Shame on You, Pols!

US politicians have once again proven that politicians everywhere are more interested in short-term political gains rather than the long-term interests of the country and the world. By interfering with Dubai Ports World's purchase of P&O under the guise of national security, they have raised serious concerns over the rise of protectionism in this country, especially coming after the hoopla over China's CNOOC trying to buy Unocal.

"But what about national security?" 80% of US ports are operated by foreign entities. That number is 90% in the UK, incidentally. So why the uproar now?

"Because now the entity is a foreign government" There's never been a good reason why there should be an issue with a state-run entity as opposed to a foreign corporate body. But ignore that for a moment. The reality is that we already have foreign state-run operators in this country. Didn't hear that in the soundbites, did you? Well, port terminals in Oakland, LA, Seattle and Alaska are run by a company majority-owned by Singapore. What's that you say, Singapore is a friend? Well, then how about the fact that the Port of Long Beach is OWNED by COSCO, an entity of the People's Republic of China?

But this deal is bad not just because a company based in an ally country has been wronged. It's bad because it sends a message, after the Unocal deal, that we aren't so sure about allowing foreigners to buy our assets. As one guest on the McLaughlin group, a brilliant journalist with the United Press International (whose comments I intend to post once the transcript is up) pointed out, beggars can't be choosers. Our lifestyle is funded by an incredible trade deficit, which means that the Chinese and Arabs and all those people who we buy things from are stuck with dollars. But the moment they try to buy anything with those dollars, we freak out.

A great example of the size of our trillion dollar current account deficit was from econoblogger Brad Setser:

So it is not at all unreasonable to say that financing the US current account deficit requires that the US raise $20 billion a week, whether by selling debt, selling stocks or selling off real US assets. That is equal to selling one Unocal a week to China (CNOOC was willing to pay $20 billion). Or selling three companies the size of P&O to the Emirates a week.

If Congress were really serious about port security, they would look into the fact that so few containers go through any kind of inspection, including one of its manifests! It would invest in upgrading port systems, where due to unions, many times information has to be manually retyped to keep people employed. But these don't fit in soundbites. It's much easier to come on TV and be outraged that an Arab company is buying our ports.

I have sometimes felt people in a democracy deserve the pain they get. When voters vote based on emotion and rheoteric, they are stuck with inept populists who do little to improve the lot of their people. I grew up seeing this in India, where pols prefered to promise state-subsidized rice at $0.04/kg than invest in infrastructure. Alas, the beacon of hope in the capitalist world has stumbled a little by falling prey to the same emotional vagaries!

Don't Let the Terrorists Win!

In India this week, we got a stark reminder that with all the good news, the people are still victims of terror, as an explosion in the holiest city of Varanasi killed many worshippers. The opposition leader, Lal Kishan Advani ranted some typical cliches about appeasement of Muslims and terrorism, but it is positive that the blasts have not triggered, as best as I could tell from my limited diet of Indian news, any serious communal clashes. India is in a sweet spot economically and politically (in international terms, that is), and does not have to return to the agenda of the past.

That's not to say a weak response to the terrorists. I'd like to see Prime Minister Manmohan Singh come on TV and say we're gonna smoke the guys who did this! But aggression against these criminals must not spill over to the streets. If it does, the terrorists will have won ...

Let's Raise Our Credit Limit

What if your credit card company agrees to give you any credit limit you want? If you are like the US government, you'd probably rack up more debt to max even that increased credit limit. A fight is brewing over a proposal to raise the government's credit limit. Gosh, this government's out of control! I like George Bush, but really, as I've been stressing to many friends, he's not conservative. Racking up huge amounts of debt is not conservative philosophy in my book.

Now, deficits by themselves are not always bad. Think about an individual again. If you are in debt paying for a professional degree (say law school), this might be a good investment as it provides opportunities for better pay down the line. But if you're spending on items that do not boost your future cash flow, this is a recipe for disaster. And yet, the government spends most of its money on non-investment type programs, often pork-barrel spending with no greater purpose than to get congressman reelected, like the horrendous Bridge to Nowhere in Alaska.

I will pat Democrats on the back for demanding fiscal responsibilty, but I differ with them on the solution. The solution is not to raise taxes, but to cut spending. Think again to the individual who works as a contractor and charges by the hour. If he thinks he can solve his credit card issues by raising his hourly wage rate, he's in for a shock, as he finds the work drying up and his income falling. His only way out of the hole is to cut spending, challenging every expense item - house, food, everything!

Maybe the government should be run more like a responsible household. You start with what you have and spend from that pot, rather than deciding your spending and then run up a debt!

What a Deal!

A while back, I had written about a bank called Everbank that offered CDs that offered you the greater of your principal or the appreciation of the S&P 500 at the end of your term. So for example, if you invested a $1,000 (which in reality you can't - there are pretty steep minimums), and the S&P rose 10% in the time of your CD, you'd get back $1100. But if the S&P fell during that time, you'd still get back your original $1,000 back. Makes you wonder what the catch is, eh?

Well, there isn't really a catch. This is a win-win - except that the two parties have different goals. I figured out the logic and thought of posting it, but figured it would probably put most of my readers to sleep, but do e-mail me if you are interested in why someone would offer that.

And here's an offer for you! Hehe, that's right, I'm advertising on my blog ... no, not Viagra pills or free software! I'm offering you the same terms as the Everbank CD - principal or appreciation of the S&P 500. Of course, rather than minimums like Everbank, I have to have maximum ceilings, but if you are interested in this, e-mail me at kewlkarteekatgmaildotcom (the e-mail style is to prevent spam - convert it to a typical e-mail address)

Manufacturing Workers Needed in the US?

This article in USNews really shocked me - a shortage of skilled manufacturing workers in the US of A ... my first reaction was, you gotta be kidding! But evidently it's true.

A recent study by Deloitte Consulting for the Manufacturing Institute of the National Association of Manufacturers found that over the next three years, 80 percent of U.S. manufacturing companies expect shortages of skilled production workers–people like machinists, craft workers, and technicians.

Wow, can you spell surprise? Don't drop of school just yet, though. Here's the kicker:

Unfortunately for displaced autoworkers and others in the rust belt, demand for certain types of skilled manufacturing workers doesn't necessarily offer a parachute....Many autoworkers come from the traditional mold, doing the same task, day in and day out. Today's factory is not your father's factory, and many of those repetitive jobs are getting shipped to low-cost countries. "The new manufacturing worker has to think, know math, interpret CAD/CAM drawings, be knowledgeable about more than one process, and be a good team problem solver," says Eisen.

Nuclear vs Renewable

Even as President Bush inked a historic nuclear deal with India, I received an e-mail from the Worldwatch Institute, an environmental think-tank, arguing that the deal was reckless on every score. In the past, I have read with some interest reports put out by the Worldwatch folks, but possibly because of self-interest, I read this e-mail a lot more critically and found it replete with flawed logic and lies. (As an aside, every person should read the 1954 classic book 'How to Lie With Statistics').

