Tell the SEC to Modify the Accredited Investor Definition

Seedinvest has submitted comments to the SEC regarding the accredited investor definition.  They have an online petition form for those interested in signing and submitting to the SEC.  I highly recommend it, but you need to do so BEFORE JULY 29, which is when the comment period closes.

I submitted my comments and wanted to share them below.

Dear SEC,

I agree with the comment submitted by Kiran Lingam at SeedInvest on July 8, 2014 available at that raising the accredited investor thresholds would be disastrous for startups, job creation and the U.S. economy.  I believe the SEC should refrain from increasing these thresholds and should also adopt knowledge/experience based standards for an individual to become an accredited investor.

Under the current rules and definitions, I am not considered an accredited investor.  I am a young working professional with a degree in economics and finance and yet the “accredited investor” rules have precluded me from having the opportunity to invest in numerous opportunities.  While I can appreciate and understand the concern to protect investors, I absolutely cannot reconcile the use of what equates to financial discrimination as an appropriate tool to achieve such results.  The thresholds for income and wealth, at best, seem arbitrary and biased towards those who already have wealth.

In an environment where many Americans already feel like the deck is stacked against them, where wealth begets special privileges, where markets and the government rules that control it seem less and less egalitarian;  this rule only exacerbates the sentiment.  The right to invest in private companies should be just that, not a privilege available only to those with means.

Again, I kindly urge you to consider in earnest the comment submitted by Kiran Lingam at SeedInvest on July 8, 2014 and with particular attention to those related to adopting knowledge/experience based standards for an individual to become an accredited investor.  Protecting investors is an important function of the SEC, excluding many Americans from investing in private companies is not.

Kind regards,

Jose Lionel Velez

Posted in Business, Corporate Finance, Finance, Law, P2P Lending, Politics | 1 Comment

Stock-Vacancy Ratio: Lowest Reading Since 2000

After updating my chart with the most recent JOLTS data from the BLS, I noticed that the Stock-Vacancy Ratio is currently at a historic low – at 1.06, beating the 1.09 reading in 2000.

Bureau of Labor Statistics: JOLTS Data (Monthly)

Bureau of Labor Statistics: JOLTS Data (Monthly)

What does this mean? That is a good question.

What I find interesting and fun to ponder over is the possible relationship between the ratio and macroeconomic conditions – specifically overall labor market conditions and inflation.  It is also hard for me to ignore the fact that the last two times the ratio was this low was at the onset of both the 2000 Tech bubble and the 2008 housing crisis.

Overall Labor Market Conditions

When I view this chart I interpret it as a general measure of labor market efficiency.  Are employers finding enough people to fill open positions?  Regardless of what the employment rate is, it could be 5% or 10%, what matters here is whether or not open positions are being filled.

What the chart is currently telling me, and what I have been seeing for the last two years, is that there has been an increasing number of unfilled positions.  Or to put it another way, while the number of hires has been steadily increasing since 2009, the number of openings has been growing at a much faster rate. Why?  More pondering required.

Between the Stock-Vacancy Ratio, anecdotal evidence and the effect of Baby Boomers beginning to step out of the labor market, I have become confident in concluding that we are at the precipice of a moderate to severely tight labor market that will bring with it inflationary pressures.  It could be 1 year away or it could be 10 years away, but I think the data makes it quite clear.  I’ve already written about the Baby Boomers and their affect on the labor market for both the medium to long term as well as the short term effect to younger generations.  I’ve also written about the difficulties that firms are facing in finding talent.

There is a talent war brewing and it will only get worse as Boomer retirements begin to pickup.  If firms are having a hard time finding the right candidate, it stands to reason that they will have to either be more aggressive in developing their own or poaching them from another firm.  I find it interesting to see that both the rate of increases in hiring and quits have mirrored each other since 2009 – is it too speculative to say that perhaps the majority of those quitting are merely transfers to a new firm as a result of poaching?


This is a spill-over effect that I would expect from a tight labor market.  A natural effect of firms having trouble filling positions is to spend more to attract talent.  We saw this during both the height of the tech and housing bubbles.  The Fed should be watching this closely, as it would not be compatible with their current policy actions and would more than likely require swift action on their part.

In a nutshell, I consider this a VERY interesting data point to watch.  As usual, a graph is like a piece of art and while I may see one thing, someone else may see another.  Lets see what happens.

Posted in Business, Economics, Human Resources, Labor, Ruminations | 1 Comment

Money for Nothing – Watch this movie!

This is a movie every person should watch to get a better understanding of what the Federal Reserve is, the history behind it and the folks that drive monetary policy under its mandate to manage inflation and the unemployment rate.

