Believe me, I was as shocked as you probably are to discover this. And I'd like to thank John McCain and Sarah Palin for finally pointing this out to me. I always thought he was a conservative-minded, supply-side, free-market idealist but apparently I was mistaken.
I stumbled upon this startling realization by listening to the recent attacks McCain and Palin have levied against Obama's tax plan. His plan calls for raising taxes on the highest bracket (currently at 35%) back to the levels they were at under Clinton (39.6%). McCain and Palin have been quick to decry this as "socialism" and "spreading the wealth around." Obviously it goes without saying that during the Clinton years we were all living under a socialist regime. Fair enough. However, while researching here I was shocked *shocked* to discover that under Reagan (from 82-86) not only did the highest tax bracket have a far higher tax rate (50%), but there were actually 3 brackets that all had higher tax rates than Obama's proposal (44%, 49%, and 50%). And while we're at it we can't let perhaps the biggest socialist of all time, Richard Nixon, off the hook either. Under his tax plans, there were a whopping 14 brackets with higher rates (ranging from 42% to 70%) than under Obama's plan.
OK, so obviously the tongue is planted firmly in cheek here, but I think it illustrates the ridiculousness of this "socialism" accusation. Ever since we have had an income tax (1913) we have had a progressive tax system. By definition, a progressive tax system is a redistribution of wealth mechanism. If you believe that redistribution of wealth is a socialist idea, then it's all socialist and we have in fact been a socialist country for the last 95 years. Personally, I think that's a pretty narrow view to take on it. At it's core, socialism is about collective ownership at the expense of individual property rights and government setting the market price for goods and services. Tax policy has absolutely no effect on the former and only a minor, indirect effect on the latter.
In any case, I have absolutely no beef with someone who supports a flat tax levying the claim of "socialism" at our tax code. What I have a real problem with is the hypocrisy of someone who still supports a progressive tax code (as McCain does) calling another progressive tax code "socialist". If he wants to say "my plan is socialist, but his is more socialist" I could accept that too.
As you might be able to tell, with it being 5 days before the election my hackles are a bit up. It really saddens me that this campaign featured two of the most honest and respectable candidates in our recent history and we still had a campaign that was this nasty. While the Democrats are certainly not blameless, it is mainly the Republicans' fault (but don't take my word for it). Fortunately, while it's never over till it's over, it looks to be shaping up to not be particularly close. Every day more and more Republican insiders are coming out with negative feelings on Palin and her actions, and Republican Congressional candidates are starting to throw McCain under the bus by running ads playing up the angle that you don't want Democrats to control both houses of Congress as well as the Presidency. My sincerest hope is that the Republicans get the thorough ass kicking they deserve on Tuesday so that they are forced to reinvent themselves, throw out the right-wing extremists, and get back to their Reagan-esque roots. When that happens, I will be proud to once again pick up the Republican banner and wave it. Until that day though, I hope they never win another election.
Friday, October 31, 2008
Tuesday, October 21, 2008
Is This Thing On?
Update (10/22): Winner! In an unannounced and unexpected move, Kevin Smith WAS at the screening last night, and stuck around for over an hour after the movie to do a Q&A with the audience. We really lucked out because we were a little late in getting to the theatre and ended up getting seats near the front. While that wasn't ideal for the movie, it meant that we were about 10 feet from Kevin the entire time he was there. If you've seen any of his "An Evening With Kevin Smith" dvds it was exactly like that. I'm not sure if he'd take it as a compliment or an insult, but I think I laugh harder just hearing him talk for an hour than I do watching any of his movies (and I really like his movies). In any case, the movie was solidly good but not great. Definitely a must for anyone who enjoys either Kevin Smith or Seth Rogen movies.
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10/21
So, apparently I’m talking to myself now (or, more accurately, talking to Becky and Dan). My 4 posts in a 7-day span (which I think is a record for me) resulted in a whopping 6 comments (and 2 of those were mine). Yeesh, was my call for civility really that insulting?
So, last weekend my friend Joe and I went to the burgeoning metropolis that is La Porte, IN to campaign for Obama. I had been hoping that all we’d have to do was hang some literature on peoples doorknobs but we were out there knocking on people’s doors and talking to them. While I’m glad I did it, it just really isn’t my thing. I have a real problem with offering up unsolicited opinions to people (and FYI, I believe that by visiting this site you are implicitly asking for my opinion). I don’t like to be bothered by random campaign people and I assume no one else does either, so it just made the whole experience uncomfortable. What can I say, I’m just not a salesman. I’m also not exactly sure if we did any good. We met some strong Obama supporters that were happy to see us, and also some strong McCain supporters who were . . .less happy to see us, but I don’t really think we changed anybody’s mind. I guess in the end you have to believe in the power of numbers; if 10,000 people all knock on 50 doors somehow minds do get changed even if it can’t be directly traced to any one canvasser. Or maybe that’s just what I’m telling myself so I don’t feel like I wasted 4 gallons of gas and an entire Saturday.
In case the market hasn’t made you nauseous lately maybe this will do the trick . Some 21-year old ate a 15lb. burger in less than 5 hours. And the 15lbs was just the beef itself (pre-cooked). The bun and trimmings brought the total weight to 20.2 lbs. His prize for this feat? $400, 3 t-shirts, and a certificate. No matter how he invests that $400, I’m doubting it will come close to covering the costs of the inevitable angioplasty 20 years down the road. Don’t get me wrong, eating 20lbs of food in 5 hours is impressive, but so is maintaining consciousness while relentlessly beating yourself in the head with a hammer for a half hour. Doesn’t make either idea any less stupid. Of course, this is coming from someone who once drank 14 beers in 85 minutes and (on a separate occasion) decided to walk onto a semi-frozen lake in mid-March, so I think I know a thing or two about stupid ideas.
Going to see the new Kevin Smith movie tonight (Zack and Miri Make a Porno) as part of the Chicago International Film Festival. Sometimes as part of these they have special guests introduce the film and I had been hoping that maybe Kevin Smith would be here but it looks like no such luck. Still, it’s always fun to see a movie in a crowded theatre 10 days before its release.
