Comments in News Stories

I mostly do my reading on an electronic device - be it a laptop or a tablet or a phone. I still subscribe to a few magazines but often find that I don't have time to really peruse them because I am too busy using one of the other devices!

The other day while reading an actual magazine in paper form. It was a mildly controversial story - and what isn't controversial these days! I reached the end of the story, formed an opinion on the subject of the story and instinctively tried to look for reader comments. Obviously there are no reader comments in paper magazines other that letters to the editors. This got me wondering on the practice of allowing reader comments in online news media.

Different media outlets allow comments in different ways. Some websites allow comments in certain stories only while others allow comments in all. I think most people look at these comments to seek reassurance that their views are indeed shared by others. Also, often a liberal website have comments that are preponderantly liberal and a conservative site has overwhelmingly conservative commentary.

This seems to reinforce that we are creatures of habit and seek our comfort zones. We prefer to be lulled into points of views that agree with are belief.

But a broader implication, something I am trying to put my finger on is how comments affect what we read or choose to consume. Sometimes I see myself scan the headline, read some comments and then read the story. Just like I read reviews for a product before buying it from and online retailer, I am - in a way - trying to see if a news story is worth reading. I wonder if doing so is preventing me from consuming a wider cross section of information based on feedback. It appears that I am consuming the feedback before consuming the message itself.

iPhone and Life

The iPhone has changed my morning routine. It usually rests on my dresser getting charged throughout the night. The first thing I do every morning is to roll off the bed and walk bleary eyed to the dresser to check my emails.

The sad thing though is that I don't get too many interesting emails. It is either notifications from various merchants about sales, or forwarded junk. And nestled among them may be be a personal email or two.

My job fortunately or unfortunately is such that I don't need to constantly check my emails. If something momentous is happening, I get called. But otherwise, typically, I first check my email when I get to work. That was when I normally checked my personal email too. But that has changed with the iPhone.

I had a mild epiphany when I realized this is what is meant by sticky technology. Over the years many of us may have been guilty of buying gadgets that we soon set aside. The iPhone it appears is the exact opposite. It never lets you set it aside. You use it as a still camera, a video camera, an email device, a map device, for restaurant reviews, as a flashlight, to play games, to ignore the world...the list is endless and probably enumerated better elsewhere. True many of the apps are crap, but it is your fault that you downloaded them isn't it? And deleting them is easy too.

There are those who bemoan the closed proprietary nature of the iPhone ecosystem, but for most of us - including computer geeks (self described or actual) - we are just glad to have a device that works. We don't want to be bothered learning the ins and outs and all the "secrets". We want to surf the web, access audio and video content, read, browse and do other simple things. We feel rewarded when we can to these things without compromise and feel it is money well spent even though this device may be capable of doing other great things from measuring your blood pressure to probably launching a moon shot for all I know.

Competitors to this device should take note of that. Do the simple things unfailingly and competently first. If you can't, you don't have a hope to succeed. It is almost a metaphor for living a successful life...

The end or the beginning...or more of the same?

The Arab world - at least parts of it - is in flames. Over the last few months, the people of Tunisia and Egypt have overthrown long ruling heads of state. This unrest has spread to other countries in the region including Libya, Yemen, Bahrain, Jordan and others.

What is unclear however is what happens after. In Egypt, Mubarak has fled. However a case of limbo seems to remain. The military are in control, but neither secular nor Islamist parties have succeeded in taking power. It remains to be seen if elections will be held as promised and who will come to power.

While this feeble mind would like to express hope, it tends to demur...cynically perhaps. Too often revolution has produced misery rather than opportunity. Will a more religious form of governance take root? What are the implications if this were to happen? Apart from this however, it is uplifting to see people come out to attempt to change their lot. Over the next few years the machination behind the uprising may come to light. However, for many ordinary people, it appears that they were biding their time to rise against ruling despots and did so in a selfless and patriotic manner. One hopes that their sacrifice does not result in another quasi despotic or myopically religious state.

What one sees in the people is a sense of fed-upness at cynical attempts to garner favors by invoking the patriotic or the religious or the "foreign power" card. It appears that people just want to be left alone and given freedom to pursue their dreams without an overbearing nanny state that decides their every move and punishes harshly if they stray.

Is that too much to ask for?

New Computing Devices

I wonder if the iPad is a new paradigm in computing - a true internet appliance - an essentially sealed box.

As with all things Apple, it has beautiful design and a cult like following that seems to overlook the flaws in the device which would not be forgivable if the same flaws existed in a device made by - say Microsoft for instance.

There are many things interesting about this device, not least the apparent unobtrusiveness of the operating system. The OS is passe as it were. No one cares about it any more. I felt that acutely when I upgraded my pc to Windows 7 and enjoyed the OS feel for all of 5 minutes before launching the browser. Apple seems to have recognized this. People want the device to start up and load the apps they want to use as fast as possible. They don't want to defer to a pompous OS as it creaks itself to an on position.

In a perverse way Apple has bested the initial OS and app launch designs first introduced by the makers of PDAs' - remember the Palm Pilots anyone? The design is not groundbreaking in any way but the look and feel and handling definitely is. It is unsurpassed.
Now comes the billion dollar question. What does Microsoft have in response? One hopes it is a completely new and tiny OS that runs on devices like this rather than Windows light. As it is Android and devices that use it like the Adam tablet (http://gizmodo.com/5471559/notion-ink-adam-tablet-caught-on-video-specs-finalized) are already in the wings.

It will be a very interesting era in computing to have a match with three heavyweights competing.

