Jobs In The UK

I've been asked to add this link to my blog. http://jooble-uk.com/ If you click on it you will be directed to a site that has comprehensive job postings in England.

Thanks

John A.

Follow Up From The Mainstream Media On Persistent Issues

The press has continued to cover topics and opine on matters that this blog has handled for months if not years, but the slants they offer now largely echo the sentiments that historically have dominated this column. Here are the specific areas, and I apologize in advance if the NY Times links require you to establish a free subscription to access the content.


Afghanistan

In "Let Them Have Oprah" (11/24/2009) and "More Afghanistan Commentary" (12/9/2009) I strongly suggested that our efforts should be oriented towards helping the Afghan citizens by educating them and showing them societal alternatives. As Nicholas Kristof wrote then and reprises now, our focus should be on, among other things, building schools. It costs $1 million per year to pay, equip and support each soldier assigned to this war, and that is more than enough to begin construction on 20 new schools. Kristof's article:

www.nytimes.com/2010/07/29/opinion/29kristof.html?emc=eta1

"The Afghanistan Fiasco" (6/12/2010) details reasons why the war is not only un-winnable but also, is a tragic waste of lives and resources. Let's face it, neither the Soviet Union nor Genghis Khan were able to conquer this territory and we won't be able to either. Bob Herbert details the personal horror and Albert Hunt writes about the collapsing US-Afghanistan policy. For many months, the war was lightly covered by the media and nearly unspoken by the administration and Washington politicians. Since our country is now spending $105 billion+ per year on this lunacy, it is about time that the travesty, duplicity and confusion receive wide exposure. The two links are below:

www.nytimes.com/2010/08/03/opinion/03herbert.html?_r=1&emc=eta1

www.nytimes.com/2010/08/09/world/asia/09iht-letter.html?emc=eta1


Prevaricator In Chief

I have severely criticized President Obama in a blog series entitled "Prevaricator In Chief" (June 12, 4, and 2, 2010) wherein the main issue I attack is the President's dissembling, spinning and outright lying to the American public. In the Wall Street Journal, Fouad Ajami, a Johns Hopkins professor has recently published an eloquent piece that depicts much more serious Obama failings. In essence, Ajami declaims that the Prevaricator is an "empty suit with a teleprompter," a sweeping, unpopular/socialistic agenda and wavering support from even his staunchest supporters. I highly recommend that you read this editorial, "The Obsolescence of Barack Obama":

online.wsj.com/article/SB10001424052748704164904575421363005578460.html?mod=WSJ_hpp_sections_opinion


Greenspan

In "A Shameful Performance Mr. Greenspan" (5/13/2009) and in other blog notes, I pointed out that Alan Greenspan has been in high gear, using extreme revisionism to attempt to restore his tattered reputation.

The octogenarian is at it again. Why won't this guy just fade away? In any event, for what some believe is political expediency, Greenspan is throwing what little weight he has left into the Bush tax-cut debate. Nevertheless, I'm pretty sure that most people will simply ignore the guy who was a primary architect of the collapsed financial edifice. Here's a link if you are interested:

www.nytimes.com/2010/08/07/business/economy/07greenspan.html?_r=1&emc=eta1


The Economy

I have written repeatedly about our economic circumstances, and while some predictions have been wrong, for the most part, things are happening as I have been reporting all along. For example, I had thought that the domestic auto industry would have collapsed by now and clearly, it has not done so, albeit it now employs 30% fewer workers than it did two years ago, and Chrysler still can't manage to earn a profit. For the record, I'm still worried that the car markets will backslide into the morass.

On other items like unemployment, which now stands nominally at 9.5% and closer to 20% in reality, prognostications have been pretty accurate. The same goes for foreclosures (residential and commercial), the fiscal deficit, state/municipal finances and the like.

For your reading pleasure, I am including some links that I have assembled on the various topics:

Boiling Over:
online.wsj.com/article/SB10001424052748703748904575411713335505250.html?mod=WSJ_hpp_sections_opinion

Foreclosures:
online.wsj.com/article/SB10001424052748704499604575407584128526218.html?mod=WSJ_WSJ_US_News_5

Going To Extremes:
www.nytimes.com/2010/08/07/us/07cutbacksWEB.html?emc=eta1

As The Economy Slows
www.nytimes.com/2010/08/09/opinion/09mon1.html?emc=eta1


China Pollution

I have been a strong believer that we need to pay attention to cleaning up the environment simply because this is the proper way to mitigate even the slightest risk to the planet. In keeping with the "bad math" theme that permeates the blog, it makes no sense to ignore potential catastrophe, even if the probabilities are remote. The better solution is to conserve energy because that helps avoid the problem while at the same time, it improves economic efficiency.

"Global Warming Redux" (8/8/2009) and "Dirty Little Secret" (5/25/2009) both assert that if China and India do not also improve their entire pollution footprints, then the world's situation is hopeless because these two nations comprise the largest and fastest growing filth-perpetrators.

In a recent development, China announced that it is closing down 2000+ factories because they are "energy-intensive" and these companies satisfy that appetite by using older, expensive and dirtier technologies. Let's be clear here. The Chinese do not care one whit about global warming and such, but they do pay extreme attention to their economy. Since China imports 100% of its oil and increasing amounts of coal, it makes consummate sense for that country to realign its industries so that they ensure their future competitive viability. Obviously this is welcome news and perhaps it is also a standard-setting example for others. In other words, no matter what the motive...just clean it up. I hope India is listening.

Here's the story:

www.nytimes.com/2010/08/10/business/energy-environment/10yuan.html?emc=eta1

Thank God For Angels!

During the past year or so, it has been incredibly difficult for seed and start up stage companies to raise money from professional venture investors. Yes, there have been a few notable exceptions that have been heralded by the financial press, but for the most part, traditional capital sources have yielded to angel funding; in my view this is not necessarily a bad thing.

First let's examine what has happened to venture capital. In the previous decade limited partners dedicated enormous sums to the venture capital asset class and inevitably, this money was deployed by both older firms and relatively new ones across the entire company life-cycle spectrum including stages such as seed, start up, early emerging, growth, buy outs and the like. Historically, venture firms have been able to generate decent returns in each segment. Of course, parameters and behavior vary by stage so that, for example, it is axiomatic that failure rates and exit horizons are higher/longer with early-stage investments than they are for more mature ones. Nevertheless, with proper discipline and mathematically-oriented investment criteria, it certainly was (is) possible to assemble very attractive portfolios at every stage, including the early ones.

