Wednesday, August 27, 2008

How to get Silas interested in Barbie dolls

Because of that whole heterosexuality[1] thing, I've never been interested in Barbie dolls. But I have been interested in the path of American industry and innovation, and where that intersects with Barbie dolls, you've got me hooked.

The big story today is that Mattel, the maker of Barbie, won a smaller-than-expected judgment against MGA, maker of the rival Bratz dolls.

It's a sad story, MGA having to pay damages, but becoming all too common. As the author of the story, Charles Payne, puts it:

I write about the deteriorating competitive nature of American businesses... Mattel makes for a great case study in corporate compliancy and hubris. ... At some point, a bell has got to ring. Our largest businesses have to be willing to truly innovate, to find genuinely new ways to get things done. Wall Street was greedy and complacent, and couldn't back away from the trough of easy money.

What happened in this particular case was that a designer at Mattel came up with an idea for a new kind of doll. Mattel didn't like it, so he went to work for another company that was actually competent enough to see the merit therein, MGA. So then Mattel, seeing their stupidity play out in the Bratz dolls' success, sued on the grounds that well, since the designer developed it under them, some contract gives Mattel rights in it. Except that -- oops -- they couldn't substantiate a case against the designer, and dropped it.

So Mattel's attitude basically comes down to: we deserve all of the reward and none of the risk, and we'll sue you rather than produce innovative products. (For what it's worth, I volunteer at an intermediate school [4th-6th grade, 9-13 year olds], and I've only seen Bratz-themed products, never Barbie.) And keep in mind, it takes quite a bit of innovation and guts to compete with Barbie in the doll market, one in which the buyers want to have what all the other buyers already have. Let alone compete well!

Payne is right: more and more often we see such clowns in charge of big corporations. At American car companies who lose boatloads of money and are valued at a sliver of their foreign competition. ("Honda is an engineering company, GM is a marketing company.") At financial companies that made billions in bad loans based on questionable models. The list goes on and on. When will America get its competitive edge back?

I don't know, but in the mean time, I'll make sure my money with those who deserve it. Today, I finally took the plunge and cast my vote of no confidence in the future of American business (and inability to pay back debts) by shifting my S&P 500 investments to an international stock mutual fund.

[1] Not that the opposite would constitute a valid basis for criticism.

Tuesday, August 26, 2008

Setting scarcity straight, once and for all

In case you haven't been following, Bob Murphy wrote a shameful op-ed on the proposed Cap-and-Trade scheme, which prompted quite a bit of criticism from me and "TokyoTom" (good summary). If Bob were merely claiming that politicians screw things up, none of us would have objected. Unfortunately, he said a lot more than that. The focus of this post will be on his claim that carbon emission caps "don't reflect scarcity".

Now, as you see in the exchange, Bob tries to claim that what he really meant was that if the carbon cap were too low, or somehow not correct, that wouldn't reflect scarcity, but otherwise it would. If you follow the exchange, you'll see how I showed that there is no possible way, based on the phrasing of his argument, that he could claim the op-ed meant that. Nevertheless, he has repeatedly gotten considerably sympathy from others (not me) with this last-ditch attempt to salvage himself from having to apologize for his op-ed, by arguing that, so long as government doesn't precisely set the cap to what the perfect, pure, austere free market would, the cap still would not reflect scarcity and he was technically correct.[1] I will now show how even this claim is wrong, by starting from a simple case, and working up to the claim Bob made.

Economic scarcity refers to the situation where "not all of society's goals can be pursued at the same time; trade-offs are made of one good against others." Now, let's see where this takes us.

Problem #1: I want to hit Bob. Bob does not want me to hit him. Does scarcity exist?

Answer: Yes, because it's impossible to satisfy the social goals of both me hitting Bob and Bob not being hit by me.

Problem #2: I attempt to hit Bob. Bob retreats to his house and locks himself inside. I attempt to bypass the locks. Does the difficulty of getting to Bob reflect scarcity?

