August 24, 2015

In the Valley of Fire Café...


... you can talk about whatever you want.


Louis said...

Only God gets to talk about politics as physics. In related non-news, we will all die because we choose such poor leaders.

Bobby said...

I got news for you, Louis: we could choose great leaders-- even phenomenally great leaders-- and yet, still, we will all die.

Humperdink said...

"Nearly 7 million Americans have gone at least a year without making a payment on their federal student loans, a high level of default that suggests a widening swath of households are unable or unwilling to pay back their school debt."

The aroma of a bailout is in the air. Can you smell it? The government that encouraged you poor slobs to go into debt up to your eyeballs will come to your rescue.

Some might argue with unemployment rate at 5.3% there should jobs everywhere. Under every rock.

Of course, there were willing accomplishes to this fiasco in university financial aid offices across the country.

Adding to this, were the tuition increases at double or triple the rate of inflation. Some might see a bit of collusion here. Nah, could not be.

MadisonMan said...

@Humperdink: Free stuff. It's what gets people elected.

m stone said...

I disagree with claims of the dismal state of the US economy.

I just heard Josh Earnest declare that we are in great shape. He would never hand pick economy markers to make his case. GDP was just a silly omission.

Please, have some respect.

pm317 said...

Leap of Faith

Hagar said...

This picture can serve as a reminder that there is no such thing as "solid rock."
Especially where there are mines. Porosity is how the ores came to be deposited in the first place. That was with hot acids from below under high pressure, but today rain falls on the surface and percolates down - slowly, but surely - and eventually seeps out along the foot of the cliffs, or if you drive a mine tunnel into the rock, in the tunnel, and slowly runs out that way.

Now, if you become concerned about that, and aren't too bright, you may try to solve the problem by constructing a wall in the mine entrance and piling a lot of rocks up against it to hold it in place. After some years the water will then fill the empty mine tunnel behind and up into the rock, so that there is a substantial pressure head against the wall, and water begins to leak out again, through, or around the wall.

Now, if you become concerned about this and are really stupid, you will send a crew out with a backhoe to remove the rockfill against the wall without first making some calculations and constructing a suitable diversion channel and a detention pond to hold at least the estimated volume of the mine tunnel in case the wall blows out, which it most likely will, as several mine engineers have told you.

This is what happened at the Gold King Mine in Colorado.

Now, 3 million gallons of water is not a large amount as such things go - only 8-9 acre-feet, and ponds do not attract much official attention unless they exceed 10 acre-feet, which is why we typically design subdivision detention ponds to hold 9.95 acre-feet. You see them all around your town if you look.

The yellow color is just clay particles and rust, and not hazardous. The heavy metals, etc. released are much more concentrated than they would have been if they just had continued to seep slowly to the river, whether from the mine tunnel or the foot of the cliff, but the major trouble will still come from the agencies moving to protect their rear ends and justify their existence.

So in this particular case anyway, I think.
The sheer stupidity and incompetence displayed, however, that is something to think about.
It could just as well have happened at a much more hazardous site.

Humperdink said...
This comment has been removed by the author.
Hagar said...

Most people, encouraged by the media, think competence increases with the level of government in question. This is a fallacy. The relationship is inverse, which is natural when you think about it. The lowest level of government is your local municipal or county people who hear directly from you every day, and so can at least to some extent be moved to improve their performance. Also they generally deal with smaller matters that can be improved upon without too much trouble.

The Feds are the farthest away from personal criticism and control the big money where they can cause the really monumental screw-ups!

And no, they are not smarter than you or me; they just are the ones who applied for Federal employment when they first got out of school back when and have not learned a thing other than office politics since.

CR said...

Thank you so much for posting pictures of the Valley of Fire! I grew up in southern Nevada, and I spent many many hours playing on those red rocks as a boy. Your pictures bring back memories of the spare, surreal beauty of the place.

Birkel said...

I want to know if Brittney Griner is a "splooge stooge" according to Althouse.

Backstory: Griner's now-annulled wife announced her pregnancy during their marriage. Spouses in many states are automatically assumed the parent for purposes of child support, even when the pregnancy could not have been caused by the spouse (e.g. vasectomy or DNA tests).

Must splooge be involved in order for there to be a stooge?

David said...

