The economy shed 467,000 jobs for June according to the latest BLS report. The unemployment rate is now at 9.5%. For more please visit BLS.gov.

The report probably caught some economists by surprise. The consensus prediction was in the neighborhood of 350,000. Previous employment reports had also indicated an easing in the number of job losses.

PIMCO's Managing Director Bill Gross has more on the economic outlook in his latest letter to investors. Titled Bon Appetit or Non Appetit, Mr. Gross talks about a deleveraging economy or a pull back after a period of excess. Excess which he describes as "The supersizing of financial leverage and consumer spending in concert with the politicizing of deregulation."

The media has also written extensively about consumer excess and leverage. But just how leveraged is the consumer exactly? The Federal Reserve of San Francisco (FRSF) recently did a study on the subject. Titled Household Deleveraging and Future Consumption Growth the study paints a troubling picture. The ratio of household debt to income is at 133%.

The consumer is trying to close (deleveraging) the debt thru a combination of saving, selling assets, or reduced spending. As noted in this graph, the savings rate has been increasing. The next graph below it shows the pull back in consumption which drives 70% of the economy.

The report also sites a parallel to the economic deleveraging experienced by Japan in the 1990's. According to the report "The Japanese stock market bubble burst in late 1989, followed soon after by the bursting of the real estate bubble in early 1991. Nearly 20 years later, stock and commercial real estate remain more than 70% below their peaks, while residential land prices are more that 40% below their peaks." Japan's economic downturn in the 90's is often described as The Lost Decade. But as noted consumption in Japan is still sluggish to this day indicating a consumer that is still considerably leveraged. Consumption drives 50% of their economy.

For the consumer to spend again it has to reduce its leverage which could span many years. According to the report "If US households were to undertake a similar deleveraging, their collective debt to income ratio would need to drop to around 100% by year-end 2018, returning to the level that prevailed in 2002". In Japan's case it took their consumers 10 years to deleverage from 125% to only 95%. What the report doesn't explain however is why the US consumer, which had consistently been a strong saver for many decades, suddenly lost that ability somewhere in the 1980's.

But economies differ from one country to another. Some economies are better able to withstand a deleveraging hurricane more than others. Take the case of Iceland for example. The leverage of their financial system exceeded that which could be supported by their GDP. When the financial crisis broke it was all over. Or take China whose household debt to GDP ratio is only 20%. Going back to Japan their unemployment rate doubled from 2.2 to 4.5 in a span of 10 years as indicated by this graph.

The US however doubled its unemployment rate in only 3 years of deleveraging. From about 4.6 in 2006 (mid 2006 was when the US real estate bubble burst) to today's 9.5 .

Is there something else besides mere consumer deleveraging that is accelerating the unemployment rate for the US?

A look at the past performance of the labor market could provide some answers. In a recent column Businessweek's Chief Economist Michael Mandel talks about A Lost Decade for Jobs. This graph which aggregates the total number of jobs contributed by the industries in the last 10 years is telling.

Of all the industries only 3 (health care, education, and government) were able to add jobs in total. Mr. Mandel concludes by saying "Without a decade of growing government support from rising health care and education spending and soaring budget deficits, the labor market would have been flat on its back." Even for the finance industry which participated in the housing bubble Mr. Mandel writes "In fact, financial job growth was nearly nonexistent once we take out health insurers."

Essentially with a jobs engine that is capable of firing on only 3 cylinders, there hadn't been much in the way of a cushion (from a labor market perspective at least) against deleveraging to begin with. The economy is impacted more than is necessary by this lack of cushioning. For example rather than holding to a home a consumer might be forced to sell instead after losing a job. Or a much more severe pull back in consumption as opposed to something more gradual.  All of which causes even more business layoffs or closures.

PIMCO's Mr. Gross also notes the under performing economy. He writes "As unemployment approaches 10%, what is less publicized is that the number of underutilized workers in the US has increased dramatically from 15 to 30 million." He defines underutilized as "Those without jobs, as well as those individuals who only work part-ime and have become discouraged and stopped looking".

But it is also worth noting that measures have been taken to stem the tide so to speak. These include the passage of an economic stimulus package among others. Whether these measures are enough has been among the hotly debated topics these days.

