Saturday, February 28, 2009

A Few Snippets On A Sleepy Saturday--The Age Of Entitlement

We'll hallelujah, Mr. Warren Buffett ("The Oracle of Omaha" heh-heh), America's financial cheerleader has finally decided that 2009 is going to be a rotten year, and maybe 2010 as well. This is the same guy that in the fall exhorted American's to "go out and buy stocks." Sure, I'll buy GE and Goldman Sachs if I can get a 10% dividend on preferred shares like he did. As for the rest, if you followed his advice, you would have gotten killed. For the record, his own firm Berkshire reported its worst results in history during Q4, and as a parenthetical note, 80% of his fortune was derived from fewer than 25 positions taken up during the last 50 years. More power to him, but my advice is that he should pay closer attention to what is happening to his own business...there are more bad quarters to come.

Greenspan wrote a book called, "The Age of Turbulence," which I previously mentioned that I tossed in the trash. If I were to write a book (don't worry, I won't) it would be called "The Age of Entitlement," which is pretty much ending now and may be the silver lining in this all-too-black cloud. For decades now, we Americans (and other countries too) lived an entitled life. The unions were entitled to ever more juicy contracts, my kids were entitled to the next new thing (my bad) whether it be a flat-panel TV or a new game machine or a thousand pairs of shoes. I had my own entitlements (again my bad.) Colleges like Harvard and Princeton were entitled to expand with reckless abandon, without lowering tuition one iota, and their professors were entitled to six+ figure salaries for what must certainly be the cushiest job in America. Teachers in local school districts, buoyed by ever increasing tax bases from real estate upticks were entitled to "no-cut" deals with unprecedented health benefits. Everyone was entitled to a house, and if you already had one, you felt entitled to either expand it or to buy a bigger one. Athletes in most sports were entitled to bezillion dollar sign ups, so much so that the NBA is borrowing $175M to try to keep various franchises afloat. I could continue this diatribe for quite some time but I am now getting physically sick just thinking about it. And in any event, I think you get the picture.

So what about this "silver lining?" Well, when you feel entitled to something, then somehow you just don't appreciate it for what it's worth. If you are sitting at a fancy restaurant table and the chef serves you a big, juicy and delicious hamburger, you simply gobble it down, burp a few times, pay the check and leave without another thought. On the other hand, if you are homeless and living in a doorway, and some kind soul presents you with an identical meal, that's a totally different experience for the unwitting recipient. There are many more examples, but I think this one is poignant enough.

As we lose our sense of entitlement, we move closer to the person in the doorway (literally and figuratively.) The things we have, the jobs we keep, our friends, hell, even our enemies become that much more meaningful. Without entitlement, we learn to appreciate life more, and we stand ready to live simpler, less consumptive lives. This has been coming for a long time in America and I call it "re-basing." And as painful as the current situation is, I don't think it's a bad thing at all. And I would happily spare myself the thousands of cosmetics (and other) commercials that have driven this rampant consumerism for decades.

Wednesday, February 25, 2009

Why I Hate Economists (Except Paul Volcker)

Volcker gets a pass because he is a smart, hardass. The rest are wimps. Here's why I don't like them. They have unbelievable and unjustified influence on society and in government, AND their math is flawed. These are not brain surgeons and would get laughed out if they even tried to take the medical aptitude tests (which incidentally don't require any actual medical knowledge.)

Okay, if you don't believe me, consider the Long Term Capital Management case from not so many years ago. No less than two Nobel prize winning economists designed their trading strategies and asserted that what happened to the firm (a total collapse, losing billions) was a "ten-sigma" event. I'm not here to give a statistics lesson, but "10-sigma" is never supposed to happen in the history of the universe. That's about the equivalent of having a black hole eat up the earth. Bear Stearns was a "ten-sigma" event. Lehman Brothers was a "ten-sigma" event. Merrill Lynch was a "ten sigma" event. AIG was probably a "12-sigma" event, Citigroup is about to become a "ten-sigma" event. How many times are we going to have black holes consume the earth?

So all these things occurred. What's wrong here...did we get eaten up by a black hole (many times over) or was their math horribly flawed? Obviously that's a rhetorical question.

Here's the problem. The curve is a wonderful human invention, as is calculus, but neither describes the real world. Both presume that if you are on a certain trajectory (positive or negative), that this will continue.

The world doesn't work that way. We operate in fits and starts with wild oscillations being the fact, in nature, if you look close enough, there are no smooth curves, or even flat surfaces...everything is bumpy. (See Fractal Geometry for more on this.)

