Sunday, August 29, 2010

If You Think Your State is Broke Now, Just Wait Til The Pension Bomb Explodes!

Unless you've been pulling a Rip Van Winkle for the past few years, you know that your state is more busted than Larry Craig in an airport toilet. The only possible exception is the state of Denial, and it closed its borders to new arrivals sometime in late 2008.

One of the main drivers of this sorry state of affairs is the massive disparity between public-sector and private-sector compensation, especially when it comes to benefits such as pensions. Various studies have found anywhere between a 70 percent and a 34 percent differential in total compensation, with public-sector employees getting not just more pay and benefits but near-absolute job security and early retirement. Consider California, where Reason magazine reports,

"A bipartisan bill...passed virtually without debate unleashed the odious "3 percent at 50" retirement plan in 1999. Under this plan, at age 50 many categories of public employees are eligible for 3 percent of their final year's pay multiplied by the number of years they've worked. So if a police officer starts working at age 20, he can retire at 50 with 90 percent of his final salary until he dies, and then his spouse receives that money for the rest of her life. Even during the economic crisis, "3 percent at 50" and the forces behind it have only become more entrenched.

In the midst of California's 2008--09 fiscal meltdown, with the impact of deluxe public pensions making daily headlines, the city of Fullerton nevertheless sought to retroactively increase the defined-benefit retirement plan for its city employees by a jaw-dropping 25 percent. What's more, the Fullerton City Council negotiated the increase in closed session, outside public view."

Unfunded state pension liabilities run in the neighborhood of $1 trillion.

There is a solution to this mess, the same solution that has been adopted by the private sector over the past several decades: switching from defined-benefit retirement plans to 401(k)-style defined-contribution plans. In a state such as Ohio, which is facing a $8 billion budget deficit and where state and local employees earn about 34 percent more in total compensation than their private-sector counterparts, bringing public-sector compensation into line with the private sector would cut the state's deficit by about 28 percent.

The alternative? Well, there isn't really one, other than destroying your state's economy. The politics of cutting public compensation are never easy but they have also never been more critical.


"Much bigger increases in employee costs are on the horizon. Thanks to huge unfunded pension and retirement health-care promises granted by past governments, and also to deceptive pension-fund accounting that understated liabilities and overstated future investment returns, California is now saddled with $550 billion of retirement debt.

"The cost of servicing that debt has grown at a rate of more than 15% annually over the last decade. This year, retirement benefits—more than $6 billion—will exceed what the state is spending on higher education. Next year, retirement costs will rise another 15%. In fact, they are destined to grow so much faster than state revenues that they threaten to suck up the money for every other program in the state budget....

"Few Californians in the private sector have $1 million in savings, but that's effectively the retirement account they guarantee to public employees who opt to retire at age 55 and are entitled to a monthly, inflation-protected check of $3,000 for the rest of their lives."
~ Arnold Schwarzenegger writing in the WSJ

Grouch: Much of the so-called stimulus money has been transfer payments to the state governments to prop-up their finances and save the jobs of state employees.  This preserving of the status quo explains in part why the stimulus quite frankly has not been very stimulating.  Unfortunately, it also delays the painful decisions that face the states and just makes their problems worse. 

Sunday Verse: David Ignatow (1914 - 1997) In a Dream

In a Dream

at fifty I approach myself,
eighteen years of age,
seated despondently on the concrete steps
of my father's house,
wishing to be gone from there
into my own life,
and I tell my young self,
Nothing will turn out right,
you'll want to avenge yourself,
on those close to you especially,
and they will want to die
of shock and grief. You will fall
to pleading and tears of self-pity,
filled with yourself, a passionate stranger.
My eighteen-year-old self stands up
from the concrete steps and says,
Go to hell,
and I walk off.

~ David Ignatow

Friday, August 27, 2010

New Bias Uncovered for Standardized Tests

Are Standardized Tests Biased Against Students Who Don't Give A Shit? Click on the arrow above to start video.

Investigative reporters at The Onion have uncovered a new and alarming bias in standardized testing against those students who don't give a shit.  You will be shocked at their findings.

HT: Carpe Diem

Where Next for Bonds?

Tony Crescenzi of PIMCO and Jeremy Siegel of the University of Pennsylvania and the dividend-oriented WisdomTree ETFs discuss the outlook for bonds.

The above graph provides investors some perspective on long-term trends in bond yields.  The last time rates were as low as today was the mid 1950s, after which it could be argued a thirty year bear market in bonds ensued only to the broken by Paul Volker in the early 1980's.  From this inflection point a thirty year bull market in bonds followed culminating in today's historic low rates.  For investors, the rear view mirror means nothing, only what is going to happen in the next 1 - 5 years.  The question is when are these historically low interest rates going to move higher?  No one knows precisely.  But my crystal ball says as long as the expectations for growth remain weak (i.e. below 1.9%), and the fear of higher taxes and deficits weighs on investors' minds rates will remain low.  The Fed can only do so much to manipulate rates downward.  If the markets think growth is picking up and the market begins to fear Washington less, I expect the upward move start on the long-end of the scale and follow through across the yield spectrum.  I expect this move to start taking place in early 2011 after the impact of the mid-term elections becomes apparent to investors.

Where am I putting the fixed income portion of my investments there days?  Hint: not in funds heavy in Treasuries.

