Professor Elam

A Tide of Deflation Hit the Investing Beach Monday

Tuesday Sept  22 2020

One of my 12 steps in Conquer Accounting is to adopt a pattern of reading investment websites as well as the WSJ every day.

Today's Tuesday issue is a great example.   Let's get started

On the back page fellow socionomist Peter Atwater is quoted commenting on the GM Nikola deal

at extremes in sentiment even th4 adults in the room capitulate and want to join the kids.  Nikola was recently valued at more than  Ford. As Peter notes this is typical top of the market behavior. The article cites Enron, Worldcom, Madoff and the disastrous  Time AOL deal, later the largest write off in history to that time.

A front page article has short seller Hindenburg accusing Nikola of making exaggerated claims about its technology.  The CEO has resigned.  Nikola has lost a third of its value since the report came out and dropped  19% Monday

Even Jeff Katzenberg is having trouble signing clients for Quibi, yet another streaming service in a crowded field.

My investment weblog https://professorelam.typepad.com/markets/

spent the summer warning of decreasing breadth in the stock markets  Today is the autumn equinox, often a time of shift in markets.

The DJIA was down over  900 points intra day Monday.  Gold dropped  $51 by day end. Silver  dropped  10% on the day. Crude oil dropped 4.3%. Energy and Energy Service shares were hammered.

A judge in Michigan rules that ballots postmarked Nov 2 can be counted up to  14 days later. So expect Michigan to not report election night. See the mess coming with mail in ballots?

Daniel Planko claims the free market can deliver free college. He compares Higher Ed to the brokerage business in  1999 when a trade cost $200. .Today trades are near free.    Brokerages found other ways to make money. But it is hard to see how the existing college system can do that, certainly not with the high fixed cost it carries today. I have warned Higher Ed could go the way of the whaling industry from  1848-1858.

Another article w Your Company Health  Plan Isn't Safe in a Biden Presidency, Kamala wants 100% govt take over, yikes.

Cruise Lines want to sail again but the CDC says the crowded conditions are a hotbed for transmission.  Carnival wants to sell 18 ships, to who I wonder?

An interview with hoteliers in the SA paper Sunday suggests to me we are not grasping  all the economic effects of this pandemic. Hotel occupancy is about  30%, 60% is break even.   Property taxes are still at  100%, no discount for low occupancy.  And airlines, hotels and restaurants are all linked.  Throw in cruise lines and those are whole industries on the verge of BK.

Harley Davidson gets a new female CEO from the Food Industry.  She will have a steep learning curve to the powersports industry.  I would guess HD has topped out in terms of market share.

check out Deflation.com.

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Big Brother is Watching

Tuesday July 4, 2017

Hello! Is this Gordon's Pizza?
No sir, it's Google Pizza.
I must have dialed a wrong number. Sorry.
No sir, Google bought Gordon’s Pizza last month.
OK. I would like to order a pizza.
Do you want your usual, sir?
My usual? You know me?
According to our caller ID data sheet, the last 12 times you called you ordered an extra-large pizza with three cheeses, sausage, pepperoni, mushrooms and meat balls on a thick crust.
OK! That’s what I want …
May I suggest that this time you order a pizza with ricotta, arugula, sun-dried tomatoes and olives on a whole wheat gluten free thin crust?
What? I detest vegetables.
Your cholesterol is not good, sir.
How the hell do you know?
Well, we cross-referenced your home phone number with your medical records. We have the result of your blood tests for the last 7 years.
Okay, but I do not want your rotten vegetable pizza! I already take medication for my cholesterol.
Excuse me sir, but you have not taken your medication regularly. According to our database, you only purchased a box of 30 cholesterol tablets once, at Drugsale Network, 4 months ago.
I bought more from another drugstore.
That doesn’t show on your credit card statement.
I paid in cash.
But you did not withdraw enough cash according to your bank statement.
I have other sources of cash.
That doesn’t show on your last tax return unless you bought them using an undeclared income source, which is against the law.
WHAT THE HELL?
I'm sorry, sir, we use such information only with the sole intention of helping you.
Enough already! I'm sick to death of Google, Facebook, Twitter, WhatsApp and all the others. I'm going to an island without internet, cable TV, where there is no cell phone service and no one to watch me or spy on me.
I understand sir, but you need to renew your passport first. It expired 6 weeks ago.

