Monday, May 5, 2014
What is shrinkage?
Shrinkage has multiple meanings, depending on the context.
* Shrinkage (accounting) - the loss of products
* Shrinkage (statistics) - a technique to improve an estimator
* Shrinkage (casting) - a casting defect brought about by the reduction in volume of the cast material as it cools and solidifies
* Shrinkage (slang) - slang term referring to the classic Seinfeld episode, “I was in the pool!” “I was in the pool!”
Daily newspapers to College Dean’s egos, shrinkage is rampant, but more importantly Shrinkage is a driving factor in consumer economics. For those who hate watching news videos on-line, the very short version is retailers are shrinking their products while keeping the price the same. This, allegedly, inadvertently games the inflation numbers. A candy bar may remain $1.25, but it is 80% of its original size. The bag of sugar at the market went from five pounds to two kilos, which is roughly 4.5 pounds.
That last trick is common with beverages. A fifth of liquor is now sold as 500ML. A fifth is roughly 25 ounces, while 500ML is 17 ounces. They will mess with the shape of the bottle so it tricks the eye. This may sound like a small thing, but consider this. The tax on alcohol is roughly $23 per gallon. That means the booze maker saves $1.30 on taxes, plus the cost of tax collection and the cost of manufacturing his product. (Cheap liquor is not distilled. It is mixed at plants using water, flavorings and commercial alcohol.) Multiply that over a million bottles and you have real money.
I have noticed this all over the grocery market. I’m not insane so I have a sensible diet composing mostly meat, fish, eggs and dairy products. This has been true for most of my life so I tend to buy the same supplies every week. I’m an eat to live, not live to eat person. That means I can have the same thing for breakfast every day for a year if it is convenient. It also means I notice when my grocery bill changes or when my food shrinks. Since the crash, my food bill has gone up close to 30%. I could get out for about $70 a week and now it is rarely under $100. Like the price of gasoline, food is much more expensive now than a decade ago, even though we are told there has been no inflation.
That’s the fundamental dishonesty at work. We live in a time when lying about everything is so common, no one notices. Ours is a dishonestly culture. The suits who came up with the idea to shrink the food are not the first to think of it. Long ago in a country far far away I was told about the pickle maker who hired a new plant manager. Soon, the plant was much more profitable so the owner went to see how it was done. The manager told him how he increased profits by removing one pickle from each jar. That means every ten jars netted him one free jar of pickles he could sell!
The owner fired his manager. The reason was the manager was not just cheating the customers, he was cheating the owner. The “savings” were eventually going to cost the owner business. In other words, they were not savings, they were accrued costs. Somewhere down the line that accrual would reverse out and someone would have to pay, most likely the owner. This is the most basic form of intergenerational theft. That’s spending tomorrow’s profits today. It creates a liability that has to be paid tomorrow, sound familiar.
It is comforting to think that there is a limit to this. You can only shrink the food so far. You can only hide the money creating and debt spiral for so long. Mathematics says there are limits and once those limits are reached, the game is up. I’m not so optimistic. It may be comforting to think there are still enough citizens willing to fight to keep the country, but that’s probably a fantasy. The overwhelming majority want the custodial state and will fight anyone who tries to stop them. No matter how much and how often the Cult lies to them, they will trust the Cult before they trust themselves.
NOT ANOTHER ONE – Another public radio/television fundraising drive now going on here in Southern California, this is getting ridiculous. When is there not a pledge drive? Stop the madness, please.
CHINA #1??? - China to overtake U.S. as top economic power this year: the US is on the brink of losing its status as the world's largest economy, and is likely to slip behind China this year, sooner than widely anticipated, according to the world's leading statistical agencies. The US has been the global leader since overtaking the UK in 1872. Most economists previously thought China would pull ahead in 2019. ...The figures [are] compiled...by the World Bank.
DON’T FAKE IT, CONFIDENCE IS THE KEY - If you're starting a new job, speaking at an event, or otherwise stepping into a situation where you need a confidence boost, the common advice is to "fake it til you make it." The hope is that by pretending to be confident, you'll eventually internalize it and actually become so.
However, in new book "The Confidence Code," authors Katty Kay and Claire Shipman say that's about the worst thing you can do. "Confidence isn't about pretending or putting on an act," they write. "Confidence springs from genuine accomplishment and work."
The authors say the "fake it" adage is a modern adaptation of a quote by Aristotle: "Men acquire a particular quality by constantly acting a certain way." But when it comes to faking confidence, they say it doesn't help and may actually make you feel less secure, because "knowingly masquerading as something we're not makes us anxious."
Moreover, Cameron Anderson, a psychologist who works in the business school at the University of California, Berkeley, says no matter how good you are at faking it, there are always "tells." Shifting eyes, rising voice, and other body language giveaways signal that you're not what you seem. Most of us have a pretty good radar for BS, says Anderson, so bluffing could make you seem more like a phony than the confident professional you trying for.
