A Slacker's Quest

Buy and Hold Forever Dividend Stock Update

2012-01-02T12:13:00.000-05:00

After a couple of years I've finally gotten around to updating the Buy and Hold Forever Dividend Portfolio.

To refresh your memory as well as mine, the idea was to find a couple of dividend stocks from most industries, on the basis of familiarity rather than research. That is, the criteria for stocks making it into the portfolio were: the stocks were in the news at the time and/or their products were ubiquitous. Absolutely no research was done other than to make sure that the stocks picked paid a dividend.

The point of this exercise was to see how well a relatively uninformed investor could do if his investment thesis was that buying and holding dividend paying equities forever isn't dead, as most of the talking heads have been telling us since the financial crisis began.

At the time the experiment was initiated, SPY was designated an alternate and benchmark buy and hold forever dividend portfolio.

Changes to the portfolio since the last update

Verizon (VZ) spun off shares of Frontier Communications (FTR) in 2010. These were added with no cost basis.

Berkshire Hathaway bought Burlington Northern (BNI) and inBev bought Anheuser-Busch (BUD). The original cost basis of each acquired stock was rolled into a new holding (UPS replaced BNI and TAP replaced BUD). The realized capital gains were put into cash. However, to track these gains more easily, I instead put them into the Lehman Short Treasury ETF (SHV) at a 0 cost basis (so their gains would show up and not simply count as cash deposits).

Part of the reason (besides my laziness) why it has taken so long to update the portfolio is that keeping track of all the dividends was just too time consuming and boring in the spreadsheet I had created. It left no time for anything else. Improvements to Google Finance, fortunately, now allow dividends to be tracked automatically. So I've changed the spreadsheet to incorporate this. Unfortunately, I haven't figured out how to share a Google Finance portfolio, so we're still left with spreadsheets (which means that I still have to do manual updates).

The Results so Far

Since inception, the buy and hold portfolio is up 29.19%. The original cost basis was around $15,400. That has grown to over $21,600. The dividends received so far total about $1,720, or just over 11% of the original cost basis. That's a yield of about 3.48% per year (3.167 years--November 2008 to January 2012)--nothing to brag about but it will be interesting to see how this grows as time passes.

SPY, on the other hand, is up a little more: 29.61%. The original cost basis of $15,550 has grown to $21,184. Dividends received total around $1,029 or 6.6%, for a yield of about 2.08% per year. This too should grow as companies raise dividends.

The spreadsheet is below and can also be accessed here.

I'll try to update more often, now that it's easier.

Useful Idiots

2011-10-08T10:49:00.001-04:00

What do we want? We don't know!
When do we want it? Now!

The way the protestors on Wall Street and around the country are acting, that's pretty much what they're chanting. They're organizing via Facebook and social networks. They're antagonizing the cops and filming themselves getting beaten with their iPhones. They're drinking Starbucks coffee and smoking cigarettes made by Big Tobacco. --All while they're complaining about corporate greed.

In San Francisco protestors aren't really sure why they're protesting:

Organizer Anthony Bondi said he has what he referred to as a “message team” working on the primary goals of the local protests, which he admitted “was kind of vague.”
“That message team will reveal that tomorrow [Friday] morning,” Bondi said.
“So you guys are in the process of forming the reasons why you are here?” asked CBS13 reporter Tony Lopez.
“Exactly correct,” Bondi said.

In Washington DC people are getting paid to protest, and also don't know what they're protesting because they don't know how to speak English.

Meanwhile Obama, unions, Moveon.org and lots of other liberal fat cats like Michael Moore are attempting to take over. (Oh the irony! The protests, if they are funded by anyone, are funded by Wall Street through the many organizations like Moveon.org attempting to elicit support for Obama and other politicians.) They say it's all the Republicans' fault. It is the Republicans' fault. But it's also the Democrats' fault. It's also the voters' fault for putting these clowns into office for the last half century.

The people legitimately protesting (i.e., those who aren't getting paid to be there) have every right to be angry. But they should also take a look at themselves. Instead of calling for a redistribution of wealth. Instead of crying for the government to clothe, feed, and house them. Instead of trying to break everything to the ground, why don't they create something?

Protestors, out of the thousands of you gathered in anger surely there is someone with a good idea. Maybe there are two or three good ideas, and perhaps dozens. Instead of planning on how to best break a barricade so that the cops can mace and beat you, how about you make a business plan? Sell shares to everyone there. They can forgo a cup of coffee or can of Coke or Pepsi, can't they? Raise some money and start your business. Hire people. Produce things. Use the media that's already there for promotion. It's a golden opportunity. Don't rely on a government that thinks saving money is spending $2 trillion more than it earns rather than $2.01 trillion. And don't keep voting the same liars into office that blame others for their own failed policies.

And please, for the love of individuality, don't turn into mindless zombies:

Amazing Media Hype Over a Tropical Storm

2011-08-28T10:01:00.000-04:00

Yes, Irene was (is for people now in it) dangerous. Yes, it resulted in the unfortunate loss of life.

But Irene made landfall as a tropical storm while the media insisted "hurricane! hurricane! hurricane!" It wasn't a hurricane because if you actually looked at the wind measurement data (not the articles or TV and radio reports, but the actual data) there were no sustained hurricane force winds.

As I'm writing, the sun is out in NYC. It's still windy, but it has stopped raining. The forecast on Weather.com says there's a 50% chance of scattered thunderstorms between 12 and 1 PM. But what does the Associated Press say? "Unusually quiet New York waits for Irene's worst," is the headline. The lead paragraphs read like a bad novel instead of a news report:

Waterlogged and silent, New York awaited the worst of Hurricane Irene as an unsettled dawn broke over the city Sunday. Wall Street and the labyrinth of cables and pipes beneath the nerve center of global finance were at risk from cascading seawater.

The storm pushed a 3 1/2-foot surge of water into New York Harbor, and forecasters said the peak could be twice as tall later in the morning.
Irene barely maintained hurricane strength, delivering winds of 75 mph, just above the dividing line for a tropical storm. But it was massive and powerful, forming a giant figure six that covered the Northeast. It was moving at 25 mph, twice as fast as the day before.

