By OH BOON PING
MUCH has been said of government stimulus packages and the nascent global economic recovery. But have investors given serious thought to the prospect of another crash? In a report, Societe Generale (SocGen) painted a Doomsday scenario in which global economic collapse could recur in the next two years. It advises clients to go short on US dollars and European stocks, and long on government bonds and agricultural commodities. The French bank says state rescue packages over the past year have merely transferred private liabilities on to sagging sovereign shoulders, creating a fresh set of problems. Overall debt, whether public or private, is still far too high in almost all rich economies as a share of gross domestic product - for example, 350 per cent in the US. 'As yet, nobody can say with any certainty whether we have, in fact, escaped the prospect of a global economic collapse,' SocGen says in the 68-page report.
Under its 'bear case' scenario, the greenback is forecast to slide further and global equities could sink to their lows of March this year. Property prices would tumble and oil would fall back to US$50. SocGen says public debt will explode within two years to 105 per cent of GDP in the UK, 125 per cent each in the US and the eurozone, and 270 per cent in Japan - even without fresh spendings. Worldwide state debt will reach US$45 trillion - up two-and-a-half times in a decade. That debt burden is greater than it was after World War II, when nominal levels looked similar.
A new problem this time around is that ageing populations will make it harder to erode debt through growth. 'High public debt looks entirely unsustainable in the long run,' says SocGen. 'We have almost reached a point of no return.' If governments continue to inflate their debt, the implication is the gold price will continue to surge as gold is the only safe haven from paper money. Meanwhile, there is the problem of paying off private debt, even if the US savings rate stabilises at 7 per cent. Assuming that all of this is used to pay down debt, SocGen says it will still take nine years for households to reduce their debt-income ratios to the safe levels of the 1980s. Its analysts draw a parallel between the current state of affairs and Japan during its Lost Decade, except that Japan was able to stay afloat by exporting into a robust global economy and letting the yen fall. 'It is not possible for half the world to pursue this strategy at the same time,' says SocGen.
Under such extreme conditions, it advises selling the dollar and cyclical equities such as technology, autos and travel to avoid being caught in the 'inherent deflationary spiral.' And although emerging markets would not be spared - as they are more leveraged to US growth than Wall Street itself - farm commodities would hold up well, led by sugar. Mining commodities are also favoured as a hedge against a softening dollar, based on persistently strong demand from emerging markets, particularly China. Looking at fixed income markets, SocGen asset chief Daniel Fermon says junk bonds will lose 31 per cent of their value in 2010 alone. However, sovereign bonds will 'generate turbo-charged returns' mimicking the secular slide in yields seen in Japan as a slump grinds on.
At one point, Japan's 10-year yield dropped to 0.4 per cent. The Fed would hold down yields by purchasing more bonds. The European Central Bank would do less, for political reasons. According to Mr Fermon, SocGen's report has electrified clients on both sides of the Atlantic. 'Everybody wants to know what the impact will be. A lot of hedge funds and bankers are worried,' he says.
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Saturday, November 21, 2009
Thursday, November 19, 2009
Blessed FREE time!
The key to success in exploiting opportunities in the stock market lies within you. You must take the initiative the move the "inertia" within you. You must have the sincere desire to break the invisible chain around you. No matter what external factors hinders you from progressing, you will find a way to go around it IF and WHEN you are able to break loose from your own chain. Internal is the reason, external is an excuse. The more excuses we continue to develop for rationalizing our "failures", the heavier the chain around us will become. When your mind is very occupied with excuses, there is time and capacity left to find ways to break the chain! The more time you spend to break the chain, the less time you got to think about the chain! Yes, it is true we have limited time within a day to be productive and progress.
We are blessed with air and time. Yes, they are FREE but we got to pay for water. Because they are FREE, we do not put a value to each of them. Because they are FREE we can afford to waste them! Instead of productively use the blessed Free time, we end up being unproductive entertaining useless thoughts! How do you want to spend your blessed free time?
We are blessed with air and time. Yes, they are FREE but we got to pay for water. Because they are FREE, we do not put a value to each of them. Because they are FREE we can afford to waste them! Instead of productively use the blessed Free time, we end up being unproductive entertaining useless thoughts! How do you want to spend your blessed free time?
Wednesday, November 18, 2009
Mental Block (Blind)
Our mind are still in the primitive stage no matter how advanced we like to think we are at this stage. In fact, insects have the most develop brains. Why? Insects can fly, look for target and attack, all at one go! When we are in the Emotionally depressed mode, there is no way we can switch to Happy mode. This is how primitive our brain development. It is incapable of multi-tasking. It is this primitive mind that hinders our potentials. It is this inability that make us DEAF and BLIND. We can see and refuse to accept what is obvious because our mind is closed! After a long time we finally begin to see when our minds has change to a different mode. That is life. If you ever wonder why you are blind or deaf? Now you got the answer.
More than a decade ago I attended a Sunday sermon by Pastor David Ramayah. He mentioned about our inability to breakout of the emotional trap when we are in the midst of it. Our mind is not capable of switching mode instantly. The essence of the sermon is - We wallow in negative mood even longer prohibiting us from reaching the sky. The day we can take control of this mental siege, sky is the limit. It is we that set ourselves up and not others! Remember we use to hear the following: TIME is all you need! Why? We need time to switch mode. Some people call it healing. Bottom line is we need faith no matter how small it seems to make it work.
More than a decade ago I attended a Sunday sermon by Pastor David Ramayah. He mentioned about our inability to breakout of the emotional trap when we are in the midst of it. Our mind is not capable of switching mode instantly. The essence of the sermon is - We wallow in negative mood even longer prohibiting us from reaching the sky. The day we can take control of this mental siege, sky is the limit. It is we that set ourselves up and not others! Remember we use to hear the following: TIME is all you need! Why? We need time to switch mode. Some people call it healing. Bottom line is we need faith no matter how small it seems to make it work.
Tuesday, November 17, 2009
Trading & Personality
Trading in many ways helps one to reveal one's underlying personality. Personality under your skin will be exposed in this arena no matter how well you try to hide from others. You will discover whether you are "overcomer","sore loser", persistence, calm, confident or even the panicky type.
Trading is a game and business where it draws maximum out from your inner-self. IT is a very tiring and mentally stressed game if you do not have the energy, patience, passion, dedication and determination to run this race. It is exposing yourself to a game (life) where at times logic and common sense matters. Other times thing are illogical and don't make sense. Our daily events are no different. The more you try to squeeze and push, the more things turn out differently. When you start to accept and flow with it, things become simpler and easy to flow. Trading is no different. The more you struggle trying to impose your wills and ways, the more it goes against you. Trading evolve things beyond our control. We either accept it and flow with it or reject and fight!
IF our personality is the type that look into the nitty gritty details and fail to see the big picture, my bet is you are leading a miserable life full of frustration missing the joy of life. It is rare one has both micro and macro management skills. Why? Simply because our brains has time and capacity limitations. Have you come across account auditors that are successful money managers. Infact, they are the unfriendly one!
Trading and managing money (not keeping in the safe) involves a patience, determination, dedication, determination, passion, hunger for success, always willing to learn with and open mind and most of the joy of doing it! When you have these attributes, slowly overtime you be able to manage money and life in a positive way. Increasing your wealth as you radiates brightly. Yes, our attitude toward money will be reflected in our daily lives.
