Friday, November 18, 2011

More Housing Missteps By Congress

Yesterday's Wall Street Journal's lead staff editorial reported the disappointing news that, with so much public attention focused on Fannie Mae and Freddie Mac, the FHA is being granted a rise of about $100K in value, to almost three quarters of a million dollars, in the size of mortgages it can guarantee.

Various data detailing the FHA's precarious capital position (about .25%, rather than the mandated 2.5% or so) and enormous, though underestimated future defaults on its portfolio.

FHA was supposed to be the original low-income government-assisted housing loan program. I recall selling my first home some twenty years ago to a veteran who received special treatment under the FHA loan for which he applied. Incredibly, as the seller, I had to pay his points. Imagine my surprise at the closing when I learned the couple had therefore gone and borrowed significantly more than they had initially represented in their purchase offer, sticking me with higher fees for selling my house.

The FHA program was designed long ago as a vehicle to assist the emerging middle class in what was then viewed as a laudable goal- home ownership.

It's hard to see how even in the New York Metro area, at this time, a $725K home can be considered either a starter, or deserving of any sort of special government assistance.

No doubt those defending this increase in FHA mortgage size will claim it is to boost housing demand in order to rescue the housing sector, create sales and, somehow, magically, ignite housing starts.

How many times have you heard pundits and, of course, National Association of Realtors officers blather on about how a US recovery must begin with housing? How we have to get housing fixed to fix the economy? How much the US economy relies on the construction sector which is sustained by housing?

What happened to letting the US economy, with its hundreds of millions of actors, determine sector activity through their genuine demand for various goods and services?

From my youth, to now, I can cite three industries which were supposed to be the backbone of the US economy in their day- steel, autos and, now, housing.

Each had a parasitic union which ultimately sapped its host nearly to death. Each sector had its productivity peak, the bulk of its value-added fall victim to lower-wage, and thus, higher-productivity foreign competitors. Which led to the exit of US producers as the products became more commoditized and the US lost competitive advantage in those products.

Housing, being a locally-produced and -consumed good, didn't get sent offshore. We killed this one by over-subsidizing it.

I've been very impressed by the studies I've read that demonstrate home ownership to be the enemy of the once-vaunted mobility of the US labor market. And never moreso the low end of the income distribution. The absolute worst thing you can do for the lower income worker is to chain her/him to a home, so that when their semi-skilled job vanishes, they can't pick up and move immediately. Oh, and by the way, when that job does vanish, probably with hundreds or thousands of others like it, local property values will plummet, causing them to lose what little savings they had, as the home goes upside down with respect to its mortgage.

Maybe it's time we finally just stop subsidizing any sectors out of an arrogance which assumes a few legislators, with the 'help' of lobbyists for a sector, know what's best for American consumers and the US economy.

As of 2011, we've reaped a moribund housing industry from too many years of subsidizing the consumption of ever-larger houses by ever-more Americans. We've binged on housing, and now the value of that housing stock has fallen.

Market economics would lead us to let housing prices go where supply and demand take them. In this case, falling to a point where a newly-enabled tranche of buyers can afford that which was previously beyond their means, and at realistic interest rates and by appropriately careful lending standards.

No other path will resolve the housing sector's ills, nor cause it to have a positive effect on the US economy.

Rather than listen to politicians and pundits who declare we need this or that special program to incent consumers or business owners to behave in a certain way, to 'jump start' the US economy, perhaps, now, after several years of lackluster growth and a subsidized-housing-sector financial crash, we might just let market forces, in their own time, produce a real, sustained recovery driven by genuine market demand and, consequently, supply.

Thursday, November 17, 2011

Non-Breaking News On Tom Keene's Bloomberg Program

Sometimes I think Tom Keene purposely acts stupidly in order to make his guests feel smart. Other times, I think he really is as clueless as he periodically makes out.

Take this afternoon's closing segment on Keene's noontime program.

