Houston Unemployment and a Booming Texas Economy

The unemployment rate in Houston is at 10 percent as of December 2011 according to the US Bureau of Labor Statistics, 2 percent higher than the national average. This is shocking, considering Texas is leading the nation in government job growth. About four years ago, government stimulus was supplied in hopes of restoring economies to get them growing again. The fact is, there has not actually been growth. Most states have either stayed the same or gotten worse when it comes to unemployment. Recently it has also just been announced that Texas has returned to the labor rate they were at before the recession started. Not many states can say that.
It's hard to tell where Houston stands when it comes to job growth. News headlines are reading both "Houston Unemployment Rate Inches Higher" as well as "Houston Unemployment Rate Continues to Drop" making it almost impossible to determine what is actually happening in Houston's economy, but it may be safe to assume that Houston will follow the trend of the rest of the state, which is continuing to improve. According to the Texas Work Force Commission, Texas saw their civilian labor force add 21,000 people.
Did you know that two out of three people filing for bankruptcy have lost their job? And that 91 percent of people filing for bankruptcy have suffered either a job loss, a medical illness or have undergone a divorce? This should typically mean that when unemployment drops, so will the number of people filing for bankruptcy. Things are looking up for the lone-star state, and with the way the economy has been growing among countless other states that are either stagnating or getting worse, Texans can be assured that their situation is not dire.
If you live in the Houston area and are one of the many people facing unemployment, be encouraged that the Texas economy is growing. If you are facing the realities of unemployment now and don't have time to wait for the economy to make a turnaround, then you have options you may not even be aware of. No one financial situation is like any other. You may be able to afford an alternative payment plan but you may not. Some debt cannot be taken care of completely by filing for bankruptcy, but many of those include debts that must be paid as a result of a crime, spousal/child support and student loans for example.

The Federal Reserve Should Discount the Amount of Money We Owe By the Trade Deficit Figures

One of the problems with borrowing money for deficit spending by our government is the reality that it is the citizens who are burdened with the cost of paying the money back with interest. The previous business cycles of our economy were much more predictable before our economy became so global. Today, the business cycle is out of whack, along with our deficit spending, borrowing, trade deficits, and money creation theory and allocation. We need to make some changes - we need to make them quick. Okay so, I'd like to talk to you about this for a moment if I might.
We need to make a deal with the Federal Reserve that we should be discounted the amount of money that we have borrowed and now owe, and be forgiven for any interest payments - the amount of money we are losing in trade deficit outflows. When that money comes back, and when the trade flows return the other way, then it can be owed, but we should not be paying interest or principal on money borrowed which is no longer running around in circulation in our economy.
In a perfect world those who have the money flowing in would have to adjust on their side. Pinning the interest and money creation to the flow is more apropos in the global economy. Although this is a working theory of mine in progress, I would submit to you that we are causing a terrible situation and will continue with runaway budget deficits if we keep playing the game as we are - worse it's not a zero sum game, and could easily turn out to be a lose-lose as China for instance recipient of those trade flows paints itself into an economic corner.
Likewise, with huge trade deficit issues we are inflating the rest of the world, and some of that money is coming back, but it is being used to buy up our infrastructure, our biggest corporations, and in essence our money that we paid for is being used to dissolve and erode our national strength. That is a dangerous thing, and it's not good for anyone, especially any American. Worse, we are giving our strength away to less-than-ethical folks in other nations who are corrupt, and are taking advantage of us - yes, I know, they are human, what do you expect. Understood, but we need to pay attention to the flows of currency, capital, and wealth.
We need a new formula, and whereas our money creation theory works fine in an encapsulated an enclosed economy with minimal oversight, it doesn't work so well when pitted against the rest of the world in a global free-flowing market with scoundrels and cheaters, those who refuse to play the Western win-win style trade deals which could actually open up the world for free and fair trade around this pale blue dot. It is quite evident that other nations are more corrupt than we, and are busy destroying their own economies, there is nothing we can do about that, but we can do something to fix our system using a better formula for our nation's economy and within our price system.
Please consider all this on an intellectual level, because it is not my intent to redesign the whole world, just to help everyone realize that what we are doing, currently isn't working, and since it isn't working, the American taxpayer, and their children and future generation should not be economically enslaved, because they had nothing to do with the poor management involved in the present period. Americans should be free, and not be economically enslaved. Please consider all this and think on it.

