Thursday, March 31, 2011

Women and Math -- Men and Sex

Mad About the Gender Gap? Blame Nature

By Penelope Trunk | March 31, 2011

Author Bio

Biography: Penelope Trunk Penelope Trunk is the founder of three startups, most recently Brazen Careerist, a professional social network for young people. Previously she worked in marketing at Fortune 500 companies including Mattel and Hyundai. Her blog about career advice,, receives half a million visits a month and is syndicated in more than 200 newspapers. She frequently appears as a workplace commentator on CNN, 20/20 and FOX News. She's also the author of Brazen Careerist: The New Rules for Success, a bestselling career advice book for Generation Y.

According to a report in Nature News “A 2008 survey of U.S. universities by the National Science Foundation revealed that fewer than 30% of PhDs in the physical sciences were awarded to women. Higher up the ranks, women make up only about 10% of full professorships in physics-related disciplines.”

The question is, does this gender gap matter? Does it warrant policy change? Affirmative action? Encouraging girls in math? The answer to all these questions is a resounding no. Most gender gaps have closed in the US workplace. The remaining gaps are natural and fine for a respectful, equal-opportunity workplace.

For example, women are not great at math. We women can get by-in a world of mediocre performances. But in the world of hotshot math, women are outclassed. We should stop worrying about how to make things more equal and instead understand our gender differences.

Yet a study from psychologists Stephen Ceci and Wendy Williams of Cornell University found no evidence of gender bias during the interview and hiring process for science positions. What they found was there were simply fewer highly qualified women.

Live Science reports that women are uncomfortable in a male-dominated setting, and argues that maybe this is a reason there are few women infiltrating the hard sciences. However, that women have a hard time getting into an all-male department does not explain the change in English departments across college campuses. Those were once as male-dominated as the math departments, but women somehow overcame their anxiety of being in male-dominated situations and managed to infiltrate the Chaucer discussion.

It’s clear that men and women have different brains. For example, men always want to have more sex than women. You can find women who love sex, men who hate it, etc, but in terms of large populations, the male brain is much more wired to have indiscriminate sex.

One fundamental difference between the two brains is gray matter. And University of California at Irvine released solid data to explain why men are good at math.

“Evolution has created two different types of brains designed for equally intelligent behavior,” wrote Richard Haier, professor of psychology in the Department of Pediatrics and longtime human intelligence researcher, who led the study.

“In general, men have approximately 6.5 times the amount of gray matter related to general intelligence than women, and women have nearly 10 times the amount of white matter related to intelligence than men. Gray matter represents information processing centers in the brain, and white matter represents the networking of—or connections between—these processing centers.”

Gene Expression published a chart that shows the difference in brain makeup. This site also does a good job explaining why we should not suppress the discussion of male dominance in math. Just because we are uncomfortable with it doesn’t mean it’s not true.

Now that we have a few decades of data coming from girls who were encouraged to do math, we can say, with a decent amount of certainty, that the average performing girl is as good at math as the average performing boy.

The patterns Asperger Syndrome makes in populations also sheds light on extreme intelligence in men vs. women. At this point, we have enough data about Asperger’s syndrome to can say that the people who are incredibly terrible with language (white matter) or incredibly gifted with mathematical thinking (gray matter) are generally boys. Boys, rather than girls, populate the two extreme ends of the bell curve. In the middle, that is people who are decent at math, science and engineering, are equally boys and girls.

So it should not be surprising or controversial that studies repeatedly find that there are large gender differences among extremely gifted math students. More boys are gifted.

Now the world starts making sense. This is why there are more men in math and science positions in universities. This is why the hotshot companies in Silicon Valley are full of male engineers and not women. And this is why we need to stop complaining that science departments are boys clubs. It’s not just the department—high-end scientific thinking is a boys club

And before you get up in arms about gender differences, think about all the women who feel they are better suited than their husbands to stay home with the kids. This is not gender discrimination. This is millions of years of evolution that you simply can’t deny. Saying that men are better suited for one thing and women are better suited for another is not putting people down, or boxing them out - it’s allowing people to be their true selves. We already had a generation of boys playing with dolls. It was stupid. They turned the dolls into guns. These gender preferences are not social constructs, they are the result of evolution.

And anyway, maybe the real answer to why women don’t go into higher math is that the problems men solve using higher math do not interest women. For example, here’s a mathematician who has provided a proof that shows it’s mathematically impossible for men to have more sexual partners than women. Seriously.

Labels: ,

Wednesday, March 30, 2011

Money --Down the Infrastructure Drain

If it ain't broke, don't fix it. Major infrastucture spending can lead to bankruptcy.

Bankruptcy Threatens County

Officials of Alabama's Jefferson County are expected to meet with state lawmakers Wednesday to discuss how to avoid filing the largest municipal bankruptcy in U.S. history after a court disallowed a local tax.

The county, which has said its expenses will exceed its income by sometime in July, has been staving off bankruptcy for about three years, after absorbing $3.2 billion of debt resulting from a series of corrupt and disastrous decisions in financing a sewer-improvement project.

But its fate grew considerably bleaker earlier this month when the state supreme court affirmed a lower court ruling that a local occupational tax is unconstitutional. Losing the tax will leave the county with a revenue shortfall that is about a third of its operating budget.

The lost tax revenue represents roughly 44% of the revenues the county actually has control over for general operations due to the "earmarking" of most revenues for various purposes, said county finance Commissioner Jimmie Stephens.

Jefferson County, with a population of about 665,000, is home to the state's largest city, Birmingham. About 13.8% of its population lived below the poverty line in 2008, according to U.S. Census figures.

The pressure is on to address the county's situation as state legislators only meet until the end of May. Wednesday's meeting is the first formal one between all members of the five-person county commission as well as the entire Jefferson County legislative delegation, though less formal talks have been happening. The bones of a solution could emerge this week, Mr. Stephens said.

Like other municipalities amid the recession, Jefferson County has struggled to provide necessary services amid a decline in tax receipts. But the county has also been grappling with an unusual set of problems related to its debt.

The debt is the product of several financing decisions in the 2000s, such as borrowing at variable interest rates and using bond insurers that were later weakened in the credit crisis. Compounding problems was Jefferson County's use of derivatives called interest-rate swaps, with which it bet the wrong way on the direction of interest rates.

Several former Jefferson County officials have been convicted on corruption charges related to sewer-bond dealings.

If Jefferson County were to pursue a bankruptcy, its filing would be the largest ever by a municipality. Orange County, Calif., set the record in 1994 with around $2 billion of debt from various obligations.

Government officials generally try to avoid bankruptcy because a filing can result in higher future borrowing costs for not only the municipality that files, but also nearby local governments and the state itself.

A spokeswoman for Alabama Governor Robert Bentley, a Republican, said in an interview the governor would support a bankruptcy for Jefferson County, if that is what its officials decide is the best option.

Alabama doesn't have a formal oversight program for distressed municipalities, as some other states like Michigan and Pennsylvania do.

Jefferson County needs state aid to avoid bankruptcy because it doesn't have home-rule authority, or the ability to raise taxes or fees without approval from the state.

It also lacks fiscal flexibility: Jefferson County only has budgetary control over about 18% of its $942 million in total tax revenues, according to David Hooks, the county finance commissioner's chief of staff. The rest is "earmarked" for specific purposes.

Mr. Stephens, the commissioner, said state legislators could help by "unearmarking" revenue in the county's budget and giving it more control over its ability to raise new sources of revenue. He stressed that additional budget cuts could still have to be made.

Some observers in the muni-bond market doubt a bankruptcy can be avoided. The "loss of a major revenue source makes it much more likely," said Matt Fabian, managing director of Municipal Market Advisors, an independent research and strategy firm based in Concord, Mass.

Labels: ,

Assad -- The Mysterious "They" are at it again

Hillary Clinton said a Vast Right Wing Conspiracy was out to bring down her husband with its lies. Then Monica Lewinsky's blue dress with its stains appeared. Gaddafi says outside agitators including al-Qaeda were behind the unrest in Libya. Now Bashir Assad is getting in on the game.

Sure, there's a grain of truth in the claims made by all of them. So what? The basic issue is the fact that the opposition was right. Bill Clinton's transgressions were insignificant compared with the evil of Gaddafi and Assad. But they all play the game of Escape the same way. Blame some invisible group of people whose existence cannot be proved or disproved.

If Obama wanted to be the final catalyst for change in the Islamic world, he should stand by the rebelling populations and urge them on, letting the tyrants and despots running the troubled countries know that their time is up and the threat of US support for the rebels is real, and therefore, the leaders should go now, and go peacefully, or else.

Instead, our hapless muslim-in-chief president told Gaddafi that all he had to do to stop the NATO attacks on his forces was to stop killing Libyan citizens. Worse, he told Gaddafi that NO US ground troops would enter Libya.

For a tyrant on the run, what better news is there? Now he knows he can hunker down in the desert and wait for the storm to blow over. The best we can hope for is that one of our planes or a NATO jet fires a lucky shot that hits Gaddafi. But even if that happens, there's no guarantee his loyal troops will reveal his death.

Syrian president blames protests on 'conspirators'

DAMASCUS, Syria – Syrian President Bashar Assad blamed a wave of protests on "conspirators" who are trying to destroy the country, giving his first address to the nation Wednesday since the demonstrations erupted nearly two weeks ago.

As he entered Parliament for the speech, legislators chanted "God, Syria and Bashar only!" and "Our souls, our blood we sacrifice for you Bashar."

The speech is seen as a crucial test for his leadership and one that may determine Syria's future.

Assad said security forces were given "clear instructions" not to harm citizens during the protests.

Human rights groups say more than 60 people have been killed since March 18 in a crackdown on the protests.

