L.e.a.r.n.i.n..g...

April 17 2002 was my first day at my first job. I have completed 23 years of having a software programming job last week. I have been employed all along these 23 years pretty much. It has been a good run overall and I'm most refined now, than I have ever been. 

Was thinking about my work life and my life prior to when I was a student.

 

When I was in School and in Engineering college, I would be sitting in the class room during lectures. I realized then and I remember now - I didn't understand what they were talking - no matter what subject it was. Sometimes - I probably listened to the first 5 to 10 minutes may be, then got distracted to think about something else. I was just merely sitting there, but mentally I was far away thinking about something else. I wondered if everyone around me are just pretending to listen or even they are lost like me. At least they were good to pretend. I do not consider myself smart amongst my class mates. Just an ordinary student who will just make it through the exams. Over time - I have come a long way and even when in School, I realized I am good at reading myself and understanding. In fact all my exam preparations was fresh new reading from the books. I was appalled when reading it during the exam season - The lecturer who tutored us on that topic really didn't make it interesting even though the concepts I just read and found out wasn't that bad. So during exams, I just read 60-70% of it and also I wrote in my own words. I remember while writing in exams - I try to quote the book sentence and not satisfied with that explanation - I explain more in different way in the next sentence - so that its crystal clear. I always liked how I told it better than how the book explained it. It was my understanding that stood apart. Indian examiners expect everything to be quoted from books, and it is not a surprise I didn't score well in any exams. But I was always happy to "know" things from the book and had my own understanding on key technical topics. Programming was one such thing - I have been earning a living of that for the past 23 years. I am not super smart in programming - But I am very perfect on whatever I do in it. I have seen my colleagues who are not doing that. So the school and college didn't make any difference to my intellect. Whatever I learnt - I learnt it myself "outside" of the class room. The influence of any of the lecturers was not minimum, but zero in my case. That is a true statement.

 

Long back, the process of learning was to going to a Gurukul and staying with a Guru. The guru taught you everything and you stayed with him 24 hours - all day. You learn by close collaboration. If you wanted to cut hair for a living - you work for an established barber in the town. You see how he operates, he teaches you his approach, then gives you smaller tasks, then he allows you to experiment in his full view - corrects you, refines you and you stay with him for years to understand everything about the skills. After sufficient training - with his consent & blessings, you move on to do it yourself. This was kind of how it used to work for any profession. This method of a "learning" - we know works. The training is extensive and over a long period of time. It was a working model. The disadvantage being - only some people can be trained this way. The count is very less.

 

Modern School teaching - is a "mass learning". Instead of a personal trainer - the tutor will stand in front of a group of students mostly 50+ people will lecture the whole thing. It is up to the students to capture what all the lecturer says. From what I know - 80% of what was taught in school that day is forgotten by that evening. Words flew from the teachers mouth into the student's ears - only to be evaporated in the air. Learning needs re-enforcement of knowledge repeatedly over multiple days for the students to remember. A casual explanation - in whatever way isn't going to stick the intellectual knowledge to the listeners. Moreover not all students are captured by the same words. Each one needs to be told in a different manner, so that they get their head around that. Most often - the teachings are wrongly understood. One day i told my wife and daughter - Imagine there is a cow here in the living room. I gave them a minute to imagine and asked them to write down what they saw in their imagination. I wrote my own small list. We reviewed all our list afterwards. The color of the cow didn't match. Whether it was sitting or standing didn't match. What side its looking at didn't match. How big was the animal didn't match. Turns out - all three people were imagining completely different things even though we are attempting the same thought. This happens every day all day - even on brand new topics. Just as the first step gone wrong- anything that follows goes bizarre there after. The new learning doesn't happen - most of the time. Say a tutor teaches programming to a set of students - it turns out, the student is hearing that for the first time. It is absolutely important that he absorbs the basics right - without fear of it and with clarity. Usually if the first learning scares the student out - and he is unable to recover for years. Many Engineering graduates are afraid of programming - because it was not introduced to them in an interesting way. They create a permanent fear in their mind and unable to sustain in jobs that need  hi-tech engineering and mathematical skills. Fear is the baseline how schools and colleges operate. Only with the fear they can control 50+ students. You talk in class - you meet the principal. You score less marks in exams - you are asked to bring your parents to meet the teachers. The whole thing operates by creating fear in the minds of the students. With fear - no learning can happen in its true sense.

 

The tutoring itself is second-hand knowledge. The teacher needs to understand the book and explain to the students. The student gets "second hand" information first - usually its half-baked, badly explained, includes missing information, uninteresting and vague. Because it is second hand information - it cannot be articulated well enough. Also people who end up as teachers are those who didn't succeed in getting real-world jobs. The only use value of their acquired knowledge is to teach it to another student. It doesn't trigger curiosity. A good lecture must create curiosity amongst the listeners - even days/years later.

 

I read books and I often repeat them particularly the ones that deal with trading. When I repeat my books - I realize that the first time I read a book - I become aware. The next time I read - I begin to understand. The next time I read - is where I truly learn. Being merely aware is not enough. It might help with written exams in schools - but really the intention is to truly learn. A job really needs true learning. A lot of people manage by just being aware. In those cases - expertise is acquired by repetition rather than real understanding. This takes longer in time.

