Friday, September 30, 2011

Jack Bogle's Stock Allocation Advice

Matt Ridley's Hayek Prize Lecture at the Manhattan Institute

"The crowd-sourced, wikinomic cloud is the new, new thing that all management consultants are now telling their clients to embrace. Yet the cloud is not a new thing at all. It has been the source of human invention all along. Human technological advancement depends not on individual intelligence but on collective idea sharing, and it has done so for tens of thousands of years. Human progress waxes and wanes according to how much people connect and exchange.

When the Mediterranean was socially networked by the trading ships of Phoenicians, Greeks, Arabs or Venetians, culture and prosperity advanced. When the network collapsed because of pirates at the end of the second millennium B.C., or in the Dark Ages, or in the 16th century under the Barbary and Ottoman corsairs, culture and prosperity stagnated. When Ming China, or Shogun Japan, or Nehru’s India, or Albania or North Korea turned inward and cut themselves off from the world, the consequence was relative, even absolute decline.

Knowledge is dispersed and shared. Friedrich Hayek was the first to point out, in his famous 1945 essay “The Use of Knowledge in Society,” that central planning cannot work because it is trying to substitute an individual all-knowing intelligence for a distributed and fragmented system of localized but connected knowledge.

So dispersed is knowledge, that, as Leonard Read famously observed in his 1958 essay “I, Pencil,” nobody on the planet knows how to make a pencil. The knowledge is dispersed among many thousands of graphite miners, lumberjacks, assembly line workers, ferrule designers, salesmen and so on. This is true of everything that I use in my everyday life, from my laptop to my shirt to my city. Nobody knows how to make it or to run it. Only the cloud knows."

~ Matt Ridley

Thursday, September 29, 2011

Markets in Everything: Drainage Pipe Hotel Rooms

From Bit Rebels:
The space we occupy in this physical world is getting ever smaller while the space we take up virtually is getting ever larger. It’s quite interesting really how we’re migrating into the virtual world one step at a time. I am guessing in 50 years the world will look a lot different than it looks today. Japan is one of the leaders when it comes to compact living, and pretty much every week they announce some new “pod” for us to live in that has pretty much everything we could ever need. It’s also interesting to notice that the price for real estate, or rather the land that houses or buildings stand on, is getting higher while the real estate in the virtual world is getting cheaper.

Some people in the hotel industry have taken to their imaginations to come up with something to lure new customers and to get noticed in the flood of new buildings, hotels and apartment complexes. It is also something that will give us a new experience. Tubehotel is a company that truly knows how to come up with crazy ideas that just might work. It’s basically about drainage tubes converted into a bunch of hotel rooms in which you can get a whole new traveling experience to add to your collection.

They cost $50 per night, and even though there are rooms to choose from (on the bottom or on the top), they are pretty much the same size all around. It’s a brilliant conversion, and a fast one as well, by the looks of it. All you really need to do is add a few boards in the tube, and you have yourself a bed. There is no putting furniture together or even securing them to the wall. They are just stuck in place wherever you put them. And to top it all off… you will even have WiFi in your tube! It’s perfect for a weekend with your geek girlfriend. Hopefully these tubes were not recycled though… if you know what I mean.

Grouch: I don't think I'll be staying in one of these places on any business trips I take. Maybe as a novelty on a personal trip..... just to say I've done it, and who knows it may turn out to be a pleasant experience.... so where's the shower? Do they have room service?

Robert Shiller: Are Stocks Cheap?

Wednesday, September 28, 2011

The Law of Diminishing Government Competence

As a government consumes more of a country's GDP and supplements its citizens' personal responsibilities with government programs that government will become increasing less able to meet the demands for those very goods and services it has promised its citizens.

Quote of the Day: Anthony de Jasay, in Praise of Dogs

Did you know that your dog owns your house, or rather some portion of it? If this is not immediately obvious to you, you will find it helpful to consider some aspects of the ethics and economics of redistribution.

Your dog is alert, plucky and a fearsome guardian of your property. For all we know, without his services, you would have been burgled over and over again. Your belongings would be depleted and the utility you derived from your home would be much reduced. The difference between the actual value of your home and its unguarded value is the contribution of your dog, and so is the difference between the respective utilities or satisfactions you derive from it. We do not know the exact figure, but the main thing is that there is one.

~ Anthony de Jasay, from Your Dog Owns Your House

Grouch: We recently had to put our dog to sleep because of her deteriorating health, and miss her dearly. I don't think there is another dog in our future, at least not in the short term, but she was fiercely loyal and without question would have protected us had she believed we were in danger. For her companionship, we were willing to put up with her smell, her drool, her general sloppiness, her fur all over the house. There is no better pet than a dog who loves you back as much as you love them, and more.

