Tuesday, December 30, 2008

2009 Predictions

Decided to put my predictions down for 2009.  Here is what I think will happen in the next year

  • GM equity will go to Zero.  The equity is worth nothing because the debt is worth nothing.  Sooner or later this is going to have to be reflected in the stock price.

  • The recession will be significant and it will hurt.  Unemployment will reach 10%.

  • Housing will continue to tumble.  There will be double digit declines in California.

  • The market will go higher at first, dip again, and remain flat or slightly down for the year.  The rally everyone is waiting for just is not going to happen.

  • We will not see significant inflation yet (but we will in 2010)

  • The United States will, believe it or not, do better then the world markets

  • Commodity prices will fall at the beginning of the year.  Oil will drop to below $30.  It will not crater however and there will be a rebound in commodities

  • The United States will actually have a positive savings rate!  Sounds unlikely but I do not think there is any other choice at this point.

  • One of the major retailers, one that is not currently in trouble, is going to declare bankruptcy.  Macy's, Nordstrom, Saks, Sears, etc.

Let's see how many of these come true in the coming year.  How about you?  What do you think the next year holds for us?

Monday, December 29, 2008

2008, a Look Back

2008 a look back

I've had this blog a little bit over a year.  In that year, I will admit I haven't done a heck of a lot to try and grow this site.  I would like to make the excuse that my new job has been much more demanding then I would have realized.  I could argue that I have done really well in my financial goals by putting my focus there rather than to focus on this site.  But in the end, it would just be excuses.  It would all be true and valid but I for one do not like it when people make excuses, so I will not be making them here today.

However, despite this lack of focus in building this site, I am somewhat impressed I have blogged as much as I have.  I have a little over 200 post for the year.  That's no small feat and means I'm averaging about a post every week day.  I hope to do even better next year.  More on that to come.  I decided I would look back at what I wanted to accomplish with this website and see how far off I veered.

  1. Double my $20,000 - I gave up on this one just a few month into the year.  I just didn't have the time to do it and in reality, I'm sure I would have failed at it given how poorly the market performed.  I would have done better then the market, I probably would have even made money in the money I was trading, but I would not have gotten anywhere close to doubling the money, that is for sure.

  2. Develop another source of Income - I did not get to this one either.  Sad really.  It was something I really really wanted to do.  I make a nominal amount through this site, but just barely enough to cover my yearly cost so nothing much to speak of here.

  3. Watch my basket more carefully - This one I have actually done thanks in no small part to this website and the discipline it has made me have.  Still, I lost track of a stock or two and held on to a few I probably should not have.  But everyone had losers this year and I'm chalking this one up to the bad market.

  4. Spend more money - This one was the crazy one.  Easy for some, hard for me.  I did loosen up the purse strings ever so slightly.  I bought myself a 50" Plasma TV , a new Digital SLR camera, and a host of things for the apartment (including upgrading the apartment itself).  I even bought an engagement ring.    Admittedly the last one should not count as I would have done it regardless of my decision to spend more money or not but the first few are definitely a departure from me and my frugal ways.  All said, it was a lot of money for me.  Does it prevent my fiance from calling me frugal?  Nope.  She is probably right.  I still skimp and save probably more than I should given our income level.  But in the end, it always comes down to the fact that I rather save now and retire early later.  Then again, with the way our economy is going and the reaction of our government, they may make that impossible.

So all in all, not a very successful year from the blog perspective. It was a very successful year for so many other reasons.  I got the job under control now, where before I was miserable at times.  I got back to California and could not be happier with that move.  And of course, I got engaged!  I honestly could not ask for much more of a successful year.  Well, that is until we turn the calendar to 2009 ...

Sunday, December 28, 2008

Working on "Quiet" Days

I went to work on Friday, December 26th.  I knew there would not be very many people there.  Of the nine people who report to me, only three went into work on Friday.  Other departments had similar turn out.

I rarely, if ever, take these days off.  While most people take the day off in order to take advantage of the long holiday, I see it as one of the best days to actually go into work. There are several reasons I enjoy going in on these types of days

  • Traffic is extremely light.  Makes a big difference when you live in Los Angeles

  • There is nobody around to bother me, so I can actually get work done

  • I don't have any meetings to go to.  Once again, I can get work done

  • Work these days is definitely easier.  Long lunches are the norm

  • Workers are almost always dismissed early on these days

For the most part, the last two do not really effect me since I can always take long lunches and I can always leave when I want to, but it is nonetheless nice to have days where expectations are low.  For me, it is extremely important that I get some time this year to actually focus and do work.  I have a bunch of reviews to do this year, many of which I am not prepared for because I was not the manager for most of these people for most of the year.  I am the type of person who likes to have really good and accurate reviews for his employees but this year will prove challenging and I need all the time I can get to write these reviews.

Hope everyone is having a Happy Holidays.  Only a few more days till 2009!  How are you spending the last few days?

Tuesday, December 23, 2008

Christmas Discounts are Deep

Orange SweaterI walked into a Banana Republic tonight.  I was not really intending to do any shopping but the fiancĂ©e wanted to do some shopping so I went in.  With two days left till the big day, I was not looking forward to the big crowds.  So as I went into Old Town Pasadena, I was pleasantly surprised that it was not as crowded as I feared.  It was crowded, but definitely subdued from what you would expect just two days before Christmas.

I got parking relatively easily.  And when we walked into various sores, it really was not crowded at all.  The very first thing I saw when I walked into Banana Republic were heavily discounted items.  There was a light silk cashmere sweater (similar to the one pictured) at the front of the store marked down about half of its normal price, from $70 to $35.  To make it an even better deal, there was an additional 20% off any sale item.  I ended up getting that item for about $30.  I had no intention of buying anything but since I needed some new, warmer clothes anyway I decided to take advantage.  I bought two other items, all of which were heavily, heavily discounted.  This can not be a good sign when there are deals this good.

The thing is, the store was relatively empty.  It seriously looked like any other night.  Now granted, it was getting slightly late at around 9:00 p.m., but still plenty of time was left for people to shop.  Even sadder was the fact that I basically walked up to the register to pay, something that almost never happens this time of year.  I have had many similar observations at Best Buy, even on Black Friday.

So it is no surprise that many forecasters are saying this will be the worse shopping season in decades.  It was just reported that for the first time ever, online sales actually decreased from the previous year.   There is no doubt to me that this is going to be a very tough Q1 for many retailers as they report dismal numbers.  The trick is, are they as bad as everyone expected?  It is hard to say because so many people have predicted a dire year, myself included.  But I have to think the market is going to sell off even more in Q1.  While the predictions have been dire, the market over the last month has behaved relatively well, shrugging off most of the bad news.  Can it continue to do that?  I just cannot believe it can.

Now if only my Home Theater receiver would go on sale even more than it already is ...

Monday, December 22, 2008

Worst Housing Markets for 2009

Los Angeles Skyline

Fortune published their predictions for the worst housing markets in 2009.  Not surprising to me eight of the ten cities are based in California.  Number one on the list of course is my hometown of Los Angeles.

What may be surprising to some is the extent that the forecast is so negative.  The article is predicting that the market will correct to the downside about 25% in 2009 and 5% in 2010.  I'm assuming these are year over year numbers so if you take their calculation it means the median price in Los Angeles will be about $282,000 in 2009 and 265,000 in 2010.  How do these numbers compared to what I think is reasonable?

Even given this horrific prediction, I still think the numbers are a little high.  What is my reasoning?  Well the average home price in Los Angeles was about $162,000 in 2000, the beginning of the real estate boom.  The high was reached at about $573,000 representing a 350% increase.  Even at $265,000 it represents a 164% increase in about 10 years.  Is that really justified?  Not really.  If you believe, like I do, that housing should track inflation, then it would mean that there was an average of 5.5% inflation over those ten years.  Considering we had very little inflation over the last several years, and we are likely to have deflation for at least 2009, I think the 5% number is still pretty high.

In addition, housing needs to track income.  The traditional measure of housing is that housing prices should be 3x gross income.  That means the expectation is that the average income in Los Angeles will be  $88,000.  There is NO chance of that happening in the next two years (average now is just a little over $40,ooo), so the number is still a little high.  Now of course, I expect housing to retreat slowly, not in one big bang, so the prediction may be valid only if we continue to see price declines moving forward.  But they are predicting a significant slowing of the price decline in 2010, and I just do not see how that is possible considering I actually think we will OVERSHOOT to the downside like we overshot on the upside.  It happens in every market.