But the economists have developed their tool sets assuming that the curve is the supreme being. That's why they are wrong so often.

It scares the hell out of me that we have guys (economists) like Summers (who personally tanked the Harvard endowment...see an earlier post for this) and Greenspan (why haven't you hanged yourself yet?, again see a prior blog) and Bernanke running all this crap.

They do not subscribe to the theory I describe which has been eloquently detailed by N.N. Taleb in "The Black Swan."

We are indeed in a "turbulent time" as Greenspan entitled his book. His main mistake was in assuming that we were never in a turbulent time before...turbulence is part of the human condition.

Incidentally, I threw Greenspan's book, a carefully wrapped dust-jacket, first-edition into the trash which is the first time I have ever done something like this.


Saturday, February 21, 2009

If You Are Smart You'll Listen To Paul Volcker (and I Know That All My Many Readers Are Smart)

According to him yesterday, "I don't remember any time, maybe even the Great Depression, when things went down quite so fast."

Volcker, arguably the most potent, poignant and successful Fed Reserve Chairman in history, who according to Robert J. Samuelson from Newsweek in his excellent and highly recommended book, "The Great Inflation and its Aftermath," worked with President Reagan to tame the most rampant inflation in this country's history, is visibly concerned.

From my perspective Volcker is nervous about two issues: (1) that things will get worse...much worse and further (2) that this worsening will cause unprecedented government intervention into our financial, societal and personal structures that will fundamentally alter the country irrevocably and irreparably (and not for the better.)

Volcker is known as an extremely private man but since he is a fellow New Yorker, I am going to try to connect with him to attempt to get him to share a few views with me, on the record, so that I can give you a bit more here...I know how to get in touch with him but whether he will meet with me is anyone's guess.

But unlike that idiot Greenspan, it has always been easy to peer through Volcker's rhetoric and I can guarantee you that he is extremely worried and perhaps he is even happier about his more advanced age (81) than I am....nobody like to see the crap hit the fan.

Film at 11.

Thursday, February 19, 2009

A Quick Question--Who Ever Heard Of A 900 Page Business Plan?

Well that's what GM presented to congress recently. Who is even going to read a 900 page business plan? It certainly can't be a useful road map for how executives are going to run the business in the future.

I think they probably only need a 5 page plan that discusses:

1. Going bankrupt so as to eliminate the crappy UAW contract.
2. Shutting down unprofitable brands.
3. Closing inefficient factories.
4. Moving existing inventory. I would give consumers a 3 for 1 deal. Buy the first car at sticker price and you get two more for does not matter what models these are, let the consumer have 3 Cadillacs if they want them; or for that matter 3 SUVs. These cars are now rotting on dealer lots, storage facilities or they are rusting away at salt-water ports.
5. Furlough all workers (with some pay benefits) for as long as it takes to move significant inventory. So what if you're giving the public a three-fer...GM hasn't made a profit for years; they don't need profit right now, they need cash flow and if this program is successful it will cut expenses and deliver that cash flow.

There are probably a few more things you would want to write about in the 5 page business plan.

I secretly suspect that GM handed Congress this 900 page travesty so as to obfuscate the issues and confuse the Congressmen who are looking at dropping $39B more down the commode.

Monday, February 16, 2009

Gun Sales--From My Favorite Texas Reporter

Last night on Fox News (north Texas) they did a 5 minute segment on guns and ammo sales.

According to the reporter gun sales are up 30% over the same time last year. The primary weapons are Glocks and "assault rifles". The reporter went on to cite that average shelf life of a Glock is a day and "assault weapons" is a day and a half.
He said that the concealed handgun license classes are full, ranges are expanding and that the gun stores can't keep the ammo on the shelves because people are stocking up.

He said that this run on guns is because of the "Obama. Effect". The people believe that Obama will try to curb their ability to defend themselves.

My only comment is that stocking up is a lot different from getting concealed hand gun licenses and shooting practice by people who never owned guns. It is fear ..... Or as they say in the south "fixin to get ready"

Saturday, February 14, 2009

Welcome To The U(C)SA

That's the United Communist States of America. This drop in the toilet $800B "rescue" plan will have no effect whatsoever on improving the economy. In the meantime, it is "bribe money" that taints anyone who accepts it.

Look at it this way. We have already nationalized all major banks (with more to come) an entire auto industry (Ford is next), the auto parts manufacturers have their hands out for $20B or so (they will then come under the thumb) mortgages (Fannie and Freddie,) student loans and the like. This nationalization will not end soon.

