Going to the Mattresses

"That Sonny's going wild. He's thinking of going to the mattresses already." So famously said Clemenza in The Godfather (1972). While Sonny's strategies didn't play out very well in the end, he was hardly alone in his mattress obsession. This is the time of year when many of us “go the mattresses.”

Be it preparing for school, the pressures of the upcoming final quarter of 2018 for profits and performance, the beginning of the now endless visits to Costco for Halloween, Thanksgiving, and Christmas, and the upcoming political season of non-stop B.S.

What does it mean to go to the mattresses? One word, preparation. Preparation for the best and worst of future events. The Corleone Family used mattresses to protect “Family” from assassination by rival families, the mattresses represented planning, security, insanity.

Each one of us has our mattresses, this is the time of year to get them out.

What follows is some Labor Day weekend reading for you to decide what your mattresses will be.

BULL MARKET - It's been 3,453 days since this bull market rose from the ashes of the 2008 global financial crisis.

In that time, we discovered Hamilton and learned how to tweet (well, kinda)...but most importantly, we watched the S&P 500 more than quadruple—and notch a record high.

Some bull market stats:

Profit on a $10,000 investment: $32,500.

Tech stocks have accounted for 22% of the current bull market's ~325% gains. Apple alone has contributed 4.1%.

Share of Americans invested in stocks: 55%, per an April poll from Gallup.

How'd we get here?

Some key drivers of this rally's staying power: a super-strong economy, stellar unemployment stats, and company profits growing at the fastest clip in nearly a decade.

We'll technically be in a bull market for as long as the S&P 500 goes without suffering a 20% drop...so what derails the bull's stampede? No one knows for sure, but Fed policy, the threat of a trade war, and general cyclical patterns could all send the market back down.

You knew this part was coming: the asterisks...

While this is the longest-ever bull market, it's not the hottest-ever. That title goes to the run from 1990 to 2000 (when the S&P climbed 417% in 3,452 days).

And this record's limited to the broad S&P 500 index. The narrower Dow, however, is only in its third-longest rally ever.

WOLF OF WALL STREET – Last week this bull market has become the longest in the history of the S&P 500, according to S&P Dow Jones Indices. Stocks have been rising steadily, without the 20% decline that conventionally defines a bear market, since March 2009—making this bull run about to exceed the nearly-10-year stretch that ended in March 2000.

After returning more than 400%, including dividends, since this bull market began, U.S. stocks aren’t cheap. They’re selling at about 32.8 times their long-term average earnings, adjusted for inflation, according to data from economist Robert Shiller at Yale University—nearly twice their typical level since 1881.

Meanwhile, analysts expect interest rates to rise, some giant technology companies are faltering, trade wars seem to be spreading and emerging-market economies are sputtering. Should you protect your assets from a potential collapse?

First, it’s worth bearing in mind that there’s always something for investors to worry about.

Yes, 2018 is full of uncertainty and teeming with hazards that might make the stock market crash. So was 2017. So were 2016, 2015, 2014—and every year since stockbrokers first gathered in New York in the early 1790s.

That’s why now, like most of the time, the right thing for long-term investors to do is…nothing.

If you’re convinced that Armageddon is around the corner, however, you probably should take your fear as a signal that it’s time to re-evaluate your investing plan. After all, if the market does crash and you did nothing to act on your worries, you will kick yourself and may well bail out of the market completely.

One of the keys to successful investing over the long run, the Nobel Prize-winning psychologist Daniel Kahneman has often said, is minimizing your future regret. The bigger, more frequent and more sudden the steps you take, the more opportunities you create to look back later and regard them as mistakes.

So, if markets and geopolitics are making your skin crawl, perhaps you should do something. If you turn out to be right, you will be glad you took action, however incremental it was. But all your actions should be small, gradual and reversible—in case you turn out to be wrong.

A few such baby steps can make a big difference in your peace of mind during turbulent times.

Start by regarding the risks in your portfolio in the broadest possible light. If you have both some spare cash and a mortgage, use the cash to pay down or pay off the home loan. Extinguishing a 4% mortgage provides you a 4% return at zero risk—a deal you’re unlikely to beat anywhere else. Plus, you eliminate the anxiety that debt can cause in an economic downturn.

If you reap a windfall from an inheritance or selling a home, says Elyse Foster of Harbor Financial Group in Boulder, Colo., you could keep that money in cash as a psychological cushion against your fears of an impending crash.

