Friday, July 22, 2005

When 11 of 56 Leading Economists Agree, Part II

Well, they’re hiring in the valley.

Silicon Valley, that is. And it’s not just Google. Even Cisco, after a few years of keeping a tight leash on new hires, is out there competing for talent.

And it is getting competitive—“like 1998,” according to one friend with a history in the technology business, frustrated after losing a recent battle over a good new candidate.

Another friend—a mid-level engineer at a brand-name semiconductor company—is ready to bolt for an offer on the table if he’s not happy with his performance review this week. What would make him happy with his performance review this week? A big raise would make him happy.

I’m no economist, but that’s called wage inflation—something we weren’t supposed to get until the “labor arbitrage” with China was finished, which until yesterday’s move in the bond market apparently wasn’t going to happen for the next 10 to 30 years.

In fact, after yesterday’s revaluation in America’s Cost of Goods Sold—by which I mean the Chinese Yuan—our yield curve might start looking like the UK.

By which I mean inverted.

So whoever is buying those pools of “alluring and controversial mortgages that require unusually slim payments for a few years, before bigger sums fall due” from the likes of Ben Ray III (see “When 11 of 56 Leading Economists Agree, Something’s Wrong” below) might want to start checking those “low documentation” mortgages a little more carefully.

And make sure Billy Bob really does work down 't the Stuckey’s, like he tol' Ben Ray III.

Jeff Matthews
I Am Not Making This Up


cdub said...

How about today's comments from building products distributor BlueLinx Holdings - they said profit was hurt by a "significant decline" in structural product prices.

"Composite price indexes for pine plywood, strand board and lumber declined anywhere from 8 percent and 26 percent in the quarter."

Doesn't sound like inflation to me.

jucojames said...


Your post is the kind of thinking that causes most people to "miss" broad trends and inflection points. ECRI does a great job of explaining this in their recent book on the business cycle. At any given time in an economy, some prices will be going up and down due to the cyclical nature of supply and demand. When lumber prices spike, it doesn't take that long for people/companies to decide and execute a plan to cut more trees down...hence bringing on supply. Steel has been the same way. However, it does take a long time to find/produce new supplies of oil and other natural resources.

Inflation is a monetary phenomena. I won't speak for Jeff (love your blog by the way!), but I have also seen similar wage pressures. This is no surprise given the reckless monetary policy employed globally over the past several years. Ironically, the Fed has been withdrawing liquidity at the long end of the curve (first time) over the past couple of weeks - could mean they are finally getting serious about slowing things down. To date, it has largely been a bunch of jawboning. I think the 1998 analogy is a good one and is ominous for stocks and the economy...unless one expects another bubble to form and/or the world's tolerance for money supply to explode once again.

ridder said...

JucoJames, what indicators do you use to see the Fed is withdrawing liquidity at the long end of the curve? TIA

Its_strange said...

With a low documentation mortgage would Ben Ray really want or care to know if Billy Bob had a job or not ????? ...Just pool it and send it down the road.....Once again, PMI stopped doing business with the sub-prime lenders and i would love to know the details why.

jucojames said...


You can look at the Fed's balance sheet at their website. They have been net sellers of Treasuries for 3 weeks now...given most recent data. I don't know of a way of knowing for sure that it is longer dated paper being sold, but with them tightening the short end and the long end getting hit over the past 3 weeks.....draw your own conclusions!

Project_Guru said...

Recently it was reported that Countrywide held onto some mortgages longer than they typically do. Speculation is that it could be because the market is getting saturated. Seriously, I believe we have to be scraping the bottom of the barrel once the no doc loans are becoming rampant.

black bart said...

You might ask your contacts in the valley about the "wages" being offered/asked for. It would interesting to see if it is true "wage inflation" this time around, given the imminent option expensing implementation.

techinvestor said...

Do u have an RSS feed for this blog

Ed said...

How's this for wage inflation:

"200 is the new 100"

- widely-cited quote to describe how having a $200k job is now the same level of prestige, pay and accomplishment as a $100k job once was.

A said...

Only 11? Are those the same "leading economists" who kept predicting 5.2% 10-years for two years now? I think the value of their "agreeing" or "disagreeing" is sufficiently close to zero.
As far as the inflation argument goes - the average Joe Consumer is perfectly positioned to benefit from inflation, with no savings and up to the ears in debt. Jeff, do you really believe the Mr. Market will oblige?

Wondering said...

If this isn't a bubble, why are we making loans to people who can't afford traditional mtgs? Is there an argument that holds water, one without an underlying agenda (please, not the spokesperson for the NAtl Assoc of Realtors?)which indicates housing is not headed for a bust? How can anyone believe the argument that homes are residences thus stability in pricing is a given, when statistically over 30% of new housing is investment (speculation)? Isn't the difference in imputed rent and current avg rents in most hot markets further evidence of this potential disaster? Am I missing something?