Carpe Diem

Friday evening linkage

oil1. Chart of the Day. Daily US oil production surged above 8.6 million barrels last week for the first time since October 1986, almost 28 years ago.

parking2. Map of the Day. Unpaid NYC parking tickets per UN diplomat by country, 1997-2002. Source: Forbes article “The World’s Most Corrupt Diplomats, As Told Through Parking Tickets.”

3. Who’d a-Thunk It? 40% of UK managers avoid hiring younger women to get around maternity leave? The costs of maternity leave are too high and women ‘aren’t as good at their jobs’ when they return, according to a survey of 500 managers.

4. The Beloit College Mindset List for the College Class of 2014, e.g. #1 “During their initial weeks of kindergarten, they were upset by endlessly repeated images of planes blasting into the World Trade Center, see full list here.

5. The criminalization of American business: The US legal system has become an extortion racket, according to The Economist:

Who runs the world’s most lucrative shakedown operation? The Sicilian mafia? The People’s Liberation Army in China? The kleptocracy in the Kremlin? If you are a big business, all these are less grasping than America’s regulatory system. The formula is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company.

6. Nanny Statism. California college students engaging in sexual activity will now first need “affirmative consent” from both parties?

7. Creative Destruction: Music Album Sales Fall to A New Historic Low.

8. Food Fact: Vs. a McDonald’s Big Mac, a Chipotle burrito has 3.3% more fat, 31% more cholesterol and 157% more sodium, and twice as many carbs.

9. One Word: Bearings: The Achilles Heel of Wind Turbines

10. Good News. Despite income differences, Americans of all backgrounds have never enjoyed such equality in length of life as today.

Bonus Quotation of the Day.



Carpe Diem

Quotation of the day on State power vs. social power…

….. is from Albert Jay Nock’s article “The Progressive Conversion of Social Power into State Power“:

It is unfortunately none too well understood that, just as the State has no money of its own, so it has no power of its own. All the power it has is what society gives it, plus what it confiscates from time to time on one pretext or another; there is no other source from which State power can be drawn. Therefore every assumption of State power, whether by gift or seizure, leaves society with so much less power. There is never, nor can there be, any strengthening of State power without a corresponding and roughly equivalent depletion of social power.

HT: Dennis Gartman in today’s The Gartman Letter

Carpe Diem

Markets in everything: Market-based alternatives to Obamacare

1. Concierge Medicine (as reported by WAAY-TV in Decatur, AL):

With the Affordable Care Act in full swing, there’s a growing trend across the nation that’s changing the way patients get treatment. And now concierge medicine is being offered at The Heartbeat Away Clinic in Decatur, Alabama. “What I’m doing is unprecedented” said Nurse Practitioner Kimberly Samuel. “I’m not accepting any insurance whatsoever.”

“I’m doing a concierge type medicine where people pay a monthly amount. It’s a very minimum amount and I’ll see them as often as they would like to be seen” said Samuel. Samuel charges a monthly or yearly membership fee that starts at $50 for an individual and $100 for a family of 4. The fee includes appointments or walk-ins for reduced wait times, 24 hour access by phone or email, and 45 minutes for each visit. The fee also includes a wellness panel with blood work.

Two weeks ago, Samuel opened the clinic to cater to those who don’t have insurance after researching the growing trend of concierge medicine in larger cities. By eliminating the cost of billing insurance companies, Samuel can cut overhead expenses up to 40 percent and transfer the savings to her patients.
A growing number of doctors are going the concierge route due to what some call a costly amount of insurance regulations and red tape in Obamacare. Samuel said cutting out the middleman allows her to focus more on her patients.

2. Oklahoma Doctor Making a Run Around Obamacare (as reported by

About a year before the birth of Obamacare, Dr. Keith Smith, director of the Surgery Center of Oklahoma, posted all the prices for his center’s surgeries online. Today, he’s in expansion mode, looking to build two more operating rooms. His fastest-growing group of patients? Obamacare enrollees.

