Is the U.S. Finished?

Featuring Lutts’ Logic:

Is the U.S. Finished?

The Value of Education

A Great Education Stock

Soon after the government’s initial $700 billion bailout, one of my elder relatives sent along this:

“More than 200 years ago, while the original 13 colonies were still part of Great Britain, Professor Alexander Tytler wrote of the Athenian republic, which had fallen 2,000 years earlier:

“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s greatest civilizations has been 200 years.  Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage.”

Is it true?  Yes and no.  If you want to believe it, yes, there is evidence that several nations have been through the cycle.  But some have escaped it, and clearly, the 200-year figure is a big round number, and not etched in stone for any nation.

Also, there is no proof that Tytler, a Scottish historian who lived from 1747 to 1813, wrote it … or anything similar to it!

The closest Tytler came to it is this: “It is not, perhaps, unreasonable to conclude, that a pure and perfect democracy is a thing not attainable by man, constituted as he is of contending elements of vice and virtue, and ever mainly influenced by the predominant principle of self-interest. It may, indeed, be confidently asserted, that there never was that government called a republic, which was not ultimately ruled by a single will, and, therefore, (however bold may seem the paradox,) virtually and substantially a monarchy.”

Nevertheless, if you want to believe America’s best days as a democracy have passed, there’s plenty of evidence today. 

Economically, we’re behind the 8-ball.  Our country’s debt is now 340% of GDP.  Seven percent of mortgages were delinquent at the end of the third quarter; the number is even larger today.

Morally, much of the country is bankrupt, not least many of the politicians who profess to lead us.

Politically, we’re at the mercy of two parties who care more about wielding power than serving the country.

Educationally, we have a long tradition of failures in public education.  Seventeen of our 50 largest cities have high school graduation rates below 50%.

Our health care system, where the decision-making and the control of the dollars are both in the hands of insurance companies, is broken.

And our continued reliance on foreign oil is a disaster waiting to happen; the past summer’s oil shock is likely just a taste of what will come as global demand grows and supply dries up.

On the other hand … not long ago I received the following from a reader:

“Within 10 years, the internal combustion engine as a primary propulsion engine for human transportation, will become obsolete.

“My argument supporting this prediction is based on the simple laws of physics. Energy cannot be created nor destroyed, it simply changes form.

“Presently, the kinetic energy of a moving vehicle is wasted when the brakes are applied, as heat generated from the friction of the brake pads acting upon the rotors or brake drums. This heat energy dissipates and contributes to global warming (see, I got you to smile).

“The primary propulsion engine of the future will be an electric motor or motors powered by the car’s battery.

“Regenerative braking, a built-in function of the motors, will capture that kinetic energy of the moving vehicle as the brakes are applied and store it as electrical energy in the car’s battery to be re-used.

“An on-board, constant rpm Capstone Turbine micro-turbine engine (diesel, gasoline, LP-gas, unrefined wellhead gas or a hydrogen fuel cell) will act as a range extender power plant generating electrical energy to power the car when the car battery voltage has depleted to a threshold sufficient to trigger charging.

“The reuse of energy captured during regenerative braking is why the electrical propulsion vehicle is more efficient, getting many more miles traveled from a gallon of diesel fuel or gasoline.

“A solar panel integrated into the roof of the vehicle will charge the battery when the car is in the sunlight and power cabin ventilation of the parked vehicle. The sunlight that now heats the interior of a parked car on a hot day will be captured as electrical energy and stored in the car’s battery for future use or used to ventilate the cabin to keep it at ambient temperature.

“Future labor agreements will adopt provisions to allow employees to plug-in their cars while at work so the battery will be recharged at the end of the workday. We will most likely see the building of many “solar carports” where folks can park in the shade and plug in their car battery charger while they go about their business.

“CleanPowerSystems is presently constructing just such a parking facility here in Apple Valley, CA at the St. Mary’s Regional Medical Center.

“My high-school chemistry teacher (1963), Mr. Bolliger, said it’s really a shame to use petroleum as a motor fuel because it is the basis of all plastics and synthetic materials.

“Perhaps that day is near when oil is no longer used as a primary motor fuel?

“Without any doubt we are entering a brave, new world. We must be brave, optimistic and ingenious to overcome the challenges that lie ahead.”

D.F. of Apple Valley, California

Which outlook is right?  You choose.  You can believe the United States’ best days are over and we are slowly slipping back toward dependence and bondage.  Or you can believe that “good old American ingenuity” will allow us once again to “overcome the challenges that lie ahead” and retain our position of global leadership.  Or you can choose something in between. 

If your life has been full of disappointment, you may be inclined to adopt the former, pessimistic position.  And if you’re a self-made man or woman who has achieved success through hard work, you may be inclined to think it can be done again.  Or, again, you can choose something in the middle.

You will, of course, believe that your perception is correct, and that people who don’t see it your way just haven’t seen the light yet.  But the fact is that the reality they perceive is colored by their life’s experience, just as your reality is colored by your own experience.

