Monday, December 23, 2013

What does the fox say? How about "Walmart do not kill me..."

Take this with a grain of salt because it comes to via a Chinese newspaper but remember the good old days when you could buy your donkey meat without fear of having it mixed with fox meat?

"Fox meat was found in a package that was supposed to contain donkey flesh at a Wal-Mart store in Jinan City, Shandong Province, Yangcheng Evening News Sunday reported.

A man surnamed Wang said he bought the so-called donkey meat, but thought it tasted strange.

He then asked an authorized institute that was not identified to test it. After testing, the institute concluded it was fox meat, the report said."


Friday, December 20, 2013

How the Weather Channel has ruined America

Okay, so maybe I'm engaging in a LITTLE hyperbole but bear with me because I'm about to turn into the old guy yelling at those darn kids to get off my lawn!!!

For the past week my kids have gone to bed every night with visions of school delays and cancellations dancing through their heads.  Why?  Well, because the national weather service provides the warnings and the 24hrs news cycle drills these dangers into our heads constantly.

This is the list of winter warnings/advisories that can be issued:



When discussing past holiday seasons with my kids last night, one of them asked what was the most snow I remembered in a December. I know there was a lot of snow in the blizzard of '77 but that occurred after the holidays.  I remembered it being the mid-80's because it was the last winter before our family purchased a snowblower and saved this teenager's aching back :)

This site has a wealth of historical data and it shows that in 1985 Watertown, NY received 108 inches of snow in December.

By comparison January 1977 "only" delivered 90" of snow.  One of the unique things about the 1985 snow was that it wasn't 5 feet on one day.  It snowed 6-8 inches almost every day for a period of 3 weeks leading up to Christmas.  Did we cancel school every day in December 1985?  Did businesses seize up because it was snowing?  Did the military base shutdown?  Were we hunkered down in a bunker to survive the SNOWPOCALYPSE?

I can't recall, but I believe we only had one or two days off during that period.

However, when you have 16 different advisories/warnings that you can stream across your screen 24/7 to keep eyeballs tuned in, so you can increase ad rates, you better believe that every snow storm from now on will be "marketed" heavily. 

Okay, enough of my rant.  The point is that it snows in the Northeast in the winter.  We need to accept that fact and move forward.  Alternatively, we're going be caught in a constant cycle of running from shelter to shelter hiding from Snowstorm Eileen to Thunderstorm Jackie (the running joke in our house is that now that the Weather Channel has decided to name snowstorms it won't be long before they start naming thunderstorms, tornado outbreaks and heat waves).

PS - Now that I've said all of this I'm sure we'll get 3" of ice tonight and lose power for 2 weeks just to prove me wrong :)


Hey buddy, need a job?

Okay, I know I tend to be a cynic but it's the holiday season so I'm more tolerant of the typical spin, misdirection or outright lies told by many.  A good friend always reminds me that everyone is always lying but I hold out hope that there are a few honest folks still among our midst.

Well, that hope is taking a serious body blow after reading this article in the Atlantic.  According to a craigslist ad (which thankfully has now be flagged for removal), a Pittsburgh area man is looking for bright young man to attend Harvard on his behalf in exchange for living expenses, fees and $40k/year.  At the end of the arrangement the buyer would have a Harvard degree to impress people with after spending 4 years partying in Ibiza and the seller would have the benefit of 4 yrs of college life while getting paid :( #SMH

So the question is: What does it say about the 0.1%ers that one of their own has access to perhaps the world's finest education but would rather pay someone to go in his place than be bothered to actually go to Harvard?  As the article points out, we hope this was some sort of documentary/reality TV plot line, but I worry that it really was some spoiled rich kid that didn't want to spend the next 4 years working hard.

In a related Harvard/trying to get out of hard work story see this story of a 20 yr old that emailed a bomb threat to Harvard in an effort to get out of finals.

"Kim said he sent his messages using a temporary, anonymous email account routed through the worldwide anonymizing network Tor, according to the affidavit.

So far, so good. But to get to Tor, he had to go through Harvard's wireless network — and university technicians were able to detect that it was Kim who was trying to get to Tor, according to the affidavit."


Wednesday, December 18, 2013

To the moon, Alice, to the moon!!!

Earlier in the week, I said that I was placing higher odds on a taper being announced than the rest of Wall Street. A recent run of decent data (we'll have to discuss the quality of that data at another point) seemed to indicate that the dreaded taper might come sooner than expected.  However, I also cautioned that everyone expected this to be the end for the stock market.  Pull away the Fed's juice and the stock market engine goes kaput, right?

Well, not so much.  Everyone had two assumptions - no taper and if a taper was announced it would be bad for stocks.  So what happens?  As usual, the exact opposite of the consensus opinion - a teeny, tiny taper is announced and stocks held their initial gains.  The computers took over late in the day and bought everything in sight so we could have the RECORD close that Ben Bernanke needed to have on his resume.

So, what is the bottom line?  Well, for all of the talk of the "Fed pulling back because of a robust economy" the taper means that instead of buying just over $1.0 trillion of debt next year, they'll buy $900 Billion.  When positioned like that you see that this is relatively insignificant.  Stocks are still poised to benefit from multiple expansion in a low interest rate environment and now that they've crossed into record territory you can expect all of the nonsense "Santa Rally", "January Effect" stories to get trotted out to carry it higher.

This fits with my original thesis that we are setting up for a very March 2000 like blow-off in stocks.  They could soar another 5-15% in the very near future without any fundamental shift (as they did in 2000) before a black swan changes things.  My concern in February/March is that we see unemployment reverse and start climbing again.  The initial reaction might be "Woohoo no more taper", but eventually people will realized that the Fed has no policy tools left to spur hiring.  If you've ever watched the Walking Dead it will feel an awful lot like a person standing outside of the prison when they've fired their last bullet.  You may be able to duck and weave for a few minutes but eventually something bad is going to happen.

Having said all of this I have to come back to the original point - Always take the opposite side of the crowd and right now EVERYONE expects the market to coast higher.   That's usually when something can go awry, but I don't see anything (short of some Chinese lending issues) that could derail that thesis tonight, but tomorrow is another day.


Monday, December 16, 2013

Good news was good today

Today the market took some good news on the German economy as good news and ramped higher without much let up all day.

Again, most market observers expect the Fed to stand pat at the December meeting on Wednesday.  I put the likelihood of news about the beginning of the end of stimulus at 35-40% which is higher than most.  The current assumption is when this word comes out the market is set to give up meaningful gains.  Remember in July, the rumor of a "taper" cut 10% off the market.  However, it's worth keeping in mind that the market might just decide that the taper is good news (they'll only taper when the economy is really taking off, right) and that might cause stocks to rise.  That would be a contrarian view, but it's not out of the realm of possibilities.

Reminder that it's a traders market that the buy and hold player just visits:  While the markets have had a great year up roughly 20%, if you had perfectly timed the S&P 500 this year (buying each bottom and selling each top) you could have turned $1,000 at the beginning of the year into a measly $264 billion.

While we're on the subject of extremely long odds and billions of dollars..... here come the SUPER, MEGA, GIANT, POWER, HAPPY, TERRIFIC BALL lottery stories because they are easy to run.  Find lines of hapless people that could have used my old venture - NNY Math - and ask them "WHAT WOULD YOU DO WITH $550 million???" 

Okay, so just to be clear no one ever takes the annuity (because tax rates are probably going up not down on the ultrawealthy), so the real lottery number is $290ish million.  Taxes will take another 40% of that number so the real number is probably closer to $175-$180 million.  "Hey, I'll take it you say" and sure that is a boatload of cash, but one news clip I saw today said "and you could even fly in your new $65 million jet."  Ummm, no.  $180 million is big money but it's not private jet money.  You need to have 50-100 times that number to feel comfortable spending on a large private jet.  Then we get to the odds.  It's not a coincidence that no one has won the lottery since the rules were changed.  By my calculation the odds are now 1:258.9 million.  Those are not good odds. 

