HILLARY OUT -- CAN THE MOST LIBERAL SENATOR WIN THE GENERAL?

So far, this has been a most remarkable election. Among the amazing stories is that the most conservative republican candidates split the vote of the republican base and thus nominated the most moderate of the republican contenders. On the democratic side, the most moderate of contenders split what little moderate vote there was a few ways and no moderate ever won significant support. The democratic contest quickly became a battle among the most liberal contenders. John Edwards bashed the corporate world to an extreme and the final contest was between Hillary and Obama. The US Senator who scores as having the most liberal voting record has all but won this nomination. Another way of looking at this contest is that the anti war vote trumped the big government universal health care vote. Hillary is still in the contest but unless she can win both Texas and Ohio by strong margins on March 4, she is toast.

STOCKS ARE UNDERVALUED

So far, 2008 has been a time of political and other "noise" getting in the way of market success. Stocks are cheap. A major part of the reason stocks have gotten so so cheap has been attitude. Investors have hunkered down. As a result, a mountain of cash has been deposited to short term money market accounts. After adjusting for taxes and inflation, his money is earning negative returns and much of it will flow back into stocks after they have soared in value. In this time of fear, the public has become more concerned for the return of their money than the return on their money. As a result, the US economy is be de-levered. The velocity of money has slowed faster than the FOMC has been able to pump up growth in the money base. Investors should remember that the more cash the FOMC deposits behind the dam, the bigger the ultimate flood will be.

STEADY PROGRESS

If the situation in Iraq was going the wrong way, it would be realistic to believe that the anti war fervor would carry Obama to victory in the fall. However, the situation in Iraq continues to improve. Obama has suggested that the war in Iraq has diverted resources from the war against the terrorist in Afghanistan. The reality is that tens of thousands of terrorist came to Iraq to fight and to lose their lives. All the while the leadership has been being picked off one by one. Today, tens of thousands of insurgents have come to the realization that they have been on the wrong side. Thousands have returned home and thousands more have melted back into the mainstream population of Iraq. This is a dangerous situation in the short run but it is nothing more than the repeat of history.

LOYALIST IN AMERICA

When America, in 1776, declared its independence from the oppressive government of Great Britain, approximately 30 to 40% of the population of the colonies remained loyal to the crown. WOW! 700,000 to 900,000 people were opposed to breaking away as an independent country. You may remember the pictures in your 4th grade history book of the Tories who were tarred and feathered for not joining the cause, but you should be wise enough to discern that these pictures have been used to make the point that there were divisions among the American people while glossing over the magnitude of that division. People were not just tarred and feathered. Many individuals were murdered. Land and property was seized. In more than one incidence, groups that tried to remain neutral, which included groups of Germans, Quakers and Indians, were forced to take up arms against militias. In one incidence, more than 100 Indians were slaughtered. One of the reasons the estimates vary from 30 to 40% is because many loyalist understood that they had to talk in terms of freedom from oppression at least until the British Troops came.

The problem for many of these loyalist was that they "showed their stripes" after the British captured their city only to receive retribution once the city was lost or abandoned. You see, the British did not send enough troops to hold the territories they had captured. Does this sound familiar?

The British tried to do a "troop surge". They hired German soldiers; they successfully recruited blacks by promising freedom; they successful recruited Indians by promising "ownership of native lands"; and, they organized loyalist militia. One trouble the British ran into was that some of the recruits turned out to be enjoying the pay while serving as spies for the Continental Army. Again, does this not sound familiar? Another problem the British had was the help given to the colonies by the French and the Spanish. Even India chipped in by seeking its own independence which diverted British troops to India, where French troops supported India. In the case of Iraq, the combination of the Pakistani on the one side and NATO on the other has kept terrorist in the mountains of Afghanistan busy.

Those who oppose the Iraq war are quick to suggest that America has no business being in the middle of another countries civil war. This attitude leaves out a lot of points, including the fact that the terrorist have been hijacking and blowing up American airplanes for better than 30 years, America is not in Iraq just to help Iraq, we are also there to "take out" one more pillar of support for terror. The escalation from holding passengers for ransom to flying planes into inhabited sky scrapers is a result of allowing the "class bully to get away with the little kids lunch money". The class bully grows up to be the hardened criminal if he is not confronted early and often. It gets tougher and tougher to turn the tide as the "class bullies from Yemen join the ones from Libya and the ones from Iran, Saudi Arabia, Afghanistan, Syria, Egypt, etc. A telling story is that Iran stopped one program to build a nuclear bomb immediately after the US invaded Iraq. Another point is that Americans can never fully repay the debt we owe to those who helped us win freedom. Furthermore, it is our responsibility as good citizens of the world to help others.

Again, we forget just how tough it was for us to break away from oppression. At the end of the revolutionary war, 70,000 Americans moved to British North America (Canada). Another 7,000 or so went back "home" to Britain. Seventeen thousand settled on Caribbean Islands. Thirty-two thousand moved to Nova Scotia. Countless others, who had remained loyal to Britain to the end decided to stay here. From 1783 to 1796, many of these folks suffered through legal and illegal persecution. Some were able to regain property but others lost their families or their lives. Even many who fought against the British were accused of being loyalist by those who had seized their property while they were off fighting. In 1795, 12 years after the end of the war, the Jay Treaty was passed to return legal right to confiscated property. The legal battles continued for years after the treaty was made law.

Last week, the Iraqi government passed a budget, set up local elections to be held in October and passed legislation to allow members of minorities to serve in the government. In contrast to the American experience, the progress has been swift. We should remember that once the British had success in recruiting black slaves to serve the British army in exchange for freedom, George Washington had similar success. Promises were made to slaves and Indians by both sides. At the end of the war, the promises to the blacks and to the Indians were generally broken. The point is not to bash America but to say that the Iraqi's are doing well despite making a few mistakes along the way.

Another "complaint" is that the Iraqi war is a religious war between the Sunnis and the Shiites. Where is the news here? During the American Revolutionary War, the religious splits were in every direction. Anglicans tended to include a higher than average percentage of loyalist, Quakers tended to have a higher percentage who sought to remain neutral. Several new arms of protestant denominations were formed as the offshoot of divided congregations.

During the war, the number of British seaman swelled to 171,000. Of these a high but unknown number were "pressed" into service. These means that young men were kidnapped by "commissioned recruiters" or they were sold into service by their parents. These parents knew or should have known about the "cat of nine tails" including metal flesh tearing barbs that were used on seaman. The parents of Sunnis who have sent children on suicide-homicide bombing missions committed a more humanitarian act than did the parents of these British citizens. Sometime between 1760 and 1770, John Newton, who had been sold into service by his father, a British Navy Commander, wrote Amazing Grace. Newton had felt the whip of nine tails and he had applied it to others. This wonderful song, a blessing to millions, was partly a response to the atrocities committed by those who will do what ever it takes to win. Newton sank pretty low before writing the song and coming back to England to serve as a minister. His sinking low was the process of working his way up from a conscripted deck hand to the Captain of a slave ship. He was one of many who knew they were committing great sin while doing what was expected.

Another interesting side story to this tale is in regard to Canada. Just prior to the Declaration of Independence, Quebec was invited to join as the 14th colony and there was considerable support among the people. To seal the deal, Benedict Arnold lead the continental army into battle against British forces. Had Arnold prevailed at the Battle of Vanour Island, Quebec would be one of the United States of America.

