Not A Mystery

Airlines and Cable Networks, two of our most popular industries today.

If you ignore the Banks.

Sign up for Cable and you get more channels than you need or want. You’ve been bundled.

Get on an Airline and nothing is included in the price of your ticket. You’ve been unbundled.

And yet, as a consumer, it all feels the same.

What's Not To Like?

I’m not saying we should regulate them.

That would be too good.

Shakespeare had it right, even in 1600 he could see these guys coming.

To be or not to be– that is the question:

Whether ’tis nobler in the mind to suffer

The slings and arrows of outrageous fortune,

Or to take arms against a sea of troubles

And, by opposing, end them.

- Hamlet

Being an expert must be harder these days.

Nobody seems to have any good answers to tough questions about the economy.

Morningstar pundits are usually pretty good when it comes to personal financial advice. But in is a recent answer on how to maintain yourself in retirement, they managed to coin the phrase ‘pre-tire’ when recommending that you just keep working.

… most retirees are going to have to make some hard choices … [it's] hard to generate a livable income unless you have a lot of money, [so] working longer is going to be part of the solution for a lot of pre-retirees.

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Which is probably not the solution most people are looking for.

But whether you like that or not, at least they were working in the present, or near future.

On the other hand we have Mohamed A. El-Erian, CEO and co-CIO of PIMCO, who at the end of a good piece on The Real Tragedy of Persistent Unemployment suggests that,

… policy makers should also come up with a comprehensive strategy that focuses on improving human capital, particularly through a greater emphasis on education and training; expanding infrastructure and technology investments, in part by creating a more friendly tax system; encouraging a bigger translation of scientific advances into economy-wide productivity gains; and better protecting the most vulnerable segments of society …

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And while I can’t disagree with Mr. El-Erian, the time-frame for his solutions are measured in generations.

It’s a good time to remind ourselves that the fun is in the journey and not the destination.

And Somebody Already Mortgaged The Parachutes

J. Wellington Wimpy was many years ahead of his time, and at least honest, when he offered that, “I will gladly pay you Tuesday for a hamburger today.”

Hard as it is (for me) to believe, we began our blog one year ago today.

And this is our 178th. post. But who’s counting.

In honor of that Anniversary, I’d like to suggest that you check out some of our FAV posts.

F2U Rio Linda, FAVS are items that I had the most fun composing, or that I thought actually had some redeeming social value.

You can either click the FAV link in the right-hand column, or just click here.

In the meantime, what with the oil spill, let’s all think Big Green this week.

This Is As Green As It Gets

The good news is that if a catastrophic event destroys mankind our investments will be extremely well managed after we are gone. The bad news is that the computers doing it may be trading for their own accounts instead of ours.

This theater of the absurd scenario might be more plausible than you think, and occurred to me last week when our stock exchanges mysteriously melted down in the space of a few minutes.

I’m currently reading David Hoffman’s Pulitzer prize-winning book “The Dead Hand: The Untold Story of the Cold War Arms Race“. Its cheerful title is taken from a Soviet weapon system designed to have computers automatically fire a massive retaliatory nuclear strike at the US if Soviet leaders were ‘decapitated’ by an assumed US first strike.

The Soviets referred to a semi-automatic defense plan as the “Dead Hand.” The Dead Hand was a system that would fire a portfolio of SS-18′s on to the United States and Western Europe if its sensors made the conclusion that the Kremlin had been destroyed by a nuclear blast. The system was in place as early as the mid-80s. It is a bit of a miracle, given the demonstrated shortcomings of Soviet engineering, that it never made a mistake.

The Soviets claimed that they never actually set up a completely automated system, but instead would have had (surviving) lower level officials make the final decision on whether a strike was to be launched.

In any case I was struck by a parallel in last week’s breakdown of the US stock market. As I write this the SEC has still not tracked  down the specific cause of a 1000 point drop in the Dow that reduced a number of Dow Component stocks to pennies a share in the space of a few minutes. Everyone breathed a sigh of relief when, a few moments later, the market recovered as mysteriously as it had plummeted.

F2U Rio Linda, normally a quick recovery after a market drop is called Dead Cat Bounce by investors. So let’s refer to this event as a Dead Hand Bounce in homage to the anonymous computers that caused, and then corrected, the disruption.

