Where Will the GOP Go Next?

Here are some articles on the battle for the GOP's future--will the Republican Party be able to contain the competing viewpoints of its reformists, traditionalists, and secular conservatives?

David Brooks: http://www.nytimes.com/2008/11/11/opinion/11brooks.html

National Review: National Review Corner

Rod Dreher: Crunchy Con

Yours Truly: Hey, Hey, Ho, Ho, Palin's Got to Go

And, just for kicks, a biblical perspective on immigration: Dr. Lindy Scott

Retirement Options for the Self-Employed

If you're self-employed, you have access to multiple retirement accounts, including a SEP IRA, a SIMPLE IRA. and, if you run your business just by yourself, an individual 401k. But how much asset protection do you really have with these retirement options? I can't vouch for the accuracy of the information below, because it's from 2005, but the basic information appears to be useful:

http://www.financewin.com/html/Taxes/200511/IRA-Protection-10193.htm

Because I save a lot of money in my retirement accounts, I've always been concerned about what would happen if I somehow received a judgment against me. Perhaps I need not have worried.

On October 17, 2005, the bankruptcy reform law, formally named The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (11 USC 101), went into effect and apparently protects most retirement accounts.

SEC. 224. PROTECTION OF RETIREMENT SAVINGS IN BANKRUPTCY.

   (a) In General.--Section 522 of title 11, United States Code, is
amended--
           (1) in subsection (b)--
                   (A) in paragraph (2)--

[[Page 119 STAT. 63]]

                         (i) in subparagraph (A), by striking ``and''
                     at the end;
                         (ii) in subparagraph (B), by striking the
                     period at the end and inserting ``; and'';
                         (iii) by adding at the end the following:
           ``(C) retirement funds to the extent that those funds are in
       a fund or account that is exempt from taxation under section
       401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue
       Code of 1986.''

Basically, it appears the bankruptcy law allows you to protect most retirement accounts against creditors when you declare bankruptcy. For more information, you should contact a CPA or tax attorney.

GM's Woes

The AP has finally reported that GM might be going bankrupt: AP Story on GM

The press, as usual, is slow to catch on. I predicted GM's bankruptcy last year, in a letter to The Metro: [Metro Letter]

[A]lmost no one in the private sector receives pensions or lifetime medical benefits, and all the private companies who used to offer such benefits, such as General Motors and Ford, are changing their policies and are slowly going bankrupt.

I hope Lee Iacocca was wrong when he (reportedly) said, "As goes General Motors, so goes the nation." But Mr. Iacocca seems to be blessed with accurate foresight--see Where Have All the Leaders Gone?, published May 2007:

Am I the only guy in this country who's fed up with what's happening? Where the hell is our outrage? We should be screaming bloody murder. We've got a gang of clueless bozos steering our ship of state right over a cliff, we've got corporate gangsters stealing us blind, and we can't even clean up after a hurricane much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, "Stay the course." Stay the course? You've got to be kidding. This is America, not the damned Titanic. I'll give you a sound bite: Throw the bums out!

It's just a little bit of history repeating...

Reason #3947 to Be Libertarian

The price of freedom is eternal vigilance--not just against foreign influence, but also against our own government agents. Our government has spent our money going after a man, Sayed Mousavi, who wanted to promote cell phones in Iran. He also did not report a portion of his taxable income (for which he should be punished financially). The government used a law called the International Emergency Economic Powers Act (IEEPA) to convict him. Yet, no one believes this man is a terrorist except perhaps the American government and their lawyers. The most distressing detail is that our government removed Seyed Mahmood Mousavi's American citizenship by claiming he lied on his citizenship application. They apparently used mis-translated documents as evidence. 

To those would say America is a place where all citizens can breathe free post-Obama, the government's prosecution of Mr. Mousavi is a harsh lesson that vigilance must remain high. Even if Obama issues executive orders nullifying enforcement of the Patriot Act, such as canceling Executive Order 13224, more laws exist to harass citizens and non-citizens in America. 

Laura Donohue, a Stanford fellow, once said that counterterrorism activity increases "executive power both in absolute and real terms. This changes the balance of power at a federal level between the branches of government. It changes the relationship between the citizens and the state." Executive Order 13224, mentioned earlier, gave the White House and the Treasury the power to freeze assets of those they suspect of being terrorists and those they suspect have associations with terrorists. In other words, citizens "can have their assets frozen without being found guilty in any court of law for actually having any association with terrorism itself." "Between October 2001 and April 2005, 743 people and 947 organizations had their assets frozen underneath this order. 98% of the people, and 96% of the organizations, appeared to be Arab or Muslim." (Laura Donohue, Commonwealth Club speech, 9/11/08, page 20-21 of the November 2008 The Commonwealth magazine). 

