Thursday, January 13, 2022

 The Great Resignation


A by-product of the pandemic has been a spike in the "quits rate," the rate at which people quit their jobs, to an all-time high of 3%+. Now a measly 3% doesn't sound like much from a percentage standpoint, but when you factor in natural retirement, loss of workers, and a huge number of job openings we have a problem Washington.

Keep in mind 3% is the AVERAGE, meaning even with the explosive growth in certain sectors, quitting has become the norm in many fields, like tech and healthcare, which had rates significantly higher than the average. One of the best, if not THE best, piece I've seen studying this phenomenon was published recently in the Harvard Business Review. Yes Harvard is smart. Yes the article was superb, but it never really delved into WHY people are quitting. Worry not fellow financial farmer, ILAF is here with our "curriculum vitae" to help you decipher this trend.

Why does someone work? Generally the answer to that question is "to make money." If we strip out the other common reason "for the benefits," ie healthcare, then almost exclusively people work for money, especially if the state provides either free or significantly subsidized healthcare. I would say the REASON people work for money is to support themselves, their family, AND they REALLY have to work if there are debts like education, housing, and living expenses to pay. To totally generalize from the top two categories of those fueling the Great Resignation, tech and healthcare, I believe that there is a HUGE dichotomy in terms of WHY.

The curve to enter healthcare is relatively steep; there are years of education, training, and commitment to become a nurse, doctor, EMT, provider, etc., etc. Their quits rate would almost certainly have to come from burnout and exhaustion rather than choice, especially if there was significant debt overhang. This quits rate is more aptly termed a capitulation rate. This "cap rate" is a function of Maslow's Hierarchy of Needs, where literally survival trumps employment. Sadly, these professionals are also "being quitted" by mandates. It is a double-edged sword. The flip side of this quits rate in tech, however, is very different.

The tech industry has a much different dynamic occurring. Although the barriers to entry are arguably on par with the medical world in terms of education and skill, the REGULATORY environment is quite different. Generally speaking, in the tech world you are judged, hired, fired, retained, promoted, etc. on your ability to code, create, market, etc. There is an entire regulatory ecosystem MISSING from the tech industry that has allowed it to flourish. Which brings me to the quits rate for tech.

The tech quits rate is on par with the healthcare industry, but for vasty different reasons. The WHY, especially for the core quitters in the 30-45 age band is pretty simple. They don't necessarily HAVE to work. Through a confluence of events many of the tech quitters do not have high debts, nor onerous regulatory requirements to keep current to keep employed. Most own or owned some portion of a company that has gone UP in value. So debt free or low debt with a stash of cash and manageable healthcare costs make leaving work out of CHOICE for tech easy.

What does this quits rate dichotomy mean? I don't see healthcare DEMAND easing, so either more less qualified employees will be hired or pay will have to be raised for existing providers to remain or both. I bet on BOTH. The demand is simply too great to shoulder on the existing model, especially with various mandates being imposed on healthcare in general. So as a cost of our GDP healthcare will take an increasingly high bite, regulations will increase, and the misery index of working in healthcare will also increase. When the ratio of administrators to doctors begins to fall we will be on the right track.

On the tech front, billions of dollars are flowing into PE Funds (private equity) and the majority of that is flowing into tech companies. The great winnowing is always happening, where the best and most successful companies gain the lion's share of a disruptive market, whether it be food delivery, social networking, or EV engineering. Many will fail. Billions will be spent and lost. But from that wreckage a handful of truly exception winners will emerge....and in tech, quitting while you're ahead isn't the same as quitting.

Wednesday, January 12, 2022

 Poopmetrics


If the politicians can't be trusted, then what can citizens rely upon to tell them the Covid truth? Why fecal matter of course! Aptly titled "Poopmetrics" this article deals with the increasingly useful, accurate, and utility of measuring fecal matter in wastewater as both a snapshot AND predictive model of the NIH-funded gain-of-function research that lead to the release of Covid-19 from the Wuhan Institute of Virology in 2019.

This raw data gleaned from sewerage is probably one of, if not THE signature scientific advancement, outside the vaccines and therapeutics we have made since the start of the pandemic. It is scientifically sound. It is available at scale. And unless the politicians can corrupt the data flow, it should remain an enduring metric of the current infection pool, its delta (meaning change, in the classical Greek reference), and projected impact across geography in the United States. Obviously it is also scalable from a global perspective. Smoking Gun Alert: Is there a Wuhan dataset available from June 2019-December 2019?

Fecal analysis is about a pure a statistic as inflation and taxation in terms of portability to utility in terms of baseline establishment and predictive value. We can shift resources. Implement different treatments. And hopefully save lives!