So in short, I think we will see even worse numbers then predicted.  The employment outlook in Los Angeles looks bleak and is getting worse.  You combine that with the overbought nature of this market, and you have the recipe for some pretty significant decreases over the next two years.

Sunday, December 21, 2008

Changing the Rules Midgame

On Friday, the Bush administration opened up the TARP funds to bailout the Auto Industry.  Yet another example of the government not fully understanding the law of unintended consequences.

I love analyzing unintended consequences.  It challenges our assumptions about the things we only think we know.  Those who follow this blog know I have alway opposed the TARP.  So my disdain for the Auto Bailout is just an extension of my hatred for any sort of government intervention into private enterprise.  Remember, it is OUR tax money that is going to save the ass of these PRIVATE companies.  I really really hate the idea of private gains and socialized losses.  When these companies were doing well, did the taxpayers see any benefit?  Now that they are losing money, why are expected to share in teh losses?  How can any capitalistic system work when parties do not have to pay for the consequences of the risks that they take?

At any rate, I am fairly certain that the government actions at this point are doing more harm then good.

The goal of the TARP, at least initially, was to unfreeze the credit markets.  If capital stops moving around, then the entire economy freezes.  People cannot get loans to buy cars.  Businesses cannot receive credit to buy merchandise.  They have to lay people off since they have no goods to sell.  Banks refuse to loan money to people and businesses that have bleak prospects, which is everyone.  This would put the economy in a death spiral which the government was not willing to risk.  Now, while I disagree that this would have been the outcome, at the very least I can understand why they did it.   It is truly impossible to know what would have happened.

But for me, it is easy to take a good guess about what has and what will happen because of this.   I just have to look at the incentives that the government is creating.

First, I just look at what has happened.  It is clear that the markets are frozen in part because of what the government is doing.  I as an investor have no idea what the government is going to do next.  This makes it very hard for me to be able to figure out what I should be doing.  I would love to get long or short certain stocks but I simply cannot.  For example, I think commercial real estate needs to go down from here but I cannot easily get in because the government might try to bail them out next.  While on the surface it may seem like a good thing that people are fearful to go short, you have to remember that a healthy market has both winners and losers.  Losers are taken out quickly and shot.  This means there is more capital to deploy to healthier companies.

But this cannot happen so long as the government props up failing businesses.  Money will continue to flow to places it should not because the government might do something unexpected.  Look at what almost happened to oil.  Barack wanted to implement a "Windfall Profit" tax.   Now oil is down to about 30% of where it was before.  If there would have been a windfall profits tax it would have constrained supply causing the price of gas to go higher.  When left alone, you can see what happened.  Oil corrected ridiculously fast and now I am buying gas at around $1.60 a gallon.  This is how markets are supposed to function, we eventually reach equilibrium.

But this cannot happen so long as the government continues to interfere.  So what is next?  I have no doubt the market will continue to freeze.  Why should private investors step in when they are being crowded out by the government?  Why would any business want to take money from private parties when they can get money from the government for free?  More and more companies are going to start coming with their hands out asking for a bailout.   We will see at least a few more industries claiming they are crucial to the economy and that letting them fail will mean millions of jobs.

The market will stick around this range for a while.  It will not rally or drop too much from here.  People are at a standstill because there really is no way to tell which way to go.  Some people may welcome the relief from the volatility.  But I see a bigger problem; we could easily end up like Japan and just stay stagnant for years.  It is like ripping off a band aid.  We should have just tore it off and hit bottom as quickly as possible so that the recovery could happen just as quickly.  But that is not what is going to happen.  We will no doubt get a few rallies that may seem like there are brighter skies ahead.  But we will not know what the government will do next, and since I do not know the rules of the game, I am most likely to not play.

Thursday, December 18, 2008

When Cuts Happen

Red BullLike many companies, my company recently announced a scaling back of certain employee benefits.  Some of them were quite significant, like the suspension of our 401K matching.  Some of them were important but not as significant; we scaled back the variety of drinks we offer for free like Red Bull and bottled water.   In these tough times it is to be expected so none of these changes actually caught me by surprise.   Funny enough, I see the financial statements of my division, and we are cash flow positive with no debt, a relatively strong position to be in as the economy worsens.

But it is always wise to be conservative going into problems rather than be caught off guard when things eventually get worse.  And I am sure they will get worse from here.  The thing is, and maybe it is just me becasue I was expecting it, most of the other employees seem to be taking this quite well.  Perhaps I have a skewed view of things now because I am in management.  I might also be bias because I do  not expect much from the company I work for other than a place to work, growth opportunities, and of course my paycheck.  However, almost every employee I talked to seem to be taking the cuts in stride.

This is in stark contrast to my experience at Microsoft where there was an uproar over losing towel service, something probably used by less than 5% of employees.  Perhaps people are just more understanding in a down economy.  It is universally understood that these cuts were made in lieu of losing headcount.  How many people would argue about keeping an energy drink over losing their job or having to see one of their fellow employee's pack up their stuff?  Perhaps the difference this time is that people at Microsoft rarely worry about losing their job as opposed to most of the rest of the world which realize layoffs are a real possibility.

So I was pleasently surprised how well the staff was taking the announcement.  In fact, many people offered more suggestions about where there should be even more cutbacks.  Most of them really appreciate how honest and upfront management has been about the situation.  Most of them enjoy being part of the process.  It is ironic to me because I have been in other places which want to hide the truth from people until it is too late thinking their employees will not be able to handle it.  This case clearly shows how people can be if you are just upfront with the situation.

So how do you think you would handle getting your perks reduced?  Is there any perk you get that you think your company should do away with?  Is there any perk you would get upset if they took away?

Tuesday, December 16, 2008

Fed Fires All Its Bullets ... And Misses

In a very expected move, the Fed decided to cut interest rates all the way to 0.25%.  They have essentially made it free to borrow money from the Federal Reserve.  Somehow, they have forgotten what got us here, cheap money.  Not only did they do that, but they pledged to buy all sorts of assets including Mortgage backed securities and U.S. Treasuries.  This now empties the gun of all the things the Fed has done, at least all the things that we can rationally expect.  God forbid if they come up with something more.

The saddest part of this all is that this is not going to work.  In fact, it will make the situation worse and prolong our problems.  Now, I have no doubt that we will see a small bump in the market.  In the short term, all this free money will have some positive effect on the economy.  But printing money never solved any problems and it will not solve this one.  How do I know?

The problem right now is not that there is not enough money out there.   The problem is that nobody trust the markets.  I am the Fed's target.  They want people like me to start deploying the capital I have on the sidelines.  I have no skin in the game right now.   I do not own a house and I have lots of cash on the side.  It will not help to move the economy for people upside down in their house to just stay upside down in their house.  They need new demand to come to the market.  However, there is no chance that someone like me, someone who has had as much patience as I have till now, to come into the market anytime soon.

You see, I cannot get involved with a market that just wildly swings about.   The 5% move to the upside we saw today was just ludicrous.  Sane markets do not behave like this.  One of my larger positions in in UYG, the Double Long Financials.  It was up 20% today.  You would think I would be jumping up and down with joy but I am not.  As fast as it came today, it can go just as fast the other way, and there is no way for someone like me, someone who cannot sit in front of the computer all day, to safely get into this market.

All the Fed is doing is making it more difficult to trade.  They fired all their bullets early in the game and we still have a few innings left.  Now what happens when the next wave of bad news crosses the wires.  Believe me, there is more bad news coming, I have NO doubt about that.  There are more foreclosures and more job losses coming, more than most people expect.  The fed cannot cut rates anymore nor can they really buy any other asset class that will make any difference.  The dollar rally is now shot to hell and soon, foreign countries are going to lose interest in treasuries.  Then what?  Maybe the fed can just throw the gun.

Monday, December 15, 2008

When Your Competition Wants to Save You ...

You know you have problems.  Many of the foreign automakers like Toyota have come out on the side of a U.S. automotive bailout.  Much of their reasoning seems sound.  They want to ensure that the industry is healthy overall.  They want to be sure that any suppliers which they may share stay in business.  They do not want to see the U.S. fall deeper into a recession thus stifling demand for their own cars.

But I really think they have a much more sinister agenda.  They like having the weak competition.  Think about it.  If you could play against the Washington Generals every night,why would you not?  Having manufacturers as inept as the Big Three give the likes of Toyota and Honda very weak competition.  Now imagine if one or two of the big three fail.  Say you have the Big One.  Would it not make for much tougher competition if you had to go against a lean mean American Manufacturer?

