Dilbert, Agency Costs, and Silly Budget Games

I've taught Capital Budgeting every semester since 1996 at some level or other (sometimes at the Intro level, sometimes in the Advanced Corporate class, and sometimes in the CFA prep course). One of the key concepts in capital capital budgeting is that in estimating cash flows you should always use the marginal cash flows attributable to the project at the company level and not at the divisional level. In fact, one of my favorite cases to teach this concept involves a multi-divisional company where each divisional manager is trying to allocate the revenues from the project to their division and the costs to someone else's.

The problem comes because of a classic agency problem: divisional managers are compensated in part on the basis of the financial performance of their division. Shareholder, in contrast don't care which division the costs and revenues are allocated to, since they have a claim on the cash flows of the entire company. So, the interests of the agents (the managers) diverge from those of the shareholders (the principals) and voila: the managers take actions that shareholders would prefer they didn't.

Now I have the perfect Dilbert cartoon to illustrate the concept:

HT: The Conglomerate Blog.

The Year In Review

I know the year's not yet done, but I was thinking of all the changes for the Unknown Household in the past year:

• A move back to our "homeland" in the Northeast USA, which puts us within 80 miles or so of both parents and all myriad nephews, nieces, etc...
• A new school for me. This part is particularly good, since whenI first went on the job market in my final year of grad school, I identified 3 schools I would love to be at. This was one of them (it took 8 years to get here, but hey - some things take time).
• I'm teaching two new classes in a different sub-field fo finance. It's a lot more work, but I'm learning new things.
• I'm also teaching CFA prep classes, which helps to pay for our oversized mortgage (Northeast real estate prices are high).
• The Unknown Son goes to a new new school which is much better than his old one (after all, it's a University town). Even better, the two little darlings that used to pick on him in his last school are no longer around.
• The Unknown Daughter is now in kindergarten, and loves it. It's part of the same school as the Unknown Son's, so they get to ride the bus together.
• We're now in a neighborhood that we simply love, with plenty of young families with kids and dogs (for the Unknown daughter to walk).
• Of course, I have to work a lot harder here than in my last school, but I also have a 2 mile commute rather than the hour it used to take. So, it's a lot easier to pop home for a bite or to play with the kids for a bit before night classes.
  

That's it for me and mine. If I don't say so later on (after all. there's still 2 days left to the year), here's wishing all the best for all of you.

And thanks for stopping by.

Private Equity and Debt

A recent Wall Street Journal Article ("Buyout Bonanza Compels Firms to Pile on Debt") reports on increasing debt levels for companies that were recently taken private. It's worth reading and keeping in the folder for the next time I teach about corporate restructuring:

A look at recent buyout deals shows not only that they are getting bigger in dollar terms, but also that larger companies are being pushed to pile on increasingly heavy loads of debt.

Private-equity investors -- which make money by buying control of companies in the hopes of cashing out through a stock offering or outright sale -- have been emboldened by low interest rates and generous credit markets. They are pushing companies further out on a limb in the process. In some cases, this gives their newly private companies little breathing room to execute growth plans and stay afloat were economic and market conditions to turn sour.

In many cases, companies will need to devote at least half their yearly cash flow to meeting interest payments on their debt.

Corporations that were acquired in leveraged buyouts in the fourth quarter have a ratio of debt to cash flow of 5.7 times on average, according to Standard & Poor's Leveraged Commentary & Data Group. That is up from an average of 5.3 times in 2005. In 2002, when lenders were less willing to finance risky deals, this ratio was close to four.

The last time leverage in buyout deals averaged 5.7 times cash flow was during the merger boom of the mid-to-late 1990s. In the years that followed, some debt-heavy companies, like barbecue-products maker Diamond Brands and animal-feed producer Purina Mills, defaulted on their debt when their bets went wrong.

Read the whole thing here.

It's not all that surprising that these firms are highly levered - that's what the "L" in LBO stands for. In an LBO, the acquirer (a "private equity", or "PE" firm) takes a firm with decent cash flows that is arguably underleveraged and gears it up with more debt. This potentially creates value through a number of channels:

• The old risk-return tradeoff: Increased debt levels makes the firm's equity riskier, but magnifies returns in good times. So, why don't the managers of the public firm do this themselves? They might be too risk-averse to take the debt up to ooptimal levels. If a firm restructures in banckruptcy, the CEO is often out of a job, and may have difficulty getting another one. Hence, too little debt.
• Tax shields - interest on debt is tax-deductible (this is known as the "tax shield" of debt).
  
• Debt helps manage agency problems: having a lot of cash makes a company's future less sensitive to recent performance. taking on more debt means that the firms has to look at every decision more closely, since they're walking a tightrope.

Down the road (after a few years), the PE firm takes the LBO firm public once again. And according to the evidence, these firms do pretty well in the post-IPO market.

But, the process is full of risk. With greater risk comes a greater chance of failure. This is why PE forms make so much money - they're willing to take on the huge levels of risk that managers of publicly-held companies aren't.

Thursday Link Dump

It's been a good day - I spent several hours poring over the first draft of a paper by my Ph.D. student (actually, a student whose dissertation I'll be co-chairing). The paper will eventually be the first essay of his dissertation -- he should be ready to defend his proposal in March or April. He's gathered a lot of data he's about 75% done), and this is his first attempt to put stuff down on paper. It's not overly terrible, but it'll need a lot of work before it's ready.

Now that I'm on this side of the table, I have a lot more respect for what I put my own professors through. Forgive me, for I knew not what I was doing...

Having done that, it's time to blog. There were some interesting pieces in the news (or in the blogosphere) lately. Here they are:

There's a must-read piece in yesterday's Wall Street Journal on the history of executive stock options. If you want to understand some of the issues related to back-dating, reloading, and so on, this is the piece for you.

Ticker Sense has a list of analysts' price forecasts for the S&P 500.

Business Week lists The Big Private Equity winners of 2006.

This week's Carnival of The Capitalists is up at Worker Bees Blog. My picks of the week are Dan Melson's piece Choosing Buyer's Agents By Commission Rebate: Penny Wise, Pound Foolish and Free Money Finance's how to make our children into millionaires

Finally, from Seeking Alpha, we have two conflicting indicators as to what will happen in the market: Yaser Anwer tells us that Short interest declined (that's a bullish indicator), while John Hussman tells us that insider selling is up and money managers are overwhelmingly bullish (both are bearish indicators). So take your pick - it reminds me of the need for "one-handed" economists".

Enjoy.

A Charlie Brown Christmas And It's A Wonderful Life

Growing up, we'd watch two TV specials every Christmas season (and often repeatedly).

The first was the Peanuts Christmas special, and the second was (of course) It's a Wonderful Life.

Thanks to Youtube, here they are.

Linus' Reading of The Christmas Story.

The Ending of It's A Wonderful Life.

When you get off track this season, apply both liberally as needed.

And a very Merry Christmas to all of you and yours from the Unknown Household.

Moneyless World - A Reality Or An Ideology?

I’m at a posh house-sit now, till Jan. 31st, sharing it with my friend, Phil. I haven’t spent much time in the canyon this winter. I also have a new secret squat in town, which Phil coined “the squattage.”

Wal-Mart Schmalfart
Wal-Mart wants to build in the Moab area. Many folks are saying it’s inevitable, that there’s nothing we can do but throw up our hands. Many say that if Moab's Grand County doesn’t welcome Wal-Mart, neighboring San Juan County will, and Grand County will lose both a tax base and its businesses. Never mind that both San Juan County and this county will lose most their small businesses and most the money will flow out of the area. This is Wal-Mart’s common tactic, pitting counties against each other, then leaching them all.