I was fortunate enough to attend the premier in Dallas last September and was thoroughly impressed.  The decisions that the Federal Reserve makes have outsized impacts on our every day lives that many have little understanding of.

I wrote recently about the Fed’s September 2013 announcement to continue QE and will be working on a follow up this week.  As many already know, QE has been ‘tapered’ by $10 billion a month in December and another $10 billion a month last month.

In the meantime, I highly recommend you watch “Money for Nothing”.  Check the link below to find a showing or buy the DVD.

Posted in Economics, Finance, Monetary Policy | 1 Comment

Are Boomers Crowding Out Tomorrow’s Workforce?

I’ve come across a few articles discussing the idea that the older workers are, or are not, taking jobs from the young.  I find this discussion interesting and one I want to ponder over a bit.

The first is one from the Dallas Morning News posing the question, “Will the surge of older workers take jobs from the young?“.  The article begins with a few economists claiming that there is no evidence to support the idea.  They rely on the Lump of Labour fallacy to explain away the possibility that too many older workers may be crowding out younger workers.  This is where I part with my economist colleagues.

While not a topic for this particular conversation, I see a much needed bifurcation happening in the field of economics; where some economists will rely on complex mathematical models and theories and others will use a more holistic and dynamic approach to understanding the economic world we live in.

I am more inline with academic James Galbraith of the University of Texas at Austin, who says in the article that, “it’s like refuting elementary arithmetic.”  Look at the chart below and see who has seen the fastest growth in employment.

U.S. Employment Level (% by Age Group)

U.S. Employment Level (% by Age Group)

Another story came across the wire on NPR’s Marketplace discussing the prospect that younger workers can expect lower wages and underemployment – something that will affect them for the rest of their lives.  I find this relevant to the discussion of whether younger workers are being crowded out and important to understand how it is going to impact them.

There are serious long term issues that we will be facing from this situation.  If you look at the U.S. Employment Level by age group, you will see that the 55 and older cohort has increased from around 15% of the labor force to its current level of around 23% – a  more than 50% increase.  They have been the fastest growing portion of the labor market over the last decade.  This growth has presumably been at the expense of the younger workers.

This is not to say that Boomers are at fault, they are just as entitled to participate in the labor force as the young.  It is simply to give background to what we are experiencing and to find a solution.

Keep in mind that those same young workers who are idling at low-paying jobs and expected to experience significantly lower earnings over their lifetime are the same ones that will be expected, and severely needed, to pay into the Social Security system that will support the retiring Boomers.

As I have mentioned previously, there will be challenges to businesses who are not preparing themselves for the ‘crew change’ that will take place when Boomers begin retiring in significant numbers.

The politics of this can be expected to get ugly.  On the one hand you have retiring Boomers who have been paying into Social Security for their entire lifetime and will be adamantly opposed to scaling back benefits for what they consider theirs while you have the younger workforce, who is crucial to sustaining the system by paying into it and therefore providing the benefits that Boomers are expecting, that is not going to be happy with paying large sums of their already low earnings into a system that they have little confidence will be there when it is their time to collect.

A solution will need to be found in the middle and pain will need to be felt by everyone involved.  We will have to make the best of a bad situation where too much was promised and not enough was committed.

Posted in Uncategorized | 2 Comments

Is it ‘where are the jobs’ or ‘where are the workers’?

The unemployment rate gets a lot of attention in the media and in public discussions as it relates to the labor market and overall economy.  In no way do I mean to discount the unemployment rate as a useful measure but I do think that it paints a limited picture of what might be happening inside of the labor market.

Whereas some might look at the unemployment rate and make automatic assumptions about how it translates into current economic conditions, I find myself asking whether the economic climate is a result of the unemployment rate or if the unemployment rate is borne out of the current economic climate.

Graph of U.S. Unemployment and GDPOf course, there is much interplay between both that contribute to the overall condition of the economy and unemployment rate.  But I am particularly interested in how a difficult hiring environment for business might be affecting growth, and hence the economy.

Businesses need several key ingredients to support growth.  Some of these ingredients include capital and a means to produce a product or service.  The means to produce a product or service can come in the form of actual labor or in the form of technology like software or machinery.

Capital does not seem to be a problem, as there is an unprecedented amount of cash floating around the economy seeking in earnest a place to call home.  The U.S. Federal Reserve, through it’s QE program, is proceeding with what I consider one of it’s most massive failures in the making.  That leaves labor.  How are businesses faring on finding labor with the skills needed to continue offering increasingly complex and sophisticated products and services?