Answer: Yes. Since my goal comes at the cost of Bob's, Bob will take measures to ensure I do not reach mine. The lock, a manifestation of Bob's desire not to be hit, therefore reflects scarcity.

Problem #3: Having such difficulty getting past Bob's locks, I instead try to act out my anger against him by sending 100 locusts down his chimney. I would have sent more, but my insurer restricted me to having only 100 locusts at any given time. Does this restriction on my ability to carry locusts reflect scarcity?

Answer: Yes. In deciding the max it will allow me to carry while maintaining coverage, the insurer must consider how badly I can hurt others with a given number of locusts, since hurting others can cause me to be liable for damage. The limit, being a mechanism by which the conflict with the desires of others not to be hurt manifests, therefore reflects scarcity.

Bonus answer: Note that locusts are not guaranteed to hurt Bob, but the more I send, the more likely that is. So the limit on how many locusts I can have only reduces the harm to Bob in a probabilistic sense. However, the limit still reflects scarcity.

Problem #4: Same situation, but in an alternate universe. There is an intrusive government that passes laws in an attempt to minimize conflict between its subjects and thus maximize its looting; insurers of the type above don't exist. It has decreed that people may own 146 locusts, but no more. In trying to buy more than 146 locusts, a red flag goes up, and I am prevented from buying any more. Does this difficulty in buying locusts reflect scarcity?

Answer: Of course. Whatever criticism of government you might make, its decrees ultimately rule in favor of some goals and against some others. Therefore, when it hinders one goal (such a stopping locust attacks) in preference to another (such as the goals of locust-lovers in keeping collections), this is a manifestation of scarcity.

Problem #5: What if the government's limit were 23 instead? Or 100? Or 0?

Answer: Yes, it still would reflect scarcity. No matter how closely or poorly it approximates what limits would result from market processes, the above reasoning applies.

Problem #6: Scientists reveal that emitting substance X increases the probability of catastrophic damage. The governments of the world then place an overall emission cap of C. As a result of the cap, the price of doing things that result in X emission goes up. Do the higher prices from the cap reflect scarcity?

Answer: Yes, for the same reasons as in #4: the higher prices ultimately result from the (probabilistic) conflict with the goals of others. Yep, even substance X is CO2.

Problem #7: If Bob responded to the above line of reasoning (about scarcity) by saying that the proposed scheme is not a Blicknorg [2], is that responsive?

Answer: Don't be ridiculous; that's just changing the topic.

Long story short, the caps do reflect scarcity.

[1] And how would you ever learn what cap a free market would set? Why, you first have to price all resources, including and especially the atmosphere. Anyone want to take a wild, wild guess as to the ratio of the words that Bob has spent:

a) advocating that atmospheric property rights be clearly delineated,
to the words Bob has spent
b) demanding that government NEVER do a SINGLE thing to in any way define such rights?

I'll give you a hint: it's somewhere between "zero" and "can I have what you're smoking?"

[2] Actually, in the discussion, what Bob actually tried to do to refute the solid argument that caps would reflect scarcity, was claim that the caps are not a "market solution", rather than a Blicknorg. However, since he refused to ever clarify what exactly that meant, despite being asked several times, he might as well have said Blicknorg.

Sunday, August 24, 2008

I got a kitty!

Yesterday I adopted a kitten at a Humane Society shelter. She's 6-8 months old, and I haven't given her a name yet, but I'm thinking of going with "Cordie" because of her fondness for cords. Pic:

Commence cooing. No, I don't know how to get the orientation right.

After I took her home, she wouldn't let me come near her, but within a few hours let me hold her and pet her. By about midday today she already made it to the "wants to bother me all the time" stage :-)

Wish me luck in this pet-parenting adventure!

Friday, August 22, 2008

Hee hee hee! ur so clev4r!

