GDP, M&A, EBITDA, P/E, NASDAQ, Econo-thread Part 12

[TCO]

Originally posted by Saras
GP, I believe the idea is that the Fed should not become a cheerleader for one or another seawater transmutation method. But it did, and it "believed" that particular water transmutation was for real.

And if I may, that's one big GP post .

I don't mind that criticism of the Fed. I thought the Internet stuff was silly. But that's not what Colon's main point is.

He wants the Fed to starve the money supply (even with CPI in control) based on high stock market prices. My point is that the stock market value is just paper wealth. It's the market's collective opinion of future cash flows. It's also rather chaotic. Colon should read the first chapter or two of Brealey and Myers. Let the market bounce around. If he understood the amount of variability NORMAL in stock market prices, he wouldn't be so quick to want to manipulate real economy monetary policy based on stock indices.

[Sten Sture]

I would disagree that the Fed was a cheerleader for the internet bubble because they were pleased with productivity growth. If we agree that the dotcom companies and their ilk were a negligible piece of the economy, then equating an economy wide phenomenon - rising productivity - with the little tiny piece that is/was the internet would be a mistake.

When the Fed was talking about productivity gains, they were talking about just in time inventory management, electronic communication and documentation, financial modeling, production optimization, eliminating middle management paper pushers, etc. Not about a couple of books being sold below cost on Amazon.

Rising productivity and low inflation allowed the Fed to keep rates lower than they would have been.

The investment stampeed toward hypergrowth companies would have been significantly worse if the Fed had tightened. Take a look at the performance difference between the Barra Growth and Barra Value components of the S&P between 95 and 00. Is it any wonder that investors were using Value as a source of funds and buying Growth? Taken to its logical extreme the highest returns would occur at the highest growth rates. Money went to tech because tech had performance momentum. If the Fed had tightened then the old line value companies would have felt the majority of the wrath of the markets while the tech companies continued to outperform since they were perceived to be relatively immune to the economic cycle. That would have led to a disaster many times the magnitude of the current situation.

[TCO]

I completely agree with you, fertility-monster. Investor's make their own decisions. The Roland crowd thinks that the market dances to the Fed drum. But the Roland crowd has never done a DCF calculation and understood how much of a stock's value is in the long term...nor how hazy that long term is...and therefore how volatile price is.

[Ted Striker]

Econo-Babblers,

Glad to see some life in this thread because looking back the only good parts were when Schokoladenkopf took too many steroids and went on a roid rage on Dr. Spike.

I have a subject that I have been dying to discuss with you guys but haven't had the chance until now -- and that is LABOR.

I have been reading recent blurbs about an upcoming labor shortage. The theory is, baby boomers are all hitting retirement age and leaving the labor force, and there aren't enough skilled workers left in the population to take their place. The number I see listed is around 20-30 million. Now, if true, that number is HUGE. My initial thoughts, are, "hey, I'm in prime age and therefore will have extreme job security and will be paid like a king." However, after the intial thoughts, I have two concerns:

1) A labor shortage would basically stall and kill any sort of expansion. I don't even know where to begin to go with immigration issues and their impacts on wage.

2) With the collapse of the retirement accounts, most notably 401K, there isn't much money leftover and this is going to mean retirees leaving the workforce later and some will work for the rest of their lives (although most likely not in the same capacity as their prime years).

3) I have my suspicions regarding the "origin" of this theory and I wonder if it borders on being fradulant, but I will continue this in my next post.

What are your thoughts on this issue? Herr Rechtsberater-Hapsburg, any fancy charts to add to the mix?

[Ted Striker]

How the ITAA defrauded the public

One thing that was left out of the whole corporate scandal discussion, but carries just as much weight, is the scam that the ITAA perpetuated on the public, and that is myth of the shortage of tech workers in the American workforce. Herr Rechtsberater will appreciate this story.

The USA had a shortage of over 500,000 skilled IT workers, they said, and so this meant that the Feds needed to raise temporary worker visa (H1-B) quotas because American citizens and regular green card holders were simply too stupid and need more math and science skills. (Which by the way are absolutley useless in the IT world, where personal attributes determine how well you do. Although the scientific method helps but that's more theory than actual formula math and science).

Some of the ITAA studies and numbers are borderline FRAUDULANT, for example, the claim was made that the number of computer science and related majors had steadily been declining since the 1980s. The reasoning, "these skills were looked at as being 'geeky' by potential college students. "

Professor Matloff at UC Davis debunked this myth in 1998, in his detailed study, actually showing that the number of CS graduates doubled.

http://heather.cs.ucdavis.edu/itaa.real.html

Now, it is true that there was a technology labor crunch, with the combination of Y2K spending and the dot-com bubble, labor was indeed wanted. People with only certificates or minimal experience were being pulled off the streets. However, this crunch was nowhere to the extremes the ITAA claimed. Older workers in their 40s and 50s were especially having a tough time finding work even in the height of the bubble.

