Continue reading »]]> On May 4, the American Institute of Certified Public Accountants (AICPA) released the results of a phone survey of over a thousand nationally-representative sample of adults. The survey explored reasons for disagreements. Twenty-seven percent said disagreements over money are the most common, placing this subject ahead of all other topics, including children, chores, work and friends.

Within the topic of money,

Financial arguments most often are over differing opinions of “needs” versus “wants,” with 58 percent of those who argue about money identifying this issue as the most common cause. About half, 49 percent, most often argue about unexpected expenses and a third, 32 percent, argue about insufficient savings.”

My wife and I have counseled married and engaged couples over the years. Personally, the only surprise I have with the result is that money was not an even more important topic of disagreement than the survey indicated.

The solutions are all pretty basic, but are often ignored. Couples should:

1. Set time aside to discuss money and spending, much as they would with any other important and recurring topic;
2. Have a spending plan, and stick with it. Discuss together deviations from the previously-negotiated plan; and
3. Avoid consumer purchase debt and credit card debt.  Debt should be used for purchases of assets like a home or car, or education that will directly increase one’s earning potential.

Continue reading »]]> The Federal Trade Commission (“FTC”) and Sketcher USA Inc. reached a $40 million settlement on charges that Sketchers deceived consumers.  The FTC joined with 45 attorneys nationwide in the consumer protection agency’s claims against Sketchers.

According to the FTC,

The Federal Trade Commission announced that Skechers USA, Inc. has agreed to pay $40 million to settle charges that the company deceived consumers by making unfounded claims that Shape-ups would help people lose weight, and strengthen and tone their buttocks, legs and abdominal muscles.

Besides Shape-ups, Skechers also made deceptive claims about its Resistance Runner, Toners, and Tone-ups shoes, the FTC alleged. Consumers who bought these ‘toning’ shoes will be eligible for refunds either directly from the FTC or through a court-approved class action lawsuit, and can submit a claim here. The settlement with the FTC is part of a broader agreement, also being announced today resolving a multi-state investigation, which was led by the Tennessee and Ohio Attorneys General Offices and included attorneys general from 42 other states and the District of Columbia.”

David Vladeck, Director of the FTC’s Bureau of Consumer Protection, stated,

Skechers’ unfounded claims went beyond stronger and more toned muscles. The company even made claims about weight loss and cardiovascular health…The FTC’s message, for Skechers and other national advertisers, is to shape up your substantiation or tone down your claims.”

The Shape-Up line was launched in 2009.  Sketchers has made over $1 billion in sales from its fitness shoes.  Their shoes retail anywhere from $60 to $100 a pair.  The line was made more note worthy by advertising endorsements by high profile celebrities, such as Kim Kardashian.

The Skechers settlement comes one year after the FTC’s settlement with Reebok, who agreed to pay $25 million to settle charges that it misled consumers with false claims about EasyTone walking shoes and RunTone running shoes.  Claims for health benefits derived via shoes and apparel are clearly on the FTC’s radar.

Continue reading »]]> As more and more commerce goes online, states have struggled with how to tax transactions that are not entirely within their borders. Under the U.S. Supreme Court’s decision in Quill Corp. v. N.D., 504 U.S. 298 (U.S. 1992) and other cases, a physical presence is required before a state may exercise tax jurisdiction over out-of-state taxpayers.

Beginning July 1, 2011, Illinois required an out-of-state retailer to collect use tax on all of its sales to Illinois residents if it (i) had a contract with an Illinois person who referred potential customers for the sale of tangible personal property for a commission via a link on the person’s website and (ii) the retailer made more than $10,000 through such Illinois referrals during the preceding four calendar quarters. Several other states, including New York, California, Rhode Island, Georgia, Arkansas, Connecticut, Vermont and North Carolina have enacted similar laws.

An Illinois court in Performance Marketing Association, Inc. v. Hamer (No. 2011 CH 26333, Ill. Cir. Ct. Cook Cty. 5/7/12)) ruled that this Illinois tax was unconstitutional because:

1. The Illinois “click-through” nexus statute violates the Commerce Clause of the United States Constitution because the activity described in the statute does not establish nexus within the state; and
2. Illinois acted prematurely in adopting the law because of the federal moratorium against discriminatory taxes on electronic commerce under the Internet Tax Freedom Act (ITFA), which is currently effective until November 1, 2014.

