Reversing Positions

As I write, the Nasdaq is down 2% which makes the short position I took yesterday up 4%.  Not bad for a 1 day trade.  I will probably try and close out the position today and I might even take the exact opposite position and go long the market for the short term.  Why?  Did I suddenly become a bull?

No, I'm still negative on the market.  But I think at this point, it is good to reverse position for two reason.  First, the volatility of the market makes swings more likely.  I'm just trying to play the gyration of the market.  Downdrafts are followed by upswings because nobody knows which way the market should be moving.  Second, I think it is more likely that the Senate will pass the bailout plan tonight.  This should cause the market to move up sharply as soon as it happens.  I think the senate will do whatever it takes to pass the bill.  I think they feel pressure to do something.  The problem with this plan is that congress wants to pass something, so they look like they are doing their job. However nobody wants to vote for it because given the overwhelming sentiment against the bill.  So congressmen want it to pass,  they just don't want to be voting for it.  Given the House voted it down, this will probably put additional pressure on the Senators to vote for it.

We will see.  Watching the markets closely right now trying to figure out when to close out my position and go the opposite direction.

More Regulation to Fix Regulation

I'm not sure about the logic that is being used by some that more regulation can fix the problems that regulation created in the first place.  As I posted earlier, many of the problems we are now facing can be traced back to policies our own government made.  Now there are proposals on the table which call for even more government action by changing banking requirements, allowing the government to buy different assets, and otherwise just mucking more with the system.  I just can't wait to see the new proposals on the table that the guys in Congress will throw out when they reconvene on Thursday.

As a side note, I decided to put my money where my mouth is.  I actually haven't made a trade in several months.  The market, with its current volatility, is a scary place.  That being said, I decided to try and make some money off of this.  The stock market had a huge run today, its biggest up day in several years.  Of course this followed the biggest down day so it kind of needs to be put in perspective.  At the very end of the day, I shorted the Nasdaq by buying QID.  I think this was a short term bounce and fully expect the market to reverse course again in relatively short order.  I'll get out quickly if I think the market turns and limit my losses, but I definitely think we are heading down until the government does something stupid.

Bailout Failed, Now What?

Wow. I honestly didn't see this one coming. I can't believe the government got enough sense to not pass the plan as presented. However glad I am that they didn't pass this bill, that doesn't mean I don't think the government should not do anything. Sure the stock marketed plunged. My own portfolio took a bigger hit than the overall stock market. But that doesn't mean the government should do something just to help me out.
All along my gripe with the plan was that I think it wasn't solving the core issue and it was rewarding bad behavior. I contend it is important that the people who bought and sold these assets should take the brunt of the pain. I would extend this even to the person who borrowed in the money in the first place. It doesn't bother me at all that this means some people will lose their house. They should have never had a house they couldn't afford in the first place.

But I could concede that the government should do something to ease the rather large economic shock we may soon be facing. I don't think it will be as big as others are thinking, but I do believe that we are facing some issues. The core issue we are currently facing is the sudden loss of credit. For those who don't quite understand this just think of it that banks and investors are hesitant to extend credit (lend money) to people even in the short term. Credit is the oil of the economy. It lubricates everything and makes transactions between parties easier and more likely to happen.

Now the government planned on easing the credit problems by buying banks’ bad assets. This to me is like treating cancer by focusing on easing the pain people feel rather than going after the cancer itself. I’m not sure how great of a plan it is to throw good money at bad assets. I also have a serious problem with moral hazard. You would essentially be bailing out the very people who don’t deserve it.

So here is a simpler solution. Call it the Double Journey Economic Recovery Act of 2008. The core problem is people who deserve it not being able to get credit. I would just have the government, for a very short period of time, be able to extend credit for the credit worthy. They could accomplish this by working with banks and the markets to secure NEW debt. For those with high credit ratings, say individuals with a fico 700 or better or corporations with at least an A rating, the government would back the loan. They could go a step further, to protect the tax payers, and require that there be adequate collateral and that any default on the loan would be subject to collection by the IRS.

This would ensure that banks felt safe lending the money and keep taxpayers off the hook from any defaults. It would also NOT bailout anybody who had previously made choices that brought us where we are today.

So there you have it. Here is a much better, safer plan that actually gets to the core of the problem. So why can’t our government come up with this or something even better?

