Wednesday, May 4, 2016

The Canary in the Industrial Mine

A picture in black and white of the kind of Canaries used in the coal mines.
The Canary in the Industrial Mine
People across the nation seem to know that something is wrong. Yet, the media continues to collude with the Obama administration in their attempt to hide what's clear to all: the economy never recovered.
While the eerie feeling that something bad is about to happen is pervasive, most find it challenging to know exactly what causes it? After all, the stock market boomed higher and higher, right? Well, yes. But like with all other asset bubbles, higher equity prices don't guarantee value. Just remember that homes went up in price not because of a higher value to society but because there was too much speculative money chasing the homes available. The same is happening with stocks. How do I know? It's easy. There is simply no national economic activity to talk about. And to make things worse, capital spending since the White House scared the hell out of businesses has remained at zero. In other words, there has been no investment in future productivity.
When looking at our GDP, we all know that the president got a free ride thanks to the fracking revolution that took us from being a heavy oil importer to energy independent. All the buildup that saw Texas go through an incredible economic boom took place not because of Obama's support for hydrocarbons but despite of his direct opposition. I wrote about this in a previous article.
Dark Graph of the (FRED) Federal Reserve's Industrial Productivity Index
Fed's Industrial Production Index
Yet, outside of our oil renaissance, industry in general remained quiet. When looking at the government's own data on industrial productivity, it is clear that we never recovered. The Federal Reserve's chart to the left shows that industrial activity in the US has followed a very different path than that from the stock market. While technically we went back and touched the pre-recession top, we didn't achieve any such thing in real terms; after accounting for the eroding effects of inflationary pressures. After adjusting for inflation, we simply have yet to reach levels achieved by the Bush administration.
You don't have to believe shadowstats.com and their estimate of what the Industrial Production Index would look like after removing the effects of inflation. Their chart below uncovers our countries terrible economic performance. Still, we could at least acknowledge that in real terms the so called recovery would be much more anemic than what is suggested by the FED's chart. If so, it is safe to conclude that there has been no recovery.
Dark Graph of Shadowstats.com's Industrial Production Index after Inflation
Shadowstats.com - Industrial Production Index after Inflation
Still, many would argue that we are not an industrial nation. That our GDP's strength lies on the incredible American consumer. Here, I raise the bull-sh&#t card once again.
Understanding why the American consumer is not what the media would lead us to believe isn't hard. It just takes a little business insight.
Any business person knows how to price their products. Keystone-markup, for example, is a well known term among professionals. Well, anyone with a pen, a napkin and half a sense on how to price goods will intuitively understand that, if factories and retailers get their typical markups, the consumer will account for about 60% of all the translations taking place.
When the government calculates GDP, they take all sales by every entity in the economy and reduce them by the value of imports. So a factory in the US pays about $15.75 for labor and raw materials. A retailer pays about $45.00 for the factory's gizmo after it is delivered to its doors. Finally, a consumer pays $100 in retail value for the same gizmo. Even under this simplistic scenario, an average consumer will be 62% of the total GDP. Now that if the country is a heavy exporter, an average consumer will become a higher percentage of the GDP. If, on the other hand, the country is a large exporter, then the opposite happens; the consumer's portion of GDP goes down.
List of global Household's final consumption expenditures as a percentage of GDP
The very average US consumer 
Let's take a look at the portion of consumers around the world and their share of their national GDP. I invite you to browse the list to the right.
American consumers are clearly not exceptional. Instead, they are average at best. The US consumer is right at the middle of the group. Now that if we still insist in arguing that our consumer is somehow very strong as a way to explain its large portion of GDP, then how do we explain Guatemalan consumers, who are in fact a larger portion of the Guatemala's GDP? Do American consumers aspire to be like Guatemalans?
It simply doesn't make sense. We are not a consumer based nation. If anything, all nations are consumer based. As long as manufacturers don't pay more for their inputs than consumers pay for final goods, the same scenario will prevail. I think it is safe to assume that the consumer's portion of GDP is to remain within a narrow range until the earth cools.
As I have shown in many previous instances, our elected leaders are economically handicapped. They themselves do not understand even the simplest of economic principles. Moreover, they are apathetic to the smallest of financial research. Yes, they don't know business and don't want to learn. It is no wonder that they are currently pushing thousands of businesses into the abyss.
At the end of the day, our economy will continue to depend on industrial activity as the place where every good renaissance starts. God have mercy on us!