So why has seed/start up money dried up? One reason is that according to Cambridge Associates, an organization that likes to keeps tabs on venture capital performance, investment returns during the past 3, 5 and 10 years have been worse than anemic. This is typified by a) too much money chasing deals, b) too few firms willing to cut and run and c) even for reasonably successful companies, a very hostile exit environment (ie. almost no IPOs, very stingy M & A, etc.) So what transpired is that venture capital partnerships are now loaded with inventory from prior investments and accordingly, they don't have the bandwidth to cope with new, early stage investments which on balance, take more effort than their later stage brethren. The following WSJ article about board seats neatly illustrates these points:

http://online.wsj.com/article/SB10001424052748703977004575393692282796162.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsFifth

Compounding this is that the fund raising atmosphere for existing venture capital firms and especially for new ones is murky at best. This has engendered a hypersensitivity biased towards shorter investment horizons and quicker, although not necessarily larger (as a multiple of capital invested) exits. My friend, former colleague and fellow blogger Larry Cheng has written an interesting article about why his practice now favors growth-stage investing:

http://larrycheng.com/2010/04/17/why-growth-equity-is-the-best-riskreward-in-private-equity/

Moreover, unfortunately the entire venture capital industry is shrinking. Even though this is caused by poor investment returns delivered in the past decade as well as the egregious behavior exhibited by venture investors in aggregate, one thing that the United States has been particularly good at through the years has been nurturing, growing and commercializing innovation. If early stage investing significantly evaporates, I believe that our nation will lose a critical strategic/financial resource and a key economic driver. Another WSJ piece summarizes the situation:

http://online.wsj.com/article/SB10001424052748704229004575371533586548818.html

So why am I optimistic about early-stage investing? While angel investors have fundamentally always been an important funding source, it seems that they have recently been filling the seed/start up investment vacuum very aggressively. Even some well-established venture funds have committed capital to so-called "Super Angel" groups so that they can maintain their relationships with early opportunities that are initially shepherded by designated angels. Universities are also establishing direct funds, incubators and the like so as to care for and feed those concepts that are developed in academia. The following two articles highlight these efforts:

http://online.wsj.com/article/SB10001424052748704569204575329692106711952.html?mod=rss_newyork_main

http://www.nytimes.com/2010/06/27/business/27incubate.html?emc=eta1

There are few inherent flaws associated with seed and start up investment activities so long as those who are involved pay attention to several precepts:

1. Concepts and technology should address very large markets, defined as at least $1B+ at the outset. Technical and execution risk is high enough with early stage companies so that if a company manages to pull off a successful commercial launch, there should be a very broad audience for whatever the thing is.

2. The early investor's initial ownership must be very significant. This not only helps mitigate future dilution but also provides a foundation for investment rewards when a company eventually navigates to a liquidity event. My rule of thumb is that early stage investors should receive 40% of the equity, entrepreneurs get 40% and 20% is reserved for future contributors. This formula operates somewhat independently from the amount being invested since it relates purely to seed and start up opportunities.

3. Investment discipline is paramount. If, for example, the founders have laid out a plan that shows that the idea will be demonstrable as a prototype for say, $500,000 then by the time $250,000 is spent, they better be way beyond 50% complete. Or if a company starts to modify the original investment thesis, then at that instant, the entire enterprise needs to be reevaluated with at least the same diligence effort applied when the investment originated.

4. It's imperative to cut losses short. If as in the above example, $250,000 has been spent and the thing isn't working, then it might well be better to just pack it in at that point, unless there is a highly compelling reason to continue.

5. Recruit new investors before exhausting the initial investment. If the early investor can't find fresh money at a reasonable valuation step-up (protecting against severe dilution) after the company has achieved important milestones, then this may be a reason to terminate further early-stage investment.

6. Seek customers and partners immediately after the company proves that the concept is viable. There are usually a plethora of early adopters for great, demonstrable ideas. If the company has trouble soliciting interest in the prototype, this can be a very bad signal. Of course, the usual and customary intellectual property protections need recognition here.

7. While inventors seldom have the skills requisite to propel a company beyond its early years, it is often a mistake to recruit executive "talent" too rapidly. The early stage investor should be qualified and prepared to fill the overseer role until such time as the company is actually ready to enter markets. This will not only conserve financial resources and reduce potential friction, but also, will allow the company to recruit higher quality personnel at the appropriate time.

Given the venture capital industry's woes, and assuming that there is a reasonable behavior pattern involved, I believe that the future for early stage angel investing, university funding, incubators and the like is quite bright. Angel investing and related activities operate on a scale much smaller than institutional investors such as venture funds. With a $10 million capital pool (minuscule by venture capital standards) and assuming that 6/10 $500,000 investments fail outright, 3 return capital and 1 achieves a $100M exit (also modest by venture capital measures), that pool will produce at least a 3X return. If it does so in 5 years then the annual return rate is nearly 25%, dropping to about 12% if it takes 10 years.

Returns such as this will not "move the needle" for large venture capital partnerships since this analysis doesn't assume finding the next Google so to speak. But early stage investing by angels and their counterparts can provide meaningful investment returns for smaller players, and just as importantly, it will continue to fuel the innovation that America so badly needs.

Oh No, Another Blowout In The Gulf!

Well obviously this hasn't happened yet, but the worst nightmare is that the so called relief wells will themselves cause a blowout. If you think that this isn't possible, then you need to more closely follow the record.

The two related NY Times articles below paint a very scary picture. The first story is 23 pages long so I will synopsize it for you:

1. Deep water oil drilling is a very dicey and not well-understood proposition...nothing earth shattering about this conclusion.

2. The ultimate fail-safe mechanism is the five-story tall blowout preventer which according to all reports is a Rube Goldberg device that relies on, in effect, giant scissors to sever and seal the mile-deep pipes when necessary.

3. Preventers are notoriously fickle. They have a single point of failure (certain valves) and in deep water usage, they fail 45% of the time. So much for Tony Hayward's stupid statistics about this being a 100,000 to 1 or 1,000,000 to 1 accident, as I have previously written about.

4. Everyone in the oil industry (yes that means you Exxon, Shell et al) employs this technology and they fully comprehended the risks and shortcomings associated with their blowout preventers.

5. The government including Obama and his retinue also knew about all this. Responsible agencies repeatedly failed not only to order redesigning the apparatus but also to demand that existing preventers be adequately tested.

6. The oil industry and the present government continually conspired to prepetuate the dangerous status quo with respect to deep water drilling.

The second NY Times piece outlines notes taken by on-site engineers which demonstrate how little even the "experts" know about how to contain this monster.

So what can we speculate about the ongoing situation? It's absolutely clear that there are no containment solutions on the horizon, other than attempting to drill relief wells, and even the abatement efforts are proving to be feckless so far. But the unspeakable truth is that nobody in authority is talking about what might happen if one or the other relief wells also blows out. And what is preventing that from occurring? You guessed it...a blowout preventer, albeit with some extra redundancy (2 scissors) but fundamentally, the same design as the original one that crapped out.

I wish I had answers or even suggestions that would apply to the present mess. But I do have well-founded fears that things could get very much worse, and I don't think that the oil industry should be running around doing more deep water drilling until they are prepared to demonstrate and deploy safety measures that are substantially more reliable than what exists today. I realize that considerable economic loss follows such a policy but as we have already seen, there are even worse consequences to continuing on the perilous path that led us to where we are today.

Here are the article links:

http://www.nytimes.com/2010/06/21/us/21blowout.html?emc=eta1

http://www.nytimes.com/2010/06/22/science/earth/22blowout.html?emc=eta1

The Afghanistan Fiasco (Continued)

In blogs posted on November 24, 2009 and December 9, 2009 I criticized severely the war effort in Afghanistan. Basically I asserted that this altercation is unwinnable, unpopular and unfair to those poor kids who risk their lives pursuing America's futile quest in the Middle East.

