Hello everyone,

I hope you had a nice weekend and weren’t too impacted by the smoke from our forest fires. And the World Cup has finally ended. I thought it was a very good World Cup but I’m glad it’s over. And it was a pretty boring final.

I joined Matt Johns on his Christian Alts TV Podcast. On previous shows he has discussed the concept of money so I knew we would have a great conversation. I hope you get a chance to listen to it.

Summary

• A look at pawn shops.
  • And how they may be a good hedge in your stock portfolio.
• Sales of General Mills finally stop falling.
  • But volume continues its downward path.
• A look at the most visited websites in the U.S.
  • Gmail leads the way.
• In Financial Ructions:
  • Chicago’s public pension plans are a disaster.
  • Investment in Canada is falling further and further behind the U.S.
• Book Review
  • We’re on chapter two of Why Socialism Struggles.
    • Economics is about making decisions.
      • And no, not by policymakers but by individuals.
  • However, we are all suffering from the Fatal Conceit of our elected and non-elected officials.

News

Pawn Shops

• Pawn shops will typically lend around 25-40% of the collateral’s value.
  • So, if you offer your $1,000 watch as collateral for a loan, they will lend you $250-400.
• There are more than 12,000 pawn shops in the U.S.
• The word pawn comes from an old French word meaning pledge or security.
  • There are other theories as to where the word came from.
• The symbol for a pawn shop is three balls which comes from the crest of the Medici family.
  • The Medicis were great financiers from Florence in the 1400s.
    • Note that there are other theories surrounding the three balls symbol.
• The average pawn loan is $180.
• Terms for handing over an article for collateral with a pawn shop:
  • Hocked
  • Popped
  • Up the spout (ya gotta love the Brits)
• Pawn shops are regulated in the U.S. and the U.K.
  • Interest rates on loans can range from 3-25%…per month.
• If you default on a pawn shop loan it is not reflected on your credit report.
  • But the fact you were pawning stuff off in the first place means your credit may already be in shambles.
• Apparently, if you’ve had stuff stolen from your house, some police departments recommend you visit your local pawn shop to see if your stuff ended up there.
• Typical revenue breakdown for a pawn shop:
  • Interest income on loans: 80-85%
  • Sale proceeds on forfeited collateral: 15-20%

EZCorp is an American pawn shop company founded in 1989.

• They are a leading provider of pawn loans in the U.S. and Latin America.
• They also sell merchandise that is forfeited collateral from the loans they make.
• And they have a number of different pawn shop brands.

Quarterly sales growth:

• 2Q/2025: +7%
• 3Q/2025: +11%
• 4Q/2025: +14%
• 1Q/2026: +19%
• 2Q/2026: +46%

EZCorp’s share price:

• 1yr: +131%
• 5yrs: +465%
  • Note that during the Great Financial Crisis of 2008/2009 the share price of EZCorp soared.
    • But then plummeted once the economy recovered.

FirstCash is another large publicly listed pawnbroker:

Quarterly sales growth:

• 1Q/2026: +25.7%

General Mills

General Mills started off as a flour mill in Minneapolis in 1866.

It has the following brands:

• Cheerios
• Haagen-Dazs ice cream (Nestle owns the rights in the US)
• Betty Crocker
• Bisquick
• Cocoa Puffs
• Green Giant
• Old El Paso
• Pillsbury
• Used to own Yoplait but sold it in 2025.
• And many more

Growth has slowed significantly, and I would suspect it’s due in large part to big price increases in previous years:

Adjusted sales by quarter:

• 3Q/2023: +16%
• 4Q/2023: +5%
• 1Q/2024: +4%
• 2Q/2024: -2%
• 3Q/2024: -1%
• 4Q/2024: -6%
• 1Q/2025: -1%
• 2Q/2025: +1%
• 3Q/2025: -5%
• 4Q/2025: -3%
• 1Q/2026: -3%
• 2Q/2026: -1%
• 3Q/2026: -3%
• 4Q/2026: 0%
  • Price: +2%
  • Volume: -2%
  • North American Retail: 0%
    • Price: +2%
    • Volume: -2%
  • North American Pet: -3%
  • North American Food Service: 0%
  • International: +3%

Volume by quarter:

• 1Q/2022: +1%
• 2Q/2022: 0%
• 3Q/2022: -4%
• 4Q/2022: -2%
• 1Q/2023: -5%
• 2Q/2023: -6%
• 3Q/2023: 0%
• 4Q/2023: -6%
• 1Q/2024: -2%
• 2Q/2024: -4%
• 3Q/2024: -2%
• 4Q/2024: -2%
• 1Q/2025: 0%
• 2Q/2025: +2%
• 3Q/2025: -4%
• 4Q/2025: 0%
• 1Q/2026: -1%
• 2Q/2026: 0%
• 3Q/2026: -2%
• 4Q/2026: -2%

They expect a “continued challenging consumer backdrop.”