All this is in the name of "stabilizing the economy," yet "central planning is in full swing. If you as a company accepts this "bribe money," then you agree to have your local Soviet (oh I mean Washington) central planner attend your board meetings, set executive pay, even for those superlative executives like Jamie Dimon, and own major portions of your companies. Now I'm not saying that excessive executive pay is a good thing, but it is up to the shareholders to decide this and not the government. Shareholders have been like Bernie Madoff sheep to be sure, but it is their responsibility to be vigilant, (and incidentally, tragically, people are still killing themselves over the Madoff thing, the most recent calamity happened in the UK.)

We are all scared by this environment, but let's get serious, America has been through wars and much worse. A basic tenet associated with the current plan is a power grab by people who have never run a business before. If Detroit and Tokyo can't make desirable vehicles then let them rot. More nationalization is on the horizon and especially so if oil, as I predict hits $25 per barrel. Dubai, formerly a paradise is bankrupt, and the tankers keep rolling in.

We are now headed down the slippery slope past "European-styled" socialization to full-fledged government intervention into our lives. A respected friend and CEO says that he saw this in Italy 20 years ago and it took almost that long to get out of the trough. There are no more communists in Italy and maybe I have to move there soon.

Central planning is, has been and always will be a failure. It stifles innovation and makes people want to pull out their guns. But that's what we're getting these days from DC. They don't have nearly enough money to make a real difference except that they are exposing my 20-something year old children to debts that will probably never be repaid.

FDR wasn't a genius...the New Deal, according to many was a major fiasco; but WW-II got the factories operating again. Where can we look this time?

It's a terrible shame that maybe several hundred greedy people have thrust us into this condition. Folks are rightfully frightened; they won't buy cars, in fact, they won't buy anything and any check that you get from the government should be deposited directly into the safest place possible.

One ray of good news is that the government seems to agree with my maxim that "there is nothing worse than an empty house," so all these crappy mortgages, which were nothing more than highfalutin rental agreements are being treated as such, and there is an impending moratorium on foreclosures so that honest, hard-working people don't get thrown out as long as they pay a reasonable rent and maintain the properties.

I don't criticize the average mortgage broker because he/she was permitted to "sell $100 bills for $80," in that environment who the hell wouldn't go to town with that concept. But a system that allows the leadership (you name the institution) to have this persist, and which ignores the "long-tail" problem (basically, you get paid today, but bear no consequence for what happens beyond the artificial horizon) is fundamentally derelict.

We are nowhere near the end of this thing here, and I could give you so many calculations about how flushing $800B down the tubes (1) does nothing to improve the economy and (2) simply flushes $800B down the tubes, with serious adverse impacts on my young adults and others.

I am delighted that I am 53-years old. I used to wish that I was 23 but I no longer do...I hope that my shortened life-expectancy will put me out of my misery before the shit really hits the fan.

God this sucks.


Monday, February 9, 2009

This Is A Developing Story And One That I Have Presaged For A While Now

Here's the link:

Here's another recent link that reinforces my observations:

The point is that the famous name colleges like Harvard and Princeton, with their high price tags but equally prestigious names (and generous financial aid) will continue to see excellent application and enrollment figures as long as their endowments hold (dubious, see previous posts) so that they can continue to subsidize student acquisition.

And state universities for in-state students are still financially worthwhile. But for the expensive, smaller institutions that do not have a Harvard cachet, nor the financial wherewithal to make generous grants, my view is that they had better watch out.

Education is and always has been what you make of it. With $30,000+ price tags, in this dismal economic environment, many students may conclude that it just is not worth it to blow all that dough at a less famous, but only slightly less expensive school. And the money you save by choosing a more modest option can be very useful when you finish your undergraduate education.

In other words, you don't get a tangibly worse experience in a place like a community college, you preserve your alternatives (and your capital) and if you are a really assiduous student, you can get a great education anywhere.

With today's economy being in shambles, one thing strikes me as particularly imprudent. If you have a reasonable state university (most states do) with decent in-state tuition, unless you are getting a scholarship or extensive financial aid, why would you trade that for out-of-state tuition (sometimes double) at a comparable university in another state?

PS My son Rob was astute enough to find the following article at this link and I thank him for this want corroboration, here it is:

Sunday, February 8, 2009

Global Political Instability--I Guess I'm Not The Only One Who Thinks This Is Possible--Here Are Recent Remarks From The WTO Chief

BERLIN (AFP) – The global economic crisis could trigger political unrest equal to that seen during the 1930s, the head of the World Trade Organization (WTO) said in a German newspaper interview Saturday.