Last One Out, Shut Off The Lights

Although the real cause of the market dislocation is still unknown, what is clear is that a number of computers were at the scene of the crime. And those computers place their trades so fast there is no way humans can be involved in real time to supervise.

By late Sunday, a cause of the slide hadn’t been determined … Still, some new details about what happened during the brief span Thursday afternoon that sent the Dow Jones Industrial Average into a nearly 1,000-point tailspin continued to emerge over the weekend …

But it is becoming clear that much of the decline was because of glitches in how the market functions. High-speed electronic trading, long held as a boon that has made the market more efficient, can also trigger sharp selloffs that overwhelm the market.

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Although everyone is relieved that this storm has passed, it reminds me of a that old saying, “Problems that go away on their own, come back on their own.“

And now that hackers know what’s possible, they will have begun working on their own version of the Dead Hand.

I wonder what they’ll call it.

Get a grip, because I’m about to tell you how to double your money with no risk.

While simultaneously bringing new meaning to the phrase, “go green”.

Let’s talk recycling.

Like me, I’m sure that many of your beer-drinking friends go on about the  hundreds of dollars they ‘make’ by taking their crushed aluminum cans to be recycled.

In these days of miserable interest rates on my savings account I figured it was time for me to see if this new income stream could improve my standard of living.

Unfortunately I don’t drink beer in cans, since I’m mostly a wine and craft-brew guy. But we do consume some Seltzer and Gatorade, both of which come in recyclable containers. Bravo.

Wait Until Goldman Sachs Finds Out

After investing in, and religiously employing, a can-crusher for several weeks, I accumulated what seemed to be a ton of aluminum. Well, not a ton, but at least a few pounds.

But when I delivered my load to be bought by the recycle guy I was crushed, crushed I say, by the meager payback. We are talking a couple of bucks for all that work and time. It seemed like I was paying a lot more for the aluminum when I purchased the cans in the grocery store than I was getting back in all my newly found green-ness.

Convinced I was getting shafted by the authorities I almost called my local Tea Party, but instead of going for comic relief, decided to do some calculations. Keep in mind that in the grocery store we pay the CRV (California Refund Value) deposit per container, but get paid back by the pound of material we present for re-cycling.

Here are our input figures after I did some careful weigh-ins:

• The CRV for all three containers is the same: 5 cents per container.
• The weight of 1 aluminum can is 1/2 ounce.
• The weight of 1 Gatorade 12 Fluid Ounce bottle is 1 ounce.
• The weight of 1 Gatorade 20 Fluid Ounce bottle is 1 1/4 ounces.
• The weight of 1 Gatorade 32 Fluid Ounce bottle is 1 3/4 ounces.

Our Menu, So To Speak

• The recycle value of 1 pound of aluminum is $1.57 per pound.
• The recycle value of 1 pound of plastic is 93 cents per pound.

Now we can calculate that it takes:

• 32 aluminum cans to make a pound.
• 16 small Gatorade bottles to make a pound.
• 12.8 large Gatorade bottles to make a pound.
• 9.14 extra large Gatorade bottles to make a pound.

So where do we find our best Return On Investment?

The envelopes please…drum-roll…for a 5 cent investment in each container our payback is:

• For each aluminum can, 4.9 cents returned, for a loss of 2%.
• For each small Gatorade bottle with cap, 5.8 cents returned, a gain of 16%.
• For each large Gatorade bottle with cap, 7.3 cents returned, a gain of 46%.
• For each extra large Gatorade bottle with cap, 10.2 cents returned, a gain of 104%.

Hmm pretty interesting.

Our beer-drinking friends are actually losing money even after collecting their re-cycle fees. They are generously donating 2% of their CRV to the State of California, and not even breaking even. Thanks guys.

On the other hand, those of us who work out every day, and drink Gatorade to replenish our electrolytes are not only happy and healthy, but if we supersize our investment to the Big Gatorade bottles, we will be making 104% on our money.

F2U Rio Linda, that’s otherwise known as doubling your money.

Oh, I discovered one more interesting fact. The State of California levies Sales Tax on the CRV, so when they increase the CRV evey so often it serves to increase their tax revenues.

Maybe it really is time to call in the Tea Party-errs.

