Sunday, December 5, 2010

Nov. 2010 Employment Report Analysis

Employment Situation Summary
Release Date: Usually the first Friday of each month
Release Site:
Market Relevance: VERY HIGH
Management Value: VERY HIGH

To learn about the official release please follow:

"Brain surgery is not rocket science to a brain surgeon".

Friday, December 3, 2010

Blue World Employment Situation Analysis
Occasionally I feel the need to give our economic report analysis posts a nickname. A recent example was "Reality vs. Rhetoric". The only one I can think of for this one is:


All I've been reading all week are articles talking about how employment may have strengthened in November. Really? Based on what? A few more shoppers than last year? That is ridiculous. I really don't know where the experts think these jobs are coming from but there is not a single indicator to suggest a material improvement in the employment situation has or will occur anytime soon. GDP growth includes too much inventory, has been revised sharply lower for the next year and prospects based on foreign trade have dimmed. Housing, bad. Construction, bad. Manufacturing, bad. (See "Is the Table Set for the Double Dip"? Friday the TV, radio and internet were peppered with adjectives like "surprised", "shocked", "appalled", "stunned", "dazed", "shaken", "dismayed"," horrified", "aghast", etc. These adjectives were being used to describe the reactions of the "experts" to the employment numbers. Well, let's all take a moment to THANK GOD WE, AT BLUE WORLD, ARE NOT EXPERTS!

So, perhaps a little less expert-bashing and a little more uninformed, uneducated, novice analysis would be of greater value.

The Household Survey (Table A) reports an unemployed rate of 9.8 percent, up two tenths of a percent from October '10. More importantly the total private sector only added 50,000 jobs and of those only 39,000 were non-farm positions according the Establishment Data on Table B. Section U-6 of Table A-15, Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force, remains at a staggering 17 percent. If you have read us at all you will know that the most disconcerting number in this report is the 5.1 percent unemployed rate for those at least 25 years old with a bachelor's degree, or higher. That is a jump from October '10 of .4%. That is a BIG scary number. Manufacturing and construction lost jobs while the number of unemployed for over 27 weeks continues to climb.

We see not a single surprise in any of these numbers. Jobs, simply, are not created based on nothing. The only reason payrolls grow is in response to an increasing demand for products and services in the private sector. Jobs and demand do not operate in parallel. They operate in circuit. Right now that circuit is in "vicious cycle" mode. Unemployment is high, so many Americans have no disposable income. No disposable income translates to decreasing demand for even the most basic necessities. Decreasing demand leads to decreasing need for labor. It should therefore be no surprise that healthcare is among the few industries adding jobs consistently throughout this recession. The baby boomers are aging and requiring more and more care. Increased demand equals increased employment. It is no mystery.

Employers need a reason to believe that demand will increase. They need to feel the political and regulatory environment is stable and supportive of business activity. Until that happens anyone who predicts an improvement in the employment situation and, therefore, the economy must expert.

We remain in a very defensive posture with our investment strategies and will for the foreseeable future.

Thank you for reading and...stay tuned!

Release Site:

Every effort is made to ensure accuracy of data transcription but accuracy cannot be guaranteed. The official release site should be cross referenced for accuracy and footnoting. The analysis represents the opinion of Blue World Asset Managers, Ltd. who are not giving advice and does not warrant or guarantee predictions based on its analysis.

Friday, November 19, 2010

Is The Table Set for the Dreaded Double-Dip?

"Brain surgery is not rocket science to a brain surgeon".

The Table is Set for the Dreaded "Double Dip"
Back in the summer I posted blogs about the four questions I/Blue World was being asked most often. One of those was regarding the likelihood of a double dip recession. It would be valuable to go back and review that one now.
If you are not inclined to read the whole post the short answer was "no" if you believed we never really emerged from the first dip and "yes" if you believed a recovery was underway. A lot has happened since then and after the over-important, under-meaningfully-analyzed events of the past two weeks Blue World feels we have enough information to render a more evidenced based opinion.

The National Weather Service in Chicago, IL has issued a Tornado Watch for the following counties ...
Is Blue World definitively predicting a "double-dip"? Of course not. Too many things can change, literally, overnight. Look at this post like the difference between a tornado watch and a tornado warning. A tornado warning means there is a verified tornado already formed and coming. A tornado watch means that all the conditions favorable for a tornado to form exist. Consider this, therefore, to be a "Double-Dip Watch". It is significant because everyone has just started to relax a little bit.

Numbers can be misleading...AND used to mislead.
You all know I write these to cut through the headline nonsense in an effort to offer some actionable intelligence for business managers at any level. There has been a pant-load (my favorite e-trade baby phrase) of economic data that is being spun as positive. It's not positive. Let's summarize some key indicators.

This is the condition during which the stuff we buy every day starts to cost more. We are being told it is OK to keep interest rates low because inflation is in check. Really? How do you say that with a straight face to real people who are buying milk, food, gasoline, etc.? Blue World watches the commodity prices every day and, I assure you, nothing is getting cheaper. Have a look at the following links to price charts for some staple items and raw materials then let me know how tame inflation looks to you. Some of these sites have interactive functionality if you care to play with some parameters.

