Western Civilisation: Decline – or Fall?

Niall Ferguson, Harvard history professor was featured in Barron's over the weekend discussing
his latest book, Civilization, The West and the Rest.  Last month Ferguson also published a piece for John Mauldin's Outside The Box.  Both are excellent reads and I have posted the full Mauldin piece below.

Pay particular attention to what Ferguson calls the "killer applications".  A series of 6 innovations which he believes led to the rise of the West around the year 1500.


Western Civilisation: Decline – or Fall?
By Niall Ferguson
As a freshman historian at Oxford back in 1982, I was required to read Edward Gibbon’s
Decline and Fall of the Roman Empire. Ever since that first encounter with the greatest of
all historians, I have pondered the question whether or not the modern West could
succumb to degenerative tendencies similar to the ones described so vividly by Gibbon.
My most recent book, Civilization: The West and the Rest attempts an answer to that
question.

The good news is that I do not believe that Western civilization is in some kind of
gradual, inexorable decline. In my view, civilizations do not rise, fall, and then gently
decline, as inevitably and predictably as the four seasons or the seven ages of man.
History is not one smooth, parabolic curve after another. The bad news is that its shape is
more like an exponentially steepening slope that quite suddenly drops off like a cliff.

To see what I mean, pay a visit to Machu Picchu, the lost city of the Incas. In 1530 the
Incas were the masters of all they surveyed from the heights of the Peruvian Andes.
Within less than a decade, foreign invaders with horses, gunpowder, and lethal diseases
had smashed their empire to smithereens. Today tourists gawp at the ruins that remain.

The notion that civilizations do not decline but collapse inspired the anthropologist Jared
Diamond’s 2005 book, Collapse. But Diamond focused, fashionably, on man-made
environmental disasters as the causes of collapse. As a historian, I take a broader view.
My point is that when you look back on the history of past civilizations, a striking feature
is the speed with which most of them collapsed, regardless of the cause.

The Roman Empire did not decline and fall over a millennium, as Gibbon’s monumental
work seemed to suggest. It collapsed within a few decades in the early fifth century,
tipped over the edge of chaos by barbarian invaders and internal divisions. In the space of
a generation, the vast imperial metropolis of Rome fell into disrepair, the aqueducts
broken, the splendid marketplaces deserted. The Ming dynasty’s rule in China also fell
apart with extraordinary speed in the mid–17th century, succumbing to internal strife and
external invasion. Again, the transition from equipoise to anarchy took little more than a
decade.

A more recent and familiar example of precipitous decline is, of course, the collapse of
the Soviet Union. And, if you still doubt that collapse comes suddenly, just think of how
the postcolonial dictatorships of North Africa and the Middle East imploded this year.
Twelve months ago, Messrs. Ben Ali, Mubarak, and Gaddafi seemed secure in their
gaudy palaces. Here yesterday, gone today.

What all these collapsed powers have in common is that the complex social systems that
underpinned them suddenly ceased to function. One minute rulers had legitimacy in the
eyes of their people; the next they did not. This process is a familiar one to students of
financial markets. Even as I write, it is far from clear that the European Monetary Union
can be salvaged from the dramatic collapse of confidence in the fiscal policies of its
peripheral member states. In the realm of power, as in the domain of the bond vigilantes,
you are fine until you are not fine—and when you’re not fine, you are suddenly in a
terrifying death spiral.

The West first surged ahead of the Rest after about 1500 thanks to a series of institutional
innovations that (to entice younger readers) I call the “killer applications”:

1. Competition. Europe was politically fragmented into multiple monarchies and
republics, which were in turn internally divided into competing corporate entities, among
them the ancestors of modern business corporations.
2. The Scientific Revolution. All the major 17th-century breakthroughs in mathematics,
astronomy, physics, chemistry, and biology happened in Western Europe.
3. The Rule of Law and Representative Government. An optimal system of social and
political order emerged in the English-speaking world, based on private-property rights
and the representation of property owners in elected legislatures.
4. Modern Medicine. Nearly all the major 19th- and 20th-century breakthroughs in health
care were made by Western Europeans and North Americans.
5. The Consumer Society. The Industrial Revolution took place where there was both a
supply of productivity-enhancing technologies and a demand for more, better, and
cheaper goods, beginning with cotton garments.
6. The Work Ethic. Westerners were the first people in the world to combine more
extensive and intensive labor with higher savings rates, permitting sustained capital
accumulation.

For hundreds of years, these killer apps were essentially monopolized by Europeans and
their cousins who settled in North America and Australasia. They are the best explanation
for what economic historians call “the great divergence”: the astonishing gap that arose
between Western standards of living and those in the rest of the world. In 1500 the
average Chinese was richer than the average North American. By the late 1970s the
American was more than 20 times richer than the Chinese.

Westerners not only grew richer than “Resterners.” They grew taller, healthier, and
longer-lived. They also grew more powerful. By the early 20th century, just a dozen
Western empires—including the United States—controlled 58 percent of the world’s land
surface and population, and a staggering 74 percent of the global economy.
Beginning with Japan, however, one non-Western society after another has worked out
that these apps can be downloaded and installed in non-Western operating systems. That
explains about half the catching up that we have witnessed in our lifetimes, especially
since the onset of economic reforms in China in 1978.

I am not one of those people filled with angst at the thought of a world in which the
average American is no longer vastly richer than the average Chinese. I welcome the
escape of hundreds of millions of Asians from poverty, not to mention the improvements
we are seeing in South America and parts of Africa. But there is a second, more insidious
cause of the “great reconvergence,” which I do deplore—and that is the tendency of
Western societies to delete their own killer apps.

