LLPOH Short Story: Why Manufacturing is Going to China

Recently, I read an article written by Joe Biden (I cannot explain why I would ever have done that, except the title was something to the effect that “China is not a threat to US manufacturing”). Additionally, I regularly see TBP members calling out CEOs of corporations for destroying American jobs by sending product (and, more and more, services) overseas. Biden implies that we can overcome difficulties simply by working smarter and getting smarter. Additionally, some TBP members believe, apparently, that the CEOs are simply evil and are eliminating jobs out of spite. In combination, these two things have prompted the following article.

I believe that Biden, and many Americans, simply do not understand the cost differential (not to mention the regulatory differential and costs thereof) between running a manufacturing company in the US versus running a similar company in China. Following are the comparative costs of employing a manufacturing employee in the US versus employing one in China.

I do not wish to make this too technically complex. I have made a lot of assumptions herein, but in general terms the figures are accurate. Some of the assumptions relative to a manufacturing employee in the US are as follows:

– Average salary of $20 per hour
– Family health insurance of $12,000 per year
– Pension of 5% of total pay
– Worker’s compensation and payroll tax of 7.5% each
– Minor other miscellaneous costs of approx.
– Indirect labor costs (ie. managers/engineers/planners/QA/etc.) calculated at $75,000 per year plus above costs, and at a ratio of 4:1
– Vacation of 3 weeks/year, 10 national holidays, 8 days sick leave
–
When you blow through all the USA numbers, you get a cost per hour of employing a manufacturing worker of $47.91. But this number is at 100% efficiency – and allows for no coffee breaks, going to the toilet, chatting with co-workers, coming back late from lunch, etc. When these items are factored in, the cost per one hour of actual work is approx. $59.89 per hour. Major corporations have costs far exceeding these.

Is anyone out there surprised? And please remember these costs do not include profit, materials, indirect expenses like rent/property tax/electricity/ etc. Some indirect compliance costs are included (ie. the costs of EPA compliance, etc. are largely captured in overhead personnel.).

Following are the costs associated with employing a Chinese manufacturing worker. Assumptions are as follows:

– Monthly wage of $600 per month (this is highly variable subject to location, etc. but seems to be a reasonable number) inclusive of overtime
– On-costs (pension is the largest percentage at approx.. 20%), et al of 40%
– Cost of indirect workers at $15,000 per year plus 40% on costs
– 2 weeks of vacation and 10 annual holidays per year (widely variable but considered the norm)
– Direct to indirect of 4:1. This assumption is overstated, as there is far less regulation to attend to (EPA, etc.), and thus should really be reduced, but I have left it the same for comparison purposes.

When these assumptions are entered, the standard rate for a manufacturing employee in China is $6.54 per hour, and $7.70 when allowing for inefficiency estimates.
So we get a per hour DIFFERENTIAL between the cost of labor in the US versus China of $41.37 gross and $52.19 net. Stunning, isn’t it? Generally, when I am asked to quote on a part, I consider the likelihood of the part being eventually offshored to China. For simplicity, I simply assume the labor component of the Chinese made part to be zero, so insignificant is it to the process of making a comparison.

Further, there are huge differentials in cost of rents, cost of purchased materials (sourcing materials locally in China is obviously cheaper than sourcing materials locally in the US), etc. Plus there are often incentives granted by the Chinese government, and company tax is lower in China.

So let’s take a look at what this means to a manufacturer. Let us assume we have two manufacturing plants, one in the US and one in China, each having 100 direct manufacturing employees. The labor cost differential between the two is approx. $9.2 million per year. That is $9.2 MILLION PER YEAR! Plus all other cost differentials. I estimate the total cost differential would be approximately $15 to $20 million when all other cost differentials are included. Again, I ask, is anyone astonished?

Stuck, in a recent post, made comment about a $15 dollar Chinese made toaster. Let us look at that particular case. I am not a toaster manufacturer, but I can make some estimates that should be close.
First, the retailer probably has a $5 mark-up on this item (50%). That leaves $10. I have calculated shipping costs to be approximately $2 per toaster, leaving $8 dollars. Of this, let us say $1 is profit (10%), leaving $7. Assuming a material rate 70% for this item (the most expensive item will almost certainly be the carton!), that leaves a labor cost of $2. Going back to our cost per hour of $6.54, we can calculate the toaster is assembled/handled in 18 minutes. That seems reasonable, perhaps even overstated, to me, in my experience.

So what would the toaster cost to make in the US? Eighteen minutes of labor would cost $14.50. Materials would be more expensive, so let us say $7 in materials. Profit of 10% would be $2.15. Retail mark-up would be $11.80. Therefore, the retail price of the US made toaster would be in the order of $35.45. So a toaster can be made in China, shipped to the US, and sold for $15 dollars, where an identical US made toaster would sell for $35. Who on earth is going to buy that US toaster? Not your average Walmart shopper, that is for sure.

So this is what US manufacturers are up against. American CEOs are not sending jobs overseas just because they are evil – they are sending jobs overseas because they cannot sell their $35 dollar toasters when the same toaster is available for $15 dollars. They simply have no choice but to compete – otherwise their companies will go broke.

It is this reality that proves when Joe Biden says China is not a threat he has no idea what he is talking about. Not only does China have a massive cost advantage with respect to labor, China does not have the headache of the massive regulatory requirements of the US (EPA/OSHA/NLRB/state and local regs/et al).

There was a time when US manufacturers could make a case that they offered far superior quality of product. While China still has some issues in this regard, they have dramatically closed the gap, and manufacturers can no longer assume American made is more desirable from a quality perspective.

Similarly, the US was once much, much more efficient in its manufacture of goods than was China. It was not unusual to find that it took five Chinese laborers to do the job of one American laborer. Again, those days are gone (largely), and China has tooled up and equipped itself to compete much more effectively on this front. As an example, next year China is scheduled to complete a heavy truck manufacturing facility capable of producing 4 million trucks per year. Let me say that again for effect – 4 MILLION trucks per year! This facility will be highly efficient – you simply cannot make that volume of trucks inefficiently. What will that do, in the long-term – to truck manufacturing in the US/world-wide?

So where does that leave US manufacturing? I think that only companies with the following characteristics will have any chance of survival in the long run: First, the product will need to be difficult or expensive to transport relative to the cost of manufacture, or highly susceptible to transport damage. Second, the product will need to be specialized and largely unique/special made (think custom painted/special ordered/etc.). Third, the product will also need to have very tight delivery time requirements (ie. the product is special and it is required now, not in six weeks).

Even these specialized products will gradually be squeezed out, as China finishes off “low-hanging fruit” (low hanging fruit is the fruit that is easiest to pick). Right now, China is going for the volume items, but will eventually turn its sights to the lower volume, and more specialized, manufacturing fields. In the end, most true manufacturing will disappear from the US, and any that remain will more likely be assembling of foreign made components rather than true manufacturing as such. The perfect illustration of this is US automotive manufacture – the US really does not manufacture automobiles any more, but rather assembles parts, a great many of which are imported, into the finished vehicle.

