The Road Less Traveled

“We want students to dance a traditional with the Embera tribe in Panama, to build a health clinic with the Kuna Indians in the San Blas Islands, to work with homeless street children in India, and to build schools in Ecuador. These experiences will inspire those who participate to act and make a difference. There has never been a greater need to empower young people, who are just beginning to see their place in the world, to create change, no matter how large or how small.” –Jim Stein, The Road Less Traveled

Stein, in his 50’s, heads a Wilderness Adventure Program called the Road Less Traveled which aims to educate youth about the world beyond their cushy suburban homes and teach them to believe in themselves and their individual capabilities. These adventures include trips to Hawaii, Costa Rica, Ecuador and the Galapagos Islands. Kids bike, hike, ski, kayak and have fun in the sun while also serving the community by building houses for the poor, helping to construct a dam or school building. Stein’s values center on teamwork and trying new things.

Harvard University recently released a report that recommends college professors design courses “around preparing students to participate in civic life” and “understand the world around them.” Stein, through his youth business, is doing his part. –with reporting by Julian Rosenberg

Bernankespeak

Today’s Wall Street Journal: “Reduced inflation concerns at the Fed and weaker economic data have led financial markets to boost expectations the Fed will lower its its short-term interest rate target…”

Today’s New York Times: “Fed chief sees a rate rise…”

Ben Bernanke took over as Fed chief saying he would eliminate Greenspeak and be clear about his intentions. So much for that pipedream.

Passenger bill of rights

The last time I flew we took off 40 minutes late and after landing sat on the runway for 90 minutes. Our pilot was clueless. “Folks, I’m not sure what’s going,” he said after taxiing for a bit. “But the line of planes to the gate is a mile long.” Groan.

That was nothing, of course. The Now famous Dec. 29 American Airlines flight 1348 from San Francisco bound for Dallas takes the prize. After being diverted to Austin, Tx., passengers sat on the ground for nine hours before being allowed to exit. Yes, nine hours–while toilets filled and food ran out. I had heard about that incident before my most recent flight (New York to Houston), and you can bet it was on my mind as we sat with no information for 45 minutes, an hour, 90 minutes… Would this be another nine hour ordeal? My mind was more unsettled than usual expressly because of the American incident.

We all, who travel, have a stake in American’s dispicable response to a perfectly manageable situation. If this kind of unconscionable delay can happen once, it can happen a thousand times. I’m 6 feet, 3 inches tall and borderline claustrophobic. I have to mentally prepare for a flight in coach. Four hours? OK. I can make it. But when it stretches to six hours with no resolution in sight I grow uneasy and uncomfortable. Not just fidgety, but emotionally and mentally
harmed. Airlines must do better by us all. Read the proposed passenger bill of rights at www.strandedpassengers.blogspot.com and support it however you can.

A Bullish Case

Investors are too often swayed by ominous forebodings. Inflation, housing and debt–oh, my! The simple truth is that stocks on the whole rise more often than they fall. You should be in the market unless you have a damn good reason to be out. What follows is a compelling bullish case, borrowed from the web site of economist Ed Yardeni:

Financial crises stay self-contained and don’t become contagions. Six recent crises that weren’t. Despite inverted yield curve, banks having no problems attracting deposits. So bank credit remains plentiful.

