LyrArc Article Gist
A crisis situation exists in state revenue and spending needs. According to a Census Bureau report overall state revenue in the US dropped 30.8%, to $1.1 trillion, between fiscal 2008 and 2009. The gap between the spending needed to provide services in the recession and revenues is very large. States fiscal problems along with housing losses, will be the two forces acting as a drag to the US recovery in 2011-2012. State payrolls will be cut back and contracts to private companies reduced to cut spending. Declining federal help in 2011-2012, with the new focus on reducing the federal deficit, will worsen the situation. According to the Center for Budget and Policy Priorities, even with large federal help 46 states had to raise taxes and make cuts to close a combined gap of $130 billion in their current budgets. And next year 40 states already have projected gaps totaling $113 billion. Even as revenues drop, the Census Bureau report says the state government expenditures went up by 3% to provide essential services, safety net programs and education. Illinois has a budget deficit of 45 percent of its overall budget, according to the Pew Center on the States. In California it is equal to 13% of te state's total budget, and in Arizona it is 15%. For 2009 tax collections fell by 8.5%, and were partially offset by a 12.9% increase in federal help, which was a total of $477.7 billion, according to te Census Bureau report....

LyrArc Article Gist
Jason Zweig interviews John Bogle, founder of the Vanguard Group, in September 2011, after weeks of extreme volatility in the U.S. stock market. He says the index fund concept has been "bastardized" by exchange traded funds and the speculative behaviour in ETF's with insane turnovers approaching 10,000 percent. He considers investing in a balanced portfolio of stocks and bonds a useful way to approach investing even though the last decade has produced medicore results. And predicts a 7% return for the next decade, with money doubling every 10 years. The changes today mean you have to start earlier, save and invest for longer periods, says Bogle, but the returns should still be good. It would be insane to expect the high returns of the 70's and 80's today, says Bogle. In today's market Bogle has 80% of his investments in bonds and 20% in stocks.

LyrArc Article Gist
Jean Brunel, chief investment officer at GenSpring, says expect returns of 2-2.5% on bonds and 5% on stocks and not much higher in the next 5 years. He points out that with low rates the whole investment environment has changed. The consensus among investment managers is that it is a good idea to lower expectations and not chase risky returns in the next couple of years.

LyrArc Article Gist
A Wall Street editorial on the problems identified in the budgets and finances of U.S. states identified by the State Budget Crisis Task Force co-chaired by Volcker and Ravitch. This includes Medicaid costs, underfunded pensions, and budget gimmicks that understate the true extent of problems.

LyrArc Article Gist
Illinois uses a discount rate of about 8% for its pension liabilities. This makes them look smaller than they really are. The 8% represents expected return on assets. Illinois's five pension pllans assume returns ranging from 7% to 8.5%, yet their average 10 year returns ranged from 2.4% to 3.6%. The Netherlands uses a discount rate equal to government borrowing rates, which would be 4% for the U.S. And Dutch plans have to be fully funded or take steps to make up the difference. Illinois will have its plans 90% funded by fiscal 2045. Canada uses a government return adjusted for inflation and an additional premium, which is about 6%. The Ontario Teacher's Pension Plan for instance uses a discount rate of 5.4% and is about 85% funded. The Ontario plan's CEO, Jim Leech, says his fund would be 200% funded if it used the Illinois approach. Which raises the question is the Illinois approach realistic and isn't the best approach to be realistic about the finances.