So in summation, this article was intended 1) to clarify the huge cost differential between the US and China cost of labor, 2) to refute the general argument that US CEOs are choosing to manufacture in China, and show that they have no viable alternative, and 3) to paint a realistic picture of what is the likely future of US manufacturing. The regulatory red tape that is drowning small manufacturers is a further obstacle and makes the prospects of overcoming the cost pressure being applied by China (and its ilk) even more unlikely.

Clearly, I am very pessimistic about the future of manufacturing in the US. Surely, the cost differentials will close over time. But it will be far too late for the vast majority of US manufacturers, as they will have long disappeared before this happens. The next thing that will come under attack will be service industry that can be done electronically. Right now, call centers are the perfect example. But soon it will include accounting, etc. The cost of labor in the US is simply uncompetitive internationally. The US is moving far too slowly to improve its skill base sufficiently to justify the current differential. China and similar countries are educating and training their citizens by the millions, while the American standard of education continues to fall. The coming collapse will be monumental. It is unlikely that even the most skilled and innovative Americans will be able to ride out this storm unscathed.

Shorting Treasuries For the Ultimate Risk-Takers

While there are numerous ways to short Treasuries, there are several different approaches investors choose to take, each suited to a particular strategy and risk tolerance. What I’m outlining today is both high-risk and highly likely to succeed – IF I can outlast the Fed. See, I entered into the ultimate risk short today that I’ll describe further below, but want to emphasize that this probably isn’t a prudent approach for most retail investors and requires the ability to short, a margin account, and intestinal fortitude.

Short Treasury Strategy

The approach I took was to combine the leverage that options offer, the poor performance of leveraged ETFs over time (see more on ETF Decay), and the time value decay of both options and leveraged ETFs.

Sold TMF Calls (TMF was priced at 61 during Tuesday trading)
Strike Price $75
Expiry November
Premium 3.40 each

TMF is the 3X leveraged 30-Year Treasury Bond ETF from Direxion.

This is about as turbo-charged as you can get in looking to short bonds. In the past, I’ve already sold TMF short as an ETF holding, but now I’ve turbocharged the play even further.

Here’s the Rationale AND Risks:

…Continue Reading Shorting Treasuries For the Ultimate Risk-Takers

WHERE’S OUR OIL PRICE COLLAPSE?

Make no mistake about it, without plentiful, cheap, and easy to access oil, the United States of America would descend into chaos and collapse. The fantasies painted by “green” energy dreamers only serve to divert the attention of the non critical thinking masses from the fact our sprawling suburban hyper technological society would come to a grinding halt in a matter of days without the 18 to 19 million barrels per day needed to run this ridiculous reality show. Delusional Americans think the steaks, hot dogs and pomegranates in their grocery stores magically appear on the shelves, the thirty electronic gadgets that rule their lives are created out of thin air by elves and the gasoline they pump into their mammoth SUVs is their God given right. The situation was already critical in 2005 when the Hirsch Report concluded:

“The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.”

In the six years since this report there has been unprecedented oil price volatility as the world has reached the undulating plateau of peak cheap oil. The viable mitigation options on the demand and supply side were not pursued. The head in the sand hope for the best option was chosen. The government mandated options, ethanol and solar, have been absolute and utter disasters as billions of taxpayer dollars have been squandered and company after company goes bankrupt. The added benefit has been sky high corn prices, dwindling supplies and revolutions around the world due to soaring food prices. The last time the country went into recession in 2008, the price of oil plunged from $140 a barrel to $30 a barrel in the space of six months. I’d classify that as volatility. We’ve clearly entered a second recession in the last six months. So we should be getting the benefit of collapsing oil prices.

But, a funny thing happened on the way to another oil price collapse. It didn’t happen. WTI Crude is trading for $87 a barrel, up 23% since January 1. Unleaded gas prices are up 54% in the last year and 43% since January 1. Worldwide oil pricing is not based on WTI crude but Brent crude, selling for $113 per barrel, only down 10% from its April high of $125. The U.S. and Europe consume 40% of all the oil in the world on a daily basis. Multiple European countries have been in recession for the last nine months. The U.S. economy has been in free fall for six months.

Some short term factors will continue to support higher oil prices. The Chinese continue to fill their strategic petroleum reserve, Japan is still relying on diesel generators for electricity post-tsunami, and the Middle East is developing a love affair with the air conditioner. But, it’s the long term factors that will lead to much higher oil prices for myopic oblivious Americans.

John Hussman describes the situation on the ground today based upon six economic conditions presently in effect:

There are certainly a great number of opinions about the prospect of recession, but the evidence we observe at present has 100% sensitivity (these conditions have always been observed during or just prior to each U.S. recession) and 100% specificity (the only time we observe the full set of these conditions is during or just prior to U.S. recessions).

With 40% of the world in or near recession, how come oil prices are still so high and much higher than last year, when the economies in Europe and the U.S. were expanding? The number of vehicle miles driven in the U.S. is still below the level reached 43 months ago and at the same level as early 2005. The price of a barrel of oil in early 2005 was $42. The U.S. is using the same amount of oil, but the price is up 112%. It seems the U.S. isn’t calling the shots when it comes to the worldwide supply/demand equation.

It would probably be a surprise to most people that U.S. oil consumption today is at the same level it was in 1997 and is 10% lower than the peak reached in 2005. This is not a reflection of increased efficiency or Americans gravitating towards smaller vehicles with better mileage. Americans are still addicted to their SUVs and gas guzzling luxury automobiles. It’s a reflection of a U.S. economy that has been in a downward spiral since 2005.

1996	18,476.15	3.89 %
1997	18,774.07	1.61 %
1998	18,946.01	0.92 %
1999	19,603.83	3.47 %
2000	19,717.92	0.58 %
2001	19,772.60	0.28 %
2002	19,834.31	0.31 %
2003	20,144.82	1.57 %
2004	20,833.01	3.42 %
2005	20,924.36	0.44 %
2006	20,803.93	-0.58 %
2007	20,818.37	0.07 %
2008	19,563.33	-6.03 %
2009	18,810.01	-3.85 %

If the U.S. isn’t driving oil demand in the world, then why are prices going up? There are three main factors:

Dramatic increase in demand from China and other developing countries.
A plunging U.S. Dollar
Peak oil has arrived

Surging Developing World Demand

The Energy Information Administration issued their latest forecast and it does not bode well for lower prices:

Despite continued concerns over the pace of the global economic recovery, particularly in developed countries, the US Energy Information Administration expects worldwide oil consumption to increase this year and next spurred by demand in developing countries. US oil consumption, however, is forecast to contract from a year ago. Worldwide oil demand, led by China, will increase by 1.4 million b/d in 2011 to average 88.19 million b/d and by 1.6 million b/d in 2012, outpacing average global demand growth of 1.3 million b/d from 1998-2007, before the onset of the global economic downturn.

China is now consuming over 9 million barrels per day. This is up from an average of 7 million barrels per day in 2006. Platts, a global energy analyst, put China’s 2010 figures at 8.5 million barrels per day, up 11.43% from the previous year. The forecast for China’s crude throughput in 2011 is an average of 9.24 million barrels per day up 8.5% from 2010. In the first seven months of this year, total crude throughput stood at average of 8.95 million barrels per day.

