Chance coincidence?

U.S. unemployment will approach 10 percent as the country endures its worst recession since World War Two, leaving more than 13 million Americans jobless, according to a Reuters poll of economists. (Source.)

The number of U.S. home mortgages that are delinquent or in foreclosure has climbed to a record high of 11 percent, according to a report Thursday from the Mortgage Bankers Association. (Source.)

The MBA

MBAs today are haunted by the thought that the tag really stands for Mediocre But Arrogant, Mighty Big Attitude, Me Before Anyone and Management By Accident. For today’s purposes, perhaps it should be Masters of the Business Apocalypse.

Harvard Business School alumni include Stan O’Neal and John Thain, the last two heads of Merrill Lynch, plus Andy Hornby, former chief executive of HBOS, who graduated top of his class. And then of course, there’s George W Bush, Hank Paulson, the former US Treasury secretary, and Christopher Cox, the former chairman of the Securities and Exchange Commission (SEC), a remarkable trinity who more than fulfilled the mission of their alma mater: “To educate leaders who make a difference in the world.” It just wasn’t the difference the school had hoped for.

You can draw up a list of the greatest entrepreneurs of recent history, from Steve Jobs at Apple, to Larry Page and Sergey Brin of Google and Bill Gates of Microsoft, to Michael Dell, Richard Branson, Lak-shmi Mittal – and there’s not an MBA between them.

Yet the MBA industry continues to grow, and business schools provide vital income to academic institutions: 500,000 people around the world now graduate each year with an MBA, 150,000 of those in the United States, creating their own management class within global business. Applications to business schools in America and Europe are broadly up, as people search for a safe haven from the recession.

What are they thinking? Many MBA jobs will not be coming back. (Source)

Meanwhile, in another study . . . "A study of cheating among graduate students, published in 2006 in the journal Academy of Management Learning & Education, found that 56 percent of all M.B.A. students cheated regularly - more than in any other discipline. The authors attributed that to "perceived peer behavior" - in other words, students believed everyone else was doing it." (Source.)

What's Dead (Short Answer: All Of It)

What's Dead (Short Answer: All Of It)

• All pension funds, private and public, are done. If you are receiving one, you won't be. If you think you will in the future, you won't be. PBGC will fail as well. Pension funds will be forced to start eating their "seed corn" within the next 12 months and once that begins there is no way to recover.
• All annuities will be defaulted to the state insurance protection (if any) on them. The state insurance funds will be bankrupted and unable to be replenished. Essentially, all annuities are toast. Expect zero, be ecstatic if you do better. All insurance companies with material exposure to these obligations will go bankrupt, without exception. Some of these firms are dangerously close to this happening right here and now; the rest will die within the next 6-12 months. If you have other insured interests with these firms, be prepared to pay a LOT more with a new company that can't earn anything off investments, and if you have a claim in process at the time it happens, it won't get paid. The probability of you getting "boned" on any transaction with an insurance company is extremely high - I rate this risk in excess of 90%.
• The FDIC will be unable to cover bank failure obligations. They will attempt to do more of what they're doing now (raising insurance rates and doing special assessments) but will fail; the current path has no chance of success. Congress will backstop them (because they must lest shotguns come out) with disastrous results. In short, FDIC backstops will take precedence even over Social Security and Medicare.
• Government debt costs will ramp. This warning has already been issued and is being ignored by President Obama. When (not if) it happens debt-based Federal Funding will disappear. This leads to....
• Tax receipts are cratering and will continue to. I expect total tax receipts to fall to under $1 trillion within the next 12 months. Combined with the impossibility of continued debt issue (rollover will only remain possible at the short duration Treasury has committed to over the last ten years if they cease new issue) a 66% cut in the Federal Budget will become necessary. This will require a complete repudiation of Social Security, Medicare and Medicaid, a 50% cut in the military budget and a 50% across-the-board cut in all other federal programs. That will likely get close.
• Tax-deferred accounts will be seized to fund rollovers of Treasury debt at essentially zero coupon (interest). If you have a 401k, or what's left of it, or an IRA, consider it locked up in Treasuries; it's not yours any more. Count on this happening - it is essentially a certainty.
• Any firm with debt outstanding is currently presumed dead as the street presumption is that they have lied in some way. Expect at least 20% of the S&P 500 to fail within 12 months as a consequence of the complete and total lockup of all credit markets which The Fed will be unable to unlock or backstop. This will in turn lead to....
• The unemployed will have 5-10 million in direct layoffs added within the next 12 months. Collateral damage (suppliers, customers, etc) will add at least another 5-10 million workers to that, perhaps double that many. U-3 (official unemployment rate) will go beyond 15%, U-6 (broad form) will reach 30%.
• Civil unrest will break out before the end of the year. The Military and Guard will be called up to try to stop it. They won't be able to. Big cities are at risk of becoming a free-fire death zone. If you live in one, figure out how you can get out and live somewhere else if you detect signs that yours is starting to go "feral"; witness New Orleans after Katrina for how fast, and how bad, it can get.

Joke or Deadly Serious?

If you can get into a cushy government job, you'll be on easy street through this depression while your poor neighbors in the private sector really struggle. Here's the ideal positioning for the depression. Obviously, not everyone will be able to achieve all of these, but work toward as many as you can (Source):

* Government job
* Own a home with a 30-year-fixed mortgage (because those dollars will be worthless by the time you pay them back
* 12+ months of expenses saved, equally split between cash and gold
* Canned and dry bulk food stockpiled
* Guns and ammo stockpiled

Asian economies in trouble

Dire growth data fuel Asian fears

Weak growth data from India and Malaysia on Friday provided fresh evidence of the deepening impact of the global recession on developing Asia.

Japan’s manufacturing output suffered a record 10 per cent month-on-month drop in January. New job offers in Japan also plummeted 18 per cent to complete an abysmal set of recent figures from the world’s second-largest economy, including a record 45.7 per cent fall in exports in January.

The collapse in Asian exports over the fourth quarter was “nothing short of breath-taking”, said Frederic Neumann, Asia chief economist at HSBC. “Economic models and experience suggest that financial turmoil tends to transmit far more gradually into the real economy than has occurred this time around. In fact, the severity and rapidity of the fall in output exceeds anything we have ever seen before.”

Thousands queue at New York job fair

Published: February 24 2009 21:49

Throngs of unemployed New Yorkers braved sub-freezing temperatures on Tuesday in hopes of finding new work amid rising job cuts.

Wrapping around block of the Sheraton New York Hotel for hours, more than 5,000 people - many in business attire - waited in single-file lines for a chance to submit resumes and chat briefly with recruiters. There were 41 companies hiring, according to Women for Hire, who sponsored the job fair and allowed men to attend for the first time, with a total of 1,000 openings to be filled. At the last such event in November just 1,500 people attended.