Quote of the Day: Judge Gung-Ho

While trying to tag my old posts (something I've been putting off for a while), I came across an old post on Judge Gung-Ho, a bankcruptcy court judge and anti-credit card advocate. The post I liked then really struck a chord, and so I chose to post it as today's Quote of the Day:

The rule that I like to use is if it's $10 or $20, pay cash for it. If you can eat it or drink it, pay cash for it. And the best example of that is reported in the Wall Street Journal. When McDonald's started to allow people to use credit cards instead of paying cash, the average sale went from $4.75 to $7. Need I say more?

Travolta and the Celebrity Guidance

I'm tired of Hollywood types asking us to change our lifestyles. The latest in this lunacy is a string of celebrities pitching for modifications in our lifestyle to reduce global warming. First, there was former VP Al Gore, touring the world raising awareness while actually increasing his energy consumption since the movie came along! Tsk tsk, just purchasing credits doesn't allow you to come clean, Al! Now, there's John Travolta doing what Hollywood does best - lecturing us to reduce our carbon footprint, while himself being responsible for 800 tons of CO2 emissions, 100 times that of the average Briton. He owns and operates 5 jets, clocking in at least 30,000 flying miles in the last 12 months. Yeah, we need to cut our electricity consumption down, John - thanks for setting us straight!

I think we need to tell Hollywood types to just shut the f*ck up and stop using their public image to wax on topics unless they are prepared to make real sacrifices.

Think NFL Players Make Too Much?

Some random facts I chose to look up on a Saturday afternoon ...

The average NFL player makes $1.1 million a year. Seem like a lot? Well, the average NFL player only lasts just over 3 seasons, so if he doesn't have another profession lined up, he's guaranteed not that good a life. Oh, and by the way, only 0.2% of high school seniors who play football ever make it to the NFL. All said, maybe NFL players don't get paid all that much?

OUTRAGE! Politics at the GSA

This video of the congressional hearings on the General Services Administration, the purchasing department of the Federal government, is deeply troubling as it indicates that taxpayer money was being used to discuss how to use GSA resources to help Republican chances in '08. The politicization of our government continues ...

Firefox Add-On of the Day

If you're like me, you surf the web a fair bit. Some are reputed sites, some not so much. Some sites install spyware software, others (especially a lot of Indian sites, for example) just have plain annoying adware to get around pop-up blockers. Say goodbye to all your problems with the Firefox add-on of the day ... one of my favorite add-ons and enough of a reason to switch to Firefox if you still are on that dino called Internet Explorer ... drumroll ....

NoScript

NoScript disables all scripting until you specify that the provider is a truster provider (similar to your pop-up blocker) What is nice is that most sites keep their servers clean and any ad- and spyware is run from different servers, so I can (if I need to) allow the main server while continuing to forbid other servers.

In this day and age, I think security trumps most other considerations and NoScript goes a long way to making the Internet a much safer place. Find out more at the NoScript homepage.

The Big Ethanol Lie

Yesterday, President Bush and Detroit's Big 3 automakers touted cars running on ethanol, or E85, as the future. You know the spiel - reduce dependence on foreign oil, defend our national security interests, yada yada. Of course, the cars would be flex fuel, meaning they could run gasoline, but let's focus on the fuel of the future.

Well, it's a damned lie! Bush and his buddies in Detroit want you to think they went green, while doing not a damn thing (and this isn't even a partisan rant, for my readers know which way I slant!) But better than I could ever argue, I'll excerpt quotes from Robert Bryce, managing editor of Energy Tribune magazine, from a discussion on the Newshour yesterday. Here are some snippets:

The reality of the ethanol business now in America is that a lot of this rhetoric is simply being used to propagate more subsidies for this industry. The creation of corn ethanol is simply -- it borders on fiscal insanity. We're making subsidized motor fuel out of the single most subsidized crop in America. That's corn.

Second, when you look at the contribution now that corn ethanol is making and ethanol overall to the American oil mix, the ethanol industry produced about five billion gallons last year. That's the equivalent of about 200,000 barrels a day of oil equivalent. That's 1 percent of America's overall energy consumption.

If you took all of the corn in America, Ray, and converted all of that corn into ethanol, you'd produce about the equivalent of about 1.3 million barrels a day of oil equivalent. That's equal to about 6 percent of America's total oil consumption.