Unfortunately, Obama is not proof that this country has progressed past its religious intolerance. Obama is Christian. Bobby Jindal, another political up-and-comer, converted to Catholicism. If you are not some form of Christian in America, and you have innocuous ties to Middle Eastern countries, the government is apparently willing to charge you with a crime. I realize Mr. Mousavi may have violated a trade embargo, and if he knowingly violated the law, jail-time is warranted. What terrifies me is our government, rather than prosecute him specifically for his violation of the trade embargo, actively expanded its prosecution to remove his citizenship--despite no evidence that he was a terrorist or danger to his community. 

Also, I've never heard of International Emergency Economic Powers Act (IEEPA). It seems that so many laws have been passed, the government can classify any transaction with a Middle Eastern country or charity as illegal. Overly broad laws effectively intrude on personal associations and the right of peaceful assembly guaranteed under the First Amendment. For example, if I believe that my association with others can be used against me in the future, I may alter my behavior and self-banish myself from others who share minority religious or political views. Thus, the Patriot Act and other laws similar to it--which apparently do not require any malicious intent or actual damages--have the effect of violating the First Amendment by their mere existence. 

If you are interested in more information on domestic surveillance laws and activity, get the November 2008 edition of The Commonwealth magazine. One section of Donahue's speech is titled, "Better than the Stasi," referring to domestic law enforcement activities.

Norwegian Poetry

Props to the Norway for having such an eloquent king. From King Olav V of Norway:

When I look back
I see the landscape
That I have walked through
But it is different
All the great trees are gone
It seems there are
Remnants of them
But it is the afterglow
Inside of you
Of all those you met
Who meant something in your life

King Olav V
August 1977

Cars and People

Reason #1044 I hate cars and the driving culture:

Cars and Cities

She makes great points about cities being more hospitable when they are not built around an automobile culture.

Tech Geeks

Since Warren Buffett mentioned geeks earlier, I've been meaning to post something for my tech geeks--here are some links you might find useful:

http://kadster.blogspot.com/2008/08/destinations-for-open-web-knowledge.html

Just leave your financial formulas at home, and no one gets hurt.

More Reasons You Should Vote Libertarian

This article should make every American mad as hell:

http://news.yahoo.com/s/ap/20081108/ap_on_re_us/halberstam_fbi_file

Basically, the FBI spent taxpayer monies to spy on one of our best American writers. Many people associate David Halberstam with military or political history, but I found him through his sports-writing. I highly recommend Everything They Had: Sports Writing from David Halberstam.

Don't you just love the FBI's response when they were asked why they were spying on Mr. Halberstam? "[The file] speaks for itself." &!%$##^

Dick Armey's Conservatism

In today's WSJ (11/7/08, A17), Richard "Dick" Armey correctly pinpoints the problem with McCain's campaign--a failure to communicate convincing pride in individualism and small government:

The modern Republican Party has risen above its insecurities to achieve political success [in the past]. [We] understood that big government was cruel and uncaring of individual aspirations. Small government conservatism was, by definition, compassionate--offering every American a way up to self-determination and economic prosperity. Republicans lost control of Congress in 2006 because voters no longer saw Republicans as the party of limited government. They have since rejected virtually every opportunity to recapture this identity...The evidence suggests we are still a nation of pocketbook conservatives most happy when government has enough respect to leave us alone and to mind its own business.

The last line is pure poetry. Unfortunately, Dick Armey has the fatal flaw of many Republicans--cultural myopia, which has led him to make insensitive statements against minorities. Cultural insularity was a major problem in McCain's campaign and especially in its VP choice, because unless Republicans convince Americans they stand for more than just quota-type diversity, their ranks will not grow. If you don't believe me, take a look at the Arizona audience for McCain's concession speech, and compare its diversity with the people in Grant Park and worldwide who supported Obama. The United States has changed demographically, but the Republicans seem oblivious.

Cultural insularity is the main reason Sarah Palin was such a controversial choice. Picking her meant the Republican Party consciously closed itself to independents who didn't favor a robust Christianity or who valued intellectualism. Palin famously refused to specify what she read (see Couric interview) and admitted she hadn't traveled much outside of North America before her VP nomination (see Gibson Interview, 9/13/08). But Palin aside, the Republicans desperately need a plan that will make them more attractive to people in larger cities, who tend to be less religious and more diverse. The solution is simple: if Republicans want to beat the Democrats, they must agree to advocate smaller government, lower taxes, and more legal immigration.

The failure to have a coherent immigration policy doomed the Republicans and will continue to doom them as long as they are viewed as a white, Christian party. This is because the electoral college system favors states that attract the most immigrants (or whose residents have the most children). For instance, despite winning only 53% of the popular vote, Obama won around 70% of the vote that matters, the electoral college vote. He won by focusing on diverse, larger cities, and he prevailed even though he received only 30% of working-class white votes. In short, Obama won because he understood that a vote in California is worth more than a vote in Alabama.

