Month: September 2019

Have the old ruined the planet for the youth as they prepare for the school climate strike tomorrow?

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As the school climate strikes are prepared for tomorrow, it is worth reflecting on the recklessness of the older generations…or not…

At the store check out, the young cashier suggested to the much older lady that she should bring her own grocery bags because plastic bags are not good for the environment.

The woman apologized to the young girl and explained, “We didn’t have this ‘green thing’ back in my earlier days.”

The young clerk responded, “That’s our problem today. Your generation did not care enough to save our environment for future generations.”

The older lady said that she was right our generation didn’t have the “green thing” in its day. The older lady went on to explain: Back then, we returned milk bottles, soda bottles and beer bottles to the store. The store sent them back to the plant to be washed and sterilized and refilled, so it could use the same bottles over and over. So they really were recycled.

But we didn’t have the “green thing” back in our day. Grocery stores bagged our groceries in brown paper bags that we reused for numerous things. Most memorable besides household garbage bags was the use of brown paper bags as book covers for our school books. This was to ensure that public property (the books provided for our use by the school) was not defaced by our scribblings. Then we were able to personalize our books on the brown paper bags.

But, too bad we didn’t do the “green thing” back then. We walked up stairs because we didn’t have an escalator in every store and office building. We walked to the grocery store and didn’t climb into a 300-horsepower machine every time we had to go two blocks. But she was right. We didn’t have the “green thing” in our day.

Back then we washed the baby’s diapers because we didn’t have the throw-away kind. We dried clothes on a line, not in an energy-gobbling machine burning up 220 volts. Wind and solar power really did dry our clothes back in our early days.

Kids got hand-me-down clothes from their brothers or sisters, not always brand-new clothing. But that young lady is right; we didn’t have the “green thing” back in our day.
Back then we had one TV, or radio, in the house — not a TV in every room. And the TV had a small screen the size of a handkerchief (remember them?), not a screen the size of the state of Montana.

In the kitchen, we blended and stirred by hand because we didn’t have electric machines to do everything for us.

When we packaged a fragile item to send in the mail, we used wadded up old newspapers to cushion it, not Styrofoam or plastic bubble wrap.

Back then, we didn’t fire up an engine and burn gasoline just to cut the lawn. We used a push mower that ran on human power.

We exercised by working so we didn’t need to go to a health club to run on treadmills that operate on electricity. But she’s right; we didn’t have the “green thing” back then.

We drank from a fountain when we were thirsty instead of using a cup or a plastic bottle every time we had a drink of water. We refilled writing pens with ink instead of buying a new pen, and we replaced the razor blade in a razor instead of throwing away the whole razor just because the blade got dull. But we didn’t have the “green thing” back then.
Back then, people took the streetcar or a bus and kids rode their bikes to school or walked instead of turning their moms into a 24-hour taxi service in the family’s $45,000 SUV or van, which cost what a whole house did before the “green thing.”

We had one electrical outlet in a room, not an entire bank of sockets to power a dozen appliances. And we didn’t need a computerized gadget to receive a signal beamed from satellites 23,000 miles out in space in order to find the nearest burger joint.
But isn’t it sad the current generation laments how wasteful we old folks were just because we didn’t have the “green thing” back then?

Please forward this on to another selfish old person who needs a lesson in conservation from a smart ass young person. We don’t like being old in the first place, so it doesn’t take much to piss us off… Especially from a tattooed, multiple pierced smartass who can’t make change without the cash register telling them how much.

Ford downgraded to junk

This week, Ford Motor Co’s credit rating was downgraded by Moody’s to junk. $84bn worth of debt now no longer investment grade. It will be the first of many Fortune 500s to fall foul to this reality. In 2008, there was around $800bn of BBB status credit. That number exceeds $3.186 trillion today.

CM has long argued that the credit cycle would be the undoing of the economy. For too long, corporates binged on easy money, caring little for credit ratings because the interest spreads between AAA and BBB were so negligible. The market ignored risk and companies went hell for leather issuing new debt to fu buybacks to artificially prop up weak earnings to give the illusion of growth.

