Hagwon Hogwash

Recently, the Korean government has decided to crack down on hagwons (local cram schools) that are "overcharging" students. Apparently, the Ministry of Education has developed a system to calculate "appropriate" fees using data on teacher salaries, revenue, and other expenditures.

To be honest, I don't understand why the Ministry of Education has any jurisdiction or right to control private education. This is why it's called private education and not public. Harvard University currently charges $47,215 a year. Should the U.S. Department of Education force Harvard to charge "appropriate" fees? I guarantee you if the enrollment at Harvard decreased, the university would lower tuition fees.

This is the same with hagwons. If the fees become so high that students stop attending, they will naturally lower the tuition. In addition, smart hagwon owners may decide to lower fees to wipe out the competition. This is the free market at work.

If the government decided to close all hagwons, students would go overseas in droves. In addition, cunning hagwon owners would set up shop in nearby countries where the Korean government has no control. In fact, I met a Korean hagwon owner in the Philippines. This is capitalism at work.

When public schools fail to satisfy the educational needs and requirements of students, private schools will rise. Businesses always emerge to fullfill a need. This year, the Korean government will spend 38.7 trillion won on education. Wow! (The U.S. spent 56 trillion won.) Perhaps the Ministry of Education should try to find ways to improve public education, spending, and management. Then, there would be no reason for hagwons to exist.

What do you think?

We all need more Energy

Recently, the price of a barrel of crude oil as plummeted. It's around $70 a barrel as I write this. This is a huge drop from where we were in the summer, when prices peaked at around $147 a barrel.

Unfortunately, this drop in oil prices means:

1. Alternative energy is dead. People are creatures of habit, when oil is cheap, there is no need to switch to other forms of energy. In addition, alternative forms of energy become cost prohibitive when gas is affordable.

2. When gas prices are cheap, people will drive more. When oil was at $147 a barrel, the parking lot at HUFS was almost empty. Now, it's full again.

3. Oil consumption will continue to rise. Based on my last post about crude oil, in 5 years crude oil demand may reach 94 million barrels a day.

This is more than the world can produce.

4. OPEC will reduce production. (They will do it later this month.) It's nice when you can dictate world oil prices.

Therefore, I'm bullish on energy stocks. Most of these stocks pay a 3-4% dividend. Patience is a virtue, but getting paid while you wait is even better.

Let's see if people around the world start buying gas guzzling SUVs again. Finally, I still see plenty of cars on the road.

Some Great Scenes

One of my favorite sitcoms is "Taxi." There are few characters funnier than Jim (a guy who drank too much and used too many narcotics). He's taking a driving exam here:



I also used to watch a lot of "I Love Lucy." No. I'm not 59 years old. This is one of my favorite scenes. She is working at a candy factory.


Here's a classic scene from one of the last great sitcoms - Seinfeld. Jerry's girlfriend is deaf, but she can read lips.

There are very few sitcoms on television nowadays. It's a shame. Has our society become so serious that we no longer enjoy comedies?

News mp3 files

I'm going to make it easy for my students to download some mp3 files.

60 Minutes - House of Cards mp3 files

Warren Buffett's Opinion

Warren Buffett thinks people should be buying U.S. stocks now.

This has only happened 3 times in history. On Nov. 1, 1974, he said: "Now is the time to invest and get rich." On August 6, 1979 he told people: "Those awaiting for a better time for equity investing are likely to maintain that posture until well into the next bull market." Finally, on November 22, 1999 he stated: "Investors in stocks these days are expecting too much." Historically, it seems Buffett is about 3-6 months early on his predictions.

Here's his article:

Buy American. I Am.

By WARREN E. BUFFETT

The financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

End.

No money? That's one of the first mistakes of every investor. They put all their money in at once. Investing gurus always leave cash available for opportunities in the future.

On Track

For students past and present that studied this video, I've uploaded all of the mp3 files. You can download all of them at http://andyteach.googlepages.com/ontrack.

The key to using these mp3 files is to listen and try to mimic or imitate the speakers. You can do this alone, but you can't do it in the library. You have to practice speaking if you want to improve your speaking!

So, listen for a few seconds and repeat it out loud.

Enjoy!

