Peter Yastrow's Blog

May Jobs Report: Dreadful

Let’s not let the pundits confuse the issue. Our economy is at stall speed. We are barely growing, and that  is in spite of 2 key steroid like factors. The Federal Reserve is artificially keeping the cost of money as low as possible. This should allow everyone from consumers to GE have an easier time with this difficult economic environment. The second steroid shot comes from the Federal Government. Blame congress, blame obama, I don’t care. The fact is that our government spends more than a trillion dollars a year now, that we are not collecting. In other words, Uncle Sam is on a spending binge, and is dipping into his savings/assets to the tune of a trillion a year. The economy is only about 15 trillion, so Uncle Sam is adding more than 7% by throwing a trillion extra into the economy. So those two factors, by the FEDERALES- forcing rates low by bernanke and co., and spending like drunken sailors by washington should really be creating some mega growth.

The facts do not seem to all add up.

We only created 175,000 jobs last month. That may be “better than expected” but the number indicates that our economy is just barely above stall speed, at best. We have a population of over 330 million people. Of those 330 million, 155 million actually work. If we assume a modest 2% growth rate to our economy, then we would create 3 million new jobs a year. ( 3.1 for nerds ) That would indicate we would get about 250 thousand new jobs per month. It is simple math.

We are not adding anything close to 250 thousand per month. Our economy with all of the fiscal, and monetary stimulus is barely adding jobs at 1% per year. The patient is dying. We have major life support being pumped in, and the vitals are weak.

What is even more pathetic is all of the people who think spinning things, and sounding upbeat is “helpful”. They feel that we can all just get psyched and self motivate and get this economy really going- makes me sick. The problems are real. The issues need to be understood.

We need growth. Simply pouring steroids onto a patient doesn’t give you growth. We ve been living on a diet of artificial wealth created by favorable taxes and government sponsored enterprises since the 1990s. When the banks, desperate to make loans, allowed everyone to become a real estate tycoon. Like a hoard of locusts our citizenry devoured that opportunity. They drove prices higher and higher, and lending standards became looser and looser as the banks played a game of chicken with each other. Housing prices were going up 10 times faster than wages- and Greenspan didn’t do a damn thing. The bubble grew and grew, sucking in every municipality, as they recalculated their local tax bases. Higher prices, higher tax revenues, more golf courses and pools, and ice rinks.

Well, rates can’t go any lower. The standards can’t get any weaker. The times require growth. Growth because we have a better way to feed us, clothe us, or move stuff around. Not growth from borrowing money, so we can have bigger homes to take care of. That was a disaster, and Greenspan is an idiot.

Driverless cars will be the next big thing. Hopefully the rule makers will appreciate that the best thing a government can do is try not to help.

The cohesive effort required to drive major growth will never be achieved under this administration.  The economy will stay lousy for a while.

BUY STOCKS, the fed is going to keep rates at zero for a while.

I am not negative, I am calling it accurately in a dire situation.

Peter

Tags: May JOBS

Truth About The Jobs Data

The fools got so excited last Friday. the economy is creating more jobs than expected, and stocks rallied to all time highs.

Those who are simple minded crow about economic strength, and begin to get gleeful. Unfortunately, the truth is extremely grim, and the facts are very clear.

Stocks will continue to rally as expected, interest rates are at almost zero. If a large company can’t take advantage of these low rates, then no entity can.

But what about the Jobs. Was the jobs number an indicator of strength ?

NO !!   while the number may have been better than expected, the number is still consistent with an absolute economic implosion.

The country is now creating about 180k jobs per month. Lets round the number up to 200k per month. 12 months at 200k would mean we are creating 2.4 million jobs per year.

Lets round that number up too. Let’s say we are creating 2.5 million new jobs each year. Is that good ?

NO ! it is terrible.

Our civilian employment number is about 155 million.  2.5 million new jobs, implies that we are only growing our civilian labor force at a paltry rate of less than 2%.

The worst news of all, in the next 8 weeks, about 3 million kids will graduate from college. We are creating huge numbers of college grads, and there is simply no place to put them all.

