Sunday, February 7, 2016

Tesla So Much Attention, So Few Cars!

When Tesla's stock drops in value the company will have to give up far more to procure the funds to feed its massive cash-burn. To clarify, Tesla is in a capital-intensive business and has a poor record as to spending efficiently. It is amazing that the company garners so much attention while producing so few cars. The fact that Tesla has been able to borrow cheaply and the aura surrounding its charismatic CEO Elon Musk drives this company. Analysts estimate Tesla, which has consistently lost money, will eat through $11 billion in capital spending over the next five years. While it is easy for investors to get caught up in the hype of how electric cars will be the demise of the gasoline engine such claims have been slow to materialize. I recently stumbled across a copy of Time magazine from the 1990s where the front cover proclaimed the time of the electric car had arrived. The auto industry is a highly competitive and crowded sector where any misstep can be the disastrous for a company, especially one in Tesla's position.

Only About 1 In 5,000 Cars Is A Tesla!
In January 2016, Ford Motor sold 173,723 vehicles. This is far more than the 50,580 Tesla is said to have delivered in all of 2015. Ford with its current market cap of 45 billion dollars is a solid cash machine banging out solid profits and big dividends. This makes it hard to understand how Tesla that is spending big and burning cash has a market cap of over 21 billion dollars or around 42% of its much greater competitor. For those who really care the obvious elephant in the room is that Tesla stock is trading at incredibly high multiples, which should be contributed to the historically low interest rates and the luck of being in the "QE moment" rather then its financial success. Just how small is Tesla's footprint? The math shows only about 1 in 325 cars sold in America last year was a Tesla and of the over 250 million registered passenger vehicles in America only 1 in 5,000 sports its name. It is little wonder I have not seen a Tesla in the wild. While these cars roam the streets of Las Vegas as a "hot little rental" turning heads and continuing to "wow" the masses, here in the more conservative Midwest they remain as rare as hens teeth.

The stock has been under pressure lately as articles have circulated on as to how Pacific Crest Securities analyst Brad Erikson has become more cautious on the electric-car maker's stock. He recently increased his loss-per-share estimate for 2015 to $1.10 from $1.09, but more important he has slashed his 2016 earnings-per-share estimate to 27 cents from 76 cents. "Consistent with our October checks, our latest checks with U.S. sales centers indicate that Model X orders are still lagging expectations," Erikson wrote in a note to clients. "While getting the X to showrooms would help, we don't expect that to happen until later this spring due to production challenges" he said. Erikson doesn't believe the Model S promotional offer of 20% off the old lease cost has driven a significant sales increase. "We can't overstate the importance of the March 29 Model 3 unveiling, but we remain suspicious of underlying demand" he said then went on to reiterated his sector weight rating saying it was best to continue avoiding the stock.

Even Morgan Stanley analysts that have long been positive on Tesla admit they expect it to burn through nearly $1 billion in the next 12 months, but see its cash burn as outweighed by its “bigger mission.” It appears they feel Tesla may soon challenge Uber by "selling miles" and not just cars. Analysts at Morgan Stanley, led by Adam Jonas, seem to believe that Tesla is likely to begin to clearly communicate potential plans for a mobility service (selling miles, not cars) to investors. Assuming Tesla establishes itself as a leader in autonomous cars, Jonas sees a business case for selling driver-less cars to ride-sharing companies or even cut out the middleman and offer on-demand electric mobility services directly from the company’s own platform. Adam Jonas maintains an Overweight rating for the company, but reduced the price target from $450 to $333. It should be noted that even though Tesla recently rolled out a global, over-the-air software upgrade that added or upgraded semi-autonomous driving features to its cars Musk has said the company is three years away from a fully autonomous car.

Not everyone is so enthusiastic over Tesla's potential, in October 2015 Barclays' Brian Johnson detailed why the electric-car company's brand new Model X SUV may fail to meet the company's expectations for production and put pressure on margins. This caused Johnson and his team to lower their price target 5% to $180, and cut their rating to "Underweight" from "Equal-Weight." Last I heard Barclays analysts, among the biggest Wall Street skeptics toward the company, kept intact their sell rating on the stock and a price target of $180, as I write this Friday's close at $162  is well below that number.  Johnson indicates that estimates for Tesla's margins are likely overestimated, and the company is about to get a "reality check". He feels the Model X is will provide engineering challenges and manufacturing challenges causing the production ramp to slow, while difficultly in concurrent S/X production will also push margins below current consensus.