Why Recessions Are a Good Thing

One of the things that bothers me a lot when I hear people speak of the need to do something immediately is the fear of recession.  Recessions are not bad things.  In fact they are pretty necessary in a well running capitalistic economy.  Granted, you don't want to have a Great Depression sized recession, but it is absolutely needed if we wish to have the benefits of a boom cycle.

Think of it this way.  The economy has some average growth path.  But like any average, it is a combination of highs and lows.  The economy does just that, it has highs and lows.  There are going to be times when the economy is going strong.  This is a cycle that feeds on itself, growth begets growth.  But growth can also beget excess.  Economic growth, like a rising tide, raises all boats.  Some of these "boats" really don't deserve to be raised.  They ride the tide of economic growth but really need to sink to the bottom.  These are the people who get rich by adding very little of real economic value.  These are the idiots who made a fortune buying houses with no money down, sitting on them for a month, and then flipping it for instant profits.  There is no real economic value in that and these are the type of people who shouldn't be successful.

That is where recessions come in.  They are the great equalizer.  Recessions seperate winners from the losers.  Those who really do add value, continue to survive.  People who were prudent and realize that there is always a bust following any boom, are the ones who make it on to the next boom.  These are the people who realize that a long term outlook is the only outlook.  These are people like Warren Buffet who don't ride the volatile cycle of boom and bust, but keep a level and even head amidst all the calamity.

In any well functioning society, there need to be winners and losers.  Sometimes in the short term, the winners and losers end up in the wrong bucket, and that is unfortunate.  This is when an average Joe loses his job despite doing nothing wrong.  But in the long run, it always works out.   If he is truly a winner, he will come out ahead before the race is over.

As a personal note, my family was destroyed during the recession in the 1990's.  My father's business went under and he subsequently deserted my family.  It wasn't an easy thing to get over.  At the time it seemed like the end of the world.  But in retrospect, it was absolutely necessary and the best thing for everyone.  My father, although a good cook, probably wasn't the best business man.  It wouldn't be in anybody's best interest, even my own family, to have propped him up and let his business continue.  My family survived it all and came out stronger for it.  I like to think that is because I really do belong on the "winners" side.

How We Got Here and Where We Are Going

The government is trying to do their best to create a plan to get us out of the mess that they put us in.  Still, nothing is passed yet so there may yet still be hope that they do the right thing which would be to do nothing.  I just find it very ironic that just six months ago, both Bush and Paulson told the American People we had no problems, and now we are suddenly on the precipice look straight at Doomsday.  It was a lie six months ago and its a lie today.  At least they are consistent.

The saddest part of the whole thing is that they obviously didn't see it coming.  I mean seriously, how could you not.  They created this mess through their own actions.  Let us look back and see exactly how this happened.

In 1999, the government decides that  it would be a great idea if everyone could afford to buy a home.  This is an idiotic notion but it sounds good politically so the American people eat it up.  To enable this "plan" the government allows Freddie and Fannie to lend money to people with less than worthy credit.  Isn't that nice?  Isn't it great that we can enable the "American Dream" by allowing people to own things they can't really afford?  This of course masks an even bigger problem.  These are Govermented Sponsored Enterprises.  This gives them an implicit backing of the government making people believe the government won't let them fail.  Even worse, people get jobs there by political appointment, further insulating them from scrutiny.  But this is only one of many idiotic things that the government does.

In 2001, we have 9/11.  Fearing a massive recession, the government takes it upon itself to shore up confidence and lower interest rates to an insanely low level.  Rates basically go to 0 percent making the cost of captial very very cheap.  People can now get very low percentage mortgages.   Add this to the above, and you get people who shouldn't be getting loans able to take how huge loans for very cheap.

Innovation now takes hold.  Financial engineering allowed financial institutions to take all these mortgages, package them up, and sell them off as securities.  They supposedly are able to create very "safe" assets by slicing and dicing them in a myriad of ways.  Of course, this also makes the security very hard to understand and greatly obscures who really owns what.  But becasue banks can do this, they no longer really care about making good loans.  There motives now move from making good loans, because they will eventually have to collect on these loans, to making as many loans as possible so that they can make these new fangled securities.  They don't care if the payer never pays the money back becasue they already sold off the mortgage.  Of course this isn't the governments fault, so I'll give them a pass on this one.

