Author: s4k

Ramaphosa Sets the Tone

Ramaphosa wants to redistribute land from whites in South Africa to blacks. We know what these policies will do. It was tried over and over in the 20th century with the same results. Zimbabwe tried it in the 21st century. Take a look at the Zimbabwean Dollar VS USD to know the future of South Africa.

I wrote about this here and here. This philosophy will bleed over into the mining industry in SA. Buy platinum. Sit and wait. If you live in South Africa, black or white, you should begin planning your exit strategy.

Steel and Aluminum Tariffs

Trump is pushing for steel and aluminum tariffs as soon as next week.

The new tariffs will impose 25% tax on steel and 10% tax on aluminum. Trump doesn’t understand trade. He doesn’t understand comparative advantage. He never read Frederick Bastiat . Last year he decided to slap tariffs on lumber from Canada. We are all now paying for it.

Lumber is at an all time high. For the record, the US is by far the largest producer of lumber and plywood.
So what countries are likely to retaliate with their own tariffs?
China is the largest producer of aluminum with 53.8% of the world production.
The worlds largest producer of iron ore are Australia with 37.3% of world production, Brazil with 19.4%, and China with 11.9%. Most of the US imports of iron ore come from Brazil and Canada.
Since the USA is one of the largest exporter of nearly all food products, we can pretty much see where this is going.

Rationalization of Mass Murder

The book, “Ordinary Men”, is a story about the Reserve Police Battalion 101 and the final solution in Poland. Thousands of Jewish men, women, children and infants were murdered. The book is dark and depressing.
At Józefów, Major Trapp made an offer for men to step forward who wanted to excuse themselves from the atrocities they were about to commit. Out of five hundred men only twelve stepped forward. Why only twelve? Later reflections indicate there was no time to think. It was all too sudden. Additionally, no one wanted to abandon their comrades.
The rationalization given by a thirty-five-year old metal worker is astonishing:

“I made the effort, and it was possible for me, to shoot only children. It so happened that the mothers led the children by the hand. My neighbor then shot the mother and I shot the child that belonged to her, because I reasoned with myself that after all without its mother the child could not live any longer. It was supposed to be, so to speak, soothing to my conscience to release children unable to live without their mothers.”

The author points out that the German word for “release” also means to “redeem” or “save” when used in a religious sense.
The people who committed the mass murder at Józefów were not sadist. The men of Reserve Police Battalion 101 were metalworkers, barbers, salesmen, etc. The book details the physical and mental anguish these men suffered for the rest of their lives. It also gives insight into the psychology of man.
It is wrong to say every citizen in Nazi Germany was pure evil. We all like to think we would have been Oskar Schindler. We would have hid Anne Frank and put our entire family at risk. Statistically, you would have not been those people.

Powell Testifies

Jerome Powell gave his first testimony before the House Financial Services Committee. Only the first 30 minutes is worth watching.

I watch these closely  to get hints about what the fed might do. As he spoke the dollar and treasury yields jumped and stocks fell. The market interpreted his comments as hawkish. The new word is there might be four rate hikes this year instead of three.
However, he said nothing that was not already detailed in the monetary policy report published on February 23rd. The monetary policy report praised the Taylor Rule. From the report:

Economists have analyzed many monetary policy rules, including the well-known Taylor (1993) rule as well as other rules that will be discussed later: the “balanced approach” rule, the “adjusted Taylor (1993)” rule, the “price level” rule, and the “first difference” rule (figure A).2 These policy rules generally embody the three key principles of good monetary policy noted earlier.

I don’t believe Powell  is going to do anything that might surprise the market.

