Ballmer Gets “It”
on January 23rd, 2009 at 7:07 am
Ordinarily I’d simply post a link to a media report in either my Gems or Brickbats page. But this quote from Microsoft CEO Steve Ballmer shows that he really understands what is going on now, in a way that no other person in authority seems to have done as yet. The full report can be found at:
Microsoft resorts to first layoffs, cutting 5,000
Ballmer’s perceptive analysis of what is going on is:
“We’re certainly in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to lower level of business and consumer spending based largely on the reduced leverage in economy,” said Chief Executive Steve Ballmer during a conference call. For consumers, that may mean less discretionary income to spend on a second or third home computer, he said.
Bravo. That is precisely what is happening. It is also why, though government action might slow down the decline, ultimately it can’t prevent a serious decline in economic activity. That can happen only gradually as we slowly replace debt-generated spending capacity with income-generated capacity. What the government can do is remove the logjam standing in the way of that process, which is the crippling mountain of debt accumulated by the Ponzi financing behaviour of the last 4 decades (and in particular the last one). But that will require much more drastic action than simply bailouts: given the scale of debt accumulated, either the debt has to be devalued by inflation, or written down via government decree.
We’re still a long way from any government official or politician realising that. But the fact that someone as influential as Ballmer has put his finger on the problem implies that maybe that day of realisation is approaching.
Stats Watcher do you have to get a new car? There will be plenty of forced sales of near new cars in the months to come and no doubt some great bargains. Mind you considering the state of the new car market there will be sales of new cars also. I know for a fact that 3 Toyota dealers have already dropped out. The exchange rate could be the elephant in the room and I have no idea where the dollar is headed.
I agree with ‘Halcyon’ , ‘Stats Watcher’, unless it’s the work write off, ‘new’ cars are rarely good value, but by the 2nd half of the year (if not earlier), the dealers will be picking you up in a limo to take you to their den to flog you the best value new or used car purchase you will ever make.
Please though don’t get a 4 whell drive – your ego can’t be that big !
joshua
See what your Super Fund’s Cash Interest Rate is. After a lot of questioning of my so-called financial adviser he finally found out that Cash in my Allocated Pension Fund only paid 1.9% Cash, which seemed to be a surprise to him as his exact words were: “1 year is 1.9% (after fees) which I have to admit is not competitive (we have tried to ascertain why it is so low but with no luck.” Read “I really can’t be bothered finding out!!”
Because mine was an Allocated Pension I was able to withdraw the whole lot and most of it is in a Term Deposit for 6 months at a much better rate than 1.9%, and I haven’t a clue what I’ll do in 6 months time.
You won’t be able to withdraw your money from Super at this stage unless you fulfil certain conditions, but you should be able to move to Cash in your Fund as Carbonsink advises. Don’t expect a nice big Interest Rate, but like me, you’ll no doubt sleep better at night.
Hi Joshua,
I believe the share market will bottom before the macro economy bottoms. I also believe the markets have a long way to go yet. Based on history though. When the market hits both temporary bottoms and major bottoms it’s almost impossible to jump in and buy shares. The reason is that almost everybody is doom and gloom. Most feel the market will keep falling.
If you watch the market for the next few months you will see this in action. I believe there will be a temporary “new” bottom in the next two months. After that the market will be due for a large multi-month rally. This will happen despite the fact that the news in the macro economy will continue to worsen. The market will rally and the bulls will feed off each other.
After several months of that rally. I think the market will then fall off the cliff and find a devastating new low. This is all based on the Elliot wave theory and analysis.
Ultimately the market will make a major low. The market will then start a recovery and may test but not breach that low again. The problem is that the major low will look like the temporary lows and most will come to think that the new low will be breached to the downside like all the others.
All that’s not to helpful other than to say that at some time in a couple of years it will be worth switching back to shares. At the moment it is probably a good idea to switch to cash quickly.