Recently, I wrote about the JOLTS program at the Bureau of Labor Statistics.  If you have not read this I recommend you do, as it will provide a quick primer on this data.  There is one graph that I used in that post that I want to look at again.

Bureau of Labor Statistics: JOLTS Data (Monthly)

Bureau of Labor Statistics: JOLTS Data (Monthly)

I find this graph quite interesting, as it provides more details into what is going on within the labor market.  Lets start by looking at the trend in hires and openings.  As you can see, the rate of hires has grown 23% since hitting a low of 3.6 million in August of 2009.  The rate of openings has seen a 43% increase since reaching a low of 3.8 million in July of 2009.  As the data shows, the rate of openings has been growing significantly faster than the rate of hires.  Why? And what does this mean if the trend continues?

There has been a good deal of public discussion about whole industries having problems finding the talent they need even in the face of relatively high unemployment.  Robert J. Gordon recently wrote in the New York Times that “even in today’s lackluster labor market, employers still complain that they cannot find workers with the needed skills to operate complex modern computer-driven machinery“.  So while the unemployment rate, currently around 7%, seems to suggest to some that the economy is weak the JOLTS data suggests that companies are seeing openings continue to be unfilled.

So what is going on here?  We have 7% unemployment but openings continue to stay unfilled and increasing quarter over quarter.  There are four factors at play that I think are creating a perfect storm for businesses in the next few decades – inadequate and counterproductive talent search, recruitment and management methods, a lack of training and learning opportunities for today’s young workforce, the upcoming  ‘great crew change’ of Baby Boomers retiring en masse and leaving a large void of experience and wisdom, and lastly a considerable lack of strategy inside of corporate America to acknowledge what is happening and efforts to prepare for it.

Inadequate and counterproductive methods for searching, recruiting and managing talent

One possible explanation for companies finding it difficult to get the workers they need may be that they are imposing unrealistic expectations on themselves.  Chris Farrell with NPR’s Marketplace recently mentioned that he thinks software systems that screen applicants are working against business imperatives.  I think he is right.  HR departments may be relying too much on checking boxes off for different criteria and not spending enough time reviewing a candidate’s qualifications as a whole.  I think that this is partly due to the number of applicants that are received for any one position and the need to use software to filter out the best ones.  But if that is the case, then perhaps those filters need to be reconsidered.

A lack of training and learning opportunities for today’s young workforce

Another possible explanation could include the state of our young workforce in terms of their experience and readiness to ‘take the wheel’.  Take a look at the chart below to get a sense of the big picture view of what has been happening to the younger workforce since the early 80’s.

U.S. Employment Level (% by Age Group)

U.S. Employment Level (% by Age Group)

As you can see from the chart, the 16-24 age group has not fared well in the labor market since the early 80’s.  Over the last 30 years they have collectively lost roughly 10% of their position as a percentage of the labor market.  One has to consider the implications of fewer young workers participating in the labor market when the need for skilled workers is so great and will be more so going forward.

These young workers are not getting the opportunity to gain the valuable experience and knowledge that comes with being part of the workforce.  Tyler Cowen has written on this recently, saying that the “lack of jobs will damage the long-term careers of a big chunk of the next working generation“.  I agree with Mr. Cowen.  Cowen also makes a good point on the lack of training for those young workers that are in the labor market, saying that “employers appear to be more risk-averse, more concerned about overhead costs and less willing to invest in developing young workers’ skills“.  This is a short term strategy that I think will backfire in spades for those companies pursing this tack.  More on that later.

The upcoming  ‘great crew change’ of Baby Boomers retiring en masse and leaving a large void of experience and wisdom

This is something I have written about before and find interesting in it of itself.  Many industries are already experiencing the effect of the Boomers beginning to step out of the labor market.  This generation has accumulated a significant amount of experience and knowledge across a very broad spectrum of the economy and they still account for more than two thirds of the labor market.  What will happen when the pace of retirement really begins to pick up and gets into full swing?

I am going to include this chart again because I think it is quite prescient.  Pay particular attention to the ’55 & Older’ category.  This group has become the fastest growing portion of the labor market, increasing their position by about 10%.  Remember, that the 16-24 age group has lost as much during the same period.

U.S. Employment Level (% by Age Group) With Notes

U.S. Employment Level (% by Age Group) with Notes

What seems to be happening is that businesses are choosing to forego the long term benefits of investing in and developing a young talent pool and going instead for the low hanging fruit of experienced workers.  As Tyler Cowen mentioned in his New York Times article, “employers appear to be looking around for workers but then holding out for the very best candidates, and, if need be, making do with few new hires or none at all“.

What is going to happen when Boomers leave the workforce en mass and businesses have not prepared themselves?

