Popular Post

Wednesday, August 22, 2012

Past performance is no guarantee


Past performance is no guarantee of future results. Almost all investment literature contains this warning bit of wisdom, which few heed. We all continue to believe that tomorrow will be like yesterday. Shocked when it isn’t. We talk about the “Black Swan” event, the once in a hundred year event. An outlier on the far edge of the bell curve. Quickly rejoining the other lemmings and reassessing our risk tolerance.
One past performance we all are sure will continue is inflation. Many are predicting hyperinflation due to the Federal Reserve’s money printing. Inflation has dogged us since the 1930s and we are certain about the future results. Well call me doubting Thomas and label me a traitor. Deflation is coming.
Inflation and deflation is the difference between supply and demand. We have experienced greater demand than supply since World War 2, this has created constant inflation. Economists have even developed Supply Side Theory to help the poor industrialist and financial wizards deal with the crushing burden of supplying supply. Since the 2007 subprime collapse the equation has reversed. We now have more supply than demand. On a global basis all countries have greater supply than demand. Consumers have cut spending to pay their debt, Governments have cut spending to cut debt, and companies cut spending as there is less demand for their products. This enormous worldwide debt will require years to settle. The overhang of houses will take years to clear. Young college graduates have impossible student loan debt that will take years to payoff. The prolific consumer of the last 40 years is starting to save money, not spend money.
As consumers scale back on spending due to smaller paychecks and layoffs the supplier companies have to reduce employee head count and increase productivity of the fewer remaining employees to maintain margins. This reduces the consumer's ability even more and creates a self feeding cycle of less and less consumption. As demand drops prices will drop while chasing less and less wage income. Commodities have been dropping in price due to oversupply since 2008. The current price is supported by countries warehousing copper and iron not because there is production demand. The world’s automobile production is 74% of capacity. I hear that China will buy the difference, that China will become the new consumer nation to replace the decimated America consumer. This will keep us all fat, happy and rich. Even if this silliness is true it will take many years for peasant farmers and Ipad assemblers to become McMansion owners.
I don’t know what deflation feels like, I have never experienced it. Will price drops make me wait for further price drops before I buy? Will this be good for my fixed income status? Actually, I look forward to a 49 cent hamburger on sale for 29 cent.

Monday, August 20, 2012

Medicare Advantage


I wondered if I should write this post. I am admitting that I fell for a scam by my federal legislature and one insurance company. With all the political spin and misinformation currently being throw into the faces of the population I wanted to tell one true story.
Medicare Advantage, first created by Congress in 1997 and later changed by President Bush and the Republican Congress in the 2003 “Medicare Prescription Drug, Improvement and Modernization Act” has been cut by President Obama, removing over $700 billion dollars from Medicare. The concept of the 2003 law, as explained to the public, is that the Government would give an insurance company extra money, the insurance company in turn would provide more coverage than basic Medicare. I signed up for Medicare Advantage expecting better coverage than basic Medicare. After 8 months on the program I can report that this claim of improved coverage is false. I have less coverage and more out-of-pocket expenses than I would have with basic Medicare, or the revisions of President Obama. The difference is in the small print provided by the insurance company.
I have type 2 diabetes and have used the same general practice doctor for over 9 years. When I signed up for Medicare Advantage (with UnitedHealtcare) I ask if I could go to my doctor, who I specified by name and address. The answer was yes. When I received my medical ID card my doctor’s name was printed on the front. At my first visit to the doctor this year he did not accept the Medicare Advantage insurance. He accepts Medicare but is not part of the Medicare Advantage program. I had to pay full cost for the office visit. Calling UnitedHealtcare I was informed that I can go to any doctor I wish, even doctors in foreign lands, which is my choice. They will not cover these doctors, but I can certainly go to them. Additionally the copays for diabetic medicine are much higher than basic Medicare.
All I have related this experience to feel that I was lied to by the insurance sales person. The salesperson was technically correct. I had asked the question wrong. I am not trained in the proper legal phrasing of questions and this puts me at a substantial disadvantage. I am an engineer and attempt to answer questions fully and concisely. This is a failing strategy when dealing with the professional Medicare scam artist.
The changes that President Obama introduced will reduce my “donut hole” and medication copay cost, this would have saved me over $2,400 this year. My Doctor is covered, saving me another $600. For me $3,000 is a lot of money.
President Obama cut the Medicare Advantage program which reportedly saves over $700 billion dollars for the government. I don’t know about that claim but I do know about my personal check book. I wish Medicare Advantage had been cut this year as that would have saved me thousands of dollars and provided better medical coverage.