Now the SEC gets involved.  There have historically been regulations that only allow banks to take on so much debt when compared to assets.  This limits their ability to use too much leverage.  Of course you remember how leverage works.   It allows you to greatly multiply your gains AND losses.  Of course, when it seems like housing prices can only go straight up, and people are making money hand over fist, the banks lobby to be allowed to use more leverage so they can make insane amounts of money.  Of course when things go south, they go south in a hurry too, which is exactly what we are seeing.  These banks were able to take huge positions on assets they don't have, and thus make a situation that threatens the entire financial market.

So there you have it.  Giving way too much easy and cheap money to people who shouldn't have it and have no accountability for when things go wrong.  Doesn't that sound exactly what Paulson is asking for when he asks for $700 billion with no restrictions, no oversight and no accountability? How on earth does anyone think that will end up OK?  It of course won't.  What will happen is that they will pass some form of bailout.  It won't at all do what they want it to do.  In fact, its pretty easy to see some of the awful effects it will have.

At the very least, the dollar is going to go into the tank.  Inflation is inevitable.  We already owe way too much money to the rest of the world.  Now the government is going to essentially print money to pay for this plan.   This will have very negative effect.  Inflation is one of the worse things that can happen from an economic perspective.  This will also drag out the housing problems we are having now as markets will take longer to correct.  This is just prolonging the pain.  This will increase moral hazard thus creating a crisis even bigger the next time.

How do you play this?  Despite my earlier advice that the dollar was going up in the short term (thanks to a years of getting hammered and the rest of the world also slowing down) the dollar will fall.  Commodities now have a ways to go up, despite their highs.   So sell the dollar, buy commodities, and short the market.

Trying to Sell the Bailout Plan

Hank Paulson went to the Hill today to attempt to sell his $700 billion bailout plan.  Surprisingly, those in congress questioned them hard about why this plan is necessary and why it is important to do something immediately.

As the hearing progressed, Paulson and Bernanke were on the defensive.  Several times they admitted there were several problems with the plan.  They admitted that the plan might not even work but that they had to do something and that they have to do it now.   The fundamental problem they want to solve is the confidence problem that investors and the credit markets are having.

You  know what the most ironic thing is?  These actions, and similar ones before it, have likely caused most of this mess.  Investors EXPECT the government to do something.  They always come to the rescue.  This is the type of moral hazard problem I fear most.  Investors get used to the government stepping in, and thus refuse to do anything until a plan is revealed.  This of course makes it worse the next time becaue the expectation is set, and until the government steps in, most investors will refuse to do anything.

I'm sure they will say, "Just this one time", or "This is a special circumstance".  I hear the same thing at work every day when we agree to do a hack or we rush something out that shouldn't go out.  Every case is a "special" case.  Of course, that means none of them are, and neither is this one.  The scariest thing? Pauslon is raising such an alarm and then he is asking for carte blanche in the situation.  He just wants us to hand over the $700 billion with no strings attached.  Want to buy the worse assets from the worse banks?  Sure, why not?  We wrote him a blank check.  It just reeks of man with an ego too large for his own good; someone who thinks that they can solve any problem.

The plan should make sense.  With this much money involved, it should be obvious what benefits it would provide.  How come only Bernanke and Pualson seem to be the ones selling this plan?

The Problem With Any Plan

We are getting closer and closer to finalizing this huge bailout.  I'll be happy to talk about it as it gets closer to becoming reality which it unfortunately will by very soon.  However, every form of the plan misses a very fundamental problem.

People cannot afford the houses they lived in.  They never could.  That's the key point.  I keep reading things where people are expecting the bottom in the housing market bottom soon and then start its rise up again.  That thinking is crazy.  We aren't anywhere close to the bottom.  Prices have dropped "significantly" but it still is not enough.  There was a meteoric rise in prices.  Prices more than doubled in most areas in a 5 year period.  Even if you are down 25% from the top, you still have quite a bit more downside before housing becomes anywhere near affordable.

A house should cost you no more than 3 times your annual income.  Even that is on the high side.   If a family earns $100k, which would put them in one of the higher brackets, that is still only a $300k house.  In California, that buys you nothing.  You still have to go out about 40 or 50 miles to find a house anywhere near that price range.  Given the price of gas now, that is unrealistic for most people.

So until the prices come down, there will be pain in the market and the economy.  People have an asset that is overvalued and they must continue to make payments on.  Those out of the market, will be unable to buy until the prices come down.  Alternatively, they could continue this terrible cycle and buy an overpriced asset that will eventually worsen the current situation. This is the fundamental problem and something that wont' be solved by throwing even more money at it.

