| Mish Mailbag: Job Seeking Advice Posted: 21 Jul 2010 09:54 PM PDT Here is a Dear Abby kind of question that I get all the time. A reader asks .. Hi Mish,
My girlfriend just got her MBA and wants to become an "Executive Coach." Considering we are heading into a depression and many companies/industries will go bye-bye, any ideas on what industries might be good to focus on?
Thanks,
Todd Hello Todd I do not mean to sound harsh, but her odds of becoming an executive coach are likely close to zero. What real world experiencing does she have in either coaching or executive business? I suspect the answer is none. Making matters worse, she might be overqualified for other positions she might take. My advice to her would be to take ANY job at any company she thinks she might like to work for. Holding out for something close to what she wants to do is a mistake. Be flexible! This market is too brutal to be holding out for exactly what you want. Can miracles happen? Yes they can. However, please do not count on it or hold out for it. General Advice For All Job Seekers
- Be flexible. Broaden your horizons as to what companies or positions you will accept.
- Competition for every job is intense, so tailor your resume as close as possible to each opening you seek.
- Generic resumes will likely not work, nor will trumped up experiences that you do not really have.
- If you are underqualified to any significant degree, your application will quickly be discarded. Worse yet, the same applies if you are highly overqualified. Tailor your resume with this in mind.
- Never lie about schooling, degrees, or experience. Even if you land a position, resume lies are grounds for dismissal.
- Accept any reasonable job opportunity. If you hold out for exactly what you want, you may miss a good opportunity for another job that will be long gone by the time you realize the need to be flexible.
Other than that, all I can say is keep your hopes up and your expectations reasonable. Attitudes play a role. Companies will always give preference to those with a cheerful, can-do attitude. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Bernanke Says Economic Outlook is "Unusually Uncertain", Fed Prepared for "Actions as Needed" Posted: 21 Jul 2010 01:29 PM PDT Be prepared for Quantitative Easing Round 2 (QE2) and/or other misguided Fed policy decisions because Bernanke Says Fed Ready to Take Action. Treasuries rose, pushing two-year yields to the fourth record low in five days, as Federal Reserve Chairman Ben S. Bernanke said the economic outlook is "unusually uncertain" and policy makers are prepared "to take further policy actions as needed."
Ten-year note yields touched a three-week low as Bernanke said central bankers are ready to act to aid growth even as they prepare to eventually raise interest rates from almost zero and shrink a record balance sheet.
"An unusual outlook may call for unusual measures, and that means the Fed may take more action as needed, which would lead to lower rates," said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas, one of the 18 primary dealers that trade with the central bank.
The Fed chief didn't elaborate on steps the Fed might take as he affirmed the Fed's policy of keeping rates low for an "extended period." Economic data over the past month that were weaker than analysts projected have prompted investor speculation the Fed may increase monetary stimulus in a bid to keep the economy growing and reduce a jobless rate from close to a 26-year high.
"Bernanke acknowledged that things weren't very strong economically and left action on the table without going into details, and that's sending investors from stocks into bonds," said James Combias, New York-based head of Treasury trading at primary dealer Mizuho Financial Group Inc. Monetary Policy Report to the Congress July 2010Inquiring minds are slogging through the 56 page Monetary Policy Report to the Congress July 2010. Here are a few key snips. Summary of Economic Projections
Participants generally made modest downward revisions to their projections for real GDP growth for the years 2010 to 2012, as well as modest upward revisions to their projections for the unemployment rate for the same period.
Participants also revised down a little their projections for inflation over the forecast period. Several participants noted that these revisions were largely the result of the incoming economic data and the anticipated effects of developments abroad on U.S. financial markets and the economy. Overall, participants continued to expect the pace of the economic recovery to be held back by a number of factors, including household and business uncertainty, persistent weakness in real estate markets, only gradual improvement in labor market conditions, waning fiscal stimulus, and slow easing of credit conditions in the banking sector.
Participants generally anticipated that, in light of the severity of the economic downturn, it would take some time for the economy to converge fully to its longer-run path as characterized by sustainable rates of output growth, unemployment, and inflation consistent with participants' interpretation of the Federal Reserve's dual objectives; most expected the convergence process
to take no more than fi ve to six years. About one-half of the participants now judged the risks to the growth outlook to be tilted to the downside, while most continued to see balanced risks surrounding their inflation projections.
