Posts Tagged Finance

Mixed Martial Arts

How, and more importantly why, has this sport over the last fifteen years become so popular that people wear tee shirts showing the splattered winner’s faces and set up viewing parties at home?  One answer that I’ve read explains that it all began in New York city with formation of the something called the UFC, Ultimate Fighting Championships.  But Wikipedia presents a slightly different explanation, one that may be related to the David Mamet film, Red Belt.  It claims it all started in So Cal with the famous Brazilian martial arts family, the Gracies in collaboration with film maker John Milius. 

Whatever its origins, I personally hold it started with the Romans and probably explains the popularity of such weak film fare as Gladiator.   1993 seems to be the beginning of the current phenomenon.  According to the history of the UFC, gathering enthusiastic competitors from all kinds of fighting sports, the spectacles quickly became competitive events fought in an arena shaped like an Octagon.

 

The octagonal competition mat and cage design are registered trademarks and/or trade dress of Zuffa, LLC and are symbolic of the highest quality mixed martial arts events brought to you under the Ultimate Fighting Championship® brand name.  In 1993, UFC events were the first to feature an eight-sided competition configuration which has become known worldwide as the UFC Octagon™
 
The UFC Octagon is unique from any other fighting arena because the octagonal shape and structure have become inherently associated with Zuffa and the UFC brand name among mixed martial arts consumers, other mixed martial arts organizations and the national media.  The UFC Octagon is regularly featured on UFC Pay-per-view events, UFC® Fight Night™ and The Ultimate Fighter® reality TV series.  The UFC Octagon creates a neutral arena to showcase the skills of UFC mixed martial arts athletes. The UFC organization has established a reputation for providing the maximum safety to the fighters with commission approved ring structures, canvas, and all safety padding and fences.  Zuffa makes major investments to ensure the safety of competitors in the UFC Octagon — as a result, when people see the Octagon they associate it with the reputation and quality delivered only by Zuffa at UFC events.  
Add Las Vegas, males aged 18-34 and their companions, to beer drinking, football loving, and bet craziness and real Americans have apparently found their match.  Fight clubbing, clamoring for more wars, as long as they don’t actually have to enlist, the current followers of this sport brook no interference to their “god-given” right to watch other people beat themselves into bloody unconsciousness.  And then they sit idly by, as Micheal Vick is sent to jail.
What is it in our psychological makeup that somehow does see this violence for what it is?  In this dissertation, I found the following to be of interest:
Ernest Becker is a psychologically oriented anthropologist who focuses on fear of physical death as the mainspring of human behavior. He sees himself as continuing to develop Jung’s idea of the projection of the shadow, but he very emphatically argues that this shadow that is projected is a rejected awareness of one’s mortality. Because human beings are animals, we are mortal. But we also have highly developed brains that give us an ability to be self-conscious and to anticipate the future. We can see that death is our eventual fate, but because we are animals who are basically narcissistic, we want to be immortal. This clash between what we want and what we know is coming overwhelms us. It disturbs us so much that we invent all sorts of personal and social lies in our efforts to somehow pretend that we are immortal. One of the lies we tell ourselves is that if we can triumph over our enemies, we can rise above the limitations of our condition. We can project the shadow, that awareness of our mortality that we have repressed into our unconscious, onto the enemies or the scapegoats we attack in an attempt to prove that they will die and we will not. At root, violence against others is an effort to avoid facing one’s own mortality with existential honesty and courage.
Which brings to mind the film Rollerball and the conflict between the Oligarchs who run/own the games (See Las Vegas) and the players like Jonathan E who enjoy the competition for its own sake.
Am I getting anywhere with all of this?  Will any of what I think change the yearly income of millions this pay-per-view event earns or shift the viewers to whom I appeal for rationality to another choice?  Probably not.  Do I wish someone would comment on my original question?  Most def.

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Financial Advice, pt. 4

So far this week we have been dealing with the past, the history we should have learned from.  But as Morris keeps letting us see, Hudibras, was and probably still is, the god in charge.