So how do you drum up a little courage when you need it? Kay and Shipman suggest taking action. We become more confident by trying things and learning that we'll either succeed or survive the stumbles. "Do one small thing brave thing, and then the next will be easier. And soon confidence will flow," they write. "We know — 'fake til you make it' sounds catchier — but this actually works."
THE YOUNG AND THE RESTLESS - Under the U.S. Affordable Care Act, some demographic groups are more prized than others. The economics of the law depend on whether insurers can keep prices in check by enrolling enough younger, healthier people to balance out the bills that could be racked up by the elderly, who are more likely to get sick. Data released Thursday by the Obama administration show that about 28% of people picking plans on the state and federal insurance exchanges by April 19—after most states' enrollment deadlines passed—were 18 to 34 years old, generally considered a healthy group. And though higher than previous counts, the proportion, we note, is significantly below the 40% level that some analysts consider important for holding down rates. Major insurers have offered a mixed assessment of their exchange sign-ups with some saying they are in line with projections and others indicating they are older than expected. The age data will be a key factor, as insurers are currently setting rates for 2015.
TOYOTA LEAVES SOUTHERN CALIFORNIA - From the Detroit News, Toyota sent shock waves through Southern California when it announced this past week that it’s moving its North American sales headquarters from Torrance, south of Los Angeles, to Plano, Texas, north of Dallas. The move, which is part of a broader headquarters consolidation, will cost the city of Torrance about $1.2 million in annual tax revenue and affects about 3,000 employees.
Employees who relocate are in for a surprise. Contrary to the image promulgated by both critics and boosters, Texas is not an alien planet populated by barbarians with big hair. With its cheap suburban housing and good public schools, Plano in fact offers a 21st-century version of the middle-class California dream that built towns like Torrance. It’s just been updated, with more immigrants, better restaurants and a lot more marble countertops.
In contrasting Texas and California, politicians and pundits tend to emphasize taxes and business regulation. But for most people on a day-to-day basis, the biggest difference between the two is the cost of housing. Although Plano is one of the country’s richest cities, with a highly educated population and a median income of $85,333 compared to Torrance’s $70,061, it offers a much wider range of housing options. You can pay nearly $7 million for a 5-acre estate in Plano — $3 million more than the most expensive listing in Torrance — but the average home costs less than $200,000, compared to $552,000 in Torrance. A Redfin search for three-bedroom houses costing less than $400,000 turns up 149 in Plano versus four in Torrance; lowering the threshold to $300,000 cuts the Plano supply to 73, while yielding nothing in Torrance.
Plano’s combination of inexpensive real estate and excellent public schools has cultural consequences. It allows for more traditional lifestyles, since many families don’t need a second income to live a comfortable middle-class life. Many mothers choose to stay at home or to work, often part-time, for personal fulfillment and luxuries such as family vacations. For both men and women, a life oriented around work rather than family is less common than in coastal enclaves of similarly highly educated people.
Simultaneously cosmopolitan and traditional, Plano will undoubtedly turn off some Toyota transplants. The conversational assumption that everyone belongs to a religious congregation of some kind — if not Christian, then Jewish, Muslim, Hindu or Buddhist — will create culture shock. But a lot of people will discover that they can have a lifestyle they thought was a vanished American dream. As long as that’s true, companies are going to keep moving to Texas.
COLLEGE CHRONICLES - After Rutgers students stage a sit-in to protest her selection as commencement speaker, Dr. Condoleezza Rice withdraws, saying in a statement: "Commencement should be a time of joyous celebration ... Rutgers' invitation to me to speak has become a distraction for the university community ... I am honored to have served my country. I have defended America's belief in free speech and the exchange of ideas. ... But that is not what is at issue here. As a Professor for thirty years at Stanford University and as its former Provost and Chief academic officer, I understand and embrace the purpose of the commencement ceremony and I am simply unwilling to detract from it in any way.
The federal Department of Education's Office of Civil Rights announced last week that 55 institutions of higher learning are being investigated for possible Title IX investigations related to their handling of sexual assault and rape allegations. Institutions included: Occidental College, University of Southern California, University of Colorado (Boulder), Boston University, Harvard, Hobart and William Smith Colleges, and Swarthmore College.