I’m also really looking forward to seeing Saw V this weekend. I have no idea why, but I am.
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10/21
So, apparently I’m talking to myself now (or, more accurately, talking to Becky and Dan). My 4 posts in a 7-day span (which I think is a record for me) resulted in a whopping 6 comments (and 2 of those were mine). Yeesh, was my call for civility really that insulting?
So, last weekend my friend Joe and I went to the burgeoning metropolis that is La Porte, IN to campaign for Obama. I had been hoping that all we’d have to do was hang some literature on peoples doorknobs but we were out there knocking on people’s doors and talking to them. While I’m glad I did it, it just really isn’t my thing. I have a real problem with offering up unsolicited opinions to people (and FYI, I believe that by visiting this site you are implicitly asking for my opinion). I don’t like to be bothered by random campaign people and I assume no one else does either, so it just made the whole experience uncomfortable. What can I say, I’m just not a salesman. I’m also not exactly sure if we did any good. We met some strong Obama supporters that were happy to see us, and also some strong McCain supporters who were . . .less happy to see us, but I don’t really think we changed anybody’s mind. I guess in the end you have to believe in the power of numbers; if 10,000 people all knock on 50 doors somehow minds do get changed even if it can’t be directly traced to any one canvasser. Or maybe that’s just what I’m telling myself so I don’t feel like I wasted 4 gallons of gas and an entire Saturday.
In case the market hasn’t made you nauseous lately maybe this will do the trick . Some 21-year old ate a 15lb. burger in less than 5 hours. And the 15lbs was just the beef itself (pre-cooked). The bun and trimmings brought the total weight to 20.2 lbs. His prize for this feat? $400, 3 t-shirts, and a certificate. No matter how he invests that $400, I’m doubting it will come close to covering the costs of the inevitable angioplasty 20 years down the road. Don’t get me wrong, eating 20lbs of food in 5 hours is impressive, but so is maintaining consciousness while relentlessly beating yourself in the head with a hammer for a half hour. Doesn’t make either idea any less stupid. Of course, this is coming from someone who once drank 14 beers in 85 minutes and (on a separate occasion) decided to walk onto a semi-frozen lake in mid-March, so I think I know a thing or two about stupid ideas.
Going to see the new Kevin Smith movie tonight (Zack and Miri Make a Porno) as part of the Chicago International Film Festival. Sometimes as part of these they have special guests introduce the film and I had been hoping that maybe Kevin Smith would be here but it looks like no such luck. Still, it’s always fun to see a movie in a crowded theatre 10 days before its release.
I’m also really looking forward to seeing Saw V this weekend. I have no idea why, but I am.
Friday, October 17, 2008
W.
So I snuck away during lunch today to see W. Overall, I'd say it was pretty good. I have to admit, though, that I'm not really sure who the movie is intended for. It actually pulls too many punches to please the throngs of Bush-haters (which, judging by the latest approval ratings, is round about everybody nowadays). You won't find any scenes of him snorting coke, getting DUIs, smearing John McCain in 2000, or any mention of My Pet Goat. Sure, there are plenty of scenes of him drinking in his early life, but it's not exactly controversial to say that Bush drank a lot during his youth. So, it's pretty safe to say that anyone going into the movie expecting to see a non-stop pummeling of Bush the younger is going to be disappointed. On the other hand, it's unlikely that Republicans will like it either. After all, it's certainly not a coincidence that this is being released 18 days prior to the election and while I said that it doesn't pummel him it certainly doesn't paint him in a glowing light either. Largely, the movie reinforced the opinion I've had of him for the last 3-4 years. It paints the picture of a man who's been struggling his entire life to step out of the shadow of his father and his family's legacy. In a number of ways, he is a very tragic figure. Contrary to what a lot of the far left vilifies him to be he is not some evil, greedy, Machiavellian figure. He is a guy who genuinely believed (and still does) that what he is doing is right for the country and for the world and whose biggest mistake was surrounding himself with people that did not provide him with the crucial information he needed at the correct time. I am not trying to be a Bush apologist. The man made a lot of very, very bad decisions and we will be paying the price for them for a long time. Those bad decisions were a product of misinformation, stubbornness, and too much reliance on "gut feelings" instead of reevaluation of each situation as the facts changed. But I don't believe they were mainly the product of greed or malice. In the end, I still despise George W. Bush the President, but I really do feel empathy for George W. Bush the human being.
One of the people that comes off pretty well in the film is George H.W. Bush. Most of the film centers on him as an exasperated father dealing with a child who shows no real desire or ambition for anything for his first 40 years. He is proud of his son's accomplishments but can't connect with him, and he seems almost bewildered when the life and legacy that seemed destined to go to Jeb almost falls in George's lap instead. What little we see of Bush the elder as a politician centers on his side-stepping a number of the perils that W fell into headlong. Ironically, while W's numerous mistakes may have tainted the Bush name, it actually seems to have enhanced the legacy of H.W. Maybe it's just because enough time has passed that we can now look on his presidency with a less biased lens. Maybe not. But if that is indeed the case, then who knows? Maybe 15 years from now W will be right and history will vindicate him. I sincerely doubt it, but I have to leave open the possibility. I never thought my opinion of H.W. would have risen with time, and I never thought my opinion of Clinton would have risen with time either, but both happened.
Powell comes off very well too. Actually, I think he comes across a little too well. I am definitely a fan of Powell, and in all the books I've read concerning the Iraq war he was in fact one of the only people in the administration pushing for a conservative and diplomatic approach. But he is presented here as something of a crusader (in one scene in particular) whereas the story I've come to believe is one where he spoke out a few times early on but then gradually grew silent as he realized that his opinion was not valued and not often requested. I believe his decision to resign in 2004 is pretty concrete proof that he chose to remove himself rather than stay and try to fight, well, pretty much everyone. Mind you, I'm not criticizing him for that decisio, but I just don't think that's the perception that comes across in the film.
