Sunday, December 29, 2013

Beware Angry Birds

No, this post is not about the Angry Birds video game.

It is about other birds, like ducks and chickens.  Duck Dynasty.  Chick-fil-A.  Why is it that birds seem to always be involved when there is some media firestorm involving comments about gays?

We saw it last year when Dan Cathy, Chick-fil-A's President, answered a question from a reporter that he believes in the Bible and therefore is not personally in favor of gay marriage.  That led to Cathy being villified by GLAAD (formerly the Gay & Lesbian Alliance Against Defamation), the mayors of Chicago and Boston and other liberals from coast to coast.  All of them seem to have forgotten that the Constitution of the United States contains a Bill of Rights that protects both the freedom of speech and the freedom of religion. I wrote about that controversy here.

Of course, in the end all that came about from that controversy was a boost for Chick-fil-A's business when millions turned out across the country on "Chick-fil-A Appreciation Day" on August 1, 2012.

We saw it again in the last couple weeks when Phil Robertson, the patriarch of the Duck Dynasty clan, made comments that were also based on his religious beliefs that homosexuality was a sin and is "illogical."


Predictably, the GLAAD crowd once again attacked Robertson.  They also put pressure on the A&E cable tv network that produces Duck Dynasty, sponsors and others that sell Duck Dynasty goods.  It was not long before A&E had "suspended" Robertson and the Cracker Barrel restaurant chain stated that they would no longer carry Duck Dynasty merchandise in their gift shops.

What was the result?

Cracker Barrel quickly reversed course after they were hit with their own storm of protests over dropping Duck Dynasty's goods. This is how they explained it.
You told us we made a mistake. And, you weren't shy about it. You wrote, you called and you took to social media to express your thoughts and feelings. You flat out told us we were wrong."
It took A&E a little longer to backtrack but they ultimately caved as well in the face of strong support for Robertson's right to express his personal religious views.  Within a day of Robertson's removal, an impromptu Facebook page demanding A&E be boycotted had gotten more than a half-million likes.

What does all this tell us?

Despite all the noise we hear about the intolerance of conservatives and evangelicals in the media, the least tolerant groups in America are predominantly those supporting liberal and gay causes.  They are quick to complain and even quicker to criticize anyone who doesn't agree with their views.

I would argue that the only way that gays have been able to come out of the closet in this country is due to an extraordinary amount of tolerance, understanding and grace from people like Dan Cathy and Phil  Robertson.  They hold strong personal and religious beliefs but they are not out trying to intimidate or castigate anybody or put anybody back in a closet.

The fact is that gays make up less than 2% of the U.S. population. On the other hand, Gallup did a survey in 2000 in which 40% of Americans (more than 125 million people) described themselves as "born again" or "Evangelicals". (See this survey of composite U.S. demographics). That number might be smaller today but there should be no doubt that those with beliefs similar to Cathy and Robertson far exceed the number of gays in this country.

Therefore, if GLAAD and other gay rights groups want to play the strong-arm tactics that they tried with both Chick-fil-A and Duck Dynasty they had better beware.  They would be much smarter to not anger those birds that almost always mind their own business.

Douglas McKinnon of The Washington Times wonders whether the Duck Dynasty flap may prove to be a Boston Tea Party milestone and that conservatives, Christians and others who cherish traditional values may decide that they have had enough of the oppressive tactics of far-left zealots.

The liberals who exercise an almost complete monopoly on entertainment, the media and academia, and who have made attacks on conservative or Christian thought coupled with the blacklisting of conservative professors a twisted sport, knew beyond a shadow of a doubt that out of civility and faith, their targets would always turn the other cheek and never fight back.

Sure, depending on how outrageous or disgusting the far left’s attacks were, you might see some moderate push-back from conservatives or Christians before they went silent and gave up even more of their values and part of our republic in the exchange.
For the last few decades, they have lost nearly every battle to the far left with the war seemingly all but over.
Ironically, what is forgotten in all of these past victories by the liberal thought police is that conservatives, Christians and all those who base their lives on traditional values still make up the majority of this country. And yet it is they who are caving in to a tyrannical minority bent on silencing them forever.
Maybe, that is, until now. Will the “suspension” of Robertson be the final straw? Will this enforced silent majority finally scream “enough is enough” and begin to defend their rights and defend their faith?

I doubt that this is the final straw. Conservatives and Christians are too civil and well-mannered for their own good.  However, just as it is smart to let sleeping dogs lie it goes the same for beneficent birds who  rarely flap their wings in anger.  

