Free the Animal

What I See

Recently, I began receiving this Financial Times newsletter in my email box. I was awestruck by the image, and I still am every time I see it.

The sorts of people I hate & loathe would look at that as a scar on the planet. Those whom I consider stuck in dead-end, primitive superstition and fairy tales downplay such potential as "merely" the work of man. For me, it represents the path to the very highest ideals achievable by man through molding and leveraging physical reality, capital, values, and relationships in the pursuit of his highest moral purpose: the advancement of his life, ultimately reflected back in happiness and genuine, long-term well being.

You want to go to heaven? Look right up there. It's actually achievable; not through repentance to and redemption from either mother nature or imagined gods, but rather through reason, capitalism, individualism, and the exchange of values to mutual benefit.

Voluntary Transparency

My company, Provanta, begins releasing it's weekly, monthly, quarterly, and yearly results for its clients.

Not often mentioned, but a hearty round of applause for the major credit card banks who recognized financial hardship, and voluntarily agreed to these settlement agreements in lieu of more forceful options at their disposal.

Later: Monthly results for April are now posted.

Provanta Corporation Blog

We've now been live for a couple of days and I'm blogging over there as well. Of course, it's industry specific, there's tons of regulatory land mines, I have responsibilities and commitments to others, and so the commentary and style will be substantially different than over here.

It is what it is.

Social Disintermediation

A number of good applications for the P2P or social lending model. I previously posted on this topic.

Good for TJ

T.J. Rodgers, a guy I've been a fan of since he pointed out what a stupid fool Sister Doris Gormley was back in 1996, takes 6:14 to explain the only moral means to "go green" and to "serve the greater good."

Watch it.

(link: Hit & Run)

A Work of Business Art

Warren Meyer points us to an amazingly well written business letter. I would encourage you to read the whole thing, though it's a bit lengthy and technical. I could understand not getting the kick out of it that I do. Then again, I've written a lot of letters in response to legal threats over the years, so this is "near & dear." At any rate, here's the three real money paragraphs, near the end.

I have seen Monster Cable take untenable IP positions in various different scenarios in the past, and am generally familiar with what seems to be Monster Cable's modus operandi in these matters.  I therefore think that it is important that, before closing, I make you aware of a few points.

After graduating from the University of Pennsylvania Law School in 1985, I spent nineteen years in litigation practice, with a focus upon federal litigation involving large damages and complex issues.  My first seven years were spent primarily on the defense side, where I developed an intense frustration with insurance carriers who would settle meritless claims for nuisance value when the better long-term view would have been to fight against vexatious litigation as a matter of principle.  In plaintiffs' practice, likewise, I was always a strong advocate of standing upon principle and taking cases all the way to judgment, even when substantial offers of settlement were on the table.  I am "uncompromising" in the most literal sense of the word.  If Monster Cable proceeds with litigation against me I will pursue the same merits-driven approach; I do not compromise with bullies and I would rather spend fifty thousand dollars on defense than give you a dollar of unmerited settlement funds.  As for signing a licensing agreement for intellectual property which I have not infringed: that will not happen, under any circumstances, whether it makes economic sense or not.

I say this because my observation has been that Monster Cable typically operates in a hit-and-run fashion.  Your client threatens litigation, expecting the victim to panic and plead for mercy; and what follows is a quickie negotiation session that ends with payment and a licensing agreement.  Your client then uses this collection of licensing agreements to convince others under similar threat to accede to its demands.  Let me be clear about this: there are only two ways for you to get anything out of me.  You will either need to (1) convince me that I have infringed, or (2) obtain a final judgment to that effect from a court of competent jurisdiction.  It may be that my inability to see the pragmatic value of settling frivolous claims is a deep character flaw, and I am sure a few of the insurance carriers for whom I have done work have seen it that way; but it is how I have done business for the last quarter-century and you are not going to change my mind.  If you sue me, the case will go to judgment, and I will hold the court's attention upon the merits of your claims--or, to speak more precisely, the absence of merit from your claims--from start to finish.  Not only am I unintimidated by litigation; I sometimes rather miss it.

I have two primary rules about how I treat legal issues in business:

1. Never, under any circumstances, permit a mediation, arbitration, or "loser pays attorney fees" clause in your contracts. The latter is the most important. No potential plaintiff litigant commences by thinking they are going to lose. Quite the opposite, and the prospect of having their substantial fees paid just adds fuel to the fire. Know how I learned this? By watching attorneys. The attorney fee provision is the first thing they check when you bring an issue to their attention. When both sides know they are going to bear substantial time and expense, win or lose, it tends to quell fires. And, thus...
2. When someone threatens me with litigation, I always and immediately call them out, along with the admonition that I will under no circumstances settle, ever.

Granted, most of the disputes I've ever dealt with would be in the five figures, sometimes six. When you get into the high sevens and eights, I'd imagine it doesn't much matter because even millions in legal fees might be only a small percentage of the total deal. That's where you get into territory my friend Chris calls "the true sport of kings."

Blogs Kill Traditional Web Design

I began getting a sense of this some time ago.

...Blog platforms can be customized beautifully these days with a fraction of the development time and cost because the entire backend of the site is already done. That’s a huge shift for the web design business because traditional shops (and I’ve worked for and with some) would have their own code set for building sites or they would start from scratch. Customers got charged like crazy for sites that would really be no big deal in this day and age. The worst part is not everyone knows this and some web shops are still selling their services like always.

