Saturday, January 16, 2016

Great News: Trillions Lost, WalMart Closings

I was busy so I missed the headlines, but what wonderful news.    I get such a warm and fuzzy feeling when I read about such "losses"...
The stock market rout is starting to get really expensive — destroying $2.3 trillion from the market's top last year and $1.5 trillion in net wealth just this year.
The USAToday headlines blares the market "robbed investors of 2.3 trilllion dollars.

1.  Who robbed whom?

2. How can what never existed in the first place, $2.3 trillion, merely notional valuation, ever get stolen? Can idle whimsy be robbed from some source?  Just because workers pretended to work and employers pretended to pay, and everyone pretended the yield was invested in the stock market, does not mean anything actually occurred, except for culpable delusion on the part of the players?

3. The artcile uses the $, which stands for money, but at no point did money ever enter into any discussion, no matter how often it is used.

The economic renaissance can begin, if the hegemon fails to engineer the next bailout right, and there is a good chance it cannot.
The giant companies that predominantly populate the Standard & Poor's 500 have fallen an average of 8.9% this year — which, when translated into dollars, is real money. Real big money. The S&P 500 is down 8% this year already — including another 2.2% Friday — in what's been the worst start to a year ever. Since the market peak on May 21, 2015, the market has declined 11.7%.
Yay!  This is what we need to happen.  And WalMart is on the ropes...
Wal-Mart Express marked the retailer's first entry into the convenience store arena. The stores, which sold essentials like toothpaste, were meant to be a solution to the threat of the fast-growing dollar stores. Wal-Mart Express intended to be a two-pronged strategy: stores in small towns that aren't big enough to support a full-size Wal-Mart and stores in big cities where building a supercenter was impractical. But the concept never caught on as the stores served the same purpose as Wal-Mart's larger Neighborhood Markets: fill-in trips and prescription pickups.
Things are looking up.  Their economy is teetering.

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Friday, January 15, 2016

Never, Never Free Samples

A question comes in from a start-up export agent...

I also told him I could send him samples free of charge except for the cost to deliver.
*** Ungh....  even if the supplier is not charging you, there is a fatigue factor wherein the supplier begins to tire of giving you samples...  your hard and fast policy should be no free samples.

1. pay the supplier for the samples, even if they are giving you at-cost pricing... 

a. you set the standard, and other people acting as agents will object to this standard, by default you become outstanding... a better competitor.

b. Even after buying the samples, you can trade them away, but not without far more value in market info...

i. you pass this market info on to the supplier again showing you are a cut above

ii.  You keep the scammers you find to yourself, in your data base...  you have more market info than anyone else, good and bad.

c.  Market info is size of firm (sales? customers?), profile customer base, average invoice, years in business, names of leadership team, form of company, website, average order price.... at which trade shows exhibit...  company sales trends, product trends... any info that matters if you are to help them....  asking for ROI and other financial items is just being nosey, so don't ask for that...  you don't care, they prepay.  And also, what people state publicly, and what they do on their other set of books, can be quite different.  None of your business.

In essence, you present yourself as a no cost team player who will be "their man in USA" who helps them achieve their hopes and dreams (of course, no cost as in not a paid consultant, but you are making money on any products with which they succeed...)  ...  but for you to help them, and be the "go-fer" for all that USA has that this overseas company needs and can pay for, you gotta know them.

A quick test of whether you'll grow with a customer overseas is if they will give you this info.  If not, save your time and money, because only mushrooms grow if fed shit and kept in the dark.  Have you ever met a successful mushroom?


