Dragon Babies to the Rescue

Ask some of the people running for the presidency why we don't have enough jobs, and they'll tell you.  It's China's fault.  China has destroyed the US economy through job stealing, currency manipulation, and a wide range of unfair trade practices, they tell you.  And you're sitting there thinking, "Gee, I know about the environmental problems, food safety issues, intellectual property infringement and human rights violations, but are the Chinese really stealing our jobs?  And if they are manipulating their currency value, should I care?"

Well, let's face it, the Chinese people are willing to work for much less than we Americans are, which means they are willing to accept a much lower standard of living, including not ever being able to afford to buy the products they work to produce.  And there are 1.3 billion of them, so their labor force is both big and cheap.  Not surprisingly, American companies can keep their costs low and grow their profits by having their products made in China, and we American like to buy lots of inexpensive stuff, so we're not really complaining much.  Even though low production costs have helped us improve our national bottom line (GDP), The Chinese economy has experienced tremendous growth, and it will most likely be larger than ours soon.  Sorry, that's pretty much a sure thing.  As you begin working through the Five Stages of Grief,  let me just say that according to a recent Bloomberg article, "Luxembourg has a GDP four-tenths of a percent the size of the U.S. economy, about the same output as the state of Delaware. And yet it is more than twice as rich per person as the U.S."  So, fastest growing economy and biggest economy don't mean richest, and apparently even after the Chinese overtakes us, we will still live much better than they do.  Still feeling kind of bummed?  Well, our GDP is still twice that of China, so you probably have a few more years of meaningless bragging left.

Here's a little trivia:  China was the world's biggest economy for most of the 300 years before it was overtaken by the U.S. in 1890. 

But since It seems highly unlikely that the 12.8 million unemployed Americans will suddenly be willing to work for $2 a day, "How will we compete for jobs?" you're wondering.  And the answer is: Dragon Babies!

Of the 12 Chinese Zodiac signs, by far the most desirable is the sign of the Dragon.  The Dragon can swim and fly, traversing the seas as well as heaven, symbolizing a life with no obstacles, and big time success.  Well, guess what year we're in?  Yup.  And guess what's illegal in China?  Surrogacy.  So rich Chinese couples with fertility issues are flocking to American clinics to try their luck.  American clinics are considered superior medically, and a Chinese couple can get an ethnic Chinese American surrogate here to carry their baby and give birth to it in the U.S., giving the child the added advantage of American citizenship.  Surrogacy costs about $100k, but If the couple needs donor eggs, it's even more.  They'll have to pay a premium (like $30K) for eggs from an ethnic Chinese donor, and a bit more if they want a donor with high SAT scores, or one who's a student at Harvard, for example.  If you have enough money to pay for all this, then paying the fine for having more than one kid in China shouldn't be too bad.  

Kathryn Kaycoff Manos, co-founder of Global IVF and Agency for Surrogacy Solutions in Los Angeles reports a 250% increase in business over the last two months.  The business of making a Dragon Baby is booming!  According to a recent LA times article on the subject, "Kaycoff Manos' company created the Dragon Baby Special, a personalized service that helps Chinese clients deliver babies in time through in vitro fertilization or surrogacy, connecting with bilingual fertility clinics and hiring Chinese translators."  One stop shopping!  We should all be so enterprising.

Isn't it interesting that Chinese are coming here to make Chinese babies while Americans are going to China to adopt Chinese babies?

But I can't distract you with all this talk about babies.  You're still wondering about all those accusations of currency manipulation.   Well, the people who invented paper money (in the late Tang Dynasty, 618-907) may very well be keeping the value of the Yuan artificially low, but as they have been letting its value float up over the past few years, a stronger Yuan has meant more Chinese companies are now looking at moving production to the United States.  Why, you may ask (if you're not an economist)?  Because Americans are still the world's biggest consumers, and making your products in their country so you can get it into their hot little credit card wielding hands more quickly and easily is a huge competitive advantage.  Now that the American labor force has gotten a little cheaper, and now that you can buy more dollars with each of your Yuan, making your products here in America and saving transportation costs starts looking a lot more attractive.  Has anyone noticed the rise in oil and gas prices?

