Sunday, February 23, 2014

Tigers, the minimum wage and like rip offs

Martin Phillipps of the Chills might be afforded some respect since  in his admitting that, having some 20 years ago written a song about the imminent disappearance of tigers from the planet and finding that, in fact, there are plenty of tigers still around, he feels rather “ripped off” (Radio NZ – Sunday Morning).

This is not unlike reading the US Congress latest analysis of the likely impacts of lifting the minimum wage law in the US to $10.00 (U.S.) an hour which in their analysis (bearing in mind they are charged with producing a non-partisan assessment) which shows that the increase would entail:

  • the loss of around 500,000 jobs
  • benefit some 19% of those on the US poverty line
  • that 29% of those benefiting have incomes three times the  poverty rate, and,
  • amongst the rest, those with jobs fall in between these levels.

Not being an exact science levels vary of course. Jobs lost could for instance vary – between 200,000 and 1,000,000 they note (see Mankiw and link).

Saturday, February 22, 2014

The value of successful succession

One of the more difficult business challenges is to engineer succession between generations (especially in family businesses)such that value is preserved. As in so many other areas Walmart is an example of getting it right:

It's important to note the incredible growth of Walmart AFTER Alice, Jim, Christy, and S. Robson Walton inherited ownership of the chain.

Walmart in 1992 (year of Sam's death)
Revenue - $43 billion (or $127 billion in 2013 dollars)
U.S. stores - 1,922
International stores - 8 (Mexico and Canada)

Walmart in 2013
Revenue - $466 billion
U.S. stores - 4,005
International stores - 6,148 (26 nations)

What did the Walton heirs do after Sam's death? They continued to risk their original inheritance, plus the much greater earnings since then, invested in the company they believed in. They continued to select talented leaders who successfully earned the trust of hundreds of millions of customers. They approved the many important strategic moves offered by those leaders over the past 22 years.

Assembled by John Dewey – commentator Cafe Hayek.

Governance which develops workable succession processes thus has the potential to add greatly to value retained – and grown.

Monday, February 17, 2014

Let even a little sun shine in…

One day solar power may be sufficiently cost efficient in terms of both operations and capital, to be viable on a widespread basis. On that day I have no doubt whatsoever that the entire of the construction and related sectors will utterly bombard the populace with its merits – and profit accordingly.

Meantime, if the current worthiness of solar heating was even remotely close to being of the value suggested by the Brisbane originating co leader of the Greens, folk would be flocking and there would be no need for any form of subsidy.

Does he genuinely believe that he and fellow Green persons are the only ones in the land with a miracle insight into solar power economics which eludes all the rest of the population – and will continue to elude them unless and until their taxes are used as subsidies to offset this massive over sight?

A close to first rule in economics is to observe what people do rather than listen to what they say. I am watching Normanomics.

Friday, February 14, 2014

Confused logic –> unjustified advice

The following is an extract from a securities advisory letter. It is from one of the most respected advisors on Wall Street. It is also an example of how utterly confused even the departure point for the logic can be:

This week battle lines were drawn between those claiming nothing but blue skies ahead versus those emphatically stating the market is overvalued by most historical measures.

Ok… so the logic here is that stocks might be over or under valued. No argument except that the statement makes no sense until we ask “compared with what?”.

Compared with “historical measures”  for one group it seems. Fair enough – so that is the measure.

Yet even the valuation hawks had to admit that there is no other viable investment alternative right now for those who want a decent rate of return.

And in here it all comes unstuck. Somehow “viable investment alternative(s)“ have entered the equation. This is either an unrelated comparator or the question has changed from “are stocks overvalued” to “what is a viable investment alternative”.

There is also

“for those who want a decent return”.

So over / under valuation seems now (in addition to the two comparators we already have) a matter of returns.

We also seem to have returns which are “decent” and “poor” (assuming indecent returns is not the focus) – and no idea what “decent might mean”.

Combine that with a lack of a negative catalyst (recession or Risk Off scare) and they reluctantly agreed that stocks will likely move higher before lower.

Now add in “the absence of evidence” as yet another consideration – impending doom or the lack there of seems to be relevant as a measure of over valuation.

Ok – its no big deal that there are lots of variables we might talk about. It is a big deal to miss the point that the conflation of all of these ideas into a blurry mix where every variable measures some relative not absolute condition means that conclusions such as this:

you should have a little more eye towards stocks trading at reasonable valuations to increase your odds of success.

simply cannot be justified but do imply that the form of reasoning used is a viable means for making decisions. It isn’t. Don’t.

Tuesday, February 11, 2014

Of electricity and apples

On another grim note I see the Greens have concluded that people are simply “paying too much” for electricity. This conclusion apparently arises since:

- Demand is dropping

- Clearly no investor is making a fortune out of the sector

- Inflation is running at 1%

- Power prices are rocketing along at 3% or so

- Even the absence of competition can’t account for it

- And NZ has the highest switching rate in the world

Obvious conclusion apparently is, “simply paying too much”.   How could this be? Moreover how will a totally centralised supply commissariat stop these errant fools paying “too much”.

I believe God may have told Adam he “paid too much for it” as well… mind you the Apple and Pear Board never believed him.