I) ECONOMICS: Last year, the Alarmists warned that tighter monetary policy in the US and overseas, along with the inverting yield curve in the US would trigger a financial crisis. They predicted that it would cause a financial contagion, which would lead to a global recession and a huge bear market for stocks. A few less alarming economists agreed that a financial crisis was increasingly likely, but the consequence might be more bullish for stocks. In their scenario, the Fed would respond quickly to the financial crisis by lowering interest rates. Instead of a recession, there would be a mid-cycle slowdown. This would depress earnings growth, but lower interest rates would boost valuation multiples. The fact is that we have already had a few financial crises, but no contagion. Indeed, the crises have been so well contained that some observers might question whether they should even count as such:
(1) Last year, there was the downgrading of the credit ratings for the bonds of GM and Ford. The domestic auto industry has been undergoing a wrenching restructuring including lots of job losses. During the 1970s and 1980s, such a major trauma for this major industry most likely would have caused a recession. GM’s stock price was actually up 58% last year, making it the best performer in the DJIA.
(2) Amaranth blew up last September. The hedge fund lost $6.4 billion in a few days last year in the worst debacle in the industry’s history. Long-Term Capital Management lost $4.6 billion in less than four months in 1998 and roiled the markets. The Fed was forced to organize a rescue operation for LTCM and to lower interest rates. There were no shock waves when Amaranth was forced to shut down. Indeed, Nick Maounis, Amaranth’s chief executive, is already considering launching a firm with some former colleagues from the fund.
(3) The meltdown in emerging stock markets last May felt like a global financial contagion. It was triggered by news that the Bank of Japan was about to abandon its zero-interest-rate policy. The BoJ did raise its official rate to 0.25% on July 14, 2006. However, all the fears that this would unwind carry trades evaporated quickly. By last summer, most emerging stock markets had recovered with many at new record highs again.
(4) Will the recent nationalization moves in Venezuela and Bolivia, as well as the threat of a debt default in Ecuador, spill into other markets? A similar series of events occurred in 1999, when Ecuador defaulted on Brady Bonds around the same time Columbia and Chile abandoned a currency peg, letting their currencies float against the dollar. Argentina defaulted on its debt two years later, costing investors and governments about $140 billion. And not long after, there was concern that Brazil would end up imposing capital controls and defaulting as well. The good news is that the region is more stable today. Morgan Stanley noted at the end of the year that “Brazil has zero net public external debt (net of international reserves), a declining debt path for its domestic debt, and inflation hovering around that of the U.S.” The country is running a current-account surplus (WSJ 1/11/07).
(5) Thai stock prices have lost 10.4% since Dec. 19–the first trading day after Thailand unveiled its new capital controls, which required foreign investors to deposit 30% of the money they bring into the country with the central bank. This was aimed at stalling the rapid strengthening of the baht, which was beginning to depress exports. The stock market immediately plunged in its biggest one-day loss ever. The selling continued through December and into January, when the military-installed Thai government announced its second big policy shock: new rules limiting foreign shareholding in businesses operating in Thailand. The result was another round of selling until the government belatedly clarified that only a few businesses would actually be affected by the proposed rule changes. A series of bombs that exploded on New Year’s Eve in Bangkok put investors further on edge. Still according to the WSJ (1/18/07) some investors are buying again because Thai stocks are so cheap. The P/E for Thailand’s overall market is 5.9 times. That compares with 14.7 times for Singapore, 17.8 for Malaysia and 18.1 for Indonesia.
(6) What about the US subprime mortgage market? Is that the next financial accident that will unleash a contagion? I doubt it. However, a study from the Center for Responsible Lending projects that one out of five subprime mortgages originated during the past two years will end in foreclosure. (See link below.) The CRL is “a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices.” I am still studying their study, but my initial take is that it is a bit alarmist, though clearly there are and will be households that will lose their homes. I don’t believe there will be enough to cause a recession. Since most of their mortgages have been securitized, I don’t expect that rising foreclosures will cause a financial meltdown either.

Farewell Funnyman

Art Buchwald died on Wednesday. I didn’t know him, other than through his columns. But more than any one person he is the reason I became interested in a newspaper career some 40 years ago. As a high school student, I read his 400-word missives twice a week in the St. Louis Post-Dispatch. There was a local columnist there too, Elaine Viets, who I read just as religiously. I have no idea where Elaine is today. Hopefully she is well. The two of them had what I figured must be the greatest jobs in the world. So I followed their path into newspapering. I never quite made it as a humorist, as they did. But I’ve loved my time as a journalist, and owe them both, especially Buchwald, a debt of gratitude–as do so many who laughed and smiled at his words.

Big Macatrosity

In 28 years as a print journalist I’ve known many colleagues that took themselves far too seriously. Responsible journalism doesn’t have to be dour and fatalistic; good reporting and writing are not necessarily at odds with humor and optimism. This is especially true in sports reporting, for goodness sake. Not to say there are no serious issues in sports. But at the heart, what reporters on the beat chronicle is entertainment. Not global warming, AIDs, war or genocide. Entertainment.

