March 2007

LOL. Gaza doesn’t look that bad when viewed through the eyes of Maxim magazine. I wonder if they’ll do a Hezbollah Hotties issue.

http://www.theglobeandmail.com

So if you want to examine another side of the Middle East, put aside The Economist for one month this summer, and intercept your son’s copy of Maxim magazine, the Israel issue. There’ll be no talk of Hamas or Hezbollah, just babes, bikinis and beautiful beaches.

The unconventional public-relations offensive is the brainchild of David Saranga, the consul for media and public affairs at the Israeli consulate in New York. He came up with the idea while staring at poll numbers that showed his country was not particularly well regarded in the United States, especially among those aged 18 to 35. The Jewish state was perceived as too religious and too militaristic for the tastes of most.

” Panorama has fresh revelations about the lending practices of the high street banks. An insider reveals an industry driven by ambitious targets to sell borrowing to customers.”

http://video.google.com

Can I shop for groceries online.

I’m sure Safeway Canada has something like this, or other third-party services that do it.

Hey - this is how you shop for groceries in suburbia when you don’t have a car and the nearest grocery store is one mile away.

http://fogonazos.blogspot.com

“In 1962, a little fire in Centralia (Pennsylvania) migrated into an exposed vein of anthracite coal under the town. The flames on the surface were successfully extinguished, but the coal continued to burn underground for many years, so that in 1984 the fire was completely out of control and the city had to be evacuated.”

Also:

http://en.wikipedia.org/wiki/Seven_gates_of_hell

“The Seven Gates of Hell are located In Hellam, Pa. Near York, PA. The story goes that there was once a Mental Asylum which had caught fire. The inmates tried to escape through the forest in which the asylum was located. Surrounding the asylum were seven gates which trapped the inmates. Many were killed by the fire or by other inmates. To this day, it is said that no one has made it past the location of the Fifth gate and returned out of the forest.”

A couple of articles on the Plunge Protection Team, a.k.a, the Working Group on Financial Markets.

http://www.marketoracle.net

Last Tuesday’s 416 point drop in the stock market has sent tremors through global system. An 8% freefall on the Chinese stock exchange triggered a massive equities sell-off which continued sporadically throughout the week. The sudden shift in sentiment, from Bull to Bear, has drawn more attention to deeply rooted “systemic” problems in the US economy. US manufacturing is already in recession, the dollar continues to weaken, consumer spending is flat, and the sub-prime market in real estate has begun to nosedive. These have all contributed to the markets’ erratic behavior and created the likelihood that the Plunge Protection Team may be stealthily intervening behind the scenes.

http://www.safehaven.com

Our suspicion has been that the “Working Group” established by law in 1988 to buy markets should declines get out of control, has become far more interventionist than was originally intended under the law. This group has since been dubbed the Plunge Protection Team. There are no minutes of meetings, no recorded phone conversations, no reports of activities, no announcements of intentions. It is a secret group including the Chairman of the Federal Reserve, the Secretary of the Treasury, the Head of the SEC, and their surrogates which include some of the large Wall Street firms. The original objective was to prevent disastrous market crashes. Lately, it seems, they buy markets when they decide markets need to be bought, including equity markets. Their main resource is the money the Fed prints. The money is injected into markets via the New York Fed’s Repo desk, which once upon a time showed up in the M-3 numbers, warning intervention was nigh. But, in November 2005, the Fed announced with little comment and no palatable explanation that it would no longer report the M-3 number after March 2006. Without the useful resource of M-3, we needed to find other tools to monitor when the PPT is likely to intervene, prolonging a rally and killing shorts.

I believe the planet is being taken over by a secret cabal. Everywhere I turn, there they are, their beady little eyes boring into me, beaming their mind-control waves directly into my cerebral cortex. You can’t escape them, because every time you criticize them, one of their mind-controlled zombies pops up to extol their virtues and shame you back into line.

They’re cats, and I’ve got an FN hate-on for these creatures.

I think any sane and reasonable single man ought to screen all potential mates based on how many cats they have. If, my dear friends, you are able to find a single woman who does not have a cat, that’s good enough to ensure her potential for a long and happy road together.

Why?