Chapter Four: A Wall of Money

The oughts, as the English call them, have been tumultuous at best.  The dot.com bust, the Tower’s attack, Bush, Iraq; a list of ups and downs that just doesn’t stop.  The Fed, led by Alan Greenspan, responded to this in a way we should all recognize.  Starting with the dot.com bust, the Fed began to lower the federal fund rate.

The Fed did not start raising rates again until mid-2004, and for thiry-one consecutive months, the base inflation-adjusted shor-term interest rate was negative.  For bankers, in other words, money was free.

. . . banks embraced securitization.  Instead of holding their commercial mortgages, corporate loans, high-yield takeover loans, emerging market loans,and such on their books, the bankers had always done, they began to package them up as collateralized loan obligations (CLOs) or collateralized debt obligations (CDOs) and sell them to outside investors.  They could still collect hefty fees while encumbering little is any of their capital.  Lending, in other words, was becoming costless.

CMO, CLO, CDO, RMBS, CMBS, ABS, CBO, SBE; these are just some of the names of the securitized instruments that came into being.  Take a look at this list from InvestorGuide.com,

security

An investment instrument, other than an insurance policy or fixed
annuity, issued by a corporation, government, or other organization
which offers evidence of debt or equity. The official definition,
from the Securities Exchange Act of 1934, is: “Any note, stock,
treasury stock, bond, debenture, certificate of interest or
participation in any profit-sharing agreement or in any oil, gas,
or other mineral royalty or lease, any collateral trust certificate,
preorganization certificate or subscription, transferable share,
investment contract, voting-trust certificate, certificate of
deposit, for a security, any put, call, straddle, option, or
privilege on any security, certificate of deposit, or group or index
of securities (including any interest therein or based on the value
thereof), or any put, call, straddle, option, or privilege entered
into on a national securities exchange relating to foreign currency,
or in general, any instrument commonly known as a ‘security’; or any
certificate of interest or participation in, temporary or interim
certificate for, receipt for, or warrant or right to subscribe to
or purchase, any of the foregoing; but shall not include currency
or any note, draft, bill of exchange, or banker’s acceptance which
has a maturity at the time of issuance of not exceeding nine months,
exclusive of days of grace, or any renewal thereof the maturity of
which is likewise limited.”

Property which is pledged as collateral for a loan.

Remember Black-Scholes?  Now instead of investors using the formulas, we apparently had our trustworthy bankers playing the same game.  All with Greenspan’s “a new paradigm of active credit management.” Put’s blessing and the Fed’s help.  Leverage buyouts were back.  OPM, Other People’s Money, became the watchword for how to invest.  Morris uses this example,

Put up $1 billion, borrow $4 billion more, snap up a healthy company for $5 billion (after making a very rich deal with its executives), vote yourselves a “special dividend” of $1 billion, then as the buyout-fueled stock market keeps rising, sell the company back to the public, pocketing another couple billion, all the while taking no risk.

As I write, I can’t help thinking of the Bear Stearn buyout.  About how much we, you and I John Q. Public, don’t know about how all this works nor how we can do anything about it in a time where, to judge from the workshops being offered around the country, many people are still being sold on the idea that this is the way to get rich.  As we all sit here watching the real estate bubble burst, I won’t take the time to catalog all the stats for you.  Just know this, during the same time that LBOs were making a comeback, our economy was being fueled by the same sort of leverage being applied to home ownership.  While, Greenspan focused his put on stabilizing the financiers while encouraging the rest of us to go further and further into debt via the refi route, real real estate values were inflating at a rate of about 50 percent.

Refis jumped from $14 billion in 1995 to nearly a quarter of a trillion by 2005, the great majority of them resulting in higher loan amounts.

By 2005, 40 percent of all home purchases were either for investment or as second homes. (Experts believe that a large share of the “second homes” actually are speculations for resale; lenders don’t review vacation-home purchases as closely as investment properties.)

OPM.  Free market.  Caveat Emptor. 

By 2003 or so, mortage lenders were running out of people they could plausibly lend to.  Instead of curtailing lending, they spread their nets to vacuum up prospects with little hope of repaying them.  Subprime lending jumped from an annual volume of $145 billion in 2001 to $625 billion in 2005, more than 20 percent of total issuances.

