Category: employment

The Beginning of Executive Accountability?

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It’s nice that shareholder activists are foing after undeserved executive compensation:

Almost one in five HSBC shareholders refused yesterday to back a controversial executive pay scheme that could see the bank’s top six executives pocket up to £120m over three years.

Shareholder after shareholder at a lengthy and at times fractious meeting in London brought up the subject of the huge bonuses that could be paid at HSBC despite the drop in the bank’s share price and a multibillion-dollar write-down from the US sub-prime mortgage crisis.

“You have been paid a salary; your bonus is not for losing money, which you have consistently done,” one shareholder told the chairman, Stephen Green. “You and the rest of the board have caused misery to millions of people and yet you are there with your hands out taking everything you can … how much is enough?”

I would hope that this becomes more common, and more effective (the activists got 18% of the vote).

This is crony capitalism at its worst.

Economics Update

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The economy grew more than previously estimated in Q1 of 2008, at an 0.9% annual rate adjusted for CPI, as opposed to the previously reported 0.6%. Note that this still a contraction, as inflation, even the official bogus CPI understates true inflation by well over 1%.

Not surprisingly, treasuries fell, as the revised numbers show more potential for inflation.

New jobless claims rose +4000 to 372,000, just above the estimate of 370,000, which, to me at least, reinforces my thoughts on the trajectory of the economy.

Crude oil prices fell to $126.62/bbl, but retail gasoline hit another record. That’s 22 straight days.

The FDIC issues a very grim report on banks, with bank profits falling by more than 50% and “problem” banks on the rise.

This is, of course, largely tied into the real estate bubble, which appears to be popping in Britain (yet again), with prices falling 2.5% over the last month, and 4.7% year over year.

In the US, I think that those people expecting a turn around will be disappointed, as 30 year fixed mortgage just topped 6%, with indications of more to come, particularly since selling the loans will become harder, as S&P just lowered the ratings on 1,326 Alt-A residential mortgage back securities (RMBS).

Economics Update

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Obviously the economic news of the day, hell the news of the day period, was oil surging to above $135/bbl, though they settled about $4 lower.

Retail gasoline hit a new record, the 15th straight, $3.831/gallon.

Dollar has taken a hit too, which is common when oil surges.

In employment news, US initial jobless claims fell, though the number of people collecting benefits remains at a 4 year high, so it appears that the unemployed are not finding new jobs.

In real estate, the OFHEO reports that house prices fell 1.7% in Q1 of 2008, (PDF) the sharpest decline in since records began to be kept in 1991.

Economics Update

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I guess for those of us in the US, the big 3 are employment, energy prices, and real estate. So, going in that order, we have:
nitial jobless claims rising to 371,000 last week, though as I always state, this is a noisy number, and you need a few weeks, or better yet months to extract real meaning, but, quoting the article, “The trend in claims is still upwards and we expect new highs over the next few months.”

Matt Trivisonno has the withholding tax numbers, you know the social security taxes that employers take out of wages below about $104K, and they are way down too.

Here are the pretty pictures:


Trending Down on a daily basis


And on a quarterly basis


And on a yearly basis.

As to why these numbers fell? Because no one is making anything in the US in April. Industrial production fell -0.7% in the US. The consensus estimate was -0.3% down, and March output was ajusted to +0.2%, down from +0.3%. Not good.

In energy, Crude fell below $122/bbl, which is good, but Gas hit a new record, $3.776 a gallon, the 8th record in 8 days.

In real estate, we have the inevitable article calling the light at the end of the tunnel, when it is more likely an oncoming train, in Orlando, Florids, one of the worst hit areas. Inventory fell slightly, and sales are up a bit (0.2%), and the rate of decline of existing home sales is a bit better.

Me, I’ll go with National Association of Home Builders/Wells Fargo monthly index, which fell again. The home builders are in the business.

I would also note that even with the Fed rate cuts, mortgage rates fall seem to be pretty stubborn about staying above the 6.0% line, so there won’t be any help for the market there.

Europe, on the other hand, appears to be doing fairly well, with GDP increasing 0.7% across the Euro Zone in the first quarter, led by a sizzling, for the developed world anyway, 1.5% increase for Germany.

This makes it far less likely that the ECB will cut rates. Actually it makes it more likely that the ECB will raise rates, and as a result, the US dollar is down today.

