Monday, February 27, 2006

Paying Halliburton

Most people will read this story and think, hmm the fat cats at Kellog Brown Root (KBR), a subsidiary of Halliburton, where VP Dick Cheney used to work, are getting away with it. But the reality is that the Army's decision to pay KBR is probably the right one. I don't know the details of the audit, but having worked in this civil engineering business for a few years, I can tell you it is completely unacceptable to have perfection under these situations as a precondition for payment. Think about it, the US Army itself, having trained and fought in wars such as this one before, is struggling to keep itself above water. How can you expect a consulting firm that has never worked under wartime conditions to perform perfectly? KBR is taking a lot of risk in this work, and I think I remember reading that they weren't having great profit margins (common folk think profit, which of course is important, but in the consulting world, profit margins are the holy grail!) To not pay KBR would have been a guarantee that you would find it hard to find private partners in your next effort.

Sunday, February 26, 2006

Why the Fed is Irrelevant

[Wow, third post this morning! I've been extremely busy, so it might be that a lot of my blogging comes on weekends in the future!]

While not all my readership seems to appreciate economics or investment postings (I've gotten e-mails from friends asking me to please cut it out) I'm still intrigued by the topic, so I guess we'll continue to have some more. I found this article by John Hussman to be quite intriguing. He's a PhD in economics, and a very interesting read if you are interested in investing. In this article, he argues that bar in the event of a banking run, the Federal Reserve is irrelevant, except for a physcological effect. This is stark contrast with media outlets and analysts obsessing about the Fed's every move. I'm no economist, so I am unable to critically evaluate the strength of his arguments, although I guess I'm a little surprised because it contrasts with the argument that the Fed has created asset bubbles with low interest rates. Some excerpts ...
One might respond that even if the Fed doesn't affect credit, surely changes in the monetary base affect inflation. But if you look at the statistical evidence, the relationship between monetary growth and inflation is very weak. Instead, our research indicates that inflation is primarily the result of growth in unproductive forms of government spending (basically defense spending, entitlements and other expenditures that fail to stimulate the supply of goods). The evidence both from the U.S. and other countries clearly demonstrates this relationship.

Except for the Federal Funds rate, the Fed does not determine short-term interest rates. Most of the time, it simply follows them. Statistically, the Federal Funds rate consistently lags market interest rates such as Treasury bill yields. Indeed, changes in market rates have far more predictive power to forecast the Federal Funds rate than vice versa.

Mark Warner at Asia Society

A few days back, after reading the Bush speech at the Asia Society (see previous post), I had visited the Asia Society web site and looked at the recent speeches. One of them was Mark Warner. Now, I'm always interested in anything to do with Mark Warner not just because he was Virginia's hugely popular governor, but also a potential candidate in '08, and maybe, just maybe, a Democrat I might be able to support (of course, that may change when he starts talking about the myriad issues he has been silent on to date). But reading this speech, I was pleased to note that here is a Democrat who is not talking Benedict Arnolds Kerry-style, but rather recognizes changing paradigms and as governor, sought to realign Virginia in the new model rather than clinging onto protectionism. Here's one fact I found particularly surprising...
That was a large Indian company, Essel Propack, that actually picked Danville, Virginia-the heart of the tobacco region in our Commonwealth-to put a major manufacturing facility. That manufacturing facility in Danville has done more to change the feelings of people in Southside Virginia about some of the upsides of international trade than anything else.

Wow, Indian companies are actually setting up shop in the US! This is something you don't hear about too often in the press. Anyway, I like Warner's emphasis on technical education rather than regulation. I like that we finally have a Democrat who realizes that we don't need to be going back to the jobs of the 20th century, that we need to be staying ahead of the curve in technological and service jobs.

There was one anecdote of his trip to Delhi, India that sounded suspiciously like something I had heard from Bill Gates several years ago, but I'll give him the benefit of doubt that he went to the same project Gates did. So anyway, here's that anecdote:
I visited an NGO called the Hole in the Wall project. This Hole in the Wall project was simply where the NGO had come in and put a series of computers into a brick wall-and would turn them on in the morning and turn them off at night. There were no teachers, no training. It was definitely to see what would happen. I mean I'm a visiting American dignitary and they had rolled out the red carpet and a young kid named Samir grabbed me and said, "Tell me your name, tell me your name." I said, "My name is Mark. Why do you want me to tell you my name?" He said, "Well, I want to Google you to find out if you're important."