Assuming the electoral college system continues, sensitivity to legalized immigration and ethnic and religious diversity will be necessary to win the White House. Every single state with more than 19 electoral votes has either a large immigrant population or is not majority white. Meanwhile, many Republican strongholds, like Alabama and Kentucky, are experiencing depopulation or are sustaining population levels mainly because of foreign immigration. In fact, without immigrants and their children, America would have a negative population growth rate. Assuming naturalized citizens favor legal immigration and do not agree that Christianity is the only path to morality, any continued attempt to support Sarah Palin or persons like her as representative of the Republican Party will exclude immigrants and residents in mega-cities.

Still Pro-Palin? Look at a sample of mega-cities, like Los Angeles, Houston, Chicago, San Jose, San Francisco, Miami, New York City, Philadelphia--in all those cities, the white, presumably Christian population is a plurality, not a majority. Outside of Texas, guess how many cities with over a million residents are majority white? Only one--Phoenix, Arizona--and the Republicans already tried winning with that hometown hero.

If you continue to disagree that a pro-immigration, non-religious platform is necessary for the Republicans to recapture the White House, you should study Santa Clara County and North Carolina. Both are microcosms of America in terms of changing demographics.

In Santa Clara County, more than 40% of the residents were born outside the country. An astounding 69% voted for Obama, and only 28% voted for McCain. Those numbers demonstrate how out of touch the Republican Party has become with non-Caucasians and non-Christians. Republicans should be more popular in California--after all, Californians recently elected a Republican governor, and the Republican Party's platform of less spending and lower taxation should appeal to high-earners and people concerned with the state's budget crisis. Yet, Republicans cannot gain a reliable foothold in any county where immigration has exploded. This failure to do better in diverse counties, even in states that badly need fiscal discipline, shows that the Republicans' strategy of focusing on whites, Christians, and senior citizens at the expense of other groups is not viable. This is not to say that Republicans should exclude their core groups of support and suddenly focus on minorities. That strategy shift won't work, either. For example, despite having consistent support from Florida's Cuban population, Republicans lost Florida. In addition, foreign-born Americans are only 12% of the national population, according to the U.S. Census Bureau's 2004 survey.

What's the solution? Again, it's surprisingly simple: Republicans need to focus more on fiscal responsibility, advocate more legal immigration to appear progressive, and excise the fundamentalist religious right from their ranks. To do this, Republicans must cast out Sarah Palin and expressly affirm the separation of church and state. Indeed, despite being accused of practicing fundamentalist Christianity, Sarah Palin never delivered her version of JFK's "Catholic speech" or an Obama/Jeremiah Wright rebuttal. By failing to publicly and openly address concerns that her religious beliefs would interfere with her ability to govern the nation impartially, she hurt the Republican Party in all major urban areas. She also lost an opportunity to show that she understood American values, an opportunity a previous Democratic candidate did not forsake. Historians now agree that JFK won in no small part because of his stand against the commingling of church and state:

I believe in an America where religious intolerance will someday end...

And it represents the kind of Presidency in which I believe--a great office that must neither be humbled by making it the instrument of any one religious group nor tarnished by arbitrarily withholding its occupancy from the members of any one religious group. I believe in a President whose religious views are his own private affair, neither imposed by him upon the nation or imposed by the nation upon him as a condition to holding that office...

I am wholly opposed to the state being used by any religious group, Catholic or Protestant, to compel, prohibit, or persecute the free exercise of any other religion.

If the Grand Old Party wants true reformation, it will condemn in the strongest possible language any Republican who believes that a particular religion is required to gain God's favor. Ironically, this shift will probably cause the Christian right to create the first viable third party in America, which will gain Senate seats from the Midwest and allow them a firmer, more consistent voice in politics. Thus, my proposed solution would create a win-win-win situation.

Still unconvinced? Take a hard look at the evolution of North Carolina. Less than ten years ago, North Carolina voted for a senator, Jesse Helms, who was opposed to the Civil Rights Act of 1964 and who filibustered the idea of having a national holiday for Martin Luther King, Jr. (as you can see, minorities and immigrants have legitimate reasons for not voting Republican). North Carolina voted for Jesse Helms from 1973 to 2003--twenty long years. Recently, however, North Carolina voted out Helms' successor, Elizabeth Dole, in favor of a Democrat, and previously, it elected one of the most liberal Democrats, John Edwards.

