You Know It Is A Market Top When????

By Rob McCreary

Investors all have sure signs for market tops. Lately, the equity crowd is watching an inverted yield curve as a harbinger of recession and the inevitable market correction. Other savants point to the disconnection between the market movements of Facebook, Amazon, Apple, Netflix and Google and the rest of the stocks in all three equity markets. Private investors look at the excessive debt to capital ratios in private capital structures and the resulting spike in valuation multiples. Debt guys are spooked by a US central bank that is pulling liquidity out of the system by raising rates and shrinking the Fed’s balance sheet. Free traders bemoan the effect of tariffs on globalization and the possible return to trade cartels among regional trade allies. All of these are signs of something big, but they are too theoretical for me. I need something much simpler and closer to someone’s wallet to convince me it portends a certain market reversal.

Directors Are Buying, But Not With Their Own Money

A recent snippet in Barron’s, however, identifies a trend that I think is foolproof advice about the market top. US public companies have announced $835 Billion of stock buy backs so far this year after $810 Billion in all of 2017. Barron’s thinks the buy backs could exceed $1 Trillion before the year is over. By itself the buy backs are bullish– the Boards of Directors think their stocks are enough of a bargain to use their corporate cash and debt (their liquidity) to buy up their own shares thereby, in many cases, substituting debt for equity in their capital structure. That is a bold bet and one that smart people won’t make without either huge conviction or else they are using other people’s money.

So what if I also told you that Barron’s believes that executives at those very same companies are selling their shares and options into those massive buy backs approved by directors and financed with shareholders’money? This may be a better indication of a market top because managers are doing just the opposite from the company directors – they are liquidating equities and options and putting shareholders’ money in their wallets. Here is how Barron’s sees it in their October 8, 2018 edition:

“ In light of the big jump in corporate stock purchases, it is notable that executives at those companies are doing the exact opposite: dumping their shares at a record clip. Again, according to TrimTabs, corporate insiders sold $10.3 Billion worth of stock in August. That is the highest amount of selling in the month of August over the past 10 years…The previous high was $9.3 Billion in August of 2017.

I have always thought it was a better measure of conviction to see how someone is betting his wallet than how he is betting his reputation. Should we call a market top?


Rob McCrearyYou Know It Is A Market Top When????

Insurers Underwrite LBO Risk

By Rob McCreary

Five years ago, when a private equity firm sold a business the buyer would require the seller to establish a funded escrow account (5-10% of the purchase price) with an independent bank as a convenient source of indemnification for representations and warranties. Until recently, in the lower middle market, it was highly unusual for a third-party insurer to underwrite and insure that indemnification obligation.  In a recent survey by GF Data (September 2018) the prevalence of representation and warranty insurance is notable:

“Use of an insurance product continued to rise, from 43 percent of all deals in 2017 to 47.3% in the first half of 2018. At $50-250 million TEV, the jump was from 66.7% to 69.7%.”

” Valuations remained at historically elevated levels on deals utilizing insurance – maintaining an average mark of 7.7x. The average multiple fell, however, on deals completed without insurance – from 7.1x to 6.4x. Average indemnification caps rose slightly across the board in the first six months of this year.”

Data Rooms Become The Underwriters’ File

We utilized our first indemnification insurance product in a sale in December 2013. At that time the number of insurers who were willing to underwrite a smaller transaction was limited. Today there is competitive interest from many insurers in transaction sizes $20 million and larger. It shows the maturation of the private equity industry and the comfort underwriters have for PE due diligence. Partly this is attributable to data rooms where 100% of the due diligence information for a transaction is posted to a data repository that, in essence, then becomes the insurance company’s underwriting file. Sellers and buyers often split the costs of this insurance policy and the retention, which works like a deductible on your homeowner’s policy, is usually also split. In the competitive M&A markets right now, it is also becoming more common for the policy to be structured so there is zero recourse against the seller in competitive auctions.

