Tuesday, January 16, 2018

THE PRAIRIE EDITOR: The Stock Market

[NOTE: Nothing in this article should be interpreted as
a recommendation to buy or sell any individual stock, or
to invest or disinvest in the stock market or any speculative
market.]


I have been “playing” the stock market since I was a young
teenager. I invested in common stocks and used techniques
such as puts and calls. At one point, and relatively briefly,
I was in commodities, I had an excellent technical economic
education in the time I attended the Wharton School of
Finance and Commerce. But please believe me, I am not an
“expert.”

I did learn a few things over the years. One was the value of
being a “contrarian” --- that is, the general technique of
doing the opposite of what most others are doing. It’s not
infallible, but it’s a very useful tool in investing --- and in
political commentary, as I have learned. In fact, it’s an
important insight into human behavior in general.

We are now in a very “bull” (upward) moment in many of
the major stock markets. Those who think a “bear”
(downward) market is imminent are issuing dire warnings
of either a major downward “correction” or an apocalyptic
market collapse. Whom are you to believe?

Let me go back to my very first class in finance at the
Wharton School many years ago. The professor opened
that first class with the statement:

“You will learn a lot at Wharton about the details of
economics, but I want you to remember this simple rule:
The price of a stock is the anticipation of future earnings,”


Since those days in the 1960s, public investing has become
very complicated with various new market techniques such
as derivatives, cryptocurrencies (e.g., bitcoin), new
commodities, etc. There were no computers, no cell or
“smart” phones, no cable TV programs. But my Wharton
professor’s simple rule still holds as a fundamental truth
in free market investing.

Over the years, I have also learned that stock markets
almost always over-react in the short term on both the
upside and the downside. I remember speaking with my
savvy stockbroker on the afternoon of Friday, November 22,
1963 after the market had been prematurely closed and had
taken an enormous tumble. “Buy on Monday morning,” he
told me. I was too shocked by Dallas, and too young, to do
anything, but sure enough the market quickly recovered on
Monday.

On the other hand, stock markets in the intermediate term
(six to nine months) are often good predictors (barring
shocking events) of the general economy. The problem is,
of course, that we live in a time of frequent shocking events.

When Donald Trump stunned the nation’s pundits, and the
world, in November, 2016, the markets went briefly down.
But when the stock markets realized that President Trump
and the Republican Congress were likely to provide relief to
the economy and unemployment, the market recovered.

Until the tax bill was passed and became law, the market
hesitated. Once this legislation was in place, the market
has been soaring. The sum of investors now had concrete
evidence to believe that future earnings would go up.
Numerous companies promptly gave out bonuses to
employees. Corporate earnings held abroad (to avoid U.S.
tax penalties) began to return, There are expectations
that most U.S. employees will be soon receiving larger
paychecks. Unemployment continues to go down.

Does this mean the stock markets will continue to go up?

The markets now await new corporate quarterly earnings
reports. If those reports show increased earnings, barring
the unforeseen, bullish individual stocks will likely go up
(and stocks that do not show increased earnings will go
down). It’s a game of expectations. Corporate earnings
might go up, but if they are less than analysts and the
companies themselves predict, the stock might go down.
Earnings for the current quarter might be as good or even
better than expected, but these days, corporations also
make public predictions about future quarters (based on
sales or other projections), and if those are not what is
expected, a stock might actually go down despite the
short-term good news. Some industries or sectors also are
more or less favored by many investors, and multiples of
earnings per share can very widely for those stocks or
other investments which reap the attention of speculative
favor or disfavor. Some high-tech stocks have higher
earnings-per-share multiples because investors see higher
earning coming likely later, while some other stocks have
lower multiples because notable growth is not expected.

Peter Drucker, the wizard of management, wrote a book in
1976 called The Unseen Revolution in which he was among
the first to recognize the growing impact of pension funds
on the economy. He argued that the total investment of
workers’ pension funds in the stock market was so large
that it represented a kind of socialism, but he did not fully
take into account the distinction between stock ownership
and corporate control. Nor did he then know about the
immense  growth of personal IRA and 401-K funds that
would make up a major part of most individuals’ net worth.
Corporate pension funds have since declined. Government
and public sector worker pension funds, in many cases, have
became alarmingly underfunded. It is a very serious and
ongoing crisis. But the IRA and 401-K funds continue to be
the basis for most Americans' net worth.

The stock markets have not only an economic impact.
they have a political impact as well. Major advances in the
stock market create economic and political confidence
through increased individual net worth; major declines
disrupt that confidence.

There are many other critical factors is the movements of
markets. Supply and demand, inflation, emotions, stock
buy-backs, net asset value, impact of taxes and regulations
are among them. But the fundamental factor remains investor
anticipation of what the investment will earn.

For the moment, most investor sentiment is generally
positive. But, as we know from economic history, that can
change, and if investors think future earnings will go down,
the impact on the stock market could be dramatic.

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Copyright (c) 2018 by Barry Casselman. All rights reserved.

Saturday, January 13, 2018

THE PRAIRIE EDITOR: Dining Futures

I think it might be a good time to take a brief break
from the politics which will soon enough again fill our
news venues with heated headlines and speculation.