Tuesday, September 27, 2011

How Have the Market Titans Fared This Year?

Anyone thinking about investment geniuses of the past 15, 20 or 25 years would readily offer up the names Bill Gross, Ken "Bigfoot" Heebner, Bruce Berkowitz, and Bill Miller. Each is known for long-term market beating results so we aren't talking about flashes in the pan here. But how have these market titans fared this year compared to the indexes? As of the close of the market yesterday their year to date results lagged the indexes:

Heebner and Berkowitz run very concentrated funds and their performance can often greatly exceed the market when their bets pay off. They and Miller have bet heavily on financials, a bet that might yet pay off but they were obviously early taking their position. In the bond market, Gross decided to bet against US Treasuries even as the Fed was actively trying to drive down show term interest rates to near zero (I can sympathize with his thinking because sooner of later the Treasury bond bubble is going to burst). Even the best and the brightest in the investment world are subject to underperformance for stretches of time-- whether it's due to poor security selections, asset bloat, reversion to the mean, or hubris. Whether these titans performance will return to legendary levels, only time will tell. In the meantime, investors could have beaten their recent performance simply by investing in index funds. Who'd have thunk that?

Quote of the Day: Barack Obama on Billionaires and Janitors

If asking a billionaire to pay the same tax rate as a ... janitor makes me a warrior for the working class, I wear that with a badge of honor. I have no problem with that.

~ Barack Obama

Grouch: Last week we looked at the average tax rates by income levels according to IRS data collected in 2009 (see Omaha Hokum: IRS Data Contradicts Premise for the Buffett Rule). If we assume the average janitor makes $75K (which probably means they work for the Feds, the state or a municipality, but not the private sector), then on average they pay 11.3% of their income in federal taxes. My question on the President's statement above is does he mean that billionaires should have their average tax rate reduced from approximately 26.3% to 11.3%, or does he mean that janitors should have their taxes raised from 11.3% to 26.3%? Everyone knows the government is starved for revenue to keep up with spending, but there is much more revenue to be gotten from one choice than the other.

Monday, September 26, 2011

Quote of the Day: Victor Davis Hanson

Redistribution of wealth rather than emphasis on its creation is surely a symptom of aging societies. Whether at Byzantium during the Nika Riots or in bread and circuses Rome, when the public expects government to provide security rather than the individual to become autonomous through a growing economy, then there grows a collective lethargy. I think that is the message of Juvenal’s savage satires about both mobs and the idle rich. Fourth-century Athenian literature is characterized by forensic law suits, as citizens sought to sue each other, or to sue the state for sustenance, or to fight over inheritances.

The subtext of Petronius’s Satyricon is an affluent, childless, often underemployed citizenry seeking inheritances and lampooning the productive classes that produce enough excess for the wily to get by just fine without working. Somewhere around 1985 in California I noticed that my students were hoping for a state job first, a federal job second, a municipal job third — and a private one last. Around 1990, suddenly two sorts of commercials were aired everywhere: how to join a law suit by calling a law firm’s 1-800 number or how to get a free power chair, scooter, or some other device by calling the 1-800 number of a health care company that would do the paper work for Social Security on your behalf.

~ Victor Davis Hanson

Markets in Everything: Hallmark Layoff Cards

In the new American of hope and change, Hallmark, the company with a card for every occasion, has produced a new line of cards to give messages of encourage to those who have been laid off recently. With unemployment rates stuck at 9%, and the underemployment rate stuck at 17%, these card will probably be an astounding success. Hallmark is in the emotion business, and what is more emotional and painful than losing a job? One Hallmark card with a photo of a cat reads: "Is there anywhere I could hack up a hairball, like say, on a former employer's head?" Another card says: "Losing a job is just plain painful. So I want you to remember I'm in your cheering section ..." When I was laid off, I know I would not have appreciated getting one of these cards. I probably would have been hurt and insulted.... but that is just me.

Sunday, September 25, 2011

Fear Trumps Greed

Last week was rough for investors in all asset classes except for bonds which experienced a slight rise (in the chart above, BND=Total Bonds, SLV=Silver, GLD=Gold, VTI=US Stocks, VNQ=REITS, PFF=US Preferred Stocks, VNQI=Intl REITS, VXUS=Intl Stocks, VWO=Emerging Markets). Silver dropped an astounding 23.89% for the week, giving up all of its gains for the year. Anyone with exposure to equities or commodities got pounded. Only those who were 100% in bonds and cash managed to escape the carnage.

