Ethanol Revisited

I recently read an excellent article in the May/June 2007 issue of Foreign Affairs, which is published by the Council on Foreign Relations. Professors C. Ford Runge and Benjamin Senauer argue in "How Biofuels Could Starve the Poor" that the push for corn-based ethanol is driving up global food prices.

High oil prices have prompted governments to subsidize the development of alternative fuels. Brazil uses sugar to produce ethanol. The U.S. has focused on corn-based ethanol. Although corn production is near record levels, an increasing portion is being dedicated to refine ethanol. This has depleted corn inventories. Furthermore, as farmers plant more and more corn, yields of other food crops are falling, pushing up their prices as well.

Ethanol is expensive to produce. Ironically, high crude oil prices are necessary for ethanol production to be profitable. The authors argue that if oil prices fell back to $30 per barrel (admittedly, not a very likely outcome), corn prices would have to fall to less than $2 per bushel for ethanol production to remain a profitable business. However, at $80 per barrel for oil, ethanol refiners could afford to pay more than $5 per bushel for corn and still make a good return. The tradeoff, of course, is more expensive food.

I commented on much of this back in April when I wrote Ethanol is Not the Solution. I argued that the most promising technology to address our transportation needs in the short term is the plug-in hybrid car. Since then several automobile manufacturers have announced plans to invest more money to research and develop this technology. The farm lobby may oppose these efforts, but success would not only significantly reduce our dependence on foreign oil, it would also bring food inflation under control.

Starbucks Raises Prices and Analysts Cheer

There seems to be little skepticism on Wall Street about Starbucks' recently announced price increase. The company admitted again that higher costs are pinching profits. It is struggling with higher dairy prices, higher fuel prices, and higher energy prices.

But consumers are also dealing with higher prices, leaving them with less and less income to spend on discretionary items like Starbucks coffee. So is the nine cents per cup price increase sufficient to preserve profit margins without depressing volumes? Or is it too much of an increase that will turn away some customers and make them wonder why they are paying so much for coffee? These are the questions Starbucks and analysts are grappling with.

Customers are getting squeezed by higher prices for all kinds of things. Food and energy prices in particular are taking a bite out of their incomes. I doubt even Starbucks believes that customers will finance their coffee purchases with stock market gains or home equity loans. The bottom line is that things don't look promising for Starbucks right now. We'll learn more about the company's financials on August 1. In the meantime, I'm sticking with my recommendation to short the stock.

The Real Cost of Living

Wednesday night I argued on Kudlow & Co. on CNBC that inflation is problematic. I mentioned soaring gasoline and food prices. Larry Kudlow took me to task saying those volatile components are rightly excluded when measuring core inflation. He said the prices of other things like televisions and cell phones have been falling. He didn't care for my argument that consumers buy gasoline and food every week, but that they might buy a cell phone only once every two or three years. He said I was being silly.

After thinking about it for a while, I realized that even the costs of watching television or making a phone call have risen. Take television. Granted, quality has improved dramatically, but the cost of watching television has gone up tremendously. I purchased a color television set in 1987 for $299 and paid an additional $200 to have a rotational antenna installed on my house. That allowed me to capture stations from Baltimore to Philadelphia. There were no additional costs involved. I received all my programming for free.

These days you would have to buy a high-definition television set. I know prices for HDTVs are falling, but they still cost about $1,000 or more. You also have to subscribe to premium cable or satellite services that cost at least $60 per month. And even though you can now get hundreds of stations, it is still difficult to find much that is worth watching. So, economists may argue that the cost of a television has fallen if you factor in the vastly improved quality. Yet the fact is that the cost of watching television today is much higher than it was in the 1980s.

As for cell phones, they were certainly a rarity back in 1987. Those who wanted one installed in their car had to pay a fortune. These days cell phones are ubiquitous. Yet I can't say that I have noticed a decrease in the price of making a call. Even cell phone prices don't seem to have fallen much in recent years. Yes, the phones are getting cooler and cooler. They do offer lots of features I never thought I needed. But when you consider all those hidden fees and taxes, the cost of making a call just seems to go higher and higher.

