I’ve been of the view that the world economy looks the way it does because of three long driving forces – globalization, debt and the tech revolution.

Simplify Globalization as code for labour arbitrage.  It’s a win for the planet to have had freer trade and invite hundreds of millions of people from the developing world into the world economy.   To urbanize.  It’s pretty cool to know that someone’s first home with running water could have no land line but a cell signal instead.  But some of that progress comes at a cost to labour in the developed world.

Debt has simply been growing at a faster pace than growth.  Math says such compounding is unsustainable.  For decades the central bank illuminati have chosen to deal with every slowdown and credit event with cheaper money, in fact even creating deeper crisis.  Their experiments and market machinations have had questionable efficacy but the grown debt levels now cage these bankers into their ways.  Debt used for consumption today is a drag on consumption tomorrow.  So are interest rates that will eventually rise from these generational lows.  QE have proven to increase income inequality.

The tech revolution is just that, disruptively feeding on itself in changing the way things are done at a pace most, meaning politicians and business leaders, can’t keep up with.  There is no doubt it has generated productivity gains but at the social and economic cost of replacing the old ways of doing things with fewer people.

Shaken together, this long mix has produced a cocktail policy makers can’t handle.  Jobs flow to cheaper destinations.  Robots await.  Easy money policy has only accelerated these global and tech trends, oddly adding to some of the deflationary pressure central bankers desperately aim to print away.  The cocktail has created an augmented reality of bubbly asset prices, huge debts and income inequality destined for upheaval.


Nowhere Man, knows not where he’s going to


Nowhere Man, trying to get his work done, stuck in nowhere land, is a usable metaphor.

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I was struck by this from 13D Research  (h/t  @WhatILearnedTW)  in that in encapsulates where we may be in this big picture in the shorter term.  Feeling nowhere in his plight, the voting man on the street seems increasingly less confused on where and why he’s voting.  Other than those striving to tap into this voice, the status quo policy makers and politicians are nowhere in knowing what to do.


Post Brexit and Trump, 2017 brings a list of EU elections and tests of populism.

And while President Trump may boast about auto jobs he threatens to force back, I assure you taxing imports won’t change the increasing number of robots that the industry will collectively use.  In fact, given that a robot should cost the same in the US as it would elsewhere, the case to be made if you want jobs to return to the US may not be in protectionism but with incentives to invest in this manufacturing inevitability domestically.

From BloombergGadfly’s The Robot Rampage  (…the robots  are here and are a poster metaphor for technology’s eating into man’s workweek.  Even the developing world with the cheapest of labour needs to be afraid.


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There is an interesting TedTalk by economist Robert Gordon that puts forth the idea that the US will struggle to grow over much of this century, that innovation and disruption will struggle to overcome his four chosen headwinds of demographics, education, debt and inequality.


TedTalk also suggests a countering view, provided by Erik Brynjolfsson, a researcher and author, arguing that the machine age and machine learning represent opportunity to partner  with the worker.  Outside of his optimism towards productivity gains, he doesn’t really address any of Gordon’s specific headwinds.


Nowhere Man making all his plans for nobody

So how does the world play out?  The Fed’s army of PhD’s can’t forecast the next few quarters let alone decades.  The above portrayal is of some kind of bifurcated world.  Tech’s wonder brings understandable optimism and opportunity.  But similar to the big picture headwinds, tech’s advances are also cannibalizing existing work opportunities.  Last week Amazon announced cashier-less stores while Macys announced closures.  The world’s largest car ride company, Uber, owns no cars.  The world’s largest accomodation provider, Airbnb, owns no real estate.  The world’s largest streamers, Netflix and Spotify, make little money but still reshape their industries.  The number of farmers/acre continues to fall.  Machines can diagnose as well or better than very well-paid and trained radiologists.  An insurance company in Japan just announced replacing laid off employees with  with an artificial intelligence system that can calculate payouts to policyholders.  If the list of disruptions isn’t endless, it will be.

As I said in Revolution, employment and income disparity are driving new political demands.  Central bankers may have enabled politicians to kick the can for too long.  With the sense this time they bought has been for naught,  it’s still early inning populism.

As income growth levels struggle, for the first time in my career we read about central banks debating banning cash and economists pondering  “universal basic incomes”  provided by government.  Not your father’s free market capitalism.  While communist China has been morphing into some form of a planned open market economy, so is the western world?

What this populism and bifurcation means to the investment world is still hard to know.  Probably more volatility.  In the shorter term,  most asset prices seem ridiculously elevated relative to a low growth outlook, even if we get a few quarters of bounce.  We will have a major market correction one day, maybe soon.  But this bifurcation means there will be bigger winners, and losers, in this bigger picture long term predictable disruption of labour.  Increasingly,  the longer term investment view might need to identify and focus on big themes and deeper explore their related implications – as much for management of risk as for opportunity.  In the coming years, thematic investing may become the new big thing.  Think I’ll write about that next.






Nowhere Man    Lennon/McCartney

He’s a real nowhere man,  Sitting in his nowhere land
Making all his nowhere plans for nobody
Doesn’t have a point of view,  Knows not where he’s going to
Isn’t he a bit like you and me?
Nowhere Man, please listen,  You don’t know what you’re missing
Nowhere Man, the world is at your commandHe’s as blind as he can be,  Just sees what he wants to see
Nowhere Man can you see me at all?

Nowhere Man, don’t worry,  Take your time, don’t hurry
Leave it all till somebody else lends you a hand

Doesn’t have a point of view,  Knows not where he’s going to
Isn’t he a bit like you and me?

Nowhere Man, please listen,  You don’t know what you’re missing
Nowhere Man, the world is at your command

He’s a real Nowhere Man,  Sitting in his nowhere land
Making all his nowhere plans for nobody



Most disturbing chart of the year YOU CAN’T DO THAT


This 64′ Lennon tune is said to explore a jealous and possessive streak he felt towards women at the time, not really an uncommon insecurity.

Flirting with the very foundation of free markets and capitalism is a different matter altogether and unfortunately become an all too common central bank insecurity.  Are they destroying the very financial system they purport to protect?


Because I told you before, you can’t do that

Much has been written about central bank money printing and how QE is a policy of augmented reality via massive price distortion.  Centrally planned markets are not what we think of when we think of commerce, free enterprise and capitalism.   And with their questionable results,  central bankers have pitched some phantom revisionist justification that goes something like this…”you’ve no idea how bad it would’ve been if we didn’t do this.”


The invaluable messages normally contained within freely priced government yield curves are being distorted by design.  What are real bond market inflation expectations?  Bond supply and demand dynamics?  What would be the real premiums demanded for perceptions of sovereign credit quality, budgetary  prudence or even political risk without the trillions cumulatively printed by what is tantamount to a banking cartel?

And so we know the price of everything gets indirectly manipulated – stocks, corporate debt, commodities, equities, real estate.  Corporate stock buybacks, certainly bolstered by QE, have become a primary source of demand for US stocks.

If this grand manipulation hasn’t sufficiently crossed your line of what you believe capitalism and free market price discovery should be, then what of the BOJ’s direct purchase of equity ETFs, indirectly giving them ownership in Japan’s largest corporations.

