Random thoughts

1. This the holiday season and for some reason GMC is running a commercial in which it is advertising its truck as a "nutcracker". I don't know about you but I would never buy a truck - or any vehicle - touted as a nutcracker.

2. I have 5 words that students must spell correctly or I dock them extra points. They are principal, yield, receive, guarantee and separate. Students tend to spell these as "principle", "yeild", "recieve" "garantee" and "seperate". After three exams there was only one hold out. Yet I got "municiple" and "loose" instead of "lose". I have given up on affect versus effect.

3. I mute all movie trailers on tv. Have you noticed that they are either all shooting guns (and this from the Hollywood left) or some woman screaming. It must be a shame being in a generation where the only talent required to be in a movie is the ability to scream.

4. Driving down the interstate to the family farm in Georgia I noticed two billboards. The first was for a uniform outlet store. Since the merchandise in outlet stores are irregulars I was wondering how could a uniform be irregular? The second was for a Bible outlet store. Now I know where all these weird interpretations of the Bible come from - its all those irregular Bibles!

5. Also while driving I noticed that all the hybrids are ugly and little cars as well as expensive. Why anyone would want to pay a premium for one is beyond me.

6. Speaking of stupid - I guess the "Smart" car is called that because why would anyone buy a car that stupid? Have you noticed that all the drivers appear to be white middle aged hippies? Even Car and Driver agree saying that the Smart is "slow, has disappointing mpg and cargo room, and isn't cheap. Seems like Dumb to us." Amen.

7. Why are the vehicles most often speeding minivans? Could it be that the owners are so ashamed to be driving them trying to prove something like "it may be a minivan but it can go really fast (in a straight line). Pity all those poor kids.

8. Isn't it ironic that Miller Lite's new commercials feature rather well endowed women giving wimpy men grief for now asking for Miller lite - which is a girlie beer? When "light" beer was introduced by Miller it was to get women, especially college coeds to drink beer by making it low calorie. To get men to drink it, the first commercials featured ex-jocks who argued whether it was less filling. Now Miller is trying to shame men into drinking it by saying in essence "if you are a wimp you might as well drink our girlie beer.

9. Speaking of commercials, I hate the ones that have children advertising adult products. That includes the one with the obnoxious brat in the investing commercials and the one with adults speaking like children. What is the point? How does this motivate grownups is beyond me.

10. Isn't it ironic that our institutions of higher learning have license plates that are functionally illiterate saying "Alumni University of (fill in the blank)"? I always ask the driver if he and his wife both graduated from the university and the answer is invariably no. The only schools that I know of that get it right are Spelman College (Atlanta) a women's school that says "Alumna" and Morehouse College (also Atlanta) that says "Alumnus".

Why environmentalism is dangerous to the environment

Today's quiz is to identify the law that contains the following:

TRANSPARENCY FOR EXTRACTION INDUSTRY

Public Disclosure: Requires public disclosure to the SEC of payments made to the U.S. and foreign governments relating to the commercial development of oil, natural gas, and minerals.

SEC Filing Disclosure: The SEC must require those engaged in the commercial development of oil, natural gas, or minerals to include information about payments they or their subsidiaries, partners or affiliates have made to the U.S. or a foreign government for such development in an annual report and post this information online.
Congo Conflict Minerals:

Manufacturers Disclosure: Requires those who file with the SEC and use minerals originating in the Democratic Republic of Congo in manufacturing to disclose measures taken to exercise due diligence on the source and chain of custody of the materials and the products manufactured.

Illicit Minerals Trade Strategy: Requires the State Department to submit a strategy to address the illicit minerals trade in the region and a map to address links between conflict minerals and armed groups and establish a baseline against which to judge effectiveness.