 

True learning is to know the unknown (you didn't experience it before), be aware of it consciously and then allow the understanding to percolate to the unconscious/subconscious, in the process become a newer version of yourself and operate at a different level. This can be articulated while we learn a new skill that we didn't know already like - swimming, driving an automobile or trading. The very first time, you were learning swimming., you go into the pool and at every second you are conscious not to drown, stay above, breath as needed and put an effort to float, move your arms & legs. You are always afraid of drowning. As you practice more - you do the same thing, not consciously but unconsciously. Similarly while driving for the first time - you are always watching around for vehicles, seeing the side mirrors and vigilant all the time. As you drive more and more, those things happen at the unconscious level. This is true learning. It is not that the dangers don't exist anymore but you are able to deal with them with ease. You have become a different person - to encounter the new changes overcoming the fear which you used to have. 

 

When you repeat the books, the learning introduces you to the new things. It is not they didn't exist when you read it the first time, it was there all along. Actually you have become refined and you are able to absorb the information because you have refined/changed yourself since the time you first read it.

 

Class room teaching is successful in making more graduates but it hardly does anything in the area of true working knowledge. It is often left to the student to DO the learning after he leaves college. He usually does it himself at home. Resulting in continuous learning to be contributing at work. In most cases - it takes YEARS to learn enough to contribute in real work. It takes more time than the Gurukul set-up. Sometime the learning that didn't happen during the school happens all through life, and in most cases - the learning never happens. We see graduates in accounts - not knowing anything about accounting. We see graduates in science - doing an insurance sales job. Those people lost valuable years, by sitting in class rooms.

 

I believe - the current way of "learning" through schools and colleges has had disastrous results. More people are unemployed and unemployable after exiting that system. Some people become successful still, in this kind of set-up - that is not because of the system but in spite of the system. The whole set-up needs to be revamped. There are smart parents who have already figured out this and put their children in home schooling. At least their learning is first-hand and has more probability to succeed. Education, as is currently practiced, is not the answer to all problems. It's critical thinking and self learning. Critical thinking is needed at the individual level. Only that can liberate the self. Only by the liberation of the self, can the society be changed.

Liberation day

Trump announced Liberation day on April 2nd - History would come back to see this as a self-inflicted crisis that exposed the sorry state of the unproductive US economy. 

 

Normally in a war the fighting armies try to kill people on the opposite side. But in a trade war, When the battle starts armed soldiers turn around and start shooting their own people. Winner of the war is decided by how much damage they do to their own people. It is very funny to see that when the United States announces tariff against Chinese goods the US markets goes down. When China announces retaliatory tariffs, the Chinese market goes down. So it is obvious In a trade war you only harm your own citizens. one thing to note is that China Tariff in the USA is paid by the US citizens and NOT the Chinese people. On the other hand the tariff announced by the Chinese Govt against the US Is essentially a tax on the Chinese people. It makes things costly for its citizens. A 100% tariff on $1000 imported iPhone., will make the price go up to $2000 right away. If you excuse the name tariff - it is new additional tax for the consumer. Saying it to be a Chinese tariff is just to feel good. Chinese people are not involved at all. 

 

The budget deficit and the trade deficit often referred to the twin deficit has been an often overlooked metrics in the economic discourse in the US. In fact these numbers were actually paid close attention to decades back. One of these caused the black Monday crash in the market in October of 1987. They fell out of the economic radar a long time ago. President Donald Trump is absolutely right about paying attention to the twin deficit. The budget deficit indicates that the US government is spending more than it takes on in tax payer dollars. The trade deficit on the other hand says imports exceeds the exports. In fact US having a big trade deficit and a huge budget deficit is a symptom of a problem - Conveys the lack of economic productivity of the US people.

 

After the Liberation Day the market became volatile. The equity Market had a huge fall, a scale witnessed only during a financial crisis or a pandemic like event. But this one was a US govt made crisis. US announced tariffs on all its trading partners overnight. China taking the largest of all. This created panic and uncertainty. White house sound of early strong stand on not going back - only made it worse. The equity market going down was expected because of the uncertainty what the us government did not expect was the volatility in the bond market and the us dollar market. Usually during a crisis there is a flight to the US dollar and the bond market rallies pushing the yields down . Even though it happened initially, after couple of days of panic, investors started selling the dollars. At one point the 10 year Treasury yield moved up from 3.87% to 4.51% in a matter of few hours and this scarred the White house. Moves like these are unprecedented. The US Treasury market - the so called safe-haven bond market was behaving like a developing country debt market.  President Trump didn't have an option - but to put a pause on the Tariffs for 90-days. The whole thing looked like a misadventure on the part of the US government. It had to save face by initially saying - it's to reduce the twin deficits, then to create American jobs, then to earn tariff income to balance the budget and finally to uniting the world against China with respect to world trade. Most likely the 90-day tariff suspension is gone forever and its almost certain that the 10% tariff on other countries is definitely not going to go up.

 

President Trump's should be appreciated for the effort to solve the long pending twin deficit problems. But the radical solution for it in imposing tariffs on foreign countries has really back-fired.

 

If the countries agrees on zero tariffs and practice free trade., the US doesn't have much to give to the world - this point is not discussed to the level it should be discussed. Rest of the world have a competitive advantage over the US in manufacturing goods. The world offers US manufactured goods, but the US has nothing to offer to the world. It has agriculture produce that it can give like corn and Florida Oranges. Believe me - the oranges and corns grown locally here in my place is lot sweeter than the ones from the US. There is no natural demand for them. One other thing the US can offer the world is energy - like oil and natural gas. But not at the current market price. Oil is trading around $60 now. US has lot of oil, but most of them are under water and within rocks - uses expensive technology called deep sea oil wells, fracking to take it out. Saudi Arabia on the other spends less than $6 to get a barrel of oil out of the ground. Oil extraction from fracking can cost as much as $70-$80 per barrel. So at its current price, US cannot export economically. US has bulk of AI products - those things are to be frank no one in the world needs. At least not at the price they are being sold. They may eventually become a need but definitely not at the moment.

