Tuesday, September 22, 2009
The remaining workers are doing more work after their fellow citizens are punted to the street; which we call productivity gains. And technology is requiring less humans in the "higher end jobs" that we won't lose to China... for at least another 5 years. [Aug 14, 2009: No New Normal Say Some Economists, Prosperity Without Jobs?] But aside from that laundry lists of line items the economy is humming. See the stock market for proof.
So that sort of leaves us back to square one and the national game plan (remember, central policy decisions that almost every other country on the globe has taken to create or support industries are deemed socialism) - is to go back to bubble blowing to create jobs. And government handouts until the bubbles are fully inflated. [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929] [Jul 30, 2009: Cash for Clunkers a Bit Hit, Government Asks "What Can we Buy You Next?"]
I do see one opportunity for Americans; after the debt bust in Japan many housewives became currency traders (seriously). With the US markets now deemed by the Federal Reserve outpouring of liquidity a "no lose" situation - everyone can now trade pieces of paper back and forth for profits. We don't really even need a real economy under this scenario - the Asians can make stuff, we can daytrade, and consumers can go shopping when the market sits still between 11 AM and 3:30 PM, and after 4 PM. Government and healthcare can move from 1/3rd of our employees to 2/3rds and the rest trade pieces of virtual paper. As long as the market simply goes up - the perfect solution has been found. Win - win - win.
A good piece from the BusinessInsider - food for thought. I appear not to be the only one who actually thinks about these things (while staring at walls)
Roughly speaking the world's economy has always worked as a giant pass-along-game between the planet’s citizens. Person A needed stuff from person B and person B needed stuff from person C and person C needed stuff from person A. So everyone needed everybody. It has been a kind of giant circle of needs.
But as a smaller and smaller number of people are needed to make the basic things that people need for survival, from food to energy, to clothing and housing, the less likely it is that some people will be needed at all.
When you read in the press the oft-quoted concept that “those jobs aren’t coming back” this “reduction of need” is what underlies all of it. Technology has reduced the need for labor. And the labor that *is* needed can’t be done in more developed nations because there are people elsewhere who will happily provide that labor less expensively.
In the long term, technology is almost certainly the solution to the problem. When we create devices that individuals will be able to own that will be able to produce everything that we need, the solution will be at hand. This is *not* science fiction. We are starting to see that happen with energy with things like rooftop solar panels and less expensive wind turbines. We are nowhere near where we need to be, but it is obvious that eventually everyone will be able to produce his or her own energy.
The same will be true for clothing, where personal devices will be able to make our clothing in our homes on demand. Food will be commoditized in a similar way, making it possible to have the basic necessities of life with a few low cost source materials.
The problem is that we are in this awful in-between phase of our planets productivity curve. Technology has vastly reduced the number of workers and resources that are required to make what the planet needs. This means that a small number of people, the people in control of the creation of goods, get the benefit of the increased productivity. When we get to the end of this curve and everyone can, in essence, be their own manufacturer, things will be good again. But until we can ride this curve to its natural stopping point, there will be much suffering, as the jobs that technology kills are not replaced.
The political implications of this are staggering. Clearly, more and more jobs will move from more developed nations to countries like China, and it is difficult to see how, as this process continues, the United States retains its leadership position. In fact, it seems entirely possible that the U.S. will exchange places with less well-developed nations. Yes, there will certainly be fabulously wealthy people in the US, because many US companies will own these highly productive businesses. Unfortunately, that wealth will be held by a very small number of people. And their operations will need to employ very few people.
In short you will have a few very wealthy folks, and a much larger majority that will just not be needed for the most important things that the country needs to do.
I don’t know what the short-term solution to this problem is. In fact, I fear there may not be one. But it is clear that what I am describing has already started and there is little we can do to stop it. GDP will increase as demand for labor **decreases**! How is that for the ultimate economist's oxymoron?
p.s. don't you dare ask the question what country these banking elite would move to if US and UK followed these same changes
p.s.s. how is it in almost every other form of PRIVATE employment, global competition is pressuring wages downward - but in the banking elite it is driving up wages? .... aha, they have a unique skill set that adds more social and economic value than say a physicist - gotcha.
p.s.s.s. my solution is to put a good portion of their wages into deferred compensation and invest a portion of those deferred wages into EACH "awesome and cool" deal the bankers do. Then maybe the bankers will care about the outcome of the deal, rather than just pushing out volume like a Miami mortgage broker circa 2006. I know, I know - it's too simple and common sense to ever work.
- Canada's biggest bank, Royal Bank of Canada, is changing the way its investment bankers and traders are paid, according to a memo it sent to employees Tuesday. The bank said it conducted a thorough assessment of the compensation plan in its capital markets business, and decided to make a number of revisions.
- Its internal announcement comes as G20 leaders wrestle with the contentious issue of bankers' pay, which will be a key topic at this week's summit in Pittsburgh.
- Royal Bank told employees it is making the changes with good governance in mind, and it believes that they will enhance its risk management practices while helping it adhere to emerging regulatory principles. (risk management is for countries without a central bank who hands out money like Kool Aid at a 5 year old birthday party)
- The changes are in line with proposals from various regulatory groups and politicians seeking ways to prevent a repeat of the global financial crisis
- The bank's aim is not to decrease the amount its employees are paid, but rather to ensure that their pay packages are structured in a way that does not encourage them to take excessive risks.