If you guessed the Dodd-Frank Wall Street Reform and Consumer Protection Act you win the prize. Yes the act that reforms the financial industry that has nothing to do with the current financial crisis contains a provision on reporting of mineral purchased from the Congo! The reason that the provision appears is because minerals essential to the production of the batteries used in hybrid and electric cars come from Zambia and the Congo. Also cobalt is vital in lithium batteries used in ipods, iphones and laptops. Moreover the same is true with the materials used in making circuit boards. Over 80 percent of cobalt is from these countries where racial tensions have seen over 5 million deaths in the Rwandan genocide. Some concerned people (see Aaron Robinson's editorial in the November issue of Car and Driver) say that the demand for these vital minerals are fueling the murders. Moreover, the mining of the minerals are wreaking environmental devastation in the region. So isn't it ironic that the environmental do-gooders are helping to murder Rwandans and destroying their country? Not to mention that the whole notion of saving the planet by producing electric cars is simply stupid. How do you recharge the batteries? Electricity. And how do you produce electricity? Coal. And what fuel is absolutely abhored by the greenie weenies? Coal. Or of course you could use nuclear. Lastly, what about the replacement cost of the batteries? Try $5000 per battery for a Prius and $15,000 for the battery bank of a Chevy Volt. I for one am tired of this kabuki theatre.

On the entitlement generation

Excellence in higher education is hard to define. How can you tell if a professor is doing a good job? I've always said that so long as my students didn't run from the room with their hands over their mouths, I guess that I was doing ok. Or better still, I guess that I did ok when I get feedback in later years. I heard from a student who had my class 10 years ago and said how much he hated me and hated the class. Now he took the Series 7 exam and 85 percent of it was covered in my class. He scored among the top 5 percentile and wanted to thank me. I also heard from a student who had my first class taught at the University of Florida in 1972.
So if I am doing ok how do I know if the school is doing its job? At the undergraduate level I teach seniors. Many are functionally illiterate in that they cannot spell – and I take off for misspelled words. They do not know literature, history, geographic or politics. This semester I have asked “who is Joe Biden” and a fourth of the students had no idea. I got answers on an exam question that showed that the students thought that a state representative or a governor could introduce legislation in the congress. Many students had no idea how many senators did a state have. I said “what have you been taught all these years?” If I had the power I would flunk all of you – not because of what you know in finance but what you don’t know.” I would not want you to be a graduate of my university. I actually had a student who asked me a couple of years ago, “Why should I know anything?” Why should I know math when I have a calculator? Why should I know geography when I have mapquest? Why should I know English when I have a word processor with grammar and spell check?
So what should we do? For starters we at the university should demand that our students be at first educated. If we turn out graduates who do not read, lack writing and communication skills, are short sighted, not global, socially insensitive and not culturally attuned, then we should not be shocked when our business leaders turn out to be myopic. So I relate finance and economics to history and the text material to current events. Generally, students eye glaze over. Some students resent the fact that I expect them to read news reports and current periodica¬ls. I was once admonished in a student evaluation that “this is not a history class. This is not an English class. This is not a political science class.” I wish he had said that in class because I my response would have been “Yes it its.”
But we the faculty need to be insistent upon excellence from the time that the students walk in the door. Many professors have simply given up saying that this is the entitlement generation. Students expect to pass with minimal effort and professors figure its not worth it to resist. At our major universities, teaching is secondary to research anyway. So why get grief from your students when more rewards go to research success? I had a professor once who told me when I was complaining about a lousy teacher that “Bad teaching does not harm good students.” That may be true. I teach my class for the 10 percent who actually want to be there and actually want to learn. Students need to be intellectually aggressive. Students should expect to be challenged in the classroom to be encouraged to think about creative solutions to problems. Yet, we have got to find the synergy between good teaching, research, business experience, and classroom participation. We must spend less time on fact gathering and technique learning and more time thinking, analyzing and dealing with people, productivity, quality and product value.
This is my last year. I am retiring in August. As much as I love what I do – the research and the teaching – this generation has driven me to distraction. As I often tell them, the world is run by those between 50 and 65. Fortunately by the time they turn 50, I should be dead.

