Thursday, November 29, 2007

Middle-class struggles

Gov't statistics have been showing inflation running at only 2-3% for many years, yet any wage earner knows that all economic necessities have been increasing double-digits during the same time period.

For example, how can oil double in one year (started the year off just under %50/barrel) and inflation be 3% ? There are lies, damn lies , and then there's statistics !

Middle class feels the squeeze
Rising costs of health care, housing, and education are forcing middle-class families to work harder and longer, says a new report.
By Kenneth W. Musante, staff writer
November 28 2007: 12:43 PM EST
NEW YORK ( -- Middle-class households in America have to work harder than ever to maintain their standard of living, according to a report released Wednesday.
Sixty nine percent of middle-class households are at risk of losing their standard of living in the long term, says Demos, an advocacy group for lower and middle-class Americans.
And the rising costs of health care, housing, and education are forcing middle-class families to work harder to maintain that standard, said Jennifer Wheary, the report's co-author in an interview with
"The way that they have stayed secure is by tightening belts," said Wheary. "People now have to work more hours to be at that same level."
Demos defined middle-class households as those whose income is approximately between $40,000 and $129,000 (based on a family of four), whose head of household is between the ages of 25 and 64, and excludes those who held more than $500,000 in net financial assets (the top one percent).
The Demos report is designed to measure the financial health of the American middle class by measuring certain key variables.
If their main source of income dries up, only 13 percent of middle class households can live off their assets for nine months, after reducing basic living expenses by one quarter, estimates Demos.
52 percent have no net financial assets at all after debt (excluding home equity), and live paycheck to paycheck.
The average middle-class family is carrying $8,328 in personal debt, which includes credit card debt, student loans, vehicle loans, and medical debt, according to the report. The cost of essential living expenses like health care, housing costs and educational expenses is rising higher than both the rate of inflation and the incomes of most families.
"All these things add up to higher bars that people need to climb over," said Wheary.
Demos's research claims that 23 percent of middle-class families have at least one uninsured member, leaving them vulnerable to a financially draining medical disaster.
The boom in the housing market that began in the mid-1990s thanks to low interest rates and easy credit encouraged families to take on riskier and more expensive mortgages than they might have otherwise, and the recent decline in home prices has left many vulnerable to further financial strain because their homes are worth less and the interest rates on adjustable rate mortgages are much higher now.
What's more, the rising tuition costs has put a further burden on middle class families.
Wheary advised middle class households to "be conscious of the balanced picture" by planning for long- and short-term expenses, not taking on a bigger mortgage than they can afford and building in a safety net of emergency savings to tide them over should they lose their jobs or be hit with unforeseen expenses.

Tuesday, November 27, 2007

Why high Oil?

The critical point is that the big-money players are looking for the next big market to place their money . Money fled from stocks after the bubble started to burst in 2001 . Liquidity went into real estate and then that bubble started it's burst in 2006. Money then moved into several areas:

1- Currency speculation, driving the US dollar lower and the Euro, Yen , rupee and others higher. When valuations change drastically within a short period this usually means that the market has over-reacted and a correction is to be expected.

2- Gold and other metals have increased in lockstep also, approaching all-time highs as the dollar has fainted. Again, quickly increased valuations has set up this market for a reversal.

3- Oil and energy price increases are supposedly due to large increases in demand but the market for energy futures, as mentioned in the article, has increased dramatically compared to previous years AND it is not tracked so no one knows the full extent of this activity.

What is known is that all markets from the time of the tulip craze in Europe in the 1600's to now will eventually fall and the faster and greater the rise results in a more precipitous drop.

Capital in todays instantaneous world is seeking quick, large profits and extremely large sums move quickly causing any and all markets to be whipsawed in their wake . The winners are those firms that are quick to move, at the right moment . This is more luck than skill and eventually the lucky will lose.

And, as the article states, the man on the street winds up paying for the 'lucky' millionaires running the game:

"It's a crime," said Gheit. "A family of four is going to have to cut corners to benefit a Wall Street trader who makes $20 million a year."

Not only the man on the street but ALL non-energy companies are squeezed by high energy, so the big financial players are winning on one end of their portfolio at the expense of the rest of their portfolio, e.g. stocks, bonds, real estate .

