Sunday, September 29, 2013

Here we go again with the DC follies and is it the return of pets.com?

So we're back to high drama in DC as certain members of both parties feel they are getting insufficient press coverage relative to the hype surrounding the "Breaking Bad" finale.

Here's what we know - The House continues to tie any future funding past Monday to delaying implementation of the Affordable Care Act.  The Senate and the White House have said no dice.  Thus it sounds like at least some type of government shutdown will occur.

To be fair, despite all of the drama, this is a fairly regular occurrence with 17 shutdowns since 1976.  There will be a great deal of angst as these characters stare one another down but ultimately, the impact on the economy and the markets should be muted.  Despite all of the hype the likely impact is some minor delays in government reports and some reduction in services, but there is sufficient funding to keep going through October.

We will never miss an interest payment or any of the scarier things that will be tossed around by the talking heads.

However, I think we should take note of what is going on in Europe again.  We've sort of let Europe slip from our collective consciousness.  Italy's fragile 7 month old government seems to have suffered a severe setback over the weekend as one party resigned en masse.  The result is that we have another destabilizing factor to consider in the global markets tomorrow.

Finally, keep in mind that from a technical perspective the S&P 500 is right at it's 50 day moving average.  A crack of that level and things could get interesting, especially considering that it is the end of the month and quarter which can cause markets to act unusually.

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I half-joked with a friend that someone was going to come up with an AirBnB for pets soon.  For those that don't know AirBnB is a website where you rent out your house/condo/apartment to strangers and act as your own hotel operator.  Yes, you are right to say "who would do that?" but AirBnB is definitely one of the hottest start-ups founded in the past 4 years.  

Well, as if on cue CNBC provides this fluff piece on DogVacay which allows random people to sign up as petsitters for your beloved Fido.  This company has already raised $7 million in venture capital financing.  As Suzyn Waldman might say "Goodness gracious, of all the dramatic things...."

We all remember pets.com as being the top of the dotcom bubble version 1.0 and I'm always on the lookout for the next warning signal.  DogVacay is like a giant flashing warning sign in my opinion.

Cheers!


Saturday, September 28, 2013

Saturday night humor

When you read a story that leads with "47% of US jobs are susceptible to automation in the next 20 years" you need to counter that with a little humor.

Hat tip to reader Brian Jones who provided a link to this gem - pedestrians vs. cars in Russia.  No wonder there are so many dashcams in Russia.  While, I'm thanking readers - many thanks to the gentleman at Sam's Club that tipped me off that the blog had been kicked offline.  If not for his heads up I'd still be posting to a website that didn't exist :)


Equally entertaining is this clip of the parking at a Russian parking lot.


So yeah, our government is about to shut down (I'll have thoughts on this tomorrow, but the fact that we've gone from a 5-10% chance of a shutdown a week ago to 70%-90% chance of a shutdown is insane) but at least we're not jumping in front of cars for a quick payday ........ yet :)

Cheers!


Tuesday, September 24, 2013

Go to college Johnny just don't blow all of your money on granite countertops and Abercrombie shirts

I've been arguing for some time that increased access to low-cost student loans and additional lending activity are the primary drivers behind today's skyrocketing tuition costs.

There is a fair amount of evidence to back this up, but it doesn't seem like anyone wants to admit this truth.  The answer to rising college costs never seems to be "hey, let's use technology to lower barriers to entry, increase the quality of the education and cut the cost".  The answer from policymakers is almost universally "hey, let's give students more debt so they can pay the higher tuition rates!!".

However, this article published yesterday raises some very real questions about another boom that is being fueled by student loan debt - commercial real estate and retail expansion.

