Friday, February 16, 2024

Is the SAT Pendulum Swinging Back?

Six years ago I wrote a blog post entitled The SAT Meets PC" about the emerging trend of eliminating standardized tests as an admission requirement at selective colleges and universities.

The move was apparently motivated by the fact that the test scores of those the universities wanted to give preference to were not scoring high enough on the standardized tests and those they wanted to reject were scoring too high.

The trend gained momentum over the succeeding years (particularly in 2020 as Covid disrupted the education sector) until almost all top colleges got rid of the SAT or ACT requirement in what they argued was in the interest of more diversity, equity and inclusion.

In my previous blog post I pointed out the absurdity of all of this in that the use of standardized aptitude and assessment tests like the SAT or ACT were introduced to begin with in order to identify talent and aptitude in the first place.

What is interesting is that the argument for doing so is to "enhance diversity".

That seems particularly ironic in that standardized tests were introduced in order to "enhance diversity" in the first place. They were introduced to identify talent and aptitude without regard to anything else--family background, wealth, race, religion or gender.

We now have to get rid of these tests to do the same thing they were introduced to do?

It appears that the pendulum is now swing back the other way.

In 2022, MIT reinstated the SAT/ACT requirement.

Last week Dartmouth said they were bringing it back as well.

Source: https://abcnews.go.com/US/dartmouth-reinstates-satact-scores-drawing-attention-role-standardized/story?id=106987409

This week Yale announced it is considering reversing its position on the SAT.

Source: https://www.bloomberg.com/news/articles/2024-02-14/yale-weighs-bringing-back-sats-after-dartmouth-mit-reversal?embedded-checkout=true

I know something about the subject of standardized tests. I have taken more of them than most people on this earth.

I have taken the PSAT, SAT, ACT, LSAT, the Multistate Bar Exam and the CPA exam.

Some argue that standardized tests are racist. However, they do not appear to be racist when it comes to Asian students, many of which have been brought up in families that have far different cultures than most Americans. Many parents of these students also only speak English as a second language. How is it Asians score even better than Whites on the SAT/ACT?

In fact, a recent study found that Asian students who had parents who did not graduate from high school scored higher on the SAT than Black students who had parents with doctorate degrees.

A final analysis compares the SAT scores by ethnic group across each of the nine levels of parental education: no high school, high school, vocational training, associate’s degree, some college, bachelor, master degree, PhD professional, PhD scholarship. Earlier, I have examined 8 data sets and found that the black-white IQ gap increases when education level increases, consistent with the hypothesis that more education does not reduce the IQ gap. This pattern was replicated in the SAT scores, for both years. The asian-white gap maybe increases with education level, but not the hispanic-white gap. It is striking that asians with parents who did not complete high school score 100 points above blacks with PhD parents.

Asian students with parents who did not finish high school also had SAT scores about the same as White students with parents who had college bachelor's degrees. 

Source: https://humanvarieties.org/2023/08/06/a-remarkable-correlation-between-iq-and-sat-scores-across-ethnic-groups/


Standardized tests are designed to assess whether you have the abilities to succeed in college, law school, medical school and the like or the knowledge for professional certification. They have been used over years because most of the studies I have seen  (and these studies were well known before 2018) suggest that there is a strong correlation between those that do well on those tests and those who successfully complete the coursework. The correlation is also better than high school grades in predicting future higher academic success.

Why is Dartmouth bringing the SAT back?

Dartmouth explains that their own research has shown that the SAT does exactly what it was designed to do when it was first designed---identify talent across a broader spectrum of society and also predict college success.

From Dartmouth's explanation about its research study on the reversal of the SAT policy.

...High school grades paired with standardized testing are the most reliable indicators for success in Dartmouth's course of study. They also found that test scores represent an especially valuable tool to identify high-achieving applicants from low and middle-income backgrounds; who are first-generation college-bound; as well as students from urban and rural backgrounds. It is also an important tool as we meet applicants from under-resourced or less familiar high schools across the increasingly wide geography of our applicant pool. That is, contrary to what some have perceived, standardized testing allows us to admit a broader and more diverse range of students.

In that the pendulum on the SAT looks to be in the early stages of swinging back you might want to read in full what I wrote about six years ago when political correctness started to overtake merit and common sense.

It also provides you with some helpful perspective and context on why the standardized tests were instituted in the first place in order to level the playing field in favor of talent and away from privilege.

Isn't this what equity is supposed to be about?


The SAT Meets PC (originally published August 9, 2018)

After World War II aptitude tests gained increased favor with both business and education due to their wide use in processing hundreds of thousands of military recruits into the right roles in the War effort. For example, my father was only a high school graduate at the beginning of World War II but he was assessed with high intelligence and trained as a cryptographer. He told me that he was one of the cryptographers who passed the top secret message to drop the atomic bomb.

Business used the tests after the War for hiring for management positions based on whether someone had the aptitude to succeed rather than simply focusing on a college degree. It was the same reason that the Armed Forces used aptitude tests. Quite simply, in those days only 1 in 10 went to college. If someone did not attend college it most likely had nothing to do with their ambition or intelligence. They simply did not have the financial resources to continue their education.

