How do you feel?

Some days, we simply need to look to others to express ourselves. Today is such a day!

It was the best of times, it was the worst of times; it was the age of wisdom, it was the age of foolishness; it was the epoch of belief, it was the epoch of incredulity; it was the season of Light, it was the season of Darkness; it was the spring of hope, it was the winter of despair; we had everything before us, we had nothing before us. -- Charles Dickens

Doomsday: T minus N

Home price drop means $4 trillion in lost capital

The Risk Nightmare - Trillions in CDS markets, nothing to show for?

We have 25-year old 'super-bubble' - According to George Soros

As for the title, 0 < N < infinity.

I can think of nothing else right now, except:

"Dust thou art, and to dust thou wilt return."

My Partial Oil Solution

I have a partial solution to the volatility of oil prices. As you know, oil is priced in US dollars. Over the past several years, as the USD has gotten hammered, oil has continued its upward trajectory. Many so-called 'experts' agree that oil prices have an inverse relationship with the USD. Clearly, this sort of dependence is rather risky, as we're finding out in the current environment.

My solution - and I'm not sure if it's been suggested before, but I'm guessing that it's certainly not a novel idea - is to price oil using a basket of currencies. In other words, we should price oil as follows: 0.25 USD + 0.25 EUR + 0.25 YEN + 0.25 GBP. I've randomly picked YEN and GBP, but any other major currencies can be used. This also doesn't have to be an equal weighted index, but could use a different methodology. Either way, the point is that we need to reduce the volatility of an extremely important commodity like oil and its dependence on a single currency.

You can even take this further and price all commodities like this to avoid ridiculous rice and wheat riots.

Three Wooden Crosses

Continuing to explore the Purpose theme, Randy Travis makes an excellent point. I love this song.

Three Wooden Crosses by Randy Travis

A farmer and a teacher, a hooker and a preacher,
Ridin' on a midnight bus bound for Mexico.
One's headed for vacation, one for higher education,
An' two of them were searchin' for lost souls.
That driver never ever saw the stop sign.
An' eighteen wheelers can't stop on a dime.

There are three wooden crosses on the right side of the highway,
Why there's not four of them, Heaven only knows.
I guess it's not what you take when you leave this world behind you,
It's what you leave behind you when you go.

That farmer left a harvest, a home and eighty acres,
The faith an' love for growin' things in his young son's heart.
An' that teacher left her wisdom in the minds of lots of children:
Did her best to give 'em all a better start.
An' that preacher whispered: "Can't you see the Promised Land?"
As he laid his blood-stained bible in that hooker's hand.

There are three wooden crosses on the right side of the highway,
Why there's not four of them, Heaven only knows.
I guess it's not what you take when you leave this world behind you,
It's what you leave behind you when you go.

That's the story that our preacher told last Sunday.
As he held that blood-stained bible up,
For all of us to see.
He said: "Bless the farmer, and the teacher, an' the preacher;
"Who gave this Bible to my mamma,
"Who read it to me."

There are three wooden crosses on the right side of the highway,
Why there's not four of them, now I guess we know.
It's not what you take when you leave this world behind you,
It's what you leave behind you when you go.

There are three wooden crosses on the right side of the highway.

For an 'Obamacon,' Communion Denied

An incredible article in the Washington Post about "Douglas Kmiec, a staunch Republican, firm foe of abortion and veteran of the Reagan Justice Department, [who] had been denied Communion."

Access the article here.

My quick take:

This is what you get when you have little people with a little power - the so-called little Napoleon wannabes - who don't think past their first step. The priest's actions, in my opinion, are completely out of line for so many reasons including: 1) Kmiec does not support Obama because of abortion; 2) Kmiec is staunchly against abortion; 3) the priest is clueless on Kmiec's relationship with God... and on and on. I almost want to say that priests like this dude ought to be excommunicated for being the antithesis of Christ's love. But, I won't advocate that.

Thankfully, though, people like this particularly priest are a minority in the Catholic Church. And, even more thankfully, there are priests who understand what it is like to be an individual outside of the confines of a church building.

As always, the Jayhawk's looking to hear your opinions, especially on this particular topic!

"The Same People"

Not sure if you saw this, but a reader posted the following article regarding the gay marriage topic: http://www.newsweek.com/id/139423. It's a quick read and one that's worth your 90 seconds.

"Do You Love the Job, or Just the Paycheck?"

An excellent article in the NYTimes about a topic that has been discussed on Jayhawk's Nest.

http://www.nytimes.com/2008/06/01/jobs/01pre.html

"My sense of professional accomplishment was determined by the size of my bonus checks. I felt that my title and salary were all that I had to show for those long years of hard work, political maneuvering and Dilbertian despair.

"Like many of my co-workers, I thought I could eventually earn enough money to make up for the fact that I dreaded going to work every day. Then I would be happy, I told myself...

"But in fact, my high-paying but soul-draining job was beginning to take a toll on my personal life."

Oh so true, so true, so true, so true... and take away the 'high' from 'high-paying' and you begin to spell life with new letters: "m. i. s. e. r. y!"

Read the article and let me know what you think!

You're Gonna Miss This

A good reminder to those on the fast-track to nowhere...

You're Gonna Miss This

She was staring out the window of their SUV
Complaning, saying "I can't wait to turn 18"
She said "I'll make my own money, and I'll make my own rules"
Mamma put the car in park out there in front of the school
Then she kissed her head and said "I was just like you"

You're gonna miss this
You're gonna want this back
You're gonna wish these days hadn't gone by so fast
These are some good times
So take a good look around
You may not know it now
But you're gonna miss this

Before she knows it she's a brand new bride
In a one-bedroom apartment, and her daddy stops by
He tells her "It's a nice place"
She says "It'll do for now"
Starts talking about babies and buying a house
Daddy shakes his head and saysAnd s "Baby, just slow down"

Cause you're gonna miss this
You're gonna want this back
You're gonna wish these days hadn't gone by so fast
These are some good times
So take a good look around
You may not know it now
But you're gonna miss this

Five years later there's a plumber workin' on the water heater
Dog's barkin', phone's ringin'
One kid's cryin', one kid's screamin'
And she keeps apologizin'
He says "They don't bother me.
I've got 2 babies of my own.
One's 36, one's 23.
Huh, it's hard to believe, but...