I have read a lot of praise about Thandie Newton's portrayal of Condoleeza Rice, and I just don't really see it. It is by no means a bad performance but apart from her looking spot on like her, there is very little meat to the role and she's largely a background character. Biggest props go to Richard Dreyfuss as Cheney (who, in the words of Ebert, "is not so much a double as an embodiment" of him) and of course Josh Brolin as W. It's hard to imagine one or both not garnering an Oscar nomination.
So in the end you have a well-made, well-acted film that is far more even handed than I would have thought Oliver Stone capable of. I'm still not exactly sure who it was made for, and I'm also not sure if the film will age well after the public has forgotten about the specifics of the Bush years. I guess, as W. himself would say, "we'll let history decide that".
One of the people that comes off pretty well in the film is George H.W. Bush. Most of the film centers on him as an exasperated father dealing with a child who shows no real desire or ambition for anything for his first 40 years. He is proud of his son's accomplishments but can't connect with him, and he seems almost bewildered when the life and legacy that seemed destined to go to Jeb almost falls in George's lap instead. What little we see of Bush the elder as a politician centers on his side-stepping a number of the perils that W fell into headlong. Ironically, while W's numerous mistakes may have tainted the Bush name, it actually seems to have enhanced the legacy of H.W. Maybe it's just because enough time has passed that we can now look on his presidency with a less biased lens. Maybe not. But if that is indeed the case, then who knows? Maybe 15 years from now W will be right and history will vindicate him. I sincerely doubt it, but I have to leave open the possibility. I never thought my opinion of H.W. would have risen with time, and I never thought my opinion of Clinton would have risen with time either, but both happened.
Powell comes off very well too. Actually, I think he comes across a little too well. I am definitely a fan of Powell, and in all the books I've read concerning the Iraq war he was in fact one of the only people in the administration pushing for a conservative and diplomatic approach. But he is presented here as something of a crusader (in one scene in particular) whereas the story I've come to believe is one where he spoke out a few times early on but then gradually grew silent as he realized that his opinion was not valued and not often requested. I believe his decision to resign in 2004 is pretty concrete proof that he chose to remove himself rather than stay and try to fight, well, pretty much everyone. Mind you, I'm not criticizing him for that decisio, but I just don't think that's the perception that comes across in the film.
I have read a lot of praise about Thandie Newton's portrayal of Condoleeza Rice, and I just don't really see it. It is by no means a bad performance but apart from her looking spot on like her, there is very little meat to the role and she's largely a background character. Biggest props go to Richard Dreyfuss as Cheney (who, in the words of Ebert, "is not so much a double as an embodiment" of him) and of course Josh Brolin as W. It's hard to imagine one or both not garnering an Oscar nomination.
So in the end you have a well-made, well-acted film that is far more even handed than I would have thought Oliver Stone capable of. I'm still not exactly sure who it was made for, and I'm also not sure if the film will age well after the public has forgotten about the specifics of the Bush years. I guess, as W. himself would say, "we'll let history decide that".
Friday, October 10, 2008
A Eulogy For the Cubs Season
Well, I have by meaning to do this since the season ended but found that it is only now that I can even stomach it without either feeling nauseous or depressed (or both). I guess the good news is that the Cubs did fulfill my pre-season prediction of back-to-back division championships and actually exceeded my win prediction (I predicted 91 and they ended up with 97). And of course I will always remember seeing the no-hitter up in Miller Park.
But that’s where the good news ends, as I had the extreme displeasure of watching my beloved team act like a bunch of clowns for 27 innings and get bounced. No gut-wrenching losses, no false hope, just 3 games of bad baseball from a team that looked cooked from the moment James Loney hit the grand slam in the 5th inning of game 1.
Minutes after the Cubs were officially eliminated, I came to the realization that this season officially marks my transformation from young, optimistic Cubs fan to old, jaded one. My entire life as a Cubs fan has been spent waiting for the one season where they’d be so good that they’d just steamroll everyone. Even when they have made the playoffs in the past, they were always the underdog and even though you hoped against hope that they’d pull it out, you certainly weren’t shocked when they didn’t. For the better part of 6 months this year, they finally were that team that seemed unstoppable. And guess what? It didn’t matter. I’ve been forced to realize that the worst part about this is that now I don’t even know how I go about getting excited about them next year (or any other season). Even if they started out 40-0, I’ll be left going “So what? That still doesn’t mean they’ll perform when it counts in the playoffs.” Now, of course the logical part of my brain tells me that 8 good teams made it through the 6-month grind, and already half of them have gone home. Even the Angels, with the best record in baseball, lasted only a game longer than the Cubs. And, of course, ultimately there will only be 1 out of 32 teams whose fans will be happy with the end of the season. Yes, my rational mind gets all of that. But then again, if I was truly rational, I wouldn’t be a Cubs fan to begin with.
That’s as far as I can explain it in words. So I’d like to further express how I feel in pictures:
This first one's my favorite. It's pretty much the exact expression on my face while watching the Cubs commit 3 errors in the 2nd inning of game 2 en route to falling behind 5-0.
But that’s where the good news ends, as I had the extreme displeasure of watching my beloved team act like a bunch of clowns for 27 innings and get bounced. No gut-wrenching losses, no false hope, just 3 games of bad baseball from a team that looked cooked from the moment James Loney hit the grand slam in the 5th inning of game 1.
Minutes after the Cubs were officially eliminated, I came to the realization that this season officially marks my transformation from young, optimistic Cubs fan to old, jaded one. My entire life as a Cubs fan has been spent waiting for the one season where they’d be so good that they’d just steamroll everyone. Even when they have made the playoffs in the past, they were always the underdog and even though you hoped against hope that they’d pull it out, you certainly weren’t shocked when they didn’t. For the better part of 6 months this year, they finally were that team that seemed unstoppable. And guess what? It didn’t matter. I’ve been forced to realize that the worst part about this is that now I don’t even know how I go about getting excited about them next year (or any other season). Even if they started out 40-0, I’ll be left going “So what? That still doesn’t mean they’ll perform when it counts in the playoffs.” Now, of course the logical part of my brain tells me that 8 good teams made it through the 6-month grind, and already half of them have gone home. Even the Angels, with the best record in baseball, lasted only a game longer than the Cubs. And, of course, ultimately there will only be 1 out of 32 teams whose fans will be happy with the end of the season. Yes, my rational mind gets all of that. But then again, if I was truly rational, I wouldn’t be a Cubs fan to begin with.