Standard Chartered Bank predicts that, by the year 2020, China will overtake all of Europe as the second largest consumer of oil in the world, and should catch up to the U.S. by the year 2030 as China’s demand continues to rise while U.S. demand is expected to be flat. Chinese crude imports grew 17.5% in 2010 to 4.79 million barrels per day. China is importing 55% of its oil today versus 40% in 2004.

China’s oil consumption per capita has increased over 350% since the early 1980s to an estimated 2.7 barrels per year in 2011. Consumption per capita has risen nearly 100% in just the past decade. Oil consumption per capita in the U.S. currently ranks among the top industrialized nations in the world at 25 barrels per year. However, today’s consumption levels are approximately 20% lower than they were in 1979. The chart below paints a picture of woe for the United States and the world. China overtook the United States in auto sales in 2009. They now sell approximately 15 million new vehicles per year. India sells approximately 2 million new vehicles per year. The U.S. sells just over 12 million new vehicles per year. In China and India there are approximately 6 car owners per 100 people. In the U.S. there are 85 car owners per 100 people.

They call China, India and the rest of the developing world – Developing – because they will be rapidly expanding their consumption of goods, services and food. There will certainly be bumps along the way, as China is experiencing now, but the consumption of oil by the developing world will plow relentlessly higher. China isn’t the only emerging country to show big increases in per capita consumption. The growth in consumption for several other countries far outpaces China. Consumption per capita in Malaysia has nearly quadrupled since the mid-1960s. Consumption in Thailand and Brazil has more than doubled to roughly 5.7 barrels and 4.8 barrels per year, respectively.

Developed countries, especially those in Western Europe, have experienced substantial declines in oil consumption. Today’s per capita consumption in Sweden is roughly 12 barrels per year, down from 25 barrels per year in the mid-1970s. France, Japan, Norway and U.K. all use less oil on a per capita basis than they did in the 1970s. These countries have been able to drive down the consumption of oil by taxing gasoline at an excessive level.

Americans pay 43 cents in taxes out of the $3.70 they pay at the pump for a gallon of gasoline. A driver in the UK is paying $4 per gallon in taxes out of the $9 per gallon cost. Gasoline costs between $8 and $9 per gallon across Europe today. The extreme level of gas taxes certainly reduces car sizes, consumption and traffic. Too bad the mad socialists across Europe spent the taxes on expanding their welfare states and promising even more to their populations. Maybe a $6 per gallon tax will do the trick. Forcing Americans to drive less by doubling the gas tax is a quaint idea, but it is too late in the game. Europe is still made up of small towns and cities with the populations still fairly consolidated. Biking, walking and small rail travel is easy and feasible. The sprawling suburban enclaves that proliferate across the American countryside, dotted by thousands of malls and McMansion communities, accessible only by automobiles, make it impossible to implement a rational energy efficient model for moving forward. We cannot reverse 60 years of irrationality. Even without higher gas taxes, the price of gasoline will move relentlessly higher due to the stealth tax of currency debasement.

A Plunging US Dollar

The US dollar has fallen 15% versus a basket of worldwide currencies (DXY) since February 2009. This is amazing considering that 57% of the index weighting is the Euro. If you haven’t noticed, Europe is a basket case on the verge of economic disintegration. The US imports a net 9.4 million barrels of oil per day, or 49% of our daily consumption. Our largest suppliers are:

Canada – 2.6 million barrels per day
Mexico – 1.3 million barrels per day
Saudi Arabia – 1.1 million barrels per day
Nigeria – 1.0 million barrels per day
Venezuela – 1.0 million barrels per day
Russia – 600,000 barrels per day
Algeria – 500,000 barrels per day
Iraq – 400,000 barrels per day

These eight countries account for over 70% of our daily oil imports. You hear the “experts” on CNBC declare that our oil supply situation is secure because close to 60% of our daily usage is sourced from North America. The presumption is that Canada and Mexico are somehow under our control. There is one problem with this storyline. US oil production peaked in 1971 and relentlessly declines as M. King Hubbert predicted it would. Mexico will cease to be a supplier to the U.S. by 2015 as their Cantarell oil field is in collapse. Most of the oil supplied from Canada is from their tar sands. Expansion of these fields is difficult as it takes tremendous amounts of natural gas and water to extract the oil.

The rest of the countries on the list dislike us, hate us, or are in constant danger of implosion. When the Neo-Cons on Fox News try to convince you that Iraq has been a huge success and certainly worth the $3 trillion of national wealth expended, along with 4,500 dead and 32,000 wounded soldiers, you might want to keep in mind that Iraq was exporting 795,000 barrels of oil per day to the U.S. in 2001 when the evil dictator was in charge. Today, we are getting 415,000 barrels per day. Dick Cheney was never good at long term strategic planning.

We better plant more corn, as our supply situation is far from stable. Maybe we can install solar panels from Obama’s Solyndra factory on the roofs of the 65 Chevy Volts that were sold in the U.S. this year, to alleviate our oil supply problem. The reliability and stability of our oil supply takes second place to the price increases caused by Ben Bernanke and his printing press. The average American housewife driving her 1.5 children in her enormous two and a half ton Chevy Tahoe or gigantic Toyota Sequoia two miles to baseball practice doesn’t comprehend why it is costing her $100 to fill the 26 gallon tank. If she listens to the brain dead mainstream media pundits, she’ll conclude that Big Oil is to blame. The real reason is Big Finance in conspiracy with Big Government.

Ben Bernanke is responsible for Americans paying $4 a gallon for gasoline. Zero interest rates, printing money out of thin air to buy $2 trillion of mortgage and Treasury bonds, and propping up insolvent criminal banks across the globe have one purpose – to deflate the value of the U.S. dollar. The rulers of the American Empire realize they can never repay the debts they have accumulated. They have chosen to default through debasement. It’s an insidious and immoral method of defaulting on your obligations. Let’s look at from the perspective of our two biggest oil suppliers.

A barrel of oil cost $40 a barrel in early 2009. The U.S. dollar has declined 30% versus the Canadian dollar since early 2009. The U.S. dollar has shockingly declined 20% versus the Mexican Peso since early 2009. How could the mighty USD decline 20% against the currency of a 3rd world country on the verge of being a failed state? Ask Ben Bernanke. Our lenders can’t do much about the continuing debasement of our currency, but our oil suppliers can. They will raise the price of oil in proportion to our currency devaluation. Since Bernanke’s only solution is continuous debasement, the price of oil will relentlessly rise.

Peak Oil Has Arrived

“By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD. At present, investment in oil production is only beginning to pick up, with the result that production could reach a prolonged plateau. By 2030, the world will require production of 118 MBD, but energy producers may only be producing 100 MBD unless there are major changes in current investment and drilling capacity.” – 2010 Joint Operating Environment Report

We’ve arrived at the point where demand has begun to outpace supply and even the onset of another worldwide recession will not assuage this fact. World oil supply has peaked just below 89 million barrels per day. Supply has since fallen to 87.5 million barrels per day, as Libyan supply was completely removed from world markets. The International Energy Agency is already forecasting worldwide demand to reach 90 million barrels per day in the second half of 2011 and reach 92 million barrels per day in 2012. The IEA warns that “just at the time when demand is expected to recover, physical limits on production capacity could lead to another wave of price increases, in a cyclical pattern that is not new to the world oil market.”

