Good Luck New York! Hope Those Gun Laws Work Out for You...

While reading this, please keep in mind that the number of guns in the US has increased each and every year since at least 1965.  Furthermore, it is estimated that the number of guns in the US is increasing at a faster rate than population such that now we (probably) have more guns than people. Read on...

New York became the first state to pass gun control legislation since the Newtown murders.  Obama has made it known that he is signing executive orders to ... follow the laws that were already passed.  Meanwhile he is also trying to get Congress to pass some of the same stuff that New York did.  In a nutshell, New York is requiring the registration of existing assault weapons and banning their sale and transfer, and limiting magazine capacity to 7 rounds.  Plus all of the grandfathered 10+ round magazines are no longer grandfathered, but must be disposed of within a year.  All of this to decrease gun crime and make everyone safer.  Of course, the law makers don't realize that they already had an AWB ban (the new one makes it a one cosmetic feature test rather than a two cosmetic feature test - and I am not being sarcastic about that, they are cosmetic features which do not affect the firepower of the rifle at all) and a magazine limit left over from the Federal AWB and magazine limits which expired in 2004.

First point to understand.  Rifles are used in very few murders throughout the country and especially so in New York.  Based on FBI statistics, all rifles (of which assault weapons are a subset) are used in about 1% of murders.  There is enough variability from year to year that I can guarantee no affect to crime will be measured - because none can be, which is what was found with the last assault weapons ban.

Second point to understand. Magazines are used in handguns and handguns are used in the majority of murders.  However, the vast majority of murders only have one victim, and the vast majority of the time, that victim is not shot more than 7 times. (Shots tend to attract attention and most criminals don't like to draw attention to themselves in the process of committing a crime.) I make these statements without citing evidence, because I haven't come across a source for this evidence.  Which makes my statements just as supported as anyone who arbitrarily chooses a number that is going to make us safer and reduce crime. So, even if criminals decided to obey the magazine law, the law is not going to hinder them from carrying out their plans.

But, I like to see some sort of evidence to support my position, so I went and gathered data from the FBI Uniform Crime Reports.  Since gun control laws are suppose to decrease gun crime, they should have a noticeable affect on the murder rate because approximately 70% of murders are committed with guns.  The FBI has statistics going back to 1965 for NY.

Some things to learn from this graphic.  First, in spite of the murder rate being 1/100 of overall violent crime rate, it is a very good proxy for what the violent crime rate is doing.  The increases and decreases line up almost perfectly.  In most cases the relative magnitude between periods is fairly uniform as well. Except that crimes committed with guns are a minority of violent crimes, only around 20% of violent crimes are committed with guns. If the availability of guns is a contributor to crime, then murder and violent crime should not be so closely correlated. Some other factor or factors have to be the impetus behind violent crime (and therefore gun crime).

Second, on the graph I have listed the major gun control legislation with bars indicating when it was in effect.  If gun control were effective at reducing gun crimes, then we should see a drop in murders that is relationally 3 times the drop in violent crime when new gun control is implemented. We don't.  In some cases we see the exact opposite.  After the 1968 Gun Control Act, murders went up, but violent crime went up even more.  One could argue that gun control in this case resulted in more crime and more murders, not a good thing in either case.  In 1986, FOPA passed and violent crime and murders both went up again, with violent crime again outpacing the increases of murder.  More evidence that gun control had no positive effect on our crime rates. In 1994 AWB were passed and crime went down.  But violent crime (remember only 25% of it involves guns), went down proportionately more than murder rates did.  Of course there were other provisions to this bill so perhaps they were the major contributors. Except that crime rates and murder had already been decreasing for 2-4 years prior to the passage of the bill, so maybe there wasn't anything to this bill (which is what the government found when they studied the issue).  Finally, in 2004 we had an excellent opportunity for a test case.  The Federal AWB ended, but NY kept theirs (including the magazine restriction to 10 rounds).  If gun control really was effective, then we should see a dramatic difference between NY and the US as a whole.  We didn't, more on that later.

Third, murder rates have remained relatively stable since 1998.  Yes, there has continued to be a downward trend, but nothing like the upward or downward swings that the previous 30 years had had. Violent crime didn't reach a leveling off until 2004, but is also has seen relatively minor changes compared to the 30 previous years.

Fourth, while not on the chart, it is interesting to note that violent video games never even got off the ground until the early to mid 90s - the video graphics technology wasn't there before.  By the time that the market was going strong in the late 90s, murder rates were already below anything seen since 1970.  Perhaps this explains why we haven't seen a further drop, on the other hand, we haven't seen an increase either so if video games are to blame, then they certainly aren't doing too much.

Next, I expanded out to look at all of the types of violent crime.  Some quick figures about gun usage based on Department of Justice Statistics.  Guns are used to commit these crimes the following percentage of the time: murder 70%, rape 10%, robbery 40%, aggravated assault 20% (I just label it assault in the chart for simplicity).  So, what I would expect from effective gun crime prevention legislation is that there should be little to no change in rape, barely noticeable in assaults, a noticeable change in robbery, and a significant change in murder.

This does not match that at all.  Lets go through each one. I already pointed out how murder doesn't fit the mold for any of the gun control regulations passed.  Next is rape, the type of violent crime that least uses guns in its commission.  The US rape rate mirrors the violent crime rate.  NY tracked the US rate up until the late 1970s and then leveled off (while the US rate continued it's rise). In the mid 80's, the NY rate started a decline which accelerated with the overall decline of violent crime in the early 90s.  No evidence that gun legislation affected this in the least, which is expected.  Rape rates move independent of gun control.

Up until the early 2000's, NY has had a robbery rate that far exceeded the US rate.  In some years, NY's robbery rate exceeded the total violent crime rate for the nation. After gun control legislation passes, the robbery rate changes in the same manner as the murder rate or the violent crime rate, which is to say, it doesn't provide any supporting evidence that gun control works.