Gasoline: Average&city2=&city3=&crude=n&tme=1&units=us

Weekly Corn:

Weekly Cotton:

Weekly Live Cattle:

The Fed and Quantitative Easing (QE 2)
Normally we consider increases in personal spending a good sign that confidence is on the rise and, consequently, people are willing to start spending more money. We could believe that even more if we are told productivity is up. Unfortunately, those numbers can mean that the stuff we have to buy is getting more expensive and few people are doing the work of many, respectively. You know the unemployment rate is still hovering between 9% and 10%. After looking at those charts do you think inflation is really in check? That leads us to the double whammy. Not only is the stuff we need getting more expensive, but the money we use to buy it is losing power. The Fed has, inexplicably, decided to make the dollar even weaker than it was by buying long-term debt with short-term money in another effort to "stimulate" the economy. Trading more expensive long-term debt for cheaper short-term debt is roughly akin to paying the minimum on your credit card. It allows you to avoid late charges in the short term but does nothing to diminish the total interest-bearing amount you owe. Therefore, you have made things better in the short term but the underlying long term problem keeps getting bigger. When you hear them talk about "kicking the can down the road" this is all they mean. It is funny (embarrassing) to hear our President scold China for manipulating their currency in order to make their products more attractive and then explaining that our currency devaluation was the unintended consequence of the primary goal of "economic stimulus". HUH?? Net results, my friends. Net results.

Employment (
We write about this one almost every month so I won't spend a great deal of time on it here. We'll just hit some key stats. You can review our longer analyses by clicking on the archive buttons at this site. Let's summarize the trends ending with the most recent report. Professionals are still out of work at unprecedented rates. I keep saying that but they are, unfortunately, becoming quite "precedent-ed". The total number of those leaving the hunt for work continues to edge up. That kept the overall rate unchanged even though the picture had worsened. The average time out of work has also increased. So, of the jobs that were created, where are they? The biggest increases came in the private service providing sectors with the largest single sub-piece being temporary services. Not a good growth indicator. Manufacturing lost jobs. That leads us to GDP.

Gross Domestic Product (GDP) (
They reported a rise in GDP. Be careful. As always, the truth hides in the detail. GDP includes everything produced whether it was sold or not. A big piece of the increase was inventories. In other words, a lot of stuff was produced but not sold so stuff is piling up. Remember what we said about manufacturing losing jobs? That does not bode well for demand and inventories could start collecting dust...and interest.

Bush Tax Cuts
First, inoculate yourself against the "language". The administration would have us think that they are offering tax breaks for the middles class. They are not. They are only arguing over keeping rates as they are. There was tremendous optimism in the business community that the White House position on extending the Bush tax cuts would apply to everyone following the election. Since Wednesday, November 3, 2010 the song sounds the same. The President continues to favor the extension for the "middle class" but not the "wealthy". Please remember that the definition of "middle class" and "wealthy" has been ARBITRARILY defined for purposes of this conversation. So, if we take those making $250k+per year, call them "wealthy" and let their taxes go up what effect does that have? Simple, really. You are extending existing income tax rates for the body of people who don't have any income. How will that help? This is the largest out of work group for over 27 weeks.

Job Creators
The statistic you hear about jobs is absolutely true. Seventy percent of new jobs come from small business. Small businesses usually operate as a Sub-Chapter S corporation or LLC. That means that the business pays no income tax. The owner does. If the owner's clothes and food prices are rising, demand for his products and services are declining and the tax bill is going up there is NO opportunity for growth and job creation. These are the very people we rely on to create jobs! They will be stifled even further by these conditions. Please follow this link to read the article after you finish reading this post.

Presidential Asian Trip
The last straw, I fear, is getting the least meaningful analysis. Our President has been on an extended international tour whose express intent was to strengthen the U.S. economy by, and I'm summarizing here, getting strong consensus against Chinese currency manipulation, lay a foundation for new open trade agreements in India and, the marquis item, seal the trade agreement with South Korea. 0-3. This is a HUGE deal for very practical reasons. Unfortunately, the "analysis" we are fed is focusing on politics and his competence as a world-stage player. Well, talk about that all you want but the analysis that matters is that the agreement with Seoul would have been an almost immediate benefit to our economy as we could have started setting up trade right away. I know the President says he is still confident we'll get something done. When? We don't have time to wait and now European countries with similar ink-ready deals will beat us to the South Korean market. That's a big problem.

The "Hows", the "Whys" the "Do You Mind If I Don'ts"
I am very aware of the socialist theories regarding Mr. Obama's desire to tank these deals, weaken our currency, set a new "normal" for unemployment, etc. all on purpose in an effort to further weaken America and bring her down a notch. I am equally aware of the theory that he is just incompetent and in way over his head. This would be a good time to review the post regarding blame and inheritance ( None of the reasons "why" really matter. The relevant point here is that we really don't care if he is doing this on purpose or he is just incompetent. The net result of either is the same. The net result of either is bad.

For the reasons stated above we feel the table is now set for the double dip recession everyone had begun to become less concerned with. Businesses are sitting on cash with no incentive to do otherwise. Banks can't lend in spite of all the "stimulus" because their asset reserve ratios will not support lending. Massive commercial defaults are waiting in the wings. The financial reform bill has passed but many of the new rules are as yet unwritten. Businesses are proceeding as if the Healthcare law will stand but no one is sure if it will. If it does no one is sure what it will mean. A major tax policy is mere weeks away from hitting with no clear indication of what will happen. Uncertainty is an enormous impediment to growth. The stock market, which was the only place anyone was making any money, seems to have taken notice of all of the above in the past week. Profits were good. That dominated the headlines but corporate guidance was very weak. Why? Because all those CEO's and CFO's have already analyzed the same information you are right now.