Furthermore, we are racking up trillions in debt to finance their school loans.

So let’s all take a step back and realize, the jobs numbers are terrible. Our economy is not creating enough jobs to afford everyone who goes to college a job.

In 1995 i did a study that demonstrated that a healthy economy of our size, should be creating about 400k jobs per month. AT the time, it was.

If our civilian labor force is 155 million, and we had 3.5% growth, that would be about 4.8 million jobs per year, 400k per month.

It is not the Federal Reserve’s job to keep rates at 0, and punish all of the savers.

The Fiscal Policy is a disaster. It is the government’s job to either assign a giant project, or get the hell out of the way. But instead they created an environment that made workers more expensive. The government has raised minimum wages, and indirect costs like healthcare. Hence they have increased the cost per worker on a relative basis- A JOBS KILLER

SO please don’t talk about things getting better. Stocks are going higher. That’s because rates are going to be at 0 for a long long long time. Stocks didn’t rally because happy days are here again.

Maybe college is not for everyone- and as a country we need to have some serious discussions about the facts at hand.

good luck.

let me know if i can help

peter

April 2013

It has been a while since I wrote anything in this space.  I chose to be absent rather than redundant. The facts are not changing very quickly, and therefore my assessment is not changing either. We remain in a situation of complete and utter ignorance with respect to the majority of educated Americans. Americans are absurdly confused about several major points, and continue to behave in a manner that should be deemed ” reckless” and “obscene” with a little emphasis on “short-sighted”. They have substituted brains and logic for dogma. They have traded in common sense for a diploma from a degree factory.

Let’s look at some of the dogma with a degree of skepticism.

Many Americans have an IRA and a mortgage.  They have debts, and assets. This is absurd. They assume that they can borrow money from a bank for a mortgage, and simultaneously lend money in the form of investing, to a variety of companies in a variety of ways; debt by buying bonds, equity, by buying the stocks, or a combination of the two. These Americans, because of a conceptual understanding of interest rates, and tax rates, have become mini investment banks. Each one is a small entity that simultaneously leverages up on real estate to “play” the stock market.

They look at the last 100 years of investment returns, and assume that what took place in the past will continue into the future. They assume the market will yield a positive return over time, that will allow them to earn more on their savings than they will ” lose” on the house,  but if returns happen to go sideways for a while- like the last 10 years, then you just borrowed from a bank at some rate, to give it to people to use for free !

Then they look at their homes, and say ” that is an investment too ” and I start to really get sick to my stomach. In addition to the costs of buying and selling a home; often 5%, you have annual upkeep of 1.5-2% and real estate taxes. If i told you I have an awesome stock that you should buy, but it has a 5% transaction cost, and a negative dividend, you would not be inclined to purchase it. A home is not an investment. A home is a goal to be strived for, not a necessity that people should enslave themselves in debt to live in.

The least painful way out of this mess is innovation. If someone could only build another internet, then Obama could have oral sex in the oval office too.

peter

Teach a Man to Fish

We all know the wisdom. If you give a man a fish, he eats for today. But if you teach a man to fish, he fishes for the rest of his life.

However, what if we made fishing so complicated, and so difficult, that it takes twenty years to teach a man to fish. Then we have the unpalatable situation that people are starving now, and they need many years to learn. What will we do in the meantime ? ( Mean time indeed )

When we as a society  provide for those who are not able to provide for themselves, do we limit our assistance to some absolute minimum ?

It is very obvious.

We as a country all feel we must help those who cannot help themselves.

The next step is to determine the goods and services that all citizens would receive, as a worst case scenario.

900 sq ft apt.

2500 calories a day.

healthcare-

The government might do better just giving the money directly to the people, rather than routing it through all of the agencies in Washington.

Has anyone seen how well they live in Washington?

more on this later

peter

Tags: ben bernanke economics

Productivity

Productivity is a key component to understanding economics. Productivity means : how much stuff do we get out of that thing, or worker.

