Thursday, March 28, 2019

Stressed Out

Stress has undoubtedly been something that humans have been living with from the beginning of time.

Those that lived in caves were undoubtedly stressed about having to venture out to hunt or catch their food each day. They also had to worry about what danger might confront them while they looked for that food. It also had to stress them wondering whether that new berry they found might actually poison them rather than sustain them. And knowing that if they got sick there was no doctor or hospital to go to. They were on their own. There was no end to stress factors in their lives.

My father, who grew up in the Depression, had different stress factors in his life. His father was killed when he was the oldest of three at age 5. There was no insurance and no Social Security survivor benefits. He worried about his mother finding and keeping a job, when it was not easy for anyone to find a job, let alone a woman. He worried about having enough to eat or having clothes on this back. He had no hopes of going to college. It was simply unaffordable for him. There were no student loan programs. He graduated from high school and went to work in a plant manufacturing washing machines. He later stressed as he was on a troop transport heading to the South Pacific to fight the Japanese. Would he ever return?

I was fortunate to avoid a lot of the stress factors that my father dealt with. He and my mother provided a relatively stable home life for me but for the necessity of 5 moves in my 12 years of schooling. In those days, corporate transfers were a way of life. You went where your company told you to go. You did not make lifestyle choices. My generation also had the Vietnam War and a military draft hanging over everyone's head. 58,220 served and did not return. When we were in the same age range as Millennials today, we saw an unemployment rate of over 11% (today it is 3.7%), inflation of 13% (today it 2.0%) and a 30-year home mortgage rate of 18% (today it is 4.0%-4.5%)

Considering the history above I could not help but chuckle when I saw this recent headline.

That's right, more than half of Millennials believe that life today is more stressful than it has ever been before!

One-third of Millennials actually believe that their lives are more stressful than the average person's life today. I guess they must not be familiar with Baby Boomers who are entering their retirement years with little in savings, the 50 years olds caught in the "sandwich generation" caring for children at home and parents in a retirement home, or the single mother trying to care for a couple of children while working two jobs.

What is an example of a "stressor" in the lives of Millennials today?

Almost 1 in 5 said that getting zero "likes" on a social media post is a stress-inducing experience.

However, that pales in comparison to losing their phone (44%), slow WiFi (42%) or a dead phone battery (40%) as "stressors" in their lives.

Although neither made the top 10 list of stressors, Millennials actually are more stressed out by being the first to arrive at a party than going for a job interview. That is a far different from how my grandmother felt in the 1930's and the stress my fellow Baby Boomers went through in the early 1980's on their job interviews. That interview might have determined whether they had a roof over their head in a month.

If you don't believe times have changed, look no further than this survey and the list above. No where on this list is there any mention of stress about having enough to eat, finding a job, paying for college, or being drafted and going off to war.

60% of the Millennial generation seriously believes that life is more stressful today than ever before?

Isn't it also interesting that half of the top 10 stressors all have something to do with their phone?

Does that suggest that losing their phone might actually take half their stress away? There would be so much less to be stressed about after they got over the loss of the phone. No stress about slow Wifi, the phone battery dying or forgetting the charger.

Do a Millennial you love a favor and send them this blog post with the suggestion that they might want to count their blessings. If this is as bad as it ever gets for them in their lives, they are a very fortunate generation. For their sake, I hope it is.

In meantime, I suggest they might want to stress less and chill more.

Tuesday, March 26, 2019

One Big Negative

The Federal Reserve announced last week that it had no plans to further increase interest rates this year. This was a change in that previously the Fed had stated that it expected to increase interest rates several times during 2019.

In addition, the Federal Reserve stated that it will cease selling government securities on its balance sheet when the current selldown hits $3.5 trillion. The stated policy before was that the selldown would continue unabated through the year. These securities are on the Fed balance sheet as part of the QE policy of former Fed Chairman Ben Bernanke.

Some analysts suggest that the new restraint on increasing interest rates and the reversal on unwinding QE liquidity is due to concerns about an impending slowing of the U.S. economy. The Fed is projecting 2019 at 2.0% growth, down from 3.0% over the last 12 months.

It would not be unusual to think that a recession might be in our near-term future. After all, the average time period between recessions is 3.2 years. It has been 9 years since our last recession. If we make it to June without a recession taking hold, we will have set a record for the longest period in the United States without one.

I think it is likely that the Fed determined that further interest rate hikes now would be all that is necessary to push the economy towards the edge considering how long in the tooth the expansion is.

I have no doubt that if Hillary Clinton had been elected we already would have been in recession. The election of Donald Trump was a tremendous psychological boost for the producers in the economy. The subsequent tax cuts he was able to shepherd through Congress has provided additional fuel to the expansion. Nevertheless, all expansions end. The length of this one will soon set a record. Can it continue long enough to provide a lift to Trump's re-election efforts or will a recession seal the deal for a Democrat to move into the White House in 2021?

We will have to wait to find out the answer to that question.

However, I believe there was another reason that the Federal Reserve stopped raising interest rates and is retaining those $3.5 trillion in QE government securities.

Look no further than interest rates in Europe and Japan.

Consider the fact that an incredible $9.0 trillion in bonds around the globe are yielding less than 0%! The value of global bonds with negative yields has increased by over $3 trillion just since October, 2018.

This is the world we live in today? People are willing to give their money to someone with no promise of a return on their investment. In fact, the lender actually is paying the borrower rather than the other way around. It is nothing short of insanity.

I like the observation that Elliott Wave International made in its comments accompanying this chart.
"Properly functioning economies and debt markets do not have negative-yield bonds".
I should say so.

Where are these negative interest rates? Most are in Europe.

It probably does not come as a surprise that countries like Switzerland, Japan and Germany lead the list. These are considered to have solid economies and stable political outlooks.

However, negative bond yields also exist in Italy, Spain, Portugal, France, Ireland and Slovenia????

It was not too long ago that Italy, Spain and Portugal were all considered major default risks. France also has negative yields even as yellow vest protestors riot in the streets against the government?

Credit: @CharlieBilello

I have to think that the Federal Reserve is keeping a close eye on these negative bond yields and wondering just how big a gap that it can leave in interest rates between these countries and the United States.

