Tuesday, June 10, 2014

Barney Fife gets an Armored Personal Carrier

There have been lots local stories on all of the military grade hardware that is making it back to the US post-Afghanistan and Iraq.

Locally our Sheriff's Department took delivery of a lovely little 19 ton piece of equipment just last year.  However, until yesterday I had not seen information on how widespread this is across the US.   The NY Times ran a piece on the increased militarization of local police forces that included this graphic.

via NYTimes.com

On this chart each orange block represents 1 MRAP (Mine Resistant, Ambush Protected Armored Personnel Carrier) delivered to a local police force.  The thing that jumps out at me?  What the......New Mexico?  You've taken 42 MRAPs and you have just over 2 million people?  Unless they are hosting some kind of x-games for MRAPs that seems a little excessive.

I don't think there is any grand conspiracy with putting these things in the hands of local police, but I do think that the more we give the police military style gear, the more likely they are to act like a military unit.

Just something to remember when you are filling out your Federal tax return next year and wondering how wisely the government spends your dollars :)

Friday, June 06, 2014

Delete your Facebook account....

This guy is very funny.  I think if I were Jon Stewart or Stephen Colbert I'd be on the phone with him this afternoon to get him to do more pieces like this.

He goes a little off the deep end at one point talking about freedom, etc, but the crux of the conversation - are you getting anything of value out of your relationship with Facebook that is equal to the amount of information that you are giving to them - is valid.

Wednesday, June 04, 2014

More Records, Please!!!

So today brought another whiff on two economic data points - trade deficit and ADP.  I think the ADP # has been the worst jobs related data source released to the public in the past decade and the ADP miss probably means a GIANT jobs number on Friday but once again stocks are taking it all in stride with just a minor dip at the open.

I thought it would be worth mentioning that there needs to be a little context around all of the "NEW RECORD HIGHS FOR STOCKS" stories that pop up every time we close higher.  Do you know what the year to date return for stocks has been this year?

Dow +0.7%
S&P +4%
Nasdaq +1%

Not exactly soaring to the moon after nearly half of the year.  Yes, stocks have rebounded sharply in the past couple of weeks - mainly on hope of more Fed intervention or Japanese Central Bank easing - but given that stocks began the year near record levels the gains haven't been nearly as robust as one might think if you just read the headlines.

***************************************************************************
There is a fairly lengthy debate going on in the twitter world about the strength of corporate profits.

John Hussman tweeted this picture last week to illustrate his point.

This appears to be tied to the expiration of various investment incentives that allowed companies to accelerate depreciation of investments (ok, I can see your eyes glazing over - suffice to say the gov't gave companies tax breaks in 2002, 2003, 2008, 2009, 2010 and 2012 to keep investing in their businesses).  Those tax breaks went away this year and thus, spending has declined and profits have followed.

Do you think someone will be lobbying for another round of corporate tax breaks in 2015?  It's hard to do that if stocks are at all time highs but if they fell 20-30% well, that might get some attention in Congress.

******************************************************************
So how are companies managing to grow during this period?  A little smoke and mirrors is the simple answer.

Let's say you are company XYZ and you earn $100 and have 1,000 shares outstanding.  Your earnings per share are $0.10.  Now let's say business was a bit soft and you earn just $95.  Yikes, earnings fell 5%!!! However, being the clever financial magician that you are, you saw this coming and bought back 100 shares of your own stock this year instead of maybe investing new technology or equipment or a better salesforce. Now you still earned just $95 but you only have 900 shares outstanding so $95/900 = $0.1056/share. Earnings per share didn't fall 5% the ROSE 5.6% WooHoo!!!  Champagne for everyone.

While this is just a simple example keep in mind that in the last 12 months the S&P 500 companies have bought back $500 billion (yes, with a B) of their own stock to change the denominator in that earnings calculation.  The only other time companies bought back this much stock??? 2007.  What was happening in 2007? Oh, that's right, we we were slipping into recession (although no one would know that until 2008) and earnings were stalling so buybacks were the only way to sustain the illusion of growth.

Cheers!

Monday, June 02, 2014

Those that cannot remember the past.....

are doomed to something, something, something, right?

I read this quote today from March of 2002 and had to laugh at the parallels with today's world.  Today Twitter sells at 18 times earnings (again, that's a product I like, but the stock is another story) and a start-up with no meaningful path to revenues - let alone earnings - raised $150 million at a $2.3 billion valuation.  This company - Houzz.com - is sort of a mashup between pinterest and architectural digest and I've used it a few times just to get an idea for a project, but $2.3 billion?!?!?  That's crazy talk.

Here is Sun Microsystems former CEO speaking in 2002 after the dotcom bubble burst about his stock price in 2000.

