Confidence

How many canaries in the coalmine do we need?

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CM has said for ages that President Trump risks being hoisted by his own petard if he continues to attribute the stock market to his leadership. It works both ways. Stock markets are suffering. Suck it up.

GM has announced it is pulling the plug on over 14,000 US workers (8,000 white collar, 3,300 blue-collar workers in Canada and another 2,600 in the US) and potentially closing  5 plants. Is this a surprise? The chart above shows the % year over year change of US car sales. It has been stepping down clearly since GFC. In September this year GM’s sales slumped 19% in before falling 5.5% in October. The brutal storm activity is unlikely to help November either.

This quote will live to haunt in the coming downturn – CEO Mary Barra said the company doesn’t predict an economic downturn any time soon and is making the cuts “to get in front of it while the company is strong and while the economy is strong,

50% of US corporations have a credit rating of BBB or less. We are at the sharp end of massive government sector recapitalization crowding out and companies with dodgy balance sheets (that have levered up to conduct massive buybacks to flatter EPS masking anemic earnings growth) won’t be given the same tight interest rate margin spreads come the next refinancing. Await the implosion.

Rising interest rates don’t help and credit markets wait like vultures over the likes of GE which is having a reality check over its $115bn of debt, negative equity and troubled restructuring. Credit rating downgrade have booted it from some funds so the stock is in the cross hairs. If it had any sense it would file for Chapter 11 to buy breathing space.

If you want to put some perspective on it, GE’s market cap in 2000 was $592bn and now is $65.8bn. Tesla is now worth $56bn.

GM is yet another canary in the coalmine

 

Unconditional Surrender

There is absolutely no way on earth that the 17mn who voted ‘Leave’ envisaged a Brexit plan that gave away money, took away voting rights, kept the country tied up in all current and future EU red tape, open borders and laws they’ll have no say over. On every level it’s a lose-lose. May’s plan virtually guarantees Britain will be worse off. No deal would make way more sense.

The UK is the 5th largest economy in the world. It should have been enough reason to negotiate FTA’s with anyone. Obama might have threatened that Brits would go to the back of the line, but who was he fooling? 17mn Brits thought otherwise. The people spoke.

Of course the Remainers will crow about their foresighted wisdom. Leavers will wonder why the Tory party room are prepared to back a deal that just looks so ridiculous. It doesn’t look like a negotiation took place. Unconditional surrenders have come with more  favourable T’s & C’s. If May is such good mates with Trump, why didn’t she take a leaf out of his negotiation tactics with the EU? EC President  Jean-Claude Juncker stumbled on the White House lawn after agreeing to sign an FTA with America in one day. Of course the Europhiles will argue the fine print will overwhelmingly protect EU rights, but the point is May never went into bat for her constituents. She sold her countrymen and women down the Thames.

Boris Johnson correctly summed up,

I really can’t believe it but this Government seems to be on the verge of total surrender. With every day that passes we seem to be getting more craven. We have already agreed to hand over £40bn for nothing – and certainly not a trade deal – in return.

We have agreed to become the punk of Brussels, signing up not just to their existing rulebook but to huge chunks of future regulation – even though we will have no say in drafting that legislation. We have agreed against all promises that the European Court of Justice will have a say in the enforcement of that regulation in the UK.

We have been so feeble in our preparations to leave the EU on WTO terms, and so unnaturally terrified of the consequences (greatly exaggerated by the scaremongers) that we have now said we will remain in the so-called customs union.

Which means that our trade policy will be run by Brussels at least until 2022, and – at this rate – long beyond that date. We will not be able to do free trade deals of any great value. We will not be able to take back control of our tariffs, our borders, our money, our laws. It is not even clear whether we will be able to set our own VAT rates – and yet we will have no one round the table to argue the UK case…”

With any luck, the bill will be blocked by Parliament. Leave Rebel MPs should vote against this travesty and look to file a no confidence motion to boot May. This is not what the people voted for. Regardless of whether people may or may not have changed their minds, everyone knew what was on the table and what the expected  outcomes. The ticket stated clearly in black and white,

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So May’s plan technically keeps the UK in the EU without being a member.  No doubt she has been promised a fat cat advisory role in Brussels when she is turfed, which she surely deserves to be.

