Friday, November 21, 2008

You want a bailout? Here's my offer

[sfo] Politics World
You want a bailout? Here's my offer < RuffJustice >
2008-11-21 08:04:47

If you need a taxpayer bailout, you issue us redeemable convertible preferred shares at the common price paying 1% + the 10-yr T-note rate, redeemable / convertible for 1/5 of a common share at 5x the current share price. The maximum that can be issued is of the number of common shares outstanding.

Until the preferred is redeemed:

1. The dividend paid to common and preferred stockholders must be reduced by the percentage of preferred shares issued to us divided by common shares outstanding, and

2. Executive compensation decisions will be turned over to the National Executive Compensation Board chaired by the SEC.

Don't count on a bonus.

3. If you miss a payment on our dividend, the Treasury Secretary will appoint a new CEO and board to manage the company. Don't count on a golden parachute.


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Wednesday, November 19, 2008

The Gaza 2 Step

1. Kill some Israeli kids
2. Party
clipped from
On the evening of March 6 in Jerusalem, a heavily armed Palestinian terrorist from nearby east Jerusalem entered the Mercaz Harav yeshiva and opened fire on the unarmed teenage students studying there. Eight died, and 11 were badly wounded before another student and an off-duty soldier shot the terrorist. The atrocity ignited wild celebrations in Gaza.

If you thought that the celebrations were anomalous, you might want to know about recent findings just published by the Palestinian Center for Policy and Survey Research, an independent polling organization based on the West Bank. According to its polls, 84 percent of Palestinians approved of this attack. Moreover, 64 percent approve of Hamas randomly firing rockets and mortars from Gaza into Israeli communities, and 75 percent favor ending negotiations between their leaders and the Israeli government. it goes.
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Monday, November 17, 2008

Meanwhile, back at the train wreck

formerly known as The Economy, the evidence of the tipping point receding in the rear view mirror continues to mount ...

"The Empire State Manufacturing Index fell to -25.4 (DE: -28.5, Consensus: -26.0) in November from -24.6 in October. The result is the lowest in the Index's brief history (it began in 2001). New orders fell sharply for the second straight month, with the index falling to -22.2 from -20.5. Shipments also fell again, dropping to -13.9 from -8.9 in October. As a result of orders falling more sharply than shipments, unfilled orders fell as well, with the index reading -24.1 from last month's -12.2. This was the 8th straight month of falling unfilled orders.

The story of this report however, was the deterioration of the employment index, which fell to -28.9 from -3.7 last month. The reading was the worst since December 2001.

The average employee workweek also dropped, with the index falling to -25.3 from -9.8. Meanwhile, expectations for employment six months from now turned negative, hitting -4.2 from 1.1 in October. Only once in the history of the series (September 2001) did the expected employment index turn negative. In 2001 however, that result was almost certainly September 11th related, as the expected index read 15.5 in August, and rebounded to 8.0 in October. This time around, it likely reflects a sharp deterioration in the economic outlook."

... In other words, it's not just getting worse, it's getting worse faster and faster. This means it's going to get REALLY BAD before it even starts to get bad more slowly. YOU'VE BEEN WARNED.


"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Thursday, November 06, 2008

You could almost hear the global sigh of relief

CNN 2008-11-05

The Times of London said Obama had revitalized U.S. politics. In Germany, Der Spiegel called Obama's rise "astonishing," while the Times of India called Obama an "advocate of strong partnership with India."

Al Jazeera said Obama had "surfed to power on a wave of voter discontent generated by the failures of President George Bush and the Republican Party" and added that he faces "unique challenges." It continued that his country was "sick of war."

Actually, the whole world pronounced itself sick of what it perceived to be Bush's multipronged military approach. From the start, President Obama will have to tackle the campaign pledge that defined his candidacy: bringing U.S. troops home from Iraq and ending the war there.
At the same time, he has to tackle a Rubik's Cube of America's overstretched and fatigued forces, to figure out how to redeploy more to wrest victory from the jaws of defeat in Afghanistan.
And next door in Pakistan, he must devise a strategy to rescue a failing state, bolster democracy and simultaneously crack down on al Qaeda and Taliban militants there.

And what about Iran? Many believe that's Foreign Policy Challenge Number 1A, if not Number 1, because of Iran's nuclear program.

Iran officially reacted to Obama's victory with cautious optimism, praising the end of what it termed "Bush's defeated policies." It added that Obama "can play an important role in future relations between the U.S. and Asia and the Middle East."

Here in America, many former secretaries of state and other officials also believe in playing that role. They say an Obama administration should explore the possibility of engaging with Iran and even restoring diplomatic relations as a way to help solve challenges such as Iran's nuclear program and its role in regional power politics in Iraq, Afghanistan and the Middle East peace process.

Obama can ride the wave of warm welcome from European and other global allies, but he is already being encouraged to restore an era of cooperation and compromise after the unilateral approach of the Bush administration.

"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Friday, October 17, 2008

Why you must NEVER trust a "conservative"

in one simple table...

...Goddammit, pod people stole my party!...

"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Thursday, October 02, 2008

White Privilege: a rant

For those who still can't grasp the concept of white privilege,
or who are constantly looking for some easy-to-understand
examples of it, perhaps this list will help.

White privilege is when you can get pregnant at seventeen like Bristol
Palin and everyone is quick to insist that your life and that of your
family is a personal matter, and that no one has a right to judge you or
your parents, because "every family has challenges," even as black and
Latino families with similar "challenges" are regularly typified as
irresponsible, pathological and arbiters of social decay.

White privilege is when you can call yourself a "fuckin' redneck,"
like Bristol Palin's boyfriend does, and talk about how if anyone messes
with you, you'll "kick their fuckin' ass," and talk about how you like
to "shoot shit" for fun, and still be viewed as a responsible,
all-American boy (and a great son-in-law to be) rather than a thug.

White privilege is when you can attend four different colleges in six
years like Sarah Palin did (one of which you basically failed out of,
then returned to after making up some coursework at a community
college), and no one questions your intelligence or commitment to
achievement, whereas a person of color who did this would be viewed as
unfit for college, and probably someone who only got in the first
place because of affirmative action.

White privilege is when you can claim that being mayor of a town smaller
than most medium-sized colleges, and then governor of a state with about
the same number of people as the lower fifth of the island of Manhattan,
makes you ready to potentially be president, and people don't all piss
on themselves with laughter, while being a black U.S. Senator, two-term
state Senator, and constitutional law scholar, means you're "untested."

White privilege is being able to say that you support the words "under
God" in the pledge of allegiance because "if it was good enough for the
founding fathers, it's good enough for me," and not be immediately
disqualified from holding office--since, after all, the pledge was
written in the late 1800s and the "under God" part wasn't added until
the 1950s--while believing that reading accused criminals and terrorists
their rights (because, ya know, the Constitution, which you used to
teach at a prestigious law school requires it), is a dangerous and silly
idea only supported by mushy liberals.

White privilege is being able to be a gun enthusiast and not make people
immediately scared of you. White privilege is being able to have a
husband who was a member of an extremist political party that wants your
state to secede from the Union, and whose motto was "Alaska first," and
no one questions your patriotism or that of your family, while if you're
black and your spouse merely fails to come to a 9/11 memorial so she can
be home with her kids on the first day of school, people immediately
think she's being disrespectful.

White privilege is being able to make fun of community organizers and
the work they do--like, among other things, fight for the right of women
to vote, or for civil rights, or the 8-hour workday, or an end to child
labor--and people think you're being pithy and tough, but if you merely
question the experience of a small town mayor and 18-month governor with
no foreign policy expertise beyond a class she took in college--you're
somehow being mean, or even sexist.

White privilege is being able to convince white women who don't even
agree with you on any substantive issue to vote for you and your running
mate anyway, because all of a sudden your presence on the ticket has
inspired confidence in these same white women, and made them give your
party a "second look."

White privilege is being able to fire people who didn't support your
political campaigns and not be accused of abusing your power or being a
typical politician who engages in favoritism, while being black and
merely knowing some folks from the old-line political machines in
Chicago means you must be corrupt.

White privilege is being able to attend churches over the years whose
pastors say that people who voted for John Kerry or merely criticize
George W. Bush are going to hell, and that the U.S. is an explicitly
Christian nation and the job of Christians is to bring Christian
theological principles into government, and who bring in speakers who
say the conflict in the Middle East is God's punishment on Jews for
rejecting Jesus, and everyone can still think you're just a good
church-going Christian, but if you're black and friends with a black
pastor who has noted (as have Colin Powell and the U.S. Department of
Defense) that terrorist attacks are often the result of U.S. foreign
policy and who talks about the history of racism and its effect on black
people, you're an extremist who probably hates America.

White privilege is not knowing what the Bush Doctrine is when asked by a
reporter, and then people get angry at the reporter for asking you such
a "trick question," while being black and merely refusing to give
one-word answers to the queries of Bill O'Reilly means you're dodging
the question, or trying to seem overly intellectual and nuanced.

White privilege is being able to claim your experience as a POW has
anything at all to do with your fitness for president, while being black
and experiencing racism is, as Sarah Palin has referred to it, a "light"

And finally, white privilege is the only thing that could possibly allow
someone to become president when he has voted with George W.
Bush 90 percent of the time, even as unemployment is skyrocketing,
people are losing their homes, inflation is rising, and the U.S. is
increasingly isolated from world opinion, just because white voters
aren't sure about that whole "change" thing. Ya know, it's just too
vague and ill-defined, unlike, say, four more years of the same, which
is very concrete and certain.

White privilege is, in short, the problem.


