motivation

Manning Meltdown

I tuned into the Superbowl at the last quarter to watch Peyton Manning blow the whole thing with an interception. I am so glad I did not put money on this game. My girlfriend's dad says the Saints winning was a conspiracy to give some feelgood to the people of New Orleans after Hurricane Katrina. He says this was the reason the Patriots won after 9/11.

I'm not much for conspiracy theories, but a lot of prognosticators (and gamblers) got this one wrong. The reality is that the Colts are a mediocre team with a stellar quarterback. They need a defense.

Peyton Manning will remain a favorite son in the Big Easy.

change

Random Thoughts on Various Subjects

1. THE ARROGANCE OF OBAMA AND HIS ILK

I am amazed at the arrogance of Barack Obama. In that befuddled brain of his, he thinks the reason Americans aren't on board with his tomfuckery is because he hasn't communicated effectively. In other words, he hasn't dumbed it down enough for a nation of retards. He really believes this shit.

I will confess that the USA is a nation of retards. Look who they voted for to be president. Obama is correct that the public is largely stupid. What he fails to see is that he is even dumber than they are. Barack Obama is a shit-for-brains goddamned fool. The American people now realize this and wish to remedy their own error and elect someone less foolish. In the meantime, they will vote to hamper Obama. This is damn smart.

2. AVATAR

I got around to seeing this one with my girlfriend and her kids. The special effects are amazing. The leftard sermonizing at the end was not so amazing. And I wanted to puke at the pantheistic theology. Otherwise, this movie sucks. The one thing they got right is that people shouldn't steal from others and commit genocide in the process. I was totally on board with that.

3. SUPERBOWL XLIV

I'm going to go out on a limb here and make a prediction. Colts by a touchdown.

4. PALIN VS. OBAMA

It is obvious to me and others that Palin is running for president in 2012. She is definitely not my top choice for the job. As much as I am intrigued by her celebrity, I see her as a female version of George W. Bush who I absolutely abhorred. The reality is that presidential politics is looking more and more like a popularity contest than voting for a qualified candidate with a substantive grasp of the issues. My top choice for the job is Gary Johnson who is running though he can't officially declare at the moment.

WEDNESDAY

1. Iran launches a rocket. The equivalent of a middle finger to Israel and the US.

2. Toyota sucks. I will still keep my car.

3. Video games are the cause of autism. Gamers have poor social skills (and hygiene.)

4. Hygiene is overrated. Roll with the funk.

5. Election day can't get here fast enough.

6. A panhandling bum declined to take a personal check from me. He was strictly cash or money order. He said I could also donate through PayPal on his blog.

7. John McCain fears homosexuals. This lends more credibility to the rumor that he was sodomized in Hanoi.

8. I feel sorry for fans of Lost. They have devoted years to a saga that will surely end in massive suckage.

9. War is a drug.

10. Caffeine is also a drug. Time for coffee.

whisper

The Derivatives Market Is Not a Capital Market

Derivatives get a fair amount of criticism. They are largely blamed for the financial meltdown. Warren Buffett called them "financial weapons of mass destruction." I must also toss in my criticisms. The derivatives market is not capitalism but a casino for speculators.

When you buy a stock, you are providing capital to a business. The business uses this capital to build its business and make a return to you, the investor. Now, this is usually at the initial stage of the venture when there is an IPO. After that, the capital is sunk. The stock market enables investors to move their capital at will to other places. It allows the business to keep the capital invested in the enterprise. This is a good thing.

When you buy a bond, you are also providing capital to a business. You are lending money at interest. The business pays back the money with interest. They use this loan to build the business and keep it operating. This is also a good thing. The stock and bond markets are what build America. Traditional investment banking the way Goldman Sachs used to do it is truly God's work.

There are speculators in the bond and stock markets. These people are not investors. They are out to make a quick buck. They have holding periods as little as a second. This may seem bad, but it isn't. Speculators provide liquidity. This is why there is always a buyer when you want to sell a stock, and there is always a seller when you want to buy a stock. Speculators may do damage to their own fortunes, but they do not hurt the market. This is a good thing.