That’s as far as I can explain it in words. So I’d like to further express how I feel in pictures:
This first one's my favorite. It's pretty much the exact expression on my face while watching the Cubs commit 3 errors in the 2nd inning of game 2 en route to falling behind 5-0.
More Ambivalence
If you currently do not have any money in the stock market, now is the time to get in. Contrary to what you may be expecting, there is no joke forthcoming. I am completely serious.
As I mentioned before, I am currently reading an investment book called A Random Walk Down Wall Street. There could not be a more relevant time to be reading it, as you can see the principles that he lays out operating in action in the market on a daily basis.
Contrary to what sterile economic theory has taught for decades, one thing that has been consistently borne out by empirical data over the years is that investors do not behave in a completely rational manner. Alan Greenspan called the internet boom of the late 90s a product of “irrational exuberance” but that principle also works in reverse as well. When the market goes up, investors have a tendency to believe that happy days are here to stay, and when it goes down there is a tendency to believe that it will never go up again. Both are obviously wrong, and both trains of thought will hurt you if you fall prey to them.
Let me ask a question. Taking crowds out of the equation, would you rather do your Christmas shopping on Black Friday when everything’s on sale or a week before Christmas on ebay where you may end up paying two to three times the retail price to get your kid the last whatever-the-hell that season’s must have trinket is? Most people would opt for the former, because all things being equal people prefer to pay less for something when they can. Seems to make sense, right? Well, shockingly enough the market tends to work in almost the exact opposite manner. Then again, considering the amount of business done on ebay at exorbitant prices in the days leading up to Christmas, perhaps it’s not so surprising after all.
Take a look at the following graph (apologies that it's slightly askew; I had to copy and scan it from the book), and please take a few minutes to fully absorb what it is saying, because it tells a fascinating story.
As I mentioned before, I am currently reading an investment book called A Random Walk Down Wall Street. There could not be a more relevant time to be reading it, as you can see the principles that he lays out operating in action in the market on a daily basis.
Contrary to what sterile economic theory has taught for decades, one thing that has been consistently borne out by empirical data over the years is that investors do not behave in a completely rational manner. Alan Greenspan called the internet boom of the late 90s a product of “irrational exuberance” but that principle also works in reverse as well. When the market goes up, investors have a tendency to believe that happy days are here to stay, and when it goes down there is a tendency to believe that it will never go up again. Both are obviously wrong, and both trains of thought will hurt you if you fall prey to them.
Let me ask a question. Taking crowds out of the equation, would you rather do your Christmas shopping on Black Friday when everything’s on sale or a week before Christmas on ebay where you may end up paying two to three times the retail price to get your kid the last whatever-the-hell that season’s must have trinket is? Most people would opt for the former, because all things being equal people prefer to pay less for something when they can. Seems to make sense, right? Well, shockingly enough the market tends to work in almost the exact opposite manner. Then again, considering the amount of business done on ebay at exorbitant prices in the days leading up to Christmas, perhaps it’s not so surprising after all.
Take a look at the following graph (apologies that it's slightly askew; I had to copy and scan it from the book), and please take a few minutes to fully absorb what it is saying, because it tells a fascinating story.
It is a measure of cash flow into and out of equity funds (i.e. mutual funds) in relation to the S&P 500 (which, even better than the Dow, is a good proxy of the market as a whole). What it shows is that when the S&P is riding high, investors are lining up to get onboard. They can’t wait to throw their money into the market. Then when it takes a dive, investors make a mad dash for the exits like rats on a sinking ship. The thing is, the ship is not sinking. Markets are cyclical and thus peaks and troughs are as unavoidable as they are unpredicatable. I am certainly not advocating that you try and jump ship when the market is high and get in when it’s low. I am saying that the best course of action is to not try to time the market at all. You have a far greater chance of hurting yourself rather than helping, as evidenced by this:
“Professor H. Negat Seybun of the University of Michigan found that 95 percent of the significant market gains over the thirty-year period from the mid-1960s to the mid-1990s came on 90 of the roughly 7,500 trading days.”
Now, I’m sure that there are at least somewhat similar numbers for market downturns, but keep in mind that over the last century the market has consistently trended up (from a Dow of virtually nothing in the 1930s to over 8000 today). The question then becomes, do you really want to play the market and risk missing out on the ~1.5% of the days where most of the gains occur?
So, to be clear on what I’m advocating, if you’re already invested in the market: do nothing! Resist the urge to jump ship along with the other rats. If you currently have nothing in the market this is one of the best opportunities to get involved, and I would strongly advise doing so by buying a broad-based index fund (like the S&P 500) rather than try to pick out your own portfolio.
Some caveats, though (and aren’t there always?). First, I am advising holding on to your investments absent the specific knowledge that any one particular company in your portfolio is a dog (AIG, for example, although I’m actually not ready to throw in the towel on them yet). Second, if you are contemplating retirement soon you may very well want to consider moving into a more stable investment. The market will recover, but your financial needs may not allow you to wait long enough to reap all the benefits when it does. Lastly, when I say that “now is the time to get in” I am not talking about maxing out your credit card on cash advances. I am talking about if you happen to have money (in savings, CDs, etc.) that you don’t plan to touch in the near future and can live without. Neither I or anyone else can tell you exactly when the market is going to turn around, and there’s certainly no guarantee that it won’t drop another 1000 points or more. But what I am confident about is that over the long term it will recover. If I had to put numbers to it, I’d say assuming you invested today in the S&P 500 (currently trading at 899) I am 60% confident that you will see a significant positive return (i.e. greater than that which you’d find in a “safe” investment like an FDIC-insured savings account) in a year, 75% certain you will see one in 2, and 99% (because nothing is absolute) that you will see one in 5.
