Ken has been offering his thoughts on global markets, events, and trends on a weekly basis since early 2006. His rational perspective, based on decades of experience in risk management and analytics, provides all readers with helpful insights, commentary, and context. Both informative and entertaining, the posts offer clarity and simplicity, often using inspiration from his favorite artists and musicians.
Ken also authored Trading Risk: Enhanced Profitability through Risk Control (Wiley 2004), which challenged the traditional focus of risk management on loss avoidance. The book introduced a new risk management program that can help both money managers and individual traders evaluate which elements in a portfolio are working efficiently and which aren’t using an extremely simple set of statistical and arithmetic tools.
Latest Post
- Out for a Penny, in for a Pound(ing) Tuesday, May 27, 2025
Perhaps like the rest of you, I read with mixed emotions that the U.S. Mint has issued a final order. For those blank sheets of the metallic alloy of zinc (97.5%) and copper coating (2.5%) that is used in the production of our most granular unit of legal tender – the penny. Once these are stamped in to discs with Abe on one side and his memorial on the other, no more pennies will be produced. Like, ever.
On balance, I’m OK with this. Because – let’s face it — pennies are a pain in the ass. When at my home away from home – Dunkin’ Donuts — I prefer to leave them in the tip jar. With respect to those “take a penny, leave a penny” trays at bodegas, you can invariably place me with the latter contingent.
Pennies, nonetheless, continue to accumulate for me. And I don’t know what to do with them. And don’t suggest I toss them in jars, which, upon reaching capacity, I swap out for more usefully rendered currency. Because the thought depresses me.
Still and all, it’s hard to imagine a penniless world without feeling a bit of nostalgia for the blasted things. Once upon a time, they could at least buy you a gumball. You could stick them in college dorm room doors to hilariously lock the occupant in. You could place ‘em on a rail track and watch ‘em flatten.
Nonetheless, discontinuing them is probably the right move – particularly as associated published production costs for these diminutive, soon-to-be-discontinued metallic frisbees is $0.037. And swapping same for $0.01 is, I can assure you as a risk manager, a less-than-scalable investment strategy. Plus, it’s not like they’re disappearing anytime soon; there are ~114 billion of the little buggers in circulation.
And if all else fails, there’s always this guy:
For the uninitiated, the name of the character on the left is Pennywise – arch villain of the Stephen King horror novel “It”.I haven’t read the book or seen any associated film adaptations, but apparently, this rather unpleasant fellow emerges every 27 years to prey on children and other innocents.
He was last portrayed in 1990 (by the fabulous Tim Curry), so his absence has now extended 8 solar cycles beyond his scheduled reappearance. However, we assume only at our hazard that Pennywise will never return.
But Pennywise or otherwise, from a production perspective, the penny is out. And one might ask, in perverse modification of our titular 17th Century British idiom, is the pound(ing) in?
Signs of the latter are emerging ominously. Foreign students at the Holy H have been given the boot. This matter, of course, is now ensconced in the courts, but I wonder what the point of the whole exercise is. Newly minted Columbia grads, rather than tossing their Royal Blue caps in the air, are burning their costly diplomas. They’re killing mixed-religion Israeli couples at the Jewish Museum in Washington.
Gwynnie is getting pounded (perhaps in more ways than one) for a highly enterprising project, under which, for the nominal fee of $75, one can purchase a candle that will fill the room with hints of her most feminine, fetching and intimate bouquet. The Who – in advance of what is being billed as a Farewell Tour (and this time they might really mean it) – fired longtime drummer Zak Starkey (yes, son of you-know- who). Twice. And got pounded each time.
I just read the most recent in a seemingly never-ending stream of post-mortems on the 2024 election. This one — from CNN’s Jake Tapper and some dude from Axios, focuses exclusively on Biden’s cognitive decline. The ironies here are rich indeed, as Tap was at the center of a journalistic cabal determined to convince the electorate against believing its lying eyes — as Joe mumbled, stumbled and bumbled his way to his premature if unavoidable exit. I give these guys credit. They told the story with fair authenticity. But the pounding – from those outside the Progressive Orthodoxy – focusing on the hypocrisy of it all, was as delicious as it was inevitable.
And, of course, the Administration pounds away in every direction. This week featured them busting out their oldest Greatest Hit – the policy equivalent of The Who’s “Can’t Explain” — by upping the tariff pressure on key elements of the International Trade complex – most notably the European Union and the Apple Corporation of Cupertino, CA. The Pounder in Chief is demanding that more products issuing from these organizations be made in America. Or else.
To me, the specious nature of the approach moves continuously to crescendo, like the pounding of the waves on an ocean beach before a storm. Better trade deals, yes. But with some consistency of approach, if you please. And maybe some adherence to published deadlines. Just over this past week, Trump thundered away with his plans to hit the EU with 50% tariffs. Immediately. Only to push back their imposition to July 9th. My head is pounding.
