Workplace

GEzus Priced super far?

US Corp prof.pngIt is not rocket science. Generally higher interest rates lead to lower profitability. The chart above shows that quarterly pre-tax US profitability is struggling. We took the liberty of comparing the profitability since 1980 and correlating it to what Moody’s Baa rated corporate bond effective 10yr yields. An R-squared of almost 90% was returned.

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With the Fed moving toward a tightening cycle, we note that the spreads of Baa 10yrs to the FFR has yet to climb out of its hole. During GFC it peaked at 8.82%. It is now around 3%.

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Why not use the Aaa spread instead? Well we could do that but looking over the last decade the average corporate debt rating profile looks like this. We have seen a massive deterioration in credit ratings. If we look at the corporate profitability with Baa interest rates over the past decade, correlation climbs even higher.

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Corporate America binged on cheap credit over the last decade and given the spreads to Aaa ranked corporate bonds were relatively small, it was a no brainer. In 2015, GE’s then-CEO Jeff Immelt said he was willing to add as much as $20 billion of additional debt to grow, even if it meant lower bond grades. We can see that the spread today is a measly 0.77%. Way off the 3.38% differential at the time of GFC. Still nearly 50% of corporate debt is rated at the nasty end.

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We shouldn’t forget that the US Government is also drunk on debt, much of it arriving at a store near you. $1.5 trillion in US Treasuries needs refinancing this year and $8.4tn over the next 3.5 years. Couple that with a Japan & China pulling back on UST purchases and the Fed itself promising to taper its balance sheet. So as an investor, would you prefer the safety of government debt or take a punt on paper next to junk heading into a tightening cycle?

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In any event, the 4.64% 10yr Baa corporate bond effective yield is half what it was at the time of GFC. Yet, what will profitability look like when the relative attractiveness of US Treasuries competes with a deteriorating corporate sector in terms of profitability or balance sheet?

Take GE as an example. Apart from all of the horror news of potential dividend cuts, bargain basement divestments and a CEO giving vague timelines on a turnaround in its energy business things do not bode well. Furthermore many overlook the fact that GE has $18.7bn of negative equity. Selling that dog of an insurance business will need to go for pennies in the dollar. There is no premium likely. GE had a AAA rating but lost it in March 2009. Even at AA- the risk is likely to the downside.

Take GE’s interest cover. This supposed financial juggernaut which was at the time of GFC the world’s largest market cap company now trades with a -0.17x interest coverage ratio. In FY2013 it was 13.8x. The ratio of debt to earnings, has surged from 1.5 in 2013 to 3.7 today. It has $42bn in debt due in 2020 for refinancing.

By 2020, what will the interest rate differentials be? There seems to be some blind faith in GE’s new CEO John Flannery’s ability to turn around the company. Yet he is staring at the peak of the aerospace cycle where any slowdown could hurt the spares business not to mention the high fixed cost nature of new engines under development. In a weird way, GE is suffering these terrible ratios at the top of the cycle rather than the bottom. Asset fire sales to patch that gaping hole in the balance sheet. Looks like a $4 stock not a $14 one.

Tesla Elongates Fight against ‘unfair’ media

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CM totally sympathizes with clickbait media cycle. Tesla CEO Elon Musk railed at the negative coverage surrounding the company in recent times. The memories are clearly short. The media is generally effusive with praise of Tesla. How most newspapers and magazines fawn over Musk! Dan Primack made this point well:

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Edmunds has also written a damning review of the Model 3 announcing how many problems the car has faced since it was bought.

Some things from the Edmunds long term test were as follows:

The most annoying of those issues was a repeated, uncontrollable increase in stereo volume, sometimes when we weren’t even in the car. Basically, the stereo would suddenly go to full volume without explanation. This and other issues are cataloged from our notes below:

• Would not recognize keycard in or on the console and hence would not go into gear. It did, however, unlock the car. Workaround was to force quit the app and restart the app. Then it would allow the choice of Drive or Reverse.

• The backup camera screen did not appear when reversing.

• Nav screen going haywire: zooming, scrolling, pinching, pixelating all at once.

• Audio system turning on by itself at full volume.

• Audio display randomly moving up and down the screen without any command from a human.

• Audio system came on and went to full volume all by itself while the car was off, locked and unoccupied. I heard it from 100 yards away. “Who is that joker playing his stereo so loud I can hear it from here?” Oh, it’s Elon. I turned it down, but it kept wavering up and down as I started driving, working against my repeated attempts to dial it down. Then it blasted all the way to maximum. My ears are still ringing two hours later. Fixed after reboot. Not sure about hearing damage.