Who’s got the work ethic now? The average South Korean works about 39 percent more
hours per week than the average American. The school year in South Korea is 220 days
long, compared with 180 days in the U.S. And you do not have to spend too long at any
major U.S. university to know which students really drive themselves: the Asians and
Asian-Americans. The consumer society? 26 of the 30 biggest shopping malls in the
world are now in emerging markets, mostly in Asia. Modern medicine? As a share of
gross domestic product, the United States spends twice what Japan spends on health care
and more than three times what China spends. Yet life expectancy in the U.S. has risen
from 70 to 78 in the past 50 years, compared with leaps from 68 to 83 in Japan and from
43 to 73 in China.

The rule of law? For a real eye-opener, take a look at the latest World Economic Forum
(WEF) Executive Opinion Survey. On no fewer than 15 of 16 different issues relating to
property rights and governance, the United States fares worse than Hong Kong. Indeed,
the U.S. makes the global top 20 in only one area: investor protection. On every other
count, its reputation is shockingly bad. The U.S. ranks 86th in the world for the costs
imposed on business by organized crime, 50th for public trust in the ethics of politicians,
42nd for various forms of bribery, and 40th for standards of auditing and financial
reporting.

What about science? U.S.-based scientists continue to walk off with plenty of Nobel
Prizes each year. But Nobel winners are old men. The future belongs not to them but to
today’s teenagers. Here is another striking statistic. Every three years the Organization of
Economic Cooperation and Development’s Program for International Student
Assessment tests the educational attainment of 15-year-olds around the world. The latest
data on “mathematical literacy” reveal that the gap between the world leaders—the
students of Shanghai and Singapore—and their American counterparts is now as big as
the gap between U.S. kids and teenagers in Albania and Tunisia.

The late, lamented Steve Jobs convinced Americans that the future would be “Designed
by Apple in California. Assembled in China.” Yet statistics from the World Intellectual
Property Organization show that already more patents originate in Japan than in the U.S.,
that South Korea overtook Germany to take third place in 2005, and that China has just
overtaken Germany too.

Finally, there’s competition, the original killer app that sent the fragmented West down a
completely different path from monolithic imperial China. The WEF has conducted a
comprehensive Global Competitiveness survey every year since 1979. Since the current
methodology was adopted in 2004, the United States’ average competitiveness score has
fallen from 5.82 to 5.43, one of the steepest declines among developed economies.
China’s score, meanwhile, has leapt up from 4.29 to 4.90.

Not only is the U.S. less competitive abroad. Perhaps more disturbing is the decline of
meaningful competition at home, as the social mobility of the postwar era has given way
to an extraordinary social polarization. You do not have to be an Occupy Wall Street
activist to believe that the American super-rich elite—the 1 percent that collects 20
percent of the income—has become dangerously divorced from the rest of society,
especially from the underclass at the bottom of the income distribution.
But if we are headed toward collapse, what will it look like? An upsurge in civil unrest
and crime, as happened in the 1970s? A loss of faith on the part of investors and a sudden

Greek-style leap in government borrowing costs? How about a spike of violence in the
Middle East, from Iraq to Afghanistan, as insurgents capitalize on our troop withdrawals?
Or a paralyzing cyberattack from the rising Asian superpower we complacently
underrate?

Is there anything we can do to prevent such disasters? Social scientist Charles Murray
calls for a “civic great awakening”—a return to the original values of the American
republic. He has a point. Far more than in Europe, most Americans remain instinctively
loyal to the killer applications of Western ascendancy, from competition all the way
through to the work ethic. They know the country has the right software. They just cannot
understand why it is running so damn slowly.

What we need to do is to delete the viruses that have crept into our system: the
anticompetitive quasi monopolies that blight everything from banking to public
education; the politically correct pseudosciences and soft subjects that deflect good
students away from hard science; the lobbyists who subvert the rule of law for the sake of
the special interests they represent—to say nothing of our crazily dysfunctional system of
health care, our overleveraged personal finances, and our newfound unemployment ethic.

Then we need to download the updates that are running more successfully in other
countries, from Finland to New Zealand, from Denmark to Hong Kong, from Singapore
to Sweden. And finally we need to reboot our whole system.
Voters and politicians alike dare not postpone the big reboot. If what we are risking is not
decline but downright collapse, then the time frame may even be tighter than one election cycle.

Understanding the Link Between Volatility and Compound Returns

For those of you who track and utilize volatility, you may find this piece helpful in your analysis,  Understanding the Link Between Volatility and Compound Returns.  Although volatility which is typically measured by the VIX is at relatively low levels right now, you can likely expect an increase as we head into the fall months due to the Presidential election, slowing growth, seasonality, and continued European worries just to name a few.

Three Guarantees of Financial Planning

While it is a boilerplate disclosure in the investing industry to not offer any type of financial promise or guarantee there are in fact three guarantees that I agree with Tim Mauer on when it comes to investing and financial planning which are

1. Surprises
2. Change
3. Failure

Mauer a contributor at Forbes in this piece here gives a but of a sneak preview of our future seminar on June 18th "401k & 403b You have Options".  As Mauer put it, "surprises require margin, change requires flexibility, and failure requires grace".

To break this down further we talk allot about a required margin of safety when it comes to investing.  We look for investments which are trading at a discount to our intrinsic value.  It helps protect us from volatile markets and enhances our winning %.

The markets are an ever changing place which requires investors to be nimble even if they consider themselves long-term investors.  No one ever lost a cent taking a profit so people shouldn't be afraid to sell and take some equity off the table when necessary.  Look to be a contrarian at times as what is in favor today may be out tomorrow.

If you think in terms of baseball a successful hitter fails 7 of 10 times at bat.  Investing is similar in the case that not every pitch will lead in a successful investment.  This is why it is prudent to not swing for the fences every time at bat.  Doubles and singles go a long way towards achieving your financial goals over a season.