Saturday, August 18, 2012

Breakfast gravy


Gravy is the basic component of many meals. Composed of grease, milk and flour it is easy and cheap to prepare. The original appeal to cooks was surely the inexpensive ingredients and quick preparation time.
Cooking is chemistry and chemistry is cooking. All good cooks would be good chemist. Making crystal meth in the bathtub is about the same as cooking gravy in the kitchen. Mix ingredients, stir then add a specific amount of heat for a specific amount of time and something new is created. A little caution about the crystal meth, it can explode during preparation and you should wear extensive personal protection equipment with fire extinguishers close. Of course all kitchens should also have fire extinguishers quickly available.
Now back to the gravy. Start with bacon and fry, this produces grease drippings as a byproduct. I use the grease to complete the bacon frying, draining off (and saving) the grease towards the end before completing the cooking of the bacon. I like my bacon dry and crispy but not burnt. Burning the bacon turns the hydrocarbon molecules into charcoal, charcoal may be healthy but I don’t like the taste. You can always burn the toast if you want some charcoal. Most of the authoritative comments I have received from female cooks is that gravy is unhealthy, causing issues with heart, body weight, water retention and ingrown toenails. As near as I can tell, everything I like to cook and eat is bad for me. Now let the bacon drippings cool and pour back into the frying pan, slowly add the flour and stir while thinning with milk. Do not add the flour too fast or it will become lumpy gravy. Lumpy gravy is bad chemistry. The cooking temperature is lower than for the bacon frying. The cooking time is about the same. Add spices to suit your taste, salt and pepper are the standard choices and I like a large dash of paprika for breakfast gravy. I also like to crumble some of the crispy bacon into the finished gravy. In the time taken to cook the bacon and gravy the biscuits will be finished in the oven.
Cook two eggs over easy and a hardy breakfast is now ready.

Friday, August 17, 2012

Training a Chow Chow


I have a Chow Chow, possibly the best dog breed for a house pet. Chows are easy companions with an easy energy level that lets them easily live indoors. The story is that they were used by Chinese Emperors as palace guard dogs, that they were the original hunting dog and that Chows are a primitive breed perhaps from 12,000 years ago. Based on the two I have lived with this sounds reasonable to me. Whatever, Chows are still dogs and dogs have to be trained. Now I am training my second Chow and a Chow does not train easily. Chows have a cat like attitude about learning tricks; basically they have their own ideas about obedience. A Chow is fiercely loyal, protecting person and home selflessly, YouTube videos of Chows attacking bears to defend a mistress are common. The Chow usually wins. Chows are the perfect companion for someone living alone, wishing for a true friend and fearless protection. As a bonus they are really cute looking dogs. Training is challenging with a Chow, it is not a problem of smarts, it is a problem of attitude.
Dog training is basic behavioral conditioning. Chows due to their fierceness must be socialized, a Chow can eat a Pit Bull and the Chow’s master/mistress must have control of their pet. Socializing is best done as a puppy. My first Chow was a rescue dog. The guess of the veterinarian was that he was about 3 years old and most definitely unsocialized. Months of dedicated work was required to tame this beast. My current Chow arrived as a puppy and I immediately set about socializing the animal. With a puppy this is easy and fun, let children and other dogs play with the puppy, go on walks through the neighborhood and visit with everyone. Above all else the dog trainer must remain calm and confident. Socialization is basic and important with all dogs but the Chow by nature is antisocial, this is a preferred trait for a guard dog and a bad trait for a family pet. Don’t worry that your Chow will not guard the house and person due to socialization, they are loyal to only that small group of people they know and trust.
Dog training is basic behavioral conditioning. Teaching the Chow advanced commands can become a clash of wills. My Chow follows all commands immediately when I have a treat in hand, without the treat, commands become optional. This is where basic behavioral conditioning rules. Using treats I repeat the training exercise so many times that the Chow starts to think that obedience is the only available response. She finally becomes conditioned to respond only one way. I have the only Chow I have ever heard of that will catch a Frisbee and return it. I trained her off-leash because off-leash is when I most need her to obey. This added another layer of difficulty but is worth the extra work. I am not saying that off-leash training is difficult. I am saying that training a Chow is difficult.
Two foundational commands I like are "carry" and "hand". The carry command teaches the dog to carry something in their mouth while the hand command teaches the dog to hand me whatever is in their mouth. With these commands as a foundation I can then teach the dog to get my newspaper from the driveway or bring me a beer. An Australian Shepherd I had would bring me my daily newspaper, once I cancelled my newspaper she started bringing me the neighbors newspaper. I had to redirect her to getting my mail. This is where the Chow shows her independence, she knows what I want done, then just looks at me. She does the hand command well but makes up her own mind about the carry command. While the Aussie trained quickly if I ever face a bear I'd rather have the Chow.
Chows are excellent companions and easily accept the basic commands of sit, down and stay. Teaching them to bring in the newspaper, catch a Frisbee or dance through hoops requires commitment from the trainer. If I wanted an easy dog to train I would have gotten another Blue Heeler or German Sheppard. I picked a Chow and knew what I was signing up for. This is one great dog.

