Friday, January 30, 2009
Check this out...Ford STILL doesn't need government money. Give me a frickin break.
These guys will be in DC (Gulfstream or not) by April.
The D word is starting to be more effective now.
Have Fun...I Am
Here's an update from Reuters today:
Here's another update gleaned on 2/3/2009:
Thursday, January 29, 2009
It has begun. I don't much like France or their ethics, yet I used to speak French flawlessly, amazing even French people; but it makes total sense that in the Western World, that they would be the first to strike (literally) out. We are next.
Whomever isn't following this is a pigeon and/or a fool.
Saturday, January 24, 2009
This Next Post Is A Joke, Sent By A Texas Friend But I Couldn't Resist--Levity Is A Good Thing Any Time
THE COUNTRY OF TEXAS
Please note that Texas is the only state with a legal right to secede from the Union (not true but funny nonetheless.) (Reference the Texas-American Annexation Treaty of 1848.)
We Texans love y'all, but we'll probably have to take action since B. Hussein Obama won the election. We'll miss you too.
Here is what can happen:
#1: Barack Hussein Obama becomes President of the United States , Texas immediately secedes from the Union .
#2: George W. Bush will become the President of the Republic of Texas .
So what does Texas have to do to survive as a Republic?
1. NASA is just south of Houston , Texas . We will control the space industry.
2. We refine over 85% of the gasoline in the United States .
3. Defense Industry--we have over 65% of it. The term "Don't mess with Texas ," will take on a whole new meaning.
4. Oil - we can supply all the oil that the Republic of Texas will need for the next 300 years. Yankee states? Sorry about that.
5. Natural Gas - again we have all we need and it's too bad about those Northern States. John Kerry will have to figure out a way to keep them warm....
6. Computer Industry - we currently lead the nation in producing computer chips and communications--small companies like Texas Instruments, Dell Computer, EDS, Raytheon, National Semiconductor, Motorola, Intel, AMD, Atmel, Applied Materials, Ball Miconductor, Dallas Semiconductor, Delphi, Nortel, Alcatel, etc, etc. The list goes on and on.
7. Medical Care - We have the largest research centers for cancer research, the best burn centers and the top trauma units in the world, as well as other large health centers. Dallas has some of the best hospitals in the United States .
8. We have enough colleges to keep us going: University of Texas , Texas A&M, Texas Tech, Rice, SMU, University of Houston , Baylor, UNT ( University of North Texas ), Texas Women's University, etc. Ivy grows better in the South anyway.
9. We have a ready supply of workers. We could just open the border when we need some more.
10. We have essential control of the paper industry, plastics, insurance, etc.
11. In case of a foreign invasion, we have the Texas National Guard and the Texas Air National Guard. We don't have an Army, but since everybody down here has at least six rifles and a pile of ammo, we can raise an Army in 24 hours if we need one. If the situation really gets bad, we can always call the Department of Public Safety and ask them to send over a couple of Texas Rangers. We're a state that has a legal right to go heeled and concealed too.
12. We are totally self-sufficient in beef, poultry, hogs, and several types of grain, fruit and vegetables, and let's not forget seafood from the Gulf. Also, everybody down here knows how to cook them so that they taste good. Don't need any food.
This just names a few of the items that will keep the Republic of Texas in good shape. There isn't a thing out there that we need and don't have.
Now to the rest of the United States under President Obama:
Since you won't have the refineries to get gas for your cars, only President Obama will be able to drive around in his big 9 mpg SUV. The rest of the United States will have to walk or ride bikes.
You won't have any TV as the Space Center in Houston will cut off satellite communications.
You won't have any natural gas to heat your homes, but since Mr. Obama has predicted global warming, you will not need the gas as long as you survive the 2000 years it will take to get enough heat from Global Warming.
Signed, The People of Texas
P.S. This is not a threatening letter - just a note to give you something to think about!
SLEEP WELL TONIGHT - THE EYES OF TEXAS ARE UPON YOU!!
That's One Nation Under God, y'all!
Merrill Lynch lost billions of dollars in 2008 and hurt innumerable small-fry. The fact that they have triggered massive billions in bonuses should be investigated, and frankly, if this money can be recaptured via the doctrine of fraudulent conveyance, it should be.
Then we throw all these scheming bastards in jail and let them rot.
We'll see what happens...but that's my view.
And I will go toe-to-toe with anyone who disputes me on this. If I had done a similar thing at one of our small companies, my butt would be hanging by a rope.
Here's a recent update on these issues:
Friday, January 23, 2009
Then the government broke up the Bell System and in so doing, destroyed the most creative organization in history...Bell Labs...where inventions included Hi-Fidelity, the Laser, and the Big Bang primordial hiss among other things.
So IBM took the mantle. Then-CEO John (I want to change my first name now) Akers proclaimed that by 1990 or so they would have $100B in revenue; they never made it even half way there. Now IBM proclaims a great victory because they have exceeded analyst expectations, but they don't even make computers any more. The Chinese (also failing) bought the last remnants of the IBM computer business.
Now I used to work with the very highest levels at IBM, for many years, and I often remarked that they were the least creative organization that I had ever encountered; internal politics turned them away from the market. My prediction at that time was laughable but eventually came true. I invite you to visit me for a trip up the Hudson River (please bring the car, I don't drive any more) to places like Poughkeepsie, Fishkill or Myers Corners. Geez, for a time, Fishkill was the largest manufacturing operation on the planet. Now these are all ghost towns.
Microsoft so reminds me of IBM it isn't funny. Prove this to yourself. What was the last Microsoft product that you learned/bought? I know the answer already. Google is infinitely more creative, yet they too are in trouble because they didn't figure out that if people aren't buying things, that advertisers will eventually cut back.
The (sad) truth is that the world no longer needs more computers. We have more capacity than we can handle with computing, bandwidth and such, so all these businesses are suspect. We do need new applications but that won't help moribund Microsoft.