Valley of Fire, meet Valley of the Shadow of Death (aka Wall Street.)

David said...

Nice post, Hagar. Clear and concise.

HoodlumDoodlum said...

RIP Aqua Teen Hunger Force.

Aunty Trump said...

Maybe somebody can help me here, what is the actual value of a stock? Isn't it the idea that someday Amazon is going to start paying dividends for example? Or is it the when Amazon finally fails, their assets will be sold off and the money realized then? Or is it that every company you buy is expected to be bought by some other company?

I really don't see why Amazon stock has any value at all, given that it probably isn't even printed on paper you could see to a recycling operation.

Not trying to bash Amazon in particular, I don't see why any company has any value without the realistic expectation that at some point it is going to start paying dividends.

traditionalguy said...

The biggest news in 20 years is that the flow of world Capital invested in China is crashing and burning as we speak. The reaction of capitalists will be to pull out and start investing in American stocks. They are seeking national borders again.

I blame Trump for everything.

Bobby said...


Dividends and the P/E ratio is definitely one (maybe the largest?) driver of stock price, sure. But you also see- especially with respect to companies heavily involved in emerging technologies- the desire of investors and stockholders for the company to forego dividends in favor of re-investing profits into research and development which, in turn, is supposed to be manifested in improved products that help the company to capture greater market share. The thinking there is that increased market share drives the stock price up high enough so that if/when the shareholder sells, their profit is realized in a much higher sale price. I guess that strategy only makes sense to the investor if the increased stock price outweighs the dividends that would have been realized over the years with the classic strategy.

Michael said...

A little panic on Wall Street today. Why? Because the Fed lost the chance to raise rates by 75 bps over the last two years? Because the Fed might raise rates by 25 bps next month? Because of China? A bit of all of the above, but most likely the market is atoning for the Feds failures. QE didn't work. Low rates haven't worked. The Fed is stuck unless they are willing to go negative rates which is not impossible. If you wish to stash cash at JP Morgan, for example, you will have to pay them. They had to go up two years ago so they would have a place to go if things cooled off. They didn't and they don't unless they want to go negative. But the economy, sluggish as it is, is not backing up and earnings are not collapsing so I would predict a week or so of bumps before it smooths out. Tighten seat belts but don't sell, whatever you do don't sell. Buy if you have the balls.

Ignorance is Bliss said...

tim in vermont said...

Maybe somebody can help me here, what is the actual value of a stock?

For most investors, for most stocks, the value is what you expect to be able to sell it for in the future. ( Just like a dollar, which you value because of what you expect to be able to buy with it in the future. )

For companies that pay dividends, the expected dividends are part of the value, but the amount that you could resell the stock for is still the biggest factor.

And, of course, the value of the underlying assets does set a minimum, if the stock drops too low someone will come along and buy up the company, either as a merger or to sell off the parts.

Aunty Trump said...

I am not curious about what drives stock price, I am curious about what value stocks have. It seems it is all psychological. At least I can make a piece of gold into a piece of jewelry, or grow trees on land to later cut down and sell. I guess I am just stupid. It seems like there is no expectation that companies are every going to pay out their profits to their shareholders. Does Google? Does Apple? Do they ever expect to pay dividends that would match their stock price?

Michael, you might want to have a look at the "Gambler's Ruin"

One meaning is a gambler with finite wealth, playing a fair game will eventually go broke against an opponent with infinite wealth

That's assuming that the game is fair!

Gahrie said...

Because of China?

If China tanks, who is going to lend us $500 billion to $1 trillion a year?

You think things are bad now.....

Aunty Trump said...

But the meaning of Gambler's Ruin that I was after was

A gambler who raises his bet to a fixed fraction of bankroll when he wins, but does not reduce it when he loses, will eventually go broke, even if he has a positive expected value on each bet

Birkel said...

The value of stock has traditionally been viewed as you suggest: the discounted value of the future dividend stream. The person who buys your stock should only pay, in this view, the discounted value of the future dividend stream at some future date.

In the last few years, finance PhDs have convinced themselves that the expectation of value by others in the market is the correct valuation. IOW, a thing is worth exactly what somebody else will pay for it, less transaction costs. In this way, the prices of stocks have become unmoored from dividends.