Worse yet, imagine if all the American Auto Manufacturers collapsed.  Now let us say a low cost Korean or Chinese manufacturer comes in and buys the assets of the failed Big Three.  Do you think the Japanese Auto makers want to see that?  Why should you as an American care?  Because strong competition can only benefit you.  If the Japanese actually face stiff competition instead of companies who lose billions of dollars, they will have no choice but to lower their prices, increase their quality, or both.  The winners in this would be the American Public.  The losers of course would not just be the American car industry, but it would be the Japanese as well who have benefited from the poor competition!

So why do I want to bailout the Big Three again?

Sunday, December 14, 2008

Charitable Giving This Holiday

Despite what some people may think given this blog, I do donate to charity every so often.  I believe charity is a very personal choice and not at all an obligation.  I do not find fault with anyone who does not decide to give to charity because I do not pretend to understand everyone's personal situation.  Some people have the ability to give, some people do not.  But despite anyone's ability to pay or not to pay, charity should never be an obligation.

I have a perfect giving record to Princeton.  I do this because they gave so much to me when I attended and I want to see that opportunity extended to others.  This year, I also participated in my Company's plans to sponsor several local families.  I signed up to buy clothes for two children.  Funny thing is that not many people signed up to buy clothes.  Most people were signing up for things like microwaves, blenders, or backpacks.  Not sure why that is.  In fact, every person asked for clothes, and I was the only person as of Friday to sign up to buy any.  Strange.  Before I go on, I have to comment on one thing.  Lots of families asked for blenders.  Why on earth are families asking for blenders?  The only time I ever use my blender is to make margaritas or smoothies.  I highly doubt, or at least I hope, that this is not why they are asking for this, but I cannot understand what else these blenders will be used for.

This year, I was a little bit more cautious in my giving.  Despite being OK financially, I am a little bit worried about the economy and my job.  While I am not in any emminent danger, my company will do poorly in a protracted downturn and we did recently hear some news that will fundamentally change our industry going forward.  So, just to be safe, I decided to take it easy this year.  So if someone like me is pulling back a little bit, I wonder how much other people are pulling back?  If this is as widespread as I think it probably is, then what does that say for charities in the next few months?  Now more than ever, charitable giving is needed, but what happens when there is nobody left to give?

What are you doing this holiday season?  Are you giving as much as you normally do?

Thursday, December 11, 2008

No Bailout For You!

GM Dealership

It was just announced that the auto bailout package failed in the Senate.  I love the Senate.

So now what happens?  There is some rumblings that George W. Bush and the White House will consider using some of the TARP money to fund the bailout.  Just like the banks, they will just give the money to the automakers with very little strings attached.  Yeah, great idea, because that seems to be working for us.  We are only down about 30% from when we started that program so clearly it is working.

I for one hope that does not happen, and not for the reasons you may think.   Yes, I am not a fan of bailing out anyone.  I think this is a horrible use of taxpayer money.  But I am much more interested in just seeing the drama play out.  How close are we really to a full collapse of the American Auto industry?  Is it as dire as everyone is saying?  I for one think everyone is being a little bit of a Chicken Little.  I have no doubt that one of the Big three will fail.  But I do not believe it will take down the other two.  I do believe that Americans will still have an interest in buying an American car, so I think we will actually see a much stronger automaker emerge from the rubble because they will see significantly more demand coming from the customers of the failed automaker.

I expect to see GM fail.  I expect this no matter what happens, even if the White House decides to  give them enough money to run for the next year.  I think Chrysler will continue to live on the brink, but I think they will survive.  And I expect the winner in all of this to be Ford.   What do you think will happen?

Tuesday, December 9, 2008

Save Money on an Engagement Ring (and get higher quality at the same time!)

Engagement Ring

To add to my post about my engagement, I learned one interesting thing about engagement rings.  It pays to go to a small specialist.

Like a lot of people, I tend to feel  more comfortable shopping at big chain stores.  That is why I tend to do my shopping at places like Best Buy, Target, and Amazon.  They tend to have the widest selection and the best prices because they have huge stores and usually do not offer high level of customer service.  I actually prefer this since it not only keeps prices low, but I do not like to be bothered by sales people when I am shopping.

However, with the ring, I went a different route.  I should say, my fiancee went a different route.  Someone like me would be tempted to go to one of the big engagement ring stores like Robin's Brothers, Jared's or Tiffany's.   Especially the latter one because the name is so well known.  I would shy away from a small mom-and-pop type setup because I would not feel as safe going to a place like this given how expensive this purchase is (it is now probably the most expensive thing we own).  But my fiancee had a particular style in mind, so she decided to do some shopping.

She picked a style and decided to ask several of the local jewelers for quotes.  To her surprise she found one that quoted her a very reasonable price just for the band.  She also asked about the solitaire diamond and they gave her several options, each of which were actually cheaper than anything we could find elsewhere.  This was very surprising to me because their prices were actually better than the online retailer Blue Nile. Blue Nile is known to have very good prices on its single diamonds and when we tried to find one of the same quality as the one our jeweler offered, it came out to be more money online.

This was a very good diamond, it scored very well in the 4 C's (Cut, Clarity, Color, Carat).  In fact, we found that many of the chain type stores could not match the grade of diamond that we were getting.  While most people worry about the big C, Carat, we found that it was probably the least important factor.  Her diamond is brilliant, it really sparkles in the light because it scores so high in all the other factors.  So my strong recommendation out there to anyone looking to get a diamond ring, focus on the OTHER C's.  It is much more important than you think.

My only other concern was how I could be sure I was getting what I paid for.  That was easily taken care of by going to a third party jewelery appraiser which I had to do anyway to get the ring appraised to buy insurance on.   Of course, the appraisal went fine and my fiancee could not be happier.  So we found not only better service but better price and quality by going with the small guy.  It may make me rethink what I thought I knew.

Sunday, December 7, 2008

In Bear Markets, Everyone Loses Money

Bear market

Bear markets are very dangerous.  No matter what side of a trade you take, you can lose money.  Even if you yourself are a bear, chances are you will lose your shirt as well.

On Friday, the market decided to make sure I understood this point.   The worst job numbers in recent memory came out on Friday.   The numbers, while they look horrible, are actually worse then they look on the surface.  I have always had a problem with the employment rate and how it is calculated.  It counts as employed people who are underemployed.  That is, people who work part time but want to work full time or people who have a job that pays them much lower then they are qualified to make.  It also does not count people who have just given up.   In this type of economy, there are many people who fall into these categories.  People must also remember, that the financial and credit crisis are just starting to make its way into the economy.  That means, we are only in the first half of this problem with plenty more to come.

Anyway, the market was down after the numbers came out, as it should be.  I decided to get short the market.  But then a funny thing happened.  The market decided to shrug it off and rally, ending the day up by about 3%.  Now, there was no news that should have made the market rally.  In fact, there was more bad news after the job numbers came out.  But bear markets just do not care.  They move, very rapidly, in directions that do not really make any sense.  Since I was double short the market, I instantly lost about 7% of my investment

Now you could argue that the market has bottomed.  And you might be right.  I personally don't think so as I think people still have not quite digested just how big of a bubble we really had for a year.  How do I know this?  I just look around me for the data.  I have been scanning the house listings seeing how much houses are going for in my area.  Housing that are selling are at about 2004 prices.  Houses that are listed are around 2006 numbers.  Now I live in Southern California, the epicenter for the housing collapse.  Yet people are still insisting on premium values for their houses.  2004 housing prices are still about double what they were in 2000 when the bubble started.  Does anyone actually think housing prices should have doubled in four years?  Further, the average house in the area is still selling for about 8x income.  This is more than double what it should be.

If this market bottoms, I am certain it will not be a violent ride up like this.  It will hover at the bottom for a while because the United States has a long way to go to work through all the issues that we have.   I still have an appetite for risk, and will continue to try and trade this market.  I jut hope that hungry bear does not get me before I get it.

Thursday, December 4, 2008

No Bonus - So What?

I sit here listening to the Automakers in front of congress lay out their plan to return to profitability.  In the proposals is a clause that states that management will not get a bonus in the next year.  My question would be why is this considered a concession?  Why would anyone think they should do anything else?  Why would anyone expect to get a bonus when there company is hemorrhaging money?  If your company does not make money, you should not get a bonus.   I understand, it is not the fault of the individual, but that does not justify paying bonuses when you are on the verge of bankruptcy.   I had years of not getting bonuses because my company was losing money.  I learned to live with it.  I have also had it where my company was profitable and the bonus was up for cutting because we did not meet the target number.

