BORN ON 2ND BASE?

 At one time or another, you probably have heard the term “born on 3rd base.” Although there are several stories about its origin the term is widely attributed to football coach Barry Switzer who once said at a news conference, “some people are born on third base and go through life thinking they hit a triple.” 

Today, we will take on a group a bit further down the wealth scale. I dub them “born on 2nd base” while a long-time reader of MR calls them “the top 19%” who are ruining the chances of many Americans for upward mobility. My frequent MR reader said, “most of us despise the 1% but I really resent the next rung usually referred to as the upper middle class". I responded so you mean people born on 2nd base instead of third? He laughed and said I had captured it well. I found it interesting in that the Federal Reserve has recently released a report stating that as of December 2022, some 18% of American households had a net worth more than one million dollars. Given the rise in both equity and real estate values, we are probably up to 20-21% of total households hitting the now relatively meaningless statistic.

Is this reader alone in his anger? Nope. Over the last 18 months, I have heard from several readers who vented about how the upper middle class is practically building a moat around themselves. Here are some of their gripes:

1) Legacy college entrance—for years, elite colleges and universities tended to favor children of alumni. The time-honored reason was that the family would continue to be generous givers to the institution and the next generation would do that as well. Also, the noveau-riche could land a spot for a son or daughter with a seven-figure contribution. Some of this has gone by the boards as the most prominent institutions have huge endowments and face strong media scrutiny. Smaller colleges continue the practice as they are struggling for cash and are under the media radar that the Ivies and other leading schools face.

2) Upper middle-class parents send their children to SAT prep courses. Others take them on frequent foreign trips that widen their perspective and sharpen their foreign language skills. Most families cannot afford this.

3) Internships—This is generating some noise. An internship at the right firm is a terrific resume builder for a college student. So, Mom or Dad asks a friend to take their child on for a summer and often they will bring the friend’s child into one of their companies. This type of closed loop really occurs. A bigger problem is the coveted internships in NYC or in Washington, DC. Well-heeled parents can put their student up in expensive and safe digs for the summer. People of more modest backgrounds cannot do this. Many internships used to be non-paid. That has changed and some allow for college credit to be awarded for certain jobs. This tends to exclude all but the millionaire plus group if the internship is out of town.

4) Living in neighborhoods or counties with strong public schools

This one does not get a lot of media notice but, over the years, I have certainly heard many discuss it. Once, years ago, at a luncheon, a media rep said that he was moving to a suburban area with great schools. A colleague berated him saying why not stay in your current jurisdiction and fight for better schools. The rep said “why should I use my daughter as an experiment? It may take 10-15 years to turn the current school system around. If we move, we will pay higher property taxes, have a higher mortgage payment, and I will have a longer commute. But, I am giving my child a chance to get in to a top rated school. I make no apologies for that. I love my daughter!” Tied into this is that affluent neighborhoods fight against high density housing entering their domain. Part of may be to maintain strong property values but some could be racist tendencies.

5) Tax policies that favor the affluent—few people except some extreme progressives bring this up. Mortgage interest in the US is largely tax deductible. I have received several e-mails from readers saying that it is unfair to give homeowners such a tax break. Gently, I counter that it would be damn near impossible to strip that rule away with nearly two thirds of American households benefiting from it. Yes, it is not allowed in Canada but our friends to the north have never had this loophole.

Do children of the affluent but not super rich have an advantage over the middle and working class? Absolutely! Yet, they are often the ones reading to their children every night, driving them to soccer games or music class and being deeply involved in their youngsters lives. They are only wanting what is best for their children. This is an integral part of the American dream of having your children living better than you.

Is it unfair? Yes, those born on 2nd base do have advantages that most do not. I simply do not see it as a conspiracy against the underprivileged as some of my angry readers do. 

If you have any ideas on how to level this playing field, please drop me an e-mail.

You may contact Don Cole directly at doncolemedia@gmail.com or leave a message on the blog.

MUSINGS ON STATISTICS

 Author and humorist Mark Twain allegedly once said, “There are three kinds of lies—lies, damned lies and statistics.” It often gets a laugh despite advances in research over the last 150 years.

I spent a large part of my career working with numbers and still do. Statistics still fascinate me yet, sadly, I see them misused increasingly in the media and more glaringly in social media.

My first real encounter with statistics came when one of my older brothers took a college course in statistics. We discussed it quite a bit and, as a high school student, I bought a copy of HOW TO LIE WITH STATISTICS by Darrell Huff. The book was published in 1954 and by the time I purchased and devoured it, the year was 1966 and it had sold hundreds of thousands of copies.

Huff was cynical about statistics and stressed how marketers could be selective about what you were shown in making decisions. I vividly remember one effective example in the book. He talked of a survey taken in 1950 regarding the income of Yale graduates in the class of 1924. The average income reported was several times that of the national average. One might say no surprise as many Yale graduates were and are among America’s elite. Huff probed a bit—what of those who did not respond? Were they struggling compared to their classmates? Embarrassed by their relative lack of financial success? This was my first exposure to non-response error, and he did a better job explaining it than any college or graduate school professor that I ever had.

In college, I did fine in Statistics and firmly understood the difference between average and median which many in the media and business world still do not grasp or worse, use the two terms interchangeably.

In the advertising and marketing world where I spent the bulk of my career, the response to any research presented was varied. A wealthy businessman who owned 20 fast food restaurants chewed out a young and earnest member of my negotiation team by saying her buy was worthless as he did not watch the programs on the TV schedule. I had had enough and told him that he was a multi-millionaire, and it was logical that he was watching vastly different programs than his 18-34 target audience. He got red in the face, but his fellow members of the advertising co-op backed me up. Sales moved up nicely and he stayed quiet at the next meeting.

Other clients told me that all Nielsen ratings were nonsense as they had never been in a survey. A primer on sampling theory would have accomplished little.

Over the last 50 years, I have seen good, mediocre and poor studies. Here are a few things to keep in mind:

1) When you see the research, take your own temperature. How do you react to it emotionally? If it is a totally new topic, you are likely to be cool-headed. I have seen CEO’s or senior management bristle when research says consumers have issues with their product or service. “All our customers love us” was a line heard frequently yet their market share was not high. A new CEO was likely to be much more open to hearing bad news than their predecessors as they were there to turn things around. I have seen the same thing with shareholders. If an analyst posts a less than positive forecast for a stock that they own, often the response is that the category specialist is an idiot.

2) Try to separate your personal feeling from what the larger sample is telling you. I saw broadcasters dismiss cable and then digital possibilities as they felt their growth would hurt their livelihood. They were not objective at all.

3) Ask if anything is missing from the data and how was it asked. Most do not. 

4) I realize this is hard for all of us but try hard to keep an open mind and remain curious. Most people are not, and this is deadly in our era of rapid change.

I could not on forever and  provide some colorful examples of reaction to research, but I think it best if I take those stories to the grave.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

The NFL and Private Equity

 In a few days, the National Football League (NFL) season will begin. Millions of Americans are chattering about the upcoming season and getting involved with their fantasy football groups. For a business news junkie such as I, what turned my head was a rule change that will let private equity firms** buy in to NFL franchise ownership.