The pause in interest rate increases by the Fed looks to me to be just as much about concerns about what is going on in Europe and Japan as is their view of the U.S. economy.

At the same, the Fed still retains some flexibility to lower rates if they have to if a recession comes into further view.

Let's hope that the Fed knows what it is doing. I have no desire to see negative yields in the United States. I have no desire to find us in the same place that Japan and these European countries find themselves in today.

It is one big negative place to be.

Sunday, March 24, 2019

Mueller Had The Time

Special Counsel Robert Mueller had the time, and he had the resources, to find out if Donald Trump had colluded or conspired with the Russians or anyone else in the 2016 election.

Mueller spent almost two years investigating what the Democrats and mainstream media said was collusion with the Russians. The Democrats and media also claimed that Trump had attempted to obstruct justice over his alleged "crimes".

Over those two years Special Counsel Mueller employed 19 lawyers who were supported by a team of 40 FBI agents, intelligence analysts, forensic accountants and other professional staff.

Mueller and his team issued more than 2,800 subpoenas, executed nearly 500 search warrants, obtained more than 230 orders for communication records, made 13 requests for foreign government for evidence, and interviewed 500 witnesses.

In the process, over $25 million was spent on the investigation.

What was the principal finding on the Russian collusion allegation?

This is a direct quote from the Attorney's General letter summarizing the findings of the Special Counsel report.

"The Special Counsel's investigation did not find that the Trump campaign, or anyone associated with it, conspired or coordinated with the Russian government in its efforts to influence the 2016 U.S. Presidential election."  

It does not get much clearer than that. It also tracks exactly with what Donald Trump has said for the last two years. It does not track with what CNN, MSNBC, NBC, CBS, ABC, The New York Times and The Washington Post have been saying for the last two years.

Mueller did find that a Russian organization (the Internet Research Agency) attempted to sow social discord with the ultimate aim of interfering with the election and Russian government actors successfully hacked into computers and obtained emails of some within the Clinton campaign and the DNC and then used intermediaries (including WikiLeaks) to disseminate those emails to the public to influence the campaign.

Some have jumped to the conclusion that the report shows that the Russians were attempting to influence the election in favor of Trump due to the hacked Democrat emails. That is an inference, not a fact, from the report. The only known fact is that the Russians were trying to sow social discord during the election. For example, we don't know whether the Russians also attempted to hack the RNC and Trump's campaign as well. Perhaps further details on this exist in the full Mueller report.

As to the question of whether President Trump committed any obstruction of justice offense, the Special Counsel, according to the Attorney General's summary of the report, set out evidence on both sides of the question. He also stated that there were difficult issues of law and fact on whether the President's actions could be viewed as obstruction.

This led to this quote from the Special Counsel's report that is sure to be recited time and again by Democrats that Trump is still guilty of something involving obstruction.

"While this report does not conclude the President committed a crime, it also does not exonerate him".

In the end, Mueller left the obstruction question for the Justice Department to decide. Of course, when Mueller found that there was no underlying crime or collusion or conspiracy to begin with, it is not easy to establish or find obstruction of justice.

It is also important to remember there still is a presumption of innocence in this country. That is particularly true when you have just undergone a 2 year, $25 million investigation.

I like what former U.S. Attorney and New Jersey Governor Chris Christie said about this point. The fact that Mueller could not find that a crime was committed is all you need to know.

On the charge of obstruction of justice, Bob Mueller’s report “does not conclude that the President committed a crime”. That’s an important finding because that is what prosecutors do—they prosecute, they do not exonerate. Why? Because we all enjoy the presumption of innocence.

This is what the Attorney General stated in clearing President Trump on any obstruction of justice charge.

In making this determination, we noted that the Special Counsel recognized that “the evidence does not establish that the President was involved in an underlying crime related to Russian election interference,” and that, while not determinative, the absence of such evidence bears upon the President’s intent with respect to obstruction. Generally speaking, to obtain and sustain an obstruction conviction, the government would need to prove beyond a reasonable doubt that a person, acting with corrupt intent, engaged in obstructive conduct with a sufficient nexus to a pending or contemplated proceeding. In cataloguing the President’s actions, many of which took place in public view, the report identifies no actions that, in our judgment, constitute obstructive conduct, had a nexus to a pending or contemplated proceeding, and were done with corrupt intent, each of which, under the Department’s principles of federal prosecution guiding charging decisions, would need to be proven beyond a reasonable doubt to establish an obstruction-of­justice offense.

It would not seem that anybody who was put under the microscope for two years by a Special Counsel with $25 million to spend could expect a much better result than what Donald Trump ended up with here.

It comes as close to vindication as you can probably get for Trump.

Of course, how does he overcome the bias that was peddled by the mainstream to the American people over the last two years?

50% of the American people have believed for the last two years that Trump and his campaign colluded with the Russians due to the incessant media drumbeats on the subject.

Will they change their minds?

Will the media?

I would like to think that would be the case.

However, that does not seem to be the world we live in anymore, particularly the media and those who are political partisans.

Mueller had the time to do the investigation. He could not find anything on Trump. However, when it comes to Trump, time knows limits when it comes to the Democrats and the media. I don't expect that the Mueller report will do much to stop their pursuit of Trump.

For example, here is what Democrat Presidential candidate Beto O'Rourke said yesterday before the Mueller Report summary was released.

“You have a president, who in my opinion beyond the shadow of a doubt, sought to ... collude with the Russian government,” 

House Intelligence Chairman Adam Schiff (D-CA) seems to share the same opinion in that he said Sunday on ABC that "there is still significant evidence of collusion".

Why let facts get in the way of opinions?

Will opinions finally start giving way to facts?

Scott Adams is right on point with his Dilbert comic strip today. He actually created it two months ago based on a tweet he sent out today on Twitter. Talk about good timing!

I have said it before and I will say it again.

Facts are just so inconvenient at times.

Thursday, March 21, 2019

Reparations, Jobs and Returns

A few interesting observations to end the week that you likely did not see or hear about in the mainstream media.


A number of Democrats have stated that they are in favor in paying reparations for descendants of slaves brought to America from Africa centuries ago. These include several Democrats who have announced for the Presidency including Kamala Harris, Elizabeth Warren, Cory Booker, Julian Castro and Marianne Williamson. Williamson has made reparations the centerpiece of her campaign and wants to commit $200-$500 BILLION for reparation payments.