OBAMA'S MILITARY PLAN

Obama plans to withdraw from Iraq within 16 months, no matter what. Many Americans , who think believe this war was a mistake, understand that pulling out unilaterally would embolden those who would blow up innocents. The great "silent majority" of Islam believe terror is wrong. Attitudes are gradually moving our way. The bullies need to be confronted. Surely the majority of Americans will reject Obama's plan.

Rejecting Obama's military plan will also be a rejection of his economic plan. The irony about his economic plan is that the actions he would take to "help the little guy" would serve to hurt the "little guy" in the long run. As we should have learned from our experience in the 1970's, when we dramatically increase the cost to do business and use the power of government to misallocate resources, we end up with a poorer nation.

DR. PHIL TO THE RESCUE

Phil Gramm has been speaking on behalf of McCain in regard to economic policies. Phil has his doctorate in economics and he clearly understands the truths discovered by Milton Friedman and George Stigler. These truths include the concept of limited government being best. John McCain has expressed his understanding that given the opportunity legislators will always be inclined to build brides to the most remote parts of their home states as long as they can use "other peoples money". The truth is that the money wasted on these "bridges to nowhere" pales in comparison to the sum of all the small amounts spent other ways.

RESPONSE TO EDUCATION REFORM

A number of readers responded to my post about the need for education reform. Apparently the big misunderstanding about school choice is about who it helps the most; which is the "children left behind". The example of Florida tells the story well. A number of measures show that the students who received vouchers to attend other schools got a "better" education. Test scores improved a little, drop out rates declined a little, students were slightly more likely to attend college and both parents and students were generally glad they made the move. What is often forgotten is that the schools threatened by the loss of students and those schools that actually lost students changed their programs in significant ways. The test scores at these schools went up a little, teaching practices changed, drop out rates were lower and student and parent attitudes tended to improve.

Drew Cary has posted another good video at reason.tv. He tells the story of conversion of an LA school to a charter school. Around the country one can find example after example of school improvement when more choice is available. McCain correctly believes that allowing the student and the funding for the student to move to the school chosen by the student will generally result in better educations.

BOOM, BOOM, BOOM

The kind of reform to education mentioned above does not require new taxes. America all ready spends a lot of money on education. All we need is to allow the free market to allocate those resources to the best use.

HOPE is a word repeated time and again by Obama. For me, the nomination of the Senator with the most liberal voting record gives me HOPE that moderate, sensible policies will be adopted in the years ahead. The stock market will respond well.

The total sum of expenditures of a McCain government will be small relative to the expenditures of an Obama government. Of course, congress will attempt to push the expenditures of either government higher. There is no end to the idiocy of congress. John Dingell, Chairman of the Commerce Committee made my point last week when he said, "the president's idea for 'improving' the (medicare prescription drug) program is to stick the beneficiaries with more of the bill". Duh! Why shouldn't the beneficiaries of a new "collective buying program" be the ones to pay for it.

The bottom line is that McCain will real in the "spend, spend, spend" congress, save the tax payers a lot of money and increase the asset value of American companies.

BUY, BUY, BUY

It is believed that Air France-KLM will buy shares in the new DAL-NWA airline. It is also believed that Lufthansa will buy shares in the new CAL-UAUA airline. Lufthansa and UAUA are members of the Star Alliance. The plan is that alliance partners will arrive and depart from the same terminals at major airports. For example, a massive renovation to London's Heathrow Airport will allow Star Alliance partners to share the same terminal. The benefits to passengers who arrive on Lufthansa planes and depart on CAL planes and vice versa are obvious. The airlines will save money while the passengers enjoy a better over all experience.

HAPPINESS IS A FUNCTION OF IMPROVEMENT

Studies show that once a basic level of comfort is achieved, wealth does not correlate to happiness. What does correlate to happiness is the increase of ones wealth. The funny thing is that we often fail to realize if there has been increased wealth or not. We are constantly being told that prices are going up. We might be tempted to retell the story that our parents paid $2,400 for a brand new deluxe car in 1956. In the telling, we forget that the car did not have air conditioning, anti skid brakes, rust protection, GPS, automatic transmission, automatic locks or cruise control.

Between now and the November elections, "times" will have improved. The public will be feeling better about themselves, the economy and the state of the world. Smart investors will buy now before the euphoria lifts the price of shares.

BREAKING OUT NEWS

Good numbers from Wal-Mart and HP, good news in regard to new capital for mortgage insurance companies, good economic news, good news from Cuba, good news from Venezuela, good news from Pakistan --- the market seems ready to respond to a long list of good news.

Some of the good news is about world wide economic strength. For example, in January, auto sales were up 41% in Brazil, Australia and Scotland announced record low unemployment rates, home prices jumped in Hawaii, residential sales jumped in Detroit and home prices in London went up for the first time in two or three years. In the USA, the production of high tech equipment jumped 18.7% over last years pace. As mentioned before, India announced the addition of 83 million cell phone subscribers since last year!

The international political news is generally breaking "our way". The passage of three key bills in Iraq means that political reconciliation between Shiites and Sunnis is moving forward. The votes in Pakistan show that democracy is on the march. The step down of Castro opens a door of hope to the people of Cuba.

Technologies such as femtocells are seeing rapid adoption. Femtocells is the packing of cell phones with a second band that automatically takes the phone signal over the Internet when ever the phone is in range of a wireless router. The reason this technology is going to be adopted quickly is because it saves the cell phone companies such a massive amount of money. What is so different now is that a great idea can be implemented so quickly. For example, a web site has been set up that allows those who find out that they have an STD to send an anonymous email to multiple sex partners. We do not condone the behavior that makes this necessary but we do hope that those who might have a disease learn that they should be check during the early phase of the disease.

Some of the new technologies are finding new avenues of support for additional research. A lab in South Korea has accepted a fee of $150,000 to clone a woman's dead dog. Amazing things are going to come from genetics labs over the next several years. The idea that the first person who lives to be 1,000 years old is likely to be born only 10 years after the first person to live to be 150 years is a mind bending concept. Once we know how to regenerate one "system" the next will not be far behind. It is already true that by pass heart patients when injected with their own stem cells, derived from extra fat cells, grow new heart muscle and new veins.

One of the new robots, is a submarine that draws power from the difference in warm and cold ocean water. It runs off an electric motor and keeps going for an undetermined amount of time. Scientist are getting a tremendous number of reading such as water temperature, salinity and plant life from these robots. Another new robot will be sold to the public this fall. It is a new Elmo doll that kicks interactivity up a whole new notch for a price of $59.99.

BAD NEWS

Yes, there is still a lot of bad news to be found. A refinery explosion in Texas has taken 75,000 barrels per day of product off the market. Home prices are still falling in former "hot spots" such as Miami, Phoenix and San Diego. Iraq is still flaring over 600 million cubic feet of gas per day and Russia, Nigeria and Iran all flare almost as much. Long term interest rates are ratcheting back up.

OH LONG TERM INTEREST RATES ARE RATCHETING UP!

This bad news is another case of bad news being good news. The rates are going up because economic activity is picking up. Those who have been waiting for the best loan rate before buying a home had better act quick! The BOOM, BOOM, BOOM is coming. ARE YOU READY?!

