Does Religion Turn You Rotten? (Certainly not -- but it's an interesting clip.) December 16, 2008March 12, 2017 MILK Jack Rivers: ‘The amazing thing, for me, about Milk was that in the packed theater I went to (after it has been playing for two weeks) the vast majority of the crowd was straight couples. Would you have ever imagined such a thing when you were writing The Best Little Boy?’ ☞ Not in a million years, let alone just 35. Is this a great country or what? MORALITY James Musters: ‘So much for religion and morality. Click here.’ ☞ A two-minute video. Turns out, the most religious societies have the worst morality problems. This is not offered as a blanket condemnation of religion; but it does suggest there may be room for reevaluation and improvement. MONEY Lynn H.: ‘How About Some Financial Advice? Every day I read your blog hoping you have the magic answers for us, but you don’t say a word about investing. My husband and I are retirement age though he still works and we did all the so-called ‘right things’ over the years. So we have the house paid off and we have no debt and we have savings, but we lost a lot when the market crashed as we were a bit heavy in stock. Where do we put money now? My broker sure doesn’t know and wherever I turn, I see no good advice. My bonds, both corporate and muni, are down in value along with my stocks. Treasury stuff earns zilch and we need income. The only advice I see is for young people or for those in debt. I know we who have money are the lucky ones, but we’re scared too. Reading about Madoff is enough to give anyone the willies, isn’t it?’ ☞ It is. Let me try to answer this tomorrow.
Four Terrific Movies Meet One Terrific Economic Crisis December 15, 2008March 12, 2017 MILK Brad: ‘So I saw ‘Milk‘ this afternoon. Amazing! I remember you had mentioned that Fox in its review did not even mention that Milk was gay, so I looked up the clip on the Fox site (not that I doubted you) and it is so totally unbelievable. Honestly, I am a struggling guy here. Conservative, religious, and becoming more bitter every day. What can a 49-year-old who apparently used to be part of the problem do to help fix the problem now?’ ☞ You’re already doing it! But if you want to do more, consider forming your own Mind of the Month Club – and try to open a new one each month. E.g., take your pastor (preacher? priest?) to lunch and ask him to read the first few pages of Crisis (lend him a copy), which is very much written for people of faith. This could make a profound impact on how he preaches. And then do the same with friends and relatives and fellow churchgoers – perhaps telling them, since they’ll all be wondering why you’re doing this, that having seen ‘Milk’ and read Crisis, you’re doing it because you think it’s what Jesus would do. MOVIES Milk, Slumdog Millionaire, Changeling – even Role Models. What these excellent but spectacularly dissimilar movies have in common is that each engages our fundamental need to see justice done. Wrongs put right. (Can you even pass a crooked painting without wanting to straighten it?) Our rooting for the underdog. Generally, of course, this fundamental human instinct is a good thing. It is why the arc of the moral universe is long, but – in the words of Reverend Theodore Parker – bends toward justice. Likewise, our instinct for fairness, its baby brother. (Wrongs modest in consequence are unfair; wrongs of sweeping poignancy are unjust.) But there are times this instinct of ours can be dysfunctional, as when a driver is so enraged by another’s stealing his parking space it leads to murder. (The unfairness of the second driver’s behavior leads to the injustice of the first’s.) Or as when hundreds of thousands of dollars in legal fees are expended fighting over a small matter – ‘on principle.’ Or as when – and now at last I come to the point – we cannot solve pressing problems, like the economic problems we face, because we cannot agree what’s fair. MADNESS This was the subject of Gail Collins’ excellent column in Saturday’s New York Times: The Dreaded Fairness Doctrine By GAIL COLLINS Published: December 13, 2008 Researchers recently announced the results of a study about dogs and fairness that sheds new light on the auto industry bailout debate. Trust me. There’s going to be a connection. But first, the scientific news: Folks at the University of Vienna conducted a test in which dogs were asked to shake hands over and over and over again. If you have any experience with dogs, you will not be surprised to hear that they were absolutely delighted. And they didn’t care about being paid! The opportunity to perform the same trick endlessly with a stranger in a white coat was reward enough. Then the researchers brought in new dogs that were given a piece of bread as a reward for every handshake. The uncompensated dogs watched, lost their innate love of mindless repetition and grew sullen. ‘They get so mad that they look at you and just don’t give you the paw anymore,’ said Friederike Range, one of the scientists. So O.K. Dogs are secretly obsessed with fairness. (And bread. Who knew?) Now, let’s turn our attention to the U.S. Senate where a plan to bail out the auto industry went down the drain Thursday night. It was a stopgap measure, not necessarily the best bill in the world – although it did pass my own personal quality-control test, which is to find out what Senator Richard Shelby of Alabama thinks and go the other way. But its defeat doesn’t bode well for our prospects in coming up with a sensible response to the current economic unpleasantness. And the debate had an unnerving number of complaints about who was getting more than whom. ‘We’re going to have riots. There are already people rioting because