Wednesday, April 20, 2016

The Citi-Fed-Barry-Arab-China Cycle Begins

Say that I am shamelessly speculating. Fine! Yet, like passers by who can't help but to stare at a car crash, let's take a look. 
Janet Yellen
On Monday April 11, The Federal Reserve called for an unusual meeting. Both President and Vice President of the United States were requested; thus increasing the odd nature of the meeting. After said meeting, all we heard was cheers for a job well done. Obama couldn't stop the accolade shower over Fed Chairman Yellen's job on the economy. So, aside from the love fest, what was all the fuzz? Why a meeting with so many important people?
Then, more internal Fed meetings took place. Again, it is unusual to have so many top level meetings during such a short time. Even the Europeans' central bank participated. It all had the feeling of a war game session.
King Salman
And now, the President traveled to visit his least favorite king. "Obama will meet King Salman and will attend a summit on Thursday with leaders of six Gulf Cooperation Council (GCC) countries, at which he will be joined by US Defense Secretary Ashton Carter and Secretary of State John Kerry." wrote Aljazeera, who described the meeting as a "potentially tense visit". Could Barry's visit to Saudi Arabia have anything to do with the Fed's meeting? If so, what's the connection?
Despite the unusual nature of a Presidential visit of the Fed, we are still left without any sense of direction over what could be happening.
We know that this is an election year and that any economic issues would most certainly affect the results coming November. Still, not much to go on other than the fact that things are probably serious enough. But what could be so serious as to demand the President's involvement?
Well, how about things being in such dire straits that Barry, our fearless leader, has to make an unpleasant house call. We know he hates to share smiles with those he dislikes, which is pretty much anyone who wouldn't vote in favor of his Nobel Prize.We also know that the Saudi royal family has previously skipped a meeting with our President as a sign of their discontent with his footsie sessions with the Iranians.
Michael Corbat
So let's try to see what could be at the core of this soap opera.
What if the Saudi's sent an important message to say Citi's CEO. We all can remember that the Saudi's bought large positions in the bank and that they were responsible for its rescue during the 2008 liquidity crisis. Surely Mr. Corbat, Citigroup's CEO, would have an open door policy for such important stakeholders. Then, as a 'too big to fail' institution, any message from Citi would find no resistance on its way to Fed Chairman Janet Yellen's desk.
And what exactly could the message be? Well, how about one that would make Citi, the Fed and Obama jump off their seats. How about a suggestion that perhaps the Saudi's will dump their fat collection of US bonds? Can you imagine? What would you do if your credit card company calls and says that they are ending your loans. What if your loans are so big that finding willing lenders may be  near to impossible?
Xi Jinping
Then let's throw in another interested party. What if the Arabs, who are selling lots of oil to China, commented in passing to Xi Jinping that the country's extensive national reserves will probably shrink in value over night? If the Saudi's sell even a portion of their US bonds, sellers will probably pile on trying to make a move before the Chinese do. The profits for any fast moving trader awake at just the right night could be in the billions of dollars. The losses for those caught sleeping could be disastrous. Threatened by a sell off of their reserves,. the Chinese would probably join the selling frenzy hoping that many bottom feeders show up to the carnage. It could all turn nasty very quickly.
To clarify, if large lots of US bonds suddenly come onto the market for sale, it would be a very bad thing for all of us Americans. The Treasury would have to print large amounts of money in a swift and uber-inflationary move. The Federal Reserve would then take the newly printed money and would have to use it to lend money back to the institution that just printed it. Crazy!
Barry Obama
Buying US bonds in this way would certainly start a vicious cycle. After the selloff begins, existing bonds would lose value every minute of the day. As the Fed buys a bunch of bonds, their money will literally evaporate faster than premium spirits after a truck full of Dom Perignon bottles with their corks popped sits idle right in the middle of a summer day. The faster they lose value, the lower the chance that others will jump in to buy them, thus leaving the Fed as the only loser. As the Fed's balance sheet collapses, the need for their participation as buyers of last resort will only increase. Meanwhile, the Treasury will face having to pay much higher interests for any new bonds issued. To prevent hurting the Fed, the treasury may have to call back the bonds sold by the Arabs and China in an attempt to try to reissue them at a higher interest rate to potential market buyers. Unfortunately, these sort of events may push interest rates to unreasonable levels over just a couple of days.
And what do you think could happen if Barry gets an interest bill much higher than he has been accustomed to? Well, Barry will probably have to announce that we are broke. That we can't spend on the kinds of goodies he likes to dish out. Things like food stamps may become a luxury.
And if this was not enough, most of the 'too large to fail' institutions like Citi will also fail. You see, the Fed has been forcing bank owners and savers to carry the risk of an out-sized investment in US bonds. In essence, the government used their mighty power to force its citizens to lend it money. So when the Arabs and Chinese stop lending to our government, we are all sure to lose our shirts and our beloved food stamps.
Christine Lagarde
Now that there may be an alternative to all this mayhem. Christine Lagarde of International Monetary Fund fame may come to the rescue. By deploying trillions of dollars in SDR's they may create the illusion of bond buyers. This may explain why she participated in the Fed talks. But don't be mislead, the IMF's SDR's are no more than paper funds. The reason why they may be useful in our situation is because there is no real balance sheet to worry about. Since there are no assets backing this funny money nor any ability to collect taxes from anyone, they are a dream come true for lovers of fake accounting. The problem will then be that we would be in essence exporting inflation at a massive level. We would therefore finally see all commodities spike in price after the US economic borders are bridged. No more internal deflationary pressures as the dominant force over our economy.
The SDR vs. the Dollar
In any case, inflation is just as vicious on people as a balance sheet collapse. These are both ways to force pain on citizens.
But wait a minute. All these thoughts are sure to be no more than fear-mongering on my side, right? Well, perhaps.
But even if I am wrong, it is still worth considering how close we are to a scenario similar to my fictitious narrative. Our debt is out of control. Our international presence has also deteriorated at the exact time we need our former partners to hang on. Our future is at stake like never before. Moreover, the pain during the process may be unbearable. The question is not whether this will happen but when. Let's hope I am wrong on timing and that we will have a second chance to correct our spending addiction.

Saturday, February 27, 2016

Obama's Scoop; Failure of a Presidency

I can almost hear the Rhetoric: "My administration has initiated a program with small businesses across the nation that will created millions of jobs for our youth starting this summer".
composite picture of president Barack Obama eating free ice cream at a local small business with dozens of reporters capturing this fake photo opportunity. The image is framed by LinkedIn's web page and displayed over an apple laptop screen. All of it behind rose tinted glasses.
Obama is now ready to blame small business
The Obama administration just wrote a 'Pulse' article for LinkedIn, the professionals social media site. In it, Obama shamelessly passes the burning potato of youth unemployment to the small business community.
But surprise, surprise. Just as Hillary Clinton discovered, Obama too will find that the LinkedIn community is much more educated than say Facebook's. So, his article has initiated a tidal wave of negative comments to this the most incompetent of all presidents.
Not happy with diluting our international standing across the globe, this president has also fractured our social structure Any surprise that two nationalists, Bernie Sanders and Donald Trump are commanding so much public attention during the present primary elections?
And now that things are clearly broken, the democratic party seems to have realized that they need to some how convince young Americans that they are best represented by them. Yes, these are the same young who live at home with their parents despite sporting a college degree.
But Obama is the king of putting lipstick on fried pork. His article attempts to place big rosy glasses over the tablet generation.
Unfortunately, LinkedIn is not the place. This is a site for professionals. Most members have some sort of professional career behind them already. Just think of how difficult it is to present to the world your professional profile, an equivalent to your resume, if you have never had a single job. So in a way, Mr. Obama is talking to the walls. Those that cheered him through his last two elections are absent.
Now that those that have been residing right under Obama's boots the last seven years, small business owners, are in fact who read the article. Again, outside of the one or two butt kissers, the rest of the LinkedIn audience was not happy. Following is the article's transcript. Then, below it, I am also including my comments to the tread.