There are many such examples. Technology has brought us lots of products we couldn't even have imagined just a couple of decades ago. And if these products come with added features with only a marginal increase in price, economists actually consider that a price decrease. Yet the cost of daily life keeps rising. Think of all the things you do on a regular basis. You spend money on housing and clothing. You have to eat and drive to work. You might watch television and listen to satellite radio. You might go out to dinner and a movie. You might take a vacation. Perhaps the quality of the things you buy on a regular basis has improved, but the costs of daily life are certainly not falling.

Life is Good Without a Car or Food

Is there or is there not an inflation problem in the U.S. economy? Anyone who buys gasoline knows inflation is rampant. Filling up the average sized gas tank costs about $50 these days. Just a few years ago you would have needed only about $30. Food prices are also way up. Even Starbucks is complaining that high dairy prices are pinching profit margins.

Yet Fed officials and most economists say inflation is not so bad because they prefer to focus on core inflation. In other words, they want to know how much prices are rising if we exclude gasoline and food. They believe gasoline and food prices are just too volatile to provide a meaningful measure of inflation, so they simply ignore them.

But investors are waking up to the fact that gasoline and food really matter. Consumers know these items are taking a bigger and bigger bite out of their paychecks. The effects are starting to show as consumer spending becomes strained. For example, Wal-Mart has been complaining for some time about higher gasoline prices weakening their customers' purchasing power. It turns out some of those customers are making up for this by resorting to the 5-finger discount. Wal-Mart is getting fed up with the increased levels of shoplifting activity it is seeing, so it announced plans to be more aggressive about prosecuting violators.

In the meantime the housing market continues to implode and foreclosures keep rising. Even S&P and Moody's have finally figured out that sub-prime mortgages are indeed risky. Housing prices are falling nationwide. Of course, the high-end of the market will probably fare well. But average prices are likely to fall enough to put some homeowners in a negative equity position.

As for jobs, so far so good. The economy is still creating jobs and the unemployment rate remains low. Nonetheless, incomes are not doing so hot. According to the Commerce Department, inflation-adjusted incomes actually fell in May. Of course, that's using overall inflation, which includes those volatile gasoline and food prices. Those of you who are lucky enough not to have to drive or eat, well it turns out you're doing pretty well!

More Worrying Signs of Market Weakness

Yesterday the Fed said it would hold the fed funds rate steady at 5.25%. This was widely expected. But market traders were placing bets on the wording of the statement. They said if the Fed took "elevated" out when referring to inflation, we would see a nice rally. The dreaded word is gone, yet the Dow finished slightly lower for the day.

The Blackstone Group was one of the most highly anticipated IPOs in recent times. It went public last Friday. The offering price was $31 per share. As commonly happens with an IPO, the stock opened much higher. It finished the first day of trading at $35. That's considered a success. But the stock has closed lower every day since. Just two days later, it was selling below the offering price. That's considered a miserable failure. Compare Blackstone to Google, which never sold below its offering price.

In recent periods, investors were reacting positively to all news. Good news was considered grounds for a rally. So was bad news. But now there seems to be more skepticism in the markets. Even on days when stocks initially rally, they later give up much of the gains. This bull market is losing its steam.

Speculating on a Microsoft and Yahoo! Deal

Google (GOOG), one of my favorite overvalued stocks, is a great company. It dominates internet search and makes a bundle selling ads. Microsoft (MSFT) and Yahoo! (YHOO) haven't been able to compete. Will they finally team up to beat Google?

This is pure speculation, but there is reason to believe that Microsoft and Yahoo! will be cooperating more closely in the near future. Yesterday, Yahoo! announced that CEO Terry Semel is resigning. He is being replaced by founder Jerry Yang. But the most interesting part of the management shake-up is that CFO Susan Decker is being promoted to president. The media is already speculating that one day soon Decker will be named Yahoo!'s CEO.