As just reported in the NY Times, Karzai the sleezebag is said to be cozying up to the Taliban because he believes that neither the West nor NATO forces can ultimately prevail. While it would have been nice if Karzai had made this proclamation more than a year ago, I find it hard to blame him for voicing, what seemed to me all along, an obvious truth. For all the gory details, you can follow the link below:

http://www.nytimes.com/2010/06/12/world/asia/12karzai.html?emc=eta1

In a related editorial, Bob Herbert opines in his usual eloquent style. In "The Courage to Leave" Herbert exhorts our government to admit that we have deeply misjudged the situation in Afghanistan and in effect, to get the hell out of there now. I couldn't agree more. Here's the link:

http://www.nytimes.com/2010/06/12/opinion/12herbert.html?emc=eta1

American Nero...Good Graphic, Different Subject

I recently used the graphic above which depicts Obama as Nero, fiddling while Rome burns. Just yesterday, a WSJ opinion piece likened the Prez to "An American Nero." You can access the link below. The article's gist is that the President, PICUS or whatever insists on throwing parties and taking vacations while:

1. The Gulf oil spill gets worse, Obama's ridiculous "ass-kicking" statements notwithstanding.
2. The economy is in shambles.
3. The "war" in Afghanistan deteriorates into dust (see my next blog.)
4. The US debt/deficit situation has escalated to "condition red."
5. The health care legislation is starting to look like the disaster that many predicted it would be; PICUS is now running around defending it like crazy to anyone who will listen to him...seniors, doctors, congress, whomever.

You can read all this for yourself but I was amused that the analogy they used is the same one that, a few days ago, I also conjured up.

http://online.wsj.com/article/SB10001424052748704312104575298550188788086.html?mod=WSJ_Opinion_MIDDLETopOpinion#articleTabs%

Bad Math Reaches Beyond Financial Debacles

In prior blog posts, specifically on September 8, 2009, September 11, 2009 and in sporadic comments throughout, I highlighted the atrocious risk management based on poor mathematical modeling that precipitated the financial meltdown in 2008. Going back ten years earlier, Long Term Capital Management made similar miscalculations despite the fact that two Nobel Prize winners in economics, Myron Scholes and Robert Merton worked there.

Now it seems that British Petroleum in particular and perhaps the oil industry in general are also using ludicrous algorithms for predicting risk. For example, Tony Hayward, the beleaguered CEO has made pronouncements ranging from stupid/insensitive all the way to downright pernicious.

"I would like to get my life back" is a really dumb and selfish thing to have said...hey Tony I've got news for you, 300+ million people in America would like their lives back too. "We are 60-70% confident that the top kill procedure will be effective." In hindsight, it doesn't seem like that prediction was all too accurate...top kill efforts failed repeatedly such that there is no possible way that they ever had anywhere near a 60% chance to succeed. Before cutting the leaking pipe, BP told us that this action might increase the outpouring oil volume by 20%. Now, some scientists are worried that after the cut has been made, the exiting oil could be many times that 20% estimate.

What really frightens me though is something that Hayward let slip this past Sunday and I am a little dismayed that I have not seen anyone in the media call him on it. In a press release Hayward was quoted as noting that the probability against this accident happening was "100,000 to 1 or even 1,000,000 to 1." At face value, this is an utterly absurd statement. It would be like handicapping a horse as being somewhere between a 10-1 and a 100-1 shot!? Probabilities which range a full order of magnitude are inane and useless.

Moving to the next level, even if the odds against the spill happening were indeed one million to one, the risk-adjusted view, which ostensibly should be used for making operational decisions, is far greater (perhaps a thousand times more likely) than that. One million to one is a better chance than someone has to actually win the lottery and yet, lotteries are won every week...get the point?

Finally, how in the hell did anyone manage to come up with this probability appraisal? There have been in aggregate, fewer than 6,000 deep water wells drilled on the planet. Throughout deep water drilling history there have certainly been numerous accidents; the Gulf spill is cataclysmic, but there have been other serious mishaps. One would think that prudent risk management would use prior drilling history to rate the potential danger before knocking open a hole in the bottom of an ocean.

For once I agree with President Obama...Tony Hayward should be terminated as BP's CEO but I have reasons different than Obama's. The President thinks that BP caused the oil spill but I rather believe that the oil industry in cahoots with the government was responsible for it. Shell, Exxon et al are I'm sure on their knees with their Rosary beads thanking the Lord that something like this didn't happen to them...this time (remember the Valdez?) Rather, I think Hayward should be canned because he makes stupid, inaccurate and dangerous public statements. He also allowed his company to behave in a grossly negligent manner, without properly considering the dire consequences that ultimately arose from this carelessness.

It may sound like I abhor oil companies, deep water drilling or even Wall Street, but that assessment is entirely incorrect. I am not even arguing for risk aversion...all progress requires taking a chance on something. But I am advocating rigorous risk awareness/abatement and the mathematical tools to perform this analysis already exist, albeit, outside the realm of the conventional statistics that are most often used. For example, if Exxon, the industry and the government had properly come to grips with the fact that tankers can run into something that punctures them, then maybe double-hulled vessels would have been more prominent at the time the Valdez incident occurred...this wouldn't have averted the spill but it would have mitigated the damage. If BP had realized that its drilling strategy and cost-cutting mentality (see the NY Times link below) were not only bet-the-company but also, bet-the-Gulf of Mexico propositions, then perhaps it would have bored relief wells (assuming that this is the ultimate solution...we'll see if that's true) simultaneously when poking the production hole. I'm not suggesting that I know the specific risk-reduction remedies, but I AM saying that anyone who is in a position to create catastrophes had better completely recognize their predicament. While there are always possibilities for error, in situations like this, trivial considerations such as short-term profits, cost-savings and the like must be dwarfed by overarching, preplanned, redundant remedial resources which are deployed long before any accident can possibly happen...in other words, before drilling begins.

Modifying corporate and governmental behavior patterns with respect to potentially gigantic human, environmental and financial liabilities like the Gulf spill will require not only new, more appropriate risk measurement methodologies but also, a refreshed risk-reward mindset. If projects can't sustain the costs associated with extensive, appropriate prophylactic elements then they should be abandoned. I have no idea how much oil is in that particular reservoir in the Gulf, but whatever it is, it isn't worth the trouble and tragedy that this spill has caused.

For a more detailed description about BP and their missteps, please see the NY Times article below:

http://www.nytimes.com/2010/06/06/magazine/06fob-wwln-t.html?emc=eta1

To read about oil projected to climb up the east coast and beyond, you can check out this piece from the WSJ:

http://online.wsj.com/article/SB10001424052748703340904575284950638479786.html?mod=WSJ_WSJ_US_News_

The Prevaricator In Chief (PICUS) Part II--A PERFECT Example

The Dow lost 323 points (3.15%) today. Why? There are troubles in Europe for sure and the Euro is at an all-time low. China is making the usual strange noises that get everyone nervous. But the main culprit is the absolutely terrible employment report released today.

Economists had expected a 515,000 job increase and the numbers came in at a disappointing 431,000 but that's not the whole story. The private sector eked out a few new positions but the census bureau added 411,000 temporary workers which obviously accounts for nearly the entire 431,000 increase. At this rate, it will take more than 5 years to get back to normal unemployment levels around 5%, but we won't have another census for 10 years so we can't count on help from that quarter again soon.

So the employment data and its ramifications are bad enough already but what has me hopping mad is the PICUS's unfortunately predictable behavior. Earlier this week, Obama and his head henchman Biden were running around presaging Friday's report by saying things like "boy are these numbers going to look good." As late as today, the PICUS crowed about "job growth five months in a row" or some such drivel.

