Personal Omics Profile: Future of Medical Testing?

Medical testing may be reaching the next frontier. Recently Michael Synder of Stanford University spent the last two years sequencing his DNA, genome, and metabolites. During the two year period, researchers used iPOP or Personal “Omics” Profile. IPOP looks at not only the genome, proteome, and other vital information. Over the course of two years Synder provided a blood sample every two months to study his body. Over the course of the study Synder got sick and researchers were able to look at the changes in his body in real time. The data showed that Synder was at an increased risk of type 2 diabates. By modifying his diet and exercising he was able to bring his vitals back into range erasing the increased risk for diabetes. In essence he was able to see a few years into the future due to the real time data. The researchers look at different metrics to see what was going on with Synder’s body.

This is the first look at medical testing in real time. The human body is complex and we have many different genes. Genes only tell us whether or not people have an increased risk of decreased risk of getting a getting illness or disease. However, by studying these genes and genome in real time researchers will be able to get a better understanding of how the body transforms over time. For instance, how a normal body gets cancer. Also this can lead to how people improve, get better, and stay healthy. Understanding this process could lead to novel therapies in the future.

I hope more studies that use the IPOP are done in the future. A better study would be to look at certain populations with a particular disease or illness and measure the changes in real time. One drawback however is the amount of testing that is required. I don’t know how many people would be willing to get a blood test every month. Hopefully, in the process researchers can devise ways to get information by less invasive means.

Billionaire Index: Outperforms S&P 500

Dr. Joel Shulman of Babson University has published a recent study in Institutional Investor’s Journal of Index Indexing which shows that an index of companies that billionaires managed by individuals on the Forbes billionaires list. I for years have been wondering how an index would have done. Dr. Shulman has done the research and the results. Let’s look at what he found.

When the “Billionaire’s Index” was compared to a benchmark of the S&P 500 the Billionaire’s Benchmark outperformed the S&P 500 over time. From 1996-2011 the Billionaire Index increased a staggering 400%. The S&P was up over 104% during this same period (dividends not included). If you started with $1,000 in 1986 and updated your portfolio every year to match the new Forbes billionaires list you would have ended up with $5,000 by 2011. If you had invested in other benchmarks like the Russell 2000, Russell 3000, or the S&P 500 you would have $2,500 or less. It should be pointed out the Billionaire Index is riskier than indexes like the Russell 2000 or S&P 500. As investors know you should never put all your eggs in one basket.

People often complain how the top 1% keeps getting richer. However, now there is a way to join them. In fact as a shareholder you are part owner in their business! The only problem is I haven’t actually seen a Billionaire’s Index listed on any of the exchanges. Right now Dr. Shulman works for EntreprenuerShares which has some funds yet doesn’t offer a Billionaire’s Index. One problem is that if people knew the Billionaire’s Index returns were very good they would start investing in it which might actually reduce the return. Since the index has only existed in theory and not in practice it is hard to tell how it would have actually done.

The Giving Pledge: Reducing Income Inequality

I feel as if many people misunderstand how the top 1% are important to philanthropy. To be honest some of the largest donors are in the top .001% category. People claim how greedy we are. However, the data shows that the United States is in fact the most generous nation in the world. Let’s look at the data to reveal just how generous we are. According to “Giving US: The Numbers”, in 2010 total contributions to charity were $290 billion. $211 billion of this total amount was made by individuals. Family foundations contributed $19.5 billion while corporate donations were over $15 billion. Clearly, these are some large amounts.

This brings me to my next point of income inequality. True, there is income inequality however inequality exists in so many different aspects of our live. Brad Pitt and George Clooney have an inequality of women they can get or date compared to the average guy. Obese people have inequality in the terms of the calories they consume. Bill Gates has a net worth has a net worth that is over 104,000 times that of the average American. This is something that professor Don Boudreaux at George Mason has pointed out. Sure Bill Gates has a net worth that is 104,000 times the average American however does Gates enjoy 104,000 times more calories or 104,000 times more homes as the average American or 104,000 times happier than the average person . I think the average person tends to believe that Bill Gates life is 104,000 times better than their own given how much money he has. However, I would argue Bill Gates has a rougher life than most. If you look at his work schedule, how often he travels, and people always asking him for money and the stress that creates I think people would still want their old life back. Everyone wants more money, however if you got to the point of having Bill Gates kind of money it would become more of a burden. Also people like to imagine having as much wealth as someone else but never can imagine the work that has to be put in to earn that money. This is what I call invisible inputs yet visible outputs. People see the outputs of wealth or income yet easily forget how much hard work was put in to get to that point.