Mutual Funds
Dodge and Cox Income (DODIX)
Harbor Bond Fund (HABDX)
Templeton Global Income (GIM)
Templeton Emerging Markets Income (TEI)
T. Rowe Price Tax-Free Income (PRTAX)
Vanguard Short-Term Investment-Grade (VFSTX)
Vanguard Intermediate-Term Investment-Grade (VFICX)


JPMorgan USD Emerging Markets Bond Fund (EMB)
SPDR Barclays Capital High Yield Bond (JNK)
Vanguard Short-Term Corporate Bond (VCSH)
Vanguard Intermediate-Term Corporate Bond (VCIT)
iShares S&P U.S. Preferred Stock Index Fund (PFF)

Those interested in hedging the treasury exposure in their portfolio should take a look at something like ProShares UltraShort 20+ Year Treasury (TBT).

Thursday, August 26, 2010

Wheat, Weed, and ObamaCare: How the Commerce Clause Made Congress All-Powerful

The Commerce Clause of the U.S. Constitution grants Congress the power to "regulate commerce . . . among the several States," and for more than 100 years federal lawmakers invoked it for a very narrow purpose—to prevent states from imposing trade barriers on each other. But today members of Congress act as if it gives them the authority to do just about anything—including forcing you to eat your vegetables.

During her Supreme Court confirmation hearings, Elena Kagan seemed to accept that the Commerce Clause could, in theory, give Congress the power to dictate what Americans eat. And what about ObamaCare's "individual mandate," which forces Americans to purchase health insurance? ObamaCare opponents are lining up to challenge its constitutionality, but supporters say it's justified—you guessed it—under the Commerce Clause.

How did a clause intended as a restriction on states wind up giving Congress a green light to regulate noncommercial, local, and purely private behavior? How will ObamaCare stand up against the legal challenges brought by the states? Legal titans John Eastman (Chapman University Law Professor) and Erwin Chemerinsky (Founding Dean, University of California, Irvine School of Law) slug it out to to determine whether or not Congress has been abusing the commerce clause.

Wednesday, August 25, 2010

Gmail Integrates with Google Voice for Free Calls from Your Inbox

Gmail is integrating Google Voice, bringing free calls to the U.S. and Canada and cheap international calls to Gmail—and it's available today.

From Google:
Calls to the U.S. and Canada will be free for at least the rest of the year and calls to other countries will be billed at our very low rates. We worked hard to make these rates really cheap (see comparison table) with calls to the U.K., France, Germany, China, Japan-and many more countries-for as little as $0.02 per minute.

As soon as it's available in your account, you'll see a Call phone link in the Chat sidebar of Gmail. Click it, search for a contact or dial their number, and voila—phone call. If you've already got a Google Voice number, calls you make from Gmail will show your Voice number in that person's caller ID. You can also receive calls (if you choose) made to your Voice number directly in Gmail—making it a fully legitimate VoIP solution.

Google's rolling out the feature over the next couple of days in the U.S., so keep your eyes open. You'll need to have installed the Voice and Video plug-in to use it. It's not available on Google Apps accounts (yet), but Google says they're working on it.

This new feature from Google supersedes the need to use Sipgate as outlined in my previous post on how to make free phone calls from your PC to anywhere inside the US and Canada, and simplifies the configuration.
Update: on the first day of service over 1,000,000 calls were placed through gmail. Look out AT&T and Verizon.

Did Cash for Clunkers Succeed?

Well, I guess it depends on your definition of "succeed."  I theorized in earlier posts that the main impact would be to push demand forward, but not increase demand for cars as a whole; that would only happen when the economy as a whole improved and employment began to increase.  The chart above seems to confirm my theory. As the seasonally adjusted annualized home sales come in, I think we will see the same phenomenon. The astute might ask why we spent all that money on cash for clunkers if it had such little impact on overall demand for cars; I think it was to make the politicians feel good about taking action and doing what they could to help salvage the taxpayer's investments in GM and Chrysler.  Burton Abrams and George Parsons of the University of Delaware added up the total benefits from reduced gas consumption, environmental improvements and the benefit to car buyers and companies, minus the overall cost of cash for clunkers, and found a net cost of roughly $2,000 per vehicle. Rather than stimulating the economy, the program made the nation as a whole $1.4 billion poorer. A report on Edmunds Daily, a car shopping advice service website, states that used car buyers are paying on average $1,800 more on their purchases. On larger-sized autos it’s even higher. So lower-income folks have been hurt by the cash for clunkers program as well. It's too bad we destroyed all those used cars that still had a lot of life left in them. The perceptive will recognize this program as a real world example of the Broken Window Fallacy.

Tuesday, August 24, 2010

Why Gridlock is Good for Investors

"Since 1973, using the price of gold as a deflator (instead of the Consumer Price Index, which has suffered from style drift over the years) real, inflation-adjusted returns for the S&P 500 were a fabulous 15.3 percent gain in “gridlock” years, and a horrible 9.9 percent loss in years with unified government (see chart above). That’s a 25 percentage point difference.

The reason for this difference is simple: Unified governments spend far more, and more quickly, and expand regulation much more than split governments do. Programs sail through, the dollar is jeopardized, and investors seek real assets like gold to counteract the political risks of an activist government.

Based on the data, the ill effects of unified government apply to both Republican (a 7.7 percent loss) and Democrat (a loss of 11.5 percent) unified governments. The best was a split between a Republican Congress and Democratic President Clinton, which produced a whopping 32.8 percent real return.

President Reagan and a split Congress did pretty well too, with a 24.8 percent real return. Both President Reagan and Clinton did their best sustained work with a constraining Congress, or, to be more accurate, those Congresses did their best work with popular Presidents.

When it comes to split government and real returns, the right answer is “divided we stand, united we fall.”

~ Eric Singer, one of the managers of the Congressional Effect Fund, the first mutual fund to explicitly seek to minimize investor exposure to potentially negative impact of new and proposed Congressional legislation on the broad stock market.

