Friday, March 31, 2017

It used to be some kind of organized sport now its Tump

I've been in meetings all week with a number of Mexican companies, these are either initial meetings or early followups and the trend is amazing.  First off, Mexican meeting follow a very different process than do European or even Canadian meetings. The first topic is always to ascertain who the participants are in relation to Mexican society, its not so much a "pissing contest" rather its a way of having a social barometer -- the reason is that Mexican generally do not have an internet presence, a simple precaution in a country where ransom kidnaping are still an issue. So the first 10/15 minutes of a meeting is a who do you know and who you are, no su much work wise but within the Mexican society.  As a foreigner it can get relatively complicated, but that's part of the game.

What has changed is the after meeting conversations; it used to be about Football (the Rest of the World kind not the American kind) and who was doing what to whom!  As someone who is largely uninterested in organized sports, it provided all kinds of pitfalls (I figured out that its not because they are Mexican that they are not avid supporters of Arsenal [UK football team]).  However, over the past few months (lets say June 2016) the topics of conversation have changed:

  • First:  Can you believe that Trump has the courage of running for President?
  • Second:  How come Trump is leading the GOP pack?
  • third:  My God, Trump is the GOP candidate?
  • Fourth:  He cannot win, he cannot win!!!
  • Fifth:  My God he has won!!! What will that mean for Mexico?
  • Sixth:  Immigration, NAFTA -- oh he won't do anything because of WTO rules!
  • Seventh:  Is it my imagination or does Trump have the attention span of a gnat?
  • Eight:  Trump will not get around to taxes or immigration
Now every meeting ends with a Trump conversation.  Honestly, Mexican are far more concerned about the actions of their current president than about the American president and his administration. Among Mexicans the analysis is that Trump doesn't understand how the US policy process works, he doesn't understand the importance of Congress (frankly surprising considering Congress' ability to stop Obama dead on his tracks), or the role of civil servants in "projecting" the will of the President.

How the Mexicans view the US:

  • Trump will continue Obama's policy of kicking out illegal immigrants, and will continue to be "mean" about it, kicking out "soccer moms with brain cancer"
  • Trump will not get to the negotiation table for trade, he doesn't have the support of Congress (GOP) and he doesn't understand policy, and he doesn't have civil servants doing his bidding (three essential items to a successful negotiation).
    • As some one said yesterday:  In life you can be kind or mean, and you can be smart or stupid three of these combination work, but being mean and stupid never works!
  • Mexican's perception of the wall is that it will never get built, its now a $20/25 billion project. An expensive solution to an off-hand tweet
  • Their vision of Trump (over the past few weeks) is that he will achieve little -- he's unpopular, his administration is chaotic and Congress is running for election (2018 mid term).  
  • We seem to be returning slowly to football -- also that vacations will not be in the US next year!
Other stuff this week:
  • At war with the Freedom Caucus is idiotic considering his own popularity
  • Attacking the democrats for having "ties" to Russia (still doesn't understand the underlying issues)
  • Asking for $2 billion to study the Wall project (if memory serves either it was going to cost $5 billion and was going to be paid by the Mexicans!
  • First real test of the administration:  April 28th -- raising the debt ceiling!
have a good weekend

Tuesday, March 28, 2017

Trump crashes the market not so much

Nothing like failure to make you successful...not

The Freedom Caucus have got their man, and he's screwed!  The lack of effort in passing TrumpCare will make of Paul Ryan and President Trump "Freedom bitches!"  Nothing will pass congress without their support, and they know what they want:  To make government small enough so that it can be drowned in a bathtub (except for the military...).

This will be an intersting week, don't think that Ryan will last very long in his current job.  On the one side you've got the extremist that cannot be budged, they have gerrymandered their district so that they are unmovable and will continue their crazy talk, and on the other side you've got the moderates (as they are), that are squishy in their demands and needs.

Now the big one are trade reform and tax reform followed by the Wall and infrastructure projects.  We must not forget the April 29th deadline to increase the government obligation/ability to continue to pay its bills -- as America's overall debt burden continues to grow and bump against its self imposed limits.

