the First of Ten things every American should do before dying

1. Explore golf from the singles line. Go out to your favorite course and join some others who don't have a complete foursome. You'll meet some interesting people and learn something about yourself too.

English is our language

So they're debating in congress on a bipartisan agreement which states that English is the "national" language . . . . they couldn't go for "official".

you say potato and I potahto, whatever, if this bill passes maybe we can get on with the simplification process where the government doesn't have to cater to everyone with a different language; all documents in English, thank you. that ought to be the best motivator for people wanting to assimilate into our society to learn the language.

Alcatraz to Aquatic Park

in case you missed it . . . a 7 year old boy fueled by a couple of slices of pizza braved the chilly waters of San Francisco Bay and became one of the youngest to swim across the channel. it's a 1.4 mile swiim and he did it in 47 minutes . . . yes, he wore a wetsuit

Bob Dylan - sixty five today

Happy Birthday Bob, thanks for the great music.

how to cope in a slowing real estate market . . . lower your credit standards

As demand wanes, there's been an unsurprising but troubling response from banks: They are making it easier to take out a mortgage. According to last week's survey of bank loan officers by the Fed, more than 11 percent lowered their credit standards in the past three months, while fewer than 2 percent tightened. And mortgage-payment performance has begun deteriorating. Though absolute levels are still historically low, late payments are rising.

whaddaya mean no inflation?

you’d think nobody in the government, where come up with the CPI data does any of the following:

1. Buys gasoline, food or clothing.
2. Rents cars.
3. Buys airline tickets.
4. Stays in hotels.
5. Eats out.
6. Eats in.
7. Pays college tuition.
8. Goes to a doctor, a dentist, or a lawyer.
9. Has life insurance, health insurance, or property and casualty insurance.
10. Pays property taxes.
11. Goes to a psychiatrist.

the problem of Natural Gas

Finding natural gas is one thing, bringing it to market profitably is another. During the last big oil boom of the late 1970s and early 1980s, companies such as Dome and PanArctic were hot by virtue of the onshore NG prospects. Those proved to be busts.

Large known NG deposits in places like Iran and Turkmenistan remain underdeveloped from a combination of political risk and the high cost of moving that gas to final markets. Both pipelines and liquefaction facilities are quite expensive. The supergiant Northwest Dome field offshore Qatar in the Persian Gulf has been known for decades, but is only now being developed commercially.

Natural gas is very price-inelastic. A small increase in supplies can bring a large decrease in price and render projects uneconomic. By the late 1980s and early 1990s, production in the U.S. was being shut in for that reason.

Anything found in the Arctic is going to face these same logistical and political risks plus the difficulties of operating in the Arctic environment. Maybe the sea ice is breaking up, but it is still an extraordinarily hostile environment.

Lower NG prices in the current market will have only a limited impact on petroleum prices. NG competes with residual fuel oil in industrial applications and with heating oil in space heating. Some residential use will be diverted to NG, but this really does not drive crude oil prices lower. And as we are not in heating season, the heating oil substitution will be nonexistent.

The risk still goes the other way: A hot summer or a few nuclear power plant closures and NG now going into storage will get diverted to electric utilities. And who knows what the hurricane season will look like after 2004's Ivan and last year's Katrina and Rita? It is a tough market to be aggressively short.

you think there's a housing bubble in the US ? check out Korea

May 19, 2006 Finance Minister Han Duck-soo has joined a growing number of local experts and government officials voicing concern that the nation's red-hot real estate market is about to cool down, saying the housing market in affluent southern Seoul is reminiscent of that in Japan just before the real estate bubble burst in the 1990s.
"The apartment price in three districts in Gangnam (Gangnam, Seocho and Songpa) is 18.9 times the average annual income of local wage earners, closely trailing a figure of 21.7 set in Gangnam [southern Seoul] in December 1990, when the nation's real estate bubble burst," said Mr. Han in a regular press briefing in Gwacheon, south of Seoul, yesterday.
Drawing the parallel with Japan's housing market in the 1980s, Mr. Han said the current situation is "beyond a normal level."
"We will take measures to prevent the housing bubble from deflating suddenly," he said, noting property prices elsewhere in Seoul appear to be stable. His comments echo those made by a number of top government officials and economists over the past few days, all expressing concern that inflated housing prices may soon take a significant tumble, with serious consequences for local mortgage lenders and homeowners. Construction Minister Chu Byung-jik said on Tuesday that the real estate markets in regional and Seoul suburban areas have already begun to cool down, warning that houses in the capital could follow suit in the second half of this year.
On the same day, Kim Seok-dong, the Deputy Finance Minister, also said the government's measures to curb home price hikes would take effect in earnest in the second half of this year.
Now another senior official at the Finance Ministry has joined the fray; Kim Yong-min, director general for tax and customs, said Korean real estate prices are at a "turning point."
"The most expensive apartments in Korea cost about 60 million won [$63,357] per pyeong [3.3 square meters], about the same as the most expensive apartments in Tokyo," Mr. Kim said in an interview with local radio station SBS radio. "Given that the average Japanese income is about three times that of the average Korean, one can certainly say that bubbles exist in the market," he said. Mr. Kim said housing demand in Gangnam would be "scattered to northern Seoul areas," once state-led reconstruction projects in the areas kick off this summer.