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Thursday, January 14, 2016

Family Owned Businesses: How Large International Firms Endure

The only good term for my politics is anarchist, meaning no+king,  a term the reflects the world in which there is no king, no hegemon.  Here is another example of the many times people are working without a government:
The constellation of firms around the trading companies were linked by multiple
institutional and contractual modes, with flows of managerial, financial, and trading relationships among those. The business groups possessed advantages related to imperfections in capital, labor, and product markets and in the area of property rights enforcement. There were numerous conflicts of interest and potential for opportunist behavior, but in practice rent-seeking was restrained. The external relationships surrounding the trading companies were also important elements of their architecture. These networks often relied on trust rather than contracts and were extremely durable. British merchants emerged from hubs such as London, Liverpool, and Glasgow and clustered in hubs overseas, and this provided one support for the high trust levels which facilitated such networks. Long-term relationships with banks provided a source of credit for routine operations, and support during crises. (Jones, 2000; Jones and Colpan, 2010)
Another way of looking at these same sets of facts is that bad credit drove out the good.  While until the changes mentioned below, these world trade firms had no problem financing from their own specific arrnagements, when EZ malcredit became available they changed their business structures and registrations to take advantage of this ersatz "money."  Why would anyone pay in silver and gold when they could finance with the lying promise of bankers, albeit bankers backed by sovereign states?  They wouldn't.
For the most part the basic organizational pattern of the network form of business groups
as they had developed by the early twentieth century remained in place until at least the 1960s.
The creation of new affiliate firms to undertake non-trading activities continued. After 1929, British exchange controls on investments outside the Sterling Area as well as the perceived risks of international investment effectively ended the flotation of new firms on the British capital markets. However well before then the trading companies had begun to make more use of locally registered firms or other types of institutional arrangement. The growing burden of British taxation on companies whose profits were earned largely abroad after World War 1 was initially an important consideration, and this led to the registration of several affiliated firms being shifted. It was really only in the 1960s that changes to this organizational form began to occur as improvements in corporate reporting and the emergence of organized capital markets in many countries meant that investors no longer needed the brand of a British trading company to guarantee that their savings would be “safe”. Indeed, complex groups with cross-shareholdings and internal transfers of commission and fees within the group looked less attractive as shareholders changed from being atomistic individuals to institutional investors (in Britain) or powerful business elites (in Asia and elsewhere). (Jones 2000)
Then the fellow who authored this article gets it exactly right:
The final and the ultimate arbiter of the fate of the diversified business groups, however,
was, however, the British capital markets. The capital markets which had made the creation of the diversified business groups possible before 1914 proved their nemesis from the 1980s. It was the declining share price of the publicly quoted firms which led to their ultimate demise as diversified trading companies. This was not due as a whole to poor performance, but rather of changed perceptions and priorities. The changed nature of British equity holders, which was different from before 1914 as individuals had been largely replaced by institutional investors such as investment banks and pension funds by the 1980s, played a major role in that end.
(Cheffins, 2008) While the individual shareholders before 1914—and indeed arguably through to the 1970s —were passive and often long-term holders of stock, the institutional investors that replaced them later on viewed shares increasingly as short-term investment vehicles. They were responsible to the owners of the funds that they invested, and as such had a duty to maximize investment returns. Consequently the main preoccupation of the institutions was short-term financial performance and share prices. Institutional investors held their own diversified portfolios, and since the 1980s preferred individual firms to focus on their “core” areas enabling their performance and prospects to be more efficiently monitored. (Jones 2000, Jones 2005b)
I have occasion to see many school children.  And boys and girls alike, the most common theme when drawing in free time is zombies.  Out of the mouths of babes.  They see what is going on, the undead, the zombie company.

It is not the anarchistic trading company model that is over, it is the tally checkers who count up the claims made in a fraudulent, consfiscatory, ethnic cleanser socio-political system, a system that has already died, already stinks, and awaits a final rejection of a remnant.

Next, is this not contradictory? No!
The ultimate family control of Swire’s and Jardine Matheson ensured their survival. Both
firms were sheltered from hostile host governmental pressures for localization during the 1980s, as the laissez-faire British colonial government in Hong Kong shared none of the protectionist and nationalistic sentiments of its neighbors in South Korea and Taiwan. The controlling families also took steps to consolidate their ownership of their multiple affiliates in response to occasional attempts by outside groups to take large equity stakes. As early as 1974 Swire placed most of its Hong Kong affiliates into a partly owned but publicly quoted (in Hong Kong) holding company,Swire Pacific, which in turn held equity in the principal affiliates, including Cathay Pacific and Swire Properties. At that time John Swire & Sons directly held 50 per cent of the China Navigation Company, the major shipping subsidiary which was British-registered, and in 1976 the firm acquired the remaining 50 per cent of the equity. Most of the other affiliates remained partly owned, different classes of shareholding meaning that full control remained in the hands of John Swire & Sons, itself still wholly owned by the founding families. John Swire & Sons employed 122,000 persons in 2014.
Family control saved these businesses.  Keep that in mind, roll with the punches.