So I just find it funny that it is something that anyone think should not be done.  Does anyone think that bonuses should be paid out in this situation?

Wednesday, December 3, 2008

"The End" For the Rest of Us

For a truly great read on the Wall Street collapse, I strongly recommend you read The End by Michael Lewis.  He is the author of the book "Liar's Poker".  In this article, he clearly explains some of the egregious acts Wall Street perpetrated to get us where we are today.  Lewis, like many of my friends, was part of the Wall Street machine.  He ended up leaving after he could not stand the ridiculousness of it all.

In the article, he gives a great description of how we got into this mess.  He tells the story of people who recognized the now seemingly obvious conclusion that there was no way that people who were getting mortgages should get mortgages.  He goes further to explain how the CDO market worked and how the people part of it knowingly exacerbated the situation.  To make matters worse, most of these so called "experts" really no experts at all.  They were like him, fresh out of school with no idea what they were doing, yet tasked with allocating the nations capital.  And these are the people our government wants to bail out now?

Reminds me why I will never hire a consulting company to do work for me.  Straight out of college, I went to work for the world's largest consulting company.  I did not even know what consulting really was, but it was one of the things everyone coming out of an Ivy League school did.  You either worked on Wall Street or you were a consultant.  Now, I was a technology consultant.  That meant I was supposed to be some sort of expert on technology matters.  Now, lucky for them, I had a computer science background.  I actually was a pretty good programmer.  But some of my colleagues would not be able to tell you the difference between an array and a linked list.  They thought "C" was just another letter and "Java" was just something you drank.

Yet we were all shipped out to work on projects at well over $120 an hour.   That is not a typo.  Now, someone like me, I might be worth it.  I was a good programmer, understood the fundamentals, and had the logical mind to solve most computer problems.  But some of these other guys?  We are talking people who never compiled a single line of code in their life now being asked to build some of the world's larger computer systems.  How is that at all sane?

The same thing happened to my friends in Wall Street.  All of them were thrown into big money projects.  Many of them had never taken a single economics, accounting, or business class.  It totally changed the way I thought about the professional world and made me scared about some of the things that happen at these large important companies.

Tuesday, December 2, 2008

Credit Card Companies Pulling Back Credit

Visa Credit Card On CNBC the other day, Meredith Whitney, an analyst who predicted the subprime crisis and the turmoil we would see at Citibank, declared that the next big problem would be in consumer credit.

When I first heard her on CNBC, I did not think much of it.  I have heard the death of the American Consumer predicated many times.  And every time, the consumer finds a way to spend more money.  While this cycle has to eventually end, I just was not willing to hold my breath to see it happen.   I also did not see the banks killing the cash cow that is consumer credit.   So I dismissed the commentary and went back to work.

But then I witnessed it with the pullback with my very eyes that night.  I got a letter from one of my credit cards informing me that they were going to close the account.  This is a credit card which I have not used in over two years.  I kept the card open because it was the card I have had for the longest time and thus it is highly positive on my credit score.  However, due to the inactivity, the bank was pulling my line of credit.  Now keep in mind, I'm not a credit risk.  I have always paid my bills on time and I have never carried a balance.  My credit score is north of 750.

Part of this may indeed be that it cost them money to have me as an account holder when there is no activity on the card.  So I don't really blame them.  I have gone through equally long periods of time without charging very much to the card, so I can not imagine this was the only reason.  So given that, I doubt it is a coincidence that in this credit environment, the banks are closing lines of credit to their customers, even to their most credit worthy customers.

So if someone like me is losing credit, what must be happening to other people?  Is this just another sign that we have a ways to go before we work our way through all these problems?

Monday, December 1, 2008

How Trading Can Drive You to Maddness

I went short the market last Wednesday.  I did it by my normal method; I bought the Exchange Traded Fund SDS.  I bought this ETF when the market turned negative in the morning.  After three days of Rallying, I figured we would get at least one day of a correction.  My plan was to get in and out of the ETF as quickly as possible.

Unfortunately for me, it was also a travel day for me.  I was returning from my trip in San Diego so I was in the car for the middle part of the trading day.  In the car, I was listening to the news, and the market continued to go higher.  It ended the day several percentage points higher, meaning I was down almost 5% just that day.  Thursday, the markets were closed, so I was forced to hold on to the position.  I resolved to get out on Friday.

I woke up early on Friday to find the market trading relatively flat.  I was still certain that there was no way we would get five up days in a row in a market like this, so I waited until the market dropped a little bit, and I was going to sell.   The drop never came, the market inched higher and higher throughout most of the day.  Since it was a short trading day the market close before I could do anything meaning I had to hold on to my position throughout the weekend.  I was now down 10%, right at my stop price, and I was for certain going to get out on Monday.  I was hoping the market would not open up sharply higher, as this would increase my losses.

Well the market gave me a gift today.  The market tanked, dropping 8% in one day.  Since I was double short in my position, I made up my losses and more in one day.  While I was going to sell in the morning, it was clear the market was weak so I held on to it till the end of the day.  I sold half the position at the close and made a small profit after taking some very big losses.  I will get rid of the rest of the position as soon as it is reasonable.

The point of the post should be pretty clear.  I got REALLY lucky in this trade. I should have gotten out way before I did.  I almost had to take some big losses and the market bailed me out today by falling apart.   If you were me, you would also understand this.  Trying to play this market can really drive you nuts.  There was really no good reason the market was rallying last week.  There was no bottom reached.  Even if the bottom was reached, there was no reason stocks should have been up 15-20% in a week.  That's insane.  That is not a sign of a healthy market.  But the fact remains, just when you think you have it figured out, the market does crazy things.

Sunday, November 30, 2008

My Black Friday

crowded shopping centers

Despite the fact that I absolutely hate crowds, and I hate fighting to get a parking spot, the last few years I have gone out on Black Friday.  I never buy anything, but I like to get a sense of the crowds and to see what people are buying.  I have never actually bought anything because of one simple fact.  While there are great deals to be had on Black Friday, they are usually for things I don't need.  Now there is the part of me that loves a good deal.  I see something at 50% off, and it instantly piques my interest.  However, I find the whole thing rather sad as people line up more than twenty-four hours in advance to take advantage of doorbuster deals.

I only went to a few places.  I went to a Best Buy, a Borders, and a Macy.  I also just glanced in a few others.  While some pundits have predicted this to be a horrible shopping season, there were some pretty significant crowds at the Best Buy. The parking lot was quite full, with several cars continuously circling for a parking space.  I ended up parking pretty far away but I at least did not have to wait for my spot. I walked in and it was pretty crowded.  There was however no line at the registers.  It was kind of odd.  It was the first time I have not seen significant lines at a Best Buy on a Black Friday.  It might mean that Best Buy is getting really good at getting people through the line.   This is entirely possible because all the registers were opened and they had several makeshift registers throughout the store.  It might be also that there are lots of people like me, looking just not buying.

The same thing at Macy's and Borders.  It just was not all that crowded.  It seemed even lower on Saturday and Sunday.  This is in contrast to what is being reported in the news as most news outlets are reporting higher foot traffic this year than in years past.   It will be interesting to see how this news will be digested by investors.  It will really show how much bad news is actually baked in into the equity markets.

Friday, November 28, 2008

I'm Engaged

Engagement Ring

This weekend, on my vacation, I proposed to my girlfriend of almost four years.  She tearfully accepted.

I cannot explain how happy I am to embark on this part of my life.  There is no doubt that the last several years of my life have been the best they have ever been and this is due in large part to her.  While it may not have happened as quickly as she would like, like all things of this magnitude, I think it is important to be absolutely sure.

While my proposal itself was relatively simple, it was months in the making.  You see, the most important thing about it was that it needed to be a surprise.  The problem was exacerbated because she picked out her own ring (shown above) and thus knew that the proposal was soon to follow.  Given the way my fiancee's mind works, she would always be expecting it given any thing special that we did.  So I have very purposefully made sure that we have gone places and NOT proposed, so she would stop expecting it.