All things considered, I’d rather be in Philadelphia

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Well, not me, but my daughter and wife.

They will be seeing the normal Philly sites, IIRC.

Natalie has a field trip to Philadelphia today, and since that meant that they had to be to school early, I was at work late, because I had to wait for Charlie’s bus to pick him up and take him to Chatsworth.

One of the benefits of his new school is that his bus trip is much shorter, so he gets almost an extra hour of sleep in the morning. If he were still going to Forbush, the bus would have picked him up at about 7:45, not 8:35.

Good News: H-1b Changes Appear Dead for 2008

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The H1b program as it is now structured is a bad program, because it is used primarily to get low cost work, as opposed to its stated purpose, which is to allow the employment of people with unique skill sets.*

In any case, the Democrats have decided that an increase in the H1b limit, because the Dems have tied this to comprehensive immigration reform, and the Republicans can’t go along with that, because their base is a bunch of racists.

*The fix is actually pretty simple: Make the fees high enough that any H1B hired would be more expensive than a citizen or permanent resident. At that point, the fraud stops. You could auction off slots to set a price.

Economics Update

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Tanta of Calculated risk notes that continuing unemployment claims are now above 3 million. Note that, unlike the weekly new claim figures, this one tends to show trends much better.

You may recall that recently the weekly data is showing a decline, the fact that the numbers are still rising means that people are spending more time on unemployment.

Because of inflation concerns, both the Bank of England and ECB leave rates steady have decided not to follow the Fed’s example and cut rates. Which has left the ECB rate at a 6 year high.

Normally, this would suggest a weaker dollar, but the dollar is doing pretty well against the Euro. No clue as to what is going on here.

Finally, another day, another record high in oil, $123.53/bbl at closing.

Economics Update

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Gee, Alan “bubbles” Greenspan is now saying that we are having an, “awfully pale recession.” Well, I guess he can still afford to eat at the Four Seasons, so it’s someone else’s problem…Neh?

Actually, I’m surprised that he did not use the unexpected growth in the service sector, with the ISM numbers rising to 52 from 49.6 (50 indicates growth).

His goal has always been more to prevent government intervention than giving an accurate assessment anyway, because he believes that preventing government action is the only thing that he can do of value.

Of course, the fact that oil busted the $120 barrier, hitting $120.21/bbl doesn’t bode well for the economy anyway.

Oil is up on supply fears from potential attacks in Nigeria and Kurdistan, along with the dollar weakening because of the Fed rate cuts.

Interest rates in the private sector, however, appear to be on the way up, with 30-year mortgages rates rising despite the Fed rate cuts. Additionally, the Fed is reporting that banks are tightening up on their lending at a historically high rate.

The fact that consumer bankruptcies are up almost 48% year over year in April might have something to do with this, or perhaps the other way around. It’s a chicken egg thing to me.

However, the fact that S&P has decided to stop rating bonds backed up by second mortgages seems to indicate that this still has a way to go on the way down.

The fact that companies cannot refi right now may very well take down ResCap, the 8th largest mortgage lender wing of GMAC:

ResCap, the eighth-largest U.S. residential lender in 2007, today began offering as little as 80 cents on the dollar to exchange or buy back $14 billion of bonds to extend maturities and stave off bankruptcy. To finance the debt restructuring, ResCap is seeking a new $3.5 billion credit line from its parent GMAC, which is owned by General Motors Corp. and an investor group led by Cerberus Capital Management LP.

“There is a significant risk that we will not be able to meet our debt service obligations, be unable to meet certain financial covenants in our credit facilities, and be in a negative liquidity position in June 2008,” Minneapolis-based ResCap said in a filing to the Securities and Exchange Commission today.

With all this going on, it’s not surprising that UBS is looking at cutting 8000 jobs.

Bank of England Governor Blasts Pay and Benefits in Financial Industry

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We’ve been hearing more and more about how the bonuses for short term profits encouraged leverage and risky investments, and now BOE governor Mervyn King has joined the fray:

Mervyn King yesterday laid the blame for the credit crunch squarely at the door of commercial banks, criticising their excessive pay packages and risky lending.

The Bank of England governor also told the Treasury select committee he was unhappy that excessive pay in the City attracted too many young people away from careers elsewhere.