Though armed with Obamacare health insurance plans, the patients are saddled with high deductibles. Looking for alternatives, some of them fly from around the country to the Surgery Center of Oklahoma, where the cost of care and travel together amounts to less than their deductibles under their Affordable Care Act plans.

The Surgery Center of Oklahoma is a physician-owned operation that does not take Medicare or Medicaid and only selectively works with private insurance plans. Patients pay in cash or with cashier’s checks.

“Even if someone has this (Obamacare) insurance card in their pocket, they are soon going to find out that it’s worthless,” Smith said, citing both higher prices and doctor shortages under Obamacare. “Coverage doesn’t mean care.” As proof, he points to the fact that among his first waves of patients to the center were Canadians, who though covered under their country’s socialized health care system, found themselves in the back of a long line of patients in desperate need of care.

Smith and others argue Obamacare is moving America even farther away from the real solution to its health care woes. What’s needed, they say, is a free-market model in which Americans are not just patients, but health care consumers.

MP: Look for more of these types of market-based health care solutions as patients look for alternatives to government-managed Obamacare.

Carpe Diem

Markets in everything: Uber will now deliver your lunch

Following several other recent innovative additions to the services offered by the ride-sharing, taxi-alternative leader Uber (UberPool that allows customers to share a ride and split the cost, Uber for Business that allows employees who use Uber to bill their trips directly to their company and UberFamily — a car seat option for parents on the go), it now uses its fleet of cars and drivers to deliver food with its new UberFresh service.

Here are more details from

The service starts today, and, as advertised, you’ll swipe to the “UberFresh” section of your Uber app and a driver will bring you lunch. No, you don’t get in the car and go somewhere; think of it like app-based food delivery. For the service’s initial launch, your lunch options are limited to a single item per day (there’s a menu on Uber’s site right here). Admittedly, the options for the first week look pretty delicious, and the Yelp rankings for each restaurant back up Uber’s choices as at least somewhat legit.

MP: What’s next from Uber? Who knows, but it certainly won’t be a service that any taxi cartel has thought to offer, and will be another reason that Uber represents the future of innovative transportation services, while traditional taxi cartels might soon be relics of a past era when the interests of producers were more important than the interest of consumers.

HT: Hitssquad

Carpe Diem

Who-d a-thunk it? Total tax costs in Canada are 46.4% lower than in the US, and Burger King wants to move there?

taxtableIn a post titled at Business Insider (“Canada Has The Most Business-Friendly Tax Policy In The World“) Myles Udland points to a recent KMPG special tax report “Competitive Alternatives” that measures the Total Tax Index for the ten countries in the table above. KMPG’s Total Tax Index measures all taxes levied on corporations including income taxes, property taxes, capital taxes, sales taxes, miscellaneous local business taxes, and statutory labor costs (statutory plan costs and other payroll-based taxes). According to KMPG:

Among the countries studied, Canada has the lowest Total Tax Index (TTI) at 53.6. In other words, total tax costs in Canada are 46.4 percent lower than in the United States, which has a TTI of 100.0 and represents the benchmark against which all locations are scored.

Should it be any surprise then that Canada may be the new home of Burger King? From the New York Times:

The restaurant operator said on Sunday that it was in talks to buy Tim Hortons, the Canadian doughnut-and-coffee chain, in a potential deal that would create one of the world’s biggest fast-food businesses.

If completed, the deal would mean Burger King’s corporate headquarters would move to Canada, raising the specter of yet another American company switching its national citizenship to lower its tax bill.

HT: Bill Greenway

Carpe Diem

Monday morning linkage

1. A UAW worker at Ford says he will pay dues to cover core activities performed by the union (collective bargaining, contract administration and grievance processing) but he objects to the portion of union dues that supports the Democratic Party and he has filed charges seeking a partial refund an automatic reduction in his union dues. (HT/Hitssquad)

2. Washington Post editorial: “The United States is embroiled in a necessary but, at times, emotional debate about the use of deadly force by police against civilians. Precise, complete and reliable official information must inform that discussion. Data are also, crucially, needed for the Justice Department’s exercise of its statutory authority over police suspected of a ‘pattern or practice’ of excessive force. If Congress does nothing else in response to the tragedy in Ferguson, it must legislate, and fully fund, the collection of this information.” (Link)

3. Who-d a-Thunk It? a) A myriad of rules governing driving schools in France stifle competition and inflate prices? and b) Venezuela’s socialist policies are a case study in how NOT to help the poor?

