Jerry Tsai on the Stock Market

Jerry Tsai, former Fidelity fund manager, on why he likes the stock market:

"It's interesting. Things are changing all the time. And whether you're black, white, Chinese, or Italian, if you buy GM and the stock goes up, you make money."

KLA Tencor Annual Shareholder Meeting (2010)

I attended KLA-Tencor’s (KLAC) annual meeting on November 3, 2010. The company offered shareholders coffee, hot tea, and pitchers of iced tea (which were surprisingly delicious). About 30 people attended the meeting. This year, the people attending the meeting were much more diverse. In fact, KLA-Tencor appointed a new director, Emiko Higashi. Kudos to KLA-Tencor for bringing her on board. President and CEO Richard Wallace led the applause when she was introduced.

President and CEO Richard "Rick" Wallace, a Santa Clara University graduate, is impressive. I don’t tend to use that word when referring to executives, but Mr. Wallace deserves every accolade he gets. He answers question directly, anticipates questions before they’re asked, has both broad and specific knowledge of KLA-Tencor’s industry and finances, and is a very effective speaker. While some CEOs are condescending and arrogant, Mr. Wallace inspires people with his down-to-earth style and substantive knowledge.

In any case, back to KLA-Tencor’s shareholder meeting. The company’s general counsel handled the formal portion of the meeting. Another employee used a fingerprinting identification module on the laptop to grant him access to the shareholder presentation. (Very nifty technology.)

CEO Wallace handled the informal shareholder presentation. The highlights:

1. KLAC retains about 95% of its employees. The most important goals are to have “fully engaged” employees as well as happy employees.

2. KLAC invested 18% of its revenues on R&D in Fiscal 2010.

3. KLAC’s large backlog provides resiliency and drives its business model. Due to the high backlog, KLAC is “well-positioned” for Fiscal 2011.

4. KLAC derives most of its revenue from its IC Foundry, Memory, and Logic end markets.

5. KLAC may use its cash flow to acquire other companies; do share buybacks; or increase dividend payouts. KLAC was the first company in its field to introduce a dividend in 2005.

6. 80% of KLAC’s customers are in Asia; it has no customers with fabs located in Silicon Valley.

7. Customer satisfaction has become a key area of focus for the company.

During the Q&A session, someone asked whether KLAC would use its cash flow to pay down debt, more specifically a $750 million bond. CEO Wallace said the terms of the bond were favorable, and he did not anticipate paying it off early.

Another shareholder asked whether R&D would continue to increase in Fiscal Year 2012. (To maintain its market share, KLAC must invest a lot of its cash flow into R&D, but it may not see tangible results until three to four years out.) CEO Wallace was pleased with this question and said he did anticipate KLAC increasing R&D in FY 2012, and the real issue was FY 2013 and how much more KLAC could increase R&D while also controlling costs. The major decisions revolve around making the right “architectural design choices.”

I asked what challenges KLAC anticipated in the future. CEO Wallace talked technological innovation and maintaining market share. (My take is that unlike Coke, which doesn’t have to innovate much, tech companies either innovate or die. The key challenge is to invest enough in R&D to prosper, but not so much to kill margins or the bottom line.)

I mentioned that Applied Materials’ CEO seems to be focusing on solar power, and I hadn’t seen a similar emphasis coming from KLAC. CEO Wallace said that as a percentage of overall revenues, he anticipated solar power product sales would be fairly small. Also, he questioned the profitability of solar power products once government subsidies are removed. (Most people don’t realize that China now manufactures most of America’s solar panels, so when the U.S. government promotes “green jobs,” it is helping to subsidize Chinese solar companies.)

After the meeting, I asked CEO Wallace what we could do to wean ourselves off of OPEC, and he said Americans would have to collectively reduce our overall energy use. He said he’s doing his part by biking to work at least 3 times a week. He also advocated insulating homes. (CEO Wallace is ahead of the curve. Several years ago, his home was built by a “green” builder who utilized recycled materials, radiant heat, a solar water heater, etc.–before green was “cool.”) America has been trying to reduce its reliance on foreign petroleum since the Carter administration, but I am beginning to think that as long as we are one of the world’s largest economies, we will continue to be one of the world’s largest consumers of foreign oil.

After the shareholder meeting, I took a short tour of the campus. Although Google gets raves about its campus and employee perks, KLAC also has a decent corporate campus. First, the place is massive–over 700,000 square feet, all owned by KLAC. Second, I saw basketball courts, volleyball courts, and other indicators that KLAC heavily promotes physical fitness (CEO Wallace rides his bike to work). Third, believe it or not, KLAC once gave its employees free iPads.

I learned later that KLA-Tencor is one of the few companies in Silicon Valley that still has manufacturing facilities in the Bay Area. KLAC handles over half of its manufacturing right here in Silicon Valley.

I will leave you with an anecdote. When I posted on my Facebook wall that I had met KLA-Tencor’s CEO, several of my friends in the technology industry hit the “Like” button. One even said, “Oh a big name from my past customer list!” KLA-Tencor appears to have a well-deserved positive reputation, and much of that is probably due to CEO Rick Wallace.

Disclosure: I own an insignificant number of KLAC shares. My holdings may change at any time.

Bonus: I was recently in San Francisco, CA, and I happened to see the Skechers USA (SKX) store. I've been intrigued with the Karl Malone and Kareem Abdul-Jabbar ads for Skechers Shape-Ups, and I wanted to check them out. I tried on the Shape-Ups, and they felt strange. The design forces you to walk from heel to toe, which promotes posture and calf muscle build-up. I would buy them for 40 or 45 dollars, but they were retailing for 110 dollars. Most of the time I was there, I was the only person in the store. I had bought a little bit of SKX stock after the recent drop in price, but after seeing the lack of foot traffic in the S.F. store, I sold all but one of my shares.

Bonus II: click on the following hyperlinks for my reviews of Applied Materials' 2008 shareholder meeting and KLA-Tencor's 2009 shareholder meeting.

Disclosure II (update on November 14, 2010): a KLAC employee invited me to the Milpitas campus after the annual meeting and bought me lunch from the company's cafeteria. (That day, I was so busy with my usual work, I did not have anything except a banana and water until around 1:30PM at KLAC.) I had two sandwiches from a self-help sandwich bar and one soda. I estimate the value of the lunch to be under ten dollars. By the time I visited KLAC's campus, I had already written the article that was eventually published. After the meeting, I changed a few sentences, primarily relating to my misuse of the term, "fabs." The correct term was "manufacturing facilities." I also removed and expanded a "Bonus" section relating to EA (a different company) and made it into a new article, which can be found here.

Dealing with Gov Corruption and Santa Clara County

I appear to have written this in 2010 or 2012.  I am publishing it on November 10, 2015.

Here is a hilarious and useful article on dealing with government shakedowns:

http://killingbatteries.com/2008/05/how-to-escape-a-bribe-shakedown-perpetrated-by-greedy-moldovan-swine/

All governments seem to have corrupt members, although differences exist in the degree and type of corruption. Why do governments have such difficulty eliminating corruption? Because government officials are backed by laws; laws confer power; and power tends to corrupt on some level.

Power Should be Limited when Objective Measures of Performance are also Limited

When I was younger, I believed judges and other government officials were uniformly intelligent and moral beings. Unfortunately, experience has taught me otherwise. Courts, police departments, and other government agencies are still subject to the rule of averages--there will be many people who are average, a few who are very good, and a few who are very bad.

Government agencies tend to have more bad employees because it is hard to judge someone who produces nothing tangible. You can judge a salesperson, surgeon, taxi driver or lawyer using many objective metrics--sales, financial well-being, customer satisfaction, number of accidents, etc. But how do you evaluate a police officer, government lawyer, teacher, or judge? It's much more complicated, because there isn't an obvious objective metric. For example, a good teacher could have terrible students, a bad teacher could have wonderful students, Cop A could have fewer complaints than Cop B but Cop B could still be better, etc. Remembering that power tends to corrupt, the general idea is to minimize power where possible, especially when performance is difficult to measure. (Unfortunately--or perhaps fortunately--most Americans haven't had sufficient contact with government officials to truly understand the aforementioned principle.)

Yet another problem with government officials--besides the power and objective evaluation issues--is that they are used to deference. Spending your day-to-day life being deferred to must have some effect on people. From what I've seen, receiving constant compliments and deference results in a gradual and permanent aversion to people who fail to genuflect socially. Such a result is not optimal, because the more government officials rely on deference, the more likely it is that kowtowing becomes the pathway to success, not merit. We will revisit this idea later on.

