Happy anniversary baby
Got you on my mind
Hey everybody, I am excited about a big upcoming anniversary. If my wife is reading this, of course I’m talking about my 30th wedding anniversary. For everyone else, I’m referring to the one-year anniversary of the Model T Stock Trends Blog.
I started the blog a year ago to share the Model “T”, which attempts to predict the highs and lows of stock market cycles using data primarily connected to the commercial transportation industry. It also helped me keep my skills sharp as a looked for employment.
My friend Robert who helped me set up the blog page, asked me a year ago, “Who is going to read this?” I said maybe the 15 people who already know about the model and whoever else is interested. But the blog has a readership larger than I ever expected. It is read by people who want an understandable explanation of the economy. It is read by financial professionals in New York who remain curious about the model’s potential. I have received e-mails from readers in India, Sweden and other countries.
After presenting and explaining the model in my initial posts, I delved into factors that impacted the economy and made many predictions and forecasts along the way. The interesting thing about blogging is those predictions “go on the record” and can be reviewed at anytime. And it is now time for a review. So what did readers of the blog get over the past year?
The Losers
Let’s start with the failures. The Model “T” predicted the S & P 500 index would bottom out at around 580 in September or October of this year. So the model has not been accurate the past 18 months. The main reason for this “miss” is that the economic conditions are very unique and the government has injected an enormous amount of support and stimulus to stabilize the economy. I have been critical of Timothy Geithner, but the one thing he has been very successful at doing is stabilizing and strengthening the stock market. And don’t dismiss this. It was a very important factor in controlling this crisis.
The Model “T” has not been accurate in predicting the recent stock market, but none of the other sophisticated models developed by your PhD in Economic experts have worked either. As I have stated before, even some very accurate economic indicators have been rendered useless in this Redression (my new term for the Recession/Depression) So as a marketing person, I can honestly say that the Model T has been as accurate as many of the models developed by respected economists.
The Winners
Don’t focus so much of the content, much of which is obvious now, but when the predictions were made.
- In October 2009 you read that the economic recovery would not be a V-shape, a U-shape, an L shape or a W. It would be a “UL” with a slow, sluggish growth rate after riding the bottom of the cycle. (Almost a year later, this one has been spot on).
- In October 2009 you read that the unemployment situation was unique and pervasive. The number of displaced skilled, white-collar, workers meant that that unemployment would remain high for an extended period of time (some government officials still don’t understand this).
- In November 2009 you read how lack of credit availability was choking the economy and would not improve much until well into 2010 and would not fully recover until 2011. (Count it)
- In November 2009 you read that 2010 GDP would be below 3% and that the housing market despite the government stimulus efforts and low interest rates, would not recover in 2010. Housing starts were predicted to be below 700,000. (GDP is forecast at 2.7% for 2010 and housing starts at 590,000 (Wells Fargo))
- In November 2009 you read that the recession ended in July 2009 (NBER just announced this week that it ended in June 2009. (Okay, one month off but 10 months ahead of the experts).
- In December you read that the government programs to stimulate the economy were not working. In February 2010 this issue was addressed in more detail. (No comment necessary)
- In January 2010 you read that the economic indicators predicted slow, choppy, economic growth in 2010. (Slow and getting choppier)
- In January 2010 you read that this was not going to be an economic recovery as much as it was going to be an economic “healing”. Also, there would be no “double-dip” recession. (The “recovery” hasn’t really happened)
- In March 2010 you read that there was a structural unemployment problem that a typical economic recovery would not solve. (Several economists agreed with me several months later, but the government still doesn’t get it.)
- In May 2010 you read that the recovery was it trouble and there was an economic slowdown ahead. (Swish)
Of course there were other predictions made earlier in 2010, but it is too soon to determine the accuracy of those. The Model “T” would still indicate that the stock market will see a significant drop to compensate for the rally that has taken place the past 15 months, but the market continues to show surprising strength.
I am tempted to boast about the accurate predictions, but my Pennsylvania Dutch upbringing prevents me from doing so. Proud Pennsylvania Dutch boys get sent to bed without any cheese and birch beer! So I will just quote Walter Brennan’s character from the 1960’s western The Guns of Will Sonnett: “No brag, just fact.”
Happy anniversary baby
Got you on my mind
Thursday, September 23, 2010
Thursday, September 9, 2010
What is This Thing Called, Love?
I've been through the desert on a horse with no name,
It felt good to be out of the rain.
In the desert you can remember your name,
'Cause there ain't no one for to give you no pain. (America)
I have previously stated that economists are having a difficult time explaining the current economic situation due to the unusual conditions that exist. In is interesting to note that economists and the government have underestimated the current downturn at almost every point in the process. If you go back and read some of the 2008 quotes of FED Chairman Ben Bernanke and former Treasury Secretary Henry Paulsen about the economic conditions at the time, you find the analyses faulty and the forecasts laughable.
This is not your father’s recession. Unfortunately the government has viewed this as a typical recession and has responded accordingly. Remember that the first economic stimulus program from the Bush administration. Talk about p***ing on a forest fire. Then the Obama administration follows that up with a stimulus package that is less about creating jobs as it is about solidifying and rewarding voting constituencies (never let a crisis go to waste). I really believe they expected the economy to recover regardless of how poor the stimulus package really was. Similarly, Cash for Clunkers and the housing tax credit programs were “gadget” plays to prop up these industries until the economy improved. It’s hope and change all right --- you keep stalling and you hope that things will change.
This downturn is more than just a recession. If it wasn’t, The Great Recession of 2008-2009 would have been followed by the Great Recovery of 2010 and we would all be partying to the music of Kool & the Gang right now. It is not a depression, because the economy did not drop far enough for that designation. Some economists have noted that this is not a depression because the unemployment rate during the Great Depression was 25%. I say be careful here. If you take the unemployment rate, add the underemployment (part-time wanting full time) rate, plus the people not counted because they have given up looking, you are up to over 20%. Obviously this is not as devastating as the 1930’s, but that was The “Great” Depression, not just any depression.