Winged Doors=Massive Headache
Rising cost and concern bolstered this argument as the Model X launch had been pushed back with CEO Elon Musk admitting the Model X's advanced technology has caused major delays. Musk claims the Model X was "the most difficult car in the world to build." The crossover has intuitive automatic futuristic "falcon wing" doors with built-in sensors to keep them from dinging nearby cars. A panoramic windshield that features what the company claims to be the largest single piece of glass ever installed on a car. And an air-filtration system with a "bio-weapon defense mode" all this comes together to create an insanely complex car. With more engineering challenges always waiting in the wings to will slow down manufacturing doubts also exist as to whether Tesla will release the forthcoming Model 3 on time in 2017. On top of all that Barclays also lowered their expectations for Tesla Energy. They see fierce competition in the power storage space, and they're not sold on the fact that Tesla's Power-wall battery is superior.

The attention to Tesla is not only because of its cars, Barclays views Tesla’s key strength is in its software prowess, such as its over-the-air technology updates and its driver-less features rather than producing and selling cars. This has lead the Barclays analysts to say, “We are concerned that the capital intensity of the core automotive business may further overshadow Tesla’s competitive edge in software.” They contend that if the company doesn’t become more efficient in making its planned mass-market car, the Model 3, it runs the risk of running out of money to invest in the software side of their business and the products that “truly differentiated” Tesla from all others in the field.  Pre-orders for the Model 3 are expected to begin in March, but production is about two years away. Tesla CEO Elon Musk has said he expects the car to cost $35,000, however even the Tesla enthusiast at Morgan Stanley say the cost is more likely to be between $55,000 and $60,000.

To some of us it is a real reach to think this small scale producer of electric-cars can suddenly blossom into a giant automotive force. Time is not the friend of Tesla as competitors ramp up in what will be a very competitive market if electric cars do indeed go main stream. Ironically, it is the bearish investors that doubted Tesla would hold together that have pushed up the stock as they were forced to run for cover. This has only added to the image that Musk lives a charmed life. Remember Tesla received a huge government low interest loan to kick start its existence and continues to feed at the trough of government tax incentives. The glamorous automotive sector is an area where many like icons such as DeLorean have failed. I have become predisposed to discount and grown massively adverse to "media hype", this is one reason I'm very skeptical as to how Tesla will fare going forward. As I wrote at the beginning of this piece, when Tesla's stock drops in value the company will have to give up far more to procure the funds needed to feed its massive cash-burn. This could create a massive negative feedback loop.

Footnote; As always your comments are encouraged and I invite you to explore the archives for other stories that may be of interest to you. In the way of full making full disclosure I'm short "five" shares of this stock "for fun, and so at some point in time I will have the right to say I played!" I consider this a very minor token investment, but my convictions compelled me to make a statement of protest to such market insanity. More on the "basics" of Tesla and Elon Musk in the article below.

Thursday, February 4, 2016

National Debt Clock Solidly Past 19 Trillion And Ticking

It is no secret that Washington tends to spin the news, and in this case it is in an effort to tell you the deficit is under control and all is well. Fact is the leap from 18 to 19 trillion in government didn't take long. Many people have looked away but the National Debt Clock has not stopped ticking and has solidly passed the 19 trillion dollar threshold by 5 billion dollars. Sadly, with little fanfare we are moving quickly along and will reach 20 trillion far faster than most Americans imagine. As you might remember in their wisdom to kick the can down the road Washington recently passed the "omnibus bill" to clean up what they saw as a mess. Omnibus is derived from Latin and means "for everything". An omnibus bill is a single document or law that is accepted in a single vote by a legislature but packages together several measures into one or combines unrelated subjects. 

Charts Can Mislead Massive Deficit Remain
Charts can be very deceiving, little things like the scale or how they are colored often blur how we interpret their message. The chart on the left sends a clear signal that Bush was the problem even as it confirms the Obama deficits have been larger. Only upon looking back decades do we see just how large this problem has grown. To the American people the crossing of several red-lines in the sand without dire consequences has given us a false sense of security. One thing is crystal clear, it is far easier to run up debt than to pay it off.

Claims from the Obama administration or Washington the budget deficit is back under control is a total lie. We are mired in the mist of the greatest government debt bubble in the history of the world. By our actions or lack of action we are destroying the future of this nation. Only when we use the massive 2009 deficit as a baseline are we given the impression the budget is back under control, it is clear that 2009 was an unplanned budget disaster and should never be used as our reference point. A trick used to confuse the issue and muddy the waters is which administration or President is used to dump the massive 2009 deficit on. Bush left office with the economy in the sewer but the resulting deficit occurred on Obama's watch.  The the last few years the Obama administration has touted how the deficit is dropping and the economy is on the mend. This has led some Americans into thinking the worst of our problems are now in the rear view mirror.