President Bush at the Asia Society

I read a wonderful speech by President Bush at the Asia Society talking about India and Pakistan. You can read the transcript here (or click on the 'Video' link for video, although I prefer reading to watching!). It's a good reflection of the two nation's importance in the world. Here are a few excerpts I really liked:
India's work in Afghanistan is a good example of India's commitment to emerging democracies. India has pledged $565 million to help the Afghan people repair the infrastructure and get back on their feet. And recently, India announced it would provide an additional $50 million to help the Afghans complete their National Assembly building. India has trained National Assembly staff, and it's developing a similar program for the Assembly's elected leaders. The people of America and India understand that a key part of defeating the terrorists is to replace their ideology of hatred with an ideology of hope. And so we will continue to work together to advance the cause of liberty.

For all those people who cry about outsourcing to India, here is why India is great for the US.
merica's economic relationship with India is strong and it's getting better. Last year, our exports to India grew by more than 30 percent. We had a trade surplus of $1.8 billion in services. India is now one of the fastest-growing markets for American exports, and the growing economic ties between our two nations are making American companies more competitive in the global marketplace. And that's helping companies create good jobs here in America.

Further on the topic, he expands on the demand for American products in India.
We must also recognize that India's growth is creating new opportunities for our businesses and farmers and workers. India's middle class is now estimated at 300 million people. Think about that. That's greater than the entire population of the United States. India's middle class is buying air-conditioners, kitchen appliances, and washing machines, and a lot of them from American companies like GE, and Whirlpool, and Westinghouse. And that means their job base is growing here in the United States of America. Younger Indians are acquiring a taste for pizzas from Domino's -- (laughter) -- Pizza Hut. And Air India ordered 68 planes valued at more than $11 billion from Boeing, the single largest commercial airplane order in India's civilian aviation history. Today India's consumers associate American brands with quality and value, and this trade is creating opportunity here at home.

OK, there were a lot more I could excerpt, but you'd be better off reading the whole speech. Even if you don't care for Bush, you'll find this speech revealing because it is about the strategic importance of two nations that will be vital players in the global environment.

Saturday, February 25, 2006

Boo Bode

So Bode Miller finished medalless, after all the publicity and media glitz. His response:
As far as my own personal involvement, I would not change anything. I had an awesome Olympics

I have to confess I never did care much for rebels, but Bode Miller's some piece of work. Not a medal, and he had an awesome Olympics? Well, I don't know if the American public who he represents would agree. Why do atheletes think they are somehow immune to any performance standards? I mean, if I was a brilliant engineer, and I designed a bridge that collapsed in a day, you think I could get away with, "I'm satisfied with my work"?

Wednesday, February 22, 2006

The Arabs Control Our Ports!!

A lot of excitement has been generated in the last couple of days over the issue of a Dubai-based company, Dubai Ports World buying a British company, P&O Steam Navigation, which manages six US ports. My first instinct was NO FREAKING WAY! After all, how can it be safe to allow an Arab company to be in charge of US ports?

But things aren't as they appear at first glance. After all, 30% of US ports are run by foreign companies. Which raises the question - if there are security concerns, why allow any foreign company to run our ports? The UAE is actually a valuable ally in the War on Terror. Add in the fact that the Department of Homeland Security and other agencies thoroughly vetted the deal, and the US actually has been having a working relationship with DP World for a while now, like Asst Secretary of Treasury for International Affairs, Clay Lowery pointed out on the Newshour on PBS (port security often starts outside the borders of the US).

There is one more dimension to this - the meaninglessness of nationality. The same day the ports issue generated an uproar, three US citizens were arrested for links to al Qaeeda.Terrorists can always recruit mercenaries - case in point, Jose Padilla, not Arab, not Muslim. If we rely on the conscience of "our" people in the war on terror, we're inviting another attack! Thankfully, port security continues to be firmly in the hands of the Department of Homeland Security rather than in those of a company whose only qualifications are its nationality.