In a nutshell, the way financial institutions (Big Bank) make their money is by knowing more than the other guy (that would be you). They will famously say that their priority is to serve their customers, and that capitalism depends upon them for the efficient allocation of capital. Also, that they are all in favor of shining the light of day on their operations.

Whatever.

We're Here To Allocate Your Capital

A better characterization of Big Bank’s approach to transparency and customer service is found in The Hitchhiker’s Guide to the Galaxy.

In The Hitchhiker’s Guide to the Galaxy, a notice ordering the demolition of someone’s house is found “on display” in a lightless, stairless cellar, in the bottom of a locked filing cabinet, in a disused lavatory, with a sign on the door saying “Beware of the leopard”.

A fine example of Big Bank’s drive for obfuscation is their lobbyist’s demands to not force them to trade derivatives on open exchanges. The reason Big Bank opposes exchanges is that,

Currently, the only way to trade many derivatives is to call up various dealers and ask for the price at which they are willing to buy or sell. The securities dealer profits from the difference between the prices at which it buys from one party and sells to another. Investors rarely, if ever, see details on the other side of the trade. Wall Street has signaled that it can live with a clearinghouse approach, but it is strongly opposed to exchange trading of derivatives, which would introduce price competition and lower the profits.

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But wait, it gets better. For those folks whose only connection with reality is the Adam Carolla podcast, here is an example of Big Bank’s service to customers and community.

The Securities and Exchange Commission filed a civil lawsuit against Goldman Sachs for securities fraud [last Friday]… charging the bank with creating and selling mortgage-backed securities that were intended to fail … Goldman let John Paulson, a prominent hedge fund manager, select mortgage bonds that … were most likely to lose value and … sold [those bonds] to investors … [which then] plunged in value …

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What’s been famously reported in the media is that Paulson made $1 billion on this scam (although he hasn’t been charged by the SEC along with Goldman). So, speaking of service to their community,

What’s not been noted is that as a hedge fund manager Paulson collects only (sic) 20% of the profits he generates for his investors, which means his investors made $5 billion dollars on that scam.

What’s not been noted is that as a hedge fund manager Paulson pays income tax on his fees as capital gains, not ordinary income like us ordinary folks. This saves him approximately $200 million in taxes on that $1 billion income.

What’s not been noted is that because these profits are capital gains to the investors also, neither Paulson nor his investors pay Medicare withholding of 1.45%, thus depriving Medicare of $102 million in payments.

What’s not been noted is that in many instances hedge fund profits are collected off-shore and so can be immune from any US taxes. We don’t know that this is the case with Paulson’s fund, but just mention it as a possibility.

Thank goodness we don’t depend on Big Bank for the Answer to the Ultimate Question of Life, the Universe, and Everything.

42.

My father’s name was Jack.

When I hear someone say “You don’t know Jack”, I think of him.

This coming Saturday, HBO will air a film starring Al Pacino titled, “You Don’t Know Jack”. But it’s not about my dad, it’s the story of Dr. Jack Kervorkian and the end-of-life debate.

Last week Anderson Cooper interviewed the real Dr. Death, as he’s famously called by the media. It’s a fascinating interview, and indeed I don’t know this Jack at all. There were also several clips of Pacino in what looks to be an amazing performance.

You Really Don't Know This Jack

Cooper, who’s already seen the film, said “No matter what side of the debate you are on, this film is worth watching.”

If I had a TV, this would be at the top of my list.

Al Pacino As Dr. Jack Kervorkian

In the meantime I’m waiting for the DVD.

You don’t need to wait.

I’m a fan of Skinny Cow products. Not only do they taste good, but their ‘spokes-cow‘ reminds me of the old Gateway computer boxes and appeals to my inner geek.

If you scan through their product line-up you’ll notice that they have a great variety of flavors. But even more importantly, they deliver them to you  in a myriad of ways. You can consume them from cups, sticks, cones and sandwiches. Pretty much whatever form you desire for your ice cream, it’s there to enjoy.

And, when they introduce a new flavor, they don’t hold back the cones and cups so they can get their full mark-up on sandwiches for a few extra months.

Interesting idea, isn’t it.

Giving customers access to your product in whatever form your customer desires.