LyrArc Article Gist
The NASDAQ index reached 5000 by April 2015, a level reached in the stock market boom in 2000. Yet investment strategists who were wary of the stock market in the period before the 2000-2002 collapse of the market see this market differently. The NASDAQ itself is not what it was in 2000, with the 2015 NASDAQ component stocks being different for the most part, and the healthcare and other sectors better represented in the index. Only three of the stocks in the top ten in 2000 are in the top ten today, including Microsoft. The S&P 500 trades in April 2015 at 18.5 times its company earnings for the past 12 months, compared to an historical average of 15.5, according to research firm Bespoke. A big part of the difference today is the investment climate of low inflation, which gives the U.S. Federal Reserve flexibility in raising rates. Low rates make bonds with lower yields less attractive, and increase the present value of future earnings. The yield of the 10 year U.S. Treasury was 1.917% on April 25, 2015. In April 2000 it was 6%, and in mid 2007 it was 5.3% before the financial crisis in the two periods. James Paulsen, chief investment strategist at Wells Capital Management oversees $347 billion in fund investments. He also was wary of the U.S. stock market in 1999, yet he does not see the similiar kind of risks today, and sees a long term bullish trend. The scenario he envisages is more of a pause or temporary decline. Paulsen has shifted money to European markets, as U.S. stocks are becoming more expensive relative to their European counterparts, a strategy that is being followed by other money managers since 2014. Higher price volatility is seen in the markets in 2015, with the S&P 500 up 2.9% for the first four months of 2015, and the Dow up 1.4%. ...

LyrArc Article Gist
Zhou Xiaochuan, is head of the People's Bank of China since 2002. For a long time Zhou has tried to convince party leaders in China to make financial sector changes. The new leadership of Jinping-Li Keqiang has now adopted most of the road map and priorities drawn up by Xiaochuan. The first is bank deposit insurance, which would especially protect small depositors and provide a basis for new private banks to compete with large state owned banks, creating competition in the financial sector. By supporting creation of privately owned banks impetus could be given to loans to the private sector to rebalance the economy away from state owned banks and state owned enterprises. This is a key goal in the road map drawn up by the think tank Development Research Center (DRC) which has the backing of premier Li Keqiang. Competition from new private banks would let banks compete to offer higher rates to depositors, another goal. In a September article for the Communist Party Seeking Truth magazine, Zhou pointed out the pressing need for " supporting private capital to set up private banks and guide them to position themselves in serving small and micro companies." These new companies especially in tech and information technology fields can be the new drivers for growth in the future as the burst of infrastructure building generated growth slows down. The one area Zhou faces resistance is his idea of opening up China to foreign capital inflows and outflows. Here critics,including younger economists, say this protected China in the Asian financial markets crisis of 1997, and would protect China in the event it faces outflows of the type that are happening in India in 2013 after the U.S. Fed's plan to withdraw from its quantitative easing. Xiaochuan sees the flow of foreign capital as another way for capital to flow to new private companies and balance away from the state owned enterprises, and for China's savers to be able to obtain more attractive returns. Zhou says his plan would include the option for China to reintroduce capial controls in a crisis. As China's debt to GDP ratio is set on a trajectory to approach the levels reached in Japan before its banking crisis there is greater awareness from party leaders about the need for prudence. Xiaochuan has worked with party leader Jinping's key economic advisor Liu He for years, and has the support of He and Jinping for introducing deposit insurance as a top priority. President Jinping and Premier Li Keqiang see the need for Xiaochuan's experience and foresight "as a talent who can be counted on," as the sense of importance of changing the economic structure has deepened in 2013. Mandatory retirement for Xiaochuan at 65 was set aside to give him a third five year term, and his road map long ignored by former premier Wen Biao, is now at the top of China's agenda. ...

LyrArc Article Gist
Izzo looks at the diverging picture presented by two Labor Department surveys of unemployment in the U.S. for July 2012- an increase of 163,000 jobs or 195,000 fewer people working. One, the Household Survey is based on survey of individual households counts people and the other the Establishment Survey based on a survey of employers counts jobs. If one person holds two jobs he would be counted twice in the Establishment Survey and once in the Household Survey. If a person is a unincorporated self employed person, a family employee who isn't paid, a farm worker who is employed but not paid he is counted in the Household Survey, but left out in the Establishment Survey. The Labor Department prepares a third measure of the number of people working by adjusting for multple jobholders and for workers not counted in the survey of businesses. By this third measure the U.S. economy added 108,000 jobs in July, which is far less than the 163,000 jobs shown added in the Establishment Survey. Because of the increase in parttime work it is likely that more people are doing multiple jobs which may explain some of this difference. Another reason could be the severe drought in the U.S. that may be reducing the opportunities for work for freelance construction maintenance and day laborers because of restrictions on water use. This shows that it takes several months of data to get some sense of where unemployment is headed, adjusting the numbers for unusual events or weather, and looking behind the numbers to the sectors generating jobs. In the first quarter of 2012 more jobs were generated in the U.S. because of a mild winter, followed by fewer jobs in the second quarter, which required looking at the two quarters together to get a better picture. Adjusting for the long term unemployed who have quit looking is also necessary to get a correct reading of U.S. unemployment levels....

