MarketVVizard's Market Thoughts

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Top 790. Jan 13, 2004 12:43 PM

» Normxxx - Re: Looks like a good day to get short before the close.

In response to message posted by MarketVVizard:

I did that Friday, but this being expiration week, the market will probably flatten out here.

for Drucker's FORTUNE interview.

-- posted by Normxxx

Top 791. Jan 13, 2004 3:35 PM

» Austrian - Re: Why The Market Crashed in 2000. . .And Why It Will Again.

In response to message posted by Normxxx:

Normxxx,
I read Maggie Mahar's book, Bull... The best book on market history I've read. Very well written and researched. Brings in the social, political, economics, etc of our great bull market.

Very strongly recommend it for those who are looking for better perspective.

Other books I read and would recommend:

Faber's Tommorrow's Gold, lent to a friend

Bonner's Financial Reckoning Day.
For those of you who get The Daily Reckoning, Bill's book is less over the top then his daily writings. More philosophical, sometimes way off, but a good read with a very interesting premise. Basic premise of the book is the best laid plans of mice and men often go wrong due to unforeseen circumstances. The part on Greenspan alone was worth twice the price of the book.
Very entertaining book.

Regards,

-- Austrian

-- posted by Austrian

Top 792. Jan 13, 2004 8:37 PM

» MarketVVizard - A New Tide in Offshore Outsourcing

A New Tide in Offshore Outsourcing
Tuesday January 13, 11:47 am ET

Any number of academics attempt to minimize the effects of the offshore outsourcing phenomenon by reassuring us that new jobs will take the place of the hundreds of thousands of programming, call- center, and other jobs shipped out to Asian countries. They frequently point to the U.S. at the start of the 1900s, when about half the population worked in farming. Today, only about 5% of the population farms, with all kinds of jobs having replaced farm labor.

It's difficult to imagine what the replacement jobs for today's programmers and call-center operators might be, since none of the theoreticians offer specific examples. I recently received a possible peek into the future, though, in getting to know Ryan Kinzy, who, at first glance, seems to be just another high-tech entrepreneur who has thrown his life savings into an enterprise to sell special software designed to help sales people improve their productivity.

A STARTUP'S PRIORITIES. The future Ryan is creating is a lot different than what the academicians suggest, but the effect could be the same in that the bottom line may well be more jobs as a result of outsourcing high-tech jobs. For now, it is a future in which labor is fungible and national borders nearly meaningless. It is a scenario that may offend lots of Americans who have lost jobs to India, Russia, and the Philippines, but may also provide a ray of hope from the outsourcing phenomenon. So hear me out.

Ryan launched his company, K3 group, in Austin, Tex. 18 months ago using savings accrued from the good times in high-tech. One important lesson he had learned working in a large high-tech company immediately preceding his own startup was that the benefits of outsourcing of computer programming jobs, as currently practiced by large corporations, are often exaggerated.

"There were too many headaches in dealing with India," he says, recalling his experience overseeing such work. "We often got spaghetti code that was functional, but couldn't grow. We had no idea if delivery dates would be hit because they would freely give promises, but not results. The time difference was very difficult. The explanation, 'They program while you sleep' doesn't hold water. Too often, a problem would arise and they would respond the next day with, 'Well, we weren't sure what you wanted to do' -- and a whole day was lost, time and again. Before long we were four months behind schedule. It was also very difficult to remotely manage a project unless you had a very strong infrastructure over there of U.S.-style managers. Finally, the rising costs over there make it tougher to justify."

BANGALORE TORPEDOED. You might think that when Ryan launched his own company, he would have relied on U.S. labor. And that is what he did, at first. He and two other Americans developed the initial product themselves over the first year. He brought in a fourth employee, a sales person, last October. But while Ryan may have accrued skepticism about outsourcing overseas, there was never an ideological opposition to the proposition on his part. In fact, he kept thinking about how neat it could be -- and how much money it could save his cash-strapped startup -- if he could overcome the problems he had experienced in dealing with India.