The use of standardized tests leveled the playing field. It did not matter if your father wasn't a bank president or you did not go to a boarding school. It only mattered if you had the smarts to succeed.

Interestingly, a Supreme Court case in 1971 (Griggs v. Duke Power Co.)  ruled that jobs-based aptitude tests were potentially discriminatory as they could cause "disparate impact" when used by employers to assess and predict the performance of workers for promotion and advancement. As a result, a college education became the "default" for determining who would get on the management track and college became the only ticket for future advancement. High school graduates were left out in the cold no matter what their abilities might be.

The use of the SAT and ACT tests began being used extensively in college admissions decisions for similar reasons after the War and their importance grew after the Griggs decision. Admissions into the Ivy's and other top schools that were historically based on family connections and the East Coast boarding school they attended. The use of standardized tests like the SAT allowed college admissions to be democratized and merit based.

Using a standardized test that measured one's aptitude for college work leveled the playing field. It allowed schools to find overlooked talent who may not have had all the advantages of the prepsters on the East Coast. It did not matter if you hailed from Michigan, Montana or Mississippi and did not have  the same access to a quality high school education that the affluent had. The SAT showed whether you had the ability to do the work. The SAT also allowed admissions officers to objectively compare a student from the Choate School with students from Chillicothe, Ohio and South Central LA.




You can therefore argue that standardized testing has been one of the biggest factors allowing deserving, overlooked people to be recognized and receive opportunities to get ahead in the military, business and education over the years. This led to millions being elevated in their class status in the United States.

In fact, it would be difficult to point to anything else that has had a bigger impact on improving class mobility and opportunity for deserving people over the last 75 years.

Therefore, I find it interesting that more and more colleges are dropping the SAT and/or ACT as part of their admissions process.

The University of Chicago announced last month that it was dropping the requirement. Chicago joins over 1,000 other colleges and universities that have eliminated the standardized test in their admission decisions.

What is interesting is that the argument for doing so is to "enhance diversity".

That seems particularly ironic in that standardized tests were introduced in order to "enhance diversity" in the first place. They were introduced to identify talent and aptitude without regard to anything else--family background, wealth, race, religion or gender.

We now have to get rid of these tests to do the same thing they were introduced to do?

Standardized tests are not just a big topic at the university level. They are also under attack in New York City where they are used for admission decisions for the city's top high schools.

The reason?

Too many Asians are scoring well and too many Blacks and Hispanics are scoring poorly.

52% of admission offers to New York City's elite high schools for 2018 went to Asians.

4% to Blacks.

6% to Latinos.

27% to Whites.




This is not fair according to New York City Mayor Bill DeBlasio because Blacks and Hispanics make up about 70% of the city's school population but they are only getting 10% of the spots in the elite high schools due to their standardized test scores.

On the other hand, Asians make up 13% of the school population but got 52% of the spots.

Accordingly, DeBlasio has won approval to get rid of the standardized test and allocate spots in the elite high schools so that Blacks and Hispanics get somewhere close to 50% of the admission offers.

All in the name of diversity.

Of course, if the NFL determined who made their rosters with similar thinking they would no longer consider 40-yard dash times or how much an athlete could bench press. They would also allocate a set number of roster positions to those that played in the Ivy, Patriot and Mountain West conferences and cut back those who played at Alabama, Ohio State or USC.

All in the name of diversity.

Of course, there remains the question as to whether putting individuals in positions where they are in over their heads is really in their best interest.

Well-regarded African American economist Dr. Thomas Sowell argues that affirmative action programs aimed at promoting diversity actually do more harm than good for minorities. After all, it easy to see that putting someone in an NFL game that is ill-equipped could hurt them. It is harder to see that in college or high school admission decisions.

Minority students admitted to institutions whose academic standards they do not meet are all too often needlessly turned into failures, even when they have the prerequisites for success in some other institution whose normal standards they do meet.
When black students who scored at the 90th percentile in math were admitted to M.I.T., where the other students scored at the 99th percentile, a significant number of black students failed to graduate there, even though they could have graduated with honors at most other academic institutions.
We do not have so many students with that kind of ability that we can afford to sacrifice them on the altar to political correctness.
Such negative consequences of mismatching minority students with institutions, for the sake of racial body count, have been documented in a number of studies, most notably "Mismatch," a book by Richard Sander and Stuart Taylor, Jr., whose sub-title is: "How Affirmative Action Hurts Students It's Intended to Help, and Why Universities Won't Admit It."


A law professor at the University of Pennsylvania named Amy Wax was recently placed on probation and prohibited from teaching required first year courses because she questioned the wisdom of the school's affirmative action program. In doing so she stated that she had never seen a black student rank in the top quarter of the class and only rarely in the top half. She claimed that almost all black law students gained admittance due to diversity mandates.

Penn's law school dean refuted Wax's claims. However, he produced no data to support his claim that "black students have graduated in the top of the class" at Penn Law.

Wouldn't that be relatively easy to do considering the amount of data that a law school typically compiles for accreditation purposes and for the annual law rankings that are done by US News and others?

