US Payrolls Down

[Ant]

Re: US Payrolls Down

..........no.

heh - wasn't expecting an answer to my mostly rhetorical question quite that fast ;)

but since you answered, a follow-up question for the wiser minds here:

I know that one of the supposed lessons of early 90's Japan is the need to cut rates fast and aggressively in the face of a slowdown to avoid a deflationary cycle.

Wasn't another lesson the importance of letting bad loans and irresponsible lenders fail quickly, rather than "bailing them out" keeping bad loans on the books, and in so doing dragging out the correction and prolonging the recovery process? Am I remembering this correctly, and if so, have our fearless leaders paid any attention to *that* lesson?

[jk]

Re: US Payrolls Down

, have our fearless leaders paid any attention to *that* lesson?

...........no.....;)



[rather, they'll pay lip service to that idea of avoiding bailouts, and some may even really truly wish they could avoid bailouts, but when push comes to shove.... bailout.]

[Guest]

Re: US Payrolls Down

Ant -

Don't you think JK is being remarkably succinct this evening? :rolleyes:

[EJ]

Re: US Payrolls Down

...........no.....;)



[rather, they'll pay lip service to that idea of avoiding bailouts, and some may even really truly wish they could avoid bailouts, but when push comes to shove.... bailout.]

Around 1995, a delegation of Japanese banking regulators came to the US to learn how the US handled its S&L crisis, hoping to learn something that might help Japan. After all, the US allowed over 1,000 banks fail, sold the assets on the open market–for all to see–to the highest bidder, and if anyone was judged in court to have broken the law, they were put in prison. It was painful for a period, but the banking system soon righted itself (with a bit of help on in the form of vastly lowered reserve regulations and the freedom to move money around from reserve accounts to non reserve accounts). The cleanup only cost taxpayers $124B net, a bargain compared to what the cleanup of the current mess will cost.

The Japanese commented, "Thank you but we could never do that in Japan. Air dirty books in public? Throw bankers in jail? Very difficult." Ten years later, they are still struggling with bad loans.

How many US banks have been allowed to fail this time? How many can be allowed to fail?

Has the US banking system become Japanese?

[jk]

Re: US Payrolls Down

Around 1995, a delegation of Japanese banking regulators came to the US to learn how the US handled its S&L crisis, hoping to learn something that might help Japan. After all, the US allowed over 1,000 banks fail, sold the assets on the open market–for all to see–to the highest bidder, and if anyone was judged in court to have broken the law, they were put in prison. It was painful for a period, but the banking system soon righted itself (with a bit of help on in the form of vastly lowered reserve regulations and the freedom to move money around from reserve accounts to non reserve accounts). The cleanup only cost taxpayers $124B net, a bargain compared to what the cleanup of the current mess will cost.

The Japanese commented, "Thank you but we could never do that in Japan. Air dirty books in public? Throw bankers in jail? Very difficult." Ten years later, they are still struggling with bad loans.

How many US banks have been allowed to fail this time? How many can be allowed to fail?

Has the US banking system become Japanese?

the 1000 banks that failed were all minnows. how many can you name? the only one i can think of is silverado, which was special because of neil bush's involvement. lincoln? was that one of keating's? i think now we might be dealing with bigger fish, which means both more systemic risk and better political connections.

[Finster]

Re: US Payrolls Down

heh - wasn't expecting an answer to my mostly rhetorical question quite that fast ;)

but since you answered, a follow-up question for the wiser minds here:

I know that one of the supposed lessons of early 90's Japan is the need to cut rates fast and aggressively in the face of a slowdown to avoid a deflationary cycle.

Wasn't another lesson the importance of letting bad loans and irresponsible lenders fail quickly, rather than "bailing them out" keeping bad loans on the books, and in so doing dragging out the correction and prolonging the recovery process? Am I remembering this correctly, and if so, have our fearless leaders paid any attention to *that* lesson?

Well they didn't pay any attention to the lesson of not letting asset price bubbles get out of hand in the first place. Or we wouldn't be looking at such a huge corrective process to begin with.

Whatever else they do, they need to take a more symmetrical approach. They either have to be tolerant of neither massive upside nor downside swings in asset prices, or of both.

