July 11, 2014
- When the cops tell you to arm yourself…
- Is Cynk sunk? In search of the story behind a 25,000% gainer
- The gasping consumer, Part 1: A housing play infested with termites
- The gasping consumer, Part 2: Booze in a dollar store
- The currency that just doubled its presence in global trade… more absurd tales from the land of the wage slave… “work” that pays $3,600 an hour… and more!
“Get yourself some firearms, because you’re going to have to protect yourselves,” says John Rivera, president of the police union in Miami-Dade County.
Hmmm…
Three years ago, we made almost daily mention of a local government budget squeeze somewhere. The result was either service cuts — i.e., police in Oakland refusing to answer burglary calls — or a raft of “new taxes and weird fees” — i.e., a “flush fee” tacked onto water and sewer bills.
Our broader point was that when the “mother of all financial bubbles” begins to burst, you’ll feel it on the local level first.
The thesis is still sound… although we acknowledge it’s taking longer to play out than we first thought.
Indeed, state and municipal coffers are slowly filling back up after the “Great Recession.” State and local governments are hiring again.
It’s the essence of the “Tale of Two Americas” we keep writing about. The rot in the system hasn’t gone away. But a new wave of American innovation — in biotech labs, in Silicon Valley, in the energy patch, even in home workshops with 3-D printers — is giving the government vampires new sources of blood. Go figure…
Still, every once in a while, we see reminders of that underlying rot. Miami’s mayor just cut $64 million from the 2014-15 budget. Up to 250 police jobs could go by the boards.
Thus the warning from the head of the police union. The full sound bite aired on WSVN-TV went like this: “If the mayor’s not going to provide security, then my recommendation, as an experienced law enforcement officer for nearly 40 years, is either buy yourself an attack dog, put bars on your windows and doors or get yourself some firearms because you’re going to have to protect yourselves.”
Yeah, we know, it’s a union guy trying to whip up a public frenzy and protect his guys’ well-feathered nests. Old story.
But it makes us wonder what the heck’s going on with all those wealthy Latin Americans bidding up Miami condo prices like nobody’s business: Where’s the property tax bonanza that’s supposed to follow? Just asking.
[Ed. note: If you suspect the rot might come back to the surface sooner rather than later, well, that’s an understandable impulse. There are two things you should do to prepare for whenever that day arrives… which we lay out in depth at this link.]
The major U.S. stock indexes are flat this morning. Yesterday’s drubbing turned out less awful by the close than it appeared when we were writing 24 hours ago.
At last check, the Dow is at 16,867. The only major index in the green is the Nasdaq, and only by a skootch.
“When several groups of stocks are moving higher while the rest of the market just kind of wanders, some people (including myself) like to call it a ‘stock picker’s market,'” writes Greg Guenthner of our trading desk.
“But in reality, there are almost always individual stocks doing their own thing while the market hums along. If you look hard enough, you can find amazing — and awful — trades and investments no matter what the rest of the market is doing.”
“That brings us,” says Greg, “to a little company called Cynk Technology.
“I don’t know what this company does. Neither does anyone else. But that didn’t stop it from rocketing higher this week.”
By Wednesday’s close, shares had rocketed nearly 25,000% in the space of a month. Its market cap soared to $5 billion. Not bad for a company with no revenue, no assets, no website and one employee.
In other words, as Gertrude Stein said of Oakland (weird, that’s the second time Oakland has come up in passing today), there is no there there.
“Of course, there’s something fishy going on,” says Greg. “The stock was halted earlier this morning.”
The lesson? “If it looks too good to be true, it probably is…”
All’s quiet in the commodity complex. Gold is barely budged from where it was 24 hours ago, at $1,335.
Crude continues its slide as traders tune out the trouble in Iraq, which is nowhere near over. As we write, a barrel of West Texas Intermediate fetches $101.46, the lowest in two months.
The march of the yuan, continued: The Chinese currency’s presence in international finance doubled last year.
The Institute of International Finance says the yuan is now tied with the Swiss franc as the sixth most used currency in global transactions. Granted, its overall share is still infinitesimal, at 1.4%… but it’s the trend that counts.
Meanwhile, the yuan is now the ninth most traded currency on foreign exchange markets — an impressive feat for a currency whose issuer still puts tight controls on its use. The daily average volume of $120 billion is nearly four times the figure in 2010.
“If the U.S. consumer is willing and able to boost the economy with a spending binge, why did a leading retailer of flooring products just experience a collapse in sales?”
Dan Amoss, keeper of The 5’s PRO edition, can’t help but ask this impertinent question upon seeing the state of affairs at Lumber Liquidators (LL) — a company he suggested PRO readers short last September.
“Beyond the hype and hope,” says Dan, “what is the true state of discretionary spending in the U.S. housing market?
“Start with the fact that we had a horrible, contracting first-quarter GDP number. In the first four months of the year, LL management was bullish on 2014. It expected a weather-related rebound in the spring months. Then came May and June — months that economists assure us involved a sharp rebound in GDP. After all, several surveys from ISM tell us the economy bounced back, right?
