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  • The End of the Expense Cutting Rope [View article]
    There is a converse situation which is also true. I work at a capital-intensive manufacturing facility. In our industry, an individual facility will usually have multiple production units with different manufacturing capacities. In a healthy economy, each of these production units will often operate 7 days / week and 24 hours / day.

    However, the smaller capacity units need almost as much labor to operate as the larger capacity units. (Usually the larger units are the newer ones.) Consequently, the larger units are generally more efficient with respect to labor utilization.

    During an economic downturn,...
    ...the smaller production units (which are less efficient in labor utilization) will get "turned off" for weekends (or longer periods), while, at the same time, the larger production units will continue to operate 7 days/week and 24 hours/day. Thus, within our facility, our labor productivity is slightly higher at those times.

    During a recovery (at least with respect to our industry)...,
    we reverse the situation and allow those smaller, less labor-efficient production units to run additional days. {This is the situation we have right now.}

    Thus, the labor efficiency within our facility will rise as we reduce our output and fall as we increase our output again - because of how frequently we operate our less labor-efficient production units.

    Right now, capacity utilization in our industry is rising.
    Aug 11 06:53 PM | 9 Likes Like |Link to Comment
  • Are Corporate Margins About to Go Kaput? [View article]
    Within capital-intensive manufacturing facilites, there is a slightly different dynamic regarding labor productivity.

    First some background:
    In the particular manufacturing industry where I work, an individual manufacturing facility will have multiple production units with different manufacturing capacities. In a healthy economy, each of these production units will often operate 7 days / week and 24 hours / day.

    However, the smaller capacity units need almost as much labor to operate as the larger capacity units. (Usually the larger units are the newer ones.) Consequently, the larger units are generally more efficient with respect to labor utilization.

    During an economic downturn,...
    ...the smaller production units (which are less efficient in labor utilization) will get "turned off" for weekends (or longer periods), while, at the same time, the larger production units will continue to operate 7 days/week and 24 hours/day. Thus, within our facility, our labor productivity is slightly higher at those times.

    During a recovery (at least with respect to our industry)...,
    we reverse the situation and allow those smaller, less labor-efficient production units to run additional days. {This is the situation we have now.}

    Thus, the labor efficiency within our facility will rise as we reduce our output and fall as we increase our output again - because of how frequently we operate our less labor-efficient production units.

    We are not actually "beating up" our workers to produce more "widgets". In fact, their pace of work actually stays the same. Rather, we are changing the operating days of our smaller (and less labor-efficient) production units.

    I hope this provides some helpful insight.
    Aug 11 06:23 PM | Likes Like |Link to Comment
  • A Steepening Yield Curve Mirrors Erosion in Economic Indicators [View article]
    Regarding the yield curve, here's a somewhat prophetic article from July of 2006 from the web site Econbrowser. At the time that the article was written, the author and various readers were somewhat reluctant to draw a definitive conclusion. However, in hindsight, we can now see more readily what that particular yield curve was really telling us at the time.

    www.econbrowser.com/ar...

    Bryan
    Aug 10 06:32 PM | 1 Like Like |Link to Comment
  • 5 Reasons Why America's Middle Class May Soon Be Extinct [View article]
    Without getting into the politics of these issues, I can offer a mathematical thought regarding Russ Wetherill's opening question (which I have copied and pasted here).
    "I thought that the middle class was defined as the middle quintile of wage earners, those making more than 40% of the population and less than 40% of the population. How can that class ever go away?"

    First, I do, indeed, agree with Russ' point.: There will always be a middle quintile. I also agree with the well-stated points made above by Bob Adamson.

    Second, what MIGHT be the better mathematical expression for what is popularly referred to as "the shrinking middle class", may actually be to describe it, instead, as a change in the "kurtosis" of the wealth distribution "bell curve". (Kurtosis refers to the "flatness" or "peakedness" of a data distribution.)

    I offer the following (non-political) links regarding kurtosis here:
    allpsych.com/researchm...
    allpsych.com/researchm...

