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Jake Huneycutt
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Jake Huneycutt is a Portfolio Manager, Investment Author, and Entrepreneur. From 2009 to 2014, he provided long / short SMAs for high net worth individuals generating 18.2% gross annual returns compared to 13.0% returns for the S&P500. He did this on a shoestring budget and with lower... More
My company:
Huneycutt Capital + Research
My blog:
The Contrarian Value Investor
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  • How Minimum Wage Imposes Heavy Costs On Skill Acquisition

    The city of Berkeley, CA is now considering raising its minimum wage to $19 per hour. This is after Seattle's disastrous $15 minimum wage hike. We also now have a major party Presidential candidate lobbying for a $15 minimum wage in spite of historically weak teenage employment. It may sound like an exaggeration, but I'm starting to think that minimum wage is America's unique form of communism.

    In every instance, minimum wage hikes are being spun as a way to allow people to "earn a living", but in reality, sky-high minimum wages are likely to result in more poverty long-term. Puerto Rico is a classic example of how government mandated wages can produce this result.

    The problem with minimum wage policies is illustrated quite simply. Which is the better option for a low-skilled teenager from a poor family? Taking a job making $2 per hour earning a valuable skill or going into debt to pay for college at a rate of $10 per hour to acquire the exact same skill? Think about that for a second.

    By raising minimum wage, we're not "giving America a raise" as it's often spun. Rather, we're imposing higher costs on skill acquisition and that will be extremely detrimental to the poor. It means the only option to gain basic skills is through college or trade school; yet these options are typically expensive and require job-seekers to take on large debt loads before they can ever find employment. The real choice, then, is not between "low wages" and "high wages", but rather between "low wages" and "negative wages."

    The detriments of minimum wage are further highlighted by many of America's rags-to-riches stories. Take Milton Hershey, for instance. Hershey worked for low wages for years learning his craft, before eventually (after many setbacks) becoming one of the most successful entrepreneurs in American history. It's difficult to imagine a Milton Hershey ever learning his craft, though, in an America where minimum wage is $15 or $20+ per hour. No small business owner could afford to hire a low-skilled helper like Hershey in his early years.

    As someone who grew up in a lower income household in rural Appalachia, I can testify directly that I could not conceivably be where I am today if minimum wage had been set at $15 or $20 per hour in the late 90s or 00s. I had to work for several years and save up to create my opportunities. I may not have been employable at all till I was 24 years old; and it would've been more difficult to find a job at that point because I would not have had any experience anywhere. It's for this reason that sky-high minimum wages could create a permanent American underclass.

    There are many troubling economic trends in the United States right now, but the zeal for minimum wage hikes strikes me as being one of the most irrational. The higher the minimum wage, the higher costs we impose for skill acquisition on low- and middle-income Americans. The higher the costs of skill acquisition become the less class mobility we will see.

    For these reasons and many more, the correct minimum wage is $0.

    Sep 28 6:05 PM | Link | 3 Comments
  • Economic Thoughts, July 2015

    A few quick economic thoughts for July 2015:

    (1) China's crashing stock market is the least surprising thing in the world. However, the idea that it will impact the US economy significantly is inaccurate IMO. The collapse of the Japanese Asset Bubble in the early 90s had very little impact on the US economy and this is analogous to that.

    (2) Greece's problems are no surprise either. Once again, don't expect it to have much impact globally. The bigger story IMO is that the Italian government is being propped up by the European Central Bank and that will result in declining long-term growth in Europe.

    (3) The biggest threat to the American economy right now: Donald Trump. No exaggeration. Trumps wants to start a trade war with Mexico and China that will likely be a total disaster. Trump's policies are very similar to those that led to the Great Depression. The scary thing is that he's surging in the polls.

    (4) In spite of all the negatives globally, I'm starting to find some very attractive investments again --- mostly in the energy sector. Not that dissimilar from 1999 when a lot of energy and mining related stocks were dirt cheap in spite of the overall market being grossly inflated.

    (5) The perception of risk in the US financial sector is greatly exaggerated. If anything, US housing prices are still subdued right now as a result of Dodd-Frank. Moreover, almost all the major US banks are significanlty better capitalized in 2015 than in 2007. I view the US financial sector as one of the safer areas to hide right now; the exact opposite scenario as the one we saw before the last crash.

    Jul 10 2:21 PM | Link | 1 Comment
  • The UK Elections: A Union Divided

    The UK Parliamentary elections are being held today and it's one of the most interesting UK elections I can recall in my lifetime. It's one of the more difficult elections to predict, as well; the increasing elements of regionalism are pushing the UK towards a coalition system.

    Some thoughts on the election and contemporary currents in the UK:

    (1) David Cameron has arguably had one of the more successful terms as Prime Minister. The UK economy has fared much better than its continental peers and Cameron's coalition deserves some of the credit. Nevertheless, Cameron faces a significant chance he'll lose re-election as Prime Minister.

    (2) The Scots are set to overwhelming vote for the Scottish Nationalist Party. It's main mission is Scottish independence. This is strange because the Scots just rejected Scottish independence a few months ago. Ultimately, I feel like the UK would be better off without Scotland. Scottish socialism is a significant drag on England and London. I say this as a man with deep Scottish heritage and whose family celebrated its "Scottishness." I love Scotland but its contemporary politics are delusional and dysfunctional.

    (3) There's a possibility that this election leads to no governing coalition. The Conservatives are unlikely to have a majority and most of the minor parties are more likely to align with Labour. Labour is reluctant to align itself with the SNP, which will alienate its core English constituencies. The Liberal Democrats will likely be king-makers, but it's possible that even they are unable to create a majority with either party.

    (4) The left-leaning, but free market-oriented, Economist endorsed David Cameron for re-election. This speaks volumes on the direction of Labour. The Economist almost always favor center-left politicians. Their Conservative endorsement is a rebuke of Labour's creeping shift back towards socialism.

    (5) A Labour victory would have negative repercussions in my view. The UK and France have taken divergent paths since the election of Margaret Thatcher and the UK has been the clear winner. In the 1990s, Labour shifted to become a more middle-of-the-road party. Now, it's moving back towards its socialist brethren in continental Europe. Moreover, any coalition with the SNP would likely include calls for very radical economic reforms that could weaken the UK economy.

    (6) FiveThirtyEight has made its predictions on the UK election. It currently shows the Conservatives as likely to win a plurality of the seats. However, it also shows that a potential Labour-SNP coalition would hold more seats than a Conservative-Liberal Democrat coalition. If FiveThirtyEight is right, I have to think that Ed Milliband will be the UK's next Prime Minister.

    (7) Personally, I think the best solution to a "divided union" in the UK is further devolution. Not only should we see more devolution in Scotland, but England, Wales, and Northern Ireland, as well. But as most of us know, what's "best" is rarely what happens.

    That's I have on the UK. As to whether it will impact the markets, my answer is that it always does in the long-term, but the short-term impact is normally small. However, there is a possibility that a Labour-SNP alliance could result in a bit of a short-term hit, as well.

    May 07 8:50 AM | Link | Comment!
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