Back Online

After nearly six months of inactivity on this blog and three months without internet access at home, I am happy to announce (to nobody at this point, I would expect) that Brigham's Almanack will finally be back up and running this week.

Sophomore slump? Or comeback of the year?

Is Obama Toeing the Bush Line on Terrorism?

Clive Crook of the Financial Times points out many of the ways in which Barack Obama's national security policy has disappointed and infuriated those both to his left and to his right. Recognizing the seemingly obvious--that there must be a tradeoff between security and liberty and that one cannot completely trump the other--we must accept both that the Bush administration was not completely evil and that civil liberties must be protected. The answer is, like the golden mean, somewhere in between.

Wordle: The Effect of Stress and Relaxation on Financial Decision Making

My senior thesis in graphic form:



(Thanks to Wordle.com)

SOBEaR

If the recession is driving you to drink, you may need one of these...

SOBEaR v02 :: the responsible robot bartender from j saavedra on Vimeo.

Negative Interest Rates?

London School of Economics professor and former central banker William Buiter expands upon Greg Mankiw's "proposal" that central banks should no longer consider zero the floor for nominal interest rates. It's an intriguing suggestion, though as Mankiw notes, much easier for professors to theorize about than for central bankers to implement.

The Perils of Optimism?

Joe Nocera had a great column in yesterday's New York Times examining the conflicting economic forecasts coming out of Wall Street and Washington.

Future Financial Centers

Thankfully, the nightmare that was senior thesis has finally come to an end. Strangely enough, it was a rather enjoyable experience, benefiting from the fact that my question not only was but still is genuinely interesting. Look forward to hearing the results in an upcoming post; I'm too sick of everything thesis-related to talk more about it now.

In the meantime, here's an article from Bloomberg that a friend sent to me regarding London's future as a financial center. Maybe I won't be staying in the City as long as I'm planning to after all...

Guy Kawasaki on Becoming a Venture Capitalist

Venture capitalist Guy Kawasaki presents his opinion on the best way to learn the lessons necessary to become an entrepreneur or a venture capitalist.



Personally, I just love his discussion of "Morgan Stanley Disease." To quote: "Now you're giving all these young entrepreneurs advice based on your zero years of having run a company....I would never start my career as a venture capitalist or investment banker because it will fundamentally corrupt you, it will just eat your brain out."

Silence is Golden

My apologies for not updating the blog in a week or two. We're in the home stretch of thesis season here at Claremont McKenna and I've been toiling away for the past several weeks, conducting experiments and revising drafts of my paper on the role of emotion and mood in financial risk taking.

I'll still try to add a couple of things per week, but with thesis due on April 27th, my focus is elsewhere right now. Stay tuned April 28th for the rapid return to form. After all, once thesis is turned in, what else am I going to do between now and graduation?

In the meantime, compare these two takes on the current state of the economy. The first comes from Dr. Doom himself, Nouriel Roubini, who, true to form, tears down all hope of a recovery. The second comes from Investor's Business Daily, who argue that "Recovery's Coming."

Now, sit back, read up, and ponder what the world will be like in a future without John Madden's bizarre doodles on slow-mo replays, without his random utterances, and without his incredible knack for stating the obvious.

The Foundation for Entrepreneurship

For many years, the Kauffman Foundation has sought to understand the impact of entrepreneurship on communities and to foster the entrepreneurial spirit amongst young and old alike.

The president of the Foundation, Carl Schramm, sat down with The Wall Street Journal and discussed how, as in past recessions, entrepreneurship will be the driving force to pull our economy out of this recession.

Damn It Feels Good to Be a Banker

For all the future I-bankers out there. Most of you have probably seen this, but if not, you should know that it's already a classic.

From the Leveraged Sellout:

Damn It Feels Good To Be A Banker: The Musical - watch more funny videos

Facebook CFO Leaves Suddenly

In a surprising move today, the Chief Financial Officer of Facebook, Gideon Yu, will be leaving the company. Although the departure appears to be some form of an ouster, Facebook does not currently have anybody to fill the CFO slot, raising the question: Why did he leave? The company has retained Spencer Stuart to lead the search for a replacement.

Reported by the Wall Street Journal, the former Yahoo! and Youtube executive either left or was forced out without providing a public reason.

This has led to speculation that Facebook is "stepping up plans for a public offering," although that may be inadvisable in the current economy. Unless investors like Microsoft, who bought a preferred 1.6% stake at a valuation of $15 billion, are willing to take a haircut, that strategy would seem unlikely anytime soon.

Like many other users/addicts of Facebook, I think the company has a great product, but will have serious trouble emerging as a profitable enterprise. Whoever replaces Yu will have a challenge regardless of any IPO plans.

David Brooks Weighs in on GM

"Some companies are in the steel business, some are in the cookie business, but General Motors is in the restructuring business. For 30 years, G.M. has been restructuring itself toward long-term viability. "

David Brooks of the New York Times offers his take on the debacle in Detroit...

The Two Cows Theory

All you need to know about international economics...

SOCIALISM: You have 2 cows. You give one to your neighbour.
COMMUNISM: You have 2 cows. The State takes both and gives you some milk.
FASCISM: You have 2 cows. The State takes both and sells you some milk.
NAZISM: You have 2 cows. The State takes both and shoots you.
BUREAUCRATISM: You have 2 cows. The State takes both, shoots one, milks the other, and then throws the milk away.
TRADITIONAL CAPITALISM: You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows.You sell them and retire on the income.
SURREALISM: You have two giraffes. The government requires you to take harmonica lessons.
AN AMERICAN CORPORATION: You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyze why the cow has dropped dead.
ROYAL BANK OF SCOTLAND VENTURE CAPITALISM: You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. You sell one cow to buy a new president of the United States, leaving you with nine cows. No balance sheet provided with the release. The public then buys your bull.
A FRENCH CORPORATION: You have two cows. You go on strike, organize a riot, and block the roads, because you want three cows.
A JAPANESE CORPORATION: You have two cows. You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk. You then create a clever cow cartoon image called 'Cowkimon' and market it worldwide.
A GERMAN CORPORATION: You have two cows. You re-engineer them so they live for 100 years, eat once a month, and milk themselves.
AN ITALIAN CORPORATION: You have two cows, but you don't know where they are. You decide to have lunch.
A RUSSIAN CORPORATION: You have two cows. You count them and learn you have five cows. You count them again and learn you have 42 cows. You count them again and learn you have 2 cows. You stop counting cows and open another bottle of vodka.
A SWISS CORPORATION: You have 5000 cows. None of them belong to you. You charge the owners for storing them.
A CHINESE CORPORATION: You have two cows. You have 300 people milking them. You claim that you have full employment, and high bovine productivity. You arrest the newsman who reports the real situation.
AN INDIAN CORPORATION: You have two cows. You worship them.
A BRITISH CORPORATION: You have two cows. Both are mad.
AN IRAQI CORPORATION: Everyone thinks you have lots of cows. You tell them that you have none. No-one believes you, so they bomb the crap out of you and invade your country. You still have no cows, but at least you are now a Democracy.
AN AUSTRALIAN CORPORATION: You have two cows. Business seems pretty good. You close the office and go for a few beers to celebrate.
A NEW ZEALAND CORPORATION: You have two cows. The one on the left looks very attractive

Miss Universe on Guantanamo Bay

I shit you not. This is from the Miss Universe blog. I swear I did not make this up.

