Most of the time God,Pratt & Whitney or General Electric, will give you another turn in the Barrel.

These are my opinions and my opinions only they do not reflect the opinions of any of my family members or their employer.

From the confines of the far Southwest corner of Bundesrepublik Deutschland. The Federal Republic of Germany.

Thursday, May 26, 2016

Two Words that should strike fear


Two words that should strike fear in your heart, two words that will result in an uncontrolled rectal bleed for the average investor.
Word One: Fidelity (A non-profit entity? (investors and customers yes, owners NO)
Word Two: Smart-Beta (Unicorns are down in the pasture and they are saddled and ready to ride, do not worry they are gentle.)
Note: contact was loss due to possible conflict of interest with my wife's position (did not want that kind of crap, but that is changing)
We PCS in 26 Days, We retire in 26 Days.  We are west bound and down.

Wednesday, October 29, 2014

990,000,000 Shares on the wall

$1,400,000,000? What IBM has not spent on their current share buy back program.

$5,000,000,000? What IBM just announced that they are adding to their share buy back program.

$6,400,000,000? Grand Total to date. The numbers are so round they just fall off your tongue.

And just when you thought that it could not get any better they announced, that they (management) are going to ask the board for approval for additional share buy back authorization in April 2015 (The Hits just Keep Coming).

How much? The shills/marks on the street have not a clue. (I suspect neither does the board.) (The question is who's brother in law works for Goldman Sachs?)

Definition of insanity is doing something over and over again and expecting a different result from the one you are getting. Come to think of it, it might also be the definition of an optimist.

$163.60 yesterday closing price.

52 Week range as reported on Yahoo Finance $161.10-$199.21

So far an investment that is down 17.21% from its 52 week high, and I suspect will continue to still look for a bottom in the coming weeks and months.

With Quarterly Revenue Growth (yoy) at a fantastically mind numbing value of -5.60%.

With Quarterly Earning Growth (yoy) at a spectacular impressive value of -99.60%.

What is not to like about this company? Wait I know a Debt to Equity Ratio greater than 300. (Value Investing? not even close)

Do not believe me go look for your self, I could make this up, but the truth is far more frightening.

At this rate it will only take a few years to evaporate this company.

Yes, under the control of the current management team disable, destroy, and disembowel, everything is coming together for this party of pain.

At the current stock price the company will be able to reduce the number of outstanding share by almost 4 percent, I suspect that they will be able to surpass this estimate, the benefit of a falling stock price, is you get to buy more share per dollar spent, it is a feature of dollar cost averaging.

Possibly a 3 to 4 percent bump in share prices, but wait given management pitiful performance to date, not likely, so maybe they end up just keep the price at this level, not likely given their performance over the last 52 weeks. Is the mirror getting heavy?

Could this be a fool looking for a greater fool?

I did not hear a harrumph from that man.

Three years is long enough to demonstrate your skill, knowledge, and technical prowess in managing a company. So 57 is a good age to retire, still in good health, the ability to travel, and with the retirement package and perks all in all an exceptional deal, better than the one you have given to your employees, but I digress.

No it not because you are woman, the spreadsheet does not know your sex and for that matter does not care, it is just a world of cold cruel hard numbers nothing more and nothing less.

For those who might want to know I have no direct positions/holdings in IBM, but I unfortunately do have indirect position/holdings via my broad based indexed holdings, but the good news is that luckily IBM is just only one stock of a vast herd of stocks held in these indexed funds.

