Monthly Archives: February 2008

I want to try some of this butter…

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From the Crunchy Con…..

Life is too short to eat margarine. Really and truly. One of my indulgences is to drop $3 for a brick of Somerdale English butter at Central Market. It’s too expensive to use for cooking, but spread it on bread and it will knock your socks off. It’s like tasting real farm eggs, or chicken that comes from an actual farm. For people raised on mass-produced food — which is to say, almost all of us — it’s like tasting the Platonic essence of the thing for the first time. If you’re me, there’s very little that can give so much pleasure for $3 than a block of English butter, which makes most commercially available American butters taste pale and watery.

News From Spiegel

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We have not been keeping up with the news in the way we should. Here are some links from Spiegel that we should have posted when they came up.

First, a large treasure find?

Has the Amber Room, the 18th-century chamber decoration the Nazis stole from the Soviet Union in World War II, finally been found? German treasure hunters say they may have solved the decades-old mystery.

Treasure hunters in Germany claim they have found hidden gold in an underground cavern that they are almost certain contains the Amber Room treasure, believed by some to have been stashed away by the Nazis in a secret mission in the dying days of World War II.

If this is true, Indian Jones was wasting his time. Who wants a holy grail when you can find this much gold?

Also fish with weird dangly things?

“We had some of the world’s experts on Antarctic fish, and they were completely, completely flabbergasted,” said Martin Riddle, the lead researcher of the Australian ship, Aurora Australis. “Many of the fish had very large eyes…[and] fins in various places. They had funny, dangly bits around their mouths.” The fish experts on board, Riddle said, “were unable to name them.”

Who knew that dangly things was technical term that cold be applied to biological phenomena? Not that we are casting stones. In fact, we heartily approve of this approach to learned discourse. Shortly, we shall all sound educated.

Moving on to more boring news, Germany’s state own banks are having problems….

Matthäus-Maier’s bank KfW has already had to provide IKB with close to €5 billion in a series of three bailouts. With KfW itself gradually running out of cash, the federal government has now contributed another €1.9 billion.

The state of North Rhine-Westphalia has injected €1 billion into WestLB, another state-owned bank, as well as providing the ailing bank with another €3 billion in loan guarantees. The situation is even worse in Saxony, where the state has issued €2.73 billion in loan guarantees to Sachsen LB, that state’s Landesbank, as Germany’s state-backed regional banks are known. The other state-owned banks are providing another €14 billion in guarantees. Hamburg-based HSH Nordbank urgently needs €1 billion in fresh capital, while BayernLB last week reported a €1.9 billion write-down as a result of subprime exposure. BayernLB announced Tuesday that the bank’s chief executive, Werner Schmidt, will be stepping down as of March 1 as a result of the crisis.

The situation for Germany’s public banks has become so dramatic that it threatens to topple what has been one of the key pillars of the country’s banking system. The state-owned banks are supposed to bail each other out when necessary, but the problem is that many are in trouble themselves and hardly in a position to help their peers. And things could get even worse.

Germans used to be known for the soundness of their banking system. But now a days, everyone is sub-prime.

Speaking of the world being turned up side down, who would ever have thought that Europeans would be telling America that we are underestimating the likely hood of Iran getting the bomb? This from a group of experts who work for the European Union……

As part of a project to improve control of nuclear materials, the European Commission Joint Research Centre (JRC) in Ispra, Italy set up a detailed simulation of the centrifuges currently used by Iran in the Natanz nuclear facility to enrich uranium. The results look nothing like those reached by the US intelligence community.

For one scenario, the JRC scientists assumed the centrifuges in Natanz were operating at 100 percent efficiency. Were that the case, Iran could already have the 25 kilograms of highly enriched uranium necessary for an atomic device by the end of this year. Another scenario assumed a much lower efficiency — just 25 percent. But even then, Iran would have produced enough uranium by the end of 2010.

For the purposes of the simulation, the JRC modelled each of the centrifuges individually and then hooked them together to form the kind of cascade necessary to enrich uranium. A number of variables were taken into account, including the assumption by most experts that Iran isn’t even close to operating its centrifuges at 100 percent efficiency. What is known, however, is that the Iranians are operating 18 cascades, each made up of 164 centrifuges. Iranian President Mahmoud Ahmadinejad himself said last April that the country had 3,000 centrifuges in operation. At the time, most Western observers discounted the claim as mere propaganda. But the International Atomic Energy Agency confirmed Ahmadinejad’s assertion in November.