In addition to underwriting the data room file, the insurer looks at the reputation of the parties to the transaction, the quality of their advisors and the independence of the various “experts” who report on quality of earnings, environmental matters, human resources, health and safety and wage and benefits. Because the insurer is stepping into the shoes of the seller for any major indemnification claims, there are often specific matters where there is known risk that are excluded from the policy. That might mean that a known environmental cleanup responsibility remains 100% with the seller or responsibility for existing litigation is not insured.

Third Party Insurance Fits The PE Model

The nature of private equity with finite fund lives and relatively short investment periods lends itself to a third-party stepping in. There was always a great temptation for a disappointed buyer to invent a series of claims against the indemnity escrow after the closing simply to reduce the purchase price. Now the insurer bears a large portion of that post closing responsibility and has both the time and infrastructure to dispute buyer claims. A private equity firm was more likely to compromise a bogus claim because of time, legal costs and fund life considerations.

According to Jeff Phillips, Vice President and Practice Leader of Transactional Risk for Oswald Companies  who were early advocates of “reps and warranty insurance” for the lower middle market, the claims administration process has also been professional and reliable:

 “Twenty percent of Reps and Warranties polices are going on claim with issues arising most frequently from Financial, Tax, Compliance with Laws and Material Contracts.  Generally, our clients have been pleased with the claims administration process and the insurers understand that for this product to be viewed as an attractive alternative to traditional seller indemnification, valid documented claims must be paid promptly.”

These Policies Are Affordable

The other surprise about this insurance product is affordability. The typical premium for $5.0 million of coverage in a clean $50 million transaction with a deductible of 1% of the purchase price might only be $150,000-175,000 depending on the industry. This suits a private equity firm that can then operate with certainty about its ongoing contingent liabilities for portfolio companies that have been sold. This usually means quicker distributions to fund investors and general partners.

The ultimate test of this product will come when there is the next recession. Highly indebted companies with shrinking cash flows and earnings may look to insurers for help through indemnification claims. It will be interesting to see how well the insurance industry has really underwritten its risks. My prediction is this product will do better than the underwriters expect largely because the reps and warranties made by sellers get diluted by the auction environment in which each buyer has to operate today.

In any event, the next time a politician tries to convince you that private equity is bad for business just recall all the companion industries are thriving due to its model. The latest winner may be the insurers who are underwriting a majority of these deals.

Rob McCrearyInsurers Underwrite LBO Risk

Rock Star Candidates May Disappoint

By Rob McCreary

In the lower middle market our management teams are the biggest contributors to investment returns. When you are lucky enough to inherit a great management team you can usually count on sustained growth and sequential profitability. Good managers immediately understand the vital few objectives and are typically honest about organizational capacity and risk mitigation.

Spam or Fritos?

However, when you have to recruit new managers you often enter an employment lottery where your chances decline dramatically, especially in a full employment economy. I talked to a friend who has worked in management recruiting for his entire career and he admits recruiting   for the lower middle market is tough, but he believes careful and skillful recruiters can usually spot a problem in the interview process. So far that has not been my experience.

One of my colleagues referred me an interesting study from Harvard Business School conducted by Rakesh Khurana, the Marvin Bower Professor of Leadership. He asked the question over the last 5 years did Pepsico or Hormel create more value for shareholders? In a head to head competition between Spam and Fritos,  Spam not only won on saturated fats but Hormel ($21.73-$41.40) also won by lapping Pepsi ($84.09-$112.35) in stock performance. Here are their 5 year stock charts.

Professor Khurana thinks the secret is not the Spam, but rather how the two organizations hire. Pepsi has a reputation for hiring leaders who look the part. If you are 6’2”” and have flashy credentials you are a great candidate at Pepsi. In the recruiting industry they call it “Pepsi pretty”. Also, if you happen to have worked at McKinsey, Bain or BCG you are what Professor Khurana would call “central castings”.