Keene's guest used the UBS announcement that it is simplifying its business model by shedding a few thousand investment banking employees. After a few minutes of discussion, Keene had his 'gee whiz, I'm surprised' moment regarding the rise of privately-held financial services boutiques. Then he let on that he knew Blackstone has a very healthy and large M&A advisory business.

Subsequently, the term 'brain drain' was used to describe the movement of talent from publicly-held formerly investment banks, now commercial banks (Goldman Sachs, Morgan Stanley & the IB divisions of legitimate commercial banks such as Chase, Citi and BofA/Merrill Lynch).

Except this isn't news. It's been going on for over a decade.

Ever here of a little outfit called Long Term Capital Management, Tom? That was 1998 when it imploded.

I've written a handful of posts dating back over several years observing the history of Wall Street- the real Wall Street, not the commercial money center banks outsiders incorrectly call by that term.

Hutton, Shearson, Lehman Brothers, Kidder Peabody, First Boston, Salomon, Morgan Stanley, Bear Stearns,, rushed to go public in the first big hoodwink of investors back in the 1970s and '80s. I've argued that since then, investment bankers discovered how to get a one-time huge windfall for dumping risk onto public shareholders at a premium.

Some former partners hung around for the lush paychecks and options. Others quickly moved back into private partnerships. That's how Blackstone, BlackRock and other private shops were founded. Add in hedge funds for the veterans of the formerly-private firms' trading desks, and you pretty much have the recreation of the old, old Wall Street of the partnership era.

Then there's Dillon Read, which has sold itself at a market top, then gone private at the bottom, so many times that it makes your head spin.

Schwarzman's Blackstone has even initiated round two of the big bilk, selling a slice of the private equity firm a few years ago, at what astutely proved to be a market top. You gotta love these equity mavens- convincing investors to buy shares of their own firm, while forgetting they were putting themselves on the other side of the trade from the sharpest equity valuation guys around.

What passes for the public face of it has been run by mediocre talent for some time. Even Goldman let itself get tangled up in seamy, public messes rising from originating, then betting against mortgage-backed structured instruments.

Meanwhile, the new barons of the financial sector are people like BlackRock's Larry Fink, Wilbur Ross, and Blackstone's Stephen Schwarzman, along with hedge fund titans like Steve Cohen and James Simons.

How this has escaped Keene for over a decade is beyond me.

Even in commercial banking, two of the nation's largest, old money centers Citi and BofA, are headed up by inexperienced, inept seat-warmers Vik Pandit and Brian Moynihan. A failed hedge fund manager and a lawyer. Some talent, eh?

As nearly the entire publicly-held US financial sector had to be rescued in 2008, thanks to poor risk management, it should tell you where the real brains of finance were- in private practice. Where they've been moving since the first wave of mergers after the original going-public wave of the '70s and '80s.

Phil Angelides on Bloomberg TV Last Week

Former FCIC chairman Phil Angelides appeared on Bloomberg TV last week one afternoon for a fawning interview during which he was asked to dispense his wisdom on a variety of topics.

What stuck with me was his insistence that the recent nearly-trillion dollar stimulus bill wasn't enough, and more must be spent to create jobs.

There were several other topics on which he was asked to opine. So many that I reasonably thought he must have some broad, long career in business, prior to his California political career. To ascertain that, I found and read Angelides' biography on a Stanford FCIC webpage.

To my disappointment, but, frankly, not surprise, he has a degree from Harvard in 'government' and absolutely no private sector experience. The Wikipedia page offers more detail on Angelides' political life. Suffice to say, he plunged into California Democratic politics upon graduation. Becoming Treasurer opened many more doors, including leading to his stint at CALPERS.

I suppose that career path, coupled with a Democratic Congress in 2008, with a Speaker from California, led to Angelides' chairing the FCIC.

What's curious is that there's nothing in his background to suggest he would actually comprehend all of the complex nuances of the events and actions by many players, including those in government, GSE and the private sector, which led to the boiling over of the crisis three years ago this fall.

Yet, having served on the FCIC, I guess Angelides is viewed as an expert on all things governmentally financial.

