Entitlement greed
Lazy losers want payments
They cannot do math
Thursday, January 31, 2013
Wednesday, January 30, 2013
The Haiku of Finance for 01/30/13
Growth stat rolls over
Transport sector shows the way
This is no surprise
Surprise Q4 GDP Drop Doesn't Surprise Transportation Watchers Like Me
The bloom started to come off the overstimulated U.S. economy in Q4. I wasn't surprised because I expected this downturn for months and consider it overdue. The Federal Reserve's quantitative easing can levitate phantom growth for quite some time. People who are surprised have been following slanted mainstream media for too long. They should have been reading my blog instead.
I won't rehash the snarky, negative things I said about the alleged recovery in 2011 and 2012. I watched with dismay the news headlines from the email feeds I get on my favorite sectors, particularly transportation. I first noticed the newbuild orders for supertankers and container ships from carriers that were raising their rates to catch the rebound in the transocean goods trade. I then noticed the headlines screaming about record profits and rising carloads at Class I railroads. Then I started seeing reports of major profit growth at the largest trucking companies. All of this news played out like a pig moving its way through a python for about eighteen months, with nothing coming behind it.
The transportation sector is my bellwether for the larger U.S. economy. This country has run persistently high trade deficits for decades. Imported goods move through the shipping, rail, and truck segments in a predictable order. A bow-wave of expansion and contraction in those segments IMHO presages turning points in the broader economy. We shall see just how descriptive this theory proves to be as the federal spending sequester cuts into durable goods ordered by defense contractors and other large government agencies.
I won't rehash the snarky, negative things I said about the alleged recovery in 2011 and 2012. I watched with dismay the news headlines from the email feeds I get on my favorite sectors, particularly transportation. I first noticed the newbuild orders for supertankers and container ships from carriers that were raising their rates to catch the rebound in the transocean goods trade. I then noticed the headlines screaming about record profits and rising carloads at Class I railroads. Then I started seeing reports of major profit growth at the largest trucking companies. All of this news played out like a pig moving its way through a python for about eighteen months, with nothing coming behind it.
The transportation sector is my bellwether for the larger U.S. economy. This country has run persistently high trade deficits for decades. Imported goods move through the shipping, rail, and truck segments in a predictable order. A bow-wave of expansion and contraction in those segments IMHO presages turning points in the broader economy. We shall see just how descriptive this theory proves to be as the federal spending sequester cuts into durable goods ordered by defense contractors and other large government agencies.
Tuesday, January 29, 2013
The Haiku of Finance for 01/29/13
STEM workforce pressure
Guest worker wage arbitrage
Driving down income
Guest worker wage arbitrage
Driving down income
Immigration Reform and Wage Arbitrage
Immigration reform is coming in the U.S. The Administration believes it has a mandate to loosen immigration controls for visiting workers and corporate America is fully on board. The hints floated so far offer glimpses into the future of the American middle class.
The tech sector claims it needs more than the current 65,000 H-1B visas to attract STEM professionals. It's worth noting that a Congressional Research Service report from 2008 found that U.S. universities award just under 400,000 STEM degrees annually. If this domestic pipeline isn't enough to satisfy the tech sector's demand for skilled professionals, then presumably all of those American-produced graduates are gainfully employed in STEM work.
It's unfortunate that the picture for American STEM graduates isn't so rosy. Parsing a recent Microsoft report shows that many computer science jobs are held by people who never studied that subject. A broader look at STEM career trends shows that foreign-born STEM graduates can stay in the U.S. for quite some time to seek work, while many companies continue to lay off tech workers.
One very telling statistic from a National Science Foundation study of the STEM workforce reveals that the involuntarily out of field (IOF) rate for recent graduates is 11.0%. Think about it. If 44,000 of those annual 400,000 STEM graduates can't find work in their field, why is industry pushing for even more than the 65,000 green cards for foreign-born workers? The obvious answer is that the tech sector is not at all concerned about finding employment for those 44,000 lost workers. It would rather use an influx of more than 65,000 foreigners to drive down wages for remaining STEM employees.
The push for more green card STEM workers has little to do with satisfying an unmet demand for skilled labor. Tech employers can use an imported glut of qualified workers to press existing employees for wage concessions. Wage "arbitrage" is sometimes a polite way of saying wage suppression, because that's an easy way for employers to control costs. Compared to investing in automation or redesigned work flows, lobbying for lower wages via immigration reform has a big payoff.
The tech sector claims it needs more than the current 65,000 H-1B visas to attract STEM professionals. It's worth noting that a Congressional Research Service report from 2008 found that U.S. universities award just under 400,000 STEM degrees annually. If this domestic pipeline isn't enough to satisfy the tech sector's demand for skilled professionals, then presumably all of those American-produced graduates are gainfully employed in STEM work.
