Monday, February 28, 2011

Fearful Stock Analysis of ACAS

Stifel's Out With Another American Capital Strategies Report

Remember this gem from last summer? Stifel Nicolaus and Greg Mason slapped a “sell” on our beloved American Capital Strategies, Ltd. (ACAS) saying:

We believe the probability of bankruptcy has risen significantly, which could result in a $3-4 stock price as ACAS restructures its debt agreement in bankruptcy,” the analyst wrote in a note to clients

He then spent the summer upgrading it to a “hold” (only two days later) and then in August said BV might rise to $10-$12. Based on a fair P/BV valuation, that suggested upside in the share price of 80% to 100% (they have risen 90% since). Still, “Ole Greg” could not slap a “buy rating” on shares. Maybe only stock that is predicted to rise more than 100% in 6 months gets the honro of a buy rating?

But, according to Stifel's own research definitions, a “Buy” rating is awarded when:

BUY -For U.S. securities we expect the stock to outperform the S&P 500 by more than 10% over the next 12 months.

What? Stifel said it could not go from “sell” to “buy” in 8 weeks. Why? Nothing essentially changed with the company. It was just that the first report was so bad that Stifel seemed unable to get past its mistake and admit its error, so, instead, Stifel punted -- badly.

So, here we are today and another report comes out: Stifel 2/17/2011 ACAS Report (pdf).

Investment Thesis: We believe ACAS will continue to grow book value through the retention of earnings (meaning no dividend for the next couple of years) and potential appreciation of current investments. If the economy continues to improve we estimate longer-term book value for ACAS over the next 2 years will range from $13-$14, which would imply a $11.70 – $12.60 stock based on the 0.9x current price/book multiple. As a result we believe there is 20-35% upside in the stock from the current price over the next 2 years (10-17% annualized).

Stifel is making the same mistake it made in the summer of 2010. Back then Stifel set its price targets based on the .6X BV valuation the company was then trading at. The flaw is that as the company improves, the discount to BV closes (now at .88X BV). Historically ACAS has traded at 1.3X BV.

I think 1X BV is fair until the dividend is restored (it is still below the industry average). That being said even simply taking Stifel's BV targets of $13-$14, it means ACAS has 37%-47% upside in shares, making it a “BUY” according to their own ranking standards (unless Stifel feels the S&P will do that).

For the record, I feel their BV #’s are a bit low but I use them not as an endorsement of them but to not be accused of making up #’s to make my point.

If there is a silver lining I guess the fact they think BV will continue to rise at a healthy pace is good…

Why is the “Hold” rating from last summer omitted from the current report?

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Energy is power, if you've got the money

We can convert energy from one form to another, from a form that Nature provides into a form humans can use. But unless the conversion is affordable, the theoretical possibilities mean very little.

Tech to the Rescue

An early look at three technologies that may provide more energy in the future

The great thing about energy is that it's everywhere; the hard part is putting it to work in a useful fashion. What follows is a glimpse at three technologies under development that aim to tap unconventional energy sources—the motion of automobiles and the temperature and saltiness of seawater–to produce potentially vast new supplies of electricity.

Stop and Go

Getting a car moving takes a lot of energy, but when the vehicle comes to a stop most of that energy just gets dissipated. The engineers who designed hybrid gas-electric autos came up with a way to recover some of the energy lost in braking and convert it to electricity to recharge the hybrid's batteries.

But what if that converted energy could be put into the electric grid?

That's the idea behind several developments to harvest a vehicle's kinetic energy and turn drive-through lanes, parking lots and roadways into mini-power plants. The techniques vary but the idea is the same: As vehicles roll over a section of road, the device converts the force of the passing vehicle into electricity.

One company, U.K.-based Highway Energy Systems Ltd., has developed an energy-harvesting device and installed it at several sites, including airport parking garages and warehouse parking lots. The device uses moving plates that when depressed by braking vehicles use magnets to spin a generator, producing electricity. (A built-in flywheel helps maintain a consistent power level.)

A typical installation produces between 32 and 42 kilowatts an hour in continual traffic, says Peter Hughes, the system's inventor and a managing director of the company, which expects to have devices at 250 locations by summer.

In the U.S., New Energy Technologies Inc., a Columbia, Md., energy-technology company, has also demonstrated a kinetic-energy-harvesting system and plans to begin testing its latest version later this summer.

One potential problem with these systems is that they can lower the fuel efficiency of the automobile. As a result, developers intend to install them in places where vehicles are already slowing down—such as freeway off ramps, parking lots and drive-through lanes at fast-food restaurants.

Hot and Cold Oceans

The world's oceans are vast storehouses of energy, and for years scientists have been devising ways to tap the power of the seas' waves, tides and wind. Now another potential source is getting renewed attention: the difference between warm surface temperatures and the cold of the ocean depths.

Called ocean-thermal energy conversion, or OTEC, the process uses warm seawater to heat a fluid, such as ammonia, with a low boiling point, producing a vapor that turns a turbine to generate electricity. Cold water is piped from deep in the ocean to condense the vapor and keep the cycle going. Because the systems require big temperature differences—about 35 degrees Fahrenheit—the technology is best suited for coastal areas in the tropics.