The question to ask, then, is whether a stock that will **never** pay dividends is worthless. The Answer: it is not worthless if somebody will pay for it.

And that seems irrational to me, but the math and logic are beautiful.

MadisonMan said...

For people who like Antarctic Ice. Link.

Aunty Trump said...

Maybe it is unreasonable to expect a stock to pay a dividend, since they will just get taken over by another stock who won't pay a dividend.

I just think it is unreasonable to buy a stock under those circumstances on the naïve faith that there will always come along a bigger fool to bail you out and it will never be you holding the bag when the game is up.

Ersatz money printed in the trillions as part of QE goes into ersatz "profits" on the stock market, that never face the test of backing a dividend check to "investors."

Meanwhile large investors pay huge premiums for microsecond advantages in trading execution speed. Why? So when they have evaluated the fundamental economics of the stock they want to buy, and have come to a sober decision on its value, they can get to market a millionth of a second before the next guy does the same thing?

No, the whole thing is a rigged game for the unwary refereed by the unscrupulous.

Aunty Trump said...

I am sure that beautiful math and logic would apply to tulip bulbs under the right conditions, or, to pick a modern and still running example, to the price of condos in empty buildings in China.

I guess the beauty of stocks as a scam is that one can never ever completely rule out the possibility that one day the stock will actually pay a dividend!

Aunty Trump said...

I guess there is always the possibility of selling your shares to somebody who takes the company private and that person starts cashing dividend checks. Who is going to take Apple private, or Google?

MadisonMan said...

But there are companies that pay regular dividends. For example, XOM (Exxon Mobil) pays $.73 for each share, quarterly. So if you have, say, 1000 shares, you get $730 every quarter. You might argue that's a poor return on the $68000 value of the shares.

If you want a cash stream, choose wisely. If the value of the Company goes up so you get money when you sell (or when your survivors sell), all the better.

I don't disagree that Amazon -- never issuing dividends -- is a bad choice. Why salt your money away in a company that may vanish? Or Apple, sitting on billions of dollars -- why not throw some back at the investors?

Aunty Trump said...

My question has always been what is this "value" of which you speak, and the answer always is, that there will always come along another person who is in thrall of the illusion that a piece of paper that does not issue checks, or issues very tiny checks, is worth real money.

I think the illusion is built on a faith that will one day be shattered. If I had 68000 to invest, I would buy land with it that one could grown corn on, and rent it to a farmer who would grow corn on it. Or something along those lines, but that kind of investment takes work, and clicking an icon to pick a stock is easy.

The easy way always leads downhill.

rhhardin said...

The stock price is the present value of all a company's earnings into the infinite future.

It's also the present value of all the company's dividends into the infinite future.

These two are equal.

You pay for management to decide where the best return on profits is at the moment, reinvestments into the business or payments to shareholders.

This is slightly distorted by tax incentives: young investors will prefer no dividends and old investors will prefer payments.

rhhardin said...


Aunty Trump said...

It's also the present value of all the company's dividends into the infinite future.

Which there is no reason to believe will ever be paid.

You pay for management to decide where the best return on profits is at the moment, reinvestments into the business or payments to shareholders

Yes, and of course there are zero perverse incentives in such an arrangement.

As long as the market is irrationally exuberant, it will appear by geometric logic to management that the correct course of action is to invest profits in the market, rather than to pay them to shareholders.

AllenS said...

Fewer and fewer companies are providing a pension for their employees. Most, I think, will contribute some of their money to match, or partly match, your contribution to your 401K. There will always be money going into the stock market because of this.

How unfortunate for young workers watching this sinking stock market. It's all they have for the future. They've figured out that they probably will only get a small fraction of the money they put into Social Security.

Eric the Fruit Bat said...

A weird thing just happened. She looked almost completely like a girlfriend I had a long time ago. Moved like her too.

What am I talking about? Did a Bing! video search for a certain kind of vintage porn and there she was among the search results. Was it really my ex-girlfriend? No, I really don't think it was. The similarity was very close but not perfect. Which is not at all to say that my ex-girlfriend would never have done porn because, yes, she would have. It's just that it wasn't her.

I'll have to keep looking.

Quaestor said...