 

Americans had been having a sweet deal all along. They got all they consumed from the rest of the world and stopped being productive a long time ago. Americans bought things that they don't need, they can't afford, overpriced and don't work, with the money they don't have, as George Carlin put it a long time ago. The post-pandemic era exposed a dysfunctional economy. During the Covid-19 lock downs, things didn't get produced and didn't get exported and the only way the US government could save the people was to send them checks which people spent to avoid their addiction of shopping. Because there were no house hold savings for the rainy day - the US government didn't have an option. They gave grants (funny they call it PPP loans) to business people so that they don't lay off people, they paused on student loan repayment, rent and mortgage repayment. Lot of student loans were then eventually written off. Meaning paid by the US government to those Universities and educational institutions. This caused huge budget deficits - record deficits that are completely unsustainable. The interest on the past debt burden of exceeding $36 trillion coming to 25% of tax income in the last year of Biden Presidency.

 

The April 2025 experience so far - has demonstrated how much the US is vulnerable economically. US needs the rest of the world more than the rest of the world need the US.

 

Since the 2000s - the US solved all its problems (including foreign wars) by creating huge trade and budget deficits - meaning it prints its way out of problems. The equity market rise is because of that. While it is possible to deal these problems with printing new money - with the US dollar being the world's reserve currency - they cannot solve bond market problems with the same technique. It's all about the credit worthiness of the nation. With close to 10 trillion dollars set to mature this year - the US needs someone to loan all that money. 

 

As an alternative - Instead of hitting other countries with tariffs, Trump should really make America more productive. It can be done by less spending from the Government, removing more regulations - make US population work harder and become productive. These are difficult things politically. Individuals can change fast, but the people of a country cannot radically change. But that is the only option. Peter Schiff says - not rising the debt ceiling any more is first step. I completely agree with it. Instead of threatening the world - US should work closely with them - and over time make things in America, create American jobs - being really productive. The $36 trillion debt is a huge obstacle in that way. At some point - the debt needs to be re-negotiated. It is mathematically not possible to pay them all in value dollars. Americans have to go through lot of pain to over come the twin deficit problems - they are entirely solvable. But how much economic pain is tolerated is the real question. As Trump says - the medicine is not pleasant but it needs to be taken sooner rather than later.

Covid-19 victims

Recently I attended a wedding. The bride and groom were up in the stage with lot of fun decorations, photo sessions & cake cutting. Happy faces everywhere & the closer family members enjoying the company of each other and taking turns to get pictures with the couple on the stage. Something that you cannot miss on the stage was one more thing - there was a photo of the groom's father with his passed-away date on it, this as part of paying respect to who is not alive for the important occasion of his son's marriage. I was able to recognize instantly from the "departed date" on the photo, that it was peak covid at that time. Turns out he passed away after getting infected by the Covid-19 virus at the peak of the pandemic.

For me and majority of the people in the world - Covid-19 pandemic days' was just a different experience, we spent over a year staying at home & then when it was safe, we came out of it., just as we got into it. It was just happy times. We were with my parents all year and we had long conversations about everything, 24x7 at home, and had nice time being together at all times without any distractions whatsoever. No one leaves the house. No other person can enter the house. We didn't get sick, no one in the family had infections or to suffer through hospitalization, or did we lose anything, financially. "Cautious" people who had enough, sat inside home and allowed the wave to pass.

 But there are people who were not that lucky. The people who had to work to make ends meet - didn't have that option. They had to go out to face the world, and vulnerable fell by giving up their life. No one knew initially what it was and how to react. Only when people died the panic got acknowledgement, and it hit home - it just was too late.

Their life path was altered to the worst. They lost fathers, mothers, both parents, sons, daughters & loved ones because of Covid-19 infections. I know a person who lost his father who was the only bread winner in the family. The family isn't the same any more. I know a LOT changed after that. I know another family friend who lost 2 people in the same house to Covid. Kids lost their grandfather in the night and their mother in the morning. I have a friend who lost his father first and he himself was severely infected and in fact he is yet to fully recover from covid related complications like Mucormycosis or black fungus in Covid-19 patients. He had more than five post-care surgeries in the eye and in his face and has lost his smooth face appearance permanently giving him a sick face. I know someone who lost both his parents during that time to the infection.

Little things matter. For most of us, Covid-19 was a little thing that came and left. For some - it was not little, it left a real scar in their way of life. Let's put us in their shoes and see how they would look back and see the pandemic times in their perspective.

What a cruel world? You see around and notice most of people you know had no impact from the covid wave but your family took a direct hit and you are a affected victim. The Covid-19 virus took away the beloved ones by force without a proper warning. It was so sudden - they didn't know Why the virus choose to kill their loved ones but spared all the others? Things were going good before the Covid wave and as everybody, they had future plans. Then the pandemic stuck. Took away loved ones at home. After a short & a severe brutality period - things are back to how it used to be. For the affected, the damage has already been done with enormous pain & suffering with an uncertain future with who are left out. The questions remains - why us? I don't think anyone can answer that. The real victims are not the persons who died because of the virus during the pandemic, But it is those who had to pick the slack because of that.

On a good side - I went for lunch to a friend's place for Eid last month. After a good meal I remembered his sister was very serious with Covid complication during its peak and they spent a lot of money and effort to rescue her. I asked how is her sister now - He gladly told - she made the food today. It was a nice moment to know all is good now. Some people made it to the other side after a life-scaring experience.