This blog, though I could, isn't even customized directly in the CSS (cascading style sheet) but is rather just a stock template that I've customized within a limited range of parameters TypePad provides, such as colors, fonts, link styles, title styles, and so on. Basically, just like creating a fancy Word template that you then use over and over. So I have several different page designs which are saved as templates. The front page is one, the about page another, and then there's a generic page style for displaying posts past the first 10 or so here on the front page, and also categories and archives.

All the content, i.e., the posts, images, comments, etc., are all stored in a sort of a database and then that content is transfered into one of the templates in response to the link a person clicks on, and also links within the content itself to display things like images and whatnot.

My first company websites I built myself, the first in 1994, I believe. Hundreds of hours. Then, later, I hired professionals and all told, we've probably spent near a quarter million in the last 10 years through about four designs and re-designs total.

We still are sitting on a hand coded site. Here's another of ours. Any time we need to change anything is a major hassle, and expensive. So we do what lots of small businesses do. We let our websites kinda collect dust. Now, here's what's been in development for only a few days and will soon move to the root directory and be our new presence (it's being worked on now, so no telling what you'll see at any given moment). WordPress. At any rate, the company we hired to do this gave an initial budget of...drum roll...$1,000 (not a typo). Then they took our contact form that integrates with salesforce.com, made it into a widget we can drop anywhere, and are currently taking our debt calculator and making a widget of that too, all for another $1,000.

Of course, there will always be a demand for the complex websites that actually perform some service via the interface, but if the company website is principally to convey information with very little in the way of bells & whistles, then a blog-based site is ideal. Not only is it quick and inexpensive to put together, it's whole raison d'être is to provide a means for constantly changing and adding information, content, which also serves the purpose of keeping the company website fresh, relevant, and (hopefully) linked to.

Thanks to my friend Greg Swann of both Bloohoud Realty and Bloodhound Blog, who gave me some very valuable advice when I was considering my options.

Getting Used to China

Whatever you may think of it, the simple reality is that China is fast becoming the financial powerhouse of the world and they're partly responsible for saving our financial ass. Here's a 60 Minutes segment that gives quite an overview.

You can judge for yourself, but I instinctively like the guy. He seems pretty forthright and talks good sense.

"It's our policy not to control anything," Gao said.

"So you’ll put a lot of money in a foreign company, and not even get on the board?" Stahl asked.

"You’re right."

"Why?"

"Simply because we don’t want to go in and say, 'OK, I think you should change this person or I think you should change this product line,'" Gao said. "That’s not our business."

Investing is quite a different animal from management. Here's the standard Churchillian logic for the maintenance of peace between nations.

"What if our two governments had a serious dispute?" Stahl asked.

"Over Taiwan?" Gao asked.

"Yeah. Now could your government come in and say to you, 'pull your money out now?'"

"It could be. But I seriously doubt that will happen.

"It would hurt you, too," Stahl said.

"Definitely," Gao said. "It would hurt me. Hurt the company. Hurt China."

And finally, on the issue of transparency, he draws a perfectly valid and logical distinction between transparency and business suicide.

"Oh, we are. Yes, we are," Gao said. "We are going to do things, just the -- most of these -- what Americans will believe as good sovereign-wealth funds, like the Norwegian -- the Norwegian sovereign-wealth fund."

"You are?"

"Yeah."

"But you know this is a huge issue," Stahl said. "Are you going to be as open as the Norwegians?"

"First, simple answer is yes. But secondly--"

"But?"

"The -- yeah. Secondly, as far as commercially viable," Gao said. "Because with that much money on hand, if you tell people what you're going to do next, immediately -- you know, everybody you buy becomes very expensive. Everything you want to sell becomes very cheap."

He's going to have a tough time of it. Nothing sells like fear. China for sure has a lot of problems, and to large extent those problems are directly rooted in an utter disregard for the individual as anything other than a cog of the state or society. But as far as I can tell there's only one long-term way to get that to change and that's through some degree of freedom in markets and capital investment, which is the way they appear to be moving full steam ahead.

Enlightenment, individualism, capitalism, free markets...these things always were and always will be the seeds of the destruction of the state. I often wonder if Chinese communist authorities figure that they've already sown the seeds of their eventual downfall as an authoritarian state, but realize it's the only way, long term, and so they're simply managing the process carefully. Something's gotta give, somewhere, eventually, and they may already be in too deep to go back even if they wanted.

Singing My Tune

Warren Meyer, with the audacity to try and run a business and produce something for himself, family, employees, customers.

None of these guys have the first clue what it takes to run a business day to day, nor how much of a business owner's time and effort is aimed not at service customers better, and not at being more productive, and not at making employees happier or better trained, but at responding to the latest mass of government regulation, paperwork, licensing, taxes, and other total crap.

If you haven't dealt with it first hand, with all of it coming out of your money, time, profits, you just have no idea.

And here's another thing Warren doesn't mention, but it's the truth. Do you know how much of this regulatory crap gets through and gets enforced? Big business and associations of many smaller ones. That's right. All this stuff equals barriers to entry and friction working against success. Large scale companies can pretty efficiently deal with a lot of crap, so they support it.

Just the other week I found out about a change in some building permit requirements that's going to cost $40,000 more than budgeted on a project and the girl at the counter who delivered the news did so as if it's just like "oh, yea, $40K more? No prob."