Doing a bit of research for this piece I found it difficult to get much information on two recent massive bills and what they really contain. The 2,000 page omnibus bill with its $1.1 trillion in spending that few had time to review gave politicians plenty of cover by combining many areas of government and mixing spending into a muddled mess. The massive highway bill also fell into this category by containing just enough good and bad to give all members of Congress a reason to vote for or against its passage. In an effort to hide how it increased debt part of the spending was even covered by selling oil from the Strategic Petroleum Reserve. It should be noted the last time budget quarrels in Washington shut down our government, Republicans took the heat for riling against spending, this time they rolled over and America smiles. This new wave of spending has even washed away the hard fought gains from the sequester but masked it in a way that is easily tolerated.

As usual the big loser is the taxpayer because accountability has again become elusive, lost in the confusion and lack of clarity. Did you notice when the national debt topped 19 trillion dollars there were no bells, or whistles, or a gashing of teeth. What you might have seen was a few articles and a few comments, most quickly reassuring Americans this is no big deal. We even hear comments during interviews such as one made by the VP of a college claiming "the Pell Grant is about $6,500 dollars, and that's free money" that more students should try to take advantage of. The fact is as the debt works ever higher, the liability of every taxpayer is also rising. The change in the amount of the federal debt per taxpayer from 2004 to 2015 represents an average annual increase of 7.16%. This is far more than the average annual wage increase during the same period.

Debt Has Increased over 250% In 11 Years
This chart shows how the nations debt has grown over 250% in the past 11 years, rising from $70,985 per taxpayer in 2004 to $158,836 today. The government has become reliant on debt and is mortgaging the future earnings of our youth. It is obvious that federal debt, or “public” debt is on a rampage.

The Congressional Budget Office is aware that unless entitlements are reformed, spending on Medicare, Medicaid, and Social Security will drive deficits to catastrophic levels. We have seen deficits reach unprecedented levels and the deficits in our future will be dramatically worse. The ugly truth many people choose to ignore is that starting in 2017 entitlements will become the driving force and carry the deficit further into the nosebleed territory. This appears to be raising no red flags as we continue to hear from the media how robust economic growth has helped push the U.S. budget deficit down to the lowest level since 2008. Claims of the sharpest turnaround in the government’s fiscal position in at least 46 years are targeted at reassuring American that Washington has got our back.

According to figures released by the U.S. Treasury, the federal government has officially run a deficit of 589 billion dollars for the first 11 months of fiscal year 2014.  We should remember this number is for public consumption and it relies on accounting tricks which massively understate how much debt is really being accumulated.  If you want to know what the real budget deficit is, all you have to do is go to a U.S. Treasury website which calculates the U.S. national debt. On November 1, 2013 the U.S. national debt was sitting at  $17,108,598955,343 just a year later on October 31, 2014 the number has risen to $17,937,160,394,872 . That means that the U.S. national debt actually grew by 829 billion in less than 12 months. With the artificially low interest rates of today many people seem to have little desire or see the need to cut spending. We are literally gorging on debt, and most Americans seem to think that it is just fine and dandy to wildly run up debt as if there is no tomorrow.

Total Debt Has Leaped The Off Chart   
The myth that a scenario of growth coupled with a falling deficit will allow us to outgrow the problems we face brings with it a false optimism and hope. More than one person touts as fact the deficit is coming down and claims it as proof everything will be alright. Negotiating the financial cliff and muddling through what was described as a draconian sequestration has emboldened many Americans and left them feeling immune to economic reality, this is the foundation of a financial  disaster. Projections made by the government or any group predict budgets based on events that may or may not happen at some future date are simply that, projections or predictions and not fact. This means that such numbers are totally unreliable.

Data compiled by Bloomberg using Commerce Department figures would lead a person to think things are getting better. They tout a shortfall of only $483.4 billion in the 12 months ended Sept. 30th, 2013 noting it was only 2.8 percent of the nation’s gross domestic product of $17.2 trillion. The ratio peaked at 10.1 percent of GDP in December 2009. Data shows the fourth quarter of 2008 was the last time the deficit-to-GDP share reached 2.8 percent was in April 2005. “That’s what happens when the government is holding itself back on spending and the economy is improving,” said George Goncalves, head of  interest-rate strategy at Nomura Holdings Inc. in New York. “The question is, is that as good as it gets or will the deficit continue to shrink?” A major concern for this writer is that in 2017 entitlements are poised to balloon causing a massive spike in government spending. 

Some people forget or did not notice the Bureau of Economic Analysis (BEA) has made a significant change on how they calculate the GDP.  They changed how they classified and recorded expenditures for R&D and for entertainment, literary, and artistic originals, this resulted in an increase in the GDP. This kind of "bump" means that a gain of 2% today is in reality less than a gain of 2% years ago. America is not the only country to use this method to lower the ratio of debt to GDP to retain the appearance all is well. Lawmakers need to solve some of the long-term threats to the economy such as the cost of retirement benefits, but even the "false fiscal relief" many feel today may be short lived as austerity is rejected and lawmakers boost spending on defense and other programs. Sadly, the reality is America and countries across the world continue to run up huge deficits and are merely kicking the day of reckoning down the road.

