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A Critical Weekend

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Monday is Labor Day.  This is a critical day for labor in America because its success is about to define our economic future, at least for the next few months.  By the time you read this, you may know how many jobs were officially created in August.  If it was 220k or more a September increase in the Fed Funds rate is likely.  If it was under 180k there probably will not be a rate increase.

The ADP Employment Report, which is less prone to noise in the first place, came in with a middling 190k gain in jobs.

What’s great about this is that Labor’s success in the last month could kill the stock market, pitting labor directly against investment.  There’s nothing productive about that arrangement, but it highlights how strange the world has been.  This oddly critical holiday is a good time to recap some of the topics that Barataria has gone over the last few months.

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Chinese Meltdown, Latin America Next?

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The long anticipated meltdown in Chinese stocks has accelerated this week, although it took a break today. Whether or not it has implications for the broader economy in China and around the world is unclear, given how little China relies on its stock market for financing and growth.

It’s all about the “carry trade”, or ability to borrow money in a foreign currency (usually US Dollars) at low interest rates and invest it at home in the hope that the local currency (Renminbi, or “people’s currency”) will become more valuable relative to the foreign currency later. It’s a two-fer if you can invest it in something that appears to be gaining in value, such as local stocks, and Chinese investors went for it bigtime.

Yes, it was all another bubble waiting to pop, which it appears to be doing now. But can this hurt us? Speculation has centered on trade with Latin America, which has its own uneven growth and a growing reliance on China. But this is silly for a lot of reasons. It’s worth looking at Latin America as a unit and seeing what effects we can really expect.

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Logistics

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“Amateurs talk strategy, experts talk logistics.”
– Common US Army saying

Barataria has been discussing some of the key skills and perspectives that define the next economy with an eye towards teaching them to the next generation that will need them the most. Cooperation in competition is certainly rising in importance in a higher technology world, as is the need for a flexible workforce  and a greater reliance on automation.

All of these come together with a greater need for strategic thinking, and its related leadership models, but are executed with the great challenge of a time when everything moves faster every day – the art and science of logistics.

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Franc-ly You Must be Kidding

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Last Friday the ongoing “Currency War” claimed an unlikely casualty – Switzerland, a nation best known for being solid in money and neutral in war. The central bank had to remove the ties to the Euro under pressure from foreign investors and the result was an upward explosion of 39%, before settling in at 15%, in the Swiss Franc (CHF, known by its French name Confédération Helvétique).

That may sound like good news for the alpine nation, and it is if you are holding a lot of CHF in a bank account. But if you make precise equipment or other things that the Alpine nation is known for, your stuff just got 15% more expensive. Managing this situation is going to be a tough one for the Swiss, certainly, but it’s a disaster for those who borrowed money from their famously solid and discreet banks.

It’s also an earthquake that rattles our whole idea of “globalism”.

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Paralyzed

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“It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something.”
– Franklin Delano Roosevelt

One of the key features of the time we live in is paralysis.  Uncertainty creates risk aversion, since risk is much more difficult to calculate.   After a few years living like this and people start to live day to day.  It eventually becomes “survival mode” when tomorrow becomes very difficult to imagine.  The result is nothing – and that often comes even when one person is calling the shots, let alone a system based on consensus among many.

The evidence is all around us that something unusual is happening.  Change is coming faster and in ways that are not often talked about adequately.  The economy is not simply recovering the way it has after any other post-war recession.  What should we do?  FDR had it right – try something and see if it works.  If that goes against every instinct you have right now, you’re not alone.  But let’s see if we can convince you that there are, in fact, some things that point to very different actions than we’re all used to.
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