Category: Flourishing Article

Social Security Online

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing June 2012

Social Security statements are now sent out only annually to workers age 60 and older.  On May 1, 2012, Michael J. Astrue, Commissioner of Social Security, announced that an online version of the Social Security Statement is now available. 

“Our new online Social Security Statement is simple, easy-to-use and provides people with estimates they can use to plan for their retirement,” Commissioner Astrue said. “The online Statement also provides estimates for disability and survivors benefits, making the Statement an important financial planning tool.  People should get in the habit of checking their online Statement each year, around their birthday, for example.”

In addition to helping with financial planning, the online Statement also provides workers a convenient way to determine whether their earnings are accurately posted to their Social Security records.  This feature is important because Social Security benefits are based on average earnings over a person’s lifetime. If the earnings information is not accurate, the person may not receive all the benefits to which he or she is entitled.  The online Statement also provides the opportunity to save or print the personalized Statement for financial planning discussions with family or a financial planner.*

To view your social security statement online, you must first create an account at:

 

http://www.socialsecurity.gov/mystatement/. 

 When you arrive at this website, click on the Sign In or Create An Account button.  On the next screen, click  Create An Account.  After agreeing to the Terms of Service, click the Next button.  You will now need to enter your personal information; your name, social security number, date of birth, home address, and primary telephone number.  When you’re finished, click Next.  The next screen will ask you some questions to confirm your identity.  These questions are derived from information found at Experian (the credit bureau) and may contain questions about loans outstanding or insurance you have purchased.  Then click Next again.  You will be asked to create a username and password, and to enter your email address.  You will also need to complete some security questions, so you can still get to your account if you forget your password.  Click Next. 

Congratulations!  You account is now set up and ready to access.  Click on Next to log in for the first time.  You will need to agree to the Terms of Service one more time then click Next.  After entering your username and password, you will be able to view your statement of benefits.  ab

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* Source:  https://www.socialsecurity.gov/pressoffice/pr/ss-online-statement-pr.html

The End of the Euro? Not the End of the World!

by Helping Families Flourish, posted in Flourishing Article

 

Originally published in Flourishing June 2012 

Some months back, I wrote that the Eurocurrency and the European Union could go the way of the Dodo—that is, they could become extinct species.  We  seem to be  getting closer to that virtually inevitable day.   The financial media report on this as a bad thing only, because it may induce cataclysmic (temporary) market disruptions and a wretched (warranted) decline in European living standards.  But, there is more to the story. 

The good news in this “crisis” is—as noted by Nick Murray—that lessons will be learned.   To which I must add—perhaps somewhat less tactfully—the macro lesson of the European debt crisis is that it is the perfectly logical come-uppance of a collectivist/socialist philosophy of government.  As the “Iron Lady” Margaret Thatcher has said, “The problem with socialism is that—sooner or later—you run out of other people’s money.”

Unlike the governments of the European Union—or our own federal government for that matter—American businesses have reduced unproductive spending, paid down debt, and emerged from the recent recession better equipped than ever to produce the goods and services demanded by consumers.  Non-financial U.S. corporations have reduced their debt from 83% of GDP to 77%.  Financial sector debt has declined from 123% of

GDP to 89%.  Similarly, household debt has declined from 98% of GDP to 84%.1   In one simple, but telling, example of cost-cutting, UPS is getting more deliveries from existing resources just by eliminating left turns from its trucking routes.  Just as the business philosopher W. Clement Stone taught us, “Little hinges swing big doors.”

You may have heard that Americans don’t manufacture anymore.  It’s not true.  In 2011, for example, a GE gas–turbine plant in South Carolina built and shipped ninety units to foreign markets, each with a price tag north of $25 million.  Total American exports to China alone exceeded $104 billion in 2011, more than double the $41.2 billion we shipped to them in 2005.  Don’t forget about food; in 2011, the U.S. exported $136 billion in agricultural products.2

But wait!  We’re just getting started with the good news.  The April 21st-27th edition of The Economist featured a 14-page “Special Report: Manufacturing and Innovation” in which it described “a third industrial revolution”.  The report notes that although the U.S. and China are about equal in manufacturing output in dollar terms, the U.S. achieves its production with 10% of the workforce required in China.  So, as wages continue to rise in China and other developing countries, America’s superior technology will make the American worker more competitive than ever.  And, Susan Hockfield of MIT says that American productivity may seem to mean fewer jobs, but jobs created by the huge supply chain needed to support automated American manufacturing will more than make up for fewer feet on the factory floor.  She also reports that there is a growing demand for post-sale support workers; 10-year auto warranties require skilled local technicians, for example.