Derivatives are different. They do not provide capital to a business in any way. The best thing they can do is hedge against the loss of capital. A farmer can buy a futures contract on his wheat and lock in a price that ensures his profitability. An investor can buy an option to reduce the risk on his stock holding. Derivatives act as an insurance policy against capital loss. This is a good thing.

Derivatives become a bad thing when you realize that many of the traders in this area don't own the underlying assets which give the "derivative" its name. The value of the derivative is based upon the future value of some asset. It is essentially a bet not unlike betting on horses, football teams, or a hand in blackjack. Some will argue that buying a stock is also a bet. But there is a key difference. A stock provides capital for a business. A derivative does not. Naturally, the derivatives market dwarves the stock market by a ratio of 3 to 1. Needless to say, the big money is in trading derivatives. This is a bad thing.

Because the derivatives market is not a capital market but a casino, it becomes a zero sum game. Contrast this to the stock and bond markets which are positive sum games. Investors provide capital which businesses need. Businesses use capital and accumulate more capital. Everyone is better off on the whole. Sometimes, there is a loss of capital due to bad investment or whatnot. The result is that the capital will flow to where it will be best utilized. This is why 90% or more of businesses in the stock market have failed, but the market and America have seen consistent growth and return.

In the zero sum game of the derivatives market, wealth is not created. It is merely shifted around from one person to the next much like a poker game. For every winner, there must be a loser. This is why the recent meltdown produced big losers but also stories of instant billionaires who were on the other side of the bet. This is no big deal since only the fools who choose to play the game are hurt. Unfortunately, many of those fools are able to turn to the government to bail them out which hurts me and you because they take our capital to pay down their losses at the casino and give them a fresh pot to gamble with. In the case of some like Goldman Sachs, you get your money back with interest. In the case of others, you don't get shit back. But either way, the country as a whole is exposed to risk it is not being compensated for taking. Perhaps there should be derivatives on future tax increases.

The country was never in danger of financial collapse. It was the gamblers that were in danger of losses. They are still in danger. This is the way it is with the derivatives market. This is not God's work. This is the Devil's work which is the primary business of Goldman Sachs these days. Investment banking is just a ho-hum business compared to the red hot trading desk. But thanks to the government, the derivatives market now has the power to destroy real capital.

Casinos do not create wealth. They provide excitement and entertainment. On the whole, gamblers will leave poorer instead of richer. This is the essence of the zero sum game. The derivatives market is no different than this casino except that the cleverest quant finds himself being the casino owner. This is the goal of the derivatives trader. It is to figure out the stats and buy accordingly in order to be the casino owner who never loses as a consequence of the law of large numbers. This can get very complex.

The stock and bond markets are stone simple. The easiest way to be the casino owner there is to buy the indexes. No such strategy exists for the derivatives market. This is because of the zero sum game. The derivatives market only grows proportionally to the number of suckers in it. It is a sure bet that it will get bigger.

The derivatives market of today is merely a modern and more respectable version of the bucket shops that used to exist back in the day. Bucket shops were betting parlors usually in storefronts where retail investors would buy stock except the bucket shop operator did not buy the stocks but pocketed the money. He would pay the difference if the stock went up or collect the difference when the stock went down. It was considered a shady business and was outlawed. The derivatives market is the new bucket shop except that it doesn't cater to retail investors anymore.

So, do derivatives have any legitimacy to capital markets? They do act as a hedge against risk which can be useful in preserving capital. But the problem with this is obvious. Those derivatives are worthless if the person who assumed the risk is unable to pay. It is like buying insurance from a bankrupt insurer. This is not insurance at all but a fiction. With the inability to pay, derivatives are useless to capitalists.