If you dollar-cost average, buying a fixed amount of funds or stocks automatically every month, you could suspend that program, says Peter Lazaroff, co-chief investment officer at Plancorp, an investment-advisory firm in St. Louis that manages about $4 billion. But you should work with your financial adviser to set a predetermined date on which you will resume your contributions—say, six months from now—and agree that if stocks fall by 20% or more, you will automatically begin buying again to take advantage of the decline.

You and your financial adviser should long ago have set a target asset allocation, which determines how much of your holdings you spread across stocks, bonds and other investments. Particularly within a retirement account, where sales won’t generate tax bills, you could downshift some of your risks without changing your overall allocations, says Mary Alpers of Alpers Financial Planning in Colorado Springs, Colo.

You might reduce your holdings of volatile growth stocks and put the proceeds in more-conservative shares, for example—leaving your total position in stocks unchanged but reducing your potential losses in a crash.

If none of this enables you to sleep at night, you may be overexposed to stocks. Scale back your allocation—a little at a time. Say you and your financial adviser decide you should reduce stocks from 70% of your portfolio to 50%. You could cut back by 5 percentage points every six months or by 1 percentage point each month. “People respond to that pretty well,” says Rick Miller of Sensible Financial Planning and Management in Waltham, Mass. “People like to make changes gradually to help avoid regrets.”

At emotionally challenging times in the market, wrote the financial analyst Benjamin Graham in his book “The Intelligent Investor,” investors need “some outlet” for their “otherwise too-pent-up energies.” Baby steps can keep you from taking big steps you might be sorry about later.

COLLEGE CHRONICLES – Here are basics on one former student's loan payments. University of New Mexico (bachelor's, 2006); University of Minnesota (master's, 2008); $70,000 owed at graduation; $50,000 paid back so far; $410 paid per month, on average; 12 months of delayed forgiveness because of FedLoan errors; $70,000 still owed today." MoJo: The Incredible, Rage-Inducing Inside Story of America's Student Debt Machine. (Regardless of what they study, every college student ends up majoring in finance...)

+ NPR: "In a scathing resignation letter, Seth Frotman, who until now was the student loan ombudsman at the Consumer Financial Protection Bureau, says current leadership 'has turned its back on young people and their financial futures.'"

MBA? - Let us break down the numbers on graduate business school, per recent GMAC research.

85%—U.S. employers predicting they'll hire MBA grads this year, down from 91% in 2017. Per the WSJ, that's the biggest drop since the start of the recession.

3—Consecutive years that applications to full-time MBA programs in the U.S. have dropped, as of 2017.

90%—Companies in the Asia Pacific region that plan to hire MBA grads in 2018. Compare that to Europe, where only 64% of companies plan to hire MBAs.

$105,000—What U.S. companies will offer MBA graduates as a base salary in 2018...down from $110,000 in 2017.

6%—Business schools made up of large, popular programs (201 or more students). Incredibly, those programs received 55% of total applications and 32% of enrollments. And the divide between the "have" and "have-nots" is only growing over time...

Bottom line, courtesy of the WSJ: "Once considered a prerequisite for successful careers in American corporations, the flagship two-year degree is attracting fewer students across the U.S., which has strained school finances and driven officials to launch shorter, more customized programs for millennials."

HIGHER EDUCATION STRATEGY - Some colleges add courses in a “panic reaction”: 

Administrators at many universities and colleges have been spending the summer launching quick revenue generating programs to offset low enrollments and budget deficits. As their finances have become more strained and their student populations have declined, public and private higher education institutions have added 41,446 degree or certificate programs since 2012. A twenty one percent increase since the dramatic slide in enrollment began in 2012.

Cybersecurity, Casino Management, Health Services, are all examples of these new programs. Critics warn, that many of these programs and majors are being added hastily and with little strategy behind them, stretching faculty, staff and other resources in the expectation of attracting additional students, who in many cases never materialize.

Online Learning - This isn't your parents' Back to School Week (and we don't just mean trading in a slide rule for a TI-83). Thanks to streaming tech, just about anywhere can be a classroom.

Enter: Coursera, the online learning startup offering thousands of courses from computer science to creative writing—think mobile learning and online degrees, minus the major costs of in-person higher education.

The pros: Scale: 35 million learners. 150+ university partners. 4 degree programs. All on a platform Coursera says is for anyone, anywhere.

Momentum: Coursera was recently valued at $814 million. Plus, it has raised ~$210 million in eight funding rounds, with a crew of investors including GSV Asset Management, the Lampert Foundation, and Kleiner Perkins.

The cons: Competition: If you've ever struggled through high school chemistry, you've probably heard of Khan Academy. It's one of several other upstarts, including Udacity and edX, looking to become the next big thing in MOOCs (massive open online courses) and outpace Coursera.

