The Nation reported that the number of privately run prisons is on the move under Trump. At the moment private prisons make up around 5% of the 2.3mn prison population at present. The US now spends $90bn every year to incarcerate these jailbirds or around $39,000 a head (similar to Japan). According to the Bureau of Economic Analysis we had a lull in expenditure on jails after the Lehman collapse. Indeed several states were releasing ‘lower’ risk criminals from prison in order to cut their deficits. This has driven the growth in private prisons.
According to The Nation, “18 states spend more on incarceration than on higher education, and one study found that the total cost of incarceration, including social costs, adds up to $1 trillion. One point seven million children in the United States have a parent in prison, more than 70 million Americans (about one in three) have a criminal record, and those enormous impacts are suffered unequally: While African Americans are about 13 percent of the US population, they make up 37 percent of the male prison population.”
The Nation highlights also that “these private prisons are important to understand and discuss because, while only about 8 percent of the current state prison population is housed in for-profit facilities, about 18 percent of those behind bars in the federal system are in these prisons, and over 60 percent of immigration-detention beds are operated by these corporations” the newspaper is overstating the performance of the stocks. While indeed the largest company, CoreCivic (CXV0 rallied off the election it has none-the-less returned to earth.
Also earnings whether in revenue or profit terms actually peaked under Obama’s administration.
While the numbers are horrific in themselves, incarceration in the US costs the equivalent of the Slovak Republic’s GDP.
On public safety alone the US is now spending $375bn p.a or the equivalent of Austria or just over half what the country outlays on defence. So combined the US spends $1 trillion per annum on ‘protection.
The Nation also notes, “The Trump administration appears to be focused on expanding the number of undocumented individuals who are detained behind bars in this country. For one, his administration requested more than $1.2 billion [in reality a 1.3% increase] in the 2018 federal budget to expand detention capacity to more than 48,000 beds a day. To put this into perspective: According to ICE, the current daily capacity ranges from about 31,000 to 41,000. And in April, the administration handed GEO group a $110 million contract to build and run a 1,000-bed detention center in Conroe, Texas. And, most recently, ICE issued “requests to identify,” which are basically pre-requests for proposals, from contractors who can house immigrant detainees in South Texas as well as in the interior of the country in places like Chicago, Detroit, and Salt Lake City.”
As a reference the border wall is priced at around $10bn.
As an investment, perhaps the US private jails look a bit oversold with the hype immediately post the election behind us. At 13x P/E for CVX perhaps a turnaround in its earnings potential is ahead of us and a discount to the market with minimal downside risks make it a proper bricks and mortar investment. The above forecasts look reasonably conservative.
Who will do the bidding to accommodate Mrs Clinton? Perhaps a premium will be warranted.