• Audio page leaping up and down rapidly like the up-caret button to expand the source menu was being played with by a kid who ate too much candy. Concurrent with the volume problem above. Same reboot.

• Icons on the map screen flickering.

• The passenger vanity mirror fell off completely. Installed and held on only by double-sided tape. Reinstalled by pressing really hard on the mirror.

• The screen went completely dark on startup, no music or operation. Restarted the car. The screen worked; the backup camera did not.

• The car will not shift into Drive or Reverse upon startup. “Vehicle Systems Are Powering Up. Shift Into D or R After Message Clears.” Have to wait for it to power up. A loud click comes from the rear of the car as if a drive shaft is engaging and the message on the screen goes away.

• The car displays a new message: “Cannot Maintain Vehicle Power. Car May Stop Driving or Shut Down.” No shutdowns yet, but keeping an eye out.

• With 170 miles of range, the car displays a “Regenerative Braking Limited” message. Plenty of available space to store regen power. Logged the issue, then reset the screen with a reboot. The message has not displayed since.

• While the car was parked, the passenger sun visor was left down and the mirror fell out. Pressed back into place. Hoping it won’t fall out again.

While no one should expect reliability to be at levels of mainstream manufacturers that have been at it for decades longer, quality remains a big issue for Tesla. For Musk to slam the media will only lead to responses as this.

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Bosch Japan celebrates diversity in the kitchen

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“In order to create a diverse environment, we first begin to understand!”

Hello! from the Bosch, Public Relations team!
From this week, the Bosch Japan group begins with the diversity of the country’s food in the dining room at each office factory.

This is a part of the initiative of ” Diver City Day which is widely expanded around the global Bosch group.

The aim of the initiative is to have a new approach and its own ideas, and to be able to respond to a variety of customer needs, and eventually the company’s success will lead to the success of the company.

We want to build a variety of HR initiatives in order to create more diverse environments in the future!

What is this obsession with corporates feeling compelled to ram “diversity” down staff throats? Why not just serve foreign cuisine and let staff enjoy it? They’ll notice it. Stick a Thai flag in the meal if need be to denote where it is from.  Why not let them provide feedback of their own volition? Will the workers all of a sudden feel after eating Egyptian cuisine that their customers at Mazda are in need of Arabic on their diesel pumps? Why not secretly record lunchtime conversations to ensure staff are “on message” otherwise force them to do hours on end of appropriate workplace behavior classes? Did the diversity brigade in the kitchen consider that Jews or Muslim staff (if any in Japan) can’t eat pork? Lest they be offended.

Bosch is an auto parts manufacturer which in Japan would serve predominantly Japanese customers. Will diversity rally the troops to higher levels of excellence? Completely immeasurable. Will Bosch customers select them on the cost performance of their products or pay premiums because the staff canteen serves chicken satay and tacos?

Indeed if Bosch HR & PR think they have a diversity problem that requires remedying through the kitchen then perhaps we should question their substandard hiring practices that allowed such bigots on the factory floor in the first place. Seriously, if they feel that staff are so out of touch that they require re-education, why not waste more money on internal indoctrination. Bosch be warned – virtue signaling can backfire.

Look how well things have gone for Starbucks preaching their virtuous side. Now staff are concerned their seating areas/bathrooms (now open to all after bending to social pressure based on something they were well within their rights to do) will be open to homeless people or drug addicts looking for a place to shoot up. So in order to appeal that the coffee chain is of higher moral standing they’ll happily trade alienating paying customers to achieve it. Lunacy. By that measure every corporate office should open their amenities to anyone. How shameful they put their businesses before humanity.

Maybe Bosch should look to hire based on diversity rather than quality of engineering talent. You can be sure that’s won’t lead to “success of the company”. Quite the opposite. Note Bosch is sponsoring these ads on social media. Pathetic. It is sort of like those people that profess their love and happiness endlessly on social media. So lacking in confidence are they in their partners that they feel safer telling the world instead of the one that matters.

How would you like to save the planet?

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Climate alarmists are an interesting mob. E&E Research cites that moving North Koreans toward basic necessities you and I take for granted (e.g. electricity) might necessitate coal fired power stations being erected. That would lead to a growth in emissions as the country is rich in coal reserves. This must be stopped immediately.