The “Special Report” also describes digital 3-D printing—an incredible new manufacturing process.  In one example, a factory in Rock Hill, South Carolina is printing parts for consumer products, like electric drills, dashboards for cars, lampshades, and—hang on to your hat—artificial human body parts. The materials that can be printed now include plastics, ceramics, and many metals.  Food can be printed (CornellUniversity researchers are printing cupcakes).  Simple living tissues like skin, muscle, and short stretches of blood vessels can be printed; and someday, whole body parts might be printed, using the patient’s own stem cells as a digital program to circumvent—or at least reduce—the body ‘s natural tendency to reject transplants.

[Go to http://www.businessweek.com and read how “programmable matter” may create devices that can “evolve” by changing their own physical structure, morphing, for example, from wrench to antenna to tripod.  Prepare to freak out.]

More down to earth, and perhaps more relevant, is the fact that operating earnings of the S&P 500 companies came in at $98.57 last year, 17% better than 2010, and more than 12% better than the previous high, set in 2006.  That may not seem significant, until you realize that the S&P 500 Index closed out 2011 at 1257.60, still 14% lower than where it was on December 31, 2007 (1466.36).  Operating earnings for 2011 were nearly double the operating earnings at the depth of the recession in 2008 ($49.51), and 75% greater than at the peak of the tech bubble in 2000 ($56.13).  In the last twenty years, operating earnings of the S&P 500 companies have nearly quintupled, while the S&P 500 Index itself has not quite quadrupled.  The consensus estimate for 2012 earnings is $103.06, and for 2013, $112.82.3  It is axiomatic that stock prices track corporate earnings—sometimes anticipating them, sometimes lagging.  So, stay attuned to corporate earnings.

Now, you may fairly ask, “If things are so good, why is unemployment so stubbornly high?”  I’ll leave that question to your imagination and/or analysis; and I’ll give you my answer next month.  For now, I’m merely suggesting that you not look to the future through the lens of chronically dysfunctional government behavior, which has nearly always come-a-cropper; nor to the daily short-attention-span theater of the financial media; but to the long-term performance of America’s and the world’s best managed, most innovative companies.   mh

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http://finance.yahoo.com/news/u-debt-load-falling-fastest-040045522.html

Daniel Gross, http://www.thedailybeast.com/newsweek/

S&P 500 data provided by University of Pennsylvania (Wharton School) Finance Professor Jeremy Siegel at    http://www.jeremysiegel.com/; subscription required.

A Notable June Birthday

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing June 2012. 

Claude Frédéric Bastiat was born on June 29, 1801 inBayonne,France, located on theBay of Biscaycoast. 

Orphaned at the age of nine, Bastiat was raised by his paternal grandfather.  During his teen years  Frédéric worked in his uncle’s export business, and while there, he developed an interest in economics.  When he was twenty-four, his grandfather died, leaving his entire estate to young Frédéric.

Influenced primarily by Adam Smith and Richard Cobden, Frédéric spent his remaining years developing his understanding of economics, and he became famous in his own right as a brilliant economic essayist.  His most popular work was his satirical “Candlemakers’ Petition”, in which he mockingly called for the government to outlaw open windows and the Sun; published as part of the larger Economic Sophisms, published in 1845. 

In his most important work, The Law, published in 1850, Bastiat asserted (like our Founders before him)  that the sole purpose of government is to defend and protect the right of an individual to life, liberty, and property. From this definition, he concluded that the law cannot defend these things if it promotes socialist and interventionist policies; they are diametrically opposed to individual liberty.  In this way, he wrote, the law is turned against the very things it is supposed to defend.  