The no-end-in-sight growth of the capitalistic cancer seems unstoppable, omnipotent. A few people have commented to me that my visions of a moneyless world are naïve & idealistic. I often think so, too.

Am I Naïve? Am I a Realist?

But now I put out this question: is my life being driven by ideology or reality? What I know and can only know is what’s in my self, what brings me unspeakable peace. And that peace is Reality, because I know it. If this were only a belief and not knowledge, it would be just an Ideology.

Yes, today I’ve had an epiphany about the Real and the Ideal.

Real is what is. Ideal is thoughts about what was, will be, or could or should be or have been. When Ideal becomes what IS, thoughts become crucified, and the Ideal resurrects as the Real. The ideal and the real merge as One, even as bread merges with the body when eaten.

Somebody told me I should have a plan for this envisioned moneyless world. But there can be no plans in any brain on how a moneyless society could function. If there could be, it wouldn’t be moneyless. It can only function by giving up mind-control and resting in simple faith, in trust. Everyone who truly follows their own religion will know exactly what I am saying. Money by its very nature is mind control. This is where I am called naïve. Indeed I am.

How can we trust people if we can't give up control of them? Every parent learns that an untrusted child becomes untrustworthy. Trust can only be born from trust, even if you have to forgive the untrustworthy 70 x 7 times.

And why, in its Grand Sense of Humor, has the Universe spread religion by the hands of money-worshipers to every corner of this world – religion that at its very core spells out the principles of a moneyless world? What a hoot. I’m not just talking about the money-worshipping Christian institution, but all the world religions. At their core is the key! I've even recently been astonished to realize this key at the core of Mormonism! The Book of Mormon is the most ingeniously absurd book I've ever read, and Joseph Smith the divine comedian.

I've spoken my ideology. And can you see this ideology dissolving into Reality, which cannot be spoken?

Can you see behind my ideas that I am a Realist? I have often held that if every person became real, balance would automatically return as it is in the wild, natural world. (Yet, we can never return to animal nature, but a likeness of it, with new, uniquely human awareness. How do I know this? Practice the core path of your religion and you’ll see for yourself).

If every person became real, money would cease. You can't make money cease with Reality following. You must first become Real, and then money ceases as Reality comes. Why do I say this? Listen, because it’s so simple it may astonish you:
Prostitution: Real or Illusion?
Let’s take a look at prostitution again. You pay a prostitute to “make love” to you. You know the act is not real, you know that neither you nor the prostitute is being real. You’re paying for illusion. It’s artificial love. The “love” is an idea, not a reality. We all know deep down that we can only love and be loved out of purely free will – spontaneous, free, unpaid for. Love cannot exist any other way. If it is not free it is not real.

If you stop paying the prostitute, that isn't going to make her love you, either. You must first love her and she must first love you, so that the idea of you paying her becomes totally revolting. This is why I am not for the abolishment of money. Money is not the evil, it is our not being Real, illusion, that is evil.

I am not for the abolishment of money, but I am for money going obsolete. Money cannot be abolished, but money can go obsolete, vanish, if we simply be real. Why? Because money itself is not real, but only a belief, an illusion.

Ponder this: Nothing Real is evil. Nothing that Exists is evil. Nobody who is real is evil. Nobody who Exists is evil! Only illusions and actors can be evil.

Now extend this principle of prostitution to every particle in the universe. Do you let things (anything !) come your way naturally, freely, spontaneously, or do you have to pay to make what you want happen? Do you trust that everything you need comes your way in its own good time, or do you lose patience and pay for it to come in your own controlled time? Do you trust or do you bribe? Do you think the only way you can get what you need is to pay for it, to go in debt to get it? Or do you think the only way you can "get it" is to rape? If this is the only way to survive, then love is a myth and there is no reality.

Why does love forever elude you?

“Love is patient”. If you lose patience and think the only way you can get what you need is to pay for it, to manipulate it, then love forever eludes you, reality forever eludes you, and the universe to you becomes impersonal and meaningless. You prowl the dark streets for prostituted love, forever chasing desire never fulfilled. You become the cynic, and your beliefs in the universe are self-fulfilling. All occurrences and people become untrustworthy in your self-fulfilling prophecy. And your ego gloats, saying, "See, I was right, and you and your naive spirituality were wrong." And indeed you were right. Your belief has created your "reality." Anybody who has recovered from clinical depression knows this principle.

Neither you nor the prostitute can be real. Neither you nor anything you pay for can be real!

Again, Why Do I Live Moneyless?

Why do I live moneyless? Because I have no more strength for the world of artificiality, no more strength for the world of ideology separate from reality! Why should I want to return to clinical depression? Yes, I am a realist! All I want is the real and to be real. It takes work to hold up a prop, an act. It is Rest to be Real.

Instead of using the misused and twisted word, “God”, I am now using the word Reality. Hear Oh Humanity: the Reality your Lord is One. You shall love Reality with all of your heart, all of your soul, all of your mind, and all of your strength. And the second commandment is like it: You shall love your Neighbor as your own Self. There is NOTHING but Reality. Ponder that. How can I love my neighbor if I can’t recognize my neighbor as Real, and how can I recognize my neighbor as Real if I am not Real? Become Real: This is our only mission in life. As the old Sting song says, “Be your self, no matter what they say.” The one who is ashamed of being Real will be shamed before all creatures, no matter how many props he hides himself under.

Become Real, become Reality.

Impersonal To the Impersonal. Personal To the Personal.

We think of the universe as impersonal. We are persons, part of the Universe, aren’t we? Isn’t the definition of person a being with Free Will? Does the universe have free will? We exist, don’t we; and we are part of the Universe, aren’t we? And isn’t the only Real person the person who doesn’t have to be paid to act, coerced to act? And isn’t the only Love the need that comes in its own sweet time for free, un-coerced, unpaid for? When we become Real, the whole universe becomes Real. “To the Pure all is Pure.” Thus, Real is synonymous with Love. And Love is Personality. There can be nothing Real apart from Love, and there can be no Love apart from the Real. And Love can only be given and taken freely, else it is not Love! In other words, the Real can only be given and taken freely else it is not Real!

Real means “Royal” in Spanish.

Do you believe in Reality? So, skeptic, are you really the realist you think you are?

The Beauty of the Mythic Image

Now the beauty of Reality is that Reality clothes itself in myth, in illusion, as a mythic king is garbed in splendor. And Reality rides on Myth as Vishnu rides on the Seven-Headed Naga raft, and as the Seven-Headed Naga snake shelters the Buddha in his liberation, and as Aztec Quetzal-Coatl (Mayan Kulkulkan) floats away on his Serpent Raft. When we recognize the Myth as myth, the Illusion as illusion, the Actor as actor, the Prop as prop, all neither good nor evil, then the World becomes a Play, as Shakespeare says. It becomes a Play of One Real with many masks.

Then Mammon voluntarily serves us, we no longer serve Mammon. And Mammon is no longer evil for us, because we no longer possess it. Obligation (Debt) ceases and Love eternally begins. Love always eternally begins.

Ah, the words of a naïve, silly idealist, Silly Realist. Silly Sally Stopped Selling Seashells Sitting at the Seashore and lived happily ever after.

