Chinese Regulators Completely Missed the Entire Concept of Regulating

Edward Tj GeretyOn July 8 of last year, the Chinese Securities Regulatory Commission (CSRC) put in place a six-month ban on larger shareholders (those with over 5 percent of the stock) from selling. The impact is that well over 75 percent of shareholders were banned from selling. As the Chinese economy continued a slow decline, these shareholders were increasingly nervous. Many wanted to sell, but due to CSRC’s regulatory fiat, were unable to do so.

This week, many thought, would end the troublesome circumstance. However, other shareholders, fearing that enormous selling pressure was about to commence (perhaps as much as 150 billion yuan, which is about U.S. $23 billion) began bolting. They sold and sold and sold. On Monday, new circuit breakers (price collars or limit ups or downs on how much the market could rise or fall) were hit and paused trading on the Shanghai Composite Index. On Thursday, the seven percent threshold was reached, halting all trading, less than half an hour in the entire trading day.

What all this says is more about getting the right balance between free markets and appropriate regulation than anything else. Regulators should not be in the business of trying to impact prices or trading. They should be stock or commodity blind and price neutral. The CSRC, perhaps well-intentioned, massively missed that mark by mandating a majority of stocks would not trade for months. That pressure has brought about, along with the declining Chinese economy, a record-breaking negative beginning to the year in Chinese stocks, which has also impacted other markets around the world.

To make matters worse, the CSRC has now determined that the circuit breakers are not in force. This could result in extreme volatility (time will tell). They have gone from being too prescriptive with poorly calibrated circuit breakers, to having no circuit breakers whatsoever! Meanwhile, they haven’t indicated when or if shareholders will be able to sell…creating even more uncertainty. (By the way, if you didn’t have Chinese stock, who would want to trade in such a market?)

In the U.S., as a result of Black Tuesday in 1987, circuit breakers were put in place. Those have continually been recalibrated. In 2012, following the Flash Crash of 2010, I worked with my financial regulatory colleagues to put in place harmonized circuit breakers in future and equity markets. They have, knock on wood, worked fairly well. That said, we learned after being burned. The same is taking place now in China.

Balancing a free market and prescriptive regulatory approach is a delicate task. The CSRC clearly hasn’t found that balance. That might be acceptable if it only impacted China, the world’s second largest economy, but it also impacts the rest of the world. Let’s hope they get it together soon.

All of this makes a stronger case than ever for having global market regulatory structures which are more harmonized. Today, we have international markets which operate 24-7-365. While no induvial national regulator has a requirement to harmonize with other national regulators, which is clearly what is needed. Such is true not only with regard to circuit breakers, but with regard to all other financial regulation.

The Markets are Crumbling but You can save by Refinancing

Edward Tj GeretyYou may be losing your shirt in the stock market this week, but you could get a leg up on your home loan. As investors flee stocks, they are heading to bonds, and as a result, mortgage interest rates are falling. Mortgage rates ended 2015 at their highest level in nearly six months, but have since dropped precipitously.

Bond markets continue defying the odds so far in 2016, because it is considered a safer investment. Higher demand means lower yields. Lenders price according to the yields on mortgage-backed bonds, which generally follow the 10-year Treasury.

Mortgage rates do not follow the Federal Reserve funds rate, but most expected that as the Fed raised rates, mortgage rates would rise as well. This has more to do with an improving economy, which would be behind both.

Given the Fed rate hike and strong ADP data yesterday — among other reasonably decent economic anecdotes — we would be more justified in expecting bonds to be under pressure at the start of the year, but rather the drop in rates is a pleasant surprise.

The average rate on the popular 30-year fixed mortgage is now just below 4 percent for the most credit-worthy borrowers. Applications to refinance a loan had dropped dramatically in the last two weeks of 2015 amid higher interest rates, but this move lower could create a new opportunity for thousands of borrowers who have yet to refinance at a lower rate.

