Monthly Archives: September 2011

Corporations push for tax holiday in US with laughable arguments

September 30, 2011 By in financial markets Tags:

Consider this article from Bloomberg: Google Joins Apple in Push for Tax Holiday

As a coalition led by Apple Inc. (AAPL), Google Inc. (GOOG), and Cisco Systems Inc. (CSCO) presses for a tax holiday on more than $1 trillion in offshore profits, it is turning to a well-positioned lobbyist: Jeffrey Forbes, once chief of staff to Max Baucus, chairman of the tax-writing Senate Finance Committee.

In short the issue here is that US corporations that have profits at foreign subsidiaries need to pay the US corporate tax rate that is far higher than in many other countries if they wish to repatriate the profits. Foreign taxes are deductible so repatriation from countries with very low tax rates would be hit the hardest.

Looking at some of the arguments, the lobbyist are claiming repatriation of profits would be used for capital expenditure in US and to create jobs. Furthermore they claim it would give the economy the boost that it now requires in order to avoid the recession. And perhaps, the “best” argument: “Our economy needs all the help it can get, and leaving this money in foreign banks when we could bring it home now makes no sense”. If indeed there are hundreds of billions of dollars in European banks, I am not sure how withdrawing all that would make things that much better today given the subtle problems said banks have.

Kudos to Bloomberg for actually presenting some truth and noting that this has been done before and predictably it led to share buybacks and dividends, not capex and jobs.

It is rather ridiculous to claim that the repatriation of profits would lead to job creation aside from some odd Ferrari and diamond purchases. S&P500 companies do not have a shortage of cash to finance capital expenditure in US and many of them can currently issue debt at insanely low rates. Moreover, if they would actually have profitable job creation and capital expenditure opportunities in US, they would be creating those jobs and building that productive capacity right now in order to increase profits. It should be obvious that the lack of any profit opportunities and too high costs in creating jobs in the US is the reason they are not hiring and that is not going to change by giving corporations a tax holiday that has been proven not to work.

However, I am fully convinced that the tax holiday would lead to further off-shoring of all kinds of operations from the US by S&P500 corporations as that is the action that would be rewarded here. This would further stress the competitive environment for small and medium sized businesses that are not able to lobby for sweetheart deals with the government. 35 per cent federal rate plus average 5 per cent state rate for corporate income is definitely not competitive with many OECD countries, but giving large corporations more loopholes is the wrong direction.

Surprisingly good headline UI claims number, 391k

September 29, 2011 By in economics Tags: ,

Department of Labor just announced the latest unemployment claims and they came at surprisingly good 391k, down from upwardly (of course) revised 428k. I’d expect this number to get revised up as well. Here’s a chart depicting the seasonally adjusted claims and year-on-year change starting from recession highs.

Despite the pretty good headline number the amount of people on some sort of UI program increased by about 100k to almost 7 million. That is about 2 million below the number from last year although according to payroll figures only less than 1.3 million total non farm payroll jobs have been created between August of this year and August of last year. The periods do not match perfectly but it is clear that the people that are dropping off of claims are not all getting jobs.

Not quite panic yet but Nokia is slowly getting there

September 29, 2011 By in financial markets, technology Tags:

Nokia today announced some additional measures to “align its workforce and operations”.

Espoo, Finland – Nokia today announced plans to take additional actions to align its workforce and operations. The measures support both the execution of the company’s strategy and the savings target the company announced earlier this year, and also target to bring efficiencies and speed to the organization.

Earlier this year, Nokia announced changes primarily focused on aligning its R&D operations in Smart Devices and Mobile Phones. Today, the company announced the next phase of operational alignment, which includes plans for reductions in manufacturing, the Location & Commerce business, and supporting functions.

About 3500 employees impacted and several production sites will be under review. At the end of June, they had almost 140k employees so this is still approximately nothing.

The planned closure of the Cluj factory combined with adjustments to supply chain operations is estimated to impact approximately 2,200 employees. The planned changes in the Location & Commerce business are estimated to impact approximately 1,300 employees. These personnel reductions are in addition to the measures announced in April and are expected to take effect by the end of 2012.

This is what Elop had to say:

We are seeing solid progress against our strategy, and with these planned changes we will emerge as a more dynamic, nimble and efficient challenger. We must take painful, yet necessary, steps to align our workforce and operations with our path forward.

