Rescued from Oblivion

Like its owner, the car's undercarriage is not very attractive.

The 1997 Dodge Grand Caravan, like its owner, is on a slow glidepath to oblivion. Something, usually minor and not worth fixing, goes wrong each year. Until recently we've adapted to the inconveniences, such as having to open the doors with a key because we've lost both remote controls.

In the latest series of problems the airbag light has remained on since October; the mechanic said he couldn't solve it without removing the airbag, a fix that would cost more than the aged van is worth. Next the cruise control stopped working, then the horn. The last straw was the emergency brake light, which remained on after the brake had been released.

Last Monday we began to test-drive new minivans and SUVs, the cheapest of which would cost $40,000. We decided on a SUV, and after performing several calculations, decided that a three-year lease would provide for the most flexibility in case our driving needs changed. But first we needed to make sure that the minivan trade-in had no safety issues.

Our mechanic performed his diagnosis and replaced the van's brake pads, calipers, and water pump at a cost of $800. He also gave us some very good news: the airbag, cruise control, and horn problems were all probably solvable by replacing a faulty clockspring, which Chrysler had recalled and would repair free of charge.

Yesterday the Dodge dealer replaced the clockspring, and the van is working better than it has for the past five years. I felt so pleased that I paid $200 for two re-programmed remote controls. That's how one behaves when one rescues an old car from oblivion and doesn't have to spend $40,000 on a new SUV.

The Price of Dreams

There was no waiting to buy a ticket this morning at the local Lucky supermarket. The estimated $640 million Mega Millions jackpot has drawn hordes of punters, including those who seldom indulge in games of chance.

For just one dollar we can dream for a day or two. (We fantasize about profitting on our real-world investments, too, but because they entail risk they're also a source of worry.)

BTW, there's a part of me that doesn't want to win, and the feeling has nothing to do with fear of worldly success. If I hit the winner against 1 to 176,000,000 odds, that will be a strong indication that my life is being manipulated like a lab experiment, and that this vale of tears is nothing but a computer simulation.

It's fun to dream but often not as fun when dreams come true. © 2012 Stephen Yuen

Addition by Subtraction

Economist Tyler Cowen makes an excellent observation (concerning the e-Book market), which I would make more excellent and more generalized by striking one word.

My view is simple, namely that in the face of massive disruptive innovation, antitrust law rarely does a good job.  The law should stay out of this.

Frankly, I'd Rather Have the McNuggets

The most open-minded Westerner might draw the line at eating this Chinese dish.

No, just because its preparation involves recycling doesn't help.

Related item: in China eating chicken cooked more than 30 minutes ago is not okay.

Only So Long

Now that no one has won the $363 million jackpot, the Mega Millions payoff is expected to escalate to $500 million on Friday. We will probably buy a few tickets this time ($363 million wasn't enough, but $500 mil? Now you're talking!)

The left-brain folks are fond of reciting odds that prove that lotteries are a fool's game, statistics such as it's more likely that one will die in a lightning strike or driving to buy the ticket than one will win the lottery. What the ratiocinators don't take into account is that the lotto vendors are also selling hope. People will pay a lot for even a smidgeon; just ask any cancer patient.

But back to the Mega Millions jackpot. Around the dinner table the dreamers talked about what they would do if they won. We gently diverted them to the issues a winner should consider. The first decision was: lump sum or annuity? We talked about the concept of present value, how $500 million payable over 26 years might translate to a single payment of $300 million today, depending on the interest rate.

We talked about how current and future tax rates, both Federal and State, might enter into the calculation. We talked about the difference between equity investments, bank accounts and CD's, and Treasury obligations. We discussed estate taxes and the various tax and legal reasons that rich people set up trusts.

We all agreed that it's much better to have a lot of money, but rich people don't have a worry-free life. They can hire expensive advisors to manage their finances, but how can they be sure they are trustworthy? Every month there's a story that about how a bookkeeper, lawyer, investment advisor, and/or trusted friend or family member stole $millions. And even if the advisors are honest and competent, they can still go very wrong. Just ask any holder of triple-A collateralized debt obligations.