Make Way for the Mega Cargo Container Ships - What Does It Mean?

Last year, I listened to a rather enlightening speech by a professor at the University of Riverside in CA who explained the changes at the Los Angeles and Long Beach Ports and how that affected jobs, rail traffic, pollution, and how all this was effected by global trade with China. It's a big complicated and comprehensive set of challenges in logistics and economics. Not surprisingly, as free-markets economies always are, and throw in the global trade issues, and it becomes very obvious really quickly that everything affects everything else, and linear decision making won't work.
Perhaps, this is why I am so intrigued by it all and why our think tank often addresses the flows of our civilization. Now then, at stake are vast fortunes, billion dollar companies, and the flow of all we know. Okay so, let's talk.
In fact, there was a rather telling story in the Journal of Commerce on March 5, 2012 titled; "Mega-Ship Trend Comes with Consequences," by Peter T. Leach, Senior Editor. The article noted amongst other things that; "Analyst predicts container industry will shrink to seven to 10 carriers by mid-2020s," which sounds about right to me, as I too have been discussing the global trade slow down, mega-ship capacity, and the reality that there will be winners and losers in this game.
These shipping companies must go for volume, invest in mega-cargo ships, consolidate, or face the Tsunami of bankruptcy and forced consolidation. The article also had an interesting quote from Lars Jensen; "The container industry will shrink to seven to 10 carriers by the mid-2020s, it may be eight, it may be 10, but there will be fewer players," who is also expecting more orders for 10,000 plus container ships, and a revitalization of big news consolidations soon, and really accelerating by 2015.
Now then, I'd like to address some more predictions that I'd like to add to this in light of my on-going scrutiny and ever present radar scanning of this industry. I believe all these issues and the others I've made will also cause the following concerns as the industry evolves and the competition adapts:
Smaller Shippers May Not Be Able to Compete on Global Trade Routes
The economies of scale will no longer be there for companies running smaller vessels across the Atlantic or Pacific or across the top of the world. The profit margins will not be there for the new price points. These smaller vessels will be forced into smaller routes, island hopping, or special orders, still, most are too big for that, and too small to compete with the global mega-ships. Also trade is opening up and larger shipments, ports, and shipping points are upgrading simultaneously, nearly everywhere around the world. This is a good thing for humanity but not so great for the smaller companies with the smaller ships.
Massive Industry Consolidation and Big News Bankruptcies
Some of the smaller routes will still be needed, but without the larger routes and big money maximum capacity routes available due to ship size and cost per container, these companies will not be able to stand alone. Some of these ships will be parked, mothballed, or cut up for scrap. The rest will end up being upgraded and used for spur routes for the bigger global shippers with big bucks and volume pricing.
Challenges for Ports and Shipping Schedules
Ports will have to upgrade or they will get bypassed by rail as the mega ships off-load at ports that can take the additional traffic and volume. Meanwhile, ports which are minimally upgraded will experience traffic jams, and angry communities and neighbors until maximum efficiency is reached to handle the new mega-ship volumes coming in at a much higher frequency. Some smaller ports will die or fall off the proverbial economic cliff and then decay while larger ports will expand and evolve - competing for this new volume paradigm.
There is an interesting paper on this worth reading, a thesis from Martijn Streng from Eramus University in Rotterdam titled; "The consequences of megaships," published in May - July 2011, which I believe sets the record straight and tells of the future evolution of the industry. Indeed, with the opening of the new larger Panama Canal locks it also has big implications for rail companies in the US, Canada, Mexico, and South America. The global shipping routes are changing, and as the Northern route opens up and the ice clears, these changes will favor the mega ships, and the companies which own them even more.
Indeed, I hope you will please consider all this and think on it when discussing anything to do with transportation, global trade, pollution, diplomacy, politics, jobs, ship-building, corporate mergers, and micro and macro economics.

Do Bankers Deserve Considerable Bonuses in Today's Society?

