Capital Gains

The SEC has suggested adjusting the amount of one's investment in Bernie Madoff fraud to allow older investors to get a boost in the "cash in" of their account to count not just cash they actually invested but what the cash would have grown to had it been growing along with inflation.

This is an excellent idea that should be utilized more broadly. If a hypothetical security has stayed at $100 from 1998 through 2008 and then shot up to $1000 in 2009, an investor who holds it from 1998 through 2009 has not made the same return as someone who held it since 2008 but both will be taxed the same amount. Of course, the logistics of adjusting basis every year is daunting (although it could easily be done by brokerage firms for investments held in brokerage accounts). Also, adjustments for inflation is probably inappropriate. Some risk free rate of return should be used, perhaps based on some a term treasury rate (maybe the yield on 90-day day treasuries at the midpoint of each quarter). Any amount above their basis would be treated as what it is: ordinary income, above the risk free return they are entitled to on their asset.

Exam 1 of 2

Sitting in class waiting to take the first of my two exams (the second is on Friday). I can barely contain myself.

Wow, just wow.

This is getting good. Mark Cuban never disappoints on the entertainment front.

Still Feels Good to be Off Facebook

That site sucks all the humanity out of the Internet. And what a waste of time all those apps are. This is a much better waste of time.

Please tell me

when I'll stop going to facebook every time I sit down in front of my computer.

Still Up in the Air

I just came from Up in the Air. Fabulous movie. I may be biased, since in this just world that movie was made specifically for me, but I think it was the best movie I have ever seen. I perhaps am understating how much I appreciated the film, it made me look at life in an entirely different way. Which is what great art should do (not that I want to say Hollywood has ever created great art).

This blog is a story, as any rehashing must be. Part of this story is about a girl. There is more about that, but not for now. However, I did want to republish the following poem. It was about her, of course. She has read it and I don't think she realized it was about her. But it is past and therefore prologue and will suffice for now.

Capture Your Thoughts

If only I could find, capture the thought,
Your happy smile quickens in me a start
Down lanes unimaginable, trysts ought
To be so powerful to stop your heart.

To capture love’s first kiss;
Pour lightning through a string,
Find serendipity,
In thunder’s echoed ring.

And as such thoughts electrify my grasp,
Eve’ as your happy hair alit my reach,
It’s to my beating heart, opened, I clasp
The fires my wall my calm my soul do breach.

To grasp eternal love;
The storm’s great majesty,
O’er breaking tidal wave,
All nature’s pageantry.

And then it’s left, my soul in such sad vice,
Those thoughts cheapened by time. Your happy brow
Is furled into the world of your advice.
And we will both clearly, in time, see now.

To speak love’s last goodbye;
The wisp in cloudless sky,
Last rustle on the moor,
Or everlasting sigh.

And happiness resurrected anew
‘Pon happy talk and true beauty and mirth.
Deaths that our perfection will throw askew,
Not deed or word but thought without such dearth.

To roil, love resurgent;
The storms, the skies, fling rain,
To gentle streams that wash
Out devastating pain.

-Daniel Holzer
January 7, 2009

And now is the proper point for a mission statement. For this blog, and my life. My goal is two-fold. The first is to make just one person, out there somewhere, genuinely happy as a result of my writing. The second is to create a world where everyone is happy without pharmaceuticals and without religion. I have a feeling the second part will be easier.

Fall Photos

I have put up photos from Pomfret and Quogue this fall.

Requiem for the Dollar

This weekend's Weekend Journal led off with a story about the death of the Dollar. In some respects, the reports of the Dollar's death are greatly exaggerated. The Euro could be a rival reserve currency but is not in a position to supplant the Dollar. The Yuan cannot be a reserve currency until the Chinese loosen currency controls. And the SDRs issued by the IMF are likely to end in disaster if the IMF attempts to act like a central bank. However, the article does give a persuasive argument for why the long term outlook for the Dollar is so grim.

The article ends with a call to arms:

So our Martian would be mystified and our honored dead distressed. And we, the living? We are none too pleased ourselves. At least, however, being alive, we can begin to set things right. The thing to do, I say, is to restore the nets to the tennis courts of money and finance. Collateralize the dollar—make it exchangeable into something of genuine value. Get the Fed out of the price-fixing business. Replace Ben Bernanke with a latter-day Thomson Hankey. Find—cultivate—battalions of latter-day Hellmans and set them to running free-market banks. There's one more thing: Return to the statute books Section 19 of the 1792 Coinage Act, but substitute life behind bars for the death penalty. It's the 21st century, you know. [emphasis added]

James Grant, the author of the article, writes nostalgically of the gold standard but does not advocate (in this piece at least) a return to the gold standard, which he states is similarly flawed in practice. I am in agreement that fiat currency was a failed experiment, and that there should be some tangible backing to our currency. However, I am not a fan of gold: it can be touched but besides jewelry and a few commercial applications it has no real value either. My collateral of choice is slightly less tangible but of utmost value: energy. Money would be printed at the point of production of energy, whether that would be the right to receive electrical power on a certain grid, or coal, firewood or petroleum products. The specifics would need to be worked out; the ability to print money would need to be regulated and standardized. But in the end our currency would be (in theory at least, sort of like the gold standard) convertible into something with real value.

