Straight Talk from Al Jacobs: October 2015

Friday, October 30, 2015

THE SCHOLASTIC JUNGLE

In the academic world nearby, I’m witnessing a brouhaha at California State University Fullerton. A mathematics instructor, Alain Bourget, is under reprimand for refusing to assign the school’s designated textbook for his linear algebra course. Perhaps it’s more than coincidence that the coauthors of the officially approved textbook are the chairman and vice chairman of the mathematics department and that the book sells for $180 at the campus bookstore. Associate Professor Bourget selected instead two texts he considered superior, one for $76 and the other free.

In an earlier era the cost of higher education caused few concerns. Tuition seemed affordable and the price of textbooks reasonable. A university degree could be obtained for what an average student, with the help of supporting parents, might scrape together from the household budget. This is no longer the case. With the inexorable rise in tuitions, together with the conspiratorial nature of textbook publishing, many collegians now graduate with tens of thousands of dollars in student loan debt.

Prof Bourget handled things badly. Only an employee asking to be fired flagrantly derails his boss’s gravy train. He should have assigned the prescribed text, while deviously suggesting to his class that the other books might be equally helpful.

Let me add a thought on the matter of textbooks on complex subjects. For a number of years I taught inorganic chemistry at a local community college. The subject, by its nature, is heavy on mathematical problem-solving. Some of the concepts are not easily grasped and many students find this subject to be their academic graveyard. One bit of advice I gave my classes often proved to make a difference. I suggested if my detailed solution of a problem, together with the explanation in the text, failed to make it clear—and often it didn’t—then they needed to make a trip to the library to find other textbooks on the same subject. Usually, each book’s explanation of the solution employed a slightly different slant, so the student might obtain a more three dimensional view, as it were. In many instances it worked splendidly..

A final word: Perhaps things are improving in the world of academia. Online courses and texts to be downloaded on the cheap may make education once again affordable. At least we can hope.

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In addition to this Straight Talk by Al Jacobs, I’m now generating a monthly Financial Newsletter. It normally appears the first of each month and may be viewed on my website. Click onto http://www.onthemoneytrail.net/

Friday, October 23, 2015

TESLA: SECOND THOUGHTS

On 10/20/15, the automotive world received an unexpected jolt when influential Consumer Reports withdrew its recommendation for Tesla’s Model S electric sport sedan. This $100,000 luxury vehicle, that previously enjoyed rave reviews from all quarters, was faulted for a new-car reliability prediction of “worse-than-average.” Among the maladies are defects with the drivetrain, power equipment and charging equipment. In addition, owner complaints are reported concerning body and sunroof squeaks, rattles, leaks, and door handles which fail to function properly. The news resulted in a 7% drop in the firm’s common stock on that day.

Tesla Motors, Inc. is a unique company in many ways. Its controlling investor and Board Chairman, Elon Musk, took charge in 2004 and transformed the fledgling firm into a highly regarded corporate powerhouse. In all its years it never generated a profit from the production and sales of autos. Nonetheless, it has raised hundreds of millions of dollars from public stock sales, from the marketing of “Zero Emission Vehicle Credits”—a California legislative device designed to penalize auto makers for not manufacturing and marketing electric vehicles—as well as from occasional vehicle sales to well-heeled green energy enthusiasts. Thanks to the active support of the federal government, as well as favorable media attention, and particularly the result of Mr. Musk’s most effective public relations campaign, its stock price soared over the past five years from its 2010 IPO opening price of $10 to over $200 per share.

To date Tesla has performed spectacularly. How a company which never produced a commercially viable vehicle, nor earned an actual profit, propelled itself into the automotive forefront is a tribute to inspired promotion. Most certainly government, with its granting of credits and preferences, is the key to Tesla’s achievement, though it’s uncertain when that assistance may end. Non-emission vehicles have joined the list with other government-subsidized programs, and quasi-governmental operations can drag on unprofitably for years, subject only to political considerations.

A final thought: To survive, Tesla Motors must, at some point, market a vehicle which actually generates a profit. It can only exist on PR hype and anti-fossil obsession for so long. It must produce a saleable product before the public loses its fascination.

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Friday, October 16, 2015

NASA'S RED DREAM

Word just released is that data collected on two astronauts currently halfway through a yearlong mission on the International Space Station will assist NASA scientists preparing for a proposed manned mission to Mars. The likelihood that water may exist on the planet—and thus the possibility of life forms—is the impetus behind this most recent effort. It’s this fixation on water which fuels the research enthusiasm.

NASA’s Mars Exploration Program (MEP) is nothing new. Formed in 1993, MEP employed orbital spacecraft and Mars rovers, as well as countless scientists and technicians, in the search for life on the Red Planet. To date the efforts have been less than fruitful. Roughly two-thirds of all spacecraft bound for Mars failed before any observation occurred.

