Can Institutional Investors Manage Corporations?

Why should mutual fund managers and other institutional investors direct corporate management of the companies in which they invest? That function is far different from their job of selecting securities. They have little time or the ability to attempt to get close enough to be involved.

I know that the job of an investment manager is to pick good corporate management. But that can be superficial at best. To truly evaluate what is good or bad management takes lots of on-the-site inspection and knowledge, with which fund managers are not equipped. They may say they have that ability, but that would be conjecture.

Despite this, there is a constant clamor from groups, usually with little business acumen, who insist that institutional investors, including mutual fund managers, micro manage each and every investment they make. That's an impossibility.

Yet another reason I suggest investment in funds that track indexes. (See the Earl J Weinreb NewsHole® comments.)

The Useless Government Stimulus

Funds removed from one pocket and placed into another pocket of your pants, is the same money. The amount is the same, no matter what pocket it comes from.

In the same way, money can be substituted from one pocket of government to the other, to hide the source of funding. It adds up to the same total outlay.

What the government in Washington called stimulus funds, for the most part, became slush funds. for use by its politically-preferred state governments. 

These states used the money, to a great extent, to help balance budget deficits.

The reason state budgets are so out of hand can be attributed primarily to their unionized pension obligations. It is estimated this is a major, ticking financial time bomb, waiting for more government bailouts under various guises. (See the Earl J Weinreb NewsHole® comments.)

Help Cure Unemployment With Simple Job Skills

When I was a principal in a major American/Canadian employee-contracting firm, during relatively poor economic cycles, we were asked to not  only provide groups of employees for projects, but were also asked to train them.

So I’m amused by the media and political comments being thrown around about curing unemployment.They always take for granted huge outlays of government funds.

Furthermore, the media and politicians never tell you the government efforts generally fail. Yet, I know the job can be accomplished. Yes, even these days. when high school and so-called college graduates have problems answering the phone with some sense of common sense. (See the Earl J. Weinreb NewsHole® comments.)

The Waste of College Time and Funds

Colleges have financial motives to admit dumb high school school “grads.”. The U.S. Department of Education statistics indicate that three quarters of high school students who graduate in the bottom 40% of their classes still get to attend college.

Most never graduate college, though they may spend as much as eight years, and more, in school. And, they often leave in heavy debt.

Moreover, few of these students get jobs that ever require a college education. Their efforts simply waste precious time and money. (See the Earl J Weinreb NewsHole® comments.)

Future Destiny of Medicare, Medicaid and Social Security

Well before 2050, Social Security, Medicare and Medicaid will take up nearly the entire federal budget. By then, Medicare alone will comprise the entire federal outlay.

There will have to be drastic corrections done by our politicians but many, primarily on the left, prefer to defer taking on the problem. It does point up government stupidity today, created for us, our children and grandchildren.

It has made a bankrupt system for us and our descendants. Solutions can only involve less services, reduced benefits, rationing and higher taxes, as well as inflation we have never experienced before. (See the Earl J Weinreb NewsHole® comments.)

Whistle-blowers Can Be a Menace

 Anti-business sentiment in government which goes out of its way to look for evil that exists in business, as if it’s exclusive solely to business, has come up with the successor to sliced bread as a panacea for what ails society. Whistle-blower laws have made a bounty available to employees who can sniff out dirt on their employers, then quit, and go running to the regulators.

It also helps plaintiff lawyers add to billions in fees.

A top executive cannot discover problems down the line in a giant operation, unless employees report back to him. Accordingly, those reported problems can be immediately corrected.

But with the whistle-blowing bounties guaranteed by government law, the employee instead of reporting to a boss, heads off to the regulators and lawyers, where the opportunity for tremendous, jackpot payoffs are possible.

It’s becoming tougher to be a top executive these days when anti-business politicians are happy  to sue or criminalize employers in their class warfare campaigns.

You don’t run a successful business when spies are lurking to allege crimes that may be mythical, but still personally and corporately damaging. (See the Earl J. Weinreb NewsHole® comments.)