The world is trapped in an inescapable conundrum. As supply dwindles, prices increase, causing global economies to contract, and temporarily causing a drop in prices, except the lows are higher each time. The drill, drill, drill ideologues do nothing but confuse and mislead the easily led masses. We have 2% of the world’s oil reserves and consume more than 20% of the daily output. We consume 7 billion barrels of oil per year.

Drilling for oil in the Arctic National Wildlife Refuge in Alaska and areas formerly off limits in the Outer Continental Shelf will not close the supply gap. The amount of recoverable oil in the Arctic coastal plain is estimated to be between 5.7 billion and 16 billion barrels. This could supply as little as a year’s worth of oil. And it will take 10 years to produce any oil from this supply. The OCS has only slightly more recoverable oil at an estimated 18 billion barrels and the BP Gulf Oil disaster showed how easy this oil is to access safely. The new over hyped energy savior is shale gas. The cheerleaders in the natural gas industry claim that we have four Saudi Arabias worth of natural gas in the U.S. This is nothing but PR talking points to convince the masses that we can easily adapt. The amount of shale gas that can be economically produced is far less than the amounts being touted by the industry. The wells deplete rapidly and the environmental damage has been well documented. And last but certainly not least, we have the abiotic oil believers that convince themselves the wells will refill despite the fact that there is not one instance of an oil well refilling once it is depleted.

I wrote an article called Peak Denial About Peak Oil exactly one year ago when gas was selling for $2.60 a gallon. I railed at the short sightedness of politicians and citizens alike for ignoring a calamitous crisis that was directly before their eyes. Just like our accumulation of $4 billion per day in debt, peak oil is simply a matter of math. We cannot take on ever increasing amounts of debt in order to live above our means without collapsing our economic system. We cannot expect to run our energy intensive world with a depleting energy source. There is no amount of spin and PR that can change the math. Un-payable levels of debt and dwindling supplies of oil will merge into a perfect storm over the next ten years to permanently change our world. The change will be traumatic, horrible, bloody and a complete surprise to the non-critical thinking public.

“In the longer run, unless we take serious steps to prepare for the day that we can no longer increase production of conventional oil, we are faced with the possibility of a major economic shock—and the political unrest that would ensue.” – Dr. James Schlesinger – former US Energy Secretary, 16th November 2005

We were warned. We failed to heed the warnings. If we had begun making the dramatic changes to our society 5 to 10 years ago, we may have been able to partially alleviate the pain and suffering ahead. Instead we spent our national treasure fighting Wars on Terror and bailing out criminal bankers. Converting truck and bus fleets to natural gas; expanding the use of safe nuclear power; utilizing wind, geothermal, and solar where economically feasible; buying more fuel efficient vehicles; and creating more localized communities supported by light rail with easy access to bike and walking options, would have allowed a more gradual shift to a less energy intensive society.

We’ve done nothing to prepare for the onset of peak oil. Until this foreseeable crisis hits with its full force like a Category 5 hurricane, Americans will continue to fill up their M1 tank sized, leased SUVs, tweet about Lady Gaga’s latest stunt, and tune in to this week’s episode of Jersey Shore. Meanwhile, economic stagnation, catastrophe and wars for oil are darkening the skies on our horizon.

“Dependence on imported oil, particularly from the Middle East, has become the elephant in the foreign policy living room, an overriding strategic consideration composed of a multitude of issues. …. Taken in whole, the National Energy Policy does not offer a compelling solution to the growing danger of foreign oil dependence. … Future military efforts to secure the oil supply pose tremendous challenges due to the number of potential crisis areas. ….. Economic stagnation or catastrophe lurk close at hand, to be triggered by another embargo, collapse of the Saudi monarchy, or civil disorder in any of a dozen nations.”– America’s Strategic Imperative A “Manhattan Project” for Energy

IS ADMIN AN ANTI-CAPITALIST?

Well, of course he isn’t. But I never thought I’d see the day when Admin attacked one of the most successful businesses in America, Southwest Airlines. Why? All because Southwest had the effrontery to kick off Green Day band member Billie Joe Armstrong from a flight because this slug got on the flight with the waistband of his pants somewhere close to his knee caps while revealing a butt crack which would make a member of a plumber’s union blush. Oh, the horror. Southwest enforced some modicum of decorum from its passengers on its flights. What next? Saying “please” and “thank you”?

ACTUAL MUGSHOT, WITHOUT EYE LINER, OF BILLIE JOE ARMSTRONG AFTER A DUI ARREST

BILLIE JOE WITH EYE LINER. WHERE’S THE LIPSTICK?

Billie Joe Armstrong

Here’s how it went down between Admin and me on the thread of “Farewell WYSP.”

SSS posts article of Armstrong getting booted off of a Southwest flight from Oakland to Burbank.

ADMIN: “Southwest Airlines Eats Shit. Are you actually condoning people getting thrown off airplanes because their pants are sagging? I guess that Federal Government mindset still breaths (sic) in you.”

SSS: “Are you against private businesses like Southwest Airlines which create thousands of jobs and SUCCEED? I could care less whether Southwest kicked this punk off their plane because of his low riders. It is THEIR AIRPLANE AND THEIR DECISION TO MAKE, not some government drone frisking little girls at a security checkpoint. If Southwest’s actions offend the public in general, then it’ll read about it on the bottom line of its annual report. This has absolutely nothing to do with a federal government mindset, but everything to do with letting a business alone and letting them run its show the way it sees fit.”

(edited) “Southwest Airlines commenced Customer Service on June 18, 1971, with three Boeing 737 aircraft serving three Texas cities-Houston, Dallas, and San Antonio. Today, Southwest operates 550 Boeing 737 aircraft among 72 cities. Yearend results for 2010 marked Southwest’s 38th consecutive year of profitability. Southwest is the United States’ most successful low fare, high frequency, point-to-point carrier. Southwest operates more than 3,400 flights a day coast-to-coast, making it the largest U.S. carrier based on domestic passengers carried as of December 31, 2010.

ADMIN: “Nice copy and paste about Southwest. It seems their reputation is doing better than their actual results. Their profits are on track to be down 30% this year and their stock has collapsed from $14 to $8.”

————————–end of thread————————–

You seem to be focused on profits and stock prices, Admin. Well, so what? Businesses have good years, and they have bad years. What else is new? Try and focus on the price of oil, please, since it is a harbinger of the profit margin of the airline industry. Anyway, you like people to bring facts and figures to the table when they show up on TBP. I did so with my “copy and paste” response above, which didn’t seem to meet your threshold of truth. So chew on these.

—-Southwest Airlines employs nearly 35,000 people. Those are PURE tax-paying jobs, in addition to Southwest’s corporate taxes.