March 27, 2009
Guantanamo Bay

This week, Guantanamo!!! It was an incredible experience.We arrived in Gitmo on Friday and stared going around the town, everybody knew Crystle and I were coming so the first thing we did was attend a big lunch and then we visited one of the bars they have in the base. We talked about Gitmo and what is was like living there. The next days we had a wonderful time, this truly was a memorable trip! We hung out with the guys from the East Coast and they showed us the boat inside and out, how they work and what they do, we took a ride around the land and it was a loooot of fun!We also met the Military dogs, and they did a very nice demonstration of their skills. All the guys from the Army were amazing with us.We visited the Detainees camps and we saw the jails, where they shower, how the recreate themselves with movies, classes of art, books. It was very interesting.We took a ride with the Marines around the land to see the division of Gitmo and Cuba while they were informed us with a little bit of history.The water in Guantanamo Bay is soooo beautiful! It was unbelievable, we were able to enjoy it for at least an hour. We went to the glass beach, and realized the name of it comes from the little pieces of broken glass from hundred of years ago. It is pretty to see all the colors shining with the sun. That day we met a beautiful lady named Rebeca who does wonders with the glasses from the beach. She creates jewelry with it and of course I bought a necklace from her that will remind me off Guantanamo Bay :)I didn't want to leave, it was such a relaxing place, so calm and beautiful.

And I thought Miss South Carolina took the cake for stupid pageant people...

Soros Spreads Gloom and Doom in London

In an interview with the Times of London, George Soros describes the ongoing problems in the global financial system, gives the G20 a chance to do more than talk, and discusses the possibility that Britain may have to get a loan from the International Monetary Fund.

Taking Apart the Stimulus Package

My friend Helena Bottemiller showed this to me last night. The Washington Post ran this great graphic dissecting the stimulus package by type and time.

We're pumping $525 billion into the economy within the first year and a half--64% of the total spending.

The three biggest areas swallowing the spending are Health, Labor & Education; Housing & Transport; and State Stabilization.

I'm still as stunned by this bill as I would have been if I'd been slapped in the face with all 1,100 pages.

An Argument for Intelligent Conservatism (And Against Rush Limbaugh)

When it comes to politics, I like to think of myself as a moderate. As an economics major, I find conservative economic policy to be both logical and appealing. At the same time, having spent 18 years in Madison, Wisconsin, I recognize the importance of social programs and civil liberties.

Even though I was unable to vote in 2000, I thought John McCain was the best candidate in the final four. Fast-forward eight years, and I would have been equally happy (or unhappy) with him or Barack Obama. But, among other things that cemented my opinion in the end, Obama didn't have Sarah Palin on his ticket.

Perhaps because I have no party affiliation (currently), I would like to see both parties at their best. In an ideal world, these opposing factions would prevent the poor legislation from being passed while agreeing and compromising to bring effective policy to the people. That's how our founders envisioned our government and that is how it functions in its finest hours.

However, right now, the Republican Party is weak. As such, it is in our nation's interest for their party to get their act together.

In a great piece for Newsweek entitled "Why Rush is Wrong for the Right," David Frum, a speechwriter for George W. Bush, makes the case that the Republican Party must face the simple fact that the world has changed in the last 30 years. He argues for an intelligent and rational conservatism rather than the populist garbage emanating from talk radio behemoth, Rush Limbaugh.

Why target Rush? As Mr. Frum puts it:

As for the leader of the Republicans? A man who is aggressive and bombastic, cutting and sarcastic, who dismisses the concerned citizens in network news focus groups as "losers." With his private plane and his cigars, his history of drug dependency and his personal bulk, not to mention his tangled marital history, Rush is a walking stereotype of self-indulgence—exactly the image that Barack Obama most wants to affix to our philosophy and our party.

But what is the solution?

Look at America's public-policy problems, look at voting trends, and it's inescapably obvious that the Republican Party needs to evolve. We need to put free-market health-care reform, not tax cuts, at the core of our economic message. It's health-care costs that are crushing middle-class incomes. Between 2000 and 2006, the amount that employers paid for labor rose substantially. Employees got none of that money; all of it was absorbed by rising health-care costs. Meanwhile, the income-tax cuts offered by Republicans interest fewer and fewer people: before the recession, two thirds of American workers paid more in payroll taxes than in income taxes.

We need an environmental message. You don't have to accept Al Gore's predictions of imminent gloom to accept that it cannot be healthy to pump gigatons of carbon dioxide into the atmosphere. We are rightly mistrustful of liberal environmentalist disrespect for property rights. But property owners also care about property values, about conservation, and as a party of property owners we should be taking those values more seriously.

Above all, we need to take governing seriously again. Voters have long associated Democrats with corrupt urban machines, Republicans with personal integrity and fiscal responsibility. Even ultraliberal states like Massachusetts would elect Republican governors like Frank Sargent, Leverett Saltonstall, William Weld and Mitt Romney precisely to keep an austere eye on the depredations of Democratic legislators. After Iraq, Katrina and Harriet Miers, Democrats surged to a five-to-three advantage on the competence and ethics questions. And that was before we put Sarah Palin on our national ticket.

Among those in the party, his message is controversial. Yet I agree wholeheartedly. To regain its strength, the Republican Party must return to its conservative intellectual roots. It needs to focus on solving the problems of our day. It needs to listen to the George Wills and Andrew Sullivans out there (even if they don't always get along with each other). And it needs a leader as dynamic and inspiring as Barack Obama.

Will the Republicans get their act together? For all our sakes, I hope so.

