“LOOK AT THAT CADILLAC!”: GM TRIES A GEOGRAPHICAL CURE AT CADDY

9/24/14

General Motors announced yesterday that Cadillac will move its headquarters to New York, part of a larger move to establish Caddy as a separate business unit.   Part of the rationale for abandoning the city whose founder gave Cadillac its name is, as new Caddy boss Johan de Nysschen, put it

“There is no city in the world where the inhabitants are more immersed in a premium lifestyle than New York.”

Mr. de Nysschen thus outlines about as good a reason as any not to live in New York, but I digress.

Will this move to New York work?  Caddy has to do something.  Year to date through the end of August, its sales were down 5% in a strong car market.   Making the story even worse, Caddy’s SUVs, the SRX and especially the behemoth Escalade, are selling quite well.  Sales of Cadillac cars, however, were down 15% as of 8/31/14.  Dealer lots are teeming with CTSs and ATSs that simply won’t sell.

So is moving to New York going to change Caddy’s fortunes?   Employing a little uncommon common sense, one suspects not.  But the move to the Big Apple is at least consonant with Caddy’s pricing strategy; i.e., Caddy vehicles definitely are listed at New York prices.  Therein, one suspects, lies the problem; Cadillacs are simply too expensive.  

The ATS starts in the low $30s, which yours truly thinks is a lot of money but apparently no one else does.  But try finding an ATS at that price point; walk around a dealer lot and you will notice that most of the stickers on this cramped car sport a $40 handle, and many are priced in the high $40s.  The CTS starts in the mid $40s, which gives yours truly apoplexy, and can easily reach the high $50s and low $60s.

C’mon!   These aren’t Mercedes or BMWs; they are Cadillacs, for Pete’s sake.  Yes, the current Caddy products are, in many aspects, as good as the European fare to which they aspire.  The handling of the ATS, which is at least as good, in many knowledgeable people’s opinions, as that of the BMW 3 Series comes immediately to mind.  And it is possible to argue with a straight face that the Cadillac cars are as good as or better in totality than their German competitors.  But that misses the point.

People who spend these brobdingnagian amounts on cars are buying, as much as they will never admit it, an image, not a car.  And while Caddy may be as good as BMW, Mercedes, Audi, Lexus, Infiniti, or what have you, it doesn’t have the image of those “luxury”(whatever that means) marques.  And therefore Caddy can’t charge BMW, Mercedes, Audi, Lexus, and Infiniti prices; those who buy such cars will not stand for it.   And old time Cadillac buyers are not used to paying such prices.  But Caddy doesn’t seem to care much for the traditional Cadillac buyer; in fact, Caddy seems to treat its traditional buyers like something it would like to scrape off the bottom of its shoe.  That also is a big part of the problem.  Older, largely self-made, people have money and are willing to spend it on expensive products that deliver value.  Caddy used to know that, but now seems to be tossing such customers over the side while fixating on capturing the attention of the insecure types who fancy themselves the nouveau riche and seek to prove it, perhaps to themselves, by the accumulation of showy and glittery yet ultimately useless gimcracks and trinkets.

So Caddy can tell its hometown to screw itself.  But as long as it charges prices commensurate with those that prevail in its new HQ town, and tells its traditional buyer base to also do the aforementioned anatomically impossible, it will have problems that far transcend geography.

WHY IS THE MARKET DOWN? WHERE IS THE MARKET GOING? WISE GUY ANSWERS TO UBIQUITOUS, YET POINTLESS, QUESTIONS

9/23/14

A guest on yesterday’s edition of WBBM’S Noon Business Hour (“NBH,” a program I HIGHLY recommend…noon to 1 PM Chicago time on AM 780) was asked to opine on the reasons for the market’s mild doldrums of late.  Since I was cutting the lawn at the time, I didn’t catch the guest’s name and am unable to quote his exact response.  But, paraphrasing, he offered that the market was due for at least a mild downturn or breather after reaching record highs.