"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Wednesday, August 06, 2008

Market Outlook "Worst Ever"

PIMCO 3Q08 Market Outlook

PIMCO Secular Economic Outlook for 2008 - Market Outlook for 3rd Quarter

PIMCO believes that secular economic, social and political trends exert the most powerful and sustained influences on bond markets. They define “secular” as the next three to five years. PIMCO's secular outlook guides the way they structure portfolios in terms of duration, yield curve positioning, sector exposure, credit quality and other risk measures. The following are the views and findings from the PIMCO Secular Outlook:

Emerging Economies to Lead Global Growth
- Global growth will remain robust despite a cyclical downturn in the U.S. and other developed economies. Growth will be driven to a greater extent by emerging markets that are in the midst of a breakout development phase. The global economy is evolving into a multi-polar growth world where countries such as China emphasize more balanced development paths that include enhanced consumption, market-based systems and more flexible exchange rates.
Upward Trend in Inflation - Inflation pressures will spring from several sources. These include: the spillover of global demand into commodities; gradually rising wages as well as policy shifts toward greater employment and social spending in developing economies; and loose U.S. monetary policy that tends to export inflation, especially to emerging economies that align their currencies with the U.S. dollar.
Lower Corporate Profits - Profits are likely to decline from current high levels, both overall and relative to labor, as low wages in emerging markets rise. In addition, as the financial sector works its way through the subprime crisis it will have to raise more capital, reduce leverage and tighten lending standards. While such measures will promote stability over the long run, they will have a depressing effect on profitability over the next several years for financial companies and the corporate sector overall.
Realignment of the Global Financial System - In developed economies, regulatory changes and balance sheet management will drive realignment. Now that the Federal Reserve has opened its discount window to investment banks, these institutions are likely to face greater capital requirements and oversight. The financial sector in the developed world will be driven toward a business model with lower leverage and lower risk. Realignment will take a different form in emerging markets. Local capital markets in emerging economies will continue to develop as consumers and businesses demand a wider range of financial services. The influence of sovereign wealth funds will grow as they diversify risk profiles of their portfolios.

PIMCO Cyclical Economic Outlook

While the Secular Outlook is the foundation for the PIMCO portfolio strategies, they refine this outlook to account for expected developments over a cyclical, or 6- to 12-month time frame. Major aspects of PIMCO's cyclical view are:

Fed Unlikely to Tighten in Near Term – The financial system is highly sensitive to shifts in monetary and fiscal policy amid constrained balance sheet liquidity and asset write-downs that continue to erode banks’ capital. There is also growing evidence that fallout from the subprime debacle has now spread to the U.S. regional banking sector. In this environment, the Fed is unlikely to have the latitude to raise short-term interest rates over the next several months despite growing inflation pressure.
Heightened Volatility for Investment Strategies - PIMCO expects that the vulnerability of the global financial system to policy mistakes will make risk exposures in investment portfolios more volatile. On the positive side, however, this volatility is also likely to create more opportunities for astute investors to add value.

Investment Implications of Secular and Cyclical Outlook

The following is a summary of broad investment themes that flow from the PIMCO Secular Outlook, as well as descriptions of how PIMCO expects to express these themes.

Limit Interest Rate Risk
- PIMCO will look to reduce exposure to interest rates in the U.S. and elsewhere in the world, especially on the longer end of yield curves. Longer maturity rates are vulnerable to inflation risk and, in the case of the U.S., the need to finance higher expected fiscal deficits and attract investors already heavily exposed to Treasuries. In the U.S., PIMCO will target duration below the benchmark. With the U.S. yield curve likely to remain steep, they plan to retain our focus on relatively short maturities, a strategy that offers the potential for gains as bonds “roll down,” or mature along the steep yield curve over time.

Outside the U.S., PIMCO plans to retain exposure to the front end of the U.K. yield curve, though at reduced levels. The Bank of England faces the same constraints with respect to raising rates as does the Fed, which means that U.K. short rates are unlikely to rise as much as markets expect.

Seek Out High-quality Assets With Attractive Yields - Debt reduction and balance sheet realignment, and the resulting dearth of liquidity, have contributed to a dramatic widening in risk premiums across a variety of fixed-income assets. PIMCO will be discriminating as it pursues these opportunities. They believe that the best risk-adjusted returns will be found in the senior part of the economy’s capital structure. These securities include top quality corporates, municipals, mortgages and other asset-backed bonds where valuations have cheapened less for reasons of credit weakness than because of system-wide liquidity constraints.

For example, PIMCO plans to retain an overweight to mortgage-backed bonds, especially those arranged by the major mortgage agencies, to capture yield premiums well above historical averages. Municipal bonds trading at yields above Treasuries are another high quality opportunity.

Look for Value in Financials - Realignment of the financial sector could create compelling opportunities for investors. Regulators will look to remove risks of institutional failure from the banking system. The cost of this regulatory reaction will be a lower return on capital that will likely tilt relative value in the direction of bondholders and away from stocks of financial companies. While PIMCO plans to retain an overall underweight to the corporate sector, they will continue to emphasize select, high-grade corporates where the credit crisis has produced attractive valuations, including bonds of banking and finance companies. Some of these financial institutions may well be too big to fail, thus putting them under the “umbrella” of the Fed.
Position for Renewed U.S. Dollar Weakness – The U.S. dollar’s decline is not over, but the currencies that carry the brunt of the appreciation versus the dollar will change. The gainers will no longer be dominated by countries with floating currencies, such as the euro, pound and yen. PIMCO plans to take modest positions that benefit when these currencies lose value versus the U.S. dollar. They will emphasize currencies of emerging market countries (such as China and elsewhere in Asia) with relatively inflexible currency regimes that will be forced to let their currencies rise against the U.S. dollar to combat inflation.


"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Tuesday, July 15, 2008


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Monday, July 07, 2008

More Fecal Matter Approaching the Rotational Air Circulation Device

End of an Era

Prepare for meaner slumps and less exuberant recoveries. The jobs report tells only half the bad news.


It was, as Dubya might put it, a heck of a month. But that doesn't quite convey how very distinctive and how awfully bloody it was. Great for ghouls, vampires and short sellers. Bad for just about anyone else with a pulse who happened to own as much as one solitary share of stock.

Of course, if you had invested your dough in a nice little oil well somewhere you probably feel like a million bucks and your net worth must feel even better. Or, if you were one of those dastardly speculators who, sneering all the while at the world's hungry millions, took a flier on wheat, while steering clear of zinc, June was a positively lovely month.

But if you're the diehard equity type, as so many of us innocents are, you suffered the agonies of poor old Job. For the sad truth is, to find an equal to how bad June's stock market was. you need to go all the way back to 1930, when the fall-out from the Great Crash was wrenchingly evident and the bodies were still hitting the pavement on Wall Street.

If it's any consolation, the elite billionaires as well as we poor investment peasants have been roughed up by this year's cruel and vicious market. We can offer you that solace, thanks to the efforts of crack researcher Teresa Vozzo, who secured the data from an interesting Website dubbed

As its fairly repellent name may give you a hint, GuruFocus tracks the stock picking performance of 55 mostly famous (and usually rich) investors including the likes of Warren Buffett, George Soros, Dave Williams, Glenn Greenberg, Carl Icahn, Ron Baron, David Dreman, Edward Lampert, Bill Miller, Marty Whitman and Seth Klarman. We know a number of these fine gents and even like a few of them.

According to GuruFocus, in the first half of this year, only four of the 55 bought stocks that collectively scored a gain. This lucky quartet was headed by T. Boone Pickens, the oil maven, whose stock purchases in the first half of the year were up a nifty 23%; Ken Heebner, whose equity buys averaged a 14.5% rise; Steve Mandel, who enjoyed a 10.1% average gain on the shares he bought in the opening six months, and David Winters, who posted a 3.8% appreciation.

The worst losers were Marty Whitman, whose first-half picks were down 43.9%; Mohnish Pabrai, whose buys were down an average of 41.9%; and Bill Miller, whose purchases, on average, lost 38.5%. No need, we hazard, to pass the collection plate.

THE BANK FOR INTERNATIONAL SETTLEMENTS -- BIS, for short, and blessedly less of a mouthful than the official moniker -- has been around four score years and thus seen it all: panics and booms, recession, depression and bountiful prosperity, inflation, disinflation and that particularly ugly hybrid, stagflation. The bank, in the not unlikely case its existence has eluded your ken, is the central banks' central bank, a kind of global nanny keeping an eye cocked on the world's banking system and trying, regrettably not always with success, to persuade its charges to act with some semblance of prudence and reason.

For an institution coping with no fewer than 55 central banks, it somehow has contrived to retain its sanity and, perhaps even more surprisingly, its equilibrium. Indeed, for the most part, it manages to eschew those endearing qualities that conspire to make "smart banker" an oxymoron. Unlike so many vaguely official entities with "international" in their title, the BIS renders its analyses and opinions as guided by facts on the ground rather than revelations from on high.

We're grateful to our friends, Philippa Dunne and Doug Henwood at the Liscio Report, whose latest commentary on the economy prompted this little riff on the BIS. Like the diligent scholars they are, they plowed through the 260 pages of the bank's annual report and distilled some of the salient material it contains. Less scholarly and for sure less diligent, we, in turn, are distilling their distillate.

The BIS, incidentally, is based in Basel (forgive us our alliterations), which, we suppose, doesn't surprise you, for where else would the central bank of the world's central banks be based but in Switzerland? More to the point, its Swiss locale provides a suitably neutral perch from which to survey the global economic and financial scenes. What we found gratifying is that so much of the BIS' view of the way things are and what lies ahead of us is very much akin to what we've been scribbling here for months on end (vanity, thank heavens, is not a mortal sin). Its take on inflation, for example, seems quite on the money. It doesn't much hold with the notion, so firmly held in Wall Street and Washington, that the concoction known as "core" inflation, which eliminates such insignificant stuff as the cost of food and energy, is the proper measure of inflation. Instead, the bank is convinced that in the U.S. and the Eurozone, headline inflation -- which, of course, much to the chagrin of the no-inflation claque, includes prices of food and energy -- has become a much better predictor of inflation.

As to whether the economy is done in by a violent flare-up of inflation in a redux of the 1970s or by the insufferable weight of debt aggravated by the brutal credit crunch, the BIS ventures with admirable impartiality that those on both sides of the argument might in the fullness of time be proved right. Which pretty much echoes our feeling that the current surge of inflation will worsen ponderably and be followed by a painful period of deflation. The bank warns that resorting to "gimmicks and palliatives" to support asset prices and stymie an impulse among consumers to save will only make things worse.