Nevermind that California's finances are a mess, and CALPERS has had its share of serious missteps, as well. Both of which you'd like to think would disqualify Angelides from being considered an expert on anything.

Which brings me to Bloomberg's producers. They must know that Angelides is essentially an empty suit. Like many other career politicians having no business experience, he would seem to have no basis on which to answer many of the questions a business cable television channel would ask of him.

But that doesn't stop Bloomberg from interviewing him on topics far afield from Angelides' experience, or the former FCIC chair from launching into lectures on such topics.

It seems to me telling that Bloomberg- and CNBC- focus so much on guests with essentially no business background but, rather, experience as government officials dabbling in business.

As they used to say in Hollywood.....that's entertainment!

Wednesday, November 16, 2011

Puzzling Economic News

This passage appeared yesterday evening in a daily email from a financial services provider which attempts to explain the drivers of US equity and fixed income market performance,

"Retail sales in the US were stronger than anticipated and prices at the wholesale level cooled markedly from the levels seen the month prior, while the first read on manufacturing activity for November coming from the New York region unexpectedly moved back to a level depicting expansion and business inventories were flat."

Yet we know that the real median consumer income has declined in the last decade, and unemployment remains high- in the 9% neighborhood on the narrowest definition, probably 16% on the widest one.

If there wasn't a large and high-profile environmental variable, i.e., the European sovereign debt/banking crisis, currently causing uncertainty, these slightly positive economic data reports might be seen as harbingers of economic recovery.

However, as I wrote yesterday, in retrospect, the signs of mounting trouble in 2007 didn't prevent hope and cheerleading by the financial community through much of 2008.

I believe it was Larry Fink, in his CNBC appearance yesterday, who proclaimed that when an economic and financial market recovery occurred, it would be a surprise which moved faster than investors might expect. Isn't that always how it is?

The overall macroeconomic picture today seems very cloudy. Even Fink agreed that while current economic signals appear weakly positive, the environment is gloomy. By that he apparently meant the political climate of excessive, intrusive governmental policy, weak employment picture, and low GDP growth.

It's been written that during the Great Depression, things were tight but bearable if you had a job. Those who were employed at larger companies tended to weather the period pretty much intact. But new job growth was absent, so the unemployed remained so for a long time.

Our current economic situation is beginning to resemble that scenario. There were brief periods of equity market rises and seeming economic expansion during the 1930s, but none of them lasted for long.

With that example in mind, I wonder whether profits from US companies, by themselves, are sufficient to trickle through to shareowners and drive a US economic recovery in the face of stagnant employment. It wouldn't seem that's a likely recipe for a robust US economic expansion.

Selective Memory In The Economist

I've subscribed to The Economist for over two decades now. I can't recall when the magazine's editorial pages didn't insist American tax rates had to be higher.

You'd think, given the publication's pedigree, that this would not be so. But, it is.

Yet, there's more to it than simply a stance on taxes that favors making the US more like, well, European welfare states. You know, like Britain.

There's also selective reporting to slant events.

For example, in an editorial regarding the Congressional supercommittee in the magazine's November 12th edition, you would read,

"Mr Obama and the House Speaker, John Boehner, discussed just such a grand bargain back in July, before the anti-tax wing of the Republican Party took fright."

Implying, of course, that Boehner succumbed to pressure from his more conservative House members. But that's not what happened at all.

Rather, as Boehner explained, he and Obama had a deal, then Obama succumbed to pressure from his base and added one more tax demand. Boehner walked on both principle and the particular tax issue.

But you'd never know it from reading that editorial.

It's tough to evaluate business and economic information when the reporting sources don't even get their facts straight.

Tuesday, November 15, 2011

Europe's Crisis & US Equities

Two asset managers appeared on CNBC this morning- Mario Gabelli and Larry Fink.

Of course, these days every manager is asked about Europe. I didn't pay enormous attention to Gabelli's comments, but recall him pushing industrial sector equities, which probably means that's where his book is.

