Let’s look at the cradle of democracy, shall we?

The Greeks have been basking in the reflected glory of those halcyon days of early Athens when the Aegean sun shone brightly for them.  The problem is that they have been basking for far too long and now it’s time to pay the piper…or the troika…as the case may be.

As you probably know, the “troika” is comprised of those bothersome bureaucrats from the IMF, the ECB  and the EC…also known respectively as the International Monetary Fund, the European Central Bank and the European Commission.

The troika is due to return to Athens in September to make a ruling on whether to release additional funny money to Greece.

To make matters more complicated still, during September, the Greek parliament will have to pass a number of measures to generate €11.5 billion in savings for 2013-14. With a high degree of austerity fatigue in Greece, we can expect social unrest.  It’s been a quite summer but there is nothing that flares tempers more around the Mediterranean and Aegean seas than a hard dose of austerity.

If the troika decides not to play ball, then Greece would default and exit the EZ. The Greek government aims to renegotiate the second bailout program when the troika returns to town so that they can kick the austerity (and riot) can down the road.

Basically, they will say…

”Listen guys (and Angela), things have been tough but we’ll get there. We always do.  We’re Greeks.  We’re the founders of democracy.  You can count on us.  We just need a couple years’ more than we first thought.  But if you can give us an extra 2 years, we’ll get the deficit down to 3% of GDP for sure.  We just need more time”.  

Doesn’t it remind you of that guy being shaken down by the mobsters who are threatening to break a leg or two.

The problem with Greece is that despite their protestations, they have a dubious history when it comes to paying their debts.

They were bailing on their bills as far back as the 4^th century BC. In fact, they’ve defaulted at least 5 times in the past 200 years or so.  And it’s not just Greece.  Plenty of governments have defaulted over the centuries. It’s what they do.

But if the troika plays hardball and does not grant the Greek government any concessions, then the governing coalition will probably collapse and it will be “Sayonara Eurozone”.

So it’s probably reasonable to expect some more fireworks from the birthplace of democracy / bastion of bailouts over the coming month.

Next stop…Italy.  O mama mia!

We know the national debt is approaching 16 Trillion (with a capital “T”) and we know that the Federal government continues to print and spend like drunken sailors on extended shore leave but please take a moment to review this excellent piece of writing which puts all this spending in some context that we might be able to appreciate.

Fact of the matter is that the government is spending our money (remember, the government has NO money of its own) at the rate of $120,000 per (wait for it) second. Yes…you read correctly…per second.

So in the time it took us to prepare and type these two paragraphs…roughly 2 minutes…the government spent $14,400,000. Woops…by the time we typed that number, another million just slipped away. There goes another…and another. This is lunacy.

Check it out, if you dare.

http://thestrangestbrew.com/?p=377

If this link does not work perfectly, go to thestrangestbrew.com and look for $120,000 under featured articles. It will be worth your while.

So let’s think about this for a moment and try to figure out how we can continue to race along at $120,000 per second.

According to the IRS, the number of people with adjusted gross incomes exceeding $1,000,000 in 2009 was around 350,000 out of a total of 140,000,000 tax filers (0.08%).

Let’s say we taxed all those horrible millionaires at say….100%…yes, we’ll show those rich fat cats who’s the boss. Of course, some will make more than $1mill but for the sake of argument, we’ll collect $1mill from each of them…you know…as a one time, public spirited act of charity to eliminate the debt. They all have plenty of money..they’ll barely miss it.

Examining the math, it looks like:

350,000 fat cats x $1,000,000 = $350,000,000,000 (a nice tidy sum)
$350,000,000,000 / 120,000 = 2,916,667 seconds
2,916,667 seconds / 60 = 48,611 minutes
48,611 minutes / 60 = 810 hours
810 hours / 24 = 33.75 days

So, even if we taxed all those dastardly millionaires a million bucks each, we would only raise enough stolen funds to keep the government going for just over one month.

OK…let’s go after the corporations as well…they have lots and lots of money and we know how greedy they are.