It's unfortunate that the picture for American STEM graduates isn't so rosy. Parsing a recent Microsoft report shows that many computer science jobs are held by people who never studied that subject. A broader look at STEM career trends shows that foreign-born STEM graduates can stay in the U.S. for quite some time to seek work, while many companies continue to lay off tech workers.
One very telling statistic from a National Science Foundation study of the STEM workforce reveals that the involuntarily out of field (IOF) rate for recent graduates is 11.0%. Think about it. If 44,000 of those annual 400,000 STEM graduates can't find work in their field, why is industry pushing for even more than the 65,000 green cards for foreign-born workers? The obvious answer is that the tech sector is not at all concerned about finding employment for those 44,000 lost workers. It would rather use an influx of more than 65,000 foreigners to drive down wages for remaining STEM employees.
The push for more green card STEM workers has little to do with satisfying an unmet demand for skilled labor. Tech employers can use an imported glut of qualified workers to press existing employees for wage concessions. Wage "arbitrage" is sometimes a polite way of saying wage suppression, because that's an easy way for employers to control costs. Compared to investing in automation or redesigned work flows, lobbying for lower wages via immigration reform has a big payoff.
Monday, January 28, 2013
Financial Sarcasm Roundup for 01/28/13
It's time for another roundup of typically human tricks in finance. BTW, if you're expecting a diatribe on Stolen Valor veterans, that's for another time and place. Fighting fraud in the veterans' community isn't my only priority. There's also plenty of fraud and stupidity in the finance community to keep me entertained.
The U.S. is angling for a big trade deal with the E.U. Could this be the "grand bargain" we all heard so much about during tense moments in Washington? Nah, this one's even grander. It pits Europe's (read Germany's) desperation for revived exports against American farmers' hunger (pun intended) for continued protection. I'd be very surprised to see a deal get done at Davos because most big shots are there to party, but if this is the U.S. negotiators' idea of a main effort then they probably aren't taking it seriously. The farm lobby is more important to much of Washington than Europe's trade problems.
If Europe can't get a trade deal with the U.S., then by golly they can try for Latin America. Chile is playing host to hopeful Euro-dealmakers and keeping its underclass out of sight. The socioeconomic inequality might actually be a good thing for European leaders to see. They'll be seeing more of it on their side of the Atlantic as their welfare state crumbles so it would be instructive to see what it takes to maintain stability in a plutocracy.
I'm disappointed that there may not be a U.S. government shutdown in March after all. I was kind of hoping that the shock therapy of big spending cuts and worker furloughs would send the stock market tumbling, thus allowing me to buy in. *Sigh.* A sequester without a shutdown won't mean much because Congress will just postpone it again in another cosmetic deal. Shutting things down for a couple of days would send a more serious message to the markets.
Investors who are drunk on the supposed housing recovery need to snap out of their daydreams. New home sales are down sharply, and the only people surprised were those who don't pay attention. They'll keep dropping as long as banks are unwinding the foreclosure inventories they keep under wraps, lest regulators figure out they're insolvent. These games of fake economic recoveries and phony sector growth get boring sometimes, so I'm glad I'm not playing.
I'll close today's sarcasm blast by welcoming the new readers I'll get who follow a certain Stolen Valor case. Hi folks!
The U.S. is angling for a big trade deal with the E.U. Could this be the "grand bargain" we all heard so much about during tense moments in Washington? Nah, this one's even grander. It pits Europe's (read Germany's) desperation for revived exports against American farmers' hunger (pun intended) for continued protection. I'd be very surprised to see a deal get done at Davos because most big shots are there to party, but if this is the U.S. negotiators' idea of a main effort then they probably aren't taking it seriously. The farm lobby is more important to much of Washington than Europe's trade problems.
If Europe can't get a trade deal with the U.S., then by golly they can try for Latin America. Chile is playing host to hopeful Euro-dealmakers and keeping its underclass out of sight. The socioeconomic inequality might actually be a good thing for European leaders to see. They'll be seeing more of it on their side of the Atlantic as their welfare state crumbles so it would be instructive to see what it takes to maintain stability in a plutocracy.
I'm disappointed that there may not be a U.S. government shutdown in March after all. I was kind of hoping that the shock therapy of big spending cuts and worker furloughs would send the stock market tumbling, thus allowing me to buy in. *Sigh.* A sequester without a shutdown won't mean much because Congress will just postpone it again in another cosmetic deal. Shutting things down for a couple of days would send a more serious message to the markets.
