Friday, July 30, 2021

Stealing From The Poor is Easy!

You don't have to steal from the poor, they willingly give you their money.

Much ado has been made over the Robinhood IPO. Like most modern IPOs, they sold a pittance of the stock for a huge amount of money to chump investors.  Unlike earlier IPOs, however, they allocated one third of the IPO stock to chumps. And while the stock premiered at $38 a share, quickly sank to about $33.

Some folks are claiming this is a way for the small investor to get in on the ground floor of an IPO.  I disagree.  Retail investors (chumps like you and me) are the ones who drive up a stock price far beyond its metrics. For example, Gamestop has no real plan to make billions overnight, and with a negative 77 P/E ratio, probably never will.  But retail investors don't look at metrics like that - profit and loss, business plans, dividend ratios.  Rather, they look at pricing trends and assume "some greater fool" will pay even more for an overpriced and overheated stock than they will.  And the financial press - and now the Internet - will work to hype up the price of loser stocks.

Or, if they do look at metrics, they look at specious metrics.  EBITDA sounds sexy and all important, until you realize it basically means, "what we would be earning, if we didn't have to pay back our debts and pay our taxes".  In other words, it is a fantasy number.   It is like how the financial press breathlessly reports "revenue" as if it were profits and not merely gross income.  And the financial press has been breathlessly reporting how Robinson's "revenue" is skyrocketing, even as it continues to hemorrhage cash.  Somewhere along the way, you have to make a profit.

So it made sense for Robinhood to do this deal - selling IPO stocks to members.  First, they get lots of press for it, and second, it makes them sound like a "good guy" even after all those SEC investigations.   But most of all, it insures that someone will actually buy the stock and bid up the price.  Or that was the plan, anyway.

Small investors are convinced they can make huge amounts of money investing in stocks like this. But one has to ask about the fundamentals of the company. The earnings per share is blank, because the company is losing about $6 per share at the present time. With the share price of about 33 to $36 this means but negative 6 P/E ratio.  In other words, they are losing money, and you have to make money to stay in business.

To me, what is really scandalous is they sold off only a few hundred million dollars of stock to these suckers, while the vaunted market cap is now listed at 30 billion. This tells you that the vast majority of the company stock is held by insiders, and the poor chumps who bought this at $38 a share or whatever are buying a tiny slice of the company. Like most modern IPOs, the entire point is to create a market for the shares so the Insiders can cash out. They really aren't interested in "raising money" so much as in cashing out.

Of course, they have great plans to make money. But offering free trades they can create profits by... I'm not sure how.  In fact, when the stock didn't do so well out of the chute, they issued a new press release, with vague promises of "expanding" the business into other areas.  I am not sure where they could expand do - massage parlors and drug dealing?  What other financial services could they offer?

But like any obedient lapdog, the press dutifully barfed-up the Robinhood press release, after breathlessly reporting the IPO.  This is good meaty clickbait stuff here, folks!

What is interesting to me is how the media presents this.  One breathless article talks about how their "revenues" (gross receipts) have skyrocketed.  No word on net profits.  Yes, the company is losing money and has lost money.  How do they plan on making money?  That is the conundrum with "free trades" - because even if there are no trading fees they have to pay, if you are a stock market trader, you do have overhead - your license, your salary, your office expenses, your light bill.  So the question remains - how does a bank or firm stay in business offering "free trades" if they are making no money on these trades?

It is a question that troubles me not just because of Robinhood.  I have an account with Merrill Edge, which is part of Bank of America, and yes, they offer me "free trades" because I carry a balance of over $100,000 or so invested with them.  The question is, how are they making money on this?  Bear in mind that before this time, the "low cost" traders like E*Trade and Ameritrade (where I had accounts before) were charging $6.99 to $9.99 a trade and we thought that was a freaking deal.

When my grandfather died, he left each of us a small amount ($500) of Republic of Texas bank stock.  It was a solid "blue chip" stock back in the day, paying dividends and all.  I sold all of mine to pay tuition (and buy pot, no doubt) which turned out to be a smart move.  My late sister thought this would be the start of a stock portfolio, as pathetic as that sounds, but some operator took over the bank and ran it into the ground, to the point where the stock was worthless.  My poor sister - she also had a CD with a "savings and loan" run by some sketchy guy selling "junk bonds" and that dissolved into nothing as well - it was not FDIC insured.  She got the shit end of the stick in life - cancer to boot.

And you wonder why some folks think capitalism is a scam.

But when I sold that Republic of Texas bank stock, I think I paid the broker $30 or more in fees, handing him the actual share certificates, and him handing me a check.   Back then, buying and selling stock was a pain in the ass, which is why buying stock through shareholder services - with a $1 fee - seemed like a good deal - at the time.

But now.. free?  How do they make money at that?  The answer, I guess, is in part that they don't, or at least not in a way we can see.  I notice that in some funds I purchase through Merrill Edge, there are fees involved.  And who knows how much they get in kickbacks from the funds themselves, who charge a "management fee" (expense ratio) for running the fund.  No one works for free.

But Merrill doesn't offer free trades to the plebes - they want to see a certain amount of dough, which in turn insures that there is a certain amount of income.  Offering free trades to Joe Schmotz and his $500 "investment" in Gamestop isn't as enticing.