Does the PICUS believe that everyone else is an idiot? Wall Street saw through this charade and rewarded us with a precipitous market decline. Europe is laughing at us. China must be thinking that Americans are really bad at math. Sadly, our population isn't simply debunking all this lunacy, they are living the reality.

A Timely Update On Health-Care Benefits And Costs

Since I just posted a blog that (in part) questions the costs associated with the health-care legislation, I find it particularly interesting that two very recent articles seem to confirm that congress used very suspect figures and reports to justify their actions. Full disclosure compels me to openly admit that in all likelihood, I will personally benefit from the new health-care laws, as will I believe, millions of Americans. But that doesn't justify the chicanery and obfuscation that we've gotten on this topic from our friends in Washington and that is the point that I drive at in my prior posting.

The first article is an op-ed piece by Karl Rove who clearly is as partisan as one can be. Nevertheless, he almost always stitches together his facts better than Obama ever has, and according to Rove, the actuarial assumptions used by the health-care stalwarts are incredibly inaccurate. From my perspective, the signal sent by many giant corporations that rushed out with write-offs related to the new laws simply amplifies the message that all these new regulations will cost a ton. Here's Rove's WSJ editorial:


http://online.wsj.com/article_email/SB10001424052748703561604575282482320389198-lMyQjAxMTAwMDAwMzEwNDMyWj.html

So if one can't credibly assert that we'll save money with the new health-care legislation, then perhaps Obama, Reid, Pelosi and their cohorts can say with confidence that we will now get better care, and that they have unassailable evidence to support their conclusions. It turns out that the lawmakers did consult independent studies, including one from Dartmouth, but that this particular study is not only deeply flawed but also, it never intended to extrapolate health-care quality. Here's the opening paragraph from the NY Times article (of all places for this to be published!?)

"In selling the health care overhaul to Congress, the Obama administration cited a once obscure research group at Dartmouth College to claim that it could not only cut billions in wasteful health care spending but make people healthier by doing so."

And here's the bottom line as quoted:

"But while the research compiled in the Dartmouth Atlas of Health Care has been widely interpreted as showing the country’s best and worst care, the Dartmouth researchers themselves acknowledged in interviews that in fact it mainly shows the varying costs of care in the government’s Medicare program. Measures of the quality of care are not part of the formula."

If you want to read the full story (highly recommended) then follow this link:

http://www.nytimes.com/2010/06/03/business/03dartmouth.html?adxnnl=1&emc=eta1&adxnnlx=1275580827-zTrzfO8DzUD0ar1V7z93pA

Right now nobody knows whether the health-care situation will improve or deteriorate under the recent legislation, time will tell, I am not optimistic about it but I do hope for the best. But when elected officials, including the President use bogus and/or poorly vetted statistics to manipulate the results they are trying, a priori, to achieve, then we can properly impugn their motives and challenge their integrity, yet one more time.

Prevaricator In Chief

History dubbed Ronald Regan "The Great Communicator." I think that our President will in the future deserve a different moniker...Prevaricator In Chief. Here's why.

I listened to another endless monologue from President Obama this morning. He was at Carnegie Mellon University in Pittsburgh regaling the audience with all the fabulous progress we have been making in America, ostensibly under his (self-imagined) stellar leadership. I wondered why this guy so doggedly eschews press conferences while at the same time, he relishes making speeches like this by the dozen. Then it hit me. Obama isn't comfortable with the unstructured, open agenda that characterizes any president's session with the fourth estate. Media representatives have the nasty habit that they pester politicians with questions that one might rather not answer or that one may not have answers to. Obama absolutely loves to have answers, no matter how wrong-headed they are. Even more, he adores lecturing and moralizing on nearly any topic, no doubt with his trusty, able-bodied teleprompter in tow. However, more than anything, Obama cherishes that he can tell lies, distort facts, paint rosy pictures and in his "government is almighty" version of reality, pretty much get away with it all because of course, he and his minions know better than anyone how to fix everything.

Thank God that the President is a pretty poor prevaricator or he might actually be able to put one over on the American public. But his equivocation and dissembling are so overt that I suspect even his little daughter knows that her father is full of crap ("Daddy, did you plug the leak yet? No sweetie, but I'll stick my finger in it this morning, right after I'm finished shaving, I promise.")

Obama says the economy is getting healthier. Which parallel universe is he living in? Nearly 40 million people are now on food stamps for Christ's sake. The nominal unemployment rate is nearly 10% and the real one is almost 20%. Real estate foreclosures are through the roof to the extent that the courts are so congested that some folks just stop paying their mortgages and continue to live in the property for months if not years. The government is printing money and incurring debt at unprecedented levels, and if people don't understand that this is going to come back and bite them in the butt big time, then they deserve Obama's rhetoric. Check out 21 or so more reasons why the economy certainly isn't recovering by reading the following article:

www.blacklistednews.com/?news_id=8878

Senior government stooges (undoubtedly at Obama's behest) recently uttered that "The government is in charge of the oil spill situation in the Gulf," or some such poppycock. The truth is that there is no one who can control this catastrophe because such an operation has never before been attempted at such depths...something someone should have thought about before they started poking holes deep into the earth. I fear that the real scenario could be that the Gulf of Mexico is permanently destroyed, that the oil may not stop leaking for a long time (way past August) and that cleanup efforts will never succeed in restoring things. Rather than have some Washington lackey assure the world that the relief wells that come online in August will "almost certainly plug the leak;" a statement that no reputable scientist would dare to make, I would grudgingly respect a spokesperson who emulated the grotesque colonel in "A Few Good Men" and said, "You want the truth? You can't handle the truth."

Obama is mendacious about the economy and deceitful regarding the Gulf. His wars in the Middle East are an abomination, admittedly inherited, but shamefully continued during his administration. The President misled us about his position before he was elected and thereafter, he deflected like crazy in carrying out his own war escalation.

The dishonesty in Washington and in particular, The White House, continues to sicken the population. Did they offer Joe Sestak a job or not? Well, go ask that famous truth-teller Bill Clinton. Is the health care legislation going to save or cost money? It depends on whose figures one believes. Are Republicans blocking important legislation or saving us from congressional-induced perils? Who knows, and who would believe any opinion on this anyway?

People, tea-parties or whatnot are utterly fed up with this disingenuous nonsense; I hope that in the fall they throw all the bums out. There isn't any baby in this rancid bath water.

More Afghanistan Commentary

I've let this sit for a while, but the more I think about it, the more ridiculous the war seems to be. And my opinion is very well-supported by recent editorial activity.

For a comparison between our present efforts and those worked by the Soviets long ago, you can check out:

http://www.wsj.com/article/SB125831141804049337.html?mod=WSJ_hpp_MIDDLTopStories

Basically, what we should come to understand is that Afghanistan is not so much a country per se, but rather, various fiefdoms controlled by the local population and the applicable warlord. The Taliban is free to terrorize the enclaves, hide out among them or even, just stay quiet and out wait us...our recent troop commitments are either feeble, or else the administration is being hugely disingenuous with the American public. Either way, this war, conducted according to the published plans is a bad idea, and I suppose that we will spend years, untold resources and our credibility in achieving a result no more satisfying than what the Soviets did.

A better idea is to concentrate on building morale within the local population (which presently often sees us as unwelcome occupiers) by erecting schools, constructing infrastructure and showing them societal alternatives. The following article by Nick Kristof beautifully illustrates this point:

http://www.nytimes.com/2009/12/03/opinion/03kristof.html?_r=1&emc=eta1

If we proceeded as Mr. Kristof suggests, we would save money ($30 billion per year funds plenty of schools), preserve our integrity and quite possibly, actually do some good in Afghanistan.