Investors who are drunk on the supposed housing recovery need to snap out of their daydreams. New home sales are down sharply, and the only people surprised were those who don't pay attention. They'll keep dropping as long as banks are unwinding the foreclosure inventories they keep under wraps, lest regulators figure out they're insolvent. These games of fake economic recoveries and phony sector growth get boring sometimes, so I'm glad I'm not playing.
I'll close today's sarcasm blast by welcoming the new readers I'll get who follow a certain Stolen Valor case. Hi folks!
Sunday, January 27, 2013
The Limerick of Finance for 01/27/13
Fed balance sheet grows to huge size
This expansion's extremely unwise
When banks run away
The consumer will pay
Inflation will come by surprise
This expansion's extremely unwise
When banks run away
The consumer will pay
Inflation will come by surprise
Saturday, January 26, 2013
The Haiku of Finance for 01/26/13
Make a cheap smartphone
World will beat path to your door
Drive down mobile cost
World will beat path to your door
Drive down mobile cost
Alfidi Capital Theory on Apple's Fall
My theory on a falling apple has little to do with Sir Isaac Newton's musings on gravity. In case you haven't heard, Apple is no longer the world's most valuable public company as of this week. Plenty of hedge funds sold off their AAPL shares on the disappointing earnings news. The Wall Street rah-rah bullish cheerleader chorus is still fond of this darling stock. They want sucker retail investors to buy in to AAPL and save the bacon of their hedge fund manager friends. I have no intention of playing the role of greater fool.
Apple is IMHO likely to lose its preeminent market position in mobile devices simply because it has always been a premium product maker for early adopters. It has never been able to translate the enthusiasm of its boutique products' first buyers into staying power for cheaper products. Apple has never been able to lower the price points of its products to compete with later arrivals. Samsung's Droid phones will gain traction as their price points come down.
The future market for mobile devices will belong to the low-cost products competing in emerging markets that have either not reached their saturation point (North America and Western Europe are saturated) or are served with poor telecommunications infrastructure. Your average African tribal shaman doesn't have the local equivalent of US$700 to drop on an iPhone and Apple isn't going to lower its prices. Some other competitor - probably Samsung - will take that market with a cheap device that accommodates low bandwidth and intermittent service.
Something also needs to be said about walled gardens. Apple's music store is nice but Google will probably win the app war. Google has more back-end services that make apps useful, specifically Google Earth. I'd like to see a head-to-head comparison of apps that manipulate embedded imagery or geographic data to prove my point, but I suspect Google would be the winner.
Full disclosure: No position in AAPL or other companies mentioned at this time.
Apple is IMHO likely to lose its preeminent market position in mobile devices simply because it has always been a premium product maker for early adopters. It has never been able to translate the enthusiasm of its boutique products' first buyers into staying power for cheaper products. Apple has never been able to lower the price points of its products to compete with later arrivals. Samsung's Droid phones will gain traction as their price points come down.
The future market for mobile devices will belong to the low-cost products competing in emerging markets that have either not reached their saturation point (North America and Western Europe are saturated) or are served with poor telecommunications infrastructure. Your average African tribal shaman doesn't have the local equivalent of US$700 to drop on an iPhone and Apple isn't going to lower its prices. Some other competitor - probably Samsung - will take that market with a cheap device that accommodates low bandwidth and intermittent service.
Something also needs to be said about walled gardens. Apple's music store is nice but Google will probably win the app war. Google has more back-end services that make apps useful, specifically Google Earth. I'd like to see a head-to-head comparison of apps that manipulate embedded imagery or geographic data to prove my point, but I suspect Google would be the winner.
Full disclosure: No position in AAPL or other companies mentioned at this time.
Friday, January 25, 2013
The Haiku of Finance for 01/25/13
Maintain free cash flow
Keep capex under control
Future funding source
Keep capex under control
Future funding source
Thursday, January 24, 2013
JPMorgan Chief Whines About Banking Regulation
JPMorgan CEO Jamie Dimon doesn't like the rules his bank has to follow. That's too darn bad.
His straw man analogy about not knowing how aircraft engines work is hilarious. Any aviation mechanic with a high school diploma can explain how an aircraft engine functions. Mr. Dimon's audience at Davos may readily accept such an argument; they're the type of crowd that tends not to get their hands dirty fixing things.
Let's brighten Mr. Dimon's day by reminding him just how much worse things could be for U.S. banks. Tax code changes could require tax payments for unrealized gains on derivatives if they are marked to market. This would probably destroy much of JPM's business model. I don't expect such a tax treatment to be enacted in the final version of a reform bill because the finance sector would successfully lobby against it, but as a legislative tactic it scores points for making corrupt bankers squirm.
