Straight Talk from Al Jacobs

THE MAGNIFICENCE OF ROLLS-ROYCE

The article by Andrea Chang, longtime reporter on technology and the retail industry, is certainly impressive. It relates to the announcement by Rolls-Royce Motor Cars Chief Executive Torston Muller-Otvos of their newly released Phantom VIII model he describes as an “icon, an artwork … a dominant symbol of wealth and human achievement … fit for a connoisseur of luxury in the extreme.” Considering its price, starting at $450,000, the vehicle should be nothing less.

The firm enjoys a prestigious history. Rolls-Royce Limited, founded in 1904 by Charles Stewart Rolls and Frederick Henry Royce, owned a British luxury car and aero engine manufacturing business. It was incorporated March 15, 1906, as an entity for their ownership of their Rolls-Royce business. Through the century its vehicles became the most valued in the world as it developed a reputation for superior engineering quality.

Although through the years Rolls-Royce maintained its reputation for automotive excellence, as a commercial firm it has had its ups and downs. In the latter decades profitability became unattainable, with its bankruptcy in the 1970s being particularly traumatic. We now witness its successor company function, in which only its prestigious name remains. And how does it market its product? With a feature called the Embrace, “As the patron settles into the car, an assistant or valet steps forward and lightly touches the sensor on the door handle so it whispers closed of its own account, enveloping the occupant in ‘the Embrace.’” Can anyone in their right mind relate to a word of that nonsense?

Despite the Phantom VIII’s 6.75-liter twin turbo V-12 engine and all-aluminum space frame underpinning its lighter, stiffer and quieter propulsion, together with the porcelain flowers displayed behind the Gorilla Glass, the vehicle does nothing my 2012 Nissan Altima – current value about $9,500 – cannot do. A vehicle should offer dependable transportation. Beyond that the finery is little more than the basis for engaging marketing. When the price reaches close to a half-million dollars, its purchase defies all rationality.

KUDOS TO DOOD-FRANK

For those of you whose memory reaches back to 2010, you’ll recall the nation’s economy was not then vibrant. More to the point, the Dow Jones Industrial Average had fallen over six thousand points in the prior 17 months and the housing industry lay in shambles. So to the rescue came the United States Congress, aimed at shoring up real estate lending practices by enacting the Dodd-Frank bill.

With regulatory oversight the intent, this 2319-page law, signed into law by President Obama on July 21st of that year, established a myriad of regulatory committees promulgating programs to which banks thereafter adhered. Although those rules masqueraded as reform, most were as convoluted as they were arcane. The results were predictable: duplicative and often contradictory rules which promoted neither safety nor soundness. Mortgage lending became a nightmare with layers of red tape so burdensome that many potentially profitable firms simply abandoned the banking business. Only the mammoth institutions, with direct links to the federal regulators and the U.S. treasury, prospered.

Of the nearly 500 banks headquartered here in 1994, less than 180 remain. The smallest ones maintain too few assets to keep up with the ever growing compliance costs. It’s for this reason the community banks, accounting in 1994 for nearly half of the California’s banking, are now down to just 11 in number.

I’d now like to convey my complements to then-Senator Thomas Dodd, retired Congressman Barney Frank, former President Obama and the congressional staffs which foisted this monstrosity onto the law books. By putting out of business almost all the community banks here in the Golden State, where my private mortgage loan firm operates, virtually all my competition is now gone. The muscle-bound giants that still process loans, such as Chase, Wells-Fargo and Bank of America, must do so in compliance with the Dodd-Frank rules. As the loans generated by my non-chartered company are exempt from these bizarre requirements, I can easily outmaneuver the few remaining behemoths.

I’m not sure if there’s a moral here, but I’m at least willing to offer thanks to legislative lunacy in facilitating my profitable enterprise.

WHY THE MONEY DISSIPATES

An interesting presentation appeared on television last evening. It revealed the federal government owns thousands of parcels of property throughout the country, many with buildings that have been vacant for decades. As pictures of various boarded up structures were displayed, the show’s host remarked that the cost to the taxpayer amounted to billions of dollars each year.

And while we’re on the subject, I happen to drive by a multifamily residential building in the Inland Empire City of Hemet, California, that has been boarded up for many years. Though it’s a formidable structure in a favorable location, it simply sits there unused as it appears to deteriorate. It’s my guess it was acquired through a bank foreclosure during the Great Recession of the past decade.

After discussing with my wife what appears to be bungling by a pair of prominent bureaucracies, she casually remarked “Why don’t both the bank and the government do something about it?” The question is a sensible one; I’m not sure the answer is equally sensible. The reason they don’t do something about it is fundamental. It’s because there is no they. Search as you may, there’s not one government official, nor one bank employee, with a dime’s worth of proprietary interest in any of these parcels. If an individual must expend thought, time and effort in correcting a problem in which they receive no personal benefit, the problem will remain uncorrected. It’s for this reason money-losing operations of this sort continue indefinitely.

Were any one of those buildings mine, I’d be there today before sunset to see what might be done to stem the loss. There’s a special significance when a negative cash flow comes out of your pocket. But when the cost can be spread to someone else, particularly the nameless and faceless taxpayer or permanently absent stockholder, the impetus disappears. This is why mammoth institutions, both governmental and corporate, function as they do.

If there’s a moral to be stressed, it’s that accountability cannot be collective. It must be singular.

