change

Misperception index

I hope reality sets in pretty soon so folks can plan accordingly--otherwise, they are gonna be really shell shocked
http://www.housingwire.com/2008/10/30/home-value-mis-perception-not-just-a-river-in-egypt/
People still think their house is good to go.

10 reasons to never get a job

I have internalized this advice for 28 years and plan on doing it for another 80 or 90. ha!
http://www.stevepavlina.com/blog/2006/07/10-reasons-you-should-never-get-a-job/

Pre order my book

It looks like my upcoming book is already available for pre-order through Amazon.com's website. Please help spread the word.http://www.amazon.com/Embedded-Marine-Corps-Advisor-Inside/dp/1591143403/ref=sr_1_2?ie=UTF8&s=books&qid=1225320065&sr=1-2

What's a Powell endorsement worth?

This is interesting
and then there is the infamous vile that tricked me into thinking Iraq was going to send a bomb to America--I feel like a clown for believing that trash.

Bush on Global Warming

pretty funny stuff

What's wrong with America?

this is

WON is company we follow with a current market cap of around $15mm, and yet, the CEO is leaving with a 1.9mm severence package, or roughly 13% of the value of the entire company. This sort of thing is criminal and has been going on for years. We don't need more regulation to solve this, we need more shareholder power so we can crack down on these crackheads. I hope Obama fights for shareholder powers and relies less on regulation to 'fix' the problems. I can guarentee that if Obama allowed shareholders to let loose on CEOs, many of our problems would be fixed BY THE FREE MARKET!

Buy and hold America?

Update: It turns out a Harvard Professor has already studied the idea below and has quantified the actual risk of collapse and disasterous consequences over time...very interesting..

Thanks to Hui Chen, my MIT finance professor friend for pointing this article out...

http://www.economics.harvard.edu/faculty/barro/files/equity%20premium%2012-1
-05.pdf

Summary Point: Doomsdayers are not stupid.

I've been wondering about all the investors and market commentators (i.e. Warren Buffett ) who claim 'buy and hold' forever for American stocks. The usually line of reasoning is "America always comes back", or, "we have lived through a Depression, two world wars, 20 recessions, and therefore we will live through this." These are not reasoned statements, but faith based statements. Moreover, they suffer from a strong survivorship bias.

Survivorship bias is something economists deal with all the time when doing empirical work. Survivorship bias occurs when a researcher analyzes a dataset without including the data that fell out of the dataset. An example is mutual fund performance. Before Mark Carhart went around the country to collect data on mutual fund returns--to include the ones that went out of business--everyone examined the returns of the mutual funds still in existence. The problem with this approach is that an investor facing the decision of which mutual fund to invest in doesn't know which funds will go bust and which funds will survive (try it...Which funds currently offering mutual funds are going to go bust in the next few years?). The fairest way to examine the performance of mutual funds is to include the returns on ALL funds--surviving funds and the ones who went out of business. By including all mutual funds in the database you can get a survivorship free estimate of how mutual funds perform.

Now, let's apply this to the current economy; replace mutual funds with countries/regimes, and replace bankrupt mutual funds with the likes of Roman Empire, Ottoman Empire, British Empire, China pre industrial revolution, Napolean-era France, Nazis, etc. If we look over the REAL long term, which is thousands of years, there have been a lot of countries/regimes go bust. I don't know of a historically successful regime that still exists as a superpower. It seems that each superpower lasts around 200 to 300 years before they are internally or externally destroyed and need to start again. So, looking at this LONG TERM historical evidence, there is a 100% probability that America will go down in flames. 100% would be the survivorship bias free estimate of the probability that the American stock markets end up near zero at some point in the future...if you really don't believe me, tell me how much the market will be worth when the sun burst in a few billion years and Earth doesn't exist...

Warren Buffett and many others who focus on the short term (the last 100 years) keep telling everyone to buy and hold America as if this is a 100% guarentee. The reality is that this has been a great strategy recently, but its not a guarentee. There is a probability that America goes to zero or close to it. We could lose a world war (i.e. Nazis, or Japan), we could go bankrupt and experience hyperinflation, or we may get competed away by China or India and end up on the losing end of the capitalist game. These events all have non-zero probability in the short-run (say, the next 50-100 years) and over the long-run the probability is probably near 1, or in other words--something WILL happen. 

So what's the point of this thought experiment? The point is that thinking buy and hold America  is a guarenteed way to make money over the long term is false--it's a good bet, but not a guarentee. The second point is that at our current stage there is a higher probability of a total collapse then there was during other times in our history. The third point is that "being greedy, when others are fearful" is really a way of saying, "I'm betting there is no chance of a collapse, and other's are pricing in a probabiliy of a disaster, which I think is incorrect and therefore I will make money when we recover." Everyone is free to place their bets, but nothing is a guarentee. 

another theory on the economic meltdown

...it is an American and Jewish conspiracy to keep Palestine from forming a state and to take away Arab wealth...huh?
http://www.memri.org/bin/latestnews.cgi?ID=SD209008

econ prediction

Well, unfortunately my original prediction from almost a year ago was pretty much spot-on http://www.welcometotheadventure.com/2008/01/fiscal-and-monetary-policy-ruminations.html. I say 'unfortunate' because I now think I know something, when the reality is NOBODY REALLY KNOWS. But since I think I know what I'm talking about I'll make another prediction while I'm hot:

This recession will last a couple of years (end early to mid 2010) and will not be really bad--bad, but not >12-15% unemployment bad. I do however think that our economic engine that drove the market from 1000 to 8000 is over. We are entering an era of socialism and heavy regulation (assuming Obama gets in and democrats hold solid majorities in the house and senate). My guess is our economy going forward will limp along at a 1-2% growth rate for the next 20-30 years and India and China will take the helm as the fast growing, innovative societies. America as an economic engine for innovation and entrepreneurship is over--why be an entrepreneur in America when all your wealth and earnings will be taxed? Just move somewhere else...

