All About the Water


The governors of the Great Lakes states recently approved a request by a Wisconsin city to draw water from Lake Michigan after its existing water supply dried up. But because the city isn’t in the watershed of the Great Lakes, the two Canadian provinces that share Great Lakes water rights say the request should be denied.

Waukesha, Wisconsin will be allowed to tap Lake Michigan for up to 8.2 million gallons per day once it completes a $207 million pipeline project that would draw in lake water and return fully-treated wastewater.

Delegates for the governors of Michigan, Minnesota, Wisconsin, Illinois, Indiana, Ohio, Pennsylvania and New York gave their unanimous consent to the first formal request to divert water outside the Great Lakes basin during a meeting of the compact council.

The 2008 compact prohibits water from being sent outside the basin watershed. Communities like Waukesha, located over the line but within a straddling county, can apply under a limited exception.

The eight governors approved the request over the objection of widespread opposition. Mayors, legislators, policy-makers and citizens around the Great Lakes have worried about the precedent Waukesha’s application represented.

Waukesha is under a court-ordered deadline to provide safe drinking water by mid-2018. The city draws most of its water from a deep aquifer that is contaminated with unsafe levels of radium, a naturally occurring carcinogen. The city has a population of about 70,000 people.

Kiplinger warns that more water conflicts will flare up, citing California, India, South Africa and the Middle East among the likely areas of dispute.

Global Woes Could Haunt U.S.

GKiplinger projects 2% economic growth for the United States in 2016. While not outstanding, there could be a sudden shift in the other direction if trouble occurs elsewhere. These are identified as the countries worth watching:

  • Venezuela: “Its economy is near collapse, as is its political system. If its oil flow stops, even for a short time, global prices will spike, putting pressure on major industrialized nations that need imports (including the U.S.) and likely shaking the confidence of investors.”
  • Brazil: “South America’s largest economy is in the second year of recession, its government is in disarray and its burgeoning middle class is being squeezed. A full meltdown isn’t likely but a less-than-spectacular Olympics and the spread of the Zika virus could unnerve trading partners and investors.”
  • Saudi Arabia: “Like others, the Saudis were stung by falling oil prices. But the big unknown is how the ruling family will respond if Washington decides that the kingdom can be held legally liable for the Sept. 11, 2001 terrorist attacks. One possible Saudi response: Selling off as much as $750 billion in U.S. Treasuries and other assets as a form of political retribution.”
  • China: “Slowing growth there causes ripples in everybody’s pond, threatening to slim trade in Europe, Asia and the Americas. China won’t be derailed, but its stumbles will keep global expansion muted.”

If Washington Got Its Act Together …

If you're not frustrated with gridlock in Washington, raise your hand. OK, that didn't generate much arm movement. But how much is the lack of activity in our nation's capital costing Americans? The San Francisco Federal Reserve Bank tries to provide some answers.

It estimates an unemployment rate 1.3% lower at the end of 2012 if federal fiscal, regulatory and health care policies were more clear. That would translate to about two million more people earning a paycheck. The lower unemployment rate (6.1%) would be just slightly higher than the 20-year average before the Great Recession.

In addition, many current part-time positions would likely be full-time jobs. In July 2013, 8.2 million people were employed part time, nearly twice as many as a decade ago.

Immediate prospects don't look much brighter. Spending authority to keep government operating runs out at the end of the month and the legal limit on borrowing will be hit in mid-October. More short-term deals instead of long-term solutions are expected.

The bottom line from Kiplinger: "The economy will suffer until Washington sends much clearer signals. Growth will continue to pick up, but only slowly. And businesses won't invest big in new hires or new plants and equipment until they can see a brighter tomorrow."

Predictions: Focusing the Crystal Ball on 2020

The year 2020 is creeping closer. But if you’re projecting economic forecasts and demographics for eight years from now, it seems like a lifetime away.

Neverthless, the fearless prognosticators at Kiplinger (the authors of weekly management decision-making letters and various other publications and products) consistently weigh in on future conditions. These are a few of their recent insights, in separate reports:

  • Don’t be shocked if inflation doubles, from 2% this year to 4% or a bit more by 2020. Higher interest rates will mean pricier mortages, about 8% compared to 4% now for a 30-year fixed rate loan. The homeownership rate will settle around 66%, higher than now but shy of the peak of 69% in 2006.
  • By 2020, health care will account for nearly one in nine U.S. jobs, adding more than 4 million jobs in the decade. Home health aides will be the fastest growth segment, but there will also be rising demand for registered nurses, physicians and surgeons.
  • Consumer spending in Africa will double by 2020 with the overall economy growing by 5% a year. Joining South Africa as growth hot spots will be Algeria, Egypt, Morocco, Nigeria and Kenya. Others to watch: Ghana, Tunisia and Botswana (with plenty of minerals and a stable government).
  • Staying global and extending the time out five more years (to 2025) will result in more megacities. Projected to have 20 million people within its borders by that time (no city today has reached that level) are Mexico City; Tokyo; Shanghai; Dhaka, Bangladesh; Sao Paulo, Brazil; and three Indian cities … Delhi, Mumbai and Kolkata. New York is listed as a possible ninth. Seven more Chinese cities will top 10 million each, according to the forecasters.

