"I'm From The Government and I am here to Help."

5-28-23

Opening Comments

I want to start by wishing everyone a safe holiday. I want to thank the men and women who lost their lives to support the freedoms we have in America. Many brave men and women have died and been irreparably harmed fighting for America. Thank you for your service and sacrifice. My piece today is quite critical of government waste, runaway spending, and overall sloppiness. However, an astute reader reminded me about how fortunate we are to be Americans, and despite the challenges we face, there is no better country in the world. I want to keep it that way and in order to do so, we must reign in spending.

It appears that a tentative Debt Ceiling deal has been reached between Biden and McCarthy, but needs to be approved in the House on Wednesday. Speaker Kevin McCarthy said the deal included “historic reductions in spending”

My last note, “Wall Street Entertainment Perks” got a lot of attention and clearly brought back some good memories for my readers.

I will be in NYC a bit this summer and I want to try a lot of new restaurants. The top one on my list is Bad Roman in the AOL Time Warner Center. I am hearing great things. This Post article outlines the West Village Restaurant scene. My favorite restaurants in the West Village are i Sodi, Via Carota, 4 Charles Prime Rib, Sushi Nakazawa, L’Artusi, Malaparte, Pearl Street Oyster Bar, The Little Owl… There are so many good restaurants down there. Many are small and quaint with exposed brick walls and great food and vibe. So many more great ones than I listed as well. One issue is many restaurants closed due to the pandemic, but on a positive note, there are new openings I need to try. I also want to try the hottest bar in NYC called, “Double Chicken Please,” on the Lower East Side. If any readers have new favorites in NYC, send them over and I am going to be trying at least a dozen this summer.

• Picture of the Day-Julia Sweet 16 Party

• "I'm From The Government and I am here to Help."

• Quick Bites

  • Markets

  • Nvidia

  • College Enrollment Falling

• Other Headlines

• Real Estate

  • Another Office Building in LA in Receivership

  • Home Builder Stocks Outperforming

  • Hamptons Rents are Falling

Picture of the Day-Julia’s Sweet 16 Party

Hard to believe my daughter, Julia, is turning 16. We threw her a party on Friday night. I prefer to think of her as a 3-year-old, as it is too scary to think she is a teenager. We held it at my friend’s restaurant, Farmer’s Table, in Boca. They did a great job, and there were about 25 people who came to celebrate. Some older pictures, and then some from the party. Julia is almost 5’8” tall and towers over me in those heels. Julia’s smile has always lit up the room. Julia got a bunch of gifts Friday night and has written 80% of the thank-you notes as of Sunday morning. If you recall, handwritten notes are a MUST in this house.

"I'm From The Government and I am here to Help."

For the most part, I have always felt like the government was run by idiot politicians who only care about being re-elected and making promises they can’t keep. They tend to overspend and underdeliver. I am reminded of President Reagan’s speech in 1986 where he said, “The nine most terrifying words of the English language are, I’m from the government and I’m here to help.” (30 second video)

We have seen countless instances of government waste, mistakes, lies, corruption, coverups, and gross negligence. As I age, I am becoming more concerned, as I feel government involvement seems to lead to worse outcomes more often than not. The Durham Report, the pandemic response and countless other scandals have done nothing to dissuade my concerns.

I thought I would highlight some of my frustrations with government spending at the state and Federal levels. The amount of corruption, ineptitude, and bad politics in the state and Federal government is costing taxpayers countless hundreds of billions each and every year.

In this piece, my comments are in regular type and the italics are pulled from articles with links to the full stories.

The inability to balance a budget or run a surplus regardless of economic conditions has become commonplace. If it were a corporation, it would be bankrupt. Since my birth 53 years ago in 1969, we have run a budget surplus in 5 years and run deficits 48 times. Also of note, the surplus is always tiny and the deficits can be in the trillions The chart below is a good example. Since 2000, the Federal debt has increased over $26 trillion. We have had many robust years of massive tax revenues, yet we cannot come close to balancing a budget, let alone running a surplus. Would you invest in a company that spends more than it makes in perpetuity with a management team of liars (Congress and President)? There is no path to balanced budgets and no one will make tough decisions on entitlements. We need term limits. Note the deficits under Republican and Democrat Presidents alike.