Bill Gates has amassed so much wealth he is giving most of it away to charity. In fact the second richest person Warren Buffett is giving all of his money to another rich person Bill Gates! Really what is happening is Warren Buffett pledged nearly all his net worth to the Bill and Melinda Gates Foundation. If anything this will reduce income and net worth inequality. Buffett and Gates are signed the “Giving Pledge” which is a pledge to donate at least 50% of one’s net worth to charity. As of 2010, 69 billionaires were signed up to give away and at least $125 billion has been promised by the first 40 donors. Of course this figure should grow since the billionaires will no doubt get richer which will increase the amount that goes to charity. I have a feeling more billionaires will join which will also increase the amount. It would be interesting to see if anyone backs out if the economy were to collapse.

What is interesting however is that Buffett and Gates want other people to not only pledge to give their money away but also pay higher taxes. My own theory on this is that they want anyone else to never become as rich as them. If you favor the estate tax, higher taxes, and for people giving all their money to charity it makes it harder to amassed large sums of wealth which make Buffett and Gates look even better in historical terms. Buffet and Gates are extremely competitive people and it seems as if they want to enhance their legacy from beyond the grave.

50% of Americans No Federal Income Tax Liability

From the Heritage Foundation this graph shows the number of people who have no federal income tax liability. The number has only increased since the 1960's and I am afraid this percentage will keep increasing. Politicians talk about how the 1% don't pay their fair share, however how is it fair that 50% pay nothing. If anything we need more taxpayers. Also doesn't Congress already do more than their fair share of spending?

Bloomberg Billionaire Index

Today, Bloomberg released the Bloomberg Billionaire Index. The billionaire index is updated every day at 5:30 P.M. will price the net worth of the top billionaires. Before this we had to wait towards the end of the year when Forbes would list the 400 richest people. Forbes has had the Forbes 400 since 1982.

Carlos Slim debuted at the top of the list with $68.4 billion. However, in just one day he lost over $135 million. To most people this seems like an extraordinary amount of money. It should be pointed out however that the rich by definition have to take more risk than regular individuals. You can’t become a billionaire working a 9-5 job. I have no formal psychology training (other than the course I took in high and college) but I would be willing to bet that a large majority of people on the Forbes 400 list or now the Bloomberg Billionaire Index are workaholics. Being a billionaire is a side effect of being a workaholic. What is somewhat irritating is how people complain that people don’t need all this money. Of course, people would like to supersede the voluntarily decisions of millions of people who vote with their feet and their wallets. What seems to be more incredible is that even when people fall into “sudden wealth” they seem to mismanage it. One thing that comes to mind is lottery winners. Often you seem them blow through their money relatively quickly and ultimately file for bankruptcy. It seems as if the 99% when given extreme wealth ultimately end up back in the 99%. Perhaps the universe tends to unfold as it should. I don’t think I have ever heard of a lottery winner who then bolstered their wealth to new heights. Also a majority celebrities and athletes are notorious for blowing through their money.

One thing that is curious is how Bloomberg actually values the net worth of billionaires. Evaluating someone like Warren Buffett or Bill Gates is easy since most if not all of their net worth is in a publicly traded company. However, what about calculating the net worth of individuals that work for private companies? If you compare some of the numbers to Forbes they are different. For instance, Charles Koch on Bloomberg’s list is worth $34 billion yet last year he was worth $25 billion on Forbes. Of course Koch is CEO of Koch Industries which is privately held company. Bloomberg in evaluating the net worth of privately held companies looks at publicly held companies with similar values and price to earnings ratios. This is not a bad proxy but how does it lead Bloomberg and Forbes to be off billions in their evaluation of net worth?

Backup Camera Regulation: In Rearview Mirror For Now

Last year the National Highway Traffic Safety Administration (NHTSA) proposed regulation that would require rear view mirror cameras. The regulation was delayed until November. The legislation was first proposed by George W. Bush back in 2008. It may not be until 2014 until the cameras would be required in all vehicles. The idea is to allow drivers to see what is behind them when they are backing up. According to data from the NHTSA 300 people are killed every year from back over accidents.

The cost of rearview mirrors would be around $2.7 billion according to BusinessWeek. The backup cameras would add around $58-$203 to every vehicle. The cost of every a save life would be $18.5 million. The primary people who are at risk for the back-up accidents are children and the elderly. What is interesting however is that many more kids die from drowning every year. Roughly 175,000 children die from drowning every year. Why isn’t Congress requiring parents to have video monitors to watch their kids while swimming? If we do some quick calculations we would find that the cost per life saved would be more than $18 million per person. Of course, any loss of life is never a good thing. However, when the cost of life is this high is it really worth it? Also I would be willing to bet that even if every vehicle had the rearview mirror installed that we would still have accidents and deaths related to back up accidents.

