Wednesday, May 17, 2017

Internet Tax and the New Black Tuesday

"Hurry! Hurry! Close-out specials! It all must go. First come, first serve. Items reduced 90%!"

No, this isn't an info-commercial. You are not dozing off while watching late night television. This is the future and it is coming to your mall. Another quarterly earnings report and another disappointing bottom line for retail. Wall St. picks up on these things faster than the public and they are dumping or shorting the category. The consumer however, will pick the bones. They will realize and see the signs(closing stores) of a shopping center that is under duress. They will hold off on purchases(disinflation)waiting like vultures for the kill. They will be able to pick up fabulous deals on Black Tuesday, but when Christmas comes, you will realize the real price of that once in a lifetime bargain. There might not be any place to shop where you can touch and compare what you can see. Don't bother to blame Amazon or other online services. You could blame the politicians due to their lack of foresight in allowing the internet to go tax free, but that won't last. Internet taxes are coming and although they may start small, just like the income tax, it will expand. How could we lose so many shopping centers? How could our government leaders not see the consequence of this loophole? It started with the new bankruptcy law in 2005 and the recession of 2008 hit it like a hurricane.
Landlords
realized that their tenants were in trouble with the recession of 2008. They attempted to get ahead of the problem. So, as lease terms were ending, they offered concessions to keep their malls and shopping centers fully occupied. The problem for both the stores and landlords was the consumer realized that they could buy the same items online and tax free. In addition, online dealers could offer low prices due to the aspect that they had lower overhead costs that brick and mortar could not get around. Then, some older locations needed a makeover. In seeking money that banks were not providing, equity firms saw potential back in 2009. With the stimulus, retailers would get a boost due to the economy picking up. These firms answered the retailers call. Retailers took deals that they used to get consumers like interest free loans and creative financing which added balloon notes. No one saw that consumers seeking to escape inflation and getting more comfortable with free online shipping, might not return.
Money Due!
The lawyers will get rich as the equity loans are coming due and if the terms get extended, the interest free part won't be granted. As it stands now, retailers cannot meet their expenses, let alone a new additional cost of interest, so decisions must be made. The lawyer is on the phone and he wants his money for his client. The bankruptcy law of 2005 changed the time allowed to declare a store closing from 18 months to 210 days. This is why 19 national chain stores are announcing store closings and why they will happen this year and even more next year. Firms like Payless, the Limited, and Wet Seal are examples of equity loan financing. It was revealed in many court files that half of all retail bankruptcies had high leverage loans.
Long Shadow...
will be cast over the future outlook for malls and shopping centers. When you max out your credit options, the piper begins its song. The retailers attempted a debt strategy and it looks like it is going to fail. It is the same one that central banks use by debasing our currency and stealing our money with inflation. Anyway, many malls and shopping centers are facing a slow death as each nail, banging into a board across a door, announces another closing. Who wants to shop in a location where store after store is closed and the expression, "mall rat" takes on a whole new meaning.

Wednesday, May 10, 2017

Cycles and other Tidbits

- The historical cycle is a permanent feature of all historical thought."

