold” in the oil fields of Texas. The migration was huge, raising real estate prices in the Southwest and decimating them in Michigan, as auto workers became oilfield workers. And then hardly a year after the peak in prices, it all ended. The price of oil came crashing down and oilfield millionaires turned into oilfield bankrupts. Homeowners abandoned their mortgaged houses and the State of Texas was the least exciting place to live.

This go round is really no different in its nature. An industry, in this case the banking/mortgage industry, brought about its own destruction. By using borrowed money with abandon in order to grow, by encouraging its customers to pile on debt and by lowering its own standards for lending, the banking industry sowed the seeds of its current crisis. Now, as the industry shrinks from its bloated size, it is shedding employees that were needed only when it was overweight. A trimmer industry will emerge and some people will be hired back, but not to the levels of just two years ago.

But fear not, the spirit is willing even if the flesh is weak. That entrepreneurial spirit is alive and well in the U.S. New industries will arise and they will create new jobs – green jobs, telecommunications jobs, jobs in industries without a name as of yet. It will take time and that is the frustrating part. And a decade from now, a new economic crisis will raise its ugly head to prove yet again that trees do not grow to the sky.

It is good to see that the President has bipartisan support for the budget proposal to give tax incentives to small companies in this country.

Over half of the workforce in this country is employed by small companies and most of the job creation comes from small and new companies. Tax relief such as recommended in the bill, will help in spurring private sector growth and pulling the economy out of the recession.

However, if simultaneously, the Government turns around and raises income taxes on individuals or corporations, the overall economic benefit will be non-existent.

The Federal Government cannot endlessly pour money into the economy to create new jobs. Sooner or later it must let the private sector take over. As the Federal support is withdrawn, the private sector needs to be given incentives to take risks and make investments. Raising income taxes will have exactly the opposite effect.

During the late 1990s, when the Federal Budget went from deficit to surplus, it was after President Clinton had cut the capital gains tax. What ensued was a strong wave of capital investment and corporate profits growth both of which generated huge incremental tax revenues – both income and capital gains – for the Federal Government.

Admittedly, the deficit turned surplus of the 1990s was augmented by the sharp cut in defense spending by the Federal Government, not an option on the table today. However, despite the vocal concerns of many pundits, primarily on the far right, the level of the U. S. Government debt and even the very high current budget deficits, should not necessarily doom us to third world status.

What we need in this country is private sector growth, not Federal Government loans injected into the economy. The Federal Government should do all that it can to augment and support the private sector, so that it can remove itself as the agent of stimulus. Only then will hiring commence and personal income start to grow.

One day shy of his first year as President, Barack Obama faces the biggest threat to his incumbency and possibly to his power.

The voters in Massachusetts will determine today whether the Democrats’ filibuster-proof hold on the U.S. Senate is broken or maintained.

It appears that the expected ‘easy win’ by a Democrat in Massachusetts was a serious miscalculation. With the moniker for the Commonwealth of “The People’s Republic of Massachusetts” tossed so freely about, the misguided assumption by many was that the state was a shoe-in for a Democrat candidate for the U.S. Senate.

But what seems to have been forgotten was the first rule of politics that the Massachusetts Congressman and Speaker of the House, Thomas “Tip” O’Neill so often reiterated. “All politics is local.” In Massachusetts as in any state a loved politician may be the only secure seat. Senator Ted Kennedy was overwhelmingly loved by the people of Massachusetts, from 1962 till his death in 2009. He brought home the bacon and he was there for his constituents. And when he stomped for Democrat Presidents, the people voted for “Ted Kennedy’s” president.

But now the beloved Senator is gone and the hard facts are on the table. As of the 2006 census, there were 4,098,634 registered voters in Massachusetts, of whom 37% were Democrats, 13% were Republicans and a whopping 50% declared themselves as Independents. Fifty percent of the voters in Massachusetts declare that they are unaffiliated with a party. WOW!!

Massachusetts has a long history of electing a Republican as Governor. In fact, in recent history (defined as my lifespan for this piece, i.e. since the middle of the last century) there have been nine Republican and six Democrat governors, and that is counting Michael Dukakis twice (as a Democrat, of course).

Admittedly, the last time a Republican was elected to the Senate was in 1967. That was Senator Ed Brooke, who lasted two terms. In fact, I voted for him, in my very first time at the polls. To be fair, though, with the seat occupied by Senator Kennedy hardly ever in doubt, there hasn’t been much of a Senatorial race for over half a century.

