The official "blog of bonanza" for Alfidi Capital. The CEO, Anthony J. Alfidi, publishes periodic commentary on anything and everything related to finance. This blog does NOT give personal financial advice or offer any capital market services. This blog DOES tell the truth about business.
Reason #1: Bluff. China really has no intention of buying a significant amount of these bonds. This is one round in an ongoing geopolitical contest with the (U.S. (via the Federal Reserve) for strategic influence in Europe. If this is the strongest card China can play, then they have a truly weak hand.
Reason #2: Talking their book. China has diversified some of its trillions in foreign currency reserves away from the U.S. dollar, so making public statements in support of European debt raises the confidence other investors have in that debt's value. If China has pledged its euro-denominated debt as collateral for any aid to developing countries, this preserves their strategic strength (until the unstoppable euro breakup actually hits, of course).
Reason #3: Desperation for yield. This is the least plausible explanation I can think of but I'll throw it out there as a wild card. China's U.S. Treasuries (more properly, the short duration portion of their holdings) aren't paying a whole lot of interest. China's search for higher payouts will inevitably lead it to the junk bond universe. That is IMHO where most European sovereign debt belongs and the ratings agencies are catching up to this realization.
Reason #4: Quid pro quo. The article also notes a flurry of trade deals that China recently finalized in Europe. China's intent to buy productive assets outside its borders is well-known. Perhaps Europe is dangling the carrot of keeping its real asset markets open in exchange for promises of more Chinese purchases of EU debt. Europe knows of China's success in making deals in Africa and Asia, and China knows the value of Europe as an export market.
I'll go with reason #4 as the most likely explanation for China's stated intent, with #2 as the next most likely. Both China and Europe are probably in severe recessions right now. Two drunks can lean on each other for support until they both fall over sideways.
Full disclosure: Long FXI with covered calls, but frankly not for much longer. No holdings of European sovereign debt at this time.
Those of you awaiting the remainder of my commentary from last weekend's Money Show need to wait one more day. I'd like to take this opportunity to mention how a likely slowdown in port activity is about to put the final nail in the coffin tipping the U.S. economy back into recession.
The lesson of a similar strike in 2002 on the West Coast was that shipping traffic could be diverted from West Coast ports to the East and Gulf. Port operators in the West plan to reverse that flow this time around but they shouldn't count their chickens before they're hatched. Remember the Occupy movement's success in shutting down the Port of Oakland? This is a national election year and Occupy hasn't gone away. The two busiest West Coast ports are Oakland and Long Beach but California's electoral votes are not going to be seriously contested this time (it's a lock for the incumbent). That won't matter much to Occupiers. The movement still has heavy union support and can easily be mobilized again to send a political message.
A union hand in an Occupy glove remains a risk to the U.S. retail supply chain. It can easily metastasize into a live threat. An ILA East/Gulf strike combined with West Coast port agitation could mean a very "blue Christmas" for retailers.
I attended this year's Money Show in San Francisco after a hiatus that was far too long. I immediately noticed a difference from years past: The show floor had only about half the number of exhibitors I recall seeing my first year in 2001. It's probably a sign of the times, with financial service providers facing lean years as the sector's share of the nation's GDP and employment headcount contracts to a sustainable level. BTW, I was early enough to be the second guy to register. I could have easily been first but I yielded the spot to some other dude who looked like he needed the ego boost. I need no such ego boost since I get such a kick from writing.
Attendance at the keynote addresses was as healthy as ever. Money Show CEO Kim Githler led off with her rundown of this year's big themes: capital preservation, "big picture" thinking, the new normal (i.e., low returns), adapting to change, and due diligence. I'll add one more theme: Ms. Githler is one hot chick for a gal who's been running these shows for three decades. Her husband is one lucky guy.
Speaking of her husband, Money Show Chairman Charles Githler was up next. That guy looks as ageless as Dick Clark did in his TV heyday. He likes the Bay Area's tech emphasis and thinks biotech and medical will continue to be strong performing sectors. I dunno, Charles, if the rest of the weekend's key speakers are right about the coming deep recession, those sectors will be hard pressed to find consumers who can afford new drugs and treatments.