The coming days will be key to determining whether Assad's concessions will quiet the protest movement, which started after security forces arrested several teenagers who scrawled anti-government graffiti on a wall in the impoverished city of Daraa in the south.

Assad also is expected to announce constitutional amendments and sweeping reforms, including an end to nearly 50 years of widely despised state of emergency laws that give the regime a free hand to arrest people without charges. On Tuesday, Assad fired his Cabinet in another move designed to pacify the anti-government protesters.

Labels: , , ,

Wednesday, March 23, 2011

Dick Durbin -- Islamic Terrorists Have Rights Too

Dick Durbin has a problem. He's got the same problem a lot of Americans have. He cannot get it through his head that Islam is a religion -- and much more. Islam is a religion, a political doctrine and a military. Because it is a political doctrine and a military, those who embrace this belief system are not protected by the Constitution. It's that simple. And there's 1,400 years of Islamic history that shows the world exactly where the practice of Islam leads.

Durbin wants to empower people who violently oppose virtually every right granted to us in the Constitution. Islam simply cannot tolerate Freedom of Speech nor Freedom of Relgion. Inasmuch as Islam proclaims that the Koran is the infallible word of their god, muslims do not permit the pursuit of anything that suggests their god is not all-knowing and all-powerful. That's a problem. A big problem.

Senate to hold hearings on Muslims' rights

March 22, 2011

Just weeks after House Republicans held a hearing looking at the dangers of radical Muslims in the U.S., Senate Democrats are countering with a hearing of their own, scheduled for after Congress returns from a 10-day vacation, to examine Muslims' civil rights.

Senate Majority Whip Richard J. Durbin, Illinois Democrat, announced the subcommittee hearing Tuesday, saying there has been a spike in anti-Muslim bigotry in the last year that demands closer attention.

“Our Constitution protects the free exercise of religion for all Americans,” Mr. Durbin said. “During the course of our history, many religions have faced intolerance. It is important for our generation to renew our founding charter’s commitment to religious diversity and to protect the liberties guaranteed by our Bill of Rights.”

The hearing will be the first ever before the Judiciary Committee's new subcommittee on the Constitution, civil rights and human rights, which Democrats created this year. Mr. Durbin is the chairman of the subcommittee.

Earlier this month House Homeland Security Committee Chairman Peter King, New York Republican, held the first in what he said will be a series of hearings to look at problems posed by radicalized Muslims in the United States.

In 2009, the latest FBi statistics available, anti-Islamic hate crimes accounted for 9.3 percent of the 1,376 religiously motivated hate crimes recorded. That's far less than the 70.1 percent that were anti-Jewish.

Labels: , ,

Monday, March 21, 2011


Is there any wonder why our Moon has affected us so?

Very close encounters of the 'super moon' kind: Amazing pictures of our lunar neighbour... the nearest it's been in 20 years

March 21st 2011

It looks like an intergalactic pilot is trying to cut the moon in half. In fact, this memorable image was created by a very Earthly vapour trail from a plane.

The shot is one of many extraordinary pictures of our nearest neighbour taken across the world this weekend, including a magical one below at Glastonbury Tor, Somerset.

As well as being full, the moon is currently relatively close to the Earth.

On Saturday it was 220,625 miles away, making it seem brighter and yellower and creating the eye-catching 'super moon' effect.

It was the first time since January 19, 1992, that the moon has been so close to the Earth. At its furthest, it can be 250,000 miles away.

Labels: ,

Saturday, March 19, 2011

Trump is a Card

I hope he does it. I hope he throws himself into the race and drives the debate into territory that matters. What a refreshing change that would be. Is Trump electable? No. He's not a politician. He's not a compromiser, which is good when you want to drive the campaign toward issues that matter. Meanwhile, he's got the power, prestige and money to inject himself into the middle of things and stop the other candidates from obsessing about inanities.

President Trump? Billionaire considering 2012 run
Contemplating presidential bid, Donald Trump hopes to say `You're Fired' to President Obama

Saturday March 19, 2011

NEW YORK (AP) -- Donald Trump boots contestants off his TV show with a famous two-word catch phrase: "You're fired." He may want the chance to say the same to President Barack Obama.

The real estate tycoon with the comb-over hairdo and in-your-face attitude plans to decide by June whether to join the field of GOP contenders competing in 2012 to make the Democratic incumbent a one-term president.

Trump insists he's serious. He rejects skeptics' claims that he's using the publicity to draw viewers to "Celebrity Apprentice," the NBC reality program he co-produces and hosts.

"The ratings on the show are through the roof. I don't need to boost the ratings," Trump told The Associated Press in a recent interview. "But the country is doing so badly. I wish there was someone in the Republican field I thought would be incredible because that's what we need right now."

If he runs, Trump would follow a well-worn path of wealthy businessmen who have sought the White House before. Recent examples include Christian Broadcasting Network founder Pat Robertson in 1988, tech mogul Ross Perot in 1992 and publishing executive Steve Forbes in 1996.

Michael Bloomberg, the billionaire New York City mayor, also has hinted at national political ambitions even as he says he won't enter the race.

Trump is prepared to spend as much as $600 million of his personal fortune on the race. "Part of the beauty of me is that I'm very rich," he told ABC's "Good Morning America."

He flirted with presidential campaigns in 1988 and 2000, but never did run.

So what makes the 2012 race any different?

Several political operatives in Washington and elsewhere say privately that Trump has reached out to them repeatedly in recent weeks to learn about the mechanics of running a campaign, asking questions about how much money he would need, what type of an organization he would have to build -- and whether he could win.

Publically, Trump has taken several steps to suggest he's not joking.

He delivered a well-received speech to the Conservative Political Action Committee conference last month in Washington. He's done interviews with reporters in Iowa, the first-in-the-nation caucus state, and is planning a trip in June to leadoff primary state New Hampshire for a presidential candidate's rite of passage -- appearing at a political breakfast series called Politics and Eggs. Last week, Michael Cohen, one of his top business advisers who is running a draft-Trump website, met with GOP activists in Iowa.

Some people close to Trump also say they think he just might take the plunge this time.

"I think he's looking at it fairly seriously, and he has the money and liquidity to do it. He'd make a very strong candidate," said Dick Morris, a Democrat-turned-Republican strategist whose father was Trump's lawyer for many years. "He's kind of sui generis, in his own category. He's someone who's accomplished things and won't take any crap."

Republican pollster John McLaughlin said the themes Trump is stressing would find a receptive audience among GOP primary voters.

"He has a message that's resonating: American decline, China rising, and that America needs to turn things around," McLaughlin said. "It's not a politically correct message and it will appeal to Republicans ... and could put him in major contention."

Famously brash, Trump minces few words when talking about his beliefs:

--China "has taken all of our jobs." The Organization of Petroleum Exporting Countries, the Mideast oil cartel, "is ripping us right and left. ... You're going to see $5 a gallon gas pretty soon."

--Japan, recovering from an earthquake and tsunami and trying to avert a nuclear disaster, has "ripped us off for years" as a trading partner.

--Obama should be pressed to disclose the original birth certificate. "When you look at what happens today, you look at the misconduct, the fraud and forgeries, you really want to see proof," Trump told the AP. Obama was born and grew up in Hawaii, and his 2008 campaign issued a certification of live birth -- an official document from the state.

--The "birther" movement has legitimate concerns, Trump told ABC. "The reason I have a little doubt, just a little, is because he grew up and nobody knew him."

Trump certainly has the strong opinions of a candidate.

But would the thrice-married billionaire known for his extravagant hotels and golf courses brave the mundane rituals of retail campaigning and the intense examination his business empire and personal wealth would draw?

"People thinking of running have to file a personal financial disclosure within 30 days of registering with the FEC. Does anyone really think that Donald Trump, under penalty of perjury, would file such a document?" campaign finance lawyer Jan Baran asked.

A candidacy also could present legal troubles given Trump's web of business interests.

While Trump is not formally connected to Cohen's draft effort, he allowed Cohen to use a Trump corporate jet for the trip. Trump booster and billionaire pharmaceutical executive Stewart Rahr paid for the trip, which led to a Federal Election Commission complaint from a supporter of Texas Republican Rep. Ron Paul.

Trump, 64, insists he's prepared for the scrutiny.

"I always heard if you're very, very successful, you can't run for high political office -- too many victories, fights and enemies," Trump told the AP. "And yet that's what this country needs. We can't have any more of what we're having."

Trump's past could dog him.

His divorce from first wife, Ivana, over his affair and subsequent marriage with actress Marla Maples made him a New York tabloid staple in the 1990s. He's been married since 2005 to Melania Knauss, a former model from Slovenia who is 24 years his junior. His three marriages produced five children, and he has two grandchildren.

He is known for finding ways to inject himself into news of the day. Last summer, for example, he offered to buy the building set to be turned into an Islamic center near ground zero in New York City.

His politics are all over the map.

He mulled an independent White House bid in 2000. He's made political contributions to many Democrats over the years, including New York Sens. Chuck Schumer and Kirsten Gillibrand and Senate Majority Leader Harry Reid of Nevada. Last year, Trump gave $50,000 to American Crossroads, a GOP-aligned group that spent millions to defeat Democrats nationwide.

The biggest question facing Trump may be not whether Republican voters will overlook all that. It may be whether he even wants to ask them to.

Labels: ,

XXX marks the G Spot

The G Spot, that is, the Gold Spot, of porn has been located. At the very least, the new ruling permitting .XXX domain names should give a big boost to the domain registry business.

For consumers the existence of the .XXX domain means the industry will identify itself online and make it easier for those who want to avoid it to do so. Meanwhile, with so much free porn on the internet, the profitability of porm is in question. How does the industry make money? The country has not reached the point where mainstream sellers of goods and services are advertising on porn sites. Who knows? Maybe we're in for a change.