Look around and try to list the attributes of people close to you that you know are under performer in money management (dependent on others) and fail to excel in anything! The common attributes are fixed and closed mindset, passion for complaints, confrontational,always frustrated, blame others and not taking responsibility, forever looking for sympathy instead of working towards solutions, determination to self destruct, nothing positive comes out from the mind and mouths. Last but not least, NO INITIATIVE TO UPGRADE KNOWLEDGE and SKILLS. How can one improve if you don't take the first step to move? Mao Tse Tung aptly put it... A thousand mile start with a small step! If you don't take the first step, you will forever remain where you are.
Remember to look at the BIG picture and slowly tailor the small picture. That is how one step into success in anything you do. Seek ..you shall find. Knock...and the door shall open.
Trading is a game and business where it draws maximum out from your inner-self. IT is a very tiring and mentally stressed game if you do not have the energy, patience, passion, dedication and determination to run this race. It is exposing yourself to a game (life) where at times logic and common sense matters. Other times thing are illogical and don't make sense. Our daily events are no different. The more you try to squeeze and push, the more things turn out differently. When you start to accept and flow with it, things become simpler and easy to flow. Trading is no different. The more you struggle trying to impose your wills and ways, the more it goes against you. Trading evolve things beyond our control. We either accept it and flow with it or reject and fight!
IF our personality is the type that look into the nitty gritty details and fail to see the big picture, my bet is you are leading a miserable life full of frustration missing the joy of life. It is rare one has both micro and macro management skills. Why? Simply because our brains has time and capacity limitations. Have you come across account auditors that are successful money managers. Infact, they are the unfriendly one!
Trading and managing money (not keeping in the safe) involves a patience, determination, dedication, determination, passion, hunger for success, always willing to learn with and open mind and most of the joy of doing it! When you have these attributes, slowly overtime you be able to manage money and life in a positive way. Increasing your wealth as you radiates brightly. Yes, our attitude toward money will be reflected in our daily lives.
Look around and try to list the attributes of people close to you that you know are under performer in money management (dependent on others) and fail to excel in anything! The common attributes are fixed and closed mindset, passion for complaints, confrontational,always frustrated, blame others and not taking responsibility, forever looking for sympathy instead of working towards solutions, determination to self destruct, nothing positive comes out from the mind and mouths. Last but not least, NO INITIATIVE TO UPGRADE KNOWLEDGE and SKILLS. How can one improve if you don't take the first step to move? Mao Tse Tung aptly put it... A thousand mile start with a small step! If you don't take the first step, you will forever remain where you are.
Remember to look at the BIG picture and slowly tailor the small picture. That is how one step into success in anything you do. Seek ..you shall find. Knock...and the door shall open.
Thursday, November 12, 2009
TZ says COUNT YOUR BLESSING & BE GRATEFUL
WSJ.com - Life on Severance: Comfort, Then Crisis - Wednesday, November 11, 2009
Paul Joegriner hasn't worked since March 2008, when he was laid off from his $200,000-a-year job as chief executive officer of a small bank. But you wouldn't know it by appearances. His wife, Marzena, shuttles their two young children to private school every morning. The family recently vacationed in Virginia Beach, Va., and likes to dine on Porterhouse steaks. Since losing his job, Mr. Joegriner, 44 years old, has had several offers. He's turned each down in hopes of landing a position comparable to what he held before. The family's lifestyle over the past year and a half has been propped up by a $200,000 severance package and another $100,000 in savings -- funds the family has burned through rapidly. By Mr. Joegriner's own calculations, the family will be out of money in six months if he doesn't find work. "It will be D-Day," he says. "But on the outside, no one has any idea that we're in trouble."
Mr. Joegriner is a member of what might be called the severance economy -- unemployed Americans who use severance pay and savings to maintain their lifestyles. Many lost their jobs in 2007 and 2008, and thought they'd soon find work. Now, they're getting desperate. Last week, lawmakers passed a bill extending unemployment benefits up to 20 weeks. Unemployment benefits, which typically last about 26 weeks, were expected to run out for 1.3 million people by the end of the year, according to the National Employment Law Project.
All of this is happening as the long-term jobless rate hits its highest point on record. More than a third of those who are out of work have been looking for more than six months, making this category of unemployed the biggest since the Bureau of Labor Statistics began tracking it in 1948. Overall, companies have been eliminating or trimming severance packages. For those who do receive severance, the median pay allotted is 12.5 weeks' salary, down from 21.8 weeks a decade ago, according to outplacement firm Challenger, Gray & Christmas. But this downturn has brought heavy layoffs to the financial and auto industries, two places where generous exit packages remain more common. The dramatic changes in such sectors mean that many of the eliminated jobs will never come back. Some workers may suffer a permanent hit to their standard of living.
Those affected often have trouble accepting their diminished prospects. Hefty severance packages, while intended as a safety net, can lull the unemployed into a false sense of security. Some people continue spending as before. "There is an end date when that severance is going to run out," says Ellen Turf, chief executive of the National Association of Personal Financial Advisors. "At that point, the only life preserver is unemployment or getting another job....It's an awful situation."
When Michelle Patterson was laid off as an executive director of marketing for a publishing company in January, she figured she could subsist comfortably, at least for a while, on the $20,000 she had reserved from her savings and severance combined. She continued to eat out regularly and made daily Starbucks runs. "It made me feel like I was still at work," says the 41-year-old resident of Newark, N.J. She spent as much as $250 a week on networking meals and drinks with contacts. Some days, she scheduled up to four coffee meetings a day, picking up the tab most of the time. She also spent $30 a month for pedicures and $150 on her hair. The reckoning came in August, when she examined her finances. Her condo had been on the market for six months but she'd yet to receive a single offer. Her severance and savings were nearly gone. She finally cut her spending. She doesn't dine out anymore. Gone are the fancy salon visits; Ms. Patterson sips Starbucks just once a week. She downgraded her cable TV to basic channels, saving $8 a month. Ms. Patterson sometimes wishes she had cut her spending earlier. But the money spent networking and socializing, she says, has "helped [me] keep sane." Like many of the long-term unemployed, she surfs sites like Monster.com and is a "serial resume; sender" -- emailing at least 10 resumes a day. Still, "I keep running into dead ends," she says. Coming to terms with the new job math hasn't been easy. Ms. Patterson's old salary was $140,000 a year. Now she is targeting jobs paying about half that. She recently turned down a per-diem arrangement earning $250 a week, or a mere $13,000 a year, selling education software.