On my first day of my first job post college, the CEO of our bank visited my office and told all of newbies that avoiding the lottery was the best advice he'd ever received.  I pass it along whenever I can.  Having said that, if I win my next post may originate in Kona, HI where it never gets to -10F :)

A noted fundamental analyst today published a paper that stocks are priced to return "basically 0% for the next 7-10 years".  While I find that to be an extreme view and as I mentioned above you can still be plenty profitable trading flat to down markets, this does fit with my view of the first quarter century for the US.  I believe that we are following a similar path to the Japanese economy and that we may find ourselves in 2020-2025 looking back at 2000 the way the Japanese look back at the good old days of 1989.

Random map of the day
via @amazing_maps


I'm not really sure how they calculated popularity (I know the Yankees and Red Sox are popular in the northeast but more popular than American Football?), but it should give you a little appreciation for the importance of the 2014 World Cup to the rest of the world.


Closing in on a milestone

I know the frequency of my posting has decreased significantly in the past couple of years, but I was surprised to see that at some point in the next couple of weeks I'll probably cross the quarter million pageview threshold. 

For some link bait sites or headline listings a quarter million views is a good morning, but for the random musings of this guy it is very humbling.  I understand that 88% of those pageviews are family and Russian spambots, but I am thankful for all of you that keep clicking through to check in on Grindstone Financial.


Sunday, December 08, 2013

Jobs, jobs everywhere,right?

Stocks jumped on Friday because of the good news on the jobs front right?  Well, that's what all of the fluff pieces seemed to say on Friday so why question it.  However, haven't we been conditioned to think - good news equals the end of the Fed actions in the market which would have to be bad for stocks?

Well, the lesser told story Friday was that of GDP (our economic output as a nation).  The third quarter growth in GDP came in above expectations again and that on the surface sounds good.  However, an unusually large portion of this growth was due to inventory build up.  The least reported story of the week was that many economists started cutting their forecasts for growth in the 4th quarter on Friday due to this inventory build up in the third quarter.  Some have cut their forecasts to as little as 1% growth.  This is the sort anemic growth that doesn't let the Fed end QE and thus, stocks were mostly up on Friday because of reductions in Q4 GDP estimates means the Fed will not taper in December.

Now, that's a more complicated story than "Yeah, 200,000 Walmart greeters were hired so stocks were up" but it's closer to the truth.

Overall, it was a decent jobs report though there are some inconsistencies that are hard to explain.  Retail hiring seems to be close to 2012 indicating that retailers have confidence that we are all going to go out and overspend again this year.  However, as a fun little real world experiment you should go to a Home Depot on a weekday and do a slow walk of the store.  I was asked by 7 different salesmen if I needed help.  Staff outnumbered customers about 4 to 1 when I was in the store.

I'm still putting a 20-25% chance of a reduction of the Fed's efforts coming out of the Dec 2013 meeting but the consensus is definitely shifting to the Jan or Mar 2014 meetings.


Weekend potpourri

Many of these items are completely random but I have a long list of bookmarked pages I've been meaning to post so here goes.

You really have to visit this site - which has a global map of all US military installations.  Hmm, should I read that as strategic, defensive, offensive or paranoid?

It's a nice interactive map that allows you to zoom in on various areas of the world.

This image doesn't do this story justice.  You'll have to click through to a radio station website (here) to get the full story of a guy from New Zealand who found a great way to spend some time in the -25 weather of Alberta last week.

The igloo lit up from the inside

From the files of "Seriously?" comes the Washington Post story on the FBI's latest techniques to track down bad guys.  Hidden in this story is the tidbit that the FBI apparently has a software tool that allows it to remotely turn on your webcam and record you without your knowledge.  So far, in the only case mentioned in the article a judge refused to grant permission for it's use.  Hopefully, it stays that way.

At least according to this study - spending a day outside in Shanghai is the equivalent of smoking 21 cigarettes in that same day.

Not that anyone seems to care, but Fukushima is still out of control.  This weekend they recorded the highest level of radiation yet outside of a vent pipe at 25 sieverts/hr.  One report I read said that this could be lethal in 20 minutes of exposure.  Remember, this disaster happened almost 3 years ago!  Yeah, but think of giant 50,000lb yellow fin tuna that will be swimming in the Pacific as a result of new mutations.

Global political update - Kiev protests intensify in the Ukraine, Thailand dissolves its parliament, and the China/Japan war of words continued to heat up over the weekend.


Saturday, December 07, 2013

Hey FedEx, You're doing it wrong...

Here is the current path a recent order from an online website has taken on its journey toward my home in NY. Three weeks later and it's only about 140 miles closer to delivery.  Thankfully Christmas is still 2+ weeks away.

View Larger Map

Wednesday, December 04, 2013

Map of the day

Presented without commentary this map compiled by Deadspin of the highest paid public employee in each state.  Keep writing those tuition checks boys and girls - championships don't come cheap!

Just a quick commentary on today's market action:  again down was up and up was down for most of the day.  However around 1:28pm a weird thing happened.  Someone hit the market with massive sell orders and it looked like someone had cut the power to the high frequency traders.

However, upon closer inspection it appears one market maker got stuck with too many futures and was forced to unload them all at once.  This lead to sharp sell-off and subsequent rebound when the market caught its breath.  This speaks to the nature of these markets that are not driven by future profit prospects, but rather the technical nature of the buys and sells order flow.

Selected quotes of the day:


* Jim Rogers, one of the most famous investors of the past 30 years, said "Eventually, the whole world is going to collapse, this is going to end badly".  It's worth noting though that he's been really wrong on a couple of calls in the past year.

Bizarro World

Today's headline of the day so far goes to this clever wire writer

"S&P 500 gains for 1st day in 4 as Nov. ISM non-manufacturing missed estimates"

The whiplash inducing reaction of the market to every piece of data is bound start causing problems at some point.

Consider the following just from this morning:

* The trade deficit came in better than expected and stocks dip.

* The ADP jobs data (which I admit is a horrible indicator on the BLS jobs data coming on Friday) came in much stronger than expected.  Obviously, this means stocks should ....... fall further???  Huh?

Why would that happen? Again, the computers that run the market read headlines like "better than expected" and instantly equate that to "the Fed may stop open market purchases" which means stocks are destined to fall.  This is OVERLY simplistic but it does represent much of the thinking on Wall St.

At 10am, the ISM services number came in weaker than expected and everyone (silicon and carbon-based) started buying everything that wasn't nailed down.  Stocks swung back to the upside.

I contend that the Fed is not watching every little data point.  They have (or should have) a 3-5-10-20 year vision and they do know that their involvement in markets has to end at some point. The question is really when do they signal their intentions to the market?  Everyone expects this will happen in June 2014 and that they will be able to jump ship before things turn.  If however, the Fed uses major data points like unemployment and jobs creation, they could shock everyone by moving sooner.

One final, caveat - the Fed is a non-political entity but the political implications of their decisions are very real.  2014 will be a very hotly contested mid-term election cycle and crashing this Fed fueled stock market in the middle of the run-up to the election would complicate matters for both parties.


Tuesday, December 03, 2013

Will the sun come out tomorrow?



So yesterday we talked about the things that seem to be looking up on the consumer front. Add to that today's robust vehicle sales numbers which were pretty strong across the board and hit their highest levels since Feb 2007.