The story gets worse for the Republicans. North Carolina voted Republican in every presidential election from 1968 to 2004--until Obama. That's quite a shift from Senator Jesse "Anti-Civil-Rights-Act" Helms in the last ten to twenty years--and the children of recent immigrants, both legal and illegal, haven't even hit voting age yet. North Carolina shows that if Republicans do not disavow themselves of their Palin/Helms strain of right-wing religion and cultural insularity, they will lose America. Not just "real America," but America, period. After all, the Declaration of Independence and the Constitution of the United States say nothing about Christianity, Jesus Christ, or the Bible. Also, in 1797, George Washington signed the Treaty of Tripoli, which declared that “the government of the United States is not, in any sense, founded on the Christian religion.”

Demographics are destiny, as the saying goes. For now and the immediate future, the demographics are decidedly in favor of a party that respects and favors legal immigration, diversity, and separation of church and state. That's good news for Arnold Schwarzenegger, Bobby Jindal, and others prescient enough to see the future of American politics.

_________

Blog Post on Immigration Policies of Obama and McCain:

http://claresays.wordpress.com/2008/10/26/mccain-obama-and-immigration/

Update on April 2, 2009: not that it's conclusive evidence of anything, but Newt Gingrich agrees with me.

http://politicalticker.blogs.cnn.com/2009/04/02/gingrich-warns-of-third-party-in-2012/

Update on April 2012: for better or worse, urbanization is happening world-wide, not just in the United States: "In the hundred years between 1950 and 2050, the global population is undergoing an irreversible structural transition in the way we live.  Drawn by the economic, lifestyle and social opportunities of urban dwelling, the world's population is migrating from rural areas--accounting for 70% of global population in 1950--to cities--accounting for 70% of of global population by 2050 based on United Nations projections.  In 2009, the percentage of the planet's population living in urban areas crossed the 50% threshold and by 2037 cities in developing nations will contain half the world's total population." (from Credit Suisse, April 2012)

Update on March 2017: "Hillary Clinton, more than others, has a worldview problem because the vast majority of the electorate has already told itself a story about her... I believe there isn't enough money in circulation to persuade those voters that have already made up their minds to change them." -- from Seth Godin's All Marketers are Liars (2005), pp. 81, hardcover.

Update on December 2017: the Republicans won the 2016 election through a twice-divorced candidate who married a legal immigrant, presumably employs numerous immigrants in his businesses, and who has no religious piety or knowledge. Unfortunately--or fortunately--I was wrong about Bobby Jindal's potential. 

Yahoo and Microsoft Saga Continues

Jerry Yang reached out to Microsoft and was met with partial rejection. Yahoo had increased around 7% this week on rumors of a Microsoft buyout. Today, Steve Ballmer shut down any hope of a buyout, causing Yahoo shares to decline by around 14%.

Continuing the romantic analogy I've used to describe this situation (Yahoo Shareholder Meeting (2008)), Ballmer basically said he is willing to sleep with Yahoo but not marry it--in other words, he will partner with Yahoo but not buy it. Yahoo must feel terrible knowing that Wall Street values its stock more by Microsoft's intent than on its individual growth prospects. Can't a woman just be independent and attractive? The market is treating Yahoo like an old woman with no other prospects, no job, and no education, who needs to find a man quick or be cast into a dungeon. It would be funny if it wasn't so wrong.

Yahoo can do fine on its own. Its home page continues to rank in the top two for visitors. It is doing very well in Japan. Also, the recession will help Yahoo keep more of its American talent. Yahoo's salesforce might be its biggest problem--it needs to focus on getting major ad accounts to boost its revenue, and it has lost some key sales personnel. At least now, Jerry Yang can't be completely blamed for Yahoo's stock price--he reached out to Microsoft and was rejected. It's time for Susan Decker to talk to Time Warner and buy its AOL property. After all, the best revenge in romance is finding another desirable partner.

California's State Budget

California will raise taxes to stem a massive budget crisis:

http://news.yahoo.com/s/ap/20081106/ap_on_bi_ge/california_budget

Two items in the article tickled my tragedy bone:

1. The additional 1.5% raising of sales taxes. It's being called a temporary tax, but as we know, the government rarely retracts a policy when doing so would mean a reduction in tax receipts. In addition, this tax will fall disproportionately on the poor and middle classes and will discourage holiday spending. I am not opposed to raising sales taxes in general, but now seems like a terrible time to do it.

2. The state's admitted over-reliance on capital gains tax receipts. Apparently, our controller was basing budget projections on an ever-increasing stock market. Are you kidding me? Someone ought to send Sacramento a self-destructing copy of Dow 36,000 pronto. The origins of California's financial and housing crisis come into clearer focus with each passing day--total blindness and overzealous optimism are never a good pair.