EVEN THE DISMAL TALK IS GOOD NEWS

Successful investors learn to go in the opposite direction indicated by the talk of the pundits. The best prices are always found just when people think the worst of times are on the way. The negative talk actually serves a real economic purpose. The ugliest of times are caused by high inflation rates and one of the cures to high inflation is dismal talk.

The inflation formula is as follows:

Inflation = the rate of money growth (%M) + the change in the velocity of money (%V) - the rate of product output growth (%Y).

The above formula is nothing more than the concept that inflation is always a monetary problem, that of too much money chasing too few goods.

For several years, leading up to last August, the growth in the money base was held down by central bankers. Month after month, the economies of the world continued to expand rapidly because the velocity of money soared. People and businesses around the world were borrowing and spending. Hot money flowed quickly from bank to customer, from customer to bank and back to another customer. All the while, inflation was kept very low because the tail end of the above formula was growing even more rapidly than the front end. The output of goods soared. The sum of money growth and velocity was high because the velocity was high but the output of goods offset the change in velocity. Indeed, the price of manufactured goods fell.

Over the past several months, the situation has taken a dramatic turn. The FOMC has pushed up the growth rate of money in order to offset the dramatic slow down of velocity. The rate of growth of production also slowed. It is a normal sequence at mid cycle turns for inflation to pop up a little as the slow down in production coincides with the sharp increase in money growth. It is normal for pundits to talk about stagflation at turns as it is common for real growth to show considerable weakness partly because real growth is reduced by the inflation rate. (the formula is V*M = P*Q which is also = real GDP * the GDP deflator).

Part of the reason the chair of the central banks have to talk so dismally and show so much concern is because they feel the need to talk the inflation rate down. In other words, they can reduce inflation by convincing the markets to slow down the velocity of money. Once inflation is brought under control, the sentiment will change quickly. Talking down inflation allows interest rates to be cut to the point that the future economy is dramatically stimulated. That is where we sit today. The time required for interest rate cuts to kick in has already occurred. In the short run, asset buyers have waited for the bottom in rates. The "big" purchase for the average person is a home. The cost of buying a home drops hard as the interest rates fall. If one can wait a few months to lock in a 30 year loan, one can save a bundle over the life of the loan. Multiply the savings many times for a power company, an oil company or any other company that needs to finance a new project. Time appears to have already run out on those who hoped to buy at the exact bottom. Long term mortgage rates are already lifting up a little.

The market is betting that the FOMC will have to cut interest rates at least one more time. However, there are signs in the international market that cuts already made are causing growth in economic activity. Eastern Europe for example appears to have already come in for a "soft landing". Growth in a number of Eastern European countries has fallen from double digits to single digits, inflation picked up for a while but now growth is re-accelerating and inflation is moderating. Growth in Western Europe has slowed but these economies are not weak. Indeed, the average unemployment rate in Europe is at 7.2% which is the lowest rate in decades. All the while, China's citizens have headed to the malls! The Chinese are quickly learning that it makes sense to spend some of their new wealth. In a number of markets, Hong Kong being a good example, home prices have started climbing again. The first cut in US rates was about 6 months ago. The bigger cuts came only a month ago but rate cuts are cumulative. As production picks up again, inflation will fall, per the formula, which means the real GDP will be higher than expected. This also means that corporate profits will be higher than expected.

REMEMBER, THE BEST STOCK MARKET BUYS ARE MADE WHEN MOST PEOPLE BELIEVE THE WHEELS ARE FALLING OFF THE WAGON. Today, 81% of democrats believe George Bush has done a poor job as president and 78% of republicans believe the democratic congressional leaders have done a poor job. When you get extreme ratings such as these, you can bet on a turn coming soon!

A NEW WORD, DECLINISM, WAS COINED IN 1988

Allen Dowd has written a number of articles about the belief Americans have that the country is falling apart. The US is seen by many as being a nation in decline. The new word, "declinism", was coined in 1988 as a result of the belief that Japan was supplanting the USA as the economic power house. Dowd says that each decade we have something else to worry about. The cold war occupied the nation for years while it was assumed that the Soviet Union was about to become the worlds new military super power. Others figured it was Germany not Japan that was going to become the economic power house. At other times it was believed that America had lost its standing in the world because our imperialistic policies failed in Vietnam. In more recent times, we have suffered a loss of support in the world because we took over Iraq "to get its oil" while failing to look after the victims of Katrina. The story goes that it is America's fault that the terrorist are blowing up innocents.

Gerald Baker rebuts with the fact that even after the expansion of the EU to include eastern bloc states, the growth of the US will make the US share of GDP twice the size of the EU by the year 2021. He notes that we have spend 100's of billions of dollars helping out the victims of Katrina, more than what has ever been done by any other nation to help those who were hit by any other natural disaster.

DECLINISM IS NOT NEW

In 1843 Thomas Carlyle, a Scottish Essayist used the term "dismal science" to describe the science of economics. Carlyle was brought up by strict Calvinist parents who expected him to become a preacher, before he lost his religion. His view of the world became pretty dismal when he saw the problems inherent in the laissez-fair form of capitalism that sprung up during the industrial revolution of the times. As we now know, when technology cuts the cost of manufacturing, jobs are initially lost. Carlyle was just 16 years old at the start of the Luddite movement. Ned Ludd was a man of action. If textile factories were going to be closed down as a result of water wheel powered looms, Ned said tear down the water wheels. It does seem natural to think that if water wheels reduce textile workers jobs that water wheels are a bad thing just as bad as a NAFTA trade agreement. The Luddite Movement was so strong that it took the British Army to stop it. Fifteen years after the start of the Luddite movement, the Reverend Thomas Malthus wrote the first of his 6 editions on "The Principle of Population". If you want to talk about "dismal science", read Malthus. He believed that the people of the earth are doomed to cycles of prosperity and famine. He believed that the population would always ultimately out grow the agricultural production necessary to feed the people. He saw no way out of starvation for millions of people. Malthus could not even imagine a rice plant producing 30 times as much rice as the plants of his day.

The story of "gloom and doom" goes on and on. The time of 1884 to 1914 is called the age of modernism. During this time, the concern was to try to figure out what was holding progress back. The German philosopher Nietzsche saw tragedy as an affirmation of life. War War I seemed to confirm that tragedy of one form or another would always come to end all eras of prosperity.

Yesterday, Mark Perry posted a link to an old Forbes article by Virginia Postrel. The article is titled, "The American Standard of Whining". She notes that the greatest proponent of free markets, Adam Smith, who wrote "The Wealth of Nations" in 1776 understood the need for news reporters to focus on "declinism". He wrote, "a continue series of prosperity would not give us near so much pleasure as an epic poem or a tragedy which make but one continued series of unhappy events." In other words, it seems to be human nature to want to hear and to repeat the "horror" story.

Today, we have people on both sides of the isle feeding off the public's voracious appetite for bad news. Pat Buchanan is one on the right who has made a few bucks by writing about how the US is becoming second rate. Hillary and Obama seem to be in a contest to tell how America has fallen in the eyes of the world. All three of these folk seem ready to end the prosperity brought about by free trade. One of the silliest things you will ever hear is the idea that the Chinese are unfairly manipulating their currency to take advantage of America. What these people apparently believe is that we are being duped because China is selling us stuff at too low of a price. Pat does not need to worry so about the power of the Chinese. No matter how economically strong they become, it will still make economic sense for them and for us to trade with them. Both countries will continue to benefit as long as we are willing to trade.

