BUSINESS INTELLIGENCE BRIEF

January 15, 2010

Breakdown in Haiti
The shock has worn off in Haiti and the breakdown has started to accelerate. For the first few days after the
earthquake the country seemed too stunned to react but now the reality has set in and the weakness of the
nation is abundantly evident. Food supplies have been looted, angry residents have started to pile corpses up as
roadblocks, and rescuers have been assaulted as those who are seeking food have turned on the rescue effort –
claiming that the teams are more interested in saving foreigners. The police and military are yet to be seen in
any other capacity than thugs or looters and tensions are leading to fights. Gangs have formed and are taking
over sections of the city that managed to escape some of the damage. This has been what has been feared form
the moment of the first tremor.
The statements from the various aid agencies and humanitarian organizations are unfailing in their
determination and optimism but the people on the ground are already reporting that conditions have become
nearly impossible and most of the aid groups are ready to pull their people out at a moment’s notice. There
have been all manner of aggressive proposal conjured up. The latest came from the Managing Director of the
International Monetary Fund. Dominique Strauss-Kahn has urged the world to launch a multi-billion dollar
effort to completely rebuild the nation but even the most conservative estimates hold that it would take close to
a trillion dollars to have even a modest impact on the shattered state. This is a nation that has been miserably
led and exploited for generations and it will take generations to build something new. Details on page 4.

Analysis: The major question is what to do now. There is little hope that Haiti can be rescued at this stage.
The immediate aftermath of the disaster can be dealt with to some extent but there is little confidence that
there will be anything but stopgap measures taken. The world press is on the scene and in a matter of days
the coverage will start to shift from heroic rescue efforts to reporting on the chaos. It will be only a short
time before donor’s fatigue sets in and this process will be accelerated by the news that has started to come
out. People will contribute money when they think it is helping people devastated by the tragedy but they
will not give if they think the food is being looted and if they think the people getting the aid are criminals
that are exploiting the situation.
The task ahead in Haiti is simply overwhelming and would have been even without the global recession to
contend with. What will have to happen now is wholesale policy change on the part of many governments in
the region. The entire nation is on the verge of becoming refugees but there are now nations willing to take
them. The alternative to moving the bulk of the affected population is grim indeed. As awful as Haiti has
been for the past century the country is now facing far worse.

Economics of Employment
The study of the job impact of the stimulus plan has the Obama team backpedaling furiously. In the days before the study was
released, there was commentary from the White House about how wonderfully successful the plan had been in creating jobs and how
important the infrastructure sector had been in that effort. Now the wording has changed to the importance of infrastructure as economic
development and how vital stimulus has been in developing niche employment markets. The facts have been starkly revealed in the AP
examination. Using road and bridge building to promote job growth is ineffective. The assumption had been that infrastructure work
would encourage the expansion of construction and that those who had worked in that sector before would find jobs. This demonstrates a
substantial lack of knowledge as regards construction.
The jobs that were lost came from residential and commercial construction and these workers are not remotely qualified to work in
road building. The ability to frame a house or roof it is not the same as running the heavy equipment that dominates road building.
Infrastructure work is not labor intensive and hasn’t been for years. It is technical and skilled and requires extensive experience in
complex equipment. The projects that have been funded by the stimulus package have meant work for the companies that are already in
this business but they have not had to hire large numbers of new employees. The fact is that infrastructure repair is as vital as it ever was
and in the long run it will lead to the kind of economic development that will build business and job growth but not in the short term. As a
quick fix to the employment problem, infrastructure repair is not successful but as long term development investment there are few better
uses of money. The focus of the next several months will be on jobs but this is a far more complex situation than all the rhetoric will
indicate.

(Continued)