How Successful Are Venture Capital Investors?

 The Wall Street Journal recently reported that, of the 6,613 U.S, based companies that were initially funded by venture capitalists from 2006 through 2011,11% were acquired or had IPOs. In other words, they could be considered, in my estimation, to be successful deals as venture capitalists see it.

About 84% were independent and still operating, and 5% or so went out of business.

What was not said was among those 84% or so, had  to be many struggling independents. The exit strategy for venture capitalists is to be acquired or to go public in about five years for a big payoff,

That 11% figure for IPO or acquisition must include a big winner.
(See the Earl J. Weinreb NewsHole® comments.)

College Education Shortcomings

The college system does more for colleges, teachers and staff, on balance, than it does for a large portion of their consumers.

Only 40% of two million college freshmen graduate in four years; 45% never graduate. And graduates are ill-prepared for careers.

Forget about education. The experience helps parents boast that their kids went to college, and it does the same for the dropouts themselves. They generally never have to mention whether they ever did earn a degree or job skills.

Or whether their major was medicine or “communications,” or a form of physical ed. Whatever the major, it frequently fails to prepare a student for a worthwhile job. (See the Earl J Weinreb NewsHole® comments.)

Are Rigid Government Regulations Needed?

 

Politicians repeat their gospel of government regulation. It is a mantra so often repeated that it’s a rule by which they govern. But all it does is provide power for them to dispense largess and thus control voting blocs.

Regulations destroy small business which cannot cope with them. They therefore appeal to large corporations which detest them, but unlike small business, have the funds to hire lobbyists who can contend with the government bureaucrats.

Dodd-Frank is a classic example of legislation which builds an ever-festering self-generating nuclei of ever-growing regulatory bodies, none of which have ever been approved by voters. (See the Earl J Weinreb NewsHole® comments.)

The Real Cost of Federal Reserve Activity

I have written about the Federal Reserve’s loose money activity which allows the Treasury a free hand to go into debt when the Fed buys bonds and literally adds to the money supply and fuels future inflation. It’s a condition that cannot be politically remedied in the future.

But there are other dire consequences of Fed activities, aside from future inflation; making it impossible for the average citizen to accumulate savings; making it extremely difficult for small business to compete with government for available dollars with which to profitably operate. (See the Earl J. Weinreb NewsHole® comments.)

The “Green” Industry Failure

The Federal Trade Commission has been looking into charges that many products are not truly “green.”

A whole profession of “green” experts has grown, having been trained by colleges, which are now marketing environmental courses and specialties. All based on the premise that our planet is being savaged by polluters and greedy merchandisers.

The FTC has slowly come to the conclusion that many who are promoting these progressive “solutions” to the perceived environmental problems are, themselves, deceiving the public.

Their “green” products and services may have little to do with improving the planet. (See the Earl J Weinreb NewsHole® comments.)

Framing Outcome of Polls

 
It’s no wonder that so many of the public are influenced by polls, whether economic, financial or political. The media emphasizes their importance over and over so frequently that the public assumes it worthwhile to consider the results.

But it’s essential that the public know that any poll, economic, financial or political, can be manipulated by the way questions are framed. As a result, polls are used to sell services, products and politicians.

If you want to believe the polls, learn exactly how they were conducted and the type of questions asked. (See the Earl J. Weinreb NewsHole® comments.)

Buying Art By Price Tags

No matter what the expert opinions tell you, or the astute interpretations, there is unfortunately a bottom line to the determination of art value.
No matter what experts say, buying art too often is determined by price tags on the item. And, of course, what I refer to all the time as the Bigger Fool Theory, that someone will come along and pay more for that item you bought. (See the Earl J. Weinreb NewsHole® comments.)

Federal Reserve Action and Your Wallet

 Far too many Americans are not concerned about the news of Federal Reserve activity. They ought to be because it affects their pocketbook and those of their children and further descendants.