Now if I could only figure out why I sit here and write all this junk?
Thursday, January 22, 2009
What the hell do you think is going to happen now? I don't know but I would love to hear about it.
Why is all this opinion-oscillation happening, I ask myself? And I believe that I have come up with an albeit simplistic, theory. Economists, pundits, government types and the like, adore "top-down" analysis because it is SO much easier than to revert to basic principles and to try to figure, at the core, what is really happening. Top-downers bombard us with so called facts and figures, that may express some information, but do nothing to illuminate root causes.
At the base of our "bottom up" pyramid, we have people, jobs and their basic human needs. I don't think anyone will question my assertion that job losses across the world have begun to reach breathtaking proportions...just today, New Jersey, famous for it's low unemployment rate crossed above 7%...and for reasons that we won't get into here, all these unemployment numbers are deliberately calculated to be lower than the real unemployment rate. I wonder if the nice lady that I give two dollars to each day on the streets of New York City is counted as unemployed or just, "not working." From a mathematical perspective this makes a huge difference and I don't care a whit about whether this nice lady would work if given the chance...she remains a burden on society nonetheless. Incidentally, China is even more concerned about this problem than we are because they have closed 10s of thousands of factories and sent the workers back to their original provinces. The Chinese government is extremely worried about social unrest to the extent that they have publically so stated. In what is a huge and sad irony, it appears that it may be better for someone to have never worked, than to have worked productively then subsequently lost that opportunity. Other countries may behave more civily for a while, but social stability depends on an employed and productive work force.
Let's move up a bit the pyramid to the consumer who is in a relatively affluent position thus far. Everyone I read seems to think that if we can get consumer spending restarted again, all will be well. I happen to disagree. First, as history has taught us, unemployed people don't buy things other than bare necessities. We can also factor in that in nearly every developed country, we have been through decades of prosperity, so we have already bought a lot of stuff. For example, when I was feeling flush, I purchased no less than 4 high-definition TVs for my various residences. I do not NEED another HDTV and I won't buy one at any price. Other signals for this abound across the world. Because we have had so many prosperous years, we have achieved sufficiency with respect to luxury goods, and we don't need the next greatest, newest thing; in fact, given the new economic realities, it might very well become chic to adopt a minimalist approach. Sony, arguably the most respected consumer-electronics company in the world (I'm writing this on a Sony computer now) has announced massive retrenchments.
Will consumers buy new cars, ergo, from anyone? Now we're into the manufacturing tier of the pyramid. My answer is no...there is no price dependency here. If you want a car, you can find ample examples of new or nearly new vehicles that are being sold at dirt cheap prices. But if you can fix your existing conveyance (I might want to invest in auto repair facilities) then why not go ahead and do so. A new car is as much a vanity item as anything else; those elements tend to fall away when the economy struggles. So I think there will be a worldwide shakeup among automakers that makes what the banks are going through right now look like a walk in the park. Already Chrysler (and I love my Chrysler products (a Dodge Charger SRT-8, et al)) is attempting to joint-venture with Fiat, of all companies. I am selling my pristine SRT-8 not because I don't like it, but because I don't drive much any more...anyone interested can send me an email.
Moving to the next level, people (and companies) need a place to live, but the real cost of ownership has grown so high, and credit availability is so low, that there exists the potential for decades worth of disruption. There is nothing worse than an empty house, retail store or factory. Yet that is what we are faced with and policy changes in this area will be important, which is to say, we must get back to the point where it is affordable to rent and in some cases, re-purpose these areas. When malls lose their anchor tennants, and if you've been reading Mr. Chilleri's reports, they most certainly are, then what happens to all the little boutiques that depend on that foot traffic?
Let's keep peeling this onion. The stock market, as an indicator for anything is a joke. Speculators, acting as "mini-hedge-funds" are distorting the fundamental market behavior. I hope and think these guys are making money in 10ths and 16ths, but stock market performance is in NO WAY a proxy for what is happening in America and abroad. Let's face it, compared with job availability, the stock markets do not affect the world's middle class as some would proclaim they do.
Ah, oil prices...we're near the tippy-top now. Pundits don't seem to want to accept that if the major users (manufacturing, the consumer, etc.) don't want oil, then oil won't be worth much. Well the manufacturers (as previously discussed) aren't making what they were, Americans at least, are driving a few billion miles less per year (AND unsold cars are more efficient, purportedly.) There are tankers with more than a hundred million barrels each that are out at sea waiting for demand in order to have them land. The major oil producing nations have for years held the world hostage to their output, and some have built virtual Shangri-Las with this capital. That era, in my opinion is permanently over and the oil producers will just have to live with it. Here's a good example. Southwest Airlines, for decades the most profitable (perhaps the only consistently profitable one) has lost money only in two quarters, the latest being the most recent. Airlines are supposed to make money when fuel prices are low and passenger count is high. Fuel prices are low now so what must that imply about passenger demand? With alternative energy on the rise (I personally find wind-power the most promising) I do not believe that we will ever see high oil prices again...just a guess, but it's my guess.
Let's move on to rampant deflationary-inflation. Anyone who dismisses this as a possibility is innumerate. We are rolling the printing presses like crazy, with nothing to back it. This is as if Saks or Macy's (or whoever is left) gave you an unlimited credit card, and you maxed it out. Either they would have to reduce the value of the goods they sold you, forgive your debt, or go bankrupt in light of the bad obligation. It sounds trivial, but that is what we are all doing in the world today. Without further innovation, improved productivity and an ability to forge new lifestyles using these tools, we are doomed for years to mediocrity. There is no "deus ex machina" operating here.
At the very top is leadership. I welcome the new administration but I pity their plight. In an environment such as we face, there are so many opinions, and it's hard to know which one, if any, to follow. And crises erupt so quickly and with such frequency that even the mythical HAL-9000 computer from the movie 2001 would have difficulty dealing with this. Ultimately, it's going to be "every person (family)" for themselves, and maybe that will turn out to be a good thing.