You're gonna miss this
You're gonna want this back
You're gonna wish these days hadn't gone by so fast
These are some good times
So take a good look around
You may not know it now
But you're gonna miss this"

--Trace Adkins

A Dilemma

In a suburb of a big town near a big city in a big state in the Midwest, there lived two friends. Their names were Eks and Wye. As their friendship grew over the years, they began to love each other. A lot. So they decided to do what people who love each other do - get married.

Eks and Wye are Pozlots - that's the name of their religion. The Pozlots have a very sacred text called the Winkrut. On page seven, paragraph 3 of the Winkrut, it says: "Any two individuals who decide to commit to each other in a long-term relationship must get married....Furthermore, the couple can be man-man, woman-man, woman-woman, neuter-man, neuter-woman, neuter-neuter. Irrespective, the two must get the blessings of the deity and the yutlutz" (akin to a Catholic priest, Protestant minister, Hindu priest, Jewish rabbi, etc).

So, Eks and Wye went to the Pozlots' sacred house - called a Riszeim - and got married. It made them immensely happy. Two weeks ago, they decided to buy a house, together as a couple. So, they visited a Realtor and looked for houses. Last week, they found a house which they both loved and so they decided to buy it. In the process of completing the paper work and obtaining the mortgage, the bank asked Eks and Wye, "Is this is a tenancy by the entirety purchase?" Eks responded, "Well yes, of course! We're married!" So, as is standard procedure, the bank clerk asked for a formal marriage certificate issued by the US government to prove that the individuals were married for the purpose of property law.

The next day, Eks and Wye went to the county court to obtain a marriage license and the county clerk said to them, "Hi! Welcome to the United States' Most Accepting County Courthouse! How may I help you?" Eks proceeded to ask for a marriage license. He showed the Pozlot religious marriage license which they had received from the yutlutz as proof that vows were exchanged with Wye.

After a brief moment, the clerk said, "Don't mind me asking, but you two look alike. I mean, you know, you both don't look like either girls or boys. Sorry, but what's your gender? I need to write it down so that I know the groom and bride." Eks and Wye respond, in unison, "Well, we're neuter." Wye went on to explain, "We were castrated when we were five and now we're neuter."

So, should the clerk proceed with the process of issuing a marriage license or not?

The Chain of Love

What would an ideal world be like? Clay Walker answers in the following song:

The Chain Of Love

He was driving home one evening,
In his beat up Pontiac
When an old lady flagged him down,
Her Mercedes had a flat
He could see that she was frightened,
Standing out there in the snow
'Til he said I'm here to help you ma'am,
By the way my name is Joe

She said I'm from St. Louis,
And I'm only passing through
I must have seen a hundred cars go by,
This is awful nice of you
When he changed the tire,
And closed her trunk
And was about to drive away,
She said how much do I owe you
Here's what he had to say

You don't owe me a thing, I've been there too
Someone once helped me out,
Just the way I'm helping you
If you really want to pay me back,
Here's what you do
Don't let the chain of love end with you

Well a few miles down the road,
The lady saw a small cafe
She went in to grab a bite to eat,
And then be on her way
But she couldn't help but notice,
How the waitress smiled so sweet
And how she must've been eight months along,
And dead on her feet

And though she didn't know her story,
And she probably never will
When the waitress went to get her change,
From a hundred dollar bill
The lady slipped right out the door,
And on a napkin left a note
There were tears in the waitress's eyes,
When she read what she wrote

You don't owe me a thing,
I've been there too
Someone once helped me out,
Just the way I'm helping you
If you really want to pay me back,
Here's what you do
Don't let the chain of love end with you

That night when she got home from work,
The waitress climbed into bed
She was thinkin' about the money,
And what the lady's note had said
As her husband lay there sleeping,
She whispered soft and low
Everything's gonna be alright, I love you, Joe

Don't Worry

Written By Rebecca St. James and Matt Bronleewe

On the corner of Fifth and Broadway
I was walking to the grocery store on Third
I saw a man up on a box
He seemed a little unorthodox
He was preaching up a storm
As I walked on by he said

Don't worry about your life
Cause if you hold it too close
You'll lose it
Don't worry about your life
So won't you let go
Before it's gone

A little further on I saw a beggar on the street
He asked for change and then gives me his life story
Says he was a millionaire, made some bad decisions there
Now a dollar fifty could feed him for a week
And he said

Don't worry about your life
Cause if you hold it too close you lose it
Don't worry about your life
So won't you let go
Before it's gone

Then I see the birds
I watch them fly
They've got everything they need
They show me why I can be free
Knowing You will care for me

Finally at the grocery store
My mind is filled with many thoughts
As I bump into a girl I knew from high school
She said "What's different about you girl?"
And I smiled and said this is what I know is true
And I'll pass it right along to you

Don't worry about your life
Cause if you hold it too close you lose it
Don't worry about your life
So won't you let go before it's gone

Fed speech comparison

Taken from the Wall Street Journal.

Ducklings...

S&P 500 Forecast: 1170

Late last year, and again earlier this year, I stated - right here on Jayhawk's Nest - that we can expect the S&P 500 index to retrace to 1170. Some of you probably thought that I was delusional.

Well, today, David Kostin, the chief US investment guru for Goldman Sachs, said that he expects a "swath of lowered profit guidance," and as a result "the S&P index to reach 1,160" over the "near term."

Need another opinion?

Scott Anderson, chief economist at Wells Fargo, is equally pessimistic, describing the bullish views of some market players as "bordering on delusional".

You can find the full article here.

It's good to know someone, err... sometwo, agrees with me.

You've been warned.

Rock Chalk Champions!

Roy Forgiven!

Life Inc.: Purpose

I recently had another non-unique question: what exactly is the purpose of my life? We sometimes wander aimlessly, it seems, in an effort to get to a final mission in our lives. We take jobs, get involved in organizations, and participate in events - sometimes, not always - as a means to hopefully get to the end of our greater calling. "This internship will look good on my resume" or "That job would would be great resume candy," etc. We hope to meet someone who will channel us to the correct career path, in the hopes that we will land our dream job. Even within a specific professional career, we're constantly searching for the best and most perfect place for ourselves.