Read on:

http://www.praguepost.com

. . . according to recent research, cats may have an unexpected ally in this eternal battle of Tom and Jerry: the protozoan parasite Toxoplasma gondii. Scientists have proven that this parasite, when nestled into the brains of otherwise normal rats, slows reaction times and causes “an almost suicidal attraction to cats,” says Joanne Webster, a British scientist who led the research. . . “Most people never learn they are infected,” he says, because initial symptoms from toxoplasmosis, as Toxoplasma gondii infections are called, resemble a low-grade flu; detection comes through a simple blood test. After a few weeks, the malaise tails off as the parasite goes latent, lodging for the long term: Once you contract toxoplasmosis, it’s with you for life. No big deal, scientists say, since latent infection is asymptomatic — harmless.

Disregard that last line, because:

http://en.wikipedia.org/wiki/Toxoplasmosis

Most patients who become infected with Toxoplasma gondii and develop toxoplasmosis do not know it. In most immunocompetent patients, the infection enters a latent phase, during which only bradyzoites are present, forming cysts in nervous and muscle tissue. Most infants who are infected while in the womb have no symptoms at birth but may develop symptoms later in life.

. . .

Up to a third of the world’s population is estimated to carry a Toxoplasma infection.[3] The Centers for Disease Control and Prevention notes that overall seroprevalence in the United States as determined with specimens collected by the third National Health and Nutritional Assessment Survey (NHANES III) between 1988 and 1994 was found to be 22.5%, with seroprevalence among women of childbearing age (15 to 44 years) of 15%.

. . .

Other studies suggest that the parasite may influence personality. There are claims of toxoplasma causing antisocial attitudes in men and promiscuity [18] (or even “signs of higher intelligence” [19] ) in women, and greater susceptibility to schizophrenia and manic depression in all infected persons.[18] A 2004 study found that toxoplasma “probably induce[s] a decrease of novelty seeking.” [20]

I figured it’s time to roll up my sleeves and pour some of my economic skills into this blog and show you how to cash in on the bruised, crushed and broken dreams caused by the irrational exuberance of a mortgage bubble. If you want to bypass learning something, then skip right to the bottom, where I show you some basic investment strategies that will help you capitalize on the ARM Apocalypse.

Some Economic Arguement Only Smart People Will Be Into:

The first consideration in the wake of the so-called “ARM Apocalypse” should be the role of the media and how it affects investor psychology. Many economic journalists make the mistake of parsimony in their analyses, something I’ll get into shortly. The main problem with economic parsimony is that Joe Q Sixpack reads a headline about a housing crash caused by mortgage brokers, and lumps in the responsible lenders with the bad. The New York Times recently made some headlines with THIS article on the looming mortgage meltdown, led by New Century Financial, which had a hefty chunk of its mortgages invested in ARMs, or Adjustable Rate Mortgages. The effect on market psychology is interesting, as responsible lenders, such as Countrywide Financial, got lumped in with bad lenders like New Century.

Reuters reports:

One in five U.S. mortgage loans in 2005 and 2006 was subprime, Standard & Poor’s said. And one in five U.S. subprime loans in those years will end in foreclosure, the Center for Responsible Lending said. Countrywide has stopped making subprime loans that require no money down to borrowers without proof of income. Just 7 percent of its mortgage loans were subprime in February.

Note: that’s just the stat for February, so keep that in mind. The point is that Countrywide sustained a hit due to New Century’s indiscretions, as investors began to paint everything mortgage-related with the same brush. So right away you can see that investors are fleeing anything mortgage-related, and the good lenders are probably under-valued right now. Can you see an opportunity here?

The second consideration should lie in how we approach markets. Less savvy investors view the great entity known as “The Market” as a homogeneous or monolithic structure. This is the first mistake in analyzing any market, because economies vary according to geography, which also has a lot to do with the industries concentrated in the area. For example, manufacturing jobs are concentrated in the Midwest, and so an auto-related manufacturing decline is going to hit this area harder than it would, say, Wyoming. Accordingly, the ARM Apocalypse isn’t going to cause a house price crash in areas of the US where there are very few of these exotic mortgages. So, you’re not going to see a ton of house price depreciation in areas of the US that didn’t see a run-up in the home mortgage lending boom. I’m not going to tell you where they are, other than to say: keep away from the coasts. House prices will fall most severely where the runup-was strongest.