Jeff Rabin from Artvest Partners was the first guest speaker on a topic that some of the more well-heeled folks in attendance could appreciate. He described a methodology investors could use in evaluating works of art as investments. I noted that his risk-adjusted returns of the most prominent art styles were all over the map, and Jeff explained that contemporary art is the most volatile style. Most financial writers never get past the most common observations about art as an investment, namely its illiquidity and low correlation with equities. Jeff shared plenty of insights that those of us outside the art world would never have discovered: Chinese art buying has grown massively but is mainly focused on repatriating traditional Chinese art that has left the country; art sales are seasonal (Fall and Spring) and auctioneers set prices using estimates based on the last season's sales; investment-grade art metrics include the frequency and prestige of an artist's exhibits and the reputation of an artist's dealer. Jeff also believes it's important for investors to know everything they can about an art fund's people. The ones with special dealer relationships may dump unattractive or unmarketable art into a fund while diverting that dealer's best art into private sales. It's funny how that reminds me of equity underwriting. Morgan Stanley got stuck with a whole bunch of Facebook shares from its IPO and dumped them into its proprietary funds for sucker investors to buy.
Donald Luskin was up next. He's the prime mover behind Trend Macrolytics who gained some Internet notoriety in recent years for his market commentary. Just do a web search of his name and see what he stirred up. His thesis at the Money Show was that the spending cut portion of the looming fiscal cliff should not be nearly as frightening to markets as the potential impact of the tax changes. He even had the tape measures and buckets to prove it physically. He argued that raising taxes on dividends will make investment returns suffer and that allowing the Bush tax cuts to expire will destroy the spending power of Americans who receive refundable tax credits. I personally have no objection to dropping the economy off a fiscal cliff. The short-term sinkhole that will open up under GDP growth is a necessary correction to decades of extravagant consumption. I say bring it on, along with some bear market ideas for making money on the short end. His math may be correct about negative nominal GDP growth next year if we go over that cliff but I disagree with his prediction that a Romney-Ryan electoral victory with 50 U.S. Senate seats for the GOP will come to pass in time to save us. Americans like to re-elect their Presidents, and sitting Administrations have all the advantages of incumbency when it's time to pull out all the stops and dress up a troubled economy.
Bob Rice of Tangent Capital spoke about one of my least favorite topics, alternative investments. My faithful readers know how much I despise the claims put forth by hedge fund managers that their leveraged bets on equities and debt somehow constitute a whole new asset class. Bob threw out a reference to the Yale endowment's seemingly stellar performance, with no mention of how David Swensen's model appeared so badly broken during the 2008 crisis. Do some searches way back for news on how many university endowments' lack of liquidity in 2008 made them seriously consider cutting enrollment, financial aid, and student services. I'll give Bob credit for covering the need for liquidity when he said that having cash during the next crisis could make someone the next Warren Buffett. That one's coming IMHO, and my cash is ready. Bob strikes me as being a lot smarter than your typical alternative investment guru. He likes three broad alternative themes: hard assets (art, gold, timber, water, TIPS), income funding (MLPs, REITs, CEFs, royalties, multi-asset ETFs), and alpha/growth (private equity, venture capital, distressed/activist investing). I definitely get the alpha/growth theme and even non-accredited investors can get in on that action if they can fund a five-figure angel investment or have expertise relevant to a local turnaround or workout situation. My disagreement is with some of the stuff he put is his income category that is clearly based on traditional equities, like MLPs and REITs. I'd also put TIPS in the traditional bond arena and water stocks where they belong, in the equity universe. That reduces alternative investments to things that are truly illiquid, private, and specialized, giving folks like Bob plenty of options.