- R. G. Collingwood

I believe in the many true aspects that cycles play in our lifetime and throughout history. Harry Dent is onto a great finding in his demographic findings. Strauss and Howe have a great concept in their generation approach to who we are and where we are going. There are many others who have contributed theories like the great Russian economist, Kondratieff. Another of those theories is the Presidential Cycle. It says that a new president in his first term will face an economic slowdown beginning at the end of May. In baseball, there is a saying that records are made to be broken. Will we have a slowdown beginning in a few weeks or will that theory on the presidential cycle be broken this time? The stock market says, "don't worry," as it hits new highs. In fact, here is a strange tidbit on the market that backs up the bulls. On Thursday of last week, there were no puts on the VIX, which is the fear index. Last time that happened was in early 2008 and we all know what happened later that year. Dear reader, there are other signs of what I believe will be a bubble bursting. On that same day, the new trading in the Bit Coin hit a new high of $1500 per coin. To me, this is garbage and no different than fiat currency, but get this. While the Bit Coin was rising, gold was barely able to hold $1200. I know the market can be irrational, but this is insane. In disclosure, being a poor man, my treasure is silver. On that same day, I saw silver continue its decline everyday from the 17th of April. And Platinum? It is barely above $900 and this important commodity is very difficult to extract from the ground.
What the Cycles Say
By the way, the leaders in cycle study divide life into the same relationship as our four seasons. They feel that we are entering WINTER. This is not good because during many winter cycles, war emerges like WWII. However, I hope and pray that not all aspects of cycles are correct, but I do see a bursting bubble in the stock market when phony coins are worth $1500 a piece and real money like gold is worth less. When reality returns to the stock market, people the world over will realize that fiat money is just as phony as the bit coin. Then, they will turn to gold which will bounce high like a Spaulding pink ball that I used as a kid playing stickball.

Wednesday, May 3, 2017

Bad Moon Rising...for Equities

- I see a bad moon a-rising.
  I see trouble on the way.
  I see earthquakes and lightnin'.
  I see bad times today.

  Don't go 'round tonight
  It's bound to take your life.
  There's a bad moon on the rise.
- John Fogerty and CCR.
(amend the thought as I see the danger in stocks.)

The US stock market is at highs with new records on NASDAQ and global indexes are following the uptrend. However, one weak link could send them all tumbling down. After you read this piece, I hope you can understand my concern. Before I offer you the recent highs in the IBVC, let me give you some background on the nation where it is listed.
Once Upon A Time...
A new president took office in 2013. He was the choice for succession by the former president who died from ailments. Just two months into his term the new leader devalued the nation's currency because basic necessities were in short supply. This is classic third world thinking. This action led the country into a recession. He told his people not to worry because they have the largest oil reserves of any nation. The calm did not settle into the nation's environment as the price of oil declined. Since oil accounted for 95% of the nation's foreign currency earnings and revenue, things got tight. President Maduro declared a state emergency in 2016 due to triple digit inflation, high unemployment, the continuous shortage of basic necessities, medicine and high crime. This action caused a response by the Venezuelan people who developed a huge black market for goods which of course, are tax free.
Meanwhile, oversea vendors have not been paid and the country faces many international lawsuits for non-payment and the nationalization of private enterprises.
A little humor...
In an ironic twist, Maduro ordered a new higher denominated bills for the currency and to fight counterfeiters. He had a special order for paper from an oversea printer. However, the printer refused the Venezuelan currency for payment due to its sinking value and Maduro does not, at the moment, have the money to buy an acceptable currency to print his new money.
This is not a pretty economic picture. To compound the pain the people have been protesting the violence on those who speak out against the government. Those dead souls only said he truth: Venezuela has triple digit inflation, high crime, GPD has fallen 16% last year and expected to decline another 12% over the next three years, gasoline consumption is down 19% and still, Venezuela has to import refined gasoline and per capita income is the same as in 1990. The nation owes $90 billion in foreign debt and may stop payments like to the utility companies which has caused "brown-outs" of electricity on numerous occasions. Dear reader, none of that is funny which is why Venezuela is in the top ten in the misery index.
Being desperate for "dinero" Maduro has offered for sale a large stake in the state oil. The Russian giant, Rosneft wants it. This is ugly because Chevron owns 30% in the state's oil. It is the company that developed the nation's asset and due to the hatred of America, Maduro turns to the Communist. In addition, one other US oil firm has helped Venezuela in the past, but the illegal confiscation of Conoco-Phillips assets without payment is just another lawsuit. Now, that you have a good feel for the situation in Venezuela, this is the problem for equities.
Where is this going...
On Tuesday of last week, the IBVC which is the nation's stock exchange went up, please be seated for this, almost 10% or over 5,000 points in ONE DAY. This is not a typo. Did they find a cure for cancer? Did the price of oil go back over $100 per barrel?  Did they invent a flying car with a new energy source? No! No! No! People, it gets worse. The IBVC leads the world in gains as it rose over 40,000 points last year. That is twice the value of the US big board which is the most valuable exchange in the world. It is almost 7x the value of NASDAQ which contains all the top tech innovators. What the hell is going on? I haven't a clue, but their market was over 61,000 by Wednesday of last week. This is going to blow-up and because derivatives are so prevalent in world exchanges that when this explodes, it will chain react to all world markets. This is the meme in my unpublished book, "All things are connected."
Meanwhile, more protests are scheduled and Maduro fears a "coup." He has armed a civilian militia for protection. Since this is baseball season, he was seen warming up with his lawyer, playing catch. He tweeted to watch his fastball at 110mph as he called his throw, "a strike!"
Now, I get why their stock market is rising. He has sold thousands of potential major league ball players to the US American and National League.  Of course, he didn't mean that he was going to strike the protestors, right?