"The crisis today is spreading even faster (than the Great Depression) and affects more countries at the same time," Pascal Lamy told the Die Welt newspaper.

Questioned about the risks of political instability, Lamy -- who wraps up his four-year term as WTO director-general in September -- responded that that was "the main danger".

"This crisis weighs heavily on politics and puts peace in danger," he said.

"Some democracies are old and sufficiently stable to overcome such problems, (but) others are going to be confronted by unrest and inter-religious and inter-ethnic conflicts."

He went on to warn against protectionism, saying it would be "wrongly easy" for nations to throw up trade barriers in response to the economic and financial downturn.

Launched in January 1995, and now with 153 member states, the WTO's mandate is to liberalise international trade.

Friday, February 6, 2009

I Have Not Much For You Today, Maybe A Little Good News

For one, the NYSE may finally have bottomed, but I am not willing to bet the ranch (literally, Montana) on this. Companies have jettisoned expenses faster than a crashing aircraft loses fuel before it tries to land. But they are doing so by losing people. Of course, there are myriad other ways that they can reduce expenses, but firing people is always the easiest, first solution to this equation.

These job losses are astounding. Every day we read about major firms throwing out thousands (sometimes tens of thousands) of their workers. This is alarming to me and causes me great physical pain (I tend to internalize bad news...that's my issue, not yours.)

Where are these people going to get the money to survive?

The answer is that they are going to cut spending (which we have seen in spades) invade their personal savings, 401-K plans and the like. This will cause a ripple effect on the so-often chronicled crippled financial institutions.

Is there an Obama solution? I think not. It appears that the government is entering into "gridlock" which I usually favor, but in this case, "Houston (oh I mean Washington), We've Had A Problem."

We haven't heard much about the auto companies lately except that by March, some may very well be bankrupt..."film at 11."

My partners and I have been scouring the country for investment capital, and we have visited several large university endowments whose names we won't mention. Everyone we have spoken with in academia says that their endowments are at least 20% down...I don't believe it...this is akin to when someone asks you about your weight...they in my opinion are more like 50% down. If you doubt this, then access the University of Texas Investment Management Company site (UTIMCO) and look at their private equity investment performance...I'll make this easy for's the link:

Now UT (with whom my partners and I have not spoken to, unfortunately, we would love them to invest with us) has one of the biggest endowments in the history of the universe and just yesterday their (unpaid, voluntary) chairman resigned in the face of withering criticism from the Texas legislature. What all this means, longer-term for higher education is anyone's guess, certainly not mine, but it can't be good.

You would think that trees are always worth a lot; after all they take decades to grow. Well the world's largest tree farmer, Weyerhaeuser with 6 million acres under management (do you understand how big an area this is? Here's the answer...this is more massive than any of the entire states of MA, VT, NH, NJ, CT, RI or HI) just announced that trees aren't worth more than 60% of what they were yesterday.

We have to get people back to work. The government can't do it, the financial markets can't do it and the only solution, in my opinion, is innovation and in creating a new entrepreneurial environment throughout the world.

Humbly and respectfully submitted.'s an interesting article I turfed up about the US banking's a fun read.

Monday, February 2, 2009

A Couple Of Weeks Ago I Reported That The Nobama Uplift Would Fail

Well guess what; it is failing. Worldwide we are continuing to lose unprecedented numbers of jobs; by the day companies are reporting falling earnings; we switched from the "good bank bad bank theory" his appointments are getting hit with ethical transgressions; and so forth and so on. The stock market continues its inexorable decline. The government is touting that is is a willing employer which furthers the socialization trend that I have been writing about. Ford despite their stoicism will soon collapse. The Chinese just reported that they sent 26 million people back to their provinces...what the hell will this cause?

In the meantime, not a single new car is being sold, the boating industry is in a shambles, and this just goes to prove that this problem eclipses any single person in an executive position, including Obama, about to navigate these waters; and the last I looked, he talks a good game but is seriously lacking in navigational skills.


An update on 2/3/2009...nominees under fire...I count four thus far; this one being the most about navigation...with what you have to go through in DC to get even to this point, this crap is shocking.

Also posted by the now (unfortunately bankrupt) Chicago Tribune (I grew up with that paper and read it every day:)

The Chicago Tribune opined that "Daschle is dispensable" and suggested that "to proclaim high standards and then suspend them exposes Obama to charges that he is either hypocritical or obtuse."

Calling Edward Smith (oops, the captain of the Titanic, I mean Obama) we better get this ship steered away from these icebergs.