LyrArc Article Gist
China adopts a two child policy nationwide in October 2015, abandoning a one child policy adopted in 1980. Experts had warned for years of a policy that would lead to fewer young people, and a rapidly aging society. UN forecasts show China will have about 400 million people over the age of 60 in 2030, 25% of the population in 2030, compared to 14% today if current trends continued. Growth of elderly people would burden the pension and health care systems. The birth rate of 1.4 children per woman is lower than in the U.S. today.

LyrArc Article Gist
Ben Inker of Grantham Mayo sees profitability at U.S. companies at a high because of savings in labor costs while consumption has not declined because of government transfer payments and fiscal policy. He sees profits of U.S. companies declining in 2012-2013. This makes the U.S. stocks less likely to perform well in the future, especially the stocks outside of the blue chips which he sees as highly overvalued. A better choice in his view is in Europe and Japan which are undervalued. His funds have 39% in U.S. stocks and most of it in blue chip stocks. His view is that interest rate policy will not have a large effect as the changes will be very gradual, and going from zero percent interest rates to one percent interest rates will not lead to much change in economic activity. From his point of view the largest risk is in shrinking of profits at U.S. companies as the deficit comes down, because today workers are able to maintain consumption because of fiscal policy and companies are able to cut costs. In Europe the austerity cuts are being taken seriously and this will impact profits, so the U.S. will look better in 2012. But value will prevail in the long run as European and Japanese stocks are undervalued and the U.S runup leaves stocks overvalued in terms of future stream of profits....

LyrArc Article Gist
This Washington Post editorial says vice president Biden's comments that "I guarantee you, flat guarantee you, there will be no changes to Social Security. I flat guarantee you," made to a voter in Southern Virginia, is downright disheartening. It points out that this is not the conclusion of the trustees of the Social Security Fund, which includes the secretaries of Treasury, labor and health and human services of the Obama administration. The April annual report of the trustees says that the disability portion of the trust fund "becomes exhausted in 2016," and the overall fund "becomes exhausted and unable to pay scheduled benefits in full on a timely basis in 2033." Actions suggested by the trustees include: raising the payroll tax, tweaking the inflation calculator, reducing benefits, or some combination of this. It is clear from polls that the U.S. voter does not want either party to touch Social Security, but the reality is something different. The idea of a flat guarantee in the light of facts that all can see is seen by the Post as going too far, trying to win votes at the cost of postponing necessary decisions which will become harder and costlier if not addressed early....