Regulation and Venture Capital: The Unintended Consequences Edition

There were some interesting Venture Capital related pieces in the paper over the last few days. Most are related to some of the "unintended consequences" of Sarbanes-Oxley and other recent regulatory changes. These changes might (repeat "might") have some benefits, but they were enacted without much serious consideration as to the costs they might impose on the capital markets. Here are a few more examples of these costs (nothing new, but still worth reading):

First, here's a Wall Stree Journal editorial by Michael Malone titled The Pump-and-Dump Economy. He lays out some pretty good arguments showing how the VC and Private equity world have been affected by Sarbanes-Oxley, Regulation FD, and the calls for options expensing. As a result, he argues that they'll end up having far-reaching effects on the rest of the economy.

Batting in second place is another article from the WSJ titled "Venture Capital's New Adventure". It discusses how the slowdown in IPOs from Sarbanes Oxley has made VCs job much harder. In particular, it highlights the case of Drew Lanza, a tech VC who's recently started doing roll-ups in the chip industry.

Finally, the NYtimes tells us that VCs are looking overseas for exits. It seems that the increased regulation in the U.S. market is making foreign markets more preferable for staging IPOs for exits.

as one of my econ professors always said, the Law of Unintended Consequences is like the law of gravity - you can tell yourself it's not there, but it'll get whether you believe it or not.

A Few Questions

I just received this from one of my friends, so I thought I'd put it up here. Some of these sound like they came from Steven Wright:

1. Is it good if a vacuum really sucks?
2. Why is the third hand on the watch called the second hand?
3. If a word is misspelled in the dictionary, how would we ever know?
4. If Webster wrote the first dictionary, where did he find the words?
5. Why do we say something is out of whack? What is a whack?
6. Why does "slow down" and "slow up" mean the same thing?
7. Why does "fat chance" and "slim chance" mean the same thing?
8. Why do "tug" boats push their barges?
9. Why do we sing "Take me out to the ball game" when we are already there?
10. Why are they called "stands" when they are made for sitting?
11. Why is it called "after dark" when it really is "after light"?
12. Doesn't "expecting the unexpected" make the unexpected expected?
13. Why are a "wise man" and a "wise guy" opposites?
14. Why do "overlook" and "oversee" mean opposite things?
15. Why is "phonics" not spelled the way it sounds?
16. If work is so terrific, why do they have to pay you to do it?
17. If all the world is a stage, where is the audience sitting?
18. If you are cross-eyed and have dyslexia, can you read all right?
19. Why do you press harder on the buttons of a remote control when you know the batteries are dead?
20. Why do we put suits in garment bags and garments in a suitcase?
21. How come abbreviated is such a long word?
22. Why do we wash bath towels? Aren't we clean when we use them?
23. Why doesn't glue stick to the inside of the bottle?
24. Why do they call it a TV set when you only have one?

No, this has nothing to do with Finance or Economics, and Yes, I'm avoiding doing some work. Bad Professor!

Thursday Link Dump

The Unknown Wife and I braved the mall yesterday, and did almost all our Christmas shopping. I still have to buy my traditional Shiny Thing for her, but that's about it. With all this, I didn't get around to emptying my feed reader, so have a few links to things that I came across in the last day or two. None are specifically finance or business related, but they're all thought provoking:

Mary McKinney at Academic coach talks about procrasdistraction - this is the phenomenon of when you finally sit down to a task you've been avoiding and a list of all the OTHER things you have to do springs to mind.

Joe Carter of Evangelical Outlook has a great piece about the philosophical contrasts between It's A Wonderful Life and The Fountainhead.

Finally, Tyler Cowen Marginal Revolution discusses a paper that shows what many of us already know, but it's good to see it measured: hard-working coworkers make us work harder.

Off to work - I've procrasdistracted enough for now...

The End of The Semester Is Nigh

Only four or five student project to grade and then I'm done, done, done. All in all, I'd give myself a C+ for the semester. It wasn't great, since I was teaching two new classes, and one was pretty effort intensive. But I got through the material, and even did a little research. First semesters at new schools are always much, much more difficult than you'd think.

I'm looking forward to the break so I can spend more time on research - I realized that I'm not doing nearly as much as I should be. In fact, I think I'll go back to logging my time and my output (i.e. how much time spend each day with fingers to keyboard and how many pages of product). The times I did that last year were among the most productive I've had in recent vintage. And I'll post my results here weekly in the spirit of transparency (and maybe get some of you to do likewise).

For the Finance & Accounting academics among you: yesterday, I finally figured out how to use SAS to remote access the Wharton Research Data System (WRDS) databases we have access to. For years, I'd done it the "old fashioned" way - used the WRDS web interface to download the data and then massage it locally using SAS. I finally bit the bullet and worked through the system documentation - it was surprisingly easy. Now I can do all the work on the Wharton system and use their resources to massage the data and merely download the finished product. Unfortunately, I lost track of time until Unknown Wife called me at 6:30 (oops).

This should help since some of the things I'm working on are real memory hogs. They should execute much faster using the servers at Wharton than they do on my relatively dinky system --it'll be nice to use up Wharton's resources instead of mine.

Today it's time for Christmas shopping and grading those last few projects.

Does Where Your Name Sits In The Alphabet Affect Academic Career Success?

Does the first letter of your surname's position in the alphabet affect your career success? According to a study by Liran Einav and Leeat Yariv (from Stanford & Caltech, respectively), the answer seems to be yes, at least for economists:

We begin our analysis with data on faculty in all top 35 U.S. economics departments. Faculty with earlier surname initials are significantly more likely to receive tenure at top ten economics departments, are significantly more likely to become fellows of the Econometric Society, and, to a lesser extent, are more likely to receive the Clark Medal and the Nobel Prize. These statistically significant differences remain the same even after we control for country of origin, ethnicity, religion or departmental fixed effects. All these effects gradually fade as we increase the sample to include our entire set of top 35 departments.

We suspect the "“alphabetical discrimination"” reported in this paper is linked to the norm in the economics profession prescribing alphabetical ordering of credits on coauthored publications. As a test, we replicate our analysis for faculty in the top 35 U.S. psychology departments, for which coauthorships are not normatively ordered alphabetically. We find no relationship between alphabetical placement and tenure status in psychology.

Read the whole thing here.

It reminds me of back in the day when I used to do some tax and bookeeping services. Of course, I choose the name AAA Business Services.

From now on, call me Arvin Arpad Aardvark.

HT: Smart Graduate School Applications.

It's a Monday

I couldn't get to sleep last night, so I tossed and turned until 2. Then I woke at 7:30 for a routine checkup with my new physician (at 8:30). When I got there, I discovered it was actually a 3:30 appointment. Ah well, I chalk it up to it being a Monday and to my not having had enough coffee.

I'm only linking to a few things today - mostly M&A related stuff, with the obligatory reference to options backdating. It's interesting to see the NYT pieces, since we discussed similar things in my doctoral program.

So, here are today's links:

According to BusinessWeek, hostile takeover bids are on the rise. That's probably a good thing - things were getting a bit too comfy for the last few years. They give some reasons.

The NY Times has a couple of good pieces: one reports on a new study by Bebchuck, Grinstein, and Peyer that finds that options backdating wasn't limited to top executives - directors appeared to have gotten into he game too.

And a second NYT piece by Mark Hulbert discusses whether the current merger wave means that markets are overpriced. He does a good job of explaining the theories behind an overvaluation/acquisition link.

Jeff Cornwall is hosting the Christmas edition of the Carnival of The Capitalists.

And finally, for all you doctoral students on the job market, Craig Newmark links to "the ultimate rejection letter".