“However, Lumber Liquidators just said May and June flooring sales were so bad that management completely flipped its outlook for 2014. It’s now bearish.
“Here’s what investors should conclude from this sequence of events: Don’t expect the strong economic rebound that economists, investors and the Fed are all expecting.”
This is where your editor jumps in to point out readers who followed Dan’s suggestion to short LL last fall are up 44%. For access to Dan’s daily guidance — buys and sells based on the themes we follow here in The 5 — follow this link.
Since when did beer and wine become the stuff of dollar stores?
Staying with our strapped-consumer theme, Family Dollar is experimenting with alcohol sales at about 200 locations this summer. The results so far are considered good enough for a nationwide rollout.
On the surface, the idea seems nutty: Booze is a low-margin item, and Family Dollar’s margins are already squeezed thinner than a human hair. “But food and drink also tend to prompt more customer trips to the stores,” says Businessweek. “Bring back the shoppers, the theory goes, and resurrect a flagging business with profit margins that have been sliding steadily for three years.”
Ummm, OK…
Family Dollar’s core customer is still hurting, not sharing in the bountiful side of our oft-mentioned “Tale of Two Americas.” “The low-end consumer has not benefited from this recovery at all, and I think has even slipped back,” says CEO Howard Levine.
[While we have vino on the brain: You don’t have to choke down Riunite or Franzia from a dollar store to imbibe on a budget.
You do need to have a handle on inexpensive wines that are perfectly good stand-ins for the pricey stuff. Say, less than $40 for a pinot noir that’s as good as or even better than a $100-plus bottle of Ten from the trendy Sea Smoke Cellars Winery.
This quest for value has become a near-obsession with Laissez-Faire Club director Doug Hill — so much so that he’s launching a “Taster’s Club” trial. Just fill out a quick survey as we seek out the right people to take part in our experiment. Twenty lucky individuals will get two bottles of good-but-not-nosebleed-expensive wine shipped to their front door. Act soon: We’re closing off access to the experiment in four more days.]
“I am certainly not a wine snob,” a reader writes after seeing Doug’s invitation, “unless being able to tell red from white counts.
“I do, however, like to have the occasional glass, and while I have no idea which vintages are the latest rage, or of the subtleties of the wine’s nose, etc., etc., I certainly can tell when it is tasty.
“I was just curious if you planned on leaking out the list of top tasting wines that make the grade on the tasting challenge for those of us that will never become well versed in the nuances of the wine world but would still like to buy a first-class bottle from time to time costing less than a car payment.”
The 5: “The ‘wine snob’ angle was a bit tongue-in-cheek,” Doug replies. “Still, for the purposes of proving our concept, snobs are useful.
“Indeed, if the experiment goes as we hope, we will be unleashing a string of inexpensive, unknown wines to our readers… so stay tuned for the results.”
“I can relate to the letter about corporate culture and the BS that the companies level upon employees,” writes another reader.
“My company keeps putting more and more of the [W. Edwards] Deming theories on us. I am basically on independent duty in a remote station from the headquarters of the company. There is a four-hour travel distance disconnect from others in the company. However, the company keeps wanting me to participate in company functions, but does not like my overtime to travel to these events, so they take time out of my workday, and that leaves my workplace unmanned for two or three days, instead of one.
“Deming put in place the theories of workplace harmony in Japan. The U.S. saw what Japan was doing in the ’80s and tried to copy those same theories. What they did not see is that it only worked for a couple of decades in Japan, and then they went bust. We are in the same cycle, just a decade or so behind Japan. Add in the economic crash and spendthrift politicians and we are in for decades of economic funk, just like Japan.
“Like your other letter writer, I could leave, but it would not fix the problem. I have a plan, but it keeps getting delayed because, like the government, I have debt that I am trying to alleviate before that planned exit.”
The 5: Yikes. Good luck. Hope we can help sooner or later.
“Your last reader in yesterday’s issue is showing his age,” writes our last reader in today’s issue.
“As a graduate of Vanderbilt, I can proudly say our baseball team just won a national championship, and our football team hasn’t been 0-6 in any recent years (try a couple straight years of bowl game victories instead!). I’m loving all the attention being lavished on my alma mater. Go ‘Dores, Anchor Down!”
The 5: If it’s SEC football the reader wished to invoke, maybe he should’ve cited Arkansas instead?
Have a good weekend,
Dave Gonigam
The 5 Min. Forecast
P.S. We know it’s summertime and the weather’s nice and the last thing you want to think about is next year’s income taxes.
But…
If you put in a mere 30 minutes of effort each month between now and next April… you could slash your tax bill by as much as $18,000.
Seriously. How much “work” is out there that pays the equivalent of $3,600 an hour?
Thing is, the longer you wait, the less you get paid. So it pays to start today, as our research team shows you right here.