Fink, however, was more interesting for several reasons. First, his firm, BlackRock, runs much more money than Gabelli. And Fink tends to be more thoughtful and expansive in his comments.

Listening to Fink, I was struck by two aspects of his remarks.

First, like many pundits and observers, he continues to see the prospect of countries leaving the Euro to return to their own currencies strictly in economic terms. This morning, Fink sort of threw up his hands and contended that it would be unmanageable for a country to have Euro-denominated liabilities while leaving the currency. But that's not really true. The country would simply have to manage its positions with the Euro like any other foreign currency. It's liabilities in Euro terms would require FX transactions to settle payments, just like dollar-denominated obligations.

Second, Fink began to describe the US economic condition as not getting worse, but a terrible surrounding environment. Then he generally recommended dividend-paying equities, as if to suggest that it would be unwise to expect price-based total returns going forward for the next several years.

When someone like Larry Fink, who controls the allocation of billions of dollars of investments, makes remarks like the ones he did this morning, I think you have to read between the lines. Fink knows that blunt remarks from the likes of him will move markets. That's not the type of book-talking he can afford to do. It might even make him, and BlackRock, liable for damages resulting from such gloomy public remarks which would negatively affect returns in the portfolios which the firm manages.

In that vein, Fink asserted that the current situation is not at all like that of 2008-09.

Yet, I can't help thinking that it actually is, in several respects.

Back in 2007, there was already a lot of discussion about commercial bank-sourced SIVs. Remember when those off-balance sheet holders of mortgage-backed instruments began to run into problems? Then in late 2007, several large US financial firms began to scour the globe for additional equity investments as they wrote off large losses on mortgage-related assets. By the spring of 2008, Bear Stearns was pushed into bankruptcy as counterparties withdrew funds and short term lending lines dried up.

My own proprietary equity allocation signal moved from long to short by the summer of 2008. In retrospect, the signs of a building problem with US equity valuations could have been said to have been building for nearly a year before the collapse of equity prices in the fall of 2008.

In the current situation, we've seen the European debt crisis begin in earnest in the spring of 2010. Things haven't really gotten better since then. Granted, the Greek and Italian governments have changed, but the realities of outstanding debts haven't.

Meanwhile, some fancy footwork avoided an outright default on Greek debt which would have triggered credit default swaps to pay off. But now, as Fink acknowledged, Europe is entering a recession. His comments about the US economy and equity strategies are tepid, at best.

Will we look back, from a year or so from now, and wonder how anyone could have missed the building signs of problems with global equity values which began to be apparent in the spring of 2010?

Perhaps in that sense, the current developing global financial strains do resemble the period of 2007-2009. A series of unresolved, connected and deepening financial problems that can't be magically resolved by climbing equity values.

It's one thing for equity prices to climb 'a wall of worry' about environmental variables which are missed or misread. But it's an entirely different matter for equities to rise amidst a large scale environmental variable such as global deleveraging in the wake of the 2007-09 financial crisis and its impact on Europe's large economies and nations. That's more like climbing in the face of real problems, not simply worries about whether problems exist.

Government-Sanctioned Ponzi Schemes Come Under Pressure- Here & Abroad

This past week's changes of government in Greece and Italy brought forth the following headline in the weekend edition of the Wall Street Journal: Europe Pulls Back from Brink.

Indeed, the last two days of the week saw a rise in the S&P500 of a combined nearly 4%. Hooray! All is well!

Ah.....not quite.

I've had discussions with several people over the past week on this topic. A few were kindred business persons, while several others were not. It's very good practice to explain these matters to economic neophytes, because one's reasoning has to be tight and sensible.

Simply put, since 1971, when the US dollar was decoupled from gold and became a fiat currency, inflation has raged. The Euro, too, is a totally fiat currency. As such, both have have been debauched by the governments which control them, promising ever-larger benefits and engaging in larger budget deficits so that politicians could buy re-elections.

When was the last time you heard a genuine discussion in the US Congress about cutting one or more programs in order to afford spending elsewhere? No, it's just spend more and print or borrow the money.

