Saturday, June 25, 2016

Right Man, Wrong Reason

Earlier this week we opined that Tesla's bid to acquire SolarCity made Elon Musk look more like money-grubbing capitalist than eco-visionary.

Post-announcement trading in both TSLA and SCTY indicates that the market agrees. [bold added]
Musk said the deal was about the “blindingly obvious” synergies of one-stop shopping for a Tesla electric car, a home battery pack, and SolarCity rooftop panels.

Nearsighted investors didn’t see those synergies. Instead, they saw two unprofitable companies aligning behind the name with the better cost of capital, so they can raise the billions they need to achieve Musk’s bold ambitions. By week’s end, Tesla shares (ticker: TSLA) were 12% lower, at $193.15, trimming the announced value of Tesla’s all-stock offer accordingly. More embarrassing for the entrepreneur, SolarCity stock (SCTY) closed Friday at $22.20, two bucks under the $24-to-$25 value of Tesla’s offer. That means investors doubt Musk can swing the deal, even though he chairs both companies and owns about a quarter of each.
Of all the celebrity CEO's in the Bay Area, Elon Musk , we said last year, was the one to watch, but not for the reasons we are watching him this week.

Friday, June 24, 2016

The Upper Hand

The major stock market averages are down about 3% three hours before the close. Yesterday's British referendum to leave the European Union ("Brexit") has injected a huge dose of uncertainty. Normally, your humble small investor would view the current circumstances as a buying opportunity, but the problems may well extend beyond the impact on Great Britain.

According to British WSJ columnist James Mackintosh we can foresee either a short correction or a "rolling crisis": [bold added]
If the world sees Brexit as a cry of anguish from a small island somewhere to the northwest of the world’s biggest trading bloc, then the market correction elsewhere could be nasty and brutish, but short.

As a British passport holder I tend to think an impending disaster for the world’s fifth-largest economy could be the next round of the rolling crisis that started with U.S. subprime, crushed Lehman and then the eurozone before flattening emerging markets. Each showed the weaknesses in the global economy, and prompted proper arm-waving panic before central banks got them under control. I may be biased, but it feels as though there could be a lot further to fall before the central banks can stabilize markets.
The market is driven by both fear and greed, and fear is holding the upper hand.

Thursday, June 23, 2016

Fun and Interesting, But....

The Grauman's Chinese Theatre is also worth a stop.
Native San Franciscan and 55-year Chronicle columnist Carl Nolte finds pleasant surprises in L.A. (as do most of us who don't go south too often). Excerpts: [bold added]
Los Angeles Union Station was full of people, even on a Saturday night. This is the last of the great railroad stations, opened in 1939 when streamlined trains were the cat’s meow....not long ago L.A. Union Station was like a ghost town at night, empty and dusty. Now it’s back.

Los Angeles is noticeably cleaner than San Francisco, Oakland or Berkeley. Less trash, or so it seemed. There was a bit of high fog — June gloom, it’s called — but no smog.

We hear that Los Angeles has twice as many homeless people as San Francisco, but they are not nearly as visible.....we see more beggars in a single block in San Francisco than we saw in three days in L.A.
A tour of L.A. is fun and interesting, but as a place to live? In Northern California the summers are cooler, and the air is cleaner. As Carl Nolte ended his piece, "all roads lead home."

Wednesday, June 22, 2016

His Leash Has Shortened

Tesla Motor's bid to acquire SolarCity makes little strategic sense to outsiders but does enhance the personal fortune of billionaire Elon Musk, who is the Chairman of both businesses. [bold added]
Aside from the familial connection and clean energy angle, there’s not much in common between the two companies in terms of synergies that make this deal logical. Seabreeze Partners’ Douglas Kass expects it to go through, but warns that it was “likely done out of desperation, as Solar City was probably on the way to extinction,” given its debt-heavy balance sheet and negative cash flow.

Jim Chanos has harsher words for Tesla. On CNBC, Chanos today called the deal a “shameful example of corporate governance at its worst.”

Given the state of SolarCity’s finances, and the ambitious Model 3 production schedule, further shareholder dilution may be possible even after the deal closes. Barclays’ Brian Johnson writes that the deal simply magnifies “the losses and cash burn” at both companies and it’s “far from certain” that the equity capital market would remain an “open well” for Tesla. SolarCity’s high cost of capital, which would only increase, it seems, without the deal, looks like an important factor in Musk’s decision to buy it.
Shares of both TSLA and SCTY have plunged this year.
Elon Musk controls both companies, so the motivations behind the merger look more financial than synergistic (he could have coordinated their businesses without this action). Mr. Musk risks tarnishing his image as eco-visionary by looking like a money-grubbing capitalist out to rescue a troubled investment through wheeling and dealing; SolarCity's declining financial condition will be masked by the bright light of Tesla.

