Mass layoffs the key to prosperity

2015 has been a banner year for mass layoffs as the Fed gets ready to hike rates to slow down the global economic boom. There is so much demand for waiters, bartenders, and part time workers that we are lucky large corporations are grudgingly freeing up so much labor. Let's take a quick tally for this year, so far:

HP: 55,000
Oil field services: 51,000
Barclay's: 30,000 by 2017
Caterpillar: 10,000 jobs by 2018
Microsoft: 7,800
JP Morgan: 5,000

My only concern is that the layoffs will not come fast enough with the pain spread out until 2018. We need MORE BARISTAS NOW, damnit! Right now, someone is standing in line at Starbucks longer than they should, probably making them late to a big layoff meeting.

How do those lies taste?

Rex Nutting wrote a personal anecdote about the VW emissions scandal today.

I’ve been covering the world of business for 20 years, so I’m not shocked when a major multinational corporation is caught cutting corners, lying, cheating and defrauding the very customers who’ve built their brand. Corporations aren’t warm and fuzzy creatures that need our love and forgiveness.

Still, this lie hurts. It always does when it’s your life and your money that have been stolen from you.

As a once-proud VW owner, what do I do? Get rid of the car? And buy what? If I can’t trust VW, can I trust Ford? Or Nissan? Or Tesla? Can I trust the Environmental Protection Agency to uncover the companies’ lies on the cars I’d choose between?

It hurts when your life and your money have been stolen from you??? HAHAHAHAHA!!! Oh, so rich. How old are you again? Have you not been paying attention to the weekly global banking scandals, the rigging of every market, the quantitative ex nihilo credit creation, Chinese economic data, Enron, BP, Catholic priest predators, LIBOR, et al? We live in a Linda Green world where lies and deceit are the coin of the realm. P.T. Barnum runs the financial system, the government, and crony corporations. Honesty and straight dealing are as rare as rhinos. Everything in life is caveat emptor, every transaction, every "vote", every earnings report, and everything you read.

Do I sound a little jaded? I prefer the term streetwise. It's OK, Rex. So you've gone from proud VW owner to dirty polluter. The world will survive. Just wake up and smell the diesel.

How to make money from the Fed’s interest-rate decision

Marketwatch is back with more sure thing investment advice. I noticed they left off the "Opinion" part of the title in the fluffy headline at the top of the home page. The gist is right in the first paragraph...

Making money from the Fed’s interest-rate meeting this week should be easy: Just do the opposite of what most investors do immediately after the decision is announced.

Genius! Who would ever have thought of that? Wait, someone else probably already thought of that, especially now that it is the top story on the home page of Marketwatch.

Wall Street: All right. Where is the poison? The battle of wits has begun. It ends when you decide and we both drink, and find out who is right... and who is dead.

Investor: But it's so simple. All I have to do is divine from what I know of you: are you the sort of man who would put the poison into his own goblet or his enemy's? Now, a clever man would put the poison into his own goblet, because he would know that only a great fool would reach for what he was given. I am not a great fool, so I can clearly not choose the wine in front of you. But you must have known I was not a great fool, you would have counted on it, so I can clearly not choose the wine in front of me.

Wall Street: You've made your decision then?

Investor: Not remotely. Because iocane comes from Australia, as everyone knows, and Australia is entirely peopled with criminals, and criminals are used to having people not trust them, as you are not trusted by me, so I can clearly not choose the wine in front of you.

Wall Street: Truly, you have a dizzying intellect.

Investor: Wait till I get going! Now, where was I?

Wall Street: Australia.

Investor: Yes, Australia. And you must have suspected I would have known the powder's origin, so I can clearly not choose the wine in front of me.
Wall Street: You're just stalling now.

