Another Tough Loss

October 23, 2007

Another tough loss for Uncle Jack’s Steakhouse. We played on Saturday night at Pier 40 against team Philip Marie. Final Score _ to _.

Their short game was relentless. In the next three videos you can see them execute a running play which turned into a 7 yard gain, a touchdown pass, and finally, a successful extra 2 point attempt.

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Only got two videos of our offense. In the first, you can see an unsuccessful running play. In the second, I throw an interception on 4th down. Overall, we played well. If we had executed our short game better, we could have come away with a victory this week. Regardless, this is easily the highlite of my week — so much fun despite our 0-4 record!!

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Social Security Cost of Living Increase: 2.3%

October 19, 2007

Any consistent readers of this blog (all three of you) know that my favorite inflation-themed conspiracy goes like this:  the government wants the actual inflation rate to be considerably higher than the reported inflation rate.  This keeps tax revenues flowing while minimizing payments on inflation-linked expenses such as social security and interest on TIPS.

Here’s a great example:  the yearly cost of living increase for social security will be 2.3% this year.  From the Washington Post:

 

Social Security benefits for nearly 50 million people will rise 2.3 percent starting in January, the smallest increase in four years. The typical retiree will face the challenge of using the extra $24 to cover higher costs for everything from gasoline and food to medical care.

The increase is the smallest since a 2.1 percent boost in 2004 and is a full percentage point lower than the 3.3 percent adjustment for 2007. In 2006, benefits rose by 4.1 percent, the biggest gain in 15 years.

The adjustment is based on the change in consumer prices from this July through September compared with the same three-month period last year. Benefit payments have been tied to inflation since 1975.

In the past two years, retirees have benefited from the timeframe the government uses to set the adjustment for the next year. The 2006 increase picked up a jump in energy prices from that occurred in September 2005, reflecting the impact of Hurricane Katrina on production at Gulf Coast refineries.

This year, however, retirees may be penalized because energy costs, which moderated over the summer, are expected to pick up again during the final three months. In addition, food prices and medical prices have climbed rapidly.

But those gains have been offset somewhat by moderation in categories of goods that older people to buy less; they include computers, consumer electronics and clothing.

“Retirees are going to feel a disconnect this year between the COLA increase and the reality of the inflation they face,” said Mark Zandi, chief economist at Moody’s Economy.com. “If this calculation were done in another three months, it would be measurably higher.”

Advocates for the elderly said the small increase highlighted the need to revamp the cost-of-living adjustment to better reflect prices paid by retired people, including the money they spend on health care.

The Senior Citizens League said a study it has done showed that in eight spending areas, people over age 65 have lost 40 percent of their purchasing power since 2000. This finding reflects factors such as big increases for gasoline, home heating oil and prescription drugs.

 

This is really good stuff!  A big chunk of the consumer price index is made up of “computers, consumer electronics and clothing” — the senior citizens that rely on social security as their primary source of income are not buying computers, consumer electronics and clothing, they are buying health care, food, fuel and shelter!


Football

October 19, 2007

Disappointing loss on Sunday.  Follow this link for the full playlist on YouTube.  Here are some highlites:

Here’s one of me nearly throwing an interception:


Why Deflation is a greater threat than Inflation

October 11, 2007

The United States and Canada are tremendously wealthy countries. Geographically, we have assets that China would do anything to obtain: vast amount of high quality land suitable for growing way more food than we need, plenty of water, lots of natural resources and commodities, and plenty of space to spread out. Politically, we are also extremely lucky: we have governments that are rock-solid-stable, honest law enforcement, strong private property laws, and low levels of corruption. The social dynamic in our countries is great, too. People here generally do not try to screw over their neighbors to get ahead; instead of trying to bring others down, we work hard and emulate them in order to achieve success.

We also have extremely productive economies. Since we have plenty of food to eat and it hardly takes anybody to grow it, what’s everyone else supposed to do with themselves? To fill this void we have a dynamic economy that creates an endless amount of goods and services we can buy.

 

Why do we consume so much and save so little?