—-Southwest Airlines has bought 550 Boeing 737 jet airliners. Tell me that hasn’t helped one of America’s most important manufacturers. Tell me that hasn’t helped Boeing’s growth. Southwest has been the LAUNCH CUSTOMER for the Boeing 737 300/500/700 series of jets. What that means is that these aircraft were first ordered and bought by Southwest. Let me put it more simply: Southwest Airlines has been critical to Boeing aircraft sales.

Want some more facts, Admin? Will a pie or bar chart help?

A BRIEF FOR WHITEY

Not much introduction needed on this one. Smokey knows how to pick ’em (from a link he provided). This was written in March, 2008, but is still relevant. I’m not trying to beat a dead horse here. I didn’t really want my first posts to be on this topic, nor did I expect to post on consecutive days, but it needs closure now. Racial issues are about as much fun as picking a scab off your ass year after year, but they are essential to the discourse of this country. If there is a final word on the subject, this essay would be it.

A Brief for Whitey

By Patrick J. Buchanan
March 21, 2008

How would he pull it off? I wondered.

How would Barack explain to his press groupies why he sat silent in a pew for 20 years as the Rev. Jeremiah Wright delivered racist rants against white America for our maligning of Fidel and Gadhafi, and inventing AIDS to infect and kill black people?

How would he justify not walking out as Wright spewed his venom about “the U.S. of K.K.K. America,” and howled, “God damn America!”

My hunch was right. Barack would turn the tables.

Yes, Barack agreed, Wright’s statements were “controversial,” and “divisive,” and “racially charged,” reflecting a “distorted view of America.”

But we must understand the man in full and the black experience out of which the Rev. Wright came: 350 years of slavery and segregation.

Barack then listed black grievances and informed us what white America must do to close the racial divide and heal the country.

The “white community,” said Barack, must start “acknowledging that what ails the African-American community does not just exist in the minds of black people; that the legacy of discrimination — and current incidents of discrimination, while less overt than in the past — are real and must be addressed. Not just with words, but with deeds … .”

And what deeds must we perform to heal ourselves and our country?

The “white community” must invest more money in black schools and communities, enforce civil rights laws, ensure fairness in the criminal justice system and provide this generation of blacks with “ladders of opportunity” that were “unavailable” to Barack’s and the Rev. Wright’s generations.

What is wrong with Barack’s prognosis and Barack’s cure?

Only this. It is the same old con, the same old shakedown that black hustlers have been running since the Kerner Commission blamed the riots in Harlem, Watts, Newark, Detroit and a hundred other cities on, as Nixon put it, “everybody but the rioters themselves.”

Was “white racism” really responsible for those black men looting auto dealerships and liquor stories, and burning down their own communities, as Otto Kerner said — that liberal icon until the feds put him away for bribery.

Barack says we need to have a conversation about race in America.

Fair enough. But this time, it has to be a two-way conversation. White America needs to be heard from, not just lectured to.

This time, the Silent Majority needs to have its convictions, grievances and demands heard. And among them are these:

First, America has been the best country on earth for black folks. It was here that 600,000 black people, brought from Africa in slave ships, grew into a community of 40 million, were introduced to Christian salvation, and reached the greatest levels of freedom and prosperity blacks have ever known.

Wright ought to go down on his knees and thank God he is an American.

Second, no people anywhere has done more to lift up blacks than white Americans. Untold trillions have been spent since the ’60s on welfare, food stamps, rent supplements, Section 8 housing, Pell grants, student loans, legal services, Medicaid, Earned Income Tax Credits and poverty programs designed to bring the African-American community into the mainstream.

Governments, businesses and colleges have engaged in discrimination against white folks — with affirmative action, contract set-asides and quotas — to advance black applicants over white applicants.

Churches, foundations, civic groups, schools and individuals all over America have donated time and money to support soup kitchens, adult education, day care, retirement and nursing homes for blacks.

We hear the grievances. Where is the gratitude?

Barack talks about new “ladders of opportunity” for blacks.

Let him go to Altoona and Johnstown, and ask the white kids in Catholic schools how many were visited lately by Ivy League recruiters handing out scholarships for “deserving” white kids.

Is white America really responsible for the fact that the crime and incarceration rates for African-Americans are seven times those of white America? Is it really white America’s fault that illegitimacy in the African-American community has hit 70 percent and the black dropout rate from high schools in some cities has reached 50 percent?

Is that the fault of white America or, first and foremost, a failure of the black community itself?

As for racism, its ugliest manifestation is in interracial crime, and especially interracial crimes of violence. Is Barack Obama aware that while white criminals choose black victims 3 percent of the time, black criminals choose white victims 45 percent of the time?

Is Barack aware that black-on-white rapes are 100 times more common than the reverse, that black-on-white robberies were 139 times as common in the first three years of this decade as the reverse?

We have all heard ad nauseam from the Rev. Al about Tawana Brawley, the Duke rape case and Jena. And all turned out to be hoaxes. But about the epidemic of black assaults on whites that are real, we hear nothing.

Sorry, Barack, some of us have heard it all before, about 40 years and 40 trillion tax dollars ago.

MICHAEL VICK GETS A $100 MILLION CONTRACT

You knew I had to post about the Michael Vick contract. Below are two opposing views of Michael Vick. The first is a response to the second. I know Smokey and Stuck are huge Vick supporters and will rally to his defense if anyone attacks him.

“What if Vick were white?”

Michael Vick has a shiny new, six-year, $100 million NFL contract, and that’s swell.

Mazel tov. Really. May your creditors be paid off soon, your bankruptcy lifted and your tribe increase.

But what’s even more interesting — to me, at least — is a column last week by an ESPN Magazine writer named Toure who poses the question: “What if Michael Vick were white?”

As in, what if Vick were white and raised not in the low-income, predominantly black southeast community of Newport News, but in some generic white neighborhood, far from the “projects” culture that apparently corrupted him? Would he have ended up serving 18 months in federal prison for running an underground dogfighting operation out of Surry County?

And what’s really, really interesting is the accompanying photo-shopped image of Vick, showing him as Caucasian. You can check it out here:

http://espn.go.com/espn/commentary/story/_/id/6894586/imagining-michael-vick-white-quarterback-nfl-espn-magazine

Toure has taken heat for posing his question and for the digitized image of Vick in “whiteface” — which Toure apparently had nothing to do with — but has also been praised for discussing the issue thoughtfully.

“Would a white kid have been introduced to dogfighting at a young age and would it become normalized to the extent that he builds it into his life after he joins the NFL? It’s possible, but it’s far less likely because what made Vick stand out among dogfighters is less race than class. … Vick’s stunningly stupid moral breakdown with respect to dogs is certainly related to the culture of the world he grew up in, which he says fully embraced dogfighting. But it’s also related to the household he grew up in.”

Toure then mentions Vick’s father, Michael Boddie, had admitted to The Washington Post that he abused drugs and alcohol around young Vick and even set up a dogfighting ring in the family garage so Vick could stage fights there.

Too many men “left to define manhood on their own,” Toure writes, gravitate toward “ghetto celebrities who are unsavory role models with bad habits.”

But a big hole in Toure’s analysis is that dogfighting isn’t just a “ghetto” thing. It isn’t even a “black” thing. Poor white country boys, some of whom also do drugs and alcohol, fight dogs, too.