From a financial perspective this collapse we see in Omicron in Boston sewerage after a hyper spike is extremely bullish; is this the third and final wave of Covid-19 that will then dissipate into the Spring? That chart sure looks good. Also encouraging is the relatively LOWER negative outcomes as a percentage of infections and hospitalizations. With over 75% of the population vaccinated and with a large percentage of the total population already exposed, recovering, or recovered from having had Covid-19 it seems that we are finally turning the corner on a pandemic which has raged for nearly 3 years.

Takeaways? In life and investing, look for raw, unadulterated visual data. We are a visual species. Politicians lie, but visual data accurately displayed tells its own story without spin. Stack these visual data sources and generate your own conclusion based on facts, reason, and probability. Then make your move.

Tuesday, January 11, 2022

 ARKK Barometer


Cathie Wood's ARK Innovation ETF (ARKK) acts as an excellent barometer for investor sentiment. Almost halved in a year, while the Dow spiked to over 35,000, ARKK visually displays the change in investor philosophy and risk appetite. 

A disciple of Arthur Laffer, Wood started her investment firm with the underlying thesis of disruptive innovation underpinning her investment goals, namely that disruptive companies create new markets and value networks. These companies hope to displace established market leaders aka entrenched monopolies.

In essence Wood is betting on a future of new technology that would improve humanity with better efficiency, because as a rule monopolies become less efficient and innovative as they mature into complete control of a market.

So why has Cathie's fund be cut in half? Rather than a collapse in the underlying technology, I believe there has been a 180 degree change in investor sentiment that believes reward (or gain) will come from "established" (read monopolies) that have existing market share, customers, and the big "E" in the P/E ratio...EARNINGS.

Mathematically, investors are betting on "business as usual" rather than innovation. Why? Because they are receiving signals that entrenchment wields the power and will be rewarded. Why? Because those are the signals being sent by Washington. How? Increased taxation. Increased regulation. Increased inflation. Increased enforcement. Decreased autonomy. Decreased workforce flexibility. Decreased worker qualifications. Those are a handful of the signals flashing. Investors have taken note.

Contrary to popular belief, Wall Street isn't dumb. Money flows where it is welcome and makes a return. Typically it chases winners. Just take a look at net new flows of money. It almost always flows into funds that have most recently performed well. And flees poorly performing funds. It seeks to survive and grow by chasing returns. The most successful funds of 2021 were the tech monopolies and natural resource monopolies. Small innovation got utterly crushed.

My final thought on this subject is that immutable laws are hard to break. They can be avoided. They can be postponed. But ultimately there is a reckoning. Although policy and regimes may put their weight behind the status quo, ie monopolies, the proverbial sidewalk flower will grow in a concrete jungle. 


Monday, January 10, 2022

 Bad Omens



Although the old Wall Street quip is to never believe that "past results are indicative of future performance," my Stock Trader's Almanac 2022 (similar to the Farmer's Almanac, but specifically devoted to the stock market) is flashing some serious warning signs.

Consider: "Every down January on the S&P since 1950, without exception, preceded a new or extended bear market, flat market, or a 10% correction." We are definitely NOT doing well out of the gate in '22.

Also: "...the second year of new Democrat presidents have been down -2.3% on average."

Finally there are *kinda* a couple other concerns: 1) A raging Covid variant named Omicron which is sweeping across the world at hyperbolic infection rates. 2) Inflation that is almost off the charts (we have to go back to the  late 1970s/ early1980s for similar data points during the Jimmy Carter Administration.) 3) Mid-term elections which promises to be every bit as cantankerous at the last Presidential Election.

What is an investor to do? Head for the hills and bunker down? Withdraw cash from your own savings accounts in amounts less than $10K so the government doesn't put you on a suspected money lauder list? Buy more toilet paper? No I say! Rather consider the following course of action: Remain employed if possible and continue to purchase assets (things that pay you to own them) and keep physically fit.

The stock market, and the entire world for that matter, has almost universally survived and prospered on the back of growth...meaning the survival of individuals and companies via increased earnings in one form or another. A large part of this growth over the past 50 years has been due to the integrated circuit. That has spawned the technology to vastly improve the lives of billions.

The "Age of Silicon" is not over by a long-shot, as growth in medicine, manufacturing, engineering, teaching, and yes even Wall Street is underpinned by the ability to increase speed, accuracy, and quality while at the same time lowering cost and barriers to entry.

So although there are multiple bad omens on the horizon, keep faith with the prospect of a better tomorrow...whether that is next week, next month, or next year. High volatility in Covid, the markets, and even politics does not last. Hopefully all three will moderate in the coming months. Until then, as financial farmer focus on accumulating assets, increasing your cash flow, and keeping physically fit. Life is a marathon.