HOWEVER, even in the height of the technology meltdown, the ITAA continued to push "studies" that pushed this labor shortage myth. In early 2002, an ITAA
study came out with a study called "Bouncing Back," which continued to show that there was an IT labor shortage, in the midst of heavy layoffs and decreasing salaries. (Two sure signs of a labor shortage). The IEEE even issued a letter to Congress letting them know that they were out to lunch on the situation and that the ITAA was full of it. Guys who were building rockets and satellites were even feeling the crunch.

http://www.itaa.org/news/pr/PressRelease.cfm?ReleaseID=1020695700

So why exaclty would the ITAA continue to push this labor shortage? The answer is simple, they are a lobbying organization backed by companies which either make a profit from IT training, or they are IT companies that stand to benefit by decreasing IT wage.

If IT isn't hot, who in their right mind wants to get a degree at Devry or ITT Tech?

Now let's look at the sponsors of this "labor shortage" study:

American Association of Community Colleges, Brainbench, the Chubb Institute, Cisco Systems, Dice Inc., Intel, ITT Technical Institute, Microsoft, ProsoftTraining and SRA International

Hmmm...some training academies, Microsoft, Intel, and Cisco, three of the largest companies in the IT world. Where exactly is the IEEE or similar group in this study?

From the corporate standpoint, anecdotal generalizations say that H1-B immigrants will often work for far less money and are willing to work an insane amount of hours that American citizens. The theory is that they are too afraid to speak up for themselves for fear of losing their visa.

From my own experience, I haven't seen this personally, I have found the H1-B's to be hard workers, but they aren't being abused, their skills are typically the same or slightly better than the average citizen. However I do see the fear that keeps them employed by the same employer for many years so that they don't lose their temporary visas.

However, companies such as Sun Microsystems have class-action lawsuits filed against them because they were caught hiring temporary foreign workers when domestic citizens with the same skill sets were available.

Also it appears that every company I see will not sponsor an H1-B at this time.

PS, Thanks for the shoutout Navy.

EDIT: I forgot to mention that the ITAA is big lobbying organization, like the NRA of technology. If you go to their website, you will see them list Congressional Bills and the ones they support.

[DanS]

Striker! Striker!

[Ted Striker]

Hi DanS!!!

I noticed there has been alot of payback in the past year against those Al Queda bastards for what they did to your city. Personally I want to be at the controls of the Predator drone and round up every last one of those muthur****ers. Dead or alive.

USA!

[DanS]

Flies on their eyeballs!

[Sten Sture]

Striker, you're coming in too fast! - Rex Kramer


On the Labor demographics thing... there have been some guys talking about it for a while that think it is the end of the world. Hawkinson? at DLJ/CIBC (not sure if he is still there) has been a big demo guy. Their arguements usually require the economy to stay in steady state for their to be real problems, but we all know that the economy is dynamic. If a bunch of old farts retire, then we should probably build more golf courses and ranch homes. Also the retired can be great for the economy because they take their economically stagnant savings and piss it away on good things like sweat suits, leisure travel, and bingo parlors.

[Ted Striker]

Thanks Sten, it's great to hear about it from a pro with a real industry perspective and not just from some a writer spouting a sensationalist number to get a knee-jerk soundbite reaction.

That labor theory seemed to be too one-dimensional, I figured there were more factors involved.

So what's the inside track on Bingo Parlor Funds!??!

Congrats on the new lad, by the way!!!

[Saras]

May I just start my new year at poly by saying how much I appreciate these threads.

Dhrek, been a while.

Oh, and - USA!

[DanS]

D2K: Re the labor demographics, I wouldn't worry about it. Way overblown in the US.

According to Census' WAGs, over the next 50 years, the US median age is expected to increase a little less than 4 years to 39.1 years old.

By comparison, and using the "next guy is three times as fvcked as us" theorem, Austria's is expected to increase a little over 11 years to 49.4 years.

Happy New Year!

[Ted Striker]

Nice to see you Saras.

Regarding immigration, please send more of your hot Lithuanian females to the USA.

[Ted Striker]

Originally posted by DanS
D2K: Re the labor demographics, I wouldn't worry about it. Way overblown in the US.

According to Census' WAGs, over the next 50 years, the US median age is expected to increase a little less than 4 years to 39.1 years old.

By comparison, and using the "next guy is three times as fvcked as us" theorem, Austria's is expected to increase a little over 11 years to 49.4 years.

Happy New Year!

Well that's good news. So do you know where this whole, "the population is top heavy with older workers and there will be a shortage," theory originated?

[DanS]

Don't know, but I guess they must have been basing it all on 1990 census numbers. Even using the new numbers, we'll have to make some adjustments.

Of course, this doesn't take into account longevity medicine, which I'm convinced will add about 40 years to our lives, to be introduced shortly.