Tuesday, January 20, 2009
There are no easy answers and the public will soon realize that. Then the stuff will really hit the fan.
Unhappily submitted and still working on innovation.
Monday, January 19, 2009
I especially like the picture which is a DAWN and not a dusk...I took it myself while 50 miles out at sea at 6am. This is the sun RISING over the North Atlantic and not a setting sun on the West Coast...appropriate imagery I should add.
Friday, January 16, 2009
The Arrowpoint partners collectively have more than 60 years experience in the venture business, and we have in aggregate posted more than $2 billion in positive returns, earned through the decades, encompassing nearly every economic cycle from boom to bust. In fact, we happen to believe that many great companies emerge during difficult periods.
We are professional investors and we never forget that, but we also have first-rate credentials in starting and managing companies. With early-stage investing, it is important to empathize with the people we invest in; that’s easier to do because we have been in situations similar to those we have made investments in. And we have a 24x7 mentality, so we are always there when our companies need us; and we have many references who will attest to this.
Arrowpoint’s mission is to restore venture capital to its rightful position as an economic driver in the United States, which, incidentally, will also be lucrative to our investors, our entrepreneurs and us.
We are primarily interested in ideas that have a strong potential to improve a significant part of the world so we tend to focus on market size above all else. Arrowpoint’s partners are all technically and managerially strong, with extensive personal networks, but we realize that our former competencies are past achievements and not fodder for new invention, even though some of us are accomplished inventors. So we look to team up with talented people who are dreamers, as we are. Without the dreamers who have populated history, where would the world be now?
We also realize that we can’t know or do everything so we have some specific areas that we focus on. That includes, (but certainly isn’t limited to):
• Internet and eBusiness Applications
• Digital Media
• Business Analytics
• Medical (although not clinical) Technology
• Business Services
• Wireless Applications
Arrowpoint has a renowned advisory board, which we are willing to discuss in private, but out of respect for our friends who help us, we will not publish them on our website. We also have guiding principles that emphasize smaller (but not insignificant) fund sizes because we believe that early-stage investing, from a mathematical perspective demands this, a non-hierarchical organizational structure, and an environment that gladly tolerates dissent among our partners. We also treat our limited partners as equals by providing them with unprecedented transparency, and a nearly unique profit sharing program. At Arrowpoint, we think it is our duty to provide superior returns that go way beyond simply doubling the capital that we manage, and we strive to construct strategies that will do just that.
Arrowpoint also forms joint ventures with universities, financial institutions, other venture firms and such who are looking to either commercialize inventions, or salvage sub-optimal situations.
We are not in a hurry to make investments but we are very anxious about helping the world. If we do our jobs properly, as we know we can do, everyone will benefit.
Monday, January 12, 2009
How To Survive A Total Economic Collapse--A Post By Kurt Ziegler, A Friend And Senior Software Company Executive
The Washington Post December 1, 2008 reported the U.S. military expects to station 20,000 uniformed troops inside the United States by 2011 to help state and local officials respond to and assist in homeland security. The Pentagon’s plan calls for three rapid-reaction forces to be ready for emergency response by September 2011. The first 4,700-person unit, built around an active-duty combat brigade based at Fort Stewart, Ga., is already available to be deployed domestically.
This caused me to also Google "economic collapse" and it came up with How to Survive Total Economic Collapse. http://www.ehow.com/how_2130484_survive-total-economic-collapse.html in eHOW, a site that has no political agenda; it simply has explanations on how to do about anything you can think of including How to Apply for an Analog-to-Digital TV Converter Box Coupon
The 10 steps of Surviving Economic Collapse instructions are:
Step 1: Read. Educate yourself beforehand if possible.
Read everything you can on how to survive a total economic collapse. Start with "Financial Reckoning Day: Surviving the Soft Depression of the 21st Century" and "Empire of Debt: The Rise of an Epic Financial Crisis", both by William Bonner, for a historical perspective and very well-written analysis of the current situation. Also read "The Great Bust Ahead: The Greatest Depression in American History" by Daniel A. Arnold.
Step 2: Plan. Make a plan for how to survive a total economic collapse.
List your debts and assets. How quickly can you pay down your debt, while still purchasing necessary supplies? Your goals should include no debt and the procurement and storage of valuable assets. Your preparation timetable should be as short as possible.
Step 3: Nix debt. Pay off debt and avoid new debt by paying with cash instead of credit cards.
Concentrate on paying off high-interest debt, loans with adjustable rates and unsecured debts first. Sell expensive vehicles that have loans to pay off what you owe, and buy cheaper replacements using cash. In order to survive a total economic collapse, you need to have assets, not liabilities. (Note: storing food and resources are higher priority than paying down debt for families of modest means.)
Step 4: Buy Silver. Change liquid savings into silver and gold.
If the dollar collapses, having precious metals will preserve your money and it can be used as currency or can be exchanged for a currency with value, such as Swiss francs. As the dollar continues to lose value, silver dollars preserve their value or go up in value, thus protecting your assets in the event of a economic recession, allowing you to financially survive a recession or depression.
Step 5: Invest wisely. Re-evaluate your stocks and mutual funds.
In order to financially survive a total economic collapse, your investments must be secure. Consider putting some of your stocks into gold (GLD) or opening a precious metals IRA. Research stocks that will survive a total economic collapse through sites like Daily Reckoning Day.
Step 6: Store grain and buy goods such as guns for hunting and personal protection.
Purchase goods and valuables such as guns for hunting and personal protection, and basic food supplies such as whole grains and legumes, which are easy to store. Invest in water purification bottles and tablets, and keep some bottled water on hand to meet immediate needs in the event of a shortage. All of these will make it more possible to survive a total economic collapse.
Step 7: First aid.