Easy Money Come, Easy Money Go

There are several causes of the recent home mortgage lending boom, and economic historian, Michael Hudson has a compelling arguement. I’ll break out three prime drivers of the property price spike:

1. Lower land taxes, higher income taxes. As taxes moved away from property to income, the average homeowner has relied on cashing out the equity in his or her home to fuel consumption, as real disposable income took a hit from inflation and taxes. Most of those new BMW’s running around in California are a likely result of a homeowner cashing out the equity in their home. So the tax structure creates an incentive to accumulate wealth in your home, and cash it out as though it were supplemental income.

2. Easy Money. Subprime lenders targeted low-income or sketchy borrowers, and lowered their lending requirements to capture this market. Subprime mortgages are mortgages where your principal actually grows. These are the next level or lending beyond ‘interest-only’ mortgages, where you just make the interest payments on your home as equity grows. With sub-prime mortgages, you take out a mortgage and pay back at an interest rate ‘below prime’, hoping to hell your property increases in value faster than the amount you owe on the principal. The result, people buy homes, not based on the total value of their property, but based on the monthly payment they can carry. Assuming 100k down, and a $2,000/month payment, the total value of a mortgage you can qualify for varies widely, depending on the interest rate. The problem is that once you’re locked into the total value of your loan, your monthly payment will swing just as wildly as interest rates fluctuate. Every year or two, a 25 basis point change in the prime lending rate could alter the cost of your monthly payment by enough to chip into your consumption, which fuels 70% of the economy.

3. The Wealth Effect. Which sounds better - making a 10% return on $250,000, or making the same on $500,000? That’s like asking you if you’d prefer $25k over $50k. If you’re smart, you’ll spring for the $50k, right? Now, which mortgage would you prefer - mortgage A, at a fixed 5 year rate that lets you afford the 250k home, or mortgage B, an adjustable-interest, sub-prime mortgage that lets you afford the $500k home? The Wealth Effect implies you’ll be biased upwards and will ‘buy up’ instead of down. Surely your wealth advisor would make it clear that you’re on the hook for the $500k, and that your payment could go up next year, but who cares, right? You’re making $50k a year on the appraised value of your home!

Joe Q Subprime

One final consideration ought to be the household balance sheet of the median or average lender, arranged by the type of mortgage they hold. Many ‘above-prime’ borrowers can afford to make higher payments, but at least they have some certainty when it comes to being locked-in to that payment. We’ll call this guy James P. Quincy, Esq., as he’s probably an upper-middle class Baby Boomer with some means. Joe Q Subprime, however, has difficulty qualifying for loans, possibly due to a spotty income or credit history. In fact, he’s probably just some guy who has a housing-related job in home construction or sales, and has only realized some income gains in the past few years. (Too bad his job is going to evaporate next year, eh?). He’s after the subprime loans, because with a lower income he’s able to afford a bigger house. So he takes out a mortgage with some shady lender like New Century who just asks him to state his income and how long he’s been at his job, and viola! he’s into a house in the ‘burbs for no money down and $1000/month, hoping to Hades his property appreciates in value by the time he sells it, hopefully before interest rates climb again.

Now, assuming Joe’s house is in one of those markets that are overpriced by 30% or so, how can you, as an investor capitalize on his broken dreams?

How To Clean House

1. Cigarettes and KD. This relates to stress and substitutes. Naturally, Joe is probably going to take up old habits as he becomes more stressed out in general. He’s also going to have to cut back on entertainment expenses as he struggles to cover his necessities. If the Fed ever raises interest rates on Joe when his mortgage adjustment kicks in, he’s going to have to devote an extra few hundred bucks to servicing that interest on his home. His house price is likely to fall, so it’s going to be tough justifying to his banker that he needs to pull out some more equity in his home. Goodbye Sizzler steaks - Kraft Dinner, anyone?

2. The Real Casino. Joe’s pissed away his fortune in the real estate market, so why not escape his damning reality with a little gambling? Clearly he’s got a warped enough sense of risk to enter the housing market with a sub-prime ARM - of course he’s going to try to make back that equity playing the one-armed bandits! Note: if the casino allows smoking, the ups and downs he experiences during play will further fuel his cravings for nicotine. Combine points 1 and 2, and you’ve got the Vice Fund.