Footnote; If you found this post about how the American government deficit and debt is growing informative please view other related articles that may be found in my blog archive, thanks for reading, your comments are encouraged.

Footnote #2;  If you happen to visit the link to the National Debt Clock that is given in the lead paragraph please note boxes on the top line to access the World  or State Debt clocks plus some other options.

Tuesday, February 2, 2016

Japan Is Falling Into An Economic Abyss

Japan Is A Failing Economy
The writing is on the wall. Japan is facing a mountain of debt that can only be addressed by printing more money and debasing their currency. This means paying off their debt with worthless yen where possible and in many cases defaulting on promises made. Japan's public debt, which stands at around 230% of its gross domestic product (GDP), is the highest in the industrial world.  While Japan's economy comprises 6.18 percent of the world's GDP it makes up a whopping 19.99 percent of the world's total sovereign debt. Often because of its geographical size people forget that little Japan is the world's third largest economy making it a huge economic power with a big shadow.

I have written several articles about Japan over the years and how growing debt was poisoning its options, two years ago I voiced the opinion the country would continue to slide into an economic abyss. Now regional weakness and credit issues in China have begun spilling over to undercut Japanese growth, this is a force that will last for some time. It must be noted that Japan would be sitting in far worse shape if it were not for the wealth currently shifted each year from America to the small island nation. America spends billions each year defending Japan and puts much of this money directly into their economy. Another way we support Japan is that American consumers purchase many of the goods the country produces, in 2015 America's trade deficit was over 62 billion dollars. Through this massive trade deficit America feeds large amounts of money into Japan, without this money the massively indebted nation would be in even more trouble.

It has been pointed out time and time again that Japan is faced with sour demographics that bode poorly going forward. The country is stuck with an aging and shrinking population that with each day becomes more expensive for the government to provide for. The budgetary impact of rising social welfare costs linked to an aging population has taken its toll. Adding to its woes the Fukushima nuclear disaster has shuttered its nuclear power plants and forced the country to import more expensive energy alternatives. All this means that neither monetary nor fiscal policy will adequately solve Japan's problems. Year after year Japan faces fiscal deficits and this means that government debt is pushed onward and upwards leading to a variety of possible scenarios as to the what the end game will be. Simply put, the fundamentals for Japan are lousy.

For years even decades the conventional wisdom has been that Japan is, or was in the unique situation of controlling its own fate because its debt was owned internally. Unlike America that sold its bonds to foreigners who at anytime might pull out or demand payment this was considered a source of strength. It is important to recognize that over the years many new pathways have opened that now allows individuals to protect their wealth by moving it offshore. Back in June with little fan fair Japan Post said that it will significantly alter its investment strategy and invest more money outside the country. Because of the mere size of Japan Post Holdings this is a signal of major importance and has far-reaching implications. Traditionally, with close ties to the government the investment strategy of Japan Post has been very conservative with low-yielding JGBs making up more than half of its portfolio. This may someday be looked on as a watershed event as to how the Japanese began shifting  away from a falling yen to protect their wealth.
Yen Falling-It Takes More To Buy A Dollar

Unlike many other leading economies, Japan has been battling deflation or falling prices for the best part of the past two decades expect this to change as reality takes hold. As a response Japan has undertaken a policy to weaken its currency and to strengthen its exports. America and other countries have remained mute in sympathy of the problems Japan is facing. Thus far the current BOJ policy has quietly and systematically distorted financial markets across the planet. As this has unfolded investors and the megabanks have quietly and drastically reduced their Japan Government Bond (JGB) holdings. The risk of who gets hurt in the case of a default has been shifting from the private sector to the public as the BOJ splurges on JGBs.

As Japan continues down this path it is only a matter of time before the credibility of the BOJ is lost and the yen will plunge. The financial markets have seen time and time again it is far easier for a country to weaken its currency than support it. As investors in Japan's government bonds begin to believe that Abenomics will be successful in bringing back inflation it would be logical for owners of  JGBs to move out of low yielding securities and buy foreign bonds or equities. The moment the Japaneses stock market fails to rise enough to offset inflation this will turn into a tsunami of  money fleeing Japan and constitute the end of the line for those left holding both JGBs and the yen. This has been a long time coming and when the end becomes apparent to all, events will pick up speed and the situation spiral out of control. When Japan crumbles the shock waves will reverberate around the world.  