While having more assaults per 100,000 than the US as a whole for 30 years, NY finally crossed under the US curve in 1995.  Of course, the results of gun control legislation match what occurred for the violent crime rate. Since 2008, assaults have climbed to match what the US rate is.  Overall, the data doesn't match the hypothesis, so the hypothesis cannot be correct.

Earlier I mentioned that NY gave us a test bed by keeping their assault weapons ban and magazine restrictions.  So, I looked a little closer at the last ten years in NY.  Surely, if the AWB and magazine restrictions (which NY just made more stringent) had an effect it would show up here.

Not to beat a dead horse, but it hasn't.  The only area that NY and the US are different in is assaults, and as I mentioned before, NY is on the rise.  But, once rates get low enough, there are only going to be minor changes, so let me see if I can amplify those minor changes.  I started by taking each rate from NY as a percentage from of the US (>100% means NY rate is higher than US, etc.).  Next, I found the year to year change: negative numbers mean one of two things (both of which are in NY's favor) 1) the rate in NY is decreasing faster than the US rate (or crime is decreasing faster in NY than in the US) or 2) the rate in NY is increasing less than the US rate (or crime is increasing faster in the US than in NY).  Likewise, positive numbers mean the opposite (bad for NY compared to the US).

I added a polynomial trendline in black and marked the end of the US AWB in red - remember, NY still has it.  It appears that NY was seeing decreased crime (or less increases) compared to the US from 1974 to 2006.  Neither one of those years correspond to a gun control legislation in their favor.  If gun control legislation were effective, we should have seen greater negative numbers after the red line.  Unfortunately for NY, since 2006 crime rates have been stagnant, while for the US it continues to decline.  If this means that there is some threshold below which we cannot reduce crime rates for our society and NY has reached it, then any gun control legislation under the guise of reducing crime at this point in NY is a farce.  As it is, there is ample evidence that gun control legislation to reduce crime is a farce under any circumstances.

But don't we need to do something? Why? If whatever we are proposing to do has already been shown to be ineffective, why burden the government with more laws to enforce or burden the people with more laws to break. But, what if one life were saved? One life hasn't been saved. There is no evidence that gun control has helped the crime situation.  If you think that one life will be saved, show me the evidence.

On the other hand, what if I told you that there isn't a damn thing we can do about crime?  What if I said that the primary cause of crime is so completely out of our control (because the solutions are horrifying to any sane person), that there is no point in trying.  Playing around, I created the following graph that shows a pretty darn good correlation between something and violent crime.

In both NY and the US, the percentage of Males between the ages of 20 and 39 is one of the best predictors of the violent crime rate.  I would have extended the graph all the way back to 1965, except I only could find reliable population demographic data back to 1981.  The crime rates are from the FBI, the population data is from the CDC's WISQARS database.

We have long known that Males disproportionately are responsible for crime.  We also know that the 20-39 age range is the most common age for violent crime offenders.  For nearly 20 years in the US (and 17 years in NY), the violent crime rate (which is a proxy for murder rate and gun crime rate) is directly predictable by the ratio of males between the ages of 20-39.  What is the solution? Lock up all men?  Kill them all at 20? Drug them all into submission?  I am talking about a stage in life that half of the population goes through for approximately 1/4 of their life.  When the number of men in this age range is a higher percentage of the population, we have more violent crime.  When it decreases, crime goes down.

Do I believe this is the major cause? I don't know, I stumbled across this while I was playing with other numbers and will have to do some more research.  This is by far one of the closest approximations of estimating crime that I have found.  It is far more predictive than the number of guns or the strength of the gun control laws.  But people don't want to be told they can't do anything.

We want to control things.  In the end, we can't. Life will go on.

Why You Shouldn't Believe 100% of What You Read

One of my favorite subjects in college and something that is both abhorred and misunderstood by 99.999% of the population. Rest assured, when anyone uses statistics, you should feel very confident in throwing the BS flag for the following simple reasons.

1. 79% of statistics are made up on the spot (or is it 78%)
2. If they aren't making it up, the person quoting some statistic has a 90% chance of not knowing where the statistic came from.
3. If they know where it came from, there is a 95% chance that they haven't actually read the source material.
4. If they have read the source material, there is a 37% chance it was made up (see rule 1), or if the source is Facebook, blog, or comment forum, this number jumps to 93%.
5. If the source material is accurate, the quoter still has a 82% chance of not understanding what the statistic was actually measuring.
6. If they understand what the statistic was actually measuring, there is a 61% chance that the situation they are applying the statistic to was never intended because of the exceptions or assumptions within the study.
7. If the statistic is applicable, there is less than a 2% chance that the quoter has logically thought through the implications of the statistic and realized that there is a 66% chance that A) it is irrelevant or B) it actually means the opposite of what was thought.
8. More than likely, the statistic contradicts some other strongly held belief of the quoter and he will simple ignore it in that situation.

So in summation to the quoter's favor there is a (.21*.9*.05*.07*.18*.61*.02*.66)= 9*10^-5 % chance of them being right, hence the need to throw the BS flag more often. This is the same as flipping heads on a coin 20 times in a row. Sure it happened in Godot, but this is real life. If you could be assured of those odds, it would make playing the lottery worth it.

Real Life Implications of "Crying on a Suitcase"

Since we bought a Karaoke Machine for Christmas a few years ago, I have paid more attention to the lyrics of songs. Yes, half of those songs my parents told me had bad lyrics really do have bad lyrics. Of course, then you put on their music and find out that theirs was just as bad. Recently one of the favorite tunes on the radio that I have heard is Casey James "Crying on a Suitcase". It is the old cliche guy does something stupid, girl leaves, guy realizes he did something stupid, guy then goes to great lengths to win the girl back. Countless movies, stories, and songs have stuck with this tried and true meme. However, today I really listened to the lyrics and realized A) this guy is a psychopath, B) he probably hasn't seen what society is like since the year 2001, and C) there are a number of ways he will end up in jail before he even gets to the girl. So let me break it down for you:

"Boy don't wait, don't think, don't lock the door behind you" - The song begins with an invitation for anyone who is casing out his house to come on in. Seriously, unless you live far out in the country you should lock your door when you leave.