Leif Pettersen's Travel Blog

The only economics-related aspect of this post is that the author is a former MN Fed Reserve employee. He quit his job to become a travel writer, and his blogs are both informative and fun to read:

http://www.leifpettersen.com/

In another life, I think I want to be a travel writer. Here is my favorite post so far--love the pictures, especially of the gold Buddhas (Wat Traimit):

http://www.leifpettersen.com/leifinasia3/bangkok.htm

Earnings Estimates

Bloomberg is reporting that earnings estimates are finally being lowered:

Bloomberg Story

Once analysts reduce earnings per share, we will still have problems with predicting earnings from financial companies, but stocks themselves will be more attractive. People will still buy prescription medication, Coca-Cola, TVs, and McDonald's, and a host of other products even if their debt levels increase or if their houses are not worth as much.

Economic Plans

For the lawyers and policy geeks out there, I present to you the following:

Here is the Paulson plan (TARP Capital Plan), which was not passed:

http://paul.kedrosky.com/archives/2008/09/20/text_of_paulson.html

Here is what ultimately passed--the Emergency Economic Stabilization Act of 2008 (EESA):

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/28/AR2008092800900.html

More to come from our government, I bet. One question--if Sarbanes-Oxley didn't solve the problem of lying CEOs, what makes anyone think more regulation is going to fix our current problems? I don't know how to fix our economy, but I am surprised more condo/townhouse complexes aren't renting rather than trying to sell vacant units. I am also surprised that government officials are not talking more about assisting apartment complex owners and renters. If rents fall low enough, people can walk away from their houses and rent at reasonable prices. Then, the housing crisis becomes a matter of banks lowering housing prices to a level where it makes sense for prospective homeowners to buy. Perhaps I am missing something, but if I were Congress, I'd pass a $5,000 rental tax credit for families whose houses were underwater. I bet the banks would quickly start negotiating better terms for the current homeowners to convince them to stay or would keep the houses on their own books and start renting them to the current residents.

"Yes We Can"

President-elect Barack Obama won the election and delivered an inspirational speech that left Oprah and Jesse Jackson in tears. Prior to Obama, John McCain delivered a speech that confirmed he's one of the most honest ("The American people have spoken...and they have spoken clearly.") and dignified politicians in American history.

98% of the results have been tallied, and the popular vote breakdown is as follows:

Obama 53%/ McCain 46% / Other Parties 1%

I predicted 53% / 44% / 3%, so I wasn't too far off. I overestimated the support the Green Party, Libertarians and Ron Paul write-ins would receive.

McCain's choice of Palin may be viewed as a poor decision by future historians; however, the theory in picking her was sound. Republicans have two competing strains--one is libertarian-ish, wanting lower taxes, fewer earmarks, less government spending, and smaller government; the other is Christian, wanting religion and their version of family values to be recognized. McCain believed he could attract the libertarian side by himself, so he chose Palin because he thought she could steer the Christian side to his camp. Theoretically, it might have worked, but he was left with what many people thought was more of a political Frankenstein than a perfect compromise.

If Palin really does get enough money to run for election in 2012, I predict another eight years of Democrats in the White House. The road to the American presidency goes through California, New York, Texas, Pennsylvania, Florida, and/or Illinois. It decidedly does not go through Alaska, Arizona, Oklahoma, Kentucky, or Alabama, most of which are losing residents while the less religious states gain residents. Using this electoral vote angle, Hillary Clinton supporters might admit that choosing Barack Obama over Senator Clinton was a wise choice--New Yorkers would vote Democrat anyway, and Obama would guarantee Illinois. The Republicans are now in a poor position--Jeb Bush is political kryptonite because of his family name, and there are few Republican politicians other than Senator McCain and Ron Paul who inspire Americans.

Let this be a lesson to the Republican party: you have to choose sides. Either you return to the prestige and integrity of Eisenhower, Goldwater, or Jefferson, or you take the American people into a religious era in a country that has wisely favored separation of church and state since its inception. In short, does the Republican party want to be the party of freedom and fiscal responsibility, or a conservative Christian party? It is time to choose.

Update on November 6, 2008: Greg Mankiw has similar thoughts on where the Republican Party should go:

http://gregmankiw.blogspot.com/2008/11/youth-vote-and-gop.html
___________________

Obama's victory speech:

CNN Transcript (Obama)

McCain's concession speech:

CNN Transcript (McCain)

http://www.cnn.com/ELECTION/2008/results/president/allcandidates/

92 Yr Old Woman Votes in Ambulance

This voting story just about sums up the intensity of this election--click on the link to read more:

AP Story

The line that stood out the most?

"She cast a straight Democratic ballot Tuesday."

2008 will go down in history as one of the most turbulent times in America. We had a stock market collapse, more deaths in Iraq, a sitting President who lost respect domestically and abroad, Russia's invasion of Georgia, crude oil reaching $120/barrel, and a nationwide housing crisis. I don't know about you, but I will be so happy on January 1, 2009.