There are some caveats:

1) A maximum of 10% of any club can be owned by private equity funds. More than one fund can be involved but the total may not exceed 10%.

2) Pension funds and sovereign wealth funds (often foreign governments) are not allowed.

3) The controlling owner of a team still must maintain a minimum of 30% ownership. Additionally, no team may have more than 25 total owners.

4) Private equity will have no voting power. 

5) Personnel decisions of any magnitude will not be made or involve the private equity folks.

6) A private equity fund can invest in as many as six NFL teams but must hold at least a 3% equity position on each team it chooses. Also, the holding cannot be sold for a minimum of six years.

7) A careful review process will be taken to be sure that every private equity group passes muster with the NFL.

Okay, so who cares?

Well, actually this is nothing new in the world of sports. The MLB, NBA, NHL and Men and Women’s Soccer leagues all allow 30% ownership of a franchise by private equity. The NBA, NHL, and MLS also allow a single private equity fund to own 20% of a franchise while the MLB and NWSL limit it to 15%.

Why is this being done? For years, major league sports franchises were often referred to as a plaything of a rich businessperson or family. As the value of franchises have soared, particularly in the NFL, it may be hard to find new buyers. 

As an aside, I have often found people refer to successful people as billionaires. Well, a billion is one thousand million. According to FORBES, there are approximately 2,780 billionaires on earth with the U.S. having just over a quarter. The number floats a bit depending on equity and real estate market conditions. So, there are not that many people out there who can buy a franchise outright. Some have no interest in it, others wish to keep a low profile, and others do not want to sell lucrative business interests or take a huge loan to buy the franchise. 

Also, prices are moving up smartly. Just last year, the Washington Commanders sold for an estimated $6 billion. Other franchisees are easily worth significantly more and several years from now could easily double in value.

Selling off a portion of your club without losing any voting control “unlocks” some value for the franchise owners. Rumblings are that stadiums could get a facelift or facilities could be upgraded. The private equity folks are locked in for six years and, by then, the franchise could be worth much more.

Why get involved without voting rights? Owning a franchise or a small piece of one is the armchair dream of many. I did it myself. Back in the 90’s, the then Cleveland Indians (now Guardians) went “public”, and you could buy shares. As a child, my dad, a Midwesterner, generally only took us to Fenway Park in Boston when the Cleveland ballclub was visiting. It stuck with me. So, as a bit of a lark, I bought a few shares. It felt great even though I was not sent free playoff tickets. About 15 months later, I sold out for nearly triple my money when the club was purchased. I was no longer an “owner”, but it was a great, fun, lucky and somewhat lucrative experience. 

So, some private equity groups may want to participate as voyeurs or for diversification or thinking that the long-term payout could be good when a franchise was sold.

Interestingly, many observers feel that private equity is often unsavory. You read that many are asset stripping operations where they buy a company, sell off divisions or products, pocket some money and employees are left high and dry in a firm that is greatly diminished in size or future prospects. Don’t believe it? Here is what Warren Buffett and the late great Charlie Munger had to say about it at last year’s Berkshire Hathaway annual meeting:

https://www.youtube.com/watch?v=r3_41Whvr1I

Or, for a deeper dive, read the recent book of my favorite financial journalist, Gretchen Morgenson—THESE ARE THE PLUNDERERS: HOW PRIVATE EQUITY RUNS—AND WRECKS--AMERICA.

With the NFL, to me, there is a likely twist. NFL owners are largely tough minded and smart billionaires. Maybe they are inviting private equity players into their tents but the owners may benefit far more you might think.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

**What is private equity? The SEC defines it as “a pooled investment where the investor pools together the money invested in the fund by all the investors and uses that money to make investments on behalf of the fund. …….They often focus on long term investment opportunities that take time to sell with an investment time horizon typically of 10 or more years.

American Wealth Update Plus Global Gini Statistics

 Earlier this week, I put up a post on CEO Compensation. The mail was muted in size but quite passionate. Some said it was an interesting read, others said it made them think, and a few wrote that it made them angry. Others said that is the way of the world, so why mention it? One was a real gem, and I have permission to repeat it here. The tart comments were: “Cole, I always thought you were a free market guy. Now I realize that you are a Bolshevik bomb-thrower.”

Well. Anyone who knows me even a little realizes that I would never toss a Molotov cocktail into the trading room of a hedge fund or the partner’s dining room of an investment banking firm. 

Inequality has always been around and likely always will be to an extent in any capitalist society. In this post, I will address the issue with data in two ways:

1) Recent Federal Reserve figures on Levels of Wealth-by-Wealth Percentile Groups (the clumsy title is theirs, not mine!).

2) Gini Coefficients estimated levels of inequality across the globe. 

1) Let us start in the USA with data released earlier this year from the St. Louis Federal Reserve Bank. I will use percentages as the endless zeros of billions and trillions may confuse some readers.

Here goes:

The top .1% (or one 10th of one percent controls 27.6% of total US assets (wealth).

The top 1% which, of course, includes the top .1%, has 44.3% of the wealth.

The top 10% has 62.3% of the wealth.

The 50-90% percentile (often referred to as the middle or upper middle class near the 80-90 range) has slightly less than a third weighing in at 32.1%.

Finally, the bottom 50% have 5.6%.

Source: St. Louis Federal Reserve Bank, 2024

All these figures may bounce a bit depending on equity and real estate markets month to month ups and downs. The trend is clear that a small group, including many of you MR readers, are doing very well while most Americans are treading water, and some are losing ground. Consider that 34% of Americans are renters and approximately half have no equity holdings either directly or in a 401k, Roth, or mutual fund. 

Some say that the next bear market in stocks or real estate will right the ship quite a bit. Yes, if you have a $1 billion and you take a 30% haircut, you have lost on a relative basis, but you are still firmly placed in the .1%. And when markets rebound (as they always tend to do), you benefit while people not in the game are still leading a largely hand to mouth existence. 

2) Okay, how does the good old USA compare to other nations? Well, the data is difficult to compare but I have found that the best RELATIVE yardstick to use is the Gini Coefficient. 

What is the Gini Coefficient? Way back in 1912 Italian statistician Corrado Gini came up with a way of measuring income distribution within a society. It is a fairly simple concept. If one person (family) earned all the money in a country and all others earned nothing, the Gini coefficient would be 1. Conversely, if there were perfect distribution, the statistic would be zero. It is a useful but not perfect measure of income but not asset wealth as the Federal Reserve data is. A couple of problems with using it is that GDP and income data is difficult to ferret out in developing countries. Also, some analysts state that it understates inequality as wealthy folks in unstable countries often have assets hidden in offshore tax havens.

Still, here are some stats from the World Bank.

The least egalitarian places on earth (highest Gini Coefficient) include:

Nation Gini Score

South Africa 63.0

Namibia 59.1

Suriname 57.9

Zambia 55.9

Belize 53.3

Brazil 52.9

Columbia 51.5

Angola 51.3

A score over 50 is looked upon as a danger zone with extreme inequality.

