Law Enforcement Against Drugs, or LEAD, partners with Schools in New Jersey to educate our youths on the dangers of drug use. One of the initiatives of LEAD this year was to invite seven gifted students from Fifth Grade to write an essay, poem, or narrative on the dangers of drug and alcohol (ab)use. A LEAD-jury selected three winners from this competition. Emma Ghosh was awarded the second place in the competition held at Lafayette School District.

The battle with drug addiction has afflicted our society for decades. Our approach to tackling this societal predicament has been from the supply side, i.e., trying to restrict the inflow of drugs from other countries. Nevertheless, it is hard to regulate contraband items when payoffs are high because of the escalating demand for these coveted products. A simpler and more effective solution, which is often ignored in our societies, is to limit the demand by making our youths familiar with the heightened risk from drug (ab)use. We applaud the efforts of these seven fifth graders who are committed to disseminating the dangers of drugs, alcohol and tobacco.   

Name:  Emma Ghosh

Date:  6/9/17

Teacher: Ms. Dellano

Project Chosen:  Essay on the Dangers of Drugs, Alcohol and Tobacco

Doesn’t everyone want to live life to the fullest? Don’t you? I do, my friends do, my classmates do, my family does. Well, the L.E.A.D program teaches kids how to be safe and protect themselves from obstacles that could possibly prevent kids from living a happy and healthy life. The program helps kids learn what drugs, smoking, and alcohol can do to their body and how it can affect the way we treat others and others treat us. The L.E.A.D officers teach us that there is nothing good about taking drugs, alcohol, and/or smoking. There are many morals that L.E.A.D is able to help kids understand, like the difficulties of life when you do start alcohol, drugs, and/or smoke. Three things that I have learned from the L.E.A.D program are that life is supposed to be a journey, exploration, an adventure, when you start drinking alcohol, smoking, and/or do drugs, you physically cannot keep up with the adventure and journey. You wind up hurting those around you, those that love and support you. Secondly, smoking, alcohol, and/or drug usage has deadly effects on your brain and body. Lastly, and most importantly, L.E.A.D taught me strategies on how to say NO to drugs.

First off, life is supposed to be a journey, exploration, an adventure, basically action-packed. When you start drinking alcohol, smoking, and/or use drugs, you physically cannot do even the basic functions. Alcohol, drugs, and smoking make it hard for you to stay active and keep up with all your other friends. Most importantly, you hurt the ones around you and the people that love and support you.

Secondly, smoking, alcohol, and drugs stop your brain from functioning properly. The chemicals in cigarettes are horrible for the brain. The ingredients in cigarettes, alcohol and drugs are in every way, harmful to you body. I can recall that one of the L.E.A.D teachers said, “One of the main effects of alcohol is brain and nervous system damage. Alcohol can be memory-impairing, vision-and-speech-affecting, seizure-causing disorder. You won’t be able to form new memories. You’ll mumble involuntarily and your eyes will twitch constantly.” The brain and heart are 2 of the most important body parts. We would not be able to survive without them, and smoking, drinking, and drugs target you heart and brain, which is one of the reason people die from one of the three.  

Additionally, smoking, especially, can lead to irreversible damage to your lungs and heart. Which can then cause the person to have trouble breathing and put them at a greater risk of heart disease or lung cancer. For example, the L.E.A.D teachers explained, “Smoking, in particular, can give you lung cancer or heart disease because of the smoke that you inhale. The smoke that is inhaled can damage your lungs because of all the chemicals in tobacco, which are also released into the smoke. The chemicals in the smoke are absorbed by your blood cells and then reach your heart and hurt the function of your heart and lungs. That will subsequently make it hard to breath. Smoking can also cause cancer of the lung, esophagus, mouth, throat, kidney, bladder, liver, stomach, and much more.” The L.E.A.D teachers also mention the horrible consequences of using drugs too. From deadly cancer to fatal heart attacks, some prescription drugs have even been known to cause either slow or immediate death. Other drugs may cause patients to do things they wouldn’t ordinarily consider. Drugs can also cause cancer of the bladder and other organs. Drugs can also elevate diabetes symptoms. This all proves that smoking, drinking, and drugs can cause irreversible damage to your body.

Most importantly, L.E.A.D taught me strategies to say no to drugs. One big problem is that some people are really hurting others and making them suffer through peer pressure.  One of the most important factors is that drunk people think smoking, drinking and doing drugs is “cool”, but that is just the chemicals taking over their brain! “Peer pressure will usually stop after the person says no, but in some rare cases it doesn’t. And that is where you want to go to a trusted adult, like a family member or whomever is closest, like if you are at school tell a teacher or aid. This is NOT tattle-tailing! Peer pressuring is wrong and not ok, it should be reported immediately. Even if you see someone being peer pressured who doesn’t know how to say “no” or is being threatened, you could help by telling an adult immediately, or the person being peer pressured could get seriously injured!” stated one of the L.E.A.D teachers.  This shows that although some people may say it’s cool to take drugs, drink or smoke, in reality you would know not to listen to them because you had L.E.A.D classes! This is an extremely important thing to know because if you are clueless when something like that happens to you, you need to stick up for your own health and wellbeing! ‘Cause not everybody else will know what to do during such a situation.