Some days I wonder why I even bother.

Bummer

It's life, I suppose. No guarantees.

After filing for Chapter 11 on April 2, 2008 in the U.S. Bankruptcy Court in Indianapolis, IN, ATA Airlines has discontinued all operations and cancelled (sic) all current and future flights. Following the loss of a key contract for our military charter business, it became impossible for ATA to continue operations. Unfortunately, we were not in a position to provide our customers or others with advance notice.

My brother-in-law, his wife and two kids -- who coincidentally just spent the weekend with us up in Arnold -- were literally headed out the door to catch an ATA flight to Maui from Oakland when Rob decided to check his email.

Man, that's gotta hurt; and the potential lost money is the least of it to my mind.

ATA currently is unable to provide refunds to customers who purchased tickets directly from ATA with cash or a check. These customers may be able to obtain a full or partial refund for their unused tickets by submitting a claim in ATA’s Chapter 11 proceedings.

Yea, good luck with that; and even if it ever materializes, it'll take well more than a year. Hopefully those who paid with a credit card will be able to initiate a chargeback. Because of my line of work I've had a lot of experience with companies going BK whilst owing me money. I have only one single time every recovered anything from a Ch 11 or Ch 7 claim. As I recall, it was like 15 cents on the dollar, paid out over several years. And they never did complete the payments.

Economics 0.00000000000000000001

The USGS did an initial study back in 1999 that estimated 400 billion recoverable barrels were present but with prices bottoming out at $10 a barrel back then the report was dismissed because of the higher cost of horizontal drilling techniques that would be needed, estimated at $20-$40 a barrel.

It was not until 2007, when EOG Resources of Texas started a frenzy when they drilled a single well in Parshal N.D. that is expected to yield 700,000 barrels of oil that real excitement and money started to flow in North Dakota. Marathon Oil is investing $1.5 billion and drilling 300 new wells in what is expected to be one of the greatest booms in Oil discovery since Oil was discovered in Saudi Arabia in 1938. [...]

...could cut the cost of oil in half in the long run.

Radley found that. His commenters came up with more links to other sources if you want to "drill down," ha ha.

Whereas, I have been an April Fool a day early

And now I'm going to be a poor sport about it

So some days I feel a little less than elite. Here's why. If you track me via RSS then you likely have a post in there from this morning called "Outsourcing Blogging" that no longer has a post here associated with it. That's because I deleted it. It was a short post calling attention to Tim Ferriss' (The 4-Hour Workweek) announcement that he had outsourced his blogging over the last year. I'm only part way through his book and have only hit & missed his blog over a month or so; so I'm less than familiar with its content over the last year. Of course, in keeping with a good April Fool's project, it's plausible. I'll go further: as such things go, it was very well done. I'm still going to be a poor sport.

In addition to blogging it, I sent an email to one person I do business with and then another email to two people at my own company, because as it turns out, we outsource article writing; here too. We're also in the final stages of transforming our company website into a WordPress blog (more on that later) and will need some writing assistance there, too.

Within only a few minutes of sending those emails and publishing my post, he put up an update to the original, along with a new entry. I left a poor sport comment.

Interesting marketing strategy. Make fools of your customers (my copy of your book is in my Sony eReader, my wife’s in hardback).

In full disclosure, yea, I was fooled. Even blogged about Tim’s creativity and tossed a link this way, so now all my blog readers know what a fool I am too. Luckily I was able to delete within minutes, but that’s too late for the RSS feed.

Thanks, Tim. Thanks a million.

Do you get it? Let me illustrate. There are perhaps a dozen people in my life I can tell to fuck off, and the way in which I do it will let them know whether I'm joking, irritated but-what-the-hell, or they better leave me the fuck alone for a good long while.

There's far more people whom I wouldn't say that to unless I seriously wanted them to be gone from me forever. I'd never say it to a customer unless I explicitly didn't want that business ever again, and even then I'd be taking a big risk treating a customer that way. It's unprofessional. It can snowball.

I think Tim Ferriss somewhat misunderstands his business role which he has purposely melanged with his personal life -- which is fine but must be understood as such. Maybe I'm wrong, but I don't think so. I'm not prepared to fire him, yet. I'll at least finish his book and checking the blog. Question to Kyle: is that loyalty or forbearance?

Later: After reviewing the comments and if you think it was a decent turn of the tables, vote it up on Seth Godin's April Fools 2008 Squidoo.

Note to GMAC Mortgage: Go To Hell

So in conjunction with digitizing all my "Earth Class Mail," I've been going around and registering with all of my vendors that have online capability, as more and more companies are providing the ability to view monthly statements online. This will reduce the amount of physical mail I get, and in many cases I can pay the bill online with a stored debit card, and it's just a few clicks. Otherwise, I pay via my own online banking (I've used online bill pay since 1992 or '93).

I've got two loans that were purchased by GMAC Mortgage. At some point last year I registered on their site with my standard username I use everywhere. Apparently, due to lack of continued use it was placed in an inactive status. So, naturally, once I want use their online features again, I have them reactivate the account. Oh, no. Can't do that. You must re-register anew. And guess what other "service" they provide? You get to have an all new username; that is, you must choose a new username.

