Unemployment Also Rises

Unemployment Also Rises

Fyodor O. Minakov

Recent June unemployment numbers, compiled and released by the Bureau of Labor Statistics, were cause enough to further upset the already jittery summer equity markets. A rapid decrease in the unemployment rate has followed every economic recovery in U.S history, but as Federal Reserve Chairman Ben Bernanke indicated last week, citing “headwinds” in the economy, this time it might be different.

Unemployment levels in the United States have jumped up and down quite frequently, with sharp rises during recessions, and equally sharp declines during economic recoveries. The unemployment rate during periods of growth has always maintained a value of between 4% and 6%. In fact every recovery from the mid 20^th century onwards has tended toward a trough below 6%. The recent rise in the unemployment numbers, though perhaps not the greatest the U.S has experienced since World War II (the recession of the early 1980’s was slightly worse in percentage terms), was nevertheless the sharpest by far, as the unemployment rate rose from 5% to 10% over the course of one year. Additionally, whereas previous unemployment numbers have had sharp peaks, and then quickly fallen to pre-recession lows, the 2011 labor market seems to be frozen, unable to create more jobs.

The number of jobless appeared to decline in December 2010, leading many to believe that economic recovery was in full swing, but then sharply rose, from a temporary lull of 8.8% back to 9.2%. The United States has never experienced this prolonged and high period of unemployment since the Great Depression, which begs the question, what’s to the numbers?

In June, overall unemployment, in the words of the Bureau of Labor Statistics, was virtually “unchanged” relative to May, when there was a significant increase from 8.8%, a month previous, to 9%. When segmented by age, the most affected groups are teenagers without high school diplomas, a traditionally excess labor pool that is only used in times of labor force expansion. When segmented along racial lines, Blacks and Latinos have a higher unemployment rate than Whites and Asians, the latter group experiencing the least unemployment per capita nationally.

The number of unemployed persons that have been out of work for five weeks, which is a revolving figure that accounts for more recent employment trends, increased by 412,000 in June, while the number of those that had previously been unemployed for 27 weeks or longer remained unchanged.

Of the sectors of the labor force that fared best in June were outpatient health care professionals, miners, and leisure and hospitality workers. These trends can be readily explained by increasing health care demand from retiring baby boomers, high commodity prices, and recovery in the demand for luxury services, respectively. The single largest group of newly unemployed was government workers, a sector that experienced a reduction of 39,000 jobs net. Specifically, the worst among these were state education workers whose numbers dwindled from about 2.4 M to 2.1 M, and local government education workers whose numbers fell by 200,000 from May to June. This was doubtless due to the massive decreases in state spending on education in light of municipal budget concerns, and fears over general obligation (GO) debt defaults. Private sector employees performed well in sum, with an overall growth of 57,000 for the month. Employees in the financial sector, and the construction industries were the other notable weak job creators, although given the bloat of these industries prior to 2008, this must come as no shock.

While none of these individual trends is particularly disturbing on its own, at this late stage in the economic recovery, the overall numbers look rather shabby. By comparison, the recession after the dotcom bubble was quite mild, buoyed by the continued development of the U.S technology and financial sectors, as well as government subsidized residential real estate construction.

If we are to accept the argument made by Republican congressmen, and libertarian ideologues that government taxation of ‘job creators’ is to blame, unemployment should be at historical lows. On the other side of this incredibly divisive and heavily politicized issue are the Democrats that claim that government programs are the way to go, mandating the creation of jobs through government spending.

While the decrease in government jobs certainly adds to the overall unemployment rate, the private sector has thus far failed to produce the high employment rates seen after previous recessions, adding fewer jobs month over month than had been projected by consensus macroeconomic estimates.

This phenomenon may point to a structural unemployment rate problem, rather than a temporary setback caused by the financial crisis. Corporate balance sheets are rich with cash, and S&P 500 earnings are hardly indicative of any serious macroeconomic problems.

Rather, perhaps we should look at the composition of the unemployment rate by education levels. The unemployment rate for those that hold a Bachelor’s degree or higher has stayed an even tempered 4.4% on average since June 2010, while those with an associate’s degree, or “some college” experienced an increase from an uncomfortable 7.5% to a level even higher than one year ago, of 8.4%. Même for those who have a high school diploma, but no college. These individuals are unemployed at a 9.5% rate, still lower than a year ago at 10%, but only marginally higher than those with “some college”. Interestingly enough, those employees with less than a high school diploma have seen an even-keeled 13% unemployment rate throughout the past year.