Steve Forbes was up next. The guy has natural comic timing and ought to consider a second career in entertainment. Here's one rich heir who does well at the family business. Anyway, I could almost hear Steve's old political campaign mantra of "hope, growth, and opportunity" echoing throughout his speech. He claimed the election presents a stark choice between government control and freedom but I'm not buying that partisan canard. The two major party candidates are more alike than different, and Steve should know that Romneycare was the textual basis for Obamacare. I like Steve's use of cute rhythmic phrases, red meat for this mostly conservative-leaning crowd. Samples: "Entrepreneurs turn scarcity into abundance and luxuries into commodities." "Governments are about coercion; markets are about choices and abundance." That's great, Steve, but Reagan gave America its addiction to deficit spending and Bush got us hooked on government intervention through bailouts. Republican politicians would have more credibility with investors if they actually practiced what they preach over at the Heritage Foundation and Hoover Institution. I'll give Steve props for a couple of good observations, namely that the Fed's ZIRP makes credit prices unreliable and that only big corporations can now get credit thanks to government subsidies. I just don't think any of that will change after any national elections. He closed by predicting that the current Administration won't cut spending because it's a source of political power. Yeah, that's true for domestic spending on EBT and solar sector loan guarantees, but Republicans don't like to cut defense spending and that is something the country has to do for its fiscal sanity.
The free panel on the so-called next Silicon Valley investing boom was one I largely pooh-poohed for its lack of real insight. I'll buy the observations that low P/Es attract investors to tech stocks (hey, getting a growth stock at a bargain price is no easy feat) and the claim that internal IT departments will go obsolete in ten years. That jives with what I heard at the Enterprise 2.0 conference I attended earlier this year. I did scratch my head at some of the sector conventional wisdom they threw around. The panelists were unanimously bullish on Apple. Uh-oh, strike one. Somebody tell these guys that China's cloning shops don't care about Apple's patent victory over Samsung. They may be correct in predicting that mobile computing will displace desktops, but the timing all depends on whether a new recession destroys consumer spending to the point where people take a hard look at whether they can really afford another broadband subscription. I liked their observation that Facebook needs a new CEO but won't get one as long as Mark Zuckerberg's super shares keep him in control of the board. Read between the lines, investors, and see the unfolding disaster that is Facebook's strategic direction. Read my own blog posts on Facebook's prospects if you need more clarity. Anyway, the panel was pretty bullish on robotic manufacturing as a disruptive force (with major structural unemployment coming) and the health care sector thanks to the massive spending coming from Obamacare.
The one seminar I truly valued over all the others was John T. Reed's recap of the lessons he's learned from a career in real estate investments. I shall devote an entire blog post to his insights later this week. I love this guy's books. The chance to hear from him live and ask him questions was a goal I had to fulfill.
I started Saturday by listening to John Thomas, the Mad Hedge Fund Trader, predict a likely recession for 2013. I participated on an expert panel with John at last year's Hard Assets Rare Earths Investment Summit and I respect the prodigious effort he puts into his research. He did his homework on Europe's troubles and the possibility of a European banking system collapse if it doesn't get a bailout. John was more pessimistic than any other key speaker I heard on the subject of the fiscal cliff's likely effects, predicting a 3-4% hit to GDP next year. I'm also in the pessimist camp.
Alex Daley's talk on technology trends gave me a pointer on how a new tech takes off. He said fortunes are made when the curves for accelerating growth, innovation, and adoption all intersect. The lead-up to that slide with all the curves intersecting was compelling, so you just had to be there. The bell curve of adoption even used the awesome "crossing the chasm" meme that I've admired for the past couple of years. I'm intrigued by his picks of 3D printing, service robotics, and gene sequencing as big future tech themes. I do wonder about his bullishness on Amazon and Netflix for their presence in digital online sales. Those two firms have troubled business models with low margins. I maintain that a more likely future for online content distribution is the YouTube model of self-generated content, where eventually lesser-known authors and artists can keep all of their earnings. He's also bullish on the U.S. economy's potential for innovation but IMHO we'll need a Sputnik moment to shock ourselves into STEM investment if we're going to live up to that potential.
