Joe Kernen (CNBC) and his Private Sector Dreamland

This morning I was watching one of CNBC’s Squawk Box episodes where Joe Kernen (a co-host, nicknamed "The Kahuna" or such) was trying to debate with Mohamed El-Erian the merits of private sector vs. public sector when it came to capital investment effectiveness. This particular episode has to do with Mohamed El-Erian's view that the US had better take 3 actions soon to avoid recession, of which one such action includes embarking on large-scale infrastructure fixes to the nation's roads, bridges and transportation systems, especially since the government borrowing cost for any required capital is near zero now. El-Erian's other ideas include tax-reform and over-indebtedness (especially in things like student loans now), but that's another issue.

I want to focus on the infrastructure investment topic and some of what Joe Kernan said during this episode that I take some issue with, specifically his statements about how wonderful and efficient the private sector is at deploying capital, as opposed to the government (aka, public) sector.  Readers remember: don't confuse public-sector with publicly-traded private companies in this upcoming discussion.

Joe said [as closely as I could type it while watching the video] the following:

If you have a [private sector] business, ... whether you exist depends on you watching your P's and Q's and watching every penny, and not overpaying for things, ... you go out of business if you don't do that.... [a private sector business] treats capital frugally like it should be treated.  

Joe was telling Mr. El-Erian something along the lines of "... I'm just talking about a theoretical argument about whether government is as effective at deploying capital as much a the private sector.", and the fact that Joe clearly believes that the private sector is fantastically effective at deploying capital.

Private-Sector Capital Deployment Efficiency and Effectiveness? Sure...

Joe, you must be joking!
What world are you living in?  Surely you are not referring to the private businesses whose stocks adorn the Dow Jones, S&P or Nasdaq indices.  You need only look to any of your guests, El-Erian included, to quickly see how insane your bit about "treating capital frugally" is in this modern private-sector world, especially among the publicly-traded private sector businesses.   You are simply living in a dream land.

For starters, IF private sector firms were at all concerned about the effective or efficient deployment of capital, you wouldn't see them issuing pay packages worth tens or even hundreds of millions of dollars to senior executives (like, e.g., Mr. El-Erian reportedly received at Pimco, a subsidiary of Allianz).  And, I am waiting for someone to tell me how it is effective deployment of capital to secure such awesome talent that can only be had for these enormous sums, and how their superhuman management abilities deserve such pay — you know, their super-human ability to pay the average person in the organization one-three-hundredth of what they make, while laying off masses of those average persons because employees are just a terrible waste of capital when that money can go to their pay instead.  But, this insane executive-pay is just the starting point in a long list of inefficient deployment of capital in private firms.

How about all the cash parked overseas now by major companies?  Trillions!  And, even if it is sitting in negative-yielding government bonds, or otherwise near-zero-yield instruments, somehow that is effective or efficient use of all that capital?  Go ahead... make the obvious arguments over how it is more effective to park such massive sums overseas than to pay taxes on it in the USA, yada, yada...  well, the tax-code is certainly partially to blame, but then again, it ended up this way because these same corporations lobbied elected officials in order to write the tax law as it stands.  This needs to end.  Total ineffective deployment of capital on a grand scale.

Then come all the share buybacks that are being done to further enrich top insiders that have incredible pay deals tied to stock price.  Share buybacks are truly saying that a company has nothing better to do with excess funds than buy back their own shares, if you believe they really have nothing better to do with it.

But, therein lies the problem, the stats clearly show that corporations DO have better things to do with their capital and they are obviously not treating it frugally, as they should per Joe K's commentary. Stock prices are soaring, yet they do stock buybacks while their stocks are already at very high values (hmmm.... that sounds a bit like "overpaying" to me), but the internal core business capital investment is now at an astonishing low — things like investments in machinery and equipment  — the lack of which is contributing to overall productivity slowdowns in the USA economy.  As this article on SeekingAlpha pointed out, courtesy of the National Bank of Canada's Economics and Strategy economist:

"Borrowing by corporations for the purposes of stock buybacks instead of investment in machinery and equipment does little to enhance an economy's capacity for growth. We're getting more evidence of that in the US where the average age of fixed assets is the highest in half a century and productivity growth is the weakest on records."

Gee, that sure sounds like truly effective use of capital, Joe!  I think otherwise. Surely we can do better.

Corporations are sitting on mounds of cash, but yet instead of investing in core business assets (CAPEX), they waste their cash on stock buybacks, over-inflated executive compensation packages, and other unconscionably conspicuous deployment of their capital in ways aimed at self-enrichment and short-term stock price over long-term productivity and sustainable long-term returns to the average shareholder.

Somewhere along the line it has even become an accepted norm, apparently, that a full 10% (or more) of all corporate profits will go to just the few top C-level employees.  Seriously. Just pull up Google Finance and look at a few companies' total net profit values and compare it with what the top insiders are taking in compensation.  It is truly appalling.  Need some examples?  You can choose nearly any company... they all look similar (thus, I am not saying any of these companies are worse than any others... most all are terrible these days in this sense):

• Try Lifeway Foods on Google Finance, which shows 16.16 million shares outstanding, EPS of 12 cents per share (thus making total earnings of just under $2 million USD).  Now, go to Reuters and look at some of the top player's pay packages and share sales... a mere 3 individuals took home $3.3 million in basic compensation according to Reuters.  Wow!  Great use of capital guys!  Ever heard of the average shareholder?  If you directed two thirds of your inflated executive pay towards the corporate bottom line, your entire business would be in the black! And, presumably the share-price would go up quickly if a profit was attributed to shareholders and not just the entitled few insiders. And, you all own shares, which makes it even more crazy that you are unwilling to risk your cash pay for just share appreciation. What makes you all worth such great pay when your average shareholder has lost 50% in the past year?  If you have so much capital that paying such salaries is the only efficient thing to do, perhaps you should consider the average shareholder first, or maybe some capital improvements for expansion or productivity improvements?
  
• Gee, let's look at Capstone Turbine on Google Finance,... wow... Reuters shows 4 guys pulling $2.2 million in basic compensation from a firm that loses money in a big way (net income: -$25 million annual).  Unreal.  Again, don't any of you overpaid self-rewarding insiders see anything even slightly wrong with this situation?  Don't worry: Joe K. thinks you private sector guys are doing wonderful with your precious capital, if he truly includes you in his statement today.
  
