Quotulatiousness

August 21, 2021

Indigo in the red

Filed under: Books, Business, Cancon — Tags: , , , , — Nicholas @ 03:00

In the latest edition of his SHuSH newsletter, Kenneth Whyte looks at the dire financial situation of Canada’s big box bookstore chain:

“Indigo Books and Music” by Open Grid Scheduler / Grid Engine is licensed under CC0 1.0

Indigo just released its first-quarter financial results, covering the period April-June 2021, which can be compared to its pre-pandemic results from the same quarter in 2019.

Back then, Indigo had revenues of $193 million and no profit. Seventy percent of its revenue, or $136 million, came from the firm’s eighty-nine Chapters and Indigo superstores. Only $25 million came from its 115 smaller stores (Coles and Indigo Spirit), and another $29 million from online sales at chapters.indigo.ca. Not only did the company book no profit, but all three of those revenue channels were down from the previous year, with online sales falling the most (15%).

This is to say that Indigo, in financial terms, was immunocompromised before COVID-19 hit.

The decline in digital sales was especially alarming. It seemed that CEO Heather Reisman was giving up on the web, an impression reinforced by her frequent renovations of in-store environments and her not terribly successful launch of a so-called cultural department store […] in New Jersey, Indigo’s first international gambit. She was all about bricks and mortar.

One also got the sense that Heather was giving up on books. She was building up the candles and blankets side of the business — it represented almost 40% of 2019’s total revenue. She also launched Thoughtfull.co, an effort to graze on Hallmark grass, and another step away from the book business.

I’d certainly despaired of finding much in the way of actual books at Chapters or Indigo stores … more and more of the floorspace that used to be devoted to books had been given over to housewares, candles, hostess gift items, decorative throw cushions and other such non-book items. Even before the Wuhan Coronavirus shut down the western world, it had been at least a year since the last time I’d found anything worth buying in one of their stores.

Two years and several pandemic waves later, Indigo is down to 88 superstores and 88 small-format stores, a net reduction of twenty-eight. I don’t know the significance of 88. Maybe the company’s new retail guru — Indigo always has a new retail guru — is a pianist, or Chinese, or a white supremacist.

The remaining stores are now open to foot traffic, and the company is wrangling with its various landlords over how much rent it should pay for the pandemic months when most of its outlets were closed. Indigo received almost $3 million in federal emergency rent subsidies, and almost $4 million in payroll subsidies, which seems like a lot but isn’t for a company as big as Indigo. As we noted in an earlier post, Heather also received a $25 million “liquidity enhancement”, or bailout, from billionaire husband Gerry Schwartz.

Which brings us to the present. Revenues for Indigo’s most recent quarter are $172 million (down $21 million from two years ago), and it lost $15 million (before depreciation, amortization, etc.).

Indigo doesn’t release enough detail on its operations to give us a clear idea of how the company lost only $15 million when its revenue fell $21 million, but costs were down across the board, probably reflecting the closed stores, reduced staffing levels, and fewer books on the shelves, among other savings.

July 5, 2021

QotD: Robert Walpole, the first Prime Minister

Filed under: Britain, Government, History, Quotations — Tags: , , , , — Nicholas @ 01:00

This month marks exactly 300 years since the Whig statesman Robert Walpole officially became our first prime minister. Not only was the country squire and landowner the first politician to occupy 10 Downing Street, he has also served the longest time at the top: an unbroken 20-year reign dubbed the “Robinocracy”.

Most historians rate Walpole as one of our more successful prime ministers: he stabilised the nation’s finances, saw off Jacobite sedition, and kept the country out of foreign wars, proudly boasting: “There are 50,000 slain in Europe this year and not one Englishman.” But inevitably, there was a downside to Walpole: he was charged by his enemies with corruption.

In fact, considering the spectacular eighteenth-century standards of sleaze, Walpole was — to borrow a phrase coined by Tony Blair — “a pretty straight kind of guy”. True, he spent six months in the Tower of London accused by his political foes of all sorts of malpractice; but he was eventually cleared. True, too, that he built a magnificent mansion, Houghton Hall, in his native Norfolk — but he had legitimately made a fortune in the South Sea Bubble financial crash that ruined so many others (by buying shares when they were low and selling them when they were high). Nevertheless, Walpole was not above sailing close to the wind of propriety, cynically remarking: “Every man has his price.”

Nigel Jones, “Scandal, corruption and collusion: 300 years of British prime ministers”, The Critic, 2021-04-03.

February 1, 2021

In the wake of l’affaire GameStop, frantic regulators call for more power to intervene in the market

“Regulatory capture” is the term for situations where the regulators and the regulated begin to get too close and the regulated industries or organizations begin to indirectly control the actions of the regulator for their own benefit. A topical example would be the sudden, agonized cries of politicians and market regulators for new powers to clamp down on disruptive players like the Redditors or other small investors who triggered the rise in GameStop share prices causing potentially ruinous financial losses for regulated hedge funds.