Sadly this problem is likely to cause widespread sell offs by companies/investors which must stick to products (as woefully yielding as they may be) with an investment grade, exacerbating the problem of refinancing debt close to maturity. The thinking during easy credit times was simple – refinancing could be done with low interest rates because there was no alternative.

This is problematic for three reasons:

1) under the Obama era, much of the newly issued debt was short term meaning $8.4 trillion arrives for refinancing in the next 2.5 years, crowding out the corporate market.

2) more than 50% of US corporates are one notch above junk status. Refinancing will not be a simple affair.

3) more and more investment grade debt will be driven to zero or even negative yields as a result further exacerbating the problems for insurance companies and pension funds dealing with massive unfunded liabilities.

Last year, in relation to unfunded liabilities at US public pension funds, CM wrote,

California Public Employee Retirement System (CalPERS) lost around 2% of its funds in 2015/16. The fund assumed an aggressive 7.5% return. Dr. Joe Nation of Stanford Institute for Economic Policy Research thinks unfunded liabilities have surged to $150bn from $93bn in the last two years. He suggested the use of a more realistic 4% rate of return last year. At that rate, CalPERS had a market based unfunded liability of $412bn (or the equivalent of 2 years’ worth of California state revenue). At present Nation now thinks the number is just shy of $1 trillion using a 3.25% discount rate. He expects that the 2017 data for CalPERS will be out in a week or so which should give some interesting perspective as to how much deeper the pension hole is for Californian public servants.

N.B. California collects $232bn in state taxes annually in a $2.3 trillion economy (around the size of Italy).”

This is just California, which in the last 8 years has seen a 2.62-fold jump in the gap between liabilities and state total expenditures.

Unfunded liabilities per household. In California’s case, the 2017 figure is $122,121. In 2008 this figure was only $36,159. In 8 years the gap has ballooned 3.38x. Every single state in America with the exception of Arizona has seen a deterioration.

Switching to Illinois, we have a case study on what happens when pension funds go pear shaped.The Illinois Police Pension is rapidly approaching the point of being unable to service its pension members and a taxpayer bailout looks unlikely given the State of Illinois’ mulling bankruptcy.

Local Government Information Services (LGIS) writes, At the end of 2020, LGIS estimates that the Policemen’s Annuity and Benefit Fund of Chicago will have less than $150 million in assets to pay $928 million promised to 14,133 retirees the following yearFund assets will fall from $3.2 billion at the end of 2015 to $1.4 billion at the end of 2018, $751 million at the end of 2019, and $143 million at the end of 2020, according to LGIS…LGIS analyzed 12 years of the fund’s mandated financial filings with the Illinois Department of Insurance (DOI), which regulates public pension funds. It found that– without taxpayer subsidies and the ability to use active employee contributions to pay current retirees, a practice that is illegal in the private sector– the fund would have already run completely dry, in 2015…The Chicago police pension fund held $3.2 billion in assets in 2003. It shelled out $3.8 billion more in benefits to retired police officers than it generated in investment returns between 2003 and 2015…Over that span, the fund paid out $6.9 billion and earned $3.0 billion, paying an additional $134 million in fees to investment managers.”

Therefore Ford’s downgrade to junk will have the effect of repricing over a decade of misplaced central bank policy across all markets. The dominos are only beginning to fall. The market can absorb Ford’s downgrade but not if it has to deal with the panic of dozens like it.

CM has long been warning of GE. Despite being the world’s largest stock in 2000, it is 1/5 the size today, trades in negative equity, wasted $45bn on share buybacks in 2015/16 and were it be classified as junk would increase the pile of junk by 10% on its own. Broadcom and American Tower are other monsters ready to be hurled onto the ratings scrap heap.

Buy Gold. The US Fed will likely embark on QE. It requires an act of Congress to approve the purchase of equities but don’t be surprised if this becomes a reality when markets plunge.

This will be the reset of asset prices which has been long overdue thanks to almost two decades of manipulation by authorities. It has 1929 written all over it. Not 2008.

Qantas & Virgin answering questions nobody is asking

Qantas CEO Alan Joyce and Virgin CEO Paul Scurrah have told the National Press Club that part of the role of their businesses is to back social issues. Puhlease.

