About Those Billionaires at the White House & Bye, Bye Euro

President Obama met with Bill Gates and Warren Buffett at the White House yesterday to discuss, among other things, the economy. Obama also has a “business” summit upcoming with some 20 business leaders (heads of General Electric Co. [GE/NYSE], Google Inc. [GS/NYSE] and other big companies) to discuss economic growth. Dear Mr. President, you are asking the wrong people. Over 70% of jobs in this country are created by small businesses with less than 50 employees. Don’t ask the billionaires for advice, ask the small businessperson. First thing they will tell you: they can’t borrow money from the banks to expand their businesses. That’s one of the biggest problems. Big companies can access capital, but small businesses are having a very difficult time of it.

Spain needs to raise over $200 billion next year. Moody’s Investors Services said this morning that they are reviewing Spain’s credit rating. That means the cost for Spain to borrow money will rise. Spain has the highest unemployment rate of the euro countries at 20%. First Greece, then Ireland; now it is a toss-up between Portugal and Spain for bailout applications. Italy is not far behind and could be in greater trouble because of its political instability. Why do I mention all this? Because the euro will keep sliding against the U.S. dollar amid repeated national debt crisis amongst the euro countries. The U.S. dollar has strengthened lately, not because the U.S. is getting economically stronger or because our debt is declining, but because the euro continues to weaken.

The Washington-based Business Roundtable said yesterday that optimism amongst U.S. CEOs is at its highest level since 2006. No kidding. Large American corporations are collectively sitting on more cash in the bank than ever before. They can also borrow billions more dollars at interest rates that are at record lows. Payrolls have been slashed. Profits are rolling in. Why wouldn’t CEOs be optimistic? But we need to remember that optimism doesn’t necessarily lead to investments in plant/equipment and more employees. Most people I talk to are still in a cautious mood after the American credit crisis of 2008. They need more time to heal, which means the U.S. unemployment rate will remain high.

The U.S. Commerce Department reported that Tuesday sales at U.S. retailers rose 0.8% in November after a 1.7% increase in October. Looks like the last quarter of 2010 will be the strongest in terms of consumer retail spending since the recession began. Hopefully my readers heeded my advice (going back as early as the summer) to look at retail stocks. The Dow Jones U.S. Retail Index is 23% since July of this year.

Michael’s Personal Notes:

The bond market is getting crushed and rising long-term interest rates have become a real concern. The bellwether 10-year U.S. Treasury Note yielded 2.4% just as recently as early October. Today, the same bond yields 3.45%—a jump of 44% in less than three months! The five-year U.S. Treasury Note yield surpassed two percent for the first time in months yesterday.

U.S. long-term interest rates are rising rapidly, and this can mean one of three things, or a combination of the three: the economy is expected to grow over the next five years at a more rapid pace than previously expected; inflation is expected to rise; and/or foreigners want more return on the bonds they are buying to finance America’s debt.

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