Month: September 2017

First Sponsor Pulls Ad Dollars From The NFL

It begins. We suspect NFL owners, and their media lapdogs, may be about to start paying attention to what President Trump (and the fans of the game) are saying (and doing).

Over the weekend, Bloomberg reports that fans who agree with Trump shared lists of advertisers on social media networks while calling for boycotts along with hashtags like #PunchThemInTheWallet.

Richard Levick, a crisis communications expert, says the NFL deftly navigated the weekend’s challenges but expects no shortage of hazards ahead.

“They showed a high level of unity and independence, respecting those who participated in the protests and those who didn’t,” says Levick.

 

“In this era of hyper politicization — which is being driven by the White House into everything from the Boy Scouts to the NFL — there is no safe middle of the road.”

But now, following President Trump's warning yesterday that…

"I think The NFL is in a box, the only thing that is doing well for The NFL is the pre-game…

 

They can’t have people disrespecting the national anthem. The NFL has to change or their business is going to go to hell."

At least on major company has pulled his company's advertising and sponsorship money… As The Times Free Press reports, two years ago, Cleveland businessman Allan Jones was proudly showing off his newly acquired Hardwick Clothing-brand suits by providing the wardrobe for NBC's on-air talent during the network's broadcasts of NFL football games.

But after NFL players and coaches challenged President Donald Trump and many took a knee during the national anthem played before their games over the weekend, Jones said he is through sponsoring the wardrobes or advertising on stations that air the National Football League.

"Our companies will not condone unpatriotic behavior!" said Jones, CEO of the payday lending chain Check Into Cash and owner of Hardwick Clothes – America's oldest suit maker.

 

"For the 29 states we operate in, this isn't much to them, but it's a lot to us. The Tombras Group is our ad agency in Knoxville and our national media buyer for both TV and radio (for Check Into Cash) and don't look for Hardwick on the NFL either."

 

Jones, a strong supporter of Trump, directed his media buyer, the Tombras Group in Knoxville, to remove any commercials for Check Into Cash, Buy Here Pay here USA, or U.S. Money Stores from airing during NFL games "for the entire season."

As a reminder, the league and its 32 teams made $1.25 billion from corporate partners and advertisers last year, according to ESP Properties. For decades, big companies paid vast amounts of money to bask in the associative glow of the NFL’s perceived dynamism, passion and vigor. Now they’re paying vast amounts of money to bask in the fiery hell-broth of the culture wars.

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Kass: “Investors Seemingly Learned Nothing From History”

Authored by Doug Kass via RealInvestmentAdvice.com,

“‘A bull market is like sex. It feels best just before it ends.'” – Warren Buffett

Excuse me for being redundant, but the following Jim Rogers quote that I posted yesterday underscores Mark Twain’s famous quote that “history doesn’t repeat itself, but it often rhymes”:

“When things are going right, we all need a 26-year-old. There’s nothing better than a 26-year-old in a great bull market especially in a bubble. They’re fearless. They don’t know. It will never end. They will tell you why it will never end. They know that it cannot end and will never end. So in the bull market, you’ve got to have a 26-year-old. But when they end you don’t want the 26-year-old around… they make a lot of money. They don’t know why they made money. So they don’t know why they lose money. They don’t know what happened.“ -Jim Rogers on Realvision

Back in 1997 I wrote this editorial in the Other Voices section of Barron’s that echoed Rogers’ recent quote.

In the difficult business of piling up a fortune everyone has an infallible strategy and a set of assumptions, technical and./or fundamental, that leads them to investment nirvana.

But it is never easy. The rules change and so do the players.

From my perch I steadily have listened to the irrational being rationalized as the bulls declare, with straight-faced confidence, that valuations in the 95% decile should be ignored because a synchronized global expansion will “earn out” from these extended metrics.

This confidence is expressed despite a plethora of possible adverse outcomes, particularly in the interconnected world in which we live.

The positive outcome of steadily expanding global growth coupled with low inflation and equally low interest rates may yet prove to become reality. Geopolitical friction may subside. Political partisanship in Washington, D.C, may succumb to cooperation, leading to the initiation of tax and regulatory reform and the repatriation of overseas corporate cash. The Orange Swan may wake up and reject the extreme influences of the Republican right. Trump may stop threatening a war with North Korea in a ping-pong of outrageous and provocative tweets. The rate of growth in real GDP may expand to 3% and we may be in another new paradigm of uninterrupted growth. S&P profits will grow at a rate of 8% annually, ad infinitum. Natural disasters will be a thing of the past and global warming concerns are nonsensical. The North Korean Rocket Man may be all hat and no cattle. The proliferation of ETFs, which in number now exceed the number of listed equity securities, and the ever-present quant strategies that are ignorant of fundamentals may not yield a “flash crash,” easily accommodating any selling waves. Every dip will continue to be bought. And interest rates and inflation may be in a permanent stage of adolescence.