Decker's promotion is key to a Microsoft deal. I say this because Decker was recently appointed to Berkshire Hathaway's board of directors. Warren Buffett's board also includes Microsoft founder Bill Gates. This arrangement will give Decker and Gates plenty of opportunity to get to know one another much better. They will primarily be discussing Berkshire business at Berkshire board meetings, but you can bet they will also have lots of time to strategize about how Microsoft and Yahoo! can work together to battle Google.

Enlightened Leadership Should Encourage Guidance

Here we go again. The latest attack on quarterly earnings guidance comes from the Aspen Institute, a non-profit organization that according to its website is "dedicated to fostering enlightened leadership and open-minded dialogue." Promoting the elimination of guidance, however, is anything but enlightened. So in the hope of fostering some dialogue, here is my argument against eliminating guidance.

There is a widespread misconception that earnings guidance is bad because it causes investors and corporate executives to focus on short-term results rather than the long term. While no one doubts that running a corporation with the long term in mind is the better approach, it is wrong to believe that guidance is the problem. Investors certainly do focus on quarterly earnings numbers, but not because corporations give out guidance. They focus on quarterly results for only one reason--the SEC requires corporations to report results on a quarterly basis. It is because of this SEC requirement that investors form quarterly expectations. If the SEC told corporations to report results on a monthly basis, investors would form monthly expectations. This has nothing to do with guidance. Eliminating guidance will in no way stop investors from forming expectations.

Guidance is valuable information. After all, who knows better what a corporation is likely to earn, a bunch of Wall Street analysts or the corporation's own management? If guidance is not provided, analysts' earnings estimates will simply become more inaccurate. Earnings surprises would become bigger. By the way, there are at least two academic studies in circulation that prove this point. And in an era in which regulators are trying to promote more disclosure, how much sense does it really make to tell corporations to stop providing guidance?

The truth is that those who want to end guidance are upset about the volatility that occurs when corporations miss the earnings estimate by just a penny or two. They believe the ensuing sell-off is unjustified. They are probably right about this. However, instead of grabbing the opportunity to buy more shares at a lower price, as any self-respecting long-term investor should do, they want to eliminate volatility by eliminating guidance.

Furthermore, if they would really like to see a greater focus on the long term, perhaps they should petition the SEC to eliminate quarterly reporting altogether. There was a time when corporations had to report results just once a year. However, many corporations reported quarterly results long before a change in the law required them to do so. They did this for one simple reason: their investors demanded the information. This is exactly why corporations provide guidance. If investors want quarterly guidance, should we not be encouraging corporations to provide it?

Interest Rate Sell Off

Stocks are selling off as the yield on the 10-year note climbs. At last look, it's standing at 5.26%. Just a couple of months ago, it was down around 4.5%. My expectation that interest rates would rise was one reason I cited for my bearishness on stocks in the June 18 issue of Forbes magazine.

Many economists have been betting that the Fed would cut short-term interest rates. I've been saying that what the Fed does is largely irrelevant. The yield on the 10-year note is much more important. I believe the Fed was hoping that the 10-year yield would rise so it would not have to raise short-term rates anymore. Now that it has, the Fed can breathe more easily.

The Fed's next opportunity to change rates comes on June 28. Now that the yield curve is cooperating with its wishes, my guess is that the Fed will take no action. The higher 10-year yield will keep a lid on inflation by keeping the economy from overheating. The bigger risk right now is too much of an economic slowdown.

Here Comes the Bear

The June 18 issue of Forbes magazine contains my column explaining why I am bearish on stocks. Although Google is one stock I panned, it just keeps going up. I firmly believe that the growth rate assumptions built into Google's valuation are unsustainable. After all, if Google's growth doesn't slow, it will eventually own all the assets in the world. When a high growth firm realizes that growth is slowing, it often starts acquiring other high growth companies. That often ends in trouble. Google seems to be going down this path.