Santa Clara County might be a good example of the "Compliments Over Merit" principle. First, the level of inbreeding--i.e., family relations--is astounding. Several judges are married to each other or other county/city employees. This inbreeding means the entire family unit experiences constant deference and virtually no criticism. Is a societal/class/professional bubble welcome when judges have so much power and deal with diverse parties? After all, so much law turns on credibility. When judges are surrounded by sycophants and non-diverse coworkers, what is the result? When weighing testimony, are judges going to disfavor someone with an accent? Will judges be able to understand that an older Filipino person will probably agree with every single statement offered by them, regardless of actual veracity? Does being surrounded by zero African-American, Pakistani, and Filipino persons in power create a subconscious bias? Is one race or class unintentionally favored over others? We don't really know, because the level of transparency in the court system is essentially non-existent. (When I tried to increase transparency as a County Commissioner, the Presiding Judge apparently shot down my idea, claiming it would take up too much time and resources. My idea would have taken only a few minutes a day to implement.) In any case, it's fair to contend that the Santa Clara County Superior Court has a higher-than-average level of inbreeding in its upper ranks and little racial diversity. Why should we care?

For one thing, Santa Clara County Superior Court has so few minority judges, you have to wonder what it's like to be a minority in a place that resembles an Orange County country club. As of June 8, 2010, in the main civil courthouse, only two out of the seventeen judges were non-white (another three are Jewish). Also, of the seventeen main civil judges, only four are female. You might think such non-diversity is shameful in a county that is around 40% immigrant and presumably at least 48% female, but it turns out that the white male Irish-American judges--all of them--are the hardest-working, most predictable judges (I'm not saying they are the best judges, but they are consistent, work hard, and follow the law, which means a lawyer can tell his/her client whether it is cost-effective to do x or y). Moreover, the Caucasian/white judges are, by and large, quite good. The following judge is retired, so I will mention him by name--Judge Alden E. Danner, for example, went out of his way to assist me when I submitted an accommodation request for my hearing impairment. He didn't have to do anything for me, and if you believe new age liberals, you wouldn't think that a conservative white male would be overly helpful to someone like me, but Judge Danner was instrumental in my ability to practice law.

In contrast, the two most pompous and unprepared judges I've encountered happen to be non-white males. I have struggled to discover the reasons behind this phenomenon, and I think I've finally figured it out: basically, affirmative action has failed because affirmative action allows the majority to elevate minorities based on charisma or some other social factor, not merit. Meanwhile, the majority race--lacking an approved legal path to elevate members based on factors external to merit--elevates their own members using merit and intelligence, creating a gap in quality between racial minorities and racial majorities. [Note: I've noticed that local Latino judges tend to be independent and intelligent. There's one particularly cool, smart judge I've nicknamed, "The Messiah." I attribute this phenomenon to the fact that Latinos have sizable numbers and political representation in San Jose and Santa Clara County. As such, they may be racial minorities, but not necessarily powerless minorities, which creates a welcome exception to everything I'm writing in this post.]

Affirmative Action Results in Cloning Different Colors of the Same Culture

Why does affirmative action tend to work against independent, extremely intelligent minorities? A minority who works hard and shows an independent streak may show up his/her colleagues, which places him/her at a disadvantage when it comes to being hired. Who wants to hire someone who might show him up? In contrast, a minority who sucks up to the majority will be favored by the majority, even if s/he has fewer credentials. Thus, rather than help the best minorities get ahead, affirmative action seems to help undeserving, compliant minorities at the expense of hard-working, independent minorities. If my theory is correct, then affirmative action represents the worst of all possible worlds--it punishes hard-working minorities and elevates undeserving minorities, which causes all racial groups to be resentful.

Of course, there are exceptions to my theory, but even these exceptions prove that when the majority uses affirmative action to hire someone, they opt for a clone, not real diversity. For example, regardless of how you view him, Clarence Thomas is an example of an independent minority because his views differ from the majority of his own race. At the same time, his views are a clone of the person who nominated him, i.e., President George H. W. Bush. Thus, even when affirmative action results in the hiring of an independent racial minority, such independence tends to have a caveat: conformation to the racial-majority's views and culture.

[By the way, law clerks are a different breed--they have to produce something--accurate legal briefs and decisions--and so the above generalizations don't apply to them. Also, I've noticed that some of the best law clerks in Santa Clara County Superior Court happen to be Asian, which makes it strange to see so few Asian judges here. (As of June 16, 2010, only one of the main civil courthouse judges is Asian).]

To understand why affirmative action might be a terrible idea, we must think about how racial minorities function when they are surrounded by a single racial majority. A minority surrounded by a majority will automatically stand out, so s/he has to be non-threatening to succeed. One way to do that is to make jokes, have a sense of humor, and adapt as much as possible. It shouldn't be surprising then, that several judges may have shimmied their way to the top through charisma and playing the clown with colleagues. These judges tend to believe in kowtowing--that's how they've survived in their own jobs, and they probably believe what's good for the goose is good for the gander. In short, when racial minorities are placed in a non-diverse environment, they favor survival over everything else. As such, they tend to try to avoid a situation where they lose face, because while a majority-race judge will get the benefit of the doubt, it's possible the minority-race judge will not. Thus, to many minority-race judges, anyone who fails to show deference is viewed as a threat. You can almost hear the internal subconscious dialogue: "Who does this person think he is? I had to kowtow (or fit in) for years and conform to get to this position, and now he's challenging me?"

When I've seen lawyers fight for clients--which sometimes means disagreeing with a judge--the majority-race judges tend to take this opposition in stride. One judge--we'll call him the "Scandinavian Stud"--even tries to help out younger, more aggressive lawyers who disagree with him by starting out sentences with, "As you know, I can't give you legal advice, but..." However, two minority judges--both of whom are married to current or former government employees--tend to take any opposition as an insult. A failure to suck up tends to trigger the following subconscious response: "All right, you want to oppose me, I'll show you who's boss..."

I'm not saying some majority-race (i.e., white) judges don't have the same response. In one case, when I made a comment about African-American Oscar Grant, a white pro-police judge immediately got red-faced and combative. (More on this police-judicial connection later, but you can click on this LINK if you're interested in how this connection can affect justice in the court system.) Overall, though, I tend to notice race-minority judges being more prickly and demanding of deference.

Now, why should a subconscious, unintentional, and systemic issue of deference be a problem? Doesn't deference promote workplace harmony? First, all societies and systems do better when some criticism is encouraged. People improve through criticism, not false deference. (Didn't we all read the fable of "The Emperor's New Clothes"?)

Second, the kowtowing system disfavors hard-working minorities. If you're a minority who doesn't want to kowtow to the government or your colleagues, and you care more about working harder than fitting in, then you're out of luck. The majority-race judges are used to minorities who will adapt and fit into their culture, and God help the minority-race person who tries to do things differently.

Third, the whole point of affirmative action (AA) is to increase diversity and make minorities feel comfortable despite their lack of political representation and power. In theory, the majority benefits by showing its tolerance and also by gaining alternative viewpoints and experiences. However, if I am correct--that affirmative action favors charismatic and social minorities over more hard-working and independent minorities--then the aforementioned benefits do not exist, because AA produces under-performing clones of the majority. Under my theory, we could put some black makeup on a few majority-race employees and get the same result as our current AA programs. In short, as long as the majority is choosing who is hired or promoted based on AA, the benefits of AA are dubious.

Citizens Should Favor Ideological Diversity over Race-Based Diversity

Don't get me wrong--we shouldn't completely disavow AA. If AA leads to useful diversity, not cloning, then it makes sense. As it stands, many judges are elected by special interest groups--thereby reducing ideological diversity--which means residents and voters should seek useful diversity. In Santa Clara County, the county sheriffs and city police have tremendous influence over judicial elections. Remember our recent election? Almost every winning judicial candidate mentioned an endorsement from some public safety officer union. Since most residents are unfamiliar with the local court system and its members, they tend to rely on endorsements when voting, which provides police officers with disproportionate influence over judicial selection. As a result, the state judicial branch--which is supposed to check the executive branch, i.e., the police--no longer has the sufficient diversity to challenge the police. In fact, the public safety unions--the police officers, firefighters, and prison guards--have so much power in Sacramento, they have even affected the independence of the legislative branch. From an ideological perspective, real diversity in government seems to diminish with each passing day. If AA promotes independent thinkers and outsiders--a term that can sometimes be equated with minorities, though not always--then it serves a useful function. If, however, AA produces clones of the majority, it is not helpful to anyone and serves merely to reinforce the existing culture and majority.