What Happened Last Week

What about the investment environment changed last week? Essentially nothing. The economy remains weak, Europe is bogged down in a debt crisis with no resolution in sight, US politicians seem hell-bent on turning the country into Europe, and the Fed is swapping short term bonds for long term bonds while hinting that recession is near. The media seized upon the drop in asset prices to talk up the possibility of recession and add fuel to the fire. This negative sentiment was far more powerful than anything positive going on in the US or World economies.

What to Look Forward To

Nobody knows what this week will bring, but expect more volatility. Weekly moves of plus or minus 5% seem to be the norm these days. The natural reaction to the wild downward move of last week would be to sell and head for safety. The market gurus will provide no clear direction as first one then the other contradict each other and provide conflicting advice delivered with 100% certainty. As always, you the investor are on your own.

The battle between fear and greed has been waged since there were markets. The Fed may have been successful in temporarily manipulating asset prices with QE1 and QE2, but their latest trick called the twist will probably prove less than a triumph, though they managed to drive down 30 year Treasury rates under 3%. Again, there will be little lasting impact from these actions.

I have little doubt in the long run greed will win the war, even though it will lose many battles. The markets will continue to be volatile and could suffer big loses again this week. But in volatility there is opportunity. Market plunges provide an excellent opportunity to rebalance portfolios or commit new money. I look forward to these types of opportunities.

Saturday, September 24, 2011

Give Them all Spoons - Big Dig, Light Rail and Other Boondoggles

What is the next infrastructure project? Adding a runway at a regional airport that doesn't need to be added? Another "Big Dig" like the one in Boston? Bridges to nowhere? A build-it-they'll-come airport in Eastern North Carolina?

Friday, September 23, 2011

The Joy Of Spending Other People’s Money

In case you are still wondering why US debt was downgraded by S&P, just take a gander at the country's finances:

U.S. Tax revenue: $2,170,000,000,000
Federal budget: $3,820,000,000,000
New debt: $ 1,650,000,000,000
National debt: $14,271,000,000,000
Recent [April] budget cut: $ 38,500,000,000


Now, let’s remove 8 zeros and pretend it’s a household budget:

Annual family income: $21,700
Money the family spent: $38,200
New debt on the credit card: $16,500
Outstanding balance on the credit card: $142,710
Budget cuts: $385

If this were your personal financial condition what would you do? Cut expenditures, continue to borrow and spend because there is a deficit of demand, or just throw in the towel and declare bankruptcy?

Of course, countries are not people and they don't necessarily have to earn their way out of a bad financial situation by working two or three jobs or learning new skills to significantly improve earning power.  Countries can crank up the printing presses and inflate the debt away, or they can lower interest rates and keep them below the rate of inflation to once again inflate away the problem, or they can impose exorbitant taxes on their citizens, or they can restrain spending and try to grow their way out of the problem.

Via Small Dead Animals

Keynesian Therapy

Quote of the Day: Jim Clifton

Here is something almost nobody knows.

These all-important start-ups and shoot-ups don’t occur because of new legislation, new rules, more free money, or any other government tweaking. They occur during moments of unusually high inspiration. They are created by Americans seeking the great American dream.


They are created by people seeking independence and extreme individuality…freedom. Maybe that is why it is called “free” enterprise. And, these moments of start-ups and shoot-ups occur only in the presence of high confidence. High confidence in self, country and government. When six million small and medium-sized businesses lose their confidence, they stop growing. They stop hiring. Millions simply go broke.

Administrations, Congress and 10,000 American leaders across US cities do however create an environment of confidence and inspiration…or one of no confidence and misery. It is the job of leaders to create environments of high enthusiasm for enterprisers and emerging big-time rainmakers.

A country bankrupt of confidence can never come back. America will not come back until it experiences new historical highs in inspiration. More specifically, high inspiration toward entrepreneurship and free enterprise. There is no other way out. There will be no surge in start-ups and shoot-ups until leaders change the environment from its current state of no confidence to high confidence. When it does, America will come back, new good jobs will hatch.

~ Jim Clifton

Thursday, September 22, 2011

Matt Ridley: The Evolution of Prosperity

Quote of the Day: Mark Perry

Here's a thought on taxes: Perhaps it [should] receive greater attention that the statutory IRS tax rates at any given time are not legally-binding, maximum tax rates, it's more the case that the IRS rates are the legally-required minimum tax rates enforced by the IRS. Advocates of higher tax rates like Warren Buffett seem to feel constrained by the current tax code, as if the current tax rates are legally-binding maximum rates, when that is not the case. Maybe the IRS should clarify that it only enforces legally-required minimum tax rates, but these rates are not binding and can be adjusted upward by any taxpayer who voluntarily chooses to pay taxes a higher rate?