So four big things:

  • Tax reform (e.g tax cuts for the 1%)
  • Trade reform (NAFTA etc)
  • The Wall -- make joke here
  • Trump's infrastructure "project"  (aka don't hold your breath)
  • April 29th debt ceiling 
  • Visa (H-B1 & friends)

First off the GOP is overall against any change to trade agreements, after all it is the to 20% that have gained all the value added of the past 40 years of reform.  it is also very complicated and some of its trade partners (aka Canada) are very very keen on re-opening Trumps' surprise!  

Tax reform is the big nut, and the difficult one because its all about money and who's going to pay. Importers see the writing on the wall, those who benefit from massive tax savings (the ethanol lobby) and the lawyer/accountant lobby are certain to want to keep their loopholes!  This will complicated the process because all those involved have a lot of money, and Congress needs a lot of money for its elections.  Not entirely clear that Congress or Trump has the attention span...

The debt ceiling is the best way the Freedom caucus has to control Trump and his friends.  They can force certain things that otherwise would make Trumps' day.  My guess is that his infrastructure plan is DOA -- he will get a few billion for his wall (eg study the wall and how to build a wall -- insert joke here).  There is simply no way he's going to get anything else -- even if America infrastructure are crumbling -- its simply not a priority for the Freedom caucus.

the H-B1 visa is a big issue, as more and more non-Americans leave the country (they have no choice), but tech companies are nimble and will relocate elsewhere.  Rumors are that the big boys are already told all non-Americans that all jobs will be in a non-US location; the implication is that foreign campus will grow much larger -- and will suck increasing resources (yeah Canada).

As for the market, it got a little hot and bothered a few days ago when there was some glimmer that the health care act would pass, but it all quickly faded to irrelevance.  The best is that Trump will do absolutely nothing -- that's change wall street can get behind (especially if Dodd-Frank is abolished and Wall Street is allowed to do everything it wants -- unchecked -- and then get rescued.  the S&P is sitting 2343 -- just 60 off its all time record.  The market is still pricing perfection, and an administration in revolt with itself is maybe the best possible outcome.


Friday, March 24, 2017

Health care reform not this year

Today is the day, where the GOP's healthcare reform was to meet's its "first" hurdle which is the house of representative -- a few minutes ago the vote was pulled with 33 no and 9 undecided.  33 no was the death march of the law.

How did this happen?  The GOP had seven years to figure something out, and the end result is a big fat failure?  This was the litmus test for Ryan and Trump and yet the whole thing was mismanaged from the start:

  • It was done in secret
  • None of the natural constituencies where included in the process
  • It was done very very fast (3 weeks instead of 14 months for ACA)
  • It was almost impossible
Bottom line the GOP has been lying to itself.  David Frum suggested, in 2009, that the GOP work with Obama to make a good law.  Instead the GOP lied. made up stuff (death panels) and exaggerated.  Trump who's ADHD made understanding the healthcare problem impossible jumped on the bandwagon of this disaster.

How will Trump pass his tax reform now?  He had limited capital to start with now he has nothing.  Bannon apparently wants the name of those who didn't toe the line...amazing that he doesn't have exactly who was a problem and who was not.  It shows a completely disorganized white house that has no idea how to win a vote.

Now Trump wants to reform trade and taxes -- like there are no special interest there.  He cannot concentrate, he's largely uninterested, has little capital and his thugs don't seem to know how to get things done.

Maybe Mexico can rest easy...Canada will be disappointed, reform of NAFTA would have been a good thing for Canada!

Wednesday, March 22, 2017

Italexit? Odds are saying Yes!

Poll after poll in Italy are showing the five star movement (not a radical right wing group) ahead in the poll.  In fact, just 6 points shy of a majority in the Italian Parliament (majority is at 40%).  Taking all the anti-Europe political parties together and you get a 56% coalition.

Italy is the weak link in core Europe, with 12% of the zone's GDP (a grouping of 27 countries) an economy in tatters, with 12% unemployment, and 37% unemployment among those below 25.  A banking system reeling from accumulated bad debts:  One bank alone absorbed 110% of the Italian government "authorized" rescue fund for its entire banking network.  The sickest bank, Banca Monte dei Paschi de Siena had non performing loans in the range of 30% -- at the peak of the S&L crisis in the 1980s the American banking non-performing loans were less than 5%.  Other Italian banks are in the low double digits -- still not healthy, but better.

