On X-Mas Eve, I received my new passport. I love the new design. I realize the new passports are a privacy lover's worst nightmare because of the embedded chips. I was still very happy to receive what felt like a timely gift from the feds. I especially like the quotes from famous Americans, including Abraham Lincoln and Martin Luther King, Jr., on each page. Here's one I had not seen before:
Let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the survival and the success of liberty. -- JFK
The passport also has blank sections where you can write in your address and other contact information. Use pencil when writing in the requested information. I made the mistake of writing my address and phone number in pen on the passport. That's my fault, of course--paragraph 5 told me to use pencil. The new passport also has two new pages titled, "Important Information." Most of the information is excellent and useful, but there is one interesting section--"Loss of U.S. Citizenship" (paragraph 13):
LOSS OF CITIZENSHIP. Under certain circumstances, you may lose your U.S. citizenship by performing any of the following acts: (1) being naturalized in a foreign state; (2) taking an oath or making a declaration to a foreign state; (3) serving in the armed forces of a foreign state; (4) accepting employment with a foreign government; or (5) formally renouncing U.S. citizenship before a U.S. consular officer overseas.
I admit I don't know which federal statute the above language comes from. (If someone does, please post a comment or email me the U.S.C. and/or CFRs directly.) Even so, most of the language seems overly vague and may therefore be unconstitutional.
For example, "Taking an oath or making a declaration to a foreign state?" That could encompass a lawyer writing a declaration in another country's court of law on a routine matter.
How about, "Serving in the armed forces of another state?" What about an Israeli citizen with dual citizenship? (Israel has mandatory military service.)
In short, Americans have allowed their government too much discretion if their new passports contain the direct language of a federal law. I am now having visions of Sir Thomas More appearing before Chancellor Cromwell, i.e., an innocent citizen before a government employee who twists the law to eliminate opposition. My country can do better in protecting all of its citizens from the vagaries of government discretion.
"And if an epitaph be my story, I'd have a short one ready for my own: I had a lover's quarrel with the world." -- Robert Frost
Thursday, December 25, 2008
Wednesday, December 24, 2008
Why Does Hilary Kramer Still Have a Job?
I don't usually watch television, but I happened to catch tonight's NBR. Analyst Hilary Kramer scared me out of my wits when she said she expected the market to drop 25%:
I believe in the first six months, everyone should be very careful, all investors. We could see the Dow dip to 7500. S&P could have another 25 percent downside...But don't just rush in or if you have some concern in the market, sell, hold out, wait for the real bottom to come...I think that gold could reach $1400 during 2009.
http://www.pbs.org/nbr/site/onair/transcripts/081224e/
I was absolutely frightened until I saw the following transcript, also from NBR:
http://www.pbs.org/nbr/site/onair/transcripts/080123c/
Ms. Kramer says,
I believe we have seen the bottom and we are going to now see a bull come back into Wall Street. We have formed a bottom and the reason we know that is that we finally had real buyers come in today. But we know it even more so because of what I saw this morning and yesterday, which is real fear. Fear took over and it over powered greed. Greed for so long was fueling the market, including as it was going down people buying into it.
The date? January 23, 2008. The DJIA was 12,270--now it's 8,468. The S&P was 1338--now it's 865. Some "bull," eh?
The lesson? Analysts don't know squat. Trust your own instincts. Or at least listen to people who've been right before, like Barry Ritholtz.
Update: gold did not reach $1400 in 2009, but on March 6, 2009, the Dow dipped to 6626, proving Ms. Kramer partially correct.
I believe in the first six months, everyone should be very careful, all investors. We could see the Dow dip to 7500. S&P could have another 25 percent downside...But don't just rush in or if you have some concern in the market, sell, hold out, wait for the real bottom to come...I think that gold could reach $1400 during 2009.
http://www.pbs.org/nbr/site/onair/transcripts/081224e/
I was absolutely frightened until I saw the following transcript, also from NBR:
http://www.pbs.org/nbr/site/onair/transcripts/080123c/
Ms. Kramer says,
I believe we have seen the bottom and we are going to now see a bull come back into Wall Street. We have formed a bottom and the reason we know that is that we finally had real buyers come in today. But we know it even more so because of what I saw this morning and yesterday, which is real fear. Fear took over and it over powered greed. Greed for so long was fueling the market, including as it was going down people buying into it.
