Thursday, June 24, 2010

Jobs and Recovery: June 24, 2010

I apologize for my recent disappearance on the blog, recently on the work front I have been tackling a plethora of issues.

Recently I have been revisiting the blogsphere and came across an interesting zerohedge article: How US Job Losses Will End

In short, (even though the article is quite short), the rise in wages seen in emerging markets (particularly Asia) will lead to less US outsourcing jobs to abroad (along with other factors such as yuan floating and industrial pressures). He also highlights the very lost cost of labor in Vietnam vs China and India who are experiencing wage inflation, making it a attractive country to invest in.

I'm interested in both points but pertaining the former:

With China trying to tame their credit growth and avoid a market collapse, prospects of the Chinese government focusing more on domestic development is increasing. Evidence of this is their recent policy change of floating the yuan. This will allow for much more flexibility and ability to tame inflation, control unemployment, and bring stability to the central kingdom.

As the article implies, this will lead to:

  • higher wages in those emerging economies
  • less outsourcing in the US
  • new US innovation and focus on production/manufacturing
  • and a possible revitalization to the US job markets

    Though, in honestly, I'm sure its far from simple such that if you have X, then you will get Y then Z. However, the logic and thoughts are worth mentioning as that is certainly a viable trend within the next decade.


    More interestingly for our group, what does this mean for a dollar trend? I won't speak of forecasts as that seems to be the taboo word among my peers. Though I will certainly say trade flows will change. The capital and current account may see reversed flows exerting downward pressure on the dollar within the stated time frame give above (from a trade perspective).

    However, dollar weakness may be off set by the what is often talked about from the "inflation vs deflation" debate, something my good friend "Sauros<----" often talks about. Particular if inflation is the greater issue at hand, a series of interest rate hikes will be expected (watch that yield curve!), which might be a greater influence in the short term for the dollar vs. something like reversed trade flows, which is a structural issue and may take many years to be seen effects are seen in the economies.

    In the short term (the next few years) the inflation debate will be more relevant before China can tackle their domestic issues to the extent that it will help the US jobs market.

    In that respect, as Asia and Europe (the fiscal crisis and contagion) deal with their economic issues, which will take many years to resolve, the US will continue to push ahead and be the number 1 economy.

    Simply Put I am dollar bull fundamentally in the long term. However, I will continue to stick to my short term trading.

    PS: I apologize for the long blog, if you need clarification just comment or email me!

    Alexander Lê
    Managing Parnter
    Analyze Capital LLC

    1. That is a good point about wage inflation. U.S. firms will have 1 of 3 viable options:

      1. Stay in China and India and pay slightly higher wages
      2. Outsource to African countries
      3. Bring jobs back to U.S. soil.

      I like option3.

    2. Good point about Africa, if it is down the road, within a decade it would seeem we would only see the start of African development. So in the next few years Id say a revival in America is more viable. There is an advantage to having business close by as we know first hand ourselves. All in all theres a ton of issues up in the air to be exactly sure.


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