The idea of ocean-thermal conversion dates to the 1880s, and the first experimental OTEC plant was built in Cuba in 1930—though it and a later plant required more power to operate than they produced. A larger, 50-kilowatt demonstration plant was built in 1979 at the Natural Energy Laboratory of Hawaii and produced about 15 kilowatts of net power.

Work on the technology slowed with the low energy prices of the 1980s and '90s, but interest in several countries has picked up recently. Lockheed-Martin Corp., whose predecessor built the Hawaii plant, in 2009 received an $8 million contract from the U.S. Navy to refine its design with the goal of building utility-scale OTEC plants.

One challenge: designing, building and deploying the 1,000-foot-long, large-diameter pipe that draws cold water to the surface. Lockheed is testing pipe designs and is aiming to begin construction on a pilot plant by 2014, says Jeff Napoliello, vice president of the company's New Ventures unit.

Where River and Sea Meet

When fresh and salt water meet, the process of osmosis creates pressure—and releases a significant amount of energy. This natural process makes the world's estuaries, where rivers meet the sea, a potentially rich source of power.

Statkraft, the state-owned Norwegian power company, in late 2009 opened the world's first osmotic power plant outside Oslo. The prototype plant, intended mainly for testing the concept, combines sea and fresh water, separated by racks of membranes; the pressure from fresh water flowing into the saltwater forces it through a turbine, generating electricity.

In the Netherlands, REDstack BV is working on a different technology that uses osmotic pressure from fresh and salt water to strip off positive and negative ions, creating a kind of battery. The company plans a 50-kilowatt pilot plant in the North-Holland province and is waiting on funding from the Dutch government.

Statkraft sees big potential in osmotic power. It estimates the technology could produce up to 1,700 terawatts of electricity globally—about half the European Union's total generation. The Statkraft plant is producing only about two to four kilowatts of electricity—about enough, the company says, to power a coffee maker. The company says its goal is to begin building commercial osmotic power plants as early as 2015.

There are many technical hurdles. Pretreating the water for use in the plants takes energy, reducing the plants' overall efficiency. Membranes are still expensive and relatively inefficient. Still, the technology "has real potential for generating base-load power in large cities at the convergence of fresh water and sea water," says Dallas Kachan, managing partner of Kachan & Co., a San Francisco consulting firm.


Sunday, February 27, 2011

State of Bankruptcy

It worked for General Motors, sort of. It took a Chapter 11 reorganization to get the worst of GM's unfunded liabilities cut down to a managable size. Lots of people cheered for that one. Why not do the same for states? Taxpayers are getting crushed by the same uncontrolled expenses that will increase rapidly forever. The retiree healthcare and pension expenses for New York State already put it in far worse shape that General Motors was ever in.

Therefore, states should lay their cards on the table. Either taxes must go to the moon, which will force states into insolvency just as GM was, or the unfunded liabilities must be reduced. The obvious choice is to cut the benefits.

Governors Blast State Bankruptcy Option

Governors slammed Congressional talks on allowing states to declare bankruptcy at bipartisan meeting Saturday.

“We don’t even want this subject discussed,” said Washington Gov. Christine Gregoire, a democrat, at a National Governors Association meeting in Washington, D.C. “We’d like the leaders of Congress to say it’s dead.”

Congress has held a handful of hearings on the proposal of allowing states to declare bankruptcy. Such an option would help states mend their finances, proponents argue, in part by relieving them of debt and pension obligations.

Members of Congress on both sides of the aisle have panned the idea. And though states are facing budget gaps and $1 trillion or more in pension liabilities, none of them have asked for — nor do they want — the bankruptcy option, Gregoire reiterated Saturday.

“This is some of the most dangerous discussion that we’ve had, in political terms, in a long time,” added Connecticut Gov. Dan Malloy, a democrat.

He and Gregoire pointed out that talks of bankruptcy are damaging to the minicipal bond markets and increase the cost of borrowing for states.

“You’re talking about the drying up of capital for every single public works project,” Mr. Malloy said. “It just would be the height of insanity.”

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Obama to Gadhafi -- Please, Please, Please Leave

The Arab world and its despotic regimes have been collapsing and toppling since the start of the year. This is earth-shaking. But our muslim-in-chief president has stayed away from the most dramatic upheaval in a century? Longer? In less than two months well over 100 million abused muslims may set themselves free from their tyrannical leaders, no thanks to the supposed leader of the free world, Obama.

He's been AWOL since the revolutions began, seemingly unwilling to help those millions and millions of muslims who have been screaming for democracy and freedom. However, now that Gadhafi has ordered his loyal supporters to kill Libyans, Obama decided he was ready to say something. But to whom? It's unlikely the people of Libya are plugged into the wide world of global communications, especially the communications sent out from Washington. And who would expect Gadhafi, who dresses like Michael Jackson, to care what Obama has to say about giving up control?

With a few cruise missiles fired from a US Navy ship in our Mediterranean fleet, the Libyan nut would change his mind. But without the threat of his own death before him, he's going to kill as many Libyans as it takes to hang onto his control of the country and people he's abused for the last 42 years.