Is it...effective? Brookings says there's little evidence to determine how taking a class online or in-person might change students' outcomes.

POLITICS 101 - Days until the 2018 election: 67.

Upcoming election dates — Sept. 4: Massachusetts primaries. — Sept. 6: Delaware primaries. — Sept. 11: New Hampshire primaries. — Sept. 12: Rhode Island primaries. — Sept. 13: New York (state-level) primaries.

CONGRATS - Sydney Bell, St. Lawrence ‘16 has been promoted to manager of hockey administration for the National Hockey League team Florida Panthers.

Speaking of congratulations another summer get together for the “boys” of St. Lawrence hockey a couple of weeks ago in Picton, Ontario. Left to right: Jeff Dillon ’76, Jacques Martin ’75, Paul Gallagher ’77, Joe O’Rourke ’76, Scott Graham ’75, Bill Reid ’76, Scott Morrison ’76, and Murray Cawker ’76. The only person not seen in this picture is their probation officer. Thank you Caper for the photo.

HONEY, I SHRUNK THE PORTFOLIO - The American stock market has been shrinking. It's been happening in slow motion — so slow you may not even have noticed. But by now the change is unmistakable: The market is half the size of its mid-1990s peak, and 25 percent smaller than it was in 1976. In this case, we're talking about the total number of companies on the stock market. The reason: Stock buybacks (repurchases).

To understand this rapid concentration of wealth and income, we must also consider the metastasis of corporations into colossal trusts, happening at the same time as the government shirks its duty to protect consumers and workers: The Rules Of Monopoly. (Or why private equity managers got Park Place and Boardwalk, while you got stuck with Baltic Avenue...)

In a stock buyback, a company repurchases its own shares from the broader marketplace, usually through the open market. That leaves the remaining shareholders with a bigger chunk of the company and increases the earnings they reap per share, on top of the regular dividend payments that companies make to shareholders out of their profits.

DAVE’S NOT HERE - Constellation Brands, the parent company of Corona beer, announced yesterday that it was investing $4 billion in Canopy, a Canadian marijuana producer, in the biggest known deal in the cannabis business.

That move might not seem intuitive, but it’s a hedge against slowing beer sales, and other brewers show signs of thinking similarly. Both Heineken and Molson Coors are rolling out nonalcoholic THC-infused beverages.

The rewards could be big: Euromonitor expects to see a $20 billion market for legal marijuana products by 2020. There’s at least one big risk, however: What if the Trump administration cracks down hard on marijuana?

https://youtu.be/rtDAK7Umk7A

BIRTHDAYS THIS WEEK – Birthday wishes and thoughts this week to Terry Bradshaw (70) Scottsdale, AZ.; Salma Hayek (52), Malibu, CA.; Jessica Naccache …famous poker player; Raquel Welch (78) Boca Raton, FL.; Pete Wilson (85) Del Mar, CA.

JACK ASS OF THE MONTH - Watch Rudy Giuliani tell Chuck Todd, “Truth isn’t truth”.

https://twitter.com/i/status/1031231204484206592

Rudy Giuliani last week argued that President Trump could get caught in a perjury trap if he agrees to an interview with special counsel Robert Mueller, saying "truth isn't truth."

Giuliani, who is Trump's personal lawyer in the Russia investigation, sought to explain the reason for the drawn-out negotiations between Trump's legal team and Mueller's team over a potential interview.

"I'm not going to be rushed into having him testify so he gets trapped into perjury," Giuliani said on NBC's "Meet the Press."

"And when you tell me that he should testify because he's going to tell the truth and he shouldn't worry, well that's so silly because that's somebody's version of the truth, not the truth," Giuliani said.

"Truth is truth," anchor Chuck Todd responded.

"No it isn't," Giuliani said. "Truth isn't truth."

Giuliani went on to explain that he is skeptical of having Trump speak with Mueller, because the special counsel may believe former FBI Director James Comey or another witness's account of events if it contradicts the president.

"We have a credibility gap between the two of them," Giuliani said. "You've got to select one or the other." Thank you, Mr. Giuliani, for being our Jack Ass of the Month.

FAKE POTUS – President Trump has said twice this month that car companies are moving back to Pennsylvania. There are no assembly plants in Pennsylvania at all.