The regulation would benefit Gentex Corp who would be a major benefactor if this rear view mirror cameras were actually required. I would be curious to see if Gentex donated any money to certain politicians. For some years now some manufactures already have rear view mirrors installed in the center console (usually part of the navigation system).

Automobiles will continue to get safer. When you consider that only 300 people die a year considering there are over 254 million vehicles on the road it seems as if the odds of getting run over are very slim. Of course this doesn’t mean we shouldn’t try to improve auto safety. However, if we want to improve auto safety it should be done voluntary. Consumers demand safe cars and car companies listen. I am surprised insurance companies don’t have an interest in this. If cameras were installed in cars (front, side, and rear) insurance companies could more easily determine who was at fault for an accident. This would make paying out claims much easier and more accurate.

Until we reach the age of driverless cars we will have to deal with what modern technology will afford us. Requiring rearview mirror cameras would not only increase the cost of cars but also save very few lives as a result. Car companies already have incentives to make vehicles safe since consumers care more about their live than anyone else.

David Koch: An American Hero

Recently, an article came out about David Koch in the Palm Beach Post about Koch attending a fundraiser to raise money for M.D. Anderson Cancer Center in Houston. Even though the title of the article was “David Koch intends to cure cancer in his lifetime and remake American politics” people seem to be picking up on his comments about the politics. The comment that seems to have gotten the most attention was when Koch claimed “If unions win the recall, there will be no stopping union power”. He is absolutely right. Unions have been in decline since the 1950’s and have done little to protect the worker. I have often said that unions exist to protect the incompetent workers at the expense of highly skilled workers who could go elsewhere.

Koch has donated more than $750 million to good causes like cancer research, culture causes, and the arts. Despite this the media and other people claiming how much the Koch brothers give to conservative causes when David Koch has given far more to charity. For every dollar that he gives to political causes he gives $4 to charity. However, you could easily argue that the media coverage over his political donations gets four times more coverage than his charitable donations. In addition to this, he holds many seats on charitable boards.

One reason why David Koch might be interested is cancer research is because he himself suffers from prostate cancer. He was diagnosed in 1992 with prostate cancer. Since then he has been treated by Dr. Christopher Logothetis of M.D. Anderson Cancer Center in Houston. As a side note M.D. Anderson has been consistently ranked number one for treating cancer and attracts people from all over the world. What is amazing is today is that even though David Koch has prostate cancer he is still able to be executive vice president of the second largest private company in America. A couple of decades ago this probably would have not been possible but with breakthroughs in medicine David Koch is able to live a healthy life. He has an incentive to fund prostate cancer research since he is suffering from it. However, the money Koch gives to prostate cancer benefits millions of men who are not only now affected by prostate cancer but also the future men who are diagnosed with prostate cancer. Self-interest can work wonders even when it is trying to save your own life.

David Koch should be seen as an American hero. He is a man who worked hard for many years help building a successful company with his brother into the second largest private company in America. As a result each of the Koch brothers together are worth $25 billion. Many people point out that the brothers inherited the business from their father. However, it was Charles Koch and David Koch who turned around the company and I would argue made it more valuable then perhaps their father ever could. People also forget that just because you inherit something means you will be wealthy forever. Many people who inherit property or money can blow it quickly. I really hope the Koch brothers publish their autobiographies. This would be the only way both of them could set the record straight on the truth instead of having future journalists and historians rewrite history. Plus, wouldn’t you like to hear a tale of how two brothers amassed billions in personal wealth?

Whitney Houston: Death, Drugs, and Money

A couple hours ago it was reported that Whitney Houston died. Houston was known as a great singer and had a great voice. It is reported she sold 170 million albums (yes we use to have albums in the old days). It is reported she signed a record deal in 2001 for $100 million in which she would have to produce six albums. There will be no doubt there will be surge in the albums she sells. Whitney Houston knew how to earn money. Below is a list of tours and how much they grossed.

Greatest Love Tour (1986) $4.8 million
Moment of Truth Tour (1987-1988) $24 million
Bodyguard World Tour (1993-1994) $33 million
Nothing But Love Tour (2009-2010) $36 million

This is of course is what the tours earned not what Whitney personally earned. Plus, this is a gross amount which doesn’t take into account costs as well. Whitney herself in 1988 earned $30 million according to Forbes. It is rumored that she was broke and was asking for money within the past couple of months. It is also known that she had a problem with drugs and alcohol. She admits that during the 1990’s she was doing drugs every day. Drugs and musicians seem to go together although they really shouldn’t. One reason why I think musicians and performers look to drugs is because if you think about their schedule of giving it there all and going night in and out dancing and singing they probably won’t get by without some time of stimulant. If you include the traveling, interviewing, and promotional things musicians have to endure they have crazy schedules. I am in no way defending their behavior although I understand why they do it because of the incentives they are faced with. This makes me think of a similar analogy to baseball and the use of steroids.