A simple lesson: When the Fed buys bonds it creates reserves for the banking system, which in effect creates paper money or credit. When times are bad and business has no use for that credit, the Fed’a action is useless. But once a recovery takes place, all that paper money that’s been created spells INFLATION.

When the Federal Reserve sells bonds it tightens the money supply but once the barn door has been opened, the escaped horses of inflation have taken over the economy.  (See the Earl J. Weinreb NewsHole® comments.)

Misconceptions About Health Care

An Institute of Medicine study concludes that about 40% of premature deaths in the U.S. are due to bad behavior. Only about 10% are because of poor medical care. 

Social and physical environment contribute about 20% to the premature death figure and genetics 30%. So why take a wrecking ball such as ObamaCare to remedy what can be done easily?

Give people without insurance who cannot afford it free insurance vouchers, and see that everyone gets insurance, even if not currently insurable.

And finally, and most importantly, put a cap on insurance payoffs by having malpractice tort reform. (See the Earl J Weinreb NewsHole® comments.)

ObamaCare Change Suggestions

Private insurance for all is possible, if the pool is large enough. To do so, states and the federal government must break down the barriers they place on insurance companies.

Permit the sale of health insurance across state lines. Despite thousands of pages of federal legislation, it isn’t possible.

Make private health insurance groups large enough to spread risk.

And immediately legislate tort reform, including mandatory arbitration by special courts to process patient claims. This would eliminate huge legal fees, over and above a reduction in needless tests and doctor malpractice premium charges. (See the Earl J Weinreb NewsHole® comments.)

Media-Assisted Panics

 

America has always had its share of catastrophic financial panics and urgent business problems. Many were brought on by special concerns and, occasionally, special interests. Follow the money or political trail and you get to see the inception of each.

Some examples: DDT poisoning, generically modified foods, global warming, killer bees, mad cow disease, over-population concerns, ozone holes, toxic tampons, the y2k disaster, and so on.

All of these were or are still problematic or ill-conceived but are media-swept and promoted to produce a frenzy among their proponents,(See the Earl J Weinreb NewsHole® comments.)

Why Not a Cost-Benefit Test For Every Law?

Before any act of Congress becomes law, an agency such as the Congressional Budget Office ought to provide an independent analysis of its cost and proposed benefits. Not what comes from the political proponents alone. And when it comes to tax cuts, that means the reduction of tax rates, an idea of the true reduction in tax revenues, if any. 

 Pro-tax politicians view all reduction in tax rates as a reduction in tax revenues, which is false, based on past experience.  Estimates of future tax revenues due to tax rate cuts should be estimated as best it can, and included as a factor that is now entirely omitted by pro-tax politicians.  (See the Earl J. Weinreb NewsHole® comments.)

Rule of Law --Essential For Business Health

The American public has unfortunately had little concern for the rule of law when it’s broken and discarded right under their collective noses.

That is why I repeatedly advise a study of Italy’s Benito Mussolini in the 1930s and 1940s and what happens when a left-wing government forms a crony-capitalist state, amid its disregard of the rule of law.

The result is also referred to as “Crony Capitalism” where government bigwigs get cozy with favored giant corpoations, handing out allowances and exemptions in return for “getting along” in payment for directed political contributions.

For more recent illustrations, look at incidents in the U.S. Example: the General Motors “bankruptcy” imposed by the government. It was no bankruptcy in the legal sense but a govenment-imposed settlement at the expense of bondholders and taxpayers, but in favor of auto unions.
(See the Earl J. Weinreb NewsHole® comments.)

Facts of Retirement Life

Most retirees will need an added income from a part-time job or a small business, in order to survive retirement.

If folks are still not aware of what’s in store, here is the bad news again. Social Security was never a bonafide insurance or annuity program with genuine reserves set aside in what politicians have called a lockbox. It was closer to a Ponzi scheme.

Current retirees never paid in enough to secure benefits at the outset and the arrangement was for the retirees to be paid by funds contributed by those still working and being taxed. Any effort to make it a genuine insurance/annuity was hammered down by Big Government politicians. (See the Earl J. Weinreb NewsHole® comments.)

