Thursday, February 24, 2011

Mary Meeker: How to Fix U.S.A. Inc.

Mary Meeker: How to fix USA Inc.
Internet Queen, Mary Meeker, offers a plan for "U.S.A. Inc" to get out of its financial hole. It makes a lot sense. Will any political leaders emerge to help turn around USA Inc.?

Mary Meeker / Business Week:
USA Inc: Red, White, and Very Blue --
Mary Meeker says that if the U.S. were a corporation, it would be sick—but fixable. Ideas for solving the U.S.'s long-term fiscal mess...

the idea of the U.S. as a corporation is more than a thought-experiment. It's a way to reposition our approach to long-term problems. What would USA Inc. be worth? Who would want to buy its shares? And what would a turnaround expert recommend for a company that lost more than $2 trillion ("net operating cost") in 2010?...

I'm the lady whom Barron's called the Queen of the Net in 1998. Over the past quarter-century I've covered tech companies that have created more than 200,000 jobs worldwide, including Apple, Microsoft, Dell,, Google, and eBay. I worked for Morgan Stanley from 1991 until November 2010, when I became a partner at the venture capital firm Kleiner Perkins Caufield & Byers...
Shareholder Alert: The State of the Business Is Not Good

The bottom line on USA Inc.? Cash flow and net worth are negative, profits are rare, and off-balance-sheet liabilities are enormous. The "company" has underinvested in productive capital, education, and technology—the very tools needed to compete in the global marketplace. Lenders have been patient so far, but the sky-high rates on the sovereign debt of Greece, Ireland, and Portugal suggest what might lie ahead for USA Inc. shareholders and our children.

By our rough estimate, USA Inc. has a net worth of negative $44 trillion. That comes to $143,000 per capita. Negative...

Medicare and Medicaid are the biggest challenges to USA Inc.'s solvency...

USA Inc. has a spending problem, not a revenue problem...

Perspective - USA Entitlement Spending = India's GDP

USA Inc. - A Basic Summary of America's Financial Statements

Nicholas Carlson / SF Gate:
Mary Meeker's Brilliant, Tech-Centered Turnaround Plan For USA Inc -- 
Kleiner Perkins partner Mary Meeker published a gigantic 460 page research report this morning, analyzing the entire USA as if it were a company.

"USA Inc," she calls it.

Meeker's verdict: "By the standards of any public corporation, USA Inc.’s financials are discouraging." ...
Deal Book / NY Times:
Mary Meeker on How to Fix U.S.A. Inc. --
Ms. Meeker, the former Queen of the Internet turned venture capitalist, urges taxpayers to think of themselves as shareholders in U.S.A. Inc. — a debt laden, bloated corporation. That investment, she writes, is at risk unless the government makes some serious changes...
Sara Lacy / TechCrunch:
Can America Function More Like a Fiscally Responsible Company? It’s up to Us, the Shareholders --
... in a thorough report issued today, Kleiner Perkins partner Mary Meeker has taken all emotions, politics, spin and manipulation out of the issues, to present a steely-eyed view of just how hosed our financial situation is. Spoiler alert: It’s not pretty. America is gripped by a new red menace and this time, it’s not the commies– it’s a sea of red ink. If politicians reported to voters the way management reports to shareholders, no one would finish out their terms.

If you’re a tax-paying American, you should read the report to see how your money is being spent...
Do we have to kill all the old people to balance the budget?
Euthanizing 70 year-olds seems a little extreme. However, the word Euthanasia is derived from a Greek word meaning "happy or fortunate in death." So wishing 70 year-olds a "happy and fortunate death" isn't so bad. No one is saying the US should adopt a policy of Senicide, but the idea of spending over $100 billion of Medicare dollars per year in order to extend the lives of the terminally ill by a few months is not good public policy.

The following graphic from page 162 of Mary Meeker's report notes that approximately 28% of annual medicare spending is geared toward end-of-life care (given in the last 12 months). That of course is too much. A more humane and economical hospice policy with palliative care is the way to go. Everyone deserves a "happy or fortunate death."

Meeker Report: 28% of annual medicare spending is geared toward end-of-life care (given in the last 12 months)

How To Run America Like a Business: Get Rid Of All The Old People --
If you’re trying to look at America from a balance-sheet perspective the problem is very clear. It’s not “entitlements” and it’s not “Social Security” and it’s not “Medicare” and it’s not “health care costs” it’s the existence of old people. Old people, generally speaking, don’t produce anything of economic value. They sit around, retired, consuming goods and services and produce nothing but the occasional turn at babysitting. The optimal economic growth policy isn’t to slash Social Security or Medicare benefits, it’s to euthanize 70 year-olds and harvest their organs for auction...

Friday, February 18, 2011

Greek Sneaks: 45 Gardeners, but no Garden

There were forty-five gardeners from Greece.
They said, "The weeds in the garden would decrease!"
They made quite an array,
And were very well paid.
But, it all turned out to be a big fleece.
Hedge Fund Manager Kyle Bass has a February investor letter that is amusing and insightful: host informed me of an audit recently done on one of the largest hospitals in Athens. This hospital was hemorrhaging Euros, and the Greek government is required to make up the deficit with capital injections. Officials began an inquiry into these losses and found 45 gardeners on staff at the hospital. The most interesting fact about the hospital was that it did not have a garden. The corruption is endemic in the society, and it is no wonder that Greece has been a serial defaulter throughout history (91 aggregate years in the last 182 – or approximately half the time). It is unfortunate that it is about to happen once again. Although – as we have previously stated, restructuring is actually the gateway to renewed growth and prosperity over time – we have identified at least two assets that we would like to own in Greece in a post-restructuring environment...
His closing thought:
Does Debt Matter?