Remember, an equity investor is a business owner, has vote on key management and directorship and say in important business developments like acquisitions or divestitures.  They share in distribution of corporate earnings via dividends.  BOJ yen created out of thin air commingles with real money skin in Japan’s equity game. Pension and mutual funds and the hard-earned money of individual savers, those making investment decisions for outlook and rate of return reasons have a forced fundamental to guage, the BOJ’s manipulative motivations.

Or how about the ECB’s purchase of corporate bonds, manipulating corporate cost of capital.  Hypothetically, how should shareholders of a company elsewhere in the world feel about a debt financed take-over bid from a European entity?  Why should Euro bond issuers enjoy capital advantages other global companies elsewhere whose central banks  won’t or can’t print similarly?  Where are we in the moral hazard spectrum when a Volkswagen can get locked out of the bond market over their emmission scandal only to see the ECB subsequently scoop up their issuance?  No bond market crime no fowl because the central bank says so?


The most disturbing chart of the year?

Without a doubt, special recognition for a central bank assaulting the free market capitalism  we used to know goes to the Swiss National Bank.   It’s stock price is up 58%, my disturbing chart of the year.

screen-shot-2016-12-26-at-12-55-26-pmYes, unlike other central banks, it is a public company with 40% of its float available for trade on the Swiss stock exchange.  It pays a dividend.

As per their website,  “Movements in the price of the SNB share resembles those of risk-free long-term bonds rather than shares (as the dividend is limited to 6% of the share capital by law).”

Do they?  The irony of Swiss banking reputation as safe haven of prudence should not be lost.  The SNB has spent years buying foreign currencies to keep the Swiss franc down and Swiss watches and chocolates moving.  Proportionately, their expanding balance sheet via QE is the world’s most aggressive,  now 100% of GDP.




Some might argue that given their relatively smaller contribution to the global magic money QE pool, SNB actions are insignificant.  This would be wrong because what they’ve done has crossed that line.  They aren’t just flirting with the notion of QE buying of equity ETFs, or corporate debt, they are buying individual company stock, taking an ownership of commerce and a voting right with money produced out of fresh Swiss air.

Some might argue that the value of their US equity holdings going from $US27B to $41B to $64B over 2 years is just 12% of their foreign currency investments, or that these ammounts are a rounding error next to the ECB’s current pace of QE, printing Euros at an 80B/mo clip.  No, actually $64B is still alot of money.  Coming from Canada, that’s over 1/4 of my country’s $C300B social pension plan.

Anyways, should messing with capitalism be measured by size or reach?  The issue is not how much they are buying with QE as much as what they are willing to buy…specific individual public companies.

$64B worth of US stocks have been purchased with money printed out of thin Swiss air because they want to manipulate their currency lower.  They can do that?  How is there not more outrage over this attack on the basic tenets of capital formation and free markets in one country because of the desperate whims of a central bank of another?

Apple’s Tim Cook has been CEO for 5 yrs, a leader within the company for 18 yrs and reportedly amassed a net worth of $500mm.  Its arguably America’s most iconic modern-day institution that has revolutionized personal computing, the music industry and the smart phone industry.  SNB owns $1.8B of Apple with money printed out of thin Swiss air.

Rex Tillerson of Exxon has $250mm of stock earned as CEO and after a 41 yr career there.  SNB owns almost 5x that amount of Exxon because the Swiss would like their currency lower.

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Top 10 SNB holdings as per filing, Nasdaq.


The collective outrage is mute.   Central banks are printing and investing for non rate of returnFed Baseball Cards.jpg reasons, manipulating prices and polluting the waters for the rest of the world’s real money.  If this reach into buying public equities isn’t rebelled against, then what next?  QE for private companies?  For my imaginary start-up?  Why not print cheques for everything on Kickstarter?

Where is the moral hazard line?   It is long crossed.  Capitalism is being corrupted… at the moment, the only difference between the notion of a central bank arbitrarily manipulating the price of anything and everything and what the SNB is doing, is a cusip number.


So SNB’s stock price rallies 58% in a year.  I guess when you are a public company that can also print money, their dividend must be pretty safe too.  Capitalism lost to some central self-appointed license print money?   You can’t do that.



Being For the Benefit of Mr Kite! On Being Netflix, and NFLX

sgr pepper

unknown-1Being For the Benefit of Mr. Kite!  was a Lennon tune from the Sgt. Pepper’s album, inspired by an old poster in his writing room.  Like much of this album,  it was a departure musically from the sounds of the day, experimentation that collectively made this iconic work so impactful and remembered.

“The whole song is from a Victorian poster, which I bought in a junk shop. It is so cosmically beautiful. It’s a poster for a fair that must have happened in the 1800s. Everything in the song is from that poster, except the horse wasn’t called Henry. Now, there were all kinds of stories about Henry the Horse being heroin. I had never seen heroin in that period. No, it’s all just from that poster. The song is pure, like a painting, a pure watercolour.”  –  John Lennon

If there is a current poster standout topping the bill in the big tent of disruption in the entertainment industry today, it’s Netflix.  It is an evolving case study on how today’s technology, internet reach and data mining can speed early and fast adapters – excellent execution can excel exponentially.  Netflix is in the crosshairs of cord cutting and cable/broadband/wireless platforms scrambling to adapt.  And traditional content creation and distribution is in the cross hairs of new entrants, tech giants like Google, Amazon and Apple also carving their own way through these changes.

It’s been 15 years since Apple’s products transformed the music industry with digital download, an industry now again being transformed via the streaming model.  Streaming is great example of the emerging ‘access vs ownership’ economic trend.  Netflix is a prime example of this phenomenon too, but their impact on film and tv has been encompassing,  influencing everything from the writing and creative process to how and where the finished product is consumed.

Likewise their stock is a fascinating reflection of this disruption and the market times we are in.

On Being Netflix

It’s been a fast 20 years in tech and Netflix.   From mail order DVD movie rentals to online streaming, they helped transform the movie rental model and shut Blockbuster down – hard to believe only a dozen years ago Blockbuster peaked at 60,000 employees and 8000 stores.  Today Netflix has ~3500 employees and streams 125 million hours of content daily over 87mm subscribers in 190 countries, having accounted at times for an estimated 1/3 of all internet data usage.

It’s all been accomplished under the nose of behemoth Apple and their current +800mm iTunes accounts.  What would the tv/film industry look like today had Apple plunged in earlier on into content streaming and then maybe even into original programming?

It’s been accomplished under the nose of Google and their 2006 purchase of YouTube, today the world’s largest video platform.

And it’s all been accomplished under the nose of the global entertainment complex.  At first happy to tap into Netflix’s growing demand for writing cheques for their content, the industry now hustles to adapt to a cord cutting world and Netflix’s own successful model of original content creation and distribution.

Did Netflix make the shift to  original content for survival?  It’s hard to know but by some estimates their movie library is down some 50% over the last 4 years, to about 5000 titles.  Whether it has been studios pulling the plug on them or expense or a strategic shift in content investment on Netflix’s part, the end result was their subscriber base more than tripled in these 4 years.   They will spend $5B for original content this year and $6B next, with the vision of doubling output in 2017 to over 1000 hours, including new unscripted projects.  By comparison, stalwarts like NBC or CBS content budgets are in the $4B range.   Netflix has suggested a model of 50% licensed content, 50% original.