Here is just one instance of this:

Globally, the nuclear construction business has been in decline for more than two decades. Worldwide, nuclear power is growing at an average rate of less than 1 percent per year. By contrast, renewable energy--wind, solar, and biofuels--is on a growth surge, averaging annual expansion rates of 25-35 percent, as President Bush noted enthusiastically in speeches in Colorado and Michigan last week. Total investment in the world's renewable energy sector reached $30 billion in 2004, according to the 'Renewables 2005: Global Status Report'.

Well yes, it helps to have a really small number to grow a lot. Nuclear power supplies an estimated 8% of the world's energy needs, 27 quadrillion BTU, according to the US Department of Energy. Geothermal, wind, biomass and solar and other sources supplied about 6 quadrillion BTU. In the US, nuclear power supplies about 8 quadrillion BTU per year, while biomass under 3 quadrillion BTU, and solar and wind about 0.1 quadrillion BTU or less. And let's not forget the pressures put upon the nuclear industry that have essentially killed the industry.

Look, I'm a environmental engineer and a bit of a tree-hugger myself, but we cannot hope that biofuels and solar and wind sources are going to come close to tackling our energy needs in the near future. Nuclear is an option, one that produces low emissions and can be safe with adequate safeguards, and we need to embrace it, rather than have think-tanks scare people with snake oil science!

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.

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.

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"?

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.

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%.

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).

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.

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.

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.

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!

The Life of the Unborn

In all the buzz surrounding the State of the Union address, an important story was probably missed by several readers. Two federal courts ruled the ban on partial birth abortions unconstitutional. While I don't know all the details, my understanding is that the issue was with the wording, specifically the lack of a clause to protect the mother's health.

Nevertheless, before you celebrate this victory for "choice", I would strongly urge you to watch this video on aborted fetuses in the first trimester (CAUTION: EXTREMELY GRAPHIC AND DISTURBING!, well before the third trimester that the partial birth abortions refer to. I cannot think a person would not be moved by this video.

Swipe that Plastic

The US government today announced that the personal savings rate of its citizens for last year was -0.5%. That means, on average, every citizen is spending more than their disposable income (income after taxes). This is the first time we have had a negative savings rate since the Great Depression era (for comparison, it was 10.8% in 1984). For the month of December alone, spending went up 0.9% while real wages only creeped up 0.4%

Things don't look good. Admittedly, some nations have a problem with too high a savings rate, which means that the market is inefficiently misplacing capital. But to spend more than you have is a recipe for disaster. What it does on a macro scale is to leverage the economy, providing it with a boost when times are good, but unwinding things horribly when times are bad.

Is there any reasonable expectation of change? It appears unlikely. We have positioned our economies incredibly on consumer spending and cheap credit, and seemed to have as a society ignored Puritan values such as thrift. One only needs to look at the craziness of our iPod obsession (I can't fathom someone paying $300 for a fancy walkman!) to realize that something's out of whack!

Add in all those underfunded Social Security and Medicare obligations, commitments many older workers seem to be counting on (I was shocked to talk to people who indicated they didn't need to save because their SS/pension plan was there!) ... and I'd say be scared ... be very scared!

Postscript A 1999 study by the Consumer Federation of America showed that despite the preceding stock market boom, half of all Americans had accumulated less than $1,000 in net financial assets and modest net wealth of $35,000. More households with incomes under $35,000 believed that they are more likely to accumulate a nest egg of $500,000 by winning a lottery or sweepstakes (40%) than by patient saving and investing a modest sum (30%. But most fascinatingly, they found that the quintile with the least net financial assets had a median income of $31,700, while the median incomes of the next two quintiles of net assets were $13,100 and $25,500. This is consistent with another study I read (and that I've been meaning to post on) that disproves the myth that savings are related to incomes. Yes, that's right, you don't have to make a lot of money to have a decent net wealth, and having a high income is no guarantee that you will be wealthy!

Random Quote of the Day

I was watching an old video of a NOW interview of Bill Gates, when host Bill Moyers quoted George Bernard Shaw, refering to the fact that Gates was so affected by the stats of the deaths of millions of children in the developing world due to preventable diseases:

The sign of a truly educated man is to be deeply moved by statistics

Anonymity in an Information Age

Reports that the government is seeking information from the search engines on user searches is troubling. Not just because Big Brother may want to watch us ... although that in itself is cause for some nervousness, but also because it highlights just how much information about us is floating around in accessible domain.

First the government stance - how can the government ask a company to violate an implied (if not explicit) confidentiality agreement with its users is baffling and, I think, inappropriate. One of the hallmarks of our justice system is that the normal people are free from unreasonable scrutiny without probable cause. Last time I checked, even an adult looking for porn is legal, and such an adult has the right to privacy that is not trumped by the need to protect children.

Whoa, you may say, isn't this the guy who supports the administration policy of wiretapping to find terrorists. Yes, I do - when there are a bunch of crazy bastards looking to blow my balls off, I tend to have a slightly different view of privacy. Even in this area, I think giving the government free reign should only be an interim solution. One of my favorite journos, David Brooks of the NY Times, himself a conservative, chided the administration for not pushing through a new solution that would address the outdatedness of the FISA laws while addressing the privacy concerns of this policy.

What I found more interesting though was the fact that Google and other search engines actually store such information for some duration of time. We don't know if there are links to the IP address of users. The government has clarified it does not want that information, so for now, there is no effort to track user patterns, but that's not to say a hacker or third party couldn't misue this information. Call it the democratization of information - we need not just worry about Big Brother, but also Lil Tim. Coming closely on the heels of a realization that your cell phone call records can be purchased for a few bucks, this really underscores the loss of privacy online. (For example, I received a letter from my broker that some banking information for several users appears to have been stolen, although they do not know who the victims are)

So what can we do? I took the first step, installing an anonmyzer at home. My pick for the freeware Tor, that can be used with IE or Netscape but that is especially convenient with the Firefox browser. For more information, visit the Tor website. I have only just made the switch, and it appears to slow down my online performance, so I may turn it off when necessary (especially easy to do in Firefox). It takes about 15 min for a non-geek computer user like me, so it should be a breeze for savvier users, and may take a little more time if you type with one finger. The instructions on how to donate bandwidth were a little more obtruse, so if any of you figure it out, please let me know.

Postscript I found I could improve by Tor performance by making one change suggested on a blog - to edit the config file to use sock4 instead of sock4a (don't ask me what it means!) My searches online also yielded this list of anonymous public servers that you could use as a proxy server. If you have access to a proxy server at work, you may not be anonymous. Visit this site and click on 'Proxy Test' and ensure your IP address doesn't show up. Also confirm by clicking on the 'Environmental Variables' button on the front page to ensure none of your information is being transmitted.