Congress-critter from Milwaukee Gwen Moore accused Republican presidential candidate Scott Walker of “literally” tightening the noose around African-Americans Monday. Needless to say Gwen Moore is a Democrat.

pm317 said...

Is Trump only the guy talking about China and stock market plunge today?

Original Mike said...

"Maybe somebody can help me here, what is the actual value of a stock?"

What someone else will pay you for it.

rhhardin said...

As long as the market is irrationally exuberant, it will appear by geometric logic to management that the correct course of action is to invest profits in the market, rather than to pay them to shareholders.

Leucadia, in the early 2000's, wrote to shareholders that the market seemed to them to be way overpriced, and maybe the shareholders themselves want to invest in it, since everybody seemed to be making money, but it doesn't look good to management.

So they distributed a huge dividend, which counted as a return of capital taxwise. And of course the stock price dropped equally on the record date for the dividend, a net wash to shareholders.

Earnings equal dividends over the long term.

(It's a different management team now, after retirements, so past behavior is no guide etc.)

rhhardin said...

Companies that provided a pension are offering to trade a lump sum for the monthly pension, to get the liability off the books.

The problem is that they can't afford to speculate on interest rates. When they're this low, even prudently funded pensions are way underfunded. Current payments are more than the interest they earn on the fund they set up, and so are eating into the principal where they had planned for it not to.

Defined contribution plans are much safer for the company than defined payments. It transfers the risk to the employee, though; the slight upside being that it's easier to be inflation-proof than a defined benefit plan would have been.

Just invest in TIPS in your 401k. (Has to be a tax protected account or you'll owe taxes on inflation without being paid the money that inflated each year. I-bonds are a substitute if you're not in a 401k.)

RecChief said...

So...Hugo Awards (and No Awards)...Discuss

steve uhr said...

Sucks about Gordy Nelson. No reason to play your stars during preseason.

Michael said...

Tim in Vermont

I am not a buyer of dividend stocks, not usually anyway. On the other hand I did buy into a REIT stock that was beaten down a few years ago and I bought it cheaply. Stock tripled in price and management has raised the dividend along the way. At one point I was receiving 30% on my original investment before the stock gave up some of its gains. Still getting north of 15%. Highly risky and not recommended for most. I plunge on downturns. I buy when it makes me sick at my stomach to buy.

It sounds like you would be move comfortable being a lender than an owner and there are a lot of people in your category. Buy government bonds or corporate bonds (the latter if you trust there won't be another Obama repudiating your debt.) But be satisfied with the yield you are getting because the markets can still go against you.

rhhardin said...

Maybe somebody can help me here, what is the actual value of a stock?

Present value of all future dividends, and present value of all future earnings.

If you can calculate that right, you can always make money in the market.

Alas there are unknowns.

Birkel said...

That is decidedly not what the finance PhDs are taught (and are teaching) today despite the clarity of that position.

rhhardin said...

Ellen Page _Juno_ was an entertaining DVD, since she's in the news.

She has many good lines.

Good writers, but good delivery too.

Just accept that actors are leftists and enjoy the output.

Laslo Spatula said...

The Crash is being brought about by all the enrolled Chinese Investors that just got exposed in the Ashley Madison mess.

Tell me I'm wrong.

I am Laslo.

Unknown said...

Walker wants Obama to cancel the state dinner with China next month. That will help resolve the economic mess.

Walker is in over his head.

Guildofcannonballs said...

Why does there have to be one value of a stock?

The market, billions of actors potentially, determines a value which is always fluctuating but measured at a single point in time by the price it was sold for.

Why should a stock like Apple not achieve higher prices, based on nothing but hype and conspicuous consumption, if fanboys believe value is there with their wallet?

Why are genuine antiques on that PBS show worth more than modern copies, even if the modern copies are in better condition?

Is it rational to consider humans rational when valuing something?

Guildofcannonballs said...

"Sucks about Gordy Nelson. No reason to play your stars during preseason."

Of course not, that is why all the fools coaching in the NFL do it, because there is no reason. These players are professionals for crying out loud, they don't need practice against peers.

It is 2015, how about using a simulator or creating bionic, indestructible bodies?

Because black?

Michael said...


"Extraordinary Popular Delusions and the Madness of Crowds"

Highly recommend.

Birkel said...

Has Scott Walker lost the coveted Steve Uhr endorsement?
Oh, my stars and garters!!