The Italian economy is uncompetitive and has no tools (aside from mass reduction on salaries and benefits) to reduce its costs.  The political system is at a standstill with 4 prime ministers in 6 years. The entire system is corrupt and probably beyond redemption.

However there are five ways for Italy to remain in Europe/Eurozone:

  1. Italy and Germany could converge. To do this, Italy would need to undertake economic reforms to clean up the justice system and the public administration, cut taxes and invest in productivity-increasing technologies. Germany would need to run a higher fiscal deficit. Germany will never agree to run a fiscal deficit.  
  2. The northern European states accept large fiscal transfers to the south. Requires full federation of Europe into one political entity -- difficult to imagine Germany (or France, or Italy) giving up their sovereign parliament
  3. The EU creates a federal political authority with powers to raise taxes in order to transfer income from high to low-income earners (see above)
  4. The ECB finds a way to bankroll Italian public and private debt indefinitely (they're about to give up on Greece which is a much smaller problem [3% of Europe's GDP]).
  5. Italy‚Äôs government will forever continue to support euro membership.  How much pain is the electoral system ready to absorb, the popularity of S5M says that Italians patience with Europe is running thin (Not saying the pain/cost of exiting has been fully discussed)

Now, maybe Europe can figure out a fudge a delay something in between, but the FT's February analysis of the Italian dilemma seems to indicate that there are no easy solutions.  These are the five known options.

Anyway, things are getting interesting

Monday, March 20, 2017

Owning up to being wrong!

Over the past few weeks the truth has been largely absent from the American political scene. The truth is what you want it to be; Illegal voters was the reason Trump lost the popular vote, Obama spied on Trump etc etc.

It is the new normal in a way that politicians will understand; Trumps' sin is that he's gone "full retard" -- politicians lie, its the nature of the beast! Policy is complicated and people want simple answers to complicated questions, and are impatient for results, they don't understand how government functions -- they probably don't understand how a company works either!

Most politicians will use "little lies" to make their supporters happy, the difference with Trump is that he has no check and balance -- he says that the number of Americans at the inauguration was greater than under Obama -- and he will not change his mind confronted with irrefutable evidence to the contrary. Its not that he's shameless he just doesn't care!

This morning there was a funny article in the NYT about a letter that 50 conservative economists wrote to Ben Bernanke about the impact of QE1 (Yep a long time ago) that not only would the US have high inflation but that the currency would fall against the rest of the world. NONE of the 50 economists ever admitted that they screwed up (there has been very low inflation and the US dollar is very strong).  Some of these guys are about to be rewarded with very nice government jobs

My point is this, we have reached a new normal, spokesman for Ryancare say that healthcare is available to all Americans (so is dinner at Messa Restaurant in NYC -- if you've got a couple of grands available...[BTW NYC's most expensive restaurant]).  Saying its available is meaningless, but also irrelevant to those politicians.  Their objective is elsewhere, and so the little lies to achieve their intended goals.

I've been told that I am slow at recognizing my own mistakes:

  • Greece will be out of Europe in two years -- deadline was 2015 (lost that bet)
  • French and German banks will be bankrupt -- thanks to ECB they're still here
  • Italy would be out of the Euro zone by early 2017
  • Cyprus would be out of the Euro -- got that way wrong
  • Hilary Clinton would be president -- wrong still cannot believe America picked Trump...

What I did get right is that there are fundamental imbalances that the world is ready to allow to persist, and that the ECB had no choice than to buy-up all the European banks's Greek and Spanish sovereign debt -- otherwise DB, SG and others would be gone by now. Years ago a top trader told me that the market can be "wrong" far longer than you can be solvable. A valuable lesson to anyone that considers that there are fundamental errors in a system.

So we have an American President that says complete falsehood and no one bothers to correct him anymore -- its become so common its not worth reporting, moreover, those who believe these lies would NEVER believe the main stream media anyway.