One of the preferred investment vehicles of choice with DWCM which will also be discussed at the June 18th event is the Roth IRA.  Mauer touched on a few of the basic positives with using a Roth IRA.  They include the following

• Tax-free growth
• No forced required minimum distributions
• Ability to take money when needed (although you can only take out principal without being taxed)
• Use as an educational savings platform in addition to retirement savings

It's never too late to get started all it takes is a goal and a plan.

2012 Q1 DWCM Letter, Investing is Simple But Not Easy

There is an old investment adage that “investing is simple but not easy.”  “It is simple to see what is necessary, but not easy to be willing or able to do it.”  So comes the difficulty in the investment environment from now until the end of 2012.

Investing in Q1 this year looked easy compared to the difficult investment environment that we believe lies ahead.  The DreamWorks Capital Management fund that we manage at Investorpedia.com was up 22.7% besting all of the major equity market indices by a wide margin (see enclosed graph for comparison performance).  This performance was largely on the backs of two key performers in Apple and Chipotle Mexican Grill.  To think that both of these names will continue to head to the sky would be foolish.  Although both great companies in their own right, both companies need to see some type of pullback in order to consolidate in order to move higher.

Top 5 Holdings 1.    Apple 2.    CME Group 3.    Google 4.    Chipotle Mexican Grill 5.    SPDR Gold (GLD)

Our portfolio style of running a concentrated portfolio and go anywhere approach served us well thus far in Q1.  Most of our gains were attributed to our option positions which make up 25.5% of the overall fund followed by our long equity positions of 17.9% and our healthy cash position of 56.6%.  At the end of Q1 we did not hold any long short positions which previously included Groupon and LinkedIn.  Our decision to not hold any short positions was based on the upward strength of the overall equity markets which appeared to be taking most names up with it regardless of fundamentals.  We still believe that the newly minted IPO’s in the social media and network space such as Groupon, LinkedIn, Pandora, Angie’s List, etc. do not warrant their high valuations.

What looked good at the end of 2011 has taken a backseat to higher risk names.  Dividend plays such as utilities and other blue chip companies have largely underperformed the market this quarter vs. the previous quarter.  Strictly investing in a company for their dividend is never the right strategy.  However, we believe that blue chip names that pay a stable and growing dividend with solid fundamentals will be a good strategy going forward this year.  At a price that allows for some margin of safety these stocks should provide less volatility in an environment that we believe will get dicier as the year progresses. 

The payment of the dividend allows for some return on investment that is higher than bonds or other fixed income investments.  Bond rates can’t get too much lower than where they stand today with the 10 year US treasury paying around 2% resulting in a negative return when you factor in the impacts of inflation.  But don’t be fooled into thinking a dividend paying stock is a bond, as you are still exposed to the potential of capital erosion.

Economic Outlook

We may start off every quarterly letter in this segment with a disclaimer that reads “our economic forecast guess is as good as the next firm when it comes to accurately forecasting the economy which is why we don’t try.”  We work from a bottom’s up approach when it comes to selecting investments which may not always coincide with what is taking place in the economy.  The equity markets and the economy tend to become disjointed at just the right or wrong time depending upon your perspective.

What I try to gage is sentiment and where leading indicators may be heading.  For instance jobs are a big indicator of confidence and thus consumer spending so when people have jobs they tend to spend money.  As noted in some of my quarterly posts I follow the weekly initial jobless claims and review the trend as to what direction it may be going in.  Thankfully it has been heading lower while the headlining unemployment rate has also been heading lower but for different reasons.

The labor numbers are especially important this year because of the presidential election.  The economy I believe will be the X factor as to who wins the race.  With an improving labor picture and an unemployment rate below 7% Obama is the winner.  Anything north of 8% Romney is your likely winner.  Anything between 7% and 8% then you have a very tight ballgame in which case either candidate could win.

The real key despite who wins the White House will be who controls the house and the senate.  With a split of the two between Democrats and Republicans we would likely see a continued stalemate in Washington in which nothing gets down because the two sides cannot work together for the greater good of the country.  If the Democrats prevail in both fractions then you could see higher regulatory costs harming business and vice versa if the Republicans take both.  At the end of the day the president has far less influence on the economy compared to the house and senate.

Investment Outlook

So based on which way you see the economy heading will affect who is in office and thus affect your future investing decisions.  I would place my bets on things getting a little choppier both in the economy and in the presidential election.  This is where I would be placing our capital in companies that have solid growth prospects in either political climate and that can offer some type of safety margin either in a dividend, large discount to fair value, or both.

We will still be managing our portfolio is a very concentrated method with some of our long-term strategies in mind.  Even though you may have a slowing world economic picture you still have a growing world population which is why we are in favor of the agriculture names.  But like anything you can’t take them all at the same face value.  Another area that I am interested in is technology especially cloud computing, security, and data management.  These are all areas in which we expect growth but these names tend to be volatile so we will proceed with caution as I urge everyone to do this upcoming quarter and for the remainder of the year.

We may have well seen our best gains behind us in 2012.  

Week 17 20120 Performance.....Bounce Back Week, Thank You Apple

It was indeed a bounce back week for the DWCM fund up 2.2% after being down for the previous two weeks thanks to a blow out earnings report by Apple $AAPL.  With this week's gains Apple now represents 12.8% of the DWCM fund by far our largest holding.  It is not my intention for one name to make up such a large position of the fund however I still believe that Apple is a name worth holding.  Over the next month I plan on getting a little more balance into the fund.

Last week we added Riverbed Technologies $RVBD a leader in network optimization and traffic after it got hammered reporting a tough quarter on weak revenue.  This is the one part of earnings season that I absolutely love where a solid company misses expectations and gets crushed.  Long-term the company is in great shape so this is a classic case of being able to pick up a name I have been watching at a discount.  Again this is where it is beneficial to have a watchlist and a little bit of patience.

Another technology name we picked up this week were options in Akamai Technologies $AKAM.  Akamai helps deliver the Internet to your tablet, pc, or smartphone device.