GLAAD should be glad for that. Will the latest flap be a lesson learned?  For their sake I hope it is. After all, nature and numbers are not on their side. And if they think Conservative Christians are narrow minded, they ought to think about other political and religious viewpoints that do not demonstrate the same level of acceptance of gays as Evangelical Christians.  For the sake of everyone who cherishes our freedoms, I hope they keep this in mind most of all.

Sunday, December 22, 2013

Co-Signing Your Retirement Away

I have written several times over the last few years about the student loan problem in our country.  My most recent post was in August just as millions of students were starting college classes this year.

Student loan debt now exceeds $1.1 trillion. Here is a debt clock that shows the approximate amount of student loans outstanding up to the minute. For perspective, total student loan debt was only $763 billion in 2009. Student debt has increased almost 50% in the last four years. All other forms of personal debt, mortgages, auto loans and credit cards, have declined during the Great Recession as I wrote about last year in "Degrees in Debt."

Loan payments are currently being made on just 38 percent of student loans.

An increasing amount of payments on student loans are being made by individuals in their 50's and 60's.  I suspect most of these are parents who co-signed loans for their children.

Bad, Bad Move!

I know that parents love their children and want the very best for them.  However, there is no worse situation you can put yourself in heading into your retirement years than to co-sign a college loan.

Before you or someone you know is willing to co-sign on the dotted line, you need to think long and hard about why you are doing it. You also need to make sure the student understands that every dollar borrowed is going to have to be paid back at least two-fold and possibly even more before the slate is marked clean.  And federal student loan debt never goes away unless it is paid off.  Even in bankruptcy.

Why am I writing about this again?

I happened to hear on the radio last night that over 115,000 Social Security beneficiaries had their monthly retirement benefits garnished to pay student loans last year.  That is a staggering number.

Do you know how many had their benefits garnished in 2000?  Six! As in 6! As in four less than ten and six more than zero!

How can this happen? The law has been written in its favor. There is no discharge of the debt in bankruptcy and Social Security benefits can be garnished up to 15 percent of the amount you are due in order to offset federal student loan debt.

Would you say that a number of well-meaning parents have gotten burned with co-signing student loans for their well-intentioned children over the last few years?

If I did not have the money to pay for my child's college education and they wanted me to co-sign a loan, I would start by having a real, down-to-earth conversation about the facts of financial life with them.  I would steer them to the lowest-cost alternative that was reasonable. If that means two years at a community college for them while living at home, so be it. The first priority is to minimize college costs if you don't have the funds.

I would make sure my child had skin in the game.  They would have to commit to a summer job and part-time work to defray a certain percentage of the costs while in school.

If they had poor grades or did not stay on track to graduate in four years, all bets are off as well as my signature on any future loans.

I would say "no way" if they wanted to major in Philosophy, English Literature, Women's Studies or something similar where it is hard to see a wealth of job opportunities after graduation.  If your student does not have a good paying job after graduating with one of these degrees you are almost certainly going to have to cover that loan as a co-signer.

Paul Oster, a credit expert, suggested a few other student loan tactics in a column in The New York Daily News that might be helpful to avoid putting your Social Security at risk when co-signing a loan.

Parents should know that a student loan is not dischargeable under bankruptcy law. You can have your mortgage, car loan, and credit cards all forgiven if you filed bankruptcy, but you would still be responsible to pay back your student loans.

You should assume that if you co-sign, you will be paying the entire monthly payment. Here are some of my recommendations:

*Don't borrow more than you need.

*Have an emergency fund to cover six months' worth of payments.

*If your child earns income as a student, make sure a small portion of that pay goes into that emergency fund.

Perhaps the most important tip I would give parents relates to who should be making the payments. While your child is the official borrower, I would encourage you to be the one sending checks to the lender. In turn, your child should be paying you.

Why? Parents need to monitor and control loan payments to protect their own credit profile.

Unfortunately, we have seen the devastating effects that missed student loan payments can have on parents' credit scores. Most of the time parents are not even aware that there has been a missed payment until they apply for a loan themselves.

At that point, it's far too late and the damage to the credit score has been done. A one-time, 30-day delinquency can drop credit scores by as much as 100 points.

Student loans have become a necessary evil in today's world. A student loan can have a dramatic effect on the credit and monthly budget of parents and their children.

Often it is a young person's first encounter with a credit obligation. It needs to be carefully considered.

Of course, the easiest way to avoid the problem of student loans is to plan ahead. Save early and save often. Get compound returns working for you.

I generally put all my children through college with an investment of less than $10,000 for each of them.  Of course, most of that went in when they were younger than 5 years of age.  I also had the benefit of a strong bull market during most of the 1980's and 1990's that allowed those funds to compound at double-digit returns in equity mutual funds for close to two decades.  Money multiplies quickly when you have that formula working for you.