$100 oil and the 'S' word

Is it growing demand and tight supply, or merely rampant speculation that has pushed crude to record highs?

By Steve Hargreaves, staff writer

NEW YORK ( -- Greed is driving oil prices to $100 a barrel.

That's a common feeling among the general public, which sees record profits for investment banks that bet on oil prices - making wealthy oil companies even wealthier - while drivers shell out $3 and more for a gallon of gas.

It's also a common refrain from OPEC states. Having to defend themselves against charges their production quotas are responsible for the high prices, they point to near-average crude oil supplies and say speculation is what's behind the frenzy.

But industry experts offer mixed opinions on speculative investment's impact on oil prices. Some say it's marginal, that strong demand and limited supply are the real reasons oil prices have risen five-fold since 2002, and say additional investors actually benefit the market by adding more liquidity.

Others say the tight supply and demand situation has been known for a while, and nothing but speculation is behind the doubling of oil prices over the last year. They say there is a cost to the sheer number of oil contracts now traded on the oil exchanges, and this trading has just enriched Wall Streeters at the expense of average Americans.

The Energy Information Administration, the Energy Department's independent statistical and analysis arm, thinks strong demand and limited supply - otherwise knows as "the fundamentals" - is why oil is so pricey.

"Our view is that the market is tighter [than last year]," said Doug MacIntyre, senior oil market analyst at EIA. "We don't have the inventories now."

MacIntyre said inventories in developed countries - crude oil stored at refineries, or in tanks at ports, pipeline terminals and other locations - went from 150 million barrels above their five-year average at the start of the year to 10 million barrels below the five-year average now.

"That's a big difference," he said. "There's less slack in the system than there was a year ago."

EIA attributed the decline to OPEC production cuts of about 1.5 million barrels a day beginning at the start of 2007, when inventories were so high and oil prices briefly dipped below $50 a barrel.

The cuts came despite continued strong worldwide economic growth, which EIA said caused oil demand to rise by 1.3 million barrels a day over the last year. The agency projects an increase in demand of 1.5 million barrels a day in 2008.

"High oil prices are not rationing demand," Addison Armstrong, director of market research at the brokerage Tradition Energy Futures, said, adding that speculative money might be tacking on just $5 or $10 to the price of a barrel. "The fundamentals are much tighter than they were a year ago."

EIA said other factors contributing to a doubling in oil prices over the last year include moderate growth in new supplies from non-OPEC countries, the inability to immediately produce much more oil in OPEC countries, a lack of refining capacity and ongoing geopolitical threats.

But longtime Oppenheimer oil analyst Fadel Gheit doesn't buy it.

Gheit said inventories are declining because high oil prices give people an incentive to sell crude now and wait until later to restock supplies, when hopefully oil is cheaper.

Other than the decline in supplies, Gheit says all the other factors EIA lists have been with us since last year, when oil traded at under $50 a barrel.

"It's pure speculation," he said. "What's changed that we didn't know in January? Not a single thing."

It's hard to gauge the amount of money investment interests - as opposed to refiners or airlines or people who actually use oil - have in the oil markets. The government tracks contracts held by what it calls "commercial' and "non-commercial" users, but it lumps investment banks in with the commercial side.

Either way, the amount of investment money in oil is certainly large.

It's been rumored Goldman Sachs has over $80 billion in the market, although the investment bank declined comment for this story.

Its influence is so big, traders refer to the day of the month when the bank sells the current month contract and buys the future month as the "Goldman roll" due to its effect on price. When Goldman last month told its clients to sell oil when it approached the mid-90's, crude lost over $3 in one day.

Goldman is of course not the only one. Morgan Stanley, which also declined comment, has reportedly bought facilities to store oil. Hedge funds, pension funds, commodity-centered mutual funds, insurance companies - all have gotten in on the act.

"Just the multiple [contract] turnovers in the futures markets has a cost of its own," said Judy Dugan, research director at the Center of Taxpayer and Consumer Rights.

Dugan, echoing recent sentiments by oil company executives themselves, said there's no fundamental reason why oil prices should be anywhere near $100 a barrel.

"There's no inability to buy oil, this is not 1981," she said.