We should not overlook the behaviour or Brussels with unruly members in the past. Austria, Poland, Hungary, Greece, Ireland etc. You can take it to the bank that the EU will go out of its way to punish the Brits. Easier to bully the UK which may yet sign  away their own rights as if they were the vanquished army in war.  This isn’t a negotiation but a total capitulation.

So much for protecting democracy and respecting the results of a referendum. Why bother holding it in the first place?

 

CalPERS unfunded pension deficit approaches $1 trillion. Who is counting?

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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).

 

16yo Aussie Billy Van Eerde wins Asia Talent Cup Championship

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16yo Aussie, Billy Van Eerde, has won the Idemitsu Asia Talent Cup in Sepang in the final race of the year. He finished second in the race which should have meant he came second in the championship but his main  rival who won the race clattered into another rider earning him a 27 second penalty elevating BVE to first with the crown.

 

The power of last place at Invictus

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Here is a picture of Dutch Invictus athlete, Alina Zoet. She was in the Women’s Heavy Weightlifting today. She finished stone cold last. However she got the biggest cheers and dragged out what is so important at Invictus. She had to bench press 50kg.  She failed first go. When she failed the second time she burst into tears as a failure. Distraught wasn’t even close to capturing her emotions. The packed crowd applauded her none-the-less. She was giving her best

Third attempt. Bundle of nerves. Crowd going absolutely bonkers in support.  Then silence as she prepared her last attempt. The bar comes down.  Her left side was letting her down again. The crowd goes completely apeshit as she battled with the bar. Two whites and one red light. Alina has done it! While the Aussie lifters cleared the podium for medals everyone in that hall knew the biggest winner had been the last place. But a personal best and tears of being unconquered. An emotional moment.

We got to congratulate her afterwards and she was overwhelmed with tears of joy. It was powerful.

As a general observation just wandering around the games, the sheer number of prosthetic limbs boggles the mind. Yet those who have them aren’t moaning about all the garbage that clogs our social media feeds on how hard we think we have it. We’ve got it easy.

Deepest respect for those who serve.

Musk flips the ‘bird’ at the SEC

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Tesla shareholders must wish Elon Musk would be as silent as his products. It seems the Tesla CEO has learnt nothing from his $20mn fine. Given that Tesla is still under investigation for other reporting  matters, it seems unprofessional to bait the SEC when shareholders want to see stability at the helm. Musk tweeted,

Just want to that the Shortseller Enrichment Commission is doing incredible work. And the name change is so on point!,”

Just further evidence this CEO has no wish to listen to his board or interact with them in a way that promotes best practice corporate governance. It’s still a one man band. The irony of the tweet is that the SEC’s leniency allowed him to stay at the top causing a 17% jump on the settlement.

Even worse Paragraph 13 of his settlement with the SEC requires him to seek board oversight of any public communications although has yet to be officially signed off by a judge.

In a twist or irony one shareholder tweeted back that he wasn’t just attacking the stock shorters  but the long only owners as well.

Tesla shares closed down 4.4% and indicated at $273 in the after market, a fitter 3% fall. At the start of the SEC decision last week the shares had traded as low as $267. In a sense Musk has been the Shortsellers Enrichment CEO not the SEC.

Flannery departs GE. Market rewards +14% in pre-market

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General Electric (GE) shares have been a dreadful investment. The company, which trades in negative equity is indicated c.14% higher in trade after CEO John Flannery stepped down inside one year on the job. Lawrence Culp replaces him as Chairman & CEO.

Losing Flannery will look to add about $14bn to GE’s value. Keeping Musk will look to add $7.1bn to Tesla’s value today. A tale of two CEOs. The power or losing one to that of keeping one.