Another tricky thing I had to do was to be sure that it seemed that everything we were doing was HER idea., not mine.  I needed her to go to a very specific place, the location of our first kiss, but I needed her to get us there.  So as we planned out our vacation I wanted her to choose to go to San Diego.  She wanted to go to all sorts of places, but I had to keep guiding her to go to San Diego.  She eventually decided that was where we should go, so I was halfway there.

The trickier part was to get her to want to recreate our first date.  I was not sure how to get her to do this, but she opened the door for me on our way down to San Diego.  She suggested that we go to restaurant On the Border, the location of our first dinner together.   From there, I just recreated our first date, taking her to where we played mini-golf and then the same bar where we had drinks afterward.  I took her to the exact spot where she dropped me off at my car that first night and where we shared our first kiss.  I had a whole speech planned out, most of it did not make it out of my mouth.  Although I'm a good speaker, it is hard to remember everything when you are nervous :)  I told her how this was the location of my happiest memory, and I hoped to make it hers too.  I pulled out the ring and proposed, and she happily accepted.

We do not have a date yet.  It will almost certainly be sometime in 2009 and it will be an event wedding.  We will of course keep people posted.

Thursday, November 27, 2008

Happy Thanksgiving

Got back from Vacation.  It was fantastic.  More on that later.

Decided to do the traditional Thanksgiving post and list all the things I'm thankful for.

  • I seriously have the best girlfriend in the world.  She cooked up a fantastic Thanksgiving meal and did not complain about it once (she never does).

  • Everyone I care about is happy and healthy right now.

  • I have some awesome friends who are always there for me and are fantastic to hang out with.

  • I have a job that pays me well and that is helping me get to my career goals.  No small thing given this horrible economy.

  • I have the ability to have this site.  By this I have not only the means to do the activities on the site, but I have the knowledge to do it as well.

  • I am never in want of anything.  While I do deny myself several things because I like to save money, in reality I could buy pretty much whatever I want whenever I want.  I've actually learned to loosen the purse strings a little bit.  Just this year I bought the digital Camera and a plasma TV.

  • I don't live in Seattle anymore.  :)  Was reminded how much I do not miss it when it rained very heavily in California this weekend.

  • The Lakers are 12-1.

There are probably several other things off the list, but this is all I can come up with off the top of my head.  I hope everyone had a good turkey day.  Back to posting on a regular basis tomorrow.

Tuesday, November 25, 2008

One Positive in the Financial Crisis

So there is definitely one positive thing happening because of this financial crisis.  People are talking about it.

I love talking about financial matters.  It is one of the reasons this blog exists.  My ears perk up whenever someone around work starts talking about saving, investing, and the stock market.  I love sharing the wisdom I have learned over the years with people just starting out.  It is one of the reasons I keep this blog up even though my original goal has gone out the window.

Because of the financial crisis, I have talked more about finance, money, and the economy at work than I ever have before.  People are interested in what is going on and don't always understand what is really happening.  I don't expect anyone to be as into it as I am, so I try and explain my perspective as much as I can so I can educate others.  The benefit of this is that often times, I can get someone interested enough that they start seriously thinking about their future.  I believe I have convinced more than one person to at least start putting away some money in their 401K.  I think I may have even convinced someone to dabble a little bit in the stock market.

At the very least, I hope this crisis gets people talking and interested in money and the economy.  I believe we are probably in for some rough times ahead, and the more people who take an active interest in their own financial matters, the better off I think we will all be.

Monday, November 24, 2008

On Vacation


I'm taking the week off to take advantage of the Thanksgiving holiday.  So I'm going to write some post ahead of time and post them throughout the week.

I do not take vacation too often.  It is especially odd that I'm essentially taking a week off of work, although I'm really only taking three days of vacation.  It just seems there is never a good time to take vacation and now is particularly tough for me.  There has been some upheaval at work.  While many people get stressed out in these types of situation, I always take it as an opportunity.  I have made the most progress in my career in such chaotic situations.  It is in these times that great leadership is needed and those who demonstrate it stand to do well.

To exacerbate the situation, I'm very interested in trading this week.  I really do think there are some great buying opportunities right here so long as you are in it for the long term.  There are several things on my shopping list that are very good buys here.  I still think the market could go down from here.  But I don't think it is down another 40%.  We might have 10% more to go, and then there will probably be a leveling off.  No need for me to pick the bottom, also no need to chase the market up.  I just wish the market would settle down for a few days.   If I can, in between catching some sunrays and watching out for any killer whales, I am going to try to do some trading and of course some blogging.

Sunday, November 23, 2008

The Last 10 Years - Gone

S&P chart

Take a look at the above chart (Click on it to see the full picture size).  It is a picture of the S&P 500.  On Friday, the S&P closed at 800 but it touched 740 intra-day.  The S&P has been at this level twice.  Once in 2002 and before that in 1997.  Is this the real state of our world?  Have we really made no progress in the last 10 years?  Is this at all realistic?

It is hard to say.  I'll be the first to say, I never thought we would get this low.  I thought 850 was reasonable level for us to come back to.  But we fell right through that and kept on going down.   I knew this correction was coming.  I knew it was coming for a very long time.  In fact, I have been in a cash position for a LONG time because of this.  When I transferred my 401K almost three years ago on my way to Microsoft, I left most of it in cash because I though the market was so overvalued.  It is why I'm in such good position today to buy up assets.

But it is hard to imagine us right back where we started 10 years ago.  The prevailing wisdom espoused by so many experts, including Warren Buffet, is that buy and hold works.  It certainly did work when Buffet made his billions, but it has not worked if you have been in the market for the last ten years.  Granted, if you go twenty years back, or you go ten years in the future, you might be OK.  What do you think?  Do you really think we should be at the same levels we were at 10 years ago?   An age which just saw the explosion of the internet?  An age where most people did not own a cell phone?  Then again, it was the age when 20% down and 30 year fixed mortgages were the standard.  So maybe we do deserve to be here.

Thursday, November 20, 2008

Breaking My Own Rules

I did something stupid today, I broke my own rules.

I've been, rather successfully, playing the volatility in the market.  I have avoided playing the long side since it is extremely hard to do in this market , but when the market touched a low and bounced, I decided to go long the market.  I bought SSO at $21.62 a share.  I was willing to take a 10% haircut on this,  which would have put me at $19.42.

But one thing I have followed during the last few weeks was to not be on the wrong side of momentum in the last hour.  You see, this market has consistently accelerated in the direction of the day in the last hour.  That is, if the market was up the whole day, it goes even more up in the last hour.  If it was down, it goes even more down.  When I bought the stock I told myself I would not be on the wrong side of the momentum at the end of the day.  If the stock was down, i would get out before the last hour.

The stock actually touched $22.71, and I should have gotten out when it did.  Unfortunately, I was waiting for $23 and it never came.  Well it became noon, the last hour of trading, and I froze with indecision.  I couldn't decide what to do, even though my own rules told me to get out.  At noon, the stock was right around $20.80.  The trend was down, and I should have taken my losses and gotten out.  I didn't.  The stock, predictably kept going down.  I did a rookie mistake, and kept waiting for the stock to go up just a little more so I could get out.  It did not.   The stock went right though my out point and did I sell?  No.  I held on to it and saw it touch $19.10.   Some sense finally did return to me, and I sold half the position at $19.62.  That actually ended up being a local maximum, and the stock dipped below $19.00 before settling at $19.10 for the day.

One day, about $1000 lost.  Pretty sad if you think about it.  I really should have limited my losses better but I did not.  I could still lose even more considering I'm not out of the position yet.

The moral?  Know your rules.  Stick with them.  They are there for a reason.

Wednesday, November 19, 2008

Death by Date

I'm going to take a little break from talking about the market today. I will say one thing, the market spiked down and this is a very bad sign.  The S&P is now hovering around 800, and if it breaks it, I really don't know how far the market will head down.  Hold on to your hat here folks, it could get interesting.

I wanted to write this post to teach people something they will find useful at work.  If you are not responsible for dates, do not give them out to other people.  It will be the death of you.  Let me explain.

I am in charge of dates at my company.  That is, when someone wants to know when something is going to be delivered, they come talk to me.  This is my job.  I've had a few instances at work now where people freely give up dates to senior level executives.  This is a very very bad idea.  Senior executives love it when individual contributors give dates.  Why?  Because they are almost always understated.