they’re losing their jobs when everybody else is being bailed out,’ said Senator Jim DeMint of South Carolina. Some Democrats denounced the bill because they said that it was unfair that the union workers were getting dumped on while a lot of the Wall Street fat cats got to keep their golden parachutes. Republicans complained that it was unfair that General Motors paid its workers more than Toyota or Honda does. Many senators took the DeMint line and wanted to know what made the autoworkers’ jobs more important than the home builders or waitresses who were getting laid off, too. There were so many fairness arguments that you really did expect Harry Reid to start walking down the aisle dropping pieces of toast in peoples’ mouths. Senator Claire McCaskill of Missouri threatened to vote against the bill because somebody had stuck in a provision giving federal judges a cost-of-living raise while other Americans were going without Christmas presents. ‘And my phone is ringing off the hook, Mr. President,’ she said, ‘from people who want to be federal judges.’ (Funny. My phone is ringing off the hook from people who want to be the U.S. senator from Illinois.) If you took the long view of the pay raise for judges, you’d have to say that: 1) they deserve it; 2) now isn’t the best time; and 3) making a statement on the timing is not quite as important as saving several hundred thousand auto-related jobs. But in the end, the judge provision was dropped, the bill died anyway and the Bush administration will have to do something to keep the automakers afloat until Barack Obama becomes president. Which, although I know it’s hard to believe, is eventually going to happen. The really hard lifting still lies ahead, and we cannot possibly do it if we’re going to dwell too much on the fairness thing. It’s just too easy for lawmakers to dodge the tough vote by reminding their constituents that somebody else is getting more breaks than they are. Which somebody always is. If Senator DeMint’s constituents are going to riot over a bailout for the auto industry, they’ll wind up being met by tool-and-die makers waving torches and yelling about soybean subsidies. If the lawmakers from Alabama say their constituents do not want their tax money going to bail out Michigan, the people in Michigan are going to say that they never really enjoyed paying more taxes to the federal government than their state received in aid, while Alabama got a return of $1.61 on the dollar. And anytime a representative from the Great Plains opens his mouth, the people from New York are going to point out that while every state gets the same number of senators, there are more people waiting for a subway in Brooklyn in rush hour than inhabit all of Wyoming. We can really get tiresome on the subject. You don’t want to go there. Any mammal can obsess about fairness. (Did I mention how ticked off monkeys get if they find out they’re getting cucumbers while somebody in the next cage has a grape?) The real human trick is to get past the quid pro quo and try to focus on the common good. Set a better example, guys. It’s two years until the next election. ☞ No one cares more about fairness than me – witness my taste in movies. But Ms. Collins is right, because two things are eternally true of politics: “The perfect is the enemy of the good.” If you insist on the perfect legislation, you doom even “very good” legislation and get nothing at all. Prosperity lubricates negotiation. It is far easier to split the pie amicably when it’s growing than when, as now, it’s shrinking. And yet if we fail to act expeditiously in the months ahead, it will shrink a lot further. So I think we will act.
HBS Pushes the Envelope December 12, 2008March 12, 2017 BOOK IDEA I don’t have time to write this book, but one of you should. Title: The Plastic Bag First Paragraph: ‘I removed three slices of eggplant from a plastic bag and, as I prepared to heat them up, faced a decision: clean the bag for reuse or toss it? On instinct, I cleaned it. But whether that was fundamentally the ‘right’ decision, best for the planet, is not so easy to know . . . and is the subject – the sole subject – of this book.’ On the one hand, of course, it makes not a dime’s worth of difference. (These plastic bags cost less than a dime.) On the other hand, it is a way to think about . . . everything. The cost of water and the cost of heating water . . . the ‘externalities’ not yet taken into account by the marketplace in figuring those costs (the acid rain and global warming from burning the coal that made the electricity that heated the water, the cost to our national security of purchasing the oil to run the trucks that transported that coal to rail cars) . . . the time it took me to clean the bag (is my time worth nothing? when I have important books like this to write?) . . . the soft cost of having my partner think I am out of my mind; and do we really want wet plastic bags cluttering our already limited counter space (should the calculation include something for real estate tax?). And don’t even get me started on detergent (which for this eggplant situation I foreswore, but which in other situations might have been required*), in all its sudsy complexity of manufacture and effluence – the author’s mind spins with chapter titles, footnotes and appendices. I think you could have a bestseller on your hands. * Sardines. WHAT THEY DIDN’T TEACH YOU WHEN *I* WENT TO HARVARD BUSINESS SCHOOL Harvard teaches by the ‘case study method.’ This Harvard Business School case study is about a star employee coming to his boss to explain he’s about to transition to the opposite sex. The three real-life comments at the end of the case – from Boeing and others – are particularly interesting.
