Monday, January 31, 2011

Hi. We're from the government and we're here to help.

Presented with commentary, two snippets from a mailer received today from the Social Security Administration.

As always, you can click to enlarge.

Now I'll be the first to admit that in the past government propaganda like this went straight into the shredder.  In order to gauge the disconnect between what Uncle Sam does and what Uncle Sam says, though, I elected to read this one and expose myself to the ire of irony, the disappointment of half-truths from a faceless master.

A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors.  The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.  The system is destined to collapse because the earnings, if any, are less than the payments to investors.  Thanks Wikipedia.

Often we hear the term Ponzi bandied about by "shocking" personalities who try to view the future landscape rather than dive whole-hog into the delightful idiocy of the status quo.  Well, the Social Security Administration lays out pretty clearly how things work in their shop, "The Social Security taxes you now pay go into the Social Security Trust Funds are are used to pay benefits to current beneficiaries."  Not too much room for interpretation in that.  Would fraudulent be the only distinction between the Social Security Trust and Bernie Madoff?  Princeton's wordnetweb defines fraud as intentional deception resulting in injury to another person.  In avoiding outright fraud, Sam presents the not so subtle indication that starting in 2037, barring any future raises in eligible retirement age, taxation rates, etc., you can go ahead and start to expect receiving not your full contribution, but $760 out of every $1000 in expected entitlement.  Awesome, you get negative ROI, without a choice as to whether you care to participate in the first place.

Thankfully, with the balance of your thinning after tax margins, you get some counseling on savings courtesy of a government that's tinkering with the deficit ceiling.

Without so much as telling the poor bastards that read this pap to get into the stock market, Uncle Sam omits telling the whole truth, perjury by any other name.  By putting $25 to $50 bucks into your mortgage you save future expense, and guarantee your return.  So which is more likely:  Joe "Swipe Swipe" Sixpack who reads and believes this crap sits on 50 grand after 20 years in the market garnering that 5% or Joe has a little more confidence in himself in that toasty, dry house?  Unfortunately, the game is rigged against those without fiscally prudent parents because no one gets a solid, fundamental financial education in public schools.  No, that time is already earmarked for hard-hitting topics like Dante's Inferno, and the uses of Geometric proofs on millenia old mathematical laws.

Other ideas for consideration:
  • What does the decline of religious belief in this Country have to do with the declining value of the dollar, especially with reference to "in God we trust?"
  • What do TBTF mortgage servicers do?  What does FNM do?  Why is Chase direct drafting me for a note that the government owns?
  • Why is the government going batshit with the credit card while encouraging the unwitting masses to save?
  • Should it be illegal for the government to offer a service while creating the expectation that that service will not be delivered in full?

Monday, January 17, 2011

Updates on The Age of Betterment

In The Age of Betterment this dude reached an alarming conclusion that the time is upon us for the increasingly speedy replacement of humanity by electronic cousins.

Take a look at The Robot in the Next Cubicle by Eric Spitznagel posted at Bloomberg Businessweek.  A taste:
... Unlike more affordable office robots, the five-foot-tall, two-armed, rolling PR2 can do remedial problem solving, open doors without instruction, and plug itself into a wall socket when its battery is running low. And as seen in Garage's video demonstrations, it can fetch a beer from the fridge and play a mean game of pool. Soon enough, people won't even need real friends.
Also, go here to see IBM's webpage dedicated to the machine, Watson, that will be competing against Ken Jennings and Brad Rutter on Jeopardy, February 14th.

Looking for Worms

I'll be excited to have a gander at AAPL's report this week since the momo and institutional self-reinforcement clubs are already drawing their dip buy strategies in proprietary sandboxes.

Such things I wonder about are:
  • AppleTV adoption;
  • Increasing material cost inputs;
  • Increasing labor cost inputs;
  • Margins due to rising inputs;
  • Asset turnover due to what I feel are signs of price rejection;
  • Declining turnover in upgrading from one Iproduct to the next;
  • Management discussion of the impact to business by net-neutrality, data costs;
  • Management discussion of the impact of competition in the market.
In poker, suckers like to take shots at the big dog.  Testing one's mettle typically leads to the obvious result, and I recently got stopped out of an Apple short for -2.5%.  While everyone else enjoys the rear-view's panorama, this sucker will be scanning the horizon ahead.

postscript.  Seeing Mr. Jobs take some time for health reasons should have the first effect of inspiring hope that he's alright.  Stocks are a game and people are people.  Here's wishing against reason that the clowns who value their lives in commas and headlines demonstrate a bit of care when gaining access to company this week.

Saturday, January 15, 2011

The Age of Betterment

Earlier, Buttercup and I were enjoying some tasty dinner and a fine wine and talking about all manner of important life issues.  Being a prize husband, her sultry drone puts me into a philosophical daze with the result being that I have concluded the era from the mid-1600's until the 2000's should be called The Age of Betterment.  And better yet, the conclusion to The Age of Betterment leads to ... The Rise of the Machines.

Dude, I know.  But go with it for a minute.

The Dark Ages were a matter of survival.  Ignorance of classical learning, either lost or stifled, meant that humans retrograded toward animal behavior, engaging in war, and worse, a Feudal version of Survivor.  This era produced The Crusades, and that pretty much speaks to the tone of its time.