In conclusion, if you’re on drugs, drink, or smoke, life is a bottomless pit that drowns you in sorrow and remorse.  You cannot trust drugs, alcohol, and smoking to help you or heal you or make you forget that horrible past, you have to handle it yourself and learn to deal with it like so many other people in this world have. The L.E.A.D teachers tell us that our mind is still growing then, which is when smoking, drinking, and doing drugs have the ability to take their hardest strike at our brain, heart, lungs and other internal body parts. L.E.A.D is an important program that I feel, everyone should know about. The program is not your average program that tells kids “drinking is bad”, “don’t smoke or do drugs”, it is able to get into more detail and give kids an absolute crystal clear image of how dreadful it is to smoke, drink, or do drugs. In conclusion, I have learned valuable lessons from L.E.A.D. Most importantly, life is supposed to be a journey, exploration, an adventure, and when you start drinking alcohol, smoking, and/or do drugs, you physically cannot keep up with the adventure and journey. You wind up hurting those around you, those that love and support you. I, Emma Ghosh, pledge to never ever try to drink alcohol, use drugs,or smoke.

July 4, 2017


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Slumdog Millionaire May be a Destiny

For the year 2017, a well-diversified portfolio consisting of US public companies generates returns anywhere between 4% and 8% (S&P MidCap 400 gained 4%, Dow gained 6%, S&P 500 gained 8%). Quite impressive.

What about a more aggressive investor, or a more flamboyant hedge fund manager, seeking even bigger alphas/returns? Is there any country offering bigger equity returns than the US equity markets? Much of continental Europe generated relatively modest returns for the year 2017. While emerging markets may be more promising, the returns were no better than the US. Key indices in China and Brazil are up between 4% and 8%. Given the risk, the US seems a much safer bet.

There is one emerging market, however, that stands-out in 2017. India has outperformed most developed and emerging markets. Most key indexes in India are up more than 11%.

You Are My Destiny: Slumdog Millionaire

  • Roughly, half of India’s 1.2 billion population is under 25
  • The country, especially parts of the south, west and north, is entrepreneurial
  • While educating billion people remain a daunting task, much of the Indian population understands the value of good education
  • Low oil prices have been a blessing because India imports nearly 80% of its oil to sustain growth
  • In 2014, Modi, the leader of the conservative party, captured the imagination of Indians because his economic vision is tied to domestic investments and he intends to attract foreign investments by removing various barriers to foreign capital and by pledging to eradicate corruption.

Despite the promise of tomorrow, there is no denying that India today remains a poor country. Even relative to the other BRIC countries, its per capital GDP is about half of China and a third of Brazil.

World Bank Sings Jai-Ho for the Bengal Tiger

The World Bank projected the Indian economy to expand at a rate of 7.8% this year and 7.9% over the next two years. The continuing slump in prices of oil, which is one of the major imported commodities in India, had a significant effect on the Indian economy over the past one year. The Bank said: “In contrast to other major developing countries, growth in India remained robust, buoyed by strong investor sentiment and the positive effect on real incomes of the recent fall in oil prices .”

The World Bank estimates India’s growth projections to be higher than that of the Dragon Warrior. The Bank expects Chinese GDP growth to be around 6.5% over the next two years. Brazil and South Africa, the two other BRICS countries, are embroiled in major corruption scandals involving their leaders, which injects enormous uncertainty for investors. Russia seems determined to inject global anarchy into the world while disregarding the welfare of its own citizens.

Domestic Consumption

A distinct attribute propelling India’s economic growth is its appetite for domestic consumption. According to Adrian Lim, a Singapore-based investment manager with Aberdeen Asset Management, which manages $11.5 billion of assets in India, “India is being seen as a relatively resilient place to invest because quite a bit of the economy is driven by domestic consumption.” Moreover, Lim asserted “More than two thirds of the stocks listed (on the Sensex) are driven primarily by domestic demand, something you can’t see on the Chinese benchmark.”

India’s stocks reached a new highs recently powered by foreign funds. India’s bellwether S&P BSE Sensex broke a two-year-old closing record Monday as it rose to end trading at 29,910.22.

Exposure to India

How can US investors play India?