E&E’s Daniel Kish said, “North Koreans reduce carbon dioxide emissions by eating, rather than burning, twigs. That’s what central control always ends up doing,

So it would seem that keeping North Koreans in the dark and encouraging its dicactor to keep developing nukes and oppressing the population is preferable in order to stop global warming. Why not keep all developing nations from jumping on the grid? Why not sacrifice their people for the greater good of the world. How can E&E continue its work if sacrifices aren’t made elsewhere?!.

Saving the planet is a grand idea…but how? Is it any wonder climate skeptics keep questioning the science….?

Add Sydney Airport security to Death & Taxes

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Any aspirations working for organizations that support mayhem and chaos are off the list. Sydney Airport must be telling me I have no chance for that line of vocation. A 100% ETD screening record at Sydney Airport in the last 20 trips. I am constantly told it is random but if I could score 100% on every other ‘indiscriminate’ event – investments, love or lottery tickets – wouldn’t life be simple? I do note that I had the option to decline. When he offered an explanation of how I was selected I thought, “why not, I’ll hear him out?” – “Sir, we are trained extensively to profile people at random” That settles it then. Since when did ‘profiling’ and ‘random’ become mutually inclusive? Or do I just need to face the fact that I must look shady? It is 6am afterall.

Salma Hayek’s curves are an unfair advantage in a world striving for equality

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She has a point, but not why you think. It’s a bit confusing though. Did Salma talk to Benedict? Do the Hollywood set want women to get pay rises or men to get pay cuts? Will the sisterhood be annoyed that she’s undone Cumberbatch’s gesture to bump them higher? Or should actors be paid a flat unionized rate by the hour, including a one hour lunch break? Equal pay for equal work, right?

The laughable aspect is that Hollywood actors/actresses know full well that track record at the box office acts as a swing factor for pay determination. Kate Winslet was little known before Titanic but immediately after the phone didn’t stop ringing for her to star in new roles. The pay most certainly jumped significantly as she was well within her rights to command top dollar.

Let’s not forget that the movie star agents (mostly male) get paid on commission so it is absolutely in their best interests to get the best deals for female and male stars. In an industry dominated by sycophants it is highly doubtful they’re low balling to spite those striving for gender equality. Or should directors just cast women and save on production costs?

Yet it points back to the real world. Did you bust a gut to finish top of your 1st class honours degree in law to settle for the same pay as someone who didn’t? Surely you did so to get an advantage in life. Do Olympians train for 4 years in the hope of finishing outside the medals? Or should we dispense with medals entirely? Imagine how many records won’t get broken because there is no incentive to see the fastest, strongest or fittest. More and more schools have this “everyone’s a winner at St Barnabus’” mentality on sports days because the fat kid needs reassurance that he is just as worthy of winning a 100m dash as the 50lb stick insect is in the shot put. Differences are a part of life and we should embrace them rather than push to guarantee everyone gets the same outcome regardless of individual effort.

Isn’t the point of buying a nicer house in a nicer suburb all about an individual desire to achieve? Or will you be happy for the state to allot you a Soviet style 2 bedroom apartment in a crappy neighborhood?

No, let’s just listen to champagne socialists go out of their way conducting self promotion activities. Although in hindsight Salma Hayek may have a point on cutting back on male actor salaries as the total revenue performance of the US box office has dwindled back to 1993 levels.  Just like music has gone the way of Spotify, making a date in the diary to see a movie doesn’t cut it anymore. Video on demand is increasingly what matters.

But Salma, please, please, please! If you get roles that pay you more than your male costars based on your talents then all power to you. You won’t hear a peep here. In fact congratulations for being able to maximize the appeal of such genres to audiences that will shell out for them. Maybe you should beat up on the script writers more often for not writing stories that play up to the male dominating sultry voluptuous vixens you play so well! Be careful though, you may get complaints from the less well endowed actresses for having an unfair advantage but surely you’ve never used those differences or your beauty to get ahead in your career?

#SpareMe & #ThankYou

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They say pictures speak a thousand words. One wonders whether there are a thousand threads in these pictures at the Cannes Film Festival. For all of the sanctimony we hear from celebrities about how important the #MeToo movement is, what better opportunity to let down the side than to minimize cloth to skin ratios. These ladies know they are walking billboards, overtly flaunting their assets to gain attention in the hope they are short listed on the next blockbuster given the likelihood of widespread media coverage. Why else would they wear the equivalent of postage stamps held together by dental floss? Who can blame them? Where are the male actors strutting in sequin g-strings? Hardly fair that only women get to show off the flesh!