In  Streaming Sharing Stealing, the authors Smith/Telang describe what is regarded as a pivotal moment in the latest Netflix transformation.  House of Cards, originally a British series, was being shopped as an American adaptation; typically a $5mm network commitment for one pilot episode.  Netflix’s data showed them their customers had rented the original DVD series, that they liked director David Fincher and movies with Kevin Spacey…and that binge watching was becoming a thing.  Data persuaded Netflix to scoop the networks by offering upfront $100 mm for 2 full seasons, 26 episodes.

The commitment changed the writing, which no longer had to pander to commercial breaks and hooks for the linear format of tv’s next week’s episode.  The project was described as writing a 20 hr movie.  It changed character development and story arc and production.  It impacted the creative process and execution.  And of course when launched in 2013, customers could watch any number of episodes of Season One in one sitting whenever they felt like it.  The rest is history.  Their data intelligence was right.  Was this entertainment’s own version of Moneyball?   Was the traditional way of doing things, maybe even human creative bias, ripe for change?   Clearly, their distribution platform was also a market research platform.  Whatever it was it worked, the industry took note on the Emmy stage and Netflix accelerated original content spending since.

The Netflix bet is now that internet tv, with it’s on demand and personalized advantages and reach could slowly replace linear tv.  It is a reinventing of tv.  They describe it as a great transitional technology, similar to the switch over from fixed-line telephone to mobile.  While Netflix may be 20 years old, internet TV is  still in its infancy.

While most businesses describe their real assets as riding their elevators, Netflix has been recognized for creating a unique corporate culture.  Flexible holidays, common sense expensing, focus on team performance and ensuring individual skill sets are adapted to Netflix changing needs, generous severance if not  –  all concepts designed around treating everyone as an adult and fielding a best team.  Something they call Freedom and Responsibility and no doubt framework for the success that rides their elevators.

On Being NFLX

Throughout this evolution, NFLX stock has performed incredibly.  Since the tech crash NFLX has outperformed AAPL almost twofold during an iconic stretch in which Apple introduced the iPod, revolutionizing the music business, the iPhone, revolutionizing mobile communication and the iPad, revolutionizing the laptop/desktop computer experience.  It’s outperformed DIS, the king of content with Disney/Pixar/Marvel/Lucasfilms/ABC/ESPN under wing,  about 34-fold.Screen Shot 2016-12-08 at 4.31.21 PM.png

The performance has been similarly stellar since the credit crisis, especially during these last four years in which cord cutting trends solidified and NFLX cut their movie library in half and plunged into original content spend.

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Clearly the driver of investor faith in their business model and stock price is the growth in their subscriber base,  in new international markets and revenue.

screen-shot-2016-12-01-at-9-34-17-pmScreen Shot 2016-12-01 at 9.33.43 PM.png


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Valued at over $53B on $8.8B in revenue,  NFLX is pricey.  While not an entirely fair comparison, that’s about 1/3 the market cap size of Disney’s $160B, which generates $56B or 6x the revenue.  Disney also trades at 17x earnings vs NFLX’s >300x.

Clearly the market is pricing in tremendous growth and earnings potential, meaning NFLX stock price is very vulnerable to any growth disappointments that don’t meet the expectations already baked in.  Case in point, the stock has almost doubled just since the summer on recent better than expected subscriber growth.  When so hot, the markets give  NFLX a currency clout over much of their industry to invest in that growth.

Macro environment can allow for this.  Since the credit crisis the Fed et al have been printing money to lift asset prices and stock valuations.  Meaning NFLX is expensive in an entire US stock market that is historically expensive.

This takes me back to a story in 2000 when I was selling energy equities institutionally.  I recall conversation with a well-known successful growth portfolio manager at a large mutual fund. In screen-shot-2016-12-09-at-7-01-19-amtalking about what was clearly a bubbly Nasdaq, even though he felt it couldn’t last and that tech stocks were going down, he was fully invested – because that was his mandate.  His was not to make asset mix decisions for his firm or their clients – his was to put the money pouring into his particular fund to work, period.  It struck me there was an inherent crack in the system when a smart plugged in professional gets pigeon-holed into a position his insights don’t agree with.  Call it a flaw, but such can be a characteristic of the fund management beast.

I’m not at all suggesting that a broad bull is all that’s driving NFLX’s valuation, just that environment can create extremes.  NFLX is the premier pure play cord-cutting entertainment disrupting fast growing internet TV story out there, period.  A growth manager wanting to invest in these themes long-term has probably got to own it, even if stock markets are frothy. Given NFLX performance over multiple time frames, how has not owning it worked out?  Amazon has been perennially expensive based on its actual earnings, but shareholders have been clearly less concerned with valuation and instead focused on their ubiquitous disruption of retail.  So, NFLX is an expensive stock but could easily stay that way.

“[T]wo years ago we were selling at 10 times revenues when we were at $64. At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking!”  – Scott McNealy, Sun Microsystems, post 2000 –

These words by Scott McNealy are nonetheless a timeless sobering reminder that in the long run common sense and entry price dictate that valuation extremes matter, particularly over various extended time frames.

 Competition today and tomorrow

The shift from linear TV to internet TV is in very early innings and clearly NFLX is well positioned for it.  What has been astounding long-term stock performance still carries promise because the global internet TV market opportunity does.  But high valuation is inherently discounting some of tomorrow’s success.

Aside from the general  macro risks of markets being so elevated, and expensive valuation, immediate risks are in growing competition.

Hulu is substantial and backed by a syndicate of studios Disney (ABC), Comcast(NBC), Fox and Time Warner(Turner).  Google just announced a deal with CBS to launch a streaming bundle through YouTube with DisneyABC, NBC and Fox also said to be in discussion.  HBO has enabled subscribers to access content through a variety of platform applications.  Even Facebook, with a massive 1.2B users, has announced intention to get in the game.

While Apple has been relatively quiet given their size and that they’ve already been streaming movies through iTunes for sometime, there are recent rumours of Apple negotiating the stream of newly released films still in theatre.  This could potentially be very disruptive – hot off the press content and 800mm iTunes accounts can go a long way in penetrating the consumer’s streaming choices.  Their new launch of AppleTV as an app for iPhone and iPad in the US furthers the push of internet TV.  There have been rumours of Apple people sniffing around for content at film festivals.  What are their content intentions?

Self-cannibalization is an interesting element to competition in this industry.  How is it Spotify became the early leader in music streaming, and not Apple?  Was it partially because Apple didn’t want to bite into its’ business of music sales?  Similarly, wouldn’t Disney streaming content only bite into their network and cable viewership?  Maybe this is partially why new content platforms like Netflix and Spotify succeeded;  they had no pre-existing revenue to protect.  This makes new entrants into content creation and distribution interesting competition.

Maybe the most interesting competitor currently is Amazon.  They’ve obviously already disrupted the publishing industry and print content distribution with online book sales, Kindle readers and empowering self-publishing.  Not only has their entry in original tv/film content also received critical acclaim, they too are stepping up spending significantly.  They have over 60mm Prime customers and just announced launch into some 200 countries, with discounted pricing to Netflix.  They have development teams focused on local content in foreign markets.  Uniquely though,  Amazon is also in a position to offer shopping members what amounts to a loyalty discount over standalone streaming subscribers, an economic lever into consumer wallets that other content providers simply do not have.  Clearly they also have quite the formidable market research platform.

In sign of the times, the 2017 Golden Globe nominations have Netflix and Amazon content representing 40% of the top show nominations, each receiving as many as the broadcast networks combined.  Add in cable’s HBO which is also available online and streaming services make up 70% of the nominations.