The future may not be as kind.  However, borrowing money is never kind. Avoid it at all costs, especially if you are a co-signer.  Social Security's returns are bad enough now for the Baby Boom Generation and those born later.  Don't make it worse by having to pay off a student loan with it as well.

Wednesday, December 18, 2013

The Biggest Shell Game Ever Played

Obamacare has been an utter disaster since the federal exchange website was first declared ready for business on October 1.  The Obama Administration claims that most of the website problems have been fixed and it is clear sailing ahead.  To hear it from them it will not be long until the public is totally in love with Obamacare.

It all sounds good. Everything out of Barack Obama's mouth usually sounds good. The problems arise when you begin to look at facts.

Jim Geraghty of National Review Online made me aware of a website that is dedicated to putting out all the facts on the enrollment numbers on Obamacare across all 50 states and the District of Columbia.  You can check it out at

When you see the enrollment numbers for all the states in one place you really begin to understand what an epic failure Obamacare has been in its goal of reducing the number of uninsureds.

In fact, we are already three days past the original deadline to enroll in an Obamacare exchange plan in order to be covered for January 1.  This deadline has since been extended to December 23 which is only days away.  Of course, tax penalties will be assessed if coverage is not obtained for 2014 by March 31.

Let's look at some of the enrollment numbers compared to the goal of each state.  Bear in mind that it still is not clear whether those that have "enrolled" have actually paid for their coverage.  These numbers may not hold up in the end if payment is not made to the insurance company that has been selected.

Oregon is a complete embarrassment with just 730 enrollees compared to goal of 237,000 (0.3%)

District of Columbia has 565 enrollees against a goal of 43,000 (1.3%)

Texas has 14,038 and a goal of 629,000 (2.2%)

Maryland has 3,758 which is an awfully long way from its goal of 150,000. (2.5%)

Arkansas has signed up 1,404 against a goal of 51,000. (2.8%)

Florida has gotten 17,908 to sign up but its goal is 477,000. (3.8%)

Illinois is at 7,043 versus a goal of 143,000. (4.9%).

Delaware has 793 enrollees compared to a goal of 35,000. (5.4%)

Kentucky has 20,951 versus a goal of 220,000 (9.5%)

California has signed up 159,004 (more than all the other above combined) but it needs another 1,150,000 enrollees to meet their target goal. (12.2%)

You get the idea. Go to to see the entire list.

In fact, 45 states have not even reached 10% of their goal to this point.

As I review the numbers, only two states have enrollments that are even close to being respectable-New York has gotten to 43.7% of its goal and Rhode Island is at 22.2%.

In total, EnrollMaven estimates there are 485,912 enrollees compared to the goal of 7,066,000 by March 31, 2014.

Looking at these numbers you also have to wonder what the underlying demographic mix of the enrollees who will make up the risk pool in each of these states.  It is has to be an health insurance actuary's nightmare.  It would be a shock if it is not both much older and sicker than the state's population as a whole.  

The enrollment numbers will undoubtedly improve as we get the December 31 numbers and the March 31 "final deadline" gets closer.  However, it is hard for me to see how the numbers are going to work within the risk pool. And that will mean big trouble when rates are set for next year.

Keep in mind that 7 million people have lost their individual insurance policies to this point compared to the 485,000 who have signed up in one of the Obamacare exchanges.  That means that about 14 individuals have lost coverage compared to every one gaining coverage.  And that might overstate the facts because a number of those who have signed up for Obamacare already had coverage before.

Ernest Istook from The Washington Times put this graphic together to show the overall effect.

A big question is where these poor souls are going to be able to replace the coverage they already had.  If they just go into the exchanges the enrollment goals that the Administration established will be met.

Looking at the numbers you have to wonder is it a coincidence that 7 million lost their individual coverage but the Obamacare exchanges planned for 7 million to sign up this year?

Coincidences occur in this world but they are extremely rare.

It would not surprise me at all that the 7 million overall enrollment goal was established with the expectation that it would be easily covered by those displaced from their prior plans.  Getting those who were uninsured into the exchanges would be gravy on top.  This would then allow the Obama Administration to declare what a smashing success the law had been in achieving its objectives.

If this is what this is all about, Obamacare is the biggest shell game that has ever been played.  And it is the American people who have been played.

Monday, December 16, 2013

Does Government Have Any Accountability Ability?

Does government have any ability to be accountable for anything?

That is a question I ask often.  And I can't say I see much evidence of that ability within government anywhere I look.

Look no further than this statement from Secretary of Health and Human Services last week in a blog post on the HHS web site about the failed launch of the Obamacare website.

"I believe strongly in the need for accountability, and in the importance of being good stewards of taxpayer dollars." 

She said that right after she also made this statement.

"The launch of was flawed and simply unacceptable."