Yes, as funny money came in and inflation followed, companies that would have died were invogirated by bad money, which crowded out good.  The Catillon effect, in inflation, says those closer to the currency issuer gets marginal advantage, wide enough to dominate.  Thus, politics becomes the driver of the economy, not customer needs.
During the 1960s the tightly regulated British financial system began to be liberalized, enabling a new range of funding opportunities for acquisitions as the subsequent decade of oil price hikes and extensive industrial strikes weakened long-established firms. They were also weakened by high inflation, while rapidly rising price levels also facilitated the claims of conglomerates to be able to turn around poorly performing firms, as nominal revenues rose sharply.
The smart thing is to know what once was, and get back to that process as the hegemons gnny money is exposed.

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Wednesday, January 13, 2016

Reviewing the Big Short

I viewed the movie the Big Short, with Brad Pitt and Steve Carrell, etc last night.  It covers people making money off the financial disaster of 2008, by shorting the mortgage bonds.  It is pretty good, and surprisingly the movie takes a didactic approach, explaining all that is going on to the audience with some funny cameo appearances (Selena Gomez explaining survivorship bias).  To keep the creative tension the narrative insists no one at the time understood what was going on at all, except for these two or three groups of people.   In this fiction, the movie contradicts itself majorly twice, when it mentions Grant Interest Rate Observer (with millions of readers) detailing all this (and that was just one critic at the time), plus the entire Austrian School of Economics followers nailed it (including me); and at the denouement, an actor regrets his realization "the bankers knew all along" (which of course they did) and went ahead knowing they would be bailed out.  The banks were bailed out.  And they knew this because at ever escalating crises since Nixon went off the gold standard (lite) in 1971, the bankers issued ever worse crap to ever more people until THEIR system broke, and then the taxpayers paid off.

And always remember, the bailout saved their system, a system, not "the" system.  Free markets are another system, but you cannot have capitalism or communism and free markets.

The protagonist in this morality play is the CDO, the credit default swap.  Note that: "credit."  Bankers know what they are doing, but they say money when they mean credit so you will not understand.  In the movie, when they say money, think credit, and you'll understand.

There is a scene in the movie, when their short positions are inexplicably NOT paying off when they should. Then the actors,  when searching for alternative strategies, one actor say "short the banks?"  That is exactly where I was in 2008, ready for the obvious and inevitable crash.  Just when my bet was about to pay off, the government, in the form of SEC chairman Christopher Cox, outlawed shorting the financials.  They changed the rules as soon as they were about to lose.

But I knew this was possible back then as I was betting.  Hegemons cheat, and their minions make it happen.  The only surprise is where and when they will cheat.  I accumulated a lot of credit, and like everyone today, "where to put it so I don't lose it?"  I obviously made the best bet at the time, but it does not matter for two reasons:

1. With the hegemon, the house will always cheat if it looks like it will lose.

2.  It was credit, not money.  I lost nothing.

I left that era with everything that mattered (OK, a couple of things I miss.)

Anyway, I always was an anarchist, a vietnam era conscientious objector (Class 1 - O), because God Almighty Himself wants us to have no kings or hegemons (anarchy = no + king).  They'll take your time and treasure and waste it every time.  But, sadly, we insist on being ruled.  Sigh.

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Tuesday, January 12, 2016

Rentiers on Edge! Soros Counsels...