Given that US content travels so well, it’s no surprise NFLX has seen good success internationally.  Over time however bigger spend on local foreign content will not only be necessary but could be an expensive proposition.   Aside from competitors like Amazon, some of these foreign markets have domestic streaming services of their own.  Overall, the global market opportunity for internet tv is enormous and why it will get more crowded.

TV going internet is a big deal for the cable/broadband/wireless complex and no doubt a factor in  ATT’s bid to merge with Time Warner.  Whether it gets approved remains to be seen but there is no doubt the value of content is being elevated in the industry’s scramble to maintain and capture customer base.  With the global clout of Apple, Google and Amazon involved,  pipe access,  new pipe builds and content demand will keep this complex dynamic for the foreseeable future.

The talk of Trump’s new administration possible dismantling the FCC is also a possible risk to NFLX.  Could net neutrality standards be abolished, subjecting NFLX and/or their customers to higher fees for  access?  It is interesting that NFLX just enabled their service to download content for later viewing, advertised as a necessary feature to help further penetrate foreign markets with poorer internet signal access.  While probably true, I wonder if enabling content download also sends a message to the industry that NFLX customers can get around any new US industry visions of disadvantaging some mobile data plans, or advantaging newly acquired carrier content driven binge plans.

The Street Thinks

Street research opinion of NFLX ranges in extreme.  Out of a whopping 42 analysts who rate the stock, 21 have outright buys, 5 have outright sells and 1/3 waffling.  Given typical street bull market bias the skew isn’t surprising.  Considering  NFLX has been adding subscribers at almost a 30% growth rate for the last 5 years, the street is ‘only’ running with assumed growth about half that, clearly respecting both an already well penetrated US market and global competition.

Median 2017 estimates have them earning just under $1.00 per share, but still free cash flow negative.  A PE of 125x is up there.  One 2018 research piece has them at 126mm subscribers, about 20% annualized growth, and earning just under $3 per share, and still barely free cash flow positive.

There has even been occasional chatter that suggests NFLX is a takeover candidate.  Disney, gets mention as a potential buyer.  At +6x revenue and little accounting profitability, I find it hard to believe NFLX makes the m&a radar.  But NFLX has brand and is the pure play niche success – they could easily become a candidate at lower prices.   A broad market correction combined with a growth hiccup could easily produce the kind of material correction in stock price that introduces the m&a conversation.

Those expressing concerns about the stock or are outright bearish, even labelling NFLX a short, hit on recurring themes. In addition to valuation and competition, they dive into the math behind content and capital.

One view on NFLX content spend is that it is a treadmill and expensive to maintain and develop. It is a growing cheque writing model that has yet to provide investors with profitability even with healthy  US penetration and international growth.

New Constructs speaks to this concern of NFLX  content cost growth overtaking revenue growth.


Obviously this depiction isn’t sustainable – revenue response cannot lag previous new content spend forever.  Investment in tomorrow’s consumption needs to show returns.  In New Constructs’ extreme scenarios, they conclude the stock is ultimately worth a small fraction of today’s price.  Clearly the market is paying for NFLX subscriber growth.  The real question? What is the longer term sustainable content spend and what subscriber revenue is required to not only sustain it but turn some handsome profit.  With internet TV in early days still and enormous upside in international markets, NFLX’s outsized spend relative to industry standards is an aggressive bet to stay ahead of the coming competition from tech giants with much more financial reach.

Related,  there are concerns over how NFLX accounts for their content costs, specifically whether they are being amortized sufficiently to show better profitability today yet building a burdened realized expense going forward.  Again, frothy overall markets give unique thematic growth stories a ‘pass’ on valuation and accounting treatments.   But froth comes and goes, and scrutiny gets elevated during more challenging times.  How NFLX valuation is framed today and how their model plays out over time may prove to be very different conversations.

If content spend growth running ahead of revenue growth are legitimate concern, so is capital – this all has to be paid for somehow.  Strapping on  $B’s of debt in this low rate environment is smart, inexpensive and shows debt investor faith in NFLX long-term revenue.  But this can become a dangerous road if revenue gains continue insufficient to fund operations.  Said another way, the markets seem fine lending NFLX money to help fund operations as it builds out its global platform.  But markets can turn quickly if the NFLX model proves vulnerable to economic slowdown, competitive pricing,  or inflating content costs.

Amazon, Spotify, Uber  are just a few examples of companies that have created a fair amount of disruption without making profits early on.  We live in an era were markets value the promise of changing trends quickly.  A key may be in gauging where one is in a product or concept’s life cycle and a vision of how to monetize maturity.  Even though internet TV has enormous growth in front of it, it probably isn’t too early for NFLX to think about the brand it’s created, the loyalty of its customer base and the inherent power of 87mm accounts.   Could it make sense to add new revenue lines?   Music streaming ?  Sports, live events, news?  Will they evolve into their own bundle of services?  What opportunities for cross marketing exist?  Certainly their data mining and research of their customer behaviours have value, maybe even dare say for a commercial free platform, to advertisers.

Dancing the waltz

I’ll confess that when NFLX was taking on excessive stock market valuation as a mail order DVD rental business, I was completely wrong and thought it was a short.  When they morphed into a movie streaming company I thought a lack of barrier to entry made giants like Apple and Google more likely to lead the industry.  I thought their spend on licensed content made them vulnerable –  that studios might either back away from feeding NFLX their content or that content deals could become prohibitively expensive.  I never imagined NFLX creating their own original content let alone outspend the industry doing so.  I never imagined data mining and Moneyball would be applied to the creative industries. Clearly I didn’t keep up with their ability to adapt and lead and change.  But frankly, nor did the rest of the entertainment or tech giants.

I can tell you I think the overall stock market feels frothy and I can tell you I think NFLX stock is expensive and has a lot of future success baked into today’s price.  And I can tell you that competition with deep pockets and significantly greater internet presence are after their own slice of internet TV.  I can tell you I’m in awe of how NFLX thrives in a world it created without banking considerable profit.

But what I can’t tell you is that Netflix won’t remain a leader in an internet TV space with such enormous possibility.  Worldwide there are over 1.4B households that own at least one tv.  There are over 3B internet users.  Estimates have the smart phone market doubling by 2020, to over 6B phones.  Annual worldwide tablet shipments are expected to maintain 180-200mm range.  Somewhere between any and all of these will want internet tv.

Netflix is an amazing story.  I’ve no clue where the stock goes or how the show ends but   for now Mr. Kite tops the bill.



Being For the Benefit of Mr. Kite!   –  Lennon/McCartney

For the benefit of Mr. Kite,  There will be a show tonight on trampoline
The Hendersons will all be there  Late of Pablo Fanques Fair-what a scene
Over men and horses hoops and garters,   Lastly through a hogshead of real fire!
In this way Mr. K. will challenge the world
The celebrated Mr. K.,   Performs his feat on Saturday at Bishops Gate
The Hendersons will dance and sing,   As Mr. Kite fly’s through the ring don’t be late
Messrs. K and H. assure the public,   Their production will be second to none
And of course Henry The Horse dances the waltz
The band begins at ten to six,   When Mr. K. performs his tricks without a sound
And Mr. H. will demonstrate,   Ten summer sets he’ll undertake on solid ground
Having been some days in preparation,   A splendid time is guaranteed for all
And tonight Mr. Kite is topping the bill



A good cover…h/t AndyBoy 63

Paperback Writer (Overnight Trumpenomics )


Quite something, how hard working and prolific the Beatles really were.  Early on it wasimages planned that they produce two albums a year and a few singles in between, to stay in front of a booming audience  –  unthinkable output by today’s standards.  McCartney’s Paperback Writer was one such single.