I personally do not know what would I do going through want they went through. I would be gutted if something like that would have happened to me because of what it was a - temporarily dangerous phenomena. For them - I wish I could do something more, but just have only my stupid "sympathies". At least we can all agree the "useless" masks didn't help. And the victims are not dead, but here, struggling with the loss of their loved ones!

The war that never ends

The war between Israel and Palestine is back started this time, by Hamas when it raided civilians on Oct 7th causing more than a thousand deaths. Unfortunately the crisis has only got worse pushing out peace in the region by few more decades. Unlike other conflicts of the world - which I believe are solvable over time - this one unfortunately cannot. Conflicts between India-Pakistan, Russia-Ukraine - they have historical precedence of being together as one nation. Pre-dominantly - it’s a clash between rulers / governments on either side - there is no big people to people conflict. But only in the Israel-Palestine conflict - historically this has been a people to people conflict. This confirms - the problem has no end in sight. The war would end one day - lot of people would be dead on either side - more on the Palestine part - because of their vulnerable status, only to start all over again a different time with a different reason. Subsequent leadership on either side - lacked the will or the desire to resolve the conflict. It has only got bigger and bigger.

We all will live to see a lot more quick wars between them - the hatred has only increased.

Israel is supported by Western countries and is genuinely part of the richer nations club. It has access to weapons, technology-progress and might against a smaller refuge state of Palestine.

Palestine on the other side, is a weak block. Even though they gain sympathy from a majority of the world population (who are aware of the conflict) - Their lack of progress (economic, social & political) can only be attributed to their own people and its past leaders. In my opinion - its applicable to the entire Muslim-dominated middle eastern countries. It can arguably told - The middle east hasn't generated a single political mass leader in years. Because of radical religious thoughts - the country has not been exposed to alternative thinking - and the weakness has only extended over the years. What the middle east really lacks - a unifier like a Gandhi. In my opinion, that person has to be non-religious (leader of all sections), carries the integrity, honest and vision of a future middle east. This part of the world has always missed that. This is probably because the leaders liked power more than the genuine belief to make things better beyond their own interests. I am not saying - what the Muslim world should do - all I'm saying is - they need to operate as a united block under a commanding leadership of someone (home grown) - who has a vision and has the belief of majority of the people in the region. What we often end up - leaders who are token citizens of a country but really whose family resides somewhere in an affluent western country with business interests everywhere around the world except in their own native countries. These so called leaders - exist in plenty on the west of the Indian subcontinent until the Atlantic Ocean. The lack of unity among the middle eastern nations can be attributed to just the lack of this leadership trait - unauthenticity. Because of that - they are corrupt. The leader has to be from within - someone who is born, grows up and lives through the daily routine of most of his people - a really close to the people leader.

India is a diverse land with huge diversity is religion, caste, creed, language - but still she managed to create visionary leaders like Gandhi, Nehru, Indira Gandhi, Abdul Kalam, etc. They represent Indianism in the minds of the Indian people. It is very hard to remember a visionary from say Pakistan - which was part of India for bulk of its existence. That is because the country is based on a religion. Once you go that route - it is very hard to lead otherwise. Religion is good and it controls the chaos - I'm not saying there should not be religions. There can be. It cannot be a way of political life. Because religions has beliefs and not all people in a region conform to the similar beliefs - it fundamentally divides people even though it unites a concentrated section of the people. By definition - if you accept a religion's beliefs, you are against the beliefs of other people - that puts you in conflict right away. So right to practice any religion should be the norm - but it cannot be politically enforced. I'm not advocating for a liberal society. I am just saying - political leaders with the will of the people and with aspirations of the son of the soils without a religious bias can provide better political establishment to a nation.

The history of Israel-Palestine conflict - Every time the Palestinians get killed (most of them Civilians), the Arab world would send signals indicating their support and then it goes nowhere. Israel is too bigger power for the Arab nations and exerts its authority which is natural. Historically - the Arab nations have not even be able to reduce the intensity of the damage caused by Israeli military on the Palestine civilians. It breaks my heart to see those horrible visuals on X. Most of them are not combatants.  

With Elon Musk opening up X- more uncensored information is coming out of the conflict and it has created more awareness on the issue for people around the world. This time - it has increased the sympathy for the Palestinian people and decreased the empathy for the Jewish state.

What should be the resolution for this major conflict that can cause a world war? I do not know. But I do know - the resolution has to be from people who live there on either side. They need to determine how it should be resolved amicably with mutual give and takes. There is no alternative. The UN or other powerful nations - may have opinions on how it can be solved - but are useless. Those planted resolutions don't work. A true resolution should come from within. 

Banks of America (again)

After the 2008 financial crisis I personally got interested in the markets and started seeing them closely. The first thing that caught my huge interest then was the banks i see around me, failing. My first article in this blog was about "Banks of America". We have come a full circle - as the banks of America are failing again now. For anyone who has followed this thing for years closely - its very clear. The problem then and the problem now are exactly the same. It was just a temporary pause for few years. In 2008 the banks had assets that had its value gone down significantly. It was housing bonds then, now its the low-yielding bonds from the ZIRP decade. The problem is pretty much the same.

I was talking to someone who owns a home in California few months back. I asked him what is the interest he pays on his home. Every one refinanced at a lower rate, and he did too. He told me, he was able to refinance his old mortgage for 3.05% and was very upset, he couldn't utilize the still lower rate it got to at 2.75%. It immediately occurred to me, if there is a transaction that benefited one side a lot, there must be the other end that heavily lost. That exactly what happened. The person on the other side were the banks. The mortgage  was probably 30-years maturity paper and the bank is stuck with it.