There are not many regular borrowers who would benefit from the current rates, given the refinance boom of the last three years, when rates were hovering around record lows. There are, however, nearly 430,000 borrowers who could still benefit from the government’s HARP refinance program, according to the Federal Housing Finance Agency. This is for borrowers who still owe more on their mortgages than their homes are worth, commonly known as “underwater.” Their loans must be government-backed. Why so many still?

“They may be in a good financial position, able to make their monthly payments and don’t want to mess with it,” said Andrew Wilson, Fannie Mae’s chief spokesman. “There are always some number of people that just never do, and the question is why not?”

These borrowers are leaving money on the table. They could also refinance into shorter term loans, paying off principal more quickly. Even if rates don’t move much lower, refinancers could benefit from a slow easing in the credit markets.

“That would open refinancing up to homeowners shut out of the mortgage market over the past few years because of their credit scores, debt-to-income ratios, income, assets or lack of equity,” said Guy Cecala, CEO and publisher of Inside Mortgage Finance. An improving economy and rising home prices could open up re-fi’s to borrowers with higher rate mortgages who have been forced to the sidelines for several years.”

Let the Sell-Off Continue

Edward Tj GeretyFollowing a strong close yesterday, U.S. index futures were nicely in the green for most of the overnight session, but began taking on water a couple of hours ago, and are now down about 0.6% across the board.

Asia closed with modest losses as Beijing’s move to prop markets sent Shanghai higher by about 3% in that market’s final hour (it still closed down 0.25%). Europe’s given up early gains and is now modestly lower.

The 10-year Treasury yield is down three basis points to 2.23%, gold is up $4 per ounce to $1,079, and oil is down $0.12 per barrel to $36.63.

The Rise of Plastic

bottleThe past, present and future of plastic production.

1. Plastic was first invented in the 1860s and developed for industry in the 1920s.

2. Plastic production exploded in the 1940s, when it became one of the fastest-growing global industries.

3. About 299 million tons of plastics were produced in 2013, a 3.9% increase over 2012. Global production of plastic has continued to rise for more than 50 years.

4. From 1950 to 2012, plastics growth averaged 8.7% per year, rising from 1.7 million tons to the nearly 300 million tons of today.

5. Worldwide production grew as plastics gradually replaced materials like glass and metal in many consumer goods.

6. Plastics are synthetic materials manufactured from polymers, or long chains of repeating molecules.

7. They are derived from oil, natural gas, and recently from plants like corn and sugarcane.

8. Plastics made from plants still represent only a small portion of overall production.

9. About 4% of the petroleum consumed worldwide each year is used to make plastic, and another 4% is used to power plastic manufacturing processes.

Are radical Islamists heirs to Russian Nihilists?

Edward Tj GeretyOne of the first modern terrorist organizations emerged in the Russian Empire in the second half of the 19th century.

Underground bomb throwers in the Nihilist and People’s Will cells numbered in the thousands and for the first time in history, they developed a comprehensive political program, spelling out what their terror campaign planned to achieve and by what means.

They were not seeking revenge against the more odious government or police officials. Nor were terror attacks a way to improve the lives of the people by making the government treat them better.

It was in fact the exact opposite. As Lenin would later put it, “The worse, the better.” The radicals actually wanted the poor to suffer even more and the State to tighten the screws more severely.

Eventually, once conditions became untenable, the terrorists expected people to rise up, overthrow the government and build that wonderful society in which everyone would be equal, happy and there would be no violence.

People’s Will terrorists mounted a hunt for Czar Alexander II – not because he was a reactionary, but because he was too liberal. He had abolished serfdom and was about to institute the first elected body in Russia.

Predictably, a period of reaction followed his assassination in March 1881 and his reforms were rolled back. A quarter of a century later, in 1905, Russia exploded in its first revolution.

Terrorist acts in Russia succeeded with depressing regularity, with an astonishing number of top government officials assassinated in the years before World War I.

