Thursday, December 8, 2022

Speed Brake

Speed Brake

If ever there was a speed brake on the economy, well dear readers it is the ironically titled "American Rescue Plan." The keystone language in this travesty of a bill is the issuance of 1099-Ks for "transactions totaling a cumulative of $600 per year." Think about this for a moment. What better way to kill small business, prevent new business, and ramp up the police state than search for needles in the hay stack while the barn door is open out back (see previous post on failure to subpoena Samuel Bankman-Fried re: $32B fraud.)

Similar to the laughingly false "Inflation Reduction Act," which promises to reduce inflation by spending more, the "American Rescue Plan" aims to HELP Americans by raising their taxes, lowering taxable thresholds, and adding 87,000 more enforcement agents to "help" them. Cue up the Ronald Reagan quote of the most dangerous words in the English language: "I'm from the the Government, and I'm here to help."

Let's get serious people. As readers of this blog (currently on the "restricted reading list" of the Government) know we are big, big believers in the Laffer Curve. This economic visual miracle which has not be embrace by many socialist economists purports that there is a strong relationship between taxation and tax returns. As so elegantly illustrated above, when you squeeze the lemon to much you don't get more juice. In fact, you get less juice.

Consider for a moment the value of robust contribution of the Small Business to the American Economy. Small businesses account for two-thirds of new jobs and half of all existing jobs. The Small Business sector generates almost HALF of this country's GDP. So what happens when the jackboot of government is on the throat of Small Business? Well, nothing good happens. Productivity crashes. Output contracts. The lemon shrivels up.

There is little doubt this has been a coordinated effort to reallocate capital. Bills don't write themselves. They are typically written by lobbyists paid by special interests (who represents the citizen taxpayer?) So if Small Businesses are the losers, who are the winners? Winners would be those who typically don't need or have a Small Business or side hustle. They would be those with local, State, and Federal government jobs, labor unions, and big business execs. Collectively 45% of the population will seemingly reap significant benefits, but there is a flip side to this coin.

A healthy economy, as JFK (who would be considered a far-right Republican today) well knew to have Government welfare programs and an expanse state it is necessary first to have a thriving economy. A thriving economy is based on a free-market with light regulation. Light regulation does not mean no regulation, ie the bad actors like Samuel Bank-Fried need to be made examples of. The French coined this best with "Laissez-Faire."

What is an investor to do? Well until there is a regime change, investors not plugged into the political gravy train need to stay in their foxholes; consider dividend paying large companies with monopolistic pricing power and brand recognition. If their products are vital or addictive, so much the better. The landscape for startups is barren as the moon, never mind Mars. Raising capital in increasing interest rate environments during a recession is pointless. 

When the Laffer Curve is ignored, or even mocked, and we have taken a turn into a socialist regime then the capitalist must look for safety, income, and muted growth until an opportunity emerges to make a move into pro-growth, low-tax, and economically sound policy. It might be a while.

Wednesday, December 7, 2022

Zero Legitimacy

Zero Legitimacy

There is zero legitimacy in the House Financial Services Committee after Maxine Waters refused to subpoena Democrat mega-donor Samuel Bankman-Fried, the disgraced formed FTX CEO responsible for the bankruptcy of the $32B company.

Thankfully, Waters will lose her chairmanship when Republicans take control of the House on Jan. 3rd. Waters' decision is long on a list of malfeasance heaped on the American people over the past several years giving rise to the widespread belief that there is rampant corruption inside the halls of Congress and weaponization of the executive branch under Joe Biden against political opponents.

The primal victim of the failure of political leadership has been the citizens of the United States who no longer have faith in the leaders to duly execute their oaths of office; these shenanigans have resulted in serious damage to the rule of law, First Amendment rights, and the value of citizenship itself.

A fine example of this is the attempted deplatforming of this blog! After several articles critical of rampant corruption, previous traffic pattern of several thousand views per day were blocked and views trickled to a handful of views. 

The biggest challenge is speaking the truth in today's society without getting canceled. And getting canceled is easy business when "misleading content" policy basically involves anything tech monopolies find contradicts the narrative being pushed by screening committees. Eisenhower long warned us of the military-industrial complex. Here it is in full fruition:

So we have reached a great rubicon in our country; will tech monopolies dictate what is "misleading" or will elected representatives push back and do their jobs? It doesn't look good for the latter, as tech has lots and lots and lots of money to lobby. Who is lobbying for you? 

Monday, December 5, 2022

The War on Small Business

The War on Small Business

Kurt Vonnegut once quipped that: "The two real political parties in America are the Winners and the Losers." With the Small Business Index at 62.1, the lowest since the pandemic which itself was the lowest in a generation, small business owners are the losers. Given that small businesses create two-thirds of new jobs and deliver 43.5% of the United States GDP this is a BIG problem. But your elected leaders don't care. Why? Because small businesses do not have the clout to influence political change.