“GameStop” by JeepersMedia is licensed under CC BY 2.0

Although the story has garnered the attention of regulators and even the White House, the wrong takeaway is to suggest options for retail investors should be restricted more than they already are. Yet this is precisely what William Gavin, Secretary of the Commonwealth of Massachusetts, has called for. Gavin argued that there should be a 30-day trading suspension on GameStop to protect “small and unsophisticated investors.”

Gavin’s suggestion would have serious extended consequences. First, consider the knowledge problem that is involved in constructing such a restrictive regulation. When exactly would a rally become unacceptable? Despite years of decline, Kodak experienced a rally after its announcement that it would move into pharmaceuticals. Would this be permissible? If so, one could simply point to GameStop’s decision to appoint three new directors in an effort to turn the company around. If this is not enough, regulators must clearly state what identified the investments as unacceptable.

It is unclear if there is a perfect benchmark to distinguish rallies. But without such a measure, the suspension proposal would put every rally at risk of wrongful closure — potentially halting the growth of companies and industries, alike. Worse yet, the fear of missing out on a rising stock may push some investors to rush in with less information than they would otherwise acquire. Even if it is in a traditional rally, an uninformed decision could cause more harm than good.

Yet suppose the knowledge problem is solved and there is a perfect measure in place. Should other protections be put in place? One could make the case for a law against allowing “unsophisticated” gamblers from going to Las Vegas and losing money. And although this may seem like a leap, Gavin himself told Reuters, “This isn’t investing, this is gambling,” when he spoke of the GameStop rally.

The rally has attracted the world’s attention, but it does not require it. Rallies are a normal part of financial market activity. The only difference here is that it was Main Street that pulled one over on Wall Street.

January 30, 2021

“The only thing ‘dangerous’ about a gang of Reddit investors blowing up hedge funds is that some of us reading about it might die of laughter”

Matt Taibbi says “Suck it, Wall Street!”

Meme stolen from Ace of Spades H.Q.

The press conveyed panic and moral disgust. “I didn’t realize it was this cultlike,” said short-seller Andrew Left of Citron Research, without irony denouncing the campaign against firms like his as “just a get rich quick scheme.” Massachusetts Secretary of State Bill Galvin said the Redditor campaign had “no basis in reality,” while Dr. Michael Burry, the hedge funder whose bets against subprime mortgages were lionized in The Big Short, called the amateur squeeze “unnatural, insane, and dangerous.”

The episode prompted calls to regulate Reddit and, finally, halt action on the disputed stocks. As I write this, word has come out that platforms like Robinhood and TD Ameritrade are curbing trading in GameStop and several other companies, including Nokia and AMC Entertainment holdings.

Meaning: just like 2008, trading was shut down to save the hides of erstwhile high priests of “creative destruction.” Also just like 2008, there are calls for the government to investigate the people deemed responsible for unapproved market losses.

The acting head of the SEC said the agency was “monitoring” the situation, while the former head of its office of Internet enforcement, John Stark, said, “I can’t imagine there isn’t an open investigation and probably a formal order to find out who’s on these message boards.” Georgetown finance professor James Angel lamented, “it’s going to be hard for the SEC to find blatant manipulation,” but they “owe it to look.” The Washington Post elaborated:

    To establish manipulation that runs afoul of securities laws, Angel said regulators would need to prove traders engaged in “an intentional act to push a price away from its fundamental value to seek a profit.” In market parlance, this is typically known as a pump-and-dump scheme …

Even Nancy Pelosi, when asked about “manipulation” and “what’s going on on Wall Street right now,” said “we’ll all be reviewing it,” as if it were the business of congress to worry about a bunch of day traders cashing in for once.

The only thing “dangerous” about a gang of Reddit investors blowing up hedge funds is that some of us reading about it might die of laughter. That bit about investigating this as a “pump and dump scheme” to push prices away from their “fundamental value” is particularly hilarious. What does the Washington Post think the entire stock market is, in the bailout age?

H/T to Larry Correia for the link.

January 28, 2021

GameStop in a very different kind of game

In the NP Platformed newsletter, Colby Cosh looks at the fascinating gyrations of GameStop’s share price in the grip of an unexpected group of players in the market:

“GameStop” by JeepersMedia is licensed under CC BY 2.0

GameStop has long been seen by institutional investors as following down the road of Blockbuster Video: it’s a bricks-and-mortar retailer whose main product is downloadable from your sofa. For that reason, it is heavily shorted by professional funds who normally eschew short-selling, which does have the risky feature of potentially infinite negative downside.