Terrorism polarized society and unleashed waves of repression. It made reforms and modernization very difficult and created an environment in which moderates and liberals were squeezed out.

There was no room for national reconciliation, only for further radicalization. Lenin’s older brother Alexander Ulyanov was involved in a plot to assassinate Alexander III and was hanged in 1887 – an event that scarred his 17 year-old brother’s psyche.

Corrosive effect on society

The brutality of Russia’s Civil War in which both sides committed unspeakable atrocities and some 1.5 million military personnel and 8 million civilians lost their lives, was certainly exacerbated by this radicalization.

The Bolsheviks, while never shy of employing terrorist means and, especially, state terror, understood terrorism’s corrosive effect on society.

After the 1917 revolution they found themselves in a tricky situation. They had to acknowledge their debt to early leftist terrorist movements. A central thoroughfare in St. Petersburg was named after Stepan Khalturin, a terrorist who blew up the Winter Palace in 1880 in an attempt to kill the Czar but got 11 soldiers instead.

At the same time, Soviet leaders were obsessed with their own protection and never tired of telling people that terrorism was extremely ineffective as a means of political struggle. However, terrorism is, in fact, deadly effective and it can change the course of history.

Just one example: the modern world emerged from the ashes of World War I and the war itself was a direct result of the assassination of Archduke Franz Ferdinand, the heir to the Austrian throne, by a Serbian terrorist. In our own time, many people in the United States refer to the “post-9/11 world.”

Russian terrorism has had a formative influence on the goals of modern terrorist organizations.

Terrorists everywhere deliberately strive to worsen the condition of the very groups whose cause they claim to champion. They sow hatred and fear and they want to destroy any chance for compromise. They want a war to the death.

Unfortunately, all too often, they provoke the kind of reaction they want — more hatred and more repression. It can even be said that terrorists are among the few effective “politicians” of the modern era.

Conflict of civilizations

Palestinian terrorists started up by blowing civilian airliners and killing Israeli civilians, including children and Olympic athletes. Their goal was never to bring about a peaceful solution to the Israeli-Palestinian conflict, but to make the Israelis hate Palestinians indiscriminately.

They wanted the conflict to drag on and both sides to engage in a tit-for-tat retribution so that the only way in the end would be a complete destruction of one of the nations. It has to be admitted that they are succeeding. The two sides are much further apart today than they were half a century ago.

The Red terror of the 1970s and 1980s in Italy and Germany pursued a similar goal.

Terrorist cells targeted police and government officials with the express purpose of bringing about a fascist dictatorship, which they believe capitalism would resort to in the end. Only then, they argued, would the working class be radicalized enough to stage a socialist revolution.

Al-Qaeda and ISIS similarly want the West to take revenge not only upon them, but also on all Muslims indiscriminately.

They want us to harass Muslims in our midst and to look at every dark-haired bearded man with fear and suspicion. They want Muslim kids to be unemployed and undirected. They want a conflict of civilizations.

True, there are huge differences between today’s ISIS terrorists and their Russian precursors of 150 years ago. The Nihilists, irrespective of their means, believed in the bright future of universal equality, freedom and happiness.

They believed in science, education and progress and rejected religion because it kept the masses ignorant and superstitious. They promoted equality between the sexes.

Muslim radicals are exactly the opposite. They are looking back to the Middle Ages and to traditional customs sanctified by the Quran. They reject modern science and education. Their views on the place of women in society are retrograde.

Differences and similarities

One big difference is that Russian terrorists never targeted the civilian population — something radical Muslims do time and again. But this is a false distinction. Theorists and practitioners of leftist terrorism never allowed an innocent life to stand in the way of the “bright future.

On the other hand, there are plenty of similarities, ranging from intolerance for moderation and compromise, to disdain for the cultural heritage of human civilization.