With regard to your personal financial, business and investment decisions and strategies we feel it is still a time to be prepared for the worst while hoping for the best. As a nation we didn't get where we are by being lucky. We are smart, motivated, resilient and eternally optimistic. We'll be back on top. It's just that right now it couldn't seem soon enough.

Our continued gratitude for reading. We always hope we add value to your wealth building and asset protection outlooks. Stay tuned...

Friday, October 8, 2010

Employment Situation Analysis 10-08-10

Employment Situation Summary
Release Date: Usually the first Friday of each month
Release Site:
Market Sensitivity: VERY HIGH
Management Value: VERY HIGH

Friday, October 07, 2010

While the unemployment rate has not changed the situation has deteriorated.
The net job loss was -95,000 with the private sector adding 64,000 jobs while the government shed 159,000 as more temporary census jobs are ending. Construction and manufacturing both posted losses. The 25yoa+ bachelor’s degree and higher crowd is still unemployed at staggering rates (4.4% for September). Average weekly hours worked in manufacturing and construction fell and the number of voluntary job leavers fell substantially (Table A-11. Unemployed persons by reason for unemployment)
The attention getter in this report lives in Table U-6 (Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force). These are the under employed plus the gave-ups. The rate trend for this group from June through September is 16.5, 16.5, 16.7 and now 17.1%.

It appears that there were additional layoffs in the second half of September that would not be reflected in this release but caught by the recent Gallup survey That suggests we need to hold on tight next month. We’ll see.

The recession continues by all valid and objective data. We do not see any evidence of a change in policy that would improve the trend. We believe hiring will remain stagnant with accelerating job losses for October 2010. The uncertainty of the mid-term elections is, undoubtedly, a contributor to the business community’s reluctance to reach into the coffers and hire for expansion because rising unemployment means declining demand in spite of “stimulus”. Perhaps some clarity of direction will be a stabilizing influence after the elections.

Thank you for reading and stay tuned.

Friday, September 3, 2010

Employment Situation Summary 9-3-10

Employment Situation Summary
Release Date: Usually the first Friday of each month
Release Site:
Market Sensitivity: VERY HIGH
Management Value: VERY HIGH

Friday, September 03, 2010

We write these analysis reports to offer real investors and business leaders actionable intelligence well beyond the spin we get from media headlines, economy experts and market gurus. If we are in the business of combating absurdity, business is good!

The employment report, again, requires little analysis as the picture has not improved. That was predictable based on the balance of data and general mood of consumers and employers. The "experts" were surprised, as usual. This time it wasn't as bad as they thought it would be. So, a rise to 9.6% is reason for optimism this month. WOW.

We continue to be amused/baffled by the media reports. When the rate goes up that is, somehow, good news and when the rate goes down it is an ominous sign. Let's get to some actual numbers that mean something.

In a service based economy the percentage of unemployed workers with a minimum four year college degree is a bellwether indicator of the trend, health and sustainability of the economy at large. These are the people most likely to spend on durable goods, homes and big ticket luxury items, so it is one of our go-to stats when evaluating the state of the job market and economy as a whole. This group continues to be out of work at rates never seen since the stat has been tracked and the rate has risen .1% per month since May to the current level of 4.6%. That's bad.

The total for un/under/discouraged/gave up (Table A-15, U-6) is up .2% this month over last to 16.7%.

Total private, non-farm (Table B) added 67,000 paychecks. That is less than a third of what we need to break even on new entrants at this point.

The number of part-timers for economic reasons, i.e. slack work or could only find part time work, is up substantially.

Ultimately, there is no improvement in the job market which is a clear indicator of the direction of the economy and prognosticates poor fortunes for US business.

Use those stops in the market, puts are better if you know how. Make sure your private equity plays are diligenced by a crack team. Build in as many safety nets as you can. Triple verify real estate cash flows if you can't afford to carry a property out-of-pocket. There are plenty of opportunities but the defense has to be ready to play!

Every effort is made to ensure accuracy of data transcription but accuracy cannot be guaranteed. The official release site should be cross referenced. The analysis represents the opinion of Blue World Asset Managers, Ltd. who does not warrant or guarantee predictions based on its analysis.

Thursday, August 19, 2010

Blame and Inheritance - Really? C'MON

I'd like to talk to the current administration as well as all executives, consultants, business leaders and responsible adults about blame and inheritance for a few minutes.

A big part of what we do at Blue World includes estate planning so I have a solid grasp on the concept of inheritance.

Another major area is turn-around consulting for troubled businesses so I am painfully familiar with blame.

I have been engaged as everything from consultant to CEO in troubled companies. The earliest conversation with remaining management is, unfortunately, what I characterize as a therapy session. It is often helpful to understand the history of decision making (or lack thereof) that led to a company's trouble. Most commonly, however, this "analysis" devolves quickly into blaming a person, people or circumstance(s) for the problems. Once this occurs I stop and say "blame me." "I will accept total blame for all the trouble this firm is in right now." Then I ask the important question. "Now that we have identified a single culprit, consolidated all blame and assigned it to me will someone tell me how that helps?"

