X-Men

The X-Men movies are some of the best films ever made. So many philosophical questions are covered in the series. For example, what laws, if any, should be passed for people considered superior to others? Should people who are different be controlled in any way? If so, how? To what extent do others without unique characteristics have to bend to accommodate a minority with special traits? I could continue ad infinitum. 

Here's one of my favorite scenes, from X-Men 2:

Storm: Sometimes anger can help you survive. Nightcrawler: So can faith. 

 For whatever reason, this exchange is electrifying in the film.

Yeats and the Stock Market

It's not too often I see someone adeptly combine my two loves--the stock market and poetry--so I had to share James Surowiecki's article with you:

http://www.newyorker.com/talk/financial/2008/09/01/080901ta_talk_surowiecki

Mr. Surowiecki's topic is the market's recent volatility: "[I]n the long run volatility is a very bad thing, because it makes ordinary investors less inclined to trust markets." His best line, about investor uncertainty, is at the very end:

[F]or now we’re stuck in a Yeatsian market: the best lack all conviction, while the worst are full of passionate intensity. Let’s hope the center can hold.

If you're still not agog at Mr. Surowiecki's reference, the first part of Yeats' Second Coming is below:

TURNING and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

Yeats and the stock market--a herd of passionate intensity. That about sums it up, doesn't it?

Olympics and Globalization

George Priest and Minor Meyers wrote today about globalization's benefits to America's Olympic standings (WSJ, A11, 8/25/08).

Gymnast and gold medalist Nastia Liukin was born in Moscow, Russia.

Wrestler and gold medalist Henry Cejudo was raised by a mother who was an undocumented Mexican immigrant.

The entire U.S. women's table tennis team is from China.

Globalization also helped non-U.S.-Olympians find jobs and achieve higher performance.

The Iranian basketball team's coach is Serbian.

Becky Hammon, U.S. basketball star, played for the Russian national team.

Swedish wrestler Ara Abrahamian is of Armenian descent.

Cartoonist Clay Bennett

Other than Tom Toles, I haven't been enamored with any other cartoonists...until I saw Clay Bennett. His style reminds me of Wallace and Gromit with an understated political bent. Check him out:

http://www.claybennett.com/archives.html

http://www.timesfreepress.com/news/cartoons/

Here's one cartoon students will (unfortunately) identify with:

http://www.claybennett.com/pages2/debt.html

I particularly like this one:

http://www.claybennett.com/pages2/curb_appeal.html

Bonus for your funny bone:

http://www.thingsmyboyfriendsays.com/index.html

Decoupling?

Economists love to talk about "decoupling." It sounds like just what it is--a breakup, or an ability to become independent from someone else. The world economy has been humming along primarily because of U.S. demand and U.S. dollars. Recently, with the gains in Dubai, Brazil, and Russia, people believed the era of U.S.-caused growth might be over--that finally, countries could organically create growth. This NY Times article casts doubt on that hope:

http://www.nytimes.com/2008/08/24/business/24global.html?em

If the U.S. is still responsible for most growth, investors are better off just investing in the S&P 500 rather than attempting to diversify directly in international stocks or funds. But I believe decoupling will happen eventually--as the Chinese, Indians, Eastern Europeans, and Russians feel more affluent, they will spend more domestically and internationally. I've taken this opportunity to diversify my holdings and add commodities (KOL), gold (GLD), and single-country-based funds (EWM, IF, GXC) due to the pullback in most of these funds/ETFs.

USA v. Spain

Bryant, Wade lead USA to tough victory over Spain in Olympic medal showdown (or, according to the Ball Don't Lie blog: "Red, White, and Whew").

After missing the epic Nadal-Federer Wimbledon showdown this year, I wasn't going to miss Spain v. USA in the Olympic basketball gold medal match. It lived up to the hype. Were it not for Kobe and Wade each making a trey in the last six minutes to fend off Spain, Spain might have won. The final score was 118-107, but the score doesn't reflect how close the game was until the last two minutes. The last minute included four giveaway free throws from Spain to the USA, including an unsportsmanlike foul, and an easy missed layup after the outcome was in little doubt.

Both teams shot around 50%. Kobe committed several unnecessary fouls, because he always plays hard on defense, even when his team is ahead and should strategically avoid going for the steal. USA would have lost without Kobe--other than one poorly attempted three pointer, it didn't seem like Kobe missed a shot in the last four minutes. His four-point play--when he made a trey and the ensuing free throw--caused an eventual breakdown in Spain's composure, as it caused a Spanish player to foul out at a crucial time.

From my vantage point, the referees did not favor either side--they let the teams play, which is one reason the game was so close. But when the refs take a hands-off approach until the last few minutes, some calls will be questioned because of the inconsistency.

The rule differences between the NBA and Olympic rules are well explained here:

http://community.sportsbubbler.com/blogs/the_bob_boozer_jinx/archive/2008/08/07/ten-things-you-should-know-about-olympic-basketball.aspx

The surprises of the game? First, Juan Carlos-Navarro. He currently plays in the Euroleague, so he's more familiar with the Olympic rules, which allow a zone defense. (Spain's 2-3 zone defense was stellar, forcing USA to take more outside shots). Navarro broke down the USA man-to-man defense at will, scoring teardrop layups on almost every possession. He played so well, Jose Calderon didn't get much floor time.

Second, Rudy Fernandez, who signed with the Portland Trailblazers, played intelligently and effectively. Portland is going to have a monster team--here is their expected 2008 roster:

PG Brandon Roy
SG Rudy Fernandez
C Greg Oden / Joel Przybilla
SF Martell Webster
PF Ike Diogu / Channing Frye

Young, but deadly. No other NBA team has this kind of young talent, especially if Jerryd Bayless lives up to the hype. Anyway, back to the Olympics.

Dwight Howard seemed absent in the game, but that's due to outsized expectations--if he doesn't pull down 15 boards a game, we say he's having a bad day.

Lebron had some nifty passes and steals, but didn't score much. He's always been criticized for not scoring enough, but the Olympics confirmed this bias--he is definitely more comfortable passing than scoring. Blame Magic Johnson and the dazzling "Showtime" highlight reels.

Bottom line: Kobe and Wade took over--Lebron's time will come later.

Update on 9/15/2008: Bill Simmons' take on this incredible game is similar to mine:

http://sports.espn.go.com/espnmag/story?section=magazine&id=3575385

Must-Read Poems

Here is a website with some famous love poems:

http://www.frazmtn.com/~bwallis/lovlost.htm

Pablo Neruda's Poema Veinte ("Love is so short, and forgetting takes so long") is a must-read.

Read Theodore Roethke's "I Knew a Woman," and ee cummings' "since feeling is first," and you will gain an appreciation for what's important in life. Roethke's poem is below:

I knew a woman, lovely in her bones,
When small birds sighed, she would sigh back at them;
Ah, when she moved, she moved more ways than one:
The shapes a bright container can contain!
Of her choice virtues only gods should speak,
Or English poets who grew up on Greek
(I'd have them sing in chorus, cheek to cheek.)

How well her wishes went! She stroked my chin,
She taught me Turn, and Counter-turn, and stand;
She taught me Touch, that undulant white skin:
I nibbled meekly from her proffered hand;
She was the sickle; I, poor I, the rake,
Coming behind her for her pretty sake
(But what prodigious mowing did we make.)

Love likes a gander, and adores a goose:
Her full lips pursed, the errant note to seize;
She played it quick, she played it light and loose;
My eyes, they dazzled at her flowing knees;
Her several parts could keep a pure repose,
Or one hip quiver with a mobile nose
(She moved in circles, and those circles moved.)
Let seed be grass, and grass turn into hay:
I'm martyr to a motion not my own;
What's freedom for? To know eternity.
I swear she cast a shadow white as stone.
But who would count eternity in days?
These old bones live to learn her wanton ways:
(I measure time by how a body sways.)