Contact information:
Armada Corporate Intelligence
ckuehl@armadaci.com ksanchez@armadaci.com kprather@armadaci.com
(816) 304-3017 (785) 550-7129
 Analysis: There are many aspects of the modern US economy that differ from the past – especially as it concerns jobs. The US of even
20 or 30 years ago had millions of jobs that were essentially interchangeable. There were whole sectors of the working community that
could shift from one type of job to another in a matter of weeks or days. Most construction and manufacturing was manual labor of one
kind or another and there was a revolving door of sorts. As the construction season wound down or there was a slump in building, these
workers went to work in factories for a while. There were other jobs that people move into and out of – truck driving used to be a good
alternative to construction work or factory jobs. But over time this system eroded. The manufacturing jobs that were the easiest to slide
in and out of were being done by machines. Construction jobs became more skilled as well. Truck driving is logistics support now and is
much more professional at all levels. The only place where people could get work that didn’t require special training and education has
been in parts of the service economy – everything from retail to warehouse work to support services. These jobs may be relatively
plentiful but they are not well paid and have been poor replacements for the jobs lost.
There used to be more opportunities in government jobs as well. The role of the government as employer of last resort has been
profound in any downturn but during this one the opportunities have been more limited. There is the fact that these governments have
reduced budgets but more importantly there are fewer entry levels jobs than in the past. Roadwork is done with machines and clerical
work is done with computers. The number of government services provided by going on-line has risen dramatically and this has been
welcomed by the people who need these services but this also means that fewer people are needed to handle people standing in line.
How is one to create jobs in this environment? The mantra from the Obama administration has been job-centric for over a year and
the reaction has been minimal. There has been some sign that conditions may start to improve this year but not so dramatically that the
7.2 million people officially seeking work will have much luck getting hired. The election is nearing and the political will to do something
is very high. The question is what can really be done to create jobs. The fact of the matter is that job creation is a by-product of other
processes. Even in government there is no need to create a job unless there is something that needs to be done. In business, a job is
offered when the work that is to be done contributes to productivity and profit for the company doing the hiring. The bottom line is
that economic growth creates the conditions needed for hiring – not the other way around. The question to ask is what part of the
economy drives productivity and therefore the need to hire. In most states the driver is small to medium sized business. It is not that
the Fortune 500 companies don’t employ as obviously they employ hundreds of thousands of people but this number pales in
comparison to the hundreds of millions of jobs that are part of the smaller business segments.
The smaller business is in a delicate position. They must have demand on their side if they are to make money and increase
productivity but as soon as they see this expanded demand they know they have to add workers. They can’t make that decision until
the very last minute as it simply isn’t feasible for them to hire in advance and hope for the best. The balance is affected by many factors
and here is where there could be some room for the government to assist. It is not that the small businesses need subsidies and bail
outs – they really just need to have their business decisions simplified.
As just one example there is the matter of manufacturing and the regulations that come along from the office of Occupational Health
and Safety. As the requirements are currently written, a company is not subject to OSHA regulation until they have 50 employees or
more. The requirements are complex and expensive to adhere to. Inspections are intrusive and time consuming. Nobody questions the
need to provide a safe working environment for people but there is no doubt that the regime in place is expensive for a small business.
The result is that most of the small manufacturing outfits and job shops limit heir employee base to under 50 workers. That limits
employment growth and the solution from government would be a system that makes OSHA far less onerous to comply with. It is a
balance but one that seems to have skewed too far to the side of bureaucracy and too far from employment. These are the kinds of
trade offs that will have to be examined in the near future. Can the twin goals of safe working environments and increased employment
be pursued? The same discussion has to take place over taxes, EEOC requirements and so on.

Tax on Banks Likely to Fail

The Obama administration has decided to tap into the public anger at the banks, those “fat cats” that Obama has been referencing in
many of his speeches. There are many cynics who assert that this is all political bombast and that the Obama team knows full well that
this idea will never make it through the Senate. There is absolutely no support from the GOP and even some opposition from moderate
democrats who see this move as pure rhetoric – a populist response to the anger that people have expressed over the banks and their
bonus plans.

Analysis: The plan seems to be designed to make the public think that they have a champion in the White House against those evil
bankers but this assumes a pretty high level of gullibility. In the first place most people seem to believe that the banks will simply pass
on whatever additional tax is imposed through higher fees and other techniques. As much as they might want to punish the bankers,
they are pragmatic enough to know that this tax on banks will end up being a tax on them. There are also millions who do not seem to
believe that adding costs to the banks will help boost the economy much. The business community wants to see credit reappear in the
system and they are well aware that imposing fees on banks will not convince them to loan more.

Business Intelligence Brief is an online information service, published electronically by Armada Corporate Intelligence. It is prepared by
Armada CI. The publisher has taken all reasonable steps to verify the accuracy of the content of this information. Armada Corporate
Intelligence shall not be responsible for any errors or omissions.

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 STRATEGIC GLOBAL INTELLIGENCE
January 15, 2010

Ports Waiting for Rebound

The ports have been waiting for imports to come back all year. As excited as they might get when the US finds ways to export, it is the
container ships full of consumer products from Asia that gladden their hearts. Too much of the US export sector specializes in goods that
go by air cargo or are high value but low value in nature. It is the import business that fills the ports with boxes. They are thrilled that there
has been a jump in the Chinese export sector of 17% and hope sincerely that this is just the tip of the iceberg (not the greatest reference for
the ocean cargo market to be sure).
The decision by the Chinese to try to slow the economy with a boost in bank’s reserve requirements may slow down this import pace a
little but if the US economy continues to show signs of recovery, the consumer will be lining up in the stores to get access to the goods
coming from the Asian states as well as from Europe and Latin America.
The ocean cargo business is a pretty solid test for the overall recovery of world trade and it will take a recovery in that trade to bolster
economic growth in the US and everywhere else. When one looks at the levels of global GDP in the recession one is struck by the depths
of the collapse. In the US, this recession was bad but not significantly worse than what was experienced in the 1970s and 1980s. Europe’s
recession has been comparable to those it has suffered through in the last three decades. The Asian recession was mild as compared to
those in other countries and far less damaging than those they went through in the 1960s. But when all these recessions are combined the
impact is dramatic. This was beyond doubt the worst global recession since the Great Depression – at least as far as GDP decline is
concerned. That would be bad news in any context but in an era when nations are far more dependent than ever on exports this has been
nearly catastrophic.