Watch Jon Stewart December 11, 2008March 12, 2017 MIKE HUCKABEE AND JON STEWART ON MARRIAGE Click here and see which of them you agree with. David da Silva Cornell: ‘Stewart is quite good in this exchange at articulating arguments for marriage equality in a very accessible, plainspoken way. Unfortunately, he does let Huckabee get away with making an incorrect statement as to law: Huckabee characterizes marriage in this country as being a ‘privilege,’ not a legal right, when in fact it is long settled in U.S. constitutional law – ever since Loving v. Virginia, the 1967 case that ended all bans on interracial marriage and expressly addressed this question – that being able to marry whom one wants is not only a civil right, it is one of the most fundamental of all civil rights. The precise – and stirring – language of Loving is always useful to have at hand when engaging ‘The Other Side’ or potentially persuadable neutrals:’ Marriage is one of the “basic civil rights of man,” fundamental to our very existence and survival…. To deny this fundamental freedom on so unsupportable a basis as the racial classifications embodied in these statutes, classifications so directly subversive of the principle of equality at the heart of the Fourteenth Amendment, is surely to deprive all the State’s citizens of liberty without due process of law. The Fourteenth Amendment requires that the freedom of choice to marry not be restricted by invidious racial discrimination. Under our Constitution, the freedom to marry, or not marry, a person of another race resides with the individual and cannot be infringed by the State. NEWSWEEK MAKES THE RELIGIOUS CASE FOR MARRIAGE Here. (‘Opponents of gay marriage often cite Scripture. But what the Bible teaches about love argues for the other side.’) And by the way, it’s okay for religions to prohibit gay marriage. It’s civil marriage – mundane things like state-issued marriage licenses and the taxation of health insurance benefits, not ‘holy matrimony’ – that’s in question. No one disputes the right of churches to discriminate or to predict who will and who will not be denied entrance to the kingdom of heaven. But in the meantime, can Charles and I have the same Social Security benefits you do? We pay the same tax rates. VIOLENT MOBS Meanwhile, Wayne Besen’s column takes issue with the anti-marriage groups who are complaining that gays are protesting: Pat Boone compared Proposition 8 protests to terrorist attacks on Mumbai in a column for World Net Daily titled, “Hate is hate, in India or America. Boone wrote, “Have you not seen the awful similarity between what happened in Mumbai and what’s happening right now in our cities?” In his op-ed, Boone also wrote, “What troubles me so deeply, and should trouble all thinking Americans, is that there is a real, unbroken line between the jihadist savagery in Mumbai and the hedonistic, irresponsible, blindly selfish goals and tactics of our homegrown sexual jihadists.” I’m not sure if Boone noticed, but it was religious extremism that was responsible for the attacks in India. ☞ Wow. Are the California Supreme Court and California Legislature, that both granted Californians marriage equality – only to have it taken away by Prop 8 – terrorists, too? There were protest rallies in 300 cities after the narrow passage of Prop 8.