So to sum up:  Americans want Chinese products made in the U.S., Chinese people want Chinese babies made in the U.S.,  Americans want Chinese babies made in China, but not black babies made in the U.S. (oh wait, that's another topic entirely).  Americans want cheap goods produced by cheap labor in China, and that's created more wealthy Chinese business people, who want expensive goods (babies) produced in the U.S. by expensive labor (literally).  We need the Chinese to keep making stuff cheaply, and they need us to keep buying it.  The Chinese want surrogacy services and we need them to spend their new found wealth here.  What we have is codependency.  We need each other.  It's kind of a love/hate thing.  

And what service will we be able to sell the Chinese in 2013 when the year of the Dragon ends?  Snake babies!   Next year is the year of the snake.   Or maybe we'll come up with some other ideas by then.  Get to work!

Love is a Bad investment. I Recommend it.

For Valentines day, I thought I should explore the financial side of love.  

I just Googled "cost of love" and read some fascinating advice on how to manage both the emotional and financial costs of love, including steps like "do a credit check on your love interest" and "pursue someone who is ambitious or has a financially rewarding career".   Not bad ideas.  Some costs of love to consider include entertainment expenses, eating out, significant wardrobe upgrades and personal grooming expenditures,  a lot of excersize and maybe some French lessons, all intended to convince potential mates that we are attractive, sophisticated, impressive and successful people worth spending one's life with.

And if all goes well, someone falls madly in love with us and marries us, which brings up the cost of a wedding, a honeymoon and children.  So far, we're digging a big old hole in the balance sheet!  But is it worth it?  Are you getting a good value for that endless expense called love?

Well, getting married will often make your auto insurance less expensive (yes, gentlemen, you're 25% less of a liability once you get hitched), and if you marry someone with good credit, your score will probably rise too. Combining your earnings and sharing your expenses will reduce your cost of living and you can also gain access to each other's employer benefits.  If you and your spouse are both high income earners you may be among those who experience higher taxes, but more often married couples actually end up paying lower taxes.  And who can overlook the romantic benefits of tax free property transfers at death?  But are these reasons enough?

And what about the risks?

In Woody Allen's 1975 classic (and one of my all time favorite movies) "Love and Death", Natasha says, "I don't want to get married, I just want to get divorced.  While divorce can apparently be both fun and profitable (if you're a Kardashian), a lot of people actually want to avoid it.  For that reason, they are also avoiding marriage, or at least that's what many have said to explain the huge drop in the rate of marriage in the U.S.   Only about 51% of American adults now get married, which is the lowest level ever recorded, and a 20% drop since 1960.  The study which gave us these numbers, also reveals there are socioeconomic and class differences in how we see marriage:  Wealthy women see it as a measure of commitment, while poorer women see it as a financial burden with little or no benefit.   The non-wealthy woman often sees divorce as possibly too expensive to afford, and therefore views marriage as carrying risks too unreasonable to assume  She now chooses co-habitation as a more attractive option.  But this is not the case for many gay couples.  Regardless of income level, gay couples are much more enthusiastic about the idea of getting married.  Everyone wants that sexy unlimited marital deduction.

So love is expensive, and there's never any guaranteed return, except maybe marriage, which is expensive, and that often leads to expensive offspring, and possibly expensive divorces.

So why bother? 

I'll tell you why.  Because money isn't everything.  There, I've said it.  Shocked? Confused?  Don't be so shallow.  And why am I being so sappy and impractical today?  Because while I was watching the Grammys the other night, L.L Cool J gave a beautiful tribute to Whitney Houston, and I was reminded of the obvious; that all the money, talent and fame in the world won't keep you alive, or happy.  And because a long time ago, rather than heed the advice to  "pursue someone who is ambitious or has a financially rewarding career", I did the opposite, and we're still happily married.  

