21st Century Indentured Servitude

In Orange County 1 in 6 homes is worth less than the mortgage outstanding on the home. That's 1 in 6 families who can't move, can't refinance and are throwing good money after bad. For folks who bought in 2005-2007 it will take decades for house prices to recover. These people aren't building equity in their homes, they made a bad decision at the peak of the bubble, took on too much leverage and ran into some bad luck. That seems to be a common theme these days.

http://lansner.ocregister.com/2011/08/09/1-in-6-local-homes-underwater/119717/

How can the economy recover when so many people are held hostage by their homes, their student loans or their credit cards? Yes, as a country we took on too much but that happens. The US has always been a debtor friendly place, bankruptcy laws are very forgiving compare to other countries - just look at all the abandoned cars in Dubai:

http://gulfnews.com/news/gulf/uae/traffic-transport/abandoned-vehicles-left-to-rot-in-dubai-1.656059

But in recent years the US has become far less debtor friendly - at least for consumers. Student loans cannot be discharged in bankruptcy, they will garnish your wages, your Social Security, whatever they can get their hands on. Mortgage balances cannot be reduced in bankruptcy either - you either pay off the full balance or you walk away from the whole thing and lose your house. Imagine if corporations were subject to the same laws? It would be a disaster! Why do we subject families to such hardship but exempt corporations? We screwed up, give us a chance to fix it. This guy theorizes that we're actually in the middle of a super-crisis that started in the '70s. I'm not sure I buy it but he raises a lot of good points:

http://www.nakedcapitalism.com/2011/08/what-is-debt-%E2%80%93-an-interview-with-economic-anthropologist-david-graeber.html

Bank of America's latest problem - too much money

Due to all the turmoil in Europe deposits are leaving European banks and finding their way into US banks. However US banks don't want this money, with interest rates at 0 its impossible to find profitable ways to invest it - they may even be losing money on these deposits. Plus no one thinks these deposits are going to stick around for long so banks unwilling to invest them in longer term assets.

http://www.bloomberg.com/news/2011-08-26/u-s-banks-said-to-seek-relief-from-regulators-as-deposits-swell.html

All this is making me wonder - are low interest rates the cure or the disease? Maybe they need to start considering alternative investments. Perhaps a Scrooge McDuck themed amusement park?

Steve Jobs Retires

There are few people who personify their companies like Steve Jobs. The only person who even comes close is Warren Buffett. Steve's resignation from Apple is definitely a blow to the company, this guy is truly a visionary. As this article put it "Steve Jobs is perhaps the most successful brand manager in history, and he did it, paradoxically, by embracing the precise corporate values to which the Apple brand identity is ostensibly opposed."

http://www.ottawacitizen.com/opinion/Jobs+sold+conformity+hipsters/5315316/story.html

Like Google's "Don't be evil" culture, Jobs has created something very unique at Apple - I hope it can continue without him at the head.

Kill kill kill kill... the quants?

Quants have been taking a lot of heat in recent years, first it was all those CDOs that went bust, now every blip in the market is blamed on high frequency traders. Certainly there's some truth to it, but this guy is really taking it too far:

http://www.thestreet.com/story/11229935/1/kill-the-quants-before-they-kill-us.html

This guy makes it sound like there was no such thing as volatility before HFT came along - come on! First of all the quants do the research and make the models, they're not the ones who decide to leverage 30 to 1 putting the financial system at risk. Second, who is really hurt by a 6% move in the stock market? If you can't stomach the occasional 50% loss then you shouldn't be investing in stocks anyway.

Something from Neuromancer or The Onion?

This article sounds like something out of The Onion:

http://www.theepochtimes.com/n2/china-news/slip-up-in-chinese-military-tv-show-reveals-more-than-intended-60619.html

As part of an anti-US propaganda ad the Chinese accidentally showed this program where you can select an IP address and hit the "Attack" button. In the ad they show the address for the University of Alabama. Unreal.

ht big picture

Food Stamps, Ritalin and the Middle Class

15% of the US Population is on food stamps. That's 46 million people, at a total cost of $68 billion last year. These statistics are pretty shocking to me:

http://www.reuters.com/article/2011/08/22/us-usa-poverty-foodstamps-idUSTRE77L45Z20110822

In global terms even a family of four in the US living at the poverty line ($21k/yr) is middle class. But as the middle class emerges worldwide they are competing with the middle class in Europe and the US. I suspect this dynamic will come to define the first half of the 21st century. There's no doubt that the middle class in the West is getting squeezed - how do we adjust to the new global world? Of course we could turn to psychotropic meds - Acceptol always sounded pleasant. But only the wealthy will actually be able to afford these meds; while 15% of American families worry about putting food on the table, 15% of children in the US are taking some kind of psychotropic meds. Something feels wrong about this:

http://www.nytimes.com/2011/08/22/opinion/corporate-interests-threaten-childrens-welfare.html