So be safe my fellow Amigo's, TTFN

Sunday, October 26, 2014

CEO are so cute especially during earnings season


It has been a while and this somewhat long and wonkish.
CEO are so cute especially during earnings season.  But remember that they are Mogwai.  The normal rules for Mogwai apply.  They have worked so hard to get where they did not get to where they are by being nice.  There is typically a trail of tears (not theirs) and bodies (not theirs) that got them to the promise land.
So now that Mr./Ms. Big is here in the promise land they want/need to be rewarded/compensated for the journey to date, and they want/need this compensation to carry them into the after life.  Gender is not a differentiating factor for greed.
How to do that?  The answer is simple stock options, on top of their bloated salaries.  More salary is not the answer, taxes on salary can be expensive, more so for the company than the individual (tax law limits the amount of salary that can be claimed as a business expense, which is not the case for most other corporate expenses).  And it just so happens that in the case of stock options that is no limit on the expense.
So how does one engineer this feat?  Simple via the compensation committee, which you (Mr. Big) just happens to have a large voice in appointing.  You (Mr. Big) design (Your not going let the Harvard/Yale/Princeton/Wharton/Duke/University of Chicago/Stanford MBA go to waste) a set of metrics that your performance will be judged against.  Now then what metrics do you choose?  There are many to pick from, many of which you as a CEO/President/Board Member do not have any control over (So you do not pick them, or if you do they have a minor modification effect on the size of your bonus).  But there are few that you and your hand picked crews of cutthroats (CFO/Treasurer, Corporate Secretary) have a great deal of control over (so you will pick from this bucket).  You might pick many, but I believe that simpler is better less moving parts to get caught up in, it also reduce the amount of possible evidence.
One of the easiest is EPS, Earnings Per Share.  It seems pretty simple have a high earning per share and you shall be rewarded like the king you think you are (of course you will have to share some of the booty with crew).  Many might jump to the conclusion that if the earnings per share that one must have HIGH earnings.  Many might not actually look may be the case.  There are at least 5 ways to calculate EPS, so much for simple.
The first method is Reported EPS or GAAP (Generally Accepted Accounting Practices) EPS; this is what the company tells the SEC.  This is the one that if reported incorrectly might get the corporation fined, and the corporate officer sanctioned.  It is the reported Earnings divided by reported shares outstanding.  One issue with this number is that from one period to the next may not appear to be very smooth (which could imply that you Mr. Big do not have a firm hand on the tiller, and maybe someone else could do better).
The second method is Ongoing EPS.  This number is not reported to the SEC, and the reason will become very apparent.  This number is some type of normalized/averaged earnings less any unusual/one time earnings event (as picked by management) divided by typically reported shares outstanding.  This is one of the problems in of a class where the first question is not what is the answer, but what do you want the answer to be?  The method and assumptions are reported in the footnotes of the annual report, but please note they are expressed in a nearly non-readable and incomprehensive format and manner.  This method tends to smooth out the EPS curve, make you Mr. Big look like you have control and mastery over the situation.
 The third method is the Pro Forma EPS.  Again this number is not reported to the SEC.  This is another one of the “what do you” want the answer to be calculation.  There is an application of some specific secret sauce (Typically some expenses are deleted in calculating the earnings).  The secret sauce is reported in the footnotes of the annual report.  Same caveats apply to this number as to the ongoing EPS.  Another number you might want to take to the bank.  Again it is a smooth number lending credence to the illusion that you Mr. Big have control and mastery over the situation.
The fourth method is the Headlines EPS, typically not calculated by the company and certainly not reported to the SEC.  This number has the added benefit for the corporation of plausible deniability.  The corporate investor relations department or the corporate media relations department, in many cases they can be one in the same, provides sanitized information to members of the media or brokerage houses with the expressed statement and understanding that this information in no shape, manner, or construct is to be considered to be a forward looking.  That it is offered with no conclusions being stated or implied by the corporation, and in some cases may not be quoted or cited, or alluded to in any shape form or manner.  This number is produced but some type of analysis or talking head, for purposes unknown.  Typically for this EPS the reader has no idea as to how this number is generated (both method and source data).  As the Title suggest it is for Headlines.
The fifth method is the Cash EPS.  Again this number is not reported to the SEC. This EPS is operating cash flow divided by diluted shares outstanding.  This particular EPS is considered by some to be a better measure of a company’s EPS.  Although a talented and motivated management team can with the proper inducements engineer this number since they have control over the income statement, and corporations use an accrual accounting versus cash accounting method.  Again it can be used to promote the illusion that you Mr. Big have control and mastery over the situation.
There they are, the 5 recognized different Earning Per Share methods.
Now back to the question of executive compensation.  Mr. Big wants big money, but he wants his money in such a way that he pays little to no tax.  So Mr. Big decides that most of his compensation will be in the form of Stock Options, and that the amount of his stock options will be determined by how under is tenure as CEO he has by the skillful manipulation of the various controls of management have increased the Earning per Share, via a method that is advantageous to him, and by assumption good for the corporation.