Wednesday, August 15, 2012

Dogs, birds and squirrels


My backyard ecology is dominated by dogs, birds and squirrels. I like them all, even the cute little furry tailed rats called squirrels. I’ve easily spent entire days watching the interplay of animals and nature from my hammock, using two pairs of binoculars, each with a different magnification and focal length. The backyard has dog food, seeds, nuts and fresh water, ample shade with a cooling breeze off the lake. A cord of winter firewood stacked between the trees provides home and shelter for geckos. I regularly patrol the area dumping standing water which stops most mosquitoes, the purple martins, hummingbirds and nightly bats find those few surviving mosquitoes. Mosquitoes are one of the few products of nature I would change, making them hunger only for dog poop. This would save me one daily chore.
The squirrels want the dog food and bird seed, the dogs want the squirrels. This battle between two smart and organized species provides endless plot lines for my mentally internal road runner cartoons, which replaces my addiction for cable TV. The ingenuity of the squirrels in defeating any attempt to protect the bird feeder constantly befuddles me. Squirrels are crafty organized bandits; one draws the dogs away to a corner of the yard while their accomplice gorges on dog food and seeds. Again and again the squirrels win, the only solution I have found is to provide enough food for all.
The birds arrive in flocks, house wrens, sparrows and tit birds in large numbers with the red birds and jays in smaller numbers. The lake allows for ducks, cranes and gulls. A copy of the Peterson Field Guide “Birds of Texas” is keep handy to identify the rare visitor. Creating a safe cat free environment provides for nesting and a reasonable chick survival rate. The only real danger to the birds and squirrels are the hawks that patrol the area, this spring there was a nesting pair of hawks and their chicks were hungry. The hawks will slowly cruise low, gliding with ease through the tree limbs. The birds and squirrels become agitated and watchful, tracking the hawk. Sometimes the hawks perch high in the trees watching and waiting until their prey relaxes, becoming less watchful. The hawks are swift, silent and absolutely deadly. At night the owls come out. Now the hawk chicks have grown and the hawks are back to individual hunting. Lake Conroe is a nesting ground for the Golden Eagle, watching this beautiful bird hunting is a rare special treat. My backyard is not the Garden of Eden; it is as natural as I can make it.
I don’t sell tours but a comfortable lawn chair is available.