Russian leftists a century ago regarded “bourgeois culture” as decadent and depraved and promised to create their own cultural and artistic monuments — while destroying the old ones in the meantime.

ISIS thinks the same about the modern West and even the classical Greco-Roman world. It is keen to blow up priceless historical monuments in Palmyra and elsewhere.

All terrorists think of themselves as a sacrificial vanguard, ascetics and martyrs dedicating their lives to their cause – the image that was promoted by the early Russian theorist of terrorism Sergei Nechayev.

But most importantly, all terrorists share the ability to deceive themselves and indulge in magical thinking. They believe that violence, by breeding even more violence, can somehow bring happiness.

 

Eurasia is a large part of the world. In a few decades, it will be the principal driver of the global economy

Edward Tj GeretyThis summer, for the first time, financial turmoil in China created turbulence around the world and even hit New York. This is a historic event and is a portent of things to come.

Yes, China fumbled. It could have avoided certain obvious mistakes which many saw coming, but the Chinese will learn from it. What the episode shows is how the relative weights are shifting in the world way beyond just trade.

China still accounts for less than 15% of global GDP, but its contribution to global growth last year was in the range of 40%. So when that growth slackens, pretty much everyone around the world feels it.

Not surprisingly, people all over the world are concerned about China’s prospects. Is this the beginning of a decline? Are the internal contradictions sharpening, portending further, more serious problems?

In my view, China’s prospects are good. The closer you are to China, the more you feel that.

The more you visit China, the more you realize that, despite all the problems, the country is organically still in the phase of growth.

In terms of aggregate demand, it will take many more years before the Chinese economy has a big enough domestic consumption sector to replace investment as the principal driver – and that consumption must increasingly shift to services.

Coastal China has become very expensive, more expensive than all of Southeast Asia, except Singapore, so the factories that were in China for quite some time have moved down to Southeast Asia. The Chinese government wants to move some of them inland to develop inner China. These are long-term trends.

For the time being, the Chinese will still need investments to maintain sufficient growth. There are still many things to be done, many areas to be opened up, but the pace of future growth will no longer be as dramatic.

This is why President Xi Jinping’s initiative “One Belt, One Road” is of huge importance – not as an immediate plan, but as a long-term approach toward China’s development.

To begin with, China has all this excess capacity in steel, cement, factories producing rolling stock and so on – which can be applied to great use linking China to its neighbors.

This growing connectivity of China to its neighbors deep into Eurasia is a story of epic proportions, which is why we should follow it closely.

Building Global-Asia Connectivity

Consider that earlier this year China established a rail link to the Persian Gulf via Kazakhstan, Turkmenistan and Iran. With the opening of Iran, the dynamics across a large part of Asia will change.

Remember that, throughout history, Imperial China and Imperial Persia always had good relations – two high civilizations maintaining peace in the region. You will see this relationship revivified, not least in view of pent-up demand in Iran.

But China, ever a comprehensive, long-term planner, is proposing or already executing enormous railroad expansion – to the Gulf of Thailand, to the Andaman Sea, to the Arabian Gulf (through the Khunjerab Pass to Gwadar), to the Black Sea, to the Baltic Sea and all the way to the North Sea.

Early this year, China and Russia agreed in principle to build a fast train connecting Moscow and Beijing probably through Kazakhstan.

The distance between these two cities is 7,000 km, and the journey is supposed to take less than two days!

How can one justify such an investment? Of course, one cannot – if one just looks at the proposition on the basis of earnings from freight rates and passenger fares. But all these calculations about the economic feasibility change profoundly if, along the way, one builds a belt of cities.

This is why the words “One Belt, One Road”, announced by President Xi first in Astana in October 2013, and then in Jakarta in November 2013, are far more than a slogan. They represent a strategic reorientation.

“One Belt, One Road” goes way beyond being a plan on paper. It is intended to create a huge flow, a 21st century revival of the old overland and maritime silk roads, at the end of which we are going to find all of Eurasia crisscrossed by connections.