In today's culture, the pay of bankers is unregulated and banks are able to reward their productive workers with bonus payments. Investment bankers can receive bonus payments that exceed their annual salaries. With many people currently suffering from the decision to bailout several banks when investments went wrong, we should be asking ourselves whether bankers deserve considerable bonuses whilst many are unemployed and whilst governments control a significant stake in several banks.
The case for bonus payments centres around the belief that these bankers have helped to produce considerable profits for their company and should therefore be rewarded. In addition, there is a theory that if bonus payments were removed, the top performers would leave for another bank that would reward them for their profit-seeking performances. However, considerable research has been undertaken by Boris Groysberg, a professor at Harvard Business School, who noticed that bankers that left one company for another experienced a drop in performance that lasted for at least five years. This leads to the question of whether star performers do so well because of their own ability or whether other factors have a significant part to play.
Many argue that investment bankers don't deserve substantial bonuses, especially when other professions such as engineers and doctors don't receive additional financial payments. However, the nature of investment banking is very different, where profits are volatile and alternatively people argue that bonuses provide the necessary motivation.
It is hard to argue that if you have had a hand in producing significant profits for a company that you don't deserve a reward. However, a significant problem occurs when you consider the opposite. When you contribute to a significant loss for a company, the opposite of a bonus does not occur. An investment banker will not reach into their bank account to correct a poor investment and the debt produced from this poor decision is saddled with the company. As we saw in the 2008 financial crisis, this can happen and when it does, governments and in effect taxpayers are left to bailout banks who have made poor investment choices.
Therefore it can be argued that investment bankers do not deserve considerable bonuses, as long as they are unwilling to reach into their own pockets to refill the bank's balance sheet when money is lost from a poor investment. This lack of accountability for poor investments does not justify bonus payments being rewarded for when times are good.
This is of greater importance when countries are suffering from a global recession caused by the poor decisions of several banks. While millions remain unemployed, it simply does not make sense for banks that have received bailout packages to continue with this type of financial remuneration.

Fiscal Responsibility and the US Election

This week we look at the Federal deficit, its causation and the fundamental shift in thinking that must take place here in the U.S. to avoid our own version of the fall of Rome. The United States currently owes more than $16,000,000,000,000. That's sixteen trillion dollars. That is our total debt owed. The government sells new bonds and Treasury Notes to collect enough revenue to cover the interest payments due on the bonds and Treasury Notes that have already been sold that are maturing. This also makes up the funding shortfall from tax collection. The creation of new debt to service old debt is a good idea in a falling interest rate environment. Think of it as refinancing your house at a lower rate. Alarmingly, we are still spending more than we make, which adds to the total debt and our not so distant nightmare.
Global interest rates are at unprecedented lows because other countries are refinancing their own debts using the same methods we are. This is exactly what is going on Europe as they try to save their economic Union. This is the, "easy money policy," that the news and politicians refer to. The whole point is to be the first one to fill the market place with super cheap loans before interest rates start to turn higher. This is printing money and currency devaluation. We are trying to repay the expensive money we owe from debts we've previously incurred with newly printed cheap money. It works in theory until interest rates begin to climb. Think of it as revolving credit card debt that keeps getting rolled over to new trial offers. Once the offers wear out, the holder is stuck with the balance at an incredibly high interest rate.
When this happens to John Doe, he calls a credit counselor who tries to negotiate a settlement with the lender. The alphabet soup of regulation, the ECB, IMF, EFSF and others are shifting the burden of Greece's debt from the country to the European taxpayers. According to The Telegraph, European taxpayers will own 85% of Greece's debt by 2015. This is why the fiscally responsible Germans are reluctant to help the spendthrift Mediterranean countries.
European taxpayers want Greece to pay both literally and figuratively. The European credit card counseling sessions include forcing the deepest budget cuts Greece can endure thus allowing them to make their credit card payments. This includes cutting medical care, pensions, education, highway and water systems, etc. This also causes riots in the streets.
The U.S. owes $16 trillion. Nearly $10 trillion (62.5%) of that debt has been sold to U.S. taxpayers. Banks, insurance companies, state and local governments, pension funds, mutual funds, savings bonds and the Federal Reserve depository system account for 8 out of the top 10 holders of U.S. debt. China and Japan round out the top ten at numbers 2 and 4 respectively.
The Congressional Budget Office (CBO) has been issuing warnings for more than a year that the debt path we are on is unsustainable, stating that our budget deficit, our annual shortfall, will surpass $7 trillion within the next 10 years. These deficits are compounded. We add this year's shortfall to the previous years' shortfalls to come up with our total deficit. Long story short, our country will continue to spend more than we make for at least the next decade. This is the path to a Grecian outcome.
The United States must get its financial house in order. We cannot afford to fund Medicaid, social security, unemployment, disability, education and defense when servicing our current debt load leaves $.10 of every dollar available for funding. Would you have a problem getting by if $.90 of each Dollar you earned went towards your debts?
There are solutions. Briefly, corporate taxes must be cut so that businesses are encouraged to remain in the U.S, rather than incorporating offshore. Small business regulations and employee expenses must be cut so that American entrepreneurs can get back to generating breakthroughs in innovation. Remember, Microsoft, Apple and Google were all small businesses once. Finally, the balance between the, "haves" and the, "have nots," must be addressed. I believe that those who make more spend more and should pay more. Benefit programs must be reduced. A consumption or, Value Added Tax (VAT) that places a greater portion of the burden on those who spend the most could equitably offset some of the social program cuts. It would slow domestic consumption and encourage domestic savings as well as proportionately distributing the tax burden by making those who spend more, pay more. We need to act, as we would have our representative government act. Save more, spend less and get our own budgets in balance before the global credit counselors impose their will on our earnings and our country