Speaking as data emerged showing that the credit crunch had hit retail sales, consumer confidence and mortgage lending hard, King said he hoped the banks would learn the lessons from the crisis and rein in their pay structures and be more responsible in their lending.

“Banks have come to realise in the recent crisis that they are paying the price for having designed compensation packages which provide incentives that are not, in the long run, in the interests of the banks themselves, and I would like to think that would change,” King said.

Of course, Alan “Bubbles” Greenspan would argue that the pay schemes were innovation, and a good thing.

I am so glad to see him alive to see his reputation melt away like that of the wicked witch of the west in the Wizard of Oz.

Economics Update

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Well, we just got a jobs report that shows just how screwed up our statistics have gotten, with non farm jobs falling by 20,000 but the unemployment rate went down, which just does not work.

Additionally, the so called birgh death corrections are completely bogus:
+45k construction jobs v 37k April 2007
+8k jobs were added in financial activities versus 1k last April.
+72k in professional/business services versus 48k last April.
+83k in leisure/hospitality (95k last April).

The idea that construction and financial added 53,000 jobs in April comes from somewhere west of the planet Skaro.

The financial press is uncritically applauding, of course.

In energy, oil is upto over $116 for the first time in a few days, but gasoline is down, not hitting a new record for the first time in 17 days.

Meanwhile, the Fed and other central banks are pouring yet more money into the frozen financial system. The Fed is allowing more types of bonds in its trash for cash auctions, but it does not appear to help. The LIBOR, from which much of the adjustable rate loan rates are derived has been largely unmoved.

It’s pushing on a string, as I’ve said before, because it’s a solvency crisis, not a liquidity crisis, as I’ve also said before.

The is still strengthening a bit, but I’m a bear long term, but I’m a bear on everything.

In more pushing on a string news, the US treasury is offering 0% on its inflation protected savings bonds.

A small distinction, mypost of 4 March had was about TIPS, not inflation protected savings bonds, just in case you are wondering if I’m repeating stuff.

Finally, in real estate, 63% of home sales in San Diego are short sales and REOs, which means that either the owner has sold for less than they owe, or it’s been foreclosed on.

Economics Update

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First, initial unemployment insurance claims increase, ba by 35K to 380K. Note that this is an inherently noisy figure, but it’s been bad for over a month, which indicates a trend.

Becasue of the Fed’s signals regarding future rate cuts, as na ga na do it, the dollar has strengthened, and oil has fallen a bit.

That being said, the Euro zone appears to be under increasing stress from the different economic trajectories of its members.

Citi appears to need more money, so it’s raising it through a $4½ billion stock offering, further diluting its stock holders equity.

Seriously, it’s like a dog chasing its own tail…down the drain.

We have a number out of San Diego, with house prices off dropping 19.2% since February 2007.

This means that if someone bought a 30 year fixed mortgage, with 20% down, that they would be under water on the loan if closing and broker costs are included.

Economics Update

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Unemployment claims fell again, note my standard caveat about noisy measures though.

Note also that new-home sales are unbelievably grim. An 8.5% drop month to month is falling off a cliff, but this is following the numbers being revised downward for the month of February.

If that doesn’t scare you, there is a Credit Suisse research report that suggests that there will be 6.5 million foreclosures by 2012:

The foreclosures could put 12.7 percent of all residential borrowers out of their homes, Credit Suisse analysts, led by Rod Dubitsky, said in the report. That compares with a foreclosure rate of 2.04 percent in the last quarter of 2007, they said, citing Mortgage Bankers Association data.

That is one out of 8 residential borrowers.

That’s too bearish for even me, and I’m the biggest bear out there.

In terms of non-residential real estate measures, we have the Architecture Billings Index (ABI) dropping to its lowest level ever, suggesting that commercial real estate’s about to tank too, and orders for durable goods, items expected to last 3 or more years, fell 0.3% from February, worse than expected.

The drop in unemployment claims triggered a drop in treasuries and a strengthening of the dollar, because it makes it less likely that the Fed will cut rates at its next meeting.

Truth be told, the Fed cutting rates won’t do much anyway, as is shown by mortgage rates continued upward path.

The Fed has lowered rates below the effective inflation rate, and so their rates have decoupled from the commercial rates.