Those with the lowest Gini Coefficient are all in Europe. Some examples are:

Nation Gini Score

Norway      22.7

Slovakia      23.2

Slovenia      24.0

Moldova      25.7

Netherlands      26.0

Belgium      26.0

Iceland      26.1

Several years back, the Scandinavian countries topped the list. Now, only Norway is a clear leader. They put much of their North Sea oil riches in a permanent fund that covers all medical and educational expenses. Income and sales taxes are high, but people live quite well. 

What about the NAFTA countries? The United States weighs in at 40, Canada 32, and Mexico 45. 

In Europe, some prominent names are Germany 31.7, United Kingdom 32.6, and Ireland 29.2. Surprisingly, two small but wealthy countries, Luxembourg and Switzerland are almost tied at 32.7 and 33.1 respectively.

Also, Bulgaria is at 40.5 edging out the 40.0 score of the United States. So, a nation’s size is not a big factor here. 

Nations with low Gini coefficients tend to either offer cradle to grave security with their provider state or are eastern European countries coming in to their own and massive fortunes are rising but are not long standing given former USSR rule.

How to resolve it? Sharply higher taxes that are enforced. This is difficult politically and economically would likely stifle entrepreneurship and growth.

If you read economic history as closely as I have (yes, I am a bore) you will see that other than the period after World War II up to the 80’s, there has always been high levels of inequality.

In 19th century America, the Carnegies, Vanderbilts, Morgans and railroad barons had a sharply disproportionate share of the nation’s wealth. The same was true in Britain during the Industrial Revolution. Go back 100-200 more years and you see that the nobility lived well while the peasantry had a hard knock life. So, today’s skew is not outside of historical parameters. The immediate post 1945 decades were.

Politicians will discuss this a great deal this year across the globe. My hope is to give you some facts to weigh their comments. 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

Earlier this week, I put a post on CEO Compensation. The mail was muted in size but quite passionate. Some said it was an interesting read, others said it made them think, and a few wrote that it made them angry. Others said that is the way of the world, so why mention it? One was a real gem, and I have permission to repeat it here. The tart comments were: “Cole, I always thought you were a free market guy. Now I realize that you are a Bolshevik bomb-thrower.”

Well. Anyone who knows me even a little realizes that I would never toss a Molotov cocktail into the trading room of a hedge fund or the partner’s dining room of an investment banking firm. 

Inequality has always been around and likely always will be to an extent in any capitalist society. In this post, I will address the issue with data in two ways:

1) Recent Federal Reserve figures on Levels of Wealth-by-Wealth Percentile Groups (the clumsy title is theirs, not mine!).

2) Gini Coefficients estimated levels of inequality across the globe. 

1) Let us start in the USA with data released earlier this year from the St. Louis Federal Reserve Bank. I will use percentages as the endless zeros of billions and trillions may confuse some readers.

Here goes:

The top .1% (or one 10th of one percent controls 27.6% of total US assets (wealth).

The top 1% which, of course, includes the top .1%, has 44.3% of the wealth.

The top 10% has 62.3% of the wealth.

The 50-90% percentile (often referred to as the middle or upper middle class near the 80-90 range) has slightly less than a third weighing in at 32.1%.

Finally, the bottom 50% have 5.6%.

Source: St. Louis Federal Reserve Bank, 2024

All these figures may bounce a bit depending on equity and real estate markets month to month ups and downs. The trend is clear that a small group, including many of you MR readers, are doing very well while most Americans are treading water, and some are losing ground. Consider that 34% of Americans are renters and approximately half have no equity holdings either directly or in a 401k, Roth, or mutual fund. 

Some say that the next bear market in stocks or real estate will right the ship quite a bit. Yes, if you have a $1 billion and you take a 30% haircut, you have lost on a relative basis, but you are still firmly placed in the .1%. And when markets rebound (as they always tend to do), you benefit while people not in the game are still leading a largely hand to mouth existence. 

2) Okay, how does the good old USA compare to other nations? Well, the data is difficult to compare but I have found that the best RELATIVE yardstick to use is the Gini Coefficient. 

What is the Gini Coefficient? Way back in 1912 Italian statistician Corrado Gini came up with a way of measuring income distribution within a society. It is a fairly simple concept. If one person (family) earned all the money in a country and all others earned nothing, the Gini coefficient would be 1. Conversely, if there were perfect distribution, the statistic would be zero. It is a useful but not perfect measure of income but not asset wealth as the Federal Reserve data is. A couple of problems with using it is that GDP and income data is difficult to ferret out in developing countries. Also, some analysts state that it understates inequality as wealthy folks in unstable countries often have assets hidden in offshore tax havens.

Still, here are some stats from the World Bank.

The least egalitarian places on earth (highest Gini Coefficient) include:

Nation Gini Score

South Africa 63.0

Namibia 59.1

Suriname 57.9

Zambia 55.9

Belize 53.3

Brazil 52.9

Columbia 51.5

Angola 51.3

A score over 50 is looked upon as a danger zone with extreme inequality.

Those with the lowest Gini Coefficient are all in Europe. Some examples are:

Nation Gini Score

Norway      22.7

Slovakia      23.2

Slovenia      24.0

Moldova      25.7

Netherlands      26.0

Belgium      26.0

Iceland      26.1

Several years back, the Scandinavian countries topped the list. Now, only Norway is a clear leader. They put much of their North Sea oil riches in a permanent fund that covers all medical and educational expenses. Income and sales taxes are high, but people live quite well. 

What about the NAFTA countries? The United States weighs in at 40, Canada 32, and Mexico 45. 

In Europe, some prominent names are Germany 31.7, United Kingdom 32.6, and Ireland 29.2. Surprisingly, two small but wealthy countries, Luxembourg and Switzerland are almost tied at 32.7 and 33.1 respectively.

Also, Bulgaria is at 40.5 edging out the 40.0 score of the United States. So, a nation’s size is not a big factor here. 

Nations with low Gini coefficients tend to either offer cradle to grave security with their provider state or are eastern European countries coming in to their own and massive fortunes are rising but are not long standing given former USSR rule.

How to resolve it? Sharply higher taxes that are enforced. This is difficult politically and economically would likely stifle entrepreneurship and growth.

If you read economic history as closely as I have (yes, I am a bore) you will see that other than the period after World War II up to the 80’s, there has always been high levels of inequality.

In 19th century America, the Carnegies, Vanderbilts, Morgans and railroad barons had a sharply disproportionate share of the nation’s wealth. The same was true in Britain during the Industrial Revolution. Go back 100-200 more years and you see that the nobility lived well while the peasantry had a hard knock life. So, today’s skew is not outside of historical parameters. The immediate post 1945 decades were.

Politicians will discuss this a great deal this year across the globe. My hope is to give you some facts to weigh their comments. 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

CEO COMPENSATON

 You see and hear a great deal about inequality these days. It has become a hot political issue to some, but many seem to take the “I’m doing okay” attitude and ignore what has been going on in recent decades. 

Every year or so, a stream of articles are released across the media about how Chief Executive Officer (CEO) compensation is outrageously high. The statistic that is used most often is that the average CEO of a Fortune 500 company has a compensation package that is 360 times greater (some say 320 times) than the average employee of that firm.

Eye popping numbers such as that certainly get people’s attention and make for good copy. The question few people ask is how did this happen over the past several decades? I have a few theories that I will share with you. Sadly, I do not see a workable solution to the issue. 