• And, as to not leave out some big players, how about the likes of Chevron (G-finance site),... Google shows them losing 40 cents/share over past 4 quarters, or roughly $760 million dollars.  But, as you might now expect, the top insiders are doing wonders with that precious capital: there is a nice $50 million dollars in otherwise useless capital that just had to be handed out to the five people that Reuters lists Chevron executive compensation for.  Couldn't $50 million do anything at all to otherwise improve efficiency, even if it were R&D looking into efficiency gains?

There are so many examples of poor use of capital in private organizations, and their "overpaying for things" (something Joe claimed they can't do and survive), that I could go on for weeks (and not only regarding excessive pay packages).  But, clearly Joe Kernen's appreciation of the private sector, and it's alleged ability to so effectively deploy capital, is due to some fantasy view he holds of modern corporate America versus a completely different reality.  Is the public sector really so terrible at capital deployment compared to all this? Maybe. But the bar set by the private sector doesn't really seem terribly high.

Leaked: Donald Trump’s 2016 Cleveland RNC Nomination Acceptance Speech

Donald Trump is about to deliver his Republican National Convention acceptance speech to the world. How about a preview by way of a sneak-peak leak of that speech?

As a long-time computer programmer and software developer here in Cleveland, Ohio, I am not going to say how I came by this information, but I will simply post it here for your reading pleasure… at least the better parts...

The introductory stuff, chopped off for brevity, begins rather predictably... 

Thank you [to family, supporters,.... etc. etc…]. 

Thank you for making me your Republican nominee and I enthusiastically accept this nomination so I can now begin to Make America Great Again and Make America Safe Again, with your help. 

[...some more basic predictable intro stuff..., blah blah...]

Then the speech starts to get good!

My behavior throughout this election cycle has been truly appalling. Truly awful. Do I care? No. Not really.  Why should I?  I have intentionally said and done everything possible to demonstrate how completely broken American politics is. I needed to get America to wake up and vote for change. Melania even went as far as to appear to plagiarize portions of a speech originally written by Michelle Obama, just to gauge voter reaction and stir things up a bit. It was all planned. I am a brilliant businessman and an even more incredible politician because I know how this game works, and now I am going to use my natural gifts and business acumen to fix everything that is wrong with Washington politics.

Is he serious?!
Seems so...

I ran the calculations and have done exactly what was necessary for an “outsider” to be heard and to have a chance to lead this great country. This is how you win at business and at politics these days. Learn how the system works and use it to your advantage. This is what American politics has been reduced to. And this is because Washington insiders have taken over your democracy. American politics has been hijacked by the wealthy elite and corporate interests for decades now, and the only way to take on that establishment is to use their own tactics against them, without them knowing it. I have done it! Now you know! Time to tell all these insiders that their time is over and your time is here instead. Vote for me this fall and use this opportunity to take back your government and your political system. And, if you have even the slight doubts in voting for me, at least consider the fact that I am man enough admit that I have lied and distorted facts in order to be seen and heard and have a chance to represent you. Crooked Hillary will never admit her lies and misrepresentation and the fact that she is deeply entrenched in the Washington establishment political machine, will she?

OK, I see where this is going, I think.

So, how are we going to Make America Great Again and Make America Safe Again? Just like how I made my businesses and family successful. We are going to look at the numbers and the facts and do what it takes to get this country back on track. We do not have time to mess around with politics as usual any longer. It is time to get serious about fixing what is wrong in this country.

Trump, getting serious?  Could this be for real?

Let’s start with the government budget mess. I am a businessman. This country is essentially an enormous business. It is a giant business that we partake in, and a portion of our paychecks go to pay for protecting our freedom and our position of being the most powerful country in the world. But, a business must manage its revenue and its expenses. America spends more than it takes in, in a HUGE way… huge… it would be considered essentially bankrupt were it not for its ability to print money. We need to get our financial house in order. And no, we are not filing for bankruptcy, but rather we are going to address both our spending and our taxation. 

Guys like me are so wealthy due in large part to the favorable tax system here in the USA. And yet you constantly hear this political rhetoric about the need to cut taxes, when taxes are the revenue side of our government’s accounting system. We have an enormous federal deficit and debt, but yet for some reason we are supposed to ignore the revenue side of the equation and not charge taxes. Then again, we ignore the expense side of the equation too and spend crazy amounts on all sorts of insane stuff, but I will get back to that topic in a bit.

Could Donald Trump really treat America's budget like that of a business and be serious about both increasing revenue and cutting expenses?  I'll believe that when I see it. But, maybe. If I were to believe him.

For now, let me talk taxes, revenue. I hardly pay any taxes relative to my earnings. And, I’m not alone. Warren Buffett has pointed out repeatedly how he pays a lower tax-rate than his secretary. That’s great for us guys at the top, but not so good for the country’s coffers. Voters need to understand the math here. I have billions. Not just one billion, a few billion dollars. Warren Buffett makes me look rather poor though — that guy has like 20 times as much as me, something like 60 or 65 billion dollars. Do american voters even realize how much money a billion dollars is? 

Each billion I have is one thousand million. From what I read recently, 25% of american citizens do not even have a net worth of ten dollars to their name. So, if one of those 25-percent of people walks down the street and loses a dollar out through a hole in their pocket, they have just lost one tenth of their net worth. Ouch! A ten percent loss in one day makes for a bad day, but it can happen. For me to lose one tenth of my net worth, if I was ONLY worth one billion (which I am not, I have a few billion, I am quite wealthy,... very wealthy… but not quite like Buffett or Gates, those guys are crazy wealthy)... I would have to be walking down the street and lose a briefcase containing 100 million of my dollars! One hundred million dollars is mathematically no more significant to me than a dollar is to a quarter of the american population. 

Voters in this country need to grasp this disparity before they can understand why the only winners in this trickle-down ultra low tax-rate system, that is full of loopholes for the wealthy to exploit and tax-breaks which only benefits the top, are the top guys like me. If we want to make america great, we need to help everyone have a fighting chance to become great. So, stop voting against yourselves and start listening to me, a very successful businessman who understands numbers very well. Very well. 