Using a biological metaphor, the growth of these connections is like angiogenesis in the human body.

First the vessels grow, then logistics companies provide the blood circulation — and development of organs follows.

Importance of AIIB

Eurasia is a large part of the world, and it will, in a few decades from now, be the principal driver of the global economy.

This is why the AIIB is so important. Many analysts saw its establishment as a power move against the United States, contesting the Bretton Woods institutions.

That may be a collateral effect but it is not the main purpose of the AIIB, which is an absolute economic and financial necessity.

Even so, this new institution can only supply a small part of what is required to finance all the infrastructure needed, which will be in the trillions of dollars.

Although it is not yet said, one day we may find the Chinese rail system and Indian rail system linking up through the Nathu La Pass. It is a gap of a few hundred kilometers and shorter than the one between the Chinese and Pakistani rail systems that are being connected.

Politically, the time is not right to talk about it, but watching the developing relations between China and India, it is no longer something to be dismissed.

The development of China-India relations is of great historical importance because of their large populations. Together they comprise some 40% of the world’s population.

When Indian Finance Minister Arun Jaitley was asked recently in Singapore how India could benefit from the crash in the Shanghai stock market, he replied that India did not see relations in zero-sum terms. He added that China’s growth was good for India and vice versa.

Developments in China

China knows that to improve the productivity of its real economy, it must deepen and liberalize its capital markets.

Inefficiencies there have led to inefficient SOEs, causing all kinds of problems in the country.

Despite the recent financial turmoil, this strategic intent to deepen capital markets will not be deflected.

The Chinese will learn from their mistakes and they will have to experiment along the way, because they are doing things which no other country has done.

The internationalization of the Renminbi is a case in point. This is not an easy maneuver to execute.

The Chinese are now attempting to create two separate oceans of renminbi – one within China, which is the much larger one, and another outside China (of which London is determined to be a major financial center).

The two are connected through portals like Hong Kong and, to a lesser extent, Singapore. Between the two oceans are tidal barrages like the ones protecting Venice.

If there is financial turbulence outside, the barrages can come up to protect the inland ocean until the storm subsides. The engineering is obviously complex and may not be foolproof.

Why can’t China allow the internationalization of other currencies like other major countries? To understand this we have to go back to the long history of China and the difficulty of governing a large part of the world’s population.

Whoever governs China must always be able to exercise some control over its own internal destiny.

In the second half of the 19th century, after the second opium war, western customs officers inspected any ship landing on the China coast. By the late Qing dynasty, China had lost control of its monetary system and therefore an important part of its sovereignty.

China will not allow this again. But managing the renminbi properly will not be easy because, if the two oceans are at different levels, there is a permanent arbitrage opportunity. Mistakes will be made, but the Chinese are learning. It is a deep imperative.

Recession not likely

What about fears that China will go into recession? This is not likely. Its growth will slow down, maybe to 6%, or even 5.5%, but is now on a very high base of a GDP of about $10 trillion.

That the slowdown in China is causing alarm around the world is because of the lack of aggregate demand powering the global economy. Despite easy money in the last seven years, the global economy has still not performed well.

Central bankers fear that if they withdraw the liquidity, asset markets will implode, bubbles will burst, and the real economy will spiral downwards.

Europe is still floundering. Earlier this year, freight rates per container from China to Europe went down to $200. This has never been seen before and it may take a bit of time before Europe recovers.

The United States is looking better but the Fed’s nervousness cannot be without reason. Better policy coordination with China will help but it is no guarantee that the global economy may not plunge into another crisis.

It will take many more years before the Chinese economy, together with other developing economies, become big enough to make up for insufficient demand in the mature economies.

China is probably the only major country in the world today which is able to exercise a national will on a range of subjects.

This is principally because the economy is still in a late adolescent phase and partly because the political culture over the centuries accepts centralized governance.

