Tag Archives: economic analysis

What’s Important to You?

World is in different place than ever before. That’s true with every generation over the history of time. Ah, but do you know what pitfalls are this time? Have you taken steps to minimize effect of disasters, natural or government induced?

What’s different this time?   Most countries are broke.

So what are most countries doing? And why do you care?

They are relying on printing presses creating a rapidly expanding money supply.  Historically this has happened to many countries at one time or another. We all know the boom bust times in various South American countries.

This time it’s happening at the same time to most industrialized countries at the same time. Think China, Japan, Great Britain, US, India, almost all of Europe and Africa. Governments are increasingly tied to each other in the ways they exchange money and honor currencies.

Japan and China own trillions of the US debt. Countries have huge amounts of actual US dollars. That means re-pegging the value of US dollar won’t work. In past we were tied to gold standard. That would no work in US this time around. Countries that hold trillions of dollars outside the US could still sell the currency for any amount they wanted and US could not stop it.

Back in 2009 US public and private dept was in neighborhood of $55 trillion. That debt had significant impact on US economy. Today, US public and private debt has climbed to $65 trillion. Total US debt is up 150% since 2000. Additionally rest of world has added another $57 trillion in public and private debt.

This is referred to as “hot money” lending. But does it matter? McKinsey points out that debt, around the world, is outpacing economic growth. When economic growth can’t finance all these loans, only governments are willing to step into the breach.

This debt can only be paid off in 3 ways:

-Paid off by the people, businesses, and countries that took on the debt.
-Inflation
-Declaring the debt null and void…destroying relationships with those who provided the money in the first place. This has been used by many countries over the history of the world…but never by a number of countries in a very short period of time. No one knows the effect if several countries started down this path.

Federal Reserve Richmond, VA branch recently reported that 61% of all liabilities in US are now guaranteed by the government, implicitly or explicitly. In 1999 the percentage was 45% (mostly Fannie Mae and Freddie Mac). Today more and more of our financial institutions rely on the government to access credit.

Unfortunately, government guarantees are not shown on any government balance sheet…in US or elsewhere in the world. Governments are relying on massive currency and interest rate manipulation to fund themselves. World has never experienced anything like this by the major economic powers of the world.

Sooner or later this bubble will pop, like many others have over the years. But when?

Nobody knows. But what it means for your personal wealth is known. The biggest threat to your wealth isn’t a stock market crash. Instead it’s from confiscation and/or devaluation by our government. Think Greece last year that took 25% of savings from citizens bank accounts.

In the 1930’s people and companies suffered massive losses. But the actual wealth didn’t disappear. Wealth transferred from creditors to lenders. This time around we will have the above, but will also have major collapse in governments politically. The US government has pledged a large amount of the wealth of the citizens to other people…through all kinds of government programs. We are all familiar with Detroit bankruptcy. That will occur within America and many other countries…within a few years.  What’s a few years? Again, no one knows for sure, but within 10-20 years seems realistic.

Once inflation takes off it can have devastating effects quickly. Think back to the Carter years when inflation in US hit 20%.

US, and most countries of the world can’t sustain government spending that is vastly outstripping tax revenues coming in. Sooner or later the piper has to be paid.

Previously the world would have a 1930’s situation where loans would be called. Difference then and now? Governments were not the primary financiers of the world debt.  Banks and financial institutions had the primary role.  If government can’t pay all the people that have been promised money there will be riots on massive scale.

So what can individuals do?

10,000 doctors every year are refusing to serve Medicare patients. That means many people won’t be able to get doctors appointments. What you can do? Doctors, not participating in Medicare are starting to charge patients monthly fee to see them. In effect doctors are signing up the patients they want to see to give doctors the income they want. These patients at least are assured medical opinions will be available to them. Start understanding medical coverage options in other countries…like Costa Rica or Panama (there are lots of others.) Those two countries have doctors that were educated in US and majority speak English. Last those countries are just few hours away and charge fraction of US doctors and hospitals.

Above is only one example. Many people have majority of their wealth tied up in value of their homes. What happens in major downturn when housing prices drop? In 2009 housing values dropped by over 50% in some markets. For most Americans that means there houses are worth far less than they paid. What can you do? Work to eliminate as much debt as possible, especially credit card debt and auto loans. If you can, pay off your house…or go to 15 year mortgage. Objective is to reduce debt so you can cover any remaining debt in a down turn.