"Run and jump into your truck, and hit the gas, burn some rubber up" - Based on the urgency, I am going to guess that traveling within a reasonable facsimile of the speed limit is not in the cards. Depending on where he is burning the rubber up, he could be passing through a school zone, passing a stopped school bus, not yielding the right of way to an emergency vehicle, traveling excessively in a construction zone, etc. Some of these are only a light fine. But being pulled over is going to delay his getting his girl by at least 20-30 minutes. Unless he chooses not to pull over and decides to run from the cops. This has got to be at least a misdemeanor if not a felony in every jurisdiction. Jail time #1.

"Take a shortcut, take a back road, take the shoulder to the exit" - Shortcuts and back roads are not necessarily bad. Unless that shortcut takes you across the median against traffic. Reckless driving, its enough to get a ticket if not a suspended license. Using the shoulder for the exit is forgivable if your close to the exit, my guess since he isn't talking about a traffic jam is that he just is trying to shave the last few seconds off. Not good. Besides, broken down cars and emergency vehicles use the shoulder so now, the guy is risking an accident just to see the girl. Pulled over once again or running from the cops. Jail time #2.

"Skip the parking, screw the ticket, hit the curb and leave it sitting" - I usually skip the parking and wait in my car at the loading zone, but he is talking about screwing the ticket to, so obviously he is looking for a no parking zone, handicapped, or some other place he shouldn't be putting his car. This may work for a few minutes, but he is definitely going to get a parking ticket, if not being towed. It is not impressive to your newly won girlfriend to walk her out of the airport and hail a taxi to go to Bubba's Towing and Wrecking because you were irresponsible. If there is a cop on hand (which at many airports there are) he may stop the guy before he has a chance to screw the ticket and then the guy is left with waiting 20-30 minutes to get to his girl or running from the cops. Jail time #3.

"Whatever it takes You gotta get to that gate" - What is this guys definition of whatever. Surely he must have an idea of where he is going. Without that, the search is going to be futile unless you are at a single concourse airport. Can you even imagine showing up to Atlanta Hartsfield without knowing where your girl is going? Let's say you do know where she is going, does that mean you know where her connecting flight flies through? And do you know what airline. The two of you left on a bad note, so she probably didn't relay her travel plans (unless this is a romantic comedy and its necessary for the plot). Since 2001, they don't let just anyone through security, particularly disheveled 20ish men running through the airport after leaving their running car on the curb. So, I am assuming that Casey's theoretical guy is going to skip the security lines and make a beeline for the concourse exit. There is only one TSA agent here, so it should be easy to run past. Of course, I think purposely doing this is a crime that will land him in jail. Jail time #4.

So, by the end of the first verse, our guy has miraculously found his girl crying on her suitcase (which if it is large enough to be used as a seat, probably should have been checked baggage, but the airlines don't seem to care much about this). If he is lucky (and swift footed) he will have about 5 seconds to express his undying love and apology before he is tackled by personnel from 3 or 4 different law enforcement agencies. This will be followed by questioning by the FBI, TSA, County Sheriff, Airport Police, and State Troopers. No one will believe his story and probably through him in the slammer to sober up (whether he was drinking or not - no sensible person in their right mind does what he just did).

And his girl, seeing this situation, she'll realize she made the right decision, wipe away the tears and start up a conversation with a junior stock broker on the flight back to Kalamazoo. The conversation will lead to a blossoming relationship and they'll live happily (and boringly) ever after.

I know, my story can't really be expressed in song and Casey James is inadvertently advocating breaking the law, but I still like it. Besides, I like Taylor Swift too, and all she sings about are her boyfriend breakups and get togethers.

President vs. Miss America

Question of Wisdom: 

Why do Americans choose from just two people to run for president and 50+ for Miss America ?

Answer of Truth: 

Because none of the people running for president in the last 200 years have looked very good in a bikini.

At What Cost? (Part III)

People who say that "it is worth any cost to save one life" are liars or idiots (which includes President Obama).  So, take a deep breath yourself because you have probably said that.  Hopefully, you fall into the idiot category instead of the liar category.  Sure it sounds good on the surface but what of the ramifications?

The speed limit was changed from 55mph to 65 mph to 75 mph and deaths and accidents increased.  But we traveled to places safer.  Maybe you are the one that still travels at only 55mph because it is saver.  I doubt it. So that must not be worth the cost to save one life (or 1000 lives).  10% less travel time for 300 million people is just too high of a cost.

Surely the cost of water bottles isn't too high to save one life?  But society seems to disagree.  We have water bottles that have minute amounts of chemicals that could kill you.  But the convenience must outweigh the cost of lives saved.  So maybe there is a price.

Vaccinations have been one of the largest contributors to increased longevity in the 20th century.  Yet portions of the population still refuse to get vaccinated and pretend it has no other affect on the population at large.  Even worse, we jump on unsubstantiated bandwagons claiming they cause autism or other diseases.  People claim doctors are poisoning our children.  That's just reprehensible.  Unfortunately, it also shows that some costs are too great for some people to save one life.

Alcohol is related to many kinds of deaths - violence, car accidents, diseases, etc.  Yet, we already had this discussion in America and decided that a glass of bubbly or a pint of brewski WAS too high of a price to pay to save one life. Some may argue that prohibition wasn't really enforced, but that then begs the question: what was the point of the law in the first place if society wasn't willing to enforce it? (We could ask DC the same question since they have chosen not to prosecute David Gregory for willfully breaking the law on national television.)