Increasing taxes on the top, not to mention forcing US corporations to repatriate the TRILLIONS of dollars they are holding overseas and pay taxes, and pay taxes now or else be hit with fines, is how we are going to begin making america great again for the average american worker and small business owner. Forget this misdirection and smokescreen talk of job-killing-regulation,... the only thing killing jobs is the lack of tax incentive to keep people employed rather than simply piling up corporate profits in overseas bank accounts. Give tax breaks for employing people, not for hoarding cash and not putting it to work building up america.

Wow!  Trump, I'm with you on this stuff... I may just vote for you. And it continues to improve:

We have a system that is further rigged to deliver pay packages to CEOs of the big companies that are on average 300 times what a typical worker makes every year. So, right now, you can work your entire 30 year career with a company, and after all that time, you will be lucky to have made one tenth of what the top guy at your company makes in a single year. This needs to change. 

For america to be great, it must recognize that every american contributes to the success of guys like me and CEOs and everyone else at the top, and give them a better share of things. With our current tax system and income inequality, this is impossible. Or, if not impossible, there surely is no incentive to do so. 

The current tax system is telling me: take as much as possible for myself because there is no reason not to. So, ask yourself, if I can lose a suitcase containing $100 million dollars and lose the same one-tenth of my wealth as the person who only has 10 dollars to their name, why can’t I be expected to pay that into the tax system? Heck, I will still have $900 million dollars out of each billion left over to enjoy, and I tell you, I am still in a lot better shape that the average american with their nine dollars left in their pocket! I can buy whatever I want, whenever I want. Shouldn’t you, the american people, have a bit more in your pocket too?

And on and on... but, now to infrastructure and the spending-side of things...

And, we spend so much money, it is just insane. Where do I start… we spend it on things that do not deliver any return on investment. It’s like we are trying to be stupid with our cash. If you build a business, you invest where the money will generate more money… that’s why they call it investing. You build your infrastructure so that you can expand and move more products and services. You modernize to improve efficiency. 

But our government cannot even consistently invest in its roads and bridges, and wow, don’t even think about investing in anything like high-speed rail or any serious modernization. And what little we do spend on our infrastructure, especially relative to military spending, isn’t even spent in a way that ensures that the infrastructure lasts. I have seen old cast-iron or brick railroad bridges from the 1800s still standing, with little maintenance, throughout the world, but yet I have seen bridges here in the USA that are falling apart and having their concrete replaced after a mere few years. Can we really not build better bridges now that over one hundred years ago, so that we don’t keep wasting money on the re-building same thing over and over?

And, how about investing in education in a serious way? I’ll come back to this too in a bit.

A bit rambling, but sounds reasonable.
Ah, let's skip forward to immigration:

But first, I want to talk about Immigrants and immigration. My wife is an immigrant. Many great people I know are immigrants. And America’s growth and prosperity has outpaced the bulk of the rest of the world for the past eight years thanks in large part to its ability to attract foreign workers to join its fantastic pool of American talent when we need them. Why? Because everyone knows America is awesome, truly awesome, and they all want to come here to enjoy our American Dream. Who can blame them? And, we all benefit. The numbers don’t lie. 

We want the best educated and skilled people from around the world; who wouldn’t? You always want the best talent on your team. And, if we educated our own people better, our talent pool would be that much deeper. Let's do that to: let's invest in educating our young people.  But, even when we educate our own people well, and recruit the brightest from everywhere, we may find that we still need some additional workers or laborers to fill in the gaps in our employment pool that exist from time to time in our system, like when we build all our better bridges and roads and high-speed train systems and other times of increased labor needs. There will be plenty of work for everyone once I start things moving after I am in office. You watch.

Sounds like a lot to deliver.  But, OK.  Bring it on.  How about those controversial topics of gun control and such?

And, if you are worried about terrorism with any immigration, I have one question: why are you worried? How can anyone say we are not safe? We are the strongest country in the world, and will continue to be so. We spend more on our military than the next 7 highest spending countries combined. We have a million people spying on our own citizens to watch out for bad guys. 

How many people have died from terrorism on US soil in the past year? Any number is terrible. Truly awful. It is under 100 people even over this last year by my count, which includes the horrible Orlando night club attack of complete cowardice. And, my condolences go out to everyone and their families that were touched by terrorism. 

But, being a businessman and a numbers-guy, I really think the average american should be more concerned with how many people die from gun violence in America, prescription medicine deaths, and even automobile accidents. 100 people every single day, on average, are dying from gun violence in america, and that is not due to terrorism. We have nearly 40 people per day dying from prescription opioid overdoses in america (and that is just opioids… double that figure if you want to count ALL prescription-drug overdoses), and that number is rising. Last year 105 people also died in road traffic fatalities every single day of the year on average. The numbers do not lie: this campaign-of-fear being waged on america, the fear of terrorism in america, just seems crazy when we consider the fact that there are 100,000+ Americans dying every year from gun violence, prescription drug overdoses, and traffic deaths. But, we don’t spend 100’s of billions per year trying to prevent THOSE deaths.

Indeed.  Terrorism is seriously bad news, but when you look at the numbers inside the USA, how can you ignore that fact that for every death-by-terrorist there are one thousand other highly-preventable deaths by these other means?  Don't those lives matter too?

I surely agree with the next statement quite a bit:

The fact is, Washington and US politics are broken.

And, finally, after some rambling for a bit, comes the best part:

And, as for Mike Pence as my VP pick: sorry dude, you have to go. You were just a placeholder and another typical mainstream politician that represents more of the status quo… the only other true outsider in this race right now beside me is Bernie Sanders, so, guess what Mike Pence? You’re gone… outta here… from here on, it is Donald Trump and Bernie Sanders who together are going to usher in a wave of real change in America as we share the 2016 Republican ticket for President and Vice-President of the USA!

Hmmm....  that last part sounds a bit suspicious. I'm beginning to question the authenticity of this alleged Trump speech data leak. lol.

I want to thank my source of inspiration for this… the comic genius Lee Camp of RT America’s Redacted Tonight, and how Lee uses his extremely witty and intelligent comedy to point out the insanity in our political, financial, and social systems — topics including the 2016 election fraud incidents, civil rights violations, corporate control of our government, and so forth.  This was a long-form attempt at something like his "Headlines from the Future" segment.  I cannot compete with Lee Camp's brilliant comedy, but hopefully a few people find this "news" entertaining.

