The Haiku of Finance for 09/01/15

Megadonor waste
Incumbents make for best bets
Campaign investing

Cancel Most US Federal Holidays To Save Money

I mentioned in one of my recent Financial Sarcasm Roundups that canceling Presidents' Day would be great.  I totally need to take this concept all the way.  The US federal government can save a ton of money and get more work done by canceling several official holidays.

Uncle Sam is nice enough to list the official holiday lineup.  The government also lists a bunch of stupid days like Groundhog Day, Valentine's Day, and Halloween, but those don't grant days off.  My focus is on some other stupid days that do cause people to skip work for no good reason.  The US Senate published an official Congressional Research Service paper from 1999 describing the origin of the eleven official holidays.  Note one very important point from the paper's abstract:  The holidays only legally apply to federal employees and the District of Columbia.  Your local laundromat or shoe repair shop that claims one of these holidays as an excuse to close is therefore just being lazy.

The eleven holidays in Uncle Sam's list are free days off for government workers, but alas nothing in this world is free.  The taxpayer pays through the nose for all of those cubicle dwellers to do nothing for almost one "working" day each month.  The Washington Times noted that one paid holiday in 2008 cost an estimated $450M.  Paying this out ten times a year, plus part of it once every fourth year for Inauguration Day, adds up to some serious cheddar cheese.  The opportunity cost of lost economic activity spills over into the private sector when service-oriented businesses decide they need to voluntarily shut down for a federal holiday.

Here's my modest proposal to restore sanity to America's out-of-control holiday calendar.  Let's eliminate every holiday that does not specifically relate to the nation's founding or its defense.  Conflict shapes our national character more than any other phenomenon.  Reducing the holiday count to this bare minimum leaves us with Memorial Day, Veterans Day, and Independence Day.  That should be enough for federal workers who also get accrued vacation days.  I question the rationale for giving federal workers Inauguration Day off because common sense should require the federal government be somewhat fully staffed while its head of state changes heads.  The other holidays are totally superfluous.

New Year's Day and Christmas Day are private functions for most people.  How we celebrate them should not be the government's concern.  The secularization of America is progress.  Elevating one religious holiday to a federal day off means granting other religions' special days the same status.  We either celebrate them all out of fairness, or celebrate none of them officially.  Take an accrued vacation day off if you must go visit your grandparents.

Thanksgiving Day can remain a semi-official holiday with no paid leave for federal employees.  Every civilization has some kind of harvest celebration and Thanksgiving fits the bill for America.  It also maintains the spirit of unity and magnanimity Abraham Lincoln had in mind when he first proclaimed it during the Civil War.  It therefore has something to do with building the nation's character and reminds us of our agrarian roots.

Labor Day makes no sense.  It is a vestigial reminder that the capitalist class once feared socialism enough to throw a bone to working stiffs with a special day.  We can declare victory in the class war by getting rid of Labor Day.

Celebrating Dr. King, our late but great Presidents, and Christopher Columbus likewise makes little sense.  Most Americans only paid minimal attention in school during history lessons.  Your average Joe or Jane Six-Pack probably wouldn't be able to pick those figures out of a lineup of cartoon characters or breakfast cereal mascots.  When those days occur, hardly any Americans stop and reflect on those holidays' notable namesakes.  Instead they go bowling or skiing, or whatever.

Federal holidays should serve a unifying purpose and remind us that we have a nation worth defending.  They should also take cost effectiveness into account.  Our modern federal holidays are too numerous and cost too much.  The private sector's imitation of government holidays costs the nation in lost productivity.  The nation got along just fine through the 1880s with barely half a dozen federal holidays.  Returning to the Republic's hard-working, thrifty roots is an excellent example for the government to set.

Nota bene:  Alfidi Capital is open 24 hours a day, seven days a week.  I have published blog articles during all major holidays.  This firm never takes a break, unlike the rest of this lazy, shiftless, good-for-nothing planet.  

The Haiku of Finance for 09/27/14

Do not waste money
Scams and trinkets don't build wealth
Save instead of spend

The Haiku of Finance for 06/11/14

Sucking capital
Spend it all with no progress
Headed for nowhere

The Haiku of Finance for 04/06/12

More loan guarantees
Wasting time, cash, energy
How dumb can this get?

The Haiku of Finance for 03/19/12

Sell yourself panels
First Solar bought its own stuff
Ex-Im Bank misuse

NASDAQ Boots Ener1 (HEVV.PK) And Taxpayer Loses Again

Energy companies that got federal loan guarantees are dropping like flies.  Why, just yesterday I blogged about the collapse of Beacon Power and the stimulus money it wasted.  BTW, I may have underestimated the total amount BCON actually borrowed under the loan guarantee.  Today we see another federally-backed company, Ener1 (HEVV.PK), getting delisted from NASDAQ because its financial statements aren't trustworthy.  Here are some highlights of this marvelous winner's recent operations. 

