CNBC – Monday Morning Trade
Insight on the market action, with Matt Smith, Summit Energy; Andrew Wilkinson, Interactive Brokers; and Peter Yastrow, Yastrow Origer.
Decision Making 101
Executives, traders, CEO’s are all paid to make decisions. They are expected to look at all of the facts, and determine the best course of action. Weigh the options, consider the probabilities, calculate the expected values and make a decision that will have an impact on the lives of all of the people involved. If a company chooses one vendor over another, not only are all of the people affected at both vendors and our company, but the lives of all of the children and spouses as well. Decision makers are burdened with tremendous responsibility, and must cope with stress and doubt around the clock.
When the future seems more uncertain, decisions become even more difficult. When conditions are in a state of flux, EVEN IF THEY ARE IMPROVING, a decision maker often chooses to wait. Waiting and being patient are valued skills, and when the facts are changing, they are most needed. Starting a course of action, when you know that in a matter of days it might be necessary to stop, and even reverse course would seem reckless and frantic. Therefore decision makers will sit on their hands and do nothing when conditions are changing.
Knowing this:
1.What will happen before a big vote on tax increase ?
2. What will happen before a big vote on tax decreases?
3. What will happen during stimulus package implementation?
4. What will happen when rates are getting slashed?
5. What will happen when rates are getting raised?
6. What will happen before almost anything big gets finalized?
If you answered: We should see economic activity slow – YOU RE RIGHT !
This crippling fact is often why the Government and the Federal Reserve seem to get results that are contra to classic economic dogma. They seem to forget that at the end of the day, the markets, and the economy consists of millions of individuals, all acting rationally, all fearing their own humanity, not wanting to commit an error. They will each choose to wait and see how things unfold.
If our Government wants to help our economy, they should understand that enacting policies has a large cost. Unless the benefits are going to be very large, it is probably best to do nothing. Doing nothing reassures decision makers. Doing nothing lets decision makers plan for the future. Our medical community lives by the Hippocratic Oath; First Do no Harm. I can think of no better motto for our Government to live by.
J.O.Y. to the world
peter
CNBC – Stocks can rally with negative GDP
Airtime: Thurs. Jul. 15 2010 | 5:34 AM ET
Sorting through the market headlines, with Peter Yastrow, trader.
People Hurt Profits
The problem for everyone right now is the same. How do we make money? Profits are very hard to come by in this highly competitive global economy. Companies can either cut costs, or grow their businesses to increase profits. Cost cutting is certainly never going to stimulate hiring, but how much hiring does a growing company really want to do?
The Jobs Problem is not Bush or Obama’s fault. The issue has more to do with the problems labor faces in this modern industrialized economy. Jobs require more training than ever. People must develop or acquire very specific skill sets in order to work in this more demanding and competitive economy. This highly specialized labor force can earn more money, but must pay more money for education.
The cost of training is not the only problem facing new workers. These workers take a huge risk by specializing. The more specific their job skills, the less transferable they become. Because they need to amass more skills, and become more specialized, our workforce also faces a much higher rate of obsolescence than ever before. This means that our labor force requires more training than ever before, at a higher cost than ever before, but can also be obsolete faster than ever before.
Consider a computer programmer who masters a computer language. If the industry standards evolve, he must retrain in order to remain employable. Teachers, doctors and people at all levels in the work force are required to go to seminars and training sessions on everything from company e-mail to healthcare benefit explanations.
Combine the costs of training new hires, with the absurd healthcare burdens that employers now face, and it really should be no surprise to anyone, even a congressional member, that hiring people is quite risky, and should be avoided whenever possible. Outsourcing, temp hiring, consultants and part timers should all be considered before making the draconian move of actually hiring a person with a salary and benefits.
People are going to need to find ways to make money. However we must not expect some huge hiring boom by large multinational companies, or assume that corporate hiring is going to increase dramatically. Making such assumptions based on prior recessions, or prior periods in history is a mistake. Hiring will remain tepid at best. Jobs are going to remain very scarce. People are expensive to train, expensive to manage, and can become obsolete in a very short time.
This problem is not a result of bad policy, or bleeding hearts. The problem is a product of technological advancement. As our society continues to become more and more advanced our labor force will be increasingly burdened with more costs of training and retraining. Our workers will not be able to compete globally without the proper education, and vocational training. We must anticipate a much bigger degree of frictional unemployment in the modern world.
Joy to the world
peter
Industrial Revolution
I continue to scream at the top of my lungs that our situation is quite poor in the U.S. Our standard of living was grossly inflated over the past 15 years by an explosion of credit, on the heels of 3 of the most outstanding developments – the Internet, the Personal Computer and the Cell Phone.
Our economy is going to remain mired in a no growth, no hiring environment, as long as we remain constrained by our own lack of innovation. The U.S. citizens will continue to see their real disposable incomes erode without real growth.
Lowering interest rates, or lowering taxes cannot create real growth. Real growth cannot be mandated or decreed. Real growth happens when we create new products that make us more productive.