Apple has done a great job but customers benefit from competition.

2010

So things have moved on since 2009......or have they?

1. The Fed interest rate is still at 0%.
2. Somalian pirates still make cameo appearances.
3. The DJIA (~ 10,200), NASDAQ (2,200) and S&P 500 (1,092) have improved some, though are still prone to wild swings.
4. Gas at $2.50
5. The Madoff scandal has been replaced by Tiger Woods. Madoff has been consigned to a US federal prison where some reports seem to indicate that other inmates are awed by him.
6. Obama's first year has passed and even to his most ardent supporter it has been a mixed bag.
7. Teddy Kennedy died and the Republican challenger who won the election to fill his seat has upset the Democratic 60% filibuster proof majority.
8. Sadly though:
   Money, job and home value worries. No change.
   Uncertainty about the economy - will it get worse or will it get better? No change.
   Ongoing conflicts in Iraq and Afghanistan. No change.
9. Health care reform still in limbo though insurers are breathing freer because there is almost no likelihood that the public option is still in play.
10. Toyota is making the news for all the wrong reasons. Unintended acceleration has caused several deaths and they don't seem to have a definitive fix.
11. Earthquake in Haiti has destroyed a third of that country and killed untold thousands of people.

One wonders when we will get past the excesses of the past years, wrap up the wars we are fighting and devote more energy to whom we admit into this country.

One hopes that the two parties both Republican and Democrat move past divisive politics and politicians. One hopes that in the coming year they don't just act like sheep but show some spine and have opinions that may differ from their party's leadership.

One wishes Mr. Obama well but hopes that he focuses on things that are closer to Americans' hearts like jobs and health care and not continue doling out largesse on projects while important have receded from our collective consiousness due to more pressing worries.

I wonder if 2010 will be like 2009 - a drudgery of a year. One hopes not, but signs portent that it is going to be more of the same.

• Live within your means.
• Pay off all your debts including mortgage.
• Save a year's worth of living expenses. This should include estimated Cobra payments, home, car, flood, umbrella insurance, car and mortgage payments, school/activity fees for children, any estimated co-payments, food and clothing allowances and up to $10K as an emergency reserve on top of the other estimates. This is a tough goal and may not be achieved in one year but we need to get realistic on what a year's living expense really means.
• Hold on to your job in any way possible.
• Don't cave in to impulses small ( a new cellphone) or large ( a car or a pool).
• Stop looking at ads. You are not helping the economy by spending, you are only hurting yourself. The economy will find ways to adapt.

Happy belated new year!

The Next Bubble?

Is it possible that the next stock market bubble is stock trading itself? Of late some press has been given to practices like flash trading and high frequency trading. Both these mechanisms are dependent on high tech hardware and software and are therefore only available to the larger players – for now at least.

In flash trading, the trader tries to maximize the rebates offered by exchanges by freezing his trade for a fraction of a second by offering to trade rather than responding to the trade. Additionally a flash trader may seek interest in his security from “dark-pools” or electronic exchanges outside the traditional exchanges.

High frequency trading as the name suggests involves the conducting of really fast trades using sophisticated computers and algorithms. Enormous volumes of stock are traded and even minimal swings in the values of these stocks can lead to gains. Some observers say that high frequency trades account for over half the trading volumes in markets these days. Flash trading combined with high frequency trading can lead to even greater profits. A flash trader may for instance see the interest in a stock and use this information to buy the stock to re-sell at high frequency to people who want to buy it. The spreads sometimes are less than a cent. While some have compared this to front running – the illegal practice of using advance knowledge to trade in a stock – loopholes in the regulations in some markets allow this practice.

Both these practices take advantage of the momentum in a stock’s price. Large volume trades can capitalize on even a 1c movement in stock price and eke out substantial profits. In a way this is an extension of day trading and the end goal is to make profits in fractions of a second and get in and get out of a stock making money in as short a time as possible.

In recent months these practices have led to an explosion in the volumes of shares traded. Many companies see many times the volume of the total shares listed which implies a high frequency or flash trading of the shares. These shares are held for fractions of a second only to be re-sold.

This feeble mind wonders how an ordinary investor can capitalize on high frequency trading.
Currently of course a small investor will not have access to these markets. The only way to play this is to be a high net worth individual, one who has money in the accounts of brokers who use these tactics. Chances are though that these mechanisms will be democratized over time allowing smaller players to participate or to pool their resources in order to participate….at their peril.

Obviously the accelerated trading of large volumes for profits may result in the formation of a bubble until some large companies bet too much and lose too much. On the plus side however, the government is already taking steps to investigate this.

One wonders if this is the continuation of the new paradigm for making money. It started in the dot com boom and bust and continued in the real estate bubble. Inherently these bubbles pushed the envelope on making money from nothing but trading be it in dot com stocks or derivatives and instruments tied to real estate. Flash or high frequency trading continues this by trading in micro momentum with scant regard to fundamentals or other historic measures of valuation.

This leads one to almost yearn for the quaint old days of stock swings on quarterly earnings and the maniacal focus of the top executives in meeting the quarterly figures. People complained that a quarterly focus prevented companies from strategizing long term. Now it appears that even a quarter is too far off the horizon and micro seconds are the new unit of measure.

Leno and other random thoughts

There is a lot of skepticism about Jay Leno's success in the 10pm (E) time slot. I am one of the naysayers - to the skeptics. I believe he will do exceedingly well. I am also one of the people who will watch him.