In California, Amazon has around 10,000 affiliates who are paid a commission for web-based links. Like Illinois, California wants to collect sales taxes because of the existence of these California-based affiliates. But, Amazon struck a deal with California lawmakers that will give it until September 2012 before collecting sales tax on California purchases. Amazon is seeking a federal solution that will prevent numerous state laws from each imposing their own solution.

Continue reading »]]> Based on data of birth records from 1973 to 1999 in the United States, the 5 most popular dates to get pregnant are all in December:

1. December 11
2. December 4
3. December 18
4. December 12
5. December 17

These days are calculated by subtracting the average length of pregnancy from the most common dates of birth. According to a compilation of numerous medical studies, the average pregnancy length is 280 days.

So, what are the least common days of conception? One might think we could apply the same procedure used above but using the least common birthdays.  However, doing so would result in wrong answers. The list of least common birthdays offers some clues for why we cannot estimate the least common days of conception using this method:

1. February 29
2. December 25
3. January 1
4. December 24
5. January 2
6. July 4
7. December 26
8. November 28
9. November 27
10. November 26

With the exception of leap day (which is the least common birthday for obvious reasons), the rest of the least common birthdays fall on or near holidays (namely New Year’s, Christmas, Independence Day and Thanksgiving). Why is it relatively uncommon to give birth on holidays? Since a significant portion of births are scheduled, mothers and doctors have the choice to avoid certain dates. For this reason, the number of babies born on December 25 is likely significantly affected by scheduling choices rather than just a function of conception date.

Continue reading »]]> Days before Facebook’s initial public offering, a survey of the general population gives a sobering view of what Facebook needs to justify its market value.

The poll was sponsored by the Associated Press and CNBC and conducted by GfK Roper between May 3rd and 7th of 2012.  It was a random phone survey of 1004 adults with a margin of error for the total sample of +/- 3.9% at the 95% confidence level.

To start with, a bare majority of 51% of respondents had a favorable (either ‘strongly favorable’ or ‘somewhat favorable’) view of Facebook.  That is well below the 71% favorable ratings these respondents gave to Google, Apple, and Microsoft, although it did beat the 27% favorable impression of Twitter.  Twitter seemed to straddle the middle ground, with a high 28% of responses that were neither favorable nor unfavorable.  On the total unfavorable side, Twitter and Facebook had 27% and 23% unfavorable responses (for both, 13% of those were ‘strongly unfavorable’).  By comparison the gold plated tech brands of Google and Apple were both at 8% total unfavorable, including 4% ‘strongly unfavorable’.  Microsoft did slightly better with 7% total unfavorable, including 3% ‘strongly unfavorable’.

The message is that Facebook is in great shape if it considers Twitter its primary competition.  If it’s planning on winning consumers for new services from heavyweights like Google, Apple or Microsoft, it has a considerable task ahead.

Even more troubling is the frequent impression that Facebook is a fad.  When asked if they thought that Facebook  was likely to “continue to be a successful company over the long term” or “fade away as new things come along” 46% agreed with the fading away comment, with 43% expecting long term success.

Of extra interest was that 56% of the respondents said that they had a Facebook page…higher than the commonly quoted figure of 40% of the general population being Facebook users.  Tantalizingly absent from the report were cross-tabs of this figure with the other responses, but it would be mathematically impossible for there not to be a portion of Facebook users who regard the company unfavorably and/or think that it is a fad.

Some insight into Facebook’s potential can be gleaned by questions posed only to the subset of Facebook users. When asked how much they trusted Facebook to keep their personal information private, they were given the choices of ‘Completely’, ‘A lot’, ‘A moderate amount’, ‘Only a little’ and ‘Not at all’.  The most frequent answer at 30% was ‘Not at all’!  That was closely followed by ‘Only a Little’ at 29% and ‘A moderate amount’ at 28%.  Just 6% of Facebook users said that they trusted the company with their personal data ‘Completely’.

The results were even dimmer when the Facebook users were asked “How safe would you feel making purchases of goods and services like clothing or travel through Facebook?”, with the choices of “Extremely safe’, ‘Very safe’, ‘Somewhat safe’, or ‘Not at all safe’.  The biggest response by a substantial margin was ‘Not at all safe’ at 35%.  A mere 2% of Facebook users said they would feel ‘Extremely safe’ using Facebook for e-commerce.  I may have just heard the sound of Amazon.com management howling in laughter.