More awesome seminars awaited me. The Macquarie seminar on infrastructure investing, the talks on master limited partnerships (MLPs), the crowdfunding gurus, and Anthony Muhlenkamp's talks on natural gas and fiscal policy were more than worth my time. They each merit their own in-depth treatment in separate blog articles, so be patient for the rest of this week. I have seventeen pages of notes and a stack of printed reference material to wade through thanks to this awesome conference. I will also write a special article on Marilyn Cohen's bond ideas, because she has so many praiseworthy insights that she deserves special props.
The final keynote speaker of the weekend was Harry Dent, a prognosticator with an eye on one very overlooked variable - the demographic forces that converge around age 46, the peak spending year of a human lifetime in the developed world. That one data point graphed against long-term stock market moves is a pretty cool indicator of market peaks and troughs, although I'd like to see a peer-reviewed academic take on its statistical validity as a predictor (and whether it applies equally well to emerging markets with less developed middle classes). I'll never forget his argument that young people's spending habits make them inflationary and older people's declining consumption make them a deflationary force. His argument against buying real estate now is probably spot on as Baby Boomers downsize their living arrangements (and eventually, as he noted to guffaws in the room, to a hospice room and then a coffin). China's policy discouraging population growth will put a lid on any demographic drivers for innovation, spending, or growth over there after 2015. He's the latest in a line of China bears I've seen, making me even more convinced that getting rid of the last vestige of my China equity position is a wise thing for me to do. I'd rather not be tied to such a stagnant economy even if the U.S. isn't going to do much better. I can't help but notice the similarity between Harry's "Four Season Economic Cycle" and the demographics behind the Fourth Turning theory of civilization. His insight that we are due for a "winter season" to clear out economic excesses matches exactly the Fourth Turning prediction that the world is due for political and cultural hardship.
Harry's take-aways were stark. Banks that win the foreclosed real estate game will get ahead of that ticking time bomb by dumping houses first, but this will cause an avalanche of dumping that he thinks even the Fed can't stop. Fed QE hasn't launched inflation because money velocity has collapsed, but IMHO he left out the crucial reason for that: the Fed's attractive deposit rates for banks have kept all that excess liquidity locked into bank balance sheets and out of lending circulation. I hope Harry is prepared for the politically-driven forced lending that I think will be one of several transmission mechanisms for inflation once the Fed panics in a stock market crash. Harry's conclusion was that there are no safe havens. A crash in everything, including gold and silver, is likely in early-to-mid 2013. It's hard to argue with a conclusion that already reflects so much of my own thinking in the four years I've been publishing my blog.
I'm so glad I went to this Money Show. Hey, Mr. and Mrs. Githler, put me on your speaker calendar for the next round of shows. I'll be happy to fly to any of your other shows to give you some great content.
In case you weren't aware that the U.S. government is in poor financial condition, the Congressional Budget Office issued a new warning that automatic fiscal discipline will cause a recession in 2013 unless Congress passes a sensible deficit reduction effort. Warnings like this are easy to turn into political cannon fodder but miss the larger implication of fiscal discipline. The patient must take the medicine at some point, and it is better to do it immediately than postpone treatment into the indefinite future when the consequences will be even more severe.
The Fed's propensity to act in the absence of Congressional action is now more pronounced. The Fed issues ever clearer statements of intent and there is now silence from anti-inflation hawks. The last two rounds of quantitative easing had progressively diminishing effects. If QE3 is launched before the November elections, the equity market pop might last a few months but fundamentals like factory orders and consumer confidence won't move much. Agricultural commodity prices are already high thanks to a record U.S. drought, so juicing price inflation with no corresponding wage growth will not bode well at all for the holiday shopping season.
Europe offers us an abject lesson in crisis non-resolution. The Continent's geopolitical power suffers as its sovereignty crunch continues without firm solutions. The decisive answer for Europe is to remove incompatible countries like Greece from the currency union. A decisive answer for America would be a fiscal agreement that is serious about deficit reduction. A firm agreement can fall short of the penalty imposed by a fiscal cliff but must be serious enough to show equity markets that the U.S. possesses leaders willing to risk short-term pain for long-term solvency.