Pornography Sites Will Be Allowed to Use .XXX Addresses

March 18, 2011

SAN FRANCISCO — The agency governing Internet addresses on Friday approved the creation of a new red-light district on the Web, but the decision may not end years of fighting over the contentious plan.

The Internet Corporation for Assigned Names and Numbers authorized the creation of an .xxx suffix for pornography Web sites. The decision was immediately slammed by some of the sex industry’s biggest names.

Industry members say they fear they could be subject to arbitrary censorship by governments and even by a new board overseeing the dot-xxx domain. They also say the plan would unfairly force existing pornography sites to register their sister domain names ending in xxx to prevent other businesses from using the names.

“Our industry is unanimously opposed,” said Diane Duke, executive director of the Free Speech Coalition, a trade association representing more than 1,000 pornography businesses. Ms. Duke said that she expected the association’s members, which include companies like Hustler and Adam & Eve, to continue to use dot-com addresses. She also said the association was considering its legal options.

The dot-xxx registry was also opposed by some religious groups, who feared that the new domain would lead to the further spread of pornography on the Internet.

The decision is a big win for ICM Registry, a Florida-based company that first applied for the dot-xxx domain in 2004. ICM will oversee the domain and profit from it. Its chief executive, Stuart Lawley, dismissed his detractors.

“The opposition has been very small and very vocal,” he said. “It has been completely overblown.”

He said sites in the dot-xxx domains would be scanned daily for viruses and would be offered a payment-processing system that customers would be able to trust.

“Everybody wins,” said Mr. Lawley. “The consumer of adult sites wins. The providers will benefit because more people will become paying customers. And those who don’t want to go there will win as well, because the sites will be easier to filter.”

Mr. Lawley said tens of thousands of businesses had already reserved some 200,000 dot-xxx domains. Each registration will cost $60 a year.

Peter Dengate Thrush, the chairman of the Internet Corporation for Assigned Names and Numbers board, said in an interview that the vote vindicated the accountability of his organization. The corporation had originally opposed the application by ICM Registry in 2007. But after ICM appealed, the organization tentatively reversed that vote in June, and said that its decision to give the project a green light was made purely on technical grounds.

“This is a test of our accountability mechanisms,” Mr. Thrush said. “In the end, I think the system was able to cope with a contentious matter. We are trying to build a self-regulating industry, and this is self-regulation at work.”

Mr. Thrush said that some established Web sites probably opposed the new dot-xxx domains for business reasons.

“We heard from a number of them that they didn’t want it,” Mr. Thrush said. “The board wasn’t persuaded by their arguments. They are incumbents, and they are trying to oppose a new entrant.”

Nine board members voted to approve the registry, and three voted against it.

Labels: , , ,

Thursday, March 17, 2011

Gaddafi comes to the end of the road

Even though the UN finally approved military force against Gaddafi, it's not clear the US will take an active or leading role in the removal of this brutal thug who is threatening to wipe out his citizens. Obama remains the Invisible Man, who seems genuinely pained at the thought of removing a fellow muslim from his position of power.

U.N. okays military action on Libya

TRIPOLI/UNITED NATIONS (Reuters) - The United Nations authorised military action to curb Libyan leader Muammar Gaddafi on Thursday, hours after he threatened to storm the rebel bastion of Benghazi overnight, showing "no mercy, no pity."

"We will come, zenga, zenga. House by house, room by room," he said in a radio address to the eastern city.

Al Jazeera television showed thousands of Benghazi residents in a central square celebrating the U.N. vote, waving anti-Gaddafi tricolour flags and chanting defiance of the man who has ruled for four decades. Fireworks burst over the city.

Gaddafi had warned that only those who lay down their arms would be spared vengeance to be exacted on 'rats and dogs'.

"It's over. The issue has been decided," Gaddafi said. "We are coming tonight...We will find you in your closets.

"We will have no mercy and no pity."

The U.N. Security Council passed a resolution endorsing a no-fly zone to halt government troops now around 100 km (60 miles) from Benghazi. It also authorised "all necessary measures" -- code for military action -- to protect civilians against Gaddafi's forces.

But time was clearly running short for the city that has been the heart of Libya's revolution.

Residents said the Libyan air force unleashed three air raids on the city of 670,000 on Thursday and there has been fierce fighting along the Mediterranean coastal road as Gaddafi moves to crush the month-old insurrection.

French diplomatic sources said military action could come within hours, and could include France, Britain and possibly the United States and one or more Arab states; but a U.S. military official said no immediate U.S. action was expected following the vote.

Ten of the Council's 15 member states voted in favour of the resolution, with Russia, China and Germany among the five that abstained. There were no votes against the resolution, which was co-sponsored by France, Britain, Lebanon and the United States.

Rebel National Council head Mustafa Abdel Jalil told Al Jazeera television air strikes were essential to stop Gaddafi.

"We stand on firm ground. We will not be intimidated by these lies and claims... We will not settle for anything but liberation from this regime."

It was unclear if Gaddafi's threat to seize the city in the night was anything more than bluster. But at the very least it increased the sense that a decisive moment had come in an uprising that only months ago had seemed inconceivable.

Some in the Arab world sense a Gaddafi victory could turn the tide in the region, weakening pro-democracy movements that have unseated autocrats in Tunisia and Egypt and raised mass protests in Bahrain, Yemen and elsewhere.


By late evening, telephone lines to Benghazi and internet connections appeared to be cut.

Gaddafi's Defence Ministry warned of swift retaliation, even beyond Libyan frontiers, if the U.N. voted for military action against the oil-exporting nation.

"Any foreign military act against Libya will expose all air and maritime traffic in the Mediterranean Sea to danger and civilian and military (facilities) will become targets of Libya's counter-attack," the ministry said in a statement

Taxing ourselves to death, and into the hereafter

Why does the US need H&R Block? Why do so many people and companies need an army of tax accountants and tax attorneys? For those who hold these jobs, there may be some bad news ahead. If we had it in us to simplify the tax code -- mainly by eliminating all the special credits, deductions and favors granted by the government to groups that enjoy momentary goodwill of legislators, a lot of the people working in the tax field would need to find a new line of work.

If we went all the way and set the corporate tax rate at ZERO percent, then accounting gimmicks like "depreciation" would lose all meaning. In other wrods, all money left over after the bills are paid would be Profits, available to the owners, where it would be taxed as ordinary income.

There is no doubt a simplified tax system would keep the same, if not more revenue flowing into the Treasury. at the same time it would make taxation fairer by ending the possibility of exploiting convoluted legislation to lower one's bill.

The easiest place to start is with the mortgage interest deduction. Who needs it? This outdated gambit inflates housing prices while offering no true advantage to homeowners. Moreover, most leading nations in the world do NOT permit the mortgage interest deduction. The absence of this tax favor has not harmed the housing industries of those nations.

Tax Plan Aims for 25% Cap

Republican Ways and Means Chief Also Would End or Trim Popular Deductions

The chairman of the House Ways and Means Committee wants to cut the top U.S. tax rate to 25% for individuals and corporations, and cut or eliminate many popular deductions.

The odds of quick action appear slender. But the move, from Rep. Dave Camp (R., Mich.), is significant as a marker in what will likely be a multiyear debate over revamping the tax code. The plan also provides Republicans with a position to pitch in the 2012 election, a campaign that promises to focus heavily on the economy and jobs.

"America needs a tax code that promotes, not prevents, job creation," he said. "Today's code is simply too complex, too costly and too burdensome for families and employers of all sizes to comply with.…We need to set ambitious goals and work toward those, because if we don't try that will be the biggest failure of all."

Mr. Camp's tax overhaul isn't designed to specifically cut the U.S. budget deficit. Overall tax revenues would remain at recent average levels, or about 18% to 19% of gross domestic product, committee aides said.

Some lawmakers want to raise tax revenue as part of a fiscal fix that also includes long-term reductions in entitlement spending growth. A deficit-reduction panel set up by President Barack Obama last year recommended lowering top tax rates to 28%, in one scenario, while increasing federal tax revenue to about 21% of GDP.

Rep. Richard Neal of Massachusetts, a top Ways and Means Democrat, said Mr. Camp's proposal faces difficult going. "As long as tax reform is offered in the abstract, everyone rallies to the cause," Mr. Neal said. "When it becomes specific, people start to fall off."

Current top tax rates for corporations and individuals stand at 35%, although many people and businesses pay lower effective rates due to a range of deductions and other breaks.

Many Democrats also have voiced support for lowering tax rates, particularly for corporations. In his State of the Union address, President Barack Obama expressed support for lowering corporate tax rates while closing loopholes and other special breaks. The president also talked about the need to simplify the individual code. Mr. Obama's budget proposes raising taxes on high-income earners after 2012, however.

White House and Treasury officials have focused on achieving corporate-level reform in the near term. That's a strategy that could spare corporations from some of the pressures of deficit reduction. The White House declined to comment on Mr. Camp's proposal.

Tax experts said lowering tax rates to 25% might require Congress to find $2 trillion in new revenue over a decade if Mr. Camp wants to offset the entire cost, reflecting the magnitude of the rate changes. Aides said the rate reductions would be achieved by reducing or eliminating tax deductions and credits.

Aides didn't specify which ones would be targeted. The largest deductions include those for home-mortgage interest and state and local taxes, and the exclusion of employee health care from income. Big corporate breaks include accelerated depreciation deductions and a tax break for domestic production.

Michael Ettlinger, vice president for economic policy at the liberal Center for American Progress, said the plan would produce unsustainably high deficits because neither political party is able to make spending cuts that would allow the U.S. to function on the tax income Mr. Camp's plan suggests. "There is no way we can provide anywhere near the services that the public demands at those levels of taxes," Mr. Ettlinger said.

