Shearing Sheeple

Shearing Sheeple

This isn't a Christmas story for the faint of heart. As the First 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, however, just wasn't kosher 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 didn't matter. "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 anyways. No, it was a peculiar buzzing sound. Bzzz. Bzzz. Bzzz.

The noise reverberated through the night. A buzzing electric sound constant in application and thorough in design. Why it was the shearing of sheeple! Taxpaying citizens lined up in seemingly endless rows having their hard-earned wool being sheared off their backs during the peak of winter. Brrrr it was cold out there! Many sheeple were shaking. What a foolish thing to shear so deeply, but those in absolute power told us: "ALL must pay their fair shear."

So on it went day after day, until the sheeple had given all that there was to give; here, there, everywhere piles of wool lay. Much was burned to keep the shearers themselves comfortably warm, less THEY too feel the cold. Being in the Shearer's Union meant never being cold. Aye, but they left many sheeple naught enough wool to harbor in the storm! No matter, the rows were endlessly long. There would always be sheeple to shear.

Boy was it hot in St. Croix! Even staying free can be troublesome, now the dear leader would have to grant his favor on 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 produced was a 4,000 page Omnibus Bill flown fresh in from America to the north totaling $1,650,000,000,000. Why it was even MORE than he asked for! Would the blessings 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. America has become a welfare state with open borders. What could possibly go wrong?

 

Speed Brake

Speed Brake

If ever there was a speed brake on the economy, 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 searching for needles in the haystack? Meanwhile, the barn door is wide open out back with government spending giving drunken sailors a good name.

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 nine most dangerous words in the English language: "I'm from the Government, and I'm here to help."

Let's get serious people! As readers of this blog well know, we are big believers in the Laffer Curve. This economic principle illustrates that there is a strong relationship between taxation and tax returns. As so elegantly illustrated above, when you squeeze the lemon too much you don't get more juice. In fact, you get less juice.

Consider for a moment the contribution of 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. Congressional bills don't write themselves. They are typically written by lobbyists paid by special interests. 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 executives. Collectively 15% of the population will seemingly reap significant benefits from the other 85%, but there is a flip side to this coin.

To have Government welfare programs and an expansive state, it is first necessary to have a thriving economy. Not many people know JFK passed some of the largest tax cuts in American history. He knew that a thriving economy is based on a free-market with light regulation. Light regulation does not mean no regulation, ie bad actors like Samuel Bank-Fried and the beneficiaries of his largess need to be held to account. The French coined this approach best with the term "Laissez-Faire."

What is an investor to do? 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 an increasing interest rate environments during a recession is pointless. Cash in this environment sits in risk-free Treasury Bills.

When the Laffer Curve is ignored, or even mocked, and a turn is taken 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.

 

 

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? 

 

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-owned small business like mine have to pay 50X (you read that correctly, FIFTY times) 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. Freedom is expensive.

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 Day 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. Plus they were busy working trying to make a living. Bad move.

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 more of the pricing increases and if he is to survive, passes along less of those increases. The 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-1B visa holders 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.

 

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, it is that during every boom there is hedonistic excess, and after every bust (like 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 should not have to deal with alone. Below are the "Big 3" questions I typically get asked by 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.

Healthcare

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 linked and I can 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.

 

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. Assuming 10% of the Valley is laid off, the economic impact of this bust cycle will be painful. It will hit workers hard first, with service business like restaurants, retail and ultimately real estate next. 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, but by woke technocrats.

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 numbers if they can stabilize revenues. The next cycle after that, or perhaps in parallel, we should see the rise again of Silicon Valley. Until then, consider looking elsewhere for reasonable returns on capital.

 

 

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 "I-Word," innovation, is the worst word in the lexicon amongst the "Big Five" in Silicon Valley.

Google owns search. Apple owns iPhone. Facebook owns social. Amazon owns e-commerce. Microsoft owns bad software. 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 and layoffs.  And nothing hits the bottom line faster than fewer employees.

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 employees ramp up production of digital nicotine. Layoffs will have wondrous effects on the bottom lines of these companies. After the one-time costs associated with severance, a couple months salary and limited healthcare, those employees are now off the books and largely become subsidized by taxpayers for healthcare. And the companies themselves? 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. Workloads are typically transferred to surviving employees, or if the worker was not a revenue producer, that functionality may cease to exist. It is not a 1:1 benefit ratio to the company.

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.

 

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!