That Feeling

Ever get that feeling that you been had?  For the past couple of days, I have been experiencing that particular feeling about the financial crisis and the government's response to it.  There are some things that don't make much sense to me.  Starting for one with the so called seizure of the commercial paper markets, also known as the money markets.  These are markets whereby commercial and possibly other interests with short term needs for cash sell IOUs to other interests with the cash on hand.  I believe the precise way it works is that the IOUs are sold at a discount to their face value, but that detail is not terribly important.

Now the media has reported any number of times that the money market has seized-up.  OK, what does that mean, and how do we know it.  Well, just now, I can't recall any kind of index that would indicate that money market lending has stopped.  I was going to write that people offer the "TED Spread" as evidence of the crisis, but that index is the difference between inter-bank lending interest rates and some sort of government bond rate.  But the TED Spread is measuring a different thing than the money market.  So, what kind of evidence do we have of a credit seizure?

I think evidence would be several things.  First would be a chart of interest rates over time.  Second would be a chart of the amount or volume of funds borrowed or lended.  Third would be an analysis that would should a nominal sensitivity of the volume of funds borrowed versus interest rates.  I would expect that this demand chart would show that fewer funds are borrowed when interests rates are higher.  Finally, I would look for a plot of the current volume/interest rate point on that same chart, and would expect that point to fall well below the nominal line.  That is, for even high rates of interest, the current condition is well below what you would nominally expect.  I've not seen any analysis like this.

What does exist is a great deal of anecdotal evidence on the current rates of interest, particular relative to government bonds.  People are claiming that interests rates are three or more percent higher that what was being paid last month, or earlier in the year.  I can certainly believe that interests for these types of loans are higher than in the recent past.  I also expect that the amount of boring at those rates are lower than they would be at lower rates.  But it is difficult to believe that there is no borrowing going on at all.  At higher rates, companies should begin the hard work of analyzing the return on such borrowings, and making the decision to borrow or defer the investment.  I would expect this even of short term borrowing, with the understanding that I am willing to pay a greater amount to borrow for short term needs like payroll and inventory, as without those I would be shortly out of business.  Now the increased interest is a direct hit to my profit, but a cost I must endure for the ongoing concern.

There is a flip side to this borrowing equation, and that is the lending side.  If my business is to lend money for an interest rate, then the longer I go without lending money, the more interest I lose.  So there are a number of companies out there who are losing money by not lending to creditworthy borrowers.  This is even more difficult, when the rates that I'm able to lend at are significantly higher than this month than they were two months ago.

Personally, I would like to be able to deposit money in a bank these days, and earn a higher rate of return on my deposit than I could get for purchasing Treasury bills or bonds, as the interest on Treasury instruments is rather low.

The effect of the various bailouts on this process, though, is perverse.  By interving in the market at rates lower than what the market currently indicates, it preserves the profit margin of the companies that are borrowing, and denies the opportunity for lenders and savers to capture some of those profits.

The bailouts will tend to preserve the status quo, which is what got us into this difficulty in the first place.  This is all done to perserve ten or so percentage points of growth in the GDP over time, under the belief that to do nothing would scrub many more points off the measure.  The cost of these bailouts will be an inevitable increase in inflation and the debt durden on future generations.  As other writers have pointed out, there is an opportunity cost as well, in the failed investment in infrasture that might matter a few years down the road.

So I have the feeling that I've been held up, because of the tremendous sums that are being spent to preserve the profit margins of the very organizations that got us into this mess in the first place.  I wonder what my next step should be.

Update on the Financial Experiment

Well, it has been a remarkable two weeks in Wall Street.  Fannie and Freddie taken over, Lehman's going bankrupt, Merril snatched up by BofA, AIG taken over, and finally the Treasury proposing a 700 billion (that's billion with a b) fund to begin removing the bad paper from the financial industry.  The Dow this week has been down 5%, then up 3%, then down, and finally finishing the week on an up note on the news from the treasury.  My dividend porfolio is actually up by quite an amount from when a wrote in August.  I am still at a loss since the inception of the portfolio earlier this year, but only by about 1%.

