Substance and Style

Article II, Section 3 of the U.S. Constitution, requires that the President periodically "give to the Congress Information of the State of the Union, and recommend to their Consideration such measures as he shall judge necessary and expedient." (emphasis added).

President Trump fulfilled that obligation on Tuesday night in a manner worthy of someone who fully understands the use of television, the power of inspiring stories and the value of playing offense rather than defense.

Ronald Reagan created the modern version of the SOTU address by incorporating ordinary American citizens into his address and recognizing them in the gallery for the television audience to see and appreciate. This device was the brainchild of Reagan's advisor, Michael Deaver, who was a master at producing powerful symbolic imagery to support the President's messaging.

Reagan first used the device in the 1982 State of the Union address when he recognized a young government employee who had jumped into an icy Potomac River two weeks prior to the SOTU to save a woman who had survived the crash of Air Florida flight 90 which had crashed into the river. The man's name was Lenny Skutnick. This is what Reagan said that night.

Just two weeks ago, in the midst of a terrible tragedy on the Potomac, we saw again the spirit of American heroism at its finest: the heroism of dedicated rescue workers saving crash victims from icy waters.

And, we saw the heroism of one of our young government employees, Lenny Skutnik, who, when he saw a woman lose her grip on the helicopter line, dived into the water and dragged her to safety.

Lenny Skutnick recognized at the 1982 SOTU
Credit: History.com

Reagan may have initiated the use of theatrics like this in the SOTU but Donald Trump took the device to an entirely new level last night.

The result was undoubtedly the most memorable SOTU I have watched since Reagan's 1982 address.

Time and again Trump wove inspiring stories of American and human spirit into his address to support the broader points he was trying to make.

There was the young, female Coast Guardsman who had jumped out of helicopters to save people in the Houston floods..

The young fireman who saved schoolchildren in the California fires.

The young black man in Ohio who had lost his job in the 2008 recession but who had gotten retrained as a welder and was now working for a company that is rapidly expanding due to the Trump economy.

The two black couples from Long Island who had had their teenage daughters murdered by illegal immigrant gangs.

The Hispanic ICE agent who was battling those illegal immigrant gangs.

The police officer in New Mexico who came upon a a pregnant woman who was about to inject herself with heroin and told her to stop or she was going to harm the baby. The police office and his wife ended up adopting that baby.

The parents of Otto Warmbier, the American college student, who had been arrested in North Korea for taking a poster and was ultimately sentenced to 15 years hard labor. He was returned to the United States after one year in prison in a vegetative state. He died days later raising questions as to what the North Koreans had done to him in that year.

A defector from North Korea, who despite being disabled with the loss of a leg, had traveled thousand of miles to escape the tyrannical regime. He now works from South Korea to help rescue other defectors.

Ji Seong Ho triumphantly raises his crutches to signal his appreciation for his freedom

Trump clearly knew heading into his address that he would likely not get much applause or appreciation for anything he said from the Democrats in attendance. I think Trump crafted much of the speech to see just how far the Democrats would go to sit on their hands and glumly stare at him no matter what he said.

This was true whether Trump was talking about 2 million more jobs, $8 trillion in new stock market wealth, the lowest black unemployment rate or the lowest Hispanic unemployment rate in history.

Who can be against any of that?

This is the reaction of Democrat House leaders Nancy Pelosi and Steny Hoyer right after Trump recited those accomplishments. Pelosi and the Democrats were clearly "not impressed."

It was also true when Trump offered to legalize and provide a path to citizenship to nearly 2 million  DACA illegal immigrants in a bipartisan deal, a proposed infrastructure plan and a proposal to lower prescription drug costs.

These are ALL "Democrat" issues but the Democrats still sat on their hands.

It was not a good night for the Democrats. It is as if they did not know what to do.

This was particularly true when it came time to recognize those heroes in the gallery. You could see a look of desperation and dismay on their faces.

Do we stand for the black welder who is benefitting from the Trump economy?

Do we stand for those black parents who got killed by an illegal immigrant?

Do we stand for the Hispanic ICE agent?

Do we stand for the white policeman and his wife who adopted the baby from the heroin addicted mother?

The Democrats were put on the defensive in all of these situations. The emotion of the story contradicted their normal stereotypical response.

Of course, the liberal political pundits and mainstream media weighed in right after the speech and called it "partisan"and "divisive".

Nancy Pelosi took to Twitter with this tweet.

Self-congratulatory?  I checked the record. Trump used the word "I" 29 times in the speech. He used "we" 129 times. He used "our" 104 times. By contrast, Barack Obama referred to himself 100 times in his first SOTU speech.

I don't recall Pelosi ever saying that Obama gave  a "self-congratulatory speech".

Despite what the press, the pundits and the politicians say, the real audience of the SOTU are the people of the United States.

And the polls suggest that they liked what they heard.

75% of those surveyed in a CBS poll stated they approved of the President's message.

That included 97% of Republicans and, more importantly from a political perspective, 72% of Independents. Even 43% of Democrats approved of the President's message.

I guess the press, the pundits and the Democrat politicians do not know as much about the American people as they think they do.

Of course, there was a clue that was true based on the results of the November, 2016 election.

What was more interesting was looking at some of the internals in the CBS poll.

By a margin of 72%-28%, those polled stated that they were in favor of Trump's immigration proposal.

By a margin of 81%-19% the survey indicated that voters thought that speech attempted to unite rather than the divide the country.

By a margin of almost four to one, viewers of the SOTU felt that the policies they heard Trump outline would help them rather than hurt them.

There are few people on this earth that successfully combine both substance and style.

Barack Obama had a lot of style but we saw little substance over eight years.

Donald Trump was elected based on his substance but even many of his supporters cringe at his style.

Last night looked to me like an effort by Trump to focus on style without sacrificing the substance that got him to The White House.

If Trump can add more style like he did last night, the Democrats may have many more glum days and nights ahead of them.

Substance and style is an unbeatable combination.

Donald Trump knows this. The question remains whether he can do it, not just for one night, but for the next three years?