Enough is enough. Obama could become the leader of a much larger free world, if only he had the nerve to assist people who are desperate for some much needed help. It's tought to fight tanks and armed soldiers with rocks.

Obama says Gadhafi must leave Libya 'now'

WASHINGTON – Ratcheting up the pressure, President Barack Obama on Saturday said Moammar Gadhafi has lost his legitimacy to rule and urged the Libyan leader to leave power immediately.

It was the first time Obama has called for Gadhafi to step down, coming after days of bloodshed in Libya. Gadhafi has vowed to fight to the end to keep his four-decade grip on power in the North African country.

"When a leader's only means of staying in power is to use mass violence against his own people, he has lost the legitimacy to rule and needs to do what is right for his country by leaving now," the White House said in a statement, summarizing Obama's telephone conversation with German Chancellor Angela Merkel.

Until now, U.S. officials have held back from such a pronouncement, insisting it is for the Libyan people to decide who their leader should be.

Obama commented a day after the administration froze all Libyan assets in the U.S. that belong to Gadhafi, his government and four of his children. The U.S. also closed its embassy in Libya and suspended the limited defense trade between the countries.

Secretary of State Hillary Rodham Clinton announced further sanctions Saturday, revoking visas for senior Libyan officials and their immediate family members. She said applications from these people for travel to the United States would be rejected.

Gadhafi "should go without further bloodshed and violence," Clinton said in a separate statement.

Obama has been conferring with world leaders about the unrest in Libya. The administration is hoping that the world speaks with a single voice against Gadhafi's violent crackdown on protesters, and Obama is sending Clinton to Geneva on Sunday to coordinate with foreign policy chiefs from several countries.

The U.N. Security Council met urgently Saturday to debate new sanctions against Libya but disagreed over a proposal to refer Gadhafi and his top lieutenants to an international war crimes tribunal.

Secretary-General Ban Ki-moon wants immediate action to protect Libyan civilians. The U.N. chief was due in Washington on Monday for talks with Obama at the White House.

The administration had been facing increasing pressure to more forcefully condemn Gadhafi and explicitly call for his ouster, as French President Nicolas Sarkozy has done. Witnesses in Libya said Gadhafi is arming civilian supporters to set up checkpoints and roving patrols in Tripoli, the capital.

The U.S. held back, but its tone shifted sharply on Friday after Americans in Libya were evacuated to safety by ferry and a chartered airplane.

Shortly after, Obama signed an executive order outlining financial penalties designed to pressure Gadhafi's government into halting the violence. The order said that the instability in Libya constituted an "unusual and extraordinary threat" to U.S. national security and foreign policy.

A nonviolent revolt against Gadhafi's government began Feb. 15 amid a wave of uprisings in the Arab world. Most of Libya's eastern half is under the control of rebels. Witnesses say Gadhafi's government has responded by shooting at protesters in numerous cities.

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Saturday, February 26, 2011

Hot Job Market in Cold North Dakota

What's the big driver for the job market in North Dakota? In a word: Energy. Everything else trickles down from there. Very simple. North Dakota offers a model that many other states could emulate. But other states have other ideas, which, in the end, are contributing to economic problems rather than overcoming them.

FEBRUARY 26, 2011

Help Wanted: Fargo Strains to Fill Jobs

North Dakota boasted a 3.9% average unemployment rate in 2010, the Labor Dept. said Friday, the third consecutive year the state has notched the lowest rate in the nation, or tied for it.

After such bulletins, North Dakota staffing agencies often are flooded with calls from out-of-staters looking to work there. Yet, few of those conversations translate into hires.

As the U.S. struggles with 9% unemployment, many companies in North Dakota are struggling to find workers and recast a reputation that some local officials blame on cold weather and a bad image stemming from "Fargo," an Oscar winner with the tagline: "A lot can happen in the middle of nowhere." (Most of the 1996 movie actually was set in Minnesota, locals are quick to point out.)

"It's not easy finding a candidate from the coasts who wants to move here," says David Dietz, vice president of Fargo staffing firm Preference Personnel Inc., which is trying to fill more than 80 positions. Three years ago a technology-sales vacancy—a typical Preference assignment to fill—would have had a maximum base salary of about $50,000; now that position will top out at $65,000, Mr. Dietz says.

Recruiting workers is a perennial struggle for the remote state. The low unemployment rate attracts lots of attention, but it's hard to convince many out-of-state residents to move there.

Most acutely needed: doctors, nurses and other health-care workers, as well as salespeople, from retail clerks to insurance agents. The western part of North Dakota, in the midst of an oil boom, is desperate for welders and engineers. Even truck drivers, who posted nearly 11% unemployment in 2010 nationally, are hard to find.

This year the state commerce department is hitting the road to find workers, scheduling job fairs in cities that tend to attract former Dakotans, starting with Minneapolis in May. The state expects between 40 and 50 employers and community organizations to attend and hopes to hold another fair in the fall.

Tech specialists are tough to hire, too. "We don't have people camped outside our office begging to work here," said Vern Dosch, chief executive of Mandan, N.D.-based National Information Solutions Cooperative. The 840-employee technology company plans to send representatives to the Minneapolis job fair.

