We're keeping this one short today because Sean and I are in New York at the Grant's Interest Rate Observer conference.
As Sean noted yesterday, one of the speakers at Grant's this year is Steve Eisman, who is famously short for-profit education stocks. What a coincidence that Eisman is speaking today...
Every morning, I check to see who has filed a 10-K or 10-Q. The only 10-Q filer to pop up this morning was Apollo Group, the world's biggest for-profit education company. Underscoring how right Eisman is about these stocks… Apollo reported a 44.9% decline in "new degreed enrollment" at the online University of Phoenix.
Apollo says the decline is due to measures taken "to more effectively support students and improve educational outcomes." I find it hard to believe prospective students sit around talking about how they would have enrolled if it weren't for the more effective support and improved educational outcomes offered by University of Phoenix.
But I can imagine them talking about how students are being saddled with enormous debts they can neither afford to pay back nor discharge in bankruptcy. Maybe instead of pining for the days of poor support and lousy educational outcomes, students aren't enrolling because they've come to believe Apollo is more like a scam that'll ruin them financially. Apollo is finding how hard it is to sell an ultra-expensive education to people who've wised up.
Wisdom is like that. You can seek it voluntarily and pay the price upfront... or you can wait and have it forced upon you at a much higher price later on. It looks like more would-be University of Phoenix students are choosing to pay upfront and skip school in favor of a clean balance sheet. Many U.S. states are finding out the same thing these days...
Not only do states depend too much on the wealthy for revenue, but they increase their dependence at the exact wrong time, too. Former California economic forecaster Brad Williams warned his state's leaders about this problem for a decade. In early 2000, Williams published a paper called "California's Changing Income Distribution." In the mid-1990s, he noticed employment was barely growing, but income-tax revenue was soaring. According to the Wall Street Journal article:
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The average incomes of the top 20% of Californian earners (households making $95,000 in 1998) jumped by an inflation-adjusted 75% between 1980 and 1998, while incomes for the rest of the state grew by less than 3% over the same period. Capital-gains realizations – largely stock sales – quadrupled between 1994 and 1999, to nearly $80 billion. |
In other words, the highest taxpayers' income is correlated with the stock market. Their earnings are more volatile. (In the most recent recession, income among the top 1% of California earners fell by twice that of the rest of the population.)
And as California became more and more dependent on tax dollars from the wealthy, the tech bubble popped. Capital gains plunged from $17 billion in 2001 to $5 billion in 2003. Personal income taxes fell 15% over the same period. By 2002, California had a budget gap of more than $20 billion.
Today, New York, New Jersey, Connecticut, and Illinois are the states most reliant on taxes of the wealthy. They are also among the states in the worst financial condition. Their answer to the fiscal crisis is to ratchet up their dependence on taxes from the wealthy. But as we enter the next market correction, those tax dollars will disappear.
The Commerce Department reported yesterday that consumer spending jumped 0.7% in February. Personal incomes rose 0.3%. That was after a 1.2% income increase in January – the biggest in almost two years.
Discounting inflation (largely from increasing gas prices), spending only rose 0.3%. Put another way... Rising prices across the board are eating more of people's paychecks.
And if you adjust the 0.3% rise in income for inflation, after-tax incomes actually fell by 0.1%. Plus, the savings rate is falling... Personal savings as a percentage of personal income fell to 5.8% in February from 6.1% in January. People are spending more on rising goods, but earning and saving less. Welcome to inflation.
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New 52-week highs (as of 3/28/11): WD-40 (WDFC), CARBO Ceramics (CRR), Molina Healthcare (MOH), EV Energy Partners (EVEP), Philip Morris International (PM), Alexander & Baldwin (ALEX).
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It has come to my attention, DirectTV is now censoring advertising for a free video online "End of America". This is totally unacceptable. DirectTV subscribers and viewers of any media outlet should not be subjected to censoring of any kind. It's not your job and should be no ones job. In any, case I have been a subscriber for about 6 years now. I will cancel my account if the ad is not reinstated within 7 days (That's 5 business days). I will take my $ 200.00 plus per month business to Dish Network. |
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New York, New York
March 29, 2011
Grant's is on!... Apollo: tough sell... 'Tax the rich' backfires... Inflation is up... How food producers hide inflation...