Words, Words, Words

Yeah, Oil's Down, but...

2008-08-10T23:10:00.003-05:00

From our friends at The Oil Drum:

So Now What?

2008-07-01T08:09:00.001-05:00

All right, I've given you pretty much a brain dump of what I think of the oil situation. I didn't want to leave things in such a negative state, and I wanted to share what my personal thoughts are as far as going forward is concerned.

It goes something like this.

As long as our cars run on gasoline:

the number of nuclear power plants are irrelevant to transportation prices.
the number of coal plants are irrelevant
the number of natural gas plants are irrelevant
the number of solar plants are irrelevant
the number of wind plants are irrelevant
the number of thermal plants are irrelevant
the number of hydroelectric plants are irrelevant
etc., etc., etc.

However, if our transportation was electric, we could fuel it with coal, wind, solar, nuclear, natural gas, geo-thermal, or anything we wanted. The great thing about electricity is that you can't tell which fuel generated it.

The obstacles are technical at this point. Importantly, they are not infrastructural. Unlike hydrogen or other new physical commodities as fuels, no new pipelines or fueling stations or rails or other major infrastructure projects are creating a chicken or the egg type situation. (For instance, in order to use hydrogen powered cars, you need hydrogen fueling stations - which no one will build until there are hydrogen cars - which no one will buy until there are hydrogen fueling stations.)

The main technical obstacle is battery technology. Fortunately, there is a great deal of work going on in batteries and progress is being made. Also, all the car manufacturers are moving towards hybrids of one type or another. So, things are in the works.

But this is all on a timer. According to the oildrum.com (which seems like a pretty good source), peak oil was in 2005 with a shallow decline happening until 2011, at which point the decline accelerates.

There is going to be a race between reducing our reliance on oil and the falling rate of oil production. Things are already in motion, and some rational decisions are begin made.

First, people are actually driving fewer miles at this point. The number of miles driven in the United States has now fallen (for the first time in at least 20 years) for the past 2 years. Also, automotive manufacturers are closing minivan and truck plants, and changing their product mix to smaller vehicles due to changing market demands. A number of plug-in hybrids (which are both electric and gasoline powered) are coming between 2009 and 2011. This will reduce demand and make the oil last longer.

Second, I think we should drill domestic continental shelf oil and even ANWAR. We should also clear up the legal obstacles preventing land that should be drill-able from actually going into production. This will slow the reduction in production (specifically 5-7 years from now when we will really need to slow the decline).

Third, I believe we should begin building new electric power plants (pick your flavor - nuclear and coal seem the best at this point). This should be done because parts of the country are already near electric capacity, and if we bring our transportation system to electric, we are going to need more power. Fortunately, coal is cheap, and nuclear isn't anymore expensive than it always has been. This gets us ready for an electric future.

And, fourth, we should let the market work. Solar costs are going to come down, and lots of other really neat stuff will be developed to meet demand. We've done something like this once before in the 1970s. Much more of our industry was based on oil, but since then, really just our transportation is totally reliant.

To sum up, the race is on. Get transportation off of oil, before it puts the brakes (and even reverse thrusters) on the global economy.

Speculators Doing Their Thing

2008-06-30T16:19:00.003-05:00

I saw this today at Bloomberg. The article is about how high commodities prices led to increased plantings of corn and wheat. How convenient for me that they demonstrate my point in such a timely fashion.

From the article:

"June 30 (Bloomberg) -- Corn fell the maximum permitted by the Chicago Board of Trade and wheat dropped the most in 13 weeks after the government said U.S. farmers planted more of both crops than previously expected."

OPEC Mumbo Jumbo

2008-06-22T08:34:00.003-05:00

Lately, the leaders of OPEC say the high price of oil is due to speculators, and taxes, and even irrationality. Everything except the fact that they cannot meet global demand.

My view is that it is in their interest to maintain the status quo in terms of the demand structure of the global economy as long as possible. And, by demand structure, I mean the heavy reliance on their product for transportation.

Suppose for a moment that the shortage of oil is permanent and real. As soon as most people come around to this realization, the global transportation system will begin to transition away from oil. That transition will end the oil state as it exists today.

Many OPEC members are currently engaged in huge infrastructure projects and are attempting to diversify their economies. The longer they have to develop these projects, the better chance they have of not becoming impoverished when the oil demand dries up.

So, don't expect to hear anything from them about limited supply any time soon.

Speculators and the Oil Markets

2008-06-22T08:15:00.004-05:00

Previously, I discussed futures contracts in the context of agriculture (wheat and corn). But, they are generic instruments that can work with any commodity. In the case of oil, people speculate on the future supply and the future demand.

We all know the litany of variables in supply: war, strikes, unrest, natural disasters, success in exploration, decline in existing fields, technological advancement, etc.

Likewise, there are demand variables: chiefly the world's economic growth.

At the moment, Southwest Airlines is making money where others aren't, because they used futures to buy all of their jet fuel years in advance. They recognized fuel prices as a large variable in their profitability that they could not control. Further, they may also have suspected coming increases. At any rate, they made a very sound decision to take that risk out of their business, and they are now being handsomely rewarded for it.

Speculators are currently predicting that oil will continue to stay about where it is for the foreseeable future. I will make two points.

First, if there turns out to be more oil available at the beginning of next year than the futures prices today imply, a speculator who bought a contract to receive that crude will have to get rid of it, and the more of it there is, the lower the price that a desperate speculator will have to accept. (It is another form of speculation to not buy a futures contract, but to wait until they come due to look for deals. In speculation, there are always two participants and one of them is wrong.)

Secondly, this prediction should not surprise us. On the one hand we have billions of new people coming into the middle class. They want air conditioning, cars, electric shavers, televisions, light bulbs, computers, etc., etc., etc. That means higher energy demand. And, on the other hand, we have supply growth that is not keeping up.

It may still prove to be wrong, but at this moment it appears we aren't "out of oil" (a lot is still coming out of the ground), but effectively, we are out of oil (there isn't enough). And, that is no fault of speculators.

What Speculators Do

2008-06-22T07:51:00.005-05:00

In the commodities markets, producers sell their product months (even years) in advance (through "futures contracts"). This helps producers plan, because they know they will receive a certain price for their efforts. Suppose that you are a farmer, and you have the choice of growing wheat or corn. Which should you plant? How do you know what the price of either will be when the harvest comes? Maybe there will be a bumper crop of one, and a near famine in the other. But which? And, how much should you spend on fertilizer? Or is the farm land even worth keeping as farm land, given the return you might or might not get? All of these questions can be quickly answered if you look up the price of the corn and wheat futures. If the going rate for corn at harvest next year is high, and wheat is low, not only do you choose the right crop, but you can answer the other questions as well.

So, who is buying these things? Again, suppose you are a company that makes corn flakes. You need wheat to do it. And, you've been burned in the past when you thought you would be able to make money, but couldn't because the wheat crop failed and you had to pay way more than you expected and lost money on every box of cereal you sold. On the other hand, some years you got lucky, and got a really good deal on wheat, but all things considered, you'd really just like predictability and a nice steady profit. Why not buy wheat years in advance for known prices? Then you can plan around it, and not have to worry about the unexpected.

But, suppose you weren't a factory owner, but a wizard weather predictor. Your models are telling you that a big drought is coming, and that the corn crop is going to be terrible. You might make some money if you bought some corn futures before anyone else realized the doom on the horizon. Then, when everyone realized there wasn't going to be enough corn, and the price went went way up, you could sell the corn you bought cheaply for a nice, fat profit. You would be speculating on the future of wheat.

There is a danger, though, that truckloads of corn are going to show up at your doorstep one Saturday, and that would not be good. So, you've got to make sure and sell the futures contract you bought (hopefully at a profit) before the contract is due.