This war effort now belongs to Obama, and in typical "waffling" fashion, he has somehow managed to immerse us in ambiguity. Are we committing troops for the long haul or is there a disengagement planned for 2011? Does fighting the Taliban in Afghanistan make any difference, or are they simply going to maintain their positions in Pakistan? For that matter, will either the Pakistan or Afghanistan governments really lift a finger to help us? There are so many questions and so few answers emanating from our government that it is positively disgusting.

The American people do not like this war. Those families who are contributing soldiers like it even less. I believe that we deserve better than to do what we are doing which is to "back into" an ill-advised military strategy in Afghanistan.

Let Them Have Oprah!

For years I have half-joked that if we want to solve the governance problems in Iran, Iraq, Afghanistan or any other backwards, belligerent country all we need to do is entice and enable all those nations' women to watch Oprah Winfrey. After such exposure, I surmised that the political scenario would change for the better, pretty damn fast.

Well what do you know? In reading SuperFreakonomics (SF) by Levitt & Dubner, I discovered that a very similar phenomenon actually occurred in India, of all places. It turns out that India (and China) are relatively inhospitable or even, downright cruel to women. Female fetuses are commonly aborted, and the prospects for those that survive are often grim. The Indian culture deprives women of higher education, tacitly supports wife-beating and generally, treats women in a sub-human manner. This doesn't happen everywhere in India but it manifests itself frequently enough to be well-known.

In SF they tracked areas where the situation had improved markedly for women and SF's findings traced the changes to television. It turns out that Indian villages obtained TV coverage and TV sets at different times. Those locales where TV became available showed dramatically better results with respect to a woman's treatment and human rights. I don't know if Oprah is on the air in India, but it seems that exposing people to what exists outside their enclaves does indeed foster behavioral changes in society...you can read the statistics for yourself in SF (incidentally, I really like the book.)

So if all this about India is true, and even making allowances for the fact that it is a democratic country, I think that if we plugged women in the Middle East into conduits like TV and the Web, that good stuff (by our standards) is bound to happen.

Periodically we have gone to war with troublesome nations like Vietnam, Afghanistan and Iraq, yet we pay little attention to the underlying sentiments that pervade the local population. We lost the Vietnam war simply because we did not understand how to oppose an enemy who hit, ran and used the countryside/local population as camouflage. Similarly, we do not comprehend Iraqis or the Afghans and we largely ignore their customs and tribal nature. After more than a decade of bellicosity, the Soviets were unable to conquer Afghanistan so what gives us the notion that we can do any better?

My Oprah quip is just a trivial expression for what I believe is needed in the Middle East. You can bet that when Obama soon explains his war escalation and exit strategies, he won't mention anything like educating the locals in western ways, using TV and media propaganda. Yet if it works in places like India, then isn't it worth a try in Iraq and Afghanistan?

Things Aren't Getting Any Better

Sorry that I have been absent for a while. Some medical problems got in my way but things are getting better now.

In the meantime, I have noticed that world affairs continue to deteriorate, and in the United States, issues such as unemployment, the Middle East wars, state and local financial troubles and such have reached disastrous proportions. In the link below, Bob Herbert, a NY Times columnist whom I admire greatly, explains rather pointedly how the unemployment situation has hit condition RED for those who are less than privileged, and especially those who aren't fortunate enough to work on (proverbial) Wall Street.

The financial community would have us believe that the salad days are here again, but who ever heard of the Dow topping 10,000 and gold besting $1,000 per ounce at the same time? Intuitively, that spells trouble to me. Meanwhile, the ill-conceived war efforts in Iraq and Afghanistan now look like they will take decades to bear the fruit we are seeking, provided that we have the fortitude and resources (money and personnel too) to persist, and this seems highly unlikely.

Our politicians from Washington to Chicago are lost in rhetoric and in a non-winnable race to the bottom. Municipalities are looking to monetize their infrastructure by selling off things like parking rights, tax items and even bridges. I pity both the cities and the financial organization who are participating in this chicanery; the money the local establishments receive has already been spent and it is beyond me how anyone can achieve a long-term profit from 70-100 year leases on all this stuff.

Do I have any answers? Not really. That's why I use a hurricane as the graphic for this post; it is the most powerful force on earth and it is unstoppable. I am afraid that this is precisely what we are facing in a social context. Perhaps the United States can borrow from Germany's playbook, or even China's since in both countries, they have managed to resume (paltry) growth and preserve jobs, although they both have other problems (China=pollution, Germany=economic stagnation) with which to contend; but in the USA, we don't have the gumption to upset the political status quo. If what I am writing about here is even moderately correct, then next year's elections will devastate incumbents, and without a better Middle East war strategy (stop the fighting) and a concerted effort to resurrect jobs for the many disadvantaged, Obama and his entire Washington crew will end up confirming that they are the feckless ideologues that I believe they are. My biggest fear is that even with the best practices, wonderful innovation (currently stifled) and terrific luck, it will still take ten years or more to pull out of this mess.

Geez this really sucks?!


Here's the link to Bob Herbert's article:
http://www.nytimes.com/2009/11/14/opinion/14herbert.html?_r=1&emc=eta1

Fancy Universities Are Bad At Financial-Market Math

Two posts ago, in one entitled "Do Economists See The Light About Their Crappy Math. I explained that Benoit Mandelbrot's (image above) work with fractals would suit them better.

Today in the WSJ there is a pretty extensive article (reprinted in its entirety below) about Harvard's loses in particular last year...nearly $10B. But Yale too lost big bucks from their endowment along with Harvard because of (1) market turmoil, (2) asset classes became (and remain) correlated with one another (3) some asset classes evaporated all together (4) both institutions (especially Harvard used too much leverage, sometimes even borrowing so as to remain 105% invested in often illiquid elements and (4)they both failed to protect against their catastrophic risks. Columbia which has a much smaller endowment (~=$5.5B) than either giants mentioned above lost about 16% which they claim was all about earlier, more active and more conservative risk management. Incredibly enough, Cooper Union, the tuition-free (if you can get in!) college down here in Greenwich Village says it actually managed to break even.

Now here comes the part that is filled with delicious irony. I believe that Benoit Manelbrot will eventually win a Nobel Prize either for Physics or for Economics and maybe for both; his work in these two fields has been more than seminal it has been a breakthrough.

Now these two schools might claim that they aren't familiar with Mandelbrot's work and advice which, if followed might have avoided $$$billions in losses. Yale shed only half as much as Harvard, but their endowment is only half the size so what's the big surprise in that?

Or they may say that they didn't read his book because it wasn't available soon enough. "The (Mis) Behavior of Markets--A Fractal View of Risk, Ruin and Reward" was published, for God's sake, in 2004. Their academics, students and administration must at least be partly interested in this stuff.

Maybe they couldn't locate him? That's hard to believe because he once taught at Harvard and until he retired in 2005, he was a tenured, endowed-chair mathematics professor at Yale.

So why did these schools put their constituents (thousands, including whole towns) at risk? Why didn't they phone up Benoit and ask him for his opinion about their portfolios? He might have taken up a deep-digging project bro bono for them and analyzed their market situations from a fractal-math perspective. Why didn't they ask Benoit? This is inexplicable to me, except for one obvious reason...hubris.