~ Mark Perry

Wednesday, September 21, 2011

1975 Sears Catalog

This Youtube video is based on a talk by Don Boudreaux. For those who think things were better in the past than today, this is a gentle reminder of how technology and ingenuity is improving the human condition.

Uncommon Knowledge: Milton Friedman

He may have been gone for [five] years now, but Milton Friedman, the Hoover Institution website display indicates, remains one of the most popular interview subjects ever to appear on Uncommon Knowledge.

Oh, if only–if only. I understood that Milton was a great man, but when I knew him at Hoover–his office was just two doors down the hall from mine–I failed to grasp just how singular he was. No one else is even a little bit like him. I should have insisted on sitting right down with Milton and getting his entire life story on tape.

Still, we have this.

~ Peter Robinson
Recorded on February 10, 1999

Via Powerline

Monday, September 19, 2011

Omaha Hokum: IRS Data Contradicts Anecdotal Premise for the Buffett Rule

Warren Buffett started the ball rolling claiming his secretary paid a higher tax rate than he did and following it up with a NYT editorial:
Blessings are showered upon [the super-rich] by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.
Eager politicians jumped on his claims as justification to propose a special surcharge on millionaires called "The Buffett Rule." But has anyone actually examined the veracity of Buffett's claims? I don't doubt that Buffett paid 17.4% in federal taxes since most of his income was from long-term capital gains taxed at 15%, but I have a lot of trouble believing his office mates paid such high rates unless he is lumping in state and local taxes with federal. We'll never be able to determine their exact tax rates so let's look at taxpayers in the aggregate from the latest IRS data.

The average rate paid by all taxpayers is 17.8%. The lowest rate applies to people earning 15K - 20K is 6.6%. The highest rate tops out at 29.7% for those earning 2M - 5M. If we assume Buffett pays his secretary really well at 100K her tax rate would be 16.3% on the average, still below Buffett's own tax rate. Based upon the averages, it would be hard to see any of his office mates paying more than 30% federal taxes. Unlike the propaganda floated in front of a gullible media, the average millionaire's tax rate is 2 to 3 times that of their secretaries.

Next, let's look at how taxes are distributed across income groups:

Tax Year 2008 - Percentage of Federal Income Tax Paid by AGI

The US tax system is one of the most progressive in the world, and politicians desire to make it even more progressive. Buffett's claims on the whole do not stand up to the tax data for 2009 (the latest data available) as publish by the IRS. Should our politicians be making policy based on such far-fetched claims? Unless Buffett's office is a major statistical outlier, the claims are hard to swallow. The rational solution to Buffett's tax dilemma is to examine his tax return and close the loopholes that allowed him to pay only $6M in taxes on an income of over $40M.

Instead of seeking to punish those highly successful individuals with a tax surcharge, the government should be trying to grow its base of millionaires. In the log run this will bring in more revenue than such punitive tactics as the Buffett rule.


I call total BS on the Buffett Rule and the propaganda it spawns like this commercial:

The Honeywell WT6500 Personal Wind Turbine

Among homeowners, wind energy has never caught on, in large part because personal turbines are often noisy and inefficient. Most turbines need strong winds to turn a heavy central generator and create current, a design with two main disadvantages. First, the gears make a lot of noise. Plus, the generator is positioned at the blades’ center, which moves at one tenth the speed of the periphery. And less speed translates to less power.

Honeywell’s wheel-shaped WT6500 takes an entirely new approach. Magnets mounted near the tips of its 20 blades sweep through an outer ring of copper coils to produce a current, making the entire wheel the generator. Because this arrangement traps energy from the fast-moving blade tips and eliminates the heavy central generator, the WT6500 can pull a current from winds as slow as two miles an hour (most home turbines need 8mph gusts). Better suited to home use than other turbine designs, the wheel is six feet in diameter, whisper-quiet, and can produce up to 1,500 kilowatt-hours of power per year—enough to replace about 15 percent of an average household’s energy bill. Depending on an area’s clean-energy incentives, the turbine can pay for itself in only a couple of years, though most owners will make back their investment in five to 10.