The reason we consume so many services and so much stuff, is because we are optimistic about the future: it is ingrained in our national culture to be consumers: work hard, make money, and have babies. Also, we have confidence that things will be even better tomorrow than they are today. Instead of saving 10% of my income, I’m going to take an expensive vacation and buy the iPhone because I will have a better job and make more money next year.

We have good reason to feel this way: since WWII, the United States has experienced phenomenal economic success. We have enjoyed booming asset markets, huge job creation, strong foreign appetite for our debt, and a strong dollar. What if something happened that caused a shift in this optimism? The result might be higher savings rates and necessarily a reduction in aggregate demand.

 

The FED is afraid of a Japan-Esque-Deflationary-Slump

Japan went through a tremendous boom in the 1980’s. The economy, along with asset prices expanded at an amazing pace. Turns out, a lot of this growth was a bubble and when it crashed in the late 80’s, the hangover that followed was severe. After people lost so much money in real estate and the stock market, their national appetite to consume decreased and their national savings rate went up.

Japan is similar to the US in that they are a very productive society: plenty of food, water, health care, and shelter for all. So when everybody decided to save instead of spend, the economy stagnated for ten years. Prices for goods and services stayed the same or even declined over this period. Despite massive injections of liquidity, negative real interest rates, and tons and tons of freshly printed money, people just didn’t feel like consuming. On top of this, Japan has a rapidly aging population and low birth rates.

All things being equal, one could argue that a deflationary period is a good thing. But a deflationary/stagnant economy is hardly consistent with the United States’ role as an economic and military empire. Deflation is also a worst-case-scenario for a debt-laden society at both the consumer and government level. Deflation increases the real size of our liabilities because the liabilities grow in size relative to incomes and the general price level.

And here’s the real reason why we should be scared to death of deflation: the demographic time bomb the US faces sometime between the years 2015 and 2040. We face massive — and totally unfunded — future liabilities in the form of Social Security and Medicare. The only way we have a hope of paying for these is if economic growth is robust in order to keep tax revenues flowing to the government.

If something were to happen, such as a housing crash, which caused people to change their positive expectations for the future, people might choose to save instead of spend. Faced with high taxes (to pay for “entitlements”: interest on the national debt, Social Security & Medicare), people might stop working so hard and the economy would slump.

Thoughts?

 


This is what $2,650 gets you in NYC

October 10, 2007

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The hallway outside my apartment serves as storage for all manner of junk that my next door neighbors don’t want in their apartment. Usually that consists of a fetid mop and some trash bags. Today’s addition: a nasty old oven!!!


3Q ’07 Portfolio Review

October 6, 2007

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The third quarter of 2007 turned out great thanks to a strong September. On the year, my compounded monthly return is 14% compared to 9% for the S&P 500. The portfolio includes about 8% in cash (high yield munis) and 8% in GLD. The balance is made up of 24 stocks and is allocated as follows:

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It should be obvious why the portfolio did so well in September: when the Fed cut rates on September 18, it was a huge boost to stocks having anything to do with inflation and the “global boom.” This includes anything to do with metals, mining, agriculture, infrastructure, gold and emerging markets. My best performing stock this quarter was Companhia Vale Do Rio Doce (RIO), which is the big Brazilian mining concern.

It was also helpful that I have very little exposure to financials. Going into the fourth quarter, I am thinking of adding some more exposure to tech because a) I am very “underweight” relative to the S&P; and b) tech stocks often do very well in the fourth quarter.

Taxes

The third quarter is a good time to calculate all of your realized gains and losses in taxable brokerage accounts. Given that there are still three months left in the year, there’s plenty of time to shuffle things around so cap gains taxes are minimized.

So far this year, I have a net long term capital gain and a net short-term capital loss. They are roughly the same amount which means the short term loss will go to offset the long term capital gain. This really is not an ideal situation because of the higher rate at which short term gains are taxed; it does not make sense to use valuable ST losses to offset LT gains. I will try to realize some ST gains before the end of the year so that I don’t waste the ST losses.