This is big news

Anyone that has followed higher education in the US knows that change in this industry typically occurs at a glacial pace.  However, I've been enthusiastically following the way companies like Udacity, Udemy, Coursera and edX.  I've said for some time that I think within 5 years we could see our first major universities offering fully online, accredited degrees for a fraction of the cost of the online experience.

Udacity took a baby step in that direction a couple of months ago with their announced partnership with San Jose State to offer accredited courses this summer for $150/course.

However, today Udacity moved a couple of light years forward in the evolution of online higher education. 

"The Georgia Institute of Technology College of Computing (Georgia Tech) announced today that it will offer the first professional Online Master of Science degree in computer science (OMS CS) that can be earned completely through the “massive online” format. The degree will be provided in collaboration with online education leader Udacity Inc. and AT&T.

 

All OMS CS course content will be delivered via the massive open online course (MOOC) format, with enhanced support services for students enrolled in the degree program. Those students also will pay a fraction of the cost of traditional on-campus master’s programs; total tuition for the program is initially expected to be below $7,000. A pilot program, partly supported by a generous gift from AT&T, will begin in the next academic year. Initial enrollment will be limited to a few hundred students recruited from AT&T and Georgia Tech corporate affiliates."

 

This hits on 3 major trends I see coming to higher education:

 

1) Online, accredited classes

2) Drastically lower costs

3) Partnering with corporations to deliver talented individuals with real skills.

 

The rate of change in this industry is really shocking to me.  I think it's possible that by 2020, a significant portion of our students could be taking online accredited courses from real universities.

 

There will be some bumps along the way, but this is very good news for the US.

Jobs and Dow 15,000!

Okay, so the market didn't hold the 15,000 level on Friday but the S&P blew through 1600 and the NASDAQ is also hitting post-bubble highs.

The catalyst on Friday was the better than expected news on the jobs front (I'll get to that in a minute) which was news itself because for much of the past two weeks bad news meant more Fed intervention which meant higher stock prices.  Suddenly on Friday good news was actually good news again :)

At this point everyone has beaten the headline to death so let's talk about what the numbers mean.

The 165k addition of jobs was slightly better than expectations but still relatively weak for this point in the recovery.  However, the upward revisions to March and February somewhat offset this concern. The trend lines have all sharply reversed (long-term unemployed, population ratio and to a lesser extent part-time) but remain at elevated levels.

My bigger problem with the euphoria over the jobs report is the breakdown of the jobs.  I've made this argument since 2001 to no avail as my argument falls on deaf ears.  We shouldn't be measuring jobs because a Walmart cashier does not generate the same level of economic activity as a software salesman.  However, in the eyes of the jobs report all jobs are equal.  Thus, when it is reported that 165k jobs were created no one cares that 103k of those jobs were in Retail, Temporary Help and Hospitality/Leisure (historically very low paying jobs).  This has been an ongoing trend for a decade and I'd love to see us include an equalizer (take a job created x its average hourly rate x its average workweek) to see if we are gaining strength as an economy.  To that end some have pointed out that despite the added jobs last month the reduction of the avg work week offset any gains in employees.  Ultimately, I'd say we have to deal with the jobs report because the computers love the headline game (note how the market opened straight up and then flatlined the rest of the day), but it is relatively meaningless in the big picture.

Side note if you're bored, watch this 5 minute video which turns 1/2 second of trading in Johnson & Johnson into a video game. Watch the barrage of quotes coming from all angles from the High Frequency Traders and then tell me if you think you stand a chance ---- remember this is all occurring one half second in the market.

Stats of the day:
Over 50% of Las Vegas new and resale home sales in March were to absentee buyers.
Las Vegas has roughly 10% vacancy rate but there was a 50% uptick in construction permits

Finally, thanks for still checking in here at the blog.  I'm going to cover a wider range of topics in the coming months as the first year of NNY Math winds down.  I'll be offering Summer Science Camps in the mall so if you know someone that might be interested drop me a note to brian at nnymath dotcom. 

What is college worth?

Twenty years ago, the argument for higher education, particularly a 4 year bachelor's degree, was pretty sound.  Private Universities averaged about $15k/year and state schools were about 1/2 of that number.

In the last 20 years a combination of factors - increased ease of student borrowing, low interest rates, explosive demand for higher education and aggressive college expansions - have pushed a college degree up from $40-$50k to nearly $250k at the most expensive schools. 

At this point it seems fair to ask -- is it worth the cost?

This is a difficult concept for many of us to comprehend. We grew up in an America where you did well in school to get into a good college to get a good job to have a 40 year career with a Fortune 500 company.  Well, the last part of that equation is now gone for good.  Today's children will have to constant reinvent themselves learning new skills throughout their career to stay relevant and employed. 

However, this doesn't necessarily mean college is outdated in this world.  In a world where 60% of graduates are unable to find work in their degree field and of those that can find work the average starting salary is just under $45k, a $250,000 bill seems out of line.