This explanation seems reasonable and is certainly as good as any other offered by the “experts” in the field of market prognostication.   Those of us who believe, with more than the usual degree of conviction, in the efficiency of markets, however, believe not only in the inability of anyone to consistently call the direction of markets.   We also believe that it is nearly impossible for anyone to explain why the market has done what it has done; who knows what future events the markets were or is discounting with their usual remarkable efficiency?  People generally stink at prospectively calling the markets; they also generally stink at even retroactively calling the markets.  Such musings as offered by the NBH’s guest, and the guests on every markets oriented show, may be interesting and fun but they are, ultimately, quite useless.  See 8/29/14’s BULLS, BEARS, AND BRAINS:   THE RELENTLESS PURSUIT OF THE FOOL’S ERRAND OF CALLING THE MARKETS for further illumination on this topic.

Given our fervent belief in the efficiency of markets, those who think like yours truly might respond to a question regarding why the market did what it did with a wise guy answer like

“The market was down because there were more sellers than buyers,”

which is about as illuminating as

“The bond market went down because interest rates went up,”

but is nevertheless at least as insightful as anything anybody else might pull out of a conveniently situated orifice.

But even the glib and wisenheimer answer

“The market was down because there were more sellers than buyers”

is wrong because there cannot be more sellers than buyers; clearly, even in this age of such financial sophistication as naked shorts (which, for those of you not as familiar with the markets as other readers, are not as interesting as they sound), for every seller, there must be a buyer.  A better, but no less smart-butted answer, would be

“The market was down because there were more sellers than buyers AT THE PRICES THAT PREVAILED BEFORE THE MARKET FELL.”

Right again, Mr. Quinn.  Thank you.

RAHM VS. THE LILLIPUTIANS

9/23/14

Fran Spielman, the City Hall reporter for the Chicago Sun-Times, write a story published today (“Long shot could force runoff,” page 11) arguing that while Alderman Bob Fioretti cannot possibly win a mayoral race against Rahm Emanuel, the presence of both Mr. Fioretti and Chicago Teachers’ Union President Karen Lewis on the primary ballot could make a runoff more likely.   (See ALDERMAN BOB FIORETTI THROWS HIS HAT IN THE RING:  OH, HEART BE STILL, 9/13/14 for more illumination on Mr. Fioretti and his minuscule chances for winning the big office on the 5^th Floor.)

A brief primer on the mayoral election process in Chicago is in order here.  Chicago mayoral elections are no longer officially partisan; instead, there is a nonpartisan primary in February.  If a candidate gets more than 50% of the vote, s/he becomes mayor.  If no candidate wins 50% of the vote, a runoff is held in April.  Since this officially nonpartisan process was initiated in 1999, there has been no runoff election.

Ms. Spielman, like any political junky reporter, loves a good story.  She even trotted out old school independent strategist Don Rose in support of her thesis, or at least in pursuit of her story.  But Ms. Spielman is, in this case, clearly delusional.  

As I have said before (e.g., TONI PRECKWINKLE RULES OUT A RUNFOR MAYOR OF CHICAGO…MY READERSYAWN, 7/15/14), no one is going to beat Rahm Emanuel in February and there will be no April election.   Mr. Emanuel has the money, the organization, the cowering pols, the obsequious “business community,” the private sector unions, and certainly the fawning press, national and local, behind him.   Politics everywhere, but especially in Chicago, is about money and the people who make money, or can potentially make money, from politics in this city on the make are either behind Mr. Emanuel or will be wooed by promises of money, or by threats, to get behind Mr. Emanuel.  Whether Mr. Emanuel runs against one, two, or a million opponents, that will be the case.

Mr. Emanuel’s inevitability would be, if anything, enhanced by the presence of both Ms. Lewis and Mr. Fioretti on the primary ballot.  Yes, there are differences between them…professional background and race come immediately to mind.  But, fully mindful that ideology is overrated in the governance of cities, it is useful to point out that these two are ideological clones.  Their philosophies are identical…vilify and tax the wealthy in order to pander to the poor.  In a mindless jihad that could only be conceived by those with complete ignorance of economics, both Ms. Lewis and Mr. Fioretti would increase the tax and regulatory burden to make the city sort of dystopia for the productive in a gormless appeal to the baser instincts of the masses.  Hello Detroit.

