Don’t Tell Ben

Nice piece and in complete agreement. You don't have to publish this because it's entirely unrelated, or you can.

But I am curious, when's the post on Todd Combs coming? Given that he was one of the people that responded to Buffett's request for letters from investors who want to join Berkshire, I suspect he probably regularly reads or has read your blog and given that you live in the same area, do the same thing, you either know him, have met him, or know people who know him. Which might be why you haven't posted anything. Am I correct?

What it appears no one is saying is he might just be replacing Lou Simpson. I haven't heard him annointed as the successor from Buffett or Munger, yet. I may be wrong, but I definitely see some ambiguity in Buffett's statements, as I always do.

Have fun in Portland.

Hang on – there is more to the Google story than is implied by the headline. Some portion of the 10% raises are apparently actually a shift from bonus and stock compensation to salary, not an increase in total compensation.

[http://www.businessinsider.com/google-bonus-and-raise-2010-11]

I would agree; the economy is gradually improving…No, thanks to QE2 which at best has no impact and at worst is hurting the recovery by encouraging speculation in risk assets, specifically commodities, which in-turn raises input prices and results in margin compression as companies are not able to fully pass these on to a weak and de-leveraging consumer.

In my opinion, Bernanke’s intention with QE2 is one of the following three things: 1) marginally lower borrowing rates from near all-time low levels in hope this spurs demand. I really hope he doesn’t believe this as there is no evidence (Japan, UK, US QE1) that QE lowers rates and spurs lending. 2) Change expectations and encourage a move from risk-free assets and with the hope of a resulting wealth affect 3) Ready the QE mechanism for MBS purchases when the housing market double dips. In effect, a backdoor bank bailout.

My sense is that it is a combination of 2 & 3 neither of which help the economy long-term.

FYI – I met you at your Portland CFA presentation yesterday (Tuesday). I very much enjoyed the talk and have put a summary up on my site for my readers.

Isaac

"Mr. Schmidt has apparently not been reading the same, backward-looking economic statistics that recently prompted Fed Chairman Ben Bernanke to announce a second round of quantitative easing, by which he intends to buy Treasury notes yielding less than one-tenth the raise now being showered on Google’s rather hefty employee base of 23,000 souls."

One thing has nothing to do with the other. Google's 10% raise isn't a cost of living adjustment to combat inflation; it's an attempt to keep its workers from defecting to well-funded Web 2.0 companies (or from leaving to launch their own start-ups). And, since Google employees are in no way representative of American workers in general (with respect to IQ, computer science skills, etc.), a 10% raise for them says nothing about the state of the American labor market as a whole.

There is a have and have-not problem in our economy – those have jobs, and those have no jobs. Your analysis is weak because you are ignoring 14 million unemployed workers.

Allow me to run the numbers for you and your readers – the US labor force adds about 1 million new job seekers per year, so the economy needs to add 1 million jobs just to keep the unemployment rate steady. Assuming the unemployment rate is 5 percent at full employment, at the current job creation rate, it would take TEN years before we reach full employment. (If you have better numbers with respect to the pace of job creation, then please let's have it. You can't claim that businesses are just dying to hire more people. That's not good enough.)

So if you are one of those unemployed workers, you could wait for as long as 10 years before landing a job. In the meantime, what would you suggest the millions of unemployed to do? They have debts to pay, family to feed, kids to support, health insurance to pay, etc. For the unemployed, the situation is desperate. And please keep in mind that most of them are jobless though no fault of their own.

Now, does Google care about those unemployed workers? Nope. How about any company that holds conference calls? Nope. How about the banks that got rescued by tax payers money? Not a chance. Does the employed care about unemployed? Not really. Have and have-not. The private sector functions beautifully under free market and capitalism when the economy is near full employment, but it breaks down when there is massive unemployment.

The unemployed needs help desperately, but the private sector is either unwilling or unable to help them fast enough. As the world's most advanced economy and some what sophisticated society, should we just watch the unemployed suffer and pretend that it's their own fault? Should we try to stop the Fed from trying to help out because the Fed's actions have negative consequences for the dollar and bank profits? Should we lament the loss of purchasing power of the dollar because the Fed tried to help millions of unemployed workers when nobody else is interested in doing the same?

I known someone who has been unemployed for a while. He goes to the local Aldi grocery store every Thursday afternoon…to pick up rotten vegetables from the garbage dump, to bring home to eat. He has no money, and has a 70 year old father to take care of. He is a good man, honest and hard working. Does he deserve this kind of life for the next 10 years?

I know another person who is also jobless for awhile. He goes from house to house on garbage pick up days looking for someone else's trash (like junked bicycles) that he can bring home to fix up and sell on Craigslist for a few dollars…so he can buy food to eat. He has little education and companies like Google probably will never hire people like him, but he is a good man. He is honest, not a bigot, and would never steal anything. Does people like him deserve to be unemployed forever?

I think the Fed is doing the right thing. It is trying to help, even though QE2 will probably fail. But really, how can you fault the Fed when almost nobody else is willing to help those who are just desperate in our society? Please, get your analysis right, look at the have-nots as well as the haves. The problem we are facing is very serious, it's beyond profits and ROI, and if allowed to continue, it will change our society forever (probably for the worse).

Jeff, in your opinion: how do the recent positive corporate opinions on hiring square with their staunchly negative prognostications recorded by you just 1 year ago ("The New Risk Factor: Expletive Deleted")?