Get Rich Slick

I was having an e-mail discussion with some friends on the current deteriorating job market.   Specifically, this article in the Boston Globe talking about a Bostonian college start up that has created a reverse auction for a lowest pay job market.

In a sign of just how tough it is to find work in the struggling economy, a group of recent college grads in Massachusetts have created a Web site that allows job seekers to try for positions based on who will work for the lowest salary.

I frequently get e-mails or comments from people who state that their jobs aren’t in danger because they work for a utility or are a nurse at a hospital.  The premise is that because these jobs require a person to be physically present near the utility or patient that their job won’t be endangered.   This is a dangerous premise and I’ll explain why:

First, your job may be secure but your pay isn’t.  If everyone utility customer or hospital patient loses their job or has their salary reduced to $6/hr then there is no way that this can sustain a nurse at $50/hour or a utility worker at $40/hr.   There is no way that a person making $240/week can afford an electric bill of $400/month.   Neither the nurse nor the utility worker will have their pay preserved at current levels if salaries are deflating everywhere.

Second, we’re already seeing this take place in California.  State workers have been mandated to go on furloughs two days out of the month.   The DMV and other public services are shut down for two days out of the month.  The workers don’t get paid, the customers don’t get service.    What will happen to utility workers and nurses and everyone with a “secure” job will see this type of furlough soon enough if things don’t improve.    These guys will certainly still have a job but their pay won’t be secure and for any worker that balks of taking a pay cut, rest assured there are millions of other people waiting and eager to take up that job.    I would imagine an employer would be willing to pay $2000 in re-training if it means lowering a workers salary 10k or 20k over the course of a year.

Third, every company is now or will soon turn to “survival” mode and begin slashing more jobs in an effort to keep afloat.  The biggest challenge for me, right now, is trying to find the right company that won’t go under or have massive layoffs right after I start so I’m actually now seriously considering work overseas in some niche areas.   I seriously want to diversify my income into a different currency too!

I’ll write more on that last part in the near future but it is getting ugly out there.

Bookmark to:

Hide Sites

How do you put into words what shouldn’t or couldn’t easily be put into words? I had intended on posting this after Christmas and I had intended on writing a long treatise complete with a set of references (see below) but I decided that the math would likely be way over too many people’s heads and this article would be glossed over by 99% of the people reading it.

Instead, I’m going to tell you as easily as I can that “it’s over” and there isn’t much, if anything, that can be done about it. What is over? Well, the banking system is over, the stock market is over, the credit system is over and our political system may be over soon too. The best case scenario might be marshal law until the whole thing can be rebuilt brick by brick.

Let me state clearly that I don’t think the world will come to an end without these things because modern humans have survived on this planet for the last 200,000 years without much of a banking system but the world as we know it, experience it and live it is going to drastically change. Lol! That’s perhaps the irony, the recent presidential election was about “change” and people are in store for a change that they did not anticipate or expect.

I am seeing an apparent logarithmic deflationary decay in many of the numbers coming out all over the place and the “bad” information is accelerating exponentially. Real unemployment is running somewhere between 12% and 18% and the job losses are accelerating. Real GDP is 3% negative and getting worse.

Chart Courtesy of ShadowStats.com

Chart Courtesy of ShadowStats.com

Let me try to summarize some key points:

If 80% of the wealth is controlled by 20% of the populous, what happens when those top 20% start losing money by the billions? Think of the cascading fractals from a self contained “economic ecosystem” that is in logarithmic decay.   All of the “solutions” offered by the government goons do nothing more than simply transfer the pile of crap from point A (the losers that caused the problem) to point B (the tax payer).   These solutions “solve” nothing.   I get the sense that the only thing that will “fix” the system is replacing it (e.g. a total collapse).

We’ll see how the next 12 months unfold.

News Sources: Japan, Australia, China, Canada, Russia, UK

References: Damping Ratio, Hoover Index, Benford’s Law, Zipf’s Law, Lorenz Curve, Pareto Distribution, Gini coefficient

Bookmark to:

Hide Sites

It seems every time I get a call from a broker asking me to consider dropping some of my money with their brokerage, the market drops about twenty percent so this can’t be good.

I’m getting concerned that this particular brokerage might be on their last death throws too but what can anyone do right now?