Most workers at the ground level do not see the big picture.  Take for instance a software developer.  They may be experts in coding and debugging, but many do not understand what has to happen to get a project out the door.  QA resources need to be lined up.  Other projects may be prioritized ahead of yours.  There may be code freezes in place.  Lots of things can prevent code from being shipped, and most of them are out of sight of these developers.   Now, when most people think about "done" they think about it when they will be "done".  They do not consider what else it may mean to be "done".  I have now had a few intances at work where a developer freely offered up a date for "done" to a senior executive.  This got the senior executive very happy.  They can not wait until Feature X is out and live.

Of course, reality sets in.  They eventually come talk to me for the real story and I of course tell them the truth.  This never comes out good.   Now we get upset executives.  Now we have to hear rants about how we can't execute or why we cannot get it done on the "original" timeline.  I am usually able to mollify the situation, but it comes at a price.  Trust and goodwill is eroded.  Believe me, the person who originally opened their mouth is now looked at unfavorably.  In one particular instance, an entire project might be canceled because expectations were set incorrectly.  It is felt this person, through no real fault of his own, does not "get it".

So please, keep your mouth shut.  Just act dumb and point to whomever is asking you in the direction of the person who actually sets the date for you.  You will save yourself a lot of grief, trust me.

Tuesday, November 18, 2008

Automakers Come Begging


The Big 3 automakers went to Capitol Hill to beg congress to give them a $25 billion bailout package.  To their credit, congress questioned these CEOs about why the government should come to the aid of an industry that is clearly in decline.  I caught clips here and there throughout the day of their testimony.  Let's look at some of the finer points.

 We are about to turn the corner.  We are in the middle of restructuring

The CEOs made it a point to mention that they just needed a "bridge loan" to make it through these difficult times.  It reminds me when Herbert Hoover said, in 1929, that "prosperity is just around the corner".  Of course the Great Depression followed next.  Anytime that someone tells you, "just a little bit longer" or "just one more time" you know things are not good.

Further, why the hell did you wait so long? If you are so stupid that you did not realize that you need to restructure earlier, why on earth should we believe you are gong to do it right now? We bailed out one of them just a few decades ago, and yet they are back again.  What the hell is that?

 If we go, so will two million other jobs which are related to the auto industry

This is just pure scaremongering.  First off, if the government let things take their natural course, I highly doubt that all three of the car companies would go under.  In fact, if one were allowed to fail, it would actually strengthen the other two since more consumers would buy cars from the other three.  Also, do you really want me to believe that not as many industries are tied to real estate and finance.  Several large companies, like Lehman Brothers, have gone bankrupt. Financial companies affect all parts of the economy.  Real estate employs all sorts of workers from carpenters, contractors, and machine operators.  These industries have seen total collapses in their markets, and yet we haven't reached Armageddon yet.  Why is the auto industry special?

It's the economy!

I love this one.  Time and again, the CEOs used everyone's favorite excuse, it's the economy!  Yea, so what?  I've said it before and I will say it again, if you cannot run your business without being able to weather an economic downturn, you should not be running your business.  Everyone knows there are economic cycles.  CEOs know this better than anyone else.  Every single person is affected by this economy.  I know my industry is.  We are heavily dependent on ad revenue, which declines sharply when the economy goes south.  Should my company be able to ask for a hand out?  No.  It is up to plan for it, tighten our belt when it happens, and figure out to succeed in any environment.  We have to do it, so should the car makers.

The bottom line is that there is no way we are seeing this money back if we give it to the automakers.  Seriously.  If these guys actually had a legitimate plan, they would have no problem raising capital to  fund their plans.  They could go to any bank or investor, show them their plan, and people would be jumping in to invest.  The fact is that they don't have a real plan, they are just waiting for some miracle to save them.  Unfortunately for us, I think this miracle will materialize in the form of the US government.  It probably won't happen in the next month, but it wil before it is all said and done.

Monday, November 17, 2008

Time to Rebalance

balanceSo I did a quick inventory of my assets this weekend.  As I've written in this blog before, I'm very heavily weighted toward cash right now.  I stopped buying stocks about a year ago because I was sure the market was overpriced and did not want to buy at the top of the market.  I'm looking like a genius right about now with that call.

However, I'm now way too overweight in cash at this point.  If you add up all my non-retirement assets, I'm about  77% in cash and the rest in equities (I don't own any bonds or bond funds). For someone my age, this is a pretty silly to be this far into cash, even if you are as bearish as I am.  I am still not ready to jump totally into this market, I do think there is probably some more room to the downside, but I definitely should not have this much cash on hand.  Some of this has been caused by the shrinking value of my equity portfolio.  I'm probably down at least 40% over the last year or two.  But most of it is simply staying on the sidelines and continuously earning more money which just turns into cash in my savings account.  Yes I know, its a nice problem to have.

So I need to start looking very hard at my shopping list.   There are some things that are extremely interesting to me at the current prices.  There are some things that are extremely scary too.  For example.  Goldman Sachs.  I thought it was a buy if it were to ever hit $120, and now that stock is trading close to $60.  Was I right before, or is this stock going down even more?  In this market, it is extremely hard to say.  That's why I won't deploy all that cash, probably just a third of it over the next few weeks.  If the market becomes more stable, I might look to divest another third of the cash.  Not sure if I will deploy that last third anytime soon unless I really think the market gets into bull mode, which I honestly don't see happening in the next few years.

So what is the first thing I should buy?  So hard to make a decision right now ...

Thursday, November 13, 2008

How Bad Is the Economy?

Cat in a bag

So bad, my cat has moved into a paper bag. I'm actually not too sure why he likes to do this, but he seems to like to get himself into small tight spaces like paper bags or boxes.  It's odd.

Just a quick post tonight.  Lots of things going on at work, some of which I will blog about later, but don't have the energy to do it tonight.  One thing, the market rallied on almost no news.  I was about to go long, since I had closed my short position yesterday as I mentioned in my last post, but all the turmoil at work once again got in my way of making any trades.

No way to play the market where it is right now.  I will just wait and hope we rally a bit more before I go short again.  Another 5% up from here, or the S&P 500 being at about 950, and I will look to get short again.  Until then, I'm probably out and won't make any trades.

Wednesday, November 12, 2008

Hank Pauslon - Please STFU

Hank PaulsonI really hate Hank Paulson.  I seriously think this guy is either evil or completely inept.  Just a little over a month ago, the bailout package was announced.  Not even two weeks after he was able to trick everyone into giving him almost unlimited control over a vast amount of money, he announced he was changing tactics and going a different way.  Instead of buying all the assets of banks, they would inject new capital into banks by taking an equity.  Well today he also announced a change to the plan.  Instead of focusing on the banks, he will use the money to focus on other financial institutions that extend credit to consumers. Does anyone actually think the government knows what it is doing?  Is it any wonder why I hate government plans as much as I do?

The market promptly dropped testing the lows of the market.  The S&P is now close to the lows we saw on October 10th.  That day, the market reached a low of 839.  The market closed today at 852, leaving it just  1.5% away from the low.  If the market is able to break through that, we have a very scary situation.  The problem becomes that in bear markets, you continue to go down if you create new lows.  The reverse of this is true, in bull markets you keep making new highs.  Considering the S&P is already 42% down, thinking it can go down more is pretty painful.

I honestly think we will break through that low.  After the market close, Intel announced that it had a very bad quarter, and the market is for sure going to open down.   Unfortunately for me, I closed out my short position today.  I had made a 15% profit in that position in a little over four trading days, it was a pretty good trade for me.  However, I did not want to be greedy, and decided to get out even though I was pretty sure the market was going to go down from there.  This market is hard, and anytime you can take a quick 15%, you take it and don't look back.  I don't feel bad about covering, it was the right move, but now I have no downside protection.  If the market tanks, my portfolio will go with it since I no longer have a hedge.  So I'm a little worried about what will happen in the next few days.

Every time Hank Paulson, or anyone from the government for that matter, opens his mouth, the market does crazy things.  Just please stop talking.  While you are at it, please stop doing anything.  The more you do, the worse things get.

Tuesday, November 11, 2008

US Unveils Idiotic Mortgage Plan

Home Mortgage

In another stupid move, the US government outlined a plan to help borrowers get better terms on their mortgages.  The basic gist of the solution is that through Fannie and Freddie, the US government will encourage loan modifications.  They won't allow for an outright reduction in the amount owed, but they are willing to allow the mortgage to be extended say from 30 years to 40 years, and they will allow the interest rate to be lowered, which will temporarily make payments more affordable.  Before I go criticize this plan, because I will, there are some things that are not all that horrible.

