Horizon Off The Exchange

Horizon (HRZ) has gone . . over the horizon.  The NYSE is forcing it to delist because its market cap is too tiny.  I warned my readers about this stock a long time ago.  Check my older blog postings and my Seeking Alpha Instablog postings on Horizon's problems with debt and the options it could have chosen.  Go ahead, I dare you. 

If you don't dare, that's fine.  I'm still right anyway.  HRZ is now just another penny stock.  You can call it the YRCW of the seas, with the same poor prospects and insoluble problems. 

Full disclosure;  No positions in HRZ or YRCW at this time. 

Reshoring Jobs Can Be Fun And Funny

BCG has turned bullish on America.  Their study of manufacturing costs in China drives them to conclude that 3mm jobs can be "reshored" to the U.S.  There are some problems with that conclusion.  The manufacturing infrastructure that used to enable those jobs was also shipped overseas, and it won't come back without major investment.  U.S. workers also lack the skills to do many of the hi-tech they could do before offshoring.  Plenty of other emerging economies have lower production costs than China, so global wage arbitrage can still keep manufacturing jobs from coming back here. 

If jobs are to return to the U.S., they will have to fit the changed skill sets and personal characteristics of most Americans.  Let's get creative, America!  Lots of grown adults in this country like to play video games, so perhaps they could get jobs as "gold farmers" who earn online credits for game-playing masters.  Asians have a lock on that job sector for now, so we'll have to give them a run for their money. 

Americans can also get jobs clearing out the vacated branch offices of banks that are bound to collapse all over again.  Fitch has put a bunch of U.S. banks on negative credit watch, so waiting for them to fail can become a fun game.  Fired bankers will only have a few minutes to clear out personal belongings from their cubicles, so plenty of temp jobs will be available for Americans who can spend a few weeks moving very attractive furniture to auction houses. 

Another great source of future employment will be the cleanup effort needed in the aftermath of the Occupy Wall Street movement.  New York City will soon require the Occupiers to leave Zuccotti Park so city streets can be restored to a semblance of civilization.  This is a full employment program for janitors and garbage truck drivers all around the nation.  Will the otherwise unemployed Occupiers want to take jobs cleaning up the messes they made?  I doubt it.  Today I walked past the OccupySF gathering in front of the Federal Reserve Bank of San Francisco on Market Street.  The sad losers squatting there wouldn't recognize productive work if it hit them on the head.  It's only a matter of time before they get hit on the head anyway. 

In case you haven't figured it out by now, I'm being really facetious with these suggestions.  Avoiding the poor career choices I've mentioned here will require the kind of hard work to which many Americans have grown unaccustomed.  Roll up your sleeves, people.  It gets worse before it gets better. 

Low Spot Rates Portend Tougher Times for Shippers

Shipping stock aficionados need to take note that Trans-Pacific spot rates are hitting lows.  Expect to see the effects on shippers' earnings in Q4.  The carriers that come out healthy will be those that avoided rushing into newbuild orders in late 2010.  Check the 2010 and 2011 10-Ks' MD&As for mentions of capex committed to new hulls. 
Oh, BTW, the pending federal legislation to slap sanctions on China for keeping its currency strong will probably launch a trade war that hurts the rest of those shippers that stayed healthy.  We won't see much more of the modest August rise in container traffic; that was driven by macroeconomic demand in Asia for commodities and beggar-thy-neighbor pricing differences with bulk shippers.  Choppy waters lie ahead for ocean cargo carriers. 

Nota bene:  No positions in shipping stocks at this time. 

The Haiku of Finance for 10/11/11

Greek debt hard default
Hurts Europe and Germany
Maybe for the best

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. 

The Limerick of Finance for 10/09/11

Investing?  How bad can it get?
It's not safe to take a long bet
Europe's bank plan is weak
Credit prices will freak
This market has not bottomed yet

Sinopec Buys Daylight Energy In Chinese Bid For Dominance

China's five-year plan must be a fun read.  It's worth wondering whether the chapter on resource acquisition specifies penetration of North America.  Sinopec is buying Daylight Energy for C$2.2B.  The real news is how Sinopec will control its North American assets .

