Jobless Recovery

Are we heading to a jobless recovery? From Krugman to Joe Biden everybody thinks the same. Actually the last job report was a scary and it overturned all the predictions and met all threshold. But a point to remember is, job market is a trailing economic indicator, it would take some time to stabilize the condition. Based on previous recessions 1981-82, 1991-92 and 2001-2002, when economy turning around it would start sending mixed signals.

The recovery may not be uniform as we like, because the medications prescribed for economy would start show it signs at different times from different places. For example, investors always positive thinkers since they buy in all from Fed reserve and treasury's assessments and start buying stocks hence sock markets going north but employers are causally optimistic about future business hence we are seeing a lousy unemployment report. It is pool of people thinking differently and some sees half empty and some sees half full. But the truth is, we are not going to live like this forever, people have to come out and start buying stuff, economy going to recover like the previous one. But timing is the matter now.

I think President Obama's stimulus plan going to be in full effect from September and gas price again easing and people come back from summer vacation, back to school, long term investment decisions all going to happen on late Summer. The first 6 months are not good for markets as well as any recovery since i think the 2nd half would be better for all of us. Good news is we already in 2nd half.

Source:

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/02/AR2009070200354.html

http://abcnews.go.com/ThisWeek/Politics/story?id=7966402&page=1

http://blogs.abcnews.com/george/2009/07/biden-we-misread-the-economy-.html

End of Recession?

As per my view, recession ends when oil price jumped to $45, we are not seeing price cooling off and second indication is gold price spiked above $900 and third indication is consistent home price/sales upward trend and forth indication is stock market keep on climbing north plus today’s important last hour bull ride. We are exactly at bottom and market positioned itself to stabilize and ready for right side of U within next couple of months. Now major worry is inflation and oil price, one of prediction is oil price would touch to $300 with in a year, that’s roughly $8.00 per gallon. This prediction should not happen but never know.

It was a excellent job of President Obama and his team, President Obama said at yesterday’s 60 mins that “Now--there's a potential silver-- silver lining, which may be that things are so accelerated now, the modern economy is so intertwined and-- and wired, that things happen really fast-- for ill, but things may recover faster than they have in the past.” that is exactly right, now we need more help to par with growth of economy.

But there are some caveats though, the final version is work in progress and people try to make it perfect and perfect as a result imperfect one would emerge. The best part of the plan is, private investors and banks going to decide the price and government will not interfere with the process hence we can expect a transparent price determination of toxic assets. For example, $100 worth of mortgage can be sell to $85 or $86, there is no one price for all bad assets. The remaining matters are too economical for me to comprehend but some banks that are already write down their assets are best place to capitalize the moment as per top economists.

Source:
http://www.huffingtonpost.com/2009/03/22/obama-60-minutes-intervie_n_177854.html
http://online.wsj.com/article/SB123776536222709061.html?mod=mktw
http://online.wsj.com/article/SB123784599683118241.html

Bigger Expectations

All eyes are towards Wall Street, how it is going to trade tomorrow and coming days are crucial for these gloomy economic times. Today’s Fed Reserve chairman Ben Bernanke’s optimistic interview he was very positive than before, he reaffirmed the recession could end in 2009, which is good news and all investors are closely watching this development. Actually now part of new tactics from Obama administration is, top officials are coming out and spreading positive news around media, which is good and they have to do it.

One more good news is, from OPEC that they are going to keep the output. The stability of oil price is really important during the pre-recovery period. Everybody thought OPEC going to cut production, but they exercised common sense at these tough times.

There are two key events changes the fundamentals of recession, A) stability of retail sales B) blame game and pointing finger started. Why these are really important, retail sales is really important because people start spending means they are now came out of recession mood and more importantly Obama’s big stimulus package start doing it’s magic now. The blame game towards CNBC and Jim Cramer is really good sign also. During last stage of earlier 2001-2003 recession, final moments, there were huge blame games started swirled around and lot of lawsuit filed at end of it. Now we just started it and will go on until this fall with wave of lawsuits.

Ok…again it is wait and see.

Bull Ride

Definitely bulls are out there but hid to come out because of continuous sober news from recession hit market place. Yesterday’s a simple memo from top bank official made the bulls out of hidden places. The bull market extended to world markets and today also. So the million dollar question is, are we out of woods? In my opinion, no we are not yet. Still some companies want to cut cost during Q2 and Q3 of 2009 and housing market is not finding enough buyers to stabilize market and foreclosure not yet completely done.