Can the Market Go to Zero? December 10, 2008March 12, 2017 Today is Day without a Gay – we all call in gay and do community service for a day, in (very) peaceful protest of our second-class citizenship. So there will be no column today for those of you who think Charles and I don’t deserve equal rights under the law. For everyone else . . . GOBS AND GOBS Chris Brown: ‘A high-risk trade is to buy LNY (Landry’s Restaurants). The company is being taken private by the CEO for $13.50 per share. Financing has been arranged, and the CEO has been buying gobs and gobs of shares in the open market. The stock is at $11.33, and the deal is expected to close around February 15. If all goes well, that’s a 19% profit in 2½ months. I’m not the first to notice this. C.L. King mentioned it in a research note on Nov. 18. The risk is that the company has a lot of operations in Galveston, which have been damaged by Ike and will likely suffer further by the downsizing of the medical center there, so, without a buyer for this company, it could be a $6 stock. Additionally, the company has a bunch of bonds coming due in 2009, so if they don’t get a buyout or some sort of financing, it could be a $0 stock as the bondholders could own the company. However, the company has stated publicly that they have a commitment to refinance their debt even if it is not bought out. For me, given the confidence of the CEO to put gobs and gobs of his own money on the line already, the Fund is long LNY and short long-dated LNY puts (that have a lot of time premium embedded in them, but become worthless when the buyout becomes effective). BUD traded at a huge discount to its takeout price in spite of financing being in place; I think this is the same situation. There are simply better arbitrage opportunities in a market where so many participants need capital.” ☞ I should have posted this a week ago when Chris first sent it – last night the stock closed at $11.81 (and by now, Chris says, the pricing on the puts is unattractive). Still, 12% in two months, if the deal gets done, isn’t bad. And maybe the stock will fall back a little in the meantime. Chris runs the fledgling, nascent, teeeeensy Aristides Capital, a long-short hedge fund (up 5.74% net of fees since its inception August 15, versus a loss of 30.68% for the S&P 500) that tries to discover ways to make money without taking too much risk (like that Ford common / preferred strategy he shared last week). He is smarter than the average bear . . . and is actually not a bear at all. He writes: The grim news is that we have entered a recession which many believe will be longer and deeper than anything we’ve encountered since the mid-1970s, and the earnings per share of U.S. companies will contract dramatically in 2009, to something like $65 for the entire S&P 500. The good news, as we discussed last month (a call which was either wrong or early), is that there may not be a lot of sellers left in the intermediate term. There are as many short ideas as long ones on television’s most popular investment show, the hot stock selection service of the day has started advising potential subscribers to “remain hedged at all times,” the public short ratio has increased 75% over the last three years, and fewer than 25% of investment newsletter writers are now bullish, in spite of a recent rally. That sort of pessimism often leads to good stock market returns going forward. The market itself is finally showing some signals of strength. According to Jason Goepfert, yesterday the 10-day moving average of the “up issues ratio” on the New York Stock Exchange reached three standard deviations above its yearly mean for only the 5th time on record. This sustained buying pressure has, in the past, been a sign of good things to come, leading to significant 6-9 month (or longer) rallies on the four prior occasions. Is this a sure recipe for a new bull market? Obviously not, but with the yield of the S&P 500 roughly equal to the yield of the 30-year bonds being issued by the single largest debtor nation on earth, even if the sky really is falling, there’s a good chance it won’t hurt as much as we expect when it bonks us in the head. BILL GROSS For evidence that even the savviest market observers can be wrong, look no farther than the first line of Bill Gross’s current missive. Six years ago, he predicted that the Dow, then 8,500, would fall to 5,000 – and instead it rose to 14,000. And yet there is no one smarter or whose views are better respected than his – with good reason – and he acknowledges some causes for optimism . . . Today’s Q ratio has almost never been lower and certainly not since WWII, implying extreme undervaluation, as seen in Chart 1 . . . Another long-term standard of valuation comes from the good ol’ P/E ratio, where earnings per share, or E, is compared as a function of P, or price. Chart 2, going all the way back to 1871, shows the same relatively massive undervaluation, not only in the U.S. but elsewhere. This has been a global bear market. Yet here one should be careful. The sage of rationality, Yale’s Robert Shiller, cautions us to look at earnings on an historical 10-year moving average to remove adverse or fortuitous cyclicality. When measured on this basis, P/E’s are cheap but less so, slightly below their mean average for the past century . . . ☞ Yet, if you read the whole thing, you will see he concludes it is a better time to own bonds than stocks. Which brings us to: CAN THE MARKET GO TO ZERO? The surprising answer to this question is . . . yes. (Sort of.) And not even the way the Russian market did in 1917. The world doesn’t have to end for this to happen – nor end if it does. It’s just that much (three-quarters?) of corporate financing takes the form of debt, not equity – just as the financing of your $200,000 home may be take the form of $150,000 in remaining mortgage debt and $50,000 in accrued equity. Could your home decline in value to $150,000? Yes. Would it disappear? No. But your equity would have dropped to zero . . . and, if you couldn’t make your payments, ownership might transfer from you to the lender. Well, in much the same way, ownership of some of our largest and most recognizable companies could conceivably shift to the bondholders. The companies would still be there (you have surely flown on your share of bankrupt airlines and still arrived safely at your destination); it’s just that the old shareholders would have been wiped out in favor of the bondholders, who would now own the company. This is surely not going to happen with every company – maybe not even every automobile company. But, as silly as it is to think of the Dow going literally to zero, I’m not sure it’s all clear sailing for the stock market from here, either. If you’re 27 with no dependents, this is a brilliant time to put every penny you can each month into stocks, planning to do so for many years. And, yes, I am greatly heartened by the new team and the new competence and the new hope sweeping into Washington. There is much to feel good about for the long term. But – as always – the stock market is no place for money you might actually need in the next few years.