Wednesday, April 26, 2017

Medicaid Nation, Our Debt and Tax Cuts

The problems for today's Americans began with LBJ. When he took power, he wanted it all. To him that meant that Communists respect that the US is the number one military nation and within that nation, prosperity for all. This is your basic guns and butter platform.
His problem was how do you pay for it? He didn't want to raise taxes because a recent tax cut was the most successful move by government in a long time. He thought that the prosperity side would generate enough revenue to cover the gun side. Stupid is what stupid does.
To compound the error, Johnson kept the war off the books. This is the most serious aspect. How can someone keep $3 billion a month off the books? He did this for his entire term. The government has been doing illicit ventures ever since except the billions is now trillions! The military is half our budget and it is all waste! Consider all the wasted lives and resources with Korea, Vietnam and now, the Middle East. This is what is wrong with America and our government. The military has too much power and fan angles things to do stuff and spend wildly without approval. They exert too much influence with our government, leaders and the media.
Thank you, Yogi Berra
The above is one half of the equation as to why America, the richest nation ever, is broke. The other half is globalism and the rest falls to Medicaid.
Dear reader, you hear about entitlements as the cause for America's problems. It is true that when LBJ started Medicare that he underestimated the costs. It is not true that it cost too much. Seniors pay into the program and everyone pays into social security. In fact, if the government had not used this money for other ventures like military world policing, the fund would be self-sufficient. The real problem under entitlements rests with Medicaid. Every state in the union is to blame for this problem. There is no money being paid into the program and this is where states put their problem child like mental disease, disability, dementia, nursing care and more.
Did you realize that 21% or one in five Americans receive Medicaid assistance? It provides medical coverage for 4 out of 10 American children. It covers nearly half of all our births. It pays for the care of two-thirds of people in nursing homes. It provides 10 million children and adults with physical or mental disabilities. It helps states with 60% of federal funding and this is all I know. There could be other loophole costs. This is the gorilla in our budget and it is big within our economy. It pays 16% of all personal care in America and it costs 9%(and rising)of federal domestic spending.
Kaiser Survey
Back in 2015 the Kaiser Family Foundation reported this on a survey it took. It found that two-thirds of respondents said that they were covered or knew a family member who was. My question is this: What about their friends? Can you see how this program is growing like a wild weed?
Debt and Future
No need to rehash our national debt, but Trump is going to compound it. Instead of taxing the rich like Obama said he would but didn't do, the Donald is proposing a tax cut with a plan to be revealed later today. Now, the original plan may never be instituted, but it does reveal his thinking. When you add things up like unfunded Medicare and Social Security along with a bigger, bloated military spending and the rising costs for Medicaid, we are doomed financially. He is playing this card now, to influence the Federal Reserve. The market believes he will get his way even if it means severe pain down the road. Why do I say that?
10-Year Treasury
On Monday it was 2.24%. This note is negative compared to inflation, but it is high when compared to the rest of the world which has real negative rates. Would you like some irony? Just two months ago in February, the rate was 2.71% and the Fed raised rates since then. For rates to move this much in a year is a lot never mind in just two months. The market believes rates will stay low for this year. The tax plan and the budget are in limbo, but our national debt keeps climbing which puts our dollar in peril. The borders are open, so not only people but culture is passing through. One sad import that they bring is the banana republic. Can you say, Welfare Nation?