Elon Musk's track record so far has earned him the benefit of the doubt, but judging from today's market reaction (TSLA dropped 10.45%) his leash has shortened.

Tuesday, June 21, 2016

Keeping It Simple is not Stupid

(Yahoo image)
A language maven analyzes why Donald Trump's speaking style has been so effective. [bold added]
First, he keeps it simple....Simplicity is not stupidity; making language easy to apprehend is intrinsic to making it appealing. Countless psychological studies have shown that what is easy to process is seen as more truthful. “I’m going to build a big, beautiful wall and Mexico is going to pay for it” may be preposterous, but it is easy to understand, and the human brain, in its weakness, likes easy things.

Another Trump tactic is repetition. This, too, may be incorrectly seen as childish. Mr Trump does often say exactly the same thing several times in a row in a crude, hammer-blow fashion. But in more sophisticated guise, repetition is a venerable rhetorical tool. Mark Antony sarcastically repeats the taunt that Brutus is “an honourable man” after Brutus murders Caesar. Winston Churchill rallied Britain with, “We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets…” And the most beloved rhetorical repetition of the 20th century is the great refrain, “I have a dream.” Mr Trump is certainly no Martin Luther King, but he knows how to leave an audience remembering what he said.

he does not give speeches. Instead, he talks....Mr Trump, as noted above, repeats many tropes. But he also genuinely speaks off the cuff, avoiding the standard sunny string of clichés, which makes him fascinating to journalists. A Trump speech may actually make news...

This unscripted quality is powerful. Even a valid argument is weakened if it sounds canned. Even an invalid one sounds stronger if it appears spontaneous, especially to voters disgusted with the professional politicians.
It's difficult even for experienced speakers to repeat the same themes and come up with fresh insights or examples. And to do it while sounding "spontaneous", not "canned," requires exceptional skill. The cognoscenti may well be mistaking Mr. Trump's crudity and simplicity for a lack of intelligence.

Keep laughing at the barbarians and their leader, but come November they may be the ones laughing last.

Monday, June 20, 2016

As Most Fathers Do

LeBron supplants Steph as best player; Zhuri takes over
from Riley as cutest daughter (SF Chronicle photo)
It was indeed a Happy Father's Day for yours truly: some productivity (a few duties at morning service, finding the right parts at Home Depot), some relaxation (an afternoon nap does wonders), and great entertainment (a close, hard-fought Game 7 of the NBA Finals).

Yes, we have followed the Warriors all season and had a rooting interest, but we weren't as disappointed by the loss as we thought we would be.

LeBron James is an estimable Finals' Most Valuable Player (the 31-year-old has always displayed grace, IMHO, despite being under incredible media scrutiny since he was a teenager), it's about time that the City of Cleveland experienced the joy of a championship parade, and besides, the Warriors didn't deserve the title from the way they played (the team didn't score any points in the final four minutes, thirty-nine seconds of the game).

The Warriors only lost by four points, 93-89, and will likely be contenders for the rest of the decade. So cheer up, fans, and have some perspective, as most fathers do.

Sunday, June 19, 2016

Father's Day, 2016

Dad walks regularly at Ala Moana's Magic Island
While we were waiting for a table in San Mateo, I called Mom and Dad on their landline in Honolulu. Dad's picture popped up on FaceTime. We switched to a mobile videocall and we spent the next ten minutes talking and looking at each other.

Everyone we discussed was doing fine, a remarkable and sadly temporary state of affairs in this journey we call life. 

Happy Father's Day!

Saturday, June 18, 2016

Vast Wasteland of Corporate Accountability

Just because an organization, for example a government agency or a charity, is not chartered to earn a profit does not mean that it is more efficient than business (the latter budgets some funds for profits while the former do not). In fact, these agencies often produce abysmal results, as measured by funds spent versus services delivered. Government or charitable organizations have less oversight from third parties, are not required to divulge as much information as businesses have to, and frequently wield monopoly power (for example, a transportation district that controls bridge tolls). Costs go up, services get cut, and exorbitant compensation is paid to executives for objectively poor performance.

People who work in government are not "worse" than people who work in business. Businesses are forced to improve though competition and outsider scrutiny. Regarding government, if no one forces employees to work efficiently, most of them won't.

In a disappointing but not unexpected revelation the non-profit world suffers from the same disease as government agencies.
Nonprofit accounting is arguably one of the last vast wastelands of corporate accountability; rules are lax, disclosure is minimal, and available data are usually months, or even years, old.

Don’t expect the U.S. government to protect you. “There’s no regulatory agency for nonprofits,” observes CharityWatch President Daniel Borochoff.
Donors beware.