The bills brought to Congress for approval have an insane amount of pork. I could write a book about the absurd billions wasted in these massive spending bills over time. In the omnibus spending bill from late 2022, here are a few fun ones: “$3 million for bee-friendly highways,” $1.438 billion to be part of global multilateral organizations, and “$410 million toward border security for Jordan, Lebanon, Egypt, Tunisia and Oman.” The bill does not set aside anything for U.S. border security. Given the bill had 4,000 pages, who the hell reads it? How about this one? US allots $200 million for gender equity and equality programs in Pakistan, 20 times increase from $10 million given in 2020? Why does the US constantly take our hard-earned money and waste it? Why do they keep giving it away to all these countries? It must stop. How many countries are sending the US hundreds of millions or billions?

Improper payments, which refer to payments that are made incorrectly by the government, cost the U.S. $247 billion in 2022, according to the Government Accountability Office. The U.S. government has lost almost $2.4 trillion in simple payment errors over the last two decades, by GAO estimates. Think about what could be accomplished with $2.4 trillion?

The U.S. government grapples to find ways to trim the bloated federal deficit, a new report suggests officials might start by cutting out $16 muffins and $10 cookies. “We found the Department (of Justice) spent $16 on muffins served at an August 2009 legal conference in Washington,” said a DOJ Office of Inspector General report released on Tuesday. The DOJ spent $121 million on conferences in fiscal 2008 and 2009, which exceeded its own spending limits and appeared to be extravagant and wasteful.

Boosting the Tunisia travel sector during COVID-19 In early 2022 the federal government spent $50 million on a “Visit Tunisia” initiative meant to boost travel to the country. Tunisia’s tourism sector generated over $1 billion in 2019, but apparently, it still needs help. Why in the hell do I care about Tunisia tourism? If the US government spent $5 on this, I would be upset. $50mm?

According to the Office of Management and Budget, the federal government spends more than $1.7 billion a year to maintain 77,000 empty buildings.

The National Security Agency may be America’s top intelligence-gathering organization, but it lacks the smarts to build a functional employee parking lot. A blistering 2021 inspector general’s report shamed the agency for wasting $3.6 million on a hastily built modular parking deck at its Ft. Mead, Maryland headquarters. The finished garage, meant for 250 vehicles, held just 87 – costing $34,000 per spot. Worse, the structure’s European designers didn’t take the size and weight of American cars into account. After a year of safety testing, the agency admitted that the garage was too flimsy to use.

After 17 years in development, the Pentagon’s F-35 Joint Strike Fighter (JSF) program is seven years behind schedule and $173 billion over budget, making it the most expensive weapon system in history with an estimated lifetime maintenance cost of over $1.5 trillion. But the Pentagon and Congress keep succumbing to the sunk-cost fallacy and spending even more on this weaponized money drain, in 2018 allocating $2.7 billion to produce 20 more F-35s and $842 million to update the aircraft they were already supposed to replace.

I agree with the decision to pull out of Afghanistan, a place we should have never entered in the first place. However, the way Biden left was awful. We gave terrorists billions in critical munitions, tanks, planes, helicopters, night vision goggles, guns, and missiles….I have spoken with multiple people who did tours in Afghanistan and they were livid about how poorly the exit was executed. At least $7bn of critical defense equipment was left behind to people who rape and murder. They hate Americans and the West, and we gifted them billions of guns and weapons? We spent $2 trillion in Afghanistan, lost 2,402 Americans and thousands more maimed. Not sure what we have to show for it. Why leave terrorists billions of defense equipment? Burn it. Blow it up. Bring it home. Give it to allies….