Now that Whitney Houston has passed it will be interesting to see whether or not she died with a will (dying intestate). If she did die without a will then the public will become aware about her finances. Personally I am curious to see how much she had left over after earning many millions of dollars.

American Airline Pension Problems

American Airlines is definitely hitting financial turbulence. In November of last year, American Airlines filed for Chapter 11 bankruptcy. As I mentioned in my previous post about Hostess, bankruptcy does not mean a company and their assets instantly vanish. In Chapter 11, the company meets with its creditors and purposes a plan in order to meet its obligations. Creditors get to vote on the plan the company creates. American Airlines is now trying to restructure some of their costs and increase their revenue in order to save them from going under. American Airlines has lost money for three straight years. In 2010, the company lost $481 million, and in the first nine months of 2011 lost $982 million. In the past decade, the company has lost more than $11 billion. Clearly, this company is not creating value. It seems a little ironic that a company with the name American in it is losing so much money a year.

As part of restructuring their costs American Airlines is trying to terminate their pension plans (they have 4 due to different unions) in order to save money. The company needs $18.5 billion to cover all their pension promises made to current and former employees. However, the company only has $8.3 billion or can only meet 45% of their obligations. When pensions get in trouble the Pension Benefit Guaranty Corporation (PBGC) steps in to take over. The PBGC is a government sponsored entity (GSE) that doesn’t get its money from the government but rather through premiums that companies pay in order to protect them in case a company goes belly up. However, what is even more interesting is that the PBGC itself has a shortfall of $26 billion. So in essence the organization that is going to bail out a company needs more of a bailout than the company it’s bailing out. If American Airlines employees agreed to take a 55% decrease in their pension benefits the problem would be solved, however I think there would be so many union strikes you wouldn’t see an American Airlines plane over the ground for a while.

American Airlines is trying to get back on track by cutting their costs and increasing their revenue. The company recently announced they were going to lay off 13,000 employees or 15% of their workforce. The company is reducing their labor costs by 20% or $1.25 billion. The company is going to try to increase revenue by $1 billion by buying new planes that are more fuel efficient and increasing flights to certain cities. American Airlines seems to be a little too optimistic in terms of how much the new planes will save them.

Time will tell whether or not American Airlines can get its act together. The company will try to move its pension plan from a defined benefit to a defined contribution. What this simply means is that employees will actually have to contribute part of their salary to a 401k plan if they want money for retirement. Usually the company will match whatever they put in. The old way use to be a defined benefit plan where the company told the employee they would get x amount of dollars per month for the rest of their life depending on their years of service and salary. Defined contribution plans are better because a 401k plan can be managed by the employee and not the company like defined benefit plans are. I have a feeling though that the government will ultimately have to bail out American Airlines since I don’t know if the PBGC could handle it. I would prefer the PBGC to just disappear and have companies just set up defined contribution plans (which is what the current trend is). It seems a little ironic that a company with the name American in it is losing so much money a year. Warren Buffett was spot on when he said. “Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down”.

Is President Obama Creating Jobs?

Many people were jumping for joy when they heard unemployment decreased to only 8.3%. However, how the unemployment number is calculated can sometimes be misleading. For instance, people serving in the military, people in nursing homes, or prisons are not considered in the unemployment numbers. People who are on unemployment benefits are also not counted. Data from the Department of Labor shows that 3.46 million people are on unemployment benefits. If we include the amount of people who have given up looking for work unemployment would be almost a full percentage point higher.

A better measure is to look at the civil participation ratio which looks at what percent of the population is working. The civilian participation ratio is now 58.5%. The civilian participation rate has only decreased since President Obama has been in office. Today, there 12.8 million unemployed people and 43% of these people have not had a job in more than six months. Jobs skills don’t regenerate over time. Usually if you not constantly doing something every the brain will eventually forget what you are doing.

One positive however is that number of government jobs has been decreasing even though government spending has been increasing. I suppose this gives more power per government worker. In the last year, 276,000 jobs were lost. Nearly all these losses came from local and state government and not the national government.

Having millions of people out of work is unproductive. Not only are people unemployed but they are losing job skills since they are not working which will put them further behind. Many firms are skittish to hire because of fear of upcoming regulations, legislation, and what the future for taxes holds. If the government started to slash the most costly regulation to companies, cut thousands of pages of worthless regulations, and lowered corporate tax rates (also assuming they eliminate all deductions, subsidies, and corporate welfare) the economy would get a much needed jolt.