We might not remember to pull this or other predictions out eight years from now, but if we do I imagine the experts will be on target more than a few times.

Adviser: Get Ready to Run with Bull Market in Near Future

Steven T. Goldberg, a Washington, D.C.-based investment banker, has a positive outlook for the American economy. Though I’ve heard other guesses that we shouldn’t expect a positive turnaround until 2015, he’s a bit more bullish. He recently authored a column for Kiplinger noting six reasons why he sees a "major bull market" in the next year or two:

1. The long decline in housing prices is nearing an end. The excess supply in housing is dwindling. When home prices finally bottom, it will mean more employment for construction workers, real estate agents and people in related industries. It will also staunch the bleeding in the mortgage and banking industries. Plus, it will help revive consumer confidence.

2. The U.S. is undergoing a manufacturing rebirth. Higher wages in China are prompting some companies to relocate factories to the U.S. Ford and Emerson Electric recently brought back some manufacturing to the U.S., and Intel is building three new plants here. Boston Consulting Group sees China’s edge eroding because many Chinese workers this year received wage increases of 15% to 20% and because of high transportation costs to the U.S.

3. The "echo" baby boom is ready to invest. The children of the baby-boomers will soon enter the 35-39 age bracket — the time in life when, Levkovich says, they get serious about investing. He has studied actions of that group from 1900 to the present and finds a strong correlation between the size of that cohort and the direction of the S&P 500. He says the echo boom will more than make up for the pressure their parents put on stocks by selling investments to pay for their retirement.

4. Technological innovation is still spreading. Increased adoption of smart phones by individuals and companies in developed and emerging countries will lead to increased spending on these products, as well as on technology infrastructure, including better security software, faster chips, longer-lasting batteries and more broadband spectrum. The U.S. still dominates tech.

5. The U.S. is becoming less dependent on foreign energy sources. New discoveries of oil mean a near-tripling of production in the Gulf of Mexico by the end of the decade. Meanwhile, fracking and other advanced drilling techniques are dramatically increasing natural gas production and lowering its price. Also helping are tougher standards for auto fuel economy, which means we’re using less gasoline. What little oil the U.S. will have to import, Levkovich says, will come from Canada and Mexico. Energy independence would help our trade balance.

6. A solution to our fiscal crisis is on the horizon. In 2013, Levkovich thinks, Democrats and Republicans will overcome their bitter differences and adopt a debt reduction plan that will include both higher taxes and cuts in entitlement programs. If that doesn’t happen, he thinks bond investors will force a resolution in 2014 by selling Treasury debt and forcing up bond yields. "We continue to think that investors are unwilling to pay up for equities while the continuation of budget deficits and growth of national debt erodes the foundation of economic progress," Levkovich says.

Levkovich finds a lot of skeptics among individual investors, who continue to yank money out of stock funds, as well as professional investors, many of whom have decreased their allocation to stocks. But that’s just dry powder for the next raging bull market.

Taking Technology to the Next Level

The good folks at Kiplinger are primarily in the business of forecasting — both in the near and long term. A few current facts, of course, are mixed in.

Here are a few of their recent postings regarding technology. I would categorize them as ones that make you stop and say, Wow!:

    •  Electronics now make up 40% of the cost of automobile materials, up from 15% in 2005. The average car is run by 40 microprocessors and 40 million lines of digital code

    • New cars and trucks cost less in real terms than in 1995. Prices for housing, food, energy, etc. have increased by more than 50% over a similar time period

    • Look for much faster smart phones by 2014 when wireless technology will let phones receive and send data at least five times as fast as today’s models

    • Computer speeds will leap too as electronic processors will be replaced by chips that  use light waves. The chips will be able to crunch data far faster than the current sending and receiving of slower electrons. 

On the last item, Kiplinger predicts commercialization around the year 2020. But don’t worry; there will be plenty more technology advancements between now and then.

Handicapping the D.C. Developments

The business experts at Kiplinger recently offered the following odds on the major issues facing Congress:

  • Health care overhaul: 3 to 2 (seems a little optimistic, but they note that President Obama will likely accept less than what is currently on the table to win a deal before the end of the year)
  • Energy cap and trade: 1 to 6 (Kiplinger: a bigger push in 2010)
  • Financial regulations: 3 to 2
  • Stimulus Part 11: 3 to 2 (I’m surprised by this one, but Kiplinger believes states will push for it in the face of a "jobless recovery")
  • Surface transportation: 0 (reauthorization put off until 2010)

Agree or disagree?

Corporate Tax: What are the Presidential Candidates Saying?

Mark Willen of has an interesting breakdown regarding McCain’s and Obama’s views on the corporate tax. You business owners and fanatical fans of finance (sorry, I just received my certificate in alliteration) could find the distinctions intriguing.

Also, you may be surprised at what Bill Clinton’s former labor secretary Robert Reich says on the matter.