Milk and Money December 2, 2008March 12, 2017 MICRO FINANCE Give a guy a fish and you feed him for a day. Teach him to fish and he starves to death. Ah, but loan him the money to buy his first fishing rod and not only do you set him and his family on the road to prosperity, you get your loan repaid. Which you can then re-loan, if you choose, perhaps to a woman who needs to buy a sewing machine. Or seeds. One of my best investments yields just 2.5% interest (taxable, no less), but allows Shared Interest to catalyze hundreds of micro-loans to poor South African women. Another group Charles and I support is FINCA, ‘providing financial services to the world’s lowest-income entrepreneurs.’ Already working with 700,000 of them in 21 countries, it seeks your help to do more. Click here. And don’t miss its donation calculator. See the astounding impact $50, let alone $5,000, can have. (Gather the kids around to work through the numbers with you.) And here’s another great one, backed by eBay: Microplace. You can choose to back a micro credit effort anywhere in the world (even the U.S.). You’ll see ‘examples’ of the kinds of borrowers your investment will go to fund, but not be at risk on any specific micro-loan. What fun! I just funded a bunch of loans like this one (charcoal) and this one (baking) in Ghana and this one (pig s—) in Costa Rica. In 21 months (in the case of the Costa Rican investment, some are longer-term, many shorter), I’m even quite likely to get my money back with 1.5% interest. But if the interest seems silly, another way of looking at it is by comparison with charitable giving, where you not only get no return on your money, you get no return of your money. Mike Hanlon: ‘Yet 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.’ MACRO FINANCE Paul Krugman writing in The New York Review of Books. Well worth your time. MILK This is even more self-indulgent than usual, but I had to share this profile of my pal Howard, who made his screen debut this week – after more than 30 years in the business – opposite Sean Penn in ‘Milk.’ What a kick. CBS Sunday Morning showed footage of the real Harvey Milk . . . and his fellow San Francisco City Supervisor (now Senator) Diane Feinstein 30 years ago announcing to a shocked crowd that Milk – and Mayor Moscone – had been assassinated by yet another of the five city supervisors, Dan White (who would get just five years for the double murder because a jury chose to buy his attorney’s ‘Twinkie defense‘). I couldn’t find the clip on-line, but did find this transcript. And in looking for the video, found this. Can you believe that Fox reviewed ‘Milk’ without ever mentioning that he was gay? How about a profile of Michael Phelps never mentioning he’s a swimmer? Or Amelia Earhart without ever mentioning she flew airplanes?
Vivace December 1, 2008January 3, 2017 ABUNDANT, CLEAN, CHEAP ENERGY You’ve probably already seen this, but it’s too important not to share. From the Telegraph: Ocean currents can power the world, say scientists A revolutionary device that can harness energy from slow-moving rivers and ocean currents could provide enough power for the entire world, scientists claim. By Jasper Copping Last Updated: 2:39PM GMT 29 Nov 2008 The technology can generate electricity in water flowing at a rate of less than one knot – about one mile an hour – meaning it could operate on most waterways and sea beds around the globe. Existing technologies which use water power, relying on the action of waves, tides or faster currents created by dams, are far more limited in where they can be used, and also cause greater obstructions when they are built in rivers or the sea. Turbines and water mills need an average current of five or six knots to operate efficiently, while most of the earth’s currents are slower than three knots. The new device, which has been inspired by the way fish swim, consists of a system of cylinders positioned horizontal to the water flow and attached to springs. As water flows past, the cylinder creates vortices, which push and pull the cylinder up and down. The mechanical energy in the vibrations is then converted into electricity. Cylinders arranged over a cubic metre of the sea or river bed in a flow of three knots can produce 51 watts. This is more efficient than similar-sized turbines or wave generators, and the amount of power produced can increase sharply if the flow is faster or if more cylinders are added. A “field” of cylinders built on the sea bed over a 1km by 1.5km area, and the height of a two-storey house, with a flow