Well, Bob Murphy bites the bullet. I argue (in an unproductive email exchange series) that government enforcement of atmospheric property rights, while not optimal, is just as tolerable as government's enforcement of its minarchist authority (police, courts, army), such as when it detains killers. In other words, where are the outraged libertarian articles about how government police will evict someone for failure to honor a mortgage?

Well, Bob took it as a sign to show off his look-smart-to-a-sophomore-girl case for legalizing murder

So imagine we're initially in a free society, and then you hear that the government is moving in to town in order to monopolize civil society's possible responses to murderers. Are you going to feel safe to walk the streets now? Are you confident that a serial killer will be stopped as quickly as humanly possible? [emphasis added]

Right, assume the opposite of the current problem.

Bob must have missed, in any case, that I compared the carbon caps to the existence of a ban on murder, not the current enforcement methods. But no need to be rigorous when riding that bronco for all it's worth, eh?

And for anyone interested, I actually made the point Bob is responding to back in early June.

Quoting my comment at length:

...While a valid complaint, I honestly don't see how it's different from government's enforcement of other rights. Most libertarians, for example, have no problem with government enforcing (at least some of the existing) land titles, excluding murderers from interaction with the rest of us, putting out fires, etc., at least until private alternatives are [established]. The libertarian position is more like, "Hey, that would be a lot more efficient if done by privately-run organizations," rather than "Putting out fires is immoral." We should likewise view enforcement of the atmospheric property rights: yes, government will botch it horribly, but it's preferable to the tragedy of commons resulting from ZERO property rights.

But I don't see anyone here following this chain of reasoning. All I see (here and on a mailing list) is poorly thought out schemes: oh, we should give anyone a veto over any harmful emission; or we should never allow any [veto of pollution].

I'm very interested in learning where I'm wrong, but if even Bob_Murphy can't grasp basic issues like why carbon emission capacity is scarce, I'm not sure anyone here is even prepared to make the point.


So folks, if you want to know why I don't think Bob is taking this issue seriously, look no further than this. With one witty remark, he'll obviate about a month of discussion because of a premise assumption he never corrected when I made explicit, nor in any of the other discussion that implicitly depended on it.

His IER hit piece therefore was not really arguing, "Hey, politicians won't get the cap right because of political considerations." It was arguing:

"Government shouldn't do anything [so far so good--SB], and there's no point in even talking about why one government policy is better than another. If failure to define atmosphere rights (because politicians botch it and the free market is squelched) results in catastrophic damage to the earth's climate or even human existence ... so be it!"

I can understand why Bob had to obscure his real position for IER.

Ready to take the plunge and side with Bob? Just see if you can say this with a straight face:

How could the government continue to prosecute anything else, if people could say, "C'mon, murder is legal, and yet very few people do it. It would wreck your credit score! Who the heck wants that?!"

New name for blog?

When I started this blog, I gave a name intended to represent the general theme of the blog. I figured that sooner or later as it took on a character, I'd be giving it a new one. So is it that time? One good candidate I thought of would be "Scarce Bengal", an unusual combination of words that reflects a major issue that's been around since before the blog started. Here's why it would be a good name for the blog:

1) The unique word combo.

2) It is a reference to my long-held dissatisfaction with Bob Murphy for casually dismissing huge classes of people (one of them Bengals) as basically "not counting" for purposes of determining whether there is scarcity. Did the price of your fresh, clean oil go up because governments restricted the total consumption in order to keep countries from flooding? Well guess what? That higher price, according to Bob, doesn't reflect scarcity!

3) Its initials match my initials.

4) I have a cute Mii caricature of a friend of mine who is a Bengal (i.e. person from Bangladesh).

Tuesday, August 19, 2008

GM attempts to boost sales by losing (some of) the weasels

So CNN's Money reports that GM is trying its employee discounts for everyone program again. What this means is that it will give everyone, not just its employees, their cars at n% under the MSRP. More importantly, that in turn means that so long as program exists, everyone gets the same price. The article in fact notes that this converts their retail outlets into "no-haggle" operations of the kind used by GM's own Saturn brand. (Toyota's Scion does the same thing.)