The duration risk on the bonds are cited as the main reason for Silicon Valley Bank to fail. When interest rate rises, the low-yielding bonds will lose value. This caused a huge hole in the bank's balance sheet. I believe, even though it could be one reason, there is something more to it. Regional banks are heavily exposed to the commercial real estate market, which we know is not doing well, because employees are not coming back to the office. Also it is not a surprise that the over leveraged technology companies - that ran only because of cheap money had a big role to play. It's not a coincidence that most of the failed banks are from the state of California. I work in technology and i see first hand, how leveraged the industry operates in. Most of the time, almost in all IT companies - work happens not to make the customer happy but instead to get a new investor. Significant time is spent on, doing prototypes, demos to attract new money as investment. This used to be very common in research institutions. Most of the time of research graduates, are spent on applying for grants than on doing actual research. With the Fed hiking rates up to 5% now - all the cheap money is gone. What is left is the mal-investment and accumulated debt from the boom days.

Initially when the 2008 housing crisis started., we were told the issue was isolated to subprime. Eventually, we would find out - it was not subprime but the entire mortgage market. The falling assets problem is same now - Not only the banks have the problem, all insurance companies, pension funds, hedge funds, other financial institutions would have the same problem. If banks are losing asset value because of holding low-yielding long term paper - lot of people hold them. Opening a Fed window for the smaller banks alone to exchange their worth-less bond and getting the full dollar - is a moral hazard. The problem is just showing up in the weaker sections of the economy now. History suggests - there is a contagion effect to it. We will soon find the same problem repeating in other forms at different places. 

Fed raising rates, exposed the underlying problem. There is a bank run on the regional banks. People use their mobile phones and transferring money out for 2 reasons. They are afraid they will lose their deposits and more importantly want to move to other money market funds that may yield 5%. The Bank wasn't paying much interest anyways. With fractional reserve banking - No bank can survive this outflow, as we know it. 

Opening a window at the fed to accept the depreciated asset and giving them on-par price - is a fraud. More over the bad assets are being dumped at the fed, because no one would buy it. Exactly the same thing that happened in the 2008 housing crisis. The mortgage backed securities were dumped at the fed and they remain in the Fed's balance sheet even now. The Bernanke promise of selling them back to the market when things improve never happened. It was a lie. These low-yield assets that are being dumped at the Fed by these failing regional banks - will also stay on the Fed's balance sheet until their maturity. The money the fed pays for it, would reach the economy making the inflation problem far worse.

This can be solved only by the US government (with the Fed) guaranteeing 100% of the bank deposits. Or else the Fed has to lower the interest rates drastically - to add value to the low-yield paper from the last decade. The Fed cannot do the later with CPI hovering around 6%. We will find out in the next couple of weeks on how this unfolds. If they do any one of the above - it would be admission of a financial crisis in-action. Symptoms would be suppressed for a while - but it will show up in a different form say double-digit hyper inflation soon. 

The Fed's balance sheet is already expanding. They were doing a $85 billion in QT every month. They just added $95 billion this week and $400 billion in the last month (the returns from the special window for the smaller & regional banks). So the pivot the market was looking for - has already happened from QT to QE.Jay Powell saying that - its not a QE program because he is not controlling long term yields is a loser's argument. Yesterday in the post-FOMC press conference, he said what happened in SVB and Signature banks were "outliers" and doesn't affect the broad banking sector. After famously using the terms auto-pilot, transitory - outlier might be the next one in that list.

Europe would have the exact same problem. They had negative interest rates for a long time in the last decade. With multiple countries in the Eurozone with different cultures and countries - it is going to be really hard for the ECB to maintain decorum. We already have seen Credit Suisse fail., and there are reports late this week on Deutsche bank having  their credit default swaps prices rising abnormally. 

The Central banks are coming to the rescue again. In fact they have too. After all - they are the ones who kept the interest rate too low for too long. They want to pretend the Central banks are the lender of last resort. Actually they are the lender of only resort. There cannot be a financial system, where no one loses.

Remote work insanity

 I am sitting in my office and looking around, I see most of my colleagues instead of being heads-down with work, are spending bulk of their day talking with their colleagues on Microsoft teams, our official communication app. They are interacting with people, who are "working from home". On the other side are people who are "working" but cannot make the physical presence in the office to do that. The conversations take hours, what should ideally be few minutes in-person. It is probably, an over-the-shoulder comment, followed by quick couple of questions & answers. The whole office looks like a BPO call-center. Coding is waiting for the calls, and calls are waiting for the coding to happen. Instead of people running ahead with full speed, they are grinding their way out slowly with high-level of operation lethargy. It makes me painful, this way of software development has become the new normal.

Someone told me a long time ago a big truth, that there is absolutely nothing called over-communication in software development. People need to be engaged constantly through the entire implementation phase. Ideas, code details, expectations, requirements, validations, user experience are constantly reinforced amongst the team members, so that the entire team is guided as they make progress. It's like giving a haircut, the team has to be at least in the vicinity. I have seen Projects succeed because that one-person successfully articulated the requirements and got the best out of the team by being with it all the time. This is what works. Now with some people working from office and some working from home, this communication coexistence is clearly broken leading to dilution in the software development models causing unwanted delays and additional stress on team members.