Made in 66 after the Rubber Soul album, Rolling Stone Magazine’s Beatle’s at 50 review labelled this phase as game changing in paving the way for their follow up of Revolver and the Beatle evolving sound.  McCartney’s exceptional bass play was also recognized  “as if they had just unlocked a whole new realm of potential for the instrument.”



“It could make a million for you overnight”

It is tempting to play with the notion that the reference to Lear was Shakespeare’s King Lear, the tragedy in which an aging king gradually goes mad after disposing his kingdom to his daughters based on their flattery of him.  Especially if I  imagined writing something cheeky about the humble Trump known to imbibe in flattery.  He did once describe himself as “King”, but it was “King of debt.”

Given the financial world’s knee jerk response to his win, I think a review of the overnight change in market narrative is the story.  Over a 30+ year career there are not many episodes I recall that so quickly unleashed such a perceived inflection point.

Maybe the most obvious market fallout is certainty.  After grid-locking Obama for years, the GOP’s control of house and senate pretty much gives them absolute power.  Part of this certainty is new fiscal policy.  The notion that rates have been too low for too long is coming of age.  With the limits of monetary policy providing anything remotely resembling  the vaunted ‘economic escape velocity,’ anything new on the policy front is probably viewed as panacea.  Infrastructure spend has been put forward for years now as a needed option.

The day before

Who knows how markets will play out of course, for Trumpenomics it’s early chapter one.  For now, some select random prologue.

It really wasn’t that long ago that Republicans were threatening to shut down government over borrowing authority bills, the self-identified fiscally conservative.  Welcome to the other side.

Its about a year since the Fed raised rates for the first time and we’ve had to endure the painstaking noise of each meeting being ‘live’ and yet hikes deferred because of a laundry list of reasons…slow global economy, China devaluation and a China bubble, strong $US headwinds,  concern over emerging market debts, Brexit, that raising rates diametrically opposed the panic emergency policies of QE and negative rates by an ECB and BOJ running out of things to buy.  The dialogue and tensions surrounding the next 25bp ranges from  nonsensical to confirming a legitimate fragility.

Income disparity and a weakly employed middle-class voice drove the election results.  Is this a form of repudiation of the Fed’s monetary policies?  For all the talk of how blunt  interest rates policies are, there is no question that they, and QE, enriched Wall St, those responsible for the crisis, and elevated income disparity.

Italy and Deutsche Bank headlines prove Europe’s banking system and EU structure remains a fragile experiment.  Financial repression seems to be keeping Europe papered together but after all these years it hasn’t corrected significant underlying debt and banking problems.

In lieu of job creating capital investments, corporate America has been spending their earnings, even borrowed, to buy-back stock and increase dividends.  This says many things possibly but at the very least exasperated the problem of income disparity, did little for employment and possibly suggests there aren’t identifiable deep pools of business building investment opportunities for the private sector to pursue.  Certainly lack of capital isn’t holding corporate America back.

While campaigning, Trump himself described markets resulting of the Fed’s policies as being a “big fat ugly bubble.”  I cannot comment on his forecasting track record but can only assume it is no worse than the Fed’s.

In 2008 when Obama won, he inherited $10T of US government debt which then cost $450B/yr to service.  Trump inherits $20T, which through the power of Fed policy and market manipulations costs a lesser $430B/yr to service.  The old school bond trading concepts of crowding out markets with supply have been annihilated by central banks.  Will the vigilante’s return?  Every basis point increase in funding cost is adds $2B to the deficit annually.

US Car loans total in excess of $1T with delinquencies rising and used car values shrinking.  $1.3T student loans remain a headwind to families and post grad advancement.  There are areas of growing concern over commercial real estate loans.  The $29T of corporate debt has taken corporate American leverage above crisis 09 levels.  As much as savers and pensions are desperate for higher interest rates, the collective system the Fed has nurtured may not be.  Interest rates matter to those in debt.



Despite initial panic selling of stocks when Trump won, a new narrative quickly emerged, something years of extreme monetary policy stretched to do.  Reflation.

Tax cuts.  Talk of a $T infrastructure spend.  Stocks and Dr. Copper soared.  The $US went up, rates rose across the yield curve 25-55 bp…aside from stocks booming this was the exact danger scenario the financial world and central banks have been both wanting and fearing.  Even while in QE mode, EU and Japan bond markets sold off.

Chapter One

There is an odd faith in this new Trumpenomic narrative.  The predisposition for stock market performance as a tell suggests all is bullish.  With Fed policy on trial and the bond and currency markets quickly voting against them, its now easier for them to hike and some of the would-be damage is baked in.  Copper has soared 25% in the latest month while the industry still talks of foreseeable surplus.  Sure stocks are up but from very expensive levels, and notably with newly competing higher rates.

The China bubble has not gone away, capital still seeks flight and the Chinese are allowing the $US dollar to do what it is doing against every other currency – strengthen.

Corporate tax cuts and a window for repatriations sounds great for corporate profits and more buybacks and dividends.  But if a flush America hasn’t been creating the quality jobs already, why would more of the same do so?  The personal tax cuts for the rich will further elevate the issues of income disparity.  As will GOP promises to cut estate taxes.  Sounds like the disenfranchised middle-class vote against the elite could turn out to be very profitable, for the elite.

Maybe air coming out of the bond market bubble seeps further into a stock bubble.  Maybe we’ll finally get to test the economy’s sensitivity to higher rates and rising dollar.  Or how sensitive the more fragile EU and emerging world are.   Will we now get to test how too-low and too-long the Fed has really kept rates in a world of surprises and unintended consequences?

The bottom line for Trump’s Chapter One is this.  The narrative is he’s going to spend and cut taxes, pushing rates and funding costs higher, in an enormously over-indebted world of expensive assets juiced by years of central bank experimentation…i.e. right into “that big fat bubble.” And if he doesn’t, then why are bubble level equity valuations jumping higher?

If it’s US deficits that will be ringing the warning bells, then we may get to wait awhile, and endure the pains and gains in the interim.

But if it’s foreign markets that trigger warning bells, either via currency volatility or fallout of new trade stance or political turmoil, then we may hear warning bells sooner than later.

Very diverging monetary policy.  Diverging trade intentions.  A China bubble.  A fragile EU awaiting multiple election results.  A forever desperate Japan.  Bush had a tech crash.  Obama had a housing/credit crash.  The knee-jerk of Trumpenomics, Chapter One suggests it’s not a stretch Trump is going to have something huge too.

George Stockus









Fixing A Hole (with Trump)

sgr pepper

From the iconic Sgt Pepper’s Lonely Hearts Club Band, this McCartney tune was apparently a tribute to marijuana and allowing one’s mind to wander with the freedom from being told what to do.