And, here is the key: at the end, right before the contract comes due, the contracts all have to find a home for receiving the product. Then, it is a simple matter of supply and demand, and the fact that the futures contract went up and down for months on the market is irrelevant. If there is a lot of corn, the price will go down, and if there is not, the price will go up. But, this is only reflecting real world supply and demand, and not crazy speculation (as might have been the case months before the contract was due, and it wasn't clear just how much corn would be around).

So, to quickly sum up, the point of the futures markets is to bring everyone's predictions of the future together for planning purposes. The speculators help allocate resources in the future. Think about it: if the futures price for wheat is high, farmers will plant more wheat, which will cause the futures prices for wheat to fall. In that case, the futures market predicted a shortage of wheat that was avoided because of their prediction.

Energy Independence

2008-06-22T07:38:00.003-05:00

Many politicians are now talking about the importance of drilling in the United States for oil so that America can become "energy independent". This argument is, rhetorically, the anti-global-warming argument. It goes something like this:
1) The price of oil is too high! We need to drill!
2) You can't drill more oil, we have to deal with global warming. Go solar!
3) We should develop new energy, but we can't be held hostage to dangerous regimes. Energy Independence!

I was thinking about "energy independence", and realized that I had misunderstood the real meaning of that term. Suppose that the U.S. Congress lifted the ban on various parts of the country, and opened them up to drilling. Major oil companies would move in, buy leases, set up deep water drilling rigs, and start pumping crude. Then what? Then, they would sell their new barrels of oil on the *international* commodities market.

In other words, drilling in the U.S. would increase production for the world, but that new production would be shared with everyone. So, the "independence" part would really be to dilute the share of global supply provided by the bad guys.

I think most people, when they hear the phrase, think that the U.S. would get every barrel of oil drilled in the U.S. And, that might practically be the case, since local oil should be the cheapest for U.S. consumers if only because of transport costs. But, unless we nationalize the oil industry, oil pumped in the U.S. isn't "American Oil" until America buys it.

(I'm certainly NOT advocating nationalizing the oil industry.)

Why Oil Costs So Much

2008-06-11T08:03:00.003-05:00

Perhaps you have seen the circus in the U.S. Congress recently, where they have proposed "windfall" profit taxes on the five largest oil companies. And, where one Senator pleaded with a CEO in a strained voice, asking "Don't you see what you're doing to your country?"

Or, in another fit of irrationality, Congress' newly proposed legislation to undo the Carter reform of pricing oil in a commodities market. They have proposed this to thwart the greedy Wall Street speculators.

Surely, there must be evil lurking somewhere. There must be some scapegoat to pay the price.

But, it isn't to be. I did a little research on my own a few days ago, and convinced myself of what BP has provided in its own Statistical Review of Global Energy 2008.

In their report, they point out that oil production FELL by .2% in 2007, despite through the roof prices. In fact, I found on Wikipedia that oil production has been roughly flat since the beginning of 2005.

What does this mean? Normally, when demand falls, the price drops, and then the supply falls. The reason that supply falls is that each oil well has a price per barrel where it makes economic sense to remove it from the ground. In other words, if it took $100 per barrel to pump the stuff out of the ground, why do it if the price is only $90 per barrel on the open market? You'd be losing $10 per barrel that you sold, and you wouldn't last long in the oil business.

Up to 2005, this relationship is solidly in place. You can put the price chart next to the supply chart, and see them moving together. But starting in 2005, the production stops going up; it's as if it hits a limit. The price keeps rising, because the world economy is growing, and it needs more oil to function. Those prices should have caused more expensive barrels in the ground to be pumped up - but they haven't.

Why? My thinking at the moment is that high prices are stimulating exploration and production - the problem is that old production is falling away, as old fields decline. It may be that technology will bail us out of this (new ways of pumping previously unreachable oil), or that new production projects that can meet the world's demand have long lead times. But, at 3.5 years of elevated prices (and counting), my hope there is starting to run thin.

Basically, this is supply and demand. Not greedy speculators and not evil oil companies. This is the result of billions of people around the world emerging from poverty and improving their material life style.

A Warning

2008-02-05T23:57:00.000-05:00

Be wary of messianic politics. You have been warned.

ING Direct Buys Universe

2007-11-20T09:17:00.000-05:00

I just got an email stating that one of my brokerage accounts has been purchased by ING. Two institutions in a two month period? Coincidence? I think they are out to own my life.

Oil Nears Record Highs

2007-10-17T17:55:00.000-05:00

You've heard for a few days now that the price of oil has set records in recent days. That's true in a sense, but not in inflation adjusted terms. However, at $91/barrell, the price of oil will exceed its all time inflation adjusted high price, which was set in the 1980's. Many people will remember price controls, lines at gas stations, economic turmoil, rationing, and general energy chaos.

Yet, today, it seems to be taken in stride. I think we can thank the fact that every day our economy becomes less and less energy intensive. Which means, that we are able to produce a dollar of GDP with less and less energy input. This is partly due to the changing nature of our industries, as we move towards more service industry and less heavy manufacturing, but it is also due to technological innovation that has made almost everything from homes to computers to light bulbs to air conditioners more efficient.

And, the optimistic view is that if the price of oil hasn't killed the economy yet, it probably won't, and every day that it is high is another day that adds impetus to diversifying energy sources and making things more efficient. I think all of that is pretty good.

Credit Problems Getting Personal

2007-10-03T13:07:00.001-05:00

It may seem like I rant about far away things and esoteric topics, but in the last week my life has personally been touched by the credit problems currently going around:
1) My bank failed and was closed by the FDIC (the major bank regulator). NetBank was one of the first internet banks, and I never had much trouble with it, but apparently they bought the wrong sort of mortgages and the government forced a sale. The checking accounts and other liquid assets have been purchased by ING Direct.
2) My mortgage was sold. Not sure what the deal is, but ABN Amro closed down their mortgage servicing web site, and sold my mortgage to Citi Group.

Oh, well. The ING and Citi websites seem better than the others, so I guess its for the best.

FPL and solar-thermal energy

2007-10-01T12:08:00.000-05:00

Isn't $80/barrel oil grand? Recently, Florida Power and Light announced that they would build a 300MW power plant (that's pretty big) somewhere in Florida. The system uses mirrors to boil water in pipes placed above the mirrors to generate steam. This steam is then stored, and used to drive turbines that generate electricity. The plant will be able to operate for up to 20 hours without sunlight, to help overcome cloudy days and nights.

The costs are competitive, and in some cases cheaper, than coal and natural gas plants. The company to build the plant is Ausra.

You will see a lot more of this.

Ah, normality

2007-10-01T12:05:00.000-05:00

So, after all my hand wringing about corporate credit markets, it appears that today, the day that two very large banks announced the damage that the subprime mortgage mess inflicted to their profits, the Dow Jones Industrial Average has set an all time session high. Apparently, fears were a bit overblown, and a major risk seems to be evaporating.

China

2007-09-11T22:56:00.000-05:00

Hopefully, all of you believe, as I do, that a prosperous China, integrated with the world economy is the best hope for peace and economic growth. However, I've been reading an article in the latest Foreign Affairs Journal about China's environmental problems; and they are manifest. As the author went on about the various horrors, she concluded that the real solutions won't be forthcoming until China reforms some relevant portions of its government. Point taken.

But, I will take it further. I'll say this is a worrisome confirmation of a point that Milton Friedman made. He argued that capitalism and freedom went hand in hand. That capitalism maintained the means of freedom outside of governmental control. For instance, he pointed out that it was very difficult to exercise free speech if the government controls all the radios, televisions, and printing presses.

Recently, it has become a fashionable thing to write that this is a one way street. Freedom may lead to capitalism, but the opposite is not necessarily true. Russia and China are used as the two greatest examples of a society that seems to be embracing an authoritarian, as opposed to democratic, capitalism. And, it has seemed that these two countries have experienced rapid economic growth and improvements in the average person's material standard of living while personal political freedoms remain, or are even further, curtailed.