So, I've mentioned before the groundswell occurring in the higher education world that is moving at breakneck speed.  There are some really amazing companies that are working to bring higher education to everyone for free or some nominal cost.  Some states have begun taking the bold step of offering credit for massive open online classes. 

Here's my vision: If I were the governor of a small state that lacked a major state university (Rhode Island, Maine, the Dakotas, and Delaware come to mind) and if I was fighting population trends I'd have a plan.  First, I'd partner with a major MOOC like edX or Udacity and immediately offer credit for classes taken online if a student passes a proctored exam.  I'd set class prices at $495 per 3 credit hours for the first 3 years (which could be done as fast as the student can work - maybe he's aggressive and wants to finish in 18 mths -- go for it).  Now you'd probably have 30,000 students or so and they'd each have spent about $15,000 to get to this point.  For their Senior year I'd have these students come to our new campus where they'd finish their college career with a mix of traditional classes and internships at 3 different companies.  Hopefully, many of these kids would chose to live and work in my state after their senior year.  Maybe they'd start a business or maybe they'd just tell everyone what a great time they had in our state.  We'd be at the forefront of educating the next generation 21st century workers with 21st century skills using 21st century tools. 

As this model grew in popularity the major institutions would see applications start to decline.  Pretty soon the best and brightest wouldn't be fighting to get into second rate schools.  This lower demand would lead to more competitive college pricing.  Soon a 4 yr degree might again cost $50k-$100k.  Everybody wins.

Having said all of this, if one of my kids gets into MIT or Princeton you know I'm writing a big fat check so I'm all talk :)

Week in review

So after a week of suffering through 85 degree weather in the Caribbean I returned to the good ol' US to hear that the jobs number was a whiff.  I'll get to that in a second.

1) I don't spend a lot of time analyzing the mainstream media's obsession with the markets but when you spend a week without access to the web and USA Today is your only source of news you get a fresh perspective on what's being spoon fed to consumers.

During this past week I saw articles on -

* How the housing market has bounced back so much that people that went bust in 2007 buying overpriced shacks in Las Vegas are now able to once again get 5% loans for overpriced shacks in Las Vegas.

* How the Dow is at another high.....wait, wait, wait.... Yes, that's another high... and wait, yep there's one more.

* How everyone is piling back into the market just like in 2007 and Jan of 2000 which obviously worked out beautifully.

The point is that these mainstream articles are written to fit a theme.  I guarantee there were about 20 different Reuters articles teed up Friday morning with interviews of small businesses around the country talking about how they are still hiring and seeing strong sales.  Then, the jobs number came out and it was a mad scramble to come up with a different story line.

2) The jobs report - First, everyone is on to the participation rate decline at this point.  It's old news and it's time for people to let it go.  Yes, participation is declining but it's less from people just dropping out and more from the aging of our population.  This trend is likely to continue for a long time - get used to it.

I will however say that we need to see the participation rate among 25-54 yr olds improve.  This number has slipped to about 81% from 83% or so pre-recession.  Until this number turns, we're pretty much swimming upstream.

In general, this was a much weaker than expected report but in our market where anything over 5 minutes old might just as well be 20 year old news the market mostly shrugged off the report by the end of the day.

2) Which brings me to today's stats of the day - 70% of trades in the US are now High Frequency trading and the average length of time a stock is held.... 22 SECONDS!!!  So for all of you long-term investors out there, you should know that while your Pfizer is sitting in your account the computers traded it 1,200 times each day.  Good luck out there!  Someone made a good point on the Sunday talk shows today - all of the Federal Reserves moves have done a great job supporting financial assets but the core of the US economy remains very stagnant.

3) The good from this week:
 U.S. construction spending better than expected.
 ECB might be more aggressive.
 Mtg purchase applications were up
 Gasoline falls to 7 week lows at $3.63.

    The bad from this week:
Jobs numbers were ugly - biggest miss in 2 yrs.
Workforce participation rate continues to fall
 Jobless claims hit the highest weekly number since Thanksgiving.
 EU unemployment rate rises to record 12%
 Oh, and N. Korea seems to be prepping another nuke test.  Yippee!

I'll try to stay on top of some breaking world news this week as well - watch this bird flu story (which is TOTALLY unrelated to the 10,000 floating pig carcasses from 2 weeks ago) and any news out of N. Korea.  Yes, N. Korea is just looking for attention but their rapid movements are making it hard to analyze if the game has really changed.

Cheers!

A college degree in every pot...

The new variation on the old "a chicken in every pot" phrase seems to be a college degree for all.  While this is a fantastic goal, it is not without challenges and risks.  For example, if I asked you to name the top 2 Universities in the US by enrollment how would you do?  I think I know a little about higher education and I never would have guessed the two largest institutions.

How about

The University of Phoenix with roughly 308,000 students and
Ashford University with roughly 75,000 students?!?!?