Desperate Times, Desperate Measures

My last post highlighted the significant financial challenges in Illinois.

Those challenges are principally the result of massively underfunded pension plans for public sector employees in the state.

It has often been said that desperate times spur people to undertake desperate measures.

You can see how true that statement is when you consider that there are those in Illinois that are now suggesting that the state borrow $107 billion in order to shore up the massively underfunded public pension plans in the state.

Let's put that number in context.

Illinois officially reports that its state public pension funds are underfunded by $129 billion. Moody's estimates the real number is more like $250 billion. Thus, borrowing $100 billion would not even fill the entire gap.

No state or municipal government has ever attempted to borrow anything close to $100 billion in the public debt markets.  In fact, all state and municipal bond offerings in the United States in 2017 totaled somewhere in the vicinity of $400 billion. Add to this the fact that Illinois is also one step away from being considered a "junk credit" and you can see how desperate this measure would be.

It should also be noted that $100 billion of debt would be 50% more than Puerto Rico had accumulated in its record breaking run to insolvency.

Consider further that Illinois has just $26.3 billion in general obligation debt outstanding today. Do they seriously believe they are going to issue four times this amount of debt on a bet that they can get pension returns in excess of the debt cost?

Of course, those pension returns would have to be realized right after the stock market has increased 300% in the last nine years and over 40% since President Trump was elected. By the way, as evidence that there are many in the state who are not sure is what is good for the state, only 39% of Illinois voters cast their ballots for Trump in 2016.

Zero Hedge calls the plan "irrational and utterly bizarre" and will undoubtedly "insure that Illinois would default even faster in the future."

You can see from this chart from the Zero Hedge article why Illinois is fighting what will inevitably be a losing battle. The pension liabilities are piling up much, much faster than the assets and the return on those assets.

Consider that despite the 300%+ return on the stock market since 2008, the state's public pension plans have gone another $75 billion in the hole over that same period.

According to these numbers, the state of Illinois only has 36 cents in assets to meet every dollar of pension liability.

This suggests that the destiny of Illinois will culminate in much more desperate times ahead.

Can you imagine what these numbers would look like without those stock market gains over the last nine years?

Can you imagine what they will look like with a bear market?

Can you imagine what the financial condition of Illinois would be with a bear market and $100 billion of additional debt?

We have yet to see what truly desperate times really look like in Illinois.

I predict we will see it before all is said and done.

We will then see some truly desperate, desperate measures.

Feeling Blue in Illinois

There is probably no state in the United States of America that faces more financial challenges going forward than Illinois.

I have written about some of the budget challenges facing Illinois previously. This is what I wrote in a blog post last June about the dire financial situation in the Land of Lincoln.

If it was not illegal to file for bankruptcy under federal law it would probably soon be filing.

Today is the deadline for Illinois to pass a constitutionally-required balance budget. Never mind the balanced part, Illinois has not even passed a simple budget plan the last two years.

It is doubtful that the third time will be the charm in Springfield.

Why is Illinois in such dire straits?

The biggest reason is that the politicians in Illinois gave the state away to the public sector employees. They promised generous pay and retirement benefits but failed to back up the promises with the necessary funding.

This is how CNN Money explains it.

While the budget impasse is throwing a spotlight on Illinois's dire financial situation today, the fiscal problems go back at least to the 1980s and involve politicians from both parties. 

The most glaring evidence is the enormous pension crisis. Rather than dealing with the problem, Illinois continued to reward the state's powerful unions with more generous benefits.

The problem festered for so long that Moody's estimates Illinois has unfunded pension liabilities totaling $251 billion. To put that into context, that's more than the combined market value of four major Illinois companies: Boeing (BA), Caterpillar (CAT), United Continental (UAL) and Allstate (ALL).

Democrats, who totally control the state legislature, ultimately did pass a budget and $ 5 billion tax increase overriding the veto of Republican Governor Bruce Rauner.

Despite the effort, the Illinois Policy Institute projects that state is already on track for a $1.3 billion deficit for the current fiscal year.

The budget problems in Illinois are most directly tied to those pension benefits for public sector employees. The result is that most everything else that most people want their state to prioritize (K-12 education, higher education, public safety, roads, human services) is getting crowded out.

All of this is not lost on the people of Illinois. They elected Rauner in 2012 hoping that he could do something about the sorry state of affairs. However, it appears that the swamp is every bit as deep in Springfield, Illinois (and Chicago) as it is in Washington, D.C.

A recent Gallup survey showed that residents of Illinois have the most negative view of their state of any of the 50 states. I found this chart on Reddit.com.

All of this is resulting in more and more people leaving the state. Just short of 115,000 Illinois residents left the state in the last year. Since 2010, the net population loss in Illinois has been 650,000 according to the Illinois Policy Institute.  Illinois is now estimated to have fallen behind Pennsylvania in total population--- dropping from 5th to 6th.

Of course, all of this just will make the budget problems of Illinois worse. With people leaving the state, so goes their money. This means fewer taxpayers are left to pay the bills. Tax increases will inevitably push more people out of the state and the vicious economic cycle continues.

The Illinois state corporate income tax is 9.5%, effective July 1, 2018. That will be one the highest rates in the country. That rate is almost double what it was in 2010. The individual rate has gone from 3.0% to 4.95% (Illinois is one of 9 states that uses a flat rate system applied to all taxpayers regardless of income) over the same period.

Individual taxpayers in Illinois also now face the new limitations on the deductibility of state and local taxes in the new federal tax law. Taking into account sales taxes, property taxes and other state and local taxes, Illinois had the 5th highest state local tax burden in the country in 2012 as a percent of state income. Let it not be forgotten that this was before  the newly enacted tax increases.

Here are the top 7 states for highest state and local tax burden according to The Tax Foundation.

#1 New York
#2 Connecticut
#3 New Jersey
#4 Wisconsin
#5 Illinois
#6 California
#7 Maryland

Is it just a coincidence that 6 of the 7 states on this list are among those states where the residents also believe their home is "the worst possible state to live in"?

Is it also a coincidence that Wisconsin is the only state on that list that the residents do not feel that way?