Then the dreamers thought about the new houses, cars, and other neat stuff they could buy, and how they wouldn't have to work at jobs that they didn't like. The human mind can dwell on the negative only so long. © 2012 Stephen Yuen

[Update: this analysis concludes that the expected value of a $1 ticket purchase peaks at 69 cents when the jackpot is $420 million. At higher amounts the probability of sharing the pot increases faster than the growth in the pot itself.]

Brightening Their Day

Boxes of fresh vegetables await distribution

For our congregation it has become an anticipated Easter ritual. There were 12 names on the sign-up sheet ("many hands make light work") for the 16 food items--no more, no less--that went into each box. After double-checking the list we took the boxes to CALL Primrose, which has been aiding people in need on the Peninsula since 1983.

Each box had contents that were modest--canned items, bake mixes, grocery gift cards--and won't make much of a difference in the recipients' lives. But it should brighten their day. © 2012 Stephen Yuen

Apple: Good for Your Health, in Moderation

Apple has nearly tripled in two years.

The Merc recites happy tales of small investors who have profited by many thousands of dollars on Apple stock. The happiest? Perhaps it's Anton Marinovich:

When Anton Marinovich turned 18, his grandmother gave him $1,000 with strict instructions to invest in the stock market. He chose Apple. Seventeen years later, his investment is worth more than $240,000 and will bring him over $1,000 a quarter through the company's new dividend plan.

Many of these shareholders, as did your humble observer, acquired their stock not because of their financial acumen but as a show of support for the company's products. For those who suffered through the pre-iPod period when Apple was in a death spiral toward dissolution, its current status as the largest public company is nothing short of a miracle.

The escalating value of the shares has resulted in a good problem to have [bold added]:

But the problem, pros say, is that clients' growing positions in Apple means less-diversified portfolios. One of the enduring lessons from the bursting of both the tech and housing bubbles last decade is the danger of not spreading your bets. For that reason, Kenny Landgraf, head of Kenjol Capital Management, recommends clients trim positions in Apple to no more than 10% of their portfolios. When everyone is "drinking the Kool-Aid" and watching their portfolios rise, Mr. Landgraf says, "it's hard for clients to decide how much is too much."

Reducing one's holding is sound advice. During the Internet bubble I fell in love with some of my winners and held on to them until they became losers.

We will try to avoid repeating that mistake: we will harvest some Apple gains and partially assuage our guilt by buying the new iPhone and iTV when they are announced later this year. Here's to you, Steve.

The Most Powerful Man in the World

If knowledge is power, he is the most powerful man in the world. 34-year-old multimillionaire mathematician Gilad Elbaz is

trying to identify every fact in the world, and to hold them all in a company he calls Factual. [snip]

Factual’s plan, outlined in a big orange room with a few tables and walled with whiteboards, is to build the world’s chief reference point for thousands of interconnected supercomputing clouds. The digital world is expected to hold a collective 2.7 zettabytes of data by year-end, an amount roughly equivalent to 700 billion DVDs. Factual, which now has 50 employees, could prove immensely valuable as this world grows and these databases begin to interact.

(Note: one zettabyte is equal to one billion terabytes.)

In the old days (i.e., when I was a kid) one sign of intelligence was the ability to do math problems in one's head. Calculators eliminated that advantage. Another sign of intelligence was the ability to remember facts, a talent that, in the age of the Google, is about as useful as a buggy whip or butter churn.

Higher-order intelligence includes the ability to recognize situations, retrieve applicable facts, and act to produce a desired result. We laud geniuses for their inspiration in employing facts and ideas that were apparently unrelated to solving the problem at hand (or even problems that we didn't know we had).

If Mr. Elbaz even partially succeeds, his mountain of facts and ability to make connections among them could make him the most powerful man in the world. I hope that he, even more than the company that he once worked for, takes to heart that organization's motto: "Don't be evil."

The Crowdfunding Phenomenon

The Internet revolution has given rise to yet another new financial term: crowdfunding, "the practice of securing small amounts of money from multiple contributors online."

It's one thing if the risk were limited to blowing $50 on a possible scam, but a bill before Congress was about to allow crowdfunding investments under $10,000 to have little oversight.

