David Stockman

I thought this interview with him worth my time. 

Musings on Transportation

Try Making Gas From This!While I do not expect an economic apocalypse anytime soon, or at all, the price of transportation has to go up in the long run. The new oil and energy sources like shale oil, tar sands, and so on, will fill in the gaps of the decline in traditional oil sources. So no oil apocalypse either. But these new sources are a lot more expensive as the law of diminishing returns kicks in. Are you preparing for this?

A personal example is my daughter's ballet classes. It is quite a journey to get there and the cost of the transportation exceeds the cost if the lessons--as does the cost of eating out that day. To reduce the cost we "multitask" and do our grocery shopping at the same time. But what does this trip cost us?

The current mileage rate for business is 56 cents a mile. This includes things like insurance, fuel, potential repair expenses, and depreciation of the vehicle. Our trip to the dance studio is roughly 112 miles. That is a cost of $63 a trip. We make 4 trips a month. We have no plans to change our custom, but as the price of fuel rises .... But until then we may "double down" and actually increase the lesson time.

The business model of Amazon is based on cheap transportation. As the cost rises Amazon will have more and more problems with their margins. Amazon used to be substantially cheaper than their retail competition. As a retailer this was and is cause for concern. But gradually this advantage is eroding. Already most of my Amazon purchases include sales taxes. In California this is 9%. This reduces a large portion of Amazon's price advantage. To get the free shipping on smaller orders one must buy something called Amazon Prime for $79 a year. The rumor is that they hope to raise this to $99. If you want to explore Amazon Prime as an option for your household, click the link below.

I personally have this but have recently removed myself from the automatic renewal of this product. While I am deep in the Amazon "ecosphere," it does not make sense for me anymore. I use the "subscribe and save" option and get monthly deliveries from Amazon. It is slightly cheaper than retail. Mostly I use this option because of the large variety of products not available otherwise.

As the cost of transportation increases, Amazon is going to find it more and more difficult to make money. Delivery to my front door is nice, but will I pay a premium for it? Probably not. As long as it is the same or cheaper I will continue.

Are you preparing yourself for the inevitable fuel price increases? I think that prices may actually drop first as the recession starts and demand drops, but in the long run prices will go up. I would be happy if I believed in the Disneyfied version of the world where future technology makes us all richer in the carousel of technology. Instead we will be like that Disney employee who was unfortunately crushed by the carousel.

We should all consider buying a slightly smaller car, moving closer to our place of employment, or buying a house on bus lines with a garden spot. Yes, I understand that these last two can be mutually exclusive goals. I probably made a mistake in my own housing choices. This is a difficult choice to unravel.

You know your situation best. Thinking about these issues is good. But thinking and not acting may end up being bad. Are you ready? 

Sell

Is it time to sell investments? While I still expect real assets to be up in the long run, as Keynes said, "In the long run we are all dead." First there has to be an asset crash. As I have mentioned, I do not expect it to be this year. Instead I expect a sideways market with a slightly downward direction. 

Why do I eventually expect a crash? Mish Shedlock provides the answer:

Amazon: AMZN : The PE of Amazon is 592, Valuation is $160 Billion  

Linked In: LNKD : PE of Linked In is 837, Valuation is $23 Billion 

Facebook : FB: Facebook PE is 106, Valuation is $165  Billion 

Priceline : PCLN : PE of Priceline is 36, Valuation is $64 Billion

Hertz : HTZ: PE of Hertz is 37, Valuation is $12 Billion 

Starbucks : SBUX : PE of Starbucks is 483, Valuation is $57 Billion  

Boston Beer (Samuel Adams) : SAM : PE of Boston Beer is 43, Valuation is $3 Billion

(The article this is taken from discusses the different types of inflation and deflation and is a good summary for those interested in this topic.) 

These are goofy prices. Historically the average PE (price to earnings ration) has been about 15-25. These prices cannot continue. Remember Herb Stein, "What can't continue, won't continue." 

Expect a more normal evaluation for the stock market. Yes, there may be still more potential on the upside, but maybe you are smarter than me, I cannot predict when prices will fall.  

Sell now while you can still get these values. 

Facebook Fraud?

One of the main attributes of Babylon is the rather rampant fraud that is a basic part of its heart. The whole political system is based on campaign "contributions." I remember reading years ago that the reason that Microsoft had anti-trust problems was that it was not contributing enough to the powers that be. Other companies, almost as monopolistic as Microsoft, seem to get a pass. I am not sure if the lack of contributions was a factor, but Microsoft does make more contributions now and they no longer have the same issues.

The food industry in no exception to this. I wonder how many industry executives actually eat the products they sell? Do they feed them to their children? 

Advertising, while technically not fraud, is designed to build artificial demand for the product. I advertise my business, so I am not against it in an absolute way. It is the whole system that is bad. I had even considered advertising on Facebook to promote this blog. 

Ultimately my distaste for looking at ads myself decided for me. Why would I impose something I hate on someone else? After watching the following video, I have another reason to be glad I decided not to advertise. How much of Facebook's "click throughs" are actual people? 

Watch and see if you are interested. If I had Facebook stock, this video would make me sell it. 

The Markets Are Rigged

This is an interesting presentation on the difficulty of making investment decisions given in Australia.