In 2010, the number of out-of-staters who registered with the state's jobs site, jumped 25% from the previous year to 15,500, with many jobseekers coming from Idaho, Arizona and Texas. Yet the number of job postings increased even more, up 42% to 12,037. And the state isn't keeping up with demand in some professions. The state's total labor force grew by nearly 2,600 workers (including current and new residents) between 2009 and 2010, according to the Labor Dept.

In the meantime, North Dakota has about as many openings as jobseekers to fill them. According to the state's commerce department, there are about 12,000 openings on the state's website; an estimated 14,000 current residents are unemployed.

After reading about North Dakota's budget surplus and low unemployment rate, Bill Siderski, 42, and his partner, Jana Lynn, 39, moved to Fargo from Portsmouth, R.I., and Seattle respectively in April. Neither had job offers and within two weeks of arriving, they both found work through a temp agency. Now, Mr. Siderski is working as a researcher, and Ms. Lynn is in the midst of a yearlong contract position with Microsoft Corp., writing documentation for its call centers.

Mr. Siderski had been on unemployment since March 2009, after losing his job at a plumbing company. "We knew nothing about Fargo, but it was a chance for us to get jobs and start our lives over," he said. At times the flat terrain gets boring, says the couple, who once drove two hours to visit what was billed as a "rare North Dakota waterfall," to find a drop of about six feet. Mr. Siderski, who dabbled in Rhode Island's film community, says although Fargo's film scene isn't as vibrant, the couple are happy with the move.

"Your whole outlook on life changes when you have a job to go to every day," said Ms. Lynn.

Historically, North Dakota towns have had quirky ways of attracting newcomers. In 2005, Hazelton, N.D., began offering out-of-state movers free land and up to $20,000 toward a home purchase. Other towns have offered free memberships to golf clubs or curling clubs. Only one family took Hazelton up on its offer of free land. But last year, the family said they would move back to Miami, citing wind chills of 50 below zero and a poor relationship with their neighbors, according to news reports.

This year, state representative Joe Heilman introduced a bill that wouldo allow students who stay in North Dakota todeduct up to $2,000 in college student-loan payments from their state taxes, in part to try to retain skilled individuals.

"Our state situation in general should be attracting more people," Mr. Heilman said. "People don't like our winters, but aside from moving the state, I don't know what to do about that."

The bill was voted down last week

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Friday, February 18, 2011

Buffett says pricing power is king. Thus, the question becomes -- Who's Got it? Utilities? Any other companies? Maybe those that deal with the government? How about Pitney Bowes? Without Pitney Bowes, the Post Office would probably collapse. Is there a chance Pitney will become a de facto government agency? Will it ever become the Post Office?

Will the day arrive when the Post Office no longer delivers mail to every home? Once there were milk-men and paper boys going house to house. Once doctors made house calls. No more. Perhaps the Post Office should move mail for free, but charge for home delivery.

Pricing Power? A rare power. Electronics? Nope. Computers and everything related to them see regular price declines. Food? Clothes? Housing? What about services? Like insurance? There's an area where prices can rise without too much opposition.

Buffett Says Pricing Power Beats Good Management When Evaluating Companies

Feb 18, 2011

Warren Buffett, the billionaire chief executive officer of Berkshire Hathaway Inc., said he rates businesses on their ability to raise prices and sometimes doesn’t even consider the people in charge.

“The single most important decision in evaluating a business is pricing power,” Buffett told the Financial Crisis Inquiry Commission in an interview released by the panel last week. “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”

Buffett, 80, accumulated the world’s third-largest personal fortune through a career of stock picks and takeovers. He has bought companies such as railroads and electricity producers, whose pricing power stems from a dearth of competitive options available to clients. Buffett has also built stakes in firms like Coca-Cola Co. and Kraft Foods Inc., which rely on the appeal of their brands to attract and keep customers.

“The extraordinary business does not require good management,” Buffett said in the interview, which was conducted on May 26 in Omaha, Nebraska.

The FCIC investigators focused on Buffett’s investment in Moody’s Corp., the bond-ratings firm blamed by lawmakers for handing out inflated credit grades during the housing boom. Buffett said he held stock in Moody’s because the company’s leading market share, along with that of rival Standard & Poor’s, a subsidiary of McGraw-Hill Cos., gave the two firms flexibility in setting prices.

Pricing Power
“I knew nothing about the management of Moody’s,” said Buffett. “If you own the only newspaper in town, up until the last five years or so, you had pricing power and you didn’t have to go to the office.”

A dominant position can’t prevent a bad manager from destroying a company over time, said Benjamin E. Hermalin, a professor of economics at the University of California, Berkeley’s Haas School of Business.

“If you have a really dominant position you can survive for quite a long time with bad management but eventually it will catch up to you,” said Hermalin. “In the short run I would agree with Buffett but in the longer-run perspective there is something to be said for having a good manager.”

Burlington Northern Santa Fe, the railroad Buffett bought last year for $26.5 billion, owns more than 30,000 miles of track across the U.S. West connecting producers and distributors of coal, grain and consumer goods. Omaha-based Berkshire’s power company, MidAmerican Energy Holdings Co., sells electricity to homes in the Great Plains and transports natural gas from Wyoming to California.