Have shareholders overwhelmingly voted in favour of Joyce deploying their funds to sponsor woke causes? No one is stopping Joyce from pushing whatever virtue signaling he likes in his own time, but he probably might reflect that most of his customers haven’t requested to be lectured on board. Scurrah is the newbie, so he seems to want to score some media attention.

The latest excuse to push this corporate social nonsense is the unfounded research that kids of today require their corporates to have these woke causes embedded in the culture for them to join. What happened to “employer of choice” based on the business model? Will budding pilots want to pick the airline with the best conditions and business survivability or that which has the best carbon offset programme? Truth be told, what young ecomentalist university graduate wants to join an evil carbon dioxide producing airline anyway?

Having said that, employee retention will not favour wokeness when pay and conditions remain crimped by misguided company policy vs more attractive opportunities at firms that focus less on this. Harvey Norman is exhibit A on that measure. It is crushing the competition.

Qantas only needs to look internally at its own carbon offset program and how dismal it is. While it might be the world’s largest, truth is around 2% elect to pay for the sin of flying.

Back in May 2018, CM noted, while waiting in the lounge,

“So to offset my flight to Haneda, CM would pay $11.21 AUD. CM can put it to ‘local action’ (fund activism?), ‘developing communities’ or ‘global renewables’. In its 2017 Annual Report, Qantas boasted,

We have the world’s largest airline offset program and have now been carbon offsetting for over 10 years. In 2016/17, we reached three million tonnes offset.”

Carbon calculators tend to work on the assumption of 0.158kg CO2/passenger kilometre.

In the last 10 years Qantas has flown around 1 trillion revenue passenger kilometres. While the literature in the annual report denotes one passenger offsets every 53 seconds, the mathematical reality is simple – 2% of miles are carbon offset. So that means that 98% of people couldn’t care less.

Perhaps more embarrassing is that The Guardian noted in Jan 2018 that,

Qantas [was the] worst airline operating across Pacific for CO2 emissions

Kind of a massive load of hot air when you do the maths!

Mr Joyce might earn $24m p.a. CM would reckon shareholders would be glad to hike that if he ditched the social justice nonsense.

Qantas service is rarely anything to rave about so more effort applied in that area could well serve the company’s (and shareholder’s) interests far better than answering question hardly anyone is asking.

Obama treats Greta as a 16yo – Good

Congratulations to Obama for being one of the first world leaders to treat Greta Thunberg according to her age. Instead of fawning over her prophecies, he just resorted to vacuous chit-chat and a fist-bump. That’s about as far as anyone should take her seriously. Yet watch everyone else in the media treat her as a world expert whom we must pay eager attention to save us from ourselves.

As CM has always contended, if a teenager knows everything we should close our universities down immediately. There is simply no need for further education. It would save us billions in student debt too!

Something kids will fear way more than climate change

Image result for teenagers smartphones selfies climate strike

Is there one thing greater than climate change that can cause children irreparable harm? Yes. Perhaps the kids attending the school climate strikes tomorrow ought to consider that the very smartphone devices that they can’t put down are also harmful to the environment. Will these kids happily give up their smartphones in a quest to save the planet? Will these kids be willing to give up Snapchat, Instagram, Facebook and Twitter to save their own lives? Not in a million years.

An abstract of a report on the impact of technological devices on GHG emissions by Belkhir & Elmeligi, titled, ‘Assessing ICT global emissions footprint: Trends to 2040 & recommendations is as follows,

In light of the concerted efforts to reduce global greenhouse gas emissions (GHGE) per the so-called Paris Agreement, the Information and Communication Industry (ICT) has received little attention as a significant contributor to GHGE and if anything is often highly praised for enabling efficiencies that help reduce other industry sectors footprint. In this paper, we aim at assessing the global carbon footprint of the overall ICT industry, including the contribution from the main consumer devices, the data centers and communication networks, and compare it with the to the total worldwide GHGE. We conduct a detailed and rigorous analysis of the ICT global carbon footprint, including both the production and the operational energy of ICT devices, as well as the operational energy for the supporting ICT infrastructure. We then compare this contribution to the global 2016-level GHGE. We have found that, if unchecked, ICT GHGE relative contribution could grow from roughly 1–1.6% in 2007 to exceed 14% of the 2016-level worldwide GHGE by 2040, accounting for more than half of the current relative contribution of the whole transportation sector. Our study also highlights the contribution of smartphones and shows that by 2020, the footprint of smartphones alone would surpass the individual contribution of desktops, laptops and displays. Finally, we offer some actionable recommendations on how to mitigate and curb the ICT explosive GHGE footprint, through a combination of renewable energy use, tax policies, managerial actions and alternative business models.”

