Pro Commerce

An historic step forward

California now has an initiative on the ballot this November that is historic.  The proposal is to have legislative districts drawn by three non-partisan retired judges and to do this starting in January 2006.  Currently legislators draw their own districts and, with computer programs in each legislator's hands, they get the exact district they want.  Right now legislators choose their voters, not the other way around.

The initiative will have modest impact in spite of the hysteria we are starting to hear from current legislators.  The main impact of the initiative is to clean up the democratic process, a very important act at a time when we are promoting democracy overseas with the lives of our citizens.

I consider this initiative so important that I am campaigning for it.  I sent out letters to all the major California newspapers and an op-ed piece which I also put online.  I will start phoning radio stations next week.

I expect to have an impact on the election by working hard right now.  I did research on special elections four decades ago described in an earlier blog.  Few voters turn out for a special election and those voters are very well informed.  They make up their minds almost at the time the ballot issues are announced.  In the current case, it pays to work early.

Polls will be inaccurate on special election issues that are close because it is hard to identify the few people who will really vote.

San Francisco Examiner

Not only does the Examiner publish data, in the form of tables, but it has well written humorous columns.

Data is anathema to the failing Chronicle, just as are words of more than two syllables.  The Examiner published a table (not in the online article) that shows Japanese is the language of the most non-English speaking tourists to San Francisco. 

We must have fried donuts running the Tourist Bureau and the Chamber of Commerce.  I already know that the Mayor and Supervisors have holes in their heads big enough for the fog to drift through.  There is not a single sign in Japanese in Union Square, Fisherman's Wharf or near the cable cars.

The only greater shorted sightedness, along these lines, that I've ever seen is the Paul Allen museum of rock in Seattle.  Not a single sign in Japanese or German for the two biggest tourist groups. Not even headsets in Japanese or German.

The Examiner has a great writer with no byline doing a weekend feature called the Police Blotter ( last week and the week before).  Sheer humor.  Most crime is stupid and should be understood as such.  But we try to believe that taking crime seriously is more effective than treating criminals as pathetic fools.

Criminals are able to see themselves as heroic thanks to the press, rather than stupid, which they usually are.

My guess is that the Police Blotter humor column will be obliterated by tried and true Puritanism. Reminds me of the time a great humorist, Howard Nemerofsky, was put on the S.F. School Board.  After a few months of making great improv comments and getting sour responses from everyone, Howard quit. Education is too serious for a touch of humanity.

French report

I spoke to an American who is a professor at the Sorbonne. I jokingly asked if he was the first English speaking professor at the Sorbonne.  The answer was yes, but that these days many graduate departments are taught in English.

I gave a lecture at the Lyon School of Management, decades ago, and it was d'rigour for graduates in management to speak English.

Turns out many fields are solely English.  My professor friend teaches international law.  He reports that all EU business is actually conducted in English.

My friend further reports that the English issue was one of the concerns in the French rejection of the EU constitution.  Nine of the ten new EU countries have English as their second language (Romania is the exception). The French don't like that. Moreover, the ten new EU democracies are all pro-commerce and anti-Socialist/welfare state.

 

Off the record

I have argued for several years that men have a better perspective on the way hormones affect attitudes than women.  Many women have dramatic mood shifts prior to menstruation that can last several days.  One woman I lived with had PMS so bad that I had to move to a hotel for several days on a regular basis. 

It is rare that a woman knows the connection between her hormones and her moods and even when she does it is hard to adjust the mood to an understanding of the cause.

Men, on the other hand have a dramatic mood shift after orgasm that is abrupt and can last from minutes up to several hours.  I have argued that men are generally aware of this hormone/mood connection.

Trouble is, I could be very wrong, since I have never questioned enough men to test my observation.

Fog and work

We have had a long cold and foggy summer in San Francisco.  This is due to the Japanese current which is closer to shore than it has been for decades.  No one understands what determines the movement of the Japanese current.

This blog is not about climate and ocean current ignorance, the theology of Global Warming or its revisionist catechism of Global Climate Change.  The blog is about a little research project I did decades ago when I worked in a building without windows.  The extended foggy season reminded me.

I wondered how people handled working in a building without windows.  I interviewed hundreds of my fellow windowless workers over a three week period.  The question I asked was, “What do you think the weather outside is right now?” The interviews were done about three hours after people arrived at work.