And I sort of don't really care.  The only thing I'm focussed on is whether or not my companies are making their quarterly dividends, and so far they have.  The only companies I'm worried about are BofA and GE, but even they are holding in there so far.  Other continuing to monitor dividends, I'm not planning any major changes.  Steady as she goes.

Review of Nozbe, an Online GTD Tool

For the last few weeks I've been looking at alternatives to my "classic" GTD implementation. This implementation has definitely been old school, being totally paper based in a large black notebook that I carried to and from work. I started paper-based because at the time I started GTD, I was in kind of an anti-computer mood. I seem to go through these moods every five years or so, and then become friends with computers again. I am now in one of my pro-computer moods, but that is a different subject.

In 2005 I began using a straightforward GTD based purely on paper. I had lists for @work, @home, @computer, and so on. I had project lists, project notes, someday/maybe lists, the whole package on 8.5" by 11" loose leaf notebook paper. There were a couple of problems with that system though. The principal one was the management of project tasks. Most tasks have two aspects to them, one a context in which the task should occur, and two a project, or a relationship among tasks that will foster a particular outcome. The classic paper based GTD will emphasize context over projects, and that is what happened in my classic implementation. I say that context trumps projects, because that is a crucial insight of GTD, you are most effective if you are doing work related to where you are.

Consequently, my tasks were all context related and lost most of their connection to projects, or complex outcomes. I still maintained some task relationship to projects, but not to the point that my weekly review was project-based. Rather, my weekly review consisted of checking off things that I happened to have accomplished during the week that happened to have been listed as a task.

So, once my anti-computer mood was finished late last year, I began to cast about for alternatives to the paper based method. In the last two weeks I stumbled on three solutions that were online to varying degrees, but all of which solved the problem of projects and contexts. Each of these solves the problems by realizing that there are two views of a set of tasks: a view by projects and a view by context. The first solution I tried used Google Gears to save the data to local hard drive, which has the advantage of having the data at hand, but no easy way of transferring the data to and from the various computers that one may use in the course of the day. The first solution suffered some bugs as well. The second solution was similar to the first, but a more solid, popular implementation that seemed to have some relationship to Google itself, continuing as the first solution did in storing the data locally through Google Gears. This was a better implementation, but inconvenient because of the data file transfer issue.

The third solution is the one I'm going to give a go to, even if it comes with a monetary cost. The solution is called Nozbe, and it is the best GTD implementation that I've seen. It clearly provides the two views of your task list, context oriented and project oriented. It emphasizes the notion of "next action" by allowing tasks to be designated as a "next action", which is important in keeping projects alive. It has an email and a Google calendar interface, all of which work well. It is completely online, and https based, so I am comfortable to some extent using it at work. It allows the attachment of notes or files to either contexts or to projects. It will make the weekly review a breeze as it will be straightforward to review each task and designate what the next action of the project should be. It allows for the printing of various views--next action, project, or context, which will be useful when moving a way from the PC.

Some weaknesses are the lack of an obvious backup, no published API to the task data, and the cost, which is currently $14 per month for me. My plan is to evaluate until about November, paying monthly. If I am still as enthusiastic in November, I will upgrade to a plan with more obligations but with a lower price. But so far, so good.

A Financial Experiment

So, I've set up this experiment in finance, having to do with one of my IRAs and a model for investing that relies on dividend income as opposed to capital gains. Since this experiment is occurring in a non-taxable account, taxes are not an issue just yet. There are a few more years before I can begin to withdraw from this account.

I started the experiment earlier this year, and sold everything in this portfolio in the January February time frame, and began to purchase stocks that 1) had a significant dividend yield, 2) had a significant dividend payout ratio, 3) had a history of dividend increases and no dividend cuts, and 4) had the fundamentals to continue those dividend increases into the foreseeable future. I took out seven positions in different companies, two of which where financial institutions. The idea is that I won't need to touch this portfolio for several years to come, except to reinvest the dividends that have been earned.