Humperdink said...

I just had the chuckle of the day when an above commenter said "Walker is in over his head".

With the current resident of the White House, that statement cannot be said about any of the current candidates, unless the the peanut farmer from Georgia tossed his hat in the ring this morning.

Unknown said...

Biden/Warren = Dream Ticket

Anonymous said...

"Biden/Warren = Dream Ticket"

Yes, if you've fallen asleep after having ingested gobs of LSD.

Birkel said...

Biden plagiarized his own life story.
Warren faked her own genealogy.

I can see why Democrats swoon.
After all, the Big Lies won't tell themselves.
Because: collectivism.

Birkel said...

And power.
Cannot forget the Will to Power.

Michael K said...

"If China tanks, who is going to lend us $500 billion to $1 trillion a year?"

No problem, we have been printing the money for years, We buy our own debt. Don't you believe in perpetual motion machines ? What are you a Republican ?

My own opinion ? We are screwed !

Drago said...

Steve Uhr: "Walker wants Obama to cancel the state dinner with China next month. That will help resolve the economic mess. Walker is in over his head."

Walker claimed that cancelling a state dinner with China would help resolve the economic crisis?


Let's just take a closer look at the basis for that comment.....

Now that I'm back, it's clear that Steve Uhr, when commenting about current events, is over his head.

Why does Scott Walker want to cancel the State dinner for the Chinese?

Snip: "Given China’s massive cyberattacks against America, its militarization of the South China Sea, continued state interference with its economy, and persistent persecution of Christians and human rights activists, President Obama needs to cancel the state visit,” Walker continued. “There’s serious work to be done rather than pomp and circumstance. We need to see some backbone from President Obama on U.S.-China relations.”

Well, that certainly makes alot more sense than the false impression Uhr was attempting to leave.

AlanKH said...

Who would be the ideal nominee to take on Biden?

The ideal veep nominee to balance Warren is obvious - Bobby Jindal. Bring on the Indian jokes!

Bob Ellison said...

Yes, Hagar, good post RE: the inverse correlation between competence and authority in government.

There is a similarly counter-intuitive correlation in computer software: the more you pay for it, the buggier it's likely to be. Android, iOS, and the apps that run on them tend to be nearly bug-free, because the vast numbers of users won't put up with bugs. But if you're running a multi-million-dollar server doing something seemingly specialized and complex (like, it's likely to be riddled with bugs, some of them disastrous, because the clients are few, the specialized customer service is high, and the engineers who make the software demand, and the clients who buy it accept, ridiculous explanations for the bugs.

Hagar said...

All government construction needs to be built to Government Specifications ("Holy Writ"), but government specifications tend to run at least 30-40 years behind the times, so it is all special order and expensive, and often does not work as well as the modern civilian stuff.

Rusty said...

"If China tanks, who is going to lend us $500 billion to $1 trillion a year?"

A lot of that money will come back as investors look for value. Look for Chinese to be buying a lot of our surplus real estate. Actually anyplace they can store cash.

Bob Ellison said...

The best investment right now is the US dollar.

Aunty Trump said...

Is it rational to consider humans rational when valuing something?

I think I get it now. There is a ton of money that people have saved or has been printed in excess of what the economy can use in its day to day operations. This money has to go somewhere. Everybody has agreed that they would put this money in stocks and follow an arcane and highly ornate set of rules to value this stuff. It is driven by supply and demand, like everything else. When a company is truly worth its stock price or more, somebody takes it private or sucks it into another company as a cash cow.

It's necessity and faith. People need to be able to buy investments like TV dinners because they don't have the time, energy, or know how to invest any other way. This is where the demand comes from. Makes perfect sense now. That's the value of a stock.

Present value of all future dividends, and present value of all future earnings.

Earnings that will never be paid to shareholders plus dividends. Sure. Makes perfect sense. Not a postulate of a belief system at all whatsoever.

Bob Ellison said...

tim in vermont, that's close to the basic fallacy of leftism.

Aunty Trump said...

I would be interested to hear a further explanation of your point. My point was that I didn't understand the value of stocks. Now I do. I really wanted to work through it.

Aunty Trump said...

It's a way to capture some of the money that is being printed by the Fed as "QE."