Tax loss harvesting? Year end rollovers?  Year end rebalancing?   Big 3 bailout failure?  More Madoff madness?  What will be the trigger for the next twenty percent down?

Bookmark to:

Hide Sites

If you haven’t kept up with the news, US Treasuries are now returning a whopping 0% return which means that investors are lending the US government money and simply expecting a return of their principle and sometimes even a little bit less than their original principal.

The US Treasury market actually had bid FOUR times higher than were available so essentially one out of four buyers didn’t get the privilege of lending the government at zero percent.

Why are investors so eager to lend money at zero percent? Security. The US Treasury market is backed by the most powerful agency in the universe: IRS. The government can always impose, raise and collect taxes to pay back Treasuries to their investors and they’ll do this to keep the money flowing otherwise the US Government would instantly go bankrupt if they began defaulting on loans.

Unfortunately, while borrowing at zero percent is a great deal for Uncle Sam it is, to me at least, a clear indication that we are now headed toward a massive Treasury bubble. Everything will be fine for the next few months or years that this bubble continues to grow but as we’ve seen with the housing bubble and dot com bubble, all bubbles come to an end.

What can we expect when the Treasure bubble pops? For starters, soaring rates for government debt which means we may see today’s zero rate treasury pop to eight percent in a few years and maybe that why I keep dreaming about it so much.

Bookmark to:

Hide Sites

An excellent article by Helen Avery over at EuroMoney that summarizes some of my concerns as to why I made the decision to reduce and halt 401k and 409a contributions for the 2009 calendar year.

There are two major underlying problems:

First, the US Treasury settlement system seems to have completely broken down with a huge increase to nearly two trillion dollars of undelivered bonds.

Second, government oversight agencies are asleep at the wheel and have done NOTHING to fix the problem.

It also doesn’t help that there appears to be “naked bond” trading similar to naked shorting in the equity market.  I can’t emphasis enough that this is a huge time bomb waiting to blow government bonds into oblivion if something isn’t done to remedy the problem.

For those investors out there that think bond funds, money markets or government securities are the end all be all of safety should reconsider.   You have been warned.

Bookmark to:

Hide Sites

I’ve decided to pull a chunk of short term money out of the market.   Nothing in this market makes sense any more and luckily I got a good exit point on my latest short position (DUG) to exit at a break even point.

I’m keeping long term funds in the market but the short term money needs to go somewhere reasonably safe, like paying down arbitrage debt and my bank account.

Essentially, I can’t short anything because I’m not sure when the government isn’t going to come in and bail out someone, institute a ban on short selling, change the rules of the game or otherwise fiddle with common sense.

I can’t go long on too many things because if some of these big companies fail, they will act like dominos bringing down other companies and industries with them.   A cascading fall of companies is not unheard of in our current financial scenario.

I’m unclear at what the new tax policy will be for the upcoming year and am clueless as how to proceed on short term vs. long term capital gains tax.

Lastly, we have the end of the year tax loss selling and new year repositioning.  Who the heck knows which hedge funds will still be in business and what institutional investors will be rolling over into what and why so it just doesn’t make any sense to keep short term funds in the market anymore even with a buy/write ETF strategy.

Good luck.

Bookmark to:

Hide Sites

There is one single lesson from the Great Depression Market Crash that each investor should remember. During the crash, there was a flood of people who thought they were going to “score big” with stocks being discounted so “cheap” that they would buy low and sell high.

I keep reading the same quote over and over again everywhere that reads, “Be fearful when others are greedy. Be greedy when others are fearful” which is attributed to Warren Buffet.    I don’t think this quote was meant for the context of today’s economic turmoil.

During the Great Depression market crash, millions of people were wiped out not during the initial collapse but right after the average Joe got in trying to turn a quick buck.   The Dow was supposedly at bottom at 13,000 then 12,000 then 11,000 then 10,000 and on and on.   TV pundits are now calling the bottom at 8,000 using index P/E’s showing that they’re at 5 or 8 multiples of the index as conclusive proof that we’ve hit a bottom.

No, the bottom occurs when people decide they actually want to buy and own stocks and there is mounting selling pressure that is GROWING.   Mutual funds are trying to sell to give investors their cash back; hedge funds want to sell because investors want their money out;  The holidays are just around the corner and that will beget more selling if it looks like this shopping season is going to be anemic not to mention the annual tax selling season late in the year.