Investor: You'd like to think that, wouldn't you? You've beaten my giant, which means you're exceptionally strong, so you could've put the poison in your own goblet, trusting on your strength to save you, so I can clearly not choose the wine in front of you. But, you've also bested my Spaniard, which means you must have studied, and in studying you must have learned that man is mortal, so you would have put the poison as far from yourself as possible, so I can clearly not choose the wine in front of me.

Wall Street: You're trying to trick me into giving away something. It won't work.

Investor: IT HAS WORKED! YOU'VE GIVEN EVERYTHING AWAY! I KNOW WHERE THE POISON IS!

Wall Street: Then make your choice.

Investor: I will, and I choose - What in the world can that be?

Wall Street: [Investor gestures up and away from the table. Wall Street looks. Investor swaps the goblets]
Wall Street: What? Where? I don't see anything.

Investor: Well, I - I could have sworn I saw something. No matter. First, let's drink. Me from my glass, and you from yours.

Wall Street, Investor: [Investor and the Wall Street drink]
Wall Street: You guessed wrong.

Investor: You only think I guessed wrong! That's what's so funny! I switched glasses when your back was turned! Ha ha! You fool! You fell victim to one of the classic blunders - The most famous of which is "never get involved in a land war in Asia" - but only slightly less well-known is this: "Never go in against a Sicilian when death is on the line"! Ha ha ha ha ha ha ha! Ha ha ha ha ha ha ha! Ha ha ha...
Investor: [Investor stops suddenly, his smile frozen on his face and falls to the ground dead]

Buttercup: And to think, all that time it was your cup that was poisoned.
Wall Street: They were both poisoned. I spent the last few years building up an immunity to iocane powder.

You're crazy if you bought Apple stock today on this guy's advice!

Jeff Reeves from Marketwatch offered this tender nugget to all investors, regardless of their financial condition, wealth, age, gender, or religious affiliation:

If you don’t buy Apple’s stock today, you’re crazy

Well, if you took that advice at the open when there was monster rally, you would have bought it at $111.07 a share. A huge discount and once-in-a-lifetime opportunity to pick up Apple shares on the cheap. After all, since the Monday stock meltdown, Apple stock could only go up. If you thought otherwise, Jeff claimed you were crazy.

It closed at $103.74 and was down further in after hours trading. If I had taken Jeff's advice and sunk my life savings into Apple stock, because you be crazy not to, I would be down $7.33 a share, or 6.5% of my life savings. OUCH!!


Update: Well, all MarketWatch writers aren't drinking the same KoolAid.

No, Apple isn't a slam dunk

Timeless investing advice from finance web sites

With drama in the air over recent stock market drops, financial web sites are quick to help out those in distress with timeless advice. The market is not even in correction territory, much less a bear market, but investors need some salve for their 401Ks. Yahoo Finance chimes in with:
Here's how smart investors will react to today's market drama

Who doesn't want to be a smart investor? Their advice is to "just hang in there". That certainly is good advice for money managers who get their cut no matter what stocks do. So, if you lost money on stocks, you still get to pay management fees. That's smart.

Marketwatch offers:
Most top market timers are bullish on stocks

"...on average, the timers in the top quartile are recommending an equity exposure level that is 84 percentage points higher than among the bottom timers — who themselves, on average, are completely out of stocks."

See, the top quartile timers recommend an 84 percent higher equity exposure. What more do you need to know. Equity exposure for the win!

The Wall Street Journal notes:
Trading in Stocks, ETFs Was Halted More Than 1,200 Times Early Monday

Clearly a great sign for stock owners because if trading gets halted, no one else can sell a stock you own and make the price go down. There is a lot of safety built in to the very fabric of the market. What if you want to sell? Why would you ever want to sell? You would just force a stock to be halted. It's really better if no one ever sells.

Since I don't own any stocks, I was not really comforted by this priceless advice. However, if your nest egg is in stocks, you can sleep like a baby tonight.

Twitter Fritter v.7

Ah, another quarter rolls by and Twitter burns another $136,000,000 using generally accepted accounting principles.