Is it also just by chance that Wisconsin was the only state on that list that Donald Trump won in 2016?

There appears to be a reason why the the people in blue states are feeling blue.

And no state is feeling bluer than Illinois right now.

The #MeToo Movement Meets Reality

Time magazine's Person of the Year for 2017 was what they called "The Silence Breakers". The women who came forward during the year to share the stories of sexual harassment and assault that they had experienced.

The movement is also signified by the hashtag #MeToo as countless women came forward on social media to call out high profile men who had used power and privilege to take advantage of women.

The stories that came out about Harvey Weinstein, Russell Simmons, Matt Lauer, Charlie Rose, Al Franken and many others are truly cringe-worthy.

It was not easy for these women to come out and tell their stories, especially considering the positions of influence that these men held in entertainment, news and politics.

However, at the same time, questions have been raised, many of them by women, as to whether the entire #MeToo Movement has gotten a little bit off the rails.

Heather MacDonald wrote a very thought provoking piece in the City Journal last week titled "Policing Sexual Desire"  that is well worth reading. Her key point is whether the entire #MeToo Movement is based on an impossible premise that begins with the feminist idea that "differences between men and women have nothing to do with biology but are socially constructed in their entirety."

In other words, many feminists believe that biology, sex and gender differences have nothing to do with anything. Sexual interactions between men and women are not driven by how we are wired but are due to unequal power relationships and a patriarchal society.

MacDonald doesn't see it that way.

Actually, sexual harassment is usually just about sex, even if differential power is used to obtain it. There is nothing inconsistent or hypocritical about liberal male icons championing feminist issues like abortion or equal pay while also putting heavy-handed or offensive moves on females. Charlie Rose, Matt Lauer, and Harvey Weinstein would all undoubtedly be thrilled to have a female president, since they would thereby be routing Red State misogyny. For now, however, they want access to females’ panties.

Ignoring basic biology and the way the genders are hard-wired is a recipe for trouble. However, that is exactly what is happening as feminists point to "patriarchy" and "dangerously outdated gender norms" as the problem rather than the fact that there is an inherent innate difference in the way men and women think about sex.

“Dangerously outdated gender norms” are not what make it difficult to say no to sexual advances; contemporary gender norms have confused these already fraught situations. Traditional mores set the default for premarital sex at “no,” at least for females. This default recognized the different sexual drives of males and females and the difficulties of bargaining with the male libido. The default “no” to premarital sex meant that a female did not have to negotiate the refusal with every opportuning male; it was simply assumed. She could, of course, cast aside the default assumption; that was her power and prerogative. But she did not have to provide reasons for shutting down a sexual advance.

I grew up in a different time. I started college in the Fall,1968 when men were not allowed beyond the lobby in a women's residence hall. This was liberalized in the winter semester so that one Sunday afternoon per month co-ed visiting was allowed. However, the door to the room had to be open and everyone in the room had to have one foot on the floor at all time.


There was a reason that those types of rules were in place. Yes, as students we hated it, but the fact is that the administrators had a very good idea about gender norms. After all, those norms had been in place for thousands upon thousands of years. They knew that the more that men and women mixed the greater the chance that regrets might come out of it.

Men are primed to pursue. That pursuit can indeed turn primal at times. Women want to be pursued. It is not patriarchy or unequal gender norms that causes this. It is biology. It is the gender differences that many today want to argue do not exist.

At the end of her article, MacDonald asks where it is all headed?

Western culture is in fact the least patriarchal society in human history; rather than being forced to veil, females can parade themselves in as scantily clad a manner as they choose; pop culture stars flaunt their promiscuity. There is not a single mainstream institution that is not trying to hire and promote as many females as possible. And yet females are apparently still so beaten down by sexism that the Times’s gender editor Bennett asks rhetorically if females should even be deemed able to consent to sex, since “cultural expectations” make it awkward to say no. How long will it be before feminists demand the return of chaperones?

It seems that those open door Sunday visits may have to make a comeback along with the chaperones. I hope not. I would just like to see a little sense and sensibility when it comes to recognizing there are differences in the sexes.  I think the "consensus of scientists" is pretty clear on this one and has been since the beginning of time. Why then do so many act as if it does not exist?

Review Your Investments "Periodically"

Most high school students are exposed to the periodic table of the elements in their science classes.

Anyone interested in investing should "periodically" review what is often called the "asset allocation quilt" that bears a strong resemblance to that periodic table.

The asset allocation chart typically shows ranked returns for the major asset allocation categories by year in a colorful array covering the last decade.

This is the most recent chart that encompasses returns for 2017 and looks back to that ugly, ugly investment year of 2008. Ben Carlson who writes the blog, "A Wealth of Common Sense" calls it his favorite performance chart of 2017.

Credit: AWealthofCommonSense.com

Here is a periodic table of the elements. Do you see the resemblance?

What is the value in "periodically" looking at the asset allocation quilt?

I think the biggest benefit is that it provides the investor with perspective. It is easy to lose the forest for the trees in investing. Viewing this chart periodically allows you to grasp the big picture unfolding around you in the investment world.

In looking at the quilt chart above you see that there is no investment class that is on top every year. In fact, at times you see the worst performing asset class in one year become the best performing asset class the next year. (EM-Emerging Markets in 2011 and 2012). Or you see the best performer in one year sink near the bottom the next. (Bonds in 2008 and 2009).

This particular chart also shows what a solid run we have had over the last ten years despite the horrific results in 2008 when Mid Cap stocks lost 36.5% for year and still had the fourth best "performance" for the year.

In fact, in both 2016 and 2017 there was not one asset class that had negative performance. Compare that to 2008 when there were only two asset classes (bonds and cash) that were positive.

Those horrible results in 2008 still did not prevent all asset classes (except Commodities) from producing positive returns over the 10 year period.

If you take away the 2008 results, the nine year returns have been fantastic as long as you did not have too much in cash and you avoided commodities.

