Author: bill

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Is The Online Advertising Market Bursting?

Although a Fabius Maximus post, The online bubble is bursting, makes a good argument that we are probably witnessing a tech bubble bursting, I think that has more to do with irrational company valuations and a subset of social media problems rather than online advertising problems. If Facebook or Twitter collapses do we stop buying goods from Amazon? Even if all of the companies described in the Kalkis Research paper, End Of The Online Advertising Bubble, collapse does that mean we stop buying goods from Amazon or stop using Google for comparison shopping? I don’t think so. Online advertising is dominated by Google and Amazon is making many forms of online advertising less valuable. When you think about the history of the Internet and online advertising, the problems are evolutionary. The biggest problem facing online advertising is the creative destruction forced on the online shopping market by Amazon. I work for a small online retailer. A couple of years ago the shopping experience consisted of a customer searching for a product and then following one or more of the ads or links on the search results page to an online retailer. In a world dominated by the Google search engine, it is not surprising that our largest and most cost effective source for orders was Google AdWords.  Despite the occasional abuse and fraud from pay per click vendors and the weirdness of search engine optimization strategies, this was a pretty good business model for an online retailer to drive traffic to their site.

Today the largest and most cost effective source for orders is Amazon. Amazon has two things going for it, customers are increasingly going to Amazon for their shopping experience and Amazon has a viable alternative to the pay per click business model for online retailers. Many Amazon customers expect Amazon to have the lowest price. Our web site analytics say our customers have dramatically reduced the number of times they are using Google for comparison shopping. The most important change for online retailers is that Amazon’s unique business model says that Amazon gets paid only when they process an order. This solves several problems for retailers. Retailers do not worry about Amazon orders causing pay per click abuse, credit card fraud, or payment processing problems. Since the percentage Amazon charged us for an order was less than our pay per click advertising budget, it was an easy decision for us. To increase sales and profit we listed more products on Amazon and cut down on our online advertising. In a flat retail market our Amazon sales have gone up, our Google sales have gone down, and our profitability has gone up slightly. We live to fight another day.

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Is Jesus The Good News Islam Is Looking For?

A couple of weeks ago at church I told Paul I would go to a Perspectives class. He had been trying to get me to check out a class for several years but this time it was different. Something was stirring in my heart about the Perspectives class and I did not know why. He said that the next class was on Wednesday and the subject was Christian evangelism of Muslim people. Coincidentally later that day I read a Donald Sensing post, Who says there’s no good news about Islam? In that post he referenced an article he had recently seen, Islam is the FASTEST DYING RELIGION in the world, which said:

According to Shaykh Ahmed Katani, in Africa, 6 million Muslims convert to Christianity every year:

Islam used to represent, as you previously mentioned, Africa’s main religion and there were 30 African languages that used to be written in Arabic script. The number of Muslims in Africa [a land of 1 billion] has diminished to 316 million, half of whom are Arabs in North Africa…In every hour, 667 Muslims convert to Christianity. Everyday, 16,000 Muslims convert to Christianity. Ever year, 6 million Muslims convert to Christianity. These numbers are very large indeed. …

I must admit that I was surprised. I thought it was a fatal mistake for a Muslim to convert to another religion. I was intrigued. Why were Muslims in Africa converting to Christianity?

The answer was found early in the Perspectives class. Muslims can study the story of Jesus because it is part of the Qur’an and they seemed to have little problem with the Christian concept of the trinity, the Father(God), the Son(Jesus) and the Holy Spirit. I found out that as they learned about Jesus it was a remarkably easy transition from a Muslim curious about Jesus, to a practicing Muslim who believed in Jesus, and finally to a Christian. The farther they are away from Mecca and Wahhabism, the easier the transition. I think Muslims have always been open to a God that loved them and through Jesus they found the door.

The real interesting question is whether the violence associated with Islamic terrorists is working against Islam. It is one thing for Dr. Craig to make the philosophical argument that “Islam has a morally deficient concept of God” and quite another to see Muslims turn their back on Islam because religious violence is so much harder to control than cultural violence. There is no room for peace with religious violence. Islam needs a Jesus story to make the concept of a moderate Muslim and peaceful coexistence a reality. Jesus is the good news Islam was looking for.