Education vs. Income : China proves Bernanke wrong

If you find the current economic situation in America disheartening, and you want to understand "why" things are the way the are with regards to high unemployment and the massive disparity in wealth between the upper few and the rest, do not listen to Federal Reserve chairman Ben Bernanke: he is out of touch with reality! He may be a very smart guy, but he seems to be missing some blatant truths about what is going on at a macro-level in the USA and worldwide.

One of Bernanke's favorite "reasons" for the ills of this economy is: education. I watched him on a TV interview last week where he cited educational differences as one of the core determining factors between the have and have-not groups. I personally beg to differ Mr. Bernanke, and a morning story on CCTV (China Central Television) backed my position completely...

When it comes to Education vs. Income, it is just what I keep saying: a standard supply/demand curve sets salaries and earnings; that is all, nothing more. Education used to place you in a supply-constrained-group; not anymore.

China proves Bernanke wrong...China just proved it. The college-educated Chinese citizens were, just a couple years ago, on average making 4 times what the blue-collar factory workers were making in China. But, China is now experiencing an abundance of persons with degrees in accounting, engineering, technology, etc... and, those same college-educated persons are now making on average only 2 times the blue collar wages. The CCTV news show discussed how it is purely a matter of supply/demand for both sectors (white/blue-collar) that is forcing this narrowing in wages. 

China currently has an increased need for "low skill" labor, which has pushed the wages for the low end up while the college-educated job rates slow, stagnate, and decrease relative to the other group.


OK, Bernanke... how is the USA any different?There is a global glut of educated workers. As such, global wage-equalization is underway.

Makes you want to run out and get an MBA, doesn't it? NOT.

This premise that Chairman Bernanke makes, that lack of education is limiting incomes, is simply absurd in today's global economy. Sure, education *helps*, but it will not help beyond the point where supply exceeds demand for any one group of skilled labor - including college-educated labor.

SUPER-MACRO-EXAMPLE

The fact is, if EVERYONE on the planet had a college degree, and everyone had similar intelligence to back that degree, there would still be a need for "unskilled" labor in factories and in less desirable positions. And, who is going to serve up the Starbucks coffee in the morning... you got it: a college-educated person. And, pay differences are going to emerge like always, with stratification that does not reward education, but rather rewards being lucky enough to get one of the better jobs. 

There will still be the group on Wall Street that rewards themselves handsomely for doing nothing more than moving money around (electronically) and taking a "cut" and calling themselves brilliant investment bankers, private equity managers, and hedge-fund barons. It will have nothing to do with their education... just their position in society that allows them to siphon off huge amounts of cash from the productivity of everyone else in society.

Oh, wait... I just described the current economy in America!

What is REALLY wrong with the economy?

Bottom line: Bernanke needs to wake up and see the real issues of what is going on with the world economy and why this recession is now a supposed "jobless recovery". It has little to do with education. I, and many other people, know people with exemplary employment records and fantastic education credentials (including advanced degrees) that are unable to get work. 60-Minutes did a story where they featured a large roomful (100s) of the unemployed persons in Silicon Valley that were, predominantly over 40 and when asked what education-levels they had obtained, the majority of hands in the room were raised at "Masters" level and a large percentage were still raised at "doctorate/PhD" level.

Bernanke: how can we expect you to HELP this economy when you clearly do not understand the macroeconomic forces at play? Or, are you fully aware and just want simple excuses for the underlying mess that will never be addressed?

That underlying mess I refer to is an economy where:

• large numbers of college-educated persons can not find employment commensurate with their training or skills; 
• a *few* at the top of the economic food-chain, or the "top" as they have defined it to be, sit back funneling all the productivity out of this country via their instantaneous intraday flash-trading on Wall Street, whether for the banks they work at or the hedge funds and private equity firms and so forth; 
• there is "no inflation", but yet the volatile food-and-energy group, and any other thing that one truly *needs*, only goes up in price, and goes up faster than "inflation"; commodity prices are surging worldwide, yet there is "no inflation"... sure!; 
• there is no way for people to get any return on savings, though we always here how the USA got into this if from "lack of savings". Great, so now anyone who saves can look forward to .1% (yes, a tenth of a percent) or thereabouts on a "savings account" while large banks hit the same people up for 15+% on their credit-card interest rates. That is a 15,000% difference between what "savings" earn and what revolving-debt costs; need I say more? 
• it is nearly impossible to find ANY USA-MADE ITEMS AT STORES anymore. Period. I search to no avail. How am I to "stimulate the economy" (in the USA) if I can not find a way to spend my money on an item that would employ US workers? It gets worse every day. 
• Corporate America is moving jobs out of here as fast as they can... whether to dodge environmental code in the USA or to avoid the cost of benefits here or any other potential liability of having workers in the USA, they are rushing to China and other low-cost suppliers because our laws make it easy for them to do so. 
• IP (Intellectual Property) rights are only enforced when violations affect the largest of the large companies; aside from that, anyone starting a business these days will likely see their work stolen, cloned, or otherwise reproduced within a few months of product-launch, and there will be no repercussions. You will create a new product only to see a cheap Chinese knock-off on the market in no time. So, starting a product/business in the USA becomes even more foolish, and thus jobs do not stay here. 
• Tax-code that favors the highest-wealth people and our government that is "owned" by those people: I am sick of hearing things like "the uncertainty over taxes is preventing corporations from hiring"... GIVE ME A BREAK. There is no uncertainty! It is certain that, at worst case, taxes will revert to pre-Bush-tax-cut-levels... and, anything else is just a better case. How is a 2yr extension of a tax-cut going to lead to anything beyond another supposed "uncertainty" at the end of THAT 2yr period? Ludicrous argument! 
• And, we borrow money by the Trillions to pay for the implementation and materialization of the list I just enumerated!

Conclusion

I could continue enumerating all the (real) issues with the economy, but it will make no difference unless some people with influence start standing up to fix this mess.  And, fixing it is not just extending a tax-cut that favors the top one or two percent of the population.  Fixing it requires some serious change.

If we do not start creating jobs to provide educated workers with opportunity in-line with their skills, things are only going to get worse.  And, when China is already showing signs of a glut of educated workers, get ready for further wage-pressures here in the USA and even more unemployment among those educated persons that Bernanke seems to think do not exist in large enough quantities already.