Hedge funds are once again exploring new territory in the endless undiscovered continent known as Stupid Land. They are so impoverished for market-beating ideas that they are trading U.S. Treasuries like mad. Some of these money managers are indeed mad (in the sense that they should be locked up in mental institutions) and their clients are even crazier for giving them money. Passing Treasuries around like hot potatoes with the Fed holding rates at zero is like playing Russian roulette with a machine gun. When something sparks a run on the dollar and short-term rates shoot up, a whole bunch of hedge funds will find themselves stuck with bonds that will plummet in value overnight with no way to unload them. The margin calls from their prime brokers will bring back 2008 all over again.
Hedgies who aren't even smart enough to flip Treasuries are launching the dumbest move of all: going all in on Apple at the height of its market dominance. The most valuable company in the world can be easily dethroned by cheap Asian smartphones. Retail investors used to be the dumb money but now hedge funds have claimed the title. This phenomenon of institutions following retail investors over a cliff at high speed should be preserved for posterity.
Thanks for nothing, hedge fund idiots.
Full disclosure: No position in hedge funds or AAPL at this time.
Today's changes in my portfolio come on the heels of an options expiration weekend that saw every single one of my covered call positions breach their strike prices and be sold away. It is rare to see my call-writing strategy liquidate my entire equity portfolio. The last time I can remember that happening was August 2007, just prior to the peak of the equity market that year. I stayed in cash for quite some time after that.
Since my equities (actually ETFs) represent a minority potion of my net worth, I'm comfortable buying them back in a wash sale because they represent hedges against a broad unwinding of the U.S. economy. I repurchased all of my positions in GDX, FXI, FXA, and FXC and renewed my covered calls. The difference this month is that I added to my stake in FXA because I am increasingly confident that the Australian dollar is probably the healthiest currency on the planet (i.e., the least likely to hyperinflate). I could be wrong, but having a cash equivalent in non-U.S. currencies is important for my peace of mind.
I renewed the cash-covered put position under FXF that expired. If I were forced to add one more currency position, it would still be the Swiss franc. I also sold cash-covered puts under FXC for the same reason; Canada's currency is almost as attractive as Australia's as an inflation hedge.
I will stay away from U.S. dollar fixed income holdings until the U.S. passes whatever currency and insolvency crisis lies in its future, or until Helicopter Ben is no longer leading the Fed (whichever comes last). Holding as much cash as I have right now is completely contrary to the conventional wisdom of most portfolio managers and financial advisers, but those people will be out of work en masse when the house of cards holding up the developed world's economies gets knocked to pieces. My cash will be useful immediately after a stock market crash when equities will likely be at generational lows. I'm betting my net worth that much of Wall Street is insane.
The strategic bet for a company like Molycorp is that the long-term added value from tighter integration will generate enough free cash flow to pay down the debt used in that acquisition. The monkey wrench in the formula has been the weakening global demand for high-tech goods that rely heavily on REEs for their capabilities. That hurts demand for Molycorp's ores.
MCP is trading at a P/E of about 10, and is only about a dollar above its 52-week low of about $11 (compared to a high of over $58). It would be a bargain if not for the likelihood of a very serious downturn in Europe and the U.S. That would spell further difficulty for any REE producer, no matter how dominant their position.
These ETFs will of course appeal to investors who don't understand that the daily leverage calculation of these ETFs is a far greater drag on the funds' returns than an expense ratio of "only" 0.75%. A plain vanilla ETF is far cheaper, and risk management with simple options is far more transparent. Firms like Direxion count on investors having a nonexistent learning curve.
Full disclosure: No position in any Direxion products.
National elections in America are always a wonderful opportunity to discover new things about our country and those who truly govern it. This weekend's anointing of a completed national ticket is a terrific window into those qualities the ruling class finds attractive in candidates for high office.