From this data we can draw two central conclusions. The first is that, everything being equal, the more education one has, the less likely one is to be unemployed; it is better to have a college diploma than anything else, as the unemployment rate of four year diploma holders has remained a remarkably low and stable 4.4% since last June. The second conclusion is that the marginal increase in the unemployment rate from May to June has hit those with “some college”, or a two-year associate’s degree hardest. This may be one of the reasons that for-profit career education schools, or 2-year degree factories, have come under close government scrutiny in recent years.

Any number of arguments can be postulated about why the unemployment rate has remained this elevated this far into the recovery and this writer has his own ideas, but conjecture is an unfortunate antidote to the problem of divining the future. The truth is that only the passing of time can clear the mist and lift the veil on the true causes of unemployment in America. The lesson that we can best derive from the statistics is that education, despite its rising cost, is still worth its weight in gold, but you’ll need at least bachelors, otherwise, don’t bother.

Poor Nokia

Poor Nokia

Fyodor O. Minakov

“Poor Nokia,” wrote a blogger lamenting the troubles to at the once great, now beleaguered company; the markets punish bad behavior with a vengeance. The Finish cell phone maker used to dominate the international handsets business, holding over 40% market share as recently as 2009. Rapidly declining phone sales over the past year and a half in the key smartphone business, and lackluster earnings have taken their toll on the company’s share price, which has halved in the last six months alone.  Why else would incoming CEO Stephen Elop, not five months before he took the reins at the head of the then world’s largest phone manufacturer, have sent a memo stating that Nokia was a “burning platform.” Perhaps this memo came as no surprise to McKinsey & Co. consultants that use the term as an expletive - “What’s your burning platform?”

Stephen Elop’s memo deserves to enter business history as the single least self-effacing move by an incoming CEO. Stocks tend to move up or down in direct proportion to the quarterly earnings targets set by analysts. Negative news from a company’s CEO, no matter how exaggerated, never plays well with the markets. The market, to quote the author of the Intelligent Investor, Benjamin Graham, is a “voting machine”, capable only of gauging popular sentiment, not an instrument for weighing inherent value, at least in the short term. Analysts make certain assumptions about future earnings based on current trends, and if their projections come true, they are handsomely rewarded by Wall Street, and if they are wrong, no harm, no foul. It is because of the latter behavioral phenomenon that stock prices tend to move in rapid jolts around earnings seasons: analysts seldom forecast correctly, but quarterly earnings always impact markets.

Nokia’s share price had been gently falling since the company’s post-internet bubble peak in October 2007 thanks to the synchronized collapse of almost all stocks during the financial crisis. However, the common stock did not begin its uniquely precipitous fall until April 2010, when its share of global smartphone sales began to wane inauspicious. This information resulted in a tidal wave of such magnitude that it knocked Nokia’s share price from a respectable $15 to a humbled $6, a collapse of about 60%.

The board of directors made a change, and the change was the CEO. The throne was taken away from the acquisitive Olli-Pekka Kallasvuo who served from 2006 until 2010, and given to a Canadian former director at Microsoft, Stephen Elop. Nokia has been in existence since 1865, incorporated since 1967, and with the exception of 2006-2010, the company has been under the leadership of engineers. Current CEO, Stephen Elop, studied computer engineering at McMaster University, while Mr. Kallasvuo, the exception to the latter rule, was a lawyer by training. The ostensible reason for the change in management was a ‘Loss of focus’ that resulted in declining market share in Nokia’s formerly dominant handsets business.

Mr. Kallasvuo’s thinking is a common thread among the CEO’s of highly successful companies – the urge to build a conglomerate. Nokia struck a partnership with Germany’s Siemens A.G in 2006, creating Nokia Siemens Networks, a major supplier of broadband and communications infrastructure. Though NSN has yet to return a profit, sales were aided by the acquisition of Motorola Solutions’ wireless infrastructure assets in April 2011. NSN was expensive to set up, making up approximately 40% of Nokia’s long term debt, but margins have been improving, and the company is unprofitable chiefly due to the research and development and marketing expenses that eat one quarter of NSN’s revenue. Two years later, Nokia further attempted to diversify its holdings by buying Navteq, a global positioning company. This too has yet to return a profit, although its sales did improve in 2011, and three quarters of all revenue cover R&D.

