Bob Carlson

December 19, 2014

Smuggling Cuban Ballplayers

Filed under: Economy — Bob @ 6:20 pm

The President announced that he’s going to normalize relations with Cuba. There are a lot of hidden stories about effects of the Cuban embargo. Here’s an interesting one regarding baseball players. They make the same amount of money in Cuba, no matter how good they are. So, apparently there’s been a big business in smuggling baseball players from Cuba to the U.S. The post has links to other posts and economic commentary.

Puig did in fact pay Suarez $2.5 million. A high price for a relatively simple operation–the going rate to smuggle an ordinary Cuban is about $10,000–but, as we will see, more than smuggling was involved. It took five attempts before Puig reached the shores of Mexico. On one of the earlier attempts Puig was captured by the US Coast guard who sent him back–after some of the crew asked for his autograph!

The Economics of Pallets

Filed under: Economy — Bob @ 1:20 pm

Here’s a read I found interesting about a mundane item most of us take for granted and don’t give much consideration at all. I remember not long ago during the housing boom, there was a pallet shortage. There wasn’t enough lumber to go around to build pallets at reasonable prices. People were even stealing pallets, and businesses were tracking them closely. Now, we’re back to the days when they are taken for granted.

Since World War II, most of America’s pallet needs have been met by several thousand small and mid-sized businesses. These form the nucleus of not just an industry, but a sprawling, anarchic ecosystem—a world, really, complete with its own customs, language, and legends, with a political class, with its own media. This world is known as “whitewood.” There are approximately forty thousand citizens of whitewood, ranging from pallet pickers (who salvage pallets from the trash) to pallet recyclers (who repair broken pallets and make them whole) to pallet manufacturers, pallet consultants, pallet academics, pallet thieves, and pallet association presidents. Whitewood includes people who crisscross the country selling pallet repair machinery, preaching the gospel of tools such as the Rogers Un-Nailer.3

After Effects of the Sony Cyberattack

Filed under: Economy — Bob @ 9:20 am

You’ve probably heard about the hacking and cyberattack on Sony. It resulted so far in the release of a number of embarrassing emails and some trade secrets. The attack apparently was meant to discourage the release of a movie, The Interview, and was followed by threats of a terrorist attack on movie theaters. Sony decided not to release the movie.

While interesting, the really interesting question is: What comes next? Here’s a good overview of the options for the government. It explains that the U.S. determined North Korea was behind the attack. Then, it reviews the pros and cons of various options. The bad news is that it appears there’s not a lot we can do about these attacks, other than prevention. China was caught engaging in cyberattacks not long ago. The U.S. publicized this in a “shaming” exercise. It founds that China-based cyberattacks were greatly reduced for a while, but then they resumed.

Another issue is whether the U.S. Cyber Command, co-located with the National Security Agency at Fort Meade, Maryland, should retaliate against attacks sponsored or carried out by foreign governments, in this case North Korea.

The first obstacle to retaliation, the official said, is identifying the source, which is much more difficult than determining with certainty who launched a missile, dropped a bomb, shot someone or even carried out a terrorist attack.

A second and perhaps greater obstacle, the official said, is the danger of a retaliatory attack escalating into an uncontrollable cyberwar that some have suggested could threaten the U.S. economy and financial system.

December 18, 2014

Analysis of a Financial Scam

Filed under: Cash Management,Retirement - General — Bob @ 6:25 pm

Financial scammers are more sophisticated than they used to be. They’re international and use the Internet. People have to be on alert for scams without paralyzing themselves and missing out on good, legitimate opportunities. Here’s a Bloomberg.com article on an Internet financial scam involving an alleged currency trading firm. Key points are that the fraud said it would make 1% per month, never revealed its office locations, and could be reached only through the Internet. It also followed what seems to be a basic principal of many crooks these days: Take a small amount of money from a lot of people.