The longer-term returns shown here also once again prove that the best asset class for younger investors is small cap stocks. Over long periods of time (10 years and beyond) this asset class has consistently produced the strongest returns over almost all longer periods. This is even more particularly true of small cap value than small cap growth stocks.

If you are under the age of 45 you should probably overweight small cap stocks in your portfolio. You have time on your side to reap those additional returns. Small cap stocks will be more volatile along the way but history suggests you will be rewarded over the long term for that additional risk.

Looking at the chart it is also hard to ignore how long commodities have been out of favor. This has been due to deflationary forces in the world economy but as we begin to hear more about hints of inflation you have to think commodities are due for a turnaround. It is not often that you see any asset class stay down that long relative to other investments.

Carlson the following as other reasons that this is his favorite performance chart. They are all great reminders for any investor.

• It reminds me to stay humble. Predictions about the top (or bottom) performing asset classes in any given year are hard. There are probably some rules-based strategies to sort these asset classes to do a little better than a simple strategic allocation but there are many ways in which to do worse by trying to select the best one year in and year out.
• It reminds me to think and act for the long-term. Charley Ellis once said, “The average long-term experience in investing is never surprising, but the short-term experience is always surprising.” One-year performance numbers don’t really tell you a whole lot. Even the 3- and 5-year numbers can be misleading in most cases so it takes a lot of discipline and patience to be an actual long-term investor to think beyond short-run performance numbers.
• It reminds me how random markets can be. Sometimes the worst performer in one year becomes the best in the next year and vice versa. Sometimes these asset classes go on hot or cold streaks and put together a string of solid or subpar performance. Cash makes for a lousy long-term investment option (especially at current rates) but can be a top performer when risk assets sell-off. Even 10 years can show terrible returns on your stock investments (see international and emerging markets over the past 10 years as a perfect example).
• It reminds me of the importance of diversification. Diversification is a boring way to invest but it’s the simplest form of risk control for those who would like to avoid going broke or losing their mind in the markets. You’ll never get rich overnight by diversifying but you’ll never lose it all overnight either. When markets are rocking (as they have been wont to do of late) diversifying makes you feel silly but there will come a time when it comes in handy.
• It reminds me of the importance of understanding the concept of mean reversion. No asset class outperforms always and forever. It may have felt like international stocks or emerging markets or even commodities were dead money in recent years as they all got destroyed by U.S. stocks. Eventually, these cycles turn, often before you can prepare for it or find a legitimate reason for it.
• It reminds me how vast the investment universe is. This is a fairly broad group of asset classes. There are many more options available to investors these days beyond this group. I could’ve created one of these using sectors, countries, risk factors, alternative investments or hundreds of different variations. Last year someone took my quilt and added Bitcoin to the mix. Creating an asset allocation is the easy part. Being content with the portfolio you choose and avoiding the temptation to constantly tweak it and make changes is the difficult part.

Look at the chart above one more time.

What might it suggest for your own investments?

Don't forget to periodically review new versions of the chart in future years to stay on track.

The Consensus of (Democrat) Scientists

One of the most popular blog posts I wrote last year was entitled "Consensus Isn't Science".

We hear a lot about the "consensus of scientists" when it comes to whether the earth is warming due to man-made causes.

The argument that is advanced from many Democrats is that this is "settled science" so it is ridiculous to even debate the issue.

In my blog post last April, I wrote the following.

When it comes to settled science, there is no doubt that we have climate change. It changes every hour, every day and every year. It has changed over the centuries.

The question is not whether it is changing but whether man is impacting that change and, even if that is the case, whether we can even do anything about it?

Whenever we hear about the "science" of human related climate change there is nothing "settled" about it. That is why we hear that this view is supported by the "consensus" of scientists.

Of course, "consensus" is not the same as facts. And consensus is not a scientific fact. A scientific fact is the law of gravity, the boiling point of water or the distance to the moon. 

Prior to the 15th century, the consensus of scientists was that the earth was the center of the universe.

In the 18th century, the consensus of medical scientists was that blood letting was the best method to cure illness.

As recently as 25 years ago the consensus was that peptic ulcers were caused by stress. We now know it is caused by bacteria.

I could go on and on. In fact, in most cases like these, the consensus of scientists was proven wrong by just one person who did not believe the consensus and proved it wrong.

Why do I bring this subject up again?

I came across a very interesting survey recently by Pew Research that compared the views of Democrats and Republicans on how likely we should "expect harm from climate change." What was particularly interesting about the survey was that Pew broke the answers down by the level of science knowledge the respondents had. This was determined by a series of questions that evaluated the scientific knowledge of the participant.

Each political group was then divided between those who had high, medium or low science knowledge.

Let it first be noted that I know of no difference in views between Democrats and Republicans (with or without high science knowledge) that water freezes at 32 degrees. That is not a political statement. That is a scientific fact.

The findings of the survey are remarkable in that they show high science knowledge Democrats are substantially more likely to believe in harmful effects from climate change compared to high science knowledge Republicans.

In effect, on this issue, politics seems to trump science.

How is it that man-made climate change is considered to be "settled science" if the major differentiator on the issue seems to be one's political perspective?

Notice as well that the medium and high science knowledge Democrat respondents in the survey are the outliers. If you take them out, the answers are relatively consistent across all the groups.

It is almost as if the "smarter" the Democrats get the more removed they are from the consensus of everyone else.

Of course, the explanation of this from liberal is that "higher science knowledge Democrats are just much more educated and aware than everyone else".  There is no doubt that is what they believe. However, believing it does not make it so.

You see similar patterns in the views of Democrats and Republicans on energy issues.

High knowledge Democrats are overwhelmingly opposed to offshore oil and gas drilling, fracking and coal mining. On these issues, they are far removed from the consensus of almost everybody else.

They actually favor nuclear power more than other Democrats. I guess it is really true that those High Science Democrats have not seen a solar array or wind turbine that they don't like (unless, of course, it is in their own backyard).

The next time that you hear about the "consensus of scientists" on climate change you need to put that in the proper context.

What is really being said is that it is a "consensus of  Democrat scientists".

The Pew Research survey shows just how true that is.