After working for more than a decade in New York ad shops, Chuck Hipsher moved to Detroit in 2005. He took a position at the Campbell-Ewald agency, where he helped launch the Chevrolet Silverado campaign. Raised riding in the back of his grandfather's Chevy pickup in Iowa, Mr. Hipsher, 50, says he was "elated" at the opportunity. He met his wife at the ad agency, and the two had a $40,000 wedding. Kelly Hipsher, 32, was laid off in October 2007 and found out she was pregnant in February 2008. A week later, Mr. Hipsher's pink slip followed. Two months after that, the out-of-work couple moved to Greenville, S.C., to be closer to family and get a fresh start. Together, they had received about $60,000 in severance. "Now we have $600 to our name," says Mr. Hipsher. Although their rent was cheaper, Mr. Hipsher says the family continued to spend like before. They moved with three cars -- two BMWs and a Chevy Silverado. They continued to buy cases of $36-a-bottle wine. They spent $250 a month on a cleaning lady, and Mr. Hipsher dropped $50 a week on flowers for his wife. The couple still dined out regularly. "We were stupid," he says. "You become accustomed to a certain lifestyle. When your world changes and things dictate that you change, you're pretty stubborn to give things up." He sold the BMWs and voluntarily turned in his beloved Silverado to avoid the repo man. "It was heartbreaking," he says. He replaced the fancy wheels with a Chrysler minivan. Before the layoffs, the Hipshers had no debt. Today, they owe about $70,000 -- including money borrowed from family members and $31,000 in credit-card debt. To hold off the collection companies that call daily, Mr. Hipsher says he is doing his best but is also considering filing for personal bankruptcy. After a stint selling new and used BMWs on a lot in Greenville, Mr. Hipsher recently began consulting for free for a small marketing firm, "to stay busy." In September, a Web solutions company hired him as a marketing director. Between salary and commission, he thought he could match half his old income. But so far, he says he's only received about $1,220. Tight for cash recently, he pawned his wife's $12,000 wedding ring for a $2,000 loan. He has until Dec. 28 to pay back the principal, plus $500 in interest -- or else he forfeits the ring. Looking back, he kicks himself for failing to enforce financial discipline right after losing his job in Detroit. "That precious nest egg is gone," he says.
Mr. Joegriner began his career in banking more than 20 years ago, starting out as a part-time teller in Chevy Chase, Md. Even though he was still in college, his goal was to be a CEO. He took night classes to enhance his knowledge of banking. Mr. Joegriner says he never craved a lavish lifestyle. When the first of their two children was born in 2000, his wife left her $50,000-year-job as a paralegal.The family settled in Silver Spring rather than pricier communities nearby. Instead of tailored suits for $1,000, he bought off-the-rack styles for $300. Mr. Joegriner purchased a Mercedes five years ago, but at auction. After losing his job, Mr. Joegriner expected to land on his feet within six months, he says. In that time, he turned down three job offers to be a chief financial officer, either because he didn't like the salary or the description of duties, and thought he could do better. One was nearby; the others would have required the family to move out of state. All paid somewhat less than he had previously earned. While he says he's "not a bean counter," Mr. Joegriner now has mixed emotions about turning down the jobs. He estimates he has sent out about 3,000 copies of his resume; thus far. His severance package included the services of an outplacement firm, but he didn't find it helpful. "Unemployed people networking with other unemployed people has little value," he says. After years of being a chief executive and hiring people, it's been a tough adjustment. Recently, he began shooting off his resume; for mid- and senior-level positions "just to try and land something." No replies. Mr. Joegriner's mornings now start with a coffee run to the nearby 7-Eleven six days a week. While pouring his regular brew and a cup to take home to his wife, he calculates that by recycling the cups, he receives a 32-cent discount per $1.37 serving. That's a savings of $3.84 a week, he reckons -- even though this small "luxury" for the two of them still costs a total of about $655 a year. Next, he typically spends a couple of hours doing home repairs. Since his layoff, he's installed a retaining wall, put under-cabinet lights in the kitchen and tiled a kitchen backsplash for a friend. "It's my Zen," he says. He's holding off outfitting a bathroom sink with a marble countertop. By late morning, he launches into job-hunt mode. While trolling job Web sites, Mr. Joegriner toggles to a multicolored, multitabulated Excel spreadsheet that calculates the household budget, as well as the "burn rate" through the family's dwindling savings. Mr. Joegriner goes grocery shopping in the afternoon. Armed with coupons collected in a shoebox above the fridge, he strides down the aisles, striking out items from his wife's list with a black pen as he goes. His brow furrows reading the fine print on a cereal coupon his wife handed him. "It says $1.50 off cereal," he says. "But that's only if you buy three. So, really, it's only 50 cents off." He pushes his grocery cart on a Friday afternoon through the full parking lot. "Sometimes I look at all this and think, 'Are we the only ones struggling?' You look around and see all these cars, it's like there's no recession." Cutting expenses for their children, Ian and Skye, has been particularly tough, the couple says. Piano lessons are no more and birthday parties are small and held at home. Next year, private-school tuition, which costs $13,000 for the two children, will get the ax. Mr. Joegriner doesn't use the word "unemployed" in front of his children, ages 9 and 6, preferring to say that he's a consultant and that income is patchy. Rough times have even moved him to contemplate seasonal employment this winter, "a stopgap job," while he continues his executive job search. "Maybe something at night stocking shelves," he says. "That way people wouldn't have to see me." Mrs. Joegriner recently began looking for work as a paralegal. But finding an employer who can accommodate her schedule with the children, she says, has been difficult. The Joegriner's four-bedroom residence is currently worth less than their $460,000 mortgage, but they're still making monthly payments of $2,400. The couple is also saddled with two former residences -- which they once considered investment properties. While both are income-producing, low rents and declining real-estate values mean that they barely break even. At this point, any sale would likely result in a loss. Originally committed to staying in the Washington, D.C., area, Mr. Joegriner expanded his search. In September, the family flew to tiny Gillette, Wyo., where Mr. Joegriner was in the final interview stages for a CEO position at a credit union. The salary was $60,000 less than what he earned before, and uprooting his family from Maryland would be difficult. But they all seemed excited about a possible move. A few days later, Mr. Joegriner received an offer and a contract. Despite the earlier enthusiasm, doubts began to surface. "What if we went all the way out there and they laid me off?" After fruitless negotiations, he turned down the job. The reason: The position didn't include a guarantee of severance pay. Says Mr. Joegriner: "I just couldn't take the risk."
Write to Mary Pilon at mary.pilon@wsj.com
Paul Joegriner hasn't worked since March 2008, when he was laid off from his $200,000-a-year job as chief executive officer of a small bank. But you wouldn't know it by appearances. His wife, Marzena, shuttles their two young children to private school every morning. The family recently vacationed in Virginia Beach, Va., and likes to dine on Porterhouse steaks. Since losing his job, Mr. Joegriner, 44 years old, has had several offers. He's turned each down in hopes of landing a position comparable to what he held before. The family's lifestyle over the past year and a half has been propped up by a $200,000 severance package and another $100,000 in savings -- funds the family has burned through rapidly. By Mr. Joegriner's own calculations, the family will be out of money in six months if he doesn't find work. "It will be D-Day," he says. "But on the outside, no one has any idea that we're in trouble."
Mr. Joegriner is a member of what might be called the severance economy -- unemployed Americans who use severance pay and savings to maintain their lifestyles. Many lost their jobs in 2007 and 2008, and thought they'd soon find work. Now, they're getting desperate. Last week, lawmakers passed a bill extending unemployment benefits up to 20 weeks. Unemployment benefits, which typically last about 26 weeks, were expected to run out for 1.3 million people by the end of the year, according to the National Employment Law Project.
All of this is happening as the long-term jobless rate hits its highest point on record. More than a third of those who are out of work have been looking for more than six months, making this category of unemployed the biggest since the Bureau of Labor Statistics began tracking it in 1948. Overall, companies have been eliminating or trimming severance packages. For those who do receive severance, the median pay allotted is 12.5 weeks' salary, down from 21.8 weeks a decade ago, according to outplacement firm Challenger, Gray & Christmas. But this downturn has brought heavy layoffs to the financial and auto industries, two places where generous exit packages remain more common. The dramatic changes in such sectors mean that many of the eliminated jobs will never come back. Some workers may suffer a permanent hit to their standard of living.
