The Calico Cat

Andrew Orlowski, some kind of columnist for the The Register, seems to hate Google and hate blogs (see Blog noise is 'life or death' for Google and Google to fix blog noise problem). And he says that blogs are ruining Google (not that he seems to have liked Google much anyway). When blogs come up in Google search results, he calls it "blog noise."

Yes, when you do a Google search, you will often find blogs show up in the search results, depending on what you're searching for. This shouldn't come as a shock to anyone other than Orlowski. This is because Google's mission is to search the web, and blogs are one of the things you find on the web. And because Orlowski can't do math, he incorrectly under-estimated the quantity of blog web pages by a factor of 100! Great thanks to a clever sheep for pointing this out (and do read his blog post, it's very informative).

It's hard to understand what kind of stuff Orlowski is expecting to find in a Google search. From the very beginning of the web, people's personal pages were an important part of it. Blogs are just personal pages in a new trendy format.

Orlowski writes, "the problem is that the resulting degradation in the quality of information makes it even harder to find primary source material." Primary source material? If he's talking about books and academic journals, he's not going to find them on the web. Maybe he thinks he's searching the Library of Congress?

Maybe he should check out LexisNexis where you can search a wide variety of newspapers, magazines, and journals. The difference between LexisNexis and Google is that LexisNexis costs money. He's complaining because the free search engine isn't as good as the one that you have to pay to use. As we used to say when we were little kids, "no duh!"

One of the keys to being found on Google is that the webmaster has to want the page to be found. And most of what one would normally consider "primary source material" doesn't want to be found. You won't find the contents of books in a Google search because authors don't post their books to the web. They want you to pay them money to buy a copy. You won't find articles from a lot of newspapers in a Google search either. The Wall Street Journal makes you pay money to read their paper (and it's worth the money too, I pay for my subscription). The New York Times and many other newspapers make you register before you can read the articles, and then they remove them after two weeks because they want to make money from the old articles, which they sell to companies like LexisNexis.

With most of the good reading material unavailable for free, what's left? Websites that tell you how great the sponsoring company is. Websites that want to sell you something directly (like Amazon.com). Websites that hope to make money by getting paid to direct you to a website that wants to sell you something. And personal websites like this blog.

Orlowski can call me "narcissistic," but I am firmly convinced that my blogs provide more useful information than Orlowski's columns. My Gold and Silver Blog provides links to information about gold and silver investing that would otherwise be hard to find, along with my own insightful comments which are far better than the comments of those professional journalists who told you that the NASDAQ was a good buy when it was at 5000 points.

My Calico Cat blog (which you are reading right now) not only provides links to other articles (including Orlowski's, unfortunately), but it also contains my commentary which is far more valuable that the junk you read in "real" newspapers and magazines. For example, I recently commented on the article in U.S. News about student loans, but I went beyond what the article said and explained that the whole concept of student loans is misconceived. That's something that mainstream publications are afraid to tell you. They will only tell you what they think the majority of readers want to pay to read, even if it's wrong.

Beyond merely having useful information, blogs will help to save our country. Yes, it's a bold statement, but I believe it. Every year our country slips further in the direction of authoritarianism. Blogs can bring freedom back to our society. For example, there's not a single mainstream publication that I can think of that actively supports legalization of drugs. Yet the "war on drugs" has put millions of people in prison and has cost us hundreds of billions of dollars of taxpayer money. According to Drug Sense, we spend approximately $40 billion a year fighting drugs (I don't know if that's true, but it sounds about right, and they have links to U.S. government websites which hopefully confirm the figure). Yet people still buy and use the stuff, including Marion Barry, the former mayor of Washington, D.C. who was sentenced to six months in prison for possessing cocaine.

In the blogosphere, many people besides myself see the flawed thinking behind the "war on drugs." One of my favorite bloggers, Staunch Moderate, wrote today in his blog about the drug war, and what he writes makes a lot more sense than what's in the regular mainstream media.

Drugs are just one example of how blogs bring you better commentary than what you get in the New York Times and on CNN. I hope that the people who run Google aren't fooled by Orlowski's article, and that they continue to allow blogs to be returned in search engine results, as they are rightfully entitled to be.

The blogger at Staunch Moderate posts Taxation Without Representation, in which he writes about how it's unfair that the District of Columbia doesn't have any representation in Congress.