Mr. Camp and his Senate counterpart, Finance Committee Chairman Max Baucus (D., Mont.), have ordered studies of some elements of the current tax code, including tax treatment of debt versus equity financing, as well as tax treatment of certain financial derivatives.

A tax overhaul is emerging as an increasingly urgent goal. Businesses complain that federal tax rates are among the highest in the world, following years of reductions in Europe and Asia. That is hurting U.S. multinationals' competitiveness overseas and tamping foreign investment in the U.S., analysts say.

At the same time, policymakers are eager to boost U.S. growth, not only to generate jobs at home but also to increase federal tax receipts and reduce government budget deficits.

The top U.S. tax rate for both individuals and corporations has been 35% for most of the past decade since President George W. Bush pushed through his big tax cut for individuals in 2001. Previously, the top rate for individuals was 39.6%. Mr. Obama proposes to return the rate for individuals to 39.6%.An analysis by the conservative Heritage Foundation concluded that reducing the corporate rate to 25% would help generate more than 500,000 jobs a year over the coming decade.

Labels: , ,

Jimmy Carter Redux -- The Wilting of Obama

When the opportunity to change the world for the better is dropped into the lap of a president, what should he do? Seize the historic moment to make the world a better place? Or dither? Obama has chosen dithering.

Has he had an emotional breakdown? According to news reports, rather than wrestle with world problems and direct them toward outcomes that are good for everyone except some brutal dictators, he's going to Rio. Has his desire to duck the biggest revolutionary change the world is likely to see for many many years evidence that he's had enough of being president?

After saying he thought it would be easier to be the president of China, it looks as though he's fed up and willing to concede the next election even before America goes to the polls. That's good.

The Collapse of Internationalism The Obama foreign-policy team utterly fails its first real-world test in Libya.


Not the 28 members of NATO, not the 15-member U.N. Security Council, not the 22 nations of the Arab League could save Libya's rebels from being obliterated by the mad and murderous Moammar Gadhafi. The world has just watched the collapse of internationalism.

The world's self-professed keepers of international order, from Brussels to Turtle Bay, huffed and puffed, talked and threatened. And they failed. Utterly.

But what we've watched is not merely the failure of the gauzy notion of "internationalism." It's more specific than that. What has collapsed here is the modern Democratic Party's new foreign-policy establishment.

Barack Obama is the first Democratic president to assemble a foreign-policy team made up entirely of intellectuals who for years have developed a counter-thesis to the policies of presidents extending back to John F. Kennedy. We are in a "post-American world," they have argued, in which the U.S. is obliged to pursue its interests in concert with the rest of the world's powers, never alone.

The uprisings against autocracies in 10 separate Middle Eastern countries, a crisis inherited from no one, was their real-world test. In Egypt, they fumbled. In Libya, they have failed.

The poster boy for this internationalist view is White House deputy Ben Rhodes, who told a reporter last week: "This is the Obama conception of the U.S. role in the world—to work through multilateral organizations and bilateral relationships to make sure that the steps we are taking are amplified."

Days later, bemused Libyan rebel spokesman Essam Gheriani remarked in Benghazi: "Everyone here is puzzled as to how many casualties the international community judges to be enough for them to help. Maybe we should start committing suicide to reach the required number."

Mr. Rhodes' view isn't just briefingspeak. The new Democratic theory of the proper U.S. role in the world was articulated in a July 2008 document, "Strategic Leadership: Framework for a 21st Century National Security Strategy." It described itself as "an intellectual and policy blueprint for the next administration."

Its authors included James B. Steinberg, who is now Mr. Obama's deputy secretary of state; Ivo Daalder, now U.S. ambassador to NATO; and Anne-Marie Slaughter, until a month ago the State Department's director of policy planning. Susan Rice, who is now our ambassador to the United Nations, wrote the preface.

Their blueprint, a tour of the world's regions, counsels constant multilateral cooperation, institution-building and consultation. While it admits U.S. preeminence, it is largely a meditation on the limits of American power and authority. This is the document's final, summarizing sentence: "And such [U.S.] leadership recognizes that in a world in which power has diffused, our interests are best protected and advanced when others step up and at times lead alongside or even ahead of us."

In the Middle East, no one has stepped up, no one is leading alongside and our allies are in the rear, accomplishing nothing while they wait for . . . America.

This was a test case, and what we have seen is that a world in which the U.S. doesn't unmistakably lead is a world that spins its wheels, and eventually the wheels start to come off. When the U.S. instructs the Saudis not to intervene in Bahrain, and the Saudi army does precisely the opposite, the wheels are coming off the international order.

In an op-ed piece for the New York Times this week, "Fiddling While Libya Burns," the recently departed State Department planner Anne-Marie Slaughter wrote a cri de coeur on behalf of doing something for Libya. "The United States and Europe are temporizing on a no-flight zone," she wrote. It was a remarkable call to action—until the final two paragraphs. She concludes that the U.S. "should ask the Security Council to authorize a no-flight zone," (by asking Russia and China to abstain). If that works, then with the Arab League, we "should assemble an international coalition to impose the no-flight zone." Finally, failing all that, we should work with the Arab League to give the Libyan opposition "any assistance it requests."

But Benghazi will be dead by the time this calibration grinds down to Ms. Slaughter's bottom line. After Mr. Obama met with his national security team Tuesday, with Gadhafi one demolished town from Benghazi, the White House said, "The President instructed his team to continue to fully engage in the discussions at the United Nations, NATO and with partners and organizations in the region." Barack Obama is following their blueprint to a tee.

In a better world, James Steinberg, Ivo Daalder and Susan Rice would join Ms. Slaughter in resigning and calling for action to save Benghazi from outside the government. Being inside is manifestly useless. They are defaulting the U.S. into a dangerous irrelevance.

Libyan rebel commander Mohammed Abdallah, in bombed-out Ajdabiya, put the spike into them Tuesday: "The hands of the international community are covered in blood." But the "international community" was never much more than a academic abstraction, and blood, as always, can be washed off.

Labels: , ,

Tuesday, March 15, 2011

Well Oiled Machine

The latest Buffett acquisition looks like another great deal for Berkshire and its shareholders. Maybe it's time to create an ETF built around the companies he's most likely to buy.

Buffett Still Gets Lubrizol at Lehman-Bust Price After 183% Gain: Real M&A

March 14 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. agreed to buy Lubrizol Corp., the world’s largest producer of lubricant additives, for about $9 billion in the cash-flush investor’s second-biggest acquisition in the past five years. Berkshire will pay $135 a share in cash, 28 percent more than Lubrizol’s closing share price on March 11, the Omaha, Nebraska-based company said in a statement today.

Warren Buffett is still getting the same discount for his takeover of Lubrizol Corp. (LZ) even after the maker of engine lubricant almost tripled since the billionaire investor said it was time to start buying U.S. equities.

Berkshire Hathaway Inc. (BRK/A) will pay about $9 billion for Lubrizol in its second-largest purchase since Buffett said in October 2008 he was staking his personal fortune to American stocks. While Lubrizol surged 183 percent over that span, its equity and net debt was valued at 5.8 times earnings before interest, taxes, depreciation and amortization prior to yesterday’s announcement, according to data compiled by Bloomberg. That compares with 5.7 times when Buffett made his comments a month after Lehman Brothers Holdings Inc. collapsed.

Even with a 24 percent premium, the Ebitda multiple that Buffett is paying for Wickliffe, Ohio-based Lubrizol is still the cheapest for a specialty chemicals company in 12 years, data compiled by Bloomberg show. Lubrizol has doubled earnings and its operating margin in the past two years and controls 35 percent of sales in an industry dominated by four companies.

“Being an excellent investor means you don’t overpay,” said Brian Barish, Denver-based president of Cambiar Investors LLC, which oversees $7 billion. “It’s a pretty good deal for Buffett in terms of the kind of stuff that he tends to gravitate towards.”

Barish’s $1.44 billion Cambiar Opportunity Fund (CAMOX) has outperformed 99 percent of rival funds over the past year.

‘Major Acquisitions’

Buffett didn’t respond to a request for comment e-mailed to his assistant, Carrie Kizer. Julie Young, a spokeswoman for Lubrizol, didn’t respond to a telephone call and e-mail.

The Lubrizol deal comes two weeks after the billionaire said in his annual letter to shareholders on Feb. 26 that he was looking for “more major acquisitions,” a year after spending $26.5 billion to buy Burlington Northern Santa Fe railroad in his largest purchase.

Buffett said Omaha, Nebraska-based Berkshire, whose cash rose to a three-year high of $38.2 billion, needed more buyouts and that his “trigger finger is itchy.”

Lubrizol, the world’s largest producer of lubricant additives, was one of more than 40 companies that Bloomberg identified this month that fit criteria listed in his letter.

Buffett typically prefers “simple” businesses with pretax profit exceeding $75 million, “consistent” earning power, and “good” returns on equity while employing little or no debt, according to his report. His takeover strategy has shifted as Berkshire has grown to focus on “capital intensive businesses,” such as power producers and railroads, which require consistent investment in infrastructure and equipment.

Relative Value

Lubrizol’s capital expenses in the past 12 months accounted for 15 percent of net fixed assets, and its average price- earnings ratio over five years was 11.9, data compiled by Bloomberg show.

The maker of engine lubricant posted a return on equity of 34 percent last year, the highest for a company taken over in the specialty chemicals industry in a deal worth more than $1 billion since Inspec Group Plc in 1998, the data show.

Lubrizol also makes plastics used in pipes, auto parts and electronics; Carbopol polymer for personal-care products such as hair gel; and acrylic resins and other materials for coatings.

