OCM Revisited

I keep talking about OCM--Other Countries' Money. Very few people seem to understand the consequences of being dependent on the kindness of strangers. Now, the U.S. is considering selling Japanese-backed bonds rather than its own:

http://www.nakedcapitalism.com/2008/11/japanese-float-idea-of-treasury-selling.html 

Oh, the embarrassment.

Currencies

You can now buy almost all the major foreign currencies through a U.S. brokerage account: 

FXE: Euro 

FXC: Canadian dollar 

FXF: Swiss franc 

FXM: Mexican peso 

FXY: Japanese yen 

XRU: Russian ruble 

BZF: Brazilian real 

CYB, CNY: Chinese yuan 

ICN, INR: Indian rupee 

Although you can trade currencies, it doesn't mean you should. Personally, I own some FXC and FXF, but my positions may change at any time, and I am *not* qualified to give investment advice.

I view the Canadian dollar as a diversification tool because it is indirectly linked to commodity prices. The U.S. imports most of its oil through Canada, Mexico, and Venezuela. 

The Swiss franc should do relatively well, despite Swiss banking problems, because war is the #1 destroyer of economies, and the Swiss have historically avoided war. In contrast, the U.S. has Iraq; China has Taiwan; Russian has Georgia; India has Pakistan (over Kashmir); and Mexico has internal corruption so terrible, it may lead to civil war. Brazil's egregious income inequality makes it difficult for me to invest too much of my money in the country, despite its independence from OPEC and recent economic growth. 

I have heard several Southeast Asians say that Malaysia is doing better than its neighbors Cambodia and Vietnam primarily because Malaysia avoided war and Cambodia and Vietnam did not. The general theory makes sense. Aggression and war destroy economies because they lead to a lack of stability, which drives away investment. Thus, peacenik Americans who crave stability are left with the Euro, which is going to be devalued because of future expected interest rate cuts; the Canadian dollar; the Japanese yen; and the Swiss franc. 

If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy. -- James Madison

S.F. Judge Reprimanded

Interesting article on an S.F. judge:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/11/18/BAAV147BAP.DTL

I've never met the judge, but he sounds like a former District Attorney.

I just checked--Judge McBride was a former assistant D.A. and a police officer. According to the S.F. Sentinel, "[Judge] McBride has previously been named Judge of the Year by both the San Francisco Trial Lawyers Association and the San Francisco Bar Association’s Barrister Club." Judge McBride was also elected the S.F. Court's presiding judge this year.

Nothing against Judge McBride, but in states where voters can elect judges, I recommend voting against former district attorneys if they lack private sector experience handling non-criminal cases. Some great judges were former D.A.s, but generally speaking, D.A.s tend to see the world in black and white. Also, while former district attorneys seem to have a better work ethic than non-criminal lawyers, this extra energy is usually caused by a Superman complex. What do I mean by a Superman complex?

Most D.A.s become D.A.s to protect society from criminals and bad elements. To place yourself in a role where you can single-handedly protect your fellow man by locking up citizens (some of whom may be innocent), you have to be comfortable playing God or Superman. But people who view power cautiously or who are mindful of their lack of omnipotence will be fearful of wielding any kind of substantial power. This means that the most confident lawyers, the ones who are comfortable playing Superman, will gravitate towards the D.A. role.

In fact, good D.A.s must have supreme confidence to function, especially after seeing horrors like rape, homicides, and infanticides up close. The average person who sees an 18 year old mother microwave her baby probably won't want anything to do with that situation; a D.A., however, must not only get involved, s/he must convince a jury to throw the young mother in jail. If the D.A. thinks about the mother's personal background, her poverty, or some other random factor, it makes his job more difficult. In short, the ability to see gray areas complicates throwing a fellow human being in jail, because a person may realize that in some alternate universe, given the same set of circumstances, it could be him or her across the aisle in the courthouse. Of course, someone has to prosecute unfortunate souls along with the hardened criminals, so you want D.A.s to be tough, supremely confident, and comfortable playing God with people's lives. At the same time, it's important to recognize that kind of attitude works best in criminal law, not civil law.