Analysis: The decline in ocean cargo was precipitous and affected all levels of transportation. The west coast ports in the US were
contending with capacity shortage issues just a few years ago. The fear in LA and Long Beach was that they would start to lose to other
ports in the world as they couldn’t keep pace with demand. That remains a concern and one that will start to manifest again when
demand starts to ramp up again. There are three key issues affecting the ports now and while they are temporarily in abeyance, they will
come back with a vengeance in the months to come.
The first is security. There has been much discussion regarding what must be done to secure the ports but there has been delay after
delay as the economy struggles. The only solution to security is inspection and there is no way to do this without adding significant delays
to shipments, a process that is anathema to the shipping community. The problem is more minor now that volumes are down but as they
return to normal the risks increase. The second problem is that ports have been deemed environmental disasters due to the levels of
emissions. The concentration of trucks, trains and ships creates a major issue and in California it has provoked stringent environmental
regulations that have led to the collapse of hundred of trucking companies that service the ports. Finally there is the issue of competition.
There are far more port alternatives than in the past and that puts intense pressure on those in California as they consider how many
shippers are shifting to Canada and Mexico.

Greek Plan Wins Few Supporters

The Greek government has announced a three year plan to get control of its deficit but thus far very few have any faith in it. It seems to
have been designed to say all the right things about fiscal discipline and the need to control corruption but there isn’t much that reassures
the analysts that any of it can be implemented. The problems in Greece have been obvious for many years but there has never been the
political will to tackle them. The current government came to office with a mandate strong enough to take the tough decisions but thus far
they have reacted too timidly.

Analysis: The sad fact is that Greece needs to slash it spending by almost a third and that means massive layoffs at a time when the
economy is already weak and unemployment is already high. There is simply a credibility issue as investors have roundly rejected the
premise behind the plan. Bond yields have hiked further as prices have fallen and there have been another round of negative ratings.
Greece is not going to be able to pull out of this on their own and at some point the EU is going to be forced to step in.

Situation in Venezuela Worsens

The riots in Caracas have intensified as more and more people are facing serious shortages in basic goods. The imposition of strict price
controls enforced by military action has resulted in thousands of stores simply shutting their doors. They can’t survive selling at the
mandated prices so they have quit. People can’t buy anything at the moment and that has led to anger and frustration. Either the
government will be forced to relent or Chavez will start to see his hold on power erode rapidly.
Business Intelligence Brief is an online information service, published electronically by Armada Corporate Intelligence. It is prepared by
Armada CI. The publisher has taken all reasonable steps to verify the accuracy of the content of this information. Armada Corporate
Intelligence shall not be responsible for any errors or omissions.

3
 Is This Ever Counter Intuitive
A study from Brigham Young University has found that having kids is good for lowering one’s blood pressure. Really? It would seem
that this would not be the case – at least when one sees the harried looks of parents at airports. I would wager that if those blood pressure
tests were taken at that precise moment the conclusion would be that these parents are about to blow a gasket. It seems that the role of
patent is good for giving person a feeling of well being and calm. Maybe it is just that parents have had to learn the hard way that they have
no control over their environment and have become more patient and accepting. I have known many a control oriented person who was
transformed by child rearing. The bottom line is that nobody can go through the terrible twos and think they can exert any influence on
their environment for more than about eight seconds.

Analysis: I would not expect the study to recommend that the childless to get some kids on loan (although a system like this might
further lower parental blood pressure). It seems more likely that there will be suggestions that parents know something the high stressed
among us don’t quite grasp. We are not in control – at all. Not even for a little bit. I know that this is my primary blood pressure issue. I
start the day with a plan – a darned good one. It will be productive and all will be accomplished as scheduled. The whole thing falls apart
in a matter of hours and I get frustrated. The parents know that planning what kind of socks the little darling will wear will not turn out as
planned once the dressing process begins. They just accept the chaos that comes with everyday life and learn to go with it. To lower ones
blood pressure one must channel the attitude of the parent of a toddler. As long as there isn’t blood and too much screaming it is all
good.

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Business Intelligence Brief is an online information service, published electronically by Armada Corporate Intelligence. It is prepared by
Armada CI. The publisher has taken all reasonable steps to verify the accuracy of the content of this information. Armada Corporate
Intelligence shall not be responsible for any errors or omissions.