Consider investing in one of the top 5 India-based ETFs, as per the US News and World report (

#1                 iShares MSCI India                                                 INDA      $5.11 billion in assets

#2                 VanEck Vectors India Small-Cap ETF         SCIF         $0.32 billion in assets

#3                  IShares MSCI India Small-Cap                        SMIN       $0.19 billion in assets

#4                  PowerShares India ETF                                       PIN           $0.26 billion in assets

#5                  Columbia India Consumer ETF                       INCO      $0.12 billion in assets

The U.S. News Best Fit ETF rankings are designed to help long-term investors evaluate and compare the structure of exchange-traded funds. Since all ETFs are intended to track an underlying index (for a variety of equities, or the price of a commodity, for example), the rankings aim to identify large, liquid funds that perform reliably. The report also compares funds’ costs and the fund’s level of diversification and success in tracking its index. We discuss each of these measures in depth below.

Consider playing Danny Boyle’s Slumdog Millionaire!

Finland, June 8, 2017

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Taxing on the Brain

Some U.S. multinational companies are avoiding paying high U.S. taxes through relatively simple tax strategies. If a U.S. multination company generates part of its income in a foreign jurisdiction, the foreign income is not subject to U.S. taxes until it gets repatriated back to the US. Contrary to personal income tax, which is levied on all sources of income regardless of where the income is earned, only U.S-based income is subject to taxes for U.S. corporations. The foreign income earned is subject to US taxes once the money is transferred back to the U.S. for redistribution or reinvestment.

Therefore, U.S. citizens cannot shelter foreign income from U.S. taxes, but U.S. companies are able to do so.

Another tax strategy to shelter income from U.S. taxes is more dubious in nature where the objective is to attribute a higher percentage of the income to a foreign jurisdiction with low tax rate even when the income is not economically earned in the foreign jurisdiction.

The Pillar in the Cat-and-Mouse Strategy

Caterpillar is under intense scrutiny for shifting much of the profit from its lucrative replacement-parts business to a Swiss subsidiary where the tax rates are low. The strategy, which dates back to the late 1990s, has generated an employee lawsuit, a U.S. Senate investigation, and a federal criminal investigation that led raids on Caterpillar’s headquarters and two facilities in Illinois.

How large is the tax avoidance? According to a U.S. Senator (see the April request from Sen. Carl Levin, D., Mich., for the PCAOB to look into the tax avoidance matter), Caterpillar has deferred $2.4 billion in taxes under strategies devised by PricewaterhouseCoopers LLP.

CtW, an investment group, wants to shake up the company’s audit committee following the terminator’s (machinery giant) offshore tax strategy. The investment group, has issued a public letter asking shareholders to vote against Caterpillar’s three board members because of inadequate oversight of tax strategy and dysfunctional monitoring of the external auditor. In the case of Caterpillar, PricewaterhouseCoopers LLP happens to be both the external auditor and the  tax consultant!

The audit committee members of Caterpillar include

  • Daniel Dickinson, a private-equity executive
  • Dennis Muilenburg, Chairman and CEO of Boeing Co.
  • William Osborn, former Chairman and CEO of Northern Trust Corp.

Conflict or Efficiency

By serving as the tax consulting and external auditor, does PricewaterhouseCoopers LLP generate efficiencies for the company or is there a conflict of interest whereby the audit quality suffers because the external auditor is no longer an independent monitor of the company’s financial statements.   

Independent or Dependent

PricewaterhouseCoopers has been Caterpillar’s independent auditor since 1925, according to the 2017 proxy statements filed by Caterpillar, which means the big accounting firm has been with this client for almost a century! Can an auditor with a century long relationship with a client provide high quality audit assurance?

How much has the accounting firm earned from this company?

Audit services              Tax consulting             Total Fees

2016                                        $33 million                  $0.1 million                 $35 million

2015                                        $32 million                  $20 million                  $54 million

Why did tax consulting fees drop suddenly in 2016? Too much political heat?

If you use 2016 fees as a proxy for annual fees earned by the auditor for the prior years, which is an exaggerated assumption, PricewaterhouseCoopers has earned around $3 billion from the Terminator since 1925.

I wish we could buy shares of PricewaterhouseCoopers!

Is PricewaterhouseCoopers a tax consultant or an “external” auditor for Caterpillar? Does PricewaterhouseCoopers have the conviction to question accounting practices adopted by Caterpillar and confront questionable accounting practices in light of this money train?

Your guess is as good as mine…..

May 29, 2017

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Bite of the Big Apple

New York City or the “Big Apple” is the financial capital of the world—the city that never sleeps. Walk down the streets of Broadway, and you can hear someone humming the tune “New York, New York” immortalized by Liza Minnelli and Frank Sinatra. With access to Central Park, I believe a more appropriate label for New York City is the “Garden of Eden.” The trees in this Garden sustain life, support knowledge, and generate forbidden fruits. One serpentine bite of the forbidden apple and we are at the cross roads with Genesis!

Why was New York City baptized as the “Big Apple?”