Monday, August 13, 2012

Life on the margin


Everything is decided by the margin. We live in a world where the tail wags the dog. We make big decisions using small ideas with marginal information. The Texas republican primary winner for senator won with less than 6% of possible voters. The stock price for General Electric is established by an average trading volume of 3.5% of the outstanding common shares, this 3.5% sets the price for all common shares. The presidential election will be decided by less than 6% of possible voters. In finances and politics the decision is made by the margins. The unimportant and trivial dominates over the important and worthy.
I am aware that I suffer this same delusional dysmorphic decision making process. Like a soldier in his foxhole all I can see is the small area I inhabit. Isolated and scared I still have to make decisions. Should I buy stocks or bonds, or sell everything and hold cash? Listening to the mass media inevitably misinforms, remembering the media’s advice before the dotcom crash or the subprime debacle the media was the worst source of information. Recently we have had the LIBOR fixing, the crash of MF Global and the failure of Knight Capital. I am in my foxhole without food, the ammunition is running low and the 4 Star General in charge has left for vacation.
I still have to play the cards that get dealt; I have to show up every day. If I can discern the larger trend maybe I can survive, maybe even thrive.
I’m on the bow wave of the baby boomer super tanker and see ice bergs dead ahead. We created a debt crisis by buying stuff we didn’t need with money we didn’t have, borrowing from the Chinese to buy Chinese goods. Now we have to pay down the debt, deleveraging in the popular parlance. The general population, most governments and the financial sector owe vast sums. The financial sector transferred their debt to the government and the government sent me the bill. We are in the age of deleveraging due to a debt crisis. This debt crisis created a recession deeper, longer and more painful than anything my generation has experienced. As a bonus we got this just in time for our collective retirement. Historically debt induced recessions last about 10 years, for Japan it has been 20 years. Our political class is being typically political by not wasting a crisis, using this crisis to convince me of the perfect purity of their political doctrine. They will push the fiscal cliff pass the edge without regard for the middle-class, instead preferring their personal political power plays.
Does any of this offer me some investing ideas? Should I short the Dow Industrials and the NASDAQ, maybe move to Germany or Norway? For now I’ll lie in my hammock and think about it.

Thursday, August 9, 2012

Romney's Tax returns


The story about Romney’s tax returns is that he will suffer a bad political image for paying little or no taxes. By now you have heard both sides of the story, both agreements are lame. So why doesn’t Romney release the tax returns? All political strategists agree that it is best to get the bad news out and then move on. That is the accepted play book for sexual scandal, political blunders and internet pictures. The best political strategy for Romney is to release the tax returns; he is not releasing the tax returns so it must be something other than political risk. I think he is scare of being audited by the IRS.
Promotion within the IRS agency is based on the quantity of successful audits. Rich tax payers have the resources to fight an audit, poor tax payers do not. I usually do my own tax returns and I have been audited three times in 45 years. Two audits occurred when I was young and earned little income. The audits were the result of simple errors and a slam dunk for the auditor. The last audit was because I lost a receipt and could not provide acceptable documentation, another slam dunk for the IRS. I have become much better at completing my tax return and use Turbo Tax with a comprehensive filing system. A person receiving food stamps and child care credits is more likely to be audited than Mitt Romney. The accountants hired by Romney pushed every possible tax advantage, his walking the edge was not tested by the IRS. If Romney releases his tax returns leagues of accountants will be hired by news organizations to weed through the numbers line by line. He fears that something questionable will be found and the IRS will be forced to audit his returns.
Nothing matters more to Mitt Romney than his money. One reason he wants the presidency is to legally reduce his tax rate to zero. He outlines this on his website; his tax plan contains reducing taxes on interest to zero. This is the only known tax he currently pays.
Mitt Romney does not fear the political blow back, he fears losing some money.