On the Money: Relationship Test

I was watching CNBC's new show, On the Money, hosted by Carmen Ulrich, author of Generation Debt. When I saw it for the first time, I thought, "Oh no, not another Susie Orman." But Carmen, as she likes to be called, seems a little better, and she has a good financial compatibility test here:

http://www.cnbc.com/id/26353188/site/14081545/

A 33 year old Texan woman called into Carmen's show. She said her boyfriend of one year initiated a breakup after she wanted a prenup. Carmen told her that love trumps money, and a real partnership also includes a financial merger. The woman replied that she was generally a trusting person, but not with her money. I didn't catch any real resolution, but I love the idea of women demanding prenups--it's a good indicator of gender parity and how far we've come from the all-too-common scenario of men demanding their fiancees sign a prenup the night before the wedding. (Off the top of my head, without fact-checking, I read somewhere that Barry Bonds and Larry Ellison did this. As a result, Barry Bonds changed pre-nup law in the entire state of California, making it harder to enforce them.)

In other news, Muhammad Yunus, "banker to the world's poor," says he has a 98-99% payback success on his "sub sub sub subprime" micro-loans, without lawyers or insurance. In smaller environments, such as villages, people with nothing can be more trustworthy than people with money. The problem with a large place like Texas is it's too difficult for the 33 year old woman to get an accurate measure of her boyfriend's trustworthiness and integrity. She is behaving rationally, especially after only one year. My suggestion would have been to get back together with him, but on two conditions: one, ask him to wait for another year before proposing; and two, ask to see his monthly bills and bank statements to get an idea of his spending habits. Yes, she'd be a financial narc, but if a prenup is out of the question, how else is she going to allay her fears?

Percentage of Union Workers in U.S.

Interesting fact: according to today's WSJ (August 22, 2008; A11),

In the U.S., just 7.5% of private-sector workers are union members, and about 12% of all workers, including government workers. In the euro zone, 18% of private-sector workers and 22% of all workers, are unionized.

Unions themselves are neither good nor bad for the economy. In fact, theoretically, unions provide stability to workers and reduce replacement and retraining costs for employers, so they should be economically favorable. The problem with modern-day unions, especially government unions, is their benefits, such as pension and health care liabilities, are uncertain. Without some direct tie-in to the present value of funds in the budget, government union benefits could expand exponentially, sapping more and more taxpayer dollars. In addition, many union negotiations occur behind closed doors, providing no check on expanded taxpayer liabilities.

No business or government can survive by continuing to add undefined, potentially unlimited benefits while running major deficits.

More on California's government unions HERE. More on California's teachers' unions HERE.

More on the general topic of government unions here (Warren Buffett); here ("Rotting from Within"); and here (Road to Bankruptcy).

Update on February 15, 2010: the NYT and Phyllis Korkki have their own percentages on union membership HERE. Basically, in 2009, 12.3% of wage and salary workers were union members. 7.9% of the aforementioned 12.3% were government workers, meaning just 4.4% of private sector workers were unionized.

Among government workers, local government workers like teachers, cops, and firefighters (as opposed to state and federal government workers) had the highest rate of public sector membership, at 43.3%.

See THIS chart for more information (Catherine Rampell, NYT, June 1, 2010). In California, 13.7% of all employees were state and local government employees in 2009. That doesn't sound like a huge percentage, but most elections inspire only 50% to 70% of eligible voters to come out and vote. That means union members often supply 20% to 25% of the total voters on a proposition or candidate.

Update on May 3, 2012: according to a Alasdair Roberts Bloomberg article ("Can Occupy Wall Street Replace the Labor Movement?") published May 1, 2012,

"In 1981, the labor movement was already in decline, and the trend accelerated afterward. In 1960, one-third of the private-sector workforce had been represented by trade unions. Today, only 8 percent is. The missing army of private-sector union members--that is, the number of additional workers that the movement would include today if unionization rates had stayed at levels of the 1960s and 1970s--is about 20 million people."

Update on May 7, 2012: Amanda Paulson, Christian Science Monitor (online, seen May 7, 2012):

"Less than 7 percent of private-sector workers now belong to a union, compared with more than 30 percent in the 1950s. Since 1983, about 3 million fewer people are represented by unions...The public sector, however, has been somewhat cushioned...Some 36 percent of state and local workers belong to unions (and that includes "right-to-work" states that prohibit union-only workplaces and have far smaller union rosters)."

Update on December 12, 2012: CNN has a map that shows union membership per state:  http://money.cnn.com/interactive/news/economy/union-membership-by-state/  

Stocks Update, 8/22/08

Numbers below are based on prices at mid-day on August 22, 2008. Positions below have at least a $2,500 basis or current value of at least $2,500.

What's new? I don't list my mutual fund activity here, because activity is so sparse, but I added to my mutual fund positions in T. Rowe Price's EMERGING EUROPE & MEDITERRANEAN fund (TREMX). The fund is 61% Russian stocks and its value decreased after Russia invaded Georgia (imperial notions are considered bad for any economy). I cite TREMX and its majority Russian holdings because it's important to look at the actual composition of a mutual fund before buying it. Many people think they are diversifying when they buy funds with different-sounding names. Mutual fund companies are selling similar products and have to differentiate based on names and other advertising. I had a friend recently show me his portfolio, and he wondered why he had lost so much money over the last year when he felt diversified. I looked at his portfolio--almost all the funds held the exact same names (e.g., Google, Chevron, and other well-known big caps). Lesson: always look deep inside the fund, not just at the cover.

Having said that, I've taken my own advice and diversified. I recently opened new positions in Gold (GLD), China (GXC), and KOL (energy ETF).

My main regret so far? I wish I'd waited before going into the Malaysia ETF (EWM) and Indonesia Fund (IF). I've been averaging down, and it's getting expensive.

I continue to believe IF will be a good long-term hold over a 10 year horizon. Indonesia was part of OPEC until a few months ago. It left OPEC after being unable to meet its production targets. Although Indonesia is blessed with natural resources, including crude oil and natural gas, it now imports more oil than it exports. Once Indonesia is better run, gains should come. I also love its national motto: "Unity in diversity."

Malaysia is in an enviable situation with good weather, peaceful citizens, natural resources, and many entrepreneurial residents who understand Chinese culture and can attract investment from China and neighbor Singapore. I am hoping both EWM and IF will be lifetime holds in my portfolio.

What's my outlook for the market? Choppy, lots of sharks still circling around, and any chum thrown in the water may result in a feeding frenzy. In plainer English, the market will probably move sideways due to short sellers still making bets and hedge and mutual funds not moving in to buy stocks just yet. Any bad news may result in a temporary market capitulation. I'm a not a posterboy for the practice, but it's hard to be a "buy and hold" investor these days. My advice? Keep the faith, but diversify.

Open Positions
CCT = +1.82
EWM =-6.42
EWS = -9.31
EZU = -4.39
GLD = 0% (excluded from avg)
GXC = +0.32%
IF = -9.49
KOL = +6.88
SWZ = -6.51
YHOO = -4.69

[Average of "Open Positions": losing/negative average 3.53%]

Closed Positions:
Held more than seven days but less than one year (from May 30, 2008):
CNB = +10.0
EQ = -8.83
GE = -6.4
INTC = 0.0 (excluded from average; insignificant movement)
PFE = -5.5
PNK = -16.7%
PPS = -2.8
VNQ = +2.37 [sold 8/7/08]
WFR = +0.9 (approx; based on partial sales week of 8/4/08 in two separate accounts)
WYE = +2.4%

[Overall Record: Lost an average of 2.82%]

Held less than 7 days:
DUK = (0%, excluded from avg) [8/07/08 - 8/14/08]; GE (1.0%); GOOG (0.8%) [7/28/08 - 7/29/08]; GRMN (-6.2%) [Sold 8/5/08]; ICE (2.0%), MMM (0.5%), MRK (0.1%), NVDA (8.0%) [8/12 to 8/13/08]; PFE (1.3%), SCUR (15%); SO (-0.3%) [Sold 8/5/08]; TTWO (4.3%) [partial sales on 8/5/08, 8/7/08, and 8/8/08]

[Overall Record: Gained an average of 1.68%]

Daytrades:
PFE = +0.5%
GE = +0.5% (Updated on July 14, 2008; bought at 27.15, sold at 27.30)
XLF = +4.3% (Updated on July 15, 2008)

[Overall Record: Gained an average of 1.76%]

Compare to S&P 500: losing/negative 6.92%
[from May 30, 2008 (1385.67) to mid-day August 22, 2008 (1289.80)]

The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.