Hormel is Midwestern in its attitudes and hiring practices. Its CEOs are not flashy and they don’t come with either stage presence or management consulting backgrounds. The current CEO, Jim Snee, is also the Chairman and President. Jim has worked at Hormel for 28 years after getting a BA at New Mexico State and an MBA from the University of St Thomas in St. Paul Minnesota. Hormel has had only 10 leaders in 125 years. The rest of the management team also has humble origins with only Jim Snee and Jeff Baker having attended Harvard and Wharton’s executive programs. By contrast Pepsico’s management team is not only highly degreed but they are also from “central casting” for public company management teams.


Neutralize Good Presenters

I often find I am drawn to articulate candidates.  Good presentation skills often shift the energy of the interview process from the recruiter who is trying to get honest answers to the presenter who wants to answer questions with his spin.  Mike Miles, the former chairman and CEO of Kraft, Inc. and Phillip Morris Cos realized early in his career that most of his information came from people presenting to him and his understanding of facts and circumstances was greatly colored by people’s presentation skills. Miles knew he was influenced by “stage presence” so he standardized the format to neutralize good talkers.  In a similar way we have talked internally about putting our emphasis on what a candidate’s peers and direct reports say about him or her.  Some candidates do a great job of managing up, but fail to motivate their direct and indirect reports. The trick is getting these people to share their experience.

Quirky Leaders May Outperform

As one of our recruiting firms put it;” Everybody wants a team player. Rockstar leaders seduce us with their congeniality, but the highest performing CEOs actually tend not to be great team players. Research on European “mittlestand” businesses- less than 500 employees- shows these small company leaders are not great cultural fits. The terrible fits get fired. The perfect fits thrive by becoming “one of the gang”. The leaders who are just a little bit off tend to perform the best.”

What This Means For Small Business

Maybe you can compete for talent after all. You just have to look for “mutts” which I define as leaders who have a good following but not deep friendships with their employees. While they lack that leadership “look” and their presentation skills may lag, they can energize and inspire with their sense of the possible. They don’t bounce around jobs every 3-4 years.  They often graduate from state universities and local business schools at night. They succeed through grit, determination, and a solid grasp of what their team can accomplish. Since they rarely had the benefit of a central castings head start, they tend to prove themselves with performance. More than anything they also tend to make their teams successful and never forget to share the Spam with high performing team members.




Rob McCrearyRock Star Candidates May Disappoint

Binge Watching Hallmark Channel Is Bad For Your Health…

By Rob McCreary

The last time I went for a physical examination the nurse who was taking blood samples and updating my medical record was shocked when I reported I was not taking any prescription medications other than an oral inhaler for seasonal asthma. Aside from being a medical freak, I got the feeling from her there were many opportunities for improving my health just by getting on a few popular prescription drugs like Lipitor and Coumadin.

The Hallmark Channel

If you think you are healthy all you have to do is start binge watching episodes on The Hallmark Channel. You will quickly discover that your aches and pains may be rheumatoid arthritis or that “frequent urge to go” might be an enlarged prostate. Have trouble sleeping or chasing your grandchildren around the yard?  You may be candidates for Ambien which comes with butterflies and Symbicort for your COPD.

Ironically, our symptoms often aren’t half as bad as the side effects. Here is a list of side effects from some heavily marketed drugs

  • Lyrica – Diabetic Nerve Pain: “Lyrica is not for everyone. It may cause serious allergic reactions or suicidal thoughts or actions.”
  • Abilify – Depression for dementia patients: “Elderly dementia patients taking Abilify have an increased risk of death or stroke.”
  • Bellsomra – Creepy Pet cartoons made out of fuzzy letters- the sleep cat and the wake dog:  “Walking, eating, driving or engaging in other activities while asleep, without remembering it the next day, have been reported.”
  • AstraZeneca drug Movantik – Opioid induced constipation: Drug created to deal with side effects of another drug.  So many people are addicted to opioids AstraZeneca acctually spent the money to play this ad during the Super Bowl.   US Market for drugs treating opioid related constipation expected to be $500 million by 2019.
  • Symbicort – COPD: Grandfather used to huff and puff (big bad wolf cartoon) before he took Symbicort.  “Side effects – increased death in Asthma patients; increase of lung infections etc.”