I usually agree with what Staunch Moderate writes in his blog, but in this case I can't resist offering an alternative opinion. As all Americans should know (although I had a lawyer friend who wasn't aware of the fact), Washington, D.C. is a district that's not part of any state, and therefore D.C. doesn't get to send two Senators and at least one Representative to Congress like all the other states get to do.

But it's hardly fair to say that the citizens of D.C. have no influence over our federal government. In fact, I'd say it's just the opposite. The people who run our federal government live in D.C. And I'm not just talking about the people who move there temporarily when the administrations change, but also the regular government bureaucrats who aren't associated with any particular political party. I would say that the citizens of D.C. have more influence over our federal government than the citizens of any state in the nation!

The people who complain about D.C. not having representation usually support D.C. being granted statehood (although Staunch Moderate remains silent on this matter). I can think of at least two reasons why that wouldn't be appropriate. The first is that D.C. isn't really big enough to be a state. From a population perspective, it has about the same population as the least populated state in the nation, Wyoming. But Wyoming, at least, is a large land mass. D.C. is a tiny little area that was carved out of Maryland.

The second reason, which isn't necessarily a fair reason, is that I think of the kind of Senators that D.C. would elect. Do I want two Marion Barrys in the U.S. Senate? No!!! For those unfamiliar with him, Marion Barry is the former mayor of D.C. who was sentenced to six months in prison for smoking crack cocaine. The current mayor, Anthony Williams, has his own share of scandals. Even people who hate Republicans have to sympathize with them just a little bit on this issue.

If a solution to D.C.'s lack of representation is really required (and I don't think it is), then I'd suggest that D.C. be given back to Maryland. But it's not at all clear that the people of Maryland would want receive a city that has the highest murder rate of any big city in the United States according to SafeStreetsDC.com, making it the nation's murder capital in addition to the political capital. (As a side note, it's kind of funny how people make a big deal of the fact that 105 soldiers were killed in Iraq since the end of hostilities, but there were 202 homicides in DC so far this year, according to the DC police. There is something wrong when a war zone in the Middle East is less dangerous than living in our nation's capital.)

The cover story in this week's issue of U.S. News and World Reports, Big Money on Campus, is about student loans. The hypothesis of the article is that the Federal Family Education Loan Program, which authorizes private lenders to issue federally guaranteed student loans, is a big taxpayer rip-off.

According to the article, Sallie Mae, which was formerly a government sponsored corporation but is now in the process of being privatized, earned an impressive $792 million last year, and Sallie Mae's CEO, Albert Lord, received $33.6 million in salary, bonus, and stock option payments. Most of Sallie Mae's profits come from the student loan business.

It's hardly surprising that a federal program is a big taxpayer rip-off. In fact, the surprise might be finding a big federal program where the tax payers are not being ripped off!

So far, the article in U.S. News has done a great service to the American taxpayer by pointing out how this government program is lining the pockets of big corporations like Sallie Mae. This is business as usual at the federal government, where corporations have lobbyists and donate money to politicians' campaigns, but where there is no one representing the taxpayers on most issues.

Most unfortunately, the article does not go very much deeper than this. The article suggests that the cure for the problem is that the federal government run the student loan programs directly, and cut out the middle man.

The article fails to ask the basic question of why the federal government is involved in this business at all. If the colleges the students were attending really offered such a valuable proposition to the students, then I'm certain that the colleges themselves would be able to arrange loan based financing.

The article mentioned how the cost of college education has been increasing faster than the rate of inflation, but the issue of why was never addressed. I believe student loans are part of the reason. By making more money available to students, this just gives the colleges the leeway to raise tuition even more.

I know it's very anti-mainstream to question the value of a college education, but I'm going to go ahead and question it anyway. My experience is that the majority of college students are just in it for the piece of paper they get at the end which they think will be a ticket to a "good job." Yet we have so many college students graduating with no job awaiting them at all. And then to add insult to injury, they are burdened with student loan payments of hundreds of dollars per month. This is debt that can never even be discharged in bankruptcy.