For example, when President Xi promulgates “One Belt, One Road,” the message percolates right down and funds are allocated. The countries involved know it is credible because it is backed by a strong national will.

There is much talk about the South China Sea becoming a flashpoint. Yes, the South China Sea is important, but it is not the most important issue.

It is a trial of strength between the United States and China but one which both sides will be careful not to mismanage. The most important issue is still the global economy, because if we get that wrong, everything else is in danger.

America’s 20th century business icons are in trouble — but that’s no reason to worry

Edward Tj GeretyWith Walmart sales and profits falling, pundits are asking if the economy is again headed down. Hardly so, even though IBM and other business icons are in trouble.

Better competitors — and mostly Americans — who herald a new age of American innovation, are simply squeezing the Arkansas retailer.

Walmart’s recipe for success was simple. Through a detailed knowledge of supplier costs, disciplined supply chain management and low wages for store personnel, it bargained hard with manufacturers and delivered goods at the lowest prices.

Unfortunately, its methods were hardly occult and others like Dollar General and Target caught on, undermining the Arkansas behemoth’s competitive edge.

Moreover, along with other big employers like McDonald’s, Walmart is under increasing social political pressure to pay workers more.

Growing popularity of the virtual marketplace

Walmart attributes 75% of its drop in projected earnings to raising entry level wages to $9 an hour. But employers don’t get much paying a single mom so little. Shoppers complain its stores are unfriendly, messy and often poorly stocked.

Other bargain retailers are suffering a similar malaise, because millennials — and older folks willing to change buying habits — can get better products for cheaper prices online.

For $99 a year, Amazon Prime provides prime-time TV and free shipping directly from the folks that make products. That virtual marketplace offers more choice and competition that drives down prices.

As a result, the retail supply chain, including shipping to warehouses, as well as stores’ and retailers’ inventory carrying costs, is altogether cut out. That drives consumer prices to their lowest possible level.

Brick and mortar are not going away but when consumers know exactly what they want, they can save even more by avoiding the cost and pain of negotiating Walmart’s congested parking lots and “courteous” employees.

Alas, the same is happening at IBM. The tech giant’s competitive advantage was in helping moderate-sized and large companies manage on-site computing, software and related services.
The “cloud” factor

It would then use the resulting access to hawk its mainframes, software and businesses services such as Lotus Notes email and artificial intelligence systems.

Unfortunately for IBM and traditional rivals – Hewlett-Packard, Dell and Oracle – businesses large and small can now rent or lease computer services at a cheaper rate on “the cloud” online, just like discount granola bars.

Amazon Web Services leads by offering 10-times the cloud computing capacity as the next 14 largest rivals combined, and boasts of clients like General Electric, BMW and Capital One.

AWS is building a marketplace for software and services from a wide range of suppliers with obvious advantages over an IBM consultant who has an interest in hawking Big Blue’s offerings.

Many other firms like Juniper Networks, Equinix and Red Hat also offer computing power, software and other services on the web.

Both Walmart and IBM are moving toward web and cloud, but both have CEOs more comfortable with another age and executives who feel entitled to out-sized compensation, which their revenue and earnings trends indicate they hardly deserve.

Light at the end of the tunnel

The good news is that so many of the leaders in e-commerce and the infrastructures of data management, computing, software and business services that define the cloud are American.

The story repeats in so many places — Tesla, not BMW or Toyota, with electric cars that break performance meters, and Twitter and Facebook that turn all of humanity into a village square.

We entered the 21st Century being told by so many economists and pundits that this would be the Asian Century. China’s woes and inept leadership throw cold water on that thinking.

Just as in Henry Ford’s age, the future belongs to people with a “better idea.” Thankfully, many of those are the American entrepreneurs who are defining a New American Century.

Can we really count on the labour market statistics we have?

Edward Tj Gerety IIIWhile there is raging dispute over the numbers game, many experts nevertheless acknowledge that funny things are happening in the U.S. labor force.

