Sunday, August 2, 2015

When Oil is $52/Barrel

Chevron has been able to bring down the cost of producing oil by 20 - 50% over the last three years.  How?  How do you get production costs down so far so fast?
The companies are also seizing savings amid the downturn, particularly in the U.S. Jay Johnson, a Chevron executive vice president, said the company had been able to bring down the cost of tapping oil and gas by 20% to 50%, making it profitable to drill some new prospects even at today’s oil prices. Exxon has operated at a lower cost on U.S. soil over the last three years than many smaller drillers, said Jeff Woodbury, head of investor relations. But both companies reported losses from their U.S. oil-and-gas drilling operations through the first half of the year, as have rivals BP PLC and ConocoPhillips.
Maybe it never actually cost that much, they only spent that much.  Being in control by government preference of everything from drilling, refining and retailing,  you can play all sorts of games to keep the cash flowing in.

That's how come at $52 a barrel, we are still paying $3.50 at the pump, whne it should be maybe $2.

Capitalism sucks, we need free markets.

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Saturday, August 1, 2015

Bogle On Market Trades

Talk about false economy:

An astonishing $32 trillion in securities changes hands every year with no net positive impact for investors, charges Vanguard Group Founder John Bogle.
...
“What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources.”
Rent seekers
It’s a lot of money, $32 trillion. Nearly double the entire U.S. economy moving from one pocket to another, with a toll-taker in the middle. Most people refer to them as “stock brokers,” but let’s call them what they are — toll-takers and rent-seekers.

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Thursday, July 30, 2015

Deflation is Back Front and Center

Here is a good rundown on the deflation situation:

In May 2011 this analyst changed his mind about the impact of the monetary love being spread around the world by developed world central bankers. He stopped forecasting higher inflation and instead foresaw the return of deflation.
Fresh from the battering in the deflationary storm of 2007-2009 investors did not want to hear that such monetary love would be in vain. They counted on central bankers then, just as they are counting on them now, to restore a level of nominal GDP growth that can prevent the severe burning of another painful deleveraging through default.

And its genesis in mal-credit:
Most investors still believe that we live in a fiat currency world. They believe central bankers can create as much money as they believe to be necessary. Such truths are on the front page of every newspaper, but they may contain just as much truth as the headlines of their tabloid cousins. A belief in this ability to create money is the biggest mistake in analysis ever identified by this analyst.
As usual, the arguments are hard to follow because the writer uses the word "money" for everything from credit to currency to whatever.  If you want to understand perfectly well everything tha is going on economically, then simply get the terms defined correctly, and stick to them.

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Tuesday, July 28, 2015

What Happened? I Was There...

I got a raise to $1.81 an hour, and the gal who had been there two years longer was making 1.72 an hour. She was outraged.  I had quit work for 3 months to ski, and came back in April of 1972.  Nixon had taken us off the gold (lite) standard in 1971, and inflation was kicking in.  It was a brand new world.  She got her raise eventually, they started with the new hires.  Incidentally, this was a Catholic hospital kitchen, a Catholic Hospital started by a Saint who founding a couple of dozen of these in major cities in USA.  Before 1972, there was no such thing as anyone going bankrupt over hospital bills...  if you could not pay, it was written off as charity.  Some dead rich person had paid.
The middle class started disappearing in earnest in the late 1970s.  Massive inflation started eating away at the standard of living for most Americans.  Yet much of this was covered up by access to debt.  Credit cards, creative mortgages, student loans, and auto debt all allowed Americans to continue acting as if prosperity was only an American Express card away.  Credit card debt outstanding is now back up to $900 billion, a number last seen during the Great Recession before the great deleveraging.  
There was no such thing as a student loan before 1970.  You worked summers and made enough to pay tuition and live the rest of the year.  And you actually got an education...  you did not get out of college with a BA unless you could speak another language.  Can't cut it?  Don't graduate (or more likely,  don't go... plenty of good jobs without a college education.)

There were auto loans, but you'd have a car paid off in three years max.  Yes, there were 30 year mortgages, but houses were cheap.

So yes, there were some loans at interest...  but that was the least of your expenses in life. You entire life otherwise was usury-free, on credit

To review:  mal-credit is what banks issue with no asset backing and at interest (usury)

Bene-credit: asset backed time-to-pay at no interest (usury).

In the neighborhood the pharmacy, grocery, gas station, florist, cabbie, hardware store, and so on all allowed you to buy on interest-free credit and pay at the end of the month (since people were paid once a month.)  Your clothes and appliance were bought at a department store, where there too you just signed your name and on big ticket items, GE gave you six months to pay, if you needed it.  As a kid I walked into stores and charged things to my parents.  Never interest.  The whole world worked this way.

Before lending credit destroyed our economy, the extractors (miners, farmers) extended usury-free credit to manufacturers, manufacturers to wholesalers, wholesalers to retailers, and retailers to their customers.  Almost the entire economy ran on no-interest (usury) bene-credit, except for the rare-in-a-lifetime house or car purchase.  (And these were often creatively financed.)

This entire bene-credit regime was made possible by labor, who extended credit to their employers for up to 30 days before being paid.

What happened, is all of that family business and unitive and creative finance was crowded out by EZ Cheep credit made possible by the crime of usury, on steroids, since the banks do not even bother to have assets to back their loans.