Working from home option existed prior to the pandemic as well. Occasionally you hear people, who says they are working from home, particular days of the week or few on all days. It used to be the resources who work from home on most of the days, are way smarter than the rest and provide an unique expertise to the team. They usually grow into that position. Their credibility is unquestionable within the team. They are always available. Bottom line - they sit at home and work lot harder & smarter, literally more than what they would have achieved if they came in to office every day. More importantly - they are available to come into office on short trips. They would fly in or commute to stay in an hotel for a day or two, they have really jam packed productive meetings, bunch of action items to all, have a game plan to execute in weeks and they go back home "to work" with lot of work in their plate. The visits cost the firm lot of money, but it would be worth it. While working my way as developer, I have seen how these people work. They are very industry experienced, usually super smart and are a pleasure to work. They gain respect of the team, even though they are not with the team. One quality they possess - they don't take leaves. They are available online 24x7. You need to be somebody disciplined and dedicated to be offering your service without leaving your home.

Then came the pandemic.

Once the lockdowns were mandated, everyone were forced to stay indoors. While employees of business who cannot execute their labor remotely, lost their jobs., people in the IT industry were lucky enough to hold on to their job, because they can contribute their labor with no difference sitting at home, what would they have did if they were in office. That was the expectations from the management. That is where it started. The assumption was every employee would sincerely execute his service. May be it was OK to work remotely for a month or two because of compulsions. But definitely it didn’t serve the original purpose and days went by. Employees resisted coming to work - citing genuine covid scare initially. It later turns out to be to avoid relocating to work place, avoid daily commute and more importantly in this part of the world - to save on the expenses. These additional savings in India created a demand for new cars, luxury vacations - those they wouldn't commit to, if they had to expense on the office visit daily. They save on the lunch cost, commute cost overall. Some of them have moved permanently to their native, so that they can save on the rent in the bigger cities. Even though these are good things for the individuals, it not a good deal for the employer (and eventually clients) as more number of people choose to be in their comfort zone rather than try to bring energy to work every single day. Employees with no or little experience were also sitting at home trying to work remotely. First-of-all they don't even have basic skills to work by themselves. The learning curve just got a lot longer. In IT, the start of your career is very important. You need to be in a dynamic, lively, hard-working, interesting work place. That is where you learn a lot. Having a bad start prolongs your learning curve by months. I see lot of them going through that. If you are working in your first job and have never been to an office - it shows up in the quality of the work.

Workplace became workhours. Workhours became beacon of boredom. No new ideas, just grinding the existing stuffs. The only reason the employer could afford this change of behavior, was the client was willing to pay. Finally when the clients run out of money themselves or patience in the team not doing anything creative anymore, they opt to reduce the number of people on the team or shelve new thoughts as there is nothing that is value promising.

I remember, in one of my product development jobs, I would walk-in to office and spend long hours working late with few dedicated team members. My manager would always ask if he needs to order lunch, dinner for us. We always ordered food to be delivered and ate a different cuisine every time, like Chinese, Italian, Thai. Only after a long time, did I realize is the food was being ordered because my manager wants us all to keep rushing the work and doesn't want us go out for lunch which takes an hour at least. Instead, when food is delivered in office, we just walk in to the cafeteria and have a lunch/dinner in 15 mins and back to the desk for work. That were those days, where we were truly productive as a team. We stayed together every day at work. When there is an urgent deliverable and lot of things to accomplish within a limited time-constrain, it makes sense to avoid the commute time and keep your heads down working long hours sitting at home. But when there is not enough to do for 8 hours for employees, laziness creeps in. They tend to avoid difficult & challenging tasks and get used to giving the regular tasks, which they assume can only be done by them. They go into a fully "manage your job" mode. Their tone in chat/voice calls changes because they need to pretend more than what they are actually doing. They need to show-off little bit to justify their contribution. In the process, they shame themselves more. It causes friction within the team members and a lot of moral hazards.

Once they realize they can "manage their pay-check" in their job, people start moonlighting. What used to done in weekends earlier, start to creep in into the weekdays, causing distractions at work. The more and more, they get distracted, the more and more they "manage their jobs". Once their attention on weekdays shifts completely to moonlighting tasks and not their full time jobs anymore, they are fully unmotivated. They navigate to a state, now often referred to as quite quitting. When in this state, they don't treat the job as an obligation. They already gave up on it. They don't want to do more than what they are actually doing now. They are OK, if the employer wants to cut them off. They already have other plans.   

Let's be frank. Except a very few, most IT workers in India, do not have enough infrastructure at home like what they have at office. That is why we have these huge glassy buildings with air-conditioning that cost lot of money to rent. It's a luxury for most people. They aspire to have jobs in these fine buildings. Most of working population outside the IT fields, have far less convenient work place. A lot of them don't even have an air-conditioned office space. In spite of all these, employees don't want to work from office. Lot of them don't have proper office desks and chairs similar to what they would find in a software office that will put them in a comfortable posture to sit and work long hours. On top of that, half of them don't even have enough skills to operate individually and contribute. What has software become now with most people still working remotely - they just manage. It's nature of work is just "housekeeping" tasks. They do stuff that they always did for years. They don't have to work for 8 hours a day to accomplish what is expected by their manager. They have worked on the project for really long time, they know enough to make a difference daily. This I call - Keeping the lights on, kind of work. Available for work remotely means different things for different people. Able to fix few critical things over a week is one, being available to answer project related questions is another, taking a 15 minute phone call with client late in the night is one-kind, rudely managing few juniors on the phone calls and getting things done is one kind, delegating all work to someone else in the team relaxing yourself, is also another kind, In all these activities, a lot of hot potatoes happen. Things are thrown to others, and holding on to bare minimum tasks for self. One real problem with this "managing" by most employees - you run of money, sympathy & patience from the person who is funding this activity.