This past fall, when it was time to improve and expand K3's product offerings, an associate came up with an alternative to India: outsource to South America. The more Ryan investigated, the more he liked what he saw, and in December he took the plunge, sending work for up to five programmers to young developers in Colombia. Here is how the Colombian option compares to the Indian one:

Cost. No contest here. The cost for a managed developer in India was $3,200 per month, vs. $1,000 a month in Colombia. (A managed developer is overseen by an onsite manager monitoring progress and quality, so the cost includes part of the manager's salary.) The difference in costs is so vast that it actually allows K3 group to make money in an area not known for profits, says Ryan. "Typically, with enterprise-application software, consulting for customer specific needs just breaks even. The benefit with having a low-cost development outsourcing partner is that we can make money with consulting."

Quality. Ryan also expects that the days of spaghetti code are over. "You have to get the developers fairly young so they haven't learned bad habits," he says. This means grabbing them a couple years out of school. After a few years working for a company like K3, he says, these developers are typically grabbed by banks and other major companies, but K3 has obtained useful production from them.

Real-time communications. Colombia is essentially in Austin's time zone, "which is very very good," says Ryan. In contrast to dealing with Indian programmers, "We now find out about issues before they become problems." Moreover, Ryan and his colleagues speak with the developers in Colombia using VOIP (voice over Internet protocol). This means their conversations and conferences are free. "This keeps the costs way down," says Ryan.

Flexibility. Because K3 doesn't know for sure how its business will go this year, it can't be certain how much programming it will require from its Colombian team. But the Colombians are eager enough for work that K3 group can use anywhere from one to five programmers at any time, based on its needs at the moment.

The reason K3's approach is so intriguing is that a startup has a different mission in life from that of many large corporations -- to grow rather than to cut costs. To the extent that K3 keeps its costs down, and attracts new customers, it expands, which inevitably creates new jobs. The exact nature of the new jobs isn't entirely clear, especially since, in small companies, many people handle multiple tasks. But one thing we do know from a number of past studies is that young, fast-growing companies create many more jobs than Fortune 500 outfits.

Sure, some of the new jobs will be in Colombia, or wherever K3 group moves next in its search for low- cost programming labor. That's the beauty of virtual operations and borderless commerce. But some of the new jobs will inevitably be in the U.S.

Moreover, the K3 model has stimulated Ryan's creativity. He is now thinking of establishing his own outsourcing business -- perhaps in a tropical country, near a beach.

p.s. Not related to the above. But on the subject of books: I have to second the reco on Faber's book. I'm only about 1/3 through it but it's well written. An easy, worthwhile read.

-- posted by MarketVVizard

http://www.latimes.com/business/la-fi-pe...

Top 793. Jan 14, 2004 5:14 AM

» Austrian - Pensions Again

This is like watching a crash in very very slow motion. You know it is going to happen, but can't stop it.

With the broad market up 20+%, one would think pension liability issues would have self corrected. Obviously they have not. This indicates to me that many companies are still under funding their pensions, believing they will be retired and rich when the bill comes due. In short MORAL HAZARD.

Bottom line, anyone counting on a pension will likely not get what they think. The Gov't will legislate new rules which will transfer the problem from companies to pensionees. It is only a matter of time.

Regards,

-- Austrian

Pension Agency's Deficit Soars
The U.S. insurer is expected to report a $10-billion shortfall. The possibility of a taxpayer bailout looms.

The U.S. agency that provides a safety net to company pension plans will announce a $10-billion deficit this week, a congressman said Tuesday, warning that it raised the prospect of a taxpayer bailout.

It would be a record deficit for the Pension Benefit Guaranty Corp., which a year ago reported its worst year ever and has seen its deficit grow since then.

The agency said in October that it had a record $8.8-billion deficit as of August, up from a fiscal 2002 deficit of $3.64 billion and a $7.73-billion surplus the previous year.