As I noted in our quarterly letter which you can read here we were high on agriculture and technology companies going forward.  I highlighted our thesis that even though the world economy may not be growing at a robust pace the world population continues to grow at a blistering pace.  Agriculture names are in a sweet spot to meet this current and future demand.  Another area that we see being selective in is the technology arena.  There is a tremendous amount of growth I believe in companies that are either in the cloud, data management, or security aspects of technology.

The Week Ahead
As the earnings trains rolls on this week the biggest day comes on Friday with the release of the March jobs report.  It's tough to give a good estimation as to how the week will go although the first trading day of a new month which will be Tuesday is usually an up day in the equity markets.  There is still quite a bit of other economic news in the cards so take a look below.

• Mon -  Personal Income and Outlays,  Chicago PMI,  Dallas Fed Mfg Survey,  Farm Prices
• Tue -  Motor Vehicle Sales,  ISM Mfg Index
• Wed -  Challenger Job-Cut Report,  ADP Employment Report
• Thu -  Chain Store Sales ,  Jobless Claims,  Productivity and Costs,  ISM Non-Mfg Index
• Fri -  Employment Situation

Have a great week!

Is Facebook Making Us Lonely?

Is the use of social networks driving us to increased levels of loneliness?  It's not just about the use of Facebook per say but as a whole do we loose more inter-connectedness through the use of the various social networks forms?  This Atlantic article touches on some very intriguing topics regarding our use of social networks and what we ultimately get out of them and how they make us feel.


Here are the highlights that I drew via the Atlantic piece 

• JOHN CACIOPPO, THE director of the Center for Cognitive and Social Neuroscience at the University of Chicago, is the world’s leading expert on loneliness.   “For the most part,” he says, “people are bringing their old friends, and feelings of loneliness or connectedness, to Facebook.” The idea that a Web site could deliver a more friendly, interconnected world is bogus. The depth of one’s social network outside Facebook is what determines the depth of one’s social network within Facebook, not the other way around. Using social media doesn’t create new social networks; it just transfers established networks from one platform to another. For the most part, Facebook doesn’t destroy friendships—but it doesn’t create them, either.
• “The greater the proportion of face-to-face interactions, the less lonely you are,” he says. “The greater the proportion of online interactions, the lonelier you are.” Surely, I suggest to Cacioppo, this means that Facebook and the like inevitably make people lonelier. He disagrees. Facebook is merely a tool, he says, and like any tool, its effectiveness will depend on its user. “If you use Facebook to increase face-to-face contact,” he says, “it increases social capital.” So if social media let you organize a game of football among your friends, that’s healthy. If you turn to social media instead of playing football, however, that’s unhealthy.
• “Facebook can be terrific, if we use it properly,” Cacioppo continues. “It’s like a car. You can drive it to pick up your friends. Or you can drive alone.” But hasn’t the car increased loneliness? If cars created the suburbs, surely they also created isolation. “That’s because of how we use cars,” Cacioppo replies. “How we use these technologies can lead to more integration, rather than more isolation.”

Phillip Toledano

• The problem, then, is that we invite loneliness, even though it makes us miserable. The history of our use of technology is a history of isolation desired and achieved. When the Great Atlantic and Pacific Tea Company opened its A&P stores, giving Americans self-service access to groceries, customers stopped having relationships with their grocers. When the telephone arrived, people stopped knocking on their neighbors’ doors. Social media bring this process to a much wider set of relationships. Researchers at the HP Social Computing Lab who studied the nature of people’s connections on Twitter came to a depressing, if not surprising, conclusion: “Most of the links declared within Twitter were meaningless from an interaction point of view.” I have to wonder: What other point of view is meaningful?
• The beauty of Facebook, the source of its power, is that it enables us to be social while sparing us the embarrassing reality of society—the accidental revelations we make at parties, the awkward pauses, the farting and the spilled drinks and the general gaucherie of face-to-face contact. Instead, we have the lovely smoothness of a seemingly social machine. Everything’s so simple: status updates, pictures, your wall.
• Nostalgia for the good old days of disconnection would not just be pointless, it would be hypocritical and ungrateful. But the very magic of the new machines, the efficiency and elegance with which they serve us, obscures what isn’t being served: everything that matters. What Facebook has revealed about human nature—and this is not a minor revelation—is that a connection is not the same thing as a bond, and that instant and total connection is no salvation, no ticket to a happier, better world or a more liberated version of humanity. Solitude used to be good for self-reflection and self-reinvention. But now we are left thinking about who we are all the time, without ever really thinking about who we are. Facebook denies us a pleasure whose profundity we had underestimated: the chance to forget about ourselves for a while, the chance to disconnect.

Apple Cider Makes Market Feel Better but Is No Cure

Barrons put out a piece on their technical view point of the markets which coincides with our thesis in our Q1 2012 letter that the easy gains for 2012 may have already been achieved.  The Barrons article goes into allot of Technical analysis terms that I currently do not follow but there point is clear, they are taking a cautious approach to the markets.


According to the article here, "The bottom line is that Apple's good news did not forge any technical changes for the better in the broad market. Recent trendline and moving average breakdowns remain in place and the background news—from weak durable goods orders to continued problems in Europe—has not changed."


As we have mentioned previously as April comes to an end the "sell in May, go away" strategy will come front and center.  There are definitely names in our DWCM fund that I am looking to take profits on and even close our especially in our options positions.  It may be yet another volatile summer especially given that nothing is solved in Europe.

Michael Norton: How to buy happiness

You may have noticed that I like to feature pieces on happiness.  What makes people happy, why people are happy while others are not, and how people become happy. the whole who, what, when, where, and how analysis.

Why do I focus so much on happiness because it is completely inter-related to money.  As Mr. Norton points out in this TED video that adage that money cannot but happiness is not spending money in the right way.  His analysis beams a headlight on the fact that people feel more happy when they help other people than if they buy something for themselves.