4. End the prohibition of heroin: A 26-year veteran police officer’s experience tells him the War on Drugs is doing more harm than good.

5. UNITED STATES OF SWAT: “Release Us” – A short film on police brutality in the US.

6. Bakken Boom Spreads East to Minneapolis-St.Paul: The Mall of America in the Twin Cities targets workers in the North Dakota oil patch with a new YouTube video.

7. Why Are PC Sales Up And Tablet Sales Down? Find out here at TechCrunch.

8. Charts of the Day.Since its inception, the War on Drugs has disproportionately affected minority Americans far more than white Americans, see Exhibits A and B below and read more here.


Carpe Diem

Quotation of the day on ‘The Great Enrichment’ ….

…. is from Deidre McCloskey (via Matt Ridley):

The aim of the true Liberal should not be equality but “lifting up those below him.” It is to be achieved not by redistribution but by free trade, compulsory education and women’s rights. And so it came to pass. In the UK since 1800, or Italy since 1900, or Hong Kong since 1950, real income per head has increased by a factor of anywhere from 15 to 100, depending on how one allows for the improved quality of steel girders and plate glass, medicine and economics.

Never had anything similar happened, not in the glory of Greece or the grandeur of Rome, not in ancient Egypt or medieval China. What I call The Great Enrichment is the main fact and finding of economic history.

In relative terms, the poorest people have been the biggest beneficiaries. The rich became richer, true. But millions more have gas heating, cars, smallpox vaccinations, indoor plumbing, cheap travel, rights for women, lower child mortality, adequate nutrition, taller bodies, doubled life expectancy, schooling for their kids, newspapers, a vote, a shot at university and respect.

HT: Warren Smith

Carpe Diem

The debate about whether to hire an active fund manager to beat the market or use a passive index fund is over

Writing in Saturday’s WSJ column “The Intelligent Investor,” Jason Zweig reviews a recent article by the “dean of the investment-management industry” Charles Ellis, who claims in the July/August issue of the Financial Analysts Journal that the “active vs. passive investment debate” is largely over. After their high trading fees and expenses, “active managers are no longer able to earn their keep,” and therefore most investors will get higher returns and pay lower fees with index funds. Ellis expects that the triumph of index investing over active fund management is generating a “wave of creative destruction” that will put many portfolio managers out of business. Here’s an excerpt of Jason Zweig’s article “The Decline and Fall of Fund Managers“:

Active fund management is outmoded, and a lot of stock pickers are going to have to find something else to do for a living. The debate about whether you should hire an “active” fund manager who tries to beat the market by buying the best stocks and avoiding the worst—or a “passive” index fund that simply matches the market by holding all the stocks—is over. So says Charles Ellis, widely regarded as the dean of the investment-management industry.

Stock picking “has seen its day,” he told me this past week, as assets at Vanguard Group, the giant manager of market-tracking index funds, approached $3 trillion for the first time. “With rare exceptions, active management is no longer able to earn its keep.” If he is right, hordes of portfolio managers will eventually be thrown out of work—and financial advice could end up cheaper, better and more plentiful than ever before.

In an article in the latest issue of the well-respected Financial Analysts Journal (see below), Mr. Ellis argues that fund managers equipped with sophisticated analytical tools, electronic trading and instantaneous access to news are engaged in an arms race resulting in a kind of mutually assured destruction of out-performance. The faster and smarter each manager becomes, the more efficient the market gets and the harder it is for any manager to beat it. As a result, he writes, “the money game of out-performance after fees is, for clients, no longer a game worth playing.”

