Thursday, September 25, 2014

Law enforcement breakdown Greek and American versions

A few weeks ago it was reported that:

A Greek individual called 911 to report a crime in progress; burgler were robing his house.  Apparently the police told this individual that they:  "Didn't have enough gasoline to make it to his house"  He was on his own.

When the state stops building/repairing roads, picking up garbage, paying pensions, providing clean water or providing basic policing services -- breakdown is among us.

Today the Canadian government told Canadian to no longer bring cash to the US.  Apparently, police officer regularly seize any cash as "proof that they individual was involved in drug trade".   Apparently, the police were given the authority to seize drug proceeds (their interpretation) and keep the cash (in the police force we presume).  That create great incentive for them to seize all cash and sundry... after all it helps their pensions!

Finally, as proof as to the size and importance of this:

Hundreds of state and local departments and drug task forces appear to rely on seized cash, despite a federal ban on the money to pay salaries or otherwise support budgets. The Post found that 298 departments and 210 task forces have seized the equivalent of 20 percent or more of their annual budgets since 2008  (Washington Post)

Just in case you thought this is BS, my source:  CBC

UPDATE:  John Oliver had the following to say:  here

Tesco income overstatment and the financial press

I don't know the details of Tesco's income overstatement -- the total looks large from here but not earth-shattering.  There are clear problem there but not really of my concern.  I know little about the company aside from the fact that I think my sister works there -- but in a non-retail division (maybe there are two Tesco's?) and that I used to shop there for groceries. Now this is a big company with annual profits in the STG 2 billion range (USD 3 billion with US$ 100 billion turnover) , so a STG 250 million error in net profit is a problem but its not about to kill the company (another story for its management).

This story is about analyst and financial reporters.  Last night flying back from Europe (on Air France -- man were we lucky that our flight was not cancelled) I was reading "Les Echos"  which is the French equivalent to the Financial Times.  There was a long winded article on the Tesco saga.  I was not very interested but one bit of information was fascinating:

The journalist was quoting an analyst that said that Tesco was overstating its revenues by not paying its suppliers.  According to the analyst Tesco would only pay 95% of the invoice and declare the balance as a profit.  My first reaction is that this has to be the most stupid comment on earth!  If you have an invoice for $100 and you only pay $95 aside from gross stupidity there is no way for the $5 difference to end up in profits... unless you decide not to eventually pay the $5 that you owe to the suppliers.  Even then this would not be ordinary income it would be extraordinary (not from operations).

Now this is where it gets tricky (and by the way the journalist never mentioned this bit).  Lets say that you buy $100 from a supplier -- but you have a deal with the supplier, if you order another $100 you get a 5% discount on your order.  In other words the next $100 of goods you buy only cost you $95. So it would be possible for Tesco to realize an additional profit on the next $100 of goods in bought of $5.

The question is then, when do you book this real profit.  As soon as you've order the next $100 of goods or once you have sold them?  This is not an easy question -- in fact there's a famous case study of discounts with the Arthur Murray School of danse ("AMS"). Guess what in AMS' american operations this kind of discount is accounted as profit at after the sale of the goods (the second $100) but in Australia the profit is booked as soon as the second $100 of good is bought.  Clearly there are different ways at looking at profits.

As a side note its always interesting to look at companies account in different jurisdiction (dual listing) the P&L are often very different -- for the same company.

Overall, and this is what is important as with regards to the article.  The fact that Tesco didn't pay the whole amount due to suppliers doesn't constitute a potential profit event; the only thing it does is that paying the $95 invoice will reduce payable by that amount -- in itself it has no profit impact.  if Tesco decided not to pay the $5 balance this is not an "ordinary profit"!

This is my point, this is a complex problem:  little of the information is available on why Tesco mis-stated profits by such a significant amount.  Grocery stores are notorious bad payers (to suppliers) because they operate in such tight margins.  But the article gave a false impression as to the nature of the problem.  I have serious doubts that an analyst (this was  a quoted statement in the article) actually said something as stupid, but I am confident that the journalist didn't understand what the nature of the problem was that could have generated this mis-statement of profits.

anyway that's it!

I have no position on Tesco (or any grocery operator for that matter)

Friday, September 19, 2014

Scotland & independence movements

Can it ever be the same?

The reality of the 55/45 vote overnight in Scotland is a cold shower for independence aspiration in Quebec and Catalonia (among many many others -- looking at you Wales).  The Scots got a very clear question -- do you want to be governed from London or Edinburgh?  The Scots said, no thanks -- better the devil you know!

However pandora's box is now open.  Once talks of divorce start its hard to stop -- my guess is that yesterday's vote solves nothing;  discussions will continue for a long long time, with the Scottish nationalist party finding a new excuse to restart the process. As an example:  "although the question was "clear" it didn't spell-out what was the alternative, what was the ideal of an independent Scotland".  It remains that 45% of Scotland's voting population said "we want things to be run out of Edinburgh", that's 1.5 million people, a not insignificant percentage of the population.

Already, the press is having fun.  In reality, it is the press that loves those kind of plebiscites.  The press will find the unreconstructed separatists that want nothing less than Scotland for Scots!  its not about governance but hurt pride. 