The industry was awash in socalled “ninja loans – no income, no job, no assets.”

Meanwhile, things were, without us having any way of knowing it, becoming more and more insecure in the securitized world.  Remember all those security instruments mentioned above, well since there was so much money to be made at so little risk (ha ha), and with so little regulation, then why not just do this.  Think I’m talking small here.  Well, think again.  According to Morris, “The notational value of credit default swaps – that is, the size of portfolios covered by credit default agreements – grew from $1 trillion in 2001 to $45 trillion by mid-2007.  Synthetic (models emulating the real CDO created on a computer to simulate the real thing) SIV structures were now capable of being built and then put into play.  Unbelievably, entities that were called CDO2s or CDOs of CDOs, you get the picture.

Earlier in the book, Morris explained one of the guidelines that financial institutions were supposed to use to make sure that the investor was covered against loss was something called the Agency rule.  Under the Agency rule an institution’s officers could not recommend investments that acted against the investor’s interest.  But without regulation, remember Hedge funds are private, who’s to say what is in who’s favor, especially as the swaps make the distance between the real investor and his or her money increase exponentially.

Next up, Chapter Five:  A Tsunami of Dollars

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About that will . . .

I found this link today while reading JD’s blog, getrichslowly.  It was a mention of a will writing kit from Suze OrmanOf course, now I am doing the research.   The kit is like $14 plus shipping and it apparently does it all.  The problem is that we wanted to make sure everything was done correctly and legally.  Now I am really being stuck with a bad case of buyer’s remorse.  But part of the problem of partnering is accepting the other person’s way of doing things.

Say you decide to implement a budget.  The first step for the two of you is to sit down separately and list out what your income is versus what your expenditures are.  Seems simple on the surface but when I sat down to do it I ran head first into my own spending habits.  I have a tendency to give in to my partner’s needs on the little things and in the short term.  This means that sometimes I have to borrow from my savings in order to do something that she wants.  The problem comes from the fact that for the most part I keep these financial manipulations from her.  I like to keep an even keel in my relationship to money and a life time of ups and downs has basically taught me how to stay calm while using my credit or savings.  She, on the other hand, is a worrier.  Her rule of thumb being if I worry about everything then for sure something will go wrong and I’ll be proved right to have worried about it.

Another thing about partnering is that between the two of you there might be a disparity of needs.  Take this will thing.   I have always travelled light.  I like to think that I need very little beside a good book to read, paper to write on (or a blog), and my bike.  My other material possessions are personal. I have a will.  It’s very simple.  Whatever is left goes to T.  She is already my selected survivor on my checking and  saving accounts.  We hold title to our car jointly.  The rest of what I own, books, writings, music, and art will go to her.  Their monetary value is small.  Everything else in our partnership, the corp, the real estate, the vehicles, are already in her name. 

She has a will, too.  We purchased a blank pre-formatted one from a stationary store and went over all the details of naming her survivors, and determining who gets what from her personal and business interests.  It was a straight forward listing that we then notarized and she mailed to herself. 

But, yes but, nothing is ever that simple.  There are other considerations.  As I mentioned in a previous post, T recently became much more conscious of the what ifs.  What if she became incapacitate, what if all of her estate had to go through probate, what if …?  So even though we had already set up a whole life insurance policy and she had survived her recent surgery,  it still seemed like it was time to take care of the other contingencies by setting up a durable power of attorney and nomination of conservator, a living trust, and a medical power of attorney.  And here is where those difference between partners came up again.

I consider myself self-sufficient.  If I need to figure something out, I know how to do it and usually I feel comfortable with the decisions I reach.  T, on the other hand, likes to vet her decisions through others.  For instance, she could go online and find out just about anything she needs for investing.  She is in fact quite well-versed in charting stocks, and in handling her own portfolio.  Yet, every year we spend a couple thousand dollars attending workshops and seminars that teach the very things she already does well.  It’s just that she needs the confirmation that comes from seeing that someone successful, more successful, has done what she does.  So when it came to a will that worked and that she would have confidence in, we couldn’t just go to the shelf.