Are you a Twitter shareholder, hanging on to those shares "worth" $36.54 each? The company issued a fresh $175,000,000 worth of shares this quarter to pay employees and executives. Who slurped up all those new electronic shares of a company that has never earned one penny in profit? Lucky Twitter shareholders. Smart move!!

If you want to hitch your wagon to a hot Dot Com 3.0 company, I have a digital start up called projectile-vomit-shares.com. Here's the idea. Anyone can login to my server and post some text (limited to 160 characters), then everyone else can see their post. Meanwhile, the company will digitally projectile vomit roughly five million shares a quarter that lucky investors can buy. I only plan to issue $100,000,000 in shares each quarter to pay for my living and operating expenses and I promise I will lose less than $136,000,000 each quarter using GAAP. Note: This is not investment advice. Management makes no claims on forward looking vomit or projectile vomit.

See also: Twitter spends 35% of revenue on stock-based compensation

July 13, 2015 - Greek total surrender

After all the bluster and referendum, Greece gave in to total and utter surrender to their creditors. The details of the deal are horrific for Greece, supposedly mortgaging airplanes, airports, islands, and other assets to secure the third bailout. They will also be forced to pass specific legislation on a tight timeline. All humiliating, much like the loser of a bloody war.

The punchline is that the math of the deal will not work for long. The Greek debt will head up toward 400 billion euros, nearly double their GDP. Good luck squeezing more taxes out of an economy where the banks remain closed. The pain for the Greek people will be extreme and it would have been had they left the euro. The difference is that this crisis will be back again until and unless there is a large write down of the debt. There is no hope and no future in Greece. Only the grinding Euro boot on their face. Oh my.

July 10, 2015 - Greek capitulation day

Less than a week after the Greek people voted against the latest EU bailout ultimatum, the Greek government caved completely and approved what amounts to the very same harsh bailout terms. Tspiras and the "radical left" were too afraid to actually listen to their own people and act to take their monetary future back into their own hands. They are good at talking but not doing.

With cooing noises from the IMF and some Euro leaders, markets thought this meant a new Greek deal was as good as done for this weekend. Some in the Eurozone see the need for a serious debt haircut for Greece to recover, Germany, Finland, the Netherlands, and a few others don't see it the same way. Germany has now floated a 5 year suspension of Greece from the Eurozone to "get their shit together", while allowing it to stay in the EU.

Their were all kinds of uncertainties after Greece voted No on the referendum. These continue to unfold over the weekend and I am sure will continue throughout the next week. This situation can still spin out of control in many different directions. Each kick of the can for Greece gets more expensive and this next one, priced at around $80 billion, may have reached a threshold where it overwhelms the political desire to keep the Eurozone dream alive. Fascinating, isn't it? Everyone knows that a new deal only makes the problem worse -- unless there is giant haircut which causes other kinds of big problems right now. There is no way out.

My friend Mr. T has one prediction...Pain!

July 5, 2015 - Greek independence day

The news coverage is thick on the Greek referendum where the population rejected the Troika ultimatum. This was a big game of chicken and the Greeks just won not only the game but potentially their independence from the death grip of the horribly flawed Euro monetary union design. I've been expecting this since 2010, it only took 5 more years for the Euro system to break.

Still, there are mostly unknowns ahead for the EU, IMF, ECB, and Greece. A lot of different scenarios can unfold, including Greece staying in the euro while defaulting on the debt. They could end up out of the euro eventually. What they can't do is repay their outrageous debt in euros. This also sets a precedent for other members to turn their backs on the smart people running the EU experiment. It is going to be difficult and painful for the Greek people in the short run, but I hope they make the adjustments they need to right their economy. A big step forward is to dump their debt or at least give it a big fat haircut.

