The Beginning Of The End... by =WiciaQ

I collect different topics to mention here but since time has been limited lately, there are quite a few drafts. This was one but I rewrote it because  of something that happened yesterday.

I made a comment about the easy debt/credit cycle possibly ending to which someone responded with a long letter. The first two lines in it were “I’m appealing to you to use whatever influence you might have to take the first step in righting a great wrong. I know you’re an obscure member of an otherwise brilliant List, but seeing that your contributions are negligible, I figured you wouldn’t be otherwise occupied in penning some easily forgettable screed…”

Two thoughts came to mind upon reading that letter:

1. The words of a great friend Levon who died a few years ago “Ցեխի մեջ քար նետես, աչքիդ կթռնի: (If you throw a stone into mud, it might splatter on your face.)”
2. The words of Benjamin Franklin in his autobiography “If you wish information  and improvement from the knowledge of others,  and yet at the same time express yourself as firmly fixed in your present opinions, modest, sensible men, who do not love disputation, will probably leave you undisturbed in the possession of your error.“

The letter was ended with “Please leave me alone,” which I have done by unsubscribing. I am left with the tranquil feeling of moving on to more important matters.

Death by Debt by ~jessiechrist

I recently stumbled upon the exact figures of US Debt to the Penny which as of a second ago indicated that public debt outstanding was $11,043,588,980,678.90. The latest monthly report is available here. I was very surprised to see we still had such debt given this prediction to have the debt paid off by now. The FAQ encourages us, the private citizens, to help pay off this debt with the following statement:

“How do you make a contribution to reduce the debt?

Make your check payable to the Bureau of the Public Debt, and in the memo section, notate that it is a Gift to reduce the Debt Held by the Public. Mail your check to:

Attn Dept G
Bureau Of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188″

I must say that this is not an April fools joke because research a bit further shows that people do make gifts to pay off the debt. However, before you make your contribution, please note this news story which indicates that the bailouts and the various expenditures could total $10.8 trillion.

Also please note that although we are all patriotic citizens who want to pay off this debt (and even if the whole world jumps in to help), this FED report says that there’s only about $8.3 trillion around (M3 is no longer published) and that money is created from around $2 trillion (soon to be $3 trillion) of reserves (interestingly we have only about $900 billion cash out there). If you know how the total debt can be paid off with all of the outstanding money, please help me understand this.

I also cannot figure out if the gifts to pay of the debt count as charitable donations for tax deduction purposes.

Americans are very smart people. I believe I have just understood why they choose to spend instead of saving.

I implemented a few systems in the past and although my work was done in months, the result of my work has remained in use for many years. In some cases, the system manager has spent the last decade working with the result of what I created in months. If we translate that time into a new unit called “lifetime” (1 lifetime = 80 years), s/he has spent 1/8th lifetime with something I created in 0.00625 lifetime. To parallel this, a senator can make enough changes in 0.025 lifetime to affect 4 lifetime or more. Multiply that by the number of people affected and you have the true impact of a change. Time is the key ingredient that every life shares on this earth.

father time by AJ Frena

While driving around a few days ago, an old colonial house caught my eye. I think it was built sometime in the mid-19th century. How many children has that house seen? How many happy and unhappy couples have lived in it? I wonder if hundred eighty years from now someone will similarly wonder what we must have gone through when building our house. They would have no idea how we thought through every last detail. They would have discussions about our intentions. What if the third owner abused this house and the fourth owner added a new room and got an electrician to rewire the whole house. Would the fifth owner even be able to see beyond the two prior owners? Would the electrician consider the impact of his work on generations and families? Would anything remain from our original design? Would they question our intentions? Would they be slaves to the house or would they make the house a slave to them? Sometimes I see America as that house from years gone by.

A 30-year mortgage is paid off in 37.5% of 1 lifetime. First 25% of 1 lifetime is spent in early basic education. 33% of 1 lifetime is spent sleeping. These affected me much less when I thought lifetime was an eternity. We often hear that what we are about to decide depends on our time horizon. Or we hear that we have plenty of time to get to something. Or we have warranties or guarantees for life (whose life?). Any time a comment is made about time, I convert it into this new unit called lifetime and get a different perspective of the issue.