Our current situation has characteristics of both a recession and a depression (See excellent article “You Say Recession, I Say Depression”). So what do we call this thing? If you have lost your job or taken a pay cut during the last two years, you want to call this the **#**x!!!! Recession, but that doesn’t translate well in civilized discussion. So here are my suggestions:
The Great Repression
Psychologists define repression as excluding painful or disturbing memories from the conscious mind. You put uncomfortable thoughts in inaccessible areas of the mind. And what uncomfortable thoughts do we need to repress?
- That one major political party blindly led us into this mess and now the other major political party is pathetically attempting to blindly lead us out. Different clowns – same circus. Who do we vote for now?
- That CEOs of some major financial institutions were removed from their posts, but not before received receiving seven-figure bonus checks as a reward for their fine efforts. They now make difficult decisions about whether to order the quiche or the croissant before tennis at the club.
- That the government’s response to the banking crisis was a 2,300 page financial reform bill that somehow never got around to fixing many of the things that went wrong. The banks are bigger than ever – Too tremendously big to fail! The reform bill concentrated more on your credit card bills and bank fees. Darn, it was my credit card bill that caused this mess.
- That the current administration has enacted healthcare legislation that will increase business costs and possibly personal costs at a time when we can’t afford it. Introducing this burden and uncertainty into this weak, unstable, economic environment is sheer lunacy. Even if the new healthcare system works wonderfully (a very big “if”) down the road, it is not worth the damage that it is doing right now. Ditto for Cap and Trade.
The Great Redression
To redress is to set upright, restore, to make up for, to repay. As I have stated before, we are now paying for a credit, housing, and cheap import, binge that started around 1995. It is payback time and you know what they say about paybacks. I think this term is perfect.
After two days in the desert sun
My skin began to turn red
After three days in the desert fun
I was looking at a river bed
And the story it told of a river that flowed
Made me sad to think it was dead
You see I've been through the desert on a horse with no name
It felt good to be out of the rain
In the desert you can remember your name
'Cause there ain't no one for to give you no pain
Horse With No Name Video
Benny Hill Video that explains the title
It felt good to be out of the rain.
In the desert you can remember your name,
'Cause there ain't no one for to give you no pain. (America)
I have previously stated that economists are having a difficult time explaining the current economic situation due to the unusual conditions that exist. In is interesting to note that economists and the government have underestimated the current downturn at almost every point in the process. If you go back and read some of the 2008 quotes of FED Chairman Ben Bernanke and former Treasury Secretary Henry Paulsen about the economic conditions at the time, you find the analyses faulty and the forecasts laughable.
This is not your father’s recession. Unfortunately the government has viewed this as a typical recession and has responded accordingly. Remember that the first economic stimulus program from the Bush administration. Talk about p***ing on a forest fire. Then the Obama administration follows that up with a stimulus package that is less about creating jobs as it is about solidifying and rewarding voting constituencies (never let a crisis go to waste). I really believe they expected the economy to recover regardless of how poor the stimulus package really was. Similarly, Cash for Clunkers and the housing tax credit programs were “gadget” plays to prop up these industries until the economy improved. It’s hope and change all right --- you keep stalling and you hope that things will change.
This downturn is more than just a recession. If it wasn’t, The Great Recession of 2008-2009 would have been followed by the Great Recovery of 2010 and we would all be partying to the music of Kool & the Gang right now. It is not a depression, because the economy did not drop far enough for that designation. Some economists have noted that this is not a depression because the unemployment rate during the Great Depression was 25%. I say be careful here. If you take the unemployment rate, add the underemployment (part-time wanting full time) rate, plus the people not counted because they have given up looking, you are up to over 20%. Obviously this is not as devastating as the 1930’s, but that was The “Great” Depression, not just any depression.
Our current situation has characteristics of both a recession and a depression (See excellent article “You Say Recession, I Say Depression”). So what do we call this thing? If you have lost your job or taken a pay cut during the last two years, you want to call this the **#**x!!!! Recession, but that doesn’t translate well in civilized discussion. So here are my suggestions:
The Great Repression
Psychologists define repression as excluding painful or disturbing memories from the conscious mind. You put uncomfortable thoughts in inaccessible areas of the mind. And what uncomfortable thoughts do we need to repress?
- That one major political party blindly led us into this mess and now the other major political party is pathetically attempting to blindly lead us out. Different clowns – same circus. Who do we vote for now?
- That CEOs of some major financial institutions were removed from their posts, but not before received receiving seven-figure bonus checks as a reward for their fine efforts. They now make difficult decisions about whether to order the quiche or the croissant before tennis at the club.
- That the government’s response to the banking crisis was a 2,300 page financial reform bill that somehow never got around to fixing many of the things that went wrong. The banks are bigger than ever – Too tremendously big to fail! The reform bill concentrated more on your credit card bills and bank fees. Darn, it was my credit card bill that caused this mess.
- That the current administration has enacted healthcare legislation that will increase business costs and possibly personal costs at a time when we can’t afford it. Introducing this burden and uncertainty into this weak, unstable, economic environment is sheer lunacy. Even if the new healthcare system works wonderfully (a very big “if”) down the road, it is not worth the damage that it is doing right now. Ditto for Cap and Trade.
The Great Redression
To redress is to set upright, restore, to make up for, to repay. As I have stated before, we are now paying for a credit, housing, and cheap import, binge that started around 1995. It is payback time and you know what they say about paybacks. I think this term is perfect.
After two days in the desert sun
My skin began to turn red
After three days in the desert fun
I was looking at a river bed
And the story it told of a river that flowed
Made me sad to think it was dead
You see I've been through the desert on a horse with no name
It felt good to be out of the rain
In the desert you can remember your name
'Cause there ain't no one for to give you no pain
Horse With No Name Video
Benny Hill Video that explains the title
Wednesday, August 25, 2010
Where Are We?
Are we in an economic recovery, stuck in a period of below average growth, or headed for a double-dip recession? Let’s look at some more of the traditional and non-traditional economic indicators to find out.