Feeling better about making sure blame is assigned to someone else, meaning no one blames you, is not productive. Period. Assign blame to anyone or anything you want to. I have never seen the assignment of blame solve a single problem or turn around a single company. So, please, enough with people of responsibility assigning blame. Let's, instead, have mature adults objectively review history to analyze the viability of altering non-productive policy or process in furtherance of an effort to improve company performance, huh?

I have had successes and failures just like everyone else. I admit I have learned a great deal more from the failures which, inevitably, led to more successes. But I also admit that the successes are more fun. In either case I reject the notion of "inheritance" as it pertains to professional, executive level turn-around situations. Allow me to explain.

Assume the following: A young man is the son of a business owner. He is 20 years old, in college, care-free and never has really been interested in Dad's business. Dad passes away unexpectedly. The son is now the sole shareholder of the business and learns the business is in big trouble. This is someone who has, legitimately, inherited a problem.

Now assume that I am the CEO of Blue World Asset Managers, Ltd. I am contacted by a company in distress and asked to evaluate it for purposes of turnaround. I go in with my highly skilled and experienced team of professionals. We look at the books, interview the management, the rank and file, customers, vendors, etc. to determine the viability of a turnaround effort. If we feel there is a shot at success we develop a plan to attain that success and then begin to implement and execute the plan. If I am successful I am very happy to take the credit. If I fail I am the first to accept the responsibility. (Note I did not say "take the blame").

Following failures in turn-around it is not uncommon to get a pat on the head and be told "it's not your didn't create the inherited an impossible situation... ALL B.S.! Why? Because we CHOOSE the fight. We do not inherit anything! We come in, evaluate a situation, identify a problem, put our hand in the air and say "PICK US, PICK US. WE THINK WE CAN FIX IT." We did not inherit anything!

Perhaps you see where I'm headed. I do not attempt to make political commentary but politics cannot be separated from economics. Political policy driven by philosophy and ideology have a profound impact on the business and economic environment.

Our country, and the free world, is being led by an administration who continues to blame the preceding administration and talk about the mess they've inherited. When you campaign for over two years and spend a hundred million dollars to frame a set of problems, propose solutions and scream "PICK ME PICK ME. I CAN FIX IT." from the highest peaks you MAY NOT claim to have inherited anything. You signed up, made your pitch, won the contract and are expected to deliver, no different than any other new management team or outside consultant.

We can have intellectual, thoughtful discussions and debates regarding policy and economic theory. That can be very productive. But to have adults of responsibility, nay even more, the top executive in the world and his A-team continue to discuss blame for the mess they inherited is unproductive and irrelevant. It terrifies me and it should terrify you, too.

We have over 16 million people unemployed, over a trillion dollars in budget deficit, uncontrolled borders, an unprecedented foreclosure rate, a looming commercial debt catastrophe and a host of additional daunting challenges to our sovereign nation, not just a single company.

So...OK, blame the prior executive and his administration. Assume you get us ALL to agree with you 100%...then tell me how that helps.

Friday, August 6, 2010

Employment Situation Analysis 8/6/10

Employment Situation Summary
Release Date: Usually the first Friday of each month
Release Site:
Market Relevance: VERY HIGH
Management Value: VERY HIGH

To learn about the official release please follow:

Friday, August 6, 2010

Blue World Employment Situation Analysis

How about "Reality vs. Rhetoric" as a title for this analysis? The media, politicians and even the BLS continue to frame the economic data in terms of a recovery. Folks, it's not happening. A recovery, by definition, suggests an economy on the mend. There is no data that supports a recovery in any form. We are still in recession and will be as long as the businesses fear the next round of regulation and perceived anti-business policy.
The employment report was completely predictable based on the downward revisions in the GDP, which Blue World predicted would occur, and vise versa. Not a lot of analysis is required here. There has been little change in the tone of the report. The unemployed rate for the 25+ w/ bachelor's degrees and higher edged up again and the number of prospective workers leaving the job hunt out of frustration and depression is on the rise.

I'm afraid we all know the words to this song... Blue World analysts do not see the catalysts necessary to drive a vigorous recovery. We, instead, perceive several major risk factors for continued and accelerating weakness, especially as we continue into the second half of 2010 and Q1-2 of 2011 (Tax Season).

We remain in a very defensive posture with our investment strategies and will for the foreseeable future.

Thank you for reading and...stay tuned!

Release Site:

Every effort is made to ensure accuracy of data transcription but accuracy cannot be guaranteed. The official release site should be cross referenced for accuracy and footnoting. The analysis represents the opinion of Blue World Asset Managers, Ltd. who are not giving advice and does not warrant or guarantee predictions based on its analysis.

Wednesday, June 16, 2010

Q4 Is There Still a Risk of a Double Dip Recession?

"Brain surgery is not rocket science to a brain surgeon".

In recent weeks I have been answering the questions we are lately being asked most often. If you have found value in what you've read from us we would be privileged to have you click the "follow" button.

These questions are regarding issues that are billed by "experts" as complicated or hard to understand for us laymen. Hopefully I have succeeded in proving that these issues are neither complex nor difficult to understand at their most basic levels. I have come to believe that nothing is really all that complicated at its core once some common language, a little education and some basic experience is applied hence my observation "brain surgery is not rocket science to a brain surgeon". Said another way, for those of you old enough to remember these commercials, magician Marshall Brodien (Wizzo on Bozo Circus) always said "Most magic tricks are easy...once you know the secret". It's funny. I never have any trouble answering trivia questions...that I ask!