The Dean's defenders state that he cannot release that data due to privacy concerns. That is nonsense. We are talking about aggregate data. I would like to see the class rank distribution and graduation rates for all admitted minority students at Penn for the last 10 years.

Is Professor Wax right or wrong in her assertion? If wrong, the discipline is warranted. However, if she is right doesn't Penn owe everybody an explanation and shouldn't more research and thought go into whether its affirmative action programs are helping (or hindering) minority students?

In the meantime, the SAT has met PC (political correctness) and ability seems to be losing in the name of diversity.

Wednesday, February 14, 2024

Wine and Vinegar

In July, 2021 I wrote a blog post titled "Trump 2024?"

It was barely six months after Trump had left office and I was evaluating the prospects of whether Trump would run again in 2024.

The general consensus at the time was that Trump would face an uphill battle if he were to run in 2024. He was coming off of two impeachments in just over the last year of his Presidency and the specter of January 6th was also fresh in everyone's mind. Many thought that he would find it impossible to run again..

However, even at that early date in 2021, Trump was doing rallies and drawing large crowds. That told me there was no doubt he was running in 2024 and he would be a force if he was healthy.

I know that there are many in the GOP establishment and in media that want to believe that Trump is done. Those types of turnout and viewer numbers suggest that Trump is still a force to reckon with.

However, I also predicted at that time that the Democrats were going to do everything they could to make Trump a convicted felon.

Democrats have long claimed that Trump is a crook or has been involved in nefarious activities. However, we have heard this for five years and they have not been able to turn up anything on the man.

There is little question that the Democrats are going to turn over every rock and throw everything they can at Trump and his family the next few years They clearly live in fear of the man. They may get something that sticks and get people to believe that it is more than political retribution. If they do, Trump will not be viable in 2024 as his political brand will be permanently damaged. Once you lose trust you don't get it back.

Three years later the Democrats have literally thrown everything at Trump  you can think of from a legal perspective.

However, Trump is still standing and all of it appears to have made him stronger.

Why?

It goes back to what I wrote three years ago.

All of it appears to be nothing more than political retribution.

For example, let's consider the differing treatment of Biden and Trump on the alleged retention of classified documents.

First, Trump was President and would additional latitude with regard to the possession of classified documents under the Presidential Records Act compared to Biden.

All of the records that Biden had (some dating back a decade or more) were from his time as Vice President of which there are no exceptions for the possession of classified material.

Some of Biden's records were stored in open boxes in his garage and in an office that he shared with the Chinese. Trump's were kept under lock and key at Mar-A-Lago.

However, Biden's conduct is excused because he was an old, confused man.

Trump needs to be convicted of a felony and sent to prison.

Who was the greater risk to national security?

It is this unequal application of justice that is working in Trump's favor right now.

Of course, the biggest thing going for Trump is Biden.

I predicted in 2021 that an implosion of the country under Biden/Harris could be a huge factor for Trump's resurgence in 2024.

When people are in trouble they are less concerned with personality and more concerned about performance.

An implosion of the country under the Democrats and Biden/Harris. Trump has many critics but hard times have a way of focusing people on what is most important. Trump's personality is the most cited reason why many did not like him. When people are in trouble they are less concerned with personality and more concerned about performance. A deteriorating situation in the country will make Trump a lot more attractive to more people than you can imagine. 


Let's look at some recent polling data to understand this better.

In a recent NBC poll, 40% stated that Trump performed better than expected as President compared to only 14% who believed that of Biden.

42% believed that Biden had performed worse than expected compared to 29% who said that of Trump.


Source: https://www.nbcnews.com/politics/2024-election/voters-are-rating-trumps-presidency-better-expected-hindsight-rcna137971

The views of Independents about Biden's performance should be particularly troubling to Democrats.

Only 6% of Independents believe Biden has done better than expected and 52% say it has been worse.

I don't think there is a more important indicator on how the 2024 election might go than looking at the question of voter remorse. In other words, how many of Biden's 2020 voters are going to vote for him again seeing how things have turned out compared to Trump 2020 voters.

This was a question asked in a recent Morning Consult poll. 

90% of 2020 Trump voters indicated they are willing to vote for him again.

Only 82% of Biden voters state they will do the same.

The election could turn on this question when we get to November.


Source: https://twitter.com/PpollingNumbers/status/1752083582372159829


You get a good sense of how perspectives have changed with the passage of time by looking at some  questions in the NBC News poll where they asked voters to compare Trump and Biden on some issues and personal characteristics.

It is particularly interesting to compare the results in the new poll to one taken right before the 2020 election.

For example, on the issue of who was most competent and effective, Biden was preferred by a net +9 on this question in 2020. Trump is now +16. That is a 25 point swing.

Trump was +2 on dealing with crime and violence in 2020. He is now +20.

Trump was +16 on the border and immigration. He is now +32.

Trump was +10 on the economy in 2020. He is now +22.

All of these are a reflection on how voters are viewing the deterioration of the country under Biden.

On the other hand, regrading the issue that the Democrats talk most about, "protecting democracy", Biden is only +2.