More on Super,
I manage my own fund. Since January I have been between 80% and 90% cash with the remainder shorting the DOW and the Naz.
My problem is this. Once the crisis starts to mature, I fear I will not be able to trust cash in a bank.
Super rules will not allow me to withdraw cash and put it in a safe deposit box. If bailouts get too big I will not trust Govt bonds either.
I think equities will continue to decline and at some point the counterparty risk will make me to afraid to even short the market.
Any ideas on how I can stay within the law but also protect my super?
hi frank,
you raise some interesting issues.
average income in china is around $6000 in purchasing price parity terms, average income in the US is around $48000. more than 40% of the labour force is employed in agriculture, in the US less than 2%. its going to take till 2040 atleast to acheive pre emminence assumming they dont suffer any internal set backs .
and thats the big question isnt it. the US had its war of independence, civil war , indian war, mexican war etc etc. it had to deal with the robber barons. alot of blood was spilt on the way to being a global super power.
can the chinese government maintain political control and maintain the frantic pace of modernisation without people wanting a bigger say , eg democracy. also we were lucky that the US took the mantle from the british so they inherited alot of their ideas about the rule of law. china doesnt have that tradition, so they are going to have to come up with something thats exceptable to all of us or we wont do business with them unless they decide to use a lot of gun boat diplomacy like the US has done.
chinas percentage of public debt is about one quater of the US.
its rate of investment is 2 and a half times that of the US. its growth rate in good and bad times is up to 5 times greater than the US.
even with all these positives china still needs to be able to stimulate domestic demand and wage growth
its starting from way behind but i think its going to win the race
one big problem that stands in its way is bretton woods and its consequences. gold or no gold standard we have US dollar hegemony where world trade and finance is done in US dollars. the US goverernment has stiched us all up including china. in essence china is unable to exploit fully any comparitive advantage in trade against the US due to dollar hegmony.
any surpluses it might have are denominated in US dollars. it can do several things with these surpluses. firstly it has to keep some of it in reserve to protect itself against currency attacks and movements that would undermine its own currency and trading position, allthough its currency isnt traded in the market. secondly it needs to reinvest these surpluses, hence the rise of these huge sovereign wealth funds. alot of there surplus dollars are re invested back into the US capital account in the form investments into the debt and equity markets, since there are restrictions on them purchasing hard US assetts. its quite a scam the US are running. and they think they can get away with it again with these huge deficits they are creating , expecting foreigners to bail them out through the capital account.
you may have a point. maybe the only way the chinese are going to get pre emminence is if the US collapses from within and it no longer has the economic and more importantly the military power to jawbone everybody else into doing thing its way.
at the end of world war one britain was still a creditor nation.it wasnt until the end of world war two plus 5 years that the british empire was finally all lost
at the end of world war two the US was the worlds largest creditor nation by far. it had achieved military pre emminence. everybody else was broke.
now its the the largest debtor. its still a financial empire due to the dollar hegemony. history has taught us that empires come and empires go . 9/11 was the first i think in long series of global military and economic skirmishes that is going to bring this empire down.
i think it actually may be an externality as economists would refer to it thats actually going to unravel the dollar hegemony and the US finacial empire. a conflict in the middle east , a conflict in the far east. take your pick. it might take 2 to 3 decades to unravel though.
Thanks guys for the advice.
Should you be concerned if your super portfolio is < 30K and it has tanked by 15%. Shouldnt the super be able to buy shares at a cheaper price so it evens out after all if you are looking at a timespan of 25 to 30 years? Is this amount to little to be concerned?
A decade of downturn means that probably nothing will be left. A year and a half back I converted from balanced to high growth:)
My bro had a portfolio of around 80K and it has tanked by 20K so for him it is a different bal game because he stands more to loose and he has a mortgage of 500K.
I am feeling really miserable because my company is planning to outsource our jobs to manila. We have to train those guys to ultimately replace us. There are no jobs in the IT industry.