Nonetheless the quest for the origin of life goes on, and there is no bit of trivia too insignificant not to be cited as a basis for renewed endeavor. Said John Grunsfeld, Associate Administrator of NASA’s Science Mission Directorate: “Our quest on Mars has been to ‘follow the water,’ in our search for life in the universe, and now we have convincing science that validates what we’ve long suspected.” These sentiments are seconded by Michael Meyer, the lead scientist for MEP, who declared: “It seems that the more we study Mars, the more we learn how life could be supported and where there are resources to support life in the future.”

We have a problem: In addition to water, life also requires sources of energy to survive. A prevalence of superoxides on Mars makes life at the surface of the planet unlikely, ruling out sunlight. This relegates any carbon-based life forms to the subsurface, with an energy source of geothermal or chemical. Whatever forms of life may be encountered will not resemble the creatures from Orson Welles’ War of the Worlds. Instead, they’ll be primitive and lackluster.

Irrespective of revelations—or lack of them—the odyssey will continue. If nothing of consequence materializes, something will be conjured up and exploited, for as with any government program, perpetuation is the primary aim. It’s just such a project as this which bolsters NASA’s 2015 budget of $17.4 billion.

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Sunday, October 11, 2015

WELCOME TO A PERPETUAL DEPRESSED ECONOMY

On 10/2/15, the U.S. Bureau of Labor Statistics announced the good news: a national unemployment rate of 5.1%—the lowest since April 2008. The favorable report didn’t have much time to gather accolades, for on the following day a lead story in the New York Times announced “LACKLUSTER JOBS REPORT RAISES CONCERNS.”

How can it be that unemployment is approaching record lows while reports from credible analysts reveal that the employment market is experiencing “very low levels of job creation and wage growth [which] isn’t budging”? It’s easily explained. When it comes to reporting, the numbers thrown about by Labor Department spokesmen bear no relation to reality. In short, the federal government is faking it. But why, you ask? Because a strong economy with a vibrant labor force and low unemployment makes the administration, and all its departments, look good. It’s as basic as that.

How’s it done? It’s a matter of manipulating the numbers. Unemployment is reportable in a variety of ways. The government category, known as U3, lists only persons without a job who have actively looked for work during the prior four weeks This is how they create the 5.1% rate. A realistic method would actually count employable people without full-time work. But instead they ignore those who’ve been vainly searching for employment for months, as well as others that have simply given up looking. If all such jobless, or marginally employed persons, were to be counted, we’d probably see no less than 20% of the potential workforce without meaningful employment.

What does the future hold? It’s my belief many of the jobs lost over the past decade or so are gone for good. In particular, those low-skilled employees whose functions have been replaced by technology or by the export of their occupations to countries which boast slave-wage salaries are becoming essentially unemployable. Despite the trickery which the Labor Department employs in contriving favorable jobs reports, the truth will eventually become impossible to hide as more and more citizens find themselves without a viable means of support.

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Sunday, October 4, 2015

THE BEST OF INTENTIONS

On 9/25/15, with the banging of General Assembly President Mogens Lykketoft’s gavel, the United Nations embarked on a momentous project. The representatives of that international body dedicated themselves to a 15-year program titled “Transforming our World.” The very first of its seventeen goals is “End poverty in all its forms everywhere.” To implement that, along with the sixteen other equally ambitious proposals, is a call to raise $3.5 to $5.0 trillion each year until 2030.

The items on the to-do list, which include reducing inequality within and among countries, end hunger, and ensure healthy lives for all, are certainly well-intended. To accomplish any of these feats could be described as miraculous. And the fact the United Nations possesses not even a small fraction of the funds called for makes it all the more challenging. How will they raise the money? Can programs be coordinated within each country? Will the dollars flow so not to be confiscated by the bureaucracies?

Merely ending poverty everywhere raises questions which are answered with a few statistics. In this world some 3 billion persons are living on no more than $912 annually. The U.S. upper limit of poverty is $24,230 per year for a family of four—or $6,058 per person. Thus, to bring each of those 3 billion out of poverty—U.S. style—requires $5,146 additional. $3 billion times $5,146: That amount totals $15.4 trillion. From day one, ending poverty is over budget by more than $10 trillion per year.

Where, then, does the United States fit into this scenario? On September 28th, President Obama appeared before the UN to offer a powerful endorsement of the 15-year program to eradicate poverty. How many dollars will eventually be extracted from the American taxpayer is conjectural, but as with every such noble crusade, money will flow. Whether the recipients will be the poverty-stricken of the globe is uncertain, but if history repeats itself, most of the loot will end up in the pockets of the world’s demagogues and tyrants. It’s a sad reality that charitable endeavors are normally badly planned and grotesquely executed. Rarely do deserving parties share in the largesse.

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