Archive for the ‘Royal’ Category

I’ve often said that running a company with too little money is easier than running it with too much money.

I know that may sound counter-intuitive.  But not having money sharply clarifies what is important and forces you to focus on just the critical priorities.

In contrast, when you have too much money, the world is your oyster (so to speak)… so everything is possible… so most of the time you end up trying to do everything… regardless of how important — or unimportant — it is to the mission.

I believe that’s the problem with our military spending.  We have too much money.  We already can bury every other country in the world with thousands of nukes… yet we feel like we need to spend more… because… we can…

… because all we have to do is just rack up some more deficit spending.

What does this mean in terms of dollars and cents?  Way over half of our government’s discretionary spending goes to the military!

If that number was way smaller, I guarantee you that we’d get a lot more done simply by being forced to focus on our top priorities.

Whether you like him or hate him, Senator Rand Paul (KY) recently wrote an interesting piece that touches on this, entitled, Is Our Military Budget Too Small, Or Is Our Mission Too Large?  It’s short and well worth the read (underlining is my emphasis):

     Is our military budget too small, or is our mission too large?  Since 2001, the U.S. military budget has more than doubled in nominal terms and grown over 37% accounting for inflation. The U.S. spends more than the next eight countries combined.

It’s really hard to argue that our military is underfunded, so perhaps our mission has grown too large. That mission includes being currently involved in combat operations in Iraq, Syria, Afghanistan, Somalia, Niger, Libya, and Yemen. We have troops in over 50 of 54 African countries. The wars in Iraq and Afghanistan have cost over a trillion dollars and lasted for over 15 years.

Unfortunately, none of these wars have been authorized by Congress, and Afghanistan and Iraq have gone far beyond their original authorizations. And when all combined, these wars are draining our treasury. A country can only remain strong as long as it remains solvent.

In Afghanistan, we spend about $50 billion each year. Where does the money go? For troops and weapons, of course, but billions have also been spent on roads, bridges, and schools for Afghanistan. Seems a shame that bridges, roads, and schools crumble here while we persist in nation-building abroad. Maybe it’s time to do some nation-building at home.

Don’t get me wrong. I supported going after the jihadists who attacked us on 9/11. But that mission is long past over. We killed the plotters and their supporters. The question we need to ask is, “When will the Afghanis be able to defend themselves?”

Most conservatives believe welfare should be temporary, and that ultimately the able-bodied must stand on their own. Foreign assistance is no different. If the U.S. coddles and comforts and does all the fighting, the Afghanis will never become self-sufficient. People argue that the Taliban will take over Afghanistan. Not if the Afghanis stand and fight. We’ve given them 15 years of training and billions of dollars of the most sophisticated weapons known to man. Surely, the time for them to step up and fight is now.

Is it worth one more American life to try to build a nation for people unwilling to fight for their own country?

The recent 21% increase in the military budget will buy a lot of weapons, but it won’t win the war in Afghanistan. President Obama already tried that. Obama increased our troops to around 100,000, and, sure enough, the Taliban ran and bided their time for the inevitable troop withdrawals.

The Taliban now controls a sizeable area of Afghanistan. I just can’t, in good conscience, ask our soldiers to go back to Afghanistan to take back the same villages they’ve taken twice, first in 2002 and then again in 2010.

Candidate Trump wisely ran on a platform that the Iraq War was a mistake. But President Trump is surrounded by Generals who’ve never seen a war that they believe cannot be won. And so the wars continue.

My hope is that President Trump will remember Candidate Trump and tell the Generals who surround him: “Enough is enough. I’m bringing the boys home.”

 

And, I would add, “… so we can stop spending so much money on non-prioritized military stuff… so we have a hope of balancing our OUT-OF-CONTROL deficits!”

 

Advertisements

For some reason, I thought shale was invincible… that is, a technology-enabled, found source of additional oil for many decades into the future.

But I just read a ZeroHedge piece — The Shale ‘Miracle’ & The Reality-Optional World Of Bizarro Finance — and apparently shale isn’t going to be the grand savior after all.

The two original big shale plays, the Bakken in North Dakota and the Eagle Ford in south Texas, have now apparently peaked and the baton has passed to the Permian Basin in west Texas. If the first two bonanzas were characteristic of shale, we can look forward not very far into the future when the Permian also craps out. There are only so many “sweet spots” in these plays.

The unfortunate part of the story is that the shale oil miracle only made this country more delusional at a moment in history when we really can’t afford to believe in fairy tales.

Let’s not give up on renewables quite yet!

 

Last week was quite a ride on Wall Street.  Unbelievably, the Dow traveled 22,253 points in one week — approaching 1x its own index value — I’d say that’s the definition of a wild ride!

Dow Travels 22,253 Points

Everyone is speculating about the trigger.

Other than the obvious reason — which is healthy markets aren’t supposed to go up 100% of the time like we have — two factors seem to have kicked things off.

One had to do with a short squeeze on an ETN (Exchange Traded Note) that tracks the inverse of volatility.  The issue itself was rather harmless in that it did not directly affect underlying securities like some ETFs (Exchange Traded Fund) can.  What wasn’t harmless, though, was it is a leveraged asset… which meant when the pendulum swung, it caused a pretty big short squeeze… which meant that people probably had to sell other assets — like stocks — to cover.  So, ultimately, it’s plausible that these did have some affect in the market last week… selling pressure is, after all, selling pressure.

The other — which people consider the bigger culprit — was a reported surge in hourly earnings reported in last Friday’s (2/2/18) jobs report.  While that signals a healthy economy, which of course is good for the stock market, it also signaled that interest rates might start rising… which, ironically enough, is actually historically good for the stock market, too, at least during the initial rising phase.