A considerable lack of strategy inside of corporate America to acknowledge what is happening and efforts to prepare for it

Akio Morita, a co-founder of Sony, once said, “those companies that are most successful are those that have managed to create a shared sense of fate among all employees“, and that “the fate of your business is actually in the hands of the youngest recruit on the staff“.

If you have not read Morita’s book, Made in Japan, I highly recommend you do.  I would consider it one of the best management books ever written.  While it may have been written almost 30 years ago, the message is no less relevant and superbly written.  The quote I used above came from this book and while it has been more than 10 years since I first read it, that particular message has found a permanent place in my memory.  I find it that important.

What I am seeing in today’s labor market, with the data I’ve shown above, in the public discussions on this issue, and private conversations I have had with various folks, is a considerable lack of long term strategic thinking among corporate America and across many industries.  They see the problem, they acknowledge the problem, but they cannot seem to discipline themselves to do what is necessary to prepare.

Those young workers who are currently not participating in the workforce are precisely the ones that will be called upon in the coming decades to ‘take the wheel’ and those companies that have not prepared themselves will have done so presumably to their own detriment.  Talent management will become ever more a significant source of competitive advantage.

Posted in Business, Daily News, Economics, Human Resources, Labor, Society, Statistics | Tagged , , , , , | 6 Comments

U.S. Employment Level & Baby Boomers: What Comes After Act IV?

The Baby Boom generation is a topic that can yield volumes of data and discussion.  As a group, they comprise a roughly 76 million strong explosion of the U.S. population that was born between 1946 and 1964.  In the aggregate, the decisions they make, and the consequences thereof, are hugely important and have tremendous impact on our social, political and economic landscape.

I have been very interested in looking at the U.S. labor pool and how the Baby Boomers have left their mark on it.  Using Quandl, I constructed a superset to track U.S. employment levels broken down by age groups.

My original intention for compiling this data was to look at how unemployment is affecting different age groups.  Namely, I wanted to demonstrate that the older, more experienced, folks are having no problem finding work whereas the younger and less seasoned are really finding themselves in a difficult job market.  This original endeavor was slated for a different discussion that is currently still in ‘Draft’ mode because after having a ‘Wow, look at that!’ moment I decided to reflect on these graphs a little longer instead.

There is just so much to ponder about these charts that I will jump right into it.

U.S. Employment Level & Baby Boomers: Act I-IV

The chart below clearly demonstrates the impact that the Boomers have had on U.S. employment levels.  76 million people did not just show up one day looking for work, they came in droves – in this case 4 distinct droves.

With the first Boomers being born around 1946, they did not reach working age until around the early sixties.  As you can see from the chart, starting around 1965, there was a surge in employment for folks in the 25-34 year age range.  That group dominated the labor market for about two decades.   Around the mid seventies a new age group started to gain momentum and by the early nineties, the 35-44 year old Boomer was in control.  As Boomers aged, so did the demographic that comprised the largest percentage of the employed population.  By 2008 the 45-54 year old Boomer was the largest portion of the U.S. workforce.

There is a fourth, and presumably final, wave of Boomers that looks set to dominate the labor market for an unknown period.  How early are we in this wave? When could we expect to see a peak? What happens at the peak?  As I mentioned earlier, there is much to ponder over this graph.

U.S. Employment Level (% by Age Group) With Notes

Click on the image to see a full size graph

Lets Go Shopping!
Just think about this graph in terms of who has been the U.S. consumer over the last 50 years.  Starting in 1969, with roughly 60% of the labor force occupied by Boomers, to present, where the percentage is currently around 70%, it is interesting to think about what this group will be inclined to purchase as they progress into their later years.  Will they buy more houses, cars, electronics, beauty products, take more trips, invest in their children’s future?

Who’s Going to Take of Me?
This is something that will most definitely be a hot potato in the coming years.  Just as there was an explosion in population there will be a similar implosion in the number working age people available to work and pay into the social security system to support retiring Boomers.  When social security was started there were roughly 33 workers supporting each recipient.  That number today is less than one.

The chart below shows the population of the 65 and older crowd.  As you can see there has been a more than 30% increase since 1965 and there does not seem to be any sign of slowing.

Graph of United States: Population ages 65 and above (% of total)Naturally, if there are going to be more older folks then we should hope that the stock of younger folks is at least keeping pace if not growing faster.  Take a look at the chart below and you will see that the 15-64 age group population has been stuck around 66% of the total population since 1980.  Why?

