Crime

Kobe ‘Steal’ – why this scandal could get much uglier

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Kobe Steel is the next in a growing list of Japanese corporates embroiled in data falsification. Kobe Steel has been supplying lower spec material to customers than advertised. In a sense stealing. Sure VW is no better in lying about its emissions but Kobe Steel has the potential to be more like Takata than Mitsubishi Motors in terms of impact. The issue here has to do with Kobe Steel products being in structures of aircraft, trains (including bullet trains) and cars. While much is being made of ‘little risk’ attached to these slightly lower spec products the reality is that ‘metal fatigue’ is calculated in the resesearch, development, testing and evaluation of such products.

For instance when planes are in the development phase FAA certification depends on making sure products can meet certain tolerances, cycles and stress tests. Once certification is granted, if subsequent production is met by sub-standard intermediate products unbeknownst to the manufacturer of the part then the trail becomes a much more serious matter. It is easy enough to determine which Honda’s had defective airbags as it is a specific part on specific models. Yet Kobe Steel steel products shipped all over the globe may have been used in different parts. Then those discrete parts would need to be traced to the next intermediate stage and then on to the finished part to which may be fixed to an airline on the other side of the world. Boeing is naturally not raising any alarms until they can assess the issue.

JR has already noted 310 sub standard parts in wheel bearings in its bullet trains which will be replaced at the next scheduled service. It is likely that the JR parts are over spec for the extra margin of safety.

None-the-less aircraft could turn into a much bigger problem. There is only one spec that is supposed to be met. Failure to meet it could cause planes to be grounded until parts are replaced. This could be massively costly as planes not in the air earning money cost millions on the ground. Not to mention the risk of the US government fining the company for reckless behaviour.

Kobe Steel has seen revenues track sideways for the better part of a decade. Profits have been all over the shop. Much like Toshiba tried to fiddle the books with one division in the hope that in time it would be able to put the money back and no one would notice. As for Kobe Steel, there was obviously a plan to try to boost profitability by lowering specs and charging prices for superior spec. Even then the contribution has been poor. Hardly surprising when the cash conversion cycle has exploded from 38 days a decade ago to around 82 today. To be faker most of the big steel companies have a similar CCC which hasn’t changed much over the last decade.

What we can be pretty sure of will be the soft touch of the local authorities. Even with such willful deceit, it is unlikely anyone will see inside of a jail cell or pay multi million dollar fines in Japan. However the tail risk here is the likes of Boeing who will extract every pound of flesh with the help of its authorities to rent seek from Kobe Steel if certain parts are found to be ultimately faulty because of negligence. This is not a staged Nissan-Mitsubishi Motors leak to force a cheap entry into the latter. Still, 37,000 employees at Kobe Steel will be seen as a sizable number to protect at a national level hence a limp wristed response to follow.

One final point. Do we honestly think that Kobe Steel can conduct an honest audit of its deceit? Surely flagrant data fiddling will be milled down to more acceptable cheating.  It is a time honored tradition to leak a bit, then a bit more so as to minimize the shame.

Until Japanese listed corporates face far harsher penalties for such malfeasance, it will be hard to shake off the cynicism that the corporate governance code has introduced anything more than mere lip service. That is OK if that is what Japan wants to project to the world that shareholders are not a priority.

National Felon League (NFL)

It changes the moral high ground on the debate on the NFL when dragging it down into the statistics of the players themselves. Perhaps some players are taking a knee to stop themselves being held accountable by the very laws they break. 713 different players between 2000-2014 have been arrested, Shocking list of charges – rape, murders, shootings, animal cruelty, prostitution rings, assault, robbery, illegal gun possession, DUI, resisting arrest and so forth. So ask yourself why fans might get turned off being lectured to by these social justice footballers? Great role models.

Makes the NRL in Australia look like a bunch of choir boys.

With pay TV viewership and game attendance continuing to fall (according to Nielsen) we are seeing some team owners like the Steelers begging fans to accept it’s just a misunderstanding and sponsors like Nike sticking up for the NFL because they want to make sure their investment sustains a return. Budweiser will be the big swing factor on the NFL. It proudly promotes it has 11,000 veterans working for it. Pepsi, Budweiser’s Anheuser-Busch InBev paid $1.4 billion to sponsor the NFL out to 2022. When AB InBev first inked this deal in 2011 (to last through the 2017 Super Bowl) it paid $1.2 billion. Not small pennies. DirecTV has announced they will give full refunds to customers who want to cancel their NFL channel. Of course DirecTV will be asking the NFL to cover the costs of that.

No matter what one’s views are, the NFL will live and die by their actions. As mentioned yesterday, taking a knee is now so commonplace it is actually no longer seen as the protest it was originally done for. Then again, all the NFL is bringing on itself is the double standards of many of its players.