The two other stocks I panned, Starbucks and Whole Foods, are already showing signs of weakness. I've been bearish on Starbucks for a while--largely because of rising gasoline prices. I just don't see how anyone but the very rich can afford to buy $5 lattes on a daily basis.

Giving Thanks to the Military

I'm spending the week in Carlisle, PA at a National Security Seminar at the U.S. Army War College. Civilian guests such as myself have been put into small seminar groups that consist primarily of military officers from all the various branches. The groups also include a small number of officers from select foreign nations. We've been debating all kinds of issues from the war in Iraq to the economy. The experience has been absolutely outstanding. I would say that the most surprising--and pleasant--thing I have discovered is the tremendous degree of independent thought and diversity of opinion that exists in the military. While I have always held in high esteem those who serve our country through military service, my respect for them has grown tremendously. It is extremely comforting to know that our military ranks are filled with so many intelligent individuals. Knowing how much these people sacrifice for our country, I can't help but feel a little ashamed that I have never served in the same way.

All News is Good News

The market is in one of its euphoric phases where all news is good news. Gasoline prices set all-time highs and stocks rally. Oil prices go higher and stocks rally. The housing market shows signs of falling apart and stocks rally. GDP growth all but disappears and stocks rally. The yield on the 10-year note closes in on 5% and stocks rally.

In fact, other than a fairly robust jobs market, there really isn't a lot of good news out there. Yet investors keep pushing stock prices higher. As I explain in the new issue of the Forbes Growth Investor, demand for shares is strong thanks to private equity firms, M&A activity, and share buybacks. And in my column in the June 18 issue of Forbes magazine, I explain why I'm bearish on the market. I also pan some stocks that I think could get hurt when consumer spending slows.

Gasoline Above $3.20 Per Gallon

According to the AAA, the national average price for a gallon of gasoline broke through $3.20 per gallon. This is an all-time high even on an inflation-adjusted basis.

I have been interviewed on MSNBC at least a half dozen times in recent weeks about rising gasoline prices. I have to admit, I am surprised by the extent of this increase. I thought we might see about $3.10 or so, then slide back down. The fact that we're still going up tells me that drivers don't yet feel the pain. Demand for gasoline is actually rising despite the higher prices. Prices will keep rising until drivers start making adjustments. For example, if they are convinced that high prices are here to stay, they will consider buying more fuel-efficient cars. But as long they are willing to drive SUVs, and long as demand for gasoline goes up, that tells me prices are not too high.

What about supply? Some say refiners need to produce more gasoline. Perhaps they could have done a better job maintaining refineries and making the seasonal switch to summer blends, but they are not likely to invest in more capacity. If you were a refiner would you be keen to invest $2 billion or so and several years building a new refinery when you know you will have to battle regulators and environmentalists? Furthermore, you see that our government is promoting and subsidizing alternative fuels such as ethanol. After investing all that time and money to build a new refinery, you might find there is too much gasoline on the market and not enough demand. Before you know it, gasoline prices may go much lower and your investment will provide no payback.

In the short term, our best hope for more supply is imports. As a result, we will become dependent on foreign gasoline as well as foreign oil. The alternative is to get serious about cutting demand. The best way to do this is to put a high floor on gasoline prices. However, just about all politicians are looking to do the opposite. They want to find ways to decrease price rather than increase it.

Nonetheless, it looks like consumers will have to adjust to higher prices whether they like it or not. The long-predicted effect on consumer spending may finally materialize. Companies like Starbucks and Whole Foods that sell overpriced and unnecessary goods might find that growth will slow. These two stocks have already fallen well off their highs. Chances are they will go lower still.

The Bearish Case

Last week on Kudlow & Co. on CNBC, I explained why I am bearish on the markets. It boils down to three things: 1) Slowing earnings growth, 2) Rising interest rates, and 3) Higher taxes.