A Sardine Recipe Even I Wouldn’t Try December 9, 2008March 12, 2017 MICRO LOANS Mike Hanlon: ‘One other good place for microloans is Kiva.org. They allow you to choose to whom you will lend and you get updates on how the people are doing. Be sure to check out their press page – the group is endorsed by Bill Clinton and has some wonderful videos (follow CNBC’s John Larson as he goes to Africa and meets some of the people who receive his loans). We decided to join as a family – my wife, two sons, and I chose two or three recipients each. So far, by rolling over repayments, we’ve made 24 loans. I also oversee a campaign at work: Our building collected used ink cartridges, traded them in for cash and used the cash to set up a Kiva account. We’ve helped seven entrepreneurs, from Cambodia to Afghanistan to Nicaragua and thanks to repayments, we’ll help more.’ I-BONDS Kevin Kitts: ‘If I read TreasuryDirect.gov correctly, it looks like I-BONDS are currently paying 5.64%. Of course, one is limited to an investment of only $5,000.00 per Social Security Number (though you can always advise your wife and children that it might be a good investment for them as well). Another option might be investing in TIPS through a mutual fund (or directly). What steps can one take to prepare for a highly inflationary environment and do you think it is coming?’ ☞ You read it right. I-bonds purchased between now and April have a fixed rate of just 0.7% – but also accrue interest to adjust for inflation, which is how the current rate gets up to 5.64%. Both TIPS (inside a tax-deferred retirement account)and I-Bonds are reasonably good, conservative ways to prepare for an inflationary environment, and yes, I think sooner or later we have one coming. Stephen Willey: ‘I bought some I-Bonds in ’01 when you first suggested them – and got a few free plane trips by using my credit cards [no longer allowed] – and my 14- and 11-year-olds’ college tuitions are now covered. Thanks. IMO, I-Bonds are the best 529 out there. [If you cash them in to pay for tuition, there is usually no tax due on the interest they’ve earned.] When Treasury decreased the annual limit [from $30,000] to $5000, I knew that, one, they were a good deal and, two, those of us lucky/skillful enough to have acquired some dollar denominated wealth, were in jeopardy of having the government take much of it back via monetarization/inflation.’ MILK The real Harvey Milk in his own words. Under two minutes . . . recorded 30 years ago. See Sean Penn as Harvey Milk today. SWISS CHEESE What’s the point? So it’s got holes. Big whoop. Did anyone ever think about taste? It’s bland, inoffensive . . . what’s the word? Neutral! Oh – I get it. EGGPLANT Mark Kirby: ‘Ohmigod! You’ve got me craving eggplant and it’s only 8:45 in the morning. I’ll have to try your method of cooking. I love eggplant any way – fried, parmesan, and my late mother made an eggplant casserole that was exquisite.’ SARDINES Brooks Hilliard: ‘Just spent 5 days early last month in and around Lisbon (my first time in Portugal). The Euro is down, local prices are reasonable, and many of the local (i.e., non-tourist) restaurants serve grilled sardines. I liked some of the other food better, but the sardines were quite good.’ Gil Walker: ‘A small tin of sardines, drained and rinsed, dumped into a partial carton of low fat cottage cheese, makes a healthy (and tasty) breakfast! My wife thinks my taste buds are shot. My grandkids think I am weird!’ COOKING LIKE A GUY™ Tim Couch: “Speaking of food, when is your book coming out?” ☞ A fine dining experience cannot be rushed.