A person now with a computer and a printer can produce amazing high quality work cheaply and quickly. The winner is the consumer who now gets glossier reports, and higher quality finished goods at reasonable prices. The person who does the high quality work may or may not be enriched by the new tools and better finished product. The person may be able to charge more, but there will be less people working in the industry. Or the people may be willing to pass the savings on to the consumers, in which case employment levels may stay unchanged, but people will be doing better work- for the same money. That’s how greater productivity impacts us. We make better things, at cheaper prices.

Workers in an assembly plant are made more productive by robots. One person can now do the work of more than 10. But rather than make cars more and more inexpensive, the car companies made them more and more complicated with extra features. This raised the “value” of the car and allowed for the price to remain high.

Over and over we have seen the same paradigm play out. The technology makes people better, and then we need less of them. We responded by making things more and more complex and complicated. Yet in some areas the competition was too fierce, and the prices collapsed even though the product was actually getting better and better.

Now we are hitting a point where we can’t make things any more complex. It starts to be counter productive. We want smart appliances that make life simpler, not complex products that require a lot of effort to understand and operate. We want “user friendly” products, and we want easy simple lives. This means that we will find it more and more difficult to invent new products that we actually have a use for. We won’t have enough places to put workers. This results in a huge number of unemployed people.

The trade off is very clear. We keep making things better and better, more cheaply, more affordable. This results in a larger number of unemployed people. If the planet was infinitely large, and our ability and desire to handle more and more complexity in our lives was unbounded, then there would be no downside to all of the productivity growth. However that is not the case. We live in a finite world, we have only 5 senses, and rest is considered a reward.

BUT -HOLD ON-  The entire world is much better off. The poorest people today live better than the wealthiest kings lived a few generations ago.Kings didnt have medecine, and air conditioning and televisions and cell phones, and cotton clothes. Things we all take for granted today, they could only dream of having. Yet there is tremendous disparity between our wealthy and poor in today’s world. Many may scream that the disparity between the poor and the rich should be eradicated. i would sugest we clebrate the fact that our poor live better than the kings of old-

Joy to the World

Peter

Tags: separation of classes

Morons Who Run Our Government

I am not going to list all of the people who easily could be called morons. I don’t feel like typing for 6 days straight.

However, I will give everyone an easy heuristic, a tool, for locating and identifying these morons. We can call it BONE ar – sort of like sonar for finding bone heads.

The first key is remembering we live in 2013. The world is now fully connected, and we all share information freely. The economies are all extremely advanced. Cities with millions of people now exist where just 50 years ago there was corn fields, or rice paddies. China, Korea, India, Russia, Japan, England and France all compete with the United States economically in the areas of high tech and automotive production. China is now an industrial society, with over 1.3 billion people, and India is close behind. We can’t overlook Brazil, with its enormous wealth of natural resources. The world is a very different place, and it is never going back to what it was.

This fact that the world has changed is pretty easy to accept. SO we must ask, ” why do our politicians always want to give examples of what people did over the past 50-100 years as justification for policies and decisions they make in the present? “. It seems pretty obvious that in an advanced society, with a lot of competition from other nations, we will not be able to copy the play book from previous administrations, that were governing in a “different time”. People need to actually think about what is going on now in the world, and determine new courses of action.

Hence, anytime you hear any politician try to justify his proposal with historical evidence should immediately set off anyone’s BONE -AR. You can’t just copy what Reagan did, because Reagan’s policies were perfect for the times. Whether it was luck or skill, or divine intervention, giving huge tax credits for investing in computers just as computers were becoming user friendly, allowed for everyone to raise their productivity. Businesses had to have the computers, and the government helped them get them more cheaply.

Its not the same as making housing more affordable, and helping people to buy homes more cheaply. It is hard to see the difference if you just stare at the economic data like so many morons. You would see all of the same increases, and the numbers would look great in both cases, but after a few years, it would become obvious. There is a huge difference between a government helping people invest in tools that make them better, and the government helping people buy homes- which in the end make people poorer. ( see white elephant )

People have jobs to do. If you make those jobs easier to do, then good things happen. If you try to help people directly, buy giving them things, it will end badly. If you teach a person to fish, they fish for a lifetime. If you give them a fish, they eat for today. We need to stop quoting Clinton, and Roosevelt, and start addressing the facts that exist today. We need to have a government that appreciates the difference between feeding people and helping people to feed themselves.