So I wrote them, and of course the first response I get back is that I have to pick a new username because the one I want is already taken by someone else. I had to write back requesting that they forward my ticket to someone with the time, ability, and inclination to actually read my ticket and understand the issue. Here's what I get in round two:

Dear Customer,

Please accept our apology for the delay in our response.

In response to your inquiry, you must choose a different username to use online.  The username ****** has been used by yourself once.  A username is not able to be used more than one time on our system, by the same user or another customer.  We are unable to move this username to active status for you.

For your protection, we have removed your name, account number, address and phone number from your original inquiry.  If you have any further questions, please contact us through our Web site at...

My response:

That's stupid, since it's my username in the first place; so I'm not interested in your online services. Just continue to mail my two statements every month. I would be interested in receiving my statements via your web interface, as well as making payment online, but only with my commonly used username of ****** that I use virtually everywhere.

And here's another thing: don't tell me you're "unable." That's bullshit. It's an outright lie. You simply won't do it for a customer, so you can all go to hell, as far as I'm concerned.

And here's another another thing: Note to GMAC Mortgage: Go To Hell.

Richard Nikoley

Liquidity

Ahw, what the hell; twice already, today, so why not make it thrice?

I have this all figured out. A "liquidity crisis" like this is what happens when motherfuckers don't pay their bills. Other motherfuckers run out of money that they would have had, otherwise.

Good. Now the parental filters can work overtime.

...Anyway, it certainly sounds distilled and to the essence, but I think it's actually worse (i.e., more alarming) than that. Any sound business should have no problem at all with some measure of defaulted obligations (under 5% ought to be a cake walk).

In the old days, a "liquidity crisis" meant that as a business, you have too many assets in a form not easy or quick to get to ("liquidate") like capital plant & equipment, versus more liquid assets like cash (king), short-term receivables, securities, and perhaps even an operating line of credit.

Today, "liquidity crisis" means that virtually everything including the kitchen sink is mortgaged, and even still, it isn't enough.

Bear Stearns

I haven't even seen what may be the take around the various blogs this morning, but here's the chart over the last year. It traded up around $157 nearly a year ago, and upwards of $170 at its all time high just over a year ago. As of the print on this chart: $3.81; and it's being sold to JP Morgan for $2, 1.2% of its all-time high value as judged by its owners holding its securities

That little orphan candle, coming down, as it were, to kiss the volume spike on its way up over the last couple of trading sessions, is today's action. It opened on a gap from around $30 per share to just over $3 per share, a 90% loss in value in an instant, and that, off of a loss of 80% of the value over the last year. Yep: that's a collapse and it's a very good illustration of why it's never a good idea to have all one's eggs in one basket.

My take? Beautiful. Yea, I know a lot of people have lost a lot of money and I take no pleasure in that, but this simply isn't child's play and this is precisely what ought to happen. What you see, above, is that in spite of all the state's wrangling in the economy and with the money supply, you simply can't force investors and traders to hold securities they've lost confidence in. You can bring out the smoke & mirrors, but the very thinest pretense of the concept "free market" that gets tossed around is that a seller is generally not prohibited from selling. And so, in spite of all the talk of the "government stepping in on Friday," well, see for yourself.

Now, the only question remaining is why people think that government regulation and stimulus is going to save their asses when investors aren't willing to hold. And anyway, what was the implicit purpose in the government's "stepping in?" Was it not, at the most fundamental level, to give investors confidence so they'd hold and not flood the market with sell orders? So, in reality, the government is impotent. It can only steal from some people and give it to others in hopes everyone holds pat long enough for the ripples to die down. Well, it didn't work here, and BSC got what was coming to it.

Of course, how it got to here in the first place is an altogether different discussion, but in the end, the same thing. It got to here because, fundamentally, it thought it could escape the just consequences of bad financial decisions, and it thought that because of the continual meddling of the State in the first place.

Now you'll get to enjoy the spectacle the the State coming in to save the day by conducting complete investigations, issuing indictments, a white-collar perp walk or two, a prosecution or two and potentially some jail time -- and all to mask to very true and real nature of what the problem is and what is at the root of it.

"Above the Fruited Plain..."

Amerika, Amerika...

All went well until early July. That’s when the two landowners discovered that there was a problem with the local office of the Farm Service Administration, the Agriculture Department branch that runs the commodity farm program, and it was going to be expensive to fix.

The commodity farm program effectively forbids farmers who usually grow corn or the other four federally subsidized commodity crops (soybeans, rice, wheat and cotton) from trying fruit and vegetables. Because my watermelons and tomatoes had been planted on “corn base” acres, the Farm Service said, my landlords were out of compliance with the commodity program.

I’ve discovered that typically, a farmer who grows the forbidden fruits and vegetables on corn acreage not only has to give up his subsidy for the year on that acreage, he is also penalized the market value of the illicit crop, and runs the risk that those acres will be permanently ineligible for any subsidies in the future. (The penalties apply only to fruits and vegetables — if the farmer decides to grow another commodity crop, or even nothing at all, there’s no problem.)

Honestly? I feel like slapping the face of the very next person I ever hear singing that song. Other than that, at least I've got the Technorati Tag spot on, below.

Fools. But don't worry...I hear there's an election coming up any time now.

Later: Oh, Jeesus, there's even more. Ha; I can't help but laugh at you ethanol fools and those of you who fall for it. Fools.

(via Regina Wilshire)

Recession?