Prepare a First Aid Kit, sewing kit and other practical necessities of daily life to aid in survival of a total economic collapse.
These are good things to have on hand anyway, for regular daily life as well as unforeseen emergencies.
Step 8: Build community.
Get to know your neighbors and build a community wherever you are. In the event of total economic collapse, life will become very local and survival will depend on working together with others, beginning with families.
Step 9: Grow food.
Grow some of your own food and raise animals for meat. Chickens and rabbits are small and easy to tend. Chickens provide eggs as well as meat and are excellent sources of protein and fat, both critical for survival. In economic downturns such as a recession or depression, being able to produce food is a important skill to have.
Step 10: Barter.
Learn how to barter, and stock items to trade. Think about necessities (wool blankets, soap, boots, duct tape, ammunition) as well as luxuries (chocolate, tobacco, alcohol). Useful tools will be more valuable than money if there is a currency collapse. Useful barter items will be helpful to have on hand as you prepare to survive an economic collapse.
Sunday, January 11, 2009
By: Timothy Chilleri
10 January 2008
Circuit City, Boscov’s, Sharper Image, Mervyns, Linens ‘n Things, Whitehall Jewelers, The Parent Company (which owns eToys), and Steve and Barry’s; all have filed for bankruptcy protection. Starbucks announced last summer that they will begin shutting down 600 stores in light of deteriorating economic conditions. We all know the trouble facing Detroit and many financial institutions. Unfortunately, few seem to accept the economic realities as 2009 will likely be worse than 2008.
Last year, a financial WMD detonated in the United States (see “Christmas Past, Christmas Present, Christmas Future” for more details). The first wave of casualties were those on the front lines: home owners who purchased mortgages they could not afford, banks and lending institutions who foolishly lent out money to these unqualified candidates, Wall Street firms who sold and purchased various collateralized debt obligations (CDO’s), and institutional investors who purchased such obligations with little understanding of the real risks. They huddled together at the nucleus of the explosion as the government stepped in to hold together a shattered industry.
In 2009, the after effects will blow apart the remaining part of our tattered economy. Housing prices will continue to fall as supply is still outstripping demand and default rates will increase (1). Next up is retail which accounts for 70% of consumer spending. Christmas sales make up a mind numbing 26% of total retail sales. For all major retailers, Christmas is life or death. Sink or swim. In the black or in the red. Did anyone go shopping this Christmas and get bombarded with savings in every store? “Take an Extra 10% Off”, “25% Off This Week Only’, “50% Holiday Blowout Sale”, “Going Out of Business Sale: Take 80% Off Every Item in the Store”! While I consumers were delighted, did anyone really stop and evaluate the prospects for retailers?
I am 99.9% certain that holiday sales will come in well below expectations. Why so confident? A) Consumers were not willing to spend as much because they finally woke up from their coma to realize they have no money to spend on Nephew Nick and Niece Nancy. B) Everything was on sale! How do you think this is going to affect gross sales? Think of it this way, if a retailer had a 20% markdown on their merchandise, they would need 25% more volume to break even for the season. Did that happen? No. Why? Read A.
After studying more than 180 companies, AlixPartners, a restructuring firm, estimates that over the next 24 months there will be a fourfold increase in the number of retailers in deep distress; companies that do not have enough working capital or are unable to finance their debt. “Unfortunately, this is the new normal,” said Matthew Katz, a managing director at AlixPartners. “It's all about liquidity,” he continued, “what retailers are trying to do is turn their inventory into working capital and use that to fund the operation and to fund the debt load. And without that your lifeline is soft or gone” (Rosenbloom).
Earnings at US retailers will fall 20% this year, according to analysts’ estimates. The International Council of Shopping Centers in New York predicts 73,000 US stores may shut in the first half of 2009 after what may have been the worst holiday-shopping season in 40 years. That’s after about 148,000 stores closed last year, the most since the 2001 recession, according to the trade group. “You'll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains- either multi-regionally or nationally- go out,” said Burt Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York (“Grim Outlook for Profit”).
“I think you're going to see people giving back the keys and saying ‘We don't think the asset is worth the debt,’” Mark Weiss, president of McLean, Virginia-based JER Investors Trust JRT.N, said in a December interview. Commercial property values are falling after being propped up in the 2005 to 2007 period by lax underwritings and investors eager to boost paltry yields with risky debt (Yoon).
Once the terrible sales numbers are in, more bankruptcies will follow suit. On one hand this will leave a lot of people unemployed and on the other, thousands if not tens of thousands of empty stores. And who will rent them? No one. So, who else will go out of business? Failed financial firms, restaurants, tanning salons, travel agencies, and anything else of superfluous value (remember how we have been overindulging as a society)
The result will be a collapse in the commercial real estate market which will be more damaging than the residential one. Major projects in cities will halt (it’s already happening, eg, Las Vegas, Miami) leaving the unfinished buildings as a reminder of the collapse. Even where I live, Mohegan Sun casino has halted construction on its second major casino and hotel tower.
As the retail and commercial sectors break down, the credit card sector will be the next domino. Those who have been living off their credit card will not have the cash to pay everything off and some will default. Those who were smart enough not to get into debt will scale back and/or not use them at all. As a result, the credit card companies and all the related businesses and operations will be forced to pare back. The United States has about $3 trillion in debt (excluding auto and mortgage). I’m willing to bet that this will only add to the downward pressure of the economy.
Personally, I have a difficult time believing we can pull out of the recession in the next year. If our economy broadened during the major credit expansion era (arguably 1982-2008), won’t it shrink during a credit contraction? And to make matters much worse, we all know the most popular phrase in America will soon be ‘inflation’. When will it start and how high will it go? Who knows, late 2009, 2010 and once out of the bag, it will be much more difficult to control. As such, I see little light at the end of the tunnel.
(1) I am still unconvinced that the government can save distressed homeowners. Will lowering mortgage rates help? Perhaps, but with unemployment going higher and tighter credit conditions, home prices must still fall.