Since it'll probably be updated by the time you read this, here's a screenshot.

There were some powerful wind gusts that woke me up at night. There was lots of rainfall. People died. There's no question that it was a big, powerful storm.

But Irene was nowhere near what the media made it out to be. The highest wind forecast I saw, while the media hyperventilated about 75 mph winds was 49 mph.

The media are to blame for any stress related injuries people suffered as result of the storm coverage. The media are also to blame for no one listening in the future when a real hurricane comes through.

Now will come the experts with their estimates of how many billions of dollars in damage the storm caused (unless it's too low). Mayors, governors, and maybe even the President will tour the most damaged areas for photo-ops. They will pat themselves on the back for a job well done. The worst president in American history might even get an an approval rating bump (it's at oversold levels anyway, in trading parlance) for taking charge at the hurricane command center. But the next time the nanny state and its media lapdogs cry wolf they shouldn't expect people to listen.

A Way to Raise Cash and Still Participate in the Market

2011-08-08T13:16:00.001-04:00

Most investors get caught with their pants down when markets top out and crash. As a result, they have little cash to buy the significant dips and have no cash at all when the market finally bottoms.

Here's a way to raise cash without losing out on potential gains if the market suddenly turns around: Sell your stocks. Use a portion of the proceeds to buy deep in the money calls that are at least several months from expiration date. Buy one call for every hundred shares you sold (provided that every call in the security you sold corresponds to 100 shares).

The idea is to get cash into your account (to decrease volatility, pay the bills, take advantage of the higher yields that dividend paying stocks will pay if they fall some more, etc) while still being able to profit if the market turns around and goes up.

Example

Let's say the cash balance in your portfolio is essentially zero. SPY, the ETF that corresponds to the S&P 500, is trading at $116.37 at the time of writing. Let's say you own 200 shares that you bought at $130 ($26,000) earlier this month. You're freaking out and are thinking about dumping your position at a loss.

You know the drill. As always happens when you sell, the market turns around and goes up. And if you don't sell, it'll probably continue falling. Puts now seem too expensive. You curse yourself for not having the strict discipline to have sold the position much sooner. You don't know what to do but would feel a lot better if you had some cash in your portfolio.

Consider this. The ask on the March 2012 70 strike SPY call is 46.93 at the time of writing. Let's say you sell your 200 shares at $116.37 ($23,274) and buy two of the 70 strike calls ($9,386). The result is you put $13,888 in cash (minus commissions) into your account. That's your cash and you can do whatever you want with it.

You still own an interest in SPY (until expiration date). If SPY keeps falling, you'll continue losing money--about as much as if you still owned the shares. If SPY rises, the calls will go up about as much and you'll gain about as much as you would if you still held on to SPY.

It's possible that SPY will continue falling. Who knows, maybe it'll go to 0. If it does, you'll still have the cash. That's some piece of mind. (Although if SPY is 0, chances are you won't have electricity to check stock prices anyway. Not that you would have time for that, seeing as how you'd be busy fending off roving gangs of hungry people.) Your losses on the calls will decrease as compared to owning the stock as SPY approaches and goes under $70 per share.

This is not some magical way to make money. It's a way to have cash in your portfolio without significantly altering your exposure to the market.

As nothing in this world is free, switching your shares for cash and calls will cost you. In our example above, the cost is 56 cents a share ($112) plus commissions. That's not too bad. We can make it better if we cap your potential gains.

At the time of writing, the 140 strike March 2012 SPY call had a bid of $0.86. If you sell one of these against each one of your long calls (sell two 140 strikes because you bought two 70 strikes), your exchange of SPY shares for cash and calls will be for free. (Actually, you would take in an extra $60 minus commissions.)

If you buy the 70 strike calls and sell the 140 strike calls, you'll have a call spread the gains of which are capped if SPY trades over $140 a share by expiration. That is to say, if SPY turns around and goes up, the most you can make (if you sell the 140 strike calls) in the example is $10 per share (because you bought SPY at $130). The most you can lose through March 2012 is the amount you paid for the calls (in this example $46.93 per call plus commissions plus whatever dividends you miss out on).

If SPY ends up somewhere above $70 per share before expiration and you don't want to buy the stock back, you might want to sell these calls and buy similar ones that expire farther in the future.

There are risks with everything. Holding calls is different from holding stock. Calls on a dividend paying stock, for example, don't pay dividends. Shares don't expire. Options do--and when they do they are worthless. There are many other risks associated with options, particularly deep in the money options. These usually have pretty terrible bid/ask spreads. You may not always get the best price when buying or selling these.

If the strategy above seems interesting, do some research before implementing it.

Disclosure: At the time of writing I owned no securities mentioned in the article.

Complete and Utter Failure

2011-08-01T09:39:00.000-04:00

Congress is getting ready to vote on the raising the debt ceiling after Obama and leaders in Congress agreed on a deal that will cut the deficit by $1 trillion over the next ten years. This would be laughable if it weren't so sad.

First, the trillion dollar figure depends on a rosy picture of economic growth. If we have a recession in the next ten years, which is very likely, the trillion will be reduced to billions. If interest rates rise, the cuts will be reduced even more.

Second, even if all of the government's optimistic projections come true, they are only cutting the deficit by $100 billion a year. This year's budget deficit is estimated at $1.5 trillion. Next year's budget deficit is estimated at $1.1 trillion. So, if they start cutting the deficit right away by $100 billion per year, the national debt will increase by $2.4 trillion by 2013 instead of $2.6 trillion. Wow! Congress is saving us a lot of money! Not. Why do they even bother?

Third, it is important not to confuse cutting the deficit with lowering the national debt. On a lot of message boards I see people making this mistake. They think that the $1 trillion in cuts means that in ten years the national debt, which is $14.5 trillion at the time of writing, will decrease by a trillion to $13.5 trillion. No! That is wrong. By 2020, America's national debt is projected to be from $20 trillion to $26 trillion. So if everything goes according to plan, America's national debt will be $19 trillion to $25 trillion by 2020.