And to the extent that the of the production of key goods and services is the goal, I feel that it is a misguided objective. Because we’ve got the game rigged in our favor as is, and I don’t believe the meeting of our demands will be an improvement.
To wit, Apple, a company that designs and distributes (but does not manufacture) Consumer Electronics, does so at a 30-40% profit margin. Assemblers such as Foxconn? 3-4%. Whoever makes the parts that Foxconn assembles probably does even worse. And this is to say nothing of the reality that even these skinny returns would be impossible absent their ability/willingness to source Labor at below-subsistence- level pay scales and under work environments designed for anything but employee satisfaction.
Another example comes from one of my distribution networks –ZeroHedge, illustrating the economic breakdown of a t-shirt manufactured in Bangladesh and sold in the European Union:
So, I ask, who do you wanna be in this cycle? The Brand Manager copping >20% profit for the sale? The factory whose take is single-digit? Certainly not the worker, receiving > 1%Well, I’m here to tell you that right now, we’re the Brand Manager, bearing the minimal load of marketing and selling, but copping the lion’s share of the profit. Pretty good, right?
But Trump wants these sucky jobs, offered by struggling companies, repatriated to these here shores? Why? I don’t think Americans want those gigs, unless at MUCH higher wage levels/improved working conditions. Domestic Labor Forces will demand and receive these concessions, the costs of these products will increase accordingly, and profit margins will decline.
Nay, my friends, our ends are much better served through our current practice of outsourcing the scut work and associated unsightly implications for social justice – even if it means operating at a trade deficit.
Those my age and older may remember that most of their toys, electronics and small sundries carried as stamp that said “Made in Japan” – so much so that it became a running joke.
But this ended a long time ago. Nothing, at present, is made in Japan. Why? Because the Japanese wised up. Realized that there were better uses of their human and financial resources than sending workers into factories to earn a pittance in companies struggling to make a skinny profit. So, now, all them tchotchkes is now made in places like Vietnam, Malaysia, and (yes) China. This suits the Japanese just fine, and we should take the lesson from them.
Thus, unless we are willing to consume less, pay more, work harder for reduced wages that generate for our bosses a lower profit, I say viva la trade deficit!
The other force embedded here is our irrational, insatiable consumption addictions. We want what we want. And we get it.
Phones, game station consoles, meds, designer shoe brands, etc. They are rendered affordable because countries without this feasting ethic are willing to supply them to us at a price we are willing to pay.
So, we buy more from them than we sell to them, or, in other words, run a trade deficit.
I’m willing to concede the possibility that we can extract better deals from our trading partners, from which premise I can discern the contours of a strategy that relies chiefly on negotiating acumen.
Perhaps, even, we emerge from this whacky cycle in a stronger position than that we held when we entered it.
But the unpredictability of it all is killing us – particularly in the markets. Investors simply don’t know what to expect next.
And again, this applies not only to those who allocate capital in the liquid securities markets, but more broadly to everyone responsible for primary deployment of resources into the real economy. If, as a CEO of a product or service enterprise, one is reluctant to move forward with new initiatives (or to proceed with existing ones), well, one comes by such reluctance honestly.
But we’re here to focus on the liquid securities markets, which are once again wobbling. It hasn’t been a disaster in the Equity Complex (yet), but other asset classes are showing material trauma. Consider, as Exhibit A, the USD, which, for the 2nd time since “liberation day” has broken the key threshold of 100:
Perhaps more problematic is the carnage evident at the long end of Global Treasury Curves, with 30 year yields around the world experiencing extremely tepid auction action, and throwing off yields not seen since before the Global Financial Crisis:
Not gonna lie: this second one troubles me, as it can only be taken as a sign that investors are beyond nervous about the impact of the current machinations on the trajectory of the global economy.But an absolute pounding is not yet a foregone conclusion. The House has passed a critical budget bill, and, if the Senate manages not to bitch it up in Reconciliation, we at any rate can move forward without the prospect of a reversion to the crippling tax rates in place before a holier version of Big Orange put his hand on the bible for the first time.
We can also joyfully anticipate the long-awaited NVDA earnings drop. The stock is noticeably perkier lately, and a strong presentation will go a long way towards reinvigorating this yoyo of a market.
So, perhaps the poundings will cease. Like pennies. But as the latter are indeed departing, let’s take, in conclusion, another stroll down Penny Lane, where barbers show photographs, bankers carry hourglasses, and gearhead firemen’s pockets contain portraits of the Queen.
Where pretty nurses carry poppies on trays.
If you’re like me, it’s in your ears and in your eyes.
And, from all of this, perhaps we can agree that it’s all…
…very strange.
TIMSHEL