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(Formerly Known As "The Intel Eliminati" - TIE)

Thursday, April 26, 2018

Quickie Update
Household Income not Keeping up with Debt

Household Debt Jumps as 2017 Marks the Fifth Consecutive Year of Annual Growth

The Center for Microeconomics Data latest Quarterly Report on Household Debt and Credit reveals that total household debt reached a new peak in the fourth quarter of 2017, rising $193 billion to reach $13.15 trillion. Balances climbed 1.6 percent on mortgages, 0.7 percent on auto loans, 3.2 percent on credit cards, and 1.5 percent on student loans this past quarter.

(Click on image to enlarge detail)

In conjunction with the content of my previous article (See: Are We Heading Towards the Next Financial Crisis?), this update is, to say the least, very disturbing.

This trend shown in the chart above is alarming due to its consistency since about 2013. Note that the non-housing component is rising at a much higher rate than the component mostly attributed to mortgages. Stagnation of salaries alongside increase in the accrual rates of personal credit card debt as well as of student debt are major factors in this picture.

Considering today's very tight job market, this is an opportunity for workers to demand higher pay rate. The lower corporate income tax on corporations should facilitate accommodation of worker's demand for raises. The question remains open, whether an equalization of household income will actually take place, as a result of the tax changes in fiscal year 2018. Will Corporate America share their bounty with American workers and contribute to true growth of our economy.

All the signs are pointing to a different directions though namely, driving personal debt to much higher limits by easing off bank regulations, all while simultaneously, raising interest rates.

A certain businessman who declared bankruptcy six times in a row, yet rose to high economic and political prominence, is proving that everything is possible in America. However, for most of us, experiencing bankruptcy, even once is far too much. 

See also:

--Dr. Flywheel 

While the Orchestra is Playing
is Intel Corp. on a collision Course with the Iceberg

Intel Corp. (INTC) stock enjoyed a significant rise over the last year+. Today it stands at around $52.35/share, in spite of significant recent corrections in the equities market.

From the PR campaign that Intel CEO Brian Krzanich and his executive staff are running, investors could get the impression that it is smooth sailing, or even better, it is time to take a cruise to an exotic destination and enjoy the sunshine. If you are a short-term investor, perhaps it is time to consider selling your INTC shares and use the proceeds to finance the cruise of your life with your profits. However, if you are more concerned about long-term prospects of retirement, perhaps it would be wise to look at Intel Corp. odds of riding the waves of success, before committing to keep your stock for the long haul.

Note that the latest (2017) Intel Corp. Annual Report (10K) is listing quite a few potential perils on the way to paradise. These (verbatim from the 10K report) include, among other things the following items:
  1. Demand for our products is variable and hard to predict.
  2. Due to the complexity of our manufacturing operations, we may be unable to timely respond to fluctuations in demand and we may incur significant charges and costs.
  3. We face significant competition.
  4. Changes in the mix of products sold may impact our financial results.
  5. We are subject to risks associated with the development and implementation of new manufacturing process technology.
  6. We face supply chain risks.
  7. We are subject to the risks of product defects, errata, or other product issues. 

Intel Corp. is a major player in the global semiconductor business, though it is no longer the leading player (see: Does Intel Corp. PR Hype Truly Compensate For These Facts?). As such the company's exposure to all of the above risk points is very similar to other players in this field. However, for Intel Corp. the main risk factors, into both the near and mid-term future are the ones highlighted above.

Back in 2015, when I had close exposure to Intel Corp. the company already began the experimental R&D manufacturing of 10 nm processes. At the time, the Technology and Manufacturing Group (TMG) had a rosy expectation of driving 10 nm products into high-volume manufacturing, within two years. Note that at the time, Intel Corp was able to ship 14 nm products into the market place; however, with significant yield issues (note Broadwell). While Intel Corp. was able to overcome many of the 14 nm manufacturing yield problems over time, finding solutions to these problems came at a significant cost. Though this cost was really a manufacturing cost, it was actually covered in the books as R&D cost. This explains the rising R&D expenses, reflected in the 2015-2016 annual reports (21.9% and 21.5%, respectively).

While merchant semiconductor Fabs around the world continue to make progress with their smaller geometry high-volume manufacturing, Intel Corp. is essentially standing still. Why did the company stop at 14 nm processes, and continued to use the euphemism of "14+" and "14++" to indicate progress?

My guess is that Intel Corp. has no advantage in pushing its 10 nm process into high-volume manufacturing, due to massive failure of its advanced Fabs to produce the quality level required to show profit from its products, using this manufacturing process. Among other things, over expectations and over reliance on advancements related to EUV lithography, resulted in major disappointments on the executive level. This disappointment led to considerable slow-down of the migration to smaller geometry processes and cautionary fiscal investment in rigging the advanced Fabs.

The mere fact that Intel Corp. 10 nm products are absent from the market, three years after they were "promised", is a clear indication of things going wrong in the navigation path of the Intel Corp. cruise ship. Considering potential loss of Apple business as well as, item number 3 on the list ("competition") above, does Intel Corp. current sailing plan leading, sooner or later to a collision with the iceberg? 

Apparently I am not in a minority opinion on this subject.


--Dr. Flywheel

Wednesday, April 18, 2018

ADD Magic Cure - How the Economic Machine Works

My wife always blamed "Sesame Street" for our son's ADD problems. She kept claiming that  Sesame Street wired the brains of young kids who were watching the show, to expect stimulus and instant gratification in a series of five minute episodes. These expectations remained ingrained the brains of the show audience throughout their growing years and clashed with the monotonous, slow and disciplined, traditional school environment. So she claimed.

Rich vs. Poor - Social Tensions and Revolution

My kids are all grown up by now and able to support themselves very gracefully. However, I am always surprised by the fact that they are not at all interested in learning how our economy works. I am always frustrated with their lackadaisical attention when I try to explain to them how economic processes are working and how significant events are a result of pure economic cycles and do not, suddenly land out of the moon.

Four Ways to Reduce Debt Burden

Following the best tradition of American culture, I was constantly seeking to find the magic pill, that would alleviate my frustrations about communicating my messages about our economy to my kids. I believe that I finally found it. I am so excited about my revelations that I decided to share my finding with you.

United States Debt Burden Graph

The "magic pill" that I found is a wonderfully narrated and beautifully illustrated video presentation by investor, hedge fund manager, and philanthropist Ray Dalio. In this presentation Ray is able to explain all the basic principles that are driving the economies of the free world, in a simplified, yet not too simple way. As Albert Einstein was quoted to say:
Everything should be made as simple as possible, but not simpler

I highly recommend watching Ray Dalio's video presentation to all of you. Maybe you will be able to avoid the pain and the frustration of explaining essential information to your kids, by letting them watch.

The presentation can be found here:

All the best.

--Dr. Flywheel