We may read every career self-help book, talk to industry and career experts, and even pray and still be at a loss of where exactly we fit into the grand jigsaw puzzle - career-wise and in life. And, often, not being able to find or see our individual purpose in the general scheme of life can be discouraging. We may begin to doubt our abilities, question the decisions we've made in the past (and even irrationally blame ourselves for them), and begin to simply lose hope of ever striking our 'mission.' It's a dangerous path.

Recently, I was presented with a very powerful image that helped me better - not fully - understand how to think of our purpose in life. Last Sunday, during mass, one of the altar helpers who carried the candle down the isle of the church had Down syndrome. It was incredible to see him walk down the isle very reverently, willingly, and with great purpose, serving a special role in the service.

Many people today write-off children (and adults) with Down syndrome as unproductive members of society. It is easy to do so since most people cannot relate to them. People with Down syndrome are often neglected and their goals in life are never discussed, but only assumed. Yet, this altar helper's actions served as a stark and important reminder that only God knows our grand mission in life. The altar server's presence and actions were vital to the overall service, and his purpose at that point in time served as a microscopic view of our daily purpose in life.

I don't know whether or not he fully comprehended the reasons behind his actions in the service. Similarly, we often do not know the reason(s) why we do what we do - in school, at work, or elsewhere. Instead, we simply continue our quest in hopes to search for our 'purpose in life.' Sometimes aimlessly, sometimes hopelessly.

But, the most important lesson I learned: don't write-off yourself. Our purpose, just like the altar helper's, is to serve God. He did it in a more literal sense: during mass in a church.

In our daily lives, we serve God through our quest to quench our mysterious yearning for a greater purpose - in our actions, our thoughts, and our intentions. In all of these, love is the primary ingredient. Much like the joy and the love that was exhibited by the altar helper while he held the candle, so must we hold our candles with sincere appreciation and love, no matter what the destination or the environment.

Hence, our purpose is indeed to love and to serve God.

Champion Jayhawks Party Videos

Video of crazy partying in Lawrence, Kansas here!!

ROCK CHALK JAYHAWK!

http://www2.ljworld.com/videos/sets/2008/apr/08/6news_championship_celebration/

ROCK CHALK CHAMPIONS!

CONGRATULATIONS

2008 NCAA BASKETBALL

CHAMPIONS!!

ROCK CHALK

JAYHAWK!!

PS: The last time KU won the championship (1988), the S&P 500 was up 8% for the year.

ROCK CHALK JAYHAWK!

ROCK CHALK JAYHAWK! GO KU!!

PS: Sorry, Roy.

It's time to pray again

Our Father, who art in Lawrence,
Hallowed by thy game.

Thy bracket come,
Thy upset will be done, in San Antonio as it is in Allen Field House.

Give us this day our deserved game,
and forgive us our turnovers,
as we forgive Roy who double-crossed against us.

And lead us not into defeat,
but deliver us from Roy tears.

For Kansas is the basketball kingdom,
And the tradition,
And the glory,
For ever and ever.

Amen!

Life Inc.: Suffering

On my way to work this morning, I had a strange but non-unique thought. Given the choice, would most people choose to live, i.e. be born and go through the whole life sha-bang? For most people, perhaps as many as 80% of people it seems, when looked at from a superficial standpoint, I think the answer is no. That's a rather depressing thought and statement - don't you think?

Most of the reasoning stems from the purpose behind our lives and the juxtaposition of suffering in the world that comes with it. When I think of the billlions of people who toil day and night (and in between) to simply make ends meet, the unquantifiable amount of poverty, disease, hunger, injustice... around the world, I start to wonder what really is the purpose of all this. And, then, on the opposite spectrum, we have private islands, pristine private beaches, personal attendants, private jets... you get the picture. It really sucks to suffer.

So, why bother with the whole life thing (if given a choice at the beginning)? What's the purpose of living anyway, and more importantly of suffering through all of it? It doesn't make the sufferer happy, it doesn't make those watching the suffering happy, it doesn't create any value - or does it? Are you actually doing a disservice by having kids? After all, they are prone to the same suffering existent today, aren't they?

It is impossible to answer why suffering exists to fully please every person with the question. Your guesses are as good as mine. Why did God create suffering? It's an extremely hard question, if not an impossible one, to answer. However, I think we can look at the meaning of love in order to find some solace and the beginnings of an answer.

When our hearts ache and our minds are numbed by all the suffering around us, we are melted and brought to our knees in an effort to love the victim of this suffering. For instance, when we see a family go through unimaginable trials e.g. a gruesome death of a loved child, we - almost instinctively - react with compassion. Whether we act on that instinct and do something about it is a different story altogether. But, for a split second, I think it is fair to say that there is an outpouring of love to those in need of it - at the very least in spirit. This love that emanates from us is a natural instinct that fills a void and a vacuum that lacks it or has just lost it. In this example, the family has lost a source (and receiver) of love.

It is probably fair to say that seeing others suffer brings out the sympathy, kindness, compassion, charity, and unselfishness that lies in the deep abyss of each one of us. In essence, all these 'feelings' are a derivative of love. Every one of us, regardless of talent, intelligence, race, religion, gender, family background, hair color, political leaning, wealth, title or health, has the ability and inclination to react to suffering in the ways described above, in some form or another. Furthermore, this 'love' is one for which we constantly thirst to give and to receive. To give a few examples: we want to have "meaningful careers", "create change in the world", "help others", "have a happy family", etc. In the case of watching suffering, we want to give love to others; when we suffer, we seek love from others.

Love, then, is a primary element that makes us human, as opposed to simply an object of existence or a "living thing." Suffering is the lack of love, internal or external. It exists to bring about the love that is intrinsic in each one of us and exists within us. Whether we exercise it or not is a matter of choice. It unifies people beyond any boundary imaginable - racial, religious, cultural, political, hobby-based, any one. Everyone of us no matter who we are or how cruel we are - today, in the past, or in the future - has the capacity to love and to receive love.

God is love. His first two commandments are: love Him, and love others. In order to appreciate Him and His love for us, suffering must exist. Without it, we are unable to love, or to receive love. And, as a result, we are unable to know God.