3. Health. Stress causes a ton of health problems. While the leading cause of cancer might be colorectal cancer, Joe is more likely to develop heart problems from smoking so much. So naturally, you’re going to want to invest in the best heart and stroke hospitals in the country, not to mention drug companies that produce anti-clotting drugs. Joes’ also going to be preoccupied during sex while thinking about his secret gambling addiction. As such, a little performance enhancement in the form of a blue pill might do the trick. Health insurance companies who operate in high-risk housing markets will exprience a ton of health claims, and hence payouts, so you might want to check out smaller regional health insurance companies where high concentrations of Mormons and tea-drinkers abide. If you’re investing in heart clinics, make sure they’re in high-risk housing markets, but steer clear of insurers who operate in these areas.

4. Bottom Feeders. Money issues are a leading cause of divorce, and while you might not be able to find a good divorce law or bankruptcy firm to invest in, you can always try buying back foreclosed properties for pennies on the dollar. After a bank forecloses on a mortgage, it still has to pay for the property taxes, which it doesn’t want to do. So all you have to do is buy back foreclosed homes and sell them to whoever can afford 500 down and 500 a month, as this guy is doing. Granted, divorce is great for the housing market, as it creates demand for two homes where there was only one.

5. Security. With the potential for a larger number of unoccupied homes on the market, there’s great potential for vandalism. I’m not sure if a bank would go so far as to secure a property this way, but you can bet there will be more alarm responses as disengaged youth find more emptied homes to throw parties in. Furthermore, Joe Q. Subprime may attribute his woes to an identifiable group of people, whether they be of a different race, culture or ideology. So naturally, violence is going to be on the rise at both the local and international levels. In the trade-off between guns and butter, you can bet guns will win out.

There you have it, five simple ways to make a killing in the ARM Apocalypse. Hey - it’s tongue in cheek, and someone has to say it. I find a little humor goes a long way in dealing with (or avoiding) harsh realities. If that’s not your style of humor, cash out some equity from your home and buy a sense of it!

Longtime readers of this, the best blog you’ve never heard of, are familiar with my rather trippy experience in moving to West Chester, which I have dubbed my Viginti Tres Enigma.

Back when I was moving to West Chester, I bought two luggage locks for my hockey bag, and I decided to set the three-digit combination to 322, as a tribute to President George Bush, leader of my new home country (not really), and member of the secret society known as Skull & Bones, as any google search will attest. The number 322 has a bit of cache in this area, as the main highway into West Chester is the 322, and the local Freemason’s Lodge is also Local 322.

Alexandra Robbins, author of , has made mention of this number:

ALEXANDRA ROBBINS: Okay. So, according to Skull and Bones lore, and this is something that both Senator Kerry and president bush would have learned, in 322 B.C., a Greek orator died. When he died, the goddess Eulogia, the goddess, whom Skull and Bones called the goddess of eloquence, arose to the heavens and didn’t happen to come back down until 1832, when she happened to take up residence in the tomb of Skull and Bones. Now Skull and Bones does everything in deference to this goddess. They have songs or they call them that sacred anthems that they sing when they are encouraged to steal things, some remarkably valuable items, supposedly, they are said to be bringing back gifts to the goddess. They begin each session in the tomb, and they meet twice weekly by unveiling a sort of a guilt shrine to Eulogia. That’s the point of the society. They call themselves the Knights of Eulogia. That’s where the 322 comes in.

JUAN GONZALEZ: John Kerry, in terms of the number 322.

ALEXANDRA ROBBINS: I spoke with somebody close to Kerry, a member of Skull and Bones. He said that Kerry actually uses 322 as a code in his daily life.

As any good economist will tell you, three instances marks a trend, and those three coincidences definitely stood out to me at the time.

A pertinent detail to this whole enigma relates to Tool’s latest album, as well as the number 23 - translated as viginti tres, a song on the CD. The day I arrived in West Chester, I went to the local CD shop and purchased this album, and was listening to it in my rental car for like a week straight. Concurrent to that, I was setting up a roommate situation with a MySpace friend who had an unusual attachment to the number 23. I found it rather appropriate that the day I was to meet her, there was an interview on the radio with Danny Carey, Tool’s drummer, in which he discussed one of the songs on the album, Viginti Tres, which is latin for 23.

