Deschutes Capital

07/24/2025

It is always important in business to stay focused on the facts to reduce perception errors which lead to poor/bad decisions. This New York Times article accurately describes how the US has lost its competitiveness in key industries with China. It's hard to believe that a capitalist venture capital industry could lose out so badly to a communist sovereign venture capital fund on so many key industries of our shared future.

The Trump administration is fighting the last war while China marches toward dominating the industries of the future.

02/20/2025

The Penn Wharton Budget Model developed by Apollo Global Management's CEO, Marc Rowan, seems to be an excellent starting point for a bipartisan Federal Budget agreement. It is research focused (theoretical and practical) and will fundamentally reshape our economy and fix the federal budget, while cutting taxes, but also cutting almost every tax exemption, increases the capital gains tax rate, creating a carbon tax and rewriting the rules of immigration and health care (significantly reducing health care premiums). Some of the big advantages are being able to score legislative bills before they are voted on, lowering the marginal tax rate to remove economic distortions which reduces the game playing with the tax code and grossly simplifies the tax code.
Here is a link to the Penn Wharton Budget Model website which provides an overview, detailed description and explanation:

A package of 13 major tax and spending reforms, based on standard public economics design principles, is shown to reduce federal debt, increase social insurance, and expand the economy more than any previously analyzed policies by PWBM.

04/03/2024

Better Business Decisions - Last week Dr. Daniel Kahneman passed away. Even though he held a PhD in Psychology, in 2002 he was awarded the Nobel Prize in Economics due to his pioneering research in Behavioral Economics. I have included a link to his biography from the Nobel Prize website.
He was a great practical critical thinker that contributed to the establishment of behavioral economics and was one of the most influential psychologist of our times. His primary focus was on understanding and illuminating our flawed intuition as the result of bias and perception errors. His best selling book, Think Fast and Slow (2011), summarizes his research up to that time. He presented the concept of judgements and decisions being made in two stages - the intuitive process, which is fast, associative and relatively effortless and the analytical process, which is slower, rule governed and deliberate. The great significance of the inaccuracies in the intuitive decisions feed (become the inputs to) the analytical decisions.
The results of his research has robust benefits across many different fields where important decisions are being made.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2002 was divided equally between Daniel Kahneman "for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty" and Vernon L. Smi...

08/30/2023

Deschutes Capital believes company financial managers should be preparing their companies for an economic downturn that should begin either in the 4th quarter of this year (2023) or the 1st quarter of next year (2024). Recessions typically last on average for 9 months. Reducing excess inventory, increasing liquidity reserves and ensuring that your company will have sufficient financing flexibility if cash flow declines are particularly important at this stage of the business cycle.

The yield curve (3 month to 10 yr. yields) inverted in Nov. 2022 and recessions typically begin 11 to 13 months following the inversion. Multiple factors imply this US economic downturn could be more severe than the consensus currently anticipates.

Consumers and businesses have reduced financial reserves that had built up during the pandemic (reducing the effects of the Federal Reserve's interest rate hikes). Although the decline in M2 money supply since July 2022 seems to have bottomed in April of this year, it could decline further as the US economy continues to slow or decline. Particularly bothersome are the simultaneous problems that are lining up with the government debt, corporate debt and consumer debt at high levels, as well as, China's economy being stressed and slowing along with the European Union's economy being stressed and slowing.

10/07/2022

The economic pain that the US Federal Reserve Board is creating, both domestically and internationally, as the result of not tightening monetary policy earlier (and allowing inflation to become excessive)(human error by the entire FR Board), is a shame at best and causes one to wonder whether there needs to be restraints on the Federal Reserves actions to minimize the dual risk of human error, as well as, the lack of individual thinkers on the Federal Reserve Board (with the exception of St. Louis Federal Reserve President James Bullard).

Also at this stage, you have to wonder whether the Bernanke Quantitative Easing experiment (started in Nov. 2008) is a failure? Are the Federal Reserve actions merely a zero sum game, and the volatility that they remove from the economy on the downside is merely added back on the upside? The question now is how long should the Federal Reserve Board have to reduce the Bernanke QE portfolio down to a normalized Federal Reserve balance sheet - and whether at the end it does more harm than good (or all things considered, nothing at all - all the "benefit" offset by an equal amount of economic pain)?

In all fairness, the Federal Reserve Board has been over burdened for decades by the lack of sufficient Fiscal Policy in response to economic issues. The "normal" balance between Fiscal Policy and Monetary Policy has been lacking on the Fiscal Policy side and has put an excessive burden on Monetary Policy responsibilities. The answer may be forcing Fiscal Policy to at least live by the same rules that the Federal Reserve has to live by - employment and inflation targets.

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06/25/2021

With the FASB ASC 842 Lease accounting rules needing to be implemented for fiscal years beginning after Dec. 15th of this year (for private companies), it is important to begin preparation as soon as possible (depending on the extent of your company's leasing portfolio and staff resources and time) if you have not completed the process already. The following article published by Lauren Covell of Occupier (a software company) with StrategicCFO360 provides a motivating overview. I will also provide more detailed resources that I hope you and your company will find helpful.

Corporate real estate portfolios have already been disrupted by Covid.

02/03/2021

It is always interesting to view the forecasts and outlooks for the year ahead. I have found Ruchir Sharma's (Morgan Stanley's Chief Global Strategist) "Top Ten Trends of 2021" to be one of the more insightful with a broad perspective. It will be interesting to see how accurate his outlook is toward the end of the year.

Ruchir Sharma, Chief Global Strategist and Head of Emerging Markets, unveils his top ten trends of 2021.

12/11/2020

Scott Galloway deserves an honorary doctorate degree in economics for his new book "Post Corona: From Crisis to Opportunity." He has articulated in a highly perceptive way the dysfunctional allocation of government benefits and the need to balance the natural forces of capitalism for its own efficiencies to be maximized for the broader population. A must read for the objective capitalist.

Scott Galloway joins the program.

10/15/2020

It is unfortunate that there is not better enforcement of FASB accounting standards. This article by David Trainer posted on Seeking Alpha is a good article on the disclosure issues associated with FASB's new standard ASU 2016-02 for operating leases, that went into effect in the first quarter of 2019.

Many companies are not complying with the Financial Accounting Standards Board’s (FASB) new standard (ASU 2016-02) for reporting operating lease assets and liabilities on the balance sheet.

09/17/2020

Sustainable economics and the economic multiplier effect: These may be esoteric economic concepts to some but are powerful practical economic concepts that both government officials and the electorate can use to improve the efficiency and effectiveness of government and the use of citizens' taxes over the long term.
At a more personal level, companies can also take these powerful concepts into consideration for budget expenditure decisions, including marketing, employee benefits and capital expenditures, to ensure more financially stable companies.

05/23/2019

A timely article on identifying inflection points in US employment using Columbia Univ. Prof. Geoffrey Moore's Leading Employment Indicator that utilizes average manufacturing workweek, average overtime manufacturing hours, initial jobless claims and the ratio of voluntary to involuntary part-time labor (referred to as the part-time ratio). The author, Eric Basmajian, suggests using a six month moving average to reduce false positive indications.
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https://seekingalpha.com/article/4249854-building-leading-indicator-employment