Archive for the ‘economy’ Category

One Decisions I’m Glad I Didn’t Make

A couple of weeks ago Michael R. through facebook posted a link to the Chronicle of Higher Education called “Graduate School in the Humanities: Just Don’t Go.”  After reading it was kind of thankful that I didn’t go.

Back in 2003 was I seriously considering returning to the US and getting my PhD. I had bought a GRE preparation book and I was religiously studying the math section for an hour to 90 minutes each day. I wasn’t worried about the verbal section. I had taken an online diagnostic test, I was perfect on the verbal section but so bad on the math that they had to create a new category for me called ignoramus. 

I was a bit surprised by that because I had taken the GRE back in 1992 in order to get into the University of Texas.  At that time I had held my own in the math section. Of course, if you don’t use it you lose it and I certainly hadn’t done any serious math since the math I had done to pass the GRE in 1992.

Of course, one thing about the whole GRE that still kind of irks me is that the 1993 test was no longer considered valid when I considered returning to graduate school in 2003. I’m not entirely sure why. One would think that over time one gets more knowledgeable, wiser and better able to handle the rigors of higher education; especially if one has already jumped through that particular hoop once. Obviously the powers-that-be don’t see it that way. The one thing I have learned from my years in Asia is that people who wield power love to make other people jump through their hoops.

Undaunted by the needless and irrational hoop jumping, I researched specific graduate school programs, and I even went so far as to contact Paul Matsuda directly at the University of New Hampshire to inquire about what my chances would be for getting funding. After an exchange of five or six emails, he said he thought my chances would be pretty good since I had experience in teaching in both ESL and EFL setting as well as experience within the specialization I was intending on concentrating on, that is, Second Language Writing for science and engineering.

Obviously being able to get my PhD at the University of New Hampshire would have been ideal in many ways. I grew up in the area so it was close to my family and very familiar to me. In addition I had spent a year and a half doing substitute teaching in many of the local school districts so I had knowledge of the local schools and probably contacts at many of them as well which would be helpful as the kids reached school age. I even looked into what it would take for me to update my teaching credentials as a possible fall back plan should the whole PhD thing founder for some unknown reason.

I was serious committed to the idea, but the major draw back and probably the main reasons why I decided not to do it was the cost of housing in the area. Although I was fairly confident that I would get some kind of funding to do my PhD, it would not be enough to support a family of four at that time in that place especially in a housing market which was on fire. Queue up Don Ho: “Ah those tiny bubbles…”  After racking up a significant amount of debt the first time I did graduate school, I could not justify doing it again.

Another contributing factor, but not the main factor, was the fact that America had really changed since I had left in 1997, and in many ways it had not changed for the better.  I just couldn’t see going back, raising children and working in such a negative atmosphere. Although living on the other side of the world sheltered me from the worst of it, I still couldn’t completely avoid it. We live in a globalized, information saturated and media obsessed world, so unless you crawl under a rock somewhere in Norwegian archipelago of Svalbard or dig your self a hole at 34.7°N 85.7°E on the Tibetan plateau (link / archive) the chances are pretty good that you cannot escape the influence of the rest of the world. 

Although I would like to blame 9-11 for this change, I know that it’s not the cause. It was merely an intensifier. I don’t think there was a single cause. In fact many American are probably unaware of the changes at all, because they have happened slowly over a long period of time. Even though there is no single cause, there are however lots of identifiable contributing factors. Some factors, like the establishment of the military industrial complex, go back as far as World War Two. Some other obvious contributing factors were Vietnam, Watergate, and disgrace of the Nixon administration. Thus, many of the factors that are influencing the economic, political, social and cultural aspects of American society today go back to the second half of the 20th Century.

Friday, January 22nd, 2010

China’s Oil Policy

Last night I read an interesting article about China’s oil policy. China is signing oil deals where they don’t get any return on their investment excpet the oil itself which they pay a locked in amount for. In addition, China provides the money and much of the man-power for the development of the oil field and the countries or their proxies get to reap the benefits and more importantly the profits.

If I was an oil producing nation, why would I sign royalty lease agreement with Exon-Mobile or BP, when I could sign a deal with China that lets my country keep all the profits?

Does Chian benefit from these deals? Certainly, because it assures that their factories will continue to get the resources they need at prices they control. China knows that turning raw materials into products is a value adding process; something which America in its manufacturing heyday also realized. China, of course, makes a substantial amount of its money from manufacturing.

China’s oil policy will create a titanic shift in who will be producing and consuming oil in the near future. The current model under which America and American companies are working can not compete with China’s model. America has worked and is still working under the the neo-colonial pillage model of resource extraction in which America or its proxies pay pennies on the dollar in royalties and lease fees for the resource they are extracting. China is working under, “these resources belong to you and we will we help you get them as long as you assure that the resources all go to us” model. They realize that in the long-run stable resources at stable prices will benefit their entire economy.