Vote Today

It feels exciting to be a part of an election where both candidates are competent and respectable. I can barely remember the last time I felt genuinely happy about our presidential choices. Usually, we joke that our choices are between Tweedledee and Tweedledum, but this time, we have two honorable, dignified men in the race.

Based on my own informal survey, many young people (18 to 25 yrs) have not voted. One reason is because young people are more transient than the general population--they move for a job, for college, etc. As a result of this transience, it's harder for them to pro-actively register to vote. Without registering, a citizen cannot vote.

I predict a popular vote of 53% to 44%, with 3% voting independent/libertarian/Constitution/Green, in favor of Obama. If Obama wins, I will be very interested in whether the Democrats gain enough Congressional seats to prevent the Republicans from filibustering. As much as I like Obama, I don't want the Democrats to have unchecked power in Congress and two branches of government.

Stocks Update (November 4, 2008)

I haven't done a "Stocks Update" in a long time. To save time, I am going to list only the individual stocks I own in retirement accounts that exceed 2,000 dollars. As of today, November 4, 2008, here is the list:

Dominion Resources, Inc. (D)
EMC Corporation (EMC)
Swiss Francs ETF (FXF)
Intel Corporation (INTC)
U.S. Preferred Stock Index (PFF)
Swiss Helvetia Fund Inc. (SWZ)
Vanguard Pacific Stock ETF (VPL)
Utilities Select SPDR (XLU)
Yahoo, Inc. (YHOO)

I wish I owned more General Electric (GE) and Johnson and Johnson (JNJ). My strategy in my retirement accounts is to own stocks or ETFs with high dividend yields. So far, my biggest loser is Yahoo (YHOO). I am losing around $1,100 dollars on the stock, which isn't terrible, but certainly not ideal. I just saw a prominent Microsoft (MSFT) ad on Yahoo's front page, so perhaps Microsoft and Yahoo are on more cordial terms these days, which may lead to some form of a buyout.

Traditional Gaming Companies in Trouble

You want to know why Take Two Entertainment (TTWO) and Electronic Arts (ERTS) are going to have a harder time making money? Because smaller, more nimble companies like Zynga are moving on their turf. Here's an old TechCrunch post of Zynga--note that Bing Gordon, EA's former CEO, is involved in Zynga: Zynga Profile

Zynga is the creator of the new hit, YoVille, which is attracting fans not only worldwide, but also from more diverse groups, like college-age women. With its YoVille game attracting over 2.5 million active users on Facebook, Zynga is perfectly positioned to capture the growth in gaming, which is shifting away from major franchise hits to social networking and games that are able to get to the market faster, like Ultizen-style games: Interview with Ultizen CEO Lan Haiwen

Unfortunately, EA's and TTWO's problem lies within their business model. More specifically, their revenue projections rely on having hit franchises, like Madden NFL--meaning that revenue is dependent on very few sources--or on franchises that require large licensing fees. When you factor in the licensing fees a company like EA has to pay Hollywood studios (e.g. for EA's Harry Potter and Batman games), the NFL, and the NBA, you begin to see that EA is almost working to make money for other companies, while bearing most of the risk and the costs of failure.

I realize my assessment may be overly pessimistic; after all, most companies would kill to have exclusive rights to the only official Batman game, which will be a guaranteed hit. At the same time, relying on one-time hits has its own problems. For instance, EA/TTWO's business model must assume a major dropoff in sales after an initial release, because almost no game creates a major source of consistent revenue three years after its release. History has shown that a new franchise, like Spore, will do very well in an initial release, but sales will dramatically decrease afterwards, absent unusual circumstances. Thus, the larger gaming companies, despite creating blockbuster gaming hits once every few years, know they cannot rely on those hits for very long. Of course, certain games, like Grand Theft Auto, may be exceptions to this rule, but there is no guarantee of consistent success, and like most retailers, Take Two probably isn't looking forward to the 2008 X-Mas season.

Now, compare gaming software with Microsoft's Office software, which most analysts assume will attract new users and have old users upgrading for another ten years or more (despite arguably better products on the market, like Corel's Wordperfect Suite). A skeptic might look at the difficulty in creating gaming software that will attract users five to ten years from an initial release and say that even if a gaming company establishes a major hit, "So what?" The competition and costs in continuing to establish blockbuster hits will continue to be fierce and never-ending, while also being based in part on luck and consumer fickleness. It's now more apparent why the X-Box, even with Microsoft's money behind it and an in-house gaming development team, has had such difficulty making a net profit. Indeed, Microsoft recently lowered the price of its console to take market share from rivals--showing that it recognizes consumers have become more cost-conscious, exposing the gaming market's reliance on discretionary consumer income: X-Box Price Cut

If social networking games and mobile gaming are the future, then smaller, more nimble companies will be more competitive because of their smaller size, which leads to lower overhead, and their focus on bringing less complex games to market, which allows games to be introduced to the public faster and with less potentially devastating financial consequences. In contrast, if EA spends two years perfecting its new Batman game, and sales are flat, it will lose millions of dollars.