If you study annual reports of leading companies, they often give detailed information on the different committees that outside members of the board of directors serve on in the organization. Look closely and two things pop out. First, the CEO of the company often serves on the board of directors of a member or two of his or her own board. Interlocking directorates are a real thing. Dig a bit deeper and you sometimes find that their “friend” who has the CEO as a director in his or her firm is surprisingly often on the compensation committee to determine the salary, bonus and perks of those in the executive suite of the corporation. Or perhaps a CFO or Vice Chairman is on the friend’s board.

So, if you have a buddy or two on the compensation committee, who is also the CEO or senior executive of a company of which you are a director, your compensation will likely not be “light” when it comes time for the group’s recommendation for your next year’s salary or bonus.

If you speak with many people about this apparent conflict of interest, they smile and often say that the problem can be alleviated by hiring an executive pay compensation firm. This, to me, is laugh out loud funny. Think about this for a moment. If a compensation firm continually low balls (translates provides realistic) compensation package for a CEO word gets out and the firm suddenly has fewer clients. They often provide recommendations by “benchmarking” what leadership is getting in companies of similar size or competitive category. So, recommendations of these non-partisan experts often maintain the status quo. The compensation committee on the corporate board do not often enough buck the compensation firm’s recommendations.

An argument that some people use is in defense of lush compensation is that today more is expected of a large company CEO. Yes, the world is more complicated. A CEO must have a better grasp of economics, world events (most huge companies operate globally), and public relations than leaders in the past. They also have need to be media savvy. With the growth of CNBC and Bloomberg, CEO’s have become celebrities and cannot behave in public as some 19th century robber barons did. While this is all true, they have teams of experts around them, and they are better educated than most leaders a generation or two ago. 

For a few decades now, Warren Buffett has told us that when you buy shares in a company take the attitude that you are an owner of the firm (because you are!). As is often the case, I agree with the great Buffett. So, as an owner, read the annual report and spend some on the compensation of those in the executive suite. If the company had a poor or mediocre year, should the CEO receive a lusty bonus? Was compensation tied to stock market valuation of the company and you noticed that the company bought back many millions in shares even though the stock was trading at an all-time high? Does the employment agreement contain an enormous golden parachute that kicks in even if the CEO was fired for poor performance?

If you are an “owner”, read up on your company. People tell me that they only own 100, 500, or 1,000 shares. What can they do? Write a strongly worded letter to the board. Vote against what you deem to be exorbitant pay packages. After all, it is your money.

Some counter that the company has made them rich or comfortable. This is especially true in highly successful tech companies. They do not begrudge the founder or current leader eye popping salaries, bonuses or sweetheart stock options. I get that. Yet all 500 companies have not made their shareholders financially comfortable.

My long-term fear is that if the present trend continues more people will want Congress to set income caps for senior executives in publicly traded companies. Do you really want Senator Elizabeth Warren writing that legislation? I greatly admire how she took down some financial executives after the 2008 debacle. At the same time, I do not want her and fellow travelers interfering with the policies of US companies operating in a somewhat free market. Let the owners decide!

So, if you are a shareholder of any size, study how YOUR company is operating. You may be surprised at what you find.

If you would like to contact Don Cole directly, you may reach him at doncolem

What Is An Entrepreneur, Really?

 Let us begin today with a quick quiz? Name some entrepreneurs. The odds are the top-of-mind names will be some mix of Bezos, Jobs, Musk, Zuckerberg, and Gates. All such answers would be true but, despite what you see and hear from the media, they are only the tiniest sliver of entrepreneurs in both the United States and globally.

The 18th century economist/banker Richard Cantillon** appears to have been the first person who defined what an entrepreneur is. His definition is logical and deceptively simple and hinges on only two facts:

1) They work for themselves

2) They were willing to accept financial uncertainty that is a given in self-employment.

So, an entrepreneur does not have to be a Silicon Valley whiz kid who cashes out for a billion +dollars when his company goes public. A farmer, an owner of a car repair shop, a coffee shop operator are all entrepreneurs even if the media and population at large do not see it. They often live a precarious financial existence and most of their business ventures fail. Some make it but on the third or fourth try.

Today, most colleges and universities have a course or two in some form of entrepreneurship. The bigger universities and some MBA programs have a major or concentration allocated to the discipline. Some, with huge endowments and proximity to large Venture Capital pools, can get students introduced to deep pocketed players in tech. They have a smooth pitch deck at the ready and can last for a long time waiting for a break due to their parent’s affluence. On the other hand, the young dreamer from the hinterlands sleeps on someone’s couch (for a few thousand a month), showers at the gym and tries to have coffee with someone whom he thinks is a “player” in this exciting tech world. Very few of these unconnected people every breakthrough and launch their dream.

Millions of self-employed people do live their dreams. To me, they have always been the backbone of America. They pay their taxes, are involved with their communities and have their feet on the ground. 

They do not fair get coverage in the media. What is a hired worker? They get a regular salary, report to a boss, and operate within clearly and oftentimes carefully defined rules. The bootstrap entrepreneur just “has to be their own boss” and accepts the financial roller coaster ride that they are on in their small business.

I once exchanged e-mails with a professor at a VERY prominent university and told him how much I enjoyed his article about venture capital (VC). He thanked me but annoyed me by dismissing the smaller players when I asked him about the role of the smaller entrepreneurs. Then, he really annoyed me. He expressed open disdain for “lifestyle entrepreneurs” who are not dedicated to their business.

Okay, a lifestyle entrepreneur is an entrepreneur but on their own terms. The business is important to them but is not an all-consuming passion and is generally not how they define themselves. Let me give you a great example. Some years back, I was stuck in a small city working on a major project for a big client. Each day, I would get a morning coffee or a lunchtime sandwich at a small shop near my client’s headquarters. On my last day, I arrived around 2:15 pm as a client meeting ran really late. The lady who owned the shop was leaving. I said something to the effect that it was nice she could leave early. She laughed and said “I leave every day at this time. When I opened this business, I promised myself that I would always be there to pick up my children from school.” She went on to tell me that she work in corporate America for 15 years and hated it and was worried about her health. Now, she rises early and meets her baker to open the shop. Her husband gets the kids up, makes breakfast, packs their lunches and takes them to school. She says that she has a “normal” family life these days and loves it. Her business will never be franchised but she is happy. My distinguished professor does not see that her life is a success yet she is still very much an entrepreneur. There are many thousands such as she and they have my admiration and respect. The pompous professor does not get it.

Noted economist Joseph Schumpeter stated that much progress in a market economy came from a term he popularized dubbed “Creative Destruction.” Innovation crowds out the status quo and old habits are dropped as new ways to do business and make things emerge. 

I have no argument with the reality that Bezos, Jobs, Zuckerberg  and Gates have changed our lives in largely positive ways. Please do not forget (even though most media have) the millions of gutsy people who have gone out on their own and changed their little corner of the world. They, too, are entrepreneurs.

If you want to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

**Richard Cantillon was a fascinating character. Irish born, he was a successful speculator and banker in Paris. Then he got in involved with world class swindler John Law. He left Paris and moved to London. Angry people who said that he owed them money burned his house down. He was said to perish in the house. Others claim, a man looking very much like Cantillon popped up in remote Suriname sometime later calling himself Chevalier de Louvigny!