Toyota Moves from CA to TX

Tuesday April 29. 2014

Toyota has moved from Torrance, CA to Plano, TX. Toyota said it was too far from manufacturing in Kentucky, and presumably Texas, and engineering in Michigan. 

This article lists other firms which have moved. The names are impressive. CA of course  disses this with th Governor saying there are little problems in CA that smart people overcome. Years ago the Democrats in the CA state legislature said it was only the Republicans who were leaving CA, really?

 

Fracking What Could Go Wrong?

Monday April 28, 2014

A couple has been awarded $3 M for contaminated ground water from tracking.

There are clear analogies to this case. For years the cigarette companies successfully beat back similar cases claiming health loss or death from smoking. Once the plaintiffs finally won a verdict, it was all downhill for the tobacco companies. The same thing happened with asbestos finally forcing Johns Manville into bankruptcy. 

This may be the first, pardon the pun, fracture in the fracking story. 

The New Civil War Comes to San Antonio

Friday July 19 2013

Roy Bragg  responds to NYmiddlefingerTX.com, which as he says really is the web address

http://www.nymiddlefingertx.com

which of course has negative things to say about Texas. Welcom to the New Civil War, now on the net.

Detroit Takes Chapter 9

Friday July 19 2013

TAMUSA accounting student Joe Dupuy requests a comment on the Detroit bankruptcy. He noted I have mentioned this in class. 

Here is a  good WSJ explanation of what is going on.

Detroit joins Jefferson County AL, Stockton, CA, and San Beniamino, CA in BK court. Chapter nine was created for cities after the New York City debacle of 1976. President Gerald Ford never actually told NYC to drop dead. But as this article illustrates, a dose of reality may be coming for similar cities. 

Here is what is really happening. 

ON my investing blog I have termed this The New Civil War. The maps of the North South conflict, the Red versus Blue states for Republican and Democrat, and the Right to Work Map, are all the same. Union contracts have broken cities and states now just as they broke New York in 1976. Amazingly Michigan has now passed a ;right to work law. A right to work law was allowed by the Taft Hartley Act of the late 1940s. All the southern states have one, a worker does not have to join a union to obtain employment. For years Detroit politicians simply re cycled union paychecks into compulsory union dues which were funneled to Democrat politicians. Today that former 1950s city of 1.5 million has about 650,000 residents. 

Other large US Cities face similar fates, Los Angeles, Chicago, and even Houston have huge unfunded liabilities. The state ofIllinois another basket case, handing out tax favors to keep companies from leaving the state. Now that Detroit has legitimized Chapter Nine, oh and don't forget the capital of Pennsylvania, Harrisburg, more cities will be following this route. Today Chicago Public Schools lay off 2,110 teachers and staff.

In bankruptcy all agreements can be re negotiated, including union agreements. Who will win, the creditors, the employees and retirees, or the citizens, or will all lose something? 

I have maintained that Meredith Whitney needed to broaden her definition of default.  I suspect that everyone involved with share in the default, not just the bond holders. 

I have also maintained that the US is playing out 1973-74 alll over again. In the 1970s it was New York City in trouble, now we have multiple cities and entire states in trouble. 

Fiscal Cliff Already Causing Job Losses

Friday October 26 2012

One student reports that many govvernment contractors in San Antonio are already worried about job and contract looses due to the looming sequestration and fiscal cliff. This article suggests that the pullback and uncertainty is already causing job losses. 

In one of his novels. Tom Clancy has a 747 crash into a joint session of Congress handily killing all of them. That is the only way I know to break out of hte kind of gerry mandered elected for life do nothing but tax and spend congress we have. 

Student Loans the Next Sub Prime Crisis

Monday March 26, 2012

$270 Billion  in student lons are 30 days delinquent. 

We maintain that the trillion of student loans will be the sub prime crisis for the next financial meltdown. It may have begun already. While a dilapidated shack in Tornto or Detroit can lose most of its value, the dirt under the house should be worth something. 

This of course is not the case for a student loan. 

There is not collateral-only hours of college.

And the borrower is likely a zero asset person, now perhaps on food stamps. 

But Barack has our back on this one, right, now that the Federal Govt via hte Family Fedearl Education Program FFELP guarantees the loans. 