The Trouble with Boys

Being in academe, I hear a lot of talk about the barriers to women's success, be it at universities or in industry. But maybe we're worrying about the wrong sex - this Newsweek article presents some startling evidence that we need instead to worry increasingly about a male underachievement gap! The article discusses the reasons for this, including the fact that girls mature earlier than boys (an average of 18 months earlier), and also discusses the implications of educational actions, like gutting PE progams, on male academic performance. But there were a couple of interesting ideas that really caught my eye:

Across the nation, educators are reviving an old idea: separate the girls from the boys—and at Roncalli Middle School, in Pueblo, Colo., administrators say, it's helping kids of both genders. This past fall, with the blessing of parents, school guidance counselor Mike Horton assigned a random group of 50 sixth graders to single-sex classes in core subjects....Although it's too soon to declare victory, there are some positive signs: the shyest boys are participating more. This fall, the all-girl class did best in math, English and science, followed by the all-boy class and then coed classes.

Hmm, I'll be darned. I've heard people say that students are less conscious of the opposite sex and can learn better before, but I always chalked it down to traditional Indian ideas. Having lived my whole life in a coed school, I always figured this was the way to go, but maybe those sex-segregated schools may not always be a bad thing.

But this article is also in some ways, a call to action. This is something I knew, but bears repeating:

One of the most reliable predictors of whether a boy will succeed or fail in high school rests on a single question: does he have a man in his life to look up to? Too often, the answer is no. High rates of divorce and single motherhood have created a generation of fatherless boys. In every kind of neighborhood, rich or poor, an increasing number of boys—now a startling 40 percent—are being raised without their biological dads. Psychologists say that grandfathers and uncles can help, but emphasize that an adolescent boy without a father figure is like an explorer without a map.... In neighborhoods where fathers are most scarce, the high-school dropout rates are shocking: more than half of African-American boys who start high school don't finish.

There is a solution, one we can all be a part of, if we cared enough:

David Banks, principal of the Eagle Academy for Young Men, one of four all-boy public high schools in the New York City system, wants each of his 180 students not only to graduate from high school but to enroll in college. And he's leaving nothing to chance. Almost every Eagle Academy boy has a male mentor—a lawyer, a police officer or an entrepreneur from the school's South Bronx neighborhood. The impact of the mentoring program, says Banks, has been "beyond profound." Tenth grader Rafael Mendez is unequivocal: his mentor "is the best thing that ever happened to me."

PostscriptIf anyone has the opportunity to see the new documentary 'Boys of Baraka' do so, and let me know what you thought. I've heard good things about this story of a group of boys from Baltimore, the most violent school district in the country, going to boarding school in Kenya and coming back as honor roll students. None of my local theaters are showing the movie, and I hope to convince a friend to get it from Netflix.

Alito's Not O'Connor's Replacement

Yeah, you heard it. I'm sick and tired of media outlets saying the court would shift dramatically because of Judge Sandra Day O'Connor being replaced by a conservative like Judge Samuel Alito. A little recap of recent history would help. John Roberts was nominated as O'Connor's replacement. While just how conservative he is is not clear, he didn't appear to be too far off center, and appeared to be a reasonable choice for the swing vote. Then, Judge Rehnquist passed away and Roberts filled that slot instead. So as it stands, we arguably had a shift to a more liberal court than before the Rehnquist passing. Alito is intended as a Rehnquist replacement, not one for O'Connor.

That's not to say that the court will not become more conservative. It probably will - although judges are known to shift after being appointed to the court. But I think emphasizing Alito as O'Connor's replacement overstates that case.

Judge Gung-Ho on Credit Cards

This story about Judge John Ninfo talking about the people who come to his bankruptcy court because of credit card debt seemed to be the usual rant about our consumer society, something every sensible person rants about and yet seemingly many continue to indulge in. But this quote caught my eye:

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?

Hmm, the implication is that it might be the small things that add up, rather than the big ticket items. I have been using my Citibank Dividends card to accrue cashback for my monthly expenses, and always pay my balance in full, but I wonder if I should go on a one-month trial paying cash instead(for everything - grocery store included) to see if my expenditure drops.

Beware the Next Recession?

I was reading an old article on the Economist magazine, where I was lead from a blog post I was reading. The article was written in late September 2005, and concerns global inflation. This passage really struck a chord:

The real worry with rising inflation expectations is less that they herald a surge in inflation than that they will limit the ability of the Fed or other central banks to cut interest rates if growth stumbles. It is commonly argued in America that if the housing bubble were to burst, and falling house prices threatened to choke consumer spending, the Fed would slash interest rates to prop up the economy, as it did after the stockmarket bubble popped in 2001-02. But then inflation was falling. Today, with inflation rising, the Fed would no longer have that option. If the economy hits trouble, investors and homebuyers should not expect to be bailed out again.

Combine that with the very real possibility of a slowdown this year, based on many indicators, and a recession may be a lot more brutal than the one we had starting 2001.

What is the solution? Well, prepare for a shakedown by making yourself indispensible at work, save for a long rainy day (the rule of thumb is 3-6 months of living expenses) and consider some prudent investment choices, including defensive stocks, and inflation-protected securities, notably I-bonds. I'd still invest some amount of money in investment-grade bonds, since a global economic slowdown may dampen inflation and allow a reduction of interest rates.

For those unfamiliar with them, I-bonds are US Treasury savings bonds, that offer a fixed interest rate over the present inflation rate, and currently yield about 6.73%. You have to hold them for a minimum of one year, and are penalized some interest if you withdraw them in under 5 years. You can learn more information on them here. You can purchase I-bonds without commision on the TreasuryDirect page, and can also schedule regular electronic transfers from your bank account in amounts as small as $25.

This may also the place to note that some value-based asset allocation models favor trending down to closer to a 50-50 stock-bond allocation for someone in their 30s (based on present valuations), and a greater proportion of bonds for older employees. Recent history has played a role in much of the exuberance about stocks, but there is some clear evidence that outperformance of stocks over bonds in the past isn't close to a sure thing for the future, at least not to the same degree.

Stupid in America

John Stossel is simply one of my favorite op-ed type journalists. His latest, aired this Friday on 20/20 on ABC, was a hour long piece called 'Stupid in America'. He rips up our failing public school systems which, despite spending a record-breaking $10,000 a student a year, still ranks 25th out of 40 countries that took an international standardized test. Ahead of us - South Korea (No. 2), Poland, Latvia - not exactly rich countries. Stossel blames public school monopoly and unions for the mediocre performance.

He's clear to point out that there are great teachers, but our system does nothing to reward them. Teacher unions have consistently fought a merit-based system. In fact, shockingly, in New York, there are school districts with sex offenders who cannot be fired because of union-negotiated contracts, and desperate school districts have a seperate building to house them, paying them for no work because they are so dangerous to children.

I agree wholeheartedly with Stossel's assertion that competition will help. I've seen it in my lifetime in my home country of India, where horrendous goverment-run loss-making businesses have thrived when privatized, or even when private competition has forced a change of the inertia that dominates their being.

Opponents of vouchers will inevitably point to some study that suggests that charter and private schools are not much better. But that's not the point. If a charter school is no good, it will fail, it will have to shut down. The consumer will dictate if the school survives or not. The fact that 70% of charter schools have waiting lists at least as long as their enrollment suggests a great demand exists.