Mr. Big then has the compensation committee (member of which he had appointed/elected to the board) approve the plan.  The next step if for the board as whole to approve the plan (Same as before most if not all of the members there are there because Mr. Big wanted them there).  Mr. Big will typically recuse himself on voting for the plan; otherwise it might appear to be at very least unethical much less unseemly.
In some cases the plan must be approved by the shareholder in which case, the compensation plan is written and refined by a wordsmith/lawyer to such an extent to render it almost unreadable much less comprehensible by most individuals.  Finally the plan is attached to the proxy statement (typically in the back and in the footnotes), with the recommendation by the board that the shareholder approve it.  Shareholders for the most part being sheep will approve it and life goes on as before.
Now to the mechanics of the dirty deed it self.  The corporation with all of the proper approval by the board and the shareholders embark on a quest where the corporation will buy back its shares in the name of improving shareholder value.  The theory is that as the number of outstanding shares is reduced and everything else being equal the price of the shares should increase.  Sound great.  Off course Mr. Big bonus is based on some questionable EPS calculation, but this is minor concern (Never mind the man standing behind the curtain).  Mr. Big EPS will be based on outstanding shares it will be the small of any and all share calculation.  Mr. Big EPS calculation will also be based on some extremely highly exotic modified manifestation of a non GAAP Earnings, he shots he scores.
The existing stockholder love it, they see their net worth increasing via the untapped unrealized gain as the stock price climes (in the words of Buzz Lightyear “To Infinity ..and Beyond !”).  If and when they decide to sell assuming that they have held on to the stock long enough any gain will be taxed at the much small long term capital gains rate rather than their current ordinary income tax rate, another win.
Mr. Big and his gang of cutthroats win, since they will now get stock options typically with either a zero cost or some extremely nominal exercise price/cost.  It gets even better in that when Mr. Big exercises his options the first place the corporation looks to get the stock is from their own warehouse of non outstanding stock, what a deal, virtually scot free.
Then all Mr. Big and his cutthroats have to do is hold on to the stock for a year and a day, and via some 10b5-1 plans sell those shares on the market at the market.  He is only required to pay tax on the gain at the much smaller long-term capital gains rate.  If Mr. Big is good and many if not all of them are good is to make sure that his 10b5-1 plan share sales line up with his schedule stock bonus events.  That way when he reports his share holding to the SEC as he is required, the rest of us do not get scared when we see Mr. Big dumping his stock, and causing the rest of herd to panic and sell their share, thus reducing the gain Mr. Big might have seen.
But wait it gets even better, the corporation is still buying back it shares; you know the ones it gave Mr. Big for free.
So how does the corporation pay for this?  There are three distinct methods which can be used by itself or in some combination.  If Mr. Big and his cutthroats are good, then they would shift the costs associated with this endeavor around between the various methods, and they would do it on a regular basis much like a game of Three-card Monte.  This whole endeavor of corporation compensation via stock options has a lot more in common with the short con Three-card Monte, but that as we use to say in college is up to the reader to determine, although long-term corporate claw back of bonuses would go a long way in stemming the tide of this con.
The corporation could us money from their cash flow, off course this expense would not be used to reduce the earnings that Mr. Big uses in calculating his version of the EPS for his bonus, but it would reduce the earning that corporation reports to the SEC.  It would not be my first choice.
The corporation could browed the money form a bank, and I would suspect that interest expense associated with this program would not be used to reduce the earnings that Mr. Big uses in calculating his version of the EPS for his bonus.  This debt could be buried in the bowels of the corporation GAAP compliant balance sheet, and as such would be duly reported to the SEC.  It would be reported in the aggregate but not reported in the specific.
The corporation could issue unsecured subordinated debt/bonds to finance this endeavor.  There is a name for this type of instrument, and it is call JUNK, and as such these instruments will have a higher coupon/interest rate at issue, and in all likelihood would have higher yield via a reduce bid price.  This debt could also be buried in the bowels of the corporation GAAP compliant balance sheet, and as such would be duly reported to the SEC.  It would be reported in the aggregate but not reported in the specific.  Again as before the interest expense associated with this path would not be used to reduce the earnings that Mr. Big uses in calculating his version of the EPS for his bonus.
The corporation via the Mr. Big and the CFO could use a blend of these methods to fund the corporation’s buy back of shares.  In the mean time Mr. Big could institute program within the company again with board approval to make the corporation more efficient via redundancy, modification of retirement plan or retirement plan conversion, reduction in company contribution to retirement plan, reducing contribution to health insurance plan, outsourcing, and offshoring, reducing salaries while employees are in training, require training that the employee is required to pay for, with the intent of maximizing earning by reducing personnel expenses.  Sound familiar (IBM).
My favorite line from the move “Operation Petty Coat” is “There is profit in confusion”
So my fellow amigo be careful out there. “ It’s a jungle out there full of disorder and confusion”.  “If you paid attention you would be worried too” Much thanks to Randy Newman for putting a voice to my paranoia.

