Economics & Finance

Finding a Less Costly Alternative

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I wrote last year about how I finally took the plunge and canceled my cable TV service.

The reason why I decided to let the television go dark was because advancing technology made paying for TV shows redundant. There are very few that I like anyway, and they are available for streaming free through a variety of websites. Add the fact that my charity work kept me extremely busy, so I would only have time to watch TV at some extremely odd hours, and you can see that online video-on-demand was the cost free way to go.

Things have loosened up a great deal since I shut down the charity self defense course in January. The course put such demands on me that going to an eight hour work day feels like an extended vacation, and I have a great deal more time on my hands. Even so, I still find that only a very few TV shows are at all interesting, and have no desire to start paying for cable service that I won’t watch anyway.

But that isn’t what I want to talk about. You see, now I’m thinking about canceling my phone service.

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Recent Reading

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Bitter Waters: Life and Work in Stalin’s Russia
by Gennady Andreev-Khomiakov

A fascinating look at the Soviet economic system in the 1930s, as viewed from the front lines of that system.

Gennady Andreev-Khomiakov was released from a labor camp in 1935, and was fortunate to find a job as a book-keeper in a sawmill. When the factory manager, Grigory Neposedov (a pseudonym) was assigned to run a larger and more modern factory (also a sawmill), he took Gennady with him.

Although he had almost no formal education, Neposedov was an excellent plant manager. As Gennady describes him:

He was unable to move quietly. Skinny and short, he moved around the plant so quickly that he seemed to be running, not walking. Keeping pace with the director, the fat chief mechanic would be steeped in perspiration…He rarely sat in his office, and if he needed to sign some paper or other, you had to look for him in the mechanic’s office, in the shops, or in the basement under the shops, where the transmission belts and motors that powered the work stations were located…This enthusiasm of his, this ability to lose himself completely in a genuine creative exertion, to give his all selflessly, was contagious. It was impossible to be around Neposedov without being infected by his energy; he roused everyone, set them on fire. And if he did not succeed in shaking someone up, it could unmistakely be said that such a person was dead or a complete blob.

With his enthusiasm and dedication to his factory, Neposedov comes across almost as a Soviet version of Hank Reardon (the steel mill owner in Ayn Rand’s Atlas Shrugged), with this difference–Nepodesov could throw himself as enthusiastically into bureaucratic manipulation as into his technical and leadership work. All of his skills would be needed to make this factory a success.

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What I’ve Learned About the Stock Market

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Anyone who has a retirement fund or personal investments has an interest in the stock market. I have an additional interest because I am the fiduciary in charge of trust funds I set up for my nieces and nephews and track at trustfundsforkids.com.

When the stock market started cratering in 2008, I didn’t take immediate action, for the most part (I was going to say didn’t do anything “rash” like sell off, but in hindsight of course probably that would have been under the category of “smart”). I did sell off financials (owned ICICI, an Indian bank, and GE, which is essentially a giant financial conglomerate with a few businesses stuck in there) immediately, and although my exposure to that sector was limited in those funds, those stocks had not done well.

Now I am trying to re-visit the stock market and do some research to consider what to do next. I am starting out with what I’ve learned from this debacle. As always, do your own research, this is just my 2 cents based on my experience and body of knowledge.

1. Watch the level of debt, and the timing of debt – for many years there was an absence of a risk premium, which meant that newly emerging (risky) companies could raise debt very cheaply, such as only a couple of points above the treasury rate. Today, it is unlikely that these types of companies can raise any money AT ALL, and if they did it would be at a rate perhaps 10 percentage points above Treasuries (i.e. if Treasuries are at 4%, they would pay > 14% for financing). Companies are moving into bankruptcy rather than try to refinance at these rates – companies like Charter Communications, for example. Even if bankruptcy is avoided (or deferred) the company would have to be highly profitable to earn enough to cover that level of interest payments – and most companies can’t profit when their cost of capital is that high. I won’t even comment on the 33-1 leverage used by investment banks because we all know how that turned out

2. Guessing the actions of the US Government is important – during the cold war, “Kremlinologists” attempted to divine what was occurring at the top levels of the Soviet government, since it had a direct bearing on our policies. For example, the Feds let Lehman die and saved AIG, although in both cases their equity value evaporated to the point that a 100% equity loss and a 98% equity loss were a toss-up either way. The subtle way in which by saving AIG they benefited Goldman Sachs (since AIG was a major counter-party to Goldman Sachs) would be something worth understanding, for example. The Feds also didn’t bail out Fannie Mae and Freddie Mac preferred shares, which caused whole ranks of smaller institutions to fail. In general, if you are investing in an industry that looks likely to need government help, you should get out now, because whether or not you have a few equity crumbs or go to zero is a Hobson’s choice you don’t want to face

3. Correlation between asset classes is higher than you expect – Basically unless you were 100% in gold or treasuries you were likely hurt badly in this market. Foreign stocks, US stocks, many debt instruments, preferred stocks, real estates and most commodities (excluding gold) all dived together. One of the “core” beliefs of “modern portfolio theory” is that if you spread your investments across classes with lower correlation to one another, you will do better over time. Modern portfolio theory basically didn’t save anyone in the time frame we are talking about here

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Environmentalism and the Death of the West

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A comment on a New York Times story on the new Indian car, the Nano [h/t Instapundit]:

Somehow, we need to get the “developing” countries to quit copying our disasters in the first world. Showing real respect for the quiet life in villages would be a help. How about a Discovery Channel series on “The Truly Sustainable” – showing village life wherever it can be found, and not focused on “gosh, no plumbing”, but on – “this clan has lived here for 1,000 years…’ – and showing community dynamics.

Obviously, the writer has never had cholera.  The scary thing about this comment is that it showcases a school of thought more common than not on the far Left (25% most left).

Here we see the culmination of the Left’s evolution from technophiles to technophobes. Only a politically driven collective  delusion  could cause an educated person to believe that 1,000 years of cultural stagnation is more important than preventing the enormous suffering and death caused by sewage-borne illnesses.  

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