Friday, August 15, 2008

NYT: Cost Cutting in New York, but a Boom in India

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Now that oil is headed back to $60, the countries that import "stuff" i.e. India should do well - as their inflation disappears. Ok, maybe not so much....
  • India's inflation soared to a 16- year high and may accelerate further after the government approved wage increases for civil servants.
  • Wholesale prices rose 12.44 percent in the week to Aug. 2, after increasing 12.01 percent in the previous week, the commerce ministry said in New Delhi today. Economists were expecting a 12.2 percent gain. (wow these guys measure inflation on a weekly basis?)
  • Prime Minister Manmohan Singh's cabinet today approved an average 21 percent salary increase for about 5 million government employees. That may give the central bank little choice other than to raise interest rates again after three increases since June, economists said. (do you see what I mean when I write the global wages are going to eventually be heading to some crossing point among countries as globalization trudges ahead the new few decades?)
  • Soaring energy and commodity prices are fanning inflation across Asia. Pakistan's inflation accelerated to a 30-year high of 24.33 percent in July. Consumer prices in Indonesia jumped 11.9 percent last month, the biggest gain in almost two years. (hmm they must of not gotten the memo of how oil prices will soon be cut in half and hence nothing to worry about - that is the US market thesis as they shrug off all inflation reports, pointing to them as "backwards looking")
  • Faster inflation is squeezing consumer spending and hurting factory output. India's industrial production grew 5.2 percent in the quarter ended June 30, almost half the 10.3 percent pace in the same period a year earlier.
We've predicted this spate of inflation and "mostly" got out of Asia a few months ago. However we did stick with India a bit too long. But again, if the thesis of global commodity prices staying down is "true" we should be seeing an uptick in the markets of Chindia because those 2 are the ones who need to import "stuff" and hence lower prices would help them. But China has been in the doldrums and India, despite a little minor rally here of late, has been a very bad performer the past quarter. Coal prices on global markets continue to hold firm, and fertilizer prices continue to remain firm. Interesting - to those who use fundamentals. Since it is all about oil - it doesn't matter to the computers.

Anyhow as we become a more flat world - multinational jobs will go where the labor costs are cheaper (although with the wage increases in India the past half decade they better be careful or capital will go find a new country to exploit... err take advantage of cheap labor), an interesting piece in the NYTimes
  • India - On the top floor of a seven-story building in this dusty aspiring metropolis, Copal Partners churns out equity, fixed income and trading research for big name analysts and banks. It is a long way from the well-cooled corridors of Wall Street, and quarters are tight; business is up about 40 percent this year alone.
  • “This is one bulge-bracket bank,” said Joel Perlman, president of Copal, pointing toward a team behind an opaque glass wall. “And this,” he said, motioning across a narrow corridor “is another.”
  • The banks edit and add to what they get from Copal, a research provider, then repackage the information under their own names as research reports, pitch books and trading recommendations. (ah, so that's how it works)
  • Wall Street’s losses are fast becoming India’s gain. After outsourcing much of their back-office work to India, banks are now exporting data-intensive jobs from higher up the food chain to cities that cost less than New York, London and Hong Kong, either at their own offices or to third parties.
  • Bank executives call this shift “knowledge process outsourcing,” “off-shoring” or “high-value outsourcing.” It is affecting just about everyone, including Goldman Sachs, Morgan Stanley, JPMorgan, Credit Suisse and Citibank — to name a few. (I call it "Pooring of America" but let's just get focused on labels - we still have plenty of Walmart jobs, baristsa jobs, food service jobs, and tanning salon jobs left here! You can't take that from us!)
  • The jobs most affected so far are those with grueling hours, traditionally done by fresh-faced business school graduates — research associates and junior bankers on deal-making teams — paid in the low to mid six figures. (key words - so far - just like we said 10 years ago - the only jobs leaving are back office work... now we are giving up low to mid 6 figure jobs as well - and replacing them with $35K jobs in the "service economy")
  • New York City financial firms expect to hand out some $18 billion less in pay and benefits this year than 2007, the largest one-year drop ever. Over all, United States banks will cut 200,000 employees by 2009, the banking consultancy Celent said in April.
  • The work these bankers were doing is not necessarily going away, though. Instead, jobs are popping up in places like India and Eastern Europe, often where healthier local markets exist.
  • In 2003, JPMorgan and Morgan Stanley said they planned to move a few dozen research jobs to Mumbai, Lehman Brothers was working on a pilot program to create research presentations in India and both Merrill Lynch and Goldman Sachs said they had not moved any research to the country. Five years later, the trickle is a flood. Third-party firms say they are seeing a 20 to 40 percent upswing in business this year alone.
  • Morgan Stanley has about 500 people employed in India doing research and statistical analysis. About 100 of Goldman Sachs’ 3,000 employees in Bangalore are working on investment research. JPMorgan has 200 analysts in Mumbai working for its investment banking operations around the world, doing industry analysis, and compiling data and charts for marketing materials. It has an additional 125 analysts in Mumbai supporting the bank’s global research division.
  • Citigroup employs about 22,000 people in India, several hundred of whom work in investment research. Deutsche Bank has 6,000 employees in India, according to the bank’s Web site.
  • The jobs off-shore are more likely to come from the investment bank and trading divisions of Wall Street firms, rather than the sales side, which produces analyst reports about companies and industries, said Andy Kessler, a former analyst who has written several books about Wall Street.
  • There’s a huge amount of grunt work that has been done by $250,000-a-year Wharton M.B.A.’s,” Mr. Kessler said. “Some of that stuff, it’s natural to outsource it.” (we don't need no stinkin $250K jobs here!)
  • After research, the next wave may include more sophisticated jobs like the creation of derivative products, quantitative trading models and even sales jobs from the trading floors.
  • Proponents of the change say Wall Street’s wary embrace of the activity may signal the beginning of a profound shift in the way investment banks are structured, with everyone but the top deal makers, client representatives and the bank management permanently relocated to cheaper locales like India, the Philippines and Eastern Europe.
  • In the future, executives in India like to joke, the only function for highly paid bankers in New York or London will be to greet clients and shake hands when the deals close. (I don't think it's that funny or facetious myself - give it 20 years)
  • Permanently moving banking jobs out of New York or London is a touchy subject on Wall Street. Many investment banks, including Morgan Stanley, Goldman Sachs, Merrill Lynch and Citigroup, would not make executives available to discuss the topic. Press officers for most banks asked not to be quoted or argued over semantics. For example, one spokesman said his bank’s fast-growing India support operations are not an outsourcing facility, but a “center of excellence”; another argued that large cost cuts at his bank’s New York and London headquarters were really “re-engineering” so the bank should not be included in such an article. ( I love it! It's all about semantics baby - Hello Mr. Jones - we are shipping your job to Mr. Shah at the Center of Excellence - please back up your stuff in the box provided. Good day sir!)
Again this is not to criticize or really admonish such moves. Just to point out the reality versus what you are "told" by political and business leaders. The reality is a very stark difference and it is done slowly but surely - erosion.

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