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Philip Mause  

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  • Why Interest Rates Will Stay Low [View article]
    The problem is that right now - and probably for the next year or so - substantial tightening of monetary policy in the US will really cause the dollar to skyrocket which will: 1. slow down the economy and 2. create the danger of deflation. The dollar is already high and I lived through the ultra high dollar period in the early 1980's which led to the "Rust Belt" as many large industries simply could not compete (we had to rescue one automaker and a second one was on the ropes) - after a while, many Americans tried to schedule travel so that they could buy clothes overseas. My wife's friend made a business out of buying used Mercedes's in Germany and importing them. The "gray market" emerged as US producers charged lower prices for shipments out of the US in order to keep from losing markets and clever operators bought the products overseas and then brought them back into the US where they could be sold below the retail prices charged here. A super strong dollar creates a lot of problems which our fragile economy could not endure.
    Apr 17, 2015. 01:07 AM | Likes Like |Link to Comment
  • Why Interest Rates Will Stay Low [View article]
    I am very much in favor of countercyclical investment in infrastructure - both because it helps get us out of recessions and because it is probably less expensive when there is slack in the economy. But I would not raise taxes to do it during a recession or time when there is slack in the economy and not inflation. Better to simply increase the deficit and amplify the stimulative effect on the economy. When things really get humming, we can raise taxes.
    Apr 17, 2015. 12:59 AM | 1 Like Like |Link to Comment
  • Clean Energy Fuels Should Make It Through The Valley Of Death [View article]
    Momentum is definitely a consideration. As there are more stations, more truck buyers will feel confident about 1.the long term future of CNG and LNG and 2. the availability of supply. This will marginally lead more buyers on the fence to turn to natural gas which will, in turn, enable CLNE to open more stations, etc. etc. So Big Mo will be working for them. I guess the question my article addresses is whether it will work fast enough to avoid the specter of dilution.
    Apr 16, 2015. 11:44 AM | 2 Likes Like |Link to Comment
  • Why Interest Rates Will Stay Low [View article]
    If they bought the debt, they would be receiving the interest payments. They did buy agency mortgages and they still hold some on their balance sheet. I think that - right now - they are waiting to see how the US economy holds up in connection with the higher dollar. This may take a while because the first quarter was impacted by weather so it may not be until summer that we will see data which indicates how the economy is doing in a world in which the dollar trades near parity with the Euro and at $1.25 in loonies.
    Apr 16, 2015. 11:41 AM | Likes Like |Link to Comment
  • Why Interest Rates Will Stay Low [View article]
    Low rates tend to stimulate economic activity several ways - 1. housing prices tend to increase because mortgage rates stay low and higher housing prices marginally increase consumption due to the "wealth effect" and also increase housing construction, 2. equity prices tend to increase again increasing consumption due to the wealth effect and also increase business investment as IPOs raise funds for new ventures, follow on offerings enable companies to raise funds and private money goes into new ventures in the hope of an IPO in the future and 3. low rates tend to weaken the dollar in international markets and a lower dollar leads to more exports, fewer imports, more foreign tourism in the US and less US tourism abroad. These are relatively indirect and weak mechanisms compared to the impact of deficit spending in the form of 1. increased transfer payments (e.g. extending unemployment insurance payments), 2. infrastructure spending, or 3. tax cuts. At the present time, we need all the growth stimulus we can get and, even though additional fiscal stimulus would be better, I do not think we will see the Fed make any big or sudden changes in the direction of tightening.
    Apr 16, 2015. 11:37 AM | Likes Like |Link to Comment
  • Why Interest Rates Will Stay Low [View article]
    The best way to increase demand is to simply print more money and give it to the group of people with the highest marginal propensity to spend (probably crystal-meth addicts). Taxing a group with a low marginal propensity to spend (the wealthy) and distributing the proceeds to a group with a high marginal propensity to spend (the poor) also increases demand but - dollar for dollar - it is less effective than simply increasing the deficit by distributing more money to the latter group and not increasing any taxes. I would reinstitute the moratorium on social security taxes, increase the dependency deduction, offer a one time tax break on repatriation for corporations, and provide more tax credits targeted at energy conservation. I would not increase any taxes at this time.
    Apr 15, 2015. 01:33 PM | Likes Like |Link to Comment
  • For Medallion Financial, The Future Is Arriving [View article]
    Uber will definitely eat into traditional taxi traffic and could push the number of drivers willing to drive at the prevailing rates down so far that the amount of rental they are willing to pay for a Medallion declines substantially. I guess it is a matter of how many people who would otherwise hail cabs decide, instead, to use mobile phone apps to order a Uber. This is probably unknowable at this time and will evolve over time. Also unknowable is the political "inside baseball" - holders of medallions must realize that their value is entirely created by political decisions and, I assume, that medallion holders have made a substantial "investment" in campaign contributions, etc. in order to cultivate politicians and protect the artificial scarcity which gives medallions value. My guess is that one of their problems is that just as rental rates are coming under pressure, the need for a sharp increase in "political spending" is becoming acute.
    One of the problems which would be created by the demise of the medallion system would be that politicians might have to turn elsewhere for a stable and reliable source of campaign contributions and that this could have unpredictable public policy consequences.
    Apr 13, 2015. 07:37 PM | Likes Like |Link to Comment
  • For Medallion Financial, The Future Is Arriving [View article]
    Good point but I guess that they cannot provide exactly the same service (as I understand it Ubers are not permitted to pick up passengers on the street hailing a cab). If they were able to provide the exact same service, then the rental value of a medallion would decline to the comparable charge that Uber imposes minus whatever incremental benefits are associated with Uber.
