California's Governor Race

From the looks of it, the next California governor will be either eBay's former CEO Meg Whitman or Tom Campbell. I hope it's Tom Campbell--he seems very reasonable and has experience as a professor, lawyer, and politician. I like Meg Whitman, too, but Arnold (unfortunately) showed that California politics is too much of an insider's game to favor hard-charging corporate types.

In any case, I am sure most Californians are sick of politics as usual after the budget fiasco, so perhaps we'll get an exciting dark horse candidate. No matter whom Californians elect, the state's main problem is that voters keep approving expensive propositions. For the last time, we don't have any money. Smart Californians should vote "no" on every proposition until California has a budget surplus and can afford to do nice things.

Youth Basketball: Passing Drills

Some readers may know I coach youth basketball on Saturdays. Today, my team finally started passing the ball effectively. (Not quite as good as the L.A. "Showtime" Lakers, but our team is indeed named the Lakers.) The first month of coaching, it's so hard to get the kids to do anything other than basics. Most of the kids don't know each other, and some personalities may clash, but after a few weeks, coaches should move the focus from basics to teamwork. In short, if you want your kids to play effectively, teach them to pass well.

One drill I use to teach kids to pass is "2 on 3." I pick a kid to play defense with me and the rest of the team forms a line in front of us. Then, the first three kids in line have to score against me and my defensive teammate. There is always one offensive player open because it's 2 defensive players against 3 offensive players. If either defensive player swats/blocks the ball, the entire non-defensive team does five pushups. Once there is a change of possession, the next three kids play offense, while the first three offensive players go to the back of the line.

Initially, I make sure any kid who doesn't take a wide open shot gets his shot swatted with authority (I've always wanted to use the phrase, "swatted with authority," in a sentence). After the entire team does pushups several times, no one wants to get his/her shot blocked again. As a result, this drill creates a team culture/peer pressure against taking covered shots.

After about five minutes of this swatfest, I ask who wants to play defense. By this time, the kids are either tired of doing pushups; think it's fun to block shots; or just want to follow the coach. Thus, the drill also manages to make playing defense fun. I highly recommend this drill.

The other passing drill is "2 on 2," with the offensive team having to pass the ball at least three times before taking a shot. The kids move from defense to offense and go through the line. The passes must be at least three feet away--no handoffs are allowed (I call this rule, "No football"). If anyone does a handoff, both offensive players do 10 pushups and move to the back of the line. For some reason, "2 on 3" is much more effective than "2 on 2."

Passing is the key to having an effective youth basketball team, and unfortunately, it is the most difficult skill to teach. Good luck to all the coaches out there, and please post a comment if you have other effective passing drills.

So You Want to Open Your Own Business

The 2/23/09 WSJ had a special report on small businesses, titled, "So, You Want to Be an Entrepreneur." It listed ten questions to ask yourself before becoming self-employed. Here are the two most relevant questions to ask:

1. Are you willing to sacrifice your lifestyle for (potentially) many years?
2. Are you a self-starter?

I found the WSJ's report timely, because I have a friend who left a well-paying job to go into business for herself, thinking she would be highly profitable the very first year. After over a year in business, she is becoming discouraged by the fact she made only $20,000, mainly from activities unrelated to her core business. I wish my friend had read the WSJ report, which warns, "Entrepreneurs frequently won't pay themselves a livable salary in the early years...until their business is financially sound. That can take eight years or longer."

From my battle-tested perspective, I think my friend is doing very well if she made $20,000 her very first year; however, because she made $80,000 in her old salaried job, she feels frustrated. If you're founding a business, it will take two years to lay the groundwork to get a consistent book of business. I don't care if you're doing law or construction--it takes time and money to advertise and get clients to recommend you to their friends. Think about it--would you recommend someone who hasn't been around for at least two years? Here's my advice: if you want your business to succeed, you need to first save enough money to last at least two years. Then, you need to make sure you're comfortable with the idea of not making a dime until the third year.