I.O.U.S.A.

Nothing particularly exciting going on these days in the world of economics. The market is going sideways, with not much to kickstart it. Here's an article on the release of an interesting film, I.O.U.S.A.

http://news.yahoo.com/s/ap/20080822/ap_en_mo/buffett_box_office

Some excerpts:

Peterson said the meager U.S. rate of savings today means that roughly 70 percent of the nation's debts are being bought by foreign investors, and that could create geopolitical and economic problems for the country.

[70%?! Seventy percent of our debt is owned by other countries? &^!$#!]

The U.S. government owed roughly $53 trillion more than it had at the end of the 2007 fiscal year

[53 trillion?! &^!$# &^!$#!]

Sometimes I dream we live in a perfect world, and the new President's Cabinet will include Pete Peterson, David Walker, and Richard Fisher. [crossing fingers]

Property Tax Info, 2006

The link has old data, but still worth a look-see:

http://www.taxfoundation.org/research/show/22607.html

Even after Prop 13, California is in the top 10 in median real estate taxes paid ($2,510).

The Tax Foundation's research section is fun to browse. I found this report, comparing state spending with federal money inflow:

http://www.taxfoundation.org/research/show/266.html

How is New Mexico getting twice as much back as it's paying to D.C.? Also, I assumed California (#43) was getting the worst shake of all, but New Jersey, Nevada, and Connecticut are getting the least back from D.C. relative to the taxes they've paid to D.C. The only state with nothing to complain about? Rhode Island, which pays out a buck and got a buck back from the feds.

Book Excerpt

Saw this in the Atlantic Monthly, and had to share.

William Graebner, in his book, Patty's Got a Gun, talks about consumerism. He explains the last eight years, a time of extended executive power and debt, in one neat paragraph:

[There was] the sense that ordinary people had been conditioned by the public schools and drugged by materialistic consumer affluence into uncritical acceptance of their circumstances.

In other words, pass the soma. Even Mr. Huxley couldn't have said it more concisely.

Yahoo to Google: Et tu?

"Google Faces Defamation Lawsuit in India," read a recent WSJ article. Here is a summary of the article:

A small Indian construction company is demanding Google disclose the name of a person who used its blogging service (blogger.com). A blogger using the name, "Toxic Writer," criticized the Indian construction company, running afoul of local defamation laws. An Indian court ordered Google India to reveal the identity of the blogger. Google's India subsidiary removed the blog, but hasn't yet revealed the identity of the blogger.

Stay tuned... Jerry Yang and Terry Semel must be watching this with no small measure of schaedenfraude.

May You Live in Interesting Times

After applauding the federal courts and their judges, I received a loss in one federal case (after the judge sat on the opinion for over 8 months), and the very next day, another federal judge issued sanctions against me (a first) and my clients for over 11,000 dollars, without a hearing, because he believed we should have kept a case in state court rather than assert federal court jurisdiction.  Although the removal to federal court provided my clients additional time, and the sanctions were paid in full, the net result still left me questioning the experience my clients received.

This brings me to Rafat Rule #2: systems don't matter--people matter (more specifically, people with integrity).

We assume the U.S. system is the best in the world, in no small part because of the rule of law. But any system requires people to behave with integrity and honesty, and any system that attracts such people will succeed. Thus, even if the federal court system is better than the state court system due to several factors--more efficient discovery rules; the ability to call a judge during a deposition instead of having to get up and file a protective order or motion to compel; lifetime appointments, allowing judges more leeway to make tough decisions; clear deadlines issued at the beginning of each case, etc.--if you have an octogenarian federal judge who hasn't practiced law in 40+ years or who delegates to law clerks that lack extensive practical experience, even an inherently superior system won't necessarily lead to fair results.

Our systemic superiority should not cause us to be less vigilant. For example, even if the free market system is inherently better than centralized planning or socialism, if the people in the system do not have the relevant or recent experience or are out-of-touch, results will be poor. This is why Singapore, despite not practicing Western-style free markets, is more successful than the U.S. in spreading wealth and stability--with the best people in government, Singapore's system can be more centralized, and as long as it adjusts quickly to any mistakes, Singaporeans will be prosperous. What does this mean for Americans as we adjust to a period of less prosperity? It means we can learn from other countries, and we cannot assume our systemic superiority will allow us front seats to economic growth.

In principle, I agree a constitutional republic should be more successful than a country with centralized planning. The advantages of a constitutional republic with elected representatives are twofold: one, eventual accountability; and two, the diffusion of power, allowing a statistically higher chance of having good (and bad) representatives. But without honest, diligent people in any system, there is nothing inherently good or bad about an American political or economic system versus a British system, or a Russian system vs. Singaporean system. For example, one could reasonably argue the Singaporean and Russian systems, despite being more centralized, created more wealth and prosperity for more of their people than the British and American governments in 2008. This recent, perhaps brief, reversal in economic prosperity is going to create a conundrum for political scientists and economists. How do they explain why a Singaporean system has done better for its people than the American system, if centralized planning has no place in politics or economics? This reversal in fortune should lead to more analysis of the roles of ethics and accountability in government systems.

With Singapore, my hypothesis is smaller communities automatically generate some form of accountability, and this accountability leads to more "morality" in the form of closer ties in the community. All this takes me back to Rafat Rule #2: systems don't matter--people matter.

Update on October 17, 2008: the company that received sanctions of around 11,000 dollars just filed for Ch 11 bankruptcy. Looks like the lawyers might be the primary people benefiting at the end of the day.

Greenspan Wants More Educated Immigrants

According to yesterday's WSJ (8/14/08, David Wessel, A1), Greenspan agrees with my pro-immigration views, at least with respect to educated immigrants:

"The most effective initiative, though politically difficult, would be a major expansion in quotas for skilled immigrants," he said...

"Perhaps 150,000 of [new households] are loosely classified as skilled...A doubling or tripling of this number would markedly accelerate the absorption of unsold housing inventory for sale--and hence stabilize prices."

So far, so good; however, the Journal makes a mistake when it tries to do its own analysis:

The only sustainable way to increase demand for vacant houses is to spur the formation of new households. Admitting more skilled immigrants, who tend to earn enough to buy homes would accomplish that...

The Journal doesn't seem to understand that skilled immigrants mainly come to the States by way of H1-B visas and would settle in already-strong economic areas, such as San Jose, San Francisco, Chicago, and other large, diverse cities.

The housing crisis is mainly in places where mortgage brokers and lenders granted credit to low-income employees or workers with unsteady incomes.

Las Vegas, NV is a prime example. Although Vegas is a strong union town, too many uneducated people entered the market with hopes of making it to the middle-class. The city simply couldn't absorb all of its new entrants. As for attracting educated foreigners, how many M.A.s in Physics does a casino need?

Stockton, CA and Merced, CA have become notorious for their high rate of foreclosures. Their residents are mainly non-college-educated workers. While that situation may change because of the new UC in Merced, for now, if you have a PhD in engineering, would you end up in Merced, CA or San Jose, CA? (And yes, that's a rhetorical question.)

When residents bought homes outside but near Boulder and Denver, Colorado, they forgot the law of supply and demand. When you live near cities with only 1/2 million (Denver) and 100,000 (Boulder) residents, there's not enough demand to justify a large, immediate increase in supply. While Denver does have Qwest and ProLogis, there aren't enough companies there to sustain an inflow of high tech talent. In contrast, in Santa Clara County, I get lost driving in Sunnyvale because there are so many little streets that lead to massive warehouses filled with tech companies I've never heard of.

Greenspan is still correct in his pro-immigration view, but there's a missing step. We need companies to open new branches outside of the major cities. Perhaps if the government changed the H1B program to increase the cap on companies willing to place educated workers in mid-sized or smaller cities, educated immigrants could be a boon to overlooked cities suffering from the economic downturn.