“Grim Outlook for Profit.” The Sydney Morning Herald. Internet. 5
January 2009. Available: http://business.smh.com.au/business-
Rosenbloom, Stephanie. Post-Christmas retail bankruptcies begin
In U.S. International Herald Tribune. Internet. 30 December 2008. Available:http://www.iht.com/articles/2008/12/30/busine-ss/3-0shop.php.
Yoon, Al. Commercial Property Loans Signal Deepening Stress.
Reuters. Internet. 6 January 2009. Available http://www.-
Friday, January 9, 2009
From Tim Chilleri:
Christmas Past, Christmas Present, Christmas Future
By: Timothy Chilleri
25 December 2008
Alan Greenspan should wear a gold medal everywhere he walks. It wouldn’t be a medal for distinguished service but rather, a mark of ignominy as he is the worst Federal Reserve Chairman in history. Luckily for him, his replacement, Ben Bernanke is anxiously trying to usurp him. You won’t hear this on CNBC or Bloomberg, but these men will be more despised than President George W. Bush once the full ramifications of their policies become evident to the public. Let’s see why.
In early 2000, the tech bubble burst, sending asset prices down dramatically. A year and a half later, 9/11 sent fear down American’s backbone and markets tumbled to its lowest levels in years. The Fed attempted to spur the economy by bringing down the key Fed rate; and it did, to 1 percent keeping it there until June 2004. Americans used this opportunity to take on more debt, either through refinancing to lower mortgage rates (and spending that saved money) and/or tapping into a home equity line. The move worked and the 31 consecutive months of negative real rates brought upon the housing boom. American’s were flying high and feeling rich. Their property value(s) was/were soaring, their stocks pushed higher, and all was well on the home front.
Then unexpectedly, the tide began to shift in August 2007. American Home Mortgage, one of the largest U.S. independent home loan providers, filed for bankruptcy after laying off the majority of its staff. Short-term credit markets froze up after a large French bank, BNP Paribas, suspended three of its investment funds worth €2 billion, citing problems in the U.S. sub-prime mortgage sector. The European Central Bank (ECB) pumped €203.7 billion into the Eurozone banking system to ease the sub-prime crunch over the course of three working days as The Fed and Bank of Japan took similar steps. That same week, Countrywide Financial, the largest U.S. mortgage originator, drew down its entire $11.5 billion credit line. Australian mortgage lender Rams admitted it also had run into a cash crunch. On August 17, the Fed cut the discount rate by a half percent to help banks deal with the credit problems. Within a month, it was disclosed that Northern Rock, the largest British mortgage banker was bordering on insolvency, triggered by a bank run (the first time this had happened in a hundred years) (Soros xiii-xiv)! The tropical financial storm turned into a Category Five hurricane as numerous giants began to topple: Bear Stearns, Fannie Mae, Freddie Mac, Indy Mac, Lehman Brothers, Merrill Lynch, AIG, Wachovia, and Washington Mutual. The tide went out and they were all caught with their pants down. But before we jump to conclusions, who is really at fault? In my opinion, direct blame lies on the Federal Reserve. Why?
Let’s put it an analogous terms: Say a kindergarten teacher walks into her classroom and delivers an enormous bucket of candy and soda to her students. She (stereotypical I know) instructs the children to keep working and she’ll be back in an hour. Do you expect the children to be idly working on their coloring books when she returns? Of course not, they are going to be swinging from the rafters, pushing over chairs, throwing paint all over each other while screaming at the top of their lungs. Now who do you blame here? The teacher who provided the means for this to happen, or the five-year olds who went willy-nilly with all the free candy? Naturally you blame the teacher. In this example the teacher is the Fed and the children are the banks and lending institutions. Think about it. You’re a banker. You wake up in the fall of 2001 with hundreds of billions in nearly free cash. What do you do with all these Benjamin’s? Sit on it and count crisp hundreds of dollar bills, or lend it out in hopes of watching your bonus hit seven figures?
The entire housing bubble and bust was manufactured and distributed by former Fed Chairman Alan Greenspan. He artificially suppressed interest rates to stimulate the economy. If he had let the natural free market work, we would have experienced a harder and longer recession beginning in 2001-2002 but am certain we would not be experiencing the current housing meltdown.
While banks and lending institutions do hold some responsibility for manufacturing exotic derivatives with huge leveraged risk (up to 35:1), you cannot expect them to idly sit on their hands. However, it is clear that these institutions held a prevailing misconception about market; that is, these securitized bundled “assets” were dependent on housing prices to rise.
This brings us back to Mr. Bernanke who on December 16, 2008 slashed interest rates to 0-.25 percent. Not only that, the Fed Chairman intends to leave interest rates at this level for “some time” to fight off deflation and is willing to print as much money as needed to stimulate our economy. In fact, on November 21, 2002, then Federal Reserve Governor Ben Bernanke gave an address before the National Economists Club in Washington D.C. The infamous speech which is now known as the “The Helicopter Theory”, Bernanke outlined a plan to avoid Japanese style deflation saying, “The U.S. government has a technology, called a printing press that allows it to produce as many U.S. dollars as it wishes at essentially no cost” (Wiggin 81). Scary? I think so.
I believe that the U.S. economy is a house of cards. Our economy is entirely predicated on credit expansion and without it we collapse under our own weight. 70% of our GDP is consumer spending. What happens when there is significantly less money to borrow and spend? We are a sustainable economy only if the rest of the world continues to lend us money. For the past several decades, we have shifted from a manufacturing based economy that produces and sells things to the rest of the world, to a service based economy in which we borrow money from the rest of the world, import the things we want to buy, and then send our borrowed money back to them. Does anyone see why this is a problem?