I though this guy had an interesting, although weak connection between 322 and the number 10,000:

[17:44] ario: i’m trying to figure out the significance of the title “10,000 days” , the title of the new tool album
[17:44] ario: it’s kind of like a puzzle if you listen to the song lyrics, especially after reading this
[17:45] ario: the guy says… “By the way, one line posted among a snippet of leaked lyrics was “10,000 days in the fire is long enough.” I don’t want to ruin your fun, so I will say just this - the meaning of “10,000 Days” was immediately clear to me, especially from the line which follows that line. (I did cheat later and confirm by doing a little math, but I remain convinced.)”
[17:46] ario: song lyrics here
[17:46] ario: the line he’s referring to says “You’re going home…”
[17:46] ario: seems to be related to the military… possibly the Iraq war
[17:47] ario: 10k days = 322 months
[17:47] ario: that’s roughly 27 years

So, for the most part, 322 has just been my little inside joke with West Chester that gives me a special affinity for this place.

Here’s where the Johnny Cash burger comes in. About a month into my stay here, I met up with a dude named Chris Edge, a hardcore punk minister of the gospel. He hails from Jacksonville, Florida, and is one of the most real and genuine people I have ever met. He used to be a bodybuilder, but over the past few years, he really connected with hardcore punk music, and now has some sweet tattoos, hooped ears, and he dresses like a rockabilly bassist or something. He’s a really cool guy.

We got to talking one day, and both discovered a mutual interest in the late Johnny Cash, and he made mention of a local cajun cafe here in town called the High Street Cafe, where they serve a lunch special known as the Johnny Cash burger (with Folsom Prison Sauce), comprised of a huge beef patty, blue cheese, bacon and some really hot prison sauce. I wasn’t too keen on the idea of prison sauce being anywhere near my burger, so it just didn’t appeal to me back then, and I tucked the info away in my memory.

Time went on, and I eventually lost touch with Chris, but that Johnny Cash burger kept popping up in my mind. For the past three months, every time I thought about the Johnny Cash burger, I’d think of the man who told me about it. I thought I was done with the story, but just when you think it’s over, it pulls you back in, man.

Over time, I ended up forging a connection with a Hungarian colleage at work whom I will refer to as the Chester County Connoisseur, because all you need to know about him is that he knows how to live well in this town without a car. He can tell you where to get anything you could possibly need, albeit at a slightly marked-up price, because it’s not at a big-box retailer. The man knows where the best stuff is in this town, and it’s often at a great price.

One day last week, I was telling the Hungarian how I had been to several pubs in this town in search for the regional all-American hamburger.As a newbie to the whole West Chester hamburger scene, I had to ask the Hungarian for his opinion as a fellow outside observer of Americana. With four years in this town under his belt, he was sure possesss grander wisdom than I.

So I asked the Chester County Connoisseur:

“Hey man - I’ve had some good burgers around this town, and I’m looking for some ideas on where to go next. I’ve been to Baxter’s for their pulled pork sandwiches, which are good, and their burgers are mediocre. I’ve hit up Kildare’s pub and Ryan’s, and those are really good. But what’s the best place to get a burger in this town?”

He glanced askance as though he were dropping me an insider trading tip, and pointed his finger at me with the kind of certainty only an experienced connoisseur could have, and he said:

“Dude. You have got to try the Johnny Cash burger. It comes with Folsom Prison sauce, and it’s . . . the best. You can get one down the street at this cafe. One day, this week, when we have time, I will show you the place, and you can try it.”

The cadence of his voice just commanded confidence in his opinion that this was the best burger in town.

“All right man. I’ve heard of that burger before. Someone else mentioned it to me a while back, but I’ve yet to try it. Let’s hit it up”.

So today, the Hungarian gathered factioned assembly of lunchtime connoisseurs, comprised mostly of fellow immigrants (that’s another blog post about American male bonding barriers altogether), and we headed down High Street to the High Street Cafe.

322, High Street, to be precise.

Yep, the Johnny Cash burger led me right back to the number 322. I was not led to the Johnny Cash burger by 322. After all, I’m sure I would have heard of this colonic concoction sooner or later. I still have heartburn from it.

And the story continues.

This is a short story I wrote, based on a lucid dream I had almost two years ago.