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Not My Father’s Economy

I struggle to explain the current economy. Gone are the days of inventory-driven booms and busts. We hated the layoffs but at least the economic boom was robust and benefited everyone. It was the rising tide that lifted all boats. Now it seems that neither good or bad economic news affects the economy. We have several years of lousy retail sales growth that does not seem to matter. We are “experiencing the strongest streak of employment growth since the 1990’s” but that does not seem to matter. Almost all of our economic and job growth comes the health care sector but that does not matter. Even lower prices for gasoline do not matter. This is not my father’s economy. The doldrums we are experiencing seems to have more in common the crisis of confidence that President Carter spoke about in his “Malaise” speech but with one significant difference. Based on recent history it looks like the traditional correlation between jobs and economic growth is considerably weaker than in President Carter’s economy. I am not alone in my confusion. Lance Roberts voices similar concerns in his article, Is There A Problem With The BLS Employment Reports?

IF we were truly experiencing the strongest streak of employment growth since the 1990’s, should we not be witnessing:

  1. Surging wage growth as a 4.9% unemployment rate gives employees pricing power?
  2. Economic growth well above 3% as 4.9% unemployment leads to stronger consumption?
  3. A rise in imports as rising consumption leads to demand for goods.
  4. Falling inventories as sales outpace production.
  5. Rising industrial production as demand for goods increases.

Obviously Mr. Roberts was expecting a much stronger correlation between job and economic growth than we are seeing. The more interesting question has to be, why are businesses hiring when it looks like that hiring more people does not translate into growing sales?

Charles Smith shows in this chart the growing disconnect between jobs and economic growth has been going on for a long time.

wages-GDP5-16b

Over the last forty years we have chosen to become a country less dependent on labor. Part of this decline can be explained that global trade has encouraged countries like the United States to ship low wage jobs to countries with lower labor costs. A good portion of our textile business went over seas for this reason. Ironically this “land of opportunity” has less opportunities for low wage jobs than ever before and an even bigger problem with middle class jobs. Every developed country is desperately trying to hold on to its middle class jobs and, in some cases such as China, increase them. So if you believe financial engineering bubble is over then we are left with growing the economy in a way my father would be comfortable with, growing the middle class by encouraging product development at small and medium size businesses. The heavy hand of government regulations combined with increased cronyism seems to have been more advantageous to the firms that got most of their earnings from financial engineering rather than product development. The millennials and Hispanics need to start sifting through the policies that worked in the past and tweak them for this new generation. So if the health and wealth of America depends largely on the health and wealth of the middle class, what are the competitive advantages that will convince businesses to keep their middle class jobs in America?

 

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Health Care Strategies for 2017

Healthcare LunchboxSince it is highly unlikely that my grandfathered health insurance plan will be offered to me next year, I have been looking at various health care strategies for 2017. I see two options available to us, self-insurance or figuring out a way to get subsidized health insurance.

  1. Our favorite option is to self-insure from 2017 until 2019 when we become eligible for Medicare. The reason we are self-insuring is because health insurance from the exchange is greater than 8.05% of our adjusted gross income. The good news is that we are exempt from the individual mandate tax because health insurance is too expensive. In 2016 we are on schedule to max out our Health Savings Account(HSA) contribution. Assuming that we do not have any significant medical issues before 2017 we will start the year out with about $10,000 in the HSA. In 2017 we plan on depositing an amount equivalent to our current health insurance premium, $547, into a savings account. Ideally it would be a HSA since a HSA account should be completely flexible. Under current regulations people who self-insure are not allowed to contribute to a HSA. If we run into a major medical issue we will either pay it, delay treatment until we can get health insurance from the exchange, or use an interim health insurance plan to tie us over until we become eligible to purchase insurance from the exchange. If we can make it through 2017 without a major medical issue, we could enter 2018 with about $16,500 in savings for medical care.
  2. An option I have not fully evaluated are strategies to reduce my taxable income below the subsidy threshold(4 times the Federal Poverty Limit). If we both contributed to a traditional IRA then our Adjusted Gross Income might qualify. Even if we qualified for a health insurance plan through the health exchange, I am not sure it we would buy it. My grandfathered health insurance plan has a $3,000/$5,000 deductible. This means I need to dedicate about $5,000 of my emergency fund to health care costs. When I look at the health insurance plans on the exchanges, they had much higher deductibles, $6,500/$13,000.  In this case I should have about $13,000 in my emergency fund. If you have only $10,000 and are healthy, it probably make more sense to use our health care money to build up the savings until we exceed $13,000 money and then use an interim health insurance plan to tie us over until the next health insurance exchange enrollment period.