Perhaps a good alternative, and a topic always of some
interest, are the places we go to dine out.

Many years ago, I published a local newspaper in the
Twin Cities. I put my best efforts in reporting about local
politics and in writing serious editorials about the issues
of the day. One afternoon, after having written occasional
articles about food and local restaurants. I received a
phone call from one of the local daily papers inquiring if
I would become their regular food critic. Initially flattered,
I gave it some thought, but concluded that if I were to write
about dining, I should do it for my own publication. My
restaurant column turned out to be much more popular
than my editorials.

I thus began a decades-long pen name pastime of writing
about food.

Today, the restaurant industry is a major part of
American commercial and cultural life. No longer limited
to the cities of New York, Boston, Philadelphia, Miami,
Chicago, New Orleans, Los Angeles and San Francisco,
serious dining out in the U.S. now reaches every city and
even many small towns.

The dining out “boom” of recent years, however, is now
going in new directions. Non-professionals often have a
romantic view of opening and running a restaurant, and
many did just that --- only to discover that preparing and
serving food to the public is a very tough and demanding
occupation. Even restaurants run by great chefs and savvy
food professionals usually have a limited life span. Most of
the great dining rooms of the recent past no longer exist.

I noticed just in the past year or so, several new Twin Cities
dining establishments opened --- and closed --- within a few
months. The demand for fresh and high quality meat and
produce has kept food costs very high, and the old model of
restaurant employment has often become untenable as
mandatory minimum wage, paid leave and other employee
benefits have exceeded the capability for many restaurateurs'
ability to make a profit.

So now many new restaurants now opt for large spaces,
communal seating, and counter food ordering with a reduced
wait staff delivering counter-ordered (and paid-for) food items
to the table. These are mostly relatively high-end restaurants,
not of the fast-food variety. Very high-end new restaurants
which attempt to maintain the traditional hospitality
amenities and services simply have to charge very high prices,
but their audience is limited to expense accounts, special
occasion diners and the very affluent. 

In addition to large spaces serving many diners at the same
time, an additional economic solution is to make a restaurant
more than just a site for a meal but also a destination for
a variety of food experiences.

This variety is usually idiosyncratic --- as is the case of three
Twin Cities restaurants, two in Minneapolis and one in St.
Paul that I will discuss as emblematic of contemporary
restaurant innovation.

In Minneapolis, LYNHALL recently opened as the vision of
attorney Anne Spaeth on a main thoroughfare in a southside
neighborhood where many other new popular bistros have
appeared in recent years. It also is very much a residential
area with many younger tenants and homeowners who are
likely to go out to eat with some frequency, and who live at
walking distance. Lynhall has a very large space with lots of
communal tables. It serves breakfast , lunch and dinner with
counter service only. Ms.Spaeth has hired top local chefs for
her kitchen. Lynhall has its own bar, bakery and coffeehouse,
and serves well-made imaginative breakfasts, soups, salads,
appetizers, sandwiches, entrees, side orders and lavish
desserts. It does much takeout business.  Uniquely, Lynhall
has its own state-of-the-art video recording studio with
tables and seating that can be leased by chefs, groups and
companies for presentations, videos, food training and
private parties. The quality of food preparation at Lynhall is
quite good, with prices slightly on the high side, but it has
its own parking lot, on-street parking is plentiful, staff are
friendly, and no special taxes are added (as they are in
downtown and other near-downtown areas). Most of the
food items, including a variety of rotisserie meats, are
displayed, and portions are generous. The result is often a
friendly, delicious, affordable and original dining experience.

Across the river from downtown Minneapolis, chef-owner
Alex Roberts has created his own version of the new dining
destination at Restaurant/Cafe/Hotel ALMA in a university
residential area. Chef Roberts is a James Beard award-winner
for his outstanding culinary work at Restaurant Alma, a prix
fixe dinner-only kitchen featuring innovative local fresh foods
and fine wines. It has been consistently rated one of the top
dining rooms in the state and the region. It is also predictably
expensive --- a dinner for two with drinks, multiple courses,
wine, desserts. taxes and tip will likely cost more than $200.
Chef Roberts  is also an entrepreneur who wanted his kitchen
to be more than fine dining for a few, so he took over his whole
corner building --- converting the second floor to a charming
boutique hotel with seven rooms, and replaced a local
coffeehouse on the corner by converting it to an adjoining
cafe serving breakfast, lunch and dinner at more affordable
prices. The Cafe Alma menu is not large, but all the items  on
its menu are distinctive and have the touch of a James Beard
chef. Prices, as they are at Lynhall, are slightly on the high
side, but significantly less than in the main dining room
Service at Alma is among the best in the Twin Cities, with
the wait staff and baristas always welcoming and
well-informed. The hotel is the perfect spot for visitors
with a car who want to avoid the traffic, hassle and expense
of downtown, Room rates come with a delightful breakfast
from the Cafe. The location is central to all the Twin Cities
sights, and the pro sports stadiums are nearby. Excellent
municipal buses service stops in front of the Alma building.