A Three-Minute Musical December 8, 2008March 12, 2017 PROPOSITON 8 – THE MUSICAL It packs a lot into three minutes, including an appearance by Jesus Christ (played by Jack Black) and a happy ending. Who can resist a happy ending? Click here. IMPORTANT NEWS ABOUT RUFFLE SCARVES I mean look at these. Don’t you want to keep your loved ones warm? And in more than one color? Enter ‘FF20’ at checkout, and it’s as if I handed you a $20 bill with each scarf. Click here to see other Charles Nolan items on sale. And here to buy an elegant magnifying glass to read the fine print. (There is no fine print.) BOREALIS – I HOPE YOU HAVE GRANDCHILDREN Those billions of dollars in iron ore we own up at Roche Bay? We seem to have sold them for $20 million. The latest press release from our joint-venture partner is largely impenetrable – under certain circumstances if option ii is not exercised, we sell 100% of our interest for 25 million Canadian dollars but retain a royalty on any bi-product precious metals that may be discovered (are diamonds a metal?) though none have been – but the long and the short of it seems to be that our imminent bonanza seems now neither imminent nor a bonanza. At least not for us. Ownership of most of the iron ore has been diddled away. Ah, but we still do retain some small interest. And if these close-to-shore eastern deposits ever do go into production, the value of our possibly-even-much-larger and still 100%-owned western deposits, a few kilometers to the left, could someday, decades from now, make us very rich. Don’t sell your Borealis because, first, whom would you sell it to? and because, second, its technology could yet be powering airliners on the tarmac (and so forth), and because at a $15 million market cap (5 million shares at $3 each), it continues to be a beguiling lottery ticket. DIGITIZING YOUR SAVINGS BONDS Buying and selling Savings Bonds is easier than it used to be, and if you already have paper ones in a drawer somewhere, you might want to digitize them. Here’s why: You can redeem your electronic bonds, in full or in part, at any time – 24 hours a day, seven days a week – and deposit the funds to a savings or checking account that you specify. You don’t need to go to a financial institution, and there are no restrictions on the number of bonds or the value that can be redeemed at any one time once minimum requirements are met. Online holdings and their current values can be viewed at any time. You don’t need to worry about paper securities being accidentally lost or destroyed. ☞ Here’s where you go to get started. Tomorrow: I-Bonds, Sardines, and More
Troops and a Movie December 5, 2008March 12, 2017 THANKING OUR TROOPS It only takes a minute, and it’s free (thanks, Xerox): letssaythanks.com. LETTING THEM SERVE OPENLY Something like 75% of Americans now believe gays should be allowed to serve openly in the military, just as blacks and women now can’t (those were big steps, too). For those interested, here is an NPR feature on 104 retired admirals and generals calling for an end to the ban (represented by one from Mississippi). CHANGELING I wouldn’t have seen this movie based on the trailer or the description, but the IMDB audience score was so high, I gave it a shot. WOW. And based on a true story. Monday: Digitizing Your Savings Bonds
Free Markets December 4, 2008January 3, 2017 But first . . . NEVER BE AFRAID TO GOOGLE It turns out, almost anything you want to know really can be found with Google. I too often forget that. On matters of traditional research (did Scooter Libby really represent Marc Rich? what’s a dram? how large was the National Debt when Reagan took office?) it’s by now completely instinctual – whatever I want to know, I find almost instantly with Google. My mother told me of a story she had read somewhere about an old high school acquaintance of mine who for than a decade, it turned out, had had two separate wives living cross town from each other, a scheme that only finally unraveled on Parents Day* when he accidentally enrolled both sets of children in the same private school. How juicy is that? So she started going through a towering stack of old newspapers trying to find it for me – but in under a minute I had pulled it up for myself on my iPhone. *OK, it may not literally have been on Parents Day; but that’s how I would write the script for the movie. Both sets of kids were in the same school. But on matters of what I guess I’d call conceptual research (how to do stuff), I too often forget to try. I assume the only route to an answer is Microsoft customer support; and, therefore, needless to say, prefer to suffer in ignorance. Case in point: For the last couple of years I’ve been using Outlook for my Calendar and Contacts and was always annoyed I could have only one open at a time. Surely there must be some way to have them both open and just toggle between them as needed. But, as that would only save me 4 seconds each time I switched back and forth from the way I had been doing it . . . and because finding out how to save these 4 seconds would take an hour if it were possible at all . . . I never got around to it. Until today, when