LyrArc Article Gist
Wagoner became President at age 45, CEO at age 48. So you would think that young blood is coming in to GM, but that does not appear to be the case. At the Board level most of the Board members like George Fisher formerly of Motorola, have been around for a long time, and there does not appear to be new blood that would bring in fresh thinking. And serious decisions about investment in developing new technologies to develop fuel efficient cars, like hybrid technologies, electric and other alternative technologies, diesel technology, have been held up for years at General Motors. The way decisions are made on such issues with Board members voicing their opinions more than wrestling seriously with the issues, shows serious shortcomings of management and the Board. At key points of decision making the CEO and key members of his team had not prepared carefully, and Board members did not come up with serious thinking on the problems facing GM. It, appears that the investment in technologies to develop fuel efficient cars much earlier, long before they were finally being addressed in 2006, was a failure of Wagoner's management and of the Board. Management discussed this but continued to be mired in old ways of thinking that continuing with the status quo- cars with existing low fuel efficiency- would not expose GM to illwinds as preferences changed. Its clear from the description here of discussions within GM that the old thinking is quite entrenched at GM, and Wagoner just was not the kind of person who could vigorously articulate a new vision for GM. A couple of things are noteworthy in this account of management indecision at GM. When fuel prices began hurting sales of SUV's and large vehicles in 2005, efforts to get a decision on investments in new technologies for fuel efficiency for the whole product lineup failed at the Board level in an April 2005 meeting. One Board member saying at that meeting, that" do we want to lose another billion dollars in developing new technology for fuel efficient cars." And no one calling him to account that the remark still did not address the point that GM had to respond to the changing market and world oil dynamics, and not just hope for the best, as GM had aggressive competitors, and faced continually diminishing role in the market place for the entire decade of the 1990's. While April 2005 was already at the tail end of the previous era of gas guzzling cars and a decision then would still not have shown a forward looking vision of things, it was not until 10 months later that a decision was reached. And this almost from necessity, as oil prices jumped in 2006 after hurricane Katrina, and by this time President Bush was also calling for higher mandated fuel efficiency standards. The other noteworthy point here is that by making the changes so late in the game, GM had to compress the development cycle for new and some cases unknown technologies into short time frames. If the ingenuity of its engineers comes to its rescue it still faces another hurdle that of cost, because the technologies have to be perfected and improved, so that the costs are low enough for customers, and importantly comparable with what it is costing competitors to make the same fuel efficient technology engine or other part. Which is why one Honda executive remarked, "GM like everyone else is serious about this, because they have to be, but how many of their hybrids and how many Volts will they sell? Their technology is very expensive." Even if GM develops the Volt electric car by 2010, GM will need a whole range of fuel efficient technolgies to power its large product lineup. Its just to hard to avoid the conclusion that this is going to prove costly. All the dragging of feet and indecision, and failure to prepare GM for a different world in case something drastically different from what was expected happened, will prove very costly especially considering how aggressive and well financed some of the Japanese and German competitors are. It also hard to avoid the conclusion that there is too much bureaucracy at the large auto companies, and getting new blood and new ideas and fresh thinking is tough in a place where everybody agrees with everybody else, and there is uniformity of thinking. This makes it difficult for any original or wayward types to thrive. These bureaucracies look up to the top for direction. Initiative is discouraged on one hand, and at the same time even if a new direction is taken at the top. a lot of resistance can be expected to implementing it throughout the company without persistent persuasion and reminder of new facts and realities. This is true for both Wagoner and Mullaly as they face the skepticism of subordinates to new direction. Mullaly for instance has to remind his managers that large vehicles are only a small percentage of the entire global market, and if Toyota is making money in small cars so can Ford. See the link to this. Is Toyota immune from bureaucracy type behaviour throughout the company? Not really, Toyota's chairman emeritus came out of retirement in fact and went out of the way to caution its CEO and management about their complacency a year or so before. Shoichiro Toyoda personally intervened to caution against too much expansion in the US and climbing wage costs, and other risks they perceived such as the company managers in the USA appearing to be resting on their laurels. See the link to this. A lot of discussion is probably going on within these companies about the present state of affairs, and considerable anxiety for what the future will bring. It may be useful to ask the question is there something that makes it difficult for once successful organizations -now with entrenched bureaucracy and set ways -to put forward leaders with vision and foresight, till it becomes very late? The vision and foresight about where their markets and the world is heading, and the ability to move their organizations in that direction. Or to break out of old patterns of behaviour and thinking....

LyrArc Article Gist
Mark Frazier, a professor at the New School, is the author of the book "Socialist Insecurity: Pensions and Politics of Uneven Development in China." Here he describes the situation in China for the elderly and pensions. There is no Social Security Administration in China like the one in the U.S. Pensions are the responsibility of local authorites. Urban pensions were established in 1951. Pensions for rural areas and farmers came only in 2009. The situation in China for pensions is much like that in the U.S. before FDR's New Deal, being run by a patchwork of local programs- about 2500 county and city governments running pension funds. The problems of pension programs being run for the benefit of well connected groups and making risky investments exists in such local programs. Local governments taking on large levels of debt is a serious problem. The pension program in Shanghai came under scrutiny because of risky investments. A report in Dec 2012 cited by Frazer cites empty accounts at 2.2 trillion yuan or $353 billion. The National Social Security Fund has only $140 billion. Overall pensions account for about 3% of GDP in China compared to 4.9% in the U.S....