Allen Dowd does a good job of turning the thoughts of these folk upside down. He points out that from the foreigners point of view, "globalization is another word for Americanization". Here we are upset that English is only learned gradually by immigrants to the states when it has become the universal language of the world. We are upset about building factories in India when these factories actually represent the fact that the US dominates world commerce. A few examples mentioned by Dowd include the domination of the personal computer market by Dell and HP, the fact that 330 million PC's run MSFT operating systems and that Apple iTunes has displaced the Sony music download system in Japan! He goes on to mention Google's dominance in search and the 30,000 McDonald's restaurants outside the USA. Seventy percent of Coke is sold outside the US and Starbucks has stores in 39 countries. I considered posting a list of all the different international store brands owned by Wal-Mart but decided not to fill another page of text to make the point. Suffice it to say that there are 2,700 Wal-Mart Stores outside the USA and there are less than 30 countries that have a GDP larger than Wal-Mart sales. Obama likes to attack Wal-Mart but an objective study of the facts would probably show that Wal-Mart has brought more wealth to more people than any other organization in history.

NO ARMIES IN UTOPIA

George Washington initially believed that the USA did not need to maintain a standing army. Unfortunately the laws of nature require all species to be ready to defend themselves. The history of our country has been one of a "Stop and Go" military. We quickly forget the lessons of the past and are quick to lower our guard. The cost in treasure and lives has been enormous. We can only wonder how many lives were lost by the communication sent to Hitler from Franklin Roosevelt in 1938 that said, "the USA has no political involvements in Europe"? Britain and France have received the most criticism for trying to appease Hitler but the US was guilty as well. We let down our guard, informed Hitler that we would not stand up to his annexation of Austria and our actions ultimately cost millions of lives.

Less than 10 years ago, the US was enjoying a "peace dividend". We enjoyed a strong economy while not bothering to confront Islamic Extremist. The good news is that only a few hundred thousand lives have been lost in this war. The toll would have been much higher had the US not taken the preemptive steps necessary to confront the "bad guys".

American is blessed in so many ways. Our blessings include millions of well meaning educated people. Michelle Obama graduated from Princeton in 1987. Last week, she made a speech in which she said that "For the first time in my life, I am really proud of my country." WOW!

America is the land of the most charitable people in the world. We voluntarily give more to others per capita than any others. In addition to this individual giving, we have repeatedly donated the blood of our finest on behalf of the oppressed. The charitable giving is a measure of private donations but as a nation we spend billions of additional funds in service to our fellow world citizens. We catch a lot of grief and we certainly could do more but we need not beat ourselves up for not being perfect (even though we miss perfection by more than a few country miles). I am a proud American!

THE NEW PARADIGM

One of the TED lecture series notes that man has survived through cooperation. Surely we are competitive beings but the examples of man helping others is blossoming in ways that were unimaginable just a few years ago. People have spent millions of hours completing Wiki encyclopedias and millions of other hours sharing knowledge in other ways and without compensation. The speed of life has increased dramatically because we have found new ways to build trust in one another. EBAY's rating system is an example of how two total strangers can agree to a long distance transaction with confidence of being treated fairly.

Along the way, a backlash has developed. The NAFTA law signed by Bill Clinton contributed to a great surge of wealth in the USA and the much of the rest of the world. It is not unexpected for such a successful law to receive backlash. The Luddites of Britain were rebelling against machinery that was ushering a new age of prosperity but the dramatic increase in efficiency put some people out of work temporarily. It was the French who took off their wooden shoes, Sabots, and threw them in the gears of machinery in their attempts to destroy the industrial revolution. The French did not give up easily, they broke the Sabots that held railroad tracks in place during the strike of 1910 and only last year were the French laws changed to permit workers to be fired. It took unemployment rates of 22% to make workers willing to accept rational economic policies. The rapid pace of technology has caused the rapid destruction of jobs in America. The prosperity created by the new technology is allowing millions of people to find better jobs.

Twenty or so years ago, uneducated Americans were quick to condemn the hiring of Chinese at $2 per day to make Nike tennis shoes. The unintended consequence of the protest was to punish the Chinese workers by sending them back to their old jobs. The old jobs paid 75 cents per day. Today, $1 per day workers are finding $3 per day jobs and living far better than their parents lived.

One of the things that Americans need to understand is that we reduce the probability of war by trading with others. Milton Friedman was one of the greatest economist of all time. In 1962 in "Capitalism and Freedom", he wrote that political freedom follows economic freedom. One does not need to be a brilliant economist to understand that a hungry man is more likely to be aggressive toward his neighbors. Milton was famous for a lot of ideas. For example, he was the one who declared that there is no such thing as a free lunch. It has only been in recent years that this concept has been more fully understood. Today, millions and millions of micro loans are outstanding. The poorest of people are borrowing small sums of money to get an economic start. Because the people are required to pay the money back, the money is lent to those who have an idea about how to invest a small loan to get a return. A common example is a loan to buy a bicycle that might be used to haul products to a village market.

PAY IT FORWARD OR PAY IT BACK

The concept of paying forward has been around for a long time. Sociologist have found what they call general reciprocity in all sorts of religions and cultures. The concept was practiced among family members in ancient days, when grandpa helped his son, he expected nothing in return except similar treatment for his grandson. Among the Amish, the concept is routinely practiced when it is time to "raise a barn".

Today, many people are "barn raisers". People cooperate to build everything from community green ways to computer networks. It does not matter if one promises to pay it forward or to pay it back, the deed is not a free lunch. Still it certainly is nice that people today feel that they can afford to do a deed without the hope of getting back direct compensation.

DISMAL TALK BUT EVIDENCE OF GOOD WORKS

Yes there is still a lot of dismal talk all around but there is a lot of good stuff happening. One of the good things that is happening is that people all around the world are discovering that it is not a good thing to confiscate the property from the wealthy. Back in 1999, Russia had a 44% marginal income tax rate and the government took in about 100 million dollars per year. By 2001, the tax rates were collapsed into a flat 13% rate. Government tax revenues by 2005 reached 700 billion dollars; seven times the tax revenues were collected by charging one third of the tax rate! Who cares? The people of Russia care because the economic revival has been a blessing to the entire population. The people are living much better.

HOPE AND DISMAL TALK

Obama talks about hope and in the same breath talks about taxing more. Since the 1950's and 60's when Milton Friedman wrote about limited government being best, we have seen example after example where private systems serve the public best. It often takes years for free enterprise to remake the poor systems that develop as a result of government control. For example, the government monopoly granted to the telephone system of 1984 restricted the development of communications networks. Today we individually enjoy abundant streams of communication at a fraction of the old costs. We would not have the internet today if AT&T still had a monopoly. In like manner, it took 30 years for railroads to totally shake loose of the restrictions built up over years of excessive government control. Railroads are enjoying a building boom and the public has enjoyed lower cost over the past 30 years and they will enjoy lower costs over the next 30 years as a result of free markets. During a time of higher energy costs, it is easy to lose sight of the fact that railroad deregulation has helped to dramatically lower the real cost of electricity. Airlines are finally ready to spread their wings. FedEx and UPS has given us untold collective benefits.