Knee-ncompoops – the only beneficiary has been BBQ lighter fluid makers

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Alright, I think we’ve all seen enough kneeling to last a lifetime. In fact the original message of kneeling during the national anthem pushed to the fore by Colin Kaepernick to raise awareness for ‘BLM’ has now been diluted to complete irrelevance. Now it is being done as a fashion. So the idea of raising awareness has now been switched as a protest against the President. So was BLM such small potatoes that it got switched so readily for this?  To be honest, NFL players are employees. Better paid than most but employees. If we went to our places of work and told our bosses that we’d take a knee if told we had to start at 6am to service particular clients who needed our services, we could understand if our jobs would be in jeopardy. In the same light, if our customers (fans) aren’t served they’ll go somewhere else. It is simple. The end user of any product ultimately has the last word. Recent NFL ratings and certain sponsors reflect this.

Equally the number of videos of NFL fans burning jerseys, championship pennants and other memorabilia will undoubtedly boost sales of BBQ fire starter fluid. Of course fans are infuriated. Many work exceptionally hard to be able to afford the tickets that are supposed to take them away from financial, work and other stresses.

The number of videos from people of all races, colours and socio-economic bases have also made it very clear – they view this as political garbage and that these highly paid athletes reflect the way that America provides them with the oppportunity to take home millions of dollars, earning more in a game than many fans make in a year only incenses paying fans. Where are their activities within the communities they claim they support?

Perhaps even more telling is these so called moral crusaders in many cases do not speak from very high ground. The USA Today published a list of all of the arrests and charges laid on NFL heroes – from assault, battery, DUI, rape, guns, drugs and resisting arrest. Yet here they are telling normal Americans how they need to ‘reflect’ on this ‘racial’ divide which somehow has sprung up from the woodwork.

Now when Alejandro Villaneuva, a veteran who served in Afghanistan, makes a personal choice to show his pride i his nation he is summarily pilloried by his coach and then turns around and makes a forced apology when there was no need to except under the guise of this politically correct hand-wringing. I actually felt sorry that Villaneuva had to apologize for expressing his true feelings. His apology even displayed his own surprise he was even making it.

So every time I see yet another team kneeling I look at them as the least original protestors around. Nothing but lemmings who can’t see that every single new protest just alienates those they should be embracing to sustain their lavish lifestyles. No one is saying they can’t exercise their free speech but they might find their fans far more sympathetic if they didn’t throw it in their face every game.

Still we live in a world where yelping injustices (which in many cases aren’t affecting those kneeling) begets this so called ‘division’. Whether it is POTUS’s place to slap these slice sportspeople is one thing – many say he is the key behind this disunity. I disagree – he has merely woken many of us who don’t live in America to what a divided nation he inherited. So if you look beyond the headlines and look at his actions his real aim is to ‘unite’ people – because the US can’t heal if everyone is moaning only about one’s own issues.

This video of BLM protestors being invited to speak at a Trump rally shows more about what can happen when both sides listen. More powerful than any knees. Although I wonder if liberals would ever allow Trump supporters to talk on their platform? Watch the initial resistance until one of the conveners at the rally says to the crowd to shut up and listen in the interest of ‘free speech’ – now that would not have come about from a community that is as divided as the MSM makes out. That is the essence of MAGA.

 

Dallas Police Pensions – to protect and serve

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A few months back I wrote the following on the public pension black hole.

“The beauty of pension accounting is that slight tweaks can make a large unfunded liability seemingly disappear or at the very least shrink it to “she’ll be alright mate” levels. However if a pension fund plays the game of understating its risks for long enough then eventually it catches up, especially if performance is consistently poor. This is what we are starting to see in vivid colour among state and local (S&L) governments in America. Reality is biting”

Now it seems  that The Dallas Police and Fire Pension (DFPF) System, once applauded for a diverse investment portfolio finds itself needing to dig out of a deep hole. A $1.2 billion change last year in the difference between the value of its assets and what the pension owes retirees left the $2.6 billion fund with just 45 percent of the assets needed, down from 64 percent at the end of 2014. The pension, which was 90 percent funded a decade ago, could be out of cash in 15 years at the current rate of projected expenditures.  The pension’s former real estate investment manager, CDK Realty Advisors, was raided by the FBI in April 2016 and the fund was subsequently forced to mark down their entire real estate book by 32%.

The fraud at the DPFP left the fund over $3bn underfunded and its board of directors with no other option but to seek a $600mn infusion from taxpayers to keep the fund afloat.

Zero Hedge writes, “Well, it seems as though Dallas police officers are catching on to the ponzi and rushing to withdraw retirement funds as quickly as possible before the whole system goes bust.  As reported by a local ABC affiliate, Dallas police officers are retiring at a record rate and opting for full cash withdrawals of their pension benefits as opposed to equal monthly distributions for life (apparently they don’t think the fund will be around long enough to pay them for very long).”

While this is partially crumbling because of fraud, there are many other pension funds which are way underfunded. In the public sector alone in America, pension funds are unfunded to the tune of $9 TRILLION. In the current investment environment, no amount of tricky actuarial accounting can wriggle out of this.