The Ener1 subsidiary that got the DOE grant, EnerDel, spent $53mm in taxpayer money to employ 253 people, costing $209,486 per stimulus job.  The company now employs 33 people, for a total program cost of $1,606,060 per job.  The stimulus jobs just keep getting more expensive.  That's what's funny about government procurement; a fixed-dollar contract drives up per-unit costs as the contractor discovers just how difficult it is to provide back-end support.  Just ask Lockheed Martin about their success with the F-35 . . . but I digress.

The news for taxpayers keeps getting worse with DOE's loan guarantees and grant programs.  At least Uncle Sam isn't the only institutional investor who's in the hole; Aspire Capital Fund threw $2mm down the tubes in August.  I hope this latest flop has the decency to change its name from Ener1 to something more appropriate, like Ener0 or EnerNothing. 

Full disclosure:  No position in HEVV, ever.

Beacon Power (BCON) Bankrupt, More Federal Loan Guarantees Wasted

Uncle Sam needs to get out of the investment management business.  He just can't pick a winner.  Beacon Power Corp. (BCON) filed for bankruptcy today.  A quick look at the company's financial results shows us why this company has never been out of trouble.  SG&A spiraled wildly out of control starting in 2008.  If this was the result of a huge sales effort, nothing came of it as sales never regained the $1mm threshold the company had before SG&A exploded. 

A company that had very little debt up until 2009 was now emboldened to assume $25mm in debt in 2010 thanks to its success in getting DOE on board.  The good news is that BCON did not exercise the full amount of the loan guarantee (actually only about $3.4mm as noted on page 102 of their 2010 annual report), so the total loan loss to the taxpayer is far less than $43mm.  The bad news is that the loan guarantee came after DOE had given the company a Smart Grid Stimulus Grant of $24mm in November 2009.  This grant was supposed to fund a second flywheel energy storage facility with a 20 MW capacity.  That second plant never got past the site selection and environmental impact phase of its development.  Way to go, Beacon. 

Throwing good money after bad money isn't good enough for the federal government.  Beacon never even met the loan guarantee's covenants that were designed to safeguard recovery value for DOE.  For example, on page 22 of its 2010 annual report, Beacon states that it was obligated to "put its technology into escrow" (patents? or hard assets?) so that DOE could assume control of the 20 MW plant if Beacon couldn't make it work.  The plant is nonexistent, so there is no escrowed technology for DOE to recover.  The company contributed $26mm of its own cash and in-kind assets to the flywheel project (page 34 of the 2010 annual report), but there is no indication that those assets were escrowed specifically for DOE.  It seems likely that other general creditors will recover the remaining value of the assets pledged to support a project DOE underwrote with a loan guarantee. 

Way to go, Uncle Sam.  The federal government was so eager to prove that stimulus money was effective in building a green economy that it apparently couldn't even write a loan guarantee that would recover something if it all went kaputsky.  Read Beacon's annual reports before the corporate website disappears.  Somebody please prove me wrong. 

Full disclosure:  No position in BCON, ever. 

College Grads' Earnings Head Down, Illegals Head To College

My headline should have grabbed your attention, especially if you recently went heavily into debt to obtain a bachelor's degree.  The WSJ reports that college grads' inflation-adjusted earnings have declined by about a tenth in a decade.  How does that sheepskin look on the wall now?  Hopefully it's loaded with a bunch of pretty calligraphy that has some aesthetic value, because it's not worth anything else. 

In a related development, state governments are cutting what they spend on K-12 education.  This probably does not result from any realization that a well-rounded formal education now has rapidly eroding earning power and is thus a poor investment.  It has more to do with the bloat that's accumulated in state-run schools for years thanks to unneeded technology toys (iPads for all!), useless administrators (i.e., multicultural curriculum specialists), and overinvestment in suburban schools that will be socioeconomically untenable as the viability of suburbs erodes. 

Whatever austerity measures are unfortunately visited on K-12 education should be more appropriately directed towards state-run collegiate systems.  Malinvestment in higher education shows no sign of slackening despite the disappointing WSJ report on earnings.  California's madness continues with the enactment of the California Dream Act, a law that would provide more financial assistance to the children of foreigners who break the law than to out-of-state U.S. citizens who want to study in the Golden State.  I am disgusted with this development and the blatant pandering to an interest group that it represents. 

Middle class earnings continue to disintegrate for educated professionals.  Legitimate government functions continue to hollow out with cuts to basic education.  California's response is to provide more subsidies for an alien presence within our borders that undermines the rule of law.  We should start asking college-educated U.S. citizens how they feel about subsidizing the educations of people who should not be here. 