Here’s the Scoop: Why My First Job Mattered
President Barack Obama
color picture of Obama gesturing with a vanilla ice cream cone in his hands
"Scooping ice cream is tougher than it looks"
"Scooping ice cream is tougher than it looks. Rows and rows of rock-hard ice cream can be brutal on the wrists. As a teenager working behind the counter at Baskin-Robbins in Honolulu, I was less interested in what the job meant for my future and more concerned about what it meant for my jump shot.
My first summer job wasn’t exactly glamorous, but it taught me some valuable lessons. Responsibility. Hard work. Balancing a job with friends, family, and school. 
That’s the story of so many Americans. Access to a job in the summer and beyond can make all the difference to a young person – especially those who don’t have access to many resources and opportunities. Employment can also help bridge the “opportunity gap” we see in the summer months, when young people tend to fall behind in educational achievement. Too often, those idle summer months are when they make mistakes that might get them in trouble with the law and set them down the wrong path.
So we know that these opportunities matter. But right now, landing that first job is all too difficult for students, and even harder for the one in seven young Americans between the ages of 16 and 24 who are not in school and don't have a job. When you’re just starting off in the working world, the prospect of finding a job with a blank resume, limited education, and no meaningful connections to employers can be daunting.
This is where our communities can play a big role. We can make sure local businesses create summer job opportunities for young people who need them, and extend those opportunities throughout the year.
picture of adult child at home with his aging parents
What is worse than not having enough to retire?
Taking the part time job that would normally go to your child
and still having to pay for his entitled butt. 
That’s why today, we’re kicking off a Summer Opportunity Project that brings together state and local leaders, community organizations, schools, and businesses – including LinkedIn – to get young people into their first jobs and create strong transitions between school years and from high school to college and careers. My Administration has called for investments in first jobs for young people, and I hope our leading companies will step up to do the same.
We’re going to do our part. But preparing our kids for the future is going to take all of us working together. So here’s what I’m asking you to do: If you’re an employer or business, give more young people their first job this summer. Work with your communities to recruit, train, and mentor young people who are out of school and work. 
Businesses are already answering the call: In Baltimore, Veolia Transportation brought young people from the community onto their teams as part of a city-wide summer jobs program. At 16 years old, Stephanie Odom joined the team at Veolia as an office clerk, giving her a crucial first foray into a professional work environment. Growing up in a part of Baltimore where many of her fellow classmates didn’t have support at home, Stephanie took the opportunity at Veolia, giving her an array of new perspectives and new connections that she still references when applying for new jobs. At the end of the summer, she extended that job to be part-time during the school year, and today, at 19 years old, she is attending college to one day become a school psychologist who will help other students realize their full potential.
This is just one story of the millions of young Americans who have been given a chance to contribute to their communities with the help of a local employer.
That’s what my first job did for me all those years ago. And while I may have lost my taste for ice cream after one too many free scoops, I’ll never forget that job – or the people who gave me that opportunity – and how they helped me get to where I am today.
Let’s make sure every young person knows that, in America, we’re all committed to helping them achieve their dreams.'

Let us now go to my not so soft comments:
a)  "That’s what my first job did for me all those years ago" 
Thanks for the insight, Mr. president. But let me understand, ice cream scooping and the many free scoops were so difficult that you decided to become a president/agitator?  I wonder how many people knew this before they voted last two times. Have a wonderful retirement.

b)  Let's see. First the birth/death rate. More US businesses are now dying than are being created. Last time this happened was...  Next, the fact that all new jobs in the economy are marginal in nature and are thus exclusively created by new businesses... yes the same new businesses that are not being created under Obama's seven year attack on small business.  Is this article a last ditch attempt to show his followers that he remains the candidate with the best intentions?  ... wait, he is not a candidate any more.

Graph from the Federal Reserve Bank in St Louis showing the Real net domestic fixed investment adjusted to real gross domestic product and deducted from net corporate dividend payments also adjusted to real gross domestic product
Capital Investments in the US have been at zero
since Obama was elected;
a phenomenon not seen in the US for 70 years
source: The Federal Reserve of Saint Louis, MO
c)  It's interesting that Mr. Obama may be getting a little soft in his old age. Not long ago, I clearly remember hearing him say that business owners didn't build their business. From the president's perspective, society gave business owners their business' growth.  But somehow the above presidential appeal to business owners seems to suggest that Obama now thinks that it is up to individual owners, and not society, to expand the employee count.  Well Mr. president, your senses have failed you again. It is not up to business owners. Fiat may appear to work fine in politics, which is at best questionable, but it certainly fails in the real world of business. To grow, business owners have to compete with all other business owners for a perpetually shrinking piece of market pie. They have to be decisive and fast at giving the market what it wants. Unfortunately, right now the market does not want extra workers.  
Graph with Total Business Inventories to sales ratio sourced from the Federal Reserve Bank of Saint Louis, MO
Businesses have built up inventories hoping for a recovery.
Yet, sales failed to rise at the same rate. What comes next?
Old, over-supplied goods deflate future profits.
Terrible when facing higher rates and a pending recession.
source: The Federal Reserve Bank of St. Louis, MO
Look at your own St. Louis Federal Reserve's data. Manufacturing has been recessionary, long term capital investment has been non-existent for seven years, businesses have put too much money into their inventories while sales have slowed down in comparison, employee costs have gone up since you were welcomed to the White House, and capital for small businesses continues to only be available to those willing to pay the big premium the lending market has established based on the Department of Justice's extortion of banks and businesses. Surely Bank of America is a little sensitive about depleting their reserves after settling dozens of questionable governmental lawsuits that have depleted their total post recession earnings. Yes, I know. proforma financial reporting does miracles to hire these issues from general investors. Nonetheless, negative cash flows are negative cash flows no matter how much lipstick. So, let's rather focus on the ice cream. It is a much more pleasant topic.

d)  Let's see. Young people need their first job where they can be trained and mentored...  and I assume this is to be balanced with the proposed minimum wage of $15 and Obamacare rights when working past part time? And then there is workers-comp, social security, an extra computer and desk... If Mr. Obama wishes to get these eager workers their first job, how about letting us give them real training. How about jobs with real responsibilities. You know, nothing like government jobs. What if we could legally hire them the old way. Under an apprenticeship program, they will earn valuable skills and experience rather than an undeserved income. We will make sure to turn them into productive citizens. Apprenticeship was, after all, our advantage over Germany's war machine when we suddenly had to catch up during the second world war. So we could say it has a proven record; unlike the performance history of fiat which seems to be the politician's way.