If we were to join the fantasizing about the possibility of unseating the Wise and Mighty Rahm, we would do well to heed Greg Goldner, Mr. Emanuel’s campaign manager in his 2002 run for Congress, as quoted in the Spielman article, who said

“They’re (Ms. Lewis and Mr. Fioretti) almost splitting the progressive community.  That’s not the right starting point to go to the white ethnic base on the Northwest and Southwest sides that might be dissatisfied with the mayor but don’t share those leftist political views.”

If we had either Mr. Fioretti or Ms. Lewis in the race, but not both, and a candidate who could appeal to the justifiably angry voters on the Southwest and Northwest sides whom Mr. Emanuel regards as an endless parade of Mikes and Mollies, then we might have something of a race…but ultimately, at best, a race to see who gets slaughtered in the April run-off.  That other candidate, however, has not surfaced and will not surface and, as Mr. Goldner points out, those teed off people from my old neighborhood and their kindred spirits from the geographical fringes of the city are not going to back Karen Lewis or, once they’ve read more than a few paragraphs on the man, Bob Fioretti.  They’d rather hold their noses and vote for Mr. Emanuel.  So Mr. Fioretti and Ms. Lewis, if they both wind up in the race, will be battling each other for that fraction of the black and/or progressive vote that hasn’t been bought off or similarly mollified into voting for Mr. Emanuel…like two dogs fighting over a picked over bone.

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

THE JOURNAL URGES US TO FIGHT ON BOTH SIDES IN SYRIA: BELLUM GRATIA BELLI?

9/17/14

In its lead editorial this (Wednesday, 9/17/14, page A14) morning, the Wall Street Journal urges the Obama Administration to lift the siege on Aleppo by bombing Syrian President Bashar Assad’s airfields.  This would put the United States, explicitly, on both sides of the Syrian conflict and clearly on one side of the larger Sunni/Shiite conflict in the Middle East.  Who but someone who urges us to fight a war for the sake of fighting a war would urge such an insane policy?

Even dedicated non-interventionists like yours truly can see some merit in a bombing campaign against ISIS, ISIL, the Islamic State, or whatever it is being called today, especially after this especially cold-blooded group of terrorists has beheaded two Americans and one Brit.   We don’t like our country putting its considerable proboscis where it doesn’t belong, but we also can’t see our country standing idly by while its citizens are tortured, killed, and otherwise abused.  

But I have also urged caution, reminding members of the War Party, and its most stentorian voice at the Wall Street Journal, that only a few months ago, they were urging the United States to bomb Syria in support of the Syrian rebels, the most salient group of which was, and is, ISIS.  (See, for example, THE WALL STREET JOURNAL ON THE ISLAMIC STATE:  “I WAS FOR IT UNTIL I WAS AGAINST IT”?,  8/21/14, MORE ENLIGHTENED THINKING FROM WASHINGTON: LET’S FIGHT IN BOTH IRAQ AND SYRIA!, 6/25/14)  A military campaign against ISIS, however, would put us on the side of Mr. Assad, a guy that the Journal and its fellow neocons were urging us to oppose only a few months ago.   Fighting ISIS thus would have the implicit effect of our fighting on both sides of the Syrian Civil War.  Only the geniuses at the State Department and other bastions of deep thinking foreign policy formulation in Washington would put us on both sides of a war.

Now the Journal, by urging the Obama Administration to bomb Syrian airfields and take other steps to lift the siege of Aleppo, is advocating explicitly placing us on both sides of the Syrian Civil War, fighting both the Assad regime and its most powerful and visible opponent, ISIS.

The rationale the Journal provides for getting us on both sides of the Syrian conflict is that

Sunnis will not support the campaign against Islamic State if they think our air strikes are intended to help the regime in Damascus and its Shiite allies in Beirut and Tehran.

This might indeed be the case, though we could, by the intensity and targeting of our air campaign, show the world that our objective, and only objective, is to rid the world, to the extent we can, of a group of extremists who have committed what ought to be the worst of sins on the international stage, i.e., the cold-blooded killing of American citizens.  But I digress.