Hence the IPO.  Again, and I will say this until I beat it into your head, the purpose of the modern IPO is to allow insiders to cash out.  Unlike old-timey IPOs back in the day, where they sold off 90% of the company stock to raise capital to expand and improve, today's IPOs sell off 5% of the stock to suckers like you and me to create a market for the shares the insiders want to sell later on.  In fact, some IPO prospectuses are very up-front about this - saying baldly that the purpose of the IPO is to create a market for shares.  But no one reads the prospectus, do they?

If you did, you might find this tasty little tidbit:

We have three classes of authorized common stock, Class A common stock, Class B common stock and Class C common stock (collectively, our “common stock”). The rights of the holders of Class A common stock, Class B common stock and Class C common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to 10 votes per share and is convertible at any time into one share of Class A common stock. Shares of Class C common stock have no voting rights, except as otherwise required by law, and will convert into shares of our Class A common stock, on a share-for-share basis, on the date or time determined by our board of directors following the conversion or exchange of all outstanding shares of our Class B common stock into shares of our Class A common stock. Upon the completion of this offering, no shares of Class C common stock will be issued and outstanding. For more information about our capital stock, see the section titled “Description of Capital Stock.” 
Upon completion of this offering, all outstanding shares of our Class B common stock will be held by our founders, Baiju Bhatt and Vladimir Tenev, and their related entities
I had to scroll all the way through that document to page 1 to find that, too!  So the founders, in addition to having a whopping majority of the shares of the company, have ten times as many votes as you do for your pathetic Class-A shares.  And when they sell their shares (as they have done) they will no doubt "convert" their Class-B shares to Class-A before selling them to you, stripping you of nine votes.  So in terms of control of the company (the only real reason anyone would buy out your shares) it is a non-starter.  No one needs Class-A shares to take over the company.  They pay no dividends.  They earn no money.  In essence, they are worthless - a share certificate to the idea of Robinhood, nothing more.

Robinhood raised $2 Billion in its debut, but has a "Market Cap" of $30 billion.  Do the math on that - they sold off 6.6% of the company in the IPO.  The insiders kept the 93.3% of the rest.  Well, except the shares they sold off, that is:

The company sold 52.4 million shares, raising close to $2 billion. Co-founders Vlad Tenev and Baiju Bhatt each sold about $50 million worth of stock. The company was last valued in the private markets in September at $11.7 billion.

Fifty million - about fifty times what you can expect to save in your lifetime, if you have a good middle-class job.  And fifty million represents a drop in the bucket compared to the "billions" they still own in remaining Class-B shares.  In other words, Fifty mil was just a taste for them - enough to buy a mansion and a new Ferrari.

Note also how the "valuation" of the company last September was only 11 billion, but the "Market Cap" - thanks to the IPO is now $30 billion.  Nice way to triple your money, overnight, if your name is Bhatt or Tenev!  This illustrates why Market Cap means nothing, really, except to insiders.

And who pays for all of this?  Little people, lining up to give them $500 here or $1000 there, with their blubbering thanks.  "Please Mr. IPO - take my money!  PLEASE!"

It also explains why the share price languished.  Not only did they have to unload the IPO shares, but the founders were diluting the market by selling off $50 mil of their own stuff!

Robinhood doesn't steal from the rich and give to the poor, the poor give them money, willingly, and make the Robinhood insiders rich.

So why do people throw money at these things?  Why indeed, when in recent history - not even ten years ago - we realized what cons these things were.  Sure-fire investments that can't go wrong - right?  People out-bidding each other for the privilege of buying an overpriced house.  It all sounds so familiar, yet people fail to see the parallels.  It is 2007 all over again.

Bear in mind that the 20-somethings throwing money at these things were barely 10 years old when the market collapsed in 2008.  Maybe they saw their parents weep when their portfolio was cut in half, or they lost their house to foreclosure.  But they didn't learn a damn thing from it.  Far from it - they will invest in clever stocks and make a fortune!  Not end up broke like their elders!

Funny thing, I was shopping at Hanniford supermarket the other day, and like most places they had a big sign saying they were hiring.  The benefits were pretty amazing, including a Fidelity 401(k) with 5% matching feature.  And I am sure few employees took advantage of this guaranteed 100% immediate return-on-investment, either.  But I am sure more than a few threw a few bucks at Gamestop or Robinhood or Bitcoin or Gold or whatever - and are "hanging in there" because it is sure to come back.

Like I said, you don't have to steal from the poor, they will willingly hand you over their money.

It is sad to watch.  Maybe I am wrong about this - that Robinhood will figure out some way to make huge profits off of free trades and become a wildly profitable company and drive the share price up to $70.  Maybe, but I doubt it.  Like Gamestop and so much of the market today, it will go up in price, but not in value, driven by the law of supply and demand, not by underlying metrics.  Clueless masses buy and buy, based on these breathless stories in the financial press and anonymous postings on Reddit.

This will not end well!

Wednesday, July 28, 2021

A World Without Men? (Amen!)

Are men the cause of all the trouble in the world - or do they just have more opportunity?

Men are always up to no good, make no mistake about that.  Due to our biological differences, men have always enjoyed a more dominate role in society throughout history, and even today, throughout the world and even in progressive Western countries, despite the strides women have made.

Men dominate industry, politics, government, academia, religion, the sciences, and just about everything else.  Women are catching up, at least in Western countries, but are still far behind in terms of participation and pay.  Why is this?