America’s model focuses on the short-term and the individual company. To simplify: The American model is about greed; an elite few benefit but most do not. The Chinese model is about retaining power and control over a staggering number of people. The only way the Communist Party in China can assure this is to make sure that their people are gainfully employed and feel that they are getting richer.    

If China’s policy succeeds in locking in resources; especially oil, at stable prices, then China will have a significant advantage over the rest of the world who will be relying on extremely volatile commodity markets. I guess it takes a Communist to see that markets only work in your favor if you can exploit them, If the market isn’t exploitable, then it’s better to avoid them completely and set up some kind of direct supply of the resource or commodity that you need.

 Is there a silver lining in this titanic resource extraction model in which China successfully ties up future resources for itself?

Yes, I believe there is, because it will undoubtedly help to spur innovation; especially in terms of alternative energy. It’ll also force deep cultural changes in the way we think about the future.

Sadly, it didn’t need to be like this if America had been more proactive and long-term in their thinking. Much of our dependence on foreign oil could have been weaned if we had learned our lesson in the mid 70s, but instead we quickly forgot the lesson learned and traded our small fuel efficient vehicles for for large gas-guzzling SUVs. Now when it’s appearent that things need to change it is much harder for us to adapt. It’s harder because as a culture we are short-term thinkers, but this, too, will need to change.

Tuesday, October 28th, 2008

America’s Diminishing Role

I read an article today that speculated that in the near future a new Economic World Order will be created and America’s place in this new economic order will be significantly diminished.

I think the argument is sound. The current financial crisis originated in the US and the world definitely blames the US. Considdering the kind of money that the US government has been lobbing around and will probably have to continue lobbing around in order to save a host of failing financial institutions, I can’t see the US being in any kind of position to dictate policy to the world about fiscal and financial policy.

Although Alan Grenspan is saying he is not to blame, I can’t help but consider that he was certainly an enabler of the current mess. Sure, he personally didn’t make the decisions that lead to, as he says, “once-in-a-century credit tsunami,”  but he did keep interest rates low which did two things: First it created the need to take greater risks to increase return on investment and second by keeping interests rate historically low for an extended period of time it deflated the actual cost of the risks that the financial institutions were taking.   

Furthermore the free-market policies that he advocated and his work during the Reagan administration to dismantle the Brenton Wood Accords certainly laid the foundation for another aspect of the credit crisis; the fact that American households and the federal government are deficit spending. To read more about America’s deficit Spending try “The $1.4 trillion Question,” “Spendthrift Nation” and “America’s Suez Moment.”  

Although these articles don’t really assign blame to any one individual, they do make clear that their is a systemic problem; a problem that will surely diminish America’s role in world affairs.

If you believe the conspiracy theorists, then it all makes perfect sense. The powers-that-be realized that the American people would eventually turn off their TVs, and wake up to reality; a reality in which high taxes, high inflation, high unemployment and high interest rates are the birth right of every American.

(The high taxes aren’t there because the government was run by tax and spend liberals, but because the government was run by tax-cut-warmongering-spend-like-mad conservatives. Taxes in such a senario eventually have to be raised to cover the interest payments of the deficit which are suddenly higher because the interest rates are higher. Of course when interests go up the availability of jobs tend to go down, because one way businesses and governments expand products and services is through borrowing, but when interests rates go up those investments get postponed. Usually higher-interests rates will squeeze inflation out of the system, but in this scenario which is set during a time of peak oil and never-ending wars, inflation stays high in order to off-set the risk of an oil cost spike.)   

The powers-that-be knew what they were doing, but they needed to run America into the ground. They aslo made themselves richer in the process.  When they were through they knew America would no longer be a great place to do business, but the super-rich don’t care. They can live anywhere. They don’t, after all, really have to work for a living; they only need to manage their capital and exploit the work of others. What was important that America be left with an ineffective position from which to manage the crisis. Thus even if the people vote the enablers out of office the new regime would be in no position to do anything because all the cards had already been played. 

This is the world that Obama will inherit if/when he is elected. Obama will thus become a figure like Nero. He wasn’t the last emperor by any stretch of the imagination, but Rome’s golden age had ended and he ushered in the steady decline to it’s eventual fall. Sure it took another 400 years for that to happen, but Rome steadily decline. I can only hope that America’s fall will be as long and winding, but if the market is any indication then America’s fall may be quicker that that of Rome.

Monday, October 27th, 2008

House Of Cards Revisited

Thursday, 23 October, 2008

A little over a month ago a wrote about the financial house of cards that our financial institutions had created. As I was writing that original piece I remembered that I had read a prediction about a similar meltdown in the Atlantic Monthly. I wanted to link to the story, but at the time I was unable to find it. I have, however, recently prevailed in my search.

It’s an interesting piece it was written in the summer of 2005, so only two-years into the Second Gulf War. Its premise is how the Bush Administration would bankrupt America which in turn would create the necessary conditions for a return to a depressed and stagnant economy with high inflation, taxes and interest rates. The coda or moral for the piece seems obvious: If you don’t pay now, then you will certainly pay latter.

