Alternative investments or hedge funds line the pockets of the well connected, not the public sector retirees that invest in them. Politicians like alt investments because they connect them with the monied class. I like the idea of investing public sector pension money in risk free Treasuries. But the Federal Reserve’s zero percent interest rate policy has made that impossible. For one it would unmask the real unfunded liabilities. San Jose, CA has the highest income per capita and is drowning in pension debt. Does anyone see a problem here? Al-Jazeera America reports here.

Andy Paul, 32, works as a library assistant for the city of San Jose, Calif., supervising circulation at the Willow Glen branch. In 2013, he earned $48,000.

If a measure to cut pensions for city workers is ultimately upheld in court, Paul and San Jose’s 6,868 other employees will either have to pay an additional share of their salaries toward their pensions (up to 16 percent) or receive less-generous benefits upon retirement. “I feel disrespected,” Paul says. “Many of my co-workers have decided to stop working for the city.”

The city’s political leaders say the pension cuts are a necessary step to save San Jose from bankruptcy. The Silicon Valley city spends one-fourth of its $1.1 billion budget on pensions and retiree health care. To help meet those costs, say officials, San Jose has cut more than 20 percent of its staff since 2009. Many libraries that used to be open six days a week are now open four, while fire and police departments have shrunk, pushing up response times.

But experts and an Al Jazeera examination of the city’s two pension funds suggest that the San Jose’s investment strategy — shifting money from stocks and bonds to high-risk, low-transparency “alternative investments” such as private equity, hedge funds and real estate — may be a bigger factor in the financial crunch.

“The missing link in debates about pension reform is poor investment performance,” says Edward Siedle, president of Benchmark Financial Services and a former attorney with the Securities and Exchange Commission. “San Jose’s officially reported 2012 and 2013 performance was absolutely atrocious. Any discussion about the unsustainability of benefits must come after discussion of radical market underperformance.”

In the aftermath of the 2008 financial crisis, 48 states have passed legislation to reduce benefits for new workers. A handful of state and city governments, with Rhode Island and San Jose the most prominent examples, have cut benefits for current employees. Rhode Island has also come under fire for its foray into alternatives. Those investments, meanwhile, make up a growing proportion of public pension-fund portfolios nationwide.

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As the White House brags that lost jobs resulting from O’Care make Americans free to pursue other activities, the jury is still out. Many researchers conclude that O’Care is taking its toll on the declining average workweek—certainly not good news for a robust and stable economy. The Wall Street Journal reports:

Job creation rose from an initial 113,000 in January (later revised to 129,000) to 175,000 in February. The January number frightened many, while the February number was cheered—even though it was below the prior 12-month average of 189,000.

The labor market’s strength and economic activity are better measured by the number of total hours worked than by the number of people employed. An employer who replaces 100 40-hour-per-week workers with 120 20-hour-per-week workers is contracting, not expanding operations. The same is true at the national level.

The total hours worked per week is obtained by multiplying the reported average workweek hours by the number of workers employed. The decline in the average workweek for all employees on private nonfarm payrolls by 3/10ths of an hour—offset partially by the increase in the number of people working—means that real labor usage on net, taking into account hours worked, fell by the equivalent of 100,000 jobs since September.

…

Another possibility for the declining average workweek is the Affordable Care Act. That law induces businesses with fewer than 50 full-time employees—full-time defined as 30 hours per week—to keep the number of hours low to avoid having to provide health insurance. The jury is still out on this explanation, but research by Luis Garicano, Claire LeLarge and John Van Reenen (National Bureau of Economic Research, February 2013) has shown that laws that can be evaded by keeping firms small or hours low can have significant effects on employment.

The improvement in average weekly hours worked was reason for celebration after the recovery began. The recent decline is cause for concern. It gives us a more accurate but dismal picture of the past two quarters.

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Your approach to this market needs to be like that of my favored prognosticator: the rich man. You see the rich man, as Dow theory legend Richard Russell says, doesn’t need the markets.

RULE 3: RICH MAN, POOR MAN: In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur and the neophyte trader. The advantage that the wealthy investor enjoys is that HE DOESN’T NEED THE MARKETS. I can’t begin to tell you what a difference that makes, both in one’s mental attitude and in the way one actually handles one’s money.