Enough blogging - I have exams and projects to grade, and some writing to do (and let's not forget the doctor's appointment at 3:30).

Electronic Trading And The Need For Speed

This piece from the Wall Street Journal shows how electronic trading has changed the face of securities markets:

About four years ago, Dave Cummings moved his trading firm's computers from a storefront in this Kansas City suburb to buildings in New York and New Jersey that house central computers for two big electronic stock exchanges.

The move shaved a precious fraction of a second from the time it takes Mr. Cummings's firm, Tradebot Systems Inc., to buy or sell a stock on computer-based exchanges like Archipelago. It now takes Tradebot about 1/1000 of a second to trade a stock, compared with 20/1000 before the move -- a difference of about the time it takes a computer signal to zip at nearly the speed of light from Kansas City to New York and back.

Read the whole thing here

It's pretty amazing when you think about it - the company moved its computers from the Midwest to the same zip code as the exchange to save the time it takes an electronic message to travel from the Midwest to New York.

It turns out that electronic trading systems allow Cummings to effectively act as an exchange specialist - he's constantly trading in and out of stocks, and is fast enough to cut in front of exchange specialists - to the tune of over $100 million a year in profits (a penny a share at a time). And better yet, he makes markets more efficient, since he only gets to trade when someone needs fast execution. According to the article, on some days, his company accounts for 5% of all Nasdaq trading volume, and 5% of the trading in Microsoft.

The only ones unhappy are the specialists.

Tis The Holiday Season

Sorry for the lack of blogging lately, but it's the end of the semester, and that always means crunch time. I gave my last final Friday night (from 7-10, which means someone's very, very mad at me). Now all I have to do is grade them (but there's hope - see below).

The School of Business had it's holiday party from 5-7, just before the exam. I've discovered that exams go much better when I've had a couple of glasses of wine beforehand. Luckily, the students didn't have too many questions (gee, our professor must really like giving exams - he seems pretty happy).

Anyway, here are some of the tidbits that have been accumulating while I've been a slacker in the blogging world:

Michael Lewis at Bloomberg.com has a good piece contrasting the private and public equity worlds. Here's the money quote: "In effect, the smartest, best-connected money has separated itself from the rest of the stock market, and has gone into the business of trading against that market. It seeks to buy from the stock market cheap, and sell to the stock market dear, and if you need evidence that this is possible you need only look to the returns on private equity, which have been running three times the returns of the public stock market."

In a related vein, the Wall Street Journal reports on "loan to own" PE investors. Larry Ribstein has further comments here.

CXO Advisory group reviews a paper on a potential way to exploit the "small firm effect"(for the unitiated, small cap firms tend to outperform on a CAPM risk-adjusted basis). Given that my student managed fund may be moving to a small-cap value style (with a few tweaks), this could be one for them to read.

The almost-always-on-target Flexo at Consumerism Commentary says that Freecreditreport.com is a scam.

Concurring Opinions has no trouble grading exams. Maybe I can adapt it to my student's investment analysis projects.

Rob Sama is hosting this week's Carnival of the Capitalists. Unfortunately, I don't have time to highlight my picks of the week this time around. Maybe later.

Finally, how many of you know the differences between Shiite and Sunni Muslims? Joe Carter at Evangelical Outpost does, and he has this great primer on the topic.

That';s enough for now. Blogging will pick up next week - I have about a day's worth of grading, and then I'm done with my first semester at the new school.

And then I'll have time to placate all my coauthors who've been hounding me...

What's Your Legacy?

It's been an interesting couple of days. Late last week, I was informed that one of my mentors had passed away at the relatively young age of 50. He wasn't my dissertation chair, but did teach one of the seminars I took, and was an integral part of my thesis committee. So, I flew out Tuesday afternoon and went to his memorial service yesterday.

He'd had an enormous amount of success as an academic - got his Ph.D. at age 24, published a phenomenal volume of research in top journals such as the American Economic Review and the Journal of Finance (multiple times). He'd been a visiting scholar at top universities and was a scholar in residence at the Federal Reserve Bank for years.

But publications fade over time. What was even more impressive (and will endure) was the impact he'd had on so many doctoral students. Many of them are now faculty around the country, and they dropped everything to fly across the country (and in the final week of the semester, yet) to honor the guy.

After getting my degree, I subsequently had the opportunity to visit at my alma mater for a while, and got to know him as a colleague and friend as well as a mentor. He was truly a class act, and whenever I needed advice on how to handle something, he was one of the first I'd go to.
I hope I can have even a small fraction of his impact.

Godspeed, Steve -- you'll be sorely missed.

Weekend Link Dump

Looks like the end of the semester is just around the corner. My investment fund students did their presentation to the advisory board this week and acquitted themselves pretty well. My investments class has one final meeting, and then the exam. I'll have to grade about 20 investment analysis projects, but that comes with the turf.

I figured out a number of things I need to change in both classes next semester, which always happens the first time I teach a class. So all in all, it seems like I'll survive my first semester without serious damage to either me, my colleagues, or my students.

I've got some writing to do (as always). But in the meantime, here are some links to keep y'all busy.

John Carney at Dealbreaker has a piece on how PE firms are starting to get loans with fewer (or even no) covenants. It's a good example of how PE firms get to interact with credit markets on different terms than do traditional companies.

In a second related PE piece, the Boston Globe seems surprised that bondholders often lose in PE deals. Maybe they should have thought of that when they put the covenants together.

Mike Moffatt at About Economics has a nice explanation on how markets use information to set prices.

Joe Carter at Evangelical Outpost has put up another installment of his Yak Shaving Razor series. This one's the "How To" edition.

And last but not least, the Phantom Professor has a link to a very cool video on Post-Its - it reminds me of old-style ClayMation.

That's all for now, folks. Enjoy.

Tonight we take the clan walking down the main street of our town - they've done up the store fronts with lights and decorations, and there are cheese, cider, and carriage rides to be had.

Wednesday Link Dump

The semester continues to wind down. Students in my Student Managed Investment Fund make their presentation to the alumni advisory board tomorrow night. So, they've been hard at work grinding away on their presentation. They're panicking, but they should do all right.

And my investments class has only a little more material to cover. So, I'm almost done except for exams.

While I work on my class material, here are a few things to keep you busy:

James Hamilton at Econbrowser explains why the inverted yeild curve might not signal a recession. His answer - foreign purchases of treasuries.

Private Equity (over at Going Private, one of my favorite blogs) takes a few well aimed shots at the recent Market Watch piece I recently highlighted on dual-class shares.

Information Arbitrage discussses a New York Times article on how to interpret stock buybacks.

Steven Dubner at the Freakonomics Blog points to a really creative use of the Web - a YouTube For Data.

According to Calculated Risk, implied probabilities from options on Fed fund futures indicate a 75% chance of a Fed rate cut at the March meeting.

And finally, Sound Money Tips has a great list of resources for using the web in finding people at no (or low) cost.

Enough blogging - back to work.

Monday Link Dump

I had a tough night last night -- I woke at 3 a.m. and tossed and turned until 7. And of course, today's my long day (I teach until 8:30 tonight). So, I'm a bit of a wreck, and I'm sure I'll be worse as the day goes on.

Having said that, here are today's links. Some are from the weekend, but at least I've now cleared out my feed reader. Enjoy:

Want to make a humorous poster easily? Go to hetemeel.com (HT: Market Power)

Marketwatch.com has a piece on companies with dual-class shares that concentrate voting power in management's hands. These are interesting from a governance standpoint - the usual justification for the dual class structure is to insulate management from the supposed short-term focus of the market.