Well, part of it may be biological and historical.  Women were viewed as "the weaker sex" or "the fairer sex" as they were not as large and strong as men, at least in terms of upper-body strength.  They also got pregnant.   And pregnancy meant, historically, being incapacitated for a time, not only during the latter part of pregnancy, but during childbirth and the early child-rearing years.  Historically, women were charged with raising the young, and this carried over even into relatively modern times, where jobs like teaching or nursing, which required nurturing, were historically women's roles - and often the only roles they were allowed, outside of the home.

There may be other physical manifestations as well - the dominance of testosterone versus estrogen might explain not only physical differences but behavioral ones as well.

The problem is, not only do men dominate much of society, they also create more than their fair share of troubles.  Men make up over 90% of prison inmates and are responsible for more than 90% of the crime in the world.  And it is safe to say that men are behind most if not all the wars in the world, and the atrocities and horrors - although women have lent a helping hand there as well.   But overall, it seems men create much trouble for the rest of society.

Some women - particularly Lesbians - argue that men are unnecessary.  "You finish the candy bar, you throw away the wrapper" they argue.   Men's only real contribution to "mankind" is to provide seed to inseminate an egg - something that can be done from a test tube or even artificially.   It is an interesting thought - would a society that was all women be much different than the male dominated society we have today?

There was a mythical society of women, called Amazons - no relation to the river or the online shopping site.  But of course, this was a myth created by men, and in their limited imagination, the only thing they could come up with, is a race of women who behave like men - warriors and invaders.  So I doubt that would be a model for a women-dominated society.

I have heard from some feminists (and again, Lesbians) that they believe that women work differently than men.  Men want a hierarchy, with someone on top, and then layers of authority radiating downward to the bottom.  And indeed, corporations and the military are arranged this way.  You take orders from above, and give orders to those below - unless of course, like most people, you are on the bottom rung.

Men, they argue, compete and conflict with each other, to claw the way to the top of this pyramid.  And historically, some leaders - Presidents, even - have played off one subordinate against another, figuring that this competition leads to greater achievement. Others might argue it leads to wasteful infighting and disunity, when pulling together as a team might be more productive.

Women, they argue, work cooperatively, and in a woman-dominated society, people would work together, in concert, and use consensus, not strongman leadership, to determine what course of action to take.  Everyone would live together in peace and harmony!

Maybe.  Or they might show themselves to be assholes like men are.  It is hard to say, given that we haven't had a chance to experiment with society this way.

When I worked at Planned Parenthood as an intern, I was shocked that I was one of the few men working there.  The women explained to me that the janitor did the heavy lifting of boxes and changing lightbulbs, and the director oversaw the entire operation.  And then there was me.   I was flabberghasted that this women's health organization was headed by a man. "Oh, you have to have a man running things," one of the 'liberated' woman told me, "if we had a woman in charge, we'd spend all day tearing her down!"  The other women nodded in agreement.

As an aside, I should note that I learned a lot about men while at Planned Parenthood.   The boyfriends would \sit in their hopped-up cars listening to 80's rock in the parking lot, while their girlfriends were fitted for a IUD.  Nice.  But worse were horrific stories, such as one told to me by a woman from the Dominican Republic, who explained that her boyfriend would beat the crap out of her, every time she got pregnant (her fault, right?) and kick her down the stairs.  Men - what's not to like?

But getting back to topic, maybe back in 1985 women thought men needed to run things.  Maybe it isn't true today.  But then again, a friend of mine recently retired from a charity organization that was staffed entirely by women.  He was the director, and the women there said the same thing as the women at Planned Parenthood back in 1985 - that they would respect the authority of a man, but would tear down a fellow woman if she was put in charge.

Maybe this isn't true.  Or maybe this is the flaw in the "consensus" theory of management.  If you manage by consensus, it goes without saying you can't have someone "in charge" - elevating their opinion above the consensus of the group.

Of course, there is another possibility.  Women, given the chance, would turn out to be as evil and domineering as men can be - they just haven't had the chance to do so.   They would start holy wars and Jihads and invade countries and create strife and difficulties just like men do.   It is possible - that the only reason women aren't more represented in these statistics is that they have traditionally been in the background, supporting their men, but not risking their own situation in the process.  Every evil dictator in the world had a wife or girlfriend.   Men marching off to war are supported by their families back home.  You look at the Nazi parades of the 1930's and there were plenty of women giving the Hitler salute.

Maybe it is just that men, having more time on their hands, get into more trouble.   Some biologists claim that sleep in animals isn't just a chance to rest and recuperate from the day's labor, but a way of keeping animals inactive so they stay out of trouble and are not eaten by other animals.  Maybe men get into more trouble because they have more spare time on their hands.  Maybe if they spent more time at home, raising the kids, the world would be a better place.  Maybe.

On the other hand, women have proven themselves to be competent in almost - if not every - field of endeavor that men engage in.  In my lifetime, I've seen our society go from an era where a "woman doctor" or a "lady lawyer" was a novelty, to the point where they are starting to dominate these fields of endeavor, at least in terms of recent school graduates.  And women in the military went from being an auxiliary service to combat roles.  Maybe we don't have an army of Amazons - yet - but it is clear women can be warriors and killers, if they choose to be.