Think about how you feel when you buy something new and after a while that new car smell fades away.  But then think about a time when you gave money to a charity that you support.  I would bet there are two distinct feelings between spending money on one vs. the other.

Having money is not bad which is how I feel that people of wealth or those who have money are being portrayed in the media, the infamous 1%.  It's what you do with your money that counts.  I'm not suggesting that the only way to be happy is to just give it all away but building wealth is something that I believe we all can strive for which would be for not only ourselves but the communities that we live in and help support.

Half of new graduates are jobless or underemployed

I'm currently working on a piece that covers the long-term unemployment issue but another very concerning topic is the situation faced by new graduates.  With college loan debt exploding at an alarming rate see [Student-Loan Debt Near $1 Trillion] and [“Student Loan ‘Debt Bomb"] how does one find a job with a degree that doesn't fit today's job market?  Without the ability to have a sustaining career to pay off debt there is trouble on the horizon for the economy because these younger people cannot afford to save for a house, automobile, or retirement.


USA Today is out with a piece covering this exact issue detailing the plight of the unemployed or under employed new graduate. Highlights from the story are below:

• While there's strong demand in science, education and health fields, arts and humanities flounder. Median wages for those with bachelor's degrees are down from 2000, hit by technological changes that are eliminating midlevel jobs such as bank tellers. Most future job openings are projected to be in lower-skilled positions such as home health aides, who can provide personalized attention as the U.S. population ages.
• Perhaps more than ever, the choices that young adults make earlier in life — level of schooling, academic field and training, where to attend college, how to pay for it — are having a long-lasting financial impact.
• "You can make more money on average if you go to college, but it's not true for everybody," says Harvard economist Richard Freeman, noting the growing risk of a debt bubble with total U.S. student loan debt surpassing $1 trillion. "If you're not sure what you're going to be doing, it probably bodes well to take some job, if you can get one, and get a sense first of what you want from college."

• Andrew Sum, director of the Center for Labor Market Studies at Northeastern University who analyzed the numbers, said many people with a bachelor's degree face a double whammy of rising tuition and poor job outcomes. "Simply put, we're failing kids coming out of college," he said, emphasizing that when it comes to jobs, a college major can make all the difference. "We're going to need a lot better job growth and connections to the labor market, otherwise college debt will grow."
• About 1.5 million, or 53.6%, of bachelor's degree-holders under the age of 25 last year were jobless or underemployed, the highest share in at least 11 years. In 2000, the share was at a low of 41%, before the dot-com bust erased job gains for college graduates in the telecommunications and IT fields.
• According to government projections released last month, only three of the 30 occupations with the largest projected number of job openings by 2020 will require a bachelor's degree or higher to fill the position — teachers, college professors and accountants. Most job openings are in professions such as retail sales, fast food and truck driving, jobs which aren't easily replaced by computers.

4 Behaviors That Sabotage Your Investment Goals

Investorpedia.com which we use to house our DWCM fund puts out a good variety of information covering a range of financial and investment topics.  One that caught my eye are some bad behaviors to avoid in order to achieve your financial goals and objectives.  Although these may seem like common sense I think that they bear repeating.


Via the article here are 4 key financial behaviors to avoid

1. Paying Yourself Last
2. Not Maxing out Tax-Advantaged Accounts
3. Paying Too Many Investment Fees
4. Buying High and Selling Low

The Bottom LineIt's easy to blame the market for an underperforming portfolio - and sometimes the market truly is to blame - but a series of small human errors based on bad habits, inattention or emotion can also preclude achieving your goals. Even if you think these four concepts are firmly ingrained, examine your portfolio statements and make sure you're not accidentally putting these bad behaviors into practice. If these concepts are new to you, you may have found some easy solutions to a seemingly mysterious problem. 

Taking the long view, Amazon's Jeff Besos

Jeff Bezos, CEO and founder of Amazon.com who was just featured in a Fortune piece [The 12 Greatest Entrepreneurs of Our Time] as the 4th greatest entrepreneurs of our time was recently the topic in an Economist story.  The topic of the piece centered around Bezos' ability to look beyond the short-term view of things.


Bezos is trying to create an ecosystem that matches Apple but instead of charging a niche price for the products to get people into the Amazon universe, Bezos is letting his products go with little to no margin such as the Kindle line of products.  The thought process is that people will begin to use the Kindle and then become so far  ingrained that they won't turn back to another product say the iPad.


While Besos may have a long-term view and patience, I'm not sure that Wall Street does.


Via the Economist

• The founder and chief executive of Amazon has often ruffled investors’ feathers by sacrificing short-term profits to make big bets on new technologies that, he insists, will produce richer returns for the company’s shareholders in future. He laid out this philosophy in his first letter to shareholders, penned in 1997, which was entitled “It’s all about the long term”.
• Some of these gambles have paid off handsomely, transforming Amazon from an online retailer of books and other physical products into a technology behemoth with $48 billion of revenues in 2011 and strong positions in fields from cloud computing to tablet devices. They have also enhanced Mr Bezos’s reputation as a technological seer. “In the last few years there has been a re-acceleration of the rate of change in technology,” he says. His impressive ability to identify and profit from the resulting disruptions means he is widely seen as the person best placed to fill the shoes of the late Steve Jobs as the industry’s leading visionary.
• “A big piece of the story we tell ourselves about who we are is that we are willing to invent,” Mr Bezos told shareholders at Amazon’s annual meeting last year. “And very importantly, we are willing to be misunderstood for long periods of time.”
• More recently, financial analysts have grumbled about the company’s wafer-thin margins and the hefty investment it is making in its Kindle range of e-readers, the most advanced of which, the Kindle Fire, is a fully fledged tablet computer. Amazon’s move into hardware with the original Kindle, launched in 2007, was another unexpected move. The devices have proved wildly popular, but Mr Bezos has kept details of sales figures and profitability secret. The assumption is that Amazon is trading short-term profits in order to establish its dominance in the booming e-book market. But nobody really knows. “Investors are paying a lofty premium for a company whose investment cycle is going to extend a decade and which offers limited visibility,” says Colin Gillis of BGC Partners, a brokerage firm.
• “There is room for many winners here,” he says. But he believes Amazon can be one of the biggest thanks to its unique culture and capacity for reinventing itself. Even in its original incarnation as an internet retailer, it pioneered features that have since become commonplace, such as allowing customers to leave reviews of books and other products (a move that shocked literary critics at the time), or using a customer’s past purchasing history to recommend other products, often with astonishing accuracy.