Berkshire is acquiring Lubrizol after its stock reached a high of $114.81 on Oct. 25, 2010. The shares climbed 183 percent from Buffett’s comments in October 2008 to $105.44 on March 11, the last day of trading before the deal was announced. Lubrizol fell 72 cents to $133.96 at 9:48 a.m. on the New York Stock Exchange after surging 28 percent yesterday.

‘Got Good Value’

“The stock has gone up a lot,” said John Carey, a Boston- based money manager at Pioneer Investments, which oversees about $250 billion. “He’s not getting it at as cheap a price as he might have. He evidently feels that it’s still got good value.”

Lubrizol’s trailing 12-month Ebitda doubled during the same period to $1.26 billion, keeping the company’s enterprise value -- or the sum of its equity and debt minus cash -- to Ebitda multiple little changed, data compiled by Bloomberg show.

Buffett wrote in the New York Times on Oct. 17, 2008, that exaggerated concern about the long-term prosperity of financially secure U.S. companies was foolish, and most would be setting profit records in years to come. A month earlier, New York-based Lehman had filed for the largest bankruptcy in history, deepening a global credit crisis and the worst American recession since the Great Depression.

‘Run the Math’

The $135-a-share price for Lubrizol represented a premium of 24.2 percent over the 20-day trading average. That’s in line with the 24.8 percent average for Berkshire takeovers, according to data compiled by Bloomberg.

“I don’t even need to run the math,” said Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., which manages $341.3 billion. “I’m completely confident that he has established the normal parameters of his valuation disciplines.”

The agreement to buy Lubrizol at 7.3 times Ebitda is the cheapest takeover of a specialty chemicals company greater than $500 million since Imerys SA (NK) in Paris paid 5.4 times for English China Clays in 1999, according to data compiled by Bloomberg.

The bid is even lower at 6.7 times estimated 2011 Ebitda of $1.38 billion, according to the average of analysts’ estimates compiled by Bloomberg.

“Berkshire is getting an attractive valuation,” said Laurence Alexander, a New York-based analyst at Jefferies Group Inc. who recommends buying the shares. “The deal suggests Berkshire is more upbeat about the sustainability of margins.”

‘Worry About’

Lubrizol has the largest share in the lubricant additives industry, where more than 90 percent of sales are controlled by four companies, said Michael Sison, a Cleveland-based analyst at KeyBanc Capital Markets. They have been able to raise prices to recoup oil-based raw materials costs and limit capacity additions, he said.

“Pricing power seems to be something that this company does not have to worry about,” Dmitry Silversteyn, an analyst at Longbow Research in Independence, Ohio, said of Lubrizol.

Lubrizol’s operating margin, or the amount of income retained for each dollar of sales, climbed to 20 percent last year from 9.1 percent in 2008.

The company’s lubricant additives business brought in $3.9 billion, or 72 percent of revenue last year, while advanced materials made up 28 percent of sales.

‘American Industry’

“It’s a relatively easy business to understand and one that Buffett can really get his arms around at a decent price,” said Jack Ablin, chief investment officer at Chicago-based Harris Private Bank, which oversees $55 billion and owned Lubrizol shares as of Dec. 31. “Future growth prospects are rather predictable. It’s a Buffett bet on industrial growth, on the growth of American industry.”

The Lubrizol acquisition now leaves Buffett with about $29 billion in cash, data compiled by Bloomberg show.

With Berkshire generating almost $1 billion in free cash flow a month and near zero percent interest rates limiting returns in fixed-income markets, Buffett will probably be eyeing more takeovers, Cambiar’s Barish said.

Excluding Lubrizol, there are still 34 companies with market values from $4 billion to $20 billion that have capital expenses accounting for at least 5 percent of their net fixed assets; a return on equity exceeding 10 percent; profit growth in the past five years that ranked in the top 50 percent; and an average price-earnings ratio in that span that was less than the median in the Standard & Poor’s 500 Index, according to data compiled by Bloomberg.

Buffett’s Criteria

The list includes discount retailer Dollar Tree Inc. (DLTR) of Chesapeake, Virginia; Hormel Foods Corp. (HRL), the Austin, Minnesota- based maker of Spam luncheon meat; and Joy Global Inc. (JOYG), the Milwaukee-based mining-equipment maker that sells drills and shovels.

“It sounds like he does intend to buy more stuff,” said Cambiar’s Barish. “He really does want to get cash to work in good businesses that are durable franchises that will benefit from economic strength. That’s clearly what he’s trying to do.”

Overall, there have been 4,604 deals announced globally this year, totaling $457.7 billion, a 13 percent increase from the $403.6 billion in the same period in 2010, according to data compiled by Bloomberg.

Labels: , , , , ,

Energetic North Dakota Explains it All

Why North Dakota Is Booming

They're drilling for oil, attracting high tech, and keeping the tax burden moderate. Result: 3.8% unemployment


Living on the harsh, wind-swept northern Great Plains, North Dakotans lean towards the practical in economic development. Finding themselves sitting on prodigious pools of oil—estimated by the state's Department of Mineral Resources at least 4.3 billion barrels—they are out drilling like mad. And the state is booming.

Unemployment is 3.8%, and according to a Gallup survey last month, North Dakota has the best job market in the country. Its economy "sticks out like a diamond in a bowl of cherry pits," says Ron Wirtz, editor of the Minneapolis Fed's newspaper, fedgazette. The state's population, slightly more than 672,000, is up nearly 5% since 2000.

The biggest impetus for the good times lies with energy development. Around 650 wells were drilled last year in North Dakota, and the state Department of Mineral Resources envisions another 5,500 new wells over the next two decades. Between 2005 and 2009, oil industry revenues have tripled to $12.7 billion from $4.2 billion, creating more than 13,000 jobs.

Already fourth in oil production behind Texas, Alaska and California, the state is positioned to advance on its competitors. Drilling in both Alaska and the Gulf, for example, is currently being restrained by Washington-imposed regulations. And progressives in California—which sits on its own prodigious oil supplies—abhor drilling, promising green jobs while suffering double-digit unemployment, higher utility rates and the prospect of mind-numbing new regulations that are designed to combat global warming and are all but certain to depress future growth.

In North Dakota, by contrast, even the state's Democrats—such as Sen. Kent Conrad and former Sen. Byron Dorgan—tend to be pro-oil. The industry services the old-fashioned liberal goal of making middle-class constituents wealthier.

Oil also is the principal reason North Dakota enjoys arguably the best fiscal situation in all the states. With a severance tax on locally produced oil, there's a growing state surplus. Recent estimates put an extra $1 billion in the state's coffers this year, and that's based on a now-low price of $70 a barrel.

North Dakota, however, is no one-note Prairie sheikdom. The state enjoys prodigious coal supplies and has—yes—even moved heavily into wind-generated electricity, now ranking ninth in the country. Thanks to global demand, North Dakota's crop sales are strong, but they are no longer the dominant economic driver—agriculture employs only 7.2% of the state's work force.

Perhaps more surprising, North Dakota is also attracting high-tech. For years many of the state's talented graduates left home, but that brain drain is beginning to reverse. This has been critical to the success of many companies, such as Great Plains Software, which was founded in the 1980s and sold to Microsoft in 2001 for $1.1 billion. The firm has well over 1,000 employees.

The corridor between Grand Forks and Fargo along the Red River (the border between North Dakota and Minnesota) has grown rapidly in the past decade. It now boasts the headquarters of Microsoft Business Systems and firms such as PacketDigital, which makes microelectronics for portable electronic devices and systems. There are also biotech firms such as Aldevron, which manufactures proteins for biomedical research.

Between 2002 and 2009, state employment in science, technology, engineering and math-related professions grew over 30%, according to EMSI, an economic modeling firm. This is five times the national average.

While the overall numbers are still small compared to those of bigger states, North Dakota now outperforms the nation in everything from the percentage of college graduates under the age of 45 to per-capita numbers of engineering and science graduates. Median household income in 2009 was $49,450, up from $42,235 in 2000. That 17% increase over the last decade was three times the rate of Massachussetts and more than 10 times that of California.

Some cities, notably Fargo (population 95,000), have emerged as magnets. "Our parking lot has 20 license plates in it," notes Niles Hushka, co-founder of Kadrmas, Lee and Jackson, an engineering firm active in Great Plains energy development. Broadway Drive in Fargo's downtown boasts art galleries, good restaurants and young urban professionals hanging out in an array of bars. This urban revival is a source of great pride in Fargo.

What accounts for the state's success? Dakotans didn't bet the farm, so to speak, on solar cells, high-density housing or high-speed rail. Taxes are moderate—the state ranks near the middle in terms of tax per capita, according to the Tax Foundation—and North Dakota is a right-to-work state, which makes it attractive to new employers, especially in manufacturing. But the state's real key to success is doing the first things first—such as producing energy, food and specialized manufactured goods for which there is a growing, world-wide market.

This is what creates the employment and wealth that can support environmental protection and higher education.

Thankfully, this kind of sensible thinking is making a comeback in some other states, such as Ohio and Pennsylvania. These hard-pressed states realize that attending to basic needs—in their case, shale natural gas—could be just the elixir to resuscitate their economies.

Mr. Kotkin is a teaches at Chapman University and is an adjunct fellow at the London-based Legatum Institute.

Labels: ,

Monday, March 14, 2011

Smooth Move by Buffett

Once again Warren Buffett makes an interesting purchase.

Berkshire Hathaway Will Acquire Lubrizol for About $9 Billion

Warren Buffett’s Berkshire Hathaway Inc. agreed to buy Lubrizol Corp., the world’s largest producer of lubricant additives, for about $9 billion in the cash-flush investor’s second-biggest acquisition in the past five years.

Berkshire will pay $135 a share in cash, 28 percent more than Lubrizol’s closing price on March 11, Omaha, Nebraska-based Berkshire said in a statement today. The purchase includes an additional $700 million of net debt.

