Friday, March 25, 2011

Drip Your Way to Retirement

Give yourself the gift of a DRIP (dividend reinvestment plan). This advice was made more acutely real to me by a recent visit of my wife's cousins and their 43 year old son, Michael (and his fiancée). I haven't seen Michael in some time and he reminded me that when he turned thirteen I had given him a birthday gift of a few shares of Exxon, with some sound advice of something along these lines: cherish these shares and enroll them in Exxon's DRIP (reinvesting the dividends for more shares), and review their Annual Reports for an education regarding how a large, resource-rich, multinational corporation functions and grows. Now, I'm not sure whether he took the latter part of the advice, but he did enroll those initial shares in Exxon's DRIP and, now, after numerous stock splits and dividend increases along the way, Michael said he now has about 600 shares worth about $49,000! By the time he retires, shares and value should continue to grow, a mighty oak tree from a mere acorn.

I fail to remember why I choose Exxon at the time rather than other dividend paying stocks. Perhaps it was because Exxon was much in the news during the 1970s energy crisis and as that crisis turned to an oil glut in the early 1980s, when the shares were purchased, Exxon's stock price was in limbo. It must have seemed like a good opportunity to buy, but no matter when one does the math, almost any time would have been fine given a thirty-year time horizon. During such a long period DRIPs are subject to a number of compounding events, the reinvestment of dividends, capital appreciation, and the growth of dividends themselves (Exxon's dividend payments to shareholders have grown at an average annual rate of almost six percent during the period).

While always having been partial to dividend paying stocks, especially in this economic environment, I admittedly failed to heed my own advice when it came to DRIPs. I am glad Michael did.

Friday, March 18, 2011

Engineering Failures and World-Wide Consequences

The similarities between the BP oil spill disaster in the Gulf of Mexico and the ongoing nuclear Fukushima Daiichi crisis in Japan are striking.

Both were unimaginable before they happened. Both the nuclear facility and the oil rig had what was thought to be containment and shut down protection, as well as redundancy features, in the event of a serious accident. In each case, these systems failed. The response to each event was similar, a series of improvisational Hail Mary attempts to mitigate the damage, resembling a disaster movie in slow motion. Each catastrophe has long term consequences to the earth's ecosystem and human health, way beyond the immediate geographic area of its origin. The lack of contingency planning in Gulf crisis is evident again in the Japan disaster.

Surely, given the facts of Chernobyl and Three Mile Island there are commonalities with Fukushima Daiichi. No doubt the first line of defense in the construction of a nuclear facility or a deep water drilling rig has to be containment and redundancy features and bulletproof regulatory oversight, first at the national level, but perhaps with international participation as well. Too bad the UN is not a more effective institution. It needs to be in this area.

Any country that constructs these engineering marvels, for drilling oil in the deepest of oceans, or generating nuclear power, facilities that have world-wide consequences when they fail, should be required by the world community to maintain a national task force with readily available and deployable equipment to deal with catastrophic failure (rather than totally relying on the company responsible such as Tokyo Electric Power or BP). How much time was lost in dealing with Fukushima Daiichi when the tsunami destroyed its redundant pumps and power generating equipment?

Perhaps this may be oversimplification, but if we have the technology to create these engineering leviathans, we should also have the resources for a nuclear (and deep water drilling rig) immediate response task force, a small army trained for this once in a generation disaster, with the necessary deployable equipment (such as generators that could have been airlifted immediately to the Fukushima Daiichi site allowing the resumption of core cooling systems). We only need the universal will. Meanwhile, we all helplessly watch this terrible disaster unfolding in Japan.

Monday, March 14, 2011

Why Johnny Can't Compete

The horrendous images of the Japanese earthquake and tsunami haunt my consciousness. We have friends there and as I said in an earlier post, our son is presently traveling there (he is safe and has been able to move south more out of harm's way).

Our prior travels in Japan are cherished memories. We developed the greatest respect for the Japanese people, a nation which seemed to reach its economic zenith during our stay as the New Year dawned in 1990. The Nikkei Dow touched 40,000 and Japan was booming. Our domestic press was full of stories about the Japanese having an unfair trade advantage and consequently how America was no longer able to compete with this economic juggernaut. Japan was said to be destroying American industry and would be buying up all our assets. Only a couple of months before the iconic Rockefeller Center complex was purchased by Japan's Mitsubishi Group. "Made in Japan" went from a joke in the 1950s to an economic threat by the end of the 1980s.