Now, if you’d like to press me to recommend a specific company, I would have to go with GE (currently trading at $21.50/share). There are a lot of reasons I like them, but probably the biggest is the fact that Warren Buffett just invested $3 billion in them and by and large the man only invests in solid companies. They also are a bargain right now because GE credit is struggling (along with every other lender) but I believe that will eventually recover, and there is still a large amount of demand for their turbines and jet engines. But, again, I am talking about long-term investing here. One of Warren Buffett’s most famous statements is that “the correct holding period of a stock is forever.”
Of course, I would be remiss if I didn’t also point out another piece of advice I gleaned from A Random Walk Down Wall Street:
Stay Cool to Hot Tips
Tips come at you from all fronts – friends, relatives, the telephone, even the internet. Don’t go there. Steer clear of any hot tips. They are overwhelmingly likely to be the poorest investments of your life. And remember: Never buy anything from someone who is out of breath.
So I guess what I’m saying is that if you listen to what I’m saying, you definitely shouldn’t be listening to what I’m saying.
How’s that for ambivalence?
“Professor H. Negat Seybun of the University of Michigan found that 95 percent of the significant market gains over the thirty-year period from the mid-1960s to the mid-1990s came on 90 of the roughly 7,500 trading days.”
Now, I’m sure that there are at least somewhat similar numbers for market downturns, but keep in mind that over the last century the market has consistently trended up (from a Dow of virtually nothing in the 1930s to over 8000 today). The question then becomes, do you really want to play the market and risk missing out on the ~1.5% of the days where most of the gains occur?
So, to be clear on what I’m advocating, if you’re already invested in the market: do nothing! Resist the urge to jump ship along with the other rats. If you currently have nothing in the market this is one of the best opportunities to get involved, and I would strongly advise doing so by buying a broad-based index fund (like the S&P 500) rather than try to pick out your own portfolio.
Some caveats, though (and aren’t there always?). First, I am advising holding on to your investments absent the specific knowledge that any one particular company in your portfolio is a dog (AIG, for example, although I’m actually not ready to throw in the towel on them yet). Second, if you are contemplating retirement soon you may very well want to consider moving into a more stable investment. The market will recover, but your financial needs may not allow you to wait long enough to reap all the benefits when it does. Lastly, when I say that “now is the time to get in” I am not talking about maxing out your credit card on cash advances. I am talking about if you happen to have money (in savings, CDs, etc.) that you don’t plan to touch in the near future and can live without. Neither I or anyone else can tell you exactly when the market is going to turn around, and there’s certainly no guarantee that it won’t drop another 1000 points or more. But what I am confident about is that over the long term it will recover. If I had to put numbers to it, I’d say assuming you invested today in the S&P 500 (currently trading at 899) I am 60% confident that you will see a significant positive return (i.e. greater than that which you’d find in a “safe” investment like an FDIC-insured savings account) in a year, 75% certain you will see one in 2, and 99% (because nothing is absolute) that you will see one in 5.
Now, if you’d like to press me to recommend a specific company, I would have to go with GE (currently trading at $21.50/share). There are a lot of reasons I like them, but probably the biggest is the fact that Warren Buffett just invested $3 billion in them and by and large the man only invests in solid companies. They also are a bargain right now because GE credit is struggling (along with every other lender) but I believe that will eventually recover, and there is still a large amount of demand for their turbines and jet engines. But, again, I am talking about long-term investing here. One of Warren Buffett’s most famous statements is that “the correct holding period of a stock is forever.”
Of course, I would be remiss if I didn’t also point out another piece of advice I gleaned from A Random Walk Down Wall Street:
Stay Cool to Hot Tips
Tips come at you from all fronts – friends, relatives, the telephone, even the internet. Don’t go there. Steer clear of any hot tips. They are overwhelmingly likely to be the poorest investments of your life. And remember: Never buy anything from someone who is out of breath.
So I guess what I’m saying is that if you listen to what I’m saying, you definitely shouldn’t be listening to what I’m saying.
How’s that for ambivalence?
Tuesday, October 07, 2008
Hot, Flat, and Crowded
So as promised, here are some of my thoughts on Thomas Friedman's new book Hot, Flat, and Crowded which, contrary to what the title may insinuate, is not a biography on Paris Hilton. It is a detailed guide on why we need a green revolution in this country, how it can completely renew and revitalize us, and how it can once again restore our image to the rest of the world while simultaneously cementing us as an economic power throughout the next century.
Some of what is below I heard almost verbatim recited by one or both Presidential candidates on Tuesday night, and that makes me happy (if I make the colossal assumption that it was more than just lip service on their part). Most of what follows are paraphrasings of some of the main ideas in the book, with a few of my own musings thrown in. I put quotes where applicable, but for a lot of the rest I just didn't want to write "Friedman says" 100 times. Just wanted to make it clear that I'm not trying to plagiarize. In addition, I'd like to add that what I'm going to talk about is only a very, very small part of all that Friedman discusses. Some of it is controversial and some of it is just common sense; all of it is fascinating. As much as I enjoyed The World is Flat, this is better and it's not even particularly close.
Obviously, when one hears the words "green revolution" it instantly brings to mind the idea that, "oh, this is a book about global warming." Well, that's certainly a big part of it. Here Friedman presents in 27-pages probably the best synopsis on the science as far as what we know and don't know yet. He also puts forth this analogy about skeptics, which I got a big kick out of:
"Climate change deniers are like the person who goes to the doctor for a diagnosis, and when the doctor tells him 'If you don't stop smoking, there is a 90% chance you will die of lung cancer' the patient replies, 'Oh, doctor, you mean you are not 100% sure? Then I will keep smoking.'"
He also makes a very compelling case that climate change is not going to be as bad as some of the estimates out there. It's actually far more likely that it will be a lot worse.
But I don't want to harp on climate change (again) because for one my feelings on the subject have been well documented here and two that's actually not even the biggest reason Friedman convincingly gives for the US leading the charge in the green revolution.