THE STEALTH MEDIA PLAYER—ANTENNAS

 Some 50 + years ago, I was a graduate student. One day, I received a call from my father. He asked when I was coming home and I said that weekend, for sure. He responded, “Great. We are having trouble with reception on the Boston stations (my parents lived in Rhode Island) and we need you to go up on the roof to adjust the antenna.” I said sure thing but when I hung up the phone, I thought about it. The last time I was on the roof he was with me, and we got the job done quickly. This time I would be alone as he was too ill to make the climb. I got it done and he only had me shift the antenna twice before all Providence and Boston stations had significant clarity. My big problem was dealing with getting off the roof, but I made it without incident. After I descended, I vowed never to climb the roof when I owned my own home. Rabbit ears would have to suffice.

Well, over the years, I have cleaned many a gutter but have stayed off the roof. When cable came to my jurisdiction, I eagerly signed up and let the provider scale the roof.  Antennas tended to be a bit passe as cable hit 70% of US households and satellite covering as much as 10% of (mostly rural) households.

Now, to the surprise of many, antennas have somewhat quietly been making a strong comeback in US TV households. Relax, young people. Your parents will not be asking you to take a precarious perch on their rooftops. Close to 70% of antennas sold in the states today are indoor units. They are fairly compact, square discs that are attached to a wall in reasonable proximity to the TV. You will not get cable channels but these little dynamos will deliver over the air (OTA) broadcast signals. You will receive ABC, CBS, NBC, and Fox. In many cases you will also obtain a fistful of “diginets.”

Why do people get the antenna? I asked my panel members and some acquaintances and here are some verbatim responses:

“I am not a huge sports fan, but I like golf and tennis and can see the major events on over the air tv. The antenna is great for me. I am currently watching the French Open Tennis Tournament. NBC’s coverage is enough for me.”

“I like NFL football and can get my fill on CBS, NBC, Fox and ABC. The Super Bowl also, of course.”

“As you know I live in a tiny media market (ranked between 180-200 according to Nielsen). I am on the city council, so I need to watch the local news all the time and the antenna allows me to do that.”

A few people said they liked it for local weather, but you can get that online almost everywhere.

The other big plus is savings. One MR loyalist wrote to me and said, “I used to spend $185 per month for cable and streaming. With my antenna, I have cut my bill to roughly $50 per month! My kids have taught me how to cancel Netflix and then get it back a few months later. Amazon TV comes with my Amazon Prime subscription. I also get Acorn and Britbox as I love the British fare and much of it goes back decades. I was paying for over 200 cable channels each month but only watched 7-8 at best.” It appears that this person is not unusual.

Over the last few years, estimates are that some 8 million US households have added antennas in both 2022 and 2023. This will not save over the air TV over the long pull as an advertising medium but will definitely wound cable.  Projections are that some 20 % of US TV households now have an antenna.

Finally, some of you are sure to be asking “what the hell are diginets?

There are 35-40 of these channels that are ad supported. Entries include Court TV, Bounce MeTV, Cozi TV, TDB, Dabl. They are positioned to advertisers as low-cost classic TV. They are actually old and sometimes very old reruns.

Americans are often good shoppers. In an inflationary environment, the humble antenna is saving money for millions and enhancing viewer satisfaction.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

It Is Unsustainable

 About 10 years ago, I was speaking to a very erudite man whose firm had dealings with Saudi Arabia. I asked him about their welfare state which covered tuitions, healthcare, and other forms of governmental support. He said that if a barrel of oil exceeded $80, they could continue to fund all of their societal needs easily (I have seen estimates of $75-88 per barrel from several sources). Long term, he said as we move to a world using far fewer fossil fuels, the Saudi “nanny” state was not sustainable.

Since then, I have seen the term “unsustainable” used to describe the provider state that most of Western Europe covers for their citizens. The problem in Europe is that birthrates are at an all-time low. Simply to maintain population, you need a birthrate of 2.1, often referred to as zero population growth (ZPG). Right now, in Europe, only the Faroe Islands have a birthrate above ZPG at 2.71. Among larger countries, Germany is at 1.53, Italy 1.3, and Spain 1.29. Without a significant increase in immigration, there is no way they can provide healthcare, free university education (in many countries) and excellent retirement benefits. Among major European nations, France has the highest birthrate at 1.79. Keep in mind that in recent years, France has offered bounties to couples having multiple children.

Something must give but cutting benefits does not seem viable as governments trying any kind of austerity program usually lose power at the next election.

What of the United States? Each year, I bristle when I see that our national debt has jumped and now sits at around $34 trillion. With the higher interest rates set by the Federal Reserve to bring us back to 2% inflation, we now have interest on the national debt playing tag with the size of the Pentagon’s budget (approximately $800 billion per year). To her credit, former governor and UN Ambassador Nikki Haley said, in her stump speech for the GOP nomination earlier this year, that, as an accountant, she saw real dangers in our escalating national debt. The comments were not well covered by the media and did not get much traction with the public.

Beyond the annual budget deficits there are our liabilities in Social Security and Medicare/Medicaid. Some estimates from Laurence Kitlikoff of Boston University are that our unfunded liabilities for those entitlements are over $200 trillion! To right the ship, you  would need to cut spending sharply and raise taxes by over 60 percent. Try running for president on that platform.

The ignoring of the Medicare/Medicaid issue is something so outrageous to me that it would make former Enron accountants blush. Social Security can be fixed or extended in its present state by raising the age of first-time beneficiaries and perhaps taxing away some benefits of the very well to do.

By the way, the United States birth rate hit an all-time low in 2023 of 1.6. So, to function as we now do, we are going to need an influx of millions of immigrants over the next 10-15 years. This will be a hot button issue for sure but it has to happen.

If you look at the facts, we are an unsustainable path. Not as bad as almost all of Western Europe but still serious. Will political leaders stand up and call for real fiscal responsibility and will the public support them? When I try to discuss this, people’s eyes glaze or tell me that I am a pessimist. No, just a tough-minded realist. 

It may not affect me in my life but my children and especially grandchildren will pay dearly for this lack of fiscal discipline. Our present track is truly unsustainable.

Why do people not seem to care? In high school, we had to read George Orwell’s ANIMAL FARM over the summer. We then read some Orwell essays in class. One line stuck with me—“to see what is in front of one’s nose needs a constant struggle.” These fiscal and entitlement issues are staring us in the face. We cannot ignore them forever.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

The Great Migration to Come

 This year, in the United States, we have a presidential election. A great many comments are being made about border control in the Southwestern United States. There is no question that the situation is very messy. One issue that the media does not cover well is WHY people are wanting to come to the United States. If you look at the facts, you will see the major reason is why most of our ancestors came from Europe—economic opportunity. Also, some are coming as they live in dangerous places in Central America and want to remove their children from a bad environment. 

Okay, it is a difficult issue and I see no easy workable solution at present. Looking ahead a few decades or perhaps sooner, we and much of the Western world will face a far bigger issue—Climate Migration.