The BIS lays the blame for the current financial mess we find ourselves in squarely on the vast buildup of debt over the years that has instilled in various global economies a dangerous tendency, fed by easy credit, to magnify booms and busts. From here on, in other words, you might as well kiss those comparatively mild recessions and moderate expansions that we've recently had goodbye.

As Philippa and Doug sum up the message in the BIS annual, it increasingly looks "like the evermore freewheeling financial environment that we've taken for granted for the last 25 years is behind us." Or, as the Bank declaims "has run its course."

In sum, better buckle your seat belt; the ride ahead stacks up as pretty darn bumpy.


We're always razzing the poor old consensus for its bum forecasts, often so very much off the mark, of monthly employment numbers. So we figure it's only fair to be nice for a change and commend the consensus for being smack on target. And we'll even refrain from pointing out that once in a very great while, the guy or gal with a blindfold on does pin the tail on the donkey.

Anyway, the going estimate on the Street for June was a loss of 60,000 or so jobs and, by golly, the actual number was 62,000. All you members of the consensus, stand, please, and take a bow (it may be a long time before you get a chance to do it again).

The unemployment rate, meanwhile, which had taken a huge jump in May, the biggest, in fact, in 22 years, held steady at 5.5%. Revisions to April and May swelled the earlier reported totals of pink slips by a combined 52,000.

The private sector lost 91,000 jobs, with, as you might expect, construction and manufacturing the heaviest hit. The good news was on the skimpy side: The biggest gains in hiring were by municipalities and states, and given the increasing financial pinch afflicting city halls and statehouses just about everywhere, that old reliable geyser looks due to dry up in a hurry.

Just for the record, governments of every stripe chipped in 29,000 to the job total. There were some 30,000 fewer temps working at the end of June than at its start, which tells you more about the economy than you'd like to hear. It's also a bit of an evil harbinger for employment.

That insightful pair, Philippa Dunne and Doug Henwood, cited above, are invariably spot-on when it comes to parsing the monthly job numbers and we've passed along their conclusions, many a time and oft. Our only reservation, and a modest one, has been, kindly souls that they are, they were too forgiving of the Bureau of Labor Statistics' birth/death model, which seeks to capture the jobs added and subtracted by, well, the birth and death of new firms. The device invariably strikes us as a fire alarm that works swell -- except when there's a fire. And in the overwhelming majority of months, it perhaps conveniently serves to bloat the total of jobs added.

As it happens, we now have reason to forgive Philippa and Doug for being forgiving. Here's what they say in Friday's review of the latest jobs report: "Although we usually shy away from pointing to mischief coming from the birth/death model, this seems to be one of those moments when we should overcome our shyness: It added 177,000 to June employment."

Duly noting that the birth/death calculation is made without seasonal adjustment, they nonetheless observe that save for it, private employment would have been down a formidable 268,000 or so. Other absurdities: The birth/death model miraculously added 29,000 to rapidly vanishing construction employment, 22,000 to professional business and professional services and -- get this -- a whopping 86,000 to leisure and hospitality.

They comment dryly: "Given the weakness of the economy and the crunchiness of credit, we doubt there are enough start-ups around to match these imputations." Exactly.

"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Tuesday, June 03, 2008

End of an Era

The era of unlimited abundance is ending. Instead of delusioning on windmills and solar power destined to provide only a few percent of our needs for the next 300 years, the world must go immediately to nuclear energy. Instead of going on and on about Chernobyl and Three Mile Island, the truth is that France has gone nearly 80% nuclear since the 1970s, and it's never had an accident. And the choice is not between nuclear and solar, it's between nuclear and all of us shivering in the dark.

Nuclear at least would give the planet enough energy for everybody for the next few centuries. And by then, we might have practical nuclear fusion that would emulate the power of the sun, and just pray some lunatic at that point doesn't use it to destroy the whole planet.

The Pacific Ocean is like a huge lake with a circular current around it, and it's recently been discovered that there's a huge collection of plastic garbage in its centre, twice the size of the United States; everything from old toothbrushes to nets that trap the remaining fish.

Personally, I'll say good riddance to oil so that the air can be clean again, and I can once again see the beauty of the planet in the distance, instead of hazy smog. As my father said, "If you abuse yourself, you'll go blind." And I said, "Hey, Dad, I'm over here."


"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Monday, June 02, 2008

Profiting from the dollar's decline

Commentary: If the dollar continues to fall, don't invest in dollars
By Bill Donoghue, MarketWatch
Last Update: 12:01 AM ET Jun 2, 2008

SEATTLE (MarketWatch) -- Federal Reserve Chairman Ben Bernanke painted himself and the American economy into a corner. Treasury Secretary Henry Paulson is promising help -- but not until after he is likely out of office. At least the paint will be dry by then and Bernanke and Paulson can go home in peace (or disgrace).

There are two factors strongly affecting the value of the dollar; the trend of interest rates, which directly affects the value of the dollar, and the depressing state of our economy. Rates are not likely to fall far any time soon (they're more likely to rise with inflation) and a long painful recession is in the works.

Bernanke's policy to ease financial markets by lowering the ultrashort overnight rates he can set (the discount rate where banks borrow from "the lender of last resort" -- a crowded line this summer -- and the Fed funds rate where mostly country banks lend their excess reserves on deposit at the Federal Reserve to regional and financial center banks who make the largest commercial business and real estate loans) has been slow to stimulate the American economy.

It also undermined the value of the U.S. dollar and made investing in foreign stocks "safer," as non-U.S. dollar-denominated securities offer an added extra currency cushion. That attracts rational security-cautious investors and denies capital to American borrowers trying to reestablish market leadership.

Profit directly from a weakening dollar index

To profit directly from a weakened dollar on a day when the U.S. dollar index (DXY: news) falls 1%, the inverse Falling Dollar U.S. ProFunds (FDPIX: news) should rise 1% and the leveraged Rydex Weakening Dollar 2X strategy fund (RYWBX: news) earns 2%. In a rising dollar day the funds lose 1% and 2%, respectively. These funds can be disturbingly volatile but if you feel the dollar is likely to continue weakening, these are excellent choices.

There is also the PowerShares U.S. Dollar Bearish ETF (UDN: news) that tracks the Deutsche Bank Short U.S. Dollar Index Futures Index. They beat both ProFunds and Rydex to the exchange-traded funds market as their rising dollar index ETFs are still in registration.

Profit from investing in currency funds

CurrencyShares are ETFs distributed by Rydex. They offer eight currency choices; the Australian Dollar (FXA: news), the British Pound Sterling (FXB: news), the Canadian Dollar (FXE: news), the Euro (FXE: news), Japanese Yen (FXY: news), the Mexican Peso (FXM: news), the Swedish Krona (FXS: news) and the Swiss Franc (FXS: news).

Currently, the Australian dollar and euro, along with our neighbors to the north, the Canadian "loonie," and our neighbors to the south, the Mexican peso, represent the best profit opportunities -- although you might choose to build a portfolio of all four. Remember, that will require four times the trading costs as these are ETFs, though using discount brokers like E-Trade or TD Ameritrade should keep your trading costs to $7 to $10 dollars per ETF.

Profit from investing in foreign currency-denominated bank accounts

If you wish a wider choice of currencies, you could open certificates of deposit or money market deposit accounts at and reduce your trading costs to exchanges within 1% of the institutional exchange rates; a low cost you probably couldn't get at most banks or brokers.

Profit from investing in foreign stock funds

Of course, the best way to take advantage of a falling dollar is to invest in foreign-currency denominated stocks where your return is a combination of strong local stock opportunities and currency profits. Brazil (EWZ: news) and Canada (EWC: news) are excellent choices. Brazil has become the "OPEC of sugar ethanol" (we blew it on less efficient corn ethanol), is energy independent and has just found new oil reserves off its coast. Canada is the U.S.' largest supplier of oil (from oil shale) and their currency last year was so strong that simply opening a checking account in Vancouver or Toronto would have bought you 23% more dollars by year end without earning any interest.

Profiting from the falling U.S. dollar is easy; Profiting in the U.S. is hard

Which U.S. sectors will be the hottest (to buy long) or the coldest (to sell short) is always a hard choice, but with a dollar this weak and interest rates so low and a Fed that seems impotent to fight back, makes being a dollar bear an easy bet.

Even if they are successful, it will take a long time to know they succeeded -- and even then, the best investments are likely to be across the border anyway.

Bill Donoghue is editor of The Proactive Fund Investor, a weekly newsletter published by MarketWatch, and chairman of W. E. Donoghue & Co. in Norwood, Mass.


"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Thursday, May 29, 2008

"Greed Kills" Investing Strategy

Albert Meyer, a former accounting professor from South Africa now based in Plano, Texas, brings a healthy dose of skepticism to stock analysis. He picks companies for the fund by starting with two basic rules.

First, Meyer rejects companies where stock-option grants represent more than 5% of the shares outstanding. He says that because of shortcomings in rules on how to account for options, the true cost to shareholders doesn't come through in reported financial numbers. Overly generous grants are so widespread that this rule eliminates more than 75% of the stocks in the Russell 3000 index ($RHK.X), according to Paul Hodgson of The Corporate Library, which tracks grants as part of its corporate-governance rating system.

Next, Meyer avoids companies where execs get too much pay. There's no strict cutoff. But he's unlikely ever to hold a company where the boss makes more than $5 million a year. That's about half of the $9.9 million in average compensation that CEOs at S&P 500 companies made in 2007, according to The Corporate Library.

From there, Meyer looks for qualities such as pristine financials, strong cash flow, good profit margins and reasonable dividends in businesses surrounded by some kind of protective moat. He's also a value investor who favors stocks that look cheap.
First-rate results
But wait a second. Whenever I focus this column on companies with highly paid CEOs, I'm told that these pay levels are necessary to attract the top talent. Doesn't Meyer run the risk of winding up with companies run by a bunch of second-rate leaders?

"It's a total scam to say, 'If we don't pay these salaries, we won't draw the talent,'" Meyer says. "That's not what I find. The companies we own pay modest salaries, and they do extremely well. They are not suffering because of a lack of high salaries."
Video on MSN Money
Say on pay © MedioImages
Aflac shareholders win 'say on pay'
The company's shareholders have become the first investors to have an official say on executive compensation.