Image of recent Youth Misery Index in color
Being young today is terrible. No wonder they are pissed.
Yes, I find it shameful that this president continues to attempt to window dress now that he finally has skin in the game; now that he's worried about his legacy. Previously, any losses to our nation meant nothing but international adulation for him. And why not, many wanted the US as a diminutive nation. Yet, he suddenly cares. Weird and shameful.
Unfortunately, it is too late. Take a look at the Youth Misery Index. While it can be argued that it is partisan by birth, what is undeniable is that it is a quantitative method to see what the youth is experiencing. And the results are terrible. Even in other were to come up with any other algorithm, as long as it is founded on concrete data, it will look just as miserable as this (pun intended).
But nothing will repair the emotional injuries our young are experiencing at a time when they are supposed to find themselves as adults. This is the worst broken promise these people will ever hear in their life times.
Next, let me also share some comments from other LinkedIn members and my corresponding subsequent response.

What others said:
Comment - "I am all for grassroots, private community-level efforts in this regard. That would be great. Issuing a call to action is good leadership -- but the federal government's responsibility must be to address this problem at the ROOT CAUSE. A truly healthy economy will improve job prospects for everyone who wants one -- it is NOT to tax and legislate around the EFFECT alone e.g. welfare, food stamps, and other entitlement programs. Obama seems to be suggesting that legislators enact a law that will muscle businesses into hiring people for "first jobs" and/or sending tax money in that direction. Politicians, especially the far left and right ideologues, ignore moral hazards and the unintended consequences of their solutions. Be careful what you ask the government to solve; they are not good at it."
by Albert John Cacace MBA, PMP, CSM

My Response - You are right Albert. When government enacts laws, these are enforced with a gun-to-our-heads, confiscation, etc.And to think that the whole point of government is to serve us...


Comment - "I was happy to read the president describe the virtues of his first job, responsibility and hard work. He did not mention what his salary and even went so far to infer that this experience can set a young person on the right and not the wrong path. It's not too hard to imagine that if a $15/hr minimum "living wage" was imposed upon Baskin-Robbins at the time, Barack Obama and others would have been robbed of that experience and in his own words,"set them down the wrong path."  When will politicians and the American public understand that raising the minimum wage robs the young, yet unskilled and primarily minority youth of this incredibly valuable life experience?"
by Dave Jenkins

My Response - You are correct Dave. Still, apprenticeship is way gone. Obama is unfortunately lost about the fact that it was business that used to gladly take on the burden of teaching those at the entry level. But after government's decades of meddling in regulations, healthcare and minimum wages, it is simply not worth it. Then, the left's solution was to give everyone a voucher for a loan to college. The fact that a higher demand would result in a higher price was also missed. So now we have millions of people with useless degrees who can't even scoop ice cream and a president who wants to go back to businesses owners to ask to please take on the now larger liability of hiring unqualified employees. Why? Well, in an election year when the left hopes to get the youth vote, it would be much nicer for them to get at least a summer job.  Any CEO would have lost his job a long time ago for such failures but in government they just set ice cream photo ops.


Comment - "'This is where our communities can play a big role'. I like what your doing for the youth of your community. Instead of moaning and do nothing and wait for Obama to provide answers for your communities youth unemployment problem, you took the reign in your own hands and make things happen. Wonderful. Because if we leave all our troubles to our politicians to find solutions for us we can never get anywhere. But we need to stand up and do something about unemployment for our youths in our communities. The Summer Project is a great idea for anyone to us and it can be a success if our communities support it long term. Yes, your right, build projects and get your communities to support it. Well done."
by Emuei Ma'ia'i

My Response - Agreed Emuei, we should not rely on government. Let's abolish, say, 50% of it. And while we are at it, let's eliminate minimum wage, Obamacare and the many regulations that make it impossible for apprenticeship programs to be created by small businesses as it was the case in the past.

picture of a disinterested Barack Obama
Couldn't care less.
Comment - "Keep pushing for a higher minimum wage. Then, lament how difficult it is to get a job with a blank resume. Time to reevaluate.  I didn't read the other 476-odd comments. Hopefully I wasn't the first to say this."
by Joseph Markey

My Response - You weren't the first, but I honestly don't think Obama cares that his tactics fail. He has shown to be willing to bring more and more people into the ranks of the needy.

Comment - "There are some other pieces to this problem that are rarely discussed but that I have been disturbed by as the mother of 3 children in their early 20s. Nowadays, many of those low-wage starter jobs are offered under-the-table so that business owners can save on employment taxes. If that is all a new job seeker can find they will take it, but it doesn't do anything to help their resume, add to their stake in future Social Security benefits, contribute to the tax rolls, or offer them the ability to use that employer as a reference for future jobs. And it embroils them in a dishonest system as their first introduction to the workforce. They may not even get minimum wage but can't do anything to complain about it because "at least it's a job." 
Then there is the intern system that has taken hold in just about every industry - including our government - in which our young people today are expected to do 2-4 unpaid internships before they can even begin to look for a paid job in their chosen field. This means that employers can legally get unpaid labor from our youth with only the prospect that "someday maybe someone will hire you because you once worked for me for free." These young people can't be full members of the community without a paycheck and it just simply is unfair not to pay someone for their time, work and talent. As a mother and as a citizen, I am appalled by the rampant exploitation of our youth in the workforce and honestly can't understand why we don't embrace them as the light and hope for our future that they are. No wonder so many of them feel like the deck is stacked up against them - it is.   Those people coming of age at this time have never known a world without war, terrorism, and economic hardship. As their elders, that is the legacy we handed down to them. The least we could do as a society is to acknowledge their right to enter the workforce with honor and to make a positive contribution to the world they have inherited."