Economics Update

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Current position of Dollar with Regard to Euro

The rebels in Nigeria’s delta region just bombed an oil pipeline, and in response, oil hit $117/bbl before settling at $116.69.

In addtion to lower levels of employment, hours worked by those still employed are also down, so there are fewer people doing less work to produce goods and services.

Both Citi and AT&T are announcing big layoffs because of losses (Citi), and “increased competitive pressure (AT&T).

It’s a recession already.

The Fed just auctioned off about $25 billion for non-magic beans, as a part of its ongoing Wall St. bailout.

Yesterdya, I talked about new home sales falling, today, it’s existing home sales falling 13%, but north of the Border in Canada, which has generally had a better regulated loan market.

Finally, a picture, courtesy of Paul Krugman showing the increase in the LIBOR-OIS spread since this all started:


The second image is actually a bit scarier, because it shows a longer time frame, and it shows that the spread is completely outside of historical norms.

Economics Update

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Clickable Image

In terms of economic indicators, we have 4 today, one up, and three down.

FWIW, the Jobless claims are noisy, but overall the numbers are trending up, and the LEI typically does not mean anything until you get three in a row.

The Dollar hit a new low vs. the Euro, $1.5982:€.

As an aside, I spend a fair amount of time on currency, because I believe that it will be the final nail in the proverbial coffin, much like it was in the Asian and Argentine financial crises.

In banking, investment and otherwise, we have
Merrilly Lynch announcing a $6.5 billion write down and massive layoffs.

Across the pond, we have the Bank of England announcing that it had three times as many bids for its cash auction as it was offering, implying that credit is still pretty frozen, and the prospect of massive bank failures in Germany as a result of the subprime crisis, which truth be told extends well into the prime mortgages too.

Finally, in another sign of the apocalypse, my predictions regarding the countrywide sale, that Bank of America was throwing good money after bad, appear to be coming true, as , “Continued credit deterioration at Countrywide Financial Corp. could raise concern among investors about the final sale price of the mortgage lender to Bank of America Corp., a Lehman Brothers analyst said Thursday.”

Hot Jobs

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As I’ve mentioned before, I’m involved in working in nuclear power, specifically the cleanup/decommissioning side (Yes, I am Homer Simpson).

Well, I’m on a new project now, and it’s a hot one.

Normally, when I’m on a hot project, it means time constrained. In this case, it also means that we are talking higher levels of radiation in the material to be processed. (My earlier project was intermediate level)

It’s hot in the normal way too. The firm, or at least my division, is doing quite nicely, so we are time challenged on most things, and ramping up resources to meet the business needs.

Econ 101: Pay Cuts for Pilots Reduces Supply

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The New York Times, reporting on new dynamics in airline piloting as a career, lower wages and higher costs to enter the field, notes that there are now shortages of pilots.

When you can reasonably be expected to leave flight school with upwards of $100,000 in debt, and where starting salaries can be as low as $21,000 a year, and where senior level salaries have been cut by as much as 1/3, is it any wonder that the pool of entrants is shrinking?

It does not help that once you join an airline, you are pretty much a slave, since a move entails throwing out all of one’s seniority.

Safety is suffering too, with flight hours required for an interview falling.

Bogus Job Creation Data?

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I would be stunned if the Bush Administration would take a nonpartisan collection of data, and massage it for political advantage. What if they did it on Global Warming Data ANWR Drilling Stem Cell Research Morning After Contraceptives Safe Sex Preventing AIDS Lead Paint Mercury Iraq

Well, it now appears that Bush and His Evil Minions™ are overstating job growth in the US, see Dean Baker and Barry Ritholtz.

Basically, it comes down to the fact that the BLS cannot get questionnaires regarding employment to all the businesses out there. A number of businesses, particularly newer and smaller ones, slip through the cracks.

It’s called birth-death adjustment, and in 2007, it guesstimated about 300,000 more jobs than were actually created.

Dean Baker notes that the BLS is showing that the restaurant sector is shown to have added 48,000 jobs in January and February, but restaurant spending is shown to have decreased by about 0.6% over the same period.

Barry Ritholtz notes that the B/D adjustment accounted for 80% of all new jobs in 2007, and he has a nice picture of 2008 adjustments:

Given Baker’s data on restaurants, I would circle hospitality too, but the idea that construction and financial services are surging is just loopy.