This Week in Barron's

Alan Abelson (the only reason anyone actually subscribes to Barron's) notes that the Chinese have just entered a new year, the Year of the Pig, probably in tribute to America's Wall Street investment professionals. In describing the competitive advantage that Chinese manufacturers have over locals in a post-NAFTA world, he points out that "the average toiler in a Chinese factory is (paid) about 3%...of the hourly wage of the average Joe doing the same job in the good old USA. Including benefits, U.S. workers probably earn about $20 per hour (including benefits), while Chinese workers are happier to have their job, but receive only about 50 cents an hour. I tried to compare both of these with Euro-worker rates of recompense, but everyone was on vacation and I finally had to abandon the effort.

Barron's cover story (The Last Laugh) is particularly interesting to LeapIntoRetirement readers since it focuses on the financial importance of spenders in the over-50 crowd, which now comprises over 40% of all U.S. households, controls 50% of all U.S. discretionary spending, supervises 65% of America's household net worth, and accounts for 75% of all prescription and drug spending (mostly, it would seem, in an effort to maintain sexual performance and to treat diseases accumulated through years of practicing in the same arena). Barron's talks about several major companies and their attempts to woo the baby boomer demographic.

Barron's writes about a trend called, "aging in place," where empty nesters turn their kids' rooms into dens, install larger door handles and light switches, and wander through their wider halls on non-slip floors practicing mental games and taking "brain age" games. In fact, Barron's reports that aging may even be good for your game, referencing studies by the AgeLab and the American Assn. for the Advancement of Science studies and resources.

Barron's also revisits the debt problem unfolding in the "sub-prime" lending market, which we've talked about before and which got worse, last week, with the bankruptcy filings of ResMae Mortgage and the stock of Kansas City-based Novastar plunging 42% on an earnings impairment announcement. Sub-prime loans are loans made to folks who really can't afford to pay them back in the first place, often at artificially attractive terms that eventually ratchet up to less attractive rates, hopefully after the original lender has had a chance to pawn the loan off to an institutional lender or mutual fund manager who happens to have their head in the sand and is desperately seeking a yield advantage over his more experienced peers. The strategy is a little like a ponzi scheme in that it works for awhile, but then it doesn't work at all and by the time that everyone wants out, there isn't much left. For America the last few years, as real estate speculators reached too far to buy homes they couldn't possibly afford, it's been a way to keep the bubble going and prolong the party. It looks like the punch bowl is gone.

Douglas B. May, CFA, is President of May-Investments, LLC and author of Investment Heresies.

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