It was the idea of me being on my own now, able to do what I want. If I want I’ll paint the room in a colourful way… I was living now pretty much on my own in Cavendish Avenue, and enjoying my freedom and my new house and the salon-ness of it all. It’s pretty much my song, as I recall. I like the double meaning of ‘If I’m wrong I’m right where I belong’.    –Paul McCartney-


At the risk of piping into the pool of post-election noise, it feels compelling to write about the elephant in the room.  There really has not been anything like this election before.  But the divisiveness is feeding the double meanings and the collective mind wanders.  And hey, these election results proved to tribute marijuana too.

The post mortem is going deep  –  racism, sexism,  xenophobia, immigration, protectionism, elitism, environmentalism, press manipulation, investigations of corruption, hacking, health care, supreme court and left/right ideologues.  These are all highly passioned and important  points of division.  But the real elephant in the room is more unified –  money.   Income disparity, debt, financial repression.  The struggling middle-class is a chapter of a much bigger economic story everywhere.

While they may not all articulate it, it isn’t lost on the man on the street that no Wall St bankers went to jail after the worst crisis in history.  While they may not articulate it, it isn’t lost on anyone 30ish and under that they’ve only worked in world of economic crisis and then emergency zero interest rates.  If you’re on one of the coasts and a coder or riding some tech unicorn, your life is very different then those in the economically hollowed out square states.  Voting played that out.

Back in June, in Revolution, I wrote about the great political enablers, the unelected but appointed central bankers, whose policies have allowed politicians to survive without addressing the real elephant and actually have made it even only bigger.  Clearly Trump’s “drain the swamp” and Bernie’s supporters were saying DC wasn’t working for them.  Maybe a simple conclusion out of the election is that the DNC chose to run with a pre-ordained establishment elite voice these other movements were so clearly charging against.  Arrogant or not, they just didn’t listen.  The 10-15% drop in Democrat voter turnout might support that notion.

After six years of saying no to just about everything Obama tried to do, Republicans now have the pass to say yes to pretty much anything – spending plans, tax cuts, repatriations.  It’s an interesting set-up because this, along with some advertised protectionism, may take some pressure off the Fed.  And is probably inflationary.  $20T of debt translates to $2B per basis point of annual funding costs.  Not only would rising rates be a deficit building headwind, the Republican gameplan looks to push deficits out too.  Will this bubbled bond market and a little inflation and less Fed shake the elephant?

For all the knowns and unknowns behind Trump’s lack of qualifications and whatever team he puts together, and all the social tensions that accompany his upheaval, know that the elephant is a function of three undeniable and linked global forces unlikely to be upended anytime soon.

  1. Debt.  For decades now it seems every economic hiccup was met with easier and easier monetary policy, and resulted in the need for more and more debt to create growth.  It’s handcuffed government spending capacity.  The credit crisis finally pushed interest rates to the zero bound, and normalized what would otherwise be labelled extreme experimentation of QE and negative interest rate policies.  Savers are repressed and debt has continued to grow and the policies have only exaggerated growing income disparity.  To the extent borrowing pulls forward tomorrow’s consumption to today, is it any surprise we got to a point where the growth outlook is muted and debt levels overwhelming?  How will China’s massive $18T debt-binged growth of financed excess play out?  The empty building built today is one that doesn’t need to be built tomorrow.img_0121.png

h/t Grant Williams, @ttmygh

 2. Globalization.  Decades of labour arbitrage and evolving trade have invited billions of people into the global working pool.  As much as Trump wants to rail on Nafta and China, the US economy has also benefitted greatly from being able to access global markets.  The deflation that central banks so feverishly fight is partly a function of wage pressures and the falling product prices they help produce.

Sure Apple could notionally outsource the iPhone to a contract manufacturer in Michigan but the labour costs would either collapse their profit margins and/or make the iPhone significantly more expensive and/or destroy their competitive position to other foreign manufacturers.

3. Tech Revolution.  From Moore’s Law to mobility trends to today’s glaring disruptions in the way we operate, the exponential growth curves associated with computing, data management and internet proliferation have affected all aspects of economic life, everywhere.  It’s transformed the workplace and the skillset required to be in it.

The promises of automation, robotics, and artificial intelligence are a glaring call to politicians that their job markets are changing, and fast.  Just as US manufacturing jobs have been hollowed out by global labour arb, what do tech trends portend for the job market that remains?   Self-driving trucks you say?

Screen Shot 2016-11-13 at 1.37.55 PM.png


Eco 101 teaches that the factors of production are land, labour, capital and entrepreneurship.  Decades of easier money, cheap capital has only accelerated these trends in labour arb and new technology innovation and adaption.  They’ve all fed on each other.  THIS is your elephant in the room.

Republicans and Democrats can rightly fight all they want over who is crooked or cracking lines of moral civility.  The Fed can print more money to buy unsustainable government debt and manipulate borrowing costs to keep government’s lights on and augment asset prices from reality.  But are we seeing that central bankers can only enable political inaction so far?  Trump’s win reminds us the growing numbers left out, squeezed out, or ill-equipped to adapt get to vote too.

You can be sure that the solution isn’t for everyone to turn insular and protectionist.  But the solution also doesn’t lie in status quo.  So we get a Brexit.  A Trump.  Maybe we would’ve had a Grexit if not for establishing a dangerous precedent for the big experiment known as the EU.  Over the next year there are elections in Italy, Austria, France, Holland, Germany, Czech Republic.  They all have the same elephant.  Will they vote status quo?

These self-explanatory graphs are from the excellent  (h/t Michael Lebowitz)   Elephant sightings really.








Maybe everyone would see eye to eye on more social issues if they did so from a more equal economic footing.  But they are not, and they do not and it is decades in the making.

A reminder.

00 Clinton’s 8 years left $5T debt and a tech bubble.

08 Bush’s 8 years left $10T debt and a housing bubble.

16 Obama’s 8 years leaves $20T debt with many bubbles brewing.

President Trump’s Chapter 11 skill-set won’t help.

George Stockus


Fixing A Hole – Lennon McCartney

I’m fixing a hole where the rain gets in,  And stops my mind from wandering,  Where it will go

I’m filling the cracks that ran through the door,   And kept my mind from wandering
Where it will go

And it really doesn’t matter if I’m wrong I’m right, Where I belong I’m right
Where I belong
See the people standing there,  Who disagree and never win
And wonder why they don’t get in my door

I’m painting my room in the colourful way,  And when my mind is wandering
There I will go

And it really doesn’t matter if  I’m wrong I’m right, Where I belong I’m right
Where I belong
Silly people run around,  They worry me and never ask me
Why they don’t get past my door

I’m taking the time for a number of things,  That weren’t important yesterday
And I still go

I’m fixing a hole where the rain gets in,  Stops my mind from wandering
Where it will go oh,  Where it will go oh

I’m fixing a hole where the rain gets in,  And stops my mind from wandering
Where it will go (fade out)

A shoutout to the outstanding site for their trove of background information.  Highly recommended.

Dear Prudence

Canada’s Real Estate, a new China Syndrome and a System Getting Played?

“Dear Prudence is me. Written in India. A song about Mia Farrow’s sister, who seemed to go slightly barmy, meditating too long, and couldn’t come out of the little hut that we were livin’ in. They selected me and George to try and bring her out because she would trust us. If she’d been in the West, they would have put her away.”   – John Lennon

Prudence has seemed to go a bit barmy here in Canada as well, although I refer to the very real Canadian debt levels and Toronto/Vancouver real estate markets rather than someone on meditative leave.  During the great credit crisis, Canada’s conservative banking system was revered around world for its conservatism and relative stability. But fast forward to today, the takeaway from these pictures speak plainly.