Repeat for Doubters: Too Many Small Business Folks Do Not Earn a Minimum Wage.

 

This merits repeating again and again. If you allow for capital placed at risk that must be invested in a business instead of safer investments elsewhere, and you consider time on the job by the boss and unpaid members of the family, most small businesses actually return very small income, if anything worthwhile to their owners.

In too many instances the actual earnings translate to less than the legal minimum wage, were they employees. (See the Earl J. Weinreb NewsHole® comments.)

ObamaCare Omits Needed Tort Reform

Malpractice lawsuits induce defensive medicine that costs a fortune for insurance companies, the doctors and other providers covered and, ultimately you, the public. This is a fact ObamaCare conveniently overlooks.

A Massachusetts Medical Society study found that five out of six doctors order procedures and referrals that amount to about 25% of total medical costs, for the sole purpose of doctor legal protection. According to the Pacific Research Institute, defensive medicine wastes more than $200 billion a year.

Therefore, the entire medical-malpractice system has to be changed. There could be a no-fault system, a pool to reimburse those injured from medical errors or accidents. Judges would be medical experts, not inexpert juries, who are swayed by sharp trial lawyers, seeking one third of the proceeds. The no-fault pool would be funded by a small tax on health-insurance premiums.

The major problem to this simple solution is that over 90% of tort lawyer political contributions go to the Democrat party. This accounts for the fact tort reform is never one of the necessary reforms the consumer gets. (See the Earl J Weinreb NewsHole® comments.)

Under-Reporting Government Costs of Services

When politicians tell you how much cheaper it is for a government to offer you health insurance or other services, they intentionally leave out some important facts. These omissions would get private companies sued to Kingdom Come and their officers thrown into jail.
The government numbers do not usually tell you which of the government overhead or operating costs are being covered by others, and not by the reporting agency. So you never get strict comparisons between private company and government operations. (See the Earl J. Weinreb NewsHole® comments.)

Why be an Entrepreneur?

When you who read my blogs and comments and are familiar with my suggestions, you know I feel that everyone should be in at least a part-time venture as an entrepreneur..

I advise this in order for folks to supplement basic education about business and potential careers, and possibly to add to needed income..

I have also commented on the fact that many entrepreneurs do not get ample returns on any funds they may invest,  nor for the actual time they devote to their work.

There is no conflict in my reasoning. Everyone cannot be happy at a job from an employer or will want to work for a boss. And you must have a secondary source of income at all times, even after you may so-call retire.

Moreover, being an entrepreneur serves as an education you simply cannot learn in school at any level, even as an M.B.A. It can lead to a big payoff down the road in spite of the odds. (See the Earl J. Weinreb NewsHole® comments.)

Many Small Business Folks Earn Less Than a Minimum Wage

I recently wrote about the problems of operating a small business when politicians use business folks as targets for class warfare.

To repeat the facts of life:
             
1) Many small businesses are constantly on the edge of going broke; a  large percentage does go under each year.

2)  Most small businesses, by far, do not provide sufficient return on the capital invested. For every $100,000 of capital placed at business risk, the owner ought to get at least $10,000 a year for the risk involved. This is hardly ever the case in small business.

3)  Above the return on risk capital, the business man should get paid for time on the job, often ten or more hours a day. This translates into very little, well below the minimum wage for most entrepreneur's.

4) Those who buy a small business by borrowing have to repay the loans with after-tax dollars. I find that in most instances this is done only by taking away from honest returns on personal investment in the business and sweat running it.

A finger-pointing politician at any level, or a unionized government bureaucrat who finds faults, nitpicking small business operations, is in an extraordinarily better financial position. They’re covered by minimum wage laws. The boss is not. The latter often earns less than the minimum wage.(See the Earl J. Weinreb NewsHole® comments.)

Many Small Business Folks Earn Too Little, Yet Are Heavily Taxed

 

 When it comes to being taxed, the typical small business man or woman is taxed by liberal politicians who accuse them of being “greedy,” should they not pay their “fair share” of taxes when they have been so fortunate to be in their own business.