If we continue on our present track toward a 3–4-degree centigrade increase in temperature, our new hotter world will likely create a nightmare scenario. Our level of carbon monoxide in the air, as of year-end 2022, was higher than it has been for the past three million years.

I looked at various forecasts that ranged from moderately scary to total gloom and doom. It was interesting to see what would be affected. In no particular order I found: Rising ocean levels would take over some areas of the Florida coast. I have noticed that even a bad rainstorm causes some flooding in Miami. The Outer Banks of North Carolina are in a precarious spot. New York City will survive, and two pundits said that the financial world will build a huge barrier protecting Southern Manhattan and, of course, Wall Street.  Boston may be okay, and the Maine coast could become even more fashionable and expensive. There will be a northern movement if things heat up. Wisconsin and Minnesota have lots of lakes and people like to spend time near water. If the winters become milder there, the population might jump. A similar scenario has been forecast by some for Upstate New York and Northern New England.

Arizona and Texas already have some water issues which will only get worse as the population grows and the areas get even hotter. Agriculture will suffer as aquifers decline so food may become more expensive, and yields drop. The wheat crop should suffer as well, and government subsidies cannot help with lack of water.

Canada, along with Russia, has the world’s most abundant fresh water so, if the temperatures keep rising, Canada’s agriculture may be vibrant along with many wanting to migrate there.

Europe is already seeing many in drought stricken African countries trying to move to western countries. There are a few issues. Europe is full of senior citizens. Immigrants are needed to fill in many jobs, including caregiving to the elderly. Yet much of Western Europe is on an unsustainable path to maintain their provider state of education, healthcare, and old age pensions. How many immigrants can some countries take in?

Also, the humanitarian issue is huge. If many Africans cannot leave their parched homelands, millions may well die of disease and starvation.

South America has future climate issues although Patagonia and Southern Chile should be in better shape than the rest of the continent.

Australia is burning up these days. Some people will have to leave if climate change is not tamed. Southern New Zealand looks fine. India is in a bad spot with a huge population and no relief on the climate front. Many Pacific islands are likely to disappear.

Many politicians have lobbied hard for the use of more renewable energy. Some have said that by 2030 or 2035 all US vehicles and all electricity produced will be carbon free. They are well intentioned but hideously naïve. Right now, only a handful of U.S. utilities can meet the 2035 goal, and most have candidly told state regulators that they are pushing back their dates for a carbon free era. A big problem is with battery storage. Wind and solar technology have improved significantly in recent years, but their delivery is intermittent so a back up source such as natural gas is needed until battery development is stronger than what we have today. So, the use of fossil fuels (oil and natural gas), like it or not, is with us for some years to come. Also, electrical use will soar globally and the infrastructure is not ready to handle new demand via renewables.

Is it all hopeless? Not to me, but some hundreds of millions across the globe will need to move and what countries can/will take the migrants in? This will not be solely a political issue but a moral issue. In recent years, Canada has been very open to immigration, but they can be highly selective about whom they allow to enter their fair country. Will they take Americans who want to escape the southern heat?

So, if you think that discussing border security in the 2024 U.S. elections will be heated, may I suggest that you have not seen anything yet compared to what is to come?

For a slightly optimistic view on this issue, I recommend reading Gaia Vince’s NOMAD CENTURY (Allen Lane publishers, 2022).

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com

Are you in a 50+ US Millionaire Household?

 Recently, a report was released from the federal Survey of Consumer Finances that stated that the average US household with adults around 50 years old had an average net worth of one million dollars.

Last week, the statistic was mentioned on Saturday Night Live and I began to get messages from people who were upset about it. We need to clear the air a bit on this topic. Hence this post.

By year end 2022, the median net worth of American households  was $192,900. Please note that figure was MEDIAN, not average. 

For households with people in their late 30’s, the average net worth figure was close to $500,000 and, those in their late 40’s, $750,000. And, for families with household heads in their fifties, it was resting at $1million.

Now, while being a millionaire was a dream for many it is really a psychological yardstick and a somewhat meaningless statistic in 2024. A Californian who once called on me as sales rep admitted that his house alone was valued at $1.5 million but he still worries about paying his car insurance and keeping his job. He is, on paper, a millionaire but hardly feels affluent.

The study also stated that approximately 18% of US households had a net worth of over $1millon. Using a back of the envelope calculation with record high stock and real estate prices as I type, I peg 23% as the working figure for  current US households with the million dollar plus net worth handle.

Think about it for a minute. What does a million dollars mean? It buys you a studio apartment in a decent neighborhood in Manhattan. Most Americans still have a high percentage of their net worth in their homes. They are not that liquid. If you had a million in cash you could put it in CD’s at current interest rates and earn $50-55k a year. Hardly enough to qualify for what for decades we have considered a millionaire lifestyle.

What irks me about this report is not that it is inaccurate. It is probably very close to reality. The problem gets back to my old pet peeve about how the press and most individuals continue to use median and average interchangeably. 

Let us repeat the lesson that I have mentioned now and then in previous posts. Here are two key points:

1) A person can drown in a river with an average depth of six inches. If you had a reasonably good statistics professor, the lecturer would have used this homely analogy to stress the weakness of average as a statistical benchmark.

2) Let us repeat one more time the popular but effective joke showing how averages do not reflect reality—Bill Gates walks into a rural bar with 29 people in it. Let us assume that Mr. Gates has a net worth of $100 billion. The AVERAGE net worth of the people in that bar now sits at 3.3 billion dollars (100 divided by 30). But the more meaningful number is the median net worth (the 50th percentile with approximately half you sample over and the other half below the median) is $80,000.

Is point #2 an exaggeration? Of course. Yet it is what is happening in America today where a relative handful of people of extreme wealth are pulling up average numbers. The wealthiest 1% now have more net worth than the entire American middle class. Wealth skews are getting so sharp that we are beginning to look like many developing countries in terms of net worth distributions.

Here are a few comments from people whom I heard from or polled:

--"I worked hard for 30 years and on paper I am a millionaire. But, I don’t feel financially secure. A replay of 2008 would cut me back quite a bit. I still worry about losing my job, getting my kids through college, and saving for retirement. As you wrote in a post a few months ago, a million bucks is not what it used to be.”

--"When my wife showed me the news headline, I felt as if I was a total failure. Finally, she has stopped telling me that we are below average.”

--“This looks good and feels good, but we are in a tech stock bubble and real estate bubble. When one or both burst someday, people will get their comeuppance. No, we are not millionaires.”

--“I guess it is a milestone of sorts. I just keep flailing away at work. As a young adult, a million was my goal. It feels hollow and is not at all soothing. We are nowhere near the 1%.”

My advice is do not let the average figure get you down. If you are worth more than a million, great, but depending on where you live, life could still be a struggle given high taxes or cost of living or perhaps the majority of your net worth is tied up in your primary residence so everyday expenses are still a burden. If you are below a million, remember that median net worth for people in their fifties was about $300,000 in this study ($272.8k for 50-54 and $320.7k for 55-59).

Schools do a rotten job of explaining the difference between average and median. The media does not help. Thanks for reading my rant.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Disney, ESPN+, and The Sports Bundle

 In recent weeks, the media world has been buzzing a bit about Bob Iger’s proposed plans for ESPN+. Additionally, Nelson Peltz of Trian is again making a run at Disney shareholders with an attempt to win a few seats on the Disney board of directors.