Credit Cards : Small Business = Personal Guarantee

Since I own a few small businesses, I receive a boat load of small business credit card applications. The mailers always say the same thing in GIANT BOLD PRINT: get your "BUSINESS CREDIT CARD".

Yeah, sure... "business" credit card, so long as you sign with a personal guarantee.

As I sit here watching the unraveling of the American debt-laden financial system in this current economic crisis, I can not help getting a bit upset about the sick irony that these bank credit card offers present. That is, if you are a large company, a public company, and/or have reached some magical "size" threshold where, as an incorporated entity alone, credit is issued and secured ONLY by the assets of the company (as opposed to requiring any sort of personal guarantee by corporate officers and the like).

So, as all these massive corporations default on their debt, file for bankruptcy, and so in... I can not help but find these "business credit card offers" (that require my personal guarantee of payment) all ironic, sickening, and disturbing. A small business entity with small amounts of credit must secure their credit personally, but yet a "large enough" business can borrow hoards of cash and default on payment (repeatedly in many cases -- where companies have been given many a chance, gone bankrupt repeatedly, etc - like airlines e.g.) and still not be required to offer any personal guarantees from corporate officers.

I really believe this is, in large part, why corporate management in this country is so terrible. There is little vested stake in the DOWN-SIDE of the business should anything go wrong. Contrast that to the fact that if I take out "business credit" in the name of one of my small businesses, that I am really taking out money that I PERSONALLY guarantee to repay. Who do you think has more incentive to PAY BACK THE LOANS?

So, while the biggest of the big companies can borrow with nearly no limit (especially in the day of government-backstopped borrowing), and repeatedly default - sticking banks and investors with huge losses and write-downs - the small borrower does not have such a luxury of non-repayment. Instead, we have to personally guarantee every last dollar borrowed with these "business credit cards" and "business loans" that are nothing more than personal credit cards and personal loans that happen to also include someone typing the name of our business on the application in addition to our personal information.

I am not saying that there should not be personal guarantees for credit on small business loans, especially if the small business has not been around for a long time or shown significant credit worthiness. Instead, I am saying that there needs to be more "risk" for large business borrowing - risk to these insanely over-compensated executive managers that can take millions or billions in compensation and stock options during the good times (heck, even during the bad!), but yet not be on the hook for a dime in personal losses when the company defaults on loans a mere year or two later... when, obviously some of that insane compensation should have went to paying down debt or avoiding debt in the first place.

There are rampant cases of this personal-profit, company-loss scenario among large companies, but yet they continue to obtain credit without personal guarantees. And, here I am getting my nearly daily mail about how to get my "business credit card" which I have to guarantee personally. So, a note to all you banks that send me these offers for "business credit": get lost!

I will take such an offer (perhaps) when the playing field is level and those "large companies" that continually stick banks with Billions of dollars in losses will have their own management personally guarantee some of those loans. I guarantee I am a better credit risk than GM, Ford, or Chyrsler, and I still do not see banks (or the US government) demanding PERSONAL GUARANTEES from those corporate executives!

Stock Analysis: Nvidia (NASDAQ:NVDA) and Ford (NYSE:F) Company Performance

I just have to compare and contrast the operating results reported by two companies today (Nvidia and Ford Motors), and especially discuss a fundamental difference between these two companies' management philosophies and ability to adapt to changing markets. That difference is a large one, and an obvious one: market agility and anticipating the future - Nvidia does this well, Ford does not.

Both have faced similar challenges with regards to their products and markets lately: their markets have been challenged by competitors (for Nvidia, that mean AMD / ATI; for Ford, just think Toyota, Honda, etc.), consumers have been demanding different products (for Ford, that means higher mileage cars; for Nvidia, that means higher performing graphics processors and more and improved Notebook graphics chip functionality), and each company has seen their products caught in a period of transition.

But, where they differ dramatically is in how they reacted to these challenges, and how quickly they reacted to known changes as well as anticipating uncertainty.

Let me start by quickly presenting an excerpt from earnings reports for each company - first Ford, then Nvidia:

NEW YORK (CNNMoney.com) -- Ford Motor reported a $3 billion operating loss in the latest quarter, and said Friday it would reduce staff and capital spending in order to preserve its dwindling cash.

Ford said it would cut salaried employment costs by 10% - reducing compensation of its white collar workers by eliminating merit pay, bonuses and the company's matching contributions to their retirement accounts.

Now, Nvidiia's quarterly results release:

SAN FRANCISCO, Nov 6 (Reuters) - Graphics chipmaker Nvidia Corp reported quarterly results on Thursday that topped Wall Street's estimate, as the company held the line on expenses while sales fell, and shares surged 12 percent.

Nvidia (nasdaq: NVDA) said its fiscal third-quarter net earnings for the quarter ended Oct. 26 came in at $61.7 million, or 11 cents a share, down 74 percent from $235.7 million, or 38 cents a share, in the year-ago period.

But after excluding items related to the company's recently announced layoffs and other charges, Nvidia earned 20 cents a share, beating the average analyst estimate of 12 cents a share, according to Reuters Estimates.

Notice the key differences.

Nvidia

Nvidia has been profitable in the past, and REMAINED profitable by acting quickly to reduce costs in light of the fact that demand was slowing and product-mix changes were taking place. In September, the company announced plans to cut 6.5 percent of its workforce when it was obvious their market was changing, and this quick reaction has helped them avoid losses.

You can argue that a graphics chip maker is inherently more agile than a car company because of the product lead-time and engineering/manufacturing cycle brevity compared to building cars, but on the other hand, that same logic must be applied to *competitors* that can also move just as fast to change their lineup of graphics cards and GPU offerings. So, Nvidia deserves credit for having management that is willing to act quickly, and decisively, in order to keep products inline with consumer expectations while keeping costs down as sales volume deteriorates a bit during a macroeconomic slowdown.

In addition, Nvidia shows foresight for future demand and growth in the parallel computing field with their CUDA offerings (this CUDA parallel processing cores feature is in nearly all their current GeForce and Quadro product lineup). I have been watching more and more commercial applications target this particular Nvidia platform advantage (which, I consider to be VERY large), and have seen applications like the upcoming Adobe Creative Suite CS4 even marketed as being best-with-Nvidia cards (and, Nvidia has a nice new high-end Quadro video card marketed specifically to Adobe CS4 users). This is great product planning, and will give them sales for many quarters to come.