But, this article on Chinese environmental matters points to what I think is a hidden truth. A capitalist, free market economy is one of the most powerful, dynamic, and unpredictable forces on the earth. And where people have argued that technology developed by such a system just makes it easier to monitor people and restrict their freedoms, I argue that the opposite is the case as well.

A legal system, or a bureaucracy, is a complex and rigid thing, and is even more so when it is not routinely held accountable in elections that vent popular unrest. It may be strong, but it is also brittle. China's environmental problems, as an example, would never have occurred under the former communist economic model, simply because that model was not capable of unleashing the current amount of activity. In this area, and many others, we are now finding that a government of repression is not well suited to adapt to the dynamic needs of a free market. And, further, as the free market enriches the citizens, and technology expands the capabilities of a single individual, the means to seize and exercise political freedom are more and more available.

Here lies the worry: can China survive a revolution? Would it be a velvet one? Or would the government destroy all that has been accomplished to preserve its power? And, if China were derailed, what would happen to a world economic system that has become deeply tied to it?

It's ironic to be worried about democracy, no?

Some Sunshine

2007-09-01T08:32:00.000-05:00

The last several posts have probably painted a fairly bad picture of the markets, and indeed if you've watched the stock market over the past three weeks or so, it has been extremely volatile. But, there are reasons not to be too concerned (and I, in fact, am not overly concerned):

The global economy has never been so strong. There are always risks (including environmental collapse in China among other things), but all things considered, things are really good out there.
American profits have been at record levels as a percentage of GDP.
The economy is stronger than many thought. The second quarter's GDP was revised up to 4.8%, which is a great rate of growth. I think everyone would be thrilled with a consistent 3.5%.
Only a fraction of 1% of all homes have a subprime mortgage attached to them. Heck, about one in three homes is owned outright.
We are not yet witnessing a collapse in asset values, the housing prices around the country have been coming down, and inventory is certainly building up, but prices have only dropped marginally. For instance, in Orlando prices have recently begun to tick down a few thousand dollars, but over the last five years, prices are still up about 95%.
The Federal reserve bank seems determined not to let a panic set in for the commercial paper markets, but rightly, I think, they also seem determined not to bail out people who made poor decisions.
People aren't stupid, and therefore people are getting out of their adjustable rate mortgages that are resetting to higher interest rates for a fixed 30-year mortgage, which a qualified buyer can still get for around a 6.5% interest rate - which really isn't bad.

This whole scenario might just be one of those great "walls of worry" that disciplined investors hope for. And, hey, you might end up being able to buy that vacation home you've always wanted on the cheap if prices do drop.

Credit Woops - Part 5

2007-09-01T08:17:00.000-05:00

So, who bought all these asset backed securities? Lot's of people, but most notably, hedge funds. Hedge funds are just like mutual funds, except they usually require large amounts of money to join, have relatively few investors involved, and don't have to say up front what their investment strategy is (in other words, they can do pretty much whatever they think will make money). They play an important role in the financial system, but they often times swing for the fences since the hedge fund manager can be paid a percentage of the assets gained - double $300 million dollars for investors, and a 5% commission is looking pretty good.

Hedge funds, pension funds, and foreign banks all bought various flavors of these asset backed securities for their varying mixes of risk and reward. Those institutions that bought too much of the bad stuff are going to have to take a hit. And that's how the mortgage in Miami can give a bank in France some nervous moments.

There is one other side to the whole story, and that is that a similar liquidity boom was happening with respect to loans to companies, also called the "commercial paper" market. The same story pervades there. Quickly, typically when a bank makes a loan to a company, it requires "covenants", which are simply benchmarks it requires the borrower to maintain. These requirements help the lender know that their borrower is sound, and will be able to make interest payments. But, in all the hubbub, new "covenant-lite" loans were issued, and companies didn't have to show how they could pay it back. One telling quote I read recently was a lending manager saying that he didn't meet with a borrower over a $25 million loan because "it wasn't worth the meeting time". Not good.

As a result, lenders are now nervous about the loans they have already made, and don't really want to make many new ones. And here is the serious problem: without freely available credit our economy doesn't function, because many companies take loans to make large investments that keep their businesses running. If they can't make those investments, they can't hire people, they can't compete as well, and they can't meet demand.

Put the rising defaults on mortgages which are now connected to the world financial system with the lock-up in the commercial paper markets, and a lot of people are very worried.

Interesting

2007-08-29T07:35:00.001-05:00

Where were subprime mortgages used most in 2005?

Credit Snafu - Part 4

2007-08-28T06:58:00.002-05:00

Alas, these broken mortgages... where did they go? Firstly, the mortgage brokers that initiated the mortgages promptly sold them to large banks. These banks, of course, had no desire to burden their own balance sheets with risky mortgage paper, so they had to sell them also, but who wants to buy a subprime loan with a high risk of default? There are those with a risk appetite but not enough to consume all of the loans

A solution was devised. The banks can create what are called Collateralized Debt Obligations, or CDOs. How do these work? First, you get together a whole lot of subprime loans. Then, you sell shares of these loans to other people. But, here is the trick, not all shares are created equal. Some are "senior" shares, and others are "junior" shares. What is the difference? When one of the many subprime loans defaults , it is assigned to the most junior shares, and when a mortgage payment comes in, it is first assigned to the senior shares. These share levels are called "tranches", and let's suppose there were five evenly sized tranches for the purposes of an example. If 40% of the subprime mortgages in the CDO defaulted, only the two most junior tranches would feel any pain. The three most senior ones would continue to get paid, and would not have any loss of assets. For this reason, the senior tranche could get a AAA credit rating, while the most junior tranche became known as the equity tranche, or in Wall Street lingo, "toxic waste".

To close, let's look at the reasons why this was done. Because a AAA credit rating has less risk, it can sell for a higher price (as was discussed in Part 1 post on risk and reward). Since a subprime loan is risky, it can be bought for a lower price. The difference between these prices can be profit.

Of course, that leaves you holding some "toxic waste". What to do? Buy insurance! This is called a credit swap. A bank can create a AAA quality CDO tranche, sell it for profit, and then pay someone else to absorb the losses if the toxic waste experienced defaults (like when you pay someone else to cover your losses in the case of a house fire).

And, since we all know that house prices go up 15% a year forever, that insurance can be bought very cheaply (wink, wink).

Credit Mess - Part 3

2007-08-23T13:38:00.000-05:00

Of course, all of the problems that are being experienced in the lofty world of high finance come from very concrete root problems. So, this time, I wanted to discuss the very foundation of the recent troubles.

After 2001, the Federal Reserve lowered interest rates to 1%. This is ridiculously low, since inflation runs around 2.5%. Now, a lower interest rate could mean a lower house payment, but many people buy houses by asking the question, "How much house can I afford?" And they answer the question in terms of a monthly payment, which means that with a lower interest rate the same monthly payment can by more. So, people spent more, and more people spent.

This surge in demand, and the ability of people to pay more for a house, started a housing boom. A few years in, houses were going up faster and faster. People began to buy investment properties, either to rent or to "flip" (which is when you sell after holding for a short period of time), which added even more demand and drove prices even higher.

When people started to worry that houses historically have pretty much just kept up with inflation, and might be overvalued, others pointed out that the median U.S. house price hadn't fallen since the 1930's in the Great Depression. We weren't in a depression, so the party kept on going.

Everyone was getting rich. The mortgage brokers, the folks who actually help you fill out the paperwork and find a lender for you, were getting lots of fee income. So were the realtors, and the appraisers, and the inspectors, and everyone else involved.