Buffett is using his almost $40 billion pile of cash to pursue bigger acquisitions after Berkshire generated about $1 billion in free cash flow a month last year and as interest rates near zero percent limited returns in fixed-income markets. The 80-year-old told investors last month that his “elephant gun has been reloaded, and my trigger finger is itchy.” The purchase is Buffett’s second-largest since 2006 after his agreement in 2009 to buy Burlington Northern Santa Fe railroad, according to data compiled by Bloomberg.

“Lubrizol is exactly the sort of company with which we love to partner -- the global leader in several market applications run by a talented chief executive officer, James Hambrick,” Buffett said in the statement.

The purchase will generate profits for Berkshire for decades, though returns will be limited because Lubrizol shares have already more than quadrupled from their 2009 lows, said hedge-fund manager Jeff Matthews.

‘Around Forever’

“It’s going to be around forever because you need this stuff to run the world,” said Matthews, who wrote “Pilgrimage to Warren Buffett’s Omaha” and invests in Berkshire. “He’s not stealing it.”

In his annual report to shareholders last month, Buffett said he prefers “simple” businesses with pretax profit exceeding $75 million, “consistent” earnings power, and “good” returns on equity while employing little or no debt.

Lubrizol was one of about 40 companies with market capitalization between $4 billion and $40 billion that had capital expenses accounting for at least 5 percent of their net fixed assets; a return on equity exceeding 10 percent; profit growth in the past five years that ranked in the top 50 percent; and an average price-earnings ratio in that span that was less than the median in the Standard & Poor’s 500 Index, data compiled by Bloomberg show.

Berkshire and Lubrizol said they expect the purchase to be completed in the third quarter. Lubrizol will operate as a subsidiary of Berkshire and remain based in Wickliffe, Ohio. Lubrizol had revenue of $1.32 billion in the fourth quarter and adjusted earnings per share in the period of $2.45, the company said last month.

Labels: , ,

Wednesday, March 09, 2011

IBM -- Going Higher

Analysts Raise Price Targets

March 9, 2011

Shares in IBM rose by more than two percent today in the wake of no fewer than four upgrades by analysts after they had a chance to meet with company management Tuesday. IBM shares closed the day at $165.86, up $3.58.

Of the upgrades I saw, the most aggressive was that of Chris Whitmore at Deutsche Bank, who boosted his price target on IBM to $200 from $175. At the Tuesday meeting, IBM repeated its promise to double its earnings per share to $20 and to boost sales by $20 billion by 2015. That was good enough for Whitmore to say his his prior price target was “conservative.”

“We believe there is ample flexibility for IBM to beat this target and expect investors to place a larger premium on IBM’s earnings stream as confidence in this goal increases,” he wrote.

Confidence in Big Blue was all over the analyst-verse today. As Robert Cihra wrote in his research note, “IBM took more time than usual to showcase some advanced tech initiatives, we get the sense IBM has rejuvenated pride in its massive $6 billion annual research and development spend, in contrast to more standards/commodity-reliant competitors, seeing continued opportunities toward ever-higher margin mix.” By “standards/commodity-reliant competitors” he means Hewlett-Packard. We’ll see what its peripatetic polyglot CEO has to say about that at HP’s analyst/press meeting next week.

Also, IBM is spending aggressively to grow in emerging markets, which Cihra said is a likely to prove to be a good thing: “Whereas much of IBM’s focus in mature/developed markets comes down to efficiency and improving margin mix, the company’s emerging geo strategy includes happily spending on growth.” Cihra raised his price target to $185, and practically all the analysts covering IBM are now expecting it to hit $180 or more.

Oh yes, and IBM once again showed off the Watson supercomputer that so brilliantly got the whole world talking anew about the man vs. machine struggle last month. Maybe it scared them into all those upgrades? Time will tell.

Labels: , ,

Energy, Energy Everywhere -- Unless Obama Says It Isn't

No matter what Obama and his ideological pals believe, our dominant source of energy will remain hydrocarbons. If he were thinking properly, he'd realize this inescapable truth and open the nation to more energy exploration. At the same time, he can insist on higher efficiency within the energy industry. In other words, press the industry to improve itself just as the auto industry is expected to raise its fleet fuel efficiency.

There's a lot of inefficiency in the energy industry, and the level of the inefficiency can be reduced, thereby improving our energy profile significantly. Add that to more domestic production and we will experience a surge in energy industry jobs.

Our Man-Made Energy Crisis

There's plenty of oil and no fundamental reason to expect prices of $200 per barrel. But that doesn't excuse the administration's punitive approach toward the industry

The unfolding turmoil in Libya has amplified concerns about the reliability of global energy supplies in an era of political uncertainty. Is oil at $200 per barrel inescapable? Is this the beginning of the end so vigorously underscored by peak oil enthusiasts for the last several decades? The short answer is clearly "No."

Yet the question remains: What will happen to the price of crude? This, in turn, necessitates an appreciation of the "anxiety" component in current and future prices. The anxiety premium may range from $10 to $30 given current events in Libya and their spillover effects.

The good news is that such a premium is not sustainable in the long run. Prices will eventually come down due to global excess capacity—estimated at three million to five million barrels of oil per day—and even more so due to migration of demand from oil to natural gas by electric utilities and industrial markets. Natural gas holds more than a 3-to-1 price advantage over oil on an equivalent unit energy basis in the U.S. So $200 crude is unlikely given market fundamentals.

In the context of global liquids production, the civil strife in Libya represents a minor disruption (less than 2% of the total, approximately 85 million barrels of oil per day). Nor is there any evidence to suggest that even a protracted scenario of instability will result in a sustained reduction of crude supplies. Iraqi oil production dropped by 30% at the start of the second Iraq war in 2003, and then it quickly bounced back to the prewar level of two million barrels of oil per day. Currently, Iraqi oil production stands at 2.6 million barrels of oil per day, with much higher levels projected during this decade.

Fossil fuels make up about 85% of total U.S. energy demand, which is estimated at about 45 million to 50 million barrels of oil equivalent per day. Energy imports, mainly crude oil, account for 20% of the total U.S. energy requirements. This level of imports is a huge burden on the balance of payments, hence the U.S. dollar.

What is less widely recognized is the overall inefficiency of energy utilization. According to a 2007 study by National Petroleum Council, at the request of the U.S. Department of Energy, approximately 61% of energy produced is lost due to factors such as poor insulation, gas-guzzling vehicles or suboptimal power plants. On average, only one out of three reservoir barrels is recovered, which translates to an overall efficiency of only 13% for oil that is converted to a usable form. Improving energy efficiency should be a top priority, not just in our surface usage but also at the point of extraction.

Technology is reshaping every facet of our lives. The energy world is no different. This includes the resurgence of U.S. liquid production in recent years (5.5 million barrels of oil per day and trending upward), as well as conventional gas production's six-fold increase over the last two decades (to approximately 32 billion standard cubic feet of gas per day in 2010, nearly equaling U.S. liquid production). Both are attributable to recent innovations, such as highly sophisticated wells that can reach thousands of feet underground with GPS precision.

The planet is endowed with plentiful sources of natural gas and oil, conventional and unconventional. Some estimates place global unconventional gas resources at about 33,000 trillion cubic feet, or about five times the amount of proven reserves at the end of 2009. The outlook for liquids is no less promising. At current rates of global consumption, there are sufficient oil and gas supplies to last well into the next century.

What's missing is a coherent U.S. energy policy. At best, the Obama administration's approach to U.S. domestic oil and gas production can be characterized as a strategy of ambivalence, an uneasy equilibrium between desire to lessen the role of fossil fuels and the reality of their necessity in a functioning U.S. economy. Last year's Deepwater Horizon tragedy in the Gulf tilted the current administration's policies to an even more punitive posture vis-a-vis domestic energy production.

As the French philosopher Antoine de Saint-Exupéry wisely observed, "A goal without a plan is just a wish." Unfortunately for the U.S., there is not even a wish. The time to rethink and redesign our entire energy strategy is now.

The Obama administration must seriously ponder the following questions, because they relate directly to what the president likes to call "winning the future." What will be the make-up of the energy-supply pie, and how can we dramatically increase, even double, our energy efficiency? What exactly are our carbon emission goals? And how do we go from where we are today—importing about 20% of our daily energy supply—to where we want to be in 2026, perhaps even an energy exporter?

We've already entered a new energy era that is dramatically more competitive, diverse and high-tech than the past. The global consumer is king. The future energy picture for the U.S. or the planet is not constrained by the availability of supplies, either fossil or non-fossil, but by efficiency gains in generation and consumption.

This will require real leadership and the clear articulation of energy goals, costs and priorities. Ambiguity will not serve the best interests of future generations. The U.S. does not have an energy problem. It has an energy strategy problem.

Labels: , ,

Sunday, March 06, 2011

Obama raises oil prices and cuts jobs

How much more evidence do we need to prove the president is an ideologue on a mission to ruin the US economy because he believes myths about oil, energy, jobs, the auto industry and the rudiments of prosperity? He is determined to stick with his groundless, harmful beliefs that electric cars, including the Chevy Volt, which no one is buying, can change the way America travels and how it uses fuel.

How many members of the UAW have no work because car-buyers are purchasing only about 10 Chevy Volts per day? When a highly touted car model sells in such low numbers, the only word that can describe it is FLOP.

Americans want cars that run on gasoline and they want gasoline prices to drop. But Obama is standing in the way of both demands. Americans also want high paying jobs. The Energy Industry has plenty of those jobs -- when the government gets out of the way.