Via Bloomberg this chart sums up the grand disconnect that we are seeing in the US. Stocks (the green line) have marched steadily higher for the past 2.5 years as if being levitated by some unnatural force while the estimate for US GDP in 2013 has slowly been cut in half over the same period.

Which brings us back to the original question are stocks spurring economic activity or does the weakness in the economy lead people to expect Fed support and thus, higher stock prices?  Yes, it is insane circular logic but bear with me.

I think we're approaching a point where two unique events could lead to a turn in sentiment.

1) The last bears have shut the door.  There is almost no one left on Wall Street with a negative view.  Some VERY high profile bears have thrown in the towel in the past month.  When everyone gets on one side of the ship, it usually is a set up for something to go terribly wrong.

2) The Fed seems to be realizing that all of their efforts are not impacting job creation.  Despite efforts to spur lending and create jobs, the Fed has merely bolstered bank balance sheets.  They might take a radical step soon to curtail their activities in the market and that would come as a huge shock (low probability but great risk if it happens).

Finally, we talked yesterday about the consumer strength that we've been seeing in recent reports.  However, I want to mention two stories that came out late yesterday and highlight how they could be canaries in the coal mine.

* Potash is the world's largest fertilizer company and they announced yesterday that they were cutting nearly 1,000 jobs because there has been no increase in demand for nearly 6 years while supply continues to grow.  The lack of demand for fertilizer is a troubling indicator.

* RioTinto is the world's second largest mining company and they announced yesterday they were cutting their capital expenditures in half over the next 2 years to just $8 billion.  Large miners like Rio are not known for being terribly nimble.  They have to have very long time horizons and the fact that they've looked at least two years out and decided they can't justify the investment in more capex is very telling.

Tomorrow we'll get a messy reading on the worst piece of data that everyone covers - the ADP report.  We'll see if it provides any unique insight this time.


Monday, December 02, 2013

Put on a happy face....

It's been some time since I've tried my hand at the old glass is half full trick so here goes....

If you work under the assumption that every number provided to us is valid then there are some reasons to be optimistic about 2014 and beyond.  However, I'm really talking solely about economic activity and not about the stock market which is completely removed from economic activity at this point.

1) Construction spending seems to be strengthening while the residential market takes a bit of a breather.  There is little doubt that construction has picked up meaningfully from the 2009 lows, but it is still well below its 2005 peak. The devil here lies in the details construction spending is really being driven by apartment construction (and some would argue we're in a bubble of apartments).  Apartment construction is fine, but it's not the economic driver that single family home construction is.  I'd also point out there will be a wave of substantial public (state and local) spending that will hit in 2014.  States tend to lag the economy and while they were hesitant to spend in 2011 and 2012, they've opened the checkbooks in 2013-14.  There will be projects large and small everywhere for the next couple of years.

I'd also note that school construction (at least in NY) is likely to step up meaningfully in 2014.

2) A number of consumer trends are pointing up - vehicle sales, restaurant trips, etc - all seem to indicate that the consumer is feeling better (but Black Friday brought some rain on that parade).

Again, this is conversation about the slow moving wheels of the world's largest economy.  The daily dose of confidence delivered by green on our stock screens is filtering it's way through to the system.  The validity of the increase in stock prices is a topic for another day.


Sunday, December 01, 2013

Don't bother getting back to work there is cheap junk to buy online!!!!- It's CyberMonday, Cyberweek, Cybermonth...

Now brought to you buy Boeing's new Amazon Prime Drones!!! More on this in a moment.

So, despite the stuffing our faces and shopping until we literally dropped for 4 days, there is MORE shopping to be done so get to clicking as Cybermonday stories will rule the air for the next 24 hours.

A few years ago, I predicted that the rush to expand Black Friday into Thanksgiving would cause a backlash.  You wouldn't know it by listening to stories from Thursday and Friday about shoppers with "dozens and dozens of bags" but it appears that this is finally coming to fruition.

Unfortunately, much of the data reported as fact for this weekend is based on consumer reported data and consumers always overestimate their spending.  However, while the number of shoppers was up 1% for the year, actually spending fell.  I would question whether the number of shoppers was actually up this year.

When you looked at anecdotal data like footage from malls on Thursday and Friday or the interview from one shopper at Mall of America who said "we arrived at 7am and were stunned that the parking lot was empty" it appears as though foot traffic was down substantially.

The contention will be "yeah, but everyone is just moving to online shopping."  Yes, online shopping is still growing, but it remains just a fraction of overall sales.

As with every year before - Black Friday will make for an interesting story full of throngs charging their way to $98 TVs but the reality will fall short of expectations --- again.  Never mind, you can make up for it during the remainder of the Shopping Sea...... oops, I mean Holiday Season.

With great fanfare Amazon revealed their plan to officially be the final nail in the US Postal Service's coffin by unveiling their PrimeAir Drones.

The coolness factor of a helicopter dropping off my over-packaged $2.99 pack of coconut water is undeniable.  However, the hurdles for such a concept are enormous.

* It only makes sense in dense suburbs.

* In our panic first, use common sense later society a bunch of black drones carrying brown boxes flying around the suburbs won't cause any concern.  Consider for a moment that LAX was shutdown for 5 hours two weeks ago because a truck backfired.  Yale was shutdown for almost an entire day because of a hoax phone call.  One moron with bad intentions and $69 to spend on a drone will do something and pretty soon we'll all need our own Homeland Security/TSA agent assigned to our home to scan all Amazon purchases before delivery.

* It will take kids about 15 minutes to figure out a way to hack delivery so that your shiny new ithingy gets delivered to them so they can sell it on Craigslist to fund their Addy purchases.

Hey, I use Amazon Prime and I buy a fair amount from Amazon (when they offer the best price), but I think Wall Street's love affair with this retailer is insane.  This drone idea gives them 5 years of coverage because no one will care about profits if you're building a drone network.

Or maybe I'm just in a bad mood because Eric Decker ruined my fantasy football season.


Tuesday, November 26, 2013

People are shocked, SHOCKED I tell you, that Twitter is riddled with fake accounts

Anyone that has used twitter for more than a week could tell you that fake accounts have flooded this service in the past year.  Companies have figured out that people follow the twitter trending topics very closely.  Now if you are Toys R Us you can pay twitter boatloads of cash to be the top PROMOTED topic of the day and sit at the top of the "trending topics in NYC" page.

However, everyone has grown to ignore these promoted pages because we know they are ads.

Enter the bots.  Power spambot companies know that early in the morning it might only take 1,000-1,500 tweets with a certain Hashtag to become a trending topic.  Almost every day at some point during the day Walmart suddenly becomes a trending topic in NYC.  Now this is particularly odd since there are no Walmart's in Manhattan.  Are all of these Manhattan tweeters suddenly getting jazzed about a trip to the Secaucus Walmart at the same time?


However, a bot can have 10-40 different little phrases
"Need to pick up milk at #Walmart?" 
"Does #Walmart have any sales this week?" "
"Anyone seen this Black Friday ad from #Walmart?" and blast twitter with them in a fraction of a second.  Instantly, it gives the appearance that Walmart must have something interesting going on because it is trending.  However, it's just another type of advertising that is not a promoted ad, just an artificial level of interest created by spambots.

Anyway, the point here is that we are entering a very dangerous time as it relates to these start-ups and their desire to get rich quick.  The next wave coming is self-destructing/private messaging - snapchat (whose messages don't really disappear - make sure you tell everyone you know about this fact), wickr (encrypted person to person messaging), (promises email not shared with NSA), etc.