Friday, June 17, 2016

No Mr. Softie Any More

Nearly subsumed by the announcement that Microsoft will buy LinkedIn for $26.2 billion is the news that Microsoft will [bold added]
start offering software that tracks marijuana sales, breaking a corporate taboo on pot.
Perhaps you, dear reader, are puzzled by recent developments in Redmond. Here are the top four reasons Microsoft is getting deep into the weeds.

1) $26.2 billion? LinkedIn "connections." 'Nuff said.









2) Cements Microsoft's dominance in vaporware.










3) Out: blue screen of death. In: blue cloud of doob.






4) If you want more Clippy's, we're gonna need a little extra help.
Clippy (NYMag graphic)

Thursday, June 16, 2016

And Now Orlando

Orlando: the 49 dead (NY Daily News collage)
Whatever we're doing now to stop these mass murders, it's not working. Young lives ended or permanently damaged by strangers is horrible, made more horrible by the reminder that a very black heart beats in some of us.

Nearly a week has gone by, and the reaction was disappointing but not unexpected. There was an instantaneous rush to judgment by thought leaders who seem to be most concerned about validation of their worldview. Can't they all just budge a little on their positions on guns and immigration, whether pro- or anti-? No compromise solution will eliminate terrorist killings entirely, but any reduction in severity and frequency will be a step forward.

I don't know what will be lost by compromising but I know who the big winners will be---the ordinary Americans whose faces will not be on the six o'clock news.

Wednesday, June 15, 2016

Multinational Tax: No Change Any Time Soon

Lisa De Simone
Stanford accounting professor Lisa De Simone says that multinational corporations shift income to low-tax jurisdictions at twice the rate of previous estimates:[bold added]
In our European sample, instead of $54 billion being moved, we find that it’s more like $99 billion..... a change in the tax code could have a bigger effect on the tax base than previously thought. Say, for example, a country raises its tax rate, hoping to generate more revenue; you could get enough outward income shifting that tax revenue actually goes down. In a global economy, the corporate tax base is a very leaky vessel!
To repeat, after raising the tax rate countries sometimes find that total collections go down as multinationals shift income.

One of the principal mechanisms is "transfer pricing," that is, a high-tax French subsidiary "sells" product to an Irish sister company at a low price, thereby making France less profitable and Ireland more so. Income and expenses may also be shifted through other structures such as loans, leases, and service fees.

With the multiple jurisdictions and entities involved, international corporate taxation is much more complicated than U.S. individual income taxes. Trying to increase tax collections from multinationals would involve changing the law country by country in dozens of jurisdictions, which will be difficult and extremely time consuming.

Do not expect change any time soon.

Tuesday, June 14, 2016

Sign on a Pool Fence

Observations:
  • Active diarrhea must be a recurring problem to have merited nearly a third of the space on the sign.
  • Pool closures resulting from diarrhea are generally caused by kids, most of whom can't read the word.
  • "Active" diarrhea is verboten; does that mean inactive diarrhea is permitted?
  • "Active" and "inactive" are adjectives applied to volcanos.

    Volcanic diarrhea! the monkey mind flits from image to image, unable to stop, as it plunges into deep waters by the pool.
  • Monday, June 13, 2016

    Even in Space You Can't Escape this Visitor

    I couldn't name a post-Apollo astronaut other
    than Sally Ride (1951-2012) without Googling
    Popular Science headline: A Brief History of Menstruating in Space.

    Women astronauts have been around so long that space menstruation has had a "brief history." Time indeed is flying. (It's easy to treat the subject lightly, but if interplanetary travel is ever to become reality, this is one body function that we had better understand.)

    Sunday, June 12, 2016

    But Not to Thee

    In one sense the Episcopal Church hasn't changed:
    five white guys are doing the 'splaining.
    As I mentioned a few days ago, I attended the Special Diocesan Convention at Grace Cathedral on Saturday. The clergy and lay delegates voted unanimously to amend canon law to clarify the governance of Diocesan institutions. These amendments are important in pending legal actions concerning the control of valuable Diocesan properties.

    Those who have a sense of irony may find it amusing that some delegates waxed indignant that non-Episcopalians are trying to seize control of the church's property. Many of the offended are also "social justice warriors" who advocate lessening property rights---in fact we had discussions on affordable housing and social justice immediately after---but, as the saying goes, property rights apply to me but not to thee.

    Saturday, June 11, 2016

    A Sense of Humor Helps



    Driving in the Bay Area requires forbearance, planning, and low expectations about one's time of travel. Always being able to see the humor in situations also helps.

    This afternoon the driver to my right inserted himself into the left turn lane ahead of me. There were several explanations, none of them flattering to him. Nevertheless, forbearance.

    Then the frontmost driver decided that he was in the wrong lane and shifted to his right. Obviously, when the left arrow came on, nobody moved.

    Conclusions: 1) Robot cars can't come soon enough. 2) Two wrongs don't make the light.