Bush says no. So what? He's no better at predicting the future than anyone else. There is a formal definition of the thing: two consecutive quarters of negative economic growth. We haven't yet posted a negative quarter.

Now, setting aside all the shenanigans that comprise the broad makeup of our rather fascistic economy, by which I mean lip-service is given to the concept of "private" property but the State overseas and regulates virtually everything, do you know of many relationships amongst complex inputs and feedbacks that goes in one direction forever?

If you try to loose weight, do you expect  every step on the scale to be less than before? If you're building a business, do you expect any setbacks? Ever found you needed to change your approach in your personal finances because of problems, unforeseen difficulties, mistakes?

Recessions, whether caused by the State's meddling in economics and markets, normal feedbacks from markets needed to adjust themselves to various factors including new technology, or simply self-fulfilling prophesy, it seems to me that what would be strange and dangerous is not to experience economic recession. We're probably in for one, if I had to guess. The Democrats need it to ensure the election, and really all that's needed is for people to believe they're minutes away from standing in the soup line and that'll probably be enough to set one in motion. Of course, whether we're in really in for one or not, or even whether the economic conditions are bad for most people or not is entirely beside the point. There's no honesty anywhere in the election process, or in the voters themselves. It's an exercise in tribal ritual where everyone is on the warpath for the most plausible lies to believe and tell others, so as to most effectively promote their tribe and its leaders. It's how facts get "utilized."

I suppose it's "evolutionary" in a sense, in that it's just as primitive as ever on principled grounds; only the trappings, glitter, and sophistication have changed.

Housing Recession?

Well, perhaps. Though it's not apparent here, in downtown San Jose, California. These are the three high-rise condos currently under construction, all about a 10-15 minute walk from where I sit.

The 88
Axis San Jose
360 Residences

And City Heights was recently completed and units are for sale. Don't know how well that's going, but it's clear the building is becoming occupied. As for location, The 88 is prime, being as it is right on the corner of 2nd and San Fernando. You've got a couple of dozen good places to eat, shop, and entertain within no more than five minutes walk in several directions. For coolness factor, it's got to go to Axis. That is one cool looking building.

Car Markets

The lease on my BMW X5 runs out in a few months and so I've been thinking about what's next. I really love the X5; the quality is superb -- one needn't even rotate tires; no discernible adverse wear -- and the engineering, while seemingly simple, is quite masterful. I need something that can tow one of the pop-up trailers, but on the heavy end (like 3,000 pounds). Large V6s or small V8s just aren't going to do it very well, even though my Beemer has a small V8 (4.3L). That's different. It has huge horsepower. I used to have a vehicle with the Chrysler "high output" 4.7 V8 and it was a complete dog towing a pop-up  trailer of half the weight. The X5 tows this much heavier trailer as though there's nothing back there.

I've owned a number of Jeeps and have always liked 'em OK, so I'm thinking about the new Grand Cherokee with the 3.0L turbo diesel. I still have profoundly fond memories of that Mercedes turbo diesel I drove for 6,000 kilometers in Europe. It was superb, and that's a Mercedes diesel in that Jeep. It would cost less new than purchasing my 2006 X5 (35,000 miles) at the end of lease. Plus, there's another thing. The X5, for all its virtue, simply isn't an SUV from my point of view. It's got large rims and low profile tires, designed for handling and high speed; it's just not the sort of car you put good hefty all-season tires on of the sort I've always run on my SUVs and which uniformly keeps me running very well in snow or mud without chaining up. As it is, the X5 tires are 100% street and I've had to chain up a few times now. Four wheel drive is still no wheel drive or stop when you don't have effective traction at the surface layer.

Of course, I can't buy one here in California, this being "The Land of the Free" 'n all. So I'll have to jump through hoops in order to let California fuck off, like everyone should. I'll just go buy it in Reno, register it at my aunt's address, and then register it in CA once it has enough miles that it's allowed in by the authorities.

Panic

I haven't done a market post in a while, and that's mostly because though I'm watching just about every day, I'm not longer actively trading. Now, I'm simply looking for buying opportunities to cost average capital into the markets. Of course, the current problem is that picking a bottom is really impossible, which is a good reason to cost-average in chunks of capital each time you care to guess that the bottom has arrived. A general rule of thumb, not to mention a sound business perspective is to buy into weakness and sell into strength. Of course, that's for a bull market and it would be opposite for a bear market. So what is this?

Pretty damn bearish, right? For the last 3 1/2 months, it sure is. But now let's take a look from the perspective of the 2003 low, where each bar represents a week rather than a day.

To be sure, the action over the last few months has been the largest downside action since this bull started in '03. It could just keep right on going. On the other hand, it's very unusual to go more than about 4 years in a bull market without a 20% correction, and though almost there, we're not quite there. It even has a name: 4-Yr Cycle Low. But, of course, the market is going to do what it wants, and it doesn't care about anyone. Now let's look 10 years back, each candle being a month.

Notice anything familiar? Check out that 20% correction in '98, right on schedule for such a cycle low. I wasn't in the market at the time, but I sure remember all the panic; "the bull is over, get out now," and so on. Lots of people did. I got into the market, long, near the end of '98, and I moved to bond funds within a couple of weeks of the new millennium. I averaged 16% yearly returns during the '00 - '03 bear.