Bannon & Friends have no love for the GOP or for Congress (any shape or form) right now Trump has an opportunity to clean the decks (without interference) of all those real and perceived enemies. We are about to see purges of the civil service, for although the GOP in congress is against the budget it is to the liking of their constituency -- those real zealots who have no understanding how government function, and have zero interest in understanding. We are on the edge of a precipice and the government's check and balance are on holiday -- in "delusionalville"

Wednesday, March 15, 2017

Doing the unexpected

Donald Trump has been president for slightly more than 7 weeks (has it only been seven weeks) and yet he has already filed papers to run for elections in seems a little premature, but really is a brilliant move.  Donald Trump keeps on doing the unexpected, in a way that is redefining politics and policy:

  • By running his upcoming speech in Nashville as a political rally (financed by his campaign for re-election) he can choose who he admits, use it on TV ads, make it available to the network that will run it on prime time and show DJT in full glory with adoring fans -- while keeping protesters far away, ideally showing pictures of protesters attacking the police -- you know good stuff!  [and sell stuff to his adoring fans]
  • Trump has repeatedly said that the current US government is only for those who voted Republicans (although Trumpcare seems to be more about giving to the 1% than anything else), and can be ignored by elected officials -- a clear break from the tradition that the President is the for the entire nation -- a breach in the democratic tradition -- but again traditions are only that: traditions
  • Not a week goes by with out some DJT sponsored conspiracy theory -- and like all ADHD sufferers the press runs after the new shinny ball.  
  • The best way to make sure that government doesn't work is to stop it from working.  Trump has nominated almost none of the department's heads -- which means most departments are in limbo.   
  • Mark "non-GOP supporters" civil servants as traitors that need to be "purges" from the ranks of the civil service.

It is the first time (ok ok McCarthy is the exception but he was never the president) in living memory that a President has completely changed the method of governing.  What he says on Monday is already gone on Wednesday, by running for president right now he reduces the opposition to nothing, by campaigning only in red states with compliant governors he can convince them to keep protesters very far away, and insure via aggressive policing that things deteriorate.

President Trump is a game changer for America's democracy.  He has used the tools in a new and innovative way to change the way government works.  He has silenced the opposition and removed their oxygen (publicity) with new and ever changing conspiracies.  Because Congress has been neutered (because right now they believe they can control Trump) and will be controlled (Ryan's day are short with Trumpcare/Ryancare) by Trump as soon as a replacement is found for Ryan.

Truly effective moves in the part of Trump and his team.  Given enough time he can completely reshape the US government control and balances so that the America's democracy is forever altered.

P.S.  I am not a fan of President Trump, rather the opposite.  However, the US governing system had become completely dysfunctional and without redemption.  America that had been generous and open has become closed and mean!  The debate on healthcare is telling; its not about the money its about being mean!  Its about insuring that those less fortunate suffer.  The republic is ready to pay to make sure that its people suffer.  Its moral compass is gone and a change is necessary.  It is a truism of the late 20th century and early 21st century that those economies that have been the most successful are not democratic -- china and Russia are good example. It is very sad, but it may be true that the world is changing and the America is the first of the 20th century democracy to fall -- probably not the last!

Tuesday, March 14, 2017

The culture of hype: Another blizzard downgraded to a snowstorm

I don't really care about snow storms on the East coast, but I use it to illustrate a bizarre American phenomenon; the use of hyperbole for everyday mundane events.  It starts with giving it you 150% (which is patently impossible...) and goes all the way to 24 hour coverage on multiple channels about the upcoming blizzard -- that has now only going to be s snow storm, a good one for sure but really a typical heavy snow storm with anywhere between 15 and 20 cm of snow.  An inconvenience for sure but not the end of the world in the northwest.

24/7 news cycle has given birth to these kinds of hype over nothing.  The 24 hour coverage of something largely unimportant -- simply buy a bit of extra food, have a plan B if the power dies and keep your cell phone recharged -- oh and stay home Tuesday.  Instead we get this panic mode.  I first noticed this kind of hype for the year 2000 -- when suddenly all the computers were suppose to stop and the world come to an end -- no so much.  There were virtually no cases of real trouble -- sure some software had to be re-written but no biggy.  A panic for nothing!