But, I am blinded by a sense of history, and the belief that few of the conditions in the last paragraph are likely to be met.

In our flat, interconnected and network world, the odds favor less stability over more stability.

To this observer the markets’ dominos are exhibiting signs of falling around all over — in consumer packaged goods, in (T)FANG, in retail and elsewhere. Yet the selective memory of the talking heads in the business media emphasize the narrowing field of outperforming stocks (e.g., Nvidia Corp. (NVDA) and Deere & Co. (DE) ) that have been working, failing to see those falling dominoes around them.

Fear and Doubt Have Left Wall Street

The ever-present risk to the contrarian is that, over the short term, the past literally is repetitive and the crowd typically outsmarts the remnant. Tuesdays always follow Mondays and Wednesdays follow Tuesdays. But as we extend time cycles, history seems to move from repeating itself to rhyming with the past.

History undoubtedly teaches lessons about investment, but it does not say which lesson to apply when. “Find value, always” is as good a precept as any, but value is subjective and its definition is liable to change. In highly speculative markets, value means, to most, “it is going up.”

Stay abreast because in bull markets there is rarely a clear demarcation between progress and fantasy. I remain of the strong belief that we are in a Bull Market in Complacency that likely ends poorly and that has reduced the upside and has expanded the potential market downside.

To the bullish cabal the market “feels” great now (for, as Warren Buffett says, it is because, like sex, if feels best at or near the end), but after an eight-year bull market it may be time to consider the investment contrary. As James Surowiecki wrote in “The Wisdom of Crowds”:

“Diversity and independence are important because the best collective decisions are the product of disagreement and contest, not consensus or compromise.”

Investment returns likely have been pulled forward by central bank liquidity, low interest rates and passive investing. However, over the next five years returns may be substandard at best, but more likely, negative. At worse, we face an incipient bear market.

As expressed in yesterday’s opener, the nature of and players in the investment business have changed. This helps to explain the Teflon nature of the S&P 500 Index.

But as Grandma Koufax used to say, “my matzah brei doesn’t grow to the sky,” and every day we move closer to a Minsky Moment.

The salutary environment perceived by many today may be transitory and weak in foundation.

The potential political, geopolitical, economic and market outcomes are many, and a clear and market-friendly path is not certain.

Bottom Line

The name of the game is money. It was Lord Keynes who first saw that the handling of it is a game. Most discussions of money and investing speak only of economics and statistics, but that’s only a part of the game. The other part is people, individually and together, the emotional investor and the irrational crowd.

And it again might be the market scene that is often (as it was in 2000 and 2007) seen only in kids’ eyes or in the eyes of older investors who behave like 26-year-olds at or near the end of every significant bull market cycle:

“‘See, see,’ said the Great Winfield. ‘The flow of the seasons ! Life begins again! It’s marvelous! It’s like having a son! My boys! My kids!'” -Adam Smith, “The Money Game”

Do some reading over the weekend as it appears that the only thing many investors have learned from history is that they haven’t learned from history.

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Gary Cohn: “I Can’t Guarantee” Taxes Won’t Go Up For The Middle Class

While proclaiming that "the biggest winners will be everyday American workers," President Trump's top economic adviser, Gary Cohn told ABC News' George Stephanopoulos that he can't guarantee that taxes won't go up for some middle-class families under the administration's sweeping tax overhaul.

"The biggest winners will be the everyday American workers as jobs start pouring into our country, as companies start competing for American labor and as wages start going up at levels that you haven't seen in many years," Trump said.

Following Matt Drudge's cries of "betrayal" yesterday, it appears confusion truly reigns as to just who benefits from the so-called 'greatest tax cuts in the history of the world' as we know absolutely nothing because the government has yet to release the income brackets (or get close to guessing at just how 'progressive' and 'punitive' the optional 4th bracket will be).

Reflecting on what President Trump called "The Middle Class Miracle", Cohn remarked…

"I can't guarantee anything," said Cohn, the director of the White House Economic Council. "You can always find a unique family somewhere."

