Monday, September 29, 2008

We Have An Important Announcement To Make

A cat and a kitten at the Last Chance Shelter through Petsmart picked Judy and I on my birthday as two people they wanted to cohabitate with, thus ending the long emptiness in our lives. Thar be cats in the house now, and all is well with the world.

This little cutie is my Glamourpuss, and I think she is simply gorgeous. She is 16 months old and just had a litter. She and I have a thing for each other so far.

He is four weeks old and weighs one pound one oz. He wants to go everywhere, do everything, and he is just gorgeous. I am completely unbiased, naturally.

The house feels more normal with cats in it.

And she (the female cat, although Judy does too) preens and mothers the little one as if he were her own. Look at those eyes, I just melt.

The two were scheduled to be put down on Friday if they weren't adopted. Over my dead body. Yeah Mel, there is a G-d, and while you're at it, thank Studley too.

Saturday, September 27, 2008

Today Is A Big Anniversary

I have a few adopted sisters Wicked H and her sister Brain Surgeon (BS) {Happy Birthday BS, you don't look a day over 25} who shares a birthday with me as they add grace and charm and elegance to my already blessed life. Yet today is also the fifth anniversary of the day I quit smoking.

I had snapped the humerus (the big bone between the elbow and the shoulder) on my left arm. The surgeon told me after a month that if I didn't quit smoking,the bone would never grow back. I stopped smoking that day after decades of a 3-4 pack daily habit. I used the patch. The first two days were terrible, so I slept a lot. After the first four days, the nicotine is basically gone, and the patch satisfies your nicotine needs. You then step down with the patch. I actually skipped the last step.

In five years, I have not touched a cigarette, much less been close enough to smell smoke. It's not a risk I am willing to take. I like winning too much.

Birthday wishes for BS can be left here or at Wicked's blog Eyes Averted. We like to keep it in the family, you know.

Tuesday, September 23, 2008

For Pam and Heather

I have actually been a little out of sorts lately, and it seems to be going around. So, to cheer myself up, I normally turn to Beethoven and Mel, and Hearts and Glamourpuss, not to mention Open Grove Claudia. Today, I have that deep existential thing that gnaws down deep, so I hauled out some more of the big guns, John Denver and also the Cactus Cuties.

John Denver, the discoverer of Colorado, actually does two songs on here, the first makes me realize that as long as I'm still alive, and responsible for myself, I can make it happen. Mel and Puss and Claudia and Sartre et al. Yup, I read them all. Sweet Surrender. My friend Pam, who y'all don't know thinks no one would ever miss her. Except me. She's overdue here for pizza. Denver does his "Country Roads" for my buddy Heather who is out of sorts for the moment.

Mel, my buddy, friend, pal often speaks about faith and letting yourself believe. The Cactus Cuties say the same thing here. By the way, the tallest one, the oldest, had a terrible car accident and broke her neck, and sang the whole time she was rehabilitating.

So I'm saying to myself that it's time to get off my dead ass and get moving because we never know how much time we have left on top of this green Earth, and I might as well make the best of it while I'm here. Have a good day, I'll write when I can. Out of the funk and let's get to work.

Friday, September 19, 2008

Live Blogging The Financial Crisis

Dateline: Gaithersburg

As a follow-up to the story from our sister blog Echomouse in Canada about some of the problems in Canada, we are rushing to press this morning to announce that the beginning of the end of the financial crisis is at hand. Henry Paulson, Bush's third Secretary of the Treasury, and the first one with the "right stuff", is the hero of this debacle. There is no time to wait for the election, the time to act is now.

Here's why. Yesterday, the Fed and the European Central Union's Bank (euro) did a $183 billion swap. Regardless of what you see and hear, the World still runs on dollars because of our political stability. We got $183 billion in euros and we gave their central bank $183 billion in dollars. Their central bank lent the cash out to its member banks, such as England, Switzerland, etc. Credit should have become immediately available world wide, credit spreads should have narrowed. It did NOT happen. The banks did NOT trust each other to lend each other money overnight. They each know what they have hidden in their own balance sheets, so they know they cannot trust each other. It's simply that simple. Circular, but true.

