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Predicting the Future

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Joined: 17 Mar 2010
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PostPosted: Thu Jun 03, 2010 12:31 pm GMT    Post subject: Predicting the Future Reply with quote

So I thought John had some interesting points in a different thread and I wanted to separate it out because there were multiple conversations going on at once.

John P Wrote:
regarding "Tell Signs"

If your industry is say Manufacturing or global professional services or something, a weaker dollar will help you. If you see "Buy American" clauses in the Stimulus Bills, you know that the Unions will make out. In New York, the Governor is blaming the Unions because he wanted to have furloughs and the senior union members wouldn't have it, or pay freezes, so they get their raises while the younger union members are getting laid off. There are winners and losers today and you have to look for indications as to whether or not whatever you're in is going to benefit or lose.

I have a brother in law from D.C. and he bought a place over asking price. He has a nice "safe" cushy job with the Federal Government. D.C. has increasing house prices. Now should my brother in law feel as secure as he does? I think if political pressure mounts like it did in New Jersey and they ended up getting a Governor that cuts like crazy, he might lose his cushy job. I just had a younger guy send me his resume and he actually said that he got laid off because the Governor of New Jersey made so many cuts that all the school projects were put on hold and he was an architect working on them. Bottom line here is that certain people believe in supply side economics (Keynesian / Paul Krugman) kind of stuff and they think that the US Government ought to be providing MORE Stimulus. Now, if these guys prevail, those that benefit from government spending are winners. If those that believe that you ought to live within your means prevail, like the Governor of New Jersey, you'd be a loser.

Last year, the greatest influence in the market was government interaction in the first time buyer incentive program. Maybe this new "Caulking for Clunkers" might offer benefits for the older Boston housing stock because they might have a few freebies for insulation and remodelling; who knows.

A big "tell sign" I look at is what is driving the mortgage rates? Perhaps because of the stresses and strains in the European Union, investing in the US might be a temporary sanctuary. Also, I look to see if China is overheating and overproducing. People in sweat shops are committing suicide at pretty high rates.

Old school economists look at things like orders of transportation fleets. If companies who transport goods invest in their fleets, that is a good sign that they are getting orders.

In my business, you want to be on a big 5 year contract and hope that you have a decent pipeline of work flowing in.

This Health Care Bill will cause some to lose their jobs and others will make out great. This new Finance Bill will also have their share of winners and losers.

Now in some cases, people might have the political juice to win the argument for the time being, but if things don't change because there is a structural flaw, they can only win it for the time being. For example, when I was on my town's finance committee, the workers wanted a 2% raise for 2009. I said they ought to freeze wages so that nobody would have to lose their job moving forward. Well, they won their 2% Cost of Living Raise (when the CPI Index they were benchmarking said 0%) and this year, they had to take pay cuts.

Hey, a big "tell sign" is Governor Deval Patrick ending the controversial State Holidays:

One of these is basically St. Patrick's Day. Now South Boston has been the epicenter of State Politics since Billy Bulger and they have this big St. Patrick's Day Breakfast and if you don't attend you get ragged on. I see these holidays being taken as a sign that the State workers are weilding less power and it politically recognizes that the public sector is currently getting a better deal than the private sector.

Locally, my town had a Special Election vote to see if we would spend $250k on the drawings for a Senior Center. Now although we were cutting wages and postponing repairs on our existing building stock, the Seniors wanted their Center. Now the Senior are a very strong voting block and they are the people that actually watch those local t.v. airings of the Town Selectman's meetings etc. Well, to my surprise, the Senior Center was voted down. I attribute a bit of it to the Tea Party chatter. Now, I'm not a big Sara Palin guy, but the Tea Party Movement is giving political support to politicians who sometimes have to be the bad guy and say "No". Most of the time, the people who actually show up to Town Meetings are those that benefit from government spending and the rest of us don't bother concern ourselves with it. It's when that tax bill starts to hurt that we pay attention more closely. Now, lets say you were on the ballot with the Senior Center vote and you opposed the Senior Center. You'd be in trouble with those old folks, so most likely you wouldn't take a position. Today, the Tea Party Movement is about punishing that politician for not saying no to unnecessary spending and not standing up to the special interests. I'm really just saying, pay attention to how strong this becomes. When you do, you can see all the angles people have and see who's behind who and it is enlightening. People's perspective indicates their position and when you understand the lay of the land and these predispositions you can better predict the behavior of things.