The answers were unambiguous: nearly 80% of the people said the weather was overcast.

The actual weather was overcast only 30% of the time I was doing the survey ... it was sunny the other 70%.  My fellow employees were very wrong about the weather.

My interpretation of the result was that people felt more like working when they assumed that they weren't missing out on a beautiful sunny day.

In the history of democracy

When Sam Yorty was mayor of Los Angeles, a large dam was found to be at risk of collapse. Yorty ordered 2,000 homes evacuated while the dam was repaired. The move was only temporary and the risk of not moving the people in the path of a potential flood was high.

The LA police moved the people out.

Every politician in the world knows this story because the people, who were temporarily moved to protect their lives, voted nearly 100% against Yorty in the next election, so did their friends.

Put that story in perspective along side the evacuation of thousands of Israeli settlers last week. The settlers were moved out by police and an army. They were being moved out permanently. They were not being moved for their own survival, but for the good of the nation.

This is the first time in the history of democracy that a government has forced a large number of its own members, thousands, to move their homes for the good of the nation. The move was the most politically elegant exercise of civil power ever demonstrated. A good description is in the Wall Street Journal (8-23) by Michael Oren (a public intellectual and a major in the Israeli Army).

I nominate the man who conceived and executed this democratic masterpiece as one of the greatest leaders in the history of democracy: Ariel Sharon.

Message to me

The Texas jury that penalized Merck $253 million for a death attributed to Vioxx was sending a message. I got the message but most business people fail to get it.

The message is clear: judges are lazy and corporate lawyers are even lazier.

Most juries are biased against commerce. Civil juries that can sit for months are even more likely to be biased against commerce and corporations. Why? Simple, the only people who can give up a major part of their life to sit on a jury are people who have no serious work responsibilities and are probably outside the commercial sector.

The solution is clear. Juries, all juries, should work only four days, should start at 7am and finish by 1pm. That way a genuine jury of peers becomes available … managers and self-employed could serve.

Lawyers who don’t force lazy judges to work hours that are convenient for a decent jury are themselves lazy. A lawyer should demand a change of venues until the lawyer finds a judge who will work decent jury hours.

There is another lesson here too, but much less important. Businesses spent money and years getting “junk science” out of the courtroom. That was a waste. Science doesn’t now and never did allow general scientific observation to be directly applied to individual cases. The general can only be applied to the particular as a probability. A scientific expert can only say: ‘there is an 80% probability that this beloved person died because of something that the dastardly giant corporation did wrong.’ And a scientific counter-expert can only be found who would say the probability is ‘less than 50%.’  That leaves 100% up to the emotional judgement of the jury.

We need real juries made up of a real cross-section of our people.

Clear eyes

If you are interested in the world from the perspective of a wise and intelligent investor, you'll love my good friend Hans Deuel's blog.

I try to read it every day.  Great work and fun to read.

Economic conflict

The movie theaters this summer have faced declining revenues. There is no shortage of blame to go around, from the low quality of movies to the weather, but I blame business people who own theaters for thinking like economists.

Ever since movie theaters started clustering ten and twenty theaters into one building and putting high-operating-cost single-movie-theaters out of business, the multiplex theaters have been steadily raising their prices.

The economist in them is saying, ‘Keep raising prices until the revenues flatten out.’ So long as a 10% price rise drives away only 9% of the people you can still raise prices.

There is another economic idea that has a greater bearing on this situation. Cross price elasticity/substitution.  As prices rise for movies, consumers find other things that are equally satisfying to spend their money on. Such as DVDs, games and watching Tivo on a home recreation console.

Then there is a law of marketing that comes into play and has nothing to do with economic theory: once people change their habits, they don’t usually change back.

Meaning that movie theaters can’t lower their prices and expect audiences to return. The theater owners are in a boat in a riptide without a paddle.

Major business lesson

For the past five years I have been an expert witness on the subject of executive compensation. 

My pulse went from the normal 60 beats per minute to well over 90 when I read Friday the 19th's Wall Street Journal about MassMutual Insurance Company.

Nearly every executive mismanagement problem got rolled into one at MassMutual.

I have found five key business lessons.

Start with the CEO's jealous wife...