The talk of change and hope implies forward movement but in this case it represents a reactionary movement. Many Americans dream about the "good old days" without remembering how tough those days were. Back in 1776, Adam Smith understood that people felt the need to tell about the wonderful days of old. Today, the average American believes that pollution has gotten to be a real problem. They simply cannot imagine walking down a street littered with horse manure while fighting off flies caring every thing from dung to typhoid fever. Did you ever notice the absence of horse manure in cowboy movies? Technology is taking us forward. Let's not fight it but use it. By using the new tools that have been provided, we can move toward Utopia. We will never get there but let's have fun on the journey! Even the dismal talk is good news because the market is ripe for rising up out of this swamp of despair!

WINSTON CHURCHILL TO THE RESCUE

With teacher unions in control of the US education system and with Obama and Hillary pushing socialist agenda, it is time to repeat the words of Winston-Churchill.

"The inherent vice of capitalism is the unequal sharing of the blessings. The inherent blessing of socialism is the equal sharing of misery." Hillary and Obama profess to believe in capitalism. We must hope that they will move toward the middle for the general election and that they will meet their match by congress if elected.

The good news is that governments around the world are generally moving away from socialist policies. Ironically, it is the United States that operates a government controlled monopoly school system. Even so, the seeds of improvement have been planted in the US. Milwaukee will pay out over 100 million dollars in school vouchers this year. Sweden has shown that once the population enjoys the taste of school choice, it is hard to turn back. In the US, more and more charter schools are being attended. New York has made news by improving schools through choice and, indeed, improvements are showing up around the country. No less than 7 North Carolina High Schools made the Newsweek top 100 list. The list included 3 Greensboro schools, 2 from Raleigh and 2 from Charlotte. Chapel Hill almost made the list. NC has spent a lot of money while making education a priority. The government could save money and give satisfaction to citizens by offering more individual choice.

While Obama is to the left of Hillary on war, his willingness to push for charter schools and even for vouchers is unusual among democratic presidential candidates. His support reminds me of the philosophy of top management at Legg Mason, which is that economics wins in the long term. Politicians usually see the light but it often takes a long time. A wise old democrat once said that you are entitled to your own opinion but not to your own set of facts. Obama says the middle class is paying more in taxes while corporations are paying less. He needs to check his facts. Exxon, the firm that Hillary seems most "out to get", only paid 30 Billion Dollars in taxes! The sad thing is that common sense has been lost in the political shuffle. Common sense says that the right of individual choice is the solution to improved school performance and improved health care.

COMMON SENSE! WHERE?

Unfortunately, people like to be told what is common sense and what is not. One of my pet peeves, for 30 years or so, has been seat belt laws. I am like most other people in that I don't like to be forced into doing anything. On the other hand, I am all for saving lives and if one is going to be forced to surrender liberties to the state, it should be for a good reason such as saving lives. The problem is that mandatory seat belt laws have actually caused an increase in death rates!

This is one of those topics where it makes good political hay for the government to pump out statistics that say x number of lives have been saved. As usual, the best way to mislead is to start out with an element of truth. While it is true that the number of people killed in cars where the occupants wore seat belts has gone down, it is also true that the total number of deaths went down more in the countries without mandatory seat belt laws. The problem is that drivers who wear them tend to feel safe and to drive less carefully. The number of pedestrians, cyclist and passengers in other cars killed has gone up in countries where seat belts are required.

I have thrown out controversial words, not to wage a campaign to repeal mandatory seat belt laws, a more productive accident prevention campaign might be to encourage smart cars and smart highways. My point here is that, as lovers of freedom, Americans should strongly resist any new government mandates, with mandatory government health care being the prime example.

The billions and billions of dollars spent on seat belts over the last 30 years are like a drop in a barrel to what is proposed in regard to health care. A government funded health care program will cost trillions of dollars and many of those dollars will be wasted. If education and health care are rights, the citizens should have the right to choose how the funds should be spent.

In Vietnam, I used common sense when I accepted a position as a supply Sargent in relatively safe city of Da Nang. My alternative was to demand a position at an unknown and perhaps very dangerous location as company communications specialist. I quickly learned the ins and outs of Army Supply and soon became a valuable "employee" of my Captain. He came to know that by giving me leeway to trade what we could get for what we needed, we could get almost anything, including rib eye steaks, Thai beer, a ten ton air conditioner and a $750,000 crane. Our motor pool Sargent built extra jeeps and trucks from the scrap yard, the air force furnished all the lumber we could use, special forces offered AK-47's and "extra" munitions and the Navy had the best food around. Believe it or not, my ability to get all the red, green, yellow and white paint I wanted turned into a valuable currency. Those who knew how to work the system got what they wanted while those who waited for the proper paperwork to clear, waited and waited and waited. My view of government health care is wait, wait, wait.

Advocates of government mandated health care find systems with good health results and suggest similar systems for the US. Of course, every system includes trade offs and advocates suggest that a tweak here and there will improve the "other guys system" without adding much to the costs. Generally, the average person has no concept of the complications or the range of unintended consequences. We know from experience that socialist systems lead to inefficiencies and high costs. We know that markets allocate resources efficiently but often need sensible regulation. We also know that abundant information is key. The public will not pay too much for a service if they can easily see when a lower price is offered by others.

WII-REHABILITATION

One never knows where the market will take you. The game machine, WII, offers the latest health care solution. Patients who need to be rehabilitated after strokes, surgery, broken bones or combat injury no longer toil away at boring exercise routines. Now they play WII games. Bowling, golf or tennis include a lot of movement that is not boring. Patients who experience pain while doing rote exercise often forget about the pain while they try to win a match. I can hear the complaints about tax increases for the purpose of buying video games! Private enterprise can buy these games if they save time, effort and money.

GOOD NEWS ON TERROR

In the past week, Iraqi forces have captured 212 weapons caches. Over in Syria, a terrorist involved in air plane hijackings 30 years ago, Mungniyah, was blown away. It seems like a major terror leader or two are killed or captured each month.

To have found 212 weapons caches in one month must have required human intelligence, satellite reconnaissance and perhaps "electronic sniffers". It only takes a tiny trace, measured in parts per billion, for today's electronic equipment to track weapons.

The foot print of active terrorist cells continues to shrink. Countries no longer openly support terrorist. Of course, there could be any number of sleeper cells in any nation.

WAKE 86 DUKE 73 hehehe

DAL-NWA

The Economist.com site suggests that the airline combos will be DAL-NWA, CAL-UAUA, and AMR-LCC. Another report is that Air France-KLM will buy into DAL-NWA and that AMR will work out an expanded deal with British Airways. Air France-KLM is the largest carrier in the world but the combination of AMR and British Airways would be bigger.