This has long been something I've wanted car manufacturers to do. Not the discount necessarily, but ensuring that everyone pays the same price for the same car. Car salesmen have a well-earned reputation for using every legislative and psychological trick to gore you for as much as they can on any purchase. And it is this fear of being "played" that led me (and undoubtedly lots of othes) to put off buying a car. Who wants to go through that? Half the dealerships I went to left me wanting to vomit at their vileness.

Think about that for a minute. As an automaker, you use advanced technology most can only dream of. You have enormous, well-capitalized facilities for training, for testing, for building. You accomodate thousands (if not millions!) of design constraints. And what do you depend on for your cash flow? What barrier must your ultimate customers bypass to have a chance to give you money?

"So what kind of monthly payment were you looking for? ... Uh huh, up to ...?"
"Now, we're going to see what kind of financing deal we can get for you, okay? If you could just stay for a few minutes, in case the bank wants to talk to you. It'll just be a few minutes, I promise."
"Oh, yeah, those guys just need a few more minutes to look at your car, so we can give you the best deal, it won't be much longer. Now, which option did you want to go with?"
"Oh, just one more thing before you drive off, we'll need you to talk to our finance department about extended warranties, which I never mentioned before today."
"Internet sales department: please call Lisa at ..." (!!!)
"Okay sure, but I've never used SYNC ..."

Who enjoys dealing with that? Not me. While obviously I'm not one of the geniuses currently in charge of a large corporation, I strongly suspect that they would realize greater sales and a more liquid auto market if they could just signal their commitment to fair dealing and ditch some very useless middlemen (who these days usually know less than the customer about the car) by using this sales model. Certainly, there's something to be said for squeezing out the consumer surplus from less savvy buyers. But it kind of defeats the purpose when the real impact is to get most people to just say, "You know what? **** it. I'm just not going to bother." (Discretion like that would have been welcome in the recent real estate bubble.)

(Of course, the real reason such garbage can persist is that the retail car sales lobby has, in every state, been successful at severely restricting retail car sales, including internet sales, thereby killing the kind of competition that would eliminate vile sales tactics. Also, not suprisingly, this doesn't stop people like Malcom Gladwell from using instances of this vileness (like race/sex discrimination) as an indictment of free markets.)

So keep it up, GM: maybe you'll be able to chug along an extra six months, more than enough for your shareholders to dump their take on some idiot.

Saturday, August 16, 2008

Thursday, August 14, 2008

So why are libertarians such socialists about the atmosphere?

Why do libertarians seem to demand that there be private property, and well-defined, tradeable rights in each and every resource in existence ... except the atmosphere?

Sure, global warming alarmism could be complete B/S. Fine. But there could one day be an atmospheric global tort whose harm profile is isomorphic to that of greenhouse gas emission (as claimed by the climate science community). Shouldn't a consistent, coherent philosophy have a clear answer, directly implied from the principles its proponents claim to hold? So why does the only existing answer seem to be

NEVER, NEVER should there be private property in atmosphere, and I will do whatever it takes to rationalize why this resource should forever remain an abused, unowned tragedy.

I have the right, the inalienable right, to cheap oil, and if you thought libertarianism was supposed to be about principled, private property rights, you can just wake up from your goddamn fantasy and get with the program!

Of course, there is the the Pigou Club, whose attitude is only a bit less excusable:

Are you getting victimized by greenhouse gases? Aww, you poor thing! Hey! Polluters! Give me money! Oh, what you lookin' at me like that for? Better move to high land, bro, you ain't gettin' no bling.

EDIT: some goofs.

So why aren't you shorting GM, liar?