There is no question that earnings are strong. Corporations have been doing great. Those that do a significant amount of business abroad have been doing particularly well. Some of this is due to strong foreign economies, but much of it is due to a weak U.S. dollar that keeps weakening on a regular basis. More importantly, however, corporate earnings growth is actually slowing. Furthermore, the growth in net earnings is significantly less than the growth in earnings per share. This is because of all the share buybacks going on. Corporations know investors focus on EPS. They also know they can easily boost EPS by buying back shares. I will interview S&P's Howard Silverblatt about earnings tomorrow. This MoneyMasters interview will be posted on Forbes.com on May 17.

Interest rates are a bit more interesting. I actually think there is a better chance the Fed will lower rates than raise them. But as we've learned in recent years, what the Fed does has little influence on the longer end of the yield curve. GDP growth has slowed considerably, and the most recent employment figures were disappointing. Results like these should make the Fed feel more comfortable about lowering interest rates. However, I continue to worry about rising energy prices. Gasoline prices are near an all-time record. Although I expect them to back off a little from this level, they certainly aren't going to plummet. Eventually they will feed inflation causing the yield on the 10-year note to rise. Furthermore, I also believe credit spreads will widen.

Finally, there are taxes. I often laugh when I hear liberals rail against the Bush tax cuts. I really haven't noticed any tax cuts. When you factor in my state and property taxes, and the fact that I can't deduct these on my federal form because of the AMT, my taxes have risen quite a bit. And now that the Democrats control Congress, it's pretty much a sure bet that taxes will not be going lower. Even if the Republicans manage to hold onto the White House, the best we can hope for is a veto of any tax increase. Don't hold your breath for a cut.

So why do stocks keep going up? Investor sentiment has a lot to do with it. That's really all that matters in the short run. Add to that hedge funds using lots of leverage, private equity firms buying public companies, the new merger wave, and all those share repurchases. The demand for stocks is greater than the supply. This may go on for a while, but it won't last over the long term.

Investment Newsletter Performance

Subscribers to my investment newsletters sometimes ask exactly how well our recommendations are doing. They don't have to take my word for it because our performance is regularly monitored by the Hulbert Financial Digest, which also tracks the performance of almost 200 other investment newsletters. According to Hulbert, the Forbes Special Situation Survey (SSS) returned 26.5% (excluding dividends) over the year ending March 31, making it the third-best performing investment newsletter during that period. In comparison, the Dow Jones Industrial Average gained just 11.2%. What’s more, if you compare us to newsletters that focus only on domestic equities like we do, we are actually No. 1.

Furthermore, SSS has been consistent over the long term. Ever since Hulbert began tracking us in January 2002, we have produced an annualized return of 14.6%. The annualized return on the Dow during the same time is only 4.1%. It is true that a handful of newsletters managed to beat us, but at least some of them relied on the use of margin, short selling, or derivatives. Their performance is not necessarily due to good stock picking. It can be explained at least in part by market timing and the use of leverage. In contrast, SSS does not assume that subscribers buy stocks on margin or employ other kinds of strategies. Our returns are solely the result of stock-picking ability.

The Forbes Growth Investor (FGI), which relies on a quantitative, momentum-based model also did well, significantly outperforming the market averages since Hulbert began tracking it. It has produced an annualized return of 9.0% since January 2002. Because this newsletter has a diversified recommended list of 50 stocks, it tends to be less volatile than SSS.

We credit these outstanding results to our disciplined screening process. Most importantly, for SSS, we rely on our proprietary discounted cash flow (DCF) model. We are sometimes told that our model is not realistic. This is absolutely true. Indeed, our model is overly conservative. For example, if we believe a company can realistically grow revenues by 10% each year, we might model only 5% growth. If we believe the operating profit margin is likely to be around 15%, we might model only 10%. We do this because we are not trying to determine what a stock is actually worth. Instead, we are trying to determine what it is worth at a minimum. In other words, our methodology is designed to find reasons not to recommend a stock. However, if despite all our conservative assumptions we derive a minimum intrinsic value that is greater than the stock’s market price, that stock becomes a candidate for recommendation.

