JoetheInvestor's  Instablog

There is a prevailing attitude that states that "if you want a job, you just have to go out and find it. If you don't find it, the solution to the problem is to get more schooling." The assumption is that there is always a job, and the onus is on you to make it happen. What if there isn't employment? If you are in an industry that is downsizing, which is the case in most industries, and there are more jobs than people, isn't it logical that some people will not find jobs? If this condition persists, and people believe the assumption above and decide to get more schooling, does this change anything? If there is one job and 10 people want it, and they are all equally qualified, there will be 9 unemployed people. If 2 years later, there is still one job and 10 people go to school to get more training, and they all come out equally qualified, isn't it still true that one person will get the job and 9 people will be unemployed? If we raise the ante still further and say that all 10 people are PhDs. If there is only one job, and 10 PhDs, won't there be 9 unemployed PhDs? Does more training mean better odds of finding employment? Not necessarily - there is something called "being overqualified", which means if you are not an exact fit for a job, you will not get it.

There is an economic law of supply and demand. The basic idea is that the more there is of something, the cheaper it will be. This applies to goods, services, and labour. The more people are looking for the same job, the cheaper the price will be. The price of labour is the wage. On the other side of this law, the larger the demand is, or the more something is wanted, the more expensive the price is. This applies to goods, services, and labour. If this situation happens, there will be 10 jobs and only one person applying for them, so this person gets to choose who they want to work for at the highest wage. When have you heard of this happening in recent times? For most people, there tends to be large supply and little demand, and there are more people than there are jobs. This means that unemployment will persist for a long time in spite of what the unemployed do about it.

Where is the evidence of this economic law? The unemployment rate is at multi year highs, and has been there for years. (3)(4) The Federal Reserve admits this when it is trying to stimulate the economy until the unemployment rate goes down. (4) The average wage paid is also rising at the slowest rate in 50 years, which translates into the fact that the demand for workers is at its lowest in 50 years. (2) If people are receiving employment benefits, are they in fact lazy and are prolonging joblessness? If there is no job, there is no job. If all of the sectors have the same problem, where is someone supposed to work?

Should the government be paying people forever? No. But there should be a realization that jobs have to come first before people can be mobilized to take them. There should be an incentive for everyone to create jobs, and the people will naturally fill them. Is there a disconnect between the policy makers and the people who have to do the work?

Sources:

1) http://online.wsj.com/article/SB10001424127887324712504578133093359840804.html?mod=dist_smartbrief

2) http://www.ctvnews.ca/world/u-s-unemployment-rate-ticks-up-to-7-9-per-cent-1.1021594

3) http://research.stlouisfed.org/fred2/series/UNRATE

4) http://abcnews.go.com/Business/federal-reserve-interest-rates-low-mid-2015/story?id=17226149&page=2#.ULU3C2fNl3g

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Since the US election, there has been more attention given to a petition about Texas seceding from the United States. This idea is not completely new as the US nation itself was formed by seceding from England. There will also issues of separation during the early years between the northern and southern states. The questions that arise are: Why now? What is the message?

It seems this idea is simply a matter of voter rage that needs to be heard. The number of people signing these petitions is in the hundreds of thousands versus the tens of millions, but is this the beginning of something bigger? These petitions are surfacing in most US states, but the most attention seems to be given to Texas. (1)(2)(3) This rage is not new, but is an accumulation of cynicism over the current state of the economy and government. It is not very significant now, but it may be a symptom of something much bigger which people are trying to resolve.

What does this have to do with your money? When Quebec wanted to separate from Canada, consequences that ensued were corporations exiting Quebec in favour of other places, higher interest rates and a lower Canadian dollar. The province of Quebec has recovered from the effects of that episode - but it is still affecting the area economically. The reasons are simple - money does not like uncertainty. Once trust in an economic region is disturbed, it takes a long time to rebuild. Without a perceived stable political and economic system, money will not stick around. If the individual states want to go down this road, there will be issues economically as well as politically. This does not mean that secession is a bad idea, but all of the factors should be weighed before this option is taken seriously. Secession would mean a rethinking of how the US governments are operated, both on a national and state level.

Sources:

1) http://brainerddispatch.com/opinion/2012-11-20/talk-texas-secession-symptom-voter-disbelief

2) http://www.kwtx.com/centraltexasvotes/home/headlines/Central-Texans-Weigh-In-On-Petition-Requesting-Texas-Secede-from-US--179227761.html

3) http://www.examiner.com/article/all-50-states-have-petitions-to-peacefully-secede

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Are you tired of hearing about the US "fiscal cliff"? This is when a combination of tax cuts and spending increases expire, essentially pulling $600 Billion out of the US economy. This would reduce GDP by an estimated 3% or more in a short period of time. (4)(5) Given that the US economy is already treading water, this could mark an official recession as of January 1, 2013 as opposed to an unofficial one.

The most concerned group of people in the United States seem to be the wealthiest. The largest expected effect of the fiscal cliff is tax increases for estates, dividends and capital gains. Advisors are telling the wealthy to gift to their heirs before the end of 2012. (1) The wealthy are also concerned about the election outcome, since President Obama has been talking about taxing the rich for some time. (1) (2) There are also possible tax increases for investment and business income, and the wealthy are dumping their assets in droves. (3)

How legitimate are their fears? Given that fiscal problems are not new, and taxing the rich is not new, this scenario may all be a pile of smoke. On the other hand, time is running out to actually do something about the deficit, and sooner or later there will be a downward spiral on the US dollar. If American politicians are serious about reversing the current trends, they should act in the next 12 months. How they are going to act is anyone's guess. If money is what is needed, the logical thing to assume is to go where the money is. The wealthy are thinking the same thing.

How will this affect the rest of the world? If the wealthy start dumping assets, prices of many investments may go down. Given the mob psychology that accompanies a panic, this may cascade into a correction around the world. The good news is that the correction may be short lived and prices may rebound in 2013.

Sources:

1) http://www.reuters.com/article/2012/11/07/usa-campaign-wealth-idUSL1E8M1JOQ20121107

2) http://www.reuters.com/article/2012/11/10/us-advisers-election-idUSBRE8A90A020121110

3) http://www.cnbc.com/id/49792979

4) http://www.policymic.com/articles/19045/fiscal-cliff-2013-we-could-see-a-3-percent-drop-in-gdp-if-washington-fails-to-find-a-solution

5) http://www2.macleans.ca/2012/11/12/the-a-b-c-of-the-fiscal-cliff-and-what-it-means-for-canada/

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.