The theory is that just because a market can evaluate the price of a share of stock, on a daily if not an hourly basis, doesn't mean that information is terribly useful to any one holder of that stock. The question that shareholders should ask is, "what kind of cash return is this company making for me." By focusing on the dividend and not on capital gains, the focused is placed not on the day to day vagaries of the market place, but on the fundamental operation of the company in question, and the even simpler question of whether or not the company will make its quarterly dividend. As shareholders, we become less speculators and more owners.

So how is it all working out, given the recent turmoil in the stock markets. Not bad, but there continue to be some rough spots, particularly in the banks that I have shares in. But, so far, no one company has cut their dividend, one company has increased a dividend slightly, and the portfolio is generating about 4.5% in cash on an annual basis. Still, this experiment is not yet complete. I will update this post some time in December to check on the performance of this new portfolio style.

Low Energy Navigation

The subject of this post was prompted by another post in the Archdruid Report nearly a month back, and by the follow-up discussion. The Archdruid had reported that he had passed his Amateur Extra FCC examination, which entitles him to the highest level of amateur radio privileges. It is quite an achievement. Some how the follow up discussion included a thread or a mention of GPS, and the question was asked about pre-GPS navigation, and how that could be carried out.

GPS has somewhat trivialized navigation for the user, making precision navigation accessible to anyone who can operate a receiver. (True story -- I was in Sacramento last year traveling with another engineer. We had just landed at the airport and had just rented a car, as well as a hand held receiver. I gave the printout with the address of the hotel and the receiver to my colleague, and asked him to direct us to the hotel. Although he had never used a receiver before, he had the address entered into the device and guiding us to the hotel before I hit the freeway. No instructions, no help from me) My concern is what happens if any one of the three legs of the Global Positioning System fail. It would seem that the weakest parts of the triad are the control and the space system, but no doubt others have come to this conclusion as well, and contingencies have been prepared. The user segment is as strong in the near term as the various power supplies, but in the longer term even batteries run down. In any case, I'm concerned with how to determine one's position on the earth without electronic navigation aids.

The principal method has been celestial navigation, using the predictable motion of the earth and planets to triangulate on the sphere one's position. The tools to do this are still readily available. To obtain a fairly precise location (perhaps one to two decimal places after the minute), you'll need a sextant of some sort and an almanac. The traditional marine sextant is a wonderful solution, but requires an artificial horizon when using the sextant in-land, like here in Tucson. There is an aviation sextant that has some compensation for the horizon built-in but I don't believe aviation sextants have been manufactured for some time. The second item, an almanac, can be filed through the acquisition of a current Nautical Almanac. This document, jointly published by the US and UK governments, costs about thirty dollars. There is also an almanac published by McGraw-Hill and written by George G. Bennett. This is a compressed almanac that carries data for five or so years, but lacks the precision of the Nautical Almanac.

I've forgotten the third element required for a celestial navigation solution: an accurate time piece. Just about any quartz wristwatch is accurate once the error from UTC is known.

Using a sextant and the Nautical Almanac, I've been able to determine my location to about 5 miles, which I don't think is bad given what I'm using for a horizon. I've used the reduction equations documented in the back of the Nautical Almanac, and programmed them into a calculator. However, there are a number of documents that provide for other reduction of the sextant and chronometer measurements, but reduction is essentially the solution of the navigation triangle for the unknown quantities. Before the advent of calculators solving this triangle was not trivial; although closed-form solutions exists, computing of those solutions is involved.

The next steps in achieving a low energy navigation solution for me is to first determine a replacement for the various almanacs. Essentially, this requires generating an almanac from local astronomical measurements. The final step would be to create a low-cost, reproducable, but sufficiently accurate sextant. I doubt if I get to this last step, but that would create a totally local and independent navigation system.

