The Haiku of Finance for 10/31/20

Pandemic relief

Added a massive debt pile

Pay with inflation

The Haiku of Finance for 02/25/15

Global policy
"Thousand needle" stimulus
Everyone pushing

The Haiku of Finance for 12/01/12

Battery research
Funding payoff in key state
Pork for jobs and votes

We've Already Passed The Fiscal Cliff

I am totally sick and tired of hearing about the so-called lack of progress in Washington on avoiding the fiscal cliff.  The activity that media outlets are passing off as initial posturing prior to serious negotiations is probably nothing more than each political party pandering to its base.  Politicians want to go on record with campaign-ready soundbites favoring more unsustainable promises just before they quietly vote to do pretty much nothing.

This past election cycle revealed that neither major party is serious about cutting spending on unfunded middle class entitlements.  The leaders of both parties in Washington have sufficient political skill to engineer a legislative solution to the fiscal cliff that does nothing more than continue the status quo indefinitely.  In practical terms, I would not be surprised to learn that Congress' leaders already have a draft bill ready for voting that does nothing more than raise the debt ceiling and extend any spending sequesters for a few more months.

The euro's weakness enables temporary U.S. dollar strength, which in turn enables the Fed's unlimited U.S. government securities buying in support of unlimited deficit spending.  That's why politicians think they can get away with business as usual.  The end of the euro, whenever that happens, will begin the countdown to the end of the dollar as the world's reserve currency.  Then it will be business as unusual when Washington will have to force financial repression on America's middle class.

The United States government passed its point of no return when its debt/GDP ratio breached 100% in 2011.  We've already passed the fiscal cliff and are now in a Wile E. Coyote midair suspension, willfully unaware of our situation until gravity turns our forward momentum into a downward parabola.

The Haiku of Finance for 03/19/12

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

House GOP Prepares To Cave On Measly Payroll Tax Cut

This just in - fiscal irresponsibility remains alive and well in our nation's capital.  Republicans in the House of Representatives have agreed to extend the payroll tax cut.  We can do some simple math to see just how little this will matter as an aggregate economic stimulus.

If the tax cut is worth $40 per payroll employee, and 160M Americans benefit from its extension, then the whole thing is worth $6.4B in forgone federal revenue.  Americans, being what they are, may buy another $40 worth of pizza and beer for a month.  Poor working stiffs on payroll do have a higher marginal propensity to consume.  They will not put that $40 toward their IRA contribution in 2012.  They will not pool it with their neighbors to start a small business or resilient community.  They will choose the fun today with no regard for the hangover tomorrow.

The tax cut is politically popular and financially suicidal.  The inability of the federal government to come to grips with the mismatch between its revenue and spending cannot be solved with these kinds of cynical games.  Credit rating agencies are once again threatening to downgrade the U.S. government's sovereign debt rating.  Sooner or later, some instance like this tax cut standoff will be the straw that breaks the camel's back.

Our leaders reflect our desires.  They are mirrors of what our public character as Americans has become and that's why we return them to office.  Our elected officials are incapable of making hard choices necessary for austerity because we can be counted on to vocally endorse profligacy.  This is our fault.  The bond market is the only adult in the room.  It will force us to pay the piper.  

The Limerick of Finance for 08/28/11

Central bankers push leaders to spend
Saying stimulus helps economies mend
But with debt up to "here"
Renewed growth's nowhere near
Sovereign defaults just 'round the bend

U.S. Infrastructure Deals In Brazil

America's commercial infrastructure is in a sorry state.  This nation's bridges, railway overpasses, dams, locks, ports, and various other skeletal appendages are in dire need of repair and retrofit.  This is a legitimate place for governments at all levels to spend stimulus money because it supports aggregate use of a public commons that benefits everyone.  Just when we have a great reason to spend money here at home, we find a way to spend it abroad:

U.S. President Barack Obama plans to offer new financing for joint infrastructure projects between U.S. and Brazilian companies when he visits Brazil next month, sources with knowledge of the situation told Reuters.

The Administration has a stated goal of doubling U.S. exports in five years (really closer to four now as this idea was launched last year).  Washington can do the right thing if it follows through on a plan to spend half a trillion dollars on infrastructure here at home.  Promoting trade is ususally worthwhile, but goods will never get from here to there if we spend money on foreign infrastructure before rebuilding our own first.

