USA Today on Immigration

USA Today's Darrell M. West on immigration:

http://www.usatoday.com/news/opinion/forum/2010-09-01-column01_ST1_N.htm

One study found that 25% of all the technology and engineering businesses launched in the USA from 1995 to 2005 had a foreign-born founder. In Silicon Valley, that number was 52.4%.

If you live in a middle-class or affluent area of Silicon Valley, you probably owe much of your good schools, steady home prices and safe neighborhoods to highly educated immigrants from the Middle East, Asia, and Southeast Asia.

More Immigrants = More Safety

From Radley Balko, July 6, 2009:

http://www.reason.com/news/show/134579.html

Despite the high profile of polemicists such as Lou Dobbs and Michael Savage, America has been mostly welcoming to this latest immigration wave. You don't see "Latinos Need Not Apply" or "No Mexicans" signs posted on public buildings the way you did with the Italians and the Irish, two groups who actually were disproportionately likely to turn to crime. The implication makes sense: An immigrant group's propensity for criminality may be partly determined by how they're received in their new country.

"Look at Arab-Americans in the Midwest, especially in the Detroit area," Levin says. "The U.S. and Canada have traditionally been very willing to welcome and integrate them. They're a success story, with high average incomes and very little crime. That's not the case in Europe. Countries like France and Germany are openly hostile to Arabs. They marginalize them. And they've seen waves of crime and rioting."

I love the common sense.

Immigrants Founded Many Famous U.S. Companies

Whenever anti-immigrant sentiment arises--almost always during a recession--I wonder how people can forget the jobs and inventions immigrants have given to America:

http://www.smartmoney.com/investing/stocks/10-companies-founded-by-immigrants

If you've ever used eBay, Google, or almost any technology company's products, chances are, you are benefiting from an immigrant's work. Even Steve Jobs is ethnically part-Egyptian.

More on immigration here, where I wrote, "Being anti-immigration seems like another case of cutting your nose to spite your face--at the end of the day, you just hurt yourself."

Bonus: from Palo Alto's Sutter Hill Ventures, an article titled, "America’s Secret Innovation Weapon: Immigration."

Immigrants May Save Housing

Yesterday's WSJ had an excellent article from Richard Lefrak and A. Gary Shilling about America's housing problem. If you assume the problem is collapsing housing prices, then the solution--offering accelerated permanent residency in exchange for foreign housing investment--makes sense. We already sell stocks, preferred shares, leases, and government bonds to foreign countries to keep our markets liquid. Lefrak and Shilling's proposed program just adds an individual-to-individual option to increase liquidity.

Immigrants Add to American Economy

Thomas Friedman echoes my take on immigration here:

According to research by Vivek Wadhwa, a senior research associate at the Labor and Worklife Program at Harvard Law School, more than half of Silicon Valley start-ups were founded by immigrants over the last decade. These immigrant-founded tech companies employed 450,000 workers and had sales of $52 billion in 2005.

Being anti-immigration seems like another case of cutting your nose to spite your face--at the end of the day, you just hurt yourself. The benefits of legal immigration seem obvious in a supply-and-demand economy. Older, educated, and legal immigrants will usually be financial positives for several reasons: one, they are happy to be here, so they usually don't commit crimes; two, they're already educated, so the state doesn't have to subsidize their education or training; and three, being new residents, they cannot inherit anything or rely on family for income or assets; as a result, they must buy rent houses, cars, and other big ticket items, which helps the economy.

I've written about this issue before here.

Clark Winter agrees with Mr. Friedman and me. See here. So does Alan Greenspan. See here.