Vouchers will benefit the poorest the most, but help the middle class too. In their eye-opening book, The Two Income Trap Elizabeth Warren and Amelia Tyagi argue that the biggest predictor of bankcruptcy was not wasteful spending using credit cards, but having children. Why, you ask? Parents desperate to put their kids in good schools are forced to try to buy a house in a good school district, overly leveraging themselves in the process. In fact, here's an excerpt from James Glassman in Reason magazine:

Critics accuse charters of "skimming" the best students from public systems, which is often a coded way of claiming they have predominantly wealthy, white students. But the Advantage school's large minority student body is actually pretty typical for charters. A study released last May by the U.S. Department of Education found that 48 percent of charter school students are minorities, compared with 34 percent for all public schools nationwide. In Arizona, the study found that 45 percent of charter students come from families with incomes low enough to qualify for the free or reduced-price lunch program, compared with 40 percent for all public schools in the state. Nationally, 13 percent of charter school students are in special education programs, vs. 10 percent at regular public schools.

It's time to end this silliness, and support school choice. If public schools are better, they will survive and become stronger. If they are failing, we can celebrate the transition of students to better schools.

Warner's State of the State

I was quite impressed with Gov Mark Warner in his State of the State address yesterday to the Virginia House. I like this guy as a presidential candidate from what I've seen. Here's a Democrat who talks about attracting IT and other tech jobs, investing in science and math education (rather than a broad call to throw money into failing schools), and - this is the best part - enforcing measurable performance standards for public employees. Under him, Virginia has earned an 'A' grade for all metrics of performance by the Governing magazine, and is one of only 6 states with a AAA bond rating. He talks of running government like a business, which he should know a thing or two about, considering he co-founded Nextel and also owned other businesses. While he did raise taxes, his plan had support from businesses as there was a feeling that the money was being invested wisely.

This is the type of Democratic governor I can see supporting. Obviously, we don't know his views on a whole suite of issues, but it does strike me that Democratic governors tend to be a lot more sensible and pragmatic than the Washington types (I remember being supportive of Janet Napolitano's successful bid in Arizona). These are professionals who are not idealogues, and come into governance with a whole different mindset from the leftist idiots who control much of the national party, and both Napalinto and Warner strike me as candidates who would not be hostage to special interests like the big unions.

Perspectives on Health Care Costs

Now, I'm a huge fan of the Newshour with Jim Lehrer on PBS, as you may have realized from the fact that I have it listed on my favorite sites tab on the right part of this page. Unlike the usual soundbite junk you find on the other network news, here you get true analysis from the experts. (I did like Peter Jennings, but have stopped watching all the major commercial networks' nightly news broadcasts after he left)

With that plug, on to this discussion Margaret Warner had with Susan Dentzer on health care costs in America. I found myself learning several things I didn't know from watching this segment. Some tidbits ...

Overall health spending in the US doubled from 1993 to 2004.

In 2004, total health spending accounted for 16% of GDP!

New drugs are one of the big cost drivers. A cancer drug like Urbatux extends life for colon cancer patients by at least a few months but it costs $100,000 a year.

Considering that the average child growing up today has a 50% chance of diabetes, not to mention other obesity and lifestyle-related ailments, the future health costs are scary! (For more on this statistic, check out my post on Frontline's diet wars)

The $1.9 trillion spent on health care represents $6,000 per person (children included). That's 50% more than the next biggest spender, Switzerland. And yet, a National Health Quality report analyzes 44 measures of health quality and says that the quality of healthcare is actually deterioting!

We now have 46 million uninsured in the US.

These are really startling revelations, and are only the tip of the iceberg. Some will see the last bullet and proclaim support for a national health insurance plan. And yet even the current Medicare plan is infeasible, and unless dramatic cuts are made, could seriously endanger US economic prosperity. (All that talk of Social Security privatization, and sane minds were pointing that a Medicare crisis was much more immediate!)

Dickheads of the Week

As my MRI takes some pictures, I thought I'd file this post on the biggest dickheads in the news this week. (I wrote much of this Saturday, so now it should read 'last week')

First is the ridiculous couple who left their kids home, even though the puppies got a dog-sitter, while they went on vacation to Vegas. The kids were 5 and 9 years old, but evidentally the dad and stepmom thought their party was more important. Oh, and when investigators called their cell numbers, the ones they could be reached by the kids in the event of an emergency, they didn't get a call back for three days. Hope these parents rot in jail!

Second is Marcus Vick of the VT Hokies, who disgraced all athletes, collegiate and professional, by stomping on a Louisville defender after a tackle. The video clip is available on the web, and clearly shows the act was not accidental as Vick claims. Kudos to the Hokies for getting rid of that garbage! Of course, the sad part is he will probably make it big in the NFL, although I suspect not for too long. The record of excessive troublemakers in the NFL is less than impressive, and for a case study, one need only look at a very talented athlete called David Boston. (Of course, if you are less troublesome than extreme, you're the average NFL player!)

And last, but certainly not the least, is the man who should get an Award for Dickheaddom. I'm talking, of course, about good ol' Pat Robertson, who suggested Ariel Sharon's illness may be punishment from God for "splitting God's country". Well, I find it difficult to be shocked too much by a man who has, in the past, stated that the US should assasinate that President Hugo Chavez of Venezeula (seriously, maybe these evangalists should spend more time contemplating what Jesus would do, rather than just put the bumper sticker on their cars!) and warned that a natural disaster would strike a town that voted down intelligent design. I don't wish ill on anyone, but I confess I'm waiting for the day ol' Pat falls ill, to see why God hath cursed him!

Why I Will Have a Job for a While ...

I was once at a environmental engineering conference, and casually asked a group of more experienced peers if they thought environmental engineering would ever disappear as a profession. After all, a lot of the sites I was working at were involved in (what we now know to be) hideous disposal practices. Now that we have a lot more regulations and knowledge, and given that we are moving into an information age from the manufacturing age, will we see a dropoff in environmental contamination?

The guys at the table laughed and assured me of humanity's ability to continue being a nasty citizen! And this 20/20 story shows that even in our information age, we deal with some pretty nasty chemicals. We may be exporting the problem to Third World countries, but I suspect a day will come when we will be not just ethically liable but legally liable for our passing the buck.

The issue of "green engineering" is a tricky one. Some companies like GE and Toyota are making big investments in a cleaner manufacturing process, in some cases saving substantial amounts of money. Indeed, GE's Jeff Immelt is a firm believer that the future marketplace will demand greener products, and has made big bets on the same. To me, this seems the way to go, rather than Europe's regulatory approach. The problem with Europe's apprach is that too many rules have killed entrepreneurship, and the last thing we need is the perception that environmental stewardship and economic growth are tradeoffs. If the Prius showed one thing, albeit on a relatively small scale, it is that green technology can present an extraordinary business opportunity.

Hook 'em Horns!

This is my first sports-related blog post, and I certainly didn't think it would come from the world of college football. I'm not the biggest fan of the game at the college level - defenses are weak, there are too many trick plays and way too many teams! But last night, despite struggling from pretty severe allergies that had me bed-ridden, I saw what I think was one of the best games of any kind I have seen, when the Texas Longhorns beat the USC Trojans to win the BCS National Championship! I found myself unable to peel myself off the TV screen in a cliffhanger that seemed to swing from one side to the other. Here are my picks for different categories:

MVP No question - Vince Young almost singlehandedly led a Texas offense to keep up with a dynamic USC team, and kept the Trojan defense listless and confused. It was pretty incredible to see Young swat away tacklers with one hand as he ran for it!