The date? January 23, 2008. The DJIA was 12,270--now it's 8,468. The S&P was 1338--now it's 865. Some "bull," eh?
The lesson? Analysts don't know squat. Trust your own instincts. Or at least listen to people who've been right before, like Barry Ritholtz.
Update: gold did not reach $1400 in 2009, but on March 6, 2009, the Dow dipped to 6626, proving Ms. Kramer partially correct.
Plumes, Tulips, and Mortgages
Sarah Stein's book, Plumes, was reviewed by Stephen Birmingham, in the WSJ on November 19, 2008. It shows the fallacy of human greed and is yet another reminder of our tendency to engage in overzealous optimism. To wit,
It is the tulip craze that is most often cited in discussions of speculative bubbles, like the frenzy of for Internet stocks a decade ago and the more recent madness in the mortgage and credit markets. But the rage for ostrich feathers a century ago is instructive, too. When ostrich feathers flounced into vogue among the fashionable set in Paris, London, and New York, traders assumed that the popularity of plumes would stay permanently aloft, as if floating on an endless zephyr.
An ostrich feather bubble? Just one hundred years ago? Oh, the human frailty.
It is the tulip craze that is most often cited in discussions of speculative bubbles, like the frenzy of for Internet stocks a decade ago and the more recent madness in the mortgage and credit markets. But the rage for ostrich feathers a century ago is instructive, too. When ostrich feathers flounced into vogue among the fashionable set in Paris, London, and New York, traders assumed that the popularity of plumes would stay permanently aloft, as if floating on an endless zephyr.
An ostrich feather bubble? Just one hundred years ago? Oh, the human frailty.
Tuesday, December 23, 2008
"Capitalism without failure is like religion without sin."
On seekingalpha.com, my Madoff article has attracted the second most comments. I've added a comment of my own, which I share below:
I've read all of your comments with the hopes that our outrage will prevent another ill-advised bailout. Carnegie Mellon economist Allan Meltzer once said, "Capitalism without failure is like religion without sin." In other words, capitalism doesn't work unless we allow losers. Having losers creates two positive outcomes: one, it shows others what doesn't work (in this case, not diversifying or not doing due diligence when investing); and two, it creates shame--a powerful motivator--by warning others that bad actions lead to real consequences.
A Madoff bailout would be particularly harmful to capitalism as a whole, because it would pervert it into a tool for the rich and well-connected. I called the WSJ article propaganda because it focused not on the investors who made substantial returns over the 25+ years of investing with Madoff, but on charities and the elderly. Thus, it was deliberately designed to pull on our heart-strings for a class of people who are generally well-off.
The real victims are non-Madoff investors who will suffer diminished returns from their mutual funds. Their mutual funds hold companies like UBS and other entities that invested with Madoff. No one will be bailing out these Main Street investors, but they are the real victims. Yet, all the attention is being given to Madoff's investors, who are a highly exclusive group of hedge fund investors and investors who failed to diversify their investments.
In the end, a bailout is wrong because it would cause the transfer of wealth from people America should support rather than penalize. Basically, rather than reward people for making wise decisions or providing utility to others, a Madoff bailout ensures that Main Street will continue to suffer for bad decisions made by the rich and investors who failed to diversify.
If we wish to serve as a non-exploitative economic model for the rest of the world, we must allow some failure. We must not allow well-connected investors to make bad decisions and then escape the consequences because of their friends in Congress, on Wall Street, and in the Dow, Jones & Company publishing firm.
More important, if we want the U.S. dollar to continue being the world's reserve currency, then we must ensure the rich as well as the poor suffer the slings and arrows of bad decisions. The alternative is printing more money, which will lead to inflation, and reduced stature.