Less than 400,000 slaves were originally brought to the United States out of a total of 12.5 million who were caught up in the slave trade. 10.7 million arrived in the Western Hemisphere. That means that less than 4% of all slaves came to the United States.

This is the picture of an exhibit I took at the Natchez, MS visitor's center that shows the workings of the slave trade that I referred to in a previous post a couple years ago.

Less than 4% of the Atlantic Slave Trade went to North America.

Over 10 times (42%) that number went to the West Indies.

38% went to Brazil. 6% to Guyana and 8% to the rest of Central and South America.

2% ended up in Europe which you almost never hear anything about.

Where are all the calls from Democrats for reparations to be paid from these other countries?

I think it is also interesting to note that almost 400,000 Union soldiers died in the Civil War (almost exactly the same number of slaves brought to the United States) in order to end slavery.

If there is anyone who should be considered for reparations should it not also include the descendants of these men? Of course, most of these were young men who never got the opportunity to produce descendants. They sacrificed their lives in order that the slaves and their descendants could be free. The descendants of which the Democrats now want to pay reparations to.

Do you see the insanity of any discussion of reparations?

The Economy and Unemployment

I came across this pretty incredible chart by Charlie Bilello that shows just how great the economy is right now.

There are actually 1.4 million jobs more openings today than their are people unemployed and looking for work.

This has never occurred in the 18 years since these two data points have been tracked together.

I guess this is what the economists would call FULL EMPLOYMENT.

In 2010, there were 13 million more people searching for jobs than there were openings.

Job Growth Forecasts

Speaking of jobs, I thought this was also an interesting chart from The Wall Street Journal's Daily Shot. It compares the consensus forecast of economists on the growth in jobs compared to what actually has occurred since the beginning of 2016.

Notice that during Obama's last year the forecast of job growth and the actual results were pretty close. When Trump gained the GOP nomination, and after his election, the forecast turned down. However, actual job growth since Trump became President has consistently outperformed the forecast.

It makes you wonder whether politics is influencing these economic forecasts?

If you ask why I say that, take a look back at these comments from various "esteemed" academic economists on what they forecast would occur under President Trump.

"Under Trump, I would expect a protracted recession to begin within 18 months. The damage would be felt far beyond the United States."  Former Clinton and Obama chief economist Larry Summers, June 2016.

"Trump would likely cause the stock market to crash and plunge the world into recession." Simon Johnson, MIT economics professor, in The New York Times, November 2016.

"If Trump wins we should expect a big markdown in expected future earnings for a wide range of stocks — and a likely crash in the broader market (if Trump becomes president)." Eric Zitzewitz, former chief economist at the IMF, November 2016.

"It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover?  A first-pass answer is never… So we are very probably looking at a global recession, with no end in sight." Paul Krugman of the New York Times the day after the election.

Market Returns 

How 33 markets have fared since the 2009 lows from Barry Ritholtz.

It would seem to have been a pretty good 10 years for both investors (most asset classes up) and consumers (many commodity prices down) Add to that the fact that over 20 million jobs were added in the last decade and you have to ask what is there to complain about?

However, we still have so many people complaining every day about how bad it is.

Facts are just so darn inconvenient.

Tuesday, March 19, 2019

The Magic Wand?

Tax law changes affecting individual taxpayers always get more media attention but business tax changes potentially have more profound effects on the economy long term.

The tax effects of individual tax law changes are more immediate. The benefits from lower tax rates can be gained almost immediately in revised tax withholding tables that put more money in the pockets of consumers.

The tax effects of business tax law changes take longer to filter into the economy. Many of these effects are tied to capital allocation decisions. Where is it most advantageous to invest our capital? Where should we build a manufacturing plan or service center? Where is our capital going to get the best potential return?

These decisions are not made quickly. It requires financial analysis. It also requires consideration of the supply chain, labor markets and other factors. Taxes are not the principal driver of business decisions. However, they become very important at the margin. I can speak with some authority on this subject having been Corporate Director of Taxation for a Fortune 500 company for a number of years.

The tax bill signed by President Trump in December, 2017 reduced the corporate tax rate to a flat rate of 21% from a previous top marginal rate of 35%.

Previously, the United States had the highest corporate tax rate among the major industrialized countries in the world. The new rate makes U.S. corporations much more competitive on this score. Although not shown in the chart below, China has a 25% corporate tax rate but it is only 15% for industries encouraged by the Chinese government (e.g new/ high tech enterprises and certain integrated circuits production enterprises).

Credit: Rakuten Super Logistics

The new tax law also changed the U.S. tax system from one in which the worldwide income of U.S. corporations was taxed wherever it was derived to one which only taxes income earned within the United States.

However, the U.S. tax was only levied when profits were repatriated to the United States. In order to avoid being taxed on these profits (which had already been taxed overseas) U.S. companies avoided bringing this money back to the United States due to the high corporate tax rate in effect.

The new law removes this disincentive to leave this money overseas and also provides a one-time tax of 15.5% on the repatriation of any prior accumulated earnings that would have once been at risk of being taxed at the prior 35% tax rate.

It is estimated that there were some $3 trillion in assets parked offshore by U.S. companies who had earned it previously in foreign countries before the tax law was passed.

This is a chart that shows the amount of repatriated earnings into the USA by quarter going back to 2003.

Do you think the new tax law had anything to do with what happened in the first quarter of 2018?

Credit: Federal Reserve Bank

The flow of repatriated dividends per quarter in 2018 slowed after that but a Bureau of Economic Analysis report through the third quarter indicates almost $600 billion in money had already flowed back into the United States this year as a result of this tax law change. Fourth quarter amounts need to be added to this.

That is quite a bit short of the estimated $3 trillion in accumulated  foreign profits but undoubtedly a lot of those assets are illiquid. The earnings in those foreign countries was reinvested overseas due to the disincentive to bringing the money back to the United States in the prior law. This obstacle has now been removed.

As I said before, it takes more time for business tax law changes to be felt but the long-term impacts of this change is just now starting to be felt.