Monday, February 1, 2016

Economic Efficiency Of Credit Is In Collapse

NIRP The Path To A Liquidity Trap
Negative interest rates move us down the path towards a "liquidity trap," a term that can be baffling and difficult to understand. This term has been used by Allen Greenspan and a few others, it represents a huge problem for the economy. It can have several components, but sooner or later all feedback into a loop that disrupts the flow of credit and impacts the real economy. At some point the return on loaning money to banks, governments, and others is simply not worth the risk! Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.

The Negative Interest Rate Policy (NIRP) punish savers and encourages them to spend money, it also forces banks to lend money rather than hold it and bolster their reserves. In doing so it can also increase the velocity of money. However, at some point we reach a place where too much money or currency makes it a worthless commodity. At that point banks and governments are no longer willing to pay depositors for its use. This creates a real quandary, when inflation begins to exceed the rate of interest paid. The bottom-line is that it might soon become apparent the economic efficiency of credit is in collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward. The collapse of credit poses major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. When this happens many of our economic policy options will vanish and we are at the end game or poised for a complete economic reset.

The policy of rapid credit expansion while an interesting concept often brings with it negative consequences. Currently it is being put to the test as new problems emerge in China where we saw the extra GDP growth generated by each infusion of money drop over the last four years. This should be taken as a warning that economic exhaustion and overcapacity results from continually priming the pump. In 2014 Wei Yao from Societe Generale warned the debt service ratio of Chinese companies has reached 30% of GDP the typical threshold for financial crises. This means many companies will not be able to pay interest or repay principal. She warned that the country could be on the verge of a "Minsky Moment", when the debt pyramid collapses under its own weight. "The debt snowball is getting bigger and bigger, without contributing to real activity," she said.

The total credit in China's financial system is estimated to be as high as  221% of GDP and has jumped almost eight-fold over the last decade. This means companies will have to pay out $1 trillion in interest payments alone this year. Chinese corporate debt burdens are much higher than those of other economies. Even then it was clear that much of the liquidity that existed in China's economy was being used to repay debt and not to finance output. The fact that new investment in factories has ground to a halt is probably a good thing because China is awash in overcapacity with many new factories idle because of weak demand. This has caused a large-scale capital outflow and the exodus of hot money is disrupting world markets.

While many people clam that China's Central government carries little debt on its books and this gives the central government the option to step in if a worse case scenario develops, local governments are in big trouble. The option of bailing companies out or putting them on life support as Japan did so many years ago is not a real solution. As things get worse China has had to take action to help real estate companies and even worse recapitalize the banking system, but this will not fix all the problems. I'm forced to reflect on how debt is directly effected by interest rates. In Europe the ECB has stepped in to halt the economic collapse of Spain, Italy and several other countries that were on the brink of collapse. By instituting false super low interest rates the ECB has allowed countries to service their national debt at below free market rates that would have led to default.

What you pay in interest on debt does matter except in the current manipulated land of  Modern Monetary Theory (MMT). Believers in MMT see it as a way to remove much of the economic uncertainty ahead and guarantee the economy will always be able to muddle forward by altering and changing the procedures and consequences of how we use the government-issued tokens of fiat money.  Newly acquired tools like derivatives and currency swaps  have allow us to print and  manipulate away problems or at least postpone the ramifications. Unfortunately, the part where you collect a debt that you are owed can be similar to a mirage that keeps moving away each time you approach it. Do not forget the small print that governs most contracts often tells us rules can be changed causing many people and companies to become instantly insolvent.

The bottom-line remains, why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? We are abusing the large amount of wiggle room in our economic system and our ability to put off the day of reckoning only proving that we will until we can't! Modern society has become very good at kicking the can down the road and delaying the consequences of bad policy.  This means that at some point the return on loaning money is simply not worth the risk! Readers of my blog will be familiar with this argument and my strong warning that when the only lenders are those who print the money that nobody wants the only safe place to store wealth will be in "tangible assets."

Footnote; This post dovetails with many of my recent writings, for more I might suggest reading the article below. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.

Wednesday, January 27, 2016

Obamacare Can Kill You!

Higher Deductibles Equal No Care For Many
It is interesting how real life can bring truth front and center exposing flaws in policy. One such flaw in Obamacare and the effort to bring better healthcare to millions of Americans can cause your demise. It is a fact that across America there still exist people who are responsible and work hard, these people also pay their bills. This often means they think twice and often three times or more before rushing to create healthcare bills that they will have to pay. At the same time other people use and abuse healthcare for a number of reasons. This includes the psychological feeling of elevated importance or because they are lonely and it is the only time anyone pays attention to them.