More to the point, though, is that while the Sunnis may misinterpret an effort solely directed against ISIS as our taking the sides of the Shiites in Syria and in the larger Middle East, what will be the reaction of the Shiites if they see us fighting explicitly on the side of the Sunnis in Syria?  Perhaps they will take solace in that we are supporting the Shiite dominated government in Iraq, but I wouldn’t bet on it.  

The larger point is that it’s easy to see how byzantine the politics of the Middle East are and the best policy is to stay as far away from such intrigue as we can, limiting our involvement to making it clear that killing and torturing American citizens will not go unanswered.

One suspects, though, that the neocons, their manifesto writers at the Wall Street Journal, and the rest of the War Party in Washington care little for either the complexities of the Middle East or the rationalizations they provide for military action there.  Their sole, or at least their paramount, goal in urging us to bomb both the Assad regime and the Islamic State that opposes it is to get us involved in a war, any war…doing so is good for the “defense” contractors who keep War Party members comfortably ensconced in their Washington, D.C. sinecures.  And what could be more important than that?

“ILLUMINATING” THE UNIVERSITY OF ILLINOIS?

9/15/14

In a September 5 column, Chicago Sun-Times writer Neil Steinberg, under the cover of a disingenuous offer of “illumination” for my alma mater, the University of Illinois at Urbana-Champaign, delivered a back-handed slap to one of the world’s great universities and nearly an entire state. 

Rarely letting a slight of an institution I hold dear go unanswered, I sent the following letter to the Sun-Times.  As I anticipated, the paper didn’t print my missive and certainly won’t now that all this time has passed.  So I thought I’d post the letter on my blog for your enjoyment and consideration:

Neil Steinberg is a columnist and columnists are not supposed to be objective.  The columnist’s job is to be opinionated.   However, one can be opinionated without being extraneously nasty…and missing one’s facts in the process.

In his offer of “illumination” to my alma mater, the University of Illinois at Urbana-Champaign, Mr. Steinberg fails on both counts.   One understands immediately that Mr. Steinberg doesn’t like the U of I, perhaps because it is too low brow for him.  But he can’t even offer the place a compliment (“bristling with programs and libraries and quirky collegiate peculiarities”) without prefacing those compliments with the back-handed slap that he expected my alma mater to be a “seedy sinkhole of downstate grimness.”   Mr. Steinberg has to go out of his way to insult not only one of the world’s great universities but the entire state of Illinois south of I-80.   But he’s only trying to help, don’t you see?

Mr. Steinberg, in his further denigration of the U of I, offers an absolutely silly criterion for judging the quality of a university:  he challenges us to name one University of Illinois professor.     How many people can name any professor anywhere?   Mr. Steinberg compounds his folly by answering his own question by citing Bill Ayers, who was on the faculty not at the University of Illinois at Champaign, the subject of his column, but at the University of Illinois at Chicago.   Perhaps a better criterion would be Nobel Prize winners; U of I has 11 Nobel laureates among its alumni and another 11 Nobel laureates among its non-alumni faculty.   Two Nobel laureates were both alums and faculty members.  Most people in my profession, investments, can name one of those faculty laureates, Franco Modigliani, the former UIUC professor who won the Nobel in Economics in 1985 primarily for his work on valuation of the firm.  Can Mr. Steinberg name any of the U of I’s Nobel winners?

One of Mr. Steinberg’s prescriptions for improving the U of I’s image is to admit fewer students, to lower its acceptance rate so that “those it did admit might get the sense they had achieved something truly significant by being admitted and actually go.”  Mr. Steinberg goes on, after that slap, to say that he doesn’t want to “minimize” that “a lot of kids work like demons to get in” and that “U of I represent(s) the attainment of their dreams,” but one can clearly smell insincerity there.  And how do you think the taxpayers of this state would react if U of I turned down more stellar students?   Who hasn’t heard the stories of kids with 33+ ACTS and perfect GPAs getting turned down for the engineering or business schools at U of I?   Mr. Steinberg wants more such stories?