Remember the option arm loan, where people weren't paying the whole mortgage, and refinanced after two years? And all the other mortgage gimmicks? They got sold into pools, and the banks were buying them, because they were making money. Today, most of those loans are toxic, non-performing loans, and they are on the books of the banks. Want to lend a bank money against them? I didn't think so. Well, there are still billions of dollars of those mortgages floating around out there, and there lies the problem.

How do you get the toxic loans off the books of the banks. But that is just the beginning, the short term, the bailout of Wall Street. The real issue is how do we fix the system? This has been going for a long time. Fannie Mae was established in 1938, Freddie Mac in 1970. We repealed Glass-Stegal and allowed investment banks and commercial banks under the same roof around 2000, and we abolished the uptick rule for shorting last year. The unregulated mortgage industry has been in business for quite a while. Who regulates the Insurance Industry (your state) and co-ordinates policy (no one)? I don't want to sound like a Democrat or a Republican here, but everyone who cared to know saw what was happening. On the other hand, Freddie and Fannie had excellent lobbying arms.

The market will rally on the news that Paulson has crafted a solution to buy toxic loans and dispose of them (details to follow), plus a few other issues. The SEC has also banned short selling in financial stocks for the next two weeks. This guarantees a rally. A lot of what will happen will be political. When Nancy Pilosi or Harry Ried caused heartache, the market will fall. But for the most part, the bottom is probably in place, Have a great day, and a wonderful weekend.

Wednesday, September 17, 2008

An Anniversary

This is the 333rd post I have written for this blog and actually published. I have actually written quite a few more than that according to Blogger, but I don't count the ones that don't make it to the light of day. What makes this one so special is that I am writing it in Google's editor named Chrome. The truck's lug nut was the best chrome object I could find. Sorry about that.

Some of you use Internet Explorer, others of you are Firefox advocates and will never go back. I really like Chrome for what it's worth. It's simple, works well, and it works with all of my financial programs. In that regard, it exceeds both I.E's latest edition and also Firefox, which chokes on my financial programs statistical routines.

Rather than tell you how easy things are to do in Chrome, go to Google, download a copy, and in 5 minutes, you'll be using it. That's what I have to offer you for my 333rd post. And I hope you're having a great day! Let me know what you think.

Monday, September 15, 2008

Do Not Bother The Candidates On This One

Oil dropped to under $96 a barrel this morning (96.60 at the moment) even though the local gas stations have gasoline at $3.98 due to the shutting of the refineries due to tropical storm Ike. The price will come down again, but you can see how fast gasoline can move. The next shock could be in heating costs this winter. This is not why my blood pressure is through the roof today.

It's cancer. I loathe cancer. I loathe cancer with a passion.

In 1976, Dr. Paul Bloom wrote an article in the Journal of Marketing posing the speculative question, "What if technology can't care cancer?" He got a host of criticism, not the least of which was that he was blowing smoke up everyone's rear to get a publishing 'hit' in a refereed journal. Since I knew him, and taught in the same business school with him, and had him as a professor during my doctoral program. What he was really doing was assaulting one of the American Sacred Cows, that our technology, our research could solve any problem. How many times have we heard the argument on the TV that, "we put men on the moon, didn't we?" meaning we answered Kennedy's awesome challenge.

In terms of science, putting a man on the moon was a very well-defined problem. Solving the problems of the inner cities are not well defined problems. Please notice that we have not solved them. In retrospect, solving cancer seems ill-defined also. Sure, there are some cancers that are curable, such as prostate cancer, if you catch them early enough.

What should I tell people with pancreatic cancer? Cancer of the spine, which killed my grandmother and uncle? Ovarian cancer, another insidious killer? I haven't even mentioned any other diseases that I loathe with a passion, like Alzheimer's, which I watched destroy my wife's aunt. We were her personal representative. Or diabetes, which I have, and if you live long enough, you will too.