Atleast I dont have and debt because I live with my bro offset his mortgage with my savings that is quite significant. I doubt it he will ever be able to pay it off. Maybe the banks will come after my offset account. I have set aside purchasing my own house because I would like to help him out and he has a 5 bedroom house.
I used to get crap a lot from people that you cannot do this in Australia but joint families was so common in our culture and we will go out of our way for each other. I think moving back to live with family wont be a strange notion anymore.
hey bullturnedbear,
thank god our moneys made out of plastic and not bio degradable . if we run out of safety deposit boxes , how about under the vegie patch. im not a keen gardner though, allthough i have an uneasy feeling i need to become one if this thing ends up being a total train wreck
Hi Bullturnedbear,
If severe social unrest leads to the disintegration of a government then the fiat currency it issues becomes worthless overnight. If this happens on a wide scale then there could be a collapse in the faith of fiat currencies across the globe. Unlikely perhaps but a possibility. I think the US in particular is in a fairly advanced stage of collapse so the world needs a new reserve currency at the very least.
A productive hobby farm land and 100 ounces of gold could soon be more valuable than a Manhattan penthouse.
Hi mahaish
I watched the news for Chinese investments and diversification from USD based holdings. They have been making great attempts (even valiant perhaps) to get out of this dollar deadlock. For example, their relationship with Brazil I think, or other South American countries, for resources. One thing that really struck me though was what they were doing with Africa. Did you hear about their investments in DRC? They basically agreed to swap some millions of tonnes of minerals (Copper and Cobalt I think) for development of an almost completely new national infrastructure: thousands of kilometres of rail, road, hospitals, modern universities, the works. This kind of model of direct investment is I much more aligned with the kind of authoritarian diktat that goes on in Africa, and seems to have more potential than the Western ‘aid’ model, which comes with moral and social strings attached. However, the result, or perhaps the result was rather disturbing: The Americans created Africom (www.Africom.mil), which came into effect near the end of 2008, with the aim of supplying “security” to African states for mutual economic development. Perhaps the same kind of “security” as Saudi Arabia and Iraq enjoy…that is access to US military hardware in exchange for dollar oil pricing and pro-US resource access biases. Also, we watched the emergence of a rebel movement in DRC. I have heard from some people in Kenya for example, that the recent civil war was to a large extent precipitated not by tribal differences (though that exacerbated the situation), but by a fundamental difference in alignment between the political parties – ie pro China versus pro American. It seems to me that Africa is the scene for an under-the-radar cold war between China and the US over the role of the dollar. Perhaps if China had been facilitated in a spirit of cooperation in its endeavours to extract minerals from Africa the financial crisis we have now could have been avoided.
Mahaish
Actually….that makes me think though…what’s Oz’s role in the above picture I painted? Oz is also mineral rich. What is Oz doing with China?
Mahaish
Christ almighty! Sorry for the stream of posts, but I just had a realisation. If deflation sets in in places like Oz, and credit is hard to come buy, and labour costs drop, then presumably China’s CIC would be more than welcome to step in and create thousands of new jobs extracting cheap minerals from Oz right?? China could up its minimum wages, keep the factories open, and suck the land dry if it wants? Currencies will collapse, but the dollar will remain high while confidence in it as a reserve currency remains. Exports to US and others can be maintained to some extent, while it transitions to an economy more based on domestic consumption. It’s current account surpluses will deplete slowly, but it can ‘internationalise’ its currency and decouple from the dollar, open the way for more foreign investment…. Maybe Jim Rogers is right, maybe we should be long on Asia and short on USD….
Sorry also for the string coming from one blogger whose post was stopped by the spam filter because it regarded the number of links as a worry! All four attempts to post this will be turning up pretty soon–I clicked “approve all” by mistake.