But it's question #2--whether you're a self-starter--that really grabs my heart. I call this the Mariah Carey/Chumbawamba rule, after two great songs by the aforementioned artists--"Shake It Off," and "Tubthumping." Basically, my rule is this: The last person standing wins. Therefore, if you want to be a successful businessperson, you need to be able to shake off failure, get back up again, and keep going forward. If you're ultra-persistent, you'll probably succeed. For example, an ex-girlfriend once called me a George Foreman lawyer--I don't have much style, but I just keep coming at you. Unless I run into a Muhammad Ali, chances are, I'll be the last man standing.

The WSJ has a curious term for this attitude--"hypomania," taken from John Gartner's book, The Hypomaniac Edge. The book "theorizes that many well-known entrepreneurs have a temperament called hypomania. They're highly creative, energetic, impatient, and very persistent--trait that help them persevere even when others lose faith." [Emphasis added.] I agree wholeheartedly, and I'm glad there's a positive name for my impatience and energy. Let the hypomania begin.

Interesting Websites

I've got a headache, so today's post will be short--just some links to sites I found interesting:

http://blog.pology.com/

http://www.1000wattblog.com/2009/02/show-me-the-market-1.html

http://www.ellensplace.net/ar_pboy.html

Apple's Annual Shareholder Meeting (2009)

Apple, Inc. (AAPL) held its 2009 annual shareholder meeting on February 25, 2009. The meeting took place at Apple's Cupertino, CA headquarters. The majority of shareholder attendees appeared to be 45+ years old (the sea of white hair in the room was noticeable). Apple sometimes offers some food on the second floor, but this year, only coffee and tea were available. I noticed an inspiring mural above the coffee canisters titled, "To the crazy ones." The full text is below, and it complemented pictures of famous non-conformists, including Muhammad Ali, Cesar Chavez, and John Lennon (I did not recognize the man on the top upper left hand side--if anyone knows who he is, please add a comment).

Here's to the crazy ones.
The misfits. The rebels.
The troublemakers. The round
pegs in the square holes - the
ones who see things differently.
They're not fond of rules and
they have no respect for
the status quo. You can praise
them, disagree with them,
quote them, disbelieve them,
glorify or vilify them.
About the only thing that you
can't do is ignore them.
Because they change things.

- Jack Kerouac
quoted in an Apple Computer Ad, 1997
(search youtube.com to see the ad)

It's the perfect way to summarize Apple's image, isn't it? Unfortunately, this year's meeting was uneventful due to the absence of Steve Jobs. The only other "celebrity," Al Gore--who is on Apple's board of directors--appeared again this year and was noticeably more trim. After Apple's general counsel, Dan Cooperman, concluded the formal part of the meeting, COO Tim Cook made a short presentation. Tim Cook appeared in jeans and a black collared shirt. If memory serves me well, Steve Jobs appeared in a black turtleneck and jeans last year. Mr. Cook appeared to be doing his best to mimic Steve Jobs, even using some of his mannerisms. Overall, Mr. Cook did a good job, but unconsciously or not, he's trying to copy Steve Jobs. It won't work--no one has Mr. Jobs' charisma, so Mr. Cook eventually needs to find his own style.

Before the Q&A session began, Mr. Cook emphasized some sales results. He said Apple had sold 55 million iPods in 2008. Apple had also sold 13.7 million iPhones in 2008, surpassing its goal of selling 10 million. Meanwhile, iTunes was a raging success--Mr. Cook noted that Apple was the #1 music reseller, asking "Do you know who number two is? Wal-Mart! Can you believe that Apple sold more of something than Wal-Mart?"

The Q&A session itself was disappointing. After another shareholder called everyone socialists for advancing health care and environmental proposals, the running joke was "socialism." People jokingly said they were not socialists, used the word "socialist" whenever possible, and Mr. Cook opened the floor to questions from "conservatives and socialists alike." In any case, here is a short summary of the Q&A session:

1. Apple has "no comment" on the SEC investigation relating to Steve Jobs' health and a possible late disclosure of his health. (By the way, I am surprised Apple's lawyers don't cite the California Constitution and its right to privacy whenever this issue comes up--yes, an individual's health is important to a company, but it's also a private matter, and forcing a corporate officer to provide updates about his health would seem to violate the California Constitution. I realize the SEC is a federal agency and therefore not obligated to follow state law, but I don't see a direct conflict here--California's right to privacy is an extension of the federal right to privacy found in the U.S. Constitution.)