If you don’t know what you’re doing, stay out of the way.   You’ll need a powerful ship and strategy to steer through this hurricane and it might be best to wait till after the storm to get back in the water.

Bookmark to:

Hide Sites

Iceland, Pakistan and now add Argentina to the list of growing countries going bankrupt really fast.   Mexico is on the watch list too.  Bloomberg reports:

Oct. 22 (Bloomberg) — Argentina’s stocks headed for their biggest drop since 1990 and dollar bond yields topped 30 percent as a planned takeover of pension funds heightened concern the government is headed for its second default this decade.The benchmark Merval stock index tumbled 17.3 percent on speculation President Cristina Fernandez de Kirchner plans to use the funds’ $29 billion to meet financing needs that have swelled as prices on the country’s commodity exports tumbled. Argentina hasn’t had access to international debt markets since its 2001 default and demand for its local bonds has dried up on concern the government is underreporting inflation.    

Bloomberg also reports:

 Oct. 22 (Bloomberg) — Mexico’s local-currency bonds fell, pushing yields on the benchmark security to the highest in more than three years, on mounting concern the global economic slump is deepening.The peso weakened as much as 4.6 percent, dropping to its lowest in more than a week, as investors pulled out of emerging markets. Banco de Mexico failed to stem a drop in the peso after it purchased $400 million worth of the Mexican currency.

New Zealand just lowered their OCR (central bank rate) 100 basis points from 7.5 pct to 6.5 pct. 

Oct. 23 (Bloomberg) — New Zealand’s central bank cut its benchmark interest rate by a record 1 percentage point to 6.5 percent and foreshadowed further reductions to limit damage from the worldwide financial crisis and a slump in the global economy.“Economic activity will be further constrained by these international developments,” Reserve Bank Governor Alan Bollard said in a statement in Wellington today. “New Zealand can expect to face lower demand for exports and credit is likely to be less readily available. Consumers and businesses are likely to be more cautious and curtail spending.” 

 I may need to reconsider that vacation to South America this winter…..  

Bookmark to:

Hide Sites

The poor chaps in Iceland are running out of food.  The credit crisis has left importers with an inability to procure & purchase food stocks from abroad.   I’ve long encouraged that people keep adequate food stuffs at home and not assume that the local grocer will have ample supply.

If the credit crisis continues, and nothing the government is doing suggests otherwise, then delivery of food to your local grocer may become an issue in the near future.   There WILL be plenty of food around but it would be a matter of the truck driver having the credit to buy the fuel for his truck to get the food from the farm to your grocer.   It will be a matter of the grocer to have credit to pay the trucker for his services.  It will be a matter of the fuel station to have the credit to buy fuel from big oil and so on…..

Iceland is a microcosom of what could happen on a larger scale if the credit situation doesn’t get fixed.   All those people advocating a “cash only” lifestyle don’t seem to quite understand how the world works these days.   Credit is the lifeblood of the econonmy as there is a cascading series of people that get paid for their products and services in 30 day terms or better.   The issue is further complicated by the fact that most of what the US consumes (aside from food) is imported from overseas.  Everything from oil to the Wal-Mart items that come from China are all imported on credit!

By Patrick Lannin

REYKJAVIK, Oct 15 (Reuters) – Iceland has food stocks for about 3 to 5 weeks, but needs quickly to restore a proper foreign exchange market so importers can get back to normal business and avoid shortages, importers said on Wednesday.

Since crisis broke out on the north Atlantic island of 300,000 people, involving the government taking over the top three banks, suppliers to Iceland have cut credit to importers. Some have also demanded pre-payment for goods.

Imagine if EVERYONE requested pre-payment for goods and services, how large of a sucking sound do you think that would be out of the banking system?   Personally, I will continue to hoard food until I feel we are in the clear but that’s just me.

Bookmark to:

Hide Sites

This stock market is heading for the abyss. The bailout bill passed the House and the market barely budged so you can imagine what is going to happen next week. The short ban was extended through October 17th (before the bill passed) so I’m guessing October 20th will become an infamous Black Monday event of 2008.  [Many savvy investors positioned their trades around this date]

I hope you have a basic investment, safety and “personal finance continuity” plan much like you would have a business continuity plan.

Good luck.

Bookmark to:

Hide Sites