There is a bad behavior by few people and then there is a mob behavior modeling around the few, by the rest of them. Eventually everyone gets to "know the game" and start playing around their personal agenda.

Somewhere during the last decade, for some weird reason, employees became more authoritative than employers. Employees by definition are not smart. If they were, they would run their own places instead of contributing their service to an employer for a pre-agreed fee. As always when less-smart people are in-charge, productivity falls.

You wake up every day and show up in office is an attitude setter work-ethic. People prosper because of it. Refusing to show up in office by some of the employees is a raw disrespect to the employees who show up in office daily. To me, if all of them are not in office, then all of them need to be working from home. At least there is no office rent expense or maintenance. That is a better option as the fall-out will happen sooner.  

The problems gets worse as you go west. In the US, the post-pandemic work culture ethics has hit new lows. We see them in productivity numbers. In year 2022, US has lost full-time jobs and created a lot of part-time jobs. By definition part-time jobs are "manage" jobs. You don't have to be fully involved or dedicated but keep a guard on something until the next part-time guy shows up. It's more about the time-factor rather than the work-factor actually. Usually the jobs are repetitive, mundane, uninteresting and will not be done by someone who are more ambitious. For the lack of better word - they are dull jobs done by dull people. I always thought, a family of 4 needs just one person working a full-time job and that should be enough. More than one job in a family - is a sign of weakness and not strength.

There is only one place to blame for this entire mal-function in the work force. It is the Western Central Banks, in the US Fed, ECB and BoE. At the time of pandemic, when the supply was less because of lockdowns, instead of reducing the demand proportionately, they stimulated demand by bring down the interest rate back to zero and the government providing welfare stimulus checks to people who are unemployed and provided PPP loans to businesses to make people employed during the pandemic season. In the US, the entire country was in welfare. It was to ensure people do not come out for the sake of money during a global pandemic. With most Americans devoid of savings, and living life, pay-check to pay-check, this was a humane thing to do. But what really precipitated was - the welfare programs ran for months. Nothing is permanent than a temporary government program. Evacuation moratorium was done which guaranteed people can stay in their houses without paying the rents. With the free money coming in - people earned more than what they earned while working in the jobs, didn't have to pay the rent, don't have the expense like gas to go to work, they spent all their money online on amazon while watching Netflix in their couches. It's all OK, except that no country can afford that. The pandemic exposed the hollowness in how the western economies operate. Lack of productivity was inherent over the last decade, the pandemic put a confirmation to it. Even before the pandemic there were more women workers than men in the labor force, underscoring the less-productive aspect of most jobs.

Human labor is scarce., like everything else in this finite world. Tying up a few people to do unproductive nature of work for a long time, irrespective of their monetary channels is a fraud on nature. If resources are not productively used., why does it matter if they are paid or not. Doing things in 2 months what ideally takes 2 weeks because of operational lethargy, is a disservice in my opinion, though it might be defined as unproductive labor in the law of economics.

The experience of going through this and not able to change anything about it in a meaningful way, is a new low to me personally. I get over this by thinking, after all - It's just a job! Only the market has to fix it. It definitely will. Unfortunately lot of damage would have already happened.

Looming large layoffs

The US inflation data (CPI - consumer price index) for the month of May came out last Friday and the print was 8.6%. Putting to rest the optimism that dominated the financial media since the last receding CPI number - that we have already seen the peak of inflation. The 8.6% was a new high for this cycle. The core inflation also came higher than expected. This would be highest it has been in 40 years. What would make it worse is - if we measured the CPI the way it was measured 40 years ago, the number now, would be well more than 15% already. That number would have taken out the historical high of 13% of the late 1970s. 

Gas prices hitting $5/gallon across all US cities this weekend confirmed the pain at the pump. 

The university of Michigan consumer confidence sentiment number came out and it came in around 50 - the worst in its 70-year history. Consumers think this month is the worse month than anytime in the past including the 1970s peak oil crisis, 1980s inflation, 1987 black Monday event, 2000s dotcom crash, the 2008 great financial crisis and the covid pandemic from last year. 

The S&P 500, the thermometer of the US economy, had its worst start to the year in a 100 years. The bond market arguably had its worst start to the year in 200 years. Inflation possibly at an all time high - things look lot bleaker. Only thing that is going good is the fact that Americans are able to cling to their jobs with unemployment at a low at 3.6%. The jobs market will reflect the economic reality in the 3rd and 4th quarter of 2022. The huge lay-offs are coming. Unemployment is a lagging economic indicator  always and the carnage is just ahead of us.

President Biden, this week had the courage to say - the American people are capable enough to meet the rising prices head-on because the labor market is good. A true admission would be to acknowledge the past mistakes of fiscal & deficit budget policy since the global financial crisis of which he was very much part as Vice-President in the Obama administration. With the job market beginning to show cracks (the initial jobless claims from last week coming in 20% more than expected. We might have seen the bottom there already). 

Inflation - is the most misunderstood concept globally. Milton Friedman said - Inflation is always and everywhere a monetary phenomenon. Expanding money supply causes inflation. Inflation is the expansion of the money supply and price increases, are consequences of it. In other words - if more money is printed and are in circulation, the prices of available products will go high. Printing the money is the easy part, producing the consumer products is the difficult part. 

Price increases affects everyone in the society. When i say price increase - i mean price increase of "everything". In the modern way of financial capitalism, we have been made to think, prices of food/fuel/utilities going up are bad and prices of stocks/homes/wages going up are good. why should that be? When you purchase a home and the price of the home goes high - people feel happy. When you purchase stocks and the price of the stock goes many folds - people feel happy. When the stock market indexes go higher and higher - people and business feel happy about it. What they don't say you - this too is inflation and it is bad for the economy. Only when the price of food, fuel and all consumer prices goes high - it is considered bad which is pretty unfair. 

