Business Core Capex Spending

Barrinugo,

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That chart is the consequence of T. Friedman’s much too repeated “flat world,” IMHO.

Why should IBM invest in a second tier research area like Austin, when it can invest in Bangalore….or why should C invest in back office facilities in a second tier office market, when it too can move to Bangalore or Manila or Bucharest.

Repeat this for nearly every American multinational.

Sam Zell had it spot on with his thesis that tertiary office markets in the US are going to suffer some tough times.

http://tinyurl.com/2o9ohg

…see side 2, Rumble Strip Remix.

To continue with the IBM example, they fired 1315 US workers for “routine skills re-balancing”. Ever wonder why there is never any skills re-balancing in Europe, Brazil or India?

Why Goldman-Sachs keep offices in NYC? Because they have tax incentives. They could very well use their mostly empty building across the river in Jersey City. Restaurant selection is a also good reason to keep out of JC…

Odd comparison: the decline in capex seems to match the decline in new credit creation.

Richard Daughty writes, “Almost predictably – since new credit is not being created…the latest figures for M2 show that the money supply is predictably declining, and is down a little, to about $7.2 trillion”

This decline in credit seems confirmed by this comment of Daughty’s, “…Things are getting weird with required reserves in the banks, too, which have dropped back to a measly $39.6 billion!…almost down to the record low set in March 2001…”

So if capex spending is off and credit demand is waning, where did this money go and why? Daughty again writes, “…the banks financed about $60 billion in repurchase agreements last week! Annualized, that would come to over $3 trillion a year! A quarter of GDP!”

Could it be the big bubble on the brink?
Peter Schiff writes, “Despite its recent eclipse of 13,000, the Dow now buys 30% fewer euros than it did then back in 2000…buys 35% fewer gallons of milk, 40% fewer bushels of corn or wheat, 65% fewer ounces of silver, 70% fewer barrels of oil, 80% fewer pounds of copper, and 90% fewer pounds of uranium.”

Did it now take $60B simply to sustain the bubble? Who were the borrowers, I wonder.

Not to belabor the obvious, but GS stays (and will always stay) in Manhattan because NYC-based GS employees are the high productivity-high revenue generating employees that want to be in NYC….and the executive staff want to be in NYC because of quality of life, proximity to Westchester/CT, airports, proximity to financial community/decision makers (naturally tax incentives don’t hurt). GS rank and file (the bankers/traders) went into near revolt when the idea of moving across the Hudson was mulled. C’mon…have you ever waited in line at the Holland Tunnel?

It’s the back office personnel (re. middle America/stereotypical middle class) that gets screwed in the flat world because back office work is too expensive for NYC. Back office could have been run in SD, but now offshore is much cheaper due to cheap broadband/tech.

Watch….soon (if not already) all those credit card payments to Wilmington DE/Sioux Falls SD will be processed by a back office in *insert appropriate low cost offshore jursidiction*.

Hence one force behind the lack of business capex in US.

http://tinyurl.com/2b2g5k

Run that chart from Oct 2006 to May 2007, and tell me where the next 3 stars will be. We’ll get the first of the 3 in just a few hours (It’s 3:08 AM EST as this is written).

Barringo, it’s that time again… time to play the game we love so well.

It’s ‘Over or Under’ time!

What’s the consensus?…100,000?

I don’t think there’s any figure that we could see that would derail the market except for a day or two, unless we actually see a loss of jobs… and even then the spin would be back to being for a bullish Fed rate cut, or that the figures were temporarily distorted for whatever reason, or that the worst was “over.” The spin later today will be bullish no matter what.

In any event, there is no figure, period, that would get the public’s attention, even if the non-financial media were to run it in big headlines. The public has a proxy, but they’re not ready to vote it themselves yet.

Nevertheless, I’m taking the under, and assuming as in a couple of prior monthly reports that employment must ultimately demonstrate statistically significant evidence of a downturn, and when it does… it’ll be written in the stars.

“but GS stays (and will always stay) in Manhattan because NYC-based GS employees are the high productivity-high revenue generating employees that want to be in NYC….and the executive staff want to be in NYC because of quality of life, proximity to Westchester/CT, airports, proximity to financial community/decision makers”

As everything moves offshore they will need synergy with global markets to be competitive so they will have to move to London, Hong Kong, Singapore or Shanghai to stay in touch with the decision makers.

Once there are no lowly back office workers here we certainly won’t need any bosses.

Here are the numbers John

http://www.businessweek.com/magazine/content/07_17/b4031048.htm