But, in last week’s case, people got flat out freaked out.  Hence, the wild ride.

But, it appears that no one asked why hourly earnings surged.  From ZeroHedge:

Well, not so fast, because as a closer look at the data reveals, the only reason why average hourly earnings rose, is because the total weekly hours worked posted a relatively steep decline, dropping from 34.5 in December to 34.3 in January, a 2.9% drop from the 34.4 last January.

What economists (and Wall Street analysts!) should care about is actual earnings power… and average weekly earnings actually declined from December to January.

Seems like no one wanted to let facts get in the way of a good panic.

 

P.S.  Investor sentiment is always the biggest wild card in the deck.  But, weekends are good circuit breakers in that regard.  More and more folks are coming to the conclusion that a lot of what is underpinning the market is still intact.  Readers of my blog know I track the price of oil… and oil has not only been behaving, but has been declining… which I believe bodes well for spending… which bodes well for corporate profits… which bodes well for the market.

I’m a big Jimmy G. fan… as is everyone in the Bay Area.

However, I can remember being a big Colin Kaepernick fan as well… as it seemed everyone was in the Bay Area, too.

And why not?  Kaep ran wild against the mighty Packers in a playoff game.  He — single-handedly — was reinventing the quarterback position.  He brought us to Conference Championships and even the first Super Bowl in many years… came within a whisper of winning it, too.

I even remember a friend posing the ultimate question:  “Would you rather have Aaron Rodgers or Kaep leading your team into the future?”  I remember at the time it feeling very much like a toss up.  Rodgers already had one MVP under his belt (and would get another in 2014), but we were all punch-drunk with the p-o-t-e-n-t-i-a-l.

So, when everyone asks, “what could possibly go wrong with making Jimmy G. the highest-paid football player in the league after only starting seven games?!” it’s hard not to think we were all feeling just as giddy about Kaep at one point…

… a feeling that seemed to go away as fast as it came.

P.S.  With that said, I want to say for the record that I was one of the fans at this year’s incredible Niners-Titans game screaming, “Let Jimmy kick!  Let Jimmy play D!  Let Jimmy coach!”  Certainly seems like he can do anything he puts his mind to on a football field.  :)

I remember the first Gulf War back in 1991.  The entire world was freaked out, including — especially — the financial markets.

Yet, the day we attacked, the Dow had one of its best days ever.

I remember hearing the phrase, “flight to quality.”  That is, when the going gets scary, the smart move to safe and trustworthy investments.

On that January 18th day back in 1991, it was IBM that people flocked to… IBM being, back then, the most important tech company on the planet.

Over the last few days, it’s been AAPL.

I think this puts a lot of the nitpicking criticisms of AAPL in appropriate perspective:  When the going is tough, the tough don’t hesitate to flock to Apple.

Lots of downgrades for Apple over the last few weeks.  The stock was spooked from a $180 level just two weeks ago to around $166 today.

It has nothing to do with the holiday quarter that Apple is going to report on tomorrow after the market’s close… that, people believe, will come in at record levels.

No, it has to do with how the iPhone X is selling this quarter.  Channel checks with suppliers indicate Apple is slashing its expectations of iPhone X sales this quarter… by as much as half

… which certainly seems like a huge let down given that the iPhone X is supposed to be the flagship product and the first iPhone to crack the $1,000 price barrier.

But… come on, people… did you really think a $1,000 iPhone X should sell in consumer numbers?  It’s not supposed to be a volume leader… rather, it’s supposed to be something exclusive and, quite frankly, unattainable for many.

That’s the whole point… to have a high-end iPhone entrant that (1) makes the device/technology more desirable, and (2) contributes in some way to an even higher overall iPhone family “ASP” or Average Selling Price (which is already the highest in the industry).

My guess is — since there are no negative reports on the iPhone 8 — that it’s not only selling well, but making up for any short-fall from the iPhone X… after all, if they’re not buying an iPhone X, they’re buying one of the other not-so-cheap models.

Additionally, don’t be surprised if some of Apple’s “smaller” businesses — like cloud & other services — make meaningful contributions, too.  Even the analysts that have raised flags on the iPhone X agree that last quarter should be pretty spectacular for the company.

And, finally, I always have to throw in the irrationality of the market:  Apple, one of the most stellar tech companies in the world according to any measure (even growth), has a P/E of 14.2 forward earnings… while the average company in the S&P 500 has 18.6.  If you’re looking at tech leaders, Google has a forward P/E of 28… and Amazon has — wait for it — 168.  Go figure.

AAPL has been beaten down so much by negative sentiment in the last few weeks that I think we might have a nice setup for a pop after earnings tomorrow.

At least, that’s what the contrarian in me thinks.

Don’t get me wrong, I love what Bitcoin/Blockchain is doing — disintermediating the financial system (and more!) — which is completely cool.

However, wasn’t so long ago that an upstart named Visa grew to dominate another “cashless” payment mechanism.

Today Visa has about a $260 billion market capitalization and over $18 billion in revenues.

Today Bitcoin has about a $260 billion market capitalization and I believe about $0 in revenues.

If that doesn’t feel like “dotcom explosion 2.0,” I don’t know what does.

As for Bitcoin making money, apparently transaction fees — something that used to be near-zero and a major competitive advantage for Bitcoin — are now trending around $10-$20 per transaction.  Apparently not a major competitive advantage any longer.

Seems to me Bitcoin/Blockchain has an extra long ways to go before it stands toe-to-toe with Visa.