 

He said Trump's plan is "purely aimed at middle-class families." But Cohn acknowledged that "it depends which state you live in."

 

"When we looked at the tax plan and we look at what it does for Americans, we are very confident that Americans are getting a great deal here," he replied.

 

"We've also said that wealthy Americans are not getting a tax cut."

So "everyday Americans" win, "can't guarantee" that the middle-class won't pay more, and the rich will definitely feel the 'progressive' pinch (though definitions of 'everyday', 'middle-class', and 'rich' are unclear). However, it appears clear there is one cohort of 'losers'…

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Two Solar Companies Got Big Subsidies From Obama. Now They Want Protective Tariffs From Trump.

Two bankrupt green energy companies may be given new lives, thanks to the economic protectionism in the guise of “America First.”

Suniva and Solarworld, like many companies in the renewable energy industry, have received millions of taxpayer dollars in the form of grants and tax incentives over the past decade. Now, both are pinning their hopes on the Trump administration’s likely move to levy heavy tariffs on foreign competitors.

Suniva received more than $20 million in tax credits before going bankrupt. SolarWorld was given over $100 million before filing for insolvency this April. But the subsidies weren’t enough.

Suniva and SolarWorld recently filed a complaint with the U.S. International Trade Commission, a federal agency that investigates trade matters and handles complaints, with the aim of getting the ITC to recommend tariff duties on the cheap Chinese imports the two companies claim are hurting their bottom lines. The ITC went along with it, issuing a decision last week that said Chinese solar panels come at the expense of U.S. manufacturing jobs.

The two bankrupt companies have claimed cheap imports are harmful to America’s domestic manufacturing market, something President Donald Trump declared on the campaign trail. “You take a look at China, what they have done. They have taken our money, our jobs, our base, our manufacturing.” It’s not hard to imagine the Trump administration seizing on the ITC ruling and imposing tariffs on Chinese solar panels in the name of protecting American manufacturing.

Which is exactly what Suniva and Solarworld want.

Needing protection from foreign competition is particularly odd in their cases because, while both companies are based in the United States, they’re mostly foreign owned. SolarWorld is a branch of a German company, while Suniva is owned by Shunfeng International Clean Energy, a Chinese company, making Suniva a bankrupt Chinese-owned, taxpayer-subsidized company asking for protection from Chinese imports.

This isn’t the first time these companies have turned to protectionism. As Reason‘s Christian Britschgi reported this past spring, SolarWorld had previously convinced the Obama administration to put a limited set of tariffs on solar imports from Chinese competitors in 2012, though then they had to at least claim that they were the victims of unfair practices. As The Wall Street Journal‘s editorial Board recently noted, they now only have to invoke manufacturing job loss as a reason for tariff duties.

Tax credits have been critical for the solar industry’s success, particularly the federal tax credit passed in 2006. Between then and 2015, the solar industry in the United States grew at a compound rate of 76 percent, according to an industry analyst at IBISworld, a market research company. In 2016, Congress extended the tax credit to 2021, ensuring the incentive to buy solar power would continue. In 2016, 39 states had clean energy purchase requirements and 41 had net metering programs for customers to sell green energy to utilities, guaranteeing the market for solar power.

But even as solar installation jobs were booming on the back of government assistance, domestic solar panel manufactuers continued to struggle. With cheap foreign imports available, the solar industry no longer manufactures their parts in America.

Solar companies not as heavily involved in manufacturing side of the industry believe future trade restrictions will have a much wider effect than previous tariffs, based mostly on anti-dumping laws. The Solar Energy Industries Association claims it could cost as many as 88,000 jobs. The last time Section 201 was used was 2002, when the Bush administration levied tariffs on foreign steel, a decision that ultimately cost an estimated 200,000 jobs.

This might still not dissuade Trump. Given his rhetoric against China, his belief in tariffs, and the door opened by the International Trade Commission, Trump could slap the levies on solar components by early next year.

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Us Silly Right-Wingers and Our #Problematic Sombreros!

Raaaaaaaa-cist! ||| ReasonHow exhausted is the genre of #hottake outrage at allegedly transgressive white-people activity? This exhausted: Last week, The New Republic wrapped an entire piece around the impropriety of Reason throwing a party for Lionel Shriver featuring paper dolls of the author and various cultural costumes.

The headline, subhed, and opening sentence of this Josephine Livingstone article should not be read without first swallowing your coffee:

Does the Right Really Think a Sombrero is just a “Straw Hat”?