We haven't lost this.  Amazon is a customer of mine.  It takes in money immediately and pays me up to 60 days later, which means they are ahead about $20 billion on any given day.

The best fix for this problem is a New Labor Movement, which charges industry what workers are worth, since workers lend hard assets, their labor, to make this criminal regime possible.

Honor Labor.

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Monday, July 27, 2015

The Pre-Bailed Auto Industry

Since the powers that be know another crash is coming, they have engineered a pre-crash bailout of the industry.  They have allowed car loan qualifications to drop, and now people are driving cars they might possible squeak by paying now, but not when the crash comes.  Expect massive amounts of late model cars to come on the market at once, and huge savings.
By the numbers (Q1 data from Experian):
  • Average loan term for new cars is now 67 months — a record.
  • Average loan term for used cars is now 62 months — a record.
  • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
  • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
  • The average amount financed for a new vehicle was $28,711 — a record.
  • The average payment for new vehicles was $488 — a record.
  • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

Job #1 right now is to get rid of all yout debt.


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Sunday, July 26, 2015

Bubble Specialty Fads

Cigars attended the self-congratulatory bubble economy as it expanded, and along with cupcakes and ice cream stores, there were specialty lines, and there were fad.  Marmalade is a bubble product, but a specialty that was not a fad.  It is good in its own right, and will be made forever.

On the other had, we have cigar dealers trying to stay alive in a bubble that has blown...
While it’s still one of the bigger booths on the trade show floor, the space that housed General Cigar Co. was noticeably smaller than it has ben in recent years and much tamer. There was no music, no flashy Foundry area, no sports cars, no river…you get the point.
Funny named wines and cigars are unlikely to survive, and co-branding cigars with pro-wrestlers...  don't think so.  Good money after bad.

The article talks about the Macanudo label makeover,  a sure sign the franchise is swindling.  I accidently suggested to Ted Van Doorn that a product that was selling so well for us should have its packaging updated.    With a scowl he corrected me:  "Why put money into updating a package for an item we cannot keep in stock.  You worry about packaging when an item slows down, not when it is doing well."

OK...  always just enough to sell through...

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Saturday, July 25, 2015

Hoarding Employees

Here is an interesting phenomenon: hoarding employees.  Keeping people on the payroll not necessary for present operations.
Employers in some sectors are hoarding workers. Similar behavior in the past has been associated with bubbles, and has led to massive retrenchment, usually within 18 months or so. In the housing bubble, similar behavior continued well beyond the peak of that bubble in 2005-06. Employers seem to take their cues from stock prices.
Along with that is the inventory levels are growing.  So when the next bust comes, expect massive layoffs plus big discounts (deflation) on prices as companies try to unload the built up inventory.

If you are self-employed, an economic crash is most welcome.

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Friday, July 24, 2015

Beef Exports - Get Big And Get Out

The stated USA government policy of "get big or get out" designed to destroy small business in USA, has been wildly successful.  But by the same token it is now creating blowback for big business, just as our unwarranted military attacks around the world create blowback.

China has cut a deal with Australia that they won't do with USA:
China's beef consumption is set to grow around 2.2 percent annually, faster than pork and poultry, according to Rabobank.
By 2025, only 80 percent of China's consumption demand will be met by local supplies, down from 85 percent currently, according to estimates from the bank prior to the deal.
USA trends in beef exports tend to show big business.  But small business is stymied by rules outlawing the testing for mad cow disease.

Big business has captured the government.  We need a strict separation of business and government.

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Thursday, July 23, 2015

If You Are In Seattle August 5

And want a wine - oriented HKTDC event, sign up here no charge for a 4-6pm presentation... always entertaining and informative...

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Plan A or Plan B - Start-up

On Jul 20, 2015, at 11:49 AM, RT wrote:
Hello John,
    Back in 2011 I attended one of your seminars at DeAnza college and thoroughly enjoyed it. Ever since, I have been contemplating designing and selling a product on Ebay. In this regard I wanted to see if you had any reference for prototyping companies(and possibly manufacturing). I basically need to prototype and check who in China can manufacture these for me. Please let me know if you have contacts. ...
Thanks,
On Jul 21, 2015, at 7:58 AM, John Spiers wrote:
RT,

Thanks for your note.  You must know I think eBay is a terrible place to start a business, but to answer your question, first, are you going to come up with your own design?

Prototyping is a step in a process leading to the creation of customers.  The prototypers will want to know upon what foundation are they building?  Who is your market?   Can you name buyers who said your design is a good idea and does not exist otherwise?  If not, you are unlikely to find any first rate prototyper (who will be come a first rate supplier) without you coming up with the cost of prototyping.  And since you have no market, the cost will assume a one-time event, very expensive.

To answer more directly, I have no resources on the product you contemplate, so I would be starting where you are, and find the best producer in the world. Anyone less than the best will take time and money only to get no where. (What makes you think it would be China? Less than 3% of what we buy in USA comes from China.)  (As an aside, the better the supplier is, the less likely you will find them on alibaba.) 
Entrepreneurs do not take risks.  Prototyping, without customer feedback to warrant the step, is too risky.  Prototyping with less than the best supplier is too risky.  Selling on ebay costs too much (ROI) to ever employ that channel.

Go instead where 94% of the customers buy, get customer demand first, and bring your project to the best suppliers.   That is the path to a viable company.

Let me know what you decide to do...

John
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