Big Apple

In the early 1920s, “Big Apple” was a nickname for large monetary awards associated with horse racing contests, many of which were organized in and around New York City. The name was commercialized by prominent writers from the New York Morning Telegraph reporting on the City’s horse-racing. Because the city hosted important races, rewards associated with the races were substantial, which may explain the term Big Apple.

Big Apple was subsequently adopted by the City’s jazz musicians. An old saying in show business was “there are many apples on the tree, but only one Big Apple.” New York City being the premier place for jazz musicians to perform made it customary to designate New York City as the Big Apple.

The City in 1971 started a campaign to increase tourism and officially adopted the nickname Big Apple. The campaign featured red apples as reminder of the bright and cheery side of the City, in stark contrast to the common belief that New York City was dark and dangerous. Since then, New York City has officially been designated as the Big Apple.

Jobs’ Apple

What if a bite of the Big Apple eludes you? There is a solution to this biblical dilemma—own a piece of Steve Jobs’ Apple. Apple Inc. designs and manufactures computer hardware, software and other consumer electronics. The company is best known for its Macintosh personal computer line, iTunes media application, the iPod personal music player, and the iPhone.

The original logo of the company, which portrays a man sitting under an apple tree, draws on the Newtonian inspiration from a falling apple. Subsequently, Apple redesigned its logo depicting a bite of an apple. I believe the bite taken out of the Apple represents the story of Adam and Eve from the Garden of Eden with apple representing knowledge.

  • Holy Cash Cow

The company today is a colossal holy cash-cow. Based on data from the most recent financial statements, i.e., April 2017, the company has a cash balance including short term marketable securities of around $67 billion. If you add long-term marketable securities, the balance increases to nearly $260 billion, which is larger than the GDP of Greece!

What is the genesis of the cash balance? iSimple, high margins. The company’s gross profit margin is around 40%, which means for every $1 of sales, the company generates 40 cents of profit after deducting the cost of sales. The operating margins are equally staggeringly high (around 27%). Even after netting out all operating costs, the company generates $27 of profits for every $100 of sales. The sales for the first quarter of 2017 alone was $52 billion, a mind- blowing number.

  • Investments and Acquisitions

Apple is all about organic growth. The company is very frugal with its investments and acquisitions. Much of the excess cash is heavily invested in marketable securities (parking the cash and generating returns on those dollars). Its corporate investments, i.e, purchase of other companies or fixed assets, is rather modest at less than 5% of total assets.

  • Giving Back

What does the company do with its surplus cash balance? It pays dividend and buys back its own stock. Over the 6-months period ending April 2017, the company paid $6 billion as dividend. Over the same period, it repurchased $18 billion of its common stock. Thus, the cash returned to its shareholders was around $24 billion over a period of six months only.

No wonder shareholders are elated and appear flying on Elon Musk’s spaceship to the red planet. Over just under a year, the stock price of the company has increased from around $93 to $155, which translates into a 67% annual return. No legal business in the world can come close to generating these holy numbers.

If you cannot get a bite of the Big Apple, I suggest you consider a bite of the Apple company. Apple’s history is being cooked with a hint of exotic spices by its own “Cook.” The taste is simply divine.

Bon Appétit!

May 16, 2017

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The Art of Presidential Pay

CEOs of for-profit companies are paid handsomely for their nifty management skills and for creating shareholder value. According to Associated Press study, the median annual CEO pay for S&P 500 companies in 2016 was $11 million (average pay was even higher at $14 million). When compared to the value created by these companies, the pay appears economically insignificant and immaterial. In 2016 alone, nearly $1.5 trillion of shareholder wealth was created by the S&P 500 companies.

What about the pay of the top bosses in nonprofit organizations like academic institutions? Much less. The average pay of a University President is less than $0.5 million. Therefore, S&P-500 CEOs get about 30 times more than a typical University-CEO.

The Art of Presidential Pay

The highest paid academic top gun was not from an Ivy League institution but a leader of an arts college in Georgia. According to the Wall Street Journal, in 2014, Paula Wallace, the president of the Savannah College of Art and Design (say what?), earned a whopping $9.6 million in 2014. That is, the pay was about 20 times a traditional academic presidential pay.

Ms. Wallace earned a base salary of $859,000 and a bonus of $1 million. In addition, the board/trustees of Savannah College of Art and Design voted to pay Ms. Wallace supplementary deferred compensation of $7.5 million as a cumulative reward for her prior 14 years of service (this is in addition to the annual salary she drew over the past 14 years).

Deferred compensation refers to the portion of an employee’s compensation that is set aside to be paid at a later date in the form of retirement plans or pension plans. In most cases, taxes on deferred compensation are delayed until income is paid. In common parlance, deferred compensation is the ability to provide for a “highly prosperous retired life” by leveraging current position and power.