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Amex

So we are back from the day long series of workshops on using new programs to work the stock market via an Ameritrade event called Apexlive.  We received the classes for free – a $199 value – ‘cuz T has a trading account and a Suze Orman inspired “Save Yourself” savings account there.  It turned out to be a pretty good deal.  We drove up to the Marriot in Anaheim while we talked about her new interest in commercial real estate properties.  Then after sign in and grabbing a coffee and bagel (free from Starbucks and paid for by one of the software companies at the convention), we hit the first workshop which was an introduction to a software program, the Mutual Fund/ETF Screener, available online at Ameritrade.  It was designed to run a full analysis and comparison between ETFs and Mutual Funds and I found kind of enlightening.  I have gotten interested in this stuff lately because of the effect the credit swap industry has been having on the US and world economy lately.  Once you have selected a company, be it a Mutual or an Exchange Traded Fund, then you can input it into the program which then runs a profile of it next to similar products offered by other companies.  It comes with the ability to email your findings in case you’re working with a partner or a financial advisor.  There was not an opportunity to word the program there but the demo made it fairly clear how to access and play with the program through your own account.

The second class we went to was essentially one designed to bore us to death – portfolio guidance – and so I won’t go into it.

Class three, How to build a bond ladder, was the best for both of us because T has been laddering her CDs for the past year and again they introduced us to an online program, this time a Bond wizard the  lets you set up your program in a model so that you can actually run the outcomes.  In this class they ran several illustrations, one for setting up a ladder to fund your children’s college education.  The class leader couldn’t help but point out that his 529 was in the negative which couldn’t happen with bonds.  He obviously didn’t come prepared to discuss Bear Stearns.  Anyway, another model we ran was for a retirement program someone wanting to retire at age 60.  In both cases, the model used zero coupon bonds.

I couldn’t help but think of the transparency issue involved with any of these investments.  And even though I am a neophyte as far as financial analysis goes, I do know where to look to start finding some answers.

Meanwhile, we are back from LA and T is off to another commercial real estate seminar to try and interest our son in learning more about how it works.  Yikes.

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Greenspan in England

I was on my way to pick up a Borrelli’s pepperoni pizza before the Houston/Boston game when I heard the funniest story on NPR via the BBC news service. According to the report, Alan Greenspan was in England and being severely questioned about the current credit crisis in the US. The reporter said that according to Greenspan the problem may have been caused by the use in many companies of teenage programmers who’s computer models were not really reliable in economic terms.

Teenagers.  Damn, and I was so eager to blaim it on the neoliberals and the free market that apparently can’t really adjust itself the way that the economists claim.

Meanwhile, the fix which over the weekend seemed secure now is apparently not.  And while JP Morgan Chase’s offer of $2 a share is on the table, the stock is actually trading this morning in the $6 range.

As I was discussing yesterday, this solution, the $30 billion buyout that uses tax payers funds to rescue one financial institution, is not the correct solution.  But we are stuck in a top down model, Daddy Fed, or Mommy Central Bank, or Uncle Sucker, however you want to call it, will solve the problem it has caused by doing the same thing it has been doing.  Borrow money to pay off borrowed money.  This is wrong.  We need some new thinking and different people doing the thinking.

And meanwhile, England, please keep Mr. Greenspan there.

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Money in the bank

A sure thing that may no longer apply.  As the dollar continues to devalue and the Fed continues to print more, the piles of money we have stored away in emergency funds, savings plans, and even in precious metals is worth less and less.  This is definitely a frustrating situation.

For the past several years, counter to the rest of the nation, a small but dedicated group of bloggers have been posting about the trials and tribulations of teaching themselves and their readers about how to be frugal in a consumer economy.  101 ways to save at the grocery store, 21 ways to use your vehicle less, 15 steps to budgeting your income, 10 reasons to invest in index funds, and 20 baby steps to getting out of debt – those are the types of posts that have piqued reader’s comments and led the charge towards spending less and earning more.

So, secure in the thought that we have done things right and have avoided the danger of the bubble pops that have hurt so many people in recent months, we wake up this morning to the news of Bear Stearns and begin to wonder, if an individual or even a group of individuals working collectively can avoid the credit trap, why did this financial giant get caught short?