This argument of spending any amount to save one life is coward's moral high ground.  Am I so special that my family or my country should go into unrecoverable debt to keep me alive?  No, I'm not that narcissistic.  But what about your child, or my child?  Let me answer again, no, no, and NO.  There is a price that we are willing to pay to save a life, but there are also plenty of prices we aren't willing to pay and many times when those are monetized, it is shockingly low. (I have seen figures from some "safety" laws that put the value anywhere from $50,000 to $20 billion per life).

This argument has been used in any number of "safety" issues over the decades, most recently for stricter gun control.  Usually the issue is so ill defined that only a callous person would reject the argument, but I reject it. Every single time. No matter the issue it is attached to.  So let me start off by setting the record straight.  No person in their right mind wants to kill children. Ever.  It takes a special kind of demon to perpetrate that evil.  And it is evil, whether you believe in God or not.  Killing children is evil! But nearly as evil is the demonization of people who don't share your viewpoint by trying to claim they (or me) want children killed.  Human nature guides us into making monsters of our enemies.  That doesn't make it right.

So hopefully we agree that killing children is wrong.  Killing any innocent person is wrong.

There is lots of talk about figuring out what we can do to reduce gun crimes.  After all, most murders in the US are committed with guns.  So lets look at what the cost will be? Assuming that any law proposed is 100% effective at eliminating rifles (through bans/confiscation/registration/etc.), would murders go down?  Theoretically.  Because about 400 murders are committed with rifles each year, we could reduce our murders by that much.  At 12000 murders a year, this is a drop in the bucket, but perhaps one worth doing.  Except that is not as simple as 12000-400=11600.  In order for this to be true, we have to believe that none of those murderers wouldn't have substituted a different weapon.  So the equation becomes 12000 - 400 + Sub = ??,???.  If all we are doing if limiting rifles, there are plenty of handguns (which are the most frequently used murder weapon anyway).  Knifes, clubs, and bare hands have proven less deadly; but explosives and fire have proven more deadly.  So, theoretically the number may go up!

What about other effects?  Those have costs too.  Even assuming 400 less murders happen, and none of the substitution weapons cause death, those knives, clubs, hands, fire, and explosives will cause injuries.  So, aggravated assaults go up, which means, overall, the violent crime rate has not changed.  We have just substituted 400 of one type for 400 of another.  But murder is more serious right.  Is it comforting to a rape victim to say, "At least he didn't kill you?"  That's a shallow argument for "less" murders.

The law abiding are also going to be affected, presumably from less access/availability to defensive firearms. Rifles are used defensively.  How much is anyone's guess, but every organization that has studied the issue finds their use at least 100,000 times annually and perhaps up to 2.5 million times annually (guns are used in about 600,000 crimes annually). So if the 100,000 is correct and only 1% of these foiled crimes now become violent crimes, then we have added another 1,000 to the violent crime list. So violent crime has now gone up.  Admittedly, 400 murders will not result, the majority will end up being robberies and aggravated assaults with murder and rape making up probably less than 30. But overall, the country is less safe.  Violent crime has increased.  So, is it worth it to save 390 lives a year only to affect the life's of 1410 other people?

If you believe that it is worth any cost, ask yourself, "How many extra rapes is one less murder worth? How many years of nightmares of children seeing mom and dad assaulted in their home should we trade for one less murder committed with a gun?"

Some like to point to England with their 50 gun murders a year as an example for the US to follow.  Really, so you would be satisfied if the US only had 300 gun murders (adjusted up for population)?  Say that to yourself, "I would be satisfied with 300 gun murders a year."  I wouldn't be, I want 0 murders.  Would you be willing to trade more violence (but less death) in the US for a lower number of gun murders? Kids being maimed by a psycho with a molotov cocktail is preferable? Even if it is 10 times as many kids?

Sorry, that logic defies my understanding.  It is a comparison that a rational person cannot make. Trading one for the other is not fair, regardless of the multiplier you apply. I want less crime (I care not whether it is committed with a gun or with bare hands).  So I continue to research ways that we have reduced crime and advocate those (suprisingly, probably the largest decrease in crime has nothing to do with our control, but involves the relative population size of 15-29 year old males to the rest of the country).  Poverty is a large indicator, yet we aren't implementing any policies that will help bring jobs to the inner cities (on the contrary, we are doing the exact opposite in a lot of cases).

A lot of crime is drug related.  Its another cost that people are unwilling to pay.  Would you support legalizing drugs if it could be shown that there would be an overall decrease in violent crime? Some countries have and not seen an explosion of drug use and a decrease in crime.  Unfortunately, this shibboleth remains in our country so that no one seriously characterizes what the affects would be.

Figuring the cost of some policy is extraordinarily complex, and so most of us are content to just look at it as X-Y=Z.  Sociology and Criminology will never be hard sciences.  X-Y rarely equals Z in the realm of the human mind.

Hedge Fund Manager Ackman Goes in the Ring Against Herbalife

In recent investing news, I have been following the kerfluffle between hedge fund manager Bill Ackman (who I'll admit I had never heard of before, but I don't follow hedge funds) and Herbalife, a corporation that sells weight loss shakes and business opportunities to sell weight loss shakes (I'll admit, while I don't know exact details about this company, I am familiar with their business model and have studied it extensively).

Back in December, Ackman made a presentation to some investors where he laid out his case that Herbalife is running an illegal pyramid scheme and will be shut down by the FTC.  As part of this he announced that he had taken a short position of $1 billion with a price target of $0.  In other words, he doesn't have any intention of covering his short because he beliefs the company will be shut down by the FTC.  Herbalife has responded to this presentation with their own during they recent investor phone call. Depending on which side you are on, the news seems to indicate that this response was either a slam dunk or an airball.

In a nutshell, Ackman's presentation goes over the funny math that Herbalife uses, which, in their estimation, shows that Herbalife distributors make more money from recruitment than they do from retail sales of their product.  I have gone through their presentation, and I find their logical argument rather impressive.  But there were some numerical errors that I found along the way.  So let me go through those.