US Drug Industry Dwarfs The World

Remember this is big business. The Pharmaceutical industry is making a handsome living by supplying endless pharma solutions to any perceived medical condition even when the cure may be worse than the condition:

My Mother’s Little Helpers

My mother resisted the medical industry. She put doctors in the same category as big banks and the IRS. Accordingly, our childhood medicine cabinet was comprised of four solutions to any medical problem. Milk of Magnesia solved any problem of the digestive track. Vicks VapoRub was the go to prescription for the chest congestion and the common cold. Bayer Aspirin took care of everything else internal, and all skin problems were cured with Keri Lotion. If all else failed, there was always a few sips of whiskey which would always have an expected cleansing effect and also made you sleepy.

Today a mere sniffle has an arsenal of cure weapons ranging from a derringer to a howitzer.

Nyquil Theraflu Mucinex
Tamiflu Relenza Rapivab
Peramivir Afrin Zyrtec
Allegra Claritin Chlor-Trimeton

Something more serious like a gastrointestinal problem has thousands of pharmacological solutions. For example, common “gas” which my mother would have treated with Milk of Magnesia now has 56 separate solutions.

Aches and Pains (including mental and emotional versions) have so many different solutions I literally lost count.  For example, “Frozen Shoulder” defined as “an inflammatory condition that restricts motion in the shoulder” alone has 49 separate drugs.  Silly me to think, since old age is creating shoulder tightness, I could alleviate the problem by stretching. Had I known I could get a prescription for Naproxen, Voltaire or Diclofenac (most popular), I would have cancelled the yoga class.

Next time you want to watch The Hallmark Channel just remember how our parents made it through most of their lives with just two or three all purpose medical solutions of which exercise (other than bowling night) was a pretty low priority. Maybe you should abstain from reruns of “Pride and Prejudice” and try 6 months on Bayer aspirin alone?

Rob McCrearyBinge Watching Hallmark Channel Is Bad For Your Health…

Currency Matters- Just Ask The Turks

By Rob McCreary

In the US we rarely think about currency because ours is the reserve currency of the world. Oil is priced in US Dollars. Many loans to emerging countries are denominated in dollars to hedge against currency devaluations. For a long time the Chinese Yuan was pegged to the dollar.

Bretton Woods Established The Dollar

Dollar dominance is mostly the doing of an obscure government employee, Harry Dexter White, who was an Associate Secretary of Treasury. In 1944 Mr. White understood the US position as the world’s banker and largest creditor after World War II. Most of the allies owed us money. Mr. White proposed a new financial order where currencies were pegged to gold. Given we controlled most of the gold and had a stable financial system, the USD (pegged to gold reserves) became the benchmark against which all other currencies traded. No other nation could provide that stability and the UK and Europe, Japan and Germany had no choice but to accept the dollar as the reserve currency after World War II. Only the Russians refused to sign the Bretton Woods accord.

Thirty years later in 1972 the US abandoned the gold standard for currencies and since then the USD has not been backed by actual gold reserves. Nonetheless no other currency or basket of currencies has challenged the USD’s position as the world’s most stable currency.

Turkey Reminds Us About Reserve Currencies

Turkey’s financial implosion reminds us of what it means to have the US Dollar as the reserve currency.  The repayment of more than 35% of Turkey’s debt is denominated in more stable foreign currencies, principally US dollars. In January 2018 it took 200 million Turkish lira to fund repayment of a $50 million dollar denominated note. Today, due to the strong US dollar and the weakening lira, it takes 350 millionLira. The price of a reckless monetary policy is almost a doubling on the cost of funds for 35% of Turkey’s outstanding debt.