of just three knots, could generate enough power for around 100,000 homes. Just a few of the cylinders, stacked in a short ladder, could power an anchored ship or a lighthouse. Systems could be sited on river beds or suspended in the ocean. The scientists behind the technology, which has been developed in research funded by the US government, say that generating power in this way would potentially cost only around 3.5p per kilowatt hour, compared to about 4.5p for wind energy and between 10p and 31p for solar power. They say the technology would require up to 50 times less ocean acreage than wave power generation. The system, conceived by scientists at the University of Michigan, is called Vivace, or “vortex-induced vibrations for aquatic clean energy”. Michael Bernitsas, a professor of naval architecture at the university, said it was based on the changes in water speed that are caused when a current flows past an obstruction. Eddies or vortices, formed in the water flow, can move objects up and down or left and right. “This is a totally new method of extracting energy from water flow,” said Mr. Bernitsas. “Fish curve their bodies to glide between the vortices shed by the bodies of the fish in front of them. Their muscle power alone could not propel them through the water at the speed they go, so they ride in each other’s wake.” Such vibrations, which were first observed 500 years ago by Leonardo DaVinci in the form of “Aeolian Tones”, can cause damage to structures built in water, like docks and oil rigs. But Mr. Bernitsas added: “We enhance the vibrations and harness this powerful and destructive force in nature. “If we could harness 0.1 per cent of the energy in the ocean, we could support the energy needs of 15 billion people. In the English Channel, for example, there is a very strong current, so you produce a lot of power.” Because the parts only oscillate slowly, the technology is likely to be less harmful to aquatic wildlife than dams or water turbines. And as the installations can be positioned far below the surface of the sea, there would be less interference with shipping, recreational boat users, fishing and tourism. The engineers are now deploying a prototype device in the Detroit River, which has a flow of less than two knots. Their work, funded by the US Department of Energy and the US Office of Naval Research, is published in the current issue of the quarterly Journal of Offshore Mechanics and Arctic Engineering. ☞ My point being: the sun will come out tomorrow, even if ‘tomorrow’ takes some years to get here. Kurzweil tells us the technological progress of these next 50 years will be 32 times that of the last 50. Hang in there, kids. Television, invented in 1926, took more than 20 years to come into practical use, but the dream was realized. There was a will; we found a way. A manned mission to the moon took a decade to achieve, but the dream was realized. There was a will; we found a way. Whatever success the Vivace technology has, the dream of cheap, clean, renewable energy will be realized. Our bigger challenge, at the end of the day, may not be finding technological solutions to technical problems, but, rather, finding a way to get along with each other. One way to help with that (as prosperous people tend not to want to kill each other): microplace.com. More on that tomorrow.
5-Year TIPS November 28, 2008March 12, 2017 MOVIES You must under no circumstances see Role Models if you are offended by crude and sexual content, strong language and nudity. Or if you have no sense of humor. Otherwise, it’s great fun. The word on Sean Penn’s Milk is U.S.D.A. Grade A. AND SPEAKING OF MILK: “I DO” BUT YOU CAN’T You will recall that on November 4, Californians narrowly passed Proposition 8, rescinding the recently-granted right of same-sex couples to marry. (Both the California Supreme Court and the California Legislature had affirmed this right.) According to one poll, the resulting 300 protests around the country have persuaded 8% of Prop 8 supporters to regret the way they voted. (As in, ‘Huh. If I had realized so many people would be upset at having their rights rescinded, I would have voted ‘No.’ ‘) Had they voted the other way, the results would have flipped: instead of 52%, just 48% would have voted yes and marriage would still be legal in California. This piece in the Christian Science Monitor asks ‘When should a majority have the power to take away a constitutional right granted by a court? It’s a question that forces us to think about why we have constitutional rights in the first place, and why they are enforced by judges.’ 