Most incredible play There were a few contenders, but in the end, Reggie Bush like superman flying into the end zone and doing a somersault to land on his legs was out of this world!

Stupidist play by a player Bush is here again. After an incredible run effort, he was victim of the desire to try too much, as he tried to lateral the ball at the end of the run. Instead, the 'horns recovered the fumble and a great run ended tragically!

Stupidist call by a coach This in my mind has got to be Pete Caroll's decision to go for it on 4th and 2 with the ball on the USC 40 yd line and just over 2 min to go. Never will happen in the pros! Yes, a first down would have sealed the game, but you never gamble so big on one play. Instead a good punt would have put the pressure on the 'horns, who didn't have a superfynamic passing offense (I think Young had more rushing yards than passing). The Trojan defense showed some effectiveness blitzing Young towards the end, but when you start 40 yds from the goal line and over 2 min to go, you are gonna at least kick a field goal if you're the #2 (ok, now #1) team in the country!

Crystall ball Vince Young will have an incredible couple of years in the NFL when he foes go pro, before he realizes there is a reason McNabb and Vick don't run like they used to - it's called injury. Defenses in the NFL are much more physical, and even with his size, I don't think Young will last long before he tries more of a passing game. Leinart will meanwhile thrive in a balanced team like Brady in New England, never being the one everyone's talking about (there will always be a Payton Manning) but will nevertheless be one of the winnigest QBs in the NFL in the right team.

The 10% Down Rule

A friend of mine (let's call her Ms Jane Doe) wrote to me disagreeing with my 10% downpayment rule for buying a house. She argued that as a single mom, a 10% down was impractical, and would put people out of the benefits of home ownership forever. After some discussion with Jane, I realized her situation's a little atypical, and it actually meets several other rules-of-thumb I like to use. I'd like to discuss it here, because she actually has several things going for her that you should consider, even if you put 10% down.

Cost of the home I'd like to see mortgage payments no more than 25% of pretax income (ideally of one person's income - I'll explain why later). At present interest rates, that would work out to a house roughly 3.5 times gross income (preferrably one spouse's). While I don't know what Jane makes, her house appeared to satisfy this rule easily, and her mortgage payments were probably less than the 25% mark since she picked up her home when interest rates were lower.

Mortgage Payments In the event of a two-income family, I'd like to see a quarter of the second spouse's salary go to excess mortgage payments. In Jane's case, she indicated she's been paying extra on her mortgage (I think she mentioned double!), so she's quickly reducing her leverage, and thus protecting herself from the ill effects of debt.

Duration of ownership As I had pointed out in this earlier post, an analysis of housing data suggests that annual housing prices can fluctuate. If you are young and want the flexibility (or the need) to move around in search of work, a new home in a possibly overheated market is a bad idea. The risks reduce with time. Jane intends to live in her house for the rest of her life, a lot longer than even the 10-year time frame I analysed in my post.

Of course, all rules-of-thumb are just that. Your own situation may be different, so do your homework. If, for example, you have a kid, you also need to factor in tuition costs (which are increasing at 6-8% a year!). Or maybe you need to start a small nest egg not just for yourself, but for unforeseeable events - health issues, either for you or your parents or children, layoffs, disability, etc that may not be covered by your life, disability and health insurance.

WOW Costco!

I just watched a story on ABC's 20/20 website about Costco. You can read the story here, or better yet, click on the video link and scroll down the list to the Costco story. There are some things almost renegade about this chain - the average worker makes $17/hour, almost 40% higher than competitor Sam's Club, the CEO is paid a petite $350,000 a year, probably putting him at the lowest rungs of CEO pays. Costco was, get this, the world's largest wine retailer this year! WOW!

It appears that their average customer is much more affluent, a median income of $74,000 a year, if I remember right. That's much higher, I suspect, than Sam's Club, where I am a member. A brief look at the Costco website seems to confirm that suspicion. So in the end, after all the praises of Costco, maybe I still need a Sam's Club to allow me to buy $3 bags of pasta and $9 boca burger cartons.

French Women Do Get Fat

I was sitting at my local Barnes and Noble, reading the latest issue of the Economist today, when I was surprised to find that, contrary to popular perceptions (and the title of a book that was featured on many of the morning shows here in the US) that France has an obesity problem. Yes, it is admittedly less severe than that in the US, where about one in three people are obese, and two in three overweight. But with over 40% of French people estimated to be overweight, this is a serious problem for them too. A Google search revealed an old story in the Washington Times that reported that 1 in 10 children of age 10 are obese! YUCK!

And with obesity comes other issues like diabetes. In my native India, some 27 million people already suffer from diabetes, a number that is expected to grow to 57 million by 2025, according to this article in the British newspaper, the Gaurdian.

The source of all this global obesity pandemic? Well, it seems there is something the US still does export.

Want to Make A Point? Change Your Reference

I tell you, I'm tired of journalists using flawed logic to make a point. The latest comes from this piece by David Leonhardt arguing that buying a house is less of a strain today than in the 80s and hence somehow a correction in housing prices isn't imminent. In fact, here's how the story ends ...

"When you get affordability stretched so much, all the creative financing in the world can't stop some correction of house prices," Mr. Rosen, the University of California economist, said. "It happened in Hong Kong, Japan and England."
It looks as if it may not happen, though, in most of the United States.

Why would he compare with the 80s? If you thought it was something to do with how 20 years makes a good timeframe for comparison, you'd be wrong. You see, the way to sell your idea is to pick an arbitrary reference for your argument. For example, if you want to show you lost weight, start your count right after a huge Thanksgiving meal, and end it when you are sick and have lost several pounds. Is it a correct measure? No, but it tells the story you want it to.

So why the 80s again? Well, the federal funds rate in the 80s ranged from 6.5 to over 19%. Of course, the costs of home ownership were high... buying a house in the early 80s was like buying it with a credit card today! Costs have come down now because of interest rates, but that doesn't reflect anything about the value of the asset!

To be fair, Leonhardt does have some reasonable points about just how much incomes have gone up in some communities. But then he somehow tries to imply something about a national market, indicating that housing isn't overpriced except in a few places.

I certainly am not anti-home buying. In fact, I've been advising a good friend of mine to buy a house, because he and his wife will be living in the same city for at least 6-7 years. Time is a friend, because you can wade out troughs along the way. But I certainly don't agree that housing isn't set for a correction. And I'd give an earful if I ever met the Gilberts featured in the story:

The most money that Tim W. Gilbert has ever had in his possession was $15,000, he said, in the form of a check for a job he had done as a carpenter. But he and his wife, Marjorie, were still able to buy a 1936 Cape Cod-style house this year for $176,000 in Poland, about 45 minutes north of Portland. They took out two mortgages rather than making a down payment and they use Mr. Gilbert's $5,000 or so in pretax monthly income to cover $1,600 in mortgage, tax and insurance payments. Ms. Gilbert, a writer, home schools their daughters, ages 4 and 6. "I paid rent for 18 or 19 years," Mr. Gilbert, 38, said. "We waited years and years. We wanted to make this happen."