As reprehensible as dogfighting is, the “culture” of dogfighting is that it truly is a blood sport — emphasis on “blood,” of course. But dog owners tend to take a certain pride in their dogs, even as they send them into a pit to rip others to pound pieces.

This is where Vick went far beyond merely fighting dogs — he reveled in the blood, the power over life and death. He became a death-dealing beast, himself.

He attacked, tortured and killed his own underperforming dogs in creative and cruel ways.
Drowning, electrocution, hanging, grabbing them by the legs and slamming them to the ground over and over to break their backs.

He did this while he was an NFL star with a $130 million contract. A college graduate who’d been exposed to enough non-ghetto cultures to know that dogfighting wasn’t just illegal, but immoral.

This is not a “stupid moral breakdown” — this is sheer absence of a conscience or soul. This is knowingly and willfully breaking bad.

To say socio-economics or culture crafted Vick the boy into Vick the man is an insult to the majority of black kids who grow up poor and don’t torture and kill animals.

I hope Vick makes the most of his second chance. But I would never trust him with another animal.

Because Vick didn’t just gravitate toward unsavory role models — he became one, himself.

And he did it not because he grew up black or he grew up poor, but because he wanted to.

Posted by Tamara Dietrick on Wednesday, August 31, 2011 at 11:29 AM

What if Michael Vick were white?

Since the day he was arrested, people have asked. The answer isn’t what you think.

By Touré
ESPN The Magazine

This story appears in the Sept. 5 issue of ESPN The Magazine.

WHEN MICHAEL VICK PLAYS, I see streetball. I don’t just mean that sort of football where you have to count to four-Mississippi before you can rush the quarterback, nearly everything breaks down and it’s all great fun. I also mean street basketball. Vick’s style reminds me of Allen Iverson — the speed, the court sense, the sharp cuts, the dekes, the swag. In those breathtaking moments when the Eagles QB abandons the pocket and takes off, it feels as if he’s thumbing his nose at the whole regimented, militaristic ethos of the game.

All of that is why, to me, Vick seems to have a deeply African-American approach to the game. I’m not saying that a black QB who stands in the pocket ain’t playing black. I’m saying Vick’s style is so badass, so artistic, so fluid, so flamboyant, so relentless — so representative of black athletic style — that if there were a stat for swagger points, Vick would be the No. 1 quarterback in the league by far.

Race is an undeniable and complex element of Vick’s story, both because of his style as well as the rarity of black QBs in the NFL. A decade after he became the first black QB to be drafted No. 1 overall, about one in five of the league’s passers is African-American, compared with two-thirds of all players. But after his arrest for dogfighting, so many people asked: Would a white football player have gotten nearly two years in prison for what Vick did to dogs?

This question makes me cringe. It is so facile, naive, shortsighted and flawed that it is meaningless. Whiteness comes with great advantages, but it’s not a get-out-of-every-crime-free card. Killing dogs is a heinous crime that disgusts and frightens many Americans. I’m certain white privilege would not be enough to rescue a white NFL star caught killing dogs.

The problem with the “switch the subject’s race to determine if it’s racism” test runs much deeper than that. It fails to take into account that switching someone’s race changes his entire existence. In making Vick white, you have him born to different parents. That alone sets his life trajectory in an entirely different direction. Thus when this hypothetical white Michael Vick … wait, I can’t even continue that sentence in good faith. I mean, who would this white Vick be? That person is unknowable. When you alter his race, it’s like those Back to the Future movies where someone goes back in time, inadvertently changes one small thing about his parents’ dating history and then the person starts to disappear. If Vick had been born to white parents, you wouldn’t even be reading this right now. That Vick would have had radically different options in life compared with the Vick who grew up in the projects of Newport News, Va., where many young black men see sports as the only way out.

This is not to say there aren’t insights to be gained from hypotheticals. One pertinent question: Would a white kid have been introduced to dogfighting at a young age and have it become normalized to the extent that he builds it into his life after he joins the NFL? It’s possible, but it’s far less likely because what made Vick stand out among dogfighters is less race than class. The deep pockets of an NFL star led to a kennel that was too big not to fail eventually. But if it did, though, would this white kid have been busted? Remember, it wasn’t suspicion of dogfighting that started the investigation that put Vick in jail. It was that element that we’ve all seen hold back or bring down so many athletes from the hood — the entourage. Vick’s cousin Davon Boddie was arrested and charged with possession of marijuana with intent to sell in Hampton, Va. When police asked him for his address, he led them to the home where Bad Newz Kennels was located. After that, Vick never had a chance.

Here’s another question: If Vick grew up with the paternal support that white kids are more likely to have (72 percent percent of black children are born to unwed mothers compared with 29 percent of white children), would he have been involved in dogfighting? I ask this not to look for an excuse but to explore the roots of his behavior. Vick’s stunningly stupid moral breakdown with respect to dogs is certainly related to the culture of the world he grew up in, which he says fully embraced dogfighting. But it’s also related to the household he grew up in.

Vick’s father, Michael Boddie, was not a positive influence on him growing up. Boddie admitted to The Washington Post that he was a cocaine user and had been high and drunk around young Vick. He says he often prepared the family garage so Vick could have pit bull fights there. Boddie’s account is disputed by a family friend, who says Vick’s mother would not have allowed that. Either way, at some point in Vick’s youth, his father became estranged from the family. This breakdown of Vick’s paternal relationship is a pattern that’s all too common among black men of his generation. Too many are left to define manhood on their own, so they gravitate toward the most charismatic and inspiring men in their world. Sometimes those men are gritty local sports coaches who teach them the value of hard work, but sometimes they’re ghetto celebrities who are unsavory role models with bad habits.

Ultimately, there is no separating Vick from his circumstances: his race, parents, economics and opportunities. Alter any of those elements and everything about him and how the world sees him would be unrecognizable.

So let’s look at him a different way. Let’s see him as someone in the third act of the epic movie that is his life, leading a team that many expect to see in the Super Bowl. Bob Marley’s “Redemption Song” is playing underneath because the humbled protagonist has finally overcome his personal demons and has begun living up to his athletic promise. And to those who believe we should judge a man by how he responds when dealing with the worst life has to offer — with how he climbs after he hits rock bottom — Michael Vick has become heroic.

And that has nothing to do with race.

DICK CHENEY – THE EMBODIMENT OF EVIL

This is one of the finest pieces that Gonzalo has ever written. His passion regarding right and wrong, moral and immoral, and punishment fitting the crimes is dead on. Our country is warped and in rapid decline. There is only one way to save it. Prosecute the criminals. Make bankers accept the consequences of their actions. Let failures fail. Let the debt go bad. Enforce the rule of law equally. Throw Dick Cheney into Guantanomo before he reaches his final destination in hell.

Mr. Cheney’s Victory Lap

Dick Cheney is taking a lap around all the talk shows, peddling his memoir while giving his reputation one final spit-shine before he dies and goes straight to hell.

Dick Cheney

Oh—so you actually doubt he’ll go to hell? With the shit he’s pulled? Cabrón, please . . .