As for outlook Mr. Gross predicts the deleveraging to "persist for a generation at a minimum". To deleverage down to 20% for example would probably take at least 30-40 years based on the FRSF's projections.

Tragic and sad news for Michael Jackson fans everywhere. Reports indicated earlier that he had passed away. He was 50 years old. His music spanned generations and with fans all over the world. Comments on the web have been pouring in to reflect on the moment. According to one fan "I feel like music died today." Another says in remembrance "Despite the events of recent years, however, many of us realized today that what happened in the '60s, '70s, and '80s between us and Michael Jackson was real and today we can embrace that old feeling and listen to those formative songs once more, and remember a whole other era, and how his place in it and ours connected and merged, and mourn the fact that that memory is all that is left now."

Here are some songs from his albums.

This is Rock With You a track from his iconic Off the Wall album. This is a live performance from a show hosted by Diana Ross.

This is I Can't Help It a jazz track which is also from Off the Wall.

This is Heartbreak Hotel from The Jackson's Triumph album

Will there be a return to moon? From the WSJ.

The New Race for the Moon

Last Thursday, the National Aeronautics and Space Administration (NASA) sent two probes to the moon in search of a possible site for a manned lunar station. Both China and the U.S. have announced that they plan to send manned missions to the moon around 2020. India and Japan are not far behind, launching their own unmanned probes to the moon and laying out their timetables for sending men there.

July 20th also marks the 40th anniversary of the first lunar landing. Here are a couple of videos from the documentary In the Shadow of the Moon.

This is the tense moment when they were on a descent to the lunar surface. As noted in the video the flight control computer overloaded. The lander had an abort guidance system in case there was a problem on the surface but it was never meant for a landing crisis scenario. Fortunately the software on the flight control had a fail safe routine and was able to reset.

What must it have been like to witness the event live back in the day? Exhilarating no doubt. This is the first step on the moon.

But why not a mission to Mars instead? A great animation from NASA on what could someday be a reality.

Have you seen the movie Flawless? It came out in 2007 and I recommend it in case you haven't seen it yet. Set in London during the 1960's the plot revolves around a heist on a diamond company. But while the film is about diamonds one can't help but notice the pearls. Or rather those worn by Demi Moore's character. She seems to favor them especially for office wear which makes for a very professional and preppy look in my opinion.

What was it about the 60's? To me at least it just seems like a very stylish decade.

Are clay tennis courts enjoying a renaissance? Interesting article from the WSJ.

In Tennis, the Cool Kids Love Clay
Top Players Use the Dirt to Hone All-Court Games; a Forecast for the French Open

In the tennis world, labeling someone a “clay-court specialist” was once a backhanded compliment—code for inferior players often hailing from sunny climes in Spain and Argentina who outlasted their opponents through a mix of mind-numbing accuracy and sheer doggedness.

I've had the opportunity to play on clay a few times in the past and I can't say that I liked it. There were times when the ball would have an odd bounce to it. Anyway the article says clay is a good way to train “You need to know how to build a point, use different spins and angles, to mix offense and defense. Those skills are exactly what playing on clay teaches you.” Do you agree? The statement was probably intended for a pro who has to play on a variety of surfaces. Personally I found the pace on clay to be slower (allowing for more reaction times) but I don't see why one can't develop those skills as easily on a hard surface. I think players evolve their own playing styles regardless of the surface.

The artcle also mentions the dominant playing styles these days. Everyone seems to want to stick to the baseline. I'd say that's been true since back in the day. What is probably different is the way players grip their rackets for example. These days the popular styles seems to be along the lines of a Jim Courier or an Andre Agassi. It is more about maximizing speed and power. I rarely see a player with the (grip and playing) style of a John McEnroe. I can't recall the last time I saw a player with a one handed slice backhand.

A day of tribute and remembrance on this Memorial Day for all US Military service men and women. My deepest gratitude and appreciation to all who are in active duty, veterans, and to those who made the ulitimate sacrifice.

I was reading the NYMag and noticed this review. Round sunglasses are apparently popular again.

A-Round We Go
Round sunglasses showed up all over the spring runways and—lucky for us—Fred Flare has made their own version of the circular specs. These shades will not only protect eyes from the sun’s harsh rays with UV 400 lenses, but the classic brown tortoise color will keep you looking cool all summer long.