This would not be news, except for the fact that EU is telling the US that it might not be hawkish enough.

Deconstructing Starbucks

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Language deconstrutionists teach that language has only relative meaning. If you say the word “chair” to me, you may mean your comfortable stuffed armchair and I may picture my much less comfortable desk chair. Likewise, no matter how many words you use to make a point, I may understand those words differently and come up with a different point. Thus, the theory goes, it is impossible to ascertain what words mean, and their “meaninging” in the vulgar, functional sense of the word is determined by their opposition or difference (or differance, for those in the know). That is, if you say “chair,” I am not likely to think of a dog or of the planet Neptune.

What they say about language is correct, but not what they say about meaning. After all, no matter how we misunderstand each other, your chair, my chair, and the planet Neptune all exist. The lifeblood of civilization is communication that is functional as a transactions of meaning. None of our language can exhaustively define what we are speaking of; that would require words which create precisely that which they define (there’s the rub). Short of that, we are borrowing a portion of the possible meaning when we communicate, as the moon reflects light. But the light is still real, even if it is reflected; and so the meaning.

Now, that’s a rather tedious way to introduce this video which you can enjoy without considering any of that. But with that introduction, I pose the question: is the customer being naive in failing to grasp the relative meaning of the word “tall,” or is the “nameless” coffee shop being perverse in its attempt to confuse the meaning of the word “tall”?

I’m siding with the customer.

How to Ford a Dry River

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This Buisnessweek article has the air of trying hard to ignore the story to focus on the story. It’s about how Wal-Mart’s growth is slowing down, and how this is supposed to be some kind of catastrophe for the Wal-Mart empire. But saying that Wal-Mart has a problem is studiously ignoring the problem.

The problem is that whatever sales momentum there is at Wal-Mart is coming from the lowest-margin items at its stores—staples like food and $4 drugs. Indeed, company executives have said in the past they would rather take a hit on profits from these items to attract a large amount of shoppers into its stores who will then stock up on higher-margin goods like apparel. But that’s not happening. Even gift cards, which are usually viewed as something people would use for goods to treat themselves, were being redeemed in January for basics like food.

The article tries quite hard to fault Wal-Mart’s marketing, especially of apparel, in contrast to Target, although “Wal-Mart’s fourth-quarter same-store sales rose 1.7%, which beat Target.” My own take is that Wal-Mart needs to worry a lot more about its overall customer satisfaction and a lot less about keeping up with the Joneses. I think Wal-Mart is showing more of the impact of the “dust” in the economic slowdown than this article credits. If you are going to go in debt, why shop at Wal-Mart? While you are whipping plastic, go for the prize bull and shop upscale. The people who are still playing out their credit are shopping elsewhere, while more upscale markets haven’t hit the end of their credit line yet. When that happens, Wal-Mart’s growth will probably look pretty good again.

Watch your wallet

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From Blomberg……

New York state taxpayers’ weekly borrowing costs increased $2.3 million after banks failed to attract bidders to auction-rate bonds and stopped buying unwanted securities.

Interest rates on Dormitory Authority bonds sold for the City University of New York rose to as high as 6.26 percent last week from 3.42 percent on Feb. 6, according to data compiled by Bloomberg. Buffalo’s rate on water system revenue bonds soared to 11 percent from 3.30 percent. Bonds issued by the Museum of Modern Art climbed to 4.47 percent on Feb. 13 from 3 percent at the end of January.

Rates in the $330 billion auction-rate bond market are rising nationwide after banks from Citigroup Inc. to Goldman Sachs Group Inc. stopped bidding for the debt at periodic sales they oversee, according to Bloomberg data. New York, with $4 billion of auction debt, may convert the bonds to a fixed rate or a different type of variable-rate security, state budget director Laura Anglin said in an interview in Albany last week.

“It hurts,” said Anthony Farina, executive assistant in the Buffalo comptroller’s office. Interest costs on the $63 million of auction-rate bonds rose $93,000 for the week, he said. “Nobody expected this kind of jump.”