There is a jittery feeling out there, and George Soros, prince of rentiers, issues cautions:
China’s Communist Party has pledged to increase the yuan’s convertibility by 2020 and to gradually dismantle capital controls. Weakness in the world’s second-largest economy remains even after the People’s Bank of China has cut interest rates to record lows and authorities pumped hundreds of billions of dollars into the economy. Data this week reinforced a sluggish manufacturing sector.
The big worry is there is no where to hide, if your orientation is wealth as accumulation. In the last 40 years, that orientation has become increasingly acute. As to that orientation, now there is only positioning yourself to be in the best position when the SHTF, in other words, when the fighting over productive assets start, where will you be?  Holed up with guns and ammo?  Short the financials? Gold in a safety deposit box? There are no good ideas.

Except one, if your definition of wealth is orthodox etymologically: wealth as in commonweal, as I have noted here 100 times.

In that case, you'll focus on becoming part of the solution, and start your own company, too small to be mulcted, big enough to support your family and lifestyle.

What is your passion (makes you suffer?) but when working on the solution you find joy?  That's you calling...  do that, and the money will follow.

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Monday, January 11, 2016

Catalan Independence

It is distressing to see independence movements go forward only to hear of their aspirations:
Mr Puigdemont will have an explicit mandate to lead Catalonia towards secession from Spain over the next 18 months. His government is tasked with in effect setting up a state within the state, by creating a separate Catalan central bank, tax authority, social security system and possibly even the nucleus of an independent military.
Wait!  Those are precisely the elements of oppression!  Better to be oppressed from down the street rather than 300 miles away?  How is that an improvement?  Scotland's independence movement was/is as bad.  Sigh.

Sure, as a secession strategy trade obligations for assets, ie, Madrid no longer owes pensions but gives up its ownership of schools, post service, military etc assets.  But freedom is from central bank, social security and military as well as freedom to trade, provide, defend, bank, etc.

I know, a secession movement that promised no hegemon, and promised no benefits such as defense, social security and taxes, would never get voted in.  Who wants freedom?  We only want free of charge.

Probably instead of independence, a step forward would be restoration, of a King.  Kings are far less damaging, for limited ability to do harm, than democracies.

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Sunday, January 10, 2016

Learn From Chipotle!

I have never eaten at Chipotle only because as a fast food joint I assume I can't get a cerveza with my combo plate, and a Mexican meal is incomplete without a Negra Modelo.  And anywhere there is a Chipotle, there is a mom and pop taquiera with beer.

Now Chipotle is billed as "fast and fresh" and I have to admit the fast food aspect of their stores is also a bit off-putting.  But never mind, fast is part of their thing, and so is fresh.

The problem with fresh is it takes big Ag to supply 1900 stores with "fresh" and e-coli outbreaks come with big Ag, not small mom and pop.  In modern "insurance" big biz assumes a certain amount of death of customers, and credit is set-aside for payouts (as opposed to insurance companies regulating how and when they will cover a risk. )  Mom and pop cannot afford to kill customers, they being more free market, as opposed to the capitalists who can afford to do so.  Mom and pop just make sure the food is wholesome.  Chipotle just makes sure the shift is covered.