Earlier this year, in an attempt to lower costs, and refocus efforts on phone sales, Mr. Elop signed a deal with Microsoft, granting the company access to the Windows Phone operating system, and terminating the Symbian smartphone OS . Symbian had been powering Nokia phones since 2002 when the 7650 smartphone was first launched.

Once categorized as a technology sector growth company, Nokia has ceased growing, and has begun what to many analysts on Wall Street, seems like a death spiral. Long indomitable, the company is being figuratively eaten up by its smartphone-maker rivals. The main culprits are Apple, which produces the increasingly popular iPhone, and handsets that operate on Google’s Android OS. Mr. Elop hasn’t given Wall Street anything to be excited about, lowering earnings guidance for the rest of 2011, decidedly not what Nokia’s analysts wanted to hear. Several discounted cash flows later, the trend that started in April 2010 continues unabated. Just last week, Nokia’s shares rose suddenly to $6.46 on hopes of a private-equity buy out of NSN, only to slide back down to $5.45. Most recently, Nokia posted a loss for the second quarter of 2011, principally due to a one-time write-down of about €600 M for consideration to Accenture that purchased Symbian’s professional services unit. Shares currently trade at below $6.

When closely examining Nokia’s balance sheet, income statements, and cash flows, the “bottom line”, one does not, at least at the moment, see a dying company, but rather one under stress. Nokia’s debt in the handsets division, the company’s former profit center, is more than manageable, and even after the precipitous slide in company’s shares, the handset unit’s total debts are still well below 50% of the value of the common stock.

The measure of how much debt a company has relative to the price of its shares is an important metric that shows what percentage of the company is speculatively capitalized, or using borrowed money as opposed to owner (common shareholder) capital. The higher the fixed charges, the more difficulty a company, as compared with its peers in the same industry, will have servicing debt. The lower the figure, the greater percentage of corporate profits can in theory be returned to its shareholders.

Last quarter, Nokia sold 88.5 million units, or 20% less than a year ago. Despite slashing phone prices, which erodes operating margins, to stem the tide, the company still sells phones at a profit. Nokia’s cash position is respectable, as the company holds about €7.4 billion in cash, and cash equivalents, amounting to just over $4 per share. At a minimum, there is enough cash to see the company through what could be a harsh winter. If Nokia can boost sales in early 2012 when its new array of Windows Phone products is supposed to reach customers all over the world, then this company may yet turn around.

Nokia is in many ways a gamble on what the new Windows Phones will look like, how well they will function, how competitively they will be priced, and if they will appeal to customers in its key markets. The company’s future is in Mr. Elop’s hands, and while it is possible that the board may choose to decrease or arrest entirely the $.48 per share dividend, a yield, that under current prices is over 8%, in the short run, it is the humble assessment of this author that while the trend-watchers may continue punishing the company for exploring different horizons and ‘losing focus’, at ~$6 per share, there is probably more upside than down. In any event, the percentage of the company that is owned by short sellers is just under 3%, nothing scandalous, nothing spectacular.

Scary Correlations

Correlations

Fyodor O. Minakov

The inexplicable, synchronized daily ups and downs of global equity markets never made any sense to me, so I decided to try and find out what on earth was going on. I printed out a graph of the S&P 500 index and compared it against three other economic indicators hoping that I could make some sense of this apparently choreographed routine. As the first indicator, I chose Vanguard’s energy ETF, VDE, which is a basket of energy price averages that includes oil, natural gas, and coal. As a second indicator, I chose the stock of a single diversified oil and gas giant, Exxon Mobil, which boasts downstream (refinery and distribution), midstream (storage and transportation) and upstream (exploration and extraction) operations. Exxon’s stock price has typically during the last decade moved up and down with the price of oil, commodities, and energy in general. I then compared these three charts to an index that tracks the performance of the dollar against a basket of currencies.

What I noticed stunned me. The graphs of Exxon Mobile, VDE, and the S&P 500 seemed to resemble one another. The price moves of these assets followed almost exactly the same course, moving up and down in synchronized waves, while the line of dollar index was an imperfect mirror image of the other three indicators.