GOOD READ – From last weekend's New York Times Magazine ... "War Without End," by C.J. Chivers, a Marine Corps infantry veteran of the Persian Gulf war who is a writer at large for the Magazine, and a former international correspondent for The Times (adapted from his new book, "The Fighters: Americans in Combat in Afghanistan and Iraq," out next Tuesday from Simon & Schuster):

"In early October, the Afghan war will be 17 years old, a milestone that has loomed with grim inevitability as the fighting has continued without a clear exit strategy across three presidential administrations."

"With this anniversary, prospective recruits born after the terrorist attacks of 2001 will be old enough to enlist."

"And Afghanistan is not the sole enduring American campaign. The war in Iraq, which started in 2003, has resumed there and continues in a different form over the border in Syria."

"The United States has at various times declared success in its many campaigns ... And still the wars grind on, with the conflict in Afghanistan on track to be a destination for American soldiers born after it began."

"More than 2.7 million Americans have served in uniform in these wars":

"Nearly 7,000 of them have died. Tens of thousands more have been wounded."

"The foreign policies that sent these men and women abroad, with their emphasis on military action and their visions of reordering foreign nations and cultures, have not succeeded."

"It is beyond honest dispute that the wars did not achieve what their organizers promised, no matter the party in power or the generals in command."

"Astonishingly expensive, strategically incoherent, sold by a shifting slate of senior officers and politicians and editorial-page hawks, the wars have continued in varied forms and under different rationales each and every year since passenger jets struck the World Trade Center in 2001."

"They continue today without an end in sight, reauthorized in Pentagon budgets almost as if distant war is a presumed government action."

SEPTEMBER SHOULD BE FUN – Washington is about to enter the extraordinarily consequential month of September, during which government funding expires, the Senate will begin considering the nomination of Brett Kavanaugh and the battle for control of the House with the November elections will get into full swing.

In fact, the week of celebrations of Senator John McCain's life and bipartisan spirit are like a bittersweet daydream, a flashback to the halcyon days of the Senate's past during a feverishly hot August stretch in Washington. Congress will come back into session after Labor Day and everything will go back to the new normal — more Trump attacks on special counsel Robert Mueller, daily POTUS tweets, and of course Fox And Friends every morning.

SPORTS MEDIA - Media: Bob Costas is in talks to leave NBC Sports, where he's been an employee for nearly 40 years. Costas: "There was a very long period of time when NBC's programming suited my interests and abilities very well ... What was once a perfect fit no longer fits that description."

MARKET WEEK – The U.S. economy grew at a rate of 4.2% in the second quarter — more than the initial estimate of 4.1%. The upward revision marks the economy's best performance in four years.

Small stocks have outperformed recently, but the largest ones have too. Apple, Amazon, Alphabet and Microsoft, the four largest stocks in the index, are up an average of 22% since the S&P 500 hit its record high of late January, according to Bespoke Investment Group.

The broadest measure of after-tax profits across the U.S. rose 16.1% from a year earlier in the April-to-June period, according to Commerce Department data released Wednesday. That's the biggest gain in six years.

SWAMI’S WEEK TOP PICKS –

NFL Football Pick of the Week – Sunday 9/9, 4:05 PM ET, CBS: Kansas City Chiefs (0-0) at Los Angeles Chargers (0-0). Top two preseason teams in the AFC West. Can the Chargers get off to a good start this season? We think so, Chargers 27 Chiefs 20. (Season to date 0-0)

College Football Pick of the Week – Saturday 9/1, 7:30 PM ET, NBC: #14 University of Michigan Wolverines (0-0) at #12 Notre Dame University Fighting Irish (0-0). Big Blue Coach Jim Harbaugh’s fourth season, time to win or get out. Michigan wins, 30 – 27. (Season to date 0-0)

D-III Football Pick of the Week – Saturday 9/1, 7:00 PM PT: George Fox University Bruins (0-0) visit University of Redlands SATs (0-0). Both teams coming off seven-win seasons, SCIAC teams do not travel well, Fox over the SATs 24 – 17.  (Season to date 0-0)

SCIAC Game of the Week (Football) – Saturday 9/1, 1:00 PM PT: University of La Verne Leopards (0-0) visit Whitworth University Pirates (0-0). In coming off an eight-win 2017 season the Pirates will be a tall order to fill for the Leos. Eight-year Coach Chris Krich had a decent preseason camp but we like the Pirates in this one, Whitworth 32 La Verne 20. (Season to date 0-0)

                            Whitworth University Pine Bowl

MLB Game of the Week – Saturday 9/1; Arizona Diamondbacks (74-60) at Los Angeles Dodgers (72-62). The D’backs have the Dodgers number this year and it continues, Arizona 4 – 2.