But the Ponzi scheme hasn't been confined to only government-provided defined benefit schemes.

In the November 7, 2011 edition of the Wall Street Journal, the Marketplace section's headline screamed Pension Trusts Strapped. It seems that the UAW and USW are finding their VEBAs- Voluntary Employee Beneficiary Associations- running out of money to satisfy the pension and health care obligations they were created to serve. VEBA's were conceived so that otherwise-bankrupt companies could off-load their legacy pension and health care obligations to the unions whose members were owed the benefits. In effect, for the unions and their members, it was take some money and manage the mess themselves, or see it all vanish in bankruptcy.

The UAW's VEBAs cover 820,000 employees and is said to be short some $20B for meeting its obligations.

Now, union officials are the ones telling recipients to expect higher premiums, larger contributions by retirees, or perhaps further benefit cuts. It seems that, once in union hands, the UAW VEBAs quickly cut some of the lusher medical benefits, such as prescription Viagra. Returns for the funds under custody of the unions aren't clearing hurdles of 9% per annum, thus squeezing the VEBAs from that side, as well.

Everywhere you turn, somebody's pie-in-the-sky, group defined benefit plan is being threatened by economic reality. Whether Greek public sector unions, Italy's generous social spending, US Social Security or the remaining private sector union defined-benefit pension and health care plans, they are all under pressure as a generation of retirees has pushed these legal Ponzi schemes to the breaking point.

You think any of this is going to be fixed in the next year or so? Or right after the 2012 election in America, if either party runs the table at the federal level to hold the White House and both chambers of Congress?

Think again.

Slowly, people in Western democracies are waking up to the reality that, whether public or private sector in nature, many retirement and medical benefit promises simply won't ever be kept. They can't be because they were never realistic in the first place.

If someone informs you that you will only collect, for argument's sake, half of the benefits you were promised, what would you do? The people with whom I discussed this all automatically said the same thing:

"spend less, save more."

Guess what will happen to OECD nation GDP growth rates for the next decade or more?

Forget any more "stimulus" spending by the major economies' governments. Who will be be lending to meet such borrowing? Which countries, while cutting entitlements, will simultaneously be splurging on other debt-fueled spending?

Due to a confluence of several factors, we're probably on the threshold of a phenomenon nobody's ever seen before- the vaporization of expected benefits for hundreds of millions of people which will affect spending and saving behavior, causing unexpected consequences at the macroeconomic level on a global scale.

I don't think it necessarily means equity market crashes. But I do think it means we are entering a period of heretofore unexperienced changes in the factors which will drive those markets.

Monday, November 14, 2011

More Warren Buffett Cornpone On CNBC This Morning

Warren Buffett appeared on CNBC this morning with plenty of his trademark cornpone and increasingly annoying guffaws.

This time he was spewing socialistic comments on taxing the rich, plus issuing ridiculous calls for higher taxes in general. Put Warren down as a limousine liberal. Would he have thought the same twenty years ago? More?

Absent on Buffett's part were such important aspects of the consequences of his views as the fact that taxing all of the income of the top 1% won't fund the government for even a year, if I recall Kyle Bass' analysis correctly. And there's the dangerously slippery slope which Buffett, having billions to give to charity, won't have to endure, i.e., how much 'more' is enough, and who judges that?

A young entrepreneur looking at confiscatorily high rates at the upper income ranges will likely behave differently than an old 'fat cat' like Buffett who has already amassed his fortune. Buffett's lifestyle won't be affected by almost anything the federal government does with tax policy, but that's not true for the younger, upcoming millionaires and billionaires of tomorrow. The more the chance to keep one's own earned money is reduced, the more the entire idea of the American Dream is subjected to socialism.

What's more sickening is that CNBC can't even dare to question Buffett's views, airing them with absolutely no critical challenges whatsoever. How about having Kyle Bass on the phone available to engage Buffett in defending his rank socialist views?