Case in point, why would a Veteran-owed small business have to pay 50X (you read that correctly, FIFTY) the Blue Shield healthcare premium as an illegal resident in California for the SAME healthcare plan? Answer: Because somebody has to pay the bills, and the proverbial "last man standing" is the small business owner. Heavy is the crown.

How did we get here? The war on small business has been brewing for decades, but finally the straw that broke the small business owner's back was healthcare. With the passage of the ACA on April Fool's 2010, pieces on the chess board started moving around rapidly. Political parties immediately started jockeying for pole position.

Since the majority of politicians never owned a small business, they were easy to influence. The labor unions got to work. Big corporations saw what was happening and they got to work too. Given that small businesses are by nature fragmented without a unifying central leadership they waited to see what happened next. Bad move.

The labor unions and big business effectively gamed the healthcare system so that union members and employees got cut rates on healthcare plans, and to make the deal more palatable, they also negotiated for universal care pools. But of course somebody had to pay unsubsidized premiums, and that of course would be based on income. Who better to sock it to than the silent small business owner?

Reaching out to my elected representative Jimmy Panetta resulted in the terse reply that "healthcare is complicated." After a decade in place, it is not that complicated; depending on your income you pay different rates. Imagine if McDonald's worked that way! Your "Happy Meal" price would be a direct result of whether you worked for a union, a large company, or your immigration status! Preposterous.

Across the spectrum of wealth distribution, healthcare is the most onerous. But that is just the most glaring example. Inflation is the next one. It hurts the small business owner most, because he has to absorb most of the pricing increase and passes along less of the increase. That 16% pay increase for rail workers or 10% pay increase to pilots won't decrease rail traffic or flight volume. In fact, the COST to ship freight or park a butt in a seat will simply be adjusted up, up, and away!

For the small business owner it is a death by a thousand cuts, with some "cuts" akin to a sucking chest wound. Like him or despise him, Joe Biden has done one thing really, really well...he has acted as a fine bellhop for the labor unions. When you print the money and sign the contracts to print more, inflation doesn't hurt much. Indeed, most union workers have never had it so good. 

With labor unions the winners and small businesses the losers, what will the impact be on larger businesses? The cost of labor is typically the MOST expensive part of creating and delivering a product or service. As we can imagine then, large business are increasing prices and laying off employees (non-union of course, and many expendable H-1Bs at that) to cover the cost of inflation.

Net net when the wokescreen clears, this equation balances by the destruction of small businesses, many of which will cease to exist, go heavily into the black market, and/or rapidly innovate by embracing new technology and doing business differently (low odds on the latter.) At the end of Joe Biden's reign, fewer small businesses will remain, more unions will exist, and big business will be thriving (with far fewer employees.) Invest accordingly.

Sunday, November 27, 2022

Layoff Guru

Layoff Guru

As the holiday season fast approaches, the number of tech layoffs in Silicon Valley has spiked, disproportionately affecting smaller startups without monopolistic business silos to shelter all of their employees. To be fair, though, there have been large cuts at the likes of Amazon, Twitter, Facebook, and (loomingly) Google too. Many employees with H-1B visas have both employment and continued residency concerns. This situation looks dire. Now what?

Tech has followed a classic boom/bust cycle for multiple generations now, ever since the introduction of the seminal Silicon Valley invention; the microprocessor. If one thing has been constant is that during every boom there is hedonistic excess, and after every bust (like a wildfire) new startups (sprouts) emerge from the charred landscape.

Being let go from a job is one of life's most stressful experiences and something you shouldn't have to deal with alone. Based in Monterey, CA I serve ALL of California and am accessible via phone, email or in person to help you navigate layoff decisions. Below are the "Big 3" questions I typically get asked most frequently by new clients recently laid off:

California Severance Pay

There is no legal requirement under California law that employers provide severance pay to an employee upon termination of employment. Employees should refer to their employer's policy with respect to severance pay. As such, most employees DO NOT have a legal right to receive severance pay. Many companies, however, DO offer severance pay to help reduce the their legal lability. Make sure you have a copy of your employee policy and consider requesting time to review any severance agreement prior to signing it.


If you have been laid off you have a lot on your mind right now, and health care is surely near the top of the list. You have options for continuing health coverage. You may have heard about the Consolidated Omnibus Budget Reconciliation Act (COBRA), it is intended to give families an insurance safety net after a job loss. It is available if you have already enrolled in an employer-sponsored medical, dental, or vision plan, and your company has 20 or more employees. You can learn more about COBRA here.