Sunday, February 19, 2006

Contrarian Success

I just read this in a story on the Motley Fool web pages. While I tend to be skeptical of Wall Street views and have sort of hoped I was a bit of a contrarian investor, this fact shocked even me.
In fact, in every single year of the new millennium, stocks rated "sell" by Wall Street have outperformed stocks rated "buy" or "hold." From 2000 to 2004, stocks that the Street told you to sell rose 19% per annum on average. Meanwhile, the "buys" and "holds" rose just 7%.

Saturday, February 18, 2006

Dell Theory and Oil Security

Wow, the Master Thug Hugo Chavez has just threatened to stop exports to the US if the US keeps pissing him off. Big threat when Venuzuela is one of the big sources of American oil consumption! Is he serious? Can this be a threat?

Thomas Friedman postulated in his book 'The World is Flat' what he called the Dell theory - essentially no two countries that make parts for a Dell computer will go to war. Essentially, it means economics beats rheotoric every time, so sleep easy because markets are at work. I'm a great believer in free markets, and think they are a better system than any bureaucrat-controlled one. But there are limitations, and one of them is that when markets are not truly free, we have some issues.

What do I mean? When a country is ruled by a despot or a "democratically elected" leader who thrives on sentiment rather than performance, we have an issue. The argument is that no leader would take such an economically disastrous step for fear of losing the next election, but the reality is that leaders in many such countries either do not have to worry about elections, or can sway an uneducated public with false hope and rheotoric.

We love to wax about the incredible promise of democracy, and it's one I truly believe in. But it requires people to make unemotional choices, and think of the consequences of their choices, as President Bush aluded to following the Hamas election. The reality is democracry after democracy elects leaders who will bring misery on them, all on the promise of justice or just sticking it to the US or the world (even as they take US aid!)

So should we be worried about the Chavez threat? Absolutely. It underscores a point I made in a previous blog post - the major sources of oil are far fewer than we'd like and in countries who aren't necessarily full of warmth for us. I'd say let's pull out those plans for the nuclear power plants! There have been many safety concerns, but if we don't try to penny pinch, we can build safe reactors that make us safer (in energy terms at least).

Thursday, February 16, 2006

The Future for Oil

One of our engineering professors was kind enough to invite me to a lecture he was giving on the oil and gas industry. I found it a fascinating talk, filled with interesting statistics and slides from BP, Shell, USGS and other agencies. It really helps put a lot of issues related to the oil and gas industry in perspective. (I should note that the views below are mine, based on the facts and figures in the lecture, not necessarily those of the speaker)

  • "We need to reduce our dependence on Middle East oil" Seems obvious? After all, this is where we have all kinds of political enemies. Politicians rant about this all the time. Even the oil-loving President Bush said so. Well, nice try! Unfortunately, Middle East oil accounts for 62% of the world supply. The lowest that percentage has ever been? 56%. Even countries we don't do business with, like Iran, affect oil prices and supply. While we are at it, let's dispense the illusion that we can do away with dependence on thug countries. In that chart with oil suppliers, there are slices for thug-ruled Venezuela and not-exactly-trustworthy Russia! Oh, and just in case you think that maybe natural gas is the way, the biggest producers of natural gas include those very same countries!

  • Just how much oil we have left is a bit of a mystery. A quarter to a third of the oil inventory is for "undiscovered" oil, i.e. we sure hope we'll find some. Existing "proven" reserve numbers are themselves suspect - the Middle Eastern countries had a mysterious surge in their proven reserves in the 80s. Incidentally, Kuwait recently cut their proven reserve estimates by a half!

  • The Hubbert peak, named after the US geologist who correctly predicted the peak of US oil prediction is a little more sophisticated than a guess. The Hubbert model has so far correctly predicted (well, for a model!) US production to date (mind you, the model predictions are from 1959, rather than a model based on the benefit of hindsight). The model has been incredibly spot on so far when applied to the world oil production by later analysts. The predicted peak oil prediction - end of 2005, give or take.

  • "What we need are alternate fuels - biodiesels, electric, etc" If we all switch to hybrids, all will be ok, correct? Maybe, but penetration on a major scale isn't likely to happen anytime soon. More likely mass fuel sources are from bitumen and tar sands in Canada. What does that mean? More expensive oil!