Greenspan has recovered some of his credibility--he said this in November 2002:

It's hard to escape the conclusion that at some point our extraordinary housing boom...cannot continue indefinitely into the future.

Then again, this is the same person who said this in October 2004:

[Home price declines] "likely would not have substantial macroeconomic implications... (2004)

And this gem comes from October 2006:

I think the worst of this [housing price decline] may well be over. (2006)

At the end of the day, we need more skilled immigrants or immigrants willing to work hard, but the question is where should they go? State governments and smaller to mid-sized cities should be more active in working with national and local corporations to set up the infrastructure necessary to attract foreign talent. It's a win-win situation for everyone. Local residents and businesses would benefit from higher prices due to increased demand. Foreign talent gets to come to America and make more here than they would elsewhere. I hope the local governments of Merced and Stockton are reading and thinking outside the box--if they don't follow the Rafat Rule ("being pro-immigration necessarily means being pro-capitalism"), more Southern cities like Louisville, KY, will beat them to the punch.

U.S. Foreclosure Activity (July 2008)

Above is a map of American foreclosure activity in July 2008. One issue is defining "foreclosure activity" in a meaningful way. Many homeowners can file for bankruptcy, thereby preventing actual foreclosure. Therefore, a particular homeowner does not necessarily lose his or her home merely by having "foreclosure activity," such as a notice of default (NOD).

Sports Blog

I just found an entertaining blog on sports--even the tagline is great:

"By the common man, for the common man."

Check it out after the jump:

http://www.barstoolsports.com/

Some coarse language, but it's used effectively, not gratuitously. I like the article on Phelps, titled, "Swimming is dumb." An excerpt:

So while Michael Phelps is clearly a legendary swimmer all this talk about how he’s the greatest Olympian of all time is nuts. He just happens to compete in a sport where you can win like 42 times for doing virtually the same thing.

The man's got a point.

Government Unions and their Salaries and Benefits

Here is an interesting article, published in 2005, on government workers and their benefits:

http://www.city-journal.org/html/15_4_taxpayers.html

Astonishingly, the average state and local government employee now collects 46 percent more in total compensation (salary plus benefits) than the average private-sector employee, according to the nonpartisan Employee Benefit Research Institute.

Wages average a hefty 37 percent higher in the public sector, but the differences in benefits are even more dramatic. Local governments pay 128 percent more, on average, than private employers to finance workers’ health-care benefits, and 162 percent more on retirement benefits.

The Conspiracy Against the Taxpayers
by Steven Malanga
City Journal, Autumn 2005

Update on Nvidia (NVDA) and Long's Drugs (LDG)

A couple of highlights:

1. CVS bought out Long's Drugs. I predicted this would happen on May 29, 2008:

http://willworkforjustice.blogspot.com/2008/05/longs-drugs-stores-corporation.html

Longs is going to be a good company and attractive takeover target, assuming its insurance company purchase works out. It's too difficult for new entrants to get into the pharmacy business, so there seems to be a wide moat here. Also, no one (except maybe Walgreen's) has the stores in California that Long's has, so CVS is going to be knocking one of these days. As long as anti-trust issues don't harm any possible deal, Longs should be a decent long term investment.

2. NVDA stock increased 10.75% today, one day after I indicated the stock was oversold and bought shares. I sold today, making 8% (I had existing shares bought at higher prices, lowering my gain).

People seemed concerned about NVDA's numbers, and some headlines mention "big quarterly loss" and "disappointing" results. These headlines are overblown. Analysts expected 12 cents a share. If you exclude one-time charges and go with the non-GAAP numbers, NVDA beat earnings and earned a diluted net income of 13 cents per share. See numbers here:

http://biz.yahoo.com/prnews/080812/aqtu102.html?.v=54

Put simply, I believe the non-GAAP numbers and the share buyback are the reasons for the 10.75% increase today.

Nvidia (NVDA) Reports Earnings After Market Close

If you're looking for a quick, high risk bet, check out Nvidia (NVDA). They release earnings after the close today. I now own over 600 shares at a purchase price of around 11.10. Although both AMD and Intel are going after NVDA's turf, NVDA has no debt and its competitors have been trying to muscle into the high-end GPU business for years, without success.

In addition, Intel's Larabee won't be released till 2009, meaning NVDA needs to duke it out only with AMD/ATI for X-Mas laptop and desktop sales. Bottom line: from my vantage point, NVDA stock looks oversold at 11 dollars a share.

I don't expect NVDA to go above $13-15 in the near term because whenever Intel enters a market, a rough road lies ahead for everyone else. For now, the only real competitor is AMD, with its ATI GPU chips; however, AMD/ATI chips have a reputation for poor quality here in Silicon Valley, whether deserved or not, so NVDA probably isn't concerned about ATI.

Right now, I am captivated by the siren songs of value investors: one, no debt; and two, very low expectations.

Greatest Hits List: I correctly called a short-term bottom in the financial stocks; I was correct about CNB; and about the oversold dollar. If NVDA goes to 12 dollars or more within the next week, I will add them to my list of greatest hits.

Disclaimer:
The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.

For the Record: Teachers

Let me say, for the record, I like teachers. I hate teachers' unions.

I hate the principal who gets fat off of taxpayer money and sits at a desk all day making phone calls. I hate the vice principal who doesn't teach kids but who gets paid more than the math teacher with a Master's degree. I hate the unions, who are opposed to vouchers, even though they know charter schools can help many poor children. I hate seeing teachers not get the resources they need while unions pay lawyers to sue states like California for more taxpayer money. I hate seeing property taxes go towards a failing system. I hate how PTAs have to do bake sales and car washes to upgrade their facilities or get new books because their schools can't figure out how to handle taxpayer money competently. Most of all, I hate how the union-mandated seniority system rewards experience and incompetence over youth and fresh ideas.

More on teachers' unions in general, after the jump:

http://www.city-journal.org/html/15_4_taxpayers.html

Thanks to union-friendly legislation that requires public school teachers to become members or pay dues even if they don’t join, the size and wealth of teachers’ unions have made them fiercely intimidating lobbying and electoral forces almost everywhere...

Unions have also convinced Americans that teachers are underpaid, when they now take home considerably better pay packages on average than professional workers in the private sector. The federal government’s national compensation survey estimates that local public school districts pay teachers an average of $47.97 per hour in total compensation, including $12.39 per hour in benefits—figures that far outstrip not only what private school teachers earn, but also the average of what all professional workers earn in private business, a category that includes engineers, architects, computer scientists, lawyers, and journalists....

The education lobby’s success most clearly shows up in the stunning growth of U.S. public education spending. In the last 30 years, per-pupil spending has nearly doubled, after accounting for inflation, to about $10,000 a year—far more than in most other industrialized countries, according to the Organisation for Economic Co-operation and Development, whose latest figures show that the U.S. outpaces Germany in per-pupil spending by 66 percent, France by 56 percent, and the United Kingdom by 80 percent. Even so, American students rank only in the middle of countries on student achievement tests, the OECD reports.

The Conspiracy Against the Taxpayers
by Steven Malanga
City Journal, Autumn 2005

Terminator v. the Controller: the Missing $15.2 Billion

The Governator (Republican) has sued Chiang, the Democratic State Controller, to force him to slash government pay until a budget is passed. See

http://www.sfgate.com/cgi-bin/article/article?f=/c/a/2008/08/11/BAVF1293CA.DTL

Here is a more detailed article about the budget issues:

http://www.sacbee.com/111/story/1145146.html

Republicans...say even more is needed: a spending cap to restrict annual expenditures through a formula tied to growth in population and inflation.

In California, a 2/3 vote of each legislative house is required to pass a budget. You would think our legislators would be able to figure out a budget cannot get passed without cooperation and civility, but this partisan samba seems to happen every single year. Still, few things make me more happy than government workers talking about cutting spending.

How can someone profit off of this? Perhaps by buying muni bonds or state bonds.

http://www.buycaliforniabonds.com/

Good luck to Sacramento. I'm going back to work. In my job, I don't get paid for being ineffective, or for missing the same deadline every year. I wonder where I can get a job that doesn't tie getting results to my pay? I'm still scratching my head...I'm sure the answer will come to me later.