Those affected often have trouble accepting their diminished prospects. Hefty severance packages, while intended as a safety net, can lull the unemployed into a false sense of security. Some people continue spending as before. "There is an end date when that severance is going to run out," says Ellen Turf, chief executive of the National Association of Personal Financial Advisors. "At that point, the only life preserver is unemployment or getting another job....It's an awful situation."
When Michelle Patterson was laid off as an executive director of marketing for a publishing company in January, she figured she could subsist comfortably, at least for a while, on the $20,000 she had reserved from her savings and severance combined. She continued to eat out regularly and made daily Starbucks runs. "It made me feel like I was still at work," says the 41-year-old resident of Newark, N.J. She spent as much as $250 a week on networking meals and drinks with contacts. Some days, she scheduled up to four coffee meetings a day, picking up the tab most of the time. She also spent $30 a month for pedicures and $150 on her hair. The reckoning came in August, when she examined her finances. Her condo had been on the market for six months but she'd yet to receive a single offer. Her severance and savings were nearly gone. She finally cut her spending. She doesn't dine out anymore. Gone are the fancy salon visits; Ms. Patterson sips Starbucks just once a week. She downgraded her cable TV to basic channels, saving $8 a month. Ms. Patterson sometimes wishes she had cut her spending earlier. But the money spent networking and socializing, she says, has "helped [me] keep sane." Like many of the long-term unemployed, she surfs sites like Monster.com and is a "serial resume; sender" -- emailing at least 10 resumes a day. Still, "I keep running into dead ends," she says. Coming to terms with the new job math hasn't been easy. Ms. Patterson's old salary was $140,000 a year. Now she is targeting jobs paying about half that. She recently turned down a per-diem arrangement earning $250 a week, or a mere $13,000 a year, selling education software.
After working for more than a decade in New York ad shops, Chuck Hipsher moved to Detroit in 2005. He took a position at the Campbell-Ewald agency, where he helped launch the Chevrolet Silverado campaign. Raised riding in the back of his grandfather's Chevy pickup in Iowa, Mr. Hipsher, 50, says he was "elated" at the opportunity. He met his wife at the ad agency, and the two had a $40,000 wedding. Kelly Hipsher, 32, was laid off in October 2007 and found out she was pregnant in February 2008. A week later, Mr. Hipsher's pink slip followed. Two months after that, the out-of-work couple moved to Greenville, S.C., to be closer to family and get a fresh start. Together, they had received about $60,000 in severance. "Now we have $600 to our name," says Mr. Hipsher. Although their rent was cheaper, Mr. Hipsher says the family continued to spend like before. They moved with three cars -- two BMWs and a Chevy Silverado. They continued to buy cases of $36-a-bottle wine. They spent $250 a month on a cleaning lady, and Mr. Hipsher dropped $50 a week on flowers for his wife. The couple still dined out regularly. "We were stupid," he says. "You become accustomed to a certain lifestyle. When your world changes and things dictate that you change, you're pretty stubborn to give things up." He sold the BMWs and voluntarily turned in his beloved Silverado to avoid the repo man. "It was heartbreaking," he says. He replaced the fancy wheels with a Chrysler minivan. Before the layoffs, the Hipshers had no debt. Today, they owe about $70,000 -- including money borrowed from family members and $31,000 in credit-card debt. To hold off the collection companies that call daily, Mr. Hipsher says he is doing his best but is also considering filing for personal bankruptcy. After a stint selling new and used BMWs on a lot in Greenville, Mr. Hipsher recently began consulting for free for a small marketing firm, "to stay busy." In September, a Web solutions company hired him as a marketing director. Between salary and commission, he thought he could match half his old income. But so far, he says he's only received about $1,220. Tight for cash recently, he pawned his wife's $12,000 wedding ring for a $2,000 loan. He has until Dec. 28 to pay back the principal, plus $500 in interest -- or else he forfeits the ring. Looking back, he kicks himself for failing to enforce financial discipline right after losing his job in Detroit. "That precious nest egg is gone," he says.
Mr. Joegriner began his career in banking more than 20 years ago, starting out as a part-time teller in Chevy Chase, Md. Even though he was still in college, his goal was to be a CEO. He took night classes to enhance his knowledge of banking. Mr. Joegriner says he never craved a lavish lifestyle. When the first of their two children was born in 2000, his wife left her $50,000-year-job as a paralegal.The family settled in Silver Spring rather than pricier communities nearby. Instead of tailored suits for $1,000, he bought off-the-rack styles for $300. Mr. Joegriner purchased a Mercedes five years ago, but at auction. After losing his job, Mr. Joegriner expected to land on his feet within six months, he says. In that time, he turned down three job offers to be a chief financial officer, either because he didn't like the salary or the description of duties, and thought he could do better. One was nearby; the others would have required the family to move out of state. All paid somewhat less than he had previously earned. While he says he's "not a bean counter," Mr. Joegriner now has mixed emotions about turning down the jobs. He estimates he has sent out about 3,000 copies of his resume; thus far. His severance package included the services of an outplacement firm, but he didn't find it helpful. "Unemployed people networking with other unemployed people has little value," he says. After years of being a chief executive and hiring people, it's been a tough adjustment. Recently, he began shooting off his resume; for mid- and senior-level positions "just to try and land something." No replies. Mr. Joegriner's mornings now start with a coffee run to the nearby 7-Eleven six days a week. While pouring his regular brew and a cup to take home to his wife, he calculates that by recycling the cups, he receives a 32-cent discount per $1.37 serving. That's a savings of $3.84 a week, he reckons -- even though this small "luxury" for the two of them still costs a total of about $655 a year. Next, he typically spends a couple of hours doing home repairs. Since his layoff, he's installed a retaining wall, put under-cabinet lights in the kitchen and tiled a kitchen backsplash for a friend. "It's my Zen," he says. He's holding off outfitting a bathroom sink with a marble countertop. By late morning, he launches into job-hunt mode. While trolling job Web sites, Mr. Joegriner toggles to a multicolored, multitabulated Excel spreadsheet that calculates the household budget, as well as the "burn rate" through the family's dwindling savings. Mr. Joegriner goes grocery shopping in the afternoon. Armed with coupons collected in a shoebox above the fridge, he strides down the aisles, striking out items from his wife's list with a black pen as he goes. His brow furrows reading the fine print on a cereal coupon his wife handed him. "It says $1.50 off cereal," he says. "But that's only if you buy three. So, really, it's only 50 cents off." He pushes his grocery cart on a Friday afternoon through the full parking lot. "Sometimes I look at all this and think, 'Are we the only ones struggling?' You look around and see all these cars, it's like there's no recession." Cutting expenses for their children, Ian and Skye, has been particularly tough, the couple says. Piano lessons are no more and birthday parties are small and held at home. Next year, private-school tuition, which costs $13,000 for the two children, will get the ax. Mr. Joegriner doesn't use the word "unemployed" in front of his children, ages 9 and 6, preferring to say that he's a consultant and that income is patchy. Rough times have even moved him to contemplate seasonal employment this winter, "a stopgap job," while he continues his executive job search. "Maybe something at night stocking shelves," he says. "That way people wouldn't have to see me." Mrs. Joegriner recently began looking for work as a paralegal. But finding an employer who can accommodate her schedule with the children, she says, has been difficult. The Joegriner's four-bedroom residence is currently worth less than their $460,000 mortgage, but they're still making monthly payments of $2,400. The couple is also saddled with two former residences -- which they once considered investment properties. While both are income-producing, low rents and declining real-estate values mean that they barely break even. At this point, any sale would likely result in a loss. Originally committed to staying in the Washington, D.C., area, Mr. Joegriner expanded his search. In September, the family flew to tiny Gillette, Wyo., where Mr. Joegriner was in the final interview stages for a CEO position at a credit union. The salary was $60,000 less than what he earned before, and uprooting his family from Maryland would be difficult. But they all seemed excited about a possible move. A few days later, Mr. Joegriner received an offer and a contract. Despite the earlier enthusiasm, doubts began to surface. "What if we went all the way out there and they laid me off?" After fruitless negotiations, he turned down the job. The reason: The position didn't include a guarantee of severance pay. Says Mr. Joegriner: "I just couldn't take the risk."