Stellar Savanah College

Ms. Wallace is one of the founders of the college. Her achievements include overseeing enrollment growth, and the expansion of academic majors and branch campuses. According to a consulting firm retained by the arts college in Georgia to approve presidential pay, “the compensation is fitting given her four decades of contribution towards the success of the institution.”

Reality Bites

Tuition, fees, and living expenses can exceed $50,000 a year. Students at this institution collectively received about $115 million in federal student loans. Among nonprofit art and music colleges, students of Savannah College of Art and Design rank among the top quartile for graduation rates and earnings. About two-thirds of full-time students graduate within six years, and their students receiving financial aid reported median earnings of roughly $35,000 a decade after entering.

Scarcely stellar when you consider that a representative student can potential rack-up federal loans of up to $250,000 to get this coveted arts and design degree from Georgia.

Raymond Cotton, a lawyer who advises university boards on presidential pay, called Ms. Wallace’s compensation “..such an outlier in the world of higher education; it’s really incredible.”

Benchmark: Harvard’s Presidential Pay

How does this pay compare to the Presidential pay at country’s leading academic institution with a largest endowment?

Harvard University’s President, Drew Faust, earned a $811,000 salary and received a meagre total compensation package worth $1.2 million.

Social Narrative

Nonprofit organizations are organized for a public or mutual benefit other than generating profit for owners or investors. Because a nonprofit company’s intent is to increase the welfare of society, the government sponsors those objectives by defraying some of the nonprofit’s costs by exempting nonprofit organizations from paying taxes.

If Presidential Pay at academic institutions mimic CEO-pay at S&P 500 companies because academic institutions draw inspiration from for-profit companies, why the big need for subsidy from the federal and state government?

Midnight in the Garden of Good and Evil!

Chatham; April 17, 2017

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Imagine: Flagging Spirits!

Romania and Chad are two “sovereign, independent, unitary and indivisible” National States. Separated from each other by the Mediterranean Sea and by the adjoining countries including Serbia, Bulgaria, Macedonia, Greece, and Libya, the two countries are most diverse in their economic, social-political, ethnic, religious and racial backgrounds. Yet, the pennant, the umbilical cord bonding the two countries, is identical. Their tri-color flags are indistinguishable!

Imagine, the two countries locked in a competitive sporting duel and you are passionately waving the blue-yellow-red tri-color cheering one country! It may become hard to assess your preferred country.

Design of Flags

Vexillography deals with the art and practice of designing national flags.  A casual inspection of the national flags highlights common underlying attributes unifying most national flag designs;

  • All national flags are rectangular, except for the flag of Nepal
  • Except for Nepal, the width is taller than the height for all national flags
  • Only the national flags of Switzerland and Vatican City are exact squares
  • All national flags are either identical or mirrored, except for the flag of Paraguay
  • All national flags consist of at least two different colors
  • It is common for many flags to feature national symbols, such as coats of arms

Convention for Adoption

The national flag is often, but not always, mentioned or described in a country’s constitution. Its detailed description may be delegated to a flag law passed by the legislative, or even secondary legislation or in monarchies a decree. For most countries, the date of flag adoption is apparent. For others, the task of determining the exact date may be more complex because of unknown or disputed design changes, regime changes, or other geographical changes.

According to the office of the U.N., “…it is up to Member States to select their own flags,” which means there is no internationally recognized governing body delegated with the task of approving and supervising the issuance of flags.

Therefore, it should not come as a complete surprise that two or more countries may have twin sibling flags.

Romanian Tri-Color National Pride

It is historically well-established that dissidents in Romania from 1800s began waving the blue-yellow-red tricolor during protests. Subsequently, a series of monarchical governments used versions of this symbol. In 1949, when the Communists took control of Romania, they tweaked the flag by adding a star, several chaffs of wheat, mountains, trees, a sunrise, and a power line, which was the enforced “Romanian coat of arms.”

As is customary in a communist regime, the input of the native Romanian citizens was not deemed as being necessary! All was well with the flagging spirits until 1989, when during the revolution at Timișoara, Romanian dissidents quite understandably began ripping and tearing out the communist symbols from their flag. For a few revolutionary months, Romania’s de facto flag was the blue-yellow-red tricolor with a big hole in the middle.

Finally, by a decree-Law, on 27 December 1989, the National Salvation Front and of the territorial councils of the National Salvation Front declared that “the national flag is the traditional tricolor of Romania, with the colors laid out vertically, in the following order, starting from the flagpole: blue, yellow, red”.  

Chad Tri-Color National Pride

Chad, a country in North Africa, gained its independence from France on August 11, 1960. The country officially adopted its flag on November 6, 1959. It combines two colors from the French Tricolore (red and blue), and two Pan African colors (red and yellow). Blue represents the sky, hope and agricultural strength of the southern part of the country. Yellow is representative of the country’s northern desert and the sun. Red represents prosperity, unity and the blood shed for independence.