First, on slide 10 and 11 of the presentation linked to above, it compares Herbalife to other consumer product companies like Church & Dwight, Energizer, and Clorox (as a disclaimer, I own Clorox stock and have for about 12 years).  The problem I have with this comparison can be easily seen on the slide 11, is that all of these companies have several brands that span the spectrum of consumer buys: cleaning products, food, clothing, cosmetics, etc. I was familiar with almost all of the brands, even if I didn't know what the parent company name was (Church & Dwight has Arm&Hammer, Nair, Trojan, and Xtra).

One of the things that Ackman brings up is even though all four of these companies are similar in size and in the consumer products brand, Herbalife is a relative unknown. I can think of two reasons for this.  1) Herbalife primarily sells a narrow segment of the consumer products market, namely health and wellness products and advertises by word of mouth (this is a segment that I don't use much products in so am not very familiar with) and 2) although similar size to the other three, Herbalife sales are primarily international.  So, I thought I would test these hypothesis.  Since all four are publically traded the information I need is right there in their filings to the SEC.

 Below is the information that I gleaned from the SEC EDGAR site of filings. Dollars are in millions. I looked at the last quarterly report available for each company.

	Revenue	Largest Segment	Largest Segment % Revenue	US Revenue	US revenue %
Herbalife	$1017	Weight Loss/Nutrition	91.0%	$203	20.0%
Church & Dwight	$725	Household Products	61.9%	$530	73.1%
Energizer	$1124	Personal Care	59.9%	$579	51.5%
Clorox	$1338	Cleaning	45.6%	$1035	77.4%

In a nutshell, my two hypothesis are correct.  Herbalife is more concentrated in sales in a single segment than any of the other three.  And Herbalife relies on International sales far more than any of the other companies. Neither of these is inherently bad, it just shows that Ackman's comparison wasn't the best comparison. Whether or not there actually are more similar companies to compare it to, I don't know, I'll leave that to his paid researchers to figure out.

Second, slide 12 identifies Herbalife as a $2 billion brand that no one has heard of. Ackman explains how he comes up with this number, 29% of total product then adjusting for shipping costs and Herbalife's revenue/discount reporting.  I just use the 29% and look at their total sales and come up with $853 million.  So, less than $1 billion brand.  Furthermore, as shown above, most of these other brands probably have 50%-75% of their sales in the US, while Herbalife only has 20%, so their Formula 1 shake is only a $170 million brand in the US.

Third, slide 14 shows that Herbalife sells more powder drink mix.  Except does it really.  They sell more $ wise.  He doesn't include the premixed liquids, although I will all together since Herbalife doesn't offer it and my guess is if they did then their powder sales would decrease and liquid sales increase. I didn't bother to look up the actual amounts for the other brands but assumed that Ensure and Slimfast had 60% sales in the US and GNC had 90%.

	Sales	Adjusted for US
Herbalife (Ackman)	$1800	$360
Herbalife (mine)	$853	$171
Ensure	$700	$420
Slimfast	$600	$360
Leanshake	$50	$45

This is more evidence why Herbalife is relatively unknown.  No matter which numbers you believe, Herbalife isn't the most popular weight loss shake.  But lets look at these numbers in another way. How many servings of each are actually sold? Ackman gives us the information needed on slide 16.

	Sales	Cost per Serving	# Servings	US Servings
Herbalife (Ackman)	$1800	$2.87	627	125
Ensure	$700	$1.03	680	408
Slimfast	$600	$1.04	577	346
Leanshake	$50	$1.74	29	26

Sales and servings are in millions and it looks like Herbalife has an even smaller market share on a serving basis than before.  So to answer the question, why is Herbalife a relative unknown in the US? Because for every 1 person drinking their shake, there are 6.25 people drinking these other three brands.  This isn't even all of the brands available. A quick look on the internet found that Walmart has a weight loss shake - the Equate brand which is cheaper than any of the ones that Ackman lists (disclosure, I also own stock in Walmart and have for 6 years).  I doubt I could easily find sales of this brand shake, but it is possible that it and many others are a significant player on the weight loss shake market.

Fourth, slide 21 states that Herbalife products are commodities and lists several competing brands.  This in and of itself isn't enough for me to say that Herbalife is a commodity as opposed to a premium product like they claim.  So, I compared the nutrition label for the above Walmart weight loss shake to the Herbalife shake.  Guess what I found? Yep, basically identical (when the powder is mixed with 8 oz nonfat milk). Herbalife has less fat and more protein, and a few of the nutrients are different. Walmart has a full day supply of Vitamin C and Vitamin E while Herbalife only has 25%.  Comparing the ingredients, Herbalife has soy protein (accounting for the extra protein) and that is about it.  So, unless you want to pay a hefty premium (up to $2 a serving) for that extra 7 grams of protein, you would be just as well off buying the Walmart brand.  And after looking at this, I can agree with Ackman that Herbalife is not a premium product, just a premium price.

That is about all of the problems, that I see.  I think Bill Ackman could have made a stronger case by comparing with more appropriate companies.  That being said, Herbalife has responded and there are some issues I have with how they play with the numbers.

In response to Ackman, Herbalife touted the information from a customer survey they had done by Lieberman Research Worldwide (another company I have never heard of, but there isn't any reason for me to necessarily).  During an interview on CNBC, the CEO implies that 90% of their product is sold to people outside of the distributor network.  On the other hand, the 3rd Quarter conference call that Herbalife had and is referenced in the report linked above states that 90% of customers are outside of the distributor network.  These are two very different things.  So are one, both, or neither of them correct?

Let's do some more looking.  We know that this survey was conducted in the US so we'll try to confine ourselves to that market.  However, much of the information in the quarterly report for Herbalife is for the North American market.  Fortunately for us, Mexico is not part of that reporting and the numbers for North America are only a few percent higher than for the US by itself (i.e. $209 million revenue vs. $202 million).  That being said, I'll use North America as a proxy. $ figures are in the millions.

