Do you know what hedge funds are? How about selling short? Think you know these–equity traders, programmed trading or block trading? How about VC’s or private equity? Well, you should because they are the reason your retirement savings growth is in freefall.
The roller coaster of a stock market over the last 60 days has spawned reassuring quotes like this recently from a well known bank CEO…
“Make a list of everything important, rule of law, low corruption, unbelievable innovation, entrepreneurship … the deepest capital markets. I’m talking about venture capital, private equity, companies, individuals, the best science, technology, engineering, math the world has”.
This message is brought to you by a guy whose 2014 compensation was $27.7 million.
The business world is moving faster than you could ever imagine and your 401K/IRA is getting killed because of it.
An 80’s solution for a 21st Century world!
Fast-forward to those blue coat guys on the Wall Street floor whose panicked looks resembled the British Air flight attendant who was just told that engine number 2 is on fire. And they’re supposed to know what’s going on.
I want to tell why this is happening because it’s time we got educated.
I have calculated that my retirement plan is now -2% for the year. Let’s call this an unauthorized distribution. Many of you who continue to contribute to retirement probably have taken your money manager’s advice and are “in it for the long run”, but that doesn’t make much sense when the long run keeps getting shorter. As a result people are working longer, earning less and hoping our DC leaders help us out. Hah!
Here are 3 everyday stories about how working people are paying for this…
In July, it was pretty apparent that Greece was going to get bailed out by the rest of the EU and so what started out as a real crisis wimped out failing to support a short-sell scenario. So, with personal profits falling and no other alternatives, our friends on Wall Street had to manufacture a more dramatic one. Can’t you hear it…the discussion that launched a semi-crash.
“Hey, guys!” “Personal profits are down, we’ve bolstered companies as much as we can. What else can we do?”
“China”, one yelled. “They’re in a recession”. “It has to happen sooner or later, let’s start one now”.
“Anybody can tell you that type of growth couldn’t be sustained for much longer anyway.”
“OK, so we have a plan, let the rumors begin” And so they did. The market went on a tear losing then gaining, well, you know what happened and continues to happen.
It even scared China! Not much has changed. It goes up, it goes down. The difference is that prior to this meltdown I was growing at 3% for the year. That makes it a 5% swing.
Somebody is making money, not necessarily earning it.
Once upon a time, a small Pacific Northwest grocery chain decided to sell it family’s holdings to a private equity firm (Comvest) located in Florida. Keep in mind that the VC has no experience in this business space, but took it on and like most VC’s is trying to earn some ROI for its shareholders…FAST.
Haggen Grocery then expands, first to Oregon and then to California, taking advantage of a mandated divestiture required as a condition of Safeway/Vons buying Albertsons.
The VC hires a CEO with no grocery experience from the east coast and settles him in socal. Grocery savvy people who supposedly know the market support him.
Much ballyhooing and fireworks signal the changes taking place and 81 locations open, most in southern California. Immediately, there is a consumer backlash…price hikes are off the charts, parking lots empty faster than a Padres game after the 3rd inning and not too long thereafter, 6 months to be exact, and 27 stores to close.
Can’t you hear this boardroom discussion? “We’ll blame it on miscalculating the market”.
They misjudged the market and its competition. Huh? This failed strategy resulted in the CEO being replaced (I suspect with a giant go-away package), thousands of layoffs, including the physically challenged courtesy clerks, and no changes in pricing structure. Their parking lots are ghost towns. More recently, they declare Chapter 11 and now just last week have decided to close all of their stores in California, Arizona and Nevada.
It’s criminal that someone is making money on this scam, especially from consumers and the employees, who just got 60-days notice.
The uproar over this is really not so much raising the minimum wage, as it is simply income inequality. I don’t think there is anyone who would tell you that it should be raised to $15 an hour. I do think there are those who would say they are falling further and further behind.
If memory serves I was earning $1.25 working at the World Famous San Diego Zoo in 1963. I believe that was minimum wage, which today equates to $9.65 an hour. Not bad, but not enough to live on my own…besides who wanted to leave home at 16? It was enough to save for college and contribute $5 a month for Teamsters Union dues or as we liked to say, Jimmy Hoffa’s legal defense fund.
The graph points out that from 1948-1973 productivity rose 96.7% while hourly compensation was tracking along with it at 91.3%.
However, from 1973-2014, productivity did trend down to 72.2%, hourly compensation only rose at a miserable 9.2%. Not so coincidentally, it was the mid-70’s that spawned “deregulation”, the first being the airline industry. It was also marked the end of defined benefit retirement plans. Deregulation continues today…remember 2008?
Extreme examples? Nope…happens everyday. The common thread is the lack of respect for people and roles they play in business growth. They provide the capital; the labor and the consumption yet are always cast aside as liabilities and cost.
As a country, which includes political and business leaders, we are now at a crossroads in that we have to decide what is more important, money or people.
Il troppo guasta, il poco non basta.
(Too much is too much…too little is never enough)