Snapchat turned down a $3 billion offer from Facebook and is probably going to raise money at a valuation between $4-6 billion soon.  That is a lot of incentive to cheat.  I'm not saying that snapchat and these other services are lying, but if you are snapchat and the only measure anyone cares about is messages sent would it be in your own interest to allow or possible even encourage spambots to send images to users and maybe even send messages to other spambots?

Imagine a day when someone builds a "hot new app" for messaging.  They get 10 users and then hire 500,000 robot accounts to send "encrypted" messages back and forth.  The robots send 10 messages/day for the first month, 20 the next, 40 the next and soon Wall Street thinks you are the next hot thing because you have 20 million messages per day going across your servers even though it's really just the same 10 people and 500,000 really active bits of software.  That leads to lots of free PR and then you hope actual humans start using the service, but it doesn't really matter because you can always just increase the robot message count to show growth and no one can ever test or verify your numbers because "it's encrypted".

A fake economy built on a fake platform sending fake messages to fake accounts.  Sounds like a $10 billion idea to me :)


Monday, November 25, 2013

Don't you hate it when this happens

You're cruising along at 186 mph (note the speedometer on the motorcycle is pinned at 299 KM/H) when an Audi catches and PASSES you.

Just another day on the Autobahn :)

- Watch More Funny VideosMeanwhile On The Autobahn

Attack of the Black Friday stories...

As predictable as dried out turkey and lumpy gravy at Thanksgiving it is once again time for the "Hey, look at these fools camped out in front of a Best Buy" story.

These stories are popping up around the country a bit earlier than usual because, well, everything has to be earlier this year(and there are competing reports that say Best Buy pays some of these people to camp out to cause a stir and generate a story but those reports are unconfirmed).  I'm only half joking when I say that I expect a story soon on someone camping out on Halloween in order to be first in line for AFTER-Christmas sales.

It's the Sunday before Thanksgiving, but for some hard-core shoppers, it's not too early to get in line for the best Black Friday deals.
Michael Urso camps at Best Buy every year for Black Friday.
"There’s always something to get," said Urso. "I have three kids of my own, my brothers and sisters have kids there’s always something here to buy, new electronics come out every year."
For those of you that absolutely can't contain your excitement for the Spending, I mean Holiday Season please see's list of the best "deals" this Black Friday.  Basically, if you aren't in the market for a giant TV, ipad or phone, most of the deals aren't worth chasing.

The Best Black Friday Ads So Far

So as you can tell, I'm a bit of a Black Friday Grinch, but no more so than the management of a local MALL that is making employees of all stores show up and work at MIDNIGHT on Black Friday if they are a permanent tenant.  Thus, every hair salon in the mall has to be open at midnight on Thanksgiving/Black Friday.  How many haircuts do you think they'll do at 2am?  For that reason alone you should boycott the mall :)
Black Friday tent

Monday, November 18, 2013

Monday musings

The stock markets all passed some more round numbers today - 16,000 on the Dow, 1,800 on the S&P 500 and the Nasdaq is just a couple point from 4,000 (though they've all pulled back a bit from the open). These numbers are meaningless, but they make for good headlines.  The rally continues unabated as a result of more bad news.  Global economic weakness is perceived to mean more stimulus which ultimately leads to higher asset prices.

My big concern is that companies have been conditioned to operate in this environment for too long now.  It's hard to generalize, but the pattern that is revealing itself is large corporations continue to defer investments for the future in favor of costs cutting today and stock buybacks.  This is a short sighted approach to corporate management but it is what the market wants right now.  Buyback your stock which drives up the price (reduce supply/increase price) and that is an easier option than investing today in a new plant or new employees which might take 5-10 years to yield a return on that investment.

Awesome sculpture of the day:

An Infinite Staircase by David McCracken sculpture

This sort of looks like many stock price charts lately.
Finally, this story shows that not everyone actually saw the movie "Terminator" - Expert predicts US Army will have 10 robots for every soldier within 10 years.  Admittedly, this "expert" runs a company that builds robots for the Army, but it's still interesting nonetheless.


Is Butterball is taking tips from Exxon?

Every news outlet looking for Thanksgiving story ran with Butterball's press release over the weekend that it's going to be a Turkey-apocalypse.

Well, what they really said was there was a shortage of LARGE, FRESH turkeys.

1) Who knew Butterball even sold fresh turkeys?  I presumed they just sold those large frozen bowling ball turkeys.

2) The "shortage" is only for fresh turkeys over 16lbs.  I'm not sure I've ever seen a 16lb fresh turkey.

However, the seed has been planted.  Now, every retailer in American can pump up the prices of ALL turkeys because "Well, didn't you see that there is a turkey shortage?".

This is sort of like when Exxon or Chevron says they are shutting a drilling platform because of a hurricane or when a refinery closes for routine maintenance, which pumps up oil prices and gas prices for everyone.

Thankfully, my kids are vegetarian :)

Tuesday, November 12, 2013

The chorus is getting louder

The number of smart people that are lining up on the side of - we're in another bubble/this will end poorly - is starting to get disturbing.

The contrarian in me says, "uh oh, if all of these people are expecting a major pullback in stocks and another credit crisis then the opposite may happen".  However, many of these people tend to be right over the long-haul so they are worth listening to.

While there is no direct corollary between QE3 and rising stock prices, the suppression of interest rates makes assets seek higher returns elsewhere which typically means stocks.  There's no hard evidence that this should be the case, but the standard rebuttal is "Well, it just makes stocks go up."  We've discussed at length the fact that the Fed has painted themselves into a corner and must begin to wind down QE at some point in the next 6-9 months.

My current opinion is that it feels like the fall of 1999 and 2007 all wrapped into one.  In 1999 we had a bubblicious tech/dotcom fueled stock market that rose to unreasonable levels as new concepts came to market and we were trying to evaluate the value of these new technologies.  In 2007, we had a housing bubble fueled by low-rates and lower lending standards.

Today, the bubble in venture capital and stocks is very real.  Traditional companies are growing their bottom line through cost cutting and very few are seeing revenue growth (hence the race to open earlier and earlier on Thanksgiving - but that's a topic for another day).  Twitter is an unprofitable company with $500 million in revenue valued at $30 billion.  The most recent winner of a large technology hackathon in SF was a site dedicated to raising money for other startups. The incubator craze of 2000 really marked the beginning of the end of first bubble and I think we're approaching that point here.  However, I'll note that there was an explosive "blow-off" in the market as the bubble burst.  This could happen again at some point and it will be hard for those predicting a correction to stick with that call if stocks jump another 10%-20% in their face.

The current housing bubble is very interesting.  This bubble has been driven by perception.  Very large investors have decided housing can be an asset class and have bought up huge portfolios of homes around the country.  This gives one the perception that inventory is falling, however, many of these homes remain vacant so they are removed from the "for sale" inventory but they remain in the virtual inventory as unoccupied and unavailable for rent.  The average consumer doesn't see this and just takes the "comps" fed to them and overpays for their home despite the fact that 1/4 to 1/2 of their block may be vacant.  When these large investors start leaking inventory back into the market this has the potential to be very bad for the average homeowner.

So on that cheery note enjoy your 11/12/13.

Friday, November 08, 2013

Robots and strung out day traders

Yesterday, a market commentator implied that the only people left trading this market are computers (robots in his terminology) and drug fueled day traders.  Sometimes, I think that's a pretty fair assessment.

So after a single day in the red which everyone failed to notice because of all of the twitter hype, the market exploded higher today on the back of a stronger than expected jobs report (more on that in a moment).  There was a very specific market player that goosed the market with huge purchases all within seconds of one another.  The end result was a market that never let up and got it's typical 3:30pm run to hit another all-time high.