I think Carl's probably just about right about this. And the VIX has finally seemed to register the level of panic one would expect to see at or near the bottom. But don't expect fireworks, or anything. If indeed this is near the end of the decline, it'll likely take a month or so to hammer out a decent floor of support.

"Chinese Gold Standard?"

It's an interesting thought, with some interesting aspects that add up to a certain logic about it.

Asia could well be the vanguard for a new gold standard because of internal dynamics. China is exemplary in this regard in that Chinese citizens regularly save as much as 40% of their personal income. This is in large part due to the lack of a safety net in China. There is no Social Security, no guaranteed medical care, no pension benefits and so on. Many of China's less-connected citizens seem as likely to bury their wealth in a shoebox as put it in a bank. This mindset strongly favors a physical, storable asset, like gold.

Bring it on. You can already buy gold, either physically or various financial instruments and funds. It would be a pretty simple matter to create a currency, units of which could be stored in an account. You could even then have a debit-card tied to the account, cleared through Visa or whomever, and then use it for purchases, the exchange to whichever currency you made your purchase in being effected at clearing. The result is that your monetary assets remain in gold up until a microsecond before you need to spend it on something else.

Of course, I can think of about ten reasons, all backed by state guns, fists, flowing robes & jails, how it'll never come to pass, or you'll be barred from participating, but that just serves to highlight the problem with a fiat monopoly currency.

(via Rockwell)

Selection Bias. Cause & Effect

I came across a post on the Propser blog, which blogs the new peer-to-peer lending industry that I have some involvement in; but can't talk about, yet. Anyway, the poster linked to this post at "freemoneyfinance" and here's my comment among the many others:

This is a pretty classic example of selection bias. You pay attention and talk to the successful people who happen to tithe. Those who live in trailer parks and blow everything on the local evangelist or television kind, or old laddies who blow theirs and their late husband's life savings are generally outside your sphere of attention.

100,000 people go to a self improvement seminar. There, they are shown slides and told stories of people who took big risks and came out on top. The message: to be successful, you're going to have to take risks. 10,000 take the message to heart, they mortgage the house, invest in a business, and 9,995 loose it all. At the next self improvement seminar, the five who made it big have their pictures up, and their stories are told. Selection bias.

It's also a reversal of cause & effect. People tithe because the vast majority of those who do can afford to do it. They don't have money because they tithe.

Occam's razor, anyone? (Wikipedia has a good entry on that, if you're not sure what it means.)

I just love doing that. Many people are ignorant about this stuff, but the "praise the lord" Christians seem to walk around with huge targets on their foreheads. And, I just hate to see others taken in by such outright fraud, ignorant as they may be. If you want to give to a church or an abortion clinic, be my guest. But don't fall for the bullshit that a made-for-adults Santa Claus may rain down gifts upon you.

Don't be fucking stupid.

"Smart" Money "Logic"

Now hear this. The income tax is a blessing.

The more money you make, the more income tax you are required to pay. A blessing?  Yes, in a round-about way. If you had to pay more income tax last year, it means you also earned more in spendable income.

All together, now, kids: parable of the broken window (broken window fallacy). Ce qu'on voit et ce qu'on ne voit pas. Setting aside the moral principle that all taxation is always theft (though legitimized through law, like slavery used to be), she is taking account of ce qu'elle viot, but not of ce qu'elle ne voit pas. She's looking only at the increase in funds not stolen, not the increase in funds stolen, or what you or any individual might have been able to do with them. The dollars you earn ultimately represent your time, either time you spend at labor, thinking, producing, or future time at leisure. This is gone from you for good, and it's being spent or squandered by some other individual or several individuals other than you. Take account of that. Your tax money is not being spent by "the government" or "society." It is being spent by one or more individuals, and they are spending your money on their values instead of yours.

Far from being a blessing; it's a curse.

The Fed

Rockwell alerts to the fact that currently, the Mises Institute documentary on the Fed is at number seven on a Google search for Federal Reserve. Essential viewing, even if, like me, you find nothing principally wrong with a credit-backed currency, such as we have. It's the state fiat, monopoly element of it that's the problem, not the fundamental nature of it.

The Best National Defense

There has never been a doubt in my mind that the best national defense is to make sure that everyone else -- friends and potential enemies -- have an important financial stake in your stability, success, and prosperity.

When I learned of that purchase of a 5% stake in Citigroup for $7.5 billion the other day, I didn't for a second buy the rhetoric that it was a "bailout." Yea, Citi can use the cash, but it would have squeaked by anyway. If Citi was in no-shit trouble, shares would be trading under $5 and not in the 30s. Make no mistake: this was a fabulous investment and this chart has "buy; it's on sale" written all over it.

Anything can happen, but I gotta call this a smart move with a very attractive risk/return profile. They're going to get 11% on the money, dividends, and should the stock make it back to the $55 level, a near doubling of their capital.

Am I concerned with middle easterners of the Islamic faith owning huge stakes in American companies? Quite the contrary. I think it's no mystery that Great Britan, since the American Revolution, has been America's closest supporter. They own more of America (more than 25% of all foreign investment) than any other country. I believe the Dutch and Japan come in next, and Europe combined is at around 60% of all. Asia is right up there, China will be huge, and the middle east is stepping it up. It's good for business and it's good for peace.