Obama is happy, because the next debt ceiling debate will be in 2013 if the latest plan passes. That's after the election, which is all he cares about. If he and congressional leaders had a spine they would address the incredible waste. For example, I read recently in Fortune that the government spends around $80 billion a year on internet servers, 93% of which are idle. No one uses them. There are hundreds if not thousands of government programs that are just as wasteful. They have to be eliminated.

If they had spines, our leaders would address the incentive structure. Departments that go over budget are given bigger budgets the following year. Departments that spend less have their budgets reduced. Our leaders should put an end to the incentive to spend more.

Everyone would be better off if 2/3 or more of government workers were told not to come back to work. We could even pay them their full salary. Just stay home and don't cause any trouble. Think of the money that would be saved on electricity, furniture, fuel, and equipment. Since most of these people don't do anything all day, government output would remain essentially the same.

None of this will ever happen. We'll hear the same empty slogans and promises for change until the ship finally sinks. Have your own lifeboat ready. Don't rely on the government to give you one.

A Question for the Raise the Debt Ceiling Folks

2011-07-27T16:34:00.000-04:00

Just to get it out of the way, let me note that I think of course they're going to raise the debt ceiling. Whether all the wrangling is scripted or not, our elected representatives want everyone to see how hard they are working.

In the end, whether Congress passes a bill and Obama signs it or if the President invokes a clause in the 14th Amendment (which had to do with Civil War debt and nothing to do with the President being able to borrow--remember that Congress has the power of the purse and this power is one of Congress' most important tools in checking and balancing the power of the President), we'll end up with the worst possible law, as always. That's just how the government works.

Now to my question for everyone who says that we must raise the debt ceiling. Senator Al Franken, of Saturday Night Live fame (I think the funniest moment of his career was when people actually voted for him), has listed what the government can and can't pay if the debt ceiling isn't raised.

Franken Floor Charts

As you can see, the government can afford its interest payments. I don't think, therefore, that it's appropriate to call it a default. Yeah, we won't have enough money to pay for all that other stuff (a lot of which is a total waste of money, in my opinion) apart from debt interest, Social Security, Medicare, and unemployment benefits. There are many who argue that we should get rid of these programs. Rather than agreeing or disagreeing with this sentiment, I just want to note that most of the recipients of these funds have paid into the system. Since they paid, they deserve their money back. Anything above that can be cut.*

My question is, what happens after the debt ceiling is raised? As soon as the government has that money, they're going to put it in their pockets and the pockets of their cronies. Whatever is left over will go to useless programs.

All of the new borrowed money will be spent. That is a guarantee. In a couple of years we'll be back to the same place. We'll again be faced with the choice of raising the debt ceiling or not being able to pay for things.

At that time, tax revenues will probably be the same. Maybe they'll be lower if the economy gets worse, but it's unlikely that they will be much higher. The reason for this is that

Unemployment has remained above 9% for 21 straight months, and economists and policymakers, including Fed Chairman Ben Bernanke, have repeatedly said it's likely to remain high through the next several years. (CNN)

Unless there's some new invention that revitalizes our economy like the internet did in the 1990s, it's unlikely that the economic picture will improve. The government can raise taxes, of course, but that doesn't necessarily translate into higher revenues. Instead of starting a business or investing here people will choose to do so elsewhere. (And if the government institutes capital controls to prevent this, that will be the last nail in the coffin.)

So, while the money coming into the treasury will either stay the same or diminish, the money going out will increase. The interest on the government's debt will be higher, for example, because we will have borrowed more money.

So, Al Franken and everyone else who wants to raise the debt ceiling, aren't you just postponing the inevitable? We cannot raise the debt ceiling indefinitely. You know that, right?

The Republicans and Democrats are talking about cutting the deficit, but when has any one of these bozos ever saved us money? Remember a few months ago when members of Congress showed us how hard they worked to cut $38 billion, which was a laughable 1% of the budget? It turns out that the real savings was $352 million, less than 1% of the purported savings!

And the congressmen and senators are working hard right now! They talk about trillions in cuts. How much will those cuts really amount to? They're all based on projections of how fast the economy will grow and a number of other factors that they're just making up. They're not cutting anything.

After the debt ceiling is raised and we're back in a similar but worse position in a couple of years, what are we going to do then?

*Budget idea off the top of my head: Pay interest on the debt, Social Security, Medicare, and unemployment insurance. Pay federal workers, but make massive cuts to the federal workforce. (I know a number of people who work for the government and they watch Youtube all day. It's partly due to laziness but mostly due to the fact that they have no work to do.) Pay our veterans. Pay our soldiers, but stop all our wars and close down most of our foreign bases. Cut everything else. If you're worried about the Pentagon, it has plenty of money. If it wants to pay defense contractors for fancy new gizmos, it should be able to find billions in its couch cushions. Think about how much smaller our budget would be (or how many more programs we could fund or how much less our taxes could be) if there were even half as much theft going on as there is now.

Here's an idea to save money

2011-07-26T12:25:00.000-04:00

Corporations have been outsourcing American jobs for decades now. The reason is simple. Foreign workers are willing to work for less and there are no minimum wage laws to worry about.

So why don't we US taxpayers try to save a small bundle by outsourcing Congress, the Judiciary, the Executive Branch, and the rest of the government?

I'm sure people in China and India will do the same horrible job we've come to expect. They'll be just as corrupt and incompetent. And we'll have pretty much the same dumb freedom and wallet robbing legislation.

But they'll do it for less.

Cupcakes coming soon

2011-07-13T11:48:00.000-04:00

One last bout of gorging before the heart attack?

Bernanke: Fed May Launch New Round of Stimulus

No one saw it coming!

Federal Reserve Chairman Ben Bernanke told Congress Wednesday that a new stimulus program is in the works that will entail additional asset purchases, the clearest indication yet that the central bank is contemplating another round of monetary easing.

"They’ll continue to print money. Maybe they’ll call it QE3, or Cupcakes, or something else." -- Jim Rogers, May 2011.

Happy Fourth of July!

2011-07-04T13:33:00.000-04:00

I saw an interesting article in The Weekly Standard. A couple of lines made me laugh, and cry:

the “stimulus” has added or saved just under 2.4 million jobs — whether private or public — at a cost (to date) of $666 billion. That’s a cost to taxpayers of $278,000 per job. In other words, the government could simply have cut a $100,000 check to everyone whose employment was allegedly made possible by the “stimulus,” and taxpayers would have come out $427 billion ahead.