It is remarkable that relatively few people seem outraged by Mr. Cheney. Here is the man who, as Vice-President of the United States, violated some of the most important rights, freedoms and liberties that America has defended for over two-hundred years. Not only did he commit what in other times would have been considered war crimes and crimes against humanity—he is proud of having done so!

He boasts about the torture he ordered, he defends the wars of aggression that he fomented, and he is silent about the sweetheart deals he gave his former employer, Halliburton, in the “reconstruction” of countries that he helped destroy.

In short, he violated every rule in the book—yet no one is throwing the book at him. There are no Congressional hearings into his violation of the Constitution. There are no prosecutors sharpening their chops, getting ready to indict him on charges of corruption.

Most of all, there is no public outrage at him.

Sure, some loony Lefties and some old-style hard-ass Conservatives such as myself bitch and moan about him—but no one is seriously arguing for his arrest, indictment and prosecution for the despicable things he did while in office. Or if they are advocating his arrest and prosecution—like me, and perhaps you—then they are on the extreme fringes of the political discourse—like me, and perhaps you: Marginal, and inconsequential.

LLPOH’s Short Story: Never Trust a Man that has Never Been Fired

When I was a young manager, and was interviewing people for a management position reporting to me, I discussed a good candidate with my mentor. I liked this one particular candidate, but he had been fired from his last job. I told my mentor that the guy being fired worried me. He thought a moment and replied “Never trust a man that has never been fired”. This bit of advice has stayed with me for almost three decades, and it was some of the best advice I ever received. (For all of you who have never been fired, please do not go into uproar, and note that the quote is “never trust”, not “cannot trust”.) I think about this advice often, and it has given me a lot of insight into people.

At the base level, what this means is that people deserve a second chance, and that failing once doesn’t mean that people will continuously fail. I am always willing to give people second chances, and often many more than that. I have come to realize that, for the most part, people that have issues almost never overcome them. Almost never. But nevertheless I give them opportunity to overcome their issues – drugs, alcohol, poor performance, bad interpersonal skills, whatever. I often do this in opposition to the advice of my managers and business partner. I personally assume the risk for these decisions. When these decisions go astray, I personally pay a financial and emotional penalty. However, what I have found is that on those rare occasions when people overcome their issues, and when they seize the opportunity given them, I benefit far more than any cost associated with the failures. The fact is I become a better person for having given someone the opportunity to overcome previous failures. It is a tremendous feeling.

At deeper levels, the above statement means that you do not know how someone will react to adversity if they have never had to overcome adversity. Someone who has never failed must not be trusted because it is impossible to tell how they will respond when crisis hits. It is critical to know this about a person if you are going to place trust in them. Some people curl up into a ball when they have failed, or seek refuge in the bottom of a bottle, while others pick themselves up and strive to overcome. I can only give my trust to those people I know will redouble their efforts in time of crisis.

Failure also teaches people about themselves – if they are willing to learn. It teaches them what they do well, and what they do not so well. If they are smart, they concentrate on the good and avoid the bad. It is really quite simple.

Failure can also be a result of factors beyond a person’s control. There is a lot of that going around – manufacturing plants closing, jobs being shed, and political infighting resulting in purges of personnel. A person that gets caught in such a position deserves special consideration, but that person also needs to show the willingness and fortitude to overcome adversity.

Perhaps the most despicable of all are those that fail, are those that do not care that they fail, and actually make a career out of ongoing failure. They have no integrity and no soul. Almost every politician you see is of this ilk. They fail – and they know they fail – at almost anything they do or have ever done. Yet they are so dishonest and lacking in integrity, they opt to retain the trappings of success and power. They do worse than nothing – they actually do ill. It is disgusting.

I have been fired twice in my life. I was a young engineer. I was a terrible engineer. I simply could not finish a project. I would complete it 90%, and then move on to the next project, as I simply did not have the personality to see it all of the way through. I became bored and was always looking for something else to do when I rather was meant to be completing the project in hand. The company rightfully terminated my services. But I learned something very valuable – I was not meant to be an engineer, and was not meant to undertake projects personally. I transitioned into manufacturing management. This I quickly learned suited my skillset and personality, and I began being successful. I also learned that I was a good engineering manager – ie. I could oversee large projects very capably so long as I didn’t have to implement the detail of the project personally.

The second time I was fired was for political reasons. I lost my mentor in a purge at the top of the company – he was a senior VP, and when the president retired, a new president came in and brought his people with him. My boss was let go in the subsequent purge. I attempted to tread the water and become a political animal. I was not good at it, and the new VPs brought in their new darlings, and eventually I was pushed out. And again I learned something valuable about myself – I am not a political animal, and I am not able to change those stripes. I abandoned all semblance of caring about internal manoeuvrings in the companies I worked for, and concentrated solely on doing my job. I became a turnaround manager – and went where plants and companies were in trouble. I was/am extremely good at it. I demanded total autonomy – and got it. I did not care whose toes I stepped on, or what political problems I caused. I focused on the job and only the job. I became much sought after. Companies that hired me knew I would perform, plus they knew I was not out to take anyone’s job at the top. I was actually there to save the people at the top. I would turn a company around and move on. Ultimately I bought into my own business.

The moral of the story is that until people fail, you do not know how they will respond, and it is critical to have this information about people you need to trust. Even though most people do not respond positively to failure, there are those that do. Failure offers the opportunity to reach new heights and concentrate on areas of excellence, if the person is prepared to learn from failure.

Most crucially, for me, having thought about this for many years, I have come to understand just how despicable and disgusting it is that our political leaders cultivate personal success from abject professional failure. They pay no personal price for their failure, and what they learn is that they need not be men of honor and integrity in order to maintain their positions, but rather they learn they can retain all of their trappings of wealth and success by telling ever larger and viler lies. They have learned that their citizens are as morally bankrupt as they themselves, and that they can influence these same voters with welfare, tax cuts, food stamps, and political favor. This flies in the face of all that is good and right, and until these events can be reversed, and until men of honor that learn positive lessons from failure are installed as leaders, and those that are morally bankrupt are displaced, the country will continue a rapid slide toward catastrophe.

My Foray into College Real Estate – Animal House 2011

I’ve mentioned a pending real estate deal a partner and I have been working on for a while. I thought I’d give a quick update on how we came upon this opportunity, what we’ve done to date, what’s left to do to close the deal and all the lessons learned along the way. To recap, I’m borrowing from my 401(k) $50,000 since I have no doubt the ROI is much better than the crappy equity and bond funds offered (if you’re saying “tisk, tisk”, see why I have all my bases covered on this loan) and the properties are at a local college – where the damage potential is high but cash flows are very lucrative. We minimized our down payment and with rates at historic lows, we snagged an attractive 5.5% loan which is great for commercial ventures.

The Deal – It’s a pretty sizable deal with 5 dwellings and about 25 students (give or take). My partner has multiple properties at another college and these gigs have been cash-flow machines, especially on larger scale projects since you spread many of the fixed costs like property management, accounting, legal, repairs, etc. Since there’s usually very little vacancy risk on heavily populated college campuses and you don’t need to plow a ton of money into the properties. You remember what your college housing looked like, right? It’s just gotta be “good enough”. Finally, parents tend to pay the bills and there’s a much lower incidence of deadbeat renters…

Continue Reading: My Foray into College Real Estate – Animal House 2011

WILL BOOMERS END UP EATING ALPO?