The top level, first line of investment professionals are out of woods for now, this is exactly happen when we are at bottom or close to bottom. First indication was, oil price didn’t touch psychological barrier of below $30 and bullish FOREX dollar value and gold price/U.S Treasury bond value up. These all are indication of bullish mood slowly returning to market. U.S employer’s cut almost 4.4 million jobs, if we use 20 jobs save 1 million calculations, U.S companies going to save $220 billions in coming quarter plus the various cost cutting could save other $200 billions. So future earning per share going to improve a lot, stocks will look like lot of cheaper and it will be viable option than Oil, Gold, and Treasury bond investment. We are all set for prolong bullish market from Q3 2009 and overall economy from Q1 2010.

But as Warren Buffet said don’t believe technical nowadays, it is very hard to plot future graph and predict this market. Jon Stewart taking direct hit with Jim Cramer about his predictions. But if we believe the same business contraction and expansion cycle pattern repeated 18 times since 1872 including 2 great world wars and great depression, what is difference at this time?

Source:

http://online.wsj.com/article/SB123676922949993593.html

http://www.cnbc.com/id/29592831

http://www.huffingtonpost.com/2009/03/10/jon-stewart-slams-jim-cra_n_173738.html

Recession: Why this severe?

As per basic of investments, if person A lost x amount of money, person B gained the same x amount. The money stays in economy, and person B might reinvest the money for some other purpose, this is called money rotation (my own lay-man term). What happened now is, people lost money on real estate and no body else gained it, the money just evaporated. Lending institute is the one dodging the bullet by writing down bad loans. One question may arise why lending institute is selling at low price now, and can they wait some more time to sell it higher price? But holding a foreclosed asset is high expense than selling it 20-25% price down.

A rough estimation is, an average lending institute holds 90% of home loan value on foreclosed houses. 1 million houses were already foreclosed and almost 6 million will be foreclose with in next year. On each house for sake of argument say lending institute losing $100k, so that equal to 7,000,000 X 100,000 = 700,000,000,000/-, which itself is $700 Billion. So far government gave about $165 Billion as bail out money, which may not enough to cover even legal fees which lending institute accrued over foreclosed houses. So we can’t expect them to loan more to public right now.

The so called money rotation is just frozen to small industries, car loans, student loans and all kinds of loan, so now we are going through a non money flow time as a result catastrophically job loss and severe recession. This is exactly happen in Japan from 1990 to 1999, they had unrecoverable prolong recession for almost a decade and economy again rebounded after digital, plasma TV inventions. But U.S.A is not a Japan, they are the largest consumers and producers in world, U.S.A’s GDP is 13 Trillion and world can’t afford to prolong recession in U.S.A. 

We have to make smart decisions now, yesterday’s Microsoft’s decision to open a retail shops across America is smart one like wise we need to some top tier companies have to spend some money for wise investments. McDonald already planned to open more stores are the best examples of smart decisions at this recession time. This is good time of making long term investments, many millionaires came out of this kind of market. This with government tax cut, spending make economy flourishes again by this year end.

I end my recession series here…

Happy Valentine’s Day…

Source:

http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

http://en.wikipedia.org/wiki/Foreclosure

http://www.huffingtonpost.com/2009/02/13/microsoft-retail-stores-t_n_166651.html

What went wrong?

There are so many blame game swirls around here about who is responsible for this recession? Each recession is unique and we can’t blame some particular industry or group of people or a single entity for failure. This recession is really a combination of many things, it is very hard to pin point why and what went wrong? But we can concentrate on who lost most from this recession.

• Developed nation’s unemployment rate should not go above 5%, but now U.S.A unemployment rate is 7.6% and some places unemployment rate is above 10%, which is unacceptable.
• As usual, undocumented workers and some legal immigrates are more affected in terms of jobs and they were returned or forced to return to their home country, which is unrecoverable. As per Chicago Tribune report, there are some 367K undocumented workers forced to return and volunteer return may be close to 1 million.
• As of legal immigrates, most of them are degree holders returned to their home country and joined various local companies. For example, IBM laid off some 4,000 people and offered them a job in Argentina, Brazil, China, Czech Republic, Hungary, India, Mexico, Poland, Romania, Slovakia, Slovenia, South Africa, Turkey, and United Arab Emirates. Good for those emerging markets, they need more talent people, and recession is good time for them to get good resource. It is same as last recession.