I like to cite statistics to point out incompetence as much as anyone, but this gave me pause. Yeah, cutting a $100,000 check to 2.4 million people would have cost less money and been more stimulative in the short term, but what about the long term?

The $100k payment would be a one time deal. The job created by forking over $278,000, on the other hand, will hopefully be there for a long time. It is conceivable that the people hired or spared might, after some period of time, however long it is, produce more than $278,000 worth of products and services. Or am I kidding myself? (The banks are hoarding most of the stimulus, corrupt officials and others took a large chunk, and most of the jobs that were created were low paying service jobs.) Just something to think about.

Anyway, it's fourth of July. It's time to get back to what's important: blowing up Chinese made fireworks to celebrate our independence.

S&P: If you don't borrow more, we'll lower your credit rating

2011-06-30T09:11:00.000-04:00

From Bloomberg:

Standard & Poor’s would cut the U.S. credit rating to its lowest level and Moody’s Investors Service said it will probably reduce its ranking if the government fails to increase the debt limit, leading to a default.

Why is the rating still AAA? Imagine you have a friend who has to borrow more from his creditors so that he can make his interest payments. Does he have good credit? How stupid are the creditors for lending him more? Do they really expect him to pay the loan off?

It's widely expected that the US congress will raise the country's debt ceiling by the August deadline (whether this is a firm deadline is another question). Then we'll have another QE, though it'll be called something else. (Jim Rogers offered the name "Cupcakes.") And maybe they'll raise the debt ceiling another time when it's reached yet again. But this can't go on forever.

The US will default on its debt. It probably won't be because the debt ceiling has been reached. They'll find some other way. Maybe we'll get a new currency. Thomas G. Donlan of Barron's mentioned how the US defaulted twice in the last century:

In 1933, the government defaulted on its debt backed by gold by abrogating the gold clause in Treasury securities.

Then, in 1971, Richard M. Nixon explicitly defaulted on this gold exchange standard, withdrawing the American promise to pay gold for dollars held by foreign governments.

And what happened? Nothing. Third time's a charm?

Financial gurus like Marc Faber advocate buying some gold every month. Silver too, while you're at it. That sounds like a good idea.

I'm not quite sure why some people buy silver exclusively. The usual explanation is that they can't afford gold. But if you can afford silver, you can afford gold. Most precious metals dealers sell half ounce gold coins, tenth ounce gold coins, and gram gold bars. A 2.5 gram gold bar, for example, is around $130 at current prices (plus the dealer's premium), about four ounces of silver.

Unlike many of the precious metals bugs, I don't expect to make huge profits from my gold and silver. But I do expect that the amount of stuff I can exchange my gold for today will be around the same a year from now and maybe a decade from now. I don't have such expectations with the dollar.

Laughter at the White House

2011-06-21T12:21:00.000-04:00

From the White House:

Over the last 15 months we’ve created over 2.1 million private sector jobs. (Laughter.)

Too bad most of those were minimum wage, McDonald's type jobs. Or is that why they're laughing?

Apple's Concert Piracy Patent Should Worry You

2011-06-18T11:27:00.001-04:00

It's recently been reported that in 2009 "big brother" Apple (AAPL) filed a patent application for a device that can disable video recording at certain venues.

The NY Times says:

The recording industry could easily use this technology to disable a camera during a music concert by blasting an infrared signal from the stage and in turn disabling an iPhone from recording the concert for purposes of sharing it online, violating copyright laws.

But the mainstream media doesn't ask any questions. Nor do they tell you the implications.

Here's a question. What's the point if it's really for concerts? Let's say you go to a concert and record what's going on around you and on stage, and then you post it on Youtube and Facebook, etc. Who are you harming?

Watching a poor quality video of a concert on the internet hurts no one. The band isn't missing out on ticket sales because no one thinks that watching a video of an event is an adequate substitute for being there in person. No one thinks, "I'll skip the concert because I can watch someone's iPhone recording of it."

If ticket sales aren't affected, then the venue and other parties involved also don't miss out on any revenue.

But what if the concert is being filmed for a DVD? Wouldn't an iPhone video of the same concert on Youtube hurt DVD sales? Maybe. But I can't imagine it would have any noticeable effect. Compare a high quality, professionally filmed, multi-angle production with a low quality, consumer grade video from one angle. Is the latter really competition for the former? Would it prevent a potential customer from buying the high quality version because he's happy with the low quality? For example, compare this pro video with this attendee video. Here's another example: pro and attendee.

Notice, most important of all, that both types videos are available on Youtube anyway. And the professional quality ones have more views.

So what's the video disabling patent really for?

If Apple will use such technology to disable video recording other manufacturers will follow suit. Increasing numbers of new devices will have this technology. As old devices become obsolete, they'll get replaced by new ones. Eventually, the majority of the people will own devices that will have their video disabled at certain venues/events. Then the fun begins.

Wouldn't it be nice if big agribusiness could disable video recording at their facilities? Then we wouldn't get articles that say stuff like this:

For years videos of egregious farm animal cruelty, foodborne illnesses, unsafe employee working conditions, and pollution have painted a very different picture from the once glorified story books when consumers thought farm animals lived in bucolic safety as portrayed by Old MacDonald's Farm. The past few years have uncovered graphic details of farm life that humane organizations discovered to be revolting, inhumane, and deleterious to both the health and safety of animals and humans.

Agribusiness is already trying to claim that it's a violation of their copyright if someone films unsafe working conditions and so on at their facilities.

The TSA is constantly being embarrassed by videos of their security lapses and abuse of airline passengers. You think they'll have a use for video disabling technology? And once it's employed, will they say something like, "we don't abuse people--if we did, there would be videos of it on the internet." I bet that's what they'd do. They turned off their body scanners last Thanksgiving because of a planned protest. And then it was claimed that the protest "fizzled" because no one complained about being scanned--because they weren't. How's that for propaganda?

What about police departments all over the country? If these things are installed on cop cars, might they lower their liabilities from brutality lawsuits? Many cases will go away or be settled for less if there's no video and it's the cop's word against the victim's.