Enter Reddit, the website for special-interest user forums of all kinds. A Reddit “Wall Street bets” board uncovered evidence in regulatory filings that some hedge funds had legitimately dangerous large short positions representing bets against GameStop’s flaccid share price. A few hobby investors began to buy GameStop out of a sense of adventure and perhaps nostalgic loyalty. More importantly, they began to preach the gospel to others.

This is explicit “market manipulation,” but done in the open; it is surely as legal as any other conversation. GameStop’s price (NYSE symbol: GME) surged upward as word spread amongst day traders and other amateur investors. And as the random-looking rise in price got noticed, the whole scheme, itself rather reminiscent of a video game, went viral.

As of Jan. 12, GME was below $20, which is about where most analysts thought it belonged on merit, or lack thereof. The price as I type this particular sentence is $328.81. The backs of some funds with heavy short positions have been broken.

High finance seems somewhat terrified, as amateur investing websites — ones pioneered by the financial industry itself — begin to throw roadblocks in front of late-arriving GME buyers. For itself, Wall Street will invest billions replacing copper wire with fiber optics to gain microsecond arbitrage advantages in the market; for you and I, the good old portfolio can get conveniently 404ed for an afternoon.

This suggests that Wall Street may not have reckoned with the full possibilities of a world of proletarian shareholders. The stock market has proverbially been a playground of “animal spirits” since long before John Maynard Keynes used that phrase in 1936. What happens to an ecosystem when new animals show up? One can surely count on at least a minimum of chaos; maybe the surprise is that it took so long to take this game-like, combative form.

June 28, 2020

Why is the British government buying part of OneWeb?

Filed under: Britain, Business, Economics, Europe, Space — Tags: , — Nicholas @ 03:00

As Tim Worstall points out, the British government’s decision to buy 20% of the satellite company OneWeb doesn’t actually make any economic sense:

… OneWeb – in which the UK will own a 20% stake following the investment – currently operates a completely different type of satellite network from that typically used to run such navigation systems.

“The fundamental starting point is, yes, we’ve bought the wrong satellites,” said Dr Bleddyn Bowen, a space policy expert at the University of Leicester. “OneWeb is working on basically the same idea as Elon Musk’s Starlink: a mega-constellation of satellites in low Earth orbit, which are used to connect people on the ground to the internet.

The actual answer is that we don’t need to buy into anyone’s system at all. Just as we shouldn’t have into [EU satellite system] Galileo in the first place.

For, d’ye see, GPS is a public good. The US allows anyone to use the signals. Not that they can really stop people doing so either. Not unless they take the whole system down.

So, there’s the US system, free for all to use. A global public good – this means it doesn’t matter who provides it, it is there. It also means we don’t need our own. Which, in turn, means we don’t and didn’t need the Galileo system, let alone another one after we’ve left that.

As I said, politics not even asking the right question. They’re asking “which new system should we have?” when the correct questions is “why do we need a new system?” and given that the answer to the second is we don’t therefore the first is entirely moot.

Even setting aside the question of what the satellite system will be capable of, as the market is already in the process of developing and deploying the equipment, why does the British government think its investment is necessary?

June 11, 2020

In 1929, the warning sign was getting stock tips from shoeshine boys and elevator operators

Filed under: Business, Economics, History — Tags: , , , , — Nicholas @ 05:00

In 2020, as Jay Currie suggests, the warning sign might be robinhood.com:

“Jay Gould’s Private Bowling Alley.” Financier and stock speculator Jay Gould is depicted on Wall Street, using bowling balls titled “trickery,” “false reports,” “private press” and “general unscrupulousness” to knock down bowling pins labeled as “operator,” “broker,” “banker,” “inexperienced investor,” etc. A slate shows Gould’s controlling holdings in various corporations, including Western Union, Missouri Pacific Railroad, and the Wabash Railroad.
From the cover of Puck magazine Vol. XI, No 264 via Wikimedia Commons.

In the winter of 1928 Joe Kennedy, father of JFK and major stock market player, stopped to get his shoes shined. The shoeshine boy leaned in and said, “Buy Hindenburg”. Kennedy began unwinding his positions saying, “You know it’s time to sell when shoeshine boys give you stock tips. This bull market is over.”

I had a similar experience in late 1999 when a friend took out a mortgage on her condo to buy shares in the billion dollar online copy paper empire. She had a perfectly good job in retail garden supplies. Remembering Kennedy, I advised another friend that her Nortel was looking a bit overbought. As it happened she sold quite near the peak.

The 2020 equivalent of the shoeshine boy is the perfect storm is the free trading platform, robinhood.com. This is a nicely designed site where you can trade shares on your computer or phone. It has become very, very popular with younger, new investors. My late 1990’s day trading pals would have killed for this sort of interface and no brokers fees. It has spawned a whole host of reddit chats, twitter streams and countless YouTube videos on the excitement of swing trading. (One fun spot to watch Robinhood is the https://robintrack.net/leaderboard which shows which stocks the people on Robinhood are buying. It is a bit slow and buggy but a great front row seat.)