For example, consider this story by the New York Times about Apple from last December. Apple happens to be the U.S. corporation that had the most earnings parked overseas---$285 billion.

Apple said Thursday that it would build a new $1 billion campus in Austin, Tex., where it could eventually employ 15,000 people, amid a broader expansion that will create thousands of jobs in several American cities.
The company, which has 90,000 workers in the United States, also plans to open 1,000-worker operations in San Diego, Seattle and Culver City, Calif., and add hundreds of employees in offices in New York, Pittsburgh and Boulder, Colo., in the next three years.

A friend of mine who is a tax attorney and works on many international tax transactions sent me the Times article shortly after it was published along with this comment.

Lower corporate tax rates in the US means more plants and jobs in the US and fewer in places like Ireland and Puerto Rico. This is just the beginning. Wait till pharma companies start bringing their plants back here.

He believes we are going to see more of this. The trend is just beginning as a result of the tax law change for corporations.

Here is another chart that I came across that provides support to that view. It shows direct investment by U.S. companies abroad and investment in the the U.S. by foreigners. Notice the change in direct foreign investments right after President Trump signed the new tax bill into law.

What does all this say?

President Trump has set in motion some economic forces that could have very beneficial effects for the United States over the long term.

In his campaign for President, Trump talked a lot about bringing manufacturing plants and jobs back to the United States.

Yes, there are still a lot of challenges out there and tax policy is just one of many factors that figure into economic development growth.

However, we are in a much better position to compete in the global economy than we were a few years ago. We are already seeing manufacturing jobs come back that a former President told us would never return. In fact, Barack Obama said that Donald Trump would need a magic wand to fulfill his job promises.

Investors' Business Daily reported that in Trump's first 21 months in office, manufacturing job growth in the Trump economy was 10 times what it was in the last 21 months of the Obama economy.

Is that a magic wand in Trump's hand?

President Trump signing tax bill into law, December, 2017

What could go wrong?

This woman and her friends are high on the list.

They don't create jobs with wands, they kill them with tweets. Amazon quickly ran the other way with their 25,000 new jobs and $30 billion of revenues for the New York metro area when AOC started castigating them.

Buyer (and) voter beware.

Sunday, March 17, 2019

One Bad Deed

The biggest news story last week undoubtedly involved the story of the Hollywood stars and business elite who have been charged with fraud related to college admissions for their children.

Credit: The New York Times

Prosecutors allege that parents of students conspired with a high-priced college entrance counselor to manipulate standardized test scores and bribe athletic coaches at elite schools to have their children placed on the preference list that each coach gets with the school's admission office. The problem is that most of the children did not even play the sport they were supposed to be stand-outs in.

It is no secret that having some type of "edge" is required to gain admittance to most of America's elite colleges and universities. If you read my previous blog post on the formula for success, you should know that as in other fields of human endeavor, the supply of those who are qualified to do the work at an elite college vastly exceeds the spaces available in each class.

For example, in a recent year at Princeton, 50% of those who applied with perfect SAT scores were rejected as were 82% of the high school valedictorians.

When we moved from Ohio to New Jersey in the early 1990's we learned quickly one of the reasons lacrosse was the biggest sport at the local high school. Good lacrosse players had an edge with the best schools. Good lacrosse skills might be worth  200 points on the SAT.

Credit:, February 23, 2013

It is no different with students who have other unique skills or abilities in the arts, music or public service that complement their academic achievements. Elite schools wants a mix of students with a variety of talents and experiences.

Of course, the connections and money that parents have has always been a factor in college admissions. For example, a student with a parent who is an alum and has made large donations over the years has always had an advantage in admissions.
High profile parents have also always had an advantage in getting their children into high profile schools. Would George W. Bush have gotten into Yale without that advantage? Would Al Gore have gained admission to Harvard? What about Chelsea Clinton at Stanford and Malia Obama at Harvard? Perhaps some or all would have. All I know is that they had a significant "edge" over others who might have had similar academic profiles.

What is so odious about the allegations in this case is that the children of the parents already had significant advantages due to the wealth and position of their families in society to begin with.

It apparently wasn't enough. They decided they had to stack the scales even more in their favor by cheating the system.

As a result. the parents are alleged to have spent millions of dollars in payments to the college prep advisor, William Rick Singer, and in bribes to SAT test proctors and college coaches.

For example, Georgetown University's former tennis coach is alleged to have received $2.7 million in what he called "consulting fees" that were actually bribes so that the coach would put the students on his list of recruited players. 12 students were admitted under this scam despite the fact that some did not even play tennis, let alone competitive tennis.

The going price for a recommendation from the Yale women's soccer coach to the admissions office----$450,000!.

Similar scams were uncovered at Stanford, Yale, UCLA, USC, Texas and Wake Forest with different sports.

The two highest profile names on the list of accused parents were actresses Felicity Huffman and Lori Loughlin. Their daughters got into USC by through crew. However, I could not help but shake my head in when I learned that Silicon Valley investor William McGlashan was caught up in the probe. His son was a supposed placekicker to the football team.

Credit: Chicago Sun-Times

Believe it or not, McGlashan positioned himself professionally as an "ethical" investor and had established an investment fund with "conscious leaders" like Bono and Laurene Powell Jobs (widow of Steve Jobs) which purports to have “a deep personal and professional commitment to driving social and environmental change,” ­according to a story in The New York Post .

I have to think there is much more that will develop regarding this story as it unfolds.

For example, if a scheme like this could be perpetrated with Division 1 coaches with athletic teams that have scholarships and have only limited flexibility with admissions for "walk-on" spots, what was going on with Division 3 coaches at elite schools like MIT, Bowdoin, Haverford, Chicago, CalTech and Emory? These coaches make far less money and there are no athletic scholarships. These coaches presumably have much more flexibility with getting students added to preferred admission lists.

You also can be sure that there will be some major lawsuits filed against these universities by students who were denied admission so that these rich kids could get in. In fact, one class action suit has already been filed. I am wondering how a school like Georgetown can claim that they are blameless when they were admitting "tennis players" on the recommendation of the coach but never checked to see if this "recruited' athletes ended up on the team roster or even tried out once they were on campus?


