Comrade Moonshine! Russia Raises Vodka Price 36%!

Great post on ZH today :  http://www.zerohedge.com/news/2012-11-19/inverse-deflation-alert-russia-hikes-minimum-vodka-price-36

Dimitri Cirrohski here, and many of his fellow patriots, are racing to ramp up black market vodka production to save Russia from agony and despair.

An instantaneous 36% government-dictated price increase on the national staple is going to make some waves.  Vodka is sacred in Russia.  More important than... well, just about anything really.

A tax hike this big is sure to be almost as effective as a Prohibition for stimulating unregulated entrepreneurial inclinations.  A glorious new chapter in Russian history is about to unfold!  Just think, modern day RPG-tottin Al Capones reinvigorating the collective adrenal gland.   And the news media can rub their hands in anticipation for attempted political assassinations.

Exciting Times!   Za vas!

Scapegoat Betrayus

OK maybe I'm getting more cynical, but the scandal-slapping of General Petraeus really activated my BS-detection antennae.  How convenient that a central actor in the Benghazi mystery gets taken down for indiscretion, with all the licensed media following the diversion like a pack of pheromone-sniffing hounds.

The story is limp if sad to begin with.  Who doesn't want to feel like they're interesting and desirable?  Petraeus is 'mature', but this kind of limbic phenomenon is not affected by age.  Sad for him and his wife, but not exactly the stuff of high crimes, notwithstanding his function and title.

No, what now-General Betrayus has become is just another in the historic stream of scapegoats.  Scapegoats exist to take the light and heat off of someone else.  And you know what, that someone else is by definition always higher up.  Given Petraeus was head of CIA, that doesn't leave too many characters higher up now, does it?   So regardless of what misdeeds have occurred or what well-intentioned schemes backfired in Benghazi, we get a pretty good idea who the actors are.

This story will be mangled develop for a long time, and the truth will take even longer to come out.  The theorists are already having a heyday - Benghazi, training center for Al Qaida.  Al Qaida, hired hand (still, to this day) of US efforts to destablize Syria.  Etc.  Why were diplomatic staff unprotected and then erased?  Have fun speculating.  I doubt it will prove to have much to do with Scapegoat Betrayus.  

All hail the scapegoat!

Why the "Global Debt Cloud 1.0" App Will Crash

I've been involved with software businesses for most of my career.  Software is a great illustration of the aphorism about History not repeating, rather rhyming.

Many legendary software applications have covered the same covers album:

1) Feels Like The First Time
inspired concept with singularity of purpose brought to market by a small, passionate team
2) I'm So Glad
adoring adoption by a growing community of users; team grows to give them love
3) Getting Better
expansion of the mission in response to clamoring of the adoring users, further expansion of team and probable move to beautiful new headquarters
4) We Are the Champions
forecasts of rule-the-universe possibly concurrent with IPO win
5) Hotel California
difficulty getting the next release nailed down, and decelerating innovation as layered complexity begins to snarl every move
6) Clubbed to Death
Proliferating competitors/enemies, and they're winning; everything seems crazy.
7) My Heart Will Go On
spectacular epic FAIL new version/upgrade release and earnings disaster/s
8) Is That All There Is?
dispirited company acquired by a grasping conglomerate that preys on the less imaginative remaining users
9) The End
another footnote in history

The Global Financial System is a lot like a big software application, in fact resting on countless interconnected software systems.  The unprecedented expansion of private and public debt and chaotic blow-ups and near misses squarely locates us at step 6 on our software timeline.  First just Japan, then the USA was ZIRPing and QEing, now everyone's in the act.  Rogue actors regularly hijack the geopolitical scene.

It's not hard to anticipate Step #7, the Epic Fail of the Global Financial System aka Global Debt Cloud 1.0.  It could come from anywhere.  Implosions in the near-$quadrillion notional pile of derivatives worldwide.  A misstep in any of the world financial citadels.  A melt-down in the world of High-Frequency-Trading - the bastard child of Moore's Law and the always-seductive GIGO. Or just an awakening and realization by the little people.

Time to be thinking about Step 1.

The Too Sad Trick or Treat Sequel - FAIL Tech IPO Class of 2011/12

Second update to my June 1 'Commencement Post" for the Tech IPO classes of 2011 and 2012.  After two months, the career prospects for these recent 'grads' was still pretty dim overall... so I thought I'd see how they survived Trick or Treat, Dia de los Muertos and the Electile Dysfunction of 2012.... not pretty... do we need viagra for stocks or get started preparing some coffins?   I'll let you be the judge.... "fair and balanced"  LOL!