Many meritorious civil cases involve gray areas without hard evidence (i.e., a smoking gun, fingerprints, DNA). For example, employment cases sometimes involve nothing more than he-said/she-said scenarios, such as where a female employee alleges sexual harassment. Thus, much of the time, a civil judge has to decide whether a case has merit based solely on sworn statements from different people. Although the law requires judges to send cases to a jury if a reasonable person could see genuinely disputed material facts, after seeing so much hard evidence in criminal cases and so many criminal cases involving severe harm, former D.A.s tend to be less sympathetic to cases that lack obvious physical harm.

You will notice that Judge McBride was named Judge of the Year by the San Francisco Trial Lawyers Association. Those associations are usually run by personal injury lawyers, who bring cases involving physical injuries. Thus, it is not unusual for former D.A.s to be well-liked by trial lawyer associations, because personal injury cases usually involve obvious physical harm and more black-and-white facts than other cases--such as securities litigation or labor law--which don't appeal to a D.A.'s experience of associating meritorious cases with blood on the ground.

Again, I don't know Judge McBride, so I cannot comment on him specifically. The only reason I write this post is to encourage voters to consider voting for a non-D.A., a public defender, a solo practitioner, or a lawyer with private practice experience when it comes time to choose a judge.

Bonus: an Illinois judge jails a man for making a yawning noise in his courtroom. See here.

Steve Malanga on State Governments

Steve Malanga, senior editor of the Manhattan Institute's City Journal, is my new favorite writer. The WSJ included an opinion piece by him in today's paper:

http://s.wsj.net/article/SB122697315476635963.html

A study...by the Employee Benefit Research Institute estimated that the average public sector worker earns 46% more in total compensation than his counterpart in the private sector, largely because government employers spend 60% more per worker on benefits than counterparts in the private sector. States have collectively ranked up some $731 billion in unfunded liabilities for pensions and other retirement benefits, according to a study...by the Pew Charitable Trusts' Center on the States...

California state and local governments are paying some $12.8 billion a year to finance public employee pensions, up form $4.8 billion in 1999.

You know who's on the hook for all those benefits, don't you? We, the taxpayers, and our children. What is the reason government employees, on average, receive more benefits than private sector workers? It is becoming increasingly apparent that our elected representatives believe that we should work for them, instead of the other way around.

The next time you vote to give more money to government programs, just remember what we were told as kids: "Money doesn't grow on trees." Perhaps these days, it should read, "Money may not grow on trees, but what's wrong with getting money through bond sales?" Well, remember OCM--Other Countries' Money? Other countries are and have been the major buyers of our bonds, meaning they have become American Express, while we have become debt-holders, working each month to pay them off. I guess our own government is selling us out to other countries. Who can blame them? Other countries are the ones effectively paying for their benefits and for their inefficient programs (Bridge to Nowhere, etc.) through the purchase of municipal and Treasury bond sales. Although I am opposed to unnecessary regulation of private citizens, that doesn't mean an irresponsible government doesn't deserve to be regulated. Maybe we should require all public sector bond sales to have at least 51% American citizen ownership before being offered to other countries--once Americans realize we don't have the money to buy back our own debt, much less our future debt, we might become more frugal.

Update on Transmeta (TMTA)

On September 18, 2008, I wrote that Transmeta was a potential takeover target:

If you're looking for a growth story, this isn't it; however, as long as its patent portfolio remains viable, TMTA may be a potential takeover target or value play at the right price.

http://willworkforjustice.blogspot.com/2008/09/transmeta-tmta-shareholder-meeting.html

On November 18, 2008, Novafora acquired Transmeta:

http://biz.yahoo.com/ap/081117/novafora_acquisition.html

This appears to be a good outcome for Transmeta. Kudos to the Board of Directors and to the officers for selling the company in a professional, transparent manner.

Now a Good Time to Invest?

A lot of you have been on the sidelines, waiting for a good time to buy stocks. I'm not making any recommendations, but I just bought between 55 to 250 shares of some tech stocks, including NVDA, ERTS, INTC, STM, SYMC, and CSCO. I realize my financial outlay isn't much, but perhaps these shares will be worth much more five years or more from now.

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.

