Vacation Do-Overs in Europe

European VacationOn June 28th, Americans anxiously awaited as the Supreme Court ruled on Obama Care. In Europe, a week earlier, all eyes were on the European Court of Justice. Their case did not concern health care; rather it concerned vacation time, a topic near and dear to Europeans.

The European Court of Justice ruled last week that workers are entitled to additional paid vacation time if they don’t feel well during their original vacation. Amazing.

The question had originated in Spain, where trade unions sued for the vacation do-over allowance some years ago. The European court upheld the right throughout the EU, stating that “the entitlement to paid annual leave must be regarded as a particularly important principle of EU social law; a principle enshrined in the EU Charter of Fundamental Rights, and thus cannot be interpreted restrictively.”

Vacation do-overs add to the EU minimum of 20 paid days of vacation per year and this doesn’t include national holidays, EU mandated weekends, breaks and other additional time off. It’s even better in countries like France, where the minimum is 25 paid days per year and you get an extra 10 paid days if you work a 39 hour week instead of a 35 hour week. In addition, Europeans accrue vacation time while they are on sick leave. Hence, they could end a long recuperation period by going on paid vacation.

The EU Court decision comes at a time when the rate of unemployment in Spain is 25% and Europe is in the midst of an economic crisis. Perhaps the leaders of Europe need to take a look at the EU Charter of Fundamental Rights. Seems some changes might be needed there if Europe ever hopes to return to strong economic growth in the future.

The Big Mac Index: Tracking Worldwide Standards of Living

Big Mac indexA Big Mac has 540 calories and 29 grams of fat. It also contains important economic information that The Economist and others use to compare international prices and wages.

In January, a Big Mac cost $6.81 in Switzerland, $4.20 in the U.S., $2.44 in China, and $1.96 in India. The hourly wage at a McDonald’s (“McWages”) in each of those countries was $15.00, $9.24, $1.46 and 78 cents, respectively. Economists divide the cost of the Big Mac by the McWage to get “Big Macs per Hour” or BMPH in comparing countries. In the U.S., Canada and Western Europe, our BMPH is 2.2 (hourly earnings at a McDonald’s are 2.2 times the cost of Big Mac). In China the BMPH is .6 and in India only .4. So, in India, McDonald workers would have to work 2 ½ hours just to be able to buy a Maharaja Mac (made of chicken, not beef.) These numbers change over time and that’s what the economists are tracking.

The Big Mac Index was started in 1986 to attempt to track “purchasing power parity (“PPP”)” used to evaluate market exchange rates, currency valuations and cost of living changes across the globe. Mc Wages and Big Macs were selected because they are uniform and ubiquitous. Sandwiches are produced worldwide according to a rigidly uniform process detailed in a 600 page manual. Identical burgers are produced in every city. This produces an ideal environment for global productivity comparisons. BMPH represents a PPP-like calculation of the real wage, taking account the local cost of goods.

The Big Mac Index demonstrates the vast gulfs in worldwide productivity and standards of living. The gaps are in fact shrinking. In the U.S., our BMPH was 2.4 in 2007. Now, the McWage is up 26% in four years, but the cost of the Big Mac is up 38%, partially due to increases in food prices. The net 9% drop in our BMPH is one sign of a reduced overall standard of living. In Russia, the BMPH increased an astounding 152% from 2000 to 2007 and has increased another 42% from 2007 to 2011. China has had increases of 60% from 2000 to 2007 and another 22% from 2007 to 2011. India saw a large increase of 53% from 2000 to 2007 but their BMPH declined by 10% from 2007 to 2011. It’s no surprise that more progress in standards of living was made by the BRICs and other developing countries from 2000 to 2007 than from 2007 to 2011.

Yes, our BMPH has gone down slightly here in the U.S. over the last decade. Even so, we’re still the envy of the entire world, by far. Time to celebrate- with a Big Mac and fries.