Presented in the same order, with updated charts....

1. Zynga, When are they going to do Stockville, featuring the E*Trade baby?

6/1:  Opened at 11, a real Christmas gift!  Woops, touching 6 now... don't bother bottom fishing until around 4.  Isn't StockVille such a neat game to play?!

7/31: Bottom fishers, you now have a yellow caution light to proceed depending on your level of self-loathing.

4 was a good reference point,  ZNGA gapped right past it to the 2s by 7/31.  Dead since then. Self loathers got another reason to loathe themselves if they bit this summer.  A bitter taste in the mouth indeed.  Don't be looking for a big win here... either in their games OR the stock.

2. Get Your Daily Deal - Rotten StockFish!

7/31: Back on 6/1 GRPN was trading a bit under 10. I said wait for 5.  We are getting there....

11/13: Yee-howdy, now THERE'S a discount. But compared to bankruptcy?  Do you like remorse with your pain?  This one could go all. the. way.

3. HELP! I've been YELP'd!

7/31: Back on 6/1 YELP was looking at 16 after opening at 22.  Nice levitation since then, but too early to get giddy about upside.  Needs more time wallowing at lower levels.  

11/13: I am the Wallow-Rus!  Koo Koo Katchoo!  Here's a 5-star Round Trip! Let's meet up at '14' again, k?  We can pretend to be Elite...

4. FaceJuke!  The Mother of all Bogus IPOs!  Long Live the Zuck!

7/31: FB touched $45 on opening day. On 6/1 I said way to early to even seriously watch it.  Mr. Market seems to agree.  Let's see if the fall offrom disgrace can stop at $16.  

11/13: So far the Maginot line at 16 has held... but I'm not holding my breath.  The crystal ball keeps seeing numbers between 10 and 15...

And finally, the winner.... the CHAMPION!!!!

5. LNKD -  like my 81 year old pops-in-law says, "I'm on the "LINKIN" (no it doesn't do anything for him).  Hotrod Lincoln?  Or a Ford with a fake badge?

7/31: On 6/1 I said watch out because LNKD could be "the first commercially viable social network, OMG!!!"  It was actually UP over it's opening day.  I said it was "in the pool of indecision" and it's still there, hovering around its opening price.  I still think it needs to spend some time underwater but LNKD remains the champ in this IPO group... it has legitimate earnings prospects. 

11/13: LNKD was at around 102 on 7/31, and still close to 100.  The LNKD "Pool of Indecision" is bigger than Olympic-sized!  At least with LNKD, you have not already lost most of your investment.  You may even have a gain.  With next year's tax picture, you might want to pocket that and go buy yourself a double latte.  If it drops much more here, it could roundtrip to 60.  Oh, that's not very winner-like.  My condolences to this graduating class.

Summary for the Graduates of 2011/12

7/31: The next few months could be pretty unkind to this whole group.  The low-volume manipulated rising market is very very tired and everyone seems to be focused on Central Bank moves rather than profits and prospects for more.  Main Street is tired too.  The economy is just not in great shape, it's getting harder to fake with government statistics.   This IPO class has its work cut out for it.  At least they have big cash cushions to weather economic storms and headwinds.   I think they're going to need it.

11/13: Yes, a cruel summer for the recent Grads.  And a cold winter, too.  Ned Stark was an optimist.  Winter Has Come.  And not just for these puny hype-rockets coming down with a thud.  Everyone's invited.

Your Faithful Curmudgeon

Aptitude Test for Politicians (Spoilers)

In case you are considering a career (oh how it hurts to use that word in this context) in politics, I have a Friday gift for you - spoiler answers to two of the hardest (for politicians) questions to answer correctly on the PAT (Politician's Aptitude Test) .

1. What are the best reasons to become a politician?
The correct answers:

- get your own graft channel

- harass your competitors and enemies

- protect yourself from prosecution

- build your entourage of lickspittles and groupies

2. What are the worst reasons to become a politician?

...and the correct answers:

- work for your constituents

- follow your conscience

- uphold the Constitution

"There is simply not enough salt in all the world to take with politicians' statements."

- Curmudgery

The Twin Headwinds of Debt and Unemployment

A business friend says he's hopeful he's seeing some signs of economic improvement... I tell him I wish I could agree.  There are definitely up and down spots as you travel around.  Some areas look like they're on their last legs, others are relatively thriving.  In Northern California the contrasts can come within 20 miles or so - the Social Media Center that is eastern San Francisco vs. the bankrupt Vallejo.