Money managers often get so confident that they don't listen to any others...not even Benoit Mandelbrot. The shame here as I see it is that innocent folks and even whole towns can get crushed by this behavior. If you don't believe me, just swim across the river from Cambridge and you won't see a pretty site at all.


Here's the article:


Harvard, Yale Are Big Losers in 'The Game' of Investing Yahoo! Buzz By JOHN HECHINGER It's a tie in the Harvard-Yale investment game. Both schools were thrown for colossal losses. The universities on Thursday said their endowments, higher education's two largest, each lost 30% of their value in the year ended June 30. Combined, the pair of investment pools shrank by a staggering $17.8 billion. Declines in the endowments have forced the two schools to cut budgets and delay plans to expand facilities and hire staff, as even the country's top colleges are being forced by the financial crisis to retrench. The pain is being felt widely across higher education. While many private colleges are getting less help from their endowments, public universities are suffering because of state budget cuts. Harvard University and Yale University, such fierce rivals that their fall football contest is known to both sides simply as "The Game," badly trailed the results of the typical college in the latest year. The dismal returns have exposed weaknesses in their exotic approach to investing, which after turning in chart-topping performance for years has proved to be highly risky. The schools were hurt by investments in assets that can't readily be sold, such as private-equity partnerships, which were pummeled in the past year after stellar results over the previous decade. In the category Harvard calls "real assets," including timber, commodities and real estate, annual losses neared 40%. Harvard was already budgeting for a 30% decline, but hadn't released a final tally. On Thursday, it said its endowment shrank to $26 billion on June 30 from $36.9 billion a year before. The decline also reflects spending from the endowment and donations. The Cambridge, Mass., university's investment loss itself was 27%, dwarfing the 18% drop in the median return for large endowments calculated by Wilshire Associates, an investment consulting firm. Yale said its endowment fell to $16 billion on June 30 from $22.9 billion a year before. The New Haven, Conn., university didn't break out its investment results. Yale had projected a drop of only 25% and Thursday warned of further budget cuts. In a letter to Yale faculty and staff, Richard Levin, the school's president, and Peter Salovey, its provost, said it now projects an annual deficit of $150 million each year from 2010-11 through 2013-14. Last winter, Yale cut staff and nonsalary expenses by 7.5% for the 2009-10 academic year and signaled it would ask for further cuts in nonsalary expenses of 5% for 2010-11. On Thursday, the university said it would ask for the 5% cut this year instead. The administrators pledged to preserve financial aid, but said otherwise "no area of expenditure will be immune from close scrutiny." Messrs. Levin and Salovey said most major construction would be halted until donor support could be found or financial markets recovered. They said Yale would also slow the pace of faculty recruitment. Facing a cash crunch last fall, Harvard has laid off staff, suspended some faculty searches and delayed a major expansion of its campus. Other wealthy schools, including Stanford University, Princeton University and Massachusetts Institute of Technology, have predicted losses similar to Harvard and Yale's. They all follow an investment model that de-emphasizes traditional stocks and bonds and instead loads up on alternatives unavailable to the average investor. Yale and Harvard pioneered the approach, arguing they could afford to take big risks, because they were investing for decades, even centuries. Many copied the schools, saying they had found a high-return, low-risk strategy. But Eric Bailey, managing principal of CapTrust Financial Advisors LLC, a Tampa, Fla., firm that advises college endowments, says, "If it looks too good to be true, it probably is." Mr. Bailey says typical colleges outperformed Harvard last year, because they stuck to a plain-vanilla approach, typically allocating 60% of their holdings to stocks and 40% to bonds. That strategy would have generated a loss of roughly 13% in the year ended June 30. Harvard aims to have only 4% of its investments in U.S. bonds, which were one of the few safe havens over the last year. It has cut by more than half its target for investments in U.S. bonds since 2005. The University of Pennsylvania's endowment, by contrast, loaded up on Treasury securities in 2008 and reported a more moderate 15.7% decline. In New York City, Cooper Union for the Advancement of Science and Art, which charges no tuition, ratcheted down the risk of its investment portfolio three years ago and expects its endowment to hold steady for the year. Yale and Harvard say their long-term results justify the strategy. Harvard's endowment remains the largest in higher education. In fact, the $10.9 billion it lost last year is bigger than the 2008 value of the endowments of all but six colleges. In Thursday's report, Jane Mendillo, Harvard's endowment manager, noted that Harvard achieved an average annual return of 8.9% over 10 years, three times its peers' -- adding $18 billion in value over what would have been earned by a 60%-stock, 40%-bond portfolio. Ms. Mendillo said the school is better off than it would have been if it had "pursued a more conservative investment strategy over the longer term." In Thursday's report, Harvard said its private-equity funds, which generally represent about 13% of its endowment model, fell almost 32%. Its real-asset segment, representing nearly a quarter of the endowment, lost 38%. Investments in "absolute return" hedge funds, designed to generate positive results in good times and bad, instead posted a 19% loss. The report showed Harvard trimmed its endowment's risk profile by raising cash, cutting by $3 billion its future commitments to invest in private-equity and other investment funds, and reducing its real-asset category to 23% from 26% of its model portfolio. Harvard also said the school now aims to hold 2% of its assets in cash. Previously, it targeted a negative-5% cash position, reflecting its use of borrowed money to expand its investments. Ms. Mendillo said endowment managers had learned to better reflect "the risk tolerance of the university." Ms. Mendillo pledged to manage more of the school's money in-house, giving it readier access to securities to sell for cash. Currently, 70% is farmed out to outside managers. That move could focus more attention on its managers' multimillion-dollar paychecks, which have provoked controversy on campus. Ms. Mendillo said "a substantial number of portfolio managers" had portions of their bonuses, awarded for past years, "clawed back" into the endowment because of poor performance. Harvard and Yale, like other schools, also signed contracts that committed them to huge future investments in private-equity and other funds at exactly the time they could ill afford them. In Thursday's report, Ms. Mendillo said Harvard cut its "uncalled capital commitments" to $8 billion from $11 billion.

Has It All Really Come To All This

The following was submitted by my friend (one of the last ones) Tim W. who received it anonymously.


Some time this year, we taxpayers may again receive an Economic Stimulus payment. This is a very exciting program. I'll explain it using the Q and A format:


Q. What is an Economic Stimulus payment?

A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. Only a smidgen.

Q. What is the purpose of this payment?
A. The plan is for you to use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn't that stimulating the economy of China ?
A. Shut up.

Below is some helpful advice on how to best help the US economy by spending your stimulus check wisely:


• If you spend the stimulus money at Wal-Mart, the money will go to China

.
• If you spend it on gasoline, your money will go to the Arabs.


• If you purchase a computer, it will go to India.


• If you purchase fruit and vegetables, it will go to Mexico, Honduras and Guatemala .


• If you buy a car, it will go to Japan or Korea.


• If you purchase useless stuff, it will go to Taiwan.


• If you pay your credit cards off, or buy stock, it will go to management bonuses and they will hide it offshore.

Instead, keep the money in America by:

1 spending it at yard sales, or

2 going to ball games, or

3 spending it on prostitutes, or

4 beer or

5 tattoos.

(These are the only American businesses still operating in the US .)

Conclusion:

Go to a ball game with a tattooed prostitute that you met at a yard sale and drink beer all day.