The key question about illegal immigration

The key question about illegal immigration has finally been answered, said Michelle Malkin in The Washington Times. In the current debate over whether to grant this country’s illegal aliens amnesty, the focus has been on jobs, the economy, and national security. What’s missing is any serious discussion of whether these 11 million people, most of them Latinos, are assimilating into our population. Do the people who’ve crossed our borders truly want to be Americans—or do they simply want to set up a separate, Spanish-speaking nation in our midst? Let’s ask the hundreds of thousands of Latino separatists who staged angry protests last week in Los Angeles and other cities, waving Mexican flags. “Brown is beautiful,” they chanted, and “Chicano Power.” Some brandished signs saying, “This is a stolen land,” arguing that the American Southwest rightly belongs to Mexico. In portraying the demonstrators as aggrieved minorities, the liberal media, of course, tried to ignore these obvious displays of racism and “virulent anti-American hatred.” But how can the rest of us?

Who said this about liberty?

"Those who give up essential liberty to purchase a little temporary safety deserve neither, and will lose both."


Ben Franklin

Taxing chopsticks to save timber

China has slapped a 5% tax on chopsticks over concerns of deforestation. The move is hitting hard at the Japanese, who consume a tremendous 25 billion sets of wooden choptsticks a year (97% come from China). Chinese exporters have responded to the tax and other cost increases by raising prices by 30% and a planned additional 20% is pending. Hang on to those old wooden sticks or switch over to the petroleum based plastic resuable ones.

the changing face of the Dow Jones Industrial Average

I've talked about how it's impossible to compare your results with the DJIA or any other index because they keep changing the components. The result is that the DJIA eliminates the losers from the group. Remember the survivor bias?

During April, 2004 Dow Jones & Co yesterday replaced three of America's oldest companies in its benchmark Dow Jones Industrial Average in a move that reflects the growing importance of the financial and health care sectors to the US economy.

AT&T Corp, Eastman Kodak Co and International Paper Co will be dropped from the blue-chip Dow index in favor of insurer American International Group Inc, drugmaker Pfizer Inc, and phone company Verizon Communications, Dow Jones said.

The changes help make the blue-chip Dow Jones Industrial Average -- the world's best known market gauge -- more closely mirror the US economy's waning reliance on the factory sector.

"It probably says something, if you look at the components of the Dow, about the overall composition of the US economy," said Deutsche bank analyst Mark Wilde. "If you look at the long term, manufacturing is a smaller and smaller piece."

Consumers are losing confidence

The University of Michigan consumer sentiment index fell to 79.0 in May from April's 87.4, the lowest since October's 74.2. The 10+ fall has only taken place a few times since the the survery began in 1978 associated with events like Katrina, 1991 recession, Saddam Hussein's capture of Kuwait and when the hostages were taken at the US Embassy in Tehran in 1980. What else is in store if consumers are so distressed? Well, think about how much income is now going to higher gasoline prices, higher mortgage payments, increased costs for everything made from petroleum . . . yes, I think we had better plan on a real slowdown in the economy.

Let's put the losses in perspective . . .

Enron currently stands as the U.S.'s largest corporate bankruptcy in terms of lost value -- about $66 billion. But don't think it takes a combination of fraud, deregulation and complicity from the bean counters for disasters of this magnitude to strike equity holders.

In terms of lost investor wealth, Enron actually compares favorably to other flameouts. EMC, Cisco Systems (CSCO:Nasdaq) and General Electric (GE:NYSE) each "lost" over $100 billion in market cap from December 2000 to their 2002 lows. From the perspective of market-cap loss, Lucent (LU:NYSE) shareholders would also have been collectively better off owning Enron instead.

Even (once) mighty Microsoft (MSFT:Nasdaq) -- with a market capitalization of $266 billion as of Thursday's close -- has suffered enormous losses. From its split-adjust peak of $60, to its post-bubble low near $20, more than $300 billion in Microsoft shareholder valued has disappeared.

So compared with any of these market crash calamities, Enron loss is relatively minor. That is truly astounding.

And it's not just the tech sector where shareholder losses accrue: From December 2000 to the present day, pharmaceutical giant Merck (MRK:NYSE) has dropped $120 billion in value. Even oil colossus Exxon Mobil (XOM:NYSE) lost over $105 billion of market cap from November 2000 to July 2002, before rallying in conjunction with rising oil prices.

The new reality of getting around . . .

The working folk don't have the option of driving nice expensive hybrids or even gas guzzlers. They drive what they can afford. They also live in older housing where there are few options, except to pay the energy bills as presented. These folks are also bigger users of public transportation. This raises the next wave of crisis mode we'll have to deal with. Many cities and municipalities are being drowned by the costs of running their public fleets. The smart ones have set forward contracts limiting their fuel costs. But even they will be taking on far higher costs as these contracts expire. Who will pick up the shortfall for the spiraling costs of running those public fleets? Obviously it's the taxpayers of these cities and municipalities. That's no big deal for folks who live in Scottsdale or Boca Raton, but it's a different story in blue-collar towns all over the country. We could be looking waves of municipal bankruptcies in the next few years.