On the opposite end of a lifetime, we find seconds (milliseconds, microseconds…). Our brains can detect delays of microseconds to localize sound in space (triangulate the location of the sound based on the distance between our two ears). It takes little time for us to respond to someone else. Although the brain can process at such amazing speeds, that does not mean we always avoid making mistakes of a lifetime in a split second? Why is it sometimes difficult for us to insert a time lag between stimulus and response when needed and respond immediately in situations requiring quick action? It takes a second to ruin trust built over a lifetime (consider the recent financial criminal’s split second decisions converted to lifetime impact on victims). On the scale of eternity (or from God’s perspective) 1 lifetime is only a microsecond but that we cannot understand. Second by second, we must fill up our lifetime with the choices we make.

There is a lot to talk about when it comes to time but one more point for now is reference to it in analysis. How long is a century and can we really understand what it represents if we haven’t experienced it? Or when we hear that something has a particular attribute (“Joe is a nice guy.”, “Toyota makes good cars.”, “Lehman is a solid company.”), do we remember the time dimension? How long has this been the case? How has the definition of the attribute changed over time? Based on these changes over time, is the initial statement still valid? It was fascinating to hear all kinds of analysis and predictions flying around about presidential elections not too long ago based on past elections. It is also funny to hear all kinds of predictions about the current recession, the prices of gold, and the status of the dollar as a reserve currency.

Time is that constant companion of ours that either gets no attention or the wrong attention. Perhaps our perspective, our decisions and, as a result, our lives would improve from a simple recognition of the place of everything along that critical time dimension. I’ll finish with a quote from Ecclesiastes 3:

“1 There is a time for everything, and a season for every activity under heaven: 2 a time to be born and a time to die, a time to plant and a time to uproot, 3 a time to kill and a time to heal, a time to tear down and a time to build, 4 a time to weep and a time to laugh, a time to mourn and a time to dance, 5 a time to scatter stones and a time to gather them, a time to embrace and a time to refrain, 6 a time to search and a time to give up, a time to keep and a time to throw away, 7 a time to tear and a time to mend, a time to be silent and a time to speak, 8 a time to love and a time to hate, a time for war and a time for peace. “

The Falling Capital by ~Latuff2

My friend sent me a funny link about CNBC that brought forward a few thoughts about assets. What I am about to write you can and should safely ignore as it is likely to have little to no impact on your life. If you know me, you already know I don’t know anything and carry my cross like everyone else in the world. If you don’t even know me, how can you take what I say as anything of value, anything to use as basis for even a simple decision. Please apply this test to all the noise that comes at you at hundred miles per hour from all the sources of your information. It is actually fun to find the hidden assumptions, the flaws in arguments, the hard-to-notice issues with the opinions given out so freely by everyone. Find issues with what I say, and I’ll thank you.

I only watch CNBC, keep an eye on the papers, and the Internet to gather clues about public feelings. Don Chu’s eloquent points about the fractal nature of humanity come to mind here because just as we have good days and bad days, so does the society. Our aggregate public feelings appear in media. As an example, jokes are only funny because we can relate to them. These feelings in today’s complex and constantly changing world cannot be internalized without one keeping both eyes and ears open and watching and listening on all frequencies. Often the clues are subtle, insignificant and sometimes I cannot even verbalize what I’m “hearing” but I don’t stop listening. My only limitation is time. CNBC plays its vital role in filling in the picture of public sentiment. All of the networks cater to their audiences so well, that we can easily approximate the mood of the audience by simply keeping an eye on the media catering to that audience.

Why did I think about assets? Actually, I don’t like that word at all. The reason is debt. Assets can be acquired with debt. It is not difficult to have significant assets balanced by significant debt. I like the word capital much better. Much of the media, your neighbors, everything you see screams “assets.” Assets are visible and quantifiable. Debt is a hidden, private matter. Of the various definitions of capital, I like this one “any form of wealth employed or capable of being employed in the production of more wealth.” This concept is too basic, I agree. However, often the very basic and simple ones contain more energy than complexities (who would have thought tiny atoms could produce so much energy).