Soon, the boom had exhausted the "normal" market, everyone who wanted a house had one. Mostly the folks who were left were not the sort that usually get loans, but after a boom period, expectations rise. The extraordinary becomes the routine, and there is great pressure to keep the good times rolling. What to do?

The list of things done ranges from stupid to fraudulent. Among them were loans called "NINJAS", which stands for "No INcome Job or Assets". Some lenders asked borrowers to sign the bottom of blank paperwork, and the numbers for income, house value, etc. were filled in later so the loan would go through. People were given loans not just for the price of the house, but for 120% of the price of the house, because it would surely go up another 20% and people "need" cash to furnish their homes. People signed up for adjustable rate mortgages (or ARMs) which start out with really low teaser rates, but a few years later "reset" to a much nastier one (which is happening now). And, appraisers valued homes well above their real value to justify larger loans.

All this is just the beginning of the story, because these irresponsible behaviors led to a whole host of other problems that I'll discuss shortly.

Credit Crunch - Part 2

2007-08-20T12:41:00.000-05:00

I'll follow up with a longer post, but this is an interesting graphic from CNN. Jumbo mortgages are $417,000 and higher, and by law are not allowed to be insured by Freddie Mac and Fannie Mae, which are governmental institutions that guarantee to purchase mortgages that are "conforming", which means the borrower meets certain requirements and that the loan is a 30 year fixed rate mortgage for no more than 80% of the houses appraised value.

The government's guarantee for the conforming loans amounts to a serious reduction in risk for the lender if the borrower can't pay. You can see the risk-reward relationship clearly demonstrated in this chart.

Credit Crisis (Part 1?)

2007-08-16T23:37:00.000-05:00

Partly just to think this through on my own, I've decided to write a series of posts to see if I can coherently understand and explain the current credit and liquidity crisis on Wall Street. Here goes (remember that what follows is my best understanding):

The root cause of the whole mess is that there was a lot of money trying to find a good return, and investors started to ignore risks while seeking higher returns.

In fact, that is a good place to start. We've all heard people talk about "risk and reward". There is an intuitive sense to it: if you want to win big you have to take risks. Let's think through how that occurs in investing.

Suppose that we have an investment opportunity that provides an income of $100 per year. How much should we pay for that investment? In order to be rational about it, we have to understand the risks. For instance, is it $100 every year with high certainty? Or just once in a blue moon? Is $100 a good year, average, bad? All these help us understand the "quality" of the return.

In our free market system the price of this investment is set in the market, where there are buyers and sellers. If the return is pretty risky, the investment will not be as attractive as another investment that returns the same amount much more reliably. So, what happens? The price of the risky investment will have to be lower to attract a buyer. In other words, why would anyone pay the same price for an uncertain $100/yr as they would pay for a guaranteed $100/yr?

Perhaps people are willing to pay $1,000 for the low risk $100/yr, which is a return (or yield) of 10%. If people won't pay as much for the riskier version, let's say $500, then they would have a yield of 20%. Voila! The higher risk version has a higher return (20% vs 10%), and the law of risk and return is in effect.

It is important to notice that the relationship between the risk taken and the return (or reward) received is determined by the price the buyer paid for the investment. We will return to this.

To be continued...

Interesting

2007-08-13T21:59:00.000-05:00

I found this graphic from the Economist sort of surprising. According to the article, there were 58 million deaths in 2005, which, with a world population of 6 billion people, works out to less than 1% of the population dying that year. When you consider all the wars, diseases, accidents, and crime, that seems amazingly low to me (in a good way!)

The point of the article was that "rich world" diseases account for the majority of world deaths, which means they're more global than you might think.

One last note: diabetes, though only representing 1.9% of deaths in 2005, accounted for 11% of U.S. medical expenditures in 2002, which amounted to $92 billion according to the American Diabetes Association.

More Economic Musings

2007-07-21T06:12:00.000-05:00

A few people have asked me to explain more about the previous post. So, here is my thinking on this. The U.S. consumer (and government) have been running a current account deficit for a long time. However, as the the chart below shows, as a percentage of GDP (which is the important measure) the current account deficit has spiked. The current account is the overall inflows vs. outflows of wealth into our economy. The chart in the post below indicates that the U.S. has been sending significantly more money overseas. In the long run, this is bad.

However, don't get the idea that the world is more dependent on the U.S. debt-stifled consumer than ever before. I think that the world economy is relying on the U.S. economy less than ever. This is because there are vast new classes (in the hundreds of millions of people) that are just coming into the world economy. They will want to buy many things, and the U.S. will sell them.

Also, I wonder if there is an investment lag taking place, where the U.S. companies are spending vast sums to build out infrastructure (factories, etc.) that haven't yet started generating income back to the U.S. We'll see.

Even as the dollar drops in value, and even as U.S. economic growth moderates, corporations (especially ones with foreign exposure) are reporting record profits. Profits are at their highest levels ever in terms of percentage of GDP.

What's Going on Out There?

2007-07-13T21:58:00.001-05:00

I saw these graphics over at a story from money.cnn.com. I think they give a very concise picture of the global economy. Note the relative growth of Japan, the U.S, China, and India vs. the European countries. Also, how much of global growth is fueled by U.S. debt.

How to Become a Billionaire

2007-07-12T22:04:00.001-05:00

If you are looking for an interesting web site to read, check out kurzweilai.net. He's a futurist, and has a lot of interesting thoughts about what the future could bring.
One of his observations is that the rate of technological development is exponential. I think this is pretty self evident if you just think about how much new information is being added to the world's knowledge every day. But, an interesting result of an exponential growth in information is an even more exponential growth in the connections that can be made between this information.

A quick demonstration: 2 things can have 1 connection (a line), 3 things can have 3 connections (a triangle), 4 things can have 6 connections (a square with an "x" in the middle), etc.

He crystallizes this point by noting that the number of important connections not made is growing exponentially with time. This means that there are ever more brilliant ideas just lying about waiting from someone to think them.

Protectionism 2

2007-06-30T08:50:00.001-05:00

Isn't it ironic that the same folks that tend to engage in class warfare in the U.S., demanding that the rich "pay their fair share", confine their view to the nation and not the world? It would seem that the only "fair" solution is to keep poorer people from competing for jobs while taking money from those more wealthy through the tax code. All roads leading to a single set of pockets.

At least the fair traders are consistent, if short sighted, in their arguments. They say they want fair trade, which is to say, they want foreign nations to respect certain labor standards before the U.S. opens its markets to their goods. The government under such policies can then say that it is "leveling the playing field" for all parties.

Aside from the arrogance that the rest of the world ought to follow our labor policies, tax codes, and regulations, this doesn't seem realistic at all. In 20 years, China is going to be an economic superpower. They won't have gotten there by meeting U.S. labor standards. Come to think of it, has any rich nation gotten where it is by applying such standards? No, because such regulations, as important as they are, are a luxury that only a highly capitalized economy can afford. Demanding the same of developing nations is to demand they not develop.

And really, as a humanist, can we say it is a bad bargain to lift 2 billion people out of abject poverty for the price of 30 to 40 years of economic development that does not meet our evolved labor standards? I say humanity will prosper in unimaginable ways by elevating so many people from survival-living to active contributors in the modern economy.

I'll make a prediction, if the economic development of India and China continues without being stifled by nervous rich nations, the damage done to the environment and to people in sweatshopts, etc. will be far, far, far outweighed by the benefits. Consider the inventions that will come from providing education and a free market with capital to 2 billion people.

These developments will raise the standard of living far more than a government regulation about hours worked. They will do more for the environment than a government regulation on green house gas emissions. The vastness of human treasure that is being unlocked is simply not balanced by any other consideration.