Prosecutors also apparently made a judgment call in not charging the students in this case. They stated that many of the students were not aware of what their parents were up to. That may be true in come cases but I cannot believe it is true in most instances. The prosecutors undoubtedly decided it would not look good to go after the students when there were bigger fish to fry. The students may face expulsion anyway and they will clearly all pay a heavy price reputationally.

That reputational fallout has already engulfed many of the parents. McGlashan has resigned his CEO position. Loughlin has been fired by the Hallmark Channel. All of the parents also face potential jail time. The co-chairman of New York law firm Willke, Farr & Gallagher has been placed on a "leave of absence and will have no further Firm management responsibilities."

The potential reputational cost in all this has already touched others who may be tangentially involved and innocent. For example, pro golfer Phil Mickelson and former pro football great Joe Montana have already disclosed that they used Singer as a college admissions consultant to assist their children but everything was above board with their children. Both stated they were shocked to hear of the scheme.

What should be the lesson?

Benjamin Franklin said it well many years ago.

It takes many good deeds to build a good reputation, and only one bad one to lose it.

Friday, March 15, 2019

Travel List for 2019

I recently came across this listing of the 20 most visited tourist attractions in the world.

How many have you been to?

I have visited 8 out of the top 10. 14 out of the top 20.

I clearly need to do a better job of getting to amusement parks. Disneyland Tokyo and Disneyland Paris are the two that kept me out of having been to all of the top 10.

However, consider the fact that 4 out of the top 10 attractions in the world on this list are Disney-owned parks. That is pretty impressive.

I was familiar with all of the attractions on the list with the exception of Everland in South Korea. It appears to be a Korean version of a Disney park. Its owners apparently beat Disney to the punch in building an amusement attraction for the affluent South Korean market. I guess Disney still could target North Korea if President Trump is successful in cutting a deal with Kim Jung-un.

Everland Amusement Park
South Korea

I was surprised that both Niagara Falls and the Great Smoky Mountain National Parks still remain so high on the list.

Niagara Falls
Still amazing after all these years

I first visited these two attractions over 50 years ago. Pretty amazing that Niagara Falls still gets more visitors than Notre Dame de Paris or The Great Wall.

If you are looking at new places to visit in 2019, this is your list.

If you need more ideas, here is another list that Travel + Leisure magazine put together. It lists the Grand Bazaar in Instanbul, Turkey as #1 and the The Zocalo in Mexico City as #2. It has Times Square as #3. It also has Central Park and Grand Central Station in New York City and the Las Vegas Strip on its top ten list so the definition of tourist attraction is different. In any event, Niagara Falls is still in the top 10 on this list.

Happy travels!

Tuesday, March 12, 2019

Compromising Our Time

The start of Daylight Saving Time this week has many people questioning the wisdom of changing our clocks (forward and backward) each year.

Three Florida lawmakers (Senators Macro Rubio and Rick Scott and Rep. Vern Buchanan) recently introduced a bill that would make daylight saving time permanent. It is appropriately named "The Sunshine Protection Act".

President Trump also weighed in on Twitter to suggest he was not opposed to making Daylight Saving Time permanent.

There is some logic to all of this as we are already on Daylight Saving Time for almost eight months of the year.

I wrote a blog post six years ago on this subject where I questioned why we called it Daylight Saving Time when we were on it for more than half of the year. Hadn't it actually become our "standard time''?

Did that not also mean that the time we were on the rest of the year should possibly be called "Daylight Lost Time"?

It will be interesting to see where this debate goes. Daylight Saving Time is popular with a lot of people and a lot of businesses. However, there are many who do not like Daylight Saving Time. The states of Arizona and Hawaii still do not participate at all. The farming industry has also traditionally been opposed to the practice. The extra hour of darkness in the morning, with children on the way to school, has also been a cause for concern for parents and school administrators.

However, the biggest complaint about the practice seem to center around the required change to our clocks twice a year.  Losing or gaining that hour plays havoc with our own biological time clocks.

Considering all of the above, how about a compromise?  If we want a permanent solution, why don't we consider permanently adjusting all of the time zones forward by half an hour? That buys some extra daylight at the end of the day but would not disrupt the morning to the extent it is with the hour time change.

Is there any place left for compromise among us?

Can we start with our time?

Spring Forward, Fall Backward
(originally published March 9, 2013)

Daylight Saving Time is upon on and I thought I would provide a little perspective on the subject. My first memory of DST is when I was about 5 years old.  We lived just outside of Akron, Ohio and my grandparents lived in Cleveland. Cleveland was on DST but Akron was not so there was always a lot of discussion about what time is was whenever we planned a visit.  Even to a 5 year old that was very confusing.

This confusion reigned across the United States in the 1950's and 1960's because each locality could adopt, start and end DST as it wanted to.  In fact, on one bus route between West Virginia and Ohio, passengers had to change their watches seven times in 35 miles.  In Iowa, 23 different pairs of DST start and end dates were in effect in one year.

All of this chaos finally led Congress to pass a law in 1966 establishing set rules for observing DST nationally.  This law established DST as the national standard beginning on the last Sunday of April and ending on the last Sunday in October-exactly six months in duration.  However, it permitted any state to exempt itself from DST by passing a state law. This was later amended to allow any state to make this distinction based on time zones in the state.  This resulted in Indiana (part Eastern and Central time) to split between standard and daylight time until the state finally went to DST uniformly in 2005. Right now Arizona and Hawaii are the only states that do not observe DST.

The main purpose of DST is to make better use of daylight.  DST allows for an hour of daylight to be moved from the morning to the evening.  Since people are generally more active and are doing more outdoors in the evening it has proven popular in many societies around the world.

Today I Found Out provides some of the background on how the idea for DST came about.
Ben Franklin often gets credit for being the “genius” who came up with daylight saving time.  Interestingly though, the letter he proposed something like what we now call daylight saving time and which was eventually published in 1784 under the title, An Economical Project, was actually a witty satire meant to entertain some of his friends, not to be taken seriously on any account. 
The modern day version of DST was first proposed by the New Zealand entomologist George Vernon Hudson in 1895.
The credit though for the modern day DST system is often incorrectly given to William Willett who independently thought up and lobbied for DST in 1905.  He was riding through London one day in the early morning and noticed that a good portion of London’s population slept through several hours of the sunlit summer days.  Willet lobbied for DST until his death in 1915.  Ironically, it was one year later in 1916 that certain European countries began adopting DST.