In St. Paul, Italian food impresario Dave Cossetta took his
grandfather’s tiny Italian grocery and transformed it over
time to a near-downtown location --- and one of the largest
food destinations in the state, featuring a popular Italian
cafeteria, its own Italian bakery, the most lavish pasticceria
between New York and San Francisco (and rivaling ones in
Rome, Milan and Florence), a high-end sophisticated
Italian steakhouse, and the largest Italian deli in the area.
A third-floor open air patio is a busy summer watering
hole. Nearly all the foods are prepared in-house, often from
recipes of well-known chefs brought over from Italy to train
COSSETTA’S kitchen staff. The restaurant has its own large
parking lot. Cossetta’s is a very memorable experience.

These are three very original versions of the new restaurant
as destination. What isn’t new about them is the high quality
of the food preparation and service. Changing economic
conditions and food trends demand new ideas in dining out,
but great food well-served is still the very bottom line.


[NOTE: In full disclosure, one of the three restaurateurs
above is a total stranger, one a neighbor acquaintance, and
one someone I’ve known for many years.]


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Copyright (c) 2018 by Barry Casselman. All rights reserved.

Tuesday, January 9, 2018

THE PRAIRIE EDITOR: Opening For Oprah?

The media swoon over the possibility that TV megastar
Oprah Winfrey might run for president in 2020 will pass,
but it should not deter us from making some valuable
observations about the now unfolding U.S. political
environment of 2018 and immediately beyond.

First, the Democrats have no credible leadership “bench”
(a term from competitive sports) ahead --- other than
some aging men and women now in their early to late 70s.

Second, Republicans and conservatives need not throw up
their arms in feigned shock. Donald Trump was no less a
TV celebrity in 2015 --- and far less popular than Ms.
Winfrey is now. The Donald did have a successful business
career as well, but so does the celebrated Oprah who rose
from poverty to become a major media tycoon in her own
right.

Third, Ms. Winfrey is apparently mainstream liberal, and
has already been denounced by the Bernie Sanders wing of
her party as not radical enough to lead the 2020 ticket.
Should she indeed run, it would likely not be an easy
coronation, but instead it would likely be a down-and-dirty
primary state-by-primary state battle for control of her
party and its presidential ticket.

Fourth, we don’t yet know where Ms. Winfrey stands on
many if not most of the controversial issues of the day.
Her liberal social views might be known, but most of her
economic and foreign policy views have yet to be aired.

Fifth, if the 2016 campaign taught us anything, it is not to
dismiss prematurely a celebrity candidacy, especially such
a well-known, well-liked personality as Oprah Winfrey.

On the other hand, should she take the current media
swoon to the next level, Ms. Winfrey has to make some very
hard choices. As I have said, she could not win her party’s
nomination without a likely bitter fight that would
microscopically examine her personal and business life.
At some point, once she made a decision, she would have
to remove herself from her entertainment business on the
air. Once a candidate, she would have to submit herself to a
punishing schedule of travel and appearances. Most of all,
she would have to transform her show business acumen into
smart political strategy and choices --- while at the same
time surrounding herself with savvy advisors.

It can be done. It has been done. It would be a fascinating
match-up in 2020.

But for now, it is more of a revelation about the political
leadership vulnerability of the Democratic Party.

Let’s see where the inevitable political second-thoughts
take this story.

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Copyright (c) 2018 by Barry Casselman. All rights reserved.

Thursday, January 4, 2018

THE PRAIRIE EDITOR: In Only One Week.....

To give us perspective on the rapidly changing U.S. political
landscape, we need only look at the past few weeks, and
especially, this first week of the new year.

Just weeks before, few if any expected that dean of the
U.S. senate, Utah’s Orrin Hatch, was actually going to retire
to make way for Mitt Romney; that a Democrat would win
the Alabama special senate election; that the chairman of the
senate foreign relations committee, Republican Bob Corker
of Tennessee, would decide not to run for re-election; and
that “rising star” Minnesota Senator Al Franken would be
forced to retire from office by his own party. Tax reform
legislation remained bottled up by GOP intraparty conflict
in both houses of Congress, and was seemingly going
nowhere before an end of the year deadline. Obamacare
repeal had failed, and the key coverage mandate remained in
place. Powerful Republican congressional committee chairs
and members seemed headed for re-election. Insurgent GOP
strategist Steve Bannon had acquired mythic status in the
media, and threatened to bring down several incumbent
senators of his own party. Hollywood was riding high both at
the box office and in politics. Media bias was rampant.

So much for conventional thinking.

Just the few surprises and reversals mentioned above have
significantly altered 2018 politics, presenting unexpected
opportunities for both Democrats and Republicans. But many
retirement and primary challenge decisions remain, and the
impact of the historic tax cuts is not yet known.

The dramatic recent changes are not limited to individual
and political party prospects. Profound new cultural standards
are being forged, and the lavish and excessive win streak of
the iconic Hollywood, media and pro football industries are
faltering by the missteps of some of their own in conduct and
public opinion.

We are only in the first week of the year. There are 44 weeks
until election day, 2018.

Surprises will keep on coming.

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Copyright (c) 2018 by Barry Casselman. All right reserved.