With all my doomsaying about GM, all my warnings about the emptiness of their warranties, shouldn't I be taking action based on this certainty? Well, good point. In strategizing about the implications of my pessimism for my next portfolio decisions, I forgot to include GM, mainly because I associate "short-selling" with "risking being screwed by a dead cat bounce.

But you don't have to do it that way. Instead, I can just buy some long-term, far-out-of-the-money puts. Check out this list for GM options expiring in January '08. My eyes are on the $2.50. Bonus: I can dump the options if some news temporarily makes the value surge.

Another bonus from using this method: No ill will from my brother :-P

Tuesday, August 12, 2008

Your taste for alcoholic beverages is a lie

UPDATE: I perform this blog post on my YouTube site.

I've previously blogged about my non-addiction to alcohol, and inability to taste its greatness. It has long perplexed me how people can get so hyped up about how this or that beer or wine has this or that subtlety in its taste that makes it so enjoyable and the best drink you could ever possibly have. And, at the same time, I have accepted, with open arms, the claim that certain people like alcohol because of its psychoactive effects, like "relaxation" and drunkenness.

I've long held the theory that people only make these claims about the super-awesome taste of alcoholic beverages as a pretense for their desire to get drunk (or relaxed, etc.), and I've been roundly ridiculed for it. However, unlike socially-mandated beliefs that people readily admit are garbage in private, people actually claim, in private, to enjoy the taste of their favorite alcoholic drinks and, amazingly, retain that belief to arbitrarily deep levels of "belief in belief" recursion. They see no sense in which they are faking.

But now, I have cracked the code. I know how to get people to recognize their own self-deception about the supposed greatness of the taste of their favorite wine or beer. It goes like this: if you genuinely enjoy the taste of your favorite alcoholic drink, then you should still want to drink it more than any cheapo kiddie drink, even if all it has is the taste -- that is, if it no longer had the psychoactive effects.

So, I did a quick sample among the co-workers of mine who have claimed to, like, seriously, I promise, be wine or beer connoisseurs and are perplexed at how there could be no alcoholic beverages that I like the taste of. I asked them the following question:

Assume that alcoholic drinks had no psychoactive effects whatsoever: that they don't make you relax, or open up, or get drunk, anything like that. And assume no drink has any impact on your body either, including health (such as making you fat). That is, assume all that there is to a drink is its taste. Then, comparing on taste only, would you rather have your favorite alcoholic drink, or a milkshake?

Every single one of them preferred the milkshake -- even the one beating down the door to get me to start liking wine. And I strongly suspect (and would like to test) that this holds across the general population as well.

The upshot is that I'm right: that the whole practice of rating and having a taste for alcholic drinks is one big sham, and people have extraordinary abilities to deceive themselves on the issue -- they are completely oblivious to the lie they are telling, well beyond the obliviousness they can show on any other issue.

So what would make people put on such an act? Simple: they need a rationale to convince legislatures not to ban alcoholic drinks, as they ban every single other mind-altering substance. They need to show how it's a "tradition", how it's "cultured", how it's a fundamental part of our society, how oh oh oh, I just gotta have my glass of wine with dinner, it's just so mature of me. And the crazy thing is, from my perspective, they don't even need these rationales. As I see it, your decision to drink alcohol is between you and your god (or Dionysus, as the case may be). Even if the most extreme claims about the dangers of drugs are correct, that would at best justify restricting their use to highly monitored "padded room" equivalents in which such consumption can take place, not outright banning.

And to top it all of, I bet the response I'm going to get to this post is a big, "Duh. Now shut up about it."

So, I find myself asking this question yet again: is the world crazy, or just me?

This joke actually came to me in a dream

"Political speeches are like yodeling: the point is to sound really nice, not to convey actual meaning."

Wow, and out-of-the-box ideas like that are actually common in my dreams. Weird.

The die is cast: Party at Dave and Buster's on Saturday

Well, I've finalized the reservations for Dave and Buster's this Saturday (8/16/08) at 8pm in Austin. We'll have two hours of free play on the hyperbowl machine and free food, drinks, and game play for everyone. Hope to see you there! Unfortunately, if you check out the poll, the only people who seem to read this blog are far away or terrorists. Go fig.