Over a month ago, Disney chief Bob Iger announced several changes. They include:

1) Disney is finally going to get a stronger position in gaming. This has been widely applauded as Disney does reach a lot of kids. Also, in sports, gambling is widespread so ESPN could benefit there and has credibility.

2) Disney will be a player in a new “skinny bundle” that will allow subscribers to catch major league sports across Disney channels, Fox, and Warner Bros. Discovery. It sounds great but does give me pause. How long will the alliance last; there are egos involved. Can they be Frenemies over the long pull? Will Amazon, Apple, and Alphabet decide to ramp up their sports presence and outbid these established media players for certain properties? 

3) Iger also discussed a limited streaming service for ESPN + that would debut in fall of 2025. It would be a souped -up version of ESPN+ with “much more personalization and customization.” They are projecting a cost of $30 per month. Admittedly, they are many sports fans in the U.S., but how many will be willing to pay $30 for this standalone service? Right now, you can get existing ESPN and other channels for $15/month is some cases.  The projected $30 price tag would be twice a Netflix subscription. If it clicks, it could be extremely lucrative for Disney but $30 appears to me to be over the breaking point for millions of consumers.

Tom Rogers was head of NBC Cable for a decade. He also founded CNBC for which I am very grateful. In a recent interview on CNBC, he weighed in on some possible Disney changes:

https://www.youtube.com/watch?v=px7nslNjdl4

Bob Iger was CEO of Disney from 2005-2020 and was widely respected in business circles. He retired and was succeeded by Bob Chapek who left Disney in Fall of 2022. Iger was called back as CEO in November 2022 and has a contract lasting in to 2026. 

He faces many challenges including the Trian initiative to get board representation and make strong changes. To me, the bigger if not biggest challenge will be to find a multi-faceted executive who can replace him in 2026.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Is Advertising in The Super Bowl Worth The Cost?

 Okay, some of you may find the topic of this post a bit controversial. Several people asked me to draft it. Also, I polled several marketers and advertising people and asked them whether they think it is still a value in 2024.

First, a bit of background to refresh your memories. This year, 30 seconds of time on the Super Bowl cost approximately $7 million. Interestingly, many of the spots were 60 seconds long meaning the advertiser was shelling out $14 million for one minute. On top of that commitment, production was elaborate and first rate and probably added a couple more million to the tab. Lastly, a number of top-drawer celebrities appeared in many of the executions, and they probably did not work for free. So, in some cases, it is fair to estimate that the tab for the one-minute commercial was $17-18 million.

Was it worth it? For 25 years, we have been discussing how fragmented all types of broadcast, cable and streaming video have become. The Super Bowl was the only place where you could deliver 100+ million advertising opportunities all at once. The time-honored rule in media has been that you “pay more to get more.” So, the Super Bowl gave you a rating not seen since the 1960’s for over the air TV. And, importantly, the Super Bowl may be the only event on TV where people actively watch the commercials intently. So, attentiveness levels to Super Bowl commercials are the highest among all programming. Also, the 2024 Super Bowl was wildly exciting to sports fans and the audience held up through the final second in overtime.

For the reasons stated above, most people who responded to me said that it was definitely worth it—two even described it as a “no-brainer” if you could afford it. A few said it was worth it if it were done in good taste and was humorous.

A few curmudgeons appeared. Bless them. Here are quotes that have been edited a bit and with obscenities deleted:

--"My boss kept pushing for it and we once spent a third of our budget for the year on it. We got some nice press and it might have helped morale a bit in the office but it did not move the sales needle one damn bit.”

--“Our CEO wanted it and he went to the shoot. Sales went up the next two weeks and then dropped back to normal. I visited him before he died, and he still talked about it. Were I a large shareholder, I would not have been thrilled. The guy was on an ego trip.”

--“The brand must have broad appeal—booze, snacks, maybe a Detroit produced vehicle. Otherwise, I do not see how it can pay out.”

--“Why take an eight-figure gamble these days when there are many targeted digital alternatives that can hit portions of your target at a reasonable cost and are trackable? I do not get the appeal anymore.”

This year, Budweiser brought the Clydesdales back which was fun. The Detroit automotive cabal was absent with only BMW and Kia present in the big game. The BMW spot with Christopher Walken was wildly entertaining to me but how many young people can relate to an 81-year-old Oscar winning actor? How many know who he is?

So, the jury is still out. Perhaps it can work for some advertisers in a broad category but, in age of accountability, can many prove that a Super Bowl commitment pays for itself?

I will be watching closely to see if a minute in the 2025 Super Bowl goes for $15 million plus.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

My Favorite Attribute

 Recently, a young adult asked me what quality I looked for the most in a potential business partner or employee. I did have to think about it for even a moment. My answer is what it has always been—Curiosity.

Webster’s defines Curiosity as a desire to know or learn. Since the 1970’s, psychologists have found that being curious is closely related to inquisitive thinking, exploration, and investigation. They also have found that the curious have more perseverance and grit than the average person. On the job, they tend to have deeper engagement, superior performance, and personally, have more meaningful goals than their fellow workers.

This trait of curiosity often generates positive experiences, and, in some cases, what psychologists call “joyous exploration.” The curious among us enjoy confronting novelty and may well take risks that can be financial, social, or even physical.

As a child, I discovered that I had two interests that have stayed with me—history and markets. My parents took the family to Boston when I was five and we covered The Freedom Trail in detail. Soon, I knew not only of the midnight ride of Paul Revere but also all about his two lesser-known fellow riders, Billy Dawes and Samuel Prescott. At seven, my father bought me a subscription to American Heritage. He inscribed each issue with a personal encouraging note. I could not read them well at first but over the next few years, my fascination grew.

At eight, my mother, the daughter of a stockbroker, sat me down and taught me how to read the market tables after I asked her what the numbers meant next to each company. I am certain I was the only 3rd grader in Wickford, Rhode Island who knew what a P/E ratio was. 

All of this stuck with me. In college, my degree was on paper in economics, but it really was in Economic History. My courses included History of Money and Banking, History of Economic Thought, Economic History, and an Independent Study which covered ideas of the great economists from Adam Smith to Milton Friedman. I still devote time almost daily with economic theory.

In my career in advertising/marketing and later as a university lecturer, I was always excited to work with or meet someone who had endless curiosity about the business or subject at hand.

Millions of people spend their lives going through the motions or doing enough to get by or simply survive. If you are curious about a topic, pursue it and you will likely be happy and successful at it. People are surprised when I tell them that I really was not crazy about advertising. What I was enamored with was the media markets and how they fluctuated and presented new opportunities or great bargains in down markets.

Also, please do not confuse curiosity with nosiness. When someone says to me “I am curious about….”, an alarm goes off in my head. They want to gossip or find out something about me or someone else.

Finally, virtually every year, Warren Buffett speaks to an MBA class or two. One piece of advice he gives is: “Do not go sleepwalking through life.” Well, sadly, most people do. The truly curious never do that.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Forever Renters?

Two weeks ago, I put up a post regarding the merits of renting vs. home ownership and how things appear to be changing for young adults compared to previous generations.