What should the government do about all of this? The most basic thing it can do is stop being the insurer for this market through the Fed and Goldman Sachs and whoever else they can bail out. But regulating it is a waste of time. The last 80 years of government regulation of the markets should show that it does nothing to stop this sort of thing. What does make it bad is providing cash and cover for these idiots which is precisely what the government is doing.

iporn

mortality

Media Consumption and the Low Information Diet

I was listening to a podcast with Tyler Cowen. Tyler is a brilliant economist at George Mason University, a blogger at Marginal Revolution, and a cultural omnivore. The interviewer asked him how many blogs he subscribed to in his feed reader. The answer was 19. I was amazed at that answer, and I started counting the number of feeds in my Google Reader and stopped counting at 100. Is something wrong with me?

Lately, I've been trying to adopt a minimalist lifestyle, but I fail when it comes to media consumption. I am a high information person. The internet is like crack for me. I want to know everything and read everything. This can't be done, but I have fun trying.

Minimalists praise the low information diet. Less is more. But I can't get on board with this aspect of the program. I have tried. My recent bout of writer's block has come precisely because of this attempt to curb my media consumption. The dirty secret of all writers is not that they have original ideas, but they take old ideas and recombine them in new ways.

Minimalism is fabulous when it comes to material things. You don't need a lot of stuff. It is also great when it comes to design, aesthetics, and writing. You want things to be simple. But when it comes to non-material things like culture, knowledge, and the like, it leaves you with boredom and stagnation.

The best illustration I can give is a museum with plain white walls and open spaces but is filled with art and artifacts. The proportion of emptiness to fullness is such that the surroundings do not detract from the exhibit. This is how your life should be. We eschew some things in order to enjoy others.



Time and quality should be the limits of media consumption. Variety and depth should not. This means turning off American Idol and putting some Bach and Miles Davis on your iPod. These are ideas for formulating a media consumption strategy or an MCS. Here is my MCS.

I divide media into audio and visual. Reading, DVD's, and the internet are visual. They require my eyeballs. Audio does not require my eyeballs. These are things like the radio and my iPod. Because my eyeballs are free, I can listen to things while doing other things such as driving or washing the dishes. The iPod shuffle is the best device for this audio consumption because it is extremely small and unobtrusive.

Reading time is the time I set aside in the evenings for visual media consumption. I do this right before I go to sleep. This is when I peruse my Google Reader, empty out my email inboxes, and read whatever books and magazines I have on hand. I recommend having a backpack to carry your reading and listening materials in. My backpack is a camouflage hunter's backpack I bought from the sporting goods section at Wal-Mart. It is really cheap but rugged. I carry books, magazines, my Sony Walkman, and my iPod touch in that thing.

Saturday nights are for watching DVDs and television. I cancelled my Netflix membership, but I find myself sneaking to Blockbuster to rent stuff. Movies largely suck, but there is a lot of good television and documentary stuff out there. So, I will go back to my Netflixing and perhaps consider getting a DVR.

There is no end to the supply of media, so your limit on the intake should be a time limit. I am guilty of sacrificing my life on the altar of media consumption. Visual media consumption should always be kept on the borders of your daily living. For me, these borders are when the sun has set and all the work has been done. When my MCS is clicking as it should, I find I derive most of my information from the audio sources. (I really enjoy EconTalk while washing the dishes.)

I remember reading in Anne Rice's Interview with the Vampire that the vampires had to stop sucking blood before the heartbeat of their victim had ceased or else they would be dragged into the abyss of death with the person they had sucked dry. That is a vivid illustration I know, but it is a familiar knowledge to writers, readers, and drinkers which describes Anne Rice quite well. You have to know when to stop drinking the blood. In the case of media consumption, the same thing applies. You have to turn off the flow and step back before you fall into the sleep of death. For me, it is simply sleep. I will consume media until I lose consciousness. Gamers and programmers can relate to this.

I can't do the low information thing. The abundance of media is what makes me rich. But I can keep it from being a bad habit with my media consumption strategy. I just need to be disciplined in turning it off when I need to do other things.