When I lived in the east coast in the pre-DVR days, I found the late night shows to be on too late (is that an oxymoron?). Also given the current nature of their jokes and the fact that they are on most weekdays, I do not tend to record them on my DVR these days unless there is an expectation of a really interesting guest.

The other reason I feel/hope he will be successful is because I am a sitcom aficionado. I do not particularly care for the serious drama/programming that otherwise occupies networks in this hour. I have never cared for crime or hospital dramas and lately my interest in news magazine shows have also declined. I was never a major reality TV fan either.

As a self admitted news junkie with a ear tuned throughout the day on the financial news especially, I am pretty much worn out by news by the end of the day. I prefer my prime time TV shows to consist of blah sit coms which are good for a laugh. In this environment I believe that Leno will be a welcome change. I am betting that there are many others in this country who feel the same way too and will make his program hugely popular. So popular that they will have to raise the ad rates on it very soon.

Let us see how this prediction pans out.

Either way, whether it succeeds or fails, this is a win-win for Leno. Success of course will give him a vehicle on NBC. Failure may result in him being courted by Fox or ABC for inclusion in their late night schedule. I wonder if ABC will slot Nightline in the 10 or 10:30 pm slot to make room for Leno should that happen.

Speaking of TV shows I watched quite a bit of CNBC during the night of 9-13. I caught the tail end of Maria Bartiromo's interview with Citibank CEO Vikram Pandit and later the town hall meeting with Tim Geithner the treasury secretary. From Pandit's speaking and his body language it appeared that Citi is well capitalized for the time being. I am a little anxious about my shares of C, but I will hold on to them for a little longer. As for Geithner, many of us fail to realize the complex and stupendous tasks that faced policy makers like him and Paulson. It is very easy to criticize them in hindsight but I wonder how many of us would take decisive action like they did during the most challenging times and under intense scrutiny.

Looking at major news today (and contrasting them with the headlines during the beginning of the year),

• Fed rate is still close to zero
• Fighting in Israel is no longer headline grabbing and the pirates seem to have mysteriously disappeared.
• The Dow is at 9592, the NASDAQ at 2083 and the S&P at 1043.
• Gas is around $2.30 locally
• There is a lot of debate on health care, some of it very ugly.
• Money, job and home worries still persist
• Conflicts continue in Afghanistan and less so in Iraq - at least from the US perspective.
• Gold has topped $1000.

In the U.S. at least health care and deficits seem to be getting the most press along with a growing wariness about the war in Afghanistan and an undercurrent of a "what are we doing there" attitude. While there is consensus in capturing or killing the planners of 9-11, there seems to be a growing unease on continued guerilla warware without any clear goals.

Lastly, since I started this post off about a TV show, I wonder how many people are out there who would welcome the introduction of a digital VCR? I mean a DVR for all intents and purposes but without programming fees. The only option these days appears to build one using the Windows Media Center software. DVR programming fees - to me at least - is another source of money dripping from my pocket book and I resent the charge. If I could happily record shows on my VCR for free, I don't see why I should have to pay for that privelege on my DVR.

New Cars

Taking advantage of the recently concluded Cash for Clunkers program, this feeble mind traded in a clunker for a sedate family sedan. The last time I purchased a new vehicle for the spouse, I backed into a parked truck within the first month which caused no end of embarassment.

As a result, I am being very careful especially while backing out avoiding garbage cans and the like. New cars these days are loaded with safety features. But what I realize is that bumpers have become very soft. This is partially to cause less damage to pedestrians should you come in contact but also to serve as crumple zones directing the force of a crash away from the occupants of the vehicle.

While that is a noble design aspiration, unfortunately it lends itself easily to scratches, breaks and tears. The bumpers of my old clunker was made of solid steel. When I was rear ended by a newer car and a very low speed, the front end of the latter pretty much disintegrated while my clunker only suffered a couple of scratches.

I have also been noticing new cars with bumps on their bumpers. And it appears that in addition to having plastic bumpers, new cars don't have very good visibility. To be more aerodynamic, cars have sharply sloping bodies and a typical driver cannot see where the car ends. Most people however get used to their vehicles and can judge distances fairly accurately but perhaps before they get that intuition, they end up having a small accident or two.

Entitlement Cycle

Are we entering another entitlement cycle? A broad look at the last hundred years suggests that in the early part of the 20th century it was pretty much every man for himself. The period following the Second World War resulted in a more active application of the Welfare State concept especially in the western world. This model appeared to deteriorate in attractiveness and soar in costs and in the 70s and 80s and some countries – notably the US – started dismantling some of the entitlements (e.g. unemployment benefits) or moving them to the private domain. Now another 20 years later increasing entitlements – especially universal health care - appear to be back in the forefront of the national spotlight.

It would appear that we move from entitlement to self reliance and back every 20 years. The movement is not stark or abrupt but a slow chipping away of the edifice in place resulting in the slow replacement of one system with the other.

The most obvious explanation to this is that the costing for the period of entitlement is inaccurate and the state cannot bear the burden of the costs these programs require. The fact that the citizenry get taxed punitively does not help the cause either. At some point therefore the state gives in. Over time reduction in entitlements lead to a loss in the general well being of the populace because though the people have more money in their hands, it is not enough to pay for the entitlements previously provided by the state. As the chorus of anger builds up over the lack of entitlements, the state is forced to take notice, reinstate some of the benefits and the whole cycle repeats.

The crucial aspect therefore is cost. And it is heartening to hear that in the current climate of healthcare reform considerable attention is being given to how to pay for the reform. Creating a feel good solution without considering the cost may be good for one or two presidential terms but not sustainable much longer.