F'd on Facebook

Do you post your life on Facebook? You may want to think again. Recently, a computer techie was able crack into pictures posted on the site, but to which he had no legal access. The bug has since been fixed. However, there are generally more cockroaches in such cases and there's no reason to believe a second and much larger hack attempt won't be successfully disasterous to its victims.

For the entire article, click here.

Bernanke's Rhapsody?

SING TO THE TUNE OF 'BOHEMIAN RHAPSODY' BY QUEEN

Is this the real price?
Is this just fantasy?
Financial landslide
No escape from reality

Open your eyes
And look at your buys and see.
I'm now a poor boy (poor boy)
High-yielding casualty
Because I bought it high, watched it blow
Rating high, value low
Any way the Fed goes
Doesn't really matter to me, to me

Mama - just killed my fund
Quoted CDO's instead
Pulled the trigger, now it's dead
Mama - I had just begun
These CDO's have blown it all away
Mama - oooh-hoo-ooo
I still wanna buy
I sometimes wish I'd never left Goldman at all.

(guitar solo)

~~~

I see a little silhouette of a Fed
Bernanke! Bernanke! Can you save the whole market?
Monolines and munis - very very frightening me!
Super senior, super senior
Super senior CDO - magnifico

I'm long of subprime, nobody loves me
He's long of subprime CDO fantasy
Spare the margin call you monstrous PB!
Easy come easy go, will you let me go?
Peloton! No - we will not let you go - let him go
Peloton! We will not let you go
(let him go !)
Peloton! We will not let you go - let me go
Will not let you go
let me go (never) Never let you go - let me go Never let me go – ooo
No, no, no, no, No, NO, NO ! -
Oh mama mia, mama mia, mama mia let me go
S&P had the devil put aside
for me
For me, for me, for me

~~~

So you think you can fund me and spit in my eye?
And then margin call me and leave me to die Oh PB - can't do this to me
Just gotta get out - just gotta get right outta here

Ooh yeah, ooh yeah
No price really matters
No liquidity
Nothing really matters - no price really matters to me
Any way the Fed goes.....

Penned by a Bear Stearns (BSC) guy.

It's Game Time

Are you ready for the show down?!

This says it all

"In an apparent foray into gallows humor, a $2 bill is pasted to the main entry of Bear Stearns' headquarters." - Marketwatch

The Mystery Man

Thanks for chiming in - a shout-out to Mel, Mo and Pat. Reno Ranger - please notice that you don't get a shout out because you didn't opine. You should next time.

So, who is this mystery man? Here are the possibilities:

1. A Bear Stearns shareholder watching his wealth plummet by the second, wait, there's no more to watch;

2. A Ralph Lauren model;

3. My alter ego;

4. A Barack Obama supporter listening intently to Jeremiah Wright's drivel - although he doesn't seem that aghast;

5. Ralph Nader's campaign adviser;

The truth: This picture was sent to me via email in a Ralph Lauren ad of some sort. I was so disturbed by the look on the dude's face, the seemingly complete lack of character, and the drab and boring background that I had to post it. Why on earth would I want to buy a Ralph Lauren suit if I'd look like him!? But then again, I didn't go to fashion school, don't live in NYC, and only hope to visit Milan some day... how would I know!

What does this make you think of?

What does this dude make you think of? Do you know the source of this picture? Do you know the dude?!

Looks cute, doesn't he?

Until he comes at you like this...

Still confused? May be this will help...

Dante's Prayer by Loreena McKennitt

When the dark wood fell before me
And all the paths were overgrown
When the priests of pride say there is no other way
I tilled the sorrows of stone

I did not believe because I could not see
Though you came to me in the night
When the dawn seemed forever lost
You showed me your love in the light of the stars

Cast your eyes on the ocean
Cast your soul to the sea
When the dark night seems endless
Please remember me

Then the mountain rose before me
By the deep well of desire
From the fountain of forgiveness
Beyond the ice and the fire

Cast your eyes on the ocean
Cast your soul to the sea
When the dark night seems endless
Please remember me

Though we share this humble path, alone
How fragile is the heart
Oh give these clay feet wings to fly
To touch the face of the stars

Breathe life into this feeble heart
Lift this mortal veil of fear
Take these crumbled hopes, etched with tears
We'll rise above these earthly cares

Cast your eyes on the ocean
Cast your soul to the sea
When the dark night seems endless
Please remember me...

Genius Dad Award

As many of you may know, I find much amusement in the financial markets. I generally share this enthusiasm with a few close friends and family. I'd like to give a shout-out to my father-in-law for two fantastic stock picks: DVN and CHK. These two have been on absolute fire since he mentioned them to me almost 3 years ago - up 70% and up 50% respectively, not counting any dividends during this time. You might think that he has mentioned many other companies that I have disregarded. But, in fact, no - these are the only ones. So, a 100% accuracy with an average return in excess of 60% in just under 3 years. Nice, very nice. My only regret: I never acted on his recommendations. But, the good news is that I'm waiting for the next one.

India - still a buy?

http://www.wisdomtree.com/bannerads/india/SA/ad1c.html

Christmas 2008: iToilet

Taken from here.

Are you an, er, investor?

"We believe that according the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a ‘romantic.’" --Warren Buffett

Mount Tabor vs Mount Calvary

As you can see, I didn't give up blogging for Lent. Today, our priest - Father Bill - preached a most excellent homily, drawing a parallel in Jesus' life that struck me as incredible.

Three disciples - Peter, James, and John - join Jesus on Mount Tabor where they experience the Transfiguration of Christ. Here, Jesus is clothed in an all-glowing and majestic white garment that reveals His true identity (God); He is surrounded by two of the most regarded Jewish 'fathers' - Moses and Elijah; and, God conspicuously tells the disciples "This is my beloved Son".

Let's contrast this to what happens soon after they descend and Jesus' suffering begins. His life ends on Mount Calvary. Here, His clothes are stripped away from Him; on the cross, Jesus is now surrounded by two criminals; and, His executioner says "Indeed this man was the Son of God."

Isn't that parallel amazing?! Clearly, I think so!

(Ironically, Peter denies knowing Jesus three times, even though he had been with Jesus during the Transfiguration.)

Where are you in this cycle?

