Month: May 2017

Both AAPL and the broader Nasdaq index are trading at new all time high ahead of Apple’s earnings on Tuesday, where in addition to the company’s operating results and iPhone sales, investors will pay close attention to Apple’s record cash hoard – expected to rise well above a quarter trillion dollars – and especially to hints Tim Cook may reveal about the company’s cash usage plans. In addition to the traditional speculation about potential AAPL M&A, the WSJ points out that the money, more than 90% of which is stockpiled outside of the U.S., has drawn fresh attention as President Donald Trump has proposed slashing business taxes and granting a one-time tax holiday on corporate cash brought home. Those policies could ratchet up pressure on the tech giant to dole out more money to shareholders or make splashy acquisitions.

Here are some striking facts about Apple’s cash cushion from the WSJ:

• As of December, the company had $246.09 billion total cash, cash equivalents, and securities. Apple, like most multinational American companies, parks most of that cash offshore rather than paying U.S. taxes on its overseas profits.
• Apple’s results will show the company doubled its cash in just over 4½ years. In the last three months of 2016, it racked up cash at a rate of about $3.6 million an hour.
• With the exception of financial companies, Apple’s stash exceeds that of any other U.S. company in recent history, said Jennifer Blouin, an accounting professor at University of Pennsylvania’s Wharton School. “I have never seen a company in this kind of extreme position, barring a winding-down,” she said. “Apple’s a cash box right now.”
• Apple cash and cash equivalents are spread across short- and long-term securities, including corporate securities, U.S. Treasury securities and money-market funds.

Apple’s historical cash build up in one chart:

To be sure, much of that gross cash addition has been offset by a surge in debt: since 2012, Apple has gathered some $88 billion in debt to fund payouts to shareholders. But even subtracting that, Apple would be left with more cash than the total stockpile of Microsoft Corp., the next richest tech company, which has $126 billion in cash, not accounting for debt.

How has Apple approached its massive cash holdings: AAPL CEO Tim Cook has been “somewhat more accommodating of shareholder desires than his predecessor. He started a program of dividends and stock buybacks in 2012 that has since sent more than $200 billion to shareholders. And he has invested more in some areas, such as research and development.”

But the CEO also stared down Carl Icahn in 2013 and 2014 when the activist investor bought a stake in Apple and demanded it increase buybacks. And Apple remains frugal in other realms, such as marketing. It spent less than $1.8 billion on advertising last year—not even half the amounts laid out by smaller rivals Alphabet Inc. and Amazon.com Inc., according to company filings.

Just as notably, Apple also avoids large acquisitions. It bought at a rate of 15 to 20 companies a year over the past four years, generally spending several hundred million dollars each on companies it can easily assimilate. Its biggest deal was the $3 billion it spent to buy Beats Electronics LLC in 2014.

It may be time for a change: as the WSJ adds, the swelling war chest has fueled hopes for bigger deals to vault Apple in new directions such as self-driving cars and entertainment. At Apple’s 2015 shareholder meeting, one investor asked Mr. Cook about buying Tesla Inc., which today is valued around $51 billion. The CEO didn’t directly respond.

Robert Nichols of Windward Capital Management Co., an Apple shareholder, says it should buy Netflix Inc., valued around $65 billion, to jump-start its video-streaming business and bolster its position against Amazon. “You can either build [content and distribution] or you can buy it,” and buying would help Apple gain ground where it is behind, he said.

The bottom line, with $250 billion, Apple could buy both Tesla and Netflix and still have plenty left over. It also might want to use some cash to pay down some of its debt or look to boost U.S. manufacturing after facing calls last year from then-President-elect Trump to build a plant in the U.S.

Even as such mega deals are unlikely to be announced any time soon, many argue that Apple’s cash hoard has far outstripped its needs. “If this a rainy-day fund, they’re saving for a millennial flood,” said Lee Pinkowitz, a Georgetown University professor of finance. Or maybe, AAPL – like so many other value investors – is just waiting for the day the value of its potential acquisition targets tumbles. Until then, it will continue to generate nearly $4 million in cash every hour, making the eventual acquisition wave that much more spectacular.

And while the market is hoping Cook will provide some answers tomorrow, it is also eagerly lapping up the stock, which as of this moment had an all time high market cap of $770 billion, up 2% on the day, and rising.