Wages have remained flat in US for many years. How many? Depends whose figures you want to use. Assuredly since at least late 1990’s. Differences in years typically depends on rate of inflation that is applied.

To minimize this, acquire the things you need if times get tough. For some that’s food storage, for others it’s cash, or other products and supplies that are important to them.  If there’s run at supermarkets toilet paper becomes pretty valuable. Natural disasters have cleared the shelves of supermarkets many times. The economy doesn’t have to tank to cause major disruptions. People who have taken, even just a few steps, to prepare for emergencies that would affect them sleep better.

Most people live day-to-day. They assume things won’t happen. They listen and believe the media. Remember, no government cares much about their citizens. We are each just a number. Any of us that think differently aren’t thinking.

U.S. Dollar Is Gaining Like It’s the 1980s. Is That Good or Bad?

Read interesting article on Bloomberg over the weekend, written by Chikako Mogi and Shigeki Nozawa.

We know the dollar is strong, but the global financial markets are lacking a cohesive direction.

1985 US Treasury Secretary Jim Baker introduced the Plaza Accord. By persuading Japan, Germany, France and UK to join in a coordinated plan to weaken the dollar. The dollar was to strong, which adversely affected US exports.

Then and Now

In 1980’s US had the leadership and strength of purpose to develop the Plaza Accord which benefited the US and the rest of the world. Today, while the Fed is in a position to raise rates, it is hesitant to do so. Makoto Utsumi was minister at Japanese embassy at time of Plaza Accord (and now chairman of global advisory board for Tokai Tokyo Financial Holdings Inc.) Today, “The common understanding for the need for policy cooperation shared at the Plaza Accord is lost and it’s not clear where the true leadership is in each country or in the world.”

International Monetary Fund reports that global imbalances were hindering global growth. There is a Group of 20 foreign countries which meets to address slowing Chinese economy. Their meeting ended without any concrete policy on how to proceed. There is serious lack of coordination or agreement on how to proceed to avoid an economic disruption.

Why? The Plaza Accord came about because of long established relationships between treasury officials of various countries. Those relationships take years to develop and don’t exist in the world today.

It’s understandable that the G-20 meetings lack agreed upon decisions. Getting 20 countries headed in the same economic direction is like herding cats. There are just to many countries involved to expect agreement.

That leaves it up to the G-7 countries. This group of countries  has worked together in the past to return currency markets to an orderly balance. But it is expecting a lot that the G-7 countries can accomplish what they did in the past. 30 years ago they controlled 50% of world’s GDP. Today they only control 34%.

So What Should We Expect?

-The Fed to keep interest rates low longer than expected. That does not mean the Fed won’t raise rates within next few months…but it is unlikely Fed will raise rates much. Fed goal is to protect US economy.

-Unfortunately, there does not appear to be the leadership necessary to coordinate a world wide economic policy that can benefit majority.

-That means, in the US, we can expect the stock market to continue the current trend of ups and downs.

-Fed in the past had plan and policy telegraphed well in advance. That enable companies and countries to plan 2-3 years ahead…instead of current 2-3 months.

Most important take away for all of us?

Two points

-In all things people, companies, and countries, need to be looking ahead 2-3 years.  We all need to be evaluating short-term in relation to longer term plans, except in dire emergencies.  Is it hard to do? Not really. Only question is if we are disciplined enough.

-The importance of establishing  long term relationships. Personally and in business.

 

Here is link to entire article on Bloomberg. .

Is the Dollar Going To Get Overthrown in October?

Just read great analysis by Jim Rickards in his Strategic Intelligence newsletter.  Jim is great explaining complex issues in terms we can understand.

There are warnings and media talk about major economic upheavals in Sept and again in Oct.

The monetary elites, worldwide, will impact global capital markets, but they do it over years by solving the global debt problem with inflation. Predicting major changes in Sept and Oct isn’t the way they operate. The elites make small moves year after year, by way of technical changes that most of us don’t know about or understand. Major upheaval is to hard to control. Elites don’t want that. So all the rhetoric about major upheavals in Sept and Oct, is likely to be just that…rhetoric.