    Apr 13, 2015. 07:02 PM | 1 Like Like |Link to Comment
  • Why Interest Rates Will Stay Low [View article]
    I think that there are two plausible scenarios.
    Scenario One - the Fed starts raising rates this Fall and follows fairly through aggressively with three or four increases leading to a downturn and a rate reduction in 2016 with the rate at about 1-1 1 /2% at the time of the reduction.
    Scenario Two - the Fed is very, very cautious and slow raising rates and the economy slowly picks up momentum resulting in a peak date in 2019 or 2020 at a rate north of 2% (perhaps with a 3 handle).
    I am honestly not sure which will occur but I lean toward the latter.
    Most likely outcome - the peak before a cut is 2 3/4% in the Fall of 2019.
    Apr 13, 2015. 06:50 PM | Likes Like |Link to Comment
  • For Medallion Financial, The Future Is Arriving [View article]
    The value of the medallions is based on scarcity. As long as there are more drivers anxious to drive at the prevailing rates than there are medallions, the drivers will pay to rent the medallions. If we ever get to the point at which there are fewer willing drivers (due to the erosion of traffic by Uber) than medallions, then rental rates on medallions will plummet. One solution would be for a large medallion owner to "corner the market" on medallions and not rent them all out and thereby create an artificial shortage. I am not sure if this would pass regulatory scrutiny.
    The whole system is a vestige of the NRA approach to economic decline - limit supply to prevent deflation and to protect workers from the abusive practices that a downward spiral would create. This approach has been pretty much abandoned in airlines, trucking, liquor distribution, etc. although I think we still pay farmers to refrain from growing crops.
    I think that a bet for (or against) medallions can be made only if one has detailed knowledge of the "inside baseball" concerning NYC politics. Politicians have been known to do stranger things than bail out medallion holders. On the other hand, the trend in economic thinking is running strongly against this approach.
    Apr 13, 2015. 06:43 PM | 3 Likes Like |Link to Comment
  • Why Truckers Are Slow To Embrace CNG Fuel Systems [View article]
    Excellent article! This highlights one of the difficult implementation problems associated with energy efficiency. In building efficiency, the landlord/tenant incentive issue is a huge problem and has probably delayed the deployment of insulation, more efficient appliances, etc.
    In the trucking industry, there are a large number of Class 8 trucks that are "private" in the sense that they are owned by shippers (I think Wal-Mart has its own fleet). It was this part of the industry that played a key role in the dismantling of ICC regulation - in part to get rid of back haul restrictions and gate way rules. I would expect that in this part of the industry the adoption of CNG and LNG may move faster than in the common carrier part of the industry.
    As to common carriers, large scale shippers are always looking for ways to save money and they will probably sit down with certain carriers and figure out a way to do the economically efficient thing. But these things often take a lot of time and, meanwhile, the mechanism you describe creates a powerful marketplace advantage.
    Apr 13, 2015. 03:57 PM | 4 Likes Like |Link to Comment
  • Why Interest Rates Will Stay Low [View article]
    That is correct. We are currently a little bit overpriced. I see that the big risk is that the model breaks down due to a slowing of dividend increases. We have generally been increasing S&P 500 dividends at roughly 12 percent per year or 1 percent per month. This is part of the reason investors like dividend stocks. If that rate of increase declines, then we could see investors demand a higher dividend yield up front.
    Apr 13, 2015. 11:46 AM | 1 Like Like |Link to Comment
  • Sotherly Hotels: Another Dirt Cheap REIT [View article]
    Using enterprise value to debt as a metric, they look highly leveraged. I think that this is the wrong metric to use because it penalizes a company which is underpriced in the market. Using debt to EBITDA or fair value of buildings to debt, they are at a reasonable level of leverage. The problem with using market cap or enterprise value to debt as a metric can be illustrated by thinking of two companies with identical sets of buildings and tenants and leases and debt ($200 million) - one of which has 10 million shares trading at $40 a share and the other of which has 10 million shares trading at $10 a share. Using market cap or enterprise value to debt as a metric, the first company seems to have low leverage but the second seems to be overleveraged. This would lead one to buy stock in the first and shun the second which would involve paying 4 times as much for the same set of buildings. I try to use a "private market" approach estimating what a single investor would pay for the entire company. Using this approach, I determine leverage by looking at EBITDA, interest rate coverage, or fair value of the buildings.
    Apr 11, 2015. 11:46 PM | Likes Like |Link to Comment
  • John Hussman: Stock-Flow Accounting And The Coming $10 Trillion Loss In Paper Wealth [View article]
    There is some merit to this analysis but the hard question is ".....therefore, what should we do???" We certainly don't want to raise interest rates. There is a good argument that we may "need" or at least be doomed to endure this period in which households rebuild their balance sheets and that that is why it takes ten years or so to fully emerge from a financial meltdown. At some point the savings that households are making now will produce stronger balance sheets, more borrowing capacity and a surge of new home buyers and automobile sales. If you have a better plan, you certainly shouldn't be keeping it secret.
    Apr 7, 2015. 02:34 AM | Likes Like |Link to Comment
  • John Hussman: Stock-Flow Accounting And The Coming $10 Trillion Loss In Paper Wealth [View article]
    I think you have it wrong. The money velocity looks like a sloth with arthritic knees who has taken on overdose of valium - slooooooow. Without monetary and fiscal stimulus, the pulse rate would be exactly zero.
    Apr 6, 2015. 01:44 PM | 2 Likes Like |Link to Comment
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