It has been argued that energy conservation is another benefit of DST since there is more energy consumed in homes with lighting, televisions, computers and appliances in the evening compared to the morning.  After all, if you are able to be outside enjoying the daylight you are not using power inside the home.  In fact, during the Arab Oil Embargo in the early 1970's, Congress moved up the effective date of DST to early March to conserve energy.

A recent study has called into question whether DST actually results in any energy savings today. The increased use of home air conditioning in the warmer evening hours compared to the cooler morning hours may be the reason.

Scientists from the University of California, Santa Barbara, compared energy usage over the course of three years in Indiana counties that switched from year-round Standard Time to DST. They found that Indianans actually spent $8.6 million more each year because of Daylight Saving Time, and increased emissions came with a social cost of between $1.6 million and $5.3 million per year. Commentators have theorized that the energy jump is due to the increased prevalence of home air conditioning over the past 40 years, in that more daylight toward the end of a summer’s day means that people are more likely to use their air conditioners when they come home from work.
Daylight Saving Time is not really necessary as you get closer to the equator as the days and nights are 12 hours each throughout the year.  It is only as you get further away from the equator that you get variations in the amount of daylight during the year.  In summer, daylight hours exceed darkness and the opposite is true in the winter with extremes being experienced the further you get from the equator.

You can see this graphically in this world map that shows which countries have adopted DST at some point compared to those that have never done so.  You can see that very few countries near the equator  are using DST currently.

Credit: TodayI
By the way, the way I found in researching this post that it is "Saving Time" not "Savings  Time". Daylight saving time uses the present participle "saving"as an adjective, as in "labor saving device". I had been saying it wrong for all these years. You learn something new everyday.

I still am confused about one thing.  Since we now have adopted Daylight Saving Time beginning the second Sunday in March through the first Sunday in November each year, it is actually more standard than our Standard Time. We are using it the majority of the year. Doesn't it than make sense to make Daylight Saving Time the standard and rename Standard Time to Daylight Lost Time?

Enjoy the extra hour of daylight and don't forget to take a nap to make up for the lost hour of sleep.

Credits for the DST facts in this blog post:

Sunday, March 10, 2019

More Thoughts On The Formula For Success

In my last blog post I wrote about the interesting work that Albert-Laszlo Barabasi has done on the science of success that he details in his book "The Formula".

Barabasi is a big data guy. He heads Northeastern University's Center for Complex Network Research where they slice and dice prodigious amounts of data to understand the "why" behind all sorts of topics.

He has looked at all sorts of occupations, disciplines and issues to determine what is the difference between success and failure.

I thought I would share five specific findings from Barabasi's book that might be useful in the every day lives of my readers. 

Let's first look at the issue of how much you can rely on online ratings with Amazon products. I usually look for those things that have the highest ratings and also have a significant number of ratings. The research indicates that this will lead you astray.

The fact is that the more ratings a product has, the more its final rating differs from its true fitness.

This is due to the fact that the people who review products are heavily influenced by others who have reviewed the product. The more reviews you get the closer they are to what other reviewers wrote rather than the true fitness of the product.

You are better off relying on products that have fewer reviews than a large number of reviews to get a better sense of the product's true fitness. The first reviews, unaffected by peers, often best captures the product's true fitness.

What about the question of what is the best college to attend?

Most students strive to attend the highest-ranked and most prestigious college they can get into on the assumption they are going to get a better education and have a greater likelihood of success by attending the better school.

However, the research shows that the school has almost no bearing on the future success of the student. High achievers excel no matter what education a school offers. Harvard or Stanford have great reputations not because they provide superior educations but because they attracted superior talents to begin with. Stanford and Harvard don't make your daughter a better student. It's your daughter that makes them elite institutions.

A student who was accepted to Stanford but chooses to attend State U instead sees absolutely no difference in future earnings based on that decision according to the data.

In other words, it is the performance and ambition the student brings to college that determines success. It is not where they go to school.

Finally, what best increases the chances that you will get the job you want?

Be the last person interviewed for the job.

In any competition in which someone is judging a group of people, and they are all qualified, the first person judged will inevitably get lower scores than those later in the competition.

Judges are naturally going to be tougher on the first competitor. They need to leave room in their judgment that someone later is going to be better.

The decision makers also get smarter as the competition proceeds. They have a better understanding of what they are looking for and the questions they ask in the interview get better. All of this is because the decision makers are better informed by those that went before.

Finally, you have the effect of immediacy bias. The last person in a competition or an interview process will likely stand out the most with the decision makers.

Immediacy bias works the other way when it comes to participation in meetings.

It is usually the first person who raises a question in a meeting that will have the greatest influence on the outcome of a meeting. They are the ones who frame the key questions and influence the tenor and tone of the entire meeting. Later speakers will find it difficult to change the mood and momentum of the meeting once it is established.

Conversations move to consensus fairly rapidly based on how those first questions develop. If you disagree with that consensus, you are quickly swimming against a riptide. You may get people to reverse course but the prospects are doubtful the longer the meeting goes on. At a minimum, you look like a nit-picker as the others look at their watches and want to move on to the next meeting. Unless someone is really passionate about their viewpoint, most will necessarily fold their tent and accept the consensus.

The bottom line...

Speak first in a meeting to have the best chance of having your views accepted by others.

The final thought involves what Barabasi refers to as his Second Law of Success.

Performance is bounded, but success is unbounded.

What does Barabasi mean by this?

There is usually a large grouping or people grouped around a standard of performance. That grouping makes it difficult for observers to differentiate performance. However, just a small differentiation that is noticeable can result in outsized success.

Take Tiger Woods when he was at the top of the game. Tiger was near the top in most statistical areas that the PGA Tour tracked (greens in regulation, driving, putting etc) but he usually wasn't the best in any single one. For example, in 2013, the last year he had multiple tour wins in a year, he was 49th in driving distance, 9th greens in regulation, 13th in putts per hole and 46th in scrambling.

He often led the Tour scoring average but it was usually not even a full stroke advantage on 18 holes compared to other top competitors. For example, 16 other players were within one stroke of Tiger's scoring average of 68.99 in 2013.  Steve Sticker actually had a lower stroke average than Tiger that year.

