Friday, April 27, 2018

Land of Concertina

If you have ever wanted to see the beautiful country of South Africa, I recommend you do so within the next year. The pot is beginning to boil!

GDP growth rate is flat, compared to 2.2% in the U.S. and 6.8% in China.

Inflation is 6%, compared to 2% in the U.S.

Unemployment is 27%, compared to 4.1% in the U.S.  To appreciate how destabilizing this is, remember that U.S. unemployment never exceeded 25% even during The Great Depression!

Despite the “fall” of apartheid 25 years ago, the issue of race still dominates everything.  Remember the U.S. Emancipation Proclamation was in 1863, and we still have racial strife —154 years later.

The immediate past president is facing charges of corruption and wii probably go to jail next year.  His many supporters have a history of “taking to the streets.”

The current president is advocating confiscation of white-owned farmers without compensation.

Two hundred people move into Capetown everyday, fleeing violence in rural areas.

A tourist bus was fire-bombed in Soweto last week.

There is a national transportation strike by buses and taxis.

Government workers are striking for higher wages.

Everywhere I look, I see fences topped with sharp concertina wire.

Did I mention that 2019 is an election year, when passions are normally aroused.

Visit now or wait until the smoke clears, literally.

Saturday, April 21, 2018

Et Tu, Brute ??

It is bad enough that the morally-challenged technology firms in Silicon Valley argue they have a right to know everywhere you go online, everything you buy in stores, every event you attend, and every lever you pull on election day.  But, those big tech firms are nothing more than apologists for advertising firms.  After all, who doesn't want personally-targeted advertisements?

I've never viewed economists as morally-challenged but now have doubts.  Using deep data-mining and machine-learning, they are starting to use statistical techniques like gradient boosting and the random forest approach to predict recessions.  After all, who doesn't want better economic forecasting?

A "self-fulfilling prophecy" is a prediction that actually happens because of the prediction.  In economic terms, if people believe a prediction that the economy will go into recession, then they will decrease their spending, which puts the economy into the predicted recession.

Believing "the road to hell is paved with good intentions," how do we prevent the inevitable?  Just because something can be done, it doesn’t mean it should be done.  The problem with waterfalls is that they are low on the horizon and hard to see . . . 

I expect better from economists!  Stooping to the level of Facebook or Google is disappointing.

Friday, April 20, 2018

A Duck By Any Other Name . . .

My Republican friends think I'm a Democrat.  My Democratic friends think I'm a Republican.  They're both wrong!  I'm an Austrian economist.

Both Republicans and Democrats practice deficit spending, but they cloak it with clever phrases.  The Republicans call it "tax reform."  The Democrats call it "social investing."  Both phrases are cute cloaks for deficit spending.

Of course, both insist the deficit spending is merely a short-term result.  Republicans say tax reform (read:  tax cuts) will encourage "job creators" to invest more money and spur the economy.  Democrats say increased social investing will increase consumer spending and spur the economy.  Either way, increased deficits in the short-term will make everything great in the long-term.  Sure!

Austrian economists argue government revenues must equal government spending.  Like families, you don't spend more than you make.  Unfortunately, neither Republicans nor Democrats can think beyond their clever phrases.  Scratch a Republican, he'll say the problem is too much spending on entitlements.  Scratch a Democrat, he'll say the problem is the rich, who won't pay their fair share of taxes.  Mere cloaks!

At what point will we admit that the two-party system is failing us?  

Wednesday, April 18, 2018

Noblesse Oblige

My Republican friends laugh when I describe Jimmy Carter as our greatest ex-President.  A wealthy man, he has devoted his post-presidential life to helping others.  However, only Trump-Republicans laugh when I describe Barbara Bush as our greatest ex-First Lady.  After all, she was not a Trump-Republican.  But, she worked tirelessly raising money to fight illiteracy, raising close to $200 million dollars for that cause.

Whatever happened to wealthy people who felt the need to help others?  Was philosopher Ayn Rand responsible? She famously decried that anything which supported poor people only encouraged them to produce more poor people - a classic abuse of Austrian economics?  Was it partisan spillover that characterized the mammoth charitable giving of Warren Buffet and Bill Gates (known Democrats) as mere self-glorification?  I don't know, but I miss it.

It was called noblesse oblige, a French expression that translates as "nobility obliges."  It means there is an obligation to do "good" things.  As a client once told me, "now that I've done well, I want to do good."  Yes, he donated money, but he also physically worked to repair old churches and sought no self-glorification.

Barbara Bush was the epitome of noblesse oblige and a grand lady.  There was room for disagreement in her world but no room for rudeness or bad manners.  She is missed!