Kicking the Bucket
There is a business district close to where I live that has been devastated during this recession. The only company in this area making any money is the one making the “For Lease” signs. Right in the middle of the district is a coin car wash. For around $4 worth of quarters you can soap, rinse, and wax your car. There were always prominent signs at the car wash that said “Bucket Washing Strictly Prohibited”. If people use buckets to “hand wash” their cars before rinsing, they take up space without spending more money and increase the waiting time of other customers. So recently I was shocked to see a large sign beside the car wash proclaiming “Bucket Washing Welcomed”. This is an act of desperation. This is the equivalent of a Baptist church advertising “Bring Your Own Bottle”on Sunday morning. If people don’t have enough quarters to wash their cars, things can’t be good.
Bottoms Up
Speaking of bottles, Ohio just announced that hard liquor sales were up strongly in 2009 and still steady in 2010. A spokesperson claimed that this is in no way related to people drinking more due to the state’s double digit unemployment rate. Of course this is a contributing factor, they just won’t admit it. But a bigger reason is that more people are saving money by drinking at home instead of in bars.
Eating In
Not only are people “drinking in”, they are also eating in. The latest data from the restaurant industry show that sales are up some from the bottom in 2009, but still weak. Discretionary income is still tight and people are not increasing outside meals. It is speculated that many restaurants are losing money, but are holding on and hoping business picks up soon.
Basket Case
Charitable giving continues to suffer. Reports from several churches show that giving is actually down from 2009. Unemployment remains high and people with jobs are being very conservative with their money.
Still Cutting
Companies continue to cut workers. My daughter became a victim recently when the call-center where she worked reduced manpower. Even in good times companies reduce workers, but in a recovery there should be plenty of new jobs for these people. Now they just join the 14 million other job seekers competing for the few new jobs available. One local job seeker group has actually grown in membership the past few months.
Temporary Workers
Temporary workers are increasing. This is good news and is usually the first sign of an economic recovery. The way it is supposed to work is that companies hire temporary workers until they are confident business is increasing. They then hire these people as standard workers and hire more “temps”. This time they are hiring temporary workers, but are not making these workers “permanent”. I do not believe that businesses have confidence in the government to effectively manage this economy. A friend of mine says he gets more nervous every time he hears Timothy Geithner speak.
The Sound of Silence
There is a landscaping material business close to my house. The sound of the digging equipment is audible from my house and it always been very busy in the spring and summer months, 6 days a week. But this year, there has been no work on Saturdays and it has also been quiet sometimes during the week. People are spending less money on their homes as property values continue to suffer.
The Rest of the Best
It is interesting that a multitude of economic indicators show an increase of only 1-2% versus a year ago. That was when the recession was ending. That means we have not moved that far from the bottom, which helps explain the lack of job growth. In addition, the experts expect Q2 GDP to be revised downward (not upward as I anticipated). This means the top economist were totally baffled by the Q2 results which is consistent with my belief that some economic indicators are giving false readings due to the unusual conditions.
So Where Are We?
Most of the indicators previously discussed reflect a very slow economy. There are no reliable trends and few reliable leading indicators at this time. Economists will still be analyzing the last three years of turmoil, twenty years from now.
The Model “T” still says no double-dip recession, but a long, slow, climb up a steep hill. This definitely can’t be called a recovery, but the conditions are unusual and economists are struggling to understand where we are. And if you don’t know where you are, you can’t know where you are going. More on this next time.
Kicking the Bucket
There is a business district close to where I live that has been devastated during this recession. The only company in this area making any money is the one making the “For Lease” signs. Right in the middle of the district is a coin car wash. For around $4 worth of quarters you can soap, rinse, and wax your car. There were always prominent signs at the car wash that said “Bucket Washing Strictly Prohibited”. If people use buckets to “hand wash” their cars before rinsing, they take up space without spending more money and increase the waiting time of other customers. So recently I was shocked to see a large sign beside the car wash proclaiming “Bucket Washing Welcomed”. This is an act of desperation. This is the equivalent of a Baptist church advertising “Bring Your Own Bottle”on Sunday morning. If people don’t have enough quarters to wash their cars, things can’t be good.
Bottoms Up
Speaking of bottles, Ohio just announced that hard liquor sales were up strongly in 2009 and still steady in 2010. A spokesperson claimed that this is in no way related to people drinking more due to the state’s double digit unemployment rate. Of course this is a contributing factor, they just won’t admit it. But a bigger reason is that more people are saving money by drinking at home instead of in bars.
Eating In
Not only are people “drinking in”, they are also eating in. The latest data from the restaurant industry show that sales are up some from the bottom in 2009, but still weak. Discretionary income is still tight and people are not increasing outside meals. It is speculated that many restaurants are losing money, but are holding on and hoping business picks up soon.
Basket Case
Charitable giving continues to suffer. Reports from several churches show that giving is actually down from 2009. Unemployment remains high and people with jobs are being very conservative with their money.
Still Cutting
Companies continue to cut workers. My daughter became a victim recently when the call-center where she worked reduced manpower. Even in good times companies reduce workers, but in a recovery there should be plenty of new jobs for these people. Now they just join the 14 million other job seekers competing for the few new jobs available. One local job seeker group has actually grown in membership the past few months.
Temporary Workers
Temporary workers are increasing. This is good news and is usually the first sign of an economic recovery. The way it is supposed to work is that companies hire temporary workers until they are confident business is increasing. They then hire these people as standard workers and hire more “temps”. This time they are hiring temporary workers, but are not making these workers “permanent”. I do not believe that businesses have confidence in the government to effectively manage this economy. A friend of mine says he gets more nervous every time he hears Timothy Geithner speak.
The Sound of Silence
There is a landscaping material business close to my house. The sound of the digging equipment is audible from my house and it always been very busy in the spring and summer months, 6 days a week. But this year, there has been no work on Saturdays and it has also been quiet sometimes during the week. People are spending less money on their homes as property values continue to suffer.