We get it; Neil Steinberg, even though he “could see (his) boys going there,” doesn’t think U of I is up to his high standards.  But in explaining this position, does Mr. Steinberg have to go out of his way to insult not only an institution that continues to contribute so much to the worlds of business, technology, and the cause of academic excellence, but also nearly an entire state?

ALDERMAN BOB FIORETTI THROWS HIS HAT IN THE RING: OH, HEART BE STILL

9/13/14

So 2^nd Alderman Bob Fioretti has thrown his hat into the Chicago mayoral ring.  Yawn.

As 1^st Ward Alderman Proco “Joe” Moreno said of Mr. Fioretti’s quixotic quest

“I think he has no shot.  None.  It’s delusions of grandeur on his part.”

Delusions of grandeur are somewhat characteristic of Mr. Fioretti, but probably only to a slightly greater degree than is the case with most politicians.   Like most pols, Mr. Fioretti is convinced that he has all the answers and that he is duty bound to enlighten us with his brilliance.  His feelings in this regard pale beside those of the man he seeks to unseat, but I digress.

There is nothing endemic to Mr. Fioretti that renders his bid for the 5^th Floor laughable.   While being accused of being somewhat loony left, it is hard to label the advocacy of more cops on the street, removing control of the Chicago Public Schools from the mayor’s control, and elimination of red light cameras as being somehow leftist.  A commuter tax is a potentially ruinous idea that does smacks of liberalism run amok.  But, on balance, there isn’t as much room for ideology in running a city as most would have you believe.  The most dyspeptic aspect of Mr. Fioretti is, in any case, not his ideology but his aforementioned ego.  In a field that includes Rahm Emanuel and Karen Lewis, however, Mr. Fioretti’s ego would be, by comparison, a non-issue.

Mr. Fioretti does have some admirable qualities.  What immediately comes to mind is his courage to stand up to Mayors Daley and Emanuel when his colleagues in the City Council were, and are, acting like love struck schoolgirls desperately angling for so much as an approving grin from the object of their sycophancy.   Those who decry the financial ravages Mr. Daley inflicted on our city would do well to have imitated Mr. Fioretti’s voting record in the Council.   Those who decry Mr. Emanuel’s highly unpopular attempts to deal with this mess would have a hard time finding a more genuine champion than Mr. Fioretti.

None of this matters, however.  Mr. Fioretti could be a flawless candidate with impeccable credentials and a solid voting base (He has none of those.) and still get clobbered by Rahm Emanuel.   As I’ve said ad nauseam in the past (KAREN LEWIS, THE HUMAN MONOPOLY GUY: SOME QUESTIONS THAT HAVEN’T BEEN ASKED, 8/14/14, TONI PRECKWINKLE RULESOUT A RUN FOR MAYOR OF CHICAGO…MY READERSYAWN, 7/15/14, et. al.), Rahm Emanuel has all the money and all the organization.  Chicago is an array of constituencies that can readily be bought, one way or another, making it an especially fertile ground for pols with money and organization.   Toni Preckwinkle, who has more name recognition and qualifications, and a more natural voting constituency, than Mr. Fioretti, realized that she had no chance and dropped out.   Karen Lewis, with at least two more natural constituencies than Mr. Fioretti, may be in the process of seeing the light and dropping out.  Who knows what she will do?  But that, too, doesn’t matter; nobody is going to beat Rahm Emanuel in 2015.

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

RETAIL SALES INCREASE AND THE AMERICAN WAY: “LIVIN’ ON MONEY I AIN’T MADE YET…”

9/12/14

The Commerce Department reported this morning that August retail sales rose a seasonally adjusted 0.6% from July after rising 0.3% from June. 

Most of the vocal quarters of the economics profession, along with the “strategist” community on Wall Street, seem to be overcome with joy at this number.  This is further proof, we are told, that the consumer is “finally opening up his wallet.”  One wishes that these estimables could come up with something less trite, but I digress.

As is my wont, yours truly is not as enthusiastic about these developments as are his much more highly paid colleagues. 