• Amazon’s culture has been deeply influenced by Mr Bezos’s own experiences. A computer-science graduate from Princeton, he returned to his alma mater last year to give a speech to students that provided some fascinating insights into his psychology as an entrepreneur.  
• n the 1990s he hesitated to leave a good job in the world of finance to set up Amazon after a colleague he respected advised him against it. But Mr Bezos applied what he calls a “regret minimisation framework”, imagining whether, as an 80-year-old looking back, he would regret the decision not to strike out on his own. He concluded that he would, and with encouragement from his wife he took the plunge as an entrepreneur. They moved from New York to Seattle and he founded the company, in time-honoured fashion for American technology start-ups, in his garage.
• If Amazon does one day move into bricks-and-mortar retail, it would not be the first time that Mr Bezos had taken a leaf from the book of Jobs. Like Apple’s visionary leader, he has a strong sense of showmanship, which was on display at the carefully choreographed launch of the Kindle Fire last year. Mr Bezos can also be an intense and demanding manager. But most importantly, he shares with Mr Jobs an innate understanding of the importance of thinking about high-tech products from the customer’s point of view.
• Similarly, with the Kindle Fire, Mr Bezos recognised that a tablet computer designed chiefly for consuming entertainment content is no use unless there is plenty of such content available. For many other tablet manufacturers, the question of getting content onto their devices seems to be an afterthought; but Amazon, like Apple, has assembled an ecosystem of books, apps, video and music to accompany its device. Moreover, Amazon can use cross-subsidies from the sale of digital content to keep the price of the Fire down, something that rival tablet-makers who do not sell content cannot do. Once again, Mr Bezos is playing a long-term game in the hope of establishing the Fire as the main rival to the iPad.
• Staying on top in the fast-changing world of technology is hard, too. Mr Bezos is bound to be the target of more criticism as his company’s hefty investments in new areas continue to put a dent in its bottom line. His next move could be into smartphones or a video-streaming service that competes with Netflix, but it is just as likely to be something entirely unexpected. By being unusually patient, he hopes to create businesses that rivals will find harder to assail.

Apple Bites Back

Well if you hadn't heard today Apple $AAPL came screaming back today up almost 9% recovering most of the loses from the past week plus on record setting earnings that blew past even the most aggressive forecasts.  


The tough aspect about owning Apple is that on a valuation basis using fundamental analysis you can argue that the stock is still relatively cheap even though it has exploded higher by some 72% over the past year.  But Apple has become such a barometer of the entire market that it makes it uncomfortable to own because it doesn't necessarily trade on it's own accord and merit.


Here are the earnings highlights

• Profits up 94% over previous year.  Profits were $11.62 billion, or $12.30 a share, up from $5.98 billion, or $6.40 a share, a year earlier. Revenue increased 59% to$39.19 billion, with 64% of the top line coming from international sales.
• In January, the company projected earnings of about $8.50 a share on revenue of about $32.5 billion, above Wall Street's estimates at the time. Analysts had forecast a per-share profit of $10.04 and revenue of $36.81 billion.
• Highest Mac, iPhone, iPad sales in a March quarter
• Gross margin widened to 47.4% from 41.4%, and above the company's recent high of 44.7%.
• Sold 35.1 million iPhone units last quarter, up 88% from the prior year's total
• "For the first half of the fiscal year, we have sold more than 72 million iPhones, growth of over 100% and above the market by two times," Chief Financial Officer Peter Oppenheimer said in an interview."We continue to see tremendous momentum in greater China where Iphone sales were five times the level of the year-ago quarter, aided by the launch of the iPhone 4S in China in January and the addition of China Telecom as a carrier in March," Oppenheimer said on the company's conference call.

• Sold 11.8 million iPad units more than double from a year earlier. Sold a record 3 million "new" iPads in the product's first weekend of sales.
• "Demand is staggering, and we're selling them as fast as we can make them," Oppenheimer said, possibly easing any concerns from those expecting higher iPad sales. Many analysts had projected iPad sales above 12 million for the March quarter.
• Generated more than $14 billion in cash flow from operations in the second quarter and reported about $ 110.18 billion in overall cash holdings
• Oppenheimer said that because Apple was able to fulfill so much demand for its iPhones and iPads in the March quarter, it would likely sell less than it would have in the June quarter. But, he added, demand for the iPad is still outstripping supply.

Federal Reserve issues FOMC statement

See press release below of FED statement today, sound sot me like more of the same.  The real news is that it doesn't sound like QE3 is on the table and the markets are still in rally mode this afternoon.  Give it some time though because without easy money the markets will likely become unsteady.

Link here

Release Date: April 25, 2012

For immediate release

Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014. 

The case against Lehman Brothers

Caution, watching this 60 Minutes piece from this past weekend may cause anger, confusion, and a loss of your emotions.  Since the financial crisis which started in 2007 there have been no prosecutions for those involved in the events that almost single handily brought the country to the brink of a meltdown.