Meyer's track record bears this out. Investments for managed accounts at his Bastiat Capital -- where he also shuns companies with greedy execs -- were up 43.4% from April 30, 2006, through the end of April this year. The S&P 500 was up 5.72% in the same time frame.

"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Wednesday, May 28, 2008

Four Mega-Dangers International Financial Markets Face

By Dennis J. Snower
01 May 2008 at 10:06 AM GMT-04:00

BOSTON ( -- Day after day new, alarming news emerges from the world’s financial markets, and day after day the public is surprised by how bad it is. But instead of wringing our hands, let’s ask ourselves an important, unconventional question: What is more surprising: that financial markets have turned from bad to worse, or that we continue to be surprised by each successive piece of adverse news?

I suggest that our repeated surprise should be more surprising. This issue is important, because if we were better at recognising the financial risks we face, we could do more to avoid them. If banks, investment houses, and American homeowners had done a better job in recognising the risks in the subprime mortgage market, we could have spared ourselves the current crisis.

Why does the public repeatedly underestimate the repercussions of the present financial crisis? The answer is simple: most of us are short-sighted; we can’t imagine a future that is radically different from the present. In particular, most of us don’t understand that economic events often unfold gradually due to the operation of important lagged adjustment processes embedded in the economy. The public, the media and politicians would do well to give them close attention. Lagged adjustment processes. After the Titanic’s hull was punctured, it took hours for its hull to fill with water; thus the passengers couldn’t imagine that it would sink.

In my judgment, there are currently four major dangers facing the world economy, and all of them are currently obscured by the fact they play themselves out slowly.

Four dangers

The first danger we have witnessed since August 2007: The subprime mortgage crisis gave rise to a liquidity crisis in the international banking system, due to uncertainty about who holds the losses. This is leading to reduced lending to firms and households. But that is not the end of the story, because the reduced lending will lead to reduced consumption and investment. With a lag, reduced sales of goods and services will reduce stock market valuations. And, with another lag, the lower stock market prices will – in the absence of any favourable fortuitous events – intensify the banks’ liquidity crisis.

The second danger lies in the dynamics of U.S. house prices. As more and more U.S. households find themselves unable to repay their mortgages, foreclosures are on the rise, more houses are put on the market, the price of houses falls further – with further lags – this leads to more foreclosures and declines in housing wealth. This dynamic process plays itself out only gradually, as households face progressively more stringent credit conditions and house sales gradually lead to lower house prices.

The third danger results from the interaction between wealth, spending and employment. As U.S. households’ wealth – in the housing market and the stock market – falls, their consumption is beginning to fall and will continue to do so, again with a lag. This decline in consumption is leading to a decline in profits, of which more is on the way, which in turn will lead to a decline in investment. The combined decline in consumption and investment spending will eventually lead to a decline in employment, as firms begin to recognise that their labour is insufficiently utilised. The decline in employment, in turn, means a drop in labour income, which, with a lag, leads to a further drop in consumption.

And that leaves the fourth (and possibly the nastiest) of the dangers, one that concerns the latitude for monetary policy intervention. As the Fed reduces interest rates to combat the crisis, the dollar is falling. This is leading to higher import prices and oil prices in the United States, putting upward pressure on inflation. The greater this inflationary pressure – which is currently in excess of 4 percent – the more difficult it will be for the Fed to reduce interest rates in the future, without running a serious risk of inflaming inflationary expectations and starting a wage-price spiral. U.S. firms and households will gradually recognise this dilemma and the bleak prospect of little future interest rate relief will further dampen consumption and investment spending.

Eventually, of course, the decline in spending will lead to a decline in inflation, but this will only happen with a lag. The longer the lag turns out to be, the longer the period over which the U.S. economy will endure stagflation, that is, a cruel combination of rising prices and falling aggregate demand. Much hinges on how persistent U.S. inflation is. More persistent inflation will inevitably give rise to higher inflationary expectations, leading gradually to higher inflation, and so on. It took central banks over a decade, in the 1980s and early 1990s, to get inflationary expectations under control, and the fruits of this battle are now in danger of being lost.

Global implications

The international financial crisis and the decline in the U.S. economy will inevitably have an adverse effect on the growth of the world economy. Europe and the emerging markets of Latin America and the Far East cannot fill the gap that the U.S. economy leaves. There exists no economic mechanism whereby a drop in the U.S. aggregate demand will be matched by a correspondingly large increase in aggregate demand elsewhere. Germany and other European economies highly exposed to the vagaries of international trade will certainly feel the pinch.

In the longer run, the prospects for the world economy look much brighter. Eventually U.S. house prices will stabilise, rising exports will help the U.S. economy recover, the fall in world demand for goods and services will reduce the price of raw materials, U.S. households will learn the importance of saving, and global imbalances will correct themselves. These rosy prospects lie in the mists of the future. Meanwhile, however, we are well advised to stay focused on the four dangers."

... let's just say the housing bubble affected the overall economy on the way up; it is sure to do so on the way down.

"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Tuesday, May 27, 2008

Social Security Inconvenient Truths

When Social Security (FICA) was introduced it was promised:

* Participation in the program would be completely voluntary.

* Participants would only have to pay 1% of the first $1,400 of their annual incomes into the program.

* The money the participants elected to put into the program would be deductible from their income for tax purposes each year.

* The money the participants put into the independent trust fund rather than into the general operating fund, would be used only to fund Social Security, and no other government program.

* Payments to the retirees would never be taxed as income.

The millions who have paid into FICA for years and are now receiving a Social Security check every month -- and who then find they are getting taxed on 85% of the money they gave to the federal government to save for them -- may be interested in the following:

* Social Security money has been removed from the trust fund and put it into the general fund so that Congress could spend it.

* The income tax deduction for Social Securitjavascript:void(0)
Save Nowy withholding has been eliminated.

* Social Security annuities are now taxed.

Now contrast this with the fact that Congress passed a 100% retirement benefit for members who have served at least one term.


"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Monday, March 10, 2008

Good luck with that zero carbon footprint, bubba

Carbon Output Must Near Zero To Avert Danger, New Studies Say
By Juliet Eilperin
Washington Post Staff Writer
Monday, March 10, 2008; Page A01

"The task of cutting greenhouse gas emissions enough to avert a dangerous rise in global temperatures may be far more difficult than previous research suggested, say scientists who have just published studies indicating that it would require the world to cease carbon emissions altogether within a matter of decades.

Their findings, published in separate journals over the past few weeks, suggest that both industrialized and developing nations must wean themselves off fossil fuels by as early as mid-century in order to prevent warming that could change precipitation patterns and dry up sources of water worldwide.

Using advanced computer models to factor in deep-sea warming and other aspects of the carbon cycle that naturally creates and removes carbon dioxide (CO2), the scientists, from countries including the United States, Canada and Germany, are delivering a simple message: The world must bring carbon emissions down to near zero to keep temperatures from rising further.

"The question is, what if we don't want the Earth to warm anymore?" asked Carnegie Institution senior scientist Ken Caldeira, co-author of a paper published last week in the journal Geophysical Research Letters. "The answer implies a much more radical change to our energy system than people are thinking about."

"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Monday, February 25, 2008

Resignation of top GAO official

"Facing indifference on the Hill and unrealistic spending promises, Walker is resigning with five years still remaining in his term to head the newly formed Peter G. Peterson Foundation. Peterson, senior chairman of The Blackstone Group and Commerce secretary in the Nixon administration, has pledged an astounding startup budget for the foundation of $1 billion.

That money will attack what the foundation considers "the most substantial economic, fiscal and other sustainability challenges of our current age" -- including federal entitlement programs, health care, unprecedented trade and budget deficits, low savings rates, mounting foreign debt, soaring energy consumption, an uncompetitive educational system, and the proliferation of nuclear warfare materials. Maybe Congress will listen this time.

"I have been around a very long time, and I have never seen so many simultaneous challenges that I would describe as undeniable, unsustainable and virtually untouchable politically," Peterson said in a prepared statement.


"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place, we are entering a period of consequences." - Winston Churchill, The Gathering Storm

Sunday, February 10, 2008

Yet Another Shoe About to Drop

How many feet does the damn thing have, anyway? ...

In many cases, munis are sold as part of "tender option bond," or "put bond," derivatives. In these programs, which became very popular among hedge funds in this decade because their low risk profiles permitted a lot of leveraging, a bond could be tendered back to the issuer if any of a variety of troublesome events triggered, ranging in severity from a default to a ratings downgrade. The programs required the issuer to buy the bonds back at par, or face value.

If the monoline insurers that guarantee the bonds lose even one notch of their high ratings, then every one of the hundreds of thousands of munis they have underwritten over the years likewise loses its high rating. And that would be an event that could lead bondholders to attempt to tender the bonds back to issuers. Only cities and states don't have anywhere near the tens of billions of dollars it would cost to buy them back. They would need to issue more debt at higher interest rates, and, well, you can see this can spiral way out of control.

Continued: A worst-case scenarios

It's one thing for corporate bonds to run into trouble, because they are typically backed by hefty amounts of assets that can be sold, even if that must happen at rock-bottom prices. And besides, there just aren't that many corporate bonds in the country: If they were all listed in a telephone book, it would be around three-quarters of an inch thick. But there are hundreds of thousands of U.S. muni bonds -- at least enough to fill a 9-inch-thick telephone book -- and cities can't just sell a bridge or sewer line or school building to raise money to pay them off in a crisis.

Let me give you an idea of the magnitude of the worst-case scenario: When ratings agency Moody's put the rating of monoline insurers Ambac and MBIA on downgrade alert last month, it was obligated to, in turn, put about 1,000 structured finance issues -- those CDOs and the like -- on "negative watch," which is a way of telling holders to beware of downgrades of their own. This is exactly what led in turn to banks' headlong efforts to get in front of the crisis by writing down the value of those issues and take multibillion-dollar losses, putting their shares in free falls.

What got less publicity was the fact that Moody's put 60,000 munis on negative watch at the same time for each monoline insurer. And when another ratings agency, Fitch, downgraded a much smaller privately held monoline called Financial Guaranty Insurance, it was forced to put 114,560 municipal bonds on negative watch.