JAHP (Just Another Healthcare Post)

So what are the private insurance companies whining about? Why aren't they providing affordable healthcare for the un-insured? Because it isn't profitable to do so!

So
1) The private insurers don't want to provide healthcare for all
2) The private insurers don't want the government to offer a plan since they fear that the plan will siphon off its profitable consumers too.

And Americans, instead of understanding how vulnerable they are to a financial catastrophe in the event of a job loss or serious health problem do not really think through the healthcare issue but just spout meaningless garbage about big government and taxes. Yes, the government can be overbearing and a nuisance at times but remember it is by the people and for the people!

All Americans should ask themselves these questions.
1) How secure are you in your job?
2) What will you do for healthcare if you and/or your spouse lose your job/s?
3) Can you seriously afford COBRA in its unsubsidized form and for how long?
4) Can you seriously afford to pay for healthcare? Do you know how much a couple of days of hospitalization costs? Or maybe a minor surgery? Or a battery of tests?
5) What will you do if you get laid off with a pre-existing condition or two in your mid fifties?
6) Honestly...how much have you saved? Do you have anywhere from $200,000 to over $1 million set aside purely for healthcare? If not, can you claim that you can take care of any healthcare emergency without insurance?
7) Even if you are healthy and young now, it is a matter of time that you will develop a long term issue be it back pain, diabetes, heart disease or the like. Do you think you will get individual coverage then should you lose your job and can't find one in a reasonable time frame and are forced to take involuntary retirement?
8) Can you afford the sparse options that exist like the state pools and variations on the group coverage which will end up costing you thousands in premium?

The fact is you can downsize to a smaller home or an older car or stop shopping for luxuries. But the lack of health insurance coverage exists as a significant, clear and present danger to the well being of most Americans.

Yes taxes suck. Yes the habitual freeloaders will get health coverage from our tax dollars (they already are). Yes there might be times when government healthcare will really suck. That is why for the last point at least, it is currently being offered as an option and not the sole choice. You can say why should I pay taxes for it when I plan to stick with the private plan. The truth is you don't have a choice. It is your companies that make the choice for you and trust me, they will offer you the cheapest plan possible. Also wouldn't if be great that you have an affordable option should you lose your job?

What about the oft cited cases of nationalized healthcare where care is not immediate?
I would rather be in a situation where I am waiting for an operation without the fear that it will bankrupt my family rather than foregoing one because I can't afford it though surgery is available immediately. No situation is perfect, but Canadians and Europeans have some of the highest life expectancies around. Surely something must be right in their systems.


Yes other reforms should happen simultaneously. Doctors shouldn’t charge the way they do, they shouldn't have to pay high premiums for malpractice insurance and insurance companies shouldn't cost the way they do. But come on, do you have time to wait for all those reforms or would you rather go with the one that affects you directly?

Do you really think options like Health Savings Accounts will make that much of a difference? How much will you contribute in these? $500 a month? How much healthcare will $6000 a year get you? HSA's might be viable if there is a ceiling after which it is covered by a catastrophic coverage. Tried finding the latter coverage lately or with an existing health condition?

Do you think shopping for health insurance is an answer? Do you think there will be an enlightened insurer somewhere in this country who will look at all your frailties with a kindly eye and yet offer you a decent affordable coverage when the same has been denied by other hard nosed insurers? Well you probably believe in the tooth fairy too.

It none of these arguments convince you, you are either or extremely well off, or you are in complete denial about your vulnerability to a health crisis or you are so taken in by party propaganda that nothing will shake you.

The fact is that ultimately the health insurance companies dug this hole by denying coverage to larger and larger numbers of people and simultaneousy colluding with others to making individual payments for healthcare totally un-affordable.

A public option (not sole choice) is the only answer out of this crisis. Let the private sector compete with the goverment because after all if the private sector is indeed so efficient and well run, they shouldn't have much trouble holding their own against the government.

The End Result

How much should one obsess over something - when the end result is the same?

There are two irritants which this feeble mind is trying to resolve.

One involves replacing an old computer and the second, replacing an old car. Both have put in honorable service, 8 years for the former and over 10 for the latter. As I attempt to replace these with the general economic woes in the background, I attempt to find a rationale for my choice. Should I buy a desktop or a laptop? Should it be low end or high end? Similarly for the car, should it be a reliable people carrier or a more luxurious vehicle? Should I go hybrid?

At the end of the day however, I look at what I do with these purchases. Chances are any long and exotic drives are unlikely. I will just travel to work and usual activities. With the computer, it will be browsing, preparing some documents or spreadsheets and an occasional (very occasional) game.

So my decision will gravitate towards the lower end or mid range product which I will inevitably buy and then regret I did not spend more. I have gone through this cycle enough times that I am comfortable with buyer's remorse and can deal with it.

One of the few game I do play is Sim City. My family doesn't understand my fascination with this slow moving game. I sometimes equate it to a sense of expectation that may or not fructify. For instance I have watched and observed people watching aimless videos. An example is a video shot from a travelling car.

We are so conditioned especially from watching TV to expect something that we will mindlessly watch an empty road rushing by for varying lengths of time until realization kicks into our brain that nothing is actually going to happen and we get bored. I am not saying that Sim City is like that but there is a similar hypnotic quality in a slower rate of speed in it as opposed to the faster more reactionary video games.

How long we watch boring things without getting bored is also a manifestation of how focused we are with an activity. The less concentration we have the more our mind interests itself with background thoughts letting the foreground banality to progress for longer than it should have.