For a more mundane example of military waste, look no further than the Air Force, which spent more than $325,000 on 391 fragile self-reheating coffee mugs. After replacing each newly broken mug at an average cost of $836 per mug, the Air Force later found it could 3D print suitable replacement parts at a cost of 50 cents apiece.

Among the most farcical instances of misspending came in 2017, when the Pentagon admitted to wasting $28 million on licensing fees for green camouflage for the Afghan National Army uniforms. The only issue was that Afghanistan is 98 percent desert, meaning the lush uniforms would provide the exact opposite of camouflage in such an environment.

A famous US Navy Captian, Abrashoff, challenged the status quo and asked questions pushing his sailors to find ways to be more efficient and effective. They had to paint the ship CONSTANTLY (every other month) due to rust from screws, nuts and bolts until a sailor suggested using stainless steel which won’t rust. How in the hell was the US Navy using ferrous metal fasteners and not stainless steel for 100 years? The collective hours and money spent to repaint ships is mind-numbing.

The US shot down a $12 hobby balloon with a $400k missile during the China Spy Balloon issues a few months ago.

A reader who advised me on this section, WT, sent me a 60 Minutes piece on price gouging by defense contractors. It is so powerful and depressing that I may need to do an ENTIRE report on it. Examples of stunning incompetence in the Defense Department and aggressive price actions by contractors are costing the US countless billions. I am begging you to watch this 13-minute Youtube video. An oil pressure switch was costing $328 with cabling and now costs over $10,000. The contractors negotiated 12-15% on contractors and it was uncovered that they made 40%. According to the piece, Raytheon overcharged on the Patriot Missile System by $290mm. A shoulder fire Stinger Missile cost $25k in 1991 and now over $400k for each missile due to gouging and gross incompetence. These prices are making our military less ready and there are another dozen examples in the piece.

In 2008, California taxpayers agreed to spend $9 billion on a high-speed rail project that would run from San Franc to LA, cost $33 billion in total, and be operational by 2020. Fourteen years of delay and mismanagement later, new estimates project it will cost $105 billion, and the first phase of the rail won’t even be finished until 2029.

The city of San Francisco “wasted” over $20,000 on a trash can. Following a four-year-long research and development process, city officials stationed 26 new trash cans—15 custom-made prototypes and 11 off-the-shelf cans—around the city this past summer before picking a winner. The cans should cost a few hundred, not $20,000. They spent hundreds of thousands of dollars designing cans that don’t hold much trash.

The infamous “Bridge to Nowhwere” in Alaska received Congressional approval in 2005 for $223mm for the Gravina Island Bridge despite a tiny population. The bridge was meant to make it easier to connect Ketchikan to Gravina Island (population 50) and replace a ferry. The total projected costs were $398mm. Hurricane Katrina happened and money was diverted to rebuild a bridge there. The “Bridge to Nowhere” did not get built, but the fact that it ever got an allocation of YOUR tax dollars shows how crooked politicians truly have become. This could be one of the greatest examples of potential fiscal irresponsibility in US history.

This story concerns the new LIRR train to Grand Central Station. The idea for the expansion is roughly 50 years old, though recent construction didn't begin until around 2010. In 2001, the plan to bring LIRR trains to Manhattan's east side was estimated to cost $3.5 billion, or $1 billion for each mile of the 3.5-mile tunnel. By completion, the cost for the new station — called Grand Central Madison — had surged to more than $11 billion, or nearly $3.5 billion for each mile of track — seven times the average cost in the rest of the world. In 2017, The New York Times called it the "most expensive mile of subway track on earth" as part of an investigation into the city's transit woes. Lets not forget, The NY MTA spent nearly twice as much on consultants for the Second Avenue Subway as it did to actually dig the tunnel from 63rd to 96th streets, a damning new assessment revealed. 

Boston’s Big Dig

• Planning started in 1982 and construction happened from 1991 to 2006.

