Soccer will some day be a big deal …

November 18, 2010

Soccer will some day be a big deal in the USA: That is the hope of every soccer mom in the US as she signs her kids up for the next big elite sport: Lacrosse. The problem with soccer in the US has as much to do with perceptions as with the game. The perception is that soccer is an elite sport. Joe six pack ain’t much interested in elite sports, and Joe is an important fellow to advertisers and ticketing organizations. If you doubt that check out attendance at NASCAR or American Football events. Bristol Tennessee has the largest sporting venue in the US seating approximately 170,000 at one of two short track NASCAR events. Yeah, some of the drivers whine about how slow the race is and how many wrecks there are, but when your event is sold out years in advance … well boys, flash Joe a big smile, then go race. That short banked track stresses cars, pit crews, and drivers in ways a long fast track can never do, and Joe is well aware of that.  A few college football stadiums seat more than 100,000 paying fans. Nothing else comes close in North America. The American football is one of the most unstable balls used in any sport. Anything can happen in an American football game and often does. Neither American Football or NASCAR were ever imagined to be elite sports. When their favorite team looses Americans usually don’t wreck the stadium, stampede, or behave like international soccer fans either. That behavior internationally, even though it may be unusual, is always eventually reported, and effects the perception of soccer here. We go to a race or a game to spend time with friends, to experience the event, to be there, and we know our team may loose, so we are perhaps less emotionally invested in the match. Our football and our NASCAR are also different. They don’t resemble each other in any sense, although it has been suggested the worlds largest American Football game could be played between UT and VT on the infield @ Bristol. I happen to like that idea. Soccer, hockey, and perhaps basket ball are too much alike. Basketball goes on too long, college games are more real than pro, and seating at the basketball arena don’t compare to Ameican football or NASCAR. In a lot of ways soccer, hockey, and basketball are competing for the same fan base, so the overlapping seasons don’t help much either. We Americans like team sports. We like stars to be leaders of teams. We like to see people work together to get things done. We don’t care all that much for inflated personalities showing off on the field. Too many egos spoil the game and make it not fun. Americans like to feel elite but we dislike elitist behavior. Americans have always viewed Europe and things from Europe as elite. That tradition goes back to colonial times. BTW if you think NASCAR is not a team sport check out what happens when the pit crew drops the gas can. Check out all the NASCAR stars after the victory lap.  You NEVER hear them dis the pit crew, because their success depends mostly on the crew.  If the driver can’t drive, the crew will find a new driver.

To conclude it don’t matter much what MLS does or does not do, Joe is the ultimate consumer, and everyone is watching him. Joe uses his hands. Joe identifies with players who use their hands. Joe identifies with the driver and the pit crew. Joe don’t play footsie and he don’t identify much with those he thinks might do so. Right, Wrong, or indifferent, thats just the way things seem to be, especially on days I work in the sports office.

Liberal vs Conservative

October 7, 2010

Liberals feel “called” for lack of a better term, to be inclusive. The Great Commission, as well as the Communist Manifesto are both visions of inclusive social, political, or religious movements. Communism can also be viewed as a “socialist” religious movement. Liberal movements practice conquest by inclusion. Liberal organizations loose their raison d’être when they have converted everyone. When reason to be is lost, more conservative elements take over and undertake purification to extend the life, as well as protect the lives and investment of those involved in the organization. Stalin was the conservative figure who seized control of the Soviet system and then purged his liberal rivals during the 1930’s. Likewise the bishop of Rome used the various councils to work out which of the common practices and beliefs of the early Christian Church would be included in Catholicism. Later popes used the inquisition to remove those who had divergent views. The Republican Party has made a similar transition. Liberal movements accomplish their purpose then either dissipate or become conservative.

