Let me begin with a quote from the article:

“A lot of the fund’s companies went bankrupt after the trucking industry was deregulated in the 1980s. That’s part of the reason the fund is in trouble now. It’s currently paying out $3 for every $1 it takes in.”

I can’t help but wonder how many of the pensioners vote for candidates that want “less government,” are harmed in this case of less government, and then ask for more government in the form of bailouts from the big bad government? Could this be yet another example of privatizing profits (whoever at the top made money from trucking industry deregulation) and socializing costs (asking the government to bail out under funded pension plans that became under funded after deregulation )?

I sure hope CalPERS is doing okay…

-Dr. Moore

http://money.cnn.com/2016/05/20/retirement/central-states-pension-fund/

So price-to-earnings ratios still matter. This is true for tech companies typically avoided by Warren Buffett. This is also true for consumer staples companies such as Proctor and Gamble that he sold after the P/E ratio hit 27.

Relative valuations such as price to earnings matter. I wish I followed my inner voice 15 years ago when I asked my boss “shouldn’t I sell our stock since the P/E ratio is 400?”

Then again, whenever we face a choice to go one way or another, there lies an end in either direction. That end is our destiny.

Om.

-Dr. Moore

http://www.usatoday.com/story/money/markets/2016/05/16/analysis-buffetts-berkshire-buys-apple/84446844/

Bank like a baller? Wouldn’t it be cool to say you bank with Goldman Sachs even if you only have $1 in the account?

I think the real story here is the continued de-humanization of society. Online degrees, online banking, online dating, etc. I wonder if the push for online and “virtual” experiences is related to a diminished ability for human interaction.

Then again, this post will reach many people I have never met via hundreds of linked in connections. 🙂

-David “sticking with my local credit union” Moore

http://techcrunch.com/2016/04/25/goldman-sachs-launches-gs-bank-an-internet-bank-with-a-1-minimum-deposit/

I asked students in class yesterday if they have ever been in a store where only one cash register is open and a long line has formed. Many, if not all of us have been in that situation. I said, jokingly but also seriously, that the lone cashier is more productive. Then, while reading the linked article on Intel’s recent round of publicized layoffs, I came across this:

"He (Krzanich) mentioned this will be the highest revenue per employee in their history," Rasgon said. "If you’re the employee, life is harder.”

To use management speak, that statement from Rasgon “echoes" what I said in class.

So here we are. Intel is cutting 11% of its workforce of 109,000. Apparently this will cost Intel $1.2 billion this quarter in restructuring costs, save $750 million in FY2016, and $1.4 billion per year starting FY2017. True, intel spends a lot on R&D and capital. We saw this in class yesterday. The article shines some light on the challenges associated with Intel’s capital intensive business:

"Circuits on computer chips are shrinking to near atomic scale, and it’s becoming more expensive and time consuming for Intel to engineer and produce more advanced circuitry. And it’s by no means clear that wearable technolgies and other new concepts will deliver the revenues or profit margins Intel is accustomed to in PCs and data centers, markets where its chips have a near monopoly ."

But back to the layoffs. I’ve never been a manager of a multi-billion dollar company. But that doesn’t stop me from wondering: What would happen if Intel implemented an across-the-board 7% compensation cut[1] to save $750 million in FY2016 compensation plus [some/most? of] the $1.2 billion dollar restructuring charge. This could buy time to restructure without laying off 12,000 people.

Again, I’ve never managed a multi-billion dollar corporation. I have worked at them. I have been through layoffs both as one being retained and one being let go. The across the board (including executives and board members) compensation cuts never seem to come up. I often wonder if across-the-board compensation cuts would be better not only for all the families impacted by layoffs, but better in the long-term for the corporation. Could across-the-board cuts reinforce a “we’re in this together” culture rather than “don’t cut me, cut him/her” environment?

I’ll end with a joke:

“What is the difference between a recession and a depression? A recession is when my neighbor loses their job. A depression is when I lose my job."

http://www.oregonlive.com/silicon-forest/index.ssf/2016/04/intel_quarterly_results.html

[1] Assuming an average salary of $100,000 to make the math simple: $750 million / (109,000 x 100,000) = 6.88%. See payscale.com for precise numbers.

We discussed high multiples such as P/E in class this week. TSLA is a good example. It doesn’t even have a P/E because it has negative earnings. The price to book is around 29, much higher than the 1.33 recommended by books like “The Intelligent Investor.” My favorite quote from the article:

“A hard look at Tesla’s underlying financials shows the company to be an investment only for those with strong stomachs.”

Buyer beware.

-Dr. Moore

http://www.latimes.com/business/hiltzik/la-fi-hiltzik-tesla-hype-20160401-snap-htmlstory.html

I found this very interesting. I have long wondered if the valuations of the recent wave of app startups in places like San Francisco were justified. We shall see as Intel unwinds its venture capital division’s assets.

I question valuations in a Schumpetarian context. In that context, economic growth results from productivity enhancing technological progress. I am not convinced every app startup is indeed productivity enhancing. In fact, some like King Entertainment or Zynga may be productivity reducing.

Time will tell.

-Dr. Moore

http://www.businessinsider.com/intel-vc-unit-sale-could-trigger-startup-valuation-avalanche-2016-3

One of the defendants that was found guilty stated he wished he told others to stop rigging the market. I don’t know what to make of that this early in the morning without coffee. Perhaps these Rabobank traders were adding a new dimension to “fixed” income. 🙂

http://in.reuters.com/article/rabobank-libor-idINL1N16I2N4

It has been a good bull run. Amazon is still trading at an astronomical Price-to-Earnings ratio of over 400. When will we see the earnings growth that is allegedly embedded in the high stock price? Let me go find the crystal ball…

http://www.usatoday.com/story/money/markets/2016/03/09/7-year-bull-makes-investors-16t-richer/81515958/

In a recent lecture I pointed out that lower correlation translates into greater diversification benefit, i.e. portfolio risk reduction. I also mentioned that international diversification may help. How much help depends on how low the rho (correlation). Here’s an article with an interactive map to see correlations between the US market and those of countries around he world.

http://www.cnbc.com/2016/02/12/the-majority-of-international-markets-are-down.html

Thanks to Mr. Wahdy fro bringing this article to my attention. I am not suggesting the “Theory of Everything” in this article is correct and indeed “everything.” No one has a monopoly on the truth. However, it does contribute to one’s understanding of how industrialization spreads from country to country.

Also, the graph on real income growth vs. income percentile is very revealing. Keep in mind it is a graph of the whole world and not just the U.S. We have it good here in the US. Thus, the middle class in the US is upper class relative to the rest of the world. However, as the chart shows, income growth in the US middle class has stifled while the income of other countries has risen. And of course, the income of the top 1% has risen regardless.

So what is next for the U.S.? I’ll tell you after I place my appropriate financial market bets. 🙂

http://www.bloombergview.com/articles/2015-01-08/one-economic-theory-to-explain-everything

-Dr. Moore