MAN BITES DOG

The geniuses in Brussels proved once again that they are in fact more incompetent than their counterparts Over Here (which is saying something) with one of the  nuttiest rulings of all time announced today.  Brussels has demanded that Apple pay 10 years worth of back taxes to the Republic of Ireland despite, in effect, admitting that Apple has complied with the law in all respects during that period.  But that isn't the story.  Ireland doesn't want the money!  Imagine, a government that doesn't want higher taxes?!!!  Man bites dog!

Aisde from the international ramifications and the remarkable fact that what Brussels has managed to do in an election year is to get Republicans and Democrats in Congress to agree in opposition to the Union's stance AND given it's highly questionable validity under all kinds of international law AND the highly questionable issue of retroactivity under ANYBODY'S law, the timing of this couldn't be dumber.  What must first be understood is that Brussels, while no doubt firing another salvo in the long war against American Internationals, is really using Apple as a pawn to once again get after Ireland for it's tax policy.

One might remember a few years ago Brussels threatened all sorts of dire reprisals against Dublin unless the Republic brought its corporate tax rates up to "European Standard"--Ireland was, and is at 12.5%--and doing very nicely thank you very much.  Then the Brits fell in line and lowered their rates to 15%; the Irish told Brussels to go pound sand and that was the end of that.  But Brussels didn't forget and here we go again with them thinking how clever we all are by using a completely unrelated piece of regulation--laws against unfair competition--to go after an American company in order to, in effect, wreck the Irish tax code.  My God, it's an annuity for lawyers on both sides of the pond but that isn't the worst of it.

To say that these fools are tone deaf would be the understatement of the past six months.  They lost the UK in July; the Dutchies have been making noises about leaving for a year; as we learned yesterday everybody running for office in France is not rejecting the thought of leaving and then of course there is the southern tier which simply have other things on their mind.  The unifying reason?  Governance by unelected bureaucrats and interference in the laws and mores of what are supposed to be sovereign nations.  If Ms. May invokes article 55  (50?) early in the year she will have been dealt  hand about which chemie players can only dream: a natural nine.  And to top the whole thing off, discussions regarding a joint trade agreement between the Union and the U.S. broke down today.  Despite the babblings of Il Duce, guess who goes to the front of the line now?  And with the "special relationship" intact.  And in regard to tax matters, on the side of the Angels.  Albion, and is that going to be a bitter pill.

If this bunch had a collective brain they would take it out and play with it.   Some years ago when hostage taking was the preferred modus opperendus of terrorists there appeared a very funny cartoon in one of the Brit magazines dealing in dark humour (is there one that didn't?):  Headline:  Terrorists take themselves prisoner.  Threaten to shoot themselves if demands not met.  Life mimics fiction.  Or perhaps the headline today should read: Dog bites himself.  As I keep saying:  You can't make this stuff up.

THANKS FOR THE DOUBLEHEADER, GOOGLE

Google did it again.  Post yesterday?  Think again subscriber.  So dear reader, you get the blessing of two posts in one day.  What follows is Bank Refrain, Part II.


The focus of the bank bashing public remains the management of the leading institutions, especially those that somehow attract the limelight and boy, does Jamie Dimon attract the limelight.  Never shy, Jamie tends to tell it like it is forgetting that there are a number of people that don't want it told at all. Agreed, he should know better but all in his position should recognize that the institutions they run are perhaps ungovernable even with their exceptional talents and that they expose themselves to harsh oversight for occurrences that technically speaking are not their fault except for the fact that they have made them their fault by an unrealistic opinion of their abilities to manage all situations.

What occurred in 2008 was not a Black Swan; what has occurred or been uncovered since then are certainly not Black Swans.  In many cases the past 7 years has been predictable; in most cases what has occurred are aberrations of sound or certainly proscribed business practices.  But it should also be recognized that while a bad trade resulting in a $6 billion loss may not be a matter of serious consequence in the long run and therefore no big deal, the Law of Large Numbers makes it a big deal because unless you are running a $2.5 trillion institution, $6 billion is a hell of a lot of money to people who don't have much use for banks anyway--especially when there is a political agenda thrown in.  It cannot be dismissed lightly and it cannot be so dismissed because an individual is simply too busy with other things to fully think through the consequences of his explanation, which is what I think happened.  The scope of these businesses must be downsized.

Of course the problem is that banking tends to be judged like other publicly owned businesses: hired managers are expected to produce on a consistent basis which means an increasing profitable basis.  Forgotten is the fact that their is no bank in the world that resembles Apple.  Apple is the greatest innovator in an innovation industry.  Banks are not innovators except on the margin.  A bank sells one product: it is made by another person, looks the same, smells the same and essentially costs the same.  Banks buy most of it for resale and innovate only in the sense that it is repackaged with attractive differences to beat out the guy on the same corner trying to sell the same thing.  But a huge difference between a bank and Apple is that Apple can create demand whilst banks cannot.  Sometimes, economic conditions are such that the bank's customer has absolutely no desire or requirement to by the product the bank is selling.  It is therefore ridiculous, IMHO, to expect banks to produce a steadily rising stream of income when in fact the business is entirely cyclical, dependent upon and vastly affect by exogenous factors.  But that is what management tries to do either through diversification from the main business or by an increase in the risk profile of it's businesses. What too often occurs is not a diversification but the very real possibility or certainty of more things going wrong.  Now one may ask that if that is so clear, why is the business run in that manner?  Remuneration--which is at the bottom of most of the bad things that happen and the manner in which it is dispensed.  And that, provided Google will let me, is the subject of tomorrow's discussion.

STILL B & B

For a different reason today.  The GDP figure for the U.S. economy came in at a -0.1% and we we actually told this was the best negative number your could possibly get.  'It's a sucking chest wound says the doc but it's not serious."  One of the reasons given for this curious opinion was that the wars we have been fighting are winding down.  Translation:  We can always start another war?  Another reason was government spending was down 22%  Translation:  We know how to spend money in the government.  Hell, we can hire a million people to dig holes and another million to fill them up.  Or we can start another war...can't we?  Inventories were down.  Translation:  What the hell does that mean?  People were purchasing things?  In case you missed it guys Hanukkah fell in this quarter.  I even heard that we might still have Christmas.  Inventories always go down in the fourth quarter.

I really think that what none of the geniuses will admit is that this makes it harder for the Fed to take the punch bowl away and from where I sit this incredible stock market rally is entirely central bank led.  Then again, Apple that makes more money than anyone has ever seen and seems to holds on to all of it is in the crapper on the street and Amazon which makes no money at all is loved by all.  At least there is consistency out there, at least in my eyes as either everything is upside down or I'm standing on my head.  To be honest, I'm not the least bit sure.  I guess we'll just have to wait 3 months to confirm the direction this is taking...of course by that time we will be in the middle of a God-awful budget fight which will be used as an excuse by all sides in explaining/defending/promoting their respective positions on wither the economy.  Can't wait

Anyway, I'm glad I have this to write about because there aint nothin' of interest out there.  It has been remarkably quiet with the battle over anti gun legislation overtaking everything in the Congress.  Over there, not much is new except that Euroland just may have dodged a bullet in regard to Cyprus.  As suggested almost to the point of a prediction, Russia announced the other day that it would assist in any Cypriot bail-out.  Guess the Oligarchs lined up outside Putin's office and said something to the effect, " That's our money down there.  Fix this thing or else."  With those kind of numbers in that kind of country not even Putin is entirely in the clear.  Old Damocles found that out a couple of years ago.  Some people just never learn.