We’ll take a look at one of our Craven Capital Fortress Portfolio favorites, Exxon Mobil, for example.

In 2011, ExxonMobil’s total tax bill was an $104.52 billion. Breaking that down in reverse, that works out to $286 million in taxes every day, $11.9 million in taxes every hour and $200,000 every minute. A lot of money to you and us but chicken feed when you need more than half of that every second. Ouch.

The point of this story is that the spending…and therefore the debt…is unsustainable.

Check out this link for one retired accountant’s view of our debt dilemma. Unlike politicians, numbers don’t lie.

Remember, the government has no money of its own. It can only take from others. As Margaret Thatcher once famously stated…

“The problem with socialism is that eventually, you run out of other people’s money!”

We suspect that we may well run out sooner than we think. Invest accordingly.

What is the stock market anyway? 

In it’s pure essence, without all the associated mystery, it’s a mechanism for valuing stuff and a place to buy and sell that same stuff. 

Just like a fish market, except less honest, less healthy, less efficient and less fun…but maybe just as odorous much of the time.

The only difference is that the stuff being valued, bought and sold on the stock market are the shares of the companies which choose to publicly list on the various exchanges.  Substitute paper for tuna et voila…  the stock market, in all its smelly and sardonic splendor!

So what is something worth?

Well, whether it’s flounder or Facebook, it’s whatever we think it’s worth and are prepared to pay for it. 

Think about it for a moment.  Sometimes we are in a great and generous mood and a $17 glass of wine sounds like a fine idea. 

Other times we are feeling not so flush, our biorhythms are out of kilter, the morning coffee has worn off and we are quibbling over whether we should buy the $8 bottle of yellowtail, which is now on sale for $5.95. 

The market is the same.  Some days, Mr. Market is overly generous in his assessments, while on other days, he is tight as a drum. 

Either way, we don’t care.  We recognize Mr. Market and his mood swings for what they are.  We like him when he is wildly exuberant.  We adore him when he is morbidly depressed.  It’s his wishy-washy , indecisive side we can do without…so we ignore him on those days.  

So, it’s the times when he is at his manic best, that we like him the most…because he gives us opportunities to do what we like to do…make money.

You see….at Craven Capital, we like businesses.  We like good management.  We like free cash flows.  We like solid and consistent earnings. We like capital efficiency.  We like deep and broad moats.  We like dominant market positions.  We like steady and secure dividends.

In other words, we like companies that we believe will pay us for investing in them. 

The fact that they are listed on the major exchanges and are therefore at the mercy of Mr. Market’s capricious personality, invariably gives us the chance to buy the companies we like at prices that are not necessarily reflective of their true value.   This can be a very good thing.  And once we own the companies we like, Mr. Market’s moods help us to make more money by selling him call options when he is wildly excited and  put options when he is morbid and fearful. 

So let’s raise a toast (Stags Leap or Yellowtail…your choice) to Mr. Market.  May he never discover the benefits of deep sleep, meditation or yoga. 

Maybe Mr. Market is having a spot of irrational exuberance after Friday and Monday.  Why, you might ask…well…because a lot of his enthusiasm is based on Friday’s unemployment numbers and because a large portion of the 163,000 new non-farm jobs reported are temporary  and likely to disappear as quickly as they appeared.

There was a surge in food service and other hospitality positions, which have a propensity to be temporary because many of these jobs come from industries that generally benefit from summer vacation season.

Food and drinking establishments boosted hiring by 29,000, while temp services jobs increased by 14,000, which some see as a good sign.   Education and health care added 38,000 but one can argue that the health care jobs anticipate Obamacare and its future is surely dependent upon the outcome of the elections and therefore certainly not a lock.  And finally, information services jobs related to motion picture and sound studios grew 11,000, presumably related to the billions being spent on said upcoming elections.  Those jobs will likely disappear too.

In the meantime, consumer spending is flat while savings seem to be growing.  I guess not everyone believes in adding more debt to their balance sheets.  Shame on them!

But who cares, the market loves it and that’s all that matters.  Or is it.  Let’s take a look at what the market really is…tomorrow!