Truly stupid

Electric cars are truly stupid - almost as stupid as hybrids (but thats another story). I just saw the commercial of the polar bear hugging the owner of an electric car. First polar bears are not hugable creatures and are more likely to bite the guy's head off than to hug him. Secondly, the bear should be laughing at the dumb consumer. Electric cars have virtually no range and are only good for urban commuting - if that. Second, they take overnight to charge. So it makes sense to drive your electric car on your hot date because you won't be able to get back home and would have to stay overnight. Third, the cars look like little butt-ugly death traps. How in the world did they ever pass the crash tests? Fourth, the battery backs typically account for one third to one half of the vehicle costs. Did that salesman tell you that in around 5 years you will have to come up with $15,000 for new batteries. Fifth, in addition to not being able to take a trip in them due to limited range and no room for baggage, you can't tow anything. That rules out the boat, the camper or the motorcycle trailer. Rather you will have to tow it behind your motorhome or your Ford F350. So what's more stupid than electric cars? The Obama Administration's mandate that fleet mileage standards must move to 62 miles per gallon by 2025. That is not obtainable unless you eliminate all the trucks and fun to drive cars - even with anticipate increases in technology. I have said it before: Obama hates trucks, RVs and travel trailers. His rules will kill the industry. Also, conservative estimates are that the price of vehicles will rise by about %5,000 per car. All of this insanity is supposed to be necessary to save the planet - hence the grateful polar bear. Give me a break.

If not now - when?

Now with the public having spoken this time the same way it spoke last time, isn't it about time to do something about Federal spending? Recall that the current president was voted in and his party given power the previous election because of public outrage over how the ruling Republicans had mismanaged the budget. Well the Democrats, being Democrats, did even worse. The deficit as a percentage of GDP grew from 3.18 percent in 2008 to an astounding 10.64 percent in 2010. The total debt burden in the county grew to almost equal GDP at $14 trillion placing the United States among the top 10 debt burdened countries in the world along with Zimbabwe. Welcome to the third world. The CBO says that the Obama spending spree will add $9 trillion to the debt over the next decade. Everyone, including the president recognizes that this debt is unsustainable. Why? One reason is that the markets will have enough treasurys and will either stop or significantly slow down their purchase. In so doing, the government will then have to sell the stuff to themselves in order to keep on financing deficits. Well who owns the government debt right now? Most people would say China but China is either three or four now - trading places it seems daily with Japan. Actually the Fed is number one and is now saying that it is going to buy even more in $600 billion in long term treasurys. This is monetizing the national debt and is reckless and even fool hardy. What can be done? First, a balanced budget amendment is fool's gold. Congress will always move to balancing by raising taxes than cutting spending. Raising taxes is easy. Cutting spending is not. If budgets are going to be cut, it is not how senator elect Rand Paul claims by cutting Federal employment, wages by 10 percent and freezing federal payrolls. Nor is it by taking recommendations from places like the Heritage Institute which is pick and choose what's important and what's not. That's a value judgment. No. What has to be done is to cut the entire federal budget by 10 percent as a starting point. Tell all the agencies that they get 10 percent less - yes including defense. No sacred cows. Then let them cut without congressional interference and manipulation for selected constituencies. Then limit the growth in government to no more than than the growth rate of GDP the previous budget year never to exceed the long term growth rate in the economy (3.7 percent). Then let total federal spending never to exceed 20 percent of the previous year's GDP. This will get the deficit down and the budget will balance itself in 10 years. I too prefer a flat tax of 18 percent of all income and the removal of all other taxes period at the federal level to restore incentives and remove uncertainty.But first things first. Right now I believe we have the will to cut federal spending across the board if all have to share the burden. So let's get started.

Startling Incompetence

Knoxville News-Sentinel November 7, 2010

John Maynard Keynes, commenting on the Federal Reserve after World War I, is reported to have called it a body of "startling incompetence."

Well, the current Fed carries on that tradition. After embarking on a policy of remarkable monetary ease, the Fed seems determined to continue that policy despite no indications it has done any good. What that policy has done is to accomplish little. It has pushed short-term interest rates close to zero and has punished savers and those who depend on their savings as a source of income, such as retirees.