" In a rarely reported development, the vast student-loan sector is helping prop up retail stores and travel companies in a bubble of spending around college towns across the country.
Even housing developers have gotten in on the deal, as some free-spending students are eager to spend borrowed funds on expensive housing -- fueling a property boom as new construction goes up near college campuses. Some multilevel luxury spaces aimed at students can rent for more than $1,000 a bed each month. At the University of Texas at Austin, student properties near campus go for an average of $907 a month this year, according to apartment market researcher Axiometrics."
The concept of using student loan debt to pay for housing is not necessarily new, but using that money to rent a space off-campus from a large developer with many, many units around the country, is new.

Retailers have also seemed to pick up on this trend -
"Some brands, such as American Apparel and Urban Outfitters, often play for students by renting costly storefronts on student drags rather than malls in outlying suburbs.
"There’s been a big trend in growing relevant retail into college towns, in the vicinity of the campus," said Antony Karabus, founder of Karabus Management, a retail advisory firm. "The kids aren't starving anymore. Kids are taking out large student loans, and they have fun money for clothes, electronics, whatever they want."
So, is this a direct transfer of wealth from students' loan balances to large retailers?  No, but in much the same way that every town of 4,000 people NEEDED a Home Depot or Lowe's during the housing bubble, these retailers are positioning themselves to ride the wave of students attending college.  If that conveyor belt of students gets disrupted - either by another financial crisis or by a shift in the education industry - these developers, retailers and by default, their bankers may be in trouble.

Cheers!

Monday, September 23, 2013

Filtered Reality

Both of these stories tackle the problem of perspective as it relates to news flow on the internet.


1) The biggest financial news of the day was the late day breaking news that Blackberry had agreed to be acquired.  Well, at least that's the way all of the headlines read.  Blackberry to be acquired for $9 per share....

As the infomercials always say "but wait there's more".  Here's the thing, the acquiring company already owns 10% of Blackberry.  They heard a lot of the chatter on Wall Street today that included comments like "Blackberry has effectively entered corporate hospice" and "Blackberry's value is about $2/share" and decided that 10% of a $9 stock is better than 10% of $0.

However, as the details slowly emerged it became clear that the "buyer" isn't fronting any money, is not obligated to actually buy the company, can back out after due diligence and there is no deal if Blackberry can't get financing for the $4.7 billion deal.  Yeah, do you want to be the banker that's going to finance that deal? Blackberry remains an immense source of national pride for Canadians and they struggled for a long-time with the collapse of Nortel.  I believe this was an attempt at a "stick save" by an investor.  They may be hoping to prop the company up long enough to convince Steve Ballmer (outgoing Microsoft CEO) or Marissa Mayer (maybe soon the outgoing Yahoo CEO) to buy the remains of Blackberry.  Good luck with that....

2) There were two stories today on opposite sides of the country re: the problem with online reviews.  I have always operated under the assumption that everyone knew that a wide number of online reviews from yelp to Amazon to foursquare were fake.  Fake reviews of products tend to be pretty easy to spot because they are exceedingly elaborate with tons of specifics that normal people would never note.  It gets a little harder to spot fake reviews on sites like yelp because the reviews tend to be shorter.

However, in NY our attorney general has taken the position that these false reviews are the equivalent of false advertising.  At the same time in California Angie's list appears be allowed advertisers to jump to the head of their listings.  That's a troubling trend.

Just remember that when you read something online to question the source, question it's validity and read beyond the headlines :)

Cheers!

Louis CK is off his rocker...

This commentary is about as far from the markets as you can get but here goes...

Louis CK, for those that are unaware, is a painfully funny comedian of the Jerry Seinfeld mode.  His observational humor on parenting and the people he encounters is some of the funniest stuff you'll ever see (however, if you have sensitive ears you might want to take a pass because he is very graphic).

He's recently made the rounds with a clip from a late night TV talk show where he rails against kids having cell phones.  Some of his arguments are sound but he misses the boat on a one big item.

"I think these things are toxic, especially for kids...they don't look at people when they talk to them and they don't build empathy. You know, kids are mean, and it's 'cause they're trying it out. They look at a kid and they go, 'you're fat,' and then they see the kid's face scrunch up and they go, 'oh, that doesn't feel good to make a person do that.' But they got to start with doing the mean thing. But when they write 'you're fat,' then they just go, 'mmm, that was fun, I like that.'