Our economy has thrived for the past 140 years. We went from an agricultural economy to an industrialized economy. The amount of work a man could perform in a day increased 1000 fold as we developed better and better tools, and learned to harness various forms of energy. We built machines to move goods and services across the world. We changed the way men and women lived.
The dramatic pace of innovation during the INDUSTRIAL REVOLUTION was
Extra-ordinary. Without major breakthroughs in physics, science or ethics*, then the global standard of living should remain the same. This is not to say that all of the people’s living standards will stay the same. Quite the opposite, is expected. If we hold the global standard of living constant, and have more and more people in 3rd world countries coming on line, and adding to the world’s production capacity, then we should expect there to be an erosion of the living standard of those that are already living above the average. Here in the United States, our standard of living is the highest in the world. If the world’s standard of living remains steady, then we will have the most to lose.
Our only path is forward. We need to continue to push the abilities of man further and further if we wish to maintain our standard of living, let alone improve it. Hopefully the advancement in communications and computing power will be catalysts for the next developments, and we will get some exciting stuff soon.
Joy to the world
Peter
Market Update June 14th 2010
The Fed remains on hold, as the bad loans continue to weigh on our banks. In this environment, U.S. Equities receive all of the benefit- with rates this low, they re not too ugly.
The problem is that we are all being forced to lower our standards, as we seek investment opportunities. The economy s bad, and not about to recover- but selling stocks wont help.
joy to the world
peter
Growth ? are you serious ?
People keep citing the 3.5% growth rate of our GDP as a clear indication that we are recovering.
Let’s get our heads out of the sand and think.
The stimulus package is $950 billion, give or take $100 billion. ( its their accounting issue, not mine ).
As of May 2010, they have spent approximately 50% of the stimulus money.
Our economy is approximately $ 14 trillion dollars.
½ ( 950 billion ) / 14 trillion = 3.39%
The spending of our stimulus package accounts for all of the growth we have seen.
Get ready, because when the stimulus runs out, our economy will slow down. The projects that were undertaken were not productivity enhancing, and will not create good jobs. They just perpetuate the status quo, until the problems return.
Our government has made a serious and dramatic mistake with regard to the stimulus package. It appears that in an effort to repay campaign contributors, this administration took advantage of the economic turmoil. They rammed through a spending bill that has little chance of creating any long term growth, but absolutely added a trillion dollars to our debt burden.
It’s a disaster. I am afraid.
peter
“Navigating Choppy Trading Waters” – Peter’s CNBC guest appearance in NYC
Airtime: Wed. May 12 2010 | 5:31 AM ET
Peter Yastrow, of Yastrow Origer, tells CNBC how he’s navigating the choppy trading waters.
Tags: CNBC, GreeceA Greek Tragedy
A Greek Tragedy
Greece is the cradle of modern thought. The concepts of architecture, democracy, philosophy, art, drama all can be traced back to early Greece. The Socratic method of inquiry, and debate is a standard tool of higher education in all of the world’s universities.
Now Greece is teaching the world a new lesson. Greece is teaching us about one of democracy’s shortcomings. Democracies are poor credits. Do not lend to Democracies.
Elected officials’ incentives are dramatically skewed towards taking on debt. Typically the debt is to pay for a large highly visible project, which will get a lot of press. The benefits will be obvious for everyone to see. But the costs are easily dismissed, because they will be spread out over the entire tax base, far out into the future. Only the most fiscally responsible politician would turn down the opportunity to spend some money on behalf of his constituency.
Greece spent money on the Olympics, and never recovered. Government officials made bad decisions. They made assumptions about the future, and were wrong. Yet, as individuals they were not responsible for their poor decisions. They got to throw the party, but didn’t have to clean up the next morning. It happens over and over again in democratic regimes. Obviously there is going to be a lot of parties being thrown.
The allure of debt is too powerful. Like the siren’s song that lured the sailors to crash on the rocks, borrowing money always sounds beautiful. Decision makers, who will be praised for their progressive thinking, will naturally tend to favor spending projects. Effective government in action, spending our money.
And that is the whole problem. They are rioting in Athens. The citizens want control of their own finances. They want to keep their wages unchanged, and their taxes unchanged. However that is impossible, the government spent money they did not have, and now it must be repaid. The citizens are on the hook for the debts of the officials.
We need to learn, from the Greeks who are rioting in the streets of Athens. We need to understand that their elected officials screwed up, but the citizens pay. We need to comprehend that our Congress, and our President are on a spending spree of epic proportion. They think they are heroes. They are governing us. Just remember, they might be wrong, and we are going to have to clean up the mess.
j.o.y. to the world
peter
Economic Update
The concept that our economy could be in poor shape, but equities would still rally seemed counter intuitive, but has proven to be spot on. Money the world over needs to be put to work, and in the face of sub 4% 10 year yields, equities look quite attractive. Or maybe we could say equities are not unattractive. Equity investors should pay careful attention to interest rates. IF interest rates were to rise, then the party for stocks would be over.
At this point, it does not look like rates are ever going up again, too much money looking for a return. Even with all of the government spending, the massive deficit, and the future credit rating being questioned, rates remain extremely low. Is deflation already upon us ?
j.o.y. to the world peter
Tags: equities interest rates