At a recent party for the libertarian magazine “Reason,” guests were given a paper doll of Lionel Shriver to dress up in outfits from different cultures.

If the right believes that cultural appropriation is not offensive, why are they making paper dolls that ridicule other cultures?

It’s kind of hard to know where to begin. Is Reason or Lionel Shriver a stand-in for “the right”? In Shriver’s own words, “my views…qualify as left-wing or right-wing only on the basis of ‘eeny meeny miny moe'”—a description very familiar to libertarians (and to the writers for this magazine). Is it really a puzzle to understand why someone who rejects the notion of cultural appropriation would cheerfully engage in symbolic cultural appropriation as a way of making that particular point? And are those scare-quotes around our name? (Drink!)

There is no joy in this attempted shaming exercise, just an overwhelming atmosphere of fatigue:

There’s a difference between sharing in another culture and making use of it in a condescending way. The paper outfits, which are in some cases strongly marked ethnically, reduce identity down to costuming. The figures are headless. The illustration is lighthearted, but this gesture of reduction—of complex peoples and histories to empty and headless outfits, interchangeable and undifferentiated—makes the joke feel clumsy and shallow. A culture is not something that you can shrug on and off like a jacket. People are not dresses. People are not hats.

Raaaaaaa-cist! ||| Matt WelchThankfully, Shriver herself shows up at the end of the article, injecting some spirit into the final paragraph:

As for the paper doll illustration, Shriver told the New Republic: “I thought it was utterly charming—inventive, playful, and funny. The event on Monday night was a hoot, and it was a relief for me to find that there are other people out there who still have a sense of humor, do not want to impose their version of righteousness on others, and have some feeling for a ‘free country’ as something more palpable than an empty slogan. The term ‘libertarian’ has been much tarnished by association with some rather strange people, but these folks were sensible and sane (if by the end a little tipsy).”

Read Katherine Mangu-Ward’s interview with Shriver here.

For those actually interested in the complex cultural significance of the sombrero, I highly recommend a Southern Foodways Alliance piece by Gustavo Arellano of “Ask a Mexican” fame, titled “Sombreros Over The South.” Here’s a taste:

In los Estados Unidos, Americans have warped them into something quite different. Here, sombreros are exclusively happy hats: permission for the wearer to transform into a one-person party. Fans of Mexico’s soccer team flaunt them during international matches. Costume stores can barely keep them in stock during Halloween or Cinco de Mayo. Late-night hosts wear sombreros for comedy sketches, tipping their you-know-what to the buffoonery to come.

Here’s the funny thing, though: Stateside, I rarely see a Mexican wear one. Outside of folkloric dance performances, soccer stadiums, or mariachi shows, we favor tejanas (Stetsons) for everyday wear. We give the sombrero the respect it deserves. It’s headgear for a certain place and time—like revolutions, for instance, or to serenade a señorita in the moonlight.

Raaaaaaa-cist! ||| ReasonArellano, as fate would have it, is author of a 2012 Reason cover story, adapted from his book of the same title, called “Taco USA: How Mexican food became more American than apple pie.” It’s a master class in exploring and celebrating how cultures collide, mix, and mutate into glorious new creations of their own. “Food is a natural conduit of change, evolution, and innovation,” he writes. “Wishing for a foodstuff to remain static, uncorrupted by outside influence—especially in these United States—is as ludicrous an idea as barring new immigrants from entering the country. Yet for more than a century, both sides of the political spectrum have fought to keep Mexican food in a ghetto.”

If the accompanying whimsical cover art looks similar to the allegedly offensive Shriver dolls, that’s no accident—both were designed by Reason’s current Art Director, Joanna Andreasson, herself a hopelessly bastardized mix of influences and cultures. (She’s a Swede raised in Ireland who lives in Brooklyn and likes taxidermied squirrels, for starters.) The thing uniting these various mutts who participate unhesitatingly in the glorious flotsam of global culture is that, quite unlike their critics, they’re having fun.

Speaking of which, we had a bit of fun at The New Republic‘s expense on last week’s episode of The Fifth Column. There is a semi-regular segment there called “Some Idiot Wrote This,” and though the candidate was obvious, Michael Moynihan‘s dramatic reading and finely splattered bile is worth your attention. Starts at around the 1:24 mark:

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Whitney Tilson Shuts His Hedge Fund… Again

Back in the summer of 2012, we had some fun when we reported that Whitney Tilson – the consummate, if always late immitator of other prominent investors especially Warren Buffett and Bill Ackman – following several years of abysmal returns, closed his then-hedge fund T2 (with Glenn Tongue), splitting off into his own, oddly-named venture, Kase Capital. Well, Whitney – who in recent years was better known for his bizarre family photos from Africa than managing money- has done it again and according to the WSJ, Tilson closed his hedge fund… again, “the latest high-profile investor to close shop amid an extended period of disappointing returns for the industry.”