This makes me wonder - do we need to build more women's prisons?  Are crime rates starting to equalize as well?   Some statistics seem to indicate this is the case - the incidence of women in crime is on the rise.  If this is the case, perhaps men and women aren't so different after all - we are all humans, and whether or not we engage in certain behaviors depends more on opportunity than motive.

Perhaps.   I guess we'll never really know, at least in my lifetime.

Tuesday, July 27, 2021

You Don't Have to Live as a Refugee!

There is a difference between living and warehousing.

In my previous posting, I mentioned how some folks working at Amazon are little more than warehousing themselves like the goods they are picking and packing.  Hanging out in a rundown RV, walking across the street every day to the looming building, and working for long hours and low pay. How did they end up like that?  And is that really living?

For many people, life is something that happens to them, and not the other way around.  Things, events in their lives, occur, and it is like the weather - they can't see it coming, and they have no control over it.  These are the folks who think that money is like rain - some days it pours buckets, other days are a drought. And its been pretty dry lately.

This is not to say that we have absolute control over our lives - we are always at the mercy of outside forces and the almighty (or the law of probability - take your pick).  But there is a difference between being proactive and inactive.

For example, in some postings from many years ago, I noted that in order to change my life situation, I had to move away from depressed Syracuse, New York.  And a good thing I did, too - the factory I worked at is not only closed, they bulldozed it to the ground.   I guess they felt they had to salt the earth to make sure nothing would grow there, ever again.  But the main thing was, it allowed me to change my life, forever.  Sometimes you have to move to where the money is.

As I noted before, I left Syracuse in 1987.  Within a decade, I was a law school graduate, owned my own home, owned my own office building, had my own law practice - as well as two investment properties - and found the love of my life.   Something to think about, if you ever start to believe that nothing in your life will ever change - or that such changes will take forever.

It did not come without some effort, of course.  And teamwork.

In response to that posting, I received a number of comments which were disheartening.  First off, some were saying, "Well, how can you leave your friends and home behind!  It's your hometown!  Your friends!  You owe them something!"   Kind of hard to parse that, but it is funny how people will see an attachment to a run-down community and drug-addicted and/or mentally ill friends, to the point they sacrifice their lives in the process.

The second comment - the subject of this posting - was something to the effect of, "Well, I guess I should move, then.  Where do you think I should move to?"  And this reflects the "refugee" type behavior we see so much in the USA, particularly in Florida.

When I moved to Washington, it wasn't some stupid willy-nilly move, taking city names out of a hat and then deciding where to go.  I interviewed with a number of companies across America, and I decided to take a job offer from the Patent Office, after talking to an old family friend who recommended I give it a try.  Mark moved here after college with a job offer in hand from Williams Sonoma, to open their new store in Georgetown Park as a manager.

We both didn't just load up a U-haul with our crap, towing an old, inoperable Camaro behind, and just drive until we ran out of gas and then set up shop there.   You'd be surprised how many people do just that.  They hear there are "jobs a-plenty" at such-and-such location, and like the Joad family from The Grapes of Wrath, they load up the truck and a-move to Beverly.  Hills, that is.  Swimming Pools, Movie Stars.

It is living like a refugee.  They may find a job, but never a career.   They move from one flophouse or trailer park to another, from one low-wage, low-skill job to another, never advancing very far, never getting out of debt, declaring bankruptcy more than once, and often hopeless and depressed.  And yes, drugs and alcohol figure prominently in this equation.

That is, in part, how I was able to turn my life around in a decade. I gave up drinking and pot-smoking and moved on.  Funny how that works!  Within a year, I had graduated from Engineering school (after toying with a degree for nearly a decade).  As I noted before, it was like letting go of a pile of cinderblocks I had been dragging around - I raced ahead, a man unleashed.

But beyond that, I had a resume, a work history, a career path.  I wasn't just moving willy-nilly and hoping someone was hiring when I got there.  That is the difference between living, and living as a refugee.

And the comparison to refugees we see across the world, I think, is apt.  Or more precisely, they are one and the same.  Worldwide we have a refugee crises, as people flee hunger, drought, violence, and persecution.  Often, they wait too long before moving - often after it is too late.  Often, they move to a new area, with no concrete plans as to what to do, carrying all their possessions on their back, at the mercy of the fates and the goodwill of others.  Often, it does not work out well for them.

There are some, like Yassir Arafat, who benefit from keeping people as refugees as long as possible.  He kept his own people in refugee camps, in primitive conditions, knowing that it was good eye-candy for the news media and would generate sympathy - and aid checks, which he cashed and deposited to his Swiss bank accounts.  Letting people settle and make a living would spoil all of that.  Funny thing, though, the Arabs who didn't flee Israel are still living there, working and voting.  But I digress.

When I was at Syracuse University, I met a young Palestinian fellow who was in a wheelchair (due to an accident).  He was studying Engineering. His goal was to get a good job in the US and get the hell out of the West Bank, where there was no future for him.  Oddly enough (or not so oddly) many "back home" thought he should give up his life and dreams and move back to "fight the good fight" and sacrifice his life so Hamas could score some politcal points or whatever.  He was fortunate, but also smart.  He got the hell out.

Throwing your fates to the winds is never a good idea.  And while fate plays a hand in all of our lives - including and especially the final chapter - that does not mean you should give up on making any attempt at improving your lot in life. And yes, sometimes this means making sacrifices - giving up the drugs and booze and "friends" who want to drag you back down.