Praise From Buffett
Buffett routinely singles out and praises managers from Berkshire’s more than 70 operating companies. MidAmerican Chairman David Sokol and Gregory Abel, the unit’s CEO, are “two terrific managers,” Buffett said last year in his letter to shareholders. The acquisition of Burlington Northern had the “additional virtue” of bringing the railroad’s CEO, Matthew Rose, to Berkshire, Buffett said.

Buffett criticized Kraft Chief Executive Officer Irene Rosenfeld last year for her takeover of Cadbury Plc and the sale of the foodmaker’s pizza brands. “Both deals were dumb,” Buffett told Berkshire investors in May. Berkshire is the biggest shareholder of Kraft with a stake valued at $3.3 billion at the end of December.

“In the short run, good management can make a stock pop but I follow what Warren’s saying, especially because his point of view looks at the fundamentals,” said Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco, and a former managing director at Salomon Brothers. “Good management can’t do anything with a bad case.”

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Thursday, February 17, 2011

Where are all the gas station attendants?

When wages for gas jockeys got high enough, it was worthwhile for gasoline retailers to have customers pump their own gas. With credit card technology giving customers the option to pay at the pump, it was easy to make the switch. Unless you live in a state that forces gas stations to employ attendants, like New Jersey.

What's next? Well, the US won't need to print as many books, newspapers and magazines on paper, that's for sure. Furthermore, the print industry is a domestic business that is tied to the pulp & paper industry, the publishing industry, the trucking industry and the retail industry, to name a few. It cuts across a big swath of the US economy.

Meanwhile, eReaders are great. However, as great as eReaders are, they are made outside the US. But their content may well be domestic. Some of it could come from anywhere. Still, local news etc, is, well, local.

What are we going to do? As the eReaders prove -- again -- Americans embrace change, and that includes change that simply eliminates jobs without sending them to other countries.

Is Your Job an Endangered Species?

Technology is eating jobs—and not just obvious ones like toll takers and phone operators. Lawyers and doctors are at risk as well

So where the heck are all the jobs? Eight-hundred billion in stimulus and $2 trillion in dollar-printing and all we got were a lousy 36,000 jobs last month. That's not even enough to absorb population growth.

You can't blame the fact that 26 million Americans are unemployed or underemployed on lost housing jobs or globalization—those excuses are played out. To understand what's going on, you have to look behind the headlines. That 36,000 is a net number. The Bureau of Labor Statistics shows that in December some 4,184,000 workers (seasonally adjusted) were hired, and 4,162,000 were "separated" (i.e., laid off or quit). This turnover tells the story of our economy—especially if you focus on jobs lost as a clue to future job growth.

With a heavy regulatory burden, payroll taxes and health-care costs, employing people is very expensive. In January, the Golden Gate Bridge announced that it will have zero toll takers next year: They've been replaced by wireless FastTrak payments and license-plate snapshots.

Technology is eating jobs—and not just toll takers.

Tellers, phone operators, stock brokers, stock traders: These jobs are nearly extinct. Since 2007, the New York Stock Exchange has eliminated 1,000 jobs. And when was the last time you spoke to a travel agent? Nearly all of them have been displaced by technology and the Web. Librarians can't find 36,000 results in 0.14 seconds, as Google can. And a snappily dressed postal worker can't instantly deliver a 140-character tweet from a plane at 36,000 feet.

So which jobs will be destroyed next? Figure that out and you'll solve the puzzle of where new jobs will appear.

Forget blue-collar and white- collar. There are two types of workers in our economy: creators and servers. Creators are the ones driving productivity—writing code, designing chips, creating drugs, running search engines. Servers, on the other hand, service these creators (and other servers) by building homes, providing food, offering legal advice, and working at the Department of Motor Vehicles. Many servers will be replaced by machines, by computers and by changes in how business operates. It's no coincidence that Google announced it plans to hire 6,000 workers in 2011.

But even the label "servers" is too vague. So I've broken down the service economy further, as a guide to figure out the next set of unproductive jobs that will disappear. (Don't blame me if your job is listed here; technology spares no one, not even writers.)

• Sloppers are those that move things—from one side of a store or factory to another. Amazon is displacing thousands of retail workers. DMV employees and so many other government workers move information from one side of a counter to another without adding any value. Such sloppers are easy to purge with clever code.

• Sponges are those who earned their jobs by passing a test meant to limit supply. According to this newspaper, 23% of U.S. workers now need a state license. The Series 7 exam is required for stock brokers. Cosmetologists, real estate brokers, doctors and lawyers all need government certification. All this does is legally bar others from doing the same job, so existing workers can charge more and sponge off the rest of us.

But eDiscovery is the hottest thing right now in corporate legal departments. The software scans documents and looks for important keywords and phrases, displacing lawyers and paralegals who charge hundreds of dollars per hour to read the often millions of litigation documents. Lawyers, understandably, hate eDiscovery.

Doctors are under fire as well, from computer imaging that looks inside of us and from Computer Aided Diagnosis, which looks for patterns in X-rays to identify breast cancer and other diseases more cheaply and effectively than radiologists do. Other than barbers, no sponges are safe.