Most of media blaming people’s greedy for this mess. But I don’t agree with them because we are at capitalist era and making more and more money without breaking any law and buying more stuffs are basic for capitalist. There is no limit for the money and commericalism, all of us at least want to buy or explore the following

• Decent home at prime location.
• Send kids to good school and any Ivy League college.
• Benz/BMW cars.
• Hawaii trip .
• High end 150 inch plasma TV.
• Home theater.
• $5000 super bowl game.
• Gold and diamond watch, jewelry.
• Fun trip to Las Vegas/Disney world.
• Europe/Asia/world tour.
• Cruise from Florida to Norway.
• Last but not the least donation to charity.

We are progressively developing and there is no end of is, again this is fundamental of capitalism. The whole economy is moving because of this spending and our eagerness/greediness to explore, experience new technology and world.

But how soon we want to do all is matters. For example, if we want to buy a 150 inch plasma TV for $10,000, A) spend 5-6 months to save at least $5,000 and get credit for remaining $5,000 B) buy it as soon as possible get all by credit. The first (A) way is wise one, we are utilizing our future money at same time spending some from our own saving. We have to decide when we want to go world tour, at the age of 25 or 45. If we go at 45 we can spend some money from our saving and get some credit if necessary.

It is all depends on our decision making. I think lack of clear decision making is the main reason for this recession, starting from individuals to financial industry to Wall Street to Main Street.

Source:

http://www.chicagotribune.com/news/nationworld/chi-deportees-09-feb09,0,5333975.story

http://money.cnn.com/2009/02/05/news/companies/ibm_jobs/

U.S Stimulus Package

Finally a balanced version of stimulus package going to approved by lawmakers from both the houses. The final version is very balance, 35% in forms of tax cut and remaining 65% towards spending, mainly construction. My first wish list, redo all Chicago area roads, too many pot holes, too large also. The hope is as soon as this Stimulus becomes law, Caterpillar Inc would rescind most of 22,000 layoff which announced recently. This will be applying to all over country, some companies want to rehire some layoff people as soon as this becomes law, most of the spending towards rebuilding and most of 3.6 Million layoffs were from construction, manufacturing industry. They can easily find a job from this spending. First time home buyers are getting almost 15% tax credit, definitely it is going to help real estate also. Here is a chart of job losses from this recession, just compare with previous one, it is mother of all recession so far, and 3-4 months ago it looked like another 2001 recession, but still they are close. This is why we need a stimulus as soon as possible.

 Source : http://www.huffingtonpost.com/2009/02/06/job-loss-chart-what-36-mi_n_164828.html

One of my personal wish list also included in this stimulus, that is, digitalize all medical records to reduce paper work. When i started my career in U.S at Silicon Valley the start up Neoforma had an ambitious goal to support healthcare industry to reduce paperwork. So we know how much paper work involved in health care industry. We successfully helped healthcare industry from fax based ordering system to online that was a revolution at that time. I’m glad that i found an excellent article from 2001 archive CNN Money regarding this matter.

The stimulus package is huge and massive in size, i wonder how come Mr. Obama’s team gets assembled this much detailed package very soon and introduced in both the chambers. The green initiatives are great and it increases awareness of saving energy all over country and even world. But we need an innovation based projects also, which are lacking here, anyway innovation always come from private sector not necessary from government.

Here are highlights of this massive Stimulus package, please note it is not from final version.

• $32 billion Funding for "smart electricity grid" to reduce waste
  
• $20 billion  Renewable energy tax cuts and a tax credit for research and development on energy-related work, and a multiyear extension of renewable energy production tax credit

Smart electricity grid is much needed infrastructure change now. Energy related work is definitely helps to lower oil consumptions. 

• $6 billion High-speed Internet access for rural and underserved areas.
  

Good for Web 2.0 startups.

• $32 billion Transportation projects
  
• $31 billion  Construction and repair of federal buildings and other public infrastructure
  
• $19 billion Water projects
  
• $10 billion Rail and mass transit projects
  

 I think we need more rail and mass transit projects. 

Source:

http://news.yahoo.com/s/ap/20090211/ap_on_go_co/congress_stimulus

http://money.cnn.com/magazines/fortune/fortune_archive/2001/11/19/316359/index.htm

http://online.wsj.com/article/SB123202946622485595.html

http://www.huffingtonpost.com/2009/02/06/job-loss-chart-what-36-mi_n_164828.html

Recession/0.5 Depression 2008-09: Explained in my words

In software engineering, we have “trail and error” to fix an issue, we don’t know the solution for a problem but merely provide a code change and hoping that would fix the issue. If not, then try again. We are in same mode for current recession also. Mr. Obama’s stimulus package definitely going to help economy to flourish but how long. It was very unfortunate that world leaders not coming together to fix the fundamental financial architecture break down.

We have to first understand what caused this issue.