Protectionism

2007-06-29T10:06:00.000-05:00

I get bothered when I hear people complain about how China is going to take over the world, or that our jobs are all going overseas to places where people will work for a few dollars per hour. I submit there are two possibilities for why the rich nations of the world are rich:

Either, the people of the rich nations have earned it, in which case I see no reason why there should be any sense of entitlement to future wealth, since that ought to be earned as well, or, the people of the rich nations have stolen it, in which case I see no justifiable reason to maintain the status quo (that being most people held in poverty while global elites live the good life).

And if it be a combination of the two, then both of my conclusions would apply in appropriate measure. Being born in America, that is to say winning the geographical or parental lottery, does not bestow an entitlement to wealth at the expense of others who rolled snake eyes (being born in Bangladesh, for example).

I don't take the phrase "that all men are created equal, that they are endowed by their Creator with certain unalienable Rights" to apply only to those holding an American passport. I believe that for the most part the rich nations have earned their wealth and power, through the embrace of both economic and political freedoms.

I don't think there ought to be an orchestrated redistribution of global wealth. But, I do think that such a redistribution of wealth is inevitable as more and more people, previously locked away from the modern world, emerge into it. Such a redistribution would also have the effect of calming global envies.

And, whether the rich nations embrace such an opening of opportunities to others or not, I think the redistribution will take place. We are now determining how bloody and costly it will be when it finally happens. Things are out of equilibrium, which is a fragile and unnatural state.

I just don't see why we can't let a person from China or India compete with someone from the U.S. The work is worth what it is worth, may the best worker win.

A More Reasonable Hour

2007-06-09T01:44:00.000-05:00

As I have mentioned on countless occasions before, direct employment is for suckers. After all, benefits can be found on the open market, taxes can be better managed, and you can get paid for every hour as a contractor.

Yet, I am very soon to be a direct employee for EA. Why did I change my mind? Cowardice? Convenience?

Yes. In order to continue my employment with EA as a contractor, legal threats, legal risks, more bothersome governmental regulation, and just the inherent difficulty of doing something differently all had to be contended with. Our world is thoroughly institutionalized. It may be a nice ideal to be my own man, apart from the crowd, standing on my own, independent, free, and in control, but in reality it amounts to constantly fighting the status quo, which is exhausting and frustrating to others. Why grate?

So, while I build up another burst of idealistic enthusiasm, I'll just cruise downstream for a while and enjoy the trip.

Two Things

2007-06-06T01:20:00.000-05:00

First, I just finished reading my naval history of WW1 "Castles of Steel" and really enjoyed it. This book is actually credible, and I learned some new stuff, which is always fun.

Second, I've taken a "permanent" position with EA on the NASCAR team. All of you out there worrying that I might starve (more than usual) or something can now put your fears to rest. I've committed to at least a year. At a more reasonable hour, I'll explain how it was that I completely flip-flopped on modes of employment. (I am so fickle.)

So many words, so little substance

2007-05-11T23:51:00.000-05:00

Well, I've been duped. I enjoyed reading the first half of 1421, a book about Chinese voyages of discovery that carried them around the world. But, as it likely turns out, the whole thing is a fabrication.

The key to my being taken in was that the conclusions, for the most part, were reasonable presuming the facts upon which they were based were actually true. I regret to say, they are often not true.

But, how was I to know? Here I'm reading a book written by a Royal Navy commander, a master of cartography, ocean currents, and navigating by the stars. He's sailed these very seas (he said), he has special insights due to his vocation that allows him to see things that other "normal" researchers could not (he said), he has provided a framework that neatly fits many pieces of unexplained (he said) history into a cogent whole. He has solved the riddle! (he said)

Must I Wikipedia everything?? I lamented a few months ago to anyone who would listen that one impact of having so much information at our fingertips is the mortifying realization that we really know almost nothing. The things we can be absolutely certain of based on our own experiences are so few that we rely on hearing about the vast majority of things we believe second hand.

Isn't it interesting that what we "know" is a function of what we hear and experience, and that our capability for hearing things second hand has traditionally been limited on the supply side? Now we are completely saturated with information. Yet our capacity to personally experience things hasn't expanded as quickly.

Ergo (how often do we get to use that word?), the percentage of our "knowledge" which is personally verified is lower than it has ever been. We've never been more vulnerable to snake-oil salesman, and it's precisely because we have so much information with which to defend ourselves! (A step further and we might conclude that only communities have the experiential context to validate the vast quantities of information we have access to, and that is why Wikipedia is perfect for the information age.)

Obviously time for bed...

Life Continues (Foggy or Otherwise)

2007-04-29T15:09:00.000-05:00

Well, I haven't solved all the riddles that trouble me, but I'm determined that it should not keep me from writing. So, here's what's been going on:

1) My sister has just gotten married and is now Carolyn Blake.
2) We are in the final push at work and have about 3 weeks of Alpha left.
3) I'm reading a naval history of WWI along side a very neat book about Chinese voyages of discovery.
4) I'm more determined than ever to use my weekends for active recreation.
5) I saw Jim and Jesse twice on their trip up from Columbia.
6) Zach and Allison continue to cook for me. (This is very good.)
7) I have bought a Mac, and so far it seems just fine. (Though, no one should buy Quicken for Mac. Try Moneydance instead. Cheaper and better.)
8) Apparently, the inside of my car's engine is "immaculate".
9) I made a perfectly complete fool out of myself at the wedding reception. No one is so loved by others than he who dances, not well, but with enthusiasm.
10) I have no plans beyond May.

One ping, one ping only

2007-03-06T22:35:00.000-05:00

It's been a long time since my last post. Suffice it to say that when I am not sure of what I think, I don't feel at all comfortable expressing it.

I revisit my beliefs from time to time. The good part about this is that my opinions are usually more grounded and defensible than they were previously. That's probably just normal maturation.

But, since I'm hesitant to let people see the work in progress, the result is alternating periods of murky quiet and definite, reasoned opinion.

It's very murky. I'm very quiet.

But at least I should explain the silence, i.e. I'm still alive.

Unlikely, but I Don't Care

2007-02-05T22:54:00.000-05:00

I recently friended my cousin on Facebook, and while I was viewing his profile I noticed that he had joined a group supporting Newt Gingrich for president in 2008.

I also joined this group, but I felt like it deserved an explanation.

I am fully aware that this is unlikely. I know all the reasons why this can never be. But, if I am honest, I must admit to the world that I do hope he becomes president. I've read several of his writings and I've heard him speak on numerous occasions. On the whole, I agree with him.

I'm ready for an intellectual president. (He just has to be one I agree with.) And, I'm tired of just rooting for the best-of-the-inadequate-front-runners.

So, here's to a little idealism and hoping for the best.

Heckling: Finding Friends in the Crowd

2007-02-04T09:48:00.000-05:00

I've never been much of a heckler at sporting events. My idea of a great live sporting event is a lot closer to a spring training game than a playoff football game. Or was.

I have some friends who come from a tradition of heckling. We've been going to various UCF sporting events where I've come to appreciate it as a kind of art form that requires practice, discipline, and perseverance.

UCF has very nearly completed it's new 10,000 seat basketball arena on campus, but for the remainder of this season, the UCF basketball team will play in it's current arena, which is much smaller. One of the interesting things about it is that there are no seats behind either basket. There are, however, walkways with railing on the second story just behind the basket. And, if you are willing to stand or lean for the whole game, there isn't a better seat in the house. You are literally right on top of the players.

Which brings us back to heckling. From this vantage point, the players can hear everything you shout, even when the place is pretty loud. For me, attendance has been transformed from an exercise in observation to one of participation. The things I say can be heard by the players (they are human beings remember) and can have an effect. Perhaps I'll write in another post my thoughts about the proper way to heckle, which are still developing.

But, standing behind the railing above the basket is a pretty noticeable place to be, especially if you are shouting various comments the whole game. And so I've noticed that people will suddenly appear behind us, tap us on the shoulder, and say "hi". They never did that when I was just clapping in the seats.