The wealthy investor doesn’t need the markets, because he already has all the income he needs. He has money coming in via bonds, T-bills, money market funds, stocks and real estate. In other words, the wealthy investornever feels pressured  to “make money” in the market.

The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the “give away” table, he buys art or diamonds or gold. In other words, the wealthy investor puts his money where the great  values are.

And if no outstanding values are available, the wealthy investors waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn’t mind waiting months or even years for his next investment (they call that patience).

But what about the little guy? This fellow always feels pressured to “make money.” And in return he’s always pressuring the market to “do something” for him. But sadly, the market isn’t interested. When the little guy isn’t buying stocks offering 1% or 2% yields, he’s off to Las Vegas or Atlantic City trying to beat the house at roulette. Or he’s spending 20 bucks a week on lottery tickets, or he’s “investing” in some crackpot scheme that his neighbor told him about (in strictest confidence, of course).

And because the little guy is trying to force the market to do something for him, he’s a guaranteed loser. The little guy doesn’t understand values so he constantly overpays. He doesn’t comprehend the power of compounding, and he doesn’t understand money. He’s never heard the adage, “He who understands interest — earns it. He who doesn’t understand interest — pays it.“  The little guy is the typical American, and he’s deeply in debt.

The little guy is in hock up to his ears. As a result, he’s always sweating — sweating to make payments on his house, his refrigerator, his car or his lawn mower. He’s impatient, and he feels perpetually put upon. He tells himself that he has to make money — fast. And he dreams of those “big, juicy mega-bucks.” In the end, the little guy wastes his money in the market, or he loses his money gambling, or he dribbles it away on senseless schemes. In short, this “money-nerd” spends his life dashing up the financial down-escalator.

But here’s the ironic part of it. If, from the beginning, the little guy had adopted a strict policy of never spending more than he made, if he had taken his extra savings and compounded it in intelligent, income-producing securities, then in due time he’d have money coming in daily, weekly, monthly, just like the rich man. The little guy would have become a financial winner, instead of a pathetic loser.

Dick and I are heading back to Paris late in April. A good part of the fun of our planning is the reading, studying, and dreaming of all things francaise. David Lebovitz’s video of a visit to one of Paris’s wonderful open markets always inspires. We’ve stayed often at the Hotel Lutetia on Blvd. Raspail in the 6^th arrondissement and always looked forward to visiting the open market almost directly across from the hotel. The art deco Lutetia is legendary, but about to be closed for much needed renovations (along with right bank hotels Crillon, Ritz Carlton and Plaza Athenee). We’re also looking forward to visiting and revisiting many of the restaurants reviewed in Alec Lobrano’s 2^nd edition of Hungry for Paris (release date 15 April).

People from all over Paris come to Le Marche Raspail between rue du Cherche Midi and rue de Rennes on Sunday mornings to buy organic produce and hormone/antibiotic-free meat and poultry, cheeses and dairy. The fishmongers have an amazing array on display. It’s no wonder Julia Child contacted the U.S. Fish and Wildlife Service to implore its help in the classification of French and Mediterranean poisson and fruits de mer.

Bon appetit,

Debbie Young

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Chris Goodfellow explains in Wired what he believes happened to Malaysia Flight 370 from the perspective of a pilot. Goodfellow has been flying large planes for over 20 years and gives a common sense explanation that is more plausible than some of the theories being suggested in the media today.

Fire in an aircraft demands one thing: Get the machine on the ground as soon as possible. There are two well-remembered experiences in my memory. The AirCanada DC9 which landed, I believe, in Columbus, Ohio in the 1980s. That pilot delayed descent and bypassed several airports. He didn’t instinctively know the closest airports. He got it on the ground eventually, but lost 30-odd souls. The 1998 crash of Swissair DC-10 off Nova Scotia was another example of heroic pilots. They were 15 minutes out of Halifax but the fire overcame them and they had to ditch in the ocean. They simply ran out of time. That fire incidentally started when the aircraft was about an hour out of Kennedy. Guess what? The transponders and communications were shut off as they pulled the busses.