Of course, Sebelius was responsible and should have been accountable for that flawed and unacceptable launch.

So what is she going to do about it? Is she going to resign?  Is she going to fire the people who were responsible at HHS?  Is she going to withhold payment for the work done by the outside contractors?

No. After all, this is government where there is no accountability ability anywhere you look. However, there is a plenty of ability to make announcements, do investigations and reviews, create new positions and order additional training.

This is a summary by CBS News of how Sebelius views "accountability".

Health and Human Services Secretary Kathleen Sebelius said in a blog post early Wednesday that she is asking the department's inspector general to investigate the contracting process, management, performance and payment issues that may have contributed to the flawed launch of
In addition to the inspector general review, Sebelius said she has ordered the hiring of a new "chief risk officer" at the Medicare agency, which also oversees the new programs created to expand health insurance coverage under Mr. Obama's law. That official will focus on making sure technology programs work as advertised.
Sebelius also said she's ordered a retraining of her department on best practices for outside contracting.

Another recent example of government's utter inability to enforce accountability involved Lois Lerner, the IRS Director of Exempt Organizations, who allowed her department to target groups that didn't agree with the Obama administration.  After pleading the Fifth Amendment in testimony before Congress she was placed on paid administrative leave after she refused to resign. It appears that firing anyone is also not within the ability of government.

After four months of paid leave Lerner ultimately retired with a full pension and benefits compliments of the same taxpayers that she harassed in her position at the IRS.

However, the Sebelius and Lerner stories have nothing on John Beale, the EPA's preeminent expert on climate change, who was in the news today for bilking the government out of nearly $1 million in salary and other benefits by failing to show up for work for months at a time (at one point for 18 consecutive months).  How did he do this? He told his boss (the EPA's top administrator and others at the EPA) that he was engaged in intelligence work for the CIA.

I am not making this up.  This is from an NBC News Investigations story published today.

Until he retired in April after learning he was under federal investigation, Beale, an NYU grad with a masters from Princeton, was earning a salary and bonuses of $206,000 a year, making him the highest paid official at the EPA. He earned more money than Gina McCarthy, the agency’s administrator and, for years, his immediate boss, according to agency documents.
To explain his long absences, Beale told agency officials -- including McCarthy -- that he was engaged in intelligence work for the CIA, either at agency headquarters or in Pakistan. At one point he claimed to be urgently needed in Pakistan because the Taliban was torturing his CIA replacement, according to Sullivan.
In fact, Beale had no relationship with the CIA at all. Sullivan, the EPA investigator, said he confirmed Beale didn’t even have a security clearance. He spent much of the time he was purportedly working for the CIA at his Northern Virginia home riding bikes, doing housework and reading books, or at a vacation house on Cape Cod.
Nor was that Beale’s only deception, according to court documents. In 2008, Beale didn’t show up at the EPA for six months, telling his boss that he was part of a special multi-agency election-year project relating to “candidate security.” He billed the government $57,000 for five trips to California that were made purely “for personal reasons,” his lawyer acknowledged. (His parents lived there.) He also claimed to be suffering from malaria that he got while serving in Vietnam. According to his lawyer’s filing, he didn’t have malaria and never served in Vietnam. He told the story to EPA officials so he could get special handicap parking at a garage near EPA headquarters.

John Beale, EPA
It Seems He Was Not Accountable For Much Of Anything At The EPA
Photo: House Oversight and Government Reform Committee

Two congressional committee are now looking into the issue and are also looking for answers from Beale's boss, EPA Administrator Gina McCarthy, for her management of Beale.  An Inspector General's report questioned the EPA's lack of internal controls that facilitated Beale's fraud.  That seems to be the understatement of the year!  Especially after you read some more of the report.

For example, one of the reports states, Beale took 33 airplane trips between 2003 and 2011, costing the government $266,190. On 70 percent of those, he travelled first class and stayed at high end hotels, charging more than twice the government’s allowed per diem limit. But his expense vouchers were routinely approved by another EPA official, a colleague of Beale’s, whose conduct is now being reviewed by the inspector general, according to congressional investigators briefed on the report.
Beale was caught when he “retired” very publicly but kept drawing his large salary for another year and a half. Top EPA officials, including McCarthy, attended a September 2011 retirement party for Beale and two colleagues aboard a Potomac yacht. Six months later, McCarthy learned he was still on the payroll.

There is a lesson here in all of this that I hope we all understand. Our Founding Fathers surely understood it.

When you ask men and women in government to be accountable for themselves you are asking for an awful lot.  You are asking for even more trouble when you let government get too big.  It is too easy for a John Beale to take your money, a Lois Lerner to take away your rights or a Kathleen Sebelius to be in a job in which she has proven to be totally incompetent when government gets too large.