One hundred and sixty-two years later, we are about to find out whether and/or to what degree the U.S. Supreme Court agrees with Bastiat, when it hands down its decision on the Patient Protection and Affordable Care Act (Obamacare) later this month. 

Wouldn’t it be a delicious coincidence if a decision to throw out that Act were announced on Bastiat’s birthday?  I think so, anyway.   mh

A Notable Spring Birthday

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing April/May 2012. 

Friedrich August von Hayek was born in Vienna, Austria on May 8, 1899.  A prolific author, he made fundamental contributions in political theory, psychology, and economics. In his book Commanding Heights (1998), Daniel Yergin called Friedrich Hayek the “preeminent” economist of the last half of the twentieth century.

The major problem for any economy, Hayek argued, is how people’s actions are coordinated. He noticed, as Adam Smith had, that in a free market, the spontaneous price system did a remarkable job of coordinating people’s actions, even though that coordination was not part of anyone’s intent.

By “spontaneous” Hayek did not mean that prices were unplanned; rather, he meant that they are planned by each independent economic actor, based on his own unique circumstances, rather than by a central planning authority.  In other words, the current state of the market was not designed by anyone, but evolved slowly as the result of voluntary human interactions.

One cause of unemployment, he said, was increases in the money supply by the central bank. Such increases, he argued in Prices and Production (1931), would drive down interest rates, making credit artificially cheap. Businessmen and consumers would then make capital investments and long-range purchases that they would not have made if they had understood that they were getting a distorted price signal from a manipulated credit market.

Hayek died in 1992, but his theories, gleaned from events of the 1920s and 1930s, have proved prescient in the bursting of the Tech Bubble and the Housing Bubble. mh

Fishing for the Truth

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing April/May 2012.

It’s been said that a fish is unaware of the water in which he lives.  Similarly, many Americans have no awareness of the nature or institutions of capitalism, which make modern life the miracle it has become.  Ignoring pandemic corruption in government, and thanks to swarming political demagogues, abetted by a similarly corrupt and swarming mainstream media, many people see only instances of corruption on Wall Street and conclude that capitalism itself is corrupt.

This brings up an interesting question:  Why do even the avowed anti-capitalists rely so thoroughly on the products and institutions of capitalism?  They do it, because – as a fish lives in water – they have no choice.  Capitalism and its institutions are how human beings deal with each other spontaneously, naturally, rationally, and harmoniously.  The alternative, as history testifies – and much of Europe shows currently – is not some other viable and lasting system, but mob violence and the virtual collapse of all economic activity. 

Capitalism is the system used by anyone who wants to get things done through peaceful and voluntary cooperation with others.  Even where it has to work outside of the law, capitalism still finds some kind of traction.  Indeed, this underground capitalism, the global black market, has grown into a vast $10 trillion shadow superpower1.  We’re not talking drug dealers and human traffickers here, but networks of peaceful entrepreneurs quietly trading everything from sand and shovels to haircuts and hosiery. 

This underground capitalism is one of the world’s largest employers.  Nearly two billion people are working in jobs that are neither registered nor regulated2. They are usually paid in cash and they are frequently avoiding income taxes.  At best, this is a primitive form of capitalism, and the inexhaustible Peruvian economist Hernando de Soto3 has repeatedly shown that this is the price paid by corrupt and over-regulated economies for ignoring the virtues of free markets and the institutions of capitalism, including – most notably for de Soto – property rights and the institution of bank lending, which those rights engender.

However, we’re talking about America, the world’s most sophisticated economy.  So, suppose an American entrepreneur begins by borrowing against his savings or other valuable and legally titled assets at his local community bank; and that as his business grows, he decides to incorporate and sell shares in his business to investors.  If growth continues, he might then expand further by seeking foreign direct investment in his business in the form of additional loans that would allow him to manufacture and sell his products in countries like China and India, or Chile, Brazil and Argentina –even Europe.  But, such erudite investors might not commit to making these loans unless they’re able to limit their liquidity risk by securitizing those loans for potential resale to other investors in secondary markets, or to limit their exposure to default risk with a type of financial insurance known as a credit default swap.  How many business owners do you suppose have the ability to do all this without help?

