Thursday, January 5, 2023
Warren Buffett once quipped that "5% interest rates draw money from the moon." Well dear readers, we are nearly there. Today 6-month Treasury Bills due on 6 July '23 sold for a yield of 4.82%. With the economy in shambles, record inflation, and Big Tech laying people off as fast as they can email, this "risk free" asset has surged in popularity sucking growth capital out of the economy like a vampire squid.
Yes, you are probably losing more in terms of "real interest" due to inflation than gaining on T-Bill rates, but at least you don't suffer the double indignation of seeing BOTH your buying power AND balance going down daily like the stock market. The popularity of a similar bond, the I-Bond, is such that if a proposed program to expand the existing cap from $10K to $100K would most likely cause the stock market to crash. But who don't like some "risk-free" return, right? What is a Treasury Bill anyway?
Treasury Bills were spawned at the close of "The Great War." They are lasting relics of World War I's Liberty Bonds which were needed to finance America's war efforts. Because the country didn't have enough money to pay back all the Liberty bondholders, the Federal Government got the idea of rolling those bonds into NEW bonds. These new bonds became modern day Treasury Bills (up to 52 weeks in duration with established auction cycles and a defined bidding process.
The new auction and rolling approach would ladder out the debt. And we sure have a boatload of debt. $31,000,000,000,000 of it at the Federal Level. By the time you are done reading this blog post, another $3M dollars in interest will have accrued to our National Debt! Thankfully, it is only fiat money.
Sunday, January 1, 2023
Back to Basics
When all else fails, investors can always go back to basics; own dividend-paying monopolies with powerful, lasting brands across multiple sectors. Save regularly, or better yet religiously, and also keep a healthy stash of seed capital in risk-free U.S. Treasury Bills earning that juicy ~5% interest.
This bear market will end as every other bear market ended, when, however is unknown. Some clues will be that the Federal Reserve ends hiking rates, inflation stabilizes or falls, and/or an increasing number of stocks begin to hit new 52-week highs.
The latter point is almost always a sign we have exited a bear market. So for those weary investors beaten to a pulp by bad economic policy and Fed tightening the screws on you, hang in there. Continue to build positions and keep an eye out for the end of the bear. Until then, it is back to basics.
Friday, December 30, 2022
This isn't a Christmas story for the faint of heart. As the Biden Crime Family disembarked from Air Force One, the gaggle of 15+ leisurely made their way to a billionaire's residence for the holidays. Though much of the country was "sheltering in place" due to a massive Arctic Bomb, the Bidens slipped off their loafers and Manolo Blahniks into flip-flops. Something though just wasn't sitting right in the America north of St. Croix.
Yes inflation was raging and the stock market had suffered a Barrackian year; its worst performance since the elder statesman's jefe began his reign in 2008. But that wasn't it. Only capitalist pigs bought companies! Far better to extract value via a Labor Union. Invent something? Everything has already been invented! Yes crime was surging in every major urban area, but that doesn't count. "Hold your tongue and count your blessings," admonished the High Septon. No it was something else.
Gas at $5? What a deal! That couldn't be it. 10,000+ new *friends* joining our country illegally EVERY DAY? How dare you criticize someone committing an illegal activity! Americans don't want those jobs anyway, especially not American teenagers who have to compete with adults lacking documentation. What is documentation anyway? Paper! The theft of resources at scale only hurts the rich. No, it was a peculiar buzzing sound.
The noise reverberated through the night. A buzzing electric sound constant in application and thorough in design. Why it was the shearing of sheep! Taxpaying citizens lined up in seemingly endless rows having their hard-won wool being sheared off at the peak of winter. Brrrr it was cold out there! Many sheep were shaking. What a foolish thing to shear so deeply, but ALL* must pay "their fair share."
So on it went day after day until the citizen sheep had given all that there was to shear; here, there, everywhere piles of wool lay. A lot was burned to keep the shearers comfortably warm, less THEY feel the cold. Being in the Shear's Union meant never being cold. Aye, but they left many a sheep naught enough wool to harbor in the storm. But that is the penalty for following the law.
Boy was it hot in St. Croix! Even staying free can be troublesome, now the dear leader would have to favor some billionaire friend. What a labor of love this job was! Along the boardwalk he pandered around, his crusty feet full of golden sands. Laughter was heard all around, how they had gotten away with it all! Joy was theirs! And if they had gotten this far, why what could be next? On a silver tray a 4,000 page omnibus bill was flown in from America to the north totaling $1,650,000,000,000. Why it was even more than he asked for! Would the blessing ever end? And even here, far away from America to the north, the sound could be faintly heard. Bzzzz. Bzzzzz. Bzzzzz.
Investors beware, to what you value hold dear! The shears are out and your wool will soon be theirs. Protest and mutton you may become. The tide has turned and socialism is here. "A welfare state with open borders. What could possibly go wrong?"
*ALL = "All" refers to the subset of the American population who are legal U.S. taxpaying citizens, ideally veterans and non-union, with a net worth below $1M without any political connections and preferably small business owners.
Thursday, December 8, 2022
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
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
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
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.
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
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.