TedCo Software Financial Matters Blog

Listening to some experts talk about our recession almost requires a geometry or alphabet lesson when they start talking about the shape of the recession and the recovery. You’ll hear or read an economist who says we’ll have an “L-shaped” recession. Another expert will talk about a “V-shaped” recovery.

So what exactly do these letters mean?

Unlike many economic terms, these letter shapes mean exactly what they sound like. There’s absolutely nothing esoteric about them.

For example, a V-shaped recovery might look like this:

An L-shaped recovery would be a more troubling thing. It would look like this on a time graph:

And you’ll hear about U-shaped which would look like this:

Some economists combine these letter shapes and come up with economic recovery scenarios that look like VL for example:

(I’ve also seen this called an “upside down square root recovery”.)

Of course, no one can predict the future. And whatever the shape of the recovery, someone will find a letter or shape to describe it.

Nearly all of the news about jobs is negative. It’s rare to hear about the companies that are hiring.

One web site that attempts to show both sides of the layoff coin is Layoff Daily. It’s a simple idea that is executed well.

The left side of the site lists (by day and updated 4x a day) links to news about layoffs. However, the right side lists links to new about companies that are hiring.

In other words, there really are two sides to the layoff coin. You can see both at Layoff Daily.

I’ve just explored two interesting lists.

The first is a list of layoffs in 2008. The second is a list of CEO compensation in 2007. The two lists are related because for many of the companies on the first list which laid off employees in 2008, the second list details the companies’ CEO compensation packages.

For anyone who enjoys playing with numbers, the two lists offer a fascinating opportunity for comparisons.

For example, how many regular employees is a CEO worth?

Here’s how the comparison works.

Let’s take Alcoa, near the top of both lists. According to the NowPublic.com Layoffs List, Alcoa laid off 15,200 employees in 2008. And according to the USATODAY.com’s “Executive Compensation 2007“, the CEO of Alcoa received a salary of $1,457,500 plus a $3,000,000 bonus plus $652,103 in other compensation and received stock and option awards of $20,536,817 for a total compensation in 2007 of $25,646,420.

Assuming an average employee’s annual salary in 2007 was $50,000, Alcoa’s Board of Directors believed their CEO was worth almost 513 average employees.

Or take John Thain, Merrill Lynch’s CEO in 2007 whose total compensation was $83,092,713. In real words, that’s more than 83 million dollars! In a year when Merrill Lynch’s gift to shareholders was a negative 42%, the Merrill Lynch Board of Directors believed their CEO was worth 1,661 employees.

It just doesn’t make sense to me.

The CEO’s in the USATODAY list are leading public corporations focused on returning value to shareholders. It’s hard to imagine a CEO who fails to return value to shareholders can justify the compensation packages in the list. It’s also difficult to imagine boards of directors are able to justify their decisions to over-compensate CEOs.

Play with the lists and decide what you think. What’s a CEO really worth?

You’ve probably heard the quotation attributed to Senator Everett McKinley Dirksen who reportedly said, “A billion here, a billion there, and pretty soon you’re talking real money”.

It’s a great line, but an exhaustive search of records in The Dirksen Congressional Center has found no evidence that Senator Dirksen ever spoke the words popularly attributed to him.

Whether he spoke the words or not, times have changed. Now we hear the word “trillion”. ABC News reported on “Obama’s Trillion-Dollar Week: Administration Forges Ahead with Measures to Fix Ailing Auto and Housing Industries“.

So how much is a trillion dollars?

If you had accumulated $1,000,000 per day since the year 0 AD, you would not yet have a trillion dollars. In fact, you would still be under 734 billion.

If you were given $1 per second, every second of every hour of every day of every year, it would take you 31,709 years to accumulate a trillion dollars. That’s a little more than 452 70-year lifetimes of receiving a dollar every second.

A trillion dollars is enough money to give a million dollars to a million people.

If the Population Clock on the U.S. Census Bureau home page is correct at 20:12 GMT Feb 20, 2009, a trillion dollars is enough to give every man, woman, child and infant in the US a lump sum of $3,269.49.

As I think about it, I imagine a $3,269 lump sum payment to each citizen would stimulate the economy. Too bad it’s going elsewhere.

Beige has never been one of my favorite colors. It’s not white. It’s not yellow. But whether one likes beige or not, it just is.

Lately, that’s how many feel about the Federal Reserve Bank’s “Beige Book”. We don’t like it, but it is what it is.

This morning, MSNBC.com has an article titled, “Fed: Economy darkens before holidays“. The subtitle is “Beige Book suggests economy is sinking further into recession“. So what is this Beige Book no one seems to like?

The Beige Book is a report about current economic conditions which is published by the Federal Reserve Bank eight times per year. It’s public information available for anyone to read.

The Federal Reserve Bank (aka “the Fed”) gathers information from each of it Districts. The information includes data on current economic conditions, interviews with significant business persons, economists and market experts. This information gathered by the Fed is then summarized and reported by District and sector.

