Monday, October 27, 2008

Modern shopping

I was at the supermarket this afternoon and tried to buy some bone in chicken breasts for dinner. I couldn’t find them in the chicken section of the meat department, so I ask the butcher for help. He check where he “knew” they should be but decided that they must have sold out and another product filled into the empty slot.

I commented that if there were a position holder for the item, I would have know they were sold out and not had to bother him. He agreed and replied that they used to be able to make the decisions about how much of what to stock and how to mark the bins in the store, but that now it was done from a central office.

I may not like the answer, but I’ll continue to shop their because at least I got an honest answer not a song and dance. Keep in mind that this is a store that thinks it’s my job to fill in their paper work for an item I’d like them to keep selling. A product that I regularly buy from them. I did my part as a customer when I told a store employee! Putting that into their system is the stores job, not mine.

The store thinks that they are saving money for the employee’s time and they are, by shifting that cost for time from their employee to me. My time to fill out their card is worth at least as much as their employees and since the profit from selling me the product accrues to them, why should they shift the cost to me?

Monday, October 20, 2008

It's always about salaries

I’m watching CNN this morning (Monday, Oct. 6) and their reporting the world wide impact of the current US financial crisis. Markets are responding to the projected lower spending of US consumers.

Lets put this in perspective:

The same kids who took a sandwich to school on Friday will take a sandwich to school today. The same people who drove to work on Friday will drive to work today. People will still wash cloths and use detergent. They will stop doing those things only when they loose their jobs and don’t have an income. The most likely reason for them to loose their jobs is companies that don’t understand that for every job they shed, the economy looses that worker as a buyer of that same companies products.

I remember a statistic that explained how many jobs were created by a single new manufacturing job. This was back in the days when manufacturing jobs were actively sought by communities instead of big box stores. The understanding was that if you created three (or five or some other number of) manufacturing jobs you created one additional job in the community.

Those jobs in the community were at the burger stand, the car dealership and the local grocery store. Create 3,000 manufacturing jobs and you get 1,000 (or what ever number of) support jobs. That’s the coffee shop, the grocery store, mechanics and sales staff at the local car dealership, the doctors office, etc.

What we’ve been doing is cutting $45,000 a year jobs, creating two $25,000 a year jobs. Do this at the same time that your government is spending more than it takes in and you’ve got a recipe for disaster.

The idea that we could create an economy out of “information” was proven false on a smaller scale in Pittsburgh, Pennsylvania when the steel mills closed. The idea there was to take those displaced workers and retrain them into high tech. Only a few actually made it.

Not because they were stupid, but because people are not all the same. Think about the people around you. How many are really smart but just not scholarly, they do well in practical, hands on stuff but not in classroom stuff? A lot of people just go nuts cooped up in an office all day.

I’m not particularly well educated, but I was taught in high school that the economy was interconnected. People with good paying jobs buy stuff, they buy houses, cars, cloths, etc. People who had good paying jobs take on some debt to buy big ticket items like houses, cars, major appliances, things like that. Far too many got down sized, out sourced or their benefits cut leaving less income than they planned for.

They try to keep up with their debt but unless they can get their income back to it’s previous level, they’re doomed to keep falling farther behind. At some point it gets so far behind that they loose their houses. If this sounds like what’s happening today, your right. But the root cause is low wages. Add to that predatory lenders and bad public polices and you’ve got the perfect economic storm.

Please remember that we created sub-prime loans because such a large percentage of people were earning such low wages that they couldn’t qualify for traditional house loans.

Tuesday, October 14, 2008

The stock market is bouncing back.

The point is that people are selling off stocks. I’ll say that again people are selling off stocks ----- that means that someone is buying.

Why did you pay $25 for your shirt? Because you think its a good price for the utility of the shirt. Why is someone buying the stocks that are being sold? Because they think that the stock is a good value at the offered price.

People are panicking and selling for what ever they can get. Someone else is looking at that price and saying “If I buy it now at that price, it will be worth a lot more later”. It’s like your house, before the bubble burst it was worth three hundred thousand dollars after the bubble it’s worth only $200,000. The only reason it matters is if your going to sell.

It’s value as a living machine is still the same, the same three bedrooms, two baths, same back yard. If your plan is to live in it, do you really care how much the house would theoretically sell for?

The same is true for your stock portfolio. The selling price only matters when you sell. If you’re not retiring this month, why sell your IRA? If your retiring this month, it’s too late to make any big changes.

Monday, October 6, 2008

Do you really want your retirement in the stock market?

Remember a year or so ago when all the experts were saying that we needed to create a system where individuals could put part of their social security money in the stock market? How good an idea does that seem now?

Yes, over a long enough time the stock market out performs the return on investment that we get through social security. Great, I’ll have a larger retirement income - unless I need to retire this year! Anyone starting to draw their money in this market will loose money, a lot of money. While the amount of income from social security is not as great as the potential income from the market, it is much more secure. Well, until the politicians decide that if it’s OK for United Airlines to renege on pensions then it must be OK for the United States government to renege on social security.

One thing no one wanted to talk about when they were pushing the stock market option was that risk equals return. As the market conditions today (Friday, October 3, 2008) show when the risk is too great, the market corrects by lowering the price. We spent a longer time than normal in the “sweet spot” where risk (and the associated reward) was at the higher end of the acceptable scale. Now, many of those risky investments are proven to be much higher risk than the market accounted for.

The leading edge of the baby boom will start “cashing out” in the next 3 years or so. What impact will that have on the already troubled financial market?

Friday, October 3, 2008

The "experts" really don't get it.

I know I’ve said this before and you may be getting tired of hearing it, but the “experts” I hear analyzing the current financial crisis really don’t understand the problem or the solutions that will really work!

The problem’s root cause is people not paying their loans. Why aren’t they paying their loans? They really would rather pay for and keep their houses, they would really rather pay their credit cards every month.

Most of them didn’t get into trouble by over spending, they got into trouble because productivity in the US is much higher than 10 years ago. This means that companies can produce the same amount of goods for less labor. It also means fewer workers in that industry. A lot of the manufacturing is now being done overseas and that means fewer workers in the off-shored industry.

How can unemployment be low if all those workers are being laid off? They are finding jobs, but the jobs don’t pay what the old job did. Or they had to pay their own relocation expenses and that big expense put them behind on the rest of their bills.

Easy credit made it possible to try and keep up their life styles by using equity in their houses and credit cards. That cash flow problem for banks caused by mortgage defaults is exactly the same problem that individuals have been having for several years just bigger and more concentrated.

The only solution is better paying jobs and lots of them. I watched a news piece on CNN where they were interviewing the owner of a gourmet popcorn shop and he was saying that because business was slow, he had already used his line of credit and couldn’t get an increase to help during his slow business season. He was not taking a paycheck so that he could pay his employees. Can you imagine the senior managers at any big corporation not getting paid so that they didn’t have to lay off workers?

Until the big corporations understand that capital circulates. Money in a bank is loaned to build houses and the paychecks for the carpenters and the carpenters buy the cars and washing machines that the big corporation makes and sells, some is put into the bank and loaned again. But that money is just a place holder for the hours of labor and if your not putting into the system (by hiring and paying your workers well) there will not be money in the bank for you to borrow to operate your own business.