Tuesday, April 17, 2018

Good Reasons for Bad News

One of the components of the Index of Leading Economic Indicators is homebuilder confidence, which has dropped again, for the fourth consecutive month.  This is not good news.  However, there are good reasons for it!  There is ample demand for new homes, but there is a shortage of lots to build on and almost none of those are conveniently located for homebuyers.  Plus, our country is having a trade dispute with Canada, which is the biggest exporter of lumber to the U.S.  The cost of that lumber is rising rapidly, increasing the cost of housing and making them less affordable.

So, if you're a homebuilder facing a shortage of lots and rising prices, what do you do?  Build condos?  Oh, did I mention that interest rates are rising?  Maybe, NOW would be a good time to buy a home?

This is just another indication that the economy remains strong, maybe too strong.  Behind this good economic news, we can expect the financial data from homebuilders to suffer.  You see, good economic news can produce bad financial news . . . 

Sunday, April 15, 2018

Gaming A Crisis

It was thirteen months ago that I predicted that President Trump would be impeached or resign.  My Democratic friends applauded, while my Republican friends condemned.  It was not a prediction that was made with any joy.  Make no mistake:  Any constitutional crisis is bad for the country, which therefore also makes it bad for the stock market.

When I made the original prediction, my confidence level was about 60% that Trump would be impeached, but that confidence level has now risen to about 90%.  I still think there is no chance he would be convicted by the dysfunctional Senate, even with a Democratic majority.  (It would be the ultimate existential crisis for our Constitution, if he was convicted and refused to vacate the White House.)

I have reviewed the behavior of the stock market during the impeachments of Andrew Johnson, Richard Nixon, and Bill Clinton but found no useful pattern, except this:  Stocks dropped significantly but always recovered nicely.  Clinton's experience was the easiest to understand - stocks dropped when impeached but soared when the Senate trial began.  Nixon's was much more volatile -- stocks swinging wildly on every rumor or press release.  Johnson's experience was not helpful, due to the lack of stock market data 150 years ago.  My assumption is that the market will drop when impeachment becomes obvious but quickly recover when the market realizes the impotence of the Senate.

But, what about the timing of this constitutional crisis?  Assuming the Democrats retake the House in November/January, they could not get a bill of impeachment through the House immediately, as a good number of Democrats also abhor impeachment as much as I do.  Plus, many fear the social conservatism of the Vice President more than they fear the President's "unpredictability."

For now, I will not be selling stocks until the November election.  If the Democrats merely retake the House, I will take no action.  If there is a huge "Blue Wave," I will start increasing cash.

Tuesday, April 10, 2018

Q1 Column

My latest column for Inside Business can be found here: 

If your browser cannot accept a hyperlink, go to and enter Flinchum into the search box on the upper right.

Monday, April 9, 2018

I Told You So . . .

I will NOT say . . . I told you so.
I will NOT say . . . I told you so.
I will NOT say . . . I told you so.
I will NOT say . . . I told you so.

That expression is so sanctimonious but seems to mean less as we get older?

Yes, ten years ago, once I understood the business model of Google was to shred privacy, I became paranoid that Americans were giving up a basic right but didn't realize it.  Google's search engine offered too much value to be free.  They had to be making money by selling your data/privacy.  (Since then, I have avoided them like the plague, using BING instead which is only less bad.)

Now, we learn that Facebook is the master-shredder of privacy, likely allowing the Russians to interfere with our elections.  Maybe, I should thank Facebook for proving me right, allowing me to say "I told you so."  The CEO of Facebook faces Congress this week, and I hope he gets crucified.  He is certain to be crucified if he testifies in Europe, where privacy is still appreciated.

First, the Google search engine was wonderful.  Then, Facebook sharing was so human.  Now, the Cloud is so efficient.  What could possibly go wrong with the Cloud?

Yes, there are benefits to sacrificing your privacy, because you get better (more focused) advertisements.  So what?  Who cares?  I don't know how many millennials have told me that privacy is as over-rated as chastity, which is ridiculous.  They don't miss what they never had!

When you see an Amazon Alexa or Google Home device in my home, then you will know that Hell has indeed frozen over and will never thaw.  Then, millennials can tell me "I told you so!"

Sunday, April 8, 2018

Finding Emotional Pearls

A bright shiny object attracts the eye, away from other things.  Likewise, the eyes are also a bright shiny object attracting the mind, away from other things.  Some people may not be as observant of bright shiny objects in the outside world, they may be more observant of bright shiny objects of the inside world -- inside their own minds.  Most care more about the outside world, but some care more about the inside world.  Some people rummage through their emotions and find pearls.  Rodriguez is one of those.