The only way government can be held accountable is by the People. And that becomes harder as government gets bigger and it gets further away from the People.  The Founders understood this and wrote a Constitution that attempted to limit the power of the federal government and also established two-year terms for the U.S. House of Representatives to insure that the People could hold their government accountable.

The People have that ability to hold government accountable. It is about time we started using it. No one else is going to do it for us.

Tuesday, December 10, 2013

Feeling Wealthy?

Health care cost premiums are higher. Health care deductibles are increasing. College costs continue to rise.  Food costs more.  Energy prices are up.  Taxes have increased.

Do you feel wealthy?  The Federal Reserve says we are.

The Federal Reserve announced on Monday that U.S. household net worth increased by $1.9 trillion in the third quarter to $77.3 trillion. That is an all-time record. The increase was driven by the value of residential real estate (+$428 billion) and corporate stocks and mutual funds (+$917 billion) during the July-September period.

Of course, that "wealth" is largely the function of a Federal Reserve "ultra easy" monetary policy that has kept interest rates low for over five years.  The whole idea is to make you feel "wealthier" so you might spend more.  If you spend more they figure the economy should improve. However, we are five years into this theory and we are still looking for that real economic recovery.

However, you have to ask yourself if home sales would really be increasing without the Fed's zero interest rate policy (ZIRP) in which the Fed is purchasing $40 billion of mortgage-backed securities every month?

You also have to ask yourself if the stock market would also be advancing like it has without the Fed's ZIRP.  Bear in mind, the Fed is also purchasing $45 billion of treasuries every month.  This keeps interest rates low and makes putting your money in a savings account or bond a bad bet.  That also makes stocks relatively attractive in comparison and makes them more attractive to buyers thereby increasing prices.

Is any of this real wealth?

Grant Williams, who writes "Things That Make You Go Hmmm", references a chart that Raoul Pal and Remi Tetot of Global Macro Investor put together to provide some context on the reality of the new all-time highs in the S&P 500 in relation to all the trillions of stimulus Fed dollars created through quantitative easing (QE) since 2008.

If you wonder where all that money has gone look no further than this chart. You take out the QE and what do you have left?  Not much it seems.

You also can begin to see that when the word "taper" is mentioned (meaning the Fed might cut back on its purchases of federal debt) people may quickly understand that what has really been going on is a gigantic caper.  Unfortunately, the mischief and monkey business is going to affect us all.

Back to the prices.

Williams also references a chart on inflation since 2000 that is worth considering if you are still feeling even a little bit wealthy.

Overall, the consumer price index is up 39%, energy is up 122%, college costs have risen 129% and medical care (pre-Obamacare, mind you!) is up 68%.  The chart is the work of Doug Short.

Of course, the CPI statistics used today are nothing like they were in 1980 before the Bureau of Labor Statistics modified the calculation to make it more "accurate".

John Williams of ShadowStats prefers to use the same methodology for calculating CPI as was used by the BLS back in 1980 before a lot of the "tinkering" took place, and guess what? Yep... inflation as calculated back then would have been significantly higher than as measured today. How much higher? Ohhhh, about eight times higher:

Calculating inflation like they were pre-1980, inflation has cut almost 40% of the purchasing power of the dollar since 2009 alone!

Does anyone reading this still feel wealthy?

Sunday, December 8, 2013

Peak Potential

"The most common commodity in this country is unrealized potential."
                                                             -Calvin Coolidge

"There is a time for everything, and a season for every activity under the heavens:"
                                                            -Ecclesiastes 3:1

How does one reach peak potential?  How do you know if you peaked out at the right time?

These two quotes help answer that question in my mind.

There is a lot of potential in everyone that is unrealized as Calvin Coolidge observed many years ago.  

Why is that?  My experience is that a lot of unrealized potential occurs because people get off track. They lose focus. They don't observe the verse from Ecclesiastes. There is a time or season for everything. If you want to reach your peak potential you need to understand this and take advantage of the season of life you are in. It is about of having a sense of where you are in addition to understanding who you are.

For example, a farmer is not going to succeed by planting their crop in the winter or by starting to harvest in mid-summer, no matter how hard they work. Planting needs to be done in the spring and harvesting is done in the fall. You will never approach peak potential doing it any other way.

The same is true of our lives. To reach your peak potential you need to understand the seasons in your life.

When you see people flounder and fail it is often because of ignoring this rule.  People drop out of school when they should be educating themselves. They have children before they get married. They live only for today without thinking about the consequences of tomorrow.  There is a time for everything but their timing is off.  They will never reach peak potential.