2. In the most lighthearted moment, an Apple shareholder asked everyone to stand up and sing Happy Birthday to Steve Jobs, whose birthday was yesterday. Most shareholders complied and delivered a rousing birthday song to Mr. Jobs. (You can't understand how devoted Apple shareholders are to Steve Jobs until you see the love in person--even when he's not there, shareholders make a point to include him.)

3. Another shareholder questioned Apple's diversity efforts. Its board of directors appears to be almost all Caucasian. (Apple does have an Iranian/Persian officer, Sina Tamaddon, as well as board member Andrea Jung of Avon Products, Inc., but like most companies, could use more diversity in its upper ranks.)

4. Another shareholder questioned why Apple pulled out of MacWorld. Mr. Cook responded that it had "other ways to reach many more customers."

5. A shareholder brought up Apple's advertising on risque shows, such as Two and Half Men. I thought the shareholder's comments backfired--she made explicit sexual references from the show, which must have been embarrassing, and probably got more people to become interested in watching Two and a Half Men.

The most interesting substantive issue was Apple's refusal to implement a shareholder proposal that passed last year. (This year, other than the re-election of directors, all shareholder proposals failed to pass.) Last year's successful proposal related to "Say on Pay" and executive compensation. I was very surprised to learn that when it comes to shareholder proposals, Apple operates like the Electoral College--a majority vote isn't enough to actually win. This was made all the more ironic by the presence of former presidential candidate Al Gore. It appears Apple is an iconoclast in every sense of the word--even when it means ignoring successful shareholder proposals. This seeming rebuke to shareholders won't dampen Apple's base, though. As long as Steve Jobs is around somewhere, shareholders will come to the Apple temple every year to engage in their own version of honoring their esteemed leader.

FYI: I was quoted briefly in this Reuters article:

http://blogs.reuters.com/mediafile/2009/02/26/apple-annual-meeting-proves-entertaining/

In case you're interested in another perspective, here is a shareholder meeting review I found to be accurate (except for the spelling of (Shelton) "Ehrlich"):

http://www.appleinsider.com/articles/09/02/25/apple_shareholder_meeting_dominated_by_politics.html

Disclosure: I own an insignificant number of Apple (AAPL) shares.

Treasury on Wells Fargo

Banking stocks have been volatile recently, partly because the government failed to aggressively counter notions of nationalization. The government finally issued more clarity about its intentions.

First, the Federal Reserve expressly stated it would not--I repeat, "not"--nationalize banks: “I don’t see any reason to destroy the franchise value or to create the huge legal uncertainties of trying to formally nationalize a bank when it just isn’t necessary,” Bernanke said at the Senate Banking Committee hearing.

Second, President Obama said the government will continue to do whatever it takes to support banks, but with reasonable restrictions: "[The recovery plan] means preventing the catastrophic failure of financial institutions whose collapse could endanger the entire economy." President Obama also signaled that executive pay and corporate junkets would probably be limited.

Overall, the federal government has explicitly signaled that the top nineteen banks are too big to fail. This policy seems reasonable if Bernanke's prediction--that the economy will stabilize by the end of 2009--comes true. Indeed, some banking stocks seem undervalued now that nationalization is no longer an option. Let's look at Wells Fargo (WFC), for example:

From the Treasury’s Monthly Intermediation Snapshot report, submitted January 30, 2009:

Wells Fargo maintained in Q4 2008 its longstanding policy of not originating interest only, stated income, option ARM or negative amortizing mortgage loans.

Wells Fargo has reached 94% of its customers whose mortgages are two or more payments past due. For every 10 of these customers, we have worked with seven on a solution. Of those who received a loan modification, one year later, approximately 70% were either current or less than 90 days past due.

Wells Fargo added over 400,000 new household customers in the last year.

Sounds like there's at least one big bank that will come out of this crisis stronger.

Disclosure: I own shares of Wells Fargo (WFC).

Robert Reich = The New Dr. Doom?