Clark Winter's The Either/Or Investor

I originally avoided Clark Winter's The Either/Or Investor because the title is uninspiring and brought back visions of Søren Kierkegaard. I am happy I reconsidered. Clark Winter isn't your ordinary Wall Street denizen. He dedicates his book to his "wife and family," which tells you right away he knows his priorities. You can almost imagine him zipping across the landscape in a Pontiac G8. He seems to admire GM and the car business--which is part of the problem, because he wrote his book before March 2008 and the auto industry's current woes. If you can ignore his sanguine predictions about car companies and auto usage (see page xxxiii, where he praises GM over Ford, and says, "Even rising fuel prices will probably not make much a difference, as American habits are extraordinarily ingrained." [p. 147]), the rest of his book is a joy to read. His comments on immigration are particularly timely, given America's increasing protectionist sentiments:

Despite the belief that immigrants don't contribute much to society besides low-level work, they are in fact instrumental in starting businesses that serve other immigrants. In the United States, individuals start more than 550,000 new businesses a month, according to the Ewing Marion Kauffman Foundation. Latin American immigrants start more business[es] than any other group, following by immigrants in general. [p. 33]

On the whole, immigration is good for investors. It brings new customers, new incentives to innovate, new markets, new competitors, and new capital into the market. The savings rates of immigrants are higher than those of the native born, which adds to capital formation. What immigrants, legal or otherwise, take out of the system in terms of municipal services, they probably make in sales taxes on the goods they purchase. Immigrants start new businesses--and therefore are a greater source of new employment--than their native-born counterparts. Additionally, these new companies add to the capital stock of the community in another way. They bring their talents, hopes, dreams, and skills to countries that are increasingly postindustrial and therefore less inclined to do the jobs that those at the bottom rungs of the economic ladder are willing to take on. All in all, there are few reasons to oppose immigration from an investment perspective, much less a cultural one. [p. 35]

Most investing books have insightful or funny anecdotes and facts, and Mr. Winter's book is no exception. He talks about teaching his son economics while driving to grandma's house [p. 54]; Singapore's rise [p. 66]; the economic concepts of alpha and beta [p. 106]; sentiment's role in the markets [p. 70]; and the role of "expensive beef" in Argentina's rise and fall [p. 73]:

Poverty doubled from 27 percent to 54 percent, and millions of Argentines had their life savings wiped out...During all that time, the diet never changed. If it had, Argentines would have brought down their government. [p. 70]

Mr. Winter's main point is that ordinary investors can invest better simply by paying attention. He calls this "thematic investing," or concentrating on a subject whose outcome might be reasonably predictable [p. 72]. Although he doesn't explicitly say it, he favors momentum trading, because buy-and-hold investors are subject to the vagaries of geopolitical events and other events beyond their control:

You could always be a buy-and-hold investor, but that isn't likely to work, either, as you could lose a lot of money in the process. Markets can and do go to sleep for years, as they wait for geopolitical events to sort themselves out. [p. 72]

Going back to Argentina, if an investor understood or learned how important beef was in Argentina's traditional diet, s/he may have been able to profit. For instance, Mr. Winter's "reality-based" investor could have done well by trading beef/cattle futures, or perhaps by stockpiling beef before the Argentine peso collapsed. However, Mr. Winter supplies his own counterargument when he describes Macao as a good investment opportunity:

If Macao is a good enough investment for Steve Wynn or Sheldon Adelson, two of the most successful investors in Las Vegas real estate, it may be a safe bet for individual investors as well. [p. 77]

Unfortunately, Steve Wynn's Wynn Resorts (WYNN) and Sheldon Adelson's Las Vegas Sands (LVS) have been two of the worst-performing stocks this year. Both invested heavily in Macao. What's the lesson? Even if you know which direction the wind is blowing, it doesn't necessarily mean a beneficial storm will occur at the spot you predict. (Somewhere, John Bogle, an ardent buy-and-hold advocate, is smiling.)

Despite these "oops" moments, I learned a lot from Either/Or. Mr. Winter can explain complex ideas without sounding as if he's speaking down to his readers. On page 94, he explains why companies go public, despite the higher scrutiny (they want liquidity and access to more sources of funding). On pages 95-96, he discusses derivatives (you can almost hear the foreboding music in the background as you read):

[T]he variety of futures contracts available has increased dramatically and the number of contracts has increased exponentially. There are now many more futures contracts in oil traded than actual barrels of oil to be delivered...While futures are supposed to create more orderly markets, sometimes they can add disorder in the marketplace.