"It's a crime," said Gheit. "A family of four is going to have to cut corners to benefit a Wall Street trader who makes $20 million a year."

The high prices and talk of speculation has attracted the attention of Congress, which is holding hearings on the matter beginning next month.

Among things lawmakers could do is increase the margin requirements - or require oil traders to put down a greater percentage of a contract's worth in-order to buy or sell it. Currently, traders can buy or sell oil with just 4 percent down, compared to 50 percent for stocks.

Another option could be to require traders to hold oil contracts for a certain amount of time before they sell them.

But one source familiar with the oil markets said that while the physical number of oil barrels available is limited, there is no limit on the number of contracts that can be written. So just because there's more money chasing oil contracts, that in and of itself doesn't necessarily guarantee higher prices.

He said speculators provide liquidity in the oil markets, and noted that they can lose money just as fast as they make it.

And he cautioned about lawmakers attempting to write rules for a market they know little about.

"Their intent may be good, but sometimes they do more harm than good," he said. To top of page

Wednesday, November 14, 2007

American Students versus the world

All the Asian countries that have better scores are homogenous societies with few new immigrants, and those immigrants may not vary much by race , language and culture.

If they break down the American states results by race or socioeconomic status then there are groups of students that are achieving close , if not equal, to these Asian countries.

This is another study that will add to the fodder that 1) American students are not studying math/science, 2) American corporations have a desperate need for people with these skills and 3) foreign workers are thus our only chance to shore up our economic stability for the future.

Let's take this one by one:

1) American students are not studying math/science - what is the compensation for math/science/engineering compared to the compensation for finance/economics or medicine currently? and projected for the future ? The amount of time, the effort and the difficulty of the subject matter versus the expected rewards is out of sync in the US .

2) American corporations have a desperate need for people with these skills - easy to make this claim but what has been the actual hiring pattern for US corporations the past few (say 5) years? Perhaps 80% or more of the hiring is for workers overseas. The demand for workers in the US, who 'command' 2-3 times the compensation rate, has been decreasing at the same time, as firms can get the 'same' skills overseas for a fraction of the cost.

Basic economic theory says that if companies are 'desperate' for these skills then the compensation for these skills will rise, perhaps dramatically. Instead , pay raises and salaries have stayed at or below the inflation rate the past few years. When the was booming and the bubble rising, compensation was zooming and enrollment in computer science programs filled up. After the bubble burst and with globalization ascendant and salaries dropping relative to inflation, enrollment for comp sci has fallen precipitously also.

3) foreign workers are thus our only chance to shore up our economic stability for the future - foreign workers are by definition , not US citizens, and almost always are hired as contract workers , at least for the first couple of years. As such they have little ability to push-back to their employer's workplace demands and thus may appear to be 'harder working' . They help keep compensation down for US workers and they don't push-back on work conditions - what's not to like for US corporations?

Also, US salaries no matter how stagnant and unattractive to US citizens, have been a dramatic windfall to foreign workers compared to compensation back home. This is now changing (we'll see if this continues and for how long) and the incentive to come here and earn an American salary is becoming less attractive as they can stay home with family and earn a decent wage.

Bottom line - American students and their parents who are advising them , are not so dumb. They are responding to market forces and the demand for skills for certain fields. The ONLY true indicator of demand for skills is the compensation being offered , and the trend in compensation.

November 14, 2007

Study Compares States’ Math and Science Scores With Other Countries’

American students even in low-performing states like Alabama do better on math and science tests than students in most foreign countries, including Italy and Norway, according to a new study released yesterday. That’s the good news.

The bad news is that students in Singapore and several other Asian countries significantly outperform American students, even those in high-achieving states like Massachusetts, the study found.

“In this case, the bad news trumps the good because our Asian economic competitors are winning the race to prepare students in math and science,” said the study’s author, Gary W. Phillips, chief scientist at the American Institutes of Research, a nonprofit independent scientific research firm.

The study equated standardized test scores of eighth-grade students in each of the 50 states with those of their peers in 45 countries. Experts said it was the first such effort to link standardized test scores, state by state, with scores from other nations.

