Friday, August 30, 2013

Low Income Workers Strike: Business Owners Should Tell Them To Stay Home

We are down in Kiawah Island, SC this weekend spending some time at the beach with my fiance's family. After getting off the plane yesterday we stopped at McDonald's to get some much needed coffee.

McDonald's has automated job applicant machines set up now so people entering the restaurant do not need to disturb the workers in order to apply.

I was in the restaurant for about 15 minutes due to the long line, and I saw 3 applicants during that period (2 actually applied and 1 was waiting to apply).

As I was watching them enter their information I could not help but think about about the national strike taking place that day at fast food restaurants across the country. The workers, who usually average between $7.25 and $9.00 an hour, are demanding their pay be raised to $15.00 an hour.

It only take a small amount of common sense to understand how ridiculous this is, but sure enough the media has jumped all over it with full support of raising the wages.

In an article from the Atlantic this week we can read this complete nonsense:

Many employers believe that one of the best ways to raise their profit margin is to cut labor costs. But companies like QuikTrip, the grocery-store chain Trader Joe's, and Costco Wholesale are proving that the decision to offer low wages is a choice, not an economic necessity. All three are low-cost retailers, a sector that is traditionally known for relying on part-time, low-paid employees. Yet these companies have all found that the act of valuing workers can pay off in the form of increased sales and productivity.

QuikTrip, Trader Joe's, and Costco operate on a different model, Ton says. "They start with the mentality of seeing employees as assets to be maximized," she says. As a result, their stores boast better operational efficiency and customer service, and those result in better sales. QuikTrip sales per labor hour are two-thirds higher than the average convenience-store chain, Ton found, and sales per square foot are over 50 percent higher.

This sounds excellent if you live in a complete fantasy world. Trader Joe's and Costco are business models that are targeted toward higher end consumers. They do not open stores unless there is a minimum number of people who make a certain income threshold surrounding that store. The average Costco household, which would would probably be surprising to many, makes $80,000 per year.

Wal-Mart has a completely different business model than these companies. They offer low priced goods to low income families. The same goes for McDonald's. In order to offer these low priced goods, they need to pay low priced wages. Can they offer 10 cents more and still survive? Yes. Can they offer $15 an hour and still survive? Many McDonald's franchise owners cannot.

This is the new "fairness doctrine" that has been instilled from the very top, through president Obama. All Americans should get a job at high wages, provided with health care. If they cannot or they just choose not to work, then the government will provide it for them through food stamps, disability checks, low income housing credits, and Obamacare.

The problem that these striking workers will run into is that they have absolutely no leverage. There are tens of millions of Americans who would gladly take their job if they choose to continue striking. The 3 applicants I saw in just the 15 minutes I was at the restaurant would have probably put on a shirt and begun working that day.

For more on this (hopefully) easy to understand concept in economics, see:

How A Minimum Wage Increase Hurts Workers

h/t MISH

Wednesday, August 28, 2013

Ben Bernanke Tells Emerging Markets To Drop Dead: Currency Crisis Erupts

Jim Rickards, in the video below, discusses the currency movements taking place in many countries around the world such as India where the central bank feels helpless at the moment and in Brazil where it appears the central bank has regained some control of the market.

The following chart shows the recent devaluation in the Indian Rupee which is now in free fall against the dollar. The process of capital flows reversing out of the country began the moment when the "taper" was mentioned by Bernanke. Since March of this year, the Indian people have lost 30% of their purchasing power/wealth (those that converted their paper into gold have seen their wealth skyrocket). They have lost 15% in the last 21 trading days and almost 3% in yesterday's trading alone. The speed at which the tides can change for a citizen's savings are mesmerizing.

Rickards feels that some of the emerging markets have the potential to spiral into a type of currency crisis last seen in 1997 with the Asian debt crisis.

To understand why the Fed will soon reverse the tapering and why they will never actually sell bonds into the market see: Why The Fed Can Never Exit

h/t Sober Look

Tuesday, August 27, 2013

U.S. Unemployment Rate: Gallup Poll Vs. BLS Government Report

I discussed this topic over the weekend in Gallup Poll Shows Unemployment Super Spike Over Last 20 Days, and the following chart from Bespoke provides some additional context.

The Gallup Poll has diverged 3 times from the BLS (government) unemployment rate over the past 3.5 years. Each time following, the BLS unemployment rate has tracked sideways or improved very little.

We have not experienced a defined recession during this period, but if we are in one currently (recessions are announced many months after they begin) as the ECRI institute believes then this could be the moment when the BLS data tracks upward toward the Gallup poll.

Robert Shiller On Housing: "None Of This Is Real"

Robert Shiller, professor at Yale University, co founder of the Case/Shiller housing index, and the man who wrote the book Irrational Exuberance at the peak of the real estate bubble in 2005, had this to say about the housing market this morning:

"None of this is real"

"Market is driven by irrational exuberance."