Yay to Flaxseed!

I was just reading about 15 tricks to turn ordinary foods into nutritional superpowers and I got really interested in flaxseed oil. Reading more, this seems to be an incredible supplement, especially for a vegetarian like me. Get this - just one teaspoon of flaxseed oil contains about 2.5 gm omega-3 fatty acids, besides being rich in omega-6 fatty acids. Consumption of modest amounts of flaxseed oil has been shown to reduce incidence of heart disease, cancers, acne, fatigue and several other conditions. For more information on flaxseed and other tips, check out these sites:

WholeHealthMD's Flaxseed page
Dr Mirkin argues that omega-3's from plants are better than those from fish!
Practical Usage Tips

Another One Bites the Dust!

Wow, yet another senior Republican in ethics trouble. This time it's an eight-time Congressman from California - Rep. Cunningham has admitted to some pretty serious fraud charges. I forecast the GOP will lose the House and Senate unless they do some serious house-cleaning. How the hell can so many senior leaders be involved in scandals, and the party turn around and ask for votes?

The troubled ones so far (pols and others) - Delay, Frist, Rove, Libby, Cunningham, Abrahamoff, Scanlon - phew, that's quite a list! And I suspect we'll see a lot more uncovered.

I hope this is a clarion call for the clean politicians in the GOP to take over - people like my man, John McCain. Yes, he's a loose cannon, but the American people appreciate straight talk, and hopefully clean records!

Correction to Earlier Story on Stock & Bond Returns

Every now and then, I get it wrong (ok, maybe more often than I'd care). In my earlier analysis of stock and bond returns at present bond yields, I noted that the historical forward 5-year returns of both asset classes at present real bond yields were horrendous. This was true. I then noted that adjusting for inflation did not explain the performance of stocks. This was somewhat incorrect. What I had done was to adjust the stock price index (S&P 500) for inflation, but not the bond yields. Using an abscissa of nominal rather than real bond yields explains a lot.



First note that at high nominal yields, there is a direct correlation between those yields and ensuing performance. This would suggest the early phases of stock bull markets, where either inflation has investors fleeing bonds, or hype has them running to stocks (a la 1990s). But when we get to lower nominal bond yields, there appears little correlation between these yields and ensuing stock performance.

So what about my conclusions in the previous post on the need for capital preservation? Let's look at the data since 1981, when the era of hyperinflation ended.



As we can see, this graph suggests that at present real bond yields, there is a lot of bullishness about bonds, meaning stocks may actually outperform bonds (delusion of crowds phenomenon). This woud be especially true if we believe concerns about inflation are overplayed.

Certainly there are many assumptions in this analysis, and this screw-up emphasizes why you should not take any one person's ideas too seriously!

The Case for Capital Preservation

Let me start by emphasizing that I am not an economist. No sir, my knowledge of economics is rather rudimentary. As an engineer, I try to predict (and hopefully understand) complex systems by a study of data. And in that spirit, I looked at returns that can be expected based on economic data from January 1963 to September 2005. (I talk about some assumptions and limitations further below)

My interest was to see what the historical record had to say about our historically low real bond yields, hovering just under 2% (real yields are yields minus inflation). If you look at the forward 5-year change in bond prices as a function of real bond yields, you notice at that present levels, bonds have been a good way to lose money.

This is hardly surprising - low yields indicate high demand, and any value investor will tell you that when there is too much exuberance in the market, that asset will likely fall in price when investors realize the unsustainability in price.

So stocks are the way to go, right? After all, the fundamental principle of diversification is that stocks and bonds are inversely correlated. Well, not quite. If you look at the historical record, at present real bond yields, stocks have suffered quite badly in the ensuing years.


My first thought were that historical low real bond yields must have been associated with inflationary periods which killed businesses with high raw material costs. Unfortunately, this does not completely solve the puzzle, as plotting the data in terms of unadjusted (rather than real) prices shows similar trends.

Why this happens is a mystery to me, one I'd like to understand. If there's someone with an economics background or just a better understanding of these phenomena, please cue me in.

If this reasoning is correct, that makes the case for inflation-protected securities or CDs yielding above inflation. At last count, I-bonds were yielding (real) something like 1.6% (I think), while most CDs were closer to 0.75%. While an 4-8% real return over a 5-year period hardly seems appealing, the record suggests this may be better than rather significant losses in equities or fixed income assets.

OK, now for the less interesting (to many) details of assumptions and the weakness of my arguments.
(1) I assume that this limited (42 years) data set is sufficient.
(2) I assume that multiple factors are priced into real bond yields. While I did consider inflation above, the economy is a complex and nonlinear system, and it is questionable if real bond yields reflect the nonlinearities appropriately.
(3) I do not consider international investing. Correlations between international economies and the US are something to look at - I would argue that much of the Asia-Pacific economies are tied to the US, and a slowdown in the US economy would wreak havoc on these economies.

Stay Outa Faith Issues!

I think criticism of a Catholic school firing a pregnant unmarried teacher is really misguided. People send their kids to faith-based schools to help them inculcate the values of their faith, and teachers are supposed to be role models. To have a teacher obviously violate it and still be in the school confuses kids. As a Hindu Brahmin (a sect that abhors the consumption of animals), I would be outraged to find out a teacher in a school of my faith did not adhere to those same principles!

Secular schools just have to have different criteria than faith-based schools ... actually make that true for all types of institutions!!