Should You Always Take More Responsibility?

I am one of those people who will always do whatever it is to make sure my team succeeds.  If it means staying late, picking up more work, or doing whatever it is nobody else wants to do, I will do it.  Now at most companies, there are more problems than there are people to solve them.  Those who are willing to step up and grab responsibility for a problem will tend to be the ones who advance their career the fastest.

This week, I found out that one of my peers will be leaving my company.  This leaves a huge hole as this person was responsible for majority of engineers in the largest division. Despite the fact that I am no longer in the development org chart, I do program management, my boss has no logical person to temporarily take charge of the team while we find a replacement.  So I, being the person that I am, told him I would step up and manage the team.  He understands that other things will drop from my Program Management plate.  In reality, I just doubled my work load as there is nobody currently to back up my Program Management responsibilities and they are too important to not get done.

But was this a good idea?  I'm still not sure.  This takes me out of my core competency and means I will do two jobs at a lower level than my normal standards.  Now, I'm sure I will get brownie points for stepping up, but will it be worth it?  In the end, I think so, I would not have done it otherwise, but is the extra stress and workload worth a few extra brownie points?  I guess we will find out.   What do you think, should you always take on more responsibility?

Did I Just Wake Up In the Soviet Union Circa 1980?

The government is meeting tonight to come up with a comprehensive plan to buy the bad debt on the books of all these failing financial institutions.  The plan would have the government set up a facility that would buy all these assets and hold them to maturity.

Seriously, what the hell is going on here?  When the heck did the government become a backstop to insure that investors don't lose money?  The government is taking the position that this somehow helps the average american, but I'm not buying it.  Most Americans aren't going to feel this.  If you have a steady job, pay your bills on time, and don't follow the market every day, you are going to be fine.  You may hear rumblings about all the problems going on in the market, but how does that affect you?

Now granted, it would be harder to get a loan for things like a car, a student loan, or a new home.  But those who are credit worthy, they will be able to get what they need.  Those who are somewhat less than worthy might have problems, but really, is it so bad if for a short period of time people can't take on more debt?  Haven't we as a country taken enough debt over the last few years anyway.  How is putting ALL of our money at risk going to solve the problem?

The government should not be in the business of saving people who knew the risk they took.  All investors should expect go to zero.  Saving people from themselves will only encourage people to take more risk in the future.

Afraid Yet?

My equity portfolio is ugly.  I'm bleeding money right now, and it hurts.  The most painful part of my portfolio is my international exposure which makes up half of my equities right now.  Lucky for me, I am mostly in cash, so I can't imagine what people who are not in as good of a position as I am must be feeling.

So how afraid are you?  If you aren't scared as all hell, we haven't reached the bottom quite yet.  Just look at some of the signs of fear in the market.  The volatility index , the standard measure of fear in the market, spiked today.  Treasurey yields, the rate of interest for the safefst of assets, is at a decade level low.  Gold spiked an unprecedented 11%.  People pile into these safe assets when there is fear, thus driving down the interest rate.  So people are running to wherever they can find cover.

When it seems like it can't get any worse, that's when you need to get in.  We aren't there yet.  But that doesn't mean your shopping list shouldn't be up to date.  Selective buying now, when nobody else wants to, will be prudent.  Just understand that the market probably has a few more percentage points down AND a few stocks still have to go to Zero.

Another Day, Another Bailout

The government announced after hours that it would provide an $85 billion bridge loan to AIG.  In return, the government will get an 80% equity stake in the company.  AIG was determined to be "to big to fail" because AIG has a piece in so many other financial institutions.  The government was afraid of what would happen if AIG were to fail. Me?  I'm kind of interested.

Now to be fair, I'm not sure how risky this is for the government.  AIG has a lot of assets in things that probably still have value.   The loan is for 2 years at a pretty high interest rate.  What the loan will do is allow AIG to have an orderly sell off of its assets rather than having a fire sale as it tries to meet its captial obligations.  But seriously, where is the line?  I like that the government let Lehman fail (although I don't know why they let it fail and not Bear Sterns) but still, is it so bad that we let a few big companies fail?