Doctor, Doctor, Tell Me It Isn't So

The media was in full meltdown mode Wednesday in learning that President Trump is in excellent health.

Even worse for them, in a test of his cognitive ability, Trump scored a perfect 30 out of 30.

The White House press corps spent nearly an hour grilling the President's physician Ronny Jackson (who by the way was also Obama's physician for all last two physical exams as President) on why this could be true.

White House Physician Ronny Jackson answers media questions about Trump's health
Credit: FoxNews.com

It is a liberal's worst nightmare.

Trump doesn't eat kale, he doesn't jog, he doesn't do yoga, he plays golf, does not sleep very much, watches a lot of tv, and likes fast food.

How could he be in excellent health?

They simply do not believe it is possible.

Of course, there are many other things that they simply refuse to believe.

They cannot believe that Donald Trump was elected President.

They cannot believe that there are 63 million Americans who voted for him.

They cannot believe that Donald Trump does not think like they think.

They cannot believe that the President of the United States does not care what they think.

Therefore, they believe that Trump has dementia and the people who voted for him are deplorable.

Beyond all that it is just not fair. How can Trump be in better health than they are?

What is most interesting in all of this is that the media paid almost no attention to the health of Barack Obama.

That is despite the fact that Obama smoked and drank as President and has admitted that he used hard drugs when he was a young man.

Trump has never smoked, drank or used any drugs in his entire life.

The media also spent time at the press conference questioning the White House physician if Trump was really 6'3" and whether the scale he was weighed on was accurate.  The reason---they desperately want to report that Trump is "obese" based on the Body Mass Index scale that compares height to weight. (Trump is just below the cut-off based on his reported height and weight in the Doctor's report of the physical exam.)

Can you imagine any of this occurring if Hillary Clinton had been elected President?

I remind you that Hillary Clinton is the same person that went into multiple coughing fits during the campaign, nearly collapsed at the end of a campaign event causing her aides to have to stuff into her van while she also exhibited a strange head bobbing from time to time on the campaign trail.

If you would like to view Hillary Clinton's collapsing episode, you can view it here.

( I wrote about the questions surrounding Hillary's health in September, 2016)

How did the media report on these events and how vigorously did they follow-up on Clinton's health?

I believe we all know the answer to that.

I also believe we also know that no one would be questioning Hillary's BMI or whether her scale was accurate if she was in The White House.

We have reached a very troubling place in this country when the media seems to be rooting for the President to be unhealthy.

They have spent countless hours arguing that President Trump is mentally unbalanced and unfit for office.

How can it not be true if they have reported it to be true?

It is incomprehensible that a independent medical professional would not agree with them that Trump is not well.

We knew before this that the mainstream media is very unbalanced in its reporting.

Look no further than this chart that compares positive and negative statements on the evening news about President Trump during 2017.

Unfortunately, what we saw this week appears to show the media is not only unbalanced in their coverage but they have become mentally unbalanced due to their unhealthy dislike of the President.

To me it is very, very sad.

Can someone, (anyone?), tell me it isn't so?

Taxing the Rich (Colleges)

One of the little noticed provisions in the tax bill that passed right before Christmas was a new tax on university endowment funds.

The new law levies a 1.4 percent annual excise tax on investment income at private colleges with an enrollment of at least 500 students and with assets valued at over $500,000 per full-time student.  It is expected to raise approximately $1.8 billion in revenue over 10 years.

This is a list that InsideHigherEducation.com compiled of the approximately 30 colleges and universities that are expected to be affected by the tax law change. The order of this list is based on the amount of endowments funds per student at each school in descending order.

Princeton University
Princeton Theological Seminary
Yale University
Harvard University
Stanford University
Pomona College
The Juilliard School
Amherst College
Swarthmore College
Massachusetts Institute of Technology
Grinnell College
Williams College
California Institute of Technology
Rice University
Wellesley College
Cooper Union
Medical College of Wisconsin
Dartmouth College
Washington and Lee University
Bowdoin College
University of Notre Dame
University of Richmond
Smith College
Baylor College of Medicine
Icahn School at Mt. Sinai
Emory University
Washington University in St. Louis
Bryn Mawr College
Claremont McKenna College
Trinity University (Texas)
University of Chicago


Predictably, the administrations of these schools lobbied hard against this provision claiming that it would weaken financial aid to students, research initiatives and faculty.

The Harvard endowment fund stood at $37.1 Billion at June 30, 2017. It is obviously higher today due to stock market gains since that time. I guess Trump hasn't been all bad for these academics.

Harvard made an 8.1% return on its investments in its endowment in the 12 months ending June 30, 2017. That is $3 billion.  Before this new law, Harvard owed no taxes on this income. The new law will levy a 1.4% tax on net investment income. That would amount to about $42 million on $3 billion of income. That does not sound like a bad deal for Harvard, does it?

That seems especially true since most of the administrators, faculty and students at Harvard are strongly in favor of redistributive tax policies by the federal government. After all, aren't we supposed to tax the rich so that we can spread that money around to others that really need it? Who better to do that than the federal government? At least, that is what we are usually told by those at Harvard.

Harvard's endowment is equal to almost $1.8 million for each of its over 20,000 students. Let's put that in context. Based on last year's 8.1% return, that means that $145,800 of income was generated for each student. Undergraduate tuition for the 2017-18 school year is $44,990 (why didn't they just round it up to $45,000?). That means that the endowment is large enough that it could have paid each student's tuition in full and still had over $100,000 of income left for other uses.

Or course, Harvard has nothing on Princeton. Princeton's endowment fund per student is a staggering $2.7 million per student (50% more than Harvard). Princeton earned 12.5% on its endowment for the fiscal year ending June 30, 2017 meaning it brought in $337,500 in investment income per student. The undergraduate tuition at Princeton is $47,140 this year.  Princeton could pay the entire undergrad tuition of each student out of the income and have nearly $300,000 left over.

I wrote about the high cost of higher education and the enormous size and tax-free status of some of these university endowment funds last April.

I pointed out at that time that if you took all of the Ivy League school endowment funds in 2016 there was enough money in them  to pay for the entire tuition of every undergraduate student at the Ivy's for the next 51 years.