Survival Bias

My favorite bias is the survival bias. Everybody will tell you that stock investing is a great idea because it's been back-tested by some serious Guru and if you bought one share of some stock during the revolution you would have owned the GNP of some banana republic. But you forget that your back testing is only on stocks that are alive today and did not cover stocks in imperial Russia that a rational investor would have bought at the beginning of the century. Many continental stocks were recycled into wallpaper. When you look at markets you are only looking at the remnants, the parts that have survived. Or take real estate. People always say it goes up. But that works only if you always bought in places that became fancy. The S & P 500 or the DJIA or the Nasdaq 100 or any other indice is always changing the compoenents to weed out the losers hence it's very difficult to beat them.

Size Bias

Another bias is what I call the size bias. If you have twenty thousand traders in the market, sure enough you'll have someone who's been up every day for the past few years and will show you a beautiful P&L. If you put enough monkeys on typewriters, one of the monkeys will write the Iliad in ancient Greek. But would you bet any money that he's going to write the Odyssey next? You know that because of the sheer size of the sample, you're likely to find a lucky monkey once in a while. But the same applies to traders.

Small Sample Bias

Several months ago I said I was going to blog a series on trading biases and forgot to post more . . . . here's one that's very interesting : The most common is the small sample bias. Let's say you have 1 to 1000 odds you will come home every day with a dollar and once in a while you lose $1000. Many traders show very steady incomes but they could be fooling themselves because they don't have a long enough period of time to chart their performance. Their Sharpe ratio will not be indicative. In option trading, there is a similar bias. Short premium option traders, typically those who sell out-of-the-money options, are more likely to make money on a daily basis and then blow up. Likewise the yield hogs, those traders who would take any risk for a few basis points. You can fool yourself with your Sharpe ratios, and you can fool all of the financial engineers, but you can't fool an old Chicago trader who went bankrupt twice.

Justice is Getting Lost in the Duke Case

If you really believe that the Duke lacrosse players are getting a fair shake, think again . . . read Jason Whitlock's piece in the Kansas City Star . . . here's some of it . . . "The fact that one of the arrested suspects seems to have an airtight alibi — a cabbie, cell phone records, an ATM receipt and record of entrance into his dorm room — is completely ignored. So is the fact that the other stripper clearly has questionable motives and is interested in seeing if she can “spin” this tragedy to her advantage and possibly make a little cash."

read more here

Is it any riskier???

One of the comments I often hear about the market after it has been trending up for a while is that it is now "too risky" to hold stocks. The thinking is that once stocks have gone up a lot, the risk of buying is increased.

Whether that is true depends on how you define "risk."

In theory, if you buy the Nasdaq when it's at 2300 rather than 1900 you have greater risk because there is more potential downside, but what that thinking fails to take into account is the ability to limit our losses by selling.

If we have the ability to sell a stock when it has pulled back a certain amount is our risk any greater if we buy at $20 instead of $10? Do higher prices necessarily increase risk if we have the ability to apply money-management discipline?

This same logic is often used in an attempt to convince investors that shorting is much more risky than going long. The argument is that when you short a stock your losses are theoretically unlimited! The stock could increase 1,000-fold and you would be wiped out! The problem with that argument is that it assumes you are somehow incapable of covering your position before your loses reach a billion dollars.

Risk has little to do with absolute price levels. The real risk most investors have to contend with is news after the close that causes big gaps. When that occurs you don't have the ability to use your money-management rules to cut losses. The higher the market goes, the greater the risk of a dramatic reversal overnight that leaves you unable to keep losses small; but most investors greatly overestimate the potential far a big overnight crash. It might occur if there was a major terrorist attack in the U.S., but if you worry about that possibility you'd be sitting on the sidelines for the last four-and-a-half years. More money is lost anticipating a crash than has ever been lost in an actual one.

So is this market really much more risky than it was six months ago? Theoretically, there is more downside since prices are higher, but if you use good money management then the risk is not significantly greater at all.

The National Anthem in Spanish?

I think national anthems should be sung in the language that the composer wrote them in . . . . end of story.

Force Majeure

Force majeure (French for "greater force") is a common clause in contracts which essentially frees one or both parties from liabilities when an extraordinary event beyond the control of the parties, such as flood, war, riot, act of God, prevents one or both parties from fulfilling their obligations under the contract.

Under international law it refers to an irresistible force or unforeseen event beyond the control of a State making it materially impossible to fulfill an international obligation. Force majeure precludes an international act from being wrongful where it otherwise would have been.

here's an example MONTREAL, Canada, April 22 /PRNewswire-FirstCall/ - Alcan Inc. (NYSE, TSX: AL - News News) announced today that it has declared Force Majeure on supply contracts from its 2.0 million tonne-per-year (Mt/y) Gove alumina refinery in the Northern Territory of Australia after a category 5 cyclone caused Alcan Gove to interrupt production.