Get on Google Earth and type in Pulau Langkawi and then look at it in relation to the radar track heading. Two plus two equals four. For me, that is the simple explanation why it turned and headed in that direction. Smart pilot. He just didn’t have the time.

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Cato Institute’s Dan Mitchell is the guy the House needs to bring in to craft a budget plan that actually cuts spending. Mitchell’s golden rule is that the private sector must grow faster than the federal government. Budget sanity is not complex. Here Mr. Mitchell lays out a series of government travel expenditures that will literally take your breath away. Have our elected politicians no shame?

But I’m digressing. It’s sometimes hard to focus when there are so many examples of foolish government policy.

Let’s look at more examples of taxpayers getting ripped off.

One such flight was a trip from Washington, D.C., to Brussels, Belgium, which cost $6,612 instead of $863. Similar mission-required upgrades included several flights to Kuwait for $6,911 instead of $1,471, a flight from D.C. to Tokyo for $7,234 instead of $1,081 and a trip from D.C. to Paris for $6,037 instead of $477. …NASA employees also racked up a long list of flights that cost 26, 72 and even 112 times the cost of coach fares, according to Examiner calculations. Several space agency employees flew from Oslo, Norway, to Tromso, Norway – a trip that should have cost $65. Instead, each flew business class for $4,668. Another NASA employee flew from Frankfurt, Germany, to Cologne, Germany, for $6,851 instead of $133, a flight that cost almost 52 times more than the coach fare. …One flight from D.C. to Hanoi, Vietnam, for an informational meeting cost $15,529 instead of $1,649, according to the agency’s 2012 report.

Frankfurt to Cologne for $6851 and a domestic flight in Norway for $4668?!? Did these trips include caviar and a masseuse? Were the planes made of gold?

I do enough international travel to know that these prices are absurd, even if you somehow think bureaucrats should get business class travel (and they shouldn’t).

And as you might suspect, much of the travel was for wasteful boondoggles.

Department of the Interior employees, for example, flew to such exotic locations as Costa Rica, Denmark, Japan and South Africa in 2012. …The Department of Labor sent employees to places like Vietnam and the Philippines for “informational meetings,” conferences and site visits.

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Did David Lebovitz know about the health benefits of eating chocolate (NPR “the salt”) when he offered Paris chocolate tours? There has been much in the press about the scientific evidence that eating dark chocolate helps reduce blood pressure readings and results in better heart health. Well, new studies suggest that cocoa powder converts into molecules that not only help to reduce inflammation, but also tell you when you are full. But before you start binging on a theater-size box of Milk Duds, understand that you want dark chocolate—at least 70% cocoa. And no Dutching allowed. Dutching removes bitterness along with the healthful flavonoids (the bitterness comes from the flavonoids). Flavonoids are also found, for example, in apple skins, blueberries (organic low-bush varieties), green tea, and red wine.

So who makes the best chocolate—the French or the Swiss? Several years ago, on David’s Paris & Lausanne Chocolate & Gastronomy Tour, we unscientifically delved into the matter. Mort Rosenblum, author of Chocolate: A Bittersweet Saga of Dark and Light, was along to help us unravel the mystery as we explored the finer points of enjoying chocolate.

Read here from NPR why chocolate is good for your heart, your waistline, and your gut.

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Government’s role is to secure our rights not to grant us rights. We do not get our rights from government. The key word from the Declaration of independence is “secure” not “grant.” My friend Bob Levy, who I first met over forty years ago, is today chairman of the finest think tank in the world, the Cato Institute. Cato, as Bob says, is unabashedly libertarian. Libertarians are against foreign entanglements, unless America’s vital interests are at stake. And libertarians have a consistent minimalist view of the proper role of government.

Debbie and I are Cato Club 200 members and powerfully supportive of Cato. We are regularly asked about the positions of various Cato scholars and about libertarianism itself. Recently Bob explained to Cato event attendees the differences between liberals, conservatives and libertarians. I think that if more people understood the basic principles, they would embrace libertarianism unabashedly. Bob spells out the principles of libertarianism so well that it is puzzling that more Americans are not libertarian in thought. As Bob highlights, the Founders, it’s fair to say, were libertarians.