Barack Obama Wishes You a Happy St. Pat's

In honor of St. Patrick's Day, one of my all-time favorite Youtube videos:

Barry Ritholtz is "Monkey Boy"

Barry Ritholtz, one of my favorite bloggers, was interviewed by Steve Forbes about intelligent investing. Mr. Ritholtz reminds investors of the limitations of our psychological and cognitive abilities in this single-question excerpt from his blog:

What is the greatest financial lesson you’ve ever learned?

You’re a monkey. It all comes down to that. You are a slightly clever, pants-wearing primate. If you forget that you’re nothing more than a monkey who has been fashioned by eons on the plains, being chased by tigers, you shouldn’t invest. You have to be aware of how your own psychology effects what you do. This is why we as investors sell at the bottom, get panicked. All the other lessons I’ve learned have come out of that. As has the field of behavioral economics.
Wall Street clichés, like “cut your losses and let your winners run” come back to prevent the monkey part of your brain from doing what it does. There’s a banana–I want it. That’s how chimps behave. Us humans react to greed and fear in predictable ways. We are predictably irrational. If you understand that you can take steps to prevent that–we don’t own anything in the office that doesn’t have a stop-loss on it. In 2008, we watched the market go down 40%. We figured out we’re chimps, and don’t let the chimp inside us make those chimp-like decisions.

Every good financial decision I’ve made comes from, “Wait a second, monkey boy, step back, don’t do that.” Once you realize how your own brain chemistry works against you, it gives you a chance to not panic at the bottom.

Forbes has the full story here.

Larry Summers on Obamanomics

President Obama's Chief Economic Guru, Larry Summers, offered his perspective on the Administration's (read as "his") response to the economic crisis at the Brookings Institution.

This follows the presentation earlier this week by the Chair of Obama's Council of Economic Advisers, Christina Romer.

The text of Summers' presentation is available from the Brookings Institution.

The Daily Show Takes on CNBC

This is for those of you who have been out of the country, don't watch the Daily Show (the best damned news program out there), or have avoided CNBC since Cramer "went five bid for a half a million shares of Citigroup and got hit back in 1990. (PS--if you're out of the country, the Hulu clips below won't work. Sorry. Blame the copyright people who want you to be surprised when our re-runs air in your country a year later.)

You may remember my post about Rick Santelli's Chicago Tea Party a couple of weeks ago. Well, it turns out I wasn't the only one who thought that clip was pretty entertaining. Unfortunately for Mr. Santelli, the Daily Show found it to be a hilarious case of populism on cable news.

As you may remember from Jon Stewart's destruction of the bow-tied Tucker Carlson, the Daily Show takes a dislike to what they consider to be real journalists not doing their jobs. In that vein, they aired this clip attacking the quality of CNBC:



This launched the "week-long feud of the century" as commentators, journalists, and bloggers defended the side of their choice. All of this led up to JIM CRAMER......ON THE DAILY SHOW:



My personal favorite quotes:

3) "I want the Jim Cramer on CNBC to protect me from that Jim Cramer."

2) "I understand you want to make finance entertaining, but it’s not a fucking game."

...and of course....

1) 'These guys at these companies were on a Sherman’s march through their companies, financed by our 401ks. And all the incentives of their companies were for short-term profit. And they burned the fucking house down with our money and walked around rich as hell. And you guys knew that was going on!"

What astounds me the most is that Cramer sits back and takes it all calmly. How did that happen?

Amartya Sen on "New Capitalism"

Nobel Prize winning economist Amartya Sen examines the current drive to create a "new capitalism" and finds its origins in the classic work of Adam Smith.

It is often overlooked that Smith did not take the pure market mechanism to be a free-standing performer of excellence, nor did he take the profit motive to be all that is needed.

The economic difficulties of today do not, I would argue, call for some “new capitalism”, but they do demand an open-minded understanding of older ideas about the reach and limits of the market economy. What is needed above all is a clear-headed appreciation of how different institutions work, along with an understanding of how a variety of organisations – from the market to the institutions of state – can together contribute to producing a more decent economic world.

For the full text of Dr. Sen's analysis, check out the original New York Review of Books version or the shorter Financial Times version.

SportsCenter's Top Fits

"Helmets, bases, putters, benches, chairs, phones. They're all airborne here. So ... who threw SC's top fits?"

The Little Red Hen

Here's a fun joke that's been circulating via e-mail. Thanks to my dad for passing it on to me. Do you remember the little red hen story from when you were a kid? This is it, updated:

"Not I," said the cow.

"Not I," said the duck.

"Not I," said the pig.

"Not I," said the goose.

"Then I will do it by myself," said the little red hen, and so she did. She planted her crop, and the wheat grew very tall and ripened into golden grain.

"Who will help me reap my wheat?" asked the little red hen.

"Not I," said the duck..

"Out of my classification," said the pig.

"I'd lose my seniority," said the cow.

"I'd lose my unemployment compensation," said the goose.

"Then I will do it by myself," said the little red hen, and so she did.

At last it came time to bake the bread. "Who will help me bake the bread?" asked the little red hen.

"That would be overtime for me," said the cow.

"I'd lose my welfare benefits," said the duck.

"I'm a dropout and never learned how," said the pig.

"If I'm to be the only helper, that's discrimination," said the goose.

"Then I will do it by myself," said the little red hen.

She baked five loaves and held them up for all of her neighbors to see. They wanted some and, in fact, demanded a share. But the little red hen said, "No, I shall eat all five loaves."

"Excess profits!" cried the cow. (Nancy Pelosi)

"Capitalist leech!" screamed the duck. (Barbara Boxer)

"I demand equal rights!" yelled the goose. (Jesse Jackson)

The pig just grunted in disdain. (Ted Kennedy)

And they all painted 'Unfair!' picket signs and marched around and around the little red hen, shouting obscenities.

Then the farmer (Obama) came. He said to the little red hen, "You must not be so greedy."

"But I earned the bread," said the little red hen.

"Exactly," said Barack the farmer. "That is what makes our free enterprise system so wonderful. Anyone in the barnyard can earn as much as he wants. But under our modern government regulations, the productive workers must divide the fruits of their labor with those who are lazy and idle."

And they all lived happily ever after, including the little red hen, who smiled and clucked, "I am grateful, for now I truly understand."

But her neighbors became quite disappointed in her. She never again baked bread because she joined the 'party' and got her bread free. And all the Democrats smiled. 'Fairness' had been established.

Individual initiative had died, but nobody noticed; perhaps no one cared...so long as there was free bread that 'the rich' were paying for.

IS THIS A GREAT BARNYARD OR WHAT?