Sunday, January 9, 2022

 Omicron Surge


The recent Omicron Surge is eerily similar to the Volatility Index in the U.S. Stock Market, so similar in fact this author is willing to step out on a limb and predict that just like sustained high volatility, sustained Omicron is nearly impossible. What does this mean dear readers? The end is near for the pandemic.


How do I have the gaul, the IQ, the "je ne sais quois" to make such a bold statement when the likes of Anthony Fauci, the CDC, NIH, USA Govt leadership, not to mention the entire (mostly) media establishment has not broached the subject? Math my fellow financial farmers!

Extreme volatility is similar to extreme spikes in almost every natural event; it takes extreme energy to maintain extreme deviations from the mean. And nature abhors sustained deviations from the mean. Let me say that again just for good measure: Nature abhors sustained deviations from the mean.

With the Omicron variant now surging to over 1,000,000 (1M) case per day, the White House narrative has changed dramatically over the past several weeks from "We will defeat the virus!" to "Contain the virus!" to "Embrace the virus!" Immutable natural laws are impossible to defeat.

History, I believe, will show that the vaccines acted as a significant and worthy speed bump which prevented millions of deaths, but probably more importantly, bought us time as a nation, as a species, to be overcome by a third wave of intense infectiousness and lower lethality. Reversion to the mean is my expected result.




Monday, December 13, 2021

 Inflation Nation


Nothing makes America poorer faster than inflation. Last Friday's annualized Consumer Price Index (CPI) number came it at a sizzling annualized 6.8%, the highest since Reagan had to go to work defeating the last remnants of the Carter's administration's handiwork. Reagan broke the back of inflation by jacking up interest rates to the point where inflation was tamed. The greatest Bull Market the world has ever witnessed soon followed. We might not have that luxury of both a prudent leader and the liquidity to tame inflation this time around.

Simply put, inflation is the by-product of a fiat fiscal and monetary policy run amok, too much paper money (fiat money) is created rather than actual value. Gold has well stood the test of time for literally thousands of years because it cannot be created by man. It must be acquired by toil. Not the case with Benjamins. The Treasury Department can keep on a-printing those bad boys all day long. In fact, with the modern marvels of blockchain and digitization 1s and 0s can now account for the actual "money." No need to even print it...just add a couple comas to the supply and viola, you have more money!

The Biden Administration is in a serious bind. There is tremendous demand for a limited set of real products; read housing, energy, food, education, healthcare, and hard goods. Consumers are not stupid. They are moving their digital paper money as quickly as possible into goods and services, hence simply via a classic supply & demand scenario prices go up with increased demand and diminishing supply.

Although the headline number of 6.8% annualized is bad, the reality is far, far worse dear farmers. The fact is the majority of Americans do NOT live in Megacities. As evidenced by the population density map of the USA below, the country is pretty well distributed with the East (loosely East of the Mississippi River) being at least 2X more dense than the West (up until you get to coastal California of course.) Why does this matter?




This matters financial farmers because both the CPI data set is a fallacy. The majority of Americans are seeing double digit inflation in everything that matters, and most importantly they're actually paying for it out of pocket. Let me explain. A significant portion of the residents of Megacities are subsidized in terms of housing, food, and healthcare. Meaning the government is picking up the tab. Whereas outside these areas, the median (not average) citizen is paying through the nose for higher gas prices, housing, food, healthcare, education, etc., etc.

The end result is a total theft of wealth from the very people who the Government SHOULD be focused on improving their opportunity in life with lower taxation, less regulation, and more opportunity for goods and services sold in the USA. The opposite is happening. The government is subsidizing cheap labor and goods overseas which then compete at a significant advantage against home-grown goods and services. The net result is the loss of market share, employment participation, and meaningful opportunity for the very citizens the government was elected to serve.

What is a hard-working financial farmer and patriot to do? First, keep calm and carry on. Second, look to circle the wagon(s) around physical goods and vital services. There is nothing "transitory" about the hordes of people competing for the same goods and services...lock up your share of real estate, blue chips (larger-cap monopolies paying a dividend, see "Rapko's Rules"), gold, education, and healthcare. Oddly enough having some cash might not be a bad idea, because even though its buying power decreases by the day (hour?) there is something to be said of "buying the dip" in terms of assets.

When will the ship turn around? It might not turn around. We have a timid Fed unwilling to buck the interests of the Biden Administration. An impartial Fed does not exist, if it ever did. So what this means is interest rate hikes will be milquetoast at best, especially if the "BBB Plan" is enacted by some unfortunate miracle. Part of the BBB Plan relies heavily on low rates, forever. As an investor this means 2022 doesn't look particularly bright in terms of upside as investors will be fighting for survival against the Fed.