But of course, the people living as refugees aren't reading this.  They aren't typing up their resume or thinking about their career path.  At best, they hope to get a job somewhere, maybe a "good-paying" job that doesn't involve a lot of work.  And maybe someday, they'll strike it rich, through some unknown means - perhaps a lottery ticket.   Maybe then, they'll restore that 1985 Camaro they've been dragging around from place to place.  That would be bitchin!

But of course, these dreams never quite work out, and such folks end up resorting to petty crimes and often end up in jail.  You see it all the time down South - the infamous "Florida Man" (it's just one guy?) who is always up to some sort of antics.

When I see folks living like that - like refugees, whether in their depressed hometown or on the road like the Joad family in a U-haul - I kind of feel sorry for them.  They are trapped in a jail-like existence, but yet they carry the key to their cell on their belt.   They just can't seem to find it, or figure out how to use it.

You don't have to live like a refugee.  Unless you want to, of course.

Monday, July 26, 2021

The Conudrum of Jeff Bezos

People aren't always the way we pigeon-hole them to be.

Jeff Bezos went up into space in his giant dick-rocket - and unfortunately, he returned.  It is not that I dislike him personally - I have no idea what his personality, if any, is like - but I dislike the way he runs Amazon, which tries to deceive me with every single checkout into either signing up for "prime" or paying for shipping.  Deceptive practices usually mean deceptive people.

I recently ran into a guy who went to work for an Amazon warehouse.  He left after two months - the last of the dozen or so employees they had hired in his group.  Sounds like my experience at United Parcel.  Turnover at Amazon is apparently staggeringly high.

He went for the job interview two months earlier, wearing a nice shirt and tie - after all, it was a job interview, right?  The other dozen applicants were not so nicely dressed.  Some were wearing tank tops, others in flip-flops.  More than one smelled like they hadn't bathed in days.  All twelve were hired.  Most quit within a month.  He and one other guy were all that was left after two months.  The work was grueling and the pay low and the benefits nonexistent.

They promised him a full-time position, but only if he made quota.  He had to "pick" 400 items an hour, which means about one every nine seconds.  The bins he had to pick from might contain several different items that all were about the same size.  It was the smaller items that were the hardest - tiny things that all looked alike, and you had to sort through the bin to get the right thing.  This cut into your picking rate.   Since he never consistently made 400 picks per hour, they never offered him a full-time position, and thus no benefits.   How convenient for Amazon!

His story was interesting and correlated with my experiences camping.  We were in one run-down trailer park in California, and most of the people living there - in old, dilapidated RVs - walked across the street every morning (or evening) to the giant Amazon warehouse.  Like the goods inside, they too were being warehoused - not really living, but just getting by, one day at a time.  This whole "gig economy" thing is about the same - people driving for Uber and living in their cars.  The only people making money at these gigs are the people at the top.  Sure, early on you might do OK, but then they change the rules, much as airlines change frequent flyer miles redemption terms.   You never win.

What struck me as odd about the whole situation is that Jeff Bezos is supposedly a "liberal" and owns the liberal Washington Post, whose masthead he changed to Democracy Cries In The Darkness.  And I think, at this stage, we can freely call the Washington Post "liberal" and Fox News "conservative" and toss away this pretense that our news outlets are trying to be impartial and neutral, in news reporting as well as opinion pieces.

Liberals are supposed to be for the people, right?  Pro-worker, pro-union, and pro-family?  Yet Bezos is a union-buster with the best of them - perhaps putting our robber barons of the 20th century to shame with his effectiveness.  Worse yet, he is (or is trying to be) a monopolist.  Dominating the online sales market, he has now raised prices as well - raking in billions of dollars and expanding his empire to include everything from computer services for the government to rockets into (suborbital) space.  We haven't seen this type of conglomerate-building since, well, since before the great depression.

Of course, the labels "liberal" or "conservative" or "Republican" or "Democrat" are deceiving.  I grew up in Republican New York State, where governor Rockefeller lead the liberal wing of the GOP.  Big government would solve all our problems, and Albany would have all the answers.  Later on, next door in Massachusetts, Republican Governor Mitt Romney would institute a government-run health care system that today would be (and is) decried by "conservatives."

People can't be pigeon-holed into neat compartments.  Not every Republican is against abortion and for Qanon.  Not every Democrat is against the death penalty and in favor of open borders.  People pretty much lay out on a spectrum of beliefs, and they usually pick the candidate most closely aligned with the beliefs they hold most dear.  I have Catholic friends who voted for Trump, not because he is a Godly man, but because to them, the most important issue in the world is abortion - and they wanted the Supreme Court packed with conservatives.  Their own priest told them, from the pulpit, to vote for Trump.  So they did.

But when January 6th came around, they quickly pulled down their Trump yard signs.  Everyone has their limits.

What motivates Jeff Bezos?  I mean, besides money and fame and whatnot?   Why would he own a newspaper championing the left, when his practices are, well, about as right-wing as a businessman can get?

