it isn't over

You probably already knew that. Or you've come to expect "pessimistic views" from this blog. Let me assure you though that I am not a pessimist. I am very optimistic by nature and I really do enjoy life. I find it a pity and a shame that many are so destructive towards our habitat and so inconsiderate with precious resources. Others mean well but they are so spoiled they don't even see how much pollution and trash they generate.

America would do well if everyone cut everything in half. Half the size house, half the size car, half the miles driven, and in a lot of cases, half the body weight. You may find such a view frightening and horrible, but believe me, people would be better off and they would feel better too. They would be healthier and happier.

As for the economy. Don't let wishful thinking cloud your judgement. It isn't over yet. It will get (much) worse before it gets better. But that is only from the perspective of the current Western economy, where good means wasteful over-consumption. From an "environmental" perspective, things maybe getting a bit better. If people spend less, buy less, and drive less that may go a long way towards preserving our livelihood for generations to come.

Also, congratulations to Paul Krugman for his Nobel Prize. I always enjoy reading Paul's column in the New York Times. I know it has nothing to do with his Nobel-winning work, but it is a well written column that is a joy to read. No, I don't always agree with Paul but his viewpoints are always worth considering. He has been an outspoken critic of the current administration, but then again, who isn't? With an approval rating in the low 20s, not many people agree with George W. and his administration.

The war was a really dumb idea. Unfortunately, those driving SUVs, those calling for offshore drilling, and those crying foul for $4 gas, implicitly support the war. They are either ignorant or hypocritical if they don't want to live up to it. If you are really against the war, write your representative asking for a $5 a gallon minimum price. I did.

you be the judge

We read in today's WSJ Opinion columns that the panic of 2008 is a crisis of trust. Nobody trusts anybody else anymore and so the financial system "froze." So far so good. I think everybody more or less agrees with that viewpoint.

Then Mr. Crovitz, the article's author goes on to make a few other, rather remarkable statements. One he asks, "How did the smartest people at the best banks running the most sophisticated financial models fail to forecast the collapse of mortgage-related securities?" Well, to be quite honest, it beats me. For more than two years now it has been painfully obvious to me, not working at any bank and not using any "sophisticated" models that housing was going to collapse. And that was not just an idea among many others. All you had to do was look around you. Bay Area housing prices in Modesto?

One can only conclude that the most sophisticated models were not all that sophisticated. Maybe Mr. Crovitz realized that and the large cap insert shows the "Value at Risk Formula, complex as it is," that is surely meant to impress us with mathematical sophistication. Unfortunately long formulas like that do not impress me. For one, they often indicate a complicated data-fitting model that is by definition only as good as the data it is meant to fit. Great equations, such as e=mc2 are simple. Understanding is by definition simple. If you can't express it simply, you probably don't understand it.

Second, the "smartest people" are often those with little sense of reality. They hail from a distant orbit. Witness the fact that many don't know how to tie their shoe-laces or button their shirts. Such smarts may play well at the large hadron collider but they tend to underwhelm when it comes to day-to-day living. Once again we are not impressed. And as for the best banks, we will leave that one as a home work assignment.

There is more however. Mr. Crovitz thinks we need to examine the failures because, "modern finance has delivered enormous benefits." What those are, apart from millions of dollars in the pockets of the perpetrators is not quite clear to me. 

Once again, Mr. Crovitz must sense there is something wrong because he goes on to list the enormous benefits of modern finance. For example, it goes "from explaining to investors why they should diversify their investments," to "the creation of mutual and index funds."

Maybe you want to read that again. The "enormous benefits" of modern finance are, 1. don't put all your eggs in one basket (I thought this was a old idea, but you learn something new everyday), and 2. the mutual and index funds.

That is not all. "Related innovations helped financial institutions speed capital to its best use, fund new businesses and accelerate global prosperity."

All hail "modern finance" and the "smartest people at the best banks" for bringing us these wonderful gifts. Let's not forget to thank Mr. Crovitz for highlighting these gems too.

rain barrels

To my surprise I learned last night that the city of San Francisco is encouraging residents to buy rain barrels. We started our rain barrel "experiment" more than a year ago and it has saved us plenty. Our neighbors have been skeptical and many thought we were losing it, calling us modern day luddites. Fortunately there is no home owners association to stop us from doing the right thing. Rain barrels are not only the right thing to do, they are the smart thing to do.

Even in California, where a long dry summer is the rule, rain barrels can be put to good use. They fill very quickly during our regular rain storms and can provide us with all the water we need for at least six months out of the year. We use the water for everything except drinking. That has reduced our consumption of municipal water to below 50 gallons per day for a family of four. Using the water to drink is possible but it takes a rather expensive setup and constant monitoring. That, I believe is asking a lot and we are nowhere near needing to go there.