We each should be worried about their longer range plan to destroy our wealth through inflation.

So What Is the Elites Plan?

To use SDR’s to wipe out debt and destroy wealth. Special Drawing Rights (SDR’s) is money issued by the International Monetary Fund (IMF). They call that money SDR’s.

The Fed can print dollars, European Central Bank prints Euros, and IMF prints SDR’s.

Only real difference? SDR’s are for countries only, whereas we can keep Dollars and Euros in our bank accounts. Countries swap their currency for SDR’s. So whether a country prints trillions in their currency or the IMF prints trillions in SDR’s, the effect is the same…inflation.

What’s the Problem?

No one is accountable when IMF prints SDR’s. US can hold Fed accountable. People won’t know what is happening, all they will know is that their savings have been wiped out by inflation.

The Chronology

Janet Yellen and the Fed determine whether to raise interest rates on Sept 17, 2015.  There are several other political and economic events between then and mid-November. But those events are working against each other, so the effect is not likely to be dire…in spite of all the media hype.

Media isn’t explaining to us that Fed, White House, and IMF are all working together on all of this. It isn’t a series of individual events. It’s a coordinated plan involving several events.

Years past the US Treasury was primary agency in the value of the dollar. Fed focused on the overall economy, but didn’t involve itself with the dollar in international markets. This has changed.

Starting in 2009 the Fed became heavily involved with White House, IMF, Fed,  Treasury, and an increased role for China.

Will Yellen and the Fed Raise Interest Rates Sept. 17th?

No one really knows. Fed has been talking about raising rates for months. Sooner or later they may feel they have to do it politically.

Economically there is no economic reason to raise rates at this time. China’s growth is slowing, US is far from 2% inflation target goal the Fed has talked about for months. Core personal consumption expenditure index is about 1.3% and going down. It hasn’t been above 2% in 7 years. US employment cost index is also trending down. It has long been considered one of measures of inflation. Average hourly earnings, after adjusting for inflation are about zero.

In short, there is nothing in Yellen’s numbers to justify a raise in rates in Sept. Politics can be an entirely different story.

How is SDR Value Determined and Where is China in This?

SDR considers dollar, euro, yen and sterling, based on mathematical formula. China wants prestige of having their currency, the yuan, included. Adding the yuan won’t really change anything.  There are a variety of reasons why adding the yuan won’t disrupt the dollar as the leading global reserve currency. (A number of years down the road, perhaps, but not now.)

US has veto power on whether IMF includes yuan or not. If  China wants in, China has to peg the yuan to the dollar, which they have done.  When a country pegs their currency to the dollar they forfeit partial control of their currency to the central bank, in this case the Fed.

China’s economy is slowing, they should be loosening credit. Instead they are tightening it. When Fed talks about raising interest rates it strengthens the dollar. That also strengthens the yuan, but forces China to tighten its monetary policy.

Politically, What Happens if Yellen (Fed) Raises Rates Sept 17th?

That’s about the time President of China is going to be visiting US for first time. If Yellen raises interest rate China will have to tighten their own interest rate policy. That would have serious economic implications for China. Is Obama likely to do that when he’s meeting with President of that country to strengthen our ties and reduce areas of disagreement?

The Bottom Line

A rate increase by Fed in Sept would have serious implications for China, the US stock market, and probably impact SDR’s. If China’s yuan is admitted to IMF world currency reserve there is a years wait before it takes effect.

The SDR will become the global reserve currency, but not for a few years.

Looking for more detailed information? Subscribe to Jim Richards’ Strategic Intelligence…Making the Complex Simple. http://agorafinancial.com/publications/awn/

South China Sea-Why Should We Care Part 1

Currently China, Philippines, Vietnam, Taiwan, Brunei and Malaysia all have overlapping claims to the South China Sea

Why Should We Care?

South China Sea is believed to be rich in oil and natural gas reserves. Products all those countries, as well as the rest of the world, need. So why does this involve USA? We have lots of oil and natural gas reserves. USA also has military treaties with Philippines and Taiwan.  Those likely will involve US, it’s only a matter of time. But with different results than traditional conflicts have had. Results that can have direct impact on you and I.