Source: https://pos.org/wp-content/uploads/2024/02/Bill-NBC-Executive-Summary-Presentation-d1a.pdf

Who has changed their minds the most about Biden and Trump since 2020?

A look at the cross tabs is revealing.

Biden is losing the most support among minority voters.

The biggest change is in Latino voters.

Biden was +33 points in 2020 exit polling. Trump is now +1 with Latinos.

Among Blacks, Biden's support has dropped from +75 to +59.

Biden has also lost significant support among younger voters.

He has gone from +24 to +8 with 18-29 year old voters, +6 to -5 with age 30-44 voters, and -1 to -12 with 45-64 year olds.

The Democrat party traditionally wins elections due to the votes of minorities and younger voters. These groups are deserting Biden in droves in recent polling.

It is due to these numbers I continue to believe that Democrats will have to find a way to get Biden off the ballot before November.


Source: https://pos.org/wp-content/uploads/2024/02/Bill-NBC-Executive-Summary-Presentation-d1a.pdf

Given Biden's declining mental capabilities and poll numbers over the last two years, it is beyond me why the Democrat establishment has not already moved Biden to the sidelines.

The only explantation is that they do not want the rank and file of the Democrat party to decide.

They must prefer to let a couple thousand (Democrat delegates at the DNC convention) or a couple hundred (the Democrat National Committee) decide rather than the voters.

It says a lot about what is supposed to be a "Democrat" party which is arguing that this election is about "protecting democracy".

Political analyst Nate Silver in a recent tweet summarizes it very well.


As wine ages some varieties get better and some turn to vinegar.

It is also true that even a wine with imperfections is preferable to vinegar.

All of this indicates that the same may be true with political candidates.


Monday, February 12, 2024

Melt-Ups and Melt-Downs

What Is a Melt-Up? (per Investopedia)

A melt-up is a sustained and often unexpected improvement in the investment performance of an asset or asset class, driven partly by a stampede of investors who don't want to miss out on its rise, rather than by fundamental improvements in the economy.

Let's consider a few data points and see whether we might be in a stock market melt-up.

The S&P 500 is up 22% in the last 3-1/2 months.



The S&P 500 has also closed higher in 14 of the last 15 weeks. That has not happened since 1972.



This has never occurred at any time when the stock market was also up +20% during the 15 weeks.

What is particularly interesting to me is that the stock market advances we have seen have been despite the increase in interest rates.

The usual pattern would be for stock prices to be under pressure as interest rates rise in that investors are drawn to higher yields and the relative safety of bonds, money market funds and interest-bearing bank deposits.

However, the S&P 500 is actually 15% higher than when the Fed started raising interest rates in March, 2022. Rates are now 525 basis points (5.25%) higher than they were two years ago.

Market analyst and investor John Hussman has calculated that the equity risk premium for stocks as compared to treasury yields right now is worse than it was in both 1929 and 1999.



We know what happened next in those two cases.

The DJIA from that high point in 1929.


Source: https://www.federalreservehistory.org/essays/stock-market-crash-of-1929


The tech-heavy NASDAQ from the dot.com high in 1999.


Source: https://vishalnoel7.medium.com/the-dot-com-bubble-of-2001-18bf817abcbd

It also should be noted that about 75% of the S&P 500 gains this year are due to the performance of just four stocks----Amazon, Meta, Microsoft and Nvidia.

You can see from this chart of the performance of these stocks compared to the overall S&P 500 how large the impact these names have had on the overall index.



 

Of course, no stock has had more influence on the S&P 500 than that of Nvidia.

It is up 231% over the last year, 77% over the last six months, 50% year-to-date and 32% in the last month.

Can you say melt-up?

Nvidia's stock price is being stoked based on its dominant position in the manufacture of chips that are being used in artificial intelligence applications.

I expressed reservations about Nvidia's stock price last May when its price/sales (not revenue, SALES) was 35. 

Since that time the stock price has doubled to almost $725 per share.

I guess that shows how much I know.

Nvidia has seen tremendous revenue growth over the last year but the stock price has increased even faster. The price sales/ ratio is now 40!


Source: Nvidia (NVDA) Price to Sales Ratio

Nvidia is now valued at over $1.7 trillion.

Let's put that in context.

That is now more than the entire Chinese stock market represented by shares on the Hong Kong stock exchange.


Source: https://www.marketwatch.com/story/nvidias-now-worth-as-much-as-the-entire-chinese-stock-market-8ca1208d

Nvidia's market cap is approaching the entire GDP of Canada of $1.9 trillion. Some market analysts believe Nvidia will surpass $2 trillion in value this year.

Nvidia has a higher market value than the entire S&P 500 Energy Sector although Nvidia right now is only producing $19 billion of total net income compared to the Energy Sector's $147 billion.




Nvidia's earnings from AI may ultimately justify that stratospheric stock price. However, that is extremely unlikely. Stocks like Amazon and Tesla once had similar price to sales ratios but there are many, many more companies that could not grow revenues and profits fast enough to meet the expectations of their stock price long term.

Nvidia's stock may go to even higher multiples of sales and earnings in the near term than where it is today. Crazy can get even crazier in the short term.