The most you have EVER saved is less than 10% of the value of the house! Gosh, if that's all the discipline you have, where are you going to come up with the money when those faucets start to leak, the water line bursts, and that heat pump quits?

Sorry, I know I'm opinionated ... that's why I have a blog! But if you can't save enough to put at least 10% down, you have no business owning a home!!

Immigration is Good for the U S of A

Gosh, I'm sick and tired of the attacks on immigration - the latest a move by "conservative" representatives to revoke birthrights for children of illegal immigrants. I put the quotes because I hate labels, and being a conservative myself, don't think its conservatism as I see it to oppose immigration, for reasons I will discuss below.

First a disclaimer. I'm a LEGAL immigrant, and proud of the contributions immigrants, legal and otherwise, have made to this country, be it starting IT firms, running gas stations, serving in academe, or working diligently on grape and strawberry farms. But this is not a post on legal immigration - that seems, for the moment, a less contentious issue, except among leftist unions.

OK, over to the illegal immigration issue. Here's why it's not prudent to oppose illegal immigration - they come because we need them! Pure and simple, supply and demand. We have a serious labor shortage in this country, especially for backbreaking jobs like working in labor-intensive farming operations. (For a touching story of one child and his family's travails as a illegal farmhand, read the firsthand account called 'The Circuit' by Francisco Jiminez). Let's see, at present the US unemployment rate is somewhere south of 5%. By traditional standards, that should have triggered inflation - know why that hasn't happened. Two words - cheap labor ... be it in the form of (mostly illegal) immigration, or outsourcing.

Demographics played a big role in America's surge over Britian and the European powers, but now the same demographic factors threaten US economic supremacy. Short of figuring a way to create working-age humans in the lab, the only way we can get enough productivity at low inflation rates to support the Baby Boomers is immigration.

So whether you are a poor blue-collar worker trying to buy affordable groceries, or a middle-class professional trying to make some money in the stock market, a retiree trying to preserve the true value of your nest egg or a company trying to keep your costs down, stand up and be thankful that there are poor Mexicans willing to risk their lives for the peanuts we throw them to scrub our floors, clean our toilets, make our sandwiches, pick our fruit or process your meat!

Oh, and by the way, I couldn't help but notice the comment from Rep. Tom Tancredo (R-CO), suggesting that rather than seek an outright vote which would likely lose (or at least get vetoed by President Bush), supporters seek to hide the provision in a likely-to-pass bill. This is an old cheap trick by senators and congressman, one that really has to stop! Not that I would have expected that much from Tancredo, who is already in my Hall of Shame, for his stupid comments on taking out Mecca.

Frontline on Diet Wars

I just watched a wonderful edition of PBS' kick-ass show 'Frontline' titled 'Diet Wars' (to watch online, click on the link; the show is split in five chapters). At first, it may appear the same cliched discussion of the different diets, but as the show goes on, there are several less-noticed issues that come up, including reflections on our priorities as a society, and also many interesting (and alarming) facts.

For example, did you know, a teenager today has a 50% risk that he/she will develop Type 2 diabetes in his/her lifetime!! WOW, and I thought I should be nervous because of the sprinking of incidents in our family history!

Even if you are not concerned about your weight or health (either because you don't care or have it under control), this is a show worth watching for its contemplations on contempary society and public policy.

McClellan & Family

The other night, I was watching a NBC Nightly News story critical of the complexities of the new Medicare plan, which is so ridiculously confusing. Part of the story involved a soundbite-sized interview with the Medicare chief Dr Mark McClellan. Last name ring a bell? It should - his brother Scott is the President's press secretary. My first instincts were favoritism at play, although reading the comments of both Republican and Democratic senators about the nomination (last year) suggests he was an excellent choice. Incidentally, their mom is the Texas comptroller, and considered to be a potential gubernatorial candidate!

Can You Hear Me Now?

I have been trying to understand the wiretap issue a little better this week. While I haven't had much time to watch the news, some of the best perspectives came from PBS' Newshour with Jim Lehrer (simply the best news show to understand issues) and Nightline on ABC anchored by Martin Bashir. The guests on these two shows included an ex-acting director general of the CIA, a legal expert at Georgetown and many other smart professionals who didn't have a political point to make.

Essentially, I think the overall coverage of this story has tended to mix up two seperate but related questions. One, was the wiretapping authorized by President Bush legal? Two, was it necessary?

First the legal angle. It certainly appears from all I have heard that the President's order might have been illegal ... actually, more likely it was a federal crime. The FISA act is supposed to explicitly talk about terrorism not being a factor in changing the rules, and requires the administration to get a warrant, at least retroactively. Certainly, the majority of legal opinion seems to weigh in on the side of Bush having broken the law.

Which leads us to ask, was the subversion of the FISA court necessary? Critics of the administration have argued that the FISA act allows, in the event of an emergency, up to 72 hours (15 days during a war) for the administration to go back and ask for a warrant for a search (after all, that's what a wiretap essentially is) that was already conducted. So why seek to step around the process?

The problem, as several ex-intel officials pointed out, is on two grounds. One, the requirement of probable cause. Intelligence since 9/11 has been a bit of a fishing expedition. They get the cell phone of a suspected terrorist, find 200 phone numbers. Some of these might be people with terror links, but the list might include the guy's barber, for all you know. Do they have probable cause to get a warrant? Tough sell! Should they be following up on every lead as aggressively as possible? Absolutely!

Even when there is probable cause, these former intel officers point out, it's inefficient to have to get a warrant to tap a phone after the fact. That's because FISA was written in the day of landline phones, when suspects would use the same phone repeatedly. In today's quick-turnover cellphone age, terrorists quickly keep swapping numbers weekly, if not more often, and the effort involved in getting a warrant is worthless.

Clearly, it would have been better for the administration to have confronted this problem head on, including as a provision of the Patriot Act. In the days after 9/11, President Bush have incredible leverage to have pushed such legislation through. Rather, he made an unfortunate choice of trying to do things behind the curtain, which has come back to hurt him.

In a later post, I'll explore the possible fallout of this scandal on the Bush Presidency, and the 2006 and 2008 elections. Until then, I'll be following this story very closely, hoping to pick up some other perspective on the issues involved.

Populism at Work in India

Score one more for populism in India. The Parliament is in the process of passing a bill which will require most private educational institutions, even those without federal or state support, to reserve a certain number of seats for people who have historically been socially backward. It's affirmative actiion with actual quotas. What's wrong with that? Well, for starters, the track record of such a policy in state colleges has been abysmal. Rather than actually benefitting the classes it is intended to, it eliminated seats from play because of insufficient applications from members of a certain community, and also eliminates any level of academic standards for those that make it through. These students are then completely unprepared for any kind of performance-based system, and usually fall through the cracks (if they don't, there's some chance they will get similar reserved spots in hospitals or public works departments, which would explain the killer state-run hospitals and crumbling infrastructure in India).