Grouch: I've always joked the country would be better off if Congress adjourned indefinitely and most of the administration went on an extended vacation.  Ok, it really wasn't that much of a joke, more like a fantasy imagining the returns churned out by and an unfettered US economy and US entrepreneurs.  I think the current unified government more than proves Singer's point that they "spend far more, and more quickly, and expand regulation."

HT: Carpe Diem

Monday, August 23, 2010

Walter E. Williams-- His PBS Show "Good Intentions" from the 1980's

Part 1

Part 2

Part 3


Walter Williams' PBS documentary Good Intentions based on his book, The State Against Blacks (1982). The documentary was very controversial at the time it was released and led to many animosities and even threats of murder.

In Good Intentions, Dr. Williams examines the failure of the war on poverty and the devastating effect of well meaning government policies on blacks asserting that the state harms people in the U.S. more than it helps them. He shows how government anti-poverty programs have often locked people into poverty making the points that:

- being forced to attend 3rd rate public schools leave students unprepared for working life
- minimum wages prevent young people from obtaining jobs at an early age
- licensing and labor laws have had the effect of restricting entrance of blacks into the skilled trades and unions
- the welfare system creates perverse incentives for the poor to make bad choices they otherwise would not

Dr. Williams presents the following solutions to these problems:

Failing Public Schools - Give parents greater control over their children's education by setting up a tuition tax credit or voucher system to broaden competition in turn revitalizing both public and non-public schools

Minimum Wages - Remove the minimum wage from youngsters to give more young people the chance to learn the world of work at an early age instead spending their free time idle an possibly falling into the habits of the street

Restrictive Labor Laws, Jobs Programs - Eliminate government roadblocks that prevent new entrepreneurs from starting their own business

Welfare Programs - Enact a compassionate welfare system such as a negative income tax which would remove dependency and dis-incentives for the poor to get themselves out of poverty

Scholars interviewed in the documentary include Donald Eberle, Charles Murray, and George Gilder.

Grouch: I'm a great admirer of Dr. Williams. Even though this documentary was put together in the early 1980's, I'm not sure the problems are much different today. Actually, if anything the problems have gotten worse. Some might think Williams' solutions are simplistic because they don't embrace an expensive government based solution, but they sound like a dose of common sense to me.

Quote of the Day: P.J. O'Rourke

"The free market is not an ideology or a creed or something we're supposed to take on faith, it's a measurement. It's a bathroom scale. I may hate what I see when I step on the bathroom scale, but I can't pass a law saying I weigh 160 pounds. Authoritarian governments think they can pass that law—a law to change the measurement of things."
~ P.J. O'Rourke in the WSJ

Grouch:  Where do we see examples of the law changing the measurement of things?  Think any kind of wage and price control, think government healthcare, think minimum wage.  In my own case, I had three kids searching for summer jobs a couple of months ago.  They had a devil of a time finding any work.  If any of them stepped on scale to measure their worth to an employer the reading would have been $5.00 an hour.  When politicians pass a minimum wage law that sets the scale to $7.25 an hour not many teenagers with no job experience or skills measure up.  Then the pols are baffled at why only one in four teenagers can find a job, but that is what happens when you rig the scale.

HT: Carpe Diem

Sunday, August 22, 2010

Sunday Verse: Linda Pastan (1932- ) Prosody 101

Prosody 101

When they taught me that what mattered most
was not the strict iambic line goose-stepping
over the page but the variations
in that line and the tension produced
on the ear by the surprise of difference,
I understood yet didn't understand
exactly, until just now, years later
in spring, with the trees already lacy
and camellias blowsy with middle age,
I looked out and saw what a cold front had done
to the garden, sweeping in like common language,
unexpected in the sensuous
extravagance of a Maryland spring.
There was a dark edge around each flower
as if it had been outlined in ink
instead of frost, and the tension I felt
between the expected and actual
was like that time I came to you, ready
to say goodbye for good, for you had been
a cold front yourself lately, and as I walked in
you laughed and lifted me up in your arms
as if I too were lacy with spring
instead of middle aged like the camellias,
and I thought: so this is Poetry!

~ Linda Pastan

Saturday, August 21, 2010

California Dreaming.... Well, Not Really

Just how bad are the finances of the State of California and its municipalities?  Bad enough that even Willie Brown is speaking up just as the state has begun issuing IOUs again and furloughing workers.  The dyed-in-the-wool Democrat and notoriously flamboyant 30-year veteran of the California State Assembly, is complaining about overpaid government workers.  From a recent column in the San Francisco Chronicle:
If we as a state want to make a New Year's resolution, I suggest taking a good look at the California we have created. From our out-of-sync tax system to our out-of-control civil service, it's time for politicians to begin an honest dialogue about what we've become.

Take the civil service.

The system was set up so politicians like me couldn't come in and fire the people (relatives) hired by the guy they beat and replace them with their own friends and relatives.

Over the years, however, the civil service system has changed from one that protects jobs to one that runs the show.

The deal used to be that civil servants were paid less than private sector workers in exchange for an understanding that they had job security for life.

But we politicians, pushed by our friends in labor, gradually expanded pay and benefits to private-sector levels while keeping the job protections and layering on incredibly generous retirement packages that pay ex-workers almost as much as current workers.

Talking about this is politically unpopular and potentially even career suicide for most officeholders. But at some point, someone is going to have to get honest about the fact that 80 percent of the state, county and city budget deficits are due to employee costs.

Either we do something about it at the ballot box, or a judge will do something about in Bankruptcy Court. And if you think I'm kidding, just look at Vallejo.
Is this one of those Nixon goes to China moments?  Maybe.  It's encouraging to see people like Willie Brown and Barney Frank realizing the error of their ways.  Facts are hard things to deny for forever.  Now we need those who created the mess to fix it instead of just kicking the can down the road.  It's rare to see leadership and character among politicians but now is a time where the country sorely needs it, and it has gone missing for many years.