The question arises, that if DAL-NWA is going to be a non cash, share swap, why would they need to sell a share to Air France-KLM? The answer has two parts. First of all, to fund the purchase of the new generation of fuel efficient planes. The second is that the boom in international air traffic is not from and two the points of old. The dramatic expansion of business includes relatively small cities around the world. The company that makes swimming pool parts in Clemmons, NC might have a "sister" facility in Montenegro. The flight to and from will probably involve a change over to another carrier. The range of new planes make direct flights to and from major cities common. One of my reasons to like CAL is because it continues to add long distance direct flights. However, cooperation with others carriers is the way to lock up the "other half" of flights to smaller cities.

Low cost discounters in the USA seem to be stuck at a 30% market share. Hubs provide the edge for the international carriers.

OBAMA -- HILLARY

Hillary is disliked as a person by 78% of republican voters. Obama is disliked by only 17% of republican votes. McCain is well liked and his service to the country is widely appreciated. The current surge by Obama is partly due to the polls that show him as winning against McCain. Democrats and Republicans know McCain and Hillary. Obama is the new face. Between now and the general election, Obama's negatives will go up as Americans get to know him better. Most political observers believe that the democratic nomination is now Obama's to lose. I still believe Hillary will win Texas, Ohio and Pennsylvania and that she has a better than even shot at winning the nomination. Obama will win Wisconsin Tuesday but the with big numbers out of big states, Hillary can retake the lead. Low and behold, the delegates pledged to John Edwards could put John in the cat bird seat!


By the way, 81% of democrats strongly disapprove of the job performance of George Bush. Only 7% of republicans believe Huckabee has a chance to win but 26% wish that he could win.

BOOM, BUST, BOOM

The US auto business has joined the US housing market in recession. Auto sales are down about 9% from last year. On the other hand, the steep decline in short term interest rates in the US is the equivalent to spiking the international punch bowl. Countries like China, Saudi Arabia and Hong Kong, which all have their currencies tied to the dollar, are seeing an inflationary boom, boom, boom.

The International Monetary Fund (IMF) projects that world economic growth will slow from 4.9% in 2007 to 4.1% in 2008, however, China's CPI just came in at 7.5%. Kuwait at 7%, Qatar at 14%! Oman just hiked government workers pay by 43% and gave the people a wheat subsidy. India keeps bumping up minimum wages for contract workers. Indians who contract to work in Bahrain must be paid at least $265 per month. The current rate for Indians in the UAE is at $170 per month but this rate is expected to increase to $230 soon. Qatar has such a labor shortage that it has set up training schools in other countries with jobs waiting for those who pass.

The fastest growing telecom market in the world is India. The country added 83 million mobile subscribers in 2007! The USA added 20 million and China added 76 million. India should pass the US in total subscribers by May of 2008. Current subscribers in China 534 million, in the US 257 million and in Russia 172 million. Pakistan added 26 million. The US is right at 90% market penetration. When India passes us by, the country will be at 25% market penetration.

THE BOOM, BOOM, BOOM WILL CONTINUE. The fear of recession is over done. The world wide boom is showing up in US production. Billions of hand held computers will be designed, built, sold and used in the next several years.

CHINA -- WORLD SUPER POWER!

The China miracle means that China will likely become the biggest economic power within 10 years. No need to worry!

The more developed China becomes, the more it will need products from the USA. In the old "ignorant days", people believed that a country could be an "Island to Itself". As I recall, Adam Smith published "The Wealth of Nations" in 1776. I believe it was not too many years later when David Ricardo gave us the law of comparative advantage. The simple summary of the work of Smith is: markets work! The Ricardo summary is: it pays to trade!

Even if China gains the technical know how to make all the stuff we make and even if China were able to make all the stuff we make cheaper than we can make it, it would still pay China to trade with us. China was a great nation a long time ago. One thousand years ago, China had technology that was not "invented" in Europe until centuries later. As I recall, around the late 1,200s, a new political regime took the country back into the "dark ages". Knowledge was purposely destroyed. Mao deserves credit for getting the health and basic welfare of the people lifted back on track about 60 years ago. The current miracle is likely to continue for some time. In any event, I do not see the people of China shooting themselves in the foot and deciding once again to become isolated. The fact is that no matter how good they become at any task, they will always be better at some task than others. It will always make sense for them to concentrate their energies and to trade with the US for the things that we do best.

BIG DAYS AHEAD.

Some important events will take place over then next two or three weeks. This coming Wednesday or Thursday could be a big day in the airline business. DAL and NWA boards will discuss merger on Wednesday. What will be will be!

ONLY THREE BIG AIRLINES

You probably do not recognize the names of the "big three" in the airline business, OneWorld, SkyTeam and Star Alliance. The law that prohibits foreign investors from owning more than a percentage of US carriers, encourages the "alliance" net works. New open skies agreements, like the one just made between Australia and the USA, also promotes alliances. These net works help international airlines reduce excessive competition. One difficulty of putting together domestic merger deals is that some mergers are likely to be among airlines that are members of different networks.

DAL, NWA and CAL are all members of the same network. This means that they generally work together to join flights at hubs rather than to compete on the same city pairs. Last week, when CAL announced its move from the Mexico city #1 terminal to the #2 terminal, the purpose was to move to the same terminal as the other SkyTeam members. Passengers can now transfer from CAL to DAL at Mexico City without having to travel within the airport from one terminal to the next.

Should the DAL-NWA deal go through, CAL will probably merge with UAUA. UAUA and US Airways are the two biggest US members of the Star Alliance. The Chair of UAUA has expressed a willingness to switch from the Star Alliance to SkyTeam in order to make a deal workable, the ultimate decision will be one of the most important ones made. It is said that AMR and British Airways are once again discussing closer ties. They currently cooperate as members of the OneWorld alliance. In any event, it is clear that the world is preparing to eventually get down to the "big three". The history of almost any business segment has been that the top three firms do well but the fourth often struggles. Today, there are a several hundred regional airlines. Most need to develop strong partnerships or perish. The days of the stand alone discounter are numbered.

CHAVEZ BLOW OFF

Hugo Chavez is a master politician who has pushed his luck to far. The people of Venezuela are paying the price. In the latest twist to this long story, Exxon did not back down from the confiscation of its Venezuelan assets. Exxon sued in various courts and billions of dollars of Venezuelan assets have been frozen, pending settlement of the dispute. The run up of oil prices for the past week is a result of Hugo's threat to suspend sales of oil to the USA. The problem for Hugo is that the USA does not need one drop of his oil. Oil is a fungible commodity. We can buy our oil from others. If Hugo refuses to sell to the USA, he will sell to others with his net reduced by the additional transportation expense. The USA will pay just a bit more and Venezuela will get just a bit less as a result of the extra shipping, the deal would be similar to having the USA contract with Spain for oil knowing that Spain would buy the oil from Venezuela. The current blow off in oil is the "Chavez Blow Off". James Williams, the "Energy Economist" notes that during this time of year, it is normal for oil inventories in the USA to fall as this is the peak heating season. The last few weeks, oil inventories have risen. While I have argued that there is no recession, I have also noted that a number of economies are growing slower. Slower growth means slower demand for oil and extra time for new production to come on line. The big new fields in Kazakhstan and in Brazil are truly monsters and they will be producing oil in a couple of years. Indeed, the next discovery in Brazil could put Brazil second in size to Saudi Arabia.

WHICH COUNTRY WILL CLIMB THE PROSPERITY TREE NEXT?