While this is spot on and I completely agree, he's targeting a vehicle - cell phones - rather than the greater issue - technology in our culture.

Take away a child's cell phone and they login to instagram, snapchat or kik on their laptop.  Take away the laptop and they use Mom's ipad or their sister's ipod.  Take those away and your child will just login at a friend's house.  

The key is to not stick your head in the sand.  Small minded people will say stupid things on the internet (if you don't believe me look up some of the ridiculous tweets sent out after Miss NY won the Miss America pageant last week - thank you www.publicshaming.tumblr.com for recording these idiots).  This will be going on for the rest of our time on this planet.  It's best to address it now with your kids because if you don't there will come a time when they are going to get the shock of their lives when you lift the tech veil off them when they go to college.

Cheers!

Thursday, September 19, 2013

Which camp do you fall in?

Today the markets collectively exhaled post-FOMC announcement and basically tread water all day.  Much of the day was spent with a variety of talking heads making grand pronouncements about what the Fed's decision means.  These theories basically fall within 2 camps:

1) To the moon, Alice, to the moon!  The first camp says that you can't ignore the Fed and all assets are going higher.  This means higher stock prices, higher home prices (if the Fed is successful in lowering rates), higher prices for commodities (oh, yeah gas will probably go up) and probably a lower value for the US dollar.  A subset of this group are those that say just buy the insanely overvalued cult stocks (like Tesla, Priceline, etc) and that worked today, but I wouldn't want to be on that merry-go-round when the music stops.

2) It's game over. The second camp says the Fed has lost credibility after the announcement yesterday.  This camp says that there is no end game and perhaps the Fed is really making it up as they go along.  This definitely became the in vogue position today because everyone wants to be the guy or girl that calls the next big move to the downside. There really is very little to support this theory right now because logic says everything should continue as it has for the past 12 months.  However, when everyone is least expecting it a wild card - Greece (remember them), Syria, Egypt, interest rates moving upward despite the Fed's efforts and a further weakening of the global economy - can derail this plan.

So where do you fall - Camp 1 or Camp 2?

To be continued....

Wednesday, September 18, 2013

As Steve Winwood might say we are "Back in the High Life Again"

Well that was eventful.  There are a ton of things to discuss as it relates to today's record surge in stocks.

1) The taper is off - Okay, let's back up a little.  Remember that the Federal reserve has been engaged in a program for the past year buying $85 billion of mortgage backed securities and treasuries in the open market each month in an effort to hold interest rates in check.  Historically, the Federal Reserve would lower interest rates when it needed to spur economic activity.  However, with interest rates already at historic lows, Quantitative Easing has provided additional liquidity to the markets.  The hope is that this added liquidity will drive increased investment by companies, increased hiring and an economic recovery.

The consensus going into today was that the Fed would say something like "due to some pockets of improvement in the economy we will start reducing our purchases to $75 billion per month" or something to that effect.  Extremely low interest rates means that investments have to chase yield and return in other places like stocks.  So, the Taper (the Fed winding down their buying slowly) was expected to be a negative for stocks as interest rates started to rise.

However, over the summer something odd happened.  The economy basically stalled out.  We're not in recession but we're not growing like we should at this point of the recovery.  This slowed down in the economy was significant enough that it led the Fed to stick with QE3 for the foreseeable future.  That's all the computers needed to hear as stocks shot to all-time highs in 10 milliseconds (more on this in a minute).

So, to recap, the economy is weakening, so the Fed purchases will continue, so stocks are at all-time highs.

I'll go into what this means in the long run in another post but I'll say now that Mr. Bernanke has painted himself (and us) into a corner.