Lennin to Lennon

In essence, Chad and Romania have had identical flags since 1989. Chad government has been protesting to the U.N. declaring that two countries cannot have the same flag. Yet, for the moment, Romania appears unperturbed by this trivial practical resemblance.

You can almost hear the epic Lennon song in the background  

“Imagine there’s no countries, It isn’t hard to do, And no religion too

Imagine all the people living life in peace, you…”

March 23, 2017

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Hamiltonian Hip Hop: Broadway to Wall Street

Giddy up! At more than 21,000, the Dow Jones Industrial Index has soared by 1,200 points or about 13% since January 2017. If you consider the run-up since February 2016, the stock market has delivered a staggering return of about 30%. The stock market has been on the best winning streak in 25 years.

One fundamental reason for the stock market rally is linked to the growth of Exchange Traded Funds, or ETFs, as retail investors have poured in $124 billion into this type of an investment vehicle in 2017 alone.

State Street Corp.’s SPDR S&P 500 ETF is the market’s oldest, largest and the most-traded security in the world.

Love Thy ETF

Introduced in 1993, ETFs, or Exchange Traded Funds, trade on an exchange like stocks. An ETF is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike actively traded mutual funds, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold.

ETFs typically have lower fees than mutual funds, making them an attractive alternative for individual investors. Shareholders do not have any direct claim on the underlying investments in the fund, instead, they indirectly own these assets.

According to research firm XTF, there are around 1,800 ETF investment vehicles holding stock worth more than $2.7 trillion. There are no SEC rules governing ETFs which means ETFs are regulated via mutual fund regulation. Just three firms

—     BlackRock Inc.

—     State Street Corp.’s State Street Global Advisors

—     Vanguard Group

manage 80% of ETF assets.

ETF vs Actively Managed Funds

  • ETFs try to track the performance of a particular market benchmark, or “index,” as closely as possible. In contrast, Actively Managed Funds (AMFs) try to outperform their benchmarks and peer group average.
  • ETFs buy all (or a representative sample) of the securities in the benchmark, while AMFs combine research, forecasting, and experience/expertise of a portfolio manager or management team.
  • Index funds tend to be more tax-efficient and have lower expense ratios than actively managed funds because they trade less frequently than AMFs.
  • Although AMFs attempt to beat the market, quite often they may also miss their targets which results in losses for the funds’ investors. In contrast, ETFs are only undertaking the underlying risk of the market benchmark.
  • Most importantly, AMFs typically charge between five and twenty-five times what ETFs charge their investors.

Not surprisingly, the pace of ETF inflows bodes negative news for asset managers. Investors have started pulling their investments from AMFs to ETFs. The largest providers of ETFs have started reducing management fees to attract even more funds. The average annual fee of ETFs bought this year is only $23 for every $10,000 invested, sharply lower than last year. Some ultralow-cost iShares Core funds cost as little as $4 a year for a $10,000 investment, which is can be about 1/25th fraction of the fees charged by most mutual funds.

Given the low-cost structure of ETFs and the raging bull market, $7.5 billion has moved into the iShares Core S&P 500 ETF and $5.4 billion into the Vanguard S&P 500 ETF in January 2017 alone!

Hamiltonian Hip Hop and ETFs

Lately, the US stock market has generated staggering returns unmatched by almost any other country. Take for instance the returns generated from an investment in S&P 500 stocks in the last eight years.

  • 2009                26%
  • 2010                15%
  • 2011                2%
  • 2012                16%
  • 2013                32%
  • 2014                14%
  • 2015                1%
  • 2016                12%

If you invested in the S&P 500 from 1928 to 2014, the per annum compound rate of return was 9.8%. Thus, if you invested $100 in 1928, your nest egg would become $346,261 in 2014.

Join and celebrate the US goldilocks economy and consider becoming an ETF shareholder.

Vermont, February 10, 2017

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Academic Justices

Academic tenure is a contractual right that grants a professor permanent employment or a legal protection against summary dismissal without just cause. Principally, the status of a tenured professor is analogous to a Supreme Court Justice—a lifetime of employment guarantee. Less than one-third of all college and university faculty members are tenured in the US.

Tenure may be revoked if there is evidence of incompetence, unprofessionally behavior, or when an academic department/school is in serious financial difficulty. Nationally, about 2 percent of tenured faculty are dismissed in a typical year.

Why Tenure?

The notion of academic tenure dates back to the early part of the 20th century when tenure system was erected to protect professors from the abusive power of University Presidents and Trustees who were free to fire professors for their socio-political views. According to NEA, academic freedom via tenure is valuable because professors can then assert their independence. Scholars can challenge conventional wisdom, discuss and debate controversial ideas without having to worry how such exchange may affect their jobs.