Twitter Fritter v.6

I have been heckling Twitter (the stock) since November 7, 2013. It looks like investors are finally getting the fact that Twitter only knows how to lose money, then make it up with stock diarrhea. They fired their CEO and are searching for a new one. After the IPO, Twitter had a market cap of $24.93 billion. Today, it is $23.51 billion. Still an amazing number considering they haven't made their first dollar of profit.

Twitter is seen as a valuable news source by millions of people, but as a company that can make profits, I concluded long ago it was not in their DNA. To make profits, they would probably need to tweet ads at people in about a 3:1 ratio to real tweets. The last time I tried to use it, I got mostly ads tweeted at me from news sources like the New York Times instead of news. I lasted one day before I quit. Good luck growing that user base if it turns into an ad spamming service.

Unlike Facebook, which has the richest set of user demographic data in the history of man, Twitter doesn't know very much about its users and I think will have a harder time with targeted ads. They also have to compete with Google for ads. Finally, there is evidence that millions of accounts are fake and that followers can be bought rather cheaply.

I think it is possible that Twitter could be scaled back and run profitably if they were made lean, focused on their core service, and stopped with the stock diarrhea. Maybe a new CEO will figure out how to do that, but the current culture is live large and poop stock certificates. A very dotcom bubble version 1 attitude that might be impossible to fix.

Twitter Fritter v.5

It's been awhile since I updated my chart on the corporation that specializes in hemorrhaging money, otherwise known as Twitter. They have continued their losing ways since they were incorporated, and since they went public. Today's earnings press release shows a loss of $162 million on revenue of $436 million. It costs a lot of money to handle 140-character text messages in this day and age. They also lowered projected earnings for the rest of the year.

The stock crashed after earnings (like it does after every miserable release), but the company is still valued at over $26 billion!?! Twitter is an amazing machine and while they have never and probably never will make any profit, they have mastered this sleight of hand:

1. Issue hundreds of millions of worthless stock shares
2. Sell stock to stupid investors
3. Pay employees with (temporarily) valuable stock
4. Lose hundreds of millions of dollars each quarter
5. Rinse, repeat

How do they do that? In DotCom 1.0, it was all about eyeballs. Twitter uses the term "Monthly Active Users (MAUs)" which is the same as, well, eyeballs! The more snake oil changes, the more it stays the same. Twitter stock owners can take solace in the ringing endorsement 4 days ago by Jim Cramer. Cramer thinks Twitter has room to run. Bet the farm, go all in, this is easy money. If you already own Twitter, now is the time to BUY MOAR. Hahaha.

Amateur Economist Says It Might Be Time to Abolish Citibank

Would this save the world economy?

The world has a problem.

When economic conditions worsen, central banks react by reducing interest rates in order to trick stupid people to part with their savings. But, as has happened across the world in recent years, there comes a point where those central banks run out of room to cut — they can bring interest rates to zero, but reducing them further below that is fraught with problems, the biggest of which is they don't have absolute control over every human being in the economy.

In a new piece, Citi's Willem Buiter looks at this problem, which is known as the effective lower bound (ELB) on nominal interest rates. Fundamentally, the ELB problem comes down to theoretical gobbledy-gook that academics use to justify destructive economic policies. According to Buiter, the ELB only exists at all due to the psychedelic trips taken by economists in their early college years of drug experimentation.

An amateur economist, Billy Biter, claims that big banks and their poorly reasoned policies are the biggest threat to the world economy. Biter suggest three ways to address this problem:

1. Abolish Citibank
2. Tax commercial banks at 99%
3. Remove the fixed exchange rate between currency and bank employee paychecks.

Yes, Biter's solution to evil banks is to abolish them altogether. (Note that he's far from being the first to float this idea.)

Biter is aware that his idea may be somewhat controversial, so he goes to the effort of listing the disadvantages of abolishing Citibank.