Health Care Reform aka the GOP's nightmare

Of course the "Republican's Best Health Care in the world" really means that by 2024 50 million Americans will no longer be insured.  That a 64 year old earning 25k a year will pay 14k in insurance premium, somewhat more than an iPhone (my calculation are that's 20 iPhone a year...).  That Medicaid that finances nearly 50% of all births in the US will be block grants -- in other words the federal government gives a specific amount and its the state's problem to figure out the rest.

I'm starting the believe in the Deep State (since rumors emerged that the White House had scored the GOP's health reform -- their results were worse than then non-partisan CBO).  That was suppose to be a black deep undercover not to be revealed to anyone its in the press thanks to Politico. Man, the GOP really owns the medical insurance problem now -- that's 25 million pissed off Americans, and a few dozen plutocrats that are happy --- they probably didn't even notice their tax reductions.

I still don't think that it will pass, but then again I never though that Trump would be President.

Fun stuff

Monday, March 13, 2017

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2%).  China grew by 6.8% (apparently -- so things are not all bad there!).

Now all these stats are interesting, but all of them could also be used to explain why oil prices are "exploding"  that's the problem.  There is no good predictor of oil prices except gut instinct, and these are usually wrong.  As an example, looking at US exploration and drill rig count, energy analyst assume that over the next 24 months, the US will add nearly 1 million barrel per day in production. Whereas Mexico will se a cut of nearly 500k/bbl/day.  Again last week the US announced that another major find was made in Alaska --

So take my word for it, oil prices are the biggest unknown, and the reason for price reduction are the same as those that can justify a price increase.

enjoy uncertainty...

Saturday, March 11, 2017

Trumpcare & the end of an era: RIP globalization

Well its seems that the GOP has finally put its big boy pants and created a bill to replace Obamacare -- it took more than 7 years to get a sense of what the GOP leadership is thinking, and its a huge disappointment.  In a sense, the good old boys of the GOP only want to do one thing its make the government smaller!  So the pieces are slowly coming together, its not going to work, but you understand where they are going.

First, they flip the benefits for healthcare from the most in need to those who don't need it.  Really, its a simple as that the tax credits are aimed squarely at the richer segment of the population, the block grant is a brilliant idea if you want to kill Medicaid.  BTW a fun fact, nearly 50% of all birth in the US are paid via medicaid...

It gets even worse, they so don't believe in their plans they've not even bothered to get diverse faction of the GOP commenting on their plans -- seriously, the bill went to committee and no changes were made.  Obviously, those to the right want no government involvement in healthcare at all -- they ran on that platform and nothing less will satisfy them.  Ryan may get the whole thing through the House of Representative, but the Senate -- forget about it! Obviously, Trump is pissed that everyone is using the term "Trumpcare" for such doomed to fail legislation.  The question, is what is Ryan's plan?

My suspicion is that the GOP knows that changing the ACA is not possible without losing a lot of votes.  Just hear what the Co-President of the Tea party said last week:  This is not what the GOP sold us -- true, the GOP sold fantasy Island -- reality as Trump discovered last week is more complicated.

So Ryan's plan is to lose this thing, he got no scoring in terms of costs -- a big no-no for the far right of the party, and no buy-in from the various wings of the party.  In fact, the whole thing was written in secret and nobody likes it (I'm almost sure that Ryan will vote against it in a few weeks...)  In the mean time, certain wings of the party are working hard at killing the ACA -- forget replacement, the trick here is to remove subsidies for the insurance providers and the whole thing fall apart, they can blame the Democrats...maybe.

Trump's next 8 years...

The way the GOP is playing along (being dragged) I am relatively confident that Trump will last beyond the first 2 years, the GOP is too scared of the man and will not do anything to jeopardize its possible wins -- they will try to pass legislation some of it will work others (like V2.0 of the anti-immigration law) will not survive the courts.  Also most seats up for grab in the Senate are "sure thing GOP wins"  thanks to gerrymandering.  In any case within the next 12 months:  Education, EPA and Agriculture will cease to exit.  HUD and HSS are certain to be gone too, because if the Federal government can get a buy-in from the states for block grants, the it opens the door to other federal programs that could be managed by individual states.  State department may become shadow of its former self...Trump has asked for a 40% cut in budget!  Medicaid is in the process of being dismantled -- you can bet that the one segment of Trumpcare that will survive will be the block grants to the states.