Apart from saving water, which is scarce today and projected to grow even scarcer over the next decade, rain barrels can also help with mud slides and overflowing storm drains. Much of the water in urban and suburban areas falls on roofs. Much of it falls within a very short period of time as California storms tend to be very intense. All of that translates in to torrential flows that can cause a lot of damage. Ironically enough residents here seem to believe that damage is inevitable and part of the deal. It shouldn't be.

Storm drains are a major expense for cities and tax payers. Much of your local tax money goes towards storm drains. Building them, maintaining them, and cleaning them. Every year many city crew work weeks go into cleaning drains that easily clog with dirt, dust, leaves, and debris.

If citizens did nothing but capture the water from their roofs during a storm and then release it slowly (and preferably over their vegetation) we could save tens of thousands of dollars in storm drain maintenance. We could prevent many of the feared mud slides that destroy homes and that nobody can insure against. We could prevent flooding that causes further havoc and destruction.

All of that can be done by simply cutting your downspouts and directing the flow into 55-65 gallon drums. A screen cover takes care of mosquito breeding. If you have a big roof, you may need a few drums in series, as one minor storm will easily fill all those drums in less than one hour.

The more uses you can find for the water the better. Easiest is to irrigate the yard (or your lawn). Next comes toilet flushing, which is a major environmental disaster and very easy to fix. However, people may not like the idea of doing so with buckets. It is trivial to install a small alternate flow head that fills the tank automatically, but it takes some expense and creativity. You need to build a parallel system that can use rain water and regular water. Also very easy is to fill the washing machine with a bucket (esp. top loaders that wastes water galore).

Rain water is very clean. It does not contain harmful chemicals and it is quite soft too. Once the roof is "washed clean" after the first storm of the season, the remaining water is some of the highest quality water you can get (if used immediately). If you plan to store water for more than a few days, you will need to take precautions to prevent bacterial growth. But that only matters if you plan to drink the water. For all other uses, only mosquito abatement is a concern. That is handled with a screen cover. If in doubt,  you can add some special mosquito tablets from the hardware store.

Time to get your rain barrels America.

dow 7000?

Mr. Smith, a professor of economics and a Nobel Laureate wrote an editorial in today's WSJ. It is entitled, "There's no easy way out of the bubble." Mr. Smith tries to clarify how we get into bubbles, and why it is so hard to get out of them. Like a true academic he references a paper he wrote in 1987 that showed through simulation how boom and bust cycles are inevitable. I wonder how many readers will go back to that November 17 issue of the WSJ to read up on bubbles. You never know.

Boom and bust cycles are an example of overshoots. People try to optimize their returns and in doing so they inevitably overshoot. As more people enter the market prices go up, attracting even more buying. Eventually we run out of headroom, but people are still buying. By the time these people realize what is happening, the situation is badly out of control.

Then suddenly, a few leave and everyone follows at once driven by ever increasing fear. The fear makes matters worse and leads to a severe and prolonged drop. Overshoots are at least partly due to lags, these inevitable time delays that are part and parcel of everything we do.

I have described these phenomena before in the context of pollution and greenhouse gases. The same mechanisms are at work there, and people will reproduce, waste resources, and pollute until their whole habitat collapses. Like the housing bubble, that will happen when enthusiasm and optimism are at their highest. Things will look up and people will tell one another how they will always keep getting better. And then one day, the "buyers" will disappear.

These societal collapses too, it seems, are inevitable, and there is plenty of evidence around to illustrate that point. Angkor Wat, Easter Island, the Maya, you name it. All these civilizations went into a big bubble and then collapsed. Only here, it wasn't the collapse of some real estate and paper, it was paid for in blood. It wasn't the equivalent of the Dow collapsing, it was the actual population.

Will people learn? I doubt it. The only thing we see over and over again, is always expanding bubbles that do ever more damage. The same applies to the environment. Now we are or very close to on a planet-wide scale. When that bubble collapses, it will be a disaster of unheard of proportions. We may not even survive as a species.

But why worry? Let's get back to the "real stuff" and worry about our 401k's. With the Dow heading for 7,000, there will be plenty to worry about for most of us.

no great depression (yet)

The financial news is split these days. On the one hand there are the headlines and front page stories telling us how bad it is and how we need to do something. On the other hand, there are the editorials and reviews reassuring us that this is not the Great Depression revisited.

To give credit where credit is due, the optimists and reviewers have more data to support their cause. But just how good is that data? We are told that during the Great Depression, unemployment stood at 25% and thousands of banks failed. In the Spring of 1929, 300 banks failed. That was almost six months before the stock market crash. In 1930, a thousand banks closed. By 1932, the Dow had lost 90% from its peak in 1929. Surely we are nowhere near these numbers.

That was at a time with no unemployment compensation, no FDIC to ensure deposits, and no stiff drinks to soften the blows. Nobody would even acknowledge that there was a problem and according to the WSJ, Herbert Hoover insisted that the "fundamental business of the country.. is on a sound and prosperous basis." Where have I heard that recently?