Baseball writers need to lighten up. It’s not their duty or place to protect the integrity of the game. I wonder how they got to man the gates to the Hall of Fame in the first place. Shouldn’t baseball people decide? The writers’ sense of outrage over Mark McGwire’s apparent sterioid use and sheepish performance in Congressional testimony in 2005 is just stupid. Sterioids were rampant in baseball during Big Mac’s run to home run greatness. If you leave him out of the hall of fame then you need to leave everyone out from that era.

Dear Ms. Pelosi…

No question, tax policy under George Bush favored folks with lots of money. Now the newly empowered Dems want to take some of it back. In principle, I can get behind that. But only if the people who pay really big are the truly rich, people like Bob Nardelli who got paid $210 million to leave Home Depot after six years of limited success.

Where should we draw the line? Over the weekend, House Speaker Nancy Pelosi said any household with income over $500,000 is a target. Trouble is, $500,000 in Peoria (where relatively few make that kind of loot) is not $500,000 in New York or San Francisco or other big cities (where most of this income bracket resides). If you accept that the cost of living, certainly in New York and SF, is around 50% higher than in the Midwest, then to be fair any tax-the-rich strategy should take this into account.

In Peoria, you should start getting soaked at $229,606 of annual income. That, according to the cost calculator at cnnmoney.com, is the equivalent of $500,000 of income in Manhattan. Or, if you want to stick with $500,000 as a target, then gross that up to $770,400 for folks in Manhattan. There is a reason that people in cities make more money. Their houses cost more. In Peoria, $500,000 puts you in a 6-bedroom luxury estate. In Manhattan, the average 1-bedroom condo or apartment goes for $1 million. This disparity exists in big city suburbs too. And it’s more of the same with local taxes, which may be four or five times higher, as are many of the common things we consume everyday, like a can of soda at the gas station. Retailers have to charge more because their rents are higher.

It’s blatantly unfair to draw a line and go after everyone. I know the tax system is complicated enough. But indexing taxes to the cost of living wouldn’t be that tough. (And no one seems to care enough about simplification to get it done, anyway.) You might argue that $500,000 is such a high threshold that regardless of regional cost differences these folks are undeniably well off and able to shoulder more of the total tax burden. That’s true, to a point. Still, it smells a lot like sticking it to people who may be just starting to taste success.

My real worry is that any such tax targeting will have to reach much farther down the income ladder to make a difference in our national budget. If they go there, Pelosi & Co. will end up imposing hardships on folks like cops and school teachers in our metropolitan areas, where we need them most. It’s time for tax policy to formally recognize the cost differences in regions across the nation so that when the Dems go after the rich, that’s all they get.

An Inconvenient Truth

It’s going to be 65-plus degrees in New York tomorrow. I should be skiing in the Berkshires; yet I’ve yet to even locate my heavy coat this winter. I spied two mosquitos in my bedroom this morning. The crocus are pushing up. The Forsythia are in bloom. I may be a late convert to the global warming crisis, but that’s only because I hadn’t been paying attention. The alarms go well beyond this strangely warm winter on the east coast. I am now convinced that our melting polar ice caps are a grave threat. If you have not yet seen Al Gore’s movie (the title of which is the same as the headline above) do so soon. It’s on DVD. This is not great filmmaking. But it’s a compelling story.

Nardelli’s Nemesis

As it happens, I was shopping at Home Depot last night only hours after that company’s arrogant CEO Bob Nardelli had been handed an unseemly $210 million exit package. It all seemed so right, that he had been booted:

I was hoping to replace the plastic drawer runners on a bathroom cabinet I had bought at one of Nardelli’s stores just four years ago. The mere weight of the drawer and its contents had caused the support mechanism to collapse. Understand, this drawer is rarely opened and shut. It holds shampoo and other like items in a rarely used guest bathroom in a rarely visited weekend cabin. No abuse. The drawer, in effect, rotted and fell apart. The runners simply were not strong enough to hold up under even less-than-normal use.