Net sales	$209
Monthly Active Sales Leaders	67,826
Total Distributors	372,000
Retail Sales	$332
Distributor Allowance	$158

So, here is the first bit of information.  The Active Sales Leaders qualify to buy product at a 50% discount. All other distributors can only buy at a 25%, 35% or 42% discount.  Retail sales is the recommended retail sales price and distributor allowance is the discounted amount of retail sales.  So net sales is then retail sales minus distributor allowance plus shipping charges.  The first thing that can be seen is that a significant amount of sales is from active sales leaders (this would be expected).  To determine exactly how much, I'll just assume there is only two discounts 50% and 25%. Using a little algebra this equates to 90% by Active Sales Leaders and 10% by the rest (so it follows the Peter Principle).

Getting back to the Lieberman report for a minute.  They found 5.5 million customers from the past 3 month period, over 90% were not in the distributor network, and 2/3 were likely to buy again. With only 372,000 distributors total in North America, if there are 5.5 million customers, then of course 90% are outside of the distributor network.

Next I'll assume that all of the non active distributors (305,000) are only in it for personal consumption, this is somewhat implied in the Herbalife filings. 10% of $332 million is $33.2 million in retail product sales over a 3 month period.  Divide this by the distributors and you have $109/ quarter or $36/mo. This is equivalent to a single 750 g bottle of the Formula 1 shake powder (30 servings).  Herbalife recommends 1 serving a day for weight maintenance and 2 servings a day for weight loss.  So, none of these distributors are using the product for weight loss, or there are a significant number of them that don't use the product regularly, or (considering Herbalife sells several products) using some algebra again 25% use $100 per month (Herbalife recommended), 20% use $39 per month (one bottle), 25 percent use $39 per quarter, and 30% use $39 per year.

So, if people are becoming distributors just for personal consumption, they certainly aren't consuming a whole lot.

Next we have the 68,000 active Sales Leaders who are buying $300 million retail (for $150 million) each three months.  And there are roughly 5.1 million customers that are buying from these distributors if all of the numbers are correct.  To begin, that is 75 customers per distributor (which is 3 times the amount from the Herbalife plan - slide 58), however, it amounts to only $1470 per month in retail (which is a little more than half of what the Herbalife plan shows of $2500/month).  So at a minimum, the standard sales pitch of the opportunity should be updated to reflect what is actually happening, of course, it is kind of hard to get someone to buy in to finding 75 regular customers.  If you figure there is one hour spent per quarter on each customer, plus meetings and other Herbalife related stuff, you have a full time job!

If there are 5.1 million real customers, what are they buying?  Let's assume that the 68,000 distributors also have a personal use of $100 retail per month (as recommended by Herbalife), that leaves $280 million being purchased by the customers - $55 per quarter.  So, that translate to two of the smaller bottles per quarter (not per month per quarter).  In other words, the customers aren't using it for weight loss or maintenance. Which means if these are the real customers of Herbalife, then Herbalife doesn't understand how its products are being used by the public. To answer the other statement from Herbalife, Sales Leaders are buying $20million per quarter for personal use (if they are using $100 per month) and all other distributors are buying $33 million per quarter for personal use.  Which means that the distributor network accounts for at least 16% of all sales, so no 90% of Herbalife product is not sold outside of the distributor network.  If it is, then the distributors themselves don't believe in the product enough to use it.

The last funny bit of numbers that I wanted to look at is one of the "X has more A than M, B than N, C, than P..." So I used the USDA food information database to find out what is in each of the items listed on the Formula 1 sales page.

	Formula 1	Mango	Banana	Chicken	Broccoli	Yogurt	Beans
Calories	180	124	105	127	15	103	237
Protein (g)	17	2	1	17	1	10	15
Fat (g)	1	1	0	6	0	0	1
Carbohydrate (g)	26	31	27	0	3	14	43
Sugar (g)	23	28	14	0	1	14	1
Fiber (g)	3	3	3	0	1	0	10
Calcium (mg)	250	23	6	7	21	366	80
Vitamin A (mcg)	210	112	4	6	14	4	0
Vitamin C (mg)	18	75	10	0	39.2	2	0
Iron (mg)	1.05	0.33	0.31	0.77	0.32	0.17	2.97

Let's go through the claims one at a time.  "More Vitamin A than a Mango." Yes, but I never thought of mangoes as a Vitamin A food, compared to carrots, it only has half as much Vitamin A.  And a mango will give you all of the Vitamin C that you need for a day.

"More Vitamin C than a Banana." Again, when did bananas become a vitamin C food?  Yes, the statement is true, but since we already got almost 4 times the vitamin C from the mango, it is moot. "More protein than a chicken thigh." Well, depends on the size of the chicken thigh, I found them to be equal.  Besides as mentioned above, this is soy protein compared to animal protein.  Is there a difference, I don't know, ask a nutritionist.

"More fiber than 1/2 cup of broccoli." Yes, but the same as a mango or a banana.  Besides, broccoli has so little calories you could eat two cups of it and have more fiber than Formula 1. "More calcium than 6 oz of yogurt." Not from what I found, but then again, I don't know what yogurt they are using as their baseline. Yogurt also has a sizeable amount of protein.

"More iron than 1/2 cup of beans." Again, not from what I found, but I don't know what beans they are talking about there are lots of different kinds of beans (I used black beans, because I eat them). Beans also have almost as much protein as the Formula 1.

If you added all of these foods together you would get 711 calories. This is a decent sized meal.  However to compare it I also adjusted them down to 180 calories.