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Growth in U.S. personal consumption expenditures in the first quarter of 2017 was slowest since 2009, according to data released Friday by the Commerce Department.

A big reason for that was the second-largest contraction in spending by non-profits (i.e. election-related lobbying/spending) in 57 years of data.

As Bloomberg details, according to monthly consumption data through February, the drag seems to owe to a sharp decline in spending by professional advocacy groups, which always surges during U.S. presidential elections, and hit a record high in November.

 

And what that means for GDP is clear – the post-Clinton-Loss collapse in spending by 'professional advocacy' groups has erased 0.3 percentage points from GDP growth in Q1 (after boosting it by 0.25 points in Q3)

Two things spring to mind:

1) How fragile is the US economy that election-related spending can have such a huge impact on relative growth? And/or the flipside of that…

 

2) How massive is election-related spending that it now makes a significant cyclical impact to the nation's GDP growth?

Finally, we could not help but note the last time election-related spending collapsed at such a pace (as Q1 2017's post-Clinton-loss) was in Q1 1997 (when Bill Clinton won his second term). What is with the Clintons? Bottomless pockets?

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Authored by Howard Kunstler via Kunstler.com,

And suddenly the storms of early Trumptopia subside, or seem to. The surface of things turns eerily placid as the sweets of May sweep away the toils of an elongated mud season. Somebody stuffed Kim Jong Un back in his bunker with a carton of Kools and the Vin Diesel video library. France appears resigned to Hollandaise Lite in the refreshing form of boy wonder Macron. It’s been weeks since The New York Times complained about the Russians stealing Hillary’s turn as leader of the free world. We’re given to understand that Congress managed overnight to cook up a spending bill that will avert a Government shut-down until September. Rest easy America… oh, and buy every dip.

A calm surface is exactly what Black Swans like to land on, though by definition we will not know they’re out there until our reveries are broken by the sound of wings flapping. Some kind of dirty bird showed up on Canada’s thawing pond last week when that country’s biggest home loan lender suffered a 60 percent pukage of shareholder equity and had to be bailed out — not by the Canadian government directly, but by the Ontario Province’s Health Care Workers Pension Fund, a neat bit of hocus pocus that amounts to a one-year emergency loan at ten percent interest.

If that’s a way for insolvent public employee pension plans to find enough “yield” to meet their obligations, then maybe that could be the magic bullet for the USA’s foundering pension funds. The next time Citibank, Goldman Sachs, JP Morgan, and friends get a case of the Vapors, let them be bailed out by the Detroit School Bus Drivers’ Pension Fund at ten percent interest. That ought to work. And let Calpers take care of Wells Fargo.

The situation across Western Civilization is as follows: virtually every major financial institution has become a check-kiting operation or a Ponzi scheme, and we’ve reached the point where they can only pretend to be rescued. Bailout or not, the Toronto-based Home Capital Group is still stuck with shit-loads of non-performing sub-prime mortgage loans — its specialty — and Canada’s spectacular real estate bubble has hardly begun to pop. The collateral is starting to turn, like dead meat in the May sunshine, and the odium will waft across the border.

It doesn’t take much to blow things up, as the world discovered in several other historically recent episodes.

The 1998 banking contagion started with the collapse of Thailand’s currency, called the baht. I doubt you could count on one hand the number of people in Wall Street or the Federal Reserve (with its 300-plus PhD economists) who gave a flying fuck about the Thai baht. Before you knew it, South Korea and Indonesia started whirling around the drain. And then Russia felt the suck. And then the Nobel Prize winning economists at a Connecticut hedge fund called Long Term Capital Management found out the hard way that their “secret sauce” investment formula which “could not fail in the life of this universe or several like it,” fatally poisoned its balance sheet on a repast of Russian sovereign bonds after only about eighteen months. And it took all the poobahs of American banking to paper over the firm’s death about five minutes before the global banking system would shut down via the greatest daisy chain of cross-collateralized financial booby-traps ever assembled.

 

And ten years later, there was the fiasco of 2008, starring Lehman Brothers and a demonic host of grifters trafficking in worthless bonded debt around the sub-prime mortgage racket tied into a toxic web of “derivative financial products” — i.e. bad bets between insolvent counter-parties masquerading as “insurance” against unsound investment. Trillions of bailout monies conjured out of thin air fixed that, oh yes it did!