Legacy Benefits

Many of your legacy employment benefits can continue or be rolled over or kept in place. Make sure you have received a copy of your employee policy and benefits package. It will detail what your options are for life insurance, 401K, and restricted stock or options vesting.

For many employees in Silicon Valley, the proverbial "elephant in the room" is their H-1B status after a layoff. Typically there is a 60-day grace period, meaning you will have a maximum of 60 days to arrange for another employer to submit an H-1B petition for you, change to another status, or depart the United States. A more detailed explanation can be found here

For a complimentary consultation and review of your specific situation please fill in the appointment form and I will contact you within one business day. I have been working with laid off employees for decades now, through multiple boom/bust cycles, and understand the stress it brings, but having a game plan in place can make the transition to a new, better path forward a a lot easier.

Monday, November 21, 2022

Tech Layoffs

Tech Layoffs

Barring the recent "layoffs" of pranksters Rahul Ligma and Daniel Johnson, the Silicon Valley tidal wave of tech carnage is very real indeed. Assuming 10% of the Valley is laid-off, the economic impact of this bust cycle will be painful.  As the old adage goes, if your neighbor loses her job it is a recession; if you lose your job it is a depression. Time to head for higher ground.

Ten percent might be a significant understatement of what is about to occur in Silicon Valley. Typically these boom/bust cycles wipe out 30% or more of the carrying tech employment scene. To the upside, it also typically spawns new companies, ideas, and industries...but that is far, far down the road at this point. Amazon, Meta, Twitter, and Google are all cycling up MASSIVE layoffs, to the tune of well over 25,000 employees in the "Bay Area," while non-monopolies with less defensive business models are shedding employees like snake skin. The worst is yet to come.

It has been a solid decade since the last wipeout, so data suggests this one will be nasty. For every 1% of the local employment scene laid-off, the resulting real estate, medical, and social services (read as tax base) will be exponentially impacted. Cinderella may have lost her shoe, but when it finally drops that shoe is going to be called "real estate." With the highest prices in the nation, Silicon Valley real estate is uniquely positioned for a collapse with massive tech layoffs on the horizon.

As any small business owner knows, cash flow is king. And each one of these laid-off tech workers is becoming her own business now. And cash flow will dip first into severance, then into savings, and finally into retirement savings to either stay/survive in the Valley or flight to a lower cost of living/higher quality of living area (in the United States or abroad.) Given that the "uptake" (rehiring) rate will be tepid at best, but nonexistent as likely, many laid-off employees will return to their pre-Silicon Valley roots with a bag of cash (in the form of severance, vested options, and real estate sales gains.) Quitting while you're ahead isn't the same as quitting.

Is that Santa Claus flying over? No, that is a laid-off tech worker decamping from Silicon Valley. The first to know are typically the first to act. As with Covid, those who knew first acted first. In this case, those laid-off first have the ability to cash out of their company stock and over-priced Mountain View home first. Oddly enough, the first to go are probably the best off because they can still walk away with a Santa-bag. With the USD at an all-time high against most major world currencies, this decision is a no-brainer. And as everyone in the world has been told, Silicon Valley people are the smartest on Earth.

What does this mean for the typical Financial Farmer eagerly reading this blog? Big picture: Expect tech stocks to continue to be weak and most likely continue their selloff until that last sliding door pinches the last butt out because when the cutting finally stops, then those cost savings will hit the proverbial "bottom line" on corporate balance sheets. Until then, employees that were canned will make the easy choice of bolting to a lower cost of living area with a king's ransom in their savings accounts earning 5% risk-free from US Treasury T-Bills. As usual, Main Street will pay for the hubris and excess of Silicon Valley companies no longer run by founders. 

In the next 18-months to 24-months (that's right, 2 years), expect non-founder tech companies with bloated workforces to lose about 25% of their workforces, dramatically reign-in costs (like R&D), focus on their core monopolies, and regain obscene profitability number if they can stabilize revenues. The next cycle after that, or perhaps in parallel, should be the rise of Silicon Valley 6.0. Until then, consider looking elsewhere for reasonable returns on capital.

Thursday, November 17, 2022

Too Big To Innovate

Too Big To Innovate

With tens of thousands of layoffs pending, Silicon Valley has proven it is "Too Big To Innovate." The bloated employment roles of many major tech companies for years have been a symptom of a dearth of innovation; many hires were made simply to prevent those people from actually creating competition. The "C-Word" is the worst word in the lexicon of Silicon Valley amongst the "Big Five."

Google owns search. Apple owns iPhone. Facebook owns social. Amazon owns e-commerce. Microsoft owns PCs. Sprinkled in those distinct monopolies are a mix of other "bets" which help assuage regulators. But make no mistake dear readers, when times get tough (and your stock is down say 50%+ year-to-date), it is time to cull those losing hands and focus on what works: monopolistic control of niche segments.