Cheers, Steve
hi frank,
the problem for china is that no one trusts them , and they dont have the economic and military muscle to make people trust them like the US. nobody will want to be in yuan until china becomes the main game in town and they have excepted the rule of law. because politicians in the west dont trust them , they wont allow them to take stragic positions in their strategic industries. africa and the pacific, well they are fighting over crumbs really. its not the main game .
china needs to get big enough, wealthy enough and mean enough that it will be able to impose its will on the rest of us , financially and militarilly. the US is the old lion and its going to come up against the young lion, i dont think we are going to get a peacefull transition of power this time. you can forget about analysts being able to make long range forcasts about earnings, when this thing really gets going. its going to be ugly.
who was that guy, fukiyama, who wrote about the end of history. well ive got news for him. history like the climate is going to get a lot lot warmer
and for us aussies, we are going to have take sides this time,rather than sit on the fence. if we back the wrong guy we are in deep sh*t.
aussies have always been ahead of the curve when it comes to china. gough went communist china before anyone else. we have a mandarin speaking pm.
mandarin and hindi should be made compulsory in our school curriculum in about 20 years time
Mahaish
True, true, the idea of conflict had occurred to me too. If social unrest develops in China to an extreme, the anger might be vented on an external, rather than on the central authority.
However, regarding your comments on the Yuan and strategic investments: would it necessarily have to be that way? I mean, first China holds a lot of dollars, which might remain strong for a while. The Oz dollar should decline in comparison. The opportunity costs of mining in Oz would doubly decrease then with deflation, so mining should become more prevalent. Does anyone need to know or care about where those dollars are coming from?
As for Africa, there is a lot there, untapped oil, and X billion dollars worth of copper doesn’t seem like crumbs to me.
Maybe I am overestimating the importance of resources to China, but I guess that great reductions in the cost of its inputs, along with an increase in minimum wages, should help it to develop its economy to be more based on domestic consumption. I don’t know though, someone would need to look at lots of data about China and work out what the change in prospects looks like according to expected declines in resource prices. Another thing too – as long as USD is relatively high, for some reason oil stays relatively low – there is a significant inverse relationship.
Thanks guys for your thoughts on new cars.
Even the IMF has recognised that the world economy has stalled and China and India are not going to save us. However, they still say that 2010 will see a return to growth of 3% – hmm is that a pig I saw fly past my window.
http://www.theaustralian.news.com.au/story/0,25197,24973302-601,00.html
Hi bullturnedbear – I do not see the next rally being of long duration (2 months at most) and it is unlikely to break through the current low if history is any guide.
If the market falls below 2700 I think all confidence will evaporate and any rallies will be short and out of sheer desperation.
Superannuation reporting will hit the mail boxes in February/March and workers/retirees are in for a big shock.
I moved my Super to cash at the end of September 2007 and I cannot see any reason to move back into property or stocks this year. If your Super fund does not have a cash option then maybe it is time to change funds.
Hi Stats W’ya,
You may have missed my point. How does your fund define cash? A mix of bonds and managed funds (all digital entries). As yields approach zero at the short end, there is only one way for bonds to go. Down in value.
It is illegal to withdraw physical cash from your super (either into a safety deposit box or under the garden). Therefore one cannot escape the digital financial system with their super.
My tip is that the digital financial system will crash within a year or so. Unless I cheat or one of you smart cookies come up with a legal solution. My super will go the way of the do do.
Hi Evan,
Please re-read my post on social unrest and economic collapse. I think you may have misread it. Your assumptions seem to be incorrect.
Further, currencies trade relative to each other. Therefore if one crashes its relative currency would rally.
What you are describing is hyper-inflation, whereby the buying power of all currencies falls. Hyper-inflation is the rapid expansion of the supply of money and credit. The opposite is happening at present as credit is being dramatically destroyed. Civil and economic collapse would further shrink the total supply of money and credit. Not expand it.
Finally, What if the $A crashes relative to all other currencies? Then our buying power in foreign goods crashes. Yes. But our buying power in local goods could still increase dramatically if the amount of remaining money supply (sum of money and credit) were dramatically reduced relative to the available local goods and services for sale.