I think the market is about to turn up for the short term.  In an up market, we always overshoot.  Same goes in a down market.  Right now, there is a lot of forced selling that is going on.  People are trying to raise capital by selling the assets they have.  The market will go up, and violently for some of the stocks that have depreciated the most.  The strategy there, sell any rally.  The market is still in a downtrend long term.   Still wouldn't put new money in although I'm starting to get tempted.  I actually like, long term, names like Goldman Sachs who will be positioned better long term as most of their competitors have gone under.  if it gets in the $110 range, I'm going to have to think very hard about it.  I also like some of the energy names.  Lost in all this turmoil is the fact that oil has dropped like a rock.  This can actually be bullish for companies that use it as an input.

Lehman went bakrupt.  Merril was bought.  And AIG was bailed out.  Damn, is it really only Tuesday?

A Lesson In Leverage

My prediction on the market turned out to be prophetic.  The Dow took a 500 point plunge today.  Considering the heavy selling at the end of the day, this pattern looks to continue in the morning.  How did we get into this mess?  We have just seen Lehman Brothers, a company over 150 years old, a company that survived the Great Depression, just declare Bankruptcy.  How does something like this even happen?

Leverage can be great.  In financial terms, leverage allows you to greatly magnify the effect of a given asset.  Leverage is what allows you to buy a home with a 20% down payment (not that anyone does that anymore).  You put down $2, the bank loans you $8, and you are able to buy a $10 house.   You just levered your $2 into $10.  Now imagine the house appreciates 40%.  The house is worth $14.  You still owe the bank just $8.  But you just got a $4 gain off of a $2 investment, a 200% gain on your initial investment!

Now lets work the story in reverse.  Imagine your house depreciates in value.  Something we have seen recently in the housing market.  Your house depreciates 40%.   The house is now worth $6.  However, you still owe the bank $8.  You don't even have your initial $2 investment as you put it in the house.  You have an asset that is worth $6, but owe $8 on it.  If you are able to sell the house for $6, you would net lose $4.  You just turned $2 into -$4, a 200% loss on your investment!  However, unlike a house, the people who are loaning Lehman and other financial institutions money have a right to call in the loan at any point.  So now you are scrambling to find capital to pay off the loan.  You are selling assets to come up with the money.  But when you are a big player, your selling moves the market!  So you are causing the very thing you are selling to lose value!

Now multiply the above example by about $100 billion, and you have the problems we are facing now.   When things were going great, all these financial institutions attempted to turn their $2 billion into $14 billion.  They just didn't see didn't know what to do when the music stopped playing, and the chairs were all pulled.  The scary thing?  We are only in the 5th inning of a 9 inning game.

Potential Props to the Government

I should have added that if indeed Lehman declares bankruptcy, and the government doesn't do anything to prevent it, I will be impressed.  So far, during the current crisis, the government has done little, or maybe they have done too much, to give me much faith in it.  I really don't buy the argument that the government needs to step in to preserve the orderly functioning of the markets.  The markets will take care of themselves.  I have no problem being wiped out in any of my investments.  In fact, I have lost as much as 85% on an investment in the past.  You accept risk when you invest in the market.  If you can't afford to go to 0, you probably shouldn't be investing or you are too invested in one stock.

Markets will Be Ugly on Monday

Tomorrow is going to be a blood bath.  This weekend saw Lehman preparing to file for Bankruptcy before the opening bell. To add fuel to the fire, Bank of America has agreed to buy Merrill Lynch.  The good news for Merrill stock holders is that it appears that Bank of America will pay a significant premium over the price at the close of business on Friday.  This may balance out the fear that the market will have after the collapse of Lehman.

I'm expecting significant pain for myself in my portfolio.  When I look at what I have, it should on the surface be OK.  I have some consumer staples and some energy, which should be fine.  I have no financials in my portfolio, having sold of Goldman Sachs when it was 20% higher than it is right now.  My big fear is in my technology and my international positions.  My largest position is in some international mutual funds.  These have been getting killed lately, and I expect there to be more pain in the short term.

That being said, I am hoping for a serious plunge.  I have a long term view of the situation, and I've been waiting for the market to be taken out back and shot.  I'm not sure this will mark the bottom, I really do think we have a few more months to go, but we will hopefully get close tomorrow.  But then again, given how the market seems to do the exact opposite of whatever it is supposed to do, maybe we will see an up day.  If that happens, continue to stay on the sidelines.  I have for the most part, and I'm looking pretty smart for it.