I am purposely making no distinction between "private capital" and "sovereign wealth funds." At that level of capital, controlled by people with global political connections and influence, there's just no important distinction to make. If there was any such thing as "private capital," I'd be happy to make a distinction.

Yowzer

Major indexes all up big; volatility indexes all down big. This is the first time we've seen two consecutive up days in a row on the S&P 500 since Oct 22 and 23. Yesterday was a gain of about 20 points, and today double that at 40 points, for a total of 60 points and a gain of 4.3% in two days. So if Monday's closing at 1407 holds -- almost exactly 10% off the 1565 closing high of 10/08; but possibly too "pat" -- I'd still expect to see the 1440-1450 range revisited, at a minimum, before resuming the march to new highs.

People say that markets take the stairs up and the elevator (or window) down, but I can tell you also that the pace at which a market can "melt up" can be surprising, always counterintuitive, puzzling, frustrating. It's really the hardest thing to trade, short term; because you just can never fully believe in it. Whereas, it's easy to believe in a meltdown.

If I was going to take the bear side, now, which I'm not, it would be a good time to short (sell into strength, buy on weakness), but with a tight stop. It will be very good for retail business, particularly in the face of a melting R/E market, if The Street can put in a reasonably profitable year of at least 8%, which means 1530 on the S&P by the time Santa comes along. That's another 60 points to go and it will be challenging enough holding onto the 60 already gained in the last two days.

Update: Here's what Carl has to say, and this after thinking he could get in long at about 1390 sometime this week. This is part of what makes Carl Futia worth listening to. He's honest. The second he sees he's wrong, he dumps his plan; and he never bothers making excuses.

The Irony

Karen DeCoster beats me to something I had on my list. Yea, Warren Buffett is worried that not stealing a major portion of a person's estate from their chosen heirs (often forcing them to liquidate cherished or income-producing assets in order to pay taxes) might result in a plutocracy; you know, like you might have one of the top rich people in the country fly in from Omaha, or something, and try to use his wealth status to influence public policy that he himself is largely immune from, but which adversely effects large swaths of people of lesser wealth.

Something like that.

ProShares

Ever heard of them? By now, most people understand how mutual funds work. How about ETFs, or exchange traded funds? ETFs differ from mutual funds in that they can be traded throughout the day, and at least most of them are are index tracking, which is to say that shares of the underlying index (like the DOW, NASDAQ, S&P 500, etc.) are automatically traded in proportional lots to those buying and selling the fund itself, and so it matches the real-time action going on in the market for those same securities. There's no load, as with some mutual funds, and expenses are nil. Some of them have options contracts associated with them, such as SPY. Seeing that very few mutual funds (I think none) beat the S&P 500 over a 10-year span, a good buy & hold strategy is just to open an account and buy Spiders (SPY) regularly, and maybe even the Qs (QQQQ). Your performance will exactly match the S&P 500 or the NASDAQ 100, respectively. Now that tech stocks are showing signs of greater strength than the market at large, it might be a good idea to have some percentage in the Qs.

Monetary Policy

This is a very compelling video mashup of Ron Paul and monetary policy, including lots of clips from CNBC and elsewhere. My guess is you'll probably find it worth the 10 minutes of your time it'll take.

While I don't share Paul's view of coming doom to the extent he does, you can't evade reality forever. And, he's right about one thing: the core problem is not money creation through credit (in and of itself). The core problem is the spending (enabled, of course, by the credit, so it's true there's a big link). In the simplest terms I can think of, imagine the argument as to whether you ought to use credit cards, or not. Well, they enable you to live beyond your means, so in that sense, it's not responsible use in keeping with the reality of things. On the other hand, millions of small businesses have been created by entrepreneurs who had no source of capital other than credit cards. Yep, lots of 'em go bust, and my company has helped a lot of them get the mess cleaned up afterwards. My point is that credit, like many things, can be a fabulous resource when used properly.

That said, given the nature of the existing state and practical politics, it may very well be that the only way to manage the federal budget responsibly is to tie it to gold (or some precious commodity), because you sure aren't going to get politicians to stop spending whatever they can.

I'm also sympathetic to the argument that regardless of global free markets -- where it is actually quite possible to profit handsomely from the dollar's decline if you're willing to spend the time and have some tolerance for risk and volatility -- people have a reasonable expectation that their currency not be devalued through actions of a force-backed state (to be distinguished from assets losing value due to voluntary market action).

In the end, Paul is advocating a reasonable approach to unwinding this thing. Just have competing currencies, like gold and silver coin and notes. See how it goes.

Equity Risk

Now article by Fortune's Shawn Tully is by far the most sensible article I've read in some time arguing that markets could come down substantially more from the 10% correction already in the works. I doubt it'll play out that way, because in my experience markets only do "the right thing" long term. In terms of months, and even a few years, they'll do any damn thing they want, no matter how little sense it makes.

Still, it makes a lot more sense to me than any of the scare stories (subprime, dollar, oil, etc.). Ultimately, smart money sells off assets that under-perform as a function of the risk inherent in holding them. Money moves to other assets with acceptable risk/return. It's simple, and fundamental.

Predicting the Future

I'll be dammed, but Jay Jardine found a sure way to do just that. He's Canadian, but I think Americans can do just as well.

Eh, how about predictable? Seriously, how old do you think the person who wrote that is? I figure if they're old enough to use a thesaurus, they ought to be old enough to get over their belief in Santa Claus, the tooth fairy or other fantastic wish-fulfillment vehicles like the enchanted poverty relieving spigot of the federal treasury, but maybe not.