Tuesday, August 7, 2012

I just want a little time off


Just a little time off, is that too much to ask for? We all need some down time, lay back in the hammock and read a book, lay back in a hammock and day dream. Sleep late and then walk around your neighborhood talking to anyone you meet. Turn off the cell phone, the cable TV and the laptop. Get reacquainted with yourself and to use a common adage “stop and smell the roses”. Create your own aphorism, have an original thought, it isn’t possible to think of nothing but it is possible to think for yourself. Reading a Huff Post titled “Are you good at hammocks” got me thinking about this.
We are constantly bombarded by messages carefully crafted by excellent professional marketing research groups. All these messages have a self serving purpose, whether to buy a specific soap or vote for a specific politician. The purpose is to brain wash the public. A scientifically based manipulation of individuals and they are really good at their craft, constantly improving their techniques. We have an unarmed civilian population being assaulted by professional storm troopers using advanced weaponry. From bumper stickers to infomercials all have the same brain washing objective. The storm troopers are winning; the middle class now supports banking practices that are destroying the middle class. That is just one example from dozens.
Our plight is not hopeless. We can defeat profession brain washing. We have bought the rationalization that we perform careful cerebral calculations creating fully thought out positions. This is the brain washing in practice. We are mentally replaying the cable TV commercial, internalizing the message as our own. Our salvation lies in the hammock.
Get comfortable in your hammock and day dream. Let your subconscious do some of the work. Don’t pretend that you are engaging in cerebral calculations, instead relax and let the mind wander. That entire information overload is stored somewhere in your brain. The information overload has been contextualized by learned talking heads, pundits and gurus with targeted messages. Believe me on this, you are smarter than the marketing research predicts.
Get comfortable in the hammock and day dream. The homily to “sleep on it” doesn’t require that you sleep. A relaxed mentally open state allowing our full brain to ponder the problem will lead to an original thought. Without strain or stress the mind will collimate and evaluate, the resulting insight is hugely gratifying. Although sometimes I get angry when I realize that I have been scammed, the freedom I get by understanding the scam more than offsets the negative feelings.
One note of caution, you can still be wrong. At least you will be wrong based on your own independent thinking.

Sunday, August 5, 2012

A dog can’t speak English.


A female German shepherd was the smartest dog I ever lived with. Her vocabulary was in the 100 English words range plus a few guttural sounds I occasionally produce. She knew the difference between front door and back door, I could tell go to my bedroom and she would. In general I have noted that female dogs are smarter than male dogs. This is not always true but the two smartest canines I had the pleasure of living with were both female. Most dogs have small vocabularies, sit, down, stay, heel and maybe another half dozen words.
Dogs don’t speak English very well but they do speak body language. Dogs are precisely tuned to our body language. It is said that dogs can smell fear. I think not, they read the body language of fear. I can even read the body language of fear. Actors can portray fear on a screen without any words and certainly no smell is available to the audience. My current two year old female Chow knows my mood the moment I get out of bed in the morning. She has bonded with my wife and can read her like an open book, if something scares my wife the Chow will immediately go into a protection mode. A close friend of mine entered our house unexpectedly, quickly and loudly. This startled my wife and the Chow placed herself between my friend and my wife, this 185 pound male in good physical condition was suddenly faced by 40 pounds of claws and snarling teeth, he is another dog aficionado and responded correctly by not moving. I entered the room shook his hand did the male chest bump and the situation was defused, the Chow’s aggression dropped to a guarded watch. I try to teach my dogs that when they sense stranger danger make lots of noise and leave any required action to me. To date none of my dogs have bitten anyone but they did tree one stranger, he escaped by climbing a tree in my back yard. He did not have a creditable reason for being in my yard and I dialed 911 to have him removed by the county sheriff. All in all I was pleased by the way the dogs handled the incident and rewarded them with ample scraps from a nearby BBQ restaurant. It turned out that the stranger was wanted as a “peeping Tom”.
Dogs don’t speak English so I had to learn how to speak dog. The dogs speak for “there’s a cat in the front yard” is different from the bark for “there is a stranger in the front yard”. A dog can tell me they need to go outside for their nightly constitution or they need fresh water in their bowl. Somehow they know what time it is, never missing dinner time, always reminding me if I am only a little late. They speak with grunts, modulated barks, pawing, head butts and groans.
Dogs don’t speak English but you can’t lie to a dog. We should allow dogs to vote, I am certain this would result in a much better selection of elected officials.