The Danger of Owning Bonds

A traditional investment advisor would advise an individual to put 20% to 40% of your money into bonds. The bond market is not a safe place to be at the moment. If you must own bonds, concentrate on shorter durations. The fundamentals for owning any bonds are just not their. The risk/reward ratio is terrible.
Treasury Bond Yields:

Corporate Bond Yields:

Yield and spread on agency mortgage-backed securities:
In the long term, all bonds and any derivatives based on bonds, are going to suffer.
However, I don’t plan to short bonds because I don’t believe the bond bull is dead. I don’t plan to go long bonds because there is no fundamental reason to own them. The only reason to go long bonds, at this point, is because investors around the world think they are a safe investment. They are very wrong. But until the psychology of the market changes, the best action is to stay away. The bond bears have been around for 10 years. From the above charts, you can see they have done nothing but lose money year after year.
The original widow-maker was shorting Japanese Government Bonds (JGB). No matter how much debt Japan racked up, JGB’s continued to rally from 1990 all the way up to present day. It has been almost 30 years since 1990. I have no intention of making the same mistake predecessors made.

Snap Inc.

Snapchat lets users create pictures and send to friends. These pictures only last a limited time. I decided to take a look through their 145 page 10-K to see what is going on with this company.
At a share price of $17.26 it has a market cap of 20 billion dollars.
They have never posted a profit. Ever.

EBITDA:

FCF gets worse and worse.

Than we get to the interesting part.
From the 10-K:
“Research and development expenses for the year ended December 31, 2017 increased $1.4 billion compared to the same period in 2016. The increase was due to a $1.1 billion increase in stock-based compensation expense primarily due to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for our IPO in March 2017. The increase was also driven by an increase in research and development headcount of approximately 84%. The investment in personnel supported our efforts to continue growing our user base and building and improving products for our
users and advertisers”
From the 10-K:
“General and administrative expenses for the year ended December 31, 2017 increased $1.4 billion compared to the same period in 2016. The increase was primarily due an increase in stock-based compensation expense of $1.2 billion, composed of an award granted to our CEO with an expense of $636.6 million and the remainder primarily related to the recognition of expense related to RSUs with a performance condition satisfied on the effectiveness of the registration statement for our IPO in March 2017. The increase for the year ended December 31, 2017 was also driven by increased personnel costs from an increase in general and administrative headcount of approximately 24%. Additionally, there was an increase in professional fees related to increased acquisition activity, legal, and general growth.”

Management at snapchat believe they have done such a fabulous job for their shareholders they decided to reward themselves.

The conclusion of this post is from the 10-K itself:
“We have incurred operating losses in the past, expect to incur operating losses in the future, and may never achieve or maintain profitability.
We began commercial operations in 2011 and for all of our history we have experienced net losses and negative cash flows from operations. As of December 31, 2017, we had an accumulated deficit of $4.7 billion and for the year ended December 31, 2017, we experienced a net loss of $3.4 billion. We expect our operating expenses to increase in the future as we expand our operations. If our revenue does not grow at a greater rate than our expenses, we will not be able to achieve and maintain profitability. We may incur significant losses in the future for many reasons, including without limitation the other risks and uncertainties described in this report. Additionally, we may encounter unforeseen expenses, operating delays, or other unknown factors that may result in losses in future periods. If our expenses exceed our revenue, our business may be seriously harmed and we may never achieve or maintain profitability.”

Would you buy this company for 20 billion dollars?

School Shootings- A Trip Through Time

Below are the number of deaths due to school shootings since the 1800’s.

Number of school shooting incidents in the USA:

We see the amount of elementary and secondary school enrollment is about the same.

In other words, the added number of school shootings and deaths is not due to the increase in the amount of children.
It is interesting to see the jump in the 1990’s.
We live in a complex world. Trying to explain the increase is not going to be a simple answer. Culture definitely plays an important part in explaining it.
What I do know is this: A bunch of people in D.C. writing words on a piece of paper is not going to solve this issue or any other issue.
The public’s faith and belief in government legitimacy is astounding. If words on a piece of paper could make the world a better place we would all be living in a utopia right now.
Government’s are not going to protect your children. The public school system will not protect your children from school shootings to bullying. Parents still have full faith in the school system though. They send their children to the intellectual meat grinder to get an inferior education.