Now it is a different story. The Independents in Massachusetts are free to vote with their heads not their hearts. Massachusetts is actually a hotbed for independent thinking and acting. Remember they created the first tea party.

Polls can be misleading and deceiving as we have seen on too many occasions to count. But a statistic that is worth noting is that the absentee ballots cast for this Senate race are running far higher than is usual. That means there are voters with passion.

It will be fascinating to watch the news this evening. I am making no predictions, but regardless of the outcome of today’s election, a message is being sent to President Obama. If Scott Brown should win big, a big message will have been sent.

The productivity gains that the U.S. economy has achieved over the last twelve months have been nothing short of impressive. Through a combination of increased output and reduced hours worked, unit labor costs have been declining. In the tough world of economics, this is the way the system works.

In a capitalist system, productivity gains are essential for long term success, for the ability to raise real wages and to increase standards of living. During periods of economic growth, it can be relatively easy to grow profits. Productivity often appears to be a bit of a luxury. Holding on to hard-to-find labor carries a higher priority than the marginal profit produced. Capital investment rises along with labor costs – a bit of a guns and butter approach, as profits are easy to achieve.

But when the economy is in a recession, as it is today, the business of finding ways to reduce costs and squeeze profits out of diminishing revenues becomes a necessity. Management cuts the workforce, knowing that labor is cheap and easy to find. And lo and behold, marginal profit starts to increase.

UPS is a case in point. The headline in this weekend’s Wall Street Journal read: “UPS Raises Profit Expectation”. The subtitle was: “Shipper Plans to Eliminate 1,800 Jobs…” That workforce reduction was in addition to the 13,000 jobs it cut in 2009. Despite a significant increase in its fourth quarter volume, as retailers panicked and decided to fill their shelves for the Christmas selling season, the company rationalized its new workforce reduction by pointing out the productivity it has been able to achieve through technology.

The dilemma occurs when the economy bottoms out and starts to improve, a condition that appears to be emerging today in this country, and in many other countries around the world. Wary of the strength of the emerging economic resurgence, managements are loathe to hire laid off employees. So they push production harder and achieve even greater productivity. It looks like a virtuous cycle for capital. What is lacking is the benefit to sidelined human capital. The labor force is the last element to participate in the economic rebound.

There is no reason to believe that this economic cycle will be any different. In fact, given the depth and breadth of the current recession, I believe that employment gains will be slower to emerge as the economy improves. This will be evident in a continued high level of unemployment even as profits continue to grow and revenues rebound during this year and next.

The 10% official rate of current unemployment in the U.S. understates the true level, which includes all those workers who have been discouraged from seeking employment after months of endlessly searching. As the economy improves and those job seekers re-emerge, they will once again be counted in the statistics of the unemployed, further depressing the official Government rate of unemployment. The decline in a number of Federal Government stimulus programs will only exacerbate the situation.

Expect the unemployment rate in the U.S. to stay high throughout this year. I will venture to say it will not likely go below 9%. I hope I am wrong.

The week after Christmas is always my favorite time to go to the movies. Shopped out, and with no more appetite for food, the indulgence of sitting (popcorn free) for two hours in the cinema is sublime. I choose my movies carefully. I am not a “special affects” person; blood and guts disgust me. So my list of possible movies to attend is always far shorter than most people’s.

This past week, I saw four movies and did not regret going to one. In case that sounds a bit like damning with faint praise, I should clarify by saying that of the four, one movie stood out from all the rest. It was Invictus. The combination of brilliant acting by Morgan Freeman and Matt Damon as well as the deep message was a moving experience. At times I actually forgot that Morgan Freeman was on the screen – I thought I was looking at Nelson Mandela.

The movie seemed so perfectly timed, so relevant and so needed right now. It depicted national leadership at its best – the ability of a man, despised by so many, to rally his country together against all odds and to find the best in each other. It actually brought tears to my eyes on several occasions.

The economic and social problems of South Africa in the mid-1990s were far graver than those we face here in the U.S. today. The political divisions among its citizens were far deeper than those existing in our country now. But as elected President, Nelson Mandela led his country and his countrymen and women by his own example. He did more than just cross the aisle, to use American parlance. He forced people who hated each other to come together, to work together and to achieve greatness through that bonding.