What is just as preposterous is that according to this story the government seems reluctant to go after the people responsible even though they carry the facts and documents to support prosecution.  Why?  Because the SEC was setup in offices at Lehman Brothers as everything was falling down giving a thumbs up that everything was okay.

Is Pinterest the next Facebook

Pintereest CEO Ben Silbermann was featured in the latest April Fortune edition as the newest social media sensation.  According to the piece Pinterest has ranged from 40% to 50% in new subscribers each month since inception which began in May 2011.  We had a feature post on Pinterest last month [Pinterest's Rite of Web Passage—Huge Traffic, No Revenue] in which we focused on there huge traffic growth but detailed how there were no revenues just like so many other social media sites.  Eventually Pinterest will determine a way to monetize their business which is currently valued around $200m.

Via the Fortune article here

• Pinterest, for the uninitiated, is a deceptively simple-sounding, insanely addictive social media site that lets users collect and share images on digital pinboards. Most social-networking sites have first become popular among tech's early adopters along the country's coasts. But Pinterest found its most passionate users among the Midwestern scrapbooking set -- a mostly female group -- who have turned to it to plan weddings, save recipes, and post ideas for kitchen renovations.
• Silbermann seems to be maintaining an almost eerily level head about Pinterest's success as well as the stress of running Silicon Valley's current "it" company. He talks so quietly that during our conversation I felt compelled to drop my own volume to match his. His eye is always on the wall-mounted flat screen that displays real-time data about how pinners are using the service. He takes a regular turn at answering customer-support e-mails, a mundane task that, he says, helps him make Pinterest even better. And while Pinterest's Palo Alto digs feature a poster with the words move fast and break things, a mantra at Facebook, Silbermann talks about Pinterest the way one talks about a fragile heirloom. "When you open Pinterest, it should feel like someone has hand-made a book for you," he explains. "Every item should feel like it's handpicked for you by a person you care about."
• Silbermann took a somewhat circuitous path to Internet stardom. The son of doctors from West Des Moines, Iowa, he collected things -- stamps, leaves, insects -- as a child. His sisters became doctors, and he was premed at Yale and majored in political science. Upon his 2003 graduation, he moved to Washington, D.C., where he took a "cube job" running data for a consultancy. That was right around the birth of Web 2.0, and he became hooked on tech blogs. He remembers the first time he stumbled across TechCrunch. Something was happening in Silicon Valley. He wasn't a coder, but he was a huge history buff, and he fell in love with the romantic notion that the Internet defined his generation. "It felt like this was the story of my time, and I just wanted to be close to it," he says. He and his girlfriend (now his wife) moved across the country to Palo Alto, where she became a recruiter at Facebook and he got a job working in customer support and sales at Google

• Essentially, Pinterest excels at something that's very hard to do on the web -- help people discover new things. If you can name what you want, after all, Amazon (AMZN) and Google are pretty good tools for helping you find it. But what if you don't know what you want? Social-networking sites have helped businesses influence people, but they are imperfect. People use Facebook and Twitter to talk to each other, not necessarily to discuss things they might want to buy. In contrast, Pinterest users are more often in a shopping mindset when they are using the service. If you're keeping a pinboard called "Spring handbags I'm considering," there's a good chance you'll click through and make a purchase.
• At this point, businesses can't spend money marketing on Pinterest even if they want to; Silbermann is not ready to talk about how he plans to make money off it. Targeted ads seem like a no-brainer, and new hire Kendall is sure to have some ideas for how to help companies better reach consumers on the site. But Pinterest also could become a platform for would-be entrepreneurs seeking to cash in on their hobbies, much the way eBay (EBAY) unleashed a new class of mom-and-pop vendors.

The 12 Greatest Entrepreneurs of Our Time

Fortune in one of it's latest issues name the 12 greatest entrepreneurs of our time.  The list was composed by John Byrne author of  World Changers: 25 Entrepreneurs Who Changed Business as We Knew It.  Byrne readily admitted that the list is subjective and that he based it largely on social and economic impact; the world-changing vision of a founder who has inspired employees and other entrepreneurs alike; a record of innovation; and the actual performance of their companies over time. Most notably there are no woman that made the list, most notable Oprah Winfrey.

Below is the list in numerical order, select here for the Fortune article

1. Steve Jobs
2. Bill Gates
3. Fred Smith
4. Jeff Bezos
5. Larry Page and Sergey Brin
6. Howard Schultz
7. Mark Zuckerberg
8. John Mackey
9. Herb Kelleher
10. Narayana Murthy
11. Sam Walton
12. Muhammad Yunus

Hoisington First-Quarter Review and Outlook

This week John Mauldin's Outside the Box features Hoisington First-Quarter Review and Outlook.  As is typically the focus there is much detail surrounding the current US debt situation and the crisis that surrounds it in a lack of leadership in order to make some tough decisions.


Highlights from the piece (See full PDF version below)