Here are four charts from the August 13 edition of The Wall Street Journal (article by Christopher Whittall) that illustrate the Turkish dilemma. Pay special attention to Turkey’s reliance on oil imports and how a weak lira has raised the price of diesel fuel:






While I have written several articles lately about the US debt problem, I am certainly happy that US debt is denominated in US Dollars. We always have the option of becoming Argentina and rendering all that debt worthless by inflating our way out of debtor’s prison. Turkey does not have that option. It will be interesting to see how they handle all their foreign creditors who want repayment in a currency other than Turkish lira.

Rob McCrearyCurrency Matters- Just Ask The Turks

Moon Tides

By Rob McCreary

The moon tides in Maine this summer reminded me about risk in investing. Normal tides can be 8-9 feet but a few days every several months the tides change by 12-13 feet. Your complacency spikes when almost every dangerous shoal and rocky point has 25% more water than during a normal tide. Conversely, ebbing tides reveal a frightening number of rocks and shoals you didn’t even know were there.

For most of us there is also a hypnotic fascination with nature revealing the bottom. You get a short peak at how things really are. Warren Buffet likes low tide because it reveals who has been “swimming naked”.

Equity investors in the stock market and private asset classes like real estate and private equity seem to be underwriting to a perpetual  high moon tide;  the swelling volume of capital for stock buy backs, leveraged loans and mezzanine debt takes care of everything.

Tides and time are coordinated, however. Every six hours gravity insures a low will be followed by a high and then a high by a low. The only variation is the amount of flow. Nature is unfailing in the precision of these repetitions. You can bank on volatility in the ocean as a constant. You will be on the rocks or over the rocks every six hours so vigilance and caution are required.

This is certainly not the popular trade today in financial markets today.

Many astute investors believe we have vanquished volatility. “The CBOE Volatility Index, known by its ticker symbol VIX, is a popular measure of the stock market’s expectation of volatility implied by S&P 500 index options, calculated and published by the Chicago Board Options Exchange” (source:Wikipedia).

Here is a chart from of the VIX (green) and the S&P 500 (black) since September 2015:

Notice there only a few moon tides (circled in red) with the most recent spike in volatility coming in February of 2018 when tariff terror caused the S&P to plummet. Many investors were short the VIX and had to cover as the VIX spiked 3x in several days. They were reminded about swimming without their trunks when that tide rushed out.

Contrary to the enlightened US capital markets, I expect volatility to rise in all US markets for these four reasons:

  • Debt based market liquidity is quietly becoming too expensive
  • For now, the Fed appears serious about removing liquidity
  • Politics may trump business for the first time since Jimmy Carter
  • Deficits will have to be financed with high cost, short term debt

I expect the capital markets outflows to mimic the moon tides for August 10-13 which are predicted to go from a high of 11.83 feet to a low of minus 2 feet. That is a massive flow in one direction and it may be happening soon. Tighten up those bathing suits.


Rob McCrearyMoon Tides

Cash On The Sidelines

By Rob McCreary

In a recent article in Barrons “What To Do With Excess Cash” Abby Schultz points out there is an interesting trend among high net worth investors to hold a high percentage of their investable assets in cash or cash equivalents:

According to Federal Reserve figures, retail investors had about 18% of their assets in money market funds and in U.S. bank deposits, considered cash alternatives, at the height of the financial crisis in 2009. But today, they still have a high percentage in cash—around 14%.

Citi Private Bank’s clients, who have at least US$25 million in investable wealth, had about 25% of their wealth in cash in 2009, but they still have 22% in cash today, says Bailin, global head of investments at the bank.”

This mindset is hard for the wealth management industry to understand when they have so many products to replace that cash, including relatively high yielding money market funds. There is speculation among wealth managers that cash hoarding might portend a stock market top. Possibly, there is discomfort with the derivative nature of most financial products? I think it is much simpler than that.