China is trying to usurp claims by other countries by going into area, populating it and building military installations. They are even creating new islands , using sunken ships, reefs, and landfill. Then putting military bases on those islands.

They are taking a page out of America’s play book. Isn’t that how we moved west in early days of America?  Britain and Russia both had claims on the Oregon-Washington areas. Purpose of wagon trains was to establish population in area and establish our sovereignty there. Belief was Russia and Great Britain would not go to war with America over the area. Turned out to be true and area was eventually ceded to America.

All nations above have disputes over various island groups. Best known are the Spratly Islands. There is ongoing saber rattling among those nations. If it goes further the US will likely get drawn into area. US will have same problem as Russia and Great Britain did. We are long way from that part of world. China is right there. China is betting that the US won’t go to war over the area. What’s different? During expansion of America we dealt with Russia and Great Britain directly. South China Sea area is much more complex. We would have to deal through variety of countries.

Sounds like the Iran nuclear negotiations all over again…and we know how those are turning out, relative to enforcing nuclear inspections…and return of American prisoners held by Iran.

Tomorrow: Role new type of warfare will have on citizens.

Next Phase of QE Coming Soon

To listen to the media it appears that Quantitative Easing (QE) is a thing of the past.

According to Jonas Elmerraji that’s not the case at all.

The Fed fears deflation. Turns out the forward inflation is only 18 basis points above the level that started Q1, QE2, and Operation Twist. Forward inflation has not fallen below 2.2% since Post-2008.

When the Fed fears deflation they give the economy another round of QE. Next QE program  could start in 2015, perhaps earlier. The Fed will start talking about it before implementing it. Talk is cheap. Another QE program is expensive. Previous QE’s have not boosted the inflation rate as much as the Fed had hoped, nor as quickly.

What’s the implication for your business?

What’s the message in this? Watch for inflation rate to fall below 2.2%. Then step back and think about businesses that will benefit from another round of QE. How can your business offer more to attract customers from companies/organizations/governmental agencies? What can you implement to get more of that business.

Next how will QE affect your business. Which vendors will it benefit that you need to leverage on price? Which vendors will be adversely affected?  What’s your plan? Would another round of QE help or hurt your prices? If it will hurt what can you offer as inducement to maintain your prices and margins?

What’s the implication to you personally?

QE always increase some prices and decreases others. Historically it seems to increase prices on the basics we all buy. Big ticket items typically don’t increase as much. Likewise, QE has implications for your personal investments. Spend few minutes evaluating your investments to see which will benefit. Be sure the benefits of selling assets will more than offset the tax consequences.

QE isn’t just a Fed program. It has important implications for your company and for your personal finances. Histrorically we know that inflation dropping below 2.2% historically has triggered another round of QE (regardless of what the government calls it.)

This ‘N That 4/24/14

Central Planning Always Fails in the End-Now it’s Yellen’s turn to learn.
Ms. Yellen is strong proponent of central planning. Shortcoming is not using practical rules. She prefers economic models with names like “optimal control” or “communications policy.”  To Yellen, ‘optimal control” equates to abandoning current conditions and substituting a policy to keep rates lower longer. She believes that by communicating the Fed’s intentions individuals will “get the message,” making decisions on investments, spending, and borrowing based on promises of lower rates. That in turn will lead to increased demand, strong economic growth and higher employment. When that occurs the Fed can start to withdraw support so inflation doesn’t occur.