Next, the Renaissance, an era of art and enlightenment during which mathematics prospered if human endeavor didn't.  The Renaissance contains such annoyances as The War of the Roses, Imperial discovery and staking of The New World, The Fall of Constantinople, and numerous France/England clashes as Feudal Survivor went into overdrive.  The Renaissance also gave us great science and architecture with cathedrals across the European continent, and great art with the Ninja Turtle masters:  Leonardo, Donatello, Michaelangelo, and Raphael, to name a few.  This led to a dispersion of education, the natural cause and result of which are questions.

Which brings us to what I am calling The Age of Betterment.  By Betterment I mean the continual search for personal idealization.  Whether wealth, freedom, true scientific understanding (that free from the opaque views of religion) or anything else, the era from the mid-1600's until the early 2000's always maintained a tint of "we can do this better."  Beginning humbly with a quest for religious freedom, the Pilgrims voyage to America in self-directed exile of an oppressive King marks a turning point in human history.  For the first time in a neo-classical age humans reached the conclusion that fiefdom could not be maintained as a matter of ratio.  All it took was organization, initiative, want-to, and creative thinking.   But as human nature goes good things are exploited to a fault.  Gradually Betterment leads to greed, and greed to downfall.  IBM now has a computer that can compete and win on the game show Jeopardy against the best winners Jeopardy has produced in its entire history.  Betterment has not only created and made obsolete virtually any human job on the planet, it now nears a point that humans themselves become obsolete.

And so the final push toward the creation of man made self-awareness ushers the Rise of the Machines.  What true visionaries the Wachowski brothers, James Cameron, et al, are for latching onto the idea decades ahead of their time.  Here in Texas there still exist vast swaths of undeveloped land which clash with the concrete landscape.  Only 100 years ago, I envision the outlying suburbs as wooden structures emanating from water stops on the train lines.  One hundred years before that the Indian peoples hunted buffalo around the river bed just below our home.  Where will we be 100 years from now?  I don't know, but it's weird to think about.

"Huh?  Oh yeah baby, I totally agree."

Is "The Rise of the Machines" copyrighted?  I don't know, but before you sue me Probable Copyright Owner, know that I don't make anything off this blog and that you are a freaking genius.

Friday, January 14, 2011

Ruminations in the wake of HNHI.

The allure of low priced stocks to new investors often stems from 10 standard deviation success stories like that of the original Berkshire investors, and Apple's unlikely, if not miraculous, come back after reinventing its image with pods, pads, phones, and airs.  In the past I was one of these dudes, imagining how my pet gold mine would free me from the ire beset upon middle class hacks by the idea that hard work pays and leads to "success," whatever the hell that means.  Seeking to capitalize on this human vulnerability, development stage companies approach markets and market participants with whimsical ideas of varying quality - that's called entrepreneurship, a cornerstone of our economic system.  So with 50 Cent's HNHI hitting the internets this week, we welcome a new class of inductees into the game, and I have some thoughts for them.

It's a jungle out there.  The whole world, not just the stock market, and definitely not just the small cap market, is a jungle.  All manner of animals exist.  Pretty, softly purring animals that you want to hug, walk the same streets with funnel-webs whose venom defies the notional tie between size and fatality.  Skepticism is your ally.  Corporate ethics have deteriorated to the point that empty shells can make it all the way to the Big Boards by virtue of common idiocy, epidemic indifference, and a system that makes "success" where success is so deemed.  You want money, and so does everyone else.  [For the sake of a point] imagine the financial world as a closed system.  By doing so you realize that for every winner there is at least one loser.  Not only should you have eyes in the back of your head, those eyes should have eyes.  Lions purr.

Know what you own.  Seems obvious, right?  It's not.  Corporate PR's do not tell you what you need to know.  PR's tell you what the company wants you to know.  Outside of Hollywood I cannot think of a more bastardized use of the idea of "Press" than your average press release.  Get in the car, get on the phone, do something, but do not take anyone else's words or opinions as truth.  Misinformation, disinformation, and lies are a social protocol not limited to small markets, remember that.

All common stock is the same, the companies are different.  If you have ever read this blog before, you know that that mine did pay, and handsomely, but also that it was subsequently drubbed just like every other stock in the middle and late stages of 2008.  Many purport that there exists some sort of safety in trading large cap names by citing market depth, analyst coverage, and other nonsense brainwashed into business schoolers from the day they show up.  At least that what I tell myself.  Realistically, though, the likelihood of payoff for development stage companies whether public or private is not good and market participants will blame markets for failing companies, rather than identifying true causes.  Success and failure are determined by the quality of decisions and ethical bent of management.

When companies need capital common share holders take the pain first, and worst.  Treat common stock not as the bottom totem, but as the dirt below the totem pole.  Where common stock used to be thought of as the foundation on which successful enterprises were built, the creation of such wonderful devices as convertible preferred securities, PIPE deals, and Goldman's foray into the frontiers of a quasi-middle market means that when there's nowhere else to turn to backstop losses, share gaming will wring dollars out of unwitting participants.  To dilute shareholders should be thought a last resort, that is not the case.  Remain ever vigilant of the deal that threatens to water-down your stake.

When you feel like you're getting fucked, you are.  There's a more PC way to frame this idea and it comes from the poker movie Rounders.  Matt Damon's character Mike McDermott says, "Listen, heres the thing.  If you can't spot the sucker in the first half hour at the table, then you are the sucker."  When it's your money on the line, though, and you're the one in the chair, I advise dispensing with the politically correct, beating around the bush, candy-coating the obvious crap.  What you do with the realization that you're getting fucked will determine how well you do in the markets, and in life.

Your money, your call.