Saturday, March 24, 2007

Worth a Listen

Smooth jazz guitarist/composer Doc Powell, check out his CD 97th and Columbus.

Pay No Attention to the Crazy Man on TV

I have made several previous posts about Jim Cramer, check here and here, and have suggested people should watch Jim Cramer for entertainment purposes, not for serious investment advice. Slate Magazine's Henry Blodget has a new article about Cramer, where he suggests that Jim Cramer "has committed professional suicide," by admitting that he engaged in trading practices that are questionable at best, possibly illegal?

Aside from those potentially serious ethical and legal issues, an even more important question might be: How well did the performance of a portfolio of Mr. Cramer's stock picks in 2006 stack up against a portfolio of passive index funds? Unfortunately for Cramer's followers, not very well.

According to Mad Money Machine, the return in 2006 for a portfolio of mostly Vanguard Index funds was +20.6%, compared to a -0.20% loss for a portfolio of "Select Jim Cramer Featured Stocks." A $100,000 investment at the beginning of the year would have grown to $120,612 by the end of 2006, compared to only $99,805 for Cramer's picks (see chart above, click to enlarge).

Bottom Line: Watch Cramer for entertainment purposes only, call Vanguard or Fidelity for investment advice on index funds. Or read "Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing," by economist Burton Malkiel, who is a strong advocate of index funds.

Friday, March 23, 2007

As Simple As Possible

Economic science simplified to a 3-variable equation.

1. Prices can only go up if demand increases, or supply decreases. Like rising gas prices.

2. Prices can only go down if demand decreases, or supply increases. Like falling gas prices.

Q.E.D.

History of the U.S. Tax Code, Highest Marginal Rate

Getting ready to pay/file your taxes? If you're in a high income tax bracket, it could be a lot worse, you could be paying 91% like during the 1950s or 70% during the 1960s. The average highest marginal tax rate since 1913 is 60.3%.

Is is any wonder that the economic conditions in the 1930s turned from bad to worse, when the highest income tax rate was raised from 25% to 79% during that decade?

From Hourly Associate to Senior VP at Wal-Mart: Wal-Mart is More Selective Than Harvard University

"Jobs at Wal-Mart are a dead-end cycle that keeps people in poverty," according to Wal-Mart critics like Wendell Chin in this SF Chronicle article. Why is it then that so many people want to work at Wal-Mart? Most new Wal-Mart stores employ 350 employees, and it typically gets 11,000 to 25,000 applications, or about 25 to 75 applications for EVERY AVAILABLE JOB! Even Harvard University gets only about 10 applications for every available position. Think about it, Harvard's acceptance rate is 9.3%, and Wal-Mart's acceptance rate is only 1-3%!

One reason so many people want to work at Wal-Mart is the opportunity for advancement - more than 75% of current store managers started at Wal-Mart as hourly associates.

For example, consider the case of 42-year old Patricia Curran, Wal-Mart's Executive Vice President of Store Operations, and listed by Fortune Magazine as one of the 50 most powerful women in the U.S., along with two other senior Wal-Mart executives. She is also listed here as one of the Wall Street Journal's top 50 Women to Watch for 2006.

At age 20, Ms. Curran started her career at Wal-Mart as an hourly associate in the pets department, and was subsequently promoted to Department Manager, Assistant Manager, Co-Manager, Store Manager, Regional Personnel Manager, District Manager, Operations Coordinator, Regional Vice President, and Divisional Merchandise Manager, and in 2003 to Senior Vice President of Wal-Mart store operations.

I don't think Patricia Curran is living in poverty, and I don't think she would consider her career at Wal-Mart as a dead-end cycle.

To paraphrase Thomas Sowell, Wal-Mart does not pay its associates as much as third-party observers like Wendell Chin would like to see them paid. But how much are third parties like Wendell Chin, who wax indignant, paying them, and how many jobs are they providing? None.

Who Knew? Monopoly's Surprising History

Most people think Monopoly was an overnight success for Parker Brothers, which introduced it in 1935. But the game began 30 years earlier, when a woman named Elizabeth Magie Phillips designed a new way to teach economics.

A proponent of a “single tax” on property (rather than on income and consumption), she designed what she called the “Landlord’s Game” to instruct people about the justice of her economic scheme.

Fans of the game made copies by hand, improving the play as they went. By the time Charles Darrow, generally credited with “inventing” Monopoly, obtained a patent and sold it to Parker Brothers, the game had already been through three decades of beta-testing.

Read
more here.

P.S. Doesn't Parker Brothers have a monopoly on "Monopoly?"

