8 Fascinating Reads

Happy Friday! There are more good news articles, commentaries, and analyst reports on the Web every week than anyone could read in a month. Here are eight fascinating pieces I read this week.

Subsidy
Fast-food restaurants pay workers incredibly low wages. American taxpayers pick up the slack:

More than half of fast food workers have to rely on public assistance programs since their wages aren't enough to support them, a new report found.

According to a University of California Berkeley Labor Center and University of Illinois study out Tuesday, 52% of families of fast food workers receive assistance from a public program like Medicaid, food stamps, the Earned Income Tax Credit and Temporary Assistance for Needy Families. That's compared to 25% of families in the workforce as a whole.

Success
James Surowiecki writes about booming CEO pay:

In 1965, America's big companies had a hell of a year. The stock market was booming. Sales were rising briskly, profit margins were fat, and corporate profits as a percentage of G.D.P. were at an all-time high. Almost half a century later, some things look much the same: big American companies have had a hell of a year, with the stock market soaring, margins strong, and profits hitting a new all-time high. But there's one very noticeable difference. In 1965, C.E.O.s at big companies earned, on average, about twenty times as much as their typical employee. These days, C.E.O.s earn about two hundred and seventy times as much.

Dysfunction 
Derek Thompson puts the government shutdown in perspective:

Macroeconomic Advisers put the figure [cost of government shutdown] at $12 billion. S&P estimate the cost was twice as high, at $24 billion. Split the difference, and you're talking about $18 billion in lost work.

What's a good way to think about that kind of money -- a sliver of the entire $15 trillion U.S. economy, but still, you know, $18 billion? In July this year, NASA funding was approved at around $17 billion for the fiscal year. So, there: The shutdown took a NASA-sized bite out of the U.S. economy. 

Too big to fail
Nassim Taleb talks about systemic risk: 

Those making decisions in the market have to stand to suffer from the consequences of any mistakes. This was not true, for example, of lenders who could immediately sell the risks carried by subprime mortgages to someone else via the securitisation market.

For Taleb, this implies that hedge funds should now become the dominant model. One of the few disasters that did not happen in the dark days of late 2008 was the collapse of a systemically important hedge fund. Why not? Because they were diversified, and their managers know that hedge funds can, and do, fail all the time. Generally, by the time they fail they are not big enough to have a systemic impact.

Legacy
Hans Riegel, who invented the gummy bear, died this week at age 90. Read his great obituary:

But work remained his greatest passion: "I'm at the office almost every day," Riegel proudly said not long ago. In the "pulpit," as he called his glass-covered command center overlooking the Bonn facility, he tinkered with new types of fruit gummies: lemon-ginger for adults, gummy pacifiers for children, marshmallow footballs for sports fans and gummy bears for everyone.

Fooled by history
Carl Richards writes about the gamblers' fallacy:

John Prestbo, a retired editor and executive director of Dow Jones Indexes, did the math and figured out that "the market hits a pothole of one size or another about every 20 months on average." In our pursuit of certainty, we'll latch on to that number (roughly 600 days) and become convinced that when we start closing in on that date, another drawdown must be around the corner. But that's the problem with averages.

By focusing on the average experience, we're ignoring other factors, like how many corrections happened in the 1970s (almost one quarter of the bear markets).

Rebound
The average 401(k) account is surging:

The average 401(k) account balance was $94,482 at the end of 2011, the most recent figures available, up from $49,932 at the end of 2008, Paul Schott Stevens, president and CEO of the Investment Company Institute, said Wednesday at a news briefing in Chicago.The average balance was $76,534 in 2007, Mr. Stevens added. 

Wisdom
Tren Griffin writes a dozen things he's learned from investor Bill Ruane, including:

"You don't need inside information. Don't need charts and mumbo jumbo. It isn't about momentum. It isn't that guff the talking heads give you on CNBC."

"If you get a great idea every other year, you're really doing well." 

"You don't act rationally when you're investing borrowed money.... Don't borrow money.  If you are smart, you don't need to. If you are dumb, you don't want to."

Enjoy your weekend. 

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 19, 2013, at 11:20 AM, eng99 wrote:

    I question the 18 billion dollars lost from the economy. Maybe a momentary loss, but do you really think that the U.S. government is going to spend 18 billion less this year?

  • Report this Comment On October 19, 2013, at 2:28 PM, FoolTheRest wrote:

    ^

    Not lost from a lack of government spending, but from "lost economic activity, from an idle district, to lost personal income and higher interest payments."

  • Report this Comment On October 19, 2013, at 4:58 PM, Mathman6577 wrote:

    In addition to "supposedly" subsidizing Big Macs the American taxpayer is also subsidizing terrorists in Pakistan. The Obama admin is giving $1.2B to the government there which has allowed killers of Americans to operate freely on their soil over the years. I'd rather keep the money here.

    A one-time "payment" of $18B is nothing compared to the continuing payments we will make to fund ObamaCare, food stamps, and "disability", not to mention unemployment insurance and other transfer payments to people that are not working. I dont mind paying the $18B, even if that amount is correct.

  • Report this Comment On October 20, 2013, at 9:56 PM, FoolTheRest wrote:

    <<In addition to "supposedly" subsidizing Big Macs>>

    The workers receive assistance, not the sandwiches.

    <<A one-time "payment" of $18B is nothing compared to the continuing payments we will make to fund ObamaCare, food stamps, and "disability", not to mention unemployment insurance and other transfer payments to people that are not working. I dont mind paying the $18B, even if that amount is correct.>>

    These are not mutually exclusive, and you do not pay that money.

    <<the American taxpayer is also subsidizing terrorists in Pakistan. The Obama admin is giving $1.2B to the government there which has allowed killers of Americans to operate freely on their soil over the years. I'd rather keep the money here.>>

    Relevance?

  • Report this Comment On October 20, 2013, at 10:07 PM, FoolTheRest wrote:

    <<In addition to "supposedly" subsidizing Big Macs>>

    The workers receive assistance, not the sandwiches.

    <<A one-time "payment" of $18B is nothing compared to the continuing payments we will make to fund ObamaCare, food stamps, and "disability", not to mention unemployment insurance and other transfer payments to people that are not working. I dont mind paying the $18B, even if that amount is correct.>>

    These are not mutually exclusive and you are not making a payment.

    <<the American taxpayer is also subsidizing terrorists in Pakistan. The Obama admin is giving $1.2B to the government there which has allowed killers of Americans to operate freely on their soil over the years. I'd rather keep the money here.>>

    Relevance?

  • Report this Comment On October 21, 2013, at 9:58 AM, Mathman6577 wrote:

    Higher wages for fast food workers = higher prices for Big Macs (unless you are a socialist and think money comes from nowhere)

    Payments = income and payroll taxes

    Relevance = $1.2B (or actually $1.6B as I read today) is a good chunk of a lot of budgets -- and it's actual expense -- not some estimate of lost economic activity from economists (who tend to be wrong about a lot of things)

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