My Response - "And it embroils them in a dishonest system as their first introduction to the workforce"  
Molly, all around the world, black markets develop after the regular market becomes distorted by governments. In Venezuela, the socialist government forces businesses to sell milk at an unrealistically low price. They do this as a token in their attempt to convince citizens that they are taking action trying to make food accessible now that the economy has been destroyed by their redistributionist tactics. As a result, no milk is ever sold at the price dictated by government. If you want milk for your family, you must pay hundreds of times more. But what is missed here is that, without black markets, milk would not be available at all. 
composition image in color of Venezuelans waiting in line for food at the left, then Chavez giving thumbs up in the middle, and finally an empty supermarket at the right
World explorer Jim Rogers talks about how black markets exist to correct problems created by bureaucrats. But we should not shoot the proverbial messenger. Rather than blaming black markets, we should solve the problems by getting rid of our failed leaders.  After Obama obliterated the ability of small businesses to add full time jobs, the problem is not that your child can only get a black market job. The problem is that the people in the White House have no clue about job creation in the first place. The above article highlights this last point.


Comment - "We have an opportunity here to achieve numerous local, national, and international goals by tapping into the energy, enthusiasm, and brainpower of youth everywhere (certainly in America). The low carbon economy that we need to ramp up now (actually, yesterday) is going to be a massive net job creator. Plus, those jobs - in local-scale renewable energy installation and maintenance, or in recycle/reuse centers, for instance - will lead to much better local air and water quality for the health of everyone, especially our children. Nationally, we can look forward to producing all of our own energy, or zipping from state to state on world-class railways. Internationally, these same jobs for youth at home can reduce our greenhouse gas emissions, thereby fighting climate change and its hundreds of billions of dollars of damages to our and other economies. Think of how this would boost the morale and self-confidence of our young people engaged in this work! Now, doesn't that sound like an outstanding win-win situation?"

My Response - Joshua,  Are you offering to take the few million twenty-somethings that still live in their parent's basement to Asia with you? I vote yes! They will be much better by learning from the Asian work ethic than the entitlement infected, media injected education they get here in the US. Aside from coming back as productive citizens, they will also be able to get a job over there now that Obama eliminated any chance of small business growth over here.  Again, I vote yes with Gusto!


Comment - "Amazing article! Very motivating for all, the school and college students and including the CEOs and entrepreneurs, who can come forward for the young generations. America and beyond! Thank you Mr President!"

My Response - I am left waiting for the punch line.


Comment - "I'm wondering how many new jobs will get created when the minimum wage gets bumped up to $15/hour?"
by David M. Cox

My Response - Well, let's see... what would you say if I told you that Obama's own calculator shows negative numbers for the result?


Comment - "Well Mr President. If the jobs your so proud of creating during your tenure were real jobs and weren't the jobs that the youth used to do and now are considered "full time" employment (in which you want to raise the minimum wage so people can live off of fast food work) maybe we would have more work for our youth!!"

My Response - Tobias, You are touching on the real point here. Obama's claims for job creation is false. A person with three part time jobs that add up to more than forty hours per week are counted as three full time jobs by the government. And that is just the beginning. For the real unemployment data we need to look at the government's own U6 report. The worst part? They know their lies, thus the above article. In essence, as citizens we are the bigger fools.


Comment - "That is why you are letting companies like Carrier leave the USA and go to Mexico. That is why you are ramming TPP down our throats so that it will ensure that more money goes out of the country. How can kids get summer jobs when most of those jobs do not exist because the only jobs remaining that could be considered as summer jobs are being filled by adults trying to survive on summer job wages? Jobs that used to be great for young adults to learn about responsibility and earning their keep such as fast food places are mostly all the jobs available anymore. If they do have the good fortune and skills to get one of these jobs how will they learn about saving and investing for the future? By putting their money in a bank account that will draw NEGATIVE interest? They would have a much better opportunity of actually accumulating money from their earnings by selling drugs or in gambling than investing in the bank and I do NOT endorse either option! I do like the illustration you provided for us and I applaud the company that opened it's doors to young adults as well as the young lady who took the initiative to work for not only a wage but as an opportunity to grow in experience and skills to help others.
Unfortunately in this entitlement era we live in most employers are not concerned about employees making ends meet so when the government gives corporate handouts to banks to pay off the bad loans but no help to those who were paying on those loans but lost jobs because of the economic contraction caused by the bankers the middle class is conveniently kicked and then when corporate America gets another gift with the health care plan that enables corporations to say to their employees , " here! take this incredibly poor example of a health care plan and if you don't like it go to the government and pay more." So, yes, young adults, enjoy your summer job if you can get one and learn the beautiful lesson given to us by one of President Obama's favorite government leaders, Joseph Stalin who said that if you keep the masses poor you will have them eating right out of your hand."

My Response - Joe, Don't be misled. Obama doesn't want to create more jobs. He wants more food-stamp recipients that will continue to vote with their basic needs in mind. I agree that he should be ashamed.


Comment - "Talk is cheap, and doesn't do much to create first jobs for kids. Mr. President, your proposed 40% hike to the minimum wage will do immeasurably more to destroy first jobs than your ice cream social and your jobs programs will ever do to create them. What creates first jobs for kids is leaving the business community free to offer whatever jobs they can come up with at whatever wage they can afford - and then the kids can decide if they want them or not. A first job that is real work may be worth having even on a volunteer basis. Put it on your resume and move up to a paying job as soon as you can. It is what politicians like you do for your staffers, right? If it's good enough for politics, then why not for business? One wealthy entrepreneur tells of his first job where he actually paid his friend's dad $0.25/hr to let him work! He credits that man with teaching him what it takes to become rich. (See Rich Dad, Poor Dad) Minimum wage is tragic for exactly this reason - it hurts primarily those who are least able to get a good-paying job."
by Dave Wahlstedt

My Response - Well said. Obama's rhetoric is cheap.


Comment - "This has to be the stupidest article I've read in a long while. There are literally hundreds of first jobs out there, albeit they are not glamorous; however, they do offer a paycheck and some real-world experience. The problem is teenagers want to get a first job that pays them what their mom and dad make, but they don'r understand that mom and dad had to work for 20+ years to get to that level. Many teens today seem to think that entry-level positions should pay them $15/hr+, and don't understand the value of a first job. Reading the article, it appeared as if someone had actually complained that scooping ice cream was tough on the wrists? Seriously?"
by Ian Porter

My Response - I agree with the stupidity of the article part.  Now that Obama is rather talking about the twenty-somethings that are living at home with their parents and for whom a college degree has been totally useless. Look at the labor market participation rate by age. 20 to 30 year olds have taken it in the stomach. The reason? Well, those over 55 can't retire and are thus willing to take any number of low skill part-time jobs; the same jobs that the twenty-somethings would normally get.  Obama knows that their lies about full-employment fail scrutiny once we get just below the surface. In a nutshell, this is a Hail-Mary pass; a last minute attempt to patch the ship's gaping holes with a couple more band-aids before he exists the White House and gets a chance to blame the next president.