That’s her theory. How about reality? The Fed is trying to change consumer psychology. The trouble occurs if it succeeds. Once consumers change philosophy it’s very hard to get them to change back. Kind of like putting the tooth paste back into the tube. The Fed would like inflation at 3% or so. Fed believes they can control it. But like all central planning that rarely happens.
***********
We live in a bi-polar world. There are practical solutions. This is longer than practical here. Published on SecurEmploy Blog 4/12/14 Just scroll down.
***********
It’s All a Matter of Perspective. We are all aware of self-serving nature that fill politicians minds, and how dysfunctional our government is. But the larger picture is pretty good and we each need to remind the pessimists of the world how good we have it. We have a stable “democracy.” A military power that is the primary defender of the free world. Our economy is still the largest. Our dollar is still involved in 87% of currency transactions. Our financial markets are the freest. Our free enterprise system is still envied. Our economy is expanding. Unemployment just hit a 5 year low. New technologies are driving additional and new manufacturing.
**********
71% of US workers actively looking or open to new opportunities. If 71% are looking for new jobs how come we are making recruiting employees so difficult? Only two things are needed for successful recruitment. First, make sure recruiters are spinning the dial…calling prospects, calling peers in position to ask for leads, etc. Second, Require every manager in your organization to refer at least 4 “A” candidates to your company every year. What’s an “A” candidate? The types of employees you need the most. Recruiting should be the responsibility of the managers who have the direct responsibility for the function. Remember: Every new employee should make a contribution to profits = to at least 5 times their salary the first 12 months on the job. Sales people 10x.
**********
Degenerate Capitalism. What’s implication for our industry? Three thoughts. This one is little longer than fits here. Published on SecurEmploy blog April 23. Just scroll down.
**********
Foreign Investment. Last year, foreigners invested a record $38.7 billion in commercial property, according to real estate brokerage Jones Lang LaSalle. That’s a 44% increase from 2012.

Ask Employees to Tell Their Friends About Your Job Openings We all know the value of employee referrals. Have you asked your employees to tell friends and family about your openings? Or do you just assume they do that? Expand your network of referrals. Be sure to offer an incentive for any referral hired.
**********
French social commenter and political thinker Montesquieu once wrote, “There is no greater tyranny than that which is perpetrated under the shield of law and in the name of justice.”
**********
Why is Russia really interested in Ukraine? Why doesn’t US have a dog in this fight. SecurEmploy blog post 4/21. Just scroll down.
**********
Crimea is resource rich. Rest of Ukraine is resource poor. Crimean resources are very important to Russia. Without Crimea, Ukraine can not continue to exist. Russia can threaten and bluster but starve Ukraine into submission. Inflation in Ukraine is already at 25%. Russia is Ukraine’s largest trading partner making up 70% of Ukraine’s exports. Take away Crimean commodities and Ukraine doesn’t have enough to export to survive.
**********
From Chicago: “In Chicago, armed civilians justifiably killed three times as many violent criminals in past 5 years as did the police.’”Civilians defending themselves captured, wounded, killed or scared off criminals in 75% of confrontations.” Professor Don B Kates Jr, St Louis University law professor, Laissez Faire Today.
**********
China’s trade agreements to use Yuan to replace $. Good or bad?

Already, China has trade agreements with Brazil, Australia, the European Union, and other nations. Most international trade is conducted in dollars

Last year, the yuan surpassed the euro as the second-most-used currency in the world… It made up 8.7% of global trade in October 2013 compared with 6.6% for the euro. In 2012, the yuan only made up 1.9% of trade compared with the euro’s 7.9%.

If the world rejects the dollar in favor of the yuan – or any other standard for trade – it would end US ability to print a limitless number of dollars and issue limitless amounts of debt

OR WOULD IT?American public seems to have no ability to stop government printing presses. Politicians certainly have no reason to stop the presses. Perhaps the only thing that will get US to address our issues is by losing the Dollars position as world currency of choice.
**********
Two numbers the government can’t fudge. Employment-to-population (currently just under 59%) and Participation Rate the actual percentage of the population, of working age, that is working (currently 63%, down from a high of 67% in 2000). US had 118.5 million full time and 26 million part time workers in 2013. That means that 37.5% of residents are working to support the other 62.5%. That’s not sustainable. Only part of that 62.5% are children.
**********
Current Career Opportunities Corporate, Hotel, and Resort opportunities.

Training for Revenue Generation by Ed Iannarella.

 

It’s All a Matter of Perspective

We are all aware of self-serving nature that fill politicians minds, and how dysfunctional our government is.

But the larger picture is pretty good and we each need to remind ourselves and the pessimists of the world how good we have it.

  • We have a stable “democracy.”
  • A military power that is the primary defender of the free world.
  • Our economy is still the largest.
  • Our dollar is still involved in 87% of currency transactions.
  • Our financial markets are the freest.
  • Our free enterprise system is still envied.
  • Our economy is expanding more than 4%.
  • Unemployment just hit a 5 year low.
  • New technologies are driving additional and new manufacturing.

Economic Analysis: Uncertainty Can Be Good News: Tom’s Take

Robert Frost said, “In 3 words I can sum up everything I have learned about life. It goes on.”