So America's got Trump for at least the next 3 years and possibly the next 7, why because the GOP will get some of what they want, they will get lower taxes for the rich (Trumpcare is a perfect example), they will reform the tax code -- or at the very least give bigger breaks to their rich donors, and will reduce the number of immigrants (by hook or by crook) in fact non-Americans are already rethinking their presence in the US.  At any rate events in Europe are more important than in America with regards to immigration policy -- things are getting difficult for Turkey, and elections in France. the Netherlands, Italy and Germany may well dramatically change the picture of immigration policy across the OECD.

RIP Globalization

On a more general note, there is no doubt that things were coming to a breaking point.  The average OECD resident has seen its income stagnate throughout the past 40 years -- the promise of open market making life for all easier/better has been broken, the world is ready for a different solution to the question -- immigration free trade are probably not part of the equation.  The implications for countries such as Canada/Mexico and China are serious -- for nearly 40 years China has been an export power house.  How will tariffs change things, will China have the time to adapt to the new reality of more closed world.

the geo-political landscape is about to change, and uncertainty will created new classes of winners and losers, only time will tell, but a 40 year experiment in open border and open markets is probably about to come to an end.  As an economist this is a sad time. because its one of the most important aspects of economic growth -- however, there is no doubt that changes are afoot -- and the changes will be swift.  protectionism, tat for tat trade sanction, closed border etc etc.

Thursday, March 9, 2017

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but everything to do with a reform of the state operations system -- remove the drivers and use computers.  They never drink, never eat, and never bitch, and when they break down you just repair or replace.

Wednesday, March 8, 2017

Law of unintended consequences III -- the Sugar trade wars (according to some)!

OK this morning it emerged that Mexico has "suspended all March sugar export to the US ".  The immediate reaction of those reading these article s(mostly zerohedge) was predictable because obviously they don't read...they just saw the title -- which was misleading.

What really happened:  Sugar trade between Mexico and the US is managed -- in order to maintain the US sugar production industry.  Anyway, the trade is managed in two ways:  (1) there is an absolute limit to the amount of sugar sold from Mexico, (2) these sales are "spread throughout the year".  What happened is that in the first quarter of 2017 too much sugar was sold to the US, Mexico has been trying to shift the cap (to reflect production) for some years, but has had no success.  In the past on an add hoc basis these caps were shifted by the appropriate US authorities.

The problem now is that new US administration has not replaced the group that can agreed to these add hoc changes in the sugar quotas.  Mexico has no one to talk to in the Agriculture or Foreign affaires department to discuss the issue  or make a decision.  Those empowered to make those decisions have either left or been dismissed and not been replaced.

So the news today is that Mexico has started a "Trade war with America"; not really, Mexico is following the terms of the sugar trade that have been agreed since 1992, these terms cannot be modified without the consent of the US and the US has not, at this time. agreed to waver the rules.

US sugar price on the CME are at an all time high...

Tuesday, March 7, 2017

Trump, Congress and the American way of life

What an exiting weekend, turns out that instead of asking the NSA, CIA and FBI if President Obama had wire-taped his Trump Tower phones, the President decided to ask the question on Twitter, all this apparently borne out of a wet dream of Mark Levin a far (waco) right radio commentator, a repeated in Brietbart!

Now, based on Trump's "gut feeling" Congress wants to start an investigation...too busy to look into the allegation of Russian interference in the 2016 election process but stuff that Trump can ask directly from the NSA/CIA/CIA...that is something they have the time to investigate. Republican Congress have become the cheerleaders of the Trump administration, they are not a check and balance they are squarely in his corner.  Granted Congress has its hands full with the new healthcare legislation, to the left (the democrats) are not about to help Paul Ryan destroy Obamacare, to the right the Freedom Caucus wants no health care at all, free for all, cats, dogs everything into the mix.

