War Room 29 August 2012

Jobs + Inequality

War Room

•Monthly macro discussion

•Using tools in context

•Update on HiddenLevers Features

•Your feedback welcome

Jobs + Inequality

I. Jobs Picture: Current Snapshot

II. Comparative:Post-Recession Job Recoveries

III. Market Inequality

IV. Scenarios

HiddenLevers

JOBS PICTURE: CURRENT SNAPSHOT

Current Snapshot: Long Way To Go

Still 5 million jobs from peak

Unemployment claims:

• decreased significantly since 2009 peak

• Currently not decreasing

• Currently equal to peak of 2001 recession

Current Snapshot: Jobless Claims Now at 2001 Highs

450k

Current Snapshot: Muddling Through

upticking unemployment this summer

unemployment downconfidence up

approaching 2008 lows

Current Snapshot: Recovery + Demographics

Singles• 5 million jobs lost – 90% recovered

Married• 6 million jobs lost – 22% recovered

COMPARATIVE:POST-RECESSION JOB RECOVERIES

HiddenLevers

Comparative: Post-Recession Job Recoveries

source: Bureau of Labor Statistics

Qualitative:Character of recovery similar to 1990 + 2001

Quantitative:% job loss dramatically more

Comparative: 2000s = Jobless RecoveryLosers- Manufacturing- Automotive

Winners- Professional

services- Healthcare

MARKET INEQUALITYHiddenLevers

(Rich Kids of Instagram)

Inequality – Top 1% versus The Rest

Takeaways- excluding top 1%, income inequality has not risen over past 20 years- system that works well for richest, doesn’t for the rest- Income share for top 1% is at Great Depression era highs

Source: Economic Policy Institute

Fortune 500 CEOs• CEO/worker pay ratio has risen exponentially – 20x in 1965 to 200x today • CEO pay has accelerated even faster than top 1% income• Shareholders could affect things – vote down CEO packages• Winner-take-all

Ratio of CEO to Worker Compensation: 1965-present

Inequality – Part of General Trend?

Inequality – Part of General Trend?

Baseball Salaries• Average MLB salary up 100x since 1970• Median wage across all pro-athletes = 40k (minor leagues)• Winner-take-all

Startup Billionaires• Startups not creating jobs, creating wealth for few• Automation = key to many startups success, but eliminates jobs• Winner-take-all

12 employees1b usd acquisition

67 employees1.65b usd acquisition

Inequality – Part of General Trend?

Inequality – Russell 2k vs Mega CapsTop 8 Firms outperformed over last 20 years

Mega Caps outperformed small caps (and S+P) over last 20 years.

All but Apple were huge companies 20 years ago – no cherry picking here

Apple demonstrates inequality markets• iPhone is king of smartphone market• iPad has even greater share of tablet space• Winner-take-all

Apple - Outlier or new Paradigm?

Future: Automation + Change in Workforce

Examples:

Tesla - new factory uses robots + few humans

FoxConn - automating iPhone factories in China, use 90% less workers

Amazon – automating logistics, new warehouses devoid of humans

Philips – robots replacing workers to make consumer electronics devices

Technology + Automation = Spoils to go to a few, companies and individuals

Ford Factory 1925 - humans Tesla Factory 2012 - robots

they don’t need me anymore

What are the effects of continued automation on the workforce?

Pessimists: Once a robot can do everything an unskilled laborer can do, and better, what happens to mass unemployed? If a robot can serve you fries, what's the purpose of a minimum wage worker?

Optimists: We've been through this transition before: 19th century Industrial Revolution, 20th century rise of services and information economy – this is just creative destruction at its best.

These trends are far reaching – too early to model scenarios here.

Future: Optimistic and Pessimistic Scenarios

HiddenLevers – Product Update

• Macro Profile for a Portfolio (print to PDF)

• War Room – now on iPad

Coming soon:

• iPad App (beta)

• Big Screen Presentation (beta)