Another good article from http://www.mybudget360.com/.

At this point it doesn’t matter whether you were lured into the fantasy of a cushy retirement by Wall Street shysters or you decided to live for today with a leased BMW and a McMansion twice the size of what you needed or you thought you could retire off your internet stock profits and never ending equity in your house or you were just a dumbass and forgot to save for your retirement – YOU’RE PRETTY MUCH SCREWED. Stocks aren’t going up in the next decade. Bonds will fall in the next decade. And most of the Boomers have less than $100,000 saved for retirement. I hope they like the taste of Alpo.

Middle class retirement now largely a postcard fantasy – How Wall Street fabricated a buy and hold fairytale and jumped ship with taxpayer golden parachutes. Did baby boomers think about who they would be selling those 401k and pension stocks to?

The days of dreaming about long days playing golf on a green course and taking luxurious cruises around the world are appearing more and more like a foggy memory for those in the middle class planning for retirement. As Wall Street bankers and hedge fund managers rob the public blind, the mission statement sold to baby boomers is starting to become a large bait and switch catchy enough to make it on a Hallmark card. For decades Wall Street begged and lured the public in either directly or through pension funds into their web of easy money. Save $100 a month and you’ll retire a millionaire! As it turns out, the golden parachute was only available to a tiny fraction of the population while the oligarchy in the financial sector offloads their toxic bets onto the taxpayers struggling balance sheet. The end game? No retirement. At least no retirement like those plastered on glossy mutual fund brochures. What the Wall Street banking charlatans failed to tell you is that you eventually need to sell those stocks to use the money for real world spending. What they also failed to mention is that the baby boomer generation is now going to sell into unrelenting headwinds of demographics bringing on a younger and poorer generation to purchase their stocks. Of course Social Security is in the crosshairs of the financial elite since they already secured their financial piece of the pie. You know things are bad when the Federal Reserve is stating that stocks are not exactly a winners bet in the years going forward.

Retirement becoming more of a postcard fantasy

The middle class has been pillaged and ransacked by financial thievery for decades. The debt bubble and mass delusion is now imploding. The graft and con games taking place in the financial sector would be comical if they weren’t so real and economically tragic. The Federal Reserve has given covert loans to big banks while big banks publicly stating all was well. The Federal Reserve has grown their balance sheet to a stunning $2.8+ trillion of questionable assets and other junk with little redeemable market value. It would have a hard time selling these items on eBay let alone the natural marketplace. There is no easier way to make a profit than stealing from the taxpayer. Of course the problems in the system are coming at the expense of the working and middle class. For those who bought into the Wall Street mantra of buy and hold, making a profit has gotten much harder:

This is fascinating data to look at. This decade has been horrible for stocks. The S&P 500 stands today where it did in 1998. The massive stock volatility is simply a reflection of the problems deep in our financial system. The above chart examines P/E ratios over time. Really fascinating information but the Fed study finds that P/E ratios are likely to go lower because of demographic shifts and also the reality that we have a lower wage employment force dominating our economy. The latest decade is a reflection of the bubble era machinery that has hoisted up the financial sector into an untouchable corner yet middle class Americans have taken it squarely in their stock portfolios. Why? Because Wall Street has been preaching buy and hold as if it were some patriotic mission but many of these hedge funds and banking managers have placed bets that openly aim against American middle class success. In fact, some have made bets on flat out American failure and have made billions of dollars with lower tax rates that are given to hedge funds.

The stock market casino

The stock market has been on a wild ride for well over a decade:

Source: Mish Global Economic Analysis Blog

You have a crazy expansion in the 1980s and 1990s with the peak productive years of baby boomers but also the carefree attitude with the debt bubble and the “deficits don’t matter” mentality that has harmed this nation and is leaving the Eurozone in tatters. Of course all of that has come to a crashing halt first with the tech bubble bursting and then the real estate bubble imploding. So you have to ask, when these baby boomers sell out of their 401ks and pension plans who will buy the stocks? The 46,000,000 Americans on food stamps? Or what above the average per capita worker making $25,000 a year? Household incomes have been stagnant for well over a decade:

To use an often quoted cliché, this is the perfect financial storm. For the financially and politically connected the free market rules do not apply. For the working and middle class they do. This massive contraction is happening when millions are entering the retirement pipeline. Now it would be one thing if people had vibrant retirement accounts. 1 out of 3 Americans have no savings account. But for those with a retirement account they likely do not have funds to support their life as they age and this is seen in a Transamerica retirement study:

“Workers estimate their retirement savings needs at $600,000 (median), but in comparison, fewer than one-third (30 percent) have currently saved more than $100,000 in all household retirement accounts.”

And the fears most have are based on real life issues:

Source: Transamerica

These aren’t fears about not having enough yachts or trips to Paris but whether they will eat decent food or Alpo. Workers are accurate in how much they need but less than one third have even saved $100,000 or more for retirement. For a median household income pulling in $50,000 a year in working years, the funds would likely last 3 or 4 years. The biggest fear is outliving the money while coming in at a close second is simply not meeting basic family needs. The next fear is cuts to Social Security because of course, the bankers and investment banks had to get their bailouts first before setting the U.S. economy on fire.

The Federal Reserve study found that P/E ratios are likely to become compressed as time goes on:

“Between 1981 and 2000, as baby boomers reached their peak working and saving ages, the M/O ratio increased from about 0.18 to about 0.74. During the same period, the P/E ratio tripled from about 8 to 24. In the 2000s, as the baby boom generation started aging and the baby bust generation started to reach prime working and saving ages, the M/O and P/E ratios both declined substantially. Statistical analysis confirms this correlation. In our model, we obtain a statistically and economically significant estimate of the relationship between the P/E and M/O ratios. We estimate that the M/O ratio explains about 61% of the movements in the P/E ratio during the sample period. In other words, the M/O ratio predicts long-run trends in the P/E ratio well.”

In other words, lots of money chasing the Wall Street illusion yet there will be fewer (poorer) buyers ahead. The P/E ratios surged when baby boomers entered their peak earnings years. Given the massive problems in our economy the fact that P/E will take it on the chin is no surprise. What is more stunning is the fact that no real financial reform has taken place and that the political system is so utterly broken. Money has infiltrated politics to a degree never before seen. We have career politicians in the SEC basically training for plush gigs at Goldman Sachs or Morgan Stanley. A revolving door out of D.C. and into big investment banks and back to D.C. No wonder why there has been no true enforcement of the investment banks when many are simply using it as a training ground for future jobs! If the working and middle class actually saw what went on trading floors they would never even think about playing the stock market. The fact that we have millions now needing to dump stocks into the open market is simply another issue we will be facing. These are people that have to sell (you can’t eat your stocks or pay for a medical bill with a stock). Many are now realizing after a lifetime of work that retirement only meant more work with fewer benefits to compensate for the big banking bailouts.