Economists Finally See The Light About Their Crappy Math

I am totally sorry that the text below is unformatted, but you can thank the WSJ for that. In order for me to report the full story, you would have to pay for a subscription so I grabbed it on my Blackberry for you.

Here is the gist. On January 22,2009 in an article entitled "Who Knows What Is Going To Happen To The Economy?" I questioned the math that all the idiots have used to predict financial futures. Here's the nugget: Nobel Prize winner Markowitz thirty years ago entirely absorbed the Gaussian curve...and that's what won him the (dubious) prize. Yet as I wrote on February 25, 2009, "Why I Hate Economists," I explained that their math was horrific and I pointed you to Mr. Mandelbrot's work which I have studied extensively.

Finally, on May 4, 2009 I displayed that Buffett and Munger had disdain for all this "high-order math." In another installment I will display my utter distaste for Mr. Buffett's achievements and intellectual capacity but that will have to wait. In the meantime, please read the junk that follows, courtesy of my Blackberry.


Thanks


John A.



SEPTEMBER 8, 2009 Some Funds Stop Grading on the Curve Yahoo! Buzz By ELEANOR LAISE Last year, a typical investment portfolio of 60% stocks and 40% bonds lost roughly a fifth of its value. Standard portfolio-construction tools assume that will happen only once every 111 years. With once-in-a-century floods seemingly occurring every few years, financial-services firms ranging from J.P. Morgan Chase & Co. to MSCI Inc.'s MSCI Barra are concocting new ways to protect investors from such steep losses. The shift comes from increasing recognition that conventional assumptions about market behavior are off the mark, substantially underestimating risk. Mark Brewer Though mathematicians and many investors have long known market behavior isn't a pretty picture, standard portfolio construction assumes returns fall along a tidy, bell-curve-shaped distribution. With that approach, a 5% or 6% stock-market return would fall toward the fat middle of the curve, indicating it happens fairly often, while a 2008-type decline would fall near the skinny left tail, indicating its rarity. Recent history would suggest such meltdowns aren't so rare. In a little more than two decades, investors have been buffeted by the 1987 market crash, the implosion of hedge fund Long-Term Capital Management, the bursting of the tech-stock bubble and other crises. Investors using standard asset-allocation approaches have been hammered. Last year, all their supposedly diversified investments plummeted in unison. In short, the underlying assumptions failed. "We got blindsided by some developments that weren't accounted for by the models we were using," says Clark McKinley, a spokesman for the giant pension fund California Public Employees' Retirement System, or Calpers. As a result, the fund is looking at incorporating an extreme-events model into its risk-management approach. Many of Wall Street's new tools assume market returns fall along a "fat-tailed" distribution, where, say, last year's nearly 40% stock-market decline would be more common than previously thought. Fat-tailed distributions are nothing new. Mathematician Benoit Mandelbrot recognized their relevance to finance in the 1960s. But they were never widely used in portfolio-building tools, partly because the math was so unwieldy. Morningstar's Ibbotson Associates unit in recent months built fat-tailed assumptions into its Monte Carlo simulations, which estimate the odds of reaching retirement financial goals. More than nine million individual retirement-plan participants have access to Ibbotson's Monte Carlo tool. The new assumptions present a far different picture of risk. Consider the 60% stock, 40% bond portfolio that fell about 20% last year. Under the fat-tailed distribution now used in Ibbotson's tool, that should occur once every 40 years, not once every 111 years as assumed under a bell-curve-type distribution. (The last year as bad as 2008 was 1931.) Insulation from extreme market events doesn't come cheap. Allianz SE's Pacific Investment Management Co., or Pimco, which systematically hedges against extreme market events in several mutual funds launched last year, says the hedges may cost investors 0.5% to 1% of fund assets a year. Pimco uses a variety of derivatives and other strategies to hedge the funds. "You're spending some of your upside to buy the insurance" against catastrophic losses, says Vineer Bhansali, a Pimco managing director. Among the Pimco products applying the hedges are target-date funds, aimed at retirement savers. The firm plans to launch more funds that employ the approach in the next few years, Mr. Bhansali says. Another potential pitfall: Number-crunchers have a smaller supply of historical observations to construct models focused on rare events. "Data are intrinsically sparse," says Lisa Goldberg, executive director of analytic initiatives at MSCI Barra. Even so, the firm this year offered pension plans and other large clients a beta, or prerelease, version of its new risk-management model, which seeks to account for more extreme market events. The company plans to include the model in risk-management products to be released next year. As Wall Street relies on ever-more-complex mathematical models to manage money, a new breed of uber-wonks is gaining influence. Pimco's Mr. Bhansali, for example, holds a doctorate in theoretical particle physics from Harvard University and runs 50-mile to 100-mile super-marathons. And MSCI's Ms. Goldberg, an inventor of the firm's credit-risk and extreme-risk models, is also a professor at the University of California, Berkeley and has a penchant for the "beautiful mathematical subject" of extreme value statistics. The fat-tailed assumptions sometimes lead to quite conservative portfolios that cushion investors on the downside but also sharply curtail the upside. Smart Portfolios LLC last year launched the Aston Dynamic Allocation Fund, which uses fat-tailed distributions and other complex formulas to assume more-frequent occurrence of market shocks. In the 12 months ending Sept. 4, the fund is down 0.5%, compared with a 16% decline for the Standard & Poor's 500-stock index, thanks to hefty allocations to Treasurys and cash. But as markets have rallied in the past three months, it has risen only 4%, compared with 8% for the S&P. In times of upheaval, "we don't sit there and take it like a man. We run for the hills," says Bryce James, the firm's president. Many of the new tools also limit the role of conventional risk measures. Standard deviation, proposed as a risk measure by Nobel Prize-winning economist Harry Markowitz in the 1950s, can be used to gauge how much an investment's returns vary over time. But it is equally affected by upside and downside moves, whereas many investors fear losses much more than they value gains. And it doesn't fully gauge risk in a fat-tailed world. A newer measure that gained prominence in recent decades ignores potential gains and looks at downside risk. That measure, called "value at risk," might tell you that you have a 5% chance of losing 3% or more in a single day, but doesn't home in on the worst downside scenarios. To focus on extreme risk, many firms have begun using a measure called "conditional value at risk," which is the expected portfolio loss when value at risk has been breached. In other words, if value at risk says you have a 5% chance of losing 3% or more in a single day, but you have lost 4% before lunch, conditional value at risk helps estimate your expected loss on this very bad day. Firms such as J.P. Morgan and MSCI Barra are employing the measure. Pimco's Mr. Bhansali is unimpressed. Since it is so difficult to forecast extreme events, investors should focus on their potential consequences rather than the probability they will occur, Mr. Bhansali says. As for comprehensive measures of risk, he says, "they fail you in many cases when you need them the most." Write to Eleanor Laise at eleanor.laise@wsj.com

Diogenes Redux

http://www.wsj.com/article/SB10001424052970203585004574392620693542630.html

I think that I have finally found an honest politician (man.) David Walker is profiled in a WSJ interview with John Fund, entitled "The Deficits Are Coming." Previously Mr. Walker was a top executive at Arthur Anderson and most recently, he spent 10 years running the General Accounting Office (GAO) which is widely considered to be exempt from the oxymoron phrase, "competent government agency."

Mr. Walker performed wonderfully at GAO but he left his term five years years early, because I suspect that he was fed up with all the nonsense.