Homes v. Stocks as Investments

According to an article in Charles Schwab on Investing, Fall 2007 (p. 7), which looks like it was written by Matt Wood, stocks are a better investment than housing:

[R]esidential real estate provided an annualized return of 8.6% during the period from 1978 to 2004, compared with 13.4% for the S&P 500 Index (citing Jack Clark Francis et al, Contrasting Real Estate with Comparable Investments, 1978-2004, April 2007)

In some cases, [owning a home costs] as much as three times the purchase price [due to insurance premiums, maintenance costs, and property taxes]...Robert Shiller says real estate's historic real returns are closer to zero after adjusting for inflation. [David Crook, "Your Home Isn't the Nest Egg That You Think It Is," WSJ Online, March 12, 2007]

I refused to buy any property during the last five years, believing that everything in California was overpriced. Now, however, I am not so sure. Housing and other hard assets might not be a great investment, but they no longer appear to be flagrantly overpriced.

Poem: Lola Haskins

I finally dumped my 8 years old wallet and replaced it with a new one I had in my drawer (it's been there for the last 5 years). In the process of emptying out the old wallet, I found a short poem, by Lola Haskins. It's titled, "Love":

LOVE

She tries it on, like a dress.
She decides it doesn't fit,
and starts to take it off.
Her skin comes, too.

This was one of two poems I had in my wallet. Not sure why I had that particular one in there, other than the fact that it's one of the most poignant poems I've ever read. Can't you just feel the unnamed woman's anguish? I am still in awe of how the last line creeps up on unsuspecting readers, only to bludgeon them so matter-of-factly in the end.

Book Rec: Factory Girls

I am in the middle of Factory Girls, a fascinating book about migrants in China:

Factory Girls

The book is a fantastic read. The writer, Leslie Chang, traveled to China and got to know various factory workers, all of whom migrated from small towns into large cities. She wrote about their experiences, and even seamlessly includes her own family's migration to America. The women profiled are incredible human beings, and reading about their lives should be required for every American high school and college student. What struck me most about the migrants is their desire to do anything to move up in society, including enrolling in "white collar" manners classes. Even though the migrants' wages are absolutely meager--about 50 dollars a month--they forge forward, determined to leave their mark in the city. Think Grapes of Wrath, but Chinese-style. Thanks to Jeff E. for the recommendation.

Yahoo (YHOO) Update

Here is the latest on Yahoo (YHOO):

http://finance.yahoo.com/news/Yahoo-to-replace-Yang-as-CEO-apf-13601499.html

Mr. Yang is going to step down. Bostock has the easiest decision ever--Susan Decker is right there. She takes over Mr. Yang's spot, and using her position on Berkshire's board, talks to Warren Buffett about a partial sale to Microsoft. Mr. Buffett, of course, knows Bill Gates very well. Mr. Bostock can't possibly screw this up...or can he?

Louis Brandeis

A friend picked up the Brandeis train (courtesy of The Green Bag) last month. Isn't it a beaut?

Brandeis has a special place in my heart for these words:

The makers of our Constitution undertook to secure conditions favorable to the pursuit of happiness. They recognized the significance of man's spiritual nature, of his feelings and of his intellect. They knew that only a part of the pain, pleasure and satisfactions of life are to be found in material things. They sought to protect Americans in their beliefs, their thoughts, their emotions and their sensations. They conferred, as against the government, the right to be let alone--the most comprehensive of rights and the right most valued by civilized men. To protect, that right, every unjustifiable intrusion by the government upon the privacy of the individual, whatever the means employed, must be deemed a violation of the Fourth Amendment. (OLMSTEAD v. U.S., 277 U.S. 438 (1928))

"The right to be let alone." Such beautiful words. Too bad it's just a dissent, and therefore not legally binding.