Season to Date (32 -20)

ON THIS DATE - On this day in 1930, Warren Edward Buffett was born in Omaha, Neb., to stockbroker Howard Buffett and homemaker Leila Stahl Buffett.

ON THIS DATE PART DEUX - On this day in 1859, a drifter named Edwin Drake struck oil in Titusville, Pa., setting off the “black gold rush.” Dozens of publicly traded companies were created. Over the next decade, most of them became worthless.

DRIVING THE WEEKEND - Review your summer bucket list ASAP, because Labor Day, like or not is here.

Next Blog:  September 10 - Thirty-Six, Words of the Month

Until next time, Adios

Claremont, California

August 31, 2018

#IX-9-377

CARTOON OF THE WEEK – Peanuts, Charles Schultz

RINK RATS POLL –

What do these letters mean?  PMP, CSM, CISM, CRISC, ITILv3F, MCSE, CGEIT

____  The genetic code of the common cold

____  An individual who has too many higher education degrees

____  A new gambling game in Las Vegas

____  A lousy manager

QUOTE OF THE MONTH – "Losing is a learning experience. It teaches you humility. It teaches you to work harder. It's also a powerful motivator." - Yogi Berra

Summer Scaries

I've recently been dealing with something I like to call the 'summer scaries'-- and I've found out I'm not the only one! This is the time of year when my world is surrounded by anxious people. Anxious due to a wide variety of reasons but I believe it can be summed up in one word: “confidence”.

The confident people are anxious because down deep they know their confidence is BS.

The non-confident people are anxious because their confidence rely on individuals or factors beyond their control.

These “summer scaries” are compounded by working throughout the summer while watching so many people I know excel in various summer adventures and jobs--and constantly seeing it all over social media. SO: if you're dealing with the same issues (summer work, anxious people and their confidence), I've developed a simple system that alleviates some of that stress that may be helpful to you. Honestly, a daily glass of wine or vodka can do the trick just as well.

1.      Disconnect - Disconnect, disconnect, disconnect. Make an active effort to put down your phone and just spend time with yourself. Try not to let social media be the way you start and end your day, especially if it's part of what's causing your anxieties.

2.      Recharge - Force yourself to get 8 hours of sleep: even if it means earlier nights during the summer. Your body will thank you and your mind will too. You're not 'wasting' a summer by just being at home; you're prepping yourself for the coming Fall.

3.      Focus - In everything you do. Multi-tasking has its benefits, but so does focus. When you eat meals, for example, JUST eat meals. When you have a conversation with someone, really listen. Be. Fully. There.

4.      Take advantage of your mornings - Part of the benefit of getting enough rest is being able to get up earlier. I LOVE my mornings. I don't like to feel rushed: I like to be able to sit down, drink my caffeine, eat my breakfast, and read the newspaper. Starting your day off relaxed and in control will improve the rest of your day, too.

5.      Spend time outside - Even if it's just a walk around the block or sitting out in the sun! Breathe in that fresh air and let yourself feel refreshed.

6.      Me Time - Me time' can mean whatever you want it to: if you love reading, set aside time at night to get in a chapter. If you're really into art, carve out an hour or two to work on a new project. Give yourself the space to do the stuff you love.

7.      Make Lists – Not one of my personal favorites, but when you are feeling overwhelmed by something, I find that the best way to deal is by visualizing it. If necessary, write down what's causing you stress and what you need to do to overcome it. Do this daily: by putting a number to what you need to accomplish in the day, it makes it seem a lot more doable.

8.      Be forgiving to yourself - The most important step on this list is simple: don't be too hard on yourself. Will these things be helpful? Yes. Will they always alleviate those feelings of worry and stress? Probably not. It's okay to feel those things: just remember that they don't control your life; you do.

COLLEGE CHRONICLES – Gov. Jerry Brown of California has big plans for the state's new, completely virtual community college. The recently approved college was crafted to serve under- or unemployed adults who want additional skills for a job or a promotion, or who want skills for the changing workplace. But the new college also poses questions, like: Is there really an audience for the college, and will the adults who enroll end up succeeding? Studies have found that students, especially low-income and first-generation students, do better in physical classrooms or in hybrid courses, with virtual and face-to-face components.

Vocational training is making a comeback. Ties between companies and local high schools are increasing across the country as some students seek to avoid college debt and some businesses look to high schools where students are trained for free.

POLITICS 101 - Days until the 2018 election: 78

Upcoming election dates — Aug. 21: Alaska, Wyoming primaries. — Aug. 28: Arizona, Florida primaries and Oklahoma primary runoffs. — Sept. 4: Massachusetts primaries. — Sept. 6: Delaware primaries. — Sept. 11: New Hampshire primaries. — Sept. 12: Rhode Island primaries. — Sept. 13: New York (state-level) primaries.