Tuesday, April 18, 2017

This Should be on 60 Minutes

I begin every business day by going to Bloomberg to check the price of commodities and the release of data on the economic calendar. What has caught my attention is the disconnect between press releases on retail store closings with the loss of jobs for all their employees and the government's weekly stat on employment.
Now, I realize that an announcement of a store closing and the actual closing could be months from that release date even up to a year. In addition, periodically, some states do estimates for unemployment because they cannot meet the timeline to gather their information. However, I began adding up the math during the Obama administration and now, the Trump administration to the announcements of corporate store closing with the government agency reports and it don't jive!
This is the last three reports on employment by the government.
February: -12K and continuous claims at 234K
March    : 20K new claims and continuous claims at 243K
April      : -1K and continuous claims at 234K
What It Means
The totals point to only 7K new claims in the last three months and unemployment is down to 4.5%, according to the government. Do you know what I think? I think that they have developed a new system to the confusing system that was already in place because we have 66 million people in this country who are not counted. They are just listed as not in the participation workforce. This number is more than half of our working population. It is the only figure that answers the question why retail is dying. It is not just Amazon and online purchases. The total number of sales in that method is still only 14% of the pie.
Closer Look
It was reported in March that 22,000 jobs were lost in general merchandise. Then, there was another 13,000 lost at department stores, and finally, another 6,000 in apparel shops. The way I was taught math, this adds up to 41,000 people out of work and only 20K was registered for March by the government. See what I mean?
Now, I know certain job classifications like waitresses, real estate sales, cab drivers and similar do not qualify for unemployment benefits because they don't make enough to meet guidelines, but things are still not kosher. Keep in mind that all those people are broke and some are still included as being in the workforce. That's the government.
Big $Numbers
Keep this in the equation. Since I only know the retail industry for data, now consider all the other industries because commercial bankruptcies have jumped 28% and personal filings have soared 40%. In the fourth quarter, auto delinquencies are approaching the same level as the disaster of 2008 at $23.27Billion. By the way, auto sales have declined the last three straight months and the shadow of 3.6 million leased cars are returning to lots for sale.
It Gets Worse
We know the malls are dying a slow death because their anchors are shutting in record numbers. Consider the following: Sears, Macy's, and J.C. Penny are all closing at least 100 stores this year. How many thousands of jobs will be lost with just those three? The total number of store closings is scary as 2,900 locations have closed from 18 different retailers and a possible 8,700 more by the end of the year. If you didn't know, cashiers and retail salespeople are the two largest job categories in the US with over 8 million employed between them. This represents 25% of all jobs in America. There have been 9 retail bankruptcies in 2017 so far, and sadly, that already matches the total for 2016. Adding to the negative vibe, retail has declined the last two months
We already know Radio Shack has gone the way of the Doo-doo bird and HHGregg will soon be in the list. They announced that they will close all 220 of their stores and layoff 5,000 people in the process. Keep that number in your head as we read the reports on claims for the rest of the year because unemployment at 4.5% is one big lie!