    I suspect that a flattening of the distribution curve (the curve becoming more "platykurtic") might result in giving the general population the "impression" of a shrinking middle class. [This flatter curve would correspond to a wider gap between the lower bound and the upper bound of the middle quintile].

    Conversely, in the opposite situation (a more "leptokurtic" or peaked wealth distribution curve) would have the psychological effect of causing the portion of the population whose wealth falls into the genuine middle quintile to feel economically more similar to its adjacent quintiles - thus giving them the "impression" that the middle class "zone" is larger than just 20% of the distribution.

    Those of you who are statistics experts (which I am not), please chime in to either correct me and/or to offer any additional perspective.

    Thanks,
    Bryan
    Jul 28 08:30 PM | 2 Likes Like |Link to Comment
  • Four Reasons to Fear Deflation [View article]
    Actually, those individuals who have credit card debt also "cheer" deflation (assuming, of course, that they can stay employed).

    - When wages are constant, deflation in consumer goods will increase a person's disposable income (which can be applied to debt reduction).

    - Conversely, as we saw in 2007-2008, inflation will reduce disposable income (for most people) and lead to an increase in debt defaults. [Not many people saw their wages rise with inflation during that time period. Rather, many had a pay freeze as their employers tried to compensate for rising raw material costs.]

    For those few whose income actually rises during times of excess inflation [without a long time lag], consider yourself lucky.

    Of course, price stability is better than either [significant] inflation or [significant] deflation.

    My real point is that...we should not assume that moderate deflation is "totally evil" and moderate inflation is "completely benign".
    Jul 20 07:37 PM | 3 Likes Like |Link to Comment
  • 5 Stocks With Superior Potential Returns [View article]
    Excellent article.
    You have provided some very good tools here.

    Bryan
    Jul 2 09:37 PM | 1 Like Like |Link to Comment
  • Velocity of Money Still Crashing [View article]
    Fair enough...
    I have found a partial answer to my question already: Your previous comments often cite the work of Leland J. Pritchard, PhD.

    Among Pritchard's many works is a popular textbook called "Money and Banking", which was first published in 1958. The University of Kansas has also established a scholarship in Pritchard's name.

    It would probably be worthwhile for you to combine your various in-depth comments into an actual article. Most of those comments have a lot of good "meat" in them. "Seeking Alpha" would probably publish it, too (hopefully).

    I even found where you made some very good forecasts on the "Nightly Business Report" website - exactly 3 years ago today. Back then, you recommended buying gold and your analysis of the yield curve was impressive.

    The link to those NBR comments is here...
    www.pbs.org/nbr/blog/2...

    "Fisherman Bryan"
    Jun 29 07:26 PM | Likes Like |Link to Comment
  • Velocity of Money Still Crashing [View article]
    For those of us who are relatively "open-minded",.... do you have any favorite academic papers (or summaries of them) that you would recommend to further support your critiique of Friedman and the "quantity theory of money"?

    Thanks,
    Bryan
    Jun 29 05:49 PM | Likes Like |Link to Comment
  • Tax Break on Mortgages May Disappear [View article]
    Actually, the economic instability of the last 4 years (inflation followed by unemployment) has already compelled the poor and many of the middle-class to utilize "group living arrangements, growing your own food..." One could also add to that "transportation without the use of a private vehicle" (via walking, bicycle, or the bus).
    Jun 11 12:42 PM | 3 Likes Like |Link to Comment
  • SocGen's Albert Edwards worries because a leading economic indicator with a "stellar" record used by the ECRI Institute has never fallen as fast as it is right now, suggesting the current market swoon is something more than February's technical correction. This time, markets are heading lower and leading indicators are rolling over, leaving him skeptical that any rally can last long.  [View news story]
    The link to the ECRI Institute is wrong. It should be

    www.businesscycle.com/
    Jun 8 05:15 PM | Likes Like |Link to Comment
  • Everything Goes Down in a Down Market [View article]
    The ability for an author to make his point succinctly (as this one did) is a valuable trait.