Unfortunately, this is not just an American problem.  Governments all across the world have been overly generous in their commitments to public employees and the social safety net they've built for their citizens. Don't believe me?  Then take a look at this:

That should be enough to scare the hell out of anybody, and does not bode well for the future economic performance of the major western economies.

Katrina's Silver Lining - The School Choice Revolution in New Orleans

Before hurricane Katrina ravaged the city in 2005, New Orleans had one of the worst performing public school districts in the nation. Katrina forced nearly a million people to leave their homes and caused almost $100 billion in damages. To an already failing public school system, the storm seemed to provide the final deathblow. But then something amazing happened. In the wake of Katrina, education reformers decided to seize the opportunity and start fresh with a system based on choice.

Today, New Orleans has the most market-based school system in the US. 60% of New Orleans students currently attend charter schools, test scores are up, and talented and passionate educators from around the country are flocking to New Orleans to be a part of the education revolution. It's too early to tell if the New Orleans experiment in school choice will succeed over the long term, but for the first time in decades people are optimistic about the future of New Orleans schools.

Thursday, August 19, 2010

August 19, 2010 -- Happy Cost of Government Day, America!

According to the Americans for Tax Reform Foundation and the Center for Fiscal Accountability, today is the day on which the average American has earned enough gross income to pay off his or her share of the spending and regulatory burdens imposed by government at the federal, state, and local levels. Working people must toil 231 days out of the year just to meet all costs imposed by government - 8 days later than last year and a full 32 days longer than 2008. In other words, in 2010 the cost of government consumes 63.41 percent of national income. To my way of thinking, that number is about 30 - 35% higher than it ought to be.

Those states with the earliest Cost of Government Days:

Alaska- July 28
Louisiana- July 28
Mississippi- July 31
South Dakota- August 2
West Virginia- August 3

Those states with the latest Cost of Government Days:

District of Columbia- August 29
Maryland- September 4
New York- September 10
New Jersey- September 14
Connecticut- September 17

Enjoy your 134 days of freedom this year.

More than half of Britain's wind farms have been built where there is not enough wind

For those who believe that governments are efficient allocators of capital, we have this story out of the UK.   More than half of Britian's wind farms have been built where there is not enough wind to make them efficient producers of energy.
Europe's largest wind farm, Whitelee, near Glasgow (pictured above), contains 140 turbines but ran at only 25% of capacity last year.  The most anemic project in Britain was Blyth Harbour in Northumberland, where the nine turbines reached a feeble 4.9 per cent of their capacity. This was followed closely by Chelker reservoir in North Yorkshire which operates at only 5.3 per cent of its potential. The ten turbines at Burton Wold in Northamptonshire have been running for just three years, but achieved only 19 per cent capacity. Many theorize that the financial incentives designed to help Britain meet green energy targets are encouraging firms to site their developments badly, where there isn't enough wind to make them economically self-sustaining. Under the controversial Renewable Obligation scheme, British consumers pay £1billion a year in their fuel bills to subsidize the drive towards renewable energy (sound like Cap and Tax to anyone?). Some academics suggest that the full subsidy be restricted to turbines which achieve capacity of 30 per cent or more – managed by just eight of England’s 104 on-shore wind farms last year. Those that fall below 25 per cent should not be eligible for any subsidy (sounds like a case of free market principles merging with government policy trying to produce more desirable results). A further 7,000 sites are planned for the next 12 years to meet European targets on cutting greenhouse gas emissions. This is a cautionary tale for the future of American subsidized renewable energy.

Danish Turbine Failure, when braking mechanism fails in high winds

A success story: New York State's Tug Hill plateau, known for its snow, is gaining fame for its wind. Maple Ridge Wind Farm, which officially opened last year, is the biggest wind energy project in the eastern United States.

MagLev Wind Turbine Concept

Some Light Entertainment from Federer and Murray

Roger Federer shows off a couple of trick shots during the filming of a Gillette commercial-- a variation of William Tell.

An even more impressive round of trick shots from Andy Murray.

Wednesday, August 18, 2010

Matt Ridley: How Ideas Have Sex

Quote of the Day: Jeremy Siegel and Jeremy Schartz

Those who bought "value" stocks during the tech bubble—stocks with good dividend yields and low price-to-earnings ratios—have done much better. From December 1999 through July 2010, the Russell 3000 Value Index returned 35% cumulatively while the Russell 3000 Index of all stocks still showed a loss.

Today, the 10 largest dividend payers in the U.S. are AT&T, Exxon Mobil, Chevron, Procter & Gamble, Johnson & Johnson, Verizon Communications, Phillip Morris International, Pfizer, General Electric and Merck. They sport an average dividend yield of 4%, approximately three percentage points above the current yield on 10-year TIPS and over one percentage point ahead of the yield on standard 10-year Treasury bonds. Their average price-earnings ratio, based on 2010 estimated earnings, is 11.7, versus 13 for the S&P 500 Index. Furthermore, their earnings this year (a year that hardly could be considered booming economically) are projected to cover their dividend by more than 2 to 1.

Due to economic growth the dividends from stocks, in contrast with coupons from bonds, historically have increased more than the rate of inflation. The average dividend income from a portfolio of S&P 500 Index stocks grew at a rate of 5% per year since the index's inception in 1957, fully one percentage point ahead of inflation over the period. That growth rate includes the disastrous dividend reductions that occurred in 2009, the worst year for dividend cuts by far since the Great Depression.
Those who are now crowding into bonds and bond funds are courting disaster. The last time interest rates on Treasury bonds were as low as they are today was in 1955. The subsequent 10-year annual return to bonds was 1.9%, or just slightly above inflation, and the 30-year annual return was 4.6% per year, less than the rate of inflation.