Participants generally continued to judge the uncertainty surrounding their projections for both economic activity and inflation to be unusually high relative to historical norms.
The Outlook
Participants' projections for real GDP growth in 2010 had a central tendency of 3.0 to 3.5 percent, slightly lower than in April. Participants noted that the economic recovery was proceeding. Consumer spending was increasing, supported by rising disposable income as labor markets gradually improved.
Participants anticipated that labor market conditions would improve slowly over the next several years. The central tendency of their projections for the average unemployment rate in the fourth quarter of 2010 was 9.2 to 9.5 percent. Consistent with their expectations of a gradual economic recovery, participants generally anticipated that the unemployment rate would decline to 7.1 to 7.5 percent by the end of 2012, remaining well above their assessments of its longer-run sustainable rate.
Although a few participants were concerned about a possible decrease in the sustainable level of employment resulting from ongoing structural adjustments in product and labor markets, participants' longer-term unemployment projections had a central tendency of 5.0 to 5.3 percent, the same as in April.
Forecast Uncertainty
The economic projections provided by the members of the Board of Governors and the presidents of the Federal Reserve Banks inform discussions of monetary policy among policymakers and can aid public understanding of the basis for policy actions. Considerable uncertainty attends these projections, however. The economic and statistical models and relationships used to help produce economic forecasts are necessarily imperfect descriptions of the real world. And the future path of the economy can be affected by myriad unforeseen developments and events. Thus, in setting the stance of monetary policy, participants consider not only what appears to be the most likely economic outcome as embodied in their projections, but also the range of alternative possibilities, the likelihood of their occurring, and the potential costs to the economy should they occur. Fed Enormously OptimisticIn my opinion the Fed is enormously and erroneously overoptimistic about its assessment of the economy, especially unemployment. The odds we get back to 5% unemployment anytime soon are close to zero. And unless the participation rate collapses, we are far more likely to see higher highs, possibly above 12% before we start to see the rate drop. Be Prepared for "Unusual Actions"The Fed seems to be sensing it may be wrong in its optimistic assessment judging from Bernanke's "Unusually Uncertain" statements. Risks are not just "skewed" to the downside, they are enormously skewed to the downside. By the way, history suggests that when Bernanke implies an unusual outlook may call for unusual measures, he means it. However, there is absolutely no reason to believe it will be any more effective this time than last. Moreover, one thing banks have going for them is a steep yield curve, forcing that down (or yields collapsing on their own accord) is not going to force banks to lend, nor consumers to borrow. Bernanke Has Met His MatchHyperinflationists will be coming out of the woodwork on the Fed's statements today. However, I calmly note that Bernanke has met his match: consumer attitudes. We have reached a Consumption Inflection Point - No One Wants Credit and consumer spending plans have plunged. There is nothing Bernanke can do to "fix" that. Besides, there is nothing to "fix" anyway. Boomers headed towards retirement better be saving more and spending less. The same applies to kids out of college without a job. Finally, I note that Bernanke thinks consumer spending is on the rise. It's not. Bernanke needs to get out in the real world and see what's happening. He can start by reading Rockefeller Institute Confirms Rising Retail Sales a Mirage. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Road Stimulus California Style, the Seen and Unseen Posted: 21 Jul 2010 12:24 PM PDT Here is an Email from reader Gregory Levine on how road stimulus money is squandered in one California city. Levine writes ... Dear Mish,
I have conducted an informal study of American Recovery and Reinvestment Act
stimulus fund usage in my hometown of Claremont, California. Recently the city
completed a four-month "sidewalk accessibility enhancement" project. I have
observed the work almost daily and documented the work with before and after
pictures which I have attached.
In the interest of brevity, I will only make two points about the project. First, the
sidewalks were in good condition and did not need to be replaced.
Claremont Village, where the "improvements" took place represents the major
retail and tourist center of town. At least 96 businesses were in some way
affected by the construction. Gas and water supply was shut down to
restaurants for up to four day. Parking, which is tight in the Village was negatively
affected by four-day street closures. Finally, business access itself was rendered
impossible by fresh concrete and dug-up sidewalks.
