patrick.net

Austinhousingbubble says

They are not, particularly because they are doing as well as they are doing in large part because they are *too big to fail* and received your taxpayer dollars to help them avoid losses. Now tell me, what the fuck does loving your country have to do with that?

Well, you are correct that they were a beneficiary of government assistance, but I think you mischaracterize what they received. They didn't receive any bailout money per se--instead they were allowed to borrow money at lower rates than they would have received without the government backing.

I'm not sure what you mean about loving your country...

Austinhousingbubble says

Something with bones in it.

OK, could you give me an example? I'm afraid I can't tell which news reports have bones and which don't in your mind...

And where do you see consumer debt is way up? Every stat I see shows the opposite.

http://www.federalreserve.gov/releases/housedebt/default.htm

Well, you are correct that they were a beneficiary of government assistance, but I think you mischaracterize what they received. They didn’t receive any bailout money per se–instead they were allowed to borrow money at lower rates than they would have received without the government backing.

That can actually prove a juicier deal than a bailout.

I’m not sure what you mean about loving your country…

I guess I was referring to a different poster trilling about corporate profit margins and how it made their heart throb.

OK, could you give me an example? I’m afraid I can’t tell which news reports have bones and which don’t in your mind…

To my mind, any article that addresses a topic with an unbiased but skeptical position as its default starting point is one worth consideration.

Austinhousingbubble says

To my mind, any article that addresses a topic with an unbiased but skeptical position as its default starting point is one worth consideration.

OK--help me out here. I'd like to try to find some articles to convince you, but I fear that it will be a waste of time because no matter what I link to, you'll say that it is biased... If your mind is already made up, then I won't bother though.

And where do you see consumer debt is way up? Every stat I see shows the opposite.

I suspect these numbers might be skewed by all the strategic defaulters squatting in their homes and salting away their mortgage payments, sometimes up to three years. There's also been a lot of total or partial debt forgiveness on credit card balances. I certainly do not interpret the numbers as some epoch in consumer frugality.

OK–help me out here. I’d like to try to find some articles to convince you, but I fear that it will be a waste of time because no matter what I link to, you’ll say that it is biased… If your mind is already made up, then I won’t bother though.

I'm sorry if I seem overly stubborn. Frankly, I enjoy dialectic exchanges as much as the next slob.

The sum takeaway from what I've read and seen, (Ferguson, Roubini, Stiglitz, Shiller, Ritholtz, Shell et al), is that the least nightmarish scenario we can anticipate is that the economy is going to sputter along the trough line for the next 5 years at least. The thing that most worries me is that nothing has really changed at an official level when it comes to any of the most crucial underpinnings (financial/economic policy, employee rights/compensation, trade agreements/tariff law, housing subsidies, consumer protection, etc.).

Austin,

Since you refuse to accept facts that contradict your preconceived conclusions, I suggest we stop exchanging comments. I do not want to spend the time pointing out all of the errors in your comments.

That way you can continue to keep your view undisturbed.

And I will continue to make money betting on mine.

Zephyr -- thanks, but these are not my preconceived notions. They aren't even notions. Any skeptic should be at least wary of the anecdotal and hasty generalizations that pass for data on here. I'm sorry they are so offensive to your amen corner.

Suffice to say, if I could somehow bet against your assertions, I would, and I do not gamble.

Austin, You are already betting against recovery by doing nothing.

People who doubt the recovery have already missed out on a 70% rise in the stock market. And the upside has a long way to go. Real estate will follow suit after a slow and lagged recovery.

Being wrong costs lots of money either in buying at the top, or in failing to buy at the bottom. There is not much difference financially between losing 50% in a crash, and missing a 100% gain in a rising market.

As for anecdotal information, I agree with you. It can be very misleading. But I am not offended by your anecdotal generalizations. I just prefer good real information.

Austin, You are already betting against recovery by doing nothing.

Well, who said I'm doing nothing? None of my investments lost one cent of their value these last few years, even during the nadir of the meltdown. In fact, they've appreciated.

People who doubt the recovery have already missed out on a 70% rise in the stock market. And the upside has a long way to go. Real estate will follow suit after a slow and lagged recovery.

Only if we have a return to the free-money/lax lending paradigm we enjoyed during the run-up. Failing that, a total and permanent nationalization of the mortgage market. Who knows, maybe the genie really can fit back inside the bottle.

I just prefer good real information.