First off, I have no real problem with private institutions making loan modifications that actually reduce the amount owed on the mortgage.  While I tend to think all homeowners who took out a loan for an overpriced home are responsible for the full amount, I have absolutely no issue if two private parties want to sit down and negotiate new terms.  If it is in the best interest of both parties to keep the person in the house, and one side is willing to take a loss in the deal, then so be it.  A lot of private banks are deciding to do this, and I'm all for it as long as they do not do it with my tax dollars.

So that being said, I also have no problem with what the government is doing here.  They are extending the length of the deal and the interest rate temporarily, but the overall deal remains the same.  Now, I'm sure they are taking a small hit in profitability here since the term is longer and the terms of the deal probably favor the homeowner, but overall, the deal is still a net positive (assuming the borrower doesn't eventually default which is probably a bad assumption).  Further,  the government is not putting any tax payer money directly in the hands of borrowers.  Something I am sure that will eventually happen but at least not with this plan.

But of course this plan has its problems as well.  And, like the GM situation it comes down to one fundamental problem.   You can not, over the long haul, create demand for a product at an artifically high price.  This is exactly why we have a housing bubble.  Houses are STILL overpriced.  Just look at some of the statistics in the Los Angeles market.  The median sale price is around $375,000 (look at the average listing price for a good chuckle).  While that may sound like a bargain compared to prices before, this is still way overinflated.  The median sales price in 2000 was just around $160,000.  Are you trying to tell me that given all the turmoil we have seen recently, that prices deserve to be double what they were just 8 years ago considering that salaries are relatively flat?  A family making $50,000 a year, which is the California average (the Los Angeles average is even lower) can nowhere near afford a mortgage to buy a $375,000 house.

There is nothing the government can do to fix this fundamental affordability problem.  In fact, the government is actually making things worse with every action they take.  If the market doesn't just correct, and wipe out this fake equity, the market will languish for years. No doubt, a lot of people will be hurt, but how many more will be hurt if we just stay like we are over the next decade?  We will have an entire generation which won't be able to buy affordable housing while we prop up an overinflated market.  The vast majority of people who own their homes did not buy them in the last 5 years and have mortgages they can afford. Should all of us suffer because of the small minority that did and can't?

Monday, November 10, 2008

What Should We Do With GM?

GM Logo

Now that we have given even more money to save AIG and the rest of the financial industry, should we listen to those calling for us to save GM from bankruptcy?  To hear the arguments, GM is too big to fail.  If they fail, they take the whole economy with it. By some estimates, GM is responsible for a few million jobs.  Let them fall and all the ancillary industries like car dealerships and car part makers will go with them.  This causes a domino effect that will bring down the rest of the country with it.

What a load of crap.  There is no company too big to fail.  Do we really have so little faith in the rest of the American population to think that these resources couldn't be redeployed into something more useful?  Give me a break.  GM failing does not mean people will stop buying cars.  A lack of supply does not mean demand just evaporates.  These buyers will find other cars to buy.  The better parts maker will find a way to retool and provide parts to either service the cars out there now or to whatever company replaces the cars that GM would have sold.

No matter what the bailout entails, it can't do one key thing.  It can't make people want to buy GM cars.  This is the heart of the problem.  Nothing else matters. GM is failing not because of a bad economy; they are failing because not enough people want to buy their product at the price they are offering it.  GM is a failed business model and proves it over and over again.  Any company that can't survive an economic downturn, does not deserve to be in existence.   It is exactly in these circumstances that the strongest companies rise to the top while those who are weak fall into bankruptcy.  Without this cycle, horrible inefficiencies, like GM, are allowed to persist.

Of course, the automobile lobby is a strong one.  They will convince those in Washington how crucial they are to the entire economy.  They will convince them that they should be allowed to make crappy products that too few people want at prices that can't compete with their better competition.  Of course, that will mean that America will continue to deploy resources in an industry it is not suited to win.  Forget trying to deploy these resources in things that America actually does have a competitive advantage in like software development, medical research, and alternative energy engineering.  Let's try and prop up old and dying industries that have no chance of winning in a global marketplace.  Is that not the best way to run a business?  Do not most business invest their capital in projects that have the lowest return?   When resources are tight, is it not best to forget where your strengths are instead be more inefficient and focus on the things you have no chance of succeeding in?

If we are going to give them money I would like a few things answered.  Let us treat it like venture capital.

  • What are your prospects for success?

  • What is the likely return on investment?

  • What is your business plan to get you to profitability?

  • Why are you likely to succeed vs. your competition?

  • Why should I give you the money rather than directly investing in the people and business that will be hurt if I let you fail?

All should be fairly simple to answer.  I suspect none of the answers would likely satisfy anybody actually looking to invest in the company.

Sunday, November 9, 2008

Buying a Digital SLR Camera

Canon Rebel XSi Digital SLR

I've decided to buy myself a digital SLR camera. I, like always, did a lot of research on what to buy, and I ended up deciding to buy the Canon Rebel XSi. I've been interested in photography for quite a while. I owned a Canon Elan 7E and was pretty happy with it so I decided to stick with the Canon line.  It has the additional benefit that I can use most of my old lenses on the new camera, so I should save some money since I won't be buying all new gear.

This is actually a little unusual for me.  When I buy electronics, I almost never buy the entry level.  I'm a firm believer that you should basically buy the upper middle of a product line.  You should not buy the best because usually the price premium is too great to justify the benefit you get out of the extra features.  You usually should not buy the entry level either because the manufacturer often saves the better, more useful features for the step up models.  The upper middle of a product line tends to be where the sweet spot is in terms of price and performance, so it is what I generally recommend people do.

Now while I could have afforded to buy the step up model, either the EOS 40D or the EOS 50D, I decided that this time the entry level model just made more sense to me. The step up features did not seem to mean too much to me.  The step up models have better construction, higher ISO settings, and a few more controls to tweak.  None of these are a show stopper for me, and not worth the price gap of over $300, or over a 50% premium.  The resolution of the XSi is actually better than the 40D and slightly under the 50D but I don't expect this to make much difference.  Photography at high levels depends much more on your lenses than it does on the camera body, so for me I think it is all a wash.  So this time, I decided to save the cash and hopefully use the price difference to buy a nice lens or two.

I also decided to just save some money on this purchase.  It is not as if I'm worried about my finances, far from it, but it cannot hurt right now to be a little cautious just in case.  In fact, I'm saving money mostly because there is a host of other things I want to buy and I did not want to go overboard buying too much photography equipment; especially when you consider the fact that I've taken a few years off from this hobby and I'm not so sure how much energy I'm going to put back into it.

So if anyone has any experience with this camera, or any of the other ones I've mentioned, let me know what you think.  I'll be buying it off Amazon soon, much like I will be for most of my purchases going forward, to get around some of the things going on in California.  More on that later ...

Thursday, November 6, 2008

Jobless Rate Soars - Fade the Rally

Jobless rate increasesI woke up to find that the market is rallying because we lost only 240,000 jobs in the month of October.  The market reacted by going up 200 points in the Dow.

240,000 jobs is an awful number.  6.5% unemployment is high when compared to where we have been in the last decade.  There are now 10 million people who are considered unemployed.  This is the same number of people in the state of Michigan.  The scary part, it really is going to get worse.  Like I said in my last post, there are more and more employers announcing layoffs.  So this will easily get worse before it gets better. I don't expect depression like numbers, but I do expect unemployment to continue to rise through the end of the year.

The play here, fade the rally.  For those who don't understand it, it basically means you should start selling your stock into rallies because the general direction is down.  You are getting a short term bounce, so you should use it to your advantage.  There is one caveat here.  I think the market could easily rally depending what comes out of Obama's economic summit.  If he came out and gave news that was very investor friendly, like he would extend the capital gains rate past the 2010 expiration, I can see the market having a violent rally upwards.  These types of moves are why most investors should stay out of this market.  It just isn't a market that amateurs should be messing around with.

Markets Still Going Down

S&P Plunge

As the Market rallied somewhere around 18% this past week, I held on to my short position.  I had no doubt in my mind that the market would eventually reverse and have a violent move down.  That's what we have seen in the last two days with the market down over 10%.  Do people really understand how crazy this is?  You usually don't get double digit moves in a year.  We are seeing them regularly over days.  The thing is, the market is going to go down from here, so I will continue to hold on to my short position for at least a few more percentage points.