- For instance, a greater proportion of Royal Bank employees' compensation will now be deferred, and managing directors will be required to own a certain amount of shares in the bank.
- When it comes to calculating bonuses, the bank intends to pay more attention to how employees reached their results, not just what their results were.
- The bank is paying more attention to non-financial measures in part so it can take into account the amount of risk employees take on to achieve their financial goals.
- ln addition, RBC told employees it is in the process of finalizing a claw back policy, for cases where misconduct or a failure to abide by proper procedures results in a loss or the need to restate financial results.
Canada - say goodbye to your bankers. We welcome them with open arms. And open wallets via taxpayer subsidization and backstop. We'll call it "free market capitalism" to boot (tee hee)
Give me your tired, your poor, your huddled bankers yearning to breathe free....
(hat tip to Canadian reader Steve for the news)
I also had a buy limit order in Fuel Systems Solutions (FSYS) at $31.25, fell to $32.88 yesterday... up 10% today. Grrr...
For the overall market, its a very simple binary world right now. If the dollar is down, risk assets rise across the world. If the dollar is up, risk assets stagnate (or once in a blue moon fall). With all these PhDs programming quant programs you'd think they'd come up with something a bit more sophisticated than that, but really that is all the market has turned into... an "and if" statement. How lame.
Talk about an ugly chart:
Keep in mind year ago figures in almost every business are going to be VERY easy to compare to since the world was in hibernation while watching the US financial system nearly implode. So if we are going to rocket up stocks on nothing other than year over year comparisons October 2009 is going to be a wonderful month. It does appear analysts STILL are way behind the ball and since the stock market is all about "beating expectations", that should bode well for a lot of those. How much of that relatively obvious observation is already "priced in" is what is unknown.
- Car dealership chain CarMax Inc. said Tuesday its fiscal second quarter profit surged on higher sales and a one-time gain related to its auto financing business. The results topped Wall Street estimates and its shares jumped more than 10 percent in early trading.
- The Richmond, Va.-based company that predominantly sells used vehicles said it earned $103 million, or 46 cents per share, for the three months ended Aug. 31, compared with $14 million, or 6 cents per share, a year ago.
- The results included a net gain of 10 cents per share related to its financing division.
- Sales rose 13 percent to $2.08 billion from $1.84 billion in the same period last year. Sales at stores open at least a year rose 8 percent during the quarter.
- Analysts surveyed by Thomson Reuters, on average, expected a profit of 18 cents per share on $1.77 billion in revenue.
- While used cars didn't qualify under the federal Cash for Clunkers program that gave rebates for junking older cars and buying more fuel-efficient vehicles, Folliard said the summer program resulted in a spike in traffic in late July and August. (you're welcome)
- Used vehicle sales rose 9.6 percent, while new vehicle sales fell 18.5 percent, the company said. The average selling price of its used vehicles increased 5.6 percent, while gross profit per vehicle increased 13.4 percent to $2,120. (the last number is especially impressive)
- Expenses for the second quarter fell 3.1 percent to $218.1 million compared with the year-ago period due to lower advertising spending and efforts to curb store and corporate overhead costs, the company said. (read: chop, chop, chop) For the first half of the year, the company has lowered its expenses by 9.4 percent, or $43.8 million, compared with the year-ago period.
- Over the past year, the company has curtailed its store growth in response to the current economic environment, but has said it is committed to resuming its long-term plan of growing its store base at annual rate of about 15 percent.
- The company's auto financing arm reported income of $72.1 million compared with a loss of $7.1 million in the year-ago period, due in part to an increase in the value of bonds the company holds. In the year-ago period, CarMax saw adjustments related to loans that originated in prior fiscal years, mainly due to projected losses on defaulted loans.
Retail Investors Continue to Wade into the Deeper "Risk" End - Emerging Market Stock and Bond Funds, Energy / Technology Sector Funds Among Favorites
Quite an interesting tug of war here - Ben Bernanke has an all out war on savings / cash holdings with his destruction of savings / CD rates. But the institutional crowd simply has to be salivating as they watch the retail guy file in, lockstep. Ooooh... drama.
- Mutual-fund investors' confidence in the markets appears to be rising, with several fund categories seeing their biggest inflows of the year in the latest week.
- Global and emerging-markets bond funds, as well as global stock funds and sector funds, saw the highest inflows this year during the week ended Thursday. At the same time, money-market funds had their second-biggest weekly outflows this year, according to Boston fund tracker EPFR Global.
- The week saw about $3 billion flow into sector-specific stock funds, with commodity-sector funds taking in $1.1 billion, their highest inflows since EPFR Global began tracking them in 2006. Real-estate-sector funds took in $925 million, a 2½-year high. Mr. Wilson suggested that part of the attraction of these funds is as a hedge against possible inflation.
- Emerging-markets bond funds saw inflows of $540 million, an 87-week high. Other categories with inflows were global bond funds, high-yield (or "junk") bond funds, financial-sector funds, energy-sector funds and technology-sector funds.