Dealbook tells us how investment banker compensation incentives result in so many deals being announced near the end of the year.

The WSJ seems to be doing a lot of pieces lately with an international investing flair. In this piece they talk about investors turning to currency funds to hedge risks. The investment results to this strategy haven't been all that great lately.

Finally, this Week's Carnival of The Capitalists is hosted at Show Me The Money. There wasn't that much in the finance realm, so I won't give a pick of the week this time around.

That should keep y'all busy. If I take a nap, I might blog more later. If I don't, I might just end up falling asleep in the middle of my own lecture.

Winter Wonderland (but not enough for my son)

We woke this morning to a snow covered yard - we got about an inch or two overnight.

My two children had very different reactions: Unknown Daughter was all excited and started making plans make a snowman after school.

Unknown Son, however, was pounding the pillow becasue there wasn't enough snow to cancel school.

Don't worry, U.S. -- where we are there'll be plenty of opportunities to skip school because of snow.

Exotic Markets Survival Guide (from the WSJ)

Just yesterday, I blogged about an article in the weekend Wall Street Journal on the "Three Fund Investment Strategy" (i.e. construct a portfolio consisting of three assets: a domestic stock index fund, a domestic bond fund, and an international stock fund).

So, to follow that up, I thought I'd highlight a second piece from the Journal, on investing in emerging markets. It's titled "Exotic Markets Survival Guide", and is also from the Saturday Journal. Here's a snippet:

As more Americans invest abroad, the past year has served as a cautionary tale about the promise -- and risk -- of such a strategy. In May and June, emerging markets plunged amid worries over rising U.S. and Japanese interest rates and a possible global slowdown.

But within months, the markets rebounded. The MSCI Emerging Markets Index is up 23.7% in dollar terms this year -- just 1% away from its all-time high. The Dow Jones Industrial Average is up 14%.

Emerging markets have benefited from accelerated economic growth, large and youthful populations, and little-known but profitable companies. The category includes much of the world outside the U.S., western Europe, and Japan, encompassing countries as big as China and as small as the Czech Republic.

In the past, investors were wary of political upheaval, poor infrastructure, and shaky economic fundamentals that sometimes erupted into a full-blown financial crisis in such markets. Geopolitical risk still disquiets investors, who worry Middle East turmoil could spill over into Turkey, for example.

It's definitely worth reading the whole thing. Here are a few thoughts (in no particular order, like most of my thoughts:

• There's a huge variation in performance for the various individual emerging markets. Rather than try to pick winners, it's best to invest in a broad cross-section of markets-- ideally in an index fund or ETF.
• A good part of the performance in the last year is due to exchange-rate fluctuations. Whenever the dollar weakens, it increases the "US Dollar" returns relative to the returns in the emerging market's own currency. For example, MSCI index is up 20.9% in local currency terms, but has returned 23.7% in dollar terms.
• There are risks to investing in emerging markets (political risk, the risk that the emerging market's home economy will collapse, and so on. So, it's best to DIVERSIFY.

All in all, the piece is worth reading. I think most portfolios should have some exposure to international equities. Not surprisingly, stocks in emerging markets are less correlated with the U.S. index than are the typical U.S. stocks. So, adding them to a portfolio reduces portfolio risk. And they might even outperform the U.S. markets over time.

The Three Fund Portfolio (Stocks, Bonds, and International)

Today's edition of the Wall Street Journal has a piece on creating a simple portfolio using three funds - a broad domestic equity fund, a broad domestic bond fund, and an international fund. It's worth a read, and could easily form the basis for the bilk of your portfolio:

Though the idea may not be for everyone, the formula is easy enough: One index fund to cover U.S. stocks, another for the international markets and a third for the U.S. bond market. Together, this trio has rivaled U.S. stock returns over one-, three- and five-year spans, and with more stable returns year-to-year than the broad market.

With thousands of fund options, it may seem hard to believe that a portfolio that doesn't even try to beat the market can do a better job than most professional money managers. But in this case, less is more.

The three-fund strategy "makes sense," says Meir Statman, a Santa Clara (California) University finance professor who studies investor behavior. "What makes it hard is that it seems too simple to actually be a winner."

Make no mistake: A blend of bland index funds isn't going to provide you with scintillating cocktail-party conversation to dazzle your friends who own hedge funds or hot sector offerings.

"It's a 'cold shower' portfolio," Mr. Statman says. "You'll do fine, but you'll not have the biggest house in the fanciest neighborhood."

Read the whole thing here (subscription required).

The idea has a lot going for it.

First, by diversifying across domestic stocks and bonds, you lose some potential for lagrge returns, but end up with much lower volatility. That's more improtant than you might think, because the amount you have in the future is based on geometric, not arithmetic returns.

To see the difference, consider a simple case where you invest $100 and gain 30% one year, then lose 10% the next. Your arithmetic return is simply (0.30 + (-0.10))/2, or 10%. However, your "true" return is the geometric return - you end up turning $100 into $117 over two years (the $100 grows to $130 in the first year, then drops to $117 in the second. So, your geometric average annual return is actually 8.17%. In case you're wondering how I got that figure, to calculate the geometric average return, first take the annual return for each year and add 1. Then multiply the "1+return" for each year, and then take the "nth" root. Then subtract 1.

So, for two years, in an Excel spreadsheet the return would be:

[(1.+0.30)(1 + (-0.10))]^(0.5) - 1

= [(1.30)(0.90)]^(0.5) - 1 = 0.0817, or 8.17%

The higher the volatility of returns (i.e. the more returns fluctuate from year to year), the lower the geometric average return will be relative to the arithmetic average. So, reducing volatility could have a big impact on your future account value.

Adding some international exposure could also further decrease the riskiness of your portfolio, since international equity markets have a fairly low correlation with domestic markets. In addition, there's a good chance that they'll add some return "spice" to your portfolio, since many international markets have higher growth potential due to the higher growth rates of their countries' economies.

Like the article says, it's not a "sexy" portfolio, and it won't give you bragging rights around the water cooler. But it will probably outperform a great many of the alternatives.

Blogger confusion

I'm trying to figure out how to put my very first post, My Summary of Why I Live Moneyless on the sidebar. It's my very first post, in the archives (click on March 31, 2006), and I want to always keep it titled and prominent in the sidebar, but I can't figure out how to do it. The Blogger help section isn't clear.

TGIF Link Dump

It's Friday, and there are only 5 more classes to the semester. So, we're pumping away here at Unknown University, trying to get all the material on our syllabus covered before the clock runs out.

Today, I have class to teach, students to work with, a paper to edit (and no, it's not done yet), and a research presentation to go to. Luckily, whenever we have a presentation, we take the speaker out to the local watering hole afterwards for what we call "Faculty Professional Development" .

So, here are a few things to keep y'all busy while I try to get through the day:

Robin Hanson is discussing why men and women complain in different amounts. He blogs at Overcoming Bias, which is well worth a look - they've got some extremely smart on their roster. In fact, I think it should be added to the blogroll. And a Hat tip to Bryan Caplan at Econlog for the link.

In another "men and women are different" piece, Dr. Paul Irwing's research indicates that men generally score about 5 points higher on IQ tests. Let the comments begin!

Joe Carter at Evangelical Outpost has posted the latest installment of his Yak Shaving Razor Series. They're full of useful tips and tools. In fact, I just downloaded the undelete tool he mentioned.