Your Childhood Cash Stash

Remember in your childhood when you had your paper route or babysitting money in a hiding place in your room? There was an overwhelming sense of financial freedom in holding cash. You could buy Turkish Taffy or baseball cards without parental approval.  However, with time and the growth of your cash hoard, your mother or father insisted you open a bank account. The trick was they had to co-sign any withdrawals.  You quickly found out that your money was not really yours until you turned 18 and, even after that, mom or dad seemed to know what you were doing with your cash- no electric guitars, drums, mini-bikes or record clubs. The intellectual satisfaction of earning interest on your deposits was nothing compared to the financial freedom of cash in hand.

The current fascination with cash might be channeling a familiar urge for financial freedom where you don’t rely on a third party or a product for a portion of your wealth. Without knowing it for sure, I also speculate that the biggest hoarders may be entrepreneurs, small business owners and self-made wealthy, especially those who have sold their source of livelihood. The cash may replace the security of their role as owners and founders?

Design Your Own

The good news for this group is you can manage cash yourself without paying fees thanks to an inverting yield curve where short term duration government bonds are yielding almost the same as long term bonds.

If you have an account at Fidelity or Schwab you can create your own short duration ladder. Simply look for “Trade Fixed Income”, select the range of treasury maturities, and place orders. There is no commission or markup. An example of $1,000,000 spread over the next 12 months might be as follows:

Treasury Bill or Bond Maturity Amount Invested Appx Yield
September 2018 $250,000 1.94%
December 2018 $250,000 2.08%
March 2019 $250,000 2.22%
June 2019 $250,000 2.42%


Significant Tax Advantages

Treasury Bills and Notes are also exempt from state and local income tax so the fully taxable yield equivalent for bank deposits and money market funds would be the approximate yield shown above divided by your state and local income tax rate. For Cleveland, Ohio the combined rate is 7.5%. The tax exemption is a meaningful differentiation in a low return environment.

A short duration treasury ladder also makes sense to me at an interest rate inflexion point like we are seeing right now. Rates may be going up for now, but for how long and how much is completely uncertain. They may also reverse if Fed thinks a recession is imminent or if inflation is tamed. If you look around the world, many developed economies have negative yields. The US is an outlier with a central bank that is raising rates and shrinking its balance sheet. Luckily the almost inverted US yield curve is accommodating short term government investing. You are paid almost as much on a two year T-Note (2.63%) as you are for a 10 Year T-Bond (2.95%)

Managing a short duration treasury program does not require parental supervision of the wealth management industry or the associated fees. It may be as rewarding as your childhood cash hoard and you are free to buy toys without approval.

Rob McCrearyCash On The Sidelines

Retirees Are Broke

By Rob McCreary

You don’t hear much about the financial status of the retiring baby boomers. Maybe that is because the news is pretty scary. I picked up on this by reading Ballmer’s USA Facts.  More recently the Wall Street Journal in an article by Heather Gillers, Anne  Tergesen and Leslie Scism in the June 22 edition suggests it is even worse then we think.

The reasons are numerous:

>Low interest rates have encouraged taking on debt- this is new for retirement agers

>Boomers have had to subsidize their parents who have lived longer

>Self directed 401k plans got hit in 2008 and most have not recovered

>Even though there are penalties, 401k plans are often raided prior to retirement

>Public employee retirement plans are generous but underfunded

>Boomers have underwritten their kids’ student loans

>Wage growth since 2000 has been paltry

The WSJ summaries the prospects as follows:

This prospect is upending decades of progress in financial security among the aging. In the postwar era, for a while, fixed government and company pensions gave millions a guaranteed income on top of Social Security. An improving economy led to increased wages. Many Americans retired in better shape than their parents.