Secure Investment, which investors found only on the Internet, never revealed its true location. It listed its call centers’ toll-free phone numbers in Australia, Canada, Hong Kong, the U.K. and the U.S. Secure instructed investors to wire their cash to banks in Australia, Cyprus, Latvia, Lithuania, Poland and the Seychelles.

Secure Investment lured customers by creating its own good reputation and by publishing a seemingly successful trading record on its elaborate website. It was all a lie, Bloomberg Markets reported. The company’s claims to have offices and a large staff were false. At least some of its so-called customer testimonials were actually delivered by actors who said they knew nothing about Secure Investment.

The deception worked — for a while. In March, Secure’s website was more popular than Forex.com, the second-largest U.S.-based, over-the-counter forex trading firm, according to Alexa.com, a unit of Amazon.com Inc.

The Next Rumble in Europe

Filed under: Economy,Financial crisis — Bob @ 1:20 pm

The depression in much of Europe raises two concerns. One is that poor economic growth there will reduce growth in other countries. The other is more longlasting and dangerous. Economic conditions are so poor in Europe that they are likely to lead to political and cultural upheavals if they endure for long. We’ve seen the fringe parties gain strength in the polls and even some recent elections. With so many youth unemployed with no hope of finding jobs, they are susceptible to appeals from the fringe parties. Here’s a news article discussing some recent demonstrations by extremists in Germany. Without economic improvement in Europe, these events are likely to increase.

Lutz Bachmann, the head of Pegida, a nascent anti-foreigner campaign group, led the crowds, either waving or draped in German flags, in barking chants of “Wir sind das Volk”, or “We are the people”, the slogan adopted by protesters in the historic “Monday demonstrations” against the East German government in the runup to the fall of the Berlin Wall.

Associating themselves with the freedom demonstrations has given Pegida protests an air of moral respectability even though there are hundreds of rightwing extremists in their midst, as well as established groups of hooligans who are known to the police, according to Germany’s federal office for the protection of the constitution.

“The instigators are unmistakably rightwing extremists,” a federal spokesman said.

Geopolitics and the Markets

Filed under: Economy,Financial crisis — Bob @ 9:20 am

The markets are affected at least as much by international affairs these days as by economics. There are a couple of pressing situations. One is Russia, especially regarding Ukraine.

Russia is beset right now by a combination of falling commodity prices and economic sanctions imposed by western countries. This analysis from Stratfor.com indicates that Russia is prepared to endure these problems. They won’t change Russian behavior or lead to the demise of Vladimir Putin. It’s a view most of us haven’t heard or considered and is worth reading.

Russians’ strength is that they can endure things that would break other nations. It was also pointed out that they tend to support the government regardless of competence when Russia feels threatened. Therefore, the Russians argued, no one should expect that sanctions, no matter how harsh, would cause Moscow to capitulate. Instead the Russians would respond with their own sanctions, which were not specified but which I assume would mean seizing the assets of Western companies in Russia and curtailing agricultural imports from Europe. There was no talk of cutting off natural gas supplies to Europe.

If this is so, then the Americans and Europeans are deluding themselves on the effects of sanctions. In general, I personally have little confidence in the use of sanctions. That being said, the Russians gave me another prism to look through. Sanctions reflect European and American thresholds of pain. They are designed to cause pain that the West could not withstand. Applied to others, the effects may vary.

December 17, 2014

Interest Rates and Commodity Prices

Filed under: Asset Allocation,Economy — Bob @ 6:20 pm

The decline in the price of oil is making headlines. It seems sudden to many, and generally is attributed to OPEC and fracking in the U.S. But there are different views. This one explains that the price of oil isn’t an outlier. Prices of other commodities also are declining. I recommend reading it, because it puts the issue into the broader context or monetary policy and the commodity cycle in general.

That brings us to monetary policy, the importance of which as a determinant of commodity prices is often forgotten. Monetary tightening is widely anticipated in the US, with the Federal Reserve having ended quantitative easing in October and likely to raise short-term interest rates sometime in the coming year.