Thursday, January 24, 2008

Sep 07, we were warned

SuperModels9/20/2007 12:01 AM ET
Are we headed for an epic bear market?

The credit bubble is just starting to unwind, a credit-derivative insider says. And while U.S. borrowers are being blamed for the mess, they were really just pawns in a global game.
By Jon Markman

Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.

One of the world's leading experts on credit derivatives, Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years, he seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch -- and I expected him to defend and explain the practice.

I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?"

Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy.
An epic bear market
Das is pretty droll for a math whiz, but his message is dead serious. He thinks we're on the verge of a bear market of epic proportions.

The cause: Massive levels of debt underlying the world economy system are about to unwind in a profound and persistent way.

He's not sure if it will play out like the 13-year decline of 90% in Japan from 1990 to 2003 that followed the bursting of a credit bubble there, or like the 15-year flat spot in the U.S. market from 1960 to 1975. But either way, he foresees hard times as an optimistic era of too much liquidity, too much leverage and too much financial engineering slowly and inevitably deflates.

Like an ex-mobster turning state's witness, Das has turned his back on his old pals in the derivatives biz to warn anyone who will listen -- mostly banks and hedge funds that pay him consulting fees -- that the jig is up.

Rather than joining the crowd that blames the mess on American slobs who took on more mortgage debt than they could afford and have endangered the world by stiffing lenders, he points a finger at three parties: regulators who stood by as U.S. banks developed ingenious but dangerous ways of shifting trillions of dollars of credit risk off their balance sheets and into the hands of unsophisticated foreign investors; hedge and pension fund managers who gorged on high-yield debt instruments they didn't understand; and financial engineers who built towers of "securitized" debt with math models that were fundamentally flawed.

Jim Jubak
What the Fed can’t do
Investors are abuzz over the Fed’s interest-rate decision, but the Federal Reserve can’t fix everything, cautions MSN Money’s Jim Jubak. Lower interest rates alone won’t boost confidence in the debt market.

"Defaulting middle-class U.S. homeowners are blamed, but they are merely a pawn in the game," he says. "Those loans were invented so that hedge funds would have high-yield debt to buy."
The liquidity factory
Das' view sounds cynical, but it makes sense if you stop thinking about mortgages as a way for people to finance houses and think about them instead as a way for lenders to generate cash flow and create collateral during an era of a flat interest-rate curve.Although subprime U.S. loans seem like small change in the context of the multitrillion-dollar debt market, it turns out these high-yield instruments were an important part of the machine that Das calls the global "liquidity factory." Just like a small amount of gasoline can power an entire truck given the right combination of spark plugs, pistons and transmission, subprime loans became the fuel that underlays derivative securities many, many times their size.

Continued: How it worked

Here's how it worked: In olden days, like 10 years ago, banks wrote and funded their own loans. In the new game, Das points out, banks "originate" loans, "warehouse" them on their balance sheet for a brief time, then "distribute" them to investors by packaging them into derivatives called collateralized debt obligations, or CDOs, and similar instruments. In this scheme, banks don't need to tie up as much capital, so they can put more money out on loan.

The more loans that were sold, the more they could use as collateral for more loans, so credit standards were lowered to get more paper out the door -- a task that was accelerated in recent years via fly-by-night brokers now accused of predatory lending practices.

Buyers of these credit risks in CDO form were insurance companies, pension funds and hedge-fund managers from Bonn to Beijing. Because money was readily available at low interest rates in Japan and the United States, these managers leveraged up their bets by buying the CDOs with borrowed funds.

So if you follow the bouncing ball, borrowed money bought borrowed money. And then because they had the blessing of credit-ratings agencies relying on mathematical models suggesting that they would rarely default, these CDOs were in turn used as collateral to do more borrowing.

In this way, Das points out, credit risk moved from banks, where it was regulated and observable, to places where it was less regulated and difficult to identify.
Turning $1 into $20
The liquidity factory was self-perpetuating and seemingly unstoppable. As assets bought with borrowed money rose in value, players could borrow more money against them, and it thus seemed logical to borrow even more to increase returns. Bankers figured out how to strip money out of existing assets to do so, much as a homeowner might strip equity from his house to buy another house.

These triple-borrowed assets were then in turn increasingly used as collateral for commercial paper -- the short-term borrowings of banks and corporations -- which was purchased by supposedly low-risk money market funds.

According to Das' figures, up to 53% of the $2.2 trillion commercial paper in the U.S. market is now asset-backed, with about 50% of that in mortgages.

When you add it all up, according to Das' research, a single dollar of "real" capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion -- or eight times total global gross domestic product of $60 trillion.

Without a central governmental authority keeping tabs on these cross-border flows and ensuring a standard of record-keeping and quality, investors increasingly didn't know what they were buying or what any given security was really worth.
A painful unwinding
Now here is where the U.S. mortgage holder shows up again. As subprime loan default rates doubled, in contravention of what the models forecast, the CDOs those mortgages backed began to collapse. Because they were so hard to value, banks and funds started looking at all CDOs and other paper backed by mortgages with suspicion, and refused to accept them as collateral for the sort of short-term borrowing that underpins today's money markets.

Through late last month, according to Das, as much as $300 billion in leveraged finance loans had been "orphaned," which means that they can't be sold off or used as collateral.

... How's that working for ya?

Monday, January 14, 2008

definitely far more serious than anyone would have thought

I'll say it again, it's the ACCELERATION, stupid!...

A scramble to understand Greenland's melting ice sheets
By Andrew C. Revkin
Monday, January 7, 2008

The ancient frozen dome cloaking Greenland is so vast that pilots have crashed into what they thought was a cloud bank spanning the horizon. Flying over it, one can scarcely imagine that this ice could erode fast enough to raise sea levels dangerously any time soon.

Along the flanks in spring and summer, however, the picture is very different. For a lengthening string of warm years, a lacework of blue lakes and rivulets of meltwater have been spreading ever higher on the ice cap. The melting surface darkens, absorbing up to four times as much energy from the sun as unmelted snow, which reflects sunlight. Natural drainpipes, called moulins, carry water from the surface into the depths, in some places reaching bedrock. The process slightly, but measurably, lubricates and accelerates the grinding passage of ice toward the sea.

Most important, many glaciologists say, is the breakup of huge semi-submerged clots of ice where some large Greenland glaciers, particularly along the west coast, squeeze through fjords as they meet the warming ocean. As these passages have cleared, this has sharply accelerated the flow of many of these creeping, corrugated, frozen rivers.

All of these changes have many glaciologists "a little nervous these days - shell-shocked," said Ted Scambos, the lead scientist at the National Snow and Ice Data Center in Boulder, Colorado, and a veteran of both Greenland and Antarctic studies.

Some say they fear that the rise in seas in a warming world could be much greater than the upper estimate of about two feet in this century made last year by the Intergovernmental Panel on Climate Change. (Seas rose less than a foot, or 30 centimeters, in the 20th century.) The panel's assessment did not include factors known to contribute to ice flows but not understood well enough to estimate with confidence. All the panel could say was, "Larger values cannot be excluded."

A scientific scramble is under way to clarify whether the erosion of the world's most vulnerable ice sheets, in Greenland and West Antarctica, can continue to accelerate. The effort involves field and satellite analyses and sifting for clues from past warm periods, including the last warm span between ice ages, which peaked about 125,000 years ago and had sea levels 12 to 16 feet higher than today's.

The Arctic Council, representing countries with Arctic territory, has commissioned a report on Greenland's ice trends, to be completed before the 2009 round of climate-treaty talks in Copenhagen, at which the world's nations have pledged to settle on a long-term plan for limiting human-caused global warming.

Konrad Steffen, a University of Colorado glaciologist who has camped on the shoulders of Greenland's ice sheet each year since 1990, is a United States author working on that study. Last August, he and a team focusing on the ways meltwater might affect ice movement dropped a camera 330 feet, or 100 meters, down a water-filled moulin to explore whether the plumbing system can be mapped.

Research on alpine glaciers shows that as more water flows through such apertures, ice can shift more quickly. But eventually large sewer-like conduits form, limiting the lubrication effect. The camera drop was only an initial test.

Alberto Behar, a NASA engineer who designed the camera, said some unconventional methods were being considered to chart the flow of such water. "We had ideas to send rubber ducks down and see if they pop out in the ocean," he said. "They'd have a little note saying, 'Please call this number if you find me.' "

The changes seen in Greenland may turn out to be self-limiting in the short run; surging glaciers can flatten out and slow, for instance. Or they may be a sign that the island's ice - holding about the same volume of water as the Gulf of Mexico - is poised for a rapid discharge. Scientists are divided on that question, and also on whether there is a near-term risk from a Texas-size portion of West Antarctica's ice sheet that is also showing signs of instability. This split divides those foreseeing a rise in the sea level of a couple of feet this century from water added by Greenland, West Antarctica and fast-vanishing mountain glaciers, and a few experts who speak of a couple of meters in that time.

Those holding a more conservative view of Greenland's near-term fate include Richard Alley of Pennsylvania State University, who noted that ice cores and tests of organic material from beneath the ice imply that the main core of the Greenland ice sheet clearly endured thousands of years of warming in the past without vanishing.

"It's basically a big lump of ice sitting on this bedrock," Alley said in describing Greenland's behavior in warm conditions. "What it tries to do is snow more in the middle and melt more on the edges. If it pulls its edges back, then there's less area to melt, and that helps it survive. That's why you can have a stable ice sheet in a warmer climate."

But there is no significant debate on the long-term picture any more: Should greenhouse-gas emissions follow anything close to a "business as usual" rise, the resulting warming and ice loss at both ends of the earth would cause coasts to retreat for centuries to come. While it was circumspect about near-term changes, the intergovernmental panel was confident about that long view.

The prospect of having no "normal" coastline for the foreseeable future has many scientists deeply concerned.

"What is at stake is the stability we have always taken for granted" both for coasts and climate itself, said Jason Box, an associate professor of geography at Ohio State University. Box presented fresh findings at the American Geophysical Union meeting last month showing that several Greenland glaciers accelerated sharply in direct response to warming, both in a warm spell starting in the 1920s and now.