• The Big Dig was completed on December 31, 2007, but was originally scheduled for completion in 1998.

• The original estimated cost was $2.8 billion but the cost was $14.6bn. The Boston Globe estimates the Big Dig will ultimately cost $22 billion (with interest) and that it won’t be paid for until 2038.

  

Between 2003 and 2017, the Washington Metropolitan Area Transit Authority spent at least $416,789 to maintain a self-cleaning toilet. That’s an exorbitant amount of money, but it gets worse: as of 2019, when this wasteful spending came to light, the toilet hadn’t even worked for the past two years.

I have been sounding the alarm on government spending, deficits and entitlements. I wanted to give examples of why I have personally lost faith in the state and Federal government helping citizens get to the right answer. The fact is, the politicians rarely get it right (BOTH parties). This chart of Federal Debt going from $5 trillion to $32 trillion since the Global Financial Crisis tells you all you need to know. We have a spending problem, and I outlined some of the countless examples of waste.

As tax-paying citizens of the USA, you should demand better. Think about who we elect for office. Hold people accountable. The future to me looks bleak. Exploding debt levels, rising rates, aging population, ballooning health care costs, entitlements, and negligent politicians overpromising are destroying the credit of the once great nation. Stan Druckenmiller, Barry Sternlicht and many other people smarter and wealthier than me are very concerned and you should be too. I want to elect politicians who will make tougher spending decisions on all topics, but most important, entitlements which are ballooning out of control with an aging population and skyrocketing health care costs. We need means testing and to raise the age of eligibility. If France can do it, surely America can too. Right now, the Left and Right are too scared to address entitlements because of the desire to be re-elected. You know what else is unpopular? Defaulting on future obligations due to reckless spending. As great as America is today, we can be better, smarter, and more fiscally responsible. The cost of being wrong on this is just too high. America is losing its dominance on many fronts and continued fiscal irresponsibility will crush this country.

Quick Bites

• Fitch put the United States’ AAA long-term foreign-currency issuer default rating on negative watch, pointing to brinksmanship over the debt ceiling. Hopefully, the deal will be approved in the House Wednesday, and we can stop talking about the Debt Ceiling. The markets had a volatile week between Debt Ceiling announcements, earnings, and inflation data. The week started off on a negative tone and ended more positively despite the headlines on negotiations late Friday. The Nasdaq notched its fifth straight weekly gain, rising 2.5%. The S&P 500 also posted a one-week advanced, advancing 0.3%. The Dow was the laggard this week, losing 1%. According to CNBC, as of earlier last week, 8 stocks in the S&P are up 50% YTD and the other 492 are up 3%. This was prior to the massive move in Nvidia and AI related stocks. The charts below shows how the market breadth today is not ideal and is concentrated on too few stocks. Note the timing of the low breadth periods historically (1999, 2007, 2020, 2023). The core personal consumption expenditures price index rose 0.4% in April and 4.7% from a year ago, both a touch higher than expected. Treasuries sold off driving rates higher. The 2-Year Treasury is now 4.57% (+33bps on week), while the 10-Year is at 3.81% (+16bps on week). Oil prices rallied a bit back to almost $73/barrel, as the market is discounting a deal in coming days.

• The record for largest increase in the market capitalization of a stock is Amazon at $190bn (+12%) in one day on January 4th of 2022. The next largest is Nvidia’s $184bn on 5/25/23. Nvidia’s incredible earnings report on Wednesday resulted in a 24% rally. AI drove the earnings beat and the strong expected results in coming quarters. I was all-over AI early but did not go buy Nvidia which is now up 172% YTD. I am an idiot. To put a $184bn one-day move into perspective, it would rank around 32nd for TOTAL market cap for S&P 500 names. The one-day move is larger than Abbott Labs’ total market cap. Nvidia’s market capitalization is approaching $1 trillion, a level only held by a half dozen companies worldwide. Of note, Nvidia rose another 2.5% on Friday. The upbeat outlook from Nvidia helped lift shares of other chip makers and companies with AI tools. Shares of Advanced Micro Devices and Monolithic Power Systems rose 9.4% and 12.6%, respectively, in early trading. Shares of Microsoft. Marvel stock rallied 32% on earnings and stated “tremendous” potential for AI and it impact on future earnings. Also, Cathie Wood’s ARKK dumped Nvidia stock before the big rally. In 1999, everyone was renaming their company with a .com at the end and the valuations would sky-rocket. I am changing the name of the Rosen Report to the AI Rosen Report and believe my followers will grow exponentially as a result. If you are the CEO or CFO of a company announcing earnings, try to say, “AI” at least 100 times during the press conference.