[bill]

Re: US Payrolls Down

How many US banks have been allowed to fail this time? How many can be allowed to fail?

Will the discount window make that decision?

EJ; Has the US banking system become Japanese?

They will have to if politically not approved to liquidate sensitive assets to foreign purchasers.

[c1ue]

Re: US Payrolls Down

Ant,

My personal advice to you: unless you are in a niche which is both extremely specialized and with significant barriers to entry, be prepared to batten the hatches down work-wise.

The financial industry employs a gargantuan amount of software developers. If (when) the financial system starts wobbling, there is a real possibility that this monstrous accumulation of programming labor will be cut loose.

Any company in the business of software development thus will see:

1) labor costs falling due to oversupply of labor

2) competition increasing due to many startups moving into new areas

3) overall market demand falling - less money/profitability

Software development is unfortunately one of the lowest barriers to entry businesses - virtually zero capital costs.

As for your questions:

I know that one of the supposed lessons of early 90's Japan is the need to cut rates fast and aggressively in the face of a slowdown to avoid a deflationary cycle.

Wasn't another lesson the importance of letting bad loans and irresponsible lenders fail quickly, rather than "bailing them out" keeping bad loans on the books, and in so doing dragging out the correction and prolonging the recovery process? Am I remembering this correctly, and if so, have our fearless leaders paid any attention to *that* lesson?

I've mentioned this in a recurring theme: Japan has a current account surplus. While their economy does run at a deficit, they have no problem securing cash to pay debts off. This also allows them to keep their currency cheap without having to worry about inflationary/deflationary effects as they can basically take incoming payments for exports to pay external obligations.

The US is the opposite - huge debts and current account deficits which need continuous foreign infusions of credit to pay interest.

The Fed cutting interest rates yields a real possibility of killing the dollar. Were the dollar to take a fall, there is a real possibility that the US will no longer be able to get the credit needed to pay this monster debt's interest.

With the subprime MBS/CDO also having directly hurt lenders/investors to the US, many of these creditors have also been alerted to the possibility that more direct forms of debt-escape could happen: i.e. inflation in the US. The dollar collapsing would actually reinforce such a spiral.

Thus the talk of deflation is a semi-distraction; yes deflation occurred in past 'bananas' http://www.pkarchive.org/column/120300.html.

However, in the past the US was not a major debtor nation and the current account deficit was small in relation to overall trade and the overall economy.

What about the housing bubble? Just because houses drop 20% in value does NOT mean overall prices will go down - because rising house prices in the last 15 years did not translate into higher overall prices.

Prices/Inflation will rise due to currency issues this time and that is the problem.

iTulip has been focussed on the Fed's past behaviors to bail out the financial system by printing money - I agree that this is a pattern of behavior.

Howver, I am still not so sure that the Fed and government are in the position where they can bail out the system.

After all, inflation hurts those with money - savers - but this applies to the rich as well.

Even should the cuts come through, I suspect they won't occur until the Fed feels there is nothing left to lose.

In the meantime, I can see the market really losing due to an expected cut not materializing.

Others have pointed out that a cut would do nothing as it is already priced in, but my point is exactly the pricing in: were the expectation of an immediate cut destroyed, the negative effects that have been postponed up until now would then occur.

Thus the rate cut is doing something just by being possible, just as little kids with giant scary big brothers don't get picked on much in school.

[Ant]

Re: US Payrolls Down

be prepared to batten the hatches down work-wise.

c1ue,

Thank you for for the considerate advice; your assessment of the trends in our business are spot-on. In fact, they're trends we've been seeing since on the ground since 2002.

As I've documented elsewhere, news stories about "booming" U.S. employment in high-tech in recent years are provably false; recession will only exacerbate the situation.

Based on existing trends, the longer term prognosis for software developers in the U.S. is even worse, IMO. In the face of unprecedented global competition, our country has allowed its infrastructure to fall tragically behind and done nothing to improve education. U.S. policy makers' answer has been to inflate a housing bubble, which, ironically, has had the side effect of making me even *less* competitive in the global market.

We've been facing these headwinds for years, so we already run a pretty tight ship at work - it would be hard for us to batten down the hatches much more than we have already.

