Wednesday, February 13, 2008


Nuance Communications continues to make more and more computers listen and talk. The company just reported strong results. The companies products are showing up in all sorts of places, such as Ford cars and satellite radios. The company is not the only one to offer voice technology systems but it is a leader in the field. The "Star Trec" dream of wireless, two way, voice communications is just around the corner. Hand held processors are following Moore's law and should soon offer unbelievable computing power. The ability to command your car to "phone home" is a safety issue as well as a convenience issue. Consumers will pay extra to add this feature to their computer-cell phones.


Much has been made about how the new extra low priced cars in India and China will spur the growth of auto usage. Much less has been made of common population trends around the world that are leading to lower use of autos. America is participating in this population shift. The people of the great plains and other rural areas are losing population. Cities are growing. One piece of evidence is that the price of condos in New York City increased 14% in value during the nation wide real estate slump of last year.

One of the major big city trends is the increased use of bicycles, electric city cars and pedestrian walkways. Many big cities now place bicycles in racks for free public use. Most are free of charge as long as they are not taken beyond designated areas. Another developing trend is that of integrating public transportation systems with other systems including private vehicles. In a number of instances, "last mile public transportation" is the key ingredient. Parking garages might be spaced outside central districts such that mass transit works well for the final leg of travel. Publicly owned City Cars sometimes are available for last mile usage. Congestion taxes are being used to discourage inter city traffic. In London, the one day cost to operate a low mileage vehicle within the central city has been increased to $49.00. In the mean time, streets are being retooled to provide more cycling and walking lanes; fewer cars and more foot traffic.

In America, there is still migration from the rust belt to the south. This migration obscures the competing trend toward inner city living but it is happening. An article in the WSJ yesterday, reported figures available from U-Haul that tell an interesting story. U-Haul does not like to pay people to move assets back to where they are needed most. It likes to find "customers" who will do the job for them. The current charge for a one way truck rental from Newark, NJ to Charlotte, NC is $2,116. The charge for a one way rental for the same sized truck from Charlotte to Newark is $311. The $311 is not profitable business but it sure beats paying the freight to haul the truck back to NJ.

The article included the migration out of and into states. The state that is losing the most people is Michigan. The state that enjoys the highest influx is North Carolina. This is the reason that home price values are still climbing in NC.

Charlotte is a totally different town today than it was 10, 20 and 30 years ago. Interstate highways to, from and around the city have been expanded again and again. The outlying small towns have become cities unto themselves. Still, the big change in just the past few years is the number of in town residences. Condo towers are challenging bank buildings for prime locations. Downtown living permits sports enthusiast to be "near the action". I wrote about Dover Elevator a week or so ago and it is a shame that none of my readers added money to their accounts to make the buy. The stock moved from 35 to $42 during a tough market. Only a twenty percent move but the trend is early.


It is clear that more progress has been made toward a deal with Iran. For the first time, officials from Iran will come to visit the Iraqi government. Public talks between US and Iranian negotiators are also scheduled. A deal is as close as ever. Once made, about $20 worth of geopolitical risk premium will fall out of the price of oil. Due to slower economic growth, the EIA has lowered its oil demand forecast. Ample supplies will lead to lower demand for expensive corn fuel. This means there will be lower food prices and lower inflation. Lower inflation means real profits and real GNP will rise. BOOM, BOOM, BOOM!


Even without a deal, the risk of recession is low. The TV pundits do not appreciate the economic stability brought about by the green revolution and the productivity boom. In the past, when agriculture was a major part of our economy, the boom and bust cycles were huge. In the old days, bad weather routinely wiped out thousands of farmers. Later it was manufacturing that lead to volatility. A down turn in the economy resulted in massive job losses. Today, we live in a service economy. During an economic slowdown, the teachers still teach, the tax accountants still compute taxes, the doctors still see patients and the lawyers don't get fired. We live in a time of not new jobs but new job categories. Annually, billions of dollars are being paid to geneticist. Soon and very soon, geneticist will "breed" a super "termite" that will convert yard waste, corn stalks, switch grass and tree bark into clean burning natural gas. We are going to need these resources because people will soon be living to 135 years or more.