You want one obvious example that AA doesn't promote the best minorities? The only African-American federal judge in San Jose, California  [as of 2010] may have lied about his brother being targeted during civil rights strife in the South. Even though the judge's lie was discovered, [as of 2010] he is still on the bench, and until a few weeks ago, he was surrounded by no other local judicial minorities--all of his colleagues in federal and bankruptcy court were part of the racial majority power structure (or look like part of the racial majority or power structure), and all of them are really good judges. (One of them, a white male judge, is probably one of the best judges in the entire country. I refer, of course, to Judge Jeremy Fogel.) Of course, the federal bench has several white judges who do "interesting" things and manage not to be singled out.  Clearly, the "prickliness" factor is not limited to racial minorities, but because racial minorities stand out more, their behavior gets noticed more, which reinforces an awful cycle of "respect ma authoritah!" (You may think I am being hard on racial minorities, but if you read carefully, you will notice I am not being hard on minorities--just affirmative action. All entities have good, average, and bad employees.)

What makes the AA selection process even more problematic is that hired minorities harm other minorities by promoting a culture of deference and the status quo, not true diversity. As such, if the majority gets out of hand due to a lack of cultural knowledge, there is little luck that minority co-workers will be able to rein in the majority. If anything, minority co-workers promoted via affirmative action may lead the charge against independent minorities in an effort to fit in and promote the status quo. As Shelby Steele states, "Such policies have the effect of transforming whites from victimizers into patrons and keeping [minorities] where they have always been--dependent on the largesse of whites." What then, is the use of having racial diversity if it is being achieved in a way that discourages useful diversity?

Are Social and Subconscious Racial Preferences Inevitable?

One judge has commented that lawyers are more social than other professions, implying that lawyers should understand that social activities and connections do not impact decisions and culture in the courthouse. I call shenanigans. When I see a judge hugging a lawyer in Starbucks, I get upset. When I see more experienced lawyers--who lack civility but get respect from the judges based on tenure--I get upset. When I see a judge being Facebook friends with active lawyers who may appear in front of him, it makes me upset. This web of social ties causes some judges to rely on reputation rather than the papers/briefs when it comes to evaluating testimony and deciding whether to overturn a law clerk's draft.

Think about it: social ties and inbreeding lead to gossip, and gossip relies on hearsay, which is usually unreliable and which corrodes the "fairness for all" legal system. Why read the briefs if you know the lawyer from your days in law school? Why bother checking the case citations if most cases settle anyway? Are you really going to contest a lawyer's interpretation of the law if you know he plays poker with a friend?

Social ties are fine for private sector workers who need to sell things and make things, but government employees cannot help but favor people they see on a regular basis. Most government workers don't produce anything tangible or measurable, so their success is measured primarily by reputation. Naturally, then, as in the private sector, someone who smiles and sucks up to them will be favored over someone less social. The solution isn't to blame an introverted lawyer or a non-conformist lawyer, but to work harder to rely on objective data when making decisions about courtroom culture and to increase transparency. Do certain judges rule against minorities more than other judges? Do certain judges favor corporations over individuals? We don't know. No statistics are kept on such issues. Useful transparency doesn't exist in the local court system. (Why do written pleadings even have the name of the lawyer or firm on them? Can't a system be developed to track the papers based on numbers or some other non-identifying status? Most legal opinions at the trial court level are written before lawyers appear at court hearings.)

Diversity can be excellent in terms of production and innovation, but it also creates challenges and leads to volatility. Legal systems ought to ensure that government employees, especially judges, do not attack or disfavor non-conformists, especially when such non-conformists are not part of the majority-race.

Our current legal system in Santa Clara County is flawed for many reasons, including a culture that crushes non-conformity. When a non-conformist understands the legal system is flawed, the natural response is to avoid the system--not to suck up to it. Also, when one judge physically intimidates a lawyer, and another judge lies to his face--and both of these judges allow unfair speculation to run rampant and allow their colleagues to unfairly suffer collective punishment--more social ties aren't the answer. Lawyers and residents should be able to rely on judges being fair and impartial, regardless of social ties. Oftentimes, the best people to expose cracks within the system are part of the system and cannot openly speak out; consequently, government entities should implement self-correcting measures before problems affect an entity's or person's reputation. As we all know, courts rely on their reputation to maximize compliance with judicial orders and judgments.

If Santa Clara County Superior Court fails to recognize its lack of useful, consumer-based transparency; its inbreeding problems; and its absence of independent minorities, the court's reputation will suffer. Once lost, a reputation is difficult to regain. One can only hope that the Presiding Judge and her colleagues understand what is at stake.

Immigration Statistics

The right-wing Center for Immigrant Studies has a very interesting 2007 study here. Some excerpts:

"The vast majority of working-age illegals work. In fact, we estimate that 92 percent of illegal-alien households have at least one person working. This compares to 73 percent of native-headed households. "

"The primary reason for the high rates of immigrant poverty, lack of health insurance, and welfare use is their low education levels, not their legal status or an unwillingness to work."

"While immigrants overall are not more entrepreneurial than natives, immigrants from such countries as Korea, Iran, Italy, and Vietnam [and Poland] are significantly more likely than natives to be self-employed."

Critical Factors in a Child's Academic Success

If we want children to succeed academically, we should focus on the most critical factors in a child's environment:

1. Low child poverty rates (as measured by school lunch subsidies).
2. Low divorce rates, i.e. stable homes.
3. Healthy kids (adequate access to health care).
4. Educated adult populations (which usually leads to higher income levels)

(More here.)

None of the above factors has anything to do with teacher salaries, education funding, testing, evaluation methods, or anything else on the teachers' union's agenda. I'm just sayin'.

Bonus: "For more than 40 years, ever since the publication of the Coleman Report, the key variable when it comes to educational achievement is parental involvement; all other factors--money, class size, choice and competition--are peripheral. Over those same forty years, parents have had to work harder to get by--two, three jobs in many cases--as good paying manufacturing jobs vanished. And, over that same period of time, the impact of crap culture--the Jersey Shore-ization of American Society--has increased exponentially." -- Joe Klein, "School Shock," Time magazine, November 9, 2010

Major City Hell?

This blogger sums up the reasons Gen Y has a harder time reaching the "adult" benchmarks of previous generations:

Boyfriend & I have had many discussions about the fact that New York is a short-term place to live. It's for young singles who like to party. It's for businessmen in their 20s who want to drink and bone and work on Wall Street 14 hours a day. It's for liberal women who have sworn off marriage and kids and simply want to make sweet love to their professions. But as you approach your 30s, you may begin to see New York in a different light. Most people start to see the city as an abusive boyfriend: It treats you like sh*t, steals all your money & wears you down to a little nubbin, but you keep running back because you love it and believe it will change.

More here. When houses in average school districts cost 500K+, it's very, very difficult to think about starting a family. Throw in the fact that money woes are the primary cause of breakups, and we have a perfect recipe for delayed childrearing.

Politics (Total Speculation Edition)

Marco Rubio and Robert Gates. Are they the GOP Dream Team for 2012's Presidential Election?

Total speculation, bonus round: I think Hilary Clinton will be running as the 2012 Democratic nominee for President. One deal might be that if she wins, she would nominate President Obama for the Supreme Court.

Review of SCU Broncos v. CSU Maritime (11/5/10)

I saw the SCU basketball team play an exhibition game against CSU Maritime on November 5, 2010. Here is my review/scouting report:

1. #24 (Julian Clarke) can shoot treys very well; however, like most gifted shooters, he seems too trigger-happy. He also needs to move more on offense instead of setting up in the same spot. Once opposing teams learn about him, his usual moves may not be enough to get him open.

2. #12 (Robert Smith) is an excellent PG, and we are lucky to have him. He is clearly the most talented player on the roster.

3. #3 (Chris Cunningham) is a great inside presence, but SCU's style of play is more up-tempo compared to recent years. As a result, the team had difficulty feeding the ball inside. The failure to utilize #3's skill set was very, very disappointing.

4. Unless #13 was injured or sick, the coach should think about reducing his minutes. He didn't seem comfortable on the floor, and #0 (Evan Roquemore) should be getting his minutes.