I've read all of your comments with the hopes that our outrage will prevent another ill-advised bailout. Carnegie Mellon economist Allan Meltzer once said, "Capitalism without failure is like religion without sin." In other words, capitalism doesn't work unless we allow losers. Having losers creates two positive outcomes: one, it shows others what doesn't work (in this case, not diversifying or not doing due diligence when investing); and two, it creates shame--a powerful motivator--by warning others that bad actions lead to real consequences.
A Madoff bailout would be particularly harmful to capitalism as a whole, because it would pervert it into a tool for the rich and well-connected. I called the WSJ article propaganda because it focused not on the investors who made substantial returns over the 25+ years of investing with Madoff, but on charities and the elderly. Thus, it was deliberately designed to pull on our heart-strings for a class of people who are generally well-off.
The real victims are non-Madoff investors who will suffer diminished returns from their mutual funds. Their mutual funds hold companies like UBS and other entities that invested with Madoff. No one will be bailing out these Main Street investors, but they are the real victims. Yet, all the attention is being given to Madoff's investors, who are a highly exclusive group of hedge fund investors and investors who failed to diversify their investments.
In the end, a bailout is wrong because it would cause the transfer of wealth from people America should support rather than penalize. Basically, rather than reward people for making wise decisions or providing utility to others, a Madoff bailout ensures that Main Street will continue to suffer for bad decisions made by the rich and investors who failed to diversify.
If we wish to serve as a non-exploitative economic model for the rest of the world, we must allow some failure. We must not allow well-connected investors to make bad decisions and then escape the consequences because of their friends in Congress, on Wall Street, and in the Dow, Jones & Company publishing firm.
More important, if we want the U.S. dollar to continue being the world's reserve currency, then we must ensure the rich as well as the poor suffer the slings and arrows of bad decisions. The alternative is printing more money, which will lead to inflation, and reduced stature.
Mad about Madoff
My Madoff article became the most popular article on seekingalpha.com yesterday, as well as the third-most commented on article. People are angry. I hope their reaction pre-emptively stopped serious talk of another ill-advised bailout.
More comments and public reactions at the Daily Kos.
More comments and public reactions at the Daily Kos.
Politics: Eisenhower and Obama
I just got off the phone with one of my closest friends, who is an Orange County Republican. He is staunchly anti-Obama. Although I am a registered Democrat, I call myself a Barry Goldwater Republican, or (when I'm feeling giddy) an Eisenhower Republican. I miss the days when we had Republicans who refused to sacrifice American lives unless it was absolutely necessary.
August 11, 1954: Eisenhower: ‘I Don’t Believe There Is Such a Thing’ as Preventative War
Q: Mr. President, there seems to be increasing suggestions that we should embark on a preventive war with the Communist world, some of these suggestions by people in high places.
A: All of us have heard this term ‘preventive war’ since the earliest days of Hitler. I recall that is about the first time I heard it. In this day and time, if we believe for one second that nuclear fission and fusion, that type of weapon, would be used in such a war—what is a preventive war? I would say a preventive war, if the words mean anything, is to wage some sort of quick police action in order that you might avoid a terrific cataclysm of destruction later. A preventive war, to my mind, is an impossibility today. How could you have one if one of its features would be several cities lying in ruins, several cities where many, many thousands of people would be dead and injured and mangled, the transportation systems destroyed, sanitation implements and systems all gone? That isn’t preventive war; that is war. I don’t believe there is such a thing; and, frankly, I wouldn’t even listen to anyone seriously that came in and talked about such a thing.
To those Republicans who are anti-Obama, I ask them to wait until the President-Elect does something wrong. Right now, it appears Americans are pre-judging our Commander-in-Chief, even though he picked Cabinet appointees with moderate views.
August 11, 1954: Eisenhower: ‘I Don’t Believe There Is Such a Thing’ as Preventative War
Q: Mr. President, there seems to be increasing suggestions that we should embark on a preventive war with the Communist world, some of these suggestions by people in high places.