The Jobs Report
Once again this was a very confusing report because of the impact of the laid off Federal workers who filed for unemployment but were ultimately fully restored and paid their back wages.  The strength in this report continues to exist in the low-end (retail and service industries) but who cares, right?  I waitress equals an engineer at Lockheed Martin in terms of economic impact, right?  But I digress.

There remains a wide disconnect between the establishment and household surveys but ultimately no one cared today.

Here's the ironic thing - most people are betting on the Fed continuing their QE policy through June 2014 because the economy remains so weak.  It's a fairly convoluted process but we should remember that the Fed asset purchases are supporting equity prices.  Even the hint of a change in the size of QE took stocks down 10% in July. However, I think these jobs numbers significantly increase the odds of the Fed looking at curtailing their QE program as early as December.  This would be enormous shock to the system and would lead to a very difficult set of circumstances to understand - an improving economy may lead to lower and potentially much lower stock prices.

So given today's numbers why didn't stocks fall?  I don't know.  The computers that run the markets have seen that on days like yesterday, in the past 3 years, stocks are up 26 out 28 times on the following day.  This becomes self-fulfilling - because the programs expect stocks to be up, they buy stocks and force up the market.  Yes, you are excused if your head is spinning at this point :)

Final Twitter point - hopefully, you didn't have any market orders in for Twitter because the stock is down about 10% from the first public trade and almost 20% from the peak yesterday.  Unfortunately, this stock is going to continue to be very volatile.  Those that bought it in the IPO are still up 60% or so, so they are still happy, but those that bought it in the open market might be a little jittery.

In keeping with my theme of building products that reduce human interaction, consider this company which has build a wearable sensor which notifies you when your baby has wet their diaper so that you can log off twitter long enough to change them without having to actually listen for them to cry.  Now, instead of having to be bothered with checking on your newborn every 30 min or so you can stick them in their sound proof box with their own ipad, while you wait for a "wet" alert.

Of course, I'm being sarcastic and I suppose their could be a market in homes for older patients, but when venture capitalists say the ideas they are being pitched are getting more and more ridiculous, I think of ideas like this.


Thursday, November 07, 2013

The only thing we have to fear is....

I constantly have these conversations with people.  Shark attacks make for terrifying headlines but that dog in your house is much more likely to bite you.

The sums of all our fears.
Via Newsweek.

You're 1,000 times more likely to die of the flu than you are to be killed by a terrorist.

Even this table has some flaws because it's just raw numbers, so it doesn't include data on things like passenger miles, etc, but it does put things in perspective. :)

Into the twittersphere!!!

Imagine building a website where you do nothing but sit back and let unpaid minions create content for you!  Rather than paying reporters from around the world to report on events they'll give a link for FREE! Now figure out a way to build in some banner ads circa 1995 and PROFIT!!

My original guess was that the IPO would price at $27 (priced at $26) and open in the $30's.  Well, I was a bit off there - it opened at $45 and is currently $50.  Imagine being an analyst that issued a BUY rating on the stock and a $32 target this morning.  So, with the stock 56% above your target you probably should change your rating to SELL, right?  We all know that won't happen but if they were being honest......

Right now - by market value twitter is larger than Aflac, Chipotle, Gap, Macy's, Charles Schwab, Sprint and Whole Foods. Oh, and remember they've never turned a profit.

So my guess will be that the Ferrari dealership in San Francisco is going to be out of stock for awhile :)


Tuesday, November 05, 2013

David Suzuki on Japan

If you aren't familiar with David Suzuki, let's just say he's kind of like Bill Nye, Neil DeGrasse Tyson and Stephen Hawking all rolled into one.  He's a brilliant scientist and an icon in Canada.  Well, he was speaking on Halloween at a convention and while he was paraphrasing another's work these low probability events should be on your radar.

"Fukushima is the most terrifying situation I can imagine," he said.
"Three out of the four plants were destroyed in the earthquake and in the tsunami. The fourth one has been so badly damaged that the fear is, if there's another earthquake of a seven or above that, that building will go and then all hell breaks loose.
"And the probability of a seven or above earthquake in the next three years is over 95 per cent."
Suzuki said that an international team of experts needs to go into the Fukushima plant and help fix the problem, but said the Japanese government has "too much pride to admit that."

"If that isn't terrifying, I don't know what is." 
"I have seen a paper which says that if in fact the fourth plant goes under in an earthquake and those rods are exposed, it's bye bye Japan and everybody on the west coast of North America should evacuate," he said.
Again, that's a lot of ifs - if a large earthquake strikes, if building 4 were to collapse and if the rods were exposed, but IF this happened, I think waterfront east coast property might be a worthwhile investment.  :)

You wanna be a billionaire???

I've spent the better part of the past 3 months immersed in the venture capital and start-up worlds (well, as immersed as one can be in Upstate NY).

This time has revealed something intriguing about what is considered valuable in today's current environment.  In light of this week's upcoming Twitter IPO expect lots of talk about dotcom billionaires again and how the next great idea is probably lurking on some napkin at a dinner near you (the sketch up for twitter was reported done on a single sheet of paper).

Well, I'll save you the trouble and get you on your way to riches because I've figured out the common theme among all of the hottest consumer start-ups in the US right now.

Help your customer avoid talking to people.  That's right take all human interaction out of a transaction and you might be on your way to internet billions.

Don't believe me?  Consider the following -

Way, way back in the good old days you had to pick up a phone to call for a car service.  For example, you'd dial 777-7777 to get your town car home from work. However, it today's "my phone is my companion" world, customers either can't or don't feel comfortable calling someone for a cab.  OH, THE HUMANITY OF SPEAKING TO A HUMAN!  Thus, Uber built an app for that and while they are currently private they are valued at north of a billion.

Or maybe you needed a dogwalker for Fido when you were heading to a conference this weekend.  You could call up Sally Sitters Service but again you must formulate words with your mouth and OH THE HUMANITY!!! So, DogVacay is built and raises $22 million in less than a year (yes, they are just an app that lets you book a dogsitter).

Call a travel agent? Nope us Expedia, Hotwire, Priceline.....

Need to crash on a buddy's couch when travelling?  AirBnB.

You get the point.  I'm being a little overly simplistic in my analysis, but there is some merit to the point that as we have become more accustomed to electronic communication we've become less comfortable with traditional communication and the venture capital is flowing to these new methods of communication.

A note on twitter because it will be the talk of the town when they go public on Thursday.

A) The stock is hitting the absolute peak of frothiness in the market right now.  The range is said to be $23-$25, but I expect they'll price it around $28 and it will quickly jump into the $30's or above.

B) The problem is that the untold story of twitter is that for all of its benefits, there are a tremendous number of inactive accounts and outright fake accounts.  Twitter said up to 5% of accounts are fake but I've seen reports from twitter "marketing" people that would run 1,000,000 plus fake accounts by themselves!  With just 250 million TOTAL accounts the idea that 1 guy running a marketing firm could control a million fake accounts should concern any investors.  I suspect fake accounts are probably 20% of all accounts on twitter (roughly 1/2 of President Obama's followers were found to be fake) and another 30% of accounts are inactive.  There are also a large number of users with multiple accounts but it's difficult to put number on these people.

C) The company introduced their new revenue model (Ads in the twitter stream) this week which is ...... wait for it .............. basically the exact same as AOL's revenue model in 1995 - banner ads.


However, a lot of people are going to get filthy rich on Thursday so get going on a way to automate your lawn service so that you get your grass mowed on demand and build an app for that so I don't have to talk to my landscaper again!



Just a quick PSA - GOAV!

Get out and vote!


We have no statewide elections today so turnout will likely be low.  However, there are some important propositions on the BACK of the ballot.  Make sure you turnover the ballot and make your voice heard.