While the President and those supporting the American Care Act (ACA) drone on about its virtues they fail to tell you it has probably taken more than a few lives of hard working Americans. If you are at a loss as to how Obamacare can take a life I will soon explain using as an example a real life story. Before, I take you there I must mention that during an interview on a Jan 24th talk show Hilliary Clinton stated we now have 90% of Americans covered by health-insurance. She should haveclarified the percentage means little, to be honest it depends on how you define "coverage." Clearly when to seek medical treatment is a personal issue, but the decision is often impacted by just what kind of coverage a person has. Obamacare has failed to drive non-emergencies to low cost options and we are paying the price.

Today many people have coverage with a deductible so high that they are afraid to use it. In some ways this is akin to having no coverage at all and this poses a massive problem. In many ways many people today suffer the worst of both worlds, not only have premiums rocketed through the roof, but soaring deductibles have made using the coverage a gamble and a painful experience. Horror stories abound as to the cost of medical bills and how just a few hours of care or a short emergency room visit can quickly generate a bill costing thousands of dollars. These high deductibles are a trap set to create bills many people are forced to pay on top of  their already "bone crushing" premiums.

Many ER Visits Are Unnecessary 
Ironically someone paying very little because of Obamacare will rush to the emergency room when they break a finger nail (minor exaggeration) while many people responsible for their own bills hang back in fear they will take a financial beating. The bottom-line is that those supporting Obamacare are delusional if they don't think the sky high deductibles facing so many Americans today are not discouraging them from seeking medical treatment. High deductibles are keeping people away from hospitals and emergency rooms in huge numbers. This extends to times when even their lives are threatened.

The unintended consequences of Obamacare played out in a true story about someone very close to me proving my point, and this I know as a fact because I drove them to the hospital. One night in serious pain this person finally entered the emergency room after sitting in my vehicle for about 30 minutes waiting for the pain to subside. It came in waves so she finally conceded to the idea it was not a silly quest and succumbed to the heavy pressure upon her chest. After about an hour and several tests they found nothing. Of course they advised her to be admitted for more tests, but feeling rather silly and much better she declined. Isn't spending an estimated two thousand dollars enough to be told nothing.

Interestingly, the next night the same song began to play, again after sitting outside the door we took it to the next level and finally entered. This time a heart attack was confirmed and it was go time, or should I say, almost go time. By ambulance she was shifted off to their regional center 20 minutes away where after being stabilized she waited for hours as they kicked several patients ahead of her. They were playing the "triage game" which in medical terms means assigning the order in which treatment is given based on the degrees of urgency to wounds or illnesses. It was only during surgery they discovered she was lucky the bomb within her chest had not exploded and if it had she most likely would not have made it. 

Her blockage was in a blood vessel called the left anterior descending artery, the area that causes a fatal attack known as the "widow maker" because of its severity. It is important to note while this was happening she only appeared stable and before entering surgery they did not know just how dire her condition was. It seems that luck is indeed a big factor in healthcare just as it is in Russian-roulette. Understand some of us take pride in not only resisting visiting both doctors and hospitals, but fight such action tooth and nail. Call it stupid pride or stubbornness. It often seems much of the healthcare system would vanish if people used better judgement and were more responsible. An example is how the father of a friend went to the emergency room because he could hardly walk due to pain radiating from his feet. After several tests the diagnosis that his new shoes were the cause of his pain proved correct.

On the completely opposite side of the spectrum I remember a time years ago when I seriously thought I was having a heart attack during a sales call so I quickly excused myself and went to my car to avoid collapsing in my customers office, it turned out to be a false alarm and I never bothered to see a doctor. While several things can be taken away from this article one thing is certain, and that is our healthcare system leaves a lot to be desired. While a basic single payer system may not be ideal, because it would mean healthcare would have to be rationed in someway, if we want to be realist it sure as hell would on average be more fair than what we have today. Of course any system needs to be structured to bring in more personal responsibility and also allow people financially able to buy supplemental and deluxe coverage if they like.

Footnote; Below is an article that delves into how the healthcare system in America is broken. Washington may be underestimating how many people are dropping coverage regardless of the rising penalties.  Americans simply cannot afford to buy what is being served, what may prove even more problematic is if people quit their job and move onto the government rolls. Obamacare is a system that may collapse under the weight of soaring cost.

Sunday, January 24, 2016

Japan's Strong Economic Link To China

Japan And China Economies Linked!
As the year began Japan's political and economic leadership announced a new resolve to further stoke consumer prices. This could fuel expectations of yet more monetary stimulus. A Reuters article titled, "Japan Leadership Pledges Bolder Steps To Hit Price Growth Target" reiterated the statement recently made by Haruhiko Kuroda, the Bank of Japan Governor stated "We will do whatever it takes, and I want to strongly say we will absolutely meet our 2 percent price target."  While this again confirms their intent and policy it does not constitute a real change.