Thursday, March 22, 2007

Economists Can Earn Investment Bankers' Incomes

The average 9-month salary for economics professors at the University of Michgian-Ann Arbor is $155,000, there are 9 professor who make more than $200,000, and the highest paid professor in economics makes $245,000. But high-profile economists like the Professor David Teece at University of California-Berkeley who provide expert testimony can earn $2 million or more a year, according to this front page article in yesterday's WSJ, "An Economist's Courtroom Bonanza."

"We've given economists the chance to earn investment bankers' incomes," Prof. Teece says. "If you're successful with us, it isn't hard to make half a million dollars a year." He estimates that 60 of his associates earned more than $500,000 last year.


Professor Teece's hourly fee? $850.

Drug War Casualties: Prisoner Rape Victims

It is widely accepted that the U.S. “war on drugs” has been both costly and ineffective. Less known is the devastating link between current U.S. drug policies, prison overcrowding, and rape behind bars. In "Stories from Inside: Prisoner Rape and the War on Drugs," a report released today, Stop Prisoner Rape makes clear for the first time how the war on drugs has contributed to the sexual violence that plagues prisons and jails across the country, derailing justice and shattering human dignity.

"Stories from Inside" offers first-hand accounts by 24 prisoner rape survivors, all of whom were sexually assaulted while serving time for a non-violent drug-related offense. The report also offers an overview and analysis of the war on drugs, highlighting how it affects the sentences and prison experiences of hundreds of thousands of Americans and making policy recommendations. Anyone can become a victim of prisoner rape, but non-violent drug offenders who are unschooled in the ways of prison life tend to be targeted, especially when they are housed in cramped cells or in poorly monitored dormitories that were never meant to hold inmates in the first place.

Read more of the SPR press release here, via Jacob Sullum at Reason Magazine.

If there was a single issue that made turned me into a libertarian, the War on Drugs was near the top of the list. If these testimonials of non-violent drug offenders getting raped in prison (3 are from Michigan) don't convince you that the War on Drugs is misguided, senseless and immoral, nothing will.


More on Women in Global Management

According to the 2007 Grant Thorton International Business Report, the percentage of women in senior managerial positions globally has grown slightly from 19% to 22% since 2004. The Philippines comes out top with 50% of managerial positions being held by females, ahead of Brazil (42%) and two other Asian countries - Thailand (39%) and Hong Kong (35%). Lowest in the table is Japan with just 7%, below three European countries Luxembourg, Germany and the Netherlands at 10%, 12% and 13% respectively (see chart above, click to enlarge).

The EU's proportion of women in senior management has remained static at 17%, while NAFTA's figure has increased from 20% to 23%.

Note that the graph in my previous posting based on the The Economist is slightly inaccurate, because it shows the U.S. about 4 percentage points below the global average, when it is actually 1% above the global average of 22%.

Trying to Define American Car Will Drive You Crazy

From USA Today, an interesting article How do you tell which car is more American?:

"Many consumers are increasingly confused. The world is no longer as simple as us vs. them, Detroit against the Asians and Europeans. It's a global industry now, in which all manufacturers are touching their automaking toes on the shores of just about every industrialized nation.

Honda's Ohio-built Accord is 70% domestic parts. Toyota's Corolla is made in a California plant alongside General Motors models.

Ford's hit Fusion sedan is made in Mexico; only half its parts are from the USA or Canada. GM pitches its small HHR sport utility and giant Suburban straight at the American market, but they, too, are built in Mexico. HHR has only 41% American and Canadian parts.

More than three-quarters of the parts in Dodge's new Nitro SUV, which is assembled in Toledo, Ohio, are American or Canadian. But the profits go to Germany because Dodge is part of DaimlerChrysler. Chrysler Group, meanwhile, just became the first major automaker to announce it's going to make small cars for the U.S. market in China."


To see a chart that provides the domestic content of 2006, 2007 and 2008 model vehicles, go here. Notice however that "domestic content" actually includes parts from U.S. AND Canada, because the U.S. government requires that automakers disclose "what percentage of a new vehicles' components are U.S. or Canadian and where the vehicle was assembled." Isn't Canada a foreign country?

To read my article on this topic "Trying to Define a Foreign Car Will Drive You Crazy" go here.

To read another article I wrote on this topic "Vehicle Profiling Has No Place in a Global Economy," which appeared in the Detroit News, go here.

Chinese Stocks Rebound, Close at New Record High

Remember the plunge a few weeks ago that triggered a global sell-off? In Shanghai it was a buying opportunity.

From today's
NY Times World Business section, "After a huge sell-off here just a few weeks ago that helped set off a drop in global financial markets, China’s stock market has rebounded and the Shanghai Index rose to a new record Wednesday of 3057.38." (see chart above).