The Commonwealth Magazine featured a recent Robert Reich speech, where he seems to be auditioning for Nouriel Roubini's "Dr. Doom" title. Mr. Reich predicts that the unemployment rate will reach double-digits and the Dow will be "languishing around 7,050." Of course, Mr. Reich is no dummy--he conditions his predictions on a supremely vague qualifier--"without effective government action." Mr. Reich believes at least $900 billion is necessary to be effective--which isn't too far off from the $787 billion package actually passed. After almost $800 billion, it's hard to believe another $100 billion would make a difference either way.

It appears that some Democrats and some Democratic supporters like Reich and Krugman see this crisis as a way to get more money distributed to the middle class and poor. There's nothing wrong with taking that policy position, but it may explain why so many pundits are advocating for more stimulus. Even if no stimulus money reaches the mid- to lower-income classes directly, the more money the government prints, the less burdensome consumer debt becomes. In other words, assuming the poor and middle class hold most consumer debt, printing money creates inflation, which temporarily reduces a debtor's burden. Inflation, at moderate rates, isn't all bad--it reduces the value of savings but also debt, and may lead to salary increases in certain fields. If anything, resulting inflation will hurt Chinese and Japanese investment holdings the most, because they hold the most dollar-denominated assets.

Still, it's important to understand why so many Democrat-linked economists are calling for more stimulus. It's quite simple, really. Mr. Reich and Mr. Paul Krugman view the last 25 years as an unconscionable transfer of resources/income from the poor and middle class to the rich--and the numbers seem to support their conclusions, at least where net assets are concerned. Mr. Reich even coins a funny phrase for this phenomenon: "DINS--double income, no sex," to demonstrate how badly the non-rich have fared. (Mr. Reich wants us to believe the poor and middle class are so overworked, they don't have time for basic things, such as sex.) Mr. Reich ends his speech on a safe note: he says that economic recovery is "likely to be [here] in two or three years."

I disagree. My main issue is with Mr. Reich's view that the last 25 years were a terrible time for the middle class and poor. Economics is not a zero-sum game. First, although the rich have gotten richer, the middle class is now enjoying an unprecedented quality of life. To be poor in America in 2009 is to be the envy of 90% of the world's population, many of whom work for less than $2 a day. I don't need economic statistics to prove this point--you can just look at how many foreign citizens apply for asylum here every year, or who are willing to risk their lives to cross America's border.

Second, it is true that other countries have more equitable distributions of income--but almost all those populations are smaller, less diverse, and declining. In large, diverse populations, including China and Brazil, income distribution is usually heavily concentrated at the top. The most notable exceptions are Canada and Australia, which have massive stores of natural resources and smaller military budgets. Unless America becomes energy-independent and more willing to cut defense spending, income equality will probably persist. This won't be because of a conservative Republican plot--it's just that too many Americans appear unwilling to advocate for a smaller military budget and, in recent history, too willing to go to war. That's a terrible combination, because as Californians are starting to learn, you can't have it all. At some point, the piper comes calling, and the bills become due.

In fact, Democrats like Reich and Krugman are stealing a page from the GOP's playbook. In the old days, Republicans would spend trillions of dollars on wasteful defense projects and then scapegoat poor single mothers on welfare. Now, Democrats are demonizing bankers and Wall Street to divert the public's focus from their own act of generational theft (America's future generations will be paying for the recent stimulus package). So while Republicans ran up deficits to increase the military, Democrats are running up deficits to send taxpayer money to their core constituents--education, local and state governments, and unionized interests. In the end, government gets bigger under either administration--it's just a matter of where the dollars go.

Meanwhile, fiscal conservatives like me are left screaming in the dark and wondering when Ron Paul will make a comeback. I hear Estonia's a nice place for anti-war libertarians like myself (see the incredible film, The Singing Revolution, to understand where I'm coming from). I might just go on a visit and not come back till Congress learns some fiscal discipline. If I do leave, however, it won't be because I think the rich in America have it out for the middle class, or that America's poor have terrible lives--it'll be because our two-party system has failed the average American who saves money, lives modestly, and tries to create a future where American children will be better off than their parents.