- Mr. Wilson said flows into international funds, especially emerging markets, were due to investors chasing performance. Latin America stock funds are up more than 80% this year, according to Morningstar, while emerging-markets bond funds are up almost 30%, lagging behind only high-yield bond and bank-loan funds in fixed-income performance.
- Money-market funds continue to see outflows, with more than three-fourths of inflows from last year pulled out this year, said EPFR Global, which estimates year-to-date outflows are $332 billion.
Color me incrementally more worried, with the caveat: "if old rules have any bearing nowadays".
p.s. speaking of institutions and the retail guy, Zerohedge shows suspicious call option activity ahead of the Perot Systems buyout. Par for the course SEC, maybe look into it?
Last week we mentioned a video we found (I still don't recall how I stumbled upon it) [Sep 17: YouTube - Debtors Revolt Begins Now] in which a woman goes on a relatively discerning rant on the actions of credit card companies, in terms of unilateral rate increases. Well, apparently this video spread like wildfire and it caught the attention of some top honchos at oligarch Bank of America (BAC).
The Huffington Post reports from there
- Two weeks ago, Ann Minch of Red Bluff, Calif. announced in a YouTube video that she'd launched a one-woman "Debtors' Revolt" and would refuse to pay off her credit card balance after an unfair interest-rate hike. Now, after her video made a huge splash, Bank of America has agreed to reduce her rate.
- Minch said in a video posted Saturday that a Bank of America executive contacted her on Friday. "He asked me to talk a little about my personal financial situation so we can negotiate some kind of agreement in regard to my existing credit card account," she said. The executive "tried to get me to agree to 16.99 percent and I said, 'No, nope, I believe because you guys are getting your money from the Fed at zero percent interest... that 12.99 percent is a more than generous profit margin for you guys.' So he did finally agree to that and he also agreed to send me that in writing." (Her rate had been 12.99 percent for a long time before it shot up this year.)
- Minch's first video has been viewed over 240,000 times. After the Huffington Post featured the 46-year-old stepmother of two in a story, she found herself inundated with media requests from the likes of NBC, CBS, Fox News and also a local reporter.
What is hilarious is the Bank of America executive's reason for the raising of the rate was completely arbitrary versus what the customer rep told her a few weeks ago. We know the truth sir - you are raising rates across the board ahead of new regulations coming in 2010. You just won't admit it... parry, thrust, deflect, and profit.
p.s. somehow Karl Denninger got a plug at the end of her newest video - what a small, small world... after all.
Monday, September 21, 2009
The developed world, which for decades has offered a difficult but promising path to upward mobility, appears to be losing its allure. Unemployment is rising, and backlashes against foreign workers are mounting. The result is potentially the biggest turnaround in migration flows since the Great Depression, economists say.
High-skill immigrants are an important source of tax revenue in some cities, and their kids fill the classrooms of universities and private schools.
Now it has hit the States. I suppose on the plus side, in the short run as these high intellect workers leave the country that leaves job vacancies Americans can fill. Unfortunately, many of these people were creating some of the few real (non bubble) type of jobs in the small and medium sized business area. (aka not too big to fail, but too small to care about)
.... immigrant inventors contributed a quarter of global patent applications from the U.S. in 2006, while 52% of all Silicon Valley start-ups between 1995 and 2005 were started by immigrants.
Surely we don't want people like this in our country; instead we need more restaurants, Walmarts, law offices, and government offices. Frankly with all the money we are handing out left and right, I'd much prefer to take some of the money we are stealing from future generations and rather than give to Americans to spend on cars, homes and appliances... try something different. How about creating some luxurious tax advantages for any of these foreign top end minds who stay after university (or come from overseas) and can create actual businesses, with new jobs, that last at least 3 years. I'd be happy to shower them with money once they do that, since the long term halo effect would be far greater than handing people money to buy a depreciating asset the second it rolls off the lot. But I appear to be old school with the crazy thought that a country actually needs jobs, rather than government taking from 1 citizen to give to another, with a Fed running printing presses in the background to create "wealth". I have yet to learn the new paradigm economics. So my chances of being elected on such a platform would be zilch.
Therefore let's go with the alternative: MORE HANDOUTS it is! Free money! Elect me! :) Ben print more money from thin air! Create wealth for us all! Boo yah.
- More skilled immigrants are giving up their American dreams to pursue careers back home, raising concerns that the U.S. may lose its competitive edge in science, technology and other fields. (science? math? pshaw - that's what Asians do. We'll always have humanities! Political science! And law!) "What was a trickle has become a flood," says Duke University's Vivek Wadhwa, who studies reverse immigration.
- Wadhwa projects that in the next five years, 100,000 immigrants will go back to India and 100,000 to China, countries that have had rapid economic growth. "For the first time in American history, we are experiencing the brain drain that other countries experienced," he says.
- "If the country is going to maintain the kind of economic well-being that we've enjoyed for many years, that requires having these incredibly gifted individuals who have been educated and trained by us," he says.
Anecodotal example time:
- It wasn't the U.S. economy that convinced Tao Guo to leave the USA. It was the Chinese economy. After 24 years in the United States, the 46-year-old naturalized citizen moved to Shanghai in December to take a high-level position at WuXi AppTec, which does research for pharmaceutical and biotechnology companies.