When the Shanghai composite index plunged 8.8% on February 27, it was simply a temporary setback in a galloping bull market. After all, an 8.8% drop is like having a sale on all stock at an 8.8% discount. When Macy's has a sale, it attracts more customers, so why shouldn't a "stock sale" attract more buyers?

BTW, China had the world’s best-performing stock market in 2006 - the Shanghai Composite Index was up 130%. Share prices are already up 14% in Shanghai so far this year.

Wednesday, March 21, 2007

Global Glass Ceiling

From The Economist: The highest percentage of women in senior management can be found in the Philippines, according to a report by Grant Thornton International, a consultancy. This reflects a tradition of wide participation in society there. Similarly, the egalitarian legacy of communism could explain the high proportion of women near the top of companies in China and Russia.

Quote of the Day II

"It is difficult to get a man to understand something when his salary depends upon his not understanding it."

~Upton Sinclair

A few examples come to mind: unionized public school teachers and school choice/vouchers, UAW workers and globalization, protectionist U.S. sugar beet farmers and the proven benefits of free trade, existing banks and Wal-Mart's pro-consumer attempt to enter banking, etc. Any other suggestions?

Quote of the Day

"The average Wal-Mart customer earns $35,000 a year, compared with $50,000 at Target and $74,000 at Costco.

Wal-Mart's "every day low prices" make the biggest difference to the poor, since they spend a higher proportion of income on food and other basics. As a force for poverty relief, Wal-Mart's $200 billion-plus assistance to consumers may rival many federal programs. Those programs are better targeted at the needy, but they are dramatically smaller. Food stamps were worth $33 billion in 2005, and the earned-income tax credit was worth $40 billion."

~Sebastian Mallaby, Washington Post columnist

People's Republic of Minnesota?

What's going in my home state of Minnesota? First the Minnesota House passes legislation to ban "foreign-made American flags" from Minnesota store shelves. That's pretty well... mercantilist, xenophobic, jingoistic, scary are the words that come to mind.

Now both the House and Senate in Minnesota have introduced bills to control college textbook costs, supposedly to prevent "textbook gouging," and change the way publishers market textbooks.

The bills would require textbook publishers to sell individual books usually marketed in bundles and require them to disclose when they plan to release new editions of textbooks. The bill would also require colleges to publish textbook lists before students register for classes so they can shop around for the best prices (MP: students would select classes, maybe majors, based on the lowest textbook prices??). Bookstores would be required to adopt policies to make affordable texts available to students.

"Three other states - Connecticut, Washington and Virginia - have passed similar laws, and California is considering it," according to the Michigan Daily.

I sense some "price confusion" - Minnesota legislators apparently don't like low flag prices and want to prevent Minnesotans from buying cheap foreign-made flags, but they also don't like high textbook prices, and want to legislate textbook pricing?

Tuesday, March 20, 2007

Houses Cheaper Than Cars in Detroit

Yikes!

"At least 16 Detroit houses up for sale on Sunday sold for less than the $29,000 it costs to buy the average new car." Read more here.

Record Profits or Losses? Doesn't Matter, It's Bad

From 4-Block World.

Yikes!


Tax Cuts Make Tax Code More Progressive

From today's WSJ editorial, "The latest IRS data also show that the wealthiest Americans continue to carry a record share of the income tax load. As the chart above shows, the richest 1% paid 35.6% of all income taxes in 2004, the most recent year in which data are available. The top 10% pay a remarkable two-thirds of all income taxes. The irony is that the Bush tax cuts have made the U.S. income tax code more progressive. But according to John Edwards and other class warriors, that's not enough."

The Tyranny of the Status Quo, Iron Triangle Wins

More on Wal-Mart's announcement that it would withdraw its application, filed with the Federal Deposit Insurance Corporation, to establish an industrial loan company (ILC) in Utah, from American.com:

"For all the supposed sympathy on Capitol Hill for American consumers—and especially “working families”—they don’t count for much when an organized pressure group like the banking industry comes calling. Then, our representatives in Congress become very concerned about such fallacious and unintelligible principles as “the separation of banking and commerce” and are perfectly happy to leave working families behind. From its inception, the “separation of banking and commerce” has been nothing more than a means for banks to protect themselves from competition, and it was invoked again, by people who should (and probably do) know better, to oppose the Wal-Mart application to acquire an ILC. The withdrawal of that application means America’s working families, who are Wal-Mart’s principal customers, will have to pay more for what they buy at Wal-Mart, and should thank their representatives in Congress for this privilege."