In this country today, we have serious issues that need to be resolved – health care, national security and recession are but the largest. Unfortunately, partisanship appears to be of greater importance to our Congressional representatives than reaching mutual agreement on solutions. What we need now is a Nelson Mandela, a leader who can bring together the warring factions within the Government and make Government work for, not against, the common interests of all of us. Let’s hope President Obama can wear that mantle in the second year of his presidency.

Oh, by the way, the three other movies I saw and enjoyed – in varying degrees of enjoyment – were An Education, It’s Complicated, and Up in the Air. Meryl Streep (It’s Complicated) is simply the finest actress today.

It is good news that the Senate Banking Committee yesterday approved Ben Bernanke’s nomination for a second term as Chairman of the Federal Reserve. But it is disappointing that the 16 – 7 vote did not include a single Republican. For once, I am happy that Republicans are in the minority in the Senate, which will now require a full 60 votes to confirm Mr. Bernanke. Let’s hope there are at least a few Republican Senators who see the wisdom of keeping Mr. Bernanke.

It is disconcerting to observe how yesterday’s hero can morph into today’s villain. A year ago at this time, Ben Bernanke was truly engaged in saving the world from financial collapse. His comprehensive understanding of the financial markets and his knowledge of the causes and catastrophic decisions leading up to the Depression served the U.S. and the world well.

Because last year’s financial crisis did not culminate in a global financial catastrophe, (thank goodness) the world has forgotten how close we came to the brink of disaster. It is ironic that both Houses of Congress can find no cause to blame themselves for any of the events that led to the financial crisis and the ensuing recession. All they can do is heap blame on Wall Street and the Fed Chairman. Ironically the most outspoken critics of Wall Street and Mr. Bernanke, Senator Christopher Dodd and Congressman Barney Frank, were the most aggressive proponents of the Government policies that led directly to the crisis. It seems a bit like a case of “The lady doth protest too much, methinks.”

Unlike Congress, Mr. Bernanke has admitted to errors. But to be fair, most of the issues that led to the crisis were in place well before he became chairman.

The Federal Reserve has a dual role. It is charged with safeguarding the purchasing power of the dollar, i.e. managing inflation, and promoting full employment. However, it cannot singlehandedly guarantee these two objectives. What the U. S. economy has needed throughout this financial crisis is liquidity and the Fed has and continues to provide that. Today deflation is a far greater risk than inflation. With the economy in a recession, the velocity of money had declined putting little upward pressure on prices. The time will come for rates to rise and money policy to tighten, but now is not the time when unemployment is high and asset prices are low.

If the Senate has the best interests of the U.S. at heart, it will vote to retain Mr. Bernanke for a second term as Chairman of the Federal Reserve.

I woke up in Milwaukee this morning to see Maria Bartiromo on Morning Joe challenging Michael Moore on the subject of capitalism. Go Maria!!

I had to laugh out loud listening to Mr. Moore freaking out about the top 1% of the population owning 99% of the wealth in the country. It’s not that I support a vast skewing in the distribution of wealth in a capitalist society. Rather it was absurdity of the messenger who seemed oblivious to where he fit into the pyramid he decried. As no one else was in my room, I could only talk back to the television, “Well, count yourself in that group, Mr. Moore.”

Then Mr. Moore went on to compare the Dow Jones reaching 10,000 to the tragedy of the current 10% unemployment rate in the country. Maria challenged him, pointing out that the pension and 401K plans of millions of Americans have benefitted from the stock market over the years. He pooh-poohed her intelligent and totally correct response.

Next he lambasted the big banks, begging people to take all their money out of the big banks and to put it into the small, local banks in their communities. What he seemed to fail to understand was that the big banks are the ones that employ all the people at the bottom of the pyramid, so if people follow his absurd advice, the unemployment rate will rise, not fall.

Mr. Moore is a mogul in the entertainment industry. He is a successful capitalist who has benefitted from the deep pockets of capitalism. That is fine and it is a good example of how capitalism works and how it allows people to make big money.

Mr. Moore’s hypocrisy is in neglecting to tell his audiences that he himself is included in the class of people he deplores.

I was flummoxed, bowled over and plain stupefied as I read the article by Eric Dash and Jack Healy on the front page of the business section of the New York Times this past Saturday.   On the surface, the story simply defies belief.

Beleaguered Citigroup has been forced to execute a fire sale of its prize-winning entity, Phibro, because the Federal Government’s ‘pay czar’, Kenneth Feinberg, has ruled that the compensation contract with top level employees at Phibro “promoted excessive risk-taking and ran counter to the public interest”.  (A quote from the article.)

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