My second point regards the cost of the project. I conducted informal interviews
of eight business. All but one suffered major revenue losses. Most reported
being closed for 2-4 days with some suffering losses for five or more days.
Business owners estimated revenue losses from $2,000 to $3,700. The average
loss was $2,850. Total revenue losses to businesses comes to $2,850 X 96 =
$273,600.
How much did the project cost? $1,497,232.
And guess what? The contract was awarded to an out of town construction
company. So in the short run, Claremont businesses suffered $273,600 in losses
for prettier sidewalks. Most say it was not worth it, especially in this economy.
In conclusion, it looks to me like this "stimulus" project cost more than it
stimulated and was a net negative for my community.
Sincerely,
Greg 1 - In front of the Diamond Center - Before 2 - In front of the Diamond Center - After Street Blockage Use the Alley Please Your Tax Dollars at Work Looking at both Sides - the Seen and UnseenAdmittedly some improvements were made, notably wheelchair access, but $1,497,232 worth of them? No chance. Levine totaled it up but it is difficult to say what businesses actually lost. Did shoppers merely postpone buying or did they go somewhere else? If the former, the affected businesses did not lose a thing. If shoppers did go somewhere else, then overall sales tax collections did not change. However, assuming the affected area was a high rent, high overhead district, this could have put some marginal businesses in the affected area at risk. The bottom line however, is most of the work did not need to be done. The administration wanted "ready-to-go" projects and so money was wasted on "ready-to-go" projects. On a case-by-case basis this may seem trivial, but the cumulative effect is hundreds of billions of dollars were wasted on projects like this. Those projects were supposed to "stimulate" the economy. However, no lasting jobs were created, and no net business will be generated as a result of any of these kinds of stimulus efforts. If improvements in one place do cause increased overall traffic, it will simply be at the expense of some other business somewhere else. Contrast wasting money on stimulus projects like the above vs. lowering corporate taxes. Which one has a chance of promoting hiring? It sure is not money wasted on projects and this is another reason why Keynesian stimulus is ludicrous. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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| Ponzi "Shark Loans" Fuel China's Housing Bubble; Home Sales Plunge 44% in Xiamen; Bubble Busts in Tianjin Posted: 21 Jul 2010 12:35 AM PDT China's property bubble is now on the verge of collapse. Transaction volumes are significantly down and declining volume is how property bubbles always burst. In simple terms, the pool of greater fools eventually runs out. In China's case, the pool of fools is heavily involved in "loan shark" schemes where speculators hope property values rise fast enough to cover the interest. Ponzi Loan Shark Operations Fuel Bubble Please consider The Secret Engine Behind China's Housing Bubble- The Ponzi Shark Loan FinanceIn this article we will show how the ponzi shark loan scheme works and why we think the regime in China will fall. Our research is based on sources INSIDE CHINA
This is how this Ponzi scheme works:
Local officials, [required by] the government to produce double digit GDP growth numbers, give real estate developers permits to build housing projects in return for bribes. They also get bribes in return for allowing the shark loan companies to operate under their jurisdiction. Some of them are active partners in shark loan businesses. Every scheme has a ring leader whose job is to collect money from all the participants in the Ponzi scheme. When some of these Ponzi schemes blow up, the party leaders always get bailed out first.
Most of the funds that are collected in this classic Ponzi finance go to local land purchases and real estate development. Part of the funds are used in order to pay back the rolling loan. The short term interest rate in this black market is very high and ranges between 20%-150% annual rate. The sources of the Ponzi funds are diverse, as ordinary citizens, banks with corrupted bank officials, and state enterprises play the game.
A reader wrote to us this email two weeks ago, which triggered our in depth research:
"My hometown is Zhejiang, now I live in shanghai, my sister pledged her home to bank, she lived in Hangzhou, she bought her home around 500,0000rmb five years ago, now her home worth 2 million RMB, so she can get huge loan from bank, she gave this loan to a shark loan company with 30% return every year, she has been doing and living on this for 4 years, she is a middle school teacher, she earned 4000rmb per month, but with this lending arrangement, she has been able to buy a car, the interest income is 6 times of her salary, One of my cousin's father lost all his principle of 4 million since one scheme blow up in 2008. That is my personal experience. ...
Fractional Reserve Lending On SteroidsI got that story and link from someone in China who has been attempting to get me to post it. I wanted to verify it first. I sent the above link to Bill Hopen, my sculptor friend (please see Inside China: A Sculptor's View) and asked him what he knows about "loan sharking". Bill is married to a Chinese and lives in China part-time. Bill Writes ... Hi Mish
Yes, that sounds typical. That is how China works in Wen Zhou area also.
It's not "loan shark" as in "I will break your legs if you don't repay". However, there are circles in neighborhoods, or churches, community groups that are kind of like informal credit unions. People pool money into a large sum and then bid for its use month by month. 5% a month is the typical rate of interest.
Chinese are crazy for busting a move financially. No one saves in banks. Instead, they keep piles of cash elsewhere.
If you get sick, you must have cash or you die if you cannot pay immediately for care, for hospital, for medicine. You are literally wheeled out into the corridor to die if you don't have money for oxygen. I am not exaggerating. There are no credit cards in peasant culture, but there is credit.
Families lend, friends lend, and they all rely on each other for cash reserves. The ties of honor and reputation are all that enforce repayment. It is a great shame if you can't repay. Face is everything. Many simply repay by "rolling the debt" borrowing more to pay the vig.
I have had to bail my mother-in-law out several times. The accumulated interest was greater than the principal she originally borrowed.
Parents of lend to their children to buy their condo with the understanding it will be repaid or they will come to live in their old age under that roof. Almost no one has the 20 to 30% down to buy a place. The down payment is typically borrowed at terrible interest or comes from a "marriage gift" which had its origin in borrowed funds, not from savings.
It's like fractional reserve lending on steroids. Everyone works their ass off to pay the loan, pay the vig, and save their face so they can borrow more if needed. A collapse of the bubble could cost lots of folks their life savings. This makes the financial aspect of Chinese society much more fragile than it appears on the surface. There is a lot of interconnected personal debt below radar.
Also I don't know how one would track "the money supply" in this setup. All is not what it seems.
Hope this helps your picture of China.
Bill Peter Navarro Video on Shark LoansSoon after I received verification from Bill Hopen, Peter Navarro came out with an excellent video on the Shark Loan PhenomenonThere is no embeddable link, but the video is well worth watching. Click on the above link to play. Bubble Prices - Whopping 22 Times IncomePlease consider Beijing home prices rise to '22 times income levels'A typical Beijing flat costs about 22 times average incomes in the city, state media said Monday, highlighting the challenge China faces providing affordable housing amid a property boom.
A 90-square-metre (968-square-foot) apartment in Beijing cost 1.6 million yuan (236,000 dollars) last year, the China Daily said, citing an independent report.
That compared to an average household disposable income of around 71,000 yuan in 2009, according to city figures. Demand Dries UpHas the bubble burst? It appears so. The Financial Times reports Cooling Property Market Tests Beijing's NerveIt feels like the calm before the storm at the Heavenly Famous Garden housing complex in Tongzhou, a booming commuter town on the outskirts of Beijing. The showroom is empty and for the past two months not a single flat has been sold, yet prices have not budged. Something has to give.
It is situations such as this that are testing the nerve of Chinese authorities as they try gradually to cool an economy that was at risk of overheating earlier in the year.
Tongzhou is one of the more extreme examples of the recent property boom. The town, about 20 miles from Beijing, has become a popular option for middle-class families priced out of the capital. The local government has big ambitions – two years ago, it announced plans for a 500-metre tower, which would be 50 per cent bigger than the tallest building in Beijing.
The Heavenly Famous Garden complex shows how quickly the market has run into a wall. Flats next to a new light railway to central Beijing were put on sale last summer and by this April prices had doubled to Rmb24,000 ($3,500, €2,700, £2,300) per square metre. Yet even though a third of the apartments were still unsold, there have been no buyers since the government announced its April clampdown.
One of the country's biggest estate agents, 21st Century, opened an office in Tonghu Avenue in Tongzhou in early May. Since then, it has sold a grand total of one flat, although the list prices on some buildings have slipped 15 per cent. Home sales in Xiamen plunge 44.7% in first half of yearProperty bubbles always burst with a collapse in sales. Here is a second article highlighting demand falling off a cliff. Please consider Home sales in Xiamen plunge 44.7% in first half of yearAccording to the Xiamen Municipal Government, the sales of commercial residential housing in the first half of this year in Xiamen was 1.257 million square meters, a decrease of 44.7% compared to the same period last year.