Eh, how about surely not?

He's speaking of Canada's federal government pledging (with other people's money) to eliminate child poverty by the year 2000. Yep, you guessed predicted it. It's still the same. See, you too can predict the future too.

Think Globally

I can't think of anyone not being pretty shocked, or at least amazed -- do I hear surprised? -- to take a close look and study of the chart and table to be found here. But wait! Before you do, can you guess the top three stock markets in 2007 in terms of percentage gain?

(It's nice to see The People's Paradise of Venezuela 2nd to dead last in the entire world.)

Recession?

First one must understand that "recession" is a contrived economic term with a technical definition: negative GDP or real growth over two or more successive quarters. You're likely to have a hard time seeing that pointed out in any of the quotidian "news" you're exposed to. On the other hand, nobody needs an economic definition to feel or experience being financially squeezed. On the other other hand, if you're feeling squeezed, is it really because of overriding macro economic conditions out of your control (which could signal a general and widespread phenomena), or simply the consequences of your own choices that may not apply to enough people to spark off such a widespread condition?

Carl Futia could be wrong, just like anyone else. And I've seen him be wrong a number of times -- though it's usually in the very short term, which, let's face it, is a crap shoot. But he's almost never wrong in longer time frames (except for the dollar -- he's still waiting for the bottom which he thought was about a year ago), even in the face of almost everyone else calling for disaster.

This, of course, demands a real level of honesty that humans are ordinarily not up to. We were evolutionarily designed, over millions of years, to be quick to freak out and run for the hills. It served our primitive ancestors well on the African plains (what was the cost of being wrong?), and those successful genes exist at the very foundation of our being. We're fearful beings, at heart, and that's probably why we exist at al. The pertinent question that interests me, today, in a sophisticated and complex world -- of our own making -- is how many clever people have figured out -- in a multitude of ways from politics to religion to business to activism -- to profit, to earn a prosperous and rich lifestyle off the natural -- but ultimately unwarranted in 20/20 hindsight -- fears of Mr. Joe Average?

Let me make a distinction: there is no contradiction in believing or assessing that the markets should go down and that we should experience a severe and deep economic recession -- as a result of a way-too-lose money supply, while at the same time baking confidently that in spite of it, things are headed to new highs and you might as well ride it.

That's my unhedged bet.

Watch the Close

It's chic to check overnight markets, futures, currency, and so on in order to get a bead on how markets will open. Yea, I've done it myself. Still do, sometimes. But that's typically to sniff out something really major. It's seductive, because you can predict how the market will open with pretty solid accuracy by looking at the futures. But the first hour of trading is regarded by most traders as "amateur hour."

Someone said on CNBC this morning that a pro doesn't watch the open, he watches the close. Yep, I can attest that I get a far better read on things by looking at the close.

Today was an example of something to pay attention to if you're looking for signs of a short-term reversal such as the end of this recent correction. First, you've got a huge up day. Second, it began up, drove up hard, took a breather for lunch in NY, and recommenced for the remainder of the day, actually accelerating into the close. Very opposite of Friday where the market posted good gains but couldn't hold them. Traders didn't want to stay long over the weekend (opening gaps down can be brutal in declining markets).

Here's today in the S&P 500, up 41.87 for 2.91%. That line segment you see is part of a trend line going back to the beginning of this Bull in 2003, drawn on a weekly close basis. Always amazes me how these various drawings affect traders and become self-fulfilling prophesies so often.

Mitigation

In spite of the general bleeding and beating I've been taking in the markets (on the indexes), here's a few mitigating single equity trades that worked out. These are part of a group of 25 short-term option trades, highly leveraged (out of the money options at purchase) and super high risk. The idea is that most will expire worthless, but a few will be very big winners, i.e., hundreds of percent gains with the idea that overall one might make 10-30 percent on risk over the space of a month. Expiration is next week, so beginning yesterday, I began looking to close out profitable ones that looked like they might be getting ready to reverse.

Being as highly risky as they are, we're talking a fraction of one percent of total account value in each one. There were 22 call options, 3 put options, all November expiration.

Charts & commentary below the fold. Click on the charts for bigger.

The World is Changing

The world's 20 largest companies.

Closing Bell YouTubing

We're still touch & go, but a 2.5% gain (S&P 500) on the week is pretty conventional after a week like the last. If there's a positive note in it it, it's gotta be today. We started strong, retraced only about half of it, and from about 12 Eastern to close there was barely a bump in the road up; and on a Friday too, at a time when "fear of holding over the weekend" is quite common.

So the question is: is this the end of the mini-correction, or just the top of the 'B' wave in a larger one? Hell if I know, but my gut is with the former. I think we're likely to revisit some lower prices next week, but if so my guess is we'll make a higher low than last week. I expect -- or speculate, rather -- that we might see the annual "Santa Clause Rally" kicking up any day now (if it hasn't begun already). If the Fed cuts another 25 basis points at next week's FOMC meeting, look out above. I'm looking for S&P 500 in the 1630-1650 range by Xmas.

Or, we could just sing the blues.

Closing Bell Carnage

Well that didn't work out. At that point we'd shed about 45 points off the high of the S&P 500, and now we're 30 points more off that. That's just shy of