But this is also a depressing reminder of populism thriving in India. For all the great economicspeak about India, elections are won by pandering to your base, and when your uneducated base doesn't realize how much your pols are screwing you to keep you down, they think these half-brained schemes are in their interest. So we'll continue to have doomed-to-fail schemes like a National Employment Guarantee, a Right to Primary Education bill and other progressive-sounding bills and initiatives, even when they are just a front for a bulging bureaucracy siphoning taxpayer money, never mind the skyrocketing deficits and lack of actual progress.

Maybe We All Want to Be Treated Like Garbage!

The Transit Workers Union (TWU) strike has brought NYC face-to-face with chaos. Estimates are that NYC is losing of the order of $400 million a day because of this strike! Now, that's what I call a YUCK! But maybe the workers have a point ... after all, they say they are sick and tired of being "treated like garbage" by the MTA? I mean, here's a classic case of workers rising up for fair wages, right?

WRONG! David Andelman writes in Forbes magazine about the incredible pay and benefits that the TWU workers get. Check this out ... the average bus or subway driver is paid $63,000 a year, a rep in a token booth $51,000, they pay virtually nothing into a generous pension plan, ... oh, and they retire at 55! But they are being treated like garbage because the MTA now wants them to put in 4% of their pension contributions. Wow!!

Now, I'm not a traditional conservative who necessarily thinks unions are evil. They serve an important role as an advocate. My mother headed a teachers' union for a while, fighting against a successful school that penny-pinched and tried to screw teachers while some in administration roles allegedly were siphoning money. But I do appreciate how they fought their battles. For starters, their only "strike" was on a Saturday, so that not only were no classes affected, but students did not have to see their teachers protesting against their very own school. I showed up at one of their rallies to support them on a trip home, and was indeed inspired by the dedication of the staff.

Pity the farly better-paid TWU workers don't have the same ethic!!

Watch Out for 'em Credit Cards!

Frontline had a wonderful special titled 'The Secret History of The Credit Card' (click on the link to watch the program online, learn more about the issues involved, or take a quiz to test your awareness about credit card issues). It is revealing that most people don't know that your credit card company can change your interest rates at any time with 15 days notice, and charge you any interest rate they want (there's a reason so many of them are in Delaware or South Dakota!)

While there certainly is a need for more regulation (yes, the conservative in me still likes consumer protections), this will be a long time coming. The quicker path for an individual is an embrace of Puritan values - work hard, save and spend less than you make each month. Use your credit card for convenience, but never more than you can pay off that month.

This leads to a larger issue of debt in our lives. We have exposed ourselves to such mountains of debt that we are unprepared for bumps along the way. I was guilty of this when I bought my car. Two and a half years ago, I returned to graduate school, and realized I had to pay over 25% of my gross monthly salary for a car payment! YUCK! Luckily, I had the prudence to buckle down, and with the help of a large income tax refund (also a YUCK because it's an interest-free loan to Uncle Sam) and some extreme miserliness, I paid the loan off.

But before you buy that large-screen TV or a new house, spend some time contemplating changed circumstances. What if you were to get laid off? Face a disability or health crisis? How well protected are you?

Sick of NPR!

God, can someone tell the guys and gals at NPR to at least pretend to be unbiased? I used to love the radio show, and still listen to them because they are the only half-educated radio show on the air, but gosh, they may as well be funded by the Democrats. Most guests are liberals, sorry "progressives" or some other euphemism, and about the only time you will find a Republican is when he critisizes Bush. I lost it right now when they had a discussion on the wiretap scandal. Well, a discussion makes a lot more sense when all the people of the panel aren't diehard liberals who think anyone who supports Bush is nuts!

Look, I haven't yet commented on the wiretap scandal because I'm waiting for more details to unravel. I'm inclined to give rather large leeway to the administration fighting terror, although recent reports suggesting vegan and other political movements may have been spied on, which is concerning. But several lawyers in the White House, Justice Department and other departments seemed to think there was a valid arguement for the president's actions, so how come the media can't?

Taking Back Christmas

The conservative talk radio hosts have it all wrong! The problem with Christmas is not its being packaged as the "holidays", the problem is the bastardisation of the name Christmas. How did Christmas become so completely corrupted by materialism? I spent a good part of 5 hours driving today, and was shocked at parents nervous about getting their hands on a Xbox 360 or iPod Nano, or people generally obsessing about avoiding tensions associated with gifting.

Now, I confess I've never been much of a gift-giver. I don't give gifts for birthdays, weddings, anniversaries, achievements ... you'd better be pleased with a card, if that. But even if you aren't as acrimonious to purported material manifestations of affection, how did we convert a holy day like Christmas to such a cheap and vulgar display of money?

Is this what Jesus' message was? I'm sure he's having a word with the Big Guy, saying damn, maybe I didn't want to go on the cross for this! Jesus' life was one of simplicity and service, something we'd all do well to remember. Too many Christians are just too happy giving lip service to the fact that Jesus went on the cross for their sins, and using it to ignore their own actions.

I say we need a revolution - not one that ponders wether "Happy Holidays" is offensive or not, but one that emphasizes the true meaning of Christmas!

Pricking the Bubble

With all the talk of wiretapping, there was little attention paid to a couple of important news items about real estate that should have gotten people's attention. One was the Housing Market Index, a measure of US homebuilder sentiment, which fell to its lowest level since April 2003! Yikes!!

The other was a news piece that indicated that the value of unsold homes amounted to $500 billion, up 33% since last year!

In fact, I was listening to a local station while driving through Louden County, one of the high-priced areas of northern Virginia, and heard a caller complain of their inability to sell their house in the last 5 months, despite cutting costs twice already. The host (or one of his guests?) chimed in that the median home price in Louden County had falled in the last few months had dropped from $506,000 to $480,000.

These are just early signs of trouble. It is sad that people fail to recognize irrational exuberance, especially so soon after a decade of similar exuberance about stocks. If and when there is a collapse, it gives none of us much joy, because families are going to be crushed, our monetary system affected, the economy may take a knock ... so obviously I hope that all the gloomies and I are wrong, those optimists are right, and things go on. But history tells us that the track record of "soft landings" is rather suspect, and a correction is imminent.

Shame on PETA

While I've never been a fan of the group People for the Ethical Treatment of Animals (PETA) because of their mostly publicity-seeking star-studded antics, I have usually had a somewhat positive opinion of them because of the cause they espouse, one that's very close to my heart. All that changed when I saw a story on CNN on how PETA has been actively killing animals! (For a short time, you can find the story on the CNN Video page) This is nothing short of an outrage, and a symbol of how many large nonprofits are forgetting the real cause and have become slaves to money, power and fame. Shame on Peta! These pets could have had a loving supportive family, but were instead coldbloodedly murdered!