By all means, these ladies who graze on lentils and alfalfa while completing grueling gym sessions 6 hours a day, have every right to dress as they please given they work so hard cultivating those figures. Isn’t objectification the intention? Appreciating beauty is certainly not a crime and it does not border on harassment. Should red-blooded males be shamed for seeing protruding nipples and exposed cleavage fall into their peripheral vision? Can we honestly say hand on heart that some in the Hollywood set didn’t/don’t willingly trade flesh for a $5mn role? It is not to condone the behavior rather to say that if in the end a budding actor/actress is willing to ‘pay in kind’ to nail a big role that is still consensual. Jokes about Weinstein’s sexual antics were made for years at award ceremonies before he was finally outed. If he is convicted of sexual assault/harassment then may the full extent of the law deal with the crime. However #SpareMe the sanctimony about how none of them knew. Staying on the lucrative gravy train and buying more global property was more way addictive than doing the right thing by standing up for the true victims.

It is surprising that the feminists haven’t been up in arms about Cannes. They managed to take down the F-1 grid girls effectively enough. Isn’t it ironic that the people most upset by the ban were the grid girls themselves. They liked what they did, got paid handsomely to flaunt figures they no doubt work so hard to maintain and welcomed the attention. Now they are out of a job! Yet it’s is we who must get in step with the times. Perhaps the F-1 teams could have been asked to pay a grid-girl tax and donate the funds to promote charitable causes that the girls themselves felt passionately about. It will be interesting to see whether the MotoGP franchise owners, Dorna, go the same route as F-1 which will be pretty hypocritical given the web pages dedicated to the brolley dollies at each round.

Maybe the bigger laugh was the Israeli 2018 Eurovision song winner, Netti Barzilai. She said that in the auditioning process that she overheard whispers about whether they could field someone prettier or skinnier. So sex appeal was preferable to ability? When was the last time we truly heard a properly decent song that didn’t have some singer surrounded by scantily clad women twerking?

Still the virtue signaling continues. Cate Blanchett was on the stairs at Cannes demanding equal pay, when she herself is one of the higher paid actresses in town. Her mate Benedict Cumberbatch is refusing to star in movies unless there is equal pay.  Such actions are nothing but self-indulgent attempts to create free publicity. Say he is offered $25mn for a role and his never seen before female sidekick is not granted the same? Will he protest, divide his own pot or star anyway? One wonders.

Here is an idea for celebrities. CM thinks that Hollywood should be run by a government agency which will ensure equality in all outcomes. Movie roles will be distributed evenly. Each movie will have exactly the same budget. It will have equal numbers of men, women, LGBT, races, religious representation and sexual orientation regardless of how factually incorrect a true story may seem. Movie directors will have no say in who is cast for each part. Box office revenues will be evenly distributed at the end of each calendar year to ensure that flops will get subsidized by the hits. The actors who star in blockbusters will receive exactly the same outcome as those whose films end up almost immediately on Netflix.

All actors and actresses will be required to work exactly the same hours, have the same contract terms and be required to attend the awards ceremony in exactly the same garb. No makeup will be permissible, no eyebrow stylists flown around the world at last minute and no speech longer than 10 seconds. As there is to be equality at all costs, there will no longer be gender based awards at the Oscars. Or alternatively Best Actor – male, female and the 63 other gender categories. “The winner of the Best Actor in the hermaphrodite category is….”

So Benedict and Cate, will you join a union which levels the playing field and calls for equality or do you still prefer that your acting skills determine how the free market sets your prices? If you choose the former, just don’t speak to Jack Nicholson. He is still collecting royalties from Batman. Just what I thought.

These are the Oscar stats. A 40% decline over 5 years. Is this a sign of a format that is no longer sustainable? Is the disintermediation/disruption caused by video on demand such that making a ‘date’ to go to the cinema is no longer a priority? Cinema attendance in the domestic US market is back at 1993 levels. In the 1990s Hollywood made 400-500 films annually. It now pumps out more than 700. The average revenue per film continues to head south. The strategy seems to throw more at audiences and hope it sticks. Are the movies the industry rates itself on actually reflected in the box office? Out of touch with the audience? It would seem so. 9 films in the last 13 have failed to breach $75mn. So instead of Hollywood being so preoccupied with espousing politics, perhaps it should look to the audience it ‘preaches’ to and starts ‘reaching’ them instead otherwise many of them will be staring at massive pay cuts. Or will that mean it is every man and woman for themselves again!?