It generated a great deal of mail and phone calls. I suspected some anger from people saying that home ownership was the only way to go. Not really. A few people stated that it was the only way for most people to accumulate any meaningful capital which is what I heard over 40 years ago.

Today, people are marrying later or not at all. The Cape Cod house with the white picket fence around the yard has little appeal to these young adults. Also, the supply of affordable housing does not meet demand so, as prices rise, more young people are excluded from the possibility of home ownership. 

One reader who is wildly successful wrote to tell me that he doubted if he would ever buy a house unless it was a vacation home. He wrote: “I agree completely that if you take your down payment money and invest it you will be better off than buying a home in many cases. To succeed at this, you need to be very DISCIPLINED (caps his). Each year, I max out on my 401k but also take property tax and maintenance money that I would have to spend as a homeowner and invest it. Also, I have flexibility. If I change jobs or want to move, it can be done easily. I am 33 and may marry someday. If we have kids, I will probably buy a house. Otherwise, I will be a forever renter. 

Today, RentCafe estimates that the average rent in the US is $1,700 per month. Of course, an average is often a misleading statistic. In San Francisco, it could be several times that for a fairly modest apartment. In a rural or downtrodden, rent is often under $1,000 for a decent place. Two weeks ago, The New York Times did a spin on the RentCafe data, and showed how much square footage you would get in several markets for $1,700 per month.

Results were interesting. In a select sample of Manhattan zip codes, $1700 gave somewhere between 211-234 square feet. In Memphis, you were able to rent 1850-2000. Oklahoma City and Tulsa were quite renter friendly with the average national renter tariff getting you 1870 to 1970 square feet. As markets, the two Oklahoma entries were the most reasonably priced. 

It seems for many young people that even renting can be a stretch these days. Rents have moved sharply upward as real estate prices have jumped in the last few years, so it is causing some real problems for people under 30. As rents have escalated, some can handle it but are not able to save for a down payment on a home which pushes back their initial purchase by several years. Others cannot handle the rent, period.

Here is one example, perhaps not typical, that I learned after the last post about buying vs. renting. A young man who lives in a small town in Pennsylvania wrote to me and told me of his current struggles. He allowed me to use his comments after we jointly edited what he said and changed a few personal details. Here goes: “I am 26 years old and do not think that I will ever own a house. Three years ago, I graduated from a state college and picked up a job locally. I had $37,000 in student debt. Over the last two years, I have interviewed at businesses in big cities—New York, Philadelphia, Boston and Washington, DC. Before each interview, I visited college acquaintances and checked on living costs (especially apartments). Landlords wanted a few months’ rent in advance or a very large security deposit. One place offered me a job but would not pay moving expenses. Friends said ask your parents for the rental advance and moving expenses. They simply do not have it. I do not pay them rent but do pay for some of the food and the utilities. Now that I am paying back the loans again (after the Covid hiatus), I have little money left. My job is not bad, but it is dead end as is the town where I am now living.”

He also struck me with one comment re the student loans. Friends told him not to worry as the loans will all soon be forgiven. His response was as follows: “You did not know what politicians will do. Also, I signed the damned loan paperwork and understood the terms. I need to be responsible.”

Is my young friend an extreme example. Perhaps a bit. Yet, I remember being told 30 years ago by an ad agency CEO after I gave a presentation at a conference that he wound up only hiring upper middle-class kids. Their parents could subsidize them for a few years by picking up rents or part of them until their son or daughter was no longer earning an entry level salary in New York. 

So, until the real estate market cools off, many will not participate in “The American Dream” of home ownership. Others will be excluded, and some will choose a different lifestyle.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

Real Estate, Demographics and The Media

 Way back in 1976, I often read William Rickenbacker’s financial commentary in William Buckley’s NATIONAL REVIEW. I agreed with much of what he wrote but was always impressed by the remarkable clarity of his writing style. In a book that he wrote at about the same time, he took on the issue of home ownership.

He wrote—“Rent your house or own it?…….You have to do some pretty sharp figuring to come out ahead, one way or the another." As a young, single renter at the time, I raised this issue with many people. To a person, they all said that he was crazy. Homeownership was the only way someone like you (read loser) could ever have any financial security or build up any wealth. 

Rickenbacker essentially stated that if you invested the $10,000 that you would use for a down payment (for a $40,000 house in ’76) and bought stocks with it, plus allocated $1500 to equities that you would have had to use for maintenance of your dwelling each year, the result would usually match or exceed the appreciation of the house. At the time, the Dow Jones Industrial Average (DJIA) was at 700 and today as I type is perched at 37,592. So, unless your luck was unusually bad, renting could have indeed worked out well especially when you add several decades of dividends to the mix. 

A few years later, I was married, planning a family and bought my first house. Yet, Rickenbacker’s math kept gnawing at me so I suppose that is why residential real estate has always been a relatively small portion of my net worth. 

For baby boomers such as I, purchasing your first home was a right of passage. Some 79.2% of baby boomers were home owners while today 66% of all adults are homeowners. 

Recently, market analyst Meredith Whitney who became famous for forecasting the 2008 real estate debacle, is again weighing in on real estate. She says many things that are hard to argue with given, you guessed it, demographics. Many US adults are marrying much later than in the past, if they marry at all. In fact, she states correctly, that the rate of household formation is the lowest in 160 years (during the Civil War close to 600 thousand young men died so they never formed their own households). Now, the low rate is due to a strong change in lifestyles. 

Another problem that she brings up is household affordability. Some lucky young people were able to obtain mortgages at 3-4% for several years. Now, with more realistic long term interest rates, many young adults are priced out of the market for the time being. Lifestyle wise, many seem to like their turnkey existence and 30 years of mowing the lawn has little appeal. The average age of current first time home buyers is 38 which has to be an all time high.

She raises a regional issue that I believe is absolutely spot on. Some states such as Utah, Texas and a few others will grow and housing permits and construction will continue to move ahead smartly. In some states such as New Jersey, parts of Pennsylvania, California and Illinois will likely lose population and housing prices may weaken.

She also warns of a “Silver Tsunami” in real estate. As more baby boomers (born 1946-1962) become senior citizens they will sell their homes and move to apartments, smaller houses or go to continuing care facilities. This could really hurt real estate values in the future.

While I agree with her demographics and how many millennials may never purchase a single family residence, the Silver Tsunami argument is a bit overstated to me. When many of we early baby boomers hit retirement age, a number of Wall Street forecasters and some demographers forecast that US stocks would plummet as we took our Required Minimum Distributions (RMD’s) from our 401k and 403B plans. It did not happen.

The same thing may hold true for real estate. Many of my fellow geezers want to stay in their homes as long as possible. Yes, some will sell and a number will have to sell. Yet, with 70 being the new 50, a large number will stay in place for longer than has been the case historically.

I am not criticizing Ms. Whitney. She has a fine track record and her opinions always merit serious consideration. The idea that real estate has no place to go but up in the future has been said for decades but today those people appear to be inducing selective amnesia regarding 2008.

Millennials face household affordability and student debt in many cases but also, a different vision of The American Dream relative to any previous generation in America. That will have repercussions in the real estate market of the future.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com