For example, in a down economy, one puzzling fact for economists has been that, although the percentage of unemployed Americans has declined, the official rate of employed Americans has also been declining, to the point where the employment rate is at its lowest level since 1983.

How can that be? In normal times, those two measurements are inversely related  –  as the number of employed Americans goes up, the number of unemployed Americans, as well as the unemployment rate should go down.

The two are supposed to countervail each other, like opposite ends of a see-saw. And yet, in this strange new world, both the employment rate and the unemployment rate have been declining. How is that possible?

Growth in number of “discouraged workers”

The short answer is that this is happening because the multitudes of workers dropping out of the labor force and drifting into the grey economy are not counted in official statistics.

And the number of such “discouraged workers” (as they are called) has grown large enough to make it appear like the unemployment rate is declining. Certainly, more and more experts are realizing that the unemployment figures don’t reflect reality.

Even Federal Reserve chair Janet Yellen, whose job is to sound as upbeat as possible about the economy, had to admit in February 2015 before the Senate Banking Committee that the overall jobs picture is “less rosy” than the declining unemployment rate indicates.

That’s because of the surge of “marginally attached and discouraged workers,” as well as “an unusually large number of individuals who are working part-time who would like full-time jobs,” she testified.

Indeed, the U.S. Bureau of Labor Statistics estimates that 12 million fewer Americans are participating in the workforce, compared to before the onset of the Great Recession.

That’s over 8% of the U.S. labor force  –  it’s as if a giant hole in the earth opened up and swallowed these workers, making them disappear from the traditional labor market.

Are they working on the grey market or black market? Or under the table in the gig economy? Apparently nobody knows.

With all the data and technology at our disposal, it seems ridiculous that it has proven so difficult to track and count these labor market trends.

What’s going wrong?

Maybe Ronald Reagan had it right when he stated that “Government is the problem.”

As this is one example in which the Labor Department and Bureau of Labor Statistics really have shirked their responsibility to try and assess the size and growth of this dynamic shift in our economy.

The U.S. Government Accountability Office (GAO) last attempted a study in 2000 through 2005 of contingent work arrangements, finding that the percentage of the U.S. workforce that could be characterized as contingent or on-demand ranged from 5% to 30%, depending on the precise definitions used.

This is quite a wide spread, indicating a lot of confusion  –  a confusion that still remains.

The lack of sufficient quality data itself is telling, since it reveals that policy makers are neither doing nor attempted to do a good job of tracking these changes in the labor force. Shame on them.

I think we are going to find that more and more workers exist simultaneously in multiple worker categories.

An example of this would be a worker who has a regular part-time job (W-2, but with little safety net) and supplements that with being an Uber driver and/or Instacart deliverer (1099 worker, still no safety net) while taking up other mini-gigs, nano-gigs and perhaps a second part-time job (temp, freelancer, etc.).

Many workers already have multiple employers  –  sometimes within a single day! How will that look in the labor statistics? Will we be able to count this complexity using current methods?

Toward a 21st century workforce

The gig economy is just one sub-domain of what is happening more broadly to the workforce including just-in-time scheduling and other disruptions to the labor markets.

It is a result of the gig economy, automation and robots, artificial intelligence and other factors.

Fortune columnist Jeffrey Pfeffer writes “What is not in dispute is that the proportion of contractors, freelancers, and part-time, contingent workers in the U.S. has been increasing and has been for a long time.”

I could not agree more. There are just too many independent sources whose data and research all point in the same direction.

While solid numbers documenting the shifts are hard to come by, it is nevertheless abundantly clea
r that the old New Deal economy and its safety net is crumbling for millions of U.S. workers.

At a time of stagnant wages and unyielding economic inequality, how do we ensure that millions of contingent workers retain access to the safety net?

Some people, like U.S. Senator Mark Warner and myself, are starting to float proposals on how to deal with this, specifically how to create a “new safety net and social contract for the new economy.”