WSJ Letters Section

I recently blogged about some WSJ letters I liked:

http://willworkforjustice.blogspot.com/2008/07/july-25-2008-wsj-letters-to-editor.html

After praising the WSJ's recent letters section, the gods smiled upon me--my short letter was published in today's WSJ (08/11/08). I was responding to an article about teachers and investing. The WSJ profiled teachers who were literally crying over being unable to understand investing in their retirement plans. You can view the WSJ letters section here:

http://online.wsj.com/public/page/letters.html

Here is my short letter (a blurb, really, but I'll take it!):

We are entrusting our children to people who can't handle basic investing and, somehow, we wonder why we end up with financially illiterate adults.

Campbell, Calif.

____________________

Update on January 17, 2009: here is a link to my August 11, 2008 letter. I'm unsure if it's a permalink, but as of today, it works.

To Settle or Not to Settle?

A new study indicates plaintiffs are better off settling cases than demanding to litigate to trial.

http://www.nytimes.com/2008/08/08/business/08law.html

While I agree with the overall conclusion, I wish there was more available information on specific types of cases. For example, what are the numbers with respect to personal injury cases? Employment cases? IP disputes? Surely the statistics are not the same in different legal areas.

More on Taxes and Paying Your Fair Share

The WSJ published an article on taxes I somehow missed. See

http://online.wsj.com/article/SB121659695380368965.html

Here's an interesting statement from the article:

Taxes paid by millionaire households more than doubled to $274 billion in 2006 from $136 billion in 2003. No President has ever plied more money from the rich than George W. Bush did with his 2003 tax cuts.

To that I say, "Pfffff." If you bring in an extra billion but increase spending by two billion, I am not patting you on the back.

The article's failure to incorporate Pres. Bush's expenditures reduces the impact of its other cited statistics:

1. In 2006, the top 1% of Americans (making $388,806+) paid 40% of all income taxes; and

2. The top 10% (making $108,904+) paid 71%. That means 90% of all Americans only paid 29% of all income taxes, indicating their income tax burden is relatively low (compared to the affluent). (Note: the income tax is less than half of federal taxes and only one-fifth of taxes at all levels of government.)

The article states that "Americans with an income below the median paid a record low 2.9% of all income taxes" in 2006. Some argue such a relatively low tax burden creates a moral hazard, because poor and low income residents receive similar benefits as the rich--police and fire protection, schools, access to courts, FDA protection (food and drugs), FAA protection (air travel), and so on--but pay almost nothing for it. Consequently, some people have argued that the lower income brackets should pay more taxes to create a more fair understanding of the high costs of government and public services.

My opinions on this issue of "fair taxation" is evolving, but I support Obama's stated plan to raise the payroll tax threshold. While the poor don't get taxed much on their income, their income is still taxed relatively high if you factor in the the payroll tax and other taxes. The payroll tax is used to finance Social Security and other social programs, but it taxes income only up to a certain amount of wages/salary. In 2007, if you made more than $95,000, you paid the same amount in payroll taxes as the hedge fund manager who made $1 billion. And if you made $1 billion, your wages were deducted the same percentage in payroll taxes as the person who made $30,000. That scenario doesn't appear equitable when the Social Security program is underfunded.

One idea might be to increase the payroll tax threshold (thereby helping save Social Security) while also instituting a national sales tax (which would affect poor and rich alike). This way, current income tax rates would be maintained, and the poor would have an incentive to spend less, perhaps saving more of their money and moving up. I remember telling a friend who protested the sales tax because it disproportionately hurt the poor, "Get the tap water (pointing to my free glass of water), not the Coke." In other words, at least the sales tax is a tax people can avoid most of the time. I realize this makes me sound like Marie Antoinette, but I don't see too many other potential compromises, and such a national sales tax should go into a "lockbox" the government couldn't tap for anything other than benefit payments. [Update on September 18, 2012: my views on sales taxes is not fully formed, but I believe taxes in general should come from predictable and diverse revenue streams.]

Still, reading an article like the one below inspires me to try harder to think of a more equitable and effective scenario:

http://www.washingtonpost.com/wp-dyn/content/article/2008/08/02/AR2008080201672.html?referrer=emailarticle
(Thanks to creditslips.org for the tip; see http://www.creditslips.org/creditslips/2008/08/no-cushion.html#more)

It's no secret that the poor and middle class spend their money, while the rich save it and try to live off their interest and dividends, which are taxed at a lower rate (now 15%). As a result, any decent economist is going to want to try to get as much money into the hands of the poor and middle class as possible.

At the same time, as a Californian, I want more people outside the state to pay their fair share. It is not unusual in Santa Clara County to see people making 109,000 dollars or more (top 10% income bracket nationwide). It's incredible to think Californians pay so much in federal taxes, basically subsidizing Middle America, and yet are looked down upon by so many of our compatriots. For example, Texas took money from (robbed?) California through Enron. New Yorkers consider Californians soft. Dan Gable, from Iowa, reportedly refused to enroll California wrestlers because they were lazy. I dislike the status quo, which breeds resentment among the states and pits classes against one another while government spending runs amok. There has to be a better way.

More below on taxation.

McCain on Social Security (from http://www.csmonitor.com):

Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed.

An Example re: What Happens When You Tax One Group Too Much (taken from internet comment board):
Suppose that every day, ten men go out for tea and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that’s what they decided to do. The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. ‘Since you are all such good customers, he said, ‘I’m going to reduce the cost of your daily tea by $20. Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. What happens to the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’ They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his tea. So, the bar owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so:
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free. But once outside the restaurant, the men began to compare their savings.
‘I only got a dollar out of the $20,’ declared the sixth man. He pointed to the tenth man, ‘But he got $10!’
‘Yeah, that’s right,’ exclaimed the fifth man. ‘I only saved a dollar, too. It’s unfair that he got ten times more than I!’
‘That’s true!!’ shouted the seventh man. ‘Why should he get $10 back when I got only two? The wealthy get all the breaks!’
‘Wait a minute,’ yelled the first four men in unison. ‘We didn’t get anything at all. The system exploits the poor!’
The nine men surrounded the tenth and beat him up.
The next night the tenth man didn’t show up for drinks, so the nine sat down and had tea without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

Update on April 13, 2009: Ari Fleischer has more income tax stats in today's WSJ (A15):

A very small number of taxpayers -- the 10% of the country that makes more than $92,400 a year -- pay 72.4% of the nation's income taxes.

NYT Article on Credit Card Debt

The NYT has an outstanding series on debt ("The Debt Trap"). Today's article was about ballooning credit card debt in Turkey (Landler, "Credit Cards Tighten Grip Outside U.S."). Most European citizens, until recently, used debit cards, not credit cards, so Turkey's acceptance of credit cards is unusual. 

Here are some facts from the article:

http://www.nytimes.com/2008/08/10/business/worldbusiness/10card.html 

1. Outstanding credit card debt in Turkey ballooned to nearly 18 billion dollars in 2007. 

Before any Americans start gloating, here is a link to our consumer credit numbers--and yes, that's in billions of dollars, and percentage-wise, we're in the same boat as Turkey, a country that recently had to pay over 15% on its bonds/Treasuries to get buyers: 

http://www.federalreserve.gov/Releases/g19/current/ 

(The Federal Reserve tracks outstanding revolving consumer debt in its "G19" release. What is revolving consumer debt? It's mostly credit card debt. The G19 stats include all outstanding balances outstanding, including balances from people who pay off their debt at the end of the month, not just those who have continuous balances.) 

2. Cute Turkish proverb re: risk-taking: "Stretch your leg only as far as your blanket." 

3. South Korea at one point, prior to nationalizing some banks/issuers, had a 28% default rate. South Korea had 148 million credit cards. South Korea's population at the time was only 49 million people. 