Earlier this week, we learned that consumer credit other than mortgage debt rose at a seasonally adjusted annual rate (“SAAR”) of 9.7% in July, after growing at more “modest” SAARS of 7.1% in June and 7.3% in May.  Credit card debt, which had been being gradually whittled down since the Great Recession from which we are supposedly emerging, grew at a SAAR of 7.4%, the fastest pace since April, to $881 billion.

We also heard from Dartmouth Professor Jason Houle that more than a 1/3 of Americans in the 24-28 range category owe more than they own; i.e., they have negative net worths, or, to use a highly technical financial term, they are broke.  Much of this problem arises from student debt.

Yes, in the short run, consumer spending is good for an economy that draws nearly 70% of its sustenance from such spending.  But one begins to wonder if the increase in debt that is supporting such spending is about to drop us back into the economic soup from which we are still struggling to emerge.

I’ve said it ad nauseam in the past and I’ll say it again:

More debt is not the solution to a problem that had its genesis in too much debt.

Our politicians don’t understand that.  Perhaps this misunderstanding is in the very nature of a politician.  But perhaps the pols’ failure to grasp this seemingly common sense concept arises because they are elected by a people who themselves don’t understand that more debt is not a solution to too much debt.

RICHARD KIEL, R.I.P.: “THE SPY WHO LOVED ME”? HOW ABOUT THE MAN’S FIRST BIG ROLE?

9/11/14

Richard Kiel died today at the age of 74.  Having a few years, and perhaps a taste for morbidity, on me, I instantly recognized the name and the face, and felt the loss, of this perhaps not great but clearly entertaining actor.   So I combed the internet stories of Mr. Kiel’s death.  I read of “The Spy Who Loved Me” and the Kiel character Jaws.  Not being much of a James Bond fan, they meant little to me.  But I continued reading.  Nothing on Mr. Kiel’s most memorable character.  I went to other stories…still nothing on the role that gave Mr. Kiel his big break.

Perhaps yours truly is irredeemably old and out of touch, but I simply can’t understand why there were no, at least as far as I saw, references to Mr. Kiel’s seminal role as the Kanamit in perhaps the most famous Twilight Zone episode of all… 1962’s “To Serve Man.”  Even those who don’t share my ardent enthusiasm for this greatest TV series of all time know the episode.   If I need to jog your memory…

“It was a cookbook!”

Now you know the episode.

Richard Kiel was the Kanamit, the representative of the big aliens who had come, presumably, to heal all the earth’s ills.   Before he was Jaws or anything else, Mr. Kiel played earth’s alien benefactor. 

If you still don’t remember this episode, or even if you do, the occasion of Richard Kiel’s death should prompt you to watch this episode that many consider the best Twilight Zone had to offer.  Yours truly would not agree with that assessment; while “To Serve Man” was great, there were several (“Walking Distance” comes immediately to mind, but “The Obsolete Man,” “Time Enough at Last,” “Nightmare at 20,000 Feet,” and “One for the Angels” are right up there as well.) that were at least its equal.  But I digress.

If the Kanamits remind you of Chicago politicians, and they should, see my two books

The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics

THE FED: “STAND BY YOUR (MARKET)”

9/5/14

Wall Street’s perennial favorite parlor game has been trying to get into the head of whoever is Fed chairman and deciding when s/he will be adjusting monetary policy one way or the other.   See, for example, TAPER TALK, THE FEDAND THE FINANCIAL MEDIA:   WHAT WOULD JESUS SAY?, 12/19/13.  The last few years, and even the last few months, have seen this game in full swing.  Yours truly may as well join the fun since he is as likely as anybody else to be right…or wrong.