- "They see much more promise in the economic future of those countries," says Charles Hsu of Bay City Capital in San Francisco. "There's also a chance for them to move ahead much more rapidly in their careers." At WuXi, 80% to 90% of senior managers returned to China from other countries, mostly the USA, says Rich Soll, vice president of medicinal chemistry.
- "I had a lot of enthusiasm and was very eager to work for this country. It's all fizzled out. It seems I'm not wanted," Dutta says. "In 10 to 15 years, I could be much better off in terms of position as well as money in India."
So what are the reasons for these this reversal?
[Breaking: *dogma alert*]
We pause this regularly scheduled posting to bring you dogma: I say we blame taxes in America. It's a very easy thing to do and fits in a 15 second sound bite I can play every 8 minutes to distract the peasants, and take attention away from true root causes that actually require thought, conversation, debate, and introspection. Perhaps even soul searching. Taxes as the sole cause it is!)
[End of *dogma alert*]
- ... the exodus has less to do with the faltering U.S. economy than with other factors:
- (1) Career opportunities. At NIIT, an information technology company based in New Delhi, about 10% of managers in India are returnees, mostly from the U.S., says CEO Vijay Thadani. Most go into mid- to senior management and make "excellent employees," he says. "They're Indian, so they understand India, and they have lived outside the country."
- China's government entices some skilled workers to return with incentives such as financial assistance and housing, says Wang Baodong, spokesman for the Chinese Embassy in Washington. "China needs a lot of well-trained personnel" in fields such as finance and information technology, he says.
- (2) Immigration delays. Multinational companies that belong to the American Council on International Personnel tell Executive Director Lynn Shotwell that skilled immigrants are discouraged by the immigration process, she says. Some can wait up to a decade for permanent residency, she says. "They're frustrated with having an uncertain immigration status," she says. "They're giving up."
- (3) Quality of life and family ties. People return to India to reconnect with their families and culture, Dutia says. "They have a support system there, family and friends."
- Purchasing power is greater, he says, which allows returnees to afford more luxuries than they did in the U.S. Dutia describes a complex of "magnificent homes" in Bangalore. In the club room, there were "all these Americans and Europeans and expats on the treadmills with iPhones, watching CNN and BBC," he says. "Things have changed."
Dogma - good for the soul and a convenient way to keep one's head under the sand. Root cause discussion would make me lose my chance at election... as Jack says "we can't handle the truth".
- If you call the Chicago office of the Bruce Fund (BRUFX), chances are one of its two co-managers—Robert Bruce or his son, Jeffrey Bruce—will pick up the phone. They are, after all, the fund's only employees. [Disclosure: I think my father is still an investor in Bruce Fund, he was a few years ago]
- Jeffrey Bruce thinks that knowing the fund's success depends entirely on him and his father makes a difference. "If you have your name on the door, you tend to care a little more," he says.
- The Bruce Fund is a classic case of what might be called the boutique-fund effect: Small, often family-run mutual fund shops can produce superlative returns. This is especially true if the shop runs only one fund. Instead of selling a multitude of investment products that cover just about everything under the sun, managers at single-fund boutiques devote all of their time and energy to making their one fund succeed. For such managers, running a fund isn't just a job. It's their primary business, their lifeblood. If that fund fails, so does their business. (Amen)
- Since their livelihoods are at stake, boutique managers tend to be more risk-averse and holistic in their approach to investing. Instead of investing in a specific sector and trying to beat a specific benchmark, managers often aim to make money any way they can and to keep losses to a minimum.
- They pursue what is called "absolute returns." This requires a more flexible investment style than big fund shops generally allow. A manager may invest in, say, Treasury bonds during a bear market and tech stocks or junk bonds during a bull run.
- Like the Bruce family, the Sheers practice a flexible, go-anywhere style and try to capture all of the stock market's upside while suffering less of its downside by hedging their positions or going into cash.
- "My father has always worried about the downside," says Adam Sheer. "When most people walk into a crowded theater, they think: 'I wonder if this is a good movie.' He thinks: 'My god, what if there's a fire?'"
Of course, if your business model is simply to sit as a receiver of globs of money that come in on a weekly basis via 401k contribution, all you care about is getting big, bloated and "fitting inside of a Morningstar box". Losses are not a big deal, as long as your competitors lose a lot as well; you still did "relatively" in line with the pack. As long as you return +/- 1 to 2% the index you are tracking (and close to your peers) you are good. You win, and you win big as you acquire more and more of the country's assets under the guise of stability, when you are in fact, adding little to no value over an index fund. It's actually one heck of a business... but perhaps not such an excellent arrangement for the investor.
- The best boutique managers invest heavily in their funds. "All my liquid assets are in the fund or in separate accounts managed in the same style," says Adam Sheer. The same is true for the Bruce Fund. "My father is the largest shareholder in the fund, and I am No. 3 or 4 if you include my wife and kids, who are also invested," says Jeffrey Bruce.
- Many boutique funds, including the Bruce Fund, must be bought directly from the company.
- If the funds have a drawback, it's that small, undiscovered funds may not gather enough assets to survive. Unsuccessful funds can get liquidated quickly, perhaps not giving managers enough time to prove themselves.
- But the flexible approach of many of these funds, as well as the large personal stakes their managers often have in them, help tilt the odds in their favor.