What is striking about the robinhood.com world is that it revolves around trading rather than any sort of “investing”. You hop into APPL in the morning, see if you can make a couple of bucks by noon and move onto the next thing. And Apple is a real, solvent, company.

Robinhood has been in the news recently because the herd has charged into the shares of a number of companies which are either in or near bankruptcy. Hertz Rent-a-Car dropped from $20 to $0.50 in three months as the market realized that with no travelers there would be no car rentals. Interestingly, we learn from robintrack.net that at $20 there were a little over 1000 users holding, as Hertz crashed the Robinhood users piled in, at $0.55 there were 44,000 and there are now 158,000. And many will have made money, lots of money, trading the gyrating price from $0.50 to back up to $5.00.

In the run up to the crash of October 1929, long after Joe Kennedy had pulled his money from the market, retail traders were coining it trading the “swings” on margin accounts. It didn’t matter what the company actually did, it was going up. The same “irrational exuberance” was a big feature in the dot com bubble.

The “Fearless Girl” statue faces the Arturo Di Modica “Charging Bull” on Wall Street (Wikipedia)

The lessons of the 1929 crash and the 2000 dot com bust were simple – get out early and be in no hurry to get back in. Right now the dinosaurs like Buffet and Ichan are sitting on stacks of cash. Just like Joe Kennedy was when Wall Street swan dived in October 1929. They got that cash by selling their shares to shoeshine boys and the bright lights at Robinhood.

June 4, 2020

Fallen flag — the Texas & Pacific Railway

Filed under: Business, History, Railways, USA — Tags: , , , , — Nicholas @ 05:00

This month’s fallen flag article for Classic Trains is the story of the Texas & Pacific Railway by J. Parker Lamb:

Decorative ticket cover for a Texas & Pacific passenger train. T&P passenger trains were called “Eagles”, as in the Texas Eagle.
Image via Wikimedia Commons.

What grew to become the 20th century’s Texas & Pacific Railway sprouted from some of Texas’s earliest railroads. The Lone Star State’s pre-Civil War network included 11 operating companies. One of the earliest was the Texas Western Railroad, chartered in 1850 and soon renamed Vicksburg & El Paso. In 1856 its name changed again, to Southern Pacific Railroad Company. Of course, this SP had no relation to the Southern Pacific incorporated in 1865 in California, although the convoluted histories of their successors later would intersect.

Backers of this railroad envisioned it as part of a southern transcontinental route from the Mississippi River to San Diego. By 1860, construction of 27 miles was completed between Waskom, on the Louisiana border, and Marshall. The eastern connection was planned as the Vicksburg, Shreveport & Pacific, which already stretched from Waskom across Louisiana to the west bank of the Mississippi at Vicksburg (later part of Illinois Central, it is now part of Kansas City Southern’s “Meridian Speedway”).

The Memphis, El Paso & Pacific, chartered in 1856, planned to start at the Red River near Texarkana and build to a connection with the SP near Dallas, thereby bringing Midwestern traffic into the transcontinental route. Little progress was made before the Civil War, however, with only 5 miles of track built, near Jefferson.

Within a decade after the war, these two lines would be fused into one company. In 1870 the Memphis road was renamed Southern Transcontinental Railroad, and in 1872 Congress issued a charter for the Texas & Pacific Railway, which soon acquired both the ST and SP. The new charter approved a route from Marshall to El Paso and San Diego, and required 100 consecutive miles of construction by 1882. Backers hired Gen. Grenville Dodge, who had been chief engineer of Union Pacific’s recently completed transcontinental line to Utah.

The route of the Texas & Pacific from the back of a ticket.
Image via Wikimedia Commons.

In 1880, the infamous “Robber Baron” Jay Gould joined the board and quickly became the president, and the T&P became a key part of his corporate empire (he already controlled the Union Pacific after 1873 and the Missouri Pacific from 1879):

“Jay Gould’s Private Bowling Alley.” Financier and stock speculator Jay Gould is depicted on Wall Street, using bowling balls titled “trickery,” “false reports,” “private press” and “general unscrupulousness” to knock down bowling pins labeled as “operator,” “broker,” “banker,” “inexperienced investor,” etc. A slate shows Gould’s controlling holdings in various corporations, including Western Union, Missouri Pacific Railroad, and the Wabash Railroad.
From the cover of Puck magazine Vol. XI, No 264 via Wikimedia Commons.

Meantime, Gould directed Chief Engineer Dodge to begin an all-out effort to lay rails through the vast and nearly uninhabited desert of west Texas. Construction crews reached Big Spring, 267 miles, in April 1881 and Sierra Blanca (522) on December 16, 1881. However, it was at Sierra Blanca where Gould’s dream of a transcontinental railroad evaporated. He had been bested by Collis P. Huntington, another determined and ruthless railroad tycoon. Huntington’s eastward construction crews had passed through Sierra Blanca three weeks earlier, on November 25, en route to their own “last spike” ceremony of the Sunset Route at the Pecos River (west of Del Rio) in January 1883.