Gage Kingsbury, a director at the Northwest Evaluation Association, a group in Oregon that carries out testing in 1,500 school districts, praised the study’s methodology but said “a flock of difficulties” made it hazardous to compare test results from one country to another and from one state to another. “Kids don’t start school at the same age in different countries,” he said. “Not all kids are in school in grade eight, and the percentage differs from country to country.”

Because of such differences, Dr. Kingsbury said, it would be a mistake to infer too much about the relative rigor of the educational systems across the states and nations in the study based merely on test score differences.

The scores for students in the United States came from tests administered by the federal Department of Education in most states in 2005 and 2007. For foreign students, the scores came from math and science tests administered worldwide in 2003, as part of the Trends in International Mathematics and Science Study, known as the Timss.

Concern that science and math achievement was not keeping pace with the nation’s economic competitors had been building even before the most recent Timss survey, in which the highest-performing nations were Singapore, Taiwan, South Korea, Hong Kong and Japan. American students lagged far behind those nations, but earned scores that were comparable to peers in European nations like Slovakia and Estonia, and were well above countries like Egypt, Chile and Saudi Arabia.

The Timss survey gives each country a metric by which to compare its educational attainment with other nations’. The nationwide American test, known as the National Assessments of Educational Progress, allows policy makers in each state to compare their students’ results with those in other states.

The new study used statistical linking to compare scores on the national assessment, state by state, with other nations’ scores on the Timss. Dr. Phillips, who from 1999 to 2002 led the agency of the Department of Education that administers the national assessment, likened the methodology to what economists do when they convert international currencies into dollars to compare poverty levels across various countries, for instance.

On the most recent national assessment, the highest-performing state in math was Massachusetts, and in science, North Dakota. The new study shows that average math achievement in Massachusetts was lower than in the leading Asian nations and in Belgium, but higher than in 40 other countries, including Australia, Russia, England and Israel.

Mississippi was the lowest-performing state in both math and science. In math, Mississippi students’ achievement was comparable to those of peers in Bulgaria and Moldova, and in science, to those in Norway and Romania.

In math, New Jersey, Connecticut and New York students were roughly equivalent with each other and with their peers in Australia, the Netherlands and Hungary.

The study’s contribution is the high-level perspective it offers on the nation’s education system, a bit the way a satellite image highlights the nation’s topography, said Thomas Toch, a co-director of Education Sector, an independent policy group.

“It shows we’re not doing as badly as some say,” Mr. Toch said. “We’re in the top half of the table, and a number of states are outperforming the majority of the nations in the study. But our performance in math and science lags behind that of the front-running Asian nations.”

Tuesday, November 13, 2007

Racist society or the rise of women?

A classic example of subjective reporting .... The results of this report can have a number of different interpretations and emphasis ...

The reporter has decided that the racial disparities is the critical finding ....but it seems to me that the gender aspect is the REAL story , men losing ground or staying the same, while women are making tremendous gains in their incomes :

One reason for the growing disparity: Incomes among black men have actually declined in the past three decades, when adjusted for inflation. They were offset only by gains among black women.

Incomes among white men, meanwhile, were relatively stagnant, while those of white women increased more than fivefold.

So why report it as a racial issue mostly ? Media bias , a proclivity for believing racism is still as pervasive as ever and these findings are therefore bad, versus seeing this in some way as a positive step, with women making tremendous strides .

And they quote the head of the Urban league:

Morial blamed the disparities on inadequate schools in black neighborhoods, workplace discrimination and too many black families with only one parent.

Workplace discrimination ? Where is this documented in this report or any other report? Inadequate schools (I would call them underperforming ) and single-parent black families can and have been quantified , but where is there evidence for any substantial discrimination in the workplace today ?

The fault for articles like this is not the people they quote or the reports they cite, but what the slant they take and the quotes they decide to use.