In other words without major pork to the Freedom Caucus the ACA replacement is dead in the water. These days there is more pork but not much that will satisfy the true red blooded Freedom Caucus members who have promise to their base (who use the ACA) complete and total repeal of any government involvement in the healthcare.  On the bright side medicaid is now included in the mix with block grants -- over time, as inflation bits the value of the block grants (to the states) will fall to nothing (e.g. medical inflation is running at 6/7% while general inflation is running at 1/2%.

Now, not only will Emergency room be full of uninsured people (increasing the costs to the states) there is a certainty that many Americans will lose healthcare coverage.  The GOP will underplay that number, the Democrats will exaggerate... Still the number is certain to be large.

More gift to rich Americans, cheaper and tighter to poor Americans.  Farms will get tax breaks on their profits (as will industry) but will have no one to pick their fruits and vegetables...if they use "American" labor they will make no profits.

Study after study show that America is now becoming far less mobile (between classes) than it was 30 years ago.  People have increasingly ghettoized the country -- living with like minded people and seeing no others.  If you only see "others" via the lense of Fox News or Breitbart you may easily think that "these people" are not Americans, that they don't deserve to be there.

Friday, March 3, 2017

DB -- looking to raise new capital (Revisited)

The German banks had a terrible 2016 and 2017 is not shaping up to be any better.

  • For some reason after 2008 the ECB didn't encourage European banks to increase their capital
  • Equally, the ECB went out of its way in 2010/15 to buy distressed Greek debt at par (mostly from European banks, and insurance companies) a nice little 
  • German Banks did a headcount cut of 20% (both DB and Comerzbank) also in 2016
  • DB's share price between 2008 (April) and today has gone from $121 all the way down to $21
  • Just last week DB cut its bonus pool by 80% -- great for staff retention!

So early this morning rumors began circulating that DB was going to either issue new shares -- at the current price rather high dilution, OR IPO DB's Asset management business!  No wonder the stock tanked this morning.  DB Asset Management is the single most valuable asset of the company.  It has been completely free of any scandals, it is very well run and a profitable business for the group.  If this is true, it is an indication how serious things are at DB.

This is an indication of how serious things are at DB.  Although I think that DB's Asset management group is a very valuable business, you can only sell it once.

NEW:  Ok it looks like it will be new capital, and no IPO for DBAM -- share price took a dive yesterday because the market decided that Euro 8.5 billion is not enough, it should be Euro 12 billion (based on what?)  FYI today's DB's market cap is Euro 25 billion (which is not a lot), since June 2008 the bank has raised Euro 30 billion...

Thursday, March 2, 2017

Snap Chat at 25 (update)


I don't use SnapChat -- to be perfectly honest I don't really know what SnapChat is about considering that the whole thing is that you seem to be able to send inappropriate pictures that will disappear into the ether immediately (really).  Honestly, what's to stop a person who receives a snapchat from taking a picture and then posting it on...

Maybe the new generation has figures out that your Facebook pictures of you snogging some girl could come to haunt you many years later.  A suggestion, if you think the picture is inappropriate maybe it's best not to send it all!

Anyway, this morning SnapChat was launched on the NYSE with a price of about $17 per share, a nice one day boost of 47% to $25.16 this afternoon made everyone that got allocation in the IPO- happy.

Also this morning the market gave a target price of $10...mmmmh.

I've not looked at the annual report but something tells me that with a company that was valued at US$ 29 billion and is now worth US$42 billion is somewhat overpriced.  I am curious as to their revenue model.  I got Google and Facebook wrong, Google's prime money maker Google Adsense didn't exist at the time of the IPO -- so again it was a leap of faith on the part of the investors.

Apparently in 2016 Snapchat made revenues of US$ 400 million -- so a company with revenues of 400 million (and I would guess expenses greater than that-- Turns out that net income was -514 million) has a US$ 42 billion market cap.

I just found out that the company raised US$ 3.4 billion -- on a launch market cap of 29 billion.  I don't know if that includes the greenshoe option -- my guess is that it does since that would explain the nearly 12% of shares issues.