	Formula 1	All Foods	Adjusted Foods
Calories	180	711	180
Protein (g)	17	46	12
Fat (g)	1	8	2
Carbohydrate (g)	26	118	30
Sugar (g)	23	58	15
Fiber (g)	3	17	4
Calcium (mg)	250	503	127
Vitamin A (mcg)	210	140	35
Vitamin C (mg)	18	126.2	32
Iron (mg)	1.05	4.87	1.23

Looking at this there is less protein, sugar, calcium, and Vitamin A.  Other than Vitamin A, all other nutrients could be equalized or better by simply adjusting the proportions of each food and get the same nutrition as a shake.  The vitamin A can be taken care of by adding carrots to the mix.  In other words, there is nothing special about the Formula 1 shake that can't be found by limiting your portion size of common foods. Personally, I happen to like eating a variety of foods which is part of the reason I am not into the shake meal fad.

Overall, I think the Herbalife business model sucks for distributors.  Sure Herbalife makes a lot of money from it, and as long as they can continue to get 1 million or more new people to sign up each year, this could go on forever.  All of the MLMs have proven that there is a ready and willing market of potential distributors willing to sign up for the next thing.  So, I find a bet for Herbalife going to $0 a long shot.  Add to this that there has been little enforcement of the FTC regulations for pyramid schemes over the last 30 years.  The MLM industry has jumped into the lobbying game with both feet and it has profited them nicely.  So relying on the FTC to shut down Herbalife is also a longshot.

On the other hand, I have to go back to the business model.  It sucks for distributors.  The information on the internet has exploded in the last 10 years.  Analysis of the Herbalife business model (or any MLM for that matter) with actual numbers, not the rosy picture they paint for themselves of the ideal model, looks dismal for not just the average distributor, but up to 99% of all participants.  Using Herbalife's North America numbers, 372,000 distributors, while only 68,000 are actively selling. If 99% are losing money after all expenses are accounted for, then 3720 sales leaders (5% active sellers) are making money. This matches what Ackman shows on slide 74. While it has lasted for 30 years, I can't see it lasting for another 30 years based on the information available. Which means I wouldn't bet on Herbalife going up significantly.  In conclusion, I believe the information that has been presented thus far probably limits where Herbalife is going to trade in the future (barring any action by the SEC or FTC), somewhere between $25 and $50.

At What Cost? (Part II)

In looking at decisions, we should examine the costs.  Not just the monetary costs but other implications as well.  Banning and confiscating guns might result in less people killed and injured by guns - depending on the extent of number of guns affected. Unfortunately, we can't look at just the number of gun deaths and gun injuries, unless one believes that this is the sole cause.  If on the other hand people are the cause, then a fraction of the gun deaths and gun injuries will be replaced with other deaths and injuries.

Defensive uses of firearms need to be taken into account.  This area of research is very hazy.  There are no police reports that have a checkbox for defensive uses of firearms.  So now easy statistics to gather.  Several groups (including government agencies, pro-gun groups, and anti-gun groups) have done studies and surveys to determine the number.  The only thing they agree on is that defensive gun use happens.  Numbers vary from 100,000 per year to 2.5 million per year. One clear problem with all of these studies is that defensive gun use is not universally defined.

Obviously if someone discharges their weapon in deterrence of a crime, this should count.  Drawing a weapon on a crime in progress should count (although, then what may have been a murder might now just be an assault - the murder rate goes down, but the overall violent crime rate does not). What about drawing a firearm on a crime that has not been committed? Say someone pounding on your front door in the middle of the night? Maybe it is a criminal, maybe it is just the drunk guy from next door who forgot his keys. Has a crime been averted?  What about walking down the street and your jacket gets blown by the wind, exposing the concealed weapon at your back? No one sees this except the perp who was trailing you and planned on asking for your wallet in a couple minutes.  He decides to bother someone else. Is that a defensive use - one that you didn't know happened?

Murder is the one crime statistic that can be reliably compared between countries.  England has decent records to show what the homicide rate has been historically. Starting back in 1200, England had a homicide rate that dwarfs what is found in America today, and this is before guns were invented. This in no way is to imply that guns were the only thing that decreased the crime rate, but it is a starting point to counter the idea that guns are causing the high murder rate.  The same source traces the homicide rate through the centuries.  The development and proliferation of firearms does not appear to affect it.  There is no uptick in murder when the rifles or handguns are developed.

England's foray into gun control did not really begin until early in the 20th century.  Homicide rates continued to decline in England throughout 1800 (as shown on page 99 Table 1 of that source).  By 1970, the UK gun laws looked drastically different from the US gun laws. There was very little firearms ownership, and firearms were tightly regulated. So comparison between the UK and the US is informative.

 Using the sources from this wikipedia page, I plotted a comparison of the US and UK with the addition of a multiple line which represents the magnitude of difference between the US and UK rates. The first thing that should be noticed is that England has ALWAYS had a much lower homicide rate than the US. Furthermore, it has remained very stable up until the last 40 years.  Major gun control legislation was passed in 1920, 1937, 1968, 1988. and 1997. Anti crime legislation in 2006 dealt with airpowered weapons since real firearms were already regulated to as close the maximum extent possible. There is no decrease in 1921 or 1938.  The years following 1968, 1988, and 1997 all saw increases in crime. In particular, this study shows that from 1997-2007 gun crimes, went up. The gun control that the UK has implemented over the last 100 years has not affected the murder rate (at least not in a good way) at all.

For the US, major gun control legislation was passed in 1934, 1968, 1986, and 1994.  Additionally, one piece of legislation expired in 2004.  The years following 1934 and 1994 saw a decrease in the murder rate, however, the decline started in the year or two before the passage of legislation. The years following 1968 saw and increase in the murder rate, but again, the rate had been on the rise for several years.  1986 is interesting since rates had been stable for the couple of years before 1986, the rate dipped for one year in 1987 and then rose above the previous rates the the following years. 2004 fell in the middle of several years where the rate stayed level, and then it fell some more.  Once again, gun control legislation (less draconian than the UK) appears to have had no affect.