Entertaining and sound as the moral may be, the details are a little twisted. For instance, while Senators Pelosi and Boxer do push for overtime pay and welfare benefits (part of the standard Democratic agenda), they are both salaried and obviously neither receives welfare. And while Ted Kennedy, after getting caught cheating on a Spanish test, was kicked out of Harvard, he re-entered under the the college's policies two years later. He graduated from Harvard in 1956 with a B.A. in history and government and graduated from U-VA's law school in 1959.

You just have to love our "modern" free enterprise system.

Christina Romer on The Great Depression

Christina Romer, the chair of President Obama's Council of Economic Advisers, yesterday presented lessons from the Great Depression for economic recovery in 2009 at the Brookings Institution in Washington, D.C.

Her lessons serve as the basis for the Obama Administration's reaction to the credit crisis and their plans to encourage a recovery. They are well-considered, however in some cases, critically flawed.

I will respond directly to some of the sections that caught my attention the most.

This similarity of causes between the Depression and today’s recession means that President Obama begins his presidency and his drive for recovery with many of the same challenges that Franklin Roosevelt faced in 1933.

This is certainly true, and the Administration is clearly acting to prevent another Depression. By attacking the credit crisis with enormous "shock and awe" tactics and spending, the Administration hopes to cut off the crisis before it spirals downward any further. However, as I have mentioned before, spending trillions of dollars alone will not get us out of this mess.

Of course, Roosevelt's New Deal did eventually work, after a decade of misery and a World War.

As for the uses of fiscal policy, she is correct in asserting that fiscal policy did not work to solve the Great Depression:

My argument paralleled E. Cary Brown’s famous conclusion that in the Great Depression, fiscal policy failed to generate recovery “not because it does not work, but because it was not tried.

That the Obama Administration is attempting to use fiscal policy to further economic recovery is noble. However, instead of stimulative tax cuts, they are taking the opposite course and raising taxes, a decision that will most likely be questioned if the recovery takes more time than they anticipate (which is not an unlikely scenario).

On the other side of the equation, the Administration certainly is spending enough. The emergency spending that Roosevelt did was precedent-breaking—balanced budgets had certainly been the norm up to that point. But, it was quite small. The deficit rose by about one and a half percent of GDP in 1934....The American Recovery and Reinvestment Act, passed less than thirty days after the Inauguration, is simply the biggest and boldest countercyclical fiscal action in history. The nearly $800 billion fiscal stimulus is roughly equally divided between tax cuts, direct government investment spending, and aid to the states and people directly hurt by the recession....The fiscal stimulus package was designed to create jobs quickly. But answer me this: how does giving hundreds of millions of dollars to Amtrak and the Smithsonian create jobs? How were they "directly hurt by the recession?"

Of course, now that the tap has been opened, everyone wants more money from the government. Romer warns of another lesson from the Depression: beware of cutting back on stimulus too soon (bold text hers).

I sincerely hope that she doesn't expect the government to pony up trillions of dollars per year in stimulus for the next few years. Because, quite frankly, we don't have the money. Anything we spend, we have to raise in taxes and loans. Let me make this clear: raising taxes does not get you out of a recession. And increasing demand for funds, all else equal, means higher interest rates. A mini-lesson in economics: when the cost of borrowing goes up for the US government, the cost of borrowing goes up for everyone.

Romer is correct in her assessment of the plan to stablize our banking system.

The Financial Stabilization Plan, which involves evaluating the capital needs of financial institutions, as well as crucial programs to directly increase lending, is central to putting the financial system back to work for American industry and households.

As a panel of CMC professors pointed out, the number one issue the government has to deal with to get out of this crisis is stabilizing and expanding the banks' lending capacities. If we cannot do that, then all other stimulatory measures will not flow through the financial system.

Of course, there's Romer's final lesson from the 1930s:
A key feature of the Great Depression is that it did eventually end.

Personally, I'd prefer to see this recession end sooner rather than later. As Romer makes clear, immediate action is necessary. However, if by ending the recession with imprudent actions now, we force ourselves to pay unforeseen consequences in the future, her response may not be a solution at all.

What Happens to Your Passwords When You Die?

Last semester, a member of my graduating class who lived in my dorm died tragically in the LA Metrolink crash. A week and a half ago, one of my classmates lost another good friend who was killed on Interstate 10 while returning from a visit to a graduate program in Texas.

Until today, I'd never thought about what happened to their computers, their e-mail accounts, and their Facebook profiles. As a couple of other blogs are reporting, Legacy Locker, a company offering a will-like service for your online presence, will begin taking customers in a couple of weeks.

Whether you're interested in the service or just think it's interesting, VentureBeat has the full story.

Two WSJ Op-Eds You Must Read

Today's Wall Street Journal contained two key op-ed pieces for understanding the current economic situation. The first, from Bank of America CEO Ken Lewis, clarifies just what is and is not occuring in the banking industry. The second, by Professor Laura D'Andrea Tyson, a former chairman of the Clinton's Council of Economic Advisers and current member of President Obama's Economic Recovery Advisory Board, defends the stimulus plan and budget proposal.

In response to Ken Lewis' piece, he is perfectly positioned to see the reality emerging in the banking industry. His analysis makes sense and I believe his facts to be accurate. Then again, upon graduation, he's going to be my boss, so I may be slightly biased. Nonetheless, he is correct that banks are in fact lending, that very few banks are actually insolvent, that TARP is working, that those who caused this mess are now unemployed and/or bankrupt, that the US taxpayers are receiving high real interest rates on TARP funds, and that, as Ben Bernanke has said, nationalization of banks is unnecessary to stabilize the banking system.

Regarding Tyson's article, the arguments against the stimulus and the viewpoints of other prominent economists are pretty persuasive. The budget, as she describes, is "faithful to the progressive vision he articulated during his campaign." I do like the idea of investing in health care, education, energy, and the environment, but wonder where we're going to get the money for all this given that we already have the LARGEST BUDGET DEFICIT AS A PERCENTAGE OF GDP SINCE WORLD WAR II. Perhaps I'm not making myself clear, but this hardly seems the time to be adding even more projects and government bureaucracy to the mix. President Obama promised to sharpen his pencil and cut the weak programs from the budget. Like many others, I was hoping he'd follow through on that plan. Perhaps I was praying for a moment like the scene in Dave in which a reluctant citizen goes through the federal budget with his accountant friend and trims off enough money from wasteful projects to salvage a program that actually makes a difference in people's lives. Alas, the pencil sharpener appears to be broken.

Instead, we get "a shift of wealth through higher taxes on the rich to pay for healthcare...and social programs." The last time I checked, that was a hallmark of socialism. Nonetheless, I wasn't a fan of the Bush tax cuts originally and do not mind seeing them expire. Besides, by the time I make that much money, the Republicans will probably be in power again.