Say a prayer for all those who are counting on their pension

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I saw this over at Calculated Risk and it just about made me choke….

The PBGC currently has approximately $55 billion to invest in the new investment policy. Under this new policy, the PBGC will allocate 45 percent of its assets to a diversified set of fixed-income investments, 45 percent to diversified equity investments and 10 percent to alternative investment classes. The agency’s previous policy set an equity investment target of 15–25 percent, although the actual level of equity investments was 28 percent at the end of FY 2007.

The PBGC had an accumulated deficit of $14 billion as of year-end FY 2007.

Because the PBGC’s obligations are paid over many years, the new investment policy is designed to take advantage of a long-term investment horizon. The strategy of increased diversification—including use of alternative investments—aims at generating returns, while providing superior protection against ultimate downside risks over time.

For those that don’t know, PBGC stands for Pension Benefit Guaranty Corporation. They are the ones who guarantee pension payments in the event that a pension fund goes broke.

In plain English, they are saying they are short $14 billion dollars so they are going to pursue a riskier investment plan in order to try to make up for their shortfall. They try to disguise this by saying that in any 20 year period their new investment strategy would have outperformed their old one so it is safer. (They state this later in their press release. Read the Calculated Risk post for more.)

But even granting this is true, it does not mean that it is safer. For example, let us say that a bond would pay 5% every year for 5 years. Let us say the stock market will go down for 5% for the first two years but go up by 20% for the next three. In this case the stock market would be a far better investment over the long term. But if your bills all came due in the first two years you would be far better going with bonds. If you can’t know for sure when you bills are going to come due, you would be far safer buying bonds than stocks.

PBGC is taking a really big risk in spite of trying to claim otherwise.

Think about it. Under what circumstances are pensions funds most likely to go bust? During times the stock market is going up or going down?

The answer is obvious. If stock markets ever go sharply down for a period of time, the PBGC is likely to have to rescue a lot more pension funds. So at the very time their assets are losing value, they will be taking on new obligations.

PBGC would argue that when they take over a pension fund, they take on an obligation that they have to pay for over a long period of time. Therefore, they have time to wait for the stock market to go up.

But I don’t buy this. If they have a lot of obligations dropped on them all at once (as I expect), they will have to pay out a lot more money than they are right now. To fund this they are going to have to sell assets. A major portion of their assets is now going to be stocks. So at the very moment that stocks are down they will have to be selling.

If you sell stocks while they are down (even if you only sell a portion of them) you can really wreck your long term return. This is why buy-and-hold is the recommended investment style. This is because stocks can really go down before they go up.

For example, let us say that you buy 100 shares at $10 a share and you hold them for 5 years. Let us say that after you buy the shares they drop to $5 a share and stay there for 2 years. But let us say that after that they start climbing again so that by the end of those 5 years those shares are worth $20 dollars a share. You have just made a 100% return in 5 years or a 20 percent return per year. Not bad.

But let us say that in those first two years you suddenly need $400. That is only 40% of the money that you invested. But because your stocks have halved in value you are forced to sell 80 of your shares. Even if you hold the rest of your 20 shares till year 5 you still will not make back the money that you lost by investing in shares. On the other hand, if you have bonds with a constant return, you are unlikely to have the same kinds of problems. Even if you have to sell they are unlikely to drop as sharply in value as stocks will (assuming high quality bonds).

That is just to give you an example of the types of problems that can crop up even if you are sure that your investments will perform better over the long term.

The Government will probably bail out the PBGC. But I still wish they would not do stupid stuff like this. The Government is going to have enough trouble as it is with having to pay extra because PBGC was stupid.

Big Beef Recall Underway….

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Its kind of funny this should pop up today, because we were all talking the other night about slaughter houses and the butchering of cows in particular. This from ABC news…..

A disturbing undercover video showing cows too sick to stand being shoved with forklifts or dragged with chains across a cement floor at a Southern California slaughterhouse has sparked the largest beef recall in the nation’s history.

The U.S. Department of Agriculture ordered a recall of 143 million pounds of beef Sunday evening from Chino-based Westland/Hallmark Meat Co., which is the subject of an animal-abuse investigation. The recall affects beef products dating back to Feb. 1, 2006 that came from the company.

Here is a portion of the video….

See a longer video here.