    When I can take some more time to read, I plan to read more on the topic. In the meanwhile, if you have any ideas or information you've read somewhere, please feel free to share it using the comments section.
  • Tuesday, February 14, 2006

    So Cheney Shot Someone

    OK, I don't get it. Not the hunting part - ok, that too ... I'm vegetarian and never did get why anyone would kill a poor bird or animal! But for now, I really don't get why there's all this excitement over why the White House didn't tell the media about the shooting accident Cheney was involved in first. If there was any wrongdoing, that might be a story, but for now, the Veep was on vacation, and had what seems to be a not-too-uncommon accident where he hit a co-shooter. He did it in his personal time, and as I said, on the face of it, there was nothing improper. So why the hoopla? Does the White House Press Corps not have better things to talk about? What we going to do next - Scott McClellan comes forward and somberly announce that the President has some indigestion ... but not to worry, good ol' Bayer Antacid is at work (at which point, we can spend endless hours talking about a President illegally endorsing Bayer!)

    Postscript Loved this joke from Jay Leno on the Tonight Show:
    That’s the big story over the weekend. ... Dick Cheney accidentally shot a fellow hunter, a 78-year-old lawyer. In fact, when people found out he shot a lawyer, his popularity is now at 92 percent.

    You want one more - ok, here's Letterman:

    Good news, ladies and gentlemen, we have finally located weapons of mass destruction: It’s Dick Cheney!

    Forget the Sugar-Free

    I've been too busy recently to blog, but thought I'd squeeze the time this morning to share with health article. I've sort of known how bad flour was before, but figured not many other people don't. But when I read this article from Dr Gabe Mirkin, even I was shocked to learn that white flour makes your blood sugar rise almost as much as table sugar. So he argues that there is no point buying sugar-free desserts loaded in white flour. I'm not white flour free - I still devour the cheap pasta from Sam's Club, but I use a lot of broccoli and cauliflower and blackeyed peas or chickpeas in my pasta sauce to add fiber and slow the rise of blood sugar. There are still probably some nutrients lost in the flour making process, but until Whole Foods can come out with a cheaper version of their whole grain pastas, this will have to do. I do eat whole wheat bread and brown rice already. You can buy the latter by the pound at Whole Foods - I recommend a 50-50 mix of long and short grain brown rices and using a 1:3 mix of rice and water if you use a rice cooker.

    Monday, February 06, 2006

    School Choice is the Way

    One more story, this time from ABC News, that shows how private initiatives to take at-risk children out of failing schools and into private schools has changed their lives. To me, this only underscores the need to allow true choice. It's great that private initiatives are making a difference, but we shouldn't need these. Charitable institutions have a pivotal role in a string of programs where governmental involvement is not only inefficient but cost-infeasible. And yet, in the area of education, state efforts are not always efficient (they tend to be better in the cherry school districts) but also very expensive - some $10,000 a student. Here's the part of the story that had me thumping my desk in support:
    While a program like Student Sponsor Partners requires significant financial backing, O'Malley said the program actually spends less per student than public schools do. "Our schools spend about half of what is spent per pupil in New York City public high schools, [and] with dramatically better results," O'Malley said. "The problem is not the amount of money being spent. Spending in New York City has increased several billion over the last five years alone; the problem is how the money is spent."

    I grew up in India, where the spending per student, even on purchasing power parity terms, was minimal. While there are avenues where I wished I had better exposure, none of those really involved significant monetary costs to the school. But that cheap education still gave me what I believe is a tremendous academic platform to launch myself. Every kid should have that platform!

    Afterthought This is not simply about public vs private schools. I do want, for example, a student in a failing public school to be able to transfer to a successful public school without his parents being able to afford a house in that district! In the end, if properly implemented, choice should improve quality and bring down education costs (which are at present unsustainable). So the next time you hear a politician promise to increase funding for education, boo him and ask him what he'll do to improve the quality rather than quantity.

    Thursday, February 02, 2006

    The Case for Breakfast

    Men's Health magazine had eating breakfast as part of their 12-week physical transformation program, and had this to say about the importance of the meal:
    University of Massachusetts researchers recently discovered that men who don't eat in the a.m. are 4.5 times more likely to be obese than those who make it an everyday habit...And timing matters: Make sure you eat your first meal within an hour and a half of waking. The scientists found that guys who waited longer than that increased the likelihood they'd become heavyweights by 50 percent.

    And may I recommend the Boca burger and a bowl of Raisin Bran cereal - they are low in fat, loaded in fiber and the former has a fair amount of protein - potent combo!