Get ready for “socially beneficial discrimination” on the internet

If the Obama administration’s FCC (the US Federal Communications Commission) has its way, the web sites of rich companies and large corporations will work fabulously on the web, and the sites of everyone else will work poorly or not at all. What better way to enshrine the status quo than by giving available internet bandwidth to rich corporations and denying it to everyone else. What better way to grace our minds with only the “right” opinions and news, and to censor dissent, inconvenient content, and those pesky “conspiracy theories” that keep turning out to be true.

That’s what the FCC is proposing: the end of what’s called Net Neutrality, under which all web sites have equal access to internet bandwidth. Obama repeatedly stated his support for Net Neutrality while campaigning, but I guess he has forgotten that for some reason, which is odd since here is a quote from January 2014:

In late January 2014, Obama appeared in a Google Hangout session as part of a “virtual whistle-stop tour.” In response to a Net neutrality question, he said: “It’s something that I’ve cared deeply about ever since I ran for office, in part because my own campaign was empowered by a free and open Internet and the ability for citizens all across this country to engage and create and find new ways, new tools to mobilize themselves. A lot of that couldn’t have been done if there were a lot of commercial barriers and roadblocks. So I’ve been a strong supporter of Net neutrality.

The problem is that, in typical revolving door fashion, the Obama administration has stacked the upper echelons of the FCC with people formerly paid by internet service providers and who are known attackers of Net Neutrality, such as:

Daniel Alvarez, an attorney who has long represented Comcast through the law firm Willkie Farr & Gallagher LLP. In 2010, Alvarez wrote a letter to the FCC on behalf of Comcast protesting net neutrality rules, arguing that regulators failed to appreciate “socially beneficial discrimination.”

What the end of Net Neutrality means is that companies can pay internet service providers for priority handling of internet traffic to and from their web sites, thus guaranteeing that their web sites perform better than those who are unable or unwilling to pay for such prioritization of their internet traffic. And you can be sure that it won’t be long before the government steps in directly with prioritization orders. “Socially beneficial discrimination.” They’ll probably even create a bogus court for it like the FISA court that rubber-stamp approves all government requests for spying.

In what I think is a first for Thundering Heard, I recommend that US citizens sign the petition for Net Neutrality at the White House web site. Yes, you have to create an account there to sign a petition, but if the petition garners 100,000 signatures, it forces the White House to publicly respond to the petition. Let’s force the administration to go public regarding a promise that Obama has repeated for years.

Here is a more extensive and excellent article on the topic by Mike Krieger:

     Say Goodbye to “Net Neutrality” – New FCC Proposal Will Permit Discrimination of Web Content


More on the stock market

I’m fairly sure that no one in the stock market cared much about my negative comments about stocks from three days ago:

83% of these new stock offerings over the last three months are money-losing companies…That almost equals the all-time record for such madness of 84% in the year 2000 during the internet/tech stock bubble.

But what about when David Einhorn, probably one of the five most successful hedge fund managers ever, says basically the same thing, which he did in a report issued today. Einhorn says he is selling short (that’s betting on a price decline, that is, Einhorn will make money as the prices of these stocks go down) a basket of overvalued tech stocks:

Our criteria for selecting stocks for the bubble basket is that we estimate there to be at least 90% downside for each stock…

So he thinks there is a good chance that the prices of these stocks will decline by 90% or more. Think that can’t happen? Einhorn again:

There is a huge gap between the bubble price and the point where disciplined growth investors (let alone value investors) become interested buyers. When the last internet bubble popped, Cisco (the best of the best bubble stocks) fell 89%, Amazon fell 93%, and the lower quality stocks fell even more.

For anyone interested, Einhorn’s full report is embedded in this article:

     David Einhorn: “We Are Witnessing Our Second Tech Bubble In 15 Years” – Full Letter

Here’s another perspective that should make anyone with money in stocks promptly head for the hills (that means sell!). In 2002, after tech stocks crashed, Scott McNealy, co-founder and CEO of Sun Microsystems, gave a famous interview in Business Week. Sun was one of the many tech sock darlings. They made and sold high-powered workstations favored by the scientific community, Wall St, oil and gas engineers, etc. At its peak, the market valued his company at 10 times company sales. Not profits (that’s what is left over after all expenses), but sales, the amount of money that comes in the door prior to all expenses such as salaries, rent, supplies, etc. McNealy described how absurd it was for the market to value his company at 10 times sales:

But two 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 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?

Well, in mid-March of this year, there were forty companies valued at 10 times sales or higher. The list, compiled by Goldman Sachs, is at this link:

     America’s Most Overvalued Companies Are…

On average, these forty are valued at 15 times sales! To quote David Einhorn from his report: “After all, twice a silly price is not twice as silly; it’s still just silly.”

