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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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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Government Legislation is Stiffling Innovation

Larry Kudlow talks about growth from ingenuity, small business, entrpreneurial endeavor, new business opportunity and suggest that may be the solution to the current financial mess. My question is how can small businesses grow with the SEC breathing down their necks this government is so restricitive in its rules and regulations. A good regulatory system would have seen Mozzillo dumping his stock as fast as the market would absorb it, they would have seen Madoff accountant had an office the size of a shed..... yet they choose to focs on attacking the little guy as they are cheaper to beat up and can't defend themselves as well.

Where was the SEC when the rating agencies were selling bonds made up of toilet paper as "AAA" Surely they are the root cause of the current crisis as we trusted them not to be self serving.

It can cost many hundreds of thousands of dollars to raise money making it only accessible to large funds and established groups who have no benefit and no intention of changing status quo. The system needs to be changed if America is to rise to greatness again and the economy is to achieve any kind of recovery

P.S. has anyone notice Obama quietly overturns all his big highly public bills like the salary cap.... didnt see him making a big deal of that repeal....

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Goldman Analyses Its Risk Exposure

Understandig Limitations of Risk Reporting

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Why Americas Future & The Electric Train Are Inherently Linked

The electric train represents a significant factor in the "greening" and self sufficiency of America. With much of the country connected to rail networks freight can be moved with great ease and far more importantly by electric locomotives. Electric trains have all their torque available all of this time, one of the primary advantages of the electric motor, therefore they can pull more cargo per motor. All the necessary rolling stock already exists, much of the track is in place and therefore the only intial cost for freight would be new engines. If the power for these trains is generated by wind farms and solar power plants you will see a rapid reduction in emissions and gasoline usage.

High speed rail links connecting downtown Boston, New York, Philadelphia and Washington at 200-250mph is a very real and exciting prospect... San Francisco, Los Angeles, San Diego and Las Vegas are similarly connectable. Mass transit systems moving the major distances allow true electric cars of limited range to be practical. A car rental and Taxicab company could keep fleet of vehicles that have a 2-300 mile range without difficulty and seeing as little travel would be by freeway. There is significantly more cost involved in creating these high speed lines as existing track is often not of good enough quality or designed for high speed. However France, Japan and many other companies have found their investment in high speed trains an incredible long term investment. However compared to the cost of a plane, gas, maintenance and new runways and terminals it really might not be that expensive. Especially when you consider how much quicker the entire journey time would be on such short distances when compared to flying in the modern era with enhanced security and commute times into major cities from outlying airports.

Significant alternative energy generation facilities and railroads represent large capital projects, employ large workforces and help the current fiscal crisis as they are infrastructure/ capital intensive but very low risk. With gas prices potentially increasing due to drilling and exploration costs as well as increased demand airlines will become increasingly costly to operate. Personal vehicles will again see operating costs rising but the true suffering will again fall on the transport industry that was crippled by the burden of high fuel prices. Transport and trucking companies failed at an incredible pace from 2007-2008. Short haul became the backbone of the industry with companies hauling within state or loadsharing.

Energy independence for the United States is not just based on finding more domestic oil, the sources are finite, it is not based on running multi billion dollar pipelines from Alaska - it is about rethinking the system. The current system is not working, it is broken and it needs to be fixed. Some of the solutions may be quite radical..... but so was the Panama and Suez canals, the cross continental railroad, even the Great Wall of China and other such grand ventures and visions when they were proposed. Yet those projects made nations great, they allowed nations to prosper and they did so by changing the way freight was moved and people interacted and connected.

One major power project that will change the world will be a spiders web of power lines connection Alaska, Siberia, Finland and North Eastern Canada. The distances are great yet the cross sharing of alternatively generated power to countries based upon varying demand due to time of day could solve many of the existing problems. Plus cables travelling in deep cold water will be far more efficient and conductive - plate techtonics should play a more limited impact too.

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The Stock Market and Retirees

Perhaps the group most at risk during the current period of financial markets turmoil are retirees or near-retirees. Unlike younger generations, this generation cannot afford to wait for stocks to rebound in the "long-term".