5-YEAR TIPS Earlier this week, I put some of my retirement fund in 5-year TIPS (Treasury Inflation-Protected Securities). The price has come up a hair since then, but I think they still offer a safe haven for money you can’t afford to risk. Closing just under $930 per bond (I paid $921.56), they pay a paltry $6.25 a year in interest (give or take) but will be redeemed for $1,000 April 15, 2013, plus any increment by which the CPI may have risen since they were issued. This is no way to get rich – it works out to a ‘yield to maturity’ of about 2.3%-plus-inflation – but it protects, at least pretty well, against three things: deflation, inflation, and losing your money. If we have extended deflation, which I doubt, you will be very pleased to get $1,000 back for your $930 bonds: $1,000 will buy more than it does today. If, as is more likely, we have significant inflation, your bonds will be redeemed for a price that reflects much of it. And while other bond issuers may go broke, the U.S. Treasury is unlikely ever to default outright on its debt. (That’s what inflation is for: a face-saving way to stick it to long-term debt holders without having to declare bankruptcy.) So you won’t get rich, but you won’t lose your money, either. Meanwhile, the 30-year TIPS have come way back down in price, too, now yielding a hair above 3%-plus-inflation. They are worth a look as well. Bear in mind that TIPS are best held in retirement accounts, because the inflation adjustment is taxed as income even though you don’t actually get it until you sell (or redeem) the bonds. Also, that there will come a time – possibly a couple of days ago, more likely some time in the future (but we won’t know that until way in the future) – that it will have been tragic to invest in something safe like TIPS when, it will be clear with hindsight, you could have made double and triple and ten times your money taking more risk. Five-year TIPS selling under par are for money you can’t afford to lose. Click here to learn lots more about TIPS. Coming Soon: I have discovered a terrific way to cook eggplant
Flying Carpets Again November 26, 2008March 12, 2017 NEW YORK CITY – UNDER $100 Half a block from the subway and just a ten-minute walk from Charles Nolan or Penn Station, Leo House is an astonishing New York City bargain. Say hi to the nuns. BOREALIS Well, at least Motor Trend’s technical director is buying the story. That is hardly ‘dispositive,’ as the lawyers say – dispositive will be when you or I are on a Delta flight that backs out of its gate under its own power or, better still, when we get a Borealis dividend check that doesn’t bounce. Still, stories like this keep hope alive. THANKSGIVING As I’ve said so often in this space, almost all of us live better than the kings of England, czars of Russia, pharaohs of Egypt ever did. We have magic carpets with seats that recline; we have jesters, bards, gladiators and orchestras on instant call (with remote control, volume control, pause, fast forward and reverse). We have cell phones, antibiotics, zippers – Velcro, even – Google, anaesthetics, and aspirin. We have air-conditioning. We have each other.* Happy Thanksgiving, dear readers.** * Oh, my God — I’m having a Hallmark moment. Shoot me before I insert a smiley face. ** Seriously.
Flying Carpets Again November 25, 2008March 25, 2012 NEW YORK CITY – UNDER $100 Half a block from the subway and just a ten-minute walk from Charles Nolan or Penn Station, Leo House is an astonishing New York City bargain. Say hi to the nuns. BOREALIS Well, at least Motor Trend’s technical director is buying the story. That is hardly ‘dispositive,’ as the lawyers say – dispositive will be when you or I are on a Delta flight that backs out of its gate under its own power or, better still, when we get a Borealis dividend check that doesn’t bounce. Still, stories like this keep hope alive. THANKSGIVING As I’ve said so often in this space, almost all of us live better than the kings of England, czars of Russia, pharaohs of Egypt ever did. We have magic carpets with seats that recline; we have jesters, bards, gladiators and orchestras on instant call (with remote control, volume control, pause, fast forward and reverse). We have cell phones, antibiotics, zippers – Velcro, even – Google, anaesthetics, and aspirin. We have air-conditioning. We have each other.* Happy Thanksgiving, dear readers.** * Oh, my God -I’m having a Hallmark moment. Shoot me before I insert a smiley face. ** Seriously.