How are we benefiting society if we make kids get themselves deeply into debt so they can obtain the same jobs that people obtained a generation ago with no college degree at all? Student loan proponents will say that without student loans, people will be denied the opportunity to advance themselves. I say that without federally guaranteed student loans, the bright students who would be able to benefit from a college education will still be able to obtain funding. The marginal students, who don't belong in college anyway, will also be better off because they will be able to get the same job they would have gotten anyway, except they won't be burdened with having to pay back student loans.

The Wall Street Journal's Heard on the Street column reports that a group of Kodak shareholders wants the company to undo its plans to move away from film into digital technology (see Investors Seek to Rewind Kodak - subscription required to view article).

I found this article pretty interesting because the first time I heard that Kodak was going to move away from film in favor of manufacturing inkjet printers, my reaction was that the management at Kodak must be deluded if they think they can compete successfully against established printer manufacturers such as Epson, Canon, HP and Lexmark.

Having personally used many of the products that Kodak plans to compete against, I think that it's highly unlikely that Kodak can come up with better products that are price competitive yet still profitable. Apparently, some Kodak investors agree with my point of view. They don't want Kodak to waste the shareholders' money on a futile attempt to play catch-up. They believe that Kodak should just continue to make profits from its film business, even though it's a declining business.

The concept that a company should just be happy making money in a declining industry is rarely endorsed at American corporations. In corporate America, growth above all else is the religion, and to speak out against it is heresy.

In addition to demonstrating the herd mentality of corporate management, the Kodak story also provides an example of how corporate management often works against the interests of the shareholders in order to satisfy their own personal goals and ambitions. I'm sure it's more exciting for the top managers at Kodak to get involved in new and sexy digital businesses, rather than just preside over a company with negative growth. But how does this benefit the shareholders? If the shareholders really wanted to own a digital company instead of a film behemoth, they'd sell Kodak shares and buy shares of something else. The other company they'd buy shares in is probably much better equipped to compete in its technology than Kodak.

I believe that Kodak can make money from film for many years. Despite cries from digital photography zealots that "film is dead", with the announcement from Kodak being used as further evidence, I find it highly unlikely that film use is suddenly going to collapse. It is true that for commercial and high end amateur photography, digital has mostly replaced film. But at this point in time, I fail to see the benefit of a digital camera for people who don't own a computer, or for people who own a computer but don't know how to print a JPEG file. I know that computer people think it's really easy to print a JPEG file, and maybe it is, but I would judge it harder than learning about f-stops, and the majority of people who use cameras these days don't know an f-stop from a truck stop.

Digital zealots think that Moore's Law will overcome everything, and within a few years a cell phone camera will take better pictures than a medium format film camera of today. They don't understand that Moore's Law no longer applies to digital cameras. Moore's Law isn't even a law, it's an observation that computing power doubles every eighteen months. With computer chips, it works because engineers are able to fit more transistors on the same or smaller sized chips. With digital imaging chips, making smaller chips with more transistors isn't going to create a better image. And the other key component of a quality image, the camera lens, can be quite expensive to manufacture. Because lenses aren't computer chips, Moore's Law has no effect on them.

My observation of digital cameras is that they have reached a plateau. Each year they still get a little better and a little less expensive, but the rate of improvement is no longer very rapid.

Living in developed countries, we forget that there are two billion people in China and India, most of whom are too poor to afford to buy a computer and invest in expensive digital camera equipment. But they can afford to buy and develop a roll of film, in conjunction with an inexpensive film camera. They can also afford to use a single use camera, which is the fastest growing segment of the film market.

My observations about the continued use of film should come as a relief to silver investors. The film photography industry is a major user of silver, and if film use were to suddenly disappear, it would have a negative impact on the price of silver. But I find the scenario of film disappearing to be highly unlikely.

There has been a sudden flurry of interest in the magic 10,000 number now that the Dow Jones Industrial Average is close to that number once again. For example, Steven at Poliblog writes "The point of the Dow 10k reference is that it would be a powerful symbol of economic recovery for the Dow Jones Industrial Average to return to five digits" (see More on the Dow and that Magic 10k Figure). And in today's Wall Street Journal we read that "the Dow Jones Industrial Average has had a problem with the number 10000 that isn't entirely different from the problem the Chicago Cubs and the Boston Red Sox have had with their World Series dreams" (see Investors Battle Curse of 10000 - subscription required).