Canadian real estate is running hot on global measures.


There is no precedent for this level of consumer leverage, leaving Canada highly sensitive to interest rate and or income shocks.  Tired economic cycle and job markets, please don’t fail now.


The hot markets are predominantly a Vancouver and Toronto regional issue, especially with energy markets taking Alberta’s economy down.   Although it isn’t as though slumping energy and mining markets haven’t reached BC.


Naturally its right to focus on central bank policy and their solutions to everything – easy money.  Today’s bubble economics, manipulating markets and forcing all asset prices and debt levels higher and higher, is proving simply to be an experiment of hope to somehow turn improbable math into economic favour.  Easy money has lifted house prices around the world.  Still, taking this monetary background as a universal given, there must be something more to the story that distinguishes Canada’s housing and debt journey from the rest of the world.

A new China Syndrome ?

‘China Syndrome’ was originally coined to describe the sequence of events following the meltdown of a nuclear reactor, in which the core melts through its containment structure and deep into the earth.  Are we in an era maybe aiming to apply new meaning to the phrase, this time to China’s possible inability to contain its own massive economic bubble?

Even in their world of crazy large numbers, never has the world seen the kind of borrowing and building as China has produced just since the credit crisis. Desperate to keep growth going,  since 2007 debt/gdp soared from 80% to over 300%, debt growing  fourfold or some $18Trn.  In a span of a few short years they’ve used more concrete than the US has in its entire history, more steel than the UK has in its history.   We’ve all heard about their empty cities but…they reportedly sit on some 11 Bln sq ft or 63mm vacant homes.  Debt to be repaid and empty spaces to fill, this is tremendous future growth that they’ve pulled forward and must now digest.  It’s easy to conclude it all unsustainable and vulnerable, but it is a planned and manipulated economy of unprecedented size, so it’s so difficult to game and time.  It’s no surprise they’ve put controls on capital wanting to leave the country.  The world would be right to be afraid of currency devaluation and some larger looming economic danger.

Screen Shot 2016-09-27 at 6.25.12 PM.png

But capital does get out, an estimated $1Trn over the last year.   There are plenty of stories of strong Chinese buying heating real estate markets elsewhere – Vancouver and Toronto included.  The motivations of one side, individuals de facto exporting bubbles, are very different then the other, countries understandably not wanting to import them.


Dear Prudence, won’t you come out to play?

Remember the systemic complicity of the US housing bubble, the failure at so many levels?  A Federal Reserve asleep at the easy money and oversight switch, even denying there was a problem when it had become obvious.  Wall St couldn’t leverage up and repackage garbage mortgage product and the banks couldn’t underwrite the feed fast enough.  The rating agencies minted money by bolstering securitization with blind endorsement.  Regulators were nowhere to be found.  Banking became all about quantity not quality.  Wall St bonuses boomed, suddenly mortgage brokers drove nicer cars than realtors and the appraiser owned a few homes ready for flip.   Everything to do with building, renovating, furnishing, financing, buying, selling was red-hot.  Joe Public had no chance, a system literally throwing money at him, demanding he borrow to buy and ignore the fine print.  The media swarmed with mortgage ads and stories of getting rich.  Politically, a home for everyone was fulfilling the American dream.

And within this ‘no-brainer’ confidence  came the nefarious –  liar loans, predatory terms and outright fraud.

Brought to its economic knees, eight years later the world still wears the shrapnel.  So, live and learn and never again, right?

Central banks are surely repeating their mistakes.  And China is reinventing the mistakes to scale.  In Canada it feels like some of the same mistakes of systemic complicity are playing out in Vancouver and maybe Toronto too.  Outside the real estate related economy, it’s not like the country is booming nor immune from debt headwinds and the global growth slump, especially to those exposed to commodities.

A reminder that Ontario has the world’s largest sub-sovereign debt at $307B, over twice that of California but with just a third of the population.  To the west,  ag, mining and energy markets have experienced downturns ranging  from severe to disastrous.  A consequential 25-30% drop in the $C over the last few years has helped stem some of the blow and helped manufacturing remain competitive and helped make real estate that much more attractive to foreigners. But still, these aren’t the economic roots of a healthy income-driven housing boom.

While unlike China, Canada doesn’t sit on millions of empty homes, like China, the levels of consumer debt dictate that the economy now needs to hope home prices remain relatively stable to avoid triggering real problems.  Given crisis history is so recent it is a wonder that the Bank of Canada and reputable banking system engendered such unstable consumer credit levels.

Look Around round round

Nonetheless the recent news stream suggests there are oversight cracks that can be addressed, even if it is a bit like closing the barn doors after the horses are gone.  While a passionate proponent of free markets, as a Canadian I see no reason why we should willfully and silently watch, if in fact foreign buying is resetting the domestic economics for Canadian tax paying homebuyers.  Maybe there should be a separate set of rules for non-citizens?

It’s 2016 and a time of heightened border concern everywhere, and elevated info-tech and data management abilities –  there should be no excuse for lack of oversight of any foreigner transacting in real estate;  from realtors and their local Board’s oversight, to FinTrac, legal contracting and titles, contract assignments, bank lending,  immigration, tracking numbered companies, Canada Revenue Agency (CRA) and differing Provincial standards.

Remember, nefarious dealings are symptomatic of bubble environments.  As once famously said, banks get robbed  “because that’s where the money is.”  The stories in the press of foreign money laundering or lack of CRA oversight on capital gain loopholes or banks offering different lending standards to foreigners with no income verification or foreign investment clubs funding flips;  these all scream out that Canada is a system getting played…because that’s where the money is.  When I read a foreign student in BC purchased a $7mm property and flipped it for $8mm , I have to wonder about the bubbly systemic complicity enabling it to happen.

It’s a struggle to make a list of solutions.  We are that far deep into the problem.

Vancouver’s new tax on foreign buyers is showing early impact.  But what if this just hurts Vancouver and means the business moves elsewhere, to Toronto or Calgary?  There are already reports of buying tours even redirecting to Seattle.  These buyers seem committed.

New Zealand, also dealing with hot markets, imposed a 40% down-payment requirement on investment properties.  Maybe Canada could similarly entertain a heightened downpayment requirement on foreigners?

Maybe the CRA should make the capital gains exemption for primary residence eligible for Canadian citizens only?

Hawaii has a significantly elevated property tax for out-of-state non-resident owners.  Something Canada could consider for foreign buyers?

Its great that Canada is such an attractive country that foreigners want to invest here and move here.  But it would be wise for Canada to get its immigration/real estate/banking/taxation paper trail act together.  We’d rather be sure Canada is attractive for its beauty and people and civility and prudence, not because it was easy to play.

With Canadian debt having run so high, there is growing vulnerability to macro developments.   Very recent global history should serve as reminder.  The Bank of Canada can’t run national policy to what is clearly extreme regional noise.  But they and the banks and the regulators need to identify the increasingly obvious cracks in the system and fill them.   Or risk remaining complicit.


Dear Prudence

Dear Prudence, won’t you come out to play?  Dear Prudence, greet the brand new day
The sun is up, the sky is blue  It’s beautiful and so are you
Dear Prudence, won’t you come out to play?

Dear Prudence, open up your eyes  Dear Prudence, see the sunny skies
The wind is low, the birds will sing  That you are part of everything
Dear Prudence, won’t you open up your eyes?