Watch the Radio Address November 24, 2008March 12, 2017 THE REALLY IMPORTANT THING – II Friday, I argued for really big deficits – but purposeful ones. In case you were not persuaded, here is Matt Miller’s take on the same issue. THE ORDER OF EVENTS First deflation – we’re in that now (falling gas prices, falling home prices, falling stock prices, falling Christmas-gift prices; falling spending, falling profits, falling payrolls) – then, someplace down the road, inflation. I was wrong to miss the deflation part; I thought we’d avoid it because of the Fed’s very-easy money policy . . . and because of the huge deficits we were running. But the cash inflow from expansive fiscal and monetary policy seems to have been overwhelmed by the cash outflow of ‘deleveraging’ – namely, when debt balances are reduced, voluntarily or involuntarily, and the money supply contracts. Picture a swimming pool with a garden hose running water into it full blast . . . but the pool pump set to ‘backwash.’ The pool level falls instead of rising. Or picture a bank getting $25 billion in new cash from Treasury, but its credit card customers deciding to pay down their credit cards by $50 billion. IN CASE YOU MISSED THE PRESIDENT ELECT’S WEEKLY ADDRESS Click here. The times ahead are tough, but plans are being formulated to get us back on track. PROP 8 COMES TO PRINCETON Have you seen what they’re doing at Princeton? Inspired by the recent California precedent -where a slim majority succeeded in taking rights away from a minority (who’s next?) – students are looking to clear their sidewalks of freshmen. ASK, TELL – WHO CARES? Reports the Associated Press (and CNN): ANNAPOLIS, Md. (AP) – More than 100 retired generals and admirals called Monday for repeal of the military’s “don’t ask, don’t tell” policy on gays so they can serve openly, according to a statement obtained by The Associated Press. . . . “As is the case with Great Britain, Israel, and other nations that allow gays and lesbians to serve openly, our service members are professionals who are able to work together effectively despite differences in race, gender, religion, and sexuality,” the officers wrote. . . .
The Really Important Thing November 21, 2008January 3, 2017 86 HANDBAGS LEFT ON THE WALL, 86 HANDBAGS ARE LEFT . . . . . . if one of those handbags should happen to fall, 85 handbags are left on the wall. Here‘s the website where you can read about the woman who made your bag. Here‘s where you find out how to buy one for your mother, daughter or bride at 20% off the already-too-low price. ‘While supplies last.’ BOROWITZ TAKES A SHOT AT OBAMA Here. CNN TAKES A SHOT AT BUSH Here. RSW Up from $83 to $200 since April . . . if you haven’t already sold perhaps a third of it or so, I would. But I’d hang on to the rest. TREASURIES, TIPS AND MUNIS A friend who specializes in the ‘long bond’ says he’s never seen anything like it. Look at this chart to see the gap in what the bond was yielding Wednesday to where it opened Thursday (with yield continuing to fall from there). This is not business as usual. People are scared. There is an extreme flight to safety going on (no news there, obviously, but still). Even tax-free triple-A ‘general obligation’ municipal bonds (the ones backed by the full taxing authority of the state or city) – bonds which you might expect to be attracting interest from wealthy investors worried about an impending hike in their tax rates – are offering a dramatically higher yield than Treasuries, 5.14% for the 30-year muni versus 3.57% for the 30-year Treasury. Usually, munis yield less than Treasuries. People are worried that states and cities will go bankrupt. And here’s one: the 5-year Treasury yields 1.98% to maturity, while the 5-year inflation-adjusted Treasury (TIPS) yields 2.36%-plus-whatever-inflation-there-may-have-been-between-now-and-five-years-from-now (even if some deflation comes first). There may be other explanations for this (like the relatively small size of the TIPS market, or investors’ lack of familiarity with them), but one explanation is just that people don’t want to take the time to be clever, they just want to be safe. THE REALLY IMPORTANT THING For all the economic turbulence ahead, one core principle is worth highlighting. Having millions of talented, willing workers idle – whether in the U.S. or Mexico or China – can’t possibly help when there’s so much that needs doing in the U.S. and Mexico and China (and everywhere else). Mindless massive deficits can’t do us any good. But purposeful massive deficits focused on productive ends – like building tens of thousands of windmills and an electric grid to support them to save $700 billion we would otherwise need to send abroad each year – those are deficits that will employ millions of people and provide a return on investment for as long as the wind comes sweepin’ down the plain. (We know we belong to the land . . . and the land we belong to is grand . . . but I digress.) I am oversimplifying. It’s not just windmills. And finding reasonable ways for government to help without disincentivizing private enterprise or skewing the free market too badly is unquestionably a challenge. But does anyone doubt that the massively expensive Interstate Highway System was a good investment? The same would be true of energy independence. And a great time to make such a big investment is when there are talented, able-bodied people with nothing else to do. Another example – if harder to quantify its payback and doubtless thornier to effect – would be redirecting a million talented, college educated people losing their jobs in department stores, brokerage houses, and auto dealerships (for example), toward an educational Marshall Plan. At its core, our future rests with the talent, health, and character of our kids. (Check out Democrats for Education Reform. Check out Harlem Success Academy. Check out PS 65Q.) I’ve been telling folks I want to see Bill Cosby named Secretary of Education. But maybe it should be Colin Powell. Either way: I’d love to see a hugely high profile appointment, because nothing is more important. The Federal Government has no separate ‘capital account.’ It treats $1 spent on rations for the troops – necessary, but here today, gone tomorrow – the same as it treats $1 spent on a windmill that will last 30 years or aid to education that will last a lifetime. We need to do all we can not to borrow for ‘operating expenses,’ just as you or I should not borrow to buy dinner. But if you’re borrowing to buy a sewing machine that will allow you to start your own little business, or borrowing to get an education – that’s okay. Indeed, nervous-making, but more than okay – in the long-run, that’s the borrowing that offers the promise of a brighter future. So the really important thing to keep in mind these next few years, I think, is not the size of the deficits incurred here and abroad (they will be huge, and should be); but to make sure they are incurred with a clear purpose, for investments in our future that cry out to be made.