In his book "The Tyranny of the Status Quo," Milton Friedman described the "Iron Triangle" as a) special interest groups, e.g. the banking industry, b) regulators, e.g. FDIC, and c) politicians. When consumers and pro-consumer companies, e.g. Wal-Mart, go up against the Iron Triangle, it's often a lot like "three foxes and a chicken taking a vote on what to eat for lunch," (paraphrased from H.L. Mencken).

Why We Need More Immigrants

What do Intel (NASDAQ: INTC), Google (NASDAQ: GOOG), Sun Microsystems (NASDAQ: SUNW), ebay (NASDAQ: EBAY), and Yahoo! (NASDQ: YHOO) have in common? They were all founded by immigrants, from Hungary, Russia, Germany & India, France, and Taiwan respectively. Those five companies together employ about 160,000 people, mostly in the U.S., and illustrate why we need more immigrants, not fewer.

From the study American Made: The Impact of Immigrant Entrepreneurs and Professionals on U.S. Competitiveness:

"This study illustrates the significant contribution to the U.S. economy made by immigrant entrepreneurs and foreign-born professionals, scientists, and engineers. This research, the first of its kind to examine entrepreneurship in cutting edge venture-backed companies, reveals that since 1990, immigrants have started 1 in 4 (25%) U.S. venture-backed public companies. This impressive proportion helps demonstrate the significant advantage the United States gains in maintaining an open legal immigration system.

Intel, the largest immigrant-founded company, employs nearly 100,000 workers worldwide, with more than half of its employees located in the United States. Hungarian-born entrepreneur Andy Grove co-founded Intel along with two American-born co-founders, Robert Noyce and Gordon Moore. Other large companies founded or co-founded by immigrants include Solectron (Winston Chen from Taiwan), Sanmina-SCI (Jure Sola of Bosnia and Milan Mandaric from Croatia), Sun Microsystems (Andreas Bechtolsheim from Germany and Vinod Khosla from India), eBay (Pierre Omidyar from France), Yahoo! (Jerry Yang from Taiwan), and Google (Sergey Brin from Russia). It is worth noting that the immigrant founders of eBay and Google came to America as children, and Jerry Yang, the co-founder of Yahoo!, came to America as a teenager.

India, with 32 companies (22%), ranks first as the country of origin for immigrant-founded venture-backed public companies, followed by Israel with 17 companies (12%), and Taiwan with 16 companies (11%). Canada, France, the United Kingdom, Germany, Australia, China, Iran, and two dozen other countries are also represented."


Bottom Line: The study’s findings reflect the benefits of an open policy toward legal immigration, and it also reveals that current restrictions on skilled immigrants are likely to result in less job creation and innovation for America.

Monday, March 19, 2007

What About Government Greed?

Amid all the media hysteria over the price of gasoline and the profits of "Big Oil," one simple fact has been repeatedly overlooked: The oil companies' earnings are just under 10 percent of the price of a gallon of gas, while taxes take 17 percent. Yet who ever accuses the government of "greed"?

~Thomas Sowell

Interesting Fact of Day

There are approximately 5,000 retail stores in the U.S. owned by two department store giants: Federated NYSE:FD (Macy's, Bloomingdale's, Filenes, Hecht's, etc., about 1,000 stores), and Sears Holdings NASDAQ:SHLD (Sears and K-Mart, about 4,000 stores).

The combined market value (market cap) of Federated ($23 billion) and Sears ($27 billion) is about $50 billion, and together they hold about $15 billion of inventory. Compare that to the market value of Ebay (NASDAQ:EBAY), which is currently about $43 billion, just slightly lower that FD and SHLD together, and Ebay has NO stores and no inventory.

Hurray for High Prices?!

From today's WSJ:

"Wal-Mart sought a banking charter mainly to reduce the 2% interchange fee that banks charge retailers to process credit card transactions. Wal-Mart believed it could pass the savings along in the form of lower prices at the cash register. One of the more outspoken critics of Wal-Mart's banking plans was House Financial Services Chairman Barney Frank, who has also been moaning about the high cost that banks charge on credit card transaction fees. Go figure.

Wal-Mart already performs many bank-like functions popular in low-income neighborhoods -- including wire transfers, money orders, paycheck cashing and express bill payment. A Wal-Mart bank inside its stores might have been able to provide lower-cost loans to minorities and the poor -- the same clientele that commercial banks are often criticized for ignoring or sticking with "predatory" interest rates.

Unfortunately, Wal-Mart abandoned its plans to seek a banking license last week, and all of Washington seemed overjoyed at the news. What a weird notion of victory."

Bottom Line: Higher prices and fewer banking options for Wal-Mart shoppers and poor people.

Exploitation of the Successful Entrepreneurs?

