Monday, August 24, 2009

Games of Greed and Loss of Jobs

It’s still real tough out there in the job market for many IT, and other processionals. My forecast of minor pickup in jobs in early 2010 and a return to normalcy by the fall of 2010 still stands,albeit on a much shakier ground. But there are looming dangers that portend that this debacle will last a few quarters, or even years longer. Issues that concern me here are the continued growth in outsourcing and that employers are making do with a smaller workforce. The productivity of the remaining employees has been pushed up to all time record 6% increase. It’s not that people are willingly working 50 plus hour weeks on a regular basis. Rather they are often in a state of fear and panic that they will be the next one to go if they don’t work these incredibly long hours. In this short exposition I will discuss a few of the economic underpinnings that may extend the still increasing level of unemployment. Also, unlike my previous postings on IT, here the primary focus will be on the abuses of the financial service industry, and the dire affect they have had on hiring and the economy as a whole.

Based on a lot of first hand observation I am very suspicious of the rapid 50 plus per cent increase in the S& P 500 , the most significant broad index of stock market health, in the last 5 months. On the surface this could be interpreted as a positive sign, indicating we are moving in the direction of economic health and new job creation. Typically a sharply rising market looks 6 to 9 months ahead to predict a return to economic stability. “If” this is this case, like in the past, employers may soon start experiencing real growth in the fourth, or maybe even third quarter of 2009, but they will be initially fearful to start hiring for many months because they are rightfully concerned we will slip back into another recession. But not to digress too much, let’s look at this stock market recovery. Moreover, many well informed people, including the noted economists like ex Clinton Secretary of labor Robert Reich and the market analyst Mario Roubini (aka Dr. Doom, because he was one of few analysts to precisely predict our most current crash)feels that the rise in the market is like pumping air into a tire with a small, imperceptible, leak that ultimately leads to larger holes and quicker deflation. Translated into an economic realm, this may lead to the dreaded W shaped recovery where the market is currently at least halfway up the first V of the recovery. To return to our tire analogy, as it initially appears that the tire is reflated, and after a couple of quarters of an anemic “jobless recovery,” this small hole will start forcing air out of the tire after it appears to be functional once again leading to a second decline, which may comprise the second, and possible more severe, V of the recovery

I, and people considerably more knowledgeable than myself in these issues, are quite fearful that the current upturn is built on a faulty foundation. Why is this foundation faulty like the pumped up tire with a small deflating hole in it? Well this apparent market recovery, and resulting economic rebound, may be based on three potentially ineffective hypothesis and actions: (1), the less bad, or green shoots, economic growth hypothesis, and (2) the temporary injection of unprecedented level of government money into the economy, and, (3), the ill timed and distracting essential social initiatives, like health care reform, by a well meaning, but mostly unseasoned, new presidential administration.

The less bad, green shoots, phenomena, referring to the initial budding of plants and other greenery in early Spring, seems to be both real and unreal at the same time. On a year over year basis real earnings for companies are down about 20%, but these same earnings are exceeding their quarter to quarter estimates at more than 75% of companies based on lowered earnings expectations. Thus confidence is boosted and stock prices start going up. However, for the most part, the only people benefitting from this are the same people who’s greed and other shenanigans got us in this muck in the first place, Financial Service traders and executives from Wall Street and elsewhere. These people have been largely insulated from the pain and suffering of the rest of population, particularly those ills of the middle class and the unemployed. These “masters in the art of deception,”to borrow a line from a Bob Dylan song, are adept at market manipulation, and benefit immensely from the panic on Main Street. These people are incredibly resilient and never back down from their “survival of the fittest” and trickle down, “let them eat cake,” mindset.