Back in the '60's, Congress bought into a policy of letting the drug companies develop miracle drugs to help 'cure' us because the cost of staying in a hospital was so expensive. It seemed to work, and the insurance companies made money. Periodically drugs run into little glitches where they kill people. Thalidomide, vioxx, to name a few. Lately, some of the promising drugs for diabetes, namely Bayeta; and for Alzheimers, a nameless drug, seemed to be working, except they killed a few people. So the scientists went back to the genetics drawing board to look for a less lethal approach. But now, the scientists want us to know, through the Pharmaceutical Companys who have lawyers who can solemnly say it with class, style and grace, every time you take any drug, you are taking a risk. That includes aspirin, just so you know. At least aspirin seems to work, but it can eat your stomach out. I'll bet you already knew that, didn't you. Please, read drug labels.

It's now 2008. The county wants to raise the property tax rates, again, because so many people have asked for reassessments because of falling property values. And, the county, in its infinite wisdom wants to give the teachers another pay raise, even though the kid's test results, as an aggregate, are dropping. And only a mere 100% of my county property taxes go to the school system, even though I have no children. At the very same time, ads are running on TV explaining to me that our schools are so far behind the rest of the world in math, science and engineering, and that our kids are being left behind. The county is a mastermind at investing in education and its infrastructure evidently. I couldn't get any luckier.

I used to argue with my friend Eddie (PhD in statistics from Wharton in his 20's, the mutha) as to letting kids use a calculator in class to do exams. Particularly when it came to showing they understood logarithmic functions. Go into a Mall today and I dare you to find a kid today who can do arithmetic on a calculator without pictures on it. The concept of a logarithm must be explained in terms of "Predator" or no one will listen. It is not that I have despair. I would be doing well. It is that this is what I see when I hear mothers arguing with me that her child will be the one to cure cancer, and my tax dollars will put him over the top. Potash Corp. and Agrium could use this woman, not that I have become cynical, but I have heard this story so many times before. Where is the damn cure already?

This is Breast Cancer Awareness Month. I'm Aware. I want action. And, I want it now. I have friends with cancer, and I can't wait.

P.S. Open Grove Claudia knows more about taking care of yourself, eating healthy, and living right than any four people. Check her out.

Wednesday, September 10, 2008

An Emotional Event For Me

When I was a kid at the age of 12, I started going to work with my father the builder. He actually did own and run a small construction company. The first day I had off school, he woke me at 5 am, and we drove to the other side of Baltimore and were on the job site before 7:00 am.

I ended up being a laborer, and I heard a lot about not working hard enough. I was good at running errands. On the plus side, I learned to drive a farm tractor and could tow a long trailer with wood or block or brick on it, so I was perfect for delivering supplies to different houses, as long as the county didn't own the street.

I also learned the rudiments of driving a bulldozer. My father was severely less enthusiastic about me driving a bulldozer than a farm tractor. My dad was a CPA and a lawyer before he decided to build houses. Today I can understand his reasoning. Imagine hitting anything with a farm tractor, then imagine hitting the same thing with a bulldozer. Complicate things by having to be a responsible adult and having to explain to a judge why a 12 year old was driving a bulldozer or a tractor. Remember, we skipped a car entirely.

We typically got home at 7:00 pm. Rain or shine, my ass had been kicked. We're talking tired. Bone tired. Finally, at the end of August, I got two weeks off. Vacation. I had been paid a buck an hour, but I was actually given $10 in cash, and $30 in a check that I would never get to cash.

I worked for my father until I was 18, when I was drafted by my uncle to work in his rubber factory. I tried stints in places like fast food restaurants, etc. since neither my father nor my uncle really understood nepotism, rather they understood that if they made your life miserable, you would instantly see the value of an education. They never believed me when I told them I valued an education, they just kept up the pressure.