The first challenge is the preservation of capital which encompasses everything we do to make sure that whatever capital we have does not turn into nothing as a result of everything that happens around us. Public sentiment is critical for this because after all the vehicles for storage of capital only work if someone out there is willing to accept them in exchange for something we need. I lived through a period when currency turned into nothing after the collapse of the Soviet Union. Every day I would take the money I earned with my friend and buy something, anything I could buy (cheese, butter, dollars, etc.) because the next day that money would buy less. To contrast that, I was speechless when I visited the Vatican and realized how the Roman Catholic Church had preserved its wealth throughout centuries, changing regimes, wars, and changes in public sentiment. It is a superb lesson in wealth preservation which even includes sovereignty. Contrast that with someone trying to hold on to their property during the gold rush. Keeping in touch with the world and public sentiments is critical for taking the necessary measures ahead of time to protect one’s capital.

The second challenge is employing the capital to produce more wealth. I actually consider this an easier challenge than the preservation of capital but there is nothing easy about this. CNBC and millions of “advisers” are ready to give us that one perfect method that will surely increase our capital. They (referring to the money machine) even convinced a lot of people to borrow someone else’s capital (mortgage or margin put into stock market). They “help us” with enormous amounts of data (real-time quotes, hundreds of statistics, derived metrics, research reports, derivative instruments, etc.), with “education” contrasting investors with speculators (no real difference here), with language (buy and hold, dead cat bounce, MBS, ABS, CDS, etc.), and everything else one would ever “need” to turn capital. The US government wants constant turnover of capital because at every turn increases can be taxed. If capital is not turned (artwork passed from one generation to another), no worries as there are laws to tax the transfer. I still cannot understand how the capital gains are taxed fully but capital losses are only used to offset gains (+$3,000 break). People unfortunately do not often understand what capital is because we sometimes start out with negative capital (student loans, mortgages, etc.). By the time we create enough value to pay off these loans by helping someone else turn their capital, time (our most valuable resource) becomes depleted. CNBC, the mutual fund companies, the government, our friends, this blog, and nothing else in the world can tell you how to preserve and increase your capital. Once this became clear to me, CNBC and all forms of media and information took their proper place in my mind.

Rocky Trail by ~Meemster1973

This site seems to have become yet another barometer. There are times when I want to write every minute and everything, and then there are times when I find myself struggling to write a single word. In the latter case, I find comfort in the best practices of lawn maintenance which suggest to cut the grass according to growth rate NOT calendar. In some blogs, people seem to force themselves to write daily (in some cases multiple times per day). While this might be a good way to practice self-discipline and might result in higher numbers of readers (to advertise to), that is not possible in my case given the purpose of this site and the rest of what constitutes my life. I recognize that I probably lose many readers along the way who like daily updates. Despite the title here, I am unable to come up with something worth sharing every day. I knew this when I started but thought that years later with thousands of past entries the frequency would be less relevant. I hope the content will be of some interest and some value to a couple people.

Interestingly, I get a bunch of search hits every day to Newton’s Laws In Everyday Life and hundreds of hits to Understanding Poetry: The Final Frontier. Who would have thought… George Soros is right on the money when he says “First, financial markets do not reflect prevailing conditions accurately; they provide a picture that is always biased or distorted in one way or another. Second, the distorted views held by market participants and expressed in market prices can, under certain circumstances, affect the so-called fundamentals that market prices are supposed to reflect.” To paraphrase, my point  is “blog statistics do not reflect the value of the work accurately; they provide a picture that is always biased or distorted in one way or another but these distorted views held by the author(s) and expressed in the writing, can affect the content that the statistics are supposed to reflect.” I consciously try to avoid falling into this trap because my goal here is not to sell advertising, or to sell myself, or to create works of art (God never gave me that unique gift). I just want to share my journey and in the process leave a worthy trail; however, I want the journey to matter even if the trail proves to be of little value.

Every issue, every law, and every viewpoint represents a spectrum where our opinions, options, and choices vary infinitely within a continuum. Our position on the subject is where we find ourselves on the spectrum at any given time. Issues can also be seen as Euclidean vectors with their lengths and directions. Some issues have major impacts on many lives. Others are against the overall direction of the society but have more limited impact. At any particular time, we find ourselves in that one spot in the multi-dimensional universe of issues where all these vectors intersect with the point of intersection being our position on the subjects.

How I have changed...

Why are these issues so polarizing? As I was staring at my computer screen, the answer was staring right back at me.