From today's WSJ, Syracuse Professor Arthur Brooks' op-ed "What's Wrong With Billionaires?":

"What people hunger for is not money per se, but success at creating value. Money just tends to come along for the ride.

As long as a fortune is earned (as opposed to stolen, squeezed from governments or otherwise extorted from citizens), pecuniary acquisitiveness is directly related to the comfort of others. Oracle's founder Larry Ellison has created tens of thousands of jobs, introduced technology that has benefited all parts of the economy and paid billions in taxes. When Mr. Ellison measures his success with money, he spills opportunity and economic abundance onto all of us, directly or indirectly."

One could even argue convincingly I think that the personal wealth of a Bill Gates ($50 billion) or a Larry Ellison ($16 billion) is actually significantly less than the overall value they have created for society. That is, Bill Gates has probably increased the overall well-being and social welfare of people around the world now, in the past, and in the future, by MORE than $50 billion, considering his scientific and business contributions, jobs created, productivity increases as a result of software, etc. In other words, we as a society are actually exploiting successful the entrepreneurs like Bill Gates and Larry Ellison?

Here is the Forbes list of billionaires.


Union Membership Down, Real Compensation Up

From today's Washington Post, "Union membership continues to decline nationwide, with 12% percent of wage and salary workers belonging to a union in 2006, compared to 12.5% in 2005."

And how are U.S. workers getting along with declining union represtation? Very well, thank you, see the chart above. According to BLS data, real compensation (wages and fringe benefits adjusted for inflation) is at an all-time and continues to increase despite declining union membership.

By request, data sources are as follows:
BLS data for union membership 1983-2004 available here.
BLS data for union membership for 2005-2006 available here.
BLS data for real hourly compensation are available here.

Sunday, March 18, 2007

Save The Elephants: Buy Ivory and Trophy Licenses

Over the last thirty years, there have been two approaches to saving elephants in Africa: a) ban commercial use of elephants and elephant products like ivory, and ban private ownership of elephants; or b) allow commercial use of elephants like trophy hunting licenses and the sale of ivory, and promote private property rights for elephants.

After a quarter century of both approaches operating in different African countries, the evidence is clear: elephant herds are decreasing significantly in countries like Kenya that ban private ownership and commercial use, and elephant herds are increasing significantly in countries like Zimbabwe and Botswana where elephants can be owned and where commercial uses like hunting and ivory sales are allowed (see graph above).


In the late 1970s, Kenya had almost 3 times as many elephants as Zimbabwe and Kenya combined, and now both Zimbabwe and Botswana each have more than 4 times as many elephants as Kenya.

From an article by Karol Boudreaux, via Cafe Hayek, "Kenyans are debating whether the Government should lift its 30-year ban on trophy hunting. While the talk continues, the elephant population in Kenya continues to drop.

Meanwhile, elephant populations in countries such as Namibia and South Africa are increasing, a resurgence that is due surprisingly, in part, to trophy hunting. More importantly, our research in Namibia has found that as elephant populations rebound, so do the fortunes of the people."

The evidence strongly suggests that Kenya's conservation policies have failed, and an end to the ban on commercial use of elephants could help stop the decline of elephants there.


Paris By Night

Check out this awesome 360 degree panoromic view of "Paris By Night," complete with background music, thanks to Andrew Roth at Club for Growth.

Indexed

From a favorite blog "Indexed" by Jessica Hagy, now featured on BBC New Magazine weekly. "Jessica uses charts, graphs and Venn diagrams to clarify her thinking. Then she shares her conclusions as 3x5 cards with visitors to her blog."

Monetary Instability in Venezuela

From today's NY Times, an article about monetary instability in Venezuela, rising inflation (see graph above) and the resulting price controls, and the introduction of a new currency:

Inflation has been climbing rapidly since January when a sharp decline in the black-market value of the bolívar pushed up prices of imported goods. Since Mr. Chávez moved to nationalize major telephone and electricity companies in January, Venezuelans have rushed to take money out of the country, currency traders say. That exodus has caused the bolívar to weaken by about 20 percent to a level of 4,000 to the dollar on the black market, placing it among the world’s worst performing currencies this year.

First, the authorities will remove three zeroes from the denomination of the currency, the bolívar. Then he said the new bolívar, worth 1,000 old bolívars, would be renamed the “bolívar fuerte,” or strong bolívar. Finally, the central bank said this week that it would reintroduce a 12.5-cent coin, a symbol of Venezuela’s prosperity in the 1960s and 1970s before freewheeling oil booms ended in abrupt devaluations, after three decades out of circulation.

Q: What about if the Venezuelan central bank just stopped printing so much money?