Comment - "Obama is a man who never had a real job, never qualified for one. His education wasnt earned, rather due to exploitation of affirmative action. His only profession was a community organizer (a suspect occupation consisting of agitating complainers to blame white people).  He is a liar, a fraud, and NEVER would have been hired by any sane HR Dept."
by jason b

My Response - Absolutely correct. He should be ashamed from trying to pass the hot potato to business owners last minute.


Comment - "Oh gees....so now he wants adults that have learned how to survive by changing careers, to coddle first timers? No Thank You. My sweet mother taught me that I learn by mistakes. Let them grow up Obama! They will live and learn. That is how other Americans did it in the past in case you're not aware."
by Marshall Dominguez

My Response - Well, Obama grew up but didn't learn...




Comment - "Great. The prĂ©sident Obama have exactly words which can make our dreams and our idea come true"
by Fogaing Raissa

My Response - I am having a hard time with what part of food-stamps makes dreams come true. 



Comment - "When I read this article and the responses it makes me sad how some individuals seems to overlook the message behind this article. It's about opportunities or options for communities to look at to help their youths unemployment problem. If summer projects doesn't or wont work for communities youth unemployment;then why not look for other projects? The focal point here is 'community involvement plus helping youths in communities. Community involvement isn't a no brainer idea ; it's about critical thinking and thinking positive instead of being narrow minded and personal about ' an initiative that can be use/developed for good causes for communities'. To build our own ways in this world instead of relying on politicians isn't a traditional idea - many have lived and survived this way then / and still do today. Businesses cannot survive without consumers ; and that's the Community. It isn't about Obama that's why I chose to respond to this article; it's about ' PEOPLE MAKING A DIFFERENCE FOR THEIR YOUTHS AND COMMUNITIES'.   WE STILL RESPECT OUR PRIME MINISTER REGARDLESS."

My Response - Unfortunately, it is about Obama.  Americans don't need last minute electoral pandering to work in unity. We have been doing this exact thing for over two hundred years. But the redistributionists and agitators have gained control. So now we are divided and roughing it.  But don't be misled. As soon as the government gets out of the way again, we will rebuild and innovate with Gusto. So don't be sad for us. Be sad for those in government who think they have made America pay a high price for its success.



Comment - "I'm from Brazil, and I remember when I search for the my first job fifty years ago, it was much difficulty. Employers in that era needs people with professional experiences, as today unfortunately, and young people without experience didn't has opportunities to prove theirs qualities. I think it's is necessary to create local laws to change this situation, where companies must to show a minimum percentage of young people in theirs job list, and at the same time to protect the young from exploration on the work."


My Response - Jorge, In the US we do have to keep in mind the people we hire. We tally females, fat people, skinny people, ex-convicts, the elder, gays, the handicapped, Blacks, American Indians, Jews, Latinos, Asians, the disadvantaged, the marginalized, and more recently Muslims,  So what's just one more group on the list? What if we add the young? Well not much other than the fact that the government enforces rules with a gun to our heads, that it is excessive regulation that has created the problems Obama is pandering about, and that there would be no one left out of the list. Well, maybe someone will suggest we add penguins and whales to the list at some point in the future.



Comment - "Good article based on real facts, indeed. My daughter graduated one year ago with a B.S. degree. Did internship and had numerous interviews in a corporate environment. But has not landed the permanent position, as of yet. On the other hand, my son ten years her senior with a BBA degree landed a job based on the old traditional cycle (within months). Something is definitely wrong with how the system is functioning now, it isn't.  This is one of the major reasons default on student loans are at a all-time high. These young, want to be professionals, are struggling economically. Their credit scores, which are now a part of the interview/selection process thanks to the republicans, will keep them from landing the coveted position which contains the appropriate salary to pay back that loan. Without that coveted position, not able to qualify for a mortgage, because their credit score is too low.  So these two young people did all that they were told by this system to do in order to be a productive and dependable citizen in this country, they were guaranteed these rights, told it was the American way of doing it right and this is how we repay them?  This system is still broken thanks to republicans stealthy genocide practices during the 'W' Bush years. This is no longer capitalism, it's obstructionism and oppressing our future generation. This needs to end now."

My Response - "they were guaranteed these rights," I agree, The facts are clear. Obama keeps lying to people about rights that don't exist. So of course that they'll end disappointed. No one gets trophies for participation in real life. He knows that.  And now you seem to suggest that he has even told people there was some sort of "genocide" that caused a break in the US system. He should be ashamed of himself for creating such stories and for pushing so many people into poverty and a terrible education. We need to help the poor and make sure guys like Obama don't win elections by lying to the uninformed.



Comment - "Obama learned nothing from his job at Baskin-Robbins, except how to GET OVER. His policies are what are killing "1st jobs," and that moron is too stupid to realize it."