I also learned some more interesting facts. For example, Brazil is an oligarchy: "In Brazil, for example, twenty thousand families control 80% of the wealth." [p. 123] Also, the bottom of an oil barrel contains the most valuable liquid:

[W]hen the oil is refined, the lightest components become gasoline and kerosene and jet fuel, which sell for a couple of dollars per gallon. The next heaviest component becomes heating oil, which also sells for a dollar or two a gallon. What is left at the bottom of the barrel is the heavy, tarlike residue that is turned into thousands of different organic chemicals and pharmaceutical compounds...[these can] sell for anywhere from a few dollars a gallon to thousands of dollars a pound.

I'll leave you with Mr. Winter's investing rules:

1. Don't lose money
2. Don't invest where the big investors invest
3. Find a waterfall and put your bucket under it
4. Open your mind

Mr. Winter is obviously a man with both feet planted firmly on the ground. If you're skeptical of buy-and-hold investing, or if you just want to learn more about a different investment style, you may enjoy his book.

Immigrants Add Jobs

Ah, the perennial debate about whether immigrants take away jobs: The Guardian

For the last time, the answer is "No." But no matter how many numbers are publicized or gathered, the human being is a visual animal. That means if some different-looking fella is mowing your neighbor's lawn, he's going to be noticed much more than anyone else, even if three more natives are hired at the local hardware store down the street.

The more interesting question is whether immigrants drive down wages in certain industries. I think generally speaking, they would, only because of the simple fact that more people entering any industry create more competition, which leads to lower prices. In ordinary times, people like more competition, because it led to lower prices. Now, it's a problem because people see increasing unemployment and need to find a scapegoat. Of course, they don't blame out-of-control government spending, ill-advised international adventures, or underfunded entitlement programs. Nah, it's much easier to blame that different-looking fella who talks funny.

I'm not sure this visual bias will ever change, but perhaps schools should be more effective in teaching students how the Irish, Germans, Italians, and Chinese were treated when they first arrived in America, and how they were all blamed each time an economic crisis arose.

Ann Killion's Article on Lopez Lomong

Once in a while, a story makes you stand up and say, "This is why America and Americans should be proud of themselves despite the Bush II presidency." When C. Rice is repeating now-disgraced Alberto Gonzales' canard that "[E]very day is Sept. 12th," some optimism is in order.

Ann Killion wrote an article in today's SJ Merc about Lopez Lomong, who was adopted by Americans and is now on the Olympic track and field team. See

http://www.mercurynews.com/annkillion/ci_10136928?nclick_check=1

For three days and three nights, the boys ran towards freedom [after being captured in Sudan]...When the Rogers [his adoptive parents] bought him a chicken sandwich at McDonald's, he brought part of it home: He was used to eating chicken only a bite or two of chicken twice a year, and was surprised to learn he could eat the whole thing.

Mr. Lomong will be representing America at the Olympics, both literally and figuratively.

American Anti-Immigration Fervor as Old as Benjamin Franklin

Some people view America's immigration scenario with trepidation; others with resigned acceptance; and others with open arms and optimism. While it is easy to write off the Minutemen and others as ignorant rednecks, none other than Benjamin Franklin expressed unease at immigration into America. Mr. Franklin was concerned about Germans. My point in sharing his letter and concern is to show that every single wave of new immigration brings fear, even to educated people, but years later, such fear is always forgotten. America's ability to incorporate all manners of people has been absolutely stunning and most likely the key to our success. 

  "Inconveniences may one day arise among us. Those [immigrants] who come hither are generally of the most ignorant, stupid sort of their own Nation... [F]ew of the English understand the German language; and so cannot address them either from the Press or Pulpit... Few of their children in the country learn English...they will soon so outnumber us, that all the advantages we have, will not, in my opinion, be able to preserve our Language and even our Government will become precarious." 

Mr. Franklin shows some humanity at the end of his letter when he says, "I say I am not against the admission of Germans in general for they have their Virtues; their Industry, and Frugality is exemplary." Do those traits remind anyone of the current crop of immigrants? 

I still say Thomas Jefferson's Louisiana Purchase was the single greatest achievement in American history--for what good is the Constitution without a large canvas for its implementation? America's vast landscape has allowed and will continue to allow more immigration for many more decades. The major issue is not whether America needs more immigrants--it has always had them--but how we can incorporate new immigrants and minimize wage losses in the industries they impact.

© Matthew Rafat (July 2008)