Some other time I'll tell you stories of near death, or driving my great aunt to the airport covered from head to toe in black rubber dust and having my great uncle say "kiss your aunt good bye" and leaving black marks on her face. Today, I am going to tell you of one of the last projects my father had for me just before I went to school.

He was renovating a beautiful old townhouse and they had to dig a trench from the curb to the house to install the utilities. The trench has to be 8 feet deep. The backhoe we had was only capable of going down 6 feet. It was raining. I was told to get into the trench and shovel out the last two feet of mud. I was halfway up to my knees in mud, shoveling, and then throwing the mud up and out of the hole. Not all of it made it. There wasn't another person to help, like letting me fill a bucket with mud, and have them haul it up and dump it. When I was finished, I was covered with mud, and completely exhausted. By this time I knew that part of what my father was trying to teach me was the value of an education. I knew he didn't realize that he was also teaching me over and over again that working hard didn't buy you anything if you didn't get to work smart. Digging the trench was one of those events that just stuck with me, right through to today, 40 years later.

I came home and found a guy at the bottom of a hole in my front yard. He works for the Washington Suburban Sanitary Commission, the local water authority. They are replacing the water mains. I looked in the hole

and this guy was down there, in the hole. He didn't want me to take his picture. He was afraid I was looking for him to be committing some violation. I told him the story. I may blow the picture up and hang it on the wall in my office for motivation.

I took the picture below so you can see he was standing in water.

If you look at the picture below, it appears he was almost up to his waist. I did offer him an ice cold Sam Adams Oktoberfest, but he turned me down. He did thank me for telling him about the motivation to go to school.

Little did he know how long I went to school. The next time I retire, I'll probably go back to school again. Why did I put the pictures at the end? So I don't have to see them a lot. It's not my favorite memory.

Monday, September 08, 2008

What Will The Candidates Really Do?

The Treasury Secretary of the United States took over Fannie Mae and Freddie Mac over the weekend. Last week, Pimco, a huge bond dealer, refused to buy anymore of the short term paper of either agency. Privately, both the Russian and Chinese Government buyers had also called the Treasury. Secretary Paulson already had decided that both institutions were too big to fail, that these two institutions going under would do extensive damage to the capital markets here and throughout the world.

There are thousands of questions that remain, starting at Treasury itself. By taking over these two institutions, the implied government guarantee is now explicit. This means that you the American taxpayer, if you are an American taxpayer, are essentially guaranteeing the mortgage pools issued by these institutions, even those stinky subprime loans. Wayne Angel, a former Fed Governor, said that they would need deeper capital reserves in the future. One estimate is a minimum of $200 billion.

The capital markets rejoiced today. Credit speads narrowed (take the yield of the Freddie Mac 10 year bond and divide it by the Trasury 10 year yield. As the spread narrows, things are getting better; as it widens, things are getting worse). Bank stocks soared. Fannie and Freddie both dropped to $1 per share since their stockholders will lose everything.

The average person gets almost nothing from this. Mortgages will get cheaper, but the price of houses won't necessarily stop dropping. You need more qualified buyers, and the banks aren't going to make it easier to get a mortgage. The people who are underwater because the price of their house is now below their mortgage will still be underwater. The people who are being foreclosed will still be foreclosed.

Earlier today, Senator Jim Bunning, Republican of Kentucky called the Treasury's move Communism, the state takeover of the Housing Industry, in essence. I'd have thought it was Socialism, but I'm not a U.S. Senator.

To see how the individual makes out, you must take a long term view, and understand the original mission of both Freddie Mac and Fannie Mae and why they were created. I will try in very short order.

Originally, special banks called savings and loans paid higher savings rates to savers to get capital, and they made mortgages to people to buy houses. They held the mortgages until people paid them off. The average life of a mortgage was 6 years and 10 months. In that time, in a self-amortizing mortgage (you paid a little principal and mostly interest so after 30 years you actually paid off the mortgage) you paid mostly interest and then paid the bank back the principal. You might be refinancing to get some cash out, you might be moving, but you typically refinanced.