After visiting Walker Foods, a California-based food company with international distribution, last Friday, I realized the vital role of small businesses in the economy. The proposition that "97% of small businesses will see their rates unchanged or enjoy additional tax benefits under the Obama plan" doesn't sound bad at all.

As for the claims that the size of government will not explode, I do not expect it to triple in size or anything. However, the government will have to create an infrastructure to run its ambitious proposals and that will add to the already annoying layers of bureaucracy.

Perhaps Dave's accountant best sums up the American budget: "Who does these books? If I ran my office this way, I'd be out of business."

Warren Buffett on CNBC

Warren Buffett appeared for several hours on CNBC today to discuss the current state of the economy. Here are all 7 clips of the video, in order from CNBC.com. For a full transcript, check out CNBC's Warren Buffett Watch.

Part 1

Part 2

Part 3

Part 4

Part 5

Part 6

Part 7

A Lesson on Statesmanship

Barack Obama is off to a turbulent start in his first term as US president. If he wants to ensure a second term, he will have to prove that he has the diplomatic skills necessary to be the leader of the free world.

After welcoming British Prime Minister Gordon Brown to Washington in an unremarkable fashion, President Obama will make his first visit to the UK since his election. There he will do his best to ensure that the special relationship between the US and its strongest ally continues.

Whenever I think of that relationship, I can't help but think of the scene in Love Actually when Hugh Grant's usually-diffident Prime Minister summons the courage to stand up for his country's pride in the face of an American president with a superiority complex:

"I love that word 'relationship.' Covers all manner of sins, doesn't it? I fear that this has become a bad relationship; a relationship based on the President taking exactly what he wants and casually ignoring all those things that really matter to, erm... Britain. We may be a small country, but we're a great one, too. The country of Shakespeare, Churchill, the Beatles, Sean Connery, Harry Potter. David Beckham's right foot. David Beckham's left foot, come to that. And a friend who bullies us is no longer a friend. And since bullies only respond to strength, from now onward I will be prepared to be much stronger. And the President should be prepared for that."

President Obama's visit to London and Strasbourg will be anything but. With the rest of the world still questioning his backbone and America's role in international affairs, Mr. Obama must set the record straight.

For the British perspective (albeit a conservative, Thatcherian one), check out Nile Gardiner's analysis of Obama's slights against our nation's top supporters in today's Daily Telegraph.

Kindle-ing A New Flame?

Anyone who has been on Amazon.com lately has probably heard about the all-new Kindle 2 e-book, the latest technology to emerge in the evolution of reading. Of course, if you're overseas, you'll have to wait a little longer; it looks like the Kindle 2 will make it to the UK by Christmas.

(Source: Amazon.com)

I've never been a big fan of e-books. The idea, I admit, is intriguing. Carrying a mini-library that weighs less than a pound would be pretty awesome. However, despite this new blogging project I've undertaken, reading just doesn't feel right on a computer screen. Fortunately, the new Kindle has the same type of e-Ink screen as the original, which apparently looks amazingly like ink on paper. As the New York Times review points out, "Unlike a laptop or an iPhoone, the screen is not illuminated, so there’s no glare, no eyestrain — and no battery consumption. You use power only when you actually turn the page, causing millions of black particles to realign. The rest of the time, the ink pattern remains on the screen without power. You can set it on your bedside table without worrying about turning it off."

Also, thanks to a deal with Sprint to encourage more people to download Kindle books, you can access the internet and download a new book to your Kindle from anywhere. Amazon pays for the service, hoping that it will pay off as people download more e-books. Also, the Kindle has a browser that works well when searching Wikipedia or browsing your favorite blogs.

Perhaps my favorite feature is the availability of the most popular newspapers for only $10-$14 per month. An ad-, comic-, and crossword-free version will be wirelessly beamed to you every morning before you wake up. Now you can have the New York Times, Wall Street Journal, USA Today, The Financial Times, or The Washington Post, International Herald Tribune, Le Monde, The Times of London, or The Independent instantly. You probably won't want all of them (especially Le Monde, if you don't speak French), but the choice is yours.

One of the more interesting features is the Kindle's audio-reading capabilities. Although suffering from "peculiar inflections and pronunciations" which may result in a voice that sounds oddly Scandinavian, it is a pretty sweet feature.

Of course, aside from the $359 price tag, the Kindle does have some drawbacks. "As traditionalists always point out, an e-book reader is a delicate piece of electronics. It can be lost, DROPPED (emphasis added, see here), or fried in the tub. You’d have to buy an awful lot of $10 best sellers to recoup the purchase price. If Amazon goes under or abandons the Kindle, you lose your entire library. And you can’t pass on or sell an e-book after you’ve read it."

If nothing else, the Kindle 2 is a great new gadget. If knowledge is power, just imagine how powerful (and nerdy) you'll be with a Kindle of your own.

President Obama's Address to Congress

(Update: Video changed from live feed via Hulu to C-Span footage from YouTube YouTube at 8:30 am Pacific Time on 25 February.)

Tonight, in his first address to a joint session of Congress, President Obama will describe the current state of affairs in the United States and outline his vision for the future.

Some fun and exciting quotes to be on the lookout for:

While our economy may be weakened and our confidence shaken; though we are living through difficult and uncertain times, tonight I want every American to know this: We will rebuild, we will recover, and the United States of America will emerge stronger than before.

My budget does not attempt to solve every problem or address every issue. It reflects the stark reality of what we’ve inherited – a trillion dollar deficit, a financial crisis, and a costly recession.

Can't wait to see what he has in store for us. If nothing else, it should be a great speech. Also, hats off to his speechwriters for finishing it enough in advance that excerpts could be pre-released.

Let's hear your thoughts on Obama's speech....

The Financial Model that Broke the System

Lots of investors, journalists, businesspeople, and politicians have mentioned the fact that the financial industry's models failed to appropriately price the risk in the system and that the failure to do so contributed hugely to the current credit crisis.

However, that failure was not any single individual's fault. Wall Street's models were designed to do just that, to model the real world, using a set of assumptions that may or may not hold up in the face of reality. Somehow, though, these models became touted as manna from the financial gods, feeding the frenzy of "sophisticated" investment and risk-management strategies.

Until today, it had never occurred to me to look more closely at the actual models used by Wall Street. Why would any non-mathematician intentionally attempt to decipher a formula like this? (Source: wired.com)


It looks ridiculous, right? What on earth is this mess of Greek characters supposed to mean? Perhaps that hesitation to peer through the looking glass is what caused investors to miss the shortcomings inherent in their models to see the real risks they faced.