The Republicans have selected a business-friendly ticket. In fact, both selectees have multigenerational business backgrounds in common. I had wondered how the Veep nominee had won his election to Congress at age 28, but now I completely understand. One quote from that article says it all: "I recall the fledgling candidate walking me around downtown Janesville to show the houses and the historical markers that trace his family’s influence on this small industrial city since the late nineteenth century." My next question: Has Ryan been vetted by the Grove?
I brought up Rep. Ryan's pedigree to illustrate something most conventional political anaylsis ignores. Much of what we see in the public arena is a kind of performance from people born to play roles. The script (i.e. policy choices, ad hominem attacks) doesn't matter as much as the pure spectacle. America's hereditary elite raises its children to play very important roles - literally like actors!
The present Administration holds an electoral advantage because it has given the country's permanent government - Wall Street, the Pentagon, and the intelligence community - everything on those parties' private wish lists. The incumbent faction retains this electoral advantage so long as the economy does not go into free fall before the end of October. The challengers have been vetted by Wall Street to ensure they will maintain status quo policies indefinitely in the unlikely event they win.
There will be no real change in November 2012. Whether this is good news for America depends on how much longer the international bond market keeps a blind eye turned to our national profligacy.
Nota bene: I am a registered voter but I do not identify with either major party. This article is not in any way an endorsement for any candidate or party. Please vote responsibly. Your grandchildren will thank you.
Remember the movie 300 and its famous "This is Sparta!" rallying cry? Well, this isn't Sparta. This is sarcasm.
The national tickets for this election cycle are now complete. The American chattering classes have three more months to convince us that we have a real choice. The truth is more depressing. Neither party will advocate the reforms to unfunded middle class entitlements that will prevent the bond market from rejecting the U.S. dollar. Enjoy the free entertainment while it lasts.
The Chinese government has now endorsed Ponzi finance as the final prop for its growth story. Asset-backed finance has been hard enough in the U.S. with questionable title chains for mortgages underlying the ABS in many institutions' portfolios. China thinks that's okay. The big secret is that Chinese institutions selling ABS probably also owe debt that can and will wipe them out, bringing the hard lessons of securitization full circle from across the Pacific. This new development will give knowing investors enough time to unload Chinese equities on suckers chasing the non-existent safety of ABS. I may even use whatever window exists to unwind what remains of my long FXI position, if enough idiots want to chase it at some insane valuation.
Germany is headed for recession by the end of 2012. Really? You mean, all those broke Greeks can't afford German exports anymore? Angela Merkel's gamble on a federal EU referendum is a smokescreen for the Greeks to make a quiet exit from the eurozone. Ms. Merkel may hope they will be the only nation to exit, but I'm pretty sure I know better. The German economy will sink even faster when Spain and Italy stumble through the exit.
FedEx is considered a bellwether stock because its shipping volume indicates the ability of businesses to spend. Voluntary employee buyouts at FedEx are an ominous sign that layoffs are in the near future. If logistics providers are cutting back, then so is the rest of American business. Forget everything you hear between now and Christmas about how the economy is growing, because FedEx would be hiring rather than laying off if things were so great.
BTW, Notre Dame is still worthless.
Full disclosure: Long FXI with covered calls. No position in FDX.
The federal government's approach to permitting new energy projects is always subject to political pressure. What's new in recent years is the continued favor shown to renewable energy even after revelations of financial favoritism and sloppy due diligence. The administration has fast-tracked permits for solar and wind energy development. The good news is that these specific projects are in the West, where sunshine and wind are abundant. We can at least say that they're not putting solar panels on the Alaskan tundra, where the midnight sun probably shines at an uneconomic angle.
I believe federal regulation of energy production should be as agnostic toward sources as technology, geology, and geography will allow. That means regulatory decisions should be in the hands of scientists and engineers. This is always too much to ask but I'll ask for it anyway. I wonder about the cost-benefit analysis behind Uncle Sam's energy permitting process, and whether the benefit is colored by political pressure.