"But two years ago we were selling at 10 times revenues when we were at $64. 

At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. 

That assumes I have zero cost of goods sold, which is very hard for a computer company. 

That assumes zero expenses, which is really hard with 39,000 employees. 

That assumes I pay no taxes, which is very hard. 

And that assumes you pay no taxes on your dividends, which is kind of illegal. 

And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. 

Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? "

"You've got to ask yourself a question. Do I feel lucky? Well, do ya, punk??"

Sunday, June 01, 2014

The power of data visualization

Early on in my career on Wall Street my direct supervisor suggested I spend the weekend learning data visualization (ie, chart, graphs, maps, etc).  The course happened to be offered over a weekend so I was thrilled to be heading to midtown on a Saturday at 6am, but I'd heard enough positive feedback to give it a whirl.  Long-story short is that this weekend on presenting data sparked a life-long love of data and ways to make it more interesting or more accessible.

With that in mind, I thought I'd share a couple of cool maps I saw this weekend.

1) Admittedly this map is a bit old (2007 or so) but I love this format.  Instead of just listing US State GDP's they show the country that each state's GDP roughly equals.  There are some really interesting things in this map.


2) This is another old favorite that shows the difference between economic power and land mass.



In this map, you see that 50% of US economic activity occurs in those tiny orange areas and 50% of economic activity occurs in the REST OF THE COUNTRY.  That is a great use of a map.

3) While I admit that I was worried about the future of www.wunderground.com after The Weather Channel bought them in 2012, the latest modification of their website is the first major shift in weather forecasting & data presentation I've seen in 30 years.

You'll have to click through here to see the complete picture.  The forecast graph is loaded with valuable information. Instead of the generic information like hi/lo and wind speed ranges, you can see specific temperature, wind speed, direction and precipitation risk for any time of day in the next week.  This really changes the way you consume weather information.

Cheers.

Thursday, May 29, 2014

The economy shrinks 1% in Q1 2014 and BOOM STOCKS SOAR TO NEW RECORDS!

This won't come as news to regular readers but the "bad news is good news" crowd was running wild today.  I've watched a series of data come in over the past 2 months which seemed to me to indicate that the Q1 GDP for the US would be lower than the initial number and probably fall to -1% to -1.2%.  When the final number came in at -1% today it was easily explained to those of us in the Northeast with a simple "but remember the snow!!!".  Conveniently, this ignores the fact that California where 12% of America lives/works was warmer and drier than normal, but why get hung up on facts.

So, the question remains, even if the GDP number was old and influenced by snow, it can't be good for stocks that our economy shrank, can it?  Well, this is where it gets interesting.  There is a small percentage of the public that still buys the "hey, if things get bad, the Fed will step in again and again and AGAIN".  I do not believe this to be the case but there are some that buy that message.  However, this market continues to be driven by computers which are buying based on currency moves which are far to complex to cover in a blog.  Interestingly, interest rates continue to fall which means bond prices are rising which is generally a sign of fear of weakening in the economy.  So should we believe the stock market or the bond market?  Time will tell.

***************************************************************
In a related story, I read last week that state income tax receipts fell on average about 10% from 2013 in the first quarter.  This is a really troubling trend because 1) states are spending like they have access to unlimited cash and 2) income tax receipts are a pretty good predictor of economic activity.

**************************************************************
Finally, I'd note that there is another data point measuring the movement of money - a general gauge of economic activity - slowed dramatically in April (after all of the snowstorms) to 1.6% from 6% 2013.  Hmm, something is going on here beneath the surface of our bubbly stock market.

Cheers!


Wednesday, May 28, 2014

Momma, let your kids grow up to play in the NFL, NBA, or NHL....

I think I've mentioned before that my kids tell me that I'm the cloud on their sunny day, because I have to inject a dose of realism into every conversation.  It's fine to have hopes, dreams and goals, but hard work and determination are keys to making those hopes and dreams a reality.

However, their is one hurdle that no amount of determination can overcome (yet).  While I'm sure there is some pharma company somewhere working on the next super drug that will add 8" to your child's max height and 35lbs of muscle mass but as of right now you're genes are pretty much your genes.

This chart was posted by deadspin......



 That little black dot on the lower left hand side of the chart?  That's the average 20 year old male - 5'9" and 195lbs.

The next time you're watching an NFL game and you see the "little guys" running 4.2 second 40 yd dashes remember that those little running backs average 6' and 225lbs.   It is interesting that baseball and hockey players are all clustered around 6'-6'2" and 200-220lbs which while big is not all that unusual. However, if you have any basketball dreams look at that chart and think about how many people do you know that are really 6'5" (shooting guards) or 6'8" (SMALL forwards)?

Well, I guess there is always soccer. :)

Cheers!