Curtail Tenure

  • Florida, Missouri, North Dakota, Iowa

Faculty at State College of Florida hired after July 2016 no longer qualify for tenure-like protections. In Missouri, North Dakota and Iowa, Republican lawmakers are introducing bills to eliminate tenure. In North Dakota, the state board of higher education is considering reducing to 90 days from 12 months the amount of time administrators need to give tenured faculty before they can lay them off. The state’s 11-school college and university system is bracing for steep layoffs this year after cutting about 500 full-time positions last year. A Missouri bill would prohibit any public institution of higher education from awarding tenure after Jan. 1, 2018.

  • Wisconsin

While not eliminating the status of tenure, Wisconsin’s state legislators voted in 2015 to weaken state tenure law. Consequently, state universities in Wisconsin had to grapple with sharp reduction in budget (around $250 million) and deal with lower tenure protections. In response to the State law, Wisconsin’s University Board instituted “independent and substantive reviews” of tenured faculty once every five years. Tenured professors who are deemed as lacking in productivity have three to four semesters to improve else their tenure is revoked. The Governor of Wisconsin, Scott Walker, recently declared plans to cut tuition by 5% across all University of Wisconsin System schools while instituting “faculty accountability policy” which aims to monitor the time professors spend in classrooms.

Steep jumps in tuition, students have to accumulate large amount of debt to get quality education, and higher wage inequality may have magnified the scrutiny on the business practices of universities including questioning the concept of permanent employment of professors.

 Defense of Tenure

According to NEA, there has been a temporal decline in the proportion of tenured professors. For instance, in 1975, 45% of faculty at public and private schools was tenured or tenure-track, however, by 2014, that number had dramatically declined to 29%.

Defenders of tenure claim that state that disallow granting of tenure will be unable to attract high quality talent. Such states also risk losing valuable grants which is often linked to the human capital and innovative abilities of tenured professors. Another prediction is that salaries are expected to increase dramatically as professors would demand a higher wage rate in the absence of tenure.

Prospect Theory

Tenure at most prestigious and nationally visible universities is granted after an exhaustive and critical review. The longer the tenure clock, the more stringent is the granting of tenure. Given these parameters, most, if not all, tenured professors are eminent and productive scholars with a shared passion for teaching. 

Market theory suggests that, because tenure has endured for more than a century, the benefits must outweigh the costs from having a tenure system. While the experiment of not having a tenure-system is counter-factual in the US, one can draw on the experiences from other countries without a tenure track system. The consensus is that higher education has lagged behind in quality, scientific research and intellectual advancement in countries without a tenure system. More so, countries that have moved to a tenure track system (e.g., schools in mainland China, Hong Kong, Australia, and Europe) have seen a rise in the quality of their advanced level education.

While distinguishing the benefits of tenure, one cannot help underscore that there are some apparent costs including a classic moral hazard problem leading to potential misallocation of resources because of inadequate monitoring.  

Future of Academic Justices

Will the US tenure system survive the current predicament? Will tenure endure a refurbishment? Some states have made their decisions. Other states can only resist or follow suit. 

Chatham, February 24, 2017

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Italian Job

BT shares, which trade in the US as ADRs (BT Group plc), have declined by more than 45% in less than a year. Around half of that descent was confined to a single day last month (Jan 23) when the company announced accounting improprieties associated with its Italy-based operations. The company also noted that some senior management personnel may have embezzled funds. UK’s parent BT shares have shed more than 8 billion pounds because of this accounting scandal.

Italian prosecutors have initiated their own investigation into BT Italia’s accounting fraud. BT Group Plc has been hit by at least two shareholder lawsuits in the U.S. A number of other US law firms specializing in shareholder class action suits are considering filing lawsuits against the company and senior management.

British Telecommunications (BT)

BT Group plc is a holding company which owns British Telecommunications plc, a British multinational telecommunications services company with head offices in London. The company has operations in around 180 countries. The company’s shares are among the most widely owned stocks in the UK. The ownership of BT shares is widely dispersed ̶ about 700,000 of its 827,000 shareholders own 1,600 or fewer shares of the company.


American depositary receipts (ADRs) were introduced in 1927 as an easier way for U.S. investors to purchase stock in foreign companies. Non-U.S. companies also benefit from ADRs as it makes it easier to attract American investors. ADRs are negotiable certificates issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock traded on a U.S. exchange.

ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas, and holders of ADRs realize any dividends and capital gains in U.S. dollars, but dividend payments in euros are converted to U.S. dollars, net of conversion expenses and foreign taxes. ADRs are listed on either the NYSE, AMEX or Nasdaq but they are also sold OTC.

Italian Job

The fraudulent transactions related to BT-Italy emerged sometime during the summer of 2016 following an internal probe into its Italian business after a “whistleblower” flagged concerns. A whistleblower is an employee who discloses information about illegal acts, mismanagement, abuse of power, or general wrongdoing occurring in the company. If the company is publicly traded and subject to the filing requirements of the Securities and Exchange Commission, whistleblowers are protected by law from retaliation in the US. Some of the major US companies perpetrating accounting fraud were caught and brought to justice by their own employees (e.g., Enron, Freddie Mac, Madoff).