The study found that the relative emissions share of smartphones is expected to grow to 11% by 2020, exceeding the individual contributions of PCs, laptops and computer displays.

In absolute values, emissions caused by smartphones will jump from 17Mt to 125Mt of CO2 equivalent per year (Mt-CO2e/yr) in that time span or +730%. Most of this occurs at the production stage. Nevertheless with mobile carriers encouraging shorter cycles to upgrade this will only get worse.

ICT will grow from 215Mt-CO2e/yr in 2007 to 764 MtCO2-e/yr by 2020, with data centres (storing all those photos) accounting for about two-thirds of the total contribution.

For comparison purposes, the entire carbon footprint of Australia was about 550 MtCO2-e in 2018.

CM guesses these kids ought to be walking to school too. It is a great lesson in what real sacrifice means. At least they got the day off school.

What are banned but addicted vapers going to smoke now?

Image result for smoking many cigarettes

Tobacco companies fall foul of most ESG (environment/social/governance)/CSR (corporate social responsibility) measures. Good. Give that so much money is already loaded into corporations that focus on financial virtue signalling, tobacco companies remain forgotten. They look a great mean reversion trade.

British American Tobacco (BTI) is trading at $36 almost half the level of two years ago. Now at 1.02x book value and a 7.3% yield.

Philip Morris Int’l (PM) is at $72.60, down from $122.90 in 2017. A 6.4% dividend yield.

Imperial Brands (IMBBY) at $26.73 down from $55.55 in 2016. A 9.2% yield.

JT is less than half its 2016 number trading at $21.44. A 6.45% yield.

Philip Morris doesn’t have a vaping business but it appears with all these bans in NY etc that nicotine-addicted vapers will switch back to the old school.

Old habits die hard and cigarette smoking is pretty inelastic. Even in bonkers $40 a packet Australia, the ABS records men continued to be more likely than women to smoke daily (16.5% compared to 11.1%). Rates for both men and women have declined since 1995 when 27.3% of men and 20.3% of women smoked daily. However, these rates have remained similar since 2014-15 (16.9% for men and 12.1% for women). Therefore taxes haven’t killed off the habit.

So start underweighting the rubbish in your portfolio that has a penchant for banning plastic straws in the staff canteen to those corporates that allow yourself the opportunity to kill you!

Let’s not forget that governments aren’t going to terminate the monster taxes from this either, especially that so many national and state budgets around the world are looking seriously sick.

WeWorked

WeWork Financials.jpg(770×481)

WeWork has delayed the IPO. According to Zerohedge, the initial appraisal value of $47 billion appears to be entering the realm of $10 billion. This has ‘canary in the coalmine‘ written all over it. The kaleidoscope of razzle-dazzle in the free money world looks to have stopped spinning.

The company looks toxic. Most people point fingers at the co-founder Adam Neumann,  who, according to WSJ,  reportedly sold $700 million in a mixed debt and equity transaction. CM may be a contrarian, but even he sees the pre-IPO sale as somewhat suspicious. Selling part of your stock as part of an IPO is one thing. Doing it prior doesn’t pass the pub test.

How can IWG plc (better known as Regus) make profits (albeit sideways) with the same concept? 2018 IWG revenue and profit after tax increased 51% over 2014 levels. Revenue increased 13.5% since 2016, but post-tax profit slumped 24%.

WeWork seems like the Tesla of the office space world. Huge promises but the numbers are struggling to stack up. Maybe WeWPresumably, due to a combination of intensifying shared office competition, start-ups spoilt for choice or simply failing to grow.ork should leap into insurance as a way to generate cash flow like Tesla has started to do?