You need to read some papers on inflation vs deflation. Don’t trust what Peter Schiff has been saying. His arguments don’t to seem to include all of the picture.
I saw Peter in an interview with Steve Keen several months ago and his argument was that the $US would crash and China and $A would forge ahead. He was a big believer in Decoupling. He called that incorrectly.
I am starting to think stocks are in a bull market. The US housing market have already taken the bulk of the decline as sales are improving and the rate of decline probably will decrease when the statistics arrive, and the rate of the declines will slow from here. To the stock market and bank shares, that is the same as a turn around, meaning the market, and especially banking shares will go up, while foreclosures will go down.
I see it in banking shares. They have clearly reached a final low.
I am not sure if you get an inflationary or deflationary bull market, but it’s a bull market for American stocks getting started. I think will probably be good for emerging market’s if it’s an inflationary bull market. If it’s deflationary it will be an American only experience.
Don’t know Bull, is an account at the Perth Mint allowed for super?? They offer free storage if you have over $50K, I know you won’t get any yield but if interest rates are zero it’s still competitive, and secure!!
It is interesting to see the increased discussion about the rising level of instability especially relating to China and the US.
Another thing to keep in mind, is that the GFC
will not only change the ‘social’ dynamic in every country, it will also change the international dynamics.
The election of Obama I believe will be shown to mark a turning point in history of the relationship between the US and Australia. Despite a lot of media discussion to pinpoint connections or associations with Australia among the new US administration, Obama himself has little knowledge or I believe interest in this country, (particularly in the light of what he has on his plate to deal with), save for getting some hundreds more of our expert soldiers into Afghanistan. If that were not forthcoming he could start the process of questioning our credentials as a strong supportive allie.
Australia is a big ‘empty’ bowl of rich minerals and resources. America has an intractable level of debt largely held by China, Japan and the Middle East.
China needs space and resources. So that all those people who have revelled in the practice of ‘belting Uncle Sam’ might ask themselves, if forsaking Australia became part of a proposition for solving the US situation, how resilient now is the memory and attitude toward his country.
There are many many dimensions to this GFC, understandably most discussion concentrate on see economic and financial, was the number of us like every now and then to consider the sociological aspects; geopolitics will also prove both interesting and very very surprising in my humble estimation.
Not too much will remain the same.
Thanks Ned,
I am not too bullish gold. In fact I am quite bearish. I have a few problems with gold.
1. As demand for cash rises (due to deflation) people and nations will liquidate gold to raise cash. Seems counter to the mainstream view. I just believe that the deflationary forces will be much stronger than people realise.
2. Gold is priced and traded in $US and not $A. The price of gold and the currency can both move against Australian gold owners. That is a lot of complicated risk. They can both move in our favour too of course.
3. Gold is almost the last asset that is still in a bubble. Everything else has fallen. Gold seems to be the last to fall. Caveat, US bonds may be in a bubble. This is debatable due to deflationary forces as well.
The thing I don’t really get about gold is this. Everyone tells me that gold is “real money”. Yet to trade with gold you must convert it to cash. Nobody accepts gold as actual currency. People say this may change in the future.
Further, to bet on gold is a bet on inflation. When we have inflation again, I would rather own income producing properties than gold. I fear we are quite a way off that point though.
Thanks for the idea though. I have been thinking about this for a year and I’m not sure I can preserve my super with a high degree of certainty.
Hi Bullturnedbear,
Thanks for your critique. Rest assured that I have read many debates regarding inflation vs deflation and do not rely on Peter Schiff (or any individual for that matter) to determine my opinions. One of the most fascinating and instructive aspects of this global financial crisis is the fairly extreme divergence of the debate. Many people adopt a 19th century mindset speaks with great certainty though of course we’re all guessing.