The bank had to maintain a reserve to service the depositors, who might want to make a withdrawal now and then. The reserve proves to be a limit on what a bank can lend. There is also a reserve for losses, assuming that some loans will go bad, the underlying real estate secured, and then sold to reacquire the capital. Works fne except when the value of the real estate drops.

Now, what if there wasn't enough money in the savings and loan system to finance the number of people who wanted houses? With the modern miracle of computers, you can create an underwriting matrix, or in plain English, a computer system that runs 80 tests or so on a mortgage application, including income ratios and expense ratios, if you have a telephone, etc. And then the computer can buy the mortgage from the savings and loan offering it.

The computer could buy tens of thousands of conforming loans, loans that conformed to the rules that the institution established that buy mortgages. The S&Ls wanted the deal, they get a 1% servicing fee for collecting the monthly payment on the mortgage, plus they got the discounted present value of the mortgage (dig that fancy finance lingo, it means what the mortgage is worth today).

The institution then forms a pool of mortgages that is geographically distributed, etc. The pool will yield an average reflecting mortgage risk in the country. Shares are sold on the pool to institutional investors. As long as there is a spread of 16 basis points (0.16%), the institution will make money. The process is called securitization, the institution could be either one of the companies, since putting more money into individuals hands to buy homes was the goal. Ultimately, it still is. It's just hard to see.

Thursday, September 04, 2008

The Quality of My Blogging Has Been Strained

Yesterday I had a wonderful exchange of e mail with my identical twin, James Burnette. We both admitted to being on the slow side of blogging lately. Mostly, we talked about coffee. Now, if you like coffee as much as I like coffee, this can be a really wonderful discussion. Just like if you like chocolate as much as I like chocolate. Then, of course, we need to discuss moderation, or diabetes, better to discuss moderation!

But that takes me off topic. It seems that the blahs have hit everywhere, or at least here, which is as far as I can see. I think it's an end of summer thing. An anthropromorphic throw back to when we were kids. It's that back to school blah thing.

I find it interesting that this election is the most important election in our lifetime, at least according to some of the people making speeches. I can't remember an election that wasn't the most important election since the beginning of time plus three days. In retrospect, some have really stoodout. Kennedy's sqeaking by Nixon in 1960 came at a time when the World was a very scary place to a teenager like me. The Soviet Union and Krushchev were formidable enemies indeed. Twenty years later, Ronald Reagan beating Jimmy Carter while the Iranians held our people hostage was a surprise, and when the hostages were released, to someone who wore a bracelet with a hostage's name on it, a reason for joyous celebration. I wasn't around for Jefferson beating Adams, or any of the Roosevelt victories, either President; etc. I have come to believe that it is rare for a President to be the sinle reason to change the course of history. They may have the ideea, like Eisenhower conceiving of the Interstate Highway System, so he could more easily move armies across the country, but the Congress ultimately decides. The current Congress has a 14% Approval Rating, lower than the President's by 20 points. Please note that both candidates are members of the same Senate. I'm pretty sure they know each other. I have a riddle. If Sarah Palin is a pitbull with lipstick, what does that make Ann Coulter? And should Michael Vick meet Ann Coulter? I think Vick deserves it. See what I mean about the quality of mercy is not strained.

As I write this, the Dow is off 277 points, oil is at 108 down a buck. OPEC claims it will cut production at $100 a barrel. Investors seem to be worried about a world-wide slow down, which seems to be strengthening the dollar. The English Pound used to buy $2.25, now only about $1.75, which means the dollar is getting stronger. If oil is going down, and the dollar is going up, why is the stock market dropping? Because oil proces falling is good, but not enough to fix the economy. That's today's explanation. Buying quality and holding it pays off. Hold a diversified basket, and watch the basket. The Dow is now off 331. When these guys get worried, they sell with their computers! Have a good day. And read Mel, you'll feel better, Open Grove Claudia too. Should you see Glamourpuss, please give her a hug.