However, it is almost certain that a melt-down will follow the melt-up.

Whenever I see something like this unfold in the stock market I consider the words of former Sun Microsystems CEO Scott McNealy who provided this sage advice over 20 years ago when talking about the challenge of meeting the expectations of stock prices in the tech sector gone wild in the 2000 dot.com craze.

This interview came after many of those high flyers came back to earth, including his own company, which had a price/sales ratio of around 10 at the peak of the market.

At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?’— Scott McNealy, Business Week, 2002

It also reminds me of the story of the stock price of RCA (Radio Corporation of America) in the 1920's and 1930's.

RCA was the high-flying stock of the Roaring 1920's.  It was the leading company in the emerging "wireless" communication for the masses era".  The stock appreciated almost 10-fold between 1924 and 1929.  However, an investor who purchased RCA at its 1929 high had to wait 57 years to recoup their investment.  That is a long time. 

Investors got a little ahead of reality.

A more familiar name of recent years is Cisco Systems. It has been a great company for a long time.

However, 24 years after its high in the dot.com madness it still has not exceeded its value from a quarter century ago.

This is despite Cisco increasing revenues by over 400% and net income rising from $2 billion in 1999 to $12.6 billion in 2023.

It had a market cap of almost $400 billion in early 2000. Today, 24 years later. Cisco is valued at barely half of that ($204 billion). 

Some analysts state that there is an eerie resemblance between Cisco's stock price chart leading up to 1999-2000 and the stock performance of Nvidia recently.

Ho

Why did RCA and Cisco stock fall in price so rapidly?

They were both great companies that performed well for years and years despite the falling stock price.

The problem was that in both cases investors  became overly optimistic about a new, transformative technology.

However, at some point investors realized that the companies were not going to grow revenues and profits at 50%, 70% or 100% every year.

The same will prove true with AI.

At some point, sales or earnings growth is going to disappoint investors for the simple fact that castles cannot be built into the air to infinity.

A melt-down of the stock will follow.

It is no different with the broader stock market.

The S&P 500 is up 80% the last five years. The NASDAQ is +112%.

We will reach a point (probably sooner rather than later) when a realization will come to investors that the fundamentals of the economy are not as good as is being portrayed and that stocks are overvalued compared to interest rates.

A melt-down will follow.

Japan had a melt-up in stock prices in the late 1980's that peaked in 1990. 

It is only now after 34 years that the Nikkei index is almost back to where it was in 1990.


Source: https://tradingeconomics.com/japan/stock-market

Melt-ups are great.

However, melt-downs invariably follow.

Plan and protect yourself accordingly.

Friday, February 9, 2024

The Power of the People

We often hear the complaint that our government is not responsive to the will of the people.

I understand why that is said. 

However, if there is a disconnect the responsibility rests more on the people than the politicians.

The people are sovereign in our system. Their power is absolute  Unfortunately, too many people don't believe it. The simple fact is that politicians have no power unless the people provide it.

A politician is NOTHING unless they are elected. They only have power if they hold office. They cannot hold office unless they get more votes than their opponent.

Therefore, a politician is ALWAYS going to be focused primarily on gaining (or retaining) that power.

Laws that do not have public backing do not survive over the long term. Lawmakers who make laws that people do not support do not stay in office very long. Politicians who do not do the will of the people soon need to find other employment.

This seems to be lost on too many people who complain that they have no influence or power in the affairs of state. It may seem that way when you are just one vote. However, those votes add up quickly.

The reality is that the people too often lack the organization and voice to wield their power effectively.

Too many people do not raise their voices and those that do are disorganized.

People have the right to vote, but outside of Presidential election years, voter turnout is usually a small percentage of eligible voters.

For example, only 37% of eligible U.S. citizens voted in all of the elections of 2018, 2020 and 2022.

On the other hand 30% of eligible voters did not cast one vote in any of those three elections.

Source: https://www.pewresearch.org/politics/2023/07/12/voter-turnout-2018-2022/


They are no match for the political class. If there is no accountability politicians will do as they please or as special interests dictate.

However, every once in awhile, the full power of the people is revealed.

We saw it this week.

The U.S. Senate worked for the last four months behind the scenes on what was supposed to be a border security bill that was to be attached to a Ukraine and Israel funding bill.

GOP Minority Leader Mitch McConnell had named Senator James Lankford of Oklahoma to be the chief negotiator for the Republicans in discussions with the Democrats on the contents of the bill.

The political class and mainstream media had been in overdrive for several weeks claiming how this border security bill was going to make a big difference in curbing illegal immigration.

Joe Biden claimed that his hands were tied on doing anything about the border unless this bill passed. He needed more power and money to act.

Left unsaid was the fact that every problem at the border right now can be traced back to unilateral executive actions that Biden took when he took office.

It is shocking to see what Biden's reckless policies have created.





Biden now says he has no power to undo what he already did by executive order?

The political class thought that they had all their ducks in a row for passage of the bill.

However, details about the bill started being released and analyzed by various people on X.com. (another reason to thank Elon Musk for his purchase of the platform and his commitment to free speech). 