Markets Hinge on Greece, a Market Looking for Perspective

Greece Needs Money to Avoid Default, But Complications Arise
Europe's financial issues have all the ability to gravely affect U.S. propositions. We have witnessed in the past, starting just last December, a stable climb in equity values. This climb is certainly coincident with the European Central Bank's (ECB) release of billions in loans to European banks. Not only a form of quantitative easing, but in reality a thawing of frozen European bank liquidity.
Presently, equities are moving sideways or otherwise stalled-as if they hold suspense in whether an economic shoe will drop. Certainly such is the case. For Greece; its debt, the exposure of this debt to world banks, and credit default swap parties, all swing in the balance, only for all to wonder of net losses.
Firstly we have Greece's need to reduce its debt. Aside from simply cutting its fiscal budget, the call is for Greece to reduce its sovereign bond payments. To make the reduction, private bond holders have been identified as targets. Where the taxpayer supported ECB has negotiated an exemption from loss, private bond holders will take a loss. Private bond holders are primarily composed of European banks, tied to international money like Lehman.
Cuts to bonds are 53.3% of face value, as negotiated by the International Institute of Finance, lead negotiator for the private sector. A 53.3% reduction in outstanding bond payments (or redemptions) comes from an effort of Greece to cut its fiscal budget, on the debt side, by 170B euros. Cuts to bond payments are demanded by the Eurozone for Greece to receive its second round of bailout money. Greece needs a second bailout, of real cash, by March 20... to make a 14.5B euro bond payment.
Who Wants to Take Half Off Their Investment
Cutting Greek bonds by 170B euro seems fairly expected and anticipated. Greece's fiscal budgetary cuts, however, are still very slippery and hard to hold. Currently, the goal is to see if the 53.3% cut in bond asset value will be accepted by private bond holders. The agreement due date for private bond investors is March 8.
Greece is hedging its own participation in the bond reductions by saying that if 90% of bond holders don't agree to the cuts, it's not obligated to continue with the plan. Big questions remain in the event bond holder participation is in the 75% to under 90% range. Should such a range develop, Greece says it will consult with the public sector.
Naturally, the glitch is that private bond holders aren't really excited to lose 53.3% off the top of their investment. Add to it the lost interest over the period of the bonds, and some say 70%. For large investors, these issues are why credit default swaps (CDS) are purchased.
A CDS is simply insurance purchased against loss on an investment. Should a bond issuer default (Greece), the CDS pays a negotiated percentage of the purchase value of the asset. CDS platforms get the asset and you as purchaser get the negotiated payment.
A key event that leads to CDS payment is default. Defaults are called credit events. A credit event can occur when one creditor is given payment priority over another creditor....subordination. Another credit event can occur when a majority of creditors take a reduction in payment or terms of payment, involuntarily.
Credit Default Swaps Could Cover the Losses
Looking to lose money, obviously anyone bondholder will get curious about their insurance policy. Curiosity is addressed to the International Swaps and Derivatives Association, which monitors CDS's. Because CDS's are essentially insurance policies, CDS questions are analyzed according to contract law. This means that if certain terms are not addressed in the CDS agreement, they will be addressed by Agency interpretation, rules, statute, or court rulings. In the end, there are no statutes, rules or court decisions. Which leaves agency interpretation as the law.
Euro bond holders asked two questions of the ISDA about their CDS insurance:
1) If creditors (bond holders) take a reduction in obligated payments on a bond versus the ECB not taking a reduction, is that a subordination? That is, where private investors take a cut in principle, but the ECB's principle is the same, is that a subordination.
2) If creditors submit to a bond cut of 53.3%, in numbers sufficient to bind all creditors, (2/3 of bond holders of record based on the Collective Action Clause), does that result in a credit Event (default)?
Maybe Credit Default Swaps Work, Maybe Not
The ISDA answered both questions saying no credit event is implicated at this time. For the ECB question, ISDA officials said documents addressing the 53.3% bond reduction mentioned no subordination. Though in reality it's a subordination of creditors to other creditors, it's not according to the ISDA.
Binding all bondholders through the Collective Action Clause is another issue. The Collective Action Clause is a product of legislation recently passed by Greece having retroactive effect. It requires that once 2/3 of bond holders agree to a measure, such measure can be treated as a collective act, and imposed upon all bond holders. It's akin to collective bargaining, and its associated laws.
Should the Collective Action Clause be enforced by Greece, the bond reductions will not be voluntary at that point. By implication of the ISDA's decision, such enforcement of the clause by Greece will be a credit event triggering CDS payments.
Bottom line: 1) Greece needs a second bailout of 130B euros to make a March 20 payment on bond redemptions of 14.5B euros. 2) Greece needs to cut 170B euros of debt and the Eurozone expects it to come from private bond holders. 3) The International Institute of Finance negotiated at 53.3% reduction on behalf of private bond holders. 4) March 8 is the due date to see if private bond holders will take the voluntary reduction. 5) Should 90% of private bond holders not accept the reduction, Greece will have to make a move against public entities holding their bonds. 6) Should the Collective Action Clause be invoked, or Greece not meet the demand of cutting 170B euros, a credit event is likely and will trigger CDS payments.