Newsreel for Monday 12/06/10

Scanning today's headlines brings us gems.

A sluggish housing sector drags down the transportation sector.  You know how economists have been saying that housing recoveries typically lead recoveries from recessions?  Here's what we get when that doesn't happen.  There's no recovery folks!

The Teamsters tried to get two underperforming truckers to merge.  See what happens when unions get too much power?  They try to foist disastrous strategic decisions on their employers.  I have no idea why any executive team would take a Teamster proposal seriously after seeing them try a stunt like this. 

Uncle Sam's DOT is sending big bucks to the states for transportation.  It's too bad that most of it goes to road projects.  Rail and barge traffic is much more economical and energy efficient in moving tons per mile. 

The U.S. and South Korea are almost free trade partners.  There is more to this deal than meets the eye.  America desperately needs to prevent Asian countries from falling into China's orbit as its military supremacy wanes.  Kicking open a free trade door with an Asian tiger is one way to maintain a regional foothold. 

U.S. lawmakers want to continue handouts of all kinds, whether tax cuts or jobless benefits.  Stupidity still grips Capitol Hill.  Our nation's leaders will never wake up to the unsustainability of deficit spending.  Working on Capitol Hill must be like living inside a bubble, where the unpleasant realities of the outside world never intrude. 

Unemployment is finally catching up to college grads.  Now a whole bunch of liberal arts grads can learn their most important lesson in life:  A bachelor's degree in anything except a hard skill is worth nothing.  That degree in women's studies will come in handy when you're panhandling as long as you show some cleavage. 

China raises the reserve requirement for its banks.  This is what we should have done with our own banks!  Once again China shows the world why it is a more responsible custodian of capital.  Let's see if China has the guts to allow some overleveraged banks to implode. 

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. 

Friday's News In Brief

Prepare yourself.  Here it comes. 

Shippers won't be held hostage to trucking costs and are looking for intermodal shortcuts.  This is bad news for truckers who raised rates thinking they had pricing power (yes, YRC Worldwide, I'm thinking of you but you're not alone in that folly).  It's good news for rail and barge carriers.

Speaking of YRCW, it's preparing to triage New Penn if greedy union drivers won't vote for its survival.  I wish I had shorted this stock last year.  Now I just get to watch it spiral down the drain.  I wonder if the asset-backed securitization facility they just renewed will have seniority over other debt holders in the event of liquidation. 

Market observers think trade with the Middle East and Africa will drive Chinese growth.  No argument there, but consider what Chinese strategy demands of this trade.  Their plan is to send value-added finished goods from China to their new resource colonies, primarily in exchange for oil. 

It's a bumper crop for grain exports through the Great Lakes to points across the Atlantic.  Name me some publicly-traded barge operators on the St. Lawrence Seaway so I can have new companies to blog about.

The whopper of the day is the astronomically high expected tab for Phoney and Fraudie - at least $154B.  This presumably excludes the costs of servicing or foreclosing all of these fraudulently securitized mortgages we're just now discovering.  Another TARP is politically impossible, as even folks in Ireland are catching on to bailout scams.  This leads to inevitable big-bank collapses and forced resolutions.  Equity owners and bond investors will eat a big fat mud pie.  Investors who've been sitting this spectacle out - like me - will buy up tracts upon tracts for a song.  Bring it on. 

Remember how the stimulus was supposed to fix America's dilapidated infrastructure?  Surprise!  It never happened and now we have to live with reduced future prosperity thanks to that lack of foresight.  This is the one thing that will cement America's descent into the world's economic basement.  I take issue with the Economist's statement that there is "no urgent need" for high-speed passenger rail.  Excuse me, but Peak Oil will price air travel out of reach of the shrinking middle class.  That's why people will be screaming for an alternative to cars and planes in about a decade.  Nothing could be more urgent, and there is plenty of rail capacity available for both freight and passengers when rail carriers are double-stacking containers. 

I hope you enjoyed reading all of this wonderful news about your immediate future.  Have a great weekend everybody! 

Full disclosure:  No position in YRCW, FNM, or FRE. 

Rant About Urban Infrastructure And Government Pump-Priming

America has arguably the worst-planned and least cost-effective public infrastructure among the developed nations.  You can look for confirmation of this from places like the Congress for the New Urbanism or you can check out some blight in my very own San Francisco Bay Area. 