The Rest of the Best
It is interesting that a multitude of economic indicators show an increase of only 1-2% versus a year ago. That was when the recession was ending. That means we have not moved that far from the bottom, which helps explain the lack of job growth. In addition, the experts expect Q2 GDP to be revised downward (not upward as I anticipated). This means the top economist were totally baffled by the Q2 results which is consistent with my belief that some economic indicators are giving false readings due to the unusual conditions.
So Where Are We?
Most of the indicators previously discussed reflect a very slow economy. There are no reliable trends and few reliable leading indicators at this time. Economists will still be analyzing the last three years of turmoil, twenty years from now.
The Model “T” still says no double-dip recession, but a long, slow, climb up a steep hill. This definitely can’t be called a recovery, but the conditions are unusual and economists are struggling to understand where we are. And if you don’t know where you are, you can’t know where you are going. More on this next time.
Wednesday, August 11, 2010
Facing Off With the White House
Was it just a coincidence that less than 24 hours after I declared the “recovery’’ over that Tim Geithner op-ed piece “Welcome to the Recovery” appeared in the New York Times? Is the White House reading this blog? (If so, I may want to review my tax returns). Maybe they are looking at the same data I am and coming to the same conclusions. However while it is safe for me to declare the recovery over, Tim needs to convince us that it is just beginning. It reminds me of the dead parrot skit from Monty Python. (Link at the end of the blog).
Me: “This recovery is dead.”
Tim: “Oh no. The recovery is certainty not dead. It’s just resting a bit.”
So I disagree with Tim Geithner. And many economists also disagree, so Tim you just got faced.
Romer Also Gets Faced
My March 25 blog (Jobs Are Job One) put forth the idea that there is a big problem with structural unemployment. In April, White House economic advisor Christina Romer declared in a speech that structural unemployment is not a significant factor. In the past few weeks several economists have written articles about the impact of structural employment in this recession (Come on guys, try to keep up. For the love of Maynard Keynes, I don’t even have an economics degree!).
I disagree with Christina Romer as do bunch of real economists, so Christina you also got faced. She was so embarrassed, she resigned.
The Long-Term Unemployment Problem
In my last post I presented the idea that the economy was operating in a traditional manner, except for there were 14.6 million people “officially” unemployed and millions more that were either working part-time or had dropped out of the labor force. The unemployment problem is huge due to the unique economic conditions. This recession is different because of the many professional, white-collar, workers who lost their jobs. These are engineers, accountants, information technology workers, production support and other “office” workers. Many had been with their companies for over ten years and many are over 50 years of age. In previous recessions, fewer white collar workers were cut and most decisions were based on seniority. This time it was largely based on salary and workers who had been with their companies the longest and therefore made the most money were let go.
These workers are having difficulty finding new jobs. The competition for the few jobs being created is fierce. The number of people unemployed more than 27 weeks was a record 6.75 million in June and still at 6.57 million in July. After factoring out all the noise, a paltry 12,000 jobs were created in July that and available to the 20-million plus job seekers. You don’t need a calculator to do the math. Does this look like a recovery to you? Many economists do not expect the unemployment rate to drop to acceptable levels until 2015. I think if you add in all the potential job seekers it could stretch well into 2016.
The New Structural Unemployment Problem
Structural unemployment is unemployment caused by fundamental changes in the structure and make up of employment markets. It differs from cyclical unemployment which is caused by the business cycles. The recession caused the increase in unemployment, but I contend it is structural unemployment that is keeping the unemployment rate high.
One type of structural unemployment involves geography. If jobs exist in Seattle and the workers to fill those jobs are in Miami, then you have structural unemployment. (Note: You do have some of this now in that many workers cannot move to new jobs because their mortgages are “upside down”. Traditionally we have considered this geographic structural unemployment only within our borders. But if this is a “world economy”, then this model is outdated.
I believe that when we started exporting production jobs to other countries in the 1990’s, we laid the groundwork for the exporting of the professional jobs that were supported by a balanced workforce. The reason why the professional jobs did not exit sooner is that they were being supported by the housing bubble. When the bubble burst, so did the support.
Now the investment capital, innovation, new factories and pure economic growth is in China, India, and other countries. The professional jobs that support this growth are where the factories are. The workers that have the skills to fill these jobs are older workers in the U.S. who do not speak Chinese and are not going to move to China. I questioned my logic until I saw an article on MSN Money titled “Should GM just move to China?”
Who Moved My Job?
Millions of unemployed workers are left to ask, “Who moved my job”? And of course it was your government. This was done by all your government, both parties, for a long time. No matter what the excuses, the U.S. has not played the game well. When you look across the poker table and your opponent has most of your chips and hasn’t been hitting any lucky draws, then son, you have been outplayed.
Our government needs to realize this is mainly structural, not cyclical unemployment. Stimulus programs are useful for cyclical unemployment, but ineffective for structural (that’s why we saw a limited impact to the huge stimulus plans). Unemployment compensation is designed to help workers during cyclical unemployment, but becomes welfare at some point during structural unemployment. I’ve seen this from both sides (having received unemployment benefits during my job search) and I have no good answer to this one.
More Than Just Votes
To get out of this mess it will take more than just voting to change the party in power (although this may help eliminate some of the factors holding the economy back). It will take more government intervention. But just throwing more stimulus money at the problem will not work for the reasons listed previously. What is needed is a strategy to rebuild and restructure the U.S. economy. It will take skilled people with expert knowledge to do this. These people exist, but they are not in the government today.
We desperately need more people with solid, international, business experience in our government. The consequences of not utilizing these skills at this time are dire. In 2008, facing the biggest economic challenge of our lifetime, we were given the choice of the financial Tweedle brothers and we firmly rejected Tweedle Dee.
Dead Parrot Video
Me: “This recovery is dead.”
Tim: “Oh no. The recovery is certainty not dead. It’s just resting a bit.”
So I disagree with Tim Geithner. And many economists also disagree, so Tim you just got faced.