(On a side note, do not detonate yourself in an attempt to kill others. Plz.)

How to get women into video games: a suggestion

Tyler Cowen's post about what makes a game good got me to thinking about why there has long existed a difference in popularity of video/computer games between men and women, and what it would take to change that.

(Digression: of course, the Wii has made a lot of progress, and I've known women who started playing because of their brothers, but hasn't had the kind of addictive capacity it's had for men).

So see if my thinking is right here: a game becomes addicting because it stimulates your brain in a way that you want to get more of it. So, if games have historically appealed to males and not females, it must be because they have historically challenged a part of the brain that is more pronounced for men than women. Fortunately, brain researchers know exactly which areas these are: women have a more pronounced Broca's area and Wernicke's area, which are vital for the use and processing of language (damage to them can cause inability to coherently use language), while men have more pronounced brain areas for detecting motion (more specific names forthcoming).

So, for games to appeal to women in the same way that they have appealed to men, they would have to require you to notice and respond to subtleties of language -- perhaps you'd need to be able to infer mood, deception, hesitation, etc. from others' speech in order to advance. In other words, situate you in the middle of a Jane Austen novel in which you have to navigate human interaction with something like the same complexity that exists in human interaction.

And in fact, it does appear to me as if that attribute has been lacking in any game that's not online, and probably because it's so hard to program.

Just a thought.

Sunday, August 10, 2008

Silas experimentally tests "wisdom of crowds" effect

In case you hadn't heard of it, James Surowiecki has gathered a substantial amount of evidence supporting the "Wisdom of Crowds" Hypothesis, which says, basically, that if you can aggregate the independent guesses of large numbers of people, they will average out to be the correct answer, even though the individual guesses will tend to be far off. Surowiecki found confirmation of this hypothesis in such varied cases as guessing the beans in a jar, the weight of a bull, and the location of a missing submarine.

Well, just for kicks, I went out and did my own experiment to see if could replicate his results. When I went out for a night on the town last Friday (8/08/08), I asked the people I talked to how much they thought I weighed. Here's what I looked like, so you can make a guess and tell how far off you would have been:

To help them make their best guess, I allowed them to see me without the blazer and from different angles, and to, ahem, touch me. To adhere to the protocols necessary to find wisdom in crowds, I made sure they didn't discuss guesses with each other until they submitted them, and that they made the guesses anonymously (by writing it town and putting it in a plastic bag out of my view). I excluded non-numerical entries such as "Fuck U".

The results? After collecting 16 entries at two venues, here is what I got (and this will be expressed in terms that conceal my weight and their guesses, which will be revealed in a later post):

The average (mean) of their guesses was off by 3.6%.
The average error (mean error) of all the guesses was 10.3%.
The median guess was off by 6.3%

This is pretty much consistent with the Wisdom of Crowds phenomenon: the average of the guesses was much more accurate than most of the individual guesses, and the median guess. It probably would have been even better if I had collected a bigger sample.

Pretty neat, huh?

Thursday, August 7, 2008

Non-existent positive real interest rate spotted!

Dismissing the harm of inflation again, Bryan Caplan confidently announces that it's already priced into interest rates, so it doesn't eat away your savings!

Since most inflation is anticipated, I don't see that it does transfer much; instead, it's built into raises and interest rates.

Oh really now? I'm interested in learning where I can store my money at low risk such that its real after-tax return is positive. Two-year treasuries are yielding 2.45%, much lower than you'd need to beat inflation and taxes. Vanguard's Prime Money Market Fund is yielding 2.19%. (I was going to quote the after-tax return they give, but they seem to have either removed that section, or they never post it for money market funds. My rough calculations show that even if you left your money alone for the last ten years, the nominal ROR at a tax rate of 25% would be ~2.5%.)