The twelve Federal Reserve Districts are Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco. The sectors vary by District but include areas of business activity like consumer spending, tourism, construction, real estate, manufacturing and related services, etc.

The Beige Book is public information. And it is not an academic treatise beyond the comprehension of the public. You can read it online just like all the economic experts and talking heads do who talk about it and try to explain it.

To read this year’s Beige Books, point your browser at: http://www.federalreserve.gov/FOMC/BeigeBook/2008/

You will notice at the bottom of the page, there are links to previous years, too, all the way back to 1970.

Enjoy the Beige Book!

CNBC.com has a nice multimedia presentation of 14 “Milestones in Government Spending” It’s online at: http://www.cnbc.com/id/27717424

Perhaps, aside for the financial history it offers, the most important function of the presentation is that it puts the current bail out in perspective. For example, it’s so much bigger than it seems when compared to the entire NASA expenditures. The Hoover Dam at $782 million (adjusted for inflation) is a pittance compared to the incredible amounts currently being spent to rescue banks and public corporations.

Don’t miss “Milestones in Government Spending“. It’s an eye opener!

I stop by my local post office several times a week to retrieve mail from Post Office Box 7. (Someone asked recently how I managed to get POB 7. I asked for it and it was available.) The staff of the Ruston Post Office have always been helpful and friendly.

A couple of weeks ago my box held a bright yellow mailer from the United States Postal Service which advertised “eBay Day at the Ruston Post Office”. eBay Day was last week. From 10am to 1pm, customers learned the ins and outs of eBay and learned about “Quick, Easy, Convenient(tm)” online shipping options offered by the US Post Service. The first 100 participants received a coupon for three free listing fees on eBay.

Ruston has a really nice post office. And it’s always busy. It seems surprisingly so for a town our size. Folks gather and chat a bit while sorting their mail.

I usually sort Wheatworks’ mail before I leave the post office. I toss the junk mail into the convenient waste receptacles. I kept the eBay Day flyer because it struck me as an unusual effort by a government-related business to partner with a public corporation. (Of course, in light of the U.S. Government’s “investments” in insurance companies and banks lately, this shouldn’t seem odd.)

So why is the United States Post Office partnering with eBay?

Here’s what seems to be happening. The United State Postal Service is hurting like so many other businesses. According to an article available on the KSLA web site, the “Postal Service Looks to Cut 40,000 Jobs In First Layoff In History“.

The U.S. Postal Services has “lost 2 billion dollars”. It employs 685,000 people. According to the article by Jonathan McCall, Lavell Pepper with the post office in Shreveport, LA reports, “the preliminary numbers (40,000) look like it’s not going to be enough and we may have to do something else.”

If you’re interested in the financial report for the United States Postal Service, it’s available on their web site at: http://www.usps.com/history/anrpt07/highlights.htm

I may be reading those numbers incorrectly, but I think the $2 Billion dollar loss mentioned in the KSLA article is a bit low. The Net Loss for 2007 as reported by the USPS is more than $5 billion.

Perhaps that extra $3 Billion loss is why laying off 40,000 employees may not be enough to save the United States Postal Service.

However, with the way the U.S. Government has thrown money at private companies lately, it should not be too hard for the USPS to ask Uncle Sam for a few more billion. In 2007, taxpayers tossed $3 billion to the United States Postal Service as “capital contributions of U.S. government.”

The Library of Financial Equations at Math4Finance.com has grown this evening with the addition of the formula to calculate the present value of a growing annuity with continuous compounding.

Math4Finance.com is Wheatworks Software’s website for all things related to financial math.

And if you’re curious, here’s the formula:

Learn more at Math4Finance.com.

In my opinion, one of the best features of Slate is the Today’s Papers department. Today’s Papers offers a great summary each morning of what’s in the major U.S. newspapers. I find reading Today’s Papers provides a good way to stay in touch with the state of the economy. More than just hitting the headlines, Slate’s writers offer a summary of the headlines that answers the basic questions.

The real value of Today’s Papers is that it is a quick way to get a heads up on issues that many won’t learn about until the evening news — if then. Because the information is gathered from major newspapers across the country, Slate’s Today’s Papers provides a broad perspective of national trends and events. It’s great information, too, because the summary does such a good job of explaining the headlines.

Today’s Papers is an Internet gem.

The US Federal government (aka “US taxpayers”) bailed out American International Group (AIG) to the tune of $85 Billion on September 16. The bailout occurred in the form of a loan (at 11%) to the company which has made such bad decisions with their own money.

Less than a week later, a group of AIG executives were spending $400,000 on a retreat at a California resort.

Guess what. NPR reports that last night, after the U.S. financial markets closed for the day, the U. S. Federal Reserve announced a second loan of $37.8 Billion to AIG. Apparently, the first $85 Billion has already been spent! Imagine that!

And here’s another odd thing, the first $85 Billion bought the U.S. government an almost 80% stake in AIG. It seems like an additional $37.8 Billion would give taxpayers more than the full ownership stake. Can the government own more than 100% of AIG? What’s that mean?