There's this idea somehow that, in the Renewable Fuels Association and these other ethanol boosters, that America can solve its oil imports and become more energy secure with ethanol. I think it's largely just a canard. This is just cover for propagating more subsidies for this industry.

Is ethanol really that green? Mr Byrce points out that the energy consumption in making ethanol means that there may be slim, or even negative, net energy produced by corn ethanol. So a lot of this is huey! Why are the Big 3 automakers behind it?

... the automakers are on board on this is that, by building E85 vehicles, what they are allowed to do is artificially inflate their CAFE numbers. They are actually able to artificially inflate their fleet efficiencies, and that is why they're so pro-E85. Last month, U.S. News and World Report estimated that, between 2001 and 2008, this CAFE credit loophole that they're exploiting is actually resulting in the U.S. burning something on the order of 17 billion gallons of additional fuel than they would otherwise.

And the solution. Mr Bryce is bold in calling for a motor fuel tax. Look, as a conservative, I don't like taxes, but I'm not dogmatic about them. But I would also cut the ridiculous subsidies provided to traditional energy companies, and impose a carbon-based tax on fuel.

Firefox Add-On of the Day

I love Firefox - I think it's simply the niftiest browser, and being open-source allows many users to address real issues. Unfortunately, most people don't recognize just how nifty some of these add-ons are, and to them, it appears like there isn't that much different from Internet Explorer. To encourage migration to Firefox, I'm starting an occasional post called the 'Firefox Add-On of the Day'.

And the Firefox Add-On of the Day is ...

CoolIris

CoolIris allows you to preview links before you open them. This is cool because it loads faster than clicking the page, and allows you to quickly navigate a page with multiple links, much faster than clicking each link and then hitting the back button would. You can select a phrase, and right click to look up its definition in the directory, or look for a Wikipedia entry on the phrase (something I do a lot), or instantly e-mail web pages. All this makes CoolIris the Firefox Add-On of the Day.

Learn more and download here.

Hillary and the 1984 Ad

If you haven't seen it, you must watch the anti-Hillary viral video put out by a supporter of Barack Obama. It is based on doctoring Apple's original ad, that was based on a Orwellian vision of the world. This is truly brilliant, and demonstrates how a little creativity (and not even that much - mind you, this was an existing ad!) can go a lot further than millions of dollars of ad-spending.

Airline Diets

During my recent trip to India, I flew United from Washington, DC to Frankfurt and then Lufthansa from there to Chennai. During my visits, it struck me how much airline food might reflect how the cultures eat. (Ok, so I don't really know how Germans eat!) A disclaimer - I ate vegetarian meals on both legs. The United meal was fatty and sugar-laden - breakfast was something like a Honey bun, and certainly something that would make a cardiologist see plenty bucks! The Lufthansa meal, on the other hand, was tasty, made with obviously fresher ingredients including olives and artichokes (YUM!). But the meal was also a lot lighter (bad for a big eater like me!). Even their soda cans are smaller! Maybe flying the national airline reflects a lot about the national diet?

Not Made in China

I heard this on a PBS program on China, and was so stunned I had to google it. Here's a factoid for you ...

China is losing more manufacturing jobs than the United States. For the entire economy between 1995 and 2002, China lost 15 million manufacturing jobs, compared with 2 million in the U.S.

source

That's quite a stunning revelation indeed, and should give pause to those politicians and commentators who claim an artificially deflated yuan is responsible for US manufacturing job losses!

DOJ Mess: Now Fitzgerald's No Good?

The Department of Justice mess continues. There's been a lot of outrage over how 9 US attorneys were sacked after the 2004 election. Attorney General Alberto Gonzales first claimed they were fired for poor performance, something that was decried by their recent performance evaluations. The incident has raised Congress' ire and there have been calls for investigations. That led to a document review, which produced this gem:

US Attorney Patrick J. Fitzgerald - co-prosecutor for the trial of Mafia boss John Gotti, prosecutor in the case against 12 accused of the 1993 World Trade Center bombings, who has served on a team of prosecutors investigating Osama bin Laden in 1996, chief counsel in 1998 US embassy bombings, who successfully exposed a bribery scandal involving then-Gov George Ryan of Illinios, a Republican, and indicted Mayor Richard Daley of Chicago, a Democrat, who won the AG's award for Distinguished Service in 2002, and successfully prosecuted former VP chief-of-staff "Scooter" Libby, has achieved a ranking of "not distinguished themselves".