COMMENCEMENT 2014 – The coming week notable Commencement addresses:
May 9 – Joe Biden, Vice President of the United States: University of South Carolina
May 10 – Fedele Bauccio, Co-Founder and CEO of Bon Appetit: Albion College
May 10 – Sean “Puff Daddy” Combs, Entrepreneur and Philanthropist: Howard University
May 10 – Rick Mastracchio, Astronaut, Currently on the International Space Station: University of Connecticut
May 10 – George Stephanopolis, Anchor, “Good Morning America”: Franklin & Marshall College
May 11 – Martin Dempsey, General, Chairman of the Joint Chiefs of Staff: Duke University
May 11 – Jay Leno, Comedian: Emerson College
SUMMER MOVIES - Summer movie preview: This summer kicks off with 'The Amazing Spider-Man 2' [last Friday], Sony's second installment of its second Spider-Man series. With two sequels and two spinoffs (for Venom and Sinister Six) planned, Spider-Man proves the intensive, high-speed nature of franchise-making ... Among ... other ... potential blockbusters: the monster re-do 'Godzilla' (May 16), the time-traveling mutant thriller 'X-Men: Days of Future Past' (May 23), the warped fairy tale 'Maleficent' (May 30), the animated sequel 'How to Train Your Dragon 2,' the Clint Eastwood-directed musical 'Jersey Boys' (June 20), the gun-toting gorilla tale 'Dawn of the Planet of the Apes' (July 11), the demigod drama 'Hercules' (July 25) and Marvel's outer-space adventure 'Guardians of the Galaxy' (Aug. 1). ...
The other Jon Favreau [wrote and directed] 'Chef' (May 9), an independent film ... about a big-name restaurant chef who loses his job and opens a food truck. ... Seth MacFarlane's 'A Million Ways to Die in the West' (May 30) and '22 Jump Street' (June 13) will offer comic relief. In 'Neighbors' (May 9), Seth Rogen and Zac Efron star as next-door rivals.
Rink Rats summer picks will be May 26.
BIRTHDAYS THIS WEEK – Birthday wishes and thoughts this week to: Billy Joe (65), Peggy Redman …famous retired educator, Sula Vanderplank …famous scientist.
APPLE FINANCE - Apple reported strong iPhone sales that defied expectations of a slowdown, and, in a nod to restive shareholders, the company added $30 billion to its stock-buyback plan, raised its dividend about 8% and declared a 7-for-1 stock split. In an interview with The Wall Street Journal, Chief Executive Tim Cook said Apple expanded its buyback program because it views its shares as undervalued. After the news hit, activist investor Carl Icahn, who has been trying to get Apple to buy back shares, took to Twitter to praise the company. For a recap of Apple's earnings call, take a look at our Digits blog. And while recent headlines about tech acquisitions have come from Google and Facebook, we note that Apple has been active, too, purchasing two dozen companies in the past year and a half. "Obviously, we're on the prowl," said Mr. Cook.
POLITICS 101 - The U.S. Republican Party has full legislative control in 26 of 50 states and holds 29 governorships heading into 2014 elections—and there is room to gain more ground. "Republicans are at something of a high-water mark," said Tim Storey, who tracks elections at the nonpartisan National Conference of State Legislatures. "However, there are still a number of states where Republicans could flip chambers and come out even stronger than they came in." The outcome could have an important impact on policy issues across the country on matters such as energy regulation, gun control and same-sex marriage. We find that five state Senates would swing to the GOP with a gain of three or fewer seats, and the party is targeting four additional state legislative chambers. Meanwhile, the Democratic Legislative Campaign Committee plans to dispatch twice as many field organizers as it did in 2012 to counteract the traditional drop-off in participation of its voting base in midterm elections.
THE SWAMI’S WEEK TOP PICKS –
NHL Stanley Cup Playoffs: Round Two winners – Boston over Montreal in six, Pittsburgh over New York Rangers in seven, Chicago over Minnesota in five, and L.A. Kings over Anaheim in six.
NBA Playoffs: Round Two winners – Indiana over Washington in seven, Miami over Brooklyn in five, Oklahoma City over L.A. Clippers in six, and Portland over San Antonio in seven.
TRIPLE CROWN – Congrats to The Swami on selecting California Chrome to Win The Kentucky Derby. His early line is for the colt to repeat at The Preakness. But keep your handicapping eye on Ride on Curlin as a possible challenger.
2014 Season to date (26-29), ouch!
MARKET WEEK - The inconsistent year for U.S. stocks continues, highlighted by the S&P 500 alternating between weekly gains and losses for the past nine weeks. That last happened in September 2006, and if it continues that trend with a loss this week, it would be the first 10-week alternation streak in nearly 20 years.
DRIVING THE WEEK - President Obama today, fresh off his comedy stylings at the White House Correspondents Dinner, meets today with President Ismail Omar Guelleh of Djibouti for a bilateral meeting at the White House. ... European Commission today announces growth forecasts for the region ... ECB meets Thursday ... Non-manufacturing ISM at 10:00 a.m. expected to rise to 54.0 from 53.1 ... Senior loan officer opinion survey at 2:00 p.m. expected to show standards continue to ease ... Intl'l trade data Tuesday morning expected to show deficit falling to $40B from $42.3B ... Federal Reserve Chair Janet Yellen testifies Wednesday at 10:00 a.m. before the Joint Economic Committee and will offer her assessment of the economy ... Yellen testifies again on Thursday at 10:00 a.m. on the economy before the Senate Budget Committee.
Next week: Bureaucrats, spring gardening and Dear Rink Rats.
Until Next Monday, Adios.
May 5, 2014