• And expect fiscal 2027 sales to be essentially flat to slightly negative.

This is quite a change from a few years ago:

• From my post in December 2022:
  • General Mills net sales growth in North America was up 11%:
    • Price: 19%
    • Volume: -8%

General Mills share price:

• 1yr: -23%
• 5yrs: -36%

Where People Surf

According to The Institute for Information, the Internet and Democracy, these are the most popular websites in the U.S.:

• Gmail: 16.4%
• YouTube: 10.4%
• Facebook: 8.0%
• Yahoo Mail: 3.7%
• Google Docs: 3.2%
• Google Search: 2.3%
• Amazon: 1.9%
• Outlook Live: 1.8%
• ChatGPT: 1.5%
• Reddit: 1.3%
• X: 1.2%

Note that Alphabet Inc owns Gmail, YouTube and others totalling 35% of total browsing time in the U.S.

Browsing by type:

• Social media: 25.3%
• Email: 24.9%

Large language models (LLMs) like Chat GPT account for 2.9%.

• News is only 2.5%
  • Older people: 4.7%
  • Younger people: 1.2%

What does Large Language Model mean? According to X.

• Large: Use billions or trillions of parameters (earlier language models used millions).
  • Words or subwords are scraped from the Internet, books, code etc.
• Language: Statistical models of human language.
  • Learning the probabilities of which words and tokens tend to follow others.
• Model: A mathematical function optimised on data to perform a function.

PM: I still don’t get it.

Financial Ructions

Note: ‘Financial Ructions’ is optional-to-read for those who are interested in taking a bit of a deeper dive…

Chicago: Pension Plan Basket Case

According to the FT, Chicago’s pension system is drastically underfunded:

• Funding ratio of pension plans:
  • U.S. national average: 82.5%
  • Chicago: 28.1%

The article says that Chicago’s pension plan is “among the worst funded in the U.S.” meaning that there are others that are just as bad.

• 76 state and local pension plans in America are less than 75% funded.

And the article rightly points out that this underfunding has taken place despite soaring stock markets.

• Over the last 15 years the S&P500 has returned around 14% per annum.
  • This compares with the average 15-year return over the last 50 years of around 10%.
    • And note that the last 50-year period benefited from a decline in interest rates that will not happen again over the next 50 years.

Over the years, the city of Chicago continuously cut pension contributions rather than rein in their spending in other areas.

• PM: Note that this is the classic and spineless political choice made by most politicians.
  • Avoid the difficult and unpopular decisions by cutting back on things that won’t be felt for a number of years in the future.
  • I talk about a related situation in my book Capital Offence.
    • Back in 1983, French president Francois Mitterrand lowered the retirement age from 65 years to 60.
      • He looked like a compassionate leader who cared more for the people than previous leaders who insisted on keeping the retirement age at 65.
      • But of course the consequences of allowing people to retire before they contributed enough to the retirement plan mean that future generations must make up the difference.

If, or rather when, we have a bear market, the pension plan funds would be “toast.”

And a recent law that boosted pension benefits will reduce the funded status to 18%.

To her credit, mayoral candidate Susana Mendoza has been very vocal on the issue, warning that “Everyone is going to potentially have to talk about sacrifice.”

Of course, the city’s public workers complain that contributions should not have been cut.

• PM: Contributions to the pension plan
  • Workers: 9% of their salary.
  • City (taxpayers): 25-30% of public workers’ salaries.
• PM: Note that the benefits of these public plans are extremely generous compared to the average private pension plan.
  • For instance, according to GROK the annual pension income for a retired worker who had been making $85,000 per year:
    • Private worker: $30-40,000
    • Public worker: $63,750
  • And the pension of the public worker is guaranteed while that of the private worker isn’t.
    • Note that defined benefit plans in the private sector do have some guarantees but can still suffer losses.
    • But the problem is that defined benefit plans now only account for around 15% of private pension plans.
    • I’ve written about this before
      • Back in 1985, defined benefit plans accounted for 60% of pension plans in the private sector.
      • But courts and the Employee Retirement Income Security Act (ERISA) were siding with unions who claimed that pension surpluses that resulted from strong stock market returns belonged to the workers and not the company.
  • However, if stock markets fell and there were pension deficits then that was the responsibility of the company to make up the shortfall.
  • The asymmetrical risk profile resulted in corporate America steadily discontinuing defined benefit plans that came with guaranteed pension income and replacing them with defined contribution plans which put all of the risk on the workers.
  • These rulings were a terrible disservice to the American worker.
    • Short-term one-off gain for unions and a long-term ongoing loss for workers.
  • Maybe ERISA should remove the words Income Security from its moniker.