Presumably, the Boomers have inflated this age group as a percentage of the population and have held this level for the last 30 years as they begin to age and transition into the 65 and older group.  Why do I think that Boomers have inflated this age group? Because we have not seen the same rate of population growth since the 1960’s and in fact the rate of population growth has been trending down ever since.  See the fourth below chart for a better illustration.

Graph of United States: Population ages 15-64 (% of total)Convincing enough? The population of those aged 0-14 years has plummeted to a third of what it was in 1965; and the trend shows no sign of abating.  As I asked before, who’s going to take care of these aging Boomers?  Keep this chart in mind, as the next item to consider is related to what a declining population means for U.S.

Graph of United States: Population ages 0-14 (% of total)Who Wants A Job? Really! I Need Help!

This point touches on a related topic that is still in ‘Draft’ mode but is too important to leave out of this discussion.  Academics, economists, policy leaders and even entire countries are seriously considering the very real threat of declining populations.  This is not a forecast but a trend that is already in motion.

Several advanced economies are facing the immediate threat of or are already experiencing negative population growth.  These economies include those of Germany, Italy, the UK, Japan, China and Russia.  While the U.S. is not at the brink or past it as some of the previously mentioned are, the trend is not looking favorable.  Take a look again at the above chart and you will see what I am talking about.

Again, this is a topic that deserves its own discussion so I only want to focus on one particular aspect – employment.  What is going to happen to the labor market when a group that makes up more than 60% has decided to throw in the towel and retire?

We are still in a recovery from the 2007-08 recession and are currently looking at unemployment averaging around 7%.  In economics, there is something called the natural rate of unemployment – which basically asserts that an economy can never actually have 0% unemployment.  There will always be a certain percentage of folks who just don’t want to or cannot participate in the labor force.  So the natural rate of unemployment is that rate at which there seems to be just enough work for just enough people.  5% has historically seemed to be what is considered the natural rate.

So if the U.S. economy is still in recovery with unemployment barely 2% away from the natural rate and the largest mass exodus of workers in recent history is already underway – what is going to happen to the labor market? Cue inflation – to what extent is outside of my forecasting abilities but inflation could be expected.  If the labor market is unable to provide companies with the workers needed to design, make, sell and support their products then either companies will have to increase wages to attract more workers or make their existing workforce more productive.  I am of the impression that while productivity gains will help, it will not offset the prospect of companies facing higher labor costs to meet their needs – and I do not expect that these higher costs will be easily passed onto consumers.

This could be a silver lining for that small group of young workers that will be left – higher wages.  The same forces that caused a period of what I call wagflation are now poised to end the same.

There is indeed much to ponder over these charts.

Posted in Economics, Labor, Politics, Society | Tagged , , , | 4 Comments

Economics and Parties

I found these interesting thoughts hidden in one of my notebooks.  I never finished it, but I think the timing was not coincidental – November 2006.  I wish I could say that I can write like this now, but my abilities have been diminishing the last few years on account of writing little.  I expect to reverse that, as putting pen to paper is again becoming a need that I yearn to satisfy.

Imagine going to a big party with a live band, food, and lots of people bustling about.  People are dancing, engaging in various conversations and making sure the great food doesn’t go to waste.  Everything looks good and everyone seems to be having a great time… including yourself… but then some discrepancies start to show their faces.  You notice that most of the smiles are coming from a small corner of the party.  The dance floor is busy, but slowly dissipating.  You overhear a party goer bid his farewell to a friend and say, “I’m running on empty”.

So what is wrong here?  The answer is obvious – the party is winding down, but the explanation is not as easy to discern.  Did everyone just decide at a particular time to take their happy faces off and head for the exit?  Not likely.  A more likely explanation would be that a number of factors, which influence everyone at the party, have begun to exert their aggregate effect. What are some of these factors and how do they operate?

They are things we all possess, but only in limited quantities – things like time and energy. For the most part, we all hold unbalanced positions in these factors. Some of us have more time and others have more energy. The ‘balancing’ happens when we start to commingle and unwittingly join in on an unscripted and hidden dance. The energetic seek out time’s unbridled while another candle waits for that flame to bring it back into existence.

Eventually, one of two outcomes will occur. Either a continual influx of time and energy must be present for the party to continue or the curtains must come down. In the case of the above mentioned party, it is evident that balances have been exhausted. So the question is how could have it continued? Would it have required an equal replenishment of time and energy? Time is limited in an absolute sense so perhaps energy was the critical ingredient. Then again, even with the addition of energy, time is still limited and thus the imbalance is only exaggerated.

Where am I going with this?

I see a striking similarity in our economy. There are discrepancies that have been prevalent for some time now and they only seem to be getting more so.


Posted in Economics, Ruminations, Society | 1 Comment