On Prostitution

Re: sex workers, the keys to legalization seem to be as follows: 

1) criminalize excessive and unwanted solicitation, which allows the workers to avoid coercion; 

2) legalize prostitution, which requires police protection and presence for both customers and workers, furthering increasing the safety of the transaction; 

3) tax the transaction, thereby funding other services, like education as well as the police squads assigned to the "Hamsterdam" districts; 

4) require STD testing and databases of all participants before any activity; 

5) place all districts far, far away from "core" business activity, including K-12 schools; 

6) provide housing dormitories and free health care (in exchange for waiving some privacy rights in order to study physical changes or some other constructive health care purpose, and only when the workers themselves choose to see a doctor for more than the required STD-testing) to ensure that they can save their money (think military-style housing); 

6) require that at least 10% of all earnings be set aside into an irrevocable retirement fund until age 50 and put into a balanced fund; 

7) require 5% of all earnings be put into a liquid account accessible upon exiting the business; 

8) require maximum employment of 15 years (I'm not sure about this step, but the idea is that at some point, just like prison rehabilitation programs, the participants would re-enter "core" societies with marketable skills); 

9) apportion some tax revenue to the workers to decide what to do for communal purposes, allowing an indirect education into economics and politics.

Bonus: Police protection is necessary to prevent trafficking and mafia involvement--the whole point of legalization is to eliminate the underground economy; again, the idea is to shift police resources away from undercover work and targeting the informal economy into protecting consensual behavior; 

You'll notice I included social services, too, but in non-traditional forms--free housing, vocational job training, healthcare, and financial independence.  

You'll notice I want a time limit to get the women and men out of this business eventually. 

Prostitution is not something most people want to do, but it happens, it will always happen, and we must choose where we want our resources to go and whether we want a society that favors above ground or underground systems.  Re: imbalances in power, they exist in almost every single business transaction. Does anyone suggest all results of imbalanced power relationships are automatically immoral? Shouldn't the touchstone of the analysis be voluntary consent, safety for all parties, and fair pay rather than subjective criteria? In other words, shouldn't the analysis center on how to avoid using the worker as a means rather than imposing a legal structure based on subjective criteria, which will only drive the business underground? 

Blue Dog Democrats

The WSJ's November 14 letters section (A16) introduced readers to a Blue Dog Democrat, Jim Cooper. I am a registered Democrat, but am fiscally conservative, which makes me a Blue Dog Democrat.

Rep. Cooper makes the point that the federal government "is still using unaudited cash accounting despite the availability audited, accrual numbers. The federal government is the only large enterprise in the U.S. that is exempted from normal accounting rules. If you want the truth, check out the 'Financial Report of the U.S. Government' (available at http://www.fms.treas.gov/fr/)."

That link leads to this one: http://www.fms.treas.gov/frsummary/index.html

A politician who isn't lying, and who's showing us where the truth is? Just doing the former would make him special in Washington, but the latter, too? Bless those Blue Dogs.

Michael Lewis on Wall St Corruption

Michael Lewis always has great stuff:

http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

My favorite parts? Here you go:

In Bakersfield, California, a Mexican strawberry picker with an income of $14,000 and no English was lent every penny he needed to buy a house for $720,000...

He called Standard & Poor’s and asked what would happen to default rates if real estate prices fell. The man at S&P couldn’t say; its model for home prices had no ability to accept a negative number. “They were just assuming home prices would keep going up,” Eisman says.

Oh, the hubris.

Poem: How do you like them apples?

It's the weekend, so not much on the economic front to report. The government might take our tax dollars to give to GM and Ford, but that potential giveaway comes next week. For now, some poetry:

http://paulgoetz101.wordpress.com/2006/11/15/federico-garcia-lorca/ [Broken link]

Same poem, different link:

https://www.poets.org/poetsorg/poem/gacela-dark-death

Federico Lorca, who wrote the poem above ("Gacela of the Dark Death"), had a fascinating, but sad life:

http://en.wikipedia.org/wiki/Federico_Garc%C3%ADa_Lorca

Bay Area Homeowners in Trouble

According to The SF Chronicle and Zillow.com, around 20% of California Bay Area homeowners have no equity in their homes:

http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2008/11/11/MNN0142MCG.DTL&

Zillow's estimated prices are not 100% accurate (that's the nature of an estimate), but it's very hard to price houses in this market; therefore, Zillow might be the closest thing we have to getting what I call the "misery numbers."

Hat tip to Barry Ritholtz for linking to the SF Chronicle article first.