How about some tinpot dictator installing these devices on tanks and so on? That's a nice way of getting rid of all those pesky videos of human rights violations.

You get the idea.

I'm not saying Apple is to blame. They and their competitors will produce this technology because if they don't, someone else will. And I don't think you can fight it. When all recording devices have disabling technology installed (perhaps because of a law that mandates that the technology be installed--here's a prelude), you won't be able to vote with your wallet.

These are happy times we live in.

Obama's "phony accounting"

2011-06-07T14:43:00.000-04:00

Washington Post's "The Fact Checker" has an article about the President's recent trip to Ohio for a speech on the auto bailout.

Glenn Kessler calls Obama's speech

one of the most misleading collections of assertions we have seen in a short presidential speech. Virtually every claim by the president regarding the auto industry needs an asterisk, just like the fine print in that too-good-to-be-true car loan.

This isn't the first time Obama has been called dishonest or misleading, but that has usually been reserved for the editorial section of Republican leaning papers like the Wall Street Journal. It's the first time, to my knowledge, that a Democrat leaning paper said the same thing--and not in the editorial section.

Perhaps it's because Mitt Romney, who (in my opinion) in running against Obama is running against himself, edged ahead of Obama in a poll.

The economy is looking pretty bleak, despite what the President says to the contrary. If we don't have QE3 (it'll be called something else), it's likely we'll have another collapse. Housing prices have already fallen farther and long-term unemployment is worse than now than in the Great Depression.

If we have QE3, which will have to be even more massive than QE2 to work, prices for the things we use every day will continue going up. Maybe stocks will too. Not that long ago the most demanding homeless people on the subway asked for a quarter. Now there's a lot more of them, and they're asking for $5. As for rescuing the economy, I doubt it'll do anything.

Below is a video of the most concise explanation I've seen about why increased government spending (to offset a decline in private sector spending) doesn't fix the economy.

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And if you like rap (and even if you don't) you might like this:

Florida Couple Forecloses on Bank of America

2011-06-05T00:54:00.000-04:00

A Florida couple bought a house with cash. They didn't take out a mortgage or any other loans secured by the property. That didn't stop Bank of America (BAC) from trying to foreclose on their home.

The couple was lucky in not getting a "robo-judge" assigned to their case. The judge found in their favor and ruled that Bank of America had to pay their attorney fees. Five months after the ruling, despite phone calls and letters, Bank of America didn't pay. The couple foreclosed on the bank, coming with Sheriff's deputies and a moving truck. Only then did the bank manager draft them a check.

This isn't the first (or last) time Bank of America has tried to wrongfully foreclose on someone's home. See here, here, and here for just a few examples. And Bank of America isn't the only bank that does this. JPMorgan Chase (JPM) engages in similar practices. See here and here, and so does Wells Fargo (WFC). These aren't the only banks, but you get the idea.

Why I Hate Max Keiser and Stacy Herbert, and a Challenge to Global Warmists

2011-05-30T15:03:00.003-04:00

When they're not pumping silver coins to gullible idiots for twice the spot price, posting misogynistic pictures (women are loose and give good head, look at their cats, do women even have faces?, look at their gold and silver, "don't you just love her outfit?" and this one doesn't even have an outfit--this is but a small number of such images), and putting forth the ridiculous claim that JPMorgan Chase (JPM) will go bankrupt if the price of silver goes over JPM's stock price (oops, JPM made money even while silver went up), pseudo journalists and Russian and Iranian state employees Max Keiser and Stacy Herbert blame "AGW" for everything.

It's cold. "AGW!"
It's warm. "AGW!"
There's an average number of tornadoes. "AGW!"
There's fewer hurricanes. "AGW!"
It's snowing. "AGW!"
It's not snowing. "AGW!"
There's drought. "AGW!"
There's flooding. "AGW!"
There's a meltdown at a nuclear power plant. "AGW!"
The sky is blue. "AGW!"
It's dark at night. "AGW!"

What the hell is AGW?

Standing for Anthropogenic Global Warming, AGW is a thought terminating cliche. It's a slogan. The more one shouts it, the more one believes it. It stops all debate. To call what's happening in the environment AGW not only says there's warming, but also that it's our fault. It's a compact, three letter statement that doesn't give you a chance to think.

Has the debate been settled on either score?

I have no idea whether there is global warming, and, if there is global warming, whether human activity is the cause. I don't think you do either.

My problem is I don't know which source is trustworthy. When this scientist says that the earth is cooling, is he lying? Or how about this one, who says "The Earth has been in a warming trend since the depth of the Little Ice Age around 1680...so human carbon dioxide cannot possibly have caused the trend"? Or this guy from MIT, who says that the climate science isn't settled? Should I trust them, or are they funded by the Koch brothers? Or are they of the political persuasion that the fewer the regulations, the better? And if they are of that opinion, does it shape their scientific conclusions?

On the other side there are a number of scientists, led by the UN and East Anglia University, who say the opposite. They might be right, and they might be wrong. I don't know. What I do know is that if they, and other climate researchers, stop saying that there's global warming caused by humans, their funding will be cut. (Group think or herd mentality has always been around in science. That we can classify different movements and schools of thought is evidence enough. But as an example, recall all the eugenics theories of decades past when people's skulls were measured to determine their intelligence and moral worth--that was mainstream science.)

The UN has an interest in pushing global warming, because any carbon tax scheme will redistribute wealth from the richer nations to the poorer ones. And do scientists who instinctively favor more government regulation allow that opinion to interfere with their research? Newspapers of this pro-regulatory bent certainly report on these scientists' research more frequently and favorably than they do on skeptics.

They're not the only ones making a business of global warming, or climate change, or AGW, or whatever you want to call it. Al Gore and other passionate advocates for various carbon tax and cap and trade schemes (which are, incidentally, supported by the very companies blamed for carbon emissions) stand to make boatloads of money.

So I don't trust any of them. (And I find it a bit ironic that the last few global warming conferences have been held during record breaking cold spells. Do they have these conferences in the winter with the hope that it might be a warm day so they can say, "aha! see there's global warming!"?) The earth has been hot. It's been cold. There have been floods and droughts. All before humans made an appearance. That's all I know.

