The nice thing about a “skills gap” is that it takes the blame for unemployment/low participation rate off of companies and on to the laborers themselves. There, that’s my liberal plug, now this: apprenticeships are on the decline in America (alt) (the number of apprenticeship programs “fell 40% in the U.S. between 2003 and 2013”) despite their attractive ability to match the training workers receive to the skills employers want. “Perhaps the biggest obstacle is that two-thirds of apprenticeship programs in the U.S. are in the construction industry, furthering a blue-collar image that stifles interest among young people and the employers who could create jobs for them.” Employers say they are skeptical of apprenticeships, however, because of their association with unions, as well as the “fear that employees will leave for better-paying jobs almost as soon as they’ve learned their required skills.” Obama is making America’s job training program reform a high priority (has announced over $500 million in new grants to develop apprenticeship style programs). Interesting to note: when it comes to measuring our skills gap deficiencies, Germany is basically the golden standard (e.g. the United States, Great Britain, Canadaetc.). Meanwhile, here’s how companies can be more “productive, profitable, and provide good jobs with good wages”: 1) “hire people both for their technical skills and their motivation to work together for the mission and goals of the enterprise,” 2) “adopt business strategies that stress quality, innovation…as drivers of profitability as opposed to competing solely on being the lowest-cost,” 3) “implement employment and labor practices that combine investments in training and development,” and 4) “respecting workers’ decisions to be represented by unions if they choose to do so.”
Defensive Strategies Gaining Momentum, Particularly In Small Caps
“In recent weeks, investors have pulled back from the riskier corners of the stock market, and small-company stocks are typically more vulnerable to wide price swings than are large company shares…the result has been two sharp selloffs of small-company stocks this year (alt), yet investors worry that valuations remain lofty and the stocks remain vulnerable to more declines…The Russell 2000 is at trading [sic] around 19 times the expected earnings of its components for the next year…At the start of 2013, the earnings multiple on the Russell was 15.1.” Meanwhile, “large speculators such as hedge funds are betting $2.8 billion this month that the Russell 2000 Index will fall. That’s the most since 2012 and the highest versus average levels since 2004…While small-cap shares are usually the first to benefit when economic growth picks up, the selloff reflects a loss of faith by professional investors in the five-year equity rally…’It suggests a market that has become defensive…we somehow have lost momentum in the small-cap space.’…Russell 2000 companies have on average 4.2 percent of their stock on loan…the average short-interest position on S&P 500 shares is 2.1 percent.” Meanwhile, Goldman Sachs says “while some high-flying stocks have rebounded, investors shouldn’t expect them to return to their previous heights…’Typically quality and momentum have positive correlation. However, today it is slightly negative, suggesting momentum has been fueled by stocks with ‘lower-quality’ characteristics.’”
Debating China: “Impending Day Of Reckoning” vs. Cautious Optimism?
The Financial Times says “a financial crisis in China has become inevitable,” and postponement of the day of reckoning will only make things worse. The things that make them most nervous about China’s economy are: 1) the Chinese money supply (M2) “has tripled in the past six years, an expansion four times as large as that of the US over the same period,” 2) the working-age population appears to be declining, 3) “output is being produced, sometimes even in the absence of any demand,” 4) China’s closed capital account will fuel a “huge and persistent balance of payments surplus,” 5) Beijing may decide to walk to the talk when it comes to easing up on “perpetual policy stimulus” and implicit bailout guarantees. The Peterson Institute for International Economics says that “even with a 50 percent drop in housing prices, Chinese banks could continue to operate relatively normally” with an average non-performing loan (NPL) ratio of 6.6 percent. Things get complicated, however, when you consider the “whole slew of industries that provide inputs to real estate development,” many of which are highly leveraged and don’t have very far to go to be in default. Furthermore, because “mortgages are used as collateral for more than 40 percent of bank loans,” a drop in home prices would reduce banks’ collateral for lending.” Also, more than 40 percent of Chinese households’ net worth is in the equity value of their home (in the US it is closer to 30 percent). PIEE concludes that “China isn’t in danger of a US-style wave of foreclosures, but the financial sector is certainly not insulated from a real-estate-induced economic slowdown.” Further complicating the issue is that “official housing data are often of such poor quality that even informed observers can’t be too sure of themselves.” Also, China’s sheer magnitude (160 cities with population > 1 million; The United States has 9) makes this type of data collection especially hard.