Private Equity (at Going Private) is beating the whole "MBOs are unfair" idea like a pinata.

And finally, Richard Kang is commenting on options for replicating hedge fund performance without all the high fees.

That's enough blogging for now -- back to work!

It's Like I'm In A Geico Commercial, But With Refinancing

How was my day?

Well, I didn't get much research done, and I didn't get too much done on my classes either. I did meet with a student for about an hour while on a presentation that my class has to give to our outside advisory board.

But other than that, I didn't get much done. But I'm happy anyway.

Why? Because I just saved a bunch of money on my mortgage. I refinanced it from its initial 6.25% rate to a new rate of 5.75%. Total costs (once the escrow gets paid back in about a month) were about $1500. So, the decrease in the mortgage payment means I pay back costs in about a year, and after that I'm $1,500 to the good each year.

Not bad. The Unknown Wife and I are trying to save some money, but we celebrated by going out to the loval Java shop for a couple of good cups (Kona for her, a Latte for me) and an extremely rich pastry.

Yeah-- with two kids (and a still hefty, but less so after today mortgage), this is about as much as we end up splurging.

Earnings Restatements, Dilbert Style

Here's one for the "to use in class" file (from Dilbert.com website.)

And a tip-o-the-hat to The Big Picture for the link

The Unknown Son and Late-Stage Effects of Chemo (and a Link Dump, of course)

Today's a bit busy - I teach in the morning, and meet Unknown Wife immediately after so we can go to meet Unknown Son's new oncologist. He's in remission from his Neuroblastoma, so it's not a "serious" meeting. But he does have to issues to deal with.

Most chemotherapy works primarily by attacking ALL fast-growing cells, and he's had a lot of it. So, it often has implications for childhood growth. Unknown Wife and I are both on the smallish side, so we didn't expect U.S. to be a giant in any case. But he's by far the smallest in his class (most people guess him to be about 6 instead of 8, at least until he open his mouth). In addition, he probably has some slight neuropathy (nerve damage), which is a common side effect of pediatric chemo. Both U.W. and I have the reflexes of tree sloths, but U.S. is even more uncoordinated.

In any event, the new oncologist has specialized in late-stage effects of chemo. She actually did "write the book". So, we'll be consulting with her today to determine what options we have, or even if we need to be concerned.

Meanwhile, here's some stuff to keep you busy:

CXO Advisory group has been going back and forth with Jim Cramer on his investment performance. I think they've gotten under his skin.

Theresa Lo is guest blogging at Alpha and Omega about "computer-replicated hedge funds". It seems that there are a couple of groups that are trying to do it on an automated basis that claim they can do it better than a flesh-and-blood manager.

Worthwhile Canadian Initiative has some good advice on how to present (or discuss) an academic paper.

John Prestbo at Marketwatch.com goes over the ins, outs, ups, and downs of hedge fund indexes. To quote Inigo Montoya, "I don't think that means what you think it means".

Enough bloggery - back to work.

Slouching Toward The End Of The Semester

There's exactly two weeks (6 classes) left to the semester, and I have a little more than two chapters of material to cover. I actually have three chapters to cover, but since we're only taking parts of them, it works out to about 2 1/2 chapters. So, there's a bit of a time crunch. But there always seems to be at the end, so nothing new here.

I still have hopes of getting a paper out to a journal by the end of the semester. Stuff submitted just before the break always seems to take longer to get a referee report back on, but if I wait until we get back for the spring semester it'll be even longer. So I might as well punch it out and get it situated on some editor's desk (so he can get it on a reviewer's desk).

While I'm finishing up the edits, here are some links to keep y'all busy:

The Wall Street Journal has a piece titled "The November Effect"that says that the stock prices of big winners (and losers) reverse course in November. I'm not aware of any academic research that shows this, but I'm more of a corporate guy. Still, it's interesting.

Matthew Goldstein of Thestreet.com is reporting on leveraged private-equity backed IPOs (or LIPOs, as they're commonly known). PE-backed IPOs accounted for 42% of all offereings this year, so they've become a significant part of the IPO market.

This week's Carnival of the Capitalists is up at Blueprint For Financial Prosperity. My pick of the week is the post by gongol.com that claims that responding to penny-stock internet spam may be unwittingly funding terrorism.

The Wall Street Journal online has a piece on Information networks.
It seems that there are now companies that pay industry "consultants" to gain superior information about the firms (or industries). Larry Ribstein says it's the inevitable consequence of Reg FD.

Eszter Hargittai gives a primer on how to send emails to academics correctly. If you're a reporter or someone trying to get help from one of my tribe read it - it's got some very good info.

Marketwatch.com reports on "Fundamental etf's" - ETFs that base portfolio wieghts not on market cap, but on factors like sales, market-book, market share, and so on.

Enough bloggery - back to work.

The Seven-Headed Dragon

[I put a revised edition of this blog entry into my website "Living Without Money"]

Wail, you inhabitants of the market district!
For all the merchant people are cut down;
All those who handle money are cut off.
(Zepheniah 1:11) 

And there is no merchant any more
in the Temple of Yahweh of Hosts in that Day!
(Zechariah 14:21)

Today is probably my last day house-sitting, so I'll use the time to write here.

I had a nice thanksgiving dinner at my friends', Damian & Dorina. She made an incredibly delicious vegetarian nut loaf.

After dinner, we discussed different philosophies and such. Then a friend brought to my attention, and not at all in a nice way, that I tend to interrupt and dominate the conversation. I have always thought of myself as a listener who doesn't talk much. And I like to think of myself as "aware." But I had to concede that he was right, though. Sometimes I get excited about stuff I'm learning and tend to forget about others. Just when I think I'm getting it together, I find I'm not. Knowledge isn't enlightenment. In fact, as I keep saying, it veils us from enlightenment. Anyway, I've been licking my ego wounds a lot since. And just that fact of still feeling wounded shows a great attachment to this ego that I thought I had pretty much overcome.

That's also a problem with blogging like this. You can only see words, not my person. And it's easy to present ourselves as flawless to the world when we write.

Comment Reply Becomes Blog Entry
I started writing a reply to a comment by "Angeldust" after "My Summary of Why I Live Moneyless". Then I decided to just go ahead and make it a blog entry.

It's time to see the Bible in a whole new light. It's time to shake up tired, sleeping JudeoChristian religion out of its materialistic stupor. This might just blow you away.

Angeldust brought up the Beast in the book of Revelation, the Beast who has 7-heads, the AntiChrist that end-of-timers like to talk about. So I started tracing this 7-headed dragon back to the very serpent in the Garden of Eden. Here's a taste of the mysteries:

Serpent Coiled Around the Tree, Serpent Coiled Around Pole In Genesis 3:13 Eve says, "The serpent [nahash*] deceived [nasha*] me." The Hebrew Bible is filled with plays on words totally missed in translation. The word nasha* means both 'deceive' and 'lend on interest,' or 'be creditor'. (In Strong's Lexicon, 'deceive' is Srong's # 5377 & 'lend on interest' is 5378, which are identical)*. This nasha is found in 1Sam 22:2, Neh 5:7, Psa 89:22, Isa 24:2, all of which, like the Koran, strongly denounce lending at interest).

Now look at the Hebrew word for snakebite, nashak [Strong's 5391]* , which also happens to mean both 'lend' and 'receive on interest' (Num 21:6-9, Deut. 23:19, Prov. 23:32, Jer. 8:17, Amos 5:19, etc). 'The serpent bit me,' Eve says. 'The serpent charged me interest,' Eve says.