I had always believed that stock prices were a reflection of underlying value. The dollar, I had thought, moved up and down against global currencies as a function of supply and demand, not dancing as both lead and follow with equities and energy. The dollar, surely, would strengthen as a function of economic growth, and money supply, the underlying inflationary and deflationary trends that existed within the U.S economy.

Furthermore, I had thought that commodities tended to move up and down based on their abundance, demand, ease of production. These forces were the foundation of classical economic theory, taught all across the world in undergraduate and graduate universities. Not so; these avant-garde indexes were apparently  harmonized, stampeding across the world like so many virtual jackboots, stamping on market contrarians, economists, energy industry analysts, and supply and demand theorists with their fascistic tyranny.

John Maynard Keynes once said that “Markets can remain irrational longer than you can remain solvent.” What he meant by this is that you cannot expect fundamentals to reign supreme, and for the market to act as classical economic theorists would have you believe – rationally. Rather, when speculation sets in, which is quite often, the markets will behave as a pack of scared or excited wildebeest, trampling all those that move against the herd beneath their hooves.

 When hedge fund impresario John Paulson, famed for buying insurance claims on mortgage-backed securities during the financial crisis, lost money in May and June investing in gold miners AngloGold Ashanti (AU) and Gold Fields (GFI), I wondered what on earth the problem could have been, since the value of gold had been practically stable during that period. Why wasn’t the price of the underlying commodity buoying the price of the company that mined it? Why, in short, did these companies’ stock price moves resemble the S&P 500 more closely than they did the price of gold?

The core relationship between the S&P 500 and energy prices, namely oil, and their corresponding inverse relationship to the U.S dollar need explanation, and though the myriad complexities of weekly and monthly price moves may defy mortal understanding, at least to this writer, the general trends of negative and positive correlations must have some readily ascertainable cause.

First, we will tackle that odd chemistry between oil and the dollar. Oil is quoted in dollars and therefore maintains an inverse relationship to the currency that it trades in. For example, if oil is trading at $90 per barrel, this means that $90 will buy one unit of oil. Let’s say that oil moves up to $120 (heaven forbid!), the dollar can now buy 25% less oil than it used to, and has to be revalued. So, in effect, as the price of oil increases, the price of all other asset classes should increase proportionately, everything else being equal.

This explanation, however, only scratches the surface. Why would energy prices, which have a demonstrable and quite logical effect of decreasing GDP by increasing the cost of economic activity, increase in partnership with stocks that are ostensibly priced based on changes in corporate earnings? Speculation must be the culprit. Short term money, it seems, has lost the ability to distinguish between good company and bad, between the direction of oil, and stock market earnings. The dollar, in which stock market and oil prices are quoted, must respond to these asset flows by shifting upwards or downwards.

Learning fundamental analysis: P/E ratios, price-to-book, etc. has always been a rite of passage for amateur and professional investors alike. When I asked fund manager David Ellison, who presciently held 57% of his portfolio in cash in 2008, what he thought the rationale for these correlations was, he stumbled for a minute, and then intimated that spec, or speculative trades were the cause: “It doesn’t look like we’ve stopped speculating, right?” he said knowingly before proceeding to cite an example apposite to the case, drawing a long sigh, and then closing with words from his mentor, Fidelity’s Peter Lynch.

George Soros provides a compelling, albeit abstract, philosophical rationale for these correlations in his many writings on a phenomenon that he coined: reflexivity. Reflexivity is a way of describing the interplay between the competing forces of thought about reality, and reality itself. In other words, price affects assumptions about price, forcing markets upwards until a breaking point is reached. At this point, sentiment reverses course, and begins to force prices down, feeding a negative feedback loop that continues until markets appear too cheap.

The feedback loops between commodity prices and equities seem to be the same, as both are predicated not on supply and demand, but rather on expectations of economic growth or decline. When the economy is expected to grow, the price of oil increases, forcing the dollar down, which simultaneously forces the cost of buying U.S assets down, and money begins to flood into equities. As equity prices drive up earnings expectations of companies, this drives the futures market for oil higher, as assumptions about future growth are made. Traders, instead of reacting to long-term fundamentals, and even less so, global supply, demand, or cost of producing oil, react based on how they think other like-minded market participants will react. Everyone is always looking over their shoulder to see what the other guy is doing.