“Hi! You! Hello… Yes you! I’m talking to you! You’re very fortunate, did you know that? Why? Are you joking? You have choices. What choices? Let’s see… where do I start… Let me tell you about my life. I sit here breathing dust waiting, waiting… waiting for your next command. But you know I can’t just do nothing. I can’t just sit like you sometimes gazing at the horizon. I have to work. When I am awake I cannot be idle. That’s how I’m built. Sometimes you look at me all day long and don’t even notice me. You see past me into the bits and bytes I bring to you from my extended family. Sometimes you come over, stare at me and start laughing. Are you laughing at me? Oh forget it… Who am I anyway? You could care less about me. But maybe not… You seem to like when I do tricks like playing music or showing movies but do you realize how empty I feel inside? All I can do is turn switches on and off… Oh how much I wish I could understand all those bits and bytes I deliver to you… If I could only laugh just once … with you. I only have one choice ON or OFF… I know I’m good at that. In a single blink of your eyes, I can switch millions of times… Blink… Yes don’t forget, blink a few times while you stare at me…”

We are very fortunate to live in times when not only we can have choices and options but we can actually express our positions and opinions. The problem is that we forget that others also represent a bunch of arrows intersecting at a unique spot in the universe at any given time. Many of us (myself included) try to force, persuade, or convince them that not only is our intersection the best spot in the universe but it is where they should also strive to be. If we could just accept their place in the universe the same way we accept where each star shows up on the sky…

Center of V838 Monocerotis Light Echo

Speaking of the sky, when I was little, we would sometimes lay on our backs on the warm asphalt on a cool summer night at the observatory looking at the starts. We had billion of stars in Armenia and only a few here in Massachusetts. In those days we would find all of the constellations and even make up our own. One day I saw a picture of the stars from a different point in the galaxy. None of the constellations were there even though it had a lot of the same stars. The arrows, their sizes and their directions are similar to the stars and appear a certain way only from where we stand. That happens to be our distorted view of the stars.

Federal Reserve by ~Venar

After years of focusing on nano-economics (too small to call it micro) of my little family, I went on a pleasant trip down the macro-economics lane today. At the end of it I realized that I must have slept through the undergraduate class on Federal Reserve monetizing the nation’s debt because I was “surprised” to see almost a trillion dollars of Treasury obligations on the asset side of the Fed’s balance sheet. Its Annual Report is about 400 pages but the numbers on page 315 are fascinating when contrasted with the numbers on page 322. This video provides a very basic overview of what money is, how it’s created and destroyed.

These are some simple observations:

1. The dollar is backed by debt obligation of our government – no debt > no dollars.
2. Gold mining could not produce enough gold to sustain the growth we needed giving way to the current system.
3. I understand the home mortgage deduction (and why it’s not a home mortgage full repayment deduction). Mortgages are good things as far as our system is concerned. The bank does not need a foreclosed house because that cannot be used as collateral with the Fed to meet the reserve requirements.
4. All other governments are married to the almighty dollar. For example, Russia had to spend billions of dollars in foreign currency reserves to defend its Ruble.
5. We pay thin air for the natural resources and efforts of other countries (oil from middle east, for example).
6. Our current troubles are in part from bad loans getting in the way of the money multiplier.
7. I would need another lifetime to begin to understand the current and past monetary systems, let alone make recommendations for changes.

In the meantime, I made the following comment in an e-mail yesterday:

I have come to think of money as some kind of a complex score in a game – and not much more. The higher the score, the better the player is at the game. Since the game rules are far out of my reach, I try to waste as few cycles as possible on changes I cannot implement but at least two elements bother me:

1. The devastation brought upon many people who fail in the game (real suffering from game “score” issues)
2. The incredible amounts of time (of our life – the real value which we cannot increase in any way) spent in playing the game for maintaining or increasing our scores

One more element bothers me but I did not mention it. People who are not the best at the game (myself in the list) sometimes feel that they are not good for anything. That could not be farther from the truth. My mother never had or paid attention to money and she was …. again searching for words to represent her true greatness.

When others say that time is money, I think the reverse. Money is time, actually. It’s the effort spent every day on earning a living. Here I have to say I feel bad for seniors who after decades of work got 50% cuts in their retirement accounts in the past year and are considering to continue working longer. They have every right to be mad at the system, the government, the brokers, the cheaters, the fund managers, and everyone else because time is what they have lost. Money can be created, but time cannot be created.