IMHO, I was okay with that seemingly high cutoff level. We should allow rapidly changing marketplaces to sort themselves out without "protection" from the government. By the time Americans turn 18, they have had the experience of being approached for money by questionable characters. To turn over $10,000 to an unfamiliar website is like sending it to a Nigerian with a frozen bank account. That's why most of us use the Internet and other information sources to check out charities, stocks, and products before making a significant outlay.

I suppose there's not much downside, though, to amending the bill to protect some Americans from foolishness that could hurt (but not destroy) their finances. I just hope that the cost of the eventual government regulations and bureaucracy doesn't turn out to vastly exceed the benefit.

FYI, here's an excellent description of the various categories of crowdfunding: (1) the donation model, (2) the reward model, (3) the pre-purchase model, and (4) the equity model.

The Pay is Good

Children of clients and volunteers play together.

The San Mateo church has sleeping facilities but not enough volunteers. The Foster City, Belmont, and Burlingame churches have volunteers but no beds or showers. The four churches -- Lutheran, Catholic, Congregational, and Episcopal -- came together this week to help four displaced families get back on their feet.

Families under duress have been coming to Home and Hope churches and synagogues for over a decade. They receive warm meals, a place to sleep, and a day-care/office facility at which to spend the day if they're not attending school or going to work.

Tessa, Helena, and Kay

The waiting list is long, and the resources are stretched; people do what they can.

For the past five years I had been bringing ice cream, which didn't entail any effort (or risk to the diners). Last night we were short of cooks, so I threw a couple of trays of chicken into the oven. There were no ill effects, and they asked for the leftovers to fill a gap over the weekend.

I suspect my future responsibilities will be increased, but that's all right because the pay is good.

Not So Dumb After All

Bay Area residents whose politics are right-of-center (the center being quite to the left of the rest of the country) have learned to stay in the closet. They smile when jokes are made about conservative politicians, Mormons, and Southern Baptists. Their car bumpers are a politics-free zone for the sake of vehicular preservation. They refrain from questioning the dogma of anthropogenic global warming climate change, and quietly endure the chortling over scientific studies that "prove" that liberals are more intelligent that conservatives.

It was therefore startling to read yesterday's column by Nicholas Kristof of the NY Times:

Conservatives may not like liberals, but they seem to understand them. In contrast, many liberals find conservative voters not just wrong but also bewildering. [snip]

Moderates and conservatives were adept at guessing how liberals would answer questions. Liberals, especially those who described themselves as “very liberal,” were least able to put themselves in the minds of their adversaries and guess how conservatives would answer.

Now a fascinating new book comes along that, to a liberal like myself, helps demystify the right — and illuminates the kind of messaging that might connect with voters of all stripes. “The Righteous Mind,” by Jonathan Haidt, a University of Virginia psychology professor, argues that, for liberals, morality is largely a matter of three values: caring for the weak, fairness and liberty. Conservatives share those concerns (although they think of fairness and liberty differently) and add three others: loyalty, respect for authority and sanctity.

Nicholas Kristof analogizes the ability to grasp other world views to an ability to speak other languages [bold added]:

Another way of putting it is this: Americans speak about values in six languages, from care to sanctity. Conservatives speak all six, but liberals are fluent in only three. And some (me included) mostly use just one, care for victims.

One sign of empathy is the ability to put oneself in another's shoes. It would be asking too much for Mr. Kristof to take the final step and admit that conservatives as a group evidence an admirable personal quality in a greater quantity than liberals (like charitable giving) but at least he makes a start.

[Update - related: there's now evidence that real bilingualism increases intelligence.

The bilingual experience improves the brain’s so-called executive function — a command system that directs the attention processes that we use for planning, solving problems and performing various other mentally demanding tasks.]

I'll Have What He's Smoking

It's a paradox of investing that the enthusiasm to buy stocks, real estate, artwork, gold, etc. increases as the asset price rises. The passions are most intense right before a crash.

Lately I've become worried about the action in Apple shares (yesterday's price was $605.96) when Morgan Stanley predicted a $720 price by March, 2013 and $960(!) by December, 2013.

Morgan Stanley analyst Katy Huberty placed an end-2013 target of $960 on Apple, which would leave the stock up a whopping 69% since Tuesday’s close and more than triple its 52-week low of $310.50 set last June.