Some on the right might argue there is a method to this madness.  I mentioned before that things like food stamps and ADC and other programs to help the poor are often also a big help to low-wage employers.  Walmart can pay its employees less, if the employees get a subsidy from the government in the form of food stamps or an Obamaphone or whatnot.  And the Walmart employee website has (or at least had) helpful links for employees to click on, to help them obtain these benefits.  Why bother offering people full-time jobs, where health insurance could cost the company $20,000 per year per employee?  Make them part-time and they qualify for a full subsidy on Obamacare.  Pretty neat trick, eh?

But it goes further than that - at least according to some folks. I am not so sure that the leftists like Bezos are that Machiavellian.   Some argue that leftist thinking - which posits that the government should provide cradle-to-grave services in a Socialist state - is designed to get people to be dependent on the government for basic survival.  Once you have people "hooked" on government programs, they argue, it is a lot easier to keep them in line and get them to vote for you.  So every election season, the Democrats trot out all the welfare benefits they are providing to the poor, and insinuate the poor should therefor vote for them. And of course, Republicans are raked over the coals for trying to cut these benefits.  Unfortunately, the poor are very inconsistent voters - if they vote at all, they are likely to vote for the "wrong" candidate - particularly poor rural whites. So I am not sure it is a theory that works.

The net result (according to this theory) is that people stop providing for themselves and look to the government as the first (and only) step in solving their personal problems.  Once conditioned to believe that government can solve any problem, they stop looking for other solutions - such as taking their own initiative or changing their own behavior.  For example, the opioid epidemic isn't the fault of those abusing the drugs, but the fault of government for not providing more drug treatment programs!  Of course, those same rightists who advance such theories would never suggest that perhaps the real problem is a system that rewards a few companies (and one family) billions of dollars for promoting prescription opioid abuse.

Like I said, it's a theory, and not one I necessarily subscribe to.  But it has certain angles that make a little sense.  And in understanding Bezos, maybe some of this is true.  By owning the Washington Post - which he promises to take a "hands on" approach to, now that he has "stepped down" as CEO of Amazon - he can whitewash his reputation, much as Andrew Carnegie did by building libraries, with money he made off the backs of the people.   In fact, most billionaires do this - listen to the list of "sponsors" on NPR sometime - most of them are foundations based on the remnants of wealth of robber-barons of the 20th Century.  The Rockefeller foundation does good deeds, John D. Rockefeller did horrific things to make his millions.  The Bill and Melinda Gates foundation helps people in third-world countries.   Microsoft used monopoly practices to extract huge amounts of money from the wallet of every American - and provided a third-rate operating system in exchange.  Bezos is just the latest example of these sharp-practicing businessmen trying to take the tarnish off their reputation.

The conundrum isn't just for us to decipher, but for Bezos himself.  He champions the little guy, but at the same time, union-busts.  But if Amazon were unionized, costs would skyrocket and he would have to raise prices dramatically - allowing other competitors, particularly smaller mom-and-pop operations to get a foot in the door.  Maybe this is already happening.  I bought a set of tires online recently, and Amazon, TireRack, and Walmart all wanted $258 a tire (no price-fixing here, folks!) while a small company in Wisconsin wanted only $208.  Bezos, or more precisely, Amazon, needs to keep costs low, so they can undercut the competition and run the small player out of business - the same game plan that John D. Rockefeller used to create Standard Oil.

Of course, Bezos claims he is "helping the little guy" by providing us with all this cheap crap made in China, delivered to our door, where porch pirates can then steal it.  No problem!  Amazon is asking landlords for keys to get into your apartment building, so your precious new piece of electronic crap doesn't get swiped.

That is the problem with Amazon, however.  It isn't poor people being helped by low prices and free shipping (if the prices are indeed, actually low and the shipping indeed, actually free) but middle-class people who buy this junk while surfing Amazon.com at the office.  The guy in the warehouse or the guy driving the Amazon truck are not making out as well.   But they are head-and-shoulders above the poor bastard in China who is working in sweatshop conditions for pennies an hour to make us all this enticing junk.  The whole system is based on exploitation - at one part of the planet or another.

As I noted in another posting, I don't buy as much from Amazon as I used to.  If I am shopping for an item, I pick the particular item (often using part number) and them open a plethora of tabs for different shopping venues.  Amazon is usually the last choice.   I often find what I am looking for at a better price on the manufacturer's website or that of a small mom-and-pop online store.   Amazon often has the highest prices.  I only resort to Amazon if there are no other options, or if I want something very quickly.

But of course, Bezos doesn't have to worry about that anymore.  Once you've made your Billions, you can retire and spend the rest of your life setting up foundations and doing good deeds and driving your Ferrari around the deck of your mega-yacht.  Meanwhile, Amazon is taken over by professional managers, who are paid in stock options and will have every incentive to jigger-up the share price, and cut wages and benefits further.  Eventually, this could result in unionization, and Amazon may go the way of Sears and other retailers before it - a slow death that may take decades to occur.

Meanwhile, the Bezos foundation will linger on, for a century or more!

I mentioned before (I think) about the Lemelson foundation.  They also "sponsor" on NPR and are the sponsor of the Smithsonian Museum of American History and also the management school at MIT.  Who is Lemelson?  Well, to hear some people tell it, he is the biggest Patent troll of all time - extorting money from companies right and left, by alleging infringement of his somewhat vaguely-worded Patents.  Whether you believe that or not is not the the point - the point is, once he made his millions (a measly half-billion, while he was alive, according to some sources) he set about to polish his reputation through these donations to institutions which would use his name in return.