    Too often, I see articles on this website, where authors/contributors will blather on and on, with no data, to simply echo opinions that I have already heard a hundred times in the recent past.

    This was a refreshing change.
    Jun 7 04:55 PM | 1 Like Like |Link to Comment
  • Charlie Gasparino Rips Buffett for Stance on Ratings Agencies [View article]
    One more TARP report for everyone...
    This time, it's from the Congressional Oversight Panel. Publication date is May 13 of this year.

    cop.senate.gov/documen...

    Judge for yourselves.

    Bryan
    Jun 4 05:03 PM | Likes Like |Link to Comment
  • Charlie Gasparino Rips Buffett for Stance on Ratings Agencies [View article]
    Regarding the first statement by Pompano Frog, I present here a link to the Treasury Department's recent report to Congress, dated May 10 of this year:

    www.financialstability...

    Now everyone can judge for themselves.

    Bryan
    Jun 4 04:51 PM | Likes Like |Link to Comment
  • Dividend Investing Works in All Markets [View article]
    Some helpful perspective on this can be gained by examining the bond market.

    In particular, if one were to compare the bond "duration" (sensitivity to the market interest rates of other bonds) of a "coupon" bond to the bond "duration" of a non-coupon bond, it would be observed that "coupon" bonds are less senstive to interest-rate fluctuations. This is because the investors in coupon bonds will still get their coupon payments regardless of the bond price (assuming no defaults). Whereas, investors in non-coupon bonds depend solely on the future sale (or eventual redemption) of their bonds for their investment return.

    Similarly, stocks with RELIABLE dividends and healthy dividend yields will have less volatility and, thus, less downside risk. (Less volatility also implies less upside potential, too.)

    Next, consider that, in a situation where the general equity market appears to be inflated in value, would that not be a good time to shift some of your portfolio to assets with lower downside risk? (assuming that you can still find some with attractive yields.)

    Conversely, if the market appears to be near a bottom, the greater upside potential will be with those assets which tend to be more volatile (perhaps small caps, for instance). (Such assets often don't pay dividends.) (On the other hand, you probably can find some equities with reliable dividends at unusually attractive yields, too.) (Of course, it is difficult to predict a market bottom.)

    Naturally, when considering an individual asset for purchase, one would prefer to buy it at its "bottom". However, when managing a portfolio of various asset classes, one should consider the effect upon the whole portfolio of one's investment decisions.

    Meanwhile, because of the difficulty in predicting market tops and bottoms, a portfolio of "healthy" dividend stocks with dividend re-investment can be very attractive for long-term investors.

    Bryan
    Jun 2 08:57 PM | 4 Likes Like |Link to Comment
  • The CDO-Prosecution Bandwagon Gathers More Steam [View article]
    Felix,
    I am glad that you are drawing additional attention to...

    "CDO-squareds, or synthetic CDOs, or anything else which might have increased complexity and therefore the opportunity for deliberate befuddlement."

    These particular instruments served to put additional distance between (A) the finanical reward (for risk-taking) and (B) the consequences of the subsequent debt defaults of the underlying assets. Please amplify this further in some of your future articles.

    The CDO's-squared (and cubed) are composed chiefly of the worst tranches of other "underlying" CDO's. They serve to concentrate risk rather than to diversify risk.

    According to a 2004 white paper (at the link below) from Fitch,

    "Although CDOs of CDOs may appear to provide additional
    diversification, the limited universe of liquid corporate singlename
    credit default swaps (“CDS”) has resulted in substantial
    overlap among the reference portfolios in the underlying CDOs".

    and

    "the correlation between
    CDO tranches in a CDO squared transaction is
    generally significantly higher than the
    correlation between standalone corporates in a
    typical corporate CDO."

    www.fitchratings.com/d...

    So much for "risk diversification".


    Bryan
    May 13 08:06 PM | 1 Like Like |Link to Comment
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