            The Efficient Market Hypothesis, which has dominated financial economics for the last forty years, has attempted to justify asset purchases on the basis that the market price is always right, justified, and tied to all available information. Anyone with half a mind who hasn’t been coaxed by their college economics professor or broker into believing this will surely ask… If markets are always right in their price, and base this price on fundamentals, how on earth does one explain a 60% drop in the S&P 2007-2009, and then the subsequent recovery in 2009-2010? This, as corporate profitability dropped only marginally during the recession.

The theory’s central argument serves to demonstrate that individuals that pick stocks by throwing darts have just as great a chance of beating the S&P 500 as professional money managers, and so it tends to be true in practice for reasons which we do not have time to discuss here. Still, an individual throwing a dart at a board in early 2009, having recognized that the market’s tail dive might be coming to an end, would have returned 40%-50% throwing darts at the right time. But the same theory that hypothesizes efficient markets also hypothecates fully invested asset distributions, which in practice means holding virtually no cash, except as an “appropriate” allocation. That the old rule of thumb, espoused by value investors, “buy cheap and sell dear”, tends to beat markets better than any balancing strategy, is perhaps enough to lay waste to the entire concept of efficient markets.

As information becomes increasingly perfect, albeit unevenly distributed, and money managers and traders try to mimic and “crowd out” each other’s investment strategies, the financial herd will continue to move in lock step. So far, the markets have shown no indication that they have changed fundamentally since the financial crisis, and in fact, the synchronicity between the movements of the S&P, commodities, and their respectively inverse relationship to the dollar has increased.

As long as the speculative spirit and short term money flows trump stable, long term allocations, and fundamental investing, the gambling culture will continue to reign supreme, and money managers will be forced to dance until the music stops. In the United States, where retirements are funded through money market instruments, pension funds, and direct stock ownership, the liquidity problems that arise from wild market swings can be devastating to individuals. Retirees caught liquidating assets at the wrong time will continue to suffer the agonies of a manic-depressive Mr. Market that has no sense, no direction, and no clear purpose.  In short, Americans are at the mercy of a perfectly insane course down Wall Street, standing helpless and mute as the market waves its arms, yells, stumbles and every few steps, spits great globs of spittle directly into their worried faces.

Networking Mania

Networking Mania

Fyodor O. Minakov

In the late 1970’s, two snarky, unkempt misfits – Steve Jobs and Steve Wozniak - gripped the public’s attention, and never let go as they turned a garage-based operation into the world’s second largest company.  Every few years since the inception of the digital age, some pretender to the tech maven-revolutionary throne has come out of the woodwork. Fuelled by media attention and the “cool” factor, “new tech” companies have preyed on the same raw human emotions that three hundred years earlier made Dutch shoemakers trade their life savings for a chance to own a single tulip bulb.

The road to El Silicon Valley may have been be paved with gold for the few that made it, but those same streets were also littered with the corpses of the many more that didn’t make it. With the world’s focus turned to the Greek debt crisis, or the national debt ceiling, or Chinese inflation, or some other cause for worry arguably vastly more important to the global economy than tweets, pokes, or deals of the day, investors have either forgotten about, or have chosen to ignore the mini-bubble growing in our own backyards. This bubble will not end global economic progress, nor freeze financial markets, but will redistribute money more efficiently than Lenin’s grain requisitions officers ever could: from your pockets directly to Wall Street. The only transactional costs will be broker’s commissions.

LinkedIn, the social media site that allows you to “connect” with your unemployed friends, and that hedge fund guy you met at a frat party that’s making big bucks, went public on May 19^th 2011 while you were desperately combing through the job market, and your messy morning dew for an opportunity to wear your best suit on a Tuesday morning. The company is worth big money too, $8.5 Billion Dollars, or $90 per share. To give a sense of perspective, that’s about five times as much as RadioShack. LinkedIn, which boasts at least one hundred million users, has placed a valuation of $85 on every single one of its users. No, that’s not how much revenue it intends to generate from each of its users on average. If the company’s price is justified, this is the amount of profit that it hopes to make off of every one of its users sometime over the course of the next two decades. With profit margins at 5%, that means that if the company remains in business for twenty years, at current profit levels, and with one hundred million subscribers, it will need to make $85 in revenue annually from every one of its users, adjusted for inflation.