Under the banner of the Galveston, Harrisburg & San Antonio, controlled by Huntington and T. W. Pierce, construction crews had left El Paso in June 1881. When it was clear that Huntington was winning the race for a transcontinental line, a series of court battles ensued, followed by nefarious delaying tactics (including sabotage) by each construction crew, and finally by personal negotiation between the two principals. Gould’s legal case was based on T&P’s 1870 charter to build to San Diego, whereas Huntington’s Southern Pacific charter allowed him to meet the T&P at the Colorado River (between California and Arizona).

Wikipedia provides this sketch of Gould’s railway activities after his involvement in the Erie War:

After being forced out of the Erie Railroad, Gould started to build up a system of railroads in the midwest and west. He took control of the Union Pacific in 1873 when its stock was depressed by the Panic of 1873, and he built a viable railroad that depended on shipments from farmers and ranchers. He immersed himself in every operational and financial detail of the Union Pacific system, building an encyclopedic knowledge and acting decisively to shape its destiny. Biographer Maury Klein states that “he revised its financial structure, waged its competitive struggles, captained its political battles, revamped its administration, formulated its rate policies, and promoted the development of resources along its lines.”

By 1879, Gould gained control of three more important western railroads, including the Missouri Pacific Railroad. He controlled 10,000 miles (16,000 km) of railway, about one-ninth of the rail in the United States at that time, and he had controlling interest in 15 percent of the country’s railway tracks by 1882. The railroads were making profits and set their own rates, and his wealth increased dramatically. He withdrew from management of the Union Pacific in 1883 amid political controversy over its debts to the federal government, but he realized a large profit for himself. He obtained a controlling interest in the Western Union telegraph company and in the elevated railways in New York City after 1881. In 1889, he organized the Terminal Railroad Association of St. Louis which acquired a bottleneck in east–west railroad traffic at St. Louis, but the government brought an antitrust suit to eliminate the bottleneck control after Gould died.

April 28, 2020

Robber Barons and the Battle of the Tunnel

Filed under: Business, Government, History, Law, Politics, Railways, USA — Tags: , , , — Nicholas @ 04:00

The History Guy: History Deserves to Be Remembered
Published 1 Feb 2019

During the gilded age ruthless businessmen fought for control of railway lines. The Albany and Susquehanna railroad was another battlefield in the “Railroad wars.” In this episode, The History Guy remembers “the Battle of the Tunnel”.

This is original content based on research by The History Guy. Images in the Public Domain are carefully selected and provide illustration. As images of actual events are sometimes not available, images of similar objects and events are used for illustration.

All events are portrayed in historical context and for educational purposes. No images or content are primarily intended to shock and disgust. Those who do not learn from history are doomed to repeat it. Non censuram.

Patreon: https://www.patreon.com/TheHistoryGuy

The History Guy: History Deserves to Be Remembered is the place to find short snippets of forgotten history from five to fifteen minutes long. If you like history too, this is the channel for you.

Awesome The History Guy merchandise is available at:
teespring.com/stores/the-history-guy

Script by THG

#newyork #thehistoryguy #ushistory

February 29, 2020

The metallic nickname of Henry VIII

Filed under: Britain, Germany, Government, History, Technology — Tags: , , , , — Nicholas @ 03:00

In the most recent Age of Invention newsletter, Anton Howes outlines the rocky investment history for German mining firms in England during the Tudor period:

Cropped image of a Hans Holbein the Younger portrait of King Henry VIII at Petworth House.
Photo by Hans Bernhard via Wikimedia Commons.

It’s an especially interesting case of England’s technological backwardness, given that copper was a material of major strategic importance: a necessary ingredient for the casting of bronze cannon. And it was useful for other industries, especially when mixed with zinc to form brass. Brass was the material of choice for accurate navigational instruments, as well as for ordinary pots and kettles. Most importantly, brass wire was needed for wool cards, used to straighten the fibres ready for spinning into thread. A cheaper and more secure supply of copper might thus potentially make England’s principal export, woollen cloth, even more competitive — if only the English could also work out how to produce brass.