As the WSJ adds, Tilson, 50, shared his decision with clients (apparently he still had some) on Sunday. His latest hedge fund, Kase Capital, which was managing a whopping 50 million at the time of closure, and down from a peak of $180 million, lost about 8% so far this year, a more than 20% underperformance relative to the S&P YTD gain of more than 13%.

As the WSJ adds sarcastically, “while he ran a relatively small fund, Mr. Tilson was a well-known hedge-fund manager thanks to television and conference appearances, as well as books and regular writing about investing and other topics.” In other words, Tilson was not so much a “hedge fund manager” as its straight-to-CNBC marketer, and the results have confirmed it.

In an amusing twist, in 2016 Tilson – a staunch never-Trumpter – inexplicably found himself the subject of scathing criticism by Elizabeth Warren, after Tilson expressed modest public support of some of President Donald Trump’s cabinet and other appointments from the banking world, “even though Mr. Tilson is a lifelong Democrat who voted for Hillary Clinton.”

“The next four years are going to be a bonanza for the Whitney Tilsons of the world,” the Massachusetts Democrat said at the time. She later apologized to Mr. Tilson for her criticism.

And so Tilson joins a long procession of managers, some of whom managed actual real money, who decided that it was impossible to navigate these centrally planned markets and an exit was the noble way to go.

He is hardly the last one: in the past several months, a couple of well-known hedge funds have closed. Among them, investor Eric Mindich closed his $7 billion hedge-fund firm, Eton Park Capital Management LP, billionaire Richard Perry shuttered his hedge-fund firm and Hugh Hendry exited his flagship fund in London. “I died in active combat,” Mr. Hendry told Bloomberg at the time. “The last three months were harrowing.”

Many more closures are coming as investors redeem cash ahead of year-end at a pace not seen since the financial crisis.

As for Whitney, who somehow managed money for more than 18 years, the WSJ says that he is “expected to manage his own money.” Considering Tilson was one of the founding, and most vocal members of “Patriotic Millionaires” group begging to be taxed more, we assume he does, in fact, have money to manage (we are not so sure about his clients) and this wasn’t just yet another marketing gimmick from the now former hedge fund manager.

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The GOP’s New Tax Plan Proves Republicans Never Cared About the Federal Deficit

You may remember a time when Republicans pretended to care about debt and deficits.

As deficits skyrocketed during President Obama’s initial years in office, Republicans harped on the burdens imposed by high debt levels at every possible occasion. Fiscal responsibility was a particular fixation for Rep. Paul Ryan, who in 2011 accused Obama of playing games with the budgeting process by “dodging tough choices,” and offering “no real plan to avoid a spending-driven debt crisis.”

As recently as January of this year, Ryan, now Speaker of the House, was insisting that the GOP tax plan would be “revenue neutral”—balancing out any tax reductions by eliminating carve-outs in order to avoid increasing the nation’s debt. He flatly dismissed the idea that Republicans would cut taxes without corresponding offsets.

But perhaps it’s a mistake to take Ryan strictly at his word. The Speaker also predicted at the same time that congressional Republicans would repeal Obamacare, rewrite the tax code, and fund a border wall by August. Those with a working sense of the passage of time will have noticed that it is now the end of September, and none of these things have happened. (On the wall, at least, that is good news.)

Yesterday, however, a group of six top Republicans, including Ryan, did finally manage to release a tax plan. Or at least a partial plan. It’s more of a sketch, really, a starting point, like a builder who begins work on a house design by saying that it should have some bedrooms, a bathroom, and a kitchen, probably. You have to start somewhere.

In other words, there’s a lot we don’t know about the tax plan, which is to say that there’s a lot Republicans don’t know about their tax plan. The framework released yesterday calls for reducing the current seven tax brackets down to three—or possibly four. It specifies the new rates for the three brackets, but doesn’t say where the income ranges for those brackets would begin or end, making it difficult to figure out who would be affected and how. It proposes increasing the child tax credit, but doesn’t say by how much. There will be a kitchen and some bathrooms and some bedrooms, but we’re still not sure how many.