Not that the market gives a damn about my views -- after all even with a 29 billion market cap, and 400 million in revenues -- this is all about the future revenue growth.

No position (or appetite) for Facebook, Google or Snapchat

Wednesday, March 1, 2017

Trump's State of the Union

The highlights:

(1)  Down with regulations!-- that may work, but then giving the right to industry to pollute -- are we back to rivers on fire.  After all the lack of regulations has been so good for China, maybe America should imitate.  Some of the finance regulations are pointless.  Not sure that killing the consumer protection bureau is such a hot idea.  Also not sure I buy the job-killing thing, America is near full employment now.

(2) Killing the TPP is good for the economy!:  not sure it was and it excluded China which seems to be idiotic anyway.  The jury is out on that one.  Those who remain in the TPP can still agree to something, but without China and America it's a little pointless

(3) Drugs is a real problem in America and we will do something about it!:  That's pie in the sky, for more than 40 years America has tried to eradicate drugs without success.  Drugs have never been cheaper.  This is a waste of time and effort filling the prisons for nothing, reform it lique alcohool and gambling (Trump should know).

(4)  Government's job is to serve and protect its citizen!:  Which begs the question why is trump growing the military budget by 9% -- what is it that America's armed forces can do with $665 billion that it could not do with $603 billion?

(5)  America cannot be home to terrorists!:  Clearly hinting at immigration policy and anti foreigner objectives.  If you assume that every foreigner is a have a problem.  But indiscriminate bombing in the Middle East is not a way of making friends.  They may consider that America is acting like a terrorist -- creating fear

(6) A large percentage of Americans live in poverty!:  An absolute truth there is no doubt about that.

(7) Jobs that were lost because of NAFTA!; Simply not true, the restructuring of the American manufacturing system pre-dates NAFTA it is a consequence of comparative advantages; NAFTA may have speeded up the process but it was already moving in that direction.

(8)  Overseas Trump's administration inherited a number of disasters:  Yes, true but there are always overseas disasters -- so far Trump has not been very helpful in reducing tensions.  If anything he has exacerbated them (Taiwan, NATO, Crimea, EU etc etc)

(9) Tax Reform for all!:  The juicy bit of the presentation.  Trump's desire to cut corporate tax is great idea if it is accompanied by massive cuts in loopholes, for while the US tax rates are very high, actual tax paid in the US tend to be on the low side.  But killing loopholes will be very hard (huge contributors to Congress' re-election funds).  Cutting taxes to the middle class is hard to believe, every Republican administration that has cut taxes has cut taxes in a way that 80% of benefits when to the top 5%, the rest got the 20%.  Border tax adjustment (which is VAT in another name) is complicated to administer but simple in concept.

(10) Back to immigration:  Frankly his point system is a good idea, it's what is used in Canada -- I agree with that one

(11)  $ 1 trillion in infrastructure!:  Not while a republican congress is there, the combination of tax cuts and massive infrastructure will create a massively larger deficit.  I just don't see it.

(12)  Kill the ACA and implement a new better and cheaper plan:  That's simply not going to happen.  The Republicans cannot agree on a way forward, and there are process in the work to shut the ACA down immediately (which is what some member of Congress want).  Health care reform is DOA.  As en example of how far the GOP is from a serious platform to deal with people with pre-existing conditions the total annual cost (estimated by the CBO) is somewhere near $150 billion per annum (which sounds like a lot -- but it's only $ 3,000 per person if 50 million have pre-existing conditions).  Total amount that the republicans want to spend on that is $1 billion per annum.  1/150 of the amount needed. Trump has no idea how to fix it, doesn't have the political capital to use on this and doesn't have the attention span.

The jobs will not return to America, the republicans will not support the infrastructure projects because they have no money or interest in these issues.  Health care will return to the status quo ante, tax reform will do great for the good and the rich, the rest can go screw themselves.  Congress has a different view (as does Bannon) cut ACA, cut Medicare and Medicaid, vouchers for schools, shut down EPA, Agriculture, Education and cut taxes for the rich and corporation.  Make the Federal government so small that it is no longer an issue.

 Anyway, a nice speech but the good stuff is simply undeliverable.