Oil

A very important question these days is ‘how long is oil going to be $65 a barrel?’ The world has already changed because of the current price of oil.

First, every businessperson and economist has noticed that a doubling of oil price in the 1970s led to inflation that ranged from 10% to 12% and finally reached 18% in one year. Oil has now tripled in price and there is virtually no inflation. 

We can only guess at the reason. My guess is that the availability of Chinese goods on the international market has kept inflation at near zero. India, Mexico and East Europe have also contributed to our current good fortune. Overall we have to give international commerce and the WTO credit for the current miracle. 

Second, everyone in the energy business is trying to figure out the causes of the present $65 a barrel oil price. The longer the price stays high the quicker the oil monopoly will end. At a long-term level of $28 a barrel of oil, virtually every alternative form of fuel becomes a bargain. Oil from shale is already flowing into the market. Wind, solar, methane and ethanol can all make a profit at $28 a barrel.

The longer oil stays high the more confident energy investors will be in making the high capital investments in alternatives.

Visible experience

I've been a business consultant for more than three decades and seen thousands of businesses large and small.  I can tell the level of experience and management skill of the business I'm dealing with by looking at the work space.

In an instance where the business does shipping, which is particularly common these days with so many online businesses, the shipping table is a clear measure of business organization.

I assembled the image on the right out of a variety of images on Google.  There was no single image that showed a proper shipping work space.

The space consists of a large open work table that should be above the waist level of most workers.  No one should have to bend over to work.  Forearms should be level. Access to the work table should be from all four sides; this also allows for extra workers in heavy shipping periods.

All the most common supplies should come from the storage area above the work table.  Workers should be able to reach up without stretching for the half dozen most common supplies.

That is it.  That is how experienced business people organize a work area/shipping table.

Learning and poor logic

The arguments over intelligent design surprise me. Don’t the critics realize that the anti-science crowd is learning?

For most of the 20^th Century we had to listen to Creationists insist that a biblical myth was scientific. The Creationists had PhD scientists claiming that Darwinian evolution was a badly flawed theory. Their best proof was that there were no fossils connecting whales to their land living mammalian ancestors.

Steven Jay Gould demolished the Creationists' example when all the missing links in the cetacean fossil family were found in the mid 1980s in the Indus Valley.

Now creationism has evolved to intelligent design.  This is a ...

Wrong, wrong

I was wrong in two earlier blogs. I said we would be hit by four strikes in July. Wrong. Three of the unions folded, defeated by reality (Chronicle, hotel workers and nurses at St. Luke’s.) The fourth, BART got what they wanted and passed on the cost to transit riders because BART is a government monopoly. Wonder what all the advocates of public transit have to say about transit unions?

I also thought that the wonderful science exhibition of human bodies, The Universe Within, would run into trouble with the Falun Gong. Wrong. It was the Board of Supervisors who today passed a law making it illegal for the show or any show without letters of permission from the deceased cadavers or their families to come to San Francisco.

Reminds me of the Holy Roman Catholic Church which forbid all research on cadavers up until a century ago; that research has given us the knowledge about blood circulation and most other elements of physiology. Doctors should have the right to refuse medical treatment to any current San Francisco supervisor.

Left block, right tent

My friend Alex frequently mentions that the Left is one solid ideological block while the right is a big tent with widely scattered individualistic views on a variety of issues.

I don’t question the validity of this observation. It fits my own experience.

However, the visual image is different from experience because the Left has so many black faces we see in Lefty political gatherings. The right has Asians, Latinos and a wide variety of immigrants who aren’t as visually distinct in a large group.

San Francisco may suffer specifically from Alex’s observation. We have 600,000 adults in this city, about 200,000 vote and 50,000 of them control the election results because they are Lefty ideologs for whom their entire life revolves around their religious politics.

While everyone else in San Francisco is going about their lives and enjoying family and friends, the Left is immersed in angry politics, in a cohesive religious worldview, and making a mess (many would say a farce)of local governance.

How do we pay attention?

There seem to be two paths of attention span that started diverging about 1960.

One path goes toward magazine style. Reading material is increasingly offered to us in small chunks -- often with the option of reading more on the subject. Think USA Today, or more accurately, the front page of the Wall Street Journal where most references are expanded on inside pages. The Internet did not invent this, it adopted it.