Income gap between black, white families widens
Study: Overall incomes have increased over the past 30 years, but black, white children not benefiting equally.
November 13 2007: 6:21 AM EST
WASHINGTON (AP) -- Decades after the civil rights movement, the income gap between black and white families has grown, says a new study that tracked the incomes of some 2,300 families for more than 30 years.
Incomes have increased among both black and white families in the past three decades - mainly because more women are in the work force. But the increase was greater among whites, according to the study being released Tuesday.
One reason for the growing disparity: Incomes among black men have actually declined in the past three decades, when adjusted for inflation. They were offset only by gains among black women.
Incomes among white men, meanwhile, were relatively stagnant, while those of white women increased more than fivefold.
"Overall, incomes are going up. But not all children are benefiting equally from the American dream," said Julia Isaacs, a fellow at the Brookings Institution, a Washington think tank.
Isaacs wrote a series of three reports that looked at the incomes of parents in the late 1960s and early 1970s, and of their grown children 30 years later. Isaacs compared the incomes of parents who were in their 30s with the incomes of their children, once they reached the same age group.
Parents have long hoped that their children would grow up to be more successful than they were. Hopes were especially high for black children who came of age following the civil rights movement of the 1960s.
The reports found that about two-thirds of the children surveyed grew up to have higher family incomes than their parents had 30 years earlier.
Grown black children were just as likely as whites to have higher incomes than their parents. However, incomes among whites increased more than those of their black counterparts.
The result: In 2004, a typical black family had an income that was only 58 percent of a typical white family's. In 1974, median black incomes were 63 percent those of whites.
"Too many Americans, whites and even some blacks, think that the playing field has indeed leveled," said Marc Morial, president and CEO of the National Urban League.
It has not, he added. "We are like fingers on the hand," Morial said of black and white Americans. "We are on the same hand, but we are separate fingers."
Morial blamed the disparities on inadequate schools in black neighborhoods, workplace discrimination and too many black families with only one parent.
"The public policy commitment to this has been sketchy over the last 30 years," Morial said. "There has not been a real focus on this."
Perhaps most disturbing, middle-income black families do not appear to be passing on higher incomes to their children in the same way that white families have, Isaacs said.
She found that only one in three black children from middle-income families grew up to have higher incomes than their parents.
"That means a majority ended up slipping down," Isaacs said.
Among whites, about two-thirds of the children from middle-income families grew up to have higher incomes than their parents, she said.
On a positive note, black children from poor families were much more likely to grow up to have higher incomes than their parents, Isaacs said.
Isaacs compiled the reports for the Economic Mobility Project, a collaboration of senior economists and researchers from four Washington think tanks that span the ideological spectrum. The project is funded and managed by the Pew Charitable Trusts.
Isaacs used survey data from the Panel Study of Income Dynamics, which is conducted at the University of Michigan.

Sunday, November 11, 2007

College coaches calculate more compensation

Silicon Valley is too expensive for computer and engineering people but I'm not aware of any firms that give relocation allowances in addition to compensation packages.

Meanwhile those same firms have been lobbying to allow more foreign workers into the US because jobs are going begging and there are not enough 'qualified' candidates here.

Perhaps if technology workers were treated like sports coaches, there would be a glut of workers lining up for these openings.

Interesting side-bar is that the coaches coming from 'cheap' middle-American areas were actually living extremely well there and wouldn't consider a decrease in their living standard just for the privilege of working at prestigious Stanford .

And finally , does Stanford subsidize faculty members to bring the best and brightest to their campus, or is this strictly for athletics? In many if not most colleges the coaches of major teams have the highest salary in the university , and many times they have the largest compensation within the whole state infrastructure. And college coaches (associate, not head coaches) at major universities get excellent salaries, probably much greater than the average faculty member. If they can't afford the area then who can ?

Having this higher focus on athletics versus academics is a major lesson to students in the real world classroom. To wonder why there are not enough candidates in any particular field, one just has to look at 2 things : 1) the current compensation and 2) the prognosis for continued prosperity in the field. This is why students are not registering to be technology majors, as compensation has been decreasing and the future bodes more of the same.

November 10, 2007

Attracting Valuable Coaches to the Priciest College Town

PALO ALTO, Calif., Nov. 5 — When Scott Shafer came to Stanford to interview for the defensive coordinator’s job last winter, he became more excited as the day went on. He enjoyed Coach Jim Harbaugh’s energy, meeting his potential co-workers and seeing the vision for the program.

That excitement quickly dwindled when he saw the look on the face of his wife, Missy, who had spent the morning looking at local real estate.

“I came back in tears,” Missy Shafer said. “I was literally crying.”

Missy’s tears came from the sticker shock. She realized that buying a four-bedroom home similar to the $240,000 one they had just built in Kalamazoo, Mich., where Scott served as the defensive coordinator at Western Michigan, would cost about $1.5 million more.