Conservative movements, on the other hand, exist to conserve some vision of purity. This is accomplished by inviting imperfect individuals to make themselves absent. If such invitations are not accepted, troublesome individuals are forcibly removed. The methods which have been employed to accomplish removals range from shell games with meetings to the taking of life. History is filled with examples of conservative movements. Ancient Israel. The Roman Empire was the conservator of Greek civilization. The Papacy of the early middle ages served as the conservator of Ancient Rome. The Holy Roman Empire was the conservator of the Papacy of the early middle ages. The American Revolution was a conserving event used to maintain gains associated with the liberal era known as the enlightenment. Napoleon’s empire can be viewed as an effort to conserve the national status of France from before the liberal French Revolution. The American Civil War can be viewed as an attempt to conserve the rights of individual states to limit the freedom and status of certain of their citizens. The Third Reich was an attempt to conserve the German Empire which existed prior to World War One. The problem with conservative movements is they don’t go away easily or peacefully. War seems to often be required to resolve their issues.

Ongoing Economic Problem

August 10, 2010

The problem here is the MBA crowd and conservative friends are so focused on the illusion of profit that no one is allowed to consider how to fix a profoundly broken system. Modern capitalism is built on the idea that development is without end, while the US economy has evolved to services. Development has pretty much ended except for the fringe stuff – Apple can make a few billion on a new i-phone … but it won’t power a country, or a world. Either someone must find something new to develop which savers will pour money into … like space, or we have to develop an economy which is no longer totally dependent on development. In any case the “development” engine was always cyclical swinging constantly between boom and bust, often more driven by the whims of wall street than any perversion of economic reality. Wall street often sees boom where there is bust, doubters check out the dot.com, real-estate, derivatives, and oil busts – stampedes to profit do not an investment make. The first step to fixing the problem is ending the political polarization so an analysis can actually be done. The second step is to demonstrate to the masses that economics is actually counter-intuitive, instead of the simple-minded solutions of the conservative talking heads. Unfortunately, solving this part of the problem may require a depression level economic event, because clearly none of the conservative crowd has wrapped their limited brain power around the idea their economic theology does not actually work.

Contract on America

May 20, 2010

If you know any of the tea party crowd you know they are a bunch of modern day confederates who would love nothing more than to re-fight the civil war. No one should ever forget the whole confederate thing was about the supposed constitutional rights of states to allow certain citizens of privilege to enslave certain other citizens of less privilege. The tea party solution is to eliminate all supreme court decisions, case law, amendments, and go back to 1789 where anyone could pretty much do whatever they wanted unless they were caught in the act. Where upon they would be lynched and hanged on the spot. If the tea party gets control of the USA it could easily become more cruel and evil then Nazi Germany.

ALGO trading …

May 6, 2010

“A Prime Inconsistency”.

That is the name of a piece I wrote some years ago of my recollections of the market crash of 1987.  Today with what can only be called an intra-day market crash, the problems of algorithmic trading are once again being re-visited.  How can this well known problem still be so alive and well?

The trading profession lives on volatility.  With out volatility there are few trading opportunities.  Market making activities generate volatility.  Life on Wall Street would be more boring than main street if market volatility were removed.  Algorithmic trading schemes generate as well as take advantage of volatility.

Volatility generates opportunities for both profit and loss.

Why we don’t care

May 5, 2010

At least one or two of us who watch the markets understand Wall Street is a gambling institution where individuals mostly loose their money, and the big house players, like investment banks, and their friends, mostly take it.

We have been waiting for one in particular to take their fall for a while now. Some of us understand the odds they profited handsomely from the collapse of other banks are off the charts on the high side.  Some suspect this whole thing was a great conspiracy, so while we don’t care much about a particular scam, we do care a lot about how much a particular investment bank ratcheted up the price of oil. We do care about what they and their favorite treasury secretary did while peers collapsed. We care, and we want to see a serious investigation. We care, but the case the SEC has brought is not the one we want to see prosecuted. We watch with interest to see if the SEC case shakes out anything relative to, say Bear, Lehman, Wachovia, or the economically destructive speculation on oil.

The run up of the price of oil, the run-up of housing costs, and the collapse of technologies with the associated loss of good salary jobs were the root cause of the mortgage problem.  Without any one of these factors the situation would have been perhaps difficult, but in the long term at least manageable.

To understand what exactly happened over the long term one has to look at how business itself is done on location in America.  To explore that, we will consider a somewhat hypothetical developing business situation circa 1982.