Surely, we must have learned something from the Great Depression? And according to Richard Quest of CNN London, we did. We did and we can rest assured that we won't make the same mistakes again. "We'll just make different mistakes," he quipped last night when the Japanese market tanked.

Let me go on record now. Our problems are much worse than they seem. The housing crisis is in full swing. One in six Californians is "under water" with their mortgage. At the time when most of the option ARMs are still in their five year honeymoon phase, where you can pay as much as you please. Well before the real crash so to speak.

Every day the headlines correct earlier estimates, and label them "too rosy." Everyday new revelations are made and all are bad to very bad. Unemployment may only be at 7% but you have to go past 7 to get to 25. If we learned anything in recent weeks, it is how incredibly fast we can move from seemingly innocuous difficulties to outright collapses.

The constant flow of information we are exposed to is not helping either. It is undermining our confidence. Many are already suffering from information overload paralysis. A lack of confidence is the key enemy of the American economy. That economy rests on consumer spending. In other words, it is unsustainable. But I would much prefer if it wound down gently instead of failing catastrophically as now seems more likely.

If half the population can no longer afford to spend money, and the other half prefers not to because they don't feel confident, then we are on a very slippery slope indeed.

I've said it before, time to buy gold. Cash is just paper, and when confidence is lost paper has no residual value.

retirement advice from the experts

I could not help but notice that three "eminent" financial institutions sent me invitations to retirement planning and wealth management seminars last week. I have received many such invitations before, and they come in a variety of "packaging."

Some are mere cardboard flyers sent out to everyone and their brother as part of our daily dose of junk mail. Others are printed on fine stationary and seated in thick padded envelopes. Some even include handwritten sections. All are there to let me know about seminars that will teach me how to manage my (non-existent) wealth or to plan my (still-far-off) retirement.

Isn't it somewhat ironic that the very people who are either teetering on the edge of bankruptcy or who have already gone over, are proposing to show me how to manage my money? The very same people who are now screaming for a government bail-out. Presumably, their track record speaks for themselves? It speaks louder to me than their gilded names, exquisite logos, copperplate, and stylized images that are supposed to evoke a sense of security, stability, and wisdom.

Here are a posy of "experts," certified with MBA's from the finest business schools in the country, who could not even manage to keep a financial firm going. An entity with no real operations, no equipment or hardware to take care of, no elaborate labor contracts, no complex logistics. A firm where people bring money in the back and you lend it out to someone else in front, reaping fees, commissions, interest, and other benefits for simply moving funds around.

Not only do the fat cats on Wall Street need my tax money to survive in their moment of need, they have simply have no shame. They have the audacity to want to teach something they obviously do not understand. Which goes to show you that their one and only skill and the source of their riches, is deception pure and simple.

reducing greenhouse gases

A statistical report by McKinsey & Co has confirmed what I have been saying on this blog all along: we the American people are the key to a reduction in greenhouse gases. Not big business, not the government, not the Chinese or the Indians, but we, meaning you and I. 

It is not the government and so the election won't matter one bit here. Neither Obama nor McCain, nor anyone else for that matter will solve this crisis. Only you and I. We will need to learn to get by with LESS. We need to consume less, we need to spend less, we need to buy less, we need to drive less. We need to fly less.

Passenger cars are responsible for 17% of all greenhouse gas emissions. More than half of that is a complete and utter waste of resources. People drive too much, too often and in cars that are too heavy and too big for their needs. Most people would do just fine driving a small four cylinder car and cutting their driving in half. There is no reason for the monster trucks -some are called SUV's because it sounds better- that Americans like to drive. No use for off-road capabilities, or towing capacity, or the hundreds of electrical gadgets that are packed into those cars.

Two percent is in airline travel. Once again, most of that could easily be avoided. Few of us really need to fly across the country all the time. 

Residential buildings and appliances are responsible for another 17%. Here again, waste is everywhere. Homes are way too big, too far away from everything, most are free-standing, and nearly all are constantly either heated or cooled ten or more degrees away from the ambient temperature. These homes are packed to the gills with stuff, most of it useless filler, and much of it energy dependent and plugged-in 24/7. 

You don't need to replace your light bulbs. You need to turn them off. You don't need a more efficient dryer. You need to hang your laundry outside.

Another 28% is under our indirect control. It includes such items as sea transportation, agriculture livestock, landfill emissions, commercial vehicles, and commercial buildings and appliances. 

Summing it all up, 64% of all greenhouse gas emissions are under our control. That is nearly 2/3's of all greenhouse gas emissions.

And here are some more interesting numbers:

We Americans make up 5% of the world's population but we burn 23% of the world's oil. We directly or indirectly control 64% of our greenhouse gas production, whereas the rest of the world only averages about 43%. That difference illustrates how wasteful we really are. Not only do we use more per capita, more of our uses are related to our personal "comfort" (read gross waste) than in other countries.

Face it, we are fat and filthy.