Finally, the last thing to notice is that the multiple between the US and UK has been falling and is at the lowest levels in the last 100 years.  In other words, the US is becoming less homicidal compared to the UK. (That isn't to say they ARE less homicidal yet, although if the trend continues for the next couple of decades it very well could be.)

Using sources from Eurostat and the FBI, the trend in violent crime and total crime can also be compared.  The actual rates shouldn't be compared since the definitions of crimes differ between the countries.

Since the early to mid 90s, the US has seen a steady decline in both violent crime and total crime.  The UK has not been so fortunate.  Total crime overall has declined, but it appears that violent crime is on an upswing.  This could be related more to how the crime is reported.  One thing remains clear, the % decrease in crime (total and violent) in the US has been more than in the UK.

Gun control has enforcement costs.  If it is ineffective because it doesn't lower crime, then what justification is there for it? Less people killed by guns (even though there aren't necessarily less people killed in total)?

At What Cost?

So many decisions are made in our lives without asking the question "At what cost?". Sure we may put a monetary value on many things, but rarely do we spend the time to look beyond that.  Time's of crisis are notoriously bad for doing something without looking at the costs.  America is at that point now, with the shooting rampage in Newtown, CT, emotions are high. People are horrified. Something must be done!

Lots of  causes have been bandied forth: guns, video games, movies, mental health, etc. Unfortunately, there are too many people who are "experts" in all of these categories and not enough sensible talk from experts in any one of these categories.  So just a quick reminder, it takes about 10,000 hours to become an expert in something.  That is roughly five years working full time.  I am not an expert in anything. A quick idiot check to perform is take someone's age, subtract 20, and then divide by 10.  This is the most number of subjects they can be an expert in. If they tell you otherwise, they are probably lying.

At what cost are the decisions we make going to have? Monetary costs are easy to figure. Alan Gottleib has proposed that we remove the "Gun Free Zone" in schools, thereby letting people with carry licenses the ability to carry on school property.  This costs no money.

The NRA and Moveon.org have proposed putting police officers in every school. I have seen estimates of the cost of this at $5 billion per year (but if this is in response to our children being more valuable than power plants or banks - are we going to expand this to putting a police officer in every day care? What about field trips, do we need a police officer on every field trip?)

Diane Feinstein is proposing a renewed assault weapons ban. If this is the same as the one we had from 1994 to 2004, then it essentially has zero cost.  Of course, several studies (including by the Department of Justice and the CDC) could either not make a conclusion for lack of evidence or found that the ban was ineffectual when it came to crime rates. So some have proposed not having weapons grandfathered and the definition expanded.  Assuming this would affect 100 million weapons, and the government was going to pay a fair price for the confiscation of private property, and all owners turned their weapons in, this would have a cost of upwards of $50 billion.

Finally, some people want the confiscation of all guns.  This has basically been done in the UK and Australia.  Once again assuming a fair price and all guns get turned in, we are looking at a $150 billion.  These are all direct economic costs.  Money that would have to be outlaid immediately.

What about indirect costs? Banning guns (in any amount) will result in reduced economic activity for that industry.  4-5 million new firearms are sold each year, the vast majority of this is in the civilian market in the US. Cutting this number from a ban is going to result in lost jobs in the firearms industry. Do we ignore their plight because this is for the children?

Putting police in every school is going to require hiring of approximately 100,000 new officers.  That is 100,000 people who now cannot be used to make widgets, serve your dinner, answer phones, etc.  Right now in our economy, this isn't a problem with unemployment as high as it is, but what about when the economy is doing good?

Allowing teachers to go armed could have an increase in accidental deaths and injuries.  How much? Well, we know what the current numbers are, and the vast majority of them happen while hunting or target shooting.  Which makes perfect sense, getting injured in a firearm accident is only going to happen when you are manipulating a loaded firearm.  Since any armed teachers wouldn't be fiddling with their firearm, it would be sitting snugly in their holster, I would guess that the increased injury and deaths would be approximately equal to what you find at any sheriff's office or police station (not the shooting range), in other words near zero.

Would any of the policies above do anything? Letting teachers go armed would allow for a greater chance that an armed responder was on site in the first seconds of the shooting.  This doesn't necessarily prevent any shooting from happening, but the statistics show that less people die when an armed responder is there. Plus it would remove the "Gun Free Zone" target from our schools, where almost every mass shooting has occurred.

Putting police in the schools would have nearly the same effect as above. Although now you have a visible armed target (probably the only one in the school). So, he will be the first one targeted by a mass shooter (he'll also be the best prepared to defend himself). Unfortunately, if he dies, the school is once again at the mercy of the shooter.

The AWB will do nothing without confiscation.  CT had an AWB, the weapons used complied with it. Complete confiscation would probably just turn the incident from a shooting to a stabbing, explosion or fire. Defenseless victims (particularly children) are no match for lightly armed, young males.

Are you willing to protect your children at any cost? If you answered yes, you're lying. It is evident in the decisions you make everyday.  The car you drive, the cleaning products you use, even the home you live in.  All of them are filled with risks that injure and kill children daily. The fact that you don't wash and disinfect your hands after coming home from work, the gym, or even your friend's house, has the potential to spread germs that could kill your kids.  The simple fact is, there are risks in life, we accept them. We even accept them on behalf of our children. The child who dies from drinking cleaning fluid is no less dead than the victims of Newtown, CT.  And certainly to the families involved, it is no less tragic.

Before you advocate for doing something, ask yourself, "At what cost?" Then after examining things beyond just money, ask whether it should be universally applied (after the next mass shooting of kids in a park, are we going to have police stationed at every park in America?). If the answer is no, then look back and justify why it should be done for this narrow situation. Finally, don't ever be so pretentious as to think the problem will be solved.  Evil people know no bounds.    

Something I Can Agree with Obama On

The White House is proposing cutting the ATF budget by 13%. While I would like to see an abolishment of it (and the corresponding regulations), I can certainly support this kind of a cut as a first step.