  • A flap on either side of the wheel catches wind, which spins the turbine toward the gusts.
  • The wind moves the turbine wheel, including its 20 blades.
  • The blade tips contain rare-earth metal magnets. As they sweep through copper coils in the outer frame, they generate a DC current.
  • An inverter [not shown] gathers the current. It can store the power in a battery or convert it to AC for immediate use.
Source: Popular Science

Grouch: I'd love to have one of these on my roof, but the economics of the purchase don't look particularly good for this $10K purchase.  Under optimal conditions (i.e., windy all the time), at 13 cents per kilowatt hour (what my electric company charges), I'd save $195 a year, for a payback period of a little over 51 years.  But realistically, the wind won't be blowing all the time.  If I'm very lucky and the wind blows 50% of the time, my payback period is now over 100 years.  But if I hit the 15 - 20% average, my payback period is over 200 years.  My guess would be the useful lifetime for this type of machine is somewhere on the order of 20 - 25 years, making it almost impossible to break even on this investment unless my electricity rates were to triple or quadruple.

These first versions will probably be toys for the rich, who may not care whether they are economically sound investments.  If the prices for this type of product begin to come in at under $800, they may be worth a serious look for the average homeowner in windy locations.

Quote of the Day: Scott Lincicome

"So to recap: massive government subsidies created 1,100 "green jobs" [at Solyndra] that never would've existed but for those massive government subsidies. And when those fake jobs disappeared because the subsidized employer company couldn't compete in the market, the workers blamed China (instead of what's easily one of the worst business plans ever drafted) in order to receive... wait for it... more government subsidies.

Behold, the Circle of Government Life."

~ Scott Lincicome

HT: Carpe Diem

Sunday, September 18, 2011

Quote of the Day: Henry Ford

The natural thing to do is to work--to recognize that prosperity and happiness can be obtained only through honest effort. Human ills flow largely from attempting to escape from this natural course. I have no suggestion which goes beyond accepting in its fullest this principle of nature. I take it for granted that we must work. All that we have done comes as the result of a certain insistence that since we must work it is better to work intelligently and forehandedly; that the better we do our work the better off we shall be. All of which I conceive to be merely elemental common sense

I am not a reformer. I think there is entirely too much attempt at reforming in the world and that we pay too much attention to reformers. We have two kinds of reformers. Both are nuisances. The man who calls himself a reformer wants to smash things. He is the sort of man who would tear up a whole shirt because the collar button did not fit the buttonhole. It would never occur to him to enlarge the buttonhole. This sort of reformer never under any circumstances knows what he is doing. Experience and reform do not go together. A reformer cannot keep his zeal at white heat in the presence of a fact. He must discard all facts....

There is no reason why a man who is willing to work should not be able to work and to receive the full value of his work. There is equally no reason why a man who can but will not work should not receive the full value of his services to the community. He should most certainly be permitted to take away from the community an equivalent of what he contributes to it. If he contributes nothing he should take away nothing. He should have the freedom of starvation. We are not getting anywhere when we insist that every man ought to have more than he deserves to have--just because some do get more than they deserve to have.

~ Henry Ford, from My Life and Work, 1930

The War on Prosperity: Scenes from the Occupy Wall Street Protests

From the Occupy Wall Street website:
This statement is ours, and for anyone who will get behind it. Representing ourselves, we bring this call for revolution.

We want freedom for all, without regards for identity, because we are all people, and because no other reason should be needed. However, this freedom has been largely taken from the people, and slowly made to trickle down, whenever we get angry.

Money, it has been said, has taken over politics. In truth, we say, money has always been part of the capitalist political system. A system based on the existence of have and have nots, where inequality is inherent to the system, will inevitably lead to a situation where the haves find a way to rule, whether by the sword or by the dollar.

We agree that we need to see election reform. However, the election reform proposed ignores the causes which allowed such a system to happen. Some will readily blame the federal reserve, but the political system has been beholden to political machinations of the wealthy well before its founding.

We need to address the core facts: these corporations, even if they were unable to compete in the electoral arena, would still remain control of society. They would retain economic control, which would allow them to retain political control. Term limits would, again, not solve this, as many in the political class already leave politics to find themselves as part of the corporate elites.

We need to retake the freedom that has been stolen from the people, altogether.

1. If you agree that freedom is the right to communicate, to live, to be, to go, to love, to do what you will without the impositions of others, then you might be one of us.

2. If you agree that a person is entitled to the sweat of their brows, that being talented at management should not entitle others to act like overseers and overlords, that all workers should have the right to engage in decisions, democratically, then you might be one of us.

3. If you agree that freedom for some is not the same as freedom for all, and that freedom for all is the only true freedom, then you might be one of us.

4. If you agree that power is not right, that life trumps property, then you might be one of us.

5. If you agree that state and corporation are merely two sides of the same oppressive power structure, if you realize how media distorts things to preserve it, how it pits the people against the people to remain in power, then you might be one of us.