It is interesting to note that Warren Buffett, perhaps the greatest investor of all time, also relies on a DCF methodology to determine a company’s intrinsic value. He points out, however, that two analysts using this methodology will rarely derive the same intrinsic value. This is because DCF analysis is as much art as it is science. It is prone to error because it requires making assumptions about the future. It is precisely for this reason that we try to make our assumptions as conservative as possible.

DCF analysis does not always work. For example, during the dotcom boom of the late 1990s stocks that DCF analysis flagged as overvalued continued to go up. This was because of overly optimistic investor sentiment. Barring such unusual periods, we believe a conservative DCF approach is the best way to pick undervalued stocks over the long term.

For FGI, we rely on a proprietary quantitative model. This product is more short-term oriented and puts a lot of weight on price and earnings momentum.

China vs. India

This is the final day of the Forbes cruise. We are actually pulling into Hong Kong at the moment. I see a lot of mountains and many beautiful tall buildings. I will spend one more night on the ship then fly back to New York tomorrow afternoon.

Jim Michaels, former Editor of Forbes magazine, moderated a spirited discussion yesterday about the merits of investing in China and India. John Dessauer, who travels to China frequently, was not keen on investing there. He thinks there is insufficient transparency. He would not even recommend buying ADRs of Chinese companies. He prefers to invest in large U.S. conglomerates such as Citigroup and Wal-Mart that are conducting business in China. But Arjuna Mahendran was willing to pick a few Chinese stocks. He particularly favors oil company CNOOC. Warren Buffett also likes Chinese oil, but he prefers PetroChina.

Despite all the excitement over China, Jim Michaels thinks India offers better opportunities for investors. He said the Chinese are focused on manufacturing low-cost items, but the Indians are specializing in high-skilled services.

Bulls on Board

Forbes magazine Publisher Rich Karlgaard started off the 11th Forbes Cruise for Investors this morning with an excellent presentation. He said Americans seem to hate a good economy, but that’s a good thing for investors because it keeps expectations low. He pointed out that there is a correlation between one’s view of the economy and one’s view of President Bush. He also talked about the media and how it tends to lean left and focus on the negative. He even made some predictions about real estate. He said the gap between real estate prices on the coasts and prices in the interior is greater than it has ever been. He believes that baby boomers will increasingly retire to interior regions of the country. He favors college towns in low tax, non-union states.

John Dessauer spoke next. He was extremely bullish about the stock market. He sees stocks going much higher primarily because of corporate earnings growth. He says stock price appreciation has lagged earnings growth rates. Therefore, he believes it will require a strong rally in stocks to straighten things out. According to Dessauer, those who warn about slowing earnings growth are simply wrong.

In addition to the presentations, the cruise has been wonderful. As usual, the food is great. However, the seas have been extremely rough the last couple of days. Running on a tread mill was all but impossible. I finally had to give up after half a mile. In fact, most people look drunk simply walking around on board trying to keep their balance.

Cho Was Purely Evil

Now we know his name. Cho Seung-Hui is the Virginia Tech student who in just a flash of time killed 32 innocent people, injured 14 others, and disrupted the lives of tens of thousands. He was a loner who talked to no one and had no friends. Today he is world famous and will never be forgotten by the loved ones of those he killed. By the time the media is through, we will know all his deepest and darkest secrets. And we will hear all the experts theorize about what went wrong and how an immigrant Korean child could grow up to become one of the greatest evil doers in American history.

Just a couple of days ago I briefly wrote about my favorable impression of Koreans. I have no doubt that Koreans all over the world are absolutely shocked by Cho’s crimes. I am sure many are now feeling shame and trying to understand how one of their own could have done so much evil. This is nonsense. Cho was not one of their own. He was not one of anyone’s own. The fact that he was of Korean descent is about as relevant as his height or his weight or the color of his hair. This guy was pure evil. And as we know, evil comes in all colors, lives in all countries, and practices all religions.