The hyper link is to a lenghty and informative artcle that should be read. 

 

The Dollar Also Rises

wed Sept 7, 2011

While we can debate the best calls here or what is truly useful, the clear winner in the worst call so far was my suggestion last year to purchase UUP, a bet on the US Dollar. The same bet on TLT paid off very well this year and we hope that you banked those profits this past month. 

Indeed I am still the battered but unrepentant owner of 200 shares of UUP at 22.51. But the last few days amid all the red flashing prices on computer screens, one green beacon stood out, the world stampeded into the US Dollar. The Swiss finally intervened to bring down their Franc against the Euro which also helped boost the Dollar. Greek debt is not long for this world sporting a  one year yield of 70%.While the Dollar trend is still down, it is surely significant that this currency alone rallied world wide. 

Charles Smith has a new book out on the failure of conventional economics.  I will be reading and studying and reporting to you. But he makes an excellent case that the modern state (government) depends on people earning high taxable incomes that it can tax to expand its role. This is precisely what we are seeing in the current administration which wants to raise taxes everywhere, and the Bush administration that announced the high rate would 'only' be 35%. 

Smith suggests that a lower grade lifestyle, more independence from the state, will eventually starve the government of the tax revenue it needs to survive. 

The continued march to higher unemployment will certainly do that. The whole point of my theme of The New Civil War is in fact to ask, how long will the producers, ie the right to work states, support the failed business models of the union shop states and their permanent high unemployment?  Indeed it looks like the next election will give us an opportunity to find out. 

We have been tracking these developments for you. Recall that

Emerging Markets topped November 2010

The US Markets topped internally February 2011

More to the point, silver and oil both topped about May 1, 2011

Since then oil has stair stepped down in convincing fashion. Recall that the Arab Spring, no matter who wins, can only result in increased oil production. 

Please re visit our post this weekend on how 

Energy Service

Banking

Summation index of stocks

are all repeating their Summer of 2008 patterns. 

Smith's thesis makes sense, as does Mish at Global Economic Analysis. All the world is trying to succeed by exporting goods to other countries. They all produce more than their own populations can absorb, so the markets must expand, hence we hear the mantra of globalization.But everyone cannot have a positive balance of trade, someone has to import That someone has been the US with a negative balance of trade. The world has grudgingly taken our lower priced dollars in exchange for its goods to keep their economies alive. Now with backs against the wall, a torrent of cheap goods amid rising world wide unemployment has brought the specter of deflation stalking the world markets. Real estate in the US collapsed first, but the limited experience with real estate in other countries simply exported the speculative real estate boom elsewhere. And so Canadian and Australian real estate has soared to unsustainable levels. 

Think about it, high unemployment is the market saying that wages are too high, there are alternatives. And so law school grads work by the hour like so many pineapple sorters in the field. College grades find themselves in permanent 'temp' jobs. Indeed why would an employer move from an easily dismissed temp employee (no unemployment benefit liability) to all the woes and uncertainty of a full time employee? Jack Welch outsourced GE's work to China to keep costs low, his successor has run out of the same options. As the WSJ detailed yesterday, GE has underperformed the SPX since Welch's exit.

The one growth area has been government where the union shop lives on. But now the cost of government has risen to near half the GDP, or have we exceeded it already?  No matter with more calls for higher taxes it is just matter of time when not whether we get there. Greece is the poster child of where that takes an economy.

Okay enough economic theory for now. The strong dollar overhangs stock market speculation. Stock prices are the counter party to currency values.  We already have that handy Dollar Proxy, oil, in free fall. As the Dollar advanced, world stock prices fell. Recall our recommendation to use the rally that has apparently started today to exit existing stock positions.

Dollar UUP versus Stocks

Stocks are the black bars, UUP is the red green line which is the US Dollar. Despite all the negative news that the dollar is trash, it has been exhibiting a potential bottom at 21 on UUP while the SPX traced out its final highs from February to July. And then, collapse. The overvaluation of stocks has folks exchanging stocks for Dollars, something the currency markets have denied could happen. But here we are. 21.80 to 22 remains big resistance for UUP. 

But the puzzle pieces are falling into place. Emerging markets falling, silver and oil falling, now stocks which are valued in Dollars. The rush to the exits is underway. 

Thanks for reading our blog.  