The agency had no comment on the statement by California Rep. George Miller (D-Martinez), the ranking Democrat on the House Education and Workforce Committee and a longtime critic of Republican pension policy.

The PBGC is expected to announce its financial condition Thursday. "We won't have any comment until then," said spokesman Jeffrey Speicher.

The agency's executive director, Steven Kandarian, repeated his warning last week that U.S. taxpayers might be called on to bail out the agency. Kandarian said last week that he would be leaving the agency in mid-February for family reasons.

The $10-billion deficit was in the PBGC's single-employer insurance program, Miller said. He added that for the first time in history, the PBGC was reporting that its coverage for the nation's multi-employer pension plans also was running a deficit estimated to be in the millions of dollars.

The PBGC was established in 1974 to protect traditional, or "defined benefit" pension plans, which promise workers a specific payout based on salary and years of service. It insures the plans of about 44 million Americans.

Businesses pay insurance premiums to the PBGC and the agency shoulders the burdens of insolvent retirement plans.

A year ago Kandarian said that losses from collapsing steelmakers had driven the agency into a record deficit. But lower stock prices and lower interest rates have put the squeeze on all defined-benefit plans, creating a shortfall that the government last year estimated at $350 billion.

When the Senate returns later this month, it is expected to take up a House-passed bill that would grant $25.5 billion in temporary relief across the board to companies struggling to fund traditional pension plans, while searching for a longer-term reform of pension funding.

The Bush administration has endorsed this approach but criticized proposals to add extra help for some companies, such as the airlines, with severely underfunded plans.

-- posted by Austrian

Top 794. Jan 14, 2004 7:27 AM

» Kirk - Re: A New Tide in Offshore Outsourcing

In response to message posted by MarketVVizard:

It's difficult to imagine what the replacement jobs for today's programmers and call-center operators might be, since none of the theoreticians offer specific examples

No it isn't. I think many of them will be saying "Welcome to WalMart" or "Would you like fries with that burger?"

Remember, prisons were actually used for some US call centers. It is not a high labor skill for many of the jobs.

Also remember that the "Do Not Call List" might account for a very, very large number of unemployed call center agents who had no more skills than reading from a script to see if they could sell you something. Are these jobs we miss from the workforce? I consider losing those jobs akin to having fewer bank robbers.... as they were "time and peace of mind robbers."

-- posted by Kirk

Top 795. Jan 14, 2004 7:31 AM

» Kirk - Re: Pensions Again

In response to message posted by Austrian:

Thanks for bringing that up again. Do you know if anyone with a web site is tracking this in real time by company?

-- posted by Kirk

Top 796. Jan 14, 2004 7:50 AM

» MarketVVizard - Just shorted QQQ @ 38.07

NVLS short also starting to finally pay off.

-- posted by MarketVVizard

Top 797. Jan 14, 2004 8:43 AM

» Normxxx - Re: Pensions Again

In response to message posted by Austrian:

The Gov't will legislate new rules which will transfer the problem from companies to pensionees. It is only a matter of time.

They already have-- it's called the '401k.' If you mean the residual defined benefit plans, the Government will ease (and has already eased) accounting standards so they are less burdensome on the P/L. Then companies will gradually chip away at them. For example, the current rush is to move all future cost increases of medical care to the pensioners. Eventually, all companies will just eliminate medical coverage for current and already pensioned employees.

Very few companies offer inflation indexed pensions-- so the next Great Inflation will take care of that burden. (Those that have indexing, will eliminate it or revert to a "diet" cola with full Government support as an "inflation" fighting tool.)

-- posted by Normxxx

Top 798. Jan 14, 2004 10:01 AM

» MarketVVizard - OMHO but I haven't seen as good a short setup

as we have right now in a long time. If you are still long (especially tech) I would seriously get out now. The market has probably seen its highs for the year.

-- posted by MarketVVizard