In a new article for Wired Magazine, Felix Salmon tells the story of that formula, David X. Lee's "Gaussian Copula Function," and makes it not only understandable to a layperson, but also as entertaining as an article about a mathematical model can ever be. I highly recommend it to anyone interested in learning more about what went wrong and how we arrived at our current economic crisis.

At the end of the day, John Maynard Keynes' wisdom on economic models lives on. "It is better to be roughly right than precisely wrong." Many people on Wall Street forgot that essential edict and now we are all paying the price.

We Are Too Big To Fail

The new six-word motto for the United States, submitted and selected by the readers of the Freakonomics blog, is "We Are Too Big to Fail."

Can we get a big "WOOT" for that? Let's hear it for good ol' U-S-of-A!

Personally, I was a big fan of "Consumption's the Cure That Ails Us" After all, overconsumption got us into this mess, and by God, increasing consumption is going to get us out.

Also, major congratulations to the folks at Cash-4-Gold, whose commercials finally made their way from the midnight-5 am timeslot on cable TV all the way to the Super Bowl! Those efforts finally paid off with permanent recognition in motto #4: "The Streets Are Paved With CASH4GOLD.COM."

Let me know which ones you like, and definitely post any ideas of your own.

DeLong: The Stimulus Will Work!

While many right-wing economists have been arguing against the stimulus, many on the left believe that it will "probably" work. Brad DeLong, a political economist at the University of California--Berkeley, presents why he thinks the stimulus will improve our economic situation.

The general principle he cites is that "each major business cycle expansion we have seen has been driven by a leading wave of spending—by some group that becomes enthusiastic about their prospects and decides to greatly up its spending. And that pulls employment and production up."

However, one still has to approach this situation looking at the potential benefits and the potential costs. Whether we will be better or worse off in the future than we are now is not the issue. What matters is whether we will be better off than we otherwise would in the future.

DeLong is aware of that concern, asking "Will there be some sort of a hangover after this Obama spending binge—and if there is a hangover how bad will it be?" And with that, he leaves the reader hanging. Hopefully, this stimulus won't leave the US economy in a similar situation.

Is There Any Faith Left in Detroit?

Apparently, the Presidential Task Force assigned to solve Detroit's car crisis are not particularly fond of the American automobile--not if their personal car choices are to be believed.

Between the eight members of the Task Force, their 10 senior aides, and the newly added Steve Rattner, who was originally slated to be America's Car Czar, there are a grand total of three American auto owners. Maybe that should be enough of a hint that we've been making horrible excuses for cars for too long and that the rest of the world has surpassed us in automobile design and production.


Steve Rattner, a private equity investor whose auto investing experience seems to consist of owning four cars, was just added to the roster. Apparently, his private equity background is supposed to complement the experience of Ron Bloom, the union-friendly Man of Steel. Fortunately, both of these titans of industry own American cars--Bloom owns an aging Ford Taurus and Rattner owns a 2005 Lincoln Town Car (along with a 2008 Lexus sedan, 2007 Audi convertible, and 2006 Mercedes SUV).

As for the co-chairs of the task force, Treasury Secretary Geithner and White House Economic Guru (unofficial title), neither owns an American car.

For the car choices of more task force members, check out The Detroit News. For more on the addition of Mr. Rattner, check out the Wall Street Journal.

Worst Case Scenario Survival Guide to International Relations

A new book by "military futurist" Andrew F. Krepinevich illustrates seven detailed examples of possible worst case scenarios in US diplomacy and international geopolitics.



One of my friends sent me the link to the Wall Street Journal's review of "7 Deadly Scenarios," which details accounts of potential situations that the US could face in the next decade. Some of them are more plausible than others; although whether terrorists attacking the global oil supply (and daring to face the wrath of those in the Middle East whose finances and lives depend on a sound oil market) is more feasible than nuclear weapons being detonated in American cities, I can't begin to guess.

Call it fear-mongering, call it fantasy, call it whatever you will. But is it at least worth a read? Probably. If you've read it, or if you plan to, let me know what you think.

Speaking of Nationalization

Citi (C) was speaking to government officials today about the US government taking between a 25 and 40% stake in the bank's common stock. Perhaps Nouriel Roubini's nationalization plan isn't so far-fetched after all. I wonder what Robert Rubin would think of all this.

As for the Bank of America spokesman saying that BofA will not be pursuing a similar strategy, time will tell. As someone whose job depends on the well-being of BofA (since their acquisition of Merrill Lynch), I'll be keeping a close eye on this story. Perhaps, I'll even wake up early tomorrow, just so I can watch the fireworks in the financial sector. Bank of America (BAC) stock could plummet precipitously on the open. Then again, this could be perceived as good news for the banking sector as a whole.

I'm off to bed. We'll see what happens when the market opens...

Bank Nationalization Imminent?

According to "Dr. Doom," Nouriel Roubini, nationalization is exactly what our economy needs. Based on the Swedish model, he proposes a temporary nationalization of the financial system. He discusses it in the Wall Street Journal with Tunku Varadarajan.

Having been right in calling the crash of 2008, and having successfully predicted many of the specific ripples that have played out in the last two years, Dr. Roubini has plenty of credibility with the general public and with politicians. Even Lindsay Graham and Alan Greenspan agree with him to some degree.

Nonetheless, I can't help but think of the Gawker article that describes Roubini as something of a Facebook stalker. Creepy though he may seem in that article, something does have to be done about our financial system. With comparisons ranging from the Depression to Japan's Lost Decade and to Sweden's crisis, one thing is certain: we must act. That comes with a caveat, though. We cannot simply act. We must act with sound judgment.

Why is Obama Giving John McCain the Finger?

I was just watching one of my new favorite shows, Lie to Me, today and found this scene especially entertaining. Dr. Cal Lightman, the show's main character, is an expert in decoding microexpressions and body language. In this clip, he points out an interesting "gestural emblem" used by now-President Obama while he was on the campaign trail.

Had a Bad Day?

It's a long, ugly-sounding German word. It's wonderful. It's Schadenfreude, aka taking pleasure in someone else's pain.

For some bizarre reason, few things make people feel better than hearing about other people's misery. With that in mind, someone had the genius idea of collecting up-to-the-minute accounts of just how much other people's lives suck. A friend of mine showed it to me awhile ago, but I didn't think to put it up until I saw someone use it as their Facebook status.

If you think your life sucks, your day is about to get better: http://www.fmylife.com/.