I think the main point of difference between our arguments is that whereas you are describing a modification of the economic status quo I’m talking about a complete breakdown in the status quo in which all bets are off.
In your line of thinking you look to the past to predict the future, examine economic models to make forecasts, compare relative theories, etc. There’s nothing wrong with that. If I were to think that way then I agree that deflation is the likely outcome, particularly in the short to medium term.
However, either intentional efforts to destroy an economy from within or massive civil unrest may unglue the current economic paradigms. In the case of the US, what if Helicopter Ben starts printing an extra $2 trillion and gives it to the banks? No big deal as the banks won’t lend anyway (CDS will eat it all up and then some) so the velocity of money will be low enough to counteract any impact on inflation. But what if he prints $20 trillion and hands it out in cash to every US citizen directly. Surely that will lead to hyper-inflation using your standard economic models. What if he printed $50 trillion six months later. Too far fetched? Maybe. But if history is any guide then that is exactly what starts to happen when a government is in the process of advanced breakdown.
More to the point: what if US society completely implodes and the actual government doesn’t exist anymore, at least not in a capacity to enforce its currency through physical power? There will be a run up of hyper-inflation, yes, but that’s just the short term. In the medium and perhaps long term there is no fiat currency at all.
Joshua, I admire your loyalty and love to your brother – and while those links have been lost to a large degree in Australia (to the extent that we had them initially as a part of our Anglo culture?) – I am firmly of the view that we will see a turn back towards family and community ties as this economic strife worsens. So we will see a lot of families moving back in together, and helping to help ends meet. And I am sure that your loyalty will see you assisted as and when you need it.
With regards your super, sounds like you are very young and to be honest, I think that places you in a good position. Don’t worry at all about the minor $ amount that your super has gone down, rejoice in the fact that you are currently able to buy assets within super at prices that haven’t been seen in almost 10 years! And you might even get the chance to buy at even cheaper prices over the next few years.
Super has the advantage of being forced dollar cost averaging (as long as you are employed or otherwise able to make regular contributions) – it’s your decision on whether you want to average into cash (as some of the more bearish people here might suggest) at the moment or to buy risk assets.
The point that I would make is that, whilst it is true that even after the 1929 crash (and the GD) it took 25 years for the stockmarket to reach new highs, people young enough to buy in those years after the crash and hold through to that 25 year mark and beyond did very well.
Believe it or not, probably for anybody with a 25 year or more time horizon, the longer it stays low the better – and hopefully there will be a good bull run before you need those funds (ie. people have had enough time to unlearn the lessons they are learning now). Put it this way, if we were to see a repeat of the GD, this strategy will do quite well.
The other thing that I should say is that if one of your goals is to buy a home for yourself – after you help your brother – super may been seen as a sort of hedging strategy there. If things get really bad and super accounts really tank over the next decade or so, then those same conditions will see that any cash savings will buy a lot more of a house than they would if the governments of the world pulled rabbits out of their collective hats and somehow created the conditions for a strong, sustainable bounce in stock markets (which will strongly benefit super accounts with strong weightings to shares).
Ultimately, nobody knows what will happen – but having time on your side is a very great advantage right now (and the more time, the better). Imagine being 55+ having maintained a high weighting to shares right through to now. They need to somehow forget about what total their super accounts reached, and make a decision right now!
Yep,
I was looking at it from the perspective of security and maintaining buying power, which gold will hold really well in inflation but it won’t loose too much in deflation either, in real terms that is.
I don’t really know what the price of gold will do, but from the figures I see from the amount of paper (and electronic) dollars out there, adjusting to the gold standard price of $35 an ounce that gold should be more like $5000 US. I know that allot of those dollars are being wiped out but there is still a big disparity in the prices.
The only other thing I was going to mention is that they also supply silver whose price is even more depressed than gold, while I agree it is unlikely that retailers will start accepting gold coins I think silver could have a place as a currency, this is pretty much a worst case scenario endgame though where we are transgressed back to the feudal age.