Most tournaments he won were by one or two strokes over four rounds. Tiger had a very small performance advantage when you look at it from this perspective.

However, Tiger became the first sports figure to earn $1 billion in winnings and endorsements. His  performance was a little bit better than the rest (It was bounded). However, his success was many multiples more than his competitors (It was unbounded) because of the small (but noticeable differentiation) he had in his overall performance.

Think about how you can differentiate yourself a little bit in a crowded performance field to achieve outsized success.

Five thoughts on The Formula for Success everyone can use.

Use them to differentiate yourself.

Thursday, March 7, 2019

The Formula for Success

Is there a formula for success?

Albert-Laszlo Barabasi believes there is and he has written a book about the science behind why people succeed or fail.

Barabasi is a big data guy. He heads Northeastern University's Center for Complex Network Research where they slice and dice prodigious amounts of data to understand the "why" behind all sorts of topics.

One of the topics is success. Why do some people succeed and others fail? Why do some ideas gain traction and others never see the light of day? Why does one song get hours of air time and another is never heard? Why is one piece of art considered a masterpiece and another a piece of junk?

Barabasi and his team spent several years harvesting mountains of data on human accomplishment in various fields to find these answers. From that work they began to see a series of recurring patterns that drive success in most areas of human performance.

I have spent a good deal of time considering the topic of success myself over the years. In fact, I speak on the topic of "The Science of Success" from time to time.

In my experience, success is the product of competence plus connection. Some people find success because they are extraordinarily competent in what they do. They are knowledgable. They are highly skilled. They have abilities that others don't. Competence is developed over time through practice, perspiration and perseverance.

Some people find success primarily because they have extraordinary people skills. They connect well with other people and are good at using those skills in developing networks and using those connections to their advantage.

Most people find success by expertly using one of these two dimensions. It is the rare individual who can bring high levels of both competence and connection to the table. These are the people who are usually the superstars in any discipline.

It turns out that Barabasi's research confirms that the connection element might even be the strongest element of success in most disciplines.

That is because in so many fields it is difficult to differentiate who is the most competent or skilled. There is simply no objective measure to separate the great from the near great. There are a great number of people who perform well. It becomes difficult to differentiate between among them.

We know that Usain Bolt is the fastest human because there is an electronic stop watch that tells us. Look at this overhead image of the finals of the 100m dash at the 2016 Olympics which Bolt won. There is not much that separates these men. It literally is hundreds of a second.

This is a fact of life in most areas of human performance. There are a lot of people who can perform at a high level. There are a lot of great singers, winemakers, actors, attorneys and accountants. Why do some find more success than others?

This is answered by the First Law of Success in The Formula.

Performance drives success, but when performance can't be measured, networks drive success.

In my words, competence drives success but the most successful have used their connections to separate themselves from the masses. Their personal connection with people and connections with networks of people puts them at another level compared to the competition.

There is no discipline that this is more apparent than in the arts. Why is a masterpiece a masterpiece? After all, it is a subjective determination. Barabasi found that it is totally dependent on the invisible network of curators, art historians, gallery owners, dealers, agents and auction houses who determine what gets into museums and the price they are willing to pay for them.

In my recent post on Fame I wrote that Andy Warhol was the second most famous artist of all time. For a while he was the highest-grossing artist in the world. Barabasi attributes that success primarily due to the fact that Warhol recognized early on that his success as an artist was tied more to his connections to the key people in the art network than his skill as an artist.

We see this every year as well on television. Look at the unknown talent that shows up on shows such as American Idol and The Voice. What was missing before with these talented people? A connection to allow that competence to be realized. That connection is the visibility they receive on tv and the expert judges who give the performance additional credibility.

Barabasi delineates four other Laws of Success in his book but I believe it is the first law that most people should pay the most attention to.

In many ways Barbabasi believes that evaluating success is akin to the age-old question of whether there is any noise in the forest when a tree falls down but there is no one to hear it.

Performance--or what you do--is an individual endeavor. You define it and control it yourself. In other words, you can give a performance equal to Pavarotti when you are singing in the shower. However, it does not make you equal to Pavarotti. Success is a collective measure. It captures how people respond to our performance. Barabasi puts it this way.

Your success isn't about you and your performance.
It's about us and how we perceive your performance.

My advice in all of this.

Work hard on your area of competence.

Work even harder on the connections that make people appreciate your performance.

That is the true formula for success.

Tuesday, March 5, 2019

Who Will Pay The Heaviest Price?

A recent poll by Harvard/ Harris caught my eye in that it reported that 56% of those aged 18-24 and 48% of those aged 25-34 favored a "mostly socialist" system for the United States.

Those numbers were over double what was reported for those who favored socialism in the 55 and older age cohorts.

It is unclear to me whether most of these Millennials have any idea of what socialism is or they understand that the comfortable life they have in the United States today has not been provided by "mostly socialist" ideas.

What is clear to me is that our education system has obviously neglected to teach this generation the utter horror of the brutal communist regimes that existed in the USSR and China through the 1980's that resulted in most of the people living in poverty due to the socialist systems in place.

Millennials must also be oblivious to what has occurred in our own hemisphere with Cuba and Venezuela. Both spiraled downward as socialism took hold. Millions of Cubans fled the resulting poverty and persecution to come to the United States. Millions in Venezuela are now starving and living with inflation of over 1,000,000% per year.

Those that are older and should know better---Bernie Sanders, Elizabeth Warren and Kamala Harris to name a few---are also pounding the drum for socialist ideas. Of course, they argue they only want a system that is more like Denmark, Norway or Sweden.

However, these countries are not socialist countries. They have market economies with broader social services than the United States has. However, that comes with very high levels of taxation---not just on the rich---on everyone. It is the middle or lower income who bear the highest tax burdens in that social system.

I wrote about the Norway and Denmark's social and tax systems after I visited those countries several years ago.