Now the word for serpent, nahash is also a wordplay with nasha. Nahash also means 'divination,' and also 'copper' or 'bronze,' the basic currency [Strong's 5174 & 5], just like our English word 'cobra' is related to 'copper'. You can see this play on words taken into the story of Moses lifting up the Bronze Serpent in the wilderness.
_____________________________________

So Moses made a bronze [nahashet] serpent [nahash], and put it on a pole; and so it was, if a serpent [nahash] had bitten [nashak] anyone, when he looked at the bronze [nahashet] serpent [nahash], he lived. (Numbers 21:9)

If a serpent had bitten anyone can literally be translated, if a serpent had become creditor to anyone...!

Now it gets even more intriguing. a varient spelling of nasha [# 5375], pronounced the same, means 'to lift up, bear up, carry, be exalted, bear sins, atone for sins.' And the related word for 'debt' is nashi [5386]. Now you can see clearly what Jesus is referring to when he says, As Moses lifted up the serpent in the wilderness, so must the Son of Man be lifted up. (John 3:14)

This word nasha is used first by Cain in Genesis 4:13, "This punishment is more than I can bear [nasha].' And the word 'Cain' itself is a pun on the word canah, which means 'purchase'! Again, the play on words:

And she conceived and bore Cain, and said, I have purchased [canah] a man from Yahweh." (Gen. 4:1)

Now we can see why there is a Jewish interpretation that Cain is actually the son of the Serpent! He is the son of purchase, of credit & debt, while Abel is the son of Grace.

Mayan Ouroboros

The Seven-Headed Dragon

Next, in the story of Cain, you see allusion to the 7-headed Leviathan (Hydra, Beast) with the 7-fold vengeance of Cain in Genesis 4:15 & 24. Now it is clear that this credit-and-debt 7-head Serpent is poking his heads up in Deuteronomy 28! He is Leviathan.

'Leviathan' shares the same root as 'Levi,' meaning "to twist, bind, join [3878 &3867]. Again, notice the word-play in the passage that speaks of the birth of Levi, the father of law:
"'Now this time my husband will be bound [lavah] to me,...' therefore he was named Levi." (Gen. 29:34).

Levi was the father of the tribe of Levi, the Priestly Clan, the establishers of Levitical Law, starting with the Levites called Moses, Aaron, and Miriam. Law is consciousness of Credit and Debt. Law is control of Credit and Debt. The Levitical Law, as all law, was given to manage people under Consciousness of Credit and Debt, a way of keeping disease in check until the cure comes - the cure of Grace. Just as Krishna speaks of transcending the cycles of Credit and Debt, transcending the perpetual reincarnation of Karma, the old Hindu Law, through crucifixion of the ego, so speaks the Buddha, so speaks the Christ.

Leviathan is the Hebrew word for the Canaanite Lotan, found in Ugaritic texts, where he is slain by Baal:

“When you smite Lotan, the fleeing serpent,
finish off the twisting serpent,
the close-coiling one with seven heads."
( KTU 1.5:I:1-3, D. Pardee in CS, 1.265)

Then the Bible quotes this Canaanite text, saying Yahweh slays Lotan/Leviathan:

IN that day Yahweh with His severe sword, great and strong,
Will punish Leviathan the fleeing serpent,
Leviathan that twisted serpent;
And He will slay the dragon that is in the sea. (Isaiah 27:1)

You broke the heads of Leviathan in pieces,
And gave him as food to the people inhabiting the wilderness. (Ps 74:14)

Land of Canaan, Land of Commerce

Leviathan is the Serpent of Canaan. Canaan means trade, or commerce in Hebrew. Here again we see the play on the words for 'Cain' & 'purchase'. The land of Canaan, called Palestine and Israel today, was wedged between two great superpowers, Babylon and Egypt, and two great continents. This made it the land of Trade - the land of war, oppression, and deceit - the products of Trade. And it was out of this that the rage of the Bible is born.

Now you can see, more and more, studying both the Bible and history, that the Canaanites were not a literal race of people, but were the Spirit of Merchandise that possessed the people. And the very theme of the Torah is to wipe out every vestige of Canaanite from the land. The later Jewish prophets confirm that this is so:

Wail, you inhabitants of the market district!
For all the merchant people [canaanites] are cut down;
All those who handle money are cut off. (Zeph 1:11)

And there is no merchant [canaanite] any more in the temple of Yahweh of Hosts in that day! (Zechariah 14:21)

And Jesus' clearing the merchants from the temple is a direct act-out of this Zechariah scripture. Wiping out the Canaanites.

Yes, the mystery is that the Levitical law is to become fulfilled, to become obsolete at the End of Time, which is the Eternal Now, the Day of Yahweh. Money/trade serves its purpose and becomes obsolete. All written law becomes fulfilled, obsolete.

Money and law simply cannot exist in the Present, in Reality! This is not opinion. This is simple observation, if we but look inside.

It's interesting that, in the Christian Bible, the Greek word for money is nomisma and the word for law is nomos, sharing the same root meaning "to parcel out." There is no need for law when there is no money or barter, and there is no need for money when there is no law - for both are one and the same - control of credit and debt. When you start trusting Nature again "to parcel out", that vengeance, repayment, belongs to God, not human ego-mind, then Balance comes, as it already exists in the infinite Universe surrounding our little bubble of "civilization". And this is the very theme of Christian theology: freedom from written law and taking on the law of the heart, which is love. Crucifying the Ego, which is Consciousness of Credit and Debt.

It is about giving up the ego to the cross, lifting up Moses' serpent on a pole in the wilderness, the Lamb breaking through the Seven Seals.

*If you want to confirm these word studies, you can go to www.blueletterbible.org to look up the Hebrew, Greek, and Aramaic words of scripture passages, or www.scripture4all.org/OnlineInterlinear/Hebrew_Index.htm for Hebrew-English interlinear Tanach (Old Testament), and www.scripture4all.org/OnlineInterlinear/Greek_Index.htm for Greek-English interlinear New Testament. The Blue Letter Bible uses Strong's Lexicon, so I've put in Strong's numbers to make it easier for you to look up.

A Good Thanksgiving For The Unknown Family- Now Back To Work

After a short (about 90 minute) drive, we had a great Thanksgiving at the house of the Unknown Sister-in-law. In addition to us, there were Unknown Wife's two sisters (both with spouses and two children), Unknown Grandparents, and our neighbor from when we lived in the MidWest who now lives about an hour away (we moved halfway across the country, and so did she). Good food, conversation, and fun was had by all. Here's hoping your Thanksgiving went as well. One of the more touching moments was when Unknown Son gave the blessing for the food and prayed for his cousin, who also has Neuroblastoma (he actually had it before Unknown Son and went into remission before U.S. was diagnosed, Then last year, the canvcer came back for his cousin).

Then last night, Unknown Wife and Kids took advantage of the opportunity to stay with Unknown Sister-In-Law and her family (we'd planned it earlier this week). So, I drove back, got an early night's sleep, and will work on research and classes until Saturday and their return (it's the end of the semester, so everything gets backed up).

In the meanwhile, here are a few links for your reading pleasure:

Abnormal Returns has done a very nice piece on the Five C's of Private Equity Buyouts. It discusses some of the factors that have led to the growth of PE as a major force in the market. They are

• Capital
• Credit
• Complexity
• Control
• Congress

Read the whole thing here, and a follow up piece here.