• I have written extensively on this topic and have suggested multiple times that traditional 4-year college is not for everyone and should not be. Maybe 50% should consider other paths (2-year degrees, vocational schools…). Concerns about costs for college skyrocketing, AI disrupting more white-collar jobs in coming years, and colleges/universities are becoming increasingly overly woke are all helping to push students to consider alternatives. Three years after the Covid pandemic, there are more than 1 million fewer students enrolled in college. “Overall, undergraduate enrollment is still well below pre-pandemic levels, especially among degree-seeking students,” said Doug Shapiro, executive director of the National Student Clearinghouse Research Center. Only community colleges notched enrollment gains in the current semester, while enrollments in bachelor’s degree programs fell, according to the Research Center’s new report. As students look for a more direct link to the workforce, there’s a shift “toward shorter-term programs,” Shapiro said. I wonder what the wage premium chart looks like 10-years forward? Here was one very popular recent Rosen Report from April entitled, “Kidney Donation and Perfect Scores May not Be Enough To Get Into College.”

  

Other Headlines

• JPMorgan is developing a ChatGPT-like A.I. service that gives investment advice

• Gap shares soar after retailer reports big improvement in margins

• American Eagle Outfitters shares sink as retailer lowers forecast

• Target loses $9B in week following boycott calls over LGBTQ-friendly kids clothing

• First Republic’s $35 Million Banker Outearned JPMorgan’s Dimon Before Bust

  • Incentives for staff minted dozens of $10 million pay packages at First Republic. Moronic incentives at Bear, Lehman and others also drove to outsized risks and bad decision-making. When I saw the compensation at Bear, I almost crapped my pants.

    

• France bans short-haul flights to cut carbon emissions

• IRS opened Matt Taibbi tax probe on Christmas Eve following ‘Twitter Files’ document dump

  • Every day that goes by, I become more of a conspiracy theorist. The corruption in the DOJ, FBI, CIA, IRS… is remarkable. I am sure it is just a coincidence that the IRS Taibbi probe happened just after the Twitter files exposed corruption. The IRS opened the Taibbi examination on Christmas Eve of 2022. Just like when the IRS had to apologize for aggressively scrutinizing conservative groups in 2017. The IRS admitted “heightened scrutiny and inordinate delays” and demanded unnecessary information from the conservative groups. Every day, new third-world corruption comes out, but it is in the USA. I would be equally as upset if it were consistently going against the Left.

• CNN hits Biden with 'horrible news' as poll shows 66% of Americans call a 2024 victory a 'disaster,' 'setback'

• Biden has a lead over Democratic primary challengers but faces headwinds overall

• Karl Rove predicts polls tighten between Trump, DeSantis as Florida governor enters: 'Seen front-runners fade'

  • Trump is +9% since late March and DeSantis is -8%. DeSantis played too strong on abortion and Disney and his Ukraine comments did not help. I am not religious but I am praying that the ballot does not have Trump or Biden on it.

    

  

• One in five deaths among young Californians tied to fentanyl

  • Overdoses involving fentanyl were behind one in five deaths of people ages 15-24 in California. Drug overdoses now kill two to three times as many people in the state as car accidents. Since 2017, deaths related to the synthetic opioid have increased 1,027%. Are you telling me that the porous border is not contributing to this awful data? According to the US Government, Mexico is the “dominant source” of fentanyl supply which originates in China.

