The Market Ticker
Commentary on The Capital Markets

Look, play that race card well.....

On a cold Sunday afternoon 10 years ago, Comfort and Kofi Boateng stood with Comfort’s mother and their three children before a quarter-acre parcel in a brand-new subdivision in the center of Prince George’s County.

The place was called Fairwood. They stepped onto Lot 71, an empty stretch of gravel, and closed their eyes and bowed their heads. Comfort raised her hands to the sky.

$617,000 worth of house on approximately $110,000 in gross income, living in one of the highest-tax areas of the nation.

If you read Leverage you know that the historical "safe" leverage limit for home buying is 28% of one's gross.  This purchase was close to double that safe limit.

Of course this is called a "plight", never mind that the two have not made a mortgage payment in over 2,000 days, or more than six years.

That's right -- these folks are "plighted" and "horribly damaged" and it's all someone else's fault despite living for free in a $600,000 house for more than six years.

Why six years?  That's kind of obvious -- the banks do not wish to recognize the loss on resale of the house that is worth far less than was lent on it, and if they foreclose and then resell it, they'll have to do that.  So they "let" the couple live there for free because it makes their balance sheet look better. 

In other words this couple gets a "free ride" by aiding and abetting fraud at the lender who "granted" them the loan!

It gets even better.  Five years earlier than their act of stupidity with this house they bought a nicely-affordable townhouse for $129,000!

But then they decided to have more kids (a choice), and suddenly "needed" more house.  Five times as much house, to be exact, in dollar terms.

Oh, and that wasn't all.  There was borrowing going on by one of the spouses without the other's knowledge, there was Mary Kay, there was all sorts of financial engineering -- including signing a piece of paper at the closing that their financial situation had not changed while knowing it had as the husband had been laid off in the interim.

In other words they appear to have committed mortgage fraud as well.

But they're victims, you see.  They were taken advantage of, despite being active in the deception.

Never mind the magical thinking.

This, my friends, is what's wrong with this country.  Refusal to call things what they are, to take responsibility, to be adults, is why we're here.  It's why we all think we deserve big houses and expensive European cars, it's why we believe those teachers, firefighters and cops who claim to deserve pension payments and medical care for life at our expense, it's why we believe prices never go down, always up and that they do so magically, not by destroying the value of the currency.

In short we deserve what we got in 2008 and what we are on the brink of getting now, which is going to be several times worse than 2008, because we not only refused to face reality then we continue to do so today.

View this entry with comments (registration required to post)

You got to be kidding me.

Amazon Inc. Amazon revealed a profit Thursday, and Wall Street analysts were pleasantly surprised by it. Comments coming from some of them suggest they still don't understand the core philosophy of CEO Jeff Bezos and the way Amazon works. 

AMZN rose 14% on the news, and a whole bunch of analysts welcomed the online retailer's new era of profitability. You can read their comments here and here and here.

They're almost certainly wrong. Amazon is extremely unlikely to suddenly start focusing on earnings per share for investors.

In fact, analysts have a long history of misunderstanding Amazon.

I don't think so.

In fact, I think they understand it perfectly well. I know I do.

What I don't understand is why anyone thinks the common stock of the company is worth a nickel.

A lot of people believe that if a company never makes money, it must, fundamentally, go bankrupt. This isn't the case, as Amazon proves.

Absolutely not.

However, existence isn't a reason to buy stock in a firm.  Remember that when you buy stock you're buying ownership.  And ownership, basically, comes down to two things -- net value and the forward earnings returned to you in dividends.

You can look at the former (net value), if you wish, as book value.  However you need to take that with a (big) grain of salt, because property, plant and equipment is often (nearly always) held on the books at depreciation value, and rarely will the assets of the company fetch anywhere near that -- especially for a technology company -- in a liquidation.  I will note that one of the ways to make a killing as a small businessman is to find someone going out of business and buy their equipment that you can use or repurpose for very small amounts of money compared to it's so-called "book value."

It is, in fact, exactly that approach that, if you're an entrepreneur, can result in a very hard-to-beat cost structure in a competitive marketplace.  That's how you spell "profit", incidentally.

So what else do you have of value when you buy stock in a firm?  The discounted future return of capital to you as a shareholder in the form of dividends.

Here is how Amazon actually works: As long as the company can grow its revenues, it can spend any profit it makes on new lines of business that throw off more revenues. Those revenues may also be profitable, and those profits can in turn be immediately spent again on more growth. By eschewing profits, the company can also offer the lowest prices possible (which is why consumers are so loyal to it). Some parts of the company are profitable and fuel growth in others.

I see.  

The problem with such a strategy is that you're paying a lot for nothing.  Today you're paying about 14x book value for the company, since it never has and never intends to, as you state, pay a dividend or otherwise return any cash to shareholders.  That is, you're "investing" in something that has an actual tangible value that is 1/14th of what you spend on it.

Of course as a customer this doesn't matter a bit.  But as an investor it most-certainly does because the actual value of your "investment" is (materially) less than 10 cents on the dollar.

As a consequence if anything goes wrong that $350 stock is likely to be suddenly worth $30 or thereabouts.