The past 50 years the Scots have wanted self-determination.  The threat of departure has been a huge incentive for London to devolve many of its decisions to local officials; often better equipped to see the problems on the ground, rather than 500 km south.  Those opposing independence don't give enough credit to the independence movement to see its impact on how the Scottish population is now governed.  This has been the real achievement.

The Quebec separatists sent delegations to Scotland -- probably (after too much whiskey) are on their way home deeply demoralized.  If a nation (Scotland) which has been "subjugated" by England cannot free itself from the cold grasp of their invaders -- what hope go Quebecers have; we don't have inspiring movies like Bravehart.  Moreover, the Parti Quebecois has seen slipping polls -- in the 18 to 25 age group they rank 4th in voter intentions!  That lower than the Marxist Leninist "Quebec Solidaire"  which is pretty bad.

Generally the most attractive features of independence movement is that they bring to the forefront the grievances of a nation (Scots like Quebecers are nations -- based on the concept of a shared identity) and act a pressure valve allowing for the central government, over time, to devolve those functions that are better (maybe not) administered locally.  In Quebec, aside from the armed forces, 99% of population governmental interaction is with the Quebec government (except during tax times).  Similarly in Scotland, the London government has started (years ago) a devolution process that it seems to want to accelerate.  Talk of separation has yielded a true reform in how, as nation, we are governed today.

Tuesday, September 16, 2014

Ebola -- a public heath crisis

Several years ago, at the bookshop in Hong Kong I bought the Hot Zone.  To say that the book freaked me out would be an understatement.  It is a compelling look at the risk of contagion (and the movie with the similar name was scary enough) by one of the world's deadliest diseases.  Thankfully, Ebola is not airborne (yet anyway) apparently ebola is a very sloppy virus that has a tendency to mutate -- already there are two or three variants.

The CDC, Medecins sans frontier, and others have raised the alarm.  So far America (today) is the only country that has raised a hand -- with 3,000 personel.  Not Russia, not China and nor Europe.  How is it that America is always seen as the policemen or the doctor of the world.

If Europe and China were to look seriously at the security of the middle east (the oil zone) it may be of comfort that is America that is providing all the security in the straight of Hormuz, and yet 99% of the oil produced in the region goes to China or Europe -- who assume no cost for their energy security!

Back to Ebola, there is a sense that this is a disease of Africa, and that it will be contained.  Maybe, but Lagos is a big, big town and to think that international air travel -- or illegal immigration out of North Africa is not a problem would be to seriously misunderstand the scope of the problem that the world is facing.  The Ebola crisis is still (only just manageable), but Ebola is considered an R1 or R2 communicable disease -- that means that every sick person will infect 1 or 2 individuals -- this is very high (in the movie Contagion they were talking of an R0 -- maybe an R1).  The case of the American missionary who fled a hospital to return home (eventually died in Lagos) infected between 12 and 20 people.

We are finally meeting our deadliest foe -- and he a virus!

Enough already with Europe -- lets trash America instead!

So apparently France's prime minister (Manuel Valls) said that its economy was "screwed" if there was no recovery within the next 3-6 months.  personally, I think that he's now calling "higher powers" in the hope of a devine intervention... He wishes!

Out in in 'merica the situation is all rosy, at least if you look at the stock market which continues to define any logic.  There is no good news, aside from stock buy back -- that's it aside from a few companies that are doing well (looking at you Disney) but the real game has been the stock buy back. Why do better if you can just reduce the float!!!

The reality is that without wage growth in the middle class there can be no economic boom.  Moreover, the big spending now is in "education" as John Oliver pointed out the $1 trillion student debt has been mostly used to attend private (for profit) universities -- who according to Oliver spend nearly twice as much on advertising than they do on the faculty's salaries!  That doesn't produce much growth -- but provides young people with massive debt, and in many cases degrees of dubious quality.

The reality is that with the growth in wage disparity between the 1% and the rest (no wage growth for the rest, and a 25% a year increase for the 1%) there is no way for the economy (one that is based on consumption) to grow.  Moreover, with the GOP's "war against Democrat spendings" there is no spending on infrastructure.  Bridge and viaducts are failing down or considered "in grave danger" but there is no money at the local level, at the state level or at the federal level.

One of my favorite countries is Paraguay, the economy is full economic growth, 10% a year with a massive shift from agricultural labour to city employment.  All great, but with a 10% income tax rate and minimal property taxes (which is great for rich people) there is literally no infrastructure spending.  There are few if any traffic lights in Asuncion, the main (and only) state road is in such poor shape that to call our "Canadian potholes" a calamity would be a gross exaggeration;  we are talking massive holes (up to a foot deep.  Ranch owners fly out to their properties (which are immense -- for good reasons) and are far flung anyway, but goods transportation by road is greatly hampered by these poor infrastructure (there is no rail network in the country)

Traffic in Asuncion is becoming a problem.  The 5km road to the airport can, and has taken me, more than 2 hours.  There are real economic costs at not having infrastructure.  America is discovering the cost of having crumbling infrastructure.  $20 Trillion -- that's the total (an expense that the GOP is apparently glad to pass on to the next generation.