The scorecard now is much different:

Without wages, a retiree has few sources of income. The estimated median annual household income among retirees is $32,000, and more than half of retirees (53%) live on less than $50,000, according to “The Current State of Retirement: A Compendium of Findings about American Retirees.”  The sources of revenue are Social Security ($17,000),Yield on Savings ($4,000), Depletion of Savings ($5,000),Pension/401K ($9,000), Part Time Work ($4,000) .

The average expenses are $35,000 with Healthcare, Food and Shelter comprising 80%

It is also difficult to predict the federal, state and local tax burden but you can see there is not much cash left for Uncle Sam. In any event, the situation for most retiring Americans is bleak as explained by the WSJ authors:

“In total, more than 40% of households headed by people aged 55 through 70 lack sufficient resources to maintain their living standard in retirement. That is around 15 million American households.”

I am surprised the Democrats are not focusing on this horrible ending for so many potential constituents. It shows mainstream politics have surrendered to fringe captors. 15 million votes could swing a lot of state and national elections.


Rob McCrearyRetirees Are Broke

Ballmer’s Antidote For Fake News

By Rob McCreary

USA FACTS is a not for profit organization created by Steve Ballmer, former CEO of Microsoft. As I have written in a prior blog, this is like Joe Friday “just the facts, Maam.” Here is how Mr. Ballmer describes his efforts:

If you’re interested in gaining insight on government by the numbers, look no further. In this year’s annual report, we’ve summarized the most recent data on government finances, outcomes of government activities, and population trends. USAFacts is a not-for-profit, non-partisan resource built for people like you. Red or blue, left or right, or anywhere in between, it doesn’t matter. We believe understanding the numbers is the cornerstone to a healthy and productive democracy. Our goal is to help inform active citizenship and fact-based debate.”

I turned to the 2018 Annual Report ( to look at a number of topics where Ballmer’s numbers are contradicted by fake news, lobbyists,political infighting or downright deception. When I read his report I see much more progress and feel so much more hopeful l than I do when I read or hear the news from mainstream media. Ballmer organizes his Annual Report into four missions of the US Government as laid out in the preamble to the US Constitution:

  1. Establish justice and ensure domestic tranquility:
  2. Provide for the common defense:
  3. Promote the general welfare:
  4. Secure the blessings of liberty to ourselves and our posterity:


More people are living alone, and there are fewer married couples with children. There are huge changes in lifestyles as shown by the 327% increase in other households and a decline in married parents.

Since 1980, increases in government spending have come primarily from payments to individuals and subsidies.

There have been more suicide gun deaths than homicide gun deaths every year since 1981 and 1/3 the number of firearm fatalities from legal intervention.

Of 23.3 million government workers, 83% are state and local employees. Nearly half are in education.

After decreasing until 2011, transportation crashes and fatalities are now increasing.


 Military spending has declined since the height of wars in Iraq and Afghanistan in 2010.

Border apprehensions and drug seizures are declining.


Most of the growth in spending by federal, state and local governments has been transfer payments to citizens.

Infrastructure can impact productivity: Workers in urban areas spend 42 hours in traffic each year

Average spendable income, by income group. The biggest percentage increase is the bottom 20% and the worst is the middle class.


Two thirds of the US Population is overweight or obese.


66% of 8th graders are not proficient in math; 64% are not proficient in reading even though the teacher to student ratio has improved. The number of teachers has increased 44% while students have increased by only 19%.

Poverty rate for the elderly (65+)

How different are key life experiences, by race? The American Indians and African Americans had about the same arrest rate in 1980 but today the African American rate is almost double.


Rob McCrearyBallmer’s Antidote For Fake News

Seignorage May Be Treasury’s Next Profit Center?