2) The trade - the market dissemination of this data was unreal.  The entire move in stocks happened in a bat of an eye.  In fact by the time you or I read the Fed's statement the computers had already deciphered the report and moved the market to all-time highs.  However, people that are much more informed on market news dissemination point out that both NY and Chicago exchanges traded up at exactly 2:00:00.000.  They point out that these exchanges are separated by 7 milliseconds (basically the speed of light which the amount of time it should take this news to reach Chicago).  So the implication is that someone preloaded this information and released it to the highest bidders at exactly 2:00.  This is effectively the new version of insider trading however, because it makes stocks go up no one cares.  However, there will come a day when these trades will go the other way (remember traders make money on moves regardless of direction) and when they start SELLING stocks on information received early you can be assured there will be Congressional investigation.

There are many, many other things to discuss but we'll save those for another day.

Cheers!

Sunday, September 15, 2013

Best of the web

Some great reads that I couldn't pass along earlier because of the web issues.

Thai Airline has their priorities straight?

"A Thai Airways Airbus carrying 302 people suffered a landing gear malfunction on Monday, rolling off a runway at Bangkok’s Suvarnabhumi Airport. All 288 passengers and 14 crew members survived, though 14 people were taken to the hospital with injuries.

Shortly after the accident, Thai Airways brass demonstrated that they had their priorities in order, sending a crew armed with black paint to hastily cover the airline’s logos on the tail and fuselage of the disabled plane (pictured) as it rested helplessly on the grass -- an apparent, desperate attempt protect the airline’s image."


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One more reason to fear snakes

There are few things more chilling than the sound of a nearby rattlesnake. That distinctive sound serves as a warning that trouble could be on the way. The only thing worse than hearing a rattlesnake within striking distance — is not hearing it at all. A herpetologist in South Dakota's Black Hills has discovered a growing number of Prairie Rattlesnakes with atrophied tail muscles; he believes it's a genetic issue that multiplies because those snakes that can rattle usually end up being killed. But others think the situation could be an evolutionary development to avoid detection.

Cheers!

The End of "Summer"(s)

Even if you are just a casual market observer you are going to be sick of hearing two names by tomorrow.  Larry Summers - the Harvard insider with deep White House connections - called the President today to ask that his name be withdrawn from consideration for the next Chairman of the Federal Reserve.  This is welcome news because I think Mr. Summers would have been way over his skis trying to run the Fed and I was really tired of seeing him fail "upward" with progressively better jobs in government despite failing at each job miserably.

So, despite the market consensus that Mr. Summers was the odds on favorite to be named the next Fed Chairman the next man up - or in this case, next woman - will be Janet Yellen.  Ms. Yellen is widely viewed as being less Wall Street friendly but she is a fan of QE.  What this means for the Feds plan to taper QE3 this Fall is unclear, but the initial reaction in the futures market was clear - stocks exploded higher on the hopium that QE4EVER.

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This is a bit of a local story but it really speaks to some of the bigger issues we have in this country with spending, and the militarization of our local police forces.

Jefferson County's Sheriff Department will receive a $600,000 MSRP 19-ton Humvee on Steroids from the Department of Defense for "free".

To put this in a little perspective - Jefferson County has roughly 120,000 people or about 30% fewer people than Cass County, North Dakota.  A vehicle like this is designed to avoid IED's of which is not really a pressing issue as far as I can tell.

While it's pitched as being "free" to Jefferson County - the DoD will effectively be taking a 2008 vehicle and writing it down to $0 after just 5 years.  Since, this was funded through your taxes it's amazing to me that we are buying $600k vehicles with the intention of them being worth $0 after 5 years.

Cheers!

Friday, September 13, 2013

What a long strange journey it's been

Well, here I was blindly posting away on blogger without ever bothering to visit the actual website at www.grindstonefinancial.com.

Fortunately for me, I ran into a Grindstone reader in Watertown who mentioned that the website was down. Thus, began a 3 day odyssey through a maze of google accounts and support sites.  Although, I had paid for my domain renewal in August, Google changed their approach to regarding renewals like mine and actually considered my account past due.