Tutor Take Two

2007-02-04T09:38:00.000-05:00

Last Friday, as will hopefully become my custom, I ventured back to UHS for another tutoring session. I skipped a week because the previous teacher, who I thought I had done a really good job for, and who told me he was glad to have me, and who said he would email me about the next good time to come, has not returned my emails. (Perhaps I wasn't as helpful as it seemed.)

Thankfully, there is another teacher who wanted some help for an Algebra I class at the ninth grade center (the campus where I went to middle school). I was late getting there, which was bad since the teacher I was helping actually had a substitute on Friday, and said she could only hang around for a few minutes in the morning before she had to go. By the time I rolled in, only the substitute was left.

If you seem to remember that days with a substitute teacher were days of lawlessness and chaos, you are remembering correctly. The substitute might as well not have been there. After asking the class if any one needed help (which predictably was answered by blank stares), I was about to abort the mission and just go to work to try again next week. But as I was starting for the door the real teacher arrived for one last check of her classroom.

Suddenly, there was order. Two students were instructed, not asked, to go to the media center, where I thought we had a productive session. I got a permanent badge and everything.

I did completely miss the bell, and so had to try and wrangle a pass for the students so they wouldn't get in trouble in their next classes. This is sort of fun.

Painless Environmentalism

2007-01-29T23:01:00.000-05:00

Those who have spoken with me about environmentalism are probably quite fed up with my seemingly endless supply of faith in the markets to solve environmental problems. And, while I'm not ready to say that government and regulation have no role, I steadfastly insist that it hardly matters, and usually makes things worse.

As Ronald Reagan said in his 1986 State of the Union address, "[G]overnment's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it."

So, I've got a chance to crow, and I'll take it. This is from the Economist, one of my favorite magazines:

"Lots of firms are growing healthily on the back of America's sudden enthusiasm for alternative energy. Americans invested almost $30 billion in the sector in 2006, according to New Energy Finance, a research firm. American venture capitalists lavish seven times more on greenery than their counterparts in Europe. Ethanol production was expected to double in the next few years, even before the latest boost from Mr Bush. Wind and solar power are also booming. And the bigger green firms become the more influence they will have over politicians."

Also, Martin Eberhard, the CEO of Tesla Motors, a maker of electric automobiles, had this to say about President Bush's recent State of the Union:

"[A]s much as I would dearly love a similar research grant for Tesla Motors, I am not enthusiastic about government spending on battery research. Much better would be incentives that encourage consumers to buy an electric car. ... I actually don’t have a good suggestion about how to encourage consumers to make fuel efficient choices other than to make great electric cars."

Exactly. When the technology is profitable, when it makes sense, when the tipping point is reached, things happen. I personally can't wait to drive a high-performance, high-efficiency, low-cost electric car.

Two Ball, Four Ball, My Ball, Your Ball

2007-01-27T10:57:00.000-05:00

Luckily for us, this winter has been very pleasant, with only a few "cold" days (meaning a high in the 60's). And even better, the cold days have been weekdays, but the weekends have been really nice. This will be the second week in a row where the best weather day of the week falls on a weekend.

So, what to do with a beautiful day? Golf! And I did.

But this time, I finally convinced our little foursome to try out match play. If you've ever seen the Ryder cup on TV you'll know what I'm talking about. Match play, or a form of it, is when there are teams of two, and the team members alternate drives and alternate shots.

It looked like fun, but we in America are all about four ball courses, which means there are always four balls in play. Usually this is four individuals all playing their own ball. If you have less than four players you tend to wait around a bit because everyone else has four, and so they generally move along at a slower pace. Match play in general is a two ball game, with two teams playing one ball each.

But we're an inventive lot, so we played teams of two, alternating drives and alternating shots, BUT we each took two strokes every time, and only played the better of the two shots. That way we got in the right number of strokes to equate with four ball golf.

I have to say it was pretty fun. For one thing, my team won on the last hole after mounting a big comeback. But also because when you've only got to shoot every other shot and your teammate is also making mistakes, you don't beat yourself up as much. Yet at the same time, each shot is more significant, because you hold your teammate's fate in your hands as well as your own.

More pressure, more fun, what's not to love?

Algebra as Community Service

2007-01-21T10:05:00.000-05:00

Recently I agreed to try tutoring at University High School, which is where I attended high school and graduated in 1997. I was told that I might be teaching anything, and especially kids who are in serious jeopardy of failing in one way or another.

I was also told that motivating the student was probably going to be the most important and hardest thing to do, and that many of the students would probably rather not have a tutor, and that I should go for an entire semester even if I hated it after the first try, because a lot of these kids have been abandoned or let down by adults in their lives.

Add to that the normal stereo-types of high school that are presented in the media, the fact that there was a fatal stabbing at UHS recently, and my own memories of insecurity and inadequacy from high school, and you end up with a mix of thoughts and emotions similar, I would think, to walking a plank on the high seas. You'd rather not, it won't be pleasant, but you're there and all there is to do is jump.

So, jump.

I found the cafeteria where the displaced Algebra II class was currently meeting. Turns out, the class was honors, and the student was very sharp, he'd just been away from school for about a week and needed to catch up. We did polynomial division. We factored. We solved an open-ended puzzle type problem. And then I left.

I did not feel inadequate, and I did not feel insecure. It wasn't hard to teach the student, and the class was taking a test and was very quiet. The lessons were not trivial. I did not feel the material had been dumbed down. It was a good thing to do.

So, after only one myopic experience, I conclude that the demise of our public schools and our teenagers is a bit overblown.

What was the "Curse"?

2007-01-14T12:23:00.000-05:00

I received a book for Christmas from my Aunt and Uncle titled "Heaven" by Randy Alcorn. It is a very interesting survey of the theology of heaven, a subject that I have previously thought very little about.

At any rate, I am coming to notice that I have a very underdeveloped sense of what the "Curse" actually was (when Adam and Eve sinned in the Garden of Eden, and the whole universe was "Cursed" because of it).

I'm coming at this from a sort of scientific perspective, and some thoughts I've had are entropy, chaos, moral corruption, removal of some ordering property, etc. In fact, I've noticed that I don't really even have a clear understanding of what is wrong with creation now (the world, not humanity), other than symptomatic: dirty, painful, tiring, etc. Is granite or diamond, for instance, somehow in a fallen state? Do I perceive anything wrong with flowers and trees? How about weeds?

So much of what I think of as "wrong" is just things happening globally where I think they should happen locally. As an example, weeds are fine, and some are beautiful, just not in my flower beds.

Much to think about...

Facebook faux pas

2007-01-08T09:19:00.000-05:00

I've been scolded repeatedly by a certain person for my mishaps surrounding descriptive language of, and actual behavior on, facebook. As it would be inappropriate for me to apologize for writing on my own wall on my own wall (that would just exacerbate the crime), I will apologize here.

I won't ever write on my own wall again.

PS. I still think "Children of Men" was a pretty good movie. (And this is the correct place to say it.)

To Complete the Capitulation

2007-01-06T09:57:00.000-05:00

I have been harassed, harangued, and bullied into joining a social networking site. I was told that blogging just, well, wasn't enough. It was time to take the next step. So, there are really only two options: facebook or myspace. It used to be I couldn't join facebook, but now that I have the choice, I think I can do without the "really cool backgrounds", and annoying music clips, and slow load times, and page loading errors, etc. of myspace.

I am now established on facebook, and to go there or add me as a friend just click the link under my picture.

I'd better be friended...

Good Wine

2007-01-04T21:11:00.000-05:00

In answer to questions about the wine of the last post. I decided that since I was going to do some reading the other night, and because I was going to make pasta to eat, I should have a red wine. I had recently tried the Yellow Tail Shiraz-Grenache blend, and I really liked it. The Shiraz is a peppery wine, and the Grenache is a raspberry type flavor. The ratio of the Yellow Tail was 80% Shiraz, 20% Grenache.