The opportunity to introduce a copper industry appeared in 1560, when German bankers became involved in restoring the gold and silver content of England’s currency. The expensive wars of Henry VIII and Edward VI in the 1540s had prompted debasements of the coinage, to the short-term benefit of the crown, but to the long-term cost of both crown and country. By the end of Henry VIII’s reign, the ostensibly silver coins were actually mostly made of copper (as the coins were used, Henry’s nose on the faces of the coins wore down, revealing the base metal underneath and earning him the nickname Old Coppernose). The debased money continued to circulate for over a decade, driving the good money out of circulation. People preferred to hoard the higher-value currency, to send it abroad to pay for imports, or even to melt it down for the bullion. The weakness of the pound was an especial problem for Thomas Gresham, Queen Elizabeth’s financier, in that government loans from bankers in London and Antwerp had to be repaid in currency that was assessed for its gold and silver content, rather than its face value. Ever short of cash, the government was constantly resorting to such loans, made more expensive by the lack of bullion.

Restoring the currency — calling in the debased coins, melting them down, and then re-minting them at a higher fineness — required expertise that the English did not have. From France, the mint hired Eloy Mestrelle to strike the new coins by machine rather than by hand. (He was likely available because the French authorities suspected him of counterfeiting — the first mention of him in English records is a pardon for forgery, a habit that apparently died hard as he was eventually hanged for the offence). And to do the refining, Gresham hired German metallurgists: Johannes Loner and Daniel Ulstätt got the job, taking payment in the form of the copper they extracted from the debased coinage (along with a little of the silver). It turned out to be a dangerous assignment: some of the copper may have been mixed with arsenic, which was released in fumes during the refining process, thus poisoning the workers. They were prescribed milk, to be drunk from human skulls, for which the government even gave permission to use the traitors’ heads that were displayed on spikes on London Bridge — but to little avail, unfortunately, as some of them still died.

Loner and Ulstätt’s payment in copper appears to be no accident. They were agents of the Augsburg banking firm of Haug, Langnauer and Company, who controlled the major copper mines in Tirol. Having obtained the English government as a client, they now proposed the creation of English copper mines. They saw a chance to use England as a source of cheap copper, with which they could supply the German brass industry. It turns out that the tale of the multinational firm seeking to take advantage of a developing country for its raw materials is an extremely old one: in the 1560s, the developing country was England.

Yet the investment did not quite go according to plan. Although the Germans possessed all of the metallurgical expertise, the English insisted that the endeavour be organised on their own terms: the Company of Mines Royal. Only a third of the company’s twenty-four shares were to be held by the Germans, with the rest purchased by England’s political and mercantile elite: people like William Cecil (the Secretary of State) and the Earl of Leicester, Robert Dudley (the Queen’s crush). It was an attractive investment, protected from competition by a patent monopoly for mines of gold, silver, copper, and mercury in many of the relevant counties, as well as a life-time exemption for the investors from all taxes raised by parliament (in those days, parliament was pretty much only assembled to legitimise the raising of new taxes).

February 2, 2020

Boeing and the kitchen sink

Filed under: Business, USA — Tags: , , — Nicholas @ 05:00

In the Continental Telegraph, Tim Worstall looks at the mess the new Boeing management has inherited and what they may need to do to be seen to be fixing it:

Which brings us to another piece of stock market wisdom, about trying to catch a falling knife. A dangerous occupation and the reference is to trying to call the bottom on some stock that has just had a disaster. At some point, surely, the tumble in price will stop and there will be a bounce. Well, yes, or perhaps maybe, for we must not forget that that proper bottom is that end of life – the bankruptcy – price of nothing. For everything that isn’t about to go bust then yes, there’s a price at which buying in the face of everyone else’s panic can be highly profitable. The question being, well, what is about to go bust? Toys R Us did, after all. Actually, so have quite a lot of retailers just recently. There was no above zero price at which it was sensible to buy in.

So, some stock crashes in price, should we buy in? After all, there is that phenomenon known as the dead cat bounce – anything will bounce at least once if you drop it from high enough. The question becomes one of, well, is this crash a result of something that can be reversed, or perhaps something that’s not going to be terminal for the organisation? Or is this just the start of that realisation process that the organisation is coming to the end of its life and going to that final resting place of a zero dollar valuation?

[…]

So, Boeing and the 737 Max. The changes in airframe had the unfortunate consequence of diving a couple of the planes into the ground. We’ve had a drip of stories about how the development process wasn’t all we would wish it to be. The FAA isn’t going to let it back up into the air until the summer at earliest. The Dreamliner seems to be having demand problems and, well, things aren’t looking good.

But is this the start of some spiral to zero? No, don’t be daft. Partly because the American government simply would not allow that. Boeing’s too much part of the backdrop of the US economy for that to be left to happen. The military business is also of significant value whatever happens to the civil aviation side. And of course the numbers we’re talking about here could be painful to stock holders – they are already in part of course – but at the very worst we’re looking at some tens of billions of problem here. That’s just not enough to drive a company Boeing’s size down to zero. Not in this decade at least, given that the only reasonable competition is Airbus. Global duopolies don’t end that way.