Furthermore, the possibility of substantial capital losses on bonds looms large. If over the next year, 10-year interest rates, which are now 2.8%, rise to 3.15%, bondholders will suffer a capital loss equal to the current yield. If rates rise to 4% as they did last spring, the capital loss will be more than three times the current yield. Is there any doubt that interest rates will rise over the next two decades as the baby boomers retire and the enormous government entitlement programs kick into gear?

With future government finances so precarious, private asset accumulation and dividend income must become the major sources of retirement funding. At current interest rates, government bonds will not be the answer. One hundred times earnings was the tipping point for the tech market a decade ago. We believe that the same is now true for government bonds.
~ Jeremy Siegel and Jeremy Schwartz
Grouch: I couldn't agree with Professor Siegel and Mr. Schwartz more.  Treasury bond yields are forming the same kind of bubble that we see back in the late 1990s with tech stocks where companies made out of vapor traded at astronomical prices.  No one knows when this bubble will pop, but given the sorry state of the country's finances and the fiscal mismanagement in Washington I think the day is coming sometime in the near future.  I'm staying away from Treasuries.  Corporate bonds, emerging market bonds and high yielding stocks look much more attractive to me.

Tuesday, August 17, 2010

Earnings Yields vs. Bond Yields

The above graph plots both bond yields and corporate earning's yields over the past 50 years.  I like to use these types of graphs as a gage of relative value between stocks and bonds.  I don't use them to try to time the market, but to determine which investment is cheaper at the moment.  Right now the 10-yr Treasury yields 2.7% while the earnings yield of stocks is 6.8%.  Under these circumstances, the rational investor would invest in 10-yr government bonds only if they thought corporate earnings were going to plunge over the next year or two.  I personally see the economy continuing to limp on for the near future at low to modest growth levels, yet bond inflows are on the rise while stocks are experiencing outflows.  I believe the bear market of 2008-2009 is still fresh in people's minds, and the weakness of the recovery, the perception of an anti-business political environment and the fear of a double-dip recession is driving some people to seek safety.  Locking in 2.7% for 10 years is not the kind of return I am seeking for my portfolio, but everything is relative.

Another way of looking at the same basic idea is the graph below:
When the graph enters positive territory stock earning yields are more attractive than bond yields on a relative basis.

Sunday, August 15, 2010

Sunday Verse: David Franks (1948 - 2010) Alice Gaines Played the Harp

Alice Gaines Played the Harp

In kindergarten Alice Gaines

Played the harp . at nap time
& for an hour at noon each day

It was as if Angels sang away
The cares of children sweetly sleeping
After graham crackers & milk . even
When the air raids sirens’ shrill alarms
Shattered dreams

Alice Gaines played the harp . even
We . the youngest children knew the drill
To close the windows against flying glass
To move under our desks & clasp
Our hands to the back of our bowed necks & pray
That the bomb was not really on its way
This time . that the Russians weren’t coming
This time . to sift through our charred remains

Alice Gaines played the harp . as
From beneath my desk I prayed:

Dear God . this is David
In Washington D.C. . remind
The Russians . my Father
Pappa . & . Bubbie are Russians . too

Dear God . this is David
I am in
The first reading group
Under my desk


For the end
Of the world

For the "duck and cover" generation.

In this link poet Andrei Codrescu remembers his friend David Franks on NPR Radio.

Saturday, August 14, 2010

More Google Voice Tricks

Previously I've written about how to use Google Voice and Sipgate or Gizmo5 to make free phone calls from your PC to anywhere inside the US.  Last night I was playing around with Google Voice and tried out some additional features.

Call Forwarding.... when someone calls my Google Voice account phone number, I am able to forward that call to multiple devices.  For grins, I had my land line, the soft (VoIP) phone on my PC, and both my cell phone and my wife's cell phone ringing on incoming calls.  Whichever device answers the call first, controls the call and the other devices stop ringing.  Pretty neat and pretty useful for those who want to be available all the time.  If no one answers the call, Google Voice will act as an answering machine and record a message from the caller.

Text messaging.... text message responses initiated through Google Voice can also be delivered to multiple mobile devices.  So if I initiate a conversation with one of my sons, his responses can be delivered to both my cell phone and my wife's.  And the whole conversation will be captured in Google Voice.

Recording conversations.... Google Voice is also capable of recording phone conversations by pressing 4 on any device that received a call to your Google Voice number.  A word of caution, though, this is not legal in all states unless all parties consent to being recorded.  This is especially true where I live in the state of Maryland (remember Linda Tripp and Monica Lewinski; the only person that went to jail in that whole sordid affair was Linda Tripp for recording phone conversations). 

If anyone else knows any great Google Voice tricks that I have missed, please feel free to educate me.

Quote of the Day: Scott Grannis

It is much more likely that today's disappointing economic growth is the result of anti-growth fiscal policy, rather than restrictive monetary policy. It may seem paradoxical, but $1 trillion of government "stimulus" spending only harms the economy because a) government spends money less efficiently than the private sector (i.e., it would have been better to not borrow all that money and instead to cut marginal tax rates), and b) the huge increase in government spending that has occurred creates expectations (and fears) of huge increases in future tax burdens. Moreover, a larger public sector inevitably brings with it more regulations that help smother private sector initiative.
~ Scott Grannis
 Anyone agree, disagree with Mr. Grannis?

Friday, August 13, 2010


This little piece of satire comes from Sprott Asset Management.