OK. That’s bad enough. But now I’m looking for replacement parts at the same store where I bought the cabinet, and you guessed it: nothing in stock. The attendant was helpful. But all he could offer was hardware that approximates the correct pieces. “You can always return them if they don’t work,” he tells me. That, of course, misses on two points: There is no way I’m going through the return process (much less the long drive and parking hassle) to bring back a $4 item. If I buy it and it doesn’t fit, Home Depot keeps the proceeds from a bogus sale. Bigger yet: do I want to spend a couple hours installing this new hardware only to find out in the end that it’s a bad fit? No way! The attendant tells me to try my local hardware store.

So I walked away from Home Depot empty handed. Nardelli, unfortunately, did not. His exit package was disgracefully large for a man who reigned over a lagging stock price for years while Lowe’s ate his lunch. Will Home Depot repair itself without Nardelli? Maybe. There’s something to be said for investing in a company whose stock seemingly can’t perform any worse. But I wouldn’t make the bet just now. First, I’d want to see the company actually sell me something I need, which seems increasingly unlikely as its staff has advised me to shop my neighborhood hardware store.

Moore’s Law…Over A Century

It’s mind boggling to think about the changes that have occurred in the past 100 years, and that the pace of change is forever accelerating.

At the start of 1907, consider:

The average life expectancy in the U.S. was 47 years;

Only 14 percent of the homes in the U.S. had a bathtub;

Only 8 percent of those homes had a telephone;

A three-minute call from Denver to New York City cost $11;

There were only 8,000 cars in the U.S. and only 144 miles of paved roads;

The maximum speed limit in most cities was 10 mph;

Alabama, Mississippi, Iowa and Tennessee were each more heavily populated than California;

With a mere 1.4 million people, California was only the 21st most populous state in the Union;

The tallest structure in the world was the Eiffel Tower;

The average U.S. worker made between $200 and $400 per year;

A competent accountant could expect to earn $2,000 per year; a dentist $2,500 per year; a veterinarian between $1,500 and $4,000 per year; and a mechanical engineer about $5,000 per year;

More than 95 percent of all births in the U.S. took place at home;

Ninety percent of all U.S. doctors had no accredited college education. Instead, they attended so-called medical schools, many of which were condemned in the press and the government as “sub-standard”;

Sugar cost four cents a pound;

Eggs were fourteen cents a dozen;

Most women only washed their hair once a month, and used borax or egg yolks for shampoo;

Canada passed a law that prohibited poor people from entering into their country for any reason;

Five leaded causes of death in the U.S. were:
– Pneumonia and influenza
– Tuberculosis
– Diarrhea
– Heart disease
– Stroke

The American flag had 45 stars – Arizona, Oklahoma, New Mexico, Hawaii and Alaska hadn’t been admitted to the Union yet;

The population of Las Vegas, Nevada, was only 30;

There were about 230 reported murders in the entire U.S.

Crossword puzzles, canned beer and iced tea hadn’t been invented yet;

There was no Mother’s Day or Father’s Day;

Two out of every 10 U.S. adults couldn’t read or write. Only 6 percent of all Americans had graduated from high school;

Eighteen percent of households in the U.S. had at least one full-time servant or domestic help;

Try to imagine what it may be like in another 100 years!

How did all this happen? What is possible if we put our minds and will to it? Why should we be positive and optimistic about the future?

Putting aside partisan considerations in the spirit of the common heritage we share as Americans, this quote from a few remarks made recently by U.S. Senator Barack Obama: “Alongside our famous individualism, there is another ingredient in the American saga, a belief that we are all connected as one people … it is that fundamental belief – I am my brother’s keeper, I am my sister’s keeper – that makes this country work. It’s what allows us to pursue our individual dreams, yet still come together as a single American family … there is not a liberal America or a conservative America; there is the United States of America. There is not a black America or a white America or a Latino America or an Asian America: There is the United States of America.”

We should all recognize, at the start of 2007, that much is possible in the years ahead and that we are in control of our destiny.

Best wishes to you and all close to you for a healthy and prosperous New Year.