That might have been the end of the story and the end of grindstone financial if not for an incredibly helpful customer service rep for Google.  After a simple set of instructions and a couple of clicks the website magically sprang from the ashes.

So a huge thank you to those that helped me bring the site back!

I'll make sure to post some good tidbits on the recent market run (taper off?), the next fed governor and more over the weekend.

Brian

Tuesday, September 10, 2013

Tuesday, September 03, 2013

Is the STEM crisis a myth?

For those that have been reading for awhile, you know that education is a bit of an obsession of mine.  I know that this can be a dry subject for many so accept my apologies ahead of time because today we're talking STEM (Science, Technology, Engineering & Math).

The current mantra around the country is a simple one - the jobs of tomorrow will require a greater understanding of STEM.  Countries around the globe are crushing our kids in these subjects (here, I'd argue that we have geographic pockets of strength that are equal to or exceed these countries performance - Northeast suburbs, VA/MD, pockets in California/Washington, etc).  President Obama has frequently cited a report that says we will have a need for another 1,000,000 STEM graduates in the next decade.  Personally, I've sat in on meetings at the local and state level to work on increasing the number of students pursuing careers in STEM.

So, you can imagine my surprise when I read an article yesterday that basically says the whole crisis in STEM is a myth.  I'm always looking for opinions that sit outside of the general consensus because those ideas are often the most accurate in the long run.  When someone says the crisis in STEM is a myth that should get our attention.

From the article "And yet, alongside such dire projections, you’ll also find reports suggesting just the opposite—that there are more STEM workers than suitable jobs. One study found, for example, that wages for U.S. workers in computer and math fields have largely stagnated since 2000."

Additionally, the author cited a rather stunning statistic that 2 years after graduation 20% of STEM graduates are working in non-STEM related fields and that number grows to 58% after 10 years.
The author also points out (accurately, I'd add) that the most often cited study on the need for STEM workers over the next decade was based on a study from 2009 that did not project the depth and severity of the Great Recession.  This survey assumed we'd be back to adding normal jobs numbers fairly quickly post-recession when in fact we continued to lose jobs in the STEM field well into 2011.

Finally, we get into the conversation that scares anyone with a 20 year time horizon - automation.  No longer are toll takers and cashiers the only ones that have to worry about being replaced by technology.  The move to automation is moving into the legal, accounting/finance, science and technology fields.  This is dramatically increasing efficiency but it has the potential of eliminating hundreds of thousands if not millions of high wage jobs from the STEM fields.

Using data from 2009, it seems like the US produces roughly 180,000 jobs/year in STEM related fields and has roughly 250,000 STEM graduates from our colleges every year.  This means that nearly 30% of STEM graduates every year won't find work in their chosen field (seems to mesh with an earlier stat which said 20% of STEM grads aren't working in STEM 2 years after graduation).

The author of the study loses me a bit when he starts to argue that the push for increased STEM education is part of some grand plan by corporate interest to suppress wages of STEM workers (though engineers do seem to lag the general market in wage growth, their starting wages are higher than many other careers).

I do agree with this idea - "Emphasizing STEM at the expense of other disciplines carries other risks. Without a good grounding in the arts, literature, and history, STEM students narrow their worldview—and their career options. In a 2011 op-ed in The Wall Street Journal, Norman Augustine, former chairman and CEO of Lockheed Martin, argued that point. “In my position as CEO of a firm employing over 80 000 engineers, I can testify that most were excellent engineers,” he wrote. “But the factor that most distinguished those who advanced in the organization was the ability to think broadly and read and write clearly.

That brings me to what I hear most consistently from employers - there are plenty of qualified applicants for most jobs in STEM, but there are very few standout candidates.

Overall, this was an interesting argument against something that we all just assume to be true and it made me question many of my assumptions about the future of STEM education. I still believe that a strong foundation in STEM will serve our students well, but it may be that the need for STEM graduates from colleges and universities has been overstated and maybe we should consider adjusting our policies accordingly.

Cheers!