Spend some time at gapminder.org and you will enjoy seeing animated socio-economic graphs. They show the incredible progress that has been made in country after country over the past few decades. Still, 20% of all people currently live off of less than $1 per day. The old 80/20 rule still comes close to reality. Eighty percent of the people of the world enjoy only 26% of the income. Twenty percent enjoy 74% of the income. It is the break down of the bottom 80% that is most heart breaking. The bottom 20% receive only 2% of the world income. Many eat mud cakes to supplement a diet of grain.

Again, the good news is that great progress has been made. In the 1960's, poor nations and rich nations were separated by a wide gulf. Now there are usually overlaps. The richest people in the poorest of nations tend to be more wealthy than many of the people in the richest nations.

The progress can also be seen in terms of health. In 1960, 28% of all children born in Egypt died before they reached the age of 5. At the time, the average income was $1,000 per year. Today, 3.9% of all children born in Egypt die before they reach the age of 5. The current annual per capita income is $3,730. Note that the improvement in health is not necessarily in direct proportion to the improvement in income.

The improved health and incomes of the rest of the world is pushing all the people of the world to use resources more carefully. There is suddenly the need to do so. Given there is the need, the people of the world will come up with solutions. To put this problem in terms of America, back in the 1700's it made perfect sense to cut down whole trees and to use the logs to build homes. The work involved in slicing the trees into boards was not worth the effort. The walls of homes today have a 2" by 4" board every 16 inches. We have come a long way in regard to the use of lumber. Over the next 20 years, we will see dramatic new efficiencies in regard to the use of energy.

RAILROAD BOOM, BOOM, BOOM

Between now and then, the railroads are enjoying a building boom not seen in more than a century and a half. Coal fired electrical plants are being built at a rapid pace and trains are carrying huge amounts of coal. Also, the high cost of fuel is forcing tons of long distance freight to move from trucks to trains. Big money is being spent on rail infrastructure. This is true in America, China, India, Russia, Brazil and elsewhere. Once again, we can see big American companies like GE in the thick of things, but "it is different this time"!

SMART MONETARY AND FISCAL POLICIES

Despite my criticism of the FOMC in regard to helping to create the current economic mess, the fact is that a building boom does not have to be accompanied by rapid inflation and the dampening of the violate economic swings of the past show that the central bankers are doing better year after year. During the 1970's, an inflation spiral developed that decimated the savings and incomes of the people of the world. There was too much money chasing too few goods. To get a good deal, you had to buy quickly before the price jumped again. Under such an environment, workers were anxious to push up wages and companies were anxious to push up prices and the results sent people on a fixed income to the poor house. This time, with the exception of a relatively few commodities, there have been plenty of goods to go around. The price of manufactured goods in real terms has fallen and fallen some more. In a number of industries, there have been such an excessive amount of goods available that prices have fallen enough to put weak players out of business. The American textile industry is the prime example.

The goodness in regard to the current cycle is that the buyers of products, the many, are have been helped more than the makers of the products, the few, have been hurt. Indeed, the average American textile worker was not even hurt. The average former American textile worker makes far more money today than he made in his old job. A key point here is that you do not have to be a genius to work in a genetics lab.

The bottom line is that the world is in the middle of an economic boom like it has never seen before. Inflation has reared its ugly head in only a few areas where it has been compounded by policy mistakes. The big mistake has been in trying to use agricultural products for fuel. Never the less, quick progress is being made to correct the mistakes. Numerous breakthroughs will cause the reduction of the use of food stuffs as fuel. The price of corn in real terms will fall by more than half over the next several years. The very powerful law of substitution is gaining strength daily and lower priced alternatives will be used more and more and more.

WIFI AND OTHER TECHNOLOGIES TO THE RESCUE

The next big technology that will make a huge dent in the cost of lots of stuff is "Fixed-Mobile-Convergence" or FMC. Most people could get by very well with only one phone number. A dual band cell phone would do the trick. Walk into your house or office with a dual band cell phone and it would automatically switch to the equivalent of a portable land line phone. This technology has been possible for a long time but it will be adopted rapidly from here. Put another way, make the Internet browser work well on the phone and people will buy that phone. The i-Phone tells the story. The i-Phone user is about 20 times as likely to search the web by phone as are other cell phone users and the i-Phone is a slow connection. AT&T is pushing hard to roll out its 3G network nationwide. In the mean time, scores of phone builders are building their own versions of the g-Phone which will be designed specifically for use on the net. Suddenly, it is becoming more and more economical for people to spend their day connected to the Internet and the rest of the world by cell phone. More and more work is going to be performed outside the office. The cost of production is headed down!

CELL TOWER COMPANIES ARE IN A SCRAMBLE

Cell tower companies such as Crown Castle and AMT are in a scramble to provide more bandwidth at more locations. Share prices are up as are lease rates on towers. There are now about 200,000 towers in the USA and there are plans to build another 170,000 over the next 10 years. Many more "sub-stations" will be scattered around in church steeples and flag poles to fill in the gaps. The volume of traffic is going to multiply quickly. Smart highways and smart cars will be just one of the new "users". Lives will be saved when car cruise controls communicate with speed limit signs and with traffic computers. Less congestion, higher speeds and safety are all outputs available from having lanes dedicated to "robot cars only". Of course, restaurants, gas stations and other vendors will want much information to be available on GPS-phone systems. Road warriors will want to order their next Cracker Barrel meal from 20 miles out and Cracker Barrel will be happy to accept electronic prepayment. The "conversations between cars, coffee shops and bank accounts" will add all the more to the total bandwidth needed.

INTERNATIONAL TAX RATE CONVERGENCE

Instant and low cost long distant communications are contributing to tax rate convergence. Why pay high taxes in the USA if you can do the same work overseas and pay less?

Last year, Citicorp lowered its tax rate from 31.3% to 30.6% by moving more operations to countries with lower tax rates. McCain proposes corporate tax rates designed to halt the migration of US businesses to international locations. His plan is simple. He would reduce the corporate tax loop holes but lower the effective rates. Obama talks about ending the incentives for American companies to invest overseas. The vague words, "eliminate the incentives", are code for increasing tax rates. His plan must be to raise taxes quite a bit because he says he will pay for his long list of expensive promises.

Part of the reason people fall in love with democratic promises is because the belief has been planted that America is now economically behind a long list of other countries. Norway has been used as a prime example of a country that is doing more for the poor while being wealthier overall. Norway is a small country that discovered lots of oil. It has 7 Billion Barrels of Reserves. It produces 3 million barrels per day, uses half a million and exports 2.5 million. A couple of years ago, KPMG did a study and adjusted the disposable income by the cost of living to show that the people live like some of the poorest in Europe. This study probably over states the case but the point is that high income alone does not make ones life good. I did my own study in about 5 minutes by doing an Internet search. I found a listing of the "Big Mac Index". The reason I like this index is because it converts the cost of a Big Mac into dollar terms. By looking at prices in terms of dollars, one can see the relative value of a countries income. The price of a Big Mac in Norway is higher than in any country other than Iceland. It even is more expensive than in Switzerland. A relative of mine married a Norwegian woman. They go back to visit every couple of years. The story they tell is paying $18 each for two high balls and deciding that they had better quit drinking.