Once you have billions and a yacht, and all the fancy cars, the trophy wife (or wives) and the mansions across the globe - then what?  You want people to respect you.  You want to be let into their little club, in Davos or Bohemian Grove or whatever.  I mean, it is what drives Trump - he cannot stand the humiliation of losing an election, so he just claims it didn't happen.  And no matter how many country clubs he buys, they won't let him into the club, which just makes him angrier and angrier.  How this guy hasn't had a major coronary is beyond me.

But getting back to Bezos, I think he wants to polish his reputation as a Benevolent Billionaire.  He's one of us!  Fighting for the little guy with his newspaper, while at the same time, screwing the little guy with his business practices.  Not only is he screwing the employees, but the suppliers and online merchants - and anyone who dares to compete with him who doesn't have the deep pockets of a Walmart.

Sunday, July 25, 2021

Influencers and Investments

Influencers can sell a lot of things, including investments.

Probably one of the most interesting developments in marketing in the 21st century has been the rise of the influencer.   Sure, influencers existed in times past, but on a much more primitive scale.  Perhaps, as a teen, you'd follow the antics of your favorite rock star or celebrity, and then try to mimick their behavior and clothing styles.  And you'd buy their albums and go to their movies or whatever other venture they were involved in.

But it was rare that such influencers sold more than their own products.  In fact, we would have rebelled if some rock star started blatantly hawking products - they would be selling off their own authenticity, which in turn was their very currency.  Imagine the Rolling Stones interrupting a concert to make a pitch for Coca-Cola.  It wouldn't have gone over well - back then, anyway.

The Simpsons, in an early episode (before, I think we can all agree, Fox turned it into crap) featured Krusty the Clown doing edgy stand-up comedy in the mode of George Carlin.  He decries corporate greed and the wall street fat cats, until they make him an offer he can't refuse.  He ends up hawking the "Canyonero" bloated SUV and his fans flee in droves.

Of course, since those days, we expect our celebrities and rock stars to endorse products other than their own.  Athletes compete for endorsement contracts from sporting goods makers and makers of sports drinks.  They hire marketing experts of their own to groom and enhance their image, and figuring out what products to endorse is part and parcel of this.  Rock stars blatantly have "sponsors" for their rock tours, even as they charge $200-and-up for a ticket to an "oxygen seat" in a stadium, where the performer appears to be the size of a head of a pin.  And of course, our movies are now invaded by product placements, where a character will just casually consume a soft drink or beer, with the label of course, facing the audience.  Even Schindler's List had product placements in it.

Of course, many sci-fi franchises suffer from lack of product placement.  You can't put a can of Coca-Cola in the hands of Darth Vader, as he lives in a galaxy far, far away.  But never fear, George Lucas has done a bang-up job of marketing numerous products spun-off from the franchise, from toys to t-shirts to just about anything.

But in the early 2010's, we started to see a new form of "influencer" on the Internet.  These were people who had blog sites and YouTube channels and whatnot, that attracted "followers" (Like and Subscribe! as they say) and would "review" products and get paid - an awful lot of money.  A young kid, barely 7 years old, makes millions just playing with toys.  Well, his parents made millions, anyway.  It remains to be seen what the kid will get when he turns 18. Despite "Coogan's Law" child actors are still being ripped-off by their parents. Ask McCaulay Culkin about that.  But I digress.

Mark follows some of these channels.  And sometimes, they can be helpful.  When we bought a roll-top tonneau cover for our pickup truck, we looked at a dozen "review" sites online, run by guys who were hoping to make that sweet YouTube bucks by putting up videos and getting followers.  Most don't make squat.   They do get free product from the manufacturers, of course, and some were up-front about this, which made their reviews more honest.  But you can kind of read-between-the-lines on these things, and I am not sure we were so much "influenced" by the videos as they confirmed the choice we intended to make was the right one.   But the human brain is a tricky thing, and often we don't understand how it works ourselves.  So, who knows?

And perhaps that is the scary part of this.  When we see a blaring ad on television, we turn the sound down.  We know it is an ad, and maybe it influences us by making us aware of a product or learning the jingle of the company.  We realize, consciously, these are promotions.  But then again, they also subtly influence us.

Influencers, on the other hand, can be more subtle.  Or not. There are legions of idiots out there who will follow any pied piper, and will willingly buy any product endorsed by their favorite influencer.  If this means a new pair of shoes endorsed by the Kardashians, or a widget for your camper endorsed by some couple Airstreaming Across America! (tm), the harm is pretty low.

But then, someone figured out that you can sell Investments this way.  In a recent article online, some young folks decry being "influenced" to buy some sketchy "altcoins" online.  They are pissed off because these alt-coins are scams, they claim.  But of course, Bitcoin isn't a scam, right?  And Elon Musk and Sooze Orman aren't influencers, are they?

Go online and google "Bitcoin Price" and you will be treated to a host of SEO articles and sites where "experts" on Bitcoin say things like, "My target price for Bitcoin is a Trillion-Zillion Dollars!" without really saying any concrete reason why this would be.  Again, Bitcoin, like all digital currency, is based entirely on scarcity.  Scarcity of any commodity determines price, not underlying value.  So for example, the price of gold is determined by scarcity - the law of supply-and-demand - or perceived scarcity, which is what drives the price of diamonds. 