Libertarianism 101

By Robert A. Levy, Chairman, Cato Institute

Wednesday, March 19, 2014

Libertarianism is a political philosophy grounded on these propositions: Adult individuals have the right and responsibility to decide important matters about their own lives, but they may not infringe on the equal rights of others. Government’s role is to secure those rights. The key word, from the Declaration of Independence, is “secure,” not “grant.” We do not get our rights from government. Individuals have natural rights, independent of government. That’s a bedrock libertarian principle and, it’s fair to say, the Founders were libertarians.

Within that framework, consider the polemic against libertarianism by Rev. Michael P. Orsi (“Libertarian Candidate Not Good,” Naples Daily News, March 16) – as reduced to five assertions:

1. “Extreme individualism” is contrary to the “common good.”

Libertarians understand the necessity of cooperation to attain personals goals. My colleague, Tom Palmer, observes that individuals can “never actually be self-sufficient, which is precisely why we must have rules to make peaceful cooperation possible.” Government enforces those rules. The risk, however, is that rules too extensive will produce, not a common good for all, but rather a veneer for a system of special favors to secure largesse for the politically connected at the expense of others. By contrast, individualism promotes the common good, spontaneously, as long as no commanding power preempts freely chosen actions.

2. Belief in “every man for himself” is incompatible with “concern for the poor.”

From an ethical perspective, it may be morally right to help the poor; but in a completely free society we should have a political right not to do so. Put differently, a theory of justice is not always congruent with a theory of politics. One can condemn bad conduct without empowering government to take remedial action. Yes, charity is a virtue. But government-compelled charity is a contradiction in terms – a political act that negates real charity, which must be voluntary, not coerced.

As it happens, the evidence proves conclusively that more wealth, including a greater abundance for the poor, is a by-product of individual liberty.

3. Government intervention is sometimes necessary – for example, “to prevent monopolies.”

Libertarians are not opposed to reasonable safety regulations, sensible compromises of civil liberties to enhance national security, or even selective gun controls. Moreover, we recognize that markets are not perfect. But neither is government. The proper comparison is not “unfettered” freedom versus a perfectly managed world. Instead, the relevant tradeoff is free markets versus the reality of government intervention. No doubt, government occasionally does good things. But the equation isn’t complete without considering the bad things that inevitably accompany the good.

With respect to monopolies, true barriers to economic enterprise arise from government misbehavior, not private power. Special-interest legislation and misconceived regulatory regimes protect existing producers from competition. Exclusive licenses to privileged rivals nurture monopolies at public expense. Targeted tax benefits, subsidies, guarantees, and loans; or tariffs and quotas to protect domestic companies from foreign imports, spawn the same anti-competitive environment that antitrust laws are meant to foreclose. Corporations exploit the law – consorting with members of Congress, their staffers, and the best lobbying firms that money can buy. Too often, that’s the practical consequence of government intervention.

4. “Isolationism” cannot be reconciled with our “obligation to help weaker nations.”

Paradoxically, conservatives, who are justifiably skeptical about the efficacy of government in domestic matters, are eager to embrace a more expansive role for government overseas, in the name of national greatness. Even after Vietnam, Iraq, and our endless war in Afghanistan, interventionists are fixated on exporting democracy – urging military responses to sometimes-illusory crises. The result has been imperial wars, American lives lost, and wealth transfers to corrupt dictators. That’s not a foreign policy a libertarian can support.

5. Same-sex marriage and drug legalization are at odds with “truly conservative principles.”

It’s nice to end on a note of agreement. The libertarian position on same-sex marriage and drug legalization is indeed liberal, not conservative – even as our position on fiscal issues is conservative, not liberal. Does that mean libertarians are philosophically inconsistent? No, it means conservatives and liberals are. Conservatives want smaller government in the fiscal sphere, but they condone bigger government when it comes to empire building and regulating personal behavior. Liberals want fewer government restrictions in the social sphere, but they embrace strict limits on economic liberty.

Unlike liberals and conservatives, libertarians have a consistent, minimalist view of the proper role of government. We want government out of our wallets, out of our bedrooms, and out of foreign entanglements unless America’s vital interests are at stake.

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Look who stands for Rand. He can deliver the young vote.