Financial Recovery

So Treasury Secretary Timothy Geithner pitched his vision of ridding banks of their troubled assets on Monday (3-23-09).

In essence the Treasury will front some money, the FDIC will guarantee a whole lot more and the private sector partner will also provide a few percent of the total cost. This money will be used to bid for assets being shed by banks. If the trinity make successful bets, they will make a profit off their investments. Alternatively they will make a loss if their bets prove wrong. And since the federal government has fronted most of the cost, it will bear significant risk as well.

The problem assets are truly mind boggling especially for this feeble mind. You start off with homes Joe Schmoe's like us own which are packaged and re-packaged with a bunch of other homes and real estate investments into instuments that are sold and resold across the world. If this isn't a direct participation by Joe Schmoe in the global economy, nothing else is. So when a homeowner pays his mortgage, it trickles up into  the return on investment for a derivative.  It is no longer a bank holding a humble mortgage and using simple spreadsheets to track returns on a real asset.

But that apart, the whole notion of auctioning a banks bad assets leads to a few challenges. 

Firstly many banks are living in a state of denial not unlike us small shareholders who grimly hang on to some of our stocks that have declined precipitiously, hoping for an upswing. For banks, it is more than hope. By continuing to value assets at a higher price than they may fetch in the current market, they can show - on paper atleast - that they meet capital requirements.  So if they sell these assets via auction at reduced prices, they may need to shore up their capital using funds they may or may not have. This is another reason banks are fighting the mark to market rule because this rule forces institutions to value assets at current prices and not at the price of the transaction (buy or sell). By keeping inflated assets in their balance sheets banks can appear healthier than they are.

Secondly of course there has to be a market for the auction. The packaged derivatives may have prevented the Feds from attacking the problem from the bottom that is the individual homes. So they have approached the problem from the top in an all encompassing sweep including all asset classes including derivatives. But an opaque derivative means, the people bidding on the auctions are bidding blind using mathematical models. Remember these models were also used infamously to hike up the prices of the derivatives.

Thirdly, I am betting that the financial community will be happy about participating in the auctions. The financial institutions holding these assets may be more circumspect becauce it may lead to deterioration to their balance sheets, but the companies bidding on the assets are essentially betting on huge returns for an investment of only 6 cents to a dollar. Obviously the higher the bidding goes, the happier the banks will be. And we all know how Wall Street loves speculation.

Examined all together, we are talking of

1. Still a fundamental lack of knowledge of the assets being purchased
2. A potential for cleaning out balance sheets but conversely a hit to these.
3. Mathematical modeling
4. Large bets being placed  with little of one's own money.

Aren't at least three of these four factors what got us into this mess in the first place? Also, the government is hoping that once the assets are auctioned off, the successful bidder will keep these long term to enable stabilization of the assets, gradually expiring the derivatives and mortgages as people buy the assets and pay them off. However if the successful bidder resells the assets, they may further decline in value. Also, if the underlying asset fails to get new owners, they may deteriorate - e.g. a vacant home getting mold or getting vandalized. This would then further lower their value.

The feeble mind hopes that this strategy pays off. It wishes the government and participants all the luck. Otherwise the coming years will be very interesting and will make 2008 seem like a walk in the park.

The Law of the Jungle

David Roche in an article in the Wall Street Journal (1-22-09) says this:

It's natural for policy makers to say, "We know where the problem at the heart of the credit crisis is: it is a lack of lending and we must get credit flowing." If only it were that simple. What policy makers on both sides of the Atlantic desire is to sustain household leverage and consumption at any price, when the only exit from the credit crisis involves a return to thrift by the over leveraged. That cannot be achieved painlessly.


This paragraph succinctly captures the heart of the credit crisis and its aftermath for this feeble mind. Essentially governments want their citizens to splurge again and continue to rack up debt. They are operating under the mistaken belief that this is the only way to keep their economies healthy. They appear not to have learnt that poorly regulated and over abundant credit led to the problem in the first place, and, as the article points out - thrift - and a return to sanity in terms of personal consumption is the only way out.

The governments are caught in a vice. Through a series of developments spanning multiple decades, the share of manufacturing in the GDP has declined and services especially financial services have gained share.

At its very core, even the most sophisticated economy today is not very dissimilar to a primitive system of bartering. There exists a symbiotic relationship between the extractors (e.g. miners) to the producers (i.e. factories) to the consumers (i.e. us) to the providers (i.e. banks, retail etc.).
There is a give and take between these sectors and there is an intermingling of roles. In a global economy, these roles are not all represented equally in all economies as some (U.S.) consume more and take a hyper consumer/provider role, while some (China) take on the producer role. Granted this is an oversimplification, but this is all this feeble mind can grasp and it provides a framework for the money flow in societies.

A miner may sell his ore to a factory and buy a car from a dealer after taking a loan from a bank. When the extractor/producer sector is in decline in an economy, the provide/consumer sector races in to fill the void. However in the absence of the former, the latter turns to cannibalizing itself trying to create prosperity without offering any tangible goods or service but merely by manipulating its instruments - be they stocks or real estate or derivatives. This results in a bubble that inevitably bursts.

When we disturb the equilibrium by focusing one sector - finance - at the cost of another, a period of turmoil inevitably follows. This is not dissimilar to the law of the jungle. There exists an equilibrium between the predator and the hunted. However if due to some reason, the predators get an advantage that makes them multiply, they will exhaust the forest of its food and will be forced to dwindle to a more sustainable level.