And so we call on people to act

1. We call for protests to remain active in the cities. Those already there, to grow, to organize, to raise consciousnesses, for those cities where there are no protests, for protests to organize and disrupt the system.

2. We call for workers to not only strike, but seize their workplaces collectively, and to organize them democratically. We call for students and teachers to act together, to teach democracy, not merely the teachers to the students, but the students to the teachers. To seize the classrooms and free minds together.

3. We call for the unemployed to volunteer, to learn, to teach, to use what skills they have to support themselves as part of the revolting people as a community.

4. We call for the organization of people's assemblies in every city, every public square, every township.

5. We call for the seizure and use of abandoned buildings, of abandoned land, of every property seized and abandoned by speculators, for the people, for every group that will organize them.

We call for a revolution of the mind as well as the body politic.
Grouch: Our comrades from the future are calling us, the wealth creators. They want their fair share of the nation's treasure.  They want economic justice.  The revolution has begun.  But I am one of the unenlightened.  I believe free market capitalism is the best path to prosperity for all, and will fight to my death to preserve whatever vestiges of that remain.

Thursday, September 15, 2011

Boomtown, USA

Visit for breaking news, world news, and news about the economy

The Williston, North Dakota Walmart sells out of merchandise every day, and the local McDonald's is one of the busiest in the country and pays $15 per hour to attract workers.

Peter Schiff Schools Congress on Job Creation

"Government stimulus will never grow this economy. It will never create jobs. It is the equivalent of trying to put out a fire by pouring gasoline on it. We have to understand that the housing bubble, the financial crisis of 2008, were the consequences of government stimulus.

We stimulated our way into this problem, we’re not going to stimulate our way out. In fact, the stimulus is actually a sedative. The stimulus is preventing the free market from unraveling the problems that years of bad fiscal and monetary policies have created. We don’t need more spending, we need the opposite of spending. We need under-consumption. What the economy lacks is savings, investment, production. And if we try to preserve the jobs of the Bubble Economy with more reckless money printing and borrowing and government spending all we’re going to succeed in doing is preventing the restructuring that we need and preventing more productive jobs from ever coming into existence."

~ Peter Schiff

The Calculus of Green Jobs

From today's Washington Post:
A $38.6 billion loan guarantee program that the Obama administration promised would create or save 65,000 jobs has created just a few thousand jobs two years after it began, government records show.

The program — designed to jump-start the nation’s clean technology industry by giving energy companies access to low-cost, government-backed loans — has directly created 3,545 new, permanent jobs after giving out almost half the allocated amount, according to Energy Department tallies.
From the DOE – Loan Program website – $17.204 billion in loans out of $38.6 billion in loans has already been given out creating 3,545 jobs.

That averages $4,852,000 per permanent job. Not exactly a bargain for taxpayers.

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

~ F.A. Hayek

Quote of the Day: James Grant

Economics may be an "engine of analysis," as Alfred Marshall said, or an "apparatus of the mind," as Keynes put it. But economists no more set the world to producing and consuming than baseball statisticians hit home runs. Then, too, you'll never see Bill James, the dean of the baseball sabermetricians, trip up a base runner the way the government thwarts an entrepreneur. The intervention-minded economists are the ones who give the government its big ideas.

~ James Grant, from Follow the Money

The Taking Tree

Chuck Woolery on the Undertaxed Rich

Zillionaires who don’t think the rich pay enough taxes can now go to sleep at night without guilt. Veteran game show host Chuck Woolery has found a way for you to make things right:

Monday, September 12, 2011

Quotes of the Day: Paul Krugman, Paul Samuelson and Don Bourdreaux

Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today's young may well get less than they put in).

~ Paul Krugman, 1996, from What Consensus?

The beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in -- exceed his payments by more than ten times (or five times counting employer payments)!

How is it possible? It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population.

More important, with real income going up at 3% per year, the taxable base on which benefits rest is always much greater than the taxes paid historically by the generation now retired.

Social Security is squarely based on what has been called the eighth wonder of the world -- compound interest. A growing nation is the greatest Ponzi game ever contrived.

~ Paul Samuelson, 1967, from The "Beauty" of Social Security

I submit the essence of a Ponzi scheme is

(1) its promise that contributions today to the scheme’s manager will pay off handsomely (that is, better than alternative investments) in the future to each contributor;

(2) that current contributions to the scheme are not invested but are spent – in particular, are spent to make good on promises made in the past to previous contributors who now expect their stream of pay-offs;

(3) that the manager of the scheme maintains his ability to pay the promised streams of pay-offs only by getting other contributors into the scheme, but

(4) the manager doesn’t let on to contributors (and would-be contributors) that the funds for paying off the promises come not from any profitable, productive investment of contributed funds – nor from any actuarially justified program for reallocating risks across persons or across time – but come, instead, simply from the hope that future contributors can be corralled into the system;

(5) that if future contributors do not arrive in sufficient numbers, the scheme has too little money on hand to pay off all promises;

(6) that the manager of the scheme, in short, successfully persuades his or her targets that the scheme is financially something that it really is not.