For retirees, financial ruin means that they outlive their assets. The largest risk of financial ruin for retirees lies in the stock market. If a retiree is forced to liquidate assets during a down stock market cycle, the results could be devastating.

Here is why. Many financial advisors will use an average annual 4% withdrawal rate for retirees from their pool of assets, which is a reasonable assumption. Now using this assumption, let's look at the prior bear market cycle to the current one.

For 17 years, beginning in 1966, the stock market was flat and the economy experienced the highest inflation on record. There are few financial advisors who use this period for their glossy illustrations. Here is why they don't.

According to William Bernstein's 2002 book - "Four Pillars of Investing" - NO asset allocation model avoided bankruptcy when a 4% withdrawal rate is applied to a $1 million portfolio using stock market returns from that time period! Simply stated, if retirees were in the stock market at that time with a large portion of their assets, they were wiped out.

We may perhaps be facing a similar time period and most retirees were ill prepared for the current bear market. Data from the Employee Benefit Research Institute showed that more than 30% of rear-retirees or those in their early retirement years had more than 80% of their money invested in stocks at the beginning of the current crisis.

According to mutual fund firm T. Rowe Price, if a person gets negative returns in the first five years after retirement, the odds of outliving your money over the next 30 years more than double from 26% to 57%. Unfortunately, I'm sure there are many retirees who now fall into that category.

The problem is that both retirees and their financial advisors made a mistake which is very common in all human beings. Human beings have a tendency to extrapolate whatever the current trends are indefinitely into the future. Think California housing bubble.

People expected the good times to continue and for the bull market in stocks to go on and on. Obviously, it did not. Any person approaching their retirement years with a nest egg today should keep in mind the lesson from the last bear market - that any investor liquidating principal in a down market can't rely on the "long-term" to bail them out.

Reproduced from Wall Street Mess - http://www.blogcatalog.com/blog/wall-street-mess

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Dollar Collapse

Now is the time to exit the dollar and buy foreign currency investments, the Euro has issues but is considerably stronger than the dollar. The Yuan will decouple, India, Russia and Brazil all offer investment potential but I still think ultra secure solar power plants in Euro's offer the safest investment outside of treasuries with the benefit of a huge foreign currency trade to the upside.

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True Colors of an Administration

I was wondering how long it would take for the new fresh, clean, sweet smelling feel of the Obama administration to wear and acquire the soiled, cloying smell of self interest similar to the Bush Era.....

Today the Obama administration revoked the salary cap on employees of bail out firms. It was done in a quiet hush hush manner of you don't announce your insolvency and destroy my recovery plan and I will drive inflation through the roof and raise interest rates to destroy any chance of recovery. Thus enabling us to hit the true bottom of the market in October and break all previous lows including the Great Depression. Then you will have no choice but to admit insolvency and hide it under another government bailout of another 2-3 Trillion dollars. I will have done my work and leave the US economy in tatters, the US dollar worthless and no longer the reserve currency (note everyone is know after IMF paper not US treasuries - the only person who sees value in these is Bernanke) ready for a foreign takeover by nations with currencies of value.

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1 in every 64 houses in Nevada receiving Foreclosure notice on this month

“May foreclosure activity was the third-highest month on record, and marked the third straight month where the total number of properties with foreclosure filings exceeded 300,000 — a first in the history of our report,” said James J. Saccacio, chief executive officer of RealtyTrac. “While defaults and scheduled foreclosure auctions were both down from the previous month, bank repossessions, or REOs, were up 2 percent thanks largely to substantial increases in several states, including Michigan, Arizona, Washington, Nevada, Oregon and New York. We expect REO activity to spike in the coming months as foreclosure delays and moratoria implemented by various state laws come to an end.”

National Average - 1:398

Nevada - 1:64

California - 1:144 - 92,249 properties

Florida - 1:148

Arizona - 1:158

Michigan, Georgia, Colorado, Idaho and Ohio round off the top ten accounting for 77% of all combined foreclosure activity nationwide.

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