Right after L.L. Cool J. spoke, Bruno Mars got up to perform, and standing up on stage, smiling with his pompadour and gold suit, he said, "Ok, everyone, get up off your rich asses and have some fun!"   And I think he's got it right, because even if it's very well toned, what good is a rich ass if you have no one to dance with?

Winning the Super Bowl!

I'm not much of a football fan, but I'm pretty sure the Super Bowl is tomorrow.  Like the rest of the investment world, I want the Giants to win, and that's not because I know anything about them, or have any feelings about Tom Brady after he fathered two children with two different gorgeous women right around the same time.  No, I care because if the Giants win, we all win (at least, there's an 80%chance of it).  One of the many interesting statistics tied to the Super Bowl outcome is what's known as "the Super Bowl Gauge", which states that if a team from the original NFL wins the Super Bowl, the stock market will be up that year.  Don't laugh, it's been 80% accurate, which is far better than the track record of most mutual fund managers ----  only 25% of them outperform the market each year, and they charge fees!  Anyway, the Giants are an original NFL team, and the Patriots go back to the AFL, so we want the Giants to win.  Even though Eli Manning isn't as cute, but at least he's married to the mother of his child.

Another interesting statistic tied to the Super Bowl is recliner sales.  They skyrocket around this time of year!  Besides buying huge TV's, American's run out in droves to buy recliners before the big game.  In fact, the furniture business is generally pretty weak, but it turns out that recliners do about $3.5 billion in sales annually, and that's projected to grow by 21% over the next 5 years according to industry watchers, thanks to the exciting new electric-push-button action, which makes reclining smoooooth.  A high end Lazy Boy will set you back about a $1,000, but that's nothing compared to the $4 - 16 thousand you might pay for a ticket to the Super Bowl itself, and that's before considering flights and hotels.  That's a 74% increase over last year's ticket price!  If only you could have bought a ticket at last year's price and held it to resell this year --- that's would have been a great return in a year where the S&P 500 closed pretty much flat.   You would have been a super star of the investment world with a return like that.

But Super Bowl tickets don't give you the ability to buy ahead.  There are some things you can buy ahead and just hold onto them, like pasta, but there's other stuff like milk that doesn't keep so well.  So if the store is having a great deal on pasta today, you could buy a whole bunch and eat it throughout the year, but even if there was a great deal on milk, you would only want to buy what you could use before it went bad.  But let's say you don't live in a mansion with enough warehouse space for all that pasta.  How would you lock in today's price?  What if the price of pasta rose 74% in six months and you ran out?  This is how futures contracts work:  You buy a contract on a certain commodity, like wheat or coffee now, and you accept delivery of that commodity at some specified date in the future.  Usually, you pay a bit more for that commodity future than you would if you wanted the thing right now (spot price), because the seller is warehousing it for you and helping you hedge against future price uncertainty.  This is called "Contango" (I must admit, I currently have a crush on that word and I'm trying to find new situations where I might  be able to use it).  So if there were futures on Super Bowl tickets, you could have bought one for say $2,850 a year ago, a 25% premium over last year's price (contango), and hedged against the 74% increase in this year's price.

You could have also played futures contracts on the SuperBowl.  If you had bought a futures contract on the Giants when they weren't so impressive, you could have gotten in when the odds were 75 to 1, and if the Giants win tomorrow, you could be looking at a 75% windfall! 

So a futures contract is kind of like an insurance policy, and that's what this column was supposed to be about before I got carried away with tangents about illegitimate children and recliners. So I guess it's about the Super Bowl instead, because it turns out everything is about the Super Bowl.  So go out and spend last year's Super Bowl ticket price on a nice smoothly reclining Lazy Boy, and instead of spending  money betting on the outcome of the Super Bowl, just pray for a Giants win because 92% of those who bet money on the Super Bowl lose, and the odds of a Giants win producing a nice gain for your investments are much better than the odds of your mutual fund manger picking any winners for you this year.

I probably won't be watching the game, except Madonna's half time show.  What are the odds it'll be better than last year's Black Eyed Peas show?  Any takers?