Unrelated note about our FBI and wonderful national security people: the same 8/10/08 NYT has an article about closing the anthrax case (page 17). We now know the perpetrator/terrorist was probably an American-born Christian. The FBI, in its infinite wisdom, reflexively targeted Muslims, in this case, Pakistani-born residents, including one American citizen. (Makes sense. We all know Pakistani Muslims have a long history of using anthrax in America, right? Wait...) The FBI apparently asked these suspects, who worked for the city, "What do you think about 9/11?" (Because if you're a terrorist with half a brain, this is the question that will get a confession or relevant admission about anthrax.) Here's a chilling line about how the FBI works:

[A]n [FBI] agent pointed a gun through an open window at [the suspect's] home while others knocked down the front door as his wife was cooking in the kitchen. 

Here's where it gets really tragic. Two of the Pakistanis were non-citizens. Their visas expired, and they had to find work abroad. As for the remaining Pakistani-born citizen suspect, every time he traveled to Canada to see his brother, he was searched and interrogated for up to two hours, and his name was put on a watch list. 

Congrats, FBI. With friends like you, who needs enemies to sully the name of America? 

As for Bruce Ivins, the white American-born Christian-raised anthrax suspect who killed himself, may you burn a slow death in the lowest levels of hell. 

I am of course specifying Ivins' racial and religious background. Aren't racial and religious traits relevant in understanding why people commit evil acts? More important, has President Bush declared a War against Chemicals yet? Do we need a new security agency to handle these chemical issues? There are millions of chemical compounds just waiting to be unleashed on Americans. Should we petition the government to open a Department of Chemical Security? Something must be done. Perhaps we should spend billions of taxpayer dollars restricting chemicals from entering the hands of American-born citizens to prevent future terrorist incidents. For more information, or to register your comments, write the government at 

Attn: George Orwell 

Ministry of Peace 

1984 Ave. 

Washington, D.C. 20500 

And don't forget: War is Peace. 

For more on this topic, check out this earlier post:

http://willworkforjustice.blogspot.com/2008/06/terrorism-socialism-and-danger-of.html

Questions to Ask to Get to Know Someone

When I was younger, I thought I could gain useful personal information by asking general questions. I realize now that my inquiries were not helpful in producing any profound insights. I've written some questions that do provide insight into a person's value system and beliefs.

1. Obesity is a major problem in America. Fast food chains, such as McDonald's and Jack in the Box, provide cheap food high in calories and fat. Anecdotal evidence indicates that poor persons and single parents disproportionately rely on fast food restaurants because of a lack of money and/or preparation time. Should we add a new tax on fast food chains to make them more expensive, thereby driving traffic to healthier venues?

2. Should we raise taxes on oil/gasoline, causing the retail price of gasoline to go up? Let's assume this tax increase would result in a better environment as fewer people drove cars or switched to smaller cars with better mileage. If your answer is different than your response to question number one, explain the reason you answered differently.

3. Should we tax oil companies' profits at a higher rate than other companies' profits? If so, why? Also, how should the government spend the money received from the new taxes?

4. A employee of a minority group gets a different supervisor of a racial majority group at work. His previous supervisor left voluntarily to another company. The employee's new supervisor is a racist; however, the employee's performance is declining, and if another month passes, he would get fired because of his own incompetence. His supervisor fires him one week later because he dislikes members of the employee's ethnic/racial group. The employee is making 8 dollars an hour. How much, if anything, would you recommend he receive if he sued the company, and you were a juror?

5. You are sitting alone in a restaurant minding your own business and eating a hamburger. You are sitting at a mid-sized table with four chairs. It is a busy day, but there are other open tables available. Someone sits down next to you at your table. What do you say or do, if anything?

6. Every year, the American government takes about 13% of each employee's salary and puts it into a general fund for everyone's retirement/pension (i.e., the Social Security program). Should you have the ability to invest your contributions the way you see fit? Or should the government manage and direct everyone's contributions?  Government officials contend that many people do not know how to invest or may invest recklessly, and they want to prevent a situation where people lose their money through bad investments, which defeats the purpose of having a nationwide retirement program (i.e., to prevent poverty in old age).

7. A vegan on the city council wants to pass a local law/ordinance requiring all local restaurants to use a certain kind of cheese, made without animal products (i.e., rennet). She complains it is unfair for restaurants, especially pizza places, to effectively exclude her from their establishments. You are also on the city council. How do you vote?

8. A vegan on the city council wants to pass a local law/ordinance requiring all local restaurants to affirmatively disclose whether their ingredients are vegan, i.e. made without animal products. This would require local restaurants to change their menus and spend money replacing existing menus. He wants a penalty of 500 dollars per violation and wants the city to have random inspections of restaurants to ensure they are in compliance. You are also on the city council. How do you vote?

9. Do you believe in a God that is omnipotent but does not interfere in our daily lives?

10. [Added August 20, 2008] Your law firm's copy machine breaks down, so you are able to serve the other side with a motion, but you miss the filing deadline by one day. The other side is not affected--they were served properly, but the statute says the court must deny the motion unless it is also filed on time, or unless good cause exists for filing it late.

The legal process has strict timelines to ensure efficiency and predictability. Most deadlines require a litigant to file documents with the court and serve the other side by a certain date and time. Failure to enforce deadlines consistently results in a situation where judges seem to favor one side over another or appear inconsistent.

In this case, the court/judge would not have looked at the documents until several days later. The court itself is unaffected, as well as the other side, who was served timely. You are the judge. The law requires you to strike the documents unless you find good cause exists for a late filing. You are wary of accepting an excuse of a copy machine breakdown, and worry it might lead to others filing their motions late. The statute clearly requires you to either find good cause, or deny the motion. What do you do, and what is your rationale?

Bonus: does it make a difference if the law firm that was late represented an average employee? What if the law firm represented a corporation making $50,000 net annually? 1 million net annually? Should the judge consider these external factors, even though the statute does not mention them?

11. [Added 9/18/08] Imagine you are the president of a country. Your country has lots of natural resources, but only in the last few years has it managed to begin spreading the wealth and have a world-class stock market. In addition to the money flowing into your country's companies from other countries, your own citizens have invested a lot of their money. Due to unforeseen events and bad news, your stock market goes down 5%, then 10%, then 20% on three consecutive days. People are complaining about losing their life savings and street protests are being organized. You have the power to temporarily shut down the stock market, thereby preventing any trades from occurring, which would prevent investors from withdrawing their money from stocks and new investors from coming in. You expect to open the stock market again in a few days, when you believe things will be calmer. Do you shut down the stock market after the three consecutive down days, or do let the market stay open, thereby risking another large drop? If so, how many days do you shut down the market?

12. [Add 7/28/09] Click here for questions relating to the Cambridge PD's arrest of Henry Louis Gates, Jr.

13. I am borrowing the following hypothetical from Slawek W.:

John invents a cure for cancer. It is a pill, very easily made, in fact, one could make it with ingredients found in every household. He successfully demonstrates the effectiveness of this cure on several volunteers, after which he announces to the world that he has no intention of ever releasing any information about this cure. He further announces that the instructions to produce this cure have been implanted somewhere in his body in a soluble capsule which will completely dissolve in a week along with the instructions.

Let's suppose that a surgical search for this implant would end John's life.

Let's further suppose that there is absolutely no way that you can reason with John to change his mind, and you cannot reverse engineer the cure by studying the cured patients.

Now, the general population is asked what the best course of action is in this situation. John has the knowledge to eradicate cancer forever but he has no intention of sharing this information for whatever reason. Also, there is no way to forcefully retrieve this information without causing John's death in the process.

What would you propose to do? Would it matter if John was your 16 years old son?

14. [Added on 8/27/11] A police department participates in various community outreach programs. The department initially asks officers to visit an event at a local mosque, but when no one volunteers, mandates an officer's and his four subordinates' attendance. (We may assume at some point during the event, the mosque may hold prayers, but the officers would not be compelled to participate.) The officer refuses on the grounds that 1) he believes the mosque has ties to violent fundamentalist organizations; and 2) as a devout Christian, it is against his religious beliefs to go to a non-Christian house of worship. The officer also says that to the extent that his subordinates sincerely believe that their religion forbids them from attending and participating in Islamic religious ceremonies or that the mosque is funded by anti-American elements, he may not compel them to attend, either. What should the police department do?