Hey, I'm a big saver, but the market -- well, whatever's left of it -- is telling me not to.

Update on non-pizza pizza party

Alright, I've talked with an event planner at Dave and Buster's, and I've reserved the "Hyperbowl" table, one that puts us near a type of bowling game. I'm now working out the appetizer trays and game credits for the guests. Plus, it looks like some of the people that can't make it are going to be able to make it, so I have attendance at about 8 at this point. Remember: Saturday, August 16, 8pm Dave and Busters, Northern corner of 183 and Mopac, Austin, Texas.

Now here's the kicker

Do I say that too much?

Tuesday, August 5, 2008

Silas the Doomsayer: The scenario I worry about

At some point, the developed world is f'ed, unless they start on a politically unpopular course. On what do I base my particular doomsaying? Thought you'd never ask.

It's the entitlement explosion crisis. (Post will be light on links, but I'll substantiate this later.) Governments have promised huge benefits, such as pension and health care for the elderly, that they cannot possibly finance. These obligations aren't counted in national debt figures, but are enormous and would made developed countries look a lot further in the red than the currently are.

Now, I'm sure you've heard the figures about how, oh, this entitlement program will be running a deficit in this year, it's trush fund will be exhausted in this year ... the problem is that the crisis will have to hit before those times, and with less warning, because of a dangerous (positive) feedback loop:

At some point, governments realize, gosh, we can't pay for what we've promised. So, they somehow suck more out of the productive class: higher taxes, worse government services, inflation ... it doesn't really matter which route. Then, some of those workers, probably those with the most mobility, say, "Hey -- this is stupid. I can just move to $SAFE_HAVEN, and have a much higher after-tax real income." So, he moves. And so do others in that situation.

Uh oh! Now that's a smaller groupe to gore to pay for the obligations! So, they have to do it again: gore them at an even higher rate, cut benefits, etc. Then more workers are in a position that they're better off by fleeing. Then you need a higher tax rate until there's no one left to gore and those expecting payments, or still working are left "holding the bag" -- they're very little wealth to go around.

We've already seen miniature versions of this happening at corporations that tried run their own little entitlement system: they realized, all to late, that no one has to give them anything: they can go "work" for others who won't ravage their pay to cover other people's entitlements. Some view the USA as being different in that, gosh, you kinda don't have a choice ... but you do, just as people had a choice not to help fund GM's welfare system, and they exercised that option, despite such a scenario seeming impossible.

Needless to say, I don't want to be the one holding the bag.

Here's the kicker, though: none of the financial markets in these countries seem to have price in this near-inevitability. So are they insane, or am I insane? And to where would I flee? So far, it looks like Singapore, China, and Australia are the only developed or near-developed countries protected from this upcoming crisis.

PS: Cheer up! Don't forget about the pizza party! Eat, drink, and be merry, for tomorrow we will sure have outrageous entitlement taxes.

Monday, August 4, 2008

Profit opportunities for Silas: oil and GM

Back to the two most frequently discussed topics on this blog.

First, let's talk about oil. Though by the end of the day, this may change, the spot price temporarily went below $120. Time to strike when the iron is hot? If I bought the double-oil-return ETF discussed last week (DXO), and it were to return to its previous high, that would be a nice 46% return. (Btw, y'all oil options traders are accurately factoring oil's massive volatility into the implied volatility term in your options pricing, right? Okay, just checking.)

Second, let's talk about GM. I have been claiming, since studying GM's history back in '05, that a bankruptcy was near, and so my brother and I have been discussing an even odds bet that would pay off if bankruptcy happened, or some other even of equivalent lameness, such as: defaulting on any bond, PBGC takeover of legacy obligations, refusal to pay legacy obligations, or government bailout. I'm not sure if we ever agreed to a bet value and a time frame, but a few weeks ago I emailed my brother some news about GM, and he reiterated his position that there would be no bankruptcy, so if we haven't agreed to something, I could still get an even odds bet in.