Is Sarah Palin a Moron?

Decide for yourself.  

Bill Maher definitely thinks so.  

Am I a Communist?

Recently, I've become less of a fan of democracy.  Although I've been brainwashed growing up in the U.S. that democracy is the best political system, I'm having second thoughts.  Now I feel like as long as there is a free market/capitalist system, the politics do not matter.  

Singapore and Hong Kong are fine examples of this.  Singapore only has 1 political party. However, the country is always ranked number 1 in economic freedom.  Hong Kong was basically ruled/governed by the British, but the region thrived based on no duties, free trade, free market principles.   Most people in Hong Kong pay no taxes or very little taxes.  The top tax rate is only 20% in Hong Kong.  The U.S. is 45%.   The maximum tax rate in Singapore is 20%. Korea is around 30%.  

Another example is Dubai.  No tax and free education.  However, Dubai is ruled by a king.  

In 2008, Hong Kong's government has a budget surplus of $13.5 billion.  What did the government do with the surplus?  They reduced property taxes and cut personal income taxes by 50% to give it back to the citizens.   In 2007, Hong Kong had about a $7 billion budget surplus.   Maybe their political system with economic feedom isn't so bad?  When was the last time the U.S. or Korea had a budget surplus.  And did the democratic government return the money to the citizens by reducing taxes or giving it back to the people?  

I'm slowly coming to the conclusion that I don't care about politics or government.  Just give me economic freedom.  A democracy doesn't necessarily help citizens, but economic freedom seems to do fine under any circumstance.  

Perhaps the reason for higher tax rates in democratic countries is because there are so many politicians that are greedy, and because the governments are so huge.  

Based on my research, one of the best times for U.S. companies and stocks is when there is a Democratic president and a Republican congress.   The theory is that nothing can get accomplished, so government cannot hurt anything.  Businesses are left alone to thrive without dumb new laws or government intervention.  

If democratic governments were good at management, then public universities and public education would be the best in the world.  However, most people prefer private universities and private schools.  Communist Cuba invests 10% of GDP for education.  Maybe that's why they have so many doctors.  For Korea and the U.S. it's between 7-8% of GDP.  

  

Bubbles Bubbles Bubbles

Warren Buffett believes it takes three I's to create a bubble. Innovators, imitators, and idiots. "Everyone goes along and you look kind of silly if you disagree."

It takes a lot of courage and conviction to go against the majority. I usually use Internet trading, and it can be difficult to click my mouse sometimes "to buy" because everyone else is selling. However, my best stock picks have been contrarian. I'm a little scared when everyone agrees with me on a particular stock. On the other hand, I feel more secure when everyone is depressed. I believe it is human nature to follow the herd. When your neighbor is making money from real estate or stocks, you feel like a fool if you're not involved. But, the last buyer always loses money.

George Soros believes that a bubble occurs when everyone believes a particular asset class cannot go down in value.

Bubbles are a part of life. There was a stock market bubble before The Great Depression. Most people can remember the Internet bubble of the 1990s. Now we're dealing with the aftershocks of a real estate bubble. There was also a mini-bubble in Chinese stocks over the last few years.

Joseph Kennedy, father of John F. Kennedy, famously sold all of his stocks after a shoeshine boy gave him stock tips. He figured at that point, everyone was invested in the stock market, and there was nowhere to go but down. Kennedy was able to save his money and invest in real estate during The Great Depression. In 1929, he had $4 million. By 1935, his wealth increased to $180 million.

I've noticed similiar trends with individual stocks. When the p/e (PER), price to sales, market capitalization, and price to cash flow ratios start getting insane. It's time to bail out. Warren Buffett sold his shares of PetroChina for around $160-$170 per share. Today, PetroChina trades at $97 per share. Just buy stocks and hold onto them forever? I don't think so.

(If you're curious, Buffett paid about $21 per share for PetroChina.)

Food For Thought

Most foreigners are shocked by the prices of fruit and other food in Korea. When I first arrived, I was surprised as well. Here are some prices of food in the U.S.

