Economics & Finance

Power… and the naive

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Two frequent topics intersect in this Wall Street Journal article from today, October 29th titled “Power Firms Grapple with Tough Decisions”. The topics are 1) journalists that don’t understand what they are writing about 2) the impossibility of improving our US infrastructure in today’s legal and regulatory climate.

The journalist writes that “A year ago, it looked as if 100 coal-fired plants might get built.”

Only an incredibly naive person who didn’t understand anything about the history of the US energy industry would have assumed for an instant that ONE HUNDRED coal-fired plants could possibly be built in the US. Let’s sum up the power situation for you:

1) NUCLEAR – great, unless you worry about storing the radioactive waste
2) HYDRO – great, unless you love fish and babbling brooks
3) COAL – great, unless you worry about global warming
4) NATURAL GAS – great, unless you are paying the bill
5) SOLAR – great, unless you need power on peak and the sun isn’t shining
6) WIND – great, unless you don’t like the way they look, slice birds, and the fact that they are unreliable on peak

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Investing Here and Abroad

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Recently I was reviewing the performance of the (small) trusts that I manage for my nieces and nephews. The site www.trustfundsforkids.com contains the performance and stock selections for each of the three portfolios if you are interested (not plugging it for cash… no advertisements there).

A friend of mine said that I had beaten the relative benchmarks in my fund performance and I was feeling pretty good about myself. However, I realized that the benchmarks that we are commonly using, the NASDAQ and NYSE, didn’t really apply because so many of the stocks that I selected were foreign companies – thus the relative benchmarks would be the high-flying international indexes where my performance would be comparatively… retarded, to use a politically-incorrect term.

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“Eating Your Own Dog Food”… or not

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There is a common business phrase called “Eating your own dog food” which basically says that you are using the same systems, products or processes as your customers. In this sense you are in the same situation as your customer, taking the same risks, and suffering the same negative outcomes (should they occur). This behavior generally aligns the interests of the company with that of its customers.

Recently collateralized debt obligations have been in the news. These products were created by Wall Street firms and then pitched to their customers as low-risk ways to get a higher return than traditional “vanilla” bonds, CD’s and T bills. A number of asset based mortgages, for example, were grouped into a single security and sold in “tranches”, with each tranche having different risk characteristics and corresponding returns.

Unless you don’t have access to media of any type you’ve probably heard about the great credit crunch that is occurring right now. Many CDO’s are stuck in the pipeline of the various companies or off-balance sheet entities that were selling them because demand dried up overnight; those that are already sold are being re-rated by the debt rating agencies at much lower credit levels (one recently fell all the way from “AAA” to “junk” in a single swoop) causing many customers and many Wall Street firms to swallow big losses.

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Subsidized Light Rail and Reactionary Politics

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Jim Miller has an excellent post on Portland, Oregon’s mass-transit boondoggles, and on the religious zeal and overarching intrusiveness of the Pacific Northwest’s political class in support of wasteful programs that most local citizens don’t want:

Some may wonder why I call Seattle reactionary. That seems obvious to me, but may not be to others, especially those on the left. On the whole, the political class in Seattle wants the races to be treated differently, is fond of 19th century technology, such as trollies and light rail, and generally wants to manage every detail of a citizen’s life. All of these, especially the last, are very old ideas. In fact, the last idea goes back to ancient Sumeria. I think it is fair to call their support for outmoded ideas, ideas that have not met the test of time, reactionary.

Worth reading in full.