How do they pay for all of those government benefits in Denmark and Norway? The fact is that when the government pays for almost everything, everyone has to pay. You simply cannot tax the rich and get the money you need. Everyone has to pay. And everyone pays a lot!
Most personal income in Denmark is subject to a flat 8% social security tax that everyone pays. On top of that, everyone is subject to a minimum income tax rate of at least 36% (after a 43,400 DKK ($6,400) personal allowance. On top of that there is a 25% VAT (value-added tax) that is applied to almost every purchase in the country.
A flat tax of 28% is applied to all personal ordinary income in Norway after a modest personal allowance deduction. There is also a 25% VAT on almost everything one would purchase (15% on foodstuffs).

Notice that in these countries the tax burden is not skewed toward the rich with a progressive tax system as it is in the United States. The rich pay more because they make more but these countries really are flat tax rate systems. In the United States the wealthiest decile pays 69% of the total tax federal burden. In Sweden, that share is only 27%. In fact, as I pointed out several years ago in a blog post, the United States has the most progressive tax system of any industrialized country in the world.

Do these Millennial Socialists understand any of this? Do Sanders and the other Democrats care anything about this other than they are trying to attract these young voters with socialist themes? The fact is that the Democrats are selling false promises. 

David McWilliams in The Financial Times has an interesting take on the love affair that many yonger voters seems to have with socialism. He believes that Ben Bernanke's quantitative easing program is "the father of Millennial socialism".

The low interest, easy money policy of the Fed may have avoided a severe deflationary period in the short term but it has resulted in a decade long bull market in asset prices in the equity and housing markets.

As a result, those who already had accumulated wealth were bailed out while those trying to accumulate were effectively priced out of the market due to the Fed's QE program.
Soaring asset prices, particularly property prices, drive a wedge between those who depend on wages for their income and those who depend on rents and dividends. This wages versus rents-and-dividends game plays out generationally, because the young tend to be asset-poor and the old and the middle-aged tend to be asset-rich. Unorthodox monetary policy, therefore, penalises the young and subsidises the old.
When asset prices rise much faster than wages, the average person falls further behind. Their stake in society weakens. The faster this new asset-fuelled economy grows, the greater the gap between the insiders with a stake and outsiders without. This threatens a social contract based on the notion that the faster the economy grows, the better off everyone becomes.
McWilliams argues that the Millennials are really driven to what they see as "evening the score" with their seeming embrace of a socialist system.

For the purist, capitalism without default is a bit like Catholicism without hell. But we have confession for a reason. Everyone needs absolution. QE was capitalism’s confessional. But what if the day of reckoning was only postponed? What if a policy designed to protect the balance sheets of the wealthy has unleashed forces that may lead to the mass appropriation of those assets in the years ahead?

I have written about the dangers and unintended consequences of the Federal Reserve's QE money printing operation over the years in this blog. I pointed out that the QE policy and the Fed's low interest rate policy was making us as dependent as a drug addict. It might have made us feel better in the short term but would it really make us better in the long run.

Here is an example of what I wrote on this subject over five years ago.

Ben Bernanke says the Federal Reserve will not taper its money printing anytime soon. The sad truth is that we seem to be as incapable of kicking the QE habit we have developed as a crack addict has in getting off cocaine.

What I find incredible in all of this is that the foment and friction we are seeing today was all foreseeable by our Founders over 230 years ago.

One of the key bedrock principles underlying the drafting of the U.S. Constitution was to do everything possible to safeguard the union against possible domestic division and rebellion.

The Founders understood that opposing political factions were the greatest potential threat to any government and that in many governments the only redress was violence.  They wanted to insure that factions could not wield power that would be dangerous to either the rights of other citizens or the common good.

They also knew that there was little they could do to prevent factions from occurring.  That could only be done by limiting liberties or insuring every citizen has the same opinions, feelings and the same interests. Neither was acceptable to the Founders.  They had no interest in preventing the causes, which is what Communist and Totalitarian governments do. They focused on controlling the effects of factions. Thus, they constructed a republican governmental framework with an ultimate goal of securing both the public good and private rights against the dangers of an oppressive majority faction. Everything in the Constitution was built on this foundational principle.

James Madison in Federalist Paper #10 also enumerated those things that were most likely to result in the development of dangerous factions that government (and the people) should be protected against.

Madison called them "Improper or Wicked Projects". It could not be much clearer what the Founders thought of these potential risks and the need to avoid them at all costs because of the danger they posed to the nation at large. That is the major reason we have a republic rather than a democracy and the election of President by an electoral college rather than by popular vote.

What were these Improper or Wicked Projects?

1. A rage for paper money (exactly what the Federal Reserve did with QE)

Notice that Alexandria Ocasio-Cortez also thinks that we can just print all the money that is needed for the Green New Deal

2. A rage for the abolition of debts (what was done to the detriment of secured creditors of automakers in favor of the unions)

Notice that Bernie Sanders and Socialist Democrats think student loans should be forgiven

3. A rage for an equal division of property (the foundational principle of socialism that includes redistribution of wealth from rich to poor).

Notice that many Democrats support a 70% top income tax rate and increase in the estate tax. Warren has proposed a wealth tax as well.

Isn't it also interesting to note that the Socialist Democrats like to tell us the U.S. Constitution is outmoded because it was written by a bunch of old, white men that had no understanding of how the world should work today?

By the way, the man that is considered "the father of the Constitution" was James Madison because of his pivotal role in drafting the Constitution and the Federal Papers which served as the principal method of promoting it for ratification by the states.

Here is a painting of Madison as a young man he was when he so involved with writing the Constitution.

James Madison

Madison was just 36 years of age when the Constitution was drafted. Interestingly, of the 535 Senators and members of the House of Representatives in Congress today, there are only 13 younger than Madison was when he was so instrumental in drafting the Constitution.

Were the Founders out of touch when they wrote the Constitution? I think not.

The Founders knew exactly what we could be facing.

In fact, I think they completely understood the playbook that these Socialists would use. That is why Madison so accurately described the improper or wicked projects that would most likely be used to stir up factions and foment to create division and unrest across the nation.

Tell a Millennial that you love to be careful about embracing "Improper or Wicked Projects".

Just like QE, these socialist ideas may sound great in the short term. However, it is sure to make life extremely painful in the long term. After all, those young voters are going to have to live with the consequences of their votes for a much longer time than anyone else.

When the final bill comes due based on those votes, it is they that will pay the heaviest price. That you can be sure of.