5. #10 (Ben Dowdell) hustles. His energetic play, including diving out of bounds for loose balls, seemed to turn things around for SCU.

6. #21 (Kevin Foster) will be the x-factor. He is blessed with an excellent wingspan and incredible athleticism, but seems a little raw.

Overall, we have a good chance of beating Gonzaga this year, as long as we learn to feed the ball inside to the big men, especially #3.

My preferred line-up:

PG Smith (sub: #0 Roquemore)
SG Foster (sub: #24 Clarke)
C Cunningham (sub: #25 McArthur)
PF Trasolini (sub: #10 Dowdell)
SF Troy Payne (sub: #44 Atanga)

California Post-Election Summary

The LA Times' Cathleen Decker writes an excellent post-election summary for California. I've been telling everyone that the GOP cannot appear to be anti-Latino and win any presidential election or any other election that counts California votes. Ms. Decker lays out why the GOP is doomed unless it changes its whitebread ways:

California in 1994 was more white and proportionately less Democratic than it is today, thus more similar to the country today. Nationally, non-whites made up only 22% of the Tuesday electorate; in California they made up 38%. Latinos nationally represented 8% of the national electorate, just shy of a third of their power in California. The California and national exit polls were conducted by Edison Research for a consortium of news organizations, including television news networks and the Associated Press.

Tellingly, Latinos in California had a far more negative view of the GOP than other voters — almost 3 in 4 had an unfavorable impression, to 22% favorable. Among all California voters the view of Republicans was negative, but at a closer 61% negative and 32% positive. Latinos had a strongly positive view of Democrats, 58% to 37%, whereas all voters were closely split, 49% to 45%.

The best part? State Republican Party Chairman Ron Nehring: "The reality is that Democrats have strong relationships with urban and immigration communities that Republicans have not had, and that must change," he said. "It is not only a matter of politics; it is a matter of mathematics." More here.

Bonus: Ken's take on the elections here. An excerpt:

On Russ Feingold: To paraphrase Homer Simpson, I like my beer cold, my TV loud, and my Democrats FLAMING. Democrats ought to distinguish themselves from Republicans by supporting the rights of the accused, opposing military adventurism, and resisting the encroachment of the post-9/11 security state. If they don’t, they are just sh*tty second-rate Republicans with less of a pretense of fiscal responsibility.

On Oklahoma's Sharia Law Stupidity: Oklahomans took a strong stand against having Sharia law imposed upon them. As far as I can figure, the only way you can have Sharia law imposed on you is if at some point you consented contractually to having it imposed on you. Meanwhile, my plaintiff-side clients still routinely get binding arbitration imposed on them, which makes Sharia law look like an appearance before Judge Harry of Night Court. Maybe the idea is you can contract away your right to anything resembling due process only if it’s in front of irritable retired judges in really expensive office suits, not if it involves weird robes and ululating and stuff.

High Unemployment Leads to Pogroms?

"Bear markets of sufficient size appear to bring about a desire to slaughter groups of successful people. In 1793-1794, radical Frenchmen guillotined countless members of high society. In the 1930s, Stalin slaughtered Ukrainians. In the 1940s, Nazis slaughtered Jews. In the 1970s, Communists in Cambodia and China slaughtered the affluent. In 1998, after their country's financial collapse, Indonesians went on a rampage and slaughtered Chinese merchants."

-- Bob Prechter, Wave Principle of Human Social Behavior, p. 270

Do Progressives Believe They are God-Like?

Many modern human beings do not believe in God or disagree with the idea of a higher power who has the ability to change the world. Once someone denies the existence of a higher power, s/he is left to rely on other human beings to implement change. Standing alone, an individual cannot produce wide-ranging, substantial change unless s/he is exceptional (e.g., founders of Google, etc.).

However, most of us are not exceptional. Therefore, most people who do not believe in a higher power rely on groups of people to create change. In practice, groups of people solicit their government to implement change via government programs. In short, modern human beings seem to have replaced God with man-made governments.

The idea of God required humans to be beneath a higher power and to accept certain limitations; in contrast, the idea of government as a change agent places human beings in a similar role as an omniscient or omnipotent God.

David Walker on Unnecessary Spending

David Walker, on the Pentagon's demands for unnecessary military programs:

[M]oney spent on items that represent wants rather than true needs is money robbed from systems that actually are needed.

Too many Americans can't differentiate between "wants" and "needs."

Mr. Walker has a book, Comeback America. The chapter on military spending is a must-read. More on the military here.

Simple Truths: Iran

Truth #1. Why are American troops still in Iraq and Afghanistan? Because if they leave, Iran will fill the vacuum.

The greatest beneficiary of America's war against Iraq has been Iran. We made a mistake attacking Iraq after 9/11, and in doing so, we did Iran a favor by removing Saddam Hussein. Sadly, the invasion did nothing to increase our own safety, because there has never been a substantial connection between 9/11 and Iraq. Thus, the short-term results of Bush II's Iraq war are that thousands of American soldiers have died while Iran's influence has increased; and we have spent trillions of dollars invading a country that did nothing against us. However, we can never admit such profound folly, so the U.S. is determined to ensure that our initial mistake--invading and occupying Iraq--does not compound itself. Allowing Iran to install its own power base in Iraq (or Afghanistan) would compound our initial mistake, and the U.S. is doing whatever it can to stunt Iran's influence. 

Why would Iran care about Iraq, and why would Iraqis care about Iran? Muslims are typically either Sunni or Shiite/Shia. Within Iran, almost all Muslims are Shiite--just like the majority of Iraq's Muslims. Outside of Iran, however, almost all Muslims are Sunni. In fact, Iran is surrounded by Sunni Muslim countries like Saudi Arabia, Pakistan, etc. If Iran is able to extend its influence into Iraq and make Iraq an ally, it would finally have a Shiite neighbor. From an American perspective, the more Iran's neighbors are friendly with Iran, the more difficult it will be to stunt Iran's influence. (Now might be a good time to remind everyone that Iran contains the world's second largest natural gas reserves and third largest petroleum reserves.) 

To minimize Iran's influence, the United States has been helping paint Iran as a rogue nation. Basically, the United States government has been releasing information to create support for an attack against Iran if Iran continues to extend its influence over Iraq. For example, at one point, Yahoo's homepage showed a picture of a new Iranian bomber drone almost the entire weekend. Despite the fact that Iranians are model citizens in the United States (look up who founded eBay), you will almost never see the word "Iranian" in a story without some negative connotation. The media's quest to dehumanize Iranians is in full effect. (One can't have a war without first making the enemy into "the Other.")  

The real issue is the extent to which Iran has the capacity or willingness to attack American soldiers or Americans. A country that has been around for 3000+ years probably doesn't have a death wish. Even if it did, and even if Iran managed to get nuclear weapons, it still needs to transport them effectively. As North Korea's failed missile tests demonstrate, it is much easier to make a weapon than it is to deliver it accurately. Overall, it is hard to believe that the Iranian government would be capable or stupid enough to directly attack any American soldier or civilian. Even when the Iranian government has captured American civilians or possible CIA assets, it tends to return them unharmed. (This pattern holds true in the capture of the American embassy in 1979 as well as the more recent American hikers, who were arrested when they entered Iran without proper authorization.) However, if the current Iranian government extends its influence over Iraq and Afghanistan, it may use sections of these countries as proxies or buffer zones. In other words, doing nothing would allow an extension of a government hostile to American interests, and therein lies the problem. 

Ironically, without Saddam Hussein to keep the Iranian government in check, the Middle East has managed to become more complicated. Under Saddam Hussein's Iraq, the Ba'ath Party dominated politics. The Ba'ath Party was secular, not Muslim. By killing a secular leader, we allowed more religiously-committed factions to spread their influence over Iraq. Any American who thought invading Iraq and toppling Saddam would show "those Muslim terrorists" is misguided. Maybe next time, we'll do more research and question our government when it tells us war is good. 

Bonus: most Americans don't remember the Iran-Iraq War, but back in the 1980's, Saddam Hussein waged a bloody war against Iran and used chemical weapons against Iranians. I bring this up to remind Americans that Saddam Hussein was once our friend--and Iran's worst enemy. By removing Saddam Hussein and not achieving broad consensus on a rebuilding plan (such as the Marshall Plan), we've managed to create more problems, and this time, war won't be quite as simple. Unlike Iran, Iraq was never a tightly-knit, sovereign state. In fact, modern-day Iraq is basically a post-WWI British creation. In contrast, Iran has been together for 3,000 years and has never been occupied by a foreign power. I doubt Bush II's White House properly considered the downsides of invading Iraq. The American people were stunned by 9/11 and needed a show of force. They got one, and we're still dealing with the consequences years later. 