Among the details that Republicans have yet to work out is how, or even whether, to offset the tax cuts in order to avoid blowing up the deficit.

The current plan proposes about $5.8 in tax reduction offset by about $3.6 trillion in base-broadening offsets, meaning that it would result in a $2.2 trillion deficit increase over the next decade, according to an estimate by the Committee for a Responsible Federal Budget. These estimates are rough, and based on the incomplete information provided by the GOP plan. The exact number might be higher or lower, but what’s more important is the scale. The deficit, and the debt, would rise by a lot.

The Senate, meanwhile, has worked out an initial deal to allow for a tax cut that would increase the deficit by $1.5 trillion. These sorts of tax cuts are, in some sense, not really tax cuts, because they leave spending in place. They are just delaying mechanisms, a way of postponing paying the tab for a decade or two.

Now that Republicans are poised to overhaul the tax code, they tend to hand wave away concerns about deficit-increasing tax cuts by declaring that what they are really interested in is economic growth, enough of which will make the budget problem moot. In many discussions about tax policy, growth is a sort of coded shorthand, a way for Republicans to say, “I don’t care about the deficit” without saying the precise words, “I don’t care about the deficit.”

“If we do it right, then the economy will be stimulated appropriately and tax revenues will go up and the deficit won’t increase,” Sen. John Kennedy (R-La.) told The New York Times.

Sorry, but there is no way to “do it right.” Contrary to the persistent Republican dogma, tax cuts do not pay for themselves. Although they can boost growth sometimes, even in the most favorable circumstances, the growth effects are smaller than the total tax cut. For those who favor smaller government, this should be good news. If it turned out that tax cuts always resulted in a corresponding and equal increase in government revenue thanks to economic growth, then cutting taxes would simply be a recipe for maintaining government at its current size.

In the world we live in, if you want to offset the budgetary effects of tax cuts and avoid deficit increases, you have two choices: You can raise additional revenue elsewhere in the tax code, by, for example, ending targeted tax breaks and deductions. Or you can cut spending.

But Republicans do not appear to have plans to do either. The budget blueprint Trump released earlier this year offered some narrowspending cuts, but offset those cuts with corresponding increases in defense spending. And the GOP’s new tax plan would increase debt by trillions. It’s almost as if Republicans never really cared about the debt, and now that they are in power, are dodging tough choices on the budget because they have no real plan to avoid a debt crisis.

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This is what $100 buys you in Venezuela

The gunfire on the streets near my hotel started around 9pm last night.

The sound is unmistakable, especially at night on an otherwise quiet city street.

I had recently returned to the hotel after a few evening meetings. And coming back after dark it was as if they had rolled the sidewalks up– restaurants with no patrons, bars and clubs that were totally empty.

There was an incredibly striking woman I remember, standing in front of her restaurant playing hostess to absolutely nobody.

And with few people on the streets, it felt like some sort of zombie apocalypse.

Amazingly enough this country used to be THE wealthiest in the region. And not too long ago.

Throughout the 1950s, 60s, and 70s, Venezuela enjoyed robust growth. Low inflation. Substantial foreign investment. High wages. It was the envy of Latin America.

It was all based on one industry: oil. Venezuela has effectively been a one-trick pony for decades.

And when oil prices were strong, the government was swimming in cash. Even as recently as 2007, the Venezuelan government’s oil revenue was so high that they PAID OFF ALL FOREIGN DEBT.

Think about that: only ten years ago Venezuela had ZERO foreign debt.

But at the same time the government here had a long history of excessive spending. Social programs. Military. Fuel and electricity subsidies. Whatever it took to remain in power.

The government was spent so much money that, even when oil prices exceeded $100 per barrel between 2011 and 2013, they STILL couldn’t break even.

Then oil prices collapsed. By early 2016, a barrel of oil was fetching less than $30.

Venezuela’s public finances were in shambles… so the government resorted to the same old tactics that nearly every bankrupt government has relied on throughout history.

For one, they started spending their foreign reserves– essentially burning through the public savings account.

Today Venezuela has its lowest level of foreign reserves in decades, less than $10 billion, compared to $42 billion in December 2008.

They’ve also sold off a huge portion of their gold reserves.

In late 2015 Venezuela held 373 metric tons of gold. Today that’s down to 188 metric tons, a nearly 50% drop in less than two years.

More importantly, though, the government has resorted to printing incomprehensible quantities of paper currency and vastly expanding the central bank balance sheet.

The chart is really amazing to see– the Venezuelan central bank’s balance sheet literally TRIPLED in a SINGLE MONTH between April and May of this year.