So it doesn't matter if Amazon never makes a dime. In fact, Amazon's history clearly shows that profits are a secondary concern to revenues, as this chart from the Financial Times shows:

It doesn't?

Here's the bottom line: Effectively all of the stock price is nothing more than the belief that a bigger sucker will come along and pay even more times the tangible value of the firm than you did.

As long as that holds true the price continues to go up.

The day it is no longer true because some critical mass of people who own the stock wake up in a cold sweat -- an event that could be prompted by an earnings miss or simply the phase of the moon going the wrong way the price will collapse by more than 90%.

View this entry with comments (registration required to post)

2015-01-30 13:52 by Karl Denninger
in Macro Factors , 182 references


Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 2.6 percent in the fourth quarter of 2014, according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 5.0 percent.

Looks to me like a miss; the equity market was down a fair bit coming into the number and the bond market got bought a bit on the release.

The price index was -0.3%, but ex-food and energy it was +0.7%.

Here's reality -- if you feel like you're still falling behind -- you are.

View this entry with comments (registration required to post)

This is one of the most-outrageous videos of cop "action" I've ever seen -- and I've seen a lot of them.

The suspect being pursued apparently did shoot at cops with an AK-47, which is certainly reason to defend oneself.  Further, the cops eventually shot the suspect (which he most-certainly had coming!)  

That's not the problem.  

The problem is how said "officer" did that.

Let's count up the sins:

1. The officer in the video is firing from a moving vehicle.  There is no possible way to have reasonable awareness of what is beyond your target while firing in this fashion.  That might be acceptable in a war zone under certain circumstances but it is never acceptable in a civilian situation where uninvolved parties are likely to be within a reasonable distance of the engagement.

2. The officer is also firing through his windshield!  This will alter the path of the bullet, and since the impact with the (slanted) double-pane laminated windshield glass occurs right at the muzzle deflection of the round by even a single degree will result in a nearly-certain miss.  Note that 1 MOA (sometimes in slang called "one minute of *******") is an error of 1 inch at 100 yards.  One degree is 60 times that; in other words an error in the point of impact of five feet.  Even at just 100' of distance there is no chance of being "on target" when firing through such a barrier in this fashion; this means all of those rounds were effectively fired wildly without being aimed.

3. The movement in the gun inherent in firing unbraced from a moving vehicle means you cannot possibly aim fire with any sort of accuracy in the first place.

The results bear all of #1-3 out -- despite all this shooting the bad guy was not shot during that exchange as none of the rounds were in fact aimed (because that is factually impossible due to #1 - 3 above.)  The chase was terminated when the cops rammed the bad guy's car and forced it off the road into a gas station; at that point with the vehicle at rest they were able to accurately target and stop the suspect.

The real world is not a video game.  In the real world every round you fire continues once it leaves your weapon until it strikes something and comes to rest.  If you miss your target then that "something" has the possibility of being an innocent person who had nothing to do with the original reason you were shooting.

It is flatly unacceptable to shoot a firearm wildly and with reckless disregard for the safety of everyone within a half-mile or more of your location, and that's exactly what this officer did.

Felony charges against the officer are not only warranted they are essential to redress the outrageously dangerous and intentional misuse of his firearm.

View this entry with comments (registration required to post)

I have maintained for quite some time that the network of "sensors" and cameras showing up all over our freeways (including here in NW Florida) are not, as claimed, simply about traffic monitoring but in fact have a second, far-more-nefarious purpose -- tying them into automated vehicle recognition software that allows the government to track anyone in real time no matter where they go.

Looks like I was right.

The Justice Department has acknowledged constructing a database to track the movements of millions of vehicles across the U.S. in real time. 

The program, whose existence was first reported by The Wall Street Journal, is primarily overseen by the Drug Enforcement Agency (DEA) to combat drug trafficking near the U.S.-Mexico border. However, government emails indicate that the agency has been working to expand the database throughout the United States over the past several years. 

This may be Constitutional but the question really ought to be whether we want to live in such a nation, and whether we are going to put up with this sort of crap.

It is not the use today of such technologies, it is what they enable over time, and the fact that it takes very little in the way of a government shift for this to go from being used to, for example, find people who abduct kids or run drugs to a 100% surveillance state where you cannot go anywhere without being monitored, tied into a "pre-crime" system of analysis that harasses people without cause and in direct violation of your rights.

This is already happening -- there are reports of people traveling in states that do not honor CCW permits, for example, being pulled over for no reason other than an automated scan of their plate by a cop's vehicle flags them as having a CCW permit in another state and having their vehicle torn apart looking for the (non-existent) gun.

By the way...

Even now, John Filippidis has no idea how the officer learned about his concealed-carry permit, and the MTAP isn’t saying.

I'll tell you how -- if you have a CWP it shows up when your driver license record is run, and that's tied to your vehicle registration, of course.  Cops in many jurisdictions have automated license-plate scanning cameras in their cars and as such it is a good bet that the MTAP officer had the fact that this guy had a CWP pop up on his screen unprompted.

View this entry with comments (registration required to post)

Main Navigation
Full-Text Search & Archives
Archive Access
Legal Disclaimer

The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.


The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.

Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.

The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.

Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.