The dire forecasts concerning Japan faded over the next two decades as boom turned to bust and it fell into an ongoing deflationary spiral. But today we are saying the exact same things about China's unfair trade advantages, China buying up our assets and holding our debt, almost as if we are victims of outside forces and bear no responsibility for our own economic predicament.

While in Japan in 1990 I was invited to deliver a speech to the Rotary Club of Tokyo Koishikawa on the subject of US - Japan trade relations. When I returned home, I was asked to write an article about our experience, which for one reason or another was not published, probably because its contents did not blame Japan for our own failures.

I think the Japanese economy will recover from this tragedy, although it will take years. Our heartfelt hopes for recovery are with the Japanese people, and for a minimal loss of life and containment of what is appearing to be a serious threat from damage to several of its nuclear facilities. Please consider a donation to the Red Cross for those devastated in Japan.

I recently came across that unpublished article and was not surprised about how little has changed. One now only has to substitute "China" for some of the examples I used for Japan. Our fundamental problem about successfully competing remains: education. The irony is our best graduate schools are attended by some of the finest minds from overseas, but upon their graduation, we give them a diploma without a green card and send them on their way home. But the primary failure here is our public school system, the same failure I decried twenty plus years ago. Nothing has changed and it could be argued that they have worsened.

Given the folly in Wisconsin and the rhetoric of some of our politicians, one would think that our nation is going broke because we overpay our teachers. Of course the converse is true. Why go into teaching when one can become a master of the universe at an investment bank and rake in bonuses? We need great teachers and a better public education system to begin to reverse a continuing decline in our students' performance. "The three-yearly OECD Programme for International Student Assessment (PISA) report, which compares the knowledge and skills of 15-year-olds in 70 countries around the world, ranked the United States 14th out of 34 OECD countries for reading skills, 17th for science and a below-average 25th for mathematics."

The following is what I wrote in January 1990, in many ways as relevant today as it was then:

Why Johnny Can't Compete

In my capacity as president of an academic and professional book publishing company I have had the opportunity to visit Japan from time to time over the past 20 years. Even though our publications are in English, Japan has become our largest market outside of the United States. It has been an interesting sideline of these trips to be able to compare the economic, social, and educational progress of Japan with what I observe at home.

My most recent trip to Japan occurred over the Christmas and New Year holiday season, when many westerners who live in Japan return home, and Tokyo's hotels are given over to craft exhibits and festivals in celebration of the New Year. The Japanese New Year holiday is a major one: people stop working for nearly a week to greet the new year at shrines and temples, and to pay respect to their families. I made the trip this time with my wife and 13-year-old son, and we felt privileged to be there at this special time of year.

By prior arrangement with my Japanese host (the head of the company that distributes our books in Japan), I was to give a speech to the Rotary Club of Tokyo Koishikawa on the subject of U.S.-Japan trade relations as perceived by the American people -- a subject of great concern to the Japanese. I was aware of the symbolism of making such a speech at the end of this past decade. Japan has emerged as a leading economic power, while we, ourselves, perceive our own position to be in decline. While I made an effort to put what America had accomplished in the 1980's in the best possible light and to emphasize how the U.S. and Japan can become equal trading partners with the new opportunities in the 1990's, particularly those created by the decline of communism in Eastern Europe, in retrospect my words seem hollow. I returned with the realization that if we are to truly compete with Japan as the 21st century approaches, our nation will have to undergo radical changes by rediscovering many of the values embraced by Japan.

There is a cultural basis for Japan's success. The resolve to work hard, to be productive, to be well-educated, to respect one another, to be part of the team, and to be patient in attaining goals is the very essence of their culture. It little matters what one does, it only matters how well the work is done. In Japan, the marked contrasts to minimal working standards we have become conditioned to accept are everywhere. Is it no wonder we have difficulty in competing with a society that prides itself in being the best it possibly can be?

In a discussion with my host about such issues he asked, "Why is there a drug problem in the U.S.? Japanese people do not understand why such a problem should exist." "A feeling of-hopelessness," I replied. Thinking about that discussion, I believe that our future success or failure in restoring hope might be at the very core of competing with Japan. This can only be done by completely restructuring our educational system and giving it our highest societal priority.

Quality education is truly available to all in Japan and it is widely perceived to be desirable. Japanese teachers occupy a high status in society and are well paid. Illiteracy is virtually unknown. Even peasants were able to read and write by the nineteenth century. Japan ranked among the most advanced countries of western Europe in educational excellence.