I say that all this talk is much ado about nothing. The Dow Jones Industrial Average (DJIA) blew past 10,000 and then 11,000 at the end of the big stock market bubble. Then it sunk below 10,000, below 9,000, and then below 8,000 on the way down. There's no evidence that 10,000 has any kind of significant implications for the movement of the DJIA. It's just another number that the DJIA has to pass on its way up and down. It's no different than 9,854 (to make up a meaningless example).

I wish the news media and bloggers alike would focus more on what the number means rather than its absolute value. What does 10,000 mean in terms of price/earnings ratio, price/dividend ratio, price/sales ratio, or price/book value ratio? I'm sure all these ratios are unusually high compared to historical averages, which is something we should be more worried about than whether or not the DJIA will cross 10,000 in the near future.

The Dow Jones Industrial Average isn't even a very good indicator of true stock market values. Containing only 30 stocks, not being market capitalization weighted, and intentionally excluding non-industrial companies, it only gives us a partial picture of how the stock market is doing. The pundits would do everyone a great favor if instead they started talking about the S&P 500 index, which gives a better picture of the market because it contains 500 "leading" stocks and it's a market cap weighted index. The DJIA may have been a good index for the 1920s when computers didn't exist and it would have taken someone days to calculate an index like the S&P 500 by hand, but its usefulness has passed and it's time to leave it behind.

The S&P 500 crossed back above 1,000, on August 28th, with absolutely zero fanfare.

An article in the Sunday New York Times, Overcapacity Stalls New Jobs, sheds yet more light on the "jobless recovery" phenomenon.

According to the article, "[n]ot since the severe recession of the early 1980's has capacity use in manufacturing stayed so low for so long, government data show. Production as a percentage of total capacity fell precipitously in the aftermath of the last recession, which ended in 2001, and 23 months into the recovery, the upturn has still not come. On average, manufacturers are using less than 73 percent of their capacity."

The article doesn't attempt to explain why we have so much overcapacity. My explanation is that corporate management operates in a lemming-like fashion. Everyone else is building more capacity, so they have to also. God forbid they wind up running a profitable business that has the same amount of sales each year. Oh no! They need growth, and you can't have 20% annual growth a year without building more capacity. Everyone assumed the unusually high growth experienced at the end of the 1990s would carry on in perpetuity.

"[Procter and Gamble] invested in the 1990's in anticipation of reaching $50 billion in annual sales, but Procter's managers now find themselves rattling around in a company with $43.4 billion in sales." That's exactly the kind of thinking that dominated in the 1990s.

Overcapacity by itself doesn't explain the "jobless recovery." The explanation lies with the fact that companies are able to reduce their workforce yet still maintain the same output. If sales remain the same, but labor costs decrease, then you have higher corporate profits with fewer jobs.

In the long run, it doesn't benefit our economy if we insist on having three people do a job that only requires two, so there is no point in complaining about it. The more disturbing aspect of the article is the part where it documents the strategies that companies like Proctor and Gamble use to lower labor costs by lowering salaries.

P&G has been selling its unprofitable factories to other companies, who then are able to make them profitable by paying the employees lower salaries. For example, P&G had a plant in Cincinnati that had too much capacity and wasn't profitable. One alternative was to move the production to Mexico, but the cost of building new capacity in Mexico didn't quite make up for the fact that Mexican workers are willing to work for practically nothing. Instead the plant was sold to a company by the name of Trillium, which operates the plant as a contract manufacturer for P&G.

"Trillium hired 165 of Procter's 230 employees, maintaining their old wage of $21 to $24 an hour. But new hires replaced 50 other Procter employees at wages $5 to $8 an hour less. Trillium also brings in more temporary workers than Procter did to handle upward fluctuations in production, Mr. Wedgeworth said, rather than adding to its staff."

$24 an hour is very solidly middle class salary, and one that many college graduates would be envious of, even though the job of a factory worker is very much middle prole. But those jobs are being replaced by ones that pay less. And the article doesn't tell us how little the temporary employees get paid; nor does it tell us whether Trillium is also saving costs by reducing benefits. (If you don't understand the reference to "middle prole," then you must read the book Class: A Guide Through the American Status System, by Paul Fussell.)

The story above is yet another demonstration of how the middle class is shrinking: the factory workers get lower salaries, but the management of P&G will probably get some nice bonuses for lowering costs and increasing profits.