Me, I’m an optimist, not least because life is a lot more fun when you look on the bright side.  It makes you healthier, more productive, and more fun to be with.

Your comments are welcome.

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Moving along, just a little, I’ve long found it ironic that every human has to relearn the lessons learned by our predecessors.  Sure, theoretically, we can stand “on the shoulders of giants,” as Sir Isaac Newton wrote.  And it is true that by consulting the great books and by studying history, we can increase our sphere of knowledge exponentially.  We can become “wise beyond our years.”

But first, we all start–as babies–at zero.  We get educated in the basics.  Ideally, we then get more education, to the extent that we can expand on the achievements of our predecessors, and create great things, like the personal computer, the hybrid car or new improved solar cells (all created by engineers).

But millions of Americans don’t.  For various reasons, their education ends too soon.  As a result, more than 200 years after our wise founding fathers created the documents that made the U.S. the most attractive place in the world to live, work and raise a family, 21% to 23% of adult Americans are functionally illiterate.  While they can read the few hundred words they learned in elementary school, they cannot “locate information in text” or “make low-level inferences using printed materials.”  And once out of school, they don’t read books … ever.

These people don’t stand on the shoulders of giants.  Instead, their reality is colored by their day-to-day exposure to their small circle of friends, relatives and co-workers, and–to a very large extent–by what they choose to watch on TV.

Last week, these were the most-watched shows on TV.

Dancing With the Stars
Dancing With the Stars Results
60 Minutes
The Mentalist
Sunday Night Football: Chicago at Minnesota
Desperate Housewives
Two and a Half Men
CSI: Miami
Criminal Minds

Entertaining, apparently, but hardly elevating.  It’s no coincidence that children who don’t watch TV do better in school.  But I’m not so foolish as to believe we can–or should–ban TVs.  I watch TV, too, though I didn’t watch any of those top 10 shows last week.  My favorites are “Jeopardy” and “Cash Cab,” which I call “Jeopardy for regular people.”  And I skip commercials.

The real question is this: how do we educate our children so that they become literate, contributing members of society?  How do we educate them so that they can help us move forward as a society, instead of cycle back to a life of apathy, dependency and bondage?

Your suggestions are welcome.

Speaking of education, it’s not just for kids.  You’re never too old to learn.  Here in the Cabot office, we have a generous policy of paying for continuing education for employees.  And all over the country, men and women, both employed and between jobs, are finding that a little more education is just what’s needed to move to the next level.

Many of these older students are finding what they need at for-profit schools, which tend to focus on teaching the skills needed to advance in particular careers, from nursing to computer science to business management to criminal justice.  In fact, these schools are one of the clear beneficiaries of the current recession.  Enrollments are up, and revenues and earnings are climbing.

Most important of all, their stocks are strong!  A few weeks ago, we mentioned Strayer Education (STRA), which has just pulled back to its 50-day moving average.  And today, I want to recommend another stock, the king of the industry, Apollo Group (APOL).

Apollo was a great growth stock from its 1994 IPO all the way to its peak in early 2004.  Then growth slowed, shareholders jumped ship, and the stock fell all the way from 98 to 33.  But the company kept growing!  In fact Apollo has a perfect 10-year record of growth of both revenue and earnings.

Here’s what editor Michael Cintolo wrote in a recent issue of Cabot Top Ten Report.

“Apollo is committed to serving the needs of working adults through its subsidiaries University of Phoenix, Institute for Professional Development, College for Financial Planning and Western International University. With more than 360,000 students, Apollo is the giant in for-profit higher education, offering associate, undergraduate and graduate degrees both online and in 385 facilities in North and South America. The company got into a little hot water with the SEC in 2004, and the loss of focus resulted in an earnings slowdown in late 2006. But earnings are back on track, the SEC is happy and the company has a new CEO to guide it through a period when demands on its services are sure to be at a record high.”

I look at Apollo today and I see a company whose revenues grew 16% to $831 million in the third quarter, while earnings jumped 15% to $0.77 per share.  Equally important, analysts increased their estimates of future earnings.  Profit margins are a robust 14.8%.  And Apollo has no long-term debt.

The stock climbed from 38 in March to a recent high of 77, and it’s recently been consolidating its gains in the low-70s, while its 25-day moving average catches up.  In a bull market, it might be a decent buy around 70, but in today’s crazy news-driven market, waiting and watching is a more prudent approach.

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Cabot Wealth Advisory

Editor’s Note: Apollo Group’s rating will be regularly updated in Cabot Top Ten Report for as long as the stock’s chart action remains healthy.  And if you’d like more strong stocks like APOL, I urge you to give Cabot Top Ten Report a try.  It’s the best way to discover new leaders early–stocks like Hansen Natural, Crocs and First Solar.  To get started with your no-risk trial subscription, simply click the link below.


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