This is significant because many of the most common scenarios for Facebook continuing the pace of revenue growth that would justify the high P/E ratios of its IPO involve having Facebook evolve into a personal portal for services such as banking and/or sell things more valuable than Farmville credits.  This survey shows that Facebook faces a huge challenge in improving its reputation in general and its trustworthiness in particular in order to make either of those happen.

Continue reading »]]> CEO magazine released its eighth annual survey of the best and worst states in which to do business. California managed to be rated dead last in the entire country for the eighth year in a row. There is only one reason for this. California’s taxation and regulation score is by far the worse in the country. California rankings in workforce quality and quality of living would (by themselves) support a much higher ranking.

The rankings are highly correlated with in-migration and out-migration of population. California lost the second largest number of people. New York, ranked 49th in the country overall, lost the greatest number of people.

Even though it has remained in last place, the distance from those that might take away the dubious honor of being last has grown. Consequently, the trend indication for California is negative, as if one could get worse than last place. The article describes California as follows:

California’s enduring place of perpetual decline continues in this year’s ranking. Once the most attractive business environment, the Golden State appears to slip deeper into the ninth circle of business hell. The economy, which used to outperform the rest of the country, now substantially underperforms. And its status as the most ruinously contentious place to operate remains undisturbed in eight years. Its unemployment rate, at 10.9 percent, is higher than every other state except Nevada and Rhode Island. With 12 percent of America’s population, California has one-third of the nation’s welfare recipients. Each year, the evidence that businesses are leaving California or avoid locating there because of the high cost of doing business due to excessive state taxes and stringent regulations, grows. According to Spectrum Locations Consultants, 254 California companies moved some or all of their work and jobs out of state in 2011, an increase of 26 percent over the previous year and five times as many as in 2009.”

The study concludes that the right-to-work issue is important, as follows:

Most of the states in the top 20 are also right-to-work states, as labor force flexibility is highly sought after when a business seeks a location. Several economists, most notably Ohio State’s Richard Vedder and Harvard’s Robert Barro, have found that the economies in R-to-W areas grow faster than other states, have higher employment and attract more inward migration.”

The rankings show that it is possible to alter one’s position. Louisiana is the poster child for improvement. The study reports:

Louisiana is the Cinderella of business improvement. In 2006, it ranked 47th—where Massachusetts is today. And Katrina didn’t help matters. But since then it has climbed steadily up the ranks so that it is now 13th—up from 27th last year—the biggest leap in a single year of any state. “In Louisiana there is an active government push to reduce taxes and regulation and to encourage new industry to relocate to the state,” commented one chairman. “This was valuable for one of our companies, which decided to make the state our headquarters.” Other chiefs point to the big strides the state has made in workforce training and economic incentives. Its economic development office is also aggressive in luring disaffected businesses from the Northeast and California.”

The CEO survey provided CEO comments. Most states had some positive comments, but not California. We summarize the CEO comments and other information from the study in this article.

Continue reading »]]> In a Bloomberg audio report regarding the use of exchange traded funds (ETFs) in 401(k) plans, Apple was identified as having an all ETF 401(k) plan. This shows Apple’s innovation in ways outside of their products, as there are challenges in using ETFs with the recordkeeping platforms that most plans use. Because of the resistance to change these record keeping platforms, very few 401(k) s offer ETFs. Apple is almost certainly the largest 401k plan to have invested in this manner.

There is around $13 trillion invested in 401(k) plans. Mutual funds comprise the vast majority of these investments. According to Bloomberg, only about 1% of ETFs are currently in 401(k) plans. ETF assets could grow enormously if 401(k) s adopted ETFs in a meaningful manner.

401k plans have been notorious for having high costs. A recent successful lawsuit on this subject is described here.

My firm is delighted to have beaten Apple to the punch. We have had an all-ETF plan for ten years. Doing this required internally developing our own recordkeeping platform, but the lower costs for our plan participants are well worth the extra work.

Continue reading »]]> Christy Romero has not held the top job at the office of Special Inspector General for TARP (SIGTARP) for very long. The Senate just confirmed her nomination on March 29, 2012. Before this, she was SIGTARP’s Deputy Inspector General. Ms. Romero’s April 25, 2012 report is her first, but it reads with the confidence of someone who has been on the job for a while.