Conclusion: the only way America can claim a victory against terrorists is if it eradicates the Taliban and al-Qaeda. The Taliban and al-Qaeda are in Pakistan, Yemen, Somalia, and parts of Afghanistan. The Iranian spectacle is just a side-show of our own making.

Europe v. America

A European/Belgian friend and I were discussing the lost art of friendly debating. Here are his thoughts on why Europeans are better able to have substantive discussions than Americans:

From my perspective, and based on my experience, Americans tend to be far more focused on judging people than trying to understand and appreciate them. Besides it being an insurmountable threshold to creating a community and meaningful relationships or friendships, it also makes them incapable of discussing any complex issues abstractly, especially if social norms and/or emotional reactions are involved. Furthermore, in the U.S., everything seems to be associated to some form of social norm which basically reduces any interaction to the equivalent of a discussion about the weather.

As I see it, people are isolated here, and incapable of transcending themselves, their relationships and their cultures, virtually creating a prison for themselves. The hole and emptiness this creates inside needs to be reinforced by 'same-minded' people and creates a co-dependent society of 'yes' people where they interchange their sadness by pretending to adhere to social norms for each-other...in other words, our culture is nothing more than a collective delusion creating a sick form of normalcy through a cult-like enforcement of norms and values.

Interesting observations. Cheery fellow, isn't he? :-)

What Governor Schwarzenegger Accomplished

When you vote on November 2, 2010, remember three things: 1) absolute power corrupts; 2) much of our country's success is due to checks and balances; and 3) Governor Schwarzenegger, a Republican, accomplished quite a bit in recent budget negotiations:

It is often said that politics is the art of compromise and, let me tell you, this is exactly what this budget is -- it's compromise, where everyone came together. As you know, that we Republicans wanted to make cuts of more than $12 billion. Democrats were talking about borrowing billions of dollars or raising taxes of billions of dollars. Well, we all gave something up in order to get to that sweet spot of compromise.

Our final budget solution, therefore, can be broken down into three pieces. First of all, let me just go through the numbers:

• $7.4 billion in cuts,
• I will also be using my blue pencil to cut an additional $965 million.
• Then there's $5.4 billion in federal funds,
• $5.5 billion in fund shifting and other revenues.

When it comes to cuts, we were able to protect, of course, some of the key priorities:

• Number one, we protected education, kindergarten through 12th and we funded it at the same level as last year,
• Higher education will actually receive a $1.2 billion increase,
• Number three, we protected the budgets of our public safety men and women,
• We protected foster care services and even extended those services from the age of 18 to 21,
• And we ensured that our most vulnerable citizens can continue to have access to health and human services programs.

What would have happened without the threat of a GOP Governor's veto? How many more billions would we have borrowed?

Jess Walter: Financial Lives of Poets

I usually don't read fiction, but the title of Jess Walter's Financial Lives of the Poets intrigued me. Poetry and finance? I couldn't resist. So far, it's an easy, fun read, and I just wanted to share some fun paragraphs from the book (page 71, trade paper):

At my mid-sized newspaper, the soul-disabled publisher scoured the various newspaper chains until he found the perfect budget-hacking delusional jargon-monkey, a man driven out of every crappy newspaper he ever ruined...

Like any tyrant worth his sadism, M---'s first move was to force out any managers who might disagree with him, and his second move--right out of the Khmer Rouge playbook--was to target and demote any intelligent people left who might question his propaganda...

Oddly, M--- seemed to have no real interest in the city his newspaper was supposed to cover; his only passion was the business itself, a thing he called newspapering, and he constantly made us all uncomfortable by professing a creepy, nostalgic love for this made-up word, a love he seemed to mainly show by wearing a '40s-movie fedora and getting weepy whenever he reflected back on the fourteen months he spent as a libelous reporter waterboarding the English language. "The man loves journalism the way pedophiles love children," we used to say.

Like I said, a nice, quick read.

California Teachers: Do They Make Enough Money?

I am so tired of dealing with Californians who don't know basic facts about their own state. Below is a discussion I've had more times than I'd like to count. It demonstrates the strange situation we have in California, where voters view strong and powerful entities--like government and teachers' unions--as victims in need of more support.

Jason: [makes a pro-Jerry-Brown comment. Mr. Brown is a Democrat in a state where Democrats have controlled an almost uninterrupted majority in the state legislature for decades.]

Lawyer: Voting for Brown means a vote for political uniformity, i.e., Dems in White House, Congress, CA legislature, and CA governor's office. When was the last time total power led to good results? Vote for Meg Whitman and support political diversity. I know she's not anywhere close to perfect, but aren't you concerned about maintaining real checks and balances?

Jason: when has complete gridlock led to anything?

Lawyer: there was temporary gridlock because the Dems wanted to pass a budget without including important reforms. For example, is pension reform important to you? If so, having a Republican in the Governor's office helped reform pensions. See here: http://gov.ca.gov/speech/16158/ [Update: link has expired. Former Governor Arnold Schwarzenegger negotiated pension reforms before leaving office.]

A Republican in the Gov's office means that it may take us longer to pass a budget, but once it passes, the budget is likely to include more spending cuts than tax increases. 

Castagn: "A Republican in the Gov's office means that it may take us longer to pass a budget, but once it passes, the budget is likely to include more spending cuts than tax increases."

So it will take longer to pass an even crappier budget than we usually get? Sign me up. I certainly feel that we need to cut school funding and social services a bit more rather than fund them adequately.

Lawyer: you think 37 to 60 billion dollars each year isn't enough for K-14 funding? (By the way, 80 to 85% of that money goes into the pockets of teachers and other school staff. More here--you need to click on the "Teachers in California" link.) [Note: at some point, the link may become outdated because of updates to the Ed-Data website. As of July 4, 2011, however, the link to the "Teachers in California" January 2010 edition states, "Although there is some variation, expenditures on salaries and benefits for all employees typically make up 80 to 85% of a district’s budget, with the bulk of it going to teachers." Also from the same page: "In 2008-09 California’s teachers were predominantly white (70.1%) and female (72.4%), quite a different look from the student population that was 51.4% male and had major ethnic categories of 49.0% Hispanic, 27.9% white, 8.4% Asian, and 7.3% African-American."]

Also, by law, a set percentage of general fund revenues must go to K-14 education (see Prop 98 and the California Constitution). There is not much either a GOP or Dem governor can do about that percentage. [Update: in 2011-2012, Gov. Brown proposes to spend about 42% of California's entire state budget for K-12 education. That apparently translates into about 55% of general fund revenues, which doesn't include the state's bond/interest payments. It also doesn't include additional funding sources, such as the federal government (11%) and local property taxes (21%). (See here.)] You are entitled to your opinions, but not your facts. To learn more facts, check out this link: http://willworkforjustice.blogspot.com/2010/09/teachers-unions-running-california.html

Jefferson: are you saying that teachers are overpaid? BTW, blogs are not good sources for "facts" as they are one person's opinions.

Billy: [Note: no one responds to this comment] Regarding California's unfunded pension obligations:

http://www.stanford.edu/group/siepr/cgi-bin/siepr/?q=%2Fsystem%2Ffiles%2Fshared%2FGoingforBroke_pb.pdf

This is the same issue that quite a few European govts are grappling with (lately the mess in France has been getting a lot of coverage). Namely, these generous pension systems are unsustainable:

"The study concluded that the state’s unfunded pension liability has topped half a trillion dollars – six times the present state budget.

Put another way, future California taxpayers are going to be on the hook for more than $500 billion simply to make up the difference between the pensions we’ve promised to today's state workers and the money we’ve invested to pay for them.

That’s tax money that will have to be shelled out before a nickel is spent on the public services of the future."

Lawyer: every statement at the link is supported by objective evidence. Once again, you are entitled to your opinions, but not your facts. Fact: "According to the CTA's parent union, the National Education Association, California teachers were the nation's top-paid, with $64,424 average annual salary in 2007-08."