• Supersloppers mark up prices based on some marketing or branding gimmick, not true economic value. That Rolex Oyster Perpetual Submariner Two-Tone Date for $9,200 doesn't tell time as well as the free clock on my iPhone, but supersloppers will convince you to buy it. Markups don't generate wealth, except for those marking up. These products and services provide a huge price umbrella for something better to sell under.

• Slimers are those that work in finance and on Wall Street. They provide the grease that lubricates the gears of the economy. Financial firms provide access to capital, shielding companies from the volatility of the stock and bond and derivative markets. For that, they charge hefty fees. But electronic trading has cut into their profits, and corporations are negotiating lower fees for mergers and financings. Wall Street will always exist, but with many fewer workers.

• Thieves have a government mandate to make good money and a franchise that could disappear with the stroke of a pen. You know many of them: phone companies, cable operators and cellular companies are the obvious ones. But there are more annoying ones—asbestos testing and removal, plus all the regulatory inspectors who don't add value beyond making sure everyone pays them. Technologies like Skype have picked off phone companies by lowering international rates. And consumers are cutting expensive cable TV services in favor of Web-streamed video.

Like it or not, we are at the beginning of a decades-long trend. Beyond the demise of toll takers and stock traders, watch enrollment dwindle in law schools and medical schools. Watch the divergence in stock performance between companies that actually create and those that are in transition—just look at Apple, Netflix and Google over the last five years as compared to retailers and media.

But be warned that this economy is incredibly dynamic, and there is no quick fix for job creation when so much technology-driven job destruction is taking place. Fortunately, history shows that labor-saving machines haven't decreased overall employment even when they have made certain jobs obsolete. Ultimately the economic growth created by new jobs always overwhelms the drag from jobs destroyed—if policy makers let it happen.

Monday, February 14, 2011

There's Money in Dictatorship

When it comes to making money, being dictator of Egypt pays better than founding and leading Microsoft or running Berkshire-Hathaway. At this point it appears Mubarak stole $70 billion or $80 billion from the nation -- from the people of Egypt, most likely by pocketing aid money sent from the US and by diverting taxes and tariffs into his personal accounts.

Seventy or eighty billion? That's a lot of money.The per-capita GDP of Egyptians is about $6,000. Mubarak's assets amount to roughly $1,000 per Egyptian. Seems like a good way to improve the economy of Egypt is to distribute that money to the 80 million Egyptians. A grand apiece.

However, the money may be of little help now that Egypt has switched from being a tyrannical regime with one strong-man at the helm to a military dictatorship with generals at the helm.

If anyone is thinking the new regime is better than the old regime, well, guess again. The new regime has already suspended the Egyptian parliament and the nation's constitution. Bad signs. Meanwhile Obama is letting it happen. It's that soft spot for Islamic dictators that he has. It seems he simply cannot bring himself to practice a little gunboat diplomacy, you know, send the Mediterranean fleet to the mouth of the Nile and send the 7th Fleet toward Egypt. Maybe a submarine loaded with cruise missiles.

Democracy can be messy, but that's the way it goes. If Egypt is going to become a country for the people, by the people and of the people, then the process of people bumbling their way through has got to start as soon as possible, which means now. Giving them guidance is one thing, but pretending the military is in charge for the benefit of the people is a cruel lie that may lead to a lot of dead Egyptians who challenge military tanks with their only weapons, which appear to be stones.

Probe sought of Mubarak family's purported fortune
Egyptian anti-corruption campaigners seek probe of Mubarak family's purported hidden wealth

Sunday February 13, 2011

CAIRO (AP) -- Switzerland has frozen whatever assets Hosni Mubarak and his associates may have there, and anti-corruption campaigners are demanding the same of other countries. But experts say hunting for the deposed Egyptian leader's purported hidden wealth -- let alone recovering it -- will be an enormous task.

Mubarak's actual worth remains a mystery. A recent claim that he and his sons Gamal and Alaa may have amassed a fortune of up to $70 billion -- greater than that of Microsoft's Bill Gates -- helped drive the protests that eventually brought him down.

"Oh, Mubarak, tell us where you got 70 billion dollars!" protesters chanted in demonstrations before Egypt's ruler of 30 years was driven from office Friday, and left Cairo for a gated compound in the Red Sea resort of Sharm el-Sheikh.

Corruption was endemic in Mubarak's Egypt where 40 percent of the country's 80 million people live on $2 or less a day, and critics accused officials of usurping the nation's wealth. Egyptians have long complained of an unspoken policy of sweetheart deals that allowed top officials and businessmen to enrich themselves.

In recent days, watchdog groups and private lawyers have demanded that the country's chief prosecutor launch criminal investigations against the Mubaraks and some of their wealthy associates. Scores of former government officials have already been banned from travel and several, among them four former Cabinet ministers, have had their assets frozen.

How far these investigations will go ultimately depends on the political will of Egypt's leadership, said Eric Lewis, a partner with Washington-based law firm Baach, Robinson & Lewis, which specializes in international asset tracing and has done work in Kenya and Pakistan.

"What you often find is that while there's a kind of political impetus that seems to want to do it, the reality is that the real urge for transparency is more symbolic than real," Lewis said.