Therefore I've actually been giving a lot of thought as to whether I need to take greater steps on the personal front and look at making a career shift altogether. The question becomes - shift to what? It's a little late in the race for me to be changing horses, but one of my personal strengths is a willingness to suck it up and do what needs to be done, so I'm considering all options, including going back to school and leaving the U.S. altogether.

My current strategy, such as it is, is to aggressively look for and pursue individual entrepreneurial/small business opportunities wherever I can find them, while I work on formulating a larger long-term strategy.

I believe you have mentioned in other threads that you are involved in a number of international startup businesses. Do you have any broader recommendations for an American who is tech-savvy, sufficiently well-capitalized to pursue ventures without worrying about an immediate paycheck, and looking to build a future for his family?

Man - that sounds like a sales pitch. Which I guess it is in some respects. Sorry.

Thoughts appreciated, as always.

[Ant]

Re: US Payrolls Down

Ant -

Don't you think JK is being remarkably succinct this evening? :rolleyes:

...........quite.....;)

[jk]

Re: US Payrolls Down

i just stumbled on the answer to my question about how much of the -4000 employment number came from the birth/death number, i.e. how much was added by the bls guessing about the behavior of small, unpolled businesses.

[fanfare]
of the -4000 jobs created last month, +120,000 were contributed by the birth/death model. i.e. the actual data showed -124,000 jobs.

p.s. note that the july number was revised down by 24,000 and the june number was revised down by 57,000. how about a poll for how much august will be revised?

[c1ue]

Re: US Payrolls Down

I believe you have mentioned in other threads that you are involved in a number of international startup businesses. Do you have any broader recommendations for an American who is tech-savvy, sufficiently well-capitalized to pursue ventures without worrying about an immediate paycheck, and looking to build a future for his family?

Ant,

We're actually in very similar industries, if not the same one.

I'm an electrical engineer by trade and had been working for engineering software companies.

Back to your question:

I'd first look at what you are trying to accomplish.

My goal has been to find ways to protect my existing savings, as opposed to wealth creation.

However, there are a range of activities which lie between the two.

Thus I have a range of activities:

a) Wealth creation - I and a partner are working on a next generation niche software in our existing profession

b) I and my wife have created a company in Russia (she's Russian) which is importing Japanese (and now American) cosmetic and beauty products into the Russian market.

c) As we are already involved in cosmetics import/export, my wife has entered into a partnership with new high-end slimming salon which was forced to include a retail space due to local zoning laws.

d) I am also actively investigating franchise opportunities in low pyramid of needs areas.

The details...

a) is moving along slowly - don't know how slowly until we're at that magic 1.5/2 generation lead as we're in research stage.

b) is doing well - first major deal closed and a 2nd popped up out of the blue. In fact I'm headed to LA on Monday to finalize contractual issues with the US manufacturer and prepare for the Russian customer to come for training in mid October. I'm basically paying for product in US$ and then leaving capital repayment and profit in rubles in Russia in the company I've formed there. While there is a tax treaty between the US and Russia, at present they do not share databases unlike between the US and most any other country you could name, but no harm being safe.

c) retail space grand opening is Tuesday next week. This is good because the deal worked out has my wife taking an equal share of profits, but zero costs.

Markup as defined by salon owner is 66% (i.e. 34 cents out of each dollar is wholesale price); the deal I negotiated for my wife is such that she does not pay for inventory (except as an initial bridge loan), does not pay salon employee salaries, nor is she responsible in any way for rent, utilities, etc. In return for wholesale prices and managing the inventory, as well as some non-paid advertising (i.e. running seminars), she gets an equal cut of the retail profits.

d) Franchise opportunities - I have 5 candidates on the radar now which I am actively investigating. 1 involves demographics with an aging population, 1 is consumable but not exactly food, 1 is food service oriented, 1 is basic service (i.e. haircuts), and the last is a type of self service gym. These opportunities have between 75K and 250K startup costs (i.e. franchise fee, initial 1 year rent, initial labor, initial capital/advertising, etc) and have (according to franchise office) payback times in the 2 year or less range. Serious ground pounding ahead.

You'll note this is a lot of activity - I literally did a 'take my job and shove it' in October of last year.

Obviously as you are still working for the Man, you'll have to scale into what you have time and opportunities for.

I can't advise you on that, but you have a pretty clear idea on my strategy in execution.