Maybe they should start a book publishing business or a movie studio.

That would be tasty.

Now that speculation has begun on the cause of Saturday’s tragic plane crash in western Russia that killed Poland’s president Lech Kaczynski and many of the government’s leaders, it’s tempting to imagine that the pilots were pressured into landing against their better judgement.

Investigators examining the crash appeared to be focusing on why the pilot did not heed instructions from air traffic controllers to give up trying to land in bad weather in western Russia on Saturday morning. [And] whether the pilot had felt under pressure to land to make sure that the Polish delegation would not be late for a ceremony on Saturday in the Katyn forest, where more than 20,000 Polish officers and others were massacred by the Soviets during World War II.

… attention has been drawn to the pilot’s state of mind because of a previous incident involving the Polish president, Lech Kaczynski, who died along with numerous other senior Polish government and military officials in the crash. In August 2008, during Russia’s brief war with Georgia, Mr. Kaczynski got into a dispute with a pilot flying his plane to the Georgian capital, Tbilisi, according to reports at the time. Mr. Kaczynski demanded that the pilot land despite dangerous conditions, but the pilot disagreed and diverted to neighboring Azerbaijan.

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We all have a tendency to ‘simple’ answers, and it’s tempting to lay the blame on Lech Kaczynski and the pilot, even though we may never know the truth of the matter. Certainly many aircraft accidents are caused by the pilot’s frame of mind, where stress or the desire to achieve a certain goal clouds judgement.

Unlike the Butterfly Effect where a single event can lead to many different seemingly unrelated outcomes, aircraft accidents are invariably the result of multiple small mistakes that cascade into a final tragedy. And whereas the Butterfly Effect leaves us powerless in the face of random events, in this case any one of a number of small changes in the situation would probably have prevented the crash.

Like everything else in life, we try to learn and move on. So the next time I’m on a flight about to take off and in a hurry to get home, when the pilot comes on and says we have a mechanical problem, patience will be my middle name. I will also remember the victims of the Katyn Massacre, whose story I would not have known except for this tragedy.

Note: As a private pilot with an instrument rating, I do have a dog in this hunt when it comes to affixing blame before the facts are known.

As far as I’m concerned, all babies look like Winston Churchill.

"Never Was So Much Owed By So Many To So Few"

I’ve never thought of babies as contributing members of society. But now that’s changed.

Parents aren’t just raising adorable kids. They are also producing little human capital units that are likely to grow up, get jobs, pay taxes and raise little human capital units of their own.

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But wait, it gets better.

Turns out that the parents of the capital unit pay lower taxes compared to their childless peers because of the peculiarities of our tax system. However, this is more than made up for by the taxes paid by their kids (capital units) as they grow up and go to work.

So we “breeders” can hold our heads high, knowing we are contributing more to society than everyone else; while our kids are actually moving the freight.

Which, if you think about it, could be a bigger Ponzi Scheme than ObamaCare.

Who wants to tell the Conservatives?

[Note: if you want compare real leadership to "no you can't" statements, click here for Churchill.]

So here, free of charge, is my suggestion to lower the temperature of our political debates.

Replace the metaphor for our clash of ideas, which is currently WAR, with something else.

And since the Democrats and Republicans can’t yet agree on anything, I will offer up a custom metaphor for each side.

The Repubs will henceforth think of, and refer to the Dems as their Red-Headed Stepchild. And the Dems will begin to picture their Crazy Uncles when they think of the Repubs.

I think you’ll agree that these images surely elevate our current political debate.

Lowering The Political Temperature One Metaphor At A Time

The Republicans already think the Democrats are Socialists/Communists, so the Red color fits. And there is even an (admittedly remote) link to the Democratic’s Iconic Donkey if we replace it with a Rented Mule. Even better, the Repubs will love the image …

“Beating you like a red-headed stepchild” refers to a terrible beating. It is a variation of “beating you like a rented mule.”

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On the flip (sic) side, President Obama has already used the Crazy Uncle metaphor during the Presidential Campaign. Although he was referring to Rev. Jeremiah Wright, we know he was really thinking about the Republicans.

And when Mitch McConnell smiles, there is an uncanny resemblance to Steve Balmer.

Although Uncle Mitch hasn’t been smiling much these days.