Far-reaching corruption probes could test the resolve of senior military officials who are running the country in the transition period. Some warn that a purge of Egypt's tycoons could make economic recovery from the political crisis more difficult.

Anti-corruption campaigners are calling for a speedy investigation and are urging countries other than Switzerland to freeze assets pre-emptively. "It's going to be a very difficult task, but in the interest of public money, things need to move now," said Omnia Hussien, Egypt expert at the advocacy group Transparency International.

The Mubaraks have never publicly discussed their assets. Hosni Mubarak's official monthly salary as president, counting benefits, came to 4,750 Egyptian pounds ($808), in 2007 and 2008, according to a Cairo think tank.

Rumors of hidden riches, such as expensive real estate in Britain, the United States and elsewhere, were fueled by the cozy ties between the Mubaraks and Egypt's business elite. The sale of state companies and public land for cheap, starting in the 1990s, were key sources of enrichment for the two sides, said Ahmed Elsayed Elnaggar, editor of Egypt's Economic Report.

"Privatization ... is the biggest corruption process in Egypt all over its history, from the period of the pharaohs, until now," he said.

In the past six months, two leading real estate companies have seen projects challenged in court over such alleged links.

In a case that captivated the country, Talaat Moustafa Group saw its $3 billion planned Madinaty community challenged on claims it was illegally awarded to the firm without the required bidding process, at a loss of $26 billion to the public coffers.

The country's highest administrative court upheld a ruling that the government had to re-offer the land, a decision that threatened to cast doubt on more than 100 other such projects in Egypt. Instead, a government-appointed committee re-awarded the contract, essentially on the same terms, arguing that it was in the national interest to retain the existing ownership and that TMG's work on the land had altered its value.

TMG had been headed by Hisham Talaat Moustafa, a former parliament member who was subsequently stripped of his immunity and sentenced to 15 years for ordering the murder of his Lebanese diva girlfriend.

Palm Hills Development, specializing in upscale residential compounds, faced a similar case -- and its ownership structure is a case study of the ties between public officials and the business world. Relatives of the recently fired housing minister and of a transportation minister who resigned in 2009 either hold stakes in or are on the board of one of the major shareholders of Palm Hills.

Mubarak's younger son, 47-year-old Gamal, set himself up as the director of a London-based investment firm called Medinvest Associates Ltd. in 1996, but resigned in 2001. Said Kaba, a current director of Medinvest, said the company is no longer linked to Mubarak's relatives, telling the Sunday Times in London that he knew little about the family's possible U.K. investments.

Medinvest, based in a stone-front building in London's swank Knightsbridge neighborhood, is listed as having one employee and 50,000 pounds sterling (nearly $80,000) of issued capital -- the minimum needed to get a trading certificate, operate a business and borrow. The company's profit and turnover weren't disclosed. Its net assets were valued at just over 225,000 pounds (nearly $360,000).

Gamal Mubarak is listed as the owner of 28 Wilton Place, a six-story Georgian townhouse a few blocks from Medinvest's office.

The Cairo-based Mideast investment bank EFG-Hermes said Gamal Mubarak holds an 18 percent share in a subsidiary, EFG Hermes Private Equity. The bank said Gamal Mubarak's relationship with the company began in 1997, before he entered politics, and was made public at the time. The banks said it "does not manage funds for the Mubarak family, nor has it received -- directly or indirectly -- any benefits or special consideration from the Egyptian government."

Gamal Mubarak entered politics in 2000 and quickly rose to the top of his father's ruling National Democratic Party. He was fired from the party's political bureau last week in what appeared to be a failed attempt by the regime to buy time and defuse public anger.

While corruption complaints up to now have focused on former top officials, Egyptian lawyer Ibrahim Youssri said he is seeking a criminal investigation of the Mubarak family. Youssri said the general prosecutor agreed to meet with him Monday to review the evidence.

"This is a really positive sign," Youssri said.

Officials in the prosecutor's office were not immediately available for comment.

Egypt can only start the long process of recovering assets once it launches criminal investigations, said Daniel Thelesklaf, who heads the Basel-based International Center for Asset Recovery. After that first step, Switzerland can release bank information, to be followed by the return of assets following convictions, he said.

Last month, after the ouster of another Mideast autocrat, Tunisia's Zine Al Abidine Ben Ali, Switzerland froze the bank assets, estimated at $620 million, of former Tunisian government officials.

Thelesklaf said recovering assets has become easier in recent years, with the adoption of international anti-corruption conventions. Egypt is a signatory, and so are the United Arab Emirates, touted as a possible retirement refuge for Mubarak.

The responsibility lies with the Egyptian authorities to get an investigation started, said Thelesklaf, noting that other countries with limited resources, such as Haiti and Nigeria, have managed to repatriate public funds. "If Nigeria can do it, Egypt can do it," he said.

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Monday, February 07, 2011

Cubans, aTwitter with thoughts of their next Revolution

The changes sweeping through the despotic regimes of the middle east have proven the value of Facebook, Twitter and other social-media venues. Seems that guys like Mark Zuckerberg deserve some credit for their role in overthrowing tyrants.