I admit that one of the phrases I hear most often from my wife and closest colleagues is "Matt, you use a lot of words". So, all of the above reviewed, I'd like to take a stab at the fourth question whose answer many of you will likely consider mercifully short.

Question 4: "Is there still a danger of a double dip recession"?

Short answer: No...and Yes.

Long (ish) answer: Please, read on.

Please begin with the understanding that the following is not political commentary although our skepticism of current and proposed policy is clear. It is not offered to foster optimism or pessimism. It is simply our opinion on the direction of the economy based on internal analysis of objective, publically available data that leads us to conclusions regarding spending decisions and investment strategies.

It can be said that recession is the significant and/or extended absence of meaningful economic growth. If you have been following the earlier stuff you know that two of the most instructive measures of economic health are the Employment Situation Summary ( and the Gross Domestic Product reports ( These, as well as most other indicators, in their detail tell us that there is no momentous recovery out there and Blue World analysts see no catalyst for one to take hold. If we (Blue World) have seemed rather cynical about the U.S. or global "recovery" is it because we do not see any objective evidence of a meaningful one occurring. So, from a really twisted perspective, I have to admit that we CAN'T see a chance for a second dip if we don't think we have emerged from the first one.

So, change the question for me a little bit. Ask "Is there a chance things could get worse?" Now the answer is a resounding and unfortunate "YES." Other posts have given some detail so I'll just offer a quick list here of what we see as ominous threats. In the face of rising deficits, rising unemployment and decreasing federal revenues I'm not sure who first said "Hey, I have an idea. Let's borrow more cash, add massive entitlements, keep interest rates low and...just print a bunch of new money to pay for it all" but it is unsound fiscal policy for reasons too numerous to list here. Taxes are going up. The increase in capital gains tax alone will retard investment. Add to that a looming commercial debt crisis, slowing construction, inflation and interest rates that can only rise from here and we already have a recipe for further economic deceleration. That's not the worst part. The worst part is the effect all this has on jobs.

Pay attention here. This is not difficult material. A full seventy percent of our economy is driven by you and me, the consumer. If we are nervous we don't spend. If we don't spend demand falls. When demand falls production slows. When production slows consumers lose jobs. When consumers lose jobs everybody gets nervous. When we are nervous we don't spend. Simple as that! The employer base, the only entities that can actually create jobs by increasing production and hiring people, reads the same data that I write about. They are powerless to increase production and add jobs if consumers are nervous and failing to spend. With unemployment near ten percent and more mass layoffs being announced every week where do we think this "recovery" is happening? Sure, there are those who point out the government is hiring. The government is no exception to these laws of economics. For the government to be an employer it can only get the money to pay employees from the private sector. If the private sector is not producing then the revenues to the government decline and they, eventually, have to effect mass layoffs just like any other major employing entity.

The private sector depends on demand. The government depends on the private sector. I'm afraid we just don't see fiscal or economic initiatives that will serve either well so we remain, as all who invest and spend real money are, very nervous and defensive for the foreseeable future...and that's exactly why things could get worse.

Short (ish) answer? I tried.

Again, thank you for reading and...stay tuned.

Wednesday, June 9, 2010

Q3 Why Do I Keep Hearing Social Security Won't Be There When I Retire?

"Brain surgery is not rocket science to a brain surgeon".

Over the last couple of weeks I have been answering the questions I seem to be getting asked most often lately. Below is another answer to a question that is billed as complicated and confusing. It's not.

Question 3: "Why do I keep hearing that Social Security won't be there when I retire"?

Short answer: Because it probably won't.

Follow-up Question: Why not?

Short answer: Arithmetic

Long answer: Please, read on.

I am in the final stages of writing a book entitled "Money as a Second Language". There are three chapters dedicated to what I describe as the three biggest enemies of wealth building. One of those three is excessive taxation. I go out of my way to say that the chapter is not intended to be political commentary because it isn't. But you simply cannot talk about financial responsibility, money, investing and wealth building without talking about the single largest expense a working family has. That's right. Taxes are the greatest expense a working family has in America. More than food, mortgage, car payments, etc. How can that be? Note, I did not say "income tax". I said "taxes". Income tax is only one of the myriad taxes we all pay to local, state and federal governments. It troubles me that while most people are aware of the more well known taxes by name like income, property and sales they fail to recognize other costs as the taxes they are. Some include parking meters, pet licenses, tolls, telephone, and sin. There are over 90 taxes we pay regularly and the number of taxes as well as the rates we pay are growing all the time. So, please keep in mind as you read that this is not political commentary. It is just an objective, mathematical description of why the Social Security program is fatally flawed with the unavoidable implied criticism of the policies and management that created the problem.

I keep hearing about how complicated the Social Security problem is. I guess it could become complicated if you did not understand basic arithmetic so students Pre - 1 may require five to ten minutes of additional explanation before they get it. The rest of us, well...

Let's begin with the concept of Social Security (an oxymoron). Originally Social Security was advertised as a guarantee that everyone who earns a paycheck, responsible and irresponsible alike, would have money set aside for retirement. The mandate was to take money from workers' paychecks and set it aside for their golden years. There are those who will say the more sinister goal was to give a federal government with a rapidly growing appetite easier access to a percentage of every paycheck issued without having to go to the inconvenience of billing for and waiting for us to remit our taxes.