It is my hope that American will remain a bastion of economic freedom. On the other hand, it is smart for us to learn what works and does not work in other societies and to modify and adopt policies that help to solve our problems. I see two arguments in regard to health care and educational reform. One is in regard to funding and the other is in regard to freedom of choice. In my opinion, a system that forces the wealthy to pay something more than an equal share of cost is an area where compromise is needed. It is the freedom of choice that must be maintained and the funding must follow the choices made. For example, in education, the family should be permitted to chose the school and the government funding should flow to the school chosen. Over time, the system should include much segmentation, such that students might select from more than one math teacher, more than one music department, etc. The successful math program might pay its teachers double the salary of others and it might expand all across the nation while the ability of its students set new records. We will only know how well we can do when we allow all students to chose.

A CRAZY WORLD

Wouldn't you know that I started writing about how the airline business is in a stage of consolidation and ended by writing about how there needs to be more choice of schools. The common thread is that markets work to a point and that competition leads to improvements. The tricky part is that there is more than one kind of improvement. In the days before deregulation, airline travel and train travel were pleasant experiences, except that they were very expensive. Those who could afford to fly were treated well. Deregulation resulted in competition and cost cutting. Train engineers no longer get a full days pay for each 100 miles traveled (as much as 30 days pay for one 48 hour round trip from Florida to New York) and airline pilots no longer make 10 times the average wage for half the hours, but the planes are flying full and trains are hauling record amounts of freight. The total savings has been hundreds of times more than the reduction in wages. The quality of life has improved for the tens of millions of people who can now afford to visit their loved ones or to enjoy vacations. The lower cost of transported goods has raised millions of people out of poverty and has raised the standards of living for all others. The health care and education "industry" is in need of similar reforms. We can get a better return on our investment. Elections make a difference. This is the year to be engaged.

Do me a great favor and forward this message to a friend!

BUY THE BIG HOUSE NOW!

The super strength in US exports suggests that the fall in interest rates might be over. If you plan to "buy the big house" you need to get your motor running. As soon as it becomes clear that the FOMC is through cutting rates, the big bargains in the housing market will disappear quickly. They will disappear for two reasons; because fearful sellers will lose their fear and because it will take many months for builders to start new projects. Because builders have been hammered (:-) badly, they will not start building much until the current supply of unsold homes is reduced.

OBAMA CONTINUES TO GAIN MOMENTUM!

For a very long time, I have believed that Hillary will be the democratic nominee. The Clintons are still owed a lot of political favors. Sill, if Obama is able to go to the convention with a significant lead, I do not believe the super delegates will swing the vote to Hillary. Hillary win a chunk of delegates in Texas. She is currently leading the polls in the big states of Ohio and Pennsylvania. During the next 3 weeks, her weakest state of the "big three" is Ohio. Should Obama break through in Ohio, the race is over!

IF THE ECONOMY IS SO BAD, THEN WHY IS IT SO GOOD?

The US economy continues to show strength. How can we be in a recession if retail sales are strong, unemployment claims are mild and exports are booming?

Of course, a strong world economy combined with a weak dollar means that sales from America should continue. One of the boom, boom, boom businesses in America is the production of newly created health products. US companies, including one head quartered in Winston-Salem NC, are making human tissues grown in labs. There is some really exciting stuff being done.

I am sure you know that a salamander can regrow a broken let or tail. Did you know that if a 2 month old human fetus loses an arm, it grows it back? Did you know that a child, under the age of 5 is able to grow back a cut off finger tip? With the support of a new material, produced in an American lab, a 78 year old man was recently able to grow back a cut off finger tip. The material has also been used to heal diabetic ulcers. It is anticipated that it will help burn victims grow back skin.

Alan Russell has asked the question, "Why Can't We Grow New Body Parts?" and his answer is we can! In Winston-Salem, human bladders and other tissues are being grown in labs. By using the patients cells to grow the body parts, there is no problem with rejection. It turns out that stem cells can be harvested by performing liposuction on the patient. The stem cell debate use to be about how to harvest enough stem cells. In America, there are plenty of fat cells to harvest.

Over the past 50 years, around the world, longevity of humans has been increased. You ain't seen nothing yet. It is anticipated that within 20 years or so, huge gains will be made in repairing worn out body parts. It has already been shown that an injection of stem cells into a worn out heart can perform a rejuvenation miracle. What is next? Reputable scientist believe humans will soon be living to 135 years. In fact they believe people who are born today could possibly reach 1,000 years. The most interesting idea is that the person who lives to be 500 will be born only 10 years or so later than the first guy to live to be 150! There will be tremendous advances in knowledge during the last 50 years of this mans life!

The speed of technological change continues to follow a geometric growth pattern. We know this well through our observation of computer technology. In 1968, one dollar would buy one transistor. At the time, there were still a lot of vacuum tube TV's and radios still around. By 2002, $1 would buy 10 million transistors. I wonder how many the current dollar would buy?

FOMC HAS PROVIDED THE "BIG STIMULUS"

The big drop in US interest rates from 5.25% to 3% is a big deal. While the stimulus package passed by congress will goose the economy a little by the third quarter, the repayment of the borrowed money will start immediately such that the stimulus is really nothing more than the "broken window syndrome" or another instance of "robbing Peter to pay Paul". However the power of the big cut in interest rates has yet to be fully felt. A key point is that China, Saudi Arabia, Hong Kong and others rely on the FOMC to manage their monetary policy. The peg of other currencies to the dollar gives congressional members something else to whine about but the reality is that the links give the US all the more power. The big drop in rates will stimulate China just as much as the USA.

IT IS HARD TO HAVE A RECESSION IF ALL THE COUNTRIES LINKED TO THE USA ARE BEING GOOSED.

The price of oil keeps staying stubbornly high. The fundamental reason is that world demand remains strong. The goosing of the world economy through lower interest rates in the USA, has served to give oil market bulls the hope and even the expectation that oil prices will remain very high. Those waiting for a decline in the price are left watching the scramble to build new refineries and to develop new fields. Refinery construction is going on around the world, including in North America. In Port Arthur, Texas, Shell is in the process of renovations that will make its refinery the largest in the world. In the mean time, Total has announced that it will also expand its Port Arthur unit.

China is using more oil than ever before but it is also spending money on technology like there is no tomorrow. China will make the move to a fuel efficient economy in record time. In the digital age, the substitution of information transfer for physical activity is finding ever more ways to reduce the consumption of energy.

In the example used above in regard to transistors, the thing not mentioned is that the each one of the 10 million transistors bought in 2002 were far more efficient than the 1 purchased in 1968. Last week, Texas Instruments demonstrated technology that allows 10 times or 1 billion transistors to operate on less energy than was used by the one in 1968!

YES, YES, YES

We are living in exciting times. The world of tomorrow will be very different from the world of today. For those who dream of living good healthy lives of 150 years or more, the progress cannot happen fast enough. The rate of change is changing rapidly. Major innovation takes lots of time and the timing is unpredictable, but an injection of cells to repair a heart or the use of tissue to build a bladder are not science fiction. These technologies will be developed rapidly. Ten years from now, a lot of hearts will be repaired well before they are prime for a heart attack. A strong heart solves a lot of other health problems. Readers who are 30 years of age had better start investing for the long term!

BUY, BUY, BUY. The economy is already strong, innovation is remarkably strong and innovation drives growth!