Religion, Money and Politics

The three things you're not supposed to talk about. Oddly enough these are three of the most interesting things to talk about. Before I went to the UofC I didn't talk much about any of them. At the UofC I definitely learned to talk a lot about religion and politics. In general I think I'm pretty open minded, part of me even sympathizes with Kierkaard's leap of faith argument:

http://en.wikipedia.org/wiki/Leap_of_faith

To paraphrase Voltaire, I may not agree with your opinion but I'll defend to the death your right to express it. As long as we agree on that point there is always something I can learn from others' beliefs and opinions. But money is the last of the three that I'm still not entirely comfortable talking about. In this article Daniel Indiviglio argues that public salaries would make workers better off. I've heard others make similar arguments before and in part I agree with them. However his lack of empirical evidence makes me a little skeptical - what if public salaries just made everyone envious and consequently less productive? On the other hand this might be a solution to the massive discrepancies in salary between workers and senior management.

http://www.theatlantic.com/business/archive/2011/07/the-case-for-making-wages-public-better-pay-better-workers/242238/

Apple is worth more than the European banking system

I'm not sure whether this says more about how successful Apple has been or how dire the situation in Europe is:

http://www.appleinsider.com/articles/11/08/19/apple_now_worth_as_much_as_all_euro_zone_banks.html

Its no longer a question of whether the European banks are solvent but rather how insolvent the European banks are. The situation is making a lot of people (and the markets) very anxious. The European banks are HUGE:

http://www.bankersalmanac.com/addcon/infobank/bank-rankings.aspx

A run on the Euro banks could be disastrous, no one has enough money to backstop them.

DRACO

A group at MIT has developed a new drug that can, in theory, cure any viral infection. So far they've tested it on 15 different viruses in mice with 100% success... wow. Besides the millions of lives potentially saved the best part is the name.

http://www.huffingtonpost.com/2011/08/11/draco-drug-could-cure-almost-any-virus_n_924435.html

Its incredible how we're capable of developing drugs like this when over a billion people still don't have access to clean water. How many lives could we save by getting these people access to clean water? Of course its not as simple as that, lack of clean water is usually symptomatic of other bigger problems. War, oppressive government etc.

http://www.globalissues.org/article/26/poverty-facts-and-stats

Tit for tat

Today the justice department announced that it is investing whether S&P improperly rated mortgage backed securities during the house bubble. Uhh... ya think? Over 90% of the AAA mortgage backed securities issued in 2006 and 2007 have been downgraded to junk.

http://theoaklandjournal.com/oaklandnj/sp-says-pu-to-america/

AAA is supposed to mean no credit risk - the issuers and rating agencies knew these ratings were bogus from the start. But historically the agencies have been protected by the 1st amendment because these ratings are officially opinions. No wonder the market for these securities is dead, investors have lost their trust in anything and everything securitized.

Some folks are claiming this investigation is retaliation for the recent downgrade of the US. Maybe it is, but I'm all for it. I agree with S&P, the US is not AAA anymore but I also agree with the justice department - the business model of the rating agencies was to outright lie to investors. We need to shut these guys down and replace them with institutions that can be trusted.

http://www.theatlantic.com/business/archive/2011/08/the-backlash-against-s-p-begins/243806/

The Paradox of Choice

The idea that too many choices is detrimental to our happiness is not new. Barry Schwartz wrote about this idea in his book Paradox of Choice - Why Less is More.

http://en.wikipedia.org/wiki/Paradox_of_choice

His premise is that more choices lead to psychological stress because it isn't easy to (1) figure out what we want and (2) weigh the pros/cons of our various options. I've spent a lot of time recently furniture shopping and I've definitely experienced this stress! If the apartment were already furnished I would probably be a lot happier overall. I was also reminded of this book when reading an NYT article on decision fatigue:

http://www.nytimes.com/2011/08/21/magazine/do-you-suffer-from-decision-fatigue.html?_r=1&hp=&pagewanted=all

The example of the parole board is quite surprising. Take 3 prisoners who committed the same crime and are similar in all other respects, one has a hearing at 9 AM, the other two much later in the day. The one with the early hearing is much more likely to get parole than the other two. The whole article is pretty interesting and certainly has some public policy implications.

Rock, Rock, Rock

There was a period of time in high school where I was exceptionally good at rock, paper, scissor. Impossible? Not according to these guys:

http://www.livescience.com/15574-win-rock-paper-scissors.html

I did utilize a few of the strategies they mention, in particular I'd tell people ahead of time what I'm going to throw or do the same thing three times in a row. Unfortunately these skills have not transferred over to poker.

h.t. big picture

5 years ago there was no iPhone

There have been a few inventions that have really revolutionized my life (so far), smartphones are one of them. I've only had one for a little over a year but its completely changed the way I manage my life. A lot of people don't realize (me included) how quickly technology is advancing and how the rate at which its advancing is also speeding up. Inventions like this one just blow my mind (thanks sis):

http://www.wbez.org/story/2011-08-11/new-electronic-sensors-stick-skin-temporary-tattoos-90517

On a related note Kevin and I had a discussion this morning about where the next bubble will be. I'm pretty sure it'll be in biotech. In Western countries most people have all of their basic needs met and there's a limit to how much stuff we want to consume. So where is all that extra income going to end up? My hypothesis is that we will be looking for ways to extend our lives and improve our health. Thus I believe we're most likely to see a positive "black swan" in biotech. I'm also using this logic to justify my recent investment in XBI.