2022 is all about finding assets which offer REAL growth in terms of capturing market share, increasing dividends, and raising their prices for goods and services. A great question to ask is "can this business pass along costs?" For companies without positive cash flow and living on the largess of zero interest rates it becomes a eloquent kabuki dance of finding investors willing to stomach volatility spikes. Only those that create and sell real value will survive.




Wednesday, August 18, 2021

 The Fall of Kabul


The Fall of Kabul is emblematic of twenty years of failed leadership from the military industrial complex, which has squandered trillions of dollars in U. S. taxpayer treasure and countless gallons of American blood in a wholly unsatisfying result; the complete capitulation of a democratically elected government to an angry horde of barbarians armed with American weapons, driving American vehicles, and cutting a direct path unopposed to the capital two weeks BEFORE America was projected to withdraw.

Who is culpable? The list is long, yet there is an eerie silence emanating from our most "distinguished" politicians and statesman/women...where is John Kerry? Hillary Clinton? Condoleezza Rice? Colin Powell? Do we even have a Secretary of State today? Four Presidents, including the sitting one, haven't released more than a Tweet. American Taxpayers, Veterans, and our Afghan allies deserve better than this...in the coming days, weeks, and months as heads literally roll in Kabul, we should take the opportunity to fathom the impact of this seminal event in our history.

Afghanistan demonstrates the near impossibility of establishing a democracy half way around the world where even waging war is a tenuous task at best. Standing up essentially a new country almost always fails if the wellspring of democracy doesn't flow from within and a coalition of the willing really isn't willing to stay for the long haul...and by the long haul I mean multi-generational transfer of power. It is completely implausible to believe a new democracy can be rooted in a couple decades when the ghosts of previous belligerents still walk the Earth. We still have bases in Germany, Italy, Korea 75+ years after WWII!

Some time in the last administration we decided the mission wasn't actually nation-building, and the goal then shifted to withdrawing. The chaos that ensued is Joe Biden's "Saigon moment," it will live in infamy, as pictures of Afghans clasping to departing aircraft linger in the mind like a helicopter on the U.S. embassy in Saigon. Joe Biden owns this disaster. The weakness and incompetence of this administration is simply staggering. It begs the question, "What else have they completely lost control over?" The border comes to mind.

Now we are left with Operation Afghan Clean-Up...is this administration up to the task? Probably not. Private billionaires, enriched mightily from the military industrial complex, need to act. Bill Gates needs to redirect "empowerment funding" to leasing a fleet of 747s. Jeff Bezos needs to provide logistics support and housing to all our inbound Afghan allies. George Soros and Warren Buffet need to provide incomes to all these brave allies who put everything on the line to help built the billionaire fortunes. The days of Ross Perot funding private operations to free hostages should not be simply a legend.

If Afghanistan has taught us anything, it is that leadership matters. In the face of calamity our leadership completely failed. They need to be held to account. Freedom truly is not free. It must be constantly maintained by vigilance and action by those who pay the salaries of these buffoons.

Tuesday, June 15, 2021

 Taxflation


Increasing taxes and rising inflation are a deadly combination. "Taxflation" is what we find ourselves in now globally as freewheeling politicians ratchet up the pain and are beholden to nothing but their own egos. Be afraid on this solemn day dear readers of the unencumbered politicrat whose loyalty lies only with increasing power. Beware what constitutes your "fair share," as soon it will be your full share! 

Every year Americans dutifully write out a myriad of checks to local, state, and federal governments to help fund our collective defense, social programs, and politicians' salaries under the banner of "civic duty" which is enforced by the threat of imprisonment. What other "civic duty" is compelled by the potential loss of liberty? What would be the collection rate if taxes were voluntary? Imagine if freewill dictated the scope of the government we received.

While the Biden Administration is planning to increase the budget of the IRS to something akin to a nation-state, increase tax rates, and (obviously) increase spending, the barn door is wide open out back. Billions in fraud, pork, and ill-executed government spending leaves the taxpayer without a doubt as the most maligned and least-loved animals in the barn. If America was "Animal Farm" the taxpayer would be the horse. And I think I have a pretty good idea who the pig(s) are feeding at the trough.

What to do dear financial farmers? "Fight, fight, fight against that dying light" of freedom! Readers of this blog well know I support voting, and especially voting with your feet out of states entrenched in burgeoning socialism. For those with strong backbones, however, there is yet another option: Run. And by "run," I mean run for office at the most promising level where victory may be assured. Change the potential outcomes of a country increasingly on the course of taxflation. It's your money, and the politicians work for YOU...isn't it about time we see some real return on our investment?