So somehow I've done this backwards - the "fame" before the fortune ;)
- [Oct 28, 2008: Pooring of Japan Too?]
- [Jul 29, 2009: Japan's Herbivore Men - Young American Men's Future?]
- [Nov 17, 2008: Poverty, Pension Fears Drive Japan's Elderly Citizens to Crime]
- [Feb 26, 2009: NYT - When Consumers Cut Back - An Object Lesson from Japan]
- [Feb 8, 2009: NYT - Japan's Big Works Stimulus is a Lesson]
Second, it speaks to the larger question of what is the economy for? In the U.S. we've adopted the "live to work" culture (dog eat dog), whereas in greater (Western) Europe one could argue a "work to live" culture has developed. In those European states, in return for a much more difficult time in creating great wealth and higher taxes, the "middle" has a much more stable lifestyle. What price less stress and 6 weeks of vacation? Japan has been somewhere in between... however, many American principles were adopted in the past decade to try to push them out of a 2 decade economic malaise - but having failed at that and instead creating a massive temporary (nomad) workforce and a striking gulf in income disparity, Japan now seems to be pushing more to a European model. Which raises a few questions in and of itself for the States and frankly people in most 1st world countries. Especially if innovation cannot create enough work domestically to compensate for jobs that have been punted to low wage countries. (and will continue to be)
While easy to dismiss we'd follow anything similar to Japan (the cultures are so very different) you'd also never think we'd adopt zombie banks, new stimulus programs on a now 180 day basis, and the like. The dogma of "we are not Japan" sort of rings hollow in many veins when we've followed so many of the same "solutions" post crash that they did. And one could argue, we've gone even farther "all in".
The larger question for the States, as is being asked in many developed countries, is where can you place this class of worker whose jobs have been permanently displaced? Only so many people can be government workers, health care workers, lawyers, accountants, and doctors. And only so many "service jobs" can be created to service those higher wage occupations. We cannot just simply blow new bubbles on 4-6 year cycles to create non sustainable work indefinitely (although we are trying) [Aug 14, 2009: No New Normal Say Some Economists, Prosperity Without Jobs?] And our manufacturing base has been hollowed out, with no economic incentive to bring that work back domestically. So what will we do with these people while we await the Chinese miracle of middle class ascendancy which somehow will create tens of millions of new jobs in America (per dogma). I don't know the answers - I am simply asking the questions.
|Industry||Change, May 1999-2009|
|(thousands of jobs)*|
|Food and drinking places||1567|
|Professional and business services||885|
|Gov except health and ed||843|
|Arts, entertainment, and recreation||188|
|Transportation and warehousing||-43|
|*Gov health and gov educ based on April 2009 estimates|
As an aside, if you are not familiar with what has been happening in Japan, a landmark political victory just happened - one ruling party that had been in power for decades was finally displaced. Put another way, once the citizens were stretched to their limit, a form of "revolution" did happen. Keep this in mind for 10-15 years out in the States.
Via NY Times
- Every day, the impeccably dressed “elevator girls” of Tokyo’s Odakyu department store greet customers, ushering them in and out of the cars. During breaks, they practice their greetings and meticulously reapply their makeup. Critics see the women as the embodiment of this country’s productivity problem — squandering of one of the world’s best educated labor forces on banal jobs that do little to make the economy grow.
- But others, including the Democrats, Japan’s new ruling party, see them as beneficiaries of a more humane capitalism, a capitalism that values employment and stability over growth.
- Japanese manufacturers taught the world to be competitive — reshaping the landscape in industries like cars and electronics, and introducing a vocabulary of quality and efficiency that became a mantra on business school campuses and shop floors. But productivity growth in Japan’s service sector has slowed in recent years, weighing on the labor productivity of the entire economy, which ranks only 18th among the 30 countries in the Organization for Economic Cooperation and Development and just 70 percent of levels in the United States.
- With the service industry making up 70 percent of Japan’s economy ("we're not at all like Japan"), and manufacturers battered by the global slowdown, economists say Japan’s ability to emerge from the worst recession since World War II will depend partly on its ability to make its service sector more productive.
- But Yukio Hatoyama, the leader of the ruling Democratic Party, bases his political philosophy on what he calls “fraternity,” meaning empathy with workers, rather than concern for corporate profits.
- Hirohisa Fujii, a leading contender for finance minister when Mr. Hatoyama announces his cabinet this week, has criticized even some of the moderate changes made by the departing Liberal Democratic Party.
- “Market economics is supposed to make a lot of people happy by letting skilled people fully utilize their skills,” Mr. Fujii, an elder statesman and former finance minister, wrote in a newspaper column last year. But recent pro-market changes in Japan “did not make everybody happy,” he said. “ That must be corrected, and we must build a politics led by the people.”
- Evidence of low productivity in the service sector is everywhere: office workers still pour over paper files; a veritable receiving line of security guards and receptionists greets visitors at building entrances; and Japanese retailers employ twice the average number of workers per outlet as their peers in other Organization for Economic Cooperation and Development countries.
- Mr. Hatoyama is especially critical of changes championed by the former prime minister, the pro-American, free-market Junichiro Koizumi. Among other things, Mr. Koizumi took aim at Japan’s stagnant labor market, lifting a ban on the use of temporary laborers at factories.