What can Mubarak do to save himself and his regime? He can order his military to start shooting. Undoubtedly some of his forces are loyal and will carry out those orders, if they're given. What would it take to gather world attention? One tank and its crew firing on protesters in Tahrir Square would do the trick. Would the bad news push Mubarak from office? Or maintain his hold? Hard to say.

As long as Obama sits on his hands while assuring Mubarak the US believes the Egyptian people should speak for themselves, we know Mubarak can open fire on crowds without fears of reprisals from one of his most loyal supporters -- Obama. Not quite the message Obama delivered to the Egyptian people in his big speech to them last year in Cairo.

Nevertheless, if Egyptians remain in contact with one another, they may well be able to maintain the bonds that make revolution possible and successful.

It's up to the US to give Cubans the ability to unite. Yes, Castro has the guns, but what's to stop the US from smuggling cell phones to Cuba? With the spectacular leverage of technology, it's beginning to look as though the pen, or word, is at least as mighty as the sword.

Will Cuba Be the Next Egypt? The most striking difference between the two countries is Internet access.

Developments in Egypt over the last two weeks brought Cuba to my mind. Why does a similar rebellion against five decades of repression there still appear to be a far-off dream? Part of the answer is in the relationship between the Castro brothers—Fidel and Raúl—and the generals. The rest is explained by the regime's significantly more repressive model. In the art of dictatorship, Hosni Mubarak is a piker.

That so many Egyptians have raised their voices in Tahrir Square is a testament to the universal human yearning for liberty. But it is a mistake to ignore the pivotal role of the military. I'd wager that when the history of the uprising is written, we will learn that Egypt's top brass did not approve of the old man's succession plan to anoint his son in the next election.

Castro has bought loyalty from the secret police and military by giving them control of the three most profitable sectors of the economy—retail, travel and services. Hundreds of millions of dollars flow to them every year. If the system collapses, so does that income. Of course the Egyptian military also owns businesses. But it doesn't depend on a purely state-owned economy. And as a recipient of significant U.S. aid and training for many years, the Egyptian military has cultivated a culture of professionalism and commitment to the nation over any single individual.

In Cuba there are no opposition political parties or nonstate media; rapid response brigades enforce the party line. Travel outside the country is not allowed without state approval. If peaceful dissidents with leadership skills can't be broken, they are eventually exiled. Or they are murdered.

The most striking difference between Cuba and Egypt is access to the Internet. In a March 2009 Freedom House report on Internet and digital media censorship world-wide, Egypt scored a 45 (out of 100), slightly worse than Turkey but better than Russia. Cuba scored a 90, making it more Net-censored than even Iran, China and Tunisia. Cellphone service is too expensive for most Cubans.

Yet technology does somehow seep into Cuba. When Fidel took the life of prisoner of conscience Pedro Boitel in 1972 by denying him water during a hunger strike, the world hardly noticed. By contrast, news of the regime's 2010 murder of prisoner of conscience Orlando Zapata Tamayo hit the Internet almost immediately and was met with worldwide condemnation. The military dictatorship was helpless to contain the bad publicity.

In a similar fashion, when the Ladies in White—a group of wives, sisters and mothers of political prisoners—walking peacefully in Havana were roughed up by state security last year, the images were captured on cellphones and immediately showed up on the Web. It was more bad PR for the Castro brothers and their friends like Mexican President Felipe Calderón and Spanish President José Luis Zapatero.

Technology-induced international pressure is making the regime increasingly reluctant to flatten critics the old-fashioned way. In an interview in Argentina's Ambito Financiero on Jan. 27, internationally recognized Cuban blogger Yoani Sánchez said the "style" of state repression has shifted from aggressive arrests and long sentences to targeted attempts at defamation and isolation. Ms. Sanchez also said that uniformed police are "distancing themselves from the political theme, not by orders from above, but because they no longer want to be associated with the repression." Now, she said, the intimidation and arbitrary arrests are largely carried out by the secret police in civilian clothes.

A little more space has emboldened the population. Ms. Sánchez also said in the interview that she is "optimistic about the slow and irreversible process of interior change in Cubans. In that the citizen critic will grow, will have less fear, and will feel that the mask is increasingly unnecessary and that it doesn't any longer translate into privileges and subsidies."

Last week a leaked video of a Cuban military seminar on how to combat technology hit the Internet. It demonstrates the dictatorship's preoccupation with the Web. The lecturer warns about the dangers of young people with an appealing discourse sharing information through technology and trying to organize. Real-time chat, Twitter and the emergence of young leaders in cyberspace—aka "a permanent battlefield"—are perils outlined in the hour-long talk. The lecturer also shares his concerns about U.S. government programs that try to increase Internet access outside of officialdom on the island.

On Friday, the regime further displayed its paranoia by charging U.S. Agency for International Development contractor Alan Gross with spying. Mr. Gross has been in jail for 14 months for giving Cuban Jews computer equipment so they could connect with the diaspora.

With very limited access, Cubans are already using the Internet to share what has until now been kept in their heads: counterrevolutionary thoughts. If those go viral, even a well-fed military will not be able to save the regime. But for now, Cubans can only dream about the freedoms Egyptians enjoy as they voice their grievances.

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