Daylight's properties hold 174mm boe in proven and probable reserves, according the company's 2010 annual report.  These assets are primarily in mature fields in Western Canada and require techniques like fracking to force oil into production.  Dividing those reserves into the acquisition price means Sinopec is paying about C$12.64/boe, an incredible bargain to the 2010 average oil price of C$74.62/bbl.  Granted, only 21% of those 2P reserves are crude oil and the rest is natural gas.  Still, Daylight was able to realize prices in 2010 for its NGL and natural gas that were consistently higher than average market prices.  This indicates it is a well-run company.

Sinopec (SNP) is majority-owned by the People's Republic of China.  Its senior officers are Communist Party officials who provide input on energy matters to China's senior political leadership.  This buyout is a strategic action by the Chinese government.  Daylight's 2P reserves are a drop in Sinopec's bucket (BTW, the Chinese convention of measuring reserves in tons and not boe is irritating).  The real agenda behind this acquisition is to establish further precedent under Canadian law and WTO rules for Chinese acquisition of North American natural resources.

It is relevant to consider how this acquisition factors into Chinese national strategy.  Acquisitions outside China allow the curtailment of production within China to husband resources for future use, i.e., in wartime, when foreign supplies might be unreliable.  Non-Chinese resources can also be denied to China's competitors in the event China needs to exercise influence.  It would behoove the Canadian government to review Sinopec's proposed acquisition of Daylight Energy under the Investment Canada Act in light of these security concerns. 

Full disclosure:  No positions in SNP or Daylight Energy at this time. 

The Haiku of Finance for 10/08/11

Merkel says to banks
"Raise private capital first"
Too bad there's none there

The Dexia Domino Falls

Dexia?  What's that, some compact European car?  Oh, it's a European bank that's insolvent even though plenty of stress tests said it would be just fine.  Funny, I've never heard of it.  Not many people in the U.S. had heard of Creditanstalt in the 1930s, but that was the European bank that kicked off a lot of other insolvent dominoes when it went bust early in Great Depression 1.0.  Everything old is new again. 

We're going to hear more about desperate European moves to float credit to underwater banks.  They'll buy time but they won't matter.  Germany prepares its own Plan B to ringfence banks' equity support within national borders, almost as if it expects the IMF to exhaust itself with QE aimed at sovereign debt.  Germany seems to be hedging its bets in case the grand experiment in Continental unity proves too good to be true.  Better to leave equity backstops in national hands if some nations are forced to quit the euro. 

We should all hedge our bets.  Stockpiling several months' worth of preserved food and household consumables is a good Plan B in case a credit freeze makes transcontinental logistics temporarily untenable.  Wearing old clothing as long as possible is also a good plan in case rioting mobs start fighting over the last pair of jeans in the storefront window before they firebomb the whole mini-mall in frustration.  There are plenty of good Plan Bs left over from the 1930s if we start doing our homework.  Everything old is new again.  

Full disclosure:  No positions in any European banks at this time. 

Bank Of England Throws UK Savers Under The Bus

Take note of today's comments from the Governor of the Bank of England.  He does not disguise the fact that quantitative easing - using artificially created money as credit to purchase sovereign debt - is inflationary.  He openly admits that this pro-inflationary policy will hurt savers on fixed incomes and that hurting them is necessary to avoid a new recession. 

The Bank of England has declared war on the most vulnerable people in British society to delay the inevitable destruction of financial asset valuations.  The best we can say is that the BOE is more forthright than the Fed about its true intentions.  The U.S. dollar and pound sterling will soon be in a race to the bottom, right after the euro implodes of course.  If the BOE has to throw savers under the bus, it should at least be a London double-decker bus.  God save the Queen. 

Full disclosure:  No position in the U.K. pound or any derivative thereof at this time. 

RIP Steve Jobs, 1955-2011

Steve Jobs passed away today after a very long illness.  I never met Mr. Jobs but the products he inspired at Apple introduced me to computing technology.  I first touched a Macintosh in elementary school, where the machine was worshipped as some kind of exotic totem.  I thought it had untapped potential because our class never used it to learn anything; instead its games were considered a reward for students who behaved themselves.  There had to be more to computers than just that. 