The biggest detail in the bill's provisions is the the flow of migrants would only be curtailed when illegal encounters at the border surpassed 5,000 per day (measured over a 7-day period).

In other words, it was potentially giving a free pass for over 150,000 illegals to enter the United States every month. That is almost 2,000,000 per year.

For context, consider that current law only allows for about 1,000,000 LEGAL immigrants to enter the United States per year.

It also is worth remembering that during the Obama administration the head of HHS, Jeh Johnson, stated that 1,000 illegal crossings per day was a crisis in that it was overwhelming the system.



As details and analysis were released (much of it on X.com because the mainstream media and other social media sites censored the truth) it did not take long for the Republicans in the House (who all face elections every two years) to run away from the bill.

The same thing eventually occurred in the Senate where even Mitch McConnell who appointed Lankford eventually was forced to state he was voting against what effectively was his own bill.

Source: https://www.politico.com/live-updates/2024/02/06/congress/border-senate-mcconnell-schumer-ukraine-aid-00139925

But after four months of border policy negotiations, which McConnell had personally called for and repeatedly supported, the GOP leader said the deal lacks support in his conference. And he noted staunch opposition from House Republican leadership.

Two days ago the Republicans in the Senate officially dropped the "border security" bill altogether .

Supporting the bill was simply too risky for their political futures.

And without a political future they have no power as that is the only currency of a politician.

We are witnessing a similar dynamic involving the Texas border and the Biden administration's attempts to get the state of Texas to roll back its enforcement efforts there.

They argue that immigration enforcement and administration is reserved to the federal government in the U.S. Constitution.

However, that ignores another responsibility that the federal government owes to the states.


Source: https://constitution.congress.gov/browse/article-4/section-4/

What do you call 8 million illegals crossing into the United States in three years?

The Biden administration even got a Supreme Court injunction to allow them to stop what Texas was doing to protect its border with their own law enforcement resources including the National Guard.

However, the Biden administration has been treading very cautiously on the issue. They clearly do not want confrontation with the state enforcement groups.

They certainly don't want video of federal agents confronting National Guard units from Texas and other states for the "crime" of trying to keep illegal immigrants from entering the United States.

Why?

Source: https://thehill.com/homenews/campaign/4422273-immigration-overtakes-inflation-top-voter-concern-poll/


Source: https://www.axios.com/2024/01/31/bloomberg-poll-biden-immigration-trump


Source: https://www.realclearpolling.com/polls/approval/joe-biden/immigration

The People have the power to direct policy and move the politicians to their will.

Too few take it seriously.

We saw this week how it can work in the United States.

It was even more apparent in Europe where farmers rose up against climate rules, rising costs and red tape that are affecting the agriculture sector.


Source: https://www.politico.eu/article/eu-eases-farming-demands-in-2040-climate-proposal/

It appears the politicians are listening in Europe.


Source: https://twitter.com/WallStreetSilv/status/1755334094508917186

Where do we go after the 2024 election?

That is totally up to the people who vote.

Do we continue down the current path where it seems we are careening from one disaster to the next?

Or do the people send a loud and clear message so that all politicians get the message?

Are there enough clear thinking voters left to even understand the danger the country is in?

We will find out in November.

The only thing I know for sure is that the People have the power to get anything they want if they say it loud enough in sufficient numbers.

Politicians either listen or they do not survive.

That is the Power of the People.

Wednesday, February 7, 2024

Tails You Lose, Heads You Lose

One of the traditional hallmarks of the United States is that it was a nation in which anyone could achieve success if they worked for it and they would be rewarded for their success.

Elon Musk grew up in South Africa and it was always his dream to come to the United States to achieve success. He knew that was not possible in his home country. If he had stayed in South Africa he would have probably ended up being a Physics professor.

Musk made it to the United States when he attended the University of Pennsylvania where he earned two undergraduate degrees---Physics and Economics.

After graduation he headed to Silicon Valley in California where he became a serial entrepreneur.

He was a principal in two successful tech ventures that he developed and sold--one of which was PayPal--which put a substantial amount of money in his pocket.

This allowed Musk to pursue what could be described as two core visions he had going back to the time he was a student.

Building a spaceship capable of traveling to Mars and developing an electric car.

Today we see Musk's SpaceX company and Tesla as the fulfillments of that vision from over 30 years ago.

In 2008, despite 15 years of effort, Tesla had not shown a profit in any given year

The Tesla board approved a compensation plan for Elon Musk that would provide him stock options based on meeting a number of revenue and profit goals as well as meeting a market capitalization target of at least $650 billion.

At the time the performance compensation plan was approved by the shareholders (73% voting in favor) it was clearly known that Musk would be eligible to receive $55 billion in stock options in Tesla stock if he was successful. Even then, based on the terms of the plan, that once exercised Musk would still need to retain the stock for at least five years before selling.

At the time, Tesla's market cap was less than $60 billion, and as stated above, it had never shown a profit.

The compensation deal would provide Musk no other pay---no annual salary, no annual bonus, no annual stock options---his entire pay from Tesla was dependent on meeting the ambitious goals in the performance plan.