• NYPD cop indicted in vicious street beatdown of NYC homeless man

• BLM recorded $9M deficit in 2022 — but still paid millions to execs

  • BLM raised $90mm in 2020, but Cullors, founder, quit over financial scandals. BLM has purchased at least $12mm in luxury homes in LA and Toronto. The payments outlined by this article are concerned with cash being paid to insiders and those close to insiders.

• Dollar Tree may be raising prices due to crime as profits fall

  • The stock fell 12% on earnings. On a related note, Nordstrom is closing to San Fran locations and cutting 379 jobs over the “dynamics” of San Francisco. We need tougher crime laws. Those who pay for goods, do the right thing, and obey the laws are irreparably harmed by criminals who wreak havoc on the system. Old Navy is closing its flagship store after 24 years in San Fran as well. Can’t figure out why.

• "There's Poop Everywhere": San Francisco's Office District Not Only A Ghost Town, It's Also Covered In Sh*t

  

• Oath Keepers founder sentenced to 18 years in Jan. 6 seditious conspiracy case

  • 18-year prison sentence for Stewart Rhodes. I’m fine with this sentence but would like to see violent criminals in big cities who rape, murder, and beat people get major sentences as well.

• Texas high school postpones ceremony after only 5 seniors met graduation requirements

  • We are failing our children. 5 out of 33 students met graduation requirements yet we are sending hundreds of billions to other countries.

• Why are you suddenly being asked to tip more? It could be because workers are getting more expensive.

  • I recently wrote on this topic (in Quick Bites) and it received a lot of feedback.

• 23-year-old man thought he’d pee by a pond — then he was attacked by an alligator

  • The man was at a busy bar and wanted to pee, but the line was too long. He went to the edge of a pond and had his arm bitten off by an alligator. Fort Myers, FL, of course it was.

• China blows up US Navy’s largest warship in menacing simulation

• Putin could have a 'revolution' on his hands because Russian elites refuse to send their kids to die in the Ukraine war, Wagner boss Prigozhin warns

Real Estate

• Brookfield’s EY Plaza office tower in Downtown L.A. has been placed in receivership, after the firm missed a loan payment on the building. Lenders on a CMBS package — originated by Morgan Stanley and Wells Fargo — filed a lawsuit last week, directing the court to place the 938,000-square-foot, 41-story tower into the hands of a third-party receiver.  The move comes after Brookfield fell behind on payments connected to the $275 million CMBS package on the tower — made up of a $220 million senior loan and a $55 million more subordinated loan. The receivership is the latest mark of distress for Brookfield, which has now defaulted on about $1.1 billion in loans connected to office towers in the central business district. It’s also the second Brookfield tower that has been sent to receivership this year — the first was Brookfield’s 52-story Gas Company Tower, on which Brookfield defaulted on $350 million in CMBS loans.  The urban office, retail and business hotels in Blue states will be hardest hit (LA, SF, Portland, Seattle, Chicago, St. Louis, NYC, DC….). A lot more to come and policy is to blame. Lockdowns, mandates, high taxes, high crime, bail reform, homeless, filth, WFH… have all led to these results.

• YTD homebuilders have performed quite well and have sharply outperformed the broader market. This chart was as of Thursday afternoon, but you get the idea. These stocks have sold off a little since this picture. Also, the iShares Homebuilder ETF is +22.3% and the S&P Homebuilders ETF is +14.8% YTD.

  

• The article outlines Hamptons summer rentals falling in price with lots of availability. I have spoken with a half dozen currently looking to rent and they suggested the article was too rosy and deals are far better than the piece suggests. Lots of available inventory. More people are sick of the Hamptons, crowds, traffic, bad restaurants and are going to Europe instead. If you want to check out the Hamptons for a month, now is the time to get a good deal relative to last summer.