Dress for Duress November 20, 2008March 25, 2012 Tell me you wouldn’t look great in this coat – reduced for the recession, like several of the other items at Charlesnolan.com. What’s more, I have been authorized to share with you a secret promo code which gives you a further 20% off anything you buy. Just enter FF20 at checkout. It even applies to this bright silver handbag, bringing your price down below $75 – the perfect gift for the woman in your life. You’d never know from looking at it, but it’s made from hundreds of soda can pull-tabs that would otherwise have become litter or landfill. Oprah featured it. Inside each is the name of the Brazilian woman who made your particular bag and the website to visit to read about her, and how this crafts cooperative is changing her life. The women I’ve shown it to love it. I think we should be selling it for $400, but what do I know.
I Got Nothing November 19, 2008March 12, 2017 Roses are red, Violence, appalling. With a rhyme such as this one, I’m obviously stalling. Peppers are green, Great Mozart, enthralling. Does poetry pay well? Have I missed my calling? Oceans are blue, Investors are bawling. Four oh one K’s Just keep falling and falling. This, too, shall pass, The storm and the squalling. But don’t hold your breath; Prepare for more mauling. No column today. Sorry.
Getting Back to Finance for a Minute November 18, 2008January 3, 2017 GOING TO THE SUN In 1961, we set out to put a man on the moon by the end of the decade. It was a supremely cool thing to do – read President Kennedy’s rationale here – and it had lots of indirect benefits, like these. In the decade ahead, we will go to the sun. Not literally, of course – for energy. And if we do it as successfully as we went to the moon, the benefits will be even more tangible. By replacing fossil fuels with solar energy and other inexhaustible, nonpolluting energy sources, we’ll save $700 billion we send abroad each year . . . $7 trillion per decade . . . and set a course for a more nearly sustainable economy. Plug your car in when you get home, and let the sun’s rays (one way or another) recharge it. Cool. GARRISON KEILLOR Lisa Strong: ‘I’m disappointed. You offered Keillor’s article as a positive thing. 1) How dare Keillor suggest that previously ‘we’ pretended to be Canadians. Maybe he did. But he should speak for himself. I’m offended at the idea. Canada is a fine country. Please Garrison, move there. (Are you sure this is an article you wish to promote?) 2) The Swedes and French are happy?? Why is that a plus? What about these socialist countries makes them superior judges? Their government system? Their economic system? Maybe Keillor sees these as superior, but I do NOT want to use these as our models. (Are you sure this is an article you wish to promote?) 3) But most importantly, Keillor is promoting that Obama immediately abandon his promises. Ok, so which is it: Is Keillor suggesting that Obama should abandon his heartfelt promises to those who faithfully elected him? Or is Keillor praising Obama for winning the game for the Democrats by deceiving the voters about what he can and will do? Or is Keillor suggesting that Obama didn’t understand the current circumstances under which he would be operating? Pick any one. Keillor is so blinded by his politics that he doesn’t even see anything wrong with this. He sees this as a success. Aghhh! My team is my country. Clearly Keillor’s team is his party. My country is in big trouble, and this kind of party politics that is at the root of it. (Are you sure this is an article you wish to promote?)’ ☞ Thanks for your perspective, Lisa. I do think having the most of the world cheering for us again is good for the world, good for our national security, and good for our (eventual) continued prosperity. All positive. I think Obama will be far less partisan than his predecessor, and that we’ll all join you in being pleased by that. And I think Garrison Keillor is one of our country’s great teammates – but that sometimes teams do screw up, and that his point is that our team, these past eight years, has not been at the top of its game. MONEY Alan S.: ‘Getting back to finance for a brief moment: The Dow averaged 5.3% compounded annually for the 20th century, a record Warren Buffet called ‘a wonderful century’ – when he calculated that to achieve that return again, the index would need to reach nearly 2,000,000 by 2100. The way the stock market is presently going, this of course will be impossible. Will stocks ever thrive again, even if only at a 5.3% annual rate of return? (This return seems puny, considering that some 1 year CD’s are paying the same thing.) Am I missing something?’ ☞ Do we have to get back to finance? Not a cheerful topic. (Which is to say: if you’ve been using it to hedge your portfolio, don’t sell your RSW.) For the Dow to compound at 5.3% through the end of the century from its 13,850 high a year ago would be to have it climb to 1.7 million. Give it a full century instead of 93 years and you’re at 2.4 million. Go nuts and compound it at 5.4% and it’s Dow 2.7 million. That’s quite a jump. And we may be alive to see it. A couple of points on the math. First, not to quibble, but I think the one-year CD rate is more like 3.45% than 5.3%. Second, most people use more like 9% than 5.3% for the expected return on stocks. But that’s before adjusting for inflation (is it really 9% if prices have been going up by 3%? no, it nets out to 6%) . . . and before adjusting for dividends (traditionally that 9% came in the form of roughly-vaguely 3% dividends and 6% stock appreciation). And, yes, despite two world wars and the Great Depression the Twentieth was a good century for American equities, and this Twenty-First century could be equally good. To answer your question (‘will stocks ever thrive again’): it seems to me they are closer to a level from which they can thrive at last night’s 8273 than they were at last year’s 13,850. (Right? The cheaper they are, the more room to thrive.) If Ray Kurzweil is right, and technological progress over even just the next 50 years is 32 times as fast as it was over the past 50 years, it could be a century of astounding economic progress. But getting from here to there is going to be painful. We have years of readjustment to get out of this mess. And there’s no guarantee that today’s shareholders are likely to wind up doing well. Take the example of GM. Even if it’s rescued and goes on to thrive, who’s to say how much of the company today’s common shareholders will own? The taxpayers might get 90% of the equity in return for a bail-out. And/or the employees and pensioners might get 90% of the equity in return for agreeing to deep cuts in pay and benefits. And/or the bondholders may wind up owning 90% – or 100% – of the equity if the company goes through a bankruptcy restructuring that allows it to get out from under unsustainable obligations. And it’s not just GM. Just as homeowners can see their equity wiped out and ownership transferred to the mortgagee (note that the house itself does not disappear), so common stockholders in lots of companies may see their equity wiped out and ownership transferred to the bondholders. Or not. But to a lesser or greater degree we could well see some of this. During which time investors might get more and more disgusted with stocks and more and more partial to bonds. Bizarre even to contemplate, I know; but in the (very) old days, stock dividends used to be higher than bond interest payments – a stock might pay an 8% dividend while its bonds paid 6% – because investors demanded very high cash returns from stocks, relative to bonds, to compensate for their greater risk.* If that did happen, it would likely be a great time to buy stocks. We’re a long way from its happening, if it ever does. But it might. My point: what the heck do I know? My subsidiary point: because a number of scenarios are possible, it’s wise to be cautious; to diversify; and to live frugally (but joyfully), saving as much as you can and investing it across several asset classes. *The more modern argument has been that stocks are more volatile, i.e., risky in the short-term; but that they are a safer way to beat inflation over long-term. So investors were delighted to forego dividends for hoped for (and lightly taxed) growth.