Is socialism necessarily bad? Well, it depends on the individual. On one hand, we'll probably get to maintain our current lifestyle and there will be less volatility in the economy, on the other hand, we will no longer be known as the home of freedom, ideas, and the American Dream. In a nutshell, we will resemble a European country. Personally, I could deal with us being a European country, but then again, as a small business owner, my motivation to try and go for the gold is slowly dissipating. Here is what the stock market will probably look like for the next 20 years--long and flatttttt

Haunted House at Navy Pier

http://www.thefearhauntedhouse.com/

The Fear Haunted House @ Navy Pier from Big Tree Productions on Vimeo.

Katie, Amy, Vicki, Cliff, Ty, Danielle, and I survived the Haunted House at Navy Pier...really awesome. Katie even led the charge into the house..wow

what the market says

http://www.intrade.com/jsp/intrade/trading/t_index.jsp?selConID=376101
looking bleak for mccain

shareholders...aka owners...should have a say

sign up for Carl Icahn's inititative http://www.icahnreport.com/report/2008/10/join-the-united.html
The sad fact is that the market would actually work a lot better if shareholders actually had the power to lay down the law if their ceo's and managers were't performing. Icahn is trying to form an organization that will change this. He is a career activist investor and so he has a lot to gain from the initiative's success; however, if owners actually had more power in dealing with ceos, it would enforce a more discipline in the system.

I have a perfect example, in 2003, this stock I owned called liquid audio had a market cap of around 20mm...at the time the CEO was getting paid 2mm or something crazy...that is 10% of the company's value!!!!!!! To make matters worse, the company's operating metrics were horrible, the stock was down 95%, and employees were being fired left and right...and yet, THE OWNERS OF THE COMPANY had NO real power to kick this yay-hoo out ofoffice... sickening

sums it up

http://www.sinfest.net/archive_page.php?comicID=2959

recent ponderings...

1. short sell constraints haven't worked for the market or for the financials they were supposed to 'save.' All this has done is create market dislocations and insane volatility.

http://finance.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chdet=1223496000000&chddm=7820&q=NYSE:VFH&ntsp=0

lesson: short sellers do not 'destroy' markets, rather, they make sure they function properly.

2. coordinated rate cuts and insane bailout packages with TONS of 'pork' have not saved the market
http://www.house.gov/apps/list/press/financialsvcs_dem/press092808.shtml

lesson: When you overspend and overborrow for 15-20 years, you eventually have to pay your bill. Creating some sort of government regulation that vanishes this reality is equivalent to money growing on trees--it doesn't exist.

3. sarah palin told some bystander the other day that her son is in Iraq protecting her patronizers freedom to protest. Here is my question: How in the hell is us being in Iraq, wasting money on a bunch of tribal idiots who will never agree, linked to protecting someone's ability to practice free speech? The entire time I was in Iraq I definitely did not feel like I was protecting American's ability to practice free speech. If I were in WW2 fighting a war of survival--I may have felt this way...in Iraq...not so much. These sort of statements are simply stupid.
http://www.youtube.com/watch?v=gvGI2pTDcvw

4. This presidential race is between dumb and dumber (term stolen from my dad). On one hand you have an old senile man who can't articulate himself paired with a super hot MILF who has no credentials; on the other hand, you essentially have a very articulate socialist who wants to implement policies and tactics (some of them like healthcare may actually work) that have proven to fail (see policies in the 30's and 70's for examples) during times of crisis--again, when you overspend and overborrow for 15-20 years the government can't simply 'fix' your problems by regulating, taxing, fighting wars (afghan/iraq, or afghan+ for obama), and bleeding entreprenurial spirit from the system. The one saving grace for Obama is that he did say he wanted to ensure regulations were implemented in a surgical fashion and not with an axe...I'm not sure how he is going to make that happen with a bureaucratic, slow, lobbiest-filled, legistlative branch...but good luck. This is all ridiculous.

common sentiment amongst "Main Street"

Bailout fiasco

this is from a good friend who has done some detective work...the housing bill includes tax rules for wooden arrows????? what a fiasco!!!!!!!!!
UPDATE: Here is the full text of the bill. The Senate added the bailout to another bill and there are some weird provisions. This is my favorite (I wish each provision had the name of the author!):

SEC. 503. EXEMPTION FROM EXCISE TAX FOR CERTAIN WOODEN ARROWS DESIGNED FOR USE BY CHILDREN.

(a) IN GENERAL.—Paragraph (2) of section 4161(b) is amended by redesignating subparagraph (B) as sub301 paragraph (C) and by inserting after subparagraph (A) the following new subparagraph:

‘‘(B) EXEMPTION FOR CERTAIN WOODEN ARROW SHAFTS.—Subparagraph (A) shall not apply to any shaft consisting of all natural wood with no laminations or artificial means of enhancing the spine of such shaft (whether sold separately or incorporated as part of a finished or unfinished product) of a type used in the manufacture of any arrow which after its assembly—

‘‘(i) measures 5⁄16 of an inch or less in diameter, and
‘‘(ii) is not suitable for use with a bow described in paragraph (1)(A).’’.

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to shafts first sold after the date of enactment of this Act.

I'm in Chicago

Comcast still hasn't gotten my internet/cable set up, but life is good. I will update more frequently when I have actual internet.