Thanks to MB for putting me onto this article.

Investment Canada: Not

According to the Fraser Institute, investment in Canada has stagnated over the last ten years.

• Business investment per worker in Canada as a percentage of that in the U.S.:
  • 2014: 87.3%
  • 2024: 54.0%

Book Review

Why Socialism Struggles

By: Dr. Doug Cardell | 2026

Chapter 2: What Is Economics

Economics is the study of how we choose to allocate our resources.

• The study of choices.

Every time we make a decision it is the “evaluation of a trade of one thing for another.”

• It might be that you trade your money for a meal.
• Or you trade having a nap for going to the pub.
  • The trade doesn’t have to involve money.

The decisions we make are about improving our condition.

• PM: Even if, rather than simply donate to charities you decided to give away all of your money, you would be improving your mental condition.
  • Either you felt too guilty having any money at all when others didn’t have any or there was some other motivation (social approval, moral satisfaction), no matter what reason, your actions improved your condition.
    • Fortunately, I have not yet suffered from this affliction.

DC notes that all organisms learn by experimentation.

• PM: Learning is iterative.

We all learn from the result of our experimentation.

• Undesirable results from our experiments are not mistakes but learnings.
  • PM: In other words, unless you’re willing to experience undesirable results you cannot learn.
• DC does note that to some degree you can learn from others’ choices and results and some are better at it than others. But there are issues with learning from the choices of others or allowing others to choose for you:
  • No two people share the same values
  • Choosing for someone else deprives them of the chance to learn.
  • Choosing for oneself is a fundamental aspect of humanity: Freedom of choice.

Choice is necessary for action, and together they are the foundation of life.

• And “Learning to make the best choices leads to the best life.”

PM: As you know I sign off every blog post with “Be free and do no harm.”

• DC: The best thing you can do to benefit society is to legitimately pursue your own self-interest (not the same as being selfish).
  • If everyone does what they can to improve their well-being without harming others, both the individuals and the society benefit.
• PM: As in the above example of giving away all of your money, you would be acting in your own self-interest.
  • DC says that legitimate self-interest is the pursuit of our values.

DC says that if instead of acting in our own self-interest we attempt to do the opposite, then it actually harms society as we can’t possibly know what is in the best interest of others.

• PM: This seems a bit contradictory to me as we cannot possibly act in any way other than what’s in our own self-interest.
  • Perhaps what he means is feeling forced by others to act in a way that is contrary to your own well-being.
    • Because if you don’t, you’ll be cancelled or ostracized.
      • So, you’re still acting in your own self-interest as you’d rather be poor than ostracized.
  • But you’d rather be neither.
    • He says that “legitimate self-interest is the pursuit of our values.”
  • However, he is right that if we only do what others want us to do rather than what we want to do, e.g. give away all our money, then that ultimately does harm society.
    • Initially everyone has more spending money.
      • But then the jobs disappear
    • And so do the consumption goods and there’s nothing left to buy.
    • In my opinion, the key aspect is ensuring your self-interest inflicts no harm on others.
      • And no, not giving away all of your money doesn’t mean that you can’t give up some.

DC notes that one of the problems is that many people conflate economics with ideology.

• They put forward economic laws as they wish them to be (normative economics) rather than as they are.
  • Some liken this to getting angry at gravity for plane crashes.

Plato may have been the originator of normative/philosophical economics.

• But his student Aristotle quickly, through logic, showed how Plato’s collectivist ideas failed.
• When the pilgrims arrived in the new world they first attempted collectivism and many starved.
  • Only after they reintroduced private property did they start to thrive.

It sounds contradictory, but individualism is the most assured way of achieving social harmony.

• Socialism/Collectivism relies on the will of a few being imposed on the population.
  • “Marx’s idea of the dictatorship of the proletariat (the working class who sell their labour).”
• PM: It doesn’t mean that the few are not well-intentioned.
  • What it does mean is that those few are so arrogant and narcissistic that they need to delude themselves with respect to the great harm that their actions impose on society.
    • And as many people don’t understand how an economy truly works, figureheads simply need to use fancy words and attempt to sound smart and authoritative.
      • Rather than empower people with truth and understanding which would then make it easier to do the right but difficult things.
    • We would all be well-served if today’s policymakers read Friedrich Hayek’s Fatal Conceit: The Errors of Socialism.
      • “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

That’s It

• For Paulitical Economy® Post 376
• Until next time:
  • Be free
  • And do no harm.

Disclaimer

Note that Paulitical Economy® should not be considered investment advice, and I have not verified all of the sources of information. It is meant for general interest purposes only. Please consult an advisor if you plan on putting any of your hard-earned capital to work during these turbulent times.