Please turn on your BONE-AR.

peter

Feb 2013

We sit here just about 14,000 at all time highs. This is not an indication of economic health. The stock market is not mis-priced either. The stocks are priced right, at all time highs.

The point is that stock prices are based on 3 factors. Earnings, prevailing interest rates, and growth. Presently we are in a situation where earnings are solid. Companies are not growing, and they re burdened with new costs, but earnings have remained very solid. The growth rates are almost zero, because the future is a bit cloudy, and there is a lot of headwinds, so growth is a non-factor now. Interest rates are at almost all time lows. They got bid up a little as people got excited in the first month of the year, but they re at all time lows, and not going higher from here, not any time soon.

Here is the math;  Price=Earnings * growth rate/ interest rates.

If we push interest rates lower, the price will go higher. Bernanke has pushed rates as low as he can, and in response, the stock market has rallied to all time highs- it is exactly correct.

If you re a bear and you keep trying to short the market, you re selling shares to investors. These investors will be holding their shares for years. Never sell short to long term investors. You ‘ ll get squeezed every time.

Good luck out there.

Making money is harder than ever for traders. They have no information advantage, or inside info. They can not react more quickly to information, like they could in the past. Traders who are all trading on the same information, released at the same time to everyone, can not make consistent returns. Traders who have information before everyone else, are engaging in trade violations……so either the trader is a sheep, or he is engaging in illegal activity- it all adds up to moving money into equity funds. Let it sit there. Proctor and Gamble still is selling detergent all over the world- feasting on the low interest rates. All the large companies use lots and lots of money, and with rates this low, it is like getting your key ingredient  more cheaply.

The economy is weak. very weak. I am sure that we will slip back into recession, as soon as the government stops spending more than they take in. The interest rates will stay low for a long long time. The earnings will hold up for now. So buy stocks.

Just to stick it to Joe Kernan- Hey JOE I told you stocks were going to go up, and the economy was going back into recession-

peter

Easy Economics

The economy is not growing. Many people will have long winded answers as to why our GDP is stalling, and they will have equally long winded solutions. Many on the right will blame the dreadful policies of this administration, while those on the left will point their fingers at the republican congress. They will all be wrong. There is one very simple and clear reason why our economy is stalling, and it is not easily overcome. It is not taxes, and deficits, and budgets, and poor leadership. it is not cowardice, or prudence, or a lack of ” animal spirits. The economy is slowing because the new products, devices, tools, and gadgets that we are coming up with, just are not that superior to what already exists.

Let’s be clear. There is always new stuff being invented, but at different rates, and with different levels of utility. We can always buy an upgrade. Televisions can be clearer, and computers can be faster, and cars can be smoother riding, but the advantages are not that large, and certainly do not justify the extra cost. Would you throw out all of your computers to replace them with computers that are 6% faster?  Given that we already are having images come in faster than the brain can process, what is the point? My computer is fast enough, I am not spending money for a marginal improvement.

The bottom line is that when the inventions become more ground breaking, then we will see people borrow to get them. We will see banks bend over backwards to lend, and we will see our standard of living rise. The tax receipts will go up, and the budgets will improve. Bill Clinton was lucky enough to have the internet come to fruition on his watch. The economy soared, the budget went to zero. It was not because of his stunning efforts in the oval office. He never balanced anything, other than maybe monica on the arm of the sofa.

So the solution to our woes is not tax rates or trade wars, but rather innovation. However, let’s not be simple minded. Innovation cannot be decreed, or legislated. Innovation is the result of research and development. But even more importantly:  necessity is the mother of invention. Our desire for new inventions and innovation is shaped by our needs. It is our needs, not our desires that create demand.  We may want new cool things, and the market may offer cool new things- BUT THAT DOES NOT MEAN WE SHOULD BUY THEM.

The purchase decision is very simple. Do you need it ? Does the benefit justify the expense ?