Write to Mary Pilon at mary.pilon@wsj.com
Wednesday, November 11, 2009
Another global recession likely in 2010 - Wednesday November 11, 2009
HONG KONG: Albert Edwards, an analyst at French bank Societe Generale who correctly predicted the Asian financial crisis, sees global equity markets at a new low and chances of another global recession in 2010. Edwards, a prominent equities bear and a long-term critic of the policies of Western central banks, is sceptical of popular opinion that extreme policy responses will safeguard the West against a repeat of Japan’s “lost decade” of the 1990’s.
“People should question the happy clappy nonsense from sellside analysts,” London-based Edwards, a global strategist with SocGen’s Corporate & Investment Banking group, told a media briefing. “We are not saying that people should not participate in the rallies – that will get you fired as a fund manager – but they should not become too convinced of the recovery,” he said.
Edwards is more worried about Japan in the near term as he expects the world’s second-largest economy to run into difficulty funding itself next year as demand for Japanese government bonds wane and bond yields rise further. The significance of higher Japanese government bond yields was that it would cause some Japanese investors, who have been investing overseas in search of higher returns, to bring that money back home, he said.
Edwards expected China to go into a recession at some point as cyclicality catches up with the economy, and called people’s excessive faith in growth stories a “sick joke”. He said while inflation was a concern, deflation was a bigger worry in the near term, at a time when Western and Japanese governments were effectively insolvent.
“If we get an economic downturn next year, when you have got core inflation at half a percent, I think there will be a real deflation panic, a bit like in Japan.” Edwards picked grains like corn, wheat and soybeans as a more secular bet on China’s growth story over other commodities and their related stocks as these have lagged the broad rally in the markets.
“Equity valuations have been totally ridiculous for the last 10 years but I’m less bearish than I was two years ago because we have had one round of correction,” said Edwards. — Reuters
“People should question the happy clappy nonsense from sellside analysts,” London-based Edwards, a global strategist with SocGen’s Corporate & Investment Banking group, told a media briefing. “We are not saying that people should not participate in the rallies – that will get you fired as a fund manager – but they should not become too convinced of the recovery,” he said.
Edwards is more worried about Japan in the near term as he expects the world’s second-largest economy to run into difficulty funding itself next year as demand for Japanese government bonds wane and bond yields rise further. The significance of higher Japanese government bond yields was that it would cause some Japanese investors, who have been investing overseas in search of higher returns, to bring that money back home, he said.
Edwards expected China to go into a recession at some point as cyclicality catches up with the economy, and called people’s excessive faith in growth stories a “sick joke”. He said while inflation was a concern, deflation was a bigger worry in the near term, at a time when Western and Japanese governments were effectively insolvent.
“If we get an economic downturn next year, when you have got core inflation at half a percent, I think there will be a real deflation panic, a bit like in Japan.” Edwards picked grains like corn, wheat and soybeans as a more secular bet on China’s growth story over other commodities and their related stocks as these have lagged the broad rally in the markets.
“Equity valuations have been totally ridiculous for the last 10 years but I’m less bearish than I was two years ago because we have had one round of correction,” said Edwards. — Reuters
Tuesday, November 10, 2009
Beware of low interest rates - they may bubble over - Business Times - 10 Nov 2009
By ROBERT SAMUELSON
WHEN Nouriel Roubini talks, the world listens. Prof Roubini is, of course, the once-obscure New York University economist whose dire warnings about a financial crisis proved depressingly prophetic. Last week, Prof Roubini was shouting. Writing in the Financial Times, he warned that the Federal Reserve and other government central banks are fuelling a massive new asset 'bubble' that - while not in imminent danger of bursting - will someday do so with calamitous consequences. Here's Prof Roubini's argument. The Fed is holding short-term interest rates near zero. Investors and speculators borrow US dollars cheaply and use them to buy various assets - stocks, bonds, gold, oil, minerals, foreign currencies. Prices rise. Huge profits can be made. But this can't last, Prof Roubini warns. The Fed will eventually raise interest rates. Or outside events (a confrontation with Iran, fear of a double-dip recession) will change market psychology. Then, investors will rush to lock in profits, and the sell-off will trigger a crash. Stock, bond and commodity prices will plunge. Losses will mount, confidence will fall and the real economy will suffer. 'The Fed and other policymakers seem unaware of the monster bubble they are creating,' he writes.
Haven't we seen this movie before? Well, maybe. Like home values a few years ago, asset prices have risen spectacularly. Since its March 9 low, the US stock market has gained more than 50 per cent. An index of stocks for 22 'emerging market' countries (including Brazil, China and India) has doubled from its recent low. Oil at about US$80 a barrel has increased 150 per cent from its recent low of US$31. Gold is near an all-time high around US$1,090 an ounce. Meanwhile, the US dollar has dropped against many currencies. Half of Prof Roubini's story resonates. But the other half is less convincing: that prices, driven by cheap loans, have reached speculative levels. Remember that the economy seemed in a free fall early this year. Terrified consumers and cautious companies hoarded cash, cut spending and dumped stocks. Since then, the mood and economic indicators have improved. Higher stock and commodity prices have mostly recovered the big losses of those panicky months.
Today's prices are usually below previous peaks. Oil's peak was nearly US$150 a barrel. Similarly, the S&P 500 stock index, around 1,065, is a third lower than its peak on Oct 9, 2007 (1,565.15), and roughly where it was on Election Day 2008 (1,005.75). By historical price-earnings ratios - the ratio of stock prices to per-share profits - these levels can be justified, if the economic recovery continues. With massive layoffs, business costs have been cut sharply. Nor is it clear that cheap US dollar loans are promoting speculation. 'In the United States and Europe, banks are reducing lending,' says economist Hung Tran of the Institute of International Finance, a research organisation of financial institutions. 'You see hedge funds taking on less leverage (borrowed money) than in 2007.' What actually happened, he says, is that as investors became less fearful, they moved funds from cash into other markets, pushing up prices. He cites outflows this year from money market mutual funds exceeding US$300 billion.