On the professional front, Buffett's big announcement was that he's accumulated about 5.5% of IBM's equity. Then he went on to babble about 11% of the firm's equity changing ownership in a year, and that turnover is so high these days. Of apparent note was that IBM is considered a technology company, which is a sector Buffett has historically shunned out of lack of understanding.

It was a charming throwback to antiquity when Buffett told how he actually read the recent annual report and, gosh darn it, liked what he read, so he bought 5.5% of the firm. And encouraged other investors to read that report, too!

Unfortunately, real investing is a bit more complicated than reading annual reports. At least it is if you plan on owning equities that constitute a portfolio which consistently outperforms the S&P500.

What Buffett doesn't seem to acknowledge, regarding the share turnover question, is that, in the decades since the Big Bang on the NYSE which cut brokerage fees, and the subsequent explosion of volume and mutual funds, people have access to cheaper professional management of their money. Especially via 401Ks invested with mutual funds. Buy and hold a la Graham and Dodd was conceived in an era of a 14% round trip charge on trades, versus flat dollar fees today.

The volatility and erratic performance that individuals might have to live with when investing on their own is probably less tolerable from a paid manager. Thus, more trading occurs in the quest for better returns all the time.

Now consider what Buffett reiterated this morning regarding his own holdings- Wells Fargo and BofA. They are erratic. Buffett no longer behaves like a typical manager, in that he doesn't even attempt to mitigate inconsistencies in his company's returns. While IBM has been moving toward being a consistently superior equity for years, BofA and Wells Fargo are not. BofA is a disaster, and Wells has tracked the S&P, meaning you'd be exposed to similar returns for far less risk by owning the index, rather than WFC. These price series are illustrated in the first nearby chart.

 I contend that if Berkshire's price charts were labeled Fund X and compared to other funds, Buffett's company would be judged inadequate, inconsistent and, at best, mediocre.

But being Buffett, people forgive performance lapses because they buy into a now decades-old performance that no longer exists.

A firm Buffett said he can't and won't buy- Microsoft- tells you something about his judgement.

Microsoft, as my prior posts have illustrated, has had a lost decade of flat returns. It's been a disaster. Yet Buffett claimed he won't invest because, as a friend of Bill- Gates, that is- he would be accused of having inside information. He didn't just bust out laughing at the prospect of throwing his investors' money away on a moribund has-been technology company if he bought shares of MSFT.

 To illustrate the inconsistency of Buffett's firm's performance, consider the next three price series charts. They compare BerkshireA with the S&P500 Index for the past 1, 2 and 5 years.

For the past year, the S&P has outperformed Buffett by 10 percentage points. For the past 24 months, they are even. For the past five years, Berkshire outperforms the S&P by 20 percentage points.
Berkshire has become something of a timing stock, at best. At worst, whether due to size of the portfolio, or Buffett's outdated selection strategy, it's simply seen its returned attenuating toward the index.

For what its worth, IBM has been near qualifying as an equity in my portfolios because of its increasingly-consistent relative performance on several key criteria. But, unlike Buffett, my strategy doesn't blindly hold for years. It continually assesses consistency of performance.

Of course, I'm not Buffett. As I noted earlier in the post, investors have long since given up measuring him by the same standard as they would other managers. Thus my point that if Berkshire were included as a choice among funds to choose, with its name changed, I doubt it would get the investment it does because it's affiliated with Buffett.

Frankly, anyone who would seriously consider investing in Microsoft would, on that basis alone, scare me off.

But that's the world according to Buffett. It's a different investing world with different rules. Performance doesn't matter as much as it does for lesser-publicized investment managers. 

Is There Really US Income Inequality & What Exactly Would Be Its Impacts?

Some months ago, I had a discussion with a friend regarding income inequality. Being a systems engineering consultant primarily working with he military and its suppliers, he cited an author who claimed that significant income inequality had presaged the fall of great powers in the past.

Currently, the Occupy Wall Street crowd focus on income inequality, screaming about the "1%" versus the "99%."