This recalls a familiar historical pattern. Falling real (inflation-adjusted) interest rates in the 1970s, 2002-2004, and 2007-2008 were accompanied by rising real commodity prices; sharp increases in US real interest rates in the 1980s sent dollar commodity prices tumbling.

There is something intuitive about the idea that when the Fed “prints money,” the money flows into commodities, among other places, and so bids their prices up – and thus that prices fall when interest rates rise. But, what, exactly, is the causal mechanism?

Running from the Ruble

Filed under: Economy — Bob @ 6:19 pm

The Russian ruble made worldwide headlines this week. An extreme interest rate rise by the government, meant to shore up the currency, actually accelerated its collapse. Russia bet its economic future on commodities, especially energy, under Vladimir Putin. That bet flew up when oil prices slid in 2014. Here’s a quick review of what’s been happening with the ruble and what could happen next.

The Russian economy has been in trouble for months, but last night, things got absurdly bad. The value of the ruble dropped as much as 19 percent in the last 24 hours, the worst single day drop for the ruble in 16 years. Now Russians are reportedly bum-rushing malls to swap their cash for washing machines, TVs or laptops—anything that seems like it might hold its value better than paper money, whose worth is evaporating in real time. The political and economic forces sending Russia into a downward spiral are complex.

An Interview with Jeffrey Gundlach

Filed under: Income Investing — Bob @ 9:20 am

This interview with the DoubleLine Fund founder is better than most because it lets him talk without a letting of editing or interruption. He has very entertaining and candid thoughts on where most investors went wrong in 2014 and the effects of Bill Gross’s leaving PIMCO.

People pull their money out of bonds when they should’ve been putting money into them. The greatest example is my hedge fund. Last December, I did a call for my LP, the hedge fund. And I told the investors that we are going to make money on bonds because rates are probably going to fall and I took the duration to 9. And an investor said, “What?” And I said, “Yeah, I think we’re going to make money on bonds. Profits.” And the guy says, “I don’t want to be long the 10-year (Treasury).” I remember one guy specifically said that. And I said, “we’re not long the 10-year. we own other things but we do have a duration that’s longer than the 10-year by a little bit.” And the guy said, “Forget it, I am pulling my money out.” And I said, “I thought you wanted me to manage your money with my highest-conviction best ideas?” And the investor said, “yeah, that’s true but not when your ideas are stupid?” That fund is going to be up potentially 20% this year. It’s already up 17 and change through November. So a third of the investors nearly pulled their money out because I allow redemptions on a 45-day notice at month end. And so 30% of investors pulled their money out. and They’re like: “We’re not interested in this bond thing. we hate interest rate risk.” I said, “Well, I am not going to be second guessed on this. You can second guess me on other strategies but not in my best ideas strategies.” I’m not going to be moved by the fact that you don’t like it.

December 16, 2014

How the Millenials are Different

Filed under: Economy — Bob @ 6:20 pm

The Millenial generation isn’t spending money on cars, housing and other expensive items the way previous generations did. Is this a temporary effect of the financial crisis? Is it because that generation is maturing later than others? This post argues that there’s a decided difference in this generation’s values and tastes. If it is correct, that will have a major effect on economic growth, several industries, and other factors. I don’t know if its thesis is correct, but it is worth reading and pondering.

Subaru’s publicist Doug O’Reilly told us, “The Millennial wants to tell people not just ‘I’ve made it,’ but also ‘I’m a tech person.’?” Smartphones compete against cars for young people’s big-ticket dollars, since the cost of a good phone and data plan can exceed $1,000 a year. But they also provide some of the same psychic benefits—opening new vistas and carrying us far from the physical space in which we reside. “You no longer need to feel connected to your friends with a car when you have this technology that’s so ubiquitous, it transcends time and space,” Connelly said.

In other words, mobile technology has empowered more than just car-sharing. It has empowered friendships that can be maintained from a distance. The upshot could be a continuing shift from automobiles to mobile technology, and a big reduction in spending.

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