As stated in the article, consumers have splurged. The predators have hunted and decimated the forest. To nurse the forest back to health, you do not send in helicopters to drop food to the predators to sustain their numbers, but you let the chips fall as they will so that the predators slowly dwindle and other animals make a comeback.

However as a developed and humane society, we help the citizens affected so that the recovery as it happens does not end up making them destitute and they emerge stronger in the future.

And the recovery has to bring about some sanity in sectors. If post recovery, the financial sector continues to dominate other sectors, the relief will only prove to be temporary and the precursor to a longer famine.

How the global economy recovers is anyone's guess. A painful scenario would be that a combination of lowered standard of living, fuel prices and credit tightening would result in manufacturing making a comeback. Another, more plausible scenario would be the recently talked about separation of toxic assets that would free up the good economy to return to business as usual. However, the toxic assets will cast a shadow and its effects may touch us all in terms of taxes and currency fluctuations. It would be a successful resolution however, if the private sector is allowed to thrive again without too much government intrusion because in the ultimate analysis, they are the only sector that has shown that it can consistently build wealth.

2009

So what will 2009 hold for us? In these early days we have

1. Fed interest rates at close to zero.
2. Fighting in Gaza/Israel.
3. Somalian pirates still holding a tanker and a few ships.
4. The DJIA around 8600, the S&P around 900 and the Nasdaq around 1600.
5. Scandals that are still brewing from Madoff to the Illinois senate seat controversy.
6. Gas at around $1.60.
7. Anticipation on Obama's inauguration.
8. Money, job and home value worries.
9. Uncertainty about the economy - will it get worse or will it get better?
10. Ongoing conflicts in Iraq and Afghanistan.

A lot depends on whether a person is an optimist or a pessimist.
And a person's optimism or pessimism really depends on whether he has an income coming in and if he/she can make ends meet.

This feeble mind this that, that is the key to success in 2009. It includes

• Live within your means.
• Pay off all your debts including mortgage.
• Save a year's worth of living expenses. This should include estimated Cobra payments, home, car, flood, umbrella insurance, car and mortgage payments, school/activity fees for children, any estimated co-payments, food and clothing allowances and up to $10K as an emergency reserve on top of the other estimates. This is a tough goal and may not be achieved in one year but we need to get realistic on what a year's living expense really means.
• Hold on to you job in any way possible.
• Don't cave in to impulses small ( a new cellphone) or large ( a car or a pool).
• Stop looking at ads. You are not helping the economy by spending, you are only hurting yourself. The economy will find ways to adapt.

I guess the above proves that I have a pessimistic view, and to be honest I suppose I do. I am not overly so but just like companies tighten their fiscal policies and curtail spending in tough times, so should you.

I am however hoping that the year turns for the better

• That the economy stabilizes after the job losses and contraction.
• The middle class get some safety net that prevents them from going destitute after a illness or job loss.
• The government goes after hedge funds and regulates them better rather than imposing more burden on a regular business a-la Sarbanes-Oxley.
• The big 3 automakers produce vehicles that people buy for their mechanical merits rather than for patriotic reasons.
• We get some closure of a successful nature in our overseas military undertakings.
• We end the year with cautious optimism.

So...happy new year!

Shopping Withdrawal

Faced with a faltering economy, the Feeblemind is trying to cut back on shopping as well. It is proving to be more difficult than thought.

A tradition is to look at the ads that are inserted into most weekend editions of newspapers. Typically in the Feeble house the conversation goes like this. The Feeble wife chimes up: "Wow, Macy's is really offering a discount on the 100 piece dinner set". Feeble would look wistfully at the chipped coffee mug he is drinking from and agree - how much nicer it would be to have a coordinated set for day to day living rather than to have a mishmash of remnants from the survivors of prior dinner sets.

But then the feeble mind gets a kick. Wait, didn't we plan not to buy a single thing this month other than the essentials. So we plan on sometime in the future when we will dump all our old crockery and replace them with a shining coordinated set. It makes sense to wait after all given that our kids have slippery fingers.

Then it is Feeble's turn. There are a couple of electronic retailers whose weekly offerings Feeble studiously pursues. The six year old computer is so slow and well overdue for an upgrade. But given that Feeble and his wife have a company issued laptop, should one splurge on a newer model just so that junior can access Nick Jr. faster?

The digital camera went on the blink and Feeble's eyes lit up. This would be a justified purchase. Since the old camera was toast anyway, Feeble decided to open it up to see how it looked inside. After opening the camera, he pressed the on button and lo and behold the camera started functioning again. Dejectedly, Feeble put the camera back together again.

The point is that we have become such a shopping driven culture. I can't help but notice that some houses in our neighborhood just don't get guests. It could be that they are transplants from far away places or just that they don't know anybody to call over for a drink or a meal. These homeowners are not reclusive. They are people who smile and have a conversation if you meet them walking the dog. But there is a distance they keep that prevents one from becoming friendlier. We find it happening a little for us too. In the weekend after the kids activities are done, Feeble or his wife sometimes wander off just to browse in a store or mall. More often than not this pleasurable interlude results in a purchase or two and a mild high.

Now that we are trying to curtail these ad-hoc shopping trips, we are realizing that the shopping high can result in withdrawals - especially when one tries to curtail it cold turkey.

Food for the people!

A great essay in the New Yorker addresses the recent spike in food grains and the impact a prolonged price increase would have had for the poorer people of the world.