Today Mom and Dad and I cleaned out the garage. Well, it’s not so much a garage as it is an atrium between the garage and the house, but this is where we stored all the shit from the attic for whatever reason. Mom has her ways. Facing north, or towards the back end of the house, there were bricks to the left and right with some greenish-colored window panes overhead. The house is on the left hand side and the garage on the right. The place looks like an antique shop, with clothes towards the back and a workbench that ran the length of the garage on the east side of the atrium.

Stacks of cowboy hats. I don’t know why mom collected them, but she had a thing for cowboy hats. Stacks and stacks of straw cowboy hats. Un freaking believable. She would buy them in stacks of twelve and just keep them to give away, though she never did. I sorted through the cowboy hats, most of them crushed, and found one big enough to fit my head. Mom never let her kids sleep on their backs for fear that it would make the back of our heads flat, like Dad’s was. In so doing she banished her sons to a lifetime of never finding a hat big enough to fit. If we did find hats we liked, they always had to have to be connected on the last two plastic connectors in the back, which made the backs of our heads look like they were smashed by a frying pan. Go figure.

This cowboy hat was nice. Most of the straw ones were stiff and felt like a tinpot on your head. They echoed. This was that nice crushable raffia straw or whatever it was called. You could run a steam roller over them and they’d retain their shape.

I was supposed to be cleaning, but I was doing more rummaging than tidying up because the place reminded me of a store. It was already quite tidy, save for a bit of dirt on the floor, along with the cracks in the concrete pad. I can’t remember if there was grass growing out of one of the cracks. Seems like it could have, due to the windows and all.

I had a dream the other night. It was the kind of dream where, in your dream, you go to sleep and dream. A two-stage dream. Maybe it’s just your subconscious recalling old dreams. Either way, sometimes you remember dreams only when you are dreaming.

In the dream I was reminded of the relic. It was a granite plaque, shaped like a boomerang with cutouts for inserting something metallic. One was in the shape of a flying wing whereas the other was in the shape of a flying bird. In my dream I dreamt that I had seen one for 55 dollars on ebay.

While I was dreaming in my dream, I recalled the Mason’s hall. It might not’ve been an actual Freemason’s Hall, but it sure looked like it. It was at the end of a cul-de-sac in the old part of town that looked very european, with cobblestone sidewalks. I was driving an antique motorcycle with a trailer behind it instead of a sidecar and somehow pulled in ahead of a small black taxi cab. Like in London. Yes, this was London.

At the end of the cul-de-sac there were several people. No, make that seven. Three were laying on the wet cobblestone like a trinity of Vesuvius men while four men stood above them, cloaked in black with large hats.

As I pulled into the end of the cul-de-sac in my motorcycle, I sensed it. The Masons had appeared to me in a dream prior and had told me to come here. This is why I am here. To take the three Vesuvians somewhere. Before I had come to a complete stop, the three Vesuvians shot up from their positions on the pavement as though they did not want me to see what was going on. Shit, I’m early. It’s okay, though, because I already know what they are doing. They are laying their heads along the Ley lines. The energy lines that run through London.

The Vesuvians hop into the little trailer and the four men take off in their taxis. I could sense their power. These were the movers and shakers of London. They who ran the City. Templars. Masons. Whoever they were, these were powerful men. One looked at me and I knew that if I didn’t do as told, I too would be sacrificed like the Vesuvians. I had to drop them off somewhere, but I don’t know where yet.

The old motorcycle struggles under the load of three young men. Shit. These were kids. Seventeen maybe. Baby-faced and terrified of what was to transpire. They could have easily outpowered me and escaped, but they sat in the little carriage behind my motorcycle as if in a trance. As if they had seen something worse than Death. They did not speak.

As I drove the motorcycle began to lose power until it eventually stopped. I coasted the motorcycle along with my entranced cargo into a gravelled parking lot. Deja Vu. I was instantly sent into another dream state. I had done this before, but can’t remember when.

I thought that the old bitch was out of gasoline and I opened the tank. For some reason the top of the gas tank was flat, like an upside-down tin bucket or canned ham, with a soldered lip around the edge. The gas cap had been dented downwards and as I opened the cap I realized that it was underneath almost an inch of water, which had now drained into the tank. Sonofabitch.

One kick of the start pedal and the bike sputtered for about five seconds before dying completely. After fiddling around with the gas line a bit I snapped out of my concentration to realize something: The Vesuvians were gone.

Then I woke up.