For what it's worth, what I posted was based upon stats or recent articles/books that I'd read. It's pretty rare that I ever say "everybody knows" or "loads of people will/wont be" or "that never/always happens."

Big applause for pretty much everything that Austinhousingbubble has had to say in this thread.

Austin,

If you don't believe we are in recovery, what are you investing in to match your outlook?

Have you outperformed the 70% gain of the stock market?

Does anyof this sound like a recovery? As if somehow we can expect 2006 prices is very foolish.

“While March’s big annual gain in the regional median tells us a lot about what’s changed in the market, it shouldn’t be viewed as evidence of surging home values,” said John Walsh, MDA DataQuick president. “It’s a statistical quirk. A variety of data indicate prices in many communities have more or less flattened out or risen modestly, while they remain soft in others. The Bay Area is still impacted more than a lot of other markets by the years-old credit crunch. It’s tougher to get the ‘jumbo’ mortgages and adjustable-rate financing that had long been staples there.”

“Looking ahead,” he continued, “stability in the housing market will rely more heavily on a strengthening economy. Government housing stimulus is fading, and there are threats from higher mortgage rates, more distressed properties hitting the market and continued job losses.”

Zephyr says

Many foolish people once believed that there would be no bust after the bubble.
There are many equally foolish people who now believe there will be no recovery from the bust.
Both groups are equally wrong. They just don’t understand the cycle.
I bear no ill will for either of these groups.
They harm only themselves.

Nope! the price drops we have seen is the recovery of the housing market back to supportable levels. Any thing above fundementaly supported market prices is all bubble. Take away the goverment intrusion (the last leg of our current bubble) out of the market, prices will adjust further down.

Zephyr says

Austin,
If you don’t believe we are in recovery, what are you investing in to match your outlook?
Have you outperformed the 70% gain of the stock market?

Are you serious? Yeah, I know you personally are the perfect market timer, given how you boasted earlier in this thread. I'm sure you sold at the top and then went all in again at the bottom. Congratulations.

But you are completely cherry picking the performance of the stock market. Try looking at 2, 5, or 10 year returns. The average investor would have been better off just letting their money ride in a CD.

I mean, guys, what's not to understand?

Investors have homes to sell for profit. Recovery, economy, different point of views, the whole truth, who cares those shit? They have to make people believe in it's going up stuff till they sell them off and walk away with money. It has to go up.

29% of home buyers in March were all cash buyers, and 1/3 of homes sold are distressed properties. Big percentage of those homes will be back on the market soon with inflated price tag. It has to go up, right?

The same goes to stock market too. I invested on the stock since last fall and getting pretty good profit. Why a bear like me who don't really believe in recovering now thingy invested on it? Becauset the stock market was not acting normal, it was mad. Of course, you bet, I am ready to pull myself out when real recovery comes and people are recovering from this madness.

Mark,

I am not cherry picking anything. Austin says there is no recovery yet. And he says that his investments have done fine. So what is he investing in that was better than betting on the recovery?

How has his view played out in the real world. If he believes what he says, then his investments would not have been bullish, and he has missed one of the best 12 months in history.

My statements about investing are truthful. The stock market has done very well during the times I have been in it, and I have avoided the declines. Perhaps I have just been continuously lucky. That is possible. But I have been studying the economy and investing for about 35 years. That is what I do. And my forecasts have been good enough to do very well as an investor.

seaside, Why would you pull out when the "real" recovery comes? That would be the best time to be in.

I agree that the stock market has been acting mad. The entire drop from about Dow 10,000 to 6,500 was a panic, pure madness. The bounceback to about 10,000 was just restoration of sanity. Beyond that it is a bet on economic recovery. A recovery is the natural pattern, and the macro data now fits with a recovery pattern. So the market goes higher. At some point it will be excessive. But we have not even reached normal trend line yet. We are in the process of reversion to the mean.

"The average investor would have been better off just letting their money ride in a CD."

That is true for the recent years. But only because the ending point is down from the 2007 peak. But if you had bought in steadily for many years you would be ahead. Your average cost would be below the current market level, plus you would have received about 2% per year in dividends.

I am not trying to convince anyone to invest in anything. Just explaining my view.

Nor am I a stock market enthusiast. I was a bear until the end of 2008 when I figured the market would soon bottom and there would be a strong bounce back. So I bought in to benefit from that. I expect the economy to continue to recover, so I expect the stock market to continue to be a good investment for a while - probably a few years. I continue to be bullish. At some point I will be a bear again.