Silly is a direct result of money printing by central banks. The chart in the bottom panel below shows how, since the start of 2008, when the Federal Reserve was printing money (the color-shaded areas on the chart) stocks rose and rose and rose. Anytime they weren’t printing money, stocks fell promptly. So they keep printing. It doesn’t help regular folks, whose real incomes have been declining through this whole period, but it sure helps wealthy stock market investors:


(Chart Source)

It’s very obvious that the sheep are getting set up for another shearing, just as they were in 2000 and again in 2007. When exactly will this shearing take place? I claim no expertise on that score. Can the stock market go higher still? Sure. Clearly it depends on how much money the Federal Reserve prints, how long traders believe in the effectiveness of that printing, and how big the many wars in the world get. But I can tell you for sure, when the shearing happens, “silly” will not be the word on the minds of investors.

I don’t like being shorn, so I have nothing to do with stocks these days. I don’t want my savings anywhere near a brokerage account for reasons described under Lie #6 here. So I don’t have to guess about when the next shearing will take place. If I did want to guess, I would closely follow the work of Jeremy Grantham since he has a multi-decade real-time excellent track record of predicting future returns from stocks. His firm publishes a quarterly newsletter at their web site and Grantham’s comments are followed at web sites like ZeroHedge and King World News. Here are some recent comments:

     Jeremy Grantham’s GMO: “The S&P Is Approximately 75% Overvalued; Its Fair Value Is 1100” 

      Grantham on stocks:

Grantham: We do think the market is going to go higher because the Fed hasn’t ended its game, and it won’t stop playing until we are in old-fashioned bubble territory and it bursts, which usually happens at two standard deviations from the market’s mean. That would take us to 2,350 on the S&P 500, or roughly 25% from where we are now.

Q: So are you putting your client’s money into the market?

Grantham: No. You asked me where the market is headed from here. But to invest our clients’ money on the basis of speculation being driven by the Fed’s misguided policies doesn’t seem like the best thing to do with our clients’ money.

We invest our clients’ money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before. Assets are overpriced generally. They will be cheap again. That’s how we will pay for this. It’s going to be very painful for investors.

Grantham is a smart fellow and one of the few Wall St people who is honest about the food crisis brewing in the world and certainly one of the very few to quote Bob Marley. He wrote a detailed report on the topic, from the point of view of a numbers man, which he is:

     Welcome to Dystopia! Entering a long-term and politically dangerous food crisis

We are five years into a severe global food crisis that is very unlikely to go away. It will threaten poor countries with increased malnutrition and starvation and even collapse. Resource squabbles and waves of food-induced migration will threaten global stability and global growth. This threat is badly underestimated by almost everybody and all institutions with the possible exception of some military establishments.

As I’ve said before on other topics: be careful out there.

Rockin’ and Rollin’

Regarding earthquakes of magnitude 6.0 or greater, the post Earth changes statistical update said:

These days, the planet has one of these potentially damaging earthquakes on average every two and a half days…

Well we’ve just had 27 of those magnitude 6.0+ earthquakes in the last 30 days! So now we’re up to almost one per day.

If we take the strength down to the magnitude 5.1 level that rattled the nerves of plenty in Los Angeles on March 28, there have been 183 of those in the last 30 days, so that’s six per day on the planet.

If you live in an earthquake zone and have been thinking that this acceleration is no big deal, all I can say is: please reconsider your position! Literally! Or, if you want to maintain your position, ask the US Government, they know everything, tell the truth about everything, and they are certain to tell you that there is nothing to see here, move along.

That same US government refuses to fund an earthquake early warning system for California. The US Geological Survey says they can implement one for $16 million. The US can’t afford that, of course, because they are too busy buying tanks that the US Army says it doesn’t want:

     U.S. Army to Congress: No New Tanks, Please

but 42 per year are purchased anyway at more than $6 million each. Clearly Congress thinks it’s better to blow people up than to save lives.

And you might be thinking that the early warning system wouldn’t work anyway. Well, there is already one in the world that works quite nicely. In Mexico. They built it 21 years ago–after thousands died in the 1985 Mexico City earthquake. One set of system alarms is at the Mexican TV stations. Here’s a video of a Mexico City newscaster getting the warning (that siren in the background) 71 seconds before he feels the fuerte (strong) movement from yesterday’s magnitude 7.2 earthquake off the west coast of Mexico:

     Mexico Earthquake 2014 | Mexico LIVE TV News Anchor REACTION Full Footage Magnitude 7.2

For the record, California also refuses to fund that early warning system despite the fact that they are enjoying another brief budget surplus as they always do when the stock market bubbles over with Initial Public Offerings of companies that are losing money. Yes, 83% of these new stock offerings over the last three months are money-losing companies. Here’s the chart:


That almost equals the all-time record for such madness of 84% in the year 2000 during the internet/tech stock bubble. Everyone of course now agrees that that was a bubble. But of course they swore it wasn’t a bubble then. And they swear that what’s going on now in the stock market isn’t a bubble. This time it’s entirely rational. So money-losing entrepreneurs and insiders like Suckerberg are selling stock like crazy to the gullible public, filling California’s tax coffers and thus tipping the budget balance to briefly positive for the Golden State.

So, the moral of the story is: Buy the stocks of money-losing companies! There’s no stock market bubble! And don’t worry about that pesky acceleration of earthquakes. Stay put right on those active faults. Your results should be at least as good as shown in this video. I’m sure the peace-loving US Congress guarantees it.