In business, too, there are up and down spots.  Traditional businesses are suffering.  Niches in software, biotech, health informatics (ok, lots of federal subsidy action going on there to distort things) are making it.  Businesses that can make it by tuning their operating costs and efficiencies are doing alright.  But this in itself is one of the structural headwinds ripping at the economy.

Of the Two Terrible Headwinds, Headwind #1 is Debt.  Crushing, suffocating, likely to never be repaid.  But staying and staying hidden (securitized, rehypothecated, derivitivized...) on the books from individual households to the too-big-too-fail financial behemoths, in almost every corner of the world economy.  The Federal Reserve is busy sopping up government debt like some bizarre zen-inspired carbon-sequestration program.... "if we buy up and bury the debt, and pay zero interest on it, is it really there?"  The debt-driven growth of the last 30 years has choked itself off.  Like Scotty said, "the engines just can't take it anymore!"   No sustainable economic growth will occur as long as the enormous overhang of bad debt remains.  The only question is who gets to be the fall guy?  Our crony capitalist government would like to be sure that taxpayers and especially savers foot the bill.  As one of those saving taxpayers, I want to see banks take their fair share of the pain.  This is our generational political battle royale.   Suffice it to say, you would have to have a double-rose tint on your glasses to think that the debt serfs once known as consumers will pull the world economy out of its dumps, and so doing, recreate all those lost jobs.  Forget it.  The tide has turned and perhaps in a silver lining way, people are realizing they just don't need so much junk in their lives.

Well then, won't business reinvest, say, when it feels the political climate is more "pro-business", perhaps with a change of occupancy at the White House?  Won't all the business reinvestment drive a glorious new age of prosperity?  Stop and think like a business.  Topline growth except in disruptive niches is hard to come by.  The way to increase shareholder value is to reduce operating costs.  And if that comes from increasing capital investment, where is the payback?  Um, lower labor costs?  So how is this efficiency-driven survival directive going to increase employment and household spending?
Short answer - it can't.

The last option is so ludicrous I hate to even rhetorically pose it... yes, the government will hire that growing tidal basin full of people "no longer in the workforce" (note, not "unemployed", because that is a bad statistic. As the number of employed stagnates and drops, our government statisticians must do their job and do what they can to reduce unemployment - hey, we'll just drop more people out of the labor force.  Suggestion - pay attention to the Labor Participation rate.)

Just what kind of jobs will the government create to save the economy?  The recent past may offer a hint.  The last big labor absorption initiative was creating and staffing up the Department of Homeland Security.   I know that I personally feel ever so much more secure with all the TSA folks standing around at the airports I visit, and I get a palpable sense of well-being that they are the solution to our economic malaise.   Yes, it's the miracle cure.  Just have everyone work for government. It's worked so well everywhere else... what are we waiting for?   More regulation, the engine of economic growth.  The only 'good' thing about this non-option is that it will be funded by.... more government debt, which the Federal Reserve will sop up and bury... end of problem, right?

Lies, Damn Lies and Statistics: Deceit Knows No Bounds in the Service of Politics

And now for another baffling government statistics data point - strangely, employment in the 20-24 age group just shot up in September:  "Cutting to the chase: the September surge in Seasonally Adjusted jobs give to 20-24 year old is the biggest in decades. This is on top of the only positive NSA increase in 20-24 year old jobs in history."  http://www.zerohedge.com/news/2012-10-05/strangest-number-todays-jobs-number

The 2010 census was used to manipulate employment stats - census dept *hired* boatloads of workers (for like 1 or 2 weeks - I was one and there were plenty others in my zipcode - we went to some classes and then were let go.)  Anything that can be used to make fudge will be.

If we dig enough we'll probably find a trigger like the infamous birth/death model stipulating that college students with financial aid have an employment requirement ergo they must be employed... what month do all the student loans re-up?

But all the government data fudging won't change the plainly visible facts of our so-called recovery - the shuttered shops, offices, factories and company hq; empty homes being kept from foreclosure sale, zombie homeless everywhere, huge turnouts to hiring cattle-calls for any job with some benefits, rapidly rising prices for basic commodities.

Freedom will only be restored when financial criminals are punished, bad banks are allowed to fail, and market pricing is allowed to function again.  All the incentives today favor crony capitalism, dishonesty and turpitude. The values that anchored this country's successes have been put in a perverse lockbox.  Is there a viable peaceful solution?