By Rob McCreary

Just recently I learned the $100 Bill has a new look. Series 2009A, the new look, was finally issued four years late in 2013 due to printing problems with the new security features. If you look at the new $100 bills, the left face looks like old money and the right half looks like new money. In fact, the bill folds naturally along the blue line that contains a hologram. The old money side lacks almost all the security features that deter counterfeiters like a gold ink well that turns green and a watermark of Ben Franklin’s face. Here is a link to a You Tube Video about the new security features:

Why Has The Fed Doubled The Benjamins?

It is also interesting that the number of $100 bills in circulation has almost doubled from 6.6 billion in 2009 to 12.5 billion in 2017 while other denominations like the $10 and $20 have only grown slightly. Why double the circulation of the biggest denomination when Treasury spokesmen like Peter Sands and Lawrence Summers writing for The Washington Post in the February 25, 2016, edition opine the $100 Bill should be banned to deter criminals?:

“Our advocacy for the elimination of high denomination notes is based on a judgment that any losses in commercial convenience are dwarfed by the gains in combatting criminal activity, not any desire to alter monetary policy or to create a cashless society.”

It is estimated that 75% of the old and new bills are circulating outside the United States. Given the US Dollar’s international status as the world’s reserve currency, these notes are critical foreign reserves. Recently, there have been reports of travelers having difficulty exchanging old $100 bills for local currencies. The reason is fear of counterfeit currency. The department of Treasury estimates that approximately $150 million of counterfeit $100 bills are circulating worldwide.

A Clever Plan May Soon Be Hatched

It is also interesting that there are many reports (maybe self-serving) that 75% of the bills in circulation contain traces of cocaine. The preponderance of those bills are old money, not the 2009A series. These new bills give Treasury a one-time chance to challenge the cash economy of which drug money is a big part.  Allowing a short period where the old bills would be retired and exchanged for the new $100 bills will force criminals and tax evaders either to exchange or forfeit their holdings.  The amount of new bills in circulation would eventually return to 6.6 million. Customers of banks should have no problems, but people living off the banking grid might find the conversion to be painful. For example, if you are a drug lord and have $100.0 million of old bills in a heavily guarded warehouse, it will be difficult to exchange 50 tractor trailers of $100 bills without drawing attention. Simply by presenting them, you open yourself up to tax evasion inquiries. To level the playing field for honest citizens who are too poor to have a bank account, the Treasury may allow a small amount to old bills to be exchanged at banks with no questions asked.

Foreign Exchanges May Be Impractical

If you are a foreign holder, you will also struggle with the conversion. How that exchange process would be handled is the single biggest reason why the exchange might be impractical.  Again, if you are a customer of an international bank, the exchange should be fine. The conversion process would force many people living in a shadow economy into mainstream banking, albeit for a short time, where it is much harder to avoid taxes and where central banks know who you are.  Central banks have always disliked the shadow economy anyway because cash is redeemable at face value and cannot be part of a monetary policy that charges negative interest.

This Is A Money Maker For Treasury Called Seigniorage

I am convinced that the U.S. Treasury has a plan to cause a huge amount of claims on the US Treasury to simply vanish. If you assume that 25% of the old $100 Bills in circulation are dirty money or cannot be redeemed, and if you assume they cannot be converted or laundered to other denominations, that could mean that as $660 Billion of old bills undergo conversion (6.6 Billion old bills in circulation X $100), $165 Billion could become worthless as the period for exchange expires. This has been done with the $1000 bill and bearer bonds, so there is precedent for the retirement playbook. It will also help banks open up new relationships with non-criminals.

If it is successful, the cash economy may be closed forever to criminals and tax evaders. If the Treasury can do it with the 2009A conversion, they can do it again with Series 2020A.

The term for this is called seigniorage. This is the profit the US Treasury keeps when it prints money and then later pays out less than face value for retiring it. So, if I am doing the math correctly, the Treasury may eliminate dirty cash worth $165 Billion at the expense of $12.5 cents for printing each new bill. This is the kind of trade that would make Goldman Sachs partner proud.



Rob McCrearySeignorage May Be Treasury’s Next Profit Center?