Nota bene:  My own bachelor's degree from the University of Notre Dame is completely and utterly worthless. 

IMF Says US Headed For Deficit Trouble

This should elicit groans from credit analysts at the major rating agencies who will now be asked by their supervisors if they've factored enough outliers into their rating models.  The IMF has a new warning out about U.S. budget deficits:

The U.S. shortfall will reach 10.8 percent of gross domestic product this year, ahead of Japan and the U.K., the Washington-based agency said in a report released today. It estimates that President Barack Obama will need to cut the deficit by 5 percentage points of GDP in the next two fiscal years, the largest adjustment in “at least half a century,” to meet his pledge of halving it by the end of his four-year term.

Let's not forget that Congress is the other half of any potential deficit-cutting partnership.  Both sides will be hard-pressed to come up with a more substantial path to balanced budgets given the difficulty they had reaching an agreement last week.  Substantial deficit cuts will of course destroy the phony economic recovery and bring on the second leg of a long-overdue depression. 

Hey America, have you noticed that some banks like JPM are doing exceptionally well while your own disposable incomes have stagnated?  Don't forget that GS is getting another public tongue-lashing from the same class of people who take its campaign contributions in exchange for no real change.  The phony recovery benefited Wall Street and you paid for it with TARP and toothless new regulations.  I just thought you'd like to know. 

Full disclosure:  No position in JPM or GS at this time. 

Housing Market Is Mature

There's more to the double-dip in housing stats than meets the eye:

Existing home sales plunged nearly 10 percent in February to their lowest level in nine years. It was the largest drop since July. Forty percent of those sales were on distressed properties. And new home sales are on track to come in at just 250,000 this year, the fewest since the Kennedy administration, when there were 120 million fewer people in the United States.

Real estate salespeople love to talk about how anytime is a great time to buy. That cannot be true everywhere.  Too many new homes have been built too far from natural communities to be viable.  Lots of ingredients go into a sustainable community.  Rural communities need arable land for farms, ranches, and vineyards.  Urban communities need natural logistics nodes:  harbors, deep riverbeds (at bends and forks), or long-established crossroads for rail and barge traffic.  Anything else is unsuitable for development. 

The long American experiment in unrestrained suburban growth is slowly ending.  Existing home sales will continue to fall until the non-viable communities containing those homes are disbanded.  New home sales will continue to drop to zero.  They will not rise again until they represent a replacement rate for existing housing stock that must be replaced one-for-one in sustainable communities. 

Stay Away From Trendy Graduate Programs In Web 2.0 Stuff

I recently received an email inquiry from a fan of my Yelp review of the University of San Francisco.  My fan wanted my opinion of USF's Master of Science in Web Science program.  I had no idea the school had such a thing and I really doubt that it's necessary for a Web 2.0 career.  I truly believe a stint with a venture-backed Web 2.0 startup will provide a more fruitful education than time spent in a traditional classroom.  My emailed response is below, in italics. 

Thanks for reaching out. I don't know anything about the MSWS program but it sounds like a waste of time and money. Most web developers studied the basics of computer science at some point and then learned about web applications through on-the-job experience.

There are a lot of dumb students at USF. They get jobs because their families are rich. Rich kids won't help you network because they think anyone not rich like them isn't worth helping. They won't go outside their social circle for people like us.

BTW, there are plenty of hot chicks in the SF Bay Area. You don't need to waste two years in school to meet them.

A USF master's degree will only help you if you already work in that career field because experience is far more important than education. USF starts programs like that as a sales tool to draw students who have money but no job prospects. The school just wants your money up front and doesn't care whether what you learn will help you find a job.

A better plan would be to skip the master's and learn to build websites on your own. Learn about things like knowledge management, data mining, business intelligence, and social media for FREE on the Internet. Working at Yahoo or Google for two years will teach you more about web stuff than a master's program, plus you get paid and won't end up in debt.

I hope this helps. Good luck.

Helping Out The Competitiveness Agenda

I'm all in favor of efforts to strengthen America's competitiveness.  Plans are in the works to move the country in the right direction:

Under pressure to energize the economy, President Barack Obama will put job creation and American competitiveness at the center of his State of the Union address, promoting spending on education and research while pledging to trim the nation's soaring debt.

Our leaders have no shortage of advisors.  The risk is that workable plans get lost in a cacophony of conflicting advice.  Spending more on education is wasted if it only encourages college students to take on more debt for degrees they will never use.  A superior solution is to reduce spending on frivolous programs in the humanities and social sciences, leaving money available for the hard sciences.  American competitiveness will be greatly hurt if we can't replace engineers and geologists, but our country will be none the poorer for closing hundreds of collegiate English departments. 