We spend a lot of time thinking about and discussing systemic risk. This is not because we are natural pessimists; rather, we believe that many investors cannot see the forest for the trees as they get caught up in the short?lived euphoria of the markets. We ask ourselves, and urge you to ask yourself one simple question: Does debt matter? It was excess leverage and credit growth that brought the global economy to its knees. Since 2002, global credit has grown at an annualized rate of approximately 11%, while real GDP has grown approximately 4% over the same timeframe – credit growth has outstripped real GDP growth by an astounding 275%. We believe that debt will matter like it has every time since the dawn of financial history. Without a resolution of this global debt burden, systemic risk will fester and grow...
Kyle Bass - Hayman Investor Letter

Friday, February 11, 2011

Federal Reserve: Home of Easy Money and Easy Regulation

Ben Bernanke: Patron Saint of Easy Money & Easy Regulation
 Ben Bernanke: Patron Saint of Easy Money & Easy Regulation

Yesterday Ron Paul called the Federal Reserve a "Central Planning Cartel." Today we learn again that their central planning and regulation ain't that good. In fact, it stinks. The Fed was responsible for mortgage oversight, but they did little or no mortgage oversight. This according to John Paulson, who made billions betting against bad mortgages promoted by the Fed.

Paulson Says Fed Gave ‘Little’ Oversight to Subprime --
John Paulson, whose Paulson & Co. hedge fund made $15 billion betting against subprime mortgages in 2007, said better oversight of home loans by the Federal Reserve System would have helped prevent the crisis.

“The Federal Reserve did have oversight for the mortgage area, and there was very little oversight given in the mortgage area,” Paulson said in an October 2010 interview released today by the Financial Crisis Inquiry Commission on its website. “Demanding that proper underwriting guidelines be followed, not allowing ‘no doc’ loans, requiring a down payment, even if it’s just 5 percent,” would have gone a long way toward preventing the crisis.

The lack of underwriting standards, excessive leverage at banks, and financial institutions that sold derivatives without having sufficient equity are among the main reasons for the crisis, he said in the interview with commission, which was charged by Congress with delving into the origins of the 2008 financial collapse...
Mish / Global Economic Analysis:
Calculated Risk vs. Ron Paul on Soviet Style Central Planning --
In Praise of Soviet Central Planning

Bernanke deserves as much praise as Soviet Central planners for being right about something once every 10 years.

After all, the Fed is nothing more than a group of Soviet-style central planners, primarily academic wonks with no real word experience. Those planners (and their supporters) think the Fed can divine where interest rates should be to support dual or triple mandates...

Sunday, February 6, 2011

Hell-bent Money Printing --> Rising Food Prices --> Arab World Instability
Food for Thought -- Dylan Ratigan and Bill Fleckenstein discuss how the Fed's money printing pump has helped create exploding world food prices, which are "strangling" poor people, especially in the Arab world. It's a "food bubble."

Ratigan says the Fed's "hell-bent" money printing is designed to cover up the 2008 massive mega-bank theft. The theft is the Fed basically using trillions of newly created dollars to make-up the losses at these "too-big-to-fail" banks.

Bill Fleckenstein makes these points:
  • Money printing correlates quite well to rise in commodity prices, but not precisely
  • When you "print money out of thin air", you don't know where it will go
  • Printing money turns the average person into a speculator (think Chinese farmers holding back their cotton crop)
  • 80% of money in countries like Egypt goes to buying food (and that's for the lucky ones who have jobs)
  • 40% of political donations in the U.S. comes from giant banks ... so the banks own Washington
  • The Fed won't ever face it's mistakes, and always just wants to print more money to solve any financial problem.
  • Fed policies consistently promote the misallocation of capital
courtesy: George Washington's blog

Paul Krugman presents the counter-argument. He says it's not the Fed's dollar devaluation/inflation causing higher food prices, it is the weather. Weather might be a factor, but it's dominated by a blizzard of paper money.

Paul Krugman / NY Times:
Droughts, Floods and Food -- So what’s behind the price spike? American right-wingers (and the Chinese) blame easy-money policies at the Federal Reserve, with at least one commentator declaring that there is “blood on Bernanke’s hands.” Meanwhile, President Nicolas Sarkozy of France blames speculators, accusing them of “extortion and pillaging.”

But the evidence tells a different, much more ominous story. While several factors have contributed to soaring food prices, what really stands out is the extent to which severe weather events have disrupted agricultural production...

Wednesday, February 2, 2011

Slope of No Hope

Some charts that show how inflation has taken off due to the Federal Reserve's Quantitative Easing (QE2) money printing program.

Slope of Hope:
Nope. No Inflation Here. Not At All.

price inflation for commodities in the DBA (agriculture) ETF

DBA is the symbol for the PowerShares DB Agriculture Fund, a commodities ETF. It owns a basket of commodities weighted as follows:
Corn -- 12.50%
Soybeans -- 12.50%
Wheat -- 12.50%
Sugar -- 12.50%
Cocoa -- 11.11%
Coffee -- 11.11%
Cotton -- 2.78%
Live Cattle -- 12.50%
Feeder Cattle -- 4.17%
Lean Hogs -- 8.33%
Zero Hedge:
Daily Adventures In 'Limit Up' Zimbabwefication: Cotton Explodes As Asian Mills Panic -- we wonder how long before the Fed realizes that its CPI indicator is a complete joke when juxtaposed with charts such as these:

price inflation for cotton
Price of Cotton

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