Since the upheavals in North Africa and the Middle East began, Obama has given no assitance to entire nations of people revolting against their tyrannical dictators and demanding democracy. His hands-off strategy says only that he willingly accepts the slaughter of citizens by their government. Libyans are dying in substantial numbers as Gaddafi's air assaults continue. What does Obama do? He goes out to play golf.

Interior appeals oil drilling ruling

The Obama administration late Friday appealed a judge's orders directing the Interior Department to act on several Gulf of Mexico deepwater drilling permits.

The appeal is the latest salvo in the ongoing fight over the speed with which Interior is – or isn't – letting oil drillers get back to work after last year's BP oil spill.

Gulf state lawmakers and the oil industry have accused the department of enacting a "de facto" moratorium against new drilling, while Interior says it needs to ensure safety and environmental protections are in place.

Friday's appeal challenges rulings by Judge Martin Feldman of the U.S. District Court for the Eastern District of Louisiana, who on Feb. 17 gave Interior 30 days to make a verdict on five pending deepwater drilling permits applications. He later added two additional permits to that order.

Interior Secretary Ken Salazar had hinted the appeal was coming at a Senate hearing Wednesday.

“The judge in this particular case in my view is wrong," Salazar said. “And we will argue the case because I don’t believe that the court has the jurisdiction to basically tell the Department of Interior what my administrative responsibilities are.”

He added, “the policy we have in mind is unmistakingly clear: We are moving forward with the development of oil and gas” production."

Earlier in February, the judge held Interior in contempt, citing "dismissive conduct" by blocking offshore drilling during last year's spill.

The delay in issuing permits since last year’s Gulf of Mexico oil spill is “increasingly inexcusable," Feldman wrote.

Interior on Monday announced the approval of the first deepwater drilling permit held up since last year’s spill. The permit, issued to Noble Energy for a well partially owned by BP, was not one of those that Feldman’s ruling addressed.

Labels: , , , ,

Saturday, March 05, 2011

How to Profit From Bank Failures

Guess which sector is showing the greatest activity in M&A? Energy? Mining? Tech? No, it's the regional banks, courtesy of the FDIC. Since the beginning of 2009, 327 banks have become insolvent; in just the last two months 30 have collapsed.

One way or another, the bank and thrift industry is consolidating. The situation is hardly news. This country is wildly overbanked. We have thousands of banks when other countries have hundreds. Or in the case of Canada -- five.

Every Friday, the FDIC announces those banks that have bitten the dust. And every Friday we learn which financially-sound banks have won their bids to acquire the assets and deposits of these insolvent institutions. The winning banks usually obtain the deposits without a premium. They take over the assets with a government guarantee covering 80% of each loan's potential losses.

This "M&A" occurs without middle men: there are no investment bankers to be paid and no "paying up" to purchase companies. In fact, often the failed bank's assets are bought at bargain basement prices.

The last 2 years have been very active. What does the future look like for this market?

The FDIC reports 884 problem banks with $390 billion in assets. It is likely this financial crisis will see the vast majority of the 884 "iffy" banks crumble. $390 billion is a huge potential market. In the last financial debacle (1989 - 1993), over 1,700 banks closed, with 20% of all banks closing or acquired. Bank colossuses formed. We're seeing a replay of that period. Over the next two years, many hundreds of teetering banks will close on a Friday and reopen on Monday under sound management backed with solid finances. The 7,700 current banks will probably dwindle to less than 7,000.

The winners: the regional banks that have been stepping up to the plate.

If you want to acquire share in regional banks which have been particularly active in this market, you should consider: New York Community Bancorp (NYB), Bank of the Ozarks (OZRK), First Citizens BancShares (FCNCA) - with an interest in Home Bancshares (HOMB), Umpqua (UMPQ), and City National (CYN). These solid operators have purchased failed banks repeatedly. BB&T (BBT), after its huge buy of Colonial, is also of interest. These Regional Banks that are Eating Other Banks are able to grow their asset and deposit bases with little to no risk of failure.

Labels: , , , ,

Thursday, March 03, 2011

Dead Batteries -- Slow Volts, Leaf barely turns over

Seriously. Is anyone surprised at the widespread lack of interest in these modified golf carts? This is what happens when the government intrudes. Products that no one wants are offered, but no one buys them. The Chevy Volt is tne new Edsel, but this time the failure is on the government, not the marketing department.

Can we forget about these useless cars now? Can Detroit get back to building cars people really want? If the government butted out, and gave up its obsession with gas mileage, the companies would have no trouble making cars people will buy, rather than talk about.

GM sells just 281 Chevy Volts in February, Nissan only moves 67 Leafs

by Sebastian Blanco

Peruse Chevrolet's February sales release, and you'll notice one number that's blatantly missing: the number of Chevy Volts sold. The number – a very modest 281 – is available in the company's detailed data (PDF), but it certainly isn't something that GM wants to highlight, apparently. Keeping the number quiet is a bit understandable, since it's lower than the 321 that Chevy sold in January.

Nissan doesn't have anything to brag about here, either (and it didn't avoiding any mention of the Leaf sales in its press release). Why? Well, back in January, the company sold 87 Leafs. In February? Just 67. Where does that leave us? Well, here's the big scorecard for all sales of these vehicles thus far:

Volt: 928
Leaf: 173

Ouch. The big questions, of course, revolve around one word: "Why?" Is ramping up production and deliveries still a problem? Is demand weak? Are unscrupulous dealers to blame? When will sales start to climb? And what are these numbers doing to plug-in vehicle work at other automakers? We don't know all the answers, but for more on February auto sales, click here.

Labels: , ,

Wednesday, March 02, 2011

Wisdom of Warren Buffett

Little needs saying after Buffett lets investors and other concerned Americans know that our economy is still the remarkable engine that it's been for many decades.

Five Investing Tips From Warren Buffett

What does Warren Buffett's message to stockholders mean for you and your money?

Every year Mr. Buffett, the world's third-richest man and arguably the most successful stock-market investor in history, writes a letter to stockholders in his investment company Berkshire Hathaway. The latest came out this weekend. There are usually some nuggets for all those who haven't invested in Berkshire, and this year's letter was no exception. Here are five:

1. Watch out for stock-market valuations.

Mr. Buffett's company is now sitting on a cash hoard of $38 billion. "That's among the highest levels it's ever been," says Stifel Nicolas analyst Meyer Shields. While Mr. Buffett says he is looking for a big acquisition, and has his "elephant gun loaded," the high cash pile also suggests he's having a challenge finding really good deals. If Mr. Buffett is cautious, investors might want to take note: It's another sign that many valuations on the stock market may be looking a little stretched.

Mr. Buffett's company is now sitting on a cash hoard of $38 billion. "That's among the highest levels it's ever been," says Stifel Nicolas analyst Meyer Shields. While Mr. Buffett says he is looking for a big acquisition, and has his "elephant gun loaded," the high cash pile also suggests he's having a challenge finding really good deals. If Mr. Buffett is cautious, investors might want to take note: It's another sign that many valuations on the stock market may be looking a little stretched.

2. Coke is it.

Mr. Buffett rarely makes predictions, but in the case of Coca-Cola —a long-term holding—he issues a remarkable one: Dividends will probably "double ... within ten years," he writes. That would take them from last year's $1.76 to $3.52 per share. If Coca-Cola stock didn't move over that period, it would raise the dividend yield from 2.5% today to above 5%. Berkshire owns 8.6% of Coca-Cola stock.

3. Some of his favorite stocks are still cheap.

While the stock market overall has boomed, and it's a battle to find cheap stocks, one thing does stand out: Many of Warren Buffett's favorite stocks remain at, or around, the prices he paid for them. As Mr. Buffett only likes to buy stocks for a lot less than he thinks they are really worth, this suggests you can get a bargain or two—although, as always, there are no guarantees.

They include French drug maker Sanofi-Aventis. Berkshire Hathaway has accumulated about $1.8 billion worth of the stock. Sanofi's share price has come under pressure lately as a result of its acquisition of biotech giant Genzyme. At $35, its American Depositary Receipts are now about 12% below the average price Mr. Buffett paid.

Or look at Kraft Foods. Mr. Buffett owns 97 million shares, a hefty 5.6% of the company, for which he paid an average of $33 each. Today the stock is just $32. It has been held back, in part, by the costs of the takeover of Britain's Cadbury. But the stock yields a decent 3.7%. It is a reasonable 14 times forecast earnings, and just over 1.1 times annual revenues.

Mr. Buffett also owns 45 million shares in health-care behemoth Johnson & Johnson, a stake valued at about $2.7 billion. He paid about $61 for the stock: It's now $60, 12 times forecast earnings, yielding 3.6%. A cheap stock.

And what about Wal-Mart Stores? It's tumbled in recent weeks to $52. That's just 12 times forecast earnings. And the dividend yield, 2.3%, may not be huge, but it's the highest it's ever been. Today's price is just a few dollars a share more than Warren Buffett paid: Berkshire Hathaway accumulated a $2 billion stake at an average of about $48.50.

4. Berkshire stock isn't expensive, by Mr. Buffett's own calculations.

No one knows exactly what a share in Berkshire Hathaway is really worth. Mr. Buffett himself told investors over the weekend that if you ask him and his veteran co-manager Charlie Munger to calculate the intrinsic value of the stock, "you will get two different answers. Precision just isn't possible."

However, he says, "book," or net asset, value is his preferred "understated proxy for intrinsic value." Mr. Buffett writes, "To be sure, some of our businesses are worth far more than their carrying value on our books.... But since that premium seldom swings wildly from year to year, book value can serve as a reasonable device for tracking how we are doing."

So it's intriguing that Berkshire Hathaway stock today trades at $128,000, or just 1.3 times that book value. Stifel's Mr. Shields says the historic average is about 1.6 times. If the "premium" between book value and the intrinsic value doesn't swing that much from year to year, one might conclude that Berkshire is looking a little cheap.