Let us suppose that certain senior managers of a company in Central New Jersey decide they would like to retire to Central Florida.  Let us further suppose their company, in some ongoing state of constant re-organization, puts them in charge of finding a new headquarters for the division.  What are they to do?  If they pick a site in sunny Orlando, their retirement moving trip south will be picked up by the company.  By the way this is not an insignificant expense.  So they will perhaps pick a nice new location somewhere in sunny central Florida.

Next lets consider what this means for the employees of this company.  First lets consider property values and tax law.  In central New Jersey, a fairly metropolitan area within fifty miles of New York City, home prices are only slightly less than on the New York side of the river.  So a family selling their home will expect market prices within a couple hundred thousand of  half a million dollars.  Capital gains tax rules give the home seller eighteen months to re-invest his profits in a new home, before those profits are subject to capital gains taxes.  So the family moving to central Florida is packing bucks – even if their New Jersey home is not completely paid off.

Mean while Marvin the Realtor is sitting in his office in Maitland Florida, wondering what he is to do.  The average time required to sell a house in Florida is three years.  The average sale price is only sixty thousand, and the last time someone built a new home was before time began.  His phone rings,  it’s a Realtor from central New Jersey.  The guy from New Jersey wants to buy land for a business park.  In a few weeks Marvin has a huge deal put together with an offer of bucks simply unimaginable in central Florida.

Marvin the Florida Realtor goes to sleep dreaming of dollar signs that night, and a lot of nights afterward.  Marvin can’t keep a secret, so before too long every Realtor in central Florida has the same dream.  The company in New Jersey makes their big announcement about the time Marvin’s clients business park is finished.  This in effect starts a bidding war for homes in Florida, by people with money from New Jersey.  Realtors in the south have a big secret they love to keep from their Yankee clients.  The secret is you buy property differently in the southern US.  In the New York area a seller will collect bids, then pick the best offer.  In the south the seller advertises an “asking” price, to which potential buyers respond with perhaps a significantly lower offer.

This clash of home buying culture results immediately in much higher home prices.  All it takes is a hand full of Yankee buyers laying down offer letters of twenty percent more than the asking price.  Central Florida has a culture of smaller, less expensive, more open homes known as “Florida houses”.  Large national builders follow the central New Jersey company to Orlando and immediately start a number of large developments.  Within five years everything has doubled twice.  Support companies have followed their client south, and the value snow ball has grown significantly, propped up now by loan amounts with home prices far surpassing those of only a few years earlier.

Over the years this scenario is repeated from Raleigh-Durham to Houston, and each time it occurs home prices are driven up significantly.  The events driving these transitions often involved software development, engineering, or some other expensive commercial development.  Most were driven by a significant number of well paying jobs.

A very big part of this trend was software development.  Lots of office space was required, as well as homes for the developers.  The Y2K effort exhausted the funds as well as demand for software development for some years.  Before the layoffs after Y2K had even gotten started many companies were looking to outsource their software development.  This in turn eliminated the need for not only those who wrote the software, but also those who maintained it on a day-too-day basis.  Likewise it eliminated the need for a number of large expensive homes.  This trend accelerated with the unwinding of the tech economy.

After the dot.com crash, tech companies simply died, whether they were involved in dot.com or not. Investor’s abandoning technologies opted for real estate. To make money on real property you either sell quickly or rent, which is boring. Bundled Mortgage securities were simply a market making activity which allowed investors to escape the realty trap, with their profits mostly intact. These were used to speculate on oil. The speculation on oil drove prices so high families struggling to pay inflated mortgages had no chance after their loans reset. In essence the investor class, private or corporate, did this to themselves, and most of us couldn’t care less if it did not cause so many problems for our families. Since a particular investment bank is the lone survivor of this mess it follows they knew exactly how it worked, which means they are probably the perpetrators.

The investment bank’s role in this sort of thing would have been making market for the investment class to get their money, then in making market once again so investors could escape the realty trap, and once again in commodities.  This activity in many ways transcend market making, becoming bubble making activities.

The Pedal Problem

February 4, 2010

Finally Toyota has met the American vehicle consumer at the gas pedal. It is about time. There are other problems waiting, but for now they continue to wait: Brakes on the hybrid, roof collapse on vans, unexpected transmission failures. Want more? Ask Mr. Google – but beware Mr. Google is slow about divulging this stuff, Some of us would like to know why.