Friday, April 11, 2014

Does anyone find it curious that the NSA has been quiet on the OpenSSL Bug?


As the title suggest does anyone find it curious or at the very least unusual that the NSA has been silent on the OpenSSl exploit that has given us Heartbleed. Or were they just the recipients' of this gift from the Lords of Close Coding. Other than a few token rather vague press releases the folks at Fort Meade have been very very silent.
How long did they know that this exploit existed? Who did they notify that that it existed? When did they notify them? Why did they just notify those individuals who they notified.
Mr. Snowden so far has been silent on the subject. Could that mean that at the very least this exploit was not documented in any of the files that he collected? Or possibly worse even the NSA did not know about the exploit, and are themselves just catching up (Unlikely).
Some of us just wonder?

Wednesday, March 26, 2014

517 Days Since Sentence Was Passed


517 Days since Rajat Gupta was sentence to 24 months in prison, and fined $5.0 Million Dollars. The  2nd U.S.. Circuit Court of Appeals has upheld your conviction. The wheels of Justice turn very slowly.
Rajat is still appealing the ruling that he reimburse his old employer Goldman Sachs $6.22 Million Dollars to help cover the cost of its legal costs associated with this mud fest. I suspect that the 2nd U.S, Circuit Court of Appeals will have another round of bad news about this time next year.
So Rajat, is 1 June 2014 a good day for you, to start your extended stay-cation at one of our finest Club Fed facilities? As far as what facility it will be, it will be our choosing of course, but we do invite your input as to which one of our fine facilities you would like to stay at. It goes without saying that since you will be one of over 200,000 guests, we cannot guaranty that we will be able to accommodate you in your preferred selection. But rest assured, what ever facility you do eventually end up at it will as comparable as possible to your requested facility.
I know you have concerns, and that is to be expected but rest assured the staff at what ever facility you are assigned to have seen it all before, and will provide you with assistance in navigating this new and exciting phase of your life.  Starting this new adventure at 65 years of age is not for the feint of heart, but having been a Captain of Industry and Finance it should be within your skill set.
Maybe you will get Butner Federal Correctional Institution where you can catch up with 61727-054, AKA Bernard Lawrence Madoff. Or possibly FMC, Devens where you could catch up with 62785-054 AKA Raj Rajaratnam. Where ever it is I am sure that you will meet and make new friends, but it does help if you already know someone already there.
So in the end was it worth it?   After all it will have cost you nearly 2 years of house arrest, 2 year of actual prison time, and some $11.22 Million Dollars in fines and restitution, not to mention your various attorney fees, and last but not least the ruin of your good name (Which no one can put a price on).
Or was it a complete and utter waste time and effort?

Monday, March 24, 2014

A letter for Gen Sinclair

A possible fictional letter for Brigadier General Jeffery Sinclair, USAR

Date: 21 March 2014

To: Brig Gen Jeffery Sinclair, USAR

From: LT. Gen Howard B. Bromberg USAR, DCS G-1

Subject: Request for Retirement

It is my duty to inform you that at the present time there are no slots available in the USAR for an individual with your grade and qualifications, additionally there currently are no slots available at the next lower grade for and individual with your qualification. Slots might be available within United States Army Reserves and or elements of the Army National Guard, you would have to make inquires to the respective services G-1 element. Based on the current situation this office has no choice but to direct Military Personnel Management Directorate to change your Mandatory Retirement Date to 30 March 2014.

This office expects that you should submit your request for Retirement by no later than close of business 25 March 2014. Your request for Retirement should be forward to this office, rather than Military Personnel Management Directorate. This office expects that your official date of retirement will be 30 April 2014. Based on this expected official retirement date this office anticipates that your terminal leave will commence on or about 1 April 2014.

Outstanding issues at this time concern your final retirement Rank/Grade. Given the results of the Article 32, Article 39, and the results of the subsequent General Courts-Martial proceeding, it is the recommendation of this office to the Chief of Staff USAR, Secretary of the Army, and Secretary of Defense that you be retired at the Rank of Colonel (O-6) with all of the rights and privileges commensurate with that grade and your nearly 29 years of service.

Basically Thank You for Service, now will you just leave quietly and as one old general said "Just Fade Away"

Wednesday, March 5, 2014

From those wonderful folks who gave us “The Great Recession” comes ..