~ Don Bourdreaux, 2011, from Further Thoughts on Whether or Not Social Security is Ponzi Scheme

Grouch: When growth slows and demographics change, many of the assumptions made years ago in good times can look very foolish. The unfunded liabilities the nation now faces are truly staggering.

Solyndra for Dummies

Solyndra is a prime example of what happens when politicians of all parties and their politically-connected enthusiasts figure out ways to tap the public purse to fund their favorite initiatives.

I am a firm believer that any good business venture will have no trouble locating funding. The world is awash in liquidity right now and the supply of capital is virtually unlimited if you have a profitable idea. Governments should never play the role of venture capitalist.

Via Zombie and Calafia Beach Pundit

Sunday, September 11, 2011

The Man in the Red Bandanna

Ten years later: remembering a man who led people to safety after terrorists struck the World Trade Center on September 11th - a former Boston College lacrosse player whose trademark was a red bandanna

Saturday, September 10, 2011

Jack Bogle: Why Mark Cuban Is Wrong on Investing

Buying and holding stocks and bonds for the long term and maintaining a diversified portfolio are still the smartest strategies for the average investor, says Vanguard founder Jack Bogle in answer to Mark Cuban and other critics of these traditional approaches. In the Big Interview with Journal columnist Jason Zweig, Bogle takes aim at the culture of market speculation. Betting on long odds, he says, "doesn't pay off very often."

Update: DIY Investor has the Cuban interview posted here.

Life in an Oil Field "Man Camp"

HT: Carpe Diem

Friday, September 9, 2011

Peter Schiff and Miles Rappoport Debate the President's Job Plan

Rep. Landry of Louisiana at the address last night

Irene in Vermont

Some incredible picture of the damage Irene did to Vermont can be found here.

Thursday, September 8, 2011

Quote of the Day: Reason Magazine on Social Security as a Ponzi Scheme

Rachel Maddow and her MSNBC guests are scandalized that Rick Perry stuck to his guns that Social Security is a Ponzi scheme during the presidential debate tonight. “This kind of rhetoric will hurt him in the general elections,” they reassured each other. They didn’t flat out say that Perry was wrong, but actually he is. Social Security is not a Ponzi scheme. It is much worse.

Here are three reasons why:

One, a Ponzi scheme collects money from new investors and uses it to pay previous investors—minus a fee. But Social Security collects money from new investors, uses some of it to pay previous investors, and spends the surplus on programs for politically favored groups—minus the cost of supporting a massive bureaucracy. Over the years, trillions of dollars have been spent on these groups and bureaucrats.

Two, participation in Ponzi schemes is voluntary. Not so with Social Security. The government automatically withholds payroll taxes and “invests” them for you.

Three: When a Ponzi scheme can’t con new investors in sufficient numbers to pay the previous investors, it collapses. But when Social Security runs low on investors—also called poor working stiffs—it raises taxes. Indeed, Cato Institute’s Michael Tanner points out,
Social Security taxes have been raised some 40 times since the program began. The initial Social Security tax was 2 percent (split between the employer and employee), capped at $3,000 of earnings. That made for a maximum tax of $60. Today, the tax is 12.4 percent, capped at $106,800, for a maximum tax of $13,234. Even adjusting for inflation, that represents more than an 800 percent increase.
And given that the worker-to-retiree ratio is expected to fall from 3-1 today to 2-1 in 2030 (down from 16-1 in 1950) these taxes will only go up unless the government decides to kick retirees in their dentures and slash benefits.

Rick Perry should stop soft-peddling the issue and tell it like it is.

~ Shikha Dalmia at Reason Magazine

Do you agree with this point of view? Is Social Security nothing more than a Government sponsored Ponzi Scheme? Or is it a Pyramid Scheme? Or something else?

