The 10 Most Fascinating Things I Read This Week
Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are the 10 most fascinating ones I read this week.
1. Stop worrying about Social Security
You can't talk about Social Security without someone injecting a form of the "it's not going to be around when I retire" line. David Cay Johnson argues otherwise: "The facts, which require more nuance and detail, show that, with a few fixes, Social Security can be safe for as long as we want."
Worst-case scenario, the Social Security trust fund is exhausted in the years ahead, and no changes are made to taxes, payouts, or eligibility. In that case, 75% of currently promised benefits will still be able to be paid through at least 2086. Really simple fixes that most people would hardly notice can make the system sustainable indefinitely.
Worry about heart disease, car accidents, and wearing enough sunscreen. Don't spend much time on Social Security.
2. Job growth under Republicans and Democrats
Bloomberg ran the numbers this week, which may surprise some:
[S]ince Democrat John F. Kennedy took office in January 1961, non-government payrolls in the U.S. swelled by almost 42 million jobs under Democrats, compared with 24 million for Republican presidents, according to Labor Department figures. Democrats hold the edge though they occupied the Oval Office for 23 years since Kennedy's inauguration, compared with 28 for the Republicans. Through April, Democratic presidents accounted for an average of 150,000 additional private-sector paychecks per month over that period, more than double the 71,000 average for Republicans.
I think presidents get too much credit when the economy is going well, and too much blame when it turns south. And policies from one administration spill over into the next, so it's hard to tell what's really going on. But those are the numbers. Take them as you'd like.
3. Let's hear it for nepotism!
The Atlantic cited research from the Journal of Labor Economics to point out an unsurprising statistic: "The researchers found that 68 percent of the sons of top-percentile income earners have at some point by the time they're age 33 taken a job at a firm their father also worked. That's significantly higher than the 55 percent rate for the sons of the second-highest percentile of earners and the 40 percent average for all income levels."
This reminded me of another stat from a study by a group of researchers on income inequality in China. According to the Economist: "[The] authors estimate that 63% of inequality in outcomes was due to inequality of opportunity."
4. The new Ben Graham speaks
Motley Fool Inside Value advisor Joe Magyer took great notes from a presentation by NYU professor Aswath Damodaran -- Joe calls him "the new Ben Graham." It's a must-read for serious value investors. A couple choice quotes:
- "When everyone is a value investor no one is a value investor. If everyone says they're a value investor and everyone is doing it, then value investing is dead."
- "There is a belief that if you look at a company long enough and hard enough to make the risks go away."
Read the whole thing here.
5. No time for retirement
According to The New York Times:
A record 7.2 million Americans age 65 and older are working -- double the number 15 years ago -- partly because many older Americans love to work and partly because many feel too financially squeezed to retire. ... While the overall number of Americans working has fallen by 4.4 million since the Great Recession began four and a half years ago -- with many dropping out of the work force in frustration and some retiring early -- the number of Americans 65 and older who are working has jumped by 1.4 million, a whopping 25 percent increase.
For example, check out how far the labor force participation rate among those between the ages of 65 and 69 has jumped over the last two decades:
Source: Bureau of Labor Statistics
6. Quick and easy way to value companies
Blogger and analyst Eddy Elfenbein shares a quick, dirty, but logical way to value companies. "Here's the world simplest stock valuation measure," he writes. "Growth Rate/2 + 8 = P/E Ratio."
He goes on:
For example, let's look at Pfizer (NYSE: PFE). Wall Street expects the company to earn $2.34 per share next year. They also see the company's 5-year growth rate at 2.79%. If we take half the growth rate and add 8, that gives us a fair value P/E Ratio of 9.40. Multiplying that by the $2.34 estimate gives us a fair price for Pfizer of $21.98. The current price for Pfizer is $22.98, so it's about fairly priced.
Let's look at IBM (NYSE: IBM) which has a higher growth rate. Wall Street sees IBM earnings $16.61 next year. They peg the five-year growth rate at 10.58%. Our formula gives us a fair value multiple of 13.29, and that multiplied by $16.61 works out to a value of $220.75. IBM is currently at $201.71.
7. Get ready for an imminent recession
Lakshman Achuthan of the Economic Cycle Research Institute says a new recession is inevitable. And soon. Like now. He's been making this call since last fall, and as he told CNBC this week, his outlook hasn't changed. "We believe a recession is going to begin by the middle of 2012," he said. Watch the rest here.
Last December, Achuthan said: "We haven't switched our call. ... If there's no recession in Q4 or the first half, then we're wrong."
There isn't enough keeping track of predictions on Wall Street, but Achuthan's call is getting exhaustive attention. Let's hope he's either given credit for being right or held accountable for being not.
8. Warren Buffett on banks
With Europe teetering, remembrances of late 2008 are springing back up. But Warren Buffett reminds us of a critical difference between now and then.
Buffett, whose Berkshire Hathaway (NYS: BRK.B) has big stakes in Wells Fargo (NYS: WFC) and Bank of America (NYS: BAC) , told Bloomberg last week that U.S. banks have "liquidity coming out of their ears. ... I would put European banks and American banks in two very different categories. ... The American banking system is in fine shape. The European system was gasping for air a few months back."
More from Bloomberg here.
9. Your commute might be killing you
Seriously. According to The Atlantic Cities:
[A] study tracked 4,297 people who lived and worked in 11 counties in the Dallas-Fort Worth or Austin, Texas, metropolitan areas, and compared their commuting distances with various medical health indicators, including cardiorespiratory fitness, body mass index, and metabolic risk variables like waist circumference. The longer the commute, the greater the likelihood these health indicators measure up on the fat and sick side of the scale. The researchers also found that people who drove longer distances reported doing less physical activity overall.
And even when the researchers adjusted for each person's physical activity habits and cardiorespiratory fitness, both waistlines and body mass index increased right along with commute distance. Higher blood pressure was observed in commuters driving 10 miles or more to work.
10. The business of bribes
James Surowiecki has a great piece in the New Yorker about the role of corruption and bribes in business. More specifically, he tackles the role they don't play:
Without bribes, [some argue], it takes much longer to do anything, and you end up with less economic activity -- fewer Walmarts, less trade. Seen this way, bribes grease not just palms but the very wheels of commerce.
This argument is appealingly counterintuitive, but it's wrong. While bribes may make things run more smoothly in the short run, in the long run they hurt both the business of the bribers and the economies of the bribed. As the economists Daniel Kaufmann and Shang-Jin Wei have shown, bribes beget more bribes: far from cutting through the red tape, they give bureaucrats a reason to produce more of it; each regulation creates another opportunity to collect a payoff. Walmart's bribes in Mexico may have enabled the company to build its stores more quickly, but they also gave local officials an incentive to make the permit process as difficult and arcane as possible.
Enjoy your weekend.
At the time this
article was published Fool contributor Morgan Housel owns shares of Berkshire, Wal-Mart, and B of A preferred. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Bank of America, International Business Machines, and Berkshire Hathaway. The Fool owns shares of and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Wells Fargo, Pfizer, and Berkshire Hathaway, and creating a diagonal call position in Wal-Mart Stores. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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