 

Third Party Reality Check

Thursday August 25, 2011

I have written a weekly newspaper column since 1998. I noticed in today's WSJ Pat Caddell and Doug Schoen, both former Presidential pollsters, are noticing the rising preference for a party that is perceived to serve the public rather than itself. I visited this topic in this recent column

 

High Noon for Political Parties?

Harry Brown, twice the Libertarian Party candidate for President, observed that if either party were to disappear it would be the Republicans. Let’s take a look at the history of parties in the US.

The Constitution does not make any provision for political parties. But campaigns require organization. The first two parties were the Democrat-Republican party that evolved form the Anti-Federalist Party and the Federalist Party.  The Federalists were led by Alexander Hamilton who was actually killed in a duel with Aaron Burr; perhaps dueling would bring an end to the continual squabbling we have today! The Federalists disappeared.   Anyway, The Democrat Republican Party split into the Democrats led by Andy Jackson and Martin Van Buren. The other wing became the Whig Party. The Whigs did not survive the slavery issue. Indeed their inability to re-nominate their own President, Millard Fillmore in 1852, caused the party to collapse by 1856. Now, hold that thought. A party that had elected a President disappeared in one electoral term!  The new Republican Party emerged to elect Lincoln in 1860.

Republicans would dominate the national scene from 1860 to 1932 as the North won the Civil War. Democrats would pass Jim Crow laws impeding social advancement for Blacks as well as voting rights. And so the South became the Solid Democrat South.

It took form 1800 to 1860 for the first party shift to take place, three generations. It took from 1860 to 1932, 72 years for the next shift. Hoover was a Republican and was blamed for the 1929 Market Crash. FDR took over and was elected four times, leading to a constitutional amendment that would limit Presidents to two terms. Again the big shift took three twenty year periods. It appears that after three generations family voting patterns finally are subject to change. We have seen this with the Kennedys, fifty years after JFK was elected, the Ted Kennedy Senate seat went to a Republican, there was not enough memory of JFK among younger voters to sway the vote.

Since 1932 the Democrats have held the House for all but a couple of House terms, until 1994. Republicans finally regained the House in 1994, only to lose it by 2006. Such a short term suggests the Republicans have fallen out of synch with the historic pattern.

Our point then is that political parties are born and seemingly die at the three generation mark. It is now some 80 years or four generations since 1932. We have seen the Party in the  White House change from 1992 to 2000 to 2008. At present the current resident is below 50% in virtually all ratings categories. But he can take solace  that Congress rates much lower than he does!

Other third party efforts have been notable failures. The Bull Moose Party in 1912,  the Dixiecrats of 1948, Independents George Wallace in 1966,  John Anderson in 1980, Ross Perot in 1992 and 1996, all failed in their efforts.  But, the TEA Party is not an organized party per se. It is an idea, something much more difficult to stop, just as Gorbachev about that.

Republicans have lost the White House with a series of RINO (Republican In Name Only) candidates said to be not much different from their Democrat rivals. That would include Gerald Ford (whose memoir was not printed until after his death, how’s that for the courage of your convictions?), Bush I, Bob Dole, and Bush II.  Mitt Romney has now assumed that same mantel.

Bush and his consigliere Karl Rove supported Senator Kay Bailey Hutchison in a poorly conceived race for Texas Governor against former ally  Rick Perry.  Kay, who had never lost a race, was trounced.  Needless to say there is no love lost on Perry’s part, and the slings and arrows have already begun.

Our point is that some 80 years or four generations have passed since the baton was handed to the Democrats. In the last 20 years, the two parties have jockeyed for leadership, trading Congress and the White House back and forth.

Big changes have happened at crucial turns in social mood. The US breaks with  England in 1776, a Civil War is fought in 1861, the Depression begins in 1931, and now, debt and a lead from behind strategy have many questioning America’s future.

Could the Rockefeller, Ford, Bush, Dole Republicans be headed for the same dust heap as the Whigs of 1852?  Michelle Bachman and Rick Perry are said to lack the requisite, proper syntax for Presidential candidates.  That’s because revolutions are not begun by those at the table.  Revolution is a messy thing, it results from the bold rather than the polished, just ask Fidel Castro about that. We suspect that the election of 2012 will determine whether the Republicans become Whigs, or a force once again.