Obviously if you are a staunch believer in man-made, carbon emmision-based climate change it's elementary to see why we would need to switch to renewables. But let's take climate change completely off the table. There's still overwhelming evidence that a switch to green technology is in our best interest. First, let's look at it from a national security standpoint. Right now we give a lot of money every day to oil barons and regimes operating in countries whose people don't like us very much. What's more, in a lot of cases the money received by these regimes is used to deny their citizens a lot of the freedoms of the Western world. If the motto of the Revolutionary War was "no taxation without representation" then the motto for a lot of these countries is "no taxation, so no representation either." Because these countries are so heavily dependent on oil revenue, they have very little motivation to invest in other industries. As a result, the people are often at the mercy of the government to support them and don't have the leverage to demand change. Taking these countries off of this type of "welfare" system would force them to change and attempt to build infrastructure and industry that competes as part of the global market. Then, and only then, will true democracy flourish in the Middle East. Some would say that the answer to that is drilling in the U.S. They are wrong. I'm not going to do the vast amounts of research to come up with completely hard numbers (because people would just argue with them anyway), but I went here for some rough estimates. Using the upper estimates of the potential oil, I come up with a grand total of 180 billion barrels of potential domestic oil (727 million barrels in the strategic reserve, 115.1 billion barrels in the OCS, 48.5 billion barrels onshore, and 16 billion in ANWR). Our consumption is over 20 million barrels per day. Some quick math reveals that even in the best case scenario we could be self sufficient for less than 2 and a half years using just our own oil. Even if our estimates are wildly off the mark and the real figure is 4 times that, we're still talking less than a decade. So, obviously if the goal is to be self-sufficient with our energy needs, renewables are a must. The stone age didn't end because we ran out of stones. It ended because we found a better way.
In addition, the energy needs of the world are escalating almost exponentially everyday thanks to the emerging markets (China and India are the headliners, but they are hardly the only ones). You also hear a lot (though probably still not enough) about the need to stifle the immense poverty in Africa but if you stop and think about what it would actually mean from an energy perspective to bring that entire continent up to first-world living standards the problem is truly daunting. So much so that a lot of people (including me for a time) have the attitude that "China and India are so big and growing so fast, it doesn't matter what efforts we undertake to curb our consumption and switch to renewables; all of our gains will easily be outweighed by their excess." I particularly like Friedman's response to this, which he gave in a speech to the Chinese at their "Green Car Congress" in 2007:
"Every year I come to China and young Chinese tell me, 'Mr. Friedman, you Americans got to grow dirty for 150 years - you got to have your Industrial Revolution based on coal and oil - now it is our turn.' Well, on behalf of all Americans, I am here today to tell you that you're right. It's your turn. Please, take your time, grow as dirty as you like for as long as you like. Take your time! Because I think my country needs only 5 years to invent all the clean power and energy efficiency tools that you, China, will need to avoid choking on pollution, and then we are going to come over and sell them all to you. We will get at least a five-year jump on you in the next great global industry: clean power and energy efficiency. We will totally dominate you in those industries. "
I realy like that because it turns everything around and turns a stick into a carrot. Instead of us acting like some world police force at a time when most of the rest of the world has had quite enough of us in that role, it transforms us yet again into a world leader on the cutting edge that challenges other countries by saying "This is the future, and we are moving towards it full speed ahead. If you want to join us now: great! We welcome the competition. But if you want to carry on like you have been and risk falling behind again right at the moment when you were just starting to catch up, that's fine with us too." The problem, of course, is that at the moment we are not going "full speed ahead."
In the early 1960s, President Kennedy made a bold declaration that we would put a man on the moon by the end of the decade. It was obvious that this was at least in part driven by the Cold War. Even though the moon clearly offered no strategic military position, the humbling and helpless feeling the American people felt by having to look up at the sky and see Sputnik circling the Earth was enough to spur us into collective action. It spurred us to invest heavily in science, technology, and education in an effort to win the space race. Succesfully landing on the moon may have been the public face of the success that type of investment bred, but it certainly wasn't limited to just that.
Similar to the space race, we now need a green race. We need leadership that sets a lofty goal that the U.S. can rally behind. Collectively, I believe that we are still the most industrious people on the planet when it comes to working towards, fighting for, and sacrificing in the name of a cause we believe in. I believe that this is that cause.
And there will be sacrifices that need to be made; at least at first. Change is never comfortable, and there will be at least as many bad ideas that get implemented as there will be good ones. Great novels and great programs don't get written in one draft. But by investing in the next great global industry, we will not only be putting ourselves in position to dominate the global economy for the 21st century, we have the opportunity to once again bring manufacturing jobs back home. Maybe GM and Ford will never again enjoy the market share they once did, but instead of cars their assembly line workers can certainly put together solar panels or parts for wind turbines. The idea of bringing outsourced industries back onshore is folly; building infrastructure towards the next industry is vision.
This is a pivotal point in the history of mankind, and I shudder to think of what will happen if we fail to take advantage of this opportunity. To that point, Friedman quotes Jeffrey Immelt (CEO of GE): "I have always believed that every generation looks back at the generation before it and has one big question about something they did or did not do. For our generation, the big question to the generation before us was 'How could good people be so prejudiced against blacks and women?' I am convinced that when our kids are fifty, and they look back at us, they are going to ask: 'What were you thinking?' You were the richest country in the world. You had the technology to really make a difference on things like global warming. Why were you so slow to do the right things?'"
So, is it already too late? I don't think so. I can't; because really at that point all there is to do is despair. I prefer to think along the lines of Amory Lovins (Chief Scientist at the Rocky Mountain Institute):
"We have exactly enough time - starting now."
Some of what is below I heard almost verbatim recited by one or both Presidential candidates on Tuesday night, and that makes me happy (if I make the colossal assumption that it was more than just lip service on their part). Most of what follows are paraphrasings of some of the main ideas in the book, with a few of my own musings thrown in. I put quotes where applicable, but for a lot of the rest I just didn't want to write "Friedman says" 100 times. Just wanted to make it clear that I'm not trying to plagiarize. In addition, I'd like to add that what I'm going to talk about is only a very, very small part of all that Friedman discusses. Some of it is controversial and some of it is just common sense; all of it is fascinating. As much as I enjoyed The World is Flat, this is better and it's not even particularly close.