- He hoped to increase flexibility in hiring at Japanese companies, many of which are saddled with more employees-for-life than they need, protected by labor laws and social norms. The inability to fire these redundant workers even in lean times keeps productivity at ailing companies low, while hurting upstarts that could use experienced workers.
- But critics blamed those changes for a widening income gap between lifetime workers and their poorer “temp” colleagues. (sound familiar?) The number of temporary workers, with low pay, few benefits and little job security, has surged in the last decade, reaching a third of the work force of 67 million. (again, sound familiar?) The plight of temporary workers let go en masse in the fallout from the global financial crisis has prompted a public outcry.
- “People started to see high levels of economic inequality. The quality of jobs started going down, and there was a growing number of temporary workers,” said Steven K. Vogel, a professor of political science at the University of California, Berkeley.
- A cautionary tale, repeated by market proponents and opponents, is about QB Net, a start-up that took on Japan’s highly regulated barber market 10 years ago. QB Net’s string of super-efficient shops took the market by storm by offering quick haircuts for 1,000 yen, or about $10. Last fiscal year, the company logged sales of 6.73 billion yen, while the rest of the industry slumped.
- Threatened, a nationwide association for barbershops called for more regulation. Among other things, the association argued that it was unclean for QB Net to offer haircuts to clients without first washing their hair; soon, ordinances were passed across the country requiring all barbershops to install shampooing facilities, an expensive investment that slowed QB’s growth.
- “It’s not right to be penalized for being successful,” said Kazutaka Iwai, chief executive at QB Net. “We simply came up with a way to be more productive.”
- Others, however, argue that Japan’s traditional barbershops, though outdated, are worth saving. These tiny salons have consistently employed about 250,000 barbers for three decades, and the shopkeepers are often central figures in a kind of community life that many Japanese fear is being lost.
- “There are many structural factors that may influence the relationship between productivity and social welfare,” said David J. Brunner, a Japan specialist and research associate at Harvard Business School. “So firms should fire their excess employees and leave them feeling betrayed and worthless, and without income? That certainly would not contribute to economic growth or the general welfare.”
(1) Economy Recovering but Still Plenty of Time for Government to Blow It
Even the most bearish pundits are sounding a bit more optimistic lately: Specifically, they are grudgingly admitting that we may have avoided another Great Depression.
But they quickly point out that we may still steaming full-throttle toward doom, this time as a result of the Fed and Congress removing the cheap money and spending stimulus that saved our necks.
Martin Wolf of the FT, for example, thinks the government will have a devil of a time managing this transition smoothly.
Right now, banks are printing money courtesy of subsidized borrowing rates from the Fed. They're also dumping their crappy mortgage assets on the Fed's balance sheet in exchange for fresh cash, thus avoiding further asset write-downs. As soon as the Fed begins to reverse these measures, banks may come under pressure again.
Worse, the Fed is still buying mortgage securities in the open market, thus helping to keep mortgage rates low. If the Fed abandons this crutch, mortgage rates could rise, putting new pressure on the housing market.
Lastly, the government's fiscal stimulus, which has driven some of the rebound in GDP in the last two quarters, will start to peter out in 2010. (my comment: this of course assumes there is not more stimulus coming, which I believe there will be... lots of it)
Meanwhile, unemployment is nearly 10% and GDP is nearly 4% below its peak. Until hiring resumes in earnest, the government and Fed will likely remain under intense pressure to keep their foot on the gas--lest they snuff out the incipient recovery. On the other hand, if they wait too long, they'll risk a bout of severe inflation.
Whatever happens, Wolf thinks it is highly unlikely that the Fed and Congress will get it just right.
(2) Too Big to Fail, Regulators Learned Wrong Lesson from Lehman's Fall
A year after the failure of Lehman Brothers, global regulators are still dealing with the aftermath and struggling to learn the lessons of the great panic of 2008.
Martin Wolf, chief economics commentator at The Financial Times, says letting Lehman fail was the right course, if only because it forced regulators to "grapple with the crisis properly." The steps taken in Lehman's wake ultimately stabilized the global economy and reinvigorated the financial markets -- at least for the time being, Wolf says, as we discuss in more detail in a separate segment.
But Wolf fears regulators learned the wrong lessons of Lehman's bankruptcy, i.e. that they can't ever allow a large financial institution to fail.
"That's unworkable," Wolf says. "How can you have a capitalist financial system in which all the major institutions are government guaranteed?"
The "right" lesson of Lehman's failure is we need a new set of rules and regulation "which allow us to close down institutions which are in fact failed without causing a panic of this scale," Wolf says." I believe that will be possible to do."
Stressing the need for a "credible bankruptcy option" for big firms, Wolf describes the basic framework for these rules in the accompanying clip.
But even as he's advocating new rules and regulations to change the "too big to fail" doctrine, Wolf cautions against overzealous regulation, such as the Fed's reported plan to strictly curb compensation at major financial firms."There's a genuine concern about the structure of compensation and the incentives it creates," he says. "But I think we have to be realistic: We cannot expect regulators...to run these giant institutions. We know regulation is going to fail...Financial people are very clever at finding ways around the rules and generating new risk in the system."