The Gimme Society

Michelle Malkin puts together a great collection of pictures of people who want their share of the stimulus package: http://michellemalkin.com/2009/02/19/gimme-gimme-gimme-more-scenes-from-the-anti-obama-backlash/

Personally, I'm with the guy who wants free beer for his horses. Coincidentally, I was just telling my friends at lunch yesterday that my horses really do love beer. Maybe that's a Wisconsin thing, though...

"Santelli's Chicago Tea Party"

Rick Santelli goes off on the the economic solutions coming out of Washington and rallies support from a group of pit traders at the Chicago Mercantile Exchange.

From CNBC.com. This might be the most entertaining rant I've seen on CNBC since Jim Cramer's about the pending financial apocalypse back in August 2007. It also presents a unique, interesting, and somewhat feasible idea for some form of immediate online referendum. As for his notion that the pit traders in Chicago make a fair cross-section of America.

Thanks both to Byron Koay and Ryder Todd Smith for posting this link.

Meg Whitman for Governor?

Some of you may have already heard that Meg Whitman, the former CEO of eBay, has thrown her hat into the ring as a hopeful gubernatorial contender in California. I had the pleasure this evening (only a couple hours ago, actually) of hearing her speak at the school just across the street, Scripps College.

During her tenure at eBay, Ms. Whitman led the company from a small startup with $4 million in revenue to the world-class enterprise it is today. She emphasized doing the right thing, even if it cost the company money in the short run, as well as building trust and relationships. She raised an important question for all entrepreneurs and senior managers: what kind of company do you want to run?

Now I'm not sure that I'd endorse her quite yet, although I was as impressed by her as by anyone who I've ever seen speak. Her experience, intelligence, and poise appear almost peerless. Her name was previously mentioned as a possible running mate for John McCain. Let me tell you as a former eBay shareholder (through the CMC Student Investment Fund), if she had been on the ticket, I would certainly not have written him off. She was also mentioned as a potential Secretary of the Treasury, a position for which she may have lacked some of the complex financial experience. As a manager and leader, she's world class, but I'm not completely sold on her understanding of the intricacies and nuances of the capital markets. Whether she is the right person to lead California out of its current mess, I'm still not sure. But she is an astoundingly impressive person.

Perhaps most importantly to me, she reminded me what type of leader I hope to be someday...

Great Coaches on Discipline

"Discipline is doing what has to be done, doing it as well as you can do it, doing it when it has to be done, and doing it that way all the time."

-Bobby Knight

"Discipline is doing what you are supposed to do in the best possible manner at the time you are supposed to do it."

-Mike Kryzewski

Buffett on Financial Derivatives

I was studying for my financial derivatives exam this morning and liked the following quote from Warren Buffett. He's talking about the financial derivatives business, but the quote applies to our current economic crisis (which derivatives helped fuel).

In fact, the reinsurance and derivatives businesses are similar: Like Hell, both are easy to enter and almost impossible to exit. In either industry, once you write a contract--which may require a large payment decades later--you are usually stuck with it.

For more, read Buffett's 2003 letter to shareholders.

He also nailed the "daisy-chain" effect that led the crisis to its present magnitude:


A participant may see himself as prudent, believing his large credit exposures to be diversified and therefore not dangerous. Under certain circumstances, though, an exogenous event that causes the receivable from Company A to go bad will also affect those from Companies B through Z. History teaches us that a crisis often causes problems to correlate in a manner undreamed of in more tranquil times.

Perhaps there's a reason he's called the Oracle of Omaha.

A Little Pork

So I thought I knew what a ton of pork looked like when John Boehner dropped his copy of the 1100 page stimulus package during his Senate floor speech last week.

Apparently though, this is what a ton of pork looks like:

(Warning: may be photoshopped)

7 Broken Promises?

On YouTube: 7 Supposedly Broken Promises:

1. Make Government Open and Transparent--I'll give Obama this one. There's no way to overhaul the transparency of the government in your first three weeks in office. However, in passing the stimulus, we could have seen a bit more of what was promised.

2. Make it "Impossible" for Congressmen to slip in Pork Barrel Projects--seriously? You fail..........Big time.

3. Meetings where laws are written will be more open to the public--didn't the Republicans even have a hard time getting into these meetings?

4. No more secrecy--uh-huh? Riiiiiiiiiiight....

5. Public will have 5 days to look at a Bill--Saturday (weekend), Sunday (weekend), Monday (oh wait, that's a national holiday), Tuesday. Maybe I lost count...

6. You'll know what's in it--Have you seen how thick the stimulus bill is? I don't think anyone knows everything that's in it.

7. We will put every pork barrel project online--B U L L S H I T. Have you seen the amount of pork in the stimulus bill?!?!!

Check out the video and let me know if you think Obama's standing by his campaign promises...

No Car Czar?

Apparently, Barack Obama has dropped the idea of a car czar after all. Instead, the automakers will have the pleasure of working with a "presidential task force" including Treasury Secretary Tim Geithner, whose lack of detailed plans for the banking industry last week sent the markets into freefall for a day, and Larry Summers, who I hear is going to make sure that no female engineers work for the auto companies. Teaming up with those two is Ron Bloom, a former investment banker who has worked with the United Steelmakers union for many years and who has had success getting better deals for employees. At Harvard Business School, he apparently found employee buyouts particularly fascinating. It should be interesting to see how he deals with Detroit.

Yet nowhere to be seen in this task force on autos is anyone with any auto experience. Then again, given how Detroit auto execs have run America's car industry into the ground, maybe that's not a bad thing.

If You Want To Understand The Financial Crisis...

...read this.

I forgot to post this when it came out last week even though I forwarded and recommended it to the other members of the Claremont McKenna College Student Investment Fund. Maria Lohner, a junior at CMC who will undoubtedly become a great economist or investor (or anything else she puts her mind to), mentioned it at our macro trends group meeting last week and in my opinion, it is the best summation of what led investors and financial institutions into the current credit crisis.

Lloyd Blankfein, the CEO of Goldman Sachs lays out the major factors that contributed to the downfall of our financial system and offers a cautioned prescription for the changes that must be made to prevent future crises without sacrificing economic growth in the long-run. If you have trouble accessing the story, it was published in the opinion section of the Financial Times on February 8th.

Through the Lens

Taken on February 14th, 2009 at the Claremont Cougars lacrosse game against the #1 ranked Chapman Panthers.

In case you missed it...

...the House and Senate signed off on the $787 billion stimulus package on Friday. The Wall Street Journal has the details. As a member of the generation who will will actually be paying for this over the years, I just want to thank the old guys who made this bill possible.