• The standard of living of the average American continues to fall. Real median household income today is near the same level as it was fifteen years ago, a remarkable statistic since the debt to GDP ratio is 100 points higher (Chart 1). The cause of this deterioration in living standards can be traced to the excessive accumulation of debt, as well as the debt proportion that has turned increasingly unproductive, or even counterproductive. When debt is utilized to finance nonproductive assets, an economic process is initiated that undermines prosperity. Productivity gains must be generated in order to boost income, and thereby the standard of living. If debt enhances productivity, incomes will expand and the economic pie will be enlarged. Otherwise, the debt increase exercise is debilitating to economic growth.
• The negative feedback loop arising from the unproductive nature of this debt accumulation is straightforward.  First, United States government spending carries a zero expenditure multiplier, as do operating expenditures of state and local governments.  Thus, each dollar spent by the federal government creates no sustainable income, yet the interest payment incurred with each borrowed dollar creates a subtraction from future revenue streams of the private sector.  Second, much of the massive debt increase over the past decade has been in the form of mortgage debt.  Jobs and income were created with the expansion of the housing stock.  However, no productivity gains are evident in this housing stock increase, which means future incomes have not expanded.  Nevertheless, the repayment of principal and interest weighs down the system, and the consequences of delinquency, foreclosure, default and bankruptcy compound the problem.
• Third, debt that is utilized to finance consumers’ daily needs obviously fails to generate any productivity or future income growth.  Efforts by fiscal and monetary authorities to sustain growth by further debt accumulation may produce some short-term benefit.  Sadly, these interludes fade quickly as the debt becomes more destabilizing.  The net result of increased indebtedness then becomes the opposite of what policymakers intend when they promote economic growth by either borrowing funds for increased government expenditures or encourage consumers to borrow with artificial and temporary incentives.
• There is a longer-term negative feedback loop that has been referred to as the “bang point” by economists Reinhart and Rogoff, and it occurs when government or private borrowers are denied access to further credit because the marketplace has no confidence that new or existing debt can be repaid.  At this point interest rates soar and debt issuance becomes impractical; therefore, the government or private borrower is forced to live on current revenues.  As recent cases in Europe have documented, this is painfully disruptive, with high social costs.  We do not believe this point is at hand for the United States, but it has occurred many times historically, including in contemporary Europe.  If it were to happen in the U.S. now, the consequences would be traumatic since 42 cents of every dollar spent by the federal government in the first six months of the current fiscal year was borrowed.  The chaos that would be created by a reduction in federal government spending of 42% is unimaginable.
• Contrary to common wisdom,  monetary and fiscal policy actions that spur growth by increasing debt may buy transitory gains in some measures of economic activity, but they perpetuate this disequilibrium. Increasing debt merely makes the economy more vulnerable to economic weakness and potential instability because income growth is stunted or, as previously stated, over-indebtedness cannot be cured by more debt.  Periods of over-indebtedness change the sacrosanct rules of thumb of business cycles.  The conventional wisdom of business cycle analysis that suggests five to seven good years followed by one to two bad years is broken.  Normal risk taking is not rewarded.

The Brain on Love

What we pay attention to the most is what defines us is the message behind a NYT article titled The Brain on Love.  It goes onto subscribe that how you choose to spend your irreplaceable hours in your life literally transforms who you are.


I'm always interested on topics regarding the brain and how you can become more aware of decisions and why you make them.  Asset management involves a thorough understanding of why you buy an asset and why and just as important when.  Do you sell when everyone else is selling, in a panic, or do you have a methodical approach where you can put emotions to the side?  Understanding your emotions and how your brain is wired is a critical aspect of being a good investor.


Via the NYT Piece

• All relationships change the brain — but most important are the intimate bonds that foster or fail us, altering the delicate circuits that shape memories, emotions and that ultimate souvenir, the self.
• But as a wealth of imaging studies highlight, the neural alchemy continues throughout life as we mature and forge friendships, dabble in affairs, succumb to romantic love, choose a soul mate. The body remembers how that oneness with Mother felt, and longs for its adult equivalent.
• Love is the best school, but the tuition is high and the homework can be painful. As imaging studies by the U.C.L.A. neuroscientist Naomi Eisenberger show, the same areas of the brain that register physical pain are active when someone feels socially rejected. That’s why being spurned by a lover hurts all over the body, but in no place you can point to. Or rather, you’d need to point to the dorsal anterior cingulate cortex in the brain, the front of a collar wrapped around the corpus callosum, the bundle of nerve fibers zinging messages between the hemispheres that register both rejection and physical assault.
• But a loving touch is enough to change everything. James Coan, a neuroscientist at the University of Virginia, conducted experiments in 2006 in which he gave an electric shock to the ankles of women in happy, committed relationships. Tests registered their anxiety before, and pain level during, the shocks.
• Then they were shocked again, this time holding their loving partner’s hand. The same level of electricity produced a significantly lower neural response throughout the brain. In troubled relationships, this protective effect didn’t occur. If you’re in a healthy relationship, holding your partner’s hand is enough to subdue your blood pressure, ease your response to stress, improve your health and soften physical pain. We alter one another’s physiology and neural functions.

• However, it’s not all sub rosa. One can decide to be a more attentive and compassionate partner, mindful of the other’s motives, hurts and longings. Breaking old habits isn’t easy, since habits are deeply ingrained neural shortcuts, a way of slurring over details without having to dwell on them. Couples often choose to rewire their brains on purpose, sometimes with a therapist’s help, to ease conflicts and strengthen their at-one-ness.
• A happy marriage relieves stress and makes one feel as safe as an adored baby. Small wonder “Baby” is a favorite adult endearment. Not that romantic love is an exact copy of the infant bond. One needn’t consciously regard a lover as momlike to profit from the parallels. The body remembers, the brain recycles and restages.
• So how does this play out beyond the lab? I saw the healing process up close after my 74-year-old husband, who is also a writer, suffered a left-hemisphere stroke that wiped out a lifetime of language. All he could utter was “mem.” Mourning the loss of our duet of decades, I began exploring new ways to communicate, through caring gestures, pantomime, facial expressions, humor, play, empathy and tons of affection — the brain’s epitome of a safe attachment. That, plus the admittedly eccentric home schooling I provided, and his diligent practice, helped rewire his brain to a startling degree, and in time we were able to talk again, he returned to writing books, and even his vision improved. The brain changes with experience throughout our lives; it’s in loving relationships of all sorts — partners, children, close friends — that brain and body really thrive.
• During idylls of safety, when your brain knows you’re with someone you can trust, it needn’t waste precious resources coping with stressors or menace. Instead it may spend its lifeblood learning new things or fine-tuning the process of healing. Its doors of perception swing wide open. The flip side is that, given how vulnerable one then is, love lessons — sweet or villainous — can make a deep impression. Wedded hearts change everything, even the brain.