Regardless of how you feel about such a program in theory, it is fundamentally flawed as a practical matter. Those flaws are routinely and aggressively camouflaged with misinformation. Again, a simple concept. Take money from a paycheck and set it aside for retirement, right? Wrong!

The first problem with Social Security is that it does not provide "security". Aside from the real risk of going broke you know very few, if any, people who can afford to retire on Social Security alone while maintaining a lifestyle they aspire to. So, by default, no "security".

The second problem is that the program, as advertised, is a complete falsehood. For simplicity, one way to save money is to take some money from each paycheck and put it into a piggy bank. Each check same procedure and the balance keeps growing. They want us to think that's how Social Security works. It doesn't.

Without getting into the details of trust funds and collateral the simple fact is that it does not work as advertised. You see, the money taken from your check is not put into an account for you to just keep growing with every check. This is the really important bit. THE MONEY YOU PUT IN TODAY IS BEING PAID OUT TO RETIRED PEOPLE TODAY. We each have a Social Security number but that number is just the unique identifier of a tax payer. It does not correspond to an "account" with our names on it that just keeps building up cash. Don't buy the line that Social Security yields about a 3% return. There is no return on money spent on other people today! In addition, Social Security has well exceeded its original mandate with payments for disability, lost spouse, lost parents, etc. The fraud and abuse is enough to eventually bankrupt the program but we have a much bigger threat to it than that.

Here is the simple arithmetic I keep referring to. This is all you need to know to fully understand the un-sustainability of the Social Security system. Social Security is funded exclusively by the current labor force. It can be expected that over time the population and, therefore, the size of the labor force, will ebb and flow. That is just common sense. The baby boom produced a big, bell-shaped curve in the population of the United States. If the money taken in today goes to pay for people retired today and the number of people retiring today exceeds the number of people entering the work force today and that trend continues for 5, 10, 15, 20, 25, 30...years eventually the obligations owed to the recipients will overwhelm the ability of the donor force to meet the demand. Things just keep getting worse and worse because the number of retirees keeps rising and the work force keeps shrinking. That's it.

This situation is exacerbated by the recession we are currently in (yes, we are still in it) occurring at a time when the baby boom generation is starting to retire en masse. So an already shrinking labor force is being further decimated by a prolonged recession with double-digit un/under employment leading to curvilinear revenue reductions for a system already stressed to the breaking point.

Solutions? Several good ones. I just hope I don't need to explain why raising the Social Security tax rate is not one of them.

As always, thank you for reading and...stay tuned.

Friday, June 4, 2010

Employment Situation Summary Analysis

Employment Situation Summary
Release Date: Usually the first Friday of each month
Release Site:
Market Relevance: VERY HIGH
Management Value: VERY HIGH

To learn about the official release please follow:

Friday, June 4, 2010

Blue World Employment Situation Analysis

Remember when I sent out a tweet that said don't listen to "experts" in the media when making important financial decisions because most headlines start with language along the lines of "analysts were surprised when..." What I meant to say is "listen to us." Some very big names were predicting anywhere from 450,000 to 600,000 new jobs for May. As an organization that saw virtually no potential for good job growth in the private sector we wondered "could we be that wrong? Unfortunately, NOPE. The unemployment rate fell to 9.7% but, so far, even the media does not seem to be trying to spin this as a good thing. Ironic, isn't it? The rate jumps in April and that was a "good thing." The rate falls in May and that is a "bad thing." Go figure.

As usual, the real truth is in the in the detail behind the headlines so let's take a look...

The overall rate fell .2% from 9.9% to 9.7%. Workers 25+ with a bachelor's degree or higher continue to be unemployed at historically unprecedented rates near 5% (4.7% in May). The rates for those without and with only a high school diploma also rose in spite of the summer-help hiring season getting started. That's not a good sign. The number of people reentering and first time entries to the job market also fell.

As we move to Table B (Establishment Survey) we can readily see the meaningful data. The economy added 431,000 paychecks. Ordinarily we'd say that's a good thing. The problem, however, is that of those 431,000 only 41,000 came from the private sector. The balance of 390,000 came from government hires. Worse, yet, is that the vast majority of those are temporary census jobs. One can argue that a job is a job but remember, the government's ability to be an employer is based completely in its ability to collect revenues from the private sector. If the private sector is not growing (GDP and employment says it's not) then it is only a matter of time before the government has to start laying off part-time and full-time workers.

The percentage of workers unemployed for 27+ weeks edged up, again, to 46%. That is over 6.75 million workers. Also troubling is that those unemployed for 5 week or less rose again. These are new job losses and earlier this week some major companies announced mass layoffs to come soon.

Manufacturing weekly hours worked and overtime remain predictably lackluster based on the GDP numbers but hourly manufacturing wages rose enough to notice.

Well, let's beat the same ole' drum. Blue World analysts do not see the catalysts necessary to drive a vigorous recovery. We, instead, perceive several major risk factors for continued and accelerating weakness, especially as we head into the second half of 2010 and Q1-2 of 2011 (Tax Season).

We remain in a very defensive posture with our investment strategies and will for the foreseeable future.

Thank you for reading and...stay tuned!