LyrArc Article Gist
Samuelson warns that turning seniors into a protected class making no sacrifices whatsoever, will mean shrinking all other social programs, defense and investments in education and infrastructure. This is the reality of the budget deficits facing the U.S. He cites the Congressional Budget Office projections that even with cutting defense and non defense discretionary spending by a third, the U.S. risks a deficit in 2023 of about 6.75% of the economy or gross domestic product (GDP). To cover this would require $1 trillion in higher taxes, an increase of a third above the 1970-2011 average. He says Democrats are using demagoguery and intimidation on this issue, and ironically even Paul Ryan's proposal reflects a desire not to touch seniors benefits and willingness to pass on the costs to the young to pay for these programs. Social Security and Medicare are a critical part of the American fabric, and no one wants to dismantle them, it is about modernizing them to reflect higher life expectancy and larger wealth accumulated by the elderly compared to previous generations, and to reduce the burden on the young. ...

LyrArc Article Gist
NYT exhortation for Congress to resist the lobbying pressures of the banks to weaken regulation for a Consumer Protection Agency and derivatives trading on exchanges. The first by amending legislation for a Consumer Protection Agency so that no states can pass tougher consumer protection laws, something that prevented states from protecting consumers from abuses in the mortgage business. The second to propose legislation for derivatives trading that allows corporations and hedge funds to trade derivatives privately. NYT editorial says Congress should require all derivatives dealers and users -banks, hedge funds and corporations- conduct their trades on exchanges where they are reglulations and public scrutiny. NYT responds to the banks and corporations that say this would raise their transaction costs to hedge any given risk, by saying that this is debatable. Greater transparency should reduce costs but even if there were some higher costs it would be outweighed by the larger benefits to the banks themselves and the country through the lower systemwide risks. ...

LyrArc Article Gist
Couple of things stand out. First an aging workforce at the oil companies. At ConocoPhillips half of the workers are eligible for retirement in 5 years. According to the Society of Petroleum Engineers about 40% of petroleum engineers are over 50 today. This also means that they are higher paid employees and takes up more of Conoco's budget for exploration of $11 billion as a compared to a younger workforce. What the industry needs is lots of people to do the explortation and drilling jobs from construction labor to project managers, to geologists and petroleum engineers to geoscientists. About half a million petroleum related jobs were lost between 1982 and 2000 when the oil industry had low prices and plenty of supply leading to large layoffs. During 1982 to 2003 petroleum related undergraduate programs saw enrolment drop dramitically by 85%. Now the industry is paying the price with severe people constraints when demand has picked up. Cambridge Energy Associates estimate is that there would be about a 10-15% deficit of people even a few years from now in 2010 because it takes time to turno out new engineers and geologists. Today there is big interest on campuses in petroleum engineering and petroleum related fields. Its the highest paid field for college grauates at $68,000 average and at schools like Texas Tech its $100,000 average. Still only 3700 petroleum engineering students are enrolled on campuses compared to the peak of 11,000 in 1983 so there is some hesitation about this field because of the cycles of ups and downs. The novel approach that oil companies are adopting of turning to the auto industry and to academia to fill the people needs is worth watching because here are 2 industries going in opposite directions and whereas one has a shortage the other has qualified people who have no opportunity, a shift makes sense and training to make that shift makes a lot of sense. The Association of Drilling Contractors has teamed up with Ford Motor Company to hold a career fair to attract auto employees who are subject to buyouts....

LyrArc Article Gist
Gao points to the huge gap between the opportunities available for urban students compared to that of the sixty million rural students, who are "left behind" by their parents and cared for by grandparents. The rural students have much fewer opportunities and fewer resources for learning.