Exactly!  That brings us back to our local community banker who first helped our “little guy” get started with a loan against his home, or his farm, or his VW microbus. Much later, perhaps, come those guys in expensive suits and ties, who know how to make billion dollar deals over dinner at Del Posto4 in New York.  We may not see it, nor fully understand it, but this is indicative of the cooperative division-of-labor process that can provide us with the miracles of modern life – from  iPods to artificial hips.  It also helps make America the world’s richest, deepest, and most resilient economy5.  [The European Union (EU) is ranked number one in GDP ($15.39 trillion versus $15.04 trillion); but of course, the EU consists of twenty-seven countries.]

Community banks are essential to local prosperity, and most of us recognize that.  But, we must also know that international banking and finance are necessary for First World prosperity and, not coincidentally, for turning New York City into a superlative urban playground, not only for the well-turned-out, but for you and me, too.

Despite the improvident pejoratives hurled by its critics, if modern capitalism didn’t exist, we would simply have to invent it.  My proof is that where it doesn’t exist, people do try to invent it. To truly prosper, a country must make it possible for savings to become capital. That means that we require banking and all of the people and institutions involved in raising, managing, and distributing capital to its highest and most effective uses.

The truth is that capitalism and its institutions of high finance are the water we swim in; and corruption aside, Wall Street’s profits are a small price to pay for our innovative and bountiful civilization.  mh

1 http://www.foreignpolicy.com/articles/2011/10/28/black_market_global_economy

2 ibid

3 The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else,  Hernando de Soto, PhD.  Basic Books, 2000.

4  http://delposto.com/home.htm

5 https://www.cia.gov/library/publications/the-world-factbook/rankorder/

Fred and Pete Go To Market

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing March 2012

I received an unsolicited email recently from the self-described marketing genius, Dan Kennedy.  Dan is a serial entrepreneur and a self-made multimillionaire.  Dan doesn’t have a college degree; in fact, he never attended college.  He inherited nothing from his family, but a strong work ethic.  However, this isn’t about Dan; or not just about Dan.

In his email, Dan tells the story of a seventeen year old kid named Fred, who was scouting for a way to make some money beyond his minimum wage job.  It was 1965, and the minimum wage was about $.75 an hour.  Fred went to see a family friend for advice.  The friend’s name was Pete.

Pete suggested that Fred open a little sandwich shop, and offer food that was less fattening and more healthy than the sandwiches at McDonald’s and other fast food stores.  Pete and Fred formed a partnership, with Pete investing $1,000 and Fred investing his time.  The first store opened in Bridgeport, Connecticut to very limited success.

Fred and Pete were sure they had a good product, so they attributed their limited success to the store’s location, and they opened a second store.  But, the second store also produced mediocre results.  At that point, most people would have given up, but not Fred and Pete.

Fred enjoyed the business so much—and was so confident in his product—that he convinced Pete that they should try a third location, one with more visibility.  And, they agreed that they should spend more money on marketing and advertising.

As you may have guessed, Dan is trying to sell me some marketing ideas, but that’s not really the point of his story.  I’ll get to that in a minute.

First, you need to know that the Fred in this little story is Fred de Luca, and Pete is Dr. Peter Buck.  

The name that they gave their little sandwich shop back in 1965—Subway.

In case you haven’t been counting, there are now more Subway stores (33,749 as of May 2011) than there are McDonald’s. Fred and Pete went to market and became billionaires.  Both are now on the Forbes 400 list of wealthiest Americans.

So here, according to Dan, are the business lessons this story teaches:

Don’t be afraid to collaborate.

Look for ways to do the opposite of what almost everyone else is doing.

Focus relentlessly on your goal.

Don’t let your own lack of money stop you.

There is, I think, one more lesson; and that is that America still offers boundless opportunity to everyone with a well-defined purpose to fulfill.   mh

What Do They Have in Common?

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing March 2012.   