I later discovered just how much more there was.  In college I typed almost all of my papers on Macintosh computers.  The first computer I ever bought myself was a Macintosh.  It was difficult for me to eventually switch to a "Wintel" platform with my first laptop because the Mac was so easy to use, but the limited amount of software available for Macs left me no choice. 

Mr. Jobs did things his way, all the way.  He never compromised on quality in designing something original.  Even Bill Gates, a lifelong competitor, thanked Steve Jobs for being an insanely great human being.  Steve Jobs' life holds tremendous lessons for entrepreneurs.  Thank you, Mr. Jobs, for all that you are. 

Rare Earth Alternatives Get DOE Tech Funding

America's dependence on Chinese rare earth production is the Achilles heel of its technology base, not to mention its defense establishment.  The U.S. government's studies of the situation have produced little popular alarm as America has yet to face a rare earth element "Sputnik moment" to capture its imagination.  The scientific community is moving ahead anyway with steps to ensure this country has some kind of technologically-enabled future in the event of a Chinese rare earth embargo. 

ARPA-E has selected a plethora of research projects for funding, including proposed alternatives to existing paradigms in energy and materials.  The $31.6mm for Rare Earth Alternatives in Critical Technologies (REACT) has quite a few irons in the fire.  The projects that look for crystal and nitrite alloys could potentially obviate the need for neodymium-based magnets in motors.  The price for neodymium, for example, has gone stratospheric because demand for 4G phones and other gadgets has proven to be price inelastic.  As an aside, Amazon's (AMZN) introduction of cheap Kindle Fire tablet computers will destroy Apple's (AAPL) pricing power and render that price inelasticity moot, which means alternatives to neodymium and tantalum are an imperative if consumer electronics makers expect to meet their sales targets over the long term. 

ARPA-E's other programs look as intriguing as REACT.  The Plants Engineered To Replace Oil (PETRO) umbrella would be a windfall for owners of unbuildable urban land if they could grow camelina as a cash crop for biofuel.  That unused lot or unpaved right-of-way on a piece of commercial property can be a source of cash with some camelina for an on-site bioreactor. 

The projects under the other three energy-related umbrellas would be a boon for solar thermal producers.  Covering the Great Southwest with concentrated solar towers and mirror arrays could exploit that technology's full potential with improved transmission links to national grids and better storage methods.  Molten salt, anyone?  Not if molten glass, phase change materials, and nanostructures work a whole lot better. 

Alternative technologies (if proven viable) are good news for high-value manufacturers who won't have to relocate large plants to China.  It should go without saying that REE alternatives would be the death knell for China's long-term strategy of attracting manufacturers to its rare earth monopoly.  DOE is firing a return volley in the ongoing U.S.-China contest for world technological supremacy.  The Anglo-West's elites may have finally awoken. 

Full disclosure:  No positions in AMZN or AAPL at this time.

Final Verge Of Last Ditch

We've been hearing about doom for months and the financial cliff we were all supposed to have trundled off by now has turned into a long, gentle slope down.  Greece is making its latest last ditch attempt of several to make the cuts it has always promised but never fulfilled.  Even the normally supine analyst community has had enough of this endless parade of tomfoolery and is predicting a global CDS blowout.  That's really nice.  Maybe they read my blog, or maybe their prop funds have gone short to clean up the clients abandoned by other hedge funds that aren't cutting the mustard.  Maybe they've just run out of lies to tell and have defaulted to telling the truths that a toddler could see in the markets. 

Maybe I should have sold more of my FXI holdings if China's bonds are suspect too.  Alternatively, maybe hanging on to some FXI will prove prescient if a forced yuan appreciation makes Chinese corporate earnings look more attractive.  At least I don't have to close up shop due to massive losses, redemptions, and liquidity crises like a bunch of stupid hedge funds.  Just get this whole market crash over with already so I can buy some bargain stocks. 

The Limerick of Finance for 10/02/11

The Duke-Progress merger must prove
Competition that won't be removed
This fulfills anti-trust
Public interest's a must
For the FERC to say "okay, approve"

The Haiku of Finance for 10/01/11

China slows down now
Grow that domestic demand
Exports won't save growth