1. Joe planning to buy a house in San Jose, CA.
2. He walks into a bank for a loan at value of $800,000/.
3. Bank determines that Joe has some issue with credit history hence he will not eligible for prime rate.
4. Even though Bank gives mortgage loan to Joe at sub prime rate @ 3.5 Adjustable Rate Mortgage.
5. Bank then sells this mortgage to big investment firms like Lehman Bros, Bear Sterns etc.
6. This investment firms bundle up all this loans and sells all over world. This is called Mortgage backed securities (MBS). 
7. Among investors, MBS are safe heaven bet, since it backed by a real asset and historically house price never went down other than great depression period.
8. So technically Joe bought his home with John’s investment from Russia, and Gupta bought a home at Delhi with George’s investment from Chicago.
9. When one buy a MBS he/she thinks that he is investing to a real estate, low risk, high return on investment etc. No body never ever thought that we are moving towards 1930 great depression days.
10. At same time investment firms bought insurance for this high risk mortgages.

Now who is accountable for mortgage that Joe got it from Bank, the mortgage was sold and it is not under Bank’s radar and investment firm’s radar, some one across the border holding it. The actors are loosely coupled here and Joe is single point of failure. The well proven business flow was just reused for sub prime market without any research and analysis.

These MBS was backed by credit default swaps (CDS) which is insurance like contracts to cover bonds in case of defaults. Usually CDS covers only very low risk bonds such as municipal bonds, government bonds etc, but again due to the confidence about real estate, CDS started covering MBS also. Unfortunately CDS is not regulated, hence it can be traded in secondary market, it is like today XYZ hedge fund holding contract and tomorrow it can be ABC hedge fund. The price for CDS determine based on investor’s confidence about outcomes. 

So now the stage set for Banks and investment firms, what all bank need to do is give mortgage loan to Joes, Johns and sell it to investment firms and investment firms buy a insurance from AIG and convert mortgage into MBS and sell it to open world market. MBS was now held by some one in earth, AIG now convert these insurance into CDS and was held by some hedge fund, nothing was regulated because CDS mainly traded at various places like London, Berlin and New York, we don’t have a global policy to control it.

This is how we do real estate business for 15-20 years it was greatly worked and smoothly integrated. What went wrong now is mainly, easy money flow and uncontrollable global economy. What we need is greater global co-ordination and greater technology to forecast risk and mitigate it.

Source:

http://www.slate.com/id/2186801/

http://www.fool.com/investing/general/2008/09/17/aigs-failure-is-so-much-bigger-than-enron.aspx

http://www.time.com/time/business/article/0,8599,1723152,00.html

http://www.investopedia.com/terms/l/lcdx.asp

http://www2.standardandpoors.com/spf/pdf/index/SP_CreditDefaultSwap_FAQ.pdf

2009 – Another sour year?

So many predictions and so many negative out there, I recommend everybody should buy and read “Though time never last but tough people do” book by Robert H. Schuller.  What will happen during this 2009 year is unknown to all, but the prediction from top economists and business people are not good so far. Even Microsoft started lay off means a lot to our current state of economy.  A simple metaphor is Warren Buffet lost some money on bad investment, in order to make up, usually he would be asking some loan money from Bill Gates at some simple interest to reinvest, but now situation is Gates also run out of cash. The current situation is all the money vanished from every where, global investors, where it went is still a mystery?  

During the housing boom, investors were very positive about mortgage backed securities and they “recklessly” bought it and now all went underwater. The realism is we are heading to thoughtful investment cycle, in other words reckless, vacuous investors are out of scope now. They may not come to market for next 3-5 years. This is good for other investors, if we buy a house/stocks now, it reflects a real time price, and companies would extra careful to invest with projects. What ever we do now is very carefully planned and did some research. 

Most of us start worried/feared about job market, we should be because if one is not feared at this situation means they are dumb ("dumb enough to fearless" thanks to Outliers by Gladwell). But a job there for us, which perhaps not in our desire locations, may be we have to briefly separate from our family. Nowadays a temporary separation is not painful as before, thanks to Web 2.0 and video chat technology, 3G networks, frequent flyer program helps us to stay in touch with family regularly. I think 2009 is a year of recovery because of government’s intervention, but government process is a painful and slow, democratic process, but we will be up again as long as Mother Nature not turns us down. 

Ouch!!! Headline Hurts

Again today morning flashing headline was 533,000 jobs vanished in November month alone. And the revised job report for September, October also very deep. As soon as flash news showed in CNBC, as usual some of us pressed panic button and affected with negative emotions. This event is not new to us, we are experiencing this since 2007 summer. As I said before, don’t jump into conclusions by reading headlines. Yes, we are in trouble right now, and all government’s engine started fire to resolve it. Patience will prevail.  