Known by his last name, he was a poor first-generation American of Mexican descent born in Detroit in 1942, and he rummaged through his emotions to write song lyrics, which are often compared to that of Bob Dylan.  After two albums won critical acclaim but no sales, he returned to hard physical labor for decades.   Somehow, against all odds, his albums sold heavily in South Africa - outselling both Elvis and the Rolling Stones.  Only, Rodriguez never knew it and became a cult enigma.

Bob Dylan would never do this, but Rodriguez would perform with his back facing the crowd, focused on his inside world, not distracted by his eyes.   Maybe, that is the reason Rodriguez never knew he was a superstar elsewhere.  Maybe, that wasn't interesting enough to him.  But, his lyrics are haunting.  They roll around and germinate in your mind.  I understand "hello only ends in goodbye" but what is a "store bought soul"?  Is that the same as the "authenticity" that existentialists extol endlessly?

Few things are black-or-white, all-or-nothing.  But, what percentage of your thoughts are focused on the outside world instead of the inside world, and how will you know if that is the right percentage for you?

Friday, April 6, 2018

"Strum and Drang"

"Strum and Drang" is a German expression, roughly meaning "Storm and Drive."  It described the eighteenth century anti-enlightenment philosophy embracing emotionalism and rejecting rationalism.  Such is also the presidency of Donald J. Trump, and I pray that it is worth it.

The latest instance is threatening a trade war, particularly with the world's second largest economy, China.  Despite the predictable over-reaction of stock markets worldwide, it is a battle the U.S. is likely to win.  Remember:  Nineteen percent of China's exports goes to the U.S. while only two percent of our exports go to China, plus China's economy is export-based and needs exports more than the service-based U.S. economy.  They need us far more than we need them!

There is considerable fear that we are dependent on China's continued purchasing of U.S. Treasury Bonds to finance our ballooning deficit, especially since the Republican tax cut.  In truth, the Chinese have not been significant purchasers in years, maintaining a relatively stable portfolio.  But remember, we don't need foreigners to buy our Treasury bonds.  The Fed spent four years buying our bonds, to finance the monetary stimulus known as quantitative easing.  If the Chinese dump our bonds, the Treasury will not redeem them -- the Fed will buy them on the open market, thus stabilizing interest rates.  A very unsatisfactory alternative in the long term but works in the short term.

"Strum and Drang" may be the right approach to negotiating with China, but is it therefore the right approach with Mexico, China, Korea, et al.?  Or, is it merely the only approach?

Please let there be method to the madness, as there is certainly an ocean of madness . . . and embarrassment . . . and anger too!

Tuesday, April 3, 2018

Almost Showtime ??

While there is always an economic recession in front of us, a recession is not necessary for the stock market to sustain a 10% correction or even a 20% bear market.  Likewise, a stock market slump does not reliably predict a recession.

The current stock market slump started with the January Jobs Report, which indicated inflation was back, due to a 2.9% year-over-year increase in average worker earnings.  That meant interest rates would come faster than expected, to cool down inflation.  Then, it was revealed that two wildly successful tech giants were mere privacy-pirates, putting their continued business model in doubt.  Then, the president began brow-beating another tech giant.  Small wonder that this market slump is tech-lead.

Behind it all, I see growing anxiety about a possible trade war.  While it may be little more than a trade slap than a trade war at this point, the downside is huge.  The system of international trade that was painstakingly built over the last century has been turned upside-down with uncertainty.  Maybe, that is not all-bad?  That system was not well-suited to evolve in a world with an ever-increasing rate of change.

It was a China Shop, and Trump was the bull.  The system was Humpty-Dumpty, and I hope somebody can put it back together again.  The removal of any small amount of uncertainty would cause the stock market to rally strongly.  We need to see The Art of the Deal, not some "short-fingered vulgarian" as described in Vanity Fair. 

Monday, April 2, 2018

Two Things To Remember

People disagree on which TV commercial by Apple is the best one.  Most think it was the iconic "1984" commercial.  My vote goes to the "Lemmings" commercial, which was aimed at IBM users.  You can see it here: 

Attending a local church service, where it is customary for the congregation to stand up occasionally, primarily to sing, I watched an older gentleman stand up at the wrong time.  Thinking the gentleman knew something nobody else knew, the entire congregation slowly also stood up with him.  Jointly realizing their shared error, the congregation sat down, while softly laughing at themselves.

Last week, a respected politician predicted, without any satisfaction or joy, that there will be a major constitutional crisis in 8-9 months, emphasizing how important it will be for Americans to think for themselves, without regard to the news source they normally watch.  How do you tell a lemming to change their behavior?  Can we survive a major constitutional crisis, if we cannot laugh at ourselves? 

There are two things to remember:
1.)  Young people may not remember the Watergate constitutional crisis, but there were no winners!
2.)   We will survive the next constitutional crisis!