Friday I was reading that crisis in Greece continues to worry investors. RE market seems to have turned the corner in the US. Next article said RE market remains weak. Meantime, volcanic eruption in Iceland has royally screwed up airline flights. To point UK has sent ships to pick up stranded citizens in the Baltic. Stock market rallied. Wait a minute, it dropped Friday on news of yet another scandal.

What the heck (alright I tamed that down) does all of this mean? How do we make it work for our businesses?

The more I read the less I know. If I don’t like one analysis I can read a little more and get the opposite analysis. Economics has always been more art than science. Yet, people, or at least the media seem to be dwelling on economic predictions more than ever.

“At first I was uncertain, now I’m not so sure.” Anonymous

Those of us in business need to be aware of what’s going on in the world. But then move forward without relying too much on what’s going on. Another quote I like, “There’s nothing wrong with looking back, just don’t stare.”

There are certain things we know.

The world knows that natural resources are depleting and the population is exploding. Likewise, each of us should know what is going on in each of the communities we do business in. Which businesses are growing and which are contracting. But do we?

I was recently talking to a VP Operations who has been asking their hotel management teams:

  • When was the last time the GM’s asked their teams, specifically, which local businesses were growing or poised for growth? When was the last time the sales team visited those businesses to learn what their needs were?
  • When was the last time they attended Chamber of Commerce Meeting? Met with the local CVB? Had lunch with their peers from other hotels? Attended a Rotary or Kiwanis meeting? Were involved in another civic activity?

This VP was worried that the teams were concentrating on today’s business to the exclusion of future business. The VP was right. The GM’s had not been asking the first question. Attending a staff meeting it was quickly apparent Department heads were not getting into the community to learn what was coming. Most of the Department heads belonged to one or more organizations, but they rarely attended meetings.

Action Plan

Hotels had their sales teams calling on known accounts and local businesses. Department heads had to attend at least one civic function a month. By dividing up civic organizations, each hotel assured attendance at majority of meetings and functions. Things that should have been happening all along, but in the effort to get immediate business, things that were not being done systematically.

Results

First month hotel picked up 4 additional catering functions. Booked 3 small meetings for the next month. All a result of sales team calling on businesses they added to their list of prospects. Attendance at civic functions and meetings resulted in booking 3 wedding receptions, an anniversary party, role out party for expansion at local business, and events for 3 new businesses that were opening within 3 months. Plus over 20 leads for other business functions with potential for over 300 room nights.

VP’s prodding reminded Department heads they were all responsible for sales for their hotel.

Economic Analysis: In 4 Sentences-Tom’s Take

Received the following in the email the other day. I wish I knew who made the statement to give them the credit due.

“You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

What one person receives without working for, another person must work for without receiving.

The government cannot give to anybody anything that the government does not first take from somebody else.

When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is the beginning of the end of any nation.”

Economic Fundamentals-Making Them Work for You:Tom’s Take

US became a world power based on our manufacturing prowess. Our world role as a manufacturer of products has greatly decreased.

This recession is the first instance that the government is creating most of the jobs (since the Great Depression.) Their attempt of course is to restart the economy.

Unfortunately, the loose spending policy and stimulus by the Federal Government, and the willingness of State, County, and City Governments to continue overspending does not contribute to a sustainable recovery. Our government continues to deal in microeconomics instead of macroeconomic fundamentals. The governmental policies continue to create asset bubbles. Sooner or later, like all bubbles, they will pop.

How do we protect our businesses?

Understanding the above is the first step. Second step is protecting our companies by minimizing the business we do with asset categories that are bubbles, like commercial backed mortgage securities. If we have to deal with them, then we each need to recognize we are dealing with risky markets and we need to develop alternatives as fast as we can.

There’s nothing wrong with doing business with risky sectors of the market as long as we understand them and don’t depend on them.

How do we protect our businesses? If government at all levels is taking a larger role in all aspects of society, then we need to structure our businesses to attract more government business.

Some of that business will be directly from the government. More business can come from various businesses and organizations that do business with governmental agencies close to you. Identify and market to those companies to encourage them to do business with you when they are in town.

Be proactive identifying business opportunities based on today’s market conditions.