In all fairness, Toyota’s problem is advertising. If the product were in the same quality metric as the advertising, they would have fixed this years ago. Problem is the product quality is probably not all that much greater than anyone else’s. If not then why do dealers have service departments, and why are there so many of those independent brand mechanics around? Somewhere there must be something to fix, or a lot of brand and dealer service mechanics would be kinda hungry. What Toyota unequivocally has is quality of advertising. The problem here is not gas pedals sticking, because that can happen to any car. The problem is the quality of the cars significantly lagged the quality of the advertising. So perhaps the quality was always in the advertising. If so just deserts are now being served. It is about time.

One other question. In the cars that have so catastrophically failed did the transmission also lock in gear such that drivers could not shift to neutral during the acceleration event? I wonder about that, because I would expect an officer of the highway patrol to instinctively know to shift to neutral. For some reason it seems that did not happen in the car he was in. Someone needs to discover that, because if that turns out to be the problem, the secretary of transportation was right the first time.

2010 State of the Union Response

January 28, 2010

As an independent and moderate with perhaps a more liberal view of politics and finance, I thought the president did pretty well. The president’s message has always involved reducing the gridlock and self serving negativity so real problems that actually mater can be addressed and fixed.

As a voter I want a financial oversight board which has the power to stop all of the nonsense in the financial industry. Lets face it Wall street might as well be a casino. If we are going to insist on regulating gambling, Wall street should be regulated as a gambling institution. As a voter I want the banks regulated enough to at least assure their stability.

As a voter I want the jobs problem fixed once and for all. That includes removing all tax credits for any company which primarily sells their products in the United States but does not maintain a US workforce which adds significant real value to said products. Marketing and management do not add value to anything. I would not be opposed to the government being an employer of last resort. As a voter I want the corruption in government to end, and the president’s ideas involving the dealings with lobbyist, seem immediately appropriate. If we need to pay public servants better so they don’t need to be part time lobbyist, then lets do it.

As a voter I expect the health care mess to get fixed without the special deals to get a vote here or there. I hold conservatives responsible for not contributing to a workable plan. As a whole, not one of the ideas republicans have proposed will significantly help solve this problem in any possible way. Each conservative proposal seems designed to fix things by making them eventually worse especially for the middle class. Remember the prescription drug plan which doubled the prices of prescriptions, and resulted in US Big Pharma being bought up by European firms who casually shifted production out of the US? Another legacy idea that got compromised into disaster by conservatives. We do not need any more of those. As for the idea of eliminating state control of insurance companies, the only beneficiaries of that scam would be investment bankers who are lucky enough to manage the consolidation frenzy. Any cost savings will be immediately destroyed by debt used by the winners of the bidding wars. Lets face it, people in the middle class and especially baby boomers are seen in the worst possible light by the conservatives. As large numbers of baby boomers approach retirement you can expect social security to become the target of a massive conservative assault if republicans regain control of the US government again. If the market bubbles since 1999 had not wrecked conservative plans, the current debate would be about eliminating all “new deal” financial controls and programs, including medicare and social security. If conservatives had their way, there would never be a debate about health care, as they are perhaps the primary beneficiaries of the current system.

As a voter I want something done about the student loan mess, as well as the cost of university. A first step in reducing future debt involves removing the tax on scholarships to cover housing while attending college. Current student loan debt will cripple any possibility of any housing recovery for at least the next fifteen, perhaps twenty five years, unless we have massive wage inflation, which is not possible in the current situation. The president’s proposals are a half step in dealing with this issue, which by the way is another one of those legacy issues, in that grants have been largely eliminated in favor of loans, and the tax on student housing grants has been around for a while.