In 2018, when Musk's pay plan was approved, The New York Times did a story on it saying that it may have been the boldest pay plan in history. It also cited experts who called it "laughingly impossible" and others who called it a publicity stunt to cover up for continuing production problems and operating losses.

The article compared Musk to P.T. Barnum as someone who only portrays an "illusion of success while consistently missing production estimates".

In short, it was viewed at the time that it would be next to impossible for Musk to collect on the pay plan. The goals were too ambitious.

The Times story from six years ago also reported that one short seller of Tesla believed the company was worthless seeing that it had recently been losing a half million dollars an hour.

 


Source: https://www.nytimes.com/2018/01/23/business/dealbook/tesla-elon-musk-pay.html?smid=nytcore-ios-share&referringSource=articleShare&sgrp=c-cb

This was the state of Tesla when the pay package was approved by its board and shareholders.

If Tesla continued in this state Musk would have worked the next five years for no pay at all--ZERO, NADA, ZILCH.

It is important to remember all of this as context for what follows.

A shareholder who owned the grand total of nine shares of Tesla stock filed a shareholder derivative lawsuit claiming the pay plan was excessive and asked ta Delaware court (the state of incorporation for Tesla) to rescind it.

A Delaware Chancery Court judge invalidated the pay plan last week ruling that it was excessive and that the Tesla board was not sufficiently independent or adversarial in establishing the plan for Musk. She further ruled that the shareholder vote approving the plan was invalid in that the shareholders were not sufficiently informed about the Board's lack of independence and some other details about the plan.

The judge rescinded the entire plan has the effect that Musk will have received no compensation at all from Tesla for anything he has done for the company since 2018.

What has Musk done for Tesla since 2018?

Revenues.


Net Income.


Total Market Capitalization

Stock Price.



Tesla stock was trading at around $20/per share when the compensation plan with Musk was adopted.

The stock ultimately traded for over $400/per share. That is 20x what it was when the pay plan was approved in 2018.

Even after the stock has pulled back, Tesla shareholders who owned the stock when the pay plan was adopted, have seen their stock increase almost 10-fold.

Shareholders have also earned at least ten times the value of any compensation Musk would have gotten under the plan---$600 billion or so in additional value.  The plan proposed that Musk would get an additional 6% of Tesla stock for that $600 billion of increased value.

The plan would have meant that Musk would have received no compensation at all should Tesla not have met the ambitious goals established. Tails you lose.
 
In fact, Musk led Tesla to heights that almost no one thought possible back in 2018.

However, he did succeed.

What is the reward for his success? Nothing. Zero. Zilch. Heads you lose.

There is something fundamentally wrong in all of this.

How is it that a single, solitary judge in Delaware can do something like this and it can be called justice?

Rescinding a compensation deal that was approved by the Tesla board?

Cancelling a deal that was approved by a super majority of the company's shareholders?

Overlooking the massive value that Musk added to Tesla and its shareholders?

Leaving Musk with absolutely no compensation for six years of effort.

There was a time in the United States when success was celebrated.

There was a time when a deal was a deal.

No one in Delaware would have cared one iota if Elon Musk had run Tesla into bankruptcy while chasing his dream of building a revolutionary electric car.

What is worse is that Elon Musk created an electric car that none of the global car companies can match, created over a half billion in value for its shareholders and the effect of the ruling is he does not get one cent of compensation for any of his efforts?

In reading the Judge's opinion you get the sense that she believes that Tesla would have succeeded and prospered without Musk getting one additional cent of compensation. 

Elon Musk was already rich. He already owned 22% of Tesla. He had every incentive to make Tesla successful. He didn't deserve another 6% of the stock for his efforts according to the judge's ruling.

It is a common trait you see often in the minds of liberals.

They see the harvest that the United States has provided but neglect the seeds that were sown to make it so.

They think it just happens. The harvest will be there no matter what.

It doesn't matter how much we tax, how much we borrow, how many illegals cross the border or how much we push DEI and ignore merit.

It doesn't matter if we defund the police, do not arrest people for stealing less than $950 or let those we do arrest out with no bail.

They don't see the connection between incentives and results.

They assume you can seed the craziest policies across our landscape and the harvest will always be there.

They don't understand that incentives drive behavior---both good and bad.

There is also something in all of this is very troubling.

Elon Musk was the treated like a conquering hero by the mainstream media and the government establishment when he was making Tesla successful and saving the U.S. space program with his SpaceX rockets.

Since he bought Twitter and challenged government censorship of social media ,and the mainstream media news outlets see X as competing for viewer eyeballs, he has suddenly come under all sorts of scrutiny by the Biden administration and mainstream media.

Consider the numerous stories in the mainstream media about drug use by Musk including allegations of consuming with some of his board members. Coincidental?

However, Musk has stated that he has undergone drug testing as a requirement of his work with NASA which have not even found trace amounts of drugs in his system.


Source: https://www.forbes.com/sites/zacharyfolk/2024/01/07/elon-musk-claims-not-even-trace-amounts-of-drugs-in-his-system-after-report-detailed-drug-concerns-from-tesla-spacex-execs/?sh=95f6b9634878



Another example is the DOJ sued Musk's SpaceX last year because it would not hire illegal immigrants at SpaceX.