I can see a definite change in mentality to more frugality in govt, I think that is out of necessity though because people in charge, regardless of party are realizing that there is no money left. Federally we are still left with the main choice, to cut the military or SS/medicare. Both are political poison, again regardless of affiliation and so are not discussed. It would be nice to think that there are enough govt run lesbian abortion clinics or nasal flute choruses to save the budget but if anything is to be done it will come out of the big two. You only have to look at your tax return at the end when it breaks down where your money is going to (or at least it did for me with TaxAct.) I'd have a lot more respect for the Tea Partiers if they would acknowledge the choice. The biggest problem I have with people that call for cuts is that they call for cuts of other peoples entitlements, while vigorously defending their own.

Anyone know if the pension entitlements can be revoked legally or will states actually have to go bankrupt before they could get out of them?

As far as I can see there is not a lot of incentive for more supply side stimulus. I think any attempt to do more would surely see punishment at the election regardless of party.

I think it is interesting to see a potential change in media mentality from the first tax credit to the second. The first seemed (rightly or wrongly) to be heralded as a valuable support to the market, while the second seemed to be throwing good money after bad. (That is a very subjective assessment on my part though)
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PostPosted: Thu Jun 03, 2010 12:42 pm GMT    Post subject: Reply with quote

The 'spending theory' is still in full force. States think they will get bailed out, and cutting entitlements will not work for those already entitled, but will be done for new employees, most likely. This would take a while to do though, as unions are hard to budge.
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PostPosted: Thu Jun 03, 2010 12:46 pm GMT    Post subject: Reply with quote

As far as I can see it is too late to wait for the next round of employees to get less. The states and possibly the country will surely be bankrupt before then. Do you know if there is a legal way outside of bankruptcy to change the entitlements?
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PostPosted: Thu Jun 03, 2010 1:58 pm GMT    Post subject: Reply with quote

From what I heard on CNBC, even bankruptcy won't shed some of the debts. CA has to pay those retirement benefits no matter what. Now there's a bill circulating which would prevent cities in CA from entering bankruptcy without permission of the state. Too many cities were going bankrupt I think and credits aren't happy about it.
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PostPosted: Thu Jun 03, 2010 4:50 pm GMT    Post subject: Reply with quote

Buffet predicting that the federal govt will bail out states, thoguh withdrawing assets:
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john p

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PostPosted: Thu Jun 03, 2010 4:56 pm GMT    Post subject: Reply with quote

I think a lot of this will be determined by the fault line of debtors and creditors. Debtors like Greece want inflation to dillute their debt. Creditors like Germany want people to live within their means and don't want inflation.

The bottom line is that although they would never admit it, banks love it when people spend more than they have. Germany loved it when countries were spending beyond their means beause they exported a ton of products, just like the banks were making a fortune processing all these loans and skimming all this wealth by churning transactions.

We have too many moving parts right now that don't align and we need standardization in banking rules, which means certain countries need to give up some of their soveriegn power. The European Union was a union of some of our most sophisticated neighbors and even they had trouble. The problem is that capitalism is attracted to profit, and profit is drawn to lower wages and lower wages are usually in less democratic nations that don't have as much freedom.

We need an economic version of the Kyoto Protocol, but before that we need to dispense of the economic populism and scapegoating. The people in Greece were given propaganda that it wasn't their generous social programs that were bankrupting them, it was the bankers that stole their money, so instead of them tightening their belts they were protesting in the streets like someone hurt them. The economic populism scares me becaue it can veil a structural problem that isn't going to go away. Part of this economic Kyoto Protocol will take the form of the approach of the Plaza Accord, which was a way to stablize currencies of Japan and the United States. Japan got the lost decade, and we prospered.

I see a solution coming from a collaboration of Central Banks world wide, and from international corporations. If the corporations created standards where they wouldn't operate in areas that allowed certain types of behavior i.e. human rights violations, stealing of intellectual property like the whole China Google deal, that would be ideal. I think that protectionist measures that targetted these abuses where a corporation faced a consequence for doing business in a certain manner that would be the best use of sovereign power.

We need to get the playing rules established, get everyone to buy in and not play with those that don't play nice, and incentivize those for doing the right thing.

Will this happen, I think so. I think we need to burn off some economic populism and stimulus and a certain degree of the wrong kind of protectionism until the structural problems become clearer.

Beyond the global contextural problems, we still have this domestic issue of the babyboomers retiring and not having enough workers to cover their health care. I think the solution to this is that the money will be spent on the heavy duty stuff and things like mental health won't be covered as much by insurance. Given that the end of life costs the most, I wonder if there will be some discussion about dealing with that. Perhaps the solution is that people will retire later and maybe we get a shorter work week to lessen the overproduction.

I would love to see someone model what would happen if everyone worked a 24 hour work week. That article I posted about the root of the problem being overproduction made me ponder this.
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