A: All of us have heard this term ‘preventive war’ since the earliest days of Hitler. I recall that is about the first time I heard it. In this day and time, if we believe for one second that nuclear fission and fusion, that type of weapon, would be used in such a war—what is a preventive war? I would say a preventive war, if the words mean anything, is to wage some sort of quick police action in order that you might avoid a terrific cataclysm of destruction later. A preventive war, to my mind, is an impossibility today. How could you have one if one of its features would be several cities lying in ruins, several cities where many, many thousands of people would be dead and injured and mangled, the transportation systems destroyed, sanitation implements and systems all gone? That isn’t preventive war; that is war. I don’t believe there is such a thing; and, frankly, I wouldn’t even listen to anyone seriously that came in and talked about such a thing.
To those Republicans who are anti-Obama, I ask them to wait until the President-Elect does something wrong. Right now, it appears Americans are pre-judging our Commander-in-Chief, even though he picked Cabinet appointees with moderate views.
Gold in National Geographic
National Geographic Magazine's January 2009 issue has an article about gold:
http://ngm.nationalgeographic.com/2009/01/gold/larmer-text
While investors flock to new gold-backed funds, jewelry still accounts for two-thirds of the demand, generating a record $53.5 billion in worldwide sales in 2007. For all of its allure, gold's human and environmental toll has never been so steep. Part of the challenge, as well as the fascination, is that there is so little of it. In all of history, only 161,000 tons of gold have been mined, barely enough to fill two Olympic-size swimming pools. More than half of that has been extracted in the past 50 years. Now the world's richest deposits are fast being depleted, and new discoveries are rare.
I cannot understand why people and central banks are willing to pay so much for gold. It has less utility than platinum and silver. Most items that rely primarily on scarcity to attract consumers eventually lose demand and their high value. With gold, however, consumers can't seem to get enough. At least gold's value is not artificially inflated, as with diamonds (See DeBeers litigation). Still, I cannot think of another product whose attraction has such little correlation with its utility.
With platinum and gold selling at similar prices, I would probably go for the platinum. For now, my only precious metal is silver, which I own through a silver trust ETF (SLV).
Update: the print edition of the National Geographic has two charts on page 42 and 43 that are worth a look. One is called, "What it's worth," and the other is called "How it's used." If readers find a link to the charts, please let me know or please post a comment.
Bonus Round: Steve Forbes on gold.
Bonus Round 2: from the Italian Job, about gold: it "is our only refuge."
Update on 12/23/08: here is a comment I posted on seekingalpha.com, in response to other comments:
I appreciate all of your comments, but the only one that makes sense to me is Albert Ling's. He says that expensive products are expensive precisely because of their lack of utility. Although he doesn't expand on his hypothesis, he makes sense. The low utility of certain products, including gold, reveals an important trait--namely, that their buyer can afford useless objects, confirming the buyer's high disposable income, and therefore status.
I don't disagree with the ultimate end of the gold bugs, which is to establish a hard currency. Once most central banks moved away from gold and into fiat currency, gold no longer qualified as an agreed-upon unit of currency. Only if we return to the days of hard currency will gold have value because of its utility in determining currency. Until that day, its value seems to be linked to consumer demand and perception rather than utility.
Other people argued that almost no other products have prices relating to their inherent value, citing beachfront property; Mona Lisa; and Apple stock. Those examples are somewhat inapt.
1. Beachfront property has value because it is something that is necessary--shelter. It can also be used every day. Gold is not necessary, while shelter is required for most people.
2. The Mona Lisa has value because it is a unique historical artifact. Unique historical items tend to be valuable, despite their lack of utility, because history has value to most human beings. Therefore, I have no logical hangup with a historical painting connected to Leonardo da Vinci and the Renaissance having value. The Mona Lisa's value is inherent in its existence, which links it to a specific time period that will be studied as long as human beings exist.