 

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Hillary Clinton Versus Autofill

I was fascinated with an Instapundit post about Hillary Clinton and autofill. In the Instapundit screenshot the search terms “hillary clinton indictment” appeared before “hillary clinton”. Although autofill(autocomplete) primarily uses your web browser cache to offer suggestions, it also looks at what people in your region have been searching for. In the post the author was using the Bing search engine so I was curious what Bing and other search engines would show for me. Here is my Bing and Google search screenshots.

Bing Search Form for Hillary

Bing Search Form for Hillary

 

Google search for hillary

Google search for hillary

The three most interesting search terms for me was “hillary clinton email”, “hillary indictment”, and “hillary fbi” since I was pretty sure I had never used those search terms. So I went over to Google Trends to see why the search engines are including those search terms.

From this Google Trends chart we can conclude that the public has significantly increased their interest in fact checking Ms. Clinton and the media’s version of the story. To put the significance of this chart in perspective I created one more chart to show the relative size of searches versus a generic search for “hillary clinton”. We can see that although there has been significant increase of interest in Ms. Clinton’s legal problems, it is a relatively small portion of the searches for “hillary clinton”.

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Is The BioSolar Battery The Game Changer?

Last year I reviewed the Tesla Powerwall and said that the price of this battery needed to drop by 50% to around $1,500 to catch my attention. Since the Powerwall battery was priced at $428/kWh I was hoping to see a price closer to $214/kWh to get me interested. Last week I saw an article about the BioSolar battery that said it might be the “Game Changer” because this battery is estimated to cost $54/kWh. With my current electrical cost of 12¢ per kilowatt hour a 7 kWh battery will save me $0.84 a day. If we make a guess that a 7 kWh BioSolar battery will cost less than a $1,000 then the payback is now 3.26 years versus 9.78 years for the Powerwall. If the Powerwall was a small step forward for green technology then the Biosolar battery is a great leap forward. The cost effectiveness of the BioSolar battery has the potential to make a subsidy-less, solar panel project a financial reality. Since going off the grid is quickly becoming both simple and cost effective, look out utility companies!

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Selling Guns At Hardware Stores

On Sunday my wife and I were shopping for a new lawn mower and decided to check the lawn mower prices at our local hardware store. I thought this store was out of business since it has had such a difficult time competing with the nearby Home Depot and Lowes stores. We did not find a lawn mower but I was intrigued that out of the three store employees, two were working at the gun counter. Of the the seven customers in the store five customers were at the gun counter. A couple of years ago this store did not sell guns and now they have more guns and ammo customers than hardware customers.

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Is Building A Border Wall With Mexico A Shovel Ready Infrastructure Project?

One of the promises of the 2009 stimulus bill was that the government would start work on a large number of “shovel-ready” projects that would generate jobs. Probably the greatest disappointment with the bill is that most of the purported shovel-ready projects got tied up in the regulatory process and never generated any jobs. Since the border wall has been on the books since the 1980s you have to think that the regulatory process is complete. If the 2009 stimulus bill was screaming for any shovel-ready project that could generate jobs, why didn’t we build the wall?

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Affordable Care Act And The Cadillac Tax

Here is a nice story about the Cadillac Tax provision of the Affordable Care Act. Although I am not affected by the Cadillac Tax I found the video clips of Mr. Gruber and Mr. Emanuel to be particularly insightful at explaining why lying and deception was necessary to pass the Affordable Care Act. Since most of America expected that passing the Affordable Care Act would result in more affordable health care, it would have been wiser if these two men spent more of their time thinking of ways slow down health care cost increases rather than gloating over how they pulled one over on the American public.

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Is 2016 The Year Active Stock Pickers Finally Catch Up To Passive Investors?

Last year I wrote a post early in 2015 that asked whether 2015 would be the year active stock pickers finally caught up to passive investors. Looking back at 2015 we can see that it was not a good year for stock pickers. The S&P 500 return was propped up by the FANG stocks, Facebook, Amazon, Netflix, and Google. It is hard to be a successful stock picker if the market is stuck on four stocks and refuses to rotate into cyclical or value oriented stocks. At some point the S&P 500’s dependence on FANG stocks for growth should become a liability when earnings and dividends become important again. It may be early but 2016 looks like it will be different. My current favorite US stock ETF, SCHD, and my son’s moderately conservative mutual fund from USAA(UCMCX) are both doing better than the S&P 500. If conservative stock ETFs and mutual funds can outperform the S&P 500, active stock pickers should not be far behind.

SCHD & UCMCX performance compared to S&P 500

SCHD & UCMCX performance compared to S&P 500