I had tried Shiraz before, and I like that wine, but I had never had Grenache, so I went into the wine store and was searching for the Grenache section, and not finding it. An observant gentleman who worked there asked me what I was looking for, and when I said "Grenache" he said, "I know just the thing." As it turns out, he had tried a wine on Thanksgiving and had enjoyed it very much. So, he recommended it to me.

The wine is from South Australia from the d'Arenberg winery. It is called "The Stump Jump", and the label on the back says that is because in Australia they used to use a special plow that could jump over difficult to remove stumps, thus saving time. But, this wine is a blend of the following:
46% Grenache
34% Shiraz
20% Mourvedre

I don't know what Mourvedre is, but I now have something else to search for.

New Year's Flourish

2007-01-03T20:43:00.000-05:00

My kitchen wasn't the only victim of my spare time.

I also did some reading: War and Peace, Dostoyevsky, Surprised by Joy, C.S. Lewis, and I'm finishing a book I've had for a while Evil, Morrow.

I also started the next phase of my never ending front yard project. I am building another planting bed in the front of the house, right in front of Josh's window (that would be Jim's old window) for those familiar with the property.

I think I know why all my plants died, as well. I discovered in some disbelief that the dirt immediately in front of my house has a lot of clay in it (instead of the expected sand). As a result, poor drainage and deadly fungus. I'll have to do something about that.

I went and saw a couple of UCF basketball games, all of which we won and which we should have won.

I've been cooked for by Zach and Alison more times than I deserve in a life time, and decided that their Tristan is an acceptable addition to humanity.

Last night I discovered a new wine that like a lot.

So, now everyone is caught up.

Kitchen Reconquista

2006-12-27T10:13:00.000-05:00

Ever since I started my first week at EA, it's been as if I've slowly wakened from a dream. I left my last job fairly burned out, and after a spell of a few months working on a web project (which I now think was largely an expression of pent up anxiety or something), I finally just stopped. By that, I mean I simply ran out of the desire to do any work whatever. That's when my vacation really started, and I traveled to see family, read some books, watched TV, went for walks, etc.

But, one morning I woke up and decided that I was ready to go back out there and get a new job. It was as though something simply clicked back on inside me. A few weeks later and I entered EA's doors.

However, rather than being more drained from work, and perhaps because I'm only working a 40 hour week to this point, I have been left with energy to take things on around the house during the weekends and now the holidays as well.

Funny that I didn't seem to have the energy to do these projects when I had absolutely nothing to do. Anyways, I have recently cleaned out my kitchen of many excess pots, pans, and containers, and have moved things around. Once done, I was struck with many new projects that needed doing, and I am now slowly dispatching one after another.

I conclude that the world looks much different when you perceive yourself to be waxing and not waning; building and not decaying.

A Pleasant Surprise

2006-12-26T18:02:00.000-05:00

I have discovered one common element between the defense industry and EA: a week off around Christmas. I was almost certain that in leaving the defense industry I would be giving up this extended holiday time. My reasoning was that we government contractors got this time off because the government did, as they do many other holidays, Mondays, and Fridays.

So, it was a pleasant surprise to find that EA takes this time as well. It seems this is just part of a general culture where expectations of time off mirror expectations of "time on" when the crunch of a deadline hits - especially in the sports game world where there can be no schedule slips, but only feature cuts. Games with less features sell less, so it is incumbent upon a game manufacturer to do its utmost to get everything done on time.

Of course, as a contractor, I get the time but I don't get paid. Conversely, I would be paid for overtime were it required. Never fear, there is some justice in the world.

At any rate, I'm catching up on lots of interesting chores this holiday. Perhaps I'll squeeze in a non-fatal kayak adventure...

Shortest Day of the Year

2006-12-22T09:50:00.000-05:00

I was reminded on the radio last night that the winter solstice occurred yesterday at 7:22 pm EST. This of course means that the northern hemisphere of the earth was tilted as far from the sun as it is going to go, that the sun is as far south in the sky as it is going to go, and that the day is as short as it is going to get. Oddly, we will now start to get more and more sunshine, even though the temperature is going to get colder as we head into the "dead" of winter. I guess its because even though we start getting more sun, it isn't enough to keep things warm, i.e. a little more of a little isn't a lot.

This weather report was brought to you by me.

That Would Be a "No"

2006-12-20T21:36:00.000-05:00

I just got word from the Zürich company, which, for those of you who didn't know, was Google. They've determined that I'm not a fit for the position they have open. Oh, well. It would've been fun, but I've still got a pretty good thing going here. In a way, I'm kind of relieved, as a certain amount of anxiety and uncertainty, however hypothetical, has been removed from my life.

An Important Day

2006-12-18T21:26:00.000-05:00

Today was the most important day yet in my new job. I got paid. This was the first paycheck I had received in:

* 12,096,000 seconds OR
* 201,600 minutes OR
* 3360 hours OR
* 140 days OR
* 20 weeks

Needless to say, it was about time.

BTW, if you don't have an emergency fund, you should get one.
(Nifty stats provided by http://timeanddate.com)

But, They're Not a Majority

2006-12-17T17:58:00.000-05:00

I've written a lot about the opportunity I might have in Zürich, just because it is so out there that I can't help but consider all the ways my life would change if it came to pass.

In the second phone screen, I had my turn to ask questions. One of my questions was about the interviewer's background. He said he knew computer science from an electrical engineering background, got his Ph.D. and did two years of post-doctoral work before joining up with his current gig.

"Is that normal?", I ask.

"Well, there are a lot of Ph.D.s around here. But,", then a short pause, "I wouldn't say they are even a majority."

My dad suggested that they probably let the guys with just a B.S. take out the trash.

Still, I would be taking out the garbage in Zürich. ;-)

More of the EA / UCF Conspiracy

2006-12-16T11:22:00.000-05:00

This may give you an idea of the sort of things that go on at EA.

So, Where Did You Go to School?

2006-12-15T21:38:00.000-05:00

I was asked this question after having to dive far deeper into some library code than I wanted to. After wrestling it to at least a standstill, I had figured out a way to move a failure condition a little further down the road. I can only take it as a compliment, and I felt a little pleasure in saying, "Oh, UCF." I hope I represent them well.

Now, if only they would beat one of the dregs of a good conference in basketball. We are NOT that much worse than the Golden Gophers, we were just awed, and I predict we'll do better against Colorado or Utah.

You Have a Call from Zurich on Line One

2006-12-14T23:33:00.000-05:00

This morning the company in Zürich called me for my second phone screen. Now, while my ability to predict the success of such interactions is highly suspect, I think it went pretty well. I call my predictive ability into question because I only had a second phone screen because I earned it in the first one.

Immediately after the first one, however, I felt I had bombed it. In fact, the more I thought about it, the worse I was sure I'd done. So, this time, I probably did bomb it, but at least I feel better about it.

I believe the next step, if I understood them correctly, would be a free trip to Zürich for a face to face interview. If that were to work out, I'd probably have to try and make that trip line up next to a weekend. I'd also need to buy a coat. Tchuss.

A 360 And Memory Problems - La Dolce Vita

2006-12-14T23:22:00.000-05:00

I've finally got my XBox360 development kit. They were in very short supply for some reason, though not as rare as PS3s are. Some of you are thinking that I play video games all day, but that is not (yet) the case. As a matter of fact, I was looking forward to my new console because now I can actually run and test the code I have been writing. Of course, once I got things up to speed in the compile-run-debug cycle, it didn't take long before I was getting frustrated over some memory bug. That's when I knew I was actually performing valuable work.