“What was I going to do?” she asked. “Go home and tell my children that their dad has a great opportunity, and we’re going to move into a matchbox?”

But thanks to a new way to lure coaches to the most expensive college town in America, the Shafers have happily settled into a four-bedroom house about three miles from campus in Menlo Park.

Stanford purchased a home for them to live in that cost nearly $2 million. The university also purchased a similar home for the new offensive coordinator, David Shaw, and his wife, Kori, and their two children. The rest of the Stanford football coaching staff receives a $3,000-a-month housing allowance.

It is all part of a new effort to lure top coaches in all sports to campus. The plan is being spearheaded by Bob Bowlsby, the athletic director, and backed in part financially by John Arrillaga, a billionaire Stanford booster. Bowlsby said the university had already purchased six residences and could end up owning 20 to 40 homes and apartments, all to help the coaches live near campus. Bowlsby said the university considers the real estate to be a good investment.

Bowlsby said coordinators at Stanford made a nationally competitive salary of about $200,000 a year.

A study by Coldwell Banker of the 117 towns that have football programs in the Division I Football Bowl Subdivision found that Palo Alto was the most expensive college town in America. The average 4-bedroom, 2,200-square-foot home here costs an average of $1.68 million. That is nearly $300,000 more than the second-most expensive, Chestnut Hill, Mass., the home of Boston College. (Muncie, Ind., home of Ball State, is the cheapest at $150,000.)

Susan Nevins, a real estate agent with Cooper & Gamble in Palo Alto, said a two-bedroom house in Palo Alto would cost $900,000 to $1.5 million. In past years, prices like that forced assistant coaches to live more than an hour drive away.

Harbaugh knows the struggles of assistant coaches living in Palo Alto because he lived here for two years. His father, Jack, took the defensive coordinator job at Stanford in 1980 with the stipulation that he live in Palo Alto. He said the university helped pay the mortgage on his $200,000 house.

“People all talk about the academics at Stanford and the problems that they create,” said Jack Harbaugh, referring to the difficulty in finding athletes with the grades to get into Stanford. “But I don’t think that’s near the problem that housing has created for them to have a successful Pac-10 and B.C.S. program out there. People don’t realize how much money it costs if you want to spend a little time with your family.”

Because of the school’s high academic standards, Jim Harbaugh said there were 100 to 150 players Stanford could recruit each year who will both be admitted and play at the Bowl Championship Series level. That puts a premium on staff continuity. Coaching and teaching the players they get is critical for Stanford to compete in the Pac-10. A typical B.C.S. college may recruit from a pool of more than 1,000 athletes.

“We found that people that came here didn’t stay,” Bowlsby said. “And more often than not, they didn’t come at all once they looked at housing and thought about what it would do to their lifestyle.”

The Shafers and their two children are enjoying their new life.

Wolfgang Shafer, who is 13 and in seventh grade, is taking an elective course called the history of flight. An aspiring pilot, he was thrilled to find a World War II club at his school last year that met during lunch time. His youth football team, which plays for the championship this weekend, is coached by Greg Baty, who played nine years in the N.F.L. and graduated from Stanford.

Elsa Shafer, who is 9 and in fourth grade, has a piano teacher that taught at an arts high school for gifted students in San Francisco.

Missy Shafer said the opportunities available for her children range from Japanese classes to Web page design to Olympic fencing.

“The résumés of the people that the kids have access to is such a great opportunity while we’re here,” Missy Shafer said.

Bowlsby came to Stanford from the University of Iowa last year and said he could afford to take the job only because it included a housing stipend. His house outside Iowa City was 7,000 square feet on 25 acres and included a pool.

“Suffice to say, it was a shock to our system,” Bowlsby said of when he and his wife went house hunting in Palo Alto. Not long after, he launched the initiative to find local housing alternatives.

The coaching continuity will take some time to pay off. Stanford is 3-6 this season, with an upset of Southern California. And Jim Harbaugh, who also gets a $3,000 housing stipend, is optimistic about the future in part because of Bowlsby’s arrangement.

“It’s a good deal,” he said.

The Shafers certainly are not crying about it.