1 lb. (453 grams)

Bananas: 63 cents
Strawberries: $1.91
Broccoli: $1.60
Chicken: $1.18
Bacon: $3.66
Lettuce: 86 cents
Apples: $1.36
1 gallon of milk (3.75 liters): $3.79
(Source: U.S. Dept. of Labor CPI June 2008)

(Recently, Americans have been complaining about the soaring cost of food, because U.S. food prices have risen around 20-50% since 2006.)

For 1 lb. (453 Grams) of white rice:

Kuwait 64 cents
Australia 67 cents
Brazil 76 cents
U.S. 87 cents
Hong Kong 90 cents
Taiwan $1.00
South Africa $2.26
Germany $2.49

According to research done by a Canadian firm, Koreans spend 27% of household income on food, making food the largest expenditure category in a Korean household.

By contrast, the average American family spends about $280 a month on groceries.

Korea imposes tariff rates of more than 40 percent on table grapes, beef, apples, pears and some citrus fruits. Thirty percent tariff rates are imposed on certain meats, some fruits and nuts, many fresh vegetables, starches, peanuts, vegetable oils and some dairy products.

Also, South Korean consumers must pay a 243 percent tariff for imported honey, a 487 percent tariff on soybeans and a 630 percent levy on sesame, according to the Korea Rural Economy Institute.

Korea Development Bank wrote a report on consumer prices, "The purpose of our study was to answer why the general public perception is that our consumer prices are extremely high, but our study found that it is because our everyday necessities like rice, meat and fruits are high compared to major big cities," Kim said. "The results further reinforce the need for our country to further open up our market for basic goods."

Ram Garikipati, chief editor of the EU Chamber of Commerce, said weak consumerism also plays a role in the high cost of living. “It is not just supply and demand which determines the cost here but also the mentality of many citizens who do not really mind paying higher prices. Society has come to accept it,” he said.

If the government truly wants to "stimulate" the economy, then steps need to be taken to lower the cost of food. High food prices are a burden to all households and could be more damaging than high oil prices. The last time I checked, everyone needs to eat. Finally, I believe food prices around the world will continue to rise for the foreseeable future.

College Dropouts

I was curious after reading an article in The Korea Times today. According to the article, 44% of Korean students at top American universities drop out. The study tracked 1,400 Korean students from 14 American universities between 1985-2007.

Normally, about 1/3 of American students do not finish college, because of hardships, financial reasons, difficulties, etc. However, I'm surprised that the dropout rate for Korean students is higher.

The smallest class I ever taught at HUFS was 7. The class started with 15, but by the end of the semester only 7 students remained.

This may sound perverse but in order for people to succeed, others must fail. If everyone in the world had a college degree, would it still be valuable? Like everyone else, I can tie my shoes by myself, but no one has ever congratulated me or paid me for it.

Why do you think 44% of students are giving up?

Gym Subsidies?

According to Reuters, South Korea plans to help obese children pay for health club membership and other activities that can help them lose weight, an official said on Wednesday. 

Obese elementary school kids will receive 40,000 won a month.   These electronic vouchers can be used at designated gyms and health clubs.  

Gym and health club owners throughout Korea must be very happy.  =)   I'm not sure if this program will work.  Exercise is only one variable to weight loss   Losing weight requires a change in lifestyle and psychology.  For those that watched the "Science of Sleep" video, maybe these kids just need to sleep more.   

Also, will this program continue indefinitely?   95% of people who lose weight regain it.  This is based on a study from 1959, which really needs to be updated.  However, there are some facts that back this up.  

Here's the bad news: Fat cells do not disappear.  When you lose weight, they shrink.  When you become obese your body creates more of these permanent fat cells.  So, a kid who used to be fat can have double the amount of fat cells as someone who has always been normal.  Many scientists theorize this is the reason it's easy to regain weight.  

What happens once you stop exercising?  People usually regain the weight.  

Why do diets usually fail?  Because you regain the weight once you stop the diet.  

How do you lose weight and maintain it?  Diet and exercise have to become part of your lifestyle.  My gym is always busy before summer.  Most people say: "I want to lose 10 kilos, so I can wear a swimsuit at the beach."   Usually, after they lose the 10 kilos, they stop exercising.  What do you think will happen?  

Unfortunately, the majority of people think exercising is temporary.  We just try to get in shape for upcoming events.