o Outsourcing White Collar Jobs

Blue collar manufacturing and factory jobs have been leaving the US for cheaper sources of labor. Those are hard jobs to take because of the factories and plants needed to be built abroad. White collar jobs are easier to outsource because the only requirements are a computer, a desk, and an education.

• Legal outsourcing service in India
• http://www.pangea3.com

Good bye $200 per hour lawyers.

o Short Selling and The "Uptick" Rule

Short sellers have been blamed for accelerating the declining equity market. People that short a stock sell a security they do not own. The "uptick rule" regulates short selling of equities. Short sellers can only initiate a short position at a price higher than the price of the previous trade. The SEC abolished the "uptick" rule in July 2007.

• SEC Bans the "Uptick" Rule:
• http://www.sec.gov/rules/final/2007/34-55970.pdf

Some interesting contradictions:
1) The SEC temporarily banned short-selling on 799 financial firms on September 19, 2008. So make short selling easier, and then ban it altogether a year later? That's not a very cohesive strategy.
2) Brokerage firms allow short sellers to borrow shares from an existing client account. That person is long the shares, hoping the share price rises. The short seller then sells the shares, hoping that the price of the stock goes down. What an interesting moral predicament for the stock broker? Or not. Just charge a commission on both side of the transaction and forget about it.

Here is a hypothetical question, would any board of directors of an publicly traded company want short selling to be allowed? Would any long term investor want short selling? The answers are "no" and "no." The only companies that benefit from short selling are broker dealers such as ML, Morgan Stanley, Citi, Goldman, JPM, etc. These financial institutions are being punished by the very system they helped to create. Brilliant!

o Chrystler, Ford, and GM Seek Bailout

The heads of the "Big 3" automakers were in Washington DC asking for a bailout for their respective companies. One of the sound bytes that made it into the news was that the CEO's flew on private jets from Detroit to Washington DC. Let's do some analysis on this red herring.

The 2007 total compensation (salary plus bonus plus stock options) for the company heads were the following:

• Ford CEO Alan Mulally: $22.7 million
• GM CEO Rick Wagoner: $15.7 million
• Chrysler CEO Robert Nardelli (ex-Home Depot CEO) : Privately owned by equity firm Cerberus Capital. Information is confidential.

Assume that the round trip private jet flight costs $20,000. In terms of per hour saved relative to per hour executive pay, flying a private jet its not that horrible. Consider the daily cost of what these companies are bleeding. The private jet cost is peanuts in the larger picture.

I do not care how the "Big 3" CEO's got to Washington DC; I am concerned with why they are there in the first place. The answers are astonishingly simple yet all politicians seem to lack the blunt honesty needed during these times.

1) The product is inferior to foreign manufacturers for all models barring the pick up truck.

2) The United Auto Workers union has priced their labor costs out of the global market. Actually, minimum wage is not a competitive price in the global market.

3) Executive bonuses are not tied to performance.

4) The lack of government mandate for higher fuel efficiency standards have left SUVs and other models obsolete.

Here is an idea, instead of the government bailing out the auto industry, how about asking oil companies for a loan?

o AIG Gets a $152 Billion Government Bailout

What I don't understand is that the total Market Capitalization of AIG is $6.13 Billion assuming a $2.28 price per share on the day of the bailout announcement. Why doesn't the government own the entire company outright? And as a shareholder, can the government be sued when the collapse of AIG actually occurs?

o G-20 Meeting

The G-20 met in Brazil November 8th and 9th. One result of the meeting is that China pledged a stimulus package to support the global economy. The world economies are so intertwined that what started as a domestic downturn has become a global meltdown.

• G-20 Website, click on links to see member countries
• http://www.g20.org/G20/

o Self Reliance in the Time of Globalization

Globalization has lead to citizens having little to no control over very important factors in their lives. Take a look around, does anything you own or rely on come from a local source? Most likely you are:

• Detached from your food supply (Agro-business, Mexico)
• Detached from your oil supply (Venezuela, Russia, Middle East)
• Detached from your electricity supply (Power plants)
  
• Detached from your electronics (Japan)
  
• Detached from your clothing supply (China)
• Detached from your money supply (Federal Reserve)
• Detached from your mortgage (Wall Street)
• Detached from reality (US Weekly and Desperate Housewives)

We the American people have become consumption vessels relying on the "kindness" of strangers to provide us with our daily needs. I would rather rely on my self. Its time to think and act locally, from producing your own electricity to growing some basic crops to taking out mortgages from local banks.

o Unemployment Rate Hits 14-Year High

People are losing their jobs and there is not much to fall back on. Let's hope the job destruction does not lead to civil unrest.

o Restructuring of the Global Financial System

The weakness of the US dollar and the role of the United States in the global economy were topics at the Asia-Europe Meeting on Oct 24th and 25th. America’s economic hegemony is at risk since the world lost has confidence in its ability to right the financial crisis.

• Oct 25th, 2008: Welcome Ceremony of Asia-Europe Meeting (ASEM) in Beijing
  
• http://www.youtube.com/watch?v=e1QI486fPQY
• Reuters
• http://www.reuters.com/article/GCA-CreditCrisis/idUSTRE49N1XX20081024
  

Its interesting to note that the financial crisis is shifting alliances on a global scale. Russia, Venezuela, Iran and the Saudi's are strongly protecting oil prices through OPEC. The EU is looking towards China as the center piece of a new international financial system because of its huge cash reserves. Crazies!

o 29 States Face Budget Deficit

Several states are facing a budget gap for the coming year. Less state government spending will lead to contracting of state economies as a result. Let the ripple effect begin:

• Center on Budget and Policy Priorities
• http://www.cbpp.org/1-15-08sfp.htm
  

o Fed Fund Rates Cut to 1.0%

The Federal Open Market Committee lowered rates a half point to 1.0% on October 29th, 2008.

The federal funds rate is the interest rate at which a bank lends money to another bank overnight. Interbank loans are a way for banks to quickly raise capital by borrowing from other banks within the Federal Reserve System. Lowering rates is a way to bolster liquidity in the financial system by making borrowing cheaper.

What does a Fed rate cut mean to you?

• People that save cash in a bank savings account, money-market accounts, or purchase a bank certificates of deposits will receive a lower interest income. Bank CDs and money market rates are not tied to the federal fund rates but generally move together.
• Home mortgage rates, auto loan rates, and variable credit card rates could potentially drop.
• The stock market may rise. Monetary policy has some influence on equity prices. However, long term stock prices depend on the future outlook of the economy, not a fed rate cut. The wealth effect of stock prices rising may raise consumption levels.

Bernanke explains in a speech given October 9, 2003:
"We find that unanticipated changes in monetary policy affect stock prices not so much by influencing expected dividends or the risk-free real interest rate, but rather by affecting the perceived riskiness of stocks. A tightening of monetary policy, for example, leads investors to view stocks as riskier investments and thus to demand a higher return to hold stocks. For a given path of expected dividends, a higher expected return can be achieved only by a fall in the current stock price."

In summary, the fed rate cut can be viewed as a last ditch effort to discourage savings, increase consumption, give banks a break when borrowing, and bolster the stock market. Where are we going from here, a 0.00% fed funds rate? Isn't it ironic (don't ya think), after the tech bubble burst, the low fed rate encouraged the conspicuous consumption that has contributed to this mess. So now a zero rate is seen as a panacea for what ails the economy.

The collapse of the financial bubble will defy all attempts to end it. The private sector must at first dig itself out of the debt burden. Long term growth cannot be sustained with consumption financed by debt.