P.S. I googled black swan and this is what came up - couldn't resist.

Outside Lands

Wow, great festival! Three incredible days of music and wine in one of the most scenic parks I've ever visited.

Friday: MGMT was solid. Big Boi never actually played - instead we got 15 mins of Dave Chapelle standup. The Shins sounded great, it was their first show in almost four years. They've coming out with a new album and hopefully will be touring again soon.

Saturday: The Black Keys were the best surprise of the festival for me, I always liked their studio stuff but they were even better live - plus the crowd was really into it. Muse closed the night with an impressive show. I've only recently become a Muse fan but I will definitely be seeing them the next time they're in Chicago.

Sunday: Major Lazer was ridiculous as usual and the Decemberists were fun. Of course this day was all about Arcade Fire and they did not disappoint. Just before the encore they sang a few lines from "All My Friends", I was melting - it was just a perfect moment. Though I was probably one of few people in the audience who recognized it.

http://www.setlist.fm/setlist/arcade-fire/2011/outside-lands-music-and-arts-festival-san-francisco-ca-2bd0fc26.html

Casey Stengel or what it all means

I named my blog after a quote by baseball player / manager Casey Stengel. The full quote is "the trick is growing up without growing old." When I first read it I thought it was a great philosophy for early adulthood. This guy definitely knew a thing or two about life:

http://www.brainyquote.com/quotes/authors/c/casey_stengel.html

How do we ration healthcare?

That's the question no one in the government is asking. we are capable of providing a lot more care than most people can afford. But that's fundamentally no different than anything else - we can build nicer houses and fancier cars than most people can afford. So how do we decide who gets the mansions and the ferraris? The debate right now is like arguing over the paint job, we're still pretending everyone can get a sports car. Obamacare is a step towards rationing but I don't think it goes far enough to actually be effective - I fear we're replacing one broken system with a different broken one. That is assuming it won't be overturned by the courts - today yet another state ruled the individual mandate unconstitutional.

http://online.wsj.com/article/SB10001424053111904006104576504383685080762.html

Personally I don't believe a single payer system is best - there's nothing wrong with high costs as lost as they result in high value. To me innovation is more important than cost savings and I'd rather have the most advanced system rather than the most cost effective system. Now if only more doctors/hospitals/insurers could start using technology effectively. Like this guy:

http://blog.jayparkinsonmd.com/post/4024600220/what-happens-to-doctors-who-think-outside-the-box

UK Riots or the end of the welfare state?

At first I didn't pay much attention to the UK riots, police kill some poor minority and people start flipping out - it happens. But as I've read more about it there's clearly a lot more going on. This article paints a pretty bleak picture of the situation there:

http://www.dailymail.co.uk/debate/article-2024284/UK-riots-2011-Liberal-dogma-spawned-generation-brutalised-youths.html

Although I don't agree with everything this guy writes I do think he brings up a valid point - the welfare state breeds an underclass. Because of globalization for a certain percentage of the population education and work no longer makes sense, if they can earn a middle class income (by world standards) then that's what they're going to do. No advanced economy has figured out how to solve this problem, I get the feeling this is just the beginning.

Tuesday morning reads

How much of our expenditures are spent on goods and services made in China? Even I was surprised by how low the number is - only 2.7%. We're not wealthy because China is making cheap goods for us, we're wealthy because even for all its flaws our system works the best.

http://www.frbsf.org/publications/economics/letter/2011/el2011-25.html

Ever since reading Freakonomics I've had a bit of an obsession with reading about prostitution. This article is titled "Why do women become sex workers and why do men go after them?" 

http://www.guardian.co.uk/society/2011/aug/05/payoff-sex-workers-clients-stories?CMP=twt_gu

So I've decided to start blogging

There's a lot going on in the world and writing helps me think about it. So here goes.

Quite the weekend, the US lost its AAA rating - what does this mean to me? Basically nothing, except the opportunity to pick up some equities on the cheap. As Warren Buffett says "Be greedy when others are fearful." The US has the printing press, inflation risk yes, default risk no. This pretty much sums up how I feel about the matter.

http://www.ritholtz.com/blog/2011/08/on-the-sp-downgrade-of-the-united-states-of-america/

Now the good news, lolla definitely surpassed my expectations. After last year's lineup this year's lineup was a bit of a disappointment so I only went Sunday - but what a day! Flogging Molly was a blast as always and Deadmau5 was unreal, the music, the lights, the torrential downpour made for a once in a lifetime experience. Thousands of wet, muddy and dancing people all in one place and we couldn't be happier - it was incredible.

http://www.spin.com/gallery/10-best-sets-lollapalooza-2011?page=10#main