Indeed, that's what the Fed wants, argues economist Drew Matus of Bank of America. Low interest rates on money market funds and current accounts are 'trying to force you to do something with it (the money)' - either spend it or invest it. Depression prevention means supporting consumption and asset markets. So, Prof Roubini's new bubble remains unproved. But this doesn't invalidate his warning. We've learned that there's a thin line between promoting economic expansion and fostering bubbles. With hindsight, lax Fed policies contributed to both the 'tech' bubble of the late 1990s and the recent housing bubble, though how much is debatable.
The most worrying signs of speculative excesses, says Mr Tran, involve some Asian and Latin American developing countries. They've received sizable capital inflows (money from abroad). These have boosted local stock markets and reflect disaffection with the US dollar. Their central banks - imitating the Fed - have also kept local interest rates low, fuelling rapid credit growth. Some of their stock markets have exceeded previous highs. These countries face a dilemma. Raising rates may attract more 'hot' foreign capital; keeping them low may encourage speculative borrowing in local currency. But the dilemma arises from the Fed's low interest rates and the weak US dollar. The conclusion: How deftly the Fed navigates from its present policy matters for the world as well as the US. If it's too fast, it may kill the economic recovery; if it's too slow, it may spawn bubbles - and kill the recovery. -- The Washington Post Writers Group
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
WHEN Nouriel Roubini talks, the world listens. Prof Roubini is, of course, the once-obscure New York University economist whose dire warnings about a financial crisis proved depressingly prophetic. Last week, Prof Roubini was shouting. Writing in the Financial Times, he warned that the Federal Reserve and other government central banks are fuelling a massive new asset 'bubble' that - while not in imminent danger of bursting - will someday do so with calamitous consequences. Here's Prof Roubini's argument. The Fed is holding short-term interest rates near zero. Investors and speculators borrow US dollars cheaply and use them to buy various assets - stocks, bonds, gold, oil, minerals, foreign currencies. Prices rise. Huge profits can be made. But this can't last, Prof Roubini warns. The Fed will eventually raise interest rates. Or outside events (a confrontation with Iran, fear of a double-dip recession) will change market psychology. Then, investors will rush to lock in profits, and the sell-off will trigger a crash. Stock, bond and commodity prices will plunge. Losses will mount, confidence will fall and the real economy will suffer. 'The Fed and other policymakers seem unaware of the monster bubble they are creating,' he writes.
Haven't we seen this movie before? Well, maybe. Like home values a few years ago, asset prices have risen spectacularly. Since its March 9 low, the US stock market has gained more than 50 per cent. An index of stocks for 22 'emerging market' countries (including Brazil, China and India) has doubled from its recent low. Oil at about US$80 a barrel has increased 150 per cent from its recent low of US$31. Gold is near an all-time high around US$1,090 an ounce. Meanwhile, the US dollar has dropped against many currencies. Half of Prof Roubini's story resonates. But the other half is less convincing: that prices, driven by cheap loans, have reached speculative levels. Remember that the economy seemed in a free fall early this year. Terrified consumers and cautious companies hoarded cash, cut spending and dumped stocks. Since then, the mood and economic indicators have improved. Higher stock and commodity prices have mostly recovered the big losses of those panicky months.
Today's prices are usually below previous peaks. Oil's peak was nearly US$150 a barrel. Similarly, the S&P 500 stock index, around 1,065, is a third lower than its peak on Oct 9, 2007 (1,565.15), and roughly where it was on Election Day 2008 (1,005.75). By historical price-earnings ratios - the ratio of stock prices to per-share profits - these levels can be justified, if the economic recovery continues. With massive layoffs, business costs have been cut sharply. Nor is it clear that cheap US dollar loans are promoting speculation. 'In the United States and Europe, banks are reducing lending,' says economist Hung Tran of the Institute of International Finance, a research organisation of financial institutions. 'You see hedge funds taking on less leverage (borrowed money) than in 2007.' What actually happened, he says, is that as investors became less fearful, they moved funds from cash into other markets, pushing up prices. He cites outflows this year from money market mutual funds exceeding US$300 billion.
Indeed, that's what the Fed wants, argues economist Drew Matus of Bank of America. Low interest rates on money market funds and current accounts are 'trying to force you to do something with it (the money)' - either spend it or invest it. Depression prevention means supporting consumption and asset markets. So, Prof Roubini's new bubble remains unproved. But this doesn't invalidate his warning. We've learned that there's a thin line between promoting economic expansion and fostering bubbles. With hindsight, lax Fed policies contributed to both the 'tech' bubble of the late 1990s and the recent housing bubble, though how much is debatable.
The most worrying signs of speculative excesses, says Mr Tran, involve some Asian and Latin American developing countries. They've received sizable capital inflows (money from abroad). These have boosted local stock markets and reflect disaffection with the US dollar. Their central banks - imitating the Fed - have also kept local interest rates low, fuelling rapid credit growth. Some of their stock markets have exceeded previous highs. These countries face a dilemma. Raising rates may attract more 'hot' foreign capital; keeping them low may encourage speculative borrowing in local currency. But the dilemma arises from the Fed's low interest rates and the weak US dollar. The conclusion: How deftly the Fed navigates from its present policy matters for the world as well as the US. If it's too fast, it may kill the economic recovery; if it's too slow, it may spawn bubbles - and kill the recovery. -- The Washington Post Writers Group
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Insider selling in US not a sell signal this time - Business Times - 10 Nov 2009
Analysts cite executives' cash-flow problems in wake of crisis
(NEW YORK) US corporate bosses are likely to sell more of their companies' stock through the end of the year, but that does not mean stock prices have topped. Insider selling recently hit its highest level in more than a year. Conventional wisdom says it's time to sell when corporate leaders start cashing in on gains as it signals a lack of confidence with the corporate outlook, but in the wake of the 50 per cent decline, that expectation may be incorrect. Executives have sold personal holdings in the last few months for other reasons, analysts say, including cash-flow problems following the wipeout in equities, tighter credit conditions and a desire for greater diversification.
'Under the circumstances you need to be a little bit sceptical of the numbers,' said Scott Marcouiller, senior equity market strategist at Wells Fargo Advisors in St Louis. 'These guys took some major hits.' Insiders sold US$6.2 billion worth of shares in August, the most since May 2008, while insider buying has been under US$1 billion for seven straight months for the first time since 2005, according to a report by research firm TrimTabs. Because insiders cannot trade around earnings season, insider volume at US$3.6 billion in October was about half that in August, but the actions of executives at many companies that have reported suggest selling will pick up. A Goldman Sachs finance executive sold US$3 million in shares shortly after the company posted better-than-expected third quarter results in October. Tupperware Brands Corp's chief executive, Rick Goings, along with five other insiders, sold US$10 million worth of stock after the company beat third-quarter earnings estimates in mid-October.
Insider selling has been a more reliable indicator of trouble at a specific company than as a market barometer. May 2008, the last time insider selling was at comparable levels to this summer, was a good time to sell, even though it was several months after the October 2007 market peak. Ben Silverman, director of research at Insider Score, a company that tracks trading by insiders, says many factors can muddy the bigger picture when trying to draw a conclusion from insider selling. A percentage of selling volume is made up of options on the company's stock which are usually sold because they are about to expire, rather than because of fundamental views on a company or the direction of the market.