In my opinion, our day of reckoning is finally upon us. The rest of the world now realizes that there is no way we will be able to pay them back. The finance minister of India hinted as early as 2004 that they were reducing the amount of U.S. dollars it holds in its reserves. Soon after, South Korea made the same announcement. In August 2007 (the same time that the mortgage markets became unpinned), the central banks of Japan, China, and Taiwan sold U.S. Treasuries at the fastest rate in as many as seven years. In all, Asian banks have decreased its holdings of U.S. Treasuries by about $52 billion in the final summer weeks of 2007. Not a titanic sum considering they hold a little more than $1 trillion but certainly indicative of a trend, particularly since these countries are looking to stimulate their economies in the face of the current global recession . A few months later, the U.S. Treasury’s TIC data revealed that Japan, China, the Caribbean banking centers, Luxembourg, Hong Kong, South Korea, Germany, Singapore, Mexico, Switzerland, Turkey, Canada, the Netherlands, Sweden, France, Russia, Ireland, and Israel were all net sellers of U.S. Treasuries in September. The central banks of these countries will conclude that it’s smart to move their funds into other currencies, or to demand higher returns on their money (Wiggin 135-36).
There is little doubt that we are on the eve of destroying our currency. Individuals who think it is safe to hold U.S. bonds and/or currency are going to have no idea what hit them. Interest rates are now at 0%. Bernanke has made it crystal clear he is going to keep rates low and “add liquidity” to the system by buying all the stuff no private investor would touch. Where is it going to end? Recently, major developers across the country petitioned Congress for a $200 billion bailout. This is Socialism, pure and simple. More importantly, Bernanke is running the printing presses day and night to pump cash into this economy which will ultimately lead to massive inflation. This is an extremely dangerous precedent. Why?
Once the United States came off the gold standard, it gave the Fed complete reign over the money supply. And just like every other fiat currency in history, the Fed has lost discipline, printing money whenever needed. However, the Fed is very clever; they realized they needed a way to deflect or hide how much cash they were introducing into the economy.
The official rate of inflation is given through the Consumer Price Index (CPI). When more money is introduced than goods and services produced, prices will rise. So how is the CPI calculated? Each month, the U.S. Bureau of Labor Statistics (BLS) goes shopping, figuratively, by running around grocery and department stores, purchasing goods and adding it all up (Buchholz 22). The next month, they pick up the “same” goods and recheck the prices (you will understand why I put the “same” in quotations soon.) The delta or rate of change is the CPI.
While most focus on the CPI, it is an unreliable measure of the inflation rate. First, the BLS will purchase the “same” basket of goods regardless of price discounts, coupons, etc. Second, the BLS does not account for price fluctuations among products and substitute if necessary (Buchholz 23). For example, if you usually purchase fillet Mignon but lose your job, odds are you’ll begin purchasing hamburgers instead. Further, most forget that inflation is about overall prices, not just prices for a few items in the basket of goods.
Here is where the story takes a dramatic turn. The government began rigging the “basket of goods” in order to make it seem that inflation is low. Why? It turns out that the CPI was used to adjust Social Security payments annually for changes in the cost of living. In the early 1990s, press reports surfaced saying that the CPI was actually overstating the real rate of inflation. As such, it became costlier for the government to pay out higher amounts to retirees every year. So two financial “geniuses”, Michael Boskin, then chief economist to the first Bush Administration and Alan Greenspan, Chairman of the Fed issued some new directives. While the political uproar killed any consideration of Congress moving forward with the new changes (and rightly so), the BLS quietly moved forward with the changes under the Clinton Administration.
How did Boskin and Greenspan pull it off? Let’s say that Item A in their usual basket of goods goes up 14% over the course of a given year (the BLS finds that number unacceptably high). Well, instead of using the “same Item A”, they substitute “Item A” for “Item B”, which only went up 3%. Thus, they are able to wipe out an 11% increase in the price of goods by pure substitution.
Second, they use a term called geometric adjustment. Say one item in their basket of goods is a chocolate bar whose standard weight is one ounce (28 grams). If the price rises more than the government likes, they simply “adjust” its geometric properties, using only 24 grams, instead of the usual 28 grams. If the price of an item drops, they add “properties” to it reducing inflation further. And just like that, inflation isn’t all that high after all!
So, if the government is rigging the inflation rate, can’t we look at the money supply to truly see how much money they’re printing? The money supply consists of several measurements: M1, M2, and M3. The M1 consists of coins, dollar bills, and checking account deposits and are all added up. To calculate the M2, the search for money is expanded to include the M1 plus savings accounts and small CD’s. And lastly the M3, which is the M2 and includes large CD’s. So by looking at the M3 number, we can accurately see how much money is in the economy and how much more is being added correct? Well, that is now an impossible number to obtain because after March 23, 2006 the Fed stopped publishing the data! This is most likely the case because they are too embarrassed to tell the public how many dollars are actually sloshing around the world. What does this all mean? It tells me that there are massive inflationary pressures coming down the pipeline.
Now getting back to Bernanke and Paulson, they said the economy was robust and flexible a year ago. If they believed the economy was so strong then, does it mean they didn’t know what was going to happen? And if so, are they qualified to steer us out of this crisis? It’s clear that they didn’t understand the problem and now they’re pursuing the wrong solution. So the question ultimately becomes, will the government change the policies, eg low interest rates, printing money, bailouts, and stimulus packages that will only serve to hurt our economy? I don’t know. I hope so, but the longer we stay on this course, the harder it will be to stop in the future. If our government isn’t willing to deal with the problems we face now, why would they deal a problem ten times its size in the future?