While I did post some news about GM's lameness last Friday, I have some more. Here's a Reuter's article detailing GM's rising defaulting insurance premiums and falling bond prices. Right now, you must pay 47% of the amount insured, so $47 to insure $100 of debt. And you know what? Most people, facing that much to insure something, just don't buy it, and bear the risk themselves. Heck, that's what hospitals do for their liability insurance, which can get that high.

It also lists the prices of GM bonds, but strangely, Reuters prefers to list the cents on the dollar (click on "first vlog post") price, and never the yields, neither the current yield, nor the yield to maturiy. But my own calculations give about 12% current yields for short term bonds and 18% for long term bonds based on the numbers there

But strangely, the prices of GM bonds that I found on my Scottrade account gave a different story. (I can't seem to find a free no-hassle source for bond prices I can link.) I don't remember the current yield, but it listed GM bonds maturing in December of this year as trading with 9.3% yield-to-maturity, and bonds maturing in 2011 -- 3 years from now! -- as paying, and make sure you're sitting down, 29% YtM. Twenty-nine percent!!! There are banana republics right now that pay lower interest on their debt! There are reckless shoppers right now with lower credit card interest rates!

Yay! One month blog anniversary! ~Pizza Party!~

So, I made it one month without abandoning this blog! Yaaaaaaaaaaaaaay! And, I got plenty of great comments from people -- including from one of my favorite bloggers, Robin Hanson -- and lots of participants on my poll. All in all, a GREAT first month for my third attempt at blogging. Readers, give yourselves a pat on the back for all your love and support you've given me!

As a celebration of this success, I'm hosting a pizza party at the Dave & Buster's in Austin, Texas on Saturday, August 16th, starting at 8pm, and ending whenever you leave or get kicked out. (It's at 9333 Research Blvd, or, for normal people, the northeast corner of the 183/Mopac intersection.) That's next week, on Saturday. "Wait wait wait, do you mean THIS COMING Saturday, or NEXT WEEK, on Saturday?" Next week, on Saturday. "Oh, okay, thanks, you were unclear before." [1]

So, if you've read this, and plan to be in Austin, Texas that day, you're legally obligated to stop by. Please RSVP by email or in the comments. But if you forget to, don't be afraid to come anyway. There will be non-pizza options if you, like me, don't eat pizza.

[1] Sadly, this is isomorphic to a conversation I've actually had.

Friday, August 1, 2008

Why I can't stop laughing at GM

Because they just posted a large quarterly loss.

...greater than their entire market capitalization. (market cap being ~$6.5 billion) more than a factor of two.

...for a second time. under a year. (check the Q3 2007 column)

Did I mention their uncovered obligation to contribute $46 billion (7 times their market cap) to cover legacy costs?

And the steadily high cost of fuel scaring people away from their only profitable line of cars and forcing them to close plants (though this post will NOT get the oil label, since I think we all know they would be f'd even if magic fairies gave everyone free oil)?

And how they're so desperate they may even sell Hummer -- when its value is at a historical low?

And the subprime mortgage crisis ripping up its other formerly-profitable arm, GMAC?

And how they think dumping the brains behind the cars is the way out, since they can't touch unionized factory workers?


Okay, okay, I can breathe again. Ah, that felt good. Now, for part that will scare the hell out of you:

First, given all the costs GM has to cover, there are only two reasons anyone would pay a positive price for GM shares:

a) because they can turn around and sell it to another sucker on its next upswing, and

b) because expect GM to be able to stiff their pensioners -- not have to pay the full legacy costs, courtesy of a lenient bankruptcy court judge (oh, no, no, can't think about bankruptcy of GM, can we now?) and an undercapitalized Pension Benefit Guarantee Corporation.

And second? GM is listed on the bluest-of-blue-chip Dow Jones Industrial Index.

I think I'm going to cry now.