So enjoy the festivities around the Maypole today, and the suddenly calm waters of global affairs, and keep your ears pricked for the sound of wings flapping.

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Days after Venezuela was rocked by the worst riots in over a year, with nearly 30 people dying in April from violence related to protests demanding the departure of Maduro who has again been accused of violating democratic norms, Maduro responded by hiking salaries and handing out free homes as he tries to counter a strengthening protest movement calling for his removal.

According to AP, Maduro said on his Sunday TV show that the minimum wage will rise 60% starting May 1. Workers will earn at least 200,000 bolivars per month including food subsidies. Sadly, in light of Venezuela’s hyperinflation, that amount to less than $50 at the black market exchange rate.

It’s the third wage increase this year as triple-digit inflation erodes workers’ savings. AP also notes that Maduro watched as authorities in several states handed over the keys to hundreds of new apartments.

Separately, Bloomberg reported that Venezuelans were gearing for demonstrations to mark International Workers’ Day, even as last month’s clashes prompting Pope Francis to renew his call for a negotiated solution to the crisis embroiling the South American country. The opposition will rally from 26 points across Caracas on a hot, rainy day in a march being promoted on social media with the hashtag “the people rebel against the coup.”

Subway stations across Caracas were closed, as the government traditionally tries to prevent protesters from reaching the government center in the downtown area. President Nicolas Maduro will speak at a pro-government march there, and he has promised major announcements this afternoon.

As Bloomberg adds, opposition leaders are seeking to maintain momentum that brought over a million supporters into the streets in marches last month to protest what they said was an illegal power grab by the Supreme Court to curtail the power of the National Assembly they control.

Congress president Julio Borges warned Sunday that Maduro would try to further usurp Congress’ authority. “It would be a continuation of the coup, Cuba style” he said at a press conference, adding that the opposition had expressed their concerns to other countries in the region. “Maduro is trying to put out a fire with gasoline.”

Also on Sunday, Pope Francis appealed at a Mass in Vatican City for an end to violence that he said is “exhausting the people.” Previous marches and anti-government protests over the past month have resulted in a least 29 deaths. The papal statement comes after a Vatican-sponsored dialogue last year failed and many opposition leaders criticized the process, saying it merely bought the government time and extended the crisis.

The governments of Argentina, Brazil, Chile, Colombia, Costa Rica, Peru, Paraguay and Uruguay agreed with the pope’s call. Such a deal would end violence, uphold the rule of law, free political prisoners, restore the powers of the National Assembly and define an electoral schedule, according to a press release sent Sunday evening from Argentina’s Foreign Ministry.

 

Venezuela’s Foreign Minister Delcy Rodriguez, who last week said the country would pull out of the Organization of American States, slammed the statement from the regional bloc. “Every statement that supports opposition factors in Venezuela fuels the coup-plotting and violence and tries to not recognize a legitimate government,” she wrote in a post on her Twitter account.

Ahead of a potential clash between the two protests, the battle extended into social media, with the opposition alliance posting pictures of protesters facing tear gas-clouds. Pro-government accounts, meanwhile, showed supporters dressed in red attending rallies that featured an inflatable balloon of the deceased former President Hugo Chavez.

Jose Andres Rauseo, a 66-year-old lawyer from the largely anti-government Bello Monte area, said clashes erupted there, with tear gas and national guard troops blocking the way. Protesters chanted “Dictator out, Maduro out,” and waved flags, he said.

 

“We brought provisions including vinegar and Maalox to deal with the gas, because we know the repression will come. We don’t know where the march will end, but we’re prepared to keep going,” he said.

Last week opposition lawmakers unveiled demands that included the designation of an impartial electoral board, early presidential elections, an immediate date for overdue regional elections, government authorization to accept humanitarian aid shipments of food and medicine, respect for the autonomy of the opposition-controlled National Assembly, the release of all political prisoners, and the disarmament of pro-government groups known as colectivos. It is unlikely that Maduro will meet any of the demands.

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As Nasdaq melts up faster than Bitcoin, perceived equity market risk has utterly collapsed.