The point is, GE is making money. They aren't losing it, they're making it. Profits aren't bad for them.

You seem to think laying off workers is a simple choice, and it can be done whenever, however often they want and without regard for any kind of morale. It doesn't work like that. If you work in a company that is constantly cutting people, then everything in that company goes to hell. Morale in a company is huge.

You may think firing someone is a simple task, but when you're working in a big outfit, firing someone means you hired incorrectly. So in other words, if you hired someone, you're an idiot who can't do their job. Would you go around saying I need people, but I do a really crappy job at hiring them? No. A right to fire, doesn't mean you can fire. Some managers can't get rid of people because they lose the position. Some managers won't fire because it makes them look bad. Some don't like to fire because there are friendships involved now. Morale *IS* a huge factor in any company. If you don't understand that, I'm not sure where you've been working. If you're in business and morale sucks, you're in trouble. No matter how great your product is, or how well you're doing, you're heading down. Companies offer up incentives to keep employees happy, not just a salary, but other incentives. Unless you're in a job that can be replaced by any idiot, you're company has an incentive to keep you happy.

After lay offs, do you see companies making grand announcements saying, shape up, or we'll have another round! This won't be the last, unless we see every one of you in here for 15 minutes. Or how about "We've let go of the minimum possible... hopefully we won't have to do it again..." Companies aren't evil, they understand the necessity to keep employees happy. They reassure them that their jobs are safe. They try and help the employees who have been let go get new jobs and what not (sometimes for their own benefit) but if a company is seen dumping people on the curb, the remaining employees will start to look for jobs to ensure that doesn't happen to them.

Have you ever been into a business where the employee *REALLY* didn't give a shit either way? What did you do as a customer? How do you think it effected that company? Crappy employees take down a company pretty fast. Demoralized employees become crappy and stressed out.

I've been in companies where this has happened. I've watched management scramble to get morale back up. While I'm not responsible for directly hiring, I'm always able to discuss/interact/work with anyone at the top of any company I've worked at, including one 1000+ employee company.

You're right, often companies let go of a lot of good people, the riff raff is 2nd. But they ask for a riff raff list first. Then they work on which dept need to go, or entire offices. In which case it's no ones fault, it's just a segment of the business that has to go.

A company that was acquired, letting people go? That isn't from a recession, that is normal business practices.

A company that is going IPO? You don't sell off a company unless you're in a really good position. Raising capital during a recession? Going IPO isn't a trivial thing. People want to get hte most bang for the buck.

I'll flip back some questions at you. Which company is making large profits and letting people go en mass? Intel? Amd? GE? Which ones are you seeing that are doing well, and letting people go to keep the numbers up?

I'm going with basic news here. I'm not digging in deep to the numbers of each business, I'm only scanning the headlines looking for tell tale signs of problems. Lay off numbers are pretty big, and they hit the news headlines pretty quickly. I haven't seen any good lay off news for awhile now.

You seem to think companies are always doing evil intentionally. You're thinking they're firing people just to savin gee a few dollars, but neral thney're only doing it whe necessary. If you want to think "evil" here is a way to look at why they aren't going to further cut jobs. If they're manaking money now, d it's a recession and they fire a bunch of people they will have to pay severance, probably higher insurance premiums, deal with the fall out of the whole thing, lose customer confidence, lose investor confidence, but they'll save a few dollars. Their stock will definitely dip, why are they laying off more people than everyone else? BAIL on that stock!!
Even though they're going to make an extra 5, 10 or 15% profit because they have lower labor costs. Investors are spooked, customers are spooked, the whole market is wondering what is going on. Why are they firing so many more people than others?! Now the recovery comes, and every other company doesn' t need to hire for a long time, because they've got lots of extra capacity. Every $ they make essentially is profit. Your company that slashed the work force to minimum needs to hire. Now they're making more money, but spending more. Their costs are going up, and the revenue numbers aren't as impressive as their competitors. Where are investors going to head to? The company that "must" know what it's doing, because they're making money without spending more? Or the company that needs to spend to make money?