A tale of two rates

Just an expansion to my response earlier. Most so-called frivolous spending that seems to be the topic of discussion within many circles is arguably the result of of easy credit and hence credit cards. Whether the Fed funds rate is 3%, 3.5%, or 5%, it will not affect how the American consumer spends on his/her credit card. Credit card rates have astronomical rates - 18%, 25%, 29% amongst other incredible numbers - and *that* in itself should be a deterrent to bad spending habits and debt.

The Fed funds rate is more of a response to stimulate business capital spending which in turn creates employment. I think it's fairly clear at this point that we have a weakening labor market.

Here's a perfect example of increasing credit card interest rates while the Fed funds rate is decreasing. So, this should give you some hope that Fed rate cuts fear do not automatically mean there will be an increase in frivolous spending!

The second Fed cut

Pat asks: "I'm curious what the Jayhawk thinks about the Fed's further 50 basis point reduction in the rate. Are we nearing the point of overcompensating? Will cheap cash encourage more irresponsible spending on the part of the American consumer? My vote for the Jayhawk presidency may depend on his answer!"

Given your last statement, I probably shouldn't say anything!

To answer your question directly, I do not believe the Fed's actions will necessarily "encourage more irresponsible spending on the part of the American consumer."

You can't choke the economy, allow high levels of unemployment, and kill economic growth in an effort to teach people how to save. That's like severing a kid's finger every time he or she makes a mistake!

Instead, we need to promote growth and simultaneously educate people on personal finance. Bernanke has blatantly spoken about the latter.

Looking at the ISM Services data point that came in today, we're in deep trouble already. The Fed's job now is to worry about economic growth before inflation. As far as the American consumer and spending goes, it can't be fixed overnight. Over time, though, I believe there are awareness efforts currently in place that will encourage more saving, including the housing correction.

Pat, I think you should hand out flyers at Farragut West that encourage people to save!

Money and Happiness: A response

A frequent and enthusiastic reader of Jayhawk's Nest, Pat, responds to a post earlier, so aptly titled "$$$ = :) ?":

"How many times must we be told that money does not equal happiness? I am thinking about an economic model in which households seek to maximize gratitude (as opposed to profit), because the link between a sense of gratitude and happiness is MUCH more robust than that between money and happiness.

Practical consequence of an economy that seeks to maximize gratitude as opposed to profit?: buying locally, especially from people you know. I am not anti-trade... I'm anti-anonymity. I am not pro-protectionism... I'm pro-personal transactions."

Pat - Great thoughts, as usual, and thanks for checking in.

Just a few minor points - it's firms that maximize profits, not households. Households, which are made up of individuals, are "utility" maximizers. Supposedly, utility would include money. And, if so, households would save money. Strangely, they generally have not.

However, I don't think the reason we have a negative savings rate is that people don't want to save. In fact, they believe they are saving when they invest in their homes and their 401(K)'s etc. Elaborate investment vehicles were not easily available 30 - 40 years ago, e.g. IRAs. The stock market was way too expensive for the average Joe, i.e. commissions were high and minimum requirements to stocks (or better put partnerships in companies) were astronomical. Competition and technology has changed that over the past decade or so, and for the better. The only problem is that education has lagged. People do not realize that their investments are not a ticket to purchase the world.

I think the issue is that we went too far with credit and have hit extremes. The availability of credit anonymously had never been experienced before and it's likely that we - as a society - simply went too far using it, and profit-maximizing firms went too far issuing it. The intent was not criminal, but the consequences seem to be that way. It's simply a process or learning a new way of thinking, i.e. how to effectively use credit. I believe we're now in the process of correcting back to equilibrium.

The problem is that money does matter when it comes to making people happy. (See this study by Firebaugh and Tach.) However, the correlation between money and happiness is not linear, but rather it has diminishing marginal returns. After so much dough, you have enough. The question is: what's the threshold? And that is the problem. At some point, one has to say enough is enough. For most people, though, it's a hard thing to do since we're naturally inclined towards greed.

So, where does that leave us? I believe that the current system is fine. It's impossible to measure gratitude or utility. As a society, we need to educate people, especially the youth, about credit. It is *not* free money. Instead, it's simply a means of convenience. I see personal credit as a substitute for cash. I'd rather carry one credit card than cash. In this way, I can track expenses, not worry about emergency funds on the road, etc, etc.

I'm not convinced about buying local, etc. I'll refer you to Ricardo's competitive advantage argument. I'll buy from the moon if it's cheaper and my goal is to maximize savings. I don't see any reason to buy from the local dude if Wal-Mart has the same item for half the price (which it generally does).

In relation to the article I initially posted, I think my take-away is this: forget the past (after seeking forgiveness of course!), don't worry too much about the future, and make the most of the present for it is a gift!

Suzi Orman says it best: people first, then money, then things.

Dollar slide over?

There are some out there who think Bernanke's rate cuts were a dumb decision because it hurts the dollar. So to my cassandras of dollar doom and gloom, I present the following article. You may want drum rolls.

From Bloomberg.com: "Ben S. Bernanke's decision to lower interest rates 1.25 percentage points last month will end the dollar's two-year slide, according to the world's biggest currency traders."

Read more here.

Incredible Giant WIN!

WHOA! AMAZING! WHAT?! DID THEY WIN? THE PATRIOTS LOST?!!

WOW!

I'm stunned. By far the best Super Bowl game I've watched, ever. Go Manning brothers!

Now, what does this mean for you and me? It means invest your money in the S&P index fund and there's a good probability you'll make the big bucks by the end of the year. And perhaps at the end of the year, we'll have another wow - a wow year. Perhaps the Super Bowl was just a glimpse of the volatility and final outcome we can expect for stock returns in 2008.

Congratulations NY Giants!

By the way, Belichick is class-less and deserves to lose. Did you see him run away when the game was not even officially over? How lame!

Why the Giants should win

* The above statistics are courtesy of Bespoke Investment Group

Looking for Dividends?