If you follow mainstream financial news, you will hear all sorts of theories as to why the United States isn’t in that bad of a position relative to the rest of the world. They will cite things like we were the first ones into the recession, so we’ll be the first ones out. Well, why? They say things are so much worse in other countries (with no empirical evidence) and/or we’re the engine that drives economic growth which is no longer true. Go look up the yield on the 30-year Treasury bond. As of Christmas Eve, it’s paying a dismal 2.633%. No one in their right mind is actually buying a 30-year note with the intention of clipping coupons for the next 30 years collecting 2.6%. For all we know, the only buyer in town is the Fed as they are attempting to suppress short term interest rates. In fact, I hold the belief that foreign central banks are selling their bonds back to Fed and taking the dollars they receive and dumping them into foreign currencies. Just take a look at Treasury prices and foreign currencies. Treasury prices have risen (remember that bond prices and yields are inversely related) while the dollar has dropped against every major currency pair since the dollar rally ran out of steam .
This is a very important moment in our history and it is time to make some very important decisions about your financial future. What risks are you willing to assume? Are you willing to see it out that the Keynesians are right? That the inflationists are right? Are you going to trust your wealth to central planners; to Socialist and Marxist ideologies? If you have faith in these ideologies, I recommend holding your wealth in U.S. dollars. But if you believe in free markets, capitalism, in the writings of Adam Smith, and the founding fathers, you need to get out of U.S. dollars and you need to get out now.
Every time you hear the word economic stimulus or bailout, you need to associate another word with it, such as annihilation, destruction, and/or obliteration. Every single time the government bails out another industry we are simply amplifying the longer term pain. President elect Obama has recently said that he plans on pushing through a New Deal style stimulus package. He somehow seems to forget to mention that we are completely dependent on the willingness of foreigners to supply the necessary funds. In light of an ever weakening dollar, it makes foreign governments much less likely to purchase Treasuries. For example, Obama wants to work on is our infrastructure to build new roads and bridges. Now let’s think about this from an individual perspective. Say I’m $100,000 in debt and I go to a credit counselor. I tell them my issues and they say, hey, you know what, why don’t you finish your basement. Yeah, wouldn’t you like a two more guest rooms, another living area, and bathroom? And you say, of course but how is that going to get me out of debt? And that’s exactly what these politicians are saying. Building our infrastructure isn’t an asset, it’s a liability. We can’t put these roads on an eighteen wheeler and sell it to foreign countries.
So what’s the moral of the story here: the government and Federal Reserve are not letting the free markets operate. The market wants to fix itself but cannot. I do not know when these inflationary pressures will be released out of the bag. I just know it will and when it happens, the tsunami wave that follows will destroy everything in its path.
Buchholz, Todd. From Here to Economy. USA: A Plume Book, 1996.
Soros, George. The New Paradigm for Financial Markets: The Credit
Crisis of 2008 and What It Means. New York: Public Affairs, 2008.
Wiggin, Addison. The Demise of the Dollar…and Why It’s Even Better
For Your Investments. Hoboken, New Jersey: John Wiley & Sons, Inc., 2008.
(1) Remember that sub prime borrowers were the first victims of the credit crunch. This occurred because the low teaser rates offered by banks and lending institutions ended after a two year period and the borrower’s mortgage rates ballooned. This is extremely indicative of what is about to happen as many standard teaser rates (non-subprime mortgages) which go up after five years. The reason why the Fed cut rates to effectively 0% on December 16, 2008 is because they are attempting to drive down mortgage rates. Why? Because these higher rates are about to kick in for many U.S. borrowers and the Fed is terrified these people will default. The Fed is attempting to lower mortgage rates so these borrowers can re-finance at lower rates so housing prices will not crash (this is going to happen regardless of government intervention as you cannot fool free markets!)
These countries have been saving up U.S. debt for a rainy day. Now that rainy day has finally arrived. When China wants to spend hundreds of billions to stimulate its economy and decides to sell U.S. Treasury bonds back the Fed, how will the Fed pay for it all since we’re broke? No worries, Bernanke can use his favorite toy, the printing press.
The artificial dollar rally from July through the end of November was pure trading: it was because of financial deleveraging, a reflexive flight to “safety”, speculation, and momentum. None of it had anything to do with market fundamentals.
Thursday, January 8, 2009
In the spirit of full disclosure, I too am an investor and I have lost money, but thankfully, have made far more than I have lost. In the few cases where personal friends and such were involved in a loss, I have made full restitution from my own funds and/or I am still trying to do this even though I have no such obligation to do so. Why do I do this? Because I have a conscience.
The definition of psychopath (sociopath) is amorality...ergo, no conscience is possessed by the perpetrator. Back in 2003 the NY Times and the BBC ran articles about psychological studies that demonstrated this phenomenon--the corporate psychopath; you can Google these articles if you are interested.
Now I have to be clear, I (gratefully) wouldn't know Madoff from a hole in the wall. And I have enormous sympathy for all who lost money with him. But the large institutions with the wherewithal to conduct due diligence and the ability to survive the losses were merely playing the tables at Las Vegas. My heart really pours out to those small fry who have lost entire life savings and are now, at advanced ages, forced to try to compensate. The chances are that they will never recover. AND WE HAVE PEOPLE KILLING THEMSELVES OVER THIS THING!
Why did Madoff do it? This interests me greatly from a personal and academic standpoint. After all, if you steal a million and get away with it, then why continue? Or $100 million? But at $50 billion and counting, there has to be a better explanation than pure greed. My supposition (not yet covered in the press) is that Madoff is a corporate psychopath (sociopath) who went on a lengthy financial killing spree at the outset. After he risked exposure, he (as my students have heard so often) then settled into habituation, which is to say that he did it again because he was able to do it before.
But he acted not alone. There must have been hundreds of "investment advisers" who attempted to steer the poorer small folks towards Madoff, and while it may be comforting to think that they were just trying to help their clients out, you better believe me, they got quid pro quo for this activity. The evident disclosure lapses by all involved compounds the matter.
So is Madoff a scumbag? The answer is unequivocally yes, and he is a sicko scumbag to boot. But let's not forget his aiders and abettors who used "apparent scarcity" to entrap their victims.