So, at this point there’s an argument to say that trying to catch that falling knife of the Boeing stock price might be worthwhile. So, when might that be? At which point another idea, kitchen sinking. This is when a new management team decides to make themselves look good by declaring how bad things had got under the previous one. Absolutely anything and everything that looks like, it might even smell of a problem in the future is taken out and declared. Provisions are made for this problem on this contract, for that problem that might occur over there, add a bit more and then heck, why not, double it! This has, assuming the company survives this balance sheet massacre, the obvious effect of making the new management team look good over the years. Not just because everything starts from this new low place. But also because many of those provisions – those over-provisions – won’t be needed and can be written back from reserves into the P&L.

December 12, 2019

QotD: Economic sophistication in ancient Greece

Filed under: Economics, Europe, Greece, History, Quotations — Tags: , , , — Nicholas @ 01:00

Let us take the case of Thales of Miletus (c620-c546 BC), one of the earliest of Greek philosophers. This story is told of him by Aristotle:

    There is the anecdote of Thales the Milesian and his financial device, which involves a principle of universal application, but is attributed to him on account of his reputation for wisdom. He was reproached for his poverty, which was supposed to show that philosophy was of no use. According to the story, he knew by his skill in the stars while it was yet winter that there would be a great harvest of olives in the coming year; so, having a little money, he gave deposits for the use of all the olive-presses in Chios and Miletus, which he hired at a low price because no one bid against him. When the harvest-time came, and many were wanted all at once and of a sudden, he let them out at any rate which he pleased, and made a quantity of money.

Whether this is a true story about Thales, or even of market conditions in Miletus, is of no importance. What is important is the unvoiced background to the story. It cannot easily be taken as an instance of the predatory capitalism that Polanyi and Finley are willing to grant to the ancient world. Thales decided that there would be a good olive crop. He did not buy olive presses. Instead, he took out options on them. He and those who dealt with him, seem to have understood the nature of the deal made. When it turned out that Thales had predicted right, he seems to have had no trouble enforcing his contracts. This assumes a familiarity of the courts with such contracts, and a commercial state of mind either among the peoples of Chios and Miletus, or — assuming the story is apocryphal — among Aristotle’s Athenian audience.

Many of the Greek city states were considerable trading centres. They lack any detailed commercial histories. Certainly, no ancient writer thought it consistent with the dignity of history to describe their economic structure and the causes of their commercial greatness. But this casual anecdote must stand in place of the unwritten histories as evidence for thriving and sophisticated financial economies.

Sean Gabb, “Market Behaviour in the Ancient World: An Overview of the Debate”, 2008-05.

December 5, 2019

Fallen flag – the Denver & Rio Grande Western

Filed under: History, Railways, USA — Tags: , , , , , , , — Nicholas @ 03:00

The origins of the Denver & Rio Grande Western by Mark Hemphill for Trains magazine:

1914 route map of the Denver & Rio Grande Western and Western Pacific railroads.
Map via Wikimedia Commons

In the American tradition, a railroad is conceived by noble men for noble purposes: to develop a nation, or to connect small villages to the big city. The Denver & Rio Grande of 1870 was not that railroad. Much later, however, it came to serve an admirable public purpose, earn the appreciation of its shippers and passengers, and return a substantial profit.

The Rio Grande was conceived by former Union Brig. Gen. William Jackson Palmer. As surveyor of the Kansas Pacific (later in Union Pacific’s realm), Palmer saw the profit possibilities if you got there first and tied up the real estate. Palmer, apparently connecting dots on a map to appeal to British and Dutch investors, proposed the Denver & Rio Grande Railway to run south from Denver via El Paso, Texas, to Mexico City. There was no trade, nor prospect for such, between the two end points, but the proposal did attract sufficient capital to finish the first 75 miles to Colorado Springs in 1871.

William Jackson Palmer 1836-1909, founder of Colorado Springs, Colorado, builder of several railroads including the D&RGW.
Photograph circa 1870, photographer unknown, via Wikimedia Commons.

Narrow-gauge origins
Palmer chose 3-foot gauge to save money, assessing that the real value lay in the real estate, not in railroad operation. At each new terminal, Palmer’s men corralled the land, then located the depot, profiting through a side company on land sales. Construction continued fitfully to Trinidad, Colo., 210 miles from Denver, by 1878. Above Trinidad, on the ascent to Raton Pass, Palmer’s engineers collided with the Santa Fe’s, who were building toward California. Realizing that a roundabout narrow-gauge competing with a point-to-point standard-gauge would serve neither the fare box nor the next prospectus, Palmer changed course, making D&RG a supply line to the gold and silver bonanzas blossoming all over Colorado and Utah. Thus the Rio Grande would look west, not south, and would plumb so many canyons in search of mineral wealth that it was a surprise to find one without its rails.