I'm very short term bearish on this market.  If you can hold on to stocks for years, it might be a good time to buy, but the news coming out is consistently bad.  Earnings are bad at almost every company reporting, layoffs are being announced almost hourly, and the governmetn can't seem to get anything right.  I find it very hard to believe that any of the professional investors out there are going to put much capital in the market until at least the beginning of the year.  Most if not all will attempt to liquidate any positions they have remaining on every market rally.

So here is the recipe that I'm using.  When the S&P drops to around 880, you want to be out of any short position.  If you are brave, you might want to go long at this point.  When the S&P gets to around 950 its time to short.  You play this range, and be disciplined, and you will probably do just fine.  If you are smarter, you just stay out all together.

Wednesday, November 5, 2008

Is Jerry Yang on Drugs?

The Google-Yahoo deal has fallen apart.  For those not following this too closely, Google was interested in providing much of the advertisement that shows up on the Yahoo search results.  Yahoo pursued this deal after the negotiations with Microsoft fell apart.  Microsoft offered to buy Yahoo for $34 a share.  Jerry Yang was convinced this was way too low despite the fact that his company's stock was trading at $20 before the deal was announced.

So now, after Google has left the party, and Yahoo stock is trading around $11, Jerry Yang has the nerve to say that it is in Microsoft's best interest to buy Yahoo? What world is he living in?  I mean seriously, Yahoo is on the verge of going under.  They have no real business model going forward. Especially not one that can survive a severe downturn in the U.S. Economy.  After all is said and done, Microsoft will still be around and so will Google.  Yahoo will not be unless it finds someone to buy it.  And yet Jerry Yang is going to tell Microsoft that it's best option is to buy a company that has a failing business model, a stock that price will continue to get cheaper, and a culture and technology that probably won't integrate all that well with Microsoft?

If Microsoft was smart, they pass on this one.  They already turned the page and it is best to leave it turned.  If they really feel compelled to make an offer, just wait it out.  Yahoo isn't going anywhere.  Best to leave it be and let it get on the brink of bankruptcy before you buy it.  What is the rush now?  Does anyone, even Yahoo, really believe it will get stronger as the economy gets weaker?  How is Jerry Yang in any position to tell Microsoft what is best for it?

Jessica Alba

That would seriously be like me telling Jessica Alba that her best option would be to date me after I had ditched her to go on a date with Jessica Simpson.  And my statement would have more truth to it than what is coming out of Jerry Yang's mouth.   While I'm a great guy, I'm sure Jessica has plenty of options without me.  And would it really be reasonable for me to expect her to consider me after I went on a date with another woman, even one as hot as Jessica Simpson?

Tuesday, November 4, 2008

Obama - The 44th President


I did want to say Congratulations to Obama.  Although I don't agree with all his politics, I do believe him to be an honorable man and a good leader. One thing that struck me in this campaign was that I really did believe that both candidates were good people.  I disagreed with parts of both parties platform, but in the end, I didn't hate either candidate.  This was a welcome relief when compared to someone like George Bush who I just couldn't believe ever rose to the highest office in the land.  Even in defeat, I thought John McCain was pretty gracious.

I think Obama will be a good President.  I am happy to witness this watershed moment in American History.  Let there be no mistake, this is a truly historic moment that I wasn't sure would happen any time soon.  A black man will be President of the United States.  A minority has made a meteoric rise against some pretty big odds.   It fills me with some pride that we as a nation have gotten to a point where this is even possible.  I just hope he treats this opportunity for what it really is and rewards the American people for the faith they have bestowed upon him.

Where Does the Republican Party Go From Here?


I'm sitting here on the cusp of an Obama victory.  Although not all the polls are closed yet, it is pretty apparent that he is going to win the Presidency.  Congratulations to him.  Also, the Democrats look to be gaining seats in both the House and the Senate

Although I am not a Republican, and I am not sad to see their downfall, I find their fall from the ranks of power to be very very interesting.  In theory, I should be a Republican.  I strongly believe in small government, a hallmark of Republican policy.  But this is NOT what the Republican party is about now.  Actually quite the opposite.  I find it ironic that the last time we saw a budget surplus was when we had a Democrat in the White House.  And the worse budget deficits we have ever seen were when a Republican was at the helm.  So what is wrong with the Republican party and what do they need to do to fix it?

  • Realize that the Demographic of the United States is changing.  Not every one is a white, middle aged, male

  • Get back to their roots.  Can they honestly say they are the party of fiscal responsibility?

  • Stop thinking the United States is the center of the Universe.  The Iraq war killed you.

  • Stop denying science.  Are you seriously going to tell me you don't think Global Warming is actually happening?

  •  Stop pandering to the Religious right.  While clearly an important part of your base, it strongly turns off a large number of fiscal conservatives.

The Republican Party just got their ass kicked.  They have to take a hard look in the mirror, and figure out how they became so detached from the rest of the country.

I for one am glad to see this election over.  I'm tired of hearing about it on the radio, TV, and everywhere I go.  This will hopefully be the final Political post I have for a while.

Sunday, November 2, 2008

Time to Vote 3rd Party?


I have voted Democratic in the last two Presidential elections.  I have done this not because I believe in Democratic politics but because I simply can't get behind the affiliation that the Republican party has with the Religious Right.  You see, I'm an arrogant son of a bitch.  I'm pretty sure I know what is best for me.  Notice I said for me.  I believe others know what is best for them.  I can not stand the idea that others think they know what is best for me.  This includes who I decide to sleep with and if I decide to have kids.  Now John McCain had been more in the middle for lots of these social issues, but he has had to move decidedly to the right to appease this faction of his party.  This act does not sit too well with me because I believe a leader has to stand for what he believes in and have others follow, not the other way around.

The other problem I have with McCain is his age and his health.  However awful that may sound, it is a serious concern for me.  It wouldn't normally be except for one thing, Sarah Palin.  This women seriously scares the hell out of me.  I can't imagine her being the leader of the free world.  We would be one heart attack from her in the Oval Office.  She is simply not qualified to be there and there is no way I'm going to put her that close.

Unfortunately for me, in this country, I have a problem with the other side, the Democrats.  While Republicans want to tell me I'm evil for my moral beliefs, Democrats tell me I'm evil for my financial beliefs.  One party wants to tell me how to live my life, the other wants to tell me how to spend my money.  If you know me, you know that these are pretty much the same thing to me.  Obama's plans to put a punitive tax on the oil companies, to tax "the rich", and to eliminate taxes for a large group of Americans.  All these ideas just drive me crazy, and put us down a very slippery path to a managed economy.  I might be able to overlook these except for the last one.  I strongly believe in broadening the tax base, not shrinking it.  This does not mean tax the poor, but it does mean that we are all in this together.

Even given these major problems I have with Obama, I still might give him my vote.  He is, at the very least, charasmatic and a strong leader.  For someone to be a great leader, you don't necessarily have to believe in  everything they believe in.   None of the third party candidates really excite me.  The Libretarian Party is the one that is closest to my beliefs, but I'm unaligned with them on other issues as well and I just don't know enough about them to be convinced they deserve my vote.  The biggest benefit of me doing this would be to throw my support behind a third party to hopefully show that a third party is actually viable in this country.  I think we would be much better off if we had three major parties rather than two.  The way we have it today forces the candidates to pander to the middle and often give us what we have today, the choice of whichever is the lesser evil.

I would love to not cast a vote for any candidate, but that would be the easy way out, and I don't like taking the easy way out.

Wednesday, October 29, 2008

Fed Cuts - Big Deal

I hate the Fed now.  It is ridiculous to think that a group of men think they are capable of picking an appropriate interest rate.  I could go on and on about all the things I hate about this, but it would just end up making me more upset.

I played this pretty well.  I followed the mantra of "buy on the rumor, sell on the news".  It was widely rumored that the fed would cut the interest rate.  I was sure the fed wouldn't disappoint and do the wrong thing.  I was still partially in my long position in the S&P, so I was looking for the right time to get out.  I decided the best time would be just a few minutes before the Fed announced because I figured there was probably only downside after the cut was actually announced since it was so widely believed that it would happen.

Now I would love to get short the market again.  I fully expect another leg down despite what the Fed is trying to do.  I really want to start looking at the banks right about now.  Seriously, as bad as these may look right now, the government is going out of its way to make sure banks are really profitable going forward.  They are literally giving them money, making money cheap for them to borrow, and essentially backstopping them to make sure they don't go bankrupt.  When you add the fact that competition will be much less going forward, because so many banks are getting taken out, and you have it set up to be a great year next year for banks.