Getting back to Max and Stacy, it's almost as if their site and shows are designed to broadcast AGW propaganda: say something true about the world, like it's going to hell in a hand basket--duh, take advantage of people's justifiable anger toward the banks, and then, when the audience is nice and ready to hear what else Max and Stacy have to say, it's AGW, AGW, AGW. And before the audience can question anything, show them some demeaning pictures of women. Direct the blood flow from the brain. (I'm only half serious here.)

How can anyone trust these people?

So here's my challenge for everyone who blames global warming on carbon. (I haven't a clue, but I'll assume for argument's sake that there is global warming.)

Do you eat meat?

Cow 'emissions' more damaging to planet than CO₂ from cars

Livestock are responsible for 18 per cent of the greenhouse gases that cause global warming, more than cars, planes and all other forms of transport put together.

And here's a graphic from the NY Times.

Read that again.

So, do you, global warming believer, eat meat? If you do, how do you justify it and still believe in global warming? (Unless you think global warming is good, which I guess can be an acceptable position.)

I'm a global warming agnostic, but I bet my "carbon footprint" (alert! another slogan) is lower than yours. My score is 6.3 on the test here (it's stupid, in my opinion, but everyone's yammering about reducing their carbon footprint). What's your score? Be honest!

Some links about Bitcoin

2011-05-29T11:50:00.003-04:00

Bitcoin is a digital currency created in February 2009. It is based on peer-to-peer networking, and as a result it has no central authority or issuer, is anonymous, and is free of transaction and transfer fees. There is a fixed number of Bitcoins, with deflation built into the system. According to Wikipedia, "As the supply of more bitcoins runs out and the 'Bitcoin economy' grows, the value of a single bitcoin increases." Bitcoins are also practically impossible to counterfeit.

I like the idea. A lot. But we already know what banks, and therefore governments, will think of it, given user anonymity and lack of third party meddling. The chief problem that I see with Bitcoin is also one of its appeals: it is independent from government. As almost anything can be money, it's usually government enforcement, through a taxation system (e.g., "you can only use x to pay your taxes"), that gives the medium of exchange its legitimacy. Bitcoin lacks this and has the potential for the opposite--government hostility, which can result in criminalization, and so on.

Another problem is that Bitcoin is backed by demand only. There's nothing to stop a competing digital currency from becoming more popular. As demand shrinks, so does the purchasing power. Paper money (note that this is a small percentage of our money supply) has some worth even if it's defunct. As something physical, you can at least use it to wipe your butt, burn it for fuel, and so on. It can become a collectible. For example, "worthless" Zimbabwe trillion dollar notes are being sold on Ebay for a few US dollars each. Defunct coins can be melted down and the metal sold off or traded for whatever currently has purchasing power. Digital currency, on the other hand, simply vanishes.

There will be an all digital currency in the future. But it probably will not be Bitcoin. It'll be issued and controlled by whoever is in charge. All your transactions will be monitored and recorded. Anonymity will be eliminated and various transaction fees and taxes will be automatically applied. There will be all sorts of fraud, and life will be the same or worse.

But one can dream of a freer world:

Wikipedia article on Bitcoin
What Bitcoin is, and Why it Matters (Technology Review--an MIT publication)
Bitcoin, Digital Currency of the Future? (The Atlantic)
Why I'm Putting All My Savings Into Bitcoin (Falkvinge)
Bitcoin.org
Bitcoin Wiki

Regarding the title of article 4, I wouldn't do that with any asset. It always pays to diversify.

Update: As expected, here's some grandstanding by a government official (my senator and Wall Street lackey) who doesn't know what he's talking about. There will be more, I'm sure. Money laundering? Really? If anything, it's a ponzi scheme.

Update 2: Maybe they'll continue going up in dollar value, but I say Bitcoins are finished. Today there's an article about them in SmartMoney. That article made it to the Yahoo! front page, where all the stupid news for the unwashed masses goes. I bet that marks the bursting of the bubble.

Update 3: While Bitcoins are themselves secure, Bitcoin holders are only as safe as their computers. Check out this article from PC World, World's First Virtual Heist? BitCoin User Loses $500,000.

Some of the richest people in the world are no longer using the dollar as their reference currency

2011-05-22T13:18:00.000-04:00

From Barron's:

"The fundamental question remains the role of the dollar," says Prestowitz. In a worrying sign, he notes that, at a family wealth-manager meeting recently in Zurich, he learned that "some of the richest people in the world are no longer using the dollar as their reference currency." If that's the case, he says, then the role of the U.S. in the world is "dramatically reduced."

If they're not using the dollar as their reference currency, what are they using? Gold? Oil? The Renminbi?

Some Recent Headlines that Should've Gotten More Attention

2011-05-20T13:09:00.000-04:00

Banks Taking Out Insurance on Your Life

Maybe you heard the old joke about life insurance. When you purchase life insurance, you say, "I bet I'll die." The insurance company says, "we bet you won't." You bet anyway and pray they're right.

Well, now the banks want to bet too. According to Bloomberg,

Goldman Sachs Group Inc. (GS), Deutsche Bank AG (DBK) and JPMorgan Chase & Co. (JPM), which bundled and sold billions of dollars of mortgage loans, now want to help investors bet on people’s deaths.

War

The National Defense Authorization Bill has a provision tucked away in it that authorizes, in the ACLU's words "a worldwide war." "Essentially, it would enable the U.S. to use military force anywhere in the world (including within the U.S.) in search of terrorists." One congressman complained (John Garamendi, a Democrat from California) and promised a debate on the House floor.

A search on Google News didn't reveal any mainstream articles about the bill. The war on terror is a metaphor, like the war on drugs or the war on poverty. Unfortunately, we've made the metaphor literal via invasions of three countries and lots of money down the tubes. Wars against metaphors can never be won because there is no party, group, or country that can surrender. What this means is endless worldwide war.

Freedom of Speech

Bill Clinton wants to censor the internet. He thinks that the US government or the United Nations should create an internet agency that corrects misinformation and quashes rumors online. In effect, he wants a Department of Truth.