There are now at least 172 women nominees for U.S. House and 11 women nominees for governor — the highest in history, per the Center for American Women and Politics.

RISK FREE INTEREST RATE - U.S. Treasury yields have stalled out just below 3% even as the U.S. economy posted its best quarter of economic growth in years.

The yield on the 10-year Treasury note ended Friday at 2.860% after rising as high as 2.871% earlier in the day. The pullback came after data showed the U.S. economy grew 4.1% in the second quarter, the strongest rate in around four years.

The reaction is counterintuitive. Such a strong growth reading ostensibly should have helped support expectations for long-term economic growth and, in turn, supported long-term yields, analysts say.

Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, said the decline illustrates how many investors believe growth will slow throughout the second half of the year as the effects of last year's U.S. tax overhaul fade.

The 10-year Treasury yield rallied for much of this year—in May it breached 3.1% for the first time since 2011--on economic optimism. The upward move faltered in May as investors flocked to the safety of government bonds, pushing up prices and so yields down.

Since then, yields have stagnated as investors weigh economic data against widening trade spats that could hurt growth.

Expectations that inflation will remain subdued are also weighing on long-term yields. The Federal Reserve’s preferred inflation gauge--the personal consumption expenditures index excluding food and energy--rose 2% in the second quarter. That was down from 2.2% in the first quarter.

Higher inflation would likely encourage investors to dump Treasury bonds--driving up yields--by eroding the value of their fixed payments. But that isn’t a big worry at the moment.

Whether that continues to be the case will depend on several events this week that could cause investors to reassess expectations for growth and inflation. On Wednesday, the Federal Reserve releases its latest policy statement and the Treasury will announce plans for issuing new debt. On Friday, the Labor Department releases its monthly jobs data that will include a closely watched measure of wage inflation.

Barring some big surprises, investors aren’t preparing for a sharp move in Treasuries that would send yields on an upward trajectory.

“If GDP north of 4% doesn’t get us above 3%, any time spent above there will be short-lived,” Mr. Lyngen said.

BIRTHDAYS THIS WEEK – Birthday wishes and thoughts this week to Erica Arias ….famous women entrepreneur; Sean Connery (88) Glaskow, Scotland; Hoang Dinh …aka Def Leppard; Brett Hull (54) Scottsdale, AZ.;  Madonna (60) Miami, FL.; Alexis Schiff …famous Leo ’17; Sarah Spain (38) Chicago, IL.

NOW HIRING - Americans looking to land a first job or break into a dream career are facing better odds. Across incomes and industries, a lower bar to getting hired is helping people get jobs. In the first half of 2018, the share of job postings requesting a college degree fell to 30% from 32% in 2017, according to an analysis by labor-market research firm Burning Glass Technologies.

ALL MY TESLA - Shares in the embattled electric carmaker jumped this past week after the FT reported that Saudi Arabia had bought a stake. Then Elon Musk dropped a bombshell on Twitter: He was considering taking the business private at $420 a share, and funding was “secured.” That would be the biggest ever leveraged buyout, and at a 20 percent premium on where Tesla’s trading.

The audacity of the plan dumbfounded traders and reporters — as did the casual way Mr. Musk announced it.

It makes sense for him. Investors have battered Tesla for missing production targets and failing to turn a profit in the eight years since it went public. One precedent Mr. Musk endorsed was Michael Dell, who revived his computer company after taking it private.

Huge questions remain, though. Does Mr. Musk really have that financing? (CNBC couldn’t find any banks aware of it.) How could Tesla afford the debt payments without free cash flow? Was Mr. Musk just trying to squeeze short sellers? And did his tweet violate securities rules?

THANKS, ELON - Lost in the hullabaloo of Elon Musk floating the idea of taking Tesla private — investors would take a pretty big tax hit on their capital gains. Musk has said that he expects most current Tesla shareholders to keep investing if the car company goes private. But if that's done through a special fund, then that would likely mean investors needing to sell their Tesla shares. What's the cost of that? A lot. Tesla stock first went on sale for $19 a share eight years ago, and now costs $340 a share.

In other words: "$10,000 invested in Tesla when it went public eight years ago would be worth close to $179,000 today. That gain of $169,000, taxed at the top rate of 20 percent, would generate a tax bill of $33,800. And depending on the investor's total adjusted income, an additional 3.8 percent tax could be due.