And, if this were not enough reason to consider Nvidia a company with great foresight and momentum, consider how Apple Computer has just started offering the Nvidia mobile GeForce chipsets / GPUs in their new notebook lineup. As soon as I heard that news, it was even more obvious that Nvidia is making moves to future-proof their sales and grow their markets.

Ford

Ford has been losing money for a long time, and even while losing money, their management consistently acts slowly to reduce costs in light of the fact that demand was slowing and competitors were eating them alive. Ford Motors seems destined to live up to the image of the American Auto in general: outdated and behind the competition. Their entrenched management (just like General Motors) is a bunch of overpaid executives whose only tangible "plan" to fix things of late is to borrow (or be handed) more money from the United States Government and taxpayers.

I won't get into how lame this whole "rewarding failure" concept is with giving incentives to companies that fail is (instead of rewarding those that succeed and produce profits and jobs!), but it is highly indicative of the underlying problem with Ford and GM. They still, even after massive multi-Billion dollar repetitive quarterly losses, fail to act BEFORE the crisis gets worse, and are never able (or willing) to get ahead of the curve and show that they have any sort of visionary management abilities.

It is not like they have no knowledge of where the consumer is headed, where the economy is heading, and how their products stack up against the competition in regards to quality, features, mileage, and the like (start by reading Consumer Reports guys!). Nvidia has the same knowledge of what their competitors are doing (AMD's ATI division especially), and they must act to counter such competition quickly - and they do!

Ford looks like a slug by comparison to Nvidia, and repeatedly fails to deliver REAL change, and by the time (if ever it occurs) their management makes the DEEP CUTS and GROUNDBREAKING CHANGES required, they will have burned all their cash and find themselves once again knocking on Uncle Sam's door in hopes of more easy money. This door-knocking must be ignored, as it only encourages a repeat of their lame decisions, and will reinforce poor management "vision" while essentially penalizing those auto companies that DO have good vision for their companies' futures (by essentially subsidizing inferior products from Ford or any other competitor that is using government funds to prop-up their business).

Summary
Well, I think it is time to let some of the Silicon Valley management have their shot at Ford Motors management - or at least some of their foresight needs to go into play in Detroit. Funny thing is, the one Silicon Valley motor company I really find interesting (Tesla Motors) has breakthrough forward-looking products (like fully Electric sports cars), is creating new Auto-industry jobs, but yet has to compete with Detroit's entrenched industry without the massive handouts and support packages from the US government.

Instead, Tesla must secure private funding at market rates, and actually produce a product people want and set a price-point for its products where it can stay in business and perhaps even post a product. Gee, what an idea! All the more reason Detroit's antiquated auto industry needs to be allowed to simply DIE if they can not do the same -- it is time to reward success, and not failure. And, with regards to today's stock analysis, I plan to reward Nvidia's success with further purchase of their products (I have a Quadro in mind for before EOY 2008 yet) and their stock; but, by contrast, there is ZERO chance I will be buying a Ford product or company stock!

Wall Street Executive Compensation Manifesto & Challenge: I will risk working for free, will you?

This financial and investing blog entry is directed at Mr. Paulson, The Treasury, The Federal Reserve, Congress, The White House, and Wall Street in general.

My Challenge to Wall Street and Executive Management

I hereby challenge Wall Street executives to meet or exceed my personal commitment to fixing the financial system problems in this country, and doing so with the same promise I make to REQUIRE ZERO PAY unless I, through managing such a firm, achieve success not just in the short-term, but the long-term as well, for shareholders and/or the American taxpayers. IF you believe in your abilities as much as I believe in mine, especially when you perhaps have more "experience or qualifications" to perform the job of Senior Executive of a public company than do I, you should have no problem signing onto my plan. If not, step aside and allow me, and perhaps a few associates of mine that will offer equal commitment to the task, to take over the situation and fix the problems.

I have outlined my corporate-compensation manifesto below, to which I will subscribe, and I suggest the government force other CEOs and highly compensated managers of public companies to subscribe to, especially in light of the latest "private profits, public losses" shift that leaves us ordinary citizens to bailout the result extremely bad management decisions of recent, and especially where any CEO's will be managing what is essentially a government-backed / taxpayer-backed venture going forward.

After reading this New York Times article describing the Wall Street Bailout Terms, which absolutely infuriated me, and forced me to make as clear as possible how adamant I feel about how MR. PAULSON IS ABSOLUTELY WRONG WITH CONCERNS ABOUT LIMITS ON EXECUTIVE COMPENSATION. I hereby call you and your other cronies out on the floor for a debate about WHY such high-compensation is "needed", when I am quite willing to work without pay unless I perform! Here's the quoted text that got me fired up:

"Under a so-called claw-back provision, the secretary would have the power to force companies to recoup previous payments to executives of companies involved in the program. And Mr. Frank's plan would give broad authority for the Government Accountability Office, an investigative arm of Congress, to audit and oversee the program.

But Mr. Paulson said that he was concerned that imposing limits on the compensation of executives could discourage companies from participating in the program.

"If we design it so it's punitive and so institutions aren't going to participate, this won't work the way we need it to work," Mr. Paulson said on "Fox News Sunday." "Let's talk about executive salaries. There have been excesses there. I agree with the American people. Pay should be for performance, not for failure.

But he quickly added: "But we need this system to work, and so we — the reforms need to come afterward.""

OK, Hank,... let us focus on your statement about "Pay should be for performance" instead of the sentence (expressing concerns about compensation limits) that simply furthers the Wall Street mantra many years in the making which justifies exceedingly exorbitant salaries, options, and bonuses for executives even while companies are losing money, going under, laying off thousands, and so on. And, that part of Hank's statement about reforms needing to come afterward: BULL #@$! Reforms must happen NOW, or no (lasting) benefit will arise from these bailouts!

If that part about pay-for-performance is real in your own belief system, it is NOW time to start making executive compensation what is SHOULD be: a true risk/reward system, where for being that high-level executive and leader, you are taking the "risk" of not meeting or exceeding company profit goals, which would make your pay essentially disappear, while at the same time you have the potentially LARGE reward that comes with creating corporate and shareholder profits that lead to your own salary and bonuses being large. This is the age-old risk/reward concept.