Wonder what it takes to distinguish yourself if Fitzgerald hasn't done it. The scary part is not that someone made up a memo like this ("not an official position") but that people with similar status were fired! This administration has seemed to specialize in this kind of whimsical behavior.

But as the mud-hurling (justified, I might add) at the administration and the AG (who it seems has made it a regular habit to mislead Congress) continues, it would do us well to question our system. Why should it be ok to fire US attorneys to make way for partisan appointees, something Republicans and Democrats have consistently done? Why should it be ok to appoint judges on partisan lines? Heck, why do we appoint AGs on partisan lines? The consequences are a skewed justice system, where belonging to the wrong party gets you hounded while the right party can smooth away those ethics questions.

Author's Note

If I haven't been blogging much, it's because I was away in India. I just returned from a fabulous trip, and had much to write about before I got buried in work. So keep the faith that my brain will hold all that information ...

The Correction is Just Starting

If you believe the hype in most of the financial press, the "correction" last week was just the market needing some breathing room, because it got a little ahead of itself. All week, I've been subject to the same nonsense that "fundamentals are good" and that now is the time to go "bargain-hunting" (hmm, stocks were up 15% last year, but a sudden drop of 3% suddenly makes them bargains?) All week, I intended to pen a piece on why this was garbage, but the latest weekly commentary of John Hussman, fund manager of the Hussman Strategic Growth Fund helped explain a lot of what was on my mind (no accident since I'm a HUGE fan of Hussman - reading his weekly commentary is usually a Monday morning ritual for me!)

Needless to say, last week's decline had virtually nothing to do with China. While the decline in China (reflecting similarly overvalued, overbought and overbullish conditions) may have been a catalyst, blaming China for the U.S. decline is like having an open can of gasoline next to your fireplace and blaming the particular spark that sets it off.

What is the issue? It's valuations, silly! But what about those stories talking about how cheap stocks are relative to 2000. First, why is the year 2000, at the height of a ridiculously inflated stock bubble, a benchmark? Going across history, stocks aren't cheap. But they're even less so when you account for the historically high profit margins.

But isn't that touted as a good thing. The graph is courtesy of William Hester of the Hussman Funds, who showed that historical profit margins are rarely sustainable. Also, he showed that investors consistently overpay for those profit margins - the market has returned 3.45% annual return over 5 years when the margins when in the top 20%, and 15.69% when the margins where in the bottom 20%. Value investing - buying when no one else wants to - works!!

Additionally, Ben Inker of GMO, the investment firm that manages high net-worth individuals including Vice President Dick Cheney, points out that the surge in profitability has been in capital-intensive industries (see figure).

Hussman also takes on the popular talking points such as this nonsense of how the M&A boom means that stocks are a value - something I've ranted about previously:

A related theme is the notion that stocks must be good values because of the private equity buyouts we've been observing. It's important to understand that these buyouts are being done with OPM – other people's money – and that the main factor driving them is not low stock valuations but low risk premiums. Risky debt can currently be issued at interest rates barely above the low yields on default-free Treasuries. This will certainly end badly for investors in low-rated credits (as companies that issue sub-prime mortgages are beginning to realize). It is no indication of attractive stock market valuation. Investors should be skeptical enough not to draw conclusions from transactions that use OPM. It's interesting, for example, that analysts wax rhapsodic about corporations repurchasing their shares, while ignoring the fact that sales of personal stock by corporate insiders have rarely been higher (recently at rates of 8-10 shares sold for every share purchased). What people do with their own money is much more informative than what they do with someone else's.

So what's an investor to do? Ignore the press. Pare down stock allocations to no more than 50%, load up on high-quality debt (using a bond fund for most readers), focus on quality in stocks (harder to do if you use a mutual fund) and bonds (low duration, Treasuries or investment-grade). An investor is simply not being paid enough to take risk, as this chart from GMO shows.

The Iranians Love the US!

I was listening to NPR a couple of days back when Abbas Milani, the director of the Iranian Studies Program at Stanford University made an interesting observation: Iran is an interesting case in American opinion in the Middle East. Across the region, we have governments that are somewhat friendly to Washington, while the people hate the US. Iran is the oddball where the government hates the US, describing it as evil, while public opinion of the US is indeed very high. He cautions that in our efforts to contain Iran, we would do well not to damage that public opinion.

Meanwhile, a second aircraft carrier has moved to a strategic position relative to Iran. While this is possibly posturing, the risk we face is that if the Iranians make a "wrong" move, we might find an escalation on our hands.