Eventually, as we move beyond a carbon-based energy system I can envision a blurring of the line between the transmission of energy and information. At some point I think bandwidth will become as valuable, maybe even more valuable, than energy itself.

I'M BACK

Well it is Day 2 AFB. I'm going to try to share myself and my life through this blog (in a hopefully increasingly cogent and helpful manner) and the rest of my Internet activities in a way that is more meaningful than would be possible through facebook.

I should at least say why I left (at a time when it seems everyone is joining):

• It compartmentalizes the Internet. I want people to be connected to each other through the whole web, not just one site that controls what you can say and how you can say it.
• It has become overloaded with commonality. I care about many of my facebook friends, but I don't care about what they're currently eating or who they're currently out with. Or that they've got a head cold (or a mild case of the swine flu). Or that they're off to lose several grand in Vegas.
• On the other end of the spectrum, people share way too personal information about themselves. Keep that for your BFFs.
  
• Nuff said: http://www.youtube.com/watch?v=VSkT5XykJzo

The New New Wall Street Journal

The Project for Excellence in Journalism was reported by Portfolio.com as having compared the front page of the Wall Street Journal pre- and post-Murdoch and commented on the change in news focus.

It's a load of bull. Not that Murdoch hasn't made changes (and who knows what the extent of those changes are), but the periods compared (mid-August through mid-December (PrePeriod) versus mid-December through mid-March (PostPeriod)) aren't remotely comparable. I think mid-December 1999 through mid-March 2000 would have been a better comparison, with a similarly hard-fought early primary season. Or, they could have compared how the front page of the NYTimes changed from the PrePeriod through PostPeriod compared to the changes at the Wall Street Journal.

Cereal and Bananas mean a Boy?

A recent AP article "Mom's diet seen as factor in whether baby is boy or girl; could cereal, banana mean a boy?" suggests that the sex of the baby can be guessed by the caloric intake of the mother. One of the nonsensical arguments the scientists put forth was that embryonic boys take up more nutrients than girls ("It just might be that it takes more nutrients to build boys than girls, he said.").

However, because the reproductive rate of men is greatly increased by physical fitness, while the reproductive rate of women may not increase much (in each case, assuming that he or she is healthy enough to escape mortality), it makes sense for a mother to improve the health of unborn male offspring over herself moreso than unborn female offspring.

Another question, which it does not appear that they answered, was whether higher caloric intake by women could cause a higher chance of male offspring. That should be easily noticed on a country-by-country basis, as calorie intake has generally increased globally. However, I would doubt that would make much of a difference -- otherwise, successful populations would have found their populations favoring males, which reduces birth rate and increases internecine conflict.

Whyfor a big rate cut?

CNNMoney (although not the best financial analysis, with Lou Dobbs as their anchor) is saying that Wall Street is demanding a interest rate cut now, and far more than the 50 bps currently expected. The economy seems to be in trouble, and financial institutions are still announcing huge write-downs, so stimulus is necessary. But so long as banks are potentially low on capital, they will not make loans. Therefore, low interest rates may be meaningless. The main advantage of low interest rates is that banks can borrow from other banks or the fed instead of relying on deposits, so the high APY on deposits (4% or more) will disappear. Depositors will be forced back into the capital markets for yield (assuming their risk appetite returns), sending the market back up. Sounds like a fine fix for brokers/traders/fund managers, but I'm not sure whether it will stave off a recession.

Is Moody's Becoming too Reactionary?

The rating agencies are justifiably under fire for mistaken assumptions w/r/t mortgage-backed bond ratings. Is Moody's trying to distract the public by their latest salvo (that US credit rating may fall below AAA by 2010 because of rising costs of social services). As a measure of credit rating, I'm not sure how the US government could ever fall below AAA so long as they issue debt in a currency that they can print.

Unfortunately, we should be running smaller deficits now (and paying off a sizable chunk of our debt) while baby boomers are mostly still working. But that has never been their way.

What did Wall Street know and when did they know it?

Judging from Jim Cramer's antics, this was a crazy August settlement day. A lot of shorts needed to cover their position. At about 1pm on Thursday, August 16 the financial sector, which had been hard hit over the last month, began to rise in unison. This morning, the Fed announced a 50bp cut of the discount rate, a largely symbolic action but one that provided a lot of comfort to the market, in anticipation of federal funds rate cuts in September and/or October. At least one blog has questioned whether there were rumors of the rate cut yesterday afternoon and who received the rumors. Was this leak selectively received by well connected hedge fund operators, who drove up the market covering their shorts? While this helped the average investor (such as myself) who is long in the market, why should anyone get this kind of advantage, especially when the shorts are already so far in the black?