How to negotiate a pay rise

  • Worth every $84 million?
  • Our survey says: sell
  • This could be the biggest story of the decade
  • The free market solution
  • What they didn’t want you to know
  • Cooling

From Bloomberg:

CSX Corp. appointed Hunter Harrison as chief executive officer effective immediately, entrusting the industry veteran with the task of turning around North America’s least efficient railroad. He’ll stick around as long as shareholders are willing to meet his pay demands.

Harrison will resign after the 2017 annual meeting unless shareholders accept his request for $84 million to cover forfeited pay from his old job plus the assumption of a related tax indemnity, CSX said in a statement Monday.

It’s an interesting tactic.

So you’ll excuse me for a moment. I need to make a phone call to our parent company’s head office in the US. I have a small demand to make, regarding a pay rise.

Back soon…

Markets

Overnight, the Dow Jones Industrial Average fell 51.37 points, or 0.24%.

The S&P 500 fell 7.81 points, for a 0.33% drop.

In Europe, the Euro Stoxx 50 index lost 15.93 points, falling 0.47%. Meanwhile, the FTSE 100 fell 0.33%, and Germany’s DAX index lost 0.57%.

In Asian markets, Japan’s Nikkei 225 index is down 29.02 points, or 0.15%. China’s CSI 300 is down 0.04%.

In Australia, the S&P/ASX 200 is up 22.09 points, or 0.38%.

On the commodities markets, West Texas Intermediate crude oil is US$53.16 per barrel. Brent crude is US$55.95 per barrel.

Gold is trading for US$1,225.80 (AU$1,613.70) per troy ounce. Silver is US$17.75 (AU$23.37) per troy ounce.

The Aussie dollar is worth 75.96 US cents.

Worth every $84 million?

Ahem, where were we? A pay rise? Let’s just say things didn’t quite go to plan. I’m still here though, so that’s something.

Back to Harrison and his plans for US railroad company, CSX Corporation [NYSE:CSX]. Clearly, he’s a man with a lot of confidence.

According to Bloomberg, he has a history of turning around US railroad companies:

The CSX appointment sets up a new challenge for Harrison, 72, who in a five-decade career made Canadian Pacific Railway Ltd. into a top performer, solidified Canadian National Railway Co. as the leanest North American railroad and overhauled Illinois Central. He’s taking on his latest job less than two months after resigning as CEO of Canadian Pacific, where he used his “precision railroading” approach to transform the company with cost cuts and speedier service.

Wow! ‘Precision railroading’, eh? Sounds impressive…and complicated. It must be, if the brain behind it comes with a US$84 million per year price tag.

So, just what is ‘precision railroading’? We assume it must be proprietary, so maybe we’re risking trouble by publishing it here.

But what the heck, we’ll do it anyway. This ‘secret’ to making millions from railroads should be available to all.

Bloomberg explains the fine detail to ‘precision railroading’:

Harrison developed the concept of so-called precision railroading while at Illinois Central, running shipments and carloads on fixed timetables to ensure reliable deliveries.

[Adjusts tie. Stretches out neck. Twists cufflinks.]

Fixed timetables, you say.

[Swallows. Straightens spectacles. Clears throat.]

If it has taken a railroad company this long to grasp the concept of timetables, all we can say is, the shareholders deserve everything they get.

Our survey says: sell

The trend is your friend. So say prodigious and hapless traders alike.

In the case of Snap Inc [NYSE:SNAP] the trend was up for the first two days of trading — buy! But for the last one day of trading the trend is down — sell!



chart image

Source: Bloomberg
Click to enlarge


Technical analysts — of which your editor, thankfully, is not one — will often tell you to only watch the charts…nothing else matters.

In this instance, we think not.

After the overnight performance of Snap, the stock is now trading at its lowest point since listing last week. It is, of course, still above the US$17 initial public offering (IPO) price.

Not being an expert with Snapchat, or any other social media vehicle for that matter, we conducted a survey of one over the weekend.

That was with our eldest daughter. We tried to be subtle about it, but probably just ended up sounding like a senile old idiot. Our conversation, as we remember it:

Editor: ‘So, you use Snapchat, right?

Daughter: ‘Yes.

Editor: ‘Erm, what do you use it for?

Daughter: ‘Sending photos and things.

Editor: ‘How does it work?

Daughter: ‘You can send a photo or video and it appears on their screen for between one and 10 seconds, then it disappears.

Editor: [Confused expression] ‘So, does it stay on the screen until you delete it?

Daughter: [Confused expression]

Editor: ‘I mean, can you keep it on the screen for as long as you like?

Daughter: ‘No. [Speaking slowly, and in the voice of someone talking to a senile old idiot] It disappears after one to 10 seconds.

Editor: [Confused expression] ‘And what about advertising. Does it display any ads?

See how we craftily and deftly got to our intended point? Genius.

Daughter: ‘Yes. They’re annoying.

Editor: ‘Why are they annoying? Have you ever clicked on one of them?

Daughter: ‘Yes, a couple of times. But they never seem to appear.

Editor: ‘OK. Remember to indicate when you change lanes!

Yes, we conducted our annoying interview while teaching our daughter to drive. That’s safe driving folks.

Regardless, our survey (with a margin of error of +/-100%) confirms our doubts about Snapchat. Generating revenue from advertisers is fine. But at some point, the advertisers have to see that they’re getting value for money.