It has resulted in dollars being borrowed at low rates and then shifted into countries such as Brazil to earn higher returns. It has relentlessly driven down the value of the dollar.

The low rates are a result of the Fed buying short-term Treasurys to support the dramatic increase in government spending over the past four years. In buying Treasurys from the banks, the Fed has created excess reserves of more than $1 trillion. These excess reserves basically have sat on the banks' balance sheets because of low loan demand by businesses and consumers. As long as the excess reserves are not lent, then no money is created and inflation stays low.

However, when the Fed buys Treasurys directly from the U.S. Treasury - monetizing the national debt - the result is an increase in the money supply and sets the stage for an inflationary recession. At its Open Market Committee meeting last week, the Fed announced it will start buying long-term Treasury bonds directly from the Treasury. The result will be to lower long-term rates to stimulate investment spending by businesses.

The immediate result, however, will be a further drop in the value of the dollar as more dollars are created by the Fed's purchases and an increase in inflation. There is no guarantee that businesses will invest unless the uncertainty about the future is resolved - something that is up to the Obama administration and Congress. Moreover, when the government is interfering in the market, the private sector knows that rates are being actively manipulated and less risks are taken because of increased uncertainty about the future. What rational person or business will make important decisions not knowing about future taxes, costs related to health care and energy policies as well as the ever-increasing costs of regulation?

What is intriguing about the Fed's new policy of buying long-term Treasurys is that I know of no monetary economist that supports this action. Indeed, after having created much of the economic problems through monetary ease in the first place, it now only compounds the problem. The blame lies not just with Chairman Ben Bernanke but with the entire Fed. Bernanke only has one vote on the Open Market Committee along with the other Fed governors and the presidents of the New York Fed and three other reserve banks.

However, to be fair, the presidents of Fed banks in Kansas City, Mo., Dallas, Minneapolis and Philadelphia have expressed opposition, with the Kansas City president calling the new Fed policy a "bargain with the devil."

Maybe the "startling incompetence" just radiates from Washington.

Dr. Harold Black is the James F. Smith Jr. Professor of Finance at the University of Tennessee. He may be reached at hblack@utk.edu.

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Racist Tea Party?

That the left was afraid of the Tea Party gaining traction among mainstream America was evident by the constant use of the word “racist”. The NAACP got into the fray by asserting that only the white sheets were missing. However, nothing could be farther from the truth. Oh I am sure that there are some racists in amongst the Tea Partiers but there are racists in the Democrat party as well. The only qualifications to being in the Tea Party are a desire to have smaller less intrusive government, lower taxes and positive incentives for economic growth. I have spoken to Tea Party rallies and although there have not been a lot of black faces, there were always some – which is remarkable given the paucity of blacks in East Tennessee. I have yet to have heard mention of two black tea party candidates being elected to the House: Allen West in Florida and Tim Scott in South Carolina. West is the army colonel who was forced to retire because he held a gun to the head of an Iraqi to get him to talk. He is also from Atlanta and a UT graduate – so a little pride there. The election of West and Scott actually is a return to black roots where the first black congressmen were all Republicans (elected prior to 1900) and until Franklin Roosevelt, most blacks were Republicans. All in all there were 14 black GOP congressional nominees most of whom were supported by the Tea Party. Incidentally, how foolish is it to call tea partiers racist when an Indian-American republican woman is elected governor of South Carolina? Another Indian-American is the republican governor of Louisiana. Two republican Hispanic Americans were elected governor: Susana Martinez in New Mexico and Brian Santoval in Nevada (beating Harry Reid’s son Rory). Also don’t forget Marco Rubio a Cuban-American elected as a republican to the senate from Florida. Rubio is also one to watch for the national scene. He is charismatic, young, gives a great speech and has vision. If he stays true to his principles he may make a run for the White House either in two years or later. Right now, my dream ticket would be Chris Christie for president and Rubio for vice president. One can only hope.