The Top 10 Investment Scams, Schemes and Scandals

The NASAA (North American Securities Administrators Association) has just published their top 10 list of Investment Scams, Schemes and Scandals based upon complaints and criminal activity as reported by the US states and Canadian provinces.
  1. Ponzi Schemes (think Bernie Madoff)
  2. Elder Fraud and Abuse
  3. Promissory Notes
  4. Unscrupulous Brokers (i.e churning your accounting, or selling you investments that are clearly inappropriate for your financial situation)
  5. Affinity Fraud (i.e., fraudsters solicit money from identifiable groups such as retiree communities or religious and ethnic groups — often posing as a member of the group) 
  6. Insurance Agents and Other Unlicensed Security Sellers
  7. Prime Bank Schemes (i.e., institutions that offer excessively high interest rates on CDs)
  8. Internet Fraud
  9. Mutual Fund Business Practices
  10. Variable Annuities

Do any of the items of the list surprise you? Anything missing from the list that you expected to see?

Wednesday, September 7, 2011

Quote of the Day: Peter Buffett

One of my father's often-quoted tenets is that a parent, if he has the means to do so, should give his children "enough to do anything, but not enough to do nothing." A head start is fine; a free pass is often a crippling disservice. When I turned 19, I received my inheritance—proceeds from the sale of a farm, which my father converted into Berkshire Hathaway stock. At the time I received them, the shares were worth roughly $90,000. It was understood that I should expect nothing more.

So—what to do with the money? I was a student at Stanford University; there were no strings attached. Fortunately, I'd had the advantage of seeing my older siblings burn through most of their cash; I didn't want to follow down that path. At the other extreme, I might have done absolutely nothing with that stock—just left it in an account and forgotten about it. If I'd picked that option, my shares would now be worth around $72 million. But I didn't make that choice, and I don't regret it for a second. People think I'm either lying or crazy when I say this, but it happens to be true, because I used my nest egg to buy something more valuable than money: I used it to buy time.

My inheritance came to me around the time I was finally committing to the pursuit of a career in music. As a pragmatic Midwesterner with a very limited nest egg, I knew that I would have to find a way to turn my creative impulses into a livelihood. But how did one do that? How would I find an audience, or clients, or a way to sell what I'd written and produced? I didn't have a clue, but it was becoming clear to me that I wasn't going to figure it out by staying in a university.

~ Peter Buffett, from the book Life is What You Make It: Find Your Own Path to Fulfillment

Markets in Everything: Tea Party Zombies Must Die

Tea Party Zombies Must Die is a first-person shooter game in which you kill “Tea Party Zombies” like Sara Palin, Mike Huckabee, Michele Bachmann, Bill O’Reilly, etc. You can check it out here. Between murders, the player is treated to factoids like the claim that Obamacare will reduce the deficit.

This is a screen shot of the Sarah Palin and Michele Bachmann zombies:

Here, the player gets to kill the Koch brothers:

I’m sure you get the idea without any further elaboration. The new era of civility is alive and well, as evidenced by all those green civility bumper stickers I see all over the place.  On the other hand, I wouldn't mind having a Congressional version of this game where I can take a whack at Reid, Pelosi and Durban.  I'll even be non-partisan and include Boehner, McConnell and  Cantor.  But please spare me the propaganda factoids.

Sylvia Nassar: The Grand Pursuit

This video is a synopsis of Sylvia Nassar's new book on economics called The Grand Pursuit. I always find it very enlightening as to what material is presented and what is ignored. I must confess I'd wouldn't make a strong connection between Jimmy Carter and Milton Friedman, maybe Reagan, who gets no mention, but not Carter. It is also interesting that the beginning of the boom in living standards also marked the beginning of modern literary egalitarianism (Dickens) and theoretical egalitarianism (Marx), both redistributionists who held fast that the existence of want justified degrees of government interference with the economy to counteract what they perceived as hoarding by the rich. How little things change over time despite the dramatic increase in personal wealth and the rise of the middle class.

Tuesday, September 6, 2011

Quote of the Day: Gary Becker

Warren Buffett has persuaded 68 other billionaires to follow his example and promise to give at least half their wealth to charities. But why hasn’t Buffett proposed also that the very rich make large gifts to the federal government to offset what he considers ridiculously low taxes on their incomes and wealth? My guess is that he and the others who pledged to give away their wealth to charity would have little confidence in how the government would spend such gifts. Buffett, for example, is giving most of his wealth to the Gates Foundation, not to the federal government, and is relying on how this foundation will spend his vast gift. Given this reluctance to make large gifts to the federal government, why should anyone have confidence that the federal government will spend additional tax revenue in a sensible way?

~ Gary Becker (see also The Grouch's Billionaire Challenge and How to Solve The Deficit Problem in 5 Minutes)

Thursday, September 1, 2011

The Gold Rush

Bob Pisani of CNBC is doing a series on gold. Since I bashed gold a little yesterday, I figured I'd come back with a mini-exposé.

Part 1

Part 2: a peek inside the secret location of GLD’s gold vaults.

Part 3: