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July 04, 2013


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AS THE WORLD TURNS. For the first 30 years I was in the search business I could watch recessions come and go by watching as hiring softened in the East and worked it's way across the country to the East. As the recession worked it's way through the problems the country began to recover in the same pattern East to West. Why did this happen? Because the USA population is skewed to the East coast and that is where the markets are. The western USA produced the raw materials used by American manufacturers and sent the products to market. (An example of this is I once was approached to do a study for the railroads of how they could solve their most pressing problem: railroad cars were full goingwest to east and empty going east to west. Thus empty railroad cars piled up in eastern railroad yards.) So as selling and making began to slow the first to feel it were the Eastern people on top of it. Meanwhile the western people continued to grow crops and mine materials building inventory. With slowing requirements for the materials they finally felt the effect and layoffs came. Eventually the recession began to ebb as people stopped cutting costs and balanced their books. The process was usually 9 months coming and then 9 months getting back to normal.

So, what has chnged? Lot's of things. Here are the big ones in my view. First, the cycle is now not an East-West USA cycle it is an East West world cycle with the East coast being replaced by Europe and California being replaced by China,Japan,S Korea and India. The huge buying markets are now Europe and the USA so recesions begin in those two places. Meanwhile the emerging markets provide materials and manufactured products. But, eventually, the lack of buying in the EU and USA take their toll. And, as we are seeing now 5 years after it started the new West (the emerging economies ) get hit. Since this is the first real cycle it remains to be seen how long it will take for it to return to normal. It is much more complicated since there are many different political and banking systems involved. Bernanke certainly has given them all impetus to PRINT money as a solution. Let's all hope he is right and that the world will all print in balance. The stock market is repricing stocks and corporations but is anyone repricing our salaries?

Second, the US is going through a process of addressing two major realities. Healthcare has produced a massive growth of the retired age unproductive population dependent on society for pay and services. The employed base, with 50% contributing no taxes, is struggling to support them. Babyboomers are at or near retirement and they were the greatest consuming group in the history of earth. Now they have cut back and will soon join the massive elderly dependent class. The combination of less spending and more dependency will likely be felt by our children for a long time and may actually extend this recession long after we are gone. We saw this effect early in the mid 2000's when baby boomers stopped buying large houses and instead began to sell them and buy retirement houses. For a few years Florida,Arizona and Nevada boomed. Then in 2008 when the market for the large houses in the US began to fall they stopped buying retirement houses and that market collapsed followed quickly by the large house market. That was the beginning of this cycle. Americans ahve long counted on their houses to produce their retirement cash. We don't save. We buy houses. That market employed huge portions of the population. For 5 years now that market has been gone.

I once wrote a paper in 1896 about the coming United States of the world. It wasn't something I liked to think of but in reality it is now upon us. Led by a President who likely believes in it. Is there a solution to our problems? I think so but it will require some very talented leadership and it will not likely come from the direction we are moving. Europe tried it and now is paying the price. The USSR was similar and failed. China thinks they can do it but are now struggling. It really requires us to stop trying to make all people equal and respect the competition that God programed into us. Capitalism and the personal freedom will allow people to be whatever they are destined to become.

REALITY? Is Bernanke, now that he's a lame duck, finally leveling with us? Yesterday he said that the 6.5% unemployment target to slow down the presses underestimates the true unemployment in America. Implying that unemployment is much worse than the 7.6% the goverment publishes. For 5 years now virtually everyone who knows what is going on in the business world has been saying the same thing. The President and Biden would never admit that. Realistically the unemployment and underemployment in the country is around 20 Million or about 13%. Is printing money really helping us or is it just creating a fantasy stock market and delaying the day of reckoning? Americas biggest corporations continue to miss on the revenue line and cut costs and buy back stock to make their earnings per share numbers. The result is little real hiring. More temp hiring. More contracts and services cut. Today our company cut out our UPS pick up service. It saved us $28 per week. That's $1500 a year but that is what it is getting down to in the world of small business. Capital One layed off 147 people out of 20,000 this week. And so it goes in the big guys world.

If you think that is bad compound the unemployment rate by the fact that 10,000 baby boomers are retiring every day. You'd think every college graduate in America would be hired in at the bottom to push people up into those positions. But, no they are not being replaced with employees. Instead temps take the places at the bottom.

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