CHEECH & CHONG - 1 in 5 Californians have purchased cannabis from the illicit market in the past three months.

-- 84 percent of those are highly likely to repeat that behavior in the future due to the illicit market having cheaper products and no tax.

-- 9 in 10 California consumers (90 percent) have some medical use for cannabis, indicating cannabis' strong position as a wellness product.

-- Southern California consumers are more likely to purchase from an unlicensed source than Northern California consumers (21 percent vs. 16 percent, respectively).

BUFFETTOLOGY - Warren Buffett's conglomerate this past week reported quarterly earnings.

Buffett's empire touches, well, just about every aspect of the U.S. business landscape (okay, maybe not esports...yet), checking out Berkshire's quarterly reports gives us a window into the health of the economy.

Quick timeout: If you've never been to Berkshire's website before...here's a taste of what you can expect. Web developers, you might want to submit a résumé.

So...how'd it do?

At a high level—really darn well. Net income almost tripled, but per Buffett, chalk that up to a new accounting rule that requires you to include unrealized investment gains/losses in net income. Because Berkshire has so many investments, that number can fluctuate wildly.

Where you should be looking, he says, is operating income, which jumped 67% (topping expectations).

Let's dive a little deeper:

Its freight rail business (BNSF Railway) surged due to "general economic growth" generating higher demand for consumer and industrial goods (sand, fertilizer, grain).

Insurance (GEICO and others) also rebounded. Underwriting profit came in at $943 million, up from a loss of $22 million last year.

One catalyst for all this growth was the corporate tax cut. In Q2, Berkshire paid an effective income tax rate of 20%, down from 28.9% last year.

And then there's tech: Tech? Buffett? You bet. Buffett has been steadily increasing his position in Apple. Which, you may have heard, hit $1 trillion in market cap last week. Now, $47.2 billion of Berkshire's ~$180 billion stock portfolio is invested in Apple.

Berkshire's other top holdings? American Express, Bank of America, Coca-Cola, and Wells Fargo.

Bottom line, courtesy of one analyst: "Strength in Berkshire's portfolio of energy, transportation, service, retailing, and manufacturing businesses...reflect(s) broad U.S. economic strength."

These 10 skills require ZERO talent per Warren Buffett:

- Being on time                       - Being teachable

- Work ethic                             - Being prepared

- Putting in effort                    - Doing extra

- Being optimistic                   - Being encouraging

- Being passionate                 - Taking responsibility of ones’ own life and everything in it

GOOD READ – “HOW COLLEGE SPORTS KILLED SUMMER VACATION”, New York Times: As expenses for college sports have risen in recent decades, so has summer practice time. College athletes are increasingly spending their summers on campus training for their sport or taking courses to strategically prepare for a practice-filled semester.

The New York Times has more on how college athletes are sometimes forgoing internships and vacations to train. Link: https://nyti.ms/2OwhiDt

MARKET WEEK – Inflation: The annual increase in inflation as measured by the core consumer price index for July was 2.4%, the largest increase since September 2008.

The S&P 500 is up more than 4% so far this year. Meantime, the MSCI World Index excluding the U.S. is down by more than 4%. It's the first time that divergence has happened this late in the year since at least 1970, according to Sundial Capital Research.

The U.S. dollar is soaring against global currencies. The WSJ Dollar Index is now at its highest since May 2017, including a rise of more than 9% since mid-February.

COLLEGE FOOTBALL - The college football season is coming right up, and beginning August 31 The Swami will be making his weekly Swami picks. But at the moment, the focus is on another major college football program that is in turmoil before the season even begins. The University of Maryland this week apologized to the parents of a football player who died in June after overheating in a workout. In an unusually frank admission, Maryland said that the team's training staff didn't take adequate measures after the player exhibited trauma. Maryland's head coach, DJ Durkin, has been put on administrative leave, and the school has parted ways with its strength and conditioning coach, Rick Court.

The tragedy brings scrutiny to one of the most powerful, but lesser known, authority figures in college sports these days: the strength coach. That's the coach who oversees the weight room and builds players into behemoths. NCAA rules limit the amount of time players can practice with regular coaches--but exempt the strength coach, who has become a kind of "head coach of the offseason." They're also richly remunerated; one college strength coach earns $725,000 a year.

“Collegiate football’s dirty little secret is that we are killing our players,” wrote Scott Anderson, head trainer at Oklahoma, in a recent paper that looked at 33 training-related college football deaths between 2000 and 2016.