Analysts forecast that Snap Inc will generate just over US$1 billion for the 2017 financial year. For the last 12 months, it has generated US$404.5 million.

So, revenue will have to increase 150% from here. Possible?

Sure it is. Don’t get us wrong, revenues have grown handsomely. And with the IPO, Snap Inc will be flush with cash which it can spend on acquiring new advertisers.

Even so, we can’t help thinking of other businesses where aggressive customer acquisition strategies haven’t worked, because the cost to acquire customers didn’t match the spending level of those customers.

Discount coupon company, Groupon Inc [NASDAQ:GRPN] is a classic example. After the hoopla surrounding its IPO in 2011, the stock peaked at US$26.19 per share.

At last night’s close, it was US$4.04 per share.

Groupon has seen next to no revenue growth since 2014. And aside from a meagre US$20 million profit in 2015, the profit and loss statement has been mostly awash with losses — US$194.6 million of them last year.

Then there’s Yelp Inc [NASDAQ:YELP]. It earns revenue by getting businesses to take out a listing on its website. Once on there, users can rate the business.

That’s fine…unless a business gets bad reviews — which can happen, even to the best businesses. In that instance, what is the benefit of a business paying for a listing?

Yelp has experienced revenue growth. But profits are largely a figment of investors’ imaginations. For the 2016 financial year, the company lost US$4.7 million.

Not a huge amount, but perhaps indicative of the company’s future.

In the online world, we figure that businesses mature very quickly. They don’t have the benefit of time to see how they or the market develops. They need to make a splash and make money quickly — mainly so they can reinvest profits, without having to dilute existing shareholders by issuing new shares.

For that reason, we figure that if a ‘trending’ company can’t break through and profit within two or three years of listing, odds are it never will make a profit.

Or, certainly, not a profit worth worrying about.

This could be the biggest story of the decade

It has been one of the hottest news stories over the past six months. I’m talking about the selective legalisation of marijuana (or cannabis).

As AAP reported in February:

The Federal Government has given the green light for approved companies to legally import, store and sell the drug until domestic production meets local needs.

The move will make it easier for patients who now must go through a lengthy process to get cannabis from overseas once prescribed by an authorised doctor.

Some estimates say that medical marijuana alone could be a billion dollar-plus industry.

The liberalising of laws could be of great benefit for those with a medical need for the drug. But it could mean more than that.

It could be what colleague Sam Volkering calls the biggest investment opportunity of the decade. Sam covers the full story here.

The free market solution

From Domain.com.au:

In Sydney and Melbourne, a housing construction boom teamed with state infrastructure investment and population gains have led to a lopsided national economy. Consultancy SGS Economics & Planning estimates the two cities account for more than two-thirds of the nation’s economic growth. Meanwhile, in the mining hub of Western Australia, the economy is moribund.

That means the RBA is currently setting one policy for a range of disparate economies. If the central bank could vary its rate by region, SGS reckons Sydney would be on 3.75 per cent, Melbourne on 2.25 per cent and Western Australia capital Perth on 0.5 per cent.

We couldn’t agree more with that idea if we tried. Except, we’d take it one step further and say, why not just abolish the central bank and allow the free market to decide the rate of interest?

In a free market, the scenario painted in that report is exactly what would happen. If an area is going through a slump, the market in that area would likely provide lower interest rates in order to encourage investment.

By consequence, a glut of lending and excessive risk taking in other states would likely result in higher interest rates. Now, in fairness, in a free market system, the differences wouldn’t likely be as wide as those mentioned in the report.

Because a free market would involve a free flow of capital around the country, searching for the best home for an investment, it shouldn’t result in the kind of boom and bust economics experienced in the past.

The differences in interest rates would likely be small. Big enough to attract some capital, but not enough to attract all capital.

Anyway, we know it will never happen. There are too many vested interests in maintaining the status quo. But it’s nice to see that even if they don’t realise it, the folks at SGS recognise that the free market is the only solution for all the world’s ills.

What they didn’t want you to know

Last week we mentioned how California’s Department of Public Health refused to release a document containing concerns about the use of mobile phones.

Late last week, a California court ordered the release.

The document states:

Although the chance of developing brain cancer is very small, these studies suggest that regular cell phone use increases the risk of developing some kinds of brain cancer. Some studies have also linked exposure to EMFs [electromagnetic fields] from cell phones to fertility problems.

The document has ‘Draft and Not for Public Release’ stamped across the front.

So, do you still think that governments care about you?

As we wrote last week, governments will do what is financially beneficial for them. They won’t tell you about cancer from mobile phones, because it will hurt the taxpaying mobile phone companies.

But they will tell you about the supposed coming catastrophe of climate change, because that gives them the opportunity raise taxes from the public.

Cooling

Speaking of climate change, another update from the Danish Meteorological Institute. Here’s the latest daily chart of temperatures in the Arctic north of the 80th northern parallel.



chart image

Source: Danish Meteorological Institute
Click to enlarge


If you recall, the Washington Post and Fairfax papers were apoplectic last year, when the mean temperature soared to 20 degrees above the 1958–2002 mean.

Funnily enough, we haven’t heard a peep from the Post or the Fairfax press as the current daily temperature reverts to the mean. At the moment, it’s around five degrees above the 1958–2002 mean.

We’ll keep reproducing this chart at regular intervals. Our bet is that within the next two years, temperatures will have reverted to the 1958–2002 mean.

Keep watching.

Cheers,
Kris