A Return to Geocaching

July was a very busy month at my household, which is my excuse for the lack of blog entries. The principal event has been our yearly vacation, which this year was very special, as KC and I celebrate our tenth wedding anniversary. We ditched the kids :-; with my sister, and flew to the Big Island of Hawaii, and stayed there for a whole week. It was a beautiful place, and we both enjoyed our stay at a very posh resort on the northwest coast of the island. The most vigorous thing I did that week was to take a day out and go geocaching, romantic fool that I am.

Now geocaching is a very peculiar occupation. I have yet to decide if geocaching is a hobby, a past time, or a sport. Like many recreational activities, geocaching has aspects of all three categories. It is a hobby, in that there is a kind of craftsmanship that goes into 1) creating and placing the caches, and 2) searching for and finding all but the most trivial of caches. It certainly qualifies as a past time, as one can spend a great deal of time involved in it, just for the love of it. Geocaching certainly has a sport quality about it, as players keep statistics of their finds, and match statistics against other players. Regardless though of how geocaching is classified, for me it is an enjoyable time.

After a long hiatus, I have finally returned to geocaching. The sport has changed considerably since I was involved six years ago in 2002. The receivers were not as advanced, and the number of published caches was much smaller than today. It was the purchase of a new GPS receiver that prompted my return to the game. The receiver that I'd been using for six year was somewhat old, and in light of our upcoming trip to Hawaii I decided to go ahead and purchase a new instrument. I purchased a top of the line eTrex Vista HCX from Garmin, which more than meets my expectations for a GPSr. The sensitivity of the receiver is much improve from the models at the turn of the century; acquisition inside my house is now possible and likely, whereas my earlier models would only acquire in doors very infrequently. The amount of storage is limited by the amount of storage on your micro SDD card, and downloads over USB 2.0 are significantly faster that over RS-232. My particular model has a built-in digital compass and altimeter, which is an advantage when outdoors. Finally, the color maps are superior to the map display in my old eMap receiver.

But geocaching is more than the receiver. It is also the database of caches and associated information that is accessed through www.geocaching.com. That database is now integrated with Google Maps, integrated with a Garmin receiver driver, integrated with a number of third party software applications, all of which combine to allow a cacher to pinpoint one of thousands potential caches in a particular area for a find. The database allows hunters to log their finds through a web interface, so the status of a particular cache can be tracked through the years.

Over time there have appeared a number of variations on the traditional cache which typically consists of a container filled with various "treasure" hidden under a pile of rocks or brush. One variation has been on the size of the cache container. The classic container is an ammo box, and the variation is to use a smaller container. If an ammo box is a standard sized cache, then a sandwich box is a small container, and a 35 mm film canister is a micro container. There are smaller container that are known as "nanos" and are devilishly difficult to find. Another variation is dispense with the container altogether, creating a "virtual" cache. Since the virtual cache must also dispense with the log as well as the container, proof that the cache has been discovered must take some other form, such as requiring a photograph of some feature near the cache site, or by answering some questions that could only be answered with intement knowledge of the cache site. An earthcache is a variation on the virtual cache, which requires demonstrating some knowledge of a geological feature of the earth. A mystery cache requires the solution of a puzzle to reveal the location of the cache coordinates, and a multiple cache is similar in that the final cache of a multiple, which contains the log, can only be found through the discovery of a sequence of caches.

Finally there are the people. I attended a "cash in and trash out" or CITO event and met some of the more active local cachers. I think they are an intense and nice group of people. Some are quite competitive, while others are more interested in the adventure. There are as many approaches to caching as there are individual cachers. A future post on this subject will review my own personal goals and approaches to caching.

Local Observations from June 2008

• Travel from Tucson to Duncan and back, through Safford each time.
• Very dry, but that is to be expected
• Traffic appeared to be down, way down
• Duncan and Safford were devoid of other drivers, people on the streets
• Upper Gila valley in cotton
• Monsoon is nearly here (good timing -- St. John the Baptist day was Tuesday)
  
• Travel to Casa Grande National Monument on 15th
• Not many were travelling on the interstate
• Coolidge seems empty
• Case Grande was in corn, of all things.
  