(BTW, I believe the memory bugs have been squashed).
(BTW, we shouldn't say "bug", as that anthropomorphizes our mistakes, and allows us to treat them as if they are external phenomena that we are not responsible for.)
(So, I fixed my mistakes, and things worked better.)
;-)

Day 7

2006-12-12T08:44:00.000-05:00

I am about to go to work for Day 7 of the EA Experience. This morning, I actually know what I'm going to do when I get there. (This is very refreshing.) Also, I may get an XBox360 this morning so I can actually start doing my real job.

On the way to and from work yesterday I listened to a Chinese language CD. Maybe I'll get serious about learning that language, but I'm not counting on it.

In other news, I got confirmation that my phone screen with Zürich is Thursday at 8 a.m. So, nobody call me at 8 a.m. ;-)

Zurich Continues...

2006-12-08T08:30:00.000-05:00

Well, I had given up on the Zürich job, but it turns out that they want to continue moving forward. I am supposed to have another phone screen sometime soon. I was concerned about having to choose between this opportunity and honoring my commitment to EA, but the company in Zürich is not in a time crunch. In fact, and this amazed me, they have made an offer to someone recently for Sept. 2007.

Everywhere I have worked, they only hired when they absolutely had to put a warm body in a seat somewhere. Therefore, they only hired people who were available with very short lead times.

So, this is different.

A Modern Labor Force - Almost

2006-12-08T08:03:00.000-05:00

I have started to run into some barriers that I only noticed in a cultural sense at the beginning of my time at EA. I suppose that as a contract employee, I should have expected to be regarded as "the other". However, despite people noticing that I do not have a permanent badge, or that my picture is not in the online phone directory, there hadn't been any real consequences.

Yesterday, however, I was not allowed to see an internal website due to my contract status, which inconvenienced me slightly (I hope slightly). Even at Northrup, (or I should probably say, especially at Northrop,) we had rules about what contractors could or couldn't do. It made sense to me at the time, because many of our contractors were engineering companies, and often times direct major competitors, like Lockheed, Boeing, or Raytheon.

In my case, however, I work for a staffing company. They do not actually sell anything. They have no engineering staff. My learning from EA is not in any way useful to my staffing firm.

So, from my perspective, it appears that EA trusts employees more than contractors, which in my case is merely a distinction of where the W2 comes from for tax purposes, and also the types of compensation given (benefits, overtime, etc.)

I know this is not unique to EA, and it tells me that our U.S. labor market is still not as free-wheeling and flexible as it should be. It seems reasonable to me that I should simply be able to sign a confidentiality agreement or a non-disclosure agreement, or whatever it is that employees sign that makes them trustworthy.

I have a feeling the problem lies in the bureaucracy being unable to distinguish between types of contractors. Since they do subcontract in some cases, subcontractor rules are being applied to me in a one-size-fits-all system.

Oh, well. I'll muddle through, as they say.

Day Three - First Signs of Normalcy

2006-12-06T21:23:00.000-05:00

I knew things were getting normal when I got home from work at about 8 p.m. ;-)

Really, though, the good news is that today my manager was not sick, and so I was able to have a brief and (I won't lie) slightly overwhelming meeting where I was given my first assignment. Needless to say, I know virtually nothing about the code base I am working with, nor the people, nor the tools, libraries, etc. By the end of the day, though, I think I had a better idea of what I was supposed to be trying to accomplish, and tomorrow I'll begin to really dive in with a purpose.

The nice thing about today was that the world became bounded, and it started to dawn on me (as I hoped it eventually would) that I could actually become a real contributor and know what I am doing.

I'm still not entirely sure how to describe EA, but I'm working on it. It has a lot to do with Hollywood, I think... Hollywood, special effects, and marketing.

Brave New World

2006-12-05T21:05:00.000-05:00

Well, I have now been to work for two days at EA. Unfortunately, my immediate supervisor has been sick for the last few days, and so I have been left in a bit of a vacuum. You might expect that I would be headed for severe inconvenience, but you would be wrong.

When I got there on Monday morning, I had two 19" Dell thin-screen monitors on my desk, and a super smart desk phone, but no computer. Within half an hour of noticing this, I did have a 2 processor workstation, with 3G of RAM. It is pretty massive. The computer came with almost everything I need (Visual Studio, CM tools, etc.) installed, but there were a few missing pieces (and I mean few - the default printer was even mapped correctly), which have been sorted out yesterday and today.

So, in two days, without a supervisor, they somehow have me set up and ready to go in terms of tools. (Also, and this really gets me, I am also subscribed on all the correct email lists relating to my team and its tools, as well as appearing correctly in an online map of the facility, and I am entered as part of the scheduling/collaboration tools with 3 days scheduled for "Ramp Up".) Remember, I am a contractor. I am not an EA employee. Remember, I interviewed on Thursday, and they made me an offer on Friday afternoon. They had half a weekday before I showed up.

Also, they have distributed builds, which share computers from all over the six floors they occupy. They give me free milk and cereal, tea, coffee, and hot chocolate. Sodas are $.25 each. They have a cafeteria with pretty good food. They have a parking garage - basically you don't ever have to walk in the rain. The facility has a park like fountain/lake area in front of a street covered in pavers. There are benches.

This morning, I came into work and noticed that I had a TV and DVD/VCR combo on my desk. I wasn't sure what it was for, but I soon found out that it is connected to close circuit cable television, and that I get CNN, ESPN News, ESPN, ESPNU, and some other channels. I will connect my test console systems to the TV when I get those.

They have apologized for the consoles. They have apologized for the sick manager. They have apologized for the one team Wiki page I do not have permissions for yet. I think this will be good.

More on EA

2006-12-02T08:56:00.000-05:00

While details are still few, I now know more about what I will be doing at EA. Despite the efforts of a friend there to get me on his team, I will be working on the NASCAR racing game.

As to the actual mode of my employment, I am contracting through a staffing firm to EA. The contract is for six months, and at that time, we'll discuss what to do going forward. The possibilities include becoming a full time employee of EA, to finding a new contract somewhere else.

I had considered starting my own company to do contracting with, but I have to say I felt a little intimidated in doing that for my first contract, and also because so many (the vast majority, really) of the leads which I had in my job search came from staffing firms that provided the same services. I think it is really only practical to be an independent contractor when you are able to find the positions yourself. The advantage is that the profit the staffing firm makes goes to your bottom line instead.

Victory!

2006-12-01T12:26:00.000-05:00

I had the pleasure of accepting a six month contract with Electronic Arts (EA) in Orlando, FL this morning. I had two excellent opportunities, and it was difficult to decide, because I had heard so many good things about both. At the end of the day, though, I felt like EA was a better opportunity for where I am in my career path.

For those of you who don't know, EA is a major power in video games, and owns titles such as Madden Football and The Sims. It seems like a very dynamic place to work, and I think it is a real honor to be hired there, since they told me during the interview that the have 600 resumes for every opening.

So, I'm happy.

Interviewing Away

2006-11-29T08:42:00.000-05:00

I've finally gotten some interviews into the pipeline. I was a little surprised at how long it took from posting my resume to actually meeting with prospective employers, but my goal was to have a job by the end of November, and that appears to be roughly on track.

On Monday, I interviewed with an interesting smaller company in Jacksonville, FL. It seems like a good group of people. I have two more interviews this week, which will hopefully result in two offers, but we will see. One is in Orlando, and the other is in Zürich, Switzerland.

I'm very likely to make a decision by the end of this week.

Hunting for a new Job

2006-11-17T11:04:00.000-05:00

I've started a blog, because I may very soon become very mobile.

To recap: I quit my job 7/14/2006 because it was time for a change. I then attempted to start a web site for profit. That developed too slowly, and I now find myself seeking employment on a contract basis.

I have a couple of potential leads, some of which could take me to new states or countries.

Anyways, for those who care...