In other news, President Obama is shifting his focus to the budget deficit. Well, I'm glad we're finally getting around to that. Now that we've pumped over a trillion dollars into the economy, let's go figure out how we can reduce our spending.

Rampant Spending Does Not Fix an Economy

I was checking out some stories that friends had put up on Facebook, and thought that Dominic Lawson neatly sums up the flaws in Obama's new deal in today's Sunday Times. We tried this whole spending spree idea once before and it left us in a state of depression/recession for over a decade.

As for the open letter to President Obama in the New York Times, it is signed by over 200 economists, including Nobel laureates Vernon Smith, James Buchanan, and Edward Prescott as well as CMC professors Richard Burdekin and Marc Weidenmier (two professors whose opinions I personally take very seriously). Even Eugene Fama, who will probably join the ranks of Nobel winners, has put his signature on the letter.

Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we the undersigned do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan's "lost decade" in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

For the whole letter, click here.

Through the Lens

The view of the San Gabriel Mountains from Claremont Mckenna College. Taken on Tuesday, February 10th, 2009.

A View of the Stimulus from Chicago

For those of you who have never heard of the "Chicago School of Economics," let me first clarify that it is not the Midwest's version of the London School of Economics. The Chicago School is not an institution, although it does have its roots at the University of Chicago, which is home to one of the world's top economics departments. The school is recognized for its monetarist, rational, and libertarian viewpoint. Although I don't agree with all of the theories that have come out of Chicago (and am hoping to make a living by defying their efficient markets hypothesis), it is home to some of the brightest minds and soundest ideas in economics.

Returning to the point, two Chicago professors co-wrote a piece in today's WSJ which summarizes the biggest problems with the stimulus package. While this represents a clearly conservative perspective, I agree with their premises and arguments. As I've said before, the stimulus is far from perfect. However, if you disagree, I'd love to hear your thoughts.

Mr. Market

"In the short run, the market is a voting machine but in the long run it is a weighing machine."

--Benjamin Graham

After a huge one-day decline in the stock market, like the one that occured yesterday, it is too easy for investors to lose sight of their long term investment plans. On days like that, there's a section of Warren Buffett's 1987 chairman's letter to Berkshire Hathaway shareholders that I like to revisit. He describes Mr. Market, a character first created by Buffett's mentor, Ben Graham:

Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.

Mr. Market has another endearing characteristic: He doesn't mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market, you don't belong in the game. As they say in poker, "If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy."

Ben's Mr. Market allegory may seem out-of-date in today's investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising "Take two aspirins"?

The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben's Mr. Market concept firmly in mind.

Following Ben's teachings, Charlie and I let our marketable equities tell us by their operating results - not by their daily, or even yearly, price quotations - whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it. As Ben said: "In the short run, the market is a voting machine but in the long run it is a weighing machine." The speed at which a business's success is recognized, furthermore, is not that important as long as the company's intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.

Mr. Market is perhaps the best and most enduring allegory for the market tides. It helps to keep him in mind when the market becomes especially turbulent.

(PS--the name of this blog pays homage to the book, Poor Charlie's Almanack, a collection of talks, lectures, and public commentaries by Charlie Munger. As Buffett's partner for the past several decades, his role in the success of Berkshire Hathaway is frequently overlooked. However, his unique blend of intelligence, common sense, and humor has made him one of my role models.)

What Really Affects Investor Risk-Taking?

Due to my overwhelmingly exciting research proposal writing in the past few days, I wasn't able to post this story right away. Strangely enough, it actually relates to my senior thesis topic, which examines the role of emotions in financial decision-making and risk-taking, a subject most people might want to familiarize themselves with given recent market turmoils. Nicholas Kristof of the New York Times ponders a question which only recently took on new meaning: should there be more women in corporate boardrooms? Apparently, this was one of the many discussions at the World Economic Forum in Davos, Switzerland last week. Thankfully, they also debated issues that most people would consider more relevant, but new research does shed some light on this particular matter. Most management consultants would tell you that having a diverse range of opinions allows a group to make better decisions (until you simply have too many people and can no longer make decisions--see "Congress"). Also, research shows that men take more financial risks than women (shocking, huh?). Thus, a simple recommendation emerges. All we need are more women in high-ranking positions at banks to reduce the risk in the financial system. Voila!

Feel free to comment on this as is, but I'll follow up with more interesting facts I found while researching my thesis...

Wisconsin Politics

Although I've only spent about one month out of the past eighteen in my home state of Wisconsin, I still pay some attention to Badger State politics. (Yes, we're the badger state....it wasn't my idea, but a distinction I'll still wear with pride.) Unlike California, Wisconsin politics are usually pretty cut and dry. There hasn't been a Wisconsin version of Prop 8--no referenda that garner national or global attention. Yet, with a population of around 5.5 million people, Wisconsin politics are by no means inconsequential.

One of my friends from home, who returned to Madison for law school, has apparently begun blogging for the DailyKos and focuses his first diary piece on our beloved state politics.

Check it out and let him know what you think. Especially if you're a Wisconsinite....

"Entrepreneurship" in Zimbabwe

For all our high-brow talk about economic growth models and our theories connecting GDP, unemployment, inequality, nutrition, access to credit markets, land rights, and informal insurance networks, we "students" of development economics turn a blind eye to the reality on the ground. If you want to know what real entrepreneurship looks like in developing economies, take a peek at "Dave Mphele," who the Christian Science Monitor characterizes as a "one-man NGO, a mafia king, a doting father, [and] a shrewd businessman."

While I don't know how moral some of his activities may be, he's doing what he can to improve his lot in one of the world's worst economies. He represents the best (and possibly the worst) of the brand of capitalism unleashed when government and markets fail.

A Disastrous Stimulus?

Just prior to the Senate's decision today to move forward on a $780 billion stimulus package, The Wall Street Journal featured a wonderful opinion piece by by George Melloan that takes the time to look at the consequences of adding even more government spending. The idea that all government spending will always translate into economic stimulus in not just naive, it's downright stupid. This piece looks at the potential long-term consequences of the stimulus package, most notably either the unlikely increasing of tax rates, a seemingly ugly inflationary picture, and/or a weaker dollar stemming from low interest rates (and high inflation).

But perhaps the stimulus packages is somewhat necessary. Maybe there are components that will help grow the US economy and our standard of living in the long run. However, the stimulus appears to be filled with even more pork-barrel spending than typical legislation.

Is the stimulus package perfect? No legislation ever is.
Is the stimulus package necessary? In some form, sure, it might help.
Is this the type of stimulus our economy needs right now? Probably not.