In reality stocks of good performing companies can go high as they add value. but all stocks going high is a problem. Wages or Salary is just the price of labor. When my salary goes high at work because I'm more productive compared to others - then its a good thing. If everyone's salary goes high in equal percentage amount - what difference does it make? when workers productivity goes up (enhanced skills, mechanization and automation) - cost of production becomes cheaper. In an society with productive labor - prices of commodities fall. 

With the price of stocks/bonds/homes increasing multi folds in the last decade, the inflation was ALWAYS there. It just started to show up in the CPI components. I really think - CPI data must include speculative and risky assets like stocks/bonds/wages as it components. It must also include home prices, not rents (which get manipulated by owners' equivalent rent - which no one pays!). That would be a more accurate of consumer prices. The case-shriller index that measures the price of homes came in last week - home increased in value by a whopping 21% across the top major cities. What would be the CPI print, if they add this? no wonder they don't add this number to the CPI. 

Below is the yield on the US bonds as of this weekend.

Why would anyone buy the US 2 year for a 3.06% coupon, when the official yearly inflation is 8.6%? If you buy the bond today - you are guaranteed to lose money (~5.5%) when you get your principal back in 2 years in lesser valued dollars. Why would anyone (looking to profit) will buy the US 30 year for a 3.2% coupon is beyond human intelligence. The average inflation for 30 years must be around 2% is what the buyer is thinking., so that he can benefit 1% from it. Say if the inflation stays 4% for few years, to average it out - it needs to be sub 0% for few years to maintain the 2% average. The probability of this happening is almost 0. In a real free market, these conditions will not exist. Also on the numbers, you can see the 3Y inverting with the 30Y (called the inversion of yield curve) signalling something is broken already or something is about to break.The fall in the stock market has a long way to go and the odds of a flash crash is very much possible.  

There is definitely a huge difference between people parking their hard-earned savings in US bonds and the Central banks buying in the open market what was originally theirs anyway. 

With inflation getting hotter and hotter, the US Central bank has to raise rate. They will do a 0.5% this week. What good does a  1.25% rate do to a 8.6% inflation? Nothing! They can't go to 2.5% is what i think (Jim Bianco agrees with me! - see image)

What I think, they will end up doing is - they will raise the interest rate high enough to cause the recession  (most likely depression), but not high enough to solve the inflation. A higher interest rate than the inflation rate would be the right thing to do - it would just blow up the entire global financial markets within hours. (if doing the right thing causes more pain - then you know its all messed up disproportionately) 

The recession will cause the job losses. A lot of them! The looming layoffs on the horizon is not a hurricane but the hurricane. Imagine having a beach ball in hand and holding it above your head. it is hard to convince someone, that you will take the hand out and the ball will not fall. It has to & will fall.

The tech stocks & the cryptos have taken a hit already. The coming lay-offs are going to be huge and unprecedented. Because the boom from last decade was unprecedented, the bust has to be proportionally bigger. The tech sector will be annihilated similar to the dotcom crash of 2000. What we have there is a massive bubble. The air has already come out of it. It's just a matter of time (weeks), reality catches up. The industry is just unsustainable in its current proportion. It needs to be lot leaner. Tech-oriented Nasdaq chart is below (see image). The circled portion is what was the 2000 dotcom crash. If that kind of fall from 5000 points to 700 caused so much pain, imagine the fall from 16300. You can see from the chart image - the slide has started and its just accelerating. Almost all tech stocks are down 30% or more this year, including the big names like FAANG (Netflix is down 70%, Amazon is down 35% from their highs from November). When valuations are hit this much, the tech employment has to take a hit too. Believe me - this is just getting started and it will get very worse very soon. 

The great financial crisis of 2008 was essentially a US housing problem. I am a living eye-witness to that mess and so are many who owned a house during the spectacular boom and the eventual bursting of home prices in late 2007 and into 2008. Prices of home crashed, in some cases more than 50% and every bank which loans money to home owners failed. The government had to rescue the entire housing market and ALL the banks. The entire episode can repeat again. I think it will repeat in a even more worse way for the following reasons: (unlike last time) People well remember fresh in their mind, the loss on investment on housing in 2008 did. Once they know, the house price is starting to fall, everyone might head to the exit exacerbating the problem further. More houses will be put for sale and no takers. The word of smoke can create a stampede at the doors. If you think the high prices of 2007 caused the housing collapse, its even higher now. The mortgage prices have gone from its low of sub-3% to close to 6% now. Even though the 6% is less than historical normal, with the prices at sky-high, its lot of expense for the new home owner. When people start losing jobs and cannot afford to pay the mortgage or have to relocate to take another job somewhere else - and want to sell their homes, it will cause a housing crisis of at least the same magnitude. If you are not convinced yet the housing crisis is on the horizon - look at the mortgage application data from last month. It was down 22% and this is a 22 year high. And then you realize that this period includes the housing bust of 2007. Let that sink in. 

Even though it will be unfortunate and painful for people to lose their jobs, in the long term - this is exactly what we want. Particularly in technology, people are over paid and a lot of jobs are not "impact full jobs". Scarce human resources are seriously miss-allocated. Instead of being fearful of the recession, we need to embrace it. The mal-investments of the last decade needs to fixed. The market has to do that. Failure to rectify this at this point, will make it far worse in the future causing even bigger pains.