I frequently take BART from The City all the way out to Dublin in the East Bay.  The Dublin BART station is a big gray bunker sandwiched between the east and west arteries of I-580 with one huge parking lot that's always full, one small parking lot that's always empty, and one parking garage under construction that already looks like a big white elephant.  It is two long blocks from the nearest shopping mall and a mile from the clusters of office parks where its riders work.  Residents, riders, and shoppers are everywhere except where they need to be most - right on top of each other. 

Contrast this with the smart development I've seen first-hand in Germany and Asia.  Those countries cluster vast amounts of economic activity around multimodal mass transit nodes.  South Korea is a terrific example.  Seoul's Express Bus Terminal is many stories of shops and restaurants stacked on top of a giant bus station serving a dozen bus routes.  The same holds true for Seoul's Yongsan Electronics Market. 

America is losing its competitive edge because sclerotic suburban wastelands are isolating residents from each other by atomizing them into separate living and working arrangements.  The federal government could have given us a push in the right direction with stimulus spending focused on mass transit infrastructure.  Instead we get happy media pieces about how stimulus spending extended unemployment benefits. 

People need to live, work, and travel together.  That's how magic happens.  We should be willing to pay for it. 

Poorly Aimed Mini-Stimulus Arrives

Versailles-on-the-Potomac can't disabuse itself of the notion that further Keynesian pushes will accomplish something noteworthy.  It is launching a new research tax credit presumably to win back businesses burned by health-care reform's new tax burden.  It's also trying to goad lenders into writing off 10% of a troubled mortgage. 

I'll say it right now.  Both of these ideas are a waste of time and money.  The R&D thing is a net zero, as it will be paid for by rolling back other corporate tax loopholes.  The mortgage write-off plan is DOA as soon as banks realize that writing off 10% of a loan that's more than 10% underwater will destroy their balance sheets. 

I will give some credit to the proposed $50B infrastructure stimulus provided that it is actually spent on those assets in the public commons that only government can influence:  ports, river locks and gates, railway rights-of-way, and such.  If it's wasted adding sidewalks on roads to vacated suburbs, forget it.  That's where the last stimulus effort mostly went (with a few exceptions like upgrading barge locks on the Mississippi River).

I read about stuff like this because I need amusement.

New Study Provides Theoretical Cover For Further Stimulus

In lieu of an economic downturn that puts unproductive enterprises out of business, America opted to mortgage its future earnings in perpetuity and possibly even its sovereignty.  Two prominent economists have now provided an empirical gloss for the nation's immaturity:

In a new paper, the economists argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.

In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.

Each of those points is contentious.  TARP's impact may have exceeded that of the fiscal stimulus but it will still probably result in a very large loss for the taxpayer.  It's disingenuous to argue that 8.5mm jobs have been saved when many of those jobs are in sectors that have been partially nationalized - automakers and financial services among them. More government control will make those sectors less productive and more corrupt.  The economy is already experiencing some deflation in asset prices that will permanently crimp consumer spending in a reverse of the "wealth effect."  I could go on and on. 

I don't trust this study.  It can be easily used by proponents of a second fiscal stimulus to accelerate the federal government's rush into insolvency.  A Second Great Depression wouldn't be so bad if it would only bankrupt economists who think we need more stimulus.

The Limerick of Finance for 06/27/10

Dangerous deficits lurk
It's our fault, which we cannot shirk
Benefits and job growth
Electorates demand both
World leaders just can't make this work

Keynesianism On Its Deathbed

Future historians will look back on this era as a time when economists discredited themselves by clinging to a theory that's on its last legs.  That theory is Keynesianism.  Simply put, Keynesians believe a sizable enough macroeconomic stimulus can jumpstart a new economic cycle of growth.  People like Robert Reich just can't let go:

American Corporations are sitting on huge piles of cash but they're not investing, and they're creating only a measly number of new jobs. And they won't invest and create jobs until they know there are customers out there to buy what they sell.
(snip)

Keynes prescribed two remedies -- both of which are now necessary: Government spending to "prime the pump" and get businesses to invest and hire once again. And, as Keynes wrote, "measures for the redistribution of incomes in a way likely to raise the propensity to consume." Translated: Instead of big tax cuts for corporations and the rich, tax cuts and income supplements for the middle class.