The other path is toward intensity and storyline. Video programming has been able to satisfy this need with Tivo that allows us to watch programs for an hour or hours without commercial interruption. All the jokes about men surfing channels fell by the wayside when Tivo allowed viewers to watch programs uninterrupted.

Blogs allow us to offer a brief introduction so we can see if the subject is relevant to our own interests and continue reading if the material warrants it.

I invite my readers to comment on these two paths. What has been happening?

San Francisco Scenes

The photo on the right is at 3^rd and Clement.  It could be art, irony, a college prank, an angry employee or all of the above.

What we have are boxes of commercial grade tomato paste on top of a phone booth in front of a pizza joint. I like it as a work of art.  It could clearly be a college prank if it has no meaning, just defiance.  It could be an angry employee letting the public know that this much-vaunted pizzeria doesn't make its own tomato paste.  It is definitely ironic: pizza ingredients in front of a pizza restaurant -- tomato paste on top of a phone booth.

The image on the left relates to an earlier blog.  The cafe I go to weekday mornings, Greco, is noted in the neighborhood for the imaginative designs on top of the cappuccinos and lattes. This is the image of a fern with a flower on each side of it.

The last image on the lower right shows my long term harmful effects on the society ... an unexpected consequence of doing good and doing well.  In 1970 I was part of a group of five runners, part of the Portola Institute, who helped Dick Raymond produce a product called Shoe Goo. The goal was a rubber to put on the worn bottoms of our running shoes, actually tennis shoes, to help us put hundreds of additional running miles on the shoes.  The product was most popular among mailmen.  Mailmen found Shoe Goo helped increase the life of their work shoes.

The product didn't have much of a future because we had only one supplier who could strangle us out of business at any time.  So we sold it to Kiwi for a nice profit. 

Thirty five years later it is still on the market.  Big Five Sporting Goods, where this picture was taken, won't sell it to anyone under 18, because it is widely used for abusive sniffing.

Good product, good capital gains ... bad outcome.  (Click on photos to enlarge.)

Nukes

The issue of nuclear-armed-missile interception is not widely discussed but it is important because it relates to two rogue states, Iran and North Korea, that are a central part of contemporary global politics. They are the big issue these days.

We are already in the era of nuclear-armed-missile interception. Japan has reportedly stationed 53 launch-phase intercept missiles in the Japan Sea. The question of whether these missiles work is moot. One ICBM missile being launched in North Korea is a very bright object, starting very slowly and still not moving fast within the first few minutes when it could be hit by several Japanese intercept missiles. (Several would be fired to avoid the failure of any one of the interceptors.) The problem, I expect all of us to know about soon, is that any missile North Korea launches will be attacked unless North Korea agrees to inspections for all missiles, pre-launch.

Jann Wenner

My story about Jann Wenner is apparently part of a piece. I knew Jann in the late 1960s when his Rolling Stone had just passed the 100,000 circulation mark.

I was a banker studying the investment potential in the San Francisco music scene. I took Jann to lunch. He asked me to help arrange a loan so he could buy out Ralph Gleason, his partner, a friend of mine, and the leading local pop music critic. When he told me he planned to buy Gleason out for $25,000 I said that the price was ridiculous, Ralph’s share was worth something in the hundreds of thousands --- I wouldn’t help him get a loan from my bank, The Bank of California.

Jann remembered my moral rejection of him. When The Seven Laws of Money was published in 1974, to widespread acclaim in the alternative press, only the Rolling Stone wrote a negative piece. Not just negative; nasty.

Just another Jann Wenner story.

Judge Thomas

One of my friends got to spend time with Justice Clarence Thomas who reports that the level of comity on the Court has risen over the past decade. Everyone takes lunch together when they are working. Thomas has become close friends with Ruth Ginsberg who is taking Thomas’ adopted (from his brother) nine-year-old son to plays and events.

Public moral issues

I was very proud of David Gelernter’s op-ed in the Wednesday 10^th Wall Street Journal.

‘James Dobson of Focus on the Family ….compared embryonic stem cell research to Nazi death-camp experiments.” Consequently several groups and people ‘popped up on cue to demand an immediate Dobson apology -- such Jewish groups as the Anti-Defamation League, political groups like ProgressNow.org and many individuals’

Gelernter made the wonderful point that this is a moral discussion and should be treated as such. The opposition to Dobson had a responsibility to make a civil argument not demand an apology.