Romer Also Gets Faced
My March 25 blog (Jobs Are Job One) put forth the idea that there is a big problem with structural unemployment. In April, White House economic advisor Christina Romer declared in a speech that structural unemployment is not a significant factor. In the past few weeks several economists have written articles about the impact of structural employment in this recession (Come on guys, try to keep up. For the love of Maynard Keynes, I don’t even have an economics degree!).
I disagree with Christina Romer as do bunch of real economists, so Christina you also got faced. She was so embarrassed, she resigned.
The Long-Term Unemployment Problem
In my last post I presented the idea that the economy was operating in a traditional manner, except for there were 14.6 million people “officially” unemployed and millions more that were either working part-time or had dropped out of the labor force. The unemployment problem is huge due to the unique economic conditions. This recession is different because of the many professional, white-collar, workers who lost their jobs. These are engineers, accountants, information technology workers, production support and other “office” workers. Many had been with their companies for over ten years and many are over 50 years of age. In previous recessions, fewer white collar workers were cut and most decisions were based on seniority. This time it was largely based on salary and workers who had been with their companies the longest and therefore made the most money were let go.
These workers are having difficulty finding new jobs. The competition for the few jobs being created is fierce. The number of people unemployed more than 27 weeks was a record 6.75 million in June and still at 6.57 million in July. After factoring out all the noise, a paltry 12,000 jobs were created in July that and available to the 20-million plus job seekers. You don’t need a calculator to do the math. Does this look like a recovery to you? Many economists do not expect the unemployment rate to drop to acceptable levels until 2015. I think if you add in all the potential job seekers it could stretch well into 2016.
The New Structural Unemployment Problem
Structural unemployment is unemployment caused by fundamental changes in the structure and make up of employment markets. It differs from cyclical unemployment which is caused by the business cycles. The recession caused the increase in unemployment, but I contend it is structural unemployment that is keeping the unemployment rate high.
One type of structural unemployment involves geography. If jobs exist in Seattle and the workers to fill those jobs are in Miami, then you have structural unemployment. (Note: You do have some of this now in that many workers cannot move to new jobs because their mortgages are “upside down”. Traditionally we have considered this geographic structural unemployment only within our borders. But if this is a “world economy”, then this model is outdated.
I believe that when we started exporting production jobs to other countries in the 1990’s, we laid the groundwork for the exporting of the professional jobs that were supported by a balanced workforce. The reason why the professional jobs did not exit sooner is that they were being supported by the housing bubble. When the bubble burst, so did the support.
Now the investment capital, innovation, new factories and pure economic growth is in China, India, and other countries. The professional jobs that support this growth are where the factories are. The workers that have the skills to fill these jobs are older workers in the U.S. who do not speak Chinese and are not going to move to China. I questioned my logic until I saw an article on MSN Money titled “Should GM just move to China?”
Who Moved My Job?
Millions of unemployed workers are left to ask, “Who moved my job”? And of course it was your government. This was done by all your government, both parties, for a long time. No matter what the excuses, the U.S. has not played the game well. When you look across the poker table and your opponent has most of your chips and hasn’t been hitting any lucky draws, then son, you have been outplayed.
Our government needs to realize this is mainly structural, not cyclical unemployment. Stimulus programs are useful for cyclical unemployment, but ineffective for structural (that’s why we saw a limited impact to the huge stimulus plans). Unemployment compensation is designed to help workers during cyclical unemployment, but becomes welfare at some point during structural unemployment. I’ve seen this from both sides (having received unemployment benefits during my job search) and I have no good answer to this one.
More Than Just Votes
To get out of this mess it will take more than just voting to change the party in power (although this may help eliminate some of the factors holding the economy back). It will take more government intervention. But just throwing more stimulus money at the problem will not work for the reasons listed previously. What is needed is a strategy to rebuild and restructure the U.S. economy. It will take skilled people with expert knowledge to do this. These people exist, but they are not in the government today.
We desperately need more people with solid, international, business experience in our government. The consequences of not utilizing these skills at this time are dire. In 2008, facing the biggest economic challenge of our lifetime, we were given the choice of the financial Tweedle brothers and we firmly rejected Tweedle Dee.
Dead Parrot Video
Monday, August 2, 2010
Something Just Ended (But It Wasn’t the Recession)
To review some prior observations:
- The U.S. economy had been growing due to “artificial” factors since 1995. This period ended abruptly with the housing and financial crises in 2008.
- Because the period preceding the crash was far from normal conditions, we cannot expect the economy to ever return to those exact conditions. Instead we should expect a “new normal” at some point, with many conditions similar to those in 1995.
- The economy is being propped up by government stimulus and bailouts. The strategy is to offer support in the short run and buy time until the economy heals and can grow on its own. This has impacted the normal business cycles and has caused some traditional economic indicators to be unreliable.
- Because of the damage done to the financial and housing markets, this will be a long, slow, recovery that is a “UL” in shape. Others have called it a “reverse checkmark”.
I still believe all these things are true, except for the last one.
The economic recovery is over. Did you miss it?
I’m not trying to be funny. And this is far from a laughing matter for the15 million people who are unemployed.
2010 looks like a “reset” rather than a recovery. Many of the graphs of industry sales and economic conditions are now following a normal cyclical pattern. If you look at just the curves, you would have no indication than anything is amiss. It is only when you compare to 2010 data to the peak years in the growth cycle that you realize how weak the economy still is. Recessions and recoveries tend to interfere with the seasonal patterns. This is not happening in 2010. The economy is not recovering, nor is it receding. Therefore, I contend it has “reset”.
Consider the job market for example. When job postings increased in Q1 of this year, people thought that the job market was improving. However, this always happens (unless you are in recession) because companies get their hiring budgets approved for the new year. But job activity cooled in Q2. In a true recovery, the job market growth would have accelerated, not fell back to seasonal patterns.