No one gave a hoot about fees in the 1980s and 1990s, when 2% in fund expenses barely made a dent in the 18% average annual returns of U.S. stocks. But since the beginning of 2000, stocks have returned an average of just 4% annually. A 1% fee is a quarter of that return. Fees will come down because they have to.

And that, Mr. Ellis warns, will lead to “a wave of creative destruction” comparable to the changes that swept through the steel industry decades ago. To Mr. Ellis, the future for many portfolio managers is clear: “Lots of them are going to have to go find something else to do, because the line of work they originally trained for will be fading away.”

Here’s the abstract of Charles Ellis’s article “The Rise and Fall of Performance Investing” from the July/August issue of the Financial Analysts Journal:

Performance investing has enjoyed a remarkably long life cycle, but the costs of active investment are so high and the incremental returns so low that, for clients, the money game is no longer a game worth playing. Investors—both institutions and individuals—are increasingly shifting toward indexing. As acceptance of indexing grows, clients and managers have an opportunity to stop focusing on price discovery (which has made our markets so efficient) and refocus on values discovery, whereby investment professionals can help investors achieve good performance by structuring an appropriate, long-term investment program and staying with it.

Here’s part of Ellis’s conclusion:

The ironic triumph of active performance investors, who are so capable of price discovery, is that they have reduced the opportunity to achieve superior price discovery so much that the money game of out-performance after fees is, for clients, no longer a game worth playing. The obvious central question for our profession—for each individual and each firm in active investment management—is, When will we recognize and accept that our collective skills at price discovery have increased so much that most of us can no longer expect to outperform the expert consensus by enough to cover costs and management fees and offer good risk-adjusted value to our clients? Another central question is, When will our clients decide that continuing to take all the risks and pay all the costs of striving to beat the market with so little success is no longer a good deal for them? These questions are crucial because to continue selling our services after passing that tipping point would clearly raise the kind of ethical questions that separate a proud profession from a crass commercial business.

MP: My advice is to build your investment portfolio using a variety of index funds — it’s not settling for average, it’s just refusing to believe in the miracles and magic of active management.

Carpe Diem

Markets in everything — Not anymore for vacuum cleaners in the EU with more than 1,600 watts

Starting September 1, companies in the 28 member countries of the European Union will be banned from making, selling or importing vacuum cleaners above 1,600 watts. The new rules are part of the EU’s energy efficiency directive, designed to help tackle climate change.

Prediction by Anthony Watts: A new black market will soon emerge for more powerful vacuum cleaners, a retrofit aftermarket will develop to replace the new smaller motors with more powerful ones, and a lot of vacuum purchases will now be made outside of the EU.

Also, if the new vacuum cleaners are 10-20% less powerful, won’t people use the new vacuum cleaners 10-20% longer to get the same results, completely offsetting any alleged energy savings from less powerful vacuum cleaners?

Carpe Diem

Barry Ritholtz on the ‘active vs. passive debate’

In an August 9 article in the Washington Post “No matter what, the long-term investor comes out ahead of the short-term trader,” Barry Ritholtz (chief investment officer of Ritholtz Wealth Management) offered these thoughts on the active vs. passive investing debate:

The data is terribly unfavorable to the active trader by an immense margin. Indeed, the math of active management is daunting.

Let’s use mutual fund performance as our stand-in for active traders. Data from Morningstar and Vanguard shows that in any given year, 20 to 30 percent of active managers can outperform their benchmarks. Note that this is usually by a few percent, and not the 25 percent we have discussed.

But that’s for only one year. Where things get interesting is what happens when we look at consecutive years. For any manager who outperforms in a given year, only 1 in 10 will continue to outperform in two of the next three years. In other words, 10 percent of our original out-performers — about 3 percent total — can keep their streak alive for three consecutive years. Over five years, only 1 in 33 of our original alpha generators keeps the winning streak going. Once we figure in their costs and fees, it works out to be less than 1 percent — 1 in 100 — who manage a net out-performance of a few basis points a year.

In the real world, the win goes to the passive indexer.