Many investors, mirroring the bold claims of the talking heads of the financial media, believe that this price is reasonable, and granted, the number of users may double, or even triple. Value investors have been warning us since the inception of the term to stay away from stocks that trade at price to earnings multiples that are too high. A price to earnings multiple is the amount of profit earned by a company per share of common stock. Generally, the rule of thumb is don’t buy companies with a P/E ratio of over 20 unless there is a very good chance that revenue will increase, margins will increase, or some other drastic change is expected on the horizon. Benjamin Graham, the famed value investor and Warren Buffett’s mentor, put it more succinctly: don’t buy anything with a P/E ratio greater than 16, everything else being equal. LinkedIn’s P/E ratio is currently around 1,000.

Imagine for a moment that your son or daughter opens a lemonade stand, an honest business that will probably produce consistent returns of $1,000 every summer that may vary a bit as a function of the summer heat. Let’s say your kid is an average 21^st century American who will remain unemployed until he or she is twenty five. Let’s further imagine that this lemonade stand remains profitable for fifteen years, and maintains inflation-adjusted returns of about $1,000 per year. Now imagine that you really, really believe in your kid, who comes home one day, showing you the day’s profits of $10, and explains to you that “His proprietary software applications and technologies enable his company to perform large scale real-time data and computational analyses on lemonade consumption patterns.” And, as if this were not impressive enough, he or she then tells you that “Lemonco categorizes and queries large sets of structured and unstructured data to personalize relevant information, to adjust for appropriate amounts of bitter-sweetness, and that of its key personalized recommendation features typically involves the processing of over 75 terabytes per day!”

Now, for a final stretch, imagine buying that lemonade stand for $1,000,000. LinkedIn has had over four years to monetize its significant user base. It hasn’t, and its profits, while perhaps projected to grow modestly, consistent with advertising and job market functionality, assuming that it maintains a near monopoly over work-related social networking, remain stable. LinkedIn’s operating margins are currently at about 5%, which means that for every $1 of profit, the investors as a whole are entitled to five cents before taxes.

Now, you might ask yourself the question, why on earth is the share price so high if the company is worth so much less than analysts and insiders claim? LinkedIn, however, may be publicly traded, but the majority of the company remains in the hands of its original owners. In other words, the overwhelming majority of the company hasn’t yet been floated on the open market. In fact, only about 8% of the company trades publicly. The vast majority of the shares outstanding are not publicly traded A shares, but privately held B shares. These B shares are identical to the A shares except for two important differences: They can be converted into A shares by their owners eventually, on a 1 for 1 basis, and they hold ten voting rights for every share outstanding. In sum, even if one shareholder bought every single one of the 7.82 million A shares outstanding, the “terms” of their purchase would entitle them to .9% voting rights. That’s like saying to a person, you can vote, but unless, 49.2% of the insiders agree with you, your vote counts for nothing.

The reason why your kid’s lemonade stand isn’t selling for $1,000,000, and LinkedIn is, is two-fold. On the one hand, there is the specter of human greed, the same market mania and media hype that created the first stock market bubble in the late 1990’s. On the other hand, and this is key, LinkedIn is overvalued because the consortium of hedge funds, private equity groups, and special interests that have, and will continue to profit from this pie in the sky have made it so. A group of a few institutional investors own the majority of all outstanding shares, which leaves a minority (defined as people that own 5% or less) of shareholders with a fraction of the company. Furthermore, 30% of the 8% float represents short interest, or investors that borrowed the shares, expecting them to decrease in value so they can buy back later on the cheap. These short purchases have in effect done a great deal to create artificial demand for the stock.

Eventually, over the course of the next few years, the remaining B shares will be converted, voting rights will be transferred, and the current owners will sell out. When this happens, unless bubble mania continues unabated, though there are good indications that it might, the reality of disappointing earnings figures will pummel the stock, and you, the investor will be caught holding the empty bag where that perennial trickster Mr. Market, told you to put all of your money.

LinkedIn must not be singled out as the lone stick of bubblegum. There’s a whole pack that will hit the markets with IPO’s in the coming years. Facebook is currently projected to be worth $100 Billion, that’s more than McDonalds. Groupon is projected to be worth $6 Billion, Living Social, $1 Billion, Twitter at $10 Billion, and Zynga, the company that produces the online game “Mafia Wars” will sell for $1 Billion. The bleed through might not stop with your wallet. As demand for web engineers grows, companies in Web 2.0 are hiring, driving up costs, wages, and helping the otherwise lackluster U.S jobs market. When people wake up and smell the Jamba Juice, the effects might be worse than imagined.