I offer my perspectives on the seasons of life based on my experiences and observations over my lifetime on what it takes to say you peaked out at the right time in each season. My rules for reaching peak potential are spelled out in the acronym...


These foundational principles may not apply to everyone. There are exceptions to every rule. However, I think it is worth considering in your life planning or as your mentor younger people.

Each of the life stages corresponds to a decade of life beginning with the 20's. Through the teen years most people are not in full control of their life decisions.  Their parents have significant influence over most facets of their children's lives.  However, beginning with the 20's, this changes dramatically and the individual decisions that we make become critical.  That is the age at which responsibility and accountability really become important in the life direction of an individual.

Prepare (the 20's)
The 20's are the preparation decade. This is the time to prepare for the future. It is the time to the get the necessary education and training for the future. It is the time to find out what you really like to do. It is also the time to find out what time of people add value to your life, including a future spouse. This is a decade where most people have more flexibility to experiment (and even fail) without devastating life consequences. After all, time is on your side in the 20's.

That does not mean it should be a period without direction or thought. Everything you do should have a purpose or done with a long-term outlook. Finding out what you don't like to do, and people you do not like to be with, can be helpful in finding what and who you like.

Establish (the 30's)
The 30's is the decade to establish your life.  Your preparation should be largely behind you and now is the time to firmly establish what your career and personal life is going to be over your lifetime.

In other words, by the time you get to your 30's it is time to have some purpose in your life. You should know what you want to accomplish, have goals to get there and be on your way to achieving them.

Advance (the 40's)
I like to think of the 40's as the advancement decade.  This is the decade when most people should be in  best position to advance themselves.  You are in the sweet spot.  You have enough experience under your belt to know what you are doing and you have sufficient time on your side to make a difference.

For example, an entrepreneur is probably in the best position in their 40's to expand their business. Someone working in the corporate world is probably going to have a good understanding of what their ultimate level and role will be.

This is also the decade that parents should be focused on advancing their own children by providing them the right combination of guidance, direction, discipline and freedom so they are prepared for the future.

Knowledge (the 50's)
Knowledge is the key element of peak potential in the 50's.  Your prior experiences should provide you a wealth of knowledge.  This is the decade that it is your principal asset.  You likely have reached as far up the career ladder as you are going to go sometime during this decade.  However, your knowledge provides a lot of power and potential whether in your profession or as a parent.

Your knowledge puts you in a great position to mentor younger people and do meaningful work.

Enjoy (the 60's)
By the time you get to your 60's it is time to start really enjoying life. Most of us think of these as the retirement years that are the reward for all the hard work you put in over your lifetime.  However, in this day and age, more people are working in their 60's than at any time in the last 30 years. If you are still working, it should be because you really enjoy the work. It should not be because you have to.  If that is the case, you probably didn't properly prepare by saving for tomorrow by establishing a sound retirement investment plan.  As I said before, you can't live only for today and ignore tomorrow.

Distribute (the 70's and beyond)
Any good retirement planner will explain there are two main phases in any retirement plan. The accumulation period and the distribution period. You accumulate assets during your working years.  You use these assets to distribute the income you need in retirement.  That is why the 70's is the distribution decade.

However, distribution of monetary assets should not be the sole focus in your 70's.  This is also the time you really should be distributing your knowledge and experience to the succeeding generations.  Pass down what you have learned to your children and grandchildren. Volunteer your services. Mentor a young person. Society succeeds when we can leverage prior experiences and knowledge. When we do that, progress becomes easier.  

My experience and knowledge tells me that if you get to this point you will have a lot to distribute because you will have led a life that reached peak potential.

Wednesday, December 4, 2013

Most Likely To Succeed

My alma mater, Miami University, hired a new head football coach today.  His name is Chuck Martin who most recently was the offensive coordinator at Notre Dame.


Over the years there is no university in the country that has a better track record of hiring successful football coaches than Miami.  That is why it is called "The Cradle of Coaches".

Here is a sampling of some of those who coached or played at Miami and later went on to bigger and better things.

Paul Brown, Earl (Red Blaik), Woody Hayes, Weeb Ewbank, Sid Gilman, Ara Parseghian, Bo Schembechler, Paul Dietzel, Jim Tressel, John Harbaugh, Sean Payton, John Pont, Ron Zook, Randy Walker and Terry Hoeppner.

However, over the last eight years, Miami football has fallen on hard times. The program just ended the 2013 season with a 0-12 record.  It has a combined record of 29-70 in the last eight seasons with only one season with a winning record.

How do we know if Chuck Martin is the right man for the job?

Is there anything that can help us predict success?