Eric Rignot, a longtime student of ice sheets at both poles for NASA's Jet Propulsion Laboratory, said he hoped that the public and policymakers did not interpret the uncertainty in the 21st-century forecast as reason for complacency on the need to limit risks by cutting emissions.

Rignot recently proposed that unabated warming could result in three feet of global sea rise just from water flowing off Greenland, three feet from Antarctica and 18 inches, or 46 centimeters, as the remaining alpine glaciers shrivel away.

This is similar to projections by the most prominent NASA climate scientist, James Hansen, but more than twice the three-foot rise that many glaciologists seem to agree on as an outer bound for what is possible by century's end.

"It is too early to reassure that all will stabilize, and similarly there is no way to predict a catastrophic collapse," Rignot said. "But things are definitely far more serious than anyone would have thought five years ago."

...Houston, YOU have a problem.

Wednesday, January 09, 2008

Follow the Heebner

"Everything in this market has been poisoned by the Federal Reserve," said Cramer, adding the only sectors worth investing in are oil, infrastructure, agriculture, aerospace/defense, health care cost-containment and gold. "We may have lost the tech stocks," warned Cramer adding he would only trust a company like Microsoft which makes its numbers. Out of the 4,000 or more stocks Cramer keeps his eye on, he would only pick 40 or 70, including PEP, MO, KO and MHS.

Follow the Heebner: Posco (PKX), Arcelor (MT), Vimpel (VIP), Mobile Telesystems (MBT), Research In Motion (RIMM), Canadian Natural Resources (CNQ), Suncor (SU), Petroleo Brasileiro (PBR), Cnooc (CEO), CVRD (RIO), Rio Tinto (RTP), BHP Billiton (BHP), Freeport McMoRan (FCX), McDermott (MDR), Foster Wheeler (FWLT), and Fluor (FLR)

In tough times, Cramer recommends piggybacking off successful investors like Ken Heebner of the CGM Focus fund which is ranked third and increased 79.9% in 2007. Cramer noted Heebner recently sold HANs, MA and RIG, and thinks he should have held onto RIG. Cramer noted recent buys include PKX, MT, VIP, MBT, RIMM, CNQ, SU, PBr, CEO, RIO, RTP, BHP, FCX, MDR, FWLT and FLR, and concluded these moves confirm that infrastructure, oil, mining are bull markets.

How to live forever (or a real long time anyway)

Abolishing ageing
How to live forever
Jan 3rd 2008From The Economist print edition
It looks unlikely that medical science will abolish the process of ageing. But it no longer looks impossible
Stephen Jeffrey
“IN THE long run,” as John Maynard Keynes observed, “we are all dead.” True. But can the short run be elongated in a way that makes the long run longer? And if so, how, and at what cost? People have dreamt of immortality since time immemorial. They have sought it since the first alchemist put an elixir of life on the same shopping list as a way to turn lead into gold. They have written about it in fiction, from Rider Haggard's “She” to Frank Herbert's “Dune”. And now, with the growth of biological knowledge that has marked the past few decades, a few researchers believe it might be within reach.
To think about the question, it is important to understand why organisms—people included—age in the first place. People are like machines: they wear out. That much is obvious. However a machine can always be repaired. A good mechanic with a stock of spare parts can keep it going indefinitely. Eventually, no part of the original may remain, but it still carries on, like Lincoln's famous axe that had had three new handles and two new blades.

The question, of course, is whether the machine is worth repairing. It is here that people and nature disagree. Or, to put it slightly differently, two bits of nature disagree with each other. From the individual's point of view, survival is an imperative. You cannot reproduce unless you are alive. A fear of death is a sensible evolved response and, since ageing is a sure way of dying, it is no surprise that people want to stop it in its tracks. Moreover, even the appearance of ageing can be harmful. It reduces the range of potential sexual partners who find you attractive—since it is a sign that you are not going to be around all that long to help bring up baby—and thus, again, curbs your reproduction.

The paradox is that the individual's evolved desire not to age is opposed by another evolutionary force: the disposable soma. The soma (the ancient Greek word for body) is all of a body's cells apart from the sex cells. The soma's role is to get those sex cells, and thus the organism's genes, into the next generation. If the soma is a chicken, then it really is just an egg's way of making another egg. And if evolutionary logic requires the soma to age and die in order for this to happen, so be it. Which is a pity, for evolutionary logic does, indeed, seem to require that.
The argument is this. All organisms are going to die of something eventually. That something may be an accident, a fight, a disease or an encounter with a hungry predator. There is thus a premium on reproducing early rather than conserving resources for a future that may never come. The reason why repairs are not perfect is that they are costly and resources invested in them might be used for reproduction instead. Often, therefore, the body's mechanics prefer lash-ups to complete rebuilds—or simply do not bother with the job at all. And if that is so, the place to start looking for longer life is in the repair shop.

Seven deadly things
One man who has done just that is Aubrey de Grey. Dr de Grey, who is an independent researcher working in Cambridge, England, is a man who provokes strong opinions. He is undoubtedly a visionary, but many biologists think that his visions are not so much insights as mischievous mirages, for he believes that anti-ageing technology could come about in a future that many now alive might live to see.
Vision or mirage, Dr de Grey has defined the problem precisely. Unlike most workers in the field, he has an engineering background, and is thus ideally placed to look into the biological repair shop. As he sees things, ageing has seven components; deal with all seven, and you stop the process in its tracks. He refers to this approach as strategies for engineered negligible senescence (SENS).
The seven sisters that Dr de Grey wishes to slaughter with SENS are cell loss, apoptosis-resistance (the tendency of cells to refuse to die when they are supposed to), gene mutations in the cell nucleus, gene mutations in the mitochondria (the cell's power-packs), the accumulation of junk inside cells, the accumulation of junk outside cells and the accumulation of inappropriate chemical links in the material that supports cells.
It is quite a shopping list. But it does, at least, break the problem into manageable parts. It also suggests that multiple approaches to the question may be needed. Broadly, these are of two sorts: to manage the process of wear and tear to slow it down and mask its consequences, or to accept its inevitability and bring the body in for servicing at regular intervals to replace the worn-out parts.
Eat up your greens
Managing wear and tear may not be as complicated as it looks, for the last five items on Dr de Grey's list seem to be linked by a single word: oxidation. Regular visitors to the “health and beauty” sections of high-street pharmacies will, no doubt, have come across creams, pills and potions bearing the word antioxidant on their labels and hinting—though never, of course, explicitly saying—that they might possibly have rejuvenating effects. These products are the bastard children of a respectable idea about one of the chief causes of ageing: that one big source of bodily wear and tear, at least at the chemical level, is the activity of the mitochondria.
Mitochondria are the places where sugar is broken down and reacted with oxygen to release the energy needed to power a cell. In a warm-blooded creature such as man, a lot of oxygen is involved in this process, and some of it goes absent without leave. Instead of reacting with carbon from the sugar to form carbon dioxide, it forms highly reactive molecules called free radicals. These go around oxidising—and thus damaging—other molecules, such as DNA and proteins, which causes all sorts of trouble. Clear up free radicals and their kin, and you will slow down the process of ageing. And the chemicals you use to do that are antioxidants.
This idea goes back to one of the founders of scientific gerontology, Bruce Ames of the University of California, Berkeley. Dr Ames began his career studying cancer. He found that damage to certain genes was a cause of cancer. These genes evolved to keep tumours at bay by stopping cells dividing too readily, and the damage was often done by oxidation. Gradually, his focus shifted to the more general damage that oxidation can do—and what might, in turn, be done about it.
Some vitamins, such as vitamin C, are antioxidants in their own right. This is the basis of the high-street propaganda, though there is no evidence that consuming such antioxidants in large quantities brings any benefit. A few years ago, however, Dr Ames found he could pep up the activity of the mitochondria of elderly rats—with positive effects on the animals' memories and general vigour—by feeding them two other molecules: acetyl carnitine and lipoic acid. These help a mitochondrial enzyme called carnitine acetyltransferase to do its job. Boosting their levels seems to compensate for oxidative damage to this enzyme. He also reviewed the work of other people and found about 50 genetic diseases caused by the failure of one enzyme or another to link up with an appropriate helper molecule. Such helpers are often B vitamins, and the diseases were often treatable with large doses of the appropriate vitamin.
The enzyme damage in these diseases is similar to that induced by oxidation, so Dr Ames suspects that its effects, too, can be ameliorated by high doses of vitamins. He has gathered evidence from mice to support this idea, but whether it is the case in people has yet to be tested. Nor is it easy to believe it ever will be. The necessary clinical trials would be long-winded. They would also be expensive—and there is no reason for vitamin companies to pay for them since sales are already buoyant and the products could not be patented. Nor is Dr Ames claiming vitamins will make you live longer than a natural human lifespan, even if he thinks they might prolong many individual lives. For that, other technologies will need to be invoked.
Stemming time's tide
One way that might let people outlive the limit imposed by disposable somas is to accept the machine analogy literally. When you take your car to be serviced or repaired, you expect the mechanic to replace any worn or damaged parts with new ones. That, roughly, is what those proposing an idea called partial immortalisation are suggesting. And they will make the new parts with stem cells.
The world has heard much of stem cells recently. They come in several varieties, from those found in embryos, which can turn into any sort of body cell, to those whose destiny is constrained to becoming just one or a few sorts of cell. The thing about stem cells of all types, which makes them different from ordinary body cells, is that they have special permission to multiply indefinitely.
For a soma to work, most of its component cells have to accept they are the end of the line—which, given that that line in question stretches back unbroken to the first living organisms more than 3 billion years ago, is a hard thing to do. There are, therefore, all sorts of genetic locks on such cells to stop them reproducing once they have arrived at their physiological destination. If these locks are picked (for example by oxidative damage to the genes that control them, as discovered by Dr Ames), the result is unconstrained growth—in other words, cancer. One lock is called the Hayflick limit after its discoverer, Leonard Hayflick. This mechanism counts the number of times a cell divides and when a particular value (which differs from species to species) is reached, it stops any further division. Unless the cell is a stem cell. Every time a stem cell divides, at least one daughter remains a stem cell, even though the other may set off on a Hayflick-limited path of specialisation.
Some partial immortalisers seek to abolish the Hayflick limit altogether in the hope that tissue that has become senescent will start to renew itself once more. (The clock that controls it is understood, so this is possible in principle.) Most, though, fear that this would simply open the door to cancer. Instead, they propose what is known as regenerative medicine—using stem cells to grow replacements for tissues and organs that have worn out. The most visionary of them contemplate the routine renewal of the body's organs in a Lincoln's axish sort of way.
In theory, only the brain could not plausibly be replaced this way (any replacement would have to replicate the pattern of its nerve cells precisely in order to preserve an individual's memory and personality). Even here, though, stem-cell therapists talk openly of treating brain diseases such as Parkinson's with specially grown nerve cells, so some form of partial immortalisation might be on the cards. But it is a long way away—further, certainly, than Dr Ames's vitamin therapy, if that is shown to work.
Neither prevention, nor repair, is truly ready to roll out. But there is one other approach, and this is based on the one way of living longer that has been shown, again and again, in animal experiments, to be effective. That is to eat less.
From threadworms to mice, putting an animal on a diet that is near, but not quite at, starvation point prolongs life—sometimes dramatically. No one has done the experiment on people, and no one knows for sure why it works. But it does provide a way of studying the problem with the reasonable hope of finding an answer.
Gluttons for punishment
You would, of course, have to wish a lot for a long life to choose to starve yourself to achieve it. Extrapolating from the mouse data, you would need to keep your calorie intake to three-quarters of the amount recommended by dieticians. That means about 1,800 for sedentary men and 1,500 for sedentary women. But several people are trying to understand the underlying biology, in order to develop short cuts.
One such is David Sinclair of Harvard University. Unlike those trying to fight the causes of ageing or to repair the damage done, Dr Sinclair thinks he has found, in caloric restriction as the technique is known, a specifically evolved natural anti-ageing mechanism that is quite compatible with disposable-soma theory.
The reason for believing that prolonged life is an evolutionary response to starvation rather than just a weird accident is that when an animal is starving the evolutionary calculus changes. An individual that has starved to death is not one that can reproduce. Even if it does not die, the chance of it giving birth to healthy offspring is low. In this case, prolongation of life should trump reproduction. And that is what happens, even among people. Women who are starving stop ovulating. The billion-dollar trick would be to persuade the body it is starving when it is not. That way people could live longer while eating normally. They might even, if the mechanism can truly be understood, be able to reproduce, as well.
In Dr Sinclair's view, the way caloric restriction prolongs life revolves around genes for proteins called sirtuins. Certainly, these genes are involved in life extension in simple species such as threadworms and yeast. Add extra copies of them to these organisms' chromosomes, or force the existing copies to produce more protein than normal, and life is prolonged. This seems to be because sirtuins control the abundance of a regulatory molecule called nicotinamide adenine diphosphate which, in turn, controls the release of energy in the mitochondria.
The most intriguing connection in this story is with the French paradox. This is the fact that the French tend to eat fatty diets rich in red meat but to have the survival characteristics of those whose diets are lean and vegetarian. Some researchers link this with their consumption of red wine—and, in particular, of a molecule called resveratrol that is found in such wine. Resveratrol activates sirtuins, and some similar molecules activate them much more. It is these sirtuin super-stimulators that interest Dr Sinclair.
Not everyone is convinced, but Dr Sinclair has done experiments on mice that look promising, and has started a company called Sirtris Pharmaceuticals to follow it up. The fact that he is (at least in his own eyes) working with nature rather than against it argues that this is the most promising approach of all.
That said, the logic of the disposable-soma theory is profound. Even working with its grain may do no more than buy a few extra years of healthy living. Dr de Grey's reason for thinking that some people now alive may see their lives extended indefinitely is based on the hope that those few extra years will see further discoveries and improved life-extension technologies based on them—a process he describes as achieving “longevity escape velocity”.
The chances are that it will not work. But hope springs eternal. To end with another quote, this time from Woody Allen, “I don't want to achieve immortality through my work. I want to achieve immortality through not dying.” If any researcher manages to beat evolutionary history and achieve his goal, he might get to do both.