Notice how this differs from what led us to this mess on Wall Street to begin with; i.e., the current "reward/reward" system, whereby executives get massive compensation packages even when a company makes nothing and shareholders lose millions or billions, and/or employees take the brunt of the impact of "cuts" while executives reward themselves for these actions. It is so utterly obvious that current executive management at most publicly traded firms (most: there are some exceptions) have absolutely no belief in their abilities, in their company's ability to ever generate profits, or in the prospects of their stock price ever increasing. If they did, they would not have to receive massive compensation packages for simply "doing their job" whether doing it resulted in company growth, shareholder value growth, and so on.

Right now, many corporate executives are essentially just like ANY other employee that shows up for work and gets paid whether they are an *exceptional* employee, and average one, or a complete screw-up!... but, there is one big difference: currently, these upper-level executives are getting stellar pay packages for their "efforts" whether such efforts are fruitful or fruitless or downright calamitous. This has to end.

My proposal for executive compensation change will fix Wall Street and restore investor confidence in a MEANINGFUL LONG-TERM WAY, not like this current bandage-approach of yet another bailout package. Bailouts like those being done now, and proposed now, are perhaps the WORST way to achieve any LONG-TERM investor-confidence, as there will be no fundamental change with one of the main negative influences on stock prices, investment returns, and investor confidence (i.e., corporate management whose primary concern appears to be how much, and how quickly, they can suck from the company for personal gain regardless of shareholder returns). In fact, it is quite simply a reinforcement of wrongdoing and broken practices when failures are "bailed out" without serious changes to the rules of the game.

My Executive-Compensation Manifesto
(and Challenge); circa, bailout-mentality-decade, early 21st Century.

This compensation manifesto is certainly not perfect, nor the end-all of compensation directives, but it should serve as a decent bit of foundation work to get the discussion headed in the right direction, and with additional time and effort (and input from others), I am sure it could be tuned into a doctrine that could be applied to public companies in order to reign in outlandish compensation, and more so return investor confidence and long-term shareholder value.

1. As I stated in a prior financial blog about the Government rewarding financially irresponsible companies and individuals:

"If you have risen to the level of CEO [or other Senior Executive] of some major corporation and can not afford to not make ANY money for a year or two, you do not have the financial responsibility to run such a company - period!" This should be rather clear, but if not, let me restate this: if the executive(s) have not managed their own personal finances well over the years, and built up their own "retained earnings" (i.e., some substantial savings) over the years, then they do now show financial responsibility adequate to justify their position.

Sadly, the current pool of "executive talent" that is running these public companies will perhaps meet my 1st condition simply due to the fact they have already ripped off the investors and given themselves massive financial cushions during this recent age of reward-reward executive compensation (note: I think those that fit this bill should be banned from further consideration, pending a rather detailed review into how they acquired their compensation – some of these people may be just fine for consideration, though many will prove out to be the rip-off artists that took massive pay packages for essentially, failure). I'd love to further apply this same concept to elected officials, as our government is currently made up of masses of individuals that show little financial aptitude, beyond getting elected with hopes to increase their personal fortunes after making all sorts of connections that will pay off later (most likely via the revolving door between Washington, Wall Street, and Lobbyist firms). These same people then sit down together and dream up bailout packages and debt-spending frenzies like none other, perhaps in part because they have no clue what real financial responsibility entails.

2. See item #1 for reference continually as I further expand on my executive compensation manifesto. The only exception to the zero-pay potential is that I suggest meeting any Federal or State or Local "minimum wage" base requirements, and to offer any legally-imposed benefits or benefits applied to *every* employee regardless of their pay-grade (e.g., Health Insurance plans, Sick Leave, etc.). And, to handle work-hours laws and/or overtime regulations, even though I consider Senior executives "exempt", for purposes of this manifesto adhering to any possible legal requirements, I suggest that the Senior executives, while earning the minimum-wage figure, be compensated for all hours works, and at 1.5X minimum-wage for overtime and perhaps 2X for weekend time.

3. Note how my doctrine still supports successful "startup" firms, like Google for example, that created enough wealth for their upper management through product and service innovation that resulted in strong demand for their initial public offering that their executive leadership team certainly would have met the criteria set forth in #1. These persons may have received compensation prior to going public, and I consider such compensation irrelevant for my doctrines, as shareholders in the IPO must choose what value to place on the new firm upon entering the stock-market (and, that value includes prior compensation and stock holdings by insiders). But, like any public company, after these startups have entered the realm of publicly-traded stocks (via IPOs), these people will be subject to all the terms of the manifesto from then on.

4. Any compensation packages for senior executives should be awarded in arrears. The basic reasoning is simple: as we have learned, "good" quarterly or annual financial reports can be completely and utterly misleading when viewed in the context of the long-term implications of what made particular periods "good". Examples abound, whether the "good" numbers were due to intentional hiding of the bad (like in off-balance-sheet vehicles, or just plain and simple cooking of the books), or due to overly-optimistic and aggressive tax-stances or accounting policies that will require "earnings restatements" and the like (e.g., FedEx trying to classify employees as contractors to save money - which I hear recently backfired), or due to any other reason that "good" values would be front-loaded with a pending disaster to follow (e.g., the current sub-prime mortgage debacle and resulting imminent bailout!).

The arrears-period should be long enough to make obvious any attempt to circumvent the discovery of reality by shareholders. Meaning, if actions of senior executives were truly "good" then those actions should appear good at 5 to 10 years out, when looking back upon them. This leads me to a key concept in my compensation manifesto and challenge: the current insanely-large rewards of Wall Street (to senior executives) should only remain possible IF the executives take the risk that their strategies and management decisions lead to long-term rewards for the average shareholder as well.

Here's the basic idea, which can be tuned as needed (but, not tuned to avoid the spirit of the time-proven rewards structure)

• All earnings to be held in arrears, whether salary, bonuses, or stock-options (hereinafter referred to as "potential compensation" or "compensation" for short), will be held in a financially "safe" storage mechanism, such that executives need not worry about their potential compensation disappearing if it is indeed "earned" over time.
  