According to statistics, the total sales of commercial housing in the first half of the year in Xiamen was 2.336 million square meters, a decrease of 23.2% compared to the same period last year. In June the sales were 331,000 square meters, dropping 2.8% compared to May.
The sales of commercial residential housing in the first half of this year was 1.257 million square meters. The sales in June was 115,000 square meters, a drop of 8% compared to May.
In June, the sales of residential housing in Xiamen's 4 mainland districts accounted for 72% of the total. Affected by this, the city's average price of commercial housing was 9,453 Yuan / square meter, a drop of 19.1% compared to May. Whoa Nellie!For icing on the bubble bursting cake, please consider Tianjin Says 'Wait a Minute!' to Wen as China Property SlumpsThree dozen cranes tower over the Tianjin West Railway Station, part of a 501-billion yuan ($74- billion) government-funded building boom in this city of 9.8 million southeast of Beijing.
Like hundreds of other local Chinese projects, Tianjin's construction is financed in part by land sales that are dropping as China's real-estate slump takes hold. Property sales slid at an annual 8 percent rate in June. Selling land produced 41 percent of Tianjin's income last year, according to China Index Academy, a Beijing real-estate research firm.
A cascading collapse in local finances could force the central government to shore up banks that lent to local government entities, said Jim Walker, chief economist at Hong Kong-based Asianomics Ltd., in a June 7 interview. Banks could "easily" be saddled with bad loans of more than $400 billion over the next two years, he said.
"These local-government vehicles probably hope their projects will be able to service their debts," Walker said. "If they don't I doubt they'll worry about repaying the loans; they will just assume that somewhere else in government will have to take on the bad debt."
After their success in propelling growth, local authorities are now faced with the consequences of Premier Wen Jiabao's crackdown on the real-estate bubble. Falling property sales risk an erosion of revenue accounting for as much as 30 percent of local budgets, according to Standard Chartered Bank.
The China Se Shang Property Index has tumbled 42 percent in the past year, underperforming the 23 percent drop in the benchmark Shanghai Composite Index.
"Local governments were encouraged to invest in these projects and now they're feeling like, 'Hey, wait a minute!'" said Barry Naughton, author of the 2007 book "The Chinese Economy: No Housing Bubble Says RoachOn June 15, I blogged Stephen Roach says China's Housing Boom is Not a Bubble; I say "Nonsense"The property boom in China isn't a bubble because it's supported by "solid" demand for residential housing, according to Stephen Roach, chairman of Morgan Stanley Asia Ltd.
Nonsense.
Ridiculously strong demand is a necessary requirement to produce a bubble. The second requirement is a price increase that exceed the ability of buyers to repay the loans or sell to the next "Greater Fool".
In the US, home prices rose several standard deviations above rental prices and above wages. The same has happened in China. Thus, China's property boom is in a bubble state.
Please consider 10 Signs of Speculative Mania in China and a followup article, Email from a Chinese on China's Real Estate Bubble.
No one knows when willingness of buyers to pay absurd prices will change, but sentiment will change. Perhaps China's property bubble will expand further, but bubble sentiment always pops by definition, and China is in an enormous bubble.
It looks like demand has dried up. Whether or not it can be revived by more stimulus remains to be seen but I rather doubt it. Once enough people get burnt in real estate "loan sharking", that demand will be gone for good. How to Evaluate BubblesEvaluation of housing bubbles always comes back to two things: 1. home prices vs. income 2. home prices vs. cost to rent If those get out of line from the historical norm, then there is a bubble regardless of "strong demand". Actually, it takes "strong demand" for prices to get far out of line. In the US, demand was so strong that people camped out overnight and entered lotteries for the right to by condos in Miami. In China, demand was so strong that people resorted to Ponzi "Shark Loans" to buy a house. In my book both of those are signs not of "strong demand" but of speculative blowoff top, bubble mentality. Judging from volume that has dried up overnight, it appears China's bubble has burst. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com
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