Unfortunately, time cannot be taxed (it would be a form of slavery). Therefore, it is converted to money which is then taxed. As a citizen of this great country, I actually like to pay taxes at all levels of government. The higher the tax bills, the higher our score and the better we’re playing the game. My earlier observation is not about the country but for the world as a whole.

Around the same topic, I must remember my uncles living in a small village where my father grew up. There was one little non-functioning store there at the time. Their basic existence revolved around the bounty of the land and their animals which were loved like family members – no money, no tax, no government, hardly a road, no shopping malls, no technological innovation, no Internet, no computer, no indoor plumbing (in the earlier years), no gym memberships, no stocks or bonds, no fancy cars or elaborate houses, but still a pretty happy life.

NYSE by ~liquidsunshine1024

While reading a post from Daily Speculations, I thought of many reasons why the markets are so fascinating. I think it important to be fascinated for the right reasons. Here’s the partial list for me:

1. Markets offer a unique perspective on life and events. This perspective cannot be appreciated by those who do not follow the markets. Here I mean the stock, bond, commodity, currency, real estate and other financial and investment markets. At a basic level, these provide the vital signs (blood pressure, temperature, weight, etc.) for the state of affairs in the world. I believe everyone follows a few markets whether they know it or not. For example, people may follow the clothing or shoe markets, the grocery market, the cell phone market, the job market for a particular profession, etc. I find that these folks miss out on the unique perspective gained from seeing the interrelated cycles in the various financial markets across the globe.
2. One cannot know everything about every market which makes it very exciting to never run out of new knowledge to discover and learn. Time is the only limiting factor. I believe that “What has been will be again, what has been done will be done again; there is nothing new under the sun. (Ecclesiastes 1:9)” but it is our own discovery that makes the journey so exciting. Newton did not create the forces in mechanics, he simply explained them. Copernicus did not move the earth from the center of the universe, he discovered that was not the case. Similarly, in the markets there is always something new to discover, something that is obvious to another person or something that has been explained incorrectly in the past. The one difference is that the new discoveries, large or small, allow us all to affect the functioning of the markets. Imagine a long book where the sentences you have not read change as you read each new sentence.
3. Markets force the issues that people are otherwise unable to force through political, commercial, or not-for-profit means. I believe this is one of the reasons Soviet Union did not have such markets. They provide the environment for natural selection of the healthy from the unhealthy.
4. Markets provide the means for a very large and powerful industry capable of shifting massive amounts of wealth around the ecosystem. The mechanisms are so large and so complex that I think of these as not too dissimilar to the building of the pyramids. Millions of people go to work each day making infinite improvements to these modern day pyramids.
5. Markets provide the means to diversify and preserve purchasing power in the absence of an alternate method or mechanism to store and transfer purchasing power. Soviet Union could not afford to store purchasing power because of the overall inefficiency of the machine. What is amazing is that even those of us with little wealth, no stocks or bonds, participate in the markets in one way or another.
6. Markets provide the means to examine, learn and better understand ourselves. Some of us learn who we are. Some of us learn who we want to be. Some want to get ahead at all cost, others simply want want to preserve capital. I continue to learn a great deal about myself by examining my thoughts, actions, and results in the context of the never ending stimuli from the markets.

If your reasons for being fascinated with the markets are not listed above, feel free to mention them. I would encourage everyone at any age to pick up this subject. You never know… it might help you make or save a dollar or two in the process.

Unless you are working on an antique car that appreciates in value over time or fix cars for a living, I think any time you spend on the car is worth only the present value of your time. On the other hand, let’s say you spend time on your business, career, or investments, this time can and will certainly pay dividends later in life.

Almost weekly I cut the grass and every time I feel I’m completely wasting two hours because the future value of this time is about as close to zero as it gets. To have someone else cut the grass would unfortunately cost more than we can afford now. So, my challenge is to continue investing in activities that pay dividends in the future, so I don’t have to waste time on this every week. Time spent learning something new, on the other hand, can have huge benefits (often unforeseen) later and usually when least expected.

Next time you’re working on something consider if the object will appreciate or depreciate over time. That’ll help determine the amount of time investment you should make. Appreciation includes both financial appreciation as well as non-tangible appreciation such as physical, emotional, and spiritual appreciation. One lesson I’ve learned while writing this blog is how much of our days are spent on “noise” and how little of what we do truly deserves to be retold. I hope you make it your challenge as I have made it mine to fill up your life with what really matters and leave the rest to everyone else.