Release Site:

Every effort is made to ensure accuracy of data transcription but accuracy cannot be guaranteed. The official release site should be cross referenced for accuracy and footnoting. The analysis represents the opinion of Blue World Asset Managers, Ltd. who are not giving advice and does not warrant or guarantee predictions based on its analysis.

Tuesday, June 1, 2010

Question 2: Is There a Meaningful Recovery Going On?

"Brain surgery is not rocket science to a brain surgeon".

Question 2: "Is there a meaningful economic recovery going on out there"?

Short answer: No.
Long answer: Please, read on.

Don't shoot the messenger, folks! I am not a Negative Nancy by any stretch but when it comes to money and investing objective reality trumps headline fantasy every time.

As promised, every few days I'll be answering the four questions I am being asked most often. They are in no particular order and involve subjects that are billed as "complex" or "difficult". Don't you believe it! This stuff, like all stuff, just isn't that hard to understand at its highest level. Can macro and microeconomics be made confusing to the layperson? Sure. But you don't need that kind of drilled-down study to understand the state of the economy and what drives it. In teaching I like to start at one-hundred thousand feet at a place everyone shares common language and then move in closer and closer to the detail as the situation warrants. For example, if I am teaching the anatomy of the arm I start with "this is an arm". I can then move from there all the way down to the individual cell types of skin, blood, muscle, bone, etc. based on the needs of the audience.

To understand the economy and what drives it we can begin with language everyone understands. The main driver of the economy is you and me. It is a simple circular relationship. The more confident we are in the economy the more confident we are that we will keep our jobs. The more confident we are we will keep our jobs the more likely we consider it to receive raises and promotions. The more confident we are we will keep making more money the more likely we are to spend money on products and services. The more we spend on products and services (demand) the more products and services are offered (supply). The more demand for supply the more companies need to hire workers. The more workers companies hire the lower unemployment gets. The lower unemployment gets the more working people there are who want to spend further driving up demand. Now full circle, the more confident we are in the economy the more confident we are that we will keep our jobs....

It really is that simple. Now, there are boatloads of economic releases that come out each week, month, quarter, year. There is GDP, the unemployment report, housing starts, consumer confidence index, new home sales, existing home sales, new housing permits, first-time jobless claims, factory orders, manufacturing index and on and on and on... What I want you to realize is that for all the data gathered, analyzed and reported on they all have just one common objective. It is to see what kind of mood you and I are in as consumers. If we can determine what kind of mood the consumers are in and what their spending patterns are we can predict which way the economy is likely headed. If unemployment is headed down, personal income is increasing and GDP is rising it is a darn good bet that good times are-a-comin'.

While headlines are useless for anything other than spin we don't need to delve too deeply into the latest batch of anecdotal or objective data to see what's really going on out there.

The perception is that taxes are going up, inflation has no choice but to rise, interest rates are about as low as they can get and unemployment is forecast to remain well above 8% for the foreseeable future. With the notable exception of some early, cautious loosening of liquidity in the M&A space, there is not a single ingredient common to healthy economies much less economic recovery.

Objectively, we don't need to dive very deep into the latest economic reports to get a sense that the anecdotal observations appear to be supported by the objective data.

The jobless rate is hovering around 10%. {Release site:} That is bad enough. When we factor in the under-employed and those who gave up looking the rate is about 17% with no relief in sight. Even worse is that those unemployed for more than 26 weeks are at historic levels and workers who are 25 years and older with a bachelor's degree or higher are out of work at rates never seen since the statistic has been kept (near 5%). This group, in particular, is the group most likely to spend on big ticket items, feel secure and start new companies. The media attempted some positive spin on the rise in unemployment from 9.7% to 9.9% and we could hardly believe our eyes and ears. The statement that the rise in unemployment is a sign of optimism on the part of workers is ludicrous. It has a great deal more to do with the possibility of unemployment benefits being discontinued and, remember, they are looking for work not finding it. Hey, maybe that's why the percent of unemployed people WENT UP!!??!!

The Gross Domestic Product (GDP){Release site:} numbers are not as rosy and bright as you have heard in the media, either. The GDP for Q1 2010 was "predicted" to be 3.4%, came in on the advanced estimate at 3.2% and was revised down to 3% at the second reporting in May. Strip out increases to inventories (stuff made but not sold) and we are at about 1.6%. The best indicator of consumer demand is "final sales of domestic product" found in the addenda section of Table 1. The latest estimate is that it grew at a paltry rate of 1.4%, revised down from an initial report of 1.6%. Blue World expects a further downward revision at the final release on June 25th.

There are many other indicators showing similar data. Those mentioned above tend to be the more headline grabbing names. We simply don't see any fundamental catalyst needed to drive a sustainable or vigorous economy. On the contrary, there are ongoing significant threats not the least of which are continuing foreclosures, a looming commercial debt crisis and a flood of newly printed money in the face of rising federal deficits. The objective data just does not support the existence of a robust, or even modest, recovery underway. We have a problem with the concept of a "double dip" recession when the data does not indicate meaningful emergence from the first drop.

Objective data not headlines, friends. Keep an eye on your money. "D - fence" is still our chant.

Wednesday, May 19, 2010

Q1 - What Really Caused the Mortgage Crisis?

Brain surgery is not rocket science to a brain surgeon.