Obviously, when one hears the words "green revolution" it instantly brings to mind the idea that, "oh, this is a book about global warming." Well, that's certainly a big part of it. Here Friedman presents in 27-pages probably the best synopsis on the science as far as what we know and don't know yet. He also puts forth this analogy about skeptics, which I got a big kick out of:
"Climate change deniers are like the person who goes to the doctor for a diagnosis, and when the doctor tells him 'If you don't stop smoking, there is a 90% chance you will die of lung cancer' the patient replies, 'Oh, doctor, you mean you are not 100% sure? Then I will keep smoking.'"
He also makes a very compelling case that climate change is not going to be as bad as some of the estimates out there. It's actually far more likely that it will be a lot worse.
But I don't want to harp on climate change (again) because for one my feelings on the subject have been well documented here and two that's actually not even the biggest reason Friedman convincingly gives for the US leading the charge in the green revolution.
Obviously if you are a staunch believer in man-made, carbon emmision-based climate change it's elementary to see why we would need to switch to renewables. But let's take climate change completely off the table. There's still overwhelming evidence that a switch to green technology is in our best interest. First, let's look at it from a national security standpoint. Right now we give a lot of money every day to oil barons and regimes operating in countries whose people don't like us very much. What's more, in a lot of cases the money received by these regimes is used to deny their citizens a lot of the freedoms of the Western world. If the motto of the Revolutionary War was "no taxation without representation" then the motto for a lot of these countries is "no taxation, so no representation either." Because these countries are so heavily dependent on oil revenue, they have very little motivation to invest in other industries. As a result, the people are often at the mercy of the government to support them and don't have the leverage to demand change. Taking these countries off of this type of "welfare" system would force them to change and attempt to build infrastructure and industry that competes as part of the global market. Then, and only then, will true democracy flourish in the Middle East. Some would say that the answer to that is drilling in the U.S. They are wrong. I'm not going to do the vast amounts of research to come up with completely hard numbers (because people would just argue with them anyway), but I went here for some rough estimates. Using the upper estimates of the potential oil, I come up with a grand total of 180 billion barrels of potential domestic oil (727 million barrels in the strategic reserve, 115.1 billion barrels in the OCS, 48.5 billion barrels onshore, and 16 billion in ANWR). Our consumption is over 20 million barrels per day. Some quick math reveals that even in the best case scenario we could be self sufficient for less than 2 and a half years using just our own oil. Even if our estimates are wildly off the mark and the real figure is 4 times that, we're still talking less than a decade. So, obviously if the goal is to be self-sufficient with our energy needs, renewables are a must. The stone age didn't end because we ran out of stones. It ended because we found a better way.
In addition, the energy needs of the world are escalating almost exponentially everyday thanks to the emerging markets (China and India are the headliners, but they are hardly the only ones). You also hear a lot (though probably still not enough) about the need to stifle the immense poverty in Africa but if you stop and think about what it would actually mean from an energy perspective to bring that entire continent up to first-world living standards the problem is truly daunting. So much so that a lot of people (including me for a time) have the attitude that "China and India are so big and growing so fast, it doesn't matter what efforts we undertake to curb our consumption and switch to renewables; all of our gains will easily be outweighed by their excess." I particularly like Friedman's response to this, which he gave in a speech to the Chinese at their "Green Car Congress" in 2007:
"Every year I come to China and young Chinese tell me, 'Mr. Friedman, you Americans got to grow dirty for 150 years - you got to have your Industrial Revolution based on coal and oil - now it is our turn.' Well, on behalf of all Americans, I am here today to tell you that you're right. It's your turn. Please, take your time, grow as dirty as you like for as long as you like. Take your time! Because I think my country needs only 5 years to invent all the clean power and energy efficiency tools that you, China, will need to avoid choking on pollution, and then we are going to come over and sell them all to you. We will get at least a five-year jump on you in the next great global industry: clean power and energy efficiency. We will totally dominate you in those industries. "
I realy like that because it turns everything around and turns a stick into a carrot. Instead of us acting like some world police force at a time when most of the rest of the world has had quite enough of us in that role, it transforms us yet again into a world leader on the cutting edge that challenges other countries by saying "This is the future, and we are moving towards it full speed ahead. If you want to join us now: great! We welcome the competition. But if you want to carry on like you have been and risk falling behind again right at the moment when you were just starting to catch up, that's fine with us too." The problem, of course, is that at the moment we are not going "full speed ahead."
In the early 1960s, President Kennedy made a bold declaration that we would put a man on the moon by the end of the decade. It was obvious that this was at least in part driven by the Cold War. Even though the moon clearly offered no strategic military position, the humbling and helpless feeling the American people felt by having to look up at the sky and see Sputnik circling the Earth was enough to spur us into collective action. It spurred us to invest heavily in science, technology, and education in an effort to win the space race. Succesfully landing on the moon may have been the public face of the success that type of investment bred, but it certainly wasn't limited to just that.
Similar to the space race, we now need a green race. We need leadership that sets a lofty goal that the U.S. can rally behind. Collectively, I believe that we are still the most industrious people on the planet when it comes to working towards, fighting for, and sacrificing in the name of a cause we believe in. I believe that this is that cause.
And there will be sacrifices that need to be made; at least at first. Change is never comfortable, and there will be at least as many bad ideas that get implemented as there will be good ones. Great novels and great programs don't get written in one draft. But by investing in the next great global industry, we will not only be putting ourselves in position to dominate the global economy for the 21st century, we have the opportunity to once again bring manufacturing jobs back home. Maybe GM and Ford will never again enjoy the market share they once did, but instead of cars their assembly line workers can certainly put together solar panels or parts for wind turbines. The idea of bringing outsourced industries back onshore is folly; building infrastructure towards the next industry is vision.