15. [Added on 8/27/11] A mentally and physically disabled teenager is given an honorary spot on the high school football team. He suits up and participates in practices as an assistant and spends most of his time helping players by bringing them water and equipment. In some cases, at the end of an official game, the coaches of both teams agree to sub him in for a play or two. During these plays, the team gives the teenager the ball, and he sometimes scores a touchdown. This situation goes unnoticed for four years, until the teenager becomes 19 years old. The state athletic commission sends a letter to the team informing them that no one may join or participate in a team's practices or games after turning 19 years old. The commission says it understands the unique situation but it must enforce its rules equally. You are elected as the head of the state high school athletic commission the next day. What would you do?

Deficits Come Home to Roost

I was talking to a friend of mine today, and she, a life-long Democrat, was showing me that she paid 35% in taxes. She said she did not mind paying 35% to the government and favors maintaining existing welfare programs as well as entitlement programs. I suddenly realized how dire our spending habits are--just maintaining existing programs would cost future generations trillions of dollars more than we can afford and would bring our nation closer to defaulting on government issued debt (bonds, Treasuries) or requiring foreign capital injections (e.g., Citigroup, Merrill Lynch and MGM Grand).

I then realized something unsavory--the money would be coming from my friend and I to cover the existing entitlement/spending programs, and the only way the government could get it was by taking more money from us and our children. I told my friend her 35% rate was an inaccurate indicator of how much government spending programs cost. In reality, unless the government wants to default on our debt, her tax rate should be 50%, and sales taxes would have to increase every year to cover government spending. I tried to tell my friend her support for existing spending programs means that my children and her children would eventually be subject to an income tax rate of around 50% and a California sales tax rate of around 10% to maintain the programs she likes. That's when I realized if you're an American, and you care about this country's future, you must support cutting government spending. The only question should be where the cuts come from, not whether they should be made. Even supporting the maintenance of current spending programs is wrongheaded.

I gave my friend a link to Richard Fisher's recent speech, which I've posted elsewhere on this blog:

http://www.dallasfed.org/news/speeches/fisher/2008/fs080528.cfm

I asked her to read it, because if she, a very smart law school graduate, could not understand that even maintaining existing spending programs required higher sales taxes and her children to pay 50% in income taxes or risk Zimbabwe-type inflation, we had little hope as a country of exiting our financial morass.

I facetiously pretended to be Uncle Sam with a spending problem. I told her I had been using my credit card and spending trillions of dollars of her money and now I needed more, or I'd go bankrupt. I said I had taken loans from the Chinese, Japanese, and British, and I had to pay them interest every single month. The 35% I was taking from her wasn't enough. I couldn't take too much from the poor--it would not be enough, even if I raised their taxes to 50%. The top 25% already pay 85% of taxes (see http://willworkforjustice.blogspot.com/2008/07/top-25-of-earners-paid-85-of-all-taxes.html) to support my spending habits, and it isn't enough. My friend and her children had to pay more.

I racked up a list of expenses I had--the war in Iraq, Fannie Mae, Freddie Mac, welfare, military, payroll, Social Security, Medicare, and Medicaid. I told her I had overused my credit card for the past ten years and was spending money I didn't have, while paying only the minimum balance each month. To make matters worse, I had little actual savings--I was living paycheck to paycheck, surviving on my friend's 35% injections. Thus, any spending was going to have to come from more loans and more debt. I said I was now having a hard time meeting interest payments on my loans, and she had to pay me more money so I could take it outside of our country to pay my foreign creditors. I explained if there was any other way of getting the money, I'd avoid raising taxes. Please, I begged her, show me a way to get the money without taking it from you and your children but also maintaining my spending habits. (And no, massive inflation is not an option--as Zimbabwe shows, if everyone's rich, no one is.)

That's when it hit me. There's no other way for Uncle Sam to get the money without cutting spending, except by raising taxes. For example, California will probably raise sales taxes to balance its budget, which will hurt the poor. (The sales tax is a "regressive" tax, a fancy way of saying it falls disproportionately on the poor.) California's spending, if it results in a higher sales tax, will cause the poor to save less money, because now they have to pay higher taxes when buying food, drinks, clothing, and cars. Thus, to maintain government programs that help the poor, California is going to raise a tax that will hurt them, so the government can make the poor more reliant on their programs. Confused? You should be. Like you, I didn't study Infinite Loop Economics.

And that's the harshest lesson of all--in part because we have tried to help the poor by spending money we don't have, we've destroyed our ability to help them. The poor don't have a lot of political power, so most likely, we will have a higher sales tax before a higher income tax (which falls disproportionately on the aspiring middle class and affluent).

So here's the sad, twisted result: we've spent money we don't have, causing us to take more money from the poor so we can give it to the government. The best way to help the poor is to take some short-term suffering--like cutting government programs, foreign spending (e.g., Iraq war), and general benefits (e.g. government employee pensions), so we actually have money in the bank to help the poor in the future. We had a surplus only a few years ago. See chart, below.


For the Republicans gloating right now, our surplus occurred under Democratic President Bill Clinton, a fact that helps Sen. Obama, not Sen. McCain. For the Democrats gloating now, the surplus occurred under a Republican Congress. As we can see, the issue of out-of-control deficit spending is non-partisan. We need to go back to having a surplus before we think about helping others. Anyone who talks about maintaining spending programs or worse, increasing entitlement programs, is doing our country a disservice.

Patriotic Americans must take away Uncle Sam's credit card, cut it up, and not return it until he reforms his profligate spending. That means cutting programs that help senior citizens, the poor, teachers, the military, and other government employees. There's no way around this harsh scenario--being on a budget isn't easy for anyone. But unless you want Uncle Sam to default on his debt, rampant inflation, or 50% taxes on your children, you will support a balanced budget. If you're still not convinced we have to cut spending, all you have to do is go out there and find that money-growing tree. It's out there somewhere, probably nearby the Tree of Wishful Thinking. Hopefully you'll find it before we all go off a cliff.

http://www.youtube.com/watch?v=VYnZL0BOXDc

Signed,

Not the King of Wishful Thinking

Inflation, Revisited

Earlier, I wrote an article about how "core inflation" numbers understate real inflation. See

http://willworkforjustice.blogspot.com/2008/07/real-inflation-trimmed-mean-pce.html

T. Rowe Price just published an article in the "T Rowe Price Report" supporting my argument that "core" inflation is a fallacious statistic. See Alan Levenson, "Food, Energy Costs Spur Inflation Fears." No link available, as far as I can see right now, but here are some snippets:

Indeed, the CPI posted a year-to-year inflation rate of 4.9% in June...in contrast, inflation in the so-called "core" CPI, which excludes food and energy, was [recorded as only] 2.4%...higher inflation will become the most potent threat to growth.

In other words, "core" CPI is not accurate, as I explained earlier.

An interesting tidbit: Mr. Levenson said in 2007 he believes the Fed Reserve will keep rates steady all year; however, it sounds like the Fed needs to raise rates to combat inflation.

Judges and Life Tenure

All federal judges (not magistrate judges) get lifetime appointments. It's a great job if you can get it, but if you think absolute power would breed corruption, you'd be surprised. In practice, federal judges and their clerks (at least in northern California) seem more detailed with their decisions, not because of any inherent superiority in intelligence, but because it is harder for litigants to get to federal court. The federal courts' more restrictive barrier to entry (federal courts are courts of "limited jurisdiction") leaves them with fewer cases and more time to analyze them. More time to do something usually leads to an increase in quality.

In contrast, state courts get flooded with lots of weak cases and after a while, most judges, unless they have exceptional work ethic, tend to become jaded and/or extensively delegate to their smart, hard-working clerks. (By the way, the Hon. Judge Kevin McKenney of Santa Clara Superior Court comes to mind as one of the hardest-working judges in California.)

The WSJ recently wrote an article about a Los Angeles federal judge who is said to be out of control. It's a major embarrassment to the system, but kudos to the WSJ for calling out government corruption when it sees it. Here's an interesting line from the WSJ's article today, 8/8/08 (A9):

"Is the federal system well equipped to deal with incorrigible behavior by judges?"..."No, not where the behavior doesn't rise to the level of impeachment."