As for the pair above I usually just refer to them as schoolboy sunglasses. I think they are the preppiest of all the classic sunglasses. The tortoise shell variety is very cool indeed. It has that classic, understated elegance to it. Whenever I see one of these it makes me think of a summer picnic. Whether it's a floral sundress(for the ladies) or a simple white or navy polo(for the gents) they look great with just about anything. Personally I prefer a style that has a retro touch to it and with a slightly thicker frame. A bit like this model from Urban Outfitters. I like them in either black or tortoise shell.

I can't wait to see Terminator Salvation. It looks like a winner and it'll be out on May 20. I also thought it would be great to do a tech topic on Artificial Intelligence. It's a huge topic and there are all kinds of great resources on the web. I would definitely invite you to explore it further on the web in case you're interested. Also please note I am by no means an expert on the subject but find it fascinating and interesting nonetheless. Anyway some estimates hint at an AI system in 30 years at least. The machines are certainly much more powerful today. For example today's laptop has the computing power of a supercomputer back in the 80's. Here's a photo of the Cray Jaguar which recently ranked as the world's fastest supercomputer. It is capable of handling 1.64 quadrillion calculations per second.

There have also been advances in areas such as grid computing and parallel processing. Some of you may have participated in that SETI project some years ago where you volunteered some processing time on your personal computer so they could process large amounts of data. That is an example of grid computing.

How good are computers today? We've seen how computers can challenge humans in chess. The latest has IBM's Watson competing in Jeopardy. This video is about Wolfram Alpha which will be debuting this month. It labels itself as a computational knowledge engine. It's a web application where you can ask it a question like "What is the square root of 7". Besides Math it covers other areas such as Genetics for instance.

If AI were to become a reality tomorrow how would it change the world? Would it be like the movie Wall E where we all get to chill and the machines do all the work? I love that movie by the way =). Or would it be like Terminator where the machines decide to take over? Here's a great video which discusses the implications of AI.

Here's great lecture on AI from Stanford. One of the questions it asks is will nanotechnology lead to AI? For example is it possible to reconstruct the brain using nanotechnology. The video also touches on quantum computing.

The video also discusses some case studies on critical software failures which I found interesting. I was surprised to learn that it was a software glitch that caused that Northeastern blackout in 2003. The video also mentions the space shuttle software. The shuttle software is considered by some to be the closest thing to perfect ever created by humans. Or rather it has only 1 bug per 420,000 lines of code. Anyway the lecturer seems to suggest that systems (including critical systems) are becoming ever more complex and AI could be the key to making flawless software. AI will also certainly impact the field of manufacturing among others.

The approach to AI seems to involve an exact reverse engineering or simulation of the brain. For example a software or hardware representation of a neuron. Here's a great lecture from IBM on Towards Engineering the Mind by Reverse Engineering the Brain.

IBM has other exciting technologies which could have AI applications. This video is on stream computing. It's a technology to analyze data as it is streaming in as opposed to storing it in a database first and then querying/analyzing it later. This article has TD Securities using the technology to handle 5 million options trading data per second. Amazing isn't it?

The brain is certainly capable of processing data at incredible speeds. According to this physicist the brain is capable of processing 500 trillion bytes per second. He also offers his predictions on AI.

But do we really understand how the mind works? From the founder of Palm the key to AI is figuring out how knowledge is represented or stored in the brain. It's a 5 part lecture so please make sure to view the rest at YouTube.

Will the first AI system be self learning? A beautiful commercial on the Linux operating system from IBM with AI overtones.

Finally, what's your favorite AI movie of all time?

Very preppy styles this time from Tommy. This is from their spring collection with the theme West Coast Cool.

I've briefly touched on West Coast preppy styles before. For me at least there is a difference on how preppy Westerners dress with say their Eastern cousins. For example it is rare if at all to see anyone in critter pants or a seersucker suit in the West. Popping collars are also more popular in the East than the West. Ribbon belts are also rare. Anyway here's a look by way of Nantucket Reds. The odds of seeing someone on the West Coast dressed like this is likely nil.

While this look on the other hand (also from NR) is something you'd readily see in the West. As for the Tommy looks above I'd say you're more likely to find those in the East rather than the West. The brand Boden I think captures the essence of West Coast preppy style(for women)really well.