(3) We Could Be Headed for Worldwide Inflation
Thanks to unprecedented central bank intervention and massive stimulus programs, the global economy is no longer teetering on the edge of a cliff. "There's no doubt we have come through this in the short run very, very well," says Martin Wolf, chief economics commentator at The Financial Times.
That's not to say all is well. A year after Lehman's fall, Wolf questions if we have a "truly healthy financial system" to keep the recovery alive. Even if the economy continues to rebound, "it's going to fell quite depressing, [with] high unemployment" for several years to come, he claims.
And, that's not to mention, the biggest risk of all: inflation.
Short to medium term, deflation remains the top concern, but Wolf acknowledges that could change on a dime if investors decide "the U.S. government and British government will never mange their public debt problems." If that happens, "then there could be a real flight from these currencies and that would generate as it did in the 70s, worldwide inflation," Wolf says.
Inflation, recessions, a bear market… and bell bottoms. I doubt anyone wants to relive the 1970s.
- BHP Billiton, the world's largest miner, has built up about $18 billion in cash during the last year and expects to use some of it, along with additional borrowings, to acquire large rivals, possibly setting in motion a new round of acquisitions in the mining sector.
- BHP, which launched the last major cycle of industry mining mergers when it went after its chief rival, Rio Tinto in 2007 with a $68 billion bid, said it has identified "four or five opportunities", all large mining, oil or gas companies, or assets in those sectors, more likely in mining. It would expect to make a move within the next 12 months.
- "We have no pressure to do it. But I can tell you we have done a lot of work," said BHP's Chief Commercial Officer, Alberto Calderon, who is spearheading the company's acquisitions efforts. "Out of this crisis, we would like to put our balance sheet to work. At some point, you have to put your money where your words are," said Mr. Calderon.
- Mr. Calderon said that BHP has set aside about $10 billion this fiscal year, which began July 1, for development of new projects and expansion of existing ones.
- Mr. Calderon declined to name potential targets but said the company wanted to expand in certain commodities: iron ore, copper, coking coal, petroleum and potash, which is used as fertilizer. (all make sense to core competency)
- BHP wants to move relatively quickly, before the economy picks up more strongly, causing prices to increase and assets to become more expensive. It used the same strategy in 2001, when BHP and Billiton combined into one company, which was well positioned to profit from record commodity prices.
- U.S.-based Freeport-McMoRan Copper & Gold Inc., the world's largest publicly traded copper company, is a possibility, say some analysts. It has some lower-cost copper assets and sizeable gold operations. With a market capitalization of $29 billion, Freeport would require a sizeable offer but smaller than BHP's offer for Rio Tinto, which ultimately fell apart when the two sides couldn't agree on price.
- Another potential target is Potash Corp. of Saskathchewan Inc., Canada. Potash is considered a growing market because of the need for fertilizer to grow more food.
- BHP could have its eye on Anglo American PLC and Xstrata PLC, two mid-sized miners. But those companies may not offer enough synergies in terms of geography and product, say some mining analysts. (Xstrata often linked to BHP)
- Anglo, which is struggling and selling off assets, is a large producer of platinum, which requires deep excavation and can be dangerous. BHP has said it's not interested in mining platinum.
- Xstrata is heavily invested in coal and a combination with BHP could trigger regulatory issues because of BHP's portfolio of coal.
- Brazil's Vale SA is an unlikely target because it is partly owned by the Brazilian government, which analysts say would be reluctant to cede to foreign ownership and control.
- BHP has said that it wanted to generally stay near existing assets and in countries where conducting business is easier and more predictable.
- More attractive are assets in Australia, U.S., Canada, Chile, Indonesia and Colombia.
[Aug 12, 2009: BHP Billiton - No Quick Recovery Coming, but Cash Flow Enormous]
[Nov 13, 2007: Chinese Worried About BHP Billiton/Rio Tinto Deal]
Long BHP Billiton in fund; no personal position
Sunday, September 20, 2009
To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.
Cash: 73.9% (v 68.4% last week)
23 long bias: 16.5% (v 16.7% last week)
7 short bias: 9.6% (v 14.9% last week) *includes long term puts
30 positions (vs 33 last week)
Groundhog week - the markets almost performed identical to the week before, albeit it in a 5 day week rather than 4 days. All positive days except for 1 "correction" day, which is marked in red below - as you will see the corrections are nothing but a 1-3 point dip in the S&P 500.
At this point the action strikes me even more bullish than NASDAQ 1999... we had a similar type of rally in terms of "up" but even within the constant waves of rallies we experienced some very volatile down days where you could drop 2% in a session just as easy as go up 3%. (of course you bought all those dips because the market could only go up) Now? A month ago we were talking about a string of 18 out of 20 sessions where the S&P was either up or down less than 0.5%. Currently, we have a new string of 10 out of 10 with the same conditions. The charts remain bullish and the only negative is that everything is so bullish ...