So this is a reset, not a recovery. With most industries returning to normal business cycles and the government stimulus programs losing impact in other industries, I believe the economic recovery ended sometime in May. This recovery lacked in both duration and strength. Like a disappointed bride on her wedding night, we cry out, “That was it?”
Almost every article on the economy mentions the progress of the recovery. We are expecting a full recovery, because that is what is supposed to happen. We are hoping that things recover to the same conditions as early 2008 before the downturn. But we are like older children who still believe in Santa Claus because it’s good to get the presents. We are like the fair maiden who expects the prince to show up because it’s good to the princess. But Santa Claus has declared bankruptcy and the prince’s castle just got foreclosed on.
If you apply this logic to the economic reports, it does make sense. This is not a “jobless recovery”. It is not a recovery at all, so you don’t expect much job growth. There won’t be a double dip recession because in order to dip, you had to significantly rise. Sure there was a slight recovery, but falling out of the first story window hurts much less than falling off the roof.
I expect the economy to keep following normal cycles at a growth rate consistent with a high unemployment rate and tight credit. This translates to 2% - 3% growth until the housing market begins to grow and the credit markets return to normal (two key markets that have yet to reset). Of course under these conditions, it will not be steady growth. There will be some bumps and jumps along the way.
There is some positive news with the Great Reset of 2010. Many companies are generating profits and operating well with the return of normal business cycles. Looking at the charts you could assume that everything is now fine, except that we have reset with the unemployment rate at 9.5%. That is a problem, a big problem, and will be the subject of my next post.
GDP Update
My panel of economic experts predicted a Q2 GDP (in March) of 2.9% and the first government estimate was 2.4%. The panel ended up nailing Q1 with a forecast of 2.6% versus 2.7% actual.
The forecast for Q3 is 3.0% which looks high at this point. I expect Q3 GDP to be around 2%. There is some type of shift going on because the total Wall Street Journal panel of economists seemed to be fooled by the low Q2 estimate of 2.4%. Only two out of 55 economists forecasted a Q2 GDP of less than 2.5% in the June survey so I would expect the 2.4% estimate to be adjusted upward.
- The U.S. economy had been growing due to “artificial” factors since 1995. This period ended abruptly with the housing and financial crises in 2008.
- Because the period preceding the crash was far from normal conditions, we cannot expect the economy to ever return to those exact conditions. Instead we should expect a “new normal” at some point, with many conditions similar to those in 1995.
- The economy is being propped up by government stimulus and bailouts. The strategy is to offer support in the short run and buy time until the economy heals and can grow on its own. This has impacted the normal business cycles and has caused some traditional economic indicators to be unreliable.
- Because of the damage done to the financial and housing markets, this will be a long, slow, recovery that is a “UL” in shape. Others have called it a “reverse checkmark”.
I still believe all these things are true, except for the last one.
The economic recovery is over. Did you miss it?
I’m not trying to be funny. And this is far from a laughing matter for the15 million people who are unemployed.
2010 looks like a “reset” rather than a recovery. Many of the graphs of industry sales and economic conditions are now following a normal cyclical pattern. If you look at just the curves, you would have no indication than anything is amiss. It is only when you compare to 2010 data to the peak years in the growth cycle that you realize how weak the economy still is. Recessions and recoveries tend to interfere with the seasonal patterns. This is not happening in 2010. The economy is not recovering, nor is it receding. Therefore, I contend it has “reset”.
Consider the job market for example. When job postings increased in Q1 of this year, people thought that the job market was improving. However, this always happens (unless you are in recession) because companies get their hiring budgets approved for the new year. But job activity cooled in Q2. In a true recovery, the job market growth would have accelerated, not fell back to seasonal patterns.
So this is a reset, not a recovery. With most industries returning to normal business cycles and the government stimulus programs losing impact in other industries, I believe the economic recovery ended sometime in May. This recovery lacked in both duration and strength. Like a disappointed bride on her wedding night, we cry out, “That was it?”
Almost every article on the economy mentions the progress of the recovery. We are expecting a full recovery, because that is what is supposed to happen. We are hoping that things recover to the same conditions as early 2008 before the downturn. But we are like older children who still believe in Santa Claus because it’s good to get the presents. We are like the fair maiden who expects the prince to show up because it’s good to the princess. But Santa Claus has declared bankruptcy and the prince’s castle just got foreclosed on.
If you apply this logic to the economic reports, it does make sense. This is not a “jobless recovery”. It is not a recovery at all, so you don’t expect much job growth. There won’t be a double dip recession because in order to dip, you had to significantly rise. Sure there was a slight recovery, but falling out of the first story window hurts much less than falling off the roof.
I expect the economy to keep following normal cycles at a growth rate consistent with a high unemployment rate and tight credit. This translates to 2% - 3% growth until the housing market begins to grow and the credit markets return to normal (two key markets that have yet to reset). Of course under these conditions, it will not be steady growth. There will be some bumps and jumps along the way.
There is some positive news with the Great Reset of 2010. Many companies are generating profits and operating well with the return of normal business cycles. Looking at the charts you could assume that everything is now fine, except that we have reset with the unemployment rate at 9.5%. That is a problem, a big problem, and will be the subject of my next post.
GDP Update
My panel of economic experts predicted a Q2 GDP (in March) of 2.9% and the first government estimate was 2.4%. The panel ended up nailing Q1 with a forecast of 2.6% versus 2.7% actual.
The forecast for Q3 is 3.0% which looks high at this point. I expect Q3 GDP to be around 2%. There is some type of shift going on because the total Wall Street Journal panel of economists seemed to be fooled by the low Q2 estimate of 2.4%. Only two out of 55 economists forecasted a Q2 GDP of less than 2.5% in the June survey so I would expect the 2.4% estimate to be adjusted upward.
Sunday, July 18, 2010
Let’s Hear It for the Mom
My mother Betty Ake passed away on July 9 at the age of 88. While she was alive I would have said she had no connection to this blog. However, you see so many things looking backward that unfortunately you don’t see in the present.