Poem by Judith McCune

I keep this poem in my wallet. It's from The Atlantic magazine (March 2000, page 96), and I've kept it there for eight years. Like my eight-years-old wallet, it is fraying and may soon become unreadable. I wanted to post it here so that others may read this little-known poem. Click on the link below to read the entire poem:

http://www.theatlantic.com/unbound/poetry/antholog/mccune/theguest.htm

I can't post the entire poem because of The Atlantic's copyright (a question for the IP and copyright lawyers out there: once the author is dead, does the copyright to her work diminish in any way, even though the owner of the copyright is the magazine, not the author?). In any case, I will quote the last stanza only to entice you to read the poem:

Now when Chiqui asks me how I've slept, I lie: Just fine, I say, though by this time I've learned the Spanish word for shame.

Copyright © 2000 by The Atlantic Monthly Company.

The poem neatly summarizes my old-fashioned world view. It has hard-working immigrants, caring family members, and a continuity of time (expressed through different generations of the same family). It also juxtaposes old-fashioned values against modern values in a way that makes the new values subservient to the old ones. Whenever I read McCune's poem, I fall in love with its style and content all over again.

Ariel Investments

Ariel Investments CEO John Rogers, Jr. beat Michael Jordan in a 1-on-1 game back in 2003. The video is here:

Ball Don't Lie

WSJ Link

Just for this, I am going to buy some Ariel funds someday (http://www.arielinvestments.com/). I love the way Mr. Rogers Jr. calmly walks away after the game instead of getting excited or trash talking. That's the temperament--calm but determined--a good mutual fund manager should have.

CEO Lanni Leaves MGM Mirage

MGM's CEO Lanni is leaving MGM Mirage:

http://www.reuters.com/article/marketsNews/idINN1338744220081113

Jim Murren will likely replace him. Here is an old transcript of a 1998 interview with Murren:

http://www.fool.com/foolaudio/transcripts/980813_mgg.htm

Mr. Murren seems much more candid than Mr. Lanni. Earlier this year, I posted a review of the 2008 MGM shareholder meeting--see 2008 MGM Shareholder Meeting--in which Mr. Lanni seemed far too sunny and upbeat about his casino's prospects. You can't blame the man for trying, though.

I hope next time I'm in Vegas, I won't get a horse's head in my hotel room after this blog entry. An experienced dealer in Reno once told me, "Back when the mob was running Nevada, things ran much more smoothly." I bet.

General Electric at 12 Year Low

General Electric (GE) stock hasn't been this low since July 1, 1996. GE stock went as low as 14.58 per share today.

Yesterday, the stock tanked because the federal government suddenly reversed course and said it would not be buying bad debts. GE issues debt and also owns various financial subsidiaries, including insurance companies. Absent a government guarantee, various pieces of GE's financial portfolio would be less attractive to buyers. However, GE immediately issued a press release noting that the Federal Deposit Insurance Corporation approved GE Capital Corp. to participate in the Temporary Liquidity Guarantee Program--meaning up to $139 billion in short and long-term debt is going to be guaranteed by the federal government. (See AP article.) I guess when one door closes, another opens.

Today, GE's stock tanked because of rumors that GE was cutting its dividend, which stands at a hefty 7%. GE denied the rumors, but its stock fell anyway.

I am a major buyer at these levels. I picked up three thousand shares yesterday and just bought another thousand shares this morning at around 15.24 per share. My average buy price is around 16.25 per share.

Update on November 13, 2008: I sold my 4000 shares of GE at 16.74 today. Had I waited just five more minutes, I could have sold my shares at 16.90, meaning I would have made another $600+. That's fine--I'm not greedy. GE stock closed today at 16.86. It will probably go up more tomorrow, but I had too much invested to sleep comfortably if I held my shares overnight.

If you go back and look at my "Stocks Update" posts, you can view my short-term trading record. I also sold the GOOG and AMAT shares I bought yesterday.

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.

Techcrunch on Yahoo

Yahoo's share price is almost in the single digits:

Techcrunch

It's like watching a train wreck. Susan Decker needs to call Warren Buffett and get some advice.

Buying Opportunity?

If you are a high risk trader, today's volatility might create a good entry point for short and long term trades.

Today, I bought GE, AMAT, and GOOG. My largest purchases were in GE--I now own over 3000 shares of GE at around 16.55 a share.