When I began analyzing the gaming market in light of the aforementioned issues, I came to the conclusion that the best way for EA and TTWO to continue growing would be to use their substantial cash reserves to acquire smaller companies; in other words, to choose the route Larry Ellison took Oracle (ORCL): Oracle's Acquisitions. Despite Oracle's proven software business model of smaller acquisitions and generating (not paying) licensing fees, most large gaming companies are trying to merge or buy out other major companies, which reveals a much different business strategy--one that may be completely out of touch with the future of gaming.

John Edgar Wideman

Most people who know me know I love basketball. In honor of the recent NBA regular season tip-off, I wanted to introduce readers to John Edgar Wideman. Mr. Wideman, a controversial writer, has some interesting pieces on basketball and was a former All-Ivy League forward for U of Penn. His daughter, Jamila Wideman, played in the WNBA (thanks to former Stanford star Heather Owen for giving me the heads-up on this familial connection). Here is one paragraph from an interview with Mr. Wideman, where he weaves basketball within the larger context of life:

[B]asketball and other contact sports are all about testing, pushing, within arbitrary frameworks. They are all about physicality. So it was very natural to me. I trust the body. I trust pleasure. I trust pain. You can muck around with those a little, but after a while they win. They tell you they're the boss.

http://findarticles.com/p/articles/mi_m2838/is_2_34/ai_64397591/pg_1

Here is my favorite paragraph from Wideman:

Well, if something terrible happens, you've got to do something about it. Your choice is either to be crushed by it or to carry on. That's a choice all the time. At this point today, and in my work so far, I have tried to suggest that it is worth carrying on. That's in fact what I am doing. I think the best thing and the worst thing about life is that you don't know what is going to happen. The best thing and the worst.

http://www.salon.com/nov96/interview2961111.html

Wideman's most popular basketball book is Hoop Roots: Basketball, Race, and Love. I have not read it but hope to start it one day--right now, I am still working through Pat Conroy's delightful book, My Losing Season.

Warren Buffett on Geeks

Today's WSJ had another gem from Warren Buffett (front page). Regarding the computer programs that financial firms relied upon to evaluate so-called safe investments and derivatives, Warren delivered another classic line:

All I can say is, beware of geeks...bearing formulas.

Oh, the obviousness, especially post-LTCM.

Genetic Ancestry

National Geographic is building an ancestry database. It's called the Genographic Project, and it's cheaper but much less specific than the 23andme/ genetic test:

https://www3.nationalgeographic.com/genographic/

For $99.95, you will get a kit in the mail where you provide some DNA for analysis. This is accomplished by scraping the inside of your cheek and then placing the samples in a watery solution to ship to National Geographic. My first sample didn't work, probably because I ate food too close to the scraping, but my second sample had enough DNA for analysis. It turns out I am a member of the Haplogroup J and J2. Wikipedia has a good entry on this haplogroup:

http://en.wikipedia.org/wiki/Haplogroup_J2_(Y-DNA)

Apparently, my particular haplogroup is shared by everyone from Greeks to Italians to Iranians to Sephardic Jews. Here is the particular breakdown of shared ancestry, from Wikipedia and National Geographic:

Iraqis 29.7%, Lebanese 29.5%, Syrians 29%, Sephardic Jews 29%, Kurds 28.4% , Turks 27.9%, Georgians 26.7%, Iranians 23.3%, Ashkenazi Jews 23.2%, Greeks 22.8%, Italians 19.3%, Tajiks 18.4%, and southern Spaniards 10%.

Wikipedia had a more expansive list than the National Geographic results, so after you receive your haplogroup results, you should view the relevant Wikipedia entry for more information.

I'm not sure what these results really show. Much of it is probably based on the program's original ancestry database. For example, if not enough Persians are in the original database, then fewer samples will be classified as Iranian. I'd be very interested in seeing how National Geographic set up its original ancestry database before it cross-compared new DNA samples.

My sister also did the test and her haplogroup is found disproportionately among the Finnish in Finland. So it appears she and I are a combination of Mediterranean and Scandinavian ancestry. What does it all mean? Who knows? My Mediterranean side prefers warmer weather, so maybe I will stay put in California. On the other hand, perhaps this will convince me to go to Finland one day and visit. I've always liked Matt Damon's character in Good Will Hunting, and Damon is Finnish-American. On the other hand, apparently Aileen Carol Wuornos (a serial killer) is Finnish-American, too. It just goes to show you there's not much you can glean from genetic data.