It’s general consensus that the Fed won’t be raising short rates until sometime next year, probably around the middle of next year, after winding down its quantitative easing (“QE”) on the long end of the curve by the end of this year as scheduled.   Yours truly suspects, though, that the consensus might be early on the increase in short rates.  Yes, today’s jobs number indicate that the economy remains shaky and still needs the methadone of the Fed’s easy money policy.  But further contributing to my belief that we might be waiting until 2016 to see the end of what I referred as Ben Bernanke’s (and now Janet Yellen’s) War on the Elderly is the dollar’s amazing strength.  As the financial media are nearly constantly pointing out, the dollar is now trading at its year to date high against the euro.  But the greenback is also at or very near year to date highs against the British pound and the yen as well.   This economy can’t take sustained currency strength against our trading partners/financial rivals, or so the popular wisdom, which this Fed rarely defies, would have it.  Hence rates will stay low a long, long time, especially since the European Central Bank (“ECB”) seems to have jumped on the “toss the paper out of helicopters…go on, it’s good for you!” bandwagon yesterday.  

This enthusiasm for competitive debasement of currencies doesn’t look like it will end well, but old codgers like yours truly have been saying that for years now and, so far, we haven’t been right.  For now, the party continues; the hangovers are tomorrow’s problems.

DAVE TEPPER, THE BOND MARKETS, INFLATION, AND THE FUTILITY OF CALLING MARKETS

9/5/14

Dave Tepper, the former Goldman trader who runs Appaloosa, one of the country’s more successful hedge funds, said yesterday

"It's the beginning of the end of the bond market rally. We are done." 

People in the market, or anywhere, for that matter, don’t get much smarter than Dave Tepper; see AN AMERICAN MANUFACTURING RENAISSANCE; IT’LL TAKE MORE THAN CHEAP ENERGY, 5/15/13  Still, I don’t know if he’s right or wrong here, and I’m not being coy by saying, as is the fashion nowadays, of saying “I don’t know if he’s right here” when one means “He’s wrong here.”   I genuinely don’t know whether Mr. Tepper is right because I fervently believe that very few people, even people as smart as Dave Tepper, can consistently call markets; see the already seminal BULLS,BEARS, AND BRAINS:   THE RELENTLESS PURSUIT OF THE FOOL’S ERRAND OF CALLING THE MARKETS, 8/29/14. But if Mr. Tepper is right about the bond markets, and there is about a 50/50 chance that he is, it won’t be because of the Fed, or at least not because of the Fed in the way that most people say. 

If the bond market rally is over, it will be because the inflation that we all see around us will finally find its way into the government’s questionable statistics and maybe into the markets.  But old guys like yours truly have been saying that inflation is just around the corner for years…and those of us who pay for college tuition, health care and insurance, gasoline, food, cars, restaurant meals, airline tickets…you know, those things that Wall Street tells us are inconsequential, have seen it.  But the government, and the markets, tell us that what is as plain as the noses on our faces doesn’t exist.  When they finally open their eyes and stop playing games, though, there is no doubt that Dave Tepper and like minded souls will be proven correct in their predictions of higher bond rates.

McDONALD’S (MCD): YOURS TRULY MAY NOT BE LOVIN’ IT, BUT…

9/5/14

I bought some McDonald’s (MCD) stock today.

Loyal readers know that I am a fervent believer in the efficiency of markets and therefore in buying index funds, rebalancing with the religiousness of the Pope, and not making the slightest attempt to call the markets or individual stocks; see INDEX INVESTING:  “YOU (DON’T) GOTTA HAVE HEART…”, 8/21/14.  However, old habits die hard.  Consequently, I do trade a little bit of money, mainly to amuse myself and keep myself focused for my writing endeavors, which I also engage in primarily to amuse myself.

With that disclaimer behind us, why did I buy McDonald’s?   The stock has really been beaten up lately; it reached a year to date high of $103.53 on May 13.  It has since traded down 10.2% to the $92.99 at which I bought it.  The S&P in that time period is up 5.7%.  MCD pays a quarterly dividend of 81 cents, which works out to a dividend yield of 3.48%, more than 100 basis points over the ten year treasury. 

Why is MCD down?  Despite what the financial media and most of Wall Street would have you believe, no one knows.  But those who make a living opining on the unknowable tell us that MCD is down because the millennials don’t like McDonald’s  (Who does like McDonald’s…the food, not the stock?  But I digress.), the competition in the fast food business is too much for McDonald’s, and that the pressure for a higher minimum wage that is supposedly sweeping the country will be bad for MCD.  