The interview is too articulate and profound for me to adequately paraphrase it so if you are at all interested in a very well-reasoned, plausible view for our financial future, I strongly recommend that you devour it.

Thanks

John A.

Thinking About Eating

I have never before seen something like this. Okay, you can accost me for living in fancy neighborhoods and under relatively privileged circumstances, but remember, I have been in and around Manhattan (arguably the richest large city on Earth) since I was 18, and that was a LONG time ago.

The other morning, on my way to Penn Station, in a hurry to catch the 7:14 train to Princeton Junction to (I hoped) finalize the major oral surgery that has plagued me for more than a decade, I saw a huge phalanx gathered outside Saint Francis of Assisi Church on 31st Street just east of 7th Avenue. I ordinarily take the subway but early in the morning and/or when running late I optimize my cab ride by having the driver drop me off at "31 and 7." This usually takes less than 10 minutes from my place at Broadway and 11th Street and I have taken this route at least 100 times throughout the years.

So back to the long line waiting at the church. My first presumption was that all these, relatively well-dressed people were waiting to attend early-morning Mass. But this seemed strange since I had never witnessed it before. And the crowd was definitely not your usual street mongers, who often look like rejects from a leper colony. My curiosity was intense, so risking missing my train, I asked a well-dressed gentleman why such a large group (hundreds) was congregating this particular morning. I was expecting any answer other than the one I heard from him. "Sandwiches" he said. "Sandwiches." For Christ's sake, this was a genuine food line with more than a hundred patrons, right in Manhattan's mid-section. Let me remind you that a giant bagel with butter costs a whopping $1.17 at Zaro's in Penn Station across the street. I went and boarded my train, but I promised myself that on my return trip, I would investigate further, which I did.

I returned to the church at about 2PM, with my left cheek swollen like a pumpkin from the implant surgery, which incidentally, probably cost more than it takes to feed these people for a month (no insurance applies on this.) I spoke with the bookstore manager who explained that St. Francis operates chronologically the longest-running breadline...since 1928...in the city. He admitted that many patrons are mental patients, but they sure didn't look that way to me...I didn't see a single shopping cart loaded with myriad belongings and I did indeed espy some very well-dressed people. The manager confessed that "yes, there are some people with $400 Brooks Brothers suits" and that the line has grown four-fold during the past year. Apparently, St. Francis now serves 300-500 people per day. And there is another place, further uptown that provides lunch. Yet another, even further uptown that handles supper.

To conclude this chapter, I am seriously considering not only donating my money to this endeavor but also my time. Candidly, I was absolutely shocked by my observations.

No great lesson can exist without extrapolation. If our government, our President, our economists want to proclaim wonderful economic victories, we can let them try to convince us, but not without having them stand and beg for food in New York; and yes, despite my previous naivete, I now realize that there are profoundly large (and growing?) food lines in New York, and if so, most likely everywhere else. The people standing in these queues are not indigent slackers; they are just hungry. To put this into perspective, New York can be the most expensive place on Earth to eat (Le Cirque) or it can be extremely cheap. This morning, I just bought a bialy with a fried egg on it for less than $2. I can get a totally loaded falafel pita for less than $4 and I won't suffer a nutritional breakdown on that...besides, I don't require many calories. If you think that I have gone totally nuts, please read the recent pieces about people waiting in places all over the country for food handouts...I don't even need to provide links...these stories are all over the place.

But our country is suffering economic meltdown and nutritional stress. Let the obstreperous BS politicians from Washington step aside and join me at 31st and 7th, with very decent people, and then we can calibrate how well this country is doing. Pretty crappy is my assessment...wait in line for an hour for what Zaro's will give you for $1.17...that's a pretty low minimum wage.

Boy am I hot about this one.

Lionizing Ted Kennedy--An American Embarrassment

Hey, I am never eager to trample on graves. But my readers know that I am willing to express what others only want to keep to themselves. But all this poppycock about Ted Kennedy being a wonderful senator, and all the revisionism that revitalized his questionable political career sickens me greatly.

It was 1969 and I was 14 years old, when I heard that Mr. Kennedy drove his car off a bridge, killing a beautiful 28 year old woman. Then I found out that he didn't report this accident for nearly one day. Now I'm sure we have all done some terrible things in our lives but some events are so horrific that they end up defining our entire existence. Well, not so for Mr. Kennedy. For normal people, a tragedy like this might have ruined them...I can certainly say that I would never have been the same thereafter.

The police treated the episode like a fender-bender. Kennedy was let off the hook despite the assertion that rapid response (under two hours) might have saved the woman's life (see the link below.)

And what was Kennedy (a notorious drunk and womanizer) whose then-current wife was pregnant, doing in a car that late with a lady nearly 10 years younger? Forget about getting any answers anymore...everyone has tried to investigate this thing and only the Lord will ever know what really happened; but I have my strong suspicions. Here's a very interesting link:

http://en.wikipedia.org/wiki/Chappaquiddick_incident

So what about the great liberal senator from Massachusetts? Other than introducing the verb "Borked" into the nation's vocabulary, what the hell did this guy ever do for the USA? He served his country without distinction in the military (unlike his two older brothers) and was discharged as a private. He was caught cheating on a Spanish exam at Harvard and was accordingly suspended. He grew up as the privileged son of a famous American bootlegger, so I suppose that you can claim that his prolific and well-detailed drinking habits were genetic. He and his staff introduced more than 300 bills in the Senate but I challenge you to name a single one that has had any lasting consequence (except COBRA.) He was a proponent for the Vietnam War and for universal health care...both turned out to be fiascoes. In 1980, he tried to run for President against his own (admittedly feckless) incumbent, Jimmy Carter.

Ted Kennedy always tried to be the consummate power-broker, but he did so by utter compromise and promise breaking. His pernicious personal habits constantly hindered his efficacy.

After all this, and you can read it for yourself:

http://en.wikipedia.org/wiki/Ted_Kennedy

what we get from oratorical Obama et al is a hagiography that ignores what could have been a prodigious life, and instead turned out to be a profligate one.

I'm not the first one to imply this, but Ted Kennedy isn't just any departed American hero; he was an American disgrace.

Diogenes...Looking For An Honest Man

He eventually settled in Corinth where he continued to pursue the Cynic ideal of self-sufficiency: a life which was natural and not dependent upon the luxuries of civilization. Believing that virtue was better revealed in action and not theory, his life was a relentless campaign to debunk the social values and institutions of what he saw as a corrupt society. (Thank you Wikipedia.)

Well, that's Diogenes, and I have to confess that I am feeling more like him every day. Are we so corrupt that this is the only way to get along in life? I understand that more than 50 thousand US citizens acquired Swiss bank accounts so as to evade income taxes. Bernie Madoff is a new legend. The financial institutions have ripped us off and are now using their new found prowess to rip us off further. The President is a (well-intentioned) liar. The congress consists of not so well intentioned liars. Any baseball player who has avoided steroids (think Derek Jeter and not much further) won't make it into the Hall of Fame.

My home state, New Jersey boasts not only the most corrupt politicians in history (read the papers) but also, Rabbis who sold body parts. I wish this was confined to New Jersey but I fear that these guys were just stupid enough to get caught.

The Wall Street guys have it right...they get caught over and over again, pocket the dough and continue. They have ample help from Greenspan, Bernanke, Buffet and all their other stooges.

Have fun folks...the next 10 years will shake everyone loose.