I entered, “can i open my outlook calendar in one window outlook contacts in a separate window?” in the Google search box and a second later got Microsoft Outlook: 9 Things You Didn’t Know You Could Do (the very first of which was the one I was looking for). And now . . . FORD (AND FREE MARKETS) James Ooi: “Ford could suspend its payment of the preferred dividend [discussed yesterday] for up to 20 quarters. This could even be a condition of their bailout package or at least a gracious tip of the hat to the taxpayer. I wholeheartedly agree that the market gets a lot of things wrong, but I’m not sure this is one of those times. It’s usually good if you can find a reason Mr. Market ought to be wrong, like “AIG owns a lot of Ford preferred and has to sell it by year end” (not true, just an example). And just to go back to the political, since I know that is your true passion: if it is so hard to beat Mr. Market (even if there are a few miscalculations here and there), why do progressives think that a Henry Waxman-type or even the most brilliant leading lights like Larry Summers and Paul Krugman could guide our economy better than the market? Progressives are using this crisis to ridicule market fundamentalism and the idea that the market is always right, and yet no one has any evidence that a handful of really smart people deciding things in a room can be more right than markets.” ☞ It will be interesting to see how things play out with Ford. Your take is definitely the other side of the story. When Chris paid his 36-cent “fee” to play this game, he was betting there was a good chance the preferred would pay even just one more 81-cent dividend, and possibly more.<br ?–> As to progressives, most of us do believe strongly in the importance of markets – sensibly regulated, impartially refereed, appropriately nurtured markets. And I’m guessing you do, too. Would you do away with FDR’s Federal Deposit Insurance, giving banks the freedom to fail massively in irrational bank runs again? Would you do away with the S.E.C.? How about insurance regulation requiring insurers to maintain adequate reserves to pay claims? Was it folly to impose the Glass-Steagall Act that, from 1933 to 1999, forbade commercial banks from engaging in risky investment-banking practices? Or did the folly actually lie in repealing it in 1999? Would you have let the free market take down AIG and Citibank, freezing up the entire world financial system, letters of credit, international trade, and pretty much the entire modern world economy? Would you eliminate the Fed, so no central bank were there to provide confidence that inflation will not get too far out of hand? (Reducing inflation fears increases the confidence to invest for the long term.) And, similarly, to provide confidence that credit will be eased as needed to keep recessions from becoming too deep? (Normally, at least, two of the things that do keep recessions from becoming too deep are (a) Fed credit easing and (b) investors’ assumption that it will work.) Should the government not provide the anti-trust regulation that keeps competitive markets competitive? Zoning? Product safety regulation? Environmental standards? Were we wise, in 1973, after the first OPEC oil shock, to keep the government from “intervening” with a thoughtful reorientation of our federal tax system? Namely, by lowering the income tax on work and investment (both of which we want to encourage) and replacing that lost revenue by raising the federal tax on gasoline consumption (which we want to discourage) by, say, a dime a gallon per year – forever – thereby to encourage fuel efficiency? The failure of government to meddle in this way has had monumental, tragic consequences for our country. (And, by the way, we should still do it.) Had we taken this step in 1973 or 1974, our auto industry today would lead the world in fuel efficient technology; we would, as a nation, collectively be untold trillions of dollars wealthier (for not having had to send those untold trillions overseas to buy oil); we’d enjoy greater national security; Ford’s preferred dividend would be as solid as a rock. So, yes, “free market fundamentalism” is an extreme that is worthy of ridicule, if anyone truly espouses it. In truth, not many do. Instead, it’s a question of finding the right balance between under-regulation and over-regulation. Too much meddling and not enough. It’s also a question of execution. Some ideas make great sense when executed well and no sense at all – the very same idea! – when executed poorly. So it’s healthy to have free-market advocates always challenging the wisdom of government involvement, to keep it from going too deep (and/or being executed poorly); and to have free-market skeptics always on guard against the very real, and potentially brutal or even catastrophic, consequences of inadequate government involvement. What progressives are saying, I think, is that by and large – especially in the last eight years (and not insignificantly in the last 14, when the anti-government-involvement party won control of both houses of Congress) – we have lost our balance and lurched too far toward the latter.