My Response - So here are some facts to help your case. By the way, all data is publicly available and supplied by the Fed. Just go to the Federal Reserve Bank of St. Luis website (FRED) and you will get more data on Obama's failures than you ever dreamed.   
FRED - Civilian Labor Force Participation Rate
Civilian Labor Force Participation Rate
https://research.stlouisfed.org/fred2/series/CIVPART 
All the massive Labor Force participation gains from the Regan era remained in a stable range through two normal recessions and one great recession. Then, out of nowhere, the end of the recession brought an incredibly large decline instead of the expected recovery. All modern era gains have been wiped out. This is Obama's legacy and no one else's.  But Obama's supporters suggest that the drop is due to retiring people. Well, if this is the case, why are women holding on to the Regan gains while males are getting killed?  
FRED - Civilian Labor Force Participation Rate: Women
Civilian Labor Force Participation Rate:
Women
https://research.stlouisfed.org/fred2/series/LNU01300002 
Despite the fact that women had been steadily gaining on men, total participation had gone up. But Obama change all that.  
FRED - Civilian Labor Force Participation Rate - Men - Alberto A Lopez
Civilian Labor Force Participation Rate:
Men
https://research.stlouisfed.org/fred2/series/LNU01300001 
And as for the elderly retiring, the reality is different. Those over 55 are working much more than they did during the Bush years. 
Chart by the Fed - FRED - Civilian Labor Force Participation Rate - 55 years and over - Alberto A Lopez
Civilian Labor Force Participation Rate:
55 years and over
https://research.stlouisfed.org/fred2/series/LNS11324230 
https://research.stlouisfed.org/fred2/series/ISRATIO 
And why could this be happening? Well, for one, business inventories continue to go up when compared to sales. This is unexpected because the recession made businesses more efficient rather than less. Businesses are supposed to achieve more with less, which is what they did during the booming Bush years. Every year, they were able to reduce balance sheet burden while increasing sales. But the trend has reversed very rapidly after Obama begun messing with businesses. It is clear that managers are having a hard time navigating the storm.  Does this mean that businesses are not sufficiently excited about Obama's performance as to want to hire people? Well, yes. Businesses have no confidence in Obama's legacy. For the nest graph, I will tell you what to enter at the Fed's site and after you get the three data sets you will need to write the formula below. The reason why I don't just send a link is because the Fed's site does not hold temporary calculations.  What I am looking for is the willingness of businesses to invest capital for the long term. This is wt requires the highest degree of confidence in the economy now and later. It is also the best indicator for new job creation.  Get the "Real Net Domestic Fixed Investment". This will be labelled "a" in the formula bar.  Now get the "Real Gross Domestic Product". This will be labelled "b" in the formula.  Finally get the "Net Corporate Dividend Payments". This will be labelled "c" in the formula.  Just as an FYI, "Real" means adjusted for inflation in Fed-speak. Now write "(a/b)-(c/b)" in the "create your own data transformation" section. What you are doing is looking at what portion of profits was used for long term investments. You are also making sure to adjust for economic growth as measured by inflation adjusted GDP. The resulting chart shows that long term capital investment has been in the toilet. From the data perspective, The Obama presidency is just as bad as the great recession.  And I better stop here. I am sure that I have already gone beyond what most would tolerate in a single tread. Unfortunately. the data from this president is so bad that it is hard to hide. The best economists in the world agree. These are the same economists hired by our government to control national liquidity. Despite still giving more radiations and medicine than to any other patient in history, the Fed has not managed to either reduce their one trillion bond balance sheet nor increase interest rates by more than a quarter point. At the present moment, they are pushing lower interest rates than at any other time, even after the meager increase. Yet, claims of a healthy patient are sounded everywhere. If uncle Sam is as healthy as they say, why don't we disconnect him from the radiation machine and stop the cocktail of medications? Enough said.


Comment - "I'm confused. On the one hand, you say the minimum wage needs to be a "living wage", at least $15/hour. And now you bemoan the fact that completely unskilled, fairly unmotivated, "first time job seekers" can't find a job? Are you surprised? As a business owner, there is no way I would spend $15/hour on a gamble, who most likely is leaving after the summer is over. The reason business hire teens during the summer is because they were cheap labor. The cost to a business to "train" a temp employee is huge. Then you want to force the business to pay more for these individuals who will undoubtedly leave. Welcome to unintended counsequences"


My Response - Great points Amy.
$15.00 base. Then throw in about $3.30 in social security, medicare and other payroll costs. Then add about $1.30 for your portion of Obamacare if the new employee exceeds part time. Plus workers comp. Then, think of the direct and indirect costs if they end up claiming unemployment after they leave and then ponder that it may be impossible to fight them on the merits of their claim. Or how about the employees that stay and accrue sick or vacation pay?
These facts mean that by the time you are done, the new marginal employee has to have a direct or indirect effect on an increase in sales of approximately $200 per hour (annualized to $360,000 for 35 hours worked per week) for a typical small business. This is based on nets margins of about 10 points, which many small businesses don't reach after paying a standard market salary to the owner-operator.
Yes, some could argue that a temporary marginal employee should be paid from gross margins rather than net margins, which would require an increase of $75,000 additional annualized sales. They would argue that there may not be additional operational expenses directly related to the new hire in cases when there is slack in business furniture, space, etc. But even if such was possible for a single employee in a specific situation, it is not probable in all scenarios. So in the end, the highest probable scenario is one where a marginal employee would have to add sales closer to the $360,000 annualized. 
Mr. Obama makes the mistake of assuming that employees are free and that an operating business has less employees that it must have. But even when employees have to work harder than before (after their team mates were fired during the Obama presidency or the previous recession), the existing team is in fact doing everything needed to keep the business going. How do I know? Because if it wasn't the case, the business would have closed its doors already. 
In other words, there is no way around it. Regardless of the great cheer for doing the right thing, this president will fail at this as he has failed at all other projects he has attempted. His are great words of promise that lack any chance of success. At a fundamental level, Mr. Obama's failures go back to the fact that he does not understand the basics. 

Monday, May 25, 2015

Clinton, Business and Oxymorons

To concurrently think of a politician and business is tough. But to think that Hillary Clinton is somehow a business guru is plain impossible. Now that you don't have to take my word for it. On May 21st, Hillary's handlers wrote an Influencer post for the LinkedIn audience. The topic? Business.
picture of Hillary Clinton in front of local small business owners.
Is she thinking about what advice to give you or
how to destroy you and your business?
Let alone the fact that LinkedIn Influencer posts are reserved for those with authority on a given subject; Hillary's own account of her expertise were her experience as a daughter of a once business person. Nonetheless, no one was impressed by the fact that this was her only Influencer post ever.
In a nutshell, Hillary and her team somehow think that using the platitude-ridden shallow-message style commonly deployed by her and Obama would be effective with an educated audience. Well, based on the comments, their calculations seriously failed. Aside from the many hardcore feminists, the left faithful or those who simply felt sympathy for the attempt, most saw the post for what it was: a failed attempt at voter pandering. 
But why not let you decide for yourself. Here is a transcript of what she wrote. Then, you will get a chance to read my comments to her main points. Yes, I am being a little picky. While I would allow a new manager to get away with similar comments. I have little patience with those who have access to the best minds in the world yet opt to instead make a half-hearted attempt. In essence, I feel their message is "here is what you want to hear but which I just don't care about". In my opinion, this is totally unacceptable.