 

Sheldon Adelson

Carl Berg

Stephan Bisciotti

Leon Charney

John Paul DeJoria

Larry Ellison

Alan Gerry

Alec Gores

Harold Hamm

 George Joseph

 Kirk Kerkorian

 Ken Langone

 Ralph Loren

 Carl Lindner, Jr.

 David Murdoch

 Thomas Peterffy

 Howard Schultz

 Kenny Troutt

 Albert Ueltschi

 Oprah Winfrey

They range in age from fifty to ninety-three.  Most, but not all, were born in America.  They are all alive today, and still actively engaged in things that they love to do. 

Some didn’t finish high school. Others dropped out of college.  Only a couple of them have MBA’s.  I’ve listed only twenty, but there are many more.

What do they have in common?

Yes, they are all in the One Percent; but, that’s not the right answer.   The right answer is that every one of these people started from absolutely nothing and made themselves into billionaires.  mh

Source:  http://www.businessweek.com/

A Notable March Birthday

by Helping Families Flourish, posted in Flourishing Article

Originally published in Flourishing March 2012.

The American economist James Tobin was born on March 5, 1918.  He received the 1981 Nobel Prize “for his analysis of financial markets and their relations to expenditure decisions, employment, production, and prices.”  

Tobin argued that one can’t predict the effect of monetary policy on output and unemployment simply by knowing the interest rate or the rate of growth of the money supply. Monetary policy has its effect, he claimed, by affecting capital investment, whether in plant and equipment or in consumer durables. And, although interest rates are an important factor in capital investment, they are not the only factor.

Tobin introduced the concept of “Tobin’s q” as a measure to predict whether capital investment will increase or decrease. The q is the ratio between the market value of an asset and its replacement cost.  For example, if an asset’s q is less than one—that is, the asset’s value is less than its replacement cost—then new investment in similar assets is not profitable.

Tobin’s insight was also relevant to his ongoing debate with Milton Friedman (Nobel Prize 1976) and other monetarists. Tobin argued that his q, by predicting future capital investment, would be a good predictor of economic conditions.

Tobin’s portfolio-selection theory is another of his contributions. He argued that investors balance high-risk, high-return investments with safer ones so as to achieve a balance in their portfolios. Tobin’s insights helped pave the way for further work in finance theory. 

James Tobin died on March 11, 2002.  mh

The Essential Heroes: the One Percent

by Helping Families Flourish, posted in Flourishing Article

 Originally published in Flourishing March 2012

Thirty-odd years ago, I was working for W. J. Powell Construction Company in Beloit,Kansas.  “Dub” was a wonderful person and a fair employer.  The job wasn’t all that challenging, though, so I would take a book to work, and often used my lunch break to read biographies.  That’s when it started—that little fire in the belly that says, “You can do more.”

 One of the books that I read during that period was Study in Power: John D. Rockefeller, Industrialist, Philanthropist, by Allan Nevins. 

 Born in 1839, John D. Rockefeller rose from the lowest rungs of society to become one of the world’s wealthiest men and greatest philanthropists.  His father was a ne’er-do-well elixir salesman and bigamist, who frequently abandoned his family for months and years at a time.  Notwithstanding, John D. was serious, studious, hard-working, frugal, and well-behaved; and before he was forty, he was a member of the One Percent.

 I mention John D. here, because I want to introduce you to a more recent member of the One Percent—a man from similarly humble beginnings.  The two men have more in common than great wealth.

 Born in rural Oklahoma in 1945, Harold Hamm was the youngest of thirteen children.  His father was a share-cropper, who raised his family in a one room shack, devoid of indoor plumbing.  Harold left home before graduating from high school, and took a job as a pump-jockey (a term of endearment, if you please) at an Enid, Oklahoma gas station.   

Fast forward fifty years: Last November, Harold Hamm was inducted into the Oklahoma Hall of Fame, along with Tommy Franks of Wynnewood; Marques Haynes of Sand Springs; Cathy Keating and Steve Malcolm of Tulsa; Elizabeth Warren of Oklahoma City; and (posthumously) Roger Miller of  Erick.  He still likes burgers from Sonic Drive-In, but Harold is now #36 on the Forbes 400 list of wealthiest Americans.  His net worth is $9.0 billion, give or take; virtually all of which is still invested in finding and producing oil and natural gas.