[Update on 6/20/13: according to the non-partisan Legislative Analyst Office  as of 2011, "California has the highest average teacher salary [$66,064 in table for CA; $53,168 for U.S.] of any state in the country but also has among the highest numbers of students per teacher. California ranks 31st in per pupil spending. California ranks almost last in student achievement."]   

After about five years of experience, many--not all--teachers in the Bay Area make around 65K to 70K. In addition to receiving a middle-class salary, most teachers receive generous benefits such as job security and pensions (and in some cases, lifetime medical benefits). Such benefits can add up to hundreds of thousands of dollars over the course of a teacher's career.

New teachers--who have less than five years experience--are underpaid because we spend billions of dollars each year paying teachers who no longer work, i.e., retired teachers. Our current teacher compensation system is back-loaded, where retired and older teachers receive the majority of benefits while newer and younger teachers must wait in line to catch up.

Jefferson: I didn't present any facts, just questioning the neutrality of the source, so please save your 'you are entitled to your opinions, but not your facts' spiel.

I would like to see where your 'most teachers in the Bay Area make 70k after 5 years' claim came from. Your 'factual' blog states, "As a result, many new teachers quit within five years." Why would they quit when they are on the verge of a huge payday? If you stick it out for 5 years you'll be set for life it seems.

Is $64k a year that unreasonable for the California? We have one of the highest cost of living in the nation. Maybe $64k is high for the central valley but it's below median for SF, San Jose, or any larger Cali cities.

Lawyer: 1) the $65 to $70K (approx) annual salary number is based on publicly available information;

2) if the teachers' unions admit that the average salary in the entire state--including data from the Central Valley--was 64K three years ago, it's not difficult to see that COLA would put the average Bay Area teacher's salary around 70K; and

3) I didn't say 64K or 70K was "high." I said it was reasonable, especially when factoring in benefits such as job security, lifetime medical benefits (in some cases), and pensions.

4) the NEA claims that half of all teachers quit within five years: http://www.washingtonpost.com/wp-dyn/content/article/2006/05/08/AR2006050801344.html

The additional and gradual salary increases after five years don't seem to make up for the realization that teachers' unions tend to focus on retired and non-working teachers. As I said before, the teacher compensation system is back-ended, which harms younger and newer teachers. The unions' excuse is that we don't pay teachers enough money, but they are unwilling to sacrifice anything on the back end to help newer and younger teachers. Instead, they want to raise taxes to maintain their back-ended compensation system while using younger and newer teachers as props in budget negotiations.

I also think many teachers go into teaching with unrealistic idealism and are confronted with sobering reality. The reality is that much of academic achievement is based on the kind of parenting received by children before they enter 4th grade, not to mention parental income and education levels.

Jefferson: this is the reply from a friend who IS a teacher in the bay area regarding the claim that 5-year teachers in the bay makes $75k and gets "generous benefits such as job security, pensions, and lifetime medical benefits."

"So NOT true. I get no medical benefits in Fremont. I don't pay into social security so I get no social security benefits when I retire. And I have been working for 10 years in the same district and I still do not make near 75K. Believe me. All of that is b*llshit."  [Note: in some cases, if a California teacher works longer in the private sector than in the public sector, s/he may collect both a pension and Social Security benefits. For example, a teacher could work 10 years in a public school system, then work in a private school for 15 years, eventually collecting both pension and Social Security benefits.]

Lawyer: what school district does she work for, what grade does she teach, what is her education level, and what is her exact job title? Please see below for salary information copied from Fremont's own website:

http://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxiZXR0ZXJmcmVtb250dW5pb258Z3g6YzZiY2Y1ZjhlYWMyNTU4

Look at salaries for mid-range teachers in Fremont High: $78K.

Jefferson: She works in Fremont, that's all I'll going to say to protect her privacy.

I also have other friends who are bay area teachers. NONE of them live the life that you described ($75k+ salary, lifetime medical benefits, pension, etc.). Besides all that, the work environment sucks. Unlike you and me who answers to one level of management, they answer to administration, parents, students (yes students), and often politicians who have no idea how screwed up education is in this country and thinks they are getting too much money.

Lawyer: as the link above and other publicly available links demonstrate, your basic facts are wrong. Moreover, your unwillingness to share generic information about your friend is strange when she is the sole support for your contentions. If you want to continue discussions, please provide evidence and objective evidence.

Jefferson: Where is the 'lifetime medical benefits, pensions, etc.'?

You're right. It's obviously an overpaid job. Let's cut all teacher salaries in line with janitors, maids, etc. There's an oversupply of teachers anyway, people are just dying to get into the education field. It's so much more lucrative than being an accountant, scientists, engineers, etc.

I'm being sarcastic obviously. If you have to listen to some of the BS teachers face, claiming they are 'well-paid' is an insult.

Lawyer: CalStrs ( http://www.calstrs.com/investments/index.aspx) is the teacher's pension fund. It has assets of $138.6 billion (yes, that's billion with a "b"). According to its own website, it is "the nation's second largest public pension fund." [Update: as of 5/31/13, the pension fund is worth $166 billion.]

Your last comment is based on emotion, not logic or facts. I hope you will stop engaging in propaganda and will try harder to use facts and logic to make your case. We already have Glenn Beck and others at Fox News relying on propaganda to make their case :-)

In any case, I am tired of dealing with Californians who lack basic knowledge about the issues and yet believe their opinions should be given any weight. In the future, please use objective evidence and personal knowledge to support your contentions.  

Jefferson: So the pension fund has plenty of assets. [He obviously didn't read Bill's comment. Sigh.] You still have not shown how '5-year teachers receive generous benefits such as job security, pensions, and lifetime medical benefits (worth thousands of dollars)" Which in itself is an emotional argument designed to portray teachers as over-compensated and not based on facts.

But keep up the ad hominem attacks, bud. You seem intelligent enough, I hope you realize the hypocrisy in your last statement.

Lawyer: 1. Public school teachers in California are unionized, which provides them job security. See the chart below, which shows the difference in job security between government workers and private sector workers:

http://1.bp.blogspot.com/_HOMfaLGCZIY/THoXdPJM3TI/AAAAAAAAAdQ/GOFeYbeQrMg/s1600/the_protected_class.png

[The chart is from this link: http://online.wsj.com/article/SB10001424052748703447004575449813071709510.html?mod=googlenews_wsj]

2. The teachers' pension fund is underfunded by around $42 billion. Taxpayers in California are on the hook for the full amount of teachers' pensions [Editor's note: as of 2011, the state teachers' pension fund assumes a 7.75% rate of return on all investments--regardless of actual investment performance.  This means that any shortfall must be made up by taxpayers or by higher contributions by existing teachers, especially younger/newer teachers]. See http://www.businessweek.com/news/2010-01-27/california-teachers-pension-fund-42-6-billion-short-update1-.html

3. After five years, most public employees--not just teachers--are eligible for pensions. For example, after five years of work, a gardener from a local school district may be eligible to receive a pension for the rest of his life.

In any case, information about state workers and their access to pensions, medical benefits, and other benefits is not hard to find. Here's one place to start, on CalPERS: http://ctainvest.org/home/CalSTRS-CalPERS/about-calpers/calpers-retirement-benefit.aspx

I hope you will use this discussion as a starting point to learn more facts about California's public sector unions and teachers' unions.

Jefferson: [people who lack evidence and objective support tend to resort to personal attacks.] I really like how you attacked me for using anecdotal evidence, then provided your own to make your point - "a gardener from a local school district." Guess they don't teach the philosophy of hypocrisy in law school.

Ah, that really explains your assholedness and condescending attitude. Sorry bud, you took the gloves off first. If you really want to change someone to your point of view, try not to be condescending about it, but then again, you're a lawyer. (Apology to all the other good lawyers out there, I'm only referring to this one).

Karena: Here's the salary scale for Palo Alto Unified School District. As you might imagine from the community they're drawing from, these are some of the best-paid teachers in the state of CA. http://www.pausd.org/community/employment/teachers/teacher_salaries.shtml

Even if you have a 30-unit master's degree when you're hired by PAUSD, you're still making just $62,636 at 5 years experience. If you have only a BA, which is more likely, then you're making $55,025 after 5 years. How do you figure the "average" Bay Area teacher is making $70+ a year at the 5-year mark?

Lawyer: almost all of the teachers I know spend their summers taking grad courses. After five years, most of them attain enough units to get close to the $70K mark. For Palo Alto, assuming twelve units every summer, after five years, a teacher would have 60 units and make $69K. That salary figure doesn't include the value of benefits, which are substantial. Also, many teachers work only 180 days a year (i.e., the minimum number of school days required by state law).