The Biden administration wants to force Musk to hire illegal immigrants to work at a company that has the most advanced rocket science in the world and is working on many projects with national security implications?

Seriously?

Source: https://www.justice.gov/opa/pr/justice-department-sues-spacex-discriminating-against-asylees-and-refugees-hiring


Let's also not forget that the compensation decision just happened to be rendered by a judge in Joe Biden's home state as well. Yes, Tesla was incorporated in Delaware. However, no one can cite any other example where a court in that state has rescinded a shareholder approved pay plan.

I guess sometimes it just does not pay to be successful.

That is especially true today when you are not aligned with the powers that be.

Tails you lose.

Heads you lose.

Monday, February 5, 2024

Five Facts From January, 2024

BeeLine is rooted in facts and data. It is the foundation from which everything I write is based.

In this blog post I am initiating  a new feature in which I highlight five facts I learned during the previous month in writing BeeLine that were particularly salient, surprising, or stupefying as I reflected on the prior month's writings.

In a world in which opinions seem to be based more on feelings, emotions and prevailing narratives it might make sense to put more focus on straightforward facts, data and truths. 

Consider these facts and data again that I previously wrote about and think about the larger issues to which they relate.  It is only when we understand the reality of our world that we can make the proper judgments about it and the best ways to improve it.

Critical thinking is something that is obviously not done very often these days.

Five Facts From January, 2024 ...

Electric Vehicles

EV's are only driven about 62% of the miles annually that a gas-powered vehicle is. 7,175 miles for the EV compared to 11, 642 for gas-powered vehicles.

This indicates that most EV owners are not relying on that vehicle as the primary vehicle in the household. It is a second car used for commuting and around town but not considered practical for longer trips.

Until electric vehicles can significantly see their range increase and charging times decrease there will not be any widespread adoption of EV's by consumers. This is true irrespective of other issues regarding costs, the electric grid and the scarcity of rare minerals necessary for the manufacture of EV's at scale. All of these factors argue against widespread adoption of EV's anytime soon despite the relentless push to mandate their use by our current government and others.

https://beelineblogger.blogspot.com/2024/01/electric-vehicles-short-hype.html


Illegal Immigrants

Over the last several months more illegal immigrants entered the United States than the number of births that have been recorded!


Credit: https://twitter.com/fentasyl/status/1740779371529740380


Bear in mind that the number of illegals in that chart are just those that were encountered by the Border Patrol. Nobody knows how many others snuck into the country and avoided detection.

How can this be described as anything other than a foreign invasion?



Federal Debt

Borrowings have become the largest single revenue source of the federal government over the last six months. Larger than individual income taxes, social insurance taxes or corporate income taxes.

I knew it was bad but I did not know it was quite this bad.

Here is a summary of where the revenues came from in the federal government's fourth quarter (July 1, 2023-September 30, 2023).

This was in a tweet from Stephen Moore citing numbers puts together by @EuroConOfficial.


Credit: https://twitter.com/StephenMoore/status/1745923645073924326




Urban Elites vs. Everyday Americans

It was shocking for me to see the authoritarian views held by urban elites (defined as those having a graduate degree, a household with more than $150,000 of income, and living in a zip code with more than 10,000 residents per square mile) as compared to everyday Americans in a recent survey.

Almost 50% of Elites think that there is too much freedom in the United States. This compares to 16% for everyday Americans. At the same time, only 21% of Elites believe that the government has too much control compared to 57% of everyday Americans.

The disparity is even larger among those Elites who graduated from Ivy League or other similar universities.

Source: Source: https://committeetounleashprosperity.com/wp-content/uploads/2024/01/Them-vs-Us_CTUP-Rasmussen-Study-FINAL.pdf


This translates to a stupefying number of Elites who want to ban some of the basic conveniences of modern life (gas stoves, gas-powered cars, SUV's, air travel and private air conditioning) in order to combat climate change.

A majority of Elites favor all of these bans and restrictions on individual freedoms.





Left unsaid is that the Elites want to restrict the freedom of everyone else but do not expect those restrictions to apply to them. After all, they are elite and they know better than anyone else.


Marriage and Politics

The fact that I found most interesting last month was that only 3.6% of marriages in the United States included both a Republican and Democrat in the household. 17% include a Republican or Democrat and an Independent. 80% of marriages are equally matched from a political perspective.

Putting two people together with different backgrounds, personalities and habits in any marriage is a challenge in itself. It seems that adding differing political views to the mix clearly proves to be irreconcilable most of the time.

These numbers indicate that differing political views must be sorted out during the dating process so that marriage does not result very often if there are political differences between the couple.  Alternatively, if it does. there must be a good chance that couples with differing political views ends in divorce. That is the only way you can get the type of number that came up in that study.

To put 4% in context here, consider that 10% of all marriage today involve mixed races.

40% of all marriages today are interfaith.

It is pretty astounding to consider that political views are a better indicator that couples in a marriage are equally yoked that either race or faith!