The Fed daddy's assurance that federal government backing of student loans is dangerous in the extreme. One trillion dollars is still a lot of money. A bailout of that magnitude would dwarf the size of TARP and send foreign central banks sprinting away from dollar holdings. Ben probably assumes a bailout won't be necessary as long as student debt remains exempt from liquidation in personal bankruptcy. Our rulers think they are too clever by half, counting on naivete and financial repression to keep debt service payments coming their way. A debt-destroyed peasantry won't put up with such smugness indefinitely.
Nota bene: I have never had a student loan, or any debt of any kind other than the single credit card which I pay off in full every month.
The never-ending saga of the Yucca Mountain nuclear waste disposal site has entered a new phase of completely unnecessary meddling. A federal court has delayed deciding whether the NRC's delay in finalizing a waste disposal site deserves further delay. This is sickening. Apolitical scientific experts settled on Yucca Mountain decades ago as a safe place for spent nuclear fuel and the federal government has spent money since at least the Reagan Administration to prepare the site. The NRC's totally political decision to play to a handful of Nevada voters will now jeopardize the safety of communities around the country where nuclear plants must store spent fuel in unstable configurations. Way to go, geniuses.
I can attribute some of my portfolio's success to the avoidance of asset bubbles. If I had been invested in any of the crazes that hit the markets since the mid-'90s I'd be in a world of hurt. Fortunately I don't follow crowds.
I stayed in cash and fixed income while plenty of very smart people chased dot-com dreams in the late 1990s. I remained in cash after that stuff peaked in March 2000 and wiped out plenty of people who thought they knew better than me. I had a bad feeling about the Federal Reserve's stimulative monetary policy of the early 2000s and didn't want to pick the next bad thing by accident.
In 2002 I attended a hiring conference in the San Francisco area (one of the Burlingame airport hotels to be precise) put on by one of the recruiting firms that love to place former military officers with large companies. I sometimes wonder whether these recruiters collect the first-year bonus their candidates would otherwise get if they were hired on their own, but that's not germane to this article. The clearest memories I have of that hiring conference were the pitches the recruiters gave for homebuilders, specifically Pulte and Centex. The home mortgage bubble was in full swing and developers were busy paving over pristine farmland in Stockton, Pleasanton, and elsewhere to accommodate the Greenspan Fed's loose money policy. The housing bubble sure looked great to the people inside homebuilders who thought they had it made. I decided to pass on the homebuilding jobs available; they just weren't suited for my white-collar ambitions.
In 2005 and 2006 I was a trainee broker at UBS Wealth Management in The City, an outsider among the anointed children of our hereditary ruling class. Some of top-producing brokers swore by real estate mutual funds tracking the Cohen & Steers Realty Majors Portfolio Index, thinking they were geniuses. I went the other direction and bought a structured note (in my own portfolio) that bet on a decline in the homebuilding sector. I was later fired from that brokerage job for having produced zero revenue, but I liquidated that structured note at a hefty gain when I was forced to transfer my account to another firm.
My most loyal readers, all three of them, may be aware that I believe defense spending to be an unsustainable bubble. I have tried in vain to convince my military friends not to pin their hopes on a second career with defense contractors. The Pentagon itself is probably in denial about the bubble it helped inflate, with very little visible contingency planning underway for a radically austere future.
Some things never change. A lot of defense sector bulls are going to be let down. That suits me just fine. I'll be ready to buy the defense stocks they'll be forced to abandon.
Full disclosure: No positions in any companies mentioned.
Meanwhile, the more ominous news for the company is the 0.5% decline in top-line revenue. This could imply that YRCW's much-ballyhooed market position may be eroding. The increase in revenue per hundredweight is odd, something normally associated with a firm that can maintain its pricing power. I'm not sure which customers still insist on paying a premium for a fat, smelly, Teamster driver to give them an attitude. Those customers are welcome to contact me to explain their reasoning.