When an individual is in a credit crisis, there are documented ways to begin to deal with it.  But when a financial institution is in a similar situation, it represents a much larger problem than just poor financial planning.  In Bear Stearns we are seeing a reverse collapse of an economic system which has been under increasing attack in the last year.  The so-called Free Market economy that so many of our neoliberal political and business leaders, and corporations are so proud of is at the heart of the problem. 

Seen through the eyes of an individual, we can not help but notice that our economy has been taken over by credit junkies.  Borrowing today to fix yesterday over and over again until the debt load is so deep that they can’t look up and see a way out.  An individual can choose a bail out loan, pay off the creditors and then stick to a budget.  But anyone who has been there will tell you, fixing things is a life time process.  It’s so easy to take out that new credit card, or buy that new car, or invest in the new stock,  or . . ., and there you are right back where you started.  As long as the economic world we live in is invested (yes, there’s that word again) in consumerism, advertising its many wares thousands of times daily and pressing us to be engaged constantly in the same process through our jobs and our lives, we will be in danger of falling back into the hole.

Now we are seeing that this is not just an individual problem.  We have been taught that a free market will fix it all.  That a market place without regulation is self-correcting.  But in personal finance you learn that the first step in dealing with an addiction is accepting the fact that you are addicted.  Sometimes it takes a crisis, sometimes it takes an intervention to help you see the light.  What is happening with Bear Stearns today may just be that crisis.

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Yesterday at 4 AM

and I’m on my way to Long’s to buy some menstrual meds for my wife. I wonder how many other of the two or three vehicles I see on the road contain men on the same kind of mission? It has always been a source of amazement to me that women as a rule are quite often unprepared for this monthly event. Well, at least the women I’ve known. My wife, for example, tells me, she’s 44, that she doesn’t know exactly what her body is telling her just before her period starts. But I can tell when it is starting every time just from being together the past 14 years. So what’s up with that?

Anyway, I bring this up in preface to writing about the most recent book I’ve read, Resolution, a mystery novel by Scottish writer, Denise Mina.  The book jacket contained recommendations by two other Scottish writers, Ian Rankin and Val McDermid, I had read so I didn’t hesitate to start reading when pulled it off the shelf.

But right away I was puzzled by the introduction of several characters that it seemed like from the book I was already supposed to know, one in a mental ward and another who it later turns out is the main character of the story.  It is as though I have been dropped into the middle of something.  This gives me a feeling of incoherence that makes me set the book aside for awhile.

This is a trick that sometimes works with reading.  I discover that after taking a break from something that is confusing me that I have  settled my mind since it was I that was in a confused state not the book.  Anyway, when I go back to reading I discover a story about a woman who has been attacked and her lover murdered.  The man in the psyche ward, Angus Farrell, is the murderer and he has plans.  By taking advantage of events that occurred after the murders, there were two, he thinks he can win his trial and then get his revenge on the woman, Maureen O’Donnell, that he holds responsible for putting him where he is.

Maureen and her friend, Leslie, work selling pre-tax cigs at their stand in a street bazaar. Maureen, it turns out, comes from parents who are alcoholics and she has developed into one herself.  Her struggles with this and with the fact that her father molested her as a child form the back story which gradually, as the tale unfolds, intensifies into a very satisfying conclusion.  Resolution, I should say because as I am reaching the novel’s conclusion it suddenly dawns on me what the whole beginning was about.  This is a part of the story which must have begun in her first novel, Garnethill and continued with her second, Exile, and now my scrambled brain finally tells me, is resolved in this third.

I don’t like spoilers.  Hate to read a movie review before I see the film for myself.  And I really, really dislike the current trend in TV previews that provides a capsule view of what the show you are about to see is about.  I read to be surprised.  This story of Maureen and her friends, Leslie and Kiltie,  did just that.  There is a wonderful sense of humor that sometimes is  dour but really is just based in an acceptance of the conditions in which they must live that really makes her tough character stand out.

Now to head to the lib tomorrow and get started on the other two pieces of the trilogy.  And if you want a good read, I suggest you might start there too.

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