If bank CEOs don't like being taxed on their derivatives book, maybe they'll like Europe's financial transaction tax. Big banks like JPM can get around it by trading in London while smaller, single-country banks will be forced to pay that tax. JPM should count the blessings its size confers rather than complain.
Mr. Dimon should be especially pleased that regulators have been super-slow to coordinate regulatory reforms required under Dodd-Frank. Bureaucratic lethargy is a gift to bankers who continue to trade for their proprietary books in the absence of the Volcker rule. JPM's own London whale knew that quite well.
I have no sympathy for bank CEOs whose lax approach to risk engendered fraud. They deserve a much tougher approach to regulation than what Dodd-Frank delivers. Complaining about regulatory reform at a high-minded event is meaningless when said reform is delayed, fragmented, and watered down.
Full disclosure: No position in JPM at this time.
His straw man analogy about not knowing how aircraft engines work is hilarious. Any aviation mechanic with a high school diploma can explain how an aircraft engine functions. Mr. Dimon's audience at Davos may readily accept such an argument; they're the type of crowd that tends not to get their hands dirty fixing things.
Let's brighten Mr. Dimon's day by reminding him just how much worse things could be for U.S. banks. Tax code changes could require tax payments for unrealized gains on derivatives if they are marked to market. This would probably destroy much of JPM's business model. I don't expect such a tax treatment to be enacted in the final version of a reform bill because the finance sector would successfully lobby against it, but as a legislative tactic it scores points for making corrupt bankers squirm.
If bank CEOs don't like being taxed on their derivatives book, maybe they'll like Europe's financial transaction tax. Big banks like JPM can get around it by trading in London while smaller, single-country banks will be forced to pay that tax. JPM should count the blessings its size confers rather than complain.
Mr. Dimon should be especially pleased that regulators have been super-slow to coordinate regulatory reforms required under Dodd-Frank. Bureaucratic lethargy is a gift to bankers who continue to trade for their proprietary books in the absence of the Volcker rule. JPM's own London whale knew that quite well.
I have no sympathy for bank CEOs whose lax approach to risk engendered fraud. They deserve a much tougher approach to regulation than what Dodd-Frank delivers. Complaining about regulatory reform at a high-minded event is meaningless when said reform is delayed, fragmented, and watered down.
Full disclosure: No position in JPM at this time.
Wednesday, January 23, 2013
The Haiku of Finance for 01/23/13
Miner low on ore
Good luck with going concern
Go out and raise cash
Good luck with going concern
Go out and raise cash
Orex Minerals (ORXIF) Has a Two-Country Strategy
Orex Minerals (ORXIF / REX.V) is exploring for precious metals in Sweden and Mexico. The CEO has a background in financing and selling mining properties, but his current bio doesn't provide details on whether he's actually been a geologist who has successfully explored a project for ore. I really like junior explorers when they have an experienced geologist in charge.
Their Barsele project in Sweden has a 43-101 report with indicated and inferred Au grades that are far below the 2.0 g/t I prefer to see in a viable project. I know how difficult it can be to find grades like that today but someone has to try. Their Coneto project in Mexico has no 43-101 reports and their preliminary technical reports were published in 2010. My loyal readers know by now that I take final reports of 2P reserves more seriously than earlier reports of technical information.
Orex has several years' worth of financial reports available. The latest quarterly report from October 31, 2012 showed C$1.5M in cash on hand and an annual burn rate somewhere north of C$2.5M. It's hard to pin that rate down precisely because their cash burn has slowed dramatically in recent months. They will need to raise more cash no later than the end of April 2013 if they want to survive at even that decelerated rate.
This company isn't right for my portfolio because their projects aren't mature. I believe they need to show significant progress toward discovering high-grade ores at either of their current projects.
Full disclosure: No position in Orex Minerals at this time.
Their Barsele project in Sweden has a 43-101 report with indicated and inferred Au grades that are far below the 2.0 g/t I prefer to see in a viable project. I know how difficult it can be to find grades like that today but someone has to try. Their Coneto project in Mexico has no 43-101 reports and their preliminary technical reports were published in 2010. My loyal readers know by now that I take final reports of 2P reserves more seriously than earlier reports of technical information.
Orex has several years' worth of financial reports available. The latest quarterly report from October 31, 2012 showed C$1.5M in cash on hand and an annual burn rate somewhere north of C$2.5M. It's hard to pin that rate down precisely because their cash burn has slowed dramatically in recent months. They will need to raise more cash no later than the end of April 2013 if they want to survive at even that decelerated rate.
This company isn't right for my portfolio because their projects aren't mature. I believe they need to show significant progress toward discovering high-grade ores at either of their current projects.
Full disclosure: No position in Orex Minerals at this time.
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