The Rains are Here

The summer rains have finally arrived here in southeastern Arizona. We call these rains the "monsoons", although some meteorological professionals object to that usage. We mostly ignore such people.

It was a classic build-up to the season. First, there was the hot and dry weather that dominates the end of May and most of June. High temperatures were in the 100 to 107 degree range, and in the city of Tucson, nighttime lows creeped up into the mid-seventies. The skies were blue upon blue with no clouds anywhere. Now most people would described these conditions as hellish, but the older I get the more I seem to enjoy that kind of weather. The one thing I don't like about the hot dry June weather is that it will kill any creature, plant or animal, that is unprepared or unprotected. I lost a tomato plant earlier in the month because I went too long between watering. But back to the description of the seasonal change.

During the hot and dry time, you will begin to notice the build up of some lightweight cumulus to the south of Tucson, over the Santa Rita mountains. This build up will dissipate by late afternoon, and it may depart for a few days and then return. I look favorably towards these clouds, even though there is no rain or shade from them. They are a sign that God remembers us here in the desert.

After about a week of this light cumulus pattern, you will begin to notice scattered afternoon thunderstorms over the San Pedro valley in Cochise county, near Benson. You may also notice that the light cumulus pattern starting to build over the Santa Catalina's. Now these clouds may offer some shade, but only if they wander away from the mountain.

When the rains do come, it comes as a slug of moisture up from Mexico. The day will start out as partly cloudy, but by 10 o'clock the clouds will begin to organize into cumulonimbus, initially over the mountains, but meandering into the valleys and basin by mid-afternoon. These storms always come with considerable cloud to ground lightening and can leave as much as one inch of rain in an hour.

The start of this years monsoon season corresponded with a book that I've finished, titled The Desert Smells Like Rain, by Gary Nahban. This book is about the agriculture and cuisine of the Tohono O'odama people in south-central Arizona. Nahban studied the culture of the Tohono O'odama for many years and has wonderful insights about their language and culture.

One huge problem the Tohono O'odama have is diabetes. The thought seems to be that the Tohono O'odama have adaptable to a diet not so high in carbohydrates and a diet that varies in quantity throughout the year. Now with a Western diet full of cheap carbs, the Papagos, as the Tohono O'odama are also known as, have become insulin insensitive, and follow that path to full blown diabetes.

Another item Nahban discusses is the farming of sheet runoff areas. That, combined with seeds that can come to maturity with only one or two such runoffs, means that the O'odama can conduct agriculture in a very arid regions.

It was a very enjoyable book and I recommend it to anyone.

Fukuyama and the Last Man

The last post introduced Francis Fukuyama's The End of History and the Last Man, and discussed the meaning and basis for Fukuyama's claim for the "end of history". Fukuyama claims that 1) liberal democracies are apparently the most stable forms of government, and 2) the stability of liberal democracies means that nation-states will trend towards instituting this form of government, more so than any other. The second part of the book is an attempt to explain why this is so.

Fukuyama grounds his explanation in the psychologies of the people who make up the various nation states. Fukuyama divides people into two categories: those people who covet power and wish to possess and exercise power, and those people who do not. Although most people at some time in their lives may wish to have and exercise power, there are in all cultures people who are driven to do so, and do not merely wish it to be so. These people, whom Fukuyama described as megalomaniacs, are necessary to build ever more complex civilizations but also cause a great deal of misery in most cultures. These people, the ones who relentlessly pursue power, are Fukuyama's Last Man.

Some problems occur when more than one megalomaniac is vying for power. In most cultures, there is not a civil mechanism by which the various megalomaniacs can transfer power. The transfer of power occurs in these culture frequently through violence. Moreover, there is no way to remove a Last Man from power once he has it, except through violence.

The exception to this is liberal democracy. Such systems provide for the periodic transfer of power from one leader to the next, and provide the potential leaders with a forum for combat, that is elections, whereby these leaders can satisfy themselves with the pursuit of power without having to spill blood. Moreover, there are mechanisms for bloodlessly removing from power leaders that are unacceptably corrupt, incompetent, or vicious. Plus, there is the separation of power, which provides for more billets for those who wish to exercise power.