The compensation potential must be sufficiently large to induce qualified executives to take on this "risk" in order to have the chance for substantial "rewards", but, if all (publicly held) companies employ the directives contained in this manifesto (whether voluntarily, or by law), the definition of "substantial" will likely vary considerably from the insanely high and ever-increasing compensation packages management has been rewarding themselves with for the past decade or more. This leads to setting a maximum compensation potential based on a variety of data-points and criteria, which will be outlined next (others will certainly arise)…


• Data-point 1) the company-average-employee wages. It seems only sensible that there be some correlation to the pay of the "average person" within an organization in order to encourage paying a fair living wage to all employees. Likewise, if outsourcing is employed for cost-savings initiatives within a company, any labor that is essentially replaced with outsourced-labor or other contractors will still be counted towards this average-wage by determining the end-worker's average wage.
  
• Data-point 2) stock dilution. In as much as common stock (or preferred for that matter) is diluted during the tenure of executive management, their potential compensation should be diluted by an equal percentage. Contrarily, if outstanding shares of stock are reduced (i.e., concentration vs. dilution), then compensation can by multiplied by the same percentage. This should help reign in the massive dilution that seems to occur constantly in public companies as executives essentially "print stock at will" to self-reward, whether they should be rewarded or not. So as not to think this metric would encourage management to jeopardize cash-positions for the sake of stock buybacks, keep reading…
  
• Data-point 3) Cash and equivalents vs. Short and Long-Term Debt. Some multiplier force will be involved to reflect solid financial practices. Now, since management must make decisions that are best for the LONG TERM corporate and shareholder returns, this consideration should in itself not dissuade management from considering financing (or, per data-point 2, equity issues) if it is truly the right thing to do for growth.
  
• Data-point 4) Earnings. Another "multiplier" factor when calculating compensation (and, other factors to follow). Plain and simple, the bottom line. And, this is not any "before extraordinary items" and the like; this is the real deal and is truly net income.
  
• Data-point 5) Dividends paid to shareholders. Higher payout to shareholders equals higher compensation potential. Again, this must be balanced with the preceding metrics to ensure dividends are not being paid out at the expense of corporate health (something that seems all to common these days!), but…
  
• Data-point 6) Stock price. Again, decision balance is important, as stock price is directly correlated to compensation potential.
  
• Data-point 7) Environmental impact. This one is not in my short-term "requirements", though it needs to be addressed soon. Fact is, a company should not reward executives that increase short-term profits at the expense of simply shifting environmental disasters to foreign countries or the like.
  
• Data-point 8) ratio of total "senior executives" to normal workers. Positive correlation to compensation package. There needs to be a reason to keep some "depth" of talent in the upper ranks. But, this too needs weighed with total cost-structure for the company. The idea here is to "spread the talent, spread the responsibility, and spread the wealth" so as to potentially encourage more of a management-by-consensus or better group-dynamic at the top vs. the often highly corrosive infighting among top-management seeking power-grabs and such.
  
• Data-point 9) time-delay for receiving compensation. Highly correlated multiplier to total compensation potential, offering much greater rewards for demonstrating faith in the long-term outcome of decisions. This one is quite important.
  
• Data-point XYZ) I believe there are others, though for now, this is enough detail to begin a discussion certainly.
  
• "Releasing" of compensation will be "tiered", with "earned" compensation being released from its holding in arrears-state in smallest portions for most recent completed time-period, and largest-releases for oldest covered time-periods. I.e., time-proven "earnings" are truly earned and delivered to the executive, and in greatest percentage for the longest-term proven results. Finally, if executive actions lead to failed long-term returns for the shareholders, or are proven to have resulted from illegal action or actions that were taken simply to manipulate compensation formulas (as I first discussed), some or all compensation for the time-period(s) in question is released back to the COMPANY immediately and into general operational assets (or, in the case of stock-options, returned to the treasury).

5. "Golden Parachutes": GONE! This practice of rewarding failure with mega-bonuses when someone is "let go" must end! This is an integral part of the RISK/reward concept. The fact is, the average employee, who doesn't enjoy the prospect of potentially earning 10's or 100's or 1000's of times their base-pay, faces the simple exit-package they deserve if they do not perform: they are fired or "downsized" or laid off or whatever. The average employee gets to collect unemployment, and/or perhaps they get a few weeks severance per year of service. Well, same should go for Senior Executives! Period!
And, to the argument that perhaps a company would engineer the early departure of an otherwise successful executive just to not pay them the rewards they have earned: I think not. Fact is, this plan of mine encourages GROUP SUCCESS, as everyone's fate is tied together, from the lowest employee to the top of the company - it is all about performance. See next point...

6. I am not ignorant of the fact that, to have one's compensation so tied to the performance of not just one's own efforts, but potentially the efforts of subsequent management, is a tough concept to accept. But, again, if you have reached the level of executive management of a public company, you best have the insight to recognize real opportunity, a solid Board of Directors, and have faith in succession planning (in fact, my plan should encourage SOLID succession planning that, again, is focused on the long-term benefit to the company and shareholders, and not just instantaneous riches through "Golden Parachutes" and the like). The goal of this overall manifesto is to encourage hiring the right people for the job, especially executive management positions, with more regard for qualifications than connections. The fact is, the entire executive layer in corporations should have an interest in the same outcome: solid corporate returns and stockholder value and growth.

SUMMARY

I guarantee that, if (the essence of these concepts are) implemented, the policies I have enumerated herein will have lasting positive effects on investor confidence in publicly traded companies and financial institutions. This will NOT be the case with a bailout plan that does nothing to fundamentally alter the way that executive pay is tied to performance. In fact, any bailout without something as sweeping as what I have described will likely just (very temporarily) postpone complete collapse that will follow, as executives will take the bailout as nothing more than reinforcement for their actions that led us here to begin with.

Some Related Observations and Discussion

I am sick of hearing that there are not "qualified people" to run these firms. Obviously the ones that have run the firms into the ground were not the best qualified, though we certainly heard much testimony to the contrary during the hiring and tenure of these individuals. It is time to expand the scope of who is capable of leading such firms to go beyond the traditional system of connected-individuals, and Boardroom-kickback-friendly stooges that so often end up running the show.

Fact is, a major change needs to occur on Wall Street before it all ends, or before we simply repeat this bubble-mentality that will yet again POP, and pop in ever larger ways, taking everything with it and starting the insane cycle of bailout-based-recoveries all over again, where the overpaid executives that cause it all will once again be the ones most highly rewarded, even as they cause the mess!