San Francisco Blockbuster Pension Bonus

Leaving pension decisions to voters may not be any wiser than leaving them to fiduciaries.  San Francisco voters agreed in 2008 to tie increased pension contributions from new hires to an increased payout for current retirees, provided the pension fund performed well.  The fund rocketed higher thanks to the bailouts and stimulus spending that have inflated asset values of late.  The new problem is that SF's pension plan is now massively underfunded in regards to future liabilities:

As San Francisco struggles under ballooning pension and health care costs, the city’s retirees will receive unexpected cost-of-living bonuses totaling $170 million. The city’s anticipated budget deficit for the coming year is $360 million.

Current retirees can thank new hires for this one-time intergenerational transfer of wealth.  Think of it as a reverse inheritance not based on familial ties. 

My fellow residents of The City and I will be paying more in sales taxes to receive fewer municipal services thanks to this budget blowout.  This is the kind of dilemma that has set the stage for municipal bankruptcy warnings, and San Francisco is not immune from the same troubles that sent the city of Vallejo into financial trouble.  Persistent deficit spending and unfunded pension liabilities destroy the status of muni bonds as safe havens for wealth preservation. 

The solution to unintended consequences like this is to take pension formulas out of the ballot box and defined benefit structures out of pension plans.  Investment managers may not be able to predict market returns, but they should be able to match liabilities to returns if they are not hamstrung by arbitrary payout requirements.  If their fund performance can't support a given payout level, then the payout will not occur and retirees will have to live with what their accumulated account can support.  That's what private sector 401(k) investors have to do.  Public sector employees should get the same deal. 

Full disclosure:  I do not own San Francisco municipal bonds. 

Most Law Schools Are Worthless

Now it's official.  The vast majority of law degrees are no more valuable in the marketplace than the paper used to print their transcripts.  That puts most law school graduates in the same category as most MBA graduates.  The entire article is a great read.  It details one of the last bubbles left to pop in the Ponzi-laden economy of America. 

The obvious lesson is that most law school aspirants should not change careers.  Federal student loans, in a misguided attempt at promoting meritocracy, have enticed large numbers of people to surrender their prospects for a comfortable middle class existence in exchange for debt peonage.  Come to think of it, perhaps that was the plan all along.  There's only so much room at the top and the ruling class doesn't like being crowded out.

The Million-Dollar Job From The Recovery Act

The boondoggle that is the American Recovery and Reinvestment Act of 2009 continues to amuse the remaining independent thinkers in America, namely yours truly.  I wanted to see for myself how recovery dollars are spent in my neighborhood (hat tip to John Robb at Global Guerrillas for locating this tool).  I typed my home ZIP code - 94132 - into the handy box provided.  The result was a colorful map that looked a little like the SBA HUBZone's GIS tool.  I was mildly amused several years ago to discover that I live in one of San Francisco's HUBZones.  Maybe the same GIS mapping contractor got some extra work thanks to the Recovery.gov site.

Anyway, here's a screen capture of the resulting map.

Those numbers in the black box at the lower left may be difficult to read, so here they are in plain text.  A total of $4,769,713 in stimulus money has created 3.70 jobs in my San Francisco neighborhood.  All of those jobs are amalgamations of contract estimates from San Francisco State University, the recipient of pretty much all of the money.  Clicking on the blue dot at SFSU reveals the details of the contracts and grants, primarily for scientific studies.  What's left unmentioned (until now) is that those studies end when the money runs out.  There will be no permanent job growth from the stimulus in my locale.  Those 3.70 jobs created are the weighted averages of probably several dozen part-time graduate students' credited research hours. 

If my rhetoric leaves you underwhelmed, just do the math.  The stimulus spent $1,289,111 per "job" created.  By contrast, I spend about $150 per year on my website and business cards to maintain my own job as a freelance investment analyst and market commentator.  That makes me about 8500 times more effective as a job creation machine than the federal government.  The flip side is that I could probably create 8500 new jobs with the same amount of money Uncle Sam just spent.  Don't believe me?  Fine, just give me that money and I'll show you how it's done.  :-)

Lee Majors played Col. Steve Austin, the Six-Million Dollar Man, in the heyday of 1970s cheesy television long before "Stone Cold" Steve Austin brought a new kind of cheesiness to mass entertainment.  The fictional Col. Austin was the product of a government program designed to create a human being with enormous potential.  The federal stimulus has attempted something similar but with less spectacular results. 

Nota bene:  SFSU became my landlord several years ago when they bought the apartment complex where I reside.  They're a fine landlord but I don't plan to spend the rest of my life here.  I am neither emploed by nor a student at SFSU.