Many directors and executives have existing programs that automatically result in sales on a monthly or quarterly basis. Sometimes, directors with a seat on more than one board might sell shares in one company to meet a margin call on money borrowed against the shares of another. After the shock of seeing large chunks of their wealth destroyed during the crisis, corporate insiders may be starting to diversify, selling some holdings in their own companies, upon which much of their livelihood depends\. \-- Reuters
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
(NEW YORK) US corporate bosses are likely to sell more of their companies' stock through the end of the year, but that does not mean stock prices have topped. Insider selling recently hit its highest level in more than a year. Conventional wisdom says it's time to sell when corporate leaders start cashing in on gains as it signals a lack of confidence with the corporate outlook, but in the wake of the 50 per cent decline, that expectation may be incorrect. Executives have sold personal holdings in the last few months for other reasons, analysts say, including cash-flow problems following the wipeout in equities, tighter credit conditions and a desire for greater diversification.
'Under the circumstances you need to be a little bit sceptical of the numbers,' said Scott Marcouiller, senior equity market strategist at Wells Fargo Advisors in St Louis. 'These guys took some major hits.' Insiders sold US$6.2 billion worth of shares in August, the most since May 2008, while insider buying has been under US$1 billion for seven straight months for the first time since 2005, according to a report by research firm TrimTabs. Because insiders cannot trade around earnings season, insider volume at US$3.6 billion in October was about half that in August, but the actions of executives at many companies that have reported suggest selling will pick up. A Goldman Sachs finance executive sold US$3 million in shares shortly after the company posted better-than-expected third quarter results in October. Tupperware Brands Corp's chief executive, Rick Goings, along with five other insiders, sold US$10 million worth of stock after the company beat third-quarter earnings estimates in mid-October.
Insider selling has been a more reliable indicator of trouble at a specific company than as a market barometer. May 2008, the last time insider selling was at comparable levels to this summer, was a good time to sell, even though it was several months after the October 2007 market peak. Ben Silverman, director of research at Insider Score, a company that tracks trading by insiders, says many factors can muddy the bigger picture when trying to draw a conclusion from insider selling. A percentage of selling volume is made up of options on the company's stock which are usually sold because they are about to expire, rather than because of fundamental views on a company or the direction of the market.
Many directors and executives have existing programs that automatically result in sales on a monthly or quarterly basis. Sometimes, directors with a seat on more than one board might sell shares in one company to meet a margin call on money borrowed against the shares of another. After the shock of seeing large chunks of their wealth destroyed during the crisis, corporate insiders may be starting to diversify, selling some holdings in their own companies, upon which much of their livelihood depends\. \-- Reuters
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Falling rates drive up storage of oil products in ships - Business Times - 10 Nov 2009
(LONDON) Traders increased the amount of heating oil and jet fuel stored at sea last month as declining freight rates made the transaction more attractive, said Simpson Spence & Young Ltd, the world's second-largest shipbroker. Traders had 112 tankers with a combined capacity of 13.1 million deadweight tonnes holding oil products at the end of October, the London-based shipbroker's research unit said in a report last Friday. At the end of September, the total was 96 vessels with carrying capacity of 11.3 million tonnes. Tanker rental costs plunged this year while longer-dated contracts for oil products traded higher than supply for immediate delivery.
That combination encouraged investment banks including Morgan Stanley, JPMorgan Chase & Co and Phibro LLC to seek ships for storing crude or products this year. The biggest trade in oil products is for heating oil, or gasoil, with vessels with a carrying capacity of at least 4.1 million tonnes involved, Simpson Spence & Young said. The Baltic Clean Tanker Index, an overall measure of costs for shipping refined fuels, fell 15 per cent last month. Traders also hire new supertankers, which have clean tanks that won't contaminate cargoes. The cost of hiring supertankers for a year slumped 43 per cent to US$31,500 a day this year, according to Simpson Spence & Young data.
January contracts for gasoil are trading at US$9 a tonne more than December accords. The premium advanced 21 per cent last month. Traders can profit from the spread so long as they pay less for freight, insurance and financing. The amount of crude oil being stored declined last month, the broker said. Vessels able to carry six million tonnes are holding crude cargoes, down from 7.5 million tonnes in September. Lease rates for hiring very large crude carriers to ship Saudi Arabian cargoes to Japan, the benchmark route, slid 7.8 per cent to 39 Worldscale points last Friday, the biggest drop since July 10, data from the London-based Baltic Exchange shows. Returns from the voyage fell 29 per cent to US$11,370 a day.
Demand will 'have to move up a gear or two before any rebound can be engineered', London-based EA Gibson Shipbrokers Ltd said in a report last Friday. Returns from suezmax tankers designed to ship one million-barrel cargoes, half as much as a VLCC, fell 2.9 per cent to US$20,445 a day. Aframaxes that haul 650,000 barrels lost 0.9 per cent to US$3,634 a day\. \-- Bloomberg
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
That combination encouraged investment banks including Morgan Stanley, JPMorgan Chase & Co and Phibro LLC to seek ships for storing crude or products this year. The biggest trade in oil products is for heating oil, or gasoil, with vessels with a carrying capacity of at least 4.1 million tonnes involved, Simpson Spence & Young said. The Baltic Clean Tanker Index, an overall measure of costs for shipping refined fuels, fell 15 per cent last month. Traders also hire new supertankers, which have clean tanks that won't contaminate cargoes. The cost of hiring supertankers for a year slumped 43 per cent to US$31,500 a day this year, according to Simpson Spence & Young data.
January contracts for gasoil are trading at US$9 a tonne more than December accords. The premium advanced 21 per cent last month. Traders can profit from the spread so long as they pay less for freight, insurance and financing. The amount of crude oil being stored declined last month, the broker said. Vessels able to carry six million tonnes are holding crude cargoes, down from 7.5 million tonnes in September. Lease rates for hiring very large crude carriers to ship Saudi Arabian cargoes to Japan, the benchmark route, slid 7.8 per cent to 39 Worldscale points last Friday, the biggest drop since July 10, data from the London-based Baltic Exchange shows. Returns from the voyage fell 29 per cent to US$11,370 a day.
Demand will 'have to move up a gear or two before any rebound can be engineered', London-based EA Gibson Shipbrokers Ltd said in a report last Friday. Returns from suezmax tankers designed to ship one million-barrel cargoes, half as much as a VLCC, fell 2.9 per cent to US$20,445 a day. Aframaxes that haul 650,000 barrels lost 0.9 per cent to US$3,634 a day\. \-- Bloomberg
Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.
Economists Seek to Fix a Defect in Data That Overstates the Nation's Vigor - Louis Uchitelle
Monday, November 9, 2009
The New York Times - A widening gap between data and reality is distorting the government's picture of the country's economic health, overstating growth and productivity in ways that could affect the political debate on issues like trade, wages and job creation. The shortcomings of the data-gathering system came through loud and clear here Friday and Saturday at a first-of-its-kind gathering of economists from academia and government determined to come up with a more accurate statistical picture.
The fundamental shortcoming is in the way imports are accounted for. A carburetor bought for $50 in China as a component of an American-made car, for example, more often than not shows up in the statistics as if it were the American-made version valued at, say, $100. The failure to distinguish adequately between what is made in America and what is made abroad falsely inflates the gross domestic product, which sums up all value added within the country. American workers lose their jobs when carburetors they once made are imported instead. The federal data notices the decline in employment but fails to revalue the carburetors or even pinpoint that they are foreign-made. Because it seems as if $100 carburetors are being produced but fewer workers are needed to do so, productivity falsely rises -- in the national statistics. "We don't have the data collection structure to capture what is happening in a real time way, or what is being traded and how it is affecting workers," said Susan Houseman, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich., who has done pioneering research in the field. "We have no idea how to measure the occupations being offshored or what is being inshored."
