Des Moines Business Record, IA
01-21-07
Solutions, questions and mysteries
The University of Iowa has an average basketball coach who is highly paid; a
great football coach who is very highly paid; and is regulated by the Iowa Board
of Regents, who are paid hardly anything. None are having a good year. On the
other hand, you have Erik Lie, associate professor of finance at Iowa. His
amazing and imaginative work on executive option pricing has had a profound
and ongoing effect on corporate America. It is the academic equivalent of
winning an NCAA championship three years running. To the best of my
knowledge, he hasn't been rewarded with a long-term multimillion-dollar deal and
almost surely doesn't even make a list of the university's 100 most highly
compensated employees.
Perhaps the way to settle Iowa's presidential selection problem is to hire a
combination basketball coach/president. The basketball team couldn't do any
worse, and the connection with a sport would permit the Regents to pay the new
president enough to keep him/her from jumping to a new job right away. If the
new president doesn't have time to attend to all traditional governance duties,
this would at least make the faculty happier since there would be less chance of
interference with their claimed prerogatives.
$15 beans, $6 corn?
Are these just around the corner? Maybe. There is also a reasonable chance that
the value of farmland will double. As noted in the latest Iowa State University
farmland value survey, the current average of just over $3,000 per acre is
nowhere near the inflation-adjusted historical high of nearly $6,000 in 1979. If
you are rolling your eyes right now, consider how unlikely it is that alternative
investments such as stocks will double in the same period. Money will flow to the
greater opportunity. The supply of land available for purchase is quite limited,
and we all know how a limited supply can affect prices.
Upward and accelerating
If only the graph of federal spending over the past 26 years were a graph of my
portfolio returns. Never a down year. The rising line also shows that federal
spending radically accelerated (despite low inflation) once Republicans had
control of both houses of Congress and the presidency. How much acceleration?
Spending in the most recent year was about $700 billion higher than if increases
had remained constant. It should not be a shock that Republicans lost their
mantle as guardians of the treasury.
Roller coaster results
The pending sunset of estate tax provisions is up in the air as a result of the
recent elections. Consider what we are looking at for an estate of $3,500,000
over the next five years. The tax would be $675,000 for the next two years; fall to
$0 for 2009 and 2010; and then vault to $1,220,000 in 2011. I haven't a clue what
Congress will do now, but I can tell you that skilled trust and estate lawyers are
certainly going to be more in demand.
No-whining zone
Robert Denson, president of Des Moines Area Community College, spoke at the
Iowa Higher Education Summit last fall. We should all take note of one of his
comments: "You shouldn't whine, because 75 percent of those listening don't
care, and the other 25 percent enjoy your misfortune."
Mike Nelson is a senior vice president at Iowa Savings Bank in Carroll. He can
be contacted via e-mail at mnelson@iowasavingsbank.com.