Remember: most teachers have summers off and are encouraged to use their time to earn grad degrees. The additional education is what allows many teachers to reach the 65 to 70K (approx) mark after just five years. After a certain point, teachers max out the value of their education and go back to getting three months' vacation a year and numerous paid state holidays.

I hope that makes sense. I mean, think about it--almost everyone in the private sector has to work year-round for the same salary. Thus, when teachers attend school over the summer, they are putting in similar hours as private sector workers. In short, at least initially, more ambitious teachers act rationally and work year-round to maximize their salaries. Such activity means they put in the same time as private sector workers, but receive a guaranteed payoff.

Overall, most Bay Area teachers receive middle class salaries with generous benefits unavailable to most private sector workers. If teachers want higher salaries, they ought to consider switching to 403(b) plans and getting paid more on the front end instead of burdening taxpayers with billion dollar, back-ended pension obligations. Of course, the government unions realize how valuable their pensions are, which is one reason they are sacrificing higher salaries so that retired (aka non-working) teachers can continue getting generous pensions.

I've seen so many private sector workers get fired, it is disconcerting to hear a relatively comfortable, politically-connected group of people complaining about not receiving more money from taxpayers. When you represent people who have little job security, who are poor, or whose only safety net is unemployment insurance, it's tough to sympathize with government employees, who are relatively much better off.

Karena: I'm not going to argue with a lot of the things that teachers unions push, including underpaying younger teachers to pad the pockets of older ones. Still, I do know that all of the under-35s I got to know chatting in the staff room, including myself, either lived with their Silicon Valley engineer SOs, or with their parents. There are plenty of people in this valley who can't make ends meet, and the vast majority can't afford to buy a house. Still, the existence of unemployed and/or downtrodden others doesn't magically make a teacher's lot an awesome one, or cutting funding to schools and teachers a solution to serious structural budget problems in CA.

As we could ask all the other Americans who don't go into teaching, leading to a massive dearth of qualified teachers: if it's such a well-paid, fantastic job, why don't you do it? ;-)

Lawyer: funny you mention this, because I just visited a public elementary school and was surprised by the number of male teachers...I didn't see a single one! I happen to love teaching kids, and I volunteer as a youth basketball coach. I've considered going into teaching, and as a first step, I recently offered to tutor ESL kids at the local school district. (I majored in English and used to tutor ESL college students.)

Bonus I: Antonio Villaraigosa, Mayor of Los Angeles, 12/7/10: “there has been one, unwavering roadblock to reform: teacher union leadership...The teachers unions aren't the biggest or the only problem facing our schools, but for many years now, they have been the most consistent, most powerful defenders of the unacceptable status quo.” More here.

Bonus II: Did you know the average California teacher receives the equivalent--at least as of 2011--of a $500,000 lump sum when s/he retires? Never heard that before, huh? Funny how the teachers' unions don't mention that. More here.

Bonus III: Actually it looks like I may have underestimated the value of teachers' pensions. More here. MyMoneyBlog calculates that as of 3/2011, a $300,000 lump sum would would get you just $1300/mo in annuity payments.

Bonus IV: from Joel Klein, The Atlantic, June 2011:

[C]onsider the financial burden that comes with providing lifetime benefits. Given the time between first putting aside the money to fund such a “long-tail exposure” and having to begin paying it, the amount “reserved” by the employer necessarily depends on a host of imprecise assumptions—about the rate of return that the money invested in the pension fund will earn, about how long employees will live, and even about how much overtime employees will work during their last few years, which is normally included in calculations of the amount of the pension. Each dollar set aside this year to cover the ultimate pension exposure must be taken from what would otherwise be current operating dollars.

Consequently, elected officials have had every incentive to make extraordinarily optimistic assumptions about the pension plan—or to simply underfund it—so they can put as little as possible into the reserve. Unfortunately, but predictably, that’s exactly what has happened: most states “assumed” they would get an average 8 percent return on their pension reserves, when in fact they were getting significantly less. Over the past 10 years, for example, New York City’s pension funds earned an average of just 2.5 percent. Now virtually every pension plan in America that covers teachers has huge unfunded liabilities. A recent study by the Manhattan Institute estimated the total current shortfall at close to $1 trillion. There’s only one way to pay for that: take the money from current and future operating budgets, robbing today’s children to pay tomorrow’s pensions.

Bonus V: from Michael Podgursky, "Fringe Benefits," Educationnext, Summer 2003 (Vol 3, No 3)

Bonus VI: Lobbying information here: https://www.opensecrets.org/industries/indus.php?ind=L1300 

Magma to Cadence: Bring it On

I attended Magma Design Automation’s (LAVA) annual meeting on September 23, 2010. Over the past year, Magma stock has handily beaten the S&P 500. Since September 28, 2009, the S&P has struggled to break even while Magma's stock has increased around 70%.

Chairman and CEO Rajeev Madhavan handled the formal portion of the meeting, which was uneventful. After the meeting, he generously agreed to allow me to ask him questions one-on-one.

Mr. Madhavan’s energy is palpable. You can almost feel his lava-hot desire to succeed when you hear him speak and move. One gets a sense that Mr. Madhavan is bustling with ideas and can't wait to share them with you.

I expressed my concern that Magma’s general business was becoming commoditized, which usually causes margins to decline. However, Mr. Madhavan told me that Magma had “substantial leadership in the analog area” with several unique, brand-new tools. He said he was “extremely confident” about the new tools. He also indicated Magma’s biggest challenges were internal, i.e., to ensure execution without incurring more expenses.

When I pointed out that Magma was a smaller player in a market dominated by Cadence (CDNS) and Synopsys, Inc. (SNPS), Mr. Madhavan compared Magma to Google's Android, contending that if size mattered, Microsoft should have been able to outcompete Android--which has not proven to be the case. He also said that “Cadence is weakest in [its] technology” and doesn’t offer the “best of anything [in its market].” To put Cadence’s technological issues in context, Mr. Madhavan said that some of Cadence’s products were “three to four times slower” than anyone else’s. When I expressed surprise, Mr. Madhavan’s eyes lit up. He immediately issued a bold challenge to Cadence, saying,“You name it, I’ll take them on anyplace...every couple of weeks or so, we’re winning evaluations against Cadence, and we’re seven to fifteen times faster” in SPICE and several times faster in digital now.

What about Synopsys, I asked? Mr. Madhavan’s tone softened. He said Synopsys is “strongest in terms of numbers” and its balance sheet, and Magma “must continue to differentiate” its own products to compete with Synopsys’ products. [According to Magma, "In SPICE Magma has a tremendous differentiation and we expect to increase our digital differentiation with our upcoming product launches.”]

My impression was that Cadence was expanding in China, so I asked Mr. Madhavan about Magma’s Chinese footprint. Mr. Madhavan confirmed his company also had “sales and marketing in China” but indicated that the industry has yet to do as much business there as in the U.S.

I asked Mr. Madhavan about his biggest challenges going forward. He said that his primary goal was getting “engineers to try” Magma’s products. Once engineers try Magma products, they tend to view Magma as an attractive partner. But Mr. Madhavan admitted that existing business practices--specifically all-you-can-eat deals from other EDA suppliers--encouraged inertia. [Note: EDA is electronic design automation aka electronic computer-aided design.] Because the consequences of missing a deadline can be so severe, most engineers prefer to stay with the more established names rather than switch, even if Magma’s products are better and faster.

Regarding my contention that EDA was becoming more commoditized, Mr. Madhavan expressed disagreement: “The very fact that [other companies] think that their products are commodities is the anti-thesis of Magma...we strive to differentiate--that’s our culture.”

How about it, Cadence? Will you take on Magma in a head-to-head contest? Mr. Madhavan is waiting for you.

Bonus: a review of Magma’s 2009 shareholder meeting is here.

Disclosure: I own a small number of Magma (LAVA) shares. My holdings may change anytime. Also, a Magma employee had the opportunity to review this article and submitted some comments to me. I included some of his comments, including the references to SPICE.

Movie Recommendation: Battle of Algiers (1966)

I've just seen one of the best movies ever made: The Battle of Algiers (1966). It's about colonization, terrorism, and independence. It is stunning to see the potential parallels between America's campaign in Iraq and the French's campaign in Algiers.