This is a pivotal point in the history of mankind, and I shudder to think of what will happen if we fail to take advantage of this opportunity. To that point, Friedman quotes Jeffrey Immelt (CEO of GE): "I have always believed that every generation looks back at the generation before it and has one big question about something they did or did not do. For our generation, the big question to the generation before us was 'How could good people be so prejudiced against blacks and women?' I am convinced that when our kids are fifty, and they look back at us, they are going to ask: 'What were you thinking?' You were the richest country in the world. You had the technology to really make a difference on things like global warming. Why were you so slow to do the right things?'"
So, is it already too late? I don't think so. I can't; because really at that point all there is to do is despair. I prefer to think along the lines of Amory Lovins (Chief Scientist at the Rocky Mountain Institute):
"We have exactly enough time - starting now."
Wednesday, October 01, 2008
Energy Crisis Solved: We Will Be Powered by Spite
So if anyone saw The Daily Show last night I have very little to add. Apparently the reason given by several prominent Republicans (notably House Republican leader John Boehner) for the bailout failing to pass the House was Nancy Pelosi's highly partisan speech given before the vote was taken. What the hell kind of kindergarten crap is this? No, I don't like Nancy Pelosi and yes, I agree that the speech was highly partisan and not really necessary at the time, but I fail to see how that is relevant to voting for or against anything. I don't care if she was up at the podium dressed as a nazi, burning a bible in one hand and an American flag in the other, if you think the bill is in the best interests of the country you vote for it and if you don't you vote against it. Period. End of discussion. I still don't know exactly how I feel about the bailout and there were a lot of Reps who cast votes against it and voiced very legitimate concerns about it. That's fine. I'm not arguing that they should have voted for it. I'm saying that if you were all set to vote for it and then you changed your mind because Nancy Pelosi was a big meany you are a spiteful moron and you deserve to be voted out of office immediately.
Of course, as usual the truth of the matter (as I see it anyway) is somewhat more complicated. The bill wasn't going to pass anyway. Nancy Pelosi didn't have the votes and she knew it. She figured there was no chance she was going to sway any more Republicans at the last minute so instead she tried to appeal to Democrats to fall in line by stoking up anti-Republican and anti-Bush sentiment. It didn't work, so then it left a convenient opening for Republicans to blame it all on her. So I actually don't think that Republicans changed their mind based on her speech. I have more respect for their intelligence than that. What I have no respect for and hate with a fiery passion is the earnest desire to take every opportunity to take a partisan shot instead of providing an actual reason why you voted the way you did.
I still haven't had a chance to read through all the details of the bailout but one of the things that has been bothering me is the question of "how did we get to this point this quickly?" How did we go from "yeah, times are tough but we'll pull through it" to "OH MY GOD we need $700 billion immediately or everything's going to collapse!"? That would be like me sitting down at a blackjack table and Christy coming by every hour to check up on me. The first 5 times she asks how I'm doing I say "well, I'm down a little but I'm doing ok" and then she comes back the 6th time and I say "I need $798,000 or they're going to break my legs." Does this mean that everybody's balance sheets have just been lying this whole time, or was everyone (including the auditors) really just this clueless till 2 weeks ago about how bad things were?
On a somewhat related note, I just started reading A Random Walk Down Wall Street which is a fairly famous investing guide that argues in favor of investing in large index funds instead of speculating in individual stocks or managed mutual funds. It was first published in 1973 and has been updated and revised 9 times since (most recently in 2007) and it's amazing how relevant it still is. It's also amazing how in over 80 years Wall Street still has never managed to learn from its mistakes and continually gets caught up in manias and overvaluation where everytime they are convinced that there is no bubble and growth will continue indefinitely. I found this passage, found on page 1, particularly relevant: "many of the pros lost their shirts in the 90s using derivative strategies they failed to understand." That was only 8-15 years ago; there's probably a lot of the same people still at these big investment firms. How did they not see this coming?
With every year I find the Who's Won't Get Fooled Again to be more and more wise. . .
Of course, as usual the truth of the matter (as I see it anyway) is somewhat more complicated. The bill wasn't going to pass anyway. Nancy Pelosi didn't have the votes and she knew it. She figured there was no chance she was going to sway any more Republicans at the last minute so instead she tried to appeal to Democrats to fall in line by stoking up anti-Republican and anti-Bush sentiment. It didn't work, so then it left a convenient opening for Republicans to blame it all on her. So I actually don't think that Republicans changed their mind based on her speech. I have more respect for their intelligence than that. What I have no respect for and hate with a fiery passion is the earnest desire to take every opportunity to take a partisan shot instead of providing an actual reason why you voted the way you did.
I still haven't had a chance to read through all the details of the bailout but one of the things that has been bothering me is the question of "how did we get to this point this quickly?" How did we go from "yeah, times are tough but we'll pull through it" to "OH MY GOD we need $700 billion immediately or everything's going to collapse!"? That would be like me sitting down at a blackjack table and Christy coming by every hour to check up on me. The first 5 times she asks how I'm doing I say "well, I'm down a little but I'm doing ok" and then she comes back the 6th time and I say "I need $798,000 or they're going to break my legs." Does this mean that everybody's balance sheets have just been lying this whole time, or was everyone (including the auditors) really just this clueless till 2 weeks ago about how bad things were?
On a somewhat related note, I just started reading A Random Walk Down Wall Street which is a fairly famous investing guide that argues in favor of investing in large index funds instead of speculating in individual stocks or managed mutual funds. It was first published in 1973 and has been updated and revised 9 times since (most recently in 2007) and it's amazing how relevant it still is. It's also amazing how in over 80 years Wall Street still has never managed to learn from its mistakes and continually gets caught up in manias and overvaluation where everytime they are convinced that there is no bubble and growth will continue indefinitely. I found this passage, found on page 1, particularly relevant: "many of the pros lost their shirts in the 90s using derivative strategies they failed to understand." That was only 8-15 years ago; there's probably a lot of the same people still at these big investment firms. How did they not see this coming?
With every year I find the Who's Won't Get Fooled Again to be more and more wise. . .
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