Recently, Main Street has started to tiptoe back into the market through Mutual Funds and some individual equity investing. This makes me quite suspicious because most of the gains up to now have been made by Wall Street insiders. In similar cases in the past, as the Smart Money of Wall Street begin to exit the market, due to unrealistically high market valuations and a desire to realize huge profits as the upper V of the first part of the market’s W starts to top out. This, in turn, often leads to what is called the “greater fool theory,” where the not so Smart Money pushes the market a little, to a lot, higher only to have it come tumbling down due to the lack of support of the Smart Money and even their hedging and short selling strategies: making huge bets that the market will start to tumble in the second downward slope of the W. Soon after, panic selling starts to ensue at lower price levels, as occurred in the market crashes of 1987 and 2000. One generally reliable indicator that this is starting to happen is that the mass media start touting the markets miraculous recovery which starts to bring even more not so Smart Money into the market. This process can often take several months or even years, like in the 1920’s, to fully unfold The worse part of this whole fiasco is that we may be in the process of creating the next economic bubble that could horrifically explode in a few years, creating even more pain and job loss. If anyone wants to see an in depth explication of this process I recommend Naomi Klein’s excellent book, “Shock Doctrine.”

This whole bailout and stimulus effort has mostly benefited the rich and their allies on Wall Street by allowing them to rebuild their net worth with a few, increasingly frayed, strings attached. Moreover, by this massive mortgaging of the future, which these efforts epitomize, the chances of any return to wide scale prosperity experienced by the middle class is a very dubious indeed. I don’t want to belabor the whole bailout stimulus initiative; it has been incessantly discussed in the media and has been a prime mover in stock market gains. Yet it is curious that the conventional wisdom that the bailout helped us supposedly avert a second great depression was most vociferously sponsored by Bush’s secretary of the treasury, Henry,"Hank”Paulsen.Paulsen had formerly been the chairman of Goldman Sachs, which now is the preeminent investment bank on Wall Street.Go figure?

Finally, the well meaning but somewhat na├»ve Obama administration, has allowed the Goldman Sach’s and the Citibank’s to become the tail that wags the dog, not that they weren’t that in the first place. Sure congress and the administration may try to put restrictions on Wall Street’s hedge, “hog,” funds and other species of unregulated greed. Yet at the colloquially fashionable “end of the day,” the Wall Street masters of the universe will use their skills in deception and fear mongering to return to business as usual. For their part, Obama’s people have become virtually powerless due to their own idealism and their “gang that couldn’t shoot straight” congress. Just watch the spooked and enraged masses, who have largely dropped their ire towards Wall Street; see them engage in ridiculous, often right wing inspired, town hall, “food fight-like,” protests to maintain their second rate health insurance and further enrich the uncaring health care and health insurance industries. However if you listen closely to the gripes of the non-coerced citizenry of these civic brouhahas, you can hear shouts or fear and anguish that often refers to insolvency and unemployment precipitated by the miscalculations of the money managers . These meetings provide a double win for Wall Street. They are escaping the rage of the voting citizens, having it redirected toward people that sincerely want to help them, and they may able to pull off several billion dollars of windfall trading profits in health care related securities without the pale of “socialized medicine” hanging over them.

In my statements here, I have not directly addressed employment issues, but rather have looked at the macro factors that will, or will not, lead to hiring in the future. I conclude that whatever new hiring that does occur will most likely consist of less secure and/or lower paying jobs (except, perhaps, in financial service). Moreover, I find it tragic and reprehensible that only 20% of the debt-ridden college graduate class of 2009 have job offers 3 months after graduation. The disconnect between Wall Street and Main Street is not new. But the level of manipulation, disinformation, and lack of any regard for the greater good is a newer, more self serving, phase in the extreme predatory fringe of our financial service oligarchs. Nevertheless there are still many fine and ethical financial service firms like the people at Edward Jones or TD Ameritrade, although most of them operate out of the heartlands and not on Wall Street . Yet for the most part this maniacal, mindless pursuit of self enrichment has reached a level not seen since the monopolies and robber baron’s of the late 1800’s, but at least these earlier moguls had a philanthropic streak that created such institutions as the Carnegie Mellon University, the University of Chicago, and New York’s Metropolitan Museum of Art. Hopefully I am wrong about the Obama administration's inability to enact their vast legislative agenda that will address the needs of the many rather than fail by the machinations of the elite few. Only the future will tell. But it is vital that people stop seeing themselves as victims and start to once again believe that they have the power to shape their own destinies, which often takes a herculean effort but is definitely worth the effort