Construction Decline Hits Affordable Housing

The slump in the housing market has had far-reaching effects. Home prices have fallen significantly on existing homes, especially because there are so many foreclosures on the market. It has also affected new construction, including affordable housing projects.
Because there are so many existing homes on the market, the demand for new housing just isn't there. The need exists, especially for low- and moderate-income families, but developers are having a hard time finding financing. Investors struggle to see the benefit of new home construction of any kind when there are so many homes already on the market. In addition, many new construction projects are sitting idle, having lost their financing.
A story out of Massachusetts shows just how dramatic the effect has been. New construction permits in the state fell to 7,260 in 2011, compared to over 9,000 in 2010. That's a 20 percent decline in just one year. Unfortunately, the drop in production is mostly driven by the drop in single-family home prices. Markets across the United States are nearly saturated, creating the strongest buyers' market in decades.
The decline in new construction has a wide-reaching economic impact. Lack of construction jobs adds to unemployment figures. In addition, the lost wages translate into lost tax revenue for cities and the state. It also means less money is being spent in the local economy, potentially causing job losses in non-construction-related industries.
Though the foreclosure crisis has caused a sharp decline in housing sale prices, it has had the opposite effect on rental prices. Because more families have been forced out of their homes, rental units are in high demand. Consequently, rental prices have been increasing and the number of available units has been falling. The need for affordable housing has risen dramatically in the last few years, especially rental housing.
Restrictions placed on existing affordable housing prevent owners of those using from raising rent to reflect market rates. However, because more people need low-income housing, available units are being filled quickly. All across the country, cities and states have closed Section 8 and other affordable housing waiting lists to new applicants because the existing lists will take years to cycle through.
The combined slump in multi-family housing production and increase in rental prices points to a market need that affordable housing developers are uniquely able to meet. Their experience successfully completing low-income housing developments, combined with their knowledge of the housing market enables them to present solutions that are both creative and financially viable.