Upon investigation, BT discovered “inappropriate management behavior” within the Italian division. The expected cost of the rent extraction initiated by the Italian subsidiary was estimated to be around £145 million. Sometime in January this year, just days prior to the announcement of the third-quarter results, the company released a statement declaring that, according to an independent investigation by the Big 4 accounting firm KPMG, the losses to BT from the accounting irregularities related to Italian operations were being reassessed at £530m, which is almost 4 times larger than the previously estimated number.

The company suspended several BT Italy’s senior management team. BT has also appointed a new chief executive of BT Italy who took charge of Italy’s operations from Feb. 1.

Telecom Blues

What remains troubling is why wasn’t the accounting irregularity detected by UK’s parent company much earlier. Nick Rose, the chairman of the BT’s audit committee, flagged internal-control issues in Italy in every annual report since May 2013. Yet, the persistent accounting fraud was not detected until 3 years later. By blaming BT-Italy for all the current problems, the CEO of BT may be attempting to distance the parent company, and himself, from the Italian operations by censuring a few perpetrators.

What is even more worrisome is why didn’t the auditors detect this size of an accounting fraud earlier? Independent auditors are expected to provide an assurance that the financial statement are free of material misstatements. One would agree a misstatement exceeding $600 million is material.

Who was BT’s independent auditor? The answer is PwC, which a Big 4 global accounting giant. PwC has been BT’s auditor for the last 30-year since 1984. It is unclear whether BT intends to end its business relationship with PwC. The big accounting firms are renowned for rendering high audit quality so this type of an accounting fraud is likely to a huge set-back for PwC.

Moody’s has warned it may cut BT’s credit ratings. Analysts are skeptical whether the company can afford to maintain a 10 percent growth in its dividend.

Randoph, February 2, 2017



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Spirits of East India Company

Beer is the third most consumed drink after water and tea and its production can be traced back 10,000 years. This popular beverage serves as the esprit de corps for almost every human emotion. We drink beer to rejoice, to recollect, to champion ball games, to forget, to relax, or just to get rowdy.

The production of beer is relatively straightforward—some form of starch is converted into alcohol through a fermentation process using yeast. The most common variation of starch used is malted barley, which is dried germinated barley. Hops are added during the brewing process to inject flavor and bitterness to the drink while acting as a natural preservative. Hops are dried flowers from the same family of vines as cannabis so beer may have some medicinal properties as well.

Lager versus Ale

The two overarching beer categories include ales and lagers. The crucial difference between two beer categories is the quality of yeast used in the fermentation which in turn imparts a distinctive character.

Ales are produced using “top-fermenting” yeast strains, which ferment at the top of the fermentation container. Lagers are generated using “bottom-fermenting” yeasts, which ferment at the bottom of a fermentation container. Ales are traditionally fermented at warmer temperatures (55 to 70 degrees Fahrenheit), while lagers are fermented at much cooler temperatures (38 to 50 degrees Fahrenheit). The dissimilar yeast types and the differential temperatures are a key reason why ales are bitter, darker and fruitier and while lagers are less fruity with a refreshingly clean and crisp taste.

The younger sibling Lager is a modern creation with a maturation age less than 300 years. Ale happens to be the older, more traditional and the distinguished sibling.

British East India Company

In the 18th century, British merchants set up East India Company to trade spices, fine cotton and silk from India. Although the British stationed in India may have preferred darker and sweeter ales, the wealthy traders of British East India Company wanted a more refined and lighter/paler version of the traditional ale to accompany their long voyages to India.

To quench the thirst of the industrial revolution, British beer-producers started a new “pale ale” assembly line with a heavy injection of hops to add a bitter counterpoint to the sweetness of the malt. The added advantage of hops was that it also served as a natural preservative, which meant that the pale ale could last the long voyages to India.

As British interests in India grew, so did the beer market in UK. More and more brewers started making “Ales for the Indian Market” or just “India Pale Ale (IPA).” As IPA conquered taste buds in India, it also spread around the world, turning up in America, Australia and South-East Asia.

IPA in the US

Today, IPAs are particularly popular in the US. Craft brewers are increasingly making IPAs as part of their medley. Bars are also happy to stock an assortment of IPAs. Not surprisingly, to satisfy the discerning palate of the consumer, beer producers and suppliers are able to charge a hefty premium for IPAs. Because of the distinct flavor, a unique bitter taste, a discrete sweetness and color, brewers are able to distinguish their products from other beer selections, which allows them to charge a hefty premium for “differentiated products.”

Get ready to recall the spirits of Jack Sparrow from the Indian Ocean and not from the Caribbean. Cheers!

Helsinki, January 15, 2017

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