How to Ace the Second Interview

I read a great tip on how to ace a second interview.  You have done well enough to be asked back for a second interview.  Normally a second interview is a serious sign that you are seriously being considered for the job.  Often times, you actually already have the job and the interview will be used as an opportunity to sell you on the potential job.  This is especially true in competitive industries or for very talented people.

But how do you ensure that you will get that job offer after your second interview.  The secret is to pay good attention during your first interview and ask the right questions.  You should leave your first interview with the following knowledge

• Why are you hiring this position?


•  What are the problems you are facing now and how do you want someone in this position to help out?


• What would you consider to be success in the first 30,60,90 days?

After you get these answers, you should prepare a plan on how to address all these issues.  Make sure you talk to your future boss and explain a plan on how you would address all these issues.  This does a few things for you.  First, it shows you are paying attention.  Second, if the plan is good, it shows you can think through the challenges and you can actually do the job.  Third, and most important, it is going to get your future boss envisioning you in the position and you can discuss reasons why or why not your plan will work.  As soon as you start having this dialog with your future boss, s/he will already be thinking of you in the role, and will be more likely to give you the job.

What do you think?  Does this sound like a rational plan?  Do you have other ideas on how you should approach a second interview?

Doing Nothing is OK ... Sometimes

I often don't think doing nothing is OK.  Most of the time, it is better to make forward progress and then correct later.  I take this as a general approach when determining if I want a piece of software to go out or not.  Often times, people fall into the perfection syndrome.  They hold on to releasing because there is one last bug or one last feature they want to shove in.  This is often the wrong approach and leads to stagnation.

But right now, doing nothing is the exact right thing to do in an ugly market.   The market is too volatile.  I keep trying to find a good place to come in, but the market moves so fast that I can't find a place to get comfortable.  I'm 70% in cash and I'm feeling good about it.  I might be only earning a little more than 3% on my cash, an in reality I'm losing money when you throw in inflation, but it is certainly better than losing double digit percentages which is exactly what will happen if you are on the wrong side of a trade in the market.

If you have to be something, be short.  The market still has about 7%-10%.  I will look to get into the QID if we have a relatively flat or slightly up day in the market tomorrow.  If you HAVE to be long something, I still want to be long the dollar, UUP.   If you are thinking long term, I would want to be in the financials soon.  Not quite here, but soon, because these stocks have been battered.  You have to be in a stock that has no chance of going out of business.  A company like Goldman Sachs.

So if you haven't been able to figure out what to do, like myself, consider yourself lucky.  You probably saved yourself a lot of money.

Traffic Getting Worse

What is going on with Traffic lately?  It has gotten noticeably worse for me no matter what route I take or what time I leave.  Is it just the post-summer bounce and people are all coming back from vacation at the same time?  Is it that oil continues to get cheaper and gas is now under $4 per gallon in California?  Did people just get used to the high price of gas and decide that the alternative means of transportation just doesn't work?

Should the Government Have Saved Fannie and Freddie?

I'm sure you know what I'm going to answer about this before I answer it because you know how I feel about governments stepping in to "save" private businesses.  And of course, you would be right.  I really wish the government had not done anything here, since I really worry about moral hazard.  It also really bothers me that I'm sure the executives of these companies got rich and handsome bonuses based on taking on tremendous risk in the market.  They bought these high yield, high risk assets and made a killing for years.  I'm sure they had bonus structures tied to this performance.  Now that the bill comes due, they are off the hook because the government decided to bail them out.

But I digress for now.  What I really don't understand is what the government is trying to accomplish.  Do they think that by taking over these two failed institutions, they can somehow turn the tide of the housing market?  If they do, the government is even dumber than I thought because this will do nothing to help the average American who is struggling to pay their mortgage.

Let's think for a moment what caused the housing crisis in the first place. Put simply, it was a typical asset bubble.  Nothing more, nothing less.  People got caught up in the real estate myth that housing is the best investment you could ever have and that home prices never go down.  So people bought houses and kept buying houses despite souring cost because they feared being "priced out forever".  All this despite the fact that incomes were not keeping up with the skyrocketing mortgages.  When the music stopped playing, and the chairs were all taken away, we were left with a glut of houses.  Simple economics took over.  When supply starts to outstrip demand, prices fall.  This has caused the underlying value of all the mortgages to fall as well as the asset backing them is plummeting in value.

As these mortgages and derivatives start to lose value, it causes a ripple effect.  Nobody wants to buy an asset falling in price, causing there to be illiquidity in the market.  As nobody will buy these products, new ones can't be created either, meaning the financial markets freeze up.  This cascades even further and makes a system that feeds back on itself and creates even further price declines.