WHAT MONEY WILL AND WON’T DO

The question posed in the article by Professor Dan Ariely, best selling author on psychology and behavioral economics, is one repeated more times than any query ever uttered: “Can Money Buy Happiness?” He then launched into an analysis of the responses by people in all economic strata in an effort to match income level to professed happiness. Despite confusing implications by the many replies he received, his final conclusion seems warranted: “Accumulating wealth isn’t about the pursuit of happiness – it’s about the pursuit of what we think (wrongly) will make us happy.”

I’ll offer a few personal observations based on many decades of experience. Born during the Great Depression of the 1930s, into a family of modest means, money seemed always in short supply. As a preteen, my major luxury was the ten cents my father gave me each week to attend the Saturday matinee with my school chums. Upon turning 13, the few bucks I managed to earn as a golf caddie helped me pay my way. However, by 15, I commanded full adult pay of about $12 daily as a pinsetter in a local bowling alley … a job I retained until the Korean War transformed me into an unadorned seaman in the U.S. Navy. The $100 per month pay I received guaranteed I’d not be spoiled by undue opulence.

In more recent years, first as a hired property manager, and now as a professional investor, the money flows far more freely. Nonetheless, on the happiness scale, I observe no changes since the days I limited my daily expenditures to the few dollars in the bottom of my pocket. I’ve always lived well within my means. As a result, I maintain an aura of satisfaction – perhaps not quite the same as happiness, but close enough so it’s hard to tell the difference. And as for poverty, it’s a condition I’ve never experienced. I admit to having been flat broke many more times than I can recall, but at no time did I ever consider myself poor. The former is a financial circumstance, whereas the latter is a mental condition.

A final word on this subject: Don’t imagine I disparage being well-to-do. Many years ago a prominent humorist, whose name I’ve long forgotten, made a comment which beautifully captures the reality of prosperity. Although intended entirely in jest, it struck me as one of the most profound truths I’d ever heard. His assertion: “I’ve been rich and I’ve been poor … rich is better.”

SPECIAL EDUCATION LIMITATIONS

An article’s title attracted my attention: “The Failure of Special Education Students.” A detailed analysis presents nationwide school scholastic data from a report released by the Education Week Research Center.

Though overall high school graduation rates have generally improved in recent years, the contrast with special education students is appalling. In particular, special ed fourth-grade proficiencies in reading and math is about 11 percent; by eighth-grade, they’ve dropped to less than 5 percent. A staunch advocate of charter schools concludes we should be motivated to “close the achievement gaps . . . particularly for those in special education.”

What are special education students? They’re those with disabilities of all sorts, which can include autism, speech impairment, mental retardation, emotional disturbance and every other possible ailment. It’s understandable why many of these children cannot perform in any satisfactory manner.

In an earlier time the public schools existed to provide basic education to those youngsters who exhibited the ability and willingness to adhere to a prescribed schedule of instruction. Those who did not or could not conform to the regimen were disenrolled. The nation’s schools operated economically, but arbitrarily, and performed their function admirably.

I’m no longer certain what the fundamental purpose of schooling is meant to be. If it’s designed to take the majority of readily educable pupils to a level of reasonable academic proficiency as quickly and economically as possible, that’s one thing. If, however, its purpose is to transform, in some fashion, every single child in the nation, regardless of ability, into well-schooled individuals, it’s another matter all together. The undisputable fact is each of us has our limitations … as does each special education student. Forced schooling beyond a student’s ability does neither such student nor the education system any good whatever.

The public education system today, with its input of federal money and oversight, is certainly not an improvement. Not only is it unbelievably costly, but the fundamental emphasis on providing basic learning to the nation’s learnable students is diluted in countless ways. This politicization of education has not improved it. Exactly how the collective “we” can close the achievement gaps is beyond my understanding.

SEARCHING THE HEAVENS … FOR FUN AND PROFIT

A recent article in The Verge, a prominent website which covers the intersection of technology, science, art and culture, announced “NASA finds evidence of 10 new Earth-sized planets in our corner of the galaxy.” It goes on to say they orbit their stars in the habitable zone – “just far enough away to develop water, but not so far that they freeze.” The significance, of course, is that “these planets possess the potential for liquid water on the surface … that could mean life.” The likelihood water may exist on a planet, and thus the possibility of life forms, is the impetus behind this most recent effort. It’s this fixation on water which fuels the research enthusiasm. These discoveries are a part of the Kepler space telescope mission which employs countless scientists and technicians, and has been scouring the heavens in search of planets which may support living organisms.

What’s the purpose of this continual pursuit into the cosmos? During the Cold War era there was justification for the space race. We were in competition with a hostile Soviet Union and the technological expertise we might develop could be a factor in guaranteeing our national survival. Here in the 21st Century this is no longer the case. Except for providing grants for selected beneficiaries and salaries for a lot of chosen people, it’s difficult to describe exactly what NASA’s 2017 budget of $19.0 billion actually does for the average American.

Nonetheless the quest for the origin of life goes on, and there is no bit of trivia too insignificant not to be cited as a basis for renewed endeavor. Irrespective of revelations – or lack of them – the odyssey will continue. If nothing of consequence materializes, something will be conjured up and exploited, for as with any government program, perpetuation is the primary aim. It’s just such a project as this which bolsters the continuity of NASA’s involvement in an endless succession of studies and explorations which never end.

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Roadway to Prosperity embodies the heart of the author’s last ten years of newsletters, written monthly under the heading On the Money Trail. Those articles prominently displayed in numerous publications, both in print and online, directed attention toward financial matters, normally with an emphasis on personal achievement in a variety of endeavors. Whatever your age or background, the revelations disclosed in this book will empower you to deal with the world in a more effective manner and employ the tool and techniques the book describes.

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