Traders still have twenty five minutes to buy (or sell) before the market close.

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.

California's Ailing Government

The AP's Judy Lin reports that California faces a $28 billion deficit:

SJ Mercury

And the hits just keep on coming...

Famous Speeches

Here is a website with transcripts and some audio/video of famous speeches:

http://www.americanrhetoric.com/speechbank.htm

Here is a speech by Barbara Jordan--before Obama, Barbara Jordan spoke of change:

http://www.americanrhetoric.com/speeches/barbarajordan1992dnc.html

And here is the text of one of my favorite speeches, by Barry Goldwater:

http://www.americanrhetoric.com/speeches/barrygoldwater1964rnc.htm

We see in private property and in economy based upon and fostering private property, the one way to make government a durable ally of the whole man, rather than his determined enemy. We see in the sanctity of private property the only durable foundation for constitutional government in a free society. And -- And beyond that, we see, in cherished diversity of ways, diversity of thoughts, of motives and accomplishments. We don't seek to lead anyone's life for him. We only seek -- only seek to secure his rights, guarantee him opportunity -- guarantee him opportunity to strive, with government performing only those needed and constitutionally sanctioned tasks which cannot otherwise be performed...

Balance, diversity, creative difference: These are the elements of the Republican equation. Republicans agree -- Republicans agree heartily to disagree on many, many of their applications, but we have never disagreed on the basic fundamental issues of why you and I are Republicans.

This is a Party. This Republican Party is a Party for free men, not for blind followers, and not for conformists.

That's from 1964, back when Republicans knew what they stood for. How will the GOP recover from its 2008 defeat? All they have to do is look at the not-too-distant past for answers.

________________

Here's a link for the lawyers--speeches by U.S. Supreme Court Justices:

http://www.supremecourtus.gov/publicinfo/speeches/speeches.html

How Did You Vote?

This is the Ron Clark Academy presidential debate. Gotta love the token white guy.

Lyrics to “You Can Vote However You Like”

Obama on the left
McCain on the right
We can talk politics all night
And you can vote however you like
I said, you can vote however you like, yeah

Democratic left
Republican right
November 4th we decide
And you can vote however you like
I said, you can vote however you like, yeah

(McCain supporters)
McCain is the man
Fought for us in Vietnam
You know if anyone can
Help our country he can
Taxes droppin' low
Don't you know oil's gonna flow
Drill it low
I’ll show our economy will grow
McCain’s the best candidate
With Palin as his running mate
They’ll fight for gun rights, pro life,
The conservative right
Our future is bright
Better economy in sight
And all the world will feel our military might

(Obama supporters)
But McCain and Bush are real close right
They vote alike and keep it tight
Obama’s new, he’s younger too
The Middle Class he will help you
He’ll bring a change, he’s got the brains
McCain and Bush are just the same
You are to blame, Iraq’s a shame
Four more years would be insane

Lower your Taxes - you know Obama won’t
PROTECT THE LOWER CLASS - You know McCain won’t!
Have enough experience - you know that they don’t
STOP GLOBAL WARMING - you know that you won’t

I want Obama
FORGET OBAMA
Stick with McCain and you’re going to have some drama
We need it
HE’LL BRING IT
He’ll be it
YOU’LL SEE IT
We’ll do it
GET TO IT
Let’s move it
DO IT!

Obama on the left
McCain on the right
We can talk politics all night
And you can vote however you like
You can vote however you like, yeah

Democratic left
Republican right
November 4th we decide
And you can vote however you like, I said
You can vote however you like, yeah

I’m talking big pipelines, and low gas prices
Below $2.00 that would be nice

But to do it right we gotta start today
Finding renewable ways that are here to stay

I want Obama
FORGET OBAMA,
Stick with McCain you gonna have some drama
MORE WAR IN IRAQ
Iran he will attack
CAN’T BRING OUR TROOPS BACK
We gotta vote Barack!

Obama on the left
McCain on the right
We can talk politics all night
And you can vote however you like, I said
You can vote however you like, yeah

Democratic left
Republican right
November 4th we decide
And you can vote however you like, I said
You can vote however you like, yeah

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.

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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.