Here are some influences my mother and her father (my grandfather) have had on me (and this blog):
Good Writers are Made, Not Born
Good writers start out as good readers. I grew up in a home that subscribed to two newspapers, seven days a week. The newspapers were read front page to back every day. My mother read books her entire life and read her Akron Beacon Journal to the very end. Therefore, it is no surprise that I developed a love of reading, a thirst for knowledge, and strong writing skills.
The Stock Market Can Be a Source of Great Wealth
Many grandparents buy their grandchildren savings bonds. My maternal grandfather was a superb stock picker. I’m not sure he bought a savings bond in his entire life. When I was born he bought me a small amount of stock in three companies. Two of the three stocks (the lesson of diversification) did very well. The stock growth (including splits) and the dividends invested in a savings account were enough to pay for my college education 18 years later.
However, my father was determined to pay for my college education himself and did so. The stock money was used to assume a very favorable mortgage on my first house. The low interest rate allowed me to both save more money and build more equity in the house. This simple act of giving me stock resulted in a tremendous start to building wealth. In addition because I was already a stock owner, I was motivated to learn about and become interested in the stock market. I am not anywhere near the stock picker my grandfather was, but I think he would be very proud of the Model T.
Money is Important – Manage it With Care
My parents taught me how to manage money. My mother managed her money very well and passed those values down to me. After my mother suffered a heart attack two and one half years ago, I had to manage all her finances. She was never totally comfortable with this situation. What she didn’t realize is her influence and guidance had assured that her money was in very capable hands.
You are Responsible for Your Decisions
My mother was big on personal responsibility. When I failed to achieve something growing up, excuses were not tolerated. So when making financial decisions I try to understand the investment and the risk, because the outcome is my responsibility and I have to live with the results.
Hard Work Is Expected and Enjoyed
My mother began working in her uncle’s grocery store at age seven. She later worked in her father’s grocery store and then took an additional job as a school secretary. So for many years she worked two jobs, until a quick romance turned into to an unexpected marriage and subsequent pregnancy. (See a video clip of the story here). As I write this I realized that my mother gave up a career (two jobs) she loved, to raise me.
Moving Forward
At a time when newspaper readership is down, I subscribe to two newspapers, seven days a week. The newspapers are read front page to back every day. I have always worked two jobs including leading projects at church, my stint as a stand-up comedian and my current work teaching college classes. That doesn’t include my third job of managing my mother’s business affairs, a job that unfortunately I have just recently successfully completed. I doubt that I will ever be able to pick stocks as well as my grandfather, but that doesn’t mean I will quit trying.
Here is another video clip from my eulogy for my mother.
Here are some influences my mother and her father (my grandfather) have had on me (and this blog):
Good Writers are Made, Not Born
Good writers start out as good readers. I grew up in a home that subscribed to two newspapers, seven days a week. The newspapers were read front page to back every day. My mother read books her entire life and read her Akron Beacon Journal to the very end. Therefore, it is no surprise that I developed a love of reading, a thirst for knowledge, and strong writing skills.
The Stock Market Can Be a Source of Great Wealth
Many grandparents buy their grandchildren savings bonds. My maternal grandfather was a superb stock picker. I’m not sure he bought a savings bond in his entire life. When I was born he bought me a small amount of stock in three companies. Two of the three stocks (the lesson of diversification) did very well. The stock growth (including splits) and the dividends invested in a savings account were enough to pay for my college education 18 years later.
However, my father was determined to pay for my college education himself and did so. The stock money was used to assume a very favorable mortgage on my first house. The low interest rate allowed me to both save more money and build more equity in the house. This simple act of giving me stock resulted in a tremendous start to building wealth. In addition because I was already a stock owner, I was motivated to learn about and become interested in the stock market. I am not anywhere near the stock picker my grandfather was, but I think he would be very proud of the Model T.
Money is Important – Manage it With Care
My parents taught me how to manage money. My mother managed her money very well and passed those values down to me. After my mother suffered a heart attack two and one half years ago, I had to manage all her finances. She was never totally comfortable with this situation. What she didn’t realize is her influence and guidance had assured that her money was in very capable hands.
You are Responsible for Your Decisions
My mother was big on personal responsibility. When I failed to achieve something growing up, excuses were not tolerated. So when making financial decisions I try to understand the investment and the risk, because the outcome is my responsibility and I have to live with the results.
Hard Work Is Expected and Enjoyed
My mother began working in her uncle’s grocery store at age seven. She later worked in her father’s grocery store and then took an additional job as a school secretary. So for many years she worked two jobs, until a quick romance turned into to an unexpected marriage and subsequent pregnancy. (See a video clip of the story here). As I write this I realized that my mother gave up a career (two jobs) she loved, to raise me.
Moving Forward
At a time when newspaper readership is down, I subscribe to two newspapers, seven days a week. The newspapers are read front page to back every day. I have always worked two jobs including leading projects at church, my stint as a stand-up comedian and my current work teaching college classes. That doesn’t include my third job of managing my mother’s business affairs, a job that unfortunately I have just recently successfully completed. I doubt that I will ever be able to pick stocks as well as my grandfather, but that doesn’t mean I will quit trying.
Here is another video clip from my eulogy for my mother.
Monday, July 5, 2010
A Tale of the Honey Dippers
Once upon a time there was a land called Nectarinia. It was a land flowing with vast amounts of honey. (Yes, there was also some milk, but this wasn’t the Promised Land.)
The people actually had to work to harvest the honey, but they loved producing great amounts of honey and the freedom to enjoy it as they choose. The people also understood that they needed to contribute some of their hard-earned honey for the common good of Nectarinia. This honey would be used to pay for public goods, such as guards to protect the land from outside honey raiders.
The people’s honey was sent to a special location called the District of Nectar and placed in a big honey pot. The inhabitants of Nectarinia selected certain people to go to D.N. to manage the honey pot and distribute the honey to where best it was needed.
For a while everything was wonderful, but over time things began to change. The selected “honey dippers” were mesmerized by having access to so much delicious honey. Also, they were captivated by the power they gained by deciding who in the land would receive special honey from the honey pot.