Gelernter argued that embryos do not have families or feelings, so a comparison to Nazi-death camps is invalid. A public apology under pressure is irrelevant. Dobson tried to use his most extreme example of satanic horror and he got it wrong. Opponents have a civic responsibility to explain it to him and the public.

There is a moral issue here and a moral debate is going on that will last decades. Using human embryos for research may be medically useful, but using human embryos is not an automatic act like pouring alcohol in a beaker. Moreover, may people (myself included) are concerned that research on human embryos could lead to genetically engineered humans. A subject much more closely related to Nazi ideas, that we reject.

For those of you outside this subject, I have worked in the field of human genetic engineering for a decade and helped on the 2002 Japanese law, which I consider a perfect model. Japan prohibits implanting a genetically engineered embryo in a womb. Period.

Sex report

The Monday San Francisco Examiner had a wonderfully detailed report on a man charged with running a prostitution ring. First, this is the kind of reporting that has made the S.F. Examiner the official newspaper of San Francisco. All the ‘connected people’ I know now read the Examiner.

Second, this sheds some light on the magnitude of the San Francisco prostitution revenues. Young Joon Yang, who ran a ring of 40 apartments, in the Golden Gateway complex, was paying $65,000 a month in rent. I would guess he was working with 40 women.

Here’s my calculation:

Investing

Back in 1973, when I was running a stock portfolio as business manager of a foundation, Burt Malkiel published a book on the stock market that showed the stock market to be a random phenomenon. The argument was overwhelming and convincing to me as a statistician.

More than 30 years later the Wall Street Journal (8/9 Smartmoney Fund Screen) inadvertently published a table that supports Malkiel and shows that even the most knowledgeable and professional investors can’t beat the average of the market.

The WSJ in its Smart Money Fund Screen was able to find only six mutual funds that out performed the S&P 500 for the past ten years and since the inception of the mutual fund.

That number looks right to me.

Updated similes

I was thinking about some similes I know that are outdated. ‘Useless as a witch’s tit.’ That makes no sense to me because the witches I know have normal breasts and nipples.

‘Like a chicken with its head cut off.’ I saw a chicken with its head cut off when I was a kid and chickens were more common but the Animal Lover Societies would never let such a sight be shown in the movies or on TV; so most people will never see what the simile means.

So I came up with a substitute for the first: ‘Useless as a spigot on a telephone pole.’ The second one could be: ‘Like a butterfly in a strong breeze.’

I can’t resist a political simile about disarray: ‘As well organized as a Palestinian peace movement.’

There is a simile website that has many new, but mild similes.

Immigration politics

I remember a few years ago, reading in the Wall Street Journal, that large amounts of money sent to Social Security was going into an Earnings Suspense File because there was no correct SS number connected to the money.

The amount of the money annually going into the Earnings Suspense File is significant, probably $50 billion. Of that a reasonable chunk, estimated at $7 billion to $20 billion is from illegal immigrants using made-up SS numbers.

It seems to me that we could have a mood shift in this country concerning Mexican immigration, if some of the money now going into the Suspense File, were remitted to the high use immigration services in border states, such as emergency medical services and K-12 education.

The idea is to diminish anti-immigrant sentiment by eliminating one of the arguments against immigrants --- that they cost Border States extra tax money.

Modernity and terror

David Brooks has established himself as the preeminent public intellectual with his piece on the current consensus on terrorist ideology.

Brooks makes it clear, as I have on many occasions, that Islamic terrorists are like Lefties in their hatred of Israel, America and modernity.

Thank you David for saying it so clearly and saying it directly to the millions of New York Times readers who don’t recognize how closely related they are to their ideological Islamic cousins with waist-bombs under their jackets.

Competition not

I have always pointed out in my books that competition is generally rare in business in spite of the erroneous view perpetrated by nearly everyone.

Small business people, given the chance, fight viciously to keep other businesses like themselves out of town or out of the neighborhood.  They are wrong.

People prefer to shop where there is a variety of choice.  Four shoe stores are more appealing than one and the total volume is higher for four together than for four separate shoe stores.