They keep printing more and more money, to the point that the currency has become totally worthless.

I remember coming here a few years ago when the black market rate was around 8 bolivars per US dollar.

On my next trip it took 100 bolivars to buy a dollar in the black market. And the rate kept dropping with each trip.

This time I exchanged dollars at around 27,000 per US dollar. Meanwhile the ‘official’ rate is a laughable 10:1. It’s a nearly 3000x difference.

So, depending on which exchange rate you use, Venezuela is either absurdly expensive or absurdly cheap.

A ride from the airport was about 80,000 bolivars. At official rates that’s EIGHT THOUSAND DOLLARS. For a taxi ride.

But at black market rates it’s less than three bucks. Quite a difference.

Last night I exchanged $100 and received this brick of cash in exchange.

Needless to say this monetary insanity makes life extremely difficult.

Anything imported is prohibitively expensive. And with the economy collapsing, domestic production is also grinding to a halt.

There’s very little economic activity. People are sitting in their homes trying to survive. Medicine is scarce. And even staples like food are running out… which is totally nuts.

Venezuela is a vast country with rich, fertile soil and abundant sources of water. There is absolutely no reason why there should be food shortages here.

Chalk up another victory for socialism and central planning.

In their desperation, people are turning to crime, prostitution… anything they have to do to make ends meet. I routinely see people picking through garbage cans eating scraps, anything they can find.

Incredibly there is still a hint of normalcy in the city, at least during the daytime.

People are out on the streets going about their lives… heading to work, taking their kids to school, playing sports, chatting with their friends.

I find it remarkable how well this place has held itself together. Venezuelans constantly display ingenuity and resilience in their ability to deal with such an epic crisis.

And the good news is that this will one day get better.

The government has nearly run out of money and is dangerously close to defaulting on its debts. At some point they’ll no longer be able to pay the armed thugs who keep the population in line.

It’s inevitable. Totalitarian governments almost invariably fall when they run out of resources to sustain themselves.

It may get worse before it gets better. But eventually this madness and oppression WILL come to an end, whether through war, revolution, peaceful means.

What I find so strange is how little optimism there is for Venezuela.

By comparison, investors are perennially excited about Cuba. People have been saying for decades that Cuba will be an investment paradise once the authoritarian regime comes to an end.

Sure, great. I’ve been to Cuba. I like it. And there will certainly be great opportunities there.

But few people apply this same logic to Venezuela. And I find that strange.

This place is huge. There is SO MUCH opportunity here. 30+ million people. Enormous reserves of natural resources. Plenty of coastline. Ports. Infrastructure. Manufacturing capacity. Strategic geography. Renewable energy.

Whether it’s next year or ten years from now, this country has the potential to some day become one of the most exciting places in the world.

Source

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“Clear That DHS Was Wrong”: California Says Russians Did Not Hack Voting Systems

Last Friday the Department of Homeland Security (DHS) dropped a “bombshell” statement that sent a “thrill up the leg” (to quote Chris Matthews) of every CNN reporter across the country.  The news from DHS implied that the election systems of 21 states around the country had been hacked, or at least were close to being hacked, which set off a new wave “Russian collusion” speculation in the U.S. news media (see: DHS Notifies 21 States Of Hacker Targeting; Election Officials Blame “Russian Government Cyber Actors”).

That said, according to California Secretary of State Alex Padilla who released a statement this morning in response to the DHS, the whole thing was just a bunch of “fake news.”  Padilla noted that after requesting additional information from DHS on the “hacks” it quickly became clear that their “conclusions were wrong” and that “California’s elections infrastructure and websites were not hacked or breached by Russian cyber actors.”

“Last Friday, my office was notified by the U.S. Department of Homeland Security (DHS) that Russian cyber actors ‘scanned’ California’s Internet-facing systems in 2016, including Secretary of State websites. Following our request for further information, it became clear that DHS’ conclusions were wrong.”

 

“DHS confirmed that Russian scanning activity had actually occurred on the California Department of Technology statewide network, not any Secretary of State website. Based on this additional information, California voters can further rest assured that the California Secretary of State elections infrastructure and websites were not hacked or breached by Russian cyber actors.”

 

“Our notification from DHS last Friday was not only a year late, it also turned out to be bad information. To make matters worse, the Associated Press similarly reported that DHS has reversed itself and ‘now says Russia didn’t target Wisconsin’s voter registration system,’ which is contrary to previous briefings.”