Friday, January 04, 2008

Jubak's Journal1/4/2008 12:01 AM ET
Is '70s-style stagflation returning?
Inflation is rising and the economy is decelerating, but those problems don't add up to that nasty combination of stagnant growth and out-of-control price increases. Yet.
By Jim Jubak
Stagflation is coming. Lock up your portfolio. We could be on our way to a replay of the 1970s.
That's the worry among an increasing number of investors as we head into 2008. It's certainly possible for the year ahead, but it's unlikely. In this column, I'll look at what would have to go wrong for stagflation to return and how to position a portfolio if you think stagflation is more of a danger than I do.
The '70s have a lot to answer for:
"Airport," "Airport 1975," "Airport '77" and "Airport '79."
The Village People and "YMCA."
The breakup of the Beatles.
President Jimmy Carter and the killer rabbit.
Sonny Bono's bell bottoms.
And stagflation, that lethal brew of stagnant growth and high inflation.
In the United States, headline inflation started off the decade at 5.5% in 1970, peaked at 12.2% in 1974 and again at 13.3% in 1979, and didn't drop below 4% until 1982. For the '70s as a whole, inflation averaged 7.4% annually. In comparison, inflation in the 1960s averaged 2.5% annually.
Real economic growth tumbled. Subtracting for inflation, the economy grew by just 3.27% on average from 1970 to 1979, quite a drop from the 4.44% average annual growth in real gross domestic product recorded from 1960 to 1969. And in two years during the 1970s, after subtracting for inflation, the economy actually declined in size -- by 0.5% in 1974 and 0.2% in 1975.
As you might expect, the 1970s weren't a great time for investors. The Standard & Poor's 500 Index ($INX) returned a compound annual 5.9% from 1970 to 1979. With inflation running at an annual 7.4%, an investor in the stock market was losing ground every year to inflation. Bond investors had it even worse: The compound annual return on a long-term U.S. Treasury bond for the decade was just 4.8%, 2.6 percentage points lower than the inflation rate.
So you can understand why the prospect of stagflation in 2008 would send shivers up investors' spines. How likely is that scenario? Let me break down stagflation into its two parts, the "stag" and the "flation." I'll deal with "flation" first.
The 'flation' part of the equationIs high inflation coming back? Yes.
The Federal Reserve and the European Central Bank, the two most important inflation fighters in the world, are worried that inflation is too high. Headline inflation, the number the European Central Bank watches, was 3.1% in November in Europe, way above the bank's 2% limit. In the United States, headline inflation was 4.3% in November.
The Fed's preferred measure of core inflation -- headline inflation minus any increases in volatile food and energy prices -- was a lower 2.3%. (Energy prices were up 21% in the month, so leaving them out of the inflation calculation helped.) But even that was above the Fed's comfort zone.
For the "flation" part of stagflation to set in, those rates have to go higher and create the expectation that inflation is headed out of control.
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Unfortunately, higher inflation is coming from every direction you care to look. Normally, the Federal Reserve and the European Central Bank would move to stomp out inflation by raising interest rates. Now, thanks to a weakening U.S. economy and turmoil in the debt markets, the Fed is lowering interest rates instead, and both banks are flooding the financial markets with short-term cash.
China, Russia and other emerging-market economies determined to keep their currencies from gaining against the dollar are creating money to buy dollars, inflating their own currencies, and that money is fueling booms in stock and real-estate markets. Inflation hit 6.9% in China in November, for example. And these countries are exporting some of their inflation in the form of higher prices for developed-world customers such as Wal-Mart Stores (WMT, news, msgs). Demand from these fast-growing economies for raw materials is driving up the price of coal, iron ore, corn, wheat, oil -- just about every commodity you can name. A falling U.S. dollar is driving up the cost of everything the country imports, from oil to children's toys.
Normally, the Federal Reserve could count on a slowing economy to take a bit of wind out of inflation's sails. But many of the current causes of inflation aren't linked to the U.S. economy. We could get inflation and slower growth -- the definition of stagflation.
Continued: How we get to 'stag'
How we get to 'stag'So what's the "stag" part of stagflation look like as we begin 2008?
The economy seems to be decelerating rapidly:
According to the latest data, released Dec. 27 but dating to the end of October, home prices are falling at a record rate. The S&P/Case-Shiller index of home prices in 10 major metropolitan areas dropped 6.7% from October 2006. That's a record year-to-year decline, beating the old record of 6.3%, set in April 1991.
That decline is feeding into a whopping increase in credit card delinquencies. The dollar amount of credit card debt at least 30 days late jumped 26%, to $17.3 billion, in October 2007 from the same month of 2006, according to an Associated Press study of 325 million individual accounts held by the 17 largest credit card trusts.
Retail sales in the just-concluded Christmas shopping season appeared weaker than projected, with growth in same-store sales running below estimates of 2.5%, according to the International Council of Shopping Centers. All this is starting to hit the real economy where it counts: in the unemployment numbers. Initial claims for unemployment, a good gauge for what's going on in the job market, rose to 350,000 in the week that ended Dec. 22. That left the four-week moving average for initial claims at 343,000. That's getting worryingly close to the 360,000 level in the four-week moving average that has accompanied recessions in 1990 (362,000) and 2001 (373,000).
But as bad as this news is, it doesn't add up to the "stag" in "stagflation."
What was so excruciating about the stagflation of the 1970s was the duration of the "stag." Slow or negative growth went on for quarter after quarter. After growing at a 4.7% real rate in the second quarter of 1973, real economic growth turned negative, dropping by 2.1% in the third quarter. The economy then rebounded to a 3.9% real growth rate in the fourth quarter of 1973 before heading into the Dumpster. The economy showed negative 3.4% real growth in the first quarter of 1974, a minor revival to a positive 1.2% growth rate in the second quarter and then three straight negative quarters of 3.8%, 1.6% and 4.7%.
No wonder the bear market in stocks of 1973 and 1974 was so painful. Stocks fell 14.7% in 1973 and then 26.5% in 1974.
Right now, no one on Wall Street is looking for a repeat of that extended slump. Growth is supposed to slow in the first half of 2008 and then pick up, leaving growth for 2008 at 2.3%, according to the Federal Reserve. I think that forecast is too optimistic. The slump in 2008 is likely to last for more than just the two quarters Wall Street expects.
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Jubak’s Journal: A turnaround for the dollar?The US dollar could turn out to be the big comeback surprise of 2008. One reason: As foreign investors put big money into US companies, those foreign countries are less likely to dump the dollar, MSN Money's Jim Jubak says.
But I still don't expect a recession in 2008 (see "Why the Fed is running scared") and certainly not anything like the negative growth in five out of seven quarters that the economy turned in from mid-1973 to early 1975. (Officially a recession is two consecutive quarters of negative economic growth.)
Not over yetWhat could tip us from slow growth -- either the two quarters that Wall Street expects or the three to four that I think is likely (see "Don't count on a 'normal' recession") -- into 1970s-style stagnation?
An expansion of the credit crunch from its current victims -- home buyers who can't find a mortgage and homeowners who can't refinance a mortgage -- to corporate borrowers with decent credit ratings. If companies can't raise capital on decent terms, they'll cut spending on new equipment and construction, then eliminate plans for hiring, then cut back on buying anything that's not essential and, finally, fire workers. And then we'll be on the road to something worse than a couple of slow quarters.
Continued: Portfolio suggestions
So far, the credit crunch and the rise in effective interest rates has been enough to produce a slowdown, but not a recession and not stagnation. However, we're not done with this crisis. On Dec. 27, Goldman Sachs (GS, news, msgs) said Citigroup (C, news, msgs), Merrill Lynch (MER, news, msgs) and JPMorgan Chase (JPM, news, msgs) would announce write-downs of $18.7 billion, $11.5 billion and $3.4 billion, respectively, on their mortgage-related portfolios when they report fourth-quarter results in January.
Of course, that's not likely to be the last of the bad news because the banks and other financial companies with big exposure to the mortgage market are not exactly rushing to embrace their losses. We're looking at more quarters when bad news will come dribbling out of the big banks. Enough dribbles, and banks could cut lending to all customers even further.
Portfolio suggestionsSo how do you position a portfolio as we go into 2008?
Remember that stagflation is possible but not certain. Investors who pay attention to the financial news out of the big banks should be able to keep their portfolios a step ahead of any shifts in the economy's direction.
Fortunately, many of the investments you'd make to combat stagflation should work pretty well in 2008 even if all we get is a slowdown spread over a few quarters and a step up in inflation. Commodities and energy. Gold, of course. Growth stocks in sectors of the economy that will grow even if the economy slows. And any defensive growth stock with enough pricing power to raise its prices fast enough to stay ahead of inflation.
Some suggestions?
The oil drilling and services area, especially companies with big international operations. Worldwide exploration and production spending is set to rise 11% in 2008, according to Lehman Bros.' annual oil-industry capital-spending survey. Take a look at Schlumberger (SLB, news, msgs), Weatherford International (WFT, news, msgs) and FMC Technology (FTI, news, msgs).
Iron-ore and natural-gas stocks. Iron-ore demand is up, and supply hasn't kept pace. Natural gas is still near a low, and the stocks are just starting to move. Iron-ore plays include Fortescue Metals Group (FSUMF, news, msgs) and Companhia Vale do Rio Doce (RIO, news, msgs), both in Jubak's Picks.
Jubak's Picks Kinross Gold (KGC, news, msgs) and GoldCorp (GG, news, msgs) will give you good exposure to the classic hedge against rising inflation and a falling dollar.
Video on MSN Money