When I was growing up, my father owned a small business. And when I say small, I mean small: It was my father and an occasional day laborer. My mother, brothers, and I would help do the silkscreen printing on the drapery fabrics he sold. We were an all-hands-on-deck operation, guided by my father’s belief that if you worked hard and did what you were supposed to do, opportunities would be there for you. 
Despite generations of progress on so many other fronts, it’s still too hard to get a business started today. Hard work is no longer enough to guarantee opportunity. Credit is too tough to come by. Too many regulatory and licensing requirements are uneven and uncertain.
And yet, as I travel around the country, I hear signs of optimism. Just yesterday, I sat down with a group of small business owners at Bike Tech in Cedar Falls, Iowa. I met a young man named Brad Magg. He started his first catering business at 15 with a loan from a local bank — they were willing to take a chance on a very young entrepreneur after years of watching him sell baked goods while in elementary school. At 20, Brad decided he wanted to start a restaurant — just as the owner of the local ice cream shop, Goldie's, was getting ready to retire. He bought the business from Goldie herself (and liked the name so much he kept it). Like many business owners, Brad struggled to make ends meet during the Great Recession, so he sought help from a Small Business Administration program in his town. With support and sheer determination, he was able to save his business. Today Goldie's Ice Cream Shoppe has grown from one and a half employees to almost 30.
That’s the spirit that got Americans through the Great Recession. And as we come back from the crisis, potential new business owners and entrepreneurs from Silicon Valley to Des Moines to Brooklyn are ready to seize the moment. All they need are policies that help them get ahead instead of holding them back.
That’s why I want to be a small business president. Throughout this campaign, I’ll be proposing specific ways to help jump-start small business, including:
1. Cutting the red tape that holds back small businesses and entrepreneurs. 
It should not take longer to start a business in the U.S. than it does in Canada, Korea, or France. 
2. Expanding access to capital.
Small business owners need access to financing and credit to build, grow, expand, and hire. Lending has recovered since the crisis, but it’s still hard for new firms to get credit. A Federal Reserve Survey found that the current market is especially hard for the smallest firms and startups. And despite the fact that millions more women have opened businesses and become their own boss in recent years, they're still starting out with about half the financial capital as their male counterparts.
3. Providing tax relief and tax simplification for small business.
The smallest businesses, with one to five employees, spend 150 hours and $1,100 per employee on federal tax compliance. That’s more than 20 times higher than the average for far larger firms. We’ve got to fix that. 
4. Expanding access to new markets.
Every American small business should be able to tap new markets — whether they are across their city, across their state, or around the world. Some American businesses are already doing this through new platforms, such as Etsy and Ebay.
The early lessons I learned about hard work and entrepreneurship have stuck with me all my life — a sentence my father would be thrilled to read. In the weeks and months to come, I want to have more conversations with people on the frontlines — people like Brad in Iowa, who have seen firsthand what’s working and what isn’t. Then, we need to build their experiences into our policies —because small businesses are the backbone of our economy, and they have as much to teach us as ever.


And now my reply:

"1. Cutting the red tape that holds back small businesses and entrepreneurs" 
I love the idea of less government. It is well documented that a few smart central managers will never outperform us all. Yes, I am talking about the many studies about the wisdom of crowds. Despite whatever your friend Barry says about the fact that business owners are simply the recipients of hand-me-downs from society, I ask for no more Nanny-state please. Business owners can fend for themselves if government gets out of the way. Just remember that before there was big business in this country, small business was pervasive despite the dog-eat-dog environment of the era. Anything is better than the predatory redistributionist government that we now have; which punishes small business. Just think of it, tax collections have accelerated at the same time that business profits have collapsed. And of course I am talking about business in general and not just about the financially engineered P&L's of the Blue-chips. For further insight Ms. Clinton, just check the St. Louis Fed's website. It's all transparently there.

"2. Expanding access to capital" 
image of a male's empty pocket
When big government crowds out small business
If only you understood that it is big government that's crowding small businesses out of capital markets by its unsustainable borrowing. Yes, I know that this comment is esoteric and that it may go over the head of many, but government and its many so called brilliant advisers should know better. Despite of where the Fed may fix interest rates at, risk aversion has made it impossible for small businesses to borrow at reasonable rates. For all intents and purposes, small businesses have been kicked out of capital markets since the recession ended. And considering that capital is always needed to fuel small business growth and that all marginal employment growth is 100% levered to small business innovation driven growth, it is not surprising that employment has been stagnant, in spite of the book-cooking taking place around headline data. Just look below the headline, Ms. Clinton, and you will see the facts elegantly connect. If big government stops living beyond its means, it will borrow less. Capital will then be available for long term capital investment, the kind used by small business. But don't just take my word. Besides looking at the St. Louis Fed's website, I suggest you review all recent public presentations by Greenspan. It seems that now that he has been out of government for a few years he has totally reformed. He is starting to make sense again.

"3. Providing tax relief and tax simplification for small business" 
Tell that to your friend Barry. We already knew it.

"4. Expanding access to new markets"
Image of long line of dissatisfy customers
Ms. Clinton misses the whole point
about small business.
Ms. Clinton, no doubt that you miss the whole point about small business. By definition, small business structures are not sophisticated or large enough to viably sustain operations that are excessively diversified. Focus is always the better advice for small business. There are just not enough bodies around the office to handle customers with diverging needs. And if you think that a business can become large by setting up an eBay account, just ask the many who have tried to see how difficult it is to profitably serve every little picky request by customers who hold you hostage to your public ranking. No, small business reach new markets not by fiat, which is clearly the only way you know, but through innovation. It is their innovative approach to unsolved needs that allows small business owners to serve diverse customers. Different customers are all bonded together by their common need. Thus, a small group of one can build a viable business before she has to worry about HR and the many business regulatory needs. To help us all, I ask that you and the rest of Washington stop getting in the way of small business. Clearly the relevant concepts elude you all.