Other paintings, however, especially so-called modern art, may have no value in the future. I would never buy a MoMa painting.
3. Apple stock is a harder one to analyze. It has no utility at first glance, because it does not pay dividends. (Many value investors avoid non-dividend paying stocks, because they don't see any definite return.) Yet, Apple stock has utility because it is easily traded, like currency, for other things, which do have utility. Gold is not easily traded for cash all over the United States. Apple stock, on the other hand, once liquidated, will buy a farmer in a rural area as well as a NY banker in a big city immediate utility. Therefore, its utility lies in its quick, convenient conversion into a unit that confers utility.
http://ngm.nationalgeographic.com/2009/01/gold/larmer-text
While investors flock to new gold-backed funds, jewelry still accounts for two-thirds of the demand, generating a record $53.5 billion in worldwide sales in 2007. For all of its allure, gold's human and environmental toll has never been so steep. Part of the challenge, as well as the fascination, is that there is so little of it. In all of history, only 161,000 tons of gold have been mined, barely enough to fill two Olympic-size swimming pools. More than half of that has been extracted in the past 50 years. Now the world's richest deposits are fast being depleted, and new discoveries are rare.
I cannot understand why people and central banks are willing to pay so much for gold. It has less utility than platinum and silver. Most items that rely primarily on scarcity to attract consumers eventually lose demand and their high value. With gold, however, consumers can't seem to get enough. At least gold's value is not artificially inflated, as with diamonds (See DeBeers litigation). Still, I cannot think of another product whose attraction has such little correlation with its utility.
With platinum and gold selling at similar prices, I would probably go for the platinum. For now, my only precious metal is silver, which I own through a silver trust ETF (SLV).
Update: the print edition of the National Geographic has two charts on page 42 and 43 that are worth a look. One is called, "What it's worth," and the other is called "How it's used." If readers find a link to the charts, please let me know or please post a comment.
Bonus Round: Steve Forbes on gold.
Bonus Round 2: from the Italian Job, about gold: it "is our only refuge."
Update on 12/23/08: here is a comment I posted on seekingalpha.com, in response to other comments:
I appreciate all of your comments, but the only one that makes sense to me is Albert Ling's. He says that expensive products are expensive precisely because of their lack of utility. Although he doesn't expand on his hypothesis, he makes sense. The low utility of certain products, including gold, reveals an important trait--namely, that their buyer can afford useless objects, confirming the buyer's high disposable income, and therefore status.
I don't disagree with the ultimate end of the gold bugs, which is to establish a hard currency. Once most central banks moved away from gold and into fiat currency, gold no longer qualified as an agreed-upon unit of currency. Only if we return to the days of hard currency will gold have value because of its utility in determining currency. Until that day, its value seems to be linked to consumer demand and perception rather than utility.
Other people argued that almost no other products have prices relating to their inherent value, citing beachfront property; Mona Lisa; and Apple stock. Those examples are somewhat inapt.
1. Beachfront property has value because it is something that is necessary--shelter. It can also be used every day. Gold is not necessary, while shelter is required for most people.
2. The Mona Lisa has value because it is a unique historical artifact. Unique historical items tend to be valuable, despite their lack of utility, because history has value to most human beings. Therefore, I have no logical hangup with a historical painting connected to Leonardo da Vinci and the Renaissance having value. The Mona Lisa's value is inherent in its existence, which links it to a specific time period that will be studied as long as human beings exist.
Other paintings, however, especially so-called modern art, may have no value in the future. I would never buy a MoMa painting.
3. Apple stock is a harder one to analyze. It has no utility at first glance, because it does not pay dividends. (Many value investors avoid non-dividend paying stocks, because they don't see any definite return.) Yet, Apple stock has utility because it is easily traded, like currency, for other things, which do have utility. Gold is not easily traded for cash all over the United States. Apple stock, on the other hand, once liquidated, will buy a farmer in a rural area as well as a NY banker in a big city immediate utility. Therefore, its utility lies in its quick, convenient conversion into a unit that confers utility.
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