Some facts of life:

1) Many small businesses are constantly on the edge of going broke; a  large percentage does go under each year.

2)  Most small businesses, by far, do not provide sufficient return on the capital invested. For every $100,000 of capital placed at business risk, the owner ought to get at least $10,000 a year for the risk involved. This is hardly ever the case in small business.

3)  Above the return on risk capital, the business man should get paid for time on the job, often ten or more hours a day. This translates into very little, well below the minimum wage for most entrepreneur's.
 

 Those who buy a small business by borrowing have to repay the loans with after-tax dollars. I find that in most instances this is done only by taking away from honest returns on personal investment in the business and sweat running the business. (See the Earl J. Weinreb NewsHole® comments.)

Free-Market Economists Are Mostly Overlooked by the Media

Read or listen to the media or to the mass of politicians that most of the media are so friendly with, and you get a pretty much one-sided view of economic theory.  
You get the basic John Maynard Keynes view that lots of government spending will eventually build up the economy. The fact that less spending of government can and usually does stimulate the economy is completely overlooked.
But if open-handed spending were the case, there would be no downfall of socialistic countries, too numerous to mention. The Soviet Union would still be here. Europe today with its Spanish and Greek debacle examples would not be where it is, and so on. All these governments are the latest to have spent themselves into ruin.
If you want alternative economists, read up on at least a few such as Friedrich Hayek and Milton Friedman. For more, try the brilliant economic observers, Frederic Bastiat and Jean-Baptiste Say. (See the Earl J. Weinreb NewsHole® comments.)

Real Business and Hollywood’s View

What Hollywood and other fiction contributors have to say about business and finance unfortunately extend beyond entertainment, They have become ingrained education. A substitute for our formal schooling system which has become an expensive taxpayer and family budget farce.

The media’s subtle hype adds to this imposed fictional education; it has accomplished this over the years.

What comes out of Hollywood and fiction is therefore anti-business. It features pro-plaintive lawyers, fighting criminal big business executives, on behalf of “little guys.” The templates may vary slightly but the plots are much the same.

Left-leaning politicians see their opportunity from all this and orate and demagogue and legislate accordingly. (See the Earl J Weinreb NewsHole® comments.)

Swiss-Health Care as an ObamaCare Solution?

The Swiss health care system is worth noting. The American public can use its example to repair parts of our newly imposed ObamaCare coverage.

It’s more efficient and would eventually cost less than what we now have.

Under the Swiss plan, everyone is covered by private insurance. There is no government-managed or employer-provided coverage. The poor are assisted in buying the insurance they cannot afford.

Employees under a U.S. plan could receive in cash, tax free, what their employers currently spend on premiums, provided they used the money for insurance on health care. The poor, including past Medicaid recipients, would get government vouchers to buy insurance. There would be no discrimination against anyone on account of existing or past illness.

The plan would not socialize medicine as ObamaCare does. True interstate competition among insurance companies, hospitals, and doctors, would bring costs down over time.

Patients could really choose the best and lowest cost providers on the basis of published outcomes. Insurance companies and providers would bid for clients and customers, as to needs and cost.

The government's role would merely be to oversee transparency, The government would create an information system, with regard to insurance companies and providers. (See the Earl J Weinreb NewsHole® comments.)

Retail Gasoline Price Trends

Gasoline prices are set within OPEC supply controls which adjust to demand. They also are affected by the value of the U.S. dollar.because they’re priced in dollars.

Gas stations actually have little to do with pricing. Stations earn an average between 10 and 15 cents on a gallon. When prices climb, gas stations see their profit margins shrink in order to remain competitive; they then earn less per gallon.

Their credit card fees are about 2 ½% of all purchases, a significant factor affecting their margins.

Furthermore, gasoline prices go up faster than they go down. That is the way supply and demand normally influence wholesale and retail gas pricing.

Yet gas station operators usually are blamed when high gas prices occur.(See the Earl J Weinreb NewsHole® comments.)