1940's Americana

These 1940's color pics are an intriguing portrait of a bygone era.  Sometimes I like to look at old pictures to get a better understanding of what life was like back then and gage whether we as a society have rally made progress since that time.  No question our lives have become easier, filled with more leisure time and luxuries, but are we any better as a people?  In some ways, the answer is clearly yes, in other ways I think no as the family unit has become less important and influential.

Here are a couple of sample photos from this collection:

REAL or FAKE: Can you tell which of these government spending projects are real or fake?

Anybody still feeling undertaxed or understimulated?

Penn & Teller: Hybrids & Nukes (May be Offensive to Some)

This edutainment piece is from the show Bullshit, and it comes with a warning-- many people might find some of the unnecessary antics offensive, and there's question that Penn is an obnoxious pig, which he proves time and time again throughout the video.


Now a little energy trivia quiz for the readers. These pictures have been making their way around the Internet so some people may already know the answer. Can anyone identify the owners of these two houses?

House #1 
A 20 room mansion (not including 8 bathrooms) heated by natural gas. Add on a pool (and a pool house) and a separate guest house, all heated by gas. In one month this residence consumes more energy than the average American household does in a year. The average bill for electricity and natural gas runs over $2400 per month. In natural gas alone, this property consumes more than 20 times the national average for an American home. This house is not situated in a Northern or Midwestern 'snow belt' area. It's in the South.


House #2 
Designed by an architecture professor at a leading national university. This house incorporates every 'green' feature current home construction can provide. The house is 4,000 square feet (4 bedrooms) and is nestled on a high prairie in the American southwest. A central closet in the house holds geothermal heat-pumps drawing ground water through pipes sunk 300 feet into the ground.

The water (usually 67 degrees F) heats the house in the winter and cools it in the summer. The system uses no fossil fuels such as oil or natural gas and it consumes one-quarter electricity required for a conventional heating/cooling system. Rainwater from the roof is collected and funneled into a 25,000 gallon underground cistern. Wastewater from showers, sinks and toilets goes into underground purifying tanks and then into the cistern. The collected water then irrigates the land surrounding the house. Surrounding flowers and shrubs native to the area enable the property to blend into the surrounding rural landscape.

Thursday, August 12, 2010

A Young Person's Guide to the United States Constitution

A little Klavan political humor on a serious subject, the sad state of civics in this country.

The Case for Investing Overseas

Part of investing success is recognizing demographic trends, and riding the wave of economic freedom and growing middle class wealth to profits.  The above graphs show the world's population by latitude and longitude.  I find the longitude graph much more interesting than the latitude graph.  It shows the potential impact of the large Asian and African populations on the world economy.  While Africa suffers from a lack of economic freedom and is probably not fertile investing ground at this time, Asia is an entirely different story.  Asia's populations dwarf that of the Western hemisphere and one can only imagine the economic potential of this area as the middle class grows and populations become wealthier and better educated.

New Trojan Virus Zeus v3 Empties Online Bank Accounts

Continuing on with the theme of scams, I found this in the UK Daily Mail:
Cyber criminals have raided the accounts of thousands of British Internet bank customers in one of the most sophisticated attacks of its kind.

The fraudsters used a malicious computer programme that hides on home computers to steal confidential passwords and account details from at least 3,000 people.

The Internet security experts M86, who uncovered the scam, estimate that at least £675,000 has been illegally transferred from the UK in the last month - and that the attacks are still continuing.

The new trojan virus can empty bank accounts without their owners knowing about the theft as it shows them fake statements.  All the victims were customers with the same unnamed online bank, the company said.
No doubt the same thing is happening here in the US or will happen soon as bank security vulnerabilities are discovered and exploited.


  • Make sure your anti-virus software is up to date.
  • Keep firewalls set to the highest level.
  • Never open an e-mail attachment from someone you don't know.
  • Never double-click on an e-mail attachment that ends in .exe. It is an 'executable' file and can do what it likes in your system.
  • If you think your machine has already been infected, contact your bank immediately. If the bank thinks you are a genuine victim of fraud it will reimburse you.

  • Make sure your anti-virus software is up to date.

  • Keep
    firewalls set to the highest level.

  • Never open an e-mail
    attachment from someone you don't know.

  • Never double-click on an
    e-mail attachment that ends in .exe. It is an 'executable' file and can
    do what it likes in your system.

  • If you think your machine has
    already been infected, contact your bank immediately. If the bank thinks
    you are a genuine victim of fraud it will reimburse you.


    • Attacks by ‘Trojan viruses’ are on the rise in all countries.
    • Although up-to-date anti-virus software should prevent an attack, experts say an alarming number of people leave their computers vulnerable to cybertheft.
    • Trojans are malicious programs that hide inside apparently harmless computer files.
    • They can lurk on websites, online adverts or hitch a lift in emails.
    • The Zeus v3 Trojan involved in the latest attacks hides in adverts that appear on legitimate websites.
    • Each time someone clicks on the advertisement, the code is downloaded to their home computer where it lies dormant.
    • The code only becomes active when the computer connects to a bank website when it starts to record account details, passwords and other confidential information.
    • It checks to see if the account holds enough cash and then transfers up to $5,000 to a ‘mule’ account - a legitimate bank account held by a real customer.
    • Owners of these mule accounts operate on the edge of the law and agree to transfer sums they receive to someone else, after taking a cut.
    • By the time the police have investigated a Trojan attack, the recipient of the money has usually vanished without trace.
    • Security experts say it is relatively easy to protect against Trojan attacks by installing anti-virus software and keeping it up to date.  
    • Computer owners should also make sure they have downloaded any updates of their operating software - usually Windows - and other programs such as Internet Explorer, Firefox and Adobe.
    • People should also be alert to junk emails that pretend to be from banks, the Internal Revenue Service or online shops like Amazon and Ebay. 
    • The emails invite the unwary to click on a link to a webpage containing a Trojan.
     One reason I run Linux instead of Windows on my PCs is because that OS is less of a target for criminals than Windows, it is more difficult to attack and it is in less widespread use so criminals won't find exploiting it anywhere near as profitable.  Bottom line is the average windows user needs to erect all the software/firewall barriers that they can in addition to using a lot of common sense when reading emails.