The truism is that if it looks too good to be true than it is. That applies here in spades. For those who would like to understand that the world works in oscillations and not smooth curves, I would recommend reading "Fooled by Randomness" and "The Black Swan," both authored by Nassim Nicholas Taleb.
Tuesday, January 6, 2009
What better way to express what is happening today. A high-end automaker is rescuing the people!? Or the rich are helping out the poor. Bernie Madoff is next on my list.
Sunday, January 4, 2009
More cannon fodder ….
There was a Gun Show in Dallas today … this by itself is not an unusual event, there are about 16 such events in the Dallas/Fort Worth Metroplex a year, however, the fact that there was a constant fast moving 35 minute long line to get in was. We are talking about a constant line of 250+ people. More than 4 thousand people were in within 2 hours of opening. In contrast, I have never waited in line for more than a 5 minutes to get in for this particular show. The folks were going in buying and leaving, there was usually little “window shopping” or “browsing” . It was a demand driven environment. The sellers were getting the asking price, also unusual. Some tables were are already depleted of ammo by noon. Hand guns and para-military semi-automatic weapons were being purchased at an unusual pace.
Perhaps even more interesting, the people weren’t the normal gun show diehards. There were a lot of Joe and Sally averages. The buzz in the line was “Obama was going to come down on the ammunition and guns” and they felt that they had buy a weapon or stock up with ammunition and reloading supplies. Unspoken but obvious from the people purchasing guns inside they were getting something for self defense. The purchase of the firearms were expedited with a phone-call “check-out” (instant background check) for those who didn’t have a Concealed Handgun License. No two or three day waiting to pick up the firearms. Bunches of people who had obviously never fired a gun walked out with an under $300 hand gun and ammunition.
Here is some similar coverage from a show in Tennessee Dec 26thhttp://www.volunteertv.com/news/headlines/36762344.html the video says it all. The Dallas show had even more activity.
By the numbers
A few statistics about gun sales in the United States since Barack Obama was elected president in November:
During election week the number of background checks for gun purchases was up 49 percent, compared with the same week in 2007, the FBI reported.
There were 15 percent more gun background checks for October of this year, compared with October of 2007.
Statistics on national instant criminal background checks show that 374,510 people purchased a handgun or long gun during the first week in November, compared to 251,804 during the same week last year. This is a 48.7% increase! That month the FBI completed more than 1.5 million background checks in November, a 41.6 percent increase over November 2007.
Friday, January 2, 2009
the shortened link (from Yahoo) is:
The only salient thing that Krugman ignores in my opinion is that rampant money printing must eventually result in super-inflation.
Here are my comments:
Most political and economic commentators are very reluctant to use the word Depression in their description about the world today. They point to the fact that in the Great Depression, unemployment was 20% or more, and I dread this, but we may get there, and we are nowhere near that now. What they don't calculate is how inter-connected the world economy has become, and how the public's responses have changed. And honestly, how you can actually calculate unemployment...back then, nobody cared in this country about how many people in India were out of work.
So first, I'll give you three personal anecdotes. My maternal grandfather worked for Buick in what was then a lovely town called Flint, Michigan. My mother (long since deceased) used to explain that she hardly knew anything was wrong...her dad went to work every day. Well there is about to be no more Buick and probably no more Flint.
My mother-in-law grew up in a family in Clifton, New Jersey and they had a little land there (a few acres.) Her father was very handy, ergo was constantly employed, and when the crap hit the fan, he decided to build a chicken-coop and stock it with chickens, rabbits, and other small wildlife that could provide sustenance. They also farmed their small estate for vegetables and other foodstuffs and so they never went hungry. As my beloved mother-in-law (an oxymoron for most) tells it, strangers would show up at their doorstep to be fed, and feed them they did...they had it to give out, and so they could afford this generosity. Compare this with this present situation that not only can't I build a chicken coop in West Windsor, New Jersey (it is against the law,) but also, it is unlawful for me to drill a fresh-water well to water my lawn or fill my now-defunct swimming pool. Besides, I wouldn't know how to deal with a chicken or a rabbit as far as food procurement goes. Our present society does not have the "self-help" alternatives that were available in the past. Nor do we have the independent agrarian base that we had back then...the food companies are either giant conglomerates or cooperatives...the small fry has been squeezed out. If people can't eat, they can't survive, and this a major difference between now and then. And if they can't survive then they revolt...this is true throughout history.
My third vignette involves my own family and my father who grew up church-mouse poor in Chicago despite the fact that his own dad arguably invented the modern super-market and was making big bucks (which he subsequently lost (that's another story about why you shouldn't tolerate nepotism)) in the early 1900s. My grandmother made her children clothes from what today would be considered scrap material. In fact, among my most prized possessions are the patchwork quilts that grandma made from old dresses that I remember her wearing. Who the hell knows how to make a quilt these days?
So here we are, and (1) We have less control of our destiny because while our sophisticated skills are more attuned (trading, blogging, writing computer programs, etc.) our basic skills have eroded to the Dark Ages. Who knows how to sew their children's clothes...I don't, do you? (2) How many people know how to grow a tomato or kill a chicken, or even how to find one to kill?
Okay, so there's more. We were not as inter-connected then as we are today. The big rub against America back then is that we were Isolationist. There is a wonderful book that I read (and often re-read) published more than fifty-years ago by David Potter, called "People of Plenty," and written in 1954 it presaged all our responses to crises...we would just find more resources, and Professor Potter warned against this mentality. As a young math-philosophy student at Columbia University, I embraced this way of thinking and I still endorse it today. The issue here is that it is no longer possible to be isolationist. Someone has to work with all the various factions to coordinate efforts, or like a dysfunctional team in any sport we will all fail.
Finally, the "herd-mentality" got us to where we are, it will keep us here or it will tank us further. Unless innovative thinkers like my partners and I keep hammering on the ultimate truths, then we will lack the courage to seek, perhaps unusual, but ultimately effective solutions.