Markets

The New Rules Of Work

value based on performanceperformanceAlmost every day now there is a news item about “the 1%”, talking about their increasing incomes. And right below the “1%” story there’ll be another news item about unemployment, and persistent wage stagnation in other job sectors.

Inequality is becoming a front burner issue for politicians, because so many voters are being affected. On a regular basis now the President talks about the need to “address inequality”.

Clearly inequality is asserting itself in the US, and other countries around the world, but what’s behind it?

It’s not the narrative in the Press about rich people being selfish and greedy. Greed and myopic focus have always been a part of making a lot of money, going back centuries. It is just more out in the open now that those generating wealth are doing it so easily.

It is also not outsourcing, although this has played a part. In the last ten years outsourcing is responsible for roughly two million jobs going overseas. The business owners and managers responsible for those decisions didn’t make them because they are heartless, or unpatriotic people. They made them because the level of productivity produced by the US based workers was available in another country at lower cost, and if those jobs weren’t outsourced now to keep the business alive, the jobs would be gone in the not too distant future anyway, when the business filed bankruptcy, unable to compete in the global marketplace.

Outsourcing has definitely put people out of their existing jobs, but it hasn’t stopped them from re-educating themselves, or acquiring new skills that are in higher demand.

These two issues have currency with the Press because they make for good news stories, and there are easily identifiable “good guys” and “bad guys”. But as usual with the Press, they are just whipping up fervor so you go to their pages and click on their ads.

The inequality of income that is reshaping Society today is not caused by Greed, or by Outsourcing. It is being caused by machine technology entering the workplace, and the increased ability of business owners to measure the performance of their employees.

Namely, how they measure value.

                  Inequality Is Being Driven By Machine Technology Entering The Workplace, And         Employee Performance Being Precisely Measured

To get a fast track understanding of this, think about the world of professional sports. In 2015, John Lester of the Chicago Cubs, and Clayton Kershaw of the L.A. Dodgers, will each be paid $30 million for their services. The average MLB salary in 2015 is $3.8 million, and the lowest paid player this year will receive $58,237.

If you look at the NBA and the NFL the situation is basically the same.

The reason there is such a huge yawning gap between the very top and the very bottom, and why the average is closer numerically to the bottom than to the top, is that every single aspect of these athletes’ performance is being measured.

If you are a major league baseball player there are 16 individual statistics being generated by your performance on the field. Over time, taking into account streaks and slumps, your overall value to the team, and the contribution you make to the team winning games, will be revealed. There will be no way to spin it, it will all be in the numbers. And it is from those numbers the player’s “value”, what a club is willing to pay to acquire the player’s performance to help them win games, is derived.

Read more…

2 comments - What do you think?

The U.S. Economy Is Sick. Problem, Or Opportunity?

apartment investing opportunityA couple of weeks ago President Obama was on one of the last Jon Stewart shows. John Stewart gave him a bit of stick about inadequate VA services, but he let the POTUS get away with saying, “… the Economy, by every metric is better than when I came into Office, and so, the reason I can sleep at night is I say to myself, ‘you know what, it’s better.’”

Most people hate statistics, which is why comments like this can be let slip by.

There is a “metric” though the President either missed, wasn’t made available to him, or if it was he chose not to look at.

That is, the labor participation rate.

According to the US Bureau of Labor Statistics labor participation has been in decline since February of 2000, when it reached a high of 67.3%. Today labor participation is at a new low, not seen since the 1970’s, of 62.6%.

Of the 250 million people of working age in the U.S., 149 million of that total number have a job. 8 million people want a job, but don’t have one. However, there are 93 million people who don’t work, and don’t want to work.

That last figure should cause an Apartment entrepreneur pause.

Despite all the Federal Reserve huffing and puffing about its dual mandate and 5% unemployment, about 30% of the entire U.S. population, who are of working age, do not consider themselves part of the work force.

This is a staggering number.

Read more…

Be the first to comment - What do you think?

Buying Opportunity Ahead

stock market crash aheadThere is a saying on Wall Street, “Bulls make money, Bears make money, Pigs get slaughtered.” Right now, we are in ‘pigs get slaughtered’ territory. The only people buying now are Greater Fools blindly buying because prices have always gone up.

Housing markets, whether they be single family, multi-family, high end, low, end, Class A, Class C, have been distorted beyond all functional recognition, and are decoupling from the natural forces of supply and demand thanks to intervention of monetary stimulus by the Federal Reserve.

High end single family sales are growing, while mid to low end single family sales are cratering. Roughly 30% of US single family sales are cash sales, with increasingly foreign buyers now that the Chinese credit bubble is going ”pop”, and the Greek exit of the EU unfolds.

Multifamily, be they Class A, B, or C are at peak valuations thanks to land value adjusting to years of Fed driven monetary stimulus. In the case of Class C apartments, occupancy rates are at all time highs thanks to falling real incomes and increasingly fewer people able to afford a home.

After six years of Federal Reserve money printing, the result is a Frankensteinian economic monster, riddled with unintended consequences and serving no-one, except those at the very top.

To get an idea of how absurd things have become, have a look at the price chart for the Standard and Poors 500 Index, which serves as a rough barometer of US economic health. Read more…

7 comments - What do you think?

Only Cash Flow Matters

by Jeffrey Smith cashflow

2014 Q1 is almost over.

The lamestream media says everything is rosy (yeah, right). The problem with a cliff, even a demographic cliff, is that it is such a sharp drop-off that most folks can’t see the cliff until they are teetering the brink, especially when they are moving fast and thinking about something else.

Two realty brokerage firms in Las Vegas NV (ground zero of 2008 crash) are contradicting each other. One says there is a major downturn coming this year (wait a few months to buy when prices are lower), and the other says buy now before prices skyrocket. Who shall we believe?

The triggers for crashing real estate are: (1) Lack of debt financing and (2) lack of cash flow to service debt. The 2008 crash was caused by #1 when Wall St ran out of Other People’s Money (OPM), and then it was “solved” by the FED buying toxic mortgages with money printed out of thin air. #2 will happen when a sudden shift in demographics causes job losses and a sharp reduction in spendable income. The FED cannot “solve” that problem.

How much debt the FED buys won’t matter when there is insufficient spendable income to service that debt. Any financial calculator will show how Present Value (PV) and periodic payment (PMT) vary proportionately for a certain periodic interest (RATE). The PV and RATE vary inversely for a certain PMT (when RATE goes up the PV goes down). The FED can set rates to zero to try to prop up PV (to hide bank insolvency), but when PMT goes down, the PV must also go down. Read more…

Be the first to comment - What do you think?

Next Page »