Here is a quick chart of how things have progressed over the last two years in regards to unemployment – the blue line that is. I included the red line to emphasize my viewpoint on the next few quarters. First, I’ll say I’m actually not as optimistic as the chart indicates. But I have a good feeling about the unemployment shape.
Here is my rational for a deep unemployment situation, but not a drawn out one:
1) Transformation Efficiency. The method for transformation is much more efficient than it once was. Business within the US is in constant fear. Because of that most companies have both hiring and layoff systems in wait. So when a company needs to activate one or the other the time to get the machine moving is very small. Plus people can acquire skills faster than ever before.
2) Impatience! No one seems to be talking about the most valued resource in the US = TIME! The greed that caused many investors to abandon long term investing strategies (why wait 10 years for 9% return when I can leverage everything for 20% now) will very soon pull the US out of the situation. Its as simple as there are just to many deals to be had out there right now.
3) The Cash Bubble. Today the three month Treasury bill traded at a negative yield. That means people who bought them are acknowledging a loss on it. How strange is that? People want to put their money somewhere to the point of taking a loss because the return will still be more than many other investing options. If that doesn’t scream for alternatives, I don’t know what would.
4) Globalization. Businesses are realizing it isn’t a cure all. Good ideas still have to come from somewhere. And lessons learned from the last 15 years or so will show the US is still the leader in driving new business. Which in the long run, flips globalization back to the US. For instance, suppose you are a successful company in Asia in the call center business. Your growth rate levels off and expansion is necessary to improve income. The US has the talent to assistant in this type of work.
5) Content is still King. Many news agencies are in dire situations (Tribune, Time Warner, and the NY Times) but it isn’t because people read less, listen to music less, or visit museums less. It is because advertising needs a refocus. In the meantime, this situation will spawn a new dynamic of content creation and perhaps distribution. There are simply too many talented people flooding the vacuum of free time.
So because of these five forces, the US will hit a deep unemployment chasm (in it right now 12-8-08) and then rebound out fairly quickly. I feel like the tipping point is when the jobs report levels off. That will be the signal that it is safe to go back into the water.
Working Thoughts 