Jim Mahar at FinanceProfessor.com links to a piece by Brav, Graham, Harvey, and Michaely on payout (i.e. dividned and repurchase) policy. Anyone teaching advanced corporate finance should read it and give it to their class. It's another of Graham's great survey pieces, and shows what managers actually do (and what a surprise: sometimes it's different from what finance textbooks say they should do). And if you want to read more of Graham's research, click here. He also has a good survey piece that covers a broader range of topics in general corporate finance,

In addition, CXO Advisory Group discusses a piece by Lyandres, Sun and Zhang, titled "The New Issues Puzzle: Testing the Investment-Based Explanation". It argues that corporate investments patterns should be included when constructing benchmark returns (because issuing firms invest more than non-issuers). Once they do, much of the long-term underperformance for these firjms dissappears.

Finally, here's a quote by J.R.R. Tolkien to think about for the remainder of the day: "I don't know half of you half as well as I should like; and I like less than half of you half as well as you deserve."

Now back to work!

Dia de Gracia

Feliz Dia de Gracia.
I like the Spanish name for this holiday, because it shows this is a celebration of Grace, of Gratis. You can't feel Gratitude for something that you "earned". Gratitude is the sense of unmerited favor, of Gift, and every particle of the Universe, outside our money-mind system, runs on, by, and through Gratitude. Look into any wild creature's eyes and see its burning fire for yourself.

I'm all excited. Somebody left me a comment with this link: www.utterpants.co.uk/notpants/madmoney.html, which I just added to the link bar to the right.
It's a blog entry I've been wanting to write, and now I don't have to do it because this Michael Dickinson already did, and I couldn't have written it better! You gotta read it, and you'll see these ideas on money aren't my own hair-brain ideas or opinions, but a universal truth that another witness is tapping into.

.............................
A Message for Materialists/Scientists

Now I want to write from a "materialistic" viewpoint, this time not for folks who follow the religion of Evangelical Christianity, but for folks who follow the religion of science and materialism.

So you believe that we all came about by chance, that the universe is a hodge-podge of random reactions. So you believe that Natural Selection brought us from an amoeboid to a rodentoid to an ape-oid to a homo sapiens. This is a fine and true religion. It is the result of simple observation, just as the ancient faiths are. And I maintain that if everybody in the world but believed (practiced) their own religion of simple observation, our world would fall back into balance with the rest of Nature, and we individuals would fall back into balance with our own natures. But let me point out that you most likely do not believe your own religion of science, just as most self-proclaimed Buddhists, Orthodox Christians, Mormons, Muslims, Hindus, Taoists, Sikhs, etc. do not believe their own religion.

Simply put, faith is abandoning yourself to chance. Chance is the random interactions of credit & debt, positive & negative, outside human mind control. If you believe Chance brought us from a dust particle to a human, brought us thus far, why do you now not trust Chance to carry us further??? Why can't we trust that balance will occur if we but give up consciousness of credit & debt, if we but give up control of balance of positive & negative? When has a negative charge ever NOT been naturally met by an equal and opposite positive charge? When has a death ever NOT been naturally met by an equal and opposite life? Why do we continue to not trust that a "bad" deed is naturally met by an equal and opposite "punishment"? Why can't we, who call ourselves scientists, trust our own science, like an infant, that "Vengeance belongs to Chance, Chance will repay", not to our minds that can't even balance a budget. Why can't we trust that Nature is perfectly Just. When have wave crests ever NOT been met by equal and opposite wave troughs? If Female were not met miraculously by an equal and opposite Male, then life would cease. A positive coincides with a negative. If Coincidence ceased, the Universe would cease. Why do we think Coincidence, called Miracle by the religious, is an exception, rather than The Rule?

The Money World Blocks Evolution

Now I'm going to say some seemingly hard things. But you know they are true. Money and possessions side-step chance, putting a block on Evolution, skirting around Natural Selection. We think we are avoiding Death by accumulating money and possessions, by stockpiling positives and squelching negatives. But all we are doing is building up our own demise. The negatives will come back on us in a tidal wave, to bring themselves back into Justice with the positives we've horded. Isn't this what the Koran keeps saying? Isn't this a theme of the Bible and the Dao De Jing? Isn't this basic science?

Why are we as a species nursing prolonged suffering from year to year, generation to generation, in the name of compassion, while Nature abhors prolonged suffering, knocking it off in Just Natural Selection before it can even establish itself? Mutations are naturally balanced with Order in the Wild World. But they are heaped up in massive imbalance in our Domestic World. And we pass them down, in ever larger masses, from generation to generation. Then people like Adolph Hitler arise and think they can re-establish the Balance, and they make it way worse. The erroneously call it Social Darwinism - but Darwinism it is NOT. Darwinism is Natural Selection, not Human Mind-Control Selection. Darwinism is Faith in the Law of Nature, not faith in the laws of human mind-control.

Hunter-Gatherers Our Example

I like how the Inuits (Eskimos) of the past (and maybe still the present) lived in such balance with Nature, that when one became old and too lame to be happy, to contribute to the tribe, she would voluntarily go sit on an ice float cross-legged like the Buddha and wait for a polar bear to eat her up. Missionaries thought this barbaric and put an official end to the practice. Now the Inuits are so happy with their booze and chronic illness and their oil money. When you read accounts of anthropologists who studied the Inuits before Missionary money "saved" them, they are totally astounded how these tribes living in one of the harshest environments on earth could be so constantly happy.

The Kung (Bushmen) of the Kalahari, like the Inuits, lived in another of the harshest environments on earth. The Kalahari doesn't even have regular surface water, and the Kung only carried bows & arrows. The rumor among the civilized was that these Bushmen were poor souls continually suffering, slaving, scratching out a living from the harsh desert. Then anthropologists went in to study them, and were astounded. The Kung were, in fact, the most studied of all hunting-and-gathering tribes. And anthropologists found that they only worked 2 to 3 hours a day, and the rest of the time they spent in leisure. But even that is bogus, because I can testify that when you live without money, there is no distinction between work and play. Watch any wild animal and you'll know what I mean. Don't watch money-funded propaganda nature flicks on TV if you want an accurate view. Go out and see for yourself.

Slaves of Civilization are struggling and suffering, not for food, but to maintain possessions and fictional bank accounts and appearances. And such slaves can't imagine that life could be any other way, so they believe nature is cruel to justify their own cruelty against both themselves and others.

Yet, I Am Not a Primitivist!

I am not really a primitivist. Human inventions come from the same Creative Source as leaves and flowers and chimpanzees and electrons come. Do you know who invented the automobile, the television, the microchip, the rocket, the piano, the paintbrush, the wheel? Chances are you don't. But you know who got famous marketing each of those things and pushing them like drugs for profit, don't you? I had this realization once when I worked at a homeless shelter in Boulder, Colorado. One of the residents was an inventor of machine parts. Presently, he was working on a better sewing machine bobbin. He was doing it for the pure joy of creating - and you know he wasn't doing it for money or fame. The greatest works of art are in temples, done by the obscure for the obscure, simply for the pure joy of doing. Work and play and creation and reward and joy are all One in the Present Moment.

Last summer I talked with a Nepalese Buddhist in Portland, Oregon about these ideas on living moneyless. He got all excited and immediately started envisioning people building cars purely because they wanted to, making computers from a place of pure joy, building cities from instinctual creativity - all within a purely gift economy. Nobody owns anything and all things are shared. And everything balances out as in Nature, because our true selves are Nature. He had the look of a child as he envisioned this "naive" world. Naivete is our only salvation. All great things begin with the "impossible" vision. With faith all things are possible.