After all, Miami thought they had it right a couple of other times over the last few years.  The most recent coach, Don Treadwell, was a Miami graduate who was the offensive coordinator for Michigan State before getting the Miami job. He had even stepped in and been successful as the interim head coach at MSU when Mark Dantanio had to take a medical leave.  And yet, he was an utter failure as the head coach of Miami.

Shane Montgomery was the top assistant to Terry Hoeppner who had six straight winning seasons for Miami after replacing Randy Walker who left to take the Northwestern job. Hoeppner's 2003 Miami team finished 10th in the final national polls.  Montgomery went 7-4 his first year and then went 2-10, 6-7 and 2-10.

On paper Treadwell and Mongtomery looked good.  In reality, they could not do the job.

Malcolm Gladwell, in his book, What The Dog Saw, calls this the "quarterback problem".  Why?  Because there are certain jobs where almost nothing you can learn about candidates before they start predicts how they'll do once they are hired.  If you are an NFL fan you will understand immediately if I mention a few names.  Ryan Leaf. Joey Harrington. David Klingler. Tim Couch.  They were considered "can't miss" prospects.  And yet, they all missed.

Gladwell believes that hiring a great teacher is a lot like finding a top quarterback. Do we know what a person with the potential to be a great teacher looks like before they step in a classroom?  This is critically important.  Just as hiring the right head football coach is. Why? Because recent research indicates that the difference in educational outcomes between a good teacher and a poor teacher is vast.

It is easier to see the damage a poor football coach can do to a college football program.  It is harder to see it with students.  However, there are measures in place based on what is called value added analysis to quantify how much the academic performance of students in a given teacher's classroom changes between the beginning and end of the year.

Eric Hanushek, an economist at Stanford, estimates that the students of a very bad teacher will learn, on average, half a year’s worth of material in one school year. The students in the class of a very good teacher will learn a year and a half’s worth of material. That difference amounts to a year’s worth of learning in a single year. Teacher effects dwarf school effects: your child is actually better off in a “bad” school with an excellent teacher than in an excellent school with a bad teacher. Teacher effects are also much stronger than class-size effects. You’d have to cut the average class almost in half to get the same boost that you’d get if you switched from an average teacher to a teacher in the eighty-fifth percentile. And remember that a good teacher costs as much as an average one, whereas halving class size would require that you build twice as many classrooms and hire twice as many teachers. (emphasis added)

Does that get your attention?  How about adding this to your thinking?

Hanushek recently did a back-of-the-envelope calculation about what even a rudimentary focus on teacher quality could mean for the United States. If you rank the countries of the world in terms of the academic performance of their schoolchildren, the U.S. is just below average, half a standard deviation below a clump of relatively high-performing countries like Canada and Belgium. According to Hanushek, the U.S. could close that gap simply by replacing the bottom six per cent to ten per cent of public-school teachers with teachers of average quality. After years of worrying about issues like school funding levels, class size, and curriculum design, many reformers have come to the conclusion that nothing matters more than finding people with the potential to be great teachers. But there’s a hitch: no one knows what a person with the potential to be a great teacher looks like. The school system has a quarterback problem. (emphasis added)

So what do we know about what it takes to be a great teacher?  What are the qualities of a successful teacher?

The current system is set up to hire based on certifications and degrees.  In fact, the system is purposely skewed to exclude a vast number of potential teaching candidates because they may have "degrees" but they don't have teaching degrees or certifications.

Test scores, graduate degrees, and certifications—as much as they appear related to teaching prowess—turn out to be about as useful in predicting success as having a quarterback throw footballs into a bunch of garbage cans.
Gladwell notes that great teaching has little correlation with certifications and raising teaching standards and much more to do with how the teacher relates in the classroom to the students.  One educational researcher called this quality "withitness".

“Withitness,” ... is defined as “a teacher’s communicating to the children by her actual behavior (rather than by verbally announcing: ‘I know what’s going on’) that she knows what the children are doing, or has the proverbial ‘eyes in the back of her head.’ ” It stands to reason that to be a great teacher you have to have withitness. But how do you know whether someone has withitness until she stands up in front of a classroom of twenty-five wiggly Janes, Lucys, Johns, and Roberts and tries to impose order?

This suggests that we should be hiring teachers using a complete different model and system than we are doing today. Something more akin to how financial advisors are hired.

Perhaps no profession has taken the implications of the quarterback problem more seriously than the financial-advice field, and the experience of financial advisers is a useful guide to what could happen in teaching as well. There are no formal qualifications for entering the field except a college degree. Financial-services firms don’t look for only the best students, or require graduate degrees or specify a list of prerequisites. No one knows beforehand what makes a high-performing financial adviser different from a low-performing one, so the field throws the door wide open. 
In the financial advisory field a firm may interview 1,000 candidates to find 50 they are willing to put into training. Perhaps only half of those will make it through a four-month training period where they have to demonstrate they can develop and pursue leads and bring in clients.  In four years, maybe only third of those prove they can sustain themselves.  As a result, the financial firm ends up with real all-stars in the end.  The others find something that is better suited to their abilities and to their ultimate benefit (and to the firm's clients) over the long-term.