Since most student loans are owned by the US government, I think people holding them should be given at least a tax credit for the amount paid straight off of their taxes. Those who paid for their education out right, or have paid off their student loans, should have the option of anonymously paying down student loan balances of at least one third party each year in return for a similar deduction or credit, with limits on the total amount of any such deduction or tax credit.

the offshore financial tsunami

November 24, 2009

In other news it is time to revisit February 12, 2004. That day Gregory Mankiw from the Bush White House economic department said something to the effect that outsourcing US jobs offshore was a good long term economic idea. I suppose five years later is getting on to long term, and It matter of fact does not look like such a fine idea. A wsj.com article on that date states that 2,000,000 jobs were lost to that point during the Bush presidency. Many of these were good paying middle class positions. You may remember trickle down economics from the Reagen – Bush era. You can’t remove 150,000,000,000 from the middle tier of any economy without some serious trickle down effects. In the communities where these positions were lost the impact was fairly immediate. The all night grocery store became the 8:00AM to 9:00 PM grocery. The classy car rental agency became rent-a-wreck. Restaurants closed. People lost their homes, cars, whatever. Some lost their families. Others moved in with relatives. In other places no one noticed. The market was up because companies could now pay bigger dividends. No one particularly noticed they were selling less stuff. Investors cashed out of the dot.com bubble and cashed in on the homes of displaced technical workers who once made $75,000 or better per year. Many of those displaced workers from 2001 either retired or worked part time for maybe 15,000 per year. Flippers flipped bargain basement foreclosure real estate for obscene profits to people with hidden balloon payment mortgages. Everyone was happy, except for those who had already lost everything. Bushie, Inc. was re- elected and all was good. Or so they thought. The free market crowd declared all the agencies which helped move the country out of the great depression could be disbanded, and all of that would have happened had Democrats been less successful in the 2006 election. No one but the affected voters had notice the brewing catastrophe. Voters had to some degree however, noticed, and a few of them were not particularly happy. But all was generally thought to be well, until those balloon payments on adjustable rate mortgages came due. By this time however the investor class had flipped out of the housing market into commodities, particularly oil. Bankers and their collateralizing friends were left to collect the profits in the wake of the flippers. All was thought to be well in the financial world. A couple hurricanes caused temporary shortages of gasoline and oil in the south eastern United States. This translated into a historic profit opportunity for the investor class, and they did not fail to take huge speculative positions in oil. The price of ramped up. For many months the retail price of gasoline would touch $3.00 per gallon in the United States. Demand would tank, and the price would fall back. This toying with disaster continued. Credit cards were maxed out buying gasoline for the big SUV. In the spring of 2008 retail gasoline prices again crossed the $3.00 threshold. A number of factors natural and otherwise kept the retail price of gasoline climbing this time however. The gas guzzling SUV was parked, sold, or traded for anything more fuel efficient. Demand trended down, but the price of oil kept climbing. All was well with the investor class, because everyone had to have oil. Everyone had to go to work to keep those ballooning ARM’s paid. Speculation pushed the price of oil toward $150 per barrel. The retail price of gasoline crossed $4.00 per gallon. Auto sales crashed, along with sales of most everything else. As sales collapsed, profits collapsed, and with profits, payrolls, which completed the feedback loop. Home foreclosures, already bad, hit record levels. Home prices most recently supported by the buyout cost of attached mortgages went underwater, shutting off US consumers home equity loan funds, and lots of credit cards. Adjustable rate mortgages went into foreclosure as their balloon payments came due. As ARM’s failed the underlying securities known as derivatives also failed. Investment banks in particular were forced into precarious positions, and many failed.

It is true there were many reasons for this chain of events. Mainly it was the final product of unbridled greed within the investment community, but it started with the movement of good US jobs offshore, and became a tsunami which wiped out main street and much of Wall Street.

Blundering Off

August 20, 2009

Today’s economic mess in America is primarily the result of blundering off in the direction of neo-conservative economic theory for many years.  This period of blundering was followed by eight years of practicing this economic theory, which seems to primarily suggest that markets are the absolute solution for all known problems.  This of course actually depends on the players in this economic game agreeing to a set of rules which protect all player value, assets, positions, and interests.  This presents a conundrum because neo-conservative theory asserts that rules and regulations (aka government) are inherently bad, and thus un-needed.  Once the actual practicing of the theory began, no ones values, assets, positions, or interests were protected, because the rule required for their mutual protection were gone.