In 7 years Ashford transformed from a sleepy 300 student college to an online behemoth with 75,000 students.  Both Ashford and Univ of Phoenix are "FOR PROFIT" institutions and they have been very good at the profit part of the education experience.  Univ of Phoenix's revenues exceed $3 billion last year and the bulk of that money (some 80% +) was from Federal Student Aid programs.  The default rate of students attending Univ of Phoenix is a staggering 26% (vs. roughly 10% for traditional institutions).  Both of these schools have recently come under scrutiny by accrediting bodies which is a good thing, but the fact remains that 5 of the 20 largest schools in the US are FOR PROFIT colleges and that probably isn't an accident. 

To be fair though it's not just for profits that seem to be taking advantage of the system.  Included in the top ten schools be enrollment are:

# 6 Miami Dade Community College (2 yr school)
#7 Lone Star College System (2 yr school)
and #8 Houston Community College (2 yr school)

There is too much money in education to trust the market forces to work without regulation.  Since this is taxpayer money we should demand a better product for our students.  I have a idea on this front that I'll share soon :)

Cheers!

Many moving parts...

The news out of Cyprus remains very fluid but it sounds like the deposit tax for the most part is going to be off the table for most depositors.  The latest news sounds like there will be some sort of infusion of capital from Mother Russia which will give Russia access to natural resources in the country.  As others have put it, "It sounds like Russia just bought Cyprus".  Again, Cyprus is a bit player but the implications for the Euro and raising the concept of a deposit tax certainly got everyone's attention.

I follow a bunch of smart reporters in the Korean Peninsula that are really tuned into the rhetoric that comes from N. Korea.  While Matt Drudge will scream about Kim Jong Un's latest pronouncement they typically point to similar statements that put all of the headlines in perspective.  Well, some of that changed in the last 24 hours.  Many of these people seem to indicate that the S. Korean hack-a-thon (now alleged to have come from a Chinese IP, but any decent hacker would know how to fake the IP) and air raid sirens in N. Korea and N. Korea's open threat to hit US interests in the Pacific are all new levels of intensity.  I still presume that this is just a ploy for attention but it bears watching because the pattern has shifted.

Ben Bernanke gave the all clear again yesterday and that helped stabilize markets but many people that read beyond the headlines see a few red flags.

1) Copper - Copper has long been a leading indicator of global economic activity.  Admittedly, this trend can breakdown over time as new materials emerge but the correlation between stock prices and copper prices has historically been very strong.  Until recently when something has gone awry....

2) Caterpillar - "Caterpillar Inc. said Wednesday that global sales of its heavy equipment fell 13 percent for the three-month rolling period that ended in February, hurt by a steep drop in Asia Pacific demand."

3) Fedex - Saw global shipments tick up slightly but customers are choosing lower cost delivery options (truck vs. air).  This seems to indicate that customers are more cost conscious and may signal some rough times ahead.

Cheers!

Sunday night update

The markets have started opening around the world and most are off about 2% which is noticeable but in light of the huge run-up we've had recently it's not that bad.

The news out of Cyprus has clearly shaken global markets.  The new numbers the government is floating are - 3.5% tax for under 100k Euros, 10% for 100k to 500k Euros and up to 12.5% for balances over 500k.  The risk is that this causes an accelerated flight of capital from areas that are considered at risk - Greece, Italy, Portugal, France  - toward places like Switzerland and Singapore and perhaps the US (which would explain the strengthening US dollar).

Banks in Cyprus will be closed until Wednesday so this story will continue to dominate the international headlines (the lack of coverage in the US is surprising).

May you live in interesting times.

Load up on tinfoil

This sounds like something that you'd hear on late night AM radio when driving across central Pennsylvania (that's a topic for another day, btw).  The news that Cyprus would impose a mandatory bank bailout tax on bank accounts has caused more than a minor stir in Europe on an otherwise quiet Saturday.

Here are the details of the $10 billion bailout announced last night...

* A one-time tax of 9.9% of deposits in excess of 100,000 Euros.
* A one-time tax of 6.75% of deposits under 100,000 Euros.

So far, Cyprus has been just a bit player in European Debt drama, but the nature of this story is scarier than the size of this deal.  The fact that Russian billionaires like to park their money in Cyprus is going to further complicate matters.  The drama in Cyprus has been pretty intense.  People standing outside of banks waiting for them to open on Monday.  Even one picture of a guy that drove a bulldozer down to the local branch to request his money :)

Again, this isn't an income tax, or a capital gains tax, this is a tax to save the banks where your deposited your money.  The concern will not be what this means for tiny little Cyprus but what if this sparks minor (or major) bank runs in Greece, Italy or Spain.  I view this as highly unlikely to cause widespread panic, but this is one of those wild card "Black swan" style events that needs to be watched very closely.  I didn't expect one guy lighting himself on fire in Tunisia to cause more upheaval in the Middle East than we'd seen in 50 years, but it did.  In the era of Twitter, rumors of bank runs can spread like wildfire.

Once talk radio in the US gets wind of it, there will be no stopping the conspiracy theories.  So please try to tune this out and focus on reality.

Tune in tomorrow as the world turns....