The statistical distortions can be significant. At worst, the gross domestic product would have risen at only a 3.3 percent annual rate in the third quarter instead of the 3.5 percent actually reported, according to some experts at the conference. The same gap applies to productivity. And the spread is growing as imports do. That may help to explain why the recovery from the 2001 recession was a jobless one for many months and why the recovery from this recession is likely to generate few jobs for many months. In addition, more detailed import data would help to explain wage inequality, by linking some low wages more accurately to particular industries exposed to import competition. On another front, many argue that labor productivity is rising faster than the pay of workers who made the greater productivity possible. That argument would be watered down if more accurate data showed that productivity had been overstated. "What we are measuring as productivity gains may in fact be changes in trade," said William Alterman, assistant commissioner for international prices at the Bureau of Labor Statistics.
The federal agencies that compile the nation's statistics increasingly acknowledge that they lack the detailed data needed to calculate the impact of imported goods and services as imports rise from an insignificant 5 percent of all economic activity 35 years ago to more than 12 percent today, not counting petroleum. As a result, many imports are valued as if they were made in the United States and therefore higher in price than their imported counterparts. The problem is particularly acute in manufacturing. Imported components constitute an ever greater share of the computers, autos, appliances and other finished merchandise that roll off assembly lines in the United States -- and an ever greater share of all of the nation's imports. But the statistical system is not yet up to the task of sorting out which components are made here, which are made overseas and the resulting impact on employment. As Lori G. Kletzer, an economist at the University of California, Santa Cruz, put it, "We don't know what jobs have been offshored." The same holds for services. An accounting firm in New York with 50 employees outsources some of its functions to less expensive accountants in India: the paperwork on an income tax return, for example. That work comes back to New York by computer transmission and is billed at New York rates, as if it were value added in this country.
Grappling with these blind spots, nearly all of the 80 experts at the conference, which was sponsored by the Upjohn Institute and the National Academy of Public Administration, agreed that the statistics now published tend to overstate the strength of the economy. That view was shared by those who attended from the Bureau of Economic Analysis, the Bureau of Labor Statistics and the Federal Reserve, all big players in measuring economic performance. The stated goal, among those at the conference, is to repair the statistics, but that requires several years, lots of money (from Congress) to gather more information about what companies are doing, and whole new procedures for measuring imports. Much of the conference was devoted to an analysis of the gap between existing data and reality, and ways to close that gap.
Imports and exports are recorded, of course, as they enter and leave the country. The American trade deficit speaks volumes. But when it comes to who gets what import -- particularly which manufacturer gets what component or what metal or what machine -- these details are not gathered. Instead, the federal agencies use an import price index, much of it imputed from small samples, that fails to capture just when an auto company switches from a domestically made carburetor to a less expensive Chinese model, and whether that shift is in all of the company's plants or just those in Michigan.
"We can't pick up the price shift," Mr. Alterman said. "We are not designed to do that."
The New York Times - A widening gap between data and reality is distorting the government's picture of the country's economic health, overstating growth and productivity in ways that could affect the political debate on issues like trade, wages and job creation. The shortcomings of the data-gathering system came through loud and clear here Friday and Saturday at a first-of-its-kind gathering of economists from academia and government determined to come up with a more accurate statistical picture.
The fundamental shortcoming is in the way imports are accounted for. A carburetor bought for $50 in China as a component of an American-made car, for example, more often than not shows up in the statistics as if it were the American-made version valued at, say, $100. The failure to distinguish adequately between what is made in America and what is made abroad falsely inflates the gross domestic product, which sums up all value added within the country. American workers lose their jobs when carburetors they once made are imported instead. The federal data notices the decline in employment but fails to revalue the carburetors or even pinpoint that they are foreign-made. Because it seems as if $100 carburetors are being produced but fewer workers are needed to do so, productivity falsely rises -- in the national statistics. "We don't have the data collection structure to capture what is happening in a real time way, or what is being traded and how it is affecting workers," said Susan Houseman, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich., who has done pioneering research in the field. "We have no idea how to measure the occupations being offshored or what is being inshored."
The statistical distortions can be significant. At worst, the gross domestic product would have risen at only a 3.3 percent annual rate in the third quarter instead of the 3.5 percent actually reported, according to some experts at the conference. The same gap applies to productivity. And the spread is growing as imports do. That may help to explain why the recovery from the 2001 recession was a jobless one for many months and why the recovery from this recession is likely to generate few jobs for many months. In addition, more detailed import data would help to explain wage inequality, by linking some low wages more accurately to particular industries exposed to import competition. On another front, many argue that labor productivity is rising faster than the pay of workers who made the greater productivity possible. That argument would be watered down if more accurate data showed that productivity had been overstated. "What we are measuring as productivity gains may in fact be changes in trade," said William Alterman, assistant commissioner for international prices at the Bureau of Labor Statistics.
The federal agencies that compile the nation's statistics increasingly acknowledge that they lack the detailed data needed to calculate the impact of imported goods and services as imports rise from an insignificant 5 percent of all economic activity 35 years ago to more than 12 percent today, not counting petroleum. As a result, many imports are valued as if they were made in the United States and therefore higher in price than their imported counterparts. The problem is particularly acute in manufacturing. Imported components constitute an ever greater share of the computers, autos, appliances and other finished merchandise that roll off assembly lines in the United States -- and an ever greater share of all of the nation's imports. But the statistical system is not yet up to the task of sorting out which components are made here, which are made overseas and the resulting impact on employment. As Lori G. Kletzer, an economist at the University of California, Santa Cruz, put it, "We don't know what jobs have been offshored." The same holds for services. An accounting firm in New York with 50 employees outsources some of its functions to less expensive accountants in India: the paperwork on an income tax return, for example. That work comes back to New York by computer transmission and is billed at New York rates, as if it were value added in this country.
Grappling with these blind spots, nearly all of the 80 experts at the conference, which was sponsored by the Upjohn Institute and the National Academy of Public Administration, agreed that the statistics now published tend to overstate the strength of the economy. That view was shared by those who attended from the Bureau of Economic Analysis, the Bureau of Labor Statistics and the Federal Reserve, all big players in measuring economic performance. The stated goal, among those at the conference, is to repair the statistics, but that requires several years, lots of money (from Congress) to gather more information about what companies are doing, and whole new procedures for measuring imports. Much of the conference was devoted to an analysis of the gap between existing data and reality, and ways to close that gap.
Imports and exports are recorded, of course, as they enter and leave the country. The American trade deficit speaks volumes. But when it comes to who gets what import -- particularly which manufacturer gets what component or what metal or what machine -- these details are not gathered. Instead, the federal agencies use an import price index, much of it imputed from small samples, that fails to capture just when an auto company switches from a domestically made carburetor to a less expensive Chinese model, and whether that shift is in all of the company's plants or just those in Michigan.
"We can't pick up the price shift," Mr. Alterman said. "We are not designed to do that."
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