Reich misdiagnoses aggregate corporate strategy.  Companies aren't sitting on cash because they lack investment opportunities.  They're sitting on it because they don't want to be caught without a recourse to pay their bills if the short-term credit markets (particularly commercial paper) freeze up again in a repeat of 2008's credit crunch.  The danger of a repeat increases with each passing day as the federal government's huge borrowing needs crowd all other debt offerings out of the bond market.

The Keynesian prescription of more debt and more stimulus is distorting the U.S. economy's ability to recover.  Let's put J.M. Keynes back in the ground and let him rest.  It's time to revive a much older and more venerable economic strategy:  austerity.

Europe Peering Over Brink While San Diego Tries To Step Back

The prevailing wisdom holds that Greece's insolvency is mainly a problem for European banks and others holding sovereign debt.  CDS prices on the PIIGS continue to climb:

The cost of insuring against losses on European bank bonds soared to a record, surpassing levels triggered by the collapse of Lehman Brothers Holdings Inc., as the sovereign debt crisis deepened.

This panic among CDS insurers is enough to force up the yields on the sovereign debt of Portugal et al.  Major bondholders like PIMCO booked some terrific gains these past years when governments fell in love with deficit spending.  Their bond portfolios rose when central banks raced to ZIRP.  Now the bill is coming due and bond funds - along with those hedge funds that thought the smart move was to bet on debt-fueled fiscal stimulus - are going to be hurt.  Greeks couldn't care less that their public employees' intransigence on benefits is a proximate cause of this mess. 

Some government entities learn faster than others that fiscal profligacy must end.  San Diego is firing its first salvo in what will prove to be a long battle against public employee unions.  This battle will rage in seats of government all across America as elected officials come to grips with pension plan deficiencies.  If only European capitals could adopt some of San Diego's common sense.  Hey, SDCERA, are you still exposed to credit default swaps through D.E. Shaw? 

Full disclosure:  No position in bond funds at this time.

DOT Spills The Beans On Transportation Stimulus

My faithful readers (yeah, all three of you) know my interest in transportation stocks.  Some modes of transport are more energy efficient than others when measured in fuel expended per ton-mile.  The U.S. Dept. of Transportation weighs in on how it prefers to spend stimulus money:

The Department of Transportation’s second-highest official told senators that DOT’s preference for freight shipping is keep goods on waterways and rail as much as possible, getting them away from trucks except for the final delivery.
(snip)

Committee Chairman Barbara Boxer, D-Calif., asked Porcari whether the concept of DOT’s discretionary “TIGER” grant program could work in the next multi-year surface transportation bill. That $1.5 billion pool of stimulus funds allowed DOT to send grants to multi-modal projects that cross state lines, instead of disbursing money under state-allocation formulas or for specific transport modes.

This preference isn't just a matter of achieving energy security by reducing America's dependence on foreign oil  This has implications for transportation companies as stimulus money spent on infrastructure acts as an indirect subsidy to rail and waterway carriers at the expense of long-haul truckers.

I'm watching these stocks:  Kirby Inland Marine (KEX) and Landstar System (LSTR).  KEX is one of the nation's leading inland barge operators.  LSTR has a huge netork of local intermodal connections that give it more flexibility than a typical trucking firm.  I bolded a line in the excerpt above because intermodal, multi-state operators will benefit mightily from transportation infrastructure spending.  Read my blog in the coming weeks and you'll hear more of what I have to say about these two stocks. 

The Haiku of Finance for 11/06/09

Job losses no joke
"Create or save" didn't work
Misspent stimulus

Job Losses Have NOT Peaked

All of those fake jobs "created or saved" by the stimulus aren't showing up here:

The unemployment rate in the U.S. soared to a 26-year high of 10.2 percent in October and employers cut more jobs than forecast, underscoring why Federal Reserve policy makers say interest rates will remain near zero.

Things aren't getting better here in the U.S. Even Berkshire Hathaway is cutting jobs, probably to raise cash to pay off all of that BNSF debt they'll assume. Monetary stimulus remains in place but the fiscal stimulus will soon wear off. When it does, stocks will probably (hopefully?) start to pull back to a lower level that reflects the true condition of the economy.