Sadly the new aphorism for non-founder CEOs seems to be the same: "When in doubt, Grinch it out."

The net beneficiaries? Oddly enough, culling large numbers of superfluous employees to ramp up production of digital nicotine should have wondrous effects on the bottom lines of these companies. After the one-time costs associated with severing excess employees with a couple months salary and limited healthcare, those employees now largely become subsidized by taxpayers for healthcare. And the companies? Oh baby, get out the napkins because it is gravy train time!

Each percentage of layoffs translates to an exponential increase in bottom line profitability for these tech companies. Obviously the damage is most acute in regards to future products development, but when you own a tech monopoly R&D becomes an increasingly negligible cost. The only real danger to the "Big Five" is that maybe some of these employees become founders.

Friday, October 21, 2022

Venmo Fraud

Venmo Fraud

In today's eCONomy, a recurring threat to consumers is payment fraud. What started out as a simple idea, "How do I digitally transfer money?" has grown into a multi-billion dollar revenue geyser. At the front of this packed line, collecting buckets upon buckets of money, is Venmo (owned by PayPal.)

Venmo gets a taste of every transaction, and there are literally trillions of them, moving along its rails, bank rails, and the credit card company rails. These are the digital rails powering the internet, WiFi, and acting as the backbone of the new economy. 

Unlike the origin of the credit cards, however, Venmo was designed to be self-centric; ie neither favoring the buyer or seller of a good or service, but rather ensuring that the company got a small piece of every transaction. 

What has evolved is a landscape fraught with corruption where the singular purpose of peer-to-peer payments is volume rather than order fulfillment for goods and services. Processors are not worried about the back end; they are worried about the front end.

The greatest threat to digital payment processors is decreasing payment volume, which to a large extent is based both on their digital footprint and velocity of money. Payment volume is God to Venmo, fraud is the risk consumers must bear to use Venmo rails.

Using Venmo as the posterchild for payment fraud, the consumer has little to no recourse on a payment gone bad; ie sending to the wrong address or more likely thievery by digital bank robbers. The best way to accomplish this in non-fulfillment of purchases. The credit card companies avoid this buy being buyer-centric, payment processors are self-centric...volume, especially "bad volume," is good. 

The crimes of today are primarily digital, because as the old bank robber Willie Sutton said: "That's where the money is." Like consumers don't have enough to worry about, the rise of banksters like Venmo have seriously eroded trust in an industry that supposedly is regulated by the CFPB; most assuredly it is not.

Venmo fraud is real, recurring, and massive. It is no wonder their HQ is located on Locust Street! And those locusts are most definitely eating the wheat from the chaff. When you hear "Venmo" dear readers, run!

Tuesday, September 27, 2022

Crash Landing

Crash Landing

The economy is already in a recession. The stock market(s) are solidly in grizzly bear territory. Mortgage rates have doubled. Inflation is at nosebleed levels (highest in 40 years.) Great jobs numbers? Sure if you like flipping burgers. Housing? Yeah that's teetering on collapse. Buckle up America, those oxygen masks falling from the bulkhead are not comforting. The most likely outcome of Joe Biden's disastrous economic and monetary policies will be a crash landing.

Although there has been much speculation about the effects of the recent Fed moves and whether they can engineer a "soft" landing, the previous scenario is far more likely. Consider the rampant increase in the M2 (money supply) coupled with a a Federal Reserve hellbent (suddenly) on taming inflation. The "tough talk" coming out the Fed along with a crippling pace of hikes has kneecapped the consumer.

Where was the "A-Team" for the past 18 months? Nobody knows, but thanks for the postcard from Jackson Hole! Disgraceful. Prof Jeremy Siegel is correct, Jerome Powell owes the American People an apology for doing such a horrible job. A heartfelt resignation letter in conjunction would also be acceptable.

Destroying some $20 Trillion+ dollars in value must have consequences. Obscene government salaries, fat pensions, and free healthcare for life all need to be revoked. Even a child knows, if you do not have skin in the game then you are not in the game. Suit up Jerome Powell, or hit the locker room like Tony Fauci.

Recommended course of action? Here at ILAF, it is always game time and we are all about solutions. Start with a new Treasury Secretary in the form of Art Laffer. If he's busy, ask Steve Forbes. Either works. Then swap out a couple other cabinet secretaries (or all of them) like a scene from Moneyball; trade out Energy, Commerce, and Transportation. From there field a team that is pro-Energy, pro-Security, and pro-Growth. Pro-America damn it. Timeline to full recovery? Thirty days should do it. Elections have consequences.