1. Abolishing Citibank will constitute a noticeable change in many people’s lives and change often tends to be resisted.
2. Citibank use remains high among the uneducated, poor and some older people.
3. Citibank owners and creditors would lose revenue.
4. Abolishing Citibank would inevitably be associated with a loss of campaign donations to government.
5. Switching exclusively to credit unions may create new security and operational risks for oligarchs and their congressional cronies.

Biter dismisses each of these concerns in turn, finishing with:
In summary, I therefore conclude that the arguments against abolishing Citibank seem rather weak.

Jamie Dimon blames everyone but big banks

In this Marketwatch story, JP Morgan Chase CEO Jamie Dimon

argued the crackdown on the financial sector, added to more-stringent requirements for capital and liquidity, will hamper banks’ capacity to act as a buffer against shocks in financial markets. Banks could become reluctant to extend credit, for example, and less likely to take on stock issuance through rights offering, which would essentially create a shortage of securities.

It must be opposite day again. As I remember it, banks mostly caused the last shock and refused to extend credit, especially to each other, because they knew each other. Everyone knew about the fraudulent accounting, the out of control risk taking, the dumping of worthless mortgage paper on investors and the government. All I can say is Bravo! Hubris, conceit, and lack of credibility have brought him great personal wealth and power. It's the American way after all.

Why large corporations suck

This Marketwatch headline exemplifies what is wrong with large corporations, and generally most corporations:

Citrix Systems beats profit expectations, to cut 900 jobs

Citrix also said fourth-quarter earnings per share, excluding non-recurring items, rose to $1.10 from $1.04 a year ago, and exceeded the FactSet consensus analyst estimate of $1.03. Revenue rose 6% to $851 million, topping analyst forecasts of $844 million.

Well done, Citrix employees and contractors. You not only hit all revenue and EPS targets, you exceeded them! Thank you for your hard work. Now, we are going to fire 900 of you so we can buy back more stock and pay bigger bonuses to the CEO that already makes $11.5 million per year and 150 times as much as you. Don't forget to buy a government health care plan now that you don't have a job, or you will pay a tax penalty.

California Unemployment Insurance Trust Fund

source: http://www.edd.ca.gov/about_edd/pdf/qsui-Fund_Balance.pdf

The trust fund continues to look not-so-trusty with a negative $8 billion balance. Before the Great Mortgage Fraud Recession, it maintained an average balance around +$2 billion. It was completely wiped out in 2009 and bottomed at negative $11 billion in 2011. The state has only been able to pay unemployment benefits with enormous loans (at interest) from the federal government. At the current polynomial recovery rate, it will become solvent again around August, 2016 as long as there is no recession between now and then. If there is a recession before it recovers, well, let's not go there.

Swiss Central Bank loses big

via MarketWatch:

LONDON (MarketWatch) — The Swiss National Bank took financial markets by surprise on Thursday, when it scrapped its euro exchange cap and lowered interest rates.
The move sent shock waves through the currency and stock markets, with the Swiss franc CHFUSD, +13.92% rallying more than 30% against the dollar and euro CHFEUR, +15.78% at one point.

According to Citibank's Stephen Englander,

By our calculation the FX reserves portfolio on FX alone will have lost in the region of 60bn CHF, assuming EURCHF at 1.03 and USDCHF at 0.88. Though some of this is likely to have gained on bond holdings, as per our above example, this would be far outweighed by losses on FX.

That's about $66 billion cost for another central planning failure.

WSJ: Radio Shack preparing bankruptcy

Somewhat delayed reaction to the Edifice complex, but not surprising. And no, you can't have my zip code and phone number.

S&P 500 vs. Oil smashes records

Over the last few months, there has been a big disconnect between the S&P 500 stock index and the price of Cushing crude oil.

The previous big disconnect was in 2008, but stocks crashed first as oil continued to rise, only later catching down to stocks in 2009. This time, it is crude oil that is crashing first. The obvious question is, will oil rebound and catch up to stocks, will stocks catch down to oil, is there a permanent disconnect between stocks and oil prices, or is the correlation only a coincidence?