    Wednesday, August 11, 2010

    Jamie Dimon is Looking for Me

    I received this email from from Jamie Dimon this morning addressed personally to me (imagine my excitement):

    From The Desk OF: Jamie Dimon C.E.O
    270 Park Avenue, 39th Floor New York, 10017
    JP Morgan Chase Bank New York.

    PHONE: 845-514-9871

    Date: 08/11/2010.
    Dear: Sir.

    I am Jamie Dimon,Chief Executive Officer, President and Member of Operating Committee, JPMorgan Chase & Co, set up to fight against scam and Fraudulent activities worldwide.

    This Group is responsible for investigating the legitimacy of unpaid contract, inheritance and lotto winning claims by companies and individuals and directs  payment of verified claims to the beneficiaries without further delay.

    You are being legally contacted regarding the release of your long awaited fund. After a detailed review of your file, the Halifax Bank UK has mandated the JP MORGAN CHASE BANK to release your fund immediately. The sum of US USD10.5Million has been approved in your favor via my desk. This payment will be effected through Swift Telegraphic Transfer.

    You are advised to Include the following information. Your Full Name? Your Address? Your Private Cell Phone Number? Your Account Name? Your Bank Name / Address? Your Account Numbers? Your Routing Numbers? Your Age/ Marital Status? Your Occupation/ Position? Copy of your International Passport or Valuable Drivers License? for reconciliation with Information forwarded to the bank by this office.

    Your Prompt Co-operation is highly imperative.

        Thanks for Banking with us.

                Yours Truly.
               Mr. Jamie Dimon.
              PHONE: 845-514-9871
      Executive Chairman, Chief Executive Officer,
    President and Member of Operating Committee, JPMorgan Chase & Co
     Anyone reading through this email will immediately recognize it as a scam.  I never cease to be amazed that people actually fall for these cons.  There are plenty of give-aways in the email based on the way language is used that it is certain not written by an American, most likely someone who speaks English as a second language.  Never ever respond to any emails or open any attachments in emails from people you don't know or that look suspicious.  I'm certain that Jamie Dimon would never contact me personally (though I am always open for a high paying job at JPM), and definitely not from email address

    Monday, August 9, 2010

    'Peak Oil' Theory Advocate Matt Simmons Dies

    Matt Simmons, a prominent oil investor who argued the world was rapidly approaching peak oil production capacity, died suddenly on Sunday at his home in North Haven, Maine. Simmons, 67 years old, founded Simmons & Co. International, an investment bank that caters to energy companies, in 1974.

    More recently, Simmons had retired to devote his time to the Ocean Energy Institute, a group he founded to research and develop energy from wind and tidal sources.

    In his 2005 book "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy," Simmons drew attention to the unreliability of Middle East oil reserves, arguing that the nation's oil reserves were nearing their highest levels of production.

    Simmons' views on "peak oil" have long be considered controversial as have his recent statements regarding the oil spill in the Gulf of Mexico.

    Simmons, who served as an energy advisor to President George W. Bush, asserted earlier this summer, that he expected BP would need to file for bankruptcy protection in the wake of the Deepwater Horizon accident.


    I have included a documentary called "A Crude Awakening" from 2007 that features Simmons, and my own local Congressman Roscoe Bartlett. You'll have to sort out the facts from the propaganda according to your own tastes.

    My own personal, unscientific view is that we have not hit peak oil yet in the world, though it is coming within the next 10 - 25 years. Today's efforts to produce energy from solar and wind-power have a ways to go before they can replace oil. To my way of thinking, natural gas is the bridge energy source source to buy time until solar, wind, hydrogen fuel cells and nuclear fusion is ready for mass energy production.

    Skype Set to Go Public

    Skype has filed to go public in the near future and the S1 filing can be found here.  Could this be the beginning of a number of tech oriented IPOs?  I don't know the answer to that question, but Skype is an interesting company that is challenging the traditional phone powers, and likely to be adopted by a lot of tech savvy youth, further pinching the copper wire business.

    The risk section of the filing details the narrow nature of their revenue stream:

    Many of our products are free. As a result, we have generated nearly all of our historical revenues from our paid communications services products, which are purchased by a small minority of our users. During the three months ended June 30, 2010, we generated on average net revenues from calls made by approximately 8.1 million paying users to landline or mobile phones. These paying users represented less than 7% of our average connected users during this period. If even a small percentage of our paying users cease paying for our products, this could have a significant impact on our net revenues.
    In addition, we have historically derived a substantial portion of our net revenues from a single product—SkypeOut. For the pro forma year ended December 31, 2009 and for the six months ended June 30, 2010, 86% and 87% of our pro forma net revenues and net revenues, respectively, were derived from the use of SkypeOut. Due to this dependence on SkypeOut as our primary source of net revenues, we are subject to an elevated risk of reduced demand for our SkypeOut product.
    Our other sources of net revenues, including our Skype for Business products and marketing services and licensing, are currently limited. We may face challenges as we seek to expand our sources of revenue. For example, the current version of our software does not include functionality to allow industry standard-sized advertisements to be delivered to our users via the Skype software client. Furthermore, even if certain versions of the Skype software client were able to deliver advertisements, we may face difficulty in successfully implementing advertising on certain platforms, such as mobile devices. Finally, our users may respond negatively to receiving advertisements through their Skype software client, which could negatively and materially affect user engagement, our Skype brand and our results of operations.
    The revenue and usage graphs are impressive, but are they sustainable?