Even so, if some government official from Finland sees this post and wants to offer me a free trip to the Motherland, I'd happily accept--I mean, there's nothing wrong with a country taking care of one of their long-lost emigrants, right? I'll go brush up on my Finnish--especially these two phrases: Minä en ymmärrä suomea, and Puhutteko englantia?

Election Won't Have Long Term Impact

From AP writer Madlen Read:

[I]nvestors shouldn't get too caught up in the market's short-term reaction after the election results. The Dow surged, for example, after President Hoover was elected in 1928 — and the next year the it crashed, ushering in the Great Depression.

If the next two unemployment reports show increased layoffs, they will overshadow any election results. If you are a pessimist who believes the market has already priced in an Obama election and is due for another technical bounce, one short-term strategy might be to buy now and then sell in mid-January 2009. Personally, I am overweight tech stocks.

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.

Harvard Law Grad Burns Diploma

A Harvard Law grad has burned his diploma and has quit the daily grind:

ABA Journal Article

http://adventuresinvoluntarysimplicity.blogspot.com/2008/10/follow-your-dreams.html

His blog is here:

http://adventuresinvoluntarysimplicity.blogspot.com/

I've also learned that there is something seriously wrong with law firm life. I've been blogging for five months now, and I am still surprised by the sheer number of e-mails I receive from other lawyers who are dealing with some of the very same issues I struggle with. I think there is a yearning out there for a way to reconcile the demands of a legal career with other life goals. Many lawyers feel that they have rejected important aspects of themselves in exchange for a life they no longer feel they want to live. They feel trapped because they have to pay a mortgage, student loans, private school tuition, etc. ... but have no idea how to get out.

I think it is important to emphasize that not every lawyer working at a law firm is unhappy. Some of my very best friends have thrived in that environment and are genuinely happy. If you derive genuine, meaningful pleasure from the profession and can overcome all the obstacles that this lifestyle places on your personal life, then you have it made.

Like most things in life, law practice is what you make of it, but there are definitely more workaholics in the legal profession. For me, it's not the practice of law that is problematic, but the 24-7 nature of the job. I feel discombobulated when I am not working because I am afraid I might miss important messages and phone calls; also, being a solo practitioner, it's almost impossible to take two week vacations. I've gone five years now without a two week vacation (and I'm not sure if I've taken any one week vacations, either, except one time when I was best man). I hope to take a two week vacation next year. A friend suggested San Luis Obispo, so I might go there for a simple, relaxing vacation.

Recession Hits Law Firms

Two major SF law firms have shut down:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/10/31/MNA113S07P.DTL

You know the economy's bad when lawyers can't find work. On the other hand, like most professions, certain subgroups do well even when an overall industry doesn't. For example, bankruptcy lawyers, especially those who can handle Chapter 11s, will have plenty of work. Family lawyers probably aren't worrying too much, either. As for me, a labor and employment attorney, I'm not sure how everything will shake out, but I'm not overly concerned.

It's Dues Paying Time

Carl Haefling has one of the best articles I've seen on the current economic crisis and its potential consequences:

Carl Haefling on Paying Your Dues

The hard lesson learned, and this seems to keep repeating itself, is that in a Capitalistic economy if there is a good idea that creates wealth quickly, it will be identified, copied and mass created until it creates failure. We have seen that happen over and over in the financial markets and with corporations who are successful for a period of time and almost inevitably fail. Demand destruction has effectively ruined Bear Stearns, Lehman Brothers, hundreds if not thousands of mortgage companies, and forced banks and related businesses into merger or bankruptcy. More and more companies will go out of business, the unemployment levels will expand, and there is little that Obama or McCain can do about it. The decisions made by the Bush Administration and the Fed have drastically reduced our choices in funding our financial obligations and the various programs that our citizens have become accustomed to.

It is now dues paying time.

Mr. Haefling also has some choice words for libertarians:

Libertarians for the most part believe that the higher nature of humanity will surface and ultimately allow for a free market to prevail. I believe that is naive at best.

Ouch. I don't think libertarians believe the "higher nature of humanity" will surface in a crisis. It's the other way around, actually. The lower nature of humanity will lead to mistakes, and we have two choices: one, increase government and its interference into our private lives; or two, accept the consequences of our mistakes without burdening those who did not participate in our follies.

NY Predicts 47 Billion Dollar Deficit

NY forecasts a budget deficit of 47 billion dollars over the next four years:

LA Times Article

Over the next four years, New York must confront a budget gap of $47 billion...Projected state budget deficits nationwide are expected to total at least $100 billion by fiscal 2010.

Almost sounds small when compared to 700 billion...almost.