Comments on Fund My Mutual Fund: WSJ: Borrowers Keep Piling on Debt

here is 1 example of what I mean; I wasn't directl...

2008-04-10T19:02:00.000-04:00

here is 1 example of what I mean; I wasn't directly looking for this - just stumbled upon it while reading something else.

So US mechanic makes $52K
Offshored mechanic makes starting salary $4500 to max $15K

http://tinyurl.com/3uzwpk

Just no way to compete with that. But its very good for mechanic in that country, not so good for US mechanic and over time the 2 wages begin to move towards each other. This is what is incrementally happening in many industries quietly and why laborers will have a very difficult time to ever get sustained wage increases over the now expected 3%....

Guy, I am afraid (my personal thesis, I am hopeful...

2008-04-10T17:22:00.000-04:00

Guy, I am afraid (my personal thesis, I am hopefully wrong) that short of hyperinflation in the US we will *never* see sustained wage inflation (over the normal 3% or so that is now expected)

Reason #1 - I believe in a reversion to mean of wages across the globe - not that they will equalize but they will get closer (especially in less specialized jobs or labor intensive work) i.e. Indian consultants are seeing 20% wage increases as competition for their services increases. US guys are getting 3%. Over a decade the Indian guy would catch up, so at some time it would slow the pace as with cost of living in India the wage wont need to equalize to the US worker for similar lifestyle. (or superior lifestyle in fact in India). Even more stark contrast in blue collar. Example - union contracts in auto - as guys retire their $30/hr job (with great benefits) is being replaced by $14/hr (with decent benefits). Sounds harsh - $14K is about $30K a year. But it's either that or enter the "service economy" and make $9-$11/hr. So while old timers shake head, the new era of blue collar is "thankful" and lined up the door for these $14/hr job. And if not thankful? This job gets moved to China for $0.50/hr. Etc. So $0.50 is not $14/hr of course - but the threat of it is a powerful bargaining chip for jobs that can be offshored.

This is something that is good for humankind as people wages across countries become more equal (relatively) but it is best for people in up and coming countries (who have long been BELOW the mean) and worst for those in developed countries (who have long been ABOVE the mean)

Second reason - as our 2 major social programs (SS but mostly medicare) take up more and more of national budget that leaves less money for everything else in federal govt. They will never cut back on defense so either things will get cut or taxes will go up. That generally bodes poorly for state and local govts - so that will in the long run cause cut backs in those places - either in jobs or wages. Or both.

Third - one 'safe' area that cannot be outsourced is healthcare. But again as healthcare spending jumps from 18% of GDP to 50% in 7-10 years, and on the way to 100% of GDP it will eventually need to change. And costs become reigned in. Meaning wage cuts. Also some Americans are flying to India/Thailand for healthcare - they can fly their and back and get the surgery and then even throw in a 7 day vacation for about $20K. Which is about 8 hours of time in a US hospital. So don't believe healthcare cannot be outsourced.

In a global world where capital and increasingly humans have no boundaries, money will flow to the cheapest labor and goods. This is why many people from Indonesia, Philippines, etc work in Dubai building their infrastructure. Or Mexicans come to US to do work "Americans won't do". Borders will increasingly mean nothing. I was reading 3-4 years ago, that many homebuilders were using architects from Romania and Poland - very educated, speak the language, and do the work for 1/8th the cost. Many small things like that are happening that you cannot change - thats just part of globalization.

Again, great for "mankind" - not so great for those in "not shielded" jobs in countries who have been above the mean for decades.

Multinationals can now literally pick and choose where they want to build plants/headquarters/etc - many countries will compete for these jobs with incentives, no taxes, etc. Thats why i worry about our education system for the long long haul - most multinationals will stay here for now due to history and R&D but as other countries churn out far more scientists and engineers (while we churn out political science majors to be lawyers) that advantage will go away in coming decades. Kids and grandkids will be living in a very different (flat) world - that is only now beginning to be birthed.

I just commented to my wife today when we got our ...

2008-04-10T16:28:00.000-04:00

I just commented to my wife today when we got our umteenth solicitation in the mail to roll over our credit card debt to a new and better card, "people haven't learned anything". Truly amazing.

Food for thought: I wonder if we will ever see wage inflation in this cycle?

I think COF, DIscover, Amex, all of them are good ...

2008-04-10T15:01:00.000-04:00

I think COF, DIscover, Amex, all of them are good obvious choices - just have to time them a bit better nowadays since they've fallen so much since the fall. Quick look at COF shows a double top from early Feb and a few weeks ago, so technically it looks good for a break down. Just remember, every 3-5 weeks when "financials are back" is sung you need to be out, and then keep repeating process for a long time :) Or until house ATM comes back online and people transfer their credit card debt to their home balance like they did the past 6-7 years!

ive been playing this thesis by shorting COF as I ...

2008-04-10T14:56:00.000-04:00

ive been playing this thesis by shorting COF as I think they have the most exposure to both the cc debt and the rising auto loan delinquencies. any other ways you'd recommend playing this that aren't already overextended to the downside?