It's a relatively quiet week for economic reports, but whatever we do have = we'll use as the 29th consecutive week in which we will buy the news and be "surprised" by it. So play along. Leading indicators will push us up Monday. Tuesday is quiet - generally we'll sit on our hands awaiting the results of the 2 day Fed meeting which will be announced Wednesday afternoon. But don't let that stop you from buying the market at 3:30 PM for the now traditional 30 minute rally into the close. Thursday is the weekly unemployment claims which are to be ignored ("backwards looking") if they are bad, and embraced if they are good. Either way buy on the news. Existing home sales also come Thursday which should be a barn burner as Americans mistakenly think this 1st time home credit will be ending November 1st. Sorry folks - this party is just getting started - more handouts to go, but most likely we'll see an unnatural rush as people think "Cash for Clunker Homes" will sunset and it's time to buy now to take advantage of fellow citizen largess. All the same thought processes for new home sales on Friday.. and we'll also get durable goods order which will surge on Cash for (Car) Clunkers fallout. All in all, the same old story - where the government is flushing the economy with cash (i.e. everywhere) be surprised by economic reports, and buy stock. The only place the government cannot fix by generational debt arbitrage (take from the future to give to the now) is unemployment and with that, you ignore it and say the economy does not need jobs to prosper. Which is technically correct, when government handouts are the driving force for an economy.
Let me reiterate a statistic I posted last week, if the next 6 months are like the last 6.5 months we'll pass through all time highs in the market by mid winter (mid 1500s on the S&P 500), and get over S&P 1700 by March 1st. I ask every week when valuations begin to matter again - it appears "not yet" is the constant answer. As I watch companies "beat their numbers" I can't help to note many are seeing profits at 50%+ below year ago levels, but their stocks no longer are 50% down - which can only mean one thing: "P/E multiple expansion". Which is a fancy word for "there is too much paper money in the world chasing too few opportunities, and hence into speculative assets they will go."
For the fund, I look like I am positioned "bullishly" but really it's been forced to some degree. We finally cried some uncle the past 6 sessions and started covering some short positions in full. After closing out a short on PPG Industries (PPG) the Friday before last, we were forced out of Caterpillar (CAT) and Riverbed Technology (RVBD) Monday. Should of listened to myself on RVBD Monday when I said technically with that break over resistance the chart went into bullish condition and it was a chance to go long.
So on the short side, when the day comes the market actually falls in any material fashion we'll simply be using a large cash position to benefit, or try to throw some puts on in the very short term. On the long side, we closed out long GeoEye (GEOY) for complete and utter boredom reasons. We took some profits in RF Micro Devices (RFMD) - up by a third in just a few weeks, and Blackstone Group (BX) - up by a fifth in as many weeks, and otherwise just held course. I have a host of limit buy orders sitting outstanding for either new positions or to buy back some portion of current positions at lower prices, but for those to execute would require the market to go down more than 0.3%.
Last point on the portfolio, as I look at it - each and every long position is in the green except for an index long I put on late Friday. It is hard for me to believe I am so sharp that no matter what I buy, it goes up. I mean that is Goldman Sachs good... approaching 100% success on long positions. But that's the situation right now - throw a dart, make yourself a winner. I had an interesting email exchange today with a reader who wrote (to paraphrase) "the real test for you will be when the market goes sideways or down." To which I replied... no, that is actually the type of market I would thrive in. This type of market is a real test for me, because the "buy and hold, cash is trash" mutual fund crowd loves this market that only goes in 1 direction (up) and every dip is bought frantically and 94% of all stocks are a winner. *That* environment is actually very hard to keep up with running any sort of hedged portfolio. Inversely, when the market falters or at least is range bound, those type of "all in" investors generally struggle to outperform. But I found it an interesting comment.
So in summary, everything I buy long makes us money - everything I short loses money. Clearly this is (ahem) "a stock pickers market" as they like to say on financial infotainment TeeVee. So as I survey new purchases this week I'll take my trusty dart board, and slew of darts and get to throwing, while swigging a mug of "Complacency". Everyone's drinkin' it... it's good for you.
Off tangent though of the week: What happened to hurricane season this year? Did the constant carpet bombings of paper money by B52 bomber create a tsunami of air flow outward from the continental US, pushing all tropical storm patterns away from the U.S.? Bernanke is like a deity with his powers. The only reason I mention this is natural gas flew off the handle last week, up 26%. Now up 50% since early September. For no good particular reason. Storage facilities of natgas are about to go "full" in the coming months yet prices fly up. Uhh, supply and demand anyone?
Well there is 1 reason for a convenient rally - a lot of people buy natural gas in August to sell in September or October when hurricanes threaten. That's just the "playbook" by institutions. But now, you can make tons of dough on these things even when the hurricane doesn't show up. There doesn't even need to be a catalyst to bail these folks out of their positions. It is almost like a certain group of very high powered investors, who (allegedly) bought up a ton of natgas positions (due to historic precedent) can make the commodity go up (allegedly) even without a catalyst so they could get out of their positions for nice profits (allegedly). Almost as if pre ordained to get a 97% winning percentage. Or maybe it was Hurricanes Void & Nil I just missed....
Best Of FMMF
- 1: Warren Buffet Piles on Europe
- 2: [Video] Jim Chanos Returns from Europe, Even More Bearish on China
- 3: A Chart to Open Our Eyes - Staggering Changes by Multinationals in Employment Behavior 00s vs 90s
- 4: Futures Blasted on Dexia Woes... and Poor Preliminary China Data
- 5: Market Working to Worst Thanksgiving Since 1932
- 6: Et Tu, German Bonds? Poor Auction Raises Eyebrows