Look around round  Look around round round  Look around

Dear Prudence, let me see you smile  Dear Prudence, like a little child
The clouds will be a daisy chain  So let me see you smile again
Dear Prudence, won’t you let me see you smile?

Dear Prudence, won’t you come out to play?  Dear Prudence, greet the brand new day
The sun is up, the sky is blue  It’s beautiful and so are you
Dear Prudence, won’t you come out to play?



Golden Slumbers, Carry That Weight


Golden Slumbers is based on 16th century poem and part of a string of medleys on side 2 of the iconic Abbey Road album.  Legend has it McCartney saw the poem in a piano book, couldn’t read music but liked the words and recreated it with his own tune.

Carry That Weight apparently was referencing the trouble the band was having, amongst themselves and with their label.


Golden Slumbers, Carry That Weight

Once there was a way, to get back homeward…

Obviously gold was money and once backed world currencies. Because central banks still hold it and accept it, some even still buying it as a reserve, it technically still is a currency. It represents no one country and unlike paper money it has no pledged faith and credit against it. It’s no one’s liability.

Still, seems it comes and goes in popularity, its history of appeal during crisis labeling it a form of insurance. Is that why long term fans perpetually seeing danger around the corner are labeled gold bugs?

Despite its storied history as money, when it slumbers, pundits are quick to mock its appeal. It’s a barbarous relic, a pet rock of the gullibly paranoid. It’s an investment that yields nothing.

“I would characterize gold not so much as a hedge against monetary disorder, but as an investment in it.”

“The price of gold is the reciprocal of the world’s faith in central banks.”  – Jim Grant 

Exploding debt, bubbles, QE, and negative interest rates all qualify as monetary disorder and should be testing our faith in central banking. So it could be argued today’s central bankers prefer gold in slumber – it’s more difficult to pitch desperate policies as solutions when such a historic indicator of non-confidence starts blinking.  Is this why assets are at historic highs and gold isn’t?

Sleep pretty darling do not cry, and I will sing a lullaby…

Conspiracy theories around the manipulation of gold prices abound, especially during slumber.  There are myriad examples of unexplainable large price and volume swings during the very early and illiquid trading hours. There’ve been stories of major banks with significant derivative risk exposure to gold. The bugs are a passionate maddened bunch. But even if you’re not sold on these theories, you can’t deny central banks have been all-in the asset manipulation business generally and cannot afford any vote of non-confidence.

Others argue for a return to a gold-backed standard, something that would necessitate gold exploding higher. The problem with this notion is that it would require central bankers to admit they’ve been wrong all along about their fiat currency debt feeding ways. Could the plight of global finance really reside in such stubbornness, even arrogance?   It has until now.

Whatever lullaby you believe the cause of gold’s slumber, it’s now an interesting time.  If a new form of currency like a Bitcoin can emerge, clearly there is demand for alternatives. If gold can no longer contain the madness of central bankers maybe it’s new roll could be to reflect it.

So, for some perspective, how much gold is out there?  Various sources suggest all of it ever mined is somewhere between 155-171,000 tonnes. Let’s use the number of 166,500 tonnes.   (  About 50% jewelry, 19% investment, 18% world governments and 13% other.

That’s 5.353 Bln ounces.  At today’s price of $1350 all the gold in the world is about $7.22T.

Annual gold production is about 3000 tonnes, or about 96,452 ounces, or $130B.  Anyone’s guess is good but some call this peak production.

Global debt has risen approximately $60 trillion since the credit crisis alone, equating to 461 years of production at current rates! Since 2008 global central bank balance sheets have grown over $10 trillion largely via QE, almost 77 years of gold production.

 Mention that 10 trillion to some people and they glaze over so lets visualize. A tight fresh packet of $100 bills from the bank is $10,000, about a half-inch thick. $10T is a stack 500 million inches tall, or 7,891 miles. If you stack straight up, space is only 62 miles up.

 Currently there are about $13 trillion of global bonds trading at negative yields. While even sand yields more than this $13T, gold’s lack of yield sure seems less an issue in light of central bankings trip to the stars. Remember gold is the currency with no debt or call against it, unlike dollars, yen, euros, yuan, pesos or any other paper money you can name. A currency you can’t print.

The US government’s 8133.5 tonnes of gold is the world’s largest holding, worth about $353B at today’s price. On $20T of debt, $353B equates to what the US would pay in interest in one year if they could fund at an average of 1.77%. At peak Bernanke Fed QE3, $353B equates to about 4 months of printing.  $353B is about 4.5 years of US food stamps handed out or 7 months of US military spending. It’s not even half of the crisis TARP bailout package.

Italy has the world’s 3rd largest government holding, 2452 tonnes or $106B. By comparison, today’s EU systemic hot topic is Italy’s troubled banking system looking for a bailout, sitting on a whopping $400B of non-performing loans.

Japan’s entire bond market out to 15 years is essentially negative yielding.  The BOJ owns half the stock market too and still promises to do more printing.  Swiss 50 yr bonds are negative yielding – a return to the 1% they yielded a year ago would wipe out 1/3 of their value.

In a world of big spending, big debt, big problems, and big central banking experimentation, the gold market isn’t so big anymore.

Obviously of all this gold mined, only a small fraction of that $7T is available for trade, ‘Cash for gold chains’ infomercials be damned. A survey of the top 500 asset managers in the world as of a year ago showed assets under their management totalled $78T. Just a tiny asset allocation from this group along with continued buying by China and India could easily rocket gold out of slumber. A number of very smart respected managers are in. It’s difficult to have conviction on anything in this central bank manipulated world, but the bullish setup is there now more than ever.  Other assets are hitting at historic highs. And while like sand, at zero gold yields more than $13T of negative yielding government debt, sand isn’t a central bank reserve asset. Yet.

For the record, the dynamics of market size in this astronomical world of numbers is even more striking when looking into the silver market. The number for tonnes in existence is quoted as 778,000 tonnes or 25B ounces. At $20 that’s $500B in size. Annual production rates are running 887mm ounces, or just under $18B and supply has been in physical deficit for a few years. Not to rekindle memories of the Hunt brothers because this isn’t the world they played in, but it wouldn’t take that much to squeeze the silver market.

From the original maestro himself, a good question…

“If we went back on the gold standard and we adhered to the actual structure of the gold standard as it exited prior to 1913, we’d be fine. Remember that the period 1870 to 1913 was one of the most aggressive periods economically that we’ve had in the United States, and that was a golden period of the gold standard. I’m known as a gold bug and everyone laughs at me, but why do central banks own gold now?”  – Alan Greenspan, June 2016 –


Boy, you’re gonna carry that weight a long time



“Golden Slumbers” 

Once, there was a way to get back homeward
Once, there was a way to get back home
Sleep, pretty darling, do not cry
And I will sing a lullaby

Golden slumbers fill your eyes
Smiles awake you when you rise
Sleep, pretty darling, do not cry
And I will sing a lullaby

Once, there was a way to get back homeward
Once, there was a way to get back home
Sleep, pretty darling, do not cry
And I will sing a lullaby

“Carry That Weight”

Boy, you gonna carry that weight
Carry that weight a long time
Boy, you gonna carry that weight
Carry that weight a long time
I never give you my pillow
I only send you my invitation
And in the middle of the celebrations
I break down