You should be worried if you believe in the so called "marketplace of ideas" theory of free speech rights first formulated by Justice Oliver Wendell Holmes in 1919. The theory states that the competition of ideas, through open and free debate, is how people should formulate their opinions. The best idea, like the best product, will flourish, while the worst ideas will die. The question is, basically, should the government decide what is true for you, or should you be able to decide for yourself?

While Clinton will likely never hold public office again, what he says matters because he shares views with those who are in power. For example, Cass Sunstein, Obama's communications czar, proposed

that the U.S. Government employ teams of covert agents and pseudo-"independent" advocates to "cognitively infiltrate" online groups and websites -- as well as other activist groups -- which advocate views that Sunstein deems "false conspiracy theories" about the Government. This would be designed to increase citizens' faith in government officials and undermine the credibility of conspiracists. (From Salon.)

What's a false conspiracy? It could be anything. The government just has to deem it so. That the earth is round, that the planets orbit the sun and not the earth were once deemed false by those who were in power because it served their interests.

You think that this is farfetched and you're safe? The US already manipulates foreign social media. What about in the US? Here's an example. According to Google,

YouTube occasionally receives requests from governments around the world to remove content from our site, and as a result, YouTube may block specific content in order to comply with local laws in certain countries.

Just how many requests do they "occasionally" receive? No one knows, but the number of government requests for user data might give us an approximation. Have you ever come upon a video or article on the web that was blocked because "this content is not available in your country due to a government removal request"? We'll probably see this more and more, as people like Senator Lieberman want the government to be able to shut down the internet if it so chooses. For example, it has been claimed that people in the UK can't watch this video. (If you're in Britain, please confirm by emailing me or with a comment.)

Privacy

Indiana's supreme court recently overturned a common law dating back to the 1200s which recognized the right of the people to resist illegal entry by the police. A number of similar rulings in other courts, including the Supreme Court of the US, are very concerning.

Many people are of the view (in my opinion it's a mindless slogan used to cut off all thought and debate) that "if you're not doing anything wrong, you don't have anything to worry about." If you hold this view, I have a few questions for you.

Is it okay if I enter your house so I can watch you? May I watch you in the shower? May I set up cameras and other recording devices so I can see what you do during the day? May I shuffle through your documents and wardrobe? May I look at all your photographs? May I read your diary? May I read your email and listen in on your phone conversations?

Why wouldn't you want me to do any of these things? Is it because you're doing something wrong? If you're not doing anything wrong, you have nothing to worry about. Right?

Followup to Does SLV Have Any Silver

2011-05-12T09:28:00.000-04:00

I wrote a followup article to my SLV post. It's available on Seeking Alpha.

I asked the sponsor of ETF Securities' SIVR, a similar physically backed silver ETF, some questions about the custodian. These included how silver is stored, where it comes from, and what happens when shares are shorted.

I also asked refiners whether they manufactured the silver bars on the iShares and ETF Securities lists.

The Revolving Door Keeps Turning

2011-05-12T00:32:00.000-04:00

Remember when Comcast (CMCSK) took over GE's NBCUniversal? Meredith Baker, an FCC commissioner that voted to approve the deal, just got a new job. That's right, she'll be working (more openly) for Comcast as senior vice president of government affairs. The revolving door keeps turning.

The United States of America, Canada, and Mexico?

2011-05-11T18:18:00.000-04:00

WikiLeaks exposes North American integration plot:

As early as January of 2005, high-ranking officials were discussing the best way to sell the idea of North American “integration” to the public and policymakers while getting around national constitutions. The prospect of creating a monetary unit to replace national currencies was a hot topic as well.

Some details of the schemes were exposed in a secret 2005 U.S. embassy cable from Ottawa signed by then-Ambassador Paul Cellucci. The document was released by WikiLeaks on April 28. But so far, it has barely attracted any attention in the United States, Canada, or Mexico beyond a few mentions in some liberty-minded Internet forums.

But who, besides Judge Napolitano cares about the Constitution anyway? Or any of our laws when they're not enforced against the little guy?

Big US Banks Afraid of Derivatives Rules

2011-05-06T11:56:00.000-04:00

Reuters reports that some bank balance sheets could nearly double if a draft rule proposal takes effect. More here.

In a worst-case scenario, S&P 500 companies might have to bring nearly $7 trillion in derivatives onto their balance sheets...About 97 percent of that would come from five big banks: Bank of America Corp(BAC) , JP Morgan Chase & Co , Citigroup Inc(C) , Goldman Sachs Group Inc(GS) and Morgan Stanley(MS).

What a surprise.

Closed My Chase Business Account, Opened TD Account

2011-05-04T13:54:00.000-04:00

I had a Washington Mutual business checking account for several years. As that bank made a ton of money on subprime and other questionable loans, even making money on foreclosures during the booming housing market that most thought would never end, they were able to provide exceptional service. I miss them.

When WaMu collapsed and was swallowed by JPMorgan Chase, I became a Chase customer. Despite praise from many blogs, the service gradually got worse. A few months ago I got a kick in my complacent butt when Chase started charging my business monthly fees. The prospect of paying Chase $216 a year for nothing finally motivated my business partner and me to go through the tedium of waiting in line and talking to a customer service representative.

The first woman we spoke with logged in to her computer to check whether the fees were being charged. As she did so, an ad for a Chase credit card popped up on her screen.

Seriously? Chase is advertising to its employees?

After confirming that the fees were being charged, the woman excused herself. After a ten minute wait we were directed to another woman, for whom the entire fee story had to be retold. After logging in to her computer and looking at a couple of Chase ads she explained that Chase finally incorporated the old WaMu accounts.

It was great news, she said. The reason for the fees was that our account was upgraded! Isn't that awesome? What did we get with the upgrade? Fees. Everything else remained the same.

The customer rep explained what we could do to minimize the fees. We could pay a bigger monthly fee for extra stuff that we don't need, deposit more money, or link our personal accounts to the business account. I heard "piercing the corporate veil" in my mind even before my partner said it.

When we told the woman that we would prefer to close the account instead, she halfheartedly attempted to persuade us to stay. This involved swiveling in her chair to point at and read from the poster in back of her, advertising services that all other banks also offer. When we indicated this to her, the customer rep came up with one more reason: we should stay with Chase because if we apply for an SBA loan we can fill out a shorter form. At other banks, she said, we'd have to fill out a longer form.