 

“The work of our intelligence agencies is critical in defending against cyber threats. I remain committed to a partnership with DHS and other intelligence agencies, however, elections officials and the American public expect and deserve timely and accurate information.”

Hackers

Meanwhile, this comes after another stunning and embarrassing reversal from the DHS earlier this week in which they first blamed Russians for hacking the Wisconsin election systems, then reversed and said it wasn’t the Russians then reversed further and said there was actually no hack on the WI election system at all.

But in a stunning reversal – one which we doubt will put endless rumors of Russian cyberinterference to bed – the AP now reports that DHS has told Wisconsin that the Russian government was not involved in the cyber-targeting.

 

In an email to the state’s deputy elections administrator that was provided to reporters at the Wisconsin Elections Commission meeting on Tuesday, Homeland Security said that initial notice of Russian involvement was made in error. Also, as we noted at the time, the government did not originally assign blame to the Russians when news of the alleged “scanning” initially broke on Friday although most medias jumped at the opportunity to blame Putin.

 

Infuriated by the error, some state officials said that DHS should provide an expalanation for the errror, or at least issue an apology to state elections officials, who were understandbly unnerved by the news of Russian involvement.

 

Wisconsin’s chief elections administrator Michael Haas told AP that Homeland Security had assured the state that it had not been targeted – by Russians, or anybody else, for that matter. 

 

“Wisconsin was not provided any information that indicated before the November election that Russian government actors were targeting election systems,” Haas said. He said one theory is that Homeland Security saw suspicious activity from IP addresses targeting state election systems in other states and assumed that was the intent in Wisconsin as well.

 

Others were apparently in shock: “It’s been a difficult process trying to piece all of this together,” said Wisconsin Elections Commission spokesman Reid Magney. “We’re trying to understand what happened.”

So, for folks, like WI’s Elections Commission spokesman Reid Magney, who are still “trying to understand what happened”…allow us to clarify: NOTHING HAPPENED.  Hillary Clinton lost an election…other than that, not much happened that hasn’t happened in every election since the 1950’s. 

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Trump Waives Jones Act for Puerto Rico for 10 Days. That’s Good, but It’s Not Enough.

ShippingThe White House this morning announced it is waiving part of the Merchant Marine Act of 1920 (commonly referred to as the Jones Act) to make it easier and cheaper for Puerto Rico to import goods to recover from Hurricane Maria. From CNN:

Acting Department of Homeland Security Secretary Elaine Duke said the waiver will be in effect for 10 days and will cover all products being shipped to Puerto Rico, according to a release from the department.

The waiver will guarantee the needed equipment to repair infrastructure damaged by the storm and restore emergency services, Duke said in a news release.

Puerto Rico Gov. Ricardo Rosello said he had formally asked for a waiver, but yesterday President Donald Trump was unwilling to do so, he said, because people in the shipping industry didn’t want him to.

That’s because the Jones Act shields them from competition from foreign shippers so they can make more money. It therefore drives up the cost of shipping goods to isolated and faraway places like Puerto Rico and Hawaii.

The Jones Act requires any ship traveling from port to port in the United States and its territories be built, owned, and crewed by Americans. Foreign ships can dock once in a U.S. port and cannot bounce from port to port delivering (or picking up) goods.

Studies show that the Jones Act is partly to blame for the significant increases in costs to ship goods to Puerto Rico and Hawaii, doubling them in some cases.

Waiving the Jones Act will for the next 10 days allow Puerto Rico to more readily accept assistance or goods delivered on foreign-owned ships. While the waiver is wonderful, that’s just the tip of a logistical iceberg and may be of limited assistance so early in the crisis response. The extensive damage to Puerto Rico’s infrastructure has made it difficult to distribute the cargo they’ve been receiving in their ports to react to the crisis.

The financial impacts of the Jones Act will be much more painful moving forward, when distribution gets figured out. It’s going to take much, much longer than 10 days for the island to import everything it needs to restore itself from the damage caused by Hurricane Maria. After those 10 days, the Jones Act will kick back in and the island will again have to be paying much more for imports of goods than it should.

But the Trump Administration’s ability to waive the Jones Act is limited to times of crisis. It cannot simply wave its hands and decide the law does not apply for as long as the administration chooses. So it’s up to Congress to act and remove the part of the law that cartelizes the American shipping industry and shields it from market pressures that lower prices.

Read more about the awfulness of the law here. Or watch this ReasonTV video about its impacts on Hawaii:

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