It is ability of a liberal democratic society to satisfy the power lust of certain individuals within those societies that according to Fukuyama explains the stability and longevity of liberal democracies.

I think that Fukuyama's thesis contains some explanatory power and that his insight into the durations of governments innovative. However, the hyperbolic title of his paper and book distracted people from a more level conversation on the merits of his arguments. Of course, if it weren't for his title, it is likely that I would have never read his book. But the title that attracted so may people to his book also caused his book to become the subject of ridicule for those who never read or poor understood his thesis, which is unfortunate.

Bill

Fukuyama and the End of History

This week's post from The Archdruid Report concerned Francis Fukuyama's The End of History and the Last Man. This book came out in 1993 or so, shortly after the demise of the Soviet Union, when many of us who remember that time where scratching our heads and looking kind of dumb. We were looking kind of dumb because we were wondering what had just happened to the evil empire, the red menace, the greatest threat to world peace and prosperity at that time. The Union of Soviet Socialist Republics simply could not have just evaporated, as it apparently did. But it did just evaporate, like a puddle of water on hot Arizona asphalt. Moreover, it seemed to be that what the Russians really wanted all this time was democracy. Fukuyama's book was an attempt, and a good one I believe, to provide a framework for what had happened, and what we might expect in the future.

Now most people simply have not read Fukuyama's book, and the title has become an a very tempting straw man for those in the mood to take out straw men. After all, history has not ended, so let's make fun of this yahoo who claims that it has.

Well of course, history has not ended, and someone of Fukuyama's skill and talent could obviously not think so. So what did he mean by the "end of history". The way I explain this is to ask the following: "what is the biggest headline event to have happened on the North American continent in the last 300 years or so?" Well, there are certainly a number of candidates: World War II, the Great Depression, Mexican Independence, the creation of Canada as an independent nation, the American Revolution, etc. We've been busy. But I think that Fukuyama might say that the biggest headline event in the last 300 years has been the American Civil War. The repercussions of that event resonate even today, nearly 150 years since they have transpired. He might also have said the American Revolution, which happened over 230 years ago. So to Fukuyama, the really big things to have happened on the North American continent happened long before the living memories of anyone's grandparent. Nor is there is any expectation that the American, Canadian, or even Mexican systems of political economy will change in the next decade or so, which would constitute one of his headline events. So although we North Americans have been busy creating new nations, compared to the rest of the world, we are slackers. History, in terms of these big nation creating headlines, has for all intensive purposes on this continent stopped.

Now, we still have wars, recessions, depressions, technological breakthroughs, civil and social upheavals and so on. But we don't have new states popping up. What gives? Fukuyama asked this same question, and asked an even broader question. He made a list of nation-states, their age, and their type of political economy, and saw what fell out. His analysis was brilliant to my mind, because the longest lived political economies in the world are liberal democracies, and the United States, my country, was among the longest lived, if not oldest nation-state in the world. The United Kingdom, another liberal democracy, was also near the top. In fact, all of the top candidates are liberal democracies. None other comes close.

What makes this outcome so strange is that many people think of the US as a very young nation. It is not. It is in fact old. We have a tradition of legal precedences, we have been traipsing to the poles every other year, we have elected forty plus presidents, and we have a number of other political customs and traditions that are over two hundred years old. That is a remarkable achievement. The English tradition of politics is perhaps older than the American--I equivocate because I'm not exactly sure how the English system works, and when it can be said to have started. There are other nations as well with an old system of liberal democracy, mostly starting in the Anglosphere.

So Fukuyama's thesis is that when a nation catches liberal democracy, it tends to stick with it, and with it goes the "end of history". There are counterexamples, of course, such as Weimar Germany giving way to Nazi Germany, but there is some strong evidence for his conclusion.

The second half of Fukuyama's book "and the Last Man" is Fukuyama's attempt to explain the apparent stability of the liberal democratic system, and this I will address in my next post.