Turning west at Pueblo, Colo., and outfighting the Santa Fe for the Royal Gorge of the Arkansas River — where there truly was room for only one track — D&RG entered Leadville, Colorado’s first world-class mining bonanza, in 1880. Three years later, it completed a Denver–Salt Lake City main line west from Salida, Colo., via Marshall Pass and the Black Canyon of the Gunnison River. The last-spike ceremony in the desert west of Green River, Utah, was low-key, lest anyone closely examine this rough, circuitous, and glacially slow “transcontinental.” Almost as an afterthought, D&RG added a third, standard-gauge rail from Denver to Pueblo, acknowledgment that once paralleled by a standard-gauge competitor, narrow-gauge was a death sentence.

New owners, new purpose
Palmer then began to exit. The company went bust, twice, in rapid succession. The new investors repurposed the railroad again. Instead of transient gold and silver, the new salvation would be coal. Thick bituminous seams in the Walsenburg-Trinidad field fed beehive coke ovens of a new steel mill near Pueblo and heated much of eastern Colorado and western Kansas and Nebraska.

July 27, 2019

The US Economy is About to Crash Hard | Between 2 Wars | 1929 Part 1 of 3

TimeGhost History
Published on 25 Jul 2019

In 1929 it’s been nothing but growth for the US economy for years, at least if you judge by the New York Stock Exchange. But all that glitters is not gold, and when the gilding comes off this bubble it sinks like a lead ballon.

Join us on Patreon: https://www.patreon.com/TimeGhostHistory

Hosted by: Indy Neidell
Written by: Francis van Berkel
Produced and directed by: Spartacus Olsson and Astrid Deinhard
Executive Producers: Bodo Rittenauer, Astrid Deinhard, Indy Neidell, Spartacus Olsson
Creative Producer: Joram Appel
Post Production Director: Wieke Kapteijns
Edited by: Daniel Weiss
Sound Mix by: Iryna Dulka

Archive by: Reuters/Screenocean http://www.screenocean.com

A TimeGhost chronological documentary produced by OnLion Entertainment GmbH

From the comments:

TimeGhost History
3 hours ago (edited)
Now… ladies and gents – this is not a video about 2019 and we are not making any political statements. We know that some of you love making parallels between the present day and historical events. Although we can learn from history, try to remember that the circumstances were very different. Others among you feel it appropriate to extend partisan conflicts backwards and make out our videos, or events in the videos as partisan statements or issues. First of all we simply don’t do that, we just relate the events and the circumstances as factually as possible with the best possible sources. Second of all it is pointless to look for the 2019 partisan left/right divide according to party lines in events that happened 90 years ago. There’s just no comparison as both reality, and political parties have gone through so much change that the members of the same party, from today and then would probably disagree so vehemently on so many points the they would not even understand each other. So please, try your best to not go off on partisan rants, as it distracts form the actual historical issues at hand

July 8, 2019

Bitcoin and its successors lack one thing that Libra has

Filed under: Economics — Tags: , , , , — Nicholas @ 03:00

Andrew Coyne on cryptocurrencies:

Sign of the times: the convenience store in my block of mid-town Toronto has installed, in addition to the usual fare of milk, cigarettes and magazines, an ATM dispensing bitcoins. Customers insert their debit cards and buy bitcoin, which they can then use to … to …

To do what, exactly, that they could not do with regular money? Bitcoin, the original cryptocurrency — there are now dozens of competitors — has always struck me as a solution in search of a problem. Its chief selling point, the anonymity made possible by its system of ultra-encrypted peer-to-peer transactions, unmediated by the banking system and beyond reach of the regulators, would seem of most appeal to two groups: crooks and cranks.

Oh, and a third: speculators. The price of cryptocurrencies has tended to fluctuate wildly — having fallen to a third of its peak against the U.S. dollar last year, Bitcoin has tripled in value so far in 2019. Cryptocurrencies are unlikely to achieve widespread use as mediums of exchange so long as they fail to fulfil one of money’s other primary functions, as stores of value.

The Wild West reputation the privately issued currencies have acquired — one of the most popular, Dogecoin, was invented by a 26-year-old Australian in 2013 as a joke — will be one of the early hurdles confronting Facebook’s recent entry into the field. The company hopes its 2.4 billion users will soon be buying goods and services from each other with Libra, as the proposed digital currency is called, wherever on earth either party may happen to be.

And yet Libra differs from Bitcoin and its ilk in several important ways. One, while it makes use of the same blockchain encryption technology as Bitcoin to ensure the security of payments, it is not based on the same anarchic premise.

In contrast to Bitcoin’s unsupervised, massively distributed, “permissionless” network, Libra will operate, at least initially, via Facebook’s Messenger and WhatsApp platforms, which are very much subject to its control. The company, and the others it has recruited as partners — names like Visa, Mastercard, and PayPal — are likewise highly visible targets of regulatory oversight, and indeed have signalled they intend to work with national banking regulators.

« Newer PostsOlder Posts »

Powered by WordPress