There are four questions I am being asked lately and they involve subjects that are described as "complicated", "confusing", "complex", you get the picture. I will address each question in separate blog posts over the next few days beginning with "what really caused the mortgage crisis"? The answer, you'll find, is quite simple.

The four questions I am been asked most often whether in committee meetings, networking functions or sitting at a bar. They are (in no particular order)

Q. Is there really a meaningful economic recovery underway?
A. No

Q. Is there still a risk of a double dip-recession?
A. Yes

Q. Why do I keep hearing that Social Security won't be there when I retire?
A. Because it probably won't.
Q. Why not?
A. Arithmetic

Q. What really caused the mortgage meltdown?
A. See below

Those of you who know me and have followed me know that I subscribe to the theory that no matter how you dress things up at their core nothing is really that complicated. This is the meaning of "brain surgery is not rocket science to a brain surgeon".

So, what really did cause the mortgage crisis? Some will tell you it was everyone who should have known better than to take a mortgage they couldn't pay, didn't understand or both. Some will say it was "greedy" brokers. Some will say it was "greedy" banks making bad loans and, of course, Wall Street was involved somehow. Each of the above did contribute but they are all just symptoms of the real cause.

Underwriting is the process used by banks, insurance companies and you to assess the level of risk involved in a transaction.

"Greedy" banks? Let's think about that for a minute. A bank is in the business of lending money. Its very survival depends on its clients' ability to pay them back. A bank requests a variety of information from a prospective borrower in order to analyze the financial health of the prospective borrower and, therefore, determines the likelihood that the borrower will be able to pay back the loan. In other words it underwrites the loan. Historically a borrower would be underwritten. If they fell short of qualifying for their requested amount the bank would tell them a) what they did qualify for and b) what they needed to do in order to qualify for what they requested in the first place. This was a valuable service.

During this crisis we continue to hear a great deal about the "greedy" banks engaging in "predatory" lending practices by giving loans to people who could not afford them. Ask yourself "how greedy is it to lend money to someone who CAN'T pay you back"? Again, a bank is in the business of lending money. Its very survival depends on its clients' ability to pay them back. The industry had done this successfully for hundreds of years. Why would they suddenly start lending to borrowers who could not pay them back? They certainly knew better. So, what is the only thing that could cause an entire industry to commit suicide? If you said "government" you'd be correct. Over time an attitude grew in government that the American Dream is to own a home. Therefore, everyone who wanted to buy a home should be given a mortgage for a home. In order to assure this was possible the government implemented new lending laws that made the standards for borrowing lower. In other words the government restricted the banking industry's ability to underwrite risk. Once banks were no longer free to assess risk based on each prospective borrower's merits but were instead compelled to follow arbitrary standards the effects were inevitable. Yes, we could talk for hours about "complex" issues like liquidity, derivatives, CMO's, GO's, A.R.M.'s, etc. But all of those things and their associated problems are just the inevitable symptoms of the original cause no different than a runny nose is an inevitable symptom of a cold. You can blow your nose to reduce the symptom but the cold has to run its course ending the cause before the running nose will stop.

There has been an extraordinary amount of nose blowing while standing naked in the rain on a cold day during the lead up and continuing well into this disaster but very little appropriate shelter or therapy has been sought to cure the problem!

See, it really isn't complicated at its core.

Friday, May 7, 2010

Employment Report Analysis 5-7-10

Employment Situation Summary
Release Date: Usually the first Friday of each month
Release Site:
Market Relevance: VERY HIGH
Management Value: VERY HIGH

To learn about the official release please follow:

Friday, May 07, 2010

Blue World Employment Situation Analysis
The media reports of a jump in unemployment to 9.9% is a "good sign" are ridiculous. There appears to be no significant improvement in the employment picture and that should be no surprise. There is no catalyst for robust economic growth. With the anticipation of rising deficits, interest rates and taxes employers will remain cautious. The private sector added 231K to payrolls. That should seem good. The problem is that the underemployed and discouraged (quit looking) also continues to rise hence the rise in the total rate. Don't buy into a "conflicting picture" spin. The total unemployed plus under employed rate is now 17.1%. The unemployed rate for workers 25 and older with a bachelor's degree or higher continues to hover at unprecedented rates near 5% (unchanged from last month at 4.9%). In a service based economy that is an ominous sign. Part timers for economic reasons, whether that's slack work or they want full time but can only find part time, continue to rise. That, also, contributes to the 231K payroll additions as 1 person may have multiple part time jobs. The household survey sees that as one employed person but the establishment survey sees multiple new pay checks. For us, the big news is in the number of weeks unemployed category. Those unemployed for less than 5 weeks is up. Those are new losses. Those unemployed for over 27 weeks is up to 45.9% (6.7 million) of the unemployed. That is staggering. There are 3month up trends in hours worked and some pay categories but they are unimpressive and unconvincing. Overtime hours in manufacturing remain well below what we would like to see.

Overall our opinion has not changed regarding the employment picture and health of the economy. We continue to maintain a very cautious investment stance. Blue World will keep the defense on the field for the foreseeable future as we believe reality eventually has to catch up to the markets.

Release Site:

Every effort is made to ensure accuracy of data transcription but accuracy cannot be guaranteed. The official release site should be cross referenced for accuracy and footnoting. The analysis represents the opinion of Blue World Asset Managers, Ltd. who is not giving advice and does not warrant or guarantee predictions based on its analysis.