Today, GM announced that it will offer buyouts to all 74,000 union employees. GM is "leaning-out". Robots do most of the car building now a days. The workers who accept a buyout deal will be in great financial shape and the company will save billions. Please shed no tears for the auto workers who will "retire" on handsome pensions at young ages.

The "gales of creative destruction" is a positive force that makes us strong. Markets work. In 1910 there were 109,000 Americans employed in the carriage and harness business, today, there are more than 900,000 auto mechanics. In 1920 there were more than 2 million Americans employed by rail roads. Today, while there are just over 200,000 Americans employed by rail roads, there are over 3.5 million commercial drivers and the number of engineers has grown from 38,000 to over 2 million. Totally new occupations included 92,000 professional athletes, 2.2 million computer programmers and operators and 500,000 webmasters (all created in the past 15 years). Those who would cry over the jobs being lost by the auto workers should be reminded of the letter from Martin Van Buren to Andrew Jackson in 1829. In this letter, the governor of New York asked for the Presidents protection of the canal system. He told the President that the Erie and other canals were vital to national security. He went on to say that these systems were being threatened by the new rail roads. Can you imagine the losses America would have suffered if Van Buren had gotten his way? Mules might still be pulling boats up and down a big ditch if Jackson had been a big government spender.


David Gratzer of the Manhattan Institute reports that in 1960 half of all health care expenditures were under the direct control of patients. Today only 15% of the total health care bill is under the control of the patients. The result has been out of control health care inflation. It was government regulatory attempts to make the system better that has made it such an issue. As usual, the political answer is to make matters even worse. I am reminded of the common practice in some firms where business travelers who dine together split the ticket equally. I learned my lesson the hard way when I was living in New York in 1982. I was living on a tight budget but went to dinner with business associates. The cost of cocktails in New York are about the price of a whole meal back home and these guys went on a binge. I sipped one drink and enjoyed the party until the bill came. My share was equal to my food budget for a whole week. The democratic plan is to keep the power of the purse in the hands of congress while funding that purse with confiscatory taxes on the most productive assets the country owns.

Mark Perry says that no matter what you buy, you would buy more and pay more if your out of pocket share were only 15% of the total price. If your company prepaid for your "consumption insurance with a 15% copay", you would enjoy a constant spending binge.

The US Health Care System is in dire need of reform but national health care is not the answer. National Health Care is the equivalent of outlawing UPS and FedEX and requiring all packages to be sent through the post office. What is needed is public data about pricing and performance and the movement of the power of the purse back to the consumer. If your company offers great insurance, that is a good thing, however, the funds should be placed under your control with the stipulation that money not spent ultimately adds to your retirement benefits. In other words, we need a dramatic expansion of health savings accounts.


Obama is expected to win caucuses. He is also expected to win in states with significant black voters and relatively few Hispanic voters. As such, his recent victories were no surprise, however, pundits say that he has such strong momentum that he could possibly take a big state, such as Ohio, away from Hillary. Pennsylvania is the other state where Obama could break through and destroy the Hillary advantage of super delegate "insiders". On the other hand, the Clinton political machine is like a heavy duty V-8 engine. It is a powerful force. Obama is as smooth a politician as you will find but if forced to make a bet, I would still have to put my money on Hillary to win the democratic nomination. TradeSports has Obama as the clear favorite so I may be wrong.

McCain's Tuesday sweep did not seal the deal but his odds of winning the republican nomination must be up to 95% or higher. While the democrats have momentum on their side, it is hard to believe that the country is ready to veer so sharply to the left. The war on terror will surely swing a number of moderates and independents into the McCain camp. The democratic plan to spend billions on one size fits all government mandated health care while cutting back on our business efficiency, should cause other moderates and independents to fear an economic depression. The public has ample evidence that socialistic policies eventually kill the golden goose. The Soviet Union and Eastern Bloc certainly provides clear pictures and there are many other examples. The left use to praise the health care systems of the Nordic "welfare" states. Now a days, they do not dare mention these countries. The reason is that the average standards of living has fallen sharply relative to the rest of the world. Now it is once again true that the poor in these states are very poor. The people in these socialist countries face extremely high taxes and soaring inflation rates.


BY THE WAY, THE NUMBERS CONTINUE TO SCREAM BUY, BUY, BUY, BUY. The National Associations of Independent Businesses just published numbers that were last seen at the market bottom in 1991!