That's not a good sign. Would America's founders tolerate a government that included virtually unaccountable judges? I don't think so--they would have wanted some substantive difference between a British king and a federal judge. What makes the issue complex is that America's founders also promoted the "separation of powers" doctrine--the Constitutional principle that gives judges their independence--precisely so that federal judges would feel insulated from public opinion and the executive and legislative branches.

I'm not sure how to balance the tension between judicial independence and government accountability. Judicial independence sounds good in theory, but the federal courts' interpretation of the Patriot Act seems to indicate that judges, despite lifetime appointments, tend to move in lockstep with the herd, waiting until abuses are rampant before stopping them. At the end of the day, the newspapers and the media may be the only entities that can keep judges from running amok.

Update on November 10, 2008: from the SJ Mercury News, 10/10/08, John Corvino:

It's worth remembering, however, that the courts follow social trends more often than they set them. When the U.S. Supreme Court struck down laws against interracial marriage in Loving v. Virginia, the majority of states already had repealed such laws.

More on judges and judicial power HERE.

China and Tibet

One point of this blog is to try to provide the full story, instead of just one side. China's attitudes towards Tibet have received much negative press. But in today's Wall Street Journal, Ma Yinjiang explains his stance:

"No leader could let Tibet go," he says. "If it goes independent, then Xinjiang will go, then Inner Mongolia. China will become like the Soviet Union. I think these people want this because they want to destroy China. They aren't really interested in human rights."

(WSJ, August 8, 2008, A10)

Mr. Ma has a point. To him, it's a civil war, and his side is the North trying to ensure the South doesn't secede.

Ann Killion's Article on Lopez Lomong

Once in a while, a story makes you stand up and say, "This is why America and Americans should be proud of themselves despite the Bush II presidency." When C. Rice is repeating now-disgraced Alberto Gonzales' canard that "[E]very day is Sept. 12th," some optimism is in order.

Ann Killion wrote an article in today's SJ Merc about Lopez Lomong, who was adopted by Americans and is now on the Olympic track and field team. See

http://www.mercurynews.com/annkillion/ci_10136928?nclick_check=1

For three days and three nights, the boys ran towards freedom [after being captured in Sudan]...When the Rogers [his adoptive parents] bought him a chicken sandwich at McDonald's, he brought part of it home: He was used to eating chicken only a bite or two of chicken twice a year, and was surprised to learn he could eat the whole thing.

Mr. Lomong will be representing America at the Olympics, both literally and figuratively.

Sexual Harassment Video

Here's a video on sexual harassment called "The Temptress":

http://www.youtube.com/watch?v=3b7QwYQRiqw

This video doesn't break new records on the unintentionally funny charts, but it's still worth a look-see because it's so lame, but takes itself so seriously. Why hire a lawyer when excellent, nuanced videos like this exist?

Piper Jaffray

Jamba (JMBA) is trading at about a dollar right now. On May 30, 2007, the firm of Piper Jaffray initiated coverage on Jamba Inc. (NASDAQ: JMBA) with an Outperform and $12 price target. On July 17, 2008, Piper Jaffray downgraded the stock from a buy to neutral. On August 7, 2008, Piper Jaffray downgraded again to "sell."

Let's take a look at this again. Here is where JMBA was priced at each interval:

6/01/07: $10.03 (outperform)
7/17/08: $1.15 (neutral)
08/7/08: $0.96 (sell)

The geniuses at Piper Jaffray waited until the stock had gone from around 10 dollars a share to a dollar before downgrading it, and then had the audacity to downgrade again at $0.96 a share. Jamba is trading at slightly over a dollar on August 8, 2008.

Let me get this straight--these geniuses decide to initiate coverage, drop the ball entirely, and then someone probably pointed out, "Hey guys, you still have an outperform rating on a stock that has gone down about 80% since your recommendation...maybe you want to do something about this?" Then, oh yes, then, Piper Jaffray gets off its arse and starts downgrading like there's no tomorrow. Thanks, Piper Jaffray. Let me know your buy recommendations so I can consider a career in shorting.

On Commodities

From Donald Coxe, Global Portfolio strategist of BMO Financial Group:

This is not the end of the commodity bull market. Bear Stearns, F&F and other crises will one day seem trivial. The new global middle class that is repricing commodities never will.

I am behind the curve when it comes to investing in commodities. Right now, the only one that looks interesting to me is UNG. I did pick up very small amounts of GLD, GDX, and SLV today because I had no precious metals in my portfolio. ( I just thought of Gollum when I said "precious" metals--like I said, I'm really behind the curve.) Deep down, I think Swiss francs (FXF) represent a better hedge, and I own some FXF, but I see the merits of owning some Gollum, er, precious metals in an inflationary environment.

Stocks Update, 8/8/08

Numbers below are based on prices at mid-day on August 8, 2008. Positions below have at least a $2,500 basis or current value of at least $2,500.

I've had 175 of CCT for a while and am up 2.03%. If you don't want to invest directly in a company's preferred shares, check out PFF, an exchange-traded-fund containing a basket of preferred shares (I own shares in PFF also).

The market will be choppy for a while. These large swings we've had--up 300 points, down the next day, up 200 points the next day, etc., will continue until the experts feel prices have bottomed out. Unfortunately, the experts want to see more volatility before deeming a market bottom. Investor's Business Daily says we're in a confirmed rally, and even Barry Ritholtz said several days ago the Dow would temporarily go back to above 12,000.

I am not committing large amounts to the market yet, but am enjoying trading. The percentages below are deceiving--my short term trades involve far more money than my open positions. If I make 1% on a $50,000 trade each time, but am losing 8% on a $3,000 investment like IF, I am still up.

I sold WFR because I noticed many competitors jumping in the solar wafer business. When I saw SOLF and other Chinese companies enter the market, I thought to myself, "Let's see, WFR, competitive advantage, wide moat...hmmmm." And then I blanked. I sold the very next day, eking out a small gain.

I am also slowly adding commodities-related investments. I missed the boom and didn't have any commodities, but with their recent price decrease, they are slightly more interesting. To be more diversified, at least 15% of my portfolio should be in commodities-related industries or non-equities. I recently invested small amounts in UNG (bought more today), KOL, and JNK. I'm nowhere near 15% for diversification purposes, but will get there at some point. My friend recommended MRO, but the information about its spinoff or breakup of the company is already public knowledge. I am not sure the market is that inefficient.

In other news, the Olympics are here!

Open Positions
DUK = +1.11
EWM =-8.07 [will average down from here]
EZU = -0.57 (own 65 shares) [excluded from average, negligible movement]
IF = -8.01
YHOO = -2.89

[Average of "Open Positions": losing/negative average 4.46%]

Closed Positions:
Held more than seven days but less than one year (from May 30, 2008):
CNB = +10.0
EQ = -8.83
GE = -6.4
INTC = 0.0 (excluded from average; insignificant movement)
PFE = -5.5
PNK = -16.7%
PPS = -2.8
VNQ = +2.37 [sold 8/7/08]
WFR = +0.9 (approx; based on partial sales week of 8/4/08 in two separate accounts)
WYE = +2.4%

[Overall Record: Lost an average of 2.82%]

Held less than 7 days:
GE (1.0%); GOOG (0.8%) [7/28/08 - 7/29/08]; GRMN (-6.2%) [Sold 8/5/08]; ICE (2.0%), MMM (0.5%), MRK (0.1%), NVDA (8.0%) [8/12 to 8/13/08]; PFE (1.3%), SCUR (15%); SO (-0.3%) [Sold 8/5/08]; TTWO (4.3%) [partial sales on 8/5/08, 8/7/08, and 8/8/08]

[Overall Record: Gained an average of 1.85% (changed after NVDA sale)]

Daytrades:
PFE = +0.5%
GE = +0.5% (Updated on July 14, 2008; bought at 27.15, sold at 27.30)
XLF = +4.3% (Updated on July 15, 2008)

[Overall Record: Gained an average of 1.76%]

Compare to S&P 500: losing/negative 7.38%
[from May 30, 2008 (1385.67) to mid-day August 8, 2008 (1283.42)]

The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.