Tuesday, March 26, 2013

How US companies need to reward staff

Companies in the US and globally need to revisit compensation schemes and bonus programs to make them work how they were originally intended. Short term thinking and immediacy of rewards have created a workforce that is more self centric than at any other time in history. Jobs for life are a thing of the past, this trend has created a very scary and undesirable outcome for the employers  long term value and goals.

As shareholders care more about this quarters figures and financials instead of long term growth we see a complex knock on of effects that we will now examine.

Corporations seek non organic growth through acquisitions. This requires long term integration of systems to make the company function as a whole and cohesively in the long term.

Many companies haven't been able to do this. Boards and Executives don't receive proper reporting as systems and don't know the true financial health of their company. This doesn't allow them to make good long term decisions.

Short term payment and reward schemes are so high that Staff from Senior Executives on down are looking at a short term window of time, they will not be with the company in 4-5 years so a decision now that adds to the bottom line now gets them what they need and they really don't care about the long term effects and ramifications on the company.

This needs to change, in companies employees used to receive share options that vested in 5-10 years. This meant they cared about the long term impact of their decisions on the company otherwise they would not reap the rewards.

People now jump from company to company rising through the ranks in a more lateral than standard vertical route. Instead of learning a job, the companies philosophy and growing within a company people move company which results in continually fluctuating philosophies and goals. The only goal that can come to the fore is short term-ism and immediate profitability

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Survival in the Great Depression

Survival is not something that most Americans are accustomed too. I do not believe the government published figures with regards to growth and unemployment, I believe we have been in a depression and that the US economy has truly shrunk every quarter since 2008 and this will only continue to get worse. I also believe the true underlying rate of unemployment is around 25% because of the manipulation of data. Fiscal easing has been a disaster for the US and a far greater correction will be the inevitable outcome.

Prosperous times and excess are more the norm, so how does one prepare for the almost impossible to comprehend price hikes in basic necessities such as food, energy and gas. These realities will start to hit home soon as a variety of factors hit simultaneously, by examining the varies causes we can make more educated decisions about how to invest, where to live etc:

1) Rising global temperatures due to the face that the earths orbit is an ellipse is guaranteed and there is nothing we can do about it. Expect the southern desert belt of America to expand north and the tundra bands to become the breadbaskets of North America. Expect to see food prices rise and land values in many regions drop.

2) Diminished water supplies from overuse of aquifers that have taken thousands of years to develop will result in water wars and massive shortages. Desert cities such as Phoenix will lose viability and shrink dramatically. Expect to pay more for water and see land values in many regions drop.

3) US dollar no longer the world reserve currency, expect the price of every thing imported to rise. This will create opportunities for those that can produce necessities locally that have previously come from China etc. Very affordable products will disappear as US starts to develop its own manufacturing base again with inflated costs and more expensive labor.

4) Loss of Mexican immigrant workforce as the US dollar ceases to create the value proposition for people to move north. Even though you have a hungry workforce in the US many of these jobs will not be replaced because of a loss of employers.

5) Canada will grow stronger and wealthier as a nation and as US dependence on Canada increases.

6) Global corporations no longer based in the USA and therefore joblessness increases. This will result in significantly more foreclosures and home values will drop 40% + removing equity, retirement opportunities etc.

7) Rents will rise as more people chose to rent rather than own.

8) US schooling and education becomes even worse resulting in long term damage and impact on the countries ability to reinvent itself.

9) Expect to US taxes increase, US corporations move overseas to avoid tax hikes and with the US no longer being their strongest market, divest US assets significantly hitting Commercial rental income and value.

What can you do to protect yourself"

1) Sell your property in the USA and rent until home prices fall and you have a far cheaper buying opportunity

2) Buy UDN ETF and other currency baskets that counter the drop of the US dollar.

3) Buy gold, it is a bubble but it is still one of the best long term defenses to inflationary pressures.

4) Create income streams from overseas, India, China and Russia will continue to grow. There currency will also become stronger so you will establish double benefits.

5) Reduce energy consumption with green technologies for homes. Solar and Wind power will reduce dependence on Electricity which will skyrocket in costs.

6) Eliminate all credit card debt, car loans, home loans that are not long term very low interest rates.

7) Reduce dependency on banks as much as possible, they may have been to big to fail in 2008 but that isn't actually true and allowing more to fall then would have corrected the market properly. When it happens next time round which wont be long do not expect to see anyone able to bail out banks. While the people who write debt and the people who service debt are not the same bad deals will be done because employees care about short term profits and end of year bonuses.

8) Expect to see property taxes rise dramatically.

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Monday, March 18, 2013

Major Market Changes

Well as you will see I haven't had much to write about for a while, the same mistakes have been repeated and the inevitable outcomes have been reached. However once again we are about to see a significant market/ economic event that merits discussion.

Towards the end of 2013 early 2014 (certainly prior to 2016 no matter what choices the government makes) the US government will no longer collect enough tax revenue to meet its interest payments. (They may artificially continue to print money built this will devalue everything and make matters worse) In other words it will be in the same financial position as Greece. (This could be fixed instantly by removing all double taxation treaties and making any company who makes money/ sales in the US pay taxes on all monies in the US without repatriating profits overseas in the guise of management fees etc)

China and other major US dollar bond purchasers are not interested in assuming US government debt, it is no longer a good investment. Aside from US potential default there is also the added factor of reduced US dollar value. As they US dollars falls in value and the government backing it is not trusted by global communities it should be expected that the US dollar is no longer the world reserve currency.

With these factors coming together expect to see increases in inflation that the Federal Reserve cannot stop and will actually be unable to control. It will not be able to print worthless money to keep the stock market rising. Fiscal easing will have proven as disastrous for America as it proved for Japan... Why could our economists not look at historic solutions that have failed and not make the same mistakes. I am sure they tell themselves it was all different here, but it wasn't.

Regan took strong measures in the early 80's that were successful in the long term. We need to start vesting and looking at the long term picture instead of short term games.

If companies gave employees stock options with 5 year vesting periods as they used to people would be tied and loyal to the company. They wouldn't look at short term bad decisions that can give them a great end of year bonus and then move to a new company before the long term ramifications are felt.

This fear can be seen among Americas smartest investors. Buffet, Soros etc are all shorting the dollar, using the UDN bundle to hedge against the Dollar and divesting themselves of all US consumer revenue driven companies such as Johnson and Johnson.

The time has come to sell up and move on. Renting a property, gold mining stocks, Brazilian and other emerging country government bonds (especially those without significant sales to US), Indian based companies.

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