Multiplying Dividends

COMPANY	TICKER	MARKET VALUE	SECTOR	DIVIDEND YIELD	10-YEAR DIV GRTH RATE	2008 EPS GROWTH
Buckeye Partners	BPL	$2 billion	Energy	7.10%	5.84%	9%
Enterprise Products	EPD	$13.1 billion	Energy	6.60%	7.16%	39%
Kinder Morgan Energy	KMP	$13.5 billion	Energy	6.60%	7.09%	138%
Pfizer	PFE	$155.4 billion	Health Care	5.80%	17.43%	6%
Integrys Energy Group	TEG	$3.8 billion	Utilities	5.50%	4.11%	50%
Bank of Montreal	BMO	$27.9 billion	Financials	4.90%	16.96%	11%*
Nstar	NST	$3.5 billion	Utilities	4.40%	5.32%	6%
UST	UST	$8.5 billion	Consumer Staples	4.30%	4.01%	7%
Royal Bank of Canada	RY	$64 billion	Financials	4.10%	19.35%	19%*
Bank of Nova Scotia	BNS	$47 billion	Financials	4.30%	17.12%	18%*
Huaneng Power (ADR)	HNP	$10.2 billion	Utilities	4.10%	9.89%	14%
Paychex	PAYX	$12 billion	Technology	3.70%	23.30%	12%**
Genuine Parts	GPC	$6.8 billion	Consumer Discretionary	3.60%	4.97%	9%
Taubman Centers	TCO	$2.6 billion	Financials	3.60%	10.17%	8%
Toronto-Dominion Bank	TD	$47.9 billion	Financials	3.60%	14.75%	17%*
General Electric	GE	$346.4 billion	Conglomerate	3.60%	10.89%	13%
Eli Lilly	LLY	$58.9 billion	Health Care	3.60%	6.74%	10%

*Taken from Barron's.

Investment vehicles

I'm preparing a document that summarizes various investment vehicles.

Here's a good link if you're interested:

http://www.finance.cch.com/text/c20s15d010.asp

How Wall Street Works

If you'd like to understand the current market volatility, you must watch this video. It's 8 minutes long and will be the best thing to have come out of your losses, if any. Really, it's worth it. Do it. Then tell me what you think!

Click here.

http://www.youtube.com/watch?v=SJ_qK4g6ntM

Gold lover

http://prudentinvestor.blogspot.com/

$$$ = :) ?

You decide for yourself here and let me know.

Happy Tuesday!

Raindrops on roses and whiskers on kittens;
Bright copper kettles and warm woolen mittens;
Brown paper packages tied up with strings;
These are a few of my favorite things.

When the dog bites,
When the bee stings,
When I'm feeling sad,
I simply remember my favorite things,
And then I don't feel so bad.

Wanna scream?

If you want to look like the dude on the left, you should read the following predictions by Byron Wien, Pequot Capital Management's Chief Investment Strategist:

Byron Wien's 5 Sure Things for a Turbulent Market

Bob Brinker recap

Bob Brinker recap for Jan 27 - 28, 2008 can be found here.

http://honeysbobbrinkerbeehivebuzz.blogspot.com/

In the Cube

A picture is worth a million words. That's a picture of me.

Any words come to mind?

Power vs Money

This research was retrieved from Bob O'Brien at Barron's. So, those financials may not be so cheap after all, eh? And those energy stocks that have gone up 100% or more... might still go up according to these numbers. You can find the entire article here.

So, power wins.

Is this you?

Taken from: http://www.retro.ms11.net/InvestorMind.gif

Jerome Kerviel

You may have heard by now that the global sell off on Monday may have partly been a result of Jerome Kerviel - the so-called "rogue trader" at Societe Generale in France. He purportedly lost the bank $7.1 Billion. Single-handedly. One man. 31 Years old. Incredible.

This supposedly resulted from placing massive bets that the European markets will go up in January. Until December 2007, he was massively in the black. So, he decided to counter his trading positions in late December, and he was dead wrong.

These are from reports I've picked up over the past two days.

Here's an interesting excerpt from the New York Times:

"But while the revelation of Mr. Kerviel’s fraud is hugely embarrassing to SocGen, the affair has not been entirely tragic, according to the Toronto-based Globe and Mail. On Thursday, The paper gleefully seized SocGen’s fraud-induced crisis as the underlying impetus for Tuesday’s surprise interest rate cut by the Federal Reserve.

“U.S. borrowers, give thanks to an unlikely hero: Jerome Kerviel,” The Globe and Mail’s Boyd Erman wrote. “As you revel in the lower interest charges on your line of credit…think of how one brave Frenchman came to your rescue.”"

The Fed's Grade: 'A.'

Many things have happened since that incredible day when the Fed acted.

There are a few things I'd like to say about the Fed action. Many believe that the Fed is bending over to Wall Street. People in this camp believe that the Fed has one job - to control inflation - and that if the major financial market indices show a weakening economy, the Fed should not take note. Tuesday morning's action was clearly a Fed reacting to the global financial markets.

The Jayhawk believes that is not only okay, it is good. It is vital. It is important and it is crucial for the Fed to listen to the financial markets.

Why?

Let's go back to the reason the Fed was created.

The purpose and functions of the Federal Reserve include:

• to serve as the central bank for the United States
• to address banking panics
  
• to manage the nation's money supply through monetary policy
• fostering a sound banking system and a healthy economy
• facilitate the exchange of payments among regions
• strengthen U.S. standing in the world economy
• to be responsive to local liquidity needs
• to strike a balance between private interests of banks and the centralized responsibility of government

Additionally, let's consider the following facts:

1. The Fed is seen as the big daddy of the finance world. When it speaks, people listen. When it is silent, people listen more and listen harder.

2. The Fed's main goal is monetary policy *and* regulation. (As most of you know, I believe the Fed should focus more on the latter and let the markets dictate the former.) It is clear that monetary policy is great at controlling inflation, but it is not so clear that is is very good at stimulating a contracting economy. The phrase "pushing on a string" is often used in this regard to illustrate that monetary policy has defined limits to accelerating economic growth.

3. The year is 2008. In the US alone, $14 Trillion (that's right, with a 'T') is in mutual funds. An additional $12 Trillion is in pension funds. These figures do not include other investments vehicles such as hedge funds and individual stock portfolios - retirement or otherwise. The point is this: the US financial markets - not just the stock market - have become a savings account for the average American.

4. Today's dynamic financial markets today have a lot more information available to them and are very good at pricing in risk. The markets have been indicating - for several months - that the Fed ought lower its target rate.

When there is a global financial market sell-off after a severe correction like we've had, i.e. 15% in a few weeks, this creates worry and tension in the consumer's mind. Again, the reason is that this affects an unprecedented number of people in unimaginable ways. Moreoever, there is a very large population of 'baby-boomers' waiting to retire, whose life savings are in stocks.

The Fed's action in staving off a panic was necessary. It is clear that an additional 5 - 10% correction to the already 15% would be disasterous to the mindset of the American consumer. There would be rampant fear. Most people act irrationally with money anyway, so many would sell their stock holdings, which would only make the situation worse. With massive losses, consumers would be affected negatively and a potentially severe recession could ensue. Two-thirds of the US economy is consumer driven. We are already dealing with a housing recession - there is no need to make things worse just so that "we can get over it". We may never get over it for decades if the Fed doesn't act when it has to.

The Fed's decision to restore confidence in the markets was important. Additionally, the liquidity created will hopefully restore credit markets back to normal. All this takes time, but it will heal.

To those who are worried about inflation - read my earlier posts. Core inflation remains low. Today's inflation numbers are high primarily due to higher energy prices, i.e. cost-push inflation. The Fed does NOT control oil prices - lowering rates does not automatically cause inflation. It almost sounds like the anti-inflation hawks would rather see inflation at 1% and unemployment at 10% with negative GDP growth for years. Get over it! Once the economic expansion is under way again, the Fed can raise rates to fight whatever inflation exists at the time. After all, it's much easier to slow down the economy.

Take a look at Europe. The ECB has been stubborn about inflation and refuses to cut its target rate. Well, take a look at the GDP growth and unemployment figures of European countries - they're much worse than America's. So what if their currency is stronger right now? Would you rather have a super strong currency and high unemployment?

So, let's reconsider the Fed's goals and see if it met them or not in Tuesday's action:

1. To address banking panics - CHECK.
2. Fostering a sound banking system and a healthy economy - CHECK.
3. To be responsive to local liquidity needs - CHECK.

The bottom line: Bravo Ben, Bravo! The Fed acted correctly - it gets an A grade. Had it been sooner, I'd have awarded it an 'A+'.

What grade do you give the Fed?

Helicopter Ben is flying

The past day and change has been incredible. Yesterday the global markets lost between 5% - 8%. The S&P 500 futures were down about 5% since the markets were closed for MLK day.

Today, the Fed FINALLY reacts: at 8:20 AM they announced an emergency rate cut of 75 bps. This is the first inter-meeting cut since Sept 17, 2001, and the first 75 bps cut since October 1984. We had a jerk reaction with a nice 40-point move on the S&P but a quick sell off. The attached chart indicates this.

So, what the heck is going on? As the Jayhawk's Nest has been saying, the Fed has been slow to react. They have been "behind the curve" so to speak. What's more shocking about the latest cut is that William Poole of St. Louis Fed voted against the Fed. That's right, Bill Poole voted against the cut! He needs to joint he ranks of Kaptur. I'm going to create a special club for these people called the "Block Head Club."

Anyway, this is not the end. The Fed is finally where it should have been 3 - 6 months ago. Now, that it has caught up with reality, i.e. Jan 22, 2008, we can focus on the meeting next week and beyond.

I maintain that the damage done over the past few weeks is so large that we still need another 75 bps in the next few weeks.

For now, Helicopter Ben is flying. I hope he doesn't crash. Would you ride with him?

The age of hedonic marriage

Taken directly from The Economist (www.economist.com)

"THE INSTITUTION of holy matrimony is sacred if anything is. But nothing, nothing is immune from the profane transformative power of market forces! In a new essay in Cato Unbound, University of Pennsylvania economists Betsey Stevenson and Justin Wolfers show that the traditional marriage of Mike Huckabee's dreams was a contingent adaptation to economic conditions long past. "So what drives modern marriage?" the Penn duo asks...

We believe that the answer lies in a shift from the family as a forum for shared production, to shared consumption. In case the language of economic lacks romance, let’s be clearer: modern marriage is about love and companionship. Most things in life are simply better shared with another person: this ranges from the simple pleasures such as enjoying a movie or a hobby together, to shared social ties such as attending the same church, and finally, to the joint project of bringing up children. Returning to the language of economics, the key today is consumption complementarities--activities that are not only enjoyable, but are more enjoyable when shared with a spouse. We call this new model of sharing our lives “hedonic marriage”.

So is marriage doomed? Marriage in which one person specializes in the home while the other person specializes in the market is indeed doomed. The opportunity cost of having women stay out of the labor force is likely to continue to rise — particularly as young women are surpassing men in educational attainment and higher education is becoming more important for market success. The reach of markets will continue to expand, allowing individuals and families to reap the returns to specialization through market-mediated trade with other specialists, rather than requiring a domestic specialist in each home

This "hedonic marriage" business sounds decadent. Can we count on overgrown teenagers seeking only self-actualisation and bound only by puppy love to take seriously their duty to fill the nation's wombs with enough future taxpayers to meet pension liabilities? Probably not! But there's always immigrants. Or pension reform.

Ms Stevenson and Mr Wolfer's last point above reinforces one of my favourite strategies for ramping down the gender war. Men don't need to do more housework and childcare to achieve equality. Women just need to do less. My dad used to change the oil in our family cars. I certainly don't. I suffer exactly zero shame from the fact that I don't even know how. There are specialists who do this sort of thing. Real women's liberation and gender equality will come when social expectations shift enough to allow families to guiltlessly take full advantage of the returns to specialisation."

Bob Brinker recap

This is really just for me. I ought to start an account at del.iciou.us

http://honeysbobbrinkerbeehivebuzz.blogspot.com/

UPDATED S&P 500 forecast for 2008

All ye traders: UPDATED S&P 500 forecast for 2008.

We will trade sideways to down and test 1170.

There's still potential for a test of 1550, but only AFTER the 1170.

Enjoy making your broker richer!

Marcy Kaptur is a joke

Are you from Ohio? Is Marcy Kaptur your Congresswoman? You should NOT vote for her. She is an idiot. A complete moron who has no business working in DC representing you. None. It's a shame that people even vote for her. Surely, she'd at least hire someone who does her homework for her and knows who she's talking to - in a formal hearing!

What an idiot.

Click this link and see it for yourself here.

http://www.youtube.com/watch?v=JwnQZFJ8Q3o

Fighting the good fight in a bad street: Jim Cramer

Cramer speaks the truth like none other. He really does.

http://www.cnbc.com/id/22706231

He knows the financial industry, he knows Wall Street, he's an insider and he's not afraid of speaking out against the cronies who dine in the parlor next door.

See it for yourself.

Make Your Loved Ones Get It

http://www.fwallstreet.com/blog/99.htm

Which boat are you in?

"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks." - Warren Buffett

Sometimes it's important and even necessary to ponder the words of the wise. This is a good one. Let me know what you think. You have no choice but to know know what I think, just not today!

2008 Predictions

I ought to jot these down before it's too late. My predictions for 2008:

1. I do not think we will see any negative GDP growth this year, contrary to expectations of a recession.

2. The S&P 500 will retest 1350, at least intraday. At year end, I see the S&P at around 1550, attempting to retest the highs of 2007.

3. Hillary Clinton will win the 2008 election.

4. KU will put on a good show at the NCAA basketball tournament and win the tournament.

5. The Patriots will win the Super Bowl - duh.

6. Notre Dame will have another abominable football season and their coach will be fired.

7. Gold will reach the $1000 / ounce mark.

8. Oil will touch $130 / barrel. The average gas price will reach $4/gallon.

9. Iraq will be stagnant.

10. E-Trade will be acquired.

What are your predictions for 2008? Did I miss anything?

The Obstinate Fed

The Jayhawk's Nest believes that the Federal Reserve Board must no longer have the power to govern and dictate overnight interest rates, aka 'Fed funds rate'. Instead, this rate should be determined by the marketplace, in the marketplace. The rationale for this is fairly straight forward and was stated in an earlier post.

Over the past few years of monitoring the financial markets, it has become increasingly clear that the Fed is too slow to react to the current economic environment. In the most present time, for example, the Fed has been extremely slow to provide liquidity to institutions that are running dry. The mortgage debacle that began in the early summer of 2007, and showed signs well ahead of that time, was simply met with a shrug and a couple of blinks from the Fed. Their chief concern amidst the crumbling of credit was inflation.

The cost-push inflation seen over the past few years has been a result of higher oil demand and higher food prices. This cannot be controlled by over night rates as these goods are price inelastic, i.e. they are necessities. Over the long run, they may indeed become price elastic with technological advances and as consumers get more used to the prices. But, in the short run, this inflation should not be the concern. In fact, the higher oil prices have acted as a tax on consumers as their disposable incomes decrease. Indeed this is what the retail sales data shows - a weakening consumer.

And, so, finally last week the chairman of the Fed admitted to a substantial weakening of the economy and promised substantial liquidity, i.e rate cuts. What's he waiting for?! Rates cuts take at least 9 - 12 months to stimulate the economy and sticking to a rigid FOMC meeting schedule to take policy action, is at best, a dumb idea. They ought to act (as they know they should), and they ought to act now.

So, what should be the Fed's new role? Regulating banks and financial institutions as the currently do, only with greater focus, so that the financial companies are not tempted to sin, i.e. get greedy SIVs and other exotic derivative debt instruments. The actions of the masses on Wall Street indeed pose systemic risks to the economy at large as we've seen.

Kenya

I must admit I was a little surprised to see two comments to my last post - I have readers?!

So, first: Kenya.

Before I move on, I'd like to point out that The Economist was factually wrong in an article titled "More Instability" dated Jan 11, 2008. It does not seem to up anymore. They stated that the chairman of the opposition party ODM was Anyang Nyongo. This humble author sent them an email correcting their error. Anyang Nyongo is the secretary general of ODM; Henry Kosgey is the chairman of ODM. So, even The Economist gets it wrong sometimes. I must admit it's a little disturbing and makes me believe all those who always said the public should always question the media.

Kenya, as you all well know by now, is in a mess. The city I once lived in, Kisumu, looks worse than the pictures of Baghdad. My sources tell me that the city has lost 10 years of development. Most of the shops have been looted and there were some reports about water supplies being cut off. It truly is a complete disaster area. All of this, of course, is very sad.

However, was the unprecedented violence, mass killings, and complete destruction of property necessary?

As you may know, the reason for Kenya's current mess is that the sitting president, Mwai Kibaki, rigged the election in his favor. At this point, just about everyone - including the country's Electoral Commission (ECK) - has stated in some way that the election was not a fair deal. Polls going into the election and the numbers before the rigging show Raila Odinga - the ODM candidate - as the true winner. Kenyan politics, like many other African countries' politics, is tribally dominated. Kibaki is from the Kikuyu tribe (the largest in Kenya), whereas Odinga is from the Luo tribe, which based in Kisumu.

So, what are citizens to do when they see massive injustices take place in broad daylight? I certainly do not believe that killing each other or destroying property will solve anything. The people's reponse in Kenya, I believe, are a by product of lack of corruption and lack of education.

In a corrupt society, the average citizen does not get the protection or rights he or she deserves. This was evident in the killings and destruction seen across the country. Furthermore, it is the poor that continue to suffer the most as they are unable to protect themselves and are the most vulnerable in very way - politically and economically. Additionally, due to a lack of understanding of the consequences of revolting in the manner they did, it is the poor who will suffer the most as the economy crumbles and unemployment soars.

I have been rather distraught and shocked at the country's reaction to the election. While some violence may be expected, the violence seen in the past weeks is at a level not seen since the fight for independence. The country, as it currently stands, is highly divided and its future remains unknown. Kenya was one of the best countries in the African continent for several decades - with a booming economy, relatively stable political environment, improving living standards for its citizens, and in many other ways. The current events have rocked questions the country's temperament.

Unfortunately, there is no end in sight to the madness. Hopefully there will be one sooner than later.

More to come

Oh, how the days go by and I don't write. I have so many things to share with you, it's not even funny.

So, where do I begin? Well, how about this. I'll list the issues I'd like to talk about and then over the next few days I'll talk about each one.

1. Kenya - the mess it is.
2. The US elections
3. The Federal Reserve and the financial markets
4. 2008 in general and a few predictions
5. 25 years as a human
6. Harry Potter
7. Something novel

You better have something to share with me too - how about your time as I cover these topics from coast to coast, from the east to the west, from shining star to shining planet, it's all coming your way, right here, same place, same time. Stay tuned...