Two additional factoids from that post.

The eight Ivy League universities actually derived more in revenues from the federal government through government contracts and grants ($25.27 billion) than in supporting their educational mission ($22 billion in student tuition) for the fiscal years 2010-2015.

That government support is so large that the eight Ivy League colleges actually receive more money annually from the federal government than do 16 states!

Let's recap all of this to put the entire issue in context.

Billions and billions of dollars are sitting in tax-free university endowment funds.

The annual income from these funds is currently much in excess of the tuition being charged to students and yet tuition is still unaffordable to most students and their families.

The growth in those endowment funds has been aided over the years by billions of dollars in charitable deductions that reduced federal tax revenues.

Billions of dollars in federal government contracts and research grants are provided to these same universities annually.

In fact, the eight Ivy Leagues get more money from the federal government than do 16 states.

And yet these universities are saying that their educational mission is going be compromised by having to pay a 1.4% tax on investment income that will raise a couple hundred million per year?

Yeah, right.

Of course, Nancy Pelosi, Chuck Schumer, Bernie Sanders and Elizabeth Warren want you to believe that the tax bill was nothing but a hand-out to the rich.

I think these rich colleges would beg to differ.

Bitcoin-Boom, Bubble, Bust?

The investment story of 2017 was the meteoric rise of the cryptocurrency Bitcoin.

If you had invested $1,000 in Bitcoin at the beginning of the year you would have had nearly $14,000 at the end of the year---a rise of almost 1,300%.

Bitcoin Price Chart-2017

That return pales in comparison to what you would have had if you had invested in Bitcoin when it started in 2009 when the value was essentially zero. The first Bitcoin exchange occurred in March, 2010 with a per coin value of $0.003. In May of that year the first real-world transaction took place with 10,000 Bitcoin being exchanged for two pizzas. The value of that Bitcoin that was exchanged for $25 in pizza in 2010 is now worth $133 million.

$133 million in pizza

The highest price Bitcoin traded at in 2010 (the first year it was publicly traded) was 39 cents. If you had purchased Bitcoin then, that would have worked out to a return of about 3,600,000% at the close of 2017!

Bitcoin Price History-2010-Present

However, consider the fact that although Bitcoin finished the year at a price of $13,860 it had actually risen as high as $19,343 two weeks earlier.! I am not even going to attempt to calculate the return at that point in time. However, had you invested then you would have lost 28% of your money in two weeks.

There is no doubt Bitcoin has boomed. However, where does it go from here?

Is this merely a bubble? Is it going to burst and is it going to bust a lot of its investors along with it?

On the question of whether Bitcoin is a bubble look at this chart prepared by Convoy Invesments in October (when Bitcoin was priced at a mere $7,800) comparing the price action of Bitcoin since 2014 to other famous investment bubbles, including Tulipmania in Netherlands in the 1600's.

Bear in mind that this graph was prepared when Bitcoin was valued at about half of what it is today! Bitcoin puts all other bubbles to shame if you look at it from that perspective.

If you are not familiar with the Tulipmania bubble you ought to read my post about it that I published three years ago. Not much is different today than it was 400 years ago when it comes to delusions that overtake the multitudes and the madness that runs through crowds.

The one common aspect of all bubbles is that they ultimately burst and take prices down to near the place that they started from.

Is Bitcoin a bubble?

You never really know until you look back in hindsight.  Everything is very clear at that point.

However, there are clues.

It used to be said that you knew an asset class was overvalued when taxi drivers in New York City were talking about it and wanting to get in on the action. Perhaps that needs to be revised to Uber drivers today but individual investors usually come in late to any asset run up. Their entry into the market is a telltale sign that there are few buyers left.

A couple of clues on Twitter that I have seen recently about Bitcoin suggest we are seeing a bubble.

This is a tweet from one of the Fed Governors, Neel Kashkiri, who said that one of the customs agent at LAX asked him about cryptocurrencies as he was returning to the United States recently. It seems the agent had a friend who just took out a $35,000 home equity loan to buy to buy some cryptos.

Hmm indeed.

Or how about this factoid that the average Bitcoin investor checks the price between 20 and 40 times per day.

Investors don't check the price of their holdings 20 to 40 times per day. That is what a speculator does.

I could be wrong but the Bitcoin boom seems to me to be a bubble that is going to burst at some point and bust a lot of investors.

Who will get hurt the most? My guess it will be those that saw their neighbor get rich, took out a home equity loan and were checking the price 40 times per day.

Another interesting factoid about Bitcoin.

According to a recent article in Bloomberg, about 40% of all Bitcoins are held by no more than 1,000 individuals, most who live in and around San Francisco. The top 100 control 17.3%. These early adopters have a cost basis in Bitcoin approaching zero. Small moves by this group could have major ramifications on the Bitcoin market.

The other interesting factoid about the Bitcoin market is the amount of energy that is used to complete a transaction. A lot of energy is used intentionally in a Bitcoin transaction in order to make fraudulent transactions costly thereby deterring those who would seek to misuse the currency.

How much energy is used? This article from The World Economic Forum explains.

Bitcoin transactions use so much energy that the electricity used for a single trade could power a home for almost a whole month, according to a paper from Dutch bank ING.

That is a lot of power. If that is the case how is Bitcoin ever going to supplant sovereign currency or gold as a store of value? Where is the energy going to come from to power all those electric cars of the future as well as transactions involving Bitcoin?

Warren Buffett is also less than optimistic about the long term prospects of Bitcoin.

Here is what he recently said on the subject to CNBC.

"In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending,"

What else could go wrong besides those 1,000 Bitcoin whales who could totally manipulate the market?

These are the major downside risks of owning Bitcoin according to BuyBitcoinWorldwide.com.

Major Downside Risks

It bears repeating that Bitcoin is an experimental project and as such, a highly risky asset. There are many negative influencers of price, chief among them being the legislative risk of a major government banning or strictly regulating Bitcoin businesses. The risk of the Bitcoin network forking along different development paths is also something which could undermine the price. Finally, the emergence of a credible competitor, perhaps with the backing of major (central) banks, could see Bitcoin lose market share in future.