Thursday, October 31, 2013

Thursday comedy

I really wanted to have some sort of snarky comment about how people have too much time on their hands or something but this video is clever and revealed something about the NYC subway system that I didn't know.  The reactions of the conductors is great.

This second clip has some salty British language in it.  Please try not to be offended and don't click if you think you might be offended.  However, if you want to laugh heartily, watch this grandmother playing Grand Theft Auto V.

Perhaps the more disturbing thing for me is the level of violence in Grand Theft Auto V.  Wow - I guess I've been living in a protective bubble when it comes to video games.  As a reminder, Take Two - the maker of GTA V - said they sold over $1.0 billion of this game in just the first 3 days after its release.


Wednesday, October 30, 2013

Oh, my aching back

I'll preface this by saying that I am not trying to make light of any back issues.  I've pulled a muscle or tweaked a nerve before and it is a very difficult issue to deal with.

However, with close to 33% of all disability claims being for back and other musculosketal issues it's worth reviewing.  Interesting the percentage of claims relating to back/musculosketal has jumped from just 8% of claims in 1961 (50 years ago) when arguably the bulk of the workforce was engaged in more physically demanding jobs.

However, the real subject today is the push for unnecessary procedures and what this means for our economy as we attempt to have a serious discussion about the future of healthcare in this country.  Yesterday, the Washington post published an article on the rise in spinal fusion surgeries and the push by some doctors to encourage patients to pursue this course of treatment even when it is not in their best interest.

"By some measures, Federico C. Vinas was a star surgeon. He performed three or four surgeries on a typical weekday at the Daytona Beach, Fla., hospital that employed him, and a review showed him to be nearly five times as busy as other neurosurgeons. The hospital paid him hundreds of thousands in incentive pay. In all, he earned as much as $1.9 million a year.

Yet given his productivity, some hospital auditors wondered: Was all of the surgery really necessary?

To answer that question, the hospital in early 2010 paid for an independent review of cases in which Vinas and two other neurosurgeons had performed a common procedure known as a spinal fusion. 
The review was conducted by board-certified neurosurgeons working for AllMed, a company accredited to audit health-care businesses.

Of 10 spinal fusions by Vinas that were selected, nine were deemed not medically necessary, according to a summary of the report.

More than 465,000 spinal fusions were performed in the United States in 2011, according to government data, and some experts say that a portion of them — perhaps as many as half — were performed without good reason."

There is a ton of good info in the article :
*  a 600% increase in the number of spinal fusion surgeries in the US in the last 17 years.
* treatment rates in the US are 3 times higher than Australia or the UK
* Sales of spinal fusion medical equipment exceed $5 bil/yr - twice the rest of the world COMBINED!

These are some of the issues playing out in the healthcare/insurance landscape today:

* Insurers are scrutinizing every treatment (even those medically necessary) because they have had to pay out on unnecessary treatments.

* Insurance companies "deal with the cost" so consumers and doctors (the ultimate parties in the transaction) never discuss cost.  The next time your doctor recommends a test or something ask what it costs and you'll more than likely be greeted with a blank stare.

I wish we could have a rational conversation on healthcare but as the antics in Washington have shown rational + DC is not an equation that works.


Monday, October 28, 2013

Well, this is one way to avoid the smog

China's excess capacity of new construction is really starting to hit epic levels.  Despite the claims of 90% home ownership by the government, anyone with eyes can see they have built housing far in excess of their current needs.

In one particular city in China with about 800,000 residents (roughly the size of San Francisco) there are 200,000 units for sale!!!

However, the latest entry into the "all that looks like glass may not be glass" contest is this building in Qingdao province.

A new high-rise residentail apartment building in Qingdao, China with fake windows that were painted onto the walls.

Looks great, right?

Well, upon further inspection we notice that all of those windows on the brown facade are....... well, let's go to the photo evidence.

"Fake windows" painted onto the exterior walls of a new high-rise apartment building in Qingdao, China.

Yep, that's right, painted on!  Who needs actual air when you can enjoy simulated breezes next to your concrete windows?

To be fair, it does appear as though each apartment does have windows and balconies, but the painted windows are there just to give the building that special touch of class it was missing before. :)

Photos via

Miscellaneous Monday

I've had a couple of interesting things hanging around for the past week so this seems like as good a time as any to share them.

The volume of bad news now piling up is just relentless, but the only thing more relentless is the upward march of stocks.  When investors that control enormous pension funds start telling me (as they did last week) that "Hey, if we get a few more good years of 15-20% jumps, we'll be in good shape" you know that the complacency is really setting in.

I love this quote which sums up everything I've been trying to say for the past 2 years - "Asset prices are higher than they should be based on fundamentals. Companies are making profits, but they're not making profits off of higher sales -- they're making profits off of constraining costs and particularly labor."

I'm more and more convinced that there is no exit plan for the Fed. They hinted at cutting back their QE3 from $85 billion to $70 billion a month and stocks fell 10% this summer and everyone panicked. How, in the world can they wind down to $0 in the next 6-9 mths? Stocks can't fall with the Fed in the market and the Fed can't leave the market for fear that a decline in stocks will cause another "crisis". Their plan has successfully increased asset prices, but to what end? If the end goal was to stimulate lending and growth, that has not occurred in any meaningful way. In much the same way that the White House claims not to have known about our spying on foreign leaders, I'm not sure the Fed understands the ramification of their actions.

Stat of the day:

"In 2010, the top 1 percent the US population accounted for 21.4 percent of total expenditures with an annual mean expenditure of $87,570. 

The lower 50 percent of the population ranked by their expenditures accounted for only 2.9 percent and 2.8 percent of the total for 2009 and 2010 respectively."


Wednesday, October 23, 2013

The Future of Retail?

I read this story about a new company being launched last night and had a scary vision for the future of retail....

Video analytics startup Prism Skylabs announced today that it has raised $15 million in Series B funding.
The company launched at TechCrunch Disrupt in 2011. It says it can use footage from existing security cameras to provide retailers and other businesses with “web-style analytics”.

For example, the company says it can provide graphics showing footpaths through the store, heat maps of customer interest, and customer counts and conversion."
So, as I understand it this software will follow people through a store and say, "well she lingered about 36 seconds in front of the frozen vegetables before making a selection or 72% of customers walked down the milk aisle but only 12% of customers walked down the soda aisle."
I can see where this would be EXTREMELY valuable to retailers with large data repositories (Walmart, etc) and I think this company is really onto something.  However, I fear the day when this company merges with a Groupon of the future.  
Imagine walking down an aisle in your local Walmart/Target and getting hit with hologram-style pop-up ads throughout the store (now, that I've mentioned it I'm sure someone will build that app and raise $100 million in Silicon Valley next week).

Tuesday, October 22, 2013

Video of the night :)

Complete unrelated to anything, but this video should bring a smile to your face.  Apparently, this boy really struggled with math (or maths, if you are in the UK).  However, he managed to pass the class and the joy in his father's voice is just awesome.

An Inconvenient Truth - To fix the economy we should shutdown the stock market

I'll get to the subject in a second.  First, a little primer on the lunacy that has overtaken the stock market.  Today the delayed September jobs report was far weaker than expected with just 145,000 jobs created (mostly temporary, trucking and sales).  HOWEVER, the stock market read that as "the Fed can't cut off the juice until March so RALLY ON!!!".  Then at 10am a better than expected construction number came out and that sent the computers into an absolute frenzy!  So bad news - buy, good news - buy, no news - buy.....

I've seen this play out before in 1999 and 2007 and I think we remember what happened in 2000 and 2008.  This will not end well, but it's probably a 2014 story.