Think Corporations Don't Pay Enough Taxes? Joke's on You.

Of course we have to pay taxes. The question is, "What kind of taxes should we impose for maximum efficacy?"

From David Walker's book, Comeback America (hardcover, page 121): "we must realize that corporations don't really pay taxes. Rather, they pass along any tax, in the form of higher prices to consumers, lower wages to workers, and/or lower returns to shareholders."

(And last time I checked, CalPERS and many middle-class Bay Area families were shareholders.)

Random Thoughts

1. If the South had a way to make money without needing to enslave Africans, would we have had a Civil War?

2. The surest path to tyranny is hyperinflation.

3. Public sector compensation and private sector compensation are completely different. Unlike the private sector, public sector compensation usually includes unpredictable long-term structural debt, such as pensions and medical costs. The costs of pensions and medical treatment depend on a person's age and health. If it was so easy to analyze costs relating to a person's age and health, we could all run insurance companies. Moreover, when governments make long term compensation promises, they are using taxpayer money (OPM) and have little incentive to get the numbers right. More here, from a letter to The Atlantic (Nov 2010):

In the final analysis, it doesn’t matter whether you work for GM or N.Y. or U.S.A.; it doesn’t matter if you are in a defined-benefit or defined-contribution plan--your retirement is dependent upon the earnings and productivity of your grandchildren and their friends. All of the pieces of paper in these plans are just proxies: claims on a portion of the labor of future generations. All of these retirement schemes seemed affordable when they were new. We didn’t see why they were inexpensive: because they were built on leverage. They depended upon borrowing against the future growth of the three unsustainable pyramids: economic, population, and credit. None of those can continue forever, and as one fades, the others must take up the slack. But once all three pyramids are played out, the plans face a few stark choices: substantially raise contributions, substantially lower payouts, or go bankrupt.

Steven Flint Manasquan, N.J.

4. People's voting preferences are probably based in large part on whether they have children. Most parents probably favor the status quo. Why? The more society changes, the less knowledge they can pass along to their kids. The parents' economic skills may also decline in value if society changes too much. In contrast, people without kids have more time to adapt to changes and also have a higher incentive to change society to suit their own needs and wants. In conclusion, I bet parents tend to be more "conservative" while childless adults tend to be more "liberal."

5. The S&P 500 is about 1180. The Dow is about 11,142. Perhaps the market is a bit frothy. Markets may be anticipating an extension of the Bush-era tax cuts, which means an assumption of a more politically balanced federal government. But elections can be unpredictable...

Questions re: Charter Schools

1. If charter schools don't have the burden of paying billions of their dollars to retired/non-working school personnel, can't they use more of their dollars to pay newer teachers more and to limit class sizes?

2. If charter schools must compete for students and overcome parental inertia (i.e., most parents will move their kids along in the same school system unless they have a good reason to change), don't charter schools have a greater incentive to provide better services and to be more transparent?

3. Do you believe competition usually leads to better service and products?

4. Do you believe that monopolies usually lead to good service, superior efforts, and superior results for consumers? If not, do you realize that by opposing charter schools, you are supporting the status quo, which is a monopolistic public education system?

5. Most people agree that parental involvement, the level of parental education, and good parenting skills are the primary factors in determining a child's academic success. How does paying teachers more or opposing charter schools solve the problem of uninvolved parents, uneducated parents, or a lack of parenting?

Random thoughts of the day:

1. Competition lowers prices for consumers; monopolies, on the other hand, usually allow entities, whether government or corporate, to increase prices. Right now, public schools have a virtual monopoly on education because most students must attend a school based on where they live rather than other standards, such as test scores, better facilities, better teachers, etc. The more schools must compete for government money (which is related to the number of students attending a school), the more all schools are incentivized to improve services.

2. Re: why privatization will decrease education costs. Again, when you break a monopoly, costs usually go down. Some people appear to be assuming that charter schools will incur the same expenses as public schools, and therefore it will all be a wash. This is incorrect. We know California's public schools are inefficient. They use about 85% of their funding to pay employees and contractors, which means they spend only about 15% of their money on children.

For example, in some California public schools, a gardener, after just 5 years of work, is eligible for a pension of around $1,000/month. It is unclear how paying a gardener a pension after five years of work helps children, but let's set that issue aside. If a charter school hires a gardener but without the burden of a pension, it has more options. It can increase a teacher's salary by $1,000/month, buy laptops for students, or add courses. To make a long story short, the opportunities to game our current education system are enormous. Charter schools, if run properly, can set up systems that are harder to game and that lack long-term structural deficits such as pensions.

Over time, as more students attend charter schools, the state may eventually be able to force teacher unions and public schools to eliminate their own long term structural deficits and to adopt student-centric teaching and evaluation methods. In time, we may even be able to amend the state Constitution to divert education-earmarked money to services that benefit all state residents. Even if we fail to divert money to non-education services, competition alone and the battle for students/state money will improve education for all students, which is the ultimate goal.

Are State Pensions Sustainable?

"There seems to be a high likelihood that future generations will have to bear the substantial burden of making up pension benefits for previous generations of state employees. While citizens of states that are particularly hard-hit by the pension crisis may be able to escape to other states, an acceleration of this demographic phenomenon would leave a dwindling taxpayer base behind in the states facing the largest liabilities. This would increase the likelihood of a federal taxpayer bailout in which taxpayers in all states would bear the burden of the states in default. The problem of state and local pension liabilities is therefore a problem for all U.S. taxpayers, not just those in the states with the largest deficits." -- Joshua Rauh

More here. Scroll all the way to the bottom to see your state's ranking. The lower your state's ranking, the better.

It's not pretty if you live in Illinois, Connecticut, Indiana, or New Jersey.

It's much better if you live in North Carolina, New York, or Nevada.

How to Help Poor People

The best thing anyone can do is make a poor person self-sufficient and/or independent.

Welfare and charity do not make a poor person self-sufficient because they regard the poor person as a passive recipient of benefits rather than someone with under-utilized skills.

A job allows a person to become self-sufficient.

To give someone a job, corporations and small businesses must grow and make higher profits so they can afford to expand.

For businesses to grow and make higher profits, they must sell more products.

Therefore, the goals of any fiscal policy ought to be 1) increase public demand for products by ensuring a fluid money supply; and 2) maintain the purchasing power of the currency.

The Federal Reserve's monetary policy seeks to promote "maximum" sustainable output and employment and to promote "stable" prices. More here.

Thought of the Day

California's public K-12 schools: billion dollar babysitting boondoggles?

Sounds like a harsh question until you realize we currently have no objective way of measuring teacher performance. Consider this paragraph--about another topic but also relevant here--from David Walker's book, Comeback America (hardcover, page 164):

Without any standards of measurement, all definitions of "success" and "failure" devolve to the political arena. If your party enacted the new housing stimulus program, then you can make a dozen claims to support its success. But your opponents, at the same time, can point out as many claims of its failure. We ordinary taxpayers who footed the bill can only hope something good came out of the exercise--but we can't tell either. This is simply unacceptable and must change.

Our schools have no real standards to measure the effectiveness of teachers. Unions resist testing and making teacher evaluations public. Meanwhile, kids move along within the system, and it's hard to tell whether they succeed based primarily on the school they attend or their parents' involvement.

On California Education

Three must-read links on education:

Grand Theft Education [Warning: PDF] (Hat tip to Jon.)

Reason.com: "The two largest teachers unions, The American Federation of Teachers and the National Education Association, overwhelmingly supported Obama with their votes and their contributions. Some 95 percent of the groups' campaign contributions go to Democratic candidates and the NEA, spends more money on elections that Microsoft, ExxonMobil, Walmart, and the AFL-CIO combined. No wonder Obama's big talking point is that he wants to add 10,000 more teachers to public payrolls despite the fact that there are already more teachers per student than ever.

Reforming education may not be politically easy, but the solution is pretty simple: Give parents and students more ability to choose - and exit - schools. This works for every other sort of business and it works for higher education, too. There's no reason to think it wouldn't work for K-12 education."

Economist blog: "America's public-sector unions...have an extraordinary power to force the state to dance to their tune, squashing innovation, reducing productivity and undermining competitiveness."

"With poor prospects in the ultra-competitive private sector, government work is increasingly desirable for those with limited skills; at the opposite end of the spectrum, the wage compression imposed by unions and civil-service rules makes government employment less attractive to those whose abilities are in high demand..."

Bonus: more facts here.