Even though employers cut job for last one year, unemployment rate was holding up between 5% - 7%, I agree that anything above 5% is not good for developed nation like U.S, but because most of the people left job market to find an alternatives, some left for long vacation to explore the world. A piece of advise is this is good time to go back to school and enhance our skills. 

Here are the points I have here to justify that we are not in deep recession as media hyping. 

1. Last month job report suggests that we had job cuts ranging from mining industry to jet engine manufacturing. It is the clear indication that we are having a domino effect, that is, employers fear that credit market is frozen so they have to cut some expense to preserve cash. If that is the only reason, what will happen if government unfreeze credit market, will they hire all back? http://www.nytimes.com/2008/12/06/business/economy/06jobs.html?partner=rss&emc=rss

2. I was under impression that this job report only includes adults, but after reading detailed report i found out that this includes teenagers also. Obviously they all went back to school, and the unemployment rate for teenagers is 20.4%, most of the cut come from temporary jobs. So before getting jump into conclusions, have this in mind and read detailed report. http://www.bls.gov/news.release/empsit.nr0.htm

3. “Statisticalphobia”, I don’t know how to coin this but we are now affected by this new kind of phobia, all the numbered were compared with 30 years ago, 35 years ago and so on. 2-3 weeks ago, Steelers game ends with the score 11-10 and headline was, this is first time a football game ends with 11-10. why bragging about it? Steelers won and game ended, that’s all. The same happened now also, some one in press ran a query to found out when employer shed 533,000 jobs last time to hype about it. I like comparing situations but not this far apart. 35 years ago, German was not a single country, there was no European Union, USSR and U.S had cold wars, Larry didn’t invent Oracle database, Gates was at school and most of the web 2.0 CEOs and I was not even born ;-).http://news.yahoo.com/s/ap/20081205/ap_on_bi_ge/financial_meltdown 

4.CNN.com, I believe they are most negative hype news organization, they just appended all negative things (as a year, as a month) into one and reported in there front page. See the headline…

“Lost: 1.9 million jobs

The 2008 tally soars after payrolls shrink by 533,000 in November, the biggest one-month decline in nearly 34 years. Unemployment soars to 6.7%.” 

 See the choice of words double “soars”, and just took all 2008 job lost in to account, we have one more report pending for 2008 as whole year. Why can’t they account for since 2000 or 1990, this is called manipulation of data to substantiate some specific objective.

I’m happy that most of the investors agree with me, they didn’t take media’s hype seriously, because market was not crashed today,matter of fact all indexs went up. As always market was already predicated this and now calm bull investors are busy with bargain shopping for both stocks and Christmas gifts for their dear ones.

Recession: Really??

It looks like people are really spending money freely, and malls are again packed with foot traffic. Are we hyping about this recession? I think say last 6-8 years we have a tendency to hype negative news, especially after Sep 11, 2001, I think now also we are hyping about this recession. As per comscore, this year cyber Monday was second heaviest sales on record. May be NBER come back probably on December 2009 to declare that we are not in recession since December 2008, because it took one year to find out that we are at recession since December 2007.  

As of Stock market, it is going up and down like bi-polar disorder, with in minute’s changes from south to north. But clearly unemployment rate is soaring(mainly construction, manufacturing, finance) and house price is keep on plummeting, since both of these affecting people directly plus usual media’s negative hype, we are feeling more recession pain than reality. Sometimes I feel that this is the way it should be, we have to have some discipline with spending habit and reality check. In other words, people flying high 30000 feet above earth and thinking that is normal. But after coming down to earth (reality), feeling depressed and recession and all pain.  

Greatest example is Google,where free 3 times food, free dental, free medical,free massage, free car wash, 20% free time for thinking, free laundry, free movie tickets, free weekend games ticket, free yoga, free meditation, free internet, free phone connection and free gas. Now the name of recession Google going to cut all and people is going to scream and complain about recession. I don’t know for how long they want to enjoy free stuff in a public traded company and high capitalist country and 97% of revenue still come from online ads. It is laughable and illogic. 

But as a country this negative hype is not good. It creates reverse brain drain and reverse migrations. For example, during last recession in Silicon Valley, the same negative hype created some panic with in immigrants and they just left the country to Canada, Australia and to their own country. The major benedictory of this is India, because after the last recession, India boomed a lot because of available experienced returned Information Technology man power with fresh pool of youngsters. But this phenomenon was not well studied or documented.