This actually leads me to my original idea for today's post.  I'll preface this by saying that my theory could never, ever be put into practice because there are too many people that make too much money off the stock market to abandon it.

However, I believe that it is true that in order to fix our economy we should close our stock market indefinitely.

This seems counter intuitive when you hear every day (as you will throughout the day today) that the "STOCKS SURGE TO NEW RECORD HIGHS" because of X, Y or Z.

However, the great untold story of this bull run is not that it's Fed driven (that's pretty well known at this point) or that it's the most hated rally ever (also well known) but rather that any growth in earnings has come almost exclusively from cost cutting for four years. Sales growth has been almost nonexistent for many segments of the economy but lower borrowing costs and lower labor costs have allowed companies to continue to post stronger earnings (although that trend is faltering in the current quarter).

So, why does this matter?  Well, if Microsoft really wanted to compete with Google they'd be hiring 10,000 new employees to work on new projects, instead they sit on piles of cash.  Apple could be hiring engineers to build the next great ithingy, but instead the sit on mountains of cash.  This is basically the dilemma for every major global company today.  If you invest in the future, your short-term results will suffer because your revenues are flat to declining.  If you defer investing in the future you are rewarded every 3 months with a rising stock price.  What's a CEO to do?

In an ideal world we'd take every company in the world "private" overnight by eliminating daily trading of stocks.  This would enable companies to act like private companies and make smart, strategic long-term decisions.  Think about the difference in the way Wegman's is run versus Walmart - Wegman's invests in it's employees and while this is expensive over the long-term this leads to a better experience for the customer and the employee.  However, Walmart can't make that same commitment because they need to show earnings growth every 3 months.

If the stock market took a 10 year breather we could allow companies to think strategically once again.  However, this is just a theoretical exercise because it could never happen in reality :(


Friday, October 18, 2013

Friday night lights

A couple of my favorite clips from around the web today.

1) All I can say about this video is I hope this trend never makes it upstate.  Cool video, though.

2) The next time you think something you have to do is hard think about this guy who not only rode across America in 36 days, but shows you how to change a bike tire in case you were wondering how it's done ---- without hands.

Leaping from Crisis to Crisis

Presented without comment....

Google search for the terms Egypt, Syria and Shutdown.

Okay, a little comment.  Remember way back in August when the "coup that wasn't a coup" occupied every second of every day during the 24 hour news cycle?  Well, for the record there still is plenty to talk about there - a new protest law that is said to be more oppressive than during the Mubarak years and reports yesterday that Egypt is detaining Syrian refugees - but we moved on for some reason.

Oh that's right --- SYRIA!  Remember the line in the sand, the military build up, the threat of War number "who knows I've lost count"?  Well, the country is still in shambles, the refugee crisis is unmanageable and there has been no meaningful change in leadership.  Recall, that I felt this was all too rushed so I'm actually pleased with the current pace, but I'd still like to see us doing more to help the civilian population. However, we've moved on, why?

Oh that's right --- DEBT CEILING/SHUTDOWN SHOWDOWN!  I won't bore you with all of the nonsense that's been covered for 25 hrs a day for the past two weeks but it makes you wonder what is the next great story that will be invente.... I mean, that will capture the media's attention.


Wednesday, October 16, 2013

Truth in Press Release

I know I'm a fairly cynical person but I'm still capable of being surprised by the amount of spin used by politicians.

For exhibit A, I present our current 2016 Presidential candi........ um I mean Governor of the Great State of New York, Andrew Cuomo.

Last week his office (again this is really not the Governor's fault it's the politically aggressive consultants that surround him) put out a press release touting the fact that there are more than 82,000 jobs available in NYS right now.  Sounds great!

But, and you know there has to be a but, the reality is a little different.  Reading into the details on the actual website we find some interesting facts.

1) The employers with the largest number of job openings in EVERY region of the state are either

* Hospitals (thank you NYS for spending more on Medicaid than Texas and Florida combined!) or

* Colleges/Universities (thank you student debt bubble).

There are two exceptions - in Western NY Geico runs a huge call center and needs lots of low wage call center employees and in NYC where the Fire Department has over 1,000 openings despite the fact that fires and fire deaths are at record lows.

So, there is nothing inherently dishonest about this item, but if you lead with a statement like “We are seeing more businesses come and expand here in our state which in turn is creating more job opportunities for New Yorkers," but most of the largest openings exist with hospitals and colleges that have been around for 100 plus years, it's at best a little white lie.

2) The VAST majority of the available jobs are retail (categorized as Sales) and clerical.

3) The job site tool allows jobs in neighboring states to show up in the search results so the total of 82,000 available jobs may be misleading.  In fact, on the day of the press release a company called Air Wisconsin was listed as having 1,100 available positions in NY that have subsequently disappeared.

There is some good news to spread on the rebound in NYS which has largely been driven by the stock market recovery.  That is an okay story to tell, but when people try to spin a story to fit their narrative (ie, we need to show all of NYS recovering) it leads to press releases that less representative of the truth.

Update - The market exploded higher on the Rep Boehner news - up over 100pts - but when the Rep Boehner's office denied that deal via twitter (and then deleted that denial), the market didn't even really sell-off.

Buy the rumor and sell the news is the traditional model, but it might be evolving into buy the rumor, buy the news and buy for the sake of buying!!!


Rally on Rumor - Version 4.0

Here we go again.  I remain convinced that if the powers that be had come to an agreement on 9/30 to keep the government open and increase the debt ceiling we'd probably have lower stock prices than we do right now.

Remember, that despite all of the gloom and doom predictions, stocks are roughly 1-2% HIGHER today than they were when the government shutdown on 9/30.  Why?  Principally, it's two factors in my opinion -

1) The headline reading computers buy everything in sight, whenever the words "deal" hit the wire.  Yet, when the deals hit a snag they only sell off slightly.  So stocks go up 0.5% on rumor and only go down 0.25% on the real news so at the end of the day they end up higher.  Do that for 5 straight days and the markets go higher.  Right now the stock market is REWARDING the stupidity in DC - Congress will look at the headlines which will all read "MARKETS SET NEW RECORD ON DEBT DEAL" and say "See we did that".

2) The media only watches stocks.  No one but the geekiest of Wall St. geeks follows the t-bill market.  However, short-term debt is acting like there is a high likelihood of a fly entering the ointment.  I honestly can not see the happening but I never thought we'd be talking about the lack of a debt deal in mid-October.

It sounds like Rep Boehner will bring the Senate version up for a vote (which will pass with 20 moderate Republicans jumping on board).  The removal of this catalyst (what, you mean there won't be any debt deal rumors tomorrow?) could cause a bit a vacuum in the markets but we'll have to see how it plays out.

Thursday, October 10, 2013

With apologies to Kansas - "Rally on my wayward son"

The (silicon-based) powder keg that is Wall Street was lit up today when word began leaking that a temporary debt ceiling deal looked to be in the works.  Unfortunately, tonight it sounds like any deal is still in the "negotiating phase".

As I mentioned before this has a very 2007 feel to it when we'd have huge explosive rallies on rumors only have those rumors denied later.  My concern is that the complacency on Wall St and around the US is really startling.  If you read the press around the globe you'll get a sharply different view of this shutdown.  In particular, it seems that many around the globe are very concerned that our government has moved to a point where it can no longer effectively govern by making any hard choices.

The volatility in the markets around the press releases coming from both parties is disconcerting.  However, I don't expect it to end any time soon.

The markets will breathe a huge sigh of relief whenever a deal is finally reached but if it is merely a short-term financing deal with many conditions, then I'll continue to worry about a death by 1,000 cuts.