Diamonds, it turns out, are pretty common things.  You can make them, flawlessly, in a laboratory (or factory).  And at first, the diamond people had an informal arrangement with the lab people to only make "artificial" diamonds for industrial purposes - diamond grit for grinding equipment and saws and whatnot.   But that sort of went by the wayside when larger and larger diamonds could be made.  So today, the diamond mining people extol the virtues of "natural" diamonds, which have flaws in them, unlike "artificial" ones.  Oddly enough, it wasn't long ago, that the same people were extolling the virtues of a "flawless" natural diamond.

But diamonds and gold have a uses in the world, other than as investment.  Diamonds have a number of industrial uses, and gold is a great conductor that doesn't tarnish or corrode.  Both are useful for jewelry, too.  But cryptocurrency?  It's only real "use" is in paying ransoms or buying arms, drugs, or children.  And since governments are clamping down on these things, these "uses" may disappear in short order.  The US Government was able to "claw back" much of the ransom paid recently in a ransomware attack.  If that's the case - what's left for Bitcoin?   And no, you will never be able to use it to buy a Starbucks - the cost of each transaction exceeds the price of a cup of coffee.  It isn't a currency.  At best, it is a clunky expensive way to transfer money, semi-anonymously.

So that just leaves scarcity.  The "Sooze" Orman opined that it intrigued her as a "virtual gold" investment.  But like I said, at least gold has a real value.  Even if the price is bid up over its production value (as happens, time and time again) it can't crash down below its real market value - at that point, smarter investors buy it.  But crytpocurrencies?  They can go all the way down to zero - much as stocks sometimes do, when companies go bankrupt.   And many "cryptos" have done just that and more will likely.

That's what made me fall out of my chair laughing, reading that article.  These folks, many of them young men, blindly bought something they didn't understand, because some "esports" star was promoting it or whatever.   I guess if they only lost a few hundred dollars, it was cheaper than tuition at a local college.  That is the tuition in the school of hard knocks, however.  And in that regard, if all they lost was a few hundred or a few thousand, they got off cheaply.

But this extreme case is just the tip of the iceberg.  It seems that all sorts of investments are being hyped these days - and this isn't going to end well.  It never does.  Retail investors (read: chumps like you and me) are highly irrational investors.  The "invisible hand" of the marketplace can be easily swayed by emotional beliefs, with FOMO being the worst of them.   Buy now, before you are priced out of the market!  Don't you wish you bought Apple back in the day?

But of course, Apple stock has a tortured history - it languished for decades, and Steve Jobs was actually fired from the company at one point.   And even today, Apple is based on one product - its smart phone.  And recently, Apple has sank from Number two to number three in the marketplace, being supplanted not only by Samsung phones, but by phones from Xiamoi in China.  In terms of platform, however, Apple has a tiny share of the market - with Android phones making up over 70%, much as PC's make up the dominate share of that market as well.   Again, perception trumps reality - people will pay $1200 for an iPhone, when you can buy an Android phone for less than half the price.   But then again, you don't have bragging rights and a trendy logo.

Apple sells most of their phones in the US, much as Mercedes and BMW sell most of their cars here as well.  Americans love status - and they can afford it, or so they think, anyway.  Americans are highly irrational people - overweight, overfed, and overpaid.  So we breathlessly buy whatever thing we think will make us look better, or what will make us fabulously rich.

In the past, I fell for this as well - and still do, on occasion.  When the economy fell apart in 2008, I started this blog, as I was trying to figure out what went wrong and what I did wrong.  While others were blaming big business or Wall Street, I tried to look inward and see what I could do to change my lot in life.

This article about clueless "gamers" buying alt-coins based on promotions from influencers, is a case in point.  The people who lost money in this scam don't blame themselves for being idiots, but rather blame the influencers for making them do it.   Nothing is ever our fault!  You put your finger in a light socket and electrocute yourself, it has to be the fault of the electric company, right?

Taking control of your own life means not handing over control to others.  Asking others for advice is one thing, blindly following it, is another.  When someone tries to sell you an investment, promising you riches beyond your wildest dreams, you have to ask yourself why they are telling anyone about it.  Because if it was such a sweet deal, they would be investing in it themselves and not telling anyone about it, because they'd want to keep all that profit.

Oh, right, they want to help out their fellow gamers!  Give me a break - history has shown how awful gamers treat each other - SWAT-ing and Doxxing one another, and tearing each other down online.  You want to take investment advice from them?

Or anyone?   Taking investment advice from anyone who has a dog in the fight is always a bad idea.  The nice man at the storefront investment company (and you know which one I am talking about - coming to a strip-mall near you!) gets a percentage of your investments.  So he tells you to invest with them.  The life insurance salesman gets a commission on each sale - so he sells you one policy after another.

I suppose even I have an angle, but I have yet to figure it out.   But not a day goes by without someone e-mailing me asking to do a "guest posting" about payday loans or extended car warranties or whatnot  (and not in a negative sense, I am sure).  So there are influencers who try to influence influence.  It never fucking ends, does it?

I don't feel sorry for these "esports" (Really? Gaming is a sport?  Will in be in the 2024 Olympics?) players.   What is sad to me is that they learned nothing from their experience, choosing instead to blame the influencers and not themselves for being so stupid to buy into investment advice from strangers on the Internet.

This will not end well!