    Only time will tell.  I can neither endorse nor pan Skype as an investment.  My concern is that there are many ways to make free phone calls over the Internet, one of which I detailed in a previous article.  I believe in the resourcefulness of people to figure out these loopholes.


    Pet Peeves: Golden Parachutes = Perverse Incentives

    The dismissal of HP CEO, Mark Hurd, after the market closed on Friday for a code of conduct violation brings up the topic of one of my favorite pet peeves: golden parachutes for executives.  I'm not going to delve into the circumstances that lead to his firing by the board.  I'll leave that to the news media.  However, as a shareholder of HP I'm pissed off that Hurd is rumored to be walking out the door with a rumored $10M in cash and $40M in stock all for violating company rules.  If any employee below the top executive ranks had committed this offense they would be shown the door with no severance package or golden parachute.  CEOs should be treated the same way.  Code of conduct violations should not be rewarded in this fashion, nor should being fired for poor performance.  If it isn't already clear, I am against golden parachutes period.  These executives are already compensated quite handsomely for the duties they perform.  Golden parachutes only hurt the stockholders of the company and the moral of the remaining employees while unduly rewarding individuals who are being shown the door.  I hope boardrooms will sober up and put an end to this distasteful practice.  If the job is not attractive enough on its own merits then it is time to move on to the next candidate, not put these golden parachutes in place that reward poor performance or ethical lapses.

    Sunday, August 8, 2010

    Sunday Verse: Lucille Clifton (1936 - 2010) Homage to My Hips

    Homage to My Hips

    these hips are big hips.
    they need space to
    move around in.
    they don't fit into little
    petty places. these hips
    are free hips.
    they don't like to be held back.
    these hips have never been enslaved,
    they go where they want to go
    they do what they want to do.
    these hips are mighty hips.
    these hips are magic hips.
    i have known them
    to put a spell on a man and
    spin him like a top

    ~  Lucille Clifton

    The Broken Window Fallacy

    I thought this was a timely video, given the preponderance of "broken window" type of thinking in the halls of Capital Hill.

    Wednesday, August 4, 2010

    How to Make Free Phone Calls From Your PC

    Anyone who has followed some of my posts on the Internet knows I hold a dim view of the long term prospects for the country's major communication companies like AT&T and Verizon.  The reason is quite simple--- they are technology companies, not regulated communications utilities anymore, and anyone who doesn't recognize this is in for a continued decline in the value of their investment.  As speeds continue to increase on the Internet as a whole and cell phones continue to develop a richer feature set, these technology along will render the "cash-cow" copper line business obsolete, and take a large bite out of the revenue steam of these companies that they will have difficulty replacing.

    To illustrate my point, I am going to demonstrate how to set up your PC to make free Internet based phone calls.  The only equipment you will need to pull this off is a high-speed Internet connection, a fairly modern PC, a headset with microphone and a router.  We will use Google Voice in combination with Sipgate to make the connections into the existing telephone network.  To keep costs down even further we are going to configure this on a Linux operating system with free software components.

    Step 1: Establish a Google Voice Account

    Go to website, set up an account and acquire a Google Voice phone number.  Google Voice can perform two main tasks: 1) provide a single phone number that can be used to forward calls to other devices such as home phone # or cell phone #, and 2) allows you to make toll free calls anywhere in the US.

    Step 2: Establish a Sipgate Account

    Go to website and set a free single number account that will allow you to make VoIP calls from your PC.  Their number bank is limited as of this writing and California numbers may be all that is available.

    Step 3: Set up your softphone on your PC

    On Linux download the Ekiga package and configure the phone.  In my case go to the Edit->Accounts option and set up an account for Sipgate.  For those who run Windows, Sipgate has a softphone on their website that can be downloaded.

    The values for fields User, Authentication User and Password come from your Account on the Sipgate website under Settings->Sip Credentials.

    Step 4. Launch your softphone.

    Start Ekiga and it should connect to Sipgate.

    Step 5. Configure Google Voice to connect to your Sipgate softphone.

    Log into your Google Voice account and forward your Google Voice account to your Sipgate account phone number.

    Step 6.  Download the Google Chrome browser and the Google Voice add on component.

    If you have done this correctly, your Chrome browser should have a blue phone in the upper right corner that can be used to control Google Voice.

    Step 7.  Make your first call.

    In the Google Voice window above, type in the number to call and hit connect.  Google Voice will then call your Sipgate phone.  Ekiga will issue the following prompt.

    Click accept, then Google Voice will be connected to your softphone as it initiates an outbound call to number you wish to contact.  After a few seconds, you will hear the ring of the other number being called.  This is the trick that makes this technique free-- Sipgate only charges for outbound calls initiated from the softphone; Google Voice looks like an inbound call, even though it subsequently makes the other side of the connection.  Google Voice can also be used to bypass toll charges on your traditional land line.

    Step 8: Configure your Router for Quality of Server

    Assuming you have a router with QoS capabilities, make the sip protocol a premium service so it will get the required bandwidth necessary to give you a satisfactory voice experience.  On my router running DD-WRT, the config looks like:

    If a hack like me can figure this out, imagine what the future holds with a bunch of genius teenagers thinking outside the box.  In theory you could replace your landline with this set-up, saving yourself $600-$1200 a year.  Both Google Voice and Sipgate feature voice mail and caller id for free, and can forward calls to any phone of your choosing at no charge.  This is why I am pessimistic on the long term outlook for phone companies in particular, and believe that cable companies are vulnerable too.