Others are taking up this challenge. Hopefully, we are at the outset of some changes that will transition the United States to a new economy that works for everybody instead of disproportionately for the wealthy and powerful.

Market History is repeating itself – Digitally this time.

bubbleFunding for tech start-ups appears to be going strong, but there’s a looming concern that it could be too strong — strong enough that it’s already fueled the next tech bubble.

Some investors and analysts have been reluctant to say outright that we’re in the midst of overgrowth in tech.

Fifteen years ago, the sector was relatively young, but now with established tech companies like Apple, Microsoft and Facebook leading the charge and better tech representation among the S&P 500, the industry has matured.

But relatively firm-footed tech giants are one thing. Start-ups are an entirely different world. The market for tech start-ups today may be just as speculative as it was during the first bubble, suggested Nick Bilton, technology and business columnist at The New York Times.

“The valuations of companies are just completely out of whack and no one has any idea where these numbers are coming from,” Bilton said in an interview with CNBC, adding that the existence of billion-dollar start-up “unicorns” in tech, is a major sign that we’re in a tech bubble.

Among those unicorns is ride-hailing company Uber, worth $51 billion; electronics company Xiaomi, worth $46 billion; and short-term apartment rental site Airbnb, worth $25.5 billion, according to a recent Fortune ranking.

At the beginning of every bubble burst or every recession, there’s always been a race to build the biggest skyscrapers in the world. And it’s usually from money that has come in from bubble-gotten gains. Often when you have these buildings built, there isn’t anyone to fill them and it starts to be one of the things that causes the bubble to burst.

The skyscraper indicating a bubble this time around is the Salesforce Tower, which is currently under construction. That skyscraper is expected to stand 200 feet higher than the Transamerica Pyramid, which is currently the tallest building on the San Francisco skyline.

But whether there’s a bubble at risk of bursting or just some high-flying start-ups that need to gear up for a descent.

The  best advice today is to protect yourself is put your money in your mattress.

But risk is par for the course at VC firms.

“Most venture capitalists … are absolutely comfortable with tech companies needing time to reach profitability,” said Tony Tjan, CEO and managing partner at venture capital firm Cue Ball Capital, in an email.

“What you are looking for first and foremost is great people. Human capital matters more than anything in good and bad markets,” Tjan said.

The True Unemployment Number

Edward Tj GeretyThe Labor Department said today that the unemployment rate stayed at 5.1 percent in September — but does that tell the real story?

Most economists look beyond the “main” unemployment rate to other figures that can give a more textured view of the employment situation. On jobs day, the Bureau of Labor Statistics puts out a slew of figures, each of which provide their own view of the economy.

One of those figures is the U-6 rate. Many economists look to the U-6 rather than the main unemployment rate (also know as the U-3). The BLS defines U-6 as “total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force,” plus all marginally attached workers.

In other words, the unemployed, the underemployed and the discouraged — a rate that remains stubbornly above prerecession levels.

The U-6 rate dipped in September to 10 percent, the one bright spot of the jobs report. The overall trend in the U-6 has been more volatile than the main unemployment rate and it’s down 170 basis points over the past year, versus an 80-basis-point drop in the U-3.

The jobs report this month has particular importance because of the Fed’s dependence on data for its decision on raising rates. The Fed declined to raise rates in September as many had predicted, but had hinted that a rate hike in 2015 was still likely.

Fed Chair Janet Yellen recently said policymakers were waiting to see an increase in the labor participation rate, as well as a decline in unemployment.

The nation added 142,000 jobs in September, just 2 percent higher than in September 2014.

One ongoing cause for concern in the jobs report has been the area of wages. Average hourly wages increased 2.2 percent on a year-over-year basis in September; weekly wages inched up 2.4 percent.

When the unemployment rate declines, average wages typically rise as employers have to compete for a smaller pool of job candidates.