Naturally, as a big company, it has a lot less growth ahead of it. And as Mr. Buffett is 80, his years of producing spectacular investment returns are nearer the end than the beginning. Nonetheless, in a market where so many investments seem to be trading at lofty valuations, it is notable that Berkshire is below its average.

For those who wish to invest, and who don't have $128,000 in spare cash, the economy-class "B" shares trade for $85.

5. Get ready for a dividend hike at Wells Fargo.

Mr. Buffett's favorite bank, San Francisco-based Wells Fargo, has had its dividend levels held back by the Federal Reserve, along with other banks, during the financial crisis. "At some point, probably soon, the Fed's restrictions will cease," he writes. "Wells Fargo can then reinstate the rational dividend policy that its owners deserve. At that time, we would expect our annual dividends from just this one security to increase by several hundreds of millions of dollars annually."

Berkshire Hathaway owns about $11 billion worth of Wells Fargo stock. It added a small amount in the fourth quarter. At $32, Wells Fargo is just 11 times forecast earnings, and less than one and a half times book value—compared to nearly three times book value five years ago. The dividend yield under the current regime is a paltry 0.6%. Five years ago it was around 3%.

Labels: , ,

Driving While Christian -- in Pakistan

Plurality? Tolerance? Multiculturalism? Acceptance? Respect? Peace? Isn't that what Islam is all about?

Gunmen Kill Pakistan's Religious Minorities Minister

Mr. Bhatti was Pakistan's government minister for religious minorities and a member of Pakistan's Christian community, which makes up about 5% of the country's population.

ISLAMABAD—Suspected Islamic militants shot dead Pakistan's federal minister for minority affairs who had campaigned for reforming the country's controversial blasphemy law.

Shahbaz Bhatti, one of the few Christians in a senior government position, was traveling in Islamabad, the capital, to attend a cabinet meeting when three gunmen open fire on his car. Eyewitness and police said the gunmen dragged Mr. Bhatti out of his car and shot him several times before escaping in a white Suzuki vehicle. Mr. Bhatti was shot eight times and died on the spot. His driver was also seriously injured.

No group immediately claimed responsibility. But the attackers left leaflets saying they had acted in the name of the Punjabi Taliban and al Qaeda.

"This is the horrible fate of this cursed person," read the leaflet. It also blamed the government of putting an "infidel Christian" in an important position. The killing of Mr. Bhatti, a Catholic in his 40s, further deepens the political instability in a country where secular-minded politicians are increasingly at odds with a rising strain of Islamism in the middle classes.

It also complicates the role of the U.S. in Pakistan. Washington has strengthened ties with the government of President Asif Ali Zardari, including a massive new civilian aid package. But the government, viewed as too pro-U.S. and secular by many Pakistanis, is increasingly unpopular.

The U.S. ambassador to Pakistan, Cameron Munter, in a statement condemned the killing of Mr. Bhatti, who he called a "Pakistani patriot and a voice for understanding."

In January, Salmaan Taseer, governor of Punjab province and a key ally of Mr. Zardari, was killed by his police bodyguard. Mr. Taseer, a Muslim, also had spoken out against the blasphemy law, which human rights groups and others say has been used to target minority groups like Christians and Ahmadi Muslims.

The police guard said he shot Mr. Taseer in a posh Islamabad shopping center because of his stance on the blasphemy issue. The guard is facing trial but has been feted as a hero by some religious groups and other sectors of the middle classes like lawyers' associations.

Mr. Bhatti had angered Islamic extremists for urging changes in the law which sanctions the death penalty to anyone found guilty of blasphemy against the prophet Muhammed.

He was head of a parliamentary committee which was examining misuse of the law. In many cases, people have used it to settle local scores unrelated to religion, human rights groups say. In recent media interviews, Mr. Bhatti had vowed to continue his campaign against the law, despite receiving repeated death threats from the Islamists.

Wajid Durrani, Islamabad's police chief, said Mr. Bhatti was provided protection in view of the threat to his life but was traveling without his security detail at the time of the attack.

The loss of one of the most prominent leaders of Pakistan's small Christian community comes amid increased persecution from Islamists. Last year, a court sentenced a Pakistani Christian farm worker to death for blasphemy. The Vatican and rights groups have slammed the verdict and called for her release.

Christians are the largest religious minority in the country, where about 5% of the nations's 180 million population are non-Muslims. "We have lost our most courageous spokesman," said Akram Massig Gil, a Christian member of parliament.

Authorities have yet to carry out a death sentence for blasphemy since the laws were tightened under the Islamist dictator Gen. Zia-ul-Haq in the 1980s. But human rights groups say the laws have encouraged militant violence against minorities. Scores of people, most of them Christians, are in detention facing trial under the law.

"Bhatti's murder is the bitter fruit of appeasement of extremist and militant groups," Human Rights Watch, the New York-based rights advocacy group, said in a statement.

Mr. Bhatti's killing also is likely to deepen security concerns for others who have spoken out against the blasphemy law. Sherry Rehman, a former minister of information and prominent opponent of the law, is currently in hiding.

Labels: , ,

Tuesday, March 01, 2011

Classic Koch

Why do so many people deny and dispute the simple and obvious truth of Charles Koch's views? Their foolishness is disheartening and frightening.

Why Koch Industries Is Speaking Out

Crony capitalism and bloated government prevent entrepreneurs from producing the products and services that make people's lives better


Years of tremendous overspending by federal, state and local governments have brought us face-to-face with an economic crisis. Federal spending will total at least $3.8 trillion this year—double what it was 10 years ago. And unlike in 2001, when there was a small federal surplus, this year's projected budget deficit is more than $1.6 trillion.

Several trillions more in debt have been accumulated by state and local governments. States are looking at a combined total of more than $130 billion in budget shortfalls this year. Next year, they will be in even worse shape as most so-called stimulus payments end.

For many years, I, my family and our company have contributed to a variety of intellectual and political causes working to solve these problems. Because of our activism, we've been vilified by various groups. Despite this criticism, we're determined to keep contributing and standing up for those politicians, like Wisconsin Gov. Scott Walker, who are taking these challenges seriously.

Both Democrats and Republicans have done a poor job of managing our finances. They've raised debt ceilings, floated bond issues, and delayed tough decisions.

In spite of looming bankruptcy, President Obama and many in Congress have tiptoed around the issue of overspending by suggesting relatively minor cuts in mostly discretionary items. There have been few serious proposals for necessary cuts in military and entitlement programs, even though these account for about three-fourths of all federal spending.

Yes, some House leaders have suggested cutting spending to 2008 levels. But getting back to a balanced budget would mean a return to at least 2003 spending levels—and would still leave us with the problem of paying off our enormous debts.

Federal data indicate how urgently we need reform: The unfunded liabilities of Social Security, Medicare and Medicaid already exceed $106 trillion. That's well over $300,000 for every man, woman and child in America (and exceeds the combined value of every U.S. bank account, stock certificate, building and piece of personal or public property).

The Congressional Budget Office has warned that the interest on our federal debt is "poised to skyrocket." Even Federal Reserve Chairman Ben Bernanke is sounding alarms. Yet the White House insists that substantial spending cuts would hurt the economy and increase unemployment.

Plenty of compelling examples indicate just the opposite. When Canada recently reduced its federal spending to 11.3% of GDP from 17.5% eight years earlier, the economy rebounded and unemployment dropped. By comparison, our federal spending is 25% of GDP.

Government spending on business only aggravates the problem. Too many businesses have successfully lobbied for special favors and treatment by seeking mandates for their products, subsidies (in the form of cash payments from the government), and regulations or tariffs to keep more efficient competitors at bay.

Crony capitalism is much easier than competing in an open market. But it erodes our overall standard of living and stifles entrepreneurs by rewarding the politically favored rather than those who provide what consumers want.

The purpose of business is to efficiently convert resources into products and services that make people's lives better. Businesses that fail to do so should be allowed to go bankrupt rather than be bailed out.

But what about jobs that are lost when businesses go under? It's important to remember that not all jobs are the same. In business, real jobs profitably produce goods and services that people value more highly than their alternatives. Subsidizing inefficient jobs is costly, wastes resources, and weakens our economy.

Because every other company in a given industry is accepting market-distorting programs, Koch companies have had little option but to do so as well, simply to remain competitive and help sustain our 50,000 U.S.-based jobs. However, even when such policies benefit us, we only support the policies that enhance true economic freedom.

For example, because of government mandates, our refining business is essentially obligated to be in the ethanol business. We believe that ethanol—and every other product in the marketplace—should be required to compete on its own merits, without mandates, subsidies or protective tariffs. Such policies only increase the prices of those products, taxes and the cost of many other goods and services.

Our elected officials would do well to remember that the most prosperous countries are those that allow consumers—not governments—to direct the use of resources. Allowing the government to pick winners and losers hurts almost everyone, especially our poorest citizens.

Recent studies show that the poorest 10% of the population living in countries with the greatest economic freedom have 10 times the per capita income of the poorest citizens in countries with the least economic freedom. In other words, society as a whole benefits from greater economic freedom.

Even though it affects our business, as a matter of principle our company has been outspoken in defense of economic freedom. This country would be much better off if every company would do the same. Instead, we see far too many businesses that paint their tails white and run with the antelope.

I am confident that businesses like ours will hire more people and invest in more equipment when our country's financial future looks more promising. Laying the groundwork for smaller, smarter government, especially at the federal level, is going to be tough. But it is essential for getting us back on the path to long-term prosperity.

Mr. Koch is chairman and CEO of Koch Industries, Inc. He's the author of "The Science of Success: How Market-Based Management Built the World's Largest Private Company" (Wiley, 2007).

Labels: , ,