Ah, the Smell of Fresh Democracy

The Iraqi voters once again showed the cynics just how much they valued their newfound democracy. 70% ... wow, when was the last time the US or any western democracy had a turnout like that? They don't want democracy, they liked to be ruled by thugs, was the refrain of liberal wimps, but indeed the Iraqis showed once again that they'd dogde bullets and bombs to let their voices be heard. Sure, there are still challenges ahead. The history of political development in all countries has been a slow and tortous one, but this is exactly why we have a responsibility to support them, rather than cutting and running, like retards like Howard Dean would prefer us to do.

President Bush argued very persuasively for patience in his interview with Jim Lehrer.

Wars are fought on objective, not timetable ... Victory means the troops are coming out, but troops are coming out does not mean victory.

Incidentally, you can hear that interview here, even though unfortunately it is only in streaming audio, rather than video.

Sen. Incredible!

I learned about the late Sen. Proxmire (D-WI), who passed away this week, from watching Newshour yesterday. I know nothing of this man's politics, but this fact blew me away - he ran for the Senate in 1976 spending $177.77, and then again in 1982, $145.10, all out of pocket. No campaign contributions, certainly no TV or newspaper ads. Wow, that's unthinkable these days, and I dare say was probably so even in those times! You can watch the piece here. God bless his soul, and God bless US and every democrocy with more Proxmires!

College Football and Academic Achievement

This story by Mark Starr highlights what I have long held against college football - the fact that it is a farce! I love the NFL, the superior quality of performances and all that goes with it. I know the athletes play for the money, and noone ever claimed otherwise. College football, on the other hand, is a lie - the supposed theme is that players are amateurs, playing for glory while still studying and getting a college degree. 'Bullshit!' is the pronouncement of a new study, which shows how dismal graduation rates and achievement of academic standards among football players are. Turns out this players aren't quite deserving students after all! That's what really bothers me about college football - the hypocrisy of it all.

Oh, and I've seen another study that some economics professors at Cornell did which shows that having a football program does NOT enhance alumni giving, as is conventional wisdom!

Firefox Themes

I just discovered the new version of Firefox allows you to install themes (similar to Windows Media Player). You can find a sampling of themes here. In evaluating the different web browsers, it appears to me that Firefox has gotten way ahead of the competition.

Also, what's up with people not criticizing Apple's policies with respect to their browser? Apple's new Safari RSS handles RSS feeds and tabbed browsing, but is available only if you switch to their latest operating system. Hah, and all those people who embraced Apple as the anti-Microsoft should be feeling very good with the Mac's embrace of Microsoft-style coercion!

Check Your Charity

'Tis the season to give, but be sure your dollars are spent wisely. ABC had a special on how programs targeting the poor are getting less and less money, while nonprofits servicing the opera or a museum are awash in cash. Now is a good time to reevaluate your priorities, and think of those unfortunate brethren suffering the winter.

On that note, do take the time to investigate the charity you plan to give to. Some of the web sites to do this are Charity Navigator, and Give.org to name a couple. I was surprised by some information I found on the former site:

• Habitat For Humanity gets a one-star rating, spending only about 75% of its money on program expenses (i.e. actual charity work)! It spends 22 cents on fundraising for every dollar it gets!
  
• The American Red Cross does get 4 stars, but still spends 18 cents on the dollar on fundraising, and has a CEO making a salary in excess of $450,000!
  
• By and large, the smaller charities do a better job, in my opinion. For example, among charities that do work in India (where I'm from), one of the standout groups, Asha for Education, spends just a cent on a dollar on fundraising, spends almost 98% of its budget on program expenses, and does not pay its CEO!
  

That's not to condemn any of the larger charities, just to say do your homework. And remember, as my friend's dad used to tell him,

Make all you can,
Save all you can,
Give all you can.

Store Credit Cards Can Screw Up Your Credit Score

David Bach, author of the Automatic Millionaire wrote this essay on four reasons to say no to store credit cards. While most of them are the usual suspects when talking about avoiding credit cards in general, one point was rather significant, even for a disciplined spender who would definitely pay off all his/her balance every month.

One of the factors determining your credit score is how much of your available credit you have used, but this is not just in sum total. Let's say you have cards with banks A, B and C with a credit limit of $1,000 each. Your balance on card A is $800, card B and C are $200 each. Your total balance of $1,200 represents 40% of your available credit, so that won't trigger a red flag. However, you have used more than 50% with a single lender (80% from A in this instance) and so you will lose points in the evaluation of your credit score.

What that means is that a small purchase from your neighborhood Target with a store card could easily do some pretty nasty damage. All for a few free bucks ... that, my friend, is what called cutting an leg to save a toenail!

McD Gift Card

I saw these ads for the new McDonalds Gift Cards. Ah, what better way to say I HATE YOU that to gift them the gift that keeps clogging ... your arteries, that is. I'm not much of a gift person (so far, I've only once got my brother and folks gifts for their birthdays!), but allow me to offer some alternatives to a Mickey D card:

1. One-month membership to a gym, or sessions at a yoga studio.
2. A mountain bike, or gift card to a fitness store
3. A book (yes, enriching your mind is a form of fitness) - no gift card here: take the trouble to find something worthwhile - my vote is for 'Tuesdays with Morrie'.
4. Savings bond, especially if it's for a kid
5. Make your own based on what the person needs.

Anything that contributes to mind, body and soul is a winner. On the other hand, if you are on the person's will, you may want to present the Golden Arches Card after all!

Your Life is on the Internet!

I have periodically wondered about how our lives are on the Internet, and what the implications of this fact are. For example, this blog tells the world my views, and yet this may not be desirable when I'm seeking employment (for example, a potential employer may be uncomfortable with my conservative views on abortion and politics).

Well, this cuts even deeper. After reading something in a blog I follow, I was curious and looked up some friends' profiles on popular "networking" sites such as Friendster and Hi5. In the course of doing this, I discovered that someone I consider a close friend had recently lied to me about something personal. Sure enough, while snooping, I discovered more about her personal life than I had necessarily wanted to know. While I could write a philosophical post querying why people lie (and I intend to write a broader musing at some point), it also highlighted for me not only how the Net is, in so many ways, impacting our lives, but also how trusting we are currently with putting personal information we would not want even our family members to know out there for strangers to read!

So where does this revolution go? As we acknowledge the proliferation of blogs, personal web pages, networking sites and the like, I can't help thinking there will be a backlash, when people realize how this information can be abused. Bloggers have already discovered the pitfalls of openly sharing their views with the world, often getting fired from their jobs, and I for one would not be averse to deleting (or making anonymous) this blog before I seek real work after grad school.

Say No to Canadian Drugs!

I found this essay by Huber to be a wonderfully persuasive argument against the imposition of drug price controls or allowing large-scale importation of Canadian drugs into the US. I have long felt that insisting a drug company charge the same in the US as it does in Mexico or any other country is foolish to say the least. Now I'm glad someone penned it a lot more articulately than I ever could have!

USA Today's 'Ask Matt' Column Features My Question

A question from yours truly was featured in the 'Ask Matt' column of USA Today. The question was truncated and missed one key question I had asked, which had to do with impact on the broader (non-construction) market. Since the time I posted the question (August 1!!) there have been a few stories in media outlets suggesting that a housing bubble could affect retail, as people don't "feel as wealthy".

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!