With falling oil prices their efforts should be very interesting to watch. For years the Japanese government has made every effort to halt the deflation Japan has suffered from since the late 1990s following a property bubble that burst earlier in the decade. Still recent comments indicate the resolve to halt deflation remains strong. Abe contends whether inflation accelerates depends on major capital expenditure and wage growth as he continues his efforts to pursue companies to invest more to sustain a virtuous cycle of consumption and growth. Japan's core consumer inflation was 0.1 percent in the year to November, rising for the first time in three months. A separate BOJ index that excludes oil and fresh food, but includes processed food prices, showed consumer prices rose 1.2 percent in the year to November.

Japan's industrial production continues to struggle and final data from the Ministry of Economy, Trade and Industry showed it dropped again in November. The inventory ratio advanced 3.1 percent versus 2.9 percent increase estimated previously. At the same time, capacity utilization dropped marginally 0.1 percent in November, reversing a 1.3 percent rise in the prior month. Year-on-year, utilization slid 2.6 percent. The tertiary industry activity index dropped 0.8 percent in November from October, when it climbed 0.7 percent. On a yearly basis, growth in tertiary activity slowed slightly to 1.3 percent. Slice and dice the data as you want, but three years after Abe swept to power pledging to revive the economy with his "Abenomics" stimulus policies growth appears dead in the water.

As for the few positive signs of recovery for Japan’s slumping economy, foreign tourism remains a ray of hope. Tourism authorities, local governments, industry players as well as retailers are eagerly awaiting another possibly record-breaking surge in Chinese tourists due to the weak yen, but a tourism boom alone won’t bail Japan out of its economic plight. This means the BOJ may again be forced to lower its consumer price forecasts which many see as a precursor to the argument that extra stimulus is needed to prevent the price trend from worsening. Up until now all the massive pump priming by the government and monetary stimulus by the central bank have failed to meet the goals of reflate the economy or generating growth. Now it seems bad news  flowing out of China is about to further undermine Japan's hopes for growth.

Anti-Chinese Protest In Japan
A matter that might not be garnering enough attention or has been discounted is how the economic problems that continue to develop in China will spill over and affect Japan. The Japanese economy is very vulnerable to a negative feedback loop that could have strong ramifications on its economy. Even with a strong distrust possibly a dislike between the people and cultures years ago the two countries have joined together in an effort to maximize profiting from exporting to America. Throughout the 1980s the Japanese economy grew rapidly and appeared to be poised to surpass the United States. Then as the Japanese economy tanked into its lost decades, with the help of American investment China in stark contrast went forward in what seemed like an unstoppable economic rise. Over the years the interdependence has intensified, China and Japan have became major trading partners.

Japanese direct investments surged and Japanese technology played a critical role in the development and competitiveness of China’s global supply chains. A strong link exist between China and Japan because over the years Japanese businesses have made a major investment in China. It is clear China has exploited this relationship to learn the advanced industrial skills and production techniques of its neighbor. At call centers in China young workers speaking flawless Japanese answer customer service calls for a Japanese insurance company. In western Japan, a new commercial Chinatown is rising in Kobe City's rebuilt port area. Instead of the gaudy restaurants in old Chinatown, the new area contains nondescript office buildings that are leased to Chinese companies focusing on everything including bio-technology. In part it has been this increased trade with China that has bolstered the Japanese economy while cheap imports from China have driven costs down significantly for Japan's long-suffering consumers. Ironically, this has also played into the deflation factor.

While the mutual benefits derived from economic interdependence would seem to indicate all is well, but this is far from the case. Currently, Asia is the manufacturing hub of the world and it is clear as China devalues its currency all the other countries in the region will follow suit in order not to jeopardize their competitiveness. A slew of active disputes exist over territory, over blaming each other for a history of transgressions, as well as suspicions related to future military goals. This tight relationship is apparent each time trouble surfaces in China the yen jumps in value as wealth in a stealth move flees China often through business back-channels. This should not be misinterpreted as the yen strengthening, but rather a temporary bump before the wealth moves on to an even safer place. The question remains as to how well the two countries will continue to fare as economic stress and pressures build. Expect problems as each country tries to keep their economic boat afloat.

Davos In The Spotlight!

A Gathering Of Powerful-brokers And Public Servants?
It is that time of year again when the rich, powerful, and well connected migrate to Davos for the annual meeting of the World Economic Forum. I feel such a large gathering of those who call the shot merits a bit of sound reflection as to the possible ramifications for the world. It is important and prudent that we at least weigh in on what they plan to do with us  in coming years. Around 2,500 participants from more than 100 countries, including 40 heads of state, will attend the event formally known as the 2016 World Economic Forum. This year, the theme is "Mastering the Fourth Industrial Revolution." Some of the key issues high on the agenda are, involuntary immigration, extreme weather and climate change, geopolitical conflict, terrorism, sustainable growth, as well as how robotics and other trends will play out and mold the world in coming years. 