What is my advice?

Buyer beware when buying Bitcoin.

Some advice for buyers from Warren Buffett on Bitcoin or anything else.

"Buy when everyone else is selling".

"Don't buy when everyone else is buying".

The Genius and the Dunderhead

The latest Democrat and mainstream media talking point about Donald Trump is that he is "unfit for office" and should be removed under the 25th Amendment.

The argument that he is "unfit" seems to be based principally on the fact that Trump does not "act the way a President" should act.

Does the fact that someone does something differently than others make them unfit?

I would argue that Trump as President is not much different than Trump the candidate. "Trump the candidate" was elected by the people of the United States after watching him for 18 months on the campaign trail. They did not determine he was "unfit". There has been no subsequent "bait and switch". He did not become something that we never saw. He has not done anything he did not say he was going to do. What you saw then, and what Trump promised to do as a candidate, is exactly what he has done in office. I would argue that it actually has been a toned-down version of what he was and what he promised on the campaign trail.

If anything, the Democrats and the mainstream media seem to be befuddled by the fact that Trump is Trump---whether he is a real estate mogul, tv star, political candidate or President of the United States.

Does being yourself make you unfit?

A friend and BeeLine reader of mine recently wrote to me that he "has had an ongoing struggle in trying to contextualize the Trump phenomenon".

My friend Joel is a great student of history and stated that his first thought was that the life of Andrew Jackson was a useful metaphor for that purpose. There are many remarkable parallels between the two men but Joel stated that he ultimately felt that this comparison fell short owing largely to the 190 year separation in history.

He wrote me that he has ultimately concluded that the best contextual comparison he could come up with is Steve Jobs. Yes, that Steve Jobs!

I have to admit that is something I would have never thought of on my own but I think it is a most impressive insight by Joel.

Here is what Joel wrote about the similarities he saw in the two men.

Like Trump, Jobs was an iconoclastic visionary who was uncompromising in his pursuit of transforming the existing order.  Personality-wise he was incredibly arrogant, prickly, vicious and so rude that he would push aside his employees and walk to the front of the lunch line each day at Apple. The threat he posed to both the established business order and social conventions was profound, and it caused him to be reviled and pilloried. Nevertheless, at the end of it all, he had either created or transformed a total of 6 industries: personal computing, phones, animated movies, music, tablet computing and digital publishing. 

Having read a couple of books about both Trump and Jobs, I definitely see many similarities.

I have also written a couple of blog posts about the contributions of Steve Jobs here and here.

I have also written about iconoclasts in the past. Notice that the first similarity that Trump and Jobs share according to Joel is that they are both iconoclasts.

This is what I wrote on the subject of iconoclasts in 2012.

I`con`o`clast/ n / A person who does something that others say can't be done.

Iconoclast is my most favorite word for 2012.  We need more iconoclasts. We need them in business. We need them in education.  We need them in science. We most certainly need them in government. We need people who will challenge the status quo and can bring fresh thinking and ideas to solve problems.  I like Albert Einstein's quote in this regard.

"We can't solve problems by using the same kind of thinking we used when we created them."

Little did I know in 2012 that a true iconoclast would be on the scene in Washington, DC five years later attempting to drain the swamp.

Steve Jobs did not play by the rules and he certainly did not adhere to many rules in his life. Donald Trump is a near saint next to Steve Jobs in conforming to rules of conduct and temperament.

One of my favorite quotes from Jobs related to the fact that he eschewed market research and always liked to rely on his own personal intuition. (Kind of like Trump not paying a whole lot of attention of his political consultants and advisors telling him what to say and do?).

This is how Jobs put it to Business Week in 1998.

It’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.

The same can be said about Donald Trump. He built a global real estate empire when most said he would never get beyond the projects his father developed in the Queens, New York. He put properties together of a style and scope that few could imagine.

Like Jobs, Trump had an insatiable desire for quality and an attention to the smallest detail in his projects and in his deals.Both Trump and Jobs faced failure (the ouster of Jobs from Apple, Trump's company bankruptcies) but came back stronger than ever.

Jobs and Trump have done many things no one could have imagined. It was simply impossible to project their success when looking at it in a traditional perspective. It was hard for most to envision operating a computer with a mouse, or storing 1,000 songs in a package the size of the cigarette pack or an animated film being developed by computer software.

It is also hard for many to see where Trump is coming from as President. However, look at what we are seeing one year into his term. The economy and the stock market have responded to Trump like it never did in 8 years with Obama. That is indisputable no matter how badly the Democrats want to ignore the evidence. North Korea is sitting down with South Korea for the first time in years, the Iranian people are in revolt and Mexico and Canada are discussing a re-do of NAFTA. This week Trump is sitting in the same room with Republicans and Democrats discussing immigration reform. The pundits said that none of this would happen with Trump as President. It has.

Iconoclasts don't do it the way it has always been done. They break rules along the way. It can be uncomfortable for those set in their ways. However, iconoclasts get results that few expect.

Curiously, the one area where these two iconoclasts diverge is in the media perception of the two.

Jobs generally enjoyed favorable treatment from the press throughout his career. He was eventually hailed as a true genius by the media. No one said he was unfit for anything because he did things his own way or he was arrogant, rude or prickly along the way. These traits were considered assets rather than liabilities.

On the other hand, Trump is portrayed as an idiot and fool. He is stupid. He is a dolt.  He is mentally imbalanced. He is mentally unfit. He needs to be removed. It is quite a contrast when considering the similar traits that these iconoclasts share.

Don't you think that it is interesting that two men who share so many similarities can be perceived so differently by the media?

One is hailed as a genius. The other is called a dunderhead.

Why is that?

Why Fake News?

Why do we get fake news?

I have thought about this a great deal and it seems to be a product of the liberal bias of mainstream media. I don't think they consciously set out to report fake news. However, their bias blocks the filters in their brain that should be telling them that something does not add up.

As a result, they end up reporting "their truth" rather than "the truth".