It is a great concise essay, the type this feeble mind is more apt to follow....but to summarize it even further, its main points are

• The growth of global crop yields has slowed dramatically since the 1990s.
• Under the pressure of the IMF and the World Bank the various national Agricultural Control Boards (ACB) were done away with in the interest of free markets
• The demise of the ACBs lead to the decrease in the stockpiling of food grains by various countries making them susceptible to food shortages since they then depended on exports and did not have any internal reserves.
• The free market did not necessarily lead to increased production and when it did, it was more for cash crops rather than staples.
• Very few 3 - 5 countries supply most of the food exports and any shortages in any of these countries can dramatically drive up prices (note the recent draught in Australia)
• Reliability is key to food supply rather than efficiency and in a business as complex as agriculture, maybe redundancy and over production is a good thing.

Some of the other concerns this feeble mind may add include the dramatically growing population which when coupled with lowered yields could precipitate a food crisis.

This Thanksgiving though, lets us all appreciate the bounty we have on our tables and be grateful for it.

And look for long term investments in the agricultural sector ;-)

Random Thoughts

I was reading about Iceland in the European papers. This country has 300,000 people and some time ago it decided to de-regulate its banking industry. Banks in Iceland started offering great interest rates to European investors who deposited huge sums of cash. Now, the banks are in trouble and many European governments fearful of investor backlash have resorted to freezing the assets of the Iceland banks in their countries and guaranteeing the deposits - in a foreign country no less! Interesting times we live in.

I have a fascination with small successful countries. Iceland was not in my radar until now but I was always a fan of Israel and its people. But Iceland is inching up my popularity index. Not because it defrauded a bunch of Europeans - I have sympathy for the people who invested - but because as I learn about this country I seem to like it more. They seem to be a tough resourceful and resilient people who cheerfully survive months of near darkness.

So I searched the web for Icelandic newspapers and came across this article. I appreciate them even more.

Another country that evokes admiration is Sweden. My fascination stems partly because many of these countries have populations that are smaller than some of the world's major megapolises. But their innate decency, concern for their people's welfare, industriousness and entrepreneurship has contributed greatly to a prosperous society in their countries.

If only many of the other countries with a wealth or resources and talent could try and replicate their models.


Stock Market

Since this is a random post, on a different topic, the stock market is not doing too well these days. So the newspapers and news sites have taken to showing the faces of traders in the floor of the stock exchange. More often than not the faces paint a picture of hyper misery, dejection worthy of the most melodramatic of Mexican soap operas.

Though I am hurting as much from the crash of the market as the next person, I can't but smile every time I see one of these images. We get it. The news is bad. Thanks for the open jawed, eyes raised toward the ticker, hand on head image to really drive home the point. I really wanted to post some of my favorite images, but did not want to run into copyright issues.
At least I have something to laugh about in the current mess.

But I am still Bullish on America!

Big Numbers

Anybody following the financial crisis unfolding would be shell shocked by the huge numbers being thrown around. A $100billion here or a $700billion there or maybe a couple of trillion.

The feeble mind begs to understand where the government is going to come by with this money. From what it understands, the feeble mind knows that:
There is a budget deficit
There is a trade deficit

A budget deficit means that tax revenues are not enough to fund current government spending.

A trade deficit means that imports are way more than export. While a trade deficit might result in currency valuation issues, it is inherently a private figure - that is it is comprised of the import and export totals for private company activity. It is not public money.

So with a budget deficit, spending the trillion dollars means
borrowing some more - by selling more treasuries and other bonds
printing more money eventually paying back the money through that most steady stream of government revenues – taxes.

I suppose in the scheme of things, greater minds can wrap themselves around these huge numbers and the miracle of the American economy can resurge and pay itself out of debt. One hopes that the preceding statement is true.

To a certain extent, tracing the current crisis, one gets the feeling that many people managed to dig themselves out of the tech bubble by creating a real-estate bubble. And people thought that there might be another bubble around the corner to salvage a real-estate bust. Unfortunately no build up immediately followed real-estate to take over where it left off. But given the huge amounts of liquidity being pumped in, which is not to say that there is not another bubble in the making?

As the economy gets more financial services oriented, companies will try harder to make money without really offering a tangible product. The current crisis is just a manifestation of that. What boggles the mind however is the number of people asleep at the wheel.

Companies start issuing sub-standard debt instruments.

Companies get away with giving the highest ratings to these instruments.

Companies insure this debt, but they label this insurance as credit default swaps so that they
don't fall under the insurance industries regulatory purview. Ironically some of the largest insurance companies offer these swaps.

Companies actively trade in the sub-standard debt instruments and swap without really understanding the mathematical models that define them - sort of reminds me when I started trading stocks and literally chose them on a whim (not that I am doing much better now).

To fuel this destructive model, more money is made available to mortgage brokers who happily sell mortgages to Joe Schmoe public. Joe Schmoe public conveniently ignores any nagging worries on affordability. And Joe Schmoe's mortgage gets lumped into a sub-prime Collaterized Debt Obligation which gets gets a great "AAA" rating and gets "insured" with a credit default swap and gets sold to a mutual fund. Joe Schmoe buys the mutual fund since it has a spectacular return for some inexplicable reason which he does not bother to understand or reason out. So in a way Joe Schmoe finacially cannibalizes himself.

Everybody is happy until it all breaks apart. Joe Schmoe can’t pay his mortgage. The Credit Default Swap cannot pay the “insurance” because –since it was outside insurance regulations- it did not have the capital to “insure”. Banks go psycho and stop lending. And the economy which has become dependent on financial services comes to a standstill.