As a believer in efficient markets, yours truly doesn’t  pretend to know why MCD is down, though I suppose I could guess as well as the people who are paid a lot of money to make such guesses.  What I do know from years of experience, though, is that when the stock of a great American company is down as much as MCD, it is time to consider buying.  When that same stock pays a healthy dividend and has made no indication that that dividend is in danger, it is time to take an even closer look.  When the reasons advanced for the stock’s having arrived at such a seemingly attractive valuation sound like they could only come from people who know little of life beyond the caverns, usually figurative, but often literal as well, of Wall Street, it’s time to put one’s money to work.

That is why I bought McDonald’s.   Was I early?  Will I prove prescient or foolish?  I don’t know.  But, as with football, having a little skin in the game makes watching more interesting.

BRUCE RAUNER CONFIRMS MEMBERSHIP IN A $140,000 WINE CLUB: ELITIST, POMPOUS POPINJAY, OR SHREWD BUSINESSMAN?

9/3/14

Yesterday, GOP candidate for Illinois governor Bruce Rauner confirmed that he belongs to the Napa Valley Reserve (“NVR”) wine club.  NVR is a rather exclusive club; it reportedly costs $140,000 to join.   Mr. Rauner’s membership in NVR was hinted at in an article in last Sunday’s (i.e., 8/31/14’s) Chicago Tribune’s front page headline article entitled “Emanuel and Rauner.”  Yours truly found that article especially interesting, coming in the wake of my 8/18/14 post, PAT QUINN TO BLACK VOTERS:   BRUCE RAUNER = RAHM EMANUEL?, in which I argued that it might be a good idea for Pat Quinn (no relation) to try to convince black voters that a vote for Bruce Rauner is a vote for Rahm Emanuel.   One wonders how many people at the Tribune read my posts and/or are (not so) secretly working for Pat Quinn.  But I digress.

The immediate knee-jerk reaction to Mr. Rauner’s belonging to a “wine club” that cost $140,000 to join is to argue that it confirms Mr. Rauner’s elitism and consequent unfitness to be this state’s governor.   The Pat Quinn (no relation) camp has, to absolutely no one’s surprise, taken up this narrative with near childlike vigor.

The second, more thoughtful reaction would be to question Mr. Rauner’s judgment.  It is, of course, his money and he can do what he wants with it, but what sort of narcissistic, compensating popinjay feels the need to pay $140,000 to join a wine club?

While the second aforementioned reaction is more sound than the first, and might very well be the correct reaction, there is a good possibility there is more to Mr. Rauner’s belonging to NVR than an odd, but not uncommon, combination of ego and insecurity run amok.

Mr. Rauner is reportedly a partner with Bill Harlan, who runs NVR, in a venture called Promontory Vineyards, which owns 480 acres of real estate in the Napa Valley.   At current prices, that property is worth something in the $130mm-$150mm range.   That’s a lot of money even by Bruce Rauner’s standards.   Further, given the current enthusiasm of the bleating sheep who sadly constitute America’s new elite for outrageously priced wine, Promontory may turn out to be a very lucrative investment for Messrs. Rauner, Harlan, and their partners.  Perhaps the $140,000 membership in NVR was a means for Mr. Rauner to curry the favor of Mr. Harlan and thus get in on the Promontory deal.  If this was indeed the motivation behind Mr. Rauner’s joining NVR, that $140,000 could turn out to have been a relatively trivial, and very shrewd, investment.

Or maybe Bruce Rauner’s just an egomaniac who wants to brag to his friends that he belongs to a club that charges $140,000 for access to snooty wine that is often barely distinguishable from the swill yours truly used to buy in the generic aisle at Jewel in the early ‘80s.  One never knows.  But don’t discount the possibility that the seemingly foolish NVR membership was a small cog in a larger plan.  That’s the way business is done.   Pat Quinn (no relation), of course, would know nothing of such matters since he has spent his life suckling on the public mammary gland rather than actually conducting business.  But I digress…again.

See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics.