Every once in a while, I like to break the Dow index down and look at the 30 individual components. I just finished comparing it to where is was on Jun 1, 2008. A few facts:
1 company was dropped from the average (AIG). Its price has dropped 99%. It was replaced with Kraft Foods.
1 other company has dropped more than 90%: Citigroup.
3 companies have dropped between 80 and 90%: Alcoa, BofA and GM.
[[MORE]]
5 companies have dropped between 50 and 80%: Dupont, Amex, Boeing, GE and Caterpillar.
The average itself has declined by 43.6%.
The top 3 best performing companies dropped 9.5% (McDonalds), 11.7% (Walmart) and 22% (Home Depot)
GM alone lost 45% of what all of the other companies earned together (on a per-share weighted basis).
The companies that are the largest components of the Dow are IBM, Exxon Mobil and Chevron.
Including AIG, the P/E on the Dow is 27. Excluding AIG and GM, the P/E is about 9.7. Historically, "reasonable" valuations are around 7 at the end of a bear market. Using the more optimistic number, that would put the bottom around 5100. Except earnings are declining rapidly with no end in sight and the impact of unfunded pension fund liabilities hasn't hit yet, either. If the P/E goes to 5 and earnings of the profitable companies drop by another 30%, that could be 2500.
The highest individual P/Es (which applies only to companies earning a profit) are 27.2 for Alcoa, 26 for JP Morgan, 16.4 for Coke and Home Depot is at a very questionable 15.2.
The lowest P/Es today are Caterpillar 4.3, GE 4.7, Amex 5.0 and Chevron 5.3.
A one-point move in any of the Dow components moves the Dow average by almost 8 points.
Tuesday, 3 March 2009
Tuesday, 3 February 2009
Sucked into the green zone
I ran across a blog post that includes an article called Sucked into the Green Zone, by Andrew Redleaf (Dec 2008). It presents an interesting perspective on how government-backed borrowers are crowding others out of the market:
Here's an excerpt:
When a massive and sudden deflationary credit collapse hits a modern economy, borrowing becomes extremely expensive for everyone—almost. The government, and certain government backed institutions, will still able to borrow at pre-deflation rates. With money plentiful and cheap on one side, the government’s side, but scarce and expensive on the other side of the room, assets will flow toward the government’s side of the room like water flowing downhill. Over time all ‘normal’, not government-backed, asset holders who can borrow only at high rates would lose everything they own to those who can borrow at the government rate. If government backed entities can finance an asset at 5 percent, and everyone else in the room is obliged to finance it at 15 percent, and if this condition could long endure, ultimately every asset in the economy would be owned by the government backed crowd.
Thus, just as in an inflation, by precipitating a sudden catastrophic deflation the government not only shifts wealth from one citizen to another, the government itself can massively confiscate assets.
[[MORE]]At first this seems odd, since the government itself is massively a debtor, and deflation is generally held to be bad for debtors (as inflation is generally held to be good for them). Is it not for this very reason that governments are tempted to inflate the currency, so that their own debts can be wiped away, paid off with cheap currency of its own issuance?
All true. But our deflation—let us call it the deflation of the Red Zone—is the creature not of a long term shortage of currency, as for instance the US saw frequently in the 19th century, but a catastrophic credit collapse. A credit collapse, as the very word implies, is preeminently a crisis of trust. A lone trusted borrower in the midst of a financial terror can borrow and lend at an extraordinarily favorable spread, putting assets on its balance sheet at amazing bargain prices. This is exactly what the government is doing right now—even though it is trying to give the spread away by tossing money to its favored banks. Right now, the only US debtor with access to still functioning credit markets is the U.S. government. Because only the Treasury can borrow, only the Treasury, or those on whose behalf it consents to borrow, can lend, or buy.
A deflation arising from a catastrophic credit collapse can thus be described simply as a condition in which the spreads between risk free, or Treasury rates, and all other rates, or risk premiums, are radically out of proportion with real economic risks. (Or at least those real economic risks apparent before the collapse. The longer credit markets remain dysfunctional, the more the real economic risks will increase to match the increase in risk premiums.)
If such a condition could persist forever, only the state would own any assets, which is why the estimated price of the bailout keeps rising. The government is borrowing, lending, and buying in an attempt to keep the system afloat, but it is not closing the spread between risk free and risk premium paper. Perversely, by driving down risk-free rates it is actually widening the spread.
(continues)
Here's an excerpt:
When a massive and sudden deflationary credit collapse hits a modern economy, borrowing becomes extremely expensive for everyone—almost. The government, and certain government backed institutions, will still able to borrow at pre-deflation rates. With money plentiful and cheap on one side, the government’s side, but scarce and expensive on the other side of the room, assets will flow toward the government’s side of the room like water flowing downhill. Over time all ‘normal’, not government-backed, asset holders who can borrow only at high rates would lose everything they own to those who can borrow at the government rate. If government backed entities can finance an asset at 5 percent, and everyone else in the room is obliged to finance it at 15 percent, and if this condition could long endure, ultimately every asset in the economy would be owned by the government backed crowd.
Thus, just as in an inflation, by precipitating a sudden catastrophic deflation the government not only shifts wealth from one citizen to another, the government itself can massively confiscate assets.
[[MORE]]At first this seems odd, since the government itself is massively a debtor, and deflation is generally held to be bad for debtors (as inflation is generally held to be good for them). Is it not for this very reason that governments are tempted to inflate the currency, so that their own debts can be wiped away, paid off with cheap currency of its own issuance?
All true. But our deflation—let us call it the deflation of the Red Zone—is the creature not of a long term shortage of currency, as for instance the US saw frequently in the 19th century, but a catastrophic credit collapse. A credit collapse, as the very word implies, is preeminently a crisis of trust. A lone trusted borrower in the midst of a financial terror can borrow and lend at an extraordinarily favorable spread, putting assets on its balance sheet at amazing bargain prices. This is exactly what the government is doing right now—even though it is trying to give the spread away by tossing money to its favored banks. Right now, the only US debtor with access to still functioning credit markets is the U.S. government. Because only the Treasury can borrow, only the Treasury, or those on whose behalf it consents to borrow, can lend, or buy.
A deflation arising from a catastrophic credit collapse can thus be described simply as a condition in which the spreads between risk free, or Treasury rates, and all other rates, or risk premiums, are radically out of proportion with real economic risks. (Or at least those real economic risks apparent before the collapse. The longer credit markets remain dysfunctional, the more the real economic risks will increase to match the increase in risk premiums.)
If such a condition could persist forever, only the state would own any assets, which is why the estimated price of the bailout keeps rising. The government is borrowing, lending, and buying in an attempt to keep the system afloat, but it is not closing the spread between risk free and risk premium paper. Perversely, by driving down risk-free rates it is actually widening the spread.
(continues)
Tuesday, 13 January 2009
The effect of outlawing employment testing
In 1971, the Supreme Court effectively outlawed employment testing. Their justification was that it discriminated against minorities, and was therefore in violation of the Civil Rights Act. With the benefit of hindsight, care to guess what happened as a result?
A recent study has shown that in the aftermath of the ruling, employers changed their approach to requiring college degrees. Many minorities were shut out only because of their financial condition, rather than their ability. The number of people in college increased and the cost of education increased without providing additional skills or knowledge, further compounding the problem. A bad deal for minorities all around. Plus, degrees evolved into being mostly a demonstration that you could make it through the process, rather than certifications that you actually learned anything useful about your subject.
Yet another example of how government interference in the free market rarely has the desired effect.
Link to PDF
A recent study has shown that in the aftermath of the ruling, employers changed their approach to requiring college degrees. Many minorities were shut out only because of their financial condition, rather than their ability. The number of people in college increased and the cost of education increased without providing additional skills or knowledge, further compounding the problem. A bad deal for minorities all around. Plus, degrees evolved into being mostly a demonstration that you could make it through the process, rather than certifications that you actually learned anything useful about your subject.
Yet another example of how government interference in the free market rarely has the desired effect.
Link to PDF
Sunday, 11 January 2009
Russian Techniques of Subversion
Pretty interesting series of videos from 1983 by KGB defector Bezmenov that describes the Russian techniques of subverting their enemies -- the accuracy with which he described the events of the 25 years since then in the US is definitely impressive.
It occurs to me that WW III may have been fought for the last 50 years, right in our midst. It was not a war with guns and bombs, it was a war of ideology. And the US is now in the final stages of losing, big time. Most of us didn't even know it was happening. To the extent it was intentional -- and the more I hear Bezmenov talk, the more I believe it may have been -- it was really an amazing achievement, in the true spirit of Sun Tzu. Fighting without fighting. Help your enemy destroy themselves.
It occurs to me that WW III may have been fought for the last 50 years, right in our midst. It was not a war with guns and bombs, it was a war of ideology. And the US is now in the final stages of losing, big time. Most of us didn't even know it was happening. To the extent it was intentional -- and the more I hear Bezmenov talk, the more I believe it may have been -- it was really an amazing achievement, in the true spirit of Sun Tzu. Fighting without fighting. Help your enemy destroy themselves.
Tuesday, 6 January 2009
Short summary of moving to New Zealand
Here's a short summary of what it took for us to move to New Zealand:
-- It took about 9 months to get the visas. Would go much faster if you had a job first.
-- It's much easier to do when you're under 55 and your kids are under 18. The rules change after that.
-- It was challenging to find a job here while still in the US, but it wasn't impossible. Pay is well below California averages.
-- We hoped living expenses would be lower. Unfortunately, while they turned out to be lower in some areas (housing, insurance, property tax), they were much higher in others (food, clothes, imported goods).
[[MORE]]-- Making a real lifestyle change takes a lot more than just moving. We're still struggling with that in some ways.
-- There are a lot of odd quirks about moving to a new country: strange laws, new holidays, odd customs, new foods (and the loss of previous favorites), licenses, taxes, forms, the legal system, the medical system (prescriptions, appointments, who pays for what, etc) -- and even small things, like how you interact with trades people and what they call certain things (like "Panel Beater" instead of "Body Shop")
-- There's a lot of "hidden" work after you move, like finding new stores, a new attorney, doctor, dentist, bank, insurance broker, accountant, etc, learning your way around the town, learning the new driving rules (and how to drive on the left). This is from someone who has lived in 15 or 20 different places before (but they were all in California).
-- Getting household goods shipped was a challenge and a half: lining up movers, shipping to the right port, customs and biosecurity clearance, lining up local movers -- a ton of details, and very easy to make costly mistakes
-- Banking is very different: mostly electronic here, checks are rarely used, bill paying is different, new frequent customer programs, new credit card
-- Finding and buying a house: finding a real estate agent, shopping for homes, getting prices (sellers sometimes prefer auctions or other formats where prices aren't published), totally different negotiation process, no escrow (all handled by the lawyers), a very short sales contract, somewhat different process of finding a loan
Just one quick story -- the loan process might be of interest. First I was referred to a local lender by my real estate agent. It was a "building society," rather than a bank. The approval process consisted mostly of a short interview; the paperwork was basically a formality since we were borrowing much less than the purchase price. But the interesting part was what happened after the loan was approved. Rather than just signing the contract and that being the end of it as in the US, our attorney called and walked through the loan agreement with me, paragraph-by-paragraph. Home loans in NZ are full-recourse, for example, which was good to know. After the lawyer finished with me, he then had the same conversation with my wife. He did the same thing for the other legal documents associated with the purchase (the original purchase agreement was only 4 pages long). He explained that this was standard practice in NZ; I thought the whole thing was very cool.
I'm still a US citizen. I still have a US passport. I still have to pay US taxes on all income. I have family and friends in the US, and will always have deep connections there. I think of myself as an American, not a Kiwi.
I also have Permanent Resident status in NZ. After passing through all of the hoops (which took 2 yrs), I have the same privileges as a New Zealand citizen. I can do everything they can except certain government jobs (security clearance, etc); I could even serve in the military. I also pay income taxes here. My family and I are covered by the national health system, we're eligible for government benefits, we can vote, travel out of the country indefinitely and then return to stay permanently, etc.
-- It took about 9 months to get the visas. Would go much faster if you had a job first.
-- It's much easier to do when you're under 55 and your kids are under 18. The rules change after that.
-- It was challenging to find a job here while still in the US, but it wasn't impossible. Pay is well below California averages.
-- We hoped living expenses would be lower. Unfortunately, while they turned out to be lower in some areas (housing, insurance, property tax), they were much higher in others (food, clothes, imported goods).
[[MORE]]-- Making a real lifestyle change takes a lot more than just moving. We're still struggling with that in some ways.
-- There are a lot of odd quirks about moving to a new country: strange laws, new holidays, odd customs, new foods (and the loss of previous favorites), licenses, taxes, forms, the legal system, the medical system (prescriptions, appointments, who pays for what, etc) -- and even small things, like how you interact with trades people and what they call certain things (like "Panel Beater" instead of "Body Shop")
-- There's a lot of "hidden" work after you move, like finding new stores, a new attorney, doctor, dentist, bank, insurance broker, accountant, etc, learning your way around the town, learning the new driving rules (and how to drive on the left). This is from someone who has lived in 15 or 20 different places before (but they were all in California).
-- Getting household goods shipped was a challenge and a half: lining up movers, shipping to the right port, customs and biosecurity clearance, lining up local movers -- a ton of details, and very easy to make costly mistakes
-- Banking is very different: mostly electronic here, checks are rarely used, bill paying is different, new frequent customer programs, new credit card
-- Finding and buying a house: finding a real estate agent, shopping for homes, getting prices (sellers sometimes prefer auctions or other formats where prices aren't published), totally different negotiation process, no escrow (all handled by the lawyers), a very short sales contract, somewhat different process of finding a loan
Just one quick story -- the loan process might be of interest. First I was referred to a local lender by my real estate agent. It was a "building society," rather than a bank. The approval process consisted mostly of a short interview; the paperwork was basically a formality since we were borrowing much less than the purchase price. But the interesting part was what happened after the loan was approved. Rather than just signing the contract and that being the end of it as in the US, our attorney called and walked through the loan agreement with me, paragraph-by-paragraph. Home loans in NZ are full-recourse, for example, which was good to know. After the lawyer finished with me, he then had the same conversation with my wife. He did the same thing for the other legal documents associated with the purchase (the original purchase agreement was only 4 pages long). He explained that this was standard practice in NZ; I thought the whole thing was very cool.
I'm still a US citizen. I still have a US passport. I still have to pay US taxes on all income. I have family and friends in the US, and will always have deep connections there. I think of myself as an American, not a Kiwi.
I also have Permanent Resident status in NZ. After passing through all of the hoops (which took 2 yrs), I have the same privileges as a New Zealand citizen. I can do everything they can except certain government jobs (security clearance, etc); I could even serve in the military. I also pay income taxes here. My family and I are covered by the national health system, we're eligible for government benefits, we can vote, travel out of the country indefinitely and then return to stay permanently, etc.
Friday, 26 December 2008
Ideas about treating hypothyroidism
I was hypothyroid for years, but managed to slowly reverse it, and at this stage I no longer need the meds (although I may well need them again at some stage).
If you're facing this too, here are few tidbits that might help:
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If you're facing this too, here are few tidbits that might help:
- Your thyroid gland adjusts its output of thyroid hormone in response to how much hormone it senses in your blood. That can make you feel terrible after starting on a big dose of Synthroid all at once. It's better to add a little at a time, and work your way up over one or even two months.
- Increased fatigue when you first start with hormone supplements isn't unusual. It normally goes away in a month or two.