The report starts out by criticizing the Administration’s claims that TARP is making a profit, and the program is wrapped up. Putting it charitably, such claims are simply not true. The current report details that some programs are scheduled to continue through 2018, and other programs have no expiration. The report summarizes this as follows:

It is a widely held misconception that TARP will make a profit. The most recent cost estimate for TARP is a loss of $60 billion. Taxpayers are still owed $118.5 billion (including $14 billion written off or otherwise lost).”

But even worse than the losses, the report criticizes TARP’s long-term harm, as follows:

Using a microscope to narrowly focus on the profit or loss of TARP risks losing sight of the bigger picture of whether TARP has been successful in meeting its goals and whether lessons learned from the financial crisis have been adequately implemented so that Treasury, banking regulators, and Congress do not find themselves in the position of rushing out another massive bailout of the financial industry, i.e., TARP 2.0. …

A significant legacy of TARP is increased moral hazard and potentially disastrous consequences associated with institutions deemed “too big to fail.” … A recent working paper from Federal Reserve economists confirms that TARP encouraged high-risk behavior by insulating the risk takers from the consequences of failure – which is known as moral hazard. The Federal Reserve economists reported how the large banks that received Government bailouts through TARP are now taking more risks than banks that did not receive taxpayer money. According to the Federal Reserve economists, the loans that the bailed-out banks are making today are riskier than those of their non-bailed-out counterparts. … Many of the same large banks have greatly increased their executive compensation despite the fact that regulators have stated that compensation played a role in causing the crisis by encouraging risky behavior.”

The report also describes the Treasury Department’s inability to prevent TARP fraud. The report details numerous investigations of wrongdoing, and summarizes the problem as follows:

One enduring legacy of TARP is criminal activity associated with the program. SIGTARP investigates crime related to TARP and actively supports the prosecution of individuals it investigates. SIGTARP has over 150 investigations underway related to TARP. With hundreds of billions of dollars going out the door quickly, it should be no surprise that there would be unscrupulous individuals who would seek to steal it, exploit it, or otherwise use TARP for their own personal gain.”

SIGTARP’s quarterly report before the current one (released in January 2012), is summarized in this article.

Continue reading »]]> The Securities Exchange Commission (SEC) is paying much greater attention to economic cost-benefit analysis in its rule making activities. Private concerns wishing to alter the SEC’s rulemaking should consider using economic analysis and rationale in their comments to a greater extent than previously.

What the Republicans could not accomplish legislatively when Dodd-Frank was first being considered is now being partly accomplished through the regulatory rule-making process. Two government reports advocate that economic cost-benefit analysis be more explicitly and extensively considered when implementing Dodd-Frank.

These reports came from the Government Accountability Office (GAO), entitled “Dodd-Frank Act Regulations Implementation Could Benefit from Additional Analyses and Coordination” and the SEC Office of Inspector General, entitled “Follow-Up Review of Cost-Benefit Analyses in Selected SEC Dodd-Frank Act Rulemakings”. We provide quotes from these reports, and responses from the SEC Chairperson in this article.

Businesses should welcome the opportunity to become more involved in this process.

Continue reading »]]> The superhero epic The Avengers has roared across movie screens and smashed all previous opening weekends with a US box office of over $200 million.  It is widely believed that it would have made even more if there were more IMAX screens out there  to show it.  To understand the magnitude of this record, the previous top opening weekend box office was $169.1 million for the final Harry Potter movie.  In addition, the film had opened the week before in foreign markets.  Combining the first and second weeks overseas and the first week in the US totals $641 million.  Could we possibly be looking at the first billion dollar initial box office run?  UPDATE: The billion-dollar box office total was passed in just 19 days.

So where is the genius that green-lit this monster?  In the unemployment line, at least figuratively speaking.  Disney film boss Rich Ross was forced to resign less than three weeks ago in response to the monumental flop of John Carter.  Now, no doubt about it, John Carter was a flop of  the highest order,  But The Avengers would seem to more than make up for it.

But that is just the kind of business this is.  You can be the loser one week and the hero the next, but you have to somehow manage to stick around.

Because this is the city:

Where every waiter wants to be an actor

Every actor wants to be a director

Every director wants to be a producer

Every producer wants to be a studio chief

And every studio chief is afraid of that one big flop that puts them back at the bottom of the pile.