In the end, they aren't going to let people go unless it's absolutely necessary. And it's only necessary at the beginning of a recession, when no one knows what is going to happen. Now that things have leveled off, We know now that the government is backing the banks. We know how easy/hard it is to get a loan, get capital to expand, etc. The dust has started to settle and these companies can make informed decisions. If they start letting more people go en mass, we'll know something is up. But I really doubt we're going to see big announcements from GE, Intel, Apply, Amazon, or any other company that they're letting people go. It's not in their best interest to do that.

Zephyr says

I agree that the stock market has been acting mad. The entire drop from about Dow 10,000 to 6,500 was a panic, pure madness. The bounceback to about 10,000 was just restoration of sanity. Beyond that it is a bet on economic recovery. A recovery is the natural pattern, and the macro data now fits with a recovery pattern. So the market goes higher. At some point it will be excessive. But we have not even reached normal trend line yet. We are in the process of reversion to the mean.

No, not really, pure madness. There was a reason why the value of shares of companies went down.
(1) where do many companies like in Silicon Valley keep their money to meet operating expenses ? in the bank! You or I may have deposits secured up to $100-200K per account holder, but many business who may have millions in need for weekly operating capital, have no FDIC insurance. Where did SV employers deposits go ? Well they went to loans for homes.
(2) many companies also have investments from excess cash in safe, and not so safe securities tied to mortgages. There is a small company in Mt View, which had $26M in MBS. They had to write down their holdings by 50%. So they pretty much lost $13M in cash within weeks. The other $13M is restricted... questionable if they will get it back. When you lose $x in assets all in cash it translates to lower stock valuations. And no one was sure how much exposure in toxic anyone had on their balance sheet.

Here is something to ponder on...

Why would someone like Google be interestind in hiring a MBS treasury analyst?
Kinda risky wouldnt you say ? Would you want your employer buying risky mortgage securities...
But its Google.. so it makes it alright ! They are smarter, right?

http://www.google.com/intl/en/jobs/uslocations/mountain-view/finance/taxtreasury/portfolio-analyst-agency-mortgage-backed-securities-mountain-view/index.html

The role: Portfolio Analyst, Agency Mortgage-Backed Securities
Google Treasury is building a world-class global portfolio management organization to efficiently manage and optimize the investment returns on its growing cash balances. You will provide key support to the mortgage-backed securities Portfolio Manager across all facets of the investment management process. You will also contribute to the success of the overall portfolio management team by improving and managing existing processes.

Responsibilities:
•Analyze mortgage pre-payment speeds and market factors to identify investment opportunities in the MBS market, while assisting the Portfolio Manager in day-to-day portfolio management activities.
•Develop a wide range of risk and financial performance analyses, including mortgage income forecasting and sensitivity analysis and generate reports for senior management.
•Assist in the implementation and/or enhancement of portfolio management tools and systems to increase efficiency and effectiveness of managing the MBS portfolio.
•Participate in the development and execution of hedging strategies and other ad hoc projects.
•Liaise with middle office, custodian, and accounting groups to ensure correct clearing of trades, to verify accuracy of portfolio marks, and to support accounting-related issues.
Requirements:
•BA/BS degree preferred in Finance, Economics, Mathematics, Statistics, or Engineering.
•CFA preferred or on track to earning the CFA designation.
•At least two years relevant experience in an investment management firm or investment bank, preferably on a MBS trading desk.
•Strong quantitative background, as well as strong analytical and financial modeling skills.
•Knowledge of Bloomberg, Yieldbook, Barclays Point, or Intex portfolio tools a plus

pkennedy says

You may think firing someone is a simple task, but when you’re working in a big outfit, firing someone means you hired incorrectly. So in other words, if you hired someone, you’re an idiot who can’t do their job. Would you go around saying I need people, but I do a really crappy job at hiring them? No. A right to fire, doesn’t mean you can fire. Some managers can’t get rid of people because they lose the position. Some managers won’t fire because it makes them look bad.

California has at will hiring and termination. Any employer can fire you at will for what ever reason.
Any employee can lose their job because of missed quota in Sales, unethical conduct, bad coding by engineers, missed QA, VP overspending, accountants not following FASB/SOX quidelines..and the list goes on. And I seen plenty of that recently. Regardless of any single person, mass terminations with good or bad employees do happen. Add to the mix restructuring/exiting of product line, M&A, customer losses. Much of this is driven not by operations but FPA folks. So be very friendly with the FPA folks! May save your job one day.

pkennedy says

I’ll flip back some questions at you. Which company is making large profits and letting people go en mass? Intel? Amd? GE? Which ones are you seeing that are doing well, and letting people go to keep the numbers up?