Gladwell asks why don't we use similar thinking in hiring teachers?

In teaching, the implications are even more profound. They suggest that we shouldn’t be raising standards. We should be lowering them, because there is no point in raising standards if standards don’t track with what we care about. Teaching should be open to anyone with a pulse and a college degree—and teachers should be judged after they have started their jobs, not before. That means that the profession needs to start the equivalent of Ed Deutschlander’s training camp. It needs an apprenticeship system that allows candidates to be rigorously evaluated. Kane and Staiger have calculated that, given the enormous differences between the top and the bottom of the profession, you’d probably have to try out four candidates to find one good teacher. That means tenure can’t be routinely awarded, the way it is now.
Pretty radical thinking and surely not the type of thinking that the teachers' union would embrace.

Such a system would also require a radical change in the way teachers are compensated.

Currently, the salary structure of the teaching profession is highly rigid, and that would also have to change in a world where we want to rate teachers on their actual performance. An apprentice should get apprentice wages. But if we find eighty-fifth-percentile teachers who can teach a year and a half’s material in one year, we’re going to have to pay them a lot—both because we want them to stay and because the only way to get people to try out for what will suddenly be a high-risk profession is to offer those who survive the winnowing a healthy reward. 
Of course, college presidents and their boards of trustees have already recognized this fact with regard to head football coaches a long time ago. That is why head footaball coaches are usually the highest paid position on campus.

I can only hope that my alma mater got it right this time.

They appear to have taken account of the "quarterback problem" with Chuck Martin.

He is another offensive coordinator being promoted like Montgomery and Treadwell.  However, he also was the head coach at Grand Valley State, a Division II school, for six years before taking the assistant job with Notre Dame.  He was 74-7 in those six years at the helm.  He won two national championships and was the runner-up in another year.  In effect, he has been at the front of the classroom and been tested there before.

Great coaches are great teachers.

Chuck Martin, please be both.

And get the cradle rocking again.

Monday, December 2, 2013

Savers And Suckers

Last March I wrote about the outrage that was caused by the proposal by the European Central Bank (ECB) to levy a tax on bank deposits in Cyprus in return for a financial bailout of its banks.

I pointed out that we already effectively had in place a United States Bank Deposits Tax.  It is called the Zero Interest Rate Policy (ZIRP) of the Federal Reserve.

This is what I wrote at that time.

What I find interesting is the almost universal outrage about the ECB's attempt to tax the Cyprus bank depositors to pay for the bail out of their banks while the same thing has been going on in the United States with the ZIRP policy with nary a peep from anyone. 
The bank depositors in Cyprus have been earning what historically has been considered a fair return on their savings and now the ECB wants to impose a tax on the savings deposits.  In Cyprus, depositors have had the ability to make a return on their savings of almost 5% before the tax is imposed.  In the United States, due to the Fed's ZIRP, the depositors are getting almost nothing.  There is no need for the deposit tax because, in effect, bank depoistors have already been paying for the bailout of the U.S. banks with the foregone interest on their savings.
In the final analysis, there is almost no difference between what is being done with United States bank depositors compared to what is proposed in Cyprus.
What I find most interesting is the vastly different reactions to the two scenarios.  There is outrage over Cyprus but almost total acceptance in the United States (and other countries that have adopted ZIRP) of what could be considered a 4% indirect tax on bank deposits.

There is no difference between what the  ECB tried to do in Cyprus with the bank deposit tax and what the Federal Reserve (and other central banks around the world) have done with their ZIRP policies.  In both cases the goal is to take money from private savers and give it to governments (to fund their deficit spending) and large financial institutions and banks (to rebuild their balance sheets because of bad loans).

The ZIRP policy has particularly penalized savers over the age of 50+ and pension plans.

A recent study by the McKinsey Global Institute finds that from 2007 to 2012, governments in the United States, the United Kingdom and the Eurozone have collectively benefited by $1.6 trillion from a combination of reduced debt service costs and increased profits remitted from the central banks.  Where did the $1.6 trillion come from?  It came right out of the pockets of savers-most all of which are over the age of 50.

This chart shows the winners and losers from the ultra-low interest rate policies between 2007-2012.  Who have been the winners? Central governments, banks and corporations.  Who have been the losers? Pension plans, savers and those in the rest of the world (China) who loaned us money.

How much longer will the central banks suck away the savers money?  And how long will these suckers continue to take it?