Contrast this to our present situation. Our minimal educational standards have led to wide-spread illiteracy and millions are basically unemployable. The recently released report by the Secretary of Education estimates that 60% of our nation's 11th graders are barely able to read the most rudimentary documents. How and why does our society tolerate this perversion? Only by radically improving our educational system will we be able to ultimately remove the pervasive hopelessness that corrodes our land, drugs our children, and produces the type of wide-spread violent crime that is virtually unknown in Japan.

So, while we are urging Japan to make cosmetic changes to facilitate better U.S.-Japan economic relations, we must make mammoth changes to compete in the long run. What is needed is the equivalent of President Kennedy's pronouncement in the early 1960's that our national objective was to put a man on the moon by the end of that decade. Do we have the moral fortitude to declare that, as a national goal, we can and will create a public education system which is second to none by the end of this decade?

Only until we restore hope, the expectation that one generation can be better off than the previous one and people can find meaningful employment opportunities -- the very ideals which made this country the great melting pot of the 19th and early 20th centuries -- will we be able to successfully compete with Japan in the 21st century.

Things are by no means perfect in Japan. Their dedication to work borders on workaholism; individuals may not have the same degree of freedom to which we have become accustomed. However, for years Japan has been accused of copying the best of western business ways and technology and then improving upon them. In dealing with our economic dilemmas, the time has come for us to adopt some aspects of Japanese culture and, in so doing, rediscover many of the values that once made our country great.

Saturday, March 12, 2011

Japan Needs Our Help

Here is the Red Cross site for helping Japan deal with a catastrophe of unimaginable enormity.

Friday, March 11, 2011

Forces of Nature and Us

We woke up this morning to the news and videos of the powerful earthquake in Japan and the ensuing tsunami and our first thoughts were of our son who is presently traveling in Japan. We were not even sure where in Japan he was at the time. I reached for my phone hoping he would have the good sense to email or text knowing we would be concerned and there it was: "Re: I'm Fine." He is in Tokyo and although he felt the quake, he is in a new building, built to code, so we were relieved.

We were in a 4.8 earthquake once, staying at Tokyo's Okura Hotel, no comparison of course to the horrific magnitude of the one that just hit north of Tokyo, but enough to frighten most hotel occupants from their beds and into the hallways. A quake of 8.9 is unimaginable.

Life is such a series of about-faces. Yesterday as a cold front swept through Florida, we briefly had high winds and torrential rains. It blew our patio furniture around. Then came an amazing tranquil sunset right out our back door. All is well with the world. And, now, a catastrophe of still unknown dimensions in the Pacific. Always hoping for the best, but while nature can invoke its beauty it also underscores life's fragility.

Friday, March 4, 2011

Ghost-Writer Haunts

Florida Stage is the "other" serious theater in the West Palm Beach area and although I've written often in these "pages" about the consistently fine productions of Dramaworks, I've only occasionally touched upon those of Florida Stage. This season is a significant one as they have now moved to the Kravis Center's Rinker Playhouse. Unlike Dramaworks, Florida Stage is bravely dedicated to new or relatively new plays, so that is an added risk, as if presenting serious theatre is not enough.

They opened the season with Cane which was followed by Goldie, Max & Milk. But with Ghost-Writer by Michael Hollinger which opens today (we saw a preview), Florida Stage will have its first big hit of the season, drama at its best. Of course, it doesn't hurt that the play is by a well-established playwright, and even though this is the southeast premiere, it was vetted on the stage in Philadelphia at the end of last year.

Ghost-Writer apparently is not for everyone as a few people inexplicably left the performance right in the middle (there is no intermission). But if you cherish the nuances of language and how great staging and performing can turn little moments and glances into profound occurrences, Florida Stage has the play for you. As Louis Tyrrell, Florida Stage's innovative Producing Director said before the play, "it is an elegant play performed eloquently by the actors." Those words were not an exaggeration.

The play takes place in 1919, set in a studio apartment of a well-known writer, Mr. Woolsey, who hires an amanuensis, fresh out of typing school, Myra Babbage. She is obviously enamored of working for a renowned author. Their relationship gradually becomes more than just employer and employee, both developing affection for one another. It also progresses to the point where Myra can anticipate what Mr. Woolsey will dictate and will even interject her own opinion as to choice or word or punctuation. Stirring the dramatic pot is Mr. Woolsey's wife, Vivian, who is jealous of Myra, and displeased that her husband has set up this apartment (away from their home) for his work.