AMD had over 10,000 people in SV, they are down to somewhere around 800 today and Intel had plenty as well back in the day. They have what is left, a token of a few today. Compare the many numbers of companies we once had, but all gone, todays numbers are not much to crow about.

Some old names like Logitech and Seagate are not California/US based companies. Their headquarters are offshore. Others get tax benefits from establishing Ireland Headquarters. As such they are required to staff with Sales/Admin to keep that tax benefit
LOL! Your next boss may be a screaming Irishman from Dublin. Times do change.

"There was a reason why the value of shares of companies went down."

I agree. Excessive optimism had pushed prices too high.
They were overvalued at Dow 13,000+, so they slid.
At about 10,000 I believe the market was reasonably valued.
However, the crisis and financil panic caused a fear-driven sell-off.
Prices then went too low, driven by excessive pessimism and fear.
Now we have seen the bounceback from that excessive pessimism.
Many people remain very pessimistic.

@thomas.wong1986

Just because you can do something, doesn't make it a good business decision. Just because you can screw over a loyal customer for 20+ years because he's one day over the return period, doesn't mean you should.

Same with firing. Firing people doesn't not sit well with the rest of the company, unless it's real obvious to the other employees why it's being done. Firing because of "financial troubles" or other issues only leads to issues with your remaining employees. It doesn't take much gossip to start a wild fire in a company.

You are correct about AMD and Intel employees. Did they do this in 2008? Did they go from 10,000 to 800 in 2008/2009 or was that a trend? If it's not related to the recession we're in, then it's not really related at all, and part of business for them.

They aren't going to be pulling recession related lay offs is what it comes down to. They have the profits to keep businesses running today, while times are lean. They want to be ready to jump in when times are booming. Small companies sometimes don't have this luxury and thus need to wind up and down employees according to the market. The thing is, the big companies are done with this. They're semi-stable. They're offering stability for other companies, who now know how many burgers they are going to sell every friday afternoon to the party that comes in. The people who make pencils can estimate how many are going to be needed. The water delivery service knows it's going to be servicing X number of people and won't lose business. It's all part of stabilizing. The businesses know how much capital they have left, as you pointed out, some companies lost lots of money. That isn't happening now, it's back to "normal" levels. Banks are going to go under, pay checks can be paid for sure. We're at some stable level. Not everything is stable, but most people are stabilizing and could now operate at this economic level forever, just without any growth.

Companies / Investors have one primary goal. Maintain capital levels. Secondary goal, create investment growth. Goal number one is primary. So right now, goal one has been achieved for many. That is huge, and one of the reasons I would consider this to be the bottom of a recession.

"Reports on general business and industrial conditions during the first weeks of March show evidence that buisness has been improving. While downward movements are still to be found among business indicators, upward swings in basic industries, passing seasonal expectations, must be noted as strong elements in the current business picture..."

"The value of new building contracts awarded during the first part of March showed an increase over the previous period..."

"During February residential contacts began to rise, which, taken with the increasing contracts for public works and utilities, resulted in a more than seasonal advance for the industry at the opening of March."

"General industrial production, according to the weighted index of the Federal Reserve Board, rose from the January level by 3.7 per cent ."

"The output of manufactured commodities increased from the January level by 4.9 percent."

"Employment increased in most industries during February in respect to January."

--- United States Department of Commerce, Washington, Survey of Current Business, No. 116. April, 1931

pkennedy says

You are correct about AMD and Intel employees. Did they do this in 2008? Did they go from 10,000 to 800 in 2008/2009 or was that a trend? If it’s not related to the recession we’re in, then it’s not really related at all, and part of business for them.

Nope, its not related to "this" recession, it is related to the 20 years or so of existance. Dropping employees is just another day in Silicon Valley. That is the nature of the business. The curse of having two global titans so close together ultimately erupts into price wars. As avg selling prices erode costs are cut to be competitive. Eventually jobs vanish for cheaper regions to keep prices and margins in line. And the cycle keeps repeating itself.

thomas.wong1986 says

Nope, its not related to “this” recession, it is related to the 20 years or so of existance. Dropping employees is just another day in Silicon Valley. That is the nature of the business. The curse of having two global titans so close together ultimately erupts into price wars. As avg selling prices erode costs are cut to be competitive. Eventually jobs vanish for cheaper regions to keep prices and margins in line. And the cycle keeps repeating itself

Or you keep innovating and stay ahead of the curve...