If people can continue to invent and develop things that we need, then our economy will grow, and all sins and transgressions get pardoned.

However, if we continue trying to convince consumers of their “needs” and try to make people borrow money to satisfy their “desires” then they will over borrow, and bankrupt the system……oops too late. For 2001-2007 people borrowed and borrowed to buy homes. They wanted the homes, but they did not need the homes. This simple flaw in the mind set of consumers, was then exploited by the banks. However when the people could not pay back the banks for their greedy escapades, we did not learn any lessons- we just printed money and gave it to the banks.

greed is a sin

peter

Tags: GDP clinton growth

APPLE – Case Study

Apple makes great products. First they gave us the computer. Their computers were easier and more user friendly. Then they gave us our sounds; music first, and later telephony. Eventually they gave us sight, sound, and thinking all on one tablet. Pick your size, hand held, or medium, or large- or is it venti. Along the way, they had a few flops.  Nobody really cared when they changed the colors of the computers. But clearly, Apple is the leading consumer tech company. Apple has the ability to give us a hand held device that allows us global communication, navigation, and access to all information known by man in a blink of an eye…..for almost the price of dinner for 4.

The issue for Apple now is ” what is next ? ” We all expect a big move into the television world. Combining television with our computer, with our phone sounds really cool. But it is a gimmick. It is a stunt. Apple has no real problems left to solve for us. We have everything we need on our phones. Most of us are now left scratching our heads and wondering what else we possibly could need or want. We are left in a predicament that brings to mind the dog chasing the car, and finally succeeding. What else do we need in order to be more productive ?  The technology now is beyond adequate, to the point of extreme saturation.

Maybe they ll improve the photography, and make Siri more slutty. Perhaps they can allow me to turn on my TV while making a phone call, and playing words with friends. The point is that all of the ideas, and improvements and advancements are very small marginal benefits. They barely justify the price of  upgrading. I am at a loss as to what else we need, and that is why we can all conclude:

Necessity is the Mother of Invention, and we no longer have any technological needs !

In the consumer space of technology, we have saturated the market.

Apple should focus on our  nation’s education system next. That market is ripe.

Peter

Fiscal Cliff

The United States had more than 16 trillion in debt. We need another 3 trillion. All we do is raise the debt ceiling, and then print what we need. IT WILL NOT BE THE STRAW THAT BREAKS THE CAMEL’S BACK.

But the bigger picture is more like a drug addict looking for another chance.

The Republicans are trying to reign in the spending.  They are tired of the profligate spending, broken promises and repeated failures of this administration to address the entitlements that are promised down the road. They have drawn a line in the sand. No more taxes. Fix the problem on the spending side.

The Democrats are saying, “raise the taxes on the richest Americans,it won’t hurt them.” But it won’t fix the problem. It is impossible to tax the wealthy enough to close the gap. So the Democrats are really just trying to kick the can down the road.

The economic text books will all tell you not to raise taxes when the country is mired in weak economic conditions.

But even more importantly, you re not supposed to cut spending in weak economic times.

You are supposed to CUT taxes, and INCREASE spending when facing a recession. We did that 4 years ago, but the administration spent the money really poorly. Solar companies, car companies, and other pet projects that were individually picked and chosen. NO cohesive plan was developed, no plan for the future. Just some lame repaving projects, and some urban renewal. This was a complete and utter waste of 870 billion dollars. But even more important, it taught everyone the wrong lesson. We need more spending, not less, but it must be a cohesive, comprehensive plan, that has a clear and well defined objective.

The Republicans are screwed. They are too verbally challenged to explain their point. They don’t want the addict to keep using. They are trying to get the deficit problem addressed. However now is not the time to worry about whether we are in debt a ridiculous amount, or a really ridiculous amount.

Now is the time to form a vision for the country. We can afford a couple more years of deficit spending, we can’t afford people who think you should worry about deficits in the middle of recessions.

The cliff is a myth. A number that we chose out of thin air. We can move the number. The republicans are saying no way pal, no more debt. They will achieve fiscal discipline, even if it is the wrong way to go. How stupid.

peter

Tags: fiscal cliff