So given this, how will the bail out help?  The bail out has a net effect of ensuring that there is  more money made available to make mortgages.  This might have the effect of lowering interest rates which in turn could make mortgages more affordable.  But look back at what caused the problem in the first place.  Too many houses are out there for too few buyers.  The average income is not able to pay for the average mortgage.  Having more money available doesn't solve this problem.  Housing prices will fall until affordability comes back into line with incomes.

So who does it help?  Definitely not average joe American.  It does help a few institutional investors who have Fannie or Freddie debt.   It helps out the stock market in the short term, but it won't reverse the mid-term trend of the decline.  So we just spent upwards of $25 billion for what?  The short term benefit of a couple of wealthy investors?

Quick Market Thoughts

Market tumbled today and things looked pretty bad.  Just have some quick thoughts on this one.  I'm looking pretty smart the last few days.

• Given the market volatility, market will be up in the next few sessions


• Medium term, we are nowhere near the bottom.  Down another 10% or 20% is easy to see


• Still like the dollar going up.  Buy UUP


• Tech is going to go down even more.  QID is going to be  a buy


• I don't know what to do about Financials.  They are beaten down, but it looks like there is more to go.  If you don't mind it going down another 10%, these are starting to be good long term buys.

Leave the Irrelevant Degree Off Your Resume

I look at resumes all day so I can be pretty critical.  But some people just do things I don't understand.  Case in point, putting a advanced degree on your resume that has nothing to do with the job you are seeking or the career that you have had to date. Now this doesn't apply to your undergraduate degree.  Everyone understands that you likely majored in something that has nothing to do with your current job. This was true for me as I majored in Economics but now work in technology.

But a graduate degree is something different.  First off, you made the decision to go after a graduate degree is totally voluntarily.  While technically getting an undergraduate degree is too, an undergraduate degree is basically a requirement for almost any white-collar job in today's world.   Not only is it voluntary but a graduate degree is also very expensive and time consuming.  I understand that you may be proud of the degree.  I understand it may show you can work and study hard.  But if you got one, but aren't using it, I'm going to want to understand why.  It goes to my assessment of how and why you make important decisions.

Now even if the degree is on your resume, it might not be a death sentence.   What is a death sentence is having a bad answer to the next question, "Why did you pursue this degree and then end up not using it?"  There are a number of OK answers to this question.  None of them involve you telling me that, "I just didn't know what else to do" or "I needed to grow up".  Both responses I have heard.

I will grant two exceptions to this rule

• You have a gap in your resume you can't explain any other way.  A gap is worse than having an irrelevant degree.  However, it is only slightly worse since I may assume you just took some time off for family issues.  This is a path I usually won't (and can't) go down too far.


• It is your first job after you got your degree.  This you should explain away by being honest.  Either you have discovered you don't like what you went to study or you can't find a job in that field.  Both are acceptable answers. Just don't expect me to pay you for the advanced degree that is irrelevant for the job.

So what do you think?  Is it a good idea to put your advanced degree on your resume even if it is irrelevant? If so, under what circumstances?

What's Going on With Oil?

Oil dropped precipitously today, off as much as $9 in today's trading.  This seems to be the exact opposite of what happened just a few months ago as oil skyrocketed to over $140 a barrel.  What's going on.  I believe it is two things.

Normal market activity.  There was definitely speculation on the way up.  There is now the reverse trend happening.  This is a GOOD thing.  Over the last few months, "speculation" has become a dirty word.  However, I am of the belief that it is a good thing when markets are allowed to function the way they are designed to do.  This is exactly why.  As fast as the market was able to go up, the market is able to take it back down.  While this volatility may be painful to some, it allows there to be liquidity in the market.

The dollar is getting stronger.  Don't look now, but there have been a few weeks of sustained gains by the dollar after years of a downtrend against the Euro.  As much as I'm not a fan of the U.S. market, the foreign markets are looking equally weak.  I have a lot of money invested in foreign funds, so this is probably not a good trend for me.  Just might be one of those things where I have always imagined that the grass was greener when it probably was not.  If this continues, I will probably try to make a bet on the dollar.  Easiest way to do this is to play the dollar ETF, UUP.

What do you think?  Do you think it likely that the US economy will perform better than foreign economies over the next few years?