During my morning cruise of the financial landscape comes a few frighting snippets from the following link

http://blogs.marketwatch.com/encore/2014/03/04/rethinking-the-4-retirement-spending-rule/

in particular the follow two statements found in the article

First:
“Now, J.P. Morgan is entering the fray with an alternative to the 4% rule its own. The good news: You’re likely to be able to withdraw more than 4% of your account’s balance each year. The bad news: The method is fairly complicated to implement, so you will need the help of a financial adviser (which is good news for J.P. Morgan, which employs a network of them.)”

Second:

“The bank’s “Dynamic Withdrawal Strategy” adjusts both withdrawal rates and a portfolio’s investment allocations annually, in response to changes in both the markets and a retiree’s personal circumstances.”

Note the 4% rule is as they said in the movie “Pirates of the Caribbean” quote “more like a Guideline rather than a Rule”.

How nice of those wonderful folks at J.P. Morgan. I am sure that they are all honorable, nice, concerned and carrying individual. I will bet that even their mothers even love them. Unless you are their mother or some how directly related to them I rather suspect that the reciprocal is not the case.

Retirement planning is complicated at best. That said, there are two major complicating factor for which J.P. Morgan or any one else has no control over, or much less an exact answer for.

The first major complicating factor for which J.P. Morgan or any one else has no control over or exact answer for is just how long are you going to live. There is only one entity that know this information, and they are not telling. Now J.P. Morgan can make some educated guesses, but they are really nothing more than guesses, if they are wrong you are the one on the hook, and they are the ones off of the hook.

The second major complicating factor for which J.P. Morgan or any one else has no control over or answer for is just how healthy are you going to be during your yet unknown golden years. J.P. Morgan can make some guesses, but again as before you are the one on the hook, and they are the ones off of the hook.

Of course their method is complicated? To most of us it might also appear to be confusing, after all there is profit in confusion. Of course with their complicated and confusing method you will need a guide, and it just so happens that they have many guides who are versed in this complicated and confusing method (What a deal, I bet you might even get a cup of coffee or a soda.)

J.P. Morgan is in a revenue capture mode (They just keep paying lawyer to clean up their mess, of which no one person or persons is truly responsible for (either criminally or civilly))(In the mean time they got to use the money). They are closing up shop of some of their other more lucrative revenue capture endeavors,(since the government has either outlawed it or has via regulations and oversight made the costs too high, and conversely the profits too low) IE. prop trading or as I like to call it betting against your customers (they would say adding liquidity to the market) (You say mishmash, I say hodgepodge).

So it is only logical that with the current trends in demographics (old people are the fastest growing demographic) that they set up camp in the vast untapped fields of retirement advise and management, with the prospect unlimited and unfettered fees and commissions are just ripe for the fleecing. Lets just face facts old people are easy marks, and the folks at J.P. Morgan are basically just a bunch of college educated suit and tie wearing Grifters. Not to put too fine of a point on it but I suspect that more of them than you would guess would mate with a snake if you held it for them.

Another statement that made in the post that just scares the crap out of me is this little quote:

“The bank’s “Dynamic Withdrawal Strategy” adjusts both withdrawal rates and a portfolio’s investment allocations annually, in response to changes in both the markets and a retiree’s personal circumstances.”

Just what does that mean? Well the article is strangely silent, but I can only infer that at least once a year they (J.P. Morgan) are going to look at your portfolio and to paraphrase Monty Python “Now for something completely different” just rearrange it, and in the process that at the very least will generate new commission for them, and quite possibly incur additional taxes for you. (Truly a Win Win scenario). This feature will also be on top of the management fee (probably based on assets under management) that they are going to charge you annually. (I just love naked, aggressive, and unrestrained capitalism. Don't you?).

Two final points to remember about letting these wolves into you tent. Somewhere deep down inside the agreement that you will have to sign if you want to have all the features and benefits of their world class service.

First is the fact that you will have NO recourse via the courts when you find out that they have truly bent you over the axle and driven you home. No your only recourse will be via the FINRA arbitrations process as sanctioned by the Securities and Exchange Commission. (Their bat, your balls, their field, their concession stands, their parking, their players, their umpires.)

Second somewhere in the tomb of a document/contract you signed was a requirement for you to be forth coming with any and all information that might have a direct bearing on the decisions being made by J.P. Morgan concerning the planning and management of your retirement assets being held for you by J.P. Morgan. I would not be surprised (but you might be) if the document contains explicit methods for you to formally convey this information to J.P. Morgan in a timely fashion, and failure on your part is not a failure on their part (See your on the hook, and they are not on the hook). Your odds are not good, see preceding paragraph.