And the Government HAS to step in.

And we pay "no" new taxes through our nose while the creative types devise another plan for another ponzi scheme wrapped around an algorithm.

Incurious Minds

A recent Vice-Presidential pick has been assailed for lack of foreign policy experience. I always wonder how people can be so incurious about the world outside the United States. People tend to generalize and stereotype everything beyond their hometown.

Mexico has a rich culture and a sophisticated economy in addition to the poor who try to illegally immigrate. China has huge backward swathes amongst the uber growth regions.

In these days of readily available news, why is it that people - even those aspiring for political office - can't be bothered to scan through the multitude of sources on the Internet to get familiar with people, news and culture around the world?

The important thing is to avoid a spotlight effect where a culture is only identified by its most popular or notorious trait. A holistic view - with both the pluses and minuses of a society, its problems, its opportunities, its social mores would make a leader more in command with dealing with that country. This feeble mind would love to have a leader who does his or her own reading rather than rely on the snippets offered to him by his advisers.

Trip to Boston

We recently went on a last minute trip to Boston. We had a wedding to attend and I was unwilling to travel so far or incur the expense. However I caved in after the seventh "fare sale" email my wife forwarded me from an airline.

All in all, it was a great trip. It helped cap an uneventful summer, but it helped in giving us a break away from home and day care.

Boston is a fun place to visit. We stayed at the Hampton Inn in Cambridge, Ma. I chose this based on the price and the fact that I could use points to pay for our stay. Also, most of the reviews in Tripadvisor seemed positive.

The reviews were accurate. It is indeed a pleasant, budget hotel in Cambridge with a good breakfast and free parking - a rarity in the Boston area. I was a little apprehensive of the neighborhood since I only planned to use the rental car to travel to the wedding but do most of the sight seeing using the T which is the Boston subway.

However, the neighborhood was just fine. Actually the subway - Lechmere station on the Green line - is only diagonally across from the hotel though it appears farther when viewed in Google Street View. So all in all, it was a very convenient location.

The great thing about travelling via subway is (for those who have not done so before) is that since the stops, lines, interconnections are so well mapped, it is very easy to figure out what trains to get on, where to go and when to change trains. I had borrowed a great guide book that listed sight seeing locations with mapped to T stops and so planning an itinerary was easy.

A couple of words of advise - if travelling on the green line, it splits into 3 destinations - so always know which branch to take. The trains are well labeled. Also, be aware of the rougher parts of town, though for the touristy things, chances are you won't have to stray so far.

Since we only had a couple of days to sight see, on day 1, we went over to the Aquarium stop after transferring to the Blue line from the Green line at the Govt. Center station. We took a water taxi (just $1.75) from Long Wharf which is a very short walk from the station to the USS Constitution
in Charlestown. This way the kids got to experience a ferry ride. Also you get a chance to take some photos of the Boston waterfront. You can spend a couple of hours there looking at both the ship and the museum. We skipped most of the museums in the trip because our kids are not at the age where they have patience for these things :-( . Because this is an active duty USN ship, admission is free and tours are conducted every half hour.

After returning to Long Wharf, we trundled down to Faneuil Hall and Quincy Market for some lunch and to wander around looking at street performers. It is pretty entertaining with a lot of crowds especially during lunch time.

Later on, we took the T to the Prudential building which offers a 50 story high view of the city. It is a little pricey at around $15 but it gives you a birds eye view so to speak.

That evening we did not do much since we had to visit some friends but the following day, we visited Boston Common (the Arlington stop on the Green Line) and went for a Swan Boat ride. After wandering around the garden for a while we walked around some of the neighborhoods which are really pretty (and expensive). There was a really old church but we couldn't find a way to get in which was a shame.

We then used the T to transfer to the red line and visited Harvard. The unofficial tour of Harvard is given by actual students and it is free but for a tip at the end. It is supposed to be entertaining but again, with small kids, we opted to just walk around. I was fortunate enough to happen upon Henry Moore's sculpture in the yard - so that was my little encounter with world class art in this trip. However there appears to be more art scattered about in plain sight if you are more curious and have the time. Of course there are several great Harvard museums in proximity which I would have liked to visit but maybe next time.


A quick word on museums - the Museum of Fine Arts in Boston is free on Wednesday afternoons for those who would like to visit. Obviously the website will provide more up to date information. Also the Go Boston card might be worth considering as it may offer savings on ticket prices. I did not research this fully since I didn't plan to buy one.

After lunch at Harvard square - plenty of restaurants - we opted for a taxi to the hotel and the friendly cabbie took us past MIT and pointed out various sights. This was a plus.

That unfortunately was the extent of our sight-seeing, though with more time we would have done the Paul Revere house, the Boston Tea Party and perhaps the Minuteman park in Concord which is about an hour away.

Again with more time, we might have opted for a day trip to Cape Cod as well.

All in all, it was a fun break and Boston being a compact city, it is easy to get around. I would advise not to drive, but to use its public transit system. The 1 day Charlie card gives you 24 hour access to the T and is about $9. And, as in any American city, food is not a problem. There are plenty of restaurants.

The front desk of the Hampton Inn provided us with a bunch of restaurant menus for local restaurants that delivered, and the Cambridgeshire Mall was a short drive away and it had some pretty good restaurants along with a decent food court. While there is a parking charge, we didn't find it excessive.

Also, we found the souvenir carts on Long Wharf offered the best price for caps, t-shirts and other memorabilia though I rued not having purchased it here and ended up paying more.