Jubak’s Journal: A turnaround for the dollar?The US dollar could turn out to be the big comeback surprise of 2008. One reason: As foreign investors put big money into US companies, those foreign countries are less likely to dump the dollar, MSN Money's Jim Jubak says.
Take a look at the growth stocks I picked in my Dec. 7 column, "5 stocks to profit from a weak dollar," for companies that will be able to outrun stagflation.
And don't forget a dose of pricing powerhouses such as PepsiCo (PEP, news, msgs) and Johnson & Johnson (JNJ, news, msgs). Picks from that group should help you play defense with your portfolio.
I know my end-of-the-year columns have been a bit gloomy -- a longer slowdown than Wall Street expects and the possibility of stagflation. A little yule hemlock, anyone?
Enough of the doom and gloom, however. In my next column, I'm going to take a cheery look at how to make money out of the deeply stupid energy bill Congress passed and President Bush signed Dec. 19.
Continued: My fourth-quarter performance
Fourth-quarter performance for Jubak's Picks Sometimes I'm happy playing good defense, and that's the story for the fourth quarter of 2007. For the period, Jubak's Picks eked out a tiny 0.87% return. But that's a good result when the stock market as a whole is in retreat. For the quarter, the Dow Jones Industrial Average ($INDU) fell 3.4%, the S&P 500 was down 3.3%, and the Nasdaq Composite Index ($COMPX) retreated 1.8%.
The key for the quarter, as it was for all of 2007, was staying away from the financial and consumer discretionary sectors and overweighting energy. The Select Sector SPDR-Financial (XLF, news, msgs) and the Select Sector SPDR Consumer Discretionary (XLY, news, msgs) exchange-traded funds (ETFs) finished a dismal year by falling an additional 18.5% and 14%, respectively, in the fourth quarter.
By contrast, the Select Sector SPDR-Energy (XLE, news, msgs) ETF was up 36.9% for the year and 7.1% for the fourth quarter. But there were few places to hide in the quarter, as even sectors such as Select Sector SPDR-Materials (XLB, news, msgs) and Select Sector SPDR-Industrials (XLI, news, msgs), which were up 22.2% and 13.5%, respectively, for the year fell in the fourth quarter by 0.05% and 4.2%. The biggest disappointment for the quarter was the technology sector: Select Sector SPDR-Technology (XLK, news, msgs) dropped 0.7% in a quarter when it usually rallies. The sector still gained 14.4% on the year.
It's great when you get the sector right and back the right stock in the sector, too. That's what I did with Devon Energy (DVN, news, msgs), up 9.9% in the fourth quarter; Ultra Petroleum (UPL, news, msgs), up 13.1% in the period; Yara International (YARIY, news, msgs), up 43.9%; Jacobs Engineering Group (JEC, news, msgs), up 10.7% since I added it to the portfolio Oct. 30; and Joy Global (JOYG, news, msgs), up 13.2% since my Oct. 30 addition to the portfolio.
And it's really aggravating when you get the sector right but the stock wrong, as I did with technology picks Maxwell Technologies (MXWL, news, msgs), down 27.8% for the quarter, and Nvidia (NVDA, news, msgs), down 7.8% for the period; and energy pick CGG Veritas (CGV, news, msgs), down 13.3% since I added it to the portfolio Oct. 26.
And of course, no quarter would be complete without the boneheaded, "what was I thinking" moves. The number of picks in this category rises when a difficult and shifting quarter leads me to try to zig and zag my way out of danger and into profits. I'd put in this category my picks of Marriott International (MAR, news, msgs), down 17.5% since my Nov. 2 buy, and Quintana Maritime (QMAR, news, msgs) down 17.7% since Oct. 16 -- so far, anyway.
Playing successful defense in the fourth quarter let me hold on to my market gains for the year. For the full year, I had a 25.2% total return versus an 8.8% return for the Dow industrials, 5.5% for the S&P 500 and 9.8% for the Nasdaq Composite.
I've got my doubts about the stock market in 2008, especially in the first half of the year. I think there's a good chance that investors who now expect the economic slowdown and troubles in the financial sector to be over by mid-2008 will be disappointed. That could create some good bargains around midyear for patient investors with cash. I've slowly raised cash in Jubak's Picks to 13%, up from 12% in the third quarter and 11% in the second quarter, and I'll continue to look for ways to raise my cash position as we move deeper into 2008.
Jubak's Picks versus major averages:
Q4 2007
12 months
Jubak's Picks
Nasdaq Composite ($COMPX)
S&P 500 ($INX)
Dow Jones industrials ($INDU)
Longer-term performance:
3-year return*
5-year return**
From inception***
Jubak's Picks
Nasdaq Composite
S&P 500
Dow Jones industrials
*Close on Dec. 30, 2004, through close on Dec. 31, 2007. **Dec. 31, 2002, through Dec 31, 2007. ***May 7, 1997, through Dec. 31, 2007.
All returns for Jubak's Picks deduct costs of commissions. Returns for Jubak's Picks and the indexes all include dividends.
Meet Jubak at The Money Show MSN Money's Jim Jubak will be among more than 120 investment and finance experts sharing buy and sell advice at The World Money Show in Orlando, Fla., Feb. 6-9. Invest four days dedicated to planning and refining your portfolio by attending the event's more than 320 workshops and panel presentations.
Admission is free for MSN Money readers. To sign up, call 1-800-970-4355 and mention priority code No. 009554, or register online.
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Jubak’s Journal: A turnaround for the dollar?The US dollar could turn out to be the big comeback surprise of 2008. One reason: As foreign investors put big money into US companies, those foreign countries are less likely to dump the dollar, MSN Money's Jim Jubak says.
Editor's note: Jim Jubak, the Web's most-read investing writer, normally posts a new Jubak's Journal every Tuesday and Friday. Please note that recommendations in Jubak's Picks are for a 12- to 18-month time horizon. For suggestions to help navigate the treacherous interest-rate environment, see Jubak's portfolio of Dividend Stocks for Income Investors. For picks with a truly long-term perspective, see Jubak's 50 Best Stocks in the World or Future Fantastic 50 Portfolio. E-mail Jubak at
At the time of publication, Jim Jubak owned or controlled shares in the following equities mentioned in this column: Devon Energy, Companhia Vale do Rio Doce, Fortescue Metals Group, GoldCorp, Jacobs Engineering, Joy Global, Kinross Gold, Maxwell Technologies, Schlumberger, Ultra Petroleum and Yara International. He did not own short positions in any stock mentioned in this column.

... How's that working for ya?