Barron’s: “Investors Moving To Alternative Mutual Funds”

Alternative mutual fundsInvestors like hedge-fund strategies to manage portfolio risk. What they don’t like are the fees, lack of transparency, illiquidity, high minimums and lockup periods of hedge funds. Enter liquid alternative (“LA”) mutual funds. Assets in LA funds have grown three-fold in the last four years, while hedge fund assets have declined by 40%.

The Morningstar and Barron’s Alternative Investment Survey of U.S. Institutions and Financial Advisors identifies trends in alternative investing. Responses this year, as reported by Barron’s on May 26, 2012, show that “advisers are increasingly using mutual funds to get at alternative strategies and asset classes.” The report continued, “Investors are increasingly interested in anything not correlated with the stock and bond markets.These (LA) vehicles are viewed as a way to deliver additional, or even outsize, returns over conventional investment strategies.”

Barron’s report is no surprise to us. DWM was one of the early adopters of LA fund strategies. Back in early 2008, we encouraged clients to consider reducing their exposure to equities and substituting non-correlated, liquid alternatives. Many of these LAs held their ground in 2008 while equity funds suffered losses of 30% or more. We felt then as we do now- a traditional portfolio of stocks and bonds is not the answer alone. If your first goal is to protect your assets and the second to grow them, we suggest incorporating an appropriate mix of non-correlated LA investments to your portfolio.

The picture above represents a possible allocation for the DWM LA basket. It was established for the investor seeking less volatility and more absolute-type returns than the equity market. Holdings may include arbitrage funds, global tactical allocation funds, and market-neutral funds, among others. The model follows a “low beta” approach.  Low beta means returns that have little correlation to market risk and results. That being said, when there is a bull market, the performance of the model will most likely not be as great as a 100% stock portfolio. However, in a bear market, the model is geared to protect the downside.

The funds within the DWM LA portfolio are chosen to complement one another and together create a very powerful portfolio that can potentially excel in any market environment. We constantly monitor this dynamic LA area for offerings that may represent new opportunities for the DWM LA model and its investors.

Welcome aboard, Barron’s. It’s great to see a major, traditional investment publication recognizing the growth, value and importance of liquid alternatives.

Smartphones Are Changing Retailing

Smartphones: in store vs online shoppingAmazon began the current retailing revolution 17 years ago as an online bookseller. Today, hand-held devices are on the verge of disrupting what’s left of the in-store experience.

The Pew Research Center’s Internet & American Life Project is tracking how our habits are changing thanks to the powerful computers in our hands. During the last holiday season, Pew reported that 38% of cellphone users called a friend about a purchasing decision, 24% used their phone to review products and 25% used their phone to compare prices, all while they were shopping in a store. Ultimately, 37% of these shoppers decided not to buy, 19% bought online and 8% went elsewhere.

Cellphone users’ behavior goes beyond bargain hunting. Mara Devitt of retail consulting firm McMillan Doolittle says, “Consumers with cellphones don’t look up. They’ll be texting a friend (who may be next to them) or obtaining information and not looking around at traditional displays and signage.”

Amazon launched its new Price Check app in December with the tagline, “Ever wonder if the ‘deals’ you see while shopping in retail stores are really deals?”  In fact, Amazon offered customers $5 off their next Amazon purchase if they simply scan in the item of their choice at the store and get an immediate price comparison. This type of “e-tailing” caused Best Buy to close 50 of its largest stores in March.

Target, JCPenney and others are fighting back. They have created mobile apps that allow shoppers to download coupons right at checkout. In addition, they’ve put the squeeze on suppliers and are considering more membership-based pricing models to better compete.

Overseas, bricks and mortar shopping may be disappearing altogether. Tesco, a retailing giant in South Korea, is using subway ads that feature photos of dozen of products along with their bar codes. While waiting for their trains, shoppers can scan the barcode, make a purchase and have the item on its way to their house.

Even so, stores are not dead, says McMillan Doolittle’s Devitt. “People need to touch some merchandise, to get out of the house, and get something now. Stores with smart people can overcome apps.”  The Apple Store is a good example.  Shoppers go there to interact with the help. And grocery chain Trader Joe’s has some great checkout people, adding value to the shopper’s experience at the store. You don’t get that on a smartphone. At least, not yet.