Save Your Identity

Some tips I just heard on the Clark Howard show:

* Never let your checkbook leave your house! If your check book is stolen, good luck saving your identity!
* If you have all the credit you need, opt out of pre-approved credit offers, by calling 1-800-5OPT-OUT
* Check your credit reports for suspicious activity. Added bonus: You can make sure your credit report is ok (Some 8 in 10 credit reports have errors!)

Stupidity Award

OK, the latest person deserving on some kind of Nobel prize for Stupidity is this lady, who tried to open the door on a plane so that she could smoke. Shit, if you are scared of flying, that's one thing, but to actually try to open the jet door! And to think she got off with just a "good behavior bond"!!

Quote of the Day

Rep. Mike Pence (R-IN), who wants Bush to show how the US is actually winning the war in Iraq:

This is football season. People want to know if we're winning or losing . . . what's the score ... just over 2,000 Americans dead, compared with 50,000 to 60,000 enemy combatants.

Yuck! Say No to Fries!

The next time you feel inclined to shake your head at someone smoking or having a drink, disappointed at their choices in life, look at your own. I'm amazed at how many people who sneer at poor choices by others will not think twice before loading up on their favorite fried foods, be it french fries, or an ethnic delight like vadas (for my Indian audience!). Well, enjoy them if you must, but here's what it will do to you.

Blood Pressure? Sip this Java!!

Ok, just when I was trying to brainwash myself into accepting coffee is bad for you comes new research that coffee reduces blood pressure, at least in women. OK, so the difference isn't significant to justify drinking it, but it sure makes it seem a lot less evil, and hence a lot tougher to quit. (Whereas say, fried foods obviously clog your arteries and are easy to skip if you care enough about living a half-decent life!)

No, no, I still plan on gradually reducing my dependence and eventually quitting the need to have coffee, although I still hope to enjoy the nectar of the Gods ever so often.

Losing Weight

Men's Health Magazine had this piece on the new science of weight loss. Really quite interesting, and in some cases, counterintuitive. Here are some interesting facts:

* You could be increasing your body fat percentage by not eating! When your body needs energy, it burns muscle before fat, so if you don't get enough carbs, you burn muscle instead of fat!
* I have loved to bug my friends about this one - weight training is a MUCH BETTER method to lose weight than running or any other form of exercise. The difference is that weight training increases your resting metabolic rate (how many calories you burn while not exercising) and thus causes greater calorie burn.

There's a lot more, so I would read the story (even if you aren't a man!)

Where's the Swagger?

Watching Bush the other day, I couldn't help thinking of how beleagured the President is. I mean, I had read of all his problems in the media, but it was nowhere more obvious than watching a press conference. Gone was the swagger and the charm, and instead was left a man who seemed excessively defensive. Bush needs to get back to what made him popular - besides conservatism, he got elected because he was a Washington outsider, not a seasoned politician with an eye fixated on the popularity scale. To redeem himself, Bush needs to come out strong on ethics issues, and fix his personal credibility, which has been tumbling. Don't play coy and refuse to comment - you are just adding yourself to the long list of politicians we hate. That's not how you became president, and certainly what people want.

As I complained in an earlier post, I was quite excited after the elections by a president who seemed ready to fix social security, healthcare, education, immigration. Instead we have gone nowhere. This second term is the most collosal waste of time we have experienced. Maybe he's waiting for elections to be done Nov 8? One can only hope so. Whether you are Republican or Democrat, you have to be frustrated at the lack of progress on so many issues.

Immigration Policy and Cheap Labor

It annoys me that a purpotedly business-friendly administration cannot fix our flawed immigration policy. Bush needs to look up from the problems with ethics and judges, and reevaluate his plans to fix a policy that encourages poor Mexicans to spend exhorbitant sums of money to get to the US, and then get scammed of their earnings, like these stories about Katrina cleanup workers not being paid. Capitalism is based on an understanding of supply and demand, and it's not rocket science to realize we have a real shortfall of cheap labor in this country.

Reading a biography on Greenspan, I found it interesting that economists (including those at the Fed) subscribed to a concept called NAIRU wherein unemployment rates below a threshold level trigger accelerating inflation expectations (for more on NAIRU, read this). I don't know if anyone has looked at how outsourcing and cheap labor may help reduce the NAIRU, but it certainly seems intuitively that the threshold should drop lower when there isn't supply constraints.

Damn Liberals and Iraq

Remember the pre-war days when liberals crooned that war was the wrong option, and that the US should follow the lead of Russia and France in pursuing diplomacy. Well, now that the Oil For Food program investigation is over, it turns out that, surprise surprise, companies in those countries, as well as many more, were getting fat violating UN sanctions and enriching Saddam's pockets.

On The McLaughlin Group on PBS yesterday, Eleanor Clift crooned about how the Bush administration lied about WMDs and implied we shouldn't have got rid of Saddam. This was a thug who tortured his people, invaded another country and then subverted a sanctions program, but don't count on leftist idiots to value all that. It was left to Mort Zuckerman to point out that every major intelligence agency in the world thought Iraq had WMDs, and indeed so did the Clinton administration.

Listen, it's tough stuff out there in Iraq, and there are innumerable risks, but in the end, I think it's the right signal that Bush gave that America will stand on the side of freedom. This is a sea change for a country that has often failed its role by supporting autocratic governments, and it is refreshing to see that the world's only superpower realize its responsibilites beyond its self-interest.

The Source of Wage Losses

If you are wondering why there hasn't been a post in a while, it's because I spent the week in Cincinnati at a conference. Anyway, it's always good to be back home, although I come stressed out about just how much I need to do to get the elusive PhD.

On the theme of education, I liked this essay on the source of declining wages for low-skilled workers. Hint: it's not from outsourcing!