Every play needs a change catalyst, and in this one it is Mr. Woolsey's death before he has finished what might be his masterpiece. But after his death, Myra feels she can still channel his muse. Is it a ghost? Or is she simply looking to make a name for herself (as Vivian suspects)? Or did their relationship evolve to the point where the voice in the novel is really a collaborative one? Myra puts it to the audience to decide (or not to decide).

One thing that does not change is the role of the typewriter which, sphinx-like, sits in the middle of the stage, almost the fourth character in the play. At one point, when Mr. Woolsey is suffering from writer's block, he has Myra type "anything" just so he could hear the clatter of the Remington. Type it again he says as he stares out the window. And again. Finally, the words spring to him, just as the final words of the unfinished novel come to Myra after days of not feeling the muse (or hearing the ghost?), but not until she, too, has typed the "catch phrase" -- which Mr. Woolsey had entreated her not to reveal to him (and, therefore, not to us). What could it be?

The play slides back and forth from the present to the past, effortlessly, almost imperceptibly. The staging is like a delicate dance, the characters taking a position on stage (as Mr. Woolsey at the window) or gracefully gliding about each other to the point where Myra and her employer actually dance (ostensibly to familiarize Mr. Woolsey with a subject he needs to write about but clearly is unfamiliar with). The early 20th century set was developed with period piece precision and the three quarter round seating puts the audience in the action.

But to succeed with a play which is about language and understated emotions also requires fine acting. Considerable measures of the play are monologues given by Myra, played by New York City based regional actor, Kate Eastwood Norris, who deserves accolades for her carefully articulated and poignant performance. J. Fred Shiffman plays the restrained, somewhat bland but meticulous, Mr. Woolsey to a tee. Lourelene Snedeker does a fine job displaying Vivian's jealously and even conjures up our sympathy. Woolsey had once portrayed her as a vivacious, desirable woman in his first novel but he now shares his muse with another, younger, woman.

So was it a ghost? The beautiful language of the play itself provides a key, as spoken by Myra:
What is a ghost, in any case, but vivid memory, visiting when one least expects it? And aren't we all subject to haunting? The smell of liniment conjuring Mother at the bedside; the pair of shoes recalling a son or brother fallen in the fields of France? Surely memory is ghost enough...

Ghost-Writer runs at the Kravis Center's Rinker Playhouse until April 3.

Tuesday, March 1, 2011

Inflation Takes a Haircut

Jon Hilsenrath, normally a straight forward journalist who is the chief economics correspondent for The Wall Street Journal covering the Federal Reserve, made an argument on CNBC today essentially basing the real inflation rate on the price of his haircut. He was interviewed by Joe Kernen, who is enamored by his hair as well, in regard to today's testimony before Congress by Ben Bernanke.

According to Hilsenrath, the Commodity Research Bureau's (CRB) indexes "do not hit American households...we do a lot of other things with our money, like haircuts, which is one of the benchmarks I use, and [they] are not rising....The people who look at food and energy ignore those other things."

While the CRB puts commodity inflation well into the double digits, the CPI reports nearly no inflation (1%) excluding food and energy. Surely, between the two is the REAL inflation rate that is taking its toll on most Americans, particularly retirees.

Jon (and Joe), instead of preening your haircuts as anecdotal evidence of there being little inflation, you should walk in the shoes of a balding retiree. I just happened to have reconciled our 2010 expenses, and have accurate data going back eight years. Comparing that data our income was up only marginally as, even though social security kicked in during the period, investment income declined substantially due mostly to bonds and CDs maturing and having to be replaced by lower yielding investments (the Fed's attempt to force investors into riskier investments, the very issue that almost started a depression). Indeed, fuel and groceries were among the most significant inflationary items over the eight year period, up almost an identical 68% in our case. But what I found interesting there were also large increases in items that are not only essentially non-discretionary, but they are nearly monopolies as well, the consumer having only marginal choices, such as health care, insurance (car, home and health), water and sewage, communications (cable, telephones, Internet), and, most lately, real estate taxes. These take their toll on retirees.

But as I now generally buzz cut my remaining locks, haircut expenses were de minimis so there must be little inflation. Thanks for the fine journalism, Jon and Joe.