Now Stockman, ever interesting, has taken apart the financial success, and distress, of Chipotle, which has become McDonald's bete noire.  While interesting to rentiers, we who actually must produce may take a additional very important lesson Stockman does not offer.
Thus, at its early August peak, CMG’s $24 billion market cap represented 48X the $500 million of net income it had posted in its most recent LTM filing. But the 1,900 Chipotle restaurants that fetched this nosebleed PE multiple are not high-end food emporiums serving gourmet fare at luxury prices to the top tier of affluent households.
Actually, they slop out burritos, tacos, salads, black beans, salsa and chips at $9 per ticket. Its customers are mostly millennials, who have an average of $155 per month of discretionary income, including the ones living in mom and pops basement.
The business has no barriers to entry and miniscule brand advertising. It is being assaulted by an army of competitors including established chains like Taco Bell, and newcomers like Qdoba and countless more, who have belatedly discovered the popularity of Tex-Mex fare. And CMG is also now running into saturation of prime locations and markets—–the fate that always and everywhere brings down high-flying retail and restaurant roll-outs.
Yes, CMG has a clever marketing gimmick and value proposition. That is, that its food is fresh, organic, locally sourced and that the pigs and chickens which end up in the burrito bowls have not been ill-treated on an industrial farm.
Those metrics, $9 fresh mex meals to $155 discretionary income are useful to anyone contemplating self-employment by means of a restaurant.  Keep in mind just becasue nominal stock valuation changes does not mean the productive capacity of the chain, or its survivability is in question.  Cisco never returned to its high valuations of 15 years ago, but it is still a productive powerhouse. Stockman is only pointing out you'd be nuts to invest in Chipotle (or have been nuts) at this stock price.
So what? Is there anything in that proposition that could not be eventually duplicated by aggressive competitors——even if they needed to play catch-up ball for awhile?
The fact is, no company has ever permanently dominated a new chain restaurant category indefinitely——-from hamburgers joints to pizza chains, seafood eateries, pasta places and high end steakhouses. Nevertheless, Chipotle’s absurdly high PE multiple reflected exactly that proposition—–hyper-growth and complete dominance, world without end.
Now David, hold-on...  at 50 years and counting, Micky D has had a run that was great to many who have come and gone from that org.  But true, there are far more gone in each category than surviving, but that was the point of the last 40 years of capitalism: collectivization.
In fact, Chipotle’s approximate 25% annual earnings growth since 2009 was taken exactly out of a tried and true cookie cutter. Profits were growing because the company was rolling out 200 new stores per year based on leasing costs that were dirt cheap due to the Fed’s repression of interest rates and an abundance of gig-based labor at the minimum wage.
Since 2009?!  It took McDonald's 50 years to get to 2000 restaurants.  But then came Nixon, and McDonald's started opening 1000 a year (McD donated a quarter million to Nixon's re-election).  MeDonald's never experienced that crazy valuation, but it is exactly that lending credit that incites crazy valuation and excess production capacity.

McDonald's was started in the 1950s, along with a million other burger joints, all building on vendor financing...  so with KMart and WalMart in 1962, and countless other companies who had built management teams that had coalesced into tight machines, and could take advantage, right place at right time, of Nixon going off the gold standard, one mistake, and then banks lending credit, another.  Not all teams could manage it, In the 1950s, A&W Root Beer, started in 1919 in Lodi, had 450 shops, already the biggest.  The Marriotts, of hotel fame, got started as an A&W franchisee. By 1960 they had 2000 restaurants, but no standardized menu (the Root Beer was the only common thing).  Although each was essentially a burger joint, a non-standard menu meant each store could buy local, wholesome.  it is the only chain where you can approximate the better quality food of the 1960s, and accordingly, you see hot Rod conventions with geezers and their vintage cars at the few remaining A&W locations.  Point being, when the right time and place was there, A&W's original team had broken up, and so they could not act on the new regime.

Now, note, just because Nixon did something wrong, does not mean the banks must do something wrong too.  Bankers might have shown some integrity, but they didn't, or the ones who did were obliged to eave banking.  There were some test runs of lending credit at a very high level, and then the rot began to work down to this day where welfare is generated on the fly at places like ExImBank and at gas stations when someone buys a meal with an EBT card.

Economics is taught as though it is value free, like math, but it is not, it is a subset of ethics on the field of philospohy.  A dead give-away is the economic term "moral hazard."  The fact that bankers could not resist making something for nothing shows going off the gold standard is not a value neutral event, it has consequences that matter.  One might study it dispassionately, but once known, one is obliged to act accordingly, right or wrong.