VIX just hit 9.92 as Nasdaq hit 6,100 (note the most recent low is 9.39 from 12/15/06 and all-time low at 8.89 on 12/27/93)

 

VIX just traded with a 9-handle for the first time since Feb 2007…

 

And maybe there's further to run…

 

Despite Goldman recently warning, policy risk remains under-priced…

 

Treasury Vol is rising as Equity Vol tumbles today…

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With the North Korean situation tense after Friday’s latest failed missile attempt, the South Korea’s Korea Times reports that a Chinese town near the border with North Korea is “urgently” recruiting Korean-Chinese interpreters, “stirring speculation that China is bracing for an emergency situation involving its nuclear-armed neighbor.”

The Korea Times cites The Oriental Daily, a Hong Kong-based news outlet, which reportedly published the story on Apr. 27, including a photo of a Chinese government document ordering the town of Dandong to recruit an unspecified number of Korean-Chinese interpreters to work at 10 departments in the town, including border security, public security, trade, customs and quarantine.

The document did not specify the reason behind the unusual, large-scale recruiting. But experts and local citizens said the move indicated that China was bracing for a possible military clash between the United States and North Korea.

The Korean outlet goes on to speculate that this “might trigger a huge exodus of North Koreans to border towns in China.”

Whether this dismal scenario will become a reality is largely up to North Korea’s leader Kim Jong-un.

U.S. President Donald Trump has repeatedly warned that the world’s superpower will strike North Korea’s nuclear facilities if Kim proceeds with a sixth nuclear test or test fires an intercontinental ballistic missile.

The Dandong administration also has ordered its officials to work rotating night shifts since April 25, according to South Korea’s news agency Yonhap.

Meanwhile, China has dismissed recent reports that it has sent 150,000 additional troops to its border with the North.

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Via The Daily Bell

Did you know that in addition to ice cream, Ben and Jerry’s serves up delicious propaganda? Nom, Nom, Nom. Mmmm. I feel informed.

And it is actually pretty good propaganda, in that it contains little chocolaty chunks of truth. You have got to mix some gooey truth morsels in if you want your cold creamy lies to sell.

I was actually pretty surprised to be reading news on Ben and Jerry’s ice cream website. That took me by surprise. And, okay, let me give Ben And Jerry’s a little credit for tackling some issues that need to be brought to light. But they are just such insufferable lefties that even when they bring up a good point, it melts away while they try to sell their progressive vision of the world.

The issue is private prisons. I hate the term. Nothing which derives its entire budget from the government should be considered private. If it wouldn’t exist in its current form without government money, it is not private. And I realize that so many companies now receive government assistance in one form or another that hardly anything is a purely private company anymore. But when the entire budget of the company comes from government contracts, that is most certainly not a private company in any sense of the word.

The article is called Abe Lincoln Would’ve Hated Private Prisons. It brings up some problematic things about the criminal justice system, like the growing number of inmates, and the incentives that “private” prisons have to keep the prison populations growing. In fact, these quasi-private prisons have a large lobbying arm that fights to keep more activities criminalized with a generous topping of stiff sentencing.

When criticizing private prisons, Ben and Jerry’s is basically suggesting that public prisons do not have the same incentives. But they do. Every bureaucratic agency has an incentive to use its entire budget, and request more money. If the director of an agency has more money, he can hire more people, and exert more political control. The more inmates, the more that branch of government is “needed.”

But still, it is right to point out that many prisoners are essentially modern day slaves if they are being forced to work for the profit of others. This wouldn’t necessarily be unjust to force criminals who victimized others to work to pay off their debt to the victim. But the victims are generally not the ones being paid back. Instead, the government and the “private” prisons are keeping the cash.

But Ben and Jerry’s never mentioned the fact that the main injustice is when these modern day slaves are in prison for victimless crimes. And while they lament the private prison industry keeping the profits, they offer no criticism for when the government rather than the victims get the profits of prison labor.

Ben and Jerry’s has a different point to make. They heap on generous servings of racism like they are pouring jimmies–uh sprinkles–all over your delicious propaganda sundae.

As that prison population has risen (from 357,292 in 1970 to 2,306,200 in 2014) it’s become ridiculously clear that racism plays a huge role in who gets locked up and for how long. Here are just a few of the facts:

• African Americans are incarcerated at nearly six times the rate of whites.
• Black men now make up about 40% of the total prison population (even though they represent only about 12% of the total US population).
• Prisoners are often forced to work — frequently making products for major corporations — for pennies.
• More black men, says author Michelle Alexander, are in prison today than were enslaved in 1850.