I have previously written that it is hard to argue with the theory of liberal ideology. Most liberal ideas are well meaning and well intentioned. In a theoretical laboratory these ideas make a lot of sense.  I think that is why so many academics are liberal. The ideas make such great sense in the classroom or a textbook. The world would be such a great place if they did work. Unfortunately, in the real world these ideas must face reality. A reality where human beings make decisions based on incentives or disincentives relative to their own self-interest.  A reality where unintended consequences often have much greater effects than the intended consequences.

I think most liberals also have an an inherent insecurity that their liberal ideology is not as perfect as they profess it to be. After all, they live in the real world as well. Many don't practice what they preach when it comes to their personal lives. Peter Schweizer wrote an entire book on this liberal hypocrisy over a decade ago titled "Do as I Say (Not as I do).

In my view, this inherent insecurity causes them to work extra hard to prove that liberal ideas are "right" and conservative ideas are "wrong" and "their truth"is better than "the truth".

It is certainly the reason that they are working so hard to demean President Trump. The greatest horror that they would ever have to endure is for Trump to be successful. It would literally destroy much of the liberal narrative. That is why they are driven to make sure it is not about "the truth."

All of this is not to suggest that fake news only is promulgated from liberal sources. It comes from conservatives as well. However, you generally only see it on the internet or social media where it does not get the visibility and the distribution that the mainstream media provides.

Fake news stories don't just involve President Trump either. We see it in a range of stories.

A good example is the story of the 2017 graduating class of Ballou High School in Washington, D.C. This school got a tremendous amount of media attention last June when it was reported that every one of the 190 graduating students in one of poorest sections of Washington had been accepted to college.

This is how NPR.org described this success story last June.

Ballou is in the southeast region of D.C. and by nearly any measure, the school is struggling. Staff at Ballou are tasked with overcoming major barriers established by poverty.

So how did this dream become a reality? It started with a pledge from the class of 2017 when they were just juniors looking ahead to their final year of high school.

But it was a strong support system within D.C. Public Schools that made it a reality. For months and months, staff tracked students' success, often working side-by-side with them in the school library on college applications, often encouraging them to apply to schools where data show D.C. students perform well.

Who could not like this story?  A dedicated staff at a struggling high school sends 190 impoverished minority students (98% of students African-American, 2% Hispanic) to college.

It was particularly attractive for liberal news media.

If only it were true.

Unfortunately, it was fake news.

It was the type of story that all of us wishes were true. However, liberal journalism wishes so hard that it reports "stories" as news despite what should have been some glaring warning signs in the initial report.

Here are a couple of examples of warning signs that got my attention that something did not add when I read the story initially. The quotes below are directly from the original story.

Last school year, the graduation rate was just 57 percent. And, when it came to meeting citywide standards in English, only 3 percent of students passed. No one passed the math.

Only 57% graduated the prior year and the graduation rate improved to 100% in just one year?

Not one student passed minimum standards in Math and only 3% passed in English in 2016 at this school and one year later all the seniors got accepted to college?

It started with a pledge from the class of 2017 when they were just juniors looking ahead to their final year of high school.

It started with a pledge with just one year of high school to go that they would all go to college? Really? If this was 7th grade I might believe it. By 11th grade almost everything is baked into the cake. You are not going to change the trajectory of many students in just one year.

NPR recently "updated" its reporting. The actual truth is sad. Consider a few facts from the new reporting that tells a different story about the 2017 graduating class at Ballou.

• Half of the graduates missed more than three months of school last year, unexcused. One in five students was absent more than present — missing more than 90 days of school.

• An internal email obtained by WAMU and NPR from April shows two months before graduation, only 57 students were on track to graduate, with dozens of students missing graduation or community service requirements or failing classes needed to graduate.

• The average SAT score last year among Ballou test takers was 782 out of 1600.

Former teachers at Ballou told NPR that more than a few students at Ballou could not read or write. Students roamed the halls with impunity and there was almost no enforcement of attendance. Many students who were at school congregated in the gym rather than go to class and nothing was done about it by administrators. Teachers were pressured to give passing grades and overlook past due assignments by students so they could graduate.

Here is the actual student performance for Ballou High School for the 2016-2017 school year based on the standardized tests students take in the DC school district (Partnership for Assessment of Readiness for College and Career "PARCC") for Math and English. This data was taken directly from the school's website. A student needs to be at Level 5 (exceeds expectations) or Level 4 (meets expectations) to be considered ready for college or a career.

These test scores also make you wonder about the statement in the first story that the support system at Ballou encouraged students to apply to schools and colleges where "DC students perform well". Where are the colleges where students perform well when those students should have never graduated from high school?

Note that not one student met expectations in Math in 2016-2017 (same as previous year). 91% did not even "Approach Expectations" which is Level 3.

9% met expectations in English (up from 3% in prior year) but nearly 60% were at Level 1 in English on the PARCC test .

There is little doubt that school administrators and teachers at a school like Ballou have an enormous challenge. However, the answer should not be to give students a pass. And it certainly should not involve promoting students (and stories about fake student success) at your school.

The current school year budget for Ballou High School works out to almost $14,000 per student. 

These are the salaries of the top 3 administrators at the school according to DC schools budget records.

Three guidance counselors on staff average $111,500 in annual salary.

Six English teachers on staff average $97,700.

Eight Math teachers on staff average $97,700.

In addition, administrators and teachers in the DC school district are eligible for bonuses of from $15,000-$30,000 for being considered "highly effective" on their annual evaluations according to NPR. DC public schools would not disclose whether any at Ballou received bonuses.

NPR is to be congratulated for stepping up and correcting the story about Ballou. However, why did they miss the obvious sign of "fake news" to begin with?

A recent tweet by longtime Washington journalist Ron Fournier speaks volumes about this issue and affirms my view that a substantial portion of mainstream media are less interested in reporting facts as advancing or defending their agenda and views.

Leave it to Brit Hume to put this in the right perspective in a reply to Fournier.

Here's to less fake news in 2018!

Let's see more news about "the story" rather than "their story".