Ever grateful for his success, Harold’s many generous gifts include a recent $30 million donation for the Harold Hamm Diabetes Center on the University of Oklahoma campus.  “If it hadn’t been for education, I would have never had a chance to break away from the poverty cycle my family and I were caught up in ever since the Depression years.”  (After his initial success, Harold went back to school; and he has never stopped learning.)

Of his induction into the Oklahoma Hall of Fame, Harold said, “It’s a great honor, and it’s not anything I ever thought I would receive … it’s really beyond my dreams. …For this honor to come about right now while I still have some siblings alive, and for them to share this with me, means everything.”

That says a lot about the kind of man Harold Hamm is.  He started in business with a $1,000 loan, co-signed by a friend.  In 1967, at the age of twenty-two, he incorporated his business—a one-man, one-truck oilfield services company—as Shelly Dean Oil Co., named for his two oldest daughters.  His wife kept the books, and as the little company grew, Harold and Sue Ann’s daughters answered the phone.

“Back then it was one day at a time, it was one minute at a time, almost. It was a very meager beginning and we’ve been very fortunate.”

Harold’s little company has done well over the last forty-five years.  At the end of 2010, Continental Resources (formerly Shelly Dean Oil Co.), which is still based in Enid and Oklahoma City, had proved reserves of 364.7 MMboe (million barrels of oil equivalent).    Continental now operates in twenty states and is far and away the largest leaseholder (855,936 acres) and producer (6.9 MMboe in 2010) in the Bakken Shale region of North Dakota and Montana. 

Bakken, which accounted for 44% of Continental’s 14.7 MMboe production in 2010, had been written off by almost every industry expert just a few years ago as not worth exploring and developing—almost every expert, but not Harold Hamm.  According to the company’s 2011 Annual Report, Continental is “on track to triple production and proved reserves from 2009 to 2014”.  Like most businessmen in the One Percent, Mr. Hamm, who still owns 68% of Continental’s shares, consumes an infinitely small fraction of his income, preferring instead to reinvest in his community and in the work he loves to do.

One line that I remember most vividly from my ancient reading of Study in Power was a comment by one of John D. Rockefeller’s associates:  “He sees far ahead of everyone else; and then, he sees around the corner.”  What that man meant was that Rockefeller knew more than anyone else about his industry—because he studied more and worked harder.  Rockefeller nearly always sought the counsel of his associates, but he was willing to accept full responsibility for his business decisions by repeatedly staking his own life and fortune on them. Ditto, Harold Hamm.  That’s why they are the essential heroes—the One Percent.  mh

Peak Oil? Not Yet, Stephen Leeb

by Helping Families Flourish, posted in Flourishing Article

 Originally published in Flourishing February 2012.

Here and elsewhere over the last forty years, I’ve discussed the nonsense theory of “peak oil”, formerly promoted by newsletter writer, Stephen Leeb, and others.  In case you missed it, “peak oil” means we’re running out of oil.  We aren’t, and a new report, North American Energy Inventory*, dated December 2011, provides more incontrovertible evidence.

Based on data from the U.S. Geological Survey and the Energy Information Administration,  the Energy Research Institute concludes, “The massive supply of available resources means that North America’s access to affordable energy is limited only by the government policies we choose to adopt.”

The report provides data on oil, natural gas, and coal, but for this article, I’ll restrict myself to oil. 

North America has 1.79 trillion barrels of recoverable oil.  That’s almost twice the combined reserves of all the OPEC nations, and more than six times the proved reserves of Saudi Arabia.  It’s also more oil than the entire world has consumed since the first domestic oil well was drilled in Titusville, Pennsylvania more than one hundred and fifty years ago.

Based on those figures, Kansas could continue its current rate of oil consumption for another 23,358 years.  However, you should probably be told that those greedy oil people in Texas will run out in only 1,570 years, and when they do, they’ll come after our share.  Okay, however unfunny our government’s energy policies are, that last remark was a joke.  mh

*  North American Energy Inventory, Institute for Energy Research, December, 2011.  Available in PDF at http://energyforamerica.org/.