Davos, Beautiful, Serene, And Expensive
The tiny town of Davos, Switzerland with a population of just over 11,000 sports a very cold below zero average temperature in January. It has been the location of this annual event for decades. Aside from tradition a major factor elevating this beautiful and serene setting to be chosen as the site hosting this event is security, it is far easier to secure a small town wedged between the mountains than a conference center in a big city. This is very important to the 40 heads of states that are attending. Organizers don't release specific information, but it is estimated that around 5,000 of the finest Swiss troops, police and security personnel guard the town.

Switzerland is famously expensive, and this extends to the WEF and Davos. To start we are talking about the ticket which is around $20,000 and that's just the tip of the iceberg. Travel generally cost thousands, and sometimes tens of thousands as private and government jets descend on the area. Then there is the cost of lodging, a night in a medium-range hotel is around $600, but such accommodations will not do for many of those attending the event. When we add to it wining, dining, and essential accessories like snow boots, the total bill can quickly exceed $40,000. To our so called "public servants" getting invited to an all paid trip to Davos is the golden ring.

As to who attends this exclusive event the gathering often includes nearly everyone who matters in the world of business. Bill Gates will be there, as will Mary Barra, Satya Nadella, Jack Ma, Eric Schmidt, Sheryl Sandberg and dozens of other CEOs. This will give them face time with the IMF chief Christine Lagarde, with ECB President Mario Draghi and the governors of 10 national central banks. The U.S. will be represented by Joe Biden and John Kerry. Loretta Lynch, the U.S. Attorney General, is also coming, as is Penny Pritzker, the Secretary of Commerce. The King and Queen of Jordan will be there, as will Bono, Leonardo DiCaprio, Yao Chen and As usual the whole bunch will be closely followed by a massive group of journalists hoping for interviews and a moment in the spotlight.

As noted earlier organizers of this premier gala pull out all stops to insure a safe conference.
  • Security includes two surface-to-air missile systems.
  • About 100 of the 2,500 participants get special security coverage.
  • Attendees will be hemmed in by 46 kilometers of fences, 10 percent more than a year ago.
  • Zurich Airport will contend with about 1,000 additional plane and helicopter takeoffs and landings during the meeting.

This Bash Includes Parties to cajole and influence
Each year as this "ultimate extravagant" unfolds I seem to get a pain in my stomach that some might consider envy, but having attended my share of events I consider it more of a sickening feeling related to the over the top self importance of many attending. It often seems my angst is directed mostly at the politicians and such that have their travel expense picked up by governments. How ironic that we pay the same clowns that create so many of our problems to gather in luxury to discuss their deeds. I find it so interesting that someone flying across the globe on a private aircraft can sit down and discuss their environmental concerns and how each of us must do more to save the planet.

I should add this giant high dollar bash also includes the parties needed to cajole, influence, and build future connections to insure a good spot at the table in many coming events. The topics holding the spotlight often are focused on issues related to wealth, whether it has to do with stock price swings, bonds, or commodities. The distribution of societal benefits tends to take a backseat to those at Davos. This year it seems participants are getting a little jittery with several world events such as Donald Trump rising, oil prices falling, and economic growth slowing in China. This means that many of the people attending have a great deal of interest in keeping the good times rolling by pseudo-economics, hocus-pocus, or any other policy that extends the good times.

Already reassuring words are being cast out over the airwaves to us, the minions of the world. For example on Saturday IMF chief Christine Lagarde said the Chinese economy is unlikely to see 'hard landing' and it would be in the interest of the world that China returns to a sustained growth path,  Lagarde also indicated the fourth industrial revolution currently underway would bring about major change in the world and would require change in the way GDP is calculated. With such a startling and revealing statement it is no wonder she is hailed as a world renown financial leader. If I sound cynical it could be because I suspect this is not for our benefit, we are just given the honor of paying for it in some way or form.

Footnote; This is an extension of a topic I have written about before. I do not hold in high regard those in Washington and across the world who love power and access to the public purse. It seems they can always come up with a justification for the outlandish and the absurd, to those making the rules, cost is often not relevant. The take away is, of the many choices we make worse things could happen to you then becoming a "public servant" 
It is not uncommon to see our public servants, some as lowly as a mayor or agency head climbing out of  a limousine, being wined and dined, or on exotic visit or fact finding mission, all paid for by the taxpayer. The article below looks into whether these people are really public servants or the new elite.