The piece is written as a fictitious strategy memo to an unnamed third party candidate who is running for the US Presidency in 2016. The memo assures the candidate that he will win, but that it is important to truly understand the problems that exist so that he can be both honest and hopeful with the American people.

Some of the details that lead to the “meltdown” did not happen as the author foresaw, but his timing is almost dead on. He guessed that the meltdown would occur in the early part of 2009. Instead the meltdown occurred in September and continued through October of 2008. He was off by about six months. If you’re interest in checking out the piece it’s called “Countdown to Meltdown” by James Fallows

It took only a year for the house of cards to fall. On the 9th of October, 2007 the Dow reached it’s all-time high closing at 14,164.53. A year later on the 9th of October, 2008 the Dow had fallen 5,585 points, or 39.4 percent. However, our current meltdown continues. Yesterday the Dow closed at  8519, so it’s now down 6645 points or 46.9 percent since the 9th of October, 2007. This is even a worse run on the Dow than the nearly two-year bear market that ended in December 1974 when the Dow lost 45 percent. That oil-shock induced meltdown took two-years yet our current meltdown succeeded in wiping out a similar percentage of wealth in only about eight weeks.  

As I wrote before, I decided that if stock indices could shed excess pounds, that I would attempt to do the same. I am calling this the Crash of 2008 Diet. You simply see how far back in time the Dow goes and you attempt to rollback your weight in keeping with the Dow. For example, yesterday the Dow closed at 8519. The Dow hasn’t been at the 8500 level since the summer of 2003. This mean that I am currently trying to get down to my 2003 weight, and that means I should lose another 5-7kg. 

I done well, I’ve drop about 5 kg and all I’ve really done is stopped my consumption of beer and avoided all late night snacks. However, my weight has been trading in a narrow range the last few weeks, so further reduction will not be possible without exercise. As I mentioned before, I injued my ankle, and it was only last week that Noah and I began taking our 40 minute walks again. This is good, but I really need to return to the gym so I can increase the amount of calories I am burning. I think the stationary bike should be low impact enough for my still tender ankle.

Thursday, October 23rd, 2008

House of Cards

Friday, 19 September 2008

I am an insignificant monthly investor. I only put away a few hundred dollars a month. I have been doing this regularly since 2004. Sharebuilder.com got me started and I now have a small diversified portfolio of about 12-15 stocks and ETFs.

I have been rather smug at my cautious approach. Although my portfolio hadn’t exactly fared well (down 10% on 9/13), I was certain that many people with more money and investment acumen had fared worse.

A week has passed and I’m feeling a lot less smug. My portfolio lost another 10% of its value thanks in a large part to AIG.

Through facebook I said to Paul:

Things seem to be falling apart nicely in the US these days. Merrill Lynch, Bear and Stearns, Lehmans Brothers, WashMu, Countrywide, AIG, Fred and Fan all terminal.

I successfully steered clear of most of this mess, but AIG hurt me. Thankfully I can’t lose a lot of money because I don’t have a lot of money to invest, but I did lose about a month’s pay on my AIG investment, and to think they were supposed to be Blue Chip. I avoided most financial stocks because I knew that it was only a matter of time before the house of cards that they began building in the late 90’s would come crashing down. I figured that an issurance company whose job is to manage risk through the selling of insurance policies would understand what deratives to invest in and which ones to thumb one’s nose at. Obviously I was wrong. Seriously wrong.

Yup, it was supposed to be Blue Chip but I guess cheese is where it’s at because Kraft is replacing AIG on the Dow.

I remember reading an article in the Economist in the late 1990s that looked at the pros and cons of derivatives, hedge funds and other complex financials. The article, after looking at the two sides of the issues concluded that complex financials were all about risk management and how, it believed, that the financial community was getting very good at assessing and placing a value on risk.

A couple of years later I remember Warren Buffet saying how complex financials are just too complex for anyone to understand therefore how can you know if they are correctly priced.

It seems that Warren Buffet was more correct than the Economist. I wonder if Warren was for or against going into Iraq. The Economist certainly took Bush and Blair’s bait; hook, line, and sinker. I wonder if the Oracle of Omaha was as prescience about Iraq as he was about the impending implosion of our financial institutions. I think this is something I will have to check out.

In any event, because no one knew how to price and, therefore, value these complex financials, we are experiencing the biggest realignment of our financial institutions since the 1930s. Hmm, didn’t the last major financial crisis start under Republican stewardship? Is this just coincidence or a suspicious trend? Is George Bush the next Herbert Hoover? Actually, he isn’t, because Hoover was slow to open the magic piggy bank (link/archive) to the collapsing firms. Hoover truly believed in small government and that government is separate from business. Bush is from Texas so he doesn’t do anything small and he has no illusion about what his role in government is. After all he was a failed businessman himself, before government (politics) rescued him. He is in office to make sure the magic piggy bank is available to those institutions that need it.

Friday, September 19th, 2008