The point is, GE is making money. They aren’t losing it, they’re making it. Profits aren’t bad for them.

Well, that was really not the point -- at least not mine. My original counterpoint was that they are not doing so great, despite their Too-big-to-fail status, and that layoffs with large conglomerates are not yet something you can write off as a distant memory.

Morale among in the employees in several of the companies I interact with is, in fact, at an all time low.

You may think firing someone is a simple task, but when you’re working in a big outfit, firing someone means you hired incorrectly. So in other words, if you hired someone, you’re an idiot who can’t do their job.

In a hyper-generalized context, maybe. If I terminate someone for taking too many sick days or showing up to work inebriated, then it necessarily follows that I was an idiot for hiring someone? It may reflect badly if it was your cousin or BFF and you vouched for him. In which case, you'll probably get a promotion. I have never seen accountability come into play where turnover is concerned. Asskissing and coming in under budget is the best job security for upper-management.

Unless you’re in a job that can be replaced by any idiot, you’re company has an incentive to keep you happy

.

In an ideal world, this statement is accurate. However, when contracts are awarded, price is usually the foremost concern -- not quality. When has quality dictated the sensibilities of anything in the West in the last couple decades? The same principle behind bargain shopping applies to human resources and labor arbitrage. This is the age of CHEAP my friend.

You’re right, often companies let go of a lot of good people, the riff raff is 2nd. But they ask for a riff raff list first. Then they work on which dept need to go, or entire offices. In which case it’s no ones fault, it’s just a segment of the business that has to go.

A company that was acquired, letting people go? That isn’t from a recession, that is normal business practices.

However, acquisitions and mergers are most rampant during recessions, and given the likely scenario of a protracted recession helped by our relaxed anti-monopoly laws (thanks, Reagan!) I think you will hear of even more acquisitions/mergers, meaning even more newly minted unemployed. My hypothesis.

A company that is going IPO? You don’t sell off a company unless you’re in a really good position. Raising capital during a recession? Going IPO isn’t a trivial thing. People want to get hte most bang for the buck.

The company is in good shape, however, they want to keep a tight ship going into the next quarter or two. The drawbacks for the staff have so far been manifold.

I’ll flip back some questions at you. Which company is making large profits and letting people go en mass? Intel? Amd? GE? Which ones are you seeing that are doing well, and letting people go to keep the numbers up?

That's not how it works. You made some sweeping generalizations -- therefore, the burden of proof is all yours. I don't prove why I think you're wrong, you prove to me why you are right. However, just a cursory glance at the local Business Journal this morning revealed that Freescale (semiconductors) are laying of 200 people here in town. That's not nothing, particularly in Austin, the panacea of all economic blights!

I’m going with basic news here. I’m not digging in deep to the numbers of each business, I’m only scanning the headlines looking for tell tale signs of problems.

That's a slippery slope, since most news gets it news from the news. You have to dig a little.

Lay off numbers are pretty big, and they hit the news headlines pretty quickly. I haven’t seen any good lay off news for awhile now.

I think news is in the business of packaging and selling news that sells to a target demographic. Do you hear much about the two wars we're involved with much these days? Not really. But we can't get away from news about Kate Hudson's fake titties. With some notable exceptions, journalism is at something of a nadir right now.

You seem to think companies are always doing evil intentionally.

That's oversimple. I merely point to the a gradual chipping away at labor standards and income equality in the US, the reasons for which are myriad. I see little to nothing which allays my fears that this trend will decrease in the following decades. Let's see what happens. Naturally, I hope I am wrong.

Austinhousingbubble says

Well, that was really not the point — at least not mine. My original counterpoint was that they are not doing so great, despite their Too-big-to-fail status, and that layoffs with large conglomerates are not yet something you can write off as a distant memory.

I guess you're just a glass half empty kind of guy, aren't you? Making $600MM during a tough economy seems OK to me.

How did you know? Indeed, I have a thirst, so will make this the last volley. Suffice to say, you have an over-fondness for red herring. You should diversify a bit.

tatupu70 says

Austinhousingbubble says

Well, that was really not the point — at least not mine. My original counterpoint was that they are not doing so great, despite their Too-big-to-fail status, and that layoffs with large conglomerates are not yet something you can write off as a distant memory.