Investing Like Buffett

The 11th Forbes Cruise for Investors continues. Today we heard from Marilyn Cohen, a fixed-income specialist who also writes a regular column in Forbes magazine. We also heard from Arjuna Mahendran, Chief Strategist Asia Pacific at Credit Suisse. Both made excellent presentations. I also gave a presentation, which focused on my research on Warren Buffett. For the past several months I have been writing a book about Buffett. While there are a number of books already in publication, they are all “love” stories. I believe my book is the most objective one by far. While I criticize Buffett for advocating certain views that I believe hurt investors, I also conclude that he is clearly the greatest investor of all time. My respect for him has grown immensely since I began this project. If all goes according to plan, the book will on the market by next spring.

Horror in Blacksburg

I’m on the high seas cruising from Osaka to Hong Kong. I woke up Tuesday morning at 5:00 am our time (which was 5:00 pm Monday in New York) and turned on the television to find out how the stock market had done. Instead, I was horrified to hear news of what was being called “The Virginia Tech Massacre.” I was stunned. I spent five years of my life studying at Virginia Tech where I earned two graduate degrees. Blacksburg is one of my favorite places in the whole world. I absolutely love it. I also considered it one the safest places to live. I couldn’t believe this kind of horrible tragedy could occur in such a wonderful place. I extend my deepest sympathies to the families and loved ones of all the innocent victims of this terrible crime.

Polite Societies

I'm in Osaka, Japan. I just boarded the Crystal Symphony for the second half of the 11th Forbes Cruise for Investors. I arrived Saturday evening, which of course, was Saturday morning in New York. I'm still jet-lagged.

I haven't been in Asia long, but I have made a number of observations. Let me start with the flight. I took Korean Airlines from New York to Seoul then changed planes for Osaka. The service was outstanding. The stewards and stewardesses were wonderful. The food was as good as anything you would expect to find in a fine restaurant. I had steak for lunch and an arrangement of seafood wrapped in phyllo dough for dinner. I had a second codfish dinner on the flight from Seoul to Osaka. Both planes were Boeing 747s. Since I flew business class, there was plenty of leg room. The seats reclined to an almost horizontal position, making it much easier to get some sleep.

Getting from Kansai International Airport in Osaka to the Westin Hotel was easier than I expected. The airport is not near the city and I heard cab fare runs around $200. So I took a bus to the New Hankyu Hotel and a taxi from there to the Westin. That cost about $25 in total. The Westin was very nice, but there was no wireless Internet access and no wired access in the rooms. The next morning I had a delicious traditional Japanese breakfast. I'm not exactly sure what I ate, but I do know there was a lot of seafood involved. In any case, I really liked it. I've had plenty of sushi back home, but this was the first time I ate a real Japanese breakfast. By the way, the tea was excellent. It was much better than what I've had in typical Japanese restaurants in American.

After breakfast, I returned to my room and read The Daily Yomiuri, an English-language newspaper. One story really caught my attention. It turns out that "more than 400 Osaka municipal government workers lied about their academic backgrounds when they applied for posts designed for workers who had only graduated from high school or middle school." That’s right; these people actually denied having graduated from college! I've heard plenty of cases of people embellishing their resumes in order to secure better jobs than they were qualified for, but these workers had done exactly the opposite. They had purposely downplayed their qualifications. Either finding a job in Osaka is very difficult, or this is a society that suffers from an extreme case of humility.

Perhaps the one thing that strikes me most about the Koreans and Japanese is how incredibly polite they are. I realize my perception may be skewed. After all, I was primarily exposed to people working in service industries. They are required to treat customers nicely. But the workers here seem to be in a league of their own. Of course, we are all aware of what happened to all those manufacturing jobs that used to be found in the U.S. If customer service jobs could be outsourced as easily, I'm not sure what kind of work would be left in America.