But back to the data:
For instance, Panera’s food costs is 34% of sales compared to 33% for Chipotle. Even in the case of the burger chains, food and paper costs run in the same zone, and were about 32% in Wendy’s most recent quarter.
As long as I can remember the metric for restaurant is 1/3rd of the cost is food.  I wish I could find the source, but somewhere there is a proof that all competitors eventually fall within key business rations... profit margins, cost of goods sold, ROI, etc.  An autographed book to the first person who can remind me of it!
That’s especially true for a wholly owned restaurant operation that now has upwards of 2,000 locations and 53,000 employees paid at an average rate of just $20k per year.
Ach!  Who can live on 20k per year as an employee?!   On the other hand, as self-employed (customer employed) you would never want to make more than say $20,000 per year.  Whereas mmost people work as employees to earn enough to live a given lifestyle, after giving their best hours making someone else's dreams come true, for the customer-employed the work is the lifestyle.  And just about everything personal is also a business expense.   In Seattle a surviving 1950s burger shack chain called Dick's pays probably in the $20,000 per year range, but also pays the Community College tuition of any worker with more than 6 months seniority.  This is family stuff...  instead of paying someone $25K and that person taxed on it, make a donation before tax as a business expense and make the employees' earnings go farther. (Two new rules may ruin this: 1. The IRS now taxes scholarships as income.  2. Seattle's $15 and hour min wage, a 50% increase at Dick's, will no doubt wipe the company out.)
In Chipotle’s case, there was even more foolishness embedded in its high PE multiple. Competitor risk was coming. Supply chain risk was self-evident. Constant prices increases to its less than affluent customer basis were a ticking time bomb. Choice locations in most of the US had been used up. Tex-Mex wasn’t catching on abroad.
Tex-Mex saturation?  Maybe so, but maybe your flavor is Peruvian...  or, who knows.  I watched Dick Clark interviewing a singer in 1981...  Clark could not remember the word for raw fish on rice at Japanese restaurants, because it was so new.  In 1978, Japanese restaurants were pretty exotic, but only served sukiyaki and tempura.  By 1981, they were becoming hip and cool and a new thing.
Stated differently, the earnings from intangible goodwill not backed by brick and mortar assets, patents, proprietary know-how, breakthrough technology or super-heavy advertising and marketing on a permanent basis cannot possibly be worth 48X. The fact that CMG reached this lunacy only a few months ago is screaming evidence of the monumental complacency that prevails in the casino.
So those are the key elements in a mass food chain success?  As a mom and pop, or as I prefer, specialty, you'll need brick and mortar, but rent, down own it,  you won't need patents, you'll have your know-how, as to tech, well, a griddle and folding card tables and chairs to start?  As to advertising, well, your every customer is within 5 mile radius, and they will be reached with your business sign, and maybe a 2-1 intro coupon in the local mailer.
Yet you don’t have to be excessively observant to recognize that the 20-year global credit and economic boom led by the Red Ponzi in China is coming to a screeching halt because the central banks have well and truly run out of dry powder and credibility. The world economy is self-evidently in the midst of the greatest commodity deflation since the 1930s, while industrial prices and profits are getting whacked hard and CapEx is plunging into a veritable depression.
This is not 20 years old, it is 40.  I wonder at his mantra "China Ponzi" scheme.  Deng Xiaoping took a world tour victory lap in '79 and was schooled on how to play the hand the USA hegemon dealt 7 years earlier.  Deng played it masterfully.
Forget the fact that China allegedly grew at just under 7% last year, when power consumption did not grow at all and rail freight volume plunged by an unprecedented 10%. Or that Korean exports are now down by 15% on a Y/Y basis. Or that crude oil, copper, iron ore and ocean freight rates are in a death plunge.
Already honest GAAP earnings for the $&P 500 companies have plunged from a peak of $106 per share in the September 2014 LTM period to $90 in the most recent LTM period—–or by 15% and the bottom line weakness is just beginning to spread outward from energy, materials and industrials. Macy’s anyone?
Even then, the broad market multiple at 22X is not the half of it.
( To be continued)
This bad part is USA policy of lending credit at interest inevitably, inexorably gutted USA manufacturing and transferred technology (know how) out of USA.  The coming crash is condign punishment, and those who believe they have savings or financial assets are going to be fighting over the productive capacity of Chipotle to support them in old age, or on disability, or provide for retirement health care, or whatever promises made but impossible to keep.  Your best bet: get slef employed (customer employed.

I look forward to his 2nd instllemtn

In the meantime, all that talk of Mexican food has me yearning for Mexico.    I first heard this song in Puerta Vallarta.

Ladies and Gentleman, Luis Miguel:


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