Mr. Market Miscalculates The Zelig of Vegetables December 3, 2008March 12, 2017 MR. MARKET MISCALCULATES – MACRO No one writes about finance more insightfully – or elegantly – than Jim Grant. If you don’t subscribe to his Interest Rate Observer ($850 a year), you can get his collected wisdom here, in Mr. Market Miscalculates: The Bubble Years and Beyond, for $14.96 – or two samples free. MR. MARKET MISCALCULATES – MICRO When the market does get something wrong – and you can see it clearly at the time, without the benefit of hindsight – there is an opportunity. Of course, this doesn’t happen to most of us too often, if ever. And even when it does, the opportunity can be hard to seize. Say it was clear to you at the time that much of the nation’s real estate market was wildly overheated. How would you profit from the market’s miscalculation? You could short (or buy puts on) the stocks of the nation’s home builders. But if you did it too soon and lost your nerve as the stocks rose even higher – and covered your shorts – or simply watched your puts expire worthless, your sharp insight would have been rewarded with a sharp loss. So for most of us, it makes little sense to try to beat the market by choosing individual stocks (index funds make more sense) or to ‘time’ the market, attempting to jump in before it goes up and out before it goes down. Both are very hard to do successfully. That said, there are a lot of very bright people whose professional lives revolve around finding ‘mispricings’ in the market and exploiting them, and – even if only as spectators – it’s interesting to see examples of their strategies. Like this one from my friend Chris Brown of fledgling Aristides Capital. Of the relative pricing of Ford Motor’s common stock () and its $3.25 convertible preferred. He writes: ‘F is at 2.83, the F.PRS is at 8.35. F.PRS converts to 2.8249 F shares at any time at the owner’s option. So, if you buy the F.PRS and short 2.8249 times as many of the Ford common, you are paying $0.36 for the entirety of the future dividend stream of the Ford preferred, which is $0.8125 per quarter, and is supposed to last at least 2-3 quarters.’ ☞ In English: you want to be long and short the same amount of Ford so the price movement of the stock doesn’t matter. What you gain (or lose) owning the convertible you lose (or gain) by shorting the common. But! But! But! But! But! You get $32,500 a year in dividends on each 10,000 shares of the $3.25 convertible that you own (convertible into 28,249 common shares); while you pay zero in dividends shorting 28,249 shares of the common. So you get to keep $32,500 a year even if you don’t have any idea whether Ford stock is going up or down. And the cost of doing this? Well, there are the commissions, but they should be small. And there is the cost of tying up your money. And in Chris’s case, there was a cost of 36 cents* per $3.25 convertible – $3,600 on 10,000 shares (if that’s how many he bought) *When Chris took this position, shorting 2.8249 shares of Ford at $2.83 brought him $7.99. (Right? 2.8249 x $2.83 = $7.99.) Chipping in another 36 cents out of his own pocket, he had enough to buy one share of the convertible for $8.35. (Right? $7.99 + $0.36 = $8.35.) So what’s the catch? Well, especially for average Joe’s like us, there are lots of catches. First, when I went to try this myself, I quickly discovered that my broker couldn’t borrow shares of Ford for me to short. Yours may or may not be able to. Second, even if I had been able to short F, by the time I tried, that modest 36-cent spread had widened, to a slightly less attractive 61 cents – because the price of the convertible I would have bought had not fallen as much as the price of the 2.8249 shares of the common I would have shorted. By the time you read this, the spread could be wider still (or narrower). Third, there would be commissions to pay, though at my broker they are trivial. But fourth – and mainly – what if Ford goes broke before it is able to make even one more $0.8125 quarterly dividend payment on the $3.25 convertible? So there’s risk, but Chris thinks it’s a good risk to take. And that’s how (some) really smart investment professionals spend their days, trying to find little mispricings like that, where Mr. Market, through carelessness, has left a few crumbs on the table. And now, at last: EGGPLANT You’ve heard of the three-minute egg? Behold the three-minute eggplant: Buy an eggplant. They’re cheap. They’re large. And yet a big eggplant has only 125 calories, with the skin. (The skin is good. Eat the skin.) Slice ‘the long way.’ Maybe five or six slices, each vaguely half an inch thick. (It doesn’t matter.) Microwave for 3 or 4 minutes. It’s okay to put the slices on top of each other – microwaves can penetrate anything. Let cool; salt and pepper to taste. Yes, eggplant absorbs anything – it is the Zelig of vegetables – so you can goop it up with olive oil, cheese, tomato sauce, whatever. But why? Fresh from the microwave it is moist, mushy, and healthy. Where I’d experiment, beyond the salt and pepper, is in whatever other seasonings you might have around. And/or a soupçon of I Can’t Believe It’s Not Butter Lite with each bite. SARDINES You don’t hear much about sardines anymore.