After hearing these very persuasive arguments we were finally able to close our account.

We walked down the street to a TD Bank. They charge monthly fees too ($25 a month), but these are waived for the first year. The minimum daily balance required after that is currently $500. So, we have a year to decide whether we want to stay. So far I have no complaints and was impressed with a few things: checks clear faster, the bank is open on Sundays, and we got our ATM cards at the bank right when we opened the account. I haven't opened a bank account in a few years, so I don't know if this is now standard practice for all banks, but it's much better than having to wait for the cards to come in the mail. Our checkbook came via UPS in under a week.

On a related note, what is wrong with us (the American people in general)? Why do we put up with banking fees?

Our bank deposits are loans. We are the banks' creditors. Banks take our deposits and lend them out. That's how they make money. In return, we're supposed to get some interest on our deposits. What happens instead, however, is that we lend banks money and pay them for this privilege! Imagine your friend asking you to lend him a couple of bucks and then charging you a fee for doing so. You'll tell him to get lost, and rightly so. But when the banks do it, we just pay or lend them more money.

Track You Down? Yeah, We Have an AP for that

2011-04-27T01:43:00.000-04:00

Apple (AAPL) and Google (GOOG) have been accused of collecting and storing user information, including location data. Lawsuits are on the way while politicians and attorneys general demand answers.

While Apple has so far remained mum on the matter, it's been reported that an Apple engineer filed a patent application entitled "Location Histories for Location Aware Devices," which describes some of the uses of collecting location data. These include transmitting location information over the internet, creating a searchable map that shows the user's location history, and tying location data to financial transactions. So iPhones storing the data is probably not a bug.

If you are interested in reading the patent application, you can find it here (or here if you have Quicktime installed).

Remember that 1984 commercial? Who's big brother now?

I'm glad that this has finally captured the public's attention, but cellphones have been tracking our locations for a long time. For instance, from the NY Times:

Mr. Spitz went to court to find out exactly what his cellphone company, Deutsche Telekom, knew about his whereabouts.
The results were astounding. In a six-month period — from Aug 31, 2009, to Feb. 28, 2010, Deutsche Telekom had recorded and saved his longitude and latitude coordinates more than 35,000 times. It traced him from a train on the way to Erlangen at the start through to that last night, when he was home in Berlin.

The police seem to be enjoying all the data that cellphones collect, downloading it during traffic stops.

For at least five years now, the authorities have been able to remotely activate a cellphone's microphone in what is called "a roving bug," allowing them to eavesdrop on people whose phones aren't in use. It sounds like a conspiracy theory, but according to ZDNet

Nextel cell phones owned by two alleged mobsters, John Ardito and his attorney Peter Peluso, were used by the FBI to listen in on nearby conversations.

It's time for the industry (or congress, as a second best choice) to develop comprehensive privacy rules for the digital age. The more protections, the better. People should at least be able to opt out of having their data collected, and the police should be prevented from accessing information stored on electronic devices without first obtaining a warrant. Not only does it concern privacy (not too long ago considered a basic right), it is also a security issue.

Is This What the Beginning of Hyperinflation Looks Like From the Inside?

2011-04-25T13:17:00.000-04:00

Gold is making new nominal highs almost daily. Silver, meanwhile is making 30 year highs. Prices at the pump are soaring, despite an oversupply of oil. The latter is only partly explained by ongoing Middle East turmoil and refinery retooling in preparation for the summer driving season. Anyone who eats has no doubt noticed that food prices are going up while the packages that food comes in are shrinking.

"Panic dollar selling is setting in," hedge fund manager Dennis Gartman says. "This may carry farther than any of us dream of or, worse, have nightmares of." In the race to the bottom, the dollar is ahead of the pack.

US finances are in terrible shape. The federal deficit is almost 10% of GDP, and total debt if you include Social Security, Medicare, and Medicaid is about $75 trillion, five times greater than GDP. "It is a testament to the delusion--and plain dishonesty--which surrounds America's fiscal debate that this figure is not more widely cited," writes Liam Halligan for The Telegraph.

In response, during a recent summit the leaders of Brazil, Russia, India, China and South Africa (the BRICS) announced that they want to trade between themselves in their own currencies. This comes amid a growing chorus in China pushing for a limit of dollar reserves to 1.3 trillion. At present, China, whose economy the IMF says will outpace that of the US by 2016, has 3.04 trillion in dollar reserves. What's going to happen to the dollar when China sells off $1.74 trillion? And who, besides the Federal Reserve, is going to buy our bonds?

Some have speculated that the Federal Reserve is writing (selling) puts on Treasuries to keep rates low. As Frederick Sheehan notes, "the Fed-sponsored put option is the logical next step to dampen the yield curve."

A put is an option contract that gives its owner the right to sell the put writer an underlying asset for a set price within a certain time. If one owns the underlying asset, buying puts on that asset is like buying insurance. One can also buy puts to make a downside bet on an asset. The put writer, on the other hand, is selling insurance or betting that the underlying asset will not fall below the set price within the time frame specified in the contract.

If the Federal Reserve is selling puts on Treasuries, and there's reason to believe that it is because it did just that during the Y2K non-crisis, it is selling insurance on US debt. This is pretty much the same thing that AIG did. The only difference is that the Federal Reserve has a printing press and AIG did not. The Fed can't default, but if rates go above its target strike prices, the Fed will have to print so much money that the currency will collapse.

And a collapse is due. Since the latter half of the 19th century, the world has had four monetary orders. The past three have lasted between 20 and 44 years, or 30 years on average. Our current fiat, faith based system is 40 years old. Add to this the Federal Reserve's money printing and Washington's "openness" to a new global reserve currency.

Maybe they are commodities in a bubble as many suggest, but gold and silver, for thousands of years regarded as money, appear to be remonetizing. Talk of a new gold or other asset backed monetary system is all the rage in the blogosphere while central banks and large university endowments are taking physical delivery of the shiny metal. While it was certainly better to have begun doing so during the last ten years, maybe regular people should start doing this too.