Peter Yastrow's Blog

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.

A 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

Evil Meanies and Soft Hearted Weenies

I did not vote in the last election.

I could not come to grips with either Party’s agenda.

Our government, for better or worse, is a two party system. Democrat or  Republican, pull the lever, and cast your vote.

 I could not decide.  The republican party as every democrat knows, consist of gun toting Christians who don’t believe in evolution, don’t allow abortions, and are always trying to “stick it to the little guy.”  The democrats, as every republican will attest, are a bunch of soft minded do-gooders, who want to burn the flag, and rob the rich to give it to the poor.

 Now suppose, I am a citizen, who believes in evolution. Thinks that guns should only be permitted on hunting reservations. A citizen who believes that the abortion question is an individual’s decision, and if a woman needs an abortion, then it is her choice to get one, and a doctor’s choice to perform the procedure, not the Government’s. I want small Government, that won’t tax me too much. I can take care of myself and will be responsible for me and my family.  Who should I vote for?

 The Republican Party with its Right wing connection, is a bit scary. The separation of Church and State has always been a big issue for me, probably because I am not Christian. So it is a bit scary to think that Christian Fundamentalists who want to teach creationism in our schools, outlaw abortions, and consult God in their day to day decision making, are supporters of the Republican party.

 The Democrats are just as misguided. The Democrats want everyone to have everything and do not seem to understand the concept of cost. They act as if the Republicans are mean, and nasty old scrooges, who do not care if people are suffering. The Democrats in their silver armor on white steed will rescue us all,  regardless of the costs, because they would never let some little issue like a trillion dollar deficit stop them from taking care of their voters.

 I do not fit in either party.  My economics education makes it impossible to vote for the Democrats. Their policies and goals are short sighted and far too over reaching.  The short term benefits will be overwhelmed by the longer term deficits. However, I also have studied ethics, and science at some length, and find it almost impossible to vote Republican. The Republican party can not be taken seriously if some of their most outspoken members do not believe in evolution.

 Whether you are an EVIL MEANY Republican, or a Soft Hearted Weeny Democrat you are part of the problem. Government is a problem, not a solution. We form societies which allow us to cooperate with each other. Government is a necessary evil for societies. The rules must be made, and enforced for a civilization to exist. But the larger we make our governing body, the more money it requires.  The larger we make our Government the more inefficient our economy becomes, relative to other countries.  If we want to compete and succeed in the global economy, our government needs to be lean and efficient.  Reduce taxes on our businesses, and consumers.  Keep the costs of doing business low, and reward entrepreneurs who take personal risks and succeed.  Let Freedom ring, let us all pursue our own happiness.  No one promised us happiness, but we all have a chance. That is America. That has always been the key to our success.  Go out and try to find your dream, and do not hurt other citizens in the process.

j.o.y. to the world                           peter

More on Thinking; (pronounced “moron thinking”)

A recent article accused many of us pragmatists as “chicken littles”.  In spite of my rather large size, I felt the author was referring to me. Mr. Epstein sited examples where the economy was experiencing a recession, but then later recovered.  His logic rather simple: history repeats, and seen it happened before.

Mr. Epstein does not bother to discuss what propelled us out of recessions in the past, or why the recessions occurred in the first place.

The first example was from winter of 1983. Growth was expected to be a low 2.5%, but actually came in at 7.8% for the next four quarters? Perhaps it would be helpful if we understood that our economy grew in the 1980s because of the proliferation of computers. Borrowing was vital. A company had to become computerized, and investment in technology was critical to survival.  The technological innovations and productivity gains were massive. There is nothing on the radar now that is capable of producing the type of productivity boost that came from computers. Perhaps the financial soil is every bit as fertile as it was in 1983, but we don’t have the right crop.

The second example came from 1992. The economy slowed, but recovered. The economy slowed in 1990 as we awaited the January invasion date for Desert Storm- the first Iraqi war. The economy recovered fast in the spring of 1991 and then leveled out. The leveling out appears to be a slowing, but is a result of percentage changes being compared, rather than absolute levels. Then the economy began to grow dramatically. Mr. Epstein chooses to compare the low level of Consumer Confidence in 1992 to the low current levels as “PROOF” that we are on the verge of an economic rebound. Consumers are too pessimistic at the bottom he argues, and therefore the low levels of confidence now set the stage for recovery. The only difference is that the cell phone was just being introduced…  One of the most fantastic advances of mankind ever.

When we try to understand our economy, we need to step back from the numbers. The numbers don’t tell the real story. The numbers help to understand the scope and magnitude of issues, but can often confuse the reasons and explanations. The economy should grow as a result of healthy investment and productivity gains. Currently, the economy is slow, business is slow, investment is slow and for good reason. There are not “must have” technologies like computers, cell phones and the Internet forcing individuals and companies to get up to speed. It should be slow. If there was indeed a “better mousetrap” then our economy would grow- as it should.

I am not sure if the sky is falling. I am very scared. I get scared when I read articles that encourage us to stop thinking. I get scared when authors use contrarian logic as a guide to economic policy. I get scared when I think we just blew a $1,000,000,000,000, a trillion dollars, on things we didn’t really need.

j.o.y to the world          

peter

Economic Insight

There is a scene in the “Simpsons” T.V. show, where the teacher, Ms. Krabapple, asks the class a math question. Millhouse raises his hand, and as he stares at his calculator, and proudly answers, “LOW BATTERY”

 As I read articles and listen to economic discussions, I often find myself comparing the speaker, or author to Millhouse. It is all too common to hear people talk about the data showing improvement, or the numbers turning up, without understanding the specific reasons or mechanisms that created the improvement.. For instance, an economist might say productivity is up, without any understanding of how the productivity gain was achieved.

 If I lay off 1 person, and keep production unchanged, my productivity is higher. Certainly that is a lot different than borrowing money and investing in plant and equipment, which also increases productivity.

 Thinking is allowed.  But too many economists and market strategists rely on their formulas and historical relationships. These economists are staring at the statistics on productivity, and consumer confidence and other metrics, but have never seen the inside of a factory. These are the economists who say things like, “ at this point in the business cycle, employment starts to turn higher”.  These economists do not try to understand the data, or look past the numbers; they simply crunch the numbers, and report the findings. Their predictions do not take into account the global macro economic trends that are driving the world’s economies.

 Think people. Who is hiring? Who is firing? Ask your friends, talk to the cabbies and doormen. Understand that our economy is experiencing a major contraction. It is not going to magically mend itself. The government can’t spend a bunch of money on repaving roads and expect stimulus to result.  It does not work that way- just like breaking and then repairing broken windows is not going to stimulate business.

 Recovery is the wrong term. This is the new world. The last 10 years, were a façade, built on reckless lending practices. Our economy chugged along as housing boomed. Stupidity reigned, and very few stopped to think. How can house prices go up faster than incomes? Are houses learning to be more efficient? The price of houses increased because cheap money poured into the market. Take away the cheap money…and well thinking is allowed.

 J.o.y. to the world

 peter