Tuesday, April 11, 2017

Message To Trump

Hey, Donald, you are headed the same way as Obama. When he first took office, his party was the majority in Congress and he failed to get any of his campaign promises into law. He wasted his time by attempting to receive bi-partisan support. Now, let's look at you.
In-action
Do you know what your fellow American citizens read and hear everyday from your administration? Gossip! Nonsense!
We hear about the conflicted aspects of your financial investments and how they can cause the look of impropriety. We hear how you hire only the rich who cannot relate to the rest of us. You say that they are the best. We see them as people who use lobbyists and other means of influence for self interest. We hear how you mix your immediate family like your daughter or extended like your son-in-law and friends with confidential data. Then, you complain about leaks, spies, hacks and tapped phones.
Bring in the clowns! There is the circus: Bannon in, Bannon out. Nunes in, Nunes out. Will so-an-so pass Congressional approval? You need two more Fed appointees. Will you choose an easy money type for your stimulus package or a deficit hawk to stop the debt that could send us all into an economic collapse. In addition, the word surfaces about conflict within your cabinet. So, what do you do? You seize a geopolitical opportunity to which the military whispered into your ear...
Syria
Yeah, a good war against another hated dictator will unite everyone behind you and end all these little distractions. They are misleading you like they misled Bush and Obama. This is the status quo along with the "Deep State" taking you off what got you elected.
Election
You were elected by men and women who are sick and tired of us policing the world while ours falls apart. Many of these people probably did not vote in recent elections because Washington is out of touch with what matters, the economy and the pursuit of happiness. These votes were enough to get you over the hump. Not the Russians! Not with the help of your fellow Republicans! Just US citizens who can relate to what you said, "We have been losing our lunch to China, to NAFTA, and every trade deal." That you would end it one way or another, either by renegotiating or end the deal. That is your primary promise and that is why you won. So, stop letting every little comment become a distraction that consumes your time. Instead, concentrate on reading the fine print in those thousand page agreements and find an area to redo and do that. If you can't work within the framework of these deals, end them. Get back to focusing on your victory pledge and stop being led into inactivity by defending your ego. Your honeymoon is almost over. These distractions are being engineered by your enemies, the status quo. Wake up! It's the economy.  

Wednesday, April 5, 2017

Risk Takers Going Hi-Tech

If I asked you to choose between two people, one a casino employer in Las Vegas and the other a farmer in rural America, who is the gambler? Who would you pick? The answer is the farmer. Yes, the employee could place a wager from time-to-time, but year in and out, farmers are the ultimate gambler.
Crystal ball
Farmers always have to lookout into the future to figure commodity prices, costs for each type of crop, growing season with climate and water. They will need crop insurance for a harvest many months from the day they begin planting. They truly have to know when to "hold'em and fold'em."
Calvary
Help is on the way. Hi-tech is going up the country and at the Agri-Tech Summit(yes, farmers have a hi-tech summit) new devices and gadgets were revealed. This is not new news as the big boys like DuPont, Dow and Monsanto have dominated the field for years with special GMO seeds, fertilizers and water measuring devices, but the demand is so great that startups are entering into the fray. One reason is the big boys want a big return, and are not interested in smaller markets. This is exactly where the new players are entering.
Dog Collars for Cows
Connecterra and Y Combinator are two firms with that approach cows with collars. It is like Fitbit for cows. These smart collars can detect diseases entering the cows food chain and treat them before it gets dangerous. They also monitor ovulation cycles to breed in a more smoothly manner or to find a wondering herd.
Of course, the big boys do not want to lose dollars and market share. Monsanto and Dow have developed funds to meet farmers needs and the application of technology. They started venture capital programs for tech to assist farmers. With that said, the old return factor still looms large. This is why farmers can relate to newer, risk taking companies like Drone Deploy. This firm uses drones to check pastures which saves time and wages. They are getting their shot. Drone Deploy also makes software to map out fields and that follow the growing season.
Another new company is Blue River Technology. They use cameras and computers to harvest crops more efficiently.
All these smaller firms can make adjustments on the fly, and they are quick to the market. It is why they are getting their market niche. They don't have the burden of higher management dictating company policy. This is an inside plus since farmers talk to each other and the word gets out. That point was not missed by another startup, Farmers Business Network. They answer challenges presented by farmers like hiring a sales force. They place their resources to the farmer both physically and online, virtually.
As for myself, I prefer Caribbean poker, but we all get hungry. The bottom line: From smart collars for cows, drones that map pastures, to online and virtual reality, hi-tech is in the farming business.