So they kept asking the people to provide more and more honey for the honey pot. “We need more honey please. We can do so many wonderful things, if we can just have some more of your sweet honey”, they would say. The people would sometimes object, but the honey dippers did say they would do wonderful things. So the amount of honey flowing into D.N. greatly increased. Bigger and bigger honey pots were built to contain all this delicious honey. The honey dippers relished being able to control more and more honey and found creative ways to enjoy some of the honey themselves.
The honey dippers gained so much power and influence that they gained many friends who just wanted to get close to and have access to the honey pot. Honey making organizations sent gifts of honey to the honey dippers to gain favors and hopefully gain some more scrumptious honey from the honey pot. So called “honey diggers” were also attracted to the honey dippers because of their honey and power; some even were motivated to shake their honey makers to gain their favor. This made being a honey dipper a highly desirous job. They weren’t really working but they were getting honey for nothing (and the chicks for free).
At some point the honey dippers became totally obsessed with honey and power. They craved the honey and became addicted to it. They ate it, they drank it, and they rolled around nude in it. They knew it was the dipping and giving of the honey that created the intoxicating honey power. So they started dipping so much that they soon ran out of honey. They extracted more from the people, but that wasn’t even enough. They began borrowing more honey to dip. That worked great so they borrowed some more. They even started dipping into the large pot that held the honey collected so the older people in the land would have some honey in retirement. They said they would replace it someday, but they were so obsessed with dipping the honey that they never did.
The people of Nectarania tried to replace the obsessed honey dippers with new ones, but this was very difficult to do. Some of the dippers had been dipping so long that people just accepted their honey addiction as normal and were consigned to providing them with greater amounts of honey. In other instances, new dippers were sent to D.N. and were better for a while, but the longer they were there the more they too became enamored with the honey pots.
Just when it looked like things couldn’t get any worse, the people choose a pooh bear as their next leader. They knew pooh bears loved honey, but this pooh bear promised the most wonderful things the people had ever heard. And this pooh bear was so full of it, that sweet honey literally dripped from his lips. Even though the production of honey was temporarily receding in Nectarania, the pooh bear dipped honey like crazy. While some people complained that he was dipping too much honey, the pooh bear reasoned that after this slow time was over that he could come up with many new ways to extract more honey from the people. The people of Nectarania began to fear that this great pooh bear would squeeze them harder than ever before.
The people of Nectarania consulted their history books and read that at one time a king ruled the land and controlled all the honey. This king was deposed when the people decided that they wanted the freedom to control their own honey. But now it seemed that the king had been replaced by many little kings led by a grand pooh bear who at times seemed to want all the honey he could get his paws on.
The people actually had to work to harvest the honey, but they loved producing great amounts of honey and the freedom to enjoy it as they choose. The people also understood that they needed to contribute some of their hard-earned honey for the common good of Nectarinia. This honey would be used to pay for public goods, such as guards to protect the land from outside honey raiders.
The people’s honey was sent to a special location called the District of Nectar and placed in a big honey pot. The inhabitants of Nectarinia selected certain people to go to D.N. to manage the honey pot and distribute the honey to where best it was needed.
For a while everything was wonderful, but over time things began to change. The selected “honey dippers” were mesmerized by having access to so much delicious honey. Also, they were captivated by the power they gained by deciding who in the land would receive special honey from the honey pot.
So they kept asking the people to provide more and more honey for the honey pot. “We need more honey please. We can do so many wonderful things, if we can just have some more of your sweet honey”, they would say. The people would sometimes object, but the honey dippers did say they would do wonderful things. So the amount of honey flowing into D.N. greatly increased. Bigger and bigger honey pots were built to contain all this delicious honey. The honey dippers relished being able to control more and more honey and found creative ways to enjoy some of the honey themselves.
The honey dippers gained so much power and influence that they gained many friends who just wanted to get close to and have access to the honey pot. Honey making organizations sent gifts of honey to the honey dippers to gain favors and hopefully gain some more scrumptious honey from the honey pot. So called “honey diggers” were also attracted to the honey dippers because of their honey and power; some even were motivated to shake their honey makers to gain their favor. This made being a honey dipper a highly desirous job. They weren’t really working but they were getting honey for nothing (and the chicks for free).
At some point the honey dippers became totally obsessed with honey and power. They craved the honey and became addicted to it. They ate it, they drank it, and they rolled around nude in it. They knew it was the dipping and giving of the honey that created the intoxicating honey power. So they started dipping so much that they soon ran out of honey. They extracted more from the people, but that wasn’t even enough. They began borrowing more honey to dip. That worked great so they borrowed some more. They even started dipping into the large pot that held the honey collected so the older people in the land would have some honey in retirement. They said they would replace it someday, but they were so obsessed with dipping the honey that they never did.
The people of Nectarania tried to replace the obsessed honey dippers with new ones, but this was very difficult to do. Some of the dippers had been dipping so long that people just accepted their honey addiction as normal and were consigned to providing them with greater amounts of honey. In other instances, new dippers were sent to D.N. and were better for a while, but the longer they were there the more they too became enamored with the honey pots.
Just when it looked like things couldn’t get any worse, the people choose a pooh bear as their next leader. They knew pooh bears loved honey, but this pooh bear promised the most wonderful things the people had ever heard. And this pooh bear was so full of it, that sweet honey literally dripped from his lips. Even though the production of honey was temporarily receding in Nectarania, the pooh bear dipped honey like crazy. While some people complained that he was dipping too much honey, the pooh bear reasoned that after this slow time was over that he could come up with many new ways to extract more honey from the people. The people of Nectarania began to fear that this great pooh bear would squeeze them harder than ever before.
The people of Nectarania consulted their history books and read that at one time a king ruled the land and controlled all the honey. This king was deposed when the people decided that they wanted the freedom to control their own honey. But now it seemed that the king had been replaced by many little kings led by a grand pooh bear who at times seemed to want all the honey he could get his paws on.
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