VEGAS SWAMI – Bet on these two teams to MAKE the NFL Playoffs:

TITANS ➞ Odds: +185 (implied probability: 35%) / Wagering on the Titans to make a second consecutive playoff appearance is betting on a Marcus Mariota bounceback, and there are reasons to believe it can happen. Chief among them: new offensive coordinator Matt LaFleur is expected to use run-pass options (RPOs) to maximize Mariota's dual-threat capabilities.

CHIEFS ➞ Odds: +130 (44%) / Getting a well-balanced team with Super Bowl upside at plus-money to reach the postseason seems too good to be true. This could be one of the easiest future bets you place all season."

Bet on these two teams to MISS the playoffs:

COWBOYS ➞ Odds: -170 (63%) / The biggest reason to be down on Dallas is their schedule, which is one of the hardest in the league. Plus, while they can clearly run the ball, this is a passing league — and they have question marks in that phase.

RAIDERS ➞ Odds: -190 (66%) / Jon Gruden has the 44th-most regular season wins by a coach in NFL history. Problem is, he hasn't been on a sideline in nearly a decade — and history tells us that coaching retreads rarely succeed.

SWAMI’S WEEK TOP PICKS –

NCAA Football Preseason Rink Rats Top Ten:

1). Alabama Crimson Tide            2). Clemson Tigers

3). Georgia Bulldogs                           4). Washington Huskies

5). Wisconsin Badgers                       6). Oklahoma Sooners

7). Ohio State Criminals                     8). Auburn Tigers

9). Notre Dame Fighting Irish         10). Michigan State Spartans

SCIAC Football Preseason Rink Rats Top Five:

1). Redland Bulldogs                        2). Chapman Panthers

3). California Lutheran Kingsmen   4). La Verne Leopards

5). Pomona-Pitzer Endowments

Liberty League Football Preseason Rink Rats Top Five:

1). Ithaca College Bombers           2). RPI Engineers

3). St. Lawrence Saints                       4). Union Dutchmen

5). Hobart Statesmen

NFL Football Preseason Rink Rats Picks:

AFC East - New England Patriots                 AFC North – Pittsburgh Steelers

AFC South – Houston Texans                        AFC West – Kansas City Chiefs

AFC Wildcards – Tennessee Titans, Los Angeles Chargers

AFC Champs – New England Patriots

NFC East – Philadelphia Eagles                     NFC North – Green Bay Packers

NFC South – New Orleans Saints                  NFC West – Los Angeles Rams

NFC Wildcards – Atlanta Falcons, Minnesota Vikings

NFC Champs – Green Bay Packers

Super Bowl Champs – Green Bay Packers

MLB Game of the Week – Saturday August 25; St. Louis Cardinals (68-57) at Colorado Rockies (68-56), The Rockies have the worst television announcing crew, this is reason enough to pick the Cardinals in this one: 6 – 4.

Season to Date (31 -20)

ON THIS DATE – August 14, 1935; the Social Security Act was signed into law, ensuring some retirement income for all working Americans. Payroll taxes were set at 1%, for both workers and employers, on the first $3,000 of earnings.

ON THIS DATE PART DEUX – August 16, 1969

Woodstock, day 2 - Sat 16th Aug:

1:00 pm Country Joe

2:00 Santana

3:30 John Sebastian

4:45 Keef Hartley

6:00 Incredible String Band

7:30 Canned Heat

9:00 Mountain

10:30 Grateful Dead

12:30am Creedence Clearwater Revival

2:00 Janis Joplin

3:30 Sly Stone

5:00 The Who

8:00 Jefferson Airplane

DRIVING THE WEEK - If your calendar's looking a little bare, don't worry—everyone's is. Welcome to the August slump.

Monday: Earnings (Estee Lauder); World Mosquito Day, Chocolate Pecan Pie Day (you win some, you lose some)

Tuesday: Earnings (TJX Cos., Urban Outfitters, Kohl's, J.M. Smucker)

Wednesday: Existing home sales, FOMC minutes; Earnings (Target, Lowe's); Pecan Torte Day (big week for pecans, huh?)

Thursday: New home sales, Jackson Hole Economic Policy Symposium begins; U.S. tariffs on $16 billion of Chinese goods goes into effect; Earnings (HP, Gap, Intuit)

Friday: Durable goods orders, Fed Chair Jerome Powell is set to speak as the Jackson Hole Symposium continues, Pluto Demoted Day

Next Blog:  August 27: Thirty-Six, Jack Ass of the Month, Word of the Month

Until next time, Adios

Claremont, California

August 20, 2018

#IX-8-376

CARTOON OF THE WEEK – The New Yorker, Alex Gregory