Back in May when Nokia issued a profit warning, I penned the following:

Restructuring

A month ago Nokia announced its restructuring plan including outsourcing Symbian workforce to Accenture and reducing personnel by additional 4000. They also said they would decrease their Devices & Services non-IFRS operating costs by 1 billion euros by 2013 compared to 2010. The plan itself had few big problems, but given that it took less than 2 months for the shit to hit the fan for Nokia, I am now expecting additional restructuring program to be announced before the end of the year possibly in a panic atmosphere, but that really depends on what happens with the market shares of Symbian and especially WP7.

The cost structure is still pretty heavy for a firm in decline and I would not be surprised to see more alignment actions, especially so if Windows Phones don’t catch up as well as they think.

Next up, Nokia will announce 3rd quarter results on 20th October and they will have this year’s Nokia World on the 26th where they are expected to show some WP Mango handsets.

The Nokia N9 will start shipping in couple of weeks, but it is rather irrelevant as Nokia has seemingly been doing everything to destroy its success. The WP handsets will presumably start shipping in early November at the earliest, but Nokia has had a track record of missing launches.

Quite a few new WP devices have already been announced by other manufacturers that have already had MS products on sale and have good carriers relations so Nokia is going to have a tough time meeting goals.

Even if we take a rather optimistic scenario where MS captures 10 per cent of smartphone market on the 4th quarter and Nokia somehow gets half of that, their outlook is none too bright, because higher-end Symbian handsets are in the gutter even with significant discounts to launch prices.

And I thought hoping for military junta in Greece was bad, here’s a governor who wants to suspend elections in US to create jobs

September 28, 2011 By in policy

From North Carolina Gov. Bev Perdue (dem):

“You have to have more ability from Congress, I think, to work together and to get over the partisan bickering and focus on fixing things. I think we ought to suspend, perhaps, elections for Congress for two years and just tell them we won’t hold it against them, whatever decisions they make, to just let them help this country recover. I really hope that someone can agree with me on that. The one good thing about Raleigh is that for so many years we worked across party lines. It’s a little bit more contentious now but it’s not impossible to try to do what’s right in this state. You want people who don’t worry about the next election.”

A Finnish MP recently wrote in his blog that he hoped Greece would have a military junta that could ram through necessary reforms, but this is pretty scary. Though, without knowing the full context, I’d take this with some reservations. However, this still goes to show the desperate need to elect one Dr. Ron Paul in November next year. Please, make it happen Americans. You might actually get rid of that state of national emergency that has been in place for good 10 years.

EFSF getting ever more complicated

September 26, 2011 By in financial markets Tags: ,

Just trying to make few pieces of the puzzle fit here…

In its current iteration the European Financial Stability Facility is a plain CDO. It issues debt which is backed by member states (which allows it to have AAA rating) and it then buys the sovereign bonds of EU financial assistance countries. However, Finland now “demands” collateral on further participation. First, this was proposed to be in the form of deposit made for Finland by Greece, which Finland would retain if Greece did not honor its obligations. However, that has apparently ran into troubles. The latest chatter was that the collateral would be made so expensive that only Finland would take it. No one knows what that means.

But to make things more government-like, here is the latest from BBC and ZH. Apparently, in the next stage the said CDO will pledge the sovereign bonds it has purchased as collateral to the ECB (that accepts any shit these days), in order to have access to more cash, which it will get when ECB buys debt that the CDO will issue. I believe this would require the EFSF to have a banking license, but that is not really the central point here and I am sure this will get more complicated as we go along.

I would love to see our finance minister Jutta Urpilainen explain in plain Finnish this scheme to voters without a teleprompter. Just to go through the pros and cons. You know, to make sure that she isn’t committing into anything that she does not even understand herself. Furthermore, I would love to see her address this plan in the context of off-balance sheet financing and financial engineering in the build-up to the last financial crisis. And it probably wouldn’t hurt if she also talked about Greece hiding its debt figures with the help of the good people at Goldman Sachs.

I’ve said in few instances that governments will engage in desperate measures of ever-increasing scale before they admit they actually did something wrong to begin with. Here is a good example.

[Update]: apparently this plan was either not that serious or more likely it died because of its stupidity. However, that does not block stocks from rallying on the news.

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