Income inequality is often measured via some variant of the Herfindahl Index, described in that linked source as it applies to its original subject, market share concentration,

"It is defined as the sum of the squares of the market shares of the 50 largest firms (or summed over all the firms if there are fewer than 50) within the industry, where the market shares are expressed as fractions. The result is proportional to the average market share, weighted by market share. As such, it can range from 0 to 1.0, moving from a huge number of very small firms to a single monopolistic producer. Increases in the Herfindahl index generally indicate a decrease in competition and an increase of market power, whereas decreases indicate the opposite."

As applied to incomes, one simply substitutes that variable for market shares. The principle is the same.

However, regardless of how one measures income concentration, the question is the same: what exactly are the impacts of various levels of income equality or inequality?

I can't answer those questions, because I don't have primary research data to support any specific response. But the constant harping by many liberals on this question causes me to ask three more related ones:

1. What would be the empirical relationship, were we to have the data to assess it, between income concentration and periods of human innovation and growth in average standards of living?

2. What were US income concentrations in past eras? Particularly, for example, after the Revolutionary War, during the pre-Civil War era, then 1880s-1890s, and the early 20th century?

3. What are the percentages of various income levels that change to higher or lower levels through time?

Let's take the first question. What I'm attempting to get at is the phenomenon of capital accumulation and its effect on civilization. Whether it involves infrastructure such as roads, dams, water provision, sewage or art, such non-subsistence-level human activities require capital. And capital comes from savings, which is, definitionally, the positive difference between production and consumption.

If a society doesn't have capital accumulating, it's not going to advance on any significant dimension. Historically, unless you sign up for hereditary monarchies or feudalism, capitalism is the economic system which has done the best job combining merit-based wealth accumulation and the ability of a society to accumulate capital for which allow investments that, over time, improve general standards of living.

Specifically, in the US, I'd love to know the answer to the second question. Has the US experienced major changes in income concentrations over these eras? What do you think income concentration was like before the middle class ushered in by the Industrial Revolution?

Further, what does it say about US income concentration that Steve Jobs, Bill Gates and Mark Zuckerberg, none of whom apparently completed a four-year college degree, all became billionaires within the past two decades? And Larry Page and Sergey Brin, the co-founders of Google, did so within the past several years, though they finished college.

It appears that the potential for Americans to create wealth for themselves still exists. Perhaps not all are created equal and, thus, incomes won't ever be equal. Or perhaps some of the now-vocal 99% are simply lazy, or have made poor career choices.

Thirdly, from years in business, and my own proprietary equity research, I'm rather distrustful of simple static analyses. Simple static pictures of US income concentrations aren't as useful, informative or actionable as would be quintile-quintile migration tables for US incomes. Or any of several other ways of depicting the dynamics of US income concentration among specific groups of Americans.

What percent of the current top 5% of US income earners are children of similar income earners? How many years, on average, do people remain in a particular income strata?

The existence of Jobs, Gates, Zuckerberg, Page and Brin tell us that it's still quite possible in America to vault from median income to substantial wealth, even to the level of the top 1% of American incomes, in just a few short years.

So we know that US income mobility is still alive and well. And, really, that was one of the fundamental purposes of our nation's founding. You know, that old line,

", liberty and the pursuit of happiness...."

If, as I hypothesize, the early days or our Republic were marked by greater income concentration than that over which people currently Occupy parks in various US cities, perhaps they weren't all that discouraged. After all, having liberty was not a trivial thing. And still isn't.

And the pursuit of happiness was, for many homesteaders both before and after the Civil War, the ability to have and work their own farm or business, regardless of its economic prosperity.

It seems to me that we have far too little evidence of a problem with the dynamics of US income concentration at this time. There will always be a lower echelon of income earners. And, if I'm correct in my hypothesis about the early years of our nation, income disparities didn't prevent people from immigrating to America- it spurred it. As it has until very recently, when the economic growth of the nation began to slow.

How people got to an income level, and for how long, on average, people stay there, and how many rise, is of more interest in determining both if there is a problem in the US with income concentration, and what to do about it.