I guess you’re just a glass half empty kind of guy, aren’t you? Making $600MM during a tough economy seems OK to me.

Depends if this is the sixth or just the second inning.

GE's running a 7% net margin right now, largely thanks to paying a negative $1B in income tax this year. If it had to pay taxes, it would be more like a 4.5% net margin.

I don't know what GE's business lines are, but they had to cut $16B in overhead in 2009. If income stays at 2006 levels they've got another $16B in overhead to cut to get back to 2006 profit margins.

This looks like "going down", not the "going up" of the thread title.

The question is, are they at the bottom, or are they improving? Over the next year, will they drop from here, or go up? If they drop 16B to increase profits, they are increasing profits, and going up. At a cost, but they are going up. If they maintain the same profits, they are staying the same. If they improve they are going up. If they all of a sudden drop and start losing money, then they are going down. Your statement says "To get back to where they were in 2006 they need to do this..." that is true. It doesn't mean they haven't hit bottom, it means they haven't recovered to where they were before this mess.. So far, evidence is showing they've hit bottom... and stablized..

tatupu70 says

thomas.wong1986 says
Nope, its not related to “this” recession, it is related to the 20 years or so of existance. Dropping employees is just another day in Silicon Valley. That is the nature of the business. The curse of having two global titans so close together ultimately erupts into price wars. As avg selling prices erode costs are cut to be competitive. Eventually jobs vanish for cheaper regions to keep prices and margins in line. And the cycle keeps repeating itself
Or you keep innovating and stay ahead of the curve…

"Innovation" is a word thats abused these days. It doesnt help when many others also are equally innovative, but they can drop their prices more readily then we can. Innovation didnt help Netscape or Sun as their competitors dropped their prices. Yes, we make products faster and better but we have no influence over prices as unit pricing declines. Why buy $1500 laptop when you can pick up a netbook for $300? Why pay Microsoft $300 when you can run LinuxOS for free?

Something else to think about regarding Innovation...

http://techdirt.com/articles/20071204/005038.shtml

Much of this discussion kicked off with AnnaLee Saxenian's 1994 book Regional Advantage that tries to understand why Silicon Valley developed into the high tech hub it is today, while Boston's Route 128 failed to follow the same path -- even though both were considered at about the same level in the 1970s. Saxenian finds that the single biggest difference in the two regions was the ability of employees to move from firm to firm in Silicon Valley. That factor, ahead of many others, caused Silicon Valley to take off, while the lack of mobility in Boston caused its tech companies to stagnate and make them unable to compete against more nimble Silicon Valley firms. Saxenian claims that the difference in mobility was simply due to "cultural" differences between the east coast and the west coast. However, the impact was massive. The frequent job changes helped speed up the process of innovation, as ideas flowed more freely, allowing ideas to quickly change and grow and build upon other ideas leading to faster and better innovation. In contrast, employees in Boston stuck with their firms. The firms grew bigger, but slowly, and new ideas didn't flow nearly as easily. There was less direct competition from firm to firm, so firms were able to rest on their laurels rather than increasing their own pace of innovation.

Ronald Gilson found this to be interesting, and followed it up with his own research suggesting that that it had much less to do with cultural reasons and much more to do with the legal differences between the two places, specifically: California does not enforce noncompetes, while Massachusetts does.

pkennedy says

The question is, are they at the bottom, or are they improving? Over the next year, will they drop from here, or go up? If they drop 16B to increase profits, they are increasing profits, and going up

This increase in profit is not an increase in wealth creation. It is transferring wealth allocation from labor (wage earners) to capital (shareholders).

It is not "going up", it is, at best, going sideways.

thomas.wong1986 says

“Innovation” is a word thats abused these days. It doesnt help when many others also are equally innovative, but they can drop their prices more readily then we can. Innovation didnt help Netscape or Sun as their competitors dropped their prices. Yes, we make products faster and better but we have no influence over prices as unit pricing declines. Why buy $1500 laptop when you can pick up a netbook for $300? Why pay Microsoft $300 when you can run LinuxOS for free?

I'm referring to creating new products, or adding new features to your product. Certainly if you are selling a commodity then price is king, but the goal is to make sure you never have a commodity...

Among the S&P 500 companies compared to a year ago: revenues are up 11%, profits are up 50% with 83% of the companies beating expected earnings.

This is not surprising given that GDP and consumer spending are rising.