Shopping malls learned that lesson quite some time ago. They often have two or three of the same genera of stores.

Here is someone who just learned it and it is reported in the press: “Nowhere is that clearer than on Subway’s monthly sales charts, which frequently are unaffected even after a Quiznos opens nearby, said Fred DeLuca, Subway’s founder and president.

"How can that be?" he said. "Where did all the sandwich customers come from?"

The answer, he said, is that despite the presence of 18,000 Subway restaurants nationwide, the sandwich market remains underserved. Quiznos is bringing new customers to the market, which in turn benefits Subway.”

Miscellaneous

Miscellaneous interesting reports coming to me at morning coffee. 

First, Portland continues to be the happy and growing home of young artists and musicians; which it has been for more than a decade.

Second, the Parisian city government effort to close the many entrances to the thousand miles of underground limestone tunnels has failed. A friend of mine spent several days exploring the tunnels and reports coming upon 15 groups of young people in the tunnels ... partying.

My friend found many piles of bones, some thrown into wells during the Jacobin revolutionary spree.

Nepotism in public companies

There is good reason to sell your stock in the following companies: Aflac, Alltel, Barnes & Noble, Cablevision, Comcast, Ford, News Corp., Playboy, PPR, Qualcomm, Viacom and the Washington Post. All of these were listed in the Wall Street Journal as public companies where the CEO was a family member succeeding a previous CEO.  The same was true of Motorola but the Board kicked out the family CEO.  Ford Co. hasn't succeeded in doing the same thing yet (William Jr is a power behind the throne.)

Could this nepotic behavior possibly be meritocratic? No.

No one has ever heard of the scion of a CEO stolen away from a major company because he or she was so good that they were desirable candidates for another CEO position. Finding a top flight CEO is a tough job.  Scions of CEO's are usually below par on their own; barely good enough to get a job without their family help.

Rock

The building in the photo on the right is in the new China Basin bio-tech park. It is named after Arthur Rock and his wife. These days it costs roughly $1 million to have a building named after you. Arthur was worth tens of millions when I knew him in the early 1970s.

We didn't get along back then. Arthur was on the board of Xerox a prominent hi-tech giant.

My girl friend and Arthur's girl friend were very close. The two woman thought it was a good idea for the four of us to get together in Arthur's Pacific Heights mansion. 

I remember the first time we had cocktails together, getting to know each other. I told Arthur that I was leading a campaign to get women and minorities on corporate boards; including the use of pressure by stockholders. I was president of a foundation at the time and manager of a large stock portfolio.

Arthur explained his position on my campaign: 'if you want to dictate the membership of corporate boards you should get Congress to pass a law. It is unfair to put a few corporations at a competitive disadvantage with women and minorities on their board'

We must have looked like two cats hair-on-end, bristling at each other.

The next get together, and the last, was half a year later, for dinner at the Rock home. Arthur was prepared this time. We sat down for dinner and Arthur shook the silver bell to let the hired waiter know we were ready for the first course.

The waiter came in. Arthur said: “Phillips, we are ready.” From there on, for the rest of the evening it was tinkle-tinkle, “Phillips we would like this”, tinkle-tinkle “Phillips we need some of that.”

Award night

My lifetime achievement award medal was given to me on Sunday evening. (The U. S. Department of Homeland Security has put me on their No-Fly list.)

The main comments from friends and family, for the past few days, have been open statements of envy. “What did you do to deserve that?”

Since we will never know what I did to deserve this honor, and we certainly won’t know why a lifelong Republican got this award, I can only speculate.

My first guess is that my fundamental rule ‘never get or accept publicity for my successes’ is probably what has bureaucrats confused. My reason for rejecting publicity is that people won’t help me in the future if I am the kind of person who takes all the credit. I want to keep being an activist, an effective one.  (Bureaucrats hate the idea that an activist may prefer annonymity.  It is perceived as secrecy.)

My second guess about the reason for being put on the list is that I am a fanatic lover of commerce. That means I’m effective in bringing about social change because I am moving the society in the direction it will go in the long run. (Four decades of successful activism may look to bureaucrats as though I am leading a gang.)

Lefties, on the otherhand, can’t succeed because they are trying to put on the brakes, stop the world, live in the past and promote outmoded-medieval ideas. In their frustration Lefties occasionally resort to violence.