In short, mass incarceration has replaced slavery as a form of social control of America’s black population, who are still being used to fill the coffers of the for-profit prison system.

And that was all they said about it. No discussion of why or how this is the case, just some stats to indicate the prison system is racist.

Why don’t they add that victimless drug crimes account for much of the black prison population? It is framed as innocent black people being railroaded into the prison system on trumped up charges. But the charges aren’t trumped up, they are just for victimless crimes such as drugs and public disorder.

Whatever racism exists within the justice system is mostly in what types of behaviors are criminalized, and the standard sentencing for various crimes. Eliminating victimless crimes would go a long way towards fixing the racist nature of the system.

Ben and Jerry’s is totally pouring fudge all over their banana-republic split.

How Private Prison Should Look

If prisons were entirely divorced from government, we would have a system where the only reason someone goes to prison is to pay off a debt owed to their victim. That means the only crimes for which someone could be imprisoned would require a victim. No more victimless crimes. That eliminates as many as 86% of federal inmates!

So without “society” being the victim, we will have (1) the victim (or representative) claiming damages, (2) the defendant, (3) the court (which could be private), (4) the prison system to extract damages and separate dangerous individuals from other possible victims.

Even if the prisons wanted more prisoners, there would be nothing they could do. No more criminalizing extra stuff to make more prisoners. No more extending mandatory minimum sentences; the sentence would be however long it takes to “make the victim whole.”

The only thing that could still cause corruption is coordination between prisons and the courts sending the prisoners there.

This could easily be solved by allowing the prisoners to choose which private prison they go to. This means prisons would have to compete for their labor by offering things like humane conditions, and reasonable rent. Some might even decide to specialize in helping prisoners reach their full earning potential, and thus pay back their victim quicker. Others might allow the prisoners to stay when their term is complete if they would like to keep earning money in the same way they did while in prison.

Of course what I am imagining is an entirely new type of system, where individual responsibility and productivity is incentivized. It wouldn’t look or feel anything like the prisons of today, except for a few special cases of murderers and psychopaths who have no hope of integrating back into society without re-offending.

I’m still not sure why an ice cream shop is putting news on their website, but hey, good for them if they want to take part in a little activism. I just wish they would get to the real scoop instead of whipping up a biased topping for the facts.

“Private” prisons are not really “private” and eliminating them would not solve the issues in the criminal justice system. Only eliminating victimless crimes will substantially reform the rocky road our prison system is on. And after that, it is time to explore truly private prisons, private courts, and private everything else.

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Unlike Chicago Mayor Rahm Emmanual, Baltimore’s mayor is basically begging for help from the FBI as her city’s murder rate spirals out of control ahead of what is typically the most violent months of the year.  Per CBS Baltimore:

“I’m calling on all the assistance we can possibly get because I can’t imagine going into our summer months with our crime rate where it is today, what that’s going to look like by the end of the summer,” says Mayor Catherine Pugh.

 

“Murder is out of control,” says Pugh.

 

“We are looking for all the help that we can get,” she says.

According to data from the Baltimore Sun, violence in the city has reached a crisis level, with the number of killings shattering a 20-year high for the first 4 months of 2017.  At the current run rate, 2017 homicides in Baltimore could surpass 400 for the first time since at least 1990. 

 

And while the 800 murders recorded in Chicago in 2016 was a staggering figure, on a per capita basis, homicides in Baltimore were nearly double that of Chicago and looks set to vault into the number one spot nationwide in 2017. 

 

Meanwhile, Baltimore public safety expert Rob Weinhold, who isn’t sure the FBI alone will be effective, has called on support from the U.S. Marshall Service as well.

“I don’t think relying on federal resources is a new strategy at all, in fact, I think the devil is in the detail. You can talk about the FBI and that’s fine, but I’d actually like to see more emphasis on drug enforcement administration, ATF, and the Marshall service to get these folks who are wanted on warrants off the street,” says Weinhold.

Of course, we’re almost certain that rising homicides in Baltimore, like in Chicago, are the direct result of racist cops and nothing more.

 

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