Money Magic

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I enjoy games of chance. I’m particularly fond of casino scenes in movies—tuxedos for men, slinky dresses for women, slow-burning cigarettes, and dry martinis all-around. In real life, casinos are about as alluring as a mud bath. In Europe, for example, you’ll find a casino in every sleepy spa town—massages and “water cures” are meant to give a virtuous sheen to otherwise seedy places. Not a Daniel Craig—or even a  David Niven in sight.

The luck factor is probably one of the reasons I’m interested in stock markets too. There are many other things I’d rather do than actually work for money.  Just pick a winner and off to the races we go! (Of course, it never quite works out that way—darn gravity.)

Sleight-of-hand is not only found in Monte Carlo casinos though. It’s alive and well in many corporations. This past week, quarterly results have started to trickle in. You can get an eyeful of some pretty nifty accounting in their filing reports.

I’ll admit that I’ve tortured myself in many ways: self-doubt, bikini waxes, watching two episodes of Vinyl…but I have yet to savor what is sure to be the retina-frying experience of exhuming a financial statement. When the quarterlies arrive at the door, I immediately deposit them straight into the recycling bin. Warren Buffett may have the patience to pick through financial statements with his mental tweezers; I would rather watch Casino Royale, or paint dry.

Here are a few common sleights-of-hand:

Share buybacks. When corporations buy their own shares it reduces the number of shares outstanding and it makes metrics such as cash-flow-per-share and earnings-per-share look much better than they otherwise would.

Extraordinary items. The “footnotes” section of the annual report is a dumping ground for all kinds of juicy expenses, some of which may be on-going. Items such as restructuring, acquisition, severance, write-downs of impaired assets, and data breaches all have an impact on profitability but are often shooed-away, (“don’t worry your pretty head about these darling”), as non-material.

Lower tax rates. While this is not accounting trickery, per se, by moving a company’s domicile to a low-tax country, such as Ireland, a corporation pays less overall tax. This gives their earnings a rosy hue. But these better looking numbers may have nothing to do with improved earnings through actual growth.

So, how good are today’s corporate earnings for reals?

Some investment brainiacs say that deflation is not out of the question. So, unless you’re James Bond, here’s a hot tip: don’t throw all your chips in.

Prince

A few months ago, Prince performed for two nights in my home town. It had been decades since I had seen him in concert. My heart did an extra bump. “I should get tickets!”  And then I did nothing about it. “It’s probably already sold out; scalpers tickets would be a fortune; I’ll skip it this time.” He came and went.

Little did I or anyone else know that there would be no more “next times”. Prince had taught me many important lessons. One of them was to “party like it’s 1999”. I had forgotten that one, and many others, as time passed and  I grew more serious.

When his film Purple Rain came out, I went to see it without any big expectations. Two hours later, when I walked out of the theatre, it felt like my DNA had been rearranged. (The other two times this happened was when I first saw Cher on television and when I heard Queen’s album Night at the Opera or Day at the Races, can’t remember which but instantly fell under Freddie Mercury’s spell. That white unitard, c’mon! Yes, I am secretly a gay man.)

Fortunately I look good in purple. Because, after watching Purple Rain and then buying up all Prince’s albums, I wore a lot of it for the next decade. When I wasn’t dancing myself into a sexed-up sweat to his music, I studied his lyrics for wisdom, (“If the de-elevator gets you down, punch a higher floor”). And, yes, I imagined making love to Prince under the barn roof, the horses wondering who we were, thunder drowning out what the lightening sees and feeling like a movie star. (By the way, another one who died too young,  Warren Zevon, did a stellar version of Raspberry Beret.)

Prince came into my life at just the right time. He offered up a heady mix of spirituality and sexuality and a joyful but not too innocent embrace of life. Just what a young, frisky, and a little bit soulful girl wants to hear.

Like any passionate love affair, this one was programmed to burn out. His music still moved me but I no longer sought it out. My purple wardrobe—satin jacket, suede ankle boots, sequin scarf, rabbit hair fedora, and sparkly pantyhose—had long ago been disbursed to vintage shops and charity drives. Whenever I remembered some of my fashion get-ups from that time, I had to shake my head. Did I really walk around all pimped out like that? Prince and I were exactly the same height, (actually I’m half-an-inch taller), but whereas he looked cool with his sleek black pompadour, I probably looked ridiculous with my frizzy red hair and rosacea cheeks.

I’m sorry I didn’t bother to get tickets to see Prince when he was here last. I thought I had all the time in the world. Tomorrow there’s a screening of Purple Rain at my neighborhood rep theatre. More than three decades have passed since I saw it. I’m not that girl anymore. And Prince is gone. I’ll wear a purple flower in my lapel. Thank you Prince. R.I.P.

Pop Life

C Balloon Dress

What’s it going to be—inflation or deflation? Everyone has her own opinion and there’s a good case to be made for either outcome. Governments have been printing money for some time now. According to the recent investment letter from Francis Chou, money printing is growing at an annualized rate of 7.2 percent. Extra low interest rates are causing asset bubbles in real estate and some equities. Fair-to-middling companies with decent dividend yields are in high demand, jacking up their share prices accordingly. Some government bonds carry a negative yield, or, in other words, you pay to invest in them.

On the other hand, you don’t have to be an economist to see that global growth is ticking down. China’s ghost cities, Canada’s woeful oil and gas sector, Brazil’s fiascos, India’s dubious GDP metrics. The U.S. is growing but ever so gingerly. The world is a different place than it was in 2007. It will take some time to absorb the excess supply of commodities. And, then there’s the aging demographics in North America and Europe that could potentially put the brakes on business start-ups, spending and investing. When the inflation rate is less than zero, hello deflation. Deflation is accompanied by high unemployment levels, low prices, and reduced private investment and government spending. Once a region dips into deflation it’s like swimming in a sea of molasses. Japan floundered for a decade.

At a recent lunch hosted by Burgundy Asset Management, I cornered one of their investment honchos and posed the inflation/deflation question. He felt that deflation is the bigger short-term risk. However, others say that, longer term, inflation is not out of the question to absorb all that printed money. (Longer term can mean a decade or more away.)

In his annual letter to shareholders, Chou recounts Sir Winston Churchill’s skirmish with MP Bessie Braddock. During one of Churchill’s benders, Braddock told him, “Winston, you are drunk, and, what’s more, you are disgustingly drunk.” Upon which Churchill replied, “My dear, you are ugly, and what’s more, you are disgustingly ugly. But tomorrow I shall be sober and you will still be disgustingly ugly.”