Markets jumped 2% during the day and fell 1% after hours when it was reported that a deal had fallen apart (later amended and markets jumped back up 1%).  The point is that someone is probably making their entire year based on this volatility.

By the way, just in case you get the crazy idea that the powers that be in Washington will be able to figure this whole mess out consider this story.

"Linn’s Stamp News reports that the US Postal Service will destroy the entire press run of a stamp series aimed at getting children to be more active

According to Linn’s reporter Bill McAllister, three of the stamps in the fifteen stamp series raised safety concerns among sports figures on the President’s Council on Fitness, Sports & Nutrition. The stamps in question depicted children performing a cannonball dive, skateboarding without kneepads, and doing a headstand without a helmet. 

The unsafe depictions came to light after USPS Marketing chief Nagisa Manabe asked Michelle Obama to take part in a first day ceremony for the stamps. That was apparently the first time the stamps had been reviewed by the Sports Council."

A) Who in their right mind thought that a set of stamps would motivate children to be more active?  I would love to see the kid that was sitting in front of his XBOX playing Call of Duty but suddenly decides to go do a headstand because his mail came with a "cool" headstand stamp.

B) What in the !@$% is a headstand helmet?

C) I think most kids would be hard pressed to understand what you even do with a stamp. 



Well, that was fast - everything is fixed and then some

The markets have decided that a temporary debt ceiling deal will fix all of our problems and they have exploded back to pre-shutdown levels.

Here's the way I see things right now:

The Senate wants to move the issue of the debt ceiling off the table until December 2014.  Hmm, I wonder what happens in NOVEMBER 2014 that they would want to have the issue of the debt ceiling removed from our collective minds? Oh, that's right, those silly mid-term elections.

Anyway, that's the Senate's proposal and I suspect that is what we will ultimately end up with.  I imagine we'll get a series of small debt ceiling extensions with a final grand deal around Thanksgiving that hikes the debt ceiling by $990 billion (then everyone can claim a victory lap because they stopped moving up in trillions and they will defer the next conversation until after the elections).

The House is in a tougher spot.  They really want the conversation to begin on spending/debt, but they can't get out of their own way.  I believe they'll move forward with a continuing resolution in the near-term, but it might be very short-term (4-6 weeks).

Finally, the White House is sticking by its position that they want a clean budget and a debt ceiling hike.

Right now it sounds like very little has changed but someone must know something because the markets haven't sold off one bit during the day.

This feels a lot like many of the wild swings we used to get during 2008.  Markets fall 1% on bad news, then rally 2% on a rumor and then fall 1% on the actual deal.  It's not great for the confidence of the markets or the long-term investor, but for traders (who represent the bulk of market activity on any given day) this is just what the doctor ordered.


Tuesday, October 08, 2013

A little midweek humor

In an effort to lighten the mood a bit consider too of my favorite obscure news stories of the day......

1) What's the one ingredient you have to have in a Pumpkin Pie Donut? Well, obviously pumpkin right?  Not if you're Dunkin Donuts apparently.  Over 50 ingredients in their Pumpkin Pie Donut but surprisingly absent --- Pumpkin.

INGREDIENTS: Donut: Enriched Unbleached Wheat Flour (Wheat Flour, Malted Barley Flour, Niacin, Iron as Ferrous Sulfate, Thiamin Mononitrate, Enzyme, Riboflavin, Folic Acid), Palm Oil, Water, Dextrose, Soybean Oil, Whey (a milk derivative), Skim Milk, Yeast, Contains less than 2% of the following: Salt, Leavening (Sodium Acid Pyrophosphate, Baking Soda), Defatted Soy Flour, Wheat Starch, Mono and Diglycerides, Sodium Stearoyl Lactylate, Cellulose Gum, Soy Lecithin, Guar Gum, Xanthan Gum, Artificial Flavor, Sodium Caseinate (a milk derivative), Enzyme, Colored with (Turmeric and Annatto Extracts, Beta Carotene), Eggs; Pumpkin Pie Flavored Buttercreme Filling: Sugar, Vegetable Shortening (Palm Oil, Canola Oil, Mono and Diglycerides), Water, High Fructose Corn Syrup, Spices, Yellow 5, Corn Starch, Guar Gum, Salt, Natural Flavor, Artificial Color (Fractionated Coconut Oil, Caramel Color, Blue 2 Lake, Red 40 Lake, Yellow 6 Lake, Sunflower Lecithin), Polysorbate 60, Red 40, Potassium Sorbate (Preservative), Citric Acid; White Icing: Sugar, Water, Corn Syrup, High Fructose Corn Syrup, Partially Hydrogenated Soybean and/or Cottonseed Oil, Contains 2% or less of: Maltodextrin, Dextrose, Soybean Oil, Corn Starch, Sodium Propionate and Potassium Sorbate (Preservatives), Salt, Titanium Dioxide (Color), Citric Acid, Polyglycerol Esters of Fatty Acids, Agar, Soy Lecithin (Emulsifier), Artificial Flavor; Graham Crumb: Enriched Wheat Flour (Wheat Flour, Niacin, Reduced Iron, Thiamin Mononitrate, Riboflavin, Folic Acid), Whole Wheat Flour, Sugar, Soybean and/or Palm Oils, High Fructose Corn Syrup, Molasses, Honey, Salt, Sodium Bicarbonate.

2) This is just a promo piece for an upcoming Carrie remake which I normally would ignore, but the effort that went into creating this piece was pretty clever.  It's been viewed almost 10 million times since it's release yesterday so if you haven't seen this yet, you will soon.

So many headlines, so little time

The biggest market moving news of the night is that President Obama is set to nominate Janet Yellen to replace Ben Bernanke as the next Chair of the Federal Reserve.  Yellen is widely viewed as being a proponent of continuing many of the monetary policies that have existed for the past 2 years under Bernanke and that is believed to be bullish for stocks.

Unfortunately, there is little "wow" factor in this announcement as she was already the odds on favorite (1-7 were the last odds I saw) and despite popping immediately on the news, futures have started drifting lower already.

So, what was that all about today?  Stocks finally had a reaction to the idea that there is some serious dysfunction in Washington.  While it was not a sharp enough move to jump start any substantive negotiations it probably got their attention.  If you remember back in 2008 everyone was convinced that a TARP deal would pass Congress.  When it didn't, stocks crashed 800 pts, THEN Congress decided to act.  I'm not predicting a similar move, but absent such a crash, it's hard to see Congress coming together over a little 150 pt drop.

As I mentioned earlier today, the bond market freak out is what drove stocks lower and that move in interest rates was the greatest since the Lehman collapse 5 years ago.  If any further issues arise in the bond market we could see some real fireworks.

Other fun headlines to absorb......

* Alcatel-Lucent to cut 10,000 jobs

* The change in the Gallup US Economic Confidence Index in the last week was the greatest decline since the Lehman bankruptcy (there's that L word again).

* Since I mentioned technicals yesterday, I thought I would note that we did break through the 1,666 level which seems to indicate that we could be headed even lower.  I've seen people say 1,580 for the S&P and 13,900 for the Dow seem to be the chart targets they'd watch if this gains momentum.

If you are a data junkie get ready to get your fix.  There is a TON of great data on the shutdown of the government at  The chart at the bottom of the page shows each department of the government with it's % of employees furloughed and those that are exempt.

For example, it's no fun working for the Department of Education (95% furloughed), SEC (94% furloughed) or NASA (97% furloughed).  However, the VA, Homeland Security and Justice department seem to be suffering to lesser degrees.

Separately, is anyone else surprised that the Department of Veterans' Affairs is the second largest group of Federal employees representing 16.6% of all Federal employees?  We have 332,000 employees in this group serving 3.1 million veterans?  That was news to me.