Not to be outdone, Forbes columnist Eric Jackson projects a $1,650 (!!!) price in less than four years. He builds his case around growth in four current products--iPad, iPhone, Mac, and iTunes--plus two new businesses--iTV and iPay (mobile payments).

I have trouble getting my mind around his number. Apple's market capitalization would be over $1.5 trillion, nearly three times today's value. The share price would increase by 29% per year for the next four years...and that return doesn't even take into account the $2.65/quarter/share dividend that Tim Cook just announced (finance humor, people).

The smoke is getting heavy in here. I'm going to have to leave the room.
© 2012 Stephen Yuen

Publication of this 2000 book signalled a market top. The Dow is currently 13,150.

No Class

Joe Lacob and Chris Mullin (Mercury News photo)

If a class-less society is what we should be striving toward, then nirvana was achieved last night at the Oracle Arena.

The Golden State Warriors honored Chris Mullin by retiring his #17 jersey, but the ceremony was marred by the frequent booing of Warriors owner Joe Lacob. The ostensible reason for the fans' displeasure was a trade in which the Warriors sent away their best player, popular seven-year guard Monta Ellis. Despite pleas by Chris Mullin and Hall-of-Fame great Rick Barry, the boos for Joe Lacob escalated throughout the ceremony.

Those fans who insisted on spoiling the Mullin family's day--yes, that wasn't the fans' main intent and yes, they have laid out a lot of ticket money for decades--were thinking only of themselves and their right to speak.

Class in the "classiness" sense arises not from wealth or social status but from a spirit that chooses not to exercise the rights, privileges, and wealth at one's command, when to do so would injure others or merely glorify oneself. On Monday night in Oakland there was a notable lack of class.

Stars in Their Eyes

It's a staple of romantic tragedy. Boy and girl plan a life filled with happiness. Boy is entranced by a famous beauty. Boy leaves girl for a fantasy future and is (inevitably) rejected. Sadder and wiser, he returns to girl, but she is gone. He had a good life in his grasp, he reached for a more exciting one, and now he has neither.

A fumble away from last season's Super Bowl, the San Francisco 49ers upgraded their squad and were a serious championship contender. All they had to do was re-sign Alex Smith, a steady if unspectacular quarterback. After professing their undying love for Alex, they abandoned him to pursue Hall-of-Fame-quarterback-lock Peyton Manning, who apparently has now chosen to sign with Denver.

ESPN photoshop of Peyton Manning in a Bronco jersey.

Protecting his own interests, Alex Smith flew to Miami and is "discussing contract terms with the Miami Dolphins." After laying the groundwork for a championship run, the 49ers won't have a great quarterback and maybe not even a good one behind center on opening day. They may have as signal caller a second-year man who has played only a few minutes in his entire NFL career.

As you're walking around with stars in your eyes, just make sure you don't fall into a ditch.
© 2012 Stephen Yuen
[Update: Miami signed quarterback David Garrard tonight. Looks like San Francisco and Alex Smith have no choice but to spend next year together. They can take comfort in the knowledge that successful marriages don't need true love, just a strong common interest.]

No Accounting for Taste

My business associates sniff at my plebeian tastes. They decant their wine while I push a button on a box. Their German cars sneer at my Buick 4-door and Dodge minivan. But I have endured enough of their taunts. Leave my Olive Garden alone.

A balanced, nutritious meal for $12.95? In your dreams, French Laundry!

For providing good food at reasonable prices--in the best tradition of capitalism I might add--the Olive Garden is mocked by both the bi-coastal elites and purveyors of taste in popular culture.

The Big Bang Theory: "What am I running here, a fancy restaurant? Does this look like Olive Garden?!"

Jay Leno: "The stock market plunged over 389 points because of financial news in Italy. They’re calling this the worst Italian disaster since Olive Garden introduced that fettuccini alfredo."

The insults can come from unexpected places. In a sports column lamenting the caliber of basketball displayed in the NCAA tournament:

If you love professional basketball the way that I do, suffering through March Madness is like being a restaurant critic who gets asked to review…the Olive Garden.

When they can't out-cheese your alfredo, they resort to insults.