[[MORE]]
- Synthroid is synthetic T4. It has the advantage of providing a very exact dose compared to other brands such as Levoxyl, which some people claim is helpful. I found it wasn't that helpful for me, and I much preferred Armour Thyroid, which comes from an animal source. Armour also includes some T3, which is the active form of the hormone. Some people have a hard time making T3 from T4. There are specific lab tests that can help narrow this down (Free T3, Free T4, etc), but many docs don't seem to understand them.
- Try monitoring your body temperature before you get out of bed. It can be a good indicator of your body's response to the hormone supplements. A temperature of less than 97.6 to 98.0 generally means you should increase your dose slightly.
- Iodine supplements can be very helpful, since thyroid hormone is composed primarily of iodine.
- You might also want to look into the Wilson program, which involves adjusting T3 dose only, in a cyclical way. It has cured hypothyroidism in some people (I went through it myself; it helped, but didn't cure me).
- Check your environment at home and at work for toxic chemicals. Some chemicals can compete with thyroid hormone for hormone receptors, which decreases its effectiveness in your body. They can also impair the thryoid gland's ability to produce. Even small amounts of things like formaldehyde, paint fumes, bug sprays, etc, can be damaging.
- The thyroid gland is known to be very sensitive to toxins. I suspect that as people lose weight on a Paleo-type diet, and as the toxins the body naturally sequesters in fat are released into the blood (a well-documented phenomenon), that it might eventually be thyro-toxic or suppressive in some people. If so, it suggests possible treatment or nutritional support (increasing glutathione, etc) while you’re losing weight could be a good idea.
Monday, 22 December 2008
Home mortgage modifications from Fannie & Freddie
Fannie & Freddie have started to offer mortgage loan modifications. As of the moment, the loan mod is voluntary. Accepting this ’solution’ means you:
* Acknowledge the full debt regardless of the value of the home
* Waive all rights to fraudulent or predatory lending claims in the future
* Turn your loan into a full recourse loan that could follow you for life even if you choose foreclosure down the road
[[MORE]]* Remain underwater, full-leveraged, renter for the rest of your life (in most cases)
* Will save no money at 38% housing debt-to-income ratio plus all other debts
* May not discharge any of this mortgage debt through any bankruptcy even after foreclosure
If widely accepted by home owners, this will ruin the American consumer and make housing a dead asset class for decades. If you are in a serious negative equity position when signing these forms, as most are, remember that you will:
* Never be able to sell your home
* Never be able to buy a new home
* Never be able to rent your home due to owner occupant provisions
* Be responsible for the full loan amount even if the value of your home keeps dropping for the next 10-years.
The 38% debt-to-income ratio on top of all of your other debt means you will save no money and live hand to mouth to keep this underwater roof over your head.
From: http://mrmortgage.ml-implode.com/2008/12/17/fanniefreddie-come-get-your-loan-mod-pay-for-life/
* Acknowledge the full debt regardless of the value of the home
* Waive all rights to fraudulent or predatory lending claims in the future
* Turn your loan into a full recourse loan that could follow you for life even if you choose foreclosure down the road
[[MORE]]* Remain underwater, full-leveraged, renter for the rest of your life (in most cases)
* Will save no money at 38% housing debt-to-income ratio plus all other debts
* May not discharge any of this mortgage debt through any bankruptcy even after foreclosure
If widely accepted by home owners, this will ruin the American consumer and make housing a dead asset class for decades. If you are in a serious negative equity position when signing these forms, as most are, remember that you will:
* Never